Questionnaire

Dr. Karjalainen’s Business Domains

President, COO, HEALTHXCEL Canada Corporation, CANADA (HX)

Homeopathic, Nutraceutical and Generics Products manufacturing and sales.

President, Owner, PHARMA CONSULTING SERVICES, CANADA (PCS)                                                               

Provide consulting services to biotechnology and pharmaceutical companies for medical affairs, clinical research, regulatory, CMC and business development.

Managing Director, Scientific and Regulatory Affairs, INvictus Global Capital, BVI, Zurich, New York, Toronto:

With offices in four countries Invictus is globally positioned to assist well-run Emerging Growth Companies with sales in between $US 10 -100 million from around the world to access the US Capital Markets through Ignite Growth™ Stepped Capitalization and IPO Program.

We help you navigate the capital markets so you may not need to pay expensive underwriters or venture capital premiums. Leverage our unique low overhead and tax efficient corporate structure to deliver maximum value at minimum cost. Just like our clients we are lean agile & responsive.

Which Business Opportunity relates to your specialty and what direction interests you which a participant in this delegation

1.  Acquire a manufacturing site for HX

2. Find joint venture partners for HX

3. Seek for a distribution partner for HX

4. Seek investors for Healthxcel Canada Corporation

5.  Find consulting opportunities in early stage Chinese companies on their Business and Drug Development Plans

6. Identify Investors for Invictus

 What Business opportunity are you seeking in Israel

1.Find joint venture partners for HX

2.Seek investors for HX

3. Seek for a distribution partner for HX

 

Will you be also interested to meet the following types of Chinese Investors

1.Investors/patented technology

2.Investors already started production

Synopsis of Business

Title Page

 

Name of Company	Healthxcel Canada Corporation
Principals	Jukka Karjalainen, MD, PhD President and COO Christopher Neuman B.Sc.,  B.Comm., MBA Chief Executive Officer
Company Address	1612-35 Mariner Terrace
City and State	Toronto, Ontario
Zip Code	MV53V9, Canada
Telephone	416-358-4495
Email	Jukka.karjalainen@rogers.com

Abstract

The business plan being proposed involves uses the proceeds of a fund raising effort yielding US$ 20 million to acquire a Natural Health Product company located in Arizona, with an extensive line of products each having a quick pathway to enter new countries around the world, and a Generic  Drug/ Natural Health product company located in Buenos Aires, Argentina.

New market growth will be organized through Healthxcel to quickly develop new customers and new geographic points of entry for the products of both companies.

The plan includes the ability to pay off all loans within 10 years leaving a significant amount in retained earnings to fund further acquisitions. Equity investment is possible as well, or a combination of both. The ROI to any investor is quite substantial.

 

Introduction

Registered in Toronto, Canada, Healthxcel Canada Corporation will function as a pharmaceutical holding company bringing together various life science companies, on the international horizon, in order to facilitate the sharing of product formulations, new product development (i.e. large value generic products, natural health products & OTC pharmaceuticals to avoid costly R&D requirements and costly registration processes for new chemical entity drugs), R&D investments, business experience, resources and industry contacts across a variety of product classes including but not limited to: generic Rx drugs (Branded and unbranded), OTC drugs, Natural Health Products and possibly medical devices. As a holding company Healthxcel’s operating profits come from the acquired pharmaceutical companies.

Healthxcel will focus its business activities on companies who are marginally profitable where the management expertise within Healthxcel can come to bear to enhance management systems, marketing effectiveness, product catalogues and with the exchange of product formulations thereby enhancing the company’s ability to compete effectively in the chosen marketplaces with product catalogues reflective of the needs of the local population.

Healthxcel intends to provide affordable, high quality pharmaceutical and natural health products to the health care markets  first in South and North America and ultimately internationally  while extending the boundaries of the current business model of the companies it acquires to more consumers around the world via cross pollination of products, management talent and cost savings. Healthxcel negotiates and carries costs of new product development based on thorough feasibility analysis for all the operating companies while each operating company will be responsible for expenses related to local registration of the products. Historically these expenses have already been included in the balance sheets of each company.

Particularly Healthcare forecasters demonstrate that the “Patent Cliff” as it applies to prescription products is especially steep for the coming 10 years. Many block buster drugs have and will be losing their patent protection in the next few years.  As such, new opportunities are being presented to companies who are well positioned to take advantage of the many new products which we will be available to generic companies who can manufacture and sell these formulations. Our acquisition target companies, with the right infusion of managerial talent and development money can be set up to ride this wave to prosperity.

