Yishuo Chen
Justin Mahida
Dani Malnik
Matt Maluchnik
S&P Weight
SIM Weight
Change
Consumer Discretionary
10.55%
10.44%
-0.11%
Consumer Staples
10.91%
11.71%
0.80%
Energy
11.18%
9.76%
-1.43%
Financials
16.47%
11.41%
-5.07%
Health Care
11.55%
14.63%
3.07%
Industrials
10.76%
13.10%
2.34%
Information Technology
18.91%
20.18%
1.27%
Materials
3.45%
1.64%
-1.82%
Telecommunication
2.73%
3.70%
0.98%
Utilities
3.48%
2.10%
-1.38%
Reduce weight by 100 bps




Use of sector as a hedge
Overweighting from strong performance
Expectations on economic performance
Impact of health care legislation
Symbol
PFE
WLP
GILD
BAX
THC
KG
MRK
ABT
MHS
UNH
AET
CVH
AMGN
CELG
VAR
LIFE
BSX
TMO
STJ
MDT
MYL
GENZ
DGX
XRAY
WAT
Industry
Med. Instr.
Med. Instr.
Biotech
Med. Instr.
Med. Instr.
Drug Mfr.
Med. Instr.
Drugs Wholesale
Med. Equip.
Med. Equip.
Drug Mfr.
Health Care Plans
Biotech
Med. Instr.
Med. Instr.
Biotech
Drug Mfr.
Health Care Plans
Med. Equip.
Drugs Wholesale
Drugs, Generic
Biotech
Med. Equip.
Health Services
Health Care Plans
Price Consensus Upside Volatility
$15.40
$22.09
43%
23.2%
$51.25
$72.69
42%
30.7%
$36.57
$51.85
42%
25.3%
$40.67
$57.36
41%
25.8%
$5.37
$7.53
40%
58.2%
$8.56
$11.89
39%
31.2%
$32.04
$43.21
35%
26.0%
$46.96
$63.12
34%
16.6%
$56.08
$74.54
33%
22.4%
$28.70
$38.13
33%
33.5%
$28.74
$37.82
32%
37.2%
$20.00
$26.18
31%
39.8%
$52.44
$68.50
31%
24.5%
$56.15
$72.63
29%
31.4%
$48.52
$62.29
28%
27.3%
$48.10
$61.23
27%
23.6%
$6.24
$7.86
26%
37.4%
$50.86
$63.09
24%
24.2%
$37.18
$45.72
23%
29.4%
$40.33
$49.46
23%
22.6%
$19.51
$23.87
22%
31.9%
$49.41
$60.40
22%
30.4%
$52.25
$63.75
22%
19.1%
$33.06
$40.33
22%
23.7%
$65.50
$79.50
21%
23.8%
Symbol
FRX
SYK
ZMH
CFN
BDX
CI
AGN
HUM
PDCO
JNJ
ESRX
PKI
CAH
DVA
HSP
BIIB
ABC
LH
BCR
LLY
BMY
MCK
ISRG
WPI
MIL
Industry
Drug Mfr.
Hospitals
Med. Equip.
Biotech
Med. Instr.
Health Care Plans
Health Care Plans
Health Care Plans
Med. Equip.
Drug Mfr.
Health Care Plans
Drug Mfr.
Drugs Wholesale
Med. Lab.
Drug Delivery
Biotech
Drug Mfr.
Med. Lab.
Med. Instr.
Drug Mfr.
Med. Instr.
Drugs Wholesale
Med. Equip.
Drugs, Generic
Drug Mfr.
Price Consensus Upside Volatility
$26.12
$31.65
21%
29.2%
$52.70
$63.68
21%
23.1%
$55.83
$67.11
20%
24.0%
$24.72
$29.67
20%
28.4%
$71.49
$85.65
20%
19.5%
$32.65
$39.10
20%
40.1%
$58.05
$69.43
20%
23.6%
$44.71
$53.33
19%
34.9%
$29.58
$35.18
19%
22.3%
$60.88
$72.11
18%
12.8%
$100.59
$118.80
18%
26.3%
$22.01
$25.93
18%
28.2%
$33.21
$39.11
18%
41.6%
$61.28
$71.65
17%
21.0%
$50.65
$59.13
17%
23.4%
$48.98
$56.45
15%
24.5%
$30.83
$35.47
15%
20.9%
$76.00
$86.47
14%
18.8%
$79.57
$90.00
13%
19.3%
$33.12
$37.43
13%
19.2%
$22.97
$25.86
13%
19.6%
$68.33
$76.45
12%
23.7%
$321.08
$358.75
12%
41.5%
$42.87
$47.18
10%
20.6%
$106.30
$103.00
-3%
28.5%
We recommend liquidating Amgen (AMGN) and distributing the
basis points among our other three holdings.

