HEALTHCARE SECTOR STOCK PRESENTATION SP-35

Michael MahaneyTianna NguyenEdward PoitrasMatthew Pry

SIM PO

RTFOLIO

SIM Portfolio Overview

HEALTH

CARE SECTOR IN

RE THE SIM

PO

RTFOLIO

Healthcare Sector Holdings

3.00%

82.63%

4.85%

4.34%

2.99% 2.19%

SIM PortfolioTEVAJohnson & JohnsonCardinal Health

WellpointGenentech

HEALTH

CARE RECOM

MEN

DATIO

NS

Stock Recommendations

GENENTECH RECOMMENDATION: SELL

GEN

ENTECH

, INC.

DNADNA – DCF Model

DCF Valuation07/02/2007Ticker: DNA Terminal Discount Rate = 13.0%Ed Poitras Terminal FCF Growth = 5.7%

ForecastYear 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E

Revenue 12,069 15,328 19,159 23,949 29,458 35,349 41,359 47,149 52,807 59,143 65,058 % Growth 27.00% 25.00% 25.00% 23.00% 20.00% 17.00% 14.00% 12.00% 12.00% 10.00%

Operating Income 4,210 5,418 6,846 8,678 10,821 13,162 15,606 18,027 20,454 23,204 25,850 Operating Margin 34.88% 35.35% 35.73% 36.23% 36.73% 37.23% 37.73% 38.23% 38.73% 39.23% 39.73%

Interest and Other- net 251 266 286 346 410 475 535 586 630 676 711 Interest % of Sales 2.08% 1.74% 1.49% 1.44% 1.39% 1.34% 1.29% 1.24% 1.19% 1.14% 1.09%

Taxes 1,691 2,131 2,639 3,100 3,841 4,643 5,471 6,279 7,077 7,975 8,824 Tax Rate 37.9% 37.9% 37.5% 37.2% 36.9% 36.6% 36.3% 36.0% 35.7% 35.4% 35.1%

Net Income 2,770 3,552 4,493 5,924 7,390 8,993 10,670 12,334 14,007 15,905 17,737 % Growth 28% 26% 32% 25% 22% 19% 16% 14% 14% 12%

Add Depreciation/Amort 471 552 651 958 1,385 2,086 2,688 3,300 3,960 4,731 5,400 % of Sales 3.90% 3.60% 3.40% 4.00% 4.70% 5.90% 6.50% 7.00% 7.50% 8.00% 8.30%Plus/(minus) Changes WC (700) (772) (916) (1,133) (1,379) (1,637) (1,894) (2,136) (2,376) (2,661) (2,928) % of Sales -5.80% -5.03% -4.78% -4.73% -4.68% -4.63% -4.58% -4.53% -4.50% -4.50% -4.50%Subtract Cap Ex 1,100 1,272 1,590 1,988 2,445 2,934 3,433 3,913 4,383 4,909 5,400 Capex % of sales 9.11% 8.30% 8.30% 8.30% 8.30% 8.30% 8.30% 8.30% 8.30% 8.30% 8.30%

Free Cash Flow 1,441 2,060 2,639 3,761 4,951 6,508 8,031 9,585 11,208 13,066 14,809 YOY growth 43% 28% 43% 32% 31% 23% 19% 17% 17% 13%

TerminalTerminal Value 214,431 P/ENPV of free cash flows 33,925 41% EV/EBITDANPV of terminal value 49,470 59% Free Cash YieldProjected Equity Value 83,395 Free Cash Flow Yield 1.73%

Shares Outstanding 1,070.0USD USD

Current Price 73.92 75.66 ADR Price1.00 Xrate

Implied equity value/share 77.94 77.94

Upside/(Downside) to DCF 5.4%

Current Price: $73.92

DCF Target: $78.00

5% upside potential

GEN

ENTECH

, INC.

DNADNA - Valuation

Market Cap Sales Fwd P/E Div. Yield %LT Growth

Rate

Net Profit Margin (mrq)

BiotechnologyGenentech Inc. (DNA) 77.31B 9,284M 22.1 NA 22.3% 24.87Amgen Inc. (AMGN) 55.43B 14,268M 11.5 0.00 8.4% 27.33

Similar sized companiesAbbott Laboratories (ABT) 78.70B 22,476M 17.0 2.50 10.0% 15.52AstraZeneca plc (AZN) 75.88B 26,475M 12.5 3.40 5.3% 19.61Wyeth (WYE) 65.17B 20,351M 12.9 2.10 4.0% 21.22Eli Lilly & Co. (LLY) 58.98B 15,691M 14.8 3.10 5.3% 14.33Bristol-Myers Squibb Co. (BMY) 55.11B 17,914M 17.5 3.90 10.5% 14.33

Large drug maufacurersJohnson & Johnson (JNJ) 179.35B 53,324M 11.1 2.74 6.3% 20.36Pfizer (PFE) 175.45B 48,371M 9.9 4.93 2.8% 11.43Merck (MRK) 107.02B 22,636M 12.8 3.02 8.3% 27.43

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

GEN

ENTECH

, INC.

