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North America Equity Research

03 December 2012

Generic Pharmaceuticals
Should You Own Generics in 2013?
With 2012 representing a peak year of branded patent expirations, we are frequently asked "Does it make sense to have exposure to the US generic group in 2013? We see several compelling opportunities in the sector but believe investors should be selective in building exposure. While we anticipate a step down in new launch opportunities in 2013, this appears to be well-reflected in valuations with the generics trading at close to 11x 2013 earnings. In addition, we see several encouraging trends in the industry with more of the groups profitability driven by either a relatively stable base business, higher barrier to entry products or international franchises as compared to patent challenge-driven exclusivity periods. Along these lines, we are reiterating our OW ratings on Mylan and Watson, both of which are highly exposed to these dynamics. Mylan, Watson best positioned as industry dynamics shift. With a best-in-class manufacturing network, one of the most diversified generic franchises and the potential for fairly significant business development, we believe Mylan represents the best play on increased global generic utilization and continue to see upside in MYL shares despite recent strength. Watson represents a more concentrated generic portfolio but with visible launches over the next several years and what we believe will be greater than expected accretion from the recent Actavis transaction, we see both earnings upside and the potential for multiple expansion with WPI shares. Exclusivity periods declining as an earnings driver. This year represented the largest launch year for US generics, with over $34 billion in branded value losing exclusivity during 2012. However, many of these launches (Plavix, Lipitor, Singulair, etc) were rapidly commoditized and not major earnings drivers. Tevas initial 2013 guidance seems to confirm this view, with the company forecasting roughly flat US generic revenues relative to 2012. Looking forward, we forecast less than 5% of sales and 15% of generic profits for TEVA, MYL and WPI will be generated from traditional patent challenge exclusivity periods. Despite this, we anticipate consolidation, international growth and stable base business dynamics will drive high single digit earnings growth for the sector over the next several years.

Generic Pharmaceuticals Chris Schott, CFA


AC

(1-212) 622-5676 christopher.t.schott@jpmorgan.com

Dewey Steadman, CFA


(1-212) 622-5350 dewey.steadman@jpmorgan.com

Jessica Fye
(1-212) 622-4165 jessica.m.fye@jpmorgan.com J.P. Morgan Securities LLC

See page 13 for analyst certification and important disclosures.


J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Stable base pricing dynamics are sustainable for next several years, in our view. We believe generic valuations reflect investor concern about eroding price dynamics for the industry in 2013 as fewer new product launches translates to more base business competition. However, we do not expect this to be the case and believe current price dynamics are a result of structural changes to the industry. Looking forward, we see the combination of continued slow FDA approval times, consolidation and higher FDA manufacturing scrutiny to result in a relatively healthy price dynamics across the industry. We would note that generic pricing has been far more stable than historical levels over the past several years, including 2011, which was a year with roughly the same level of generic introductions as 2013. In addition, while GDUFA legislation will ultimately result in an uptick in generic approvals, we expect the implementation of the program to actually extend approval times over the next several years. Ample room for consolidation. We continue to see a strong rationale for further consolidation across the industry with meaningful synergy potential, depressed valuations and low financing costs. While several larger players are likely out of the market in 2013 (WPI and TEVA), others have growing debt capacity and we would not be surprised to see more US/ex-US combinations over time. Diversification in the form of high-barrier products, international exposure and branded franchises. While we see a more challenging traditional Paragraph IV market in the US, we continue to see attractive opportunities for the sector in high-barrier to entry markets such as topicals (patches, creams and ointments), injectables, controlled-release products and controlled substances. While these products represent less branded revenue opportunities than typical oral-solid primary care blockbusters, the barriers to entering these markets are relatively high and we expect substantially less competition for these products than traditional generics even with greater levels of sector investment. Valuation: We see multiple expansion opportunity for WPI/MYL and TEVA valuation/drivers de-coupling from traditional generic manufacturers. Despite an uptick in valuations over the past 18 months, the US generics group at 11x forward estimates is still trading well under the historical average of close to 17x. We believe this is due in part to the de-rating of TEVA shares over the past several years. However, we increasingly view Teva as a hybrid brand/generic player with now 65% of earnings coming from its branded business/Copaxone franchise (see our separate TEVA note out today for more details). We believe companies like Mylan and Watson - with growing domestic and international generic portfolios - should be valued at a premium to Teva and we see room for multiple expansion for these companies.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Should You Own Generics in 2013?


