1. Healthcare SP-35 Michael Mahaney Tianna Nguyen Edward Poitras Matthew Pry

2. SP-35 Composite Health Care 3 rd largest sector in S&P 500  Comprised of 53 companies

3. SP-35 Composite

4. SP-35 Returns Health Care has been outperformed by 6 of the 10 sectors

5. SP-35 Valuation Health Care sector P/E ratios are at 10 year lows

6. Medicare & Medicaid Projected Growth of the U.S. Economy and Federal Spending for Major Mandatory Programs Medicare and Medicaid spending is to grow at 8% annually until 2017 Gross Domestic Product Medicare and Medicaid Social Security 140 120 100 80 60 40 20 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

7. Population Demographics The beginning of the baby boom generation reached the age of 60 in 2005.

8. Healthcare + Pharmaceutical Costs http://www.pfizer.com/pfizer/policy/drugcost.jsp http://www.cms.hhs.gov/NationalHealthExpendData/03_NationalHealthAccountsProjected.asp#TopOfPage

9. Healthcare Spending

10. SP-35 Margins Margins have been on a downward trajectory over the past 20 years

11. Risk Factors Generic Drugs  Generic Drug Initiative – June 12, 2003  Streamline the process for making safe, effective, generic drugs available to consumers  Save consumers an estimated $35 billion over 10 years  Drug Price Competition and Patent Term Restoration Act  New drugs have patent term of 20 years  Possibility to increase patent term by 5 years Pharmaceutical margins are dropping due to fewer blockbuster drugs.

12. Risk Factors Nationalizing Healthcare  Immense pressure from public  Other nations have achieved success Government Regulations  Price caps on drugs, medical equipment, supplies Lawsuits  Possible lawsuits – Merck’s Vioxx fallout

13. Recommendation S&P 5 year RPS growth rate of 10% SP-35 5 year RPS growth rate of 13% Overweight Healthcare by 3% compared to the S&P 500.  Special attention should be given to choosing stocks with durable profit margins. Conclusion: Reduce SP-35 by 2.49%

14. SP-35 Returns 30 year chart shows less optimistic picture 10 year chart shows upward trend

15. SP-35 Industries Pharmaceuticals Biotechnology Healthcare Facilities Medical Equipment Medical Supplies

16. Insurance Decrease of individuals covered by insurance Number of people currently uninsured  Population July 2007 – 302,000,000  18% Uninsured  +54,000,000

17. Insurance

18. Risk Factor

19. Risk Factors Preventative Medicine  More information available to general public  Most effective way to treat high dollar diseases is before they start or in early stages