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As filed with the Securities and Exchange Commission on July 2, 2014

Registration No. 333-                


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

DIPLOMAT PHARMACY, INC.
(Exact Name of Registrant as Specified in Its Charter)

Michigan
(State or Other Jurisdiction of
Incorporation or Organization)
  5122
(Primary Standard Industrial
Classification Code Number)
  38-2063100
(I.R.S. Employer
Identification Number)

4100 S. Saginaw St.
Flint, MI 48507
(888) 720-4450
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Sean Whelan
Chief Financial Officer
Diplomat Pharmacy, Inc.
4100 S. Saginaw St.
Flint, MI 48507
(888) 720-4450
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

Michael S. Ben, Esq.
Honigman Miller Schwartz and Cohn LLP
2290 First National Building
660 Woodward Avenue
Detroit, MI 48226-3506
Telephone: (313) 465-7000
Fax: (313) 465-8000

 

William J. Whelan, III, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Telephone: (212) 474-1000
Fax: (212) 474-3700

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee(3)

 

Common Stock, no par value per share

  $100,000,000   $12,880

 

(1)
Includes shares that the underwriters have the option to purchase to cover overallotments, if any.

(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(3)
Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We and the selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 2, 2014

             Shares

GRAPHIC

Diplomat Pharmacy, Inc.

Common Stock

        This is the initial public offering of shares of common stock of Diplomat Pharmacy, Inc.

        We are selling             shares of common stock, and the selling shareholders identified in this prospectus are selling             shares of common stock. We will not receive any proceeds from the sale of shares by the selling shareholders.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $             and $             per share. We intend to apply to list our common stock on the             under the symbol "         ".

        The underwriters have an option to purchase a maximum of             additional shares from the selling shareholders to cover overallotments of shares, if any.

        Investing in our common stock involves risks. See "Risk Factors" beginning on page 17.

 
  Price to
Public
  Underwriting
Discounts and
Commissions
  Proceeds to
Diplomat
Pharmacy, Inc.
  Proceeds to
the Selling
Shareholders
 
Per Share   $     $     $     $    
Total   $     $     $     $    

        Delivery of the shares of common stock will be made on or about             , 2014.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Credit Suisse   Morgan Stanley

J.P. Morgan

 

Wells Fargo Securities

William Blair

 

Leerink Partners

   

The date of this prospectus is                           , 2014.


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TABLE OF CONTENTS

TRADEMARKS AND TRADE NAMES

    i  

INDUSTRY AND MARKET DATA

    ii  

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    17  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    36  

USE OF PROCEEDS

    38  

DIVIDEND POLICY

    39  

CAPITALIZATION

    40  

DILUTION

    43  

SELECTED CONSOLIDATED FINANCIAL DATA

    45  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    50  

BUSINESS

    69  

MANAGEMENT

    93  

EXECUTIVE COMPENSATION

    98  

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

    112  

PRINCIPAL AND SELLING SHAREHOLDERS

    116  

DESCRIPTION OF CAPITAL STOCK

    118  

DESCRIPTION OF INDEBTEDNESS

    122  

SHARES ELIGIBLE FOR FUTURE SALE

    124  

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

    126  

UNDERWRITING

    130  

LEGAL MATTERS

    135  

EXPERTS

    135  

WHERE YOU CAN FIND MORE INFORMATION

    136  

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

    F-1  

        You should rely only on the information contained in this prospectus or to which we have referred you. None of us, the selling shareholders or the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus or any free-writing prospectus prepared by us or on our behalf. We do not, and the selling shareholders and the underwriters do not, take any responsibility for, and can provide no assurances as to, the reliability of any information that others provide to you. We and the selling shareholders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

        Until                        , 2014 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        For investors outside the United States: none of we, the selling shareholders or any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions related to this offering and the distribution of this prospectus outside of the United States.


TRADEMARKS AND TRADE NAMES

        This prospectus includes our trademarks and trade names, such as DIPLOMAT® and DIPLOMAT SPECIALTY PHARMACY®, which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, endorsement or sponsorship of us by these other parties.

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INDUSTRY AND MARKET DATA

        Certain information contained in this prospectus concerning our industry and the markets in which we operate is based on information from publicly available independent industry and research organizations and other third-party sources, and management estimates. Management estimates are derived from publicly available information released by independent industry and research analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. We have also included information derived from Diplomat patient and physician satisfaction surveys that were conducted by a third-party research organization commissioned by us. We believe the data from these third-party sources is reliable, but we have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described under "Risk Factors" and "Special Note Regarding Forward-Looking Statements." These and other factors could cause results to differ materially from those expressed in the estimates made by these third-party sources.

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PROSPECTUS SUMMARY

        This summary highlights information appearing elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read the entire prospectus carefully, including the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. Unless the context suggests otherwise, references in this prospectus to "Diplomat," "the Company," "we," "us" and "our" refer to Diplomat and its consolidated subsidiaries.

Business Overview

        We are the nation's largest independent specialty pharmacy and are focused on improving the lives of patients with complex chronic diseases. We believe we have a unique patient-centric approach that positions us at the center of the healthcare continuum for the treatment of these diseases and enables us to drive superior care coordination through partnerships with patients, payors, pharmaceutical manufacturers and physicians. We offer a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs. We believe that we are a chosen partner for leading biotechnology and pharmaceutical companies based on our ability to deliver customized support services and dispense new drugs to complex chronic disease patient populations. As a result, we believe we are well positioned to continue expanding our market share in the high-growth $63 billion specialty pharmacy industry.

        Diplomat has a long track record of growth and innovation. We were founded in 1975 by our Chief Executive Officer, Philip Hagerman, and his father, Dale, both trained pharmacists who transformed our business from a traditional pharmacy into a leading specialty pharmacy. In 2005, we began to expand the scope of our specialty pharmacy business from a small, regional operation to a large national enterprise, allowing us to capitalize on the growth of the specialty pharmacy market from approximately $20 billion in sales in 2005 to $63 billion in sales in 2013, representing a compounded annual growth rate of approximately 15%. As a result, we have grown our revenues organically to over $1.5 billion in 2013, achieving a compounded annual growth rate of over 65% since 2005, and we are now the fourth largest overall specialty pharmacy in the United States. To achieve this growth, we have consistently strengthened our clinical expertise in key therapeutic categories, such as oncology and immunology, broadened the scope of our services to retailers, hospitals and health systems and strengthened our relationships with patients, payors, pharmaceutical manufacturers and physicians.

        We focus on specialty drugs that are typically administered on a recurring basis to treat patients with complex chronic diseases that require specialized handling and administration as part of their distribution process. We have expertise across a broad range of high-growth specialty therapeutic categories, including oncology, immunology, hepatitis, multiple sclerosis, HIV and infusion therapy. Our comprehensive, patient-focused services ensure that patients receive a superior standard of care including assistance with complicated medication therapies, refill processing, third-party funding support programs, side effect management and adherence monitoring. We customize solutions for each patient based on the patient's overall health, disease and family history, lifestyle and financial means. We believe we reduce long-term costs for patients and payors by improving patient care, enhancing clinical outcomes, managing high risk members, monitoring patient adherence, and optimizing the utilization of specialty drugs, many of which can cost well over $100,000 per patient, per year. This value proposition to payors and patients has helped us expand our managed lives under contract from approximately five million in 2009 to approximately 13 million in 2013.

        Collectively, our unique ability to enhance patient adherence to complex drug regimens, to collect and report data, and to ensure effective dispensing of complex specialty medications supports the clinical and commercial needs of pharmaceutical manufacturers. Furthermore, our patient and provider

 

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support services ensure appropriate drug initiation, facilitate patient compliance and persistence, and capture important information regarding safety and effectiveness of the specialty medications that we dispense. Our services, together with our proactive engagement with pharmaceutical manufacturers early in the drug development process, have contributed to our current and growing access to limited distribution drugs, which we define as drugs that are only available for distribution by a select network of specialty pharmacies. Our inclusion in limited distribution networks provides critical sources of revenue growth and provides a catalyst for our future growth.

        Our core revenues are derived from the customized care management programs we deliver to our patients, including the dispensing of their specialty medications. Because our core therapeutic categories generally require multi-year or life-long therapy, our singular focus on these complex chronic diseases helps drive recurring revenues and sustainable growth. Our revenues grow, in part, as we help more patients access the drugs they need in order to live longer and healthier lives. As a part of our mission to improve patient care, we provide specialty pharmacy support services to a national network of 8 retailers and independent pharmacy groups, representing approximately 4,500 stores and 48 hospitals and health systems. For many of our retail, hospital and health system partners, we earn revenue by providing clinical and administrative support services on a fee-for-service basis to help them dispense specialty medications. Thus, our patient-focused solutions benefit multiple partners across the healthcare continuum, which we believe drives the sustainability of our business model.

Market Opportunity

        Specialty pharmaceuticals represent a significant and growing total addressable market.    The specialty pharmaceutical market has experienced significant growth in recent years as complex chronic conditions, care coordination, technology-enabled patient care, biotechnology research and outcomes-based healthcare have increased in focus. The total specialty benefits represented approximately $92 billion in drug spend in 2012. Total specialty pharmaceutical drug spend covered under the pharmacy benefit was approximately $51 billion in 2012 and is estimated to grow to $118 billion by 2018. While our historic focus has been pharmacy benefit, a significant portion of the specialty drug market is funded through medical benefit. Specialty drugs reimbursed under the medical benefit have also expanded rapidly in recent years and were approximately $41 billion, or approximately 45%, of the total specialty drug spend in 2012. Increasingly, drugs that have historically been reimbursed under the medical benefit are being moved to the pharmacy benefit by health plans and pharmacy benefit managers to better manage care and control costs. We believe that the medical benefit represents a significant additional revenue opportunity for us and expect it to play a larger role in our business going forward. In addition, we believe that our track record and leadership in limited distribution drug programs will create opportunities for us to gain market share in this growing segment of the specialty pharmacy market.

        Growth in specialty drug spend is significantly outpacing the broader pharmaceutical market.    Specialty drugs are the fastest growing segment of the pharmaceutical market, and spend in this segment is estimated to grow at approximately 20% annually from 2012 to 2018, whereas traditional drug spend is expected to decline. Specialty pharmaceutical products are targeted towards high-cost complex medical conditions, have fewer direct substitutes than traditional pharmaceuticals and face limited near-term generic market entry. These factors limit competition and drive higher prices. Additionally, specialty drug approvals comprised over 50% of all Federal Drug Administration ("FDA") drug approvals in 2013 as pharmaceutical and biotechnology companies have continued to invest in specialty drug development. This trend is expected to continue, driven by a robust pipeline of specialty drugs, which represent approximately 45% of the total number of drugs currently in development.

        Oncology and immunology, therapeutic categories in which we believe we are a leader, are large and growing therapeutic categories within the specialty pharmaceuticals industry.    The oncology market represented 29% of specialty pharmaceutical sales in the U.S. in 2013. The immunology market,

 

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including the disease states rheumatoid arthritis, psoriasis and crohn's disease, also represents a large and growing specialty market. We believe these two therapeutic categories will continue to grow, given that there are over 400 oncology and immunology drugs currently in clinical development which represent over 40% of the biologics pipeline. Further, there are over 3,000 oncology and immunology drugs in global drug development. Given the chronic nature of these disease states, we provide recurring services to these patients over long periods of time. In 2013, we generated over 70% of our revenues in oncology and immunology, and our historical growth has largely been driven by our position as a leader in these categories.

Competitive Strengths

      We are the nation's largest independent and fourth largest overall specialty pharmacy, and we believe we are well positioned to continue to increase our market share based on the following competitive strengths.

        Adding value to all constituents.    The value we deliver to all constituents is centered upon our core focus on patients. We help patients adhere to complicated medication therapies, process refills and manage any side effects and insurance concerns to ensure they get the best standard of care. We also help identify third-party funding support programs to help cover expensive out-of-pocket costs. In 2013, we helped our patients successfully obtain $24 million of funding assistance to help cover out-of-pocket co-pay costs. Our focus on patients and our related patient-support programs have allowed us to achieve an overall patient satisfaction rate of approximately 99%.

GRAPHIC

      Supporting our core focus on patients, we also serve the following key constituents:

      (1) Payors:    We manage prescription regimens for chronically ill populations and help payors, which include insurance plans and pharmacy benefit managers, reduce costs through customized specialty pharmacy programs. Our high-touch electronic patient care platform, centered on our disease-specific technology solution, is customized for each payor's needs and is designed to improve efficiency and lower costs. For example, through our partial fill program, we promote

 

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      more frequent direct intervention and tracking of patients and their therapies by our highly trained clinical experts.

      (2) Biotechnology and Pharmaceutical Manufacturers:    We offer specialized and highly customized prescription programs for pharmaceutical companies to help them optimize and track patient adherence which helps drive the clinical and commercial success of specialty drugs. In addition, we partner with pharmaceutical manufacturers early by helping them develop specialty pharmaceutical channel strategies as part of their commercial launch preparation.

      (3) Physicians and Health Systems:    Our team works with physician offices to manage prior-authorization and other managed care organization requirements, such as denial and appeal process, to ensure that complicated administrative tasks do not impair the delivery of quality patient care. Additionally, we provide risk evaluation services, implement risk mitigation strategies and collect patient adherence data to provide physicians and health systems with enhanced visibility on patient outcomes. Our transparency and support has led to a physician satisfaction rate of approximately 97%.

      (4) Retailers and Hospitals:    We provide clinical and administrative support services for our retail and hospital partners on a fee-for-service basis. Based on our broad industry experience, infrastructure and treatment-tracking software, our retail specialty network solution provides customized clinical and administrative support services that help retailers and their specialty patients improve financial and clinical outcomes. We provide hospitals with unique solutions to maximize cost containment, improve efficiency and clinical outcomes from specialty pharmaceuticals. Our programs also support hospitals that are 340B covered entities through a contracted pharmacy strategy.

        Significant and longstanding payor relationships—approximately 13 million managed lives under contract.    We partner with 40 regional and mid-sized payors and independent pharmacy benefit managers to improve patient outcomes and lower costs by managing high risk members and implementing patient-focused specialty programs. We strive to improve the clinical outcomes for high-risk members through adherence monitoring, patient education and clinical intervention. We offer payors access to limited distribution drugs and unique cost containment programs, including partial refill programs, clinical management and motivational interviewing techniques for improving adherence. We believe that medication non-adherence (i.e., patients not following the instructions for their medication or failing to finish taking their medication) is the largest avoidable cost in specialty pharmacy, and we have achieved patient adherence rates of over 90% for the quarter ended March 31, 2014 with our patient training and education, compliance packaging, prophylactic starter kits and nurse adherence calls. We believe that our focus on high-touch patient care and our experience with high-risk populations makes us well-positioned for the anticipated growth in managed lives under the Affordable Care Act, particularly with respect to managed Medicaid coverage.

        Partner of choice for biotechnology and pharmaceutical manufacturers.    We believe that our role as the partner of choice for many biotechnology and pharmaceutical manufacturers is based on the following attributes:

    Expertise in managing limited distribution drugs.  We have historically earned access to many limited distribution drugs, both at the time of their launch and post-launch. We actively monitor the drug pipeline and we maintain dialogue with many of the major biotechnology and pharmaceutical manufacturers to identify opportunities in all pre-commercial stages of drug development. We believe that limited distribution is becoming the delivery system of choice for many drug manufacturers because it facilitates high patient engagement, clinical expertise and elevated focus on service. Furthermore, we believe that our innovative solutions and service-oriented culture set us apart from our competitors, have enabled us to win a large number of limited distribution contracts and is more appealing than our competitors' platforms to emerging

 

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      biotechnology firms and the boutique consulting firms that advise them. We believe that the trend toward limited distribution of specialty drugs will continue to expand in the future, making strong representation in this area essential. Accordingly, we believe our current portfolio of over 70 limited distribution drugs positions us for disproportionate growth as more limited distribution drugs come to market.

    Proven track record of adding value.  We believe we outperform our competitors in providing services that benefit specialty drug manufacturers. Our superior services are driven by our clinical expertise in oncology, immunology, hepatitis, multiple sclerosis, HIV and specialty infusion. We offer targeted pilot programs, full reporting capabilities and a variety of additional services that support patients' medication adherence when clinically appropriate. We believe these superior services and capabilities were a primary driver of our gaining access to, and becoming the largest of five specialty pharmacies authorized to, dispense Imbruvica, Pharmacyclics' Mantle Cell Lymphoma drug launched in November 2013.

    Breadth of channel partners.  In addition to maintaining our strong relationships with payors, physicians, manufacturers and patients, we also partner with retailers, hospitals and health systems by providing critical patient-facing clinical and administrative services that help support the specialty pharmacy capabilities of these constituents. These partnerships broaden our exposure and influence across the healthcare continuum.

    Relationships with clinical experts and key opinion leaders.  Our singular focus on specialty pharmacy and complex chronic diseases has enabled us to develop strong relationships with clinical experts and thought leaders in key therapeutic categories, such as oncology and immunology. We leverage these relationships to gain greater visibility into future drug launches and to stay current on the latest advances in patient care.

        National footprint with highly scalable infrastructure.    During the past several years, we have made significant investments to expand our capabilities and capacity, which we believe will help us to enhance sales volume, improve efficiency and create significant barriers to entry. In December 2010, we moved our corporate headquarters to a 550,000 square foot facility in Flint, Michigan. Our operations within this facility, are highly scalable, as we currently utilize approximately 40% of the facility giving us significant capacity to execute our long term growth plan without significant additional capital expenditures. Our physical footprint has enabled us to develop a centralized infrastructure that we have successfully scaled to dispense to all 50 states. We now have an advanced distribution center that enables us to ship medications nationwide as well as a centralized clinical call center that helps us deliver localized services on a national scale. In addition to our headquarters, we also operate smaller regional facilities in Flint, Michigan; Grand Rapids, Michigan; Chicago, Illinois; Ft. Lauderdale, Florida; Ontario, California; Enfield, Connecticut; Raleigh, North Carolina; and Springfield, Massachusetts. We are fully accredited and licensed to conduct business in each of the states that require such licensure.

        Strong financial profile combines sustainable growth and low capital intensity.    Our financial profile is comprised of a recurring revenue model that is driven by the chronically ill populations we serve. As a result, we have demonstrated strong growth in revenue and profitability. We have achieved consistent revenue and Adjusted EBITDA growth with revenues increasing from $377 million in 2009 to $1,515 million in 2013 and Adjusted EBITDA increasing from $6 million in 2009 to $19 million in 2013, representing compound annual growth rates of 42% and 33%, respectively. In addition, we grew our net income from $3 million to $8 million over the same time period. See "—Summary Consolidated Financial Data" for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of our Adjusted EBITDA to net income. We expect our growth to continue to be driven by a highly visible and recurring base of revenues, favorable demographic trends, advanced clinical developments, expanding drug pipelines, earlier detection of chronic diseases and

 

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improved access to medical care. In addition, we believe that our expanding breadth of services, our growing penetration with new customers, and our access to limited distribution drugs, will help us achieve significant and sustainable growth and profitability in future.

        Highly experienced and passionate management team.    Our senior management team, which consists of six executives, has an average of over 26 years of experience in the pharmacy and specialty pharmacy industry and represents a group of highly recognized and respected industry veterans. Led by our Chief Executive Officer, Philip Hagerman, our management team is responsible for our proven track record of growth, consistent performance and industry leading service. Philip, a licensed pharmacist, second generation principal and recognized specialty pharmacy industry thought-leader, is a frequent speaker at state and national pharmacy conferences and has received several awards as a leading business executive in the country, including recognition by the White House Business Council for his leadership in job creation and community development. Our senior management team has an average tenure with Diplomat of over 12 years and brings a healthy balance of significant experience with Diplomat and with other companies in the industry, including public companies. In addition, our broader sales, clinical and operations team, has deep clinical expertise and includes over 50 licensed pharmacists.

Growth Strategy

        We plan to grow our business by continuing to execute on the following key growth strategies:

        Capitalize on track record to expand leadership positions in high-growth oncology and limited distribution markets.    We believe our track record of providing a customized, high level of service to our manufacturer partners in the oncology and immunology markets has led to repeat contract awards and initial limited distribution contracts related to new drugs our partners bring to market. For example, we believe our success as a distributing pharmacy for Zytiga, a metastatic castration resistant prostate cancer drug approved by the FDA in April 2011, helped earn us limited distribution access to Xtandi, another metastatic castration resistant prostate cancer drug approved by the FDA in August 2012. Xtandi has grown to become one of our top 10 drugs with over $40 million in annual sales in 2013. Our clinical and sales teams consistently engage our emerging biotechnology partners on commercialization strategy 12 to 18 months in advance of potential FDA approval. These pre-existing relationships position us to capture market share in these high-growth markets. One example was the launch of Cometriq, a drug currently indicated for a form of thyroid cancer, on which we collaborated with the manufacturer and became the exclusive distributor.

        Expand clinical expertise to a broad range of therapeutic categories.    We serve a broad range of therapeutic categories, and we believe we can expand our clinical expertise to increasingly penetrate additional markets such as hepatitis, multiple sclerosis, HIV and specialty infusion. We believe these categories will become increasingly important to our patient population in the coming years due to advancement of therapies and increased incidences of chronic illness and that our platform will allow us to grow with market expansion. Specifically, we view specialty infusion as an attractive market due to significant projected growth and higher margins, and we intend to continue to invest in this important and growing area of our existing business. Additionally, orphan and ultra-orphan drugs, which are associated with relatively small patient populations, are an increasingly important focus for us as the specific characteristics of these categories make utilization and compliance particularly challenging.

        Deepen and expand partner relationships.    We currently contract with and support regional and mid-sized payors and independent pharmacy benefit managers, employer groups, and union groups representing approximately 13 million managed lives across the United States. We plan to continue to work with our current clients to grow their membership and are focused on expanding our client base nationally. In addition to providing specialty pharmacy services for self-administered medications covered under the pharmacy benefit, we also offer office-administered medications covered under the medical benefit to ensure that we provide a full spectrum of care to our specialty patients regardless of

 

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type of their benefit coverage and where they receive care. Further, our partnerships with retail pharmacies and hospitals allow us to serve specialty patients beyond the traditional specialty pharmacy approach. These partnerships allow patients to more easily access specialty medications in the retail setting and also positions Diplomat to be a key partner for Accountable Care Organizations.

        Grow high-margin businesses and capitalize on investments to enhance key operating metrics.    In 2014, we contracted to significantly expand our retail customer base and expand our opportunities through service contracts to one of the largest hospital networks and group purchasing organizations. In addition, our continued expansion into the infusion market will provide us with opportunities to capitalize on a market which historically has provided higher margins. We have made significant investments in our technology, infrastructure and service lines to build a scalable foundation for growth, which we believe provides meaningful opportunities to grow revenues and enhance key operating metrics. We believe our investments in technology, both completed and in-process, will improve our operating cost profile and provide valuable revenue opportunities, as we enhance our data collection and delivery capabilities, services that are highly valued by our partners. Finally, we currently utilize approximately 40% of our 550,000 square foot facility in Flint, Michigan (purchased in 2010), providing meaningful capacity as we continue to scale our business.

        Selectively pursue growth through strategic acquisitions.    We believe the specialty pharmacy industry is highly fragmented and provides numerous opportunities to expand through acquisitions. While we will continue to focus on growing our business organically, we believe we can opportunistically enhance our competitive position through complementary acquisitions in both existing and new markets. For example, in December 2013, we completed the acquisition of American Homecare Federation, Inc. ("AHF"), a specialty infusion therapy provider focused primarily on hemophilia. In June 2014, we acquired MedPro Rx, Inc. ("MedPro"), a specialty pharmacy focused on specialty infusion therapies including hemophilia and immune globulin. Specialty infusion is differentiated from traditional home infusion in that it requires highly customized services and level of care with therapies that can exceed $300,000 in costs per patient per year. Additionally, we plan to selectively evaluate potential acquisition opportunities in other therapeutic categories, services and technologies, with the goal of preserving our culture, continuing to deliver superior patient outcomes, enhancing value to other constituents and building long-term value for our shareholders.

Risk Factors

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks described under "Risk Factors" before making a decision to invest in our common stock. If any of these risks actually occurs, our business, results of operations, financial condition or prospects could be materially and adversely affected. Below is a summary of some of the principal risks we believe we face:

    anticipating and adapting to significant changes, trends, consolidation and increasing participation in the specialty pharmacy industry could adversely impact our ability to compete;

    pricing pressures from payors and pharmaceutical manufacturers may adversely affect our profitability;

    failure to maintain our existing relationships, and build new relationships, with key pharmaceutical manufacturers, physicians, payors, retailers, hospital and health systems would have a material and adverse effect on our business;

    complying with, and changes to, significant state and federal regulations could restrict our ability to conduct our business or cause us to incur significant costs;

    we may not have the resources, purchasing power or operating efficiencies to compete successfully with leading specialty pharmacies;

 

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    any significant adverse matters regarding the top specialty drugs we dispense, or disruptions in the supply chain of these specialty drugs, would have a material and adverse impact on our business and financial performance;

    we may not be able to successfully implement our organic growth or acquisition strategy; and

    our Chief Executive Officer and Chairman of the Board of Directors will control the outcome of matters submitted for shareholder approval, and he may have interests that differ from those of our other shareholders.

