Roche: Navigating through a volatile environment
San Francisco, January 2010
Dr. Erich Hunziker, CFODeputy Head of the Corporate Executive Committee
2010 + Healthcare remains a very attractive field –even in difficult times
Roche: translating excellence in science into patients’ benefit
3
Even in today’s environment demand for healthcare increases - but funding is and will remain challenging
Funding of healthcare
Today 2020
Paymentsby individuals
Co-payment-systemsSlowdown
of EconomySocial security systems
No. of healthcare events
Today 2020
Higher life expectancy
Population growth
Researchactivities
Access to healthcare
Health awareness
4
Lack of potential in BRIC countries?Generics replace
originals
Investors focus on the fundamental challenges for “Pharma”
?
Growth potential for Pharma ?
Today 2020
US Healthcare reform
Lack of innovation ?
5
A global pharmaceutical market perspective still looks
very attractive
Pharma 2020 report PriceWaterhouseCoopers
Actual 2008 Scenario 2020
377.6
193.4335.9
425.5104.5
90.8
46.5
311.8
247.5
76.6
North America
Europe
Japan
Asia/Africa/ Australia
Latin America
Sources: IMS Health Total Unaudited and Audited Global Pharmaceuticals Market by Region (2008); IMS Health Market Prognosis (March 2009)
and PWC analysis. Note: IMS Health has produced lower and upper projections for the growth of the global pharmaceuticals market over the
next five years. PWC has extrapolated from these projections to estimate the regional split in 2020, using the midpoint between the upper and
lower ranges
US $ 773 bn US $ 1’437 bn
6
Roche remains committed to the US market the most attractive single market for many years to come !
Source: Centers for Medicare and Medicaid, Office of the Actuary, National Health Statistics Group
U.S. Healthcare Spending, US$ Billions
2000 2008 2015
1500
2500
4000
U.S. Healthcare Spend as % of GDP
2000 2008 2015
14%
16%
20%
7Impact for Roche expected to be minimal
US healthcare reform: Medicare/ Medicaid exposure
Roche’s specialty care portfolio is in favorable position
Roche / Genentech:US payor type
Roche / Genentech: Majority of products covered by Medicare part B
part D
10%
part B
90%
Medicaid
5%
other
47%
Medicare
48%
8
In Europe we build on a very strong position
we understand hurdles to market access in Europe
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R&D
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���Pharmaceutical /
Innovative Characteristics
���Budget Impact
���Cost Effectiveness
���Patient Benefit
���Therapeutic Benefit
UKNLBECriteria
Sorenson, Drummond, Kanavos 2008
9
Selected emerging markets show strong growth…
… and are a third Roche focus point
20.4UK11
22.9Brazil9
23.4Russia8
26.1Italy7
26.6Spain6
40.1France5
15.6India14
12.4Mexico15
IMS Health Pharma Market Ranking 2013 US $ Bio
20.2Venezuela12
Turkey
Canada
Germany
China
Japan
United States
16.313
20.510
46.14
66.73
93.32
289.81
Source: IMS Health, Market Prognosis June 2009
10
For innovative products emerging markets offer attractive price levels
0
10
20
30
40
50
2004 2008
Total emerging marketsNorth America, Western Europe, Japan
Emerging markets CAGR 2004-08: 17 %
10095
0
20
40
60
80
100
E7
Group Sales Average Herceptin price(indexed)
US, France, Germany,
UK, Japan
21 %
17 %
83 % 79 %
CHF 45.6 bn
CHF bn
11
42
6962
54 51 48 4841
36
24
14
0
20
40
60
80
100
Total
Market
GSK
Pfizer
AZ
S-A J&J
MSD
Lilly
Novartis
Abbott
Roche
2008-2012 2013 & beyondSource: IMS Health MIDAS Market Segmentation MAT June 2008, Ethical protected brand sales only.