Old
New
Change
AMGN
246
0
-246
GILD
388
414
26
JNJ
365
465
100
TEVA
463
483
20


Reduce weight in
biotechnology
Take advantage of
movement of market
towards generics
High expectations from
Johnson & Johnson
Stock
Current Price
(05/21/2010)
Our Target
Price
Projected
Upside
Historical
Volatility
AMGN
$52.44
$68
29.6%
25.29%
Consensus
Analyst Price
(Median)
$70
GILD
$36.57
$52
42.2%
24.49%
$53
JNJ
$60.88
$79
29.8%
12.78%
$71
TEVA
$54.59
$70
28.2%
19.82%
$70
Gilead Sciences
(GILD)
Gilead Sciences, Inc. (Gilead) is
a biopharmaceutical company
that discovers, develops and
commercializes therapeutics.
The Company has operations in
North America, Europe and
Australia. The company
focuses on HIV/AIDS
medications.
Summary
Current price
$36.57
52-wk range
$37.16 - $50.00
Market Capitalization
$33.6 billion
Shares outstanding
902 million
FY 2009 revenue
$7.01 billion
FY 2009 earnings
$2.64 billion
Gilead Sciences
(GILD)
Recent Events
5/11
Announces $5bn share repurchase program
4/27
Completion of bioequivalence testing for Truvada and TMC278 regimen
4/20
Lowers FY 2010 revenue guidance
4/19
Terminates Phase II trial of GS 9450 (Hepatitis C )
4/12
Initiates Phase III trial for Quad Regimen
4/7
Receives FDA warning over direct-to-consumer advertising with misleading
information
2/22
Receives FDA approval for Cayston (Cystic Fibrosis)
Gilead Sciences
(GILD)
Valuation: DCF
6.65%
7.60%
8.55%
9.50%
10.45%
11.40%
12.35%
3.15%
$63.42
$51.74
$44.06
$38.60
$34.49
$31.28
$28.68
3.60%
$69.22
$54.95
$46.04
$39.90
$35.40
$31.93
$29.16
4.05%
$77.03
$58.97
$48.41
$41.42
$36.43
$32.66
$29.69
4.50%
$88.10
$64.17
$51.31
$43.21
$37.61
$33.48
$30.29
4.95%
$105.04
$71.13
$54.93
$45.36
$38.99
$34.42
$30.96
5.40%
$134.17
$80.93
$59.59
$47.98
$40.62
$35.50
$31.71
5.85%
$196.08
$95.78
$65.79
$51.24
$42.56
$36.76
$32.57
Gilead Sciences
(GILD)
Valuation: Multiples
Target
Metric per
Share
Target Price
High
Low
Median
Current
Target
Multiple
P/Forward E
94.4
11.2
26.5
11.2
18.9
3.38
63.88
P/S
425.8
4.8
24.3
4.8
6.1
8.78
53.55
P/B
23.6
1.6
8.7
5
4.4
8.12
35.73
P/EBITDA
131.04
8.38
25.33
8.38
13.57
4.84
65.68
P/CF
135.5
11.2
33.8
11.2
15.2
3.62
55.02
Gilead Sciences
(GILD)
Min: 27.8%
Implied volatility is calculated
by applying the Black-Scholes
formula to current prices on call
and put options.
Options used for this graph
have a date of exercise of
January 1, 2011 (221 days).
Implied Volatility
Gilead Sciences
(GILD)
Catalysts and Risks
CATALYSTS




