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Leading analyst examines the Health Care and Pharmaceuticals sector in this special Outlook for Health Care & Pharmaceuticals report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info462.htm.

TWST: Turning to Pfizer (NYSE:PFE), which, it seems to me, is always the stock that everybody loves to love…

Mr. Shah: In fact, that is the biggest concern I have about Pfizer — that everybody likes it. If everybody likes it, then everybody has bought it, and it’s time to sell! But unfortunately, I, as an analyst, cannot recommend a stock just because everybody likes it or everybody hates it. It has to have good fundamentals and a good risk/reward ratio. We believe that due to its strong and consistent earnings growth over the next five years, Pfizer will outperform the drug group. We believe that given its consistent and very high level of almost-assured earnings growth over the next three or four years, on a growth-adjusted basis, it is by far the cheapest drug stock. We believe that based upon just a simple upside/downside consideration, Pfizer is probably the most attractive drug stock.

TWST: What are the products that will drive Pfizer over the next couple of years?

Mr. Shah: About six or seven products are really driving Pfizer’s near- to mid-term financial performance. However, the product that is by far the most important one for Pfizer and has the potential of becoming the first 10 billion product is Lipitor. It has a long patent protection and will continue to be by far the largest contributor to Pfizer’s sales and income growth. On the flip side, if sales of Lipitor begin to decline due to competitive pressures from newer drugs, such as Crestor from AstraZeneca (NYSE:AZN), it may negatively impact the company’s growth prospects.

TWST: Isn’t the cholesterol-lowering sector quite crowded?

Mr. Shah: It is a very crowded segment. But it is also a very rapidly-growing segment because of increasing evidence that these drugs can benefit even those with only a moderately elevated level of cholesterol. Thus, most players in this market will continue to benefit. But Pfizer being the leader in this segment, has the most to gain or lose from both the market growth as well as the performance of newer drugs.

TWST: What are the other drugs that will be important for Pfizer? Is Viagra still an important contributor to revenue and earnings?

Mr. Shah: Viagra is an important contributor. It’s not as important as Lipitor, because it’s only a fraction of Lipitor’s total sales. Thus, as a billion-dollar-plus drug, it does positively contribute to Pfizer. Its future contribution may depend upon how well it performs in light of its expected two competitors over the next year or so.

TWST: Overall, how should investors be looking at health care as we move into 2002 and look out to 2003? Should they be overweighted in any particular sector of health care?

Mr. Shah: We believe that drug distributors may be the only sector in which investors may want to be overweighted. We believe that the generic drug cycle is not over and will continue to help the distributors. We believe that this may lead to positive earnings surprises and accelerated growth. Apart from that, we continue to remain very cautious on health care. This is not a normal economic recession; it’s driven by a very different set of parameters. In a normal recession, healthcare stocks tend to always do well, but this is not a normal recession.

This special report includes:

1) Outlook for Health Care & Pharmaceuticals - In an in-depth (3,600 words) Analyst Interview, Hemant K. Shah, President of HKS & Company, examines the outlook for the sector and shares specific stock recommendations.