Recent Developments

    Business Acquisitions

        On December 16, 2013, we acquired all of the outstanding stock of AHF for a total acquisition price of approximately $13.4 million, excluding related acquisition costs of approximately $0.7 million. Included in the total acquisition price is $12.1 million in cash and contingent consideration fair valued at $1.3 million with a maximum payout of $2.0 million, that is based on the achievement of certain revenue and gross profit targets. AHF is a specialty pharmacy which focuses on patients with bleeding disorders, such as hemophilia, and is headquartered in Enfield, Connecticut. AHF generated $21.8 million in revenue and $4.9 million in gross profit, or 22.5% of revenue, in the nine months ended September 30, 2013. We acquired AHF to provide us access to certain direct purchase agreements with key hemophilia manufacturers and to expand our specialty infusion expertise. The results of operations for AHF are included in our consolidated financial statements from the acquisition date.

        On June 27, 2014, we acquired all of the outstanding stock of MedPro for $52.0 million in cash, 84.31703 shares of our Class B Nonvoting Common Stock, valued at approximately $12.0 million, and up to $11.5 million of contingent consideration (not yet fair valued) that is based on the achievement of certain revenue and gross profit targets. In connection with our acquisition of MedPro, we increased our line of credit to provide for comparable borrowing availability under the line of credit following the acquisition. See "—Amendment to Line of Credit." MedPro is a specialty pharmacy focused on specialty infusion therapies including hemophilia and immune globulin based in Raleigh, North Carolina. MedPro generated $81.6 million of revenue and $18.6 million of gross profit, or 22.8% of revenue, in the year ended December 31, 2013. We acquired MedPro to expand our existing specialty infusion business and to increase our presence in the mid-Atlantic and Southern regions of the country. The results of operations for MedPro will be included in our consolidated financial statements from the acquisition date.

    Issuances of Preferred Stock

        Prior to the issuance of preferred stock on January 23, 2014, as described below, we had 4,270.000 common shares outstanding and 4,856.198 diluted common shares outstanding assuming a price of $142,320 per share.

        On January 23, 2014, we sold to certain funds of T. Rowe Price, 351.32097 shares of Series A Preferred stock at a purchase price of $142,320 per share. We used $20.0 million of the $50.0 million investment proceeds for general corporate purposes, including fees associated with the transaction, and the remaining $30.0 million was used to redeem shares of common stock and common stock options.

        On April 1, 2014, we sold to certain funds of Janus Capital Group, 379.4267 shares of Series A Preferred stock at a purchase price of $142,320 per share. We used $25.2 million of the $54.0 million investment proceeds for general corporate purposes, including fees associated with the transaction, and the remaining $28.8 million was used to redeem shares of common stock and common stock options.

 

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        As of May 31, 2014, certain funds of T. Rowe Price and Janus Capital Group beneficially owned 15.8% in aggregate of our common stock (on an as-converted basis from Series A preferred stock to Series C common stock). Such ownership percentage reflects redemptions made with the proceeds from the above transactions.

    Amendment to Line of Credit

        On June 26, 2014, we entered into an amended and restated credit agreement with GE Capital Bank, as agent, Comerica Bank, JP Morgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as additional lenders. The amended and restated credit agreement provides an increase in our revolving line of credit to $120.0 million. The amount available for borrowing under the revolving line of credit is the lesser of $120.0 million and the sum of 85% of eligible accounts receivable and a portion of eligible inventory, less any outstanding letters of credit and swing loans. Additionally, our revolving line of credit permits incremental increases in the line of credit or issuance of term loans up to an aggregate amount of $25.0 million, subject to specified conditions. For a further description of our line of credit, see "Description of Indebtedness."

    Change in Tax Status

        Prior to January 23, 2014, we had elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Therefore, we did not pay federal corporate income taxes on our taxable income. Instead, our shareholders were liable for individual federal income taxes on their respective shares of our taxable income. Distributions were made periodically to our shareholders to the extent needed to cover their income tax liability based on our taxable income. On January 23, 2014, in connection with the shares of Series A preferred stock sold to certain funds of T. Rowe Price on such date, we changed from an S Corporation to a C Corporation. Therefore, we will pay federal corporate income taxes on our taxable income for periods after such date. The historical audited financial results included elsewhere in this prospectus reflect our results as an S Corporation before January 23, 2014.

Our Corporate Information

        Diplomat Pharmacy, Inc. is a Michigan corporation, and our principal executive offices are located at 4100 S. Saginaw St., Flint, Michigan 48507. Our telephone number is (888) 720-4450. Our website address is www.diplomat.is. The reference to our website is intended to be an inactive textual reference only. The information contained on, or accessible through, our website is not part of this prospectus or the registration statement of which this prospectus forms a part, and you should not rely on this information in making a decision to invest in our common stock in this offering.

 

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The Offering

Common stock offered by us

              shares

Common stock offered by the selling shareholders

 

            shares

Common stock to be outstanding immediately after this offering

 

            shares

Overallotment Option

 

The underwriters have an option to purchase a maximum of additional shares of our common stock from the selling shareholders to cover overallotments, if any. The underwriters may exercise this option at any time within 30 days from the date of this prospectus.

Use of proceeds

 

We estimate that the net proceeds to us from this offering, after deducting the underwriting discount and estimated offering expenses, will be approximately $            million, assuming an initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus.

 

We will not receive any proceeds from the sale of shares by the selling shareholders, including sales by the selling shareholders pursuant to the underwriters' overallotment option.

 

We intend to use the net proceeds from this offering to repay indebtedness and for working capital and other general corporate purposes. See "Use of Proceeds."

Controlled company

 

Upon the completion of this offering, Philip Hagerman, our Chief Executive Officer and Chairman of our Board of Directors, following the execution of a shareholders agreement with members of his immediate family, will control approximately            % of the total voting power of our outstanding common stock, (or        % of the total voting power of our common stock if the underwriters exercise their overallotment option in full). As a result, we will be considered a "controlled company" under the corporate governance listing standards of the            . As a controlled company, we will be exempt from the obligation to comply with certain            corporate governance requirements. See "Management."

Dividend policy

 

We expect to retain all future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy."

 

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Risk factors

 

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 17 of this prospectus for a discussion of the risks and uncertainties you should carefully consider before deciding to invest in our common stock.

            symbol

 

"                "

        The number of shares of our common stock to be outstanding after the completion of this offering is based on            shares of our common stock outstanding as of                    , 2014, and excludes:

    shares of our common stock issuable upon the exercise of options outstanding as of                        , 2014 under the Diplomat Pharmacy, Inc. 2007 Option Plan (the "2007 Option Plan"), with a weighted average exercise price of $            per share; and

    shares of our common stock reserved for future issuance under our 2014 Omnibus Incentive Plan (the "2014 Omnibus Plan" or the "omnibus plan") as of the date hereof, which will be effective prior to the completion of this offering.

        Unless otherwise indicated, the information in this prospectus assumes:

    the conversion of all shares of our Class A Voting shares into            shares of our common stock immediately prior to the completion of this offering;

    the conversion of all shares of our Class B Nonvoting shares of common stock into            shares of our common stock immediately prior to the completion of this offering;

    the conversion of all shares of our Series A convertible preferred stock into            shares of our common stock immediately prior to the completion of this offering;

    the filing of our amended and restated articles of incorporation and the adoption of our amended and restated bylaws, which will occur immediately prior to the completion of this offering;

    no exercise of outstanding stock options since                    , 2014; and

    no exercise by the underwriters of their option to purchase additional shares of our common stock from the selling shareholders to cover overallotments, if any.

        On                    , 2014, we declared a stock split effected as a stock dividend of            shares for each share of our common stock to our common shareholders of record on that date. Pursuant to the terms of our convertible preferred stock, the conversion ratio of each series of our convertible preferred stock has been proportionately adjusted to reflect this stock dividend. Accordingly, all share and per share amounts presented in this prospectus, including the consolidated financial statements and notes thereto, have been adjusted, where applicable, to reflect this stock dividend and adjustment of the preferred stock conversion ratio.

 

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Summary Consolidated Financial Data

        The following table summarizes our consolidated financial data and other data for the periods and at the dates indicated. We derived the consolidated statement of operations data for the years ended December 31, 2013, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013 and 2012 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated balance sheet data as of December 31, 2011 from our audited consolidated financial statements that do not appear in this prospectus. We derived the unaudited consolidated statement of operations data for the quarter ended March 31, 2014 and 2013 and the unaudited consolidated balance sheet data as of March 31, 2014 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements.

        We derived the unaudited pro forma financial information for the year ended December 31, 2013 and the quarter ended March 31, 2014 and as of March 31, 2014 from the unaudited pro forma financial information included elsewhere in this prospectus.

        Our historical results are not necessarily indicative of the results to be expected for any future period, and the results in the quarter ended March 31, 2014 are not necessarily indicative of the results for the full year or any other period. The following information should be read together with the information under the headings "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. The unaudited pro forma consolidated financial information does not necessarily represent what our financial position, results of operations and other data would have been if the transactions had actually been completed on the dates indicated, and are not intended to project such information for any future period. See "Use of Proceeds" and "Index to the Consolidated Financial Statements—Unaudited Pro Forma Consolidated Financial Information".

 

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  For the quarter ended March 31,   For the year ended December 31,  
 
  2014
Pro-Forma(1)
  2014   2013   2013
Pro-Forma(2)
  2013(3)   2012   2011  
 
  (Dollars in thousands, except prescription, per share and per prescription data)
 
 
  (Unaudited)
   
   
   
   
 

Consolidated Statement of Operations Data

                                           

Net sales

        $ 465,677   $ 343,670         $ 1,515,139   $ 1,126,943   $ 771,962  

Cost of goods sold

          (436,168 )   (323,294 )         (1,426,112 )   (1,057,608 )   (715,448 )
                               

Gross profit

          29,509     20,376           89,027     69,335     56,514  

Selling, general, and administrative expenses

         
(23,539

)
 
(17,920

)
       
(77,944

)
 
(64,392

)
 
(47,434

)
                               

Income from operations

          5,970     2,456           11,083     4,943     9,080  

Interest expense

         
(530

)
 
(503

)
       
(1,996

)
 
(1,086

)
 
(598

)

Equity loss of non-consolidated entity

          (401 )   (102 )         (1,055 )   (267 )   (95 )

Other income

          468     64           196     337     764  
                               

Income before income taxes

          5,507     1,915           8,228     3,927     9,151  

Income tax expense(4)

          (3,817 )                      
                               

Net income

          1,690     1,915           8,228     3,927     9,151  

Net income allocable to preferred shareholders

          102                        
                               

Net income allocable to common shareholders

        $ 1,588   $ 1,915         $ 8,228   $ 3,927   $ 9,151  
                               
                               

Weighted average common shares outstanding(5):

                                           

Basic

          4,132     4,275           4,275     4,471     5,200  

Diluted

          4,435     4,293           4,364     4,602     5,311  

Net income per common share(5):

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Basic

        $ 384.38   $ 448.04         $ 1,924.70   $ 878.35   $ 1,759.77  
                               
                               

Diluted

        $ 358.17   $ 446.17         $ 1,885.45   $ 853.50   $ 1,723.13  
                               
                               

Other Data

                                           

Adjusted EBITDA(6)

        $ 8,214   $ 4,012         $ 18,970   $ 10,852   $ 15,121  

Prescriptions dispensed(7)

         
184,000
   
172,000
         
707,000
   
669,000
   
596,000
 

Prescriptions serviced (not dispensed)(8)

          54,000     50,000           223,000     129,000     13,000  
                               

Total prescriptions

          238,000     222,000           930,000     798,000     609,000  
                               

Net sales per prescription dispensed(9)

        $ 2,531   $ 1,984         $ 2,135   $ 1,680   $ 1,295  

Gross profit per prescription dispensed(10)

        $ 153   $ 111         $ 117   $ 99   $ 94  

Net sales per prescription serviced (not dispensed)(11)

       
$

27
 
$

26
       
$

28
 
$

26
 
$

27
 

Gross profit per prescription serviced (not dispensed)(11)

        $ 27   $ 26         $ 28   $ 26   $ 27  

Adjusted EBITDA per prescription(12)

       
$

35
 
$

18
       
$

20
 
$

14
 
$

25
 

 

 
  As of March 31, 2014    
   
   
   
 
 
   
  As of December 31,  
 
  Pro-Forma
as adjusted(13)
   
   
   
 
 
  Pro-Forma(14)   Actual           
  2013   2012   2011  
 
  (Dollars in thousands)
 
 
  (Unaudited)
   
   
   
   
 

Consolidated Balance Sheet Data

                                           

Property and equipment, net

              $ 12,024         $ 12,378   $ 12,634   $ 16,930  

Total assets

                214,804           211,777     139,595     100,380  

Total debt

                63,182           88,164     63,102     12,942  

Total liabilities

                218,637           236,189     172,135     88,622  

Shareholders' (deficit) equity(15)

                (3,833 )         (24,412 )   (32,540 )   11,758  

(1)
The unaudited pro forma consolidated financial information for the quarter ended March 31, 2014 gives effect to: (A) the January and April 2014 issuance of preferred stock and the use of a portion of the proceeds from these issuances to redeem outstanding shares of common stock and common stock options, (B) our acquisition of MedPro in June 2014 and related borrowings under our line of credit, (C) our conversion from an S corporation to a C corporation on January 23, 2014, (D) the conversion of all outstanding shares of our preferred stock, Class A voting stock and Class B non-voting stock into shares of our common stock and (E) this offering and the use of proceeds therefrom, assuming in each case that such event occurred on January 1, 2013. See "Index to the Consolidated Financial Statements: Unaudited Pro Forma Combined Consolidated Financial Information".

 

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(2)
The unaudited pro forma consolidated financial information for the year ended December 31, 2013 gives effect to the transactions described in Note 1 above as well as to the December 2013 acquisition of AHF and related borrowings under our line of credit, assuming in each case that such event occurred on January 1, 2013. See "Index to the Consolidated Financial Statements: Unaudited Pro Forma Combined Consolidated Financial Information".

(3)
We acquired AHF on December 16, 2013 and its financial results have been included in our historical financial statements since that date.

(4)
Prior to January 23, 2014, we had elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Therefore, we did not pay corporate income taxes on our taxable income. Instead, our shareholders were liable for individual income taxes on their respective shares of our taxable income. On January 23, 2014, we changed from an S Corporation to a C Corporation, and therefore we will pay corporate income taxes on our taxable income for periods after January 23, 2014.

(5)
On                        , 2014, we declared a stock split effected as a stock dividend of            shares for each share of our common stock to our common shareholders of record on that date. Pursuant to the terms of our convertible preferred stock, the conversion ratio of each series of our convertible preferred stock has been proportionately adjusted to reflect this stock dividend. Accordingly, all share and per share amounts presented in this prospectus, including the consolidated financial statements and notes thereto, have been adjusted, where applicable, to reflect this stock dividend and adjustment of the preferred stock conversion ratio.

(6)
See "Adjusted EBITDA" below for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.

(7)
Prescriptions dispensed (rounded to nearest thousand), represents actual prescriptions filled and dispensed by Diplomat.

(8)
Prescriptions serviced (not dispensed) (rounded to nearest thousand), represents prescriptions filled and dispensed by a non-Diplomat pharmacy, including retailers and health systems, for which we provide support services required to assist patients and pharmacies with the complexity of filling specialty medications, and for which we earn a fee.

(9)
Net sales per prescription dispensed represents total prescription revenue from prescriptions dispensed by Diplomat, divided by the number of prescriptions dispensed by Diplomat. Total prescription revenue from prescriptions dispensed includes all revenue collected from patients, third party payors and various patient assistance programs, as well as revenue collected from pharmaceutical manufacturers for data and other services directly tied to the actual dispensing of their drug(s).

(10)
Gross profit per prescription dispensed represents gross profit from prescriptions dispensed by Diplomat, divided by the number of prescriptions dispensed by Diplomat. Gross profit represents total prescription revenue from prescriptions dispensed less the cost of the drugs purchased.

(11)
Net sales per prescription serviced (not dispensed) represents total prescription revenue from prescriptions serviced divided by the number of prescriptions serviced for the non-Diplomat pharmacies. Gross profit per prescription serviced (not dispensed) is equal to net sales per prescription serviced because there is no Diplomat drug cost of goods sold associated with such transactions. Total prescription revenue from prescriptions serviced includes revenue collected from partner pharmacies, including retailers and health systems, for support services rendered to their patients.

(12)
Adjusted EBITDA per prescription is Adjusted EBITDA divided by the total number of prescriptions dispensed or serviced.

(13)
The unaudited pro forma consolidated financial information, as of March 31, 2014, as adjusted, gives effect to the items specified in Note 13 below and further effect to this offering and the use of proceeds therefrom, assuming in each case that such event occurred on March 31, 2014. See "Unaudited Pro Forma Combined Consolidated Financial Information".

(14)
The unaudited pro forma consolidated balance sheet information as of March 31, 2014 gives effect to: (A) the April 2014 issuance of preferred stock and the use of a portion of the proceeds from this issuance to redeem outstanding shares of common stock and common stock options, (B) our acquisition of MedPro in June 2014 and related borrowings under our line of credit, and (C) the conversion of all outstanding shares of our preferred stock, Class A voting stock and Class B non-voting stock into shares of our common stock, assuming in each case that such event occurred on March 31, 2014. See "Unaudited Pro Forma Combined Consolidated Financial Information".

(15)
In 2012, we entered into settlement agreements with current or former shareholders whereby we purchased shares of common stock formerly owned by the shareholders for consideration of $29,393 of which $2,851 was paid in cash, forgiveness of note of $196 and the remaining $26,346 was payable in full, as per the terms of an executed promissory notes, maturing 2017. This entire amount of $29,393 is reflected as a decrease to our shareholders' (deficit) equity in 2012. Also, in 2012 we had unusually high shareholder distributions of $17,281. Additionally, in January 2014, we sold to certain funds of T. Rowe Price, 351.32097 shares of Series A Preferred stock at a purchase price of $142 per share. We used $20,000 of the $50,000 investment proceeds for general corporate purposes, including fees associated with the transaction, and the remaining $30,000 was used to redeem shares of common stock and common stock options. This transaction, net of stock and stock option redemptions and transaction fees is reflected as a $19,134 increase to our shareholders' (deficit) equity in the quarter ended March 31, 2014.

Adjusted EBITDA

        We define Adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, share-based compensation, restructuring and impairment charges, equity loss of non-consolidated entity, and certain other items that we do not consider indicative of our ongoing

 

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operating performance (which items are itemized below). Adjusted EBITDA is a non-GAAP financial measure.

        We consider Adjusted EBITDA to be a supplemental measure of our operating performance. We present Adjusted EBITDA because it is used by our Board of Directors and management to evaluate our operating performance. It is also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends and for evaluating the effectiveness of our business strategies. Further, we believe it assists us, as well as investors, in comparing performance from period to period on a consistent basis. Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles.

        As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and therefore you should not consider Adjusted EBITDA in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA does not:

    include depreciation expense from property and equipment or amortization expense from acquired intangible assets (and although they are non-cash charges, the assets being depreciated will often have to be replaced in the future);

    reflect interest expense on our debt and capital leases or interest income we earn on cash and cash equivalents;

    reflect the amounts we paid in taxes or other components of our tax provision (which reduces cash available to us);

    include the impact of share-based compensation (which is a recurring expense that will remain a key element of our long-term incentive compensation package, although we exclude it when evaluating our operating performance for a particular period); or

    include the restructuring and impairment charges, equity income or loss of our non-consolidated entity, or other matters we do not consider to be indicative of our ongoing operations.

Further, other companies in our industry may calculate Adjusted EBITDA differently than we do and these calculations may not be comparable to our Adjusted EBITDA metric. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our financial results presented in accordance with GAAP.

 

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        The table below presents a reconciliation of net income to Adjusted EBITDA for the periods indicated:

 
  For the quarter
ended March 31,
  For the year ended December 31,  
 
  2014
Pro-Forma
  2014   2013   2013
Pro-Forma
  2013   2012   2011  
 
  (Dollars in thousands)
 

Net income

        $ 1,690   $ 1,915         $ 8,228   $ 3,927   $ 9,151  

Depreciation and amortization

          1,312     913           3,934     3,842     3,079  

Interest expense

          530     503           1,996     1,086     598  

Income tax expense

          3,817                        
                               

EBITDA

          7,349     3,331           14,158     8,855     12,828  
                               

Share-based compensation expense(1)

          262     239           886     915     1,410  

Restructuring and impairment charges(2)

              50           1,033     424     429  

Equity loss of non-consolidated entity(3)

          401     102           1,055     267     95  

Severence and related fees(4)

          210               204     412     741  

Merger & acquisition related fees(5)

          106     85           677          

Philanthropy(6)

          61     22           222          

Tax credits(7)

          (469 )                 (148 )   (626 )

Other items(8)

          294     183           734     127     245  
                               

Adjusted EBITDA

        $ 8,214   $ 4,012         $ 18,970   $ 10,852   $ 15,121  
                               
                               

(1)
Share-based compensation expense relates to eligible employee stock options.

(2)
Restructuring and impairment charges reflect decreases in the fair market value of non-core property and assets, or actual losses on disposal of such assets. 2013 charges primarily relate to the $932 write-down of our former Swartz Creek, Michigan headquarters facility to its fair value, after we vacated it in favor of our present Flint, Michigan facility. 2012 charges primarily relate to our write-down of an externally purchased software package we no longer utilize, as well as sales of Company-owned vehicles. 2011 charges include expense associated with the closure of our former Cleveland, Ohio facility, the move of our Chicago, Illinois area facility, and sales of Company-owned vehicles.

(3)
Represents our share of losses recognized by our non-consolidated entity, Ageology, using the equity method of accounting. We first invested in Ageology, an anti-aging physician network dedicated to nutrition, fitness and hormones, in October 2011, in connection with its formation.

(4)
Employee severance and related fees primarily relates to severance for former management.

(5)
Fees directly related to merger and acquisition activities, including our purchases of AHF and MedPro.

(6)
Expenses from private company philanthropic activities were performed at the direction of our majority shareholder.

(7)
Represents various tax credits received from the state of Michigan for facility improvement and employee hiring initiatives.

(8)
Includes other expenses, including information technology ("IT") operating leases. These operating leases were initiated, in lieu of purchases or capital leases for a subset of our IT spend, for a short period of time in 2013 and 2014 for liquidity purposes. We have since discontinued the practice of leasing IT equipment. The cost of purchased IT equipment is reflected in depreciation and amortization.

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information in this prospectus, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, before deciding whether to invest in shares of our common stock. If any of the following risks actually occurs, our business, results of operations, financial condition or prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Business and Industry

Our failure to anticipate or appropriately adapt to changes or trends within the specialty pharmacy industry could have a significant negative impact on our ability to compete successfully.

        The specialty pharmacy industry is growing and evolving rapidly. Any significant shifts in the structure of the specialty pharmacy industry or the healthcare products and services industry in general could alter the industry dynamics and adversely affect our ability to attract or retain customers. These changes or trends could result from, among other things, a large intra- or inter-industry merger, a new entrant in the specialty pharmacy business, changes in the distribution model for specialty drugs, a slowdown in the biotechnology pharmaceutical pipeline in our areas of expertise, consolidation of shipping carriers or the necessary changes or unintended consequences of the federal Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the "Health Reform Laws") or future regulatory changes. Our failure to anticipate or appropriately adapt to any of these changes or trends, none of which are within our control, could have a significant negative impact our competitive position and materially adversely affect our business.

Significant and increasing pressure from third-party payors to limit reimbursements and the impact of high cost specialty drugs could materially adversely impact our profitability, results of operations and financial condition.

        The continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit managers, government programs (such as Medicare, Medicaid and other federal and state funded programs) and other third-party payors to limit pharmacy reimbursements may adversely impact our profitability. While manufacturers have increased the price of drugs, payors have generally decreased reimbursement rates as a percentage of drug cost. We expect pricing pressures from third-party payors to continue given the high and increasing costs of specialty drugs. Given the significant competition in the industry, we have limited bargaining power to counter payor demands for reduced reimbursement rates. If a significant number of patients cannot afford to cover the portions of specialty drug costs not covered by payors as a result of limited reimbursements, and we are unable to find other sources of funding for such patients, those patients may not fill their prescriptions and our revenues and business could be adversely affected.

        In response to rising specialty drug prices, payors may also demand that we provide additional services, enhanced service levels and other cost savings to help mitigate the increase in drug costs. Additional services with minimal or no service fees would adversely impact our profitability and data-management technology and software make it challenging for us to prove specific cost savings to payors. Our inability or failure to demonstrate cost efficiencies could adversely impact a payor's willingness to engage us, exclusively or at all, as a specialty pharmacy in the face of rising drug costs.

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Changes in reimbursement rates from Medicare and Medicaid for the services we provide may cause our revenue and profitability to decline.

        For 2013, 2012 and 2011, reimbursement by federal and state programs, such as Medicare and Medicaid, represented 51%, 47% and 39% of our revenues, respectively. Reimbursement from government programs are subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions, changes to existing legislation, and the enactment of new legislation, all of which may materially affect the amount and timing of reimbursement payments to us. Changes to the way Medicare and Medicaid pay for our services may reduce our revenue and profitability on services provided to Medicare and Medicaid patients and increase our working capital requirements.

        Since its inception in 2006, Medicare Part D has resulted in increased utilization and decreased pharmacy gross margin rates as higher margin business, such as cash and state Medicaid customers, migrated to Medicare Part D coverage. Further, as a result of the Affordable Care Act and changes to Medicare Part D, such as the elimination in 2013 of the tax deductibility of the retiree drug subsidy payment received by sponsors of retiree drug plans, our pharmacy benefit manager clients could decide to discontinue providing prescription drug benefits to their Medicare-eligible members. To the extent this occurs, the adverse effects of increasing customer migration into Medicare Part D may outweigh the benefits we realize from growth of our Medicare Part D business.

If our relationship with any of our key pharmaceutical manufacturers deteriorates, or if we are unable to create new significant relationships with other pharmaceutical manufacturers, we could lose all or a significant portion of our access to existing and future specialty drugs.

