ACT Buy

Nittany Lion Fund, LLC – Healthcare

Actavis PLC (NYSE: ACT) Buy

Analyst | Kody Amburgey


Table of Contents

I. Introduction

II. Description

III. Drivers

IV. Valuation

V. Sector Strategy

VI. Risk Analysis

VII. Conclusion

VIII. Appendix


I. Introduction

2Introduction


• 12 Month Price Target: $321.45

• Appropriate Entry Price: ~$230

• Innovative Business Model1

• Namenda XR Strategy2

• Generics Opportunities3

Team Recommendation: Buy

Actavis PLC (NYSE: ACT)

3Introduction


II. Description

4Description


Business Model


•Actavis is a global, integrated specialty pharmaceutical company

•The Company is engaged in developing, manufacturing and

distributing generic, brand and biosimilar products

•Markets approximately 1,000 generic, branded generic,

established brands and OTC pharmaceutical products

through operations in more than 60 countries

•Operates in three segments:

•Actavis Pharma – generic, branded generic and OTC

•Actavis Specialty Brands – patent-protected products

•Anda Distribution – distributes a variety of products

•Actavis is headquartered in Dublin, Ireland

5Description

Actavis Pharma73%

Anda Distribution

14%

Actavis Specialty Brands

13%

Business Segments

Americas71%

Europe24%

Middle East, Africa, Australia &

Asia Pacific5%

Geographic Breakdown

Actavis CEO:

Brent Saunders


Competitive Landscape


6Description

•Allergan, Inc. (AGN)

•Allergan is a multi-specialty healthcare company that

develops and commercializes pharmaceuticals,

biologics, medical devices, and OTC products for

neurological, medical aesthetics, dermatology, obesity

intervention, urological, and other specialty markets

globally

•Teva Pharmaceutical Industries, Ltd. (TEVA)

•Teva is a global pharmaceutical company that

develops, manufactures, and markets generic and

branded pharmaceuticals as well as active

pharmaceutical ingredients

•Mylan, Inc. (MYL)

•Mylan is a global generic and specialty

pharmaceutical company that operates as an active

pharmaceutical ingredient manufacturer and runs a

specialty business focused on respiratory, allergy, and

psychiatric therapies


III. Drivers

7Drivers


Innovative Business Model


8Drivers

ACT has transformed itself into a leading global specialty pharma player with both a best in class generic pipeline

and growing brand franchises, with the strongest brand portfolio among top 3 GX competitors

•Acquisition of Forest Laboratories (2/14)

•Gained $15 bn in revenue and a growing $7 bn North American specialty brands business (blockbuster

franchises in CNS, Gastroenterology, Women’s Health, Urology and Cardiovascular)

•Will generate >$4 bn in FCF in 2015 – may be used for further buyouts (employing one year’s cash flow into

acquisitions could translate to $1.75+ in annual EPS accretion considering an impressive M&A track record)

•Acquisition of Furiex Pharmaceuticals (4/14)

•Includes late-stage IBS treatment and potential blockbuster eluxadoline

•Projected to claim 30% market share (granted priority review on 9/2 – expected launch in 2Q2015)

•IBS is a large, yet underserved market – 28 MM patients in U.S. and Europe

•Estimated 15 MM people in the U.S. have IBS, but only 4.5 MM diagnosed

•Increasingly affordable healthcare and availability of OTC treatments for mild patients

will raise awareness and diagnosis

•Management wants “growth in assets,” opposed to big pharma, which “moves slowly”

•Expressed interest in developing a potential transformational “3rd leg,” in addition to its U.S. Brands and Global

Generics segments – possibly global brands or biologics (Amgen partnership to develop Humira leads the race)

27%

49%

40%

26%

21%

16%

12%

9%

0% 20% 40% 60% 80% 100%

1H2014

2015E

North America Brands North America Generics International Anda


Namenda XR Strategy


9Drivers

•Namenda treats dementia (a condition resulting in

memory loss and mental changes), which is a key

indicator of Alzheimer’s disease (AD)

