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Leading analyst examines the healthcare sector in this special Healthcare Stocks report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info561.htm

TWST: Will you begin by telling us about WPG Farber and the role that you play there?

Dr. Gruber: WPG Farber is a 360 million equity hedge fund. Since 1988, Fund returns have exceeded the S&P 500 by an average of 800 basis points per annum. Gerry Farber, formerly Director of Research at Weiss, Peck & Greer, started WPG Farber. John Lattanzio, formerly the number two partner for 18 years to Michael Steinhardt at Steinhardt Partners, joined the Fund late last year. I joined in February as a Managing Director and Healthcare Portfolio Manager. It has been a profitable, though challenging, endeavor year to date. I intend to raise money for a dedicated healthcare fund within the next few months, with operations to commence in 2003. Fund goals remain absolute outperformance, beta adjusted risk management and capital preservation.

TWST: Has your approach to investing changed with your move to the buy side?

Dr. Gruber: Yes and no. Fundamentals always come first, followed by detailed modeling. My initial training at Sanford Bernstein has definitely been helpful here. Sellside analysts make recommendations; they don’t pull the trigger. On the buy side, there is far greater sensitivity to the timing of the investment decision; the amount of capital deployed; the return on that investment relative to alternative opportunities; and, most importantly, portfolio performance. When I left the industry seven years ago, I had naively assumed the job of a sellside analyst entailed doing fundamental research, writing reports and picking stocks. It’s not. It’s about selling ideas, whether they’re originated by equity research or investment banking, and getting ranked in the major surveys. Customer service is far more important to the investment banks, particularly in the era of Institutional Investor rankings, in order to get banking business. On the buy side, my job is picking outperforming stocks. I can focus 100% of my efforts on equity research. On the sell side, a minimal amount of time is directly spent by the senior analyst on that endeavor.

TWST: At current prices, are there one or two compelling valuations among the pharmaceutical stocks?

Dr. Gruber: Yes — Pharmacia (NYSE:PHA) and Pfizer (NYSE:PFE). We expect Pharmacia to gain market share in the Cox-2 inhibitor market based on the launch of Bextra and the modified (cardiovascular risk) labeling associated with Merck’s Vioxx. Its product pipeline is among the best within the pharmaceutical industry, with particular excitement associated with eplerenone for hypertension and congestive heart failure. Eplerenone, an aldosterone antagonist, could potentially be as significant as the ACE inhibitor and b-blocker classes of drugs. An added mortality benefit (class affect) has already been shown in the RALES study. Generic exposure is minimal. Ambien has already been returned to Sanofi-Synthélabo. Belated operational cost savings are still possible following the Upjohn and Monsanto (MON) acquisitions. And lastly, the spin out of Monsanto’s agriculture division will reduce environmental liability concerns.

This special report includes:

1) Investing in Healthcare Stocks - In an in-depth (5,400 words) Analyst Interview, David Gruber, Managing Director of WPG Farber, examines the outlook for the sector and shares specific stock recommendations.