        In recent years, an increasing number of pharmaceutical manufacturers have attempted to significantly limit the number of pharmacies that may dispense their drugs. Out of a total of approximately 60,000 traditional and specialty pharmacies, these manufacturers increasingly limit access to their drugs to anywhere from one to 20 specialty pharmacies, to ensure they can manage a drug's rollout, obtain real time data and confirm the unique patient population's receipt of the necessary services and support to remain adherent. There are a number of limited distribution drugs to which we do not have access. In addition to directly providing significant revenues, access to limited distribution drugs provides us with significant competitive advantages in developing relationships with payors and physicians, and our failure to continue obtaining access to new limited distribution pharmaceuticals or losing our current access could have a material and adverse impact on our business.

        We obtain access to limited distribution drugs primarily from small to mid-size biotechnology companies, many of whom are bringing their first or second drug to market. We incur significant expense and time, and opportunity cost, to educate and assist emerging small and mid-size biotechnology manufacturers in bringing these products to the marketplace without any guarantee of a successful drug launch or future sales. The failure to monetize these relationships could adversely impact our profitability and our prospects.

        We also provide a significant amount of direct and indirect services for the benefit of our pharmaceutical manufacturer customers and our patients in order to get access to specialty drugs, and our failure to provide services at optimal quality could result in losing access to existing and future drugs. In addition, we incur significant costs in providing these services and receive minimal service fees in return. If pharmaceutical manufacturers require significant additional services and products to obtain access to their drugs without a corresponding increase in service fees paid to us, our profitability could be adversely impacted.

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We have limited contractual protections with pharmaceutical manufacturers and wholesalers that supply us with most of the pharmaceuticals that we distribute.

        We dispense specialty pharmaceuticals that are supplied to us by a variety of manufacturers and wholesalers, many of which are our only source of that specific pharmaceutical. Our contracts with pharmaceutical manufacturers and wholesalers often provide us with, among other things:

    discounts on drugs we purchase to be dispensed from our specialty pharmacies;

    rebates and service fees; and

    access to limited distribution specialty pharmaceuticals.

Our contracts with pharmaceutical manufacturers and wholesalers are generally for three years and are terminable on reasonably short notice by either party before or after the contract term. In addition, our contracts with wholesalers provide for purchase money security interests in products sold. If several of these contractual relationships are terminated or materially altered by the pharmaceutical manufacturers or wholesalers or we are otherwise unable to renew these contracts or enter into similar contracts on favorable terms we could lose a major source of the pharmaceuticals we dispense.

Our revenues, profitability and cash flows may be negatively impacted if safety risks of a specialty drug are publicized or if a specialty drug is withdrawn from the market due to manufacturing or other issues.

        Physicians may significantly reduce the numbers of prescriptions for a specialty drug with safety concerns or manufacturing issues. Additionally, negative press regarding a drug with a higher safety risk profile may result in reduced global consumer demand for such drug. Decreased utilization and demand of a specialty drug we distribute could materially and adversely impact our volumes, net revenues, profitability and cash flows.

Many healthcare companies have a presence in the specialty pharmacy market, and we expect a significant increase in competition due to high growth anticipated in specialty drug spending, which could have a material and adverse impact on our business.

        There are a significant number of competitors that provide one or more comprehensive services, including distribution, with respect to specialty pharmacy drugs, some of whom have greater resources than we do, including: pharmacy benefit managers; retail pharmacy chains and independent retail pharmacies; health plans; national, regional and niche specialty pharmacies; home and specialty infusion therapy companies; physician practices and hospital systems and group purchasing organizations.

        We are currently the largest independent specialty pharmacy and the fourth largest specialty pharmacy in the U.S. The three leading specialty pharmacies, which operate as divisions within each of Express Scripts, CVS Caremark and Walgreens, have significantly greater market share, resources and purchasing power than we do, and Express Scripts and CVS Caremark also benefit from their services as pharmacy benefit managers to a number of healthcare organizations. As we increase in scale and market share, we expect more direct competition for certain drugs, payor and patient access, and services from these three companies.

        Further, a number of other traditional pharmacies with significant resources are attempting to build, acquire or partner with specialty pharmacies due to the double-digit growth anticipated in spending on specialty prescription drugs compared to low to negative growth in spending on traditional prescription drugs. There are also many smaller specialty pharmacies and other entities in the healthcare industry that provide limited specialty pharmacy services; while such entities presently compete with us to a lesser extent, they may be able to invest significant resources, through acquisition or otherwise, to compete with us on a larger scale.

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        Moreover, many of the retail pharmacies to which we provide patient management services may in the future acquire a competing specialty pharmacy business or start their own specialty pharmacy business and thereby become our competitors. In addition, many of our pharmacy benefit management customers have their own specialty pharmacy businesses, and to the extent certain of our products can be obtained internally, these customers could cease business with us. Our failure to maintain and expand relationships with payors and pharmacy benefit management companies, who can effectively determine the pharmacy source for their members, could materially and adversely affect our competitive position and prospects.

        Any increase in competition noted above could significantly increase the competition for limited distribution drugs, reduce gross profit, and otherwise materially adversely affect our business, results of operations, financial condition and prospects.

Our ability to grow our specialty pharmacy business could be limited if we do not expand the number of drugs and treatments we offer or if we lose even a small percentage of our existing patients.

        Our specialty pharmacy business focuses on complex and high cost medications that serve a relatively small patient population. Due to the limited patient populations utilizing the medications that our specialty pharmacy business handles, our future growth relies, in part, on expanding our base of drugs or penetration in certain treatment categories. Further, given our relatively high net sales and gross profit per prescription dispensed, a small percentage decrease in our patient base or reduction in demand for any reason for the medications we currently dispense could have a material adverse effect on our business.

We generate a significant amount of revenue from certain specialty drugs we dispense.

        Our three largest revenue producing specialty drugs we dispense represented 35%, 40% and 47% of our revenues in 2013, 2012 and 2011, respectively, and our ten largest revenue producing specialty drugs we dispense represented 57%, 63% and 68% of our revenues in 2013, 2012 and 2011, respectively. In addition, although the mix of our highest volume specialty drugs fluctuates historically, our two largest revenue producing specialty drugs have not changed in the past two years. In the event that the use of these specialty drugs were to decline due to clinical ineffectiveness or as a result of the introduction of more effective alternatives, and we are unable to obtain access to high growth alternative specialty drugs, our revenues would be adversely affected. Loss of revenues from our three largest revenue producing specialty drugs without access to alternative high growth specialty drugs could have a material adverse effect on our revenues in the short term.

We receive a significant amount of prescription drugs from one wholesaler and one manufacturer. The loss of either of these relationships could disrupt our business and adversely impact our revenues for one or more fiscal quarters.

        Specialty drug purchases from Amerisource Bergen Corporation ("AmerisourceBergen"), a drug wholesaler, and Celgene Corporation ("Celgene"), a pharmaceutical manufacturer, represented 58% and 19%, respectively, of cost of goods sold in 2013, and 64% and 21%, respectively, of cost of goods sold in 2012. Our contract with Amerisource Bergen has an initial term of five years expiring December 31, 2016, and can be terminated by, among other things, either party's material breach that continues for 30 days. The contract also commits us to a minimum of approximately $3.5 billion in purchase obligations over a five year period. Failure to meet this minimum would result in significant additional expense without corresponding revenues. The agreement also provides for negotiated discounts that differ by drug classification, and any permitted reclassification of products by Amerisource Bergen to a lower discount category could have an adverse impact on our gross profit. In addition, Amerisource Bergen recently entered into a long term relationship with one of the largest

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specialty pharmacy companies in the country, which could adversely impact our relationship with Amerisource Bergen.

        Our agreement with Celgene began July 1, 2011 and was renewed on July 21, 2013 until June 30, 2016, and can be terminated by either party without cause upon 90 days' prior written notice, or earlier in the event of a material breach. Unlike the specialty drugs we purchase from Amerisource Bergen, the specialty drugs we purchase from Celgene are not available from any other source.

        The loss of either of these relationships could significantly disrupt our business and adversely impact our revenues for one or more fiscal quarters. These agreements also limit our ability to distribute competing drugs, while allowing the supplier to distribute through other channels.

Consolidation in the healthcare industry could materially adversely affect our business, financial condition and results of operations.

        Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with significant market power and we expect such trend to continue. As provider networks and managed care organizations consolidate, thereby decreasing the number of market participants, competition to provide products and services like ours will become more intense, and the importance of establishing relationships with key industry participants will become greater. In addition, industry participants may try to use their increased market power to negotiate price reductions for our products and services. If we are forced to reduce prices as a result of either an imbalance of market power or decreased demand for our products, revenue would be reduced and we could become significantly less profitable.

Our future success depends upon our ability to maintain and manage our rapid growth. If we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet the demands of our customers and other constituents.

        Over the past several years our business has grown significantly, and we aim to continue to expand the scope of our operations, both organically and through strategic acquisitions. Growth in our operations will place significant demands on our management, financial and other resources. We cannot be certain that our current systems, procedures, controls, and space will adequately support expansion of our operations, and we may be unable to expand or upgrade our systems or infrastructure to accommodate future growth. Our future operating results will depend on the ability of our management and key employees to successfully maintain our independence and corporate culture, preserve the effectiveness of our high-touch patient care model, manage changing business conditions and to implement and improve our technical, administrative, financial control and reporting systems. Our inability to finance future growth, manage future expansion or hire and retain the personnel needed to manage our business successfully could have a material adverse effect on our business and prospects.

We have limited experience acquiring companies and may not be able to effectively execute our acquisition strategy or successfully integrate acquired businesses.

        We have grown organically since we were founded, but we recently completed an important acquisition in our history. In December 2013, we acquired AHF, which provides specialty drugs and infusion services for bleeding disorders, principally hemophilia. In June 2014, we acquired MedPro, a specialty pharmacy focused on specialty infusion including hemophilia and immune globulin.

        Any of the following risks associated with our recent acquisitions or future acquisitions, individually or in aggregate may have a material adverse effect on our business:

    difficulties in realizing anticipated financial or strategic benefits of such acquisition;

    diversion of capital from other uses;

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    potential dilution of shareholder ownership if stock is used as consideration for the acquisition or if an equity offering is completed in connection with the financing of the acquisition;

    the risks related to increased indebtedness;

    significant capital expenditures may be required to integrate acquisition into our operations;

    disruption of our ongoing business or the ongoing acquired business, including impairment of existing relationships with our employees, distributors, suppliers, customers or other constituents or those of the acquired companies;

    diversion of management's attention and other resources from current operations, including potential strain on financial and managerial controls and reporting systems and procedures;

    difficulty in integrating acquired operations, including restructuring and realigning activities, personnel, technologies and products, including the loss of key employees, distributors, suppliers, customers or other constituents of the acquired businesses;

    inability to realize cost savings, sales increases or other benefits that we anticipate from such acquisitions, either as to amount or in the expected time frame;

    assumption of known and unknown liabilities, some of which may be difficult or impossible to quantify; and

    non-cash impairment charges or other accounting charges relating to the acquired assets.

Our lack of historical experience with acquisitions make the foregoing risks especially applicable to us.

        We will continue to review strategic acquisition opportunities that will enhance our market position, expand our expertise and drug access, add value to our constituents and provide sufficient synergies. Strategic transactions, including the pursuit of such transactions, often require significant up-front costs and require significant resources and management attention. These costs are typically non-recurring expenses related to the assessment, due diligence, negotiation and execution of the transaction. We may also incur additional costs to retain key employees as well as transaction fees and costs related to executing our integration plans.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

        Our quarterly and annual operating results, and in particular our revenues, have fluctuated in the past and may fluctuate significantly in the future. These fluctuations make it difficult for us to predict our future operating results. Our operating results may fluctuate due to a variety of factors, many of which are outside of our control and are difficult to predict, including the following:

    the launch timing for specialty drugs;

    the effect of the expiration of drug patents and the introduction of generic drugs;

    the demand for the specialty drugs to which we have access;

    whether our expected distribution share of drugs that come to market is properly estimated;

    whether revenues and margins on sales of drugs that come to market are properly estimated;

    expenditures that we will or may incur to acquire or develop additional capabilities;

    the timing of increases in drug costs by the manufacturers; and

    changes in the reimbursement policies of payors.

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These factors, individually or in the aggregate, could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period.

The failure or disruption of our information technology systems, our information security systems and our infrastructure to support our business and to protect the privacy and security of sensitive customer and business information could materially adversely affect our business.

        Many aspects of our operations are dependent on our information systems and the information collected, processed, stored, and handled by these systems. Throughout our operations, we receive, retain and transmit certain highly confidential information, including personal health information and other data that our customers and other constituents provide to purchase products or services, enroll in programs or services, register on our websites, interact with our personnel or otherwise communicate with us. In addition, for these operations, we depend in part on the secure transmission of confidential information over public networks. Although we have not historically experienced a major systems failure or security breach, our information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches including credit card information breaches, vandalism, catastrophic events and human error.

        A compromise of our information security controls or those of the businesses with whom we interact, which results in confidential information being accessed, obtained, damaged, or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from patients, physicians and other persons, any of which could adversely affect our business, financial position, and results of operations. Moreover, a data security breach could require that we expend significant resources related to our information systems and infrastructure, and could distract management and other key personnel from performing their primary operational duties. If our information systems are damaged, fail to work properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and we may experience a loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions and implement new and innovative services. In addition, compliance with changes in privacy and information security laws and standards may result in considerable expense due to increased investment in technology and the development of new operational processes. See also "—Risks Related to Federal and State Laws and Regulations—Our business operations involve the substantial receipt and use of confidential health information concerning individuals. A failure to adequately protect such information harm to our reputation and subject us to significant liabilities, each of which could have a material adverse effect on our business."

Our failure to maintain significant relationships or build new relationships with clinical experts and key thought leaders at U.S. physician groups and universities could result in a loss of existing patients, future referrals on existing and future drugs and pharmaceutical industry data and could materially adversely impact our business and prospects.

        We have developed significant relationships with clinical experts and key opinion leaders at physician groups and universities throughout the U.S. who are focused on oncology and immunology, involved in significant research projects related to specialty drugs, and who are high-volume prescribers of specialty drugs. Our failure to provide quality and timely services to such persons and their patients could impair our relationship, which could result in a loss of existing patients, future referrals on existing and future drugs and pharmaceutical industry data (including the anticipated drug pipeline) and therefore materially adversely impact our business and prospects.

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We rely heavily on a single shipping provider, and our business could be harmed if our shipping rates increase, our provider is unavailable or our provider performs poorly and we are unable to successfully replace our shipping provider.

        A substantial majority of the specialty drugs we dispense are shipped through UPS. We depend heavily on these shipping services for efficient and cost effective delivery of our products.

        The risks associated with our dependence on UPS include:

    any significant increase in shipping rates, including rate increases resulting from higher fuel prices;

    strikes or other service interruptions by UPS or by another carrier that could affect UPS;

    spoilage of high cost drugs during shipment, since our drugs often require special handling, such as refrigeration; and

    increased delivery errors by UPS, resulting in lost or stolen product.

        In the event any of the foregoing occurs and we are unable to transition efficiently and effectively to a new provider, we could incur increased costs or experience a material disruption in our operations.

A disruption in our operations could hurt our relations with our constituents and significantly impact our results of operations.

        We depend upon our contractors and vendors and on our specialty pharmacies and other facilities for the continued operation of our business. In addition, our success depends, in part, upon our telephone sales and direct marketing efforts and our ability to provide prompt, accurate and complete services to all of our constituents. Natural disasters or other catastrophic events, including hurricanes and other severe weather, terrorist attacks, power interruptions and fires could disrupt our operations and our ability to deliver our products, as well as the operations of our contractors and vendors. In the event we experience a temporary or permanent interruption in our ability to deliver our services or products, including at our corporate headquarters building, which is our primary distribution and service facility, our revenues could be reduced and our business could be materially adversely affected. In addition, any continuing disruption in either our computer system or our telephone system could adversely affect our ability to receive and process customer orders and ship products on a timely basis, and could adversely affect our relations with our customers, potentially resulting in reduction in orders or loss of customers.

We are highly dependent on our senior management and key employees. Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees that we need to support our business and our anticipated future growth.

        Our success largely depends on the skills, experience, and continued efforts of our management. In particular, our founder, Chief Executive Officer and Chairman of the Board of Directors, Philip Hagerman, has led our company throughout its 39-year history. Further, we intend to grow the business significantly, which will depend on our ability to continue to attract, motivate and retain highly qualified individuals in key management, pharmacist, nursing and similar roles. Competition for senior management and other key personnel is intense, and the pool of suitable candidates is limited. If we lose the services of one or more of our key employees, we may not be able to find a suitable replacement and our business could be materially adversely affected.

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If a customized drug provided through our compounding services leads to significant patient injury or death, we may be exposed to significant liabilities and reputational harm.

        We provide limited compounding services. Our compounding services include the preparation of personalized medications for patients. Our compounding pharmacists work with prescribers to customize a medication to meet a patient's specific health needs. While our compounding services accounted for less than 0.5% of our revenues in the year ended December 31, 2013, the risks associated with compounding could affect our overall operations. Because compounding involves the preparation of a patient-customized drug, cream, or injectable, including with respect to specific ingredients designed to increase or decrease dosage, we are exposed to a potentially large liability claim in the event that a compounded medication we prepared leads to significant patient harm or death. Such instances may also generate significant negative publicity that could harm our reputation and thereby materially affect our results of operations.

Our industry is highly litigious and future litigation or other proceedings could subject us to significant monetary damages or penalties or require us to change our business practices, which could impair our reputation and result in a material adverse effect on our business.

        We are subject to risks relating to litigation, enforcement action, regulatory proceedings, government inquiries and investigations and other similar actions in connection with our business operations, including the dispensing of pharmaceutical products by our specialty and home delivery pharmacies, claims and complaints related to the various regulations to which we are subject and services rendered in connection with our disease management activity. While we are currently not subject to any material litigation, such litigation is not unusual in our industry. Further, while certain costs are covered by insurance, we may incur uninsured costs related to the defense of such proceedings that are material to our financial performance.

        Furthermore, unexpected volatility in insurance premiums or retention requirements or claims in excess of our insurance coverage could have a material adverse effect on our business and results of operations.

Our pro forma financial information may not be representative of our future performance.

        In preparing the pro forma financial information included in this prospectus, we have made adjustments to our historical financial information based upon currently available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of some or all of the following: (i) the January and April 2014 issuance of preferred stock and the use of certain related proceeds to redeem outstanding shares of common stock and common stock options; (ii) the December 2013 acquisition of AHF and related borrowings under our line of credit; (iii) the June 2014 acquisition of MedPro and related borrowings under our line of credit; (iv) the January 23, 2014 conversion from an S corporation to a C corporation; (v) the conversion of all outstanding shares of our preferred stock, Class A voting stock and Class B non-voting stock into shares of our common stock; and (vi) this offering and the use of proceeds therefrom. The estimates and assumptions used in the calculation of the pro forma financial information in this prospectus may be materially different from our actual experience. Accordingly, the pro forma financial information included in this prospectus does not purport to indicate the results that would have actually been achieved had the above transactions been completed on the assumed date or for the periods presented, or which may be realized in the future, nor does the pro forma financial information give effect to any events other than those discussed in our unaudited pro forma financial statements and related notes.

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Any debt service obligations will reduce the funds available for other business purposes, and the terms and covenants relating to our current and future indebtedness could adversely impact our financial performance and liquidity.

        As of                  , 2014, we had $            debt outstanding under our revolving line of credit and approximately             of former stakeholder notes outstanding. As of such date, we could incur up to an additional $         million in indebtedness under our revolving line of credit. To the extent we incur significant debt in the future for acquisitions, capital expenditures, working capital or otherwise, we will be subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness.

        In addition, our line of credit contains covenants requiring us to, among other things, provide financial and other information reporting, provide notice upon certain events and maintain cash management arrangements. These covenants also place restrictions on our ability to incur additional indebtedness, pay dividends or make other distributions, redeem or repurchase capital stock, make investments and loans and enter into certain transactions, including selling assets, engaging in mergers or acquisitions, or engaging in transactions with affiliates. The covenants under our line of credit also include a minimum fixed charge coverage ratio of not less than 1.10 to 1.0, as measured on a trailing 12-month basis, if the amount available to be drawn under our revolving line of credit is less than $20.0 million. If we fail to satisfy one or more of the covenants under our line of credit, we would be in default under the credit agreement, and may be required to repay such debt with capital from other sources or otherwise not be able to draw down against our line of credit. Under such circumstances, other sources of capital may not be available to us on reasonable terms or at all.

Our business could be harmed if the supply of any of the specialty drugs we distribute becomes scarce or is disrupted.

        Many specialty drugs are manufactured with ingredients that are susceptible to supply shortages. In particular, specialty drugs used to treat disease states such as hemophilia and autoimmune conditions can depend on supplies of donated blood, which may fluctuate. A supply shortage, or in rare cases, a complete cessation of manufacturing, of a specialty drug we distribute could materially and adversely impact our volumes, net revenues, profitability and cash flows.

If some of the drugs that we provide lose their orphan drug status, we could face increased competition.

        In order to encourage the development of drugs that might not otherwise be profitable for pharmaceutical companies, the FDA will occasionally grant certain drugs orphan status. When the FDA grants orphan status to a drug, it will not approve a second drug for the same treatment for a period of seven years unless the new drug is chemically different or clinically superior. Additionally, it is easier to gain marketing approval for an orphan drug, and there may be other financial incentives associated with the manufacturing and distribution of orphan drugs, such as extended exclusivity periods. Our business could be adversely affected by any challenges to or the expiration of a drug's orphan status. The loss of such status, the approval of new drugs notwithstanding a drug's orphan status or the development of drugs that are superior to the orphan drugs we sell could result in additional competition and adversely impact our business and results of operations.

Our business would be harmed if the pharmaceutical industry reduces research, development and marketing of specialty drugs that are compatible with the services we provide.

        Our business is highly dependent on continued research, development and marketing expenditures of pharmaceutical companies, and the ability of those companies to develop, supply and generate demand for specialty drugs that are compatible with the services we provide. Our business could be materially adversely affected if manufacturers fail to market and support existing drugs, research

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potential new treatments or to develop new drugs. Our business could also be harmed by any governmental or private initiative that would alter how drug manufacturers promote or sell products and services.

We support hospitals that participate in the 340B Drug Pricing Program ("340B Program"). Recently, the 340B Program has faced increased scrutiny from Congress, federal agencies and pharmaceutical manufacturers. In the event of future changes to the 340B Program, the revenues we derive from hospital services could be adversely impacted.

        Our hospital program supports hospitals that are 340B covered entities pursuant to which such hospitals are able to purchase certain specialty drugs from pharmaceutical manufacturers at a discount for dispensing to eligible patients. In cases where the covered entity treats an insured patient with a discounted specialty drug, the federal government or the patient's private insurance routinely reimburses the entity for the full price of the medication, and the entity is able to retain the difference between the reduced price it pays for the drug and the full amount for which it is reimbursed. In recent years, this practice and other aspects of the 340B Program have come under increased scrutiny. Also, the Health Resources and Services Administration, the agency that administers the 340B Program, is currently working to finalize proposed regulations to formalize existing 340B Program guidance. It is anticipated that the proposed regulations will be issued during summer 2014 and will address, among other things, the definition of an eligible patient and hospital eligibility criteria. Although we are not direct participants in the 340B Program and related services accounted for less than 0.1% of our revenues in the year ended December 31, 2013, our involvement with hospitals that are covered entities could cause reputational harm as a result of increased controversy regarding the 340B Program. In addition, if hospitals decrease their utilization of the 340B Program, whether due to regulatory changes or increased scrutiny, such decrease would impact revenue from this business.

We may be unable to obtain or retain the right to use or successfully integrate third-party licenses in our technology-based products, which could limit the number and type of products we are able to offer our customers.

        We rely on third-party licenses for some of the technology used in our products, and intend to continue licensing technologies from third parties. Most of these licenses can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. We may not be able to continue to obtain these licenses on commercially reasonable terms, or at all. Our inability to obtain or renew these licenses or find suitable alternatives could delay development of new products or prevent us from selling our existing products until suitable substitute technology can be identified, licensed, integrated or developed by us. We cannot assure you as to when we would be able to do so, if at all.

        Most of our third-party licenses are non-exclusive. Our competitors may obtain the right to use any of the technology covered by these licenses and use the technology to attempt to compete more effectively with us. In addition, our use of third-party technologies exposes us to risks associated with the integration of components from various sources into our products, such as unknown software errors or defects or unanticipated incompatibility with our systems and technologies. Further, we are dependent on our vendors' continued support of the technology we use. If a vendor chooses to discontinue or is unable to support a licensed technology, we may not be able to modify or adapt our products to fit other available technologies in a timely manner, if at all.

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Risks Related to Federal and State Laws and Regulations

We operate in a highly regulated industry and must comply with a significant number of complex and evolving requirements. Changes in state and federal government regulation could restrict our ability to conduct our business and cause us to incur significant costs.

        The marketing, sale and purchase of pharmaceuticals and medical supplies and provision of healthcare services generally are extensively regulated by federal and state governments. In addition, other aspects of our business are also subject to government regulation. The applicable regulatory framework is complex, and the laws are very broad in scope. Many of these laws remain open to interpretation and have not been addressed by substantive court decisions. Accordingly, we cannot assure you that our interpretation would prevail or that one or more government agencies will not interpret the applicable laws and regulations differently. Changes in the law or new interpretations of existing law can have a dramatic effect on our operations, our cost of doing business and the amount of reimbursement we receive from governmental third-party payors such as Medicare and Medicaid.

