A Financial Review: Pharmaceuticals Industry

1. PHARMACEUTICALS INDUSTRY Team 12 Birdman Sachs

2. AGENDA GSK MRK NVS OVERVIEW OF COMPANIES BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS RATIO ANALYSIS AND COMPARISON RISK ANALYSIS AND MARKET PERFORMANCE INVESTMENT CONSIDERATIONS AND RECOMMENDATIONS

3. COMPANY OVERVIEW Share GSK Ofﬁces in 115 countries MRK 89,000 Employees NVS #2 Sales Worldwide $44.4B Revenues $44.03B Revenues $57.9B Revenues $128.41Bn Market Cap $160.38Bn Market Cap $217.32Bn Market Cap

4. GSK

5. GSK CORPORATE GOVERNANCE Ownership Institutions Others Board Proﬁle Funds Executive Non-Executive 20% 80% 67% 33% 84% Board Experience 20% 27% 53%

6. GSK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS GEO >1% UNIT SALES Quality of Sales (09’-13’) US PH EU VC HC (1) 30% growth in Immuno-inflamation products (2) 20% growth in Antibacterial Vaccines (3) 36% decline in Combivir Net Income Operating Profits and Cost Analysis (09’-13’) 19.1% High R&D ROI Royalty Income Tax Incentives (1) 1% increase in core operating profit (2) 1.6% Increase in COGS (3) R&D ROI 14%

7. GSK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS Operating Cash (09’-13’) Free Cash Flow (09’-13’) 8000 6000 6000 4500 4000 3000 2000 0 7.2B 7.8B 6.8B 4.3B 2009 2012 1500 6.9B 2013 2010 2011 0 6.0B 5.2B 5.0B 2.8B 5.3B 2009 2011 2012 2013 2010 Capital Expenditures (09’-13’) 1900 1425 950 475 0 1.9B 1.6B 1.3B 1.5B 1.7B 2009 2010 2011 2012 2013

8. GSK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS Financial Structure Equity Dividends Debt 4.0B 3.9B 3.1B 3.2B 3.6B ‘09 ‘10 ‘11 ‘12 ‘13 Trends and Future Growth + EPS + Products 4% 8%

9. MRK

10. MRK CORPORATE GOVERNANCE Ownership Institutions Others Board Proﬁle Funds Executive Non-Executive 50% 50% 84% 16% 76% Board Experience 16% 42% 42%

11. MRK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS GEO 8% EM DM UNIT SALES Quality of Sales (09’-13’) PH CC (1) Januvia went down (2)Emerging markets grew by 2% (3) CAGR sales of 14.3% Net Income Operating Proﬁts and Cost Analysis (09’-13’) 28.6% $2.3B Acquisition Cost Low level of Productivity Increased COGS (1) Acquisition of AZ Electronics Material

12. MRK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS Operating Cash (09’-13’) Free Cash Flow (09’-13’) 13000 11000 9750 8250 6500 5500 3250 2750 0 3.4 10.9 12.3 10 10.4 2009 2010 2011 2012 2013 0 1.9 9.1 10.7 8.1 8.5 2009 2010 2011 2012 2013 Capital Expenditures (09’-13’) 2000 1500 1000 500 0 1.5 1.7 1.7 2 1.9 2009 2010 2011 2012 2013

13. MRK BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS Financial Structure Equity Dividends Debt 4.9B 4.8B 3.5B ‘09 ‘10 ‘11 5.2B 5.3B ‘12 ‘13 Trends and Future Growth — Higher Risk + Products Continued decrease in efﬁciency and proﬁtability

14. NVS

15. NVS CORPORATE GOVERNANCE Ownership Institutions Others Board Proﬁle Funds Executive Non-Executive 27% 73% 80% 20% Board Experience 18% 10% 44% 38%

16. NVS BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS GEO 4% EM DM (1) (2) UNIT SALES Quality of Sales (09’-13’) Growth Products PH Zometa and Diovan grew by 7% $8 Billion increase in sales Operating Income Operating Proﬁts and Cost Analysis (09’-13’) 5% Increased margins R&D Cost Low level of Management Productivity Focused Innovation (1)R&D expense goes down by 8%

17. BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS NVS Operating Cash (09’-13’) Free Cash Flow (09’-13’) 15000 12000 14500 9000 14000 6000 13500 13000 14 14.3 14.2 13.2 3000 13.2 0 2009 2010 2011 LTM LTM 11.9 12 2009 2010 Capital Expenditures (09’-13’) 3600 2700 1800 900 0 2.2 2.4 3.1 3.6 3.6 2009 2010 2011 LTM LTM 11 9.6 9.6 2011 LTM LTM