•Globally, >35 MM people living with AD –

expected to double by 2030

•Namenda IR (~11% of total revenue) will face generic

competition in July 2015

•Ample time to fully transition patients from IR to

new and improved Namenda XR, which has

patent protection until 2029

•Namenda “forced switch” was planned for Fall 2014:

patients on IR version prescribed XR version

•NY AG prelim injunction against “forced switch” –

continue selling IR for 60 days

•Namenda XR offers convenient dosing, a

lower price and the ability to be sprinkled

on food (significant because dementia and

AD patients are often defiant to medication)

•Despite IR remaining marketed, >40% of

patients have voluntarily switched

•Priced-in generic erosion of sales offers substantial

room for outperformance via XR’s success

•Successful switch provides 30% to 40% upside to

Namenda franchise sales projections


Generics Opportunities


10Drivers

From 2013 to 2018, its is estimated that global pharma companies will lose more than $230 bn in revenue to generic

drugs due to patent expirations, growing the global generic drug market to ~$427 bn by 2016

•ACT’s generics business offers significant upside potential in 2015

Robust Future Revenue Stream

•Celebrex

•Due to complex legal issues regarding Celebrex’s patent expiration date, Pfizer has conceded to Actavis and

Teva Pharmaceuticals, allowing both to launch generics in 4Q2014 (prior to expected expiration in 4Q2015)

•Crestor (fourth biggest-selling drug of 2013 – more than $5 bn in annual sales)

•Loss of patent protection will occur 2Q2016, allowing generic market entry

•ACT has recently settled for 72 days exclusivity for its generic Crestor before the other eight players

can launch their respective versions

Room for Outperformance

•Liboderm

•Current guidance accounts for strong competition due to ACT’s loss of generic exclusivity (180 days), but

this assumes all three filers gain approval, leaving room for outperformance

•Lack of additional competition could provide ~$0.35 upside to 2015 EPS estimates

•Adderall XR

•Three generic players: Actavis, Teva Pharmaceuticals, Impax Laboratories

•Impax may make an earlier than expected market exit

•Experiencing ongoing manufacturing issues along with a number of lawsuits

•License & Distribution Agreement with Shire ended 9/30 – Impax can only sell products on

hand or that it is owed by Shire until depleted, but must pay out a profit share

•Impax exit would grow ACT’s Adderall XR market share from 39% to ~50% in 2015

•Estimated ~$0.34 upside to 2015 EPS estimates


Generics Opportunities


11Drivers

Rank Brand Name Patent Expiration Date

1 Abilify 14-Oct

2 Nexium 14-May

3 Humira 16-Dec

4 Crestor 16-Jul

5 Advair 12-Apr

6 Enbrel 12-Oct

7 Cymbalta 13-Dec

8 Remicade 15-Feb

9 Neulastsa 15-Oct

10 Copaxone 14-Nov

11 Lantus 11-Dec

12 Rituxan 15-Dec

13 Spiriva 18-Jul

14 Januvia 17-Nov

15 Atripla 15-Apr

Biggest-selling Drugs of 2013


IV. Valuation

12Valuation


Current

Price Annual

As % of 2014E 2015E Current 2014E 2015E Growth Current 2014E 2015E Growth Dividend

52 Wk High EPS EPS LTM EBTIDA EBITDA EBITDA Rate LTM Sales Sales Sales Rate Yield

Teva Pharmaceutical Industries Ltd. 93.0% 10.9x 10.8x 9.8x 8.8x 9.0x (4.42%) 2.7x 2.7x 2.7x 0.27% 2.70%

Mylan, Inc. 85.8% 14.6x 12.4x 16.8x 12.2x 11.0x (18.98%) 4.0x 3.5x 3.3x (9.15%) 0.00%

Allergan, Inc. 97.2% 32.9x 27.4x 26.7x 21.3x 18.3x (17.23%) 8.8x 7.9x 7.3x (9.17%) 0.11%