The global pharmaceutical industry is projected to grow at a CAGR of between 5%-8% between 2010-2014, with growth being driven by both generic drugs and the newer biological prescription products. At the same time there is an increasing incidence of diseases worldwide, especially in developing markets and due to the increase in treatment rates associated with greater longevity on the part of our senior citizens and improved diagnostic techniques.

It is forecasted that the sales of generic drug products will lead the industry growth with CAGR approaching 16%-17% for at least the next 10 years largely due to the patent cliff that exists for many of today’s very heavily used/prescribed prescription drugs.

Healthxcel is entering the generics market, which will grow fast over the next few years from around $120 Billion in 2010 to over $230 Billion in 2017 (see link).  http://www.pharmtech.com/pharmtech/article/articleDetail.jsp?id=756488&sk=76f7064f7b79ec313abe48ad8e61c9f5.

What is supposed to happen now is that lots of “generic” (i.e., chemically identical) versions of Lipitor will be coming to market at perhaps one-fifth of its price. Patients and health-care payers should reap the benefit. Pfizer’s revenues should suffer. The same story will be repeated many times, as other Multi Billion Dollar selling drugs march over the patent cliff (see chart).

This is a great opportunity since even with a small market share, let’s say 2-3% the incoming revenues will be Hundreds of Millions Dollars for Healthxcel.

In Phase 1 Healthxcel is acquiring two profitable Generics and Natural Health Product companies, and in Phase 2 Healthxcel will create a global presence in these markets by acquisition and streamlining the businesses of several such companies in world market. The Corporation is planning to launch through the South American venture new generic products that are modern and up to date versions of many of the world’s leading drugs whose patents have recently expired or are about to expire (including large volume block-buster drugs). We fully expect a rapid increase in both top line sales and bottom line profits after 2013 and continuing till the end of the presented financial projections in 2021.

Through the implementation of its phase 2 plan, Healthxcel will expand its business to other geographic markets by the acquisition of marginally profitable generic prescription pharmaceutical products and natural health product companies within 2 years, each with some combination of manufacturing operations, sales and marketing organizations and distributors, and entering into partnerships with other companies for distribution of Healthxcel’s broad and growing lines of products. The target areas for this phase include Europe, Middle East, and India.

The Need

Significant Opportunity in Global Generics Market

The demand for affordable healthcare is a global phenomenon, with nations and regions struggling to identify ways of reducing overall healthcare delivery costs. The gestation period and large investments needed for new drug development, further increases the risks and therefore the cost of products, as companies look at a sustainable return on their investment.

Over the past few years many companies have started to concentrate on the generic drug market opportunities as there are a large number of branded product coming off of patent coupled with the population growth in the number of 65+ year olds, who consume multiple prescriptions to treat their numerous medical conditions.

The global pharmaceutical industry is projected to grow at a CAGR of between 5%-8% between 2010-2014, with growth being driven by both generic drugs and the newer biological prescription products. At the same time there is an increasing incidence of diseases worldwide, especially in developing markets and due to the increase in treatment rates associated with greater longevity on the part of our senior citizens and improved diagnostic techniques.

It is forecasted that the sales of generic drug products will lead the industry growth with CAGR approaching 16%-17% for at least the next 10 years largely due to the patent cliff that exists for many of today’s very heavily used/prescribed prescription drugs.

According to research conducted by BBC research, generic drugs in conjunction with pain management products and advanced drug-delivery systems, are projected to be the fastest growing segment over the next 4-6 years.

(http://www.healthcare-packaging.com/archives/2009/11/firm_forecasts_global_pharmace.php).

The pharmaceutical market  in South America and in most developed or semi developed area  is quite strong.

Pharmaceutical Market Growth has exceeded 40% from 2006 to 2009. Argentina is one of the capitals as it relates to pharmaceutical development, production and marketing. It is therefore quite sustainable that the company we are looking at can expand its current scope of operation and supply more of the pharmaceutical needs for all of South America and beyond. If we also consider that any new products developed and registered by the Argentinean Company would be available for marketing throughout South America easily to increase sales and profit and for export to the other key commercial markets currently served by the company and those markets that are open to receipt of products manufactured in Argentina (i.e. China).

Argentina is the third largest producer of pharmaceuticals in all the America’s for the production of prescription medications medicines and it is the fifth in the world in consumption of medicines per head.