Atripla sales remain strong
CDC recommendations for
routine testing and earlier
treatment of HIV
Minimal exposure to
patent expirations
$5 billion share repurchase
program in effect
RISKS
HIV franchise accounts for
77% of sales
 Entrance into
cardiovascular therapy
 Fewer royalties on Tamiflu
 Quad pill now in Phase III
 $200 million revenue lost
due to Health Reform
(2.8% of 2009 total
revenue)

Amgen, Inc.
(AMGN)
Amgen Inc. is an independent
biotechnology medicines
company that discovers,
develops, manufactures and
markets medicines for
multipleillnesses. It focuses on
human therapeutics and
concentrates on medicines
based on advances in cellular
and molecular biology.
Summary
Current price
$52.44
52-wk range
$48.20 - $64.76
Market Capitalization
$50.2 billion
Shares outstanding
958 million
FY 2009 revenue
$14.4 billion
FY 2009 earnings
$4.61 billion
Amgen, Inc.
(AMGN)
Recent Events
5/17
Citigroup analysts upgraded Amgen Inc. to buy based on their view that the
risk/reward is now more compelling.
5/14
Amgen, Inc. announced the submission of a Biologics License Application to FDA
for denosumab.
4/26
Robert A. Bradway, the current Chief Financial Officer, was appointed to serve as
President and Chief Operating Officer and Michael A. Kelly, the current Chief
Accounting Officer, was appointed to the additional position of Acting CFO.
4/18
Amgen, Inc. announced detailed results from a new biomarker analysis of the
pivotal Phase 3 "408" trial of Vectibix (panitumumab) plus best supportive care
(BSC) compared to BSC alone.
3/12
Amgen, Inc. reaffirmed fiscal 2010 guidance and expects revenues of $15.1-$15.5
billion and earnings per share (EPS) of $5.05-$5.25.
3/9
Amgen, Inc. sold $1 billion senior notes.
2/16
Amgen, Inc. and Centocor Ortho Biotech Products, L.P. announced that FDA has
approved the Risk Evaluation and Mitigation Strategy for erythropoiesisstimulating agents, which include Aranesp (darbepoetin alfa), EPOGEN (Epoetin
alfa) and PROCRIT (Epoetin alfa).
Amgen, Inc.
(AMGN)
Valuation: DCF
6.65%
7.60%
8.55%
9.50%
10.45%
11.50%
12.64%
2.10%
$122.63
$101.33
$86.32
$75.17
$66.56
$59.10
$52.62
2.40%
$128.52
$105.01
$88.77
$76.88
$67.79
$60.00
$53.26
2.70%
$135.30
$109.14
$91.47
$78.74
$69.13
$60.95
$53.94
3.00%
$143.20
$113.80
$94.46
$80.77
$70.56
$61.97
$54.67
3.30%
$152.51
$119.12
$97.79
$83.00
$72.12
$63.07
$55.44
3.60%
$163.66
$125.23
$101.53
$85.45
$73.82
$64.25
$56.27
3.90%
$177.24
$132.33
$105.75
$88.17
$75.67
$65.52