With 2012 representing a peak year of branded patent expirations, we are frequently asked "Does it make sense to have exposure to the US generic group in 2013? We see several compelling opportunities in the group but believe investors should be selective in building exposure. While we anticipate a step down in new launch opportunities in 2013, this appears to be well-reflected in valuations with the sector trading at close to 11x 2013 earnings. In addition, we see several encouraging trends in the industry with more of the sectors profitability driven by either a relatively stable base business, higher barrier to entry products or international franchises as compared to patent challenge-driven exclusivity periods. Along these lines, we are reiterating our OW ratings on Mylan and Watson, both of which are highly exposed to these dynamics.

2012: Big year for patent expirations, less significant generic opportunity.
This year represented the largest launch year for US generics, with over $34 bn in branded value losing exclusivity during 2012. However, many of these launches notably Plavix, Lipitor and Singulair - were rapidly commoditized and were not major earnings drivers. As such, we expect little in the way of an earnings cliff in 2013 resulting from 2012 profitability for most of the names under coverage. Tevas recent 2013 guidance for roughly flat US generic revenues despite a fairly significant paragraph IV launch portfolio in 2012 seems to confirm this view. Overall, we are anticipating a slowdown in revenue growth for the US generic manufacturers in our coverage universe in 2013 (2% after adjusting out the impact of Watsons Actavis acquisition from our estimates) but continue to anticipate modest topline growth for the group next year despite fewer new product introductions.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Figure 1: Generics Weighted Average Revenue Growth, 2011-2015E


30% 25% 20% 15% 10% 5% 0% 2011 2012E 2013E 2014E 2015E
Source: Company reports and J.P. Morgan estimates. Note 2013E Industry average would be approximately 2% using Watson organic sales growth ex-Actavis.

Figure 2: Generics Weighted Average EPS Growth, 2011-2015E


18% 16% 14% 12% 10% 16% 14% 11% 8%

26%

12% 9% 7% 4%

8% 6% 4% 2% 0% 2011 2012E

6%

2013E

2014E

2015E

Source: Company reports and J.P. Morgan estimates.

Figure 3: Brand Value of Generic Launches, 2009-2012E


$ in millions

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2009 2010 2011 2012 11,564 19,049 15,492 34,010

Source: Company reports, IMS Health and J.P. Morgan estimates.

2013 will be lighter for launches, with some pick up in 2014 and 2015
In general, the years of peak patent expirations are behind the industry and we do not expect 180-day exclusive periods to be a major contributor to earnings growth for the sector in the future. We expect around $17bn in branded value to lose exclusivity in 2013 with the highest profile launches potentially being Cymbalta ($3.7bn, commoditized product), Niaspan ($1.4bn, TEVA) and Lidoderm ($1bn, WPI). Additionally, we expect continued impact from the late 2012 Tricor launch ($1.4 bn, TEVA) to be felt through 2013. Moving to 2014 and 2015, we see some pickup in branded value losing exclusivity, but are anticipating fewer exclusivity periods associated with these launches and more commoditized introductions.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Figure 4: Brand Value of Generic Launches, 2012E-2015E


$ in millions

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2012 2013 2014 2015 17,103 25,114 18,940 34,010

Source: Company reports, IMS Health and J.P. Morgan estimates.

Figure 5: Relative Size, Timing and Number of Companies for Potential Launches in 2013
12

10 Expected Companies at Market Formation

Cymbalta

8 Maxalt 6 Zometa Niaspan Propecia

4 Tricor 2 Opana ER Reclast Dacogen Valcyte Temodar Lidoderm Xeloda Exalgo Vivelle-Dot Aciphex Zomig

Source: IMS Health, J.P. Morgan estimates.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Figure 6: Paragraph IV Revenue Significantly Declining As A Percent of Generics Sales


35% 30% 25% 20% 15% 10% 10% 5% 0% Mylan 2011A 2012E Teva 2013E 2014E 2015E Watson 2% 3% 4% 3% 6% 5% 4% 9% 3% 3% 5% 5% 2% 29%

Source: Company reports and J.P. Morgan estimates.