Mean 92.0% 19.5x 16.9x 17.8x 14.1x 12.8x (13.55%) 5.2x 4.7x 4.4x (6.02%) 0.94%

High 97.2% 32.9x 27.4x 26.7x 21.3x 18.3x (4.42%) 8.8x 7.9x 7.3x 0.27% 2.70%

Low 85.8% 10.9x 10.8x 9.8x 8.8x 9.0x (18.98%) 2.7x 2.7x 2.7x (9.17%) 0.00%

Actavis PLC 90.7% 16.62x 13.57x 31.52x 10.34x 7.97x (49.70%) 5.54x 3.80x 3.07x (25.55%) 0.0%

Price to: Enterprise Value to: Enterprise Value to:

Comparable Analysis


13Valuation

2014E 2015E Current 2014E 2015E Margin Current 2014E 2015E Margin

EPS PEG PEG LTM EBITDA EBITDA EBITDA Growth LTM Profit Profit Profit Growth Credit

Growth Ratio Ratio Margin Margin Margin Rate Margin Margin Margin Rate Rating

Teva Pharmaceutical Industries Ltd. 2.7% 4.0x 4.0x 27.58% 30.72% 30.36% 4.91% 6.25% 19.93% 20.20% 79.78% A-

Mylan, Inc. 12.3% 1.2x 1.0x 23.69% 28.89% 29.79% 12.13% 9.07% 17.20% 18.91% 44.36% BBB-

Allergan, Inc. 16.6% 2.0x 1.6x 33.03% 37.27% 39.77% 9.74% 15.70% 24.76% 27.22% 31.66% A+

Mean 10.5% 2.4x 2.2x 28.10% 32.30% 33.31% 8.93% 10.34% 20.63% 22.11% 51.94%

High 16.6% 4.0x 4.0x 33.03% 37.27% 39.77% 12.13% 15.70% 24.76% 27.22% 79.78%

Low 2.7% 1.2x 1.0x 23.69% 28.89% 29.79% 4.91% 6.25% 17.20% 18.91% 31.66%

Actavis PLC 17.1% 0.97x 0.79x 17.56% 36.69% 38.48% 48.01% -10.62% 18.85% 18.67% N/A BBB-


Ratio Analysis


14Valuation

Market LTM

Value Sales Beta WACC EPS ROA ROE ROIC

Teva Pharmaceutical Industries Ltd. $44,142.1 $20,314.0 0.90 9.06% $1.49 2.91% 6.06% 11.37%

Mylan, Inc. $19,577.1 $6,909.1 1.03 7.70% $1.58 4.65% 20.93% 9.84%

Allergan, Inc. $56,939.6 $6,300.4 1.06 9.64% $3.26 12.32% 20.58% 20.80%

Mean $40219.6 $11174.5 1.00 8.80% $2.11 6.63% 15.86% 14.00%

High $56939.6 $20314.0 1.06 9.64% $3.26 12.32% 20.93% 20.80%

Low $19577.1 $6300.4 0.90 7.70% $1.49 2.91% 6.06% 9.84%

Actavis PLC $58,957.6 $8,677.6 0.75 6.48% -$5.27 -3.01% -8.33% 2.61%

Price to: Debt to: Price to: Price to: Revenue per: FCF per:

