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Watch List Presentations

Watch List Presentations. April 17, 2008 David Light, Phil Rosen, Tim Tyson. Schering-Plough Corp. Introductory Presentation April 17, 2008. Outline. Company Overview Industry Overview Valuation. Company Overview. Global Pharmaceutical Firm Three Operating Segments

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  1. Watch List Presentations April 17, 2008 David Light, Phil Rosen, Tim Tyson

  2. Schering-Plough Corp. Introductory Presentation April 17, 2008

  3. Outline • Company Overview • Industry Overview • Valuation

  4. Company Overview • Global Pharmaceutical Firm • Three Operating Segments • Prescription Medicines • Consumer Health Products • Animal Health Products • In a five-phase Action Agenda that began in 2003 Note: All data from company sources unless otherwise stated

  5. Company Overview • Acquired Organon for $16.1BN1 • Part of Phase Four: Build the Base • Organon diversifies product offerings and vastly expands pipeline • World’s third largest maker of birth-control pills • Double the number of drugs in development • Two products may get approval this year 1: http://www.bloomberg.com/apps/news?pid=20601087&sid=apX86Qqux7T4&refer=home Accessed on 4/10/08

  6. Segments: Animal Products • Develops and produces animal health products • Vaccines • Anitbiotics, Anti-inflammatories • Livestock Management Systems • 10% of Sales

  7. Segments: Consumer Health • OTC • As well as several other drugs • Foot Care • Sun Care • 10% of Sales • 20%+ Profit Margins

  8. Segments: Prescriptions • Six biggest sellers(45% of total SGP sales): • Remicade- Treatment for serious inflammations • Nasonex • Pegintron- Hepititis C • Temodar- Certain types of brain tumors • Clarinex/Aerius • Claritin • Dozens of other drugs totaling 35% of total sales

  9. Segments: Vytorin JV • Joint Venture Operated with Merck • ENHANCE Study • New scrips were down less than 20% the week the data was released1 • Erased over $50BN of market cap from the 2 companies combined • Produced total profits of $5BN in 2007 • Split 50/50 between MRK and SGP 1: CNBC on April 5, 2008

  10. Industry Overview • Moving to be a major pharma firm • Non-Cyclical • Must Continually develop effective new products • Increasing number of drugs coming off patent • Losing revenue to generics

  11. Investment Thesis • Drastic Market overreaction has produced a phenomenal buying opportunity • Combined growth with Organon will produce a self sustaining major pharmaceutical going forward • Any income from Vytorin is icing on the cake

  12. Valuation http://finance.yahoo.com/q/bc?s=SGP&t=1y Accessed on 4/10/08

  13. Valuation • Assumptions • WACC: 8.78% • Beta: 1.131, L/T Growth: 5% • Used L/T Debt as the plug • Steadily decreased from 47% to 18% of sales 1: http://finance.google.com/finance?q=sgp Accessed on 4/10/08

  14. Valuation • Current Price: $16.50 • DCF Valuation: $22.97 • Intrinsic Value: 20.68 - 25.27 • Dividend Yield: 1.57% • Estimated Total Return: 40.5%

  15. Valuation

  16. Valuation- with NO Vytorin Income • Dividend Yield: 1.57% • Estimated Total Return: 21%

  17. Valuation- with NO Vytorin Income • Current Price: $16.50 • DCF Valuation: $19.72 • Intrinsic Value: 17.75 – 21.69 • Dividend Yield: 1.57% • Estimated “Down Case” Total Return: 21%

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