Wall Street Mastermind Sector Spotlight - Healthcare (September 2023)

3
TABLE OF CONTENTS Healthcare
I. Trading and M&A Comps 5
II. Obesity Drug Market 13
III. Illumina/Grail Debacle 18
IV. Royalty Financing 24
V. J&J Consumer Health IPO 27
VI. Appendix 32

4
VI. Appendix 32

5
Trading Comps Pharmaceuticals
Company Ticker Exchange S/O (m) Price Market Cap ($m) EV/EBITDA EV/Rev
Corcept Therapeutics CORT NASDAQ 103 31.64
$ 3,430
$ 30.1x 7.2x
Harrow Health HROW NASDAQ 35 14.06
$ 525
$ NM 6.6x
Ironwood Pharmaceuticals IRWD NASDAQ 156 9.29
$ 1,300
$ 7.6x 4.5x
Pacira Biosciences PCRX NASDAQ 46 33.15
$ 1,560
$ 8.9x 2.9x
Alimera Sciences ALIM NASDAQ 52 3.09
$ 174
$ NM 5.0x
BioMarin Pharmaceutical BMRN NASDAQ 188 86.51
$ 16,590
$ 74.0x 7.4x
United Therapeutics UTHR NASDAQ 47 222.75
$ 10,340
$ 7.1x 4.0x
Organon & Co. OGN NYS 256 18.26
$ 4,990
$ 6.8x 2.2x
Regeneron Pharmaceuticals REGN NASDAQ 107 824.84
$ 89,390
$ 14.0x 6.6x
Collegium Pharmaceutial COLL NASDAQ 35 22.26
$ 787
$ 2.5x 2.3x
Mean 92.1x 4.9x
Median 11.5x 4.8x

6
Trading Comps Healthcare Services
Company Ticker Exchange S/O (m) Price
Market Cap
($mm) EV/EBITDA EV/Rev
Select Medical Holdings SEM NYS 127 26.26
$ 3,290
$ 11.6x 1.3x
Encompass Health EHC NYS 100 70.81
$ 6,810
$ 10.7x 2.2x
Option Care Health OPCH NASDAQ 180 33.75
$ 6,270
$ 19.3x 1.7x
Adapt Health AHCO NASDAQ 136 8.85
$ 1,330
$ 5.9x 1.2x
Amedisys AMED NASDAQ 33 94.00
$ 3,060
$ 12.0x 1.6x
Pediatrix Medical Group MD NYS 84 12.35
$ 1,070
$ 7.3x 0.9x
Medpace MEDP NASDAQ 31 243.89
$ 8,560
$ 25.2x 5.2x
Evolent Health EVH NYS 113 26.80
$ 2,970
$ 26.0x 2.3x
RadNet RDNT NASDAQ 68 28.05
$ 1,930
$ 11.6x 2.2x
Apollo Medical Holdings AMEH NASDAQ 47 30.42
$ 1,540
$ 10.4x 1.2x
Mean 14.0x 2.0x
Median 11.6x 1.6x

7
Trading Comps Healthcare IT
Company Ticker Exchange S/O (m) Price Market Cap ($m) EV/EBITDA EV/Rev
Augmedix AUGX NASDAQ 41 4.95
$ 210
$ 0.2x 5.7x
Doximity DOCS NYS 126 20.24
$ 4,130
$ 15.6x 7.5x
Consensus Cloud Solutions CCSI NASDAQ 20 25.00
$ 494
$ 6.5x 3.3x
Semler Scientific SMLR NASDAQ 7 26.67
$ 190
$ 6.3x 2.1x
Simulations Plus SLP NASDAQ 20 39.85
$ 817
$ 45.1x 12.5x
Omnicell OMCL NASDAQ 45 48.71
$ 2,510
$ 15.7x 2.2x
Health Catalyst HCAT NASDAQ 57 9.81
$ 593
$ 53.6x 1.8x
OptimizeRx OPRX NASDAQ 17 7.39
$ 139
$ 20.8x 1.2x
Carecloud CCLD NASDAQ 16 1.15
$ 20
$ 1.2x 0.2x
Mesa Labs MLAB NASDAQ 5 113.61
$ 662
$ 18.7x 3.7x
Mean 18.4x 4.0x
Median 15.6x 2.7x

8
M&A Comps Life Sciences
Transaction LTM Valuation Metrics ($ in millions)
Date Target Acquirer EV Revenue EV/Rev
08/11/2023
Chinook
Therapeutics
Novartis $3500 $6 598.4x
08/17/2023 PhenomeX Bruker $108 $72 1.5x
08/17/2023 Kerecis Coloplast $1300 -- --
09/04/2023 Ergomed Permira $892 -- --
09/11/2023
Magenta
Therapeutics
Dianthus Therapeutics $380 -- NM