Current Quick Book Value Equity LTM Sales FCF Share Share

Teva Pharmaceutical Industries Ltd. 1.2x 0.5x 1.9x 0.5x 2.2x 24.96x $23.84 $2.20

Mylan, Inc. 1.6x 0.7x 6.1x 2.6x 2.8x 21.13x $17.42 $2.36

Allergan, Inc. 4.4x 3.7x 8.6x 0.3x 9.0x 31.53x $20.76 $5.13

Mean 2.40x 1.65x 5.5x 1.1x 4.7x 25.87x $20.67 $3.23

High 4.37x 3.69x 8.6x 2.6x 9.0x 31.53x $23.84 $5.13

Low 1.18x 0.54x 1.9x 0.3x 2.2x 21.13x $17.42 $2.20

Actavis PLC 1.5x 0.6x 6.1x 0.9x 6.8x 28.75x $33.38 $7.58


Five-Year Summary


15Valuation

Historical & Projected Fiscal Year

2009 2010 2011 2012 2013 2014E 2015E

Revenues $2,793.0 $3,566.9 $4,584.4 $5,914.9 $8,677.6 $12,658.0 $15,657.4

% Growth NA 27.7% 28.5% 29.0% 46.7% 45.9% 23.7%

EBITDA $575.1 $618.1 $1,062.8 $1,043.8 $1,524.2 $4,644.0 $6,024.9

% Margin 20.6% 17.3% 23.2% 17.6% 17.6% 36.7% 38.5%

% Growth NA 7.5% 71.9% -1.8% 46.0% 204.7% 29.7%

D&A $189.0 $281.9 $447.9 $578.6 $1,044.7 $991.0 $564.7

% of Sales 6.8% 7.9% 9.8% 9.8% 12.0% 7.8% 3.6%

EBIT $386.1 $336.2 $614.9 $465.2 $479.5 $3,653.0 $5,460.2

% Margin 13.8% 9.4% 13.4% 7.9% 5.5% 28.9% 34.9%

% Growth NA -12.9% 82.9% -24.3% 3.1% 661.8% 49.5%

Capex $55.4 $56.6 $126.7 $137.5 $177.9 $1,265.80 $1,330.9

% of Sales 2.0% 1.6% 2.8% 2.3% 2.1% 10.0% 8.5%

EBITDA - Capex $519.7 $561.5 $936.1 $906.3 $1,346.3 $3,378.2 $4,694.0

Total Debt / EBITDA 2.53x 1.64x 0.97x 6.16x 5.94x

EBITDA / Interest 16.82x 7.35x 12.99x 9.35x 6.36x

(EBITDA - Capex) / Interest 15.20x 6.68x 11.44x 8.12x 5.61x

Current Ratio 1.68x 2.21x 1.40x 1.40x 1.35x

Quick Ratio 1.49x 1.86x 1.28x 1.28x 1.25x


Projections


16Valuation

Historical Year Projected Fiscal Year

2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Income Statement Projections

Revenue $2,793.00 $3,566.90 $4,584.40 $5,914.90 $8,677.60 $12,658.00 $15,657.40 $16,909.99 $17,924.59 $18,641.58 $19,294.03 $19,969.32 $20,668.25 $21,288.30 $21,926.94

EBITDA 575.1 618.1 1,062.8 1,043.8 1,524.2 4644.0 6024.9 5664.8 5646.2 5499.3 5691.7 5491.6 5683.8 5428.5 5152.8

EBIT 386.1 336.2 614.9 465.2 479.5 3653.0 5460.2 5073.0 5018.9 4846.8 5016.4 4792.6 4960.4 4683.4 4385.4

Growth Analysis

Revenue 27.7% 28.5% 29.0% 46.7% 45.9% 23.7% 8.0% 6.0% 4.0% 3.5% 3.5% 3.5% 3.0% 3.0%

EBITDA 7.5% 71.9% -1.8% 46.0% 204.7% 29.7% -6.0% -0.3% -2.6% 3.5% -3.5% 3.5% -4.5% -5.1%

EBIT -12.9% 82.9% -24.3% 3.1% 661.8% 49.5% -7.1% -1.1% -3.4% 3.5% -4.5% 3.5% -5.6% -6.4%

Margin / % of Sales Analysis

EBITDA 20.6% 17.3% 23.2% 17.6% 17.6% 36.7% 38.5% 33.5% 31.5% 29.5% 29.5% 27.5% 27.5% 25.5% 23.5%

EBIT 13.8% 9.4% 13.4% 7.9% 5.5% 28.9% 34.9% 30.0% 28.0% 26.0% 26.0% 24.0% 24.0% 22.0% 20.0%

Depreciation & Amortization 6.8% 7.9% 9.8% 9.8% 12.0% 7.8% 3.6% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%

