Free cash flow

forecast

Question 2

Growth
Revenue
Cost of sales/Revenue
R&D/Revenue
Marketing, G&A/Revenue
Profit sharing/Revenue
Other costs/Revenue
Less: Total costs/Revenue
Less: Tax rate
Plus: Depreciation/Revenue
Less: Ch. Net working capital/Revenue
Less: Capex/Revenue
Less: Equity-based compenation
FCF
Net present value of FCF

growth
rate=1.07
LRP
2008(actual) 2009(forecast)
1.07%
13,418
13,535
9.5%
1,744.00
1,792.00
18.5%
2,800.00
2,644.00
15.1%
2,405.00
2,058.00
9.0%
1,228.00
1,403.00
0.0%
88.00
0.00
52.1%
8,089.00
7,897.00
35.0%
2,004.00
1,873.00
3.3%
592.00
577.00
1.3%
705.00
457.00
3.9%
751.00
672.00
1.3%
0.00
1,567.00
2,461.00
1,546.00
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

500.00

2,365.50

2,329.00
9,545.00

549.50
7,000.00

Fair value of Roche

79,410.86

73,714.05

Shares outstanding
price per share

1,052
75.49

1,052
70.07

Less: short term debt

Less: long term debt
Plus: cash and cash equivalents

Company (Genentech)
Amgen
Gilead Sciences
Average

Market
capitalizatio
n
57,222
(87,833)
48,194
(87,833)
52,708

Long term
growth

Beta

10.5% (19.2%)

0.454 (0.26)

24.7% (19.2%)
17.60%

0.894 (0.26)
0.674

Revenue
EBITDA
Depreciation and amortization/Revenue (4%)
Operating income (EBIT)
Net income
Shares
EPS
Amgen
Gilead Sciences
Average (Amgen+GS)
Enterprise value Genentech (Amgen)
Enterprise value Genentech (Gilead Sciences)
Enterprise value Genentech (Average)

P/E (trailing
2008)
13,418.00
5,865.72
536.72
5,329.00
3,325.00
1,052.00
3.16
Share price
12.60
39.82
25.40
80.28
19.00
60.05
35,179.00
77,739.00
56,459.00

P/E(forward
2009)
13,535.00
6,179.40
541.40
5,638.00
3,665.00
1,053.00
3.48
12.10
22.10
17.10

2010
14,482.45
1,375.83
2,679.25
2,186.85
1,303.42
0.00
7,545.36
2,427.98
477.92
188.27
564.82
188.27
4,045.67
3,405.16

2011
15,496.22
1,472.14
2,866.80
2,339.93
139.47
0.00
8,073.53
2,597.94
511.38
201.45
604.35
201.45
4,328.87
3,342.68

2012
16,580.96
1,575.19
3,067.48
2,503.72
149.23
0.00
8,638.68
2,779.80
547.17
215.55
646.66
215.55
4,631.89
3,281.35

2013
17,741.62
1,685.45
3,282.20
2,678.99
159.67
0.00
9,243.39
2,974.38
585.47
230.64
691.92
230.64
4,956.12
3,221.14

2014
18,983.54
1,803.44
3,511.95
2,866.51
170.85
0.00
9,890.42
3,182.59
626.46
246.79
740.36
246.79
5,303.05
3,162.04

6%
67.44
8% (66,857.54)
65.55
9% (64,868.80)
64.20
10% (63,450.05)

6.5%
69.60
(69,138.06)
67.88
(67,323.14)
66.27
(65,630.73)

2015
2016
20,312.39 21,734.25
1,929.68 2,064.75
3,757.79 4,020.84
3,067.17 3,281.87
182.81
195.61
0.00
0.00
10,582.75 11,323.55
3,405.37 3,643.75
670.31
717.23
264.06
282.55
792.18
847.64
264.06
282.55
5,674.26 6,071.46
3,104.02 3,047.06

semianual
discount rate

4.40%

av(2007+2008)
av(2007+2008)

growth/
wacc (June
2008)

7%
71.85
(71,497.32)
70.07
(69,629.05)
68.41
(67,887.23)

EBITDA
(trailing)

EBITDA
(forward)

EV/Revenue EV/Revenue
(trailing)
(forward)

Share price
42.11
9.50
76.92
18.30
59.52
13.90
37,118.27 55,724.34
73,733.46 107,342.68
55,425.86 81,533.51

9.30
16.20
12.75
57,468.42
100,106.28
78,787.35

4.10
9.30
6.70
55,013.80
124,787.40
89,900.60

4.00
7.80
5.90
54,140.00
105,573.00
79,856.50

2017
2018
23,255.65 24,883.55
2,209.29 2,363.94
4,302.30 4,603.46
3,511.60 3,757.42
209.30
223.95
0.00
0.00
12,116.19 12,964.33
3,898.81 4,171.73
767.44
821.16
302.32
323.49
906.97
970.46
302.32
323.49
6,496.47 6,951.22
2,991.15 2,936.27
terminal value

growth
rate=1.02
2019
25,381.22
2,411.22
4,695.53
3,832.56
228.43
0.00
13,223.61
4,255.16
837.58
329.96
989.87
329.96
7,090.24
101,289.18