SHARE OF PROTECTED SALES EXPIRING % US$
Top 10 Corporations Protected Sales Expiring to 2012 & Beyond (US$ Const)
Patent expiry 2008-2012Roche has the lowest patent expiration risk & highest share of biotech products of leading pharma companies
12
Biosimilars outside US: much talked about……we have a clear strategy and time to protect our franchises
0
200
400
600
800
1'000
1'200
1'400
1'600
1'800
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
NeoRecormon
CHF m1
1 at constant average 2008 fx rates
Mircera
EPO franchise Europe/ROW
Patent expiry in
selected countries
13
Biosimilars in the US: status healthcare reform
Our innovative product portfolio is still many years away from patent expiry
Long patent protection of our key biologics in US
Avastin: 2019 Lucentis: 2019
Rituxan: 2016 Xolair: 2018
Herceptin: 2019 Pegasys: 2018
Currently no regulatory pathway for bio-similars / our view:
• Clinical trials required
• No inter-changeability
• Reasonable exclusivity period
14Diabetes Care Molecular Diagnostics
USA(Greater)Europe
Japan Asia / ChinaLatin
America
Geographic risk diversification
Unique “pillars of value” risk diversification
Roche is not just “Pharma”: it is the leading biotechnology company in the world with global customer access!
FUTURE PILLARS
Avastin adjuvantCancer (Colon, Breast,
Lung)
Avastin Brain, ovarian,gastric, prostate
CETP inhibitor
GLP-1
Pertuzumab
Ocrelizumab (MS)
Colorectal ca. Breast cancer Lung cancer
Oncology and RA RA
Breast ca., HER2+
Hepatitis C+B Transplantation
Osteoporosis
Anemia
T-DM1
Immuno-diagnostics
Aleglitazar
GLYT1 (CNS)
15
0.0 0.5 1.0 1.5 2.0 2.5
Pegasys
Tamiflu
YTD Sep '09
YTD Sep '08
Our “wild card”: high Tamiflu demand due to pandemic H1N1
+362 %
+38 %
746
460
192
458
45 50 36106
304349
727
119
65
54
233
65
75
97
260
267
0
200
400
600
800
1'000
1'200
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Seasonal
Pandemic¹
1 Governmental & Corporate
Tamiflu quarterly sales (CHF m)
Valcyte /
Cymevene
+11 %
Major brands(CHF bn)
+7 %
Expected total Tamiflu sales for 2009 around CHF 2.7 bn
YTD Sep ‘09 vs. YTD Sep ‘08local growth
Oct ‘09:
16
• Young product portfolio (Material patent expiry risk in 5 to 8 years)
•Medically differentiated products and services: each product /
service has a strong competitive position
• Strong customer support organisations in the mature
and emerging markets
Roche has a strong position in a challenging environment
The Roche advantages
We have been preparing for rougher seas for many years
Medium-/Long-term efficiency programs instead of short-term trouble shooting
To learn faster than the competition is the only sustainable competitive advantage of a company!
19
Clear commitment to improve the bottom-line
Outstanding long-term value creation
1 Prescription and Diagnostics2 Continuing businesses, before exceptional items, years not always directly comparable
Every element of the cost base is going through constant improvement programs
0
2
4
6
8
10
HY'01 HY'02 HY'03 HY'04 HY'05 HY'06 HY'07 HY'08 HY'09
10%
15%
20%
25%
30%
35%
Group operating profit2 (CHF bn)
33.2%
CAGR 22 %
Currency and Tamiflu pandemic
20
An industry leading global manufacturing network
Toluca
Isando
Karachi
LeganésBoulder
Clarecastle Penzberg
= 5 Chemical = 6 Biotech = 14 Galenical
240
SSF
Singapore
ShanghaiFlorence Nutley: solids production to close by 2010
Basel: solids productionto close by 2012 Mannheim: Chemical
manufacturing to close in 2011
Vacaville: CHO manufacturing at CCP2to close at end of 2009;SSF: E. Coli manufacturing to transition to Singapore in 2011/2012
Hillsboro, Mannheim, Kaiseraugst:Future Fill/Finish Centers
Segrate
Montevideo
Rio
Oceanside
21
The Genentech transaction allows for a fundamental improvement of the US-cost basisWe now have a competitive situation around the world
-1‘050 +1'150 +1,640
-390-300
-1'650-120
1'000800300
2009 2010 2011
-1‘400 +380
Synergies
Taxes on synergies
Integration costs (net of taxes)
0