Capital Expenditures 2.0% 1.6% 2.8% 2.3% 2.1% 10.0% 8.5% 7.5% 7.5% 7.0% 7.0% 6.5% 5.5% 4.5% 3.5%

Net Working Capital 29.5% 19.5% 15.4% 16.0% 15.5% 15.5% 15.5% 16.5% 17.5% 17.5% 17.5% 18.0% 18.0% 18.0% 18.0%

Total Revenue Growth 0.00% 27.7% 28.5% 29.0% 46.7% 45.9% 23.7% 8.00% 6.00% 4.00% 3.50% 3.50% 3.50% 3.00% 3.00%

Base 8.00% 6.00% 4.00% 3.50% 3.50% 3.50% 3.00% 3.00%

Bull 9.00% 7.00% 5.00% 4.50% 4.50% 4.50% 4.00% 4.00%

Bear 7.00% 5.00% 3.00% 2.50% 2.50% 2.50% 2.00% 2.00%

EBIT as a % of Sales 13.8% 9.4% 13.4% 7.9% 5.5% 28.9% 34.9% 30.00% 28.00% 26.00% 26.00% 24.00% 24.00% 22.00% 20.00%

Base 30.00% 28.00% 26.00% 26.00% 24.00% 24.00% 22.00% 20.00%

Bull 33.00% 31.00% 29.00% 29.00% 27.00% 27.00% 25.00% 23.00%

Bear 27.00% 25.00% 23.00% 23.00% 21.00% 21.00% 19.00% 17.00%

D&A as a % of Sales 6.8% 7.9% 9.8% 9.8% 12.0% 7.8% 3.6% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%

Base 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%

Bull 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%

Bear 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%

CapEx as a % of Sales 1.98% 1.59% 2.76% 2.32% 2.05% 10.00% 8.50% 7.50% 7.50% 7.00% 7.00% 6.50% 5.50% 4.50% 3.50%

Base 10.00% 8.50% 7.50% 7.50% 7.00% 7.00% 6.50% 5.50% 4.50% 3.50%

Bull 8.50% 7.00% 6.00% 6.00% 5.50% 5.50% 5.00% 4.00% 3.00% 2.00%

Bear 11.50% 10.00% 9.00% 9.00% 8.50% 8.50% 8.00% 7.00% 6.00% 5.00%

NWC as a % of Sales 29.53% 19.51% 15.39% 16.00% 15.50% 15.50% 15.50% 16.50% 17.50% 17.50% 17.50% 18.00% 18.00% 18.00% 18.00%

Base 15.50% 15.50% 16.50% 17.50% 17.50% 17.50% 18.00% 18.00% 18.00% 18.00%

Bull 12.50% 12.50% 13.50% 14.50% 14.50% 14.50% 15.00% 15.00% 15.00% 15.00%

Bear 18.50% 18.50% 19.50% 20.50% 20.50% 20.50% 21.00% 21.00% 21.00% 21.00%


Discounted Cash Flow


17Valuation

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

EBIT $3,653.0 $5,460.2 $5,073.0 $5,018.9 $4,846.8 $5,016.4 $4,792.6 $4,960.4 $4,683.4 $4,385.4

Taxes @ 17.0% 621.0 928.2 862.4 853.2 824.0 852.8 814.7 843.3 796.2 745.5

EBIT (1-t) $3,032.0 $4,532.0 $4,210.6 $4,165.7 $4,022.9 $4,163.7 $3,977.9 $4,117.1 $3,887.2 $3,639.9

Plus: Depreciation & Amortization 991.0 564.7 591.8 627.4 652.5 675.3 698.9 723.4 745.1 767.4