9
M&A Comps Healthcare Information Technology, Healthcare Services
Healthcare
Services
Healthcare
Information
Technology Transaction LTM Valuation Metrics ($ in millions)
Date Target Acquirer EV Revenue EV/Rev
08/11/2023 Emis Group UnitedHealth Group $0 --
09/10/2023 NexTech TPG $0 --
08/11/2023
Tabula Rasa
Healthcare
Exact Care Pharmacy $570 $338 1.7x
08/29/2023 Instem ArchiMed $0 --
08/13/2023 VBA Software
Arthur Ventures, Spectrum
Equity
$0 --
Enterprise LTM Valuation Metrics ($ in millions)
Date Target Acquirer Value Revenue Enterprise Value/Revenue
09/06/2023 NextGen Healthcare Thoma Bravo $1800 $678 2.7x
08/03/2023 Laya Healthcare AXA $719 -- --
08/14/2023 CorEvitas Thermo Fisher Scientific $913 $110 8.3x
08/28/2023 Circle Health Group Centene $1200 -- --

10
COVID-19 Cyclicality and Updated Guidance
• Pfizer (PFE) reported on September 18th that future COVID-19 vaccination rates would be around 24%. When
compared to other diseases it is starkly behind their vaccination rates. For instance, other commercialized
vaccines like the flu, have a vaccination rate upwards of 50%
• The change in expected vaccination rates related to COVID-19 vaccination rates could have a harsh effect on
future cash flows from COVID vaccines that were expected to be higher in the fall months. News of this predicted
vaccination rate quickly entered the mark with Moderna (MRNA) dropping 10% and Pfizer (PFE) dropping
around 1.5%
• With Pfizer revenues being predominantly from COVID last year, it is incredibly likely that the decrease in
demand this year could heavily affect the company's top and bottom lines leading to lower cash inflows for more
investments into new acquisitions and investments such as the Seagen acquisition, which totaled around $43bn
• US COVID-19 cases are on a slight increase, increasing to 20,000 hospitalizations recently, from a low 6,300
hospitalizations in July, this could signal a cyclical nature that will lead to increased revenues in certain
quarters similar to current flu shots that are currently on the market
COVID Vaccination Rates and Cyclicality Developments:
$36,781 $37,806
$18,933
FY 21 FY 22
Pfizer (PFE) COVID-19 Revenues ($ MM)
Cormirnaty Paxlovid
Note: Paxlovid Revenues in 2021 were $76 million.
Source: CDC, Pfizer

11
VI. Appendix 32

12
Obesity Drugs Market Overview
• Anti-obesity drugs market is set to reach $77.24 Bn by 2030. North America
dominates a majority of the market (66.1%) from a few key drivers:
➢ The United States has a major percentage of the obese population in the
world, despite being only the 3rd largest country in the world
➢ The US has an obesity rate of 41.5%, which is set to increase in the coming
years
➢ Finally, the US continues to have a higher expenditure on prescription
drugs in comparison to other countries due to household income and
demand levels
• Market at a $2.4 Bn size right as of 2022, with an expected 31.66% CAGR from
2024-2030
• Obesity is estimated to affect around 750 million people globally
• Patient demand for obesity drugs has skyrocketed since their release because
compared to other methods like Bariatric surgery they are much more cost-
effective
Obesity Drug Market Drivers and Overview:
USD ($ Bn) 2024 2025 2026 2027 2028 2029 2030
US Rev $ 11.39 $ 17.36 $ 23.45 $ 32.58 $ 38.66 $ 44.79 $ 51.05
Ex-US Revs 3.44 7.05 10.98 15.27 19.16 22.86 26.19
Total Revenues 14.83
$ 24.41
$ 34.43
$ 47.85
$ 57.82
$ 67.65
$ 77.24
$
US Rev 76.8% 71.1% 68.1% 68.1% 66.9% 66.2% 66.1%
Ex-US Revs 23.2% 28.9% 31.9% 31.9% 33.1% 33.8% 33.9%
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Morgan Stanley Research
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2024 2025 2026 2027 2028 2029 2030
Obesity Market (2024-2030)
US Revenues Ex-US Revenues High efficacy patient share
in $USD billions

