1. H EALTH CARE SECTOR Suyang Yang Huiting Wang

2. A GENDA Sector Overview Business Analysis Financial Analysis Valuation Analysis Recommendation Q&A

3. H EALTH C ARE S ECTOR Stocks relates to medical & healthcare goods or services Health Care Sector includes: Hospital management firms Health maintenance organizations (HMOs) Biotechnology Medical products

4. S ECTOR S IZE SectorNumber of ConstituentsAdjusted Market Cap. In $ Mil Energy401,127,143 Materials30309,561 Industrials59920,442 Consumer Discretionary78830,996 Consumer Staples411,089,057 Health Care531,153,936 Financials791,337,608 Information Technology761,737,657 Telecommunications Services9281,594 Utilities35336,174

5. SECTOR WEIGHT S&P 500SIM

6. S ECTOR W EIGHT SectorS&P 500 WeightSIM WeightChange Energy12.35%12.80%0.45% Materials3.39%4.52%1.13% Industrials10.09%11.97%1.88% Consumer Discretionary9.11%7.51%-1.60% Consumer Staples11.94%12.23%0.29% Health Care12.65%13.13%0.48% Financials14.66%6.59%-8.07% Information Technology19.04%21.97%2.93% Telecom Services3.09%3.51%0.42% Utilities3.68%3.19%-0.49%

7. H EALTH C ARE I NDUSTRIES

8. H EALTH C ARE I NDUSTRY Pharmaceutical is the KEY driver of the sector Represent 51.7% of Health Care Sector & 6.6% of S&P 500 by Mkt. Cap Industry develops, produces, and markets drugs licensed for use as medications Pharmaceutical Sales include: Prescribed drugs OTC medications

9. TOP HEALTH CARE COMPANIES CompanyTicker% of S&P500Industry Market Cap (In $ Bil) Johnson & Johnson JNJ1.79%Pharmaceutical163.9 PfizerPFE1.49%Pharmaceutical136.7 Abbott Laboratories ABT0.86%Pharmaceutical78.7 Merck & Co.MRK0.72%Pharmaceutical65.9 AmgenAMGN0.58%Biotechnology53.2 Teva Pharmaceutical Industries Ltd. TEVAPharmaceutical47.1 Schering-PloughSGP0.51%Pharmaceutical46.4 MedtronicMDT0.44% HealthCare- Equipment 40.0 Gilead SciencesGILD0.42%Biotechnology38.6

10. SIM HOLDINGS JNJ & TEVA are two top holdings of SIM Portfolio CompanyTicker% of AssetIndustry Market Cap (In $ Bil) Cardinal Health Inc. CAH2.05%HC-Distributor10.3 CareFusion Corp.CFN0.81%HC-Equipment5.0 Gilead Sciences Inc. GILD3.12%Biotechnology38.6 Johnson & Johnson Co. JNJ3.73%Pharmaceutical163.9 Teva Pharmaceutical Industries Ltd. TEVA3.42%Pharmaceutical47.1

11. B USINESS A NALYSIS Overall, Health Care sector is in Maturity stage of life cycle Pharmaceutical Industry(51.7%) is in the grey area between Growth and Maturity Health Care-Equipment(14.52%) is in Maturity stage Biotechnology Industry(12.5%) is in Growth stage

12. 5 FORCE Rivalry Generic Drugs Substitutes Concentrate on several large companies: JNJ, PFE, MRK,ABT (40%) Supplier Power Low- Major supplier is chemical industry and have competitive suppliers Barriers to Enter High barriers to enter, due to huge demand for R&D Costly Regulations Patent High barriers to enter, due to huge demand for R&D Costly Regulations Patent Buyer Power Low- no buyer has any particular influence on product or price

13. P ATENT E XPIRATION & G ENERIC D RUGS 20 YR Patent Length, 10 yr avg for FDA approval 2009-2014, expires @ the rate of 3 drugs/year Generic Drugs: cost-saving alternative

14. 5 FORCE Rivalry Generic Drugs Substitutes Concentrate on several large companies: JNJ, PFE, MRK,ABT (40%) Supplier Power Low- Major supplier is chemical industry and have competitive suppliers Barriers to Enter High barriers to enter, due to huge demand for R&D Costly Regulations Patent High barriers to enter, due to huge demand for R&D Costly Regulations Patent Buyer Power Low- no buyer has major influence on product or price

15. F ACTORS I NFLUENCES H EALTH C ARE S ECTOR Demographic National Health Expenditure Health Care Reform Exchange Rate

16. D EMOGRAPHICS & B ABY B OOMERS Demographic trend shows that there is a very big potential market for Health Care Sector in the near future. Also, Baby boomers are getting older.

