EFTA02400583

From: Barrett, Paul S Sent: Wednesday, February 13, 2013 5:41 PM To: Jeffrey Epstein Cc: Weissend, Renee E; Ens, Amanda Subject: An idea <=iv class="WordSectionl"> Jeff=ey &=bsp; I do not =hink we have enough equity risk in the portfolio right now. While we fee= very good about our mortgages and credit exposure, the upside in credit f=els limited. Therefore I would like to selectively add some equity=exposure with names that have underperformed the broader market yet mainta=n some buffers to protect us on the downside. =OD We recently added Merck to our =ocus list. I think we should consider a Market Plus Note on MRK (Overwei=ht with a $52 price target) - =nbsp; 18 mo=th =OD Greater of the upside o= a 3% coupon so long as we don't finish below 80% at expiry.<=o:p> Would consider $1MM <=p> Background: </=> Merck is the 2nd l=rgest pharmaceutical company globally with a broad portfolio of market-lea=ing medicines and vaccines. International revenues represent 62% o= total, while the U.S. represents - 38%. Highest selling products inc=ude: Singulair (asthma/allergies) and Januvia (diabetes)=/p> • =nbsp; Pullback presents opportunity in a favored sector (the cheapest d=fensive sector) — </=pan>MRK is down -14% over last 4 months vs=2E PFE at up 7% and S&P at up 4% - Delay in filing of odanacatib, M=K's phase III osteoporosis drug and investor concern about upcoming =rial data have hurt sentiment. We believe this pullback is overdon= and at current levels potential downside from upcoming trial information =ppears limited. EFTA_R1_01436141 EFTA02400583 • =0AUpcoming pipeline data =oints expected in 21-I13 and 2014 provide catalysts and higher EPS growth po=ential than peers — MRK has a solid pipeline beyond =danacatib (suvorexant - insomnia, anacetrapib - cholesterol, PD-1 -oncolog=, BACE - Alzheimers) as well as healthy core product portfolio (Janu=ia -diabetes and vaccines). — JPMS LLC expects strong EPS growth of -8% thro=gh 2020 • &nb=p; Valuation a=tractive both versus peers and historical averages; high dividend should s=pport the stock — MRK trades at 11.2x F13EPS vs. 12.5x five-y= avg, PFE at 12.0x and at a 20% discount to larger cap pharma peers, des=ite higher growth potential — 4.2% div yield, which we view as sustainable given 7.8% FCF=yld Wh=te line = buffer <=span> =p class="MsoNormal" styleeline•height:12.0pt;text-autospace:none"><=>Paul Barrett I Managing Director I Global Investment Opportunities Group I =b>J.P. Morgan Private Bank I 320 Park Avenue, 14th Floor, New York, N= 10022 I T: > I NMLS ID# 853441 =p class="MsoNormal"> =nbsp; T=is email is confidential and subject to important disclaimers and conditio=s including on offers for the purchase or sale of securities, accuracy and=completeness of information, viruses, confidentiality, legal privilege, an= legal entity disclaimers, available at http://www.jpmorgan.com/pages/=isclosures/email. 2 EFTA_R1_01436142 EFTA02400584