13
$8,459
$1,745 $1,600
$2,189
$284
$1,324
$648 $398
$1,086
$409
$1,159
$457
Novo Nordisk Revenue by Product ($ mm)
Obesity Drugs Novo Nordisk Overview
• Novo Nordisk currently has a market cap of $333bn, making the pharmaceutical company the
second biggest firm in Europe. The firm's prominence is built of their semaglutide drugs that
address diabetes and obesity such as Ozempic and Rybelsus
• The firm’s market value exceed Denmark’s output due to overwhelming demand for Wegovy.
However, the inability of the firm to meet the demand for Wegovy in the U.S. has led to a delayed
launch in Europe. Wegovy sales are up 537% Y/Y as of Q2 2023
• Netted $5bn in total in the first half of 2023 from GLP-1 drugs and looking at increasing their
forecast for the year. GLP-1 drugs account for half of their total sales year to date. GLP-
1 Receptor Agonist Market size to grow at CAGR 9.6% from 2023-2032
Overview: Novo Nordisk (NVO)
$1.26 $1.23
$1.38
$1.65 $1.74
$2.51
$3.03
FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24
Novo Nordisk (NVO) EPS Forecast 2018 -
2024

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Obesity Drugs Novo Nordisk’s Obesity Acquisitions
• Deal announced in August 2023 to acquire Danish pharmaceutical company
focused on remedies for cardiometabolic diseases for ~$514mm.
Acquisition includes its lead metabolic program and a three-year research
and development collaboration to discover and develop novel
pharmaceuticals to treat obesity and related comorbidities
• The company was developing agonists of EMB1, a previously
undescribed adipocyte G-protein coupled receptor, in the belief they drive
weight loss by raising glucose uptake and energy expenditure. GPR3, a
constitutively active G-protein coupled receptor that it called an “important
regulator of thermogenic adipose activity”
Embark Rationale:
• Deal announced in August 2023 to acquire Canadian obesity drug maker for
$1.08bn. Currently developing INV-202, a potential first-in-class small
molecule CB1 receptor (CB1r) blocker being developed for the treatment of
metabolic disorders
• Acquisition includes the company's development of CB1 protein
blockers, which plays an important role in metabolism and
appetite regulation. Additional pipeline assets are being developed
for metabolic and fibrotic disorders
Inversago Rationale:

15
• Eli Lilly is the largest pharmaceutical company in the world with a market cap of $546bn. Firm
is the world's largest manufacturer and distributor of medications. The firm's diabetic
medication made up 50% of revenue in 2022. Total 2022 Mounjaro revenue was $482mm; Eli
Lilly's most recent quarter Mounjaro revenue surging to $979mm demonstrates its significant
demand
• Eli Lilly is Novo Nordisk's biggest competitor for market share in the weight loss market.
Eli Lilly's Mounjaro is currently FDA approved for type 2 diabetes and soon to be approved
for weight loss as FDA permitted accelerated approval for the drug. Due to increased
demand, there's a drug shortage for Mounjaro
• Eli Lilly bought Versanis Bio, an acquisition deal worth $1.9bn. The
biopharmaceutical company that develops treatments for cardiometabolic diseases, including
obesity. Their lead product candidate is bimagrumab, a monoclonal antibody that targets fat
and muscle tissues. Bimagrumab is currently being assessed in a Phase 2b study
Overview: Eli Lilly (LLY)
Obesity Drugs Eli Lilly
$22,320
$24,540
$28,318 $28,541
$33,900
FY 19 FY 20 FY 21 FY 22 FY 23
Eli Lilly (LLY) Revenue ($ mm)
$1,912
$16
$461
$29
$447
$274
$174 $125
$1,813
$980
$668 $614
$440
$205 $154 $137
Trulicity Mounjaro Jardiance Baqsimi Humalog Humulin Basaglar Other
Diabetes
Six Months Ended Diabetes Revenue ($ mm)
2022 2023
43%
53% 60% 60%
57%
47% 40% 40%
Q1 2022 Q2 2022 Q1 2023 Q2 2023
Eli Lilly Revenue Distribution ($ mm)
Diabetes Other

16
VI. Appendix 32

17
Illumina CEO Transitions, Major Events and Market Cap
New CEO:
Francis
deSouza
New CEO:
Charles
Dadswell
(interim)
New CEO: Jay
Flatley
Announced
acquisition of
Grail