The Southern Cone Common Market (MERCOSUR) and the Comunidad Andina de Naciones (CAN) have joined in a trade agreement, bringing ten countries and 350 million people into a common market. MERCOSUR is a tariff union composed of Argentina, Brazil, Paraguay, and Uruguay, with Bolivia, Chile, and Peru as associate members. CAN brings together Peru, Bolivia, Colombia, Venezuela, and Ecuador. The move signals increased economic integration in the South American region and an accelerating effort to strengthen the region’s ability to negotiate with the US and European Union (EU). This will create a free-trade zone encompassing more than 5% of the world’s population. As many Latin American countries attempt to extend healthcare to larger portions of the population, public spending on pharmaceutical products by these governments can be expected to grow; there remains significant unfulfilled demand that represents an attractive opportunity for pharmaceutical companies. In fact, despite the cost-containment efforts by the governments of a number of Latin American countries, the simultaneous efforts to expand access to medicine mean that these sorts of opportunities will not be going away any time soon.

The BRIC economies (Brazil, Russia, India, China), along with the Eastern European countries are poised to become the fastest growing centers of generic activity. According to the BBC research report, the global market for generic drugs is worth $72B – $84 billion (2009), with an assumption that the market could reach $129.3 billion by 2014 – a 9% Compound Annual Growth Rate (CAGR). With global pharmaceutical sales expected to be at around $750 billion for 2009 – 2010, the global generic market currently stands at around 10% of total sales.

With the growing demand of generics, this number is expected to double over the next five to seven years, thereby creating a huge opportunity to manufacturers who are efficient, cost effective and strong on quality and distribution.

In 2005, with the pharmaceutical Industry in Argentina the top 50 firms sold over 400 million units, generating revenues for nearly US$1.90 Billion.

The Natural Health Product Opportunity

Healthy nutrition is the most fundamental and an essential need for human survival. The vitamin, herbal, diet, nutrition and energy supplements market has shown phenomenal growth rates around the world over the last decade, and is expected to grow as people shift their preferences from traditional nutritional diets to convenient, easy to use dietary supplement options.  According to the Nutrition Business Journal (2008), the U.S. nutrition industry grew 10.7% in 2007 (a full 1% increase since 2006).The supplements market posted 5.9% growth in 2007. Healthxcel Corporation plans to respond to this market growth as a part of its long-term strategy by establishing a vibrant and vital base and presence. Healthxcel will continue its growth by setting up a manufacturing and distribution facility in South America and then the Middle East and/or India of vitamins, supplements and energy products. As this stage will already have a built-in brand value and have established marketing and distribution channels (online, retailers, and drug and specialty stores) that will further help create recognition and acceptance in South America and the Middle East/India via the Healthxcel platform.

Growth Potential

Healthxcel intends on becoming a very large and profitable firm in the world pharmaceutical and nutraceutical industries through strategic acquisitions of several key life science manufacturing and distribution companies globally. The growth in these sectors has been in the 10-15% range annually in the last few years largely due to many major products loosing patent protection coupled with the increase in size of the older patient pool. The recent growth of Company 2 has been even better, over 20%, and for the Company 1 the growth between 2011-2012 was .over 11%.

On a consolidated basis, Healthxcel’s EBITDA will be positive already in first year for $US 277,000, arising to over $US 7,000,000 in 2014. Healthxcel cash flow with the $US 20,000,000 financing will stay positive throughout the 10 year period. Cumulative net profit after tax (assuming Canadian corporate tax rate, not off-shore) in 2018 will be over $US 150,000,000 and in 2021 close to $US 0.65 Billion.  Profits of the Phase 2 of the plan have not been included in the current financial projections. By implementing this plan Healthxcel annual earnings and cash flow will be significantly higher (3-4 times) than in the present plan from year 2015 onwards.

The Solution

In Phase 1 Healthxcel is acquiring a profitable Generics and Natural Health Product companies, and in Phase 2 Healthxcel will create a global presence in these markets by acquisition and streamlining the businesses of several such companies in world market.

The current business plan outlines how an initial $US 20 million investment will be used to buy:

• 100% of the shares of the Company located in Phoenix, Arizona.
• 100% of the shares of the Company located in Buenos Aires, Argentina.
• Cover the cost of initial new product acquisition and development processes for all companies given the opportunities available to Healthxcel Inc. and to expand sales to Mercosur countries in South-America as the first wave (12 countries).

The owners of the companies are retiring and selling the shares/assets. Each of these companies will have its operations enhanced through the judicious management involvement of the Healthxcel senior team which will contribute its skills in improving domestic market penetration and stimulate overall market expansion of the company; create effective human resource utilization strategies designed to improve productivity and reduce costs, and to exploit export activities across all products lines to available markets.

