Health care sector

HEALTH CARE SECTOR

Suyang YangHuiting Wang

AGENDA

Sector Overview Business Analysis Financial Analysis Valuation Analysis Recommendation Q&A

HEALTH CARE SECTOR

Stocks relates to medical & healthcare goods or services

Health Care Sector includes: Hospital management firms Health maintenance organizations (HMOs) Biotechnology Medical products

SECTOR SIZE

Sector Number of Constituents Adjusted Market Cap. In $ Mil

Energy 40 1,127,143 Materials 30 309,561 Industrials 59 920,442

Consumer Discretionary 78 830,996 Consumer Staples 41 1,089,057

Health Care 53 1,153,936

Financials 79 1,337,608 Information Technology 76 1,737,657

Telecommunications Services 9 281,594 Utilities 35 336,174

SECTOR WEIGHT

S&P 500 SIM

SECTOR WEIGHTSector S&P 500 Weight SIM Weight Change

Energy 12.35% 12.80% 0.45%

Materials 3.39% 4.52% 1.13%

Industrials 10.09% 11.97% 1.88%Consumer Discretionary 9.11% 7.51% -1.60%

Consumer Staples 11.94% 12.23% 0.29%

Health Care 12.65% 13.13% 0.48%

Financials 14.66% 6.59% -8.07%Information Technology 19.04% 21.97% 2.93%

Telecom Services 3.09% 3.51% 0.42%

Utilities 3.68% 3.19% -0.49%

HEALTH CARE INDUSTRIES

HEALTH CARE INDUSTRY

Pharmaceutical is the KEY driver of the sector

Represent 51.7% of Health Care Sector & 6.6% of S&P 500

by Mkt. Cap

Industry develops, produces, and markets drugs licensed for

use as medications

Pharmaceutical Sales include:

Prescribed drugs

OTC medications

TOP HEALTH CARE COMPANIESCompany Ticker % of S&P500 Industry

Market Cap (In $ Bil)

Johnson & Johnson

JNJ 1.79% Pharmaceutical 163.9

Pfizer PFE 1.49% Pharmaceutical 136.7

Abbott Laboratories

ABT 0.86% Pharmaceutical 78.7

Merck & Co. MRK 0.72% Pharmaceutical 65.9

Amgen AMGN 0.58% Biotechnology 53.2

Teva Pharmaceutical Industries Ltd.

TEVA Pharmaceutical 47.1

Schering-Plough SGP 0.51% Pharmaceutical 46.4

Medtronic MDT 0.44%HealthCare-Equipment

40.0

Gilead Sciences GILD 0.42% Biotechnology 38.6

SIM HOLDINGS

JNJ & TEVA are two top holdings of SIM Portfolio

Company Ticker % of Asset IndustryMarket Cap

(In $ Bil)Cardinal Health

Inc.CAH 2.05% HC-Distributor 10.3

CareFusion Corp.

CFN 0.81% HC-Equipment 5.0

Gilead Sciences Inc.

GILD 3.12% Biotechnology 38.6

Johnson & Johnson Co.

JNJ 3.73% Pharmaceutical 163.9

Teva Pharmaceutical Industries Ltd.

TEVA 3.42% Pharmaceutical 47.1

BUSINESS ANALYSIS

Overall, Health Care sector is in Maturity stage of life cycle Pharmaceutical Industry(51.7%) is in the grey area between Growth

and Maturity Health Care-Equipment(14.52%) is in Maturity stage Biotechnology Industry(12.5%) is in Growth stage

5 FORCE

Generic DrugsSubstitutes

Concentrate on several large

companies: JNJ, PFE, MRK,ABT (40%)

Supplier Power

Low- Major supplier is chemical industry and have competitive suppliers

Barriers to Enter

High barriers to enter, due to huge demand for R&D

Costly Regulations Patent

Buyer Power

Low- no buyer has any particular influence on product or price

PATENT EXPIRATION & GENERIC DRUGS 20 YR Patent Length, 10 yr avg for FDA approval 2009-2014, expires @ the rate of 3 drugs/year Generic Drugs: cost-saving alternative

5 FORCE

Generic DrugsSubstitutes

Concentrate on several large

companies: JNJ, PFE, MRK,ABT (40%)

Supplier Power

Low- Major supplier is chemical industry and have competitive suppliers

Barriers to Enter

High barriers to enter, due to huge demand for R&D

Costly Regulations Patent

Buyer Power

Low- no buyer has major influence on product or price

FACTORS INFLUENCES HEALTH CARE SECTOR

DEMOGRAPHICS & BABY BOOMERS

Demographic trend shows that there is a very big potential market for Health Care Sector in the near future. Also, Baby boomers are getting older.

NATIONAL HEALTH EXPENDITURE

Health Expenditure is in an up trend, which indicate future market of Health Care Sector

EXCHANGE RATE

Euro/USD Ratio Chart

HEALTHCARE REFORM

Period of controversy (UNCERTAINTY) Worst-case scenario are priced in Sector is over-sold

16.0%-12.7%

21.0%-13.1%

FINANCIAL ANALYSIS-NPM

SPX: 8.0%

HCX: 10.0%

DRUGS: 22.0%

BIOTK: 30% for 3 years

FINANCIAL ANALYSIS-NPM

FINANCIAL ANALYSIS-ROE

HCX:24.1%SPX: 11.0%DRUGS: 28.5%BIOTK: 23.7%HCDIS: 17.0%HCEQP: 19.2%

FINANCIAL ANALYSIS-CF

Good job: BIOTK

Stable: DURGS

FINANCIAL ANALYSIS-EBITDA

Current 2009:

HCX: 16.9%

SPX: 17.4%

FINANCIAL ANALYSIS-Revenue Growth

HCX Revenue is increasing at average 9% for the past 5 years.