Less: Capital Expenditures (1,265.8) (1,330.9) (1,268.2) (1,344.3) (1,304.9) (1,350.6) (1,298.0) (1,136.8) (958.0) (767.4)

Less: Change in NWC (616.6) (464.9) (363.3) (346.7) (125.5) (114.2) (218.0) (125.8) (111.6) (115.0)

Unlevered Free Cash Flow $2,140.6 $3,300.9 $3,170.9 $3,102.0 $3,244.9 $3,374.2 $3,160.8 $3,577.9 $3,562.8 $3,524.9

% Growth 147.22% 54.20% -3.94% -2.17% 4.61% 3.98% -6.32% 13.20% -0.42% -1.06%

Implied DCF Intrinsic Valuation Range

A + B = C

Discounted PV of Terminal Value Using a

Cash Flows Growth Rate in Perpetuity of Enterprise Value

Discount Rate (2014 - 2023) 2.25% 2.50% 2.75% 2.25% 2.50% 2.75%

.

5.98% $23,327.5 $54,058.5 $58,083.7 $62,732.0 $77,386.0 $81,411.2 $86,059.5

6.23% $23,038.6 $49,483.1 $52,928.8 $56,869.5 $72,521.7 $75,967.4 $79,908.1

6.48% $22,754.9 $45,476.9 $48,451.7 $51,825.2 $68,231.9 $71,206.6 $74,580.2

6.73% $22,476.4 $41,943.9 $44,531.5 $47,444.1 $64,420.3 $67,007.8 $69,920.5

6.98% $22,202.8 $38,808.3 $41,074.2 $43,607.8 $61,011.1 $63,277.0 $65,810.6

- D = E

Total Equity Value Intrinsic Value Per Diluted Share (a)

Discount Rate Less: Net Debt 2.25% 2.50% 2.75% 2.25% 2.50% 2.75%

5.98% $8,380.3 $69,005.7 $73,030.9 $77,679.2 $394.54 $417.56 $444.13

6.23% $8,380.3 $64,141.4 $67,587.1 $71,527.8 $366.73 $386.43 $408.96

6.48% $8,380.3 $59,851.6 $62,826.3 $66,199.9 $342.20 $359.21 $378.50

6.73% $8,380.3 $56,040.0 $58,627.5 $61,540.2 $320.41 $335.21 $351.86

6.98% $8,380.3 $52,630.8 $54,896.7 $57,430.3 $300.92 $313.87 $328.36


Growth Analysis and CAGRs


18Valuation

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Growth Analysis

Revenue

EBIT

D&A

CapEx

NWC

Teva Pharmaceutical Industries Ltd. Mylan, Inc. Allergan, Inc. Average Actavis PLC

Revenues 6.4% 8.6% 9.2% 11.5% 33.3%

EBITDA 7.5% 13.8% 16.1% 17.1% 47.9%

EBIT 3.9% 21.3% 24.0% 20.9% 55.5%

EBITDA - Capex 7.7% 14.2% 16.8% 16.6% 44.3%


Price Target Scenario


19Valuation

Implied DCF Intrinsic Valuation Range Price Target Weighting

Intrinsic Value Per Diluted Share (a) $359.21 40.0%

2.25% 2.50% 2.75%

Base $359.21

5.98% $394.54 $417.56 $444.13 Bull $512.85

6.23% $366.73 $386.43 $408.96 Bear $223.98

6.48% $342.20 $359.21 $378.50 Change offset on Projections sheet and copy/paste 3 scenario targets