        Some of the healthcare laws and regulations that apply to our activities include:

    The federal "Anti-Kickback Statute" prohibits individuals and entities from knowingly and willfully paying, offering, receiving or soliciting money or anything else of value in order to induce the referral of patients or to induce a person to purchase, lease, order, arrange for, or recommend services or goods covered in whole or in part by Medicare, Medicaid, or other government healthcare programs. The Anti-Kickback Statute is an intent-based statute and the failure of a business arrangement to satisfy all elements of a safe harbor will not necessarily render the arrangement illegal, but it may subject that arrangement to increased scrutiny by enforcement authorities. Any violation of the Anti-Kickback Statute can lead to significant penalties, including criminal penalties, civil fines and exclusion from participation in Medicare and Medicaid.

    The "Stark Law" prohibits physicians from making referrals to entities with which the physicians or their immediate family members have a "financial relationship" (i.e., an ownership, investment or compensation relationship) for the furnishing of certain Designated Health Services that are reimbursable under Medicare. The Stark Law exempts certain business relationships that meet its exception requirements. However, unlike the Anti-Kickback Statute under which an activity may fall outside a safe harbor and still be lawful, a referral for Designated Health Services that does not fall within an exception is strictly prohibited by the Stark Law. A violation of the Stark Law is punishable by civil sanctions, including significant fines and exclusion from participation in Medicare and Medicaid.

    The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and the Health Information Technology for Economic and Clinical Health Act ("HITECH") provide federal privacy protections for individually identifiable health information. See "—Our business operations involve the substantial receipt and use of confidential health information concerning individuals. A failure to adequately protect any of this information could result in severe harm to our reputation and subject us to significant liabilities, each of which could have a material adverse effect on our business." below.

    Pharmacies and pharmacists must obtain state licenses to operate and dispense pharmaceuticals. If we are unable to maintain our licenses or if states place burdensome restrictions or limitations on non-resident pharmacies, this could limit or affect our ability to operate in some states.

    Federal and state investigations and enforcement actions continue to focus on the health care industry, scrutinizing a wide range of items such as joint venture arrangements, referral and billing practices, product discount arrangements, home health care services, dissemination of confidential patient information, clinical drug research trials and gifts for patients.

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Legislative or regulatory policies designed to manage healthcare costs or alter healthcare financing practices or changes to government policies in general may adversely impact our business and results of operations.

        Occasionally, certain legislative and/or regulatory proposals are made which seek to manage the cost of healthcare, including prescription drug cost. Such proposals include "single-payor" government funded healthcare, changes in reimbursement rates, restrictions on rebates and discounts, restrictions on access or therapeutic substitution, limits on more efficient delivery channels, taxes on goods and services, price controls on prescription drugs and other significant healthcare reform proposals. Further, more exacting regulatory policies and requirements specific to the specialty pharmacy sector may cause a rise in costs, labor, and time to meet all such requirements. We are unable to predict whether any such policies or proposals will be enacted, or the specific terms thereof. Certain of these policies or proposals, if enacted, could have a material adverse impact on our business.

Our business operations involve the substantial receipt and use of confidential health information concerning individuals. A failure to adequately protect any of this information could result in severe harm to our reputation and subject us to significant liabilities, each of which could have a material adverse effect on our business.

        Most of our activities involve the receipt or use of protected health information concerning individuals. We also use aggregated and de-identified data for research and analysis purposes, and in some cases, provide access to such de-identified data to pharmaceutical manufacturers, payors and third-party data aggregators and analysts. There is substantial regulation at the federal and state levels addressing the use, disclosure and security of patient identifiable health information. At the federal level, HIPAA and the regulations issued thereunder impose extensive requirements governing the transmission, use and disclosure of health information by all participants in health care delivery, including physicians, hospitals, insurers and other payors. Many of these obligations were expanded under HITECH, passed as part of the American Recovery and Reinvestment Act of 2009. Failure to comply with standards issued pursuant to federal or state statutes or regulations may result in criminal penalties and civil sanctions. In addition to regulating privacy of individual health information, HIPAA includes several anti-fraud and abuse laws, extends criminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General's authority to exclude persons and entities from participating in the Medicare and Medicaid programs. Further, future regulations and legislation that severely restrict or prohibit our use of patient identifiable or other information could limit our ability to use information critical to the operation of our business. If we violate a patient's privacy or are found to have violated any federal or state statute or regulation with regard to confidentiality or dissemination or use of protected health information, we could be liable for significant damages, fines or penalties and suffer severe reputational harm, each of which could have a material adverse effect on our business, results of operations and prospects.

There remains considerable uncertainty as to the full impact of the Health Reform Laws on our business.

        Many of the structural changes enacted by the Health Reform Laws are being implemented in 2014, and some of the applicable regulations and sub-regulatory guidance have not yet been issued and/or finalized. Therefore, there remains considerable uncertainty as to the full impact of the Health Reform Laws on our business. While these reforms may not affect our business directly, they affect the coverage and plan designs that are or will be provided by many of our health plan customers. As a result, they could indirectly impact many of our services and business practices. We cannot predict what effect, if any, the Health Reform Laws, related regulations and sub-regulatory guidance may have on our business.

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Risks Related to this Offering and Ownership of Our Common Stock

No market currently exists for our common stock, and we cannot assure you that an active trading market will develop for our stock.

        Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our Company will lead to the development of a trading market on the                or otherwise, or how liquid that market might become. If an active market does not develop, you may have difficulty selling any shares of our common stock that you purchase in this offering. Additionally, because we will have a limited number of shares of common stock in our public float, the market for such shares may be illiquid, sporadic and volatile. As a result, there may be extreme fluctuations in the price of shares of our common stock. The initial public offering price for the shares of our common stock will be determined by negotiations among us, the selling shareholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering.

Our stock price may be volatile or may decline regardless of our operating performance, and you may lose part or all of your investment.

        After this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been traded publicly, and that volatility may be exacerbated by our relatively small public float. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

    market conditions or trends in the pharmaceutical industry, the healthcare industry in general, or in the economy as a whole;

    actions by existing or future competitors;

    actual or anticipated growth rates relative to our competitors;

    the public's response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission;

    economic, legal and regulatory factors unrelated to our performance;

    any future guidance we may provide to the public, any changes in such guidance or any difference between our guidance and actual results;

    changes in financial estimates or recommendations by any securities analysts who follow our common stock;

    speculation by the press or investment community regarding our business;

    litigation;

    changes in key personnel; and

    future sales of our common stock by our officers, directors and significant shareholders.

        In addition, the stock markets, including the                , have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

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If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution.

        The offering price of our common stock is substantially higher than the net tangible book value per share of our common stock, which on a pro forma basis was $            per share of our common stock as of                , 2014. As a result, you will incur immediate and substantial dilution in net tangible book value when you buy our common stock in this offering. This means that you will pay a higher price per share than the amount of our total tangible assets, less our total liabilities, divided by the number of shares of common stock outstanding. In addition, you may also experience additional dilution if options or other rights to purchase our common stock that are outstanding or that we may issue in the future are exercised or converted or we issue additional shares of our common stock at prices lower than our net tangible book value at such time. See "Dilution."

We do not expect to pay any cash dividends for the foreseeable future and, consequently, for those who purchase our common stock, the only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

        Following this offering, we do not anticipate that we will pay any cash dividend on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial performance and condition, capital requirements, contractual restrictions under our line of credit and other debt agreements (including specific restrictive covenants), restrictions imposed by applicable law and other factors that our Board of Directors deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

        The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market after this offering. These sales, or the perception that these sales might occur, could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

        In connection with this offering, we, our directors and executive officers, the selling shareholders and certain other holders of our outstanding common stock and options, representing substantially all of our common stock or options outstanding, have each agreed to certain lock-up restrictions. We and they and their permitted transferees will not be permitted to sell any shares of our common stock for 180 days, subject to extension, after the date of this prospectus, except as discussed in "Shares Eligible for Future Sale," without the prior consent of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC. Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC may, together in their sole discretion, release all or any portion of the shares of our common stock from the restrictions in any of the lock-up agreements.

        Upon the completion of this offering, we will have            shares of common stock outstanding. Except as limited by the lock-up agreements noted above, the shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended ("the Securities Act"), except for any shares of common stock that may be held or acquired by our directors, executive officers and other affiliates, the sale of which will be restricted under the Securities Act. In addition, shares subject to outstanding options under our 2007 Option Plan and shares reserved for

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future issuance under our 2014 Omnibus Plan will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.

        Moreover, pursuant to a registration rights agreement with certain funds of T. Rowe Price Associates, Inc. and Janus Capital Management, LLC, such shareholders have the right to require us to register under the Securities Act any shares of common stock they currently own. See "Certain Relationships and Related-Party Transactions—Related-Party Transactions—Registration Rights Agreement." If our existing shareholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.

        In addition, in the future, we may issue shares of our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock, which would dilute the holdings of existing shareholders.

Certain provisions of our corporate governance documents and Michigan law could discourage, delay or prevent a merger or acquisition at a premium price.

        Our amended and restated articles of incorporation and bylaws will contain provisions that may make the acquisition of our Company more difficult without the approval of our Board of Directors. These include provisions that, among other things:

    authorize the issuance of "blank check" preferred stock, the terms of which may be established and shares of which may be issued without shareholder approval;

    provide that the number of directors shall be fixed exclusively by the Board of Directors;

    create a staggered Board of Directors, allow removal of directors for cause only, and allow a majority of directors then in office to fill any vacancies and newly created directorships on the Board of Directors;

    prohibit shareholders from calling a special meeting of shareholders;

    require supermajority votes for various shareholder approvals; and

    establish advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted upon at shareholders' meetings.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of the Board of Directors, which is responsible for appointing members of our management.

        In addition, the award agreements for outstanding options under our 2007 Option Plan generally provide that all unvested options will immediately vest upon a change in control. The 2014 Omnibus Plan will permit the board of directors or a committee thereof to accelerate, vest or cause the restrictions to lapse with respect to outstanding equity awards, in the event of, or immediately prior to, a change in control. Such vesting or acceleration could discourage the acquisition of our Company.

        We could also become subject to certain anti-takeover provisions under Michigan law which may discourage, delay or prevent someone from acquiring us or merging with us, whether or not an acquisition or merger is desired by or beneficial to our shareholders. If a corporation's board of directors chooses to "opt-in" to certain provisions of Michigan Law, such corporation may not, in general, engage in a business combination with any beneficial owner, directly or indirectly, of 10% of the corporation's outstanding voting shares unless the holder has held the shares for five years or more or, among other things, the board of directors has approved the business combination. Our board of

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directors has not elected to subject to corporation to this provision, but could do so in the future. Any provision of our amended and restated articles of incorporation or bylaws or Michigan law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares, and could also affect the price that some investors are willing to pay for our common stock otherwise.

We expect to be a "controlled company" within the meaning of the rules of            and, as a result, we will qualify for, and currently intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

        After completion of this offering, members of the Hagerman family will collectively hold more than 50% of our voting stock, and Philip Hagerman will have voting authority with respect to such shares pursuant to a shareholders agreement, and therefore we expect to qualify as a "controlled company" within the meaning of the corporate governance rules of the            . Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

    the requirement that a majority of the board of directors consist of independent directors;

    the requirement that we have a nominating and corporate governance committee, and if we have such committee, that it be composed entirely of independent directors; and

    the requirement that we have a compensation committee, and if we have such committee, that it be composed entirely of independent directors.

We intend to rely on some of these corporate governance exemptions at the time of the offering and may rely on some or all of such exceptions so long as we continue to qualify as a controlled company.

        Additionally, under the rules of the Exchange Act, we are only required to have one independent audit committee member upon the listing of our common stock on the            , a majority of independent audit committee members within 90 days from the date of listing and three independent audit committee members within one year from the date of listing.

        Consequently, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance rules and requirements of            . Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

The Hagerman family will have the ability to control the outcome of matters submitted for shareholder approval and may have interests that differ from those of our other shareholders.

        After the completion of this offering, assuming the underwriters do not exercise their option to purchase additional shares, Philip Hagerman and members of his immediate family and various trusts affiliated with such persons (together with Philip Hagerman, the "Hagerman family") will beneficially own approximately        % of our common stock, and voting authority for all of such shares will be controlled by Philip Hagerman pursuant to a shareholders' agreement. Therefore, Philip Hagerman will continue to have effective control over the outcome of votes on all matters requiring approval by shareholders after the offering, including the election of directors, the adoption of amendments to our articles of incorporation and bylaws and approval of a sale of the Company and other significant corporate transactions, regardless of how other shareholders vote on these matters. Furthermore, the interests of the Hagerman family may be different than the interests of other shareholders. This concentration of voting power could also have the effect of delaying, deterring or preventing a change in control or other business combination that might otherwise be beneficial to our shareholders.

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Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

        We estimate that net proceeds of the sale of the common stock that we are offering will be approximately $       million, $      of which will be used to satisfy certain indebtedness to current and former stakeholders and employees. Our management will have broad discretion to use the balance of our net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds of this offering in ways that increase the value of your investment. Our management might not be able to yield any return on the investment and use of these net proceeds. You will not have the opportunity to influence our decisions on how to use the proceeds.

Some of our operating expenses will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

        Since our inception, we have operated as a private company. As a public company, we will incur additional legal, accounting, compliance and other expenses that we have not incurred as a private company. After this offering, we will become obligated to file annual and quarterly information and other reports with the SEC as required by the Securities Exchange Act of 1934, as amended ("the Exchange Act"), and applicable SEC rules. In addition, we will also become subject to other reporting and corporate governance requirements, including certain requirements of the            , which will impose significant compliance obligations upon us. Among other things, we will need to institute a comprehensive compliance function related to various regulations, establish additional internal policies and controls, prepare financial statements that are compliant with SEC reporting requirements on a timely basis, draft a proxy statement and hold annual meetings of shareholders, appoint independent directors, comply with additional corporate governance matters, and utilize outside counsel and accountants in the above activities.

        The Sarbanes-Oxley Act of 2002 and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules subsequently implemented by the SEC and the             , have imposed increased regulation and disclosure obligations and have required enhanced corporate governance practices of public companies. Our efforts to comply with evolving laws, regulations and standards are likely to result in increased administrative expenses and a diversion of management's time and attention from sales-generating activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business, results of operations and financial condition. If we do not implement or comply with such requirements in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the             . Any such action could harm our reputation and the confidence of investors and constituents in our Company and could materially adversely affect our business and cause our stock price to decline.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if our operating results do not meet the expectations of the investor community, one or more of the analysts who cover our Company may change their recommendations regarding our Company, and our stock price could decline.

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If we cannot satisfy or continue to satisfy the continued listing requirements of            , our common stock may be delisted, which would negatively impact the price of our common stock and your ability to sell our common stock.

        Our common stock has been approved for listing on the            , subject to official notice of issuance. If we are unable to comply with the continued listing requirements of            , we could be delisted from and face significant consequences, including:

    limited availability for market quotations for our common stock;

    reduced liquidity with respect to our common stock;

    limited amount of news and analyst coverage; and

    a decreased ability to issue additional securities or obtain additional financing in the future.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements in addition to historical information. These forward-looking statements are included throughout this prospectus, including under the headings entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "future," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "will," and similar terms and phrases, or the negative thereof, to identify forward-looking statements in this prospectus.

        The forward-looking statements contained in this prospectus are based on management's good-faith belief and reasonable judgment based on current information, and these statements are qualified by important factors, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, including those described in "Risk Factors." Any forward-looking statement made by us in this prospectus speaks only as of the date of this prospectus. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

        The following risks related to our business, among others, could cause actual results to differ materially from those described in the forward-looking statements:

    our ability to adapt to changes or trends within the specialty pharmacy industry;

    significant and increasing pricing pressure from third-party payors;

    our relationships with key pharmaceutical manufacturers;

    bad publicity about, or market withdrawal of, specialty drugs we dispense;

    a significant increase in competition from a variety of companies in the health care industry;

    our ability to expand the number of specialty drugs we dispense and related services;

    maintaining existing patients;

    revenue concentration of the top specialty drugs we dispense;

    our ability to maintain relationships with a specified wholesaler and pharmaceutical manufacturer;

    increasing consolidation in the healthcare industry;

    managing our growth effectively;

    limited experience with acquisitions;

    fluctuations in operating results;

    failure or disruption of our information technology and security systems;

    relationships with clinical experts and key thought leaders at U.S. physician groups and universities;

    reliance on a single shipping provider;

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    dependence on our senior management and key employees;

    liability risks associated with our compounding services;

    debt service obligations;

    supply disruption of any of the specialty drugs we dispense;

    loss of orphan drug status for such specialty drugs we dispense;

    reductions of research, development and marketing of specialty drugs; and

    other factors set forth under "Risk Factors."

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USE OF PROCEEDS

        Assuming an initial public offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), we estimate that we will receive net proceeds from this offering of approximately $             million, after deducting the underwriting discount and estimated offering expenses payable by us.

        We intend to use the net proceeds from this offering to repay indebtedness to certain current or former stakeholders and employees, which as of March 31, 2014 are as follows: (i) $13.5 million to Mark Chaffee, a former shareholder, to satisfy a promissory note bearing interest at 1.3% per annum and maturing in January 2017; (ii) $7.2 million to Jeffrey M. Rowe, an existing shareholder, executive officer and director, to satisfy a promissory note bearing interest at 1.3% per annum and maturing on July 20, 2017; (iii) $0.2 million to Deborah Ward, an existing shareholder and the sister of Philip Hagerman, our Chairman and Chief Executive Officer, to satisfy a promissory note bearing no interest and maturing on April 20, 2015; and (iv) $1.0 million to Stephen M. Lund, a former employee and option holder, to satisfy a promissory note bearing interest at the prime rate plus 1.0% and maturing on July 20, 2017. The balance of the net proceeds from this offering will be used for working capital and other general corporate purposes, which may include, a reduction of borrowings in part or in full of our revolving line of credit to the extent of any borrowings as of the completion of the offering or for opportunistic acquisitions. If we use proceeds to reduce borrowing under our line of credit, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., lenders thereunder and affiliates of certain of the underwriters of this offering, will receive a portion of such repayment. See "Underwriting."

        Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) the net proceeds to us from this offering by approximately $             million, after deducting the underwriting discount and estimated offering expenses payable by us.

        We will not receive any proceeds from the sale of shares of our common stock by the selling shareholders, including any shares that may be sold by the selling shareholders in connection with the exercise of the underwriters' option to purchase additional shares.

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DIVIDEND POLICY

        We do not currently anticipate paying any dividends to our shareholders in the foreseeable future. Although historically as a private company, we paid cash distributions to our shareholders we currently expect to retain all future earnings, if any, for use in the operation and expansion of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial performance and condition, capital requirements, restrictions imposed by applicable law, other factors our board of directors deems relevant and contractual restrictions under our line of credit and other debt agreements including those discussed under "Description of Indebtedness" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" in this prospectus. As a result, capital appreciation, if any, of our common stock will be your sole source of gain from your purchase of our common stock for the foreseeable future.

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CAPITALIZATION

        The following table sets forth our cash and capitalization as of March 31, 2014 on:

    an actual basis;

    a pro forma basis to give effect to (i) the April 1, 2014 issuance by us of Series A Preferred Stock to certain funds of Janus Capital Group and our use of certain proceeds therefrom to redeem shares of our common stock and common stock options, (ii) the June 27, 2014 acquisition of MedPro and related borrowings under our line of credit, and (iii) the conversion of all shares of our Series A Preferred Stock, Class A Voting Stock and Class B Nonvoting Stock into shares of our common stock immediately prior to the completion of this offering as described under the heading "Description of Capital Stock—Conversion of Issued and Outstanding Preferred Stock" as if such transactions occurred on March 31, 2014; and

    a pro forma as adjusted basis to give further effect to the sale of shares of common stock by us in this offering at an assumed initial public offering price of $            per share (the midpoint of the estimated price range set forth on the cover of this prospectus), after deducting the underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds of this offering by us as described under "Use of Proceeds" as if such transactions occurred on March 31, 2014.

        The information below is illustrative only and our cash and capitalization following the completion of this offering will be based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

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  As of March 31, 2014
(unaudited)
 
 
  Actual   Pro Forma   Pro Forma
as Adjusted(4)
 
 
  (Dollars in thousands, except par values)
 

Cash and cash equivalents

  $   $        $       
               
               

Line of credit(1)

  $ 38,747   $        $       

Mortgage debt

    2,604              

Notes payable to individuals

    21,831              
               

Series A convertible preferred stock, par value $.001 per share, 732 shares authorized, 3,531.32097 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   
48,627
   
   
 

Class A Voting Common Stock, par value $1.00 per share, 5,000 shares authorized, 195 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   
   
   
 

Class B Nonvoting Common Stock, par value $1.00 per share, 95,000 shares. authorized, 3,890.98932 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   
4
   
   
 

Common stock, no par value per share, no shares authorized, no shares issued and outstanding, actual;            shares authorized,            shares issued and outstanding, pro forma;            shares authorized,            shares issued and outstanding, pro forma as adjusted

   
             

Additional paid-in capital(2)

   
(54,732

)
           

Retained earnings(3)

    2,268              
               

Total stockholders' equity (deficit)

    (3,833 )            
               

Total capitalization

  $ 59,349   $        $       
               
               

(1)
As of March 31, 2014, our line of credit provided for up to $85 million in revolving loans, subject to a borrowing base determined primarily by the value of our eligible receivables and inventory. As of March 31, 2014, we had $46.3 million in undrawn availability under our line of credit. See "Description of Indebtedness." The pro forma line of credit balance reflects incremental borrowings under the line of credit to partially fund the MedPro acquisition and related transaction costs incurred after March 31, 2014. All outstanding borrowings under the line of credit are expected to be paid off with proceeds from this offering.

(2)
The pro forma additional paid-in capital balance reflects A) the 84.31703 shares of Class B Nonvoting Common Stock issued to the sellers of MedPro as partial payment of the aggregate purchase price, B) the redemption of common stock and common stock options with certain proceeds from the Janus Capital Group preferred stock investment and C) the conversion of all classes of capital stock into                        shares of common stock. The pro forma, as adjusted additional paid-in capital balance further reflects the sale of                        common shares in this offering.

(3)
The pro forma retained earnings balance reflects after-tax impact of MedPro acquisition costs expected to be incurred after March 31, 2014.

(4)
A $1.00 increase (decrease) in the assumed initial public offering price of $            (the midpoint of the price range set forth on the front cover of this prospectus) would increase (decrease) each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total shareholders' equity and total capitalization by $            assuming the number of shares offered by us set forth

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    on the front cover of this prospectus remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us. An increase or decrease of              million shares in the number of shares offered by us would increase (decrease) each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total shareholders' equity and total capitalization by approximately $             million assuming the assumed initial public offering price of $            per share (the midpoint of the price range set forth on the front cover of this prospectus) remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us. The pro forma as adjusted information described above is illustrative only and will adjust based on the actual initial public offering price and terms of this offering determined at pricing. See "Prospectus Summary—The Offering" for a description of exclusions and assumptions made in calculating the total outstanding shares as of such date.

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DILUTION

            If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution to the extent of the difference between the public offering price per share of our common stock and the consolidated net tangible book value per share of our common stock after giving effect to this offering.

            Consolidated net tangible book value (deficit) per share is determined by dividing (i) our total assets less our goodwill, intangible assets, deferred initial public offering costs, and total liabilities by (ii) the number of shares of our common stock outstanding. As of March 31, 2014, we had a consolidated net tangible book value (deficit) of approximately $(12.2) million, or $(2,864.09) per common share. Our pro forma consolidated net tangible book value (deficit) as of March 31, 2014 would have been $             million, or $            per share, based on the total number of shares of our common stock outstanding as of March 31, 2014, after giving effect to (i) the April 2014 issuance by us of our Series A Preferred Stock to certain funds of Janus Capital Group and our use of certain proceeds therefrom to redeem shares of our common stock and common stock options, (ii) the June 27, 2014 acquisition of MedPro and related borrowings under our line of credit, and (iii) the conversion of all shares of our Series A Preferred Stock, Class A Voting Common Stock and Class B Nonvoting Common Stock into shares of our common stock as described under the heading "Description of Capital Stock—Conversion of Issued and Outstanding Preferred Stock." Following the sale by us of the            shares of common stock in this offering at an assumed initial public offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) after deducting the underwriting discount and estimated offering expenses payable by us and applying the net proceeds as set forth in "Use of Proceeds," our pro forma as adjusted consolidated net tangible book value at March 31, 2014 would have been $             million, or $            per share. This represents an immediate increase in pro forma as adjusted consolidated net tangible book value to existing shareholders of $            per share and an immediate dilution to new investors of $            per share. Dilution per share represents the difference between the price per share to be paid by new investors for the shares of common stock sold in this offering and the pro forma as adjusted consolidated net tangible book value per share immediately after this offering. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share

        $           

Pro forma net tangible book value (deficit) per share as of March 31, 2014

  $                 

Increase in pro forma net tangible book value per share attributable to new investors

  $                 
             

Pro forma consolidated net tangible book value per share, as adjusted for this offering

        $           
             

Dilution in pro forma net tangible book value per share to new investors in this offering

        $           
             
             

            Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), would increase (decrease) our pro forma consolidated net tangible book value, as adjusted, after this offering by $             million and the dilution per share to new investors by $            , in each case assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

            A             million increase (decrease) in the number of shares offered by us would increase (decrease) our as pro forma consolidated net tangible book value by approximately $             million, or $            per share, assuming an initial public offering price of $            per share (the midpoint of the price range set forth on the cover page of this prospectus), and the dilution per share to new investors

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    by approximately $            , and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

            If the underwriters exercise their option to purchase                        additional shares of common stock in this offering in full, our pro forma consolidated net tangible book value, as adjusted, as of March 31, 2014 would increase to approximately $             million, or $            per share, and dilution per share to new investors would increase to approximately $            , in each case assuming an initial public offering price of $            per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

            The following table sets forth, as of March 31, 2014, the number of shares of common stock purchased, the total consideration paid, or to be paid to us, and the average price per share paid, or to be paid, by existing shareholders and by the new investors, at an assumed initial public offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), before deducting the underwriting discount and estimated offering expenses payable by us (dollars in thousands, except per share data):

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing shareholders(1)

                   % $                       % $           

New investors in this offering(1)

                          $    

Total

                   % $                       %      

(1)
The number of shares purchased by existing shareholders includes shares being sold by the selling shareholders in this offering. The number of shares purchased by new investors does not include shares being sold by the selling shareholders in this offering and does not include shares issued pursuant to the underwriters' option to purchase additional shares.

        Sales by the selling shareholders in this offering will reduce the number of shares held by existing shareholders to            shares, or approximately        % (             shares, or approximately        %, if the underwriters exercise their overallotment option in full), and will increase the number of shares to be purchased by new investors to             shares, or approximately        % (            shares, or approximately        %, if the underwriters exercise their overallotment option in full), of the total common stock outstanding after this offering.

        The foregoing tables exclude (i)             shares of our common stock issuable upon the exercise of options outstanding as of                , 2014 under our 2007 Option Plan, with a weighted average exercise price of $            per share, and (ii)             shares of our common stock reserved for future issuance under our 2014 Omnibus Plan as of the date hereof, which will be effective upon the completion of this offering. To the extent these options are exercised, there will be further dilution to new investors.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following table summarizes our consolidated financial data and other data for the periods and at the dates indicated. We derived the consolidated statement of operations data for the years ended December 31, 2013, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013 and 2012 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the statement of operations data for the years ended December 31, 2010 and 2009 and the balance sheet data as of December 31, 2011, 2010, and 2009 from our audited consolidated financial statements that do not appear in this prospectus. We derived the unaudited consolidated statement of operations data for the quarter ended March 31, 2014 and 2013 and the unaudited consolidated balance sheet data as of March 31, 2014 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements.

        We derived the unaudited pro forma financial information for the year ended December 31, 2013 and the quarter ended March 31, 2014 and as of March 31, 2014 from the unaudited pro forma financial information included elsewhere in this prospectus.

        Our historical results are not necessarily indicative of the results to be expected for any future period, and the results in the quarter ended March 31, 2014 are not necessarily indicative of the results for the full year or any other period. The following information should be read together with the information under the headings "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. The unaudited pro forma consolidated financial information does not necessarily represent what our financial position, results of operations and other data would have been if the transactions had actually been completed on the dates indicated, and are not intended to project such information for any future period. See "Use of Proceeds" and "Index to the Consolidated Financial Statements—Unaudited Pro Forma Consolidated Financial Information."

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  For the quarter ended March 31,   For the year ended December 31,  
 
  2014
Pro-Forma(1)
  2014   2013   2013
Pro-Forma(2)
  2013(3)   2012   2011   2010   2009  
 
  (Dollars in thousands, except prescription, per share and per prescription data)
 
 
  (Unaudited)
   
   
   
   
   
   
 

Consolidated Statement of Operations Data

                                                       

Net sales

        $ 465,677   $ 343,670         $ 1,515,139   $ 1,126,943   $ 771,962   $ 577,547   $ 377,479  

Cost of goods sold

          (436,168 )   (323,294 )         (1,426,112 )   (1,057,608 )   (715,448 )   (536,451 )   (346,873 )
                                       

Gross profit

          29,509     20,376           89,027     69,335     56,514     41,096     30,606  

Selling, general, and administrative expenses

         
(23,539

)
 
(17,920

)
       
(77,944

)
 
(64,392

)
 
(47,434

)
 
(37,902

)
 
(27,114

)
                                       

Income from operations

          5,970     2,456           11,083     4,943     9,080     3,194     3,492  

Interest expense

         
(530

)
 
(503

)
       
(1,996

)
 
(1,086

)
 
(598

)
 
(454

)
 
(831

)

Equity loss of non-consolidated entity

          (401 )   (102 )         (1,055 )   (267 )   (95 )            

Other income

          468     64           196     337     764     85     156  
                                       

Income before income taxes

          5,507     1,915           8,228     3,927     9,151     2,825     2,818  

Income tax expense(4)

          (3,817 )                              
                                       

Net income

          1,690     1,915           8,228     3,927     9,151     2,825     2,818  

Net income allocable to preferred shareholders

          102                                
                                       

Net income allocable to common shareholders

        $ 1,588   $ 1,915         $ 8,228   $ 3,927   $ 9,151   $ 2,825   $ 2,818  
                                       
                                       

Weighted average common shares outstanding(5):

                                                       

Basic

          4,132     4,275           4,275     4,471     5,200     5,204     5,226  

Diluted

          4,435     4,293           4,364     4,602     5,311     5,331     5,321  

Net income per common share(5):

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Basic

        $ 384.38   $ 448.04         $ 1,924.70   $ 878.35   $ 1,759.77   $ 542.78   $ 539.14  
                                       
                                       

Diluted

        $ 358.17   $ 446.17         $ 1,885.45   $ 853.50   $ 1,723.13   $ 529.89   $ 529.52  
                                       
                                       

Other Data

                                                       

Adjusted EBITDA(6)

        $ 8,214   $ 4,012         $ 18,970   $ 10,852   $ 15,121   $ 7,716   $ 6,059  

Prescriptions dispensed(7)

         
184,000
   
172,000
         
707,000
   
669,000
   
596,000
   
580,000
   
484,000
 

Prescriptions serviced (not dispensed)(8)

          54,000     50,000           223,000     129,000     13,000          
                                       

Total prescriptions

          238,000     222,000           930,000     798,000     609,000     580,000     484,000  
                                       

Net sales per prescription dispensed(9)

        $ 2,531   $ 1,984         $ 2,135   $ 1,680   $ 1,295   $ 996   $ 780  

Gross profit per prescription dispensed(10)

        $ 153   $ 111         $ 117   $ 99   $ 94   $ 71   $ 63  

Net sales per prescription serviced (not dispensed)(11)

       
$

27
 
$

26
       
$

28
 
$

26
 
$

27
   
   
 

Gross profit per prescription serviced (not dispensed)(11)

        $ 27   $ 26         $ 28   $ 26   $ 27          

Adjusted EBITDA per prescription(12)

       
$

35
 
$

18
       
$

20
 
$

14
 
$

25
 
$

13
 
$

13
 

 

 
  As of March 31, 2014    
   
   
   
   
   
 
 
   
  As of December 31,  
 
  Pro-Forma
as adjusted(13)
   
   
   
 
 
  Pro-Forma(14)   Actual    
  2013   2012   2011   2010   2009  
 
  (Dollars in thousands)
 
 
  (Unaudited)
   
   
   
   
   
   
 

Consolidated Balance Sheet Data

                                                       

Property and equipment, net

              $ 12,024         $ 12,378   $ 12,634   $ 16,930   $ 14,116   $ 8,196  

Total assets

                214,804           211,777     139,595     100,380     82,722     55,615  

Total debt

                63,182           88,164     63,102     12,942     19,694     9,963  

Total liabilities

                218,637           236,189     172,135     88,622     80,416     52,965  

Shareholders' (deficit) equity(15)

                (3,833 )         (24,412 )   (32,540 )   11,758     2,306     2,649  

(1)
The unaudited pro forma consolidated financial information for the quarter ended March 31, 2014 gives effect to: (A) the January and April 2014 issuance of preferred stock and the use of a portion of the proceeds from these issuances to redeem outstanding shares of common stock and common stock options, (B) our acquisition of MedPro in June 2014 and related borrowings under our line of credit, (C) our conversion from an S corporation to a C corporation on January 23, 2014, (D) the conversion of all outstanding shares of our preferred stock, Class A voting stock and Class B non-voting stock into shares of our common stock and (E) this offering and the use of proceeds therefrom, assuming in each case that such event occurred on January 1, 2013. See "Index to the Consolidated Financial Statements: Unaudited Pro Forma Combined Consolidated Financial Information".

(2)
The unaudited pro forma consolidated financial information for the year ended December 31, 2013 gives effect to the transactions described in Note 1 above as well as to the December 2013 acquisition of AHF and related borrowings under our line of credit, assuming in each case that such event occurred on January 1, 2013. Index to the Consolidated Financial Statements: Unaudited Pro Forma Combined Consolidated Financial Information".

(3)
We acquired AHF on December 16, 2013 and its financial results have been included in our historical financial statements since that date.

(4)
Prior to January 23, 2014, we had elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Therefore, we did not pay corporate income taxes on our taxable income. Instead, our shareholders were liable for individual income taxes on their respective shares of our taxable income. On January 23, 2014, we changed from an S Corporation to a C Corporation, and therefore we will pay corporate income taxes on our taxable income for periods after January 23, 2014.

(5)
On                        , 2014, we declared a stock split effected as a stock dividend of                        shares for each share of our common stock to our common shareholders of record on that date. Pursuant to the terms of our convertible preferred stock, the conversion ratio of each series of our convertible preferred stock has been proportionately adjusted to reflect this stock dividend. Accordingly, all share and per share amounts presented in this prospectus, including the consolidated financial statements and notes thereto, have been adjusted, where applicable, to reflect this stock dividend and adjustment of the preferred stock conversion ratio.

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(6)
See "Adjusted EBITDA" below for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.

(7)
Prescriptions dispensed (rounded to nearest thousand), represents actual prescriptions filled and dispensed by Diplomat.

(8)
Prescriptions serviced (not dispensed) (rounded to nearest thousand), represents prescriptions filled and dispensed by a non-Diplomat pharmacy, including retailers and health systems, for which we provide support services required to assist patients and pharmacies with the complexity of filling specialty medications, and for which we earn a fee.

(9)
Net sales per prescription dispensed represents total prescription revenue from prescriptions dispensed by Diplomat, divided by the number of prescriptions dispensed by Diplomat. Total prescription revenue from prescriptions dispensed includes all revenue collected from patients, third party payors and various patient assistance programs, as well as revenue collected from pharmaceutical manufacturers for data and other services directly tied to the actual dispensing of their drug(s).

(10)
Gross profit per prescription dispensed represents gross profit from prescriptions dispensed by Diplomat, divided by the number of prescriptions dispensed by Diplomat. Gross profit represents total prescription revenue from prescriptions dispensed less the cost of the drugs purchased.

(11)
Net sales per prescription serviced (not dispensed) represents total prescription revenue from prescriptions serviced divided by the number of prescriptions serviced for the non-Diplomat pharmacies. Gross profit per prescription serviced (not dispensed) is equal to net sales per prescription serviced because there is no Diplomat drug cost of goods sold associated with such transactions. Total prescription revenue from prescriptions serviced includes revenue collected from partner pharmacies, including retailers and health systems, for support services rendered to their patients.

(12)
Adjusted EBITDA per prescription is Adjusted EBITDA divided by the total number of prescriptions dispensed or serviced.

(13)
The unaudited pro forma consolidated financial information, as of March 31, 2014, as adjusted, gives effect to the items specified in Note 12 below and further effect to this offering and the use of proceeds therefrom, assuming in each case that such event occurred on March 31, 2014. See "Unaudited Pro Forma Combined Consolidated Financial Information".

(14)
The unaudited pro forma consolidated balance sheet information as of March 31, 2014 gives effect to: (A) the April 2014 issuance of preferred stock and the use of a portion of the proceeds from this issuance to redeem outstanding shares of common stock and common stock options, (B) our acquisition of MedPro in June 2014 and related borrowings under our line of credit, and (C) the conversion of all outstanding shares of our preferred stock, Class A voting stock and Class B non-voting stock into shares of our common stock, assuming in each case that such event occurred on March 31, 2014. See "Unaudited Pro Forma Combined Consolidated Financial Information".

(15)
In 2012, we entered into settlement agreements with current or former shareholders whereby we purchased shares of common stock formerly owned by the stakeholders for consideration of $29,393 of which $2,851 was paid in cash, forgiveness of note of $196 and the remaining $26,346 was payable in full, as per the terms of an executed promissory notes, maturing 2017. This entire amount of $29,393 is reflected as a decrease to our shareholders' (deficit) equity in 2012. Also, in 2012 we had unusually high shareholder distributions of $17,281. Additionally, in January 2014, we sold to certain funds of T. Rowe Price, 351.32097 shares of Series A Preferred stock at a purchase price of $142 per share. We used $20,000 of the $50,000 investment proceeds for general corporate purposes, including fees associated with the transaction, and the remaining $30,000 was used to redeem shares of common stock and common stock options. This transaction, net of stock and stock option redemptions and transaction fees is reflected as a $19,134 increase to our shareholders' (deficit) equity in the quarter ended March 31, 2014.

Adjusted EBITDA

        We define Adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, share-based compensation expense, restructuring and impairment charges, equity loss of non-consolidated entity, and certain other items that we do not consider indicative of our ongoing operating performance (which items are itemized below). Adjusted EBITDA is a non-GAAP financial measure.

        We consider Adjusted EBITDA to be a supplemental measure of our operating performance. We present Adjusted EBITDA because it is used by our Board of Directors and management to evaluate our operating performance. It is also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends and for evaluating the effectiveness of our business strategies. Further, we believe it assists us, as well as investors, in comparing performance from period to period on a consistent basis. Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles.

        As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and therefore you should not consider Adjusted EBITDA in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA does not:

    include depreciation expense from property and equipment or amortization expense from acquired intangible assets (and although they are non-cash charges, the assets being depreciated will often have to be replaced in the future);

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    reflect interest expense on our debt and capital leases or interest income we earn on cash and cash equivalents;

    reflect the amounts we paid in taxes or other components of our tax provision (which reduces cash available to us);

    include the impact of share-based compensation (which is a recurring expense that will remain a key element of our long-term incentive compensation package, although we exclude it when evaluating our operating performance for a particular period); or

    include restructuring and impairment charges, the equity income or loss of our non-consolidated entity, or other matters we do not consider to be indicative of our ongoing operations.

Further, other companies in our industry may calculate Adjusted EBITDA differently than we do and these calculations may not be comparable to our Adjusted EBITDA metric. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income and our financial results presented in accordance with GAAP.

        The table below presents a reconciliation of net income to Adjusted EBITDA for the periods indicated:

 
  For the quarter ended March 31,   For the year ended December 31,  
 
  2014
Pro-Forma
  2014   2013   2013
Pro-Forma
  2013   2012   2011   2010   2009  
 
  (Dollars in thousands)
 

Net income

        $ 1,690   $ 1,915         $ 8,228   $ 3,927   $ 9,151   $ 2,825   $ 2,818  

Depreciation and amortization

          1,312     913           3,934     3,842     3,079     2,157     1,858  

Interest expense

          530     503           1,996     1,086     598     454     831  

Income tax expense

          3,817                                
                                       

EBITDA

          7,349     3,331           14,158     8,855     12,828     5,436     5,506  
                                       

Share-based compensation expense(1)

          262     239           886     915     1,410     839     423  

Restructuring and impairment charges(2)

              50           1,033     424     429     1,456      

Equity loss of non-consolidated entity(3)

          401     102           1,055     267     95          

Severence and related fees(4)

          210               204     412     741          

Merger & acquisition related fees(5)

          106     85           677                  

Philanthropy(6)

          61     22           222                  

Tax credits(7)

          (469 )                 (148 )   (626 )        

Other items(8)

          294     183           734     127     245     (15 )   130  
                                       

Adjusted EBITDA

        $ 8,214   $ 4,012         $ 18,970   $ 10,852   $ 15,121   $ 7,716   $ 6,059  
                                       
                                       

(1)
Share-based compensation expense relates to eligible employee stock options.

(2)
Restructuring and impairment charges reflect decreases in the fair market value of non-core property and assets, or actual losses on disposal of such assets. 2013 charges primarily relate to, and 2010 charges solely relate to, write-downs of our former Swartz Creek, Michigan headquarters facility to its fair value, after we vacated it in favor of our present modern Flint, Michigan facility. 2012 charges primarily relate to our write-down of an externally purchased software package we no longer utilize, as well as sales of Company-owned vehicles. 2011 charges include expense associated with the closure of our former Cleveland, Ohio facility, the move of our Chicago, Illinois area facility, and sales of Company-owned vehicles.

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(3)
Represents our share of losses recognized by our non-consolidated entity, Ageology, using the equity method of accounting. We first invested in Ageology, an anti-aging physician network dedicated to nutrition, fitness and hormones, in October 2011 in connection with its formation.

(4)
Employee severance and related fees, primarily related to severance for former management.

(5)
Fees directly relates to merger and acquisition activities, including our purchase of AHF and MedPro.

(6)
Expenses from private company philanthropic activities performed at the direction of our majority shareholder.

(7)
Represents various tax credits received from the state of Michigan for facility improvement and employee hiring initiatives.

(8)
Includes other expenses, including information technology (IT) operating leases. These operating leases were initiated, in lieu of purchases or capital leases for a subset of our IT spend, for a short period of time in 2013 and 2014 for liquidity purposes. We have since discontinued the practice of leasing IT equipment. The cost of purchased IT equipment is reflected in depreciation and amortization.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except prescription, per share, per patient and per prescription data)

        You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review information under the heading "Risk Factors" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

        We are the nation's largest independent specialty pharmacy and the fourth largest overall specialty pharmacy in the United States, and are focused on improving lives of patients with complex chronic diseases. Our patient-centric approach positions us at the center of the healthcare continuum for treatment of complex chronic diseases through partnerships with patients, payors, pharmaceutical manufacturers, and physicians. We offer a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs (many of which can cost over $100,000 per patient, per year). We have expertise across a broad range of high-growth specialty therapeutic categories, including oncology, immunology, hepatitis, multiple sclerosis, HIV, and infusion therapy. We dispense to all 50 states through our advanced distribution center that enables us to ship medications nationwide as well as a centralized clinical call center that helps us deliver localized services on a national scale. We were founded in 1975 by our Chief Executive Officer, Philip Hagerman, and his father, Dale, both trained pharmacists who transformed our business from a traditional pharmacy into a leading specialty pharmacy beginning in 2005.

        Our core revenues are derived from the customized care management programs we deliver to our patients, including the dispensing of their specialty medications. Because our core therapeutic disease states generally require multi-year or life-long therapy, our singular focus on complex chronic diseases helps drive recurring revenues and sustainable growth. Our revenue growth is primarily driven by new drugs coming to market, new indications for existing drugs, volume growth with current clients, and addition of new clients. For the quarter ended March 31, 2014 and the year ended December 31, 2013, we derived 99.7% and 99.6%, respectively, of our revenue from dispensing of drugs and the data sales associated with those dispenses.

        Most of our revenue is collected through contracts with third party payors, such as managed care organizations, insurance companies, self-insured employers, pharmacy benefit managers, and Medicare and Medicaid programs. For the quarter ended March 31, 2014 and the year ended December 31, 2013, approximately 21% and 22%, respectively, of our payor-derived revenue was from commercial payors, approximately 27% and 27%, respectively, of the payor-derived revenue was from exclusive or preferred relationships with third party payors, and approximately 52% and 51%, respectively, of our payor-derived revenue was from government programs. Our exclusive or preferred relationships are with regional and mid-sized payors and independent pharmacy benefit managers, employer groups, and union groups. As of March 31, 2014 and December 31, 2013, such relationships included approximately 13 million managed lives under contract in the United States. The remainder of revenue is collected from patients, directly or on their behalf, as a result of their co-pay obligations or patient assistance programs.

        Our historical growth has largely been driven by our position as a leader in oncology and immunology therapeutic categories. For the quarter ended March 31, 2014 and the year ended

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December 31, 2013, we generated approximately 69% and 74%, respectively, of our revenues in these two categories.

        We believe that limited distribution is becoming the delivery system of choice for many specialty drug manufacturers because it facilitates high patient engagement, clinical expertise, and an elevated focus on service. Accordingly, we believe our current portfolio of over 70 limited distribution drugs, more than double our portfolio of limited distribution drugs in 2010, is important to our growth.

        We also provide specialty pharmacy support services to a national network of retailers as well as hospitals and health systems. As of June 30, 2014, we provided services to 8 retailers and independent pharmacy groups, representing approximately 4,500 stores, and 48 hospitals and health systems. For many of our retail, hospital and health system partners, we earn revenue by providing clinical and administrative support services on a fee-for-service basis to help them dispense specialty medications. Our other revenue in 2013, 2012, and 2011 was derived from these services provided to retail and hospital pharmacy partners.

        As a result of our clinical expertise and our ability to expand scope of services, demand for our services has grown, which has driven growth in revenue. Our revenue for the quarter ended March 31, 2014 was $465,677 and for the years ended December 31, 2013, 2012, and 2011 was $1,515,139, $1,126,943, and $771,962 respectively. Our net income for the quarter ended March 31, 2014 was $1,690 and for the years ended December 31, 2013, 2012, and 2011 was $8,228, $3,927, and $9,151, respectively. Our Adjusted EBITDA for the quarter ended March 31, 2014 was $8,214 and for the years ended December 31, 2013, 2012, and 2011 was $18,970, $10,852, and $15,121 respectively. See "Selected Consolidated Financial Data—Adjusted EBITDA" for our definition of Adjusted EBITDA, why we present Adjusted EBITDA, and a reconciliation of net income to Adjusted EBITDA.

Recent Developments and Other Important Factors Affecting Operating Results

    Business Acquisitions

        On December 16, 2013, we acquired all of the authorized, issued and outstanding shares of capital stock for AHF for a total acquisition price of approximately $13,449, excluding related acquisition costs of approximately $662 that were expensed. Included in the total acquisition price is $12,100 in cash and contingent consideration fair valued at $1,300 with a maximum payout of $2,000, that is based on achieving certain revenue and gross profit targets. AHF is a specialty pharmacy focused on bleeding disorders, such as hemophilia and headquartered in Enfield, Connecticut. AHF provides clotting medications, ancillaries and supplies to individuals with bleeding disorders, such as hemophilia. The acquisition of AHF will allow us to participate in AHF's direct purchase agreements with key hemophilia manufacturers, while also providing AHF access to our proprietary care management modules to better manage clinical care of the AHF patients. The results of operations for AHF are included in our consolidated financial statements from the acquisition date. See Note 2 to our consolidated financial statements for the three years ended December 31, 2013 and the quarter ended March 31, 2014 included elsewhere in this prospectus for additional information.

        On June 27, 2014, we acquired all of the outstanding stock of MedPro for $52,000 in cash, 84.31703 shares of our Class B Nonvoting Common Stock, valued at approximately $12,000, and up to $11,500 of contingent consideration (not yet fair valued) that is based on the achievement of certain revenue and gross profit targets. MedPro is a specialty pharmacy focused on specialty infusion therapies including hemophilia and immune globulin based in Raleigh, North Carolina. We acquired MedPro to expand our existing specialty infusion business and to increase our presence in the mid-Atlantic and Southern regions of the country. The results of operations for MedPro will be included in our consolidated financial statements from the acquisition date.

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    Issuances of Preferred Stock

        On January 23, 2014, we sold to certain funds of T. Rowe Price 351.32097 shares of Series A Preferred stock at a purchase price of $142 per share. We used $20,000 of the $50,000 investment proceeds for general corporate purposes, including fees associated with the transaction, and the remaining $30,000 was used to redeem shares of common stock and common stock options.

        On April 1, 2014, we sold to certain funds of Janus Capital Group 379.4267 shares of Series A Preferred stock at a purchase price of $142 per share. We used $25,200 of the $54,000 investment proceeds for general corporate purposes, including fees associated with the transaction, and the remaining $28,800 was used to redeem shares of common stock and common stock options.

    Stock Option Redemption

        In May 2014, we redeemed all of the rights to the outstanding common stock options from a former employee. The purchase price for the options was $4,000 and was paid in full at time of closing.

    Certain Operating Expenses

        We have focused on growing our business and we plan to continue to invest in building for growth. As a result, we have experienced increased operating expenses driven by the additional IT staff required to develop improved operating systems. We have also experienced increased expense related to the additional operational staff required to service our customers in a less efficient fashion while the new systems are being developed. We expect to experience operational improvements following the implementation of key system improvements over the next one to two years. Further, we expect that the size of our operational staff, as well as the size of our sales and marketing staff, will continue to grow with the business.

    Debt Reductions

        In May 2014, we paid $2,609 in full settlement of the outstanding principal and interest amount on the mortgage loan associated with our corporate headquarters and main dispensing pharmacy facility. As of                  , 2014, we had $            debt outstanding under our revolving line of credit and approximately             of former stakeholder notes outstanding. As of such date, we could incur up to an additional $         million in indebtedness under our revolving line of credit.

    Initial Public Offering

        We intend to use the net proceeds from this offering to repay indebtedness to certain former stakeholders and employees. The balance of the net proceeds from this offering will be used for working capital and other general corporate purposes, which may include a reduction of borrowings in part or in full of our revolving line of credit to the extent of any borrowing as of the completion of this offering, or for opportunistic acquisitions.

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Key Performance Metrics

        We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions.

 
  For the quarter ended
March 31,
  For the year ended December 31,  
 
  2014   2013   2013   2012   2011  

Adjusted EBITDA

  $ 8,214   $ 4,012   $ 18,970   $ 10,852   $ 15,121  

Prescriptions dispensed

   
184,000
   
172,000
   
707,000
   
669,000
   
596,000
 

Prescriptions serviced (not dispensed)

    54,000     50,000     223,000     129,000     13,000  
                       

Total prescriptions

    238,000     222,000     930,000     798,000     609,000  
                       
                       

Net sales per prescription dispensed

  $ 2,531   $ 1,984   $ 2,135   $ 1,680   $ 1,295  

Gross profit per prescription dispensed

  $ 153   $ 111   $ 117   $ 99   $ 94  

Net sales per prescription serviced (not dispensed)

 
$

27
 
$

26
 
$

28
 
$

26
 
$

27
 

Gross profit per prescription serviced (not dispensed)

  $ 27   $ 26   $ 28   $ 26   $ 27  

Adjusted EBITDA per prescription

 
$

35
 
$

18
 
$

20
 
$

14
 
$

25
 

    Adjusted EBITDA

        See "Prospectus Summary—Summary Consolidated Financial Data—Adjusted EBITDA" for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA.

    Prescription Data

        Prescriptions dispensed (rounded to nearest thousand) represents actual prescriptions filled and dispensed by Diplomat to patients, or in rare cases, to physicians. Prescriptions serviced (not dispensed) (rounded to nearest thousand), represents prescriptions filled and dispensed from a non-Diplomat pharmacy, including unaffiliated retailers and health systems, for which we provide support services required to assist these patients and pharmacies through the complexity of filling specialty medications, and for which we earn a fee.

        Our volume for the quarter ended March 31, 2014 was approximately 238,000 prescriptions dispensed or serviced, a 7% increase compared to approximately 222,000 prescriptions dispensed or serviced for the quarter ended March 31, 2013. The volume increase was due to a mix of new drugs to market, new indication approvals for existing drugs, growth in patients from current payors and physician practices, and the addition of patients from new payors and physician practices.

        Our volume for the year ended December 31, 2013 was approximately 930,000 prescriptions dispensed or serviced, a 17% increase compared to approximately 798,000 prescriptions for the year ended December 31, 2012. The volume increase was due to a mix of patient growth from current payors and physician practices, the addition of patients from new payors and physician practices, new drugs to market, and the approval of new indications for existing drugs.

        Our volume for the year ended December 31, 2012 was approximately 798,000 prescriptions dispensed or serviced, a 31% increase compared to approximately 609,000 prescriptions for the year ended December 31, 2011. The volume increase was due to a mix of patients from new payors and physician practices, patient growth from current payors and physician practices, new drugs to market, and the approval of new indications for existing drugs.

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    Other Metrics

        Other key metrics used in analyzing our business are net sales per prescription dispensed, gross profit per prescription dispensed, net sales per prescription serviced (not dispensed), gross profit per prescription serviced (not dispensed), and adjusted EBITDA per prescription.

        Net sales per prescription dispensed represents total prescription revenue from prescriptions dispensed by Diplomat divided by the number of prescriptions dispensed by Diplomat. Gross profit per prescription dispensed represents gross profit from prescriptions dispensed by Diplomat divided by the number of prescriptions dispensed by Diplomat. Total prescription revenue from prescriptions dispensed includes all revenue collected from patients, third party payors, and various patient assistance programs, as well as revenue collected from pharmaceutical manufacturers for data and other services directly tied to the actual dispensing of their drug(s). Gross profit represents total prescription revenue from prescriptions dispensed less the cost of the drugs purchased.

        Net sales per prescription serviced (not dispensed) represents total prescription revenue from prescriptions serviced divided by the number of prescriptions serviced for the non-Diplomat pharmacies. Gross profit per prescription serviced (not dispensed) is equal to net sales per prescription serviced because there is no cost of drug associated with such transactions. Total prescription revenue from prescriptions serviced includes revenue collected from partner pharmacies, including retailers and health systems, for support services rendered to their patients.

        Adjusted EBITDA per prescription is Adjusted EBITDA divided by the total number of prescriptions dispensed or serviced.

Components of Results of Operations

    Net Sales

        Net sales are recognized at the time of service completion. Revenue for a dispensed prescription is recognized at the time of shipment or pick-up of the prescription. We can earn revenue from multiple sources for any one claim, including the primary insurance plan, the secondary insurance plan, the tertiary insurance plan, patient co-pay, and patient assistance programs. Prescription revenue also includes revenue from pharmaceutical manufacturers and other outside companies for data reporting or additional services rendered for dispensed prescriptions. Service revenue is primarily derived from fees earned by us from retail and hospital pharmacies for patient support that is required for those non-Diplomat pharmacies to dispense specialty drugs to patients. The retail and hospital pharmacies dispense the drug, and pay us for clinically and administratively servicing their patients.

    Cost of Goods Sold

        Cost of goods sold represents the purchase price of the drugs that we ultimately dispense. These drugs are purchased directly from the manufacturer or from an authorized wholesaler and the purchase price is negotiated with the selling entity. In general, period over period percentage changes in cost of goods sold will move directionally with period over period percentage changes in net sales for prescription dispensing transactions. This is due to the mathematical relationship between average wholesale price ("AWP") and wholesale acquisition cost ("WAC"), and our contractual relationships to purchase at a discount off of WAC and receive reimbursement at a discount off of AWP. The discounts off of AWP and WAC that we receive vary significantly by drug and by contract.

    Selling, General, and Administrative Expenses

        Our operating expenses primarily consist of employee and associated costs, as well as outbound prescription drug transportation and logistics costs. Our employee and associated costs relate to both our patient-facing personnel and our non-patient facing support and administrative personnel. Other

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operating expenses consist of occupancy and other indirect costs, insurance costs, professional fees, and other general overhead expenses. We expect that general and administrative expenses will increase as we incur additional expenses related to being a public company, including professional fees and share-based compensation expenses related to the equity incentive plan established in connection with this offering.

    Other Income (Expense)

        Other income (expense) primarily consists of interest expense associated with our debt, equity income or losses associated with our 25% owned non-consolidated entity, tax credits and income from property rentals.

    Income Tax Expenses

        On January 23, 2014, we changed from an S Corporation to a C Corporation. The historical audited financial results included elsewhere in this prospectus reflect our results as an S Corporation before this date. The pro forma financial information included elsewhere in this prospectus have been adjusted to show results as if we had been a C Corporation for specified periods.

Results of Operations

        The following table provides consolidated statements of operations data for each of the periods presented.

 
  For the quarter ended March 31,   For the year ended December 31,  
 
  2014   2013   2013   2012   2011  
 
  (Unaudited)
   
   
   
 

Consolidated Statement of Operations Data

                               

Net sales

  $ 465,677   $ 343,670   $ 1,515,139   $ 1,126,943   $ 771,962  

Cost of goods sold

    (436,168 )   (323,294 )   (1,426,112 )   (1,057,608 )   (715,448 )
                       

Gross profit

    29,509     20,376     89,027     69,335     56,514  

Selling, general, and administrative expenses

   
(23,539

)
 
(17,920

)
 
(77,944

)
 
(64,392

)
 
(47,434

)
                       

Income from operations

    5,970     2,456     11,083     4,943     9,080  

Interest expense

   
(530

)
 
(503

)
 
(1,996

)
 
(1,086

)
 
(598

)

Equity loss of non-consolidated entity

    (401 )   (102 )   (1,055 )   (267 )   (95 )

Other income

    468     64     196     337     764  
                       

Income before income taxes

    5,507     1,915     8,228     3,927     9,151  

Income tax expense

    (3,817 )                
                       

Net income

  $ 1,690   $ 1,915   $ 8,228   $ 3,927   $ 9,151  
                       
                       

Comparison of Quarter Ended March 31, 2014 and March 31, 2013

    Net Sales

        Our net sales for the quarter ended March 31, 2014 was $465,677, a $122,007 increase, or 36%, compared to $343,670 for the quarter ended March 31, 2013. The increase was the result of approximately $47,000 of additional revenue from drugs that were new to the market or newly dispensed by us. Prescription volume growth of existing drugs accounted for approximately $26,000 of the increased revenue and was the result of new indications, increased penetration through physician's offices, growth with existing payors, and the addition of patients from new payors and physician

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practices. The acquisition of AHF contributed approximately $8,000 and the remaining increase is attributable to manufacturer price increases and payor mix.

    Cost of Goods Sold

        Our cost of goods sold for the quarter ended March 31, 2014 was $436,168, a $112,874 increase, or 35%, compared to $323,294 for the quarter ended March 31, 2013. The increase was primarily the result of the same factors that drove the increase in our net sales over the same time period.

    Selling, General, and Administrative Expense

        Our selling, general, and administrative expense for the quarter ended March 31, 2014 was $23,539, a $5,619 increase, or 31%, compared to $17,920 for the quarter ended March 31, 2013. Selling, general, and administrative costs in the 2014 period were higher than in the prior period primarily due to variable costs related to increased net sales and prescription volume during the 2014 period. Total employee cost increased by $3,295, or 28%, and was primarily attributable to two factors. First, the 7% prescription volume increase drove the need to hire additional employees. Second, our ongoing efforts to improve IT systems to support current and future growth required additional indirect labor to develop our key systems. Similarly, our logistics expense increased by $501, or 22%, as a result of the additional prescription volume dispensed, as well as increased supplier costs and mix of drugs being shipped to patients. The remaining increase was in all other selling, general, and administrative expenses to support our growth including consulting fees, utilities, travel, supplies, and other miscellaneous expenses. These increases also include $1,095 of AHF expenses related to its pharmacies and support staff.

    Other Income (Expense)

        Our other income (expense) for the quarter ended March 31, 2014 net was $365, compared to $541 for the quarter ended March 31, 2013. The decrease was primarily attributed to a $469 state tax credit, partially offset by a $299 greater equity loss on our non-consolidated entity in the quarter ended March 31, 2014.

    Income Tax Expense

        On January 23, 2014, we changed our income tax status from an S corporation to a C corporation and, as such, will now bear income taxes which had previously been borne by our shareholders. Our income tax expense for the quarter ended March 31, 2014 was $3,817, versus $0 for the quarter ended March 31, 2013. For additional information on our conversion from an S corporation to a C corporation, reference Note 1 and Note 10 in the quarterly financial statements included elsewhere in this prospectus.

Comparison of Years Ended December 31, 2013 and December 31, 2012

    Net Sales

        Our net sales for the year ended December 31, 2013 was $1,515,139, a $388,196 increase, or 34%, compared to $1,126,943 for the year ended December 31, 2012. Prescription volume growth on existing drugs accounted for approximately $178,000 of the increased revenue and was driven by new indications, increased penetration through physician's offices, growth with existing payors, and the addition of patients from new payors and physician practices. The increase was also the result of approximately $62,000 of additional revenue from drugs that were new to the market or newly dispensed by us. The remaining increase is attributable to manufacturer price increases and payor mix.

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    Cost of Goods Sold

        Our cost of goods sold for the year ended December 31, 2013 was $1,426,112, a $368,504 increase, or 35%, compared to $1,057,608 for the year ended December 31, 2012. The increase was primarily the result of the same factors that drove the increase in our net sales over the same time period.

    Selling, General, and Administrative Expense

        Our selling, general, and administrative expense for the year ended December 31, 2013 was $77,944, a $13,552 increase, or 21%, compared to $64,392 for the year ended December 31, 2012. Selling, general, and administrative costs in 2013 were higher than in the prior year primarily due to variable costs related to increased net sales and prescription volume during 2012. This increased volume drove the need for additional employees and the overhead required to support the growth.

        The increased employee expense of $6,938, or 18%, was predominantly the result of the additional headcount required to manage the 17% prescription volume increase. Our ongoing efforts to improve IT systems to support current and future growth required additional indirect labor to develop our key systems. The increase in freight expense of $1,920, or 23%, was the result of the increased volume of prescriptions being shipped to patients, as well as price and mix changes related to the type of drugs being shipped to patients. Impairment and loss on our non-consolidated equity investment accounted for $1,397 of additional increased expense in 2013. The remaining increase in selling, general, and administrative expenses included consulting fees, utilities, and other miscellaneous operating expenses.

    Other Income (Expense)

        Our interest expense for the year ended December 31, 2013 was $1,996, compared to $1,086 for the year ended December 31, 2012. The additional interest expense was the result of growth and the overall need to draw on the line of credit periodically to manage working capital. Our equity loss of our non-consolidated entity for the year ended December 31, 2013 was $1,055, compared to $267 for the year ended December 31, 2012, an increase attributed to the start-up company's escalation in ramping up their operations. Our other income for the year ended December 31, 2013 was $196, compared to $337 for the year ended December 31, 2012. Other income is derived from state tax credits and the rental of property which we currently own.

Comparison of years ended December 31, 2012 and December 31, 2011

    Net Sales

        Our net sales for the year ended December 31, 2012 was $1,126,943, a $354,981 increase, or 46%, compared to $771,962 for the year ended December 31, 2011. Prescription volume growth on existing drugs accounted for approximately $236,000 of the increased revenue and was the result of new indications, increased penetration through physician's offices, growth with existing payors, and the addition of patients from new payors and physician practices. The increase was also the result of approximately $30,000 of additional revenue from drugs that were new to the market or newly dispensed by us. The remaining increase is attributable to manufacturer price increases. These revenue increases were partially offset by payor mix changes. These were also the reasons for the decline in our net income over the same periods.

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    Cost of Goods Sold

        Our cost of goods sold for the year ended December 31, 2012 was $1,057,608, a $342,160 increase, or 48%, compared to $715,448 for the year ended December 31, 2011. The increase was primarily the result of the same factors that drove the increase in our net sales over the same period.

    Selling, General, and Administrative Expense

        Our selling, general, and administrative expense for the year ended December 31, 2012 was $64,392, a $16,958 increase, or 36%, compared to $47,434 for the year ended December 31, 2011. Selling, general, and administrative costs in 2012 were higher than in the prior year primarily due to variable costs related to increased net sales and prescription volume during 2011. This increased volume drove the need for additional employees and the overhead required to support the growth.

        The increased employee expense of $12,073, or 44%, was predominantly the result of the additional headcount required to manage the 31% prescription volume increase. Also, in 2012 as we worked to build and modify our core IT systems used to run the business, it had a two-fold impact on increasing headcount. First, much of the growth required us to manually manage processes while our systems were being substantially modified. Second, there were many additional heads associated with the IT staff needed to develop these same systems. Freight expense increased $2,655, or 48%, was the result of by the increased volume of prescriptions being shipped to patients, including price and mix changes based on the drugs being shipped to these patients. The remaining increase in selling, general, and administrative expenses included consulting fees, utilities, and other miscellaneous operating expenses.

    Other Income (Expense)

        Our interest expense for the year ended December 31, 2012 was $1,086, compared to $598 for the year ended December 31, 2011. The additional interest expense was driven by our growth and need to draw more on our line of credit to manage working capital. Our equity loss of our non-consolidated entity for the year ended December 31, 2012 was $267, compared to $95 for the year ended December 31, 2011. Our other income for the year ended December 31, 2012 was $337, compared to $764 for the year ended December 31, 2011. Other income is derived from state tax credits and the rental of property which we currently own.

Liquidity and Capital Resources

        Our primary uses of cash include funding our working capital, acquiring and maintaining property and equipment and internal use software, business acquisitions, stock and stock option redemptions, and debt service. We have funded our recent cash requirements primarily from our operating activities as driven mainly by our revenue growth, borrowings under our revolving line of credit, and capital stock issuances. As of December 31, 2013, we had $9,109 of cash and cash equivalents. We used all available cash as of March 31, 2014 to reduce the outstanding balance on our revolving line of credit. On June 26, 2014, we increased our maximum borrowing availability under our revolving line of credit to $120,000 from $85,000. We believe our cash and cash equivalents, revolving line of credit, cash flow from operations, and net proceeds from this offering will be sufficient to meet our working capital and capital expenditure requirements for at least 12 months. Generally, our need to access the capital markets has been limited to refinancing our line of credit at or prior to maturity. From time to time as

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a public company, we also may access the equity or debt markets to raise additional funds on a strategic basis, including for acquisitions.

 
  Quarter ended
March 31,
  Year ended December 31,  
 
  2014   2013   2013   2012   2011  

Net cash (used in) provided by operating activities

  $ (925 ) $ 8,789   $ 6,227   $ 5,006   $ 12,539  

Net cash used in investing activities

    (1,829 )   (1,710 )   (20,292 )   (4,849 )   (6,747 )

Net cash (used in) provided by financing activities

    (6,355 )   (7,079 )   23,174     (157 )   (7,861 )
                       

Net (decrease) increase in cash and equivalents

  $ (9,109 ) $   $ 9,109   $   $ (2,069 )
                       
                       

Net Cash Provided by (Used in) Operating Activities.

        Cash (used in) provided by operating activities consists of significant components of the statement of operations adjusted for changes in various working capital items including accounts receivable, inventories, prepaid expenses, accounts payable and other accrued expenses.

        The decrease of $9,714 in cash available from operating activities during the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013, was primarily due to a $12,445 decrease in working capital items, primarily accounts payable, as a result of the timing of key vendor payments. We also experienced a $225 decrease in net income in the 2014 period which is described above. This decrease was primarily offset by an increase of $2,492 deferred income tax expense in non-cash expenses.

        The $1,221 increase in cash provided by operating activities during the year ended December 31, 2013, compared to for the year ended December 31, 2012 is primarily attributable to a $4,301 increase in net income and a $1,673 increase in non-cash expenses offset by a $4,753 change in our working capital. The increase in non-cash expenses was mostly attributable to a $932 impairment charge on write-down of our former Swartz Creek, MI headquarters facility. The most significant change in working capital relates to our accounts receivable increasing $5,941 more in 2013 than in 2012, which was primarily the result of an increase in billing and revenue in the month of December 2013 as compared to December 31, 2012.

        The $7,533 decrease in cash provided by operating activities during the year ended December 31, 2012 compared to the year ended December 31, 2011 is primarily attributable to a $5,224 decrease in net income and a $2,557 change in our working capital. Certain working capital items, including accounts receivable, inventories, and accounts payable, changed significantly in 2012 due to increased requirements to support the growth of our business. These three items accounted for a net decrease in cash of $5,974 in 2012 compared to a decrease of $2,335 in 2011.

Net Cash Used in Investing Activities.

        Our primary investing activities have consisted of the acquisition of an infusion specialty pharmacy (AHF), non-consolidated entity investment, capital expenditures to purchase computer equipment, software, furniture and fixtures, labor expenditures associated with capitalized software for internal use, as well as building improvements to support the expansion of our infrastructure and workforce. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

        The $119 increase in cash used in investing activities during the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 was primarily related to a $444 increase in expenditures for software for internal use and property and equipment as we continue to expand our information systems. Additionally, we invested $750 more in our non-consolidated entity in the 2013 period and we loaned $431 more to our non-consolidated entity in the 2014 period than we did in the 2013 period.

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        The $15,443 increase in cash used in investing activities for the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily related to $10,232 of cash paid for the acquisition of AHF, net of cash acquired. We also increased spend by $1,313 for expenditures related to software for internal use and property and equipment as part of our ongoing effort to improve our information systems. The remaining increase was the result of a $1,000 higher investment in non-consolidated entity and $2,898 increase related to issuance of a related party notes receivable to our non-consolidated entity.

        The $1,898 decrease in cash used in investing activities for the year ended December 31, 2012 compared to the year ended December 31, 2011 was primarily the result of less expenditures for software for internal use and property and equipment.

Net Cash Provided by (Used in) Financing Activities.

        The $724 decrease in cash used in financing activities during the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 is primarily due to $18,627 of proceeds received in our January 2014 sale of Class A Preferred Stock to certain funds of T. Rowe Price, net of the redemption of certain outstanding common stock and common stock options, offset by the pay down of our revolving line of credit of $23,875. Also, during the 2014 period, we paid down $6,081 less of our long-term debt than we did during the 2013 period.

        The $23,331 increase in cash available from financing activities during the year ended December 31, 2013 compared to the year ended December 31, 2012 is primarily related to a $12,212 increase in borrowing under our line of credit, which in part facilitated the $9,910 payments on our outstanding notes payable and the $496 larger payment in 2013 on our long term mortgage debt. Also, during 2012, there were shareholder distributions of $10,868, much larger than those in 2013, and stock and stock option redemption payments of $3,894, which did not repeat in 2013.

        The $7,704 decrease in cash used in financing activities during the year ended December 31, 2012 compared to the year ended December 31, 2011 is primarily attributable to $29,890 increased net proceeds from our line of credit to support $9,759 more shareholder distributions in 2012, and $3,894 of stock and stock option redemptions in 2012. Additionally, we made $7,167 more long-term debt payments in 2012 than we did in 2011.

    Revolving Line of Credit

        On June 26, 2014, we entered into an amended and restated credit agreement with GE Capital Bank, as agent, Comerica Bank, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as additional lenders. The amount available for borrowing under the revolving line of credit is the lesser of $120,000 and the sum of 85% of eligible accounts receivable and a portion of eligible inventory, less any outstanding letters of credit and swing loans. Additionally, the revolving line of credit permits incremental increases in the line of credit or issuance of term loans up to an aggregate amount of $25,000, subject to specified conditions. Interest on our line of credit is charged at a rate equal to either (a) the base rate, which equates to the rate last quoted by The Wall Street Journal as the "Prime Rate" or as further defined in the agreement in the absence of such, plus an applicable margin (the "Base Rate"); or (b) LIBOR, as defined by the agreement, plus an applicable margin. The applicable margin on the Base Rate borrowings, during all periods presented, is 0.75% and on LIBOR rate borrowings is 1.75%. The effective interest rate for base rate borrowing at March 31, 2014 and 2013 was 4.00%. The effective rate on LIBOR rate borrowing at March 31, 2014 and 2013 was 1.903% and 1.954%, respectively. At March 31, 2014, we had base rate borrowings outstanding in the amount of $13,747 and LIBOR rate borrowings outstanding in the amount of $25,000.

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        The line of credit requires us to comply with certain covenant requirements and to certify compliance on a monthly basis. We have been in compliance every period since the inception of the agreement, including on March 31, 2014. The table below sets forth the amount borrowed, and remaining amount available to be borrowed, based on eligible accounts receivable and inventory, as of the specified dates.

 
  Quarter ended
March 31,
  Year ended
December 31,
 
 
  2014   2013   2013   2012  

Maximum borrowing during period

  $ 62,622   $ 50,855   $ 68,970   $ 44,305  

Period end balance

  $ 38,747   $ 27,129   $ 62,622   $ 27,020  

Period end availability

  $ 46,253   $ 32,871   $ 22,378   $ 32,980  

        Proceeds from the Janus Capital Group investment in April 2014 were used to pay down the outstanding balance on our line of credit. We intend to use the net proceeds from this offering for working capital and other general corporate purposes, which may include a reduction of borrowings, in part or in full, of our revolving line of credit to the extent of any borrowing as of the completion of this offering, or for opportunistic acquisitions.

Contractual Obligations

        Our principal debt commitments consist of our revolving line of credit, a mortgage for our corporate headquarters, and various notes payable to prior and current stakeholders. The following table summarizes our scheduled debt and other contractual obligations at December 31, 2013.

 
  Year Ending December 31,  
 
  2014   2015 - 2016   2017 - 2018   Thereafter   Total  

Revolving line of credit

  $ 62,622   $   $   $   $ 62,622  

Mortgage loan

    2,728                 2,728  

Stakeholders notes

    3,965     7,314     11,535         22,814  

Interest payments

    999     1,279     283         2,561  

Operating leases

    1,241     1,272     21         2,534  
                       

Total Contractual Obligations

  $ 71,555   $ 9,865   $ 11,839   $   $ 93,259  
                       
                       

    Revolving Line of Credit

        On July 20, 2012, we entered into a five year line of credit with GE. As of June 26, 2014, the amount available for borrowing under the revolving line of credit is the lesser of $120,000 and the sum of 85% of eligible accounts and a portion of eligible inventory, less any outstanding letters of credit and swing loans. Additionally, the revolving line of credit permits incremental increases in the line of credit or issuance of term loans up to an aggregate amount of $25,000, subject to specified conditions.

        As of June 26, 2014, we had outstanding borrowings of $0, a reduction of borrowings of $62,622 since December 31, 2013. The majority of such repayments were funded by investments in our Series A Preferred Stock made by certain funds of T. Rowe Price and Janus Capital Group in January and April 2014.

        The effective interest rate for base rate borrowing at March 31, 2014 and 2013 was 4.00%. The effective rate on LIBOR rate borrowing at March 31, 2014 and 2013 was 1.903% and 1.954%, respectively. At March 31, 2014, we had base rate borrowings outstanding in the amount of $14,000 and LIBOR rate borrowings outstanding in the amount of $25,000.

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    Mortgage Loan

        We entered into a $7,440 mortgage loan with JP Morgan Chase in December 2010 for the purchase of our headquarters building. The remaining outstanding loan amount was scheduled to mature in June 2014. We paid the JP Morgan Chase mortgage off in May 2014.

    Stakeholder Notes

        We entered into several notes payable to current or former stakeholders primarily upon the redemption of certain shares of common stock and common stock options formerly owned by the stakeholders. The obligations mature in 2017, as per the terms of the executed promissory notes. We intend to use certain proceeds from this offering to retire all of the stakeholder notes.

    Interest Payments

        This represents future interest payments due with respect to the line of credit, mortgage note and prior stakeholder notes as of December 31, 2013 based on their scheduled maturities.

    Additional Items Not Reflected in Table Above

        We purchase a large portion of our prescription drug inventory from AmerisourceBergen. In January 2012, we entered into an agreement with AmerisourceBergen that required a minimum of approximately $3,500,000 in purchase obligations over a five year period. We fully expect to meet this requirement.

        In connection with various redemptions of stock and stock options, in the event of a sale of the Company such that Philip Hagerman is no longer the majority shareholder of the Company or the Company sells substantially all of its assets, the Company is required to pay 1.0% of the net proceeds of such sale to trusts for the benefit of Deborah L. Ward, Philip Hagerman's sister, and certain other immediate family members.

Off-Balance Sheet Arrangements

        During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

        The accompanying consolidated financial statements, included elsewhere in this prospectus, have been prepared in conformity with accounting principles generally accepted in the United States of America and, accordingly, our significant accounting policies have been disclosed in Note 1 to the Consolidated Financial Statements. We consider accounting estimates to be critical accounting policies when:

    the estimates involve matters that are highly uncertain at the time the accounting estimate is made; and

    different estimates or changes to estimates could have a material impact on the reported financial position, changes in financial position, or results of operations.

        When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that it considers to be the most appropriate given the specific circumstances. Application of these accounting principles requires our management to make estimates about future resolution of existing uncertainties. Estimates are typically based upon historical experience, current trends, contractual documentation, and other information, as appropriate. Due to

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the inherent uncertainty involving estimates, actual results reported in the future may differ from those estimates. In preparing these financial statements, management has made its best estimate and judgments of the amounts and disclosures included in the financial statements, giving due regard to materiality. The following summarizes our critical accounting policies.

    Revenue Recognition

        Revenue for both dispensed prescriptions and serviced prescriptions is recognized at the time of service completion. We derive revenue primarily from dispensing of the prescription to a patient. This revenue is recognized upon shipment of product to a patient, or in rare cases, to a physician, or at time of prescription pick up from the pharmacy.

    Accounting for Stock-based Compensation

        We have authorized the granting of stock options to key employees with an exercise price no less than the estimated value of the underlying common shares on the date the option is granted. Options generally become exercisable in installments of 25% per year, beginning on the first anniversary of the grant date and each of the three anniversaries thereafter, and have a maximum term of ten years. We use the Black-Scholes-Merton option pricing model to determine the valuation of options.

        We expense the grant date fair values of its employee stock options over their respective vesting periods on a straight-line basis. Estimating grant date fair values for employee stock options requires management to make assumptions regarding expected volatility of the underlying shares, the risk-free rate over the life of the stock options, and the date on which share-based payments will be settled. Expected volatility is based on an implied volatility for a group of comparable companies as of the measurement date. Risk-free rate is determined based upon U.S. Treasury rates over the estimated expected option lives. Expected dividend yield is zero as we do not anticipate that any dividend will be declared during the expected term of the options. Expected option life is less than the option term. If actual results differ significantly from these estimates and assumptions, particularly in relation to management's estimation of volatility which requires the most judgment due to our being a private entity, share-based compensation expense, primarily with respect to future share-based awards, could be materially impacted.

        The following table summarizes all option grants from December 31, 2012 through the date of this prospectus:

 
   
  Weighted-Average Per Share  
Grant Date
  Class A and Class B
common stock underlying
options granted
  Exercise price   Common stock
fair value
at grant date
  Fair value
at grant date
 

Outstanding as of December 31, 2012

    653.58751     27,921.51     23,148.79     6,571.02  

January 1, 2013

    21.37475     50,614.72     27,414.55     1,087.60  

January 15, 2013

    64.12501     49,966.02     27,063.20     1,086.20  

December 18, 2013

    44.15000     137,360.45     140,562.79     30,274.46  

February 1, 2014

    46.30537     142,320.00     136,932.49     26,458.29  

May 20, 2014

    11.57635     142,320.00     136,932.49     26,479.98  
                         

    841.11899                    
                         

    Common Stock Valuation

        The fair value of the common stock underlying our share-based awards was determined by our board of directors, with input from management. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities Issued as

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Compensation, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including:

    recent significant investments by sophisticated, institutional investors for purchases of our convertible preferred stock, and the rights, privileges and preferences of such preferred stock to our common stock;

    valuations of our common stock performed by an unrelated third-party valuation specialist;

    our historical and projected operating and financial results;

    the market performance and financial results of comparable publicly-traded companies;

    industry or company-specific considerations;

    likelihood of achieving a liquidity event, such as an initial public offering or a sale of the Company;

    lack of marketability of our common stock; and

    the U.S. and global capital market conditions.

        The nature of the material assumptions and estimates considered to determine the fair market value of our common stock are highly complex and subjective.

        In valuing our common stock in December 2012 and January 2013, our board of directors determined the business enterprise value ("BEV") of our business generally using the income approach and the market approach using the market comparable method.

        The income approach estimates fair value based on the expectation of future cash flows that a company will generate such as cash earnings, cost savings, tax deductions, and the proceeds from disposition of assets. These future cash flows are discounted to their present values using a discount rate which reflects the risks inherent in our cash flows. This approach requires significant judgment in estimating projected growth rates and cost trends and in determining a discount rate adjusted for the risks associated with our business.

        The market comparable method estimates fair value based on a comparison of the subject company to comparable public companies in similar lines of business. From the comparable companies, a representative market value multiple is determined which is applied to the subject company's operating results to estimate the value of the subject company. In our valuations, the multiple of the comparable companies was determined using a ratio of the market value of invested capital to projected revenue and/or earnings before interest, taxes and depreciation and amortization for the current and following year. Our peer group of companies included a number of market leaders in the healthcare services industry and related businesses similar to, or adjacent to our own business. The market comparable method requires judgment in selecting the public companies that are most similar to our business and in the application of the relevant market multiples to our financial performance metrics. We have from time to time updated the set of comparable companies utilized as new or more relevant information became available, including changes in the market and our business models and input from third party market and valuation experts.

        Once we determine our BEV under each approach, we apply a weighting to the income approach and the market approach primarily based on the relevance of the peer companies chosen for the market approach analysis as well as other relevant factors. We then reduced the BEV by our total net debt to arrive at the estimated fair value of our common stock. Based on this information, our board of directors made the final determination of the estimated fair value of our equity and common stock.

        In valuing our common stock in December 2013, February 2014 and May 2014, our board of directors estimated BEV using the subject company transaction method, which is one of the three primary methodologies of the market-based approach. This methodology utilizes the most recent

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negotiated arm's-length transactions involving the sale or transfer of our stock or equity interests. Our indicated BEV at each valuation date was allocated to the shares of preferred stock, common stock and options using the Black-Scholes option-pricing model. In January 2014 and April 2014, we negotiated significant investments with sophisticated, institutional investors for purchases of our convertible preferred stock.

    Goodwill and Intangible Assets

        We allocate the purchase price of any acquisitions to tangible assets and liabilities and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on information obtained from management of the acquired companies and historical experience and are generally made with the assistance of an independent valuation firm. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur which affect the accuracy or validity of such estimates, and if such events occur we may be required to record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities. Our goodwill and intangible assets as of March 31, 2014 and December 31, 2013 result from our acquisition of AHF on December 16, 2013.

    Goodwill Impairment Testing

        Goodwill will be reviewed for impairment annually or more frequently if impairment indicators exist. Accounting guidance provides the option of performing a qualitative assessment that may allow companies to forego the annual two-step quantitative impairment test for goodwill if it is determined that the fair value of the applicable reporting unit is more likely than not greater than its carrying value. This qualitative assessment evaluates various events and circumstances, such as macro-economic conditions, industry and market conditions, cost factors, relevant events and financial trends that may impact a reporting unit's fair value. If the two-step impairment test for goodwill is deemed necessary, this quantitative impairment analysis would compare the fair values of our reporting unit to its carrying value. If a reporting unit's carrying value exceeds its fair value, we must then calculate the reporting unit's implied fair value of goodwill and impairment charges are recorded for an excess of the goodwill varying value over the implied fair value of goodwill. The reporting unit's fair value is based upon consideration of various valuation methodologies, including projected future cash flows discounted at rates commensurate with the risks involved, guideline transaction multiples, and multiples of current and future earnings. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements.

        Following this offering, our goodwill impairment analysis will also include a comparison of the estimated fair value of our reporting unit to our total market capitalization. We will consider a significant and sustained decline in our stock price and market capitalization as an additional factor in our goodwill assessments.

    Long-lived Asset Impairment Testing

        Long-lived assets, which include property, equipment, capitalized software, investment in non-consolidated entity and definite-lived intangible assets are periodically reviewed for impairment indicators. In assessing long-lived assets for impairment, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows

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of other assets and liabilities. If impairment indicators exist, we perform an undiscounted cash flow test to determine recoverability. If this recoverability test identifies a possible impairment, management will perform a fair value analysis. Fair values of long-lived assets are determined through various techniques, such as applying probability weighted, expected present value calculations to the estimated future cash flows using assumptions a market participant would utilize or through the use of valuation specialist. We compare the fair value of the long-lived asset to its net carrying value and an impairment charge is recorder for the amount by which the net carrying value of the long-lived asset exceeds its fair value.

        Management believes that the estimates of future cash flows and fair value assumptions are reasonable; however, changes in assumptions underlying these estimates could affect the valuations. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Significant judgments and estimates used by management when evaluating long-lived assets for impairment include (i) an assessment as to whether an adverse event or circumstance has triggered the need for an impairment review, (ii) undiscounted future cash flows generated by the asset, and (iii) fair valuation of the asset.

    Income Taxes

        Prior to January 23, 2014, we had elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under these provisions, we did not pay federal corporate income taxes on our taxable income. Instead, the shareholders were liable for individual federal income taxes on their respective shares of our taxable income. Distributions were made periodically to our shareholders to the extent needed to cover their income tax liability based on our taxable income.

        On January 23, 2014, we changed our income tax status from S corporation to a C corporation. Accordingly, on that date, we recorded a net deferred income tax liability of $2,492 and reclassified all of our accumulated deficit, inclusive of the net deferred tax liability adjustment, into additional paid-in capital. The pro forma data presented on the consolidated statements of operations give effect to our election to be a C corporation as if that election was made effective January 1, 2013.

        As a C corporation, we account for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities and on tax credit carry forwards as measured by the enacted tax rates which will be in effect when these items impact the tax returns. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

        We prepare and file tax returns based on interpretations of tax laws and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. In determining our tax provision for financial reporting purposes, we establish a reserve for examination, based on their technical merits. That is, for reporting purposes, we only recognize tax benefits taken on the tax return if we believe it is "more likely than not" that such tax position would be sustained. There is considerable judgment involved in determining whether it is "more likely than not" that such tax positions would be sustained. As of March 31, 2014, we have no recorded uncertain tax positions.

        We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax provision of any given year includes adjustments to prior year income tax accruals and related estimated interest charges that are considered appropriate. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense.

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    Bad Debt Allowance

        We maintain an allowance for doubtful accounts that reduces receivables to amounts that we expect to be collected. In estimating this allowance, we consider overall economic conditions, historical and anticipated customer performance, historical experience with write-offs, and the level of past due accounts.

    Inventory Adjustments

        Inventories are stated at the lower of cost or market and cost is determined using the first-in, first-out (FIFO) methodology. The cost of inventory is adjusted quarterly based on a physical inventory counts. We also recognize a loss whenever inventory is impaired by damage, deterioration, obsolescence, change in price levels, or other cause. We consider factors such as excess or slow-moving inventories, product expiration dating, current and future customer demand, and market conditions to determine if any adjustment to inventory cost is necessary.

Recent Accounting Policies

        New Accounting Pronouncements:    In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-4, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. This ASU is effective for interim and annual periods beginning after December 15, 2013 and requires the measurement of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of: a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors; and b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. Required disclosures include a description of the joint-and-several arrangement and the total outstanding amount of the obligation for all joint parties. We anticipate the adoption of this guidance will have minimal impact on its financial position, results of operations, cash flows or disclosures.

        In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU is effective for fiscal years and interim periods beginning after December 15, 2013 and changes the presentation of unrecognized tax benefits. We are currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

        In April 2014, the FASB issued ASU No. 2014-8, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU is effective within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015 with early adoption permitted in certain circumstances. This ASU changes the requirements for reporting discontinued operations. We are currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

        In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606). This ASU is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. This ASU changes the requirements for revenue recognition. We are currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.

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Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to interest rate fluctuations with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include the U.S. Prime Rate and LIBOR related to debt outstanding under our line of credit. In the past, we have used interest rate swaps to reduce the volatility of our financing costs and to achieve a desired proportion of fixed versus floating-rate debt. We did not use our interest rate swap for trading or other speculative purposes. We currently are not using any interest rate swaps, but may in the future.

        At December 31, 2013, the principal outstanding on our revolving line of credit was $62,622. Interest on our line of credit is charged at a rate equal to either (a) the base rate, which equates to the rate last quoted by The Wall Street Journal as the "Prime Rate" or as further defined in the agreement in the absence of such, plus an applicable margin (the "Base Rate"); or (b) LIBOR, as defined by the agreement, plus an applicable margin. The applicable margin on the Base Rate borrowings is 0.75% and on LIBOR rate borrowings is 1.75%. The effective interest rate for Base Rate borrowings at December 31, 2013 was 4.00%. The effective rate on LIBOR rate borrowings at December 31, 2013 was 1.92%. At December 31, 2013, we had Base Rate borrowings outstanding in the amount of $37,622 and LIBOR rate borrowings outstanding in the amount of $25,000. Additionally, we are charged a monthly unused commitment fee ranging from 0.25% to 0.50% on the average unused daily balance.

        Based on the revolving line of credit balance outstanding on December 31, 2013, a 100 basis point decrease in the applicable interest rate would increase our 2013 cash flow and pre-tax earnings by approximately $626. An increase in the applicable interest rate would decrease our 2013 cash flow and pre-tax earnings by the same amount. Based on our ability to pay down any outstanding balance on our line of credit without prepayment penalty, as well as our plan to use proceeds from this offering to pay our balance down significantly or completely, we do not believe that interest rate fluctuations create a significant risk.

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BUSINESS

Our Company

        This summary highlights information appearing elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read the entire prospectus carefully, including the sections titled "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. Unless the context suggests otherwise, references in this prospectus to "Diplomat," "the Company," "we," "us" and "our" refer to Diplomat and its consolidated subsidiaries.

Business Overview

        We are the nation's largest independent specialty pharmacy and are focused on improving lives of patients with complex chronic diseases. We believe our independence, which we define as our singular focus on specialty pharmacy services independent of other operations such as pharmacy benefit management or managed care, allows us to focus on the patients first and to address the specific needs of all of our constituents. We believe we have a unique patient-centric approach that positions us at the center of the healthcare continuum for the treatment of complex chronic diseases and enables us to drive superior care coordination through partnerships with patients, payors, pharmaceutical manufacturers and physicians. We offer a broad range of innovative solutions to address the dispensing, delivery, dosing and reimbursement of clinically intensive, high-cost specialty drugs. We believe that we are a chosen partner for leading biotechnology and pharmaceutical companies based on our ability to deliver customized support services and dispense new drugs to complex chronic disease patient populations.

        Diplomat opened its doors in 1975 as a neighborhood pharmacy with one essential tenet: "Take good care of patients, and the rest falls into place." Today, that tradition continues and we have focused on creating a culture that is highly focused on increasing adherence and improving outcomes. We believe that our primary focus on the patient differentiates us from our significant competitors that also provide pharmacy benefit management services or other health care services that do not focus singularly on managing the patient experience. We understand that the primary concerns of a patient facing a chronic and serious condition are quality of care and ease of working with the pharmacy. We believe that our detailed, well managed, high-touch patient care program that is designed to address these concerns is essential to our success. Our specialty drug dispensing and services business model described below creates partnerships with patients, payors, pharmaceutical manufacturers and physicians—with a focus on improving adherence and the patient experience.

        We were founded in 1975 by our Chief Executive Officer, Philip Hagerman, and his father, Dale, both trained pharmacists who transformed our business from a traditional pharmacy into a leading specialty pharmacy. In 2005, we began to expand the scope of our specialty pharmacy business from a small regional operation to a large national enterprise, allowing us to capitalize on the growth of the specialty pharmacy market from $20 billion in sales in 2005 to $63 billion in sales in 2013. As a result, we have grown our revenues organically to over $1.5 billion in 2013, achieving a compounded annual growth rate of over 65% since 2005, and we are now the fourth largest overall specialty pharmacy in the United States. To achieve this growth, we have consistently strengthened our clinical expertise in key therapeutic categories, such as oncology and immunology, broadened the scope of our services to retailers, hospitals and health systems and strengthened our relationships with patients, payors, pharmaceutical manufacturers and physicians.

        We focus on specialty drugs that are typically administered on a recurring basis to treat patients with complex chronic diseases that require specialized handling and administration as part of their distribution process. We have expertise across a broad range of high-growth specialty therapeutic

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categories, including oncology, immunology, hepatitis, multiple sclerosis, HIV and infusion therapy. Our comprehensive, patient-focused services ensure that patients receive a superior standard of care including assistance with complicated medication therapies, refill processing, third-party funding support programs, side effect management and adherence monitoring. We customize solutions for each patient based on the patient's overall health, disease and family history, lifestyle and financial means. We believe we reduce long-term costs for patients and payors by improving patient care, enhancing clinical outcomes, managing high risk members, monitoring patient adherence, and optimizing the utilization of specialty drugs, many of which can cost well over $100,000 per patient, per year. This value proposition to payors and patients has helped us expand our managed lives under contract from approximately five million in 2009 to approximately 13 million in 2013.

        Collectively, our unique ability to enhance patient adherence to complex drug regimens, to collect and report data, and to ensure effective dispensing of complex specialty medications supports the clinical and commercial needs of pharmaceutical manufacturers. Furthermore, our patient and provider support services ensure appropriate drug initiation, facilitate patient compliance and persistence, and capture important information regarding safety and effectiveness of the specialty medications that we dispense. Our services, together with our proactive engagement with pharmaceutical manufacturers early in the drug development process, have contributed to our current and growing access to limited distribution drugs, which we define as drugs that are only available for distribution by a select network of specialty pharmacies. Our inclusion in limited distribution networks provides critical sources of revenue growth and provides a catalyst for our future growth.

        Our core revenues are derived from the customized care management programs we deliver to our patients, including the dispensing of their specialty medications. Because our core therapeutic categories generally require multi-year or life-long therapy, our singular focus on complex chronic diseases helps drive recurring revenues and sustainable growth. Our revenues grow in part as we help more patients access the drugs they need in order to live longer and healthier lives. As a part of our mission to improve patient care, we provide specialty pharmacy support services to a national network of 8 retailers and independent pharmacy groups, representing approximately 4,500 stores and 48 hospitals and health systems. For many of our retail, hospital and health system partners, we earn revenue by providing clinical and administrative support services on a fee-for-service basis to help them dispense specialty medications. Thus, our patient-focused solutions benefit multiple partners across the healthcare continuum, which we believe drives the sustainability of our business model.

Market Opportunity

        Specialty pharmaceuticals represent a significant and growing total addressable market.    The specialty pharmaceutical market has experienced significant growth in recent years as complex chronic conditions, care coordination, technology-enabled patient care, biotechnology research and outcomes-based healthcare have increased in focus. The total specialty benefits represented approximately $92 billion in drug spend in 2012. Total specialty pharmaceutical drug spend covered under the pharmacy benefit was approximately $51 billion in 2012 and is estimated to grow to $118 billion by 2018. While our historic focus has been pharmacy benefit, a significant portion of the specialty drug market is funded through medical benefit. Medical benefit means the reimbursement of specialty pharmaceutical drugs as a medical benefit in a health plan, rather than as a drug benefit under a health plan, which we refer to as a pharmacy benefit. Specialty drugs reimbursed under the medical benefit have also expanded rapidly in recent years and were approximately $41 billion, or approximately 45%, of the total specialty drug spend in 2012. Increasingly, drugs that have historically been reimbursed under the medical benefit are being moved to the pharmacy benefit by health plans and pharmacy benefit managers to better manage care and contain costs. We believe that the medical benefit represents a significant additional revenue opportunity for us and expect it to play a larger role in our business going forward. In addition, we believe that our track record and leadership in limited

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distribution drug programs will create opportunities for us to gain market share in this growing segment of the specialty pharmacy market.

        Growth in specialty drug spend is significantly outpacing the broader pharmaceutical market.    Specialty drugs are the fastest growing segment of the pharmaceutical market, and spend in this segment is estimated to grow at approximately 20% annually from 2012 to 2020, whereas traditional drug spend is expected to decline. Specialty pharmaceutical products are targeted towards high-cost complex medical conditions, have fewer direct substitutes than traditional pharmaceuticals and face limited near-term generic market entry. These factors limit competition and drive higher prices. Additionally, specialty drug approvals comprised over 50% of all FDA drug approvals in 2013 as pharmaceutical and biotechnology companies have continued to invest in specialty drug development. This trend is expected to continue, driven by a robust pipeline of specialty drugs, which represent approximately 45% of the total number of drugs currently in development.

        Oncology and immunology, therapeutic categories in which we believe we are a leader, are large and growing therapeutic categories within the specialty pharmaceuticals industry.    The oncology market represented 29% of specialty pharmaceutical sales in the U.S. in 2013. The immunology market, including the disease states rheumatoid arthritis, psoriasis and crohn's disease, also represents a large and growing specialty market. We believe these two therapeutic categories will continue to grow, given that there are over 400 oncology and immunology drugs currently in clinical development which represent over 40% of the biologics pipeline. Further, there are over 3,000 oncology and immunology drugs in global drug development. Given the chronic nature of these disease states, we provide recurring services to these patients over long periods of time. In 2013, we generated over 70% of our revenues in oncology and immunology, and our historical growth has largely been driven by our position as a leader in these categories.

Competitive Strengths

        We are the nation's largest independent and fourth largest overall specialty pharmacy, and we believe we are well positioned to continue to increase our market share based on the following competitive strengths.

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        Adding value to all constituents.    The value we deliver to all constituents is centered upon our core focus on patients. We help patients adhere to complicated medication therapies, process refills and manage any side effects and insurance concerns to ensure they get the best standard of care. We also help identify third-party funding support programs to help cover expensive out-of-pocket costs. In 2013, we helped our patients successfully obtain $24 million of funding assistance to help cover out-of-pocket co-pay costs. Our focus on patients and our related patient-support programs have allowed us to achieve an overall patient satisfaction rate of approximately 99%.

GRAPHIC

      Supporting our core focus on patients, we also serve the constituents below.

      (1) Payors:    We manage prescription regimens for chronically ill populations and help payors, which include insurance plans and pharmacy benefit managers, reduce costs through customized specialty pharmacy programs. Our high-touch electronic patient care platform, centered on our disease-specific technology solution, is customized for each payor's needs and is designed to improve efficiency and lower costs. For example, through our partial fill program, we promote more frequent direct intervention and tracking of patients and their therapies by our highly trained clinical experts.

      (2) Biotechnology and Pharmaceutical Manufacturers:    We offer specialized and highly customized prescription programs for pharmaceutical companies to help them optimize and track patient adherence which helps drive the clinical and commercial success of specialty drugs. In addition, we partner with pharmaceutical manufacturers early by helping them develop specialty pharmaceutical channel strategies as part of their commercial launch preparation.

      (3) Physicians and Health Systems:    Our team works with physician offices to manage prior-authorization and other managed care organization requirements, such as denial and appeal process, to ensure that complicated administrative tasks do not impair the delivery of quality patient care. Additionally, we provide risk evaluation services, implement risk mitigation strategies and collect patient adherence data to provide physicians and health systems with

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      enhanced visibility on patient outcomes. Our transparency and support has led to a physician satisfaction rate of approximately 97%.

      (4) Retailers and Hospitals:    We provide clinical and administrative support services for our retail and hospital partners on a fee-for-service basis. Based on our broad industry experience, infrastructure and treatment-tracking software, our retail specialty network solution provides customized clinical and administrative support services that help retailers and their specialty patients improve financial and clinical outcomes. We provide hospitals with unique solutions to maximize cost containment, improve efficiency and clinical outcomes from specialty pharmaceuticals. Our programs also support hospitals that are 340B covered entities through a contracted pharmacy strategy.

        Significant and longstanding payor relationships—approximately 13 million managed lives under contract.    We partner with 40 regional and mid-sized payors and independent pharmacy benefit managers to improve patient outcomes and lower costs by managing high risk members and implementing patient-focused specialty programs. We strive to improve the clinical outcomes for high-risk members through adherence monitoring, patient education and clinical intervention. We offer payors access to limited distribution drugs and unique cost containment programs, including partial refill programs, clinical management and motivational interviewing techniques for improving adherence. We believe that medication non-adherence (i.e., patients not following the instructions for their medication or failing to finish taking their medication) is the largest avoidable cost in specialty pharmacy, and we have achieved patient adherence rates of over 90% for the quarter ended March 31, 2014 with our patient training and education, compliance packaging, prophylactic starter kits and nurse adherence calls. We believe that our focus on high-touch patient care and our experience with high-risk populations makes us well-positioned for the anticipated growth in managed lives under the Affordable Care Act, particularly with respect to managed Medicaid coverage.

        Partner of choice for biotechnology and pharmaceutical manufacturers.    We believe that our role as the partner of choice for many biotechnology and pharmaceutical manufacturers is based on the following attributes:

    Expertise in managing limited distribution drugs.  We have historically earned access to many limited distribution drugs, both at the time of their launch and post-launch. We actively monitor the drug pipeline and maintain dialogue with many of the major biotechnology and pharmaceutical manufacturers to identify opportunities in all pre-commercial stages of drug development. We believe that limited distribution is becoming the delivery system of choice for many drug manufacturers because it facilitates high patient engagement, clinical expertise and elevated focus on service. This belief is based in part on our past success in dispensing prescriptions for new drugs in as little as two days after launch, which we believe is materially faster than most of our competitors. Furthermore, we believe that our innovative solutions and service-oriented culture set us apart from our competitors, have enabled us to win a large number of limited distribution contracts and is more appealing than our competitors' platforms to emerging biotechnology firms and the boutique consulting firms that advise them. We believe that the trend toward limited distribution of specialty drugs will continue to expand in the future, making strong representation in this area essential. Accordingly, we believe our current portfolio of over 70 limited distribution drugs positions us for disproportionate growth as more limited distribution drugs come to market.

    Proven track record of adding value.  We believe we outperform our competitors in providing services that benefit specialty drug manufacturers. Our superior services are driven by our clinical expertise in oncology, immunology, hepatitis, multiple sclerosis, HIV and specialty infusion. We offer targeted pilot programs, full reporting capabilities and a variety of additional services that support patients' medication adherence when clinically appropriate. We believe

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      these superior services and capabilities were a primary driver of our gaining access to, and becoming the largest of five specialty pharmacies that can, dispense Imbruvica, Pharmacyclics' Mantle Cell Lymphoma drug launched in November 2013.

    Breadth of channel partners.  In addition to our strong relationships with payors, physicians, manufacturers and patients, we also partner with retailers, hospitals and health systems by providing critical patient-facing clinical and administrative services that help support the specialty pharmacy capabilities of these constituents. We believe that our ability to provide the patient-centric services under the brand names of our retail, hospital and health system partners makes us a valued partner for these entities that lack the infrastructure and expertise to service their specialty drug patients on their own. These partnerships broaden our exposure and influence across the healthcare continuum.

    Relationships with clinical experts and key opinion leaders.  Our singular focus on specialty pharmacy and complex chronic diseases has enabled us to develop strong relationships with clinical experts and thought leaders in key therapeutic categories, such as oncology and immunology. We leverage these relationships to gain greater visibility into future drug launches and to stay current on the latest advances in patient care.

        National footprint with highly scalable infrastructure.    During the past several years, we have made significant investments to expand our capabilities and capacity, which we believe will help us to enhance sales volume, improve efficiency and create significant barriers to entry. In December 2010, we moved our corporate headquarters to a 550,000 square foot facility in Flint, Michigan. Our operations within this facility are highly scalable, as we currently utilize approximately 40% of the facility giving us significant capacity to execute our long term growth plan without significant additional capital expenditures. Our physical footprint has enabled us to develop a centralized infrastructure that we have successfully scaled to dispense to all 50 states. We now have an advanced distribution center that enables us to ship medications nationwide as well as a centralized clinical call center that helps us deliver localized services on a national scale. In addition to our headquarters, we also operate smaller regional facilities in Flint, Michigan; Grand Rapids, Michigan; Chicago, Illinois; Ft. Lauderdale, Florida; Ontario, California; Enfield, Connecticut; Raleigh, North Carolina; and Springfield, Massachusetts. We are fully accredited and licensed to conduct business in each of the states that require such licensure.

        Strong financial profile combines sustainable growth and low capital intensity.    Our financial profile is comprised of a recurring revenue model that is driven by the chronically ill populations we serve. As a result, we have demonstrated strong growth in revenue and profitability. We have achieved consistent revenue and Adjusted EBITDA growth with revenues increasing from $377 million in 2009 to $1,515 million in 2013 and Adjusted EBITDA increasing from $6 million in 2009 to $19 million in 2013, representing compound annual growth rates of 42% and 33%, respectively. In addition, we grew our net income from $3 million to $8 million over the same time period. See "—Selected Consolidated Financial Data" for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of our Adjusted EBITDA to net income. We expect our growth to continue to be driven by a highly visible and recurring base of revenues, favorable demographic trends, advanced clinical developments, expanding drug pipelines, earlier detection of chronic diseases and improved access to medical care. In addition, we believe that our expanding breadth of services, our growing penetration with new customers, and our access to limited distribution drugs, will help us achieve significant and sustainable growth and profitability in future.

        Highly experienced and passionate management team.    Our senior management team, which consists of six executives, has an average of over 26 years of experience in the pharmacy and specialty pharmacy industry and represents a group of highly recognized and respected industry veterans. Led by our Chief Executive Officer, Philip Hagerman, our management team is responsible for our proven track record

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of growth, consistent performance and industry leading service. Philip, a licensed pharmacist, second generation principal and recognized specialty pharmacy industry thought-leader, is a frequent speaker at state and national pharmacy conferences and has received several awards as a leading business executive in the country, including recognition by the White House Business Council for his leadership in job creation and community development. Our senior management team has an average tenure with Diplomat of over 12 years and brings a healthy balance of significant experience with Diplomat and with other companies in the industry, including public companies. In addition, our broader sales, clinical and operations team, has deep clinical expertise and includes over 50 licensed pharmacists.

Growth Strategy

        We plan to grow our business by continuing to execute on the following key growth strategies:

        Capitalize on track record to expand leadership positions in high-growth oncology and limited distribution markets.    We believe our track record of providing a customized, high level of service to our manufacturer partners in the oncology and immunology markets has led to repeat contract awards and initial limited distribution contracts related to new drugs our partners bring to market. For example, we believe our success as a distributing pharmacy for Zytiga, a metastatic castration resistant prostate cancer drug approved by the FDA in April 2011, helped earn us limited distribution access to Xtandi, another metastatic castration resistant prostate cancer drug approved by the FDA in August 2012. Xtandi has grown to become one of our top 10 drugs with over $40 million in annual sales in 2013. Our clinical and sales teams consistently engage our emerging biotechnology partners on commercialization strategy 12 to 18 months in advance of potential FDA approval. These pre-existing relationships position us to capture market share in these high-growth markets. One example was the launch of Cometriq, a drug currently indicated for a form of thyroid cancer, on which we collaborated with the manufacturer and became the exclusive distributor.

        Expand clinical expertise to a broad range of therapeutic categories.    We serve a broad range of therapeutic categories, and we believe we can expand our clinical expertise to increasingly penetrate additional markets such as hepatitis, multiple sclerosis, HIV and specialty infusion. We believe these categories will become increasingly important to our patient population in the coming years due to advancement of therapies and increased incidences of chronic illness and that our platform will allow us to grow with market expansion. Specifically, we view specialty infusion as an attractive market due to significant projected growth and higher margins, and we intend to continue to invest in this important and growing area of our existing business. Our recent acquisitions of AHF and MedPro have significantly expanded our ability to access this market. Additionally, orphan and ultra-orphan drugs, which are associated with relatively small patient populations, are an increasingly important focus for us as the specific characteristics of these categories make utilization and compliance particularly challenging.

        Deepen and expand partner relationships.    We currently contract with and support regional and mid-sized payors and independent pharmacy benefit managers, employer groups, and union groups representing approximately 13 million managed lives across the United States. We plan to continue to work with our current clients to grow their membership and are focused on expanding our client base nationally. In addition to providing specialty pharmacy services for self-administered medications covered under the pharmacy benefit, (consider explaining pharmacy vs medical benefit) we also offer office-administered medications covered under the medical benefit to ensure that we provide a full spectrum of care to our specialty patients regardless of type of their benefit coverage and where they receive care. Further, our partnerships with retail pharmacies and hospitals allow us to serve specialty patients beyond the traditional specialty pharmacy approach. These partnerships allow patients to more easily access specialty medications in the retail setting and also positions Diplomat to be a key partner for Accountable Care Organizations.

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        Grow high-margin businesses and capitalize on investments to enhance key operating metrics.    In 2014, we contracted to significantly expand our retail customer base and expand our opportunities through service contracts to one of the largest hospital networks and group purchasing organizations. In addition, our continued expansion into the infusion market will provide us with opportunities to capitalize on a market which historically has provided higher margins. We have made significant investments in our technology, infrastructure and service lines to build a scalable foundation for growth, which we believe provides meaningful opportunities to grow revenues and enhance key operating metrics. We believe our investments in technology, both completed and in-process, will improve our operating cost profile and provide valuable revenue opportunities, as we enhance our data collection and delivery capabilities, services that are highly valued by our partners. Finally, we currently utilize approximately 40% of our 550,000 square foot facility in Flint, Michigan (purchased in 2010), providing meaningful capacity as we continue to scale our business.

        Selectively pursue growth through strategic acquisitions.    We believe the specialty pharmacy industry is highly fragmented and provides numerous opportunities to expand through acquisitions. While we will continue to focus on growing our business organically, we believe we can opportunistically enhance our competitive position through complementary acquisitions in both existing and new markets. For example, in December 2013, we completed the acquisition of AHF, a specialty infusion therapy provider focused primarily on hemophilia. In June 2014, we acquired MedPro, a specialty pharmacy focused on specialty infusion therapies including hemophilia and immune globulin. Specialty infusion is differentiated from traditional home infusion in that it requires highly customized services and level of care with therapies that can exceed $300,000 in costs per patient per year. Additionally, we plan to selectively evaluate potential acquisition opportunities in other therapeutic categories, services and technologies, with the goal of preserving our culture, continuing to deliver superior patient outcomes, enhancing value to other constituents and building long-term value for our shareholders.

Specialty Pharmacy Industry

        Specialty pharmacy services are a distinct form of pharmacy services that coordinate full service patient care and complex disease management. Specialty pharmacy services are designed to take advantage of economies of scale by using standardized and efficient processes to deliver medications with customized handling, storage and distribution requirements. Specialty pharmacies are also designed to improve clinical, adherence, and economic outcomes for patients with complex, often chronic, or rare conditions through a wide range of oral, injectable and infusible specialty pharmaceuticals.

        The U.S. market for specialty pharmaceuticals is estimated to be around $51 billion in 2012 and the market is expected to grow rapidly. See "—Market Opportunity" above for additional information regarding anticipated industry growth. We expect several factors to contribute to the continuing growth of the specialty pharmacy services industry, including the following:

    accelerating development and approval of new specialty pharmaceuticals and therapies, including from emerging biotechnology manufacturers;

    clinical advancements in personalized medicine;

    earlier detection of chronic disease;

    growing emphasis on care management and compliance monitoring to improve outcomes and reducing the overall cost of care related to high-cost, chronic diseases;

    healthcare cost containment pressures and growing recognition of early detection and proactive treatment as a means to reduce long-term treatment costs;

    growth of insured patient population;

    increased availability and acceptance of specialty pharmacy services;

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    migration of therapy from medical benefits to pharmacy benefits as well as management of specialty pharmaceuticals under the medical and pharmacy benefit;

    expansion of FDA-approved indications for currently marketed specialty pharmaceuticals;

    the anticipated approval of biosimilars and generics which will increase the availability of drugs in the market; and

    direct to consumer advertising.

        Less acute, chronic conditions are generally treated with self-administered, oral, injectable or inhalable specialty pharmaceuticals but may also be administered by a physician or nurse. These pharmaceuticals can be distributed directly to the patient for at-home administration or to the patient's physician for in-office administration. Several chronic, genetic conditions and orphan diseases are treated with infused pharmaceuticals via a more complex intravenous form of administration. These pharmaceuticals are dispensed under the supervision of a registered pharmacist and the therapies are typically delivered to the patient for self-administration in the home or administration by a credentialed home-health care nurse or trained caregiver at home or in another care site. Many of the pharmaceuticals handled by specialty pharmacies require refrigeration during shipping as well as special handling to prevent potency degradation. Patients receiving treatment usually require personalized counseling and education regarding their condition and treatment programs.

        The specialty pharmacy segment primarily treats conditions such as cancer, immune deficiency disorders, hepatitis, multiple sclerosis, hemophilia, neurological conditions and other chronic conditions. Retail pharmacies and other traditional distributors generally are designed to carry inventories of low cost, high volume products and therefore are not equipped to handle the high cost, low volume specialty pharmaceuticals that have specialized handling and administration requirements. In addition, those entities generally lack both the deep clinical expertise and the administrative and call center support functions necessary to effectively deliver specialty pharmacy services. As a result, specialty pharmaceuticals generally are provided by pharmacies that focus primarily on filling, labeling and delivering oral, injectable, infusible or inhalable pharmaceuticals and related medication and support services.

Our Services

        We provide specialty pharmacy services dedicated to servicing the needs of patients, while also providing clinical expertise, technology-driven innovation tools, and administrative efficiencies that support physicians, payors, pharmaceutical manufacturers, and retail pharmacies. We purchase specialty pharmaceuticals from manufacturers and wholesale distributors, fill prescriptions, and label, package and deliver the pharmaceuticals to patients' homes or physicians' offices through contract couriers. We utilize our Company-owned, high-volume distribution facility, seven smaller regional facilities and centralized clinical call centers to provide such services to all 50 states. The services provided to our patients and other constituents described below are integral to securing the relationships that drive our revenue and prescription volumes, and are a central focus of our specialty pharmacy business. In order to successfully compete, we must provide value to each constituent in the specialty pharmacy industry.

        Our value to constituents is based on our ability to provide large specialty and limited distribution product access, utilization management, high patient adherence rates, patient funding assistance, data management, outstanding patient and prescriber satisfaction rates and direct and indirect cost savings. Our adherence programs, including monthly monitoring calls, unique packaging to drive compliance, side effect management, patient education, and prescriber outreach, have resulted in patient adherence rates of more than 90%. Further, we manage the high cost of specialty drugs by pursuing cost savings through channel management, utilization management, formulary management (i.e., the list of specialty

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drugs that will be reimbursed by a health plan or managed care organization), and waste minimization (including our partial fill program).

        Our programs consist of the following business services:

    Specialty Drug Dispensing.  We are licensed to dispense prescriptions in all 50 states and all U.S. territories. Our business processes and state of the art dispensing solutions are well established and can provide specialty prescriptions to patients as required by the communicated "need by" date. All specialty prescriptions are verified by registered pharmacists for accuracy and appropriateness at two separate points in the dispensing process prior to shipping to patient. Our specialty dispensing and distribution capabilities include package tracking through contracted couriers, temperature controls and signature confirmation upon delivery.

    Specialty Infusion Pharmacy Services.  Our December 2013 and June 2014 acquisitions of AHF and MedPro, respectively, expanded our specialty infusion pharmacy services, a subset of specialty pharmacy services. Many acute and chronic conditions are generally treated with infusible pharmaceuticals that require administration of a more complex nature, primarily for hemophilia and immune globulin treatment. The medications are mixed and dispensed under the supervision of a registered pharmacist and the therapy is typically self-administered at home by the patient or through our extensive outsourced network of credentialed specialty nurses either in the patient's home or at other care sites.

    Patient Care Coordination.  Our patient care system is used to coordinate and track patient compliance outcomes and safety. It is built around specific drug therapies and disease states for greater consistency of care using clinical algorithms. Each step within the patient's treatment regimen is extensively researched based on various disease guideline publications. Our system automatically tracks all clinical interventions and activities and provides real-time access to patient information. Using this system, our care coordinators, including pharmacists, work with both patients and prescribers to identify potential adherence failures and implement proactive plans to optimize treatment outcomes.

    Clinical Services.  Our pharmacists and nurses, with the assistance of our pharmacy technicians, provide clinically based drug therapy management programs for clients and patients. Pharmacists provide counseling on compliance and side-effect management. Our Clinical Help Desk includes several pharmacists, as well as nurses and pharmacy technicians. A pharmacist is available to patients and prescribers 24 hours a day, seven days a week and nurses are available during normal business hours. Clinical pharmacists are responsible for high level clinical interaction with patients and healthcare practitioners including medication counseling and clinical advice. Our clinicians work with the patients' primary prescriber to identify adherence failures and to implement a proactive plan to achieve intended outcomes.

    Compliance and Persistency Programs.  Our compliance and persistency programs are drug specific and support the needs of patients based on their therapy regimen. In some cases, a dedicated nurse proactively contacts patients at specific intervals of therapy to discuss precautions, side effect management, administration of medication, and refill procedures. Prior to every refill, we call patients to verify the patient's dose and dosing regimen and shipping address, discuss side effects and confirm that the patient is appropriately taking the medication. Aside from standard protocol, we initiate calls at critical points during the therapy to improve adherence. This adherence program also addresses non-compliance by offering enhanced patient education and communication through customized programs specific to the medications we provide.

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    Patient Financial Assistance.  Our funding specialists help patients navigate their benefits and find third-party financial assistance to address coverage deficiencies. We provide services to help patients understand and receive reimbursement benefits and we work with available co-pay assistance programs, including co-pay card enrollment and program management. We currently work with substantially all major commercial co-pay card programs. Our team also coordinates with many external charitable foundations and research grant organizations that help subsidize the cost of medications for patients. We also help patients access manufacturer patient assistance (free drug) programs when necessary and available. These programs result in healthier outcomes for the patients and increased revenues for us.

    Specialty Pharmacy Training/Consulting (Diplomat University).  Diplomat University is our education and training department that educates both Diplomat employees and external professionals (including pharmacists, payors, pharmaceutical partners and physicians) on topics unique to the specialty pharmacy industry. Our in-depth, ongoing training program promotes clinical competence and builds new skills, enabling employees to provide high-level care for our patients and improve overall business performance. Diplomat University also houses our quality assurance department, which focuses on programs that promote quality and patient safety. Diplomat University-produced materials have been used in trade conference materials and magazine articles, as well as business meetings, to explain the specialty pharmacy industry generally and the broad range of solutions we can provide.

    Benefits Investigation.  Our standard procedures require that we conduct a benefits investigation for each patient we work with. In addition to processing test claims, our benefit specialists contact the appropriate medical or pharmacy benefit plan to verify coverage, deductible, coinsurance, and out-of-pocket maximum. Our specialists provide all necessary coding for the prescribed therapy or service. Any prior authorization or predetermination requirements are defined at the time of the benefits investigation. Our standard procedures require an initial test adjudication upon receipt of the referral and require subsequent investigations under certain circumstances.

    Prior Authorization.  Our prior authorization specialists contact the patient's insurance plan and collect all necessary patient specific information, together with supporting documentation, to provide to the third-party payor to support reimbursement for the prescribed medication, and coordinates with the prescribing physician. In the event that the required therapy is not listed on the third-party payor's formulary, we also compile the necessary information to file a formulary exception on behalf of the patient.

    Risk Evaluation and Medication Strategy ("REMS").  Our employees are skilled at administering REMS (Risk Evaluation and Mitigation Strategy) protocols on all levels of risk mitigation, which is required by many pharmaceutical manufacturers due to regulatory requirements. We have standard operating procedures in place to support all aspects of a REMS program, including REMS administration, REMS drug fulfillment, disease management, medication guide dispensing and the Elements to Assure Safe Use specific to pharmaceutical manufacturer's program. We also partner with manufacturers to report and track Adverse Drug Events where required. Our patient care system has been designed to capture much of the information the pharmaceutical manufacturer must report to the FDA.

    Retail Specialty Services.  Retail specialty services connects a retail pharmacy business to the specialty arena. Based on our broad industry experience, infrastructure and unique treatment-tracking software, retail specialty services offers companies a strategic partner for clinical and administrative support services that help the business and their specialty patients achieve their best outcomes. Large retailers with pharmacies, such as Safeway and Target, have access to many of the same specialty drugs we distribute, but lack the expertise and the infrastructure necessary to manage patients, payors, and physicians regarding these specialty drugs. Development of this

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      infrastructure is very costly, time consuming, and requires trained clinical experts. Our retail specialty services fills this gap with our breadth of service expertise, which includes nearly every aspect of our business other than purchasing the drugs and filling the prescriptions. We conduct patient-facing services under the specific retailer's brand name. For example, when our retail specialty services employees interact with patients and prescribers, these customers are unaware they are not engaging with our retail specialty services clients directly. These strategic relationships with retail pharmacies are important to pharmaceutical manufacturers and can further our access to additional limited distribution drugs, resulting in increased volumes of the specialty drug dispensing services described above.

    Hospital and Health System Services.  We provide clinical and administrative support services to hospitals and health systems that dispense specialty medications through their outpatient pharmacies. We partner with hospitals and health systems to assist with strategies and service delivery that maximizes cost containment and improves efficiency and clinical outcomes related to specialty pharmaceuticals. Our program also supports hospitals that are 340B covered entities through a contracted pharmacy strategy.

    Hub Services.  We also recently launched the provision of hub services to capitalize on our expertise in providing the services described above and to compete with other hub service providers. Hub services generally are centralized management services for collaboration and efficiency among the key participants in the specialty pharmacy system (including patients, physicians, payors, pharmaceutical manufacturers, retail pharmacies and other prescribers). In order to maintain client satisfaction and compliance we will keep certain information and software systems, infrastructure and employees "firewalled" from our specialty pharmacy business to avoid commingling or favoring any specialty pharmacy (including ours) within the networks of the hub customers.

Constituent Relationships

        Our services provide value to our constituents in the following ways.

    Patients

        We help manage patients' complex disease states through counseling and education regarding their treatment and by providing ongoing monitoring and, in some cases, proactive follow-up contact to encourage patient compliance with the prescribed therapy. The goal of Diplomat's patient care programs is to provide clinical services in a caring and supportive environment, optimize medication adherence, prevent disease progression and improve outcomes. To accomplish this, Diplomat focuses on each individual patient and provides solutions related to medication access, tolerance, and adherence.

        Diplomat provides patients with personalized medication programs and services for a variety of complex disease states, including the following:

    Oncology.  Cancer therapy often involves the use of highly-toxic chemotherapy or oral oncolytic agents with a high incidence of adverse events. Goals for these patients include the provision of the most effective therapy at the appropriate dose, adverse event management to ensure treatment can continue for as long as it is effective, and improvement in quality of life. Our clinicians strive to ensure optimal treatment outcomes for these patients by providing high-touch proactive and reactive care, focusing on appropriate dosage and administration, adverse event management, and adherence monitoring.

    Immunology.  Care of patients with autoimmune and/or inflammatory conditions generally involves the use of therapies aimed at slowing disease progression, reducing the rate of disease relapse, and managing disease symptoms. Goals for these patients include reducing the signs and symptoms of disease, minimizing short- and long-term side effects and complications of the

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      disease and therapy, and improving or normalizing the patient's quality of life. Our clinicians assist these patients by providing clinical management providing adverse event management support, proactively monitoring for adherence issues, and following up with prescribers in response to identified therapy issues.

    Hepatitis.  Management of hepatitis C virus infection involves the selection of appropriate therapy based on HCV genotype, the presence or absence of cirrhosis, transplant status, prior response to therapy, and whether or not the patient is co-infected with HIV or hepatitis B virus. Goals for these patients include achievement of sustained virologic response, decreasing the disease and therapy burden, and optimal adherence to therapy. Our clinicians ensure that hepatitis C virus therapy regimens are complete and appropriate, provide adverse event management support, and follow-up with prescribers to ensure optimal therapy outcomes.

    Multiple Sclerosis.  Care for patients diagnosed with multiple sclerosis involves life-long support. Goals for these patients include providing efficacious therapy to reduce the frequency of relapse and improving quality of life. Our clinicians ensure that patients are receiving the appropriate dose of therapy, provide adverse event counseling and management support, provide education on relapse mitigation strategies, and are available to respond to patient questions regarding therapy effectiveness and adverse events.

    Specialty Infusion Therapy.  Several chronic, genetic conditions and orphan diseases are treated with infused pharmaceuticals with a more complex intravenous form of administration. These pharmaceuticals are prescribed for individuals including but not limited to the following conditions: hemophilia, immune globulin and auto-immune deficiencies, hereditary angioedema and lysosomal storage disorders. Patients are generally referred to specialty infusion pharmacy services providers by physicians or case managers. The medications are dispensed under the supervision of a registered pharmacist and the therapy is typically delivered to the patient or caregiver for self-administration in the home or administration by a credentialed home-health care nurse or trained caregiver at home or in another care site.

    Other Disease States.  We also treat patients who have received organ transplants or who have HIV. Life-long therapy is essential for the prevention of organ rejection in transplant patients, and we seek to optimize adherence to therapy in order to decrease the likelihood of organ rejection. The management of HIV is complex and involves the use of highly-active anti-retroviral therapy. Goals for our patients diagnosed with HIV include achieving long-term, maximal suppression of viral load, preserving and improving immune system function (prevention of progression to acquired immunodeficiency syndrome), and prevention of the spread of HIV to others.

        A number of our patient-focused services are driven by adherence. Our standard procedures require that we maintain a team of pharmacists, nurses and certified pharmacy technicians available to answer patient questions by phone, 24 hours a day, seven days a week. We send patients all the medication and supplies they need for their prescribed therapy, including, when applicable our "CarePak" adherence packaging and starter kits, which helps patients manage the side effects of their primary prescriptions. Management of side effects is a key component of patient adherence. We also proactively contact patients with reminders when refills are required and contact their physician if a new prescription is necessary.

    Payors

        We provide payors with a comprehensive approach to meeting their pharmacy service needs. Our specialty pharmacy services offer payors a cost effective solution for the distribution of specialty pharmaceuticals, generally direct to patients for self-administration. We manage high-risk members in the payors' network and assist with adherence to such members' health plans to minimize waste in the purchase of specialty drugs and to optimize patient outcomes. We also provide access to a significant

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number of limited distribution drugs. Other services include coordination of care with the members' physicians and payors and the provision of utilization and outcomes data to evaluate therapy effectiveness.

        The value we provide to payors is reflected in the number of managed care organizations to whom we provide exclusive services. We have approximately 13 million managed lives under contract, which we define as patients enrolled in a managed care organization network including pharmacy benefit managers, health plans, state governments, employer groups and unions with whom we contract, through exclusive and preferred relationships with such organizations, whereby we are the only authorized or one of a few preferred specialty pharmacy providers to the patients in their system. These relationships accounted for approximately one-third of our revenues in 2013.

    Pharmaceutical Manufacturers

        We provide pharmaceutical manufacturers with a strong distribution channel for their existing pharmaceuticals and their new product launches. We implement patient monitoring programs that encourage compliance with the prescribed therapy. We also provide drug trial assistance including product encapsulation and packaging.

        The adherence rates that result from our patient-centered services described above directly benefit pharmaceutical manufacturers through clinically appropriate continued sales