17. N ATIONAL H EALTH E XPENDITURE Health Expenditure is in an up trend, which indicate future market of Health Care Sector

18. E XCHANGE R ATE Euro/USD Ratio Chart

19. H EALTHCARE R EFORM Period of controversy (UNCERTAINTY) Worst-case scenario are priced in Sector is over-sold 16.0%-12.7% 21.0%-13.1%

20. FINANCIAL ANALYSIS-NPM SPX: 8.0% HCX: 10.0% DRUGS: 22.0% BIOTK: 30% for 3 years

21. FINANCIAL ANALYSIS-NPM

22. FINANCIAL ANALYSIS-ROE HCX:24.1% SPX: 11.0% DRUGS: 28.5% BIOTK: 23.7% HCDIS: 17.0% HCEQP: 19.2%

23. FINANCIAL ANALYSIS-CF Good job: BIOTK Stable: DURGS

24. FINANCIAL ANALYSIS-EBITDA Current 2009: HCX: 16.9% SPX: 17.4%

25. FINANCIAL ANALYSIS-Revenue Growth HCX Revenue is increasing at average 9% for the past 5 years.

26. VALUATION ANALYSIS

27. VALUATION ANALYSIS-Sector fP/E Absolute Price to Earnings Ratio Price to Earnings Relative to S&P 500 High: 39.7 Low: 10.0 Median: 17.9 Current 11.6 High: 1.6 Low: 0.69 Median: 1.1 Current 0.71

28. VALUATION ANALYSIS-Industry fP/E Drugs Price to Earnings Relative to S&P 500 Biotk Price to Earnings Relative to S&P 500 High: 1.1 Low: 0.64 Median: 1.0 Current 0.65 High: 3.2 Low: 0.78 Median: 1.5 Current 0.78

29. VALUATION ANALYSIS-Industry fP/E Hcdis Price to Earnings Relative to S&P 500 Hceqp Price to Earnings Relative to S&P 500 High: 1.6 Low: 0.65 Median: 0.99 Current 0.82 High: 1.8 Low: 0.79 Median: 1.3 Current 0.84

30. VALUATION ANALYSIS-Sector P/S Absolute Price to Sales Ratio Price to Sales Relative to S&P 500 High: 4.7 Low: 1.0 Median: 2.0 Current 1.2 High: 2.4 Low: 1.1 Median: 1.3 Current 1.1

31. VALUATION ANALYSIS-Industry P/S Drugs Price to Sales Relative to S&P 500 Biotk Price to Sales Relative to S&P 500 High: 3.9 Low: 2.1 Median: 2.5 Current 2.3 High: 10.5 Low: 3.8 Median: 5.5 Current 4.0

32. VALUATION ANALYSIS-Industry P/S Hcdis Price to Sales Relative to S&P 500 Hceqp Price to Sales Relative to S&P 500 High: 0.4 Low: 0.1 Median: 0.2 Current 0.1 High: 3.6 Low: 1.8 Median: 2.7 Current 2.3

33. VALUATION ANALYSIS-Sector P/B Absolute Price to Book Value Ratio Price to Book Value Relative to S&P 500 High: 10.1 Low: 2.2 Median: 4.2 Current 2.9 High: 2.5 Low: 1.2 Median: 1.4 Current 1.4

34. VALUATION ANALYSIS-Industry P/B Drugs Price to Book Relative to S&P 500 Biotk Price to Book Relative to S&P 500 High: 3.3 Low: 1.2 Median: 1.5 Current 1.4 High: 4.9 Low: 1.2 Median: 1.8 Current 1.5

35. VALUATION ANALYSIS-Industry P/B Hcdis Price to Book Relative to S&P 500 Hceqp Price to Book Relative to S&P 500 High: 1.5 Low: 0.5 Median: 0.9 Current 0.9 High: 2.6 Low: 1.2 Median: 1.9 Current 1.3

36. VALUATION ANALYSIS-Sector P/CF Absolute Price to Cash Flows Ratio Price to Cash Flow Relative to S&P 500 High: 163.1 Low: 7.6 Median: 14.4 Current 9.4 High: 9.8 Low: 0.9 Median: 1.3 Current 0.9

37. VALUATION ANALYSIS-Industry P/CF Drugs Price to Cash Flow Relative to S&P 500 Biotk Price to Cash Flow Relative to S&P 500 High: 2.0 Low: 0.8 Median: 1.2 Current 0.8 High: 3.8 Low: 1.1 Median: 2.0 Current 1.1

38. VALUATION ANALYSIS-Industry P/CF Hcdis Price to Cash Flow Relative to S&P 500 Hceqp Price to Cash Flow Relative to S&P 500 High: 2.0 Low: 0.7 Median: 1.3 Current 0.8 High: 2.0 Low: 1.1 Median: 1.6 Current 1.1

39. VALUATION ANALYSIS-Sector Summary Absolute BasisHighLowMedianCurrentDifferenceUnder/Over P/Trailing E19.69.917.812.0(5.8)Under P/Forward E18.610.016.711.6(5.1)Under P/B4.32.23.82.9(0.9)Under P/S2.01.01.81.2(0.6)Under P/CF15.57.613.39.4(3.9)Under Relative to SP500HighLowMedianCurrentDifferenceUnder/Over P/Trailing E1.20.71.10.7(0.4)Under P/Forward E1.20.71.10.7(0.4)Under P/B1.61.21.31.40.1Over P/S1.61.11.21.1(0.1)Under P/CF1.40.91.20.9(0.3)Under

40. Recommendations Current SIM WeightCurrent S&P 500 Weight 13.13%12.65% Short Term: Increase 52 basis point bring the SIM portfolio 100 basis point overweight relative to S&P 500. Long Term: Decrease weight when economy shows definite signs of improvement due to the defensive nature of Health Care sector.

41. Questions? Thank You!