US base businesses remain stable


Through a combination of supply interruptions, new product launches and increased usage/utilization, the US generics market has seen an unprecedented period of stability over the past few years. However, we believe generic valuations reflect investor concern about eroding price dynamics for the industry in 2013 as fewer new product launches translates to more base business competition. We do not expect this to be the case and see believe the current price dynamics is a result of structural changes to the industry. Looking forward, we see the combination of continued slow FDA approval times, consolidation and higher FDA manufacturing scrutiny to result in a relatively health price dynamics across the industry. We would note that generic pricing has been far more stable than historical level over the past several years, including 2011, which was a year with roughly the same level of generic introductions as 2013. Additionally, while the implementation of GDUFA will ultimately lead to quicker approval times for all generic products, we expect initial staffing and training by the agency to prepare to meet stringent approval timelines may lead to a temporary extension of average approval times from current 30 month levels, limiting incremental competition in US base businesses in the near term and contributing to short-term pricing stabilization.

Generic model continues to diversify


In the wake of a shifting Paragraph IV environment, the generic business model is diversifying and becoming far less dependent on Paragraph IV sales to drive profitability and growth. The leaders in the industry are seeking growth and diversification through international expansion, focus on base businesses in the stable US market and consolidation.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

International growth expected through organic expansion and acquisitions Today's generic leaders are substantially more geographically diversified than in prior years, as companies aim to capitalize on increases in generic utilization in developing markets and increased healthcare access in emerging markets. We have seen generics move into international markets through acquisitions of major international players and through organic growth as companies integrate their international operations and sync dossiers among territories. Mylan and Watson are expected to have close to half or more of their generics sales outside of the US by 2015 and we expect Teva to have close to 70% of its generics sales outside the US by 2015.
Figure 7: International Revenue as a Percent of Total Generics Revenue, 2010-2015E
80% 70% 60% 50% 40% 30% 20% 10% 0% Mylan 2010A 2011A 2012E Watson 2013E 2014E 2015E Teva 19% 16% 25% 53% 53% 44% 45% 47% 61% 49% 47% 49% 49% 62% 65% 69%

58%

44%

Source: Company reports and J.P. Morgan estimates.

These international franchises are becoming more profitable for the major generics as well, as Mylan, Teva and Watson integrate recent acquisitions in Europe and Asia both through complete vertical integration (Teva and Mylan) and consolidation of manufacturing/raw material purchasing (Watson). In fact, Teva recently announced a $1.5- $2.0 billion restructuring program that we believe will be largely focused on the company's generic manufacturing operations.

Industry consolidation likely to continue and represents a positive for the sector
Despite a strong year in 2012 for deals within the generics industry with Watson/Actavis, Par/TPG, Sandoz/Fougera, Watson/Ascent and Amgen/MN being the more notable deals, we believe the industry has both ample capacity and motivation to continue consolidation moving forward. We expect activity both in the US market among smaller players in the industry and potentially larger deals outside of the US to unlock access to emerging growth markets with the potential for significant volume increases.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

In particular, we will watch Mylan in 2013 as the company has reduced its overall leverage and now has debt capacity in the range of $4 billion. We believe the right transaction could address concerns about slowing growth for the company beyond 2012 and could result in both earnings upside and multiple expansion for the stock.
Figure 8: Selected Generic M&A Transactions
Date July 16, 2012 May 2, 2012 April 26, 2012 April 25, 2012 January 24, 2012 August 24, 2011 May 25, 2011 May 24, 2011 May 16, 2011 February 1, 2011 January 20, 2011 Buyer Name TPG Sandoz Watson Amgen Watson Par Watson Valeant Teva Valeant Perrigo Seller Name Par Pharmaceutical Fougera Actavis Mustafa Nevzat Ascent Pharmahealth Anchen Specifar Sanitas Taiyo PharmaSwiss SA Paddock Labs Deal Value (mln) $1,900.0 $1,525.0 $5,600.0 $700.0 $390.0 $410.0 400.0 364.0 $1,300.0 $479.5 $540.0 Value/Sales 1.7x 3.6x 2.2x 3.5x 2.5x 1.6x 4.7x 3.6x 2.5x 1.9x 2.7x

Source: Company reports and J.P. Morgan estimates.

