Free cash flow

Question 2 forecast
growth
rate=1.07
Growth LRP 2008(actual) 2009(forecast)
Revenue 1.07% 13,418 13,535
Cost of sales/Revenue 9.5% 1,744.00 1,792.00
R&D/Revenue 18.5% 2,800.00 2,644.00
Marketing, G&A/Revenue 15.1% 2,405.00 2,058.00
Profit sharing/Revenue 9.0% 1,228.00 1,403.00
Other costs/Revenue 0.0% 88.00 0.00
Less: Total costs/Revenue 52.1% 8,089.00 7,897.00
Less: Tax rate 35.0% 2,004.00 1,873.00
Plus: Depreciation/Revenue 3.3% 592.00 577.00
Less: Ch. Net working capital/Revenue 1.3% 705.00 457.00
Less: Capex/Revenue 3.9% 751.00 672.00
Less: Equity-based compenation 1.3% 0.00 1,567.00
FCF 2,461.00 1,546.00
Net present value of FCF 29,909.22 1,418.35

PV terminal enterprise value 42,785.65

December 31,
2008 June, 2008

Current enterprise value 72,694.86 69,629.05

Less: short term debt 500.00 2,365.50

Less: long term debt 2,329.00 549.50

Plus: cash and cash equivalents 9,545.00 7,000.00

Fair value of Roche 79,410.86 73,714.05

Shares outstanding 1,052 1,052

price per share 75.49 70.07

Market
capitalizatio Long term
Company (Genentech) n growth Beta
57,222
Amgen (87,833) 10.5% (19.2%) 0.454 (0.26)
48,194
Gilead Sciences (87,833) 24.7% (19.2%) 0.894 (0.26)
Average 52,708 17.60% 0.674
 P/E (trailing P/E(forward
2008) 2009)
Revenue 13,418.00 13,535.00
EBITDA 5,865.72 6,179.40
Depreciation and amortization/Revenue (4%) 536.72 541.40
Operating income (EBIT) 5,329.00 5,638.00
Net income 3,325.00 3,665.00
Shares 1,052.00 1,053.00
EPS 3.16 3.48
Share price
Amgen 12.60 39.82 12.10
Gilead Sciences 25.40 80.28 22.10
Average (Amgen+GS) 19.00 60.05 17.10
Enterprise value Genentech (Amgen) 35,179.00
Enterprise value Genentech (Gilead Sciences) 77,739.00
Enterprise value Genentech (Average) 56,459.00
 2010 2011 2012 2013 2014 2015 2016 2017
14,482.45 15,496.22 16,580.96 17,741.62 18,983.54 20,312.39 21,734.25 23,255.65
1,375.83 1,472.14 1,575.19 1,685.45 1,803.44 1,929.68 2,064.75 2,209.29
2,679.25 2,866.80 3,067.48 3,282.20 3,511.95 3,757.79 4,020.84 4,302.30
2,186.85 2,339.93 2,503.72 2,678.99 2,866.51 3,067.17 3,281.87 3,511.60
1,303.42 139.47 149.23 159.67 170.85 182.81 195.61 209.30
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7,545.36 8,073.53 8,638.68 9,243.39 9,890.42 10,582.75 11,323.55 12,116.19
2,427.98 2,597.94 2,779.80 2,974.38 3,182.59 3,405.37 3,643.75 3,898.81
477.92 511.38 547.17 585.47 626.46 670.31 717.23 767.44
188.27 201.45 215.55 230.64 246.79 264.06 282.55 302.32
564.82 604.35 646.66 691.92 740.36 792.18 847.64 906.97
188.27 201.45 215.55 230.64 246.79 264.06 282.55 302.32
4,045.67 4,328.87 4,631.89 4,956.12 5,303.05 5,674.26 6,071.46 6,496.47
3,405.16 3,342.68 3,281.35 3,221.14 3,162.04 3,104.02 3,047.06 2,991.15

semianual
discount rate

growth/
wacc (June
4.40% 2008) 6% 6.5% 7%
67.44 69.60 71.85
8% (66,857.54) (69,138.06) (71,497.32)
65.55 67.88 70.07
av(2007+2008) 9% (64,868.80) (67,323.14) (69,629.05)
64.20 66.27 68.41
av(2007+2008) 10% (63,450.05) (65,630.73) (67,887.23)
 EBITDA EBITDA EV/Revenue EV/Revenue
(trailing) (forward) (trailing) (forward)

Share price
42.11 9.50 9.30 4.10 4.00
76.92 18.30 16.20 9.30 7.80
59.52 13.90 12.75 6.70 5.90
37,118.27 55,724.34 57,468.42 55,013.80 54,140.00
73,733.46 107,342.68 100,106.28 124,787.40 105,573.00
55,425.86 81,533.51 78,787.35 89,900.60 79,856.50
 growth
rate=1.02
2018 2019
24,883.55 25,381.22
2,363.94 2,411.22
4,603.46 4,695.53
3,757.42 3,832.56
223.95 228.43
0.00 0.00
12,964.33 13,223.61
4,171.73 4,255.16
821.16 837.58
323.49 329.96
970.46 989.87
323.49 329.96
6,951.22 7,090.24
2,936.27
terminal
value 101,289.18