general body meeting 10.06.11. mutual investment club of cornell agenda announcements ubs event ...
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General Body Meeting 10.06.11
Mutual Investment Club of Cornell
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Agenda
Announcements UBS Event
News Updates Occupy Wall Street China Manufacturing Credit Card Fees HP Update
JNJ Healthcare Pitch
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UBS Event
Wednesday, October 26th
Intro to Global Capital Markets
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News Updates
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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
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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
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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
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HP hires Goldman Sachs to Guard Against Activists
Siddhant Trivedi
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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)
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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
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JNJ Healthcare Pitch
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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
beta
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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
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Baby Boomers14
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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
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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
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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
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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.
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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
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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
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Consumer Products
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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%)
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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.
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Consumer Franchise Sales- Q2
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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%.
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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
14.1%
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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
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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
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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
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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
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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
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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
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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©
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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
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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
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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)
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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)
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Pharmaceutical Pipeline Comparisons
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Pharmaceutical Pipeline Cont.
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Pharmaceutical Pipeline and Clinical Trials
Edurant© HIV antiviral NNRTI, FDA approved May 2011 Received positive opinion from the
Committee for Medicinal Products for Human use in comparison to competitor Truvada© (manufactured by Gilead Sciences)
Xarelto© Anticoagulant (prevents blood clotting) FDA
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
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Pharmaceutical Pipeline and Clinical Trials (cont.)
Zytiga© Advanced prostate cancer treatment for
patients undergoing chemotherapy Passed Phase III clinical trials in April 2011
Incivek© Groundbreaking heptatitis C treatment,
approved by EU 1 week ago No generic competitors, generated $75
million in sales in the U.S. 1 month after release
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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
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Global Major Therapeutic Areas
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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
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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
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Grow Core Business Globally
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Build Robust Pipeline
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Fundamental Comps51
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Relative Valuation
Name
WACC EPS T12M
ROE Rev – 5 Yr Avg
Gr
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
NOVN
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
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Income Statement53
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Balance Sheet54
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Cash Flow
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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%
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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%
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Residual Income Valuation Model Theoretical Price = 86.24 Change from Close = 35.41%
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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
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6 Month Trend v. DJIA60
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Proposal
Buy 40 shares at MKT price Position of about $2500 based on
Wednesday closing price of $62.35 Long-term investment
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QuanTeam
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Johnson & Johnson
Bollinger Bands Bands indicating two standard deviations above or below the EMA
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Johnson & Johnson
Relative Strength Index (RSI) Compares the magnitude of recent gains to recent losses over 14 days
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Johnson & Johnson
WLPR Compares a stock's close to the high-low range over 14 days
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Johnson & Johnson Moving Average Convergence Divergence (MACD)
Difference between 26 day EMA and 12 day EMA
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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
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Market Technicals
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Thanks for coming by!