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Illumina Acquisition Strategy: Vertical Growth into Cancer Detection Products
• In the past 5 years, Illumina has acquired 5 companies in the genomics data industry in order to bolster the services that their clients expect
• The rationale behind the Grail acquisition was to bolster their products and services to take market share away from their competitors
• The FTC put a damper on these plans by effectively blocking the acquisition from going through and putting increase surveillance on Illumina
• In 2018, Illumina acquired Edico Geno to acquire the company’s Bio-IT platform DRAGEN. Illumina’s main goal was to integrate its product within its current service and product
offerings in order to make experience for customers more efficient and seamless across a cloud platform
• In 2020, Illumina acquired both Enancio and BlueBee. Enancio offered software that combined with current systems would help reduce costs in genomic data compression. BlueBee was
acquired in June a month before to simply and secure cloud access, while lowering costs associated with their platform
• 2021 saw Illumina partnering with Emedgene in a way to bring machine learning and artificial intelligence to their genomics data and detection products
• Most recently, Illumina, along with fighting the FTC, has acquired IDbyDNA to gain access to their full software that tests for infectious diseases and provides pathogen surveillance
Past M&A Transaction Rationale
Overview
Illumina's M&A Activity (2018-Present)
Year Target Transaction Value Overview
2018 Edico Genome $100 Mn Genomic data analysis
2020 Enancio Undisclosed Genomic data compression
2020 BlueBee Undisclosed Genomics cloud computing
2021 Emedgene Undisclosed Genomic data analysis; machine learning
2022 IDbyDNA Undisclosed Infectious disease testing, pathogen surv., molecular diagnostics

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Illumina Illumina’s Acquisition of Grail
• Illumina (ILMN) is a life sciences company specializing in genetic sequencing and analysis solutions. Their products enable users to
unlock the secrets of the genome, advancing our understanding of genetics and driving advancements in personalized medicine,
cancer research, and various genetic applications
• Illumina has faced an incredible amount of backlash from investors, such as Carl Icahn for closing the acquisition of Grail for $7.1bn
before even having regulatory approval in the first place
• 2 years since announcing the completion of the deal in August 2021, Illumina is still being probed by both the SEC and FTC regarding
their acquisition leaving many outlooks on the company largely unknown
• Illumina's portfolio includes high-throughput sequencing platforms, genetic testing kits, and data analysis software, making them a
pivotal player in the genomics industry
$ in Millions
Six Months Ended Q2 21 Q2 22 Q2 23
Revenues:
(+) Product Revenue 1,925
$ 2,076
$ 1,923
$
(+) Service Revenue 294 310 340
Total Revenues 2,219 2,386 2,263
(-) Cost of Revenues 653 803 877
Gross Profits 1,566 1,583 1,386
Operating Expenses:
(-) R&D Expenditues 398 650 699
(-) Selling, General and Administrative Expense 787 719 824
(-) Litigation Expense - 609 15
(-) Goodwill Impairment - - -
Operating Income 381 (395) (152)
(-) Net Interest Expense 34 11 5
(-) Other Non-Operating (Income)/Expense (31) 91 10
Earnings Before Taxes 378 (497) (167)
(-) Tax Expense (Benefit) 45 (48) 64
Net Income 333
$ (449)
$ (231)
$
• 2022 saw Illumina record a net loss of $4.4bn, due to the related legal ($619mm) and goodwill impairments ($3.91bn) that resulted from
pending investigations from the FTC
• Due to recent events, the CEO of Illumina resigned from the company on June 11, 2023, Chief Counsel took over as interim CEO, but as of
September 5th, 2023, Illumina appointed Jacob Thayson as its new CEO
$ in Millions
12 Months Ended FY 20 FY 21 FY 22
Revenues:
(+) Product Revenue 2,735
$ 3,968
$ 3,953
$
(+) Service Revenue 504 558 631
Total Revenues 3,239 4,526 4,584
(-) Cost of Revenues 1,036 1,372 1,612
Gross Profits 2,203 3,154 2,972
Operating Expenses:
(-) R&D Expenditues 682 1,185 1,321
(-) Selling, General and Administrative Expense 941 2,092 1,297
(-) Litigation Expense - - 619
(-) Goodwill Impairment - - 3,914
Operating Income 580 (123) (4,179)
(-) Net Interest Expense 8 61 15
(-) Other Non-Operating (Income)/Expense (284) (1,068) 142
Earnings Before Taxes 856 884 (4,336)
(-) Tax Expense (Benefit) 200 122 68
Net Income 656
$ 762
$ (4,404)
$
Overview of Acquisition
Financial and Management Changes
Note: Adjusted earnings values reflect the removal of one-off
items that only were incurred during FY 22. Including, Goodwill
Impairment, and Litigation Expense
$656 $762
$(4,404)
Illumina Earnings ($ in Millions)
FY 20 FY 21 FY 22
$656
$762
$129
Illumina Adj. Earnings ($ in Millions)
FY 20 FY 21 FY 22