$57.15
Amgen, Inc.
(AMGN)
Valuation: Multiples
Target
Metric per
Share
Target Price
High
Low
Median
Current
Target
Multiple
P/Forward E
23.7
10
13.6
11.6
13.6
14.5
197.2
P/S
9.1
3.2
4.4
3.8
4.4
5.1
22.4
P/B
5.2
2.4
3.6
2.4
2.4
3
7.2
P/EBITDA
24.7
7.79
12.9
7.81
7.79
12.2
95.083
P/CF
27.1
7.7
11.6
9.4
7.7
8.5
65.45
Amgen, Inc.
(AMGN)
Valuation: DCF
Year
2010E
2011E
2012E
2013E
15,669
2.8%
16,164
3.2%
16,649
3.0%
42.5%
6,722
42.9%
7,209
44.6%
Interest Income
Interest % of Sales
(305)
-2.0%
(313)
-2.0%
Taxes
Tax Rate
803
Revenue
% Growth
15,247
Operating Income
Operating Margin
6,480
13.0%
Net Income
% Growth
5,372
2014E
2015E
2016E
2017E
2018E
3.0%
17,663
3.0%
18,193
3.0%
18,738
3.0%
19,301
3.0%
7,492
45.0%
7,717
45.0%
7,948
45.0%
8,187
45.0%
8,432
45.0%
(404)
-2.5%
(416)
-2.5%
(429)
-2.5%
(442)
-2.5%
(455)
-2.5%
1,025
16.0%
1,157
17.0%
1,423
18.0%
1,548
19.0%
1,594
19.0%
5,383
5,648
5,652
5,740
5,913
17,148
2019E
19,880
2020E
3.0%
20,476
3.0%
8,685
45.0%
8,946
45.0%
9,214
45.0%
(468)
-2.5%
(483)
-2.5%
(497)
-2.5%
(512)
-2.5%
1,728
20.0%
1,780
20.0%
1,834
20.0%
1,889
20.0%
1,945
20.0%
6,004
6,184
6,369
6,560
6,757
0.2%
4.9%
0.1%
1.6%
3.0%
1.5%
3.0%
3.0%
3.0%
3.0%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
1,067
7.0%
(285)
-1.9%
686
4.5%
1,097
7.0%
(222)
-1.4%
862
5.5%
1,131
7.0%
(232)
-1.4%
1,051
6.5%
1,165
7.0%
(250)
-1.5%
1,082
6.5%
1,200
7.0%
(257)
-1.5%
1,115
6.5%
1,236
7.0%
(265)
-1.5%
1,148
6.5%
1,273
7.0%
(273)
-1.5%
1,183
6.5%
1,312
7.0%
(281)
-1.5%
1,218
6.5%
1,351
7.0%
(290)
-1.5%
1,255
6.5%
1,392
7.0%
(298)
-1.5%
1,292
6.5%
1,433
7.0%
(307)
-1.5%
1,331
6.5%
Free Cash Flow
% Growth
5,468
5,397
-1.3%
5,497
1.9%
5,486
-0.2%
5,569
1.5%
5,736
3.0%
5,822
1.5%
5,996
3.0%
6,176
3.0%
6,361
3.0%
6,552
3.0%
Terminal Value
87,648
Free Cash Yield
7.48%
Terminal P/E
13.0
NPV of Cash Flows
34,328
52%
NPV of terminal value
Projected Equity Value
31,715
66,043
48%
100%
Free Cash Flow Yield
10.78%
Current P/E
Projected P/E
9.4
12.3
9.4
12.3
9.0
11.7
Current EV/EBITDA
Projected EV/EBITDA
8.6
10.6
8.3
10.2
7.8
9.6
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
967
$
$
52.44
68.30
30.2%
16,962
2,884
2.98
Terminal
EV/EBITDA
9.6
Amgen, Inc.
(AMGN)
Min: 26.3%
Implied volatility is calculated
by applying the Black-Scholes
formula to current prices on call
and put options.
Options used for this graph
have a date of exercise of
January 1, 2011 (221 days).
Implied Volatility
Amgen, Inc.
(AMGN)
Catalysts and Risks
CATALYSTS


