general body meeting 10.06.11. mutual investment club of cornell agenda announcements ubs event ...

General Body Meeting 10.06.11

Mutual Investment Club of Cornell

Agenda

Announcements UBS Event

News Updates Occupy Wall Street China Manufacturing Credit Card Fees HP Update

JNJ Healthcare Pitch

UBS Event

Wednesday, October 26th

Intro to Global Capital Markets

News Updates

Occupy Wall Street

Hundreds of protestors protesting Wall Street

Upset about division of wealth Unions joined in to march through

downtown NYC Offshoots in various other cities around

world The 99% vs 1% Police handling of protesters under

close scrutiny

China Manufacturing

Sept. Index Rose for 4th Consecutive Month Exceeded consensus estimates; highest in 4

months Domestic Impact

Hampers effort to slow inflation rate running over 6%

Despite Bank of China increase interest rate 5 times in last year

Estimates of China’s GDP Future Growth Continue at over 8% next two quarters Slowing to under 5% in 2012-2013 into

the future

Banks Enact Debit Card Fees

Many banks are beginning to charge their debit card using customers monthly fees.

Charging $3-5 per month Bank of America - $5 fee Caused by Durbin Interchange Amendment as a

part of Dodd-Frank financial overhaul Formerly 44 cent fees, now 24 cents Will cost banks $6.6 billion in revenue per year

on top of $5.6 billion loss from overdraft fee restrictions

Not likely to lower prices much for customers

HP hires Goldman Sachs to Guard Against Activists

Siddhant Trivedi

HP News Update

HP has hired Goldman Sachs to help the company defend itself against possible activist investors who could push for change at HP

HP has felt vulnerable to possible activist investor pressure amid questions about the company’s performance and strategic direction

Goldman is known for its expertise in helping companies strategize how best to fend off unwanted offers (e.g. NYSE Euronext this year, Yahoo, Airgas)

Some investors and critics have questioned the hiring of Ms. Whitman (former head of eBay)

HP News Update

HP’s stock fell 20% in August after the company announced its plan to spin off the personal computer business

HP’s board has continued to draw criticism for failing to bring stability to the company

Hiring of Goldman Sachs was not prompted by any specific threat

One possible defense that HP could install is a so-called “shareholder rights plan” (poison pill) limits the amount of shares an individual investor can buy

JNJ Healthcare Pitch

Thesis

Positioned to take advantage of growth from: Baby Boomers World-wide expansion

Consistent yearly growth 27 consecutive years of adjusted earnings

increases 49 consecutive years of dividend

increases Hedge against market uncertainty- low

Baby Boomers

About 78 million Americans born in 60’s and 70’s

Control over 50% of discretionary spending

Buy 61% of OTC drugs and 77% of prescription drugs

One American turns 50 every 8.5 seconds

39% of current retirees say their health is worse now than it was five years before retirement- Forbes

Baby Boomers14

World Growth

Between 2011 and 2100, the population of high-fertility countries, which includes most of sub Saharan Africa is expected to triple- UN

Population of intermediate-fertility countries will increase by 26%

GDP per capita annual growth rate India/China: 4.8%/9%

High growth + aging population + increased wealth= More need for healthcare

Company Overview

Large, diversified healthcare conglomerate: The world’s sixth-largest consumer health

company The world’s largest and most diverse

medical devices and diagnostics company The world’s fifth-largest biologics

company The world’s eighth-largest

pharmaceuticals company More than 250 operating companies in 60

countries employing approximately 116,000 people

One of four US Industrial Companies with AAA credit rating Better than USA

Global Access

Working to improve access to health care for people in the developing world

Collaboration between the Global Alliance for TB Drug Development and Janssen Pharmaceutical NV, an affiliate of Tibotec (J&J subsidiary) Developing TMC207, which could become

the first TB drug with a new mechanism of action in 40 years.

TB one of most common causes of deaths worldwide

Africa, Asia, Latin America and Eastern Europe

Global Access Cont.

Royalty agreements with Aspen Pharmaceuticals Largest generic drug manufacturer in

Africa Packaging, registering and distributing the

medication in sub-Saharan Africa Agreement with International

Partnership for Microbicides (IPM) Development of TMC120 as a vaginal

microbicide for HIV/AIDS prevention. IPM will develop, manufacture and

distribute the compound in resource-poor countries.

Affordability and Access to Health Care Products

Access2wellness program makes it easier for patients to find the help they need Offer more than 1,000 prescription

medicines, medical products, and links to savings on consumer products

Can assist about 90% of the uninsured in the U.S. and in some cases can provide a solution in less than one hour

Founding member of Together Rx Access Prescription drug savings program for

those not eligible for Medicare

Consumer Products

Baby Care- Lotions, Baby Powder Skin and Hair Care- Neutrogena,

Rogaine Wound Care and Topicals- Band-Aid,

Neosporin Oral Health Care- Listerine, Reach Women’s Health- Carefree, Stayfree Over the counter Medicines- Tylenol,

Benadryl Nutritionals- Splenda, Lactaid Vision Care- Visine, Acuvue contacts

Consumer Products

Consumer Product Breakdown 2010

Baby Care franchise sales 2.2 billion (+4.4%)

Women’s Health franchise sales $1.8 billion (-2.7%)

Oral Care franchise sales $1.5 billion (-2.7%)

Wound Care/Other franchise sales $1.0 billion(-10.4%)

Reason for Decline in U.S. Consumers Sales

Sales in the U.S. were negatively impacted by the suspension of production at McNeil Consumer Healthcare's Fort Washington, PA

Production volumes related to ongoing efforts to enhance quality and manufacturing systems.