• DNA• DNA – Growth Rate

StockVal®GENENTECH INCORPORATED (DNA) Price 73.421997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GROWTH RATE ESTIMATE20

24

28

32 HI 34.00 LO 21.00 ME 26.00 CU 25.30

10-22-199908-03-2007

PRICE / YEAR-FORWARD EARNINGS20

40

60

80 HI 99.9 LO 22.1 ME 55.4 CU 22.1

07-23-199908-03-2007

EARNINGS-PER-SHARE0.1

0.2

0.5

1.1HI 2.48 LO 0.09 ME 0.38 CU 2.48 GR 39.9%

09-30-199706-30-2007

GROWTH RATE ESTIMATE RELATIVE TO SP35 M-Wtd1.2

1.5

1.8

2.1 HI 2.39 LO 1.29 ME 1.73 CU 1.82

10-22-199908-03-2007

• 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

GEN

ENTECH

, INC.

DNADNA – Product Sales

Genentech Product Sales

$0

$500

$1,000

$1,500

$2,000

$2,500

2000 2001 2002 2003 2004 2005 2006

Sale

s (i

n m

illi

on

s)

Rituxan

Herceptin

Avastin

Lucentis

Tarceva

Growth Hormone

Thrombolytics

Pulmozyme

Xolair

Raptiva

Actimmune

• Three drugs make up over 50% of total revenues

GEN

ENTECH

, 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

GEN

ENTECH

, INC.

• DNADNA – 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

JOHNSON & JOHNSON RECOMMENDATION: BUY

JOH

NSO

N &

JOH

NSO

NJNJ

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.

JOH

NSO

N &

JOH

NSO

N

•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

JOH

NSO

N &

JOH

NSO

N

•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

JOH

NSO

N &

JOH

NSO

N

• 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

RECOM

MEN

DATIO

NS

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

QUESTIONS

DCF MODELS

JNJ D

CF

ForecastYear 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E

Revenue 60,316 63,435 64,296 68,797 72,925 77,300 81,939 86,855 91,632 96,213 101,024 % Growth 5.17% 1.36% 7.00% 6.00% 6.00% 6.00% 6.00% 5.50% 5.00% 5.00%

Operating Income 15,879 18,433 18,742 19,951 21,148 22,417 23,762 25,188 26,573 27,902 29,297 Operating Margin 26.33% 29.06% 29.15% 29.00% 29.00% 29.00% 29.00% 29.00% 29.00% 29.00% 29.00%

Interest and Other- net -603 -634 -643 -688 -729 -773 -819 -869 -916 -962 -1010 Interest % of Sales -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00%

Taxes 3,890 4,608 4,873 5,366 5,688 6,029 6,391 6,775 7,147 7,505 7,880 Tax Rate 24.5% 25.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0%

Net Income 11,988 13,825 13,869 13,897 14,731 15,615 16,552 17,545 18,510 19,435 20,407 % Growth 15% 0% 0% 6% 6% 6% 6% 5% 5% 5%

Add Depreciation/Amort 2,556 2,635 2,674 2,848 3,019 3,200 3,392 3,596 3,794 3,983 4,182 % of Sales 4.24% 4.15% 4.16% 4.14% 4.14% 4.14% 4.14% 4.14% 4.14% 4.14% 4.14%Plus/(minus) Changes WC 8 (579) (372) (688) (729) (773) (819) (869) (916) (962) (1,010) % of Sales 0.01% -0.91% -0.58% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00%Subtract Cap Ex 2,700 2,855 2,893 3,096 3,282 3,479 3,687 3,908 4,123 4,330 4,546 Capex % of sales 4.48% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%

Free Cash Flow 11,852 13,027 13,277 12,961 13,739 14,563 15,437 16,363 17,263 18,127 19,033 YOY growth 10% 2% -2% 6% 6% 6% 6% 5% 5% 5%

Terminal Value 444,102 Sensitivity Matrix TerminalNPV of free cash flows 93,316 38% Discount Rate P/ENPV of terminal value 149,456 62% 9.00% 9.50% 10.00% 10.50% EV/EBITDAProjected Equity Value 242,772 4.50% $90.96 $81.78 $74.30 $68.08 Free Cash YieldFree Cash Flow Yield 4882.09% 5.00% $98.34 $87.40 $78.67 $71.55

5.50% $107.82 $94.41 $84.00 $75.70Shares Outstanding 2.778 6.00% $120.47 $103.43 $90.67 $80.78