Five drugs with sales over
$1 billion
Aranesp and Neulasta have
successfully captured sales
from now-generic Epogen
RISKS
Recent clinical trials call into
question the safety of ESAclass drugs
 CMMS reports that
reimbursement rates for
Epogen will be reduced in
2011
 FDA approval of denosumab
is delayed
 $200-250 million revenue lost
due to Health Reform (1.4%1.7% of 2009 total revenue)

Johnson & Johnson
(JNJ)
Johnson & Johnson is a holding
company with more than 250
operating companies
conducting business across the
world. Johnson & Johnson
engages in the research,
manufacture, and sale of
various products in the health
care field worldwide.
Segments include consumer,
pharmaceuticals, medical
devices and diagnostics.
Summary
Current price
$60.88
52-wk range
$53.86 - $66.20
Market Capitalization
$167 billion
Shares outstanding
2.76 billion
FY 2009 revenue
$61.8 billion
FY 2009 earnings
$12.2 billion
Johnson & Johnson
(JNJ)
May 1st
Recent Events
J&J recalled medicines like Tylenol, Motrin, Zyrtec and Benadryl because of
manufacturing deficiencies.
April 20th J&J’s top- selling prescription drugs
April 20th J&J’s first quarter earnings higher than expected
April 13th
FDA Approves Johnson & Johnson's New Drug Application For PANCREAZE
March
30th
Johnson & Johnson's Receipt Of Offer To Purchase Breast Care Business
March
2nd
Johnson & Johnson Reiterates FY 2010 EPS Outlook-Conference Calls
Johnson & Johnson
(JNJ)
Valuation: DCF
6.65%
7.60%
8.55%
9.50%
10.45%
11.40%
12.35%
2.10%
$121.55
$100.31
$85.33
$74.21
$65.63
$58.81
$53.26
2.40%
$127.42
$103.97
$87.78
$75.92
$66.87
$59.73
$53.96
2.70%
$134.19
$108.09
$90.47
$77.78
$68.20
$60.71
$54.70
3.00%
$142.07
$112.75
$93.46
$79.80
$69.63
$61.76
$55.49
3.30%
$151.37
$118.05
$96.78
$82.03
$71.19
$62.89
$56.33
3.60%
$162.49
$124.15
$100.51
$84.48
$72.88
$64.10
$57.22
3.90%
$176.04
$131.24
$104.73
$87.19
$74.73
$65.41
$58.19
Johnson & Johnson
(JNJ)
Valuation: Multiples
Target
Metric per
Share
Target Price
High
Low
Median
Current
Target
Multiple
P/Forward E
21.7
11.0
16.0
14.0
16.0
4.92
78.72
P/S
4.3
2.2
3.3
2.9
3.3
23.65
78.04
P/B
6.4
3.2
4.3
3.5
4.1
18.58
76.17
P/EBITDA
13.45
6.94
11.17
8.95
10.5
7.26
76.23
P/CF
18.0
9.0
13.6
11.5
13.0
5.65
73.45
Johnson & Johnson
(JNJ)
Min: 19.7%
Implied volatility is calculated
by applying the Black-Scholes
formula to current prices on call
and put options.
Options used for this graph
have a date of exercise of
January 1, 2011 (221 days).
Implied Volatility
Johnson & Johnson
(JNJ)
Catalysts and Risks
CATALYSTS



Control of top or numbertwo position in 70% of
products
Strong pipeline of products
across diseases and age
groups
$10 billion share
repurchase program in
effect
RISKS

Patent expiration exposure
 Invega has not sufficiently
outperformed Risperdal
 Procrit has concerning side
effects and reimbursement
limitations
Recent studies call into
question the benefits of drugeluting stents
 Recent drug recalls of Tylenol
 Impaired pricing power
following health care
legislation