18. NVS BUSINESS ANALYSIS AND FINANCIAL HIGHLIGHTS Financial Structure Equity Dividends Debt 4.5B ‘09 6.1B 6.2B 6.2B 5.5B ‘10 ‘11 ‘12 ‘13 Trends and Future Growth + PH business + Market Share MID-HIGH SINGLE DIGIT GROWTH CN RUS DOUBLE DIGIT GROWTH

19. GSK MRK NVS RATIO ANALYSIS

20. GSK MRK NVS RATIO ANALYSIS LIQUIDITY GSK NVS 1.1X 0.7X Current Ratio Quick Ratio MRK 2.1X 1.4X 1.2X 0.7X Industry 1.7X Average 1.2X 2.2 Current Ratio Quick Ratio 1.65 1.1 0.55 0 GSK MRK NVS Industry

21. GSK MRK NVS RATIO ANALYSIS ASSET MANAGEMENT GSK MRK NVS Industry TA Turnover 0.6X 0.4X 0.5X 0.6X FA Turnover 3.0X 2.8X 3.4X 5.8X AR Turnover 4.9X 5.7X 5.9X 2.9X INVT Turnover 1.9X 2.4X 2.8X N/A TA Turnover FA Turnover AR Turnover INVT Turnover 6 4.5 3 1.5 0 GSK MRK NVS Industry

22. GSK MRK NVS RATIO ANALYSIS DEBT MANAGEMENT GSK MRK NVS Total D/E 2.7X 0.4X 0.3X Industry Average 0.8X Total D/C 0.7X 0.3X 0.2X 0.4X TIE Ratio 10.4X 15X 22X 13.4X 30 Total D/E Total D/C TIE Ratio 22.5 15 7.5 0 GSK MRK NVS Industry

23. GSK MRK NVS RATIO ANALYSIS PROFITABILITY GSK MRK NVS Industry ROA 11.7% 6.3% 8.0% 8.6% ROE 60.9% 11.2% 14.3% 26.1% BEP 16.7% 8.4% 8.6% N/A EBIT Margin 29.3% 22.6% 17.5% 23.6% 70 ROA ROE BEP 52.5 35 EBIT Margin 17.5 0 GSK MRK NVS Industry

24. INDUSTRY SPECIFIC NUMBERS GSK MRK NVS PHASE I 27 N/A 4 PHASE II 46 19 27 PHASE III 31 16 23

25. INDUSTRY SPECIFIC NUMBERS GSK MRK NVS REGISTERED 11 4 7 APPROVED 8 3 2

26. GSK MRK NVS MARKET PERFORMANCE

27. MARKET PERFORMANCE 5-year movement GSK PE: 15.65X MRK PE: 37.81X NVS PE: 21.88X

28. MARKET PERFORMANCE 5-year Return 120 118% 105% 98.42% 90 78.75% 55.45% 60 30 0 0 1.25 NVS MRK 2.5 GSK 3.75 DJIA 5 S&P

29. RISK ANALYSIS ! Regulation and Currency Exchanges Intellectual Property and Production Reputation

30. INVESTMENT CONSIDERATION GSK Recommendation Long -Term Short -Term Pros ! -R&D Cost Management -Strong Proﬁtability -Strong Pipeline Products -Strong US Sales -High Dividend Yield Cons -High amounts of debt -Weak Europe Sales -High P/E (GSK might be overvalued already) -High amounts of LT debt -Pricing Pressure from Generic Competition BUY

31. INVESTMENT CONSIDERATION MRK Pros Cons Short -Term -Post integrationacquisition potential -Lower margins -Decline in Sales -Lower FCF -High P/E (MRK might be overvalued by the market) Long -Term Recommendation -Weak Product -Increasing demand in Development Emerging Markets -High COGS -High Dividend -Poor Cost Payout Ratio Management -Pricing pressure from generic competition HOLD

32. INVESTMENT CONSIDERATION NVS Recommendation Short -Term -Strong Price Momentum -Increase in Sales -Good Inventory Management Long -Term Pros -Better Capital Structure -Better Debt Management -Strong Operating Proﬁt Cons BUY -Lower FCF -Under Leveraged ! -High COGS -Pricing pressure from generic competition

33. END OF PRESENTATION

34. APPENDIX: INDUSTRY OVERVIEW Fundamentals: Business depends on research, product development and patent applications ! Industry value from $359 to $476B (up 33%) by 2020 Major patent conﬂicts, stricter measures, healthcare law Growing generic competition ($400M) Challenges: Established companies are now focused on distribution efﬁciency, return on investments and pricing pressures

A Financial Review: Pharmaceuticals Industry

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A Financial Review: Pharmaceuticals Industry

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