Merck and Pfizer

[Kevin Shang]

Is everyone on vacation? It has been quiet.

What do you think of Merck and Pfizer? They are down to about 12X PE.
The liability is real, but it's all priced in. Their research and
marketing franchise is still intact. Drugs come in cycles; right now
is low. Any body loaded up drugs in 1993-1994 made a lot of money.

Please share any insights you have. Thank you!

[Brian Zen]

I say bravo! Charge!

I bought some more PFE, and some MRK. The executions at MRK is terrible
though. Sudden panic-like withdrawl of VIOXX attracted so much
attention from tort lawyers, whereas Pfizer quietly avoided headlines.
And lead lawyers of MRK are not too good at presenting clear arguments,
yet the opposing lawyer is so articulate.

PFE is stronger financially as well.

I think the chance that tort lawyers could take down the drug industry
is almost zippo. They couldn't do it to the ciggerattes. It is almost
impossible to stick it to the pharms. The $253 million jury award will
definitely be reduced dramatically later on. When that happens, our
stocks will start to light up.

Thanks a lot for contributing this great idea, Kevin!

By the way, Jim Crammer said the withdrawl of a drug sank one of the
major drug companies. Anybody know which one it is?


Brian

[Joe Monaco]

I actually did Professor Greenwald's work on Pfizer and ran it past him.
PFE's EPV comes up at $25 if you include 60% of R&D as an asset. While he
says that NORMALLY he disagrees with his own book about including that as an
asset, he does believe it is justified in the Pharmaceutical industry.



Joe



Joseph A. Monaco

President - Monaco Capital Management

Office: 757-333-7676

Toll Free: 866-867-7676

Fax: 757-333-7677
Raymond James Financial Services, Inc., member NASD/SIPC

[Kevin Shang]

Joe, Can you clarify what do you mean by include 60% of R&D as an
asset? Do you just treat 40% of R&D sort of like maintanence capital
expenditure, and 60% like growth cap-ex?

I got a EPV of 28-29 per share, stripping out merger related expenses.
These are truely one-time expense.

I believe PFE has some franchise value, therefore growth is valuable.
If assume a 4% growth, 10% cost of capital, 11% return on capital, the
growth is worth 17%. So my value estimate is 33-34. Margin of safty
is 25% at current price of 25.

Kevin