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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 - PowerPoint PPT PresentationTRANSCRIPT
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
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
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
Segments: Animal Products Develops and produces animal health
products Vaccines Anitbiotics, Anti-inflammatories Livestock Management Systems
10% of Sales
Segments: Consumer Health OTC
As well as several other drugs Foot Care
Sun Care
10% of Sales 20%+ Profit Margins
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
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 $5BN in 2007 Split 50/50 between MRK and SGP
1: CNBC on April 5, 2008
Industry Overview Moving to be a major pharma firm Non-Cyclical Must Continually develop effective new
products Increasing number of drugs coming off patent
Losing revenue to generics
Investment Thesis Drastic Market overreaction has produced a
phenomenal buying opportunity Combined growth with Organon will produce a
self sustaining major pharmaceutical going forward
Any income from Vytorin is icing on the cake
Valuation
http://finance.yahoo.com/q/bc?s=SGP&t=1y Accessed on 4/10/08
Valuation Assumptions
WACC: 8.78% Beta: 1.131, L/T Growth: 5% Used L/T Debt as the plug
Steadily decreased from 47% to 18% of sales
2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017EProjected Revenue Growth 20% 42% 15% 15% 15% 10% 9% 8% 8% 8% 8%Gross Margin 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%R&D % of Sales 23% 22% 21% 20% 20% 20% 20% 20% 20% 20% 20%SG&A % of Sales 36% 30% 28% 28% 28% 28% 28% 28% 28% 28% 28%PP&E % of Sales 82% 73% 73% 73% 70% 70% 70% 70% 70% 70% 70%Vytorin Income ($BN) 1.50 1.50 1.20 1.20 1.20 1.00 0.75 0.50 0.25 0.00 0.00
1: http://finance.google.com/finance?q=sgp Accessed on 4/10/08
Valuation Current Price: $16.50
DCF Valuation: $22.97
Intrinsic Value: 20.68 - 25.27
Dividend Yield: 1.57%
Estimated Total Return: 40.5%
Valuation
Sensitivity AnalysisWACC
22.97 6.00% 7.00% 8.00% 8.78% 9.00% 10.00% 11.00% 12.00% 13.00%2.0% 28.30 21.02 16.16 13.37 12.70 10.10 8.08 6.47 5.152.5% 31.99 23.13 17.49 14.33 13.58 10.72 8.53 6.80 5.403.0% 36.90 25.76 19.07 15.46 14.61 11.42 9.03 7.17 5.683.5% 43.78 29.15 21.01 16.80 15.83 12.23 9.60 7.58 5.98
Growth 4.0% 54.09 33.66 23.43 18.42 17.28 13.18 10.25 8.04 6.324.5% 71.29 39.98 26.54 20.41 19.07 14.30 10.99 8.56 6.705.0% 105.67 49.46 30.70 22.94 21.30 15.64 11.87 9.16 7.135.5% 208.83 65.26 36.51 26.23 24.16 17.29 12.90 9.85 7.616.0% #DIV/0! 96.86 45.23 30.72 27.98 19.34 14.14 10.66 8.16
Valuation- with NO Vytorin Income Dividend Yield: 1.57%
Estimated Total Return: 21%
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%