6.73% $320.41 $335.21 $351.86

6.98% $300.92 $313.87 $328.36

Implied DCF P/E Valuation Range

Actavis PLC Implied $265.63 30.0%

Equity Value per Diluted Share

$238.35

$238.35 Base $321.45 50%

$265.63 Bull $382.91 25%

$279.27 Bear $267.36 25%

$292.91 Please include conviction level behind each price target

Implied DCF EV/EBITDA Valuation Range

Actavis PLC Implied $326.94 30.0%

Equity Value Per Diluted Share

$273.83

$300.38

$326.94

$353.49

$380.04

Actavis PLC

Average P/E Multiple

for Peer Group

Discount Rate

Weighted Price Target

18.5x

comments

comments

17.5x

12.1x

13.1x

14.1x

15.1x

16.1x

Average EV/EBITDA

for Peer Group

20.5x

21.5x

19.5x


Pharma Industry 2016E P/E 15.4

ACT/AGN 2016E EPS $19.60

Implied Valuation $301.87

Current Price Shares O/S 2016E Net Income Proportion 2016E P/E 2016E EPS Implied Valuation

ACT 217.24 270 $4,977.00 60.89% 11.79 $18.43 $217.24

AGN 177.59 297 $3,197.00 39.11% 16.50 $10.76 $177.59

ACT/AGN N/A 417 $8,174.00 100.00% 13.63 $19.60 $267.14

ACT/AGN Merger Consideration


20Valuation

•Potential merger with Allergan (AGN)

•Reports that AGN may be receptive to a bid above $200 per share

•Merger would significantly accelerate ACT’s organic growth profile, while limiting patent or

binary event risk. This would create an extremely unique model in large cap pharma

•Boosted growth profile and attractive brand portfolio should command a multiple at least

in line and potentially above that of the major pharma industry


Bull & Bear Case


21Valuation

•Bull Case

•Efficient integration of Forest leads to higher than expected revenue growth and synergy

realization

•Smooth transition from Namenda IR to XR leads to larger-than-expected share retention

of the Alzheimer’s Disease (AD) market

•ACT’s strong generic positioning allows it to benefit from the ongoing patent cliff

•Bear Case

•Unforeseen integration problems arise with Forest, leading to a disappointing level of

synergies realized

•Namenda XR does not experience substantial adoption, leading to erosion of the

company’s AD market share

•Failure to introduce new drugs hurts Actavis’ top line growth

•Our Case

•ACT is able to successfully integrate with its recently acquired companies

•Doctors and care-givers continue to endorse Namenda XR, recommending the product to

an increasing number of patients

•ACT takes advantage of upcoming patent expirations via generic introduction, while

diversifying its revenue stream with successful branded drugs


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16

17

18

Actavis Plc (ACT)

ACT G0083B108 BD1NQJ9 NYSE Common stock

02-Oct-2013 to 03-Oct-2014 (Daily ) Av erage: 14.2 High: 17.2 Low: 12.0 Latest: 15.7

Price to Earnings - NTM

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep18

20

22

24

26

28

30

32

34

©FactSe t Research Sy ste msData Source : Fac tSet Estimate s, Fac tSet Fundame ntals

