U.S. Major Pharmaceuticals: 4Q11 and FY12 Preview ...masonlec.org/site/files/2012/04/Carino_4Q11_and_FY12_Preview.pdf · Barclays Capital | U.S. Major Pharmaceuticals 18 January 2012

EQUITY RESEARCH 18 January 2012

U.S. MAJOR PHARMACEUTICALS 4Q11 and FY12 Preview: Entering the Execution Year of the New Product Cycle

Rolling out of New Product Opportunities in FY2012: Some 18 months ago, we upgraded the U.S. Major Pharma sector to 1-Pos based on the thesis that the industry is entering a period of inflection with the unfolding of a new product cycle (Please see our June 11th, 2010 publication “Inflection point – Upgrade Pharma Sector to 1-Positive”.) If the previous two years were years of development, 2012 would be the year of execution in our view. We anticipate the possible approvals of Dapagliflozin (BMY, Jan 28th), Eliquis (PFE/BMY, March 28th), Axitinib (PFE, February), and Tofacitinib (PFE, August). In 2013, we anticipate the possible approvals of BG-12 (BIIB), Zytiga’s sNDA (JNJ), Tredaptive (MRK), Odanacatib (MRK), and Dexpramipexole (BIIB). By the 2H of this year, we could see data read-out from Solanezumab (LLY) and Bapineuzuamb (PFE/JNJ), which could become the first disease-modifying drugs for Alzheimer’s Disesase. Reception to these new products would be the indicator of whether the industry could rebase itself after the wave of generic erosion during FY12-13.

Divergence in strategies – investing in the next product cycle or cuts and repurchase: We are seeing some divergence in strategies among players in our sector. BMY recently undertook a dilutive deal (i.e. INHX) which we believe will position the company for further growth in the 2H of the decade. We see BMY as the example of companies that continue to invest in the mid-stage pipeline regardless of near-term effects on EPS, and other players in this group include MRK, BIIB, JNJ, LLY, and ABT. PFE, on the other hand, recently announced a $10B share repurchase program, which is incremental to repurchases expected with the proceeds of sales/spin-offs. We see PFE and possibly AMGN as companies that may be focused more on supporting near-term EPS with repurchases as opposed to building the next product cycle.

Expect outperformance in Q4 2011: We expect 6 out of 8 companies in our coverage to beat the consensus EPS in Q4, and we expect an in-line performance for LLY and MRK. We provide our expectations for FY12 guidance in this report, and we note that companies in our coverage tend to be conservative in terms of issuing guidance at the year’s start. The pharma group as a whole outperformed the S&P500 by ~23% in FY11 thanks to a combination of being defensive stocks in an uncertain economic environment as well as pipeline advancements during 2011. Whether this outperformance would continue throughout 2012 would depend on the same two factors in our view.

Barclays Capital does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 58.

SECTOR UPDATE U.S. Major Pharmaceuticals 1-POSITIVE Unchanged For a full list of our ratings, price target and earnings changes in this report, please see table on page 2.

U.S. Major Pharmaceuticals C. Anthony Butler, Ph.D. 1.212.526.4410 [email protected] BCI, New York Alison Yang, M.D. 1.212.526.7085 [email protected] BCI, New York Christine Chiou 1.212.526.7477 [email protected] BCI, New York

Barclays Capital | U.S. Major Pharmaceuticals

18 January 2012 2

Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold)

Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E)

Old New 17-Jan-12 Old New %Chg Old New %Chg Old New %Chg

U.S. Major Pharmaceuticals 1-Pos 1-Pos

Abbott Laboratories (ABT) 2-EW 2-EW 55.71 55.00 55.00 - 4.65 4.66 0 5.01 5.03 0

Amgen Inc. (AMGN) 2-EW 2-EW 68.07 65.00 65.00 - 5.34 5.35 0 5.66 5.96 5

Biogen Idec (BIIB) 1-OW 1-OW 116.90 130.00 130.00 - 5.93 5.92 0 6.61 6.57 -1

Bristol-Myers Squibb (BMY) 1-OW 1-OW 33.72 36.00 36.00 - 2.30 2.31 0 2.07 2.00 -3

Johnson & Johnson (JNJ) 1-OW 1-OW 65.12 75.00 75.00 - 4.99 4.98 0 5.28 5.26 0

Lilly, Eli (LLY) 2-EW 2-EW 40.03 39.00 39.00 - 4.35 4.35 - 3.17 3.16 0

Merck & Co. (MRK) 1-OW 1-OW 38.82 38.00 38.00 - 3.74 3.76 1 3.89 3.85 -1

Pfizer Inc. (PFE) 2-EW 2-EW 21.93 19.00 19.00 - 2.32 2.30 -1 2.28 2.30 1

Source: Barclays Capital Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.

FY1(E): Current fiscal year estimates by Barclays Capital. FY2(E): Next fiscal year estimates by Barclays Capital.

Stock Rating: 1-OW: 1-Overweight 2-EW: 2-Equal Weight 3-UW: 3-Underweight RS: RS-Rating Suspended

Sector View: 1-Pos: 1-Positive 2-Neu: 2-Neutral 3-Neg: 3-Negative

Valuation Methodology and Risks

U.S. Major Pharmaceuticals

Abbott Laboratories (ABT)

Valuation Methodology: Our PT of $55 is 11x our FY12E EPS of $5.03.

Risks which May Impede the Achievement of the Price Target: Regulatory and additional healthcare reform measures could have significant impact on diversified business segments (taxes, regulation on sales practices, etc). Should biosimilars make significant headway into the market and cannibalize share, Humira could potentially face significant downside risk. As Humira currently comprises 19% of total sales, a decline in the drug's outlook could severely impact the bottom line. In addition, should ABT's HCV portfolio completely fail or arrive into the market too late, their pipeline would have few assets in the near to mid-term.

Amgen Inc. (AMGN)

Valuation Methodology: Our PT of $65 is 10.9x our FY12E EPS of $5.96.

Risks which May Impede the Achievement of the Price Target: Amgen's top products, Epogen and Aranesp, have faced significant pressures from labelling changes, dialysis bundling, and quality improvement programs. The impact could be more severe and longer lasting than what management has guided. Prolia has had difficulty in its launch due to reimbursement issues and this complication could persist. Xgeva could face significant pressure from Zometa's patent expiration in 2013 despite proving superiority in Trial '147. Biosimilars for Epogen, Neupogen, Neulasta and Enbrel could become reality in the 2014-15 timeframe and should uptake be relatively quick, AMGN's top-line would be faced with rapid decline.

Biogen Idec (BIIB)


Risks which May Impede the Achievement of the Price Target: Competitive risks to the core multiple sclerosis franchise products – Avonex and Tysabri. These risks include generic products as well as novel agents. Below expectation growth for Tysabri following the introduction of the JCV assay, and any potential surprises in the reported cases of PML among Tysabri patients. Regulatory setback or delays involving the filing or approval of key R&D agents, such as BG-12. Potential negative developmental surprises of agents in clinical trials, such as Daclizumab and the hemophilia portfolio. Negative macroeconomic trends and potential pricing pressure on multiple sclerosis treatment options in general. Ongoing implementation of U.S. healthcare reform legislations as well as European austerity measures may impact sales and operations in these markets.

Bristol-Myers Squibb (BMY)

Valuation Methodology: Our $36 price target is based on a 18.0X earnings multiple on our 2012 earnings estimate of $2.00 per share.

Risks which May Impede the Achievement of the Price Target: Management expects to incur patent expirations in 2012-15 on key growth drivers (Plavix, Avapro/Avalide, Sustiva, Abilify). Near-term revenue gains are fueled by Yervoy, Onglyza/Kombiglyze, Sprycel, and Sustiva/Atripla. Risks associated with the pharmaceutical industry include pipeline product delays due to discouraging clinical trial results and FDA conflicts. The pharmaceutical industry is also at risk from FDA/regulatory conflicts, patent disputes, loss of patent exclusivity, and competitive pressure from other drugs. Yervoy's launch in the U.S. and the E.U., the launch of Nulojix, U.S. and E.U. approval timeline for Eliquis and the growth of the oral anticoagulant market, and the FDA decision on Dapagliflozin's approval. Risks to the Sustiva franchise with emergence of new competitors in the HIV antiviral market.

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18 January 2012 3

Valuation Methodology and Risks

Johnson & Johnson (JNJ)


Risks which May Impede the Achievement of the Price Target: Downward pressure on sales and gross margins due to recent U.S. patent expiries of key pharmaceutical franchises, including Concerta and Levaquin. Other factors affecting the pharmaceutical industry such as regulatory setbacks or delays involving major pipeline assets, such as Zytiga's sNDA, canagliflozin, TMC-435, or Bapineuzumab. Product recalls in the OTC segment and manufacturing issues at U.S. sites may continue to impact the Consumer Division. Continued global economic weakness, and the associated pricing pressure and stagnant volume growth across the medical technology sector. Challenges to the potential closing of the Synthes acquisition, and a possible delay beyond the target closing date of 1H12. Ongoing implementation of U.S. healthcare reform legislations as well as European austerity measures may impact sales and operations in these markets.

Lilly, Eli (LLY)

Valuation Methodology: Our price target of $39 is calculated using our 2012 EPS estimate of $3.16 and a 12.3x multiple.

Risks which May Impede the Achievement of the Price Target: Lilly faces U.S. and global patent expiries of its key brands, including Zyprexa andCymbalta - between 2011 and 2013. There are uncertainties around the patent protection of Straterra and other brands during this time frame. Risks associated with the pharmaceutical industry include pipeline product delays due to discouraging clinical trial results and FDA conflicts. The pharmaceutical industry is also at risk towards FDA/regulatory conflicts, patent disputes, loss of patent exclusivity, and competitive pressure from other drugs. Ongoing implementation of U.S. healthcare reform legislatiosn as well as European austerity measures may impact sales and operations in these markets. Potential price revisions in the Japanese market could also impact topline and margins. The U.S. FDA decision on Bydureon upon resubmission, the outcomes of the Solanezumab trials, the outcomes of a number of key late stage clinical trials concluding in 2012 and 2013.

Merck & Co. (MRK)

Valuation Methodology: Valuation: our price target of $38 is 10x our FY2012 earnings estimate of $3.85.

Risks which May Impede the Achievement of the Price Target: Patent expiries of key brands, such as Singulair in 2012 in the U.S., could pressure the topline and margins. Generic prilosec could threaten the royalty income levels for Nexium. In 2012, AstraZeneca could potentially excercise the option to buy back interest in the PPI products. Risks associated with the pharmaceutical industry include pipeline product delays due to discouraging clinical trial results and FDA conflicts. The outcomes of the IMPROVE-IT trial, the HPS-2-Thrive trial, and other large outcomes studies could substantially impact the company's topline. Ongoing implementation of U.S. healthcare reform legislatiosn as well as European austerity measures may impact sales and operations in these markets. Gardasil sales momentum, Januvia/Janumet/Juvisync prescription trends, Victrelis' launch in the U.S. and the European markets, Janumet XR's potential launch, decisions on Vorapaxar's developmental plans.

Pfizer Inc. (PFE)

Valuation Methodology: Our $19 price target represents a 8.3x multiple of our 2012 EPS of $2.30.

Risks which May Impede the Achievement of the Price Target: The pending U.S. patent expiry of Lipitor (Nov 30th, 2011) and Detrol and Geodon (Sept, 2012) are potential significant negatives that weigh on the stock and help create a revenue void as large drugs begin to come off of patent. Generic challenges for other brands could allow for generic competitor at an earlier time than previously estimated. Risks associated with the pharmaceutical industry include pipeline product delays due to discouraging clinical trial results and FDA conflicts. Clinical development setbacks involving key R&D candidates such as Tofacitinib and the regulatory outcomes for agents such as Eliquis could substantially impact the outlook for the business. The growth of core franchise brands such as Prevnar 13 and Sutent could significantly impact the company's topline. The pharmaceutical industry is also at risk towards FDA/regulatory conflicts, patent disputes, loss of patent exclusivity, and competitive pressure from other drugs. Lastly, ongoing measures of the U.S. healthcare reform legislation could lead to both downward pressure on sales as well as margins.

Source: Barclays Capital


18 January 2012 4

Figure 1: Large-Cap U.S. Pharma and Biotech Q4 2011 Earnings Cheat Sheet (1 of 2)

ABT BMY LLY MRK PFE(2-EW) (1-OW) (2-EW) (1-OW) (2-EW)

Earnings Date Jan-25, 2012 Jan-26, 2012 Jan-31, 2012 Feb-2, 2012 Jan-31, 2012Time 9:00 A.M. (EDT) 10:30 A.M. (EDT) 9:00 A.M. (EDT) 8:00 A.M. (EDT) 10:00 A.M. (EDT)Call-in Info (517) 308-9049 (913) 312-0856 (612) 332-0228 TBA (866) 246-2545Password 5642831 225549 Fourth Quarter Earnings

BarCap Consensus V BarCap Consensus V BarCap Consensus V BarCap Consensus V BarCap Consensus V4Q11Revenue ($m) 10,533 10,606 -73 5,570 5,494 76 6,065 5,905 160 12,721 12,468 253 17,170 16,566 604EBIT ($m) 2,756 2,773 -17 1,710 1,666 44 1,168 1,171 -2 3,676 3,716 -39 5,631 5,431 201EBITDA ($m) 3,568 3,559 9 1,951 1,949 2 1,378 1,362 16 5,226 5,238 -11 7,476 6,530 946Net Income ($m) 2,268 2,252 16 966 947 18 889 899 -10 2,943 2,901 42 3,642 3,613 29EPS ($) 1.45 1.43 0.02 0.56 0.55 0.01 0.80 0.80 0.00 0.95 0.95 0.00 0.48 0.47 0.01

2011Revenue ($m) 39,007 39,028 -21 21,360 21,297 63 24,305 24,144 161 48,475 48,209 266 67,849 67,218 631EBIT ($m) 8,974 8,942 32 7,093 6,951 142 6,250 6,156 94 15,564 15,671 -108 26,416 25,752 664EBITDA ($m) 12,157 11,560 597 7,568 7,449 119 7,515 7,417 98 22,277 20,981 1,295 34,917 32,476 2,441Net Income ($m) 7,305 7,276 29 3,897 3,943 -46 4,816 4,839 -23 11,799 11,624 175 18,015 17,966 50EPS ($) 4.66 4.65 0.01 2.31 2.30 0.01 4.35 4.34 0.01 3.76 3.75 0.01 2.30 2.28 0.02

Op Exp SG&A (%) R&D (%) SG&A (%) R&D (%) SG&A (%) R&D (%) SG&A (%) R&D (%) SG&A (%) R&D (%)4Q11 24.8% 9.8% 24.6% 18.5% 33.4% 23.5% 28.5% 17.4% 32.0% 12.5%3Q11 27.2% 10.1% 22.8% 16.7% 31.2% 20.8% 27.1% 15.8% 26.5% 11.8%2Q11 28.2% 9.3% 23.6% 16.1% 32.7% 20.2% 28.2% 15.6% 29.1% 12.1%1Q11 29.3% 9.6% 22.7% 16.6% 30.6% 19.2% 26.3% 15.6% 27.3% 12.2%

2010 27.4% 9.9% 23.8% 17.6% 30.6% 21.2% 27.6% 17.6% 28.7% 13.8%4Q10 26.1% 9.8% 24.7% 18.4% 32.1% 23.2% 28.2% 18.1% 32.7% 15.9%3Q10 27.3% 10.6% 23.2% 17.2% 30.0% 21.6% 27.2% 17.5% 28.5% 13.4%2Q10 29.0% 9.7% 24.1% 16.9% 30.5% 20.7% 27.3% 17.5% 27.3% 12.6%1Q10 27.5% 9.5% 22.9% 17.8% 29.4% 18.9% 27.8% 17.5% 26.1% 13.1%

Source: Barclays Capital estimates; Company reports. All values in millions of USD except for earnings per share values and percentages. V=Variance. Sector View = 1-Positive. Stock rating: 1-OW = 1-Overweight; 2-EW= 2-Equal Weight; 3-UW = 3-Underweight.


18 January 2012 5

Figure 2: Large-Cap U.S. Pharma and Biotech Q4 2011 Earnings Cheat Sheet (2 of 2)

AMGN BIIB JNJ(2-EW) (1-OW) (1-OW)

Earnings Date Jan-26, 2012 Jan-31, 2012 Jan-24, 2012Time 5:00 P.M. (EDT) 8:00 A.M. (EDT) 8:30 A.M. (EDT)Call-in Info (877) 313-0551 TBAPassword 39365612

BarCap Consensus V BarCap Consensus V BarCap Consensus V4Q11Revenue ($m) 3,922 3,916 6 1,309 1,291 17 16,453 16,291 163EBIT ($m) 1,349 1,304 45 514 508 6 3,949 3,817 132EBITDA ($m) 1,589 1,255 334 601 558 43 4,767 4,389 378Net Income ($m) 1,097 1,085 12 374 368 6 3,070 3,058 13EPS ($) 1.24 1.22 0.02 1.52 1.50 0.02 1.11 1.10 0.01

2011Revenue ($m) 15,531 15,508 22 5,031 5,011 20 65,227 65,101 126EBIT ($m) 5,747 5,656 91 2,015 1,989 26 16,885 16,950 -65EBITDA ($m) 6,786 6,431 355 2,373 2,369 4 20,018 20,006 12Net Income ($m) 4,916 4,889 27 1,450 1,445 5 13,808 13,797 12EPS ($) 5.35 5.32 0.03 5.92 5.89 0.03 4.98 4.97 0.01

Op Exp SG&A (%) R&D (%) SG&A (%) R&D (%) SG&A (%) R&D (%)4Q11 29.7% 20.0% 22.0% 23.5% 32.3% 11.5%3Q11 28.2% 19.3% 19.7% 22.9% 32.7% 11.1%2Q11 28.1% 20.4% 21.9% 23.6% 31.4% 11.3%1Q11 27.3% 19.0% 20.4% 24.5% 31.3% 10.7%

2010 26.1% 18.4% 21.2% 26.2% 31.5% 11.1%4Q10 29.7% 21.5% 22.4% 23.7% 33.1% 12.7%3Q10 24.7% 18.1% 20.5% 26.8% 31.4% 11.1%2Q10 25.4% 16.9% 28.6% 37.2% 31.0% 10.8%1Q10 24.3% 17.2% 21.1% 27.3% 30.6% 10.0%

Source: Barclays Capital estimates; Company reports. All values in millions of USD except for earnings per share values and percentages. V=Variance. Sector View = 1-Positive. Stock rating: 1-OW = 1-Overweight; 2-EW= 2-Equal Weight; 3-UW = 3-Underweight.


18 January 2012 6

Figure 3: Large-Cap U.S. Pharma and Biotech Q42011 Product Performance and Income Statement Cheat Sheet

ABT BMY LLY MRK PFE AMGN BIIB JNJ(2-OW) (1-OW) (2-EW) (1-OW) (2-EW) (2-EW) (1-OW) (1-OW)

4Q11BarCap BarCap BarCap BarCap BarCap BarCap BarCap BarCap

Humira 2,251 Plavix 1,785 Zyprexa 868 Singulair 1,465 Lipitor 2,128 Aranesp 575 Avonex 685 Aciphex 222Kaletra 363 Avapro Fr. 207 Cymbalta 1,183 Nasonex 319 Enbrel 943 Epogen 474 Tysabri 294 Concerta 373Tricor/Trilipix 482 Reyataz 385 Strattera 171 Zetia 670 Lyrica 985 Neulasta 996 Fumaderm 14 Prezista 308Lupron 212 Sustiva Fr. 387 Humalog 592 Vytorin 535 Effexor XR 129 Neupogen 314 Fampyra 4 Procrit 428Niaspan 295 Baraclude 328 Humulin 311 Januvia 947 Celebrex 650 Enbrel 948 Rituxan 257 Remicade 1,281Synthroid 174 Erbitux 168 Evista 272 Janumet 401 Prevnar 7/13 1,132 Sensipar 189 Risp Consta 372

Pharmaceutical 6,222 Sprycel 220 Forteo 269 Isentress 372 Viagra 513 Vectibix 79 Velcade 319Vascular 826 Ixempra 32 Tradjenta 7 Temodar 235 Xalatan Fr. 298 Nplate 78 Incivek 190Diagnostics 1,100 Abilify 730 Alimta 636 Gardasil 294 Norvasc 358 Prolia 61 Pharma 6,352Nutritionals 1,585 Orencia 252 Gemzar 100 Rotateq 202 Zyvox 318 Xgeva 123 MD&D 6,430Other 799 Ong/Kombig 169 Cialis 497 Cozaar/Hyzaar 375 Detrol/LA 225 Consumer 3,671

Yervoy 150 Effient 95 Remicade 566 Premarin 265Animal Health 507 Victrelis 95 Geodon 255

Revenues 10,533 Revenues 5,570 Revenues 6,065 Revenues 12,701 Revenues 17,170 Revenues 3,922 Revenues 1,309 Revenues 16,453Gross Profit 6,404 Gross Profit 4,111 Gross Profit 4,622 Gross Profit 9,501 Gross Profit 13,307 Gross Profit 3,298 Gross Profit 1,194 Gross Profit 11,155SG&A 2,616 SG&A 1,370 SG&A 2,028 SG&A 3,620 SG&A 5,494 SG&A 1,165 SG&A 288 SG&A 5,314R&D 1,032 R&D 1,030 R&D 1,425 R&D 2,210 R&D 2,146 R&D 784 R&D 308 R&D 1,892EBIT 2,756 EBIT 1,710 EBIT 1,168 EBIT 3,671 EBIT 5,631 EBIT 1,349 EBIT 514 EBIT 3,949EBITDA 3,568 EBITDA 1,951 EBITDA 1,378 EBITDA 5,221 EBITDA 7,476 EBITDA 1,589 EBITDA 601 EBITDA 4,767Net Income 2,268 Net Income 966 Net Income 889 Net Income 2,938 Net Income 3,642 Net Income 1,097 Net Income 374 Net Income 3,070Shares O/S 1,568 Shares O/S 1,715 Shares O/S 1,114 Shares O/S 3,091 Shares O/S 7,642 Shares O/S 885 Shares O/S 245 Shares O/S 2,778EPS $1.45 EPS $0.56 EPS $0.80 EPS $0.95 EPS $0.48 EPS $1.24 EPS $1.52 EPS $1.11 GM (%) 60.8% GM (%) 73.8% GM (%) 76.2% GM (%) 74.8% GM (%) 77.5% GM (%) 84.1% GM (%) 91.2% GM (%) 67.8%

Source: Barclays Capital estimates; Company reports. All values in millions of USD except for earnings per share values and percentages. V=Variance, GM=Gross Margin, FR=Franchise. Sector View = 1-Positive. Stock rating: 1-OW = 1-Overweight; 2-EW= 2-Equal Weight; 3-UW = 3-Underweight.