FDA which will govern certain McNeil Consumer Healthcare manufacturing operations.

Production volumes from Las Piedras and Lancaster facilities impacted due to additional review and approval processes.

Consumer Franchise Sales- Q2

Consumer Segment Q2

Sales $3.8 billion in second quarter of 2011

• increase of 4.0% compared to 2010 U.S. sales declined by 8.5% International growth of 12.4% Operational growth of 2.8%, and a

positive currency impact of 9.6%.

International growth (Q2)

Europe achieved growth of 18.6% Western Hemisphere (excluding the

U.S.) growth of 12.2% Asia-Pacific/Africa region growth of

MD&D Key Facts

Largest medical device company in the world

Annual sales worldwide of $24.6 billion Operating margin of 31.3% in 2010 Leadership in the following markets:Blood Glucose Monitoring

Blood Screening and Typing

Breast Aesthetics

Disposable Contact Lenses

Electrophysiology Diagnostics

Endovascular

Insulin Delivery

Minimally Invasive Surgery

Orthopedics

Sutures

MD&D 7 Divisions

Depuy (and potentially Synthes)$5.6B (+3%) Orthopedics, Implants, Joint Replacements,

Sports Medicine and Trauma Animas and Lifescan (Diabetes Care)

$2.5B (+2%) Blood Glucose Monitors and Testing Strips,

Insulin Delivery Vistakon (Vision Care)

$2.7B (+4%) Disposable Contact Lenses

Ortho-Clinical Diagnostics, inc.$2.0B (+4%) Medical Diagnostics, Blood Screening, Clinical

Lab Equipment

MD&D 7 Divisions (Cont.)

Ethicon $4.5B (+8%) Devices for General Surgery, Hernia Surgery,

Infection Prevention, and Wound Closure Ethicon Endo-Surgery

$4.8B (+5%) Devices for Sterilization, Breast Surgery,

Obesity, and Plastic Surgery Cordis Corp. (Cardiovascular Care)$2.5B (-

6%) Surgical Equipment for Coronary Artery

Disease

MD&D 2011 Q2 Sales Growth (+7.2%)

Ortho-Clinical Diagnostics VITROS 5600 and 3600

Diabetes Care ONETOUCH ULTRA, VITA, and VERIO Strip and

Meter Systems Ethicon

Emerging Market Growth in Sutures, Physiomesh and SecureStrap, and Acclarent ENT Products

Vision Care 1-Day ACUVUE MOIST Lenses

MD&D Pipeline

Robust Pipeline 58 Products Approved/Cleared in 2010-

2011 20 Products Currently Pending Approval 22 Planned Submissions in 2011 25 Planned Submissions during/after 2012

Pharmaceuticals

Invested $4.4 billion on R&D in 2010 Products in the following fields:

anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology

Made up 36% of total revenue in 2010 ($22. Bn)

$7.1 Bn Net Earnings in 2010

Pharmaceutical Products

28 Prescription drugs currently on the market Antipsychotics and Pain Management:

Axert©, Invega©,Reminyl©, Topamax©, Concerta©, Invega© Sustenna, Risperdal©, Leustatin©, Duragesic©, Nucynta©, Risperdal©Consta©

Anti-Infective, Cardiovascular, and Gastrointestinal Xarelto©, Regranex©, Aciphex©, Reopro©,

Natrecor© Arthritis and Immunodeficiencies

Simponi©, Stelara©, Remicade©

Pharmaceutical Products (cont.)

HIV Antivirals Edurant©, Intelence©, Zytiga©,

Levaquin©, Doribax©, Prezista© Hematology and Oncology

Doxil©, Procrit©, Velcade© Major products released over the past

year include Xarelto, Edurant, and Zytiga

Blockbuster drugs in the company's prescription portfolio include Remicade, Procrit, Risperdal, Levaquin, Concerta, Velcade, and Aciphex

Pharmaceutical Sales and Revenue

8 Drugs make up $13.3 Bn (59.4%) of pharmaceutical segment sales*

*From Johnson and Johnson 2010 Annual Report-Pharmaceuticals

Pharmaceutical Blockbuster Products

Remicade© Greatest sales in prescription portfolio--$4.6

Bn Treatment of Crohn's disease, ulcerative

colitis, and athritis Used to treat over 40 million people in the

U.S. with arthritis and Crohn's Received summer 2011 FDA approval for

treatment of pediatric gastrointestinal diseases (ulcerative colitis, Crohn's, etc)

Velcade© Treatment of multiple myeloma (most

common form of bone cancer)

Pharmaceutical Blockbusters (cont.) Concerta©

Treats ADHD in both children and adults Estimated 4.4 million children in U.S.

diagnosed with ADHD 2007 study shows Concerta to be effective in

adult ADHD patients as well; currently 8 million adults in the U.S with ADHD

ADHD prevalence expected to double by 2030 Procrit-Eprex©

Anemia treatment (promotes red blood cell production)

Chemotherapy patients on Procrit needed fewer transfusions (2005)

Pharmaceutical Pipeline Comparisons

Pharmaceutical Pipeline Cont.