The generic industry is still very fragmented


Despite active consolidation in the industry over the past decade, the generic industry remains fairly fragmented. Currently, the top 4 producers in the US account for roughly 45% of total industry volumes (and a higher percentage of sales) with a second tier of 4-5% market share players having emerged as well. We anticipate continued M&A activity as larger manufacturers seek to expand either product offers and target small, niche players to do so.
Figure 9: Top 20 US Generic Manufacturers by Generic Prescriptions Dispensed
millions of TRx 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Teva Mylan Watson/Actavis Sandoz/Fougera (Novartis) Qualitest (Endo) Lupin Pharma Amneal Greenstone (Pfizer) Dr Reddy Zydus Mallinkrodt (Covidien) Sun/Taro Ranbaxy Labs Aurobindo Roxane (Boehringer Ingelheim) Camber Pharm (Hetero) West-Ward (Hikma) Glenmark Pharma Par/Anchen Perrigo 2010 638 380 303 254 137 133 98 118 63 53 80 58 42 40 44 16 46 35 43 33 2011 552 366 320 240 158 156 114 112 74 71 77 63 50 47 65 38 54 37 40 40 TTM 553 366 327 207 164 163 116 104 82 80 78 76 75 72 67 55 52 42 42 41

Source: IMS Health, J.P. Morgan Note: Injectable generic products often are not captured by IMS prescription reporting.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Figure 10: Next 20 US Generic Manufacturers by Generic Prescriptions Dispense


millions of TRx 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Wockhardt America Lannett Northstar Rx Hi-Tech Pharmacal Apotex Cadista Upsher-Smith Kremers-Urban (UCB) Bausch & Lomb Dava Global Pharm (Impax) Accord Healthcare Breckenridge Winthrop (Sanofi) Heritage Pharma Abbott URL/Mutual (Takeda) Corepharma Glaxosmithkline Cypress 2010 15 38 17 17 17 24 25 21 12 9 12 4 13 7 5 14 10 7 10 7 2011 31 37 31 22 14 23 23 20 14 12 12 16 11 11 8 13 11 7 7 7 TTM 39 37 36 27 27 25 24 24 16 14 13 13 12 12 11 11 11 7 6 5

Source: IMS Health, J.P. Morgan Note: Injectable generic products often are not captured by IMS prescription reporting.

Significant debt capacity for the sector to pursue deals


Based on estimated 2013 debt levels and EBITDA for the generics under coverage, Teva, Mylan and Perrigo have the most absolute capacity to add additional debt to facilitate additional deals. We note that actual capacity for deals may be higher than illustrated as each potential target may come with its own EBITDA contribution. Looking at an EV-weighted model, Impax, which is in a net cash position, has the most capacity for deals relative to enterprise value. Additionally, while Watson has committed to paying down debt in the wake of the Actavis transaction, we believe the company could embark on smaller-scale deals to add incremental products or technologies, especially in brands and biosimilars, where the company has expressed a keen interest in expansion.
Figure 11: Estimated Debt Capacity for Generic Pharma Companies Under Coverage
$ in millions 2013E Net Debt 755 (382) 3,613 406 8,857 5,082 18,331 2013E EBITDA 727 100 1,917 988 6,146 1,889 11,767 Leverage 1.0x -3.8x 1.9x 0.4x 1.4x 2.7x 1.6x JPM target 3.5x 3.5x 4.0x 3.5x 3.5x 3.5x Debt Capacity 1,791 733 4,054 3,052 12,653 1,529

HSP IPXL MYL PRGO TEVA WPI Coverage

Source: J.P. Morgan estimates.

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Figure 12: JPM Estimated Debt Capacity v. Enterprise Value


$ in millions HSP IPXL MYL PRGO TEVA WPI Coverage Debt Capacity 1,791 733 4,054 3,052 12,653 1,529 23,812 Enterprise Value 5,910 1,019 15,560 10,473 46,688 11,826 91,475 Capacity/EV 0.3x 0.7x 0.3x 0.3x 0.3x 0.1x 0.3x

Source: J.P. Morgan estimates.