18 January 2012 7

Figure 4: Barclays Capital estimates and variance from Street Consensus

Ticker

2011Revenue

($M)

2012Revenue

($M)

2013Revenue

($M)2011

EPS ($)2012

EPS ($)2013

EPS ($)Current BarCap estimate $39,007 $40,659 $41,707 $4.66 $5.03 $5.32 Previous estimate $38,961 $40,513 $41,568 $4.65 $5.01 $5.29 Consensus $39,028 $40,749 $42,140 $4.65 $5.02 $5.36

ABTVariance from Consensus 0% 0% -1% 0% 0% -1%Current BarCap estimate $15,531 $16,097 $16,523 $5.35 $5.96 $6.53 Previous estimate $15,492 $15,957 $16,368 $5.34 $5.66 $6.27 Consensus $15,508 $16,024 $16,591 $5.32 $5.87 $6.55

AMGNVariance from Consensus 0% 0% 0% 1% 2% 0%Current BarCap estimate $5,031 $5,461 $5,899 $5.92 $6.57 $7.11 Previous estimate $5,030 $5,385 $5,713 $5.93 $6.61 $7.21 Consensus $5,011 $5,259 $5,733 $5.89 $6.32 $7.09

BIIBVariance from Consensus 0% 4% 3% 1% 4% 0%Current BarCap estimate $21,360 $18,292 $16,497 $2.31 $2.00 $1.95 Previous estimate $21,347 $18,174 $16,443 $2.30 $2.07 $1.96 Consensus $21,297 $18,298 $17,082 $2.30 $2.01 $2.00

BMYVariance from Consensus 0% 0% -3% 0% 0% -3%Current BarCap estimate $65,227 $67,887 $71,149 $4.98 $5.26 $5.66 Previous estimate $63,033 $67,888 $69,997 $4.99 $5.28 $5.60 Consensus $65,101 $68,105 $71,353 $4.97 $5.22 $5.59

JNJVariance from Consensus 0% 0% 0% 0% 1% 1%Current BarCap estimate $24,305 $22,376 $22,636 $4.35 $3.16 $3.53 Previous estimate $24,438 $22,462 $22,643 $4.35 $3.17 $3.54 Consensus $24,144 $22,459 $23,333 $4.34 $3.29 $3.79

LLYVariance from Consensus 1% 0% -3% 0% -4% -7%Current BarCap estimate $48,455 $48,211 $47,432 $3.76 $3.85 $3.89 Previous estimate $48,368 $48,468 $47,647 $3.74 $3.89 $3.91 Consensus $48,209 $47,621 $46,569 $3.75 $3.83 $3.80

MRKVariance from Consensus 1% 1% 2% 0% 2% 2%Current BarCap estimate $67,849 $62,873 $61,856 $2.30 $2.30 $2.31 Previous estimate $67,788 $63,142 $61,649 $2.32 $2.28 $2.32 Consensus $67,218 $63,323 $63,018 $2.28 $2.31 $2.37

PFEVariance from Consensus 1% -1% -2% 1% 0% -3%

Source: Barclays Capital estimates; Company reports. All values in millions of USD except for earnings per share values and percentages.


18 January 2012 8

Figure 5: Euro versus US Dollar Exchange rate Trends in Q1-Q4 of 2011

0.60

0.65

0.70

0.75

0.80

0.85

0.90

Jan Feb Mar Apr

May Jun Jul

AugSep Oct Nov

Dec

EUR

/US

2010 2011

1Q 2Q 3Q 4Q

Source: FactSet; Barclays Capital estimates.

Figure 6: Estimated foreign exchange impact to overall sales

FX Impact 4Q11ABT 1.5%AMGN -0.1%BIIB 0.1%BMY 0.7%LLY 1.1%JNJ 0.7%MRK 1.4%PFE 1.3%

On a YoY basis, the dollar strengthened the past few

months. Should FX remain at current levels, FY12 sales would

be negatively impacted.

Source: FactSet; Company reports; Barclays Capital estimates.

Figure 7: Potential 2012 Guidance

Revenues EPS rangeABT Mid to high single digits $4.96 to $5.06AMGN $15.9B to $16.2B $5.90 to $6.00BIIB Mid to high single digits $6.40 or aboveBMY $18.0B to $18.5B $1.95 to $2.05JNJ $67.0B to $68.0B $5.20 to $5.30LLY Mid-single digit growth $4.30 to $4.35MRK Flat $3.70 to $3.85PFE $62.2B to $64.7B $2.25 ot $2.35

Source: LLY and PFE previously issued company guidance. Barclays Capital estimates.


18 January 2012 9

Transformations in growth lead to divergent capital allocation strategies

In 2011, we saw disparate capital allocation strategies within the large-cap pharmaceutical names. Some companies, namely MRK, BMY and LLY, continued to invest heavily in R&D despite heading into a period of revenue declines brought on by patent expiries. Other companies, such as PFE, chose to decrease R&D investments while increasing capital allocation to shareholders. In early 2012, we will also see the completion of the recently announced GILD/VRUS and BMY/INX acquisitions and we anticipate major pharmaceuticals and large-cap biotech companies will continue to seek M&A deals or partnerships to build up their pipeline. We attribute a higher multiple to those companies that have a higher likelihood of revenue inflection (BMY, BIIB). Our estimates for FY2010a to FY2020e revenues are in Figure 8.

Figure 8: Revenues FY2010–FY2020e (in $M)

Ticker 2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

CAGR (2011-2016)

ABT 35,167 39,007 40,659 41,707 42,705 44,479 46,131 47,088 48,330 49,665 51,217 3.4%

AMGN 15,053 15,531 16,097 16,523 16,795 16,673 16,239 15,791 15,311 14,810 14,366 0.9%

BIIB 4,716 5,031 5,461 5,899 6,925 7,893 9,089 10,134 11,079 11,276 11,362 12.6%

BMY 19,484 21,360 18,292 16,497 16,978 16,560 17,228 18,860 20,324 21,830 23,397 -4.2%

LLY 23,076 24,305 22,376 22,636 20,625 21,581 22,555 22,925 23,743 25,133 26,807 -1.5%

JNJ 61,587 65,227 67,887 71,149 75,067 78,780 82,187 85,107 89,086 92,974 97,185 4.7%

MRK 45,987 48,455 48,211 47,432 48,198 49,468 50,420 50,731 51,910 52,910 54,527 0.8%

PFE 67,791 67,849 62,873 61,856 60,874 60,286 60,235 60,570 60,406 60,379 61,297 -2.4%

Source: Company reports. Barclays Capital estimates.

In Figure 9 we highlight our estimates for FY2010a to FY2020e EPS growth. We note that AMGN and PFE have recently announced and completed significant share repurchases in an effort to boost the bottom line to compensate for an absence of significant top-line growth. We note that while this may temporarily be seen as a positive, the effects will wear off should the pipelines not produce.


18 January 2012 10

Figure 9: EPS FY2010a – FY2020e

2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

CAGR (2011-2016)

ABT $4.17 $4.66 $5.03 $5.32 $5.59 $5.80 $6.10 $6.27 $6.46 $6.64 $6.87 5.5%

AMGN $5.21 $5.35 $5.96 $6.53 $7.72 $7.90 $8.07 $8.33 $8.16 $7.85 $7.74 8.6%

BIIB $5.16 $5.92 $6.57 $7.11 $8.76 $10.36 $12.40 $14.31 $15.93 $16.30 $16.59 15.9%

BMY $2.16 $2.31 $2.00 $1.95 $2.05 $1.95 $2.10 $2.42 $2.69 $3.09 $3.51 -1.9%

LLY $4.74 $4.35 $3.16 $3.53 $2.56 $3.09 $3.56 $3.70 $3.91 $4.41 $5.06 -3.9%

JNJ $4.76 $4.98 $5.26 $5.66 $6.18 $6.59 $7.12 $7.49 $8.25 $8.78 $9.35 7.4%

MRK $3.42 $3.76 $3.85 $3.89 $4.23 $4.56 $4.75 $4.84 $5.09 $5.32 $5.61 4.8%

PFE $2.23 $2.30 $2.30 $2.31 $2.25 $2.28 $2.33 $2.38 $2.40 $2.46 $2.57 0.3%


As large-cap pharmaceutical and biotech companies struggle to replenish their pipelines sufficiently to offset patent expirations, management has had the unwieldy task of balancing both investments (operating expenses or M&A activity) with returning an “appropriate” level of capital to shareholders. We highlight in Figure 10 returns as a % of net income for FY2011e and commentary by management on expected future returns.

Figure 10: FY2011e share repurchases and dividends (in $M)

Ticker

Share repurchases

(2011e)Dividends Paid

(2011e)Net Income

(2011e)

Shareholder Returns as % of

Net Income CommentsABT $569 $2,946 $7,305 48% Prop pharma business will have an industry-competitive dividend. "New Abott"

will also return value. A one-time special dividend not likely. ($3.4B out of $5B share repurchase program from 2008 remaining)

AMGN $8,017 $503 $4,916 173% $5B in share repurchases remaining; they will be conducted relatively quickly. Average return to shareholders will be >60% of net income through 2015.

BIIB $387 $0 $1,450 27% In Feb 2011, Board authorized repurchase of up to 20M shares of common stock. As of Sep-30, 2011, 5M shares were repurchased at cost of $386.6M.

BMY $859 $2,260 $3,897 80% $3B outstanding in share repurchase initiatives.

LLY $0 $2,182 $4,816 45% As of Sep 30, 2011, LLY purchased $2.5B out of $3.0B from their share repurchase program.

JNJ $2,415 $6,184 $13,808 62%

MRK $1,165 $4,694 $11,799 50% ~$5B in share purchases remaining out of their program.

PFE $8,639 $6,238 $18,015 83% Expected to repurchase between $7B - $9B in shares in FY2011. $10B in repurchase plans announced - $5B to be exercised in FY12, and this would be incremental to repurchase from proceeds of sales/spin-off's.



18 January 2012 11

Bristol Myers Squibb (PT $36, 1-OW/Pos) – Eliquis, Yervoy, and the aggressive move in HCV to combat two rounds of severe patent expiries

Strong top line going into Q4 thanks to Yervoy and durable older franchises: Our Q4 revenue estimate stands at a modest upside to the consensus ($5.57B vs. $5.49B in Street consensus). This is due to a strong U.S. performance of Yervoy ($125M in Q4 and $314M for FY11 in U.S. alone) and the durability of Plavix and Abilify (+5% YOY growth to $1.7B for Plavix in the U.S., and a -2% decline to $523M for Q4 US Abilify sales). Despite a slow ramp up in FY10, we see the Onglyza/Kombiglyze franchise steadily growing to $120M in Q4 in the U.S., cumulating in $350M in FY U.S. sales. Sprycel is estimated to grow by 40% in the U.S. to $85M in Q4 thanks to share capture in the first-line CML setting. Our EPS estimate for the quarter stands at $0.56 or 1 cent above the consensus, and this is largely topline driven. We project a strong full year EPS performance at $2.31 or 1 cent above the high end of the guidance range of $2.25-$2.30. We have confidence that the FY11 revenue will meet the “high single digit” growth expectations (i.e. our estimate of $21.36B or 9.6% YOY growth), and any potential downside to the EPS estimate would most likely come from a higher than expected investment in R&D or MS&A.

Two rounds of severe patent expiries ahead; Eliquis/Yervoy to defend against the first and the bold move on INHX guarding against the second - Bristol Myers Squibb faces two severe rounds of exposures to patent expiries: the loss of U.S. patent protection of Plavix in May of this year, and then the expiries of Sustiva and Abilify in 2015. We see the company as being well prepared for these two rounds of expiries, which have the combined potential revenue impact of $11B. Eliquis (PDUFA decision pending on March 28), Yervoy, Onglyza/Kombiglyze, and potentially Dapagliflozin (PDUFA: Jan 28) form the first wave of new products to replace the revenue losses associated with the expiry of Plavix. The recent move to acquire Inhibitex strengthens the company’s vitality post the second wave of expiries in 2015. We model a 4-5 cents dilution from our previous estimates for FY12-15 (aligned with the company guidance) and 7-8 cents in FY14-15. We expect the deal to become accretive in FY16, during the first year of the novel HCV franchise product launch. Exclusive of the INHX acquisition, we lower our FY12 and FY13 EPS estimate by 7 cents and 1 cent respectively (i.e. updated EPS of $2.00 in FY12 and $1.95 in FY13). We raise our estimates for both R&D as well as MS&A expenses as we see the upcoming two years as heavy investment years both to support BMY’s new launches as well as its unfolding Phase III program in HCV. We believe the management would not compromise investment in the long term health of the company purely to sustain EPS in the near term.

Rapid fire of catalysts in the 1H followed by a quieter 2H: The PDUFA dates for Dapagliflozin (Jan 28) as well as that for Eliquis (March 28) are the key catalysts in Q1. While consensus expects an Eliquis approval with a broad label, confidence behind Dapagliflozin has languished. Catalysts related to the HCV portfolio could significantly move the stock as well. For EASL 2012 (April 18-22), we expect the possible presentations of the early data from the POC study of daclatasvir (NS5A inhibitor) and VRUS’ PSI-7977 as well as data from the Phase IB extension study of INX-189 (200mg) and ribavirin. We expect the 12-week safety data from the Phase II study of INX in GT2/3 to be available by early Q2, and the SVR12 efficacy data would be available during Q3. By late this year, we could see early data from the D-LITE study. We expect the initiations of the Phase III study of INX-189 in the GT2/3 patient populations and the Phase IIb study of INX-189 in GT1 patients by the end of this year (or early 2013). In other disease areas, we expect Yervoy to receive a first-line


18 January 2012 12

indication in advance melanoma from the EMA in Q2. Brivanib’s first-line data in HCC would likely be presented by early 2013 by our estimates.

Figure 11: Barclays Capital estimates of the P&L impact of the INHX acquisition. (in $M)

FY2012E FY2013E FY2014E FY2015E FY2016E FY2017E FY2018E FY2019E FY2020E

FY2012-2015

CAGR

FY2015-2020

CAGR

Revenues (ex. INHX) $18,292 $16,497 $16,978 $16,560 $17,228 $18,860 $20,324 $21,830 $23,397 -3.3% 7.2%

Revenues (Post acquisition) $18,292 $16,497 $16,978 $16,717 $17,817 $19,686 $21,364 $23,055 $24,917 -3.0% 8.3%

Difference $0 $0 $0 $157 $589 $827 $1,040 $1,226 $1,520

R&D (ex.INHX) $3,648 $3,595 $3,526 $3,353 $3,376 $3,503 $3,557 $3,661 $3,601

R&D (Post acquisition) $3,734 $3,681 $3,666 $3,473 $3,436 $3,543 $3,597 $3,661 $3,601

Difference $86 $86 $140 $120 $60 $40 $40 $0 $0

SG&A (ex. INHX) $4,660 $4,219 $4,210 $4,053 $4,135 $4,456 $4,692 $4,641 $4,760

SG&A (Post acquisition) $4,660 $4,219 $4,210 $4,133 $4,415 $4,696 $4,952 $4,901 $5,020

Difference $0 $0 $0 $80 $280 $240 $260 $260 $260

EBIT (ex. INHX) $5,003 $3,961 $4,132 $3,879 $4,188 $4,856 $5,391 $6,210 $7,064 -8.1% 12.7%

EBIT (Post acquisition) $4,917 $3,875 $3,992 $3,820 $4,437 $5,320 $6,028 $7,053 $8,172 -8.1% 16.4%

Difference -$86 -$86 -$140 -$59 $249 $464 $636 $843 $1,108

EPS (ex. INHX) $2.00 $1.95 $2.05 $1.95 $2.10 $2.42 $2.69 $3.09 $3.51 -0.8% 12.5%

EPS (Post acquisition) $1.96 $1.89 $1.97 $1.88 $2.13 $2.54 $2.86 $3.36 $3.86 -1.4% 15.5%

Difference ($0.04) ($0.06) ($0.08) ($0.07) $0.03 $0.12 $0.17 $0.27 $0.35

Source: Barclays Capital estimates; Company Disclosures.


18 January 2012 13

Figure 12: Upcoming potential R&D catalysts and events for BMY.

Drug/Candidate Event Description Estimated Time Event category

Oncology

E.U. approval in the first-line indication for advanced melanoma Early 2012 Regulatory decision

Initiate Phase IB in combination with BRAF inhibitor in untreated BRAF positive melanoma Early 2012 Trial initiation

Phase III in prevention of recurrence after resection of Stage III melanoma 12-Oct Trial completion

Phase III vs. placebo in chemo naïve CRPC January, 2015 Trial completion

Phase Iii comparing ipiilmumab vs. docetaxel in CRPC Mid 2013 Trial completion

Phase I/II combo with Vemurafenib - potential 1 year interim analysis Mid 2013 Data disclosure

Phase III in NSCLC in combination with placlitaxel and carboplatin 14-Sep Trial completion

Phase I/II combo with Vemurafenib Sept, 2015 Trial completion

Phase III vs. high-dose interferon alfa-2b in Stage III/IV melanoma Mid 2015 Trial completion

Phase iii to determine whether adding ipilimumab to etoposide and platinum extend vs. standard of care alone in extensive-disease SCLC January, 2015 Trial completion

Yeryoy Phase III long term advanced prostate cancer Early 2015 Trial completion

Phase III study 009 in combination with Erbitux in 3rd-line colorectal cancer During 2012 Trial completion

Phase III study 033 1st line data in unresectable HCC vs. Nexavar Early 2013 Data presentation

Brivanib Phase III as compared to TACE in HCC (BRISK TA) 14-Feb Trial completion

Phase III ELOQUENT-2 open-label Revlimid/dexa with or without Elotuzumab in RRMM March, 2014 Trial completion

Elotuzumab Phase III ELOQUENT-1 Revlimid/dexa with or without elotuzumab to treat newly diagnosed MM May-16 Trial completion

Data presentation at ASCO in renal cell carcinoma, melanoma, solid tumors. June, 2012 Data presentation

Registrational trial disclosure on ClinicalTrial.gov During 2012 Trial initiation

Phase II in advanced/metastatic clear-cell renal cell carcinoma (RCC) 13-Apr Trial completion

BMS-936558 (Anti-PD-1)

Phase I with Ipilimumab with unresectable Stage III/IV malignant melanoma 14-Aug Trial completion

Cardiovascular/Metabolic

FDA decision in atrial fibrillation 28-Mar-12 Regulatory decision

US submission for VTE prevention indication Early 2012 Production submission

Eliquis (Apixaban) Phase III for the treatment of VTE Late 2012 Trial completion

FDA PDUFA date 28-Jan-11 Regulatory decision

Potential E.U. approval 1H 2012 Regulatory decision

Dapagliflozin Potential U.S. filing for the dapagliflozin/metformin fixed dose combination 2H 2012 Regulatory submission

Virology

POC trial of BMS-790052 and PSI-7977 in genotype 1, 2, 3 with or without ribavirin; preliminary data at the EASL conference April 18 to 22, 2012 Data presentation

Phase II of BMS-790052 and PEG-IFN and RBV in genotype 2/3 naïve patients April, 2012 Data disclosure

POC trial of BMS-790052 and PSI-7977 in genotype 1, 2, 3 with or without ribavirin August, 2012 Trial completion

Phase III study as add-on to Peg-IFN/RBV in naïve patients, GT 4 December, 2013 Trial completion

Phase III BMS-790052 add-on peg-Interferon alfa-2a and ribavirin in naïve hepatitis C in genotype 4 December, 2013 Trial completion

BMS-790052 Phase III COMMAND-3 study vs. Telaprevir with peg-IFN and RBV in naïve patients March, 2014 Trial completion


18 January 2012 14

Phase III initiation Year's end 2011 and early 2012 Trial initiation

Phase IIb EMERGE with ribavirin in naïve HCV Mid 2012 Trial completion

Phase IIb D-LITE with 1 or 2 DAAs in HCV: early data Late 2012 Trial completion

Phase IIb D-LITE with 1 or 2 DAAs in HCV: trial completion Late 2013 Data disclosure

PEG-IFN lambda Phase III vs. conventional interferons in naive GT 1 or 4 March, 2014 Data disclosure

Other

Phase II trial in pre-dementia 2012/2013 Trial completion

BMS-708163 (Gamma secretase)

Potential Phase III initiation based on biomarker studies in the Phase II pro-dromal study Late 2012 Trial initiation


Figure 13: BMY Performance Preview Summary.

BMY Q4 2011 Preview($ in millions, except per share #s) 10Q4 11Q4 Growth FY10 FY11 FY12

P&L A E Y/Y A E E

Plavix 1,715 1,785 4% 6,666 7,200 3,233

Avapro/Avalide 252 207 (18%) 1,176 964 533

Reyataz 374 385 3% 1,479 1,538 1,547

Sustiva Franchise 360 387 7% 1,368 1,460 1,510

Baraclude 250 328 31% 917 1,206 1,493

Erbitux 165 168 2% 665 678 692

Sprycel 169 220 30% 576 796 1,043

Abilify 707 730 3% 2,565 2,751 2,829

Orencia 202 252 25% 733 912 1,125

Onglyza/Kombiglyze 73 169 132% 158 489 731

Yervoy 150 365 555

Mature Products and All Others 830 784 (6%) 3,170 2,993 2,754

>>>TOTAL REVENUE 5,111 5,570 9% 19,484 21,360 18,292

Cost of Goods Sold 1,386 1,459 5% 5,164 5,630 4,923

Gross Profit 3,725 4,111 10% 14,320 15,730 13,311

SG&A 1,263 1,370 8% 4,628 5,010 4,660

R&D 940 1,030 10% 3,424 3,626 3,648

Adjusted Operating Income (EBIT) 1,522 1,710 12% 6,268 7,093 5,003

Total Other Expense (Income), net 7 (14) (300%) (155) (49) 40

Equity (Income) Loss, net (61) (65) 7% (313) (280) (225)

Pre-Tax Income 1,762 1,789 2% 6,736 7,422 5,188

Income Taxes 410 438 7% 1,590 1,966 1,287

Minority interest, net 359 383 7% 1,411 1,559 663

Adjusted Net Income 805 966 20% 3,723 3,897 3,219

Diluted Shares Outstanding 1,727 1,715 (1%) 1,726 1,717 1,651

>>>ADJUSTED DILUTED EPS 0.47 0.56 19% 2.16 2.31 2.00

Gross Margin 72.9% 73.8% + 90 bp 73.5% 73.6% 72.8%

SG&A Margin 24.7% 24.6% - 10 bp 23.8% 23.5% 25.5%

R&D Margin 18.4% 18.5% + 10 bp 17.6% 17.0% 19.9%

Operating Margin 29.8% 30.7% + 90 bp 32.2% 33.2% 27.4%

Tax Rate 26.0% 24.5% - 150 bp 23.6% 26.5% 24.8%

Profit Margin 15.8% 17.3% + 160 bp 19.1% 18.2% 17.6% Source: Barclays Capital estimates; Company Disclosures.


18 January 2012 15

Figure 14: BMY Model Update.