20
Illumina Projected Market: Cancer Detection
Graph Information
Cancer Detection Market Drivers
• The prevalence of cancer continues to rise. Cancer remains a pressing global issue,
contributing significantly to worldwide mortality rates, and affecting both
established and emerging markets
• The increasing prevalence of cancer underscores the importance of a shift in
healthcare focus towards prevention and early detection. This shift drives demand
for precise and sensitive cancer diagnostic solutions
• Consequently, the global cancer diagnostics market is projected to experience
substantial growth. The persistent rise in the global cancer patient population is
expected to significantly boost the revenue outlook for this market
• Projections indicate that by 2040, there will be an estimated 30 million new cases
of cancer annually, a substantial increase from the approximately 19 million new
cases reported in 2020
• The consumables category stands as the primary source of revenue within the
product lineup and is anticipated to experience substantial growth in the forecasted
period. This growth can be attributed to several key factors, including heightened
utilization of consumables in cancer diagnostics, increased investments in research
and development, the growing prevalence of cancer, a rising elderly population, and
the introduction of advanced technological products
• As the aging population continues to grow, the number of individuals at higher risk
for cancer also increases. This demographic shift is expected to drive up the
demand for cancer diagnostics in the near future, as there will be a greater need to
detect and address cancer-related concerns among this vulnerable demographic
Year Market Size (in Billions) Growth Rate
2023 $107.62 6.07%
2024 $114.15 6.07%
2025 $121.08 6.07%
2026 $128.43 6.07%
2027 $136.23 6.07%
2028 $144.50 6.07%
2029 $153.27 6.07%
2030 $162.57 6.07%

21
Illumina Current Look at Valuation
Analysis:
• After taking into account one-off inputs in FY 22 for SG&A expenses, associated with legal expenses and a one-time goodwill impairment of Illumina’s Grail acquisition, revenues and corresponding
expenses were forecasted to values of what is consensus on the street. Following, a strong declining growth rate was forecasted to account for the fast-expanding market that Illumina is in
• After forecasting cashflows, both the perpetuity growth and exit multiple methods were used to calculate Equity Value per share. After discounting cash flows, the WACC, we arrived at respective
implied share prices of $94.76/share for PGM, and $131.60/share for EMM
• Based on the discounted cash flow, we believe that Illumina, despite falling drastically is valued fairly by the market. For more details on assumptions, see the appendix
In USD ($ Millions) Historical year ending 12/31/2022 Projected year ending 12/31/2022
FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 27
3,239
$ 4,526
$ 4,584
$ 4,813
$ 5,535
$ 6,476
$ 7,383
$ 8,195
$
1,036 1,372 1,612 1,693 1,919 2,213 2,486 2,718
2,203 3,154 2,972 3,121 3,616 4,264 4,897 5,477
Perpetuity Growth Rate Method
1,438 3,026 6,757 2,335 2,666 3,097 3,504 3,861
765 128 (3,785) 785 950 1,167 1,393 1,616
23.6% 2.8% -82.6% 16.3% 17.2% 18.0% 18.9% 19.7%
(156) (176) (215) (208) (255) (316) (380) (444)
(29) (75) (179) (127) (127) (127) (127) (127)
580 (123) (4,179) 450 569 724 886 1,045
(220) 47 1,588 - - - - -
360 (76) (2,591) 450 569 724 886 1,045
251 394 335 382 443 507 571
(208) (286) (261) (300) (351) (400) (444)
- (180) (90) (90) (90) (90) (90)
(3) 282 80 (104) (184) (171) (199)
(36) (2,381) 515 457 543 732 883
(Increase)/Decrease in Working Capital
Unlevered Free Cash Flow
Less: Capital Expenditures
Less: Additions to Intangibles
Plus: Depreciation and Amortization
Less: Taxes @ 0.0%
Tax-affected EBIT
Less: Amortization
EBIT
Less: Depreciation
EBITDA
EBITDA Margin
SG&A
Cost Of Goods Sold
Gross Profit
Sales
Forecasted Cash Flows
Unlevered Free Cash Flow 514.8 456.6 542.5 732.2 882.8
Discount Period 1 2 3 4 5
WACC 10.10% 10.10% 10.10% 10.10% 10.10%
Discount Factor 0.908 0.824 0.748 0.68 0.617
Present Value Of Each Unlevered Free Cash Flow 467.4 376.4 406 497.5 544.7
Perpetuity Growth Rate Method Multiple Method
Weighted Average Cost Of Capital: 10.1% Weighted Average Cost Of Capital: 10.1%
Net Present Value Of Free Cash Flow 2,292.10 Net Present Value Of Free Cash Flow 2,292.10
Terminal Growth Rate 5.0% Terminal Multiple 17.0x
Terminal Value 18,034.30 Terminal Value 27,469.40
Present Value of the Terminal Value 11,126.90 Present Value of the Terminal Value 16,948.20
Enterprise Value 13,419.00 Enterprise Value 19,240.30
Plus: Net Cash* 1,553.00 Plus: Net Cash* 1,553.00
Equity Value 14,972.00 Equity Value 20,793.30
PPS: 131.41
Diluted shares: 158 Diluted shares: 158
Equity Value Per Share 94.76 Equity Value Per Share 131.60