Opportunity shifting to high-barrier products


In the wake of a more challenging Paragraph IV market in the US with a combination of fewer opportunities and more share exclusivity periods, we believe a better opportunity for the sector rests with high-barrier products like topicals (creams/patches), injectables, respiratory products, biosimilars, controlled-release products and controlled substances. While these products represent less branded revenue opportunities than typical oral-solid primary care blockbusters, the barriers to entering these markets are relatively high and we expect substantially less competition for these products going forward despite increased focus and investment in these categories by the industry. Topicals and respiratory products Topical products used externally and extended topical products like respiratory drugs present unique challenges for generics to both formulate and prove bioequivalence. Additionally, many topical products are presented as patches, which while easy for the consumer to use, present even more challenging development pathways, especially for products that are not systemically absorbed and measurable in the bloodstream. Perrigo, Tolmar, Fougera/Sandoz and Taro are leaders in generic topical products like ointments and creams for dermatology while Mylan and Watson have developed strong patch technology teams. Proving bioequivalence for respiratory products like Advair remains challenging with no clear pathway to market short of a comparative clinical study given the need for generics to differentiate between local and systemic exposure and the additional challenge of developing a device that generates a similar result as the reference product and is relatively seamless to the patient. Mylan and Teva have committed substantial resources to generic respiratory product development focused on the lower respiratory tract with Mylan pursuing an AB-substitutable product and Teva running larger clinical studies that would results in value brand approval rather than a fully substitutable generic. Controlled-release products With unique release profiles and significant formulation challenges, specialized controlled-release products also present a significant barrier to entry for generic companies. ADHD drugs like Concerta and Adderall XR have unique release profiles that mimic twice- or thrice-daily dosing and as such, FDA requires more advanced PK data for generics to secure approval. Other products present formulation challenges or difficult to source raw materials like controlled-release opioids. Watson has been a clear leader in extended release generics development while Impax also has substantial ER formulation expertise.
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Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Controlled substances The DEA has limited the production of many controlled substances including opioids and many ADHD products to manufacturing sites in the US and the agency has strict requirements for manufacturing, storage, shipment and disposal. Together, these restrictions keep the number of manufacturers of commoditized controlled substances to a minimum. The leaders in this area include Endo's Qualitest unit, Covidien's Mallinckrodt unit and Watson for solid doses and Hospira for injectables.

Branded businesses remain controversial sources of diversification


Over the past several years, there has been a clear push by the leading generics companies into specialty branded business as an added source of diversification with decidedly mixed results. For better or worse, we expect this branded push to continue and, when used responsibly, these businesses represent a critical source of diversification for the industry in the wake of lumpiness with high-profile generic launches. When evaluating branded businesses, Teva's branded portfolio accounts for well over half of the companys profitability compared to under 15% for Mylan and Watson. In the wake of the Actavis transaction, Watsons branded revenue and profitability are expected to decline going forward while continued strong EpiPen performance contributes to slowly growing revenue and profitability for Mylans branded franchise.
Figure 13: Branded Revenue as a Percent of Total Revenue
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Watson 2010A 2011A 2012E Mylan 2013E 2014E Teva 2015E
11% 10% 14% 13%13% 12% 8% 7% 7% 7% 8% 9% 27% 40%40% 39% 35% 35%

Figure 14: Branded Contribution to Overall Operating Profitability


80% 70% 60% 50% 40% 30% 20%
10% 14%15%15%15% 11% 67% 65% 63% 63% 55%

10% 0%

8%

5% 5% 5% 5%

8%

Watson 2010A 2011A 2012E

Mylan 2013E 2014E

Teva 2015E

Source: Company reports and J.P. Morgan estimates.

Source: Company reports and J.P. Morgan estimates.

Historical valuation suggests upside potential for selected generics names


Despite an uptick in valuations over the past 18 months, the US generics group at 11x forward estimates is still trading well under the historical average of close to 17x. We believe this is due in part to the de-rating of TEVA shares over the past
11

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

several years. However, we increasingly view Teva as a hybrid brand/generic player with now 65% of earnings coming from its branded business/Copaxone franchise (see our separate TEVA note out today for more details). We believe companies like Mylan and Watson - with growing domestic and international generic portfolios should be valued at a premium to Teva and we see room for multiple expansion for these companies. Other specialized names with unique business models like Perrigo and Hospira, already trade at above-group multiples and are fairly valued, in our view.
Figure 15: Historical Forward P/E Valuation for US Generics
30x

25x

20x

Historical Average

15x

10x 2 Standard Deviations Below Historical Average 5x

0x

Source: Bloomberg and J.P. Morgan estimates.

