Health Care Sector Jocelyn Mayfield, Sam Vermillion, Wendy Wiemers, Kevin Zakes, Chad Zipfel BUS-FIN 724/824 May 8, 2007

Health Care Sector S&P500 is currently comprised of 54 Health Care companies The S&P500 Health Care sector includes: - Healthcare Equipment and Services - Healthcare Equipment and Supplies - Healthcare Providers and Services - Healthcare Technology - Biotechnology, Pharmaceuticals, and Life Sciences - Biotechnology - Pharmaceuticals - Life Sciences Tools and Sciences

Market & Sector Overview Market Cap for total health care sector is approximately $1.64 trillion Health care as a percentage of S&P500 –12.22% –Third largest weighting in S&P500 behind Financials and Information Technology with $2.9 and $2.0 trillion, respectively

Health Care Sector Breakdown

Health Care Leaders in S&P500 TickerCompanyMarket Cap ($B)P/ECompany Type PFEPfizer, Inc Drug Manufacturer JNJJohnson & Johnson Medical Products/Supplies MRKMerck & Co Drug Manufacturer ABTAbbott Laboratories Drug Manufacturer WYEWyeth Drug Manufacturer AMGNAmgen Biotechnology UNHUnitedHealth Group Health Maintenance Services

Health Care Sector Performance 2007 QTD –S&P 500: 5.97% –Health Care Sector: 8.77% 2007 YTD –S&P 500: 6.16% –Health Care Sector: 9.45% Other top sectors YTD performance –Utilities 14.53% YTD –Materials 12.45% YTD –Telecom Services 10.07% YTD

Current SIM Holdings SIM current holdings include the following industries: Pharmaceuticals HealthCare Equipment/Supplies Biotechnology Health Care Providers/Services Healthcare Technology and Life Sciences and Tools and Sciences are not currently represented in the SIM portfolio The two industries represent less than 1% of the total health care market cap so this is insignificant Overall, well diversified within the sector

SIM Current Holdings TickerNameSIM WeightAvg. Cost Current Price (May 4, 2007) Gain/Loss (%) DNAGenentech Inc*2.47%$82.54$81.42(1.36%) JNJJohnson and Johnson4.64%$60.22$ % SYKStryker Corp3.74%$43.78$ % TEVATeva Pharmaceutical*3.53%$32.11$ % WLPWellpoint3.08%$76.73$ % * Not a member of S&P 500, but a member of NASDAQ Total SIM Weight18.26% S&P Weight12.22% SIM Overweight6.04%

Business Analysis Phase of the life cycle –Expansion This is the stage between growth and mature. There are high growth rates in yearly revenues within the sector due to innovations in technology but the power players have become apparent. –The success of the Healthcare industry is largely independent of the success of domestic or foreign economies due to the nature of the products.

External Factors Regulations –Food and Drug Administration –Center for Drug Evaluation and Research –Medicare Fair Prescription Drug Price Act of 2007 –Patent Term Restoration Treble Damages

External Factors Research and Development –Biotechnology market value is expected to grow by 79% from 2005 to –It has been found that a 10% increase in the real price of drugs, increases R&D expenses by 6%. Largely linked to regulation by the government on the increase in drug prices to the consumer price index.

External Factors Demographics –In many countries, fertility rates have declined because of an interconnected set of reasons that include: The availability of contraception which has allowed women to achieve higher levels of education, enhanced opportunities for employment, and greater individual financial independence. The trend toward urbanization which makes it harder to support more than one or two children. Governmental initiatives to limit family size in countries like China and Iran. –In the U.S., the over-85 population is expected to increase from the present 5 million to over 18 million by –This sector is largely dependent upon the United States, particularly biotechnology which currently accounts for 56.8% of revenues and global health services at 42.1%.

Five Force Analysis Barriers to Entry (+) Economies of scale Patent and High R&DExpense Heavily Regulated Supplier Power (-) Substitutes Low concentration Buyer Power (N) Price sensitivity High switching cost Substitute (+ or -) Generic drugs Industry Rivalry (+) Large players and small players Low product differentiation in some industries

U.S. Demographics

Financial Analysis

HealthCare Sector Valuation P/E: yr mean: yr mean:17.2 P/S: yr mean: yr mean: 2.08 P/B: yr mean: yr mean: 4.2 P/CF: yr mean: yr mean:15.9

HealthCare vs SP500 (10 yrs)

HealthCare vs SP500 (5 yrs)

HealthCare Equipment & Supplies vs. Sector

HealthCare Providers & Services vs. Sector

Biotechnology vs. Sector

Pharmaceuticals vs. Sector

Recommendations Maintain current SIM position (6.04% overweight) Relative valuation analysis supports rebalancing of SIM’s Health Care holdings. Demographic data supports continued growth in sector-wide spending.