22
VI. Appendix 32

23
Royalty Financing Overview
Overview
• Royalty financing is a form of fundraising
whereby the royalty holder, who functions as a
financier, provides a manufacturer an fixed
amount alongside optional subsequent
payments tied to specific KPIs for an asset(s).
• The drug manufacturer commits to
paying the holder of the royalty holder a
percentage of future sales from select
assets
Deal Distribution
• Deal distribution across therapy areas has, for the most part, been in line with the broader biopharma
development pipeline
• Two exceptions: Cardiology and Metabolic Disorders comprise 8% and 12% of total royalty deal
value respectively
Sponsor Concentration
• Three firms are responsible for 71% of the market
• Royalty Pharma with $4.2 billion (36%)
• Healthcare Royalty Partners with $2.3 billion (19%)
• Blackstone Life Sciences with $1.8 billion (16%)
• Non-dilutive and preserves equity ownership
• Can be structured faster with less documentation than typical
preferred equity or debt instruments
• Structured to fluctuate with revenue and don't carry the same risk
of default as traditional debt instruments
• Can be used in combination with debt and equity to optimize cost
of capital
Why?
Sources: ZS, Oliver Wyman
Deal
Count
by
Therapeutic
Area

24
Royalty Financing Trends
The Importance of Emerging Biotech, a Strong Benefactor in the rise of Royalty Financing
% of Royalty Financing by Company Size in the Past 10 years
Precedent Transactions Sector Tailwinds
• Current macroeconomic conditions, namely diminished biotech valuations have limited the
appetite for capital market-based instruments as a basis for raising capital
• Increasing demand for specialty drugs means that larger pharmaceutical companies need now
more than ever access to diverse pipelines.
• Royalty Financing not only gives companies exposure to emerging biotech, but gives them an
instrument that enables diversification on both a molecular and financial level.
• Emerging biotechs don't have the same access to cash flows and
favorable debt financing that larger, more established
companies do.
• Emerging biotechs are especially sensitive to cash constraints as
they often have highly speculative, R&D-heavy, single-pipeline
operations
• Emerging biotechs can also benefit significantly from intangible
factors, namely the strategic guidance and risk mitigation/IP
management expertise that larger, more established biotechs
can provide
4-year TV CAGR
Sources: Pitchbook, ZS

25
VI. Appendix 32

26
$6,361
$7,707
$9,134
$9,723
FY 19 FY 20 FY 21 FY 22
J&J Stelara Revenues ($ MM)
J&J Consumer Health IPO Summary and Details
• Johnson and Johnson finished selling their majority stake in their former consumer health
branch Kenvue. This yielded a total of $13.2bn for J&J to add to their balance sheet for a
potential blockbuster move to bolster their MedTech or Pharma portfolios
• The main book runners of the initial IPO were Goldman Sachs, JP Morgan, and Bank of America
• Interest rates are still high in comparison to the previous two years and there could still be a
rate hike on the horizon. This makes cash even more valuable when considering that cost of debt
to finance potential M&A activity is excessively high
• Johnson and Johnson has been hit by regulatory announcements that can adversely affect their
future revenues and cash flows, especially the Medicare drug price caps, which announced 10
new drugs that would be in bargaining stages for price caps
• Of the 10 drugs announced J&J had a total of 3 drugs on the list, further increasing J&J's appetite
for M&A
Key Considerations:
Synopsis:
March 2020:
COVID-19
Pandemic
Begins
March 2021:
CPI surpasses
2% Fed target
April 2021:
CPI jumps 1.6%
month-month
May 2022:
Fed announces
first 50 BPS hike
$2,473
$3,784
$9,723
Xarelto Imbruvica Stelara
Revenues (FY 22) in Danger ($ MM)
CAGR: 15.2%
Note: Revenue in Danger equals revenue at risk of loss due to price caps