+610
CHF m
Synergies of the Genentech integration
22
All Finance functions under one leadership
A great place to work with industry leading ambitions
23
We actively manage our cash flows
Unique, state-of-the-art solution
~200reporting entities
Monthly Free Cash Flow Statements– Group– Divisions / sub-divisions– Local companies
– including reconciliation to net cash position
Fully automated, integrated and transparent viewon cash generation and use of cash
Regular monthly financial reporting– Income statement– Balance sheet
+ Flow information: identifying cash
and non-cash movements
Work day 3
Work day 5
24
Debt repayment progressing according to plan> CHF 6.5 bn paid back in Sept 2009, over half by 2013
13%
25%28%
38%
53%
59%
66%
74%77%
87%
93%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2019
2021
2022-2039
Private PlacementCHFExisting GNEExisting RocheEMTN144A
Existing Genentech
At market values as presented at HY 2009 conference, excluding repayment of Chameleon bond
Repayment of bonds with 6 months maturity
• CHF 4 bn 1.2% bond
• USD 2.5 bn 1.95% bond
25
Financial impact Genentech transaction
Accretive to net income from 2010
1) assumes 10% annual net income growth of Genentech as a stand-alone entity, i.e. as if it had not been taken private
Taxes on interest expenses
Non-controlling interests1
(Minorities)
Interest expenses
+350 +770
0
+1,030
Taking Genentech privateCHF m
-1'700 -2'000 -1'920
1'4002'000 2'200
650
770750
2009 2010 2011
A very attractive form of “share buy back”(with an additional synergy component)
26
Compensation aligned with value creation
Corporate strategy and
actionsFinancial results
Competitive
Position Share price
KPI’s
Compens.
Sales growthCash flow/ OPAC
Progress in PipelineMarket share
Share priceRelative TSR
Option/SharePrograms
Bonus
2727
Continued commitment to great place to work
Place ofemployment
Austria
Russia
Italy
Spain#1 Ranking 5
consecutive years
New ZealandPeru
Genentech
USA
Genentech
Genentech and Roche
USA
28
Our commitment to performance
Attractive for shareholders and bondholders
Barring unforeseen events;Total Tamiflu sales of CHF 700 million assumed for 2010; LC=Local Currency
Sales growth (in LC)
Core EPS growth (in LC)
2009: Pharma: at least high single-digit
Diagnostics: well above market
2009: Double-digit
2010: Double-digit
Synergies 2009: CHF 300 m
2010: CHF 800 m
2011: CHF 1,000 m
Debt 2010: 25% debt reduction
2015: Aim to return to net cash position
3 yr Dividend outlook Maintained (as announced in 2008)
29
Roche is a learning organisation - ready to deliver results in a challenging environment
• Efficiency programs running for several years, benchmarking
with other industries in tough environments
• Selected adjustment of organisation in mature markets /
Strategic build up in emerging markets
• Genentech transaction a platform to realise attractive synergies
in the USA
The Roche advantages
At the end of the storm there is no future without investment in innovation now!
We are not sacrificing the long-term perspectives by short-sighted cost cuts
31
Competitors’ strategies to address the trends
Two distinctly different groups emerging
Diversification
Becoming more “Healthcare” than
pure “Pharma”
(incl. OTC, vaccines, medical devices,
generics, branded generics, bio-
similars, eye care, etc.)
Focus
Pharma / Diagnostics
(no generics or bio-
similars)
Roche
32
Inflammation13 NMEs
CNS6 NMEs
Ophthamology1 NMEs
Oncology26 NMEs
14% Diagnostics
25% Vitamins
11% Flavours
& Fragrances
50%Pharma
Metabolic11 NMEs
Yesterday
1990 2008
TomorrowToday
21%Diagnostics
of which56% Oncology
79% Pharma
CHF 9.7bn CHF 45.6bnSales
Diagnostics
Illustrative
StrategyBroadening the portfolio with high value franchises
33
Our Distinctiveness
Diversity of approaches fueling global scale and reach
Autonomous centers
Genentech
R&ED
Diversity Scale, Reach, Speed
“Federation” of >150 partners
* DBA: Disease Biology Areas
Roche
DBAs* Research
Early Dev.
