Calls of Note Part 1

- Merrill Lynch would buy both Theravance (NASDAQ:THRX) and Cubist (NASDAQ:CBST) for the upcoming telavancin data. Firm believes that owning the pair into the data provides a natural hedge for current owners of each stock. Also, because they estimate that THRX is discounting a low probability of positive telavancin data and CBST is discounting a high probability of at least positive data, the firm believes there could be upside for both in the most likely scenario of telavancin demonstrating it is non-inferior to standard of care with positive trends.

THRX provides investors with a strong risk/reward opportunity with about $3 of downside risk and $13 of potential upside. Firm projects an expected return upon data release of 13%. The most likely outcome from the telavancin study is that the drug shows a trend toward superiority in patients with MRSA. In this case, the drug could achieve sales of $500 MM and the stock would be worth $26.

Believes the stock could range from $20 to $36/share, depending on the outcome. Importantly, a higher stock price would raise the chances that GSK will exercise its option to purchase half of THRX's outstanding shares at $54.25 in July '07.

Merrill estimates CBST is pricing in a high probability of positive telavancin data that would cause Cubicin growth to slow beyond 2007, which they think is unlikely. Firm estimates $2-4 of downside if telavancin shows superiority to standard of care, but $3-5 of upside if telavancin is non-inferior to vancomycin, which is the most likely outcome.

Notablecalls: THRX's telavancin is set to compete with CBST's Cubicin in treating serious skin infections (cSSSI). Analysts generally expect phase 3 telavancin data to be released in late Aug or early Sept. Not actionable but good to know category.

- Piper Jaffray comments on Apple Computer (NASDAQ:AAPL) after Microsoft confirmed that it will be launching music and entertainment products under the "Zune" name. While the company did not provide details on the specific product categories that would fall within the Zune family, a Microsoft made MP3 player that will compete with the iPod is widely expected. Another market segment that could be addressed by Zune is portable gaming. Microsoft offerings under the Zune name are expected by the end of CY06.

Firm believes the Zune initiative is a sign that Microsoft believes in the importance of the portable music market and has become uncomfortable with its partners'(Creative, iriver, Samsung, etc.) failures in gaining market share on Apple. They do expect Microsoft will be able to take some of Apple's 75% MP3 player market share away, but to what extent it is too early to say.

There has recently been a lot of talk about the potential for a Microsoft MP3 player and clearly Microsoft is rich with resources to compete with Apple. Microsoft's entertainment and devices division, led by Robbie Bach, is working on an end- to-end digital music hardware and software ecosystem to compete with Apple's iPod+iTunes. Piper does not believe, however, that the yet-to-be-seen Microsoft offering will be a worthy opponent for the iPod. One significant indication is that Windows Media-enabled MP3 players have been in the market for three years and have been unable to grow their roughly 25% market share. Additionally, they expect Apple will release new/upgraded iPods this fall that will likely push the envelope in innovation and ease-of-use.

Maintains Outperform and $99 tgt.

Notablecalls: Not actionable but good to know category.