27
J&J Consumer Health IPO Summary and Details (Cont.)
• J&J's established product lines that have generated historically some of their highest
revenues have been seeing fierce competition from other drug manufacturers
• AbbVie's Skyrizi performed much better than J&J's Stelara. This will cause a
reduction in their market share and J&J will be forced to use this capital from
the Kenvue spinoff to invest more into R&D or acquire companies with drugs that
have established or growing pipelines
• Stelara in 2022 generated over $9bn in revenue for J&J and with competitors
entering the market and the recent expiration of the drug patent it leaves a lot of
question marks for J&J and what their plans are to replace those revenues
• J&J’s current pipeline is robust, but is it enough to replace Stelara?
Key Considerations:
Stage Amount
Phase 1 19
Phase 2 22
Phase 3 45
Registration 12
Total: 98
40%
59%
Stelara (J&J) Skyrizi (AbbVie)
Remission by Drug

28
J&J Consumer Health IPO Company Overview
• Johnson and Johnson is currently at about a $391bn market cap with room to expand within
both Pharmaceuticals and MedTech
• In November 2022, J&J acquired Abiomed as their most recent acquisition to bolster their
MedTech segment for about $16.6bn
• Since then, one of J&J's main objective was spinning off their consumer health business segment,
Kenvue, which had the lowest margins of their three segments
• Kenvue initially IPO'd on May 4 this year but was still majority owned by J&J. In the past four
months, J&J began to sell their additional shares and generated cash that amounted to about
$13.2bn
Johnson and Johnson (JNJ) Overview:
$899
$5,810
$7,323
$60
$17,652
FY 18 FY 19 FY 20 FY 21 FY 22
J&J Spend on Acquisitions ($ MM)

29
• From this move, J&J's margins have improved across the board excluding an outlier in R&D
spending (differing nature of consumer health and pharma/MedTech)
• J&J is likely to capitalize off these margins and use proceeds to acquire a company that will
replace revenues from Kenvue
67.0%
25.5%
14.7%
34.3%
10.1%
69.0%
24.3%
16.9%
36.7%
11.5%
Gross Margin SMA % of Revenue R&D % of Revenue EBITDA Margin Net Income Margin
With Kenvue Without Kenvue
J&J Consumer Health IPO Before and After
Despite, that with this spinoff, J&J does lose a good chunk of revenue that came from their consumer health division. J&J also has increased margins and has more power to focus all its resources on investing
in both its pharma and MedTech segments. Below are details of the change in their Income Statement:
Highlights:
- Post acquisition Johson and Johnson revenues decreased by about $7.8bn, but about $13.2bn in cash was added for new expenditures
- Margins heavily improved with gross margin increasing by about 2.0% and EBITDA margin increasing by 2.4%
- Despite, losses to revenue J&J is capable of reinvesting more of its capital into its more profitable sectors of its business (potential for margin expansion)
SPINOFF EFFECTS
($ in Millions) With Kenvue Without Kenvue
Six Months Ended Q2 22 Q2 23 Q2 22 Q2 23
Pharma 26,186 27,144 26,186 27,144
MedTech 13,869 15,269 13,869 15,269
Consumer (KenVue) 7,391 7,863 - -
Total $47,446 $50,276 $40,055 $42,413
Cost of Products 15,517 16,607 12,340 13,149
Gross Profit 31,929 33,669 27,715 29,264
SMA 12,164 12,803 9,932 10,302
R&D 7,165 7,392 6,940 7,158
R&D In Process 610 49 610 49
Interest Income (86) (604) (86) (524)
Interest Expense 48 561 48 429
Other (Income) Expense, net 171 7,168 (211) 6,556
Restructuring 155 275 135 275
Earnings pre tax 11,702 6,025 10,347 5,019
Provision for taxes on income 1,739 949 1,514 134
Net Earnings from Continuing Operations 9,963 5,076 8,833 4,885
Earnings from Discontinued Operations (KenVue) - - 1,130 191
Net Earnings $9,963 $5,076 $9,963 $5,076