Worldwideexecution
Roche Dx
Chugai
Late-stage
development
Manufacturing
Commercialisation
34
COO Pharma
P. SoriotgRED
R. Scheller*Partnering
D. Zabrowski*
CFO
E. HunzikerGen. Counsel
G. KellerHR
S. AyyoubiCommunications
P. Attinger*
pRED
J.-J. Garaud*
* Enlarged CEC
Chugai
O. Nagayama*
COO Diagnostics
D. O’Day
CEOS. Schwan
Genentech Integration: Company transforming
Roche Corporate Executive CommitteeEffective January 1, 2010
pRED: Pharma Research and Early Development
gRED: Genentech Research and Early Development
35
Existing Earlier Phases
ILLUSTRATIVE
Inherent development risk
Maturity of portfolio
Low
High
Oncology
Autoimmune
Metabolic
CNSVirology
Key drivers for long term development in place
Develop the short term drivers while shaping the others
36
Roche pharma pipeline overview
Five Disease Biology Areas
MabThera/Rituxan
XelodaHerceptin
TarcevaR1273(pertuzumab)
Oncology
Avastin
R7159(3rd gen anti-CD20)Apomab
On handPromisinglate stage
Emerging mid-term
Early stage
Inflammation
Virology
R7128(HCV pol. inh.)
TamifluR3484(HPV16)
Pegasys
R7227(HCV pro. inh.)
R1594(ocrelizumab)
9 ph. I compounds
ActemraMabThera/Rituxan
Anti-IL 13
15 ph. I compounds
R3616(hedgehog inh.)
R1583(taspoglutide)
Metabolism
6 ph. I compounds
R1658(dalcetrapib)
R1439(aleglitazar)
CNS
4 ph. I compoundsR3487(Alzheimer’s)
R1594(ocrelizumab)R1678(schizophrenia)
R3502(trastuzumab-DM1)
DacetuzumabDulanermin
R1507(IGF-1R mAb)
R7201(SGLT-2 inh)
37
New potentially company or industry-transforming projects
37
Dalcetrapib
Taspoglutide
Aleglitazar
Metabolism Oncology Immunology &Ophthalmology
CNS
T-DM1
Pertuzumab
GA101
Hedgehog pathway inhibitor
BRAF inhibitor
Ocrelizumab RA
Lucentis – DME & RVO
Actemra
Lebrikizumab(Anti-IL13)
GlyT1 inh
Ocrelizumab MS
= Proof of concept
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38
World Top 10 Products (according to *Evaluate Pharma*)
6 are Biopharmaceuticals; 4 are Oncology; 3 are Roche
Sales CHF bnCompany
5.5
5.8
6.5
6.6
7.0
7.2
7.5
8.0
9.0 - 9.5
9.6
Insulin Analogues Novo, Lilly et al
Gleevec/Glivec Novartis
Spiriva Boehringer Ingelheim
Crestor AstraZeneca
Roche
Seretide/Advair GSK
Lantus Sanofi Aventis
Roche
Roche
Humira Abbott
Forecast of Top 10 Products (2014)
Source: EvaluatePharma Sept 1st 2009; 2014 based on consensus estimates
39
Top 10 Pharma Businesses by 2014(according to *Evaluate Pharma*)
Modest Big Pharma growth to 2014, even post mega-mergers
18.1Abbott
20.1Eli Lilly
25.4J&J
27.5Merck & Co
32.8AstraZeneca
35.9Roche
37.2Novartis
39.9GSK
44.8Sanofi-Aventis
45.3Pfizer
Sales CHF bnCompany
2008 Rx Sales Rank (Actual) 2014 Rx Sales Rank (Forecast)
12%20.3Teva
3%21.9Abbott
- 5%24.4AstraZeneca
1%26.7J & J
0%40.5GSK
- 1%42.5Sanofi-Aventis
1%46.9Merck S-P
4%47.7Novartis
5%47.8Roche
- 4%48.8Pfizer Wyeth
CAGR 08-14Sales CHF bnCompany
Source: EvaluatePharma Sept 1st 2009; 2014 based on consensus Bank Analyst estimates
40
•We do not sacrifice our long-term future by short-term
cost cutting: innovation remains key !
•We have established an entrepreneurial model for our R & D – set up
•We are preparing for fundamental changes
in the healthcare environment
Roche delivering now – but still investing into the future!
The Roche advantages
41
We Innovate Healthcare