Johnson & Johnson
(JNJ)
Year
DCF Model
2010E
2011E
2012E
Revenue
64,992
67,592
69,619
% Grow th
5.0%
4.0%
3.0%
18,004
19,231
20,330
27.7%
28.5%
29.2%
Operating Income
Operating Margin
2013E
71,708
3.0%
20,795
29.0%
2014E
73,859
3.0%
21,271
28.8%
2015E
76,075
3.0%
21,757
28.6%
2016E
78,357
2017E
80,708
3.0%
22,253
3.0%
22,760
28.4%
28.2%
2018E
83,129
3.0%
23,276
28.0%
2019E
85,623
3.0%
23,803
27.8%
Interest Income
(100)
(100)
(100)
(100)
(103)
(107)
(110)
(113)
(116)
(120)
Interest % of Sales
-0.15%
-0.15%
-0.14%
-0.14%
-0.14%
-0.14%
-0.14%
-0.14%
-0.14%
-0.14%
4,160
4,543
4,807
5,015
5,130
5,247
5,367
5,489
5,614
5,742
23.5%
24.0%
24.0%
13,543
14,387
15,223
6.23%
5.81%
2,918
3,035
3,126
4.49%
4.49%
4.49%
854
-337
-263
1.31%
-0.50%
-0.38%
Subtract Cap Ex
2,913
2,954
2,941
Capex % of sales
4.48%
4.37%
4.22%
4.12%
4.02%
3.92%
3.82%
3.72%
3.62%
3.52%
14,403
14,131
15,144
15,784
16,219
16,666
17,126
17,597
18,082
18,580
-1.89%
7.17%
4.23%
2.76%
2.76%
2.76%
2.75%
2.75%
2.75%
Terminal Value
294,422
Free Cash Yield
6.3%
Terminal P/E
16.2x
Terminal EV/EBITDA
10.5x
Taxes
Tax Rate
Net Income
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Free Cash Flow
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
100,497
118,804
219,301
8.1%
46%
54%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
13.2x
16.2x
8.3x
10.2x
12.1x
14.9x
7.6x
9.4x
11.1x
13.7x
7.0x
8.7x
Shares Outstanding
2,748
2,686
2,608
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$65.02
$79.80
22.7%
Debt
Cash
Cash/share
14,540
19,430
$7.07
24.0%
15,881
4.32%
3,220
24.0%
16,245
2.29%
3,316
24.0%
16,617
2.29%
3,416
24.0%
16,996
24.0%
17,383
2.28%
3,518
2.28%
3,624
24.0%
17,778
2.27%
3,732
24.0%
18,182
2.27%
3,844
4.49%
4.49%
4.49%
4.49%
4.49%
4.49%
-359
-369
-380
-392
-404
-416
4.49%
-428
-0.50%
-0.50%
-0.50%
-0.50%
-0.50%
-0.50%
-0.50%
2,958
2,973
2,986
2,997
3,006
3,013
3,018
Teva Pharmaceuticals
(TEVA)
Teva Pharmaceutical Industries
Ltd., is the leader in generic
pharmaceuticals. Teva
specializes in the development,
production and marketing of a
wide range of generic products,
innovative and branded
pharmaceuticals, biogenerics
and active pharmaceutical
ingredients.
Summary
Current price
$54.59
52-wk range
$43.90 - $64.95
Market Capitalization
$49.3 billion
Shares outstanding
931 million
FY 2009 revenue
$13.9 billion
FY 2009 earnings
$2.00 billion
Teva Pharmaceuticals
(TEVA)
Recent Events
4/7
FDA approves generic versions of Hyzaar and Cozaar, with 180 days of rights to
exclusive marketing
4/1
Patent infringement case over oxaloplatin dismissed
3/18
Announced agreement to acquire Ratiopharm
2/8
Amended marketing and distribution agreement for oral laquinimod
Teva Pharmaceuticals
(TEVA)
Valuation: DCF
6.65%
7.60%
8.55%
9.50%
10.45%
11.50%
12.64%
2.80%
$109.00
$86.88
$72.10
$61.53
$53.61
$46.92
$41.21
3.20%
$118.35
$92.31
$75.54
$63.85
$55.25
$48.07
$42.03
3.60%
$130.15
$98.82
$79.54
$66.49
$57.07
$49.34
$42.92
4.00%
$145.52
$106.79
$84.25
$69.51
$59.12
$50.75
$43.89
4.40%
$166.36
$116.75
$89.86
$73.00
$61.45
$52.32
$44.95
4.80%
$196.20
$129.55
$96.67
$77.09
$64.10
$54.07
$46.13
5.20%
$242.51
$146.61
$105.11
$81.94
$67.15
$56.05
$47.43
Teva Pharmaceuticals
(TEVA)
Valuation: Multiples
Target
Metric per
Share
Target Price
High
Low
Median
Current
Target
Multiple
42.8
12.6
20.9
13.7
15
4.47
$67.05
P/S
7.1
.7
3.5
4.2
4.2
17.99
$75.55
P/B
12.3
1.3
4.3
3
3.2
20.51
$65.63
P/EBITDA
35.03
4.96
15.05
12.85
13
4.79
$62.27
45
10.7
19.2
14.3
15
4.3
$64.50
P/Forward E
P/CF
Teva Pharmaceuticals
(TEVA)
Min: 23.3%
Implied volatility is calculated
by applying the Black-Scholes
formula to current prices on call
and put options.
Options used for this graph
have a date of exercise of
January 1, 2011 (221 days).
Implied Volatility
Teva Pharmaceuticals
(TEVA)
Catalysts and Risks
CATALYSTS
RISKS
Sales of generics projected
to increase as a result of
health care legislation
 Well positioned to offer
generic biologics
 Backwards integration into
raw materials allows for
capture of upside