30
J&J Consumer Health IPO Trading Comps and Analysis
▪ JNJ even with the loss of Kenvue is still one of the biggest players in their space and is still at the top in Pharma, but certain comparables are more in favor
▪ Eli Lilly’s (LLY) multiples that heavily exceed the average and median calculations, but this is largely due to one of the company’s recent developments.
▪ Eli Lilly recently started sales in the past 12 months of Mounjaro (tirzepatide) that has grown exponentially, and investors are valuing it very highly
▪ Pfizer (PFE), another company on the lower side of the averages, is largely priced that way due to declining COVID revenues that continue to disappoint
▪ Merck (MRK) is priced closer to the averages than others in the set, but again is at a higher P/E than most due to some acquisition related expenses
▪ JNJ future multiples will heavily depend on its ability to utilize its new $13.2bn worth of capital to increase earnings and returns to shareholders
Source: Bloomberg
Market Enterprise Valuation Metrics ($ in Millions)
Ticker Name Capitalization Value EV/LTM EBITDA EV/ 2023 EBITDA EV/2024 EBITDA P/E P/E FY1 P/E FY2 P/FCF
JNJ JOHNSON & JOHNSON 381,884
$ 400,241
$ 11.4x 12.1x 11.5x 18.4x 15.9x 14.8x 28.7x
Comparables
MRK MERCK & CO. INC. 267,429
$ 298,011
$ 24.7x 21.3x 10.8x 49.5x 34.9x 12.6x 24.7x
ABBV ABBVIE INC 271,658 323,939 10.5x 12.5x 12.7x 16.7x 13.9x 13.9x 11.0x
LLY ELI LILLY & CO 522,122 538,198 57.6x 46.3x 36.0x 67.4x 56.2x 43.6x NM
BMY BRISTOL-MYERS SQUIBB CO 122,296 152,809 7.9x 7.5x 7.2x 14.1x 7.9x 7.5x 11.5x
PFE PFIZER INC 182,929 203,759 6.8x 8.9x 8.7x 7.6x 9.8x 9.6x 17.0x
Mean: 291,386
$ 319,493
$ 19.8x 18.1x 14.5x 28.9x 23.1x 17.0x 18.6x
Median: 269,544 310,975 11.0x 12.3x 11.1x 17.6x 14.9x 13.2x 20.8x

31
VI. Appendix 32

32
Appendix DCF Sensitivities and Assumptions
FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 27
Sales Growth 39.70% 1.30% 5.0% 15.0% 17.0% 14.0% 11.0%
Cost of Goods Sold (as a % sales) 32.00% 30.30% 35.20% 35.2% 34.7% 34.2% 33.7% 33.2%
SG&A (as a % sales) Adj, 44.40% 66.90% 48.50% 48.5% 48.2% 47.8% 47.5% 47.1%
CapEx (as a % sales) 4.60% 6.20% 5.4% 5.4% 5.4% 5.4% 5.4%
Depreciation (as a % of CapEx) 84.60% 75.20% 79.9% 84.9% 89.9% 95.0% 100.0%
Additions to Intangibles (amount) 0 180 90 90 90 90 90
Amortization (amount) 75 179 127 127 127 127 127
Assumptions
$94.76 9.4% 9.6% 9.9% 10.1% 10.4% 10.6% 10.9%
3.8% 90.27 86.67 83.36 80.31 77.49 74.88 72.46
4.0% 93.48 89.58 86.01 82.73 79.71 76.92 74.34
4.3% 97.00 92.76 88.89 85.36 82.11 79.12 76.35
Terminal 4.5% 100.89 96.25 92.04 88.21 84.71 81.49 78.53
Growth 4.8% 105.19 100.09 95.50 91.34 87.54 84.07 80.89
Rate 5.0% 109.97 104.36 99.31 $94.76 90.64 86.88 83.44
5.3% 115.34 109.10 103.54 98.54 94.03 89.95 86.22
5.5% 121.40 114.42 108.24 102.72 97.78 93.31 89.26
5.8% 128.29 120.42 113.51 107.38 101.92 97.02 92.60
6.0% 136.20 127.25 119.46 112.61 106.54 101.13 96.27
6.3% 145.36 135.09 126.22 118.50 111.72 105.71 100.34
6.5% 156.12 144.17 133.99 125.21 117.56 110.84 104.88
Price/Share Sensitivity Analysis
Weighted Average Cost of Capital
$131.60 9.4% 9.6% 9.9% 10.1% 10.4% 10.6% 10.9%
16.0x 128.80 127.62 126.45 125.29 124.16 123.03 121.93
16.3x 130.44 129.23 128.04 126.87 125.72 124.58 123.45
16.5x 132.07 130.85 129.64 128.45 127.28 126.12 124.98
Terminal 16.8x 133.70 132.46 131.23 130.03 128.84 127.66 126.50
Multiple 17.0x 135.33 134.07 132.83 $131.60 130.40 129.20 128.03
17.3x 136.96 135.69 134.43 133.18 131.95 130.74 129.55
17.5x 138.60 137.30 136.02 134.76 133.51 132.29 131.08
17.8x 140.23 138.91 137.62 136.34 135.07 133.83 132.60
18.0x 141.86 140.53 139.21 137.91 136.63 135.37 134.12
Weighted Average Cost of Capital
Price/Share Sensitivity Analysis

Wall Street Mastermind Sector Spotlight - Healthcare (September 2023)

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