As shown in the figure below, the company proposes to enter the Life Science products and services (Generic Pharmaceutical and Natural Health Products) market via the acquisition route.

Business Model

 

 

Phase 1 Acquisition targets

Company 1:

Company International was established in 2009, and has been profitable in each year of its existence with profitability increasing in both 2010 and 2011. The Company owner had had similar businesses for the last 25 years, which have been profitable. The financial performance of the company has grown only 11% during 2012 due to loss of focus due to the serious illness of the founder necessitating the decision to sell the company to an outside group.

The owners admit they have run out of energy to continue to push the growth of the business. With Healthxcel’s experienced management team the revenues can be increased with the design and launch of new products and an expansion and focus of marketing activities thereby  enhancing the overall category market share obtained by Company and its top and bottom line performance.

The 2011 revenues were over $US 3.45 million, with an estimated adjusted EBITDA of around $US 1.2 million (net of 50% of owner’s withdrawal).  In 2012 the anticipated financial results will show around a 3.8 million top line with an adjusted EBITDA of around US$500,000 (net of 50% owner’s withdrawal).

The product line contains 50-70 SKU’s of homeopathic formulations (products). The company  has a customer list of around 1500 which can easily be expanded with some modest marketing efforts. In North America, the Natural Health Product’s have shown continued growth in the 10-20% area as more and more people are turning to these products as an alternative to expensive prescription drugs.

Healthxcel feels the Company can be returned to significant profitability quickly.

The Company has a very modern building (rented) and equipment.

Healthxcel Canada plans to purchase 100% of the assets of The Company for $US 2.6 million, payable $US 1.3 million at signing and the balance 12 months later. All debt within the company will be paid off by the current owners before our planned transaction closes.

Company 2:

Company started operations originally in 1902 with shareholders from France. In 1962, that Company merged with another pharma company also of French origin which was founded in Argentina in 1945. In 1999, the Company was then acquired by Argentinean shareholders.

The main activity of this Company is the marketing and sales of branded generics, with all of their products being manufactured by local third-party companies. The Company has the required permits and licenses for the sale of medicines, and they perform all the required QA-QC testing and record keeping meeting all accepted the GMP standards. The Company maintains a warehouse, offices and labs in the city of Buenos Aires.

The Company has a sales organization servicing the whole country. Most of its sales are channelled through wholesalers (regular marketing system in Argentina), and to a lesser part directly to pharmacies.

In 2007, Company (consolidated statements) had net sales revenue of approximately $US 2.2 million. In 2008 the Company had reached sales of approximately $US 2.5 million, and in 2009 $US 2.7 million with the growth rate of the total overall industry. The net sales in 2010 were $US 5.2 million (almost double the 2009 sales). This was mostly due to getting new approvals and reimbursement status for their new launched products. In 2010 its sales were US$ 6.5 million with a similar EBIT rate of about 18%. Company had 2011 sales revenues of  US$8 million and an EBIT of 18%.

Healthxcel strategy is to significantly enhance the annual growth by bringing new products to the market.

Healthxcel Corporation plans to purchase 100% of the shares of Company for $US 13 million, payable $US 6.5 million at signing and the balance in equal payments over a 2-year period, with a 2.5% interest rate being paid on the declining balance.

The Atrium product line would be most suited to be introduced and marketed in South America by Company 2.

Phase 2 Plan: Future Acquisitions and Business Expansion

Once in Phase I the integration of each facility is completed and new business processes are tactically implemented, the management group will look to expand the commercial operations of the business to include export of its products to new geographical areas where our partners have significant business interest; the Middle East where either a key pharmaceutical manufacturing company or a drug distribution will be established. The Middle East also has significant growth potential, especially in the area of pharmaceutical consumption and will be the ‘icing on the cake’.

This new addition to the corporate structure will provide a means to distribute the products manufactured in either location acquired to an audience whose purchasing power is steadily increasing. The increase in volume throughput going through the Middle East distributor will enhance overall profitability of this operation while also providing volume throughput for the manufacturing units. Healthxcel will continue to expand by adding new already marginally profitable acquisitions, i.e. a pharmaceutical manufacturing or distribution company located in high growth areas – Mexico, the Middle East, India and other geographical areas yet to be defined once the integration of the Argentina and Wisconsin companies are completed and new business processes are tactically implemented.

The target operations will compliment the current and projected product profile of all the targeted acquisitions. It will also assist in streamlining the operations efficiently and perfectly. Healthxcel has major business contacts and resources in both the Middle East as well as India, which have access, understanding and knowledge of the local generics manufacturing and distribution businesses and practices throughout this key area and beyond.