VALUATION ANALYSIS

VALUATION ANALYSIS-Sector fP/EAbsolute Price to Earnings Ratio

Price to Earnings Relative to S&P 500

High: 39.7Low: 10.0Median:

17.9Current

11.6

High: 1.6Low: 0.69

Median: 1.1Current

0.71

VALUATION ANALYSIS-Industry fP/EDrugs Price to Earnings Relative to S&P 500

Biotk Price to Earnings Relative to S&P 500

High: 1.1Low: 0.64

Median: 1.0Current

0.65

High: 3.2Low: 0.78

Median: 1.5Current

0.78

VALUATION ANALYSIS-Industry fP/EHcdis Price to Earnings Relative to S&P 500

Hceqp Price to Earnings Relative to S&P 500

High: 1.6Low: 0.65Median:

0.99Current

0.82

High: 1.8Low: 0.79

Median: 1.3Current

0.84

VALUATION ANALYSIS-Sector P/S

Absolute Price to Sales Ratio

Price to Sales Relative to S&P 500

High: 4.7Low: 1.0

Median: 2.0Current 1.2

High: 2.4Low: 1.1

Median: 1.3Current 1.1

VALUATION ANALYSIS-Industry P/SDrugs Price to Sales Relative to S&P 500

Biotk Price to Sales Relative to S&P 500

High: 3.9Low: 2.1

Median: 2.5Current 2.3

High: 10.5Low: 3.8

Median: 5.5Current 4.0

VALUATION ANALYSIS-Industry P/SHcdis Price to Sales Relative to S&P 500

Hceqp Price to Sales Relative to S&P 500

High: 0.4Low: 0.1

Median: 0.2Current 0.1

High: 3.6Low: 1.8

Median: 2.7Current 2.3

VALUATION ANALYSIS-Sector P/BAbsolute Price to Book Value Ratio

Price to Book Value Relative to S&P 500

High: 10.1Low: 2.2

Median: 4.2Current 2.9

High: 2.5Low: 1.2

Median: 1.4Current 1.4

VALUATION ANALYSIS-Industry P/BDrugs Price to Book Relative to S&P 500

Biotk Price to Book Relative to S&P 500

High: 3.3Low: 1.2

Median: 1.5Current 1.4

High: 4.9Low: 1.2

Median: 1.8Current 1.5

VALUATION ANALYSIS-Industry P/BHcdis Price to Book Relative to S&P 500

Hceqp Price to Book Relative to S&P 500

High: 1.5Low: 0.5

Median: 0.9Current 0.9

High: 2.6Low: 1.2

Median: 1.9Current 1.3

VALUATION ANALYSIS-Sector P/CFAbsolute Price to Cash Flows Ratio

Price to Cash Flow Relative to S&P 500

High: 163.1Low: 7.6Median:

14.4Current 9.4

High: 9.8Low: 0.9

Median: 1.3Current 0.9

VALUATION ANALYSIS-Industry P/CFDrugs Price to Cash Flow Relative to S&P 500

Biotk Price to Cash Flow Relative to S&P 500

High: 2.0Low: 0.8Median:

1.2Current

0.8

High: 3.8Low: 1.1

Median: 2.0Current 1.1

VALUATION ANALYSIS-Industry P/CFHcdis Price to Cash Flow Relative to S&P 500

Hceqp Price to Cash Flow Relative to S&P 500

High: 2.0Low: 0.7Median:

1.3Current

0.8

High: 2.0Low: 1.1

Median: 1.6Current 1.1

VALUATION ANALYSIS-Sector Summary

Absolute Basis High Low Median Current Difference Under/Over

P/Trailing E 19.6 9.9 17.8 12.0 (5.8) Under

P/Forward E 18.6 10.0 16.7 11.6 (5.1) Under

P/B 4.3 2.2 3.8 2.9 (0.9) Under

P/S 2.0 1.0 1.8 1.2 (0.6) Under

P/CF 15.5 7.6 13.3 9.4 (3.9) Under

Relative to SP500 High Low Median Current Difference Under/Over

P/Trailing E 1.2 0.7 1.1 0.7 (0.4) Under

P/Forward E 1.2 0.7 1.1 0.7 (0.4) Under

P/B 1.6 1.2 1.3 1.4 0.1 Over

P/S 1.6 1.1 1.2 1.1 (0.1) Under

P/CF 1.4 0.9 1.2 0.9 (0.3) Under

Recommendations

Current SIM Weight Current S&P 500 Weight

13.13% 12.65%

• Short Term: Increase 52 basis point bring the SIM

portfolio 100 basis point overweight relative to S&P 500.

• Long Term: Decrease weight when economy shows definite

signs of improvement due to the defensive nature of Health Care

sector.

Questions?

Thank You!