Roche - Long term priorities in a short term
market environment
Karl Mahler, Head of Investor Relations
This presentation contains certain forward-looking statements. These forward-looking statements
may be identified by words such as ‘believes’, ‘expects’, ‘anticipates’, ‘projects’, ‘intends’, ‘should’,
‘seeks’, ‘estimates’, ‘future’ or similar expressions or by discussion of, among other things, strategy,
goals, plans or intentions. Various factors may cause actual results to differ materially in the future
from those reflected in forward-looking statements contained in this presentation, among others:
1
2
3
4
5
6
7
8
9
10
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pricing and product initiatives of competitors;
legislative and regulatory developments and economic conditions;
delay or inability in obtaining regulatory approvals or bringing products to market;
fluctuations in currency exchange rates and general financial market conditions;
uncertainties in the discovery, development or marketing of new products or new uses of existing products,
including without limitation negative results of clinical trials or research projects, unexpected side-effects of
pipeline or marketed products;
increased government pricing pressures;
interruptions in production
loss of or inability to obtain adequate protection for intellectual property rights;
litigation;
loss of key executives or other employees; and
adverse publicity and news coverage.
Any statements regarding earnings per share growth is not a profit forecast and should not be interpreted to mean
that Roche’s earnings or earnings per share for this year or any subsequent period will necessarily match or
exceed the historical published earnings or earnings per share of Roche.
For marketed products discussed in this presentation, please see full prescribing information on our website –
www.roche.com
All mentioned trademarks are legally protected
1
Performance up- date
The current market environment- external factors
Defining priorities
Securing the long term value propositions
Roche's core strengths
3
Q1 2007: Industry leading
More than CHF 1.5 billion organic growth
CHF bn
% change in
CHF
local
USD
growth
9.1
18
20
24
2.1
2.2
6
6
11
9.8
11.4
16
17
21
Q1’06
Q1’07
Pharmaceuticals
7.7
Diagnostics
Roche Group
4
2
Consistently outgrowing peers
Group normalised sales - Constantly outperforming World Pharma Market
200
180
175
160
140
124
120
100
80
Q1 '04
Q2 '04
Q3 '04
Q4 '04
Q1 '05
Q2 '05
Pharma
Q3 '05
Q4 '05
Q1 '06
Q2 '06
Q3 '06
Q4 '06
Q1 '07
World market (IMS)
Quarterly local sales growth, Pharma vs. World Market
35%
30%
25%
20%
15%
10%
5%
0%
Q1 '04
Q2 '04
Q3 '04
Q4 '04
Q1 '05
Q2 '05
Pharma
Q3 '05
Q4 '05
Q1 '06
Q2 '06
World market (IMS)
Q3 '06
Q4 '06
Q1 '07
5
Performance up- date
The current market environment- external factors
Defining priorities
Securing the long term value propositions
Roche's core strengths
6
3
Pharma sector
From an 'outperformer' to an 'underperformer'
US Pharma Sector vs. Market:
Past 20 years …
4'000
… and over the past two years
4'000
US-DS Pharma
US-DS Market
Roche GS
3'500
3'000
US-DS Pharma
US-DS Market
Roche GS
3'500
2'500
3'000
2'000
2'500
1'500
1'000
2'000
500
Sep
05
Mai
01
Jan
97
Sep
93
Mai
89
Sep
85
Jan
1'500
0
Source: Datastream
Pharma is an attractive business
Offering around two times GDP growth
Range of 10 year EPS growth
Range of 10 year EPS growth
Min
Max
Software & Services
7.0
12.0
Household & Personal Products
7.0
11.0
Pharma & Biotechnology
8.0
11.0
Commercial Services
6.0
10.0
Diversified Financials
6.0
Automobiles & Components
Transportation
Min
Max
0.0
3.0
-2.0
4.0
Materials
1.0
5.0
10.0
Real Estate
2.0
5.0
1.0
5.0
Health Care Equip. & Services
7.0
10.0
Retailing
Media
5.0
10.0
Capital Goods
2.0
6.0
Semiconductors
4.0
9.0
Hotels Restaurants & Leisure
3.0
6.0
Technology Hardware & Equip.
4.0
9.0
Utilities
3.0
6.0
Consumer Durables
5.0
8.0
Food & Staples Retailing
5.0
8.0
Energy
4.0
7.0
Food Beverage & Tobacco
4.0
8.0
Telecommunication Services
3.0
7.0
Banks
3.0
8.0
Insurance
3.0
8.0
Source: Morgan Stanley estimates
4
Time Aspect of Warranted Value
How much are you given for the future?