6.50% $138.17 $115.45 $99.25 $87.12Current Price 62.08

Implied equity value/share 87.40

Upside/(Downside) to DCF 40.8%

Terminal FCF Growth

JNJ Segm

ent Data

JNJ - Johnson & Johnson62,914 60,494 consensus

Income Statement - Segment FY FY FY FY FY FY FY FY2009E 2008E 2007E 2Q 2007 1Q 2007 2,006 2005 2004 2003 2002

Net Sales 64,296 63,435 60,316 15,131 15,018 53,324 50,514 47,348 41,862 36,298 Consumer Segment 17,336 15,983 14,697 3,564 3,496 9,774 9,096 8,333 7,431 6,564 OTC Pharmaceuticals & Nutritionals 5,629 5,212 4,826 1,206 1,257 2,742 2,678 2,395 2,044 1,800 Skin Care 4,115 3,741 3,370 757 764 2,633 2,401 2,140 1,797 1,571 Baby & Kids Care 2,750 2,455 2,192 487 447 1,740 1,561 1,447 1,309 1,161 Women's Health 1,998 1,881 1,770 463 421 1,666 1,568 1,470 1,369 1,249 Oral Care 1,629 1,537 1,436 353 359 - - - - - Other 1,215 1,157 1,102 298 248 993 888 881 912 783

Pharmaceutical Segment 23,779 25,173 24,454 6,149 6,221 23,267 22,322 22,128 19,517 17,151 Risperal/ Risperdal Consta 3,828 4,785 4,601 1,137 1,178 4,183 3,552 3,050 2,512 2,146 Procrit/Eprex 3,116 3,116 3,116 758 817 3,180 3,324 3,589 3,984 4,269 Remicade 3,657 3,450 3,224 869 731 3,013 2,535 2,145 1,729 1,297 Topamax 1,854 2,649 2,453 578 610 2,027 1,680 1,410 1,043 687 Levaquin/Floxin 1,672 1,623 1,576 357 475 1,530 1,492 1,296 1,149 1,032 Duragesic/Fentanyl Transdermal 943 1,013 1,114 289 303 1,295 1,585 2,083 1,631 1,203 Aciphex/Pariet 1,434 1,366 1,301 336 336 1,239 1,169 1,116 966 697 Hormonal Contraceptives 956 976 996 240 237 1,016 1,136 1,278 1,175 1,003 Other 6,319 6,195 6,073 1,585 1,534 5,784 5,849 6,161 5,328 4,817

Medical Devices and Diagnostics Segment 23,181 22,279 21,165 5,418 5,301 20,283 19,096 16,887 14,914 12,583 Depuy 4,795 4,611 4,433 1,135 1,157 4,105 3,847 3,420 3,008 2,536 Cordis 3,577 3,577 3,577 852 928 4,088 3,982 3,213 2,707 1,641 Ethicon Endo-Surgery 4,330 4,085 3,714 957 891 3,376 3,105 2,854 2,587 2,291 Ethicon 3,562 3,492 3,374 901 870 3,213 3,092 2,833 2,639 2,386 Lifescan 2,493 2,374 2,240 596 549 2,074 1,909 1,701 1,426 1,342 Vision Care 2,567 2,377 2,161 553 513 1,879 1,694 1,530 1,297 1,170 Ortho-Clinical Diagnostics 1,797 1,703 1,607 406 393 1,488 1,408 1,273 1,176 1,094 Other 60 60 60 18 60 59 63 74 123

Operating Profit 18,742 18,433 15,879 3,652 14,587 13,116 12,838 10,308 9,291 Consumer Segment 3,727 3,356 2,939 760 1,374 1,592 1,514 1,393 1,229 Pharmaceutical Segment 7,728 8,181 7,336 2,281 6,894 6,365 7,608 5,896 5,787 Medical Devices and Diagnostics Segment 7,186 6,795 5,503 715 6,126 5,240 4,091 3,370 2,489 Less: (Income)/Expenses not allocated ot segmetns (100) (100) (100) (104) (193) 81 (375) (351) (214)

Operating Margin (%) 28.99% 28.90% 26.16% 24.32% 27.36% 25.97% 27.11% 24.62% 25.60%0.09% 2.74% -1.20%

Consumer Segment (%) 21.50% 21.00% 20.00% 21.74% 14.06% 17.50% 18.17% 18.75% 18.72%1.50% 1.00% 5.94%

Pharmaceutical Segment (%) 32.50% 32.50% 30.00% 36.67% 29.63% 28.51% 34.38% 30.21% 33.74%0.00% 2.50% 0.37%

Medical Devices and Diagnostics Segment (%) 31.00% 30.50% 26.00% 13.49% 30.20% 27.44% 24.23% 22.60% 19.78%0.50% 4.50% -4.20%

Chg YoY

HOLD STOCKS

CARDIN

AL HEALTH

, INC.

CAH

•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%

WELLPO

INT, IN

C.WLP

•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

TEVA PHARM

ACEUTICALS

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