Pharmaceutical Pipeline and Clinical Trials

approved for deep vein thrombosis for people undergoing knee/hip replacement surgery (~1 million people in the U.S.)

Currently the only anticoagulant prescribed in this capacity

Pharmaceutical Pipeline and Clinical Trials (cont.)

patients undergoing chemotherapy Passed Phase III clinical trials in April 2011

approved by EU 1 week ago No generic competitors, generated $75

million in sales in the U.S. 1 month after release

Pharmaceutical Growth Opportunities

$750 Billion Market Projected CAGR of 3-6% flatto 2013:

U.S growth slowing, but OUS growth rapid, especially in Europe and China (release of Incivek), CAGR of 13-16% in emerging markets

China is 3rd largest pharma market, combined with Europecontributeds to 50%+ of growth over past year

Global Major Therapeutic Areas

Industry Dynamics

Address unmet needs Anti-diabetics,HIV antivirals, anti-

psychotics Reduce Burden of Disease

Anti-psychotics: as many as 50 million people globally diagnosed with schizophrenia (Risperdal)

Drugs focusng on relapsed patients: 4x as expensive

Strategies for Growth

Sucessfully execute launches of products in pipeline

Focus less on the U.S. (flat/declining growth), concentrate on emerging markets in Europe ad China

CONTINUE DEVELOPING ROBUST PIPELINE

GROW CORE BUSINESS GLOBALLY

Grow Core Business Globally

Build Robust Pipeline

Fundamental Comps51

Relative Valuation

WACC EPS T12M

ROE Rev – 5 Yr Avg

Quick Ratio

Gross - Dvd Yld

Indicated

Gross Profit T12M

JNJ 7.26% 4.22 20.20%

4.21% 1.94% 3.58% 43.81B

PFE 7.65% 1.08 9.82% 8.20% 1.33% 4.52% 52.14B

MRK 7.84% 0.98 5.20% 18.19% 1.42% 4.65% 32.66B

8.45% 4.28 16.14%

10.33% 0.56% 4.33% 38.46B

GSK 8.73% 1.01 37.01%

5.76% 0.44% 5.58% 31.91B

Income Statement53

Balance Sheet54

Cash Flow

Weighted Average Cost of Capital (WACC)

Cost of Equity = 7.74% Cost of Debt = 1.77% Market Cap 184,441.03 (90.78% of

203,167.03) ST Debt = 5,046 (2.48% of total) LT Debt = 13,680 (6.73% of total) Weight 90.78% * Cost 7.74% = 7.03% Weight 9.22% * Cost 1.77% = 0.16% WACC = 7.19%

Dividend Discount Model (DDM) Theoretical Price = 77.967 Percentage Change from Close =

22.416% Internal Rate of Return = 8.598% Expected Return = 19.021% Implied Growth Rate = 3.676%

Residual Income Valuation Model Theoretical Price = 86.24 Change from Close = 35.41%

Other Facts

Mean recommendation is BUY 12 of 21 Analyst Rate a Buy or Strong

Buy; No Sells Thomson Reuters gave it a score of 9 out

of 10 (top 15% of all stocks) Low Target is $64 Mean Target is $72.60 (20% increase)

27 consecutive years of adjusted earnings increases

6 Month Trend v. DJIA60

Proposal

Buy 40 shares at MKT price Position of about $2500 based on

Wednesday closing price of $62.35 Long-term investment

QuanTeam

Johnson & Johnson

Bollinger Bands Bands indicating two standard deviations above or below the EMA

Johnson & Johnson

Relative Strength Index (RSI) Compares the magnitude of recent gains to recent losses over 14 days

Johnson & Johnson

WLPR Compares a stock's close to the high-low range over 14 days

Johnson & Johnson Moving Average Convergence Divergence (MACD)

Difference between 26 day EMA and 12 day EMA

Johnson & Johnson

Technical Analysis Thesis

MACD-Neutral RSI- Middle of Road (42.93); indecisive BOLL- Neutral WLPR- Middle of Road (-62.19); indecisive

Overall Recommendation: Neutral We have no idea where this is going to go

Market Technicals

Thanks for coming by!

general body meeting 10.06.11. mutual investment club of cornell agenda announcements ubs event ...

siddhant trivedi slide

debit card fees

cent fees

consecutive month

bank of china

wall street upset

customers monthly fees

possible activist investors

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