Market Cap ($bn)
350
Future Growth Strategies
(Value of growth from new
strategies)
300
250
Basic Growth
(Value impact of GDP growth)
200
Operating Performance
(Value impact of current OPAC)
150
100
Scale
(Book value)
50
0
-50
1998
1999
2000
2001
2002
2003
2004
2005
Over time the market cap of a company is likely to change (up or down) as the
drivers of a company’s valuation also change
Source: Accenture analysis
9
Performance up- date
The current market environment- external factors
Defining priorities
Securing the long term value propositions
Roche's core strengths
10
5
high
Focus on developing medically differentiated
products and services offering high medical value
y
eg
t
tra nts
Medical
Differentation
Roche
Roche Focus
Focus
s eve
e
lu alue logy
Vaigh v
h
Volume strategy
co
On
.
g
e.
high volume events
low
e.g. Generics
low
Premium for innovation
high
11
Roche: Long term view via emerging technologies
Example- Monoclonal Antibodies
Genentech Revenue 1980-2004
• Roche acquired Genentech in 1990 at the
end of a 'Towards R&D Portfolio' stage
$ bn
– MAB1 patent approvals had doubled in
1989
– significant uncertainty remained over
quality and quantity of Genentech’s
future pipeline
5.0
Herceptin
launched
4.0
3.0
2.0
Roche / Genentech
relationship established Rituxan
launched
• 'Towards Commercialization' (1990-97)
Roche
acquisition
Genentech
listing
– build-up to the launch of Genentech’s
first humanized MAB, Rituxan
– growing commercial certainty
1.0
2004
2001
1998
1995
1992
1989
1986
1983
1980
0.0
• 'Full Commercialization' (since 1997)
Sources: DataStream, Factiva, MA Analysis; [1] Monoclonal Antibodies
6
Performance up- date
The current market environment- external factors
Defining priorities
Securing the long term value propositions
Roche's core strengths
13
Main trends influencing the long-term value
propositions
Demographics
Third Parties as Source of Innovation
Healthcare Funding
Maximizing assets on hand
14
7
N. America, EU and Japan over 80% of HC spending
Growing elderly healthcare market
North America
European Union
% World Population
% World HC Spend
5%
47%
% World Population
% World HC Spend
Developed world medical need
6%
31%
100%
Japan
% World Population
% World HC Spend
Other
2%
8%
Latin America
Rest of Asia
% World Population 8%
% World HC Spend 4%
% World Population 51%
% World HC Spend 4%
80%
60%
CNS
40%
Respiratory
Cancer
20%
Rest of Europe
Cardiovascular
Infectious
Africa, Australia, Oceania
% World Population
% World HC Spend
5%
5%
% World Population
% World HC Spend
0%
13%
<1%
Developed DALYs
Source: WHO – Priority Medicines for Europe & World Nov 2004; World Bank;
[1] DALY = Disability-adjusted life-years (healthy life lost due to illness/premature death)
Ageing Population and Retirement- biggest transitions
out of the workforce
Shifting Demographics
Population in 2005 (%)
100%
8%
11%
8%
18%
9%
23%
26%
23%
21%
17%
>60 yrs
80%
4060 yrs
60%
40%
<40 yrs
20%
0%
Other
A sia
China
India
Russia
B razil
20%
15%
W.
Euro pe
Japan
CH
UK
US
28%
24%
Population in 2025 (%)
100%
10%
16%
11%
30%
80%
41%
35%
>60 yrs
4060 yrs
60%
40%
<40 yrs
20%
0%
Other
A sia
China
India
Russia
B razil
W.
Euro pe
Japan
CH
UK
US
Source: Economist Intelligence Unit (2005-10)
16
8
Growing elderly healthcare market
HC spend by patients aged 65+
Rheumatoid arthritis (Prevalence in m)
(US$ bn)
25
20
2'000'000
15
‘04-’15 CAGR = 6.7%
10
1'500'000
5
0
1'000'000
2005
2015
Key markets
2050
Cancer (Incidence in m)
500'000
3
2
0
2004
US
2020
Key markets + India, China
2015
EU + other dev.
