Pair Trade: Long Roche - Short Novartis Tuesday, October 9th 2012Company Description Investment Case Roche Holding (ROG VX) H1 2012 was solid. Key drugs and Emerging markets showed significant growth in Q2 2012. At its investor day, Roche reiterated its debt reduction plan. The company indicated that it does not intend to complete large-scale M&A. Smaller-sized opportunities are preferred. This could underpin Roche’s ability to return incremental cash to shareholders. The latest IMS sales released at the end of September suggests that Q3 could have been another good quarter for Roche´s US Business.Market Price DataRoche Holding (ROG VX) Restructuring benefits (further productivity measures), a well-diversifiedLast Price (CHF) 183.20 Pharma portfolio, emerging market growth and late stage pipeline newsYTD Change 15.08% flow (new products are expected to be launched and several clinical trialsMkt Cap (CHF bn) 158.806 are on a late-stage) seem to support Roche stock price.Novartis (NOVN VX) Novartis (NOVN VX): The US patent expiry of Novartis’ Diovan has occurredLast Price (CHF) 58.5 st on September 21 . Mylan received approval for their generic. NovartisYTD Change 8.85% should apply a high price reduction to maintain market share. This wasMkt Cap (CHF bn) 158.177 expected and created uncertainty on the company’s 2012-2014 growthSource: Bloomberg trajectory.Analysts Recommendations: The company is focused in long-term value creation. This seems the right strategy. At the end of September, Novartis reported positive phase III for Relaxin (for Acute Heart Failure) earlier than expected by the market. However, near-term, the market will probably wait for higher visibility regarding: Investment decisions behind new products in Pharma; Novartis’ post-Diovan margins.Source: Bloomberg The ROG VX/NOVN VX has a current ratio of 3.13. We will define as ourMarket Multiples target a 3.39. We will use as a stop-loss 2.97. P/E 2013 CAGR EPS DY 2013 Est. 2013/11 Est. Est. Technical CommentRoche Holding 12.14 10.74% 4.47%Novartis 11.35 -0.70% 4.10%Source: BloombergNext Report DateRoche 3Q Sales October 16thNovartis 3Q Results October 25thSource: Bloombergwww.fincor.ptwww.facebook.com/FincorAnnouncement: Fincor—Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents men-tioned in this document do not constitute (nor should they be interpreted as to form) any kind of counselling, or investment recommendation, or arecord of our trading prices, or an offer or solicitation to trade in any financial instrument. Fincor—Sociedade Corretora, S.A. Will not accept anyresponsibility resulting from any use referring to said content or about any resulting effect that could have occurred.