11Q1 11Q2 11Q3 11Q4E 12Q1E 12Q2E 12Q3E 12Q4E CAGR $USD M FY2010A 11Q1A 11Q2 11Q3 11Q4 FY2011E 12Q1 12Q2 12Q3 12Q4 FY2012E FY2013E 11-16 Pharmaceuticals 19,484 5,011 5,434 5,345 5,570 21,360 5,137 4,880 4,028 4,247 18,292 16,497 -4.2% Total Revenue 19,484 5,011 5,434 5,345 5,570 21,360 5,137 4,880 4,028 4,247 18,292 16,497 -4.2% Cost of Goods Sold 5,164 1,320 1,463 1,388 1,459 5,630 1,372 1,318 1,087 1,147 4,923 4,558 Gross Profit 14,320 3,691 3,971 3,957 4,111 15,730 3,765 3,562 2,916 3,068 13,311 11,775 Total SG&A 4,628 1,138 1,283 1,219 1,370 5,010 1,125 1,259 1,091 1,185 4,660 4,219

MSA 3,651 924 1,030 1,014 1,114 4,082 925 1,025 918 994 3,862 3,505 APP 977 214 253 205 256 928 200 234 173 191 799 714

R&D 3,424 832 873 891 1,030 3,626 853 869 886 1,041 3,648 3,595 Operating Income (EBIT) 6,268 1,721 1,815 1,847 1,710 7,093 1,788 1,435 939 842 5,003 3,961 EBITDA 7,012 1,911 2,021 2,045 1,951 7,568 2,041 1,690 1,196 1,100 5,631 4,612 -8.7% Total Other Expense (Income), net (155) (62) (31) (24) (14) (49) (12) (8) (10) (12) 40 20 Equity (Income) Loss, net (313) (82) (62) (71) (65) (280) (60) (55) (55) (55) (225) (180) Pretax Income 6,743 1,865 1,908 1,942 1,789 7,422 1,860 1,498 1,003 909 5,188 4,121 Income Taxes (Benefit) 1,590 484 532 512 438 1,966 456 367 246 218 1,287 1,006 Minority Interest 1,406 385 405 386 383 1,559 346 232 43 42 663 47 Non-GAAP Net Income 3,735 998 969 1,042 966 3,897 1,054 894 710 644 3,219 3,047 Diluted Shares Oustanding 1,726 1,714 1,722 1,715 1,715 1,717 1,651 1,651 1,651 1,651 1,651 1601.0 Adjusted Diluted EPS $ 2.16 $ 0.58 $ 0.56 $ 0.61 $ 0.56 $ 2.31 $ 0.64 $ 0.54 $ 0.43 $ 0.39 $ 2.00 $ 1.95 -1.9% Gross Margin 73.5% 73.7% 73.1% 74.0% 73.8% 73.6% 73.3% 73.0% 72.4% 72.2% 72.8% 71.4% - 114 bp SG&A 23.8% 22.7% 23.6% 22.8% 24.6% 23.5% 21.9% 25.8% 27.1% 27.9% 25.5% 25.6% + 10 bp R&D 17.6% 16.6% 16.1% 16.7% 18.5% 17.0% 16.6% 17.8% 22.0% 24.5% 19.9% 21.8% + 52 bp EBIT Margin 32.2% 34.3% 33.4% 34.6% 30.7% 33.2% 34.8% 29.4% 23.3% 19.8% 27.4% 24.0% - 178 bp EBITDA Margin 36.0% 38.1% 37.2% 38.3% 35.0% 35.4% 39.7% 34.6% 29.7% 25.9% 30.8% 28.0% - 152 bp Tax Rate 23.6% 26.0% 27.9% 26.4% 24.5% 26.5% 24.5% 24.5% 24.5% 24.0% 24.8% 24.4% - 46 bp Profit Margin 19.1% 19.9% 17.8% 19.5% 17.3% 18.2% 20.5% 18.3% 17.6% 15.2% 17.6% 18.5% + 22 bp Revenue Growth Y/Y 3.6% 4.2% 14.0% 11.4% 9.0% 9.6% 2.5% -10.2% -24.6% -23.7% -14.4% -9.8% Gross Profit Growth 3.8% 4.5% 12.9% 11.6% 10.4% 9.8% 2.0% -10.3% -26.3% -25.4% -15.4% -11.5% Adjusted Diluted EPS Growth Y/Y 6.4% 3.6% 2.8% 3.4% 19.1% 6.7% 10.3% -3.6% -29.5% -30.4% -13.4% -2.5%



18 January 2012 16

Pfizer (PT $19, 2-EW/Pos) – Eliquis, Tofacitinib, and Bapineuzumab de-risking in FY12, but are they enough?

Pulling all levers to sustain Lipitor; sales may come out ahead of expectations in the near term: Our Q4 sales estimate of $17.2B stands at +4% above the consensus of $16.6B. We estimate that this quarter’s US Lipitor sales – with 30 days of generic erosion – to be $1.13B (-20% YOY). Management has taken aggressive manoeuvres to maintain brand share despite the entrance of two generic competitors, and on average, brand Lipitor maintained ~38% of total prescription’s share during December. Our WW Lipitor sales estimate is $2.13B in Q4, and the difference from the consensus of$1.76B largely explains our higher than Street Q4 topline. Other performers this quarter include Sutent (TRx +11% YOY; our estimate of $336M WW or +14%), stability in the Viagra franchise (TRx -6%), and the ongoing momentum of Prevar-13 in international markets. There may be more downside for Prevnar-13 in the US in the quarter (our estimate of $451M or -15% YOY in the US) as we believe the pediatric catch-up population has been depleted. We also saw a further slowing in Chantix (TRx -12% YOY), Geodon (-5%), and a slowing of growth in Pristiq (1%). Our EPS estimate of $0.48 stands at 1 cent above consensus. Our higher-than-consensus topline is in part offset by our lower assumptions around gross margins (77.5%, -100bps YOY). The share loss associated with Lipitor as well as aggressive pricing would likely place pressure on the GM in our view.

Long term EPS continues to be sustained by share repurchase as opposed to topline growth: Although we expect Pfizer to beat expectations during the 180-day period (during which Lipitor would face two generic competitors), our views of the long term pressures on the company’s topline has not changed. Our FY12/13 revenue estimates remain below the consensus (FY12 of $62.9B vs. consensus of $63.3B; FY13 of $61.9B vs consensus of $63.0B). During 2012, we expect the loss of Lipitor’s exclusivity in a number of major European markets (i.e. Great Britain in May of 2012), the loss of patent protection for Geodon in the US in March 2012, and Detrol in Sep 2012. The European expiries of Geodon, Detrol, Viagra, and Xalatan are expected during 2012 and 2013. Finally, we highlight the long term pressures on PFE’s alliance revenues with the conclusion of the co-promotion agreement over Enbrel in October 2013 and the collaboration over Spiriva in the U.S. and Japan in 2014. Sutent, Prevnar 13 (particularly with an adult indication approval), and the likely launch of Eliquis (for which PFE will record profit in the Alliance revenues line) remain the key topline drivers in the next 12 to 24 months. Our long term topline and EBIT growth rates for Pfizer remain largely flat over this wave of patent expiries (revenue CAGR of 0.3% and EBIT of 0.5% from FY15 to FY20) despite the possible introduction of new products such as Eliquis, Tofacitinib, and Bapineuzumab. While the near term EPS is supported by aggressive share repurchase plans, we believe that PFE needs additional product opportunities to return to a growth story beyond a share repurchase story.

Eliquis, Bapineuzuamb, and Tofacitinib: Flurry of R&D catalysts to watch: With Prevnar-13’s adult indication sNDA granted, the ACIP meeting and recommendation in February would be meaningful for the uptake and reimbursement in this population in our view. The PDUFA dates for Eliquis and Axitinib are set at March 28th and February 26th (Barclay Capital estimates). While we believe Eliquis’s clinical profile is substantially differentiated from competitors, Axitinib appears to be an alternative to existing agents for renal cell carcinoma but not necessarily a step-forward in efficacy or safety. We expect an FDA panel review for Tofacitinib in the summer, and a PDUFA decision is expected during August. The potential Phase III data disclosure of Bapineuzumab during the 2H by JNJ and its decision to file for an


18 January 2012 17

NDA in the US could have significant implications for the sentiment around the international trials being run by Pfizer.

Figure 15: PFE Performance Preview Summary.

Pfizer Q4 2011 Preview($ in millions, except per share #s) 10Q4 11Q4 Growth FY10 FY11 FY12

P&L A Estimate Y/Y A Estimate Estimate

Lipitor 2,813 2,128 (24%) 10,733 9,706 3,949Enbrel 808 943 17% 3,274 3,684 3,868Lyrica 762 985 29% 3,063 3,680 4,134Effexor 620 129 (79%) 1,717 666 483Celebrex 604 650 8% 2,374 2,506 2,490Prevenar-7 331 89 (73%) 1,263 495 248Viagra 491 513 5% 1,928 1,971 1,922Xalantan 449 298 (34%) 1,749 1,258 906Norvasc 422 358 (15%) 1,506 1,439 1,293Zyvox 299 318 6% 1,176 1,283 1,325Prevanar 13 569 1,043 83% 2,416 3,866 4,659Detrol/Detrol LA 260 225 (13%) 1,013 893 599Premarin 260 265 2% 1,040 1,022 930Geodon 247 255 3% 1,027 1,008 394Chantix/Champix 170 223 31% 755 768 764Vfend 207 181 (13%) 825 739 705Aricept 103 112 9% 417 434 369

Total Human Health 15,051 14,549 (3%) 58,523 58,163 52,269Animal Health 976 1,147 18% 3,575 4,225 4,667Consumer Healthcare 758 833 10% 2,772 3,073 3,308Nutrition 492 590 20% 1,867 2,130 2,367Capsugel 207 752Other 77 52 (33%) 320 262 262

>>>TOTAL REVENUE 17,321 17,170 (1%) 67,791 67,849 62,873Cost of Goods Sold 2,951 3,863 31% 12,620 13,537 13,124

Gross Profit 14,370 13,307 (7%) 55,171 54,312 49,749SG&A 4,727 5,494 16% 19,460 19,505 17,715R&D 2,182 2,146 (2%) 9,338 8,256 6,635

Operating Income (EBIT) 7,427 5,631 (24%) 26,249 26,416 25,278Total Other Income (Expense) 157 501 219% 605 938 1,061

Pre-Tax Income 7,270 5,130 (29%) 25,644 25,478 24,218Income Taxes 2,301 1,488 (35%) 7,629 7,451 7,054

Adjusted Net Income 4,959 3,642 (27%) 17,983 18,015 17,164Diluted Shares Outstanding 8,042 7,642 (5%) 8,055 7,642 7,382

>>>ADJUSTED DILUTED EPS 0.62 0.48 (23%) 2.23 2.30 2.30

Gross Margin 83.0% 77.5% - 550 bp 81.4% 80.0% 79.1%SG&A Margin 27.3% 32.0% + 470 bp 28.7% 28.7% 28.2%R&D Margin 12.6% 12.5% - 10 bp 13.8% 12.2% 10.6%Operating Margin 42.9% 32.8% - 1010 bp 38.7% 38.9% 40.2%Tax Rate 31.7% 29.0% - 270 bp 29.7% 29.2% 29.1%Profit Margin 28.6% 21.2% - 740 bp 26.5% 26.6% 27.3%



18 January 2012 18

Figure 16: Upcoming potential R&D catalysts and events for PFE.

CANDIDATE DRUG CLASS CATALYST DATE VENUE/EVENT TYPE

Phase III vs. Enbrel in psoriasis - Recruiting Apr-12 Trial completion

U.S. PDUFA action date for an indication in moderate to severe rheumatoid arthritis August, 2012 Regulatory Decision

Phase III trial on withdrawal and re-treatment in psoriasis - Recruiting Oct-12 Trial completion

U.S. EMA decision for the rheumatoid arthritis indication 2H 2012 Regulatory Decision

Phase III OCTAVE trial for ulcerative colitis Dec-13 Trial completion

Phase III vs. placebo in psoriasis - Recruiting May-13 Trial completion

Phase III vs. MTX in MTX naïve patients with RA (Oral Start 1069) May-13 Primary completion

Potential presentation of ORAL Start at EULAR June, 2012 Data Disclosure

Long term safety Phase III in Japanese RA patients - Recruiting Dec-13 Trial completion

Long-term open label Phase III for RA - Recruiting Jan-15 Trial completion

Tofacitinib Jak-3

inhibitor

Long-term open label Phase III for psoriasis - Recruiting May-17 Trial completion

Phase III in ApoE4 non-carriers with mild to moderate Alzheimer's Disease (US) - fully enrolled Mid 2012 Trial completion

Phase III in ApoE4 carriers with mild to moderate Alzheimer's Disease (US) - fully enrolled Mid 2012 Trial completion

U.S filing in Alzheimer's Disease 2012-2013 Product Filing

Phase III in ApoE4 carriers with Alzheimer's Disease (ex-US) - majority enrolled June, 2013 Trial completion

Phase III in ApoE4 non-carriers with Alzheimer's Disease (ex-US) - open for enrollment June, 2014 Trial completion

Bapineuzumab

Anti-amyloid-beta mAb

Phase III long-term safety and tolerability study Jun-16 Trial completion

E.U. EMA recommendation and decision for an indication in ALK+ lung cancer During 2012 Regulatory Decision

Japan approval for an indication in ALK+ lung cancer During 2012 Regulatory Decision

Phase III trial versus the standard of care in NSCLC Dec-12 Primary completion

Phase III trial in patients with NSCLC with a translocation or inversion of ALK - Recruiting Jun-12 Primary completion

Xalkori (Crizotinib)

c-MET-Alk inhibitor

Phase III efficacy study in ALK+ NSLC (PROFILE 1014) - Recruiting Oct-13 Primary completion

Bosutinib

Receptor tyrosine kinase inhibitor

E.U. EMA recommendation and decision on the indication in newly diagnosed chronic myeloid leukemia 1H 2012 Regulatory action

Inotuzumab ozogamicin

Anti CD 22 mAb linked to cytotoxic agent

Phase III plus rituximab for relapsed/refractory aggressive non-Hodgkin Lymphoma patients who are not candidates for intensive high-dose chemo Jul-14 Trial completion

FDA decision for renal cell carcinoma after standard review During Feb, 2012 Regulatory action

Phase III study in metastatic renal cell cancer vs. Nexavar April, 2012 Trial completion

Potential presentation of Phase III study in the front-line setting of RCC at ASCO June, 2012 Data Disclosure Inlyta

VEGF inhibitor

EMA decision for renal cell carcinoma 2H 2012 Regulatory action

ACIP recommendation based on the adult indication approval Feb, 2012 Regulatory Review Prevnar 13 Vaccine

Phase III CAPITA outcome trials Early 2013 Trial completion

Meningococcal B vaccine Vaccine Global Phase III study of the Meningococcal B vaccine (rlp2086) Dec, 2014 Trial completion

FDA decision based on priority review timeline 3/28/2011 Regulatory decisionEliquis (Apixaban)

Factor Xa inhibitor

US submission for VTE prevention indication 2H 11 Production submission


18 January 2012 19

Phase III for the treatment of VTE - Recruiting Apr-13 Trial completion

Taligluerase alfa

Enzyme replacement Decision based on resubmission to CRL (re-filed in 8/2011) May-12 Regulatory Decision



18 January 2012 20

Figure 17: PFE Model Update.

11Q1 11Q2 11Q3 11Q4E 12Q1E 12Q2E 12Q3E 12Q4E CAGR $USD M FY2009A FY2010A 11Q1 11Q2 11Q3 11Q4 FY2011E 12Q1 12Q2 12Q3 12Q4 FY2012E FY2013E 11-16 Pharmaceuticals 45,448 58,523 14,227 14,640 14,747 14,549 58,163 13,183 13,411 12,702 12,974 52,269 50408 -4.1% Animal Health 2,764 3,575 982 1,055 1,041 1,147 4,225 1,111 1,158 1,142 1,257 4,667 5129 Consumer Healthcare 494 2,772 745 721 774 833 3,073 805 777 831 895 3,308 3495 Nutrition 191 1,867 470 493 577 590 2,130 541 542 635 649 2,367 2563 Capsugel 740 752 - - - - - - - - - - - Other 372 320 81 75 54 52 262 81 75 54 52 262 262 Total Revenue (adjusted) 49,934 67,791 16,500 16,986 17,193 17,170 67,849 15,720 15,963 15,363 15,826 62,873 61,856 -2.4% Cost of Goods Sold 7,673 12,620 3,092 3,257 3,325 3,863 13,537 3,223 3,272 3,226 3,403 13,124 12,885 Gross Profit 42,261 55,171 13,408 13,729 13,868 13,307 54,312 12,498 12,691 12,137 12,424 49,749 48,971 SI&A 14,667 19,460 4,501 4,950 4,560 5,494 19,505 4,323 4,390 4,302 4,700 17,715 17,709 R&D 7,739 9,338 2,017 2,059 2,034 2,146 8,256 1,603 1,596 1,536 1,899 6,635 6,804 Operating Income (EBIT) 19,855 26,249 6,864 6,684 7,237 5,631 26,416 6,541 6,674 6,269 5,794 25,278 24,358 Other Deductions - 302 729 178 13 246 501 938 403 377 202 79 1,061 913 Pretax Income 20,157 25,644 6,686 6,671 6,991 5,130 25,478 6,138 6,298 6,067 5,715 24,218 23,445 -1.7% Income Taxes (Benefit) 5,946 7,629 1,866 1,937 2,160 1,488 7,451 1,811 1,826 1,759 1,657 7,054 6,828 Net Income (adjusted) 14,202 17,983 4,808 4,734 4,831 3,642 18,015 4,327 4,471 4,307 4,058 17,164 16,616

Average Diluted Shares 7,029 8,055 7,975 7,905 7,792 7,642 7,642 7,577 7,512 7,447 7,382 7,382 7122 Adjusted Diluted EPS $ 2.02 $ 2.23 $ 0.60 $ 0.60 $ 0.62 $ 0.48 $ 2.30 $ 0.57 $ 0.60 $ 0.58 $ 0.55 $ 2.30 $ 2.31 0.3% Gross Margin 84.6% 81.4% 81.3% 80.8% 80.7% 77.5% 80.0% 79.5% 79.5% 79.0% 78.5% 79.1% 79.2% - 36 bp SI&A 29.4% 28.7% 27.3% 29.1% 26.5% 32.0% 28.7% 27.5% 27.5% 28.0% 29.7% 28.2% 28.6% - 04 bp R&D (% of Sales) 15.5% 13.8% 12.2% 12.1% 11.8% 12.5% 12.2% 10.2% 10.0% 10.0% 12.0% 10.6% 11.0% - 28 bp Operating Margin 39.4% 38.7% 41.6% 39.4% 42.1% 32.8% 38.9% 41.6% 41.8% 40.8% 36.6% 40.2% 39.4% - 02 bp Tax Rate 29.6% 29.7% 27.9% 29.0% 30.9% 29.0% 29.2% 29.5% 29.0% 29.0% 29.0% 29.1% 29.1% - 08 bp Profit Margin 28.4% 26.5% 29.1% 27.9% 28.1% 21.2% 26.6% 27.5% 28.0% 28.0% 25.6% 27.3% 26.9% + 22 bp Revenue Growth 3.0% 35.8% -1.5% -1.9% 6.4% -2.2% 0.1% -4.7% -6.0% -10.6% -7.8% -7.3% -1.6% Gross Profit Growth 2.0% 30.5% -2.9% -4.5% 5.0% -3.5% -1.6% -6.8% -7.6% -12.5% -6.6% -8.4% -1.6% SG&A Growth 4.0% 32.7% 2.9% 4.7% -1.2% -4.3% 0.2% -4.0% -11.3% -5.7% -14.5% -9.2% 0.0% R&D Growth 3.0% 20.7% -8.2% -5.6% -5.8% -23.3% -11.6% -20.5% -22.5% -24.5% -11.5% -19.6% 2.5% EPS Growth -17.0% 10.4% 0.0% -3.2% 14.8% 2.1% 3.1% -5.0% 0.0% -6.5% 14.6% 0.0% 0.4% Source: Barclays Capital estimates; Company reports.


18 January 2012 21

Biogen Idec (PT $130, 1-OW/Pos) – Three late-stage assets de-risking in 2012; a transformational year ahead

Expect strong Q4 due to price increases in the MS space as well as steady gains of Tysabri: We maintain our Q4 sales estimate for BIIB at $1.3B, which is in line with consensus. U.S. IMS prescription trends for Avonex are staying stable at a -2% YOY decline on average over Q4, and we expect the franchise to repeat a similar performance as in Q3. The 12.5% YTD price increase would offset the modest decline in volume demand (i.e. our estimate of $407M in US sales or 6% YOY growth vs. the consensus of $412M). We expect continued growth in Tysabri after the August approval of the JCV virus assay, leading to our US sales estimate of $203M or a 25% YOY growth. Our estimate for the BIIB-recognized WW Tysabri sales is $294M (+18.7%YOY), in line with the consensus. The rise in physician comfort and patient demand for Tysabri has been boosted by an 8.9% YTD price increase. Our EPS estimate for Q3, $1.52 (7.0% YOY), is two cents above the consensus of $1.50. The 2 cent different is driven by tax rate and gross margins.

Despite two potential new MS entrants, BIIB remains well-positioned in FY12: Our FY12 revenue and EPS estimates are ~4% to the upside of consensus ($5.46B vs. the consensus of $5.26B on the topline: $6.57 vs. consensus of $6.32 in EPS). Despite the possible approvals of two new competitors in the MS space (i.e. teriflunomide in August and Lemtrada in Q4), we believe BIIB’s MS franchise remains well positioned. Lemtrada’s impressive efficacy may be compromised by significant safety concerns (i.e. 1% risk of immune thrombocytopenia, infection risk, and hypothyroidism), and we believe the agent may be reserved for the highly aggressive and refractory patient segment. Teriflunomide’s side effect profile are notable, and its efficacy appears weak (i.e. it failed to prove superiority over Rebif in a head-to-head study). We estimate a 5% growth for the U.S. Avonex sales over FY12. With the likely approval of a Tysabri label update based on the JCV assay on Jan 21st, we continue to expect a strong pick up of the franchise in the upcoming year (we estimate a 26% YOY growth in U.S. sales).

Cascade of catalysts in 2012 promise a transformational year: Four late-stage assets of BIIB’s pipeline are expected to deliver pivotal data during the course of FY2012: 1) BG-12’s DEFINE study will likely be published in a scientific journal during the 2H, and we believe its CONFIRM study would be presented in full at a major clinical meeting (i.e. AAN in April), 2) the Phase III EMPOWER study of Dexpramipexole in ALS is expected to conclude during Q3, and 3 and 4) the A-LONG and B-LONG studies evaluating rFXVIIIFc and rFXIXFc are expected to read out by late 2012. The high risk opportunity of dexpramipexole is somewhat mitigated by the lower risk candidates such as rFXVIIIFc and rFXIVFc. These four agents could contribute $5.5B to $6.0B to BIIB’s topline by FY2020E, more than sufficient to offset the expected declines in the Avonex franchise in the long term due to increased competition and the entrance of generic Copaxone.


18 January 2012 22

Figure 18: Upcoming potential R&D catalysts and events for BIIB.

Candidate(s) Developmental Stage

Indication(s) Next Action(s) Time Partner, if any

US and EU submission based on DEFINE and COMFIRM Phase III studies

1H 2012

Presentation of CONFIRM results at a clinical meeting (AAN, April, 2012)

1H 2012

Possible FDA AdCom panel review Late 2012

BG-12 III RRMS

Product launch assuming standard review

1H 2013

Knopp Neurosciences

Phase III DECIDE trial versus Avonex During 2014 Daclizumab high-yield

process III RRMS

US and EU submission During 2015

Abbott

Phase III ADVANCE study in MS - complete enrollment

Late 2012 PEGylated IFN Beta 1a III RRMS

Phase III topline data presentation Early 2013

FDA decision on the sBLA based on anti-HC virus antibody status - PDUFA date

21-Jan-12

Completion of STRATIFY-1 August, 2012

RRMS

Completion of STRATIFY-2 December, 2012

Tysabri Mkd

SPMS Phase III in secondary progressive MS December, 2014

Elan

Phase III ORATORIO trial in primary progressive MS

During 2014

Ocrelizumab III MS Phase III OPERA 1 and OPERA 2 trial in RRMS versus Rebif

During 2014

Roche/Genetech

Phase II A-LONG Registrational trials - data read out

Late 2012 rFVIII Fc III Hemophilia A

Expected U.S. launch 2H 13 Orpha Biovitrum

Phase II B-LONG Registrational trials - data read out Late 2012

rFVIX Fc III Hemophilia B Expected U.S. launch 2H 13

Orpha Biovitrum

US and EU filing in CLL During 2013

GA101 III CLL, NHL, DLBCL Phase III GALLIUM trial head-to-head vs.

rituximab in first-line indolent non-Hodgkin's lymphoma

During 2014

Phase iII EMPOWER study (Q3 2011 enrolled fully); last patient read out

Q3 2012

Initiation of second Phase III study in other geographies

During 2012 Dexpramipexole III ALS

Potential NDA submission Late 2012 or early 2013

Knopp Neurosciences



18 January 2012 23

Figure 19: BIIB Model Update.

11Q1 11Q2 11Q3 11Q4E 12Q1E 12Q2E 12Q3E 12Q4E CAGR $USD M FY2009A FY2010A 11Q1 11Q2 11Q3 11Q4 FY2011E 12Q1 12Q2 12Q3 12Q4 FY2012E FY2013E 11-16 Total Product Revenues 3,153 3,470 907 957 976 998 3,837 1,017 1,027 1,067 1,069 4,180 4575 15.2% Unconsolidated Joint Business 1,095 1,077 256 216 267 257 996 265 268 267 264 1,065 1084 Royalties 124 137 26 29 52 48 153 28 32 57 52 169 186 Corporate Partner 5 32 15 7 16 7 44 16 8 18 7 49 53 TOTAL REVENUES 4,377 4,716 1,203 1,209 1,310 1,309 5,031 1,326 1,334 1,409 1,393 5,461 5,899 12.6% COGS 382 400 103 101 124 115 442 113 113 134 118 478 509 Gross Profit 3,995 4,316 1,100 1,108 1,186 1,194 4,588 1,213 1,221 1,275 1,274 4,983 5,390 R&D 1,264 1,236 295 285 300 308 1,187 325 314 324 327 1,290 1,349 SG&A 890 999 246 265 259 288 1,057 272 294 303 313 1,182 1,336 Collaboration Profit Sharing 216 258 75 88 81 84 329 88 91 95 100 374 448 Operating Income (EBIT) 1,625 1,823 485 470 547 514 2,015 529 523 553 534 2,138 2,257 EBITDA 2,053 2,177 577 560 634 601 2,373 615 608 638 618 2,480 2,594 Other Deductions 60 - 82 10 - 12 - 10 - 3 - 15 - 2 - 1 - 0 1 - 3 12 Pre-tax Income 1,648 1,760 485 442 536 512 2,004 528 522 553 534 2,137 2,262 14.3% Taxes 452 447 136 110 142 138 526 140 136 144 134 553 593 Net Income (Non-GAAP) 1,195 1,315 349 332 394 374 1,450 388 386 409 401 1,584 1,669

Diluted shares 4 5 1 1 2 2 6 2 2 2 2 7 7.11 Adjusted Diluted EPS $ 4.12 $ 5.16 $ 1.43 $ 1.36 $ 1.61 $ 1.52 $ 5.92 $ 1.60 $ 1.59 $ 1.71 $ 1.67 $ 6.57 $ 7.11 15.9% Gross Margin 87.9% 88.5% 88.6% 89.5% 87.3% 88.5% 88.5% 88.9% 89.0% 87.5% 88.9% 88.6% 88.9% + 28 bp SG&A 20.3% 21.2% 20.4% 21.9% 19.7% 22.0% 21.0% 20.5% 22.0% 21.5% 22.5% 21.6% 22.6% - 16 bp R&D 28.9% 26.2% 24.5% 23.6% 22.9% 23.5% 23.6% 24.5% 23.5% 23.0% 23.5% 23.6% 22.9% - 54 bp Operating Margin 37.1% 38.7% 40.3% 38.9% 41.7% 39.3% 40.1% 39.9% 39.2% 39.2% 38.3% 39.2% 38.3% + 54 bp Tax Rate 27.5% 25.4% 28.0% 24.8% 26.5% 27.0% 26.3% 26.5% 26.0% 26.0% 25.0% 25.9% 26.2% - 02 bp Net Income Margin 27.3% 27.9% 29.0% 27.5% 30.1% 28.6% 28.8% 29.3% 28.9% 29.0% 28.8% 29.0% 28.3% + 60 bp Revenue Growth 6.8% 7.7% 8.5% 36.9% 11.4% 7.4% 6.7% 10.1% 10.4% 7.5% 6.4% 8.6% 8.0% SG&A Growth -1.5% 12.2% 5.3% 5.2% 7.4% 5.6% 5.9% 10.5% 10.7% 17.2% 8.8% 11.7% 13.0% R&D Growth 19.5% -2.2% -2.7% -13.2% -5.1% 6.4% -3.9% 10.1% 10.0% 8.1% 6.4% 8.6% 4.6% EPS Growth 12.6% 25.2% 32.4% 3.8% 19.3% 7.0% 14.7% 11.9% 16.9% 6.2% 9.9% 11.0% 8.2%



18 January 2012 24

Johnson & Johnson (PT $75, 1-OW/Pos) – Pace of recovery in 2012 depends on Xarelto, Zytiga, and Consumer

In-line Q4 – Strong Zytiga uptake overshadowed by a slow reception to Xarelto; MD&D and Consumer reaching steady state: Our Q4 estimate of $16.45B (4.7% YOY) is roughly in line with the consensus of $16.3B. We estimate a smaller currency benefit in Q4 as compared to the 4.2% benefit seen from FX in Q3. In terms of new product launches, we expect a strong performance of Zytiga in the US (i.e. our estimate of $80M) to be overshadowed by the relatively slow uptake of Xarelto (i.e. our estimate of $11M in US sales of which JNJ would report ~70%). Brand Concerta and Levaquin prescriptions declined by ~-83% and -98% respectively based in IMSHealth data, and this pace of erosion is in line with our previous expectations. A stable US growth trend of Remicade – + 6% U.S. prescriptions – as well as the benefit from the MRK settlement would continue to support the Q4 topline (i.e. our estimate of $1.28B in WW sales of Remicade attributable to JNJ, or +20% YOY growth). Ongoing procedure volume trends in the MedTech space continue to place some pressure on MD&D’s growth, which we estimate to be +1.7 YOY and WW sales of $6.43B. For the Consumer segment, we estimate a -20% decline in the U.S. performance of OTC/Nutritionals ($305M in Q4 US sales), and this represents a modest alleviation from the decline patterns of the first three quarters of the year as we expect some volume recovery. Overall, we estimate a $3.67B in WW sales for the entire Consumer segment for the quarter (+1.7%). Our EPS estimate for Q4 stands at $1.11 (+7.8% YOY), 1 cent to the upside of the consensus. We expect to see a sequential decline in the gross margin to 67.8%, reflecting the erosion of recently expired product as well as pricing trends in the MD&D segment. On the full year basis, we estimate a 90bps erosion in the EBIT margin – from 26.8% in FY10 to 25.9% in FY11, and this is driven by the combination of patent expiries, costs associated with consumer product recalls, as well as unfavourable pricing trends in the MD&D units.

New pharma opportunity (Xarelto/Zytiga/Incivek) and OTC/Nutritionals are the linchpin for the recovery trajectory in FY2012: We see 2012 as a year of slow recovery for JNJ – a recovery that would pick up pace in the 2H and continue through 2013. During the 1H, the topl ine is still weighed down by Levaquin (expired in the US on June 1, 2011) and Concerta, which expired on May 1, 2011 but may face additional generic competitors after Feb of 2012. Acceleration in the 2H would depend primarily on 1) an uptick in the U.S. OTC/Nutritional performance, and 2) a robust momentum of new pharmaceutical products, including Xarelto, Zytiga, and Incivek. Our FY12 estimate for sales of $67.9B (+4.1% YOY) is roughly in line with consensus, but we see a $400M to $500M in upside opportunity with a stronger-than-expected pharmaceutical segment performance. This could be driven by 1) fewer than expected numbers of generic entrants for Concerta in 2012, 2) a successful sNDA approval for the ACS indication for Xarelto and 3) stronger than expected uptake in Zytiga as well as momentum in the international sales of Incivek. Our EPS estimate of $5.26 for FY12 is to the upside of the consensus of $5.22, and this is due to our more optimistic assumptions around gross margin with the anniversary of U.S. patent expiries as well as lower assumptions around SG&A with the reduction of remediation related costs over 2012.

Key catalysts to watch: Xarelto’s ACS indication; filing of Bapineuzumab, Zytiga’s pre-chemo sNDA, and Canagliflozin: Xarelto’s early launch in the U.S. may be soft, but we see upside should a sNDA in ACS be granted by late 2012. Zytiga’s early launch, on the other hand, appears robust, and we see significant further upside with an sNDA in the pre-chemo prostate cancer population (filing by mid to late 2012). While we see the previously two


18 January 2012 25

opportunities as relatively low risk – Xarelto’s ACS data and mortality benefit is already presented and the demand of Zytiga in the pre-chemo population appears strong based on our surveys, we see Bapineuzuamb and Canagliflozin as potential wild cards. The biggest wild card for JNJ in 2012 may be the read-out from the two North American trials of Bapineuzumab by late 2012.

Figure 20: Upcoming potential R&D catalysts and events for JNJ.

Name Mechanism/Drug Class

Events Estimated Time

Cardiovascular and Metabolic Submit the sNDA for ACS Year's end Phase III EINSTEIN-PE in PE prevention; completion Early 2012

Xarelto (Rivaroxaban) Factor Xa inhibitor

FDA filing for long-term secondary prevention of VTE, and PE prevention indication

During 2012

FDA filing for TM2 management 1H 2012 Canagliflozin SGLT-2 inhibitor EMEA filing for TM2 management 1H 2012

CNS Phase III in ApoE4 non-carriers with mild to moderate Alzheimer's Disease (US) Mid 2012 Phase III in ApoE4 carriers with mild to moderate Alzheimer's Disease (US) Mid 2012

Phase III in ApoE4 carriers with Alzheimer's Disease (ex-US) During 2014

Phase III in ApoE4 non-carriers with Alzheimer's Disease (ex-US) During 2014

U.S filing in Alzheimer's Disease During 2013

Bapineuzumab Anti-amyloid-beta

mAb Phase III long-term safety and tolerability study; completion 6/1/2016 Immunology

Initiate Phase III in RA Late 2011 Sirukumab Anti-IL-6 mAb Phase IIA in lupus nephritis; completion 9/1/2013

Phase III initiation in Crohn's Disease Late 2011 Stelara (ustekinumab) Anti-IL-23-mAb Filing for psoriatic arthritis and Crohn's Disease 2012-2015 Simponi (golimumab) Anti-TNF-mAb Filing for ulcerative colitis, juvenile idiopathic arthritis 2012-2015

Phase III in combination with Velcade and Dexamethasone in RRMM; completion 4/1/2014 Phase II in Castleman's Disease - completion 12/1/2012

Siltuximab Anti-IL6 mAb Phase II in combination w/ bortezomib in RRMM 11/1/2012

CNTO 888 Anti-CCl2 mAb Phase II POC in idiopathic pulmonary fibrosis (IPF) Early 2012 Oncology

Phase II in Castleman's disease - completion Early 2012 Phase III in combination with Velcade and dexamethasone in relapse or refractory multiple myeloma - trial completion

During 2014 Siltuximab

(CNTO 328) Anti-IL-6 mAb, chimeric Filing in Castleman's disease and 2ndline multiple myeloma 2012/2015

Phase III in CRPC who have received hormone therapy but are chemo-naïve: interim look at PFS

Late 2011 or early 2012

Zytiga CYP17 inhibition Submission in chemo-naïve CRPC mid to late 2012

Infectious Disease and Vaccines

Phase II in multi-drug resistant TB (MDR-TB); completion During 2012

TMC 207 Diarylquinoline/ATP synthase inhibitor File for FDA approval During


18 January 2012 26

2012

Incivek Protease inhibitor sNDA as a BID dose for HCV 2012-13 Phase IIb data from ASPIRE trial in treatment-experienced HCV patients - completion

During 2012

Filing in HCV Early 2013 Phase III QUEST-1 in naïve patients Early 2013 Phase III QUEST-2 in naïve patients Early 2013

TMC 435 NS3/4A protease inhibitor Phase III PROMISE in relapsed patients; final data Early 2013

Phase III OPTIMIZE trial in evaluating twice-daily dosing in HCV Late 2012 Filing for sNDA for twice-daily dosing in HCV Late 2012

Incivek NS3/4A protease inhibitor Filing for use in those with HIV/HCV co-infection

During 2013

Phase III evaluation Velcade, rituximab, cyclosphosphamide, doxorubicin, prednisone in patients with newly diagnosed mantel cell lymphoma not eligible for bone marrow transplant. Q3 2013 FDA decision of sub-Q administration in MM Early 2012

Velcade Bortezomib Filing for NHL and MCL 2012-2013

CL184 Human monoclonal antibody

Filing for rabies prevention 2012-2015



18 January 2012 27

Figure 21: JNJ Model Update.

11Q1 11Q2 11Q3 11Q4E 12Q1E 12Q2E 12Q3E 12Q4E CAGR$USD M FY2009A FY2010A 11Q1 11Q2 11Q3 11Q4 FY2011E 12Q1 12Q2 12Q3 12Q4 FY2012E FY2013E 11-16

Pharmaceutical 22,520 22,396 6,059 6,233 5,982 6,352 24,626 6,255 6,481 6,405 6,150 25,291 26188 2.8%Medical Device & Diagnostics 23,574 24,601 6,432 6,571 6,283 6,447 25,732 6,691 6,845 6,554 6,720 26,810 28054 5.2%Consumer Segment 15,803 14,590 3,682 3,793 3,740 3,690 14,905 3,869 4,015 3,995 3,944 15,824 16947 6.9%Other - - - - - - - - - - - - 0Total Revenue 61,897 61,587 16,173 16,597 16,005 16,489 65,263 16,816 17,341 16,954 16,815 67,925 71,189 4.7%

Cost of Goods Sold 18,334 18,792 4,778 5,085 5,072 5,310 20,245 5,129 5,462 5,340 5,129 21,060 21,286Gross Profit 43,563 42,795 11,395 11,512 10,933 11,180 45,020 11,687 11,878 11,613 11,686 46,865 49,904SG&A 19,801 19,424 5,056 5,215 5,240 5,326 20,837 5,263 5,428 5,340 5,297 21,328 22,282R&D 6,986 6,844 1,738 1,882 1,773 1,896 7,289 1,816 1,873 1,831 2,018 7,538 8,009Operating Income (EBIT) 16,776 16,527 4,601 4,415 3,920 3,957 16,893 4,608 4,578 4,442 4,372 17,999 19,613EBITDA 19,550 19,466 5,356 5,192 4,703 4,775 20,026 5,415 5,387 5,250 5,180 21,232 22,831Total Other Income (Expense) 221 303- 255- 2 507- 62 698- 202- 39 473- 117 519- (585)Pretax Income 16,554 16,830 4,856 4,413 4,427 3,895 17,591 4,810 4,539 4,915 4,255 18,519 20,198 7.6%Income Taxes 3,649 3,551 1,109 865 984 818 3,776 1,034 976 1,057 830 3,896 4,443Net Income 12,906 13,279 3,747 3,548 3,443 3,077 13,815 3,776 3,563 3,858 3,425 14,622 15,754

Fully Diluted Shares O/S 2,787 2,790 2,773 2,781 2,778 2,778 2,778 2,778 2,778 2,778 2,778 2,778 2778Diluted EPS 4.63$ 4.76$ 1.35$ 1.28$ 1.24$ 1.11$ 4.98$ 1.36$ 1.28$ 1.39$ 1.23$ 5.26$ 5.67$ 7.4%

Gross Margin 70.4% 69.5% 70.5% 69.4% 68.3% 67.8% 69.0% 69.5% 68.5% 68.5% 69.5% 69.0% 70.1% + 40 bpSG&A (% of Sales) 32.0% 31.5% 31.3% 31.4% 32.7% 32.3% 31.9% 31.3% 31.3% 31.5% 31.5% 31.4% 31.3% - 38 bpR&D 11.3% 11.1% 10.7% 11.3% 11.1% 11.5% 11.2% 10.8% 10.8% 10.8% 12.0% 11.1% 11.2% + 02 bpOperating Income (EBIT) Margin 27.1% 26.8% 28.4% 26.6% 24.5% 24.0% 25.9% 27.4% 26.4% 26.2% 26.0% 26.5% 27.6% + 78 bpTax Rate 22.0% 21.1% 22.8% 19.6% 22.2% 21.0% 21.5% 21.5% 21.5% 21.5% 19.5% 21.0% 22.0% + 10 bpProfit Margin 20.9% 21.6% 23.2% 21.4% 21.5% 18.7% 21.2% 22.5% 20.5% 22.8% 20.4% 21.5% 22.1% + 58 bpEBIDTA Margin 31.6% 31.6% 33.1% 31.3% 29.4% 29.0% 30.7% 32.2% 31.1% 31.0% 30.8% 31.3% 32.1% + 60 bp

Total Revenue growth -2.9% -0.5% 3.5% 8.3% 6.8% 5.4% 6.0% 4.0% 4.5% 5.9% 2.0% 4.1% 4.8%Gross Profit Growth -3.7% -1.8% 2.6% 7.6% 5.2% 5.4% 5.2% 2.6% 3.2% 6.2% 4.5% 4.1% 6.5%SG&A Growth -7.9% -1.9% 5.8% 9.7% 11.3% 2.8% 7.3% 4.1% 4.1% 1.9% -0.6% 2.4% 4.5%R&D Growth -7.8% -2.0% 11.6% 14.2% 7.0% -4.3% 6.5% 4.5% -0.5% 3.3% 6.4% 3.4% 6.2%EPS Growth 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%



18 January 2012 28

Merck & Co ($38, 1-OW/Pos): 2012 may be a momentous year; IMPROVE-IT followed by potential read-outs from five late-stage assets.

Core franchise delivering in Q4; Victrelis beginning to pick up some steam: Our Q4 revenue estimate for MRK stands at ~2% to the upside of the consensus ($12.70B vs. consensus of $12.47B). Our more bullish assumptions are driven by the strong momentum of the Januvia/Janumet franchise (+13% and 17% respectively for U.S. prescription volumes based on IMSHealth data), Isentress (+24% YOY in prescription volume), and the steady performance of Singulair (-2% in prescriptions over Q4). We are seeing a strong share capture of Victrelis based on IMSHealth data, and we estimate US sales of $75M. Though still a modest franchise, we believe that sales into the VA system – not captured by IMSHealth – would likely provide some upside to the consensus. Our topline estimate has also been supported by our expectations of a robust Animal Health franchise performance (our estimate of a WW growth of 16% to $946M). Our EPS for the quarter of $0.95 is in line with consensus, and the higher topline is largely offset by a lower assumption around gross margins (74.8%), which would have been pressured in terms of product mix as well as the residual impact of the settlement with JNJ over Remicade.

Singulair patent extension likely the biggest swing factor for expectations for FY12: For FY2012, we expect the company to issue a revenue guidance of a flat revenue growth, and an EPS range of $3.70 to $3.85. One key swing factor is whether Singulair’s EU patent could be extended based on a pediatric indication (our model currently reflects a August, 2012 expiry for both the U.S. and E.U. markets). Although we project a very low probability that IMPROVE-IT would fail to progress through the 75% interim analysis, in the downside scenario that this occurs, there could be a severe compression of the franchise sales of Vytorin/Zetia. Our model assumes a positive result given our high confidence that the trial will go to completion, however. The successful navigation of the last interim analysis of IMPROVE-IT, in our view, would set the sentiment towards the stock for the year, and should a negative result occur, few other catalysts could restore the sentiment in our view.

Five late-stage assets may read-out during 2012; What will Merck do in HCV? Management has recently highlighted Tredaptive, Odanacatib, V503, Bridion, and Survorexant as the five most promising late-stage assets. We highlight that all five candidates may deliver data during 2012 or 1H 2013. Beyond the 75% interim analysis of IMPROVE-IT (reporting anytime), we see the read out from the conclusion of HPS2-THRIVE for Tredaptive and the two even-driven interim analysis of the outcomes trials of Odanacatib to be the most significant catalysts for MRK. We highlight that the expectations for Suvorexant and Bridion – despite good uptake in Japan – are relatively low. Finally, Merck holds one very attractive HCV protease inhibitor, MK-5172, a once-daily candidate. Given the recent M&A events in the HCV market (i.e. GILD’s acquisition of VRUX, followed immediately by BMY’s acquisition of INHX), we believe that MRK has been actively seeking partners for MK-5172. MRK maintains that it is exploring one of three strategies 1) combination with an early stage, non-PI asset internally, 2) external partnership, or 3) partnership with a second generation direct antiviral once they reach the market by 2014-2016.


18 January 2012 29

Figure 22: MRK Performance Preview Summary.

Merck Q4 2011 Preview($ in millions, except per share #s) 10Q4 11Q4 Growth FY10 FY11 FY12

P&L Actual Estimate Y/Y Actual Estimate Estimate

Singulair 1,349 1,465 9% 4,987 5,483 3,781Nasonex 303 319 5% 1,220 1,280 1,256Fosamax 234 208 (11%) 925 852 746Clarinex/Aerius 138 138 0% 623 630 557Zetia 629 670 7% 2,298 2,458 2,539Vytorin 562 535 (5%) 2,014 1,943 1,884Januvia 675 947 40% 2,386 3,311 3,952Janumet 288 401 39% 954 1,378 1,785Isentress 313 372 19% 1,090 1,344 1,488Temodar 266 235 (12%) 1,065 939 832ProQuad, MMR II and Varivax 285 298 5% 1,378 1,225 1,225Gardasil 221 294 33% 989 1,230 1,372Rotateq 169 202 19% 520 659 704Cozaar/Hyzaar 415 375 (10%) 2,105 1,610 1,411Remicade 710 566 (20%) 2,714 2,722 2,516Victrelis 95 147 518

Human Health 10,405 10,969 5% 39,299 41,502 40,971Animal Health 815 946 16% 2,942 3,331 3,700Consumer Healthcare 381 392 3% 1,823 1,871 1,947Other Revenues 457 394 (14%) 1,955 1,747 1,593

>>>TOTAL REVENUE 12,058 12,701 5% 46,020 48,455 48,211Cost of Goods Sold 3,129 3,201 2% 11,400 11,691 12,089

Gross Profit 8,929 9,501 6% 34,620 36,764 36,122SG&A 3,406 3,620 6% 12,724 13,337 12,900R&D 2,177 2,210 2% 8,122 7,826 7,848

Operating Income (EBIT) 3,346 3,671 10% 13,774 15,558 15,374Total Other Income (Expense) 309 62 (80%) 781 498 447Equity Income from Affiliates (171) (179) 5% (587) (533) (563)Net (Income) attributable to noncontr 31 30 (3%) 120 120 112

Pre-Tax Income 3,177 3,757 18% 13,461 15,473 15,377Income Taxes 457 819 79% 2,713 3,678 3,545

Adjusted Net Income 2,719 2,938 8% 10,748 11,795 11,832Diluted Shares Outstanding 3,106 3,091 (0%) 3,106 3,099 3,081

>>>ADJUSTED DILUTED EPS $0.88 $0.95 8% $3.44 $3.76 $3.85

Gross Margin 74.0% 74.8% + 80 bp 75.2% 75.9% 74.9%SG&A Margin 28.2% 28.5% + 30 bp 27.6% 27.6% 26.8%R&D Margin 18.1% 17.4% - 70 bp 17.6% 16.2% 16.3%Operating Margin 27.7% 28.9% + 120 bp 29.9% 32.1% 31.9%Tax Rate 14.4% 21.8% + 740 bp 20.2% 23.8% 23.1%Profit Margin 22.6% 23.1% + 60 bp 23.4% 24.3% 24.5%



18 January 2012 30

Figure 23: Upcoming potential R&D catalysts and events for MRK.

Candidate /Product

Drug Mechanisms

Event Description Estimated Time Event Type

Cardiovascular

Phase III REVEAL Interim Analysis Median duration of 2.5, 3

and 3.5 years Interim Analysis

Phase III REVEAL trial to complete (Recruiting) Jan-17 Trial Completion Anacetrapib CETP inhibitor

US FDA submission for hypercholesterolemia 2015+ Regulatory Submission

MK-0653C Ezetimibe/atorvastatin

FDA decision after standard review (30 months stay in effect) Mid 2012 Regulatory Decision

FDA and EMEA decision for the SHARP sNDA 1H 2012 Regulatory Decision

75% interim analysis from the Phase III IMPROVE-IT trial Q1 2012 Interim Analysis Zetia/Vytorin Ezetimibe/simvastatin

Phase III IMPROVE-IT to complete Mid 2013 Trial Completion

Phase III TRA-2P-TIMI to complete and results presentation During 2012 Trial Completion Vorapaxar

Thrombin receptor (PAR-1) antagonist US FDA submission On hold for assessment Regulatory Submission

Phase III HPS2-THRIVE to complete End 2012 Trial Completion Tredaptive

Niacin/laropiprant US FDA submission in hypercholesterolemia 1H 2013 Regulatory Submission

MK-0524B Niacin/laropiprant/simvastatin US FDA submission in hypercholesterolemia 2014 Regulatory Submission

Diabetes/Endocrinology

Janumet extended-release DPP-IV inhibitor FDA decision after response to CRL Q1 2012 Regulatory decision

Phase III trial Q4 2011 Trial Initiation MK-0431E

sitagliptin + atorvastatin FDC Submission for FDA approval 2014 Regulatory Submission

Phase IIb trial completion December, 2011 Trial Completion MK-3102E

DPP-IV inhibitor, weekly Phase III initiation 2012 Trial Initiation

FDA NDA filing 2013 Regulatory Submission

Phase III in postmenopausal women's fracture risk June, 2013 Trial Completion Odanacatib (MK-0822)

Cathepsin K inhibitor

Phase III fracture risk study - 2 interim analysis During 2012 Interim Analysis

Cancer

FDA decision based on standard review for the sarcoma June, 2012 Regulatory Decision Ridaforolimus mTOR inhibitor

EMA decision for the sarcoma indication 2H 2012 Regulatory Decision

Interim analysis and Go/No Go to Phase III decision Late 2011 or early 2012 Trial Initiation

Phase II study in estrogen receptor positive breast cancer Nov-13 Trial Completion

Phase II study in metastatic colorectal cancer Mid 2011 Trial Completion Dalotuzumab

Anti IGFR1 antibody

US FDA submission 2015+ Regulatory Submission

CNS

Phase III study in primary insomnia (Group B) Dec-11 Trial Completion

Phase III study in primary insomnia (Group A) Sep-11 Trial Completion

Phase III long term safety study data presentation During 2012 Data presentation Suvorexant

Dual Orexin Receptor Antagonist

US FDA submission in insomnia 2012 Regulatory Submission

MK-8931 BACE inhibitor Phase II initiation 2012 Trial Initiation

US FDA submission in Parkinson's disease 2014 Regulatory Submission

Phase III vs. rasagiline Dec-12 Trial Completion Preladenant Adenosine A2A receptor antagonist Phase III vs. placebo - Recruiting Dec-12 Trial Completion

Vaccines

V419 Hexavalent combination

Phase III pediatric trial in combination with Prevnar-13 and RotaTeq Mid 2013 Trial Completion


18 January 2012 31

vaccine US FDA filing 2014 Regulatory Submission

Phase III trial in previously treated with Gardasil, concomitant with other vaccines in 11 to 15 y/o girls; completed

Mid 2011 Trial Completion

Phase III in females 12-26 years of age; 11 to 15 years olds Mid 2011 V503

Broad spectrum HPV vaccine

US submission in cervical cancer prevention 2012 Regulatory Submission

Phase III trial for autologous hematopoietic cell transplant (endpoint driven study) Trial Completion

US FDA filing for hematopoietic cell transplant 2014 Regulatory Submission

Phase III trial for solid tumor malignancies and hematologic malignancies (endpoint driven study) Trial Completion

V212 Inactivated herpes zoster vaccine

US FDA filing for solid tumor malignancies and hematologic malignancies 2014+ Regulatory Submission

Phase III study as compared to MK-6072 and placebo Mid 2015 Trial Completion

US FDA submission for C. diff infections 2014 Regulatory SubmissionMK-3415A C. Difficile Vaccine

EU filing for C. diff infections 2014 Regulatory Submission

Infectious Diseases

Phase II DYNAMO1 study of Victrelis + mericitabine + PEG/r in null responders for 24 or 48 wks of therapy Early 2012 Trial Initiation

Phase IIb HIV/HCV co-infection During 2012 Trial Completion

Filing based on the PROVIDE trial in null responders During 2012 Regulatory SubmissionVictrelis

Protease Inhibitor

Phase III placebo-controlled HIV/HCV trial Early 2012 Trial Initiation

Phase III initiated in Japan evaluating MK-7009 + PEG/r Ongoing MK-7009 (Vaniprevir)

Protease Inhibitor Japan-NDA filing During 2012 Regulatory Submission

Phase II in combination Peg-IFN/RBV in GT 2/3 January, 2013 Trial Completion

Phase II in combination with Peg-IFN/RBV in naïve GT 1 May, 2012 Trial Completion

MK-5172 Pan-Genotypic Protease Inhibitor

Phase III initiation TBA Trial initiation

Anti-Inflammatory

MK-3222 IL-23 inhibitor Phase III start 2012 Trial Initiation

Phase III for Grass allergy; additional NA clinical study ongoing Ongoing Trial Completion

SCH 697243 Allergy immunotherapy tablets US FDA filing 2013 Regulatory Submission

Phase III for Ragweed allergy; short safety study in NA planned to start 2011 Trial Initiation

SCH 039641 Allergy immunotherapy tablets US FDA filing 2013 Regulatory Submission

Source: Barclays Capital estimates; Company Disclosures. .


18 January 2012 32

Figure 24: MRK Model Update,

CAGR $USD M FY2010A 11Q1A 11Q2 11Q3 11Q4E FY2011E 12Q1E 12Q2E 12Q3E 12Q4E FY2012E FY2013E 11-16 Human Health 39,810 9,820 10,360 10,354 10,969 41,503 9,902 10,459 10,151 10,459 40,971 39,975 0.2% Consumer Healthcare 1,343 517 541 421 392 1,871 537 563 438 409 1,947 2,019 Animal Health 2,942 758 802 826 946 3,332 842 890 917 1,050 3,700 3,914 Other revenue 1,893 486 448 421 394 1,748 443 409 383 358 1,593 1,524 Total Revenue 45,987 11,580 12,151 12,022 12,701 48,455 11,725 12,320 11,890 12,276 48,211 47,432 0.8% Cost of Goods Sold 11,400 2,690 2,831 2,969 3,201 11,691 2,873 2,932 3,056 3,229 12,089 12,104 Gross Profit 34,587 8,890 9,320 9,053 9,501 36,764 8,853 9,388 8,834 9,047 36,122 35,328 SG&A 12,723 3,040 3,425 3,252 3,620 13,337 3,049 3,326 3,210 3,315 12,900 12,276 R&D 8,122 1,811 1,901 1,904 2,210 7,826 1,794 1,885 2,021 2,148 7,848 7,833 Operating Income (EBIT) 13,741 3,996 3,994 3,897 3,671 15,558 4,010 4,177 3,603 3,585 15,374 15,218 EBITDA 21,122 5,827 5,826 5,397 5,221 22,271 5,596 5,688 5,048 4,968 21,301 20,226 Total Other (Income) Expense, Net 781 256 114 203 62 498 144 109 101 94 447 253 Pretax Income 13,428 3,850 3,905 3,823 3,757 15,473 3,969 4,107 3,667 3,633 15,377 15,388 Income Taxes (Benefit) 2,713 989 955 915 819 3,678 953 986 880 727 3,545 3,535 Net Income (Adjusted) 10,715 2,861 2,950 2,908 2,938 11,795 3,016 3,122 2,787 2,907 11,832 11,853 Diluted Shares Outstanding 3,106 3,104 3,110 3,091 3,091 3,099 3,091 3,091 3,071 3,071 3,081 3046 Diluted EPS $ 3.42 $ 0.92 $ 0.95 $ 0.94 $ 0.95 $ 3.76 $ 0.98 $ 1.01 $ 0.91 $ 0.95 $ 3.85 $ 3.89 4.8% Gross Margin 75.2% 76.8% 76.7% 75.3% 74.8% 75.9% 75.5% 76.2% 74.3% 73.7% 74.9% 74.5% SG&A 27.7% 26.3% 28.2% 27.1% 28.5% 27.6% 26.0% 27.0% 27.0% 27.0% 26.8% 25.9% R&D 17.7% 15.6% 15.6% 15.8% 17.4% 16.2% 15.3% 15.3% 17.0% 17.5% 16.3% 16.5% Operating Income Margin 29.9% 34.5% 32.9% 32.4% 28.9% 32.1% 34.2% 33.9% 30.3% 29.2% 31.9% 32.1% Pre-Tax Income 29.2% 33.2% 32.1% 31.8% 29.6% 31.9% 33.8% 33.3% 30.8% 29.6% 31.9% 32.4% EBITDA Margin 45.9% 50.3% 47.9% 44.9% 41.1% 46.0% 47.7% 46.2% 42.5% 40.5% 44.2% 42.6% Tax Rate 20.2% 25.5% 24.5% 23.9% 21.8% 23.8% 24.0% 24.0% 24.0% 20.0% 23.1% 23.0% Profit Margin 23.3% 24.7% 24.3% 24.2% 23.1% 24.3% 25.7% 25.3% 23.4% 23.7% 24.5% 25.0% Revenue Growth Y/Y 67.7% 1.4% 7.1% 8.1% 5.0% 5.4% 1.3% 1.4% -1.1% -3.3% -0.5% -1.6% Gross Profit Growth 66.2% 3.3% 7.3% 8.7% 6.0% 6.3% -0.4% 0.7% -2.4% -4.8% -1.7% -2.2% EBITDA Growth 119.9% 13.4% 6.0% 3.0% -0.5% 5.4% -4.0% -2.4% -6.5% -4.8% -4.4% -5.0% EPS Growth 5.2% 10.8% 10.5% 10.6% 8.0% 9.9% 6.5% 6.3% -3.2% 0.0% 2.4% 1.0%



18 January 2012 33

Eli Lilly (PT $39, 2-EW/1-Pos) – Outcome of major pipeline catalysts could catapult LLY in separate directions

4Q11 earnings results on January 31st to take backstage as pipeline updates will be on the spotlight: On January 5, 2012, LLY issued full-year guidance that came in well below consensus estimates (consensus of $3.63 versus guidance range of $3.10 to $3.20). Despite the stock having already gained ~9% in the month leading up to the call, investors were unfazed by the disappointing guidance as LLY shares closed Jan 5th -1.0% versus the S&P +0.3%. We fully expect 4Q11 earnings results to be secondary to pipeline updates on the Jan 31st call, most importantly of which would be the interim results of solanezumab’s phase III EXPEDITION 1 & 2 trials. Our revenue estimates are $6.1B in 4Q11, $24.3B in 2011, $22.4B in 2012 and $22.6B in 2013 (versus consensus of $5.9B, $24.1B, $22.5B and 23.3B respectively). Our EPS estimates of $0.80 in 4Q11, $4.35 in 2011, $3.16 in 2012 and $3.53 in 2013 come in below consensus for outer years (consensus of $0.80, $4.34, $3.29 and $3.79 respectively), most likely reflecting our more conservative assumptions surrounding operating expenses (Figure 25).

Figure 25: Barclays Capital estimates versus Consensus: Revenues (in $M) and EPS

Revenues 11Q4 FY2011E FY2012E FY2013E FY2014E FY2015E

Barcap 6,065 24,305 22,376 22,636 20,625 21,581

Consensus 5,905 24,144 22,459 23,333 20,508 21,781

Variance 160 161 -83 -697 117 -200

EPS 11Q4 FY2011E FY2012E FY2013E FY2014E FY2015E

Barcap $0.80 $4.35 $3.16 $3.53 $2.56 $3.09

Consensus $0.80 $4.34 $3.29 $3.79 $2.73 $3.10

Variance $0.00 $0.01 ($0.13) ($0.26) ($0.17) ($0.01)

Source: Barclays Capital estimates. ThomsonOne.

After years of planning for Years YZ, management to face the gauntlet over the next 2-3 years: 2012 bottom-line guidance came as a bit of a surprise as most analysts assumed LLY would be able to cut costs beyond their original $1B initiative. Management, however, reiterated that restructuring has been ongoing since 2004 and indicated current and recently launched therapies on the market (ie. Cymbalta, Tradjenta) require similar levels of SG&A to sufficiently maximize revenues. Pipeline progression in 2012 as well as Cymbalta’s upcoming patent expiration in 2013 would have significant influence on management’s cost strategy. We anticipate post-Cymbalta expiry, SG&A would either stay flat or even increase should the neurology pipeline pull through. However, should the neurology pipeline fail completely, it can be expected that LLY would make significant restructuring changes in 2014. R&D costs, on the other hand, would need to stay at or above current levels to progress their pipeline, which includes a potential CV outcomes trial for CETP-inhibitor evacetrapib as well as additional RA trials. We outline in Figure 26 potential patent expiries, product launches and major phase III trial initiations/completions that influenced our estimates for operating expenses in the 2011-2018 timeframe.

4Q11 earnings in the rear-view mirror as investors turn attention

towards long-term outlook and pipeline catalysts

Pipeline progression in 2012-2013 critical for shaping SG&A

and R&D expenditures in the long-term


18 January 2012 34

Figure 26: Upcoming Impacts to SG&A and R&D (FY11e – FY18e)

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018EProduct Expirations Zyprexa (Nov-11) Cymbalta (Dec-13) Evista (Mar-14) Strattera (May-17) Forteo (Dec-18)

Humalog (May-13) Alimta (Jan-17)Cilais (Nov-17)

Effient (Jan-17)Product Launches Axiron Tradj/Met Combo Solanezumab mGlu2/3 Dulaglutide Survivin ASO

Tradjenta Ramucirumab NERI LY2605541 OlaratumabNecitumumab Enzastaurin LY2963016

Tabalumab Cixutumumab IL 17 Antibody

Jak-1/Jak-2 inhibitorSG&A Expense - Barcap est 7,775 7,575 7,336 7,031 6,874 6,946 6,991 7,243

Change YoY ($) -199 -240 -305 -157 72 44 253

Comments on SG&A Expense

No significant cuts; 1) restructuring for Zyprexa patent expiry near complete

& 2) Tradjenta launch

No significant cuts; Tradjenta/metoformin combo promoted with

existing salesforce

No significant cuts; 1) LLY to promote Cymbalta heavily until the end, 2) Humalog

likely not to experience significant competition, 3) solanezumab promoted by existing Neuro force but is

new area for LLY, and 4) oncolog y assets launch

No significant cuts; 1) Product launches can likely

utilize existing sales force and 2) Evista $$ move to product

launch

SG&A costs will likey stay flat due to various product launches and in certain

spaces where LLY does not have much experience

SG&A Costs could decline as promotional efforts of Cialis

and Effient end. SG&A rises as % of sales

Major R&D Trials InitiatingBI 10773+stiagliptin:

DiabetesIL-17 (LY2439821):

Psoriasis

(Phase III only)BI10773+linagliptin:

Diabetes IL-17 (LY2439821):

Potential RA Evacetrapib: Potential CV

NERI: Compator trial for EU/Jap

Major R&D Trials ending Effient: TRILOGY ACS vs

Plavix mGlu2/3: Schizophrenia BAFF (LY2127399): RATradjenta: CAROLINA CV

Trial

(Phase III only)Solanezumab: EXPEDITION

1&2BI 10773+stiagliptin:

Diabetes BAFF (LY2127399): SLEIL-17 (LY2439821):

UNCOVERBI10773+linagliptin:

Diabetes IL-17 ((LY2439821): SLEBI 10773: CV Outcome

Diabetes

R&D Expense - Barcap est 5,091 5,232 5,320 5,156 5,179 5,255 5,273 5,461Change YoY ($) 141 87 -163 23 76 18 188

Comments on R&D Expense

R&D to rise modestly:Costs for a potential CV

outcomes trila would be significant. In comparison,

MRK's anacetrapib enrolling ~30K patients for REVEAL. RA trial would raise R&D if

initiated (6 phase III for PFE's tofacitinib)

R&D flat:Major trials are still underway

R&D flat:Major trials are still underway

but conclusion to BAFF for RA should reduce some costs

R&D flat:Major CV trial for Trajdenta

concluding. If pipeline works, LLY could continue

investments are revenues increase and PPL investment

continues

Source: Company reports. ClinicalTrials.gov. Barclays Capital estimates.


18 January 2012 35

Beyond solanezumab, 2012 pipeline focus to shift to RA (BAFF and IL-17) and diabetes (dulaglutide, empagliflozin, insulins); oncology (ramucirumab, necitimumab, enzastaurin, LY2181308, olaratumab, and cixutumumab) to be at the forefront in 2013: Similar to BMY’s patent expiry situation with the loss of Plavix and Avapro/Avalide in ’12 and to a smaller extent, Abilify and Sustiva in ‘15, Eli Lilly faces waves of severe patent cliffs with the loss of Zyprexa in ‘11, Cymbalta and Evista in ‘13/ ‘14 and Alimta and Cialis in ‘17. Pipeline assets are numerous as well for both companies with the potential for significant revenue inflection post major patent expiries. The biggest difference, however and what drives their disparate multiples (BMY at 17x FY12 EPS versus LLY at 12x FY12 EPS), is the outlook on pipeline progression. While BMY has recently delivered on a few key data points/launches (Yervoy: FY11e sales of $359M and potentially Eliquis: FY13e sales of $525M) LLY’s pipeline lagged its peer in positive R&D catalysts in 2011. FY12, however, could be the year that LLY begins its transformation from a story of revenue declines/cost mitigation to one of R&D productivity. The potential is significant in the long-run - >$2.5B in revenues in 2015 and >$14B by 2020 – solanezumab, interim data likely out Jan-31, 2012, makes up a significant portion of the pipeline with estimated sales in 2015 of $540M and >$3B in 2020. (See Figure 27 and Figure 28 for our list of pipeline catalysts).

We highlight for 2012 the following major pipeline catalysts: 1) interim analysis on Jan. 31, 2012 for solanezumab, of which we assume management will progress with the trial until completion; 2) decision on IL-17 phase III initiation for RA (IL-17 phase III for psoriasis and BAFF phase III for RA underway); 3) Alimta OS data from Phase III PARAMOUNT in NSCLC and potential approval; 4) potential phase III CV trial initiation for evacetrapib; 5) Jak 1/2 inhibitor data at EULAR in April; 6) phase II data at ADA for basal insulin analogs and 7) potential approval for linaglipitin/metformin FDC. Other potential data disclosures which may occur in 2012 but we assume would be more likely in 2013 include mGlu2/3 phase II data, phase III data for empagliflozin, phase III initiation for NERI, and phase III AWARD data for dulaglutide.

Figure 27: Pipeline Catalysts (1 of 2) – LLY

Drug Mechanism of Action Clinical Trial Event Type Estimated Timing

Phase III in 2nd line HCC post Nexavar (REACH) Trial completion April 2013 (Recruiting)Phase III in supportive care in gastric cancer Trial completion January 2013 (Recruiting)Phase III in gastric adenoma (RAINBOW) Trial completion July 2013 (Recruiting)Phase III 2nd line in metastatic CRC (colorectal cancer) Trial completion October 2013 (Recruiting)Phase III 2nd line in NSCLC Trial completion June 2014 (Recruiting)Phase III in combination with docetaxel in breast cancer Trial completion December 2012 (Enrolled)Phase III study in prevention of relapse in lymphoma (PRELUDE) Trial completion April, 2013 (Enrolled)

Enzastaurin PKC inhibitor U.S. FDA submissionRegulatory submission

Late 2013

Phase II in squamous head and neck cancer Trial completion June 2011 (Recruiting)Phase II in breast cancer Trial completion June 2011 (Enrolled)Phase II with Nexavar in advanced liver cancer Trial completion May 2011 (Enrolled)Phase II in first-line lung cancer Trial completion Feb 2013 (Recruiting)Phase III trial in non-squamous NSCLC (INSPIRE) Halted TBAPhase III trial in squamous NSCLC (SQUIRE) Trial completion Sep 13FDA actiion on 1st-line metastatic colorectal cancer Regulatory action 2012FDA action on re-submission in first-line head and neck cancer Regulatory action Year's end 2011FDA action on sBLA for first-line NSCLC (refiled in 2Q11) PDUFA Estimated for Mar/Apr 2012Potential EU approval for 1st line NSCLC in combo with platinum chemo Regulatory action 2012Phase II in platinum-refractory or resistant advanced ovarian cancer Trial completion July 2011 (Enrolled)Phase II in previously untreated locally adv or metastatic NSCLC Trial completion Oct 2012 (Recruiting)Phase II in soft tissue sarcoma Trial completion May 2013 (Recruiting)Phase II in prostate cancer Trial completion Aug 2012 (Recruiting)

Phase II in prostate cancer Trial completion Nov, 2011 (Enrollment Complete)

Phase II in NSCLC Trial completion July, 2012 (Recruiting)

Erbitux EGFR inhibitor

Survivin Antisense Antibody

LY2181308

IMC-3G3 PDGFR mAb

NecitumumabIMC-11F8, anti EGFR mAb

Oncology

Ramucirumab(IMC-1121B)

VEGF inhibitor

Cixutumumab IGF-1R mAb

Source: Company reports; Barclays Capital estimates.

After solanezumab, diabetes assets dominate in 2012;

Oncology to stand out in 2013.


18 January 2012 36

Figure 28: Pipeline Catalysts (2 of 2) - LLY

Drug Mechanism of Action Clinical Trial Event Type Estimated Timing

DURATION-1 analysis demonstrates no prolonged QT Data presentation June 24-28, 2011 ADA

Class 2 re-submission to the U.S. FDA, pending completion of the QTc study Regulatory action 2H11

E.U. market launch Product Launch ImmediatePotential U.S. approval/launch Regulatory action Mid 2012Phase III EXSCEL CV outcomes trial Trial completion 2017

Byetta + basal insulinExenatide + basal insulin

FDA decision (EU submission in 2011)

Regulatory action 2H 2011

Phase II monotherapy shows -0.89% to -1.04% in A1c reduction in 12 weeks; no QT prolongation

Data presentation June 24-28, 2011 ADA

Phase II/III comparing GLP-Fc w/ placebo and Sitagliptin Trial completion June 2011 (Enrollment completed)

Phase III versus metformin AWARD-3 trial Trial completion 1/1/2012 (Recruiting)Phase III versus insulin glargine AWARD-2 trial Trial completion 4/2012 (Enrollment completed)Phase III versus placebo AWARD-1 trial (background of metformin and pioglitazone)

Trial completion 5/1/2012 (Enrollment completed)

Phase III with insulin lispro versus insulin glargine AWARD-1 Trial completion 6/1/2012 (Recruiting)Phase III as add-on to metformin or sulfonylurea Trial completion Jan, 2012 (Recruiting)Phase III versus placebo and Januvia Trial completion Feb, 2012 (Recruiting)Phase III versus placebo Trial completion March, 2013 (Recruiting)Phase III in patients with renal impairment Trial completion June, 2012 (Recruiting)Phase III versus placebo, glimepiride Trial completion July , 2013 (Recruiting)Phase III CV outcomes Trial completion Aug, 2014 (Recruiting)Phase III trial initiation Trial initiation 2H 2011Phase II data disclosures Data presentation 2012

Production submission for approval Porduct Submission 2014

Launch in the E.U. In progress Any day

FDA decision on Trajenta plus metformin fixed dose combination Regulatory Decision 2012

Phase III CAROLINA CV outcomes trial Trial completion Sept, 2018

ACCOAST trial in PCI Trial completion Mid 2011TRILOGY-ACS trial Trial completion Apr 12Phase II data presentation at AHA AHA presentation November 12-16, 2011Phase III initiation Trial initiation During 2011

Phase III in psoriasis Trial initiation 2H 2011Phase III in RA Trial initiation 2H 2011Phase IIb data at ACR ACR presentation November 4-8, 2011Phase IIb in RA on background methotrexate Trial completion Early 2012 (Recruiting)Phase III initiation Trial initiation 2012; Phase IIb recently startedPhase III in lupus Trial completion 2/1/2013 (Recruiting)Phase III RA in patients on background methotrexate Trial completion July, 2013 (Recruiting)Phase III study in RA patients IR to TNF inhibitors Trial completion June, 2013 (Recruiting)

Phase III versus placebo in adjunctive therapy for depression Trial completion May, 2012 (Recruiting)Phase III in partial responders to SSRIs Trial completion July, 2012 (Recruiting)Phase III long term safety study for depression Trial completion Aug, 2012 (Recruiting)Phase III the prevention of re-emergence of depression Trial completion Sept, 2013(Recruiting)Phase II active comparator monotherapy Trial completion Early 2012Phase II add-on therapy trial Trial completion Late 20122 Phase III studies Trial completion Mid 2013Interim analysis for Phase III studies Interim analysis Jan 12Phase III EXPEDITION in Alzheimer's Disease Trial completion Apr 12Phase III EXPEDITION2 in Alzheimer's Disease Trial completion Jun 12Phase III EXPEDITION-EXT Trial completion Jul 14

Amyvid Imaging label Response to FDA CRL Regulatory action 2011

Omaglu methmGlu2/3glutamate receptor agonist

SolanezumabAnti-amyloid beta mAb

Tabalumab (LY2127399)

Anti-BAFF mAb

CNS

Edivoxetine (LY2216684)

NERI, selective norepinephrine reuptake inhibitor

LY2439821 Anti-IL 17 Antibody

LY3009104Oral Jak1/Jak2 inhibitor

Evacetrapib CETP inhibitor

Immunology

Cardiovascular

Effient anti-P2Y12

Novel basal analog insulins

novel basal analog insulin

Tradjenta DPP-4 inhibitor

DulaglutideGLP-1 Fc fusion protein

Empagliflozin SGLT-2 inhibitor

Diabetes

BydureonExenatide once-weekly


We continue to rate LLY a 2-EW/1-POS with a price target of $39 (12.3x our FY12 EPS of $3.16) based on a DCF of $38 and NPV of $45: 2012 will likely be a significant year for LLY as investors gain increased visibility into the pipeline and hence long-term outlook. Should solanezumab pass its interim analysis (which we assume is likely the case), we anticipate reactions to the stock could be subdued should LLY withhold efficacy data. Our NPV for the agent is $0.34 ($4.0B peak sales; 15% probability) and signals of drug failure would likely cause the stock to fall beyond its NPV as bearish sentiments increase surrounding the pipeline.


18 January 2012 37

Figure 29: LLY Performance Preview Summary.

($ in millions, except per share #s) 4Q10 4Q11 Growth 2010 2011 2012

P&L Actual Actual Y/Y Actual Estimate Estimate

Zyprexa 1,336 868 (35%) 5,026 4,740 1,748

Strattera 155 171 10% 577 620 659

Cymbalta 982 1,183 20% 3,459 4,163 4,611

Humulin 288 311 8% 1,089 1,214 1,301

Humalog 549 592 8% 2,054 2,298 2,398

Evista 267 272 2% 1,024 1,072 1,079

Forteo 226 269 19% 830 956 1,034

Byetta 105 93 (11%) 431 405 378

Gemzar 244 100 (59%) 1,149 460 338

Alimta 569 636 12% 2,209 2,459 2,637

Cialis 466 497 7% 1,699 1,879 1,922

Effient 47 95 102% 115 307 375

Pharmaceuticals Total 5,763 5,558 (4%) 21,685 22,587 20,416

Animal Health 424 507 19% 1,391 1,717 1,960

Total Revenue 6,187 6,065 (2%) 23,076 24,305 22,376COGS 1,232 1,444 17% 4,366 5,190 5,150

Gross Profit 4,955 4,622 (7%) 18,710 19,115 17,226

R&D 1,438 1,425 (1%) 4,884 5,091 5,232

SG&A 1,989 2,028 2% 7,053 7,775 7,575

Operating Income (EBIT) 1,528 1,168 (24%) 6,773 6,250 4,418

Total Non-Operating (Income 39 38 (3%) 5 190 -14

Pre-Tax Income 1,489 1,130 (24%) 6,768 6,059 4,433

Income Taxes (Benefit) 254 232 (9%) 1,526 1,216 903

Non-GAAP Net Income 1,235 889 (28%) 5,241 4,816 3,502

Diluted Shares Outstanding 1,109 1,114 0% 1,109 1,114 1,114

Adjusted Diluted EPS $1.11 $0.80 (28%) $4.74 $4.35 $3.16

Gross Margin 80.1% 76.2% -390 bps 81.1% 78.6% 77.0%

SG&A Margin 32.1% 33.4% 130 bps 30.6% 32.0% 33.9%

R&D Margin 23.2% 23.5% 030 bps 21.2% 20.9% 23.4%

Operating Margin 24.7% 19.3% -540 bps 29.3% 25.7% 19.7%

Tax Rate 17.0% 20.5% 350 bps 22.6% 20.1% 20.4%

Profit Margin 20.0% 14.7% -530 bps 22.7% 19.8% 15.6%

4Q11



18 January 2012 38

Figure 30: LLY Model Update.

CAGR$USD M 2010A 1Q11 2Q11 3Q11 4Q11 2011E 1Q12 2Q12 3Q12 4Q12 2012E 2013E 11-16Pharmaceuticals Total 21,685 5,469 5,864 5,697 5,558 22,588 4,830 5,124 5,129 5,333 20,416 20,457 -2.7%Animal Health 1,391 370 390 451 507 1,717 425 448 512 575 1,960 2,179 11.0%Collaboration Revenue 0 0 0 0 0 0 0 0 0 0 0 0Total Revenue 23,076 5,839 6,253 6,148 6,065 24,305 5,255 5,572 5,640 5,908 22,376 22,636 -1.5%

Cost of Goods Sold 4,366 1,180 1,228 1,338 1,444 5,190 1,233 1,287 1,295 1,335 5,150 5,027Gross Profit 18,710 4,659 5,025 4,810 4,622 19,115 4,022 4,285 4,345 4,573 17,226 17,609

SG&A 7,053 1,786 2,043 1,918 2,028 7,775 1,713 1,984 1,892 1,986 7,575 7,336

R&D 4,884 1,124 1,261 1,281 1,425 5,091 1,209 1,309 1,325 1,388 5,232 5,320Operating Income (EBIT) 6,773 1,749 1,721 1,611 1,168 6,250 1,100 992 1,127 1,198 4,418 4,954EBITDA 8,101 2,090 2,077 1,969 1,378 7,515 1,312 1,203 1,338 1,409 5,261 5,798 -4.4%Total Non-Operating (Income) Expense, net 5 11 58 83 38 190 4 (6) (6) (7) (14) (33)Pretax Income 6,768 1,738 1,664 1,528 1,130 6,059 1,096 997 1,134 1,205 4,433 4,987Income Taxes (Benefit) 1,526 363 348 274 232 1,216 225 204 230 245 903 1,047Non-GAAP Net Income 5,241 1,375 1,316 1,254 889 4,816 865 786 897 953 3,502 3,921 -3.8%Diluted Shares Outstanding 1,109 1,112 1,114 1,114 1,114 1,114 1,114 1,114 1,114 1,114 1,114 1,114Adjusted Diluted EPS $4.74 1.24$ 1.18$ 1.13$ 0.80$ 4.35$ 0.78$ 0.71$ 0.81$ 0.86$ 3.16$ 3.53$ -3.9%

Gross Margin 81.1% 79.8% 80.4% 78.2% 76.2% 78.6% 76.5% 76.9% 77.0% 77.4% 77.0% 77.8% - 36 bpSG&A 30.6% 30.6% 32.7% 31.2% 33.4% 32.0% 32.6% 35.6% 33.6% 33.6% 33.9% 32.4% - 24 bpR&D 21.2% 19.2% 20.2% 20.8% 23.5% 20.9% 23.0% 23.5% 23.5% 23.5% 23.4% 23.5% + 48 bpOperating Income 29.3% 30.0% 27.5% 26.2% 19.3% 25.7% 20.9% 17.8% 20.0% 20.3% 19.7% 21.9% - 60 bpEBITDA Margin 35.1% 35.8% 33.2% 32.0% 22.7% 30.9% 25.0% 21.6% 23.7% 23.9% 23.5% 25.6% - 88 bpTax Rate 22.6% 20.9% 20.9% 17.9% 21.3% 20.5% 21.1% 21.2% 20.9% 20.9% 21.0% 21.4% + 68 bpProfit Margin 22.7% 23.5% 21.0% 20.4% 14.7% 19.8% 16.5% 14.1% 15.9% 16.1% 15.6% 17.3% - 46 bp

Revenue Growth Y/Y 5.7% 6.4% 8.8% 8.7% -2.0% 5.3% -10.0% -10.9% -8.3% -2.6% -7.9% 1.2%Gross Profit Margin Y/Y 6.4% 6.8% 6.3% 3.1% -6.7% 2.2% -13.7% -14.7% -9.7% -1.1% -9.9% 2.2%EBITDA Growth Y/Y 4.8% 4.0% -2.4% -6.1% -20.9% -7.2% -37.2% -42.1% -32.1% 2.2% -30.0% 10.2%Adjusted Diluted EPS Growth Y/Y 7.0% 5.1% -4.8% -6.6% -27.9% -8.2% -37.1% -39.8% -28.3% 7.5% -27.4% 11.7%



18 January 2012 39

Amgen (PT $65, 2-EW/1-Pos) – With “core” growth cooling, will Xgeva and shareholder returns reignite interest?

Modest top-line growth expected in 4Q11 (+2% YoY) as the core ESA franchise faces pressure, Enbrel sales stagnate and Xgeva remains in early stages of launch: Our revenue estimate for 4Q11 is in-line with consensus of $3.9B. We raise our 4Q11 EPS estimate from $1.23 to $1.24 primarily due to lower interest expense and higher Nplate sales. For FY12, we estimate total revenues of $16.1B, slightly higher than consensus of $16.0B attributed to higher Enbrel and filgrastim franchise sales but offset slightly by lower Xgeva sales ($707M versus $829M). Our EPS estimate, however, comes in at $5.96, $0.08 higher than consensus of $5.88 mainly due to assumptions surrounding share buybacks. While we believe share repurchases are likely the pre-dominant form of capital deployment, we would expect that potential M&A opportunities would have precedence.

Xgeva’s PDUFA on 4/26/12 to mark next stage of revenue growth for the denosumab franchise (ODAC panel on 2/8/12): Although Xgeva was shown to increase bone-metastasis free survival by 4.2 months, there was some concern surrounding overall survival data as Xgeva was no better than control. However, we believe these concerns are misguided as 1) patients were switched off drug once they progressed so it would have been difficult to show overall survival and 2) surrogates for OS can be accepted should studies be done well. We fully anticipate Xgeva would obtain approval for the indication to prevent BMFS in CRPC as there are currently no therapies indicated for prevention of bone metastasis, which can be excrutiatingly painful for patients. Despite the excitement surround denosumab’s potential indication for BMFS in CRPC, we note the largest opportunity for the agent near-term remains in SRE prevention. We estimate sales in 2012 of $660M in SRE prevention and $41M in BMFS for Xgeva. By 2015, Xgeva sales could reach $2.2B by our estimates (NPV of $8.95/share based on $3.3B peak potential).

AMGN’s pipeline sparse relative to peers – excitement tailored towards AMG-785 as well as AMG-145: AMG-785 has been one of the most frequently inquired-about programs with phase II top-line data showing the primary endpoint (increases at spine BMD at month 12 vs placebo) was reached. We anticipate phase III trials in PMO would initiate in 2012 with data not expected until the 2015 timeframe. Data from Phase II trials in tibia and hip fracture healing is also expected in FY12, with potential for presentation at the American Society for Bone and Mineral Research (ASBMR) meeting in October 2012. AMG 785 is moving into phase III which will likely be a large clinical outcomes trial. Another interesting prospect which could present phase II data in FY12 is that of AMG-145 – the TIMI 57 trial. Oncovex (now called TVEC), acquired from BioVex, is currently in phase III studies for melanoma. Although a small study, phase II data demonstrated response rates on the order of 26% (Yervoy demonstrated 10%). Phase III data on the primary endpoint of response rates (OS will not be available) is expected sometime in 2H12 and although this agent targets a therapeutic category that remains an area of high unmet need, we firmly believe OS data would be required for approval.

With growth anticipated to be in the low single digits over the next several quarters, management has been proactive in returning income to shareholders: Just recently, AMGN completed a Dutch Auction for $5B worth of share buybacks. The company has a remaining balance of $5B in share repurchases which we anticipate would be conducted relatively quickly over the next several years. Should management seek to achieve their goal of >60% of net income returned to shareholders, it can be estimated that share repurchases would total $1.6B to $2.0B in FY12. While management has commented that shareholder

ESA and filgrastim franchise declines and Enbrel stagnation

holds top-line growth in low-single digit territory; Denosumab

could surprise on the top-line.

Approval of Xgeva for prevention of BMFS is likely but driver of

near-term sales remains with SRE prevention


18 January 2012 40

returns is a preferred method for capital returns, we fully expect management to continue seeking M&A opportunities to inject growth into their top-line.

We continue to rate AMGN a 2-EW/1-POS with a price target of $65 (10.9x our FY12 EPS of $5.96) based on a DCF of $67 and NPV of $65: While we view the denosumab franchise as a potential significant growth driver, we believe the top-line could still face significant erosion post-2014 as 1) competition increases with biosimilars (ESA, filgrastim and potentially Enbrel), 2) anti-TNF inhibitors face oral competition, and 3) pipeline assets fail to sufficiently offset declines. Shareholder returns in the form of buybacks are likely a positive a step in returning value to shareholders but we believe that multiple expansion would require cash uses that would bulk up the R&D pipeline with the potential to inflect revenues in the longer-term.


18 January 2012 41

Figure 31: Pipeline Catalysts – AMGN

Molecule Phase Type Mechanism Indication Next Action Time Partner, if anyInflammatory diseases/Autoimmune

AMG-827 3 Ab IL-17 receptor blocker psoriasis Phase III data in psoriasis 2H13

AMG-827 2 Ab IL-17 receptor blocker RAStudy primary completion date

Aug 15

Denosumab 2 Ab targets RANKL ligand glucocorticoid-induced osteoporosis

Phase III initiation 1H12 DSI/GSK

Denosumab Reg Ab targets RANKL ligand male osteoporosis Regulatory Filing Pending DSI/GSKCV

AMG-145 1 Abhuman monoclonal antibody to PCSK9

hypercholesterolemia

Phase II trial in hypercholesterolemia

Ongoing

Omecamtiv mecarbil(AMG-423)

2 SmMol cardiac myosin activator heart failure

Phase IIb trial in IV formulation in patients with left ventricular systolic dysfunction hospitalized for acute HF

Ongoingbeing developed in collaboration with Cytokinetics

Bone-related conditionsAMG-785(CDP7851)

2 Ab targets sclerostinPMO and fracture healing

UCB for bone-related conditions

Denosumab 3 Ab targets RANKL ligand male osteoporosisDenosumab 3 Ab targets RANKL ligand multiple myeloma Initiate phase III trial 2H11

Denosumab 3 Ab targets RANKL ligand prevention of bone metastases in breast cancer

Phase III D-CARE trial in Bone met prevention as adjuvant therapy in women with high risk early breast cancer

Ongoing; Mar-2013 completion

Denosumab 3 Ab targets RANKL ligand prevention of bone metastases in prostate cancer

PDUFA 4/26/12

Mar-2013 completion of trial; PDUFA 4/26/12

GSK/DSI/AZN

Denosumab Reg Ab targets RANKL ligand Giant cell tumor of bone

Regulatory filing Pending GSK/DSI/AZN

Oncology

AMG-386 3Protein/Peptibody

endothelial cell-selective Tie2 receptor inhibitor

first-line ovarian cancer

PFS data from Phase III trial in first-line ovarian cancer

2014 Takeda



relapsed/refractory ovarian cancer

OS data from Phase III trial TRINOVA-1 in combination with paclitaxel in relapsed/refractory ovarian cancer

2014 Takeda



relapsed/refractory ovarian cancer

PFS data from Phase III trial TRINOVA-1 in combination with paclitaxel in relapsed/refractory ovarian cancer

Mid-2013 Takeda

Ganitumab(AMG-479)

3 Ab IGF-1 receptor antagonist pancreatic cancerData from Phase III trial in metastatic pancreatic cancer

End-2013 Takeda

Oncovex(talimogene laherparepvec)

3oncolytic vaccine

oncolytic vaccine; GM-CSFtreatment of metastatic melanoma

Data from pivotal Phase III trial in advanced melanoma

2H12

Oncovex(talimogene laherparepvec)

3oncolytic vaccine

oncolytic vaccine; GM-CSFsquamous cell carcinoma of the head and neck

Initiation of the re-designed pivotal Phase III in SCC head and neck

Pending

Other

Sensipar 3 SmMol lowers parathyroid hormone (PTH)

CV disease in pts with secondary hyperparathyroidism and CKD

Data from Phase III EVOLVE outcomes study

2012



18 January 2012 42

Figure 32: AMGN Performance Preview Summary.

($ in millions, except per share #s) 4Q10 4Q11 Growth 2010 2011 2012P&L Actual Estimate Y/Y Actual Estimate Estimate

Aranesp 633 575 (9%) 2,486 2,340 2,272Epogen 591 474 (20%) 2,524 2,028 1,775Neulasta 918 996 9% 3,558 3,950 4,181Neupogen 319 314 (2%) 1,286 1,253 1,234Enbrel 939 948 1% 3,534 3,704 3,732Sensipar 188 189 1% 714 781 783Vectibix 79 79 1% 288 314 367Prolia 20 61 205% 33 186 345Nplate 65 78 20% 230 295 343Xgeva 8 123 1,431% 8 380 701

Total Product Revenue 3,760 3,862 3% 14,660 15,250 15,827COGS 568 624 10% 2,205 2,326 2,318

Gross Profit 3,273 3,298 1% 12,848 13,205 13,779R&D 825 784 (5%) 2,773 3,058 3,219SG&A 1,142 1,165 2% 3,925 4,400 4,515

Operating Income 1,306 1,349 3% 6,150 5,747 6,045Interest Income 93 88 (5%) 376 452 463Interest (Expense) -94 -147 -338 -453 -837

Pre-Tax Income 1,305 1,290 (1%) 6,188 5,746 5,671Income Taxes 202 194 (4%) 1,164 831 851

Net Income, non-GAAP 1,103 1,097 (1%) 5,024 4,916 4,820Average shares outstanding - Diluted 946 885 (6%) 964 919 809Diluted EPS - (Non-GAAP) 1.17 1.24 6% 5.21 5.35 5.96

Gross Margin 87.0% 85.4% -160 bps 87.6% 86.6% 87.1%SG&A Margin 30.4% 30.2% -020 bps 26.8% 28.9% 28.5%R&D Margin 21.9% 20.3% -160 bps 18.9% 20.1% 20.3%Operating Margin 34.7% 34.9% 020 bps 42.0% 37.7% 38.2%Tax Rate 15.5% 15.0% -050 bps 18.8% 14.5% 15.0%Profit Margin 29.3% 28.4% -090 bps 34.3% 32.2% 30.5%

AMGN 4Q11



18 January 2012 43

Figure 33: AMGN Model Update.

CAGR$USD M 2010A 1Q11A 2Q11A 3Q11A 4Q11E 2011A 1Q12E 2Q12E 3Q12E 4Q12E 2012A 2013A 11-16

Total Product Revenue 14,660 3,618 3,893 3,877 3,862 15,250 3,783 3,993 4,010 4,040 15,827 16,253 0.9%Corporate Partner Revenues 80 0 0 0 0 0 0 0 0 0 0 0Royalty Income and Contract Revenue 313 88 66 67 60 281 68 68 68 68 270 270 -0.8%Total Revenues 15,053 3,706 3,959 3,944 3,922 15,531 3,850 4,061 4,078 4,108 16,097 16,523 0.9%

COGS 2,205 540 569 593 624 2,326 554 585 587 592 2,318 2,396Gross Profit 12,848 3,166 3,390 3,351 3,298 13,205 3,296 3,476 3,491 3,516 13,779 14,127

R&D 2,773 703 808 763 784 3,058 770 812 816 822 3,219 3,305SG&A 3,925 1,011 1,111 1,113 1,165 4,400 1,076 1,147 1,139 1,153 4,515 4,517Operating Income 6,150 1,452 1,471 1,475 1,349 5,747 1,450 1,517 1,536 1,542 6,045 6,305 4.0%EBITDA 7,167 1,725 1,732 1,740 1,589 6,786 1,687 1,752 1,769 1,773 6,981 7,215Pre-Tax Income 6,188 1,509 1,510 1,437 1,290 5,746 1,353 1,421 1,445 1,451 5,671 5,999Income Taxes 1,164 251 229 157 194 831 203 213 217 218 851 900Net Income, non-GAAP 5,024 1,258 1,281 1,280 1,097 4,916 1,150 1,208 1,228 1,234 4,820 5,099 4.0%Net Income, GAAP 4,627 1,125 1,170 454 1,097 3,846 1,150 1,208 1,228 1,234 4,820 5,099Average shares outstanding - Diluted 964 940 935 913 885 919 816 816 802 802 809 781Diluted EPS - (Non-GAAP) 5.21$ 1.34$ 1.37$ 1.40$ 1.24$ 5.35$ 1.41$ 1.48$ 1.53$ 1.54$ 5.96$ 6.53$ 8.6%

Gross Margin 87.6% 87.5% 87.1% 86.4% 85.4% 86.6% 87.1% 87.0% 87.0% 87.0% 87.1% 86.9% + 08 bpR&D 18.9% 19.4% 20.8% 19.7% 20.3% 20.1% 20.4% 20.3% 20.3% 20.3% 20.3% 20.3% - 04 bpSG&A 26.8% 27.9% 28.5% 28.7% 30.2% 28.9% 28.4% 28.7% 28.4% 28.5% 28.5% 27.8% - 112 bpOperating Margin (EBIT Margin) 42.0% 40.1% 37.8% 38.0% 34.9% 37.7% 38.3% 38.0% 38.3% 38.2% 38.2% 38.8% + 124 bpEffective Tax Rate 18.8% 16.6% 15.2% 10.9% 15.0% 14.5% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% + 10 bpPre-Tax Margin 42.2% 41.7% 38.8% 37.1% 33.4% 37.7% 35.8% 35.6% 36.0% 35.9% 35.8% 36.9% + 128 bpNet Income Margin 34.3% 34.8% 32.9% 33.0% 28.4% 32.2% 30.4% 30.2% 30.6% 30.5% 30.5% 31.4%

Revenue Growth Y/Y 2.8% 3.2% 4.1% 3.4% 2.1% 3.2% 3.9% 2.6% 3.4% 4.7% 3.6% 2.6%Operating Margin Change Y/Y 1.0% -9.1% -10.6% -7.9% 3.3% -6.6% -0.2% 3.1% 4.2% 14.3% 5.2% 4.3%EBITDA Growth Y/Y 0.4% -6.8% -8.6% -6.1% 1.4% -5.3% -2.2% 1.1% 1.7% 11.6% 2.9% 3.4%Adjusted Diluted EPS Growth Y/Y 6.1% 3.1% -0.7% 2.9% 6.0% 2.7% 5.2% 8.0% 9.3% 24.2% 11.4% 9.6%



18 January 2012 44

Abbott Laboratories (PT $55, 2-EW/1-Pos) – “New Abbott” given an opportunity to blossom as “NewCo” seeks to reinvent itself

With the split looming in 2012, positive data surrounding ABT’s pharmaceutical pipeline assets could reinvigorate interest in “NewCo” and hence, ABT: Management seems, once again, capable of delivering yet another quarter of double-digit EPS growth attributed to top-line strength of Humira (+20%), pediatric nutritionals (+11%) and molecular diagnostics (+8%) as well as operating margin improvements of ~140bps YoY. Our EPS estimate for 4Q11 of $1.45 is slightly higher than consensus of $1.43 as we assume lower operating expenses. We forecast FY12 revenues in line with consensus at $40.7B (+4% YoY) and an EPS of $5.03 (+8% YoY), $0.01 cent higher than consensus of $5.02. Longer term, we anticipate 2011-2013 top-line CAGR would be disparate across various businesses – +0.2% in proprietary pharmaceuticals, +7.4% in Diagnostics and +8.3% in Nutritionals – which lends to investor excitement about the prospect of “New Abbott” while being more subdued concerning owning shares of “NewCo”. Also weighing down interest in “NewCo” is the increased exposure of the top-line to Humira (~47% of FY11 proprietary pharmaceutical sales), which could face oral competition this year and biosimilar entry in the 2016 timeframe. While M&A activity could always be a possibility in boosting their pipeline, we acknowledge ABT has a few interesting assets that could present with pivotal data this year – the first being their hepatitis C franchise.

The HCV race for 2nd-generation DAAs is well underway – while GILD and BMY have been dominating the headlines, ABT could very well sprint ahead: Early in FY12, we expect several data readouts that could provide substantial visibility into the viability of ABT’s HCV portfolio. BMS-790052, RG7128, VX-222 and Abbott’s own ABT-450/333 are all expected to provide data disclosures in the 1H12. Although PSI-7977 and BMY-790052/BMY-650032 have presented with positive data, we note they were in specific populations not inclusive of the more predominant and more difficult to treat GT1a patients – HCV GT2/3 patients and in GT1b Japanese patients, respectively. Interim results for clinical trials PILOT and CO-PILOT suggested a high SVR24 rate from interferon-free treatment with ABT-450 and ABT-333 with nine out of ten having achieved SVR24. ABT currently has phase III trials in place to test triple oral DAA therapy (interferon-free) with an anticipated launch in late 2014 or 2015, which is in line with other competitive launch expectations. We believe first mover’s advantage could be beneficial but perceived efficacy and safety would dominate usage – whether duration or PEG-free treatment is most important to prescribers, we are not yet clear.

Post-EASL, very few catalysts remain although PFE’s tofacitinib could have significant implications: Following EASL, there are relatively few other major catalysts for ABT to finish out the rest of the year – ABT-869 phase III for HCC is estimated to complete in 1H12 with a potential filing and launch in 2013; XIENCE Expedition to launch in the EU in 2H12 and lastly PFE’s tofacitinib’s potential approval in August 2012. Longer-term, we emphasize elotuzumab’s ELOQUENT data in multiple myeloma (expected 2014-2016), Daclizumab’s DECIDE trial versus Avonex planned to end in early 2014 and lastly, Bardoxolone’s BEACON phase III in CKD and type 2 diabetics planned to end in 2013. The total proprietary pharmaceutical pipeline has an estimated NPV of $2.20 or 8% of total proprietary pharma NPV.

We continue to rate ABT a 2-EW/1-POS with a price target of $55 (10.9x our FY12 EPS of $5.03) based on a DCF of $58 and NPV of $57: We continue to expect the stock to trade range-bound until the completion of the split. (Please refer to our note titled “Abbott

Interest in “NewCo” could reignite as we gain increased

visibility into ABT’s HCV pipeline and risks from PFE’s tofacitinib.

ABT’s HCV pipeline could produce a viable competitor to

GILD and BMY’s newly acquired portfolio.


18 January 2012 45

Laboratories: New Pharma Business Outlook – Thriving Biotech or Pharma with Expiry Risk?” published 10/21/11 for additional details on our SOTP analysis). The diversified businesses are attractive as strong-growth drives the top-line and substantial improvements in operating margins are expected and underway. While we appreciate Humira’s growth trajectory, we are cautious on imminent threats to anti-TNF’s in general –most importantly, PFE’s tofacitinib potential approval in 2012. Following HCV data readouts in 1H12, we must wait until 2013 before we can expect to see data for major pipeline assets dacluzimab as well as bardoxolone.

Figure 34: Pipeline Catalysts – ABT (1 of 2)

Molecule Phase

Expected Launch

IndicationsNext Action Estimated Timing

Partner, if any

OncologyNavitoclax (ABT 263) Phase II 2014E CLL, CML Phase II trial completion in CLL (recruiting) Jan 12 Genentech

Lymphoid Oct 11FRANC trial in CLL Dec 15

Linifanib (ABT 869) Phase III 2014E Hepatocellular Phase III for HCC completion May 12 GenentechPhase III data for HCC Jul 12Filing in HCC 2013Launch in HCC 2013

Veliparib (ABT 888) Phase III 2014E LiverPhase III for ABT-888 and temozolomide in liver cancer (primary completion)

Dec 12 Genentech

Phase III for ABT-888 and temozolomide in liver cancer (data) Feb 13Breast breast ca (Nov 11) Nov 11Melanoma melanoma (June 11) Jun 11

CRC, GBM, Cervical, Ovarian

Elotuzumab Phase III 2015EMultiple Myeloma

Phase III in combo with lenalidomie /dexamethoasone in relapsed/refractory MM (ELOQUENT-2) completion

Mar-14 BMY

Phase III in combo with lenalidomie /dexamethoasone in 1st line MM (ELOQUENT-1) completion

May-16

Potential filing in MM 2014Potential launch in MM 2015

Hepatitis C

ABT 333 Phase II 2014E Hep C Phase II CHAMPION 2 in combination with RBV and Peg IFN Oct 11

ABT 072 Phase II 2014E Phase II CHAMPION 2 in combination with RBV and Peg IFN Oct 11

ABT 450 Phase II 2014E Phase II ABT-450/r, ABT-333, RBV (Aug 11) - No IFN study; Aug 11 EnantaABT 450/267/333 Phase II 2015E Phase II ABT-450/r + ABT-267 and/or ABT-333 w/wo ribavirin Dec 13ABT 450/267 Phase II 2015E Phase II ABT-450/r + ABT-267 w/wo ribavirin Aug 12ABT 267 Phase II 2015E Phase II in combination with RBV and Peg IFN (complete) Aug 12

Phase II in combination with RBV and Peg IFN (Data) Oct 12Immunology Humira Phase III 2012E UC Submitted in the U.S. and E.U.

UC Expected filing for UC in Japan 1Q12

Pediatric Crohn's Potential launch in pediatric Crohn's (filed in 2011) 2012Crohn's and ankylosing spondylitis

Under review for approval for Crohn's Disease and ankylosing spondylitis in Japan

Uveitis Phase III VISUAL II in non-infectious uveitis Jun 13Neuroscience

ABT 126 Phase II 2015E Schizophrenia Phase II Data (April 11) CompleteABT 288 Phase II 2015E Alzheimer's Phase II Data (March 11) Complete

Daclizumab (FACET) Phase III 2015Multiple Myeloma Phase III DECIDE trial vs. Anovex (early 2014) early 2014 Biogen

Phase II 2015 RRMS Phase II DAC HYP (high yield process) for Relapsing, remitting MS 2015 BiogenLevodopa-carbidopa intestinal gel

Phase III 2012E Parkinson's Phase III efficacy & safety trial (Dec 2012) Dec 12Source: Company reports; Barclays Capital estimates.


18 January 2012 46

Figure 35: Pipeline Catalysts – ABT (2 of 2)

Molecule Phase

Expected Launch

IndicationsNext Action

Partner, if any

Women's health

Elagolix Phase III 2013E Endometriosis Phase III initiation in 2H11 (Endometriosis) 2H11 NeurocrineFibroids Phase II initiation in 2H11 (Fibroids) 2H11 Rita

Phase III initiated June 16, 2011; results expected 2013. 2013

Bardoxolone Phase III 2014EChronic kidney disease BEACON phase III trial in CKD and Type 2 diabetic patients 2013 Reata

Expect submission in 2013; 2013U.S. launch in 2014 2014

Eye Care

Synchrony (Visiogen) Reg 2011E IntraOcular Lens Under US review.Vascular

XIENCE PRIME Phase III 2012E Stents Expect U.S. approval and launch in 1H 2012. Approved 4Q11XIENCE Nano Phase III 2011E Stents Launched in the U.S.

TREK Reg 2011ECoronary catheter Launched in U.S., Japan, and the E.U.

MitraClip (Evalve) Reg 2012Emitral regurgitation In communication with the U.S. FDA; timeline to be updated

Bioabsorbable stents Phase II 2013E StentsFull scale launch at the end of 2012 in the E.U.ABSORB II initiated (BVS vs XIENCE PRIME)

XIENCE Expedition 2H12 Stents Launch in EU (next gen DES w/new catheter for better deliverability 2H122013 Launch in US 2013

DiagnosticsMolecular diagnostic for met-alk mutation

Reg 2011E NSCLC ApprovedSource: Company reports; Barclays Capital estimates.


18 January 2012 47

Figure 36: ABT Performance Preview Summary.

ABT Q4 2011($ in millions, except per share #s) 10Q4 11Q4 Growth FY10 FY11 FY12

P&L Actual Estimate Y/Y Actual Estimate Estimate

Pharmaceuticals 5,939 6,222 5% 19,893 22,488 23,141Humira 1,879 2,251 20% 6,548 8,005 8,877Kaletra 341 363 6% 1,255 1,244 1,166Tricor/Trilipix 499 482 (3%) 1,582 1,692 1,174Lupron 200 212 6% 748 814 833Niaspan 286 295 3% 926 1,013 1,033Synthroid 160 174 9% 555 648 668

Vascular 822 826 1% 3,194 3,334 3,438Diagnostics 1,015 1,100 8% 3,794 4,146 4,460Nutritionals 1,433 1,585 11% 5,532 6,035 6,547Diabetes Care 337 347 3% 1,275 1,360 1,388Medical Optics 280 301 8% 1,063 1,127 1,165Other 142 151 7% 416 516 520

>>>TOTAL REVENUE 9,968 10,533 6% 35,167 39,007 40,659Cost of Goods Sold 3,925 4,129 5% 14,008 15,595 16,113

Gross Profit 6,043 6,404 6% 21,159 23,412 24,547SG&A 2,597 2,581 (1%) 9,642 10,613 10,969SG&A - Industry Tax 0 35 0% 0 35 130R&D 977 1,032 6% 3,478 3,790 3,863

Adjusted Operating Income (EBIT) 2,469 2,756 12% 8,039 8,974 9,585Total Other Income (Expense) 48 97 101% 270 366 281

Pre-Tax Income 2,421 2,659 10% 7,769 8,608 9,304Income Taxes 396 391 (1%) 1,268 1,303 1,462

Adjusted Net Income 2,025 2,268 12% 6,501 7,305 7,841Diluted Shares Outstanding 1,556 1,568 1% 1,559 1,568 1,559>>>ADJUSTED DILUTED EPS 1.30 1.45 12% 4.17 4.66 5.03

Gross Margin 60.6% 60.8% + 20 bp 60.2% 60.0% 60.4%SG&A Margin 26.1% 24.8% - 120 bp 27.4% 27.3% 27.3%R&D Margin 9.8% 9.8% + 00 bp 9.9% 9.7% 9.5%Operating Margin 24.8% 26.2% + 140 bp 22.9% 23.0% 23.6%Tax Rate 16.4% 14.7% - 170 bp 16.3% 15.1% 15.7%Profit Margin 20.3% 21.5% + 120 bp 18.5% 18.7% 19.3%



18 January 2012 48

Figure 37: ABT Model Update.

11Q1A 11Q2A 11Q3E 11Q4E CAGR$USD M FY2010A 11Q1 11Q2 11Q3 11Q4 FY2011E 12Q1 12Q2 12Q3 12Q4 FY2012E FY2013E 11-16

Proprietary Pharma 19,893 3,783 4,162 4,298 4,690 16,932 3,840 4,425 4,366 4,678 17,309 16,994 0.3%Established Products NA 1,295 1,339 1,389 1,532 5,556 1,365 1,412 1,454 1,600 5,832 6,053 3.8%Vascular 3,194 845 835 828 826 3,334 861 850 858 869 3,438 3,643 5.9%Diagnostics 3,794 983 1,039 1,024 1,100 4,146 1,056 1,117 1,101 1,186 4,460 4,779 7.2%Nutritionals 5,532 1,423 1,490 1,537 1,585 6,035 1,556 1,612 1,663 1,717 6,547 7,077 7.2%Other 2,754 712 751 741 799 3,003 729 769 758 817 3,074 3,162 2.6%Total Revenue 35,167 9,041 9,616 9,817 10,533 39,007 9,407 10,185 10,200 10,867 40,659 41,707 3.4%

Cost of Goods Sold 14,008 3,752 3,827 3,887 4,129 15,595 3,801 4,023 4,029 4,260 16,113 16,509Gross Profit 21,159 5,289 5,789 5,930 6,404 23,412 5,607 6,162 6,171 6,607 24,547 25,198

SG&A 9,642 2,645 2,713 2,674 2,581 10,613 2,728 2,801 2,723 2,717 10,969 11,036SG&A - Industry Tax 0 0 35 35 29 33 33 35 130 128R&D 3,478 869 896 992 1,032 3,790 894 968 969 1,032 3,863 3,962Operating Income (EBIT) 8,039 1,775 2,179 2,264 2,756 8,974 1,955 2,361 2,446 2,823 9,585 10,072EBITDA 10,783 2,521 2,966 3,102 3,568 12,157 2,758 3,145 3,216 3,577 12,696 12,925 1.7%Total Non-Operating (Income) Expense 270 92 94 83 97 366 93 66 63 59 281 225Pretax Income 7,769 1,683 2,085 2,181 2,659 8,608 1,862 2,294 2,383 2,763 9,304 9,847Income Taxes (Benefit) 1,268 264 317 331 391 1,303 293 361 374 434 1,462 1,613Non-GAAP Net Income 6,501 1,419 1,767 1,850 2,268 7,305 1,569 1,934 2,009 2,330 7,841 8,234GAAP Net Income 4,626 864 1,942 304 2,268 5,378 1,569 1,934 2,009 2,330 7,841 8,142 10.9%Diluted Shares Oustanding 1559 1559 1566 1568 1568 1568 1559 1559 1559 1559 1559 1531Adjusted Diluted EPS 4.17$ 0.91$ 1.12$ 1.18$ 1.45$ 4.66$ 1.01$ 1.24$ 1.29$ 1.49$ 5.03$ 5.32$ 5.5%

Gross Margin 60.2% 58.5% 60.2% 60.4% 60.8% 60.0% 59.6% 60.5% 60.5% 60.8% 60.4% 60.4% + 16 bpSG&A 27.4% 29.3% 28.2% 27.2% 24.8% 27.3% 29.3% 27.8% 27.0% 25.3% 27.3% 26.9% + 12 bpR&D 9.9% 9.6% 9.3% 10.1% 9.8% 9.7% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% - 04 bpOperating Income (EBIT) Margin 22.9% 19.6% 22.7% 23.1% 26.2% 23.0% 20.8% 23.2% 24.0% 26.0% 23.6% 24.0% + 08 bpEBITDA Margin 30.7% 27.9% 30.8% 31.6% 33.9% 31.2% 29.3% 30.9% 31.5% 32.9% 31.2% 31.0% - 50 bpTax Rate 16.3% 15.7% 15.2% 15.2% 14.7% 15.1% 15.7% 15.7% 15.7% 15.7% 15.7% 16.7% + 22 bpProfit Margin 18.5% 15.7% 18.4% 18.8% 21.5% 18.7% 16.7% 19.0% 19.7% 21.4% 19.3% 19.5% + 18 bp

Revenue Growth Y/Y 14.3% 17.4% 9.0% 13.2% 5.7% 10.9% 4.1% 5.9% 3.9% 3.2% 4.2% 2.6%Operating Margin Change Y/Y -1.3% -4.0% 3.4% -2.9% 5.6% 0.6% 5.9% 2.3% 4.0% -0.7% 2.5% 1.7%EBITDA Growth Y/Y 17.0% 17.9% 13.7% 16.0% 6.2% 12.7% 9.4% 6.0% 3.7% 0.3% 4.4% 1.3%Adjusted Diluted EPS Growth Y/Y 12.1% 12.3% 10.6% 12.4% 11.5% 11.7% 11.0% 10.7% 9.3% 2.8% 7.9% 5.8%



18 January 2012 49

COMPANY SNAPSHOT

BRISTOL-MYERS SQUIBB U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 19,484 21,360 18,292 16,497 -5.4% Stock Rating 1-OVERWEIGHTEBITDA 7,012 7,568 5,631 4,612 -13.0% Sector View 1-POSITIVEEBIT 6,268 7,093 5,003 3,961 -14.2% Price (13-Jan-2012) $33.80Pre-tax income 6,736 7,422 5,188 4,121 -15.1% Price Target $36.00Net income 3,723 3,897 3,219 3,047 -6.5% Ticker BMYReported EPS ($) 2.16 2.31 2.00 1.95 -3.4%Diluted shares (m) 1,726 1,717 1,651 1,601 -2.5% Investment case

Dividend per share ($) 1.28 1.32 1.36 1.40 3.0%

Margin and return data (%) AverageEBITDA margin 36.0 35.4 30.8 28.0 32.5EBIT margin 32.2 33.2 27.4 24.0 29.2Pre-tax margin 34.6 34.7 28.4 25.0 30.7Net margin 19.1 18.2 17.6 18.5 18.4ROIC 32.4 30.4 20.8 16.6 25.1ROA 12.0 12.3 10.1 9.6 11.0 Upside case $40.00ROE 24.5 23.8 19.1 18.0 21.4

Balance sheet and cash flow ($mn) CAGRTangible fixed assets 5,669 5,629 5,821 5,994 1.9%Intangible fixed assets 9,453 9,093 9,093 9,093 -1.3%Cash and equivalents 7,301 8,210 7,923 8,579 5.5%Total assets 31,076 32,443 31,422 32,336 1.3%Short and long-term debt 5,445 5,619 5,619 5,619 1.1% Downside case $28.00Other long-term liabilities 3,371 2,828 2,911 2,828 -5.7%Total liabilities 15,438 15,362 14,864 14,991 -1.0%Net debt/(funds) (4,537) (2,591) (2,304) (2,960) NAShareholders' equity 15,638 17,081 16,558 17,345 3.5%Change in working capital (1,907) 815 (1,060) 1,121 NAOperating cash flow 4,491 4,306 5,203 4,343 -1.1%Capital expenditure 424 321 274 247 -16.5%Free cash flow 4,067 3,986 4,929 4,096 0.2% Upside/downside scenarios

Valuation and leverage metrics AverageP/E (x) - 14.6 16.9 17.3 12.2 EV/EBITDA (x) 0.1 7.8 10.2 11.9 7.5 Price/BV (x) - 3.4 3.4 3.1 2.5 Dividend yield (%) 0.0 3.9 4.0 4.1 3.0Total debt/capital (%) 25.7 26.7 24.8 25.3 25.6

Selected operating metricsSG&A/sales (%) 23.8 23.5 25.5 25.6 24.6 Source: FactSet

R&D/sales (%) 17.6 17.0 19.9 21.8 19.1R&D growth yoy (%) 3.8 5.9 0.6 -1.4 2.2SG&A growth yoy (%) 307.4 8.3 -7.0 -9.5 74.8

Source: Company data, Barclays Capital

Why a 1-Overweight? Our sector top pick due to 1)a strong and rapidly de-risking pipeline (e.g. Yervoy,Eliquis), 2) an emerging mid-stage oncology andHCV portfolio, and 3) the healthiest revenue andEBIT recovery rate among peers in the post-expiryperiod of 2015-20.

Strong launches of Yervoy, the approval of Eliquisand potentially dapagliflozin, and successful de-risking of the HCV portfolio in 2012 could potentiatethe upside case of $40.00 or 20X FY12E EPS.

New product launches fail to meet Streetexpectations. The market potential for Eliquis is lessthan expected. Mid-staged HCV portfolio falls behindcompetitors. These events could potentiate adownside case of $28.00 or 14x FY12E EPS.

DownsideCase

$26(-25.9%)

PriceTarget

$34(-3.10%)

UpsideCase

$38(8.2%)

12

22

32

42

21-Jan-11 13-Jan-12

DownsideCase

$28(-17.1%)

PriceTarget

$36(6.5%)

UpsideCase

$40(18.3%)

12

22

32

42

21-Jan-11 13-Jan-12


18 January 2012 50

COMPANY SNAPSHOT

MERCK & CO. U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 45,987 48,455 48,211 47,432 1.0% Stock Rating 1-OVERWEIGHTEBITDA 21,122 22,271 21,301 20,226 -1.4% Sector View 1-POSITIVEEBIT 13,741 15,558 15,374 15,218 3.5% Price (13-Jan-2012) $38.32Pre-tax income 13,428 15,473 15,377 15,388 4.6% Price Target $38.00Net income 10,715 11,795 11,832 11,853 3.4% Ticker MRKReported EPS ($) 3.42 3.76 3.85 3.89 4.4%Diluted shares (m) 3,106 3,099 3,081 3,046 -0.7% Investment case



Balance sheet and cash flow ($mn) CAGRTangible fixed assets 62,164 56,137 52,380 49,506 -7.3%Intangible fixed assets 14,553 14,722 14,711 14,709 0.4%Cash and equivalents 12,201 17,742 25,482 30,887 36.3%Total assets 105,781 107,830 111,488 114,501 2.7%Short and long-term debt 20,253 19,855 19,013 20,003 -0.4% Downside case $30.0Other long-term liabilities 18,070 18,239 16,037 14,677 -6.7%Total liabilities 51,564 52,239 49,335 49,099 -1.6%Net debt/(funds) 5,840 1,243 (9,541) (15,316) NAShareholders' equity 54,217 55,592 62,153 65,402 6.5%Change in working capital 745 6,202 8,128 4,765 86%Operating cash flow 10,822 13,054 18,092 16,430 14.9%Capital expenditure 1,678 1,692 2,169 2,134 8.4%Free cash flow 9,144 11,362 15,923 14,296 16.1% Upside/downside scenarios

Valuation and leverage metrics AverageP/E (x) 11.2 10.2 10.0 9.9 10.3 EV/EBITDA (x) 5.9 5.4 5.1 5.0 5.4 Price/BV (x) 2.2 2.1 1.9 1.8 2.0 Dividend yield (%) 4.0 4.0 4.4 4.7 4.3Total debt/capital (%) 25.5 20.4 19.2 15.3 20.1


R&D/sales (%) 17.7 16.2 16.3 16.5 16.7R&D growth yoy (%) 44.7 -3.6 0.3 -0.2 10.3SG&A growth yoy (%) 55.7 4.8 -3.3 -4.8 13.1


Why a 1-Overweight? We believe MRK holds one ofthe more stable revenue and EPS trajectoriesamongst peers through 2016E. An attractivepipeline (e.g. Odanacatib, Anacetrapib), the approvalof Victrelis, and the removal of the Remicadearbitration overhang make MRK an attractive stockin our view.

Strong commercial launch of Victrelis and strongdata from pipeline assets (i.e. Odanacatib,Tredaptive, Anacetrapib) support a higher thanexpected top-line growth from 2011E - 16E. Theseevents could support an upside case of $43 or 11xFY12E EPS.

Stalling uptake of Victrelis coupled with pipelinesetbacks depress the revenue estimates in the longterm. IMPROVE-IT fails to demonstrateVytorin/Zetia's superiority over statins alone. Theseevents could lead to a downside case of $30 or 7.8xFY12E EPS.

DownsideCase

$27(-29.5%)

PriceTarget

$38(-0.83%)

UpsideCase

$43(12.2%)

13

23

33

43

53

21-Jan-11 13-Jan-12

DownsideCase

$30(-21.7%)

PriceTarget

$38(-0.83%)

UpsideCase

$43(12.2%)

14

24

34

44

54

21-Jan-11 13-Jan-12


18 January 2012 51

COMPANY SNAPSHOT

Pfizer U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 67,791 67,849 62,873 61,856 -3.0% Stock Rating 2-EQUAL WEIGHTEBITDA 34,736 34,917 31,340 29,788 -5.0% Sector View 1-POSITIVEEBIT 26,249 26,416 25,278 24,358 -2.5% Price (13-Jan-2012) $21.84Pre-tax income 25,644 25,478 24,218 23,445 -2.9% Price Target $19.00Net income 17,983 18,015 17,164 16,616 -2.6% Ticker PFEReported EPS ($) 2.23 2.30 2.30 2.31 1.2%Diluted shares (m) 8,055 7,642 7,382 7,122 -4.0% Investment case



Balance sheet and cash flow ($mn) CAGRTangible fixed assets 33,041 32,560 35,861 36,669 3.5%Intangible fixed assets 101,505 99,338 89,002 84,001 -6.1%Cash and equivalents 28,012 29,521 34,763 41,778 14.3%Total assets 195,014 201,079 199,290 200,213 0.9%Short and long-term debt 48,059 43,085 34,638 34,938 -10.1% Downside case $15.0Other long-term liabilities 18,648 20,603 21,355 22,107 5.8%Total liabilities 106,749 106,717 97,765 98,768 -2.6%Net debt/(funds) 16,021 7,637 (4,973) (11,238) NAShareholders' equity 88,265 94,362 101,525 101,445 4.7%Change in working capital 7,414 - - - NAOperating cash flow 11,454 17,885 21,580 24,176 28.3%Capital expenditure 1,513 1,405 1,257 1,237 -6.5%Free cash flow 9,941 16,479 20,322 22,939 32.1% Upside/downside scenarios



R&D/sales (%) 13.8 12.2 10.6 11.0 11.9R&D growth yoy (%) 20.7 -11.6 -19.6 2.5 -2.0SG&A growth yoy (%) 32.7 0.2 -9.2 0.0 5.9

Source: Company data, Barclays Capital Note: FY end Dec.

Why a 2-EQUAL WEIGHT? We project limitedupside from near term R&D catalysts. In the longterm, PFE is estimated to have the slowest revenueand EBIT recovery rate after the "patent cliff" (i.e.after 2015). With a contracting top-line and EBIT, wesee limited potential for multiple expansion.

Eliquis receives priority review and enters the marketin 1H12. Xalkori's launch exceeds expecations, andTofacitinib and Axitinib gain U.S. approval in 2012.Near term potential approvals potentiate an upsidecase of $23.0 (10x FY11E EPS).

Safety issues derail the outlook for Tofacitinib. Eliquisor Axitinib faces regulatory delays, and Xalkori'slaunch stagnates. The lack of top-line replacementcatalysts to offset the impact of the patent expiriespotentiate a downside case of $15 (7x FY11E EPS).

DownsideCase

$15(-30.1%)

PriceTarget

$19(-11.4%)

UpsideCase

$23(7.1%)

7

12

17

22

27

21-Jan-11 13-Jan-12

DownsideCase

$15(-31.3%)

PriceTarget

$19(-13.0%)

UpsideCase

$23(5.3%)

7

12

17

22

27

21-Jan-11 13-Jan-12


18 January 2012 52

COMPANY SNAPSHOT

BIOGEN IDEC U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 4,716 5,031 5,461 5,899 7.7% Stock Rating 1-OVERWEIGHTEBITDA 2,177 2,373 2,480 2,594 6.0% Sector View 1-POSITIVEEBIT 1,823 2,015 2,138 2,257 7.4% Price (13-Jan-2012) $109.71Pre-tax income 1,760 2,004 2,137 2,262 8.7% Price Target $130.00Net income 1,315 1,450 1,584 1,669 8.3% Ticker BIIBReported EPS ($) $5.16 $5.92 $6.57 $7.11 11.3%Diluted shares (m) 255 245 241 235 -2.7% Investment case

Dividend per share ($) - - - - NA

Margin and return data (%) AverageEBITDA margin 46.2 47.2 45.4 44.0 45.7EBIT margin 38.7 40.1 39.2 38.3 39.0Pre-tax margin 37.3 39.8 39.1 38.4 38.7Net margin 27.9 28.8 29.0 28.3 28.5ROIC 23.6 26.9 28.6 30.4 27.4ROA 15.8 16.8 15.7 14.0 15.6 Upside case $140.00 ROE 22.5 24.0 21.1 18.0 21.4

Balance sheet and cash flow ($mn) CAGRTangible fixed assets 2,633 3,190 3,265 3,420 9.1%Intangible fixed assets 2,919 2,753 2,555 2,375 -6.7%Cash and equivalents 1,208 2,087 3,939 5,812 68.8%Total assets 8,092 9,181 10,939 12,925 16.9%Short and long-term debt 1,204 1,063 1,063 1,063 -4.1% Downside case $70.00 Other long-term liabilities 527 623 623 623 5.7%Total liabilities 2,643 2,543 2,592 2,696 0.7%Net debt/(funds) (4) (1,024) (2,876) (4,749) NAShareholders' equity 5,449 6,639 8,348 10,229 23.4%Change in working capital 4 (28) 19 (33) NAOperating cash flow 1,625 1,887 2,070 2,110 9.1%Capital expenditure (173) (203) (218) (236) NAFree cash flow - - - - NA Upside/downside scenarios

Valuation and leverage metrics AverageP/E (x) 21.3 18.5 16.7 15.4 18.0 EV/EBITDA (x) 12.8 10.9 9.5 8.1 10.3 Price/BV (x) 5.1 4.0 3.2 2.5 3.7 Dividend yield (%) - - - - -Total debt/capital (%) 18.1 13.8 11.3 9.4 13.2


R&D/sales (%) 26.2 23.6 23.6 22.9 24.1R&D growth yoy (%) -2.2 -3.9 8.6 4.6 1.8SG&A growth yoy (%) 12.2 5.9 11.7 13.0 10.7


Why a 1-Overweight? BIIB holds one of the bestrevenue and EBIT growth profiles over the nextdecade among peers (FY10A-20E), in our view. Thisgrowth profile is driven by: 1) BG-12 (a potentialleader in the treatment of multiple sclerosis or MS),and 2) a stable core.

BG-12 gains accelerated approval status from theFDA. Dexpramipexole and the hemophilia franchisede-risk ahead of expectations. Tysabri continues togain share with JCV testing adoption. These eventscould lead to an upside case of $140 or 21x FY12EEPS.

BG-12 meets materially negative developmentalsurprise, and the core MS franchise (i.e., Avonex,Tysabri) performs below expectation due toincreased competition or surprises with PML risk.These events could lead to a downside case of $70or 10.6x FY12E EPS.

DownsideCase

$70(-36.1%) Price

Target

$130(18.4%)

UpsideCase

$140(27.6%)

32

82

132

21-Jan-11 13-Jan-12

DownsideCase

$70(-39.6%) Price

Target

$130(12.0%)

UpsideCase

$140(20.6%)

32

82

132

21-Jan-11 13-Jan-12


18 January 2012 53

COMPANY SNAPSHOT

Johnson & Johnson U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 61,587 65,227 67,887 71,149 4.9% Stock Rating 1-OVERWEIGHTEBITDA 19,466 20,018 21,222 22,820 5.4% Sector View 1-POSITIVEEBIT 16,527 16,885 17,989 19,602 5.9% Price (13-Jan-2012) $65.26Pre-tax income 16,830 17,583 18,509 20,187 6.2% Price Target $75.00Net income 13,279 13,808 14,614 15,746 5.8% Ticker JNJReported EPS ($) $4.76 $4.98 $5.26 $5.66 5.9%Diluted shares (m) 2,790 2,778 2,778 2,778 -0.1% Investment case

Dividend per share ($) 2.11 $2.25 $2.37 $2.48 5.6%


Balance sheet and cash flow ($mn) CAGRTangible fixed assets 23,591 24,134 24,377 24,409 1.1%Intangible fixed assets 32,010 34,084 33,324 32,564 0.6%Cash and equivalents 27,658 32,221 34,278 42,544 15.4%Total assets 102,908 113,215 114,612 123,170 6.2%Short and long-term debt 16,773 19,006 18,406 18,506 3.3% Downside case $55.00Other long-term liabilities 14,101 15,577 15,577 15,577 3.4%Total liabilities 46,329 51,200 50,252 50,751 3.1%Net debt/(funds) (10,885) (13,215) (15,872) (24,038) NAShareholders' equity 23,944 21,296 20,812 25,310 1.9%Change in working capital (870) (532) 205 621 NAOperating cash flow 16,385 15,137 18,680 20,212 7.2%Capital expenditure (2,384) (2,423) (2,715) (2,490) NAFree cash flow 14,001 12,714 15,964 17,722 8.2% Upside/downside scenarios

Valuation and leverage metrics AverageP/E (x) 12.4 13.1 12.4 11.5 12.4 EV/EBITDA (x) 7.8 8.4 7.8 6.9 7.7 Price/BV (x) 2.8 2.9 2.8 2.5 2.8 Dividend yield (%) 3.6 3.4 3.6 3.8 3.6Total debt/capital (%) 22.2 23.5 22.2 20.4 22


R&D/sales (%) 11.1 11.2 11.1 11.2 11.2R&D growth yoy (%) -2.0 6.4 3.4 6.2 3.5SG&A growth yoy (%) -1.9 7.2 2.4 4.5 3.0


Why a 1-Overweight? We believe JNJ is on the vergeof an inflection in revenues. Events during 2012could set this inflection in motion: de-risking of thelate-stage pharma pipeline, the expected close of theSynthes acquisition (1H12), and recovery of the U.S.OTC/Nutritional Business.

Xarelto's U.S. launches above expectations. Zytigagains an additional indication in prostate cancer. U.S.OTC segment recovers ahead of expectations. Theseevents could lead to an upside case of $80.00 or 15xFY12E EPS.

OTC recovery does not occur as planned in 2012,and MD&D fails to find new growth drivers. Pharma-ceutical pipeline assets meet developmentalsetbacks. These events could lead to a downsidecase of $55.00 or 10.5x FY12E EPS.

DownsideCase

$55(-15.7%)

PriceTarget

$75(14.9%)

UpsideCase

$80(22.5%)

22

42

62

82

21-Jan-11 13-Jan-12


18 January 2012 54

COMPANY SNAPSHOT

Eli Lilly U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 23,076 24,305 22,376 22,636 -0.6% Stock Rating 2-EQUAL WEIGHTEBITDA 8,101 7,515 5,261 5,798 -10.5% Sector View 1-POSITIVEEBIT 6,773 6,250 4,418 4,954 -9.9% Price (17-Jan-2012) $40.03Pre-tax income 6,768 6,059 4,433 4,987 -9.7% Price Target $39.00Net income 5,241 4,816 3,502 3,921 -9.2% Ticker LLYReported EPS ($) $4.74 $4.35 $3.16 $3.53 -9.4%Diluted shares (m) 1,109 1,114 1,114 1,114 0.1% Investment case

Dividend per share ($) $1.96 $1.96 $1.96 $1.96 0.0%


Balance sheet and cash flow ($mn) CAGRTangible fixed assets 11,343 13,442 13,999 14,638 8.9%Intangible fixed assets 4,819 4,301 3,839 3,427 -10.7%Cash and equivalents 6,727 6,813 6,792 8,334 7.4%Total assets 31,001 32,973 32,624 34,350 3.5%Short and long-term debt 6,927 7,080 5,580 5,580 -7.0% Downside case $33.00Other long-term liabilities 1,887 1,806 1,806 1,806 -1.5%Total liabilities 18,589 19,028 17,423 17,418 -2.1%Net debt/(funds) 200 267 (1,212) (2,754) NAShareholders' equity 12,413 13,945 15,201 16,932 10.9%Change in working capital (186) (234) 256 31 NAOperating cash flow 6,857 6,269 5,063 5,208 -8.8%Capital expenditure (694) (671) (800) (884) NAFree cash flow 6,163 5,599 4,262 4,325 -11.1% Upside/downside scenarios

Valuation and leverage metrics AverageP/E (x) 8.4 9.2 12.7 11.3 10.4 EV/EBITDA (x) 5.5 6.0 8.2 7.2 6.7 Price/BV (x) 3.6 3.2 2.9 2.6 3.1 Dividend yield (%) 4.9% 4.9% 4.9% 4.9% 4.9Total debt/capital (%) 36% 34% 27% 25% 30.3


R&D/sales (%) 21.2 20.9 23.4 23.5 22.2 Revenues versus EBIT (in $ mn)R&D growth yoy (%) 12.9 4.2 2.8 1.7 5.4SG&A growth yoy (%) 2.3 10.2 -2.6 -3.2 1.7


Why a 2-Equal Weight? LLY is about to embark onone of the most dramatic patent cliffs in the next 2-3years (we estimate $7-8B of current sales base atrisk to generic exposure). Replenishment of top-line,post-expiry, is dependent on a high risk pipeline,much of which will de-risk over the next year.

Potential R&D catalysts for Phase III assets deliver in2012-2013, providing visibility to growth post 2014.Potential for topline growth post 2014 drives theupside case of $44 (14x FY12e EPS).

LLY's Solanezumab fails its interim analysis and thecompany suffers additional setbacks in other PhIIIassets in the next year. Assuming <30% pipelinesuccess, we project a downside case of $33 (10xFY12e EPS).

05000

1000015000200002500030000

2010A 2011E 2012E 2013E

Revenue EBIT

DownsideCase

$33(-18.1%)

PriceTarget

$39(-3.22%)

UpsideCase

$44(9.1%)

16

26

36

46

4-Feb-11 17-Jan-12

DownsideCase

$33(-17.5%)

PriceTarget

$39(-2.57%)

UpsideCase

$44(9.9%)

16

26

36

46

4-Feb-11 17-Jan-12


18 January 2012 55

COMPANY SNAPSHOT

Amgen Inc. U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 15,053 15,531 16,097 16,523 3.2% Stock Rating 2-EQUAL WEIGHTEBITDA 7,167 6,786 6,981 7,215 0.2% Sector View 1-POSITIVEEBIT 6,150 5,747 6,045 6,305 0.8% Price (17-Jan-2012) $68.07Pre-tax income 6,188 5,746 5,671 5,999 -1.0% Price Target $65.00Net income 5,024 4,916 4,820 5,099 0.5% Ticker AMGNReported EPS ($) $5.21 $5.35 $5.96 $6.53 7.8%Diluted shares (m) 964 919 809 781 -6.8% Investment case

Dividend per share ($) - $0.56 $1.44 $1.76 NA


Balance sheet and cash flow ($mn) CAGRTangible fixed assets 6,793 6,509 6,353 6,243 -2.8%Intangible fixed assets 13,564 14,550 11,768 11,768 -4.6%Cash and equivalents 17,422 22,600 24,784 27,050 15.8%Total assets 43,486 49,674 49,205 51,521 5.8%Short and long-term debt 13,362 21,046 20,934 18,634 11.7% Downside case $49.00Other long-term liabilities 2,098 2,657 2,893 3,016 12.9%Total liabilities 19,542 28,378 28,393 26,211 10.3%Net debt/(funds) (4,060) (1,554) (3,850) (8,416) NAShareholders' equity 23,944 21,296 20,812 25,310 1.9%Change in working capital (301) (1,546) (28) 31 NAOperating cash flow 5,787 4,397 5,728 6,040 1.4%Capital expenditure (580) (533) (779) (800) NAFree cash flow 5,207 3,864 4,949 5,240 0.2% Upside/downside scenarios

Valuation and leverage metrics AverageP/E (x) 13.1 12.7 11.4 10.4 11.9 EV/EBITDA (x) 8.2 8.7 8.4 8.1 8.4 Price/BV (x) 2.7 2.9 2.6 2.1 2.6 Dividend yield (%) - 0.8 2.1 2.6 1.4Total debt/capital (%) 35.8 49.7 50.1 42.4 44.5


R&D/sales (%) 18.4 19.7 20.0 20.0 19.5 Revenues versus EBIT (in $ mn)R&D growth yoy (%) 1.2 10.3 5.3 2.6 4.9SG&A growth yoy (%) 5.0 12.1 2.6 0.1 4.9


Why a 2-Equal Weight? Amgen's core franchise isfaced with pressures due to dialysis bundling andlabelling changes. Biosimilar entry and brandcompetition could further erode the top-line. Xgevacould fuel growth thru additional indications. Our PTof $65 reflects an 10.9x multiple of our FY12 EPSestimate of $5.96.

Zometa generic has limited impact to Xgeva sales;Xgeva experiences rapid uptake due to favorableformulary status as well as a bone met-free survivalclaim and biosimilars have limited impact. This leadsto stock valuation of $72 (12.1x FY12e EPS).

If Xgeva fails to get the bone met-free survival claimand the reimbursement environment worsens to apoint where Zometa generic is preferred, Xgeva salescould stagnate. The core franchise could also sufferfrom biosimilar entry, leading to a valuation of $49(8.2x FY12e EPS).

0

5000

10000

15000

20000

2010A 2011E 2012E 2013E

Revenue EBIT

DownsideCase

$49(-28.0%)

PriceTarget

$65(-4.51%)

UpsideCase

$72(5.7%)

22324252627282

4-Feb-11 17-Jan-12


18 January 2012 56

COMPANY SNAPSHOT

Abbott Laboratories U.S. Major Pharmaceuticals

Income statement ($mn) 2010A 2011E 2012E 2013E CAGRRevenue 35,167 39,007 40,659 41,707 5.8% Stock Rating 2-EQUAL WEIGHTEBITDA 10,783 12,157 12,696 12,855 6.0% Sector View 1-POSITIVEEBIT 8,039 8,974 9,585 10,002 7.6% Price (17-Jan-2012) $55.71Pre-tax income 7,769 8,608 9,304 9,777 8.0% Price Target $55.00Net income 6,501 7,305 7,841 8,142 7.8% Ticker ABTReported EPS ($) 4.17 4.66 5.03 5.32 8.4%Diluted shares (m) 1,559 1,568 1,559 1,531 -0.6% Investment case



Balance sheet and cash flow ($mn) CAGRTangible fixed assets 9,063 9,665 9,664 9,694 2.3%Intangible fixed assets 28,082 29,155 27,439 25,950 -2.6%Cash and equivalents 5,451 9,167 13,875 16,957 46.0%Total assets 59,462 63,128 66,643 69,364 5.3%Short and long-term debt 18,918 17,094 16,582 16,582 -4.3% Downside case $47.00Other long-term liabilities 7,200 6,428 6,428 6,428 -3.7%Total liabilities 36,986 31,228 30,961 31,250 -5.5%Net debt/(funds) 13,467 7,927 2,708 (374) NAShareholders' equity 22,476 31,900 35,681 38,114 19.2%Change in working capital 5,055 12,501 18,000 21,391 61.7%Operating cash flow 8,736 10,512 10,692 10,228 5.4%Capital expenditure 1,015 1,564 1,342 1,376 10.7%Free cash flow 7,721 8,948 9,350 8,852 4.7% Upside/downside scenarios



R&D/sales (%) 9.9 9.7 9.5 9.5 9.7 FY11e Business Segment %R&D growth yoy (%) 28.8 9.0 1.9 2.6 10.6SG&A growth yoy (%) 19.4 10.4 4.2 0.6 8.7

Source: Company data, Barclays Capital Source: Company disclosures. Barclays Capital estimates.

Why a 2-Equal Weight? We expect the stock totrade range-bound as 1) there are few near-termcatalysts and 2) investors hold the stock inanticipation of split details. A pharma spin-off wouldsignificantly expose the "New Co." to Humira risk.Our Sum-of-the-Parts analysis suggets a price in therange of $55-$62.

Confidence around Humira's growth is restored asoral competitor's safety profile come under question.Data disclosures from oncology, HCV, and renalcandidates provide visibility for post 2014 growth,leading to stock valuation of $62 (12x FY12e EPS).

If oral competitors deliver strong clincial data, andthe agents enter the market and rapidly take marketshare from Humira, we believe the stock could reachthe downside case of $47 (9x FY12e EPS).

Vascular9%

Other8%Nutritionals

15%Total

Pharmaceuticals57%Diagnostics

11%

DownsideCase

$47(-13.2%)

PriceTarget

$55(1.5%)

UpsideCase

$62(14.4%)

22

32

42

52

62

72

4-Feb-11 17-Jan-12

DownsideCase

$47(-15.6%)

PriceTarget

$55(-1.27%)

UpsideCase

$62(11.2%)

22

32

42

52

62

72

4-Feb-11 17-Jan-12


18 January 2012 57


18 January 2012 58

ANALYST(S) CERTIFICATION(S)

I, C. Anthony Butler, Ph.D., hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or allof the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectlyrelated to the specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED

For current important disclosures, including, where relevant, price target charts, regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer tohttp://publicresearch.barcap.com or call 1-212-526-1072.

The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's totalrevenues, a portion of which is generated by investment banking activities.

Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays Capital policy prohibits them from accepting payment or reimbursement by any covered company of the their travel expenses for such visits.

In order to access Barclays Capital's Statement regarding Research Dissemination Policies and Procedures, please refer to https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.

Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in othertypes of research products, whether as a result of differing time horizons, methodologies, or otherwise.

Primary Stocks (Ticker, Date, Price)

Abbott Laboratories (ABT, 17-Jan-2012, USD 55.71), 2-Equal Weight/1-Positive

Amgen Inc. (AMGN, 17-Jan-2012, USD 68.07), 2-Equal Weight/1-Positive

Biogen Idec (BIIB, 17-Jan-2012, USD 116.90), 1-Overweight/1-Positive

Bristol-Myers Squibb (BMY, 17-Jan-2012, USD 33.72), 1-Overweight/1-Positive

Johnson & Johnson (JNJ, 17-Jan-2012, USD 65.12), 1-Overweight/1-Positive

Lilly, Eli (LLY, 17-Jan-2012, USD 40.03), 2-Equal Weight/1-Positive

Merck & Co. (MRK, 17-Jan-2012, USD 38.82), 1-Overweight/1-Positive

Pfizer Inc. (PFE, 17-Jan-2012, USD 21.93), 2-Equal Weight/1-Positive

Other Material Conflicts

ABT: Barclays Capital is providing investment banking services to Abbott Laboratories in relation to its announced separation into two publicly-traded companies.

Guide to the Barclays Capital Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the "sectorcoverage universe").

In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.

2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.

3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.

RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable orto comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisory capacity in a merger or strategic transaction involving the company.

Sector View

1-Positive - sector coverage universe fundamentals/valuations are improving.

2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

3-Negative - sector coverage universe fundamentals/valuations are deteriorating.


18 January 2012 59

IMPORTANT DISCLOSURES CONTINUED

Below is the list of companies that constitute the "sector coverage universe":

U.S. Major Pharmaceuticals

Abbott Laboratories (ABT) Amgen Inc. (AMGN) Biogen Idec (BIIB)

Bristol-Myers Squibb (BMY) Johnson & Johnson (JNJ) Lilly, Eli (LLY)

Merck & Co. (MRK) Pfizer Inc. (PFE)

Distribution of Ratings:

Barclays Capital Inc. Equity Research has 2169 companies under coverage.

44% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 53% ofcompanies with this rating are investment banking clients of the Firm.

41% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 49% ofcompanies with this rating are investment banking clients of the Firm.

13% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 39% ofcompanies with this rating are investment banking clients of the Firm.

Guide to the Barclays Capital Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.

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London

Barclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London)

New York

Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Capital Japan Limited (BCJL, Tokyo)

São Paulo

Banco Barclays S.A. (BBSA, São Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCC, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

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Taiwan

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Seoul

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Mumbai

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