12

Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Companies Recommended in This Report (all prices in this report as of market close on 30 November 2012) Mylan Inc. (MYL/$27.18/Overweight), Watson Pharmaceuticals (WPI/$88.01/Overweight)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Market Maker: JPMS makes a market in the stock of Mylan Inc..

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Mylan Inc., Watson Pharmaceuticals within the past 12 months. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Mylan Inc., Watson Pharmaceuticals. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Mylan Inc., Watson Pharmaceuticals. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Mylan Inc., Watson Pharmaceuticals. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Mylan Inc., Watson Pharmaceuticals. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Mylan Inc., Watson Pharmaceuticals. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Mylan Inc., Watson Pharmaceuticals. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Mylan Inc., Watson Pharmaceuticals. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request.
Mylan Inc. (MYL, MYL US) Price Chart

44

OW $15

OW $28

Date 04-Oct-07
OW $29 OW $31 06-Jan-09

Rating Share Price ($) OW OW OW OW OW OW OW OW OW OW OW 16.87 9.74 10.33 12.61 13.40 16.30 18.72 21.54 22.61 23.60 23.44 25.00

Price Target ($) 14.00 15.00 17.00 20.00 24.00 25.00 26.00 28.00 29.00 31.00

OW $14 33 OW Price($) 22

OW $24

OW $26

17-Dec-08 OW
OW $17 OW $20 OW OW $25

20-Feb-09 01-Apr-09 27-Oct-09 05-Jan-10


11

05-Jan-11 24-Feb-11 11-Apr-11

0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12

22-Feb-12 25-Oct-12

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Oct 04, 2007.

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Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Watson Pharmaceuticals (WPI, WPI US) Price Chart

Date
156 N $28 130 N $25 104 N Price($) 78 N N $41 OW $52 W $54 OW $65 O OW $70 OW $94 N $48 OW $59 OW $68 OW $73

Rating Share Price ($) N N N N OW OW OW OW OW OW OW OW 31.14 24.68 24.84 29.81 37.77 40.29 43.73 47.09 48.61 62.24 62.20 69.36 58.14 69.69 83.32 87.83

Price Target ($) 25.00 28.00 41.00 48.00 52.00 54.00 59.00 65.00 68.00 73.00 70.00 90.00 94.00 100.00

29-Apr-08
OW $90 OW $100 06-Jan-09

17-Dec-08 N 20-Feb-09 05-Jan-10 15-Oct-10

08-Dec-09 N 19-May-10 OW 04-Nov-10 27-Apr-11

52

26

25-May-11 OW 26-Jul-11 23-Jan-12


Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12

26-Apr-12 24-Aug-12 08-Oct-12

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 29, 2008.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com. Coverage Universe: Schott, Christopher: Allergan (AGN), Amarin Corporation (AMRN), Bristol-Myers Squibb Company (BMY), Eli Lilly & Company (LLY), Endo Health Solutions (ENDP), Forest Laboratories, Inc (FRX), Hospira, Inc. (HSP), Impax Laboratories (IPXL), Kythera Biopharmaceuticals (KYTH), Medicis Pharmaceutical Corp. (MRX), Merck & Co., Inc. (MRK), Mylan Inc. (MYL), Perrigo Company (PRGO), Pfizer Inc. (PFE), Sagent Pharmaceuticals (SGNT), Teva Pharmaceuticals (TEVA), Valeant Pharmaceuticals (VRX), Warner Chilcott (WCRX), Watson Pharmaceuticals (WPI) J.P. Morgan Equity Research Ratings Distribution, as of September 28, 2012
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 44% 52% 42% 69% Neutral (hold) 44% 46% 48% 61% Underweight (sell) 12% 34% 10% 53%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
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Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

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Chris Schott, CFA (1-212) 622-5676 christopher.t.schott@jpmorgan.com

North America Equity Research 03 December 2012

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