Japan
1
Other
0
2005
2015
2020
2050
Key markets
Sources: US Census Bureau, World Bank, Deutsche Bank Nov ‘04
Key markets: 5 major EU countries + US; Source: Decision Resources 2005, Timely Data Resources 2005, UN World Population Prospects 2004
Age-related diseases
Alzheimer’s
Dementia
Parkinson’s
Stroke
COPD
Cancer
RA / MS
Depression
Met medical needs
Unmet medical needs
Increasingly important development areas
CHD /
Dyslipidemia
Diabetes T2
Osteoporosis
Hypertension
CNS
Inflammation/ CardioBone
vascular
Incontinence
Respiratory
Urology
AGE-RELATED DISEASES
Endocrine
Tumors
Accidents/
Injuries
Roche focus area
18
9
Main trends influencing the long-term value
propositions
Demographics
Third Parties as Source of Innovation
Healthcare Funding
Maximizing assets on hand
19
Accelerated consolidation
Size is not all
Size vs. R&D productivity
R&D Productivity Ratio
6
Forecast sales of current
pipeline projects in 2008 ($m)
King
R&D spend in 2002 ($m)
5
4
3
• The relationship between company
operational size and R&D productivity
indicates that there are no significant
economies of scale in pharmaceutical
R&D
Universe of 39 companies R2 = 0.187
Gilead
Forest
Medimmune
Genentech
BMS Roche
2
Novartis
Lilly
Pfizer
• This is despite the theoretical potential
for greater efficiency or more
successful product development
AstraZeneca
1
Wyeth
Aventis
J&J
0
36
31
26
21
16
11
6
GSK
Merck
1
Company rank by 2002 sales
(Proxy for company operational size)
There is no indication of a
positive relationship between
scale and R&D productivity
Source: Datamonitor, 2004 (Addressing Pharma’s R&D Productivity Crisis)
10
Biotech as new source of innovation
A growing source of approved products
80
70
60
50
40
30
20
10
0
1993–1994
1995–1996
1997–1998
Approvals from Biotech
1999–2000
2001–2002
Approvals from major Pharma
FDA data base
Partnering
Costs are rising for in-licensed products
Average cost of in-licensing (Rx), $m
500
400
Early-stage
Late-stage
• Average cost of in-licensing deals
rose 40% (CAGR) since 2000
• By 2010, 40% of Pharma peers’
revenues expected to come from
external sources of innovation
300
200
100
0
2000 2001 2002 2003 2004 2005
22
11
Main trends influencing the long-term value
propositions
Demographics
Third Parties as Source of Innovation
Healthcare Funding
Maximizing assets on hand
23
Higher premium for medically differentiated products
Low vulnerability to pricing and funding pressures
Vulnerability of portfolio to pricing pressure
H
Much of future portfolio aimed
at primary care in highly
competitive areas
• Focus on clearly differentiated
products lowers vulnerability to
increasing pricing environment
– Price controls
– Higher patient co-payments
M
Roche
L
High proportion of biologics
and hospital products in areas
of unmet need
• Higher proportion of
biopharmaceuticals products lowers
vulnerability to generic competition
24
12
The key goal of all our efforts in oncology:
Moving from extending life to potentially saving life
ADJUVANT
MAINT.
Filed or
to file soon
gastric Ca
Xeloda
adjuvant CC combo
RCC
mBC 1st line ext.
MabThera
Avastin
Avastin
iNHL maintenance
Avastin
Avastin
MabThera
Herceptin
gastric Ca
Avastin
1st line CLL
Tarceva
NSCLC 1st line
MabThera
relapsed CLL
Avastin
prostate Ca
Tarceva &
Avastin
NSCLC 2nd line
Xeloda
mCRC 2nd line combo
Avastin
Avastin & Herceptin
Tarceva
mBC 2nd line
mBC 1st line ext.
adjuvant NSCLC
To start
soon
NSCLC 1st line ext.
Avastin
adjuvant CC
Avastin
pancreatic Ca
ovarian Ca
mBC
mCRC 1st line ext.
Avastin
adjuvant rectal Ca
adjuvant NSCLC
NSCLC
Tarceva &
Avastin
NSCLC maintenance
Xeloda
9 Avastin 9
Xeloda 9
Avastin
9
Avastin
2nd LINE
mCRC 1st line combo
mBC combo hormonal
adjuvant BC
Ongoing
9
Xeloda 9
Herceptin
9
Tarceva
pancreatic Ca
1st LINE
Avastin
adjuvant BC
25
Cancer treatment outcomes
Substantial treatment progress in recent years
1993 - 2005
aNHL 1st line (PFS)
2001-2004
iNHL 1st line (PFS)
2003-2005
eBC (DFS)
1985 - 2005
mBC 1st line (OS)
1993-2004
mCRC (OS)
1999-2003
mNSCLC (OS)
5
10
15
20
25
30 35 40 45 50
Median survival (months)
55
60
26
13
Roche oncology products are cost-effective
Favorable comparison to other products
Cost per QALY for selected drugs (UK data – NICE/SMC)
59-111
GBP in (000)
We aim to expand use of our products to earlierstage cancers, providing full benefit to patients
36-38
29-38
22-28
8 - 11
8
MabThera MabThera
1st Line Aggressive
Follicular
NHL
NHL Stage
III/IV
2-18
Herceptin
early BC
5-23
Tarceva
2nd line
NSCLC
Statins
high risk
Herceptin
mBC
Glivec
CML
Statins
Elderly
low risk
27
Oncology is dramatically under funded
Compared to other disease areas
Total disease burden
in DALYs
Total healthcare costs
Cost breakdown
in oncology
(example: Germany)
Cancer
6.4%
Cardiovascular
17.1%
Mental
disease
25.3%
Drugs
8%
Cancer
16.7%
Ambulatory
16%
Other
Injuries
8.7%
Other
26.3%
Resp.
5.9%
9%
Inpatient
hospital care
67%
Source: A pan-European comparison regarding patient access to cancer drugs, Karolinska Institute
DALY: Disability-Adjusted Life Years, figures from 2002/3; Commonly used measure of the burden of disease
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14
Main trends influencing the long-term value
propositions
Demographics
Third Parties as Source of Innovation
Healthcare Funding
Maximizