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Healthcare sector stock presentation SP-35

Healthcare sector stock presentation SP-35 . Michael Mahaney Tianna Nguyen Edward Poitras Matthew Pry. SIM Portfolio Overview. SIM Portfolio. Healthcare Sector Holdings. Healthcare sector in re the sim portfolio. Stock Recommendations. HEALTHCARE RECOMMENDATIONS.

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Healthcare sector stock presentation SP-35

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  1. Healthcare sector stock presentation SP-35 Michael Mahaney Tianna Nguyen Edward Poitras Matthew Pry

  2. SIM Portfolio Overview SIM Portfolio

  3. Healthcare Sector Holdings Healthcare sector in re the sim portfolio

  4. Stock Recommendations HEALTHCARE RECOMMENDATIONS

  5. Genentech recommendation: sell

  6. Genentech, Inc. DNA DNA – DCF Model Current Price: $73.92 DCF Target: $78.00 5% upside potential

  7. Genentech, Inc. DNA DNA - Valuation • For comparable companies DNA had the highest forward P/E ratio, but also the highest expected growth rate.

  8. GENENTECH, INC. DNA DNA – Growth Rate • Growth rate estimates have steadily fallen since 2005 and so has Forward P/E • Growing at 22.3% per year would make DNA the size of today’s JNJ in terms of sales in just 10 years

  9. Genentech, Inc. DNA DNA – Product Sales • Three drugs make up over 50% of total revenues

  10. GENENTECH, INC. DNA DNA – Pipeline • In the short-term expect the FDA to approve existing DNA products to treat additional diseases • New compounds will not make it to market for two to three years

  11. Genentech, Inc. DNA DNA – Summary • Strong company with competitive advantage • Pipeline full of projects for existing products • New drugs some years away – uncertain outcome • Expected growth rates seem too optimistic • Conclusion: Sell and reinvest proceeds in better prospects

  12. Johnson & Johnson recommendation: buy

  13. JNJ Current Price: $62.08 Intrinsic Value: $87.4 Upside Potential: 40.8% Dividend Yield: 2.7% Why it is cheap: • MD&D’s largest division Cordis (drug-eluting stents) has seen an unexpected decline in sales. • Pharma will loose patent protection on its #1 and #4 drugs and its #2 drug is experiencing a decline in sales. In all representing 19% of sales. Investment Thesis: • All of the downside is priced into the current stock price. • Several of the uncertainties surrounding JNJ have large potential upsides. • Catalysts in the near future. Johnson & Johnson

  14. Cordis sales of $4,088MM represent 7.6% of overall sales and 20.2% of MD&D sales. • The world-wide PCI procedures are down 13% and the DES market is down 21% • Concern over late stent thrombosis in DES • Penetration is rebounding and should stabilize upward of 70% • Possible PCI recovery as drug therapy results mature • Upside • Conor Med Systems Purchase • DES homogeneous test results in late Fall JNJ - Medical Devices & Diagnosis Johnson & Johnson

  15. Top 3 drugs • #1 Risperdal off patent in June of 2008. Has successor in Invega. (schizophrenia) • #2 Procrit ODAC panel and CMS decisions down 14% (anemia) • #4 Topamax off patent in March of 2009 (epilepsy) • Nature of Pharma • Procit (kidney) & Lipitor (example W&L) • On track for 10 to 13 new compounds by the end of 2007. JNJ - Pharmaceuticals Johnson & Johnson

  16. September 9-12 ODAC Panel • Full year of PCH integration • 3 months of drug therapy in stable patients • $10 BB stock buy back • 1.3% workforce reduction JNJ - Catalysts Johnson & Johnson

  17. Healthcare Sector Recommendations • Sell DNA – 2.19% position • Add to Johnson & Johnson position – 0.5% • Net decrease from 5.49% sector overweight position to 3.8% • Although we recommended to buy hospital facility stocks to better diversify inside the healthcare sector, bad debt expense, insurance, labor costs, and high P/E’s persuaded us otherwise at this time. SIM Holdings After Recommendation Conclusions Recommendations

  18. Questions

  19. DCF MODELS

  20. JNJ DCF

  21. JNJ Segment Data

  22. HOLD STOCKS

  23. CAH Cardinal health, Inc. • Price Paid – 72.47 • Current Loss – 5.66 or 8.45% • Pros – Industry leader and business growth is still seeing double digits • Cons – Tight margins and competition putting pressure on earnings • Price Target – 78.50 • Current Price – 67.50 • Upside potential – 17%

  24. WLP Wellpoint, Inc. • Price Paid – 81.78 • Current Loss – 7.33 or 8.96% • Pros – Growth in medicare/medicaid and booming demographic increases health benefit plan subscribers • Cons – Competition, nationalized healthcare • Current Price – 74.45

  25. TEVA: Prices and Current Holdings • SU07 SIM Wt. 4.85% • SU 07 Dollar $1,231,152 • Current Price $42.62 [08.01.07] • Price Target $46.02 • Upside potential 3.41% DCF Model Reference Stock Prices: 3 months Pros • Earnings reported 08.01.07 and exceeded expectations • Generic drug manufacturer that is a growing company • Stock is an ADR Cons • Risks associated with being an Israeli company • High competition Teva Pharmaceuticals

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