Copaxone faces
competition from other
branded pharmaceuticals
Ability to generate cost
savings from recent
acquisitions is questionable
Teva Pharmaceuticals
(TEVA)
Year
Revenue
% Growth
2010E
16,123
DCF Model
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
18,058
12.0%
19,683
9.0%
21,454
9.0%
23,278
8.5%
25,140
8.0%
26,900
7.0%
28,648
6.5%
30,224
5.5%
31,735
5.0%
33,005
4.0%
Operating Income
Operating Margin
4,676
29.0%
5,237
29.0%
5,511
28.0%
5,900
27.5%
6,401
27.5%
6,914
27.5%
7,397
27.5%
7,878
27.5%
8,312
27.5%
8,727
27.5%
9,076
27.5%
Taxes
Tax Rate
813
18.0%
910
18.0%
921
18.0%
1,062
18.0%
1,152
18.0%
1,244
18.0%
1,332
18.0%
1,418
18.0%
1,496
18.0%
1,571
18.0%
1,634
18.0%
Net Income
% Growth
3,702
4,146
12.0%
4,196
1.2%
4,838
15.3%
5,249
8.5%
5,669
8.0%
6,066
7.0%
6,460
6.5%
6,816
5.5%
7,156
5.0%
7,443
4.0%
967
6.0%
(1,987)
-12.3%
967
6.0%
1,083
6.0%
(919)
-5.1%
903
5.0%
1,181
6.0%
(772)
-3.9%
984
5.0%
1,287
6.0%
(1,609)
-7.5%
1,287
6.0%
1,397
6.0%
(1,746)
-7.5%
1,397
6.0%
1,508
6.0%
(1,886)
-7.5%
1,508
6.0%
1,614
6.0%
(2,017)
-7.5%
1,614
6.0%
1,719
6.0%
(2,149)
-7.5%
1,719
6.0%
1,813
6.0%
(2,267)
-7.5%
1,813
6.0%
1,904
6.0%
(2,380)
-7.5%
1,904
6.0%
1,980
6.0%
(2,475)
-7.5%
1,980
6.0%
3,408
3,621
3,229
3,503
98.8%
6.3%
-10.8%
8.5%
Note: Sudden Cashflow growth due to acquisition.
3,784
8.0%
4,048
7.0%
4,312
6.5%
4,549
5.5%
4,776
5.0%
4,967
4.0%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
1,714
24,380
37,900
62,280
3.47%
13.4
16.8
11.0
13.3
39%
61%
100%
Free Cash Yield
11.9
15.0
9.8
11.8
896
$55.19
$ 69.51
25.9%
14,551
1,995
2.23
Terminal Value
Analysts
Target
$ 70.00
11.8
14.8
9.3
11.2
93,925
5.29%
Terminal P/E
12.6
Terminal EV/EBITDA
9.6
We recommend liquidating Amgen (AMGN) and distributing the
basis points among our other three holdings.

Old
New
Change
AMGN
246
0
-246
GILD
388
414
26
JNJ
365
465
100
TEVA
463
483
20


Reduce weight in
biotechnology
Take advantage of
movement of market
towards generics
High expectations from
Johnson & Johnson