Av erage: 22.8 High: 31.6 Low: 18.8 Latest: 30.0

Enterprise Value to EBITDA

Historical Valuation


22Valuation


V. Sector Strategy

23Sector Strategy


Sector Strategy


24Sector Strategy

IBB12%

MDT9%

PFE13%

RHHBY8%MCK

12%

SYK10%

LLY13%

MRK11%

GILD12%

Current Allocation

IBB12%

MDT9%

JNJ13%

ACT8%MCK

12%

SYK10%

LLY13%

MRK11%

GILD12%

Proposed Allocation

Pharmaceuticals45%

Biotechnology24%

Equipment & Supplies

19%

Providers & Services

12%

Proposed Sub-Sector

Pharmaceuticals

45%

Equipment & Supplies

16%

Biotechnology19%

Providers & Services

8%

Managed Care8%

Life Sciences Tools & Services

3%

Technology1%

Benchmark Allocation


Sector Strategy


25Sector Strategy

Company Name Ticker Weight

1 Johnson & Johnson JNJ 12.03%

2 Pfizer Inc. PFE 7.51%

3 Merck & Co., Inc. MRK 7.01%

4 Gilead Sciences, Inc. GILD 6.53%

5 Amgen Inc. AMGN 4.29%

6 Bristol-Myers Squibb Company BMY 3.42%

7 AbbVie, Inc. ABBV 3.79%

8 UnitedHealth Group Incorporated UNH 3.39%

9 Biogen Idec Inc. BIIB 3.13%

10 Celgene Corporation CELG 3.09%

11 Abbott Laboratories ABT 2.55%

12 Medtronic, Inc. MDT 2.58%

13 Eli Lilly and Company LLY 2.98%

14 Express Scripts Holding Company ESRX 2.16%

15 McKesson Corporation MCK 1.87%

16 Baxter International Inc. BAX 1.60%

17 Thermo Fisher Scientific Inc. TMO 1.97%

18 Covidien Plc COV 1.72%

19 Regeneron Pharmaceuticals, Inc. REGN 1.48%

20 Allergan, Inc. AGN 2.29%

21 Actavis Plc ACT 2.64%

22 Stryker Corporation SYK 1.27%

23 WellPoint, Inc. WLP 1.36%

24 Aetna Inc. AET 1.17%

iShares NASDAQ Biotech Index IBB

Roche Holding AG RHHBY

Mkt. Cap: 0.95

Beta: 1.04

P/E: 1.01

Dividend: 1.15

Before

Mkt. Cap: 0.98

Beta: 1.08

P/E: 1.03

Dividend: 0.94

After

Ticker % Fund % S&P Active Exposure

IBB 1.42% N/A N/A

JNJ 2.08% 1.62% 0.46%

SYK 1.54% 0.17% 1.37%

LLY 2.00% 0.40% 1.60%

ACT 1.32% 0.34% 0.98%

MRK 1.52% 0.21% 1.31%

MDT 1.37% 0.35% 1.02%

MCK 1.74% 0.24% 1.50%

GILD 1.79% 0.85% 0.94%


VI. Risk Analysis

26Risk Analysis


Company & Industry Risk


27Risk Analysis

•Industry Risk

•Increased competition from other generic drug-producing companies would lead to pricing

pressures, hurting margins

•Inefficiency in the FDA approval process would cause delays in drugs awaiting approval,

prolonging the realization of revenue from these drugs

•The introduction of more effective, patented drugs would decrease the demand for existing

generics, hindering future revenue growth

•Pricing pressures related to pharmacy-distributor consolidation

•Company Risk

•Ineffective integration of recently acquired companies would cause performance results to

fall short of expectations

•Failed Namenda XR strategy implementation due to legal issues hurts top line growth

•Continued aggressive acquisition strategy fails to produce expected growth


Benchm

ark

Ris

k

Sub-Sector

Geographic

Valuation

Market Cap

Com

pany

Specific

Valuation

Earnings

Volatility (Beta)

Acquisitions

Momentum

Industr

y S

pecific Healthcare

Reform

Pipeline

FDA

0 1 2 3 4 5

Risk Analysis


28Risk Analysis

Market Cap: 62.7B

Beta = 0.75


Risk Analysis – Supply Chain


29Appendix


VII. Conclusion

30Conclusion


Team Recommendation: Buy


31Introduction

• 12 Month Price Target: $321.45

• Appropriate Entry Price: ~$240

• Innovative Business Model1

• Namenda XR Strategy2

• Generics Opportunities3


Questions & Comments


32Conclusion


VIII. Appendix

33Appendix


Stock Charts


34Appendix

1 Year 6 Month

1 Month3 Month

$120

$140

$160

$180

$200

$220

$240

$260

Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14

$170

$180

$190

$200

$210

$220

$230

$240

$250

$260

4-Apr 4-May 4-Jun 4-Jul 4-Aug 4-Sep

$190

$200

$210

$220

$230

$240

$250

$260

7-Jul 21-Jul 4-Aug 18-Aug 1-Sep 15-Sep 29-Sep

$220

$225

$230

$235

$240

$245

$250

$255

$260

8-Sep 15-Sep 22-Sep 29-Sep


Correlation & Debt Distribution


35Appendix

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