The South American pharmaceutical marketplace as well as other world marketplaces is dominated by the large multinational pharma companies, who are currently undergoing consolidation. There is significant market opportunity for smaller, nimbler locally managed companies with access to resources from Sophisticated North American companies.

Healthxcel will develop strategy for acquisitions of multiple marginally profitable companies worldwide, streamline their business and increase profitability significantly through the creation of operation efficiencies and through the launch of high potential multi-billion dollar branded generic products. The target companies will be selected based on thorough assessment and due-diligence of their business and operations, and plans developed to increase the profitability in short and long term. The companies will be selected based on market potential and opportunities which can be leveraged through the total Healthxcel Group. We will also look for opportunities that are synergistic with those of Healthxcel.

The acquisitions, development of numerous  new products including prescription drugs, OTC’s and/or Natural Health Products, with the possibility of  medical devices of all classes being included, and development of our organization its  headquarters in the USA or Canada will require extensive amount of capital, which will facilitate Healthxcel’s  establishment of a significant presence  in the broad pharmaceutical marketplace globally.

Amount Needed and Exit Strategy

Healthxcel Corporation is looking for initial funding of around $US 20 million for the acquisition of the Company 1 and Company 2, as well as to cover initial operational and new product development costs (development, registration, marketing & sales and expansion to Mercosur countries). The company desires to have access to sufficient funds to be able to take advantage of opportunities when they become apparent thereby facilitating our ability to bid for companies re acquisition.

 

Healthxcel has met with the owners and come to general agreement on purchase of the assets or the shares of the companies, have completed site visits and done due-diligence work. The information can be shared with the investor(s) under NDA.  Healthxcel has negotiated draft LOI’s with the company owners.

With Healthxcel’s acquisition and restructuring, the operating expenses will be reduced leading to better efficiencies along with better returns for investors. Healthxcel’s value proposition includes higher growth rates, innovative new product releases including organic product lines and creating a sustainable industry for employees, investors and for dietary supplements users.

With the Phase 2 acquisitions, provided sufficient capital is available, the annual revenues would be multiplied compared to current forecasts of Phase 1. Healthxcel has targeted specific areas for acquisition including Mexico, Japan, Middle East, India and Israel.

Healthxcel has a strong pharmaceutically experienced executive management team in place and a well defined long-term strategy, which it believes will enable the company to create a following for itself in the Branded, Branded Generic Pharmaceutical industry and the complementary Natural Health Product market.

The  exit strategies contemplated include:

1. Sale – Given the growth and projected profitability of Healthxcel, it is highly likely that a buyout offer will come from a multi-national organization that is dominant in the OTC and/or generic drug field i.e. Teva, Sandoz, Mylan or similar.
2. Mergers – Healthxcel Corporation can merge with another organization and the shareholders can receive some combination of cash, stock or other considerations in return.
3. IPO – The Company can be sold through the stock market through an IPO.

Healthxcel presents an opportune investment for investors seeking to participate in the growing prescription  and natural health product market. The growth in these sectors has been in the 10-15% range annually in the last few years largely due to many major products loosing patent protection coupled with the increase in size of the older patient pool. The recent growth of Company 2 has been even better, 23%.

On a conservative basis, the Healthxcel model will generate a cumulative profit of almost US$ 0.65 Billion by 2021 based upon the phase one model only.

This represents a significant return of investment to any participating investor.

 

Conclusion

The opportunity to build the Company 1 and 2 business units is very strong. With the right investment, the addition of strong managerial experience and talent and a broadening of the commercial base of the company, this new venture can grow significantly in a very short period of time.

On a consolidated basis, Healthxcel’s EBITDA will be positive already in first year for $US 277,000, arising to over $US 7,000,000 in 2014. Healthxcel cash flow with the $US 20,000,000 financing will stay positive throughout the 10 year period. Cumulative net profit after tax (assuming Canadian corporate tax rate, not off-shore) in 2018 will be over $US 150,000,000 and in 2021 close to $US 0.65 Billion.

Healthxcel management has contributed more than 1.5 years of their time and direct costs for agent fees, meetings, travel, due-diligence, legal, and other costs for more than 1 Million Dollars.

Profits of the Phase 2 of the plan have not been included in the current financial projections. By implementing this plan Healthxcel annual earnings and cash flow will be significantly higher (3-4 times) than in the present plan from year 2015 onwards.

 

 

For additional information please contact:

Jukka Karjalainen, MD, PhD

President and COO

Healthxcel Canada Corporation

Tel: +1-416-358-4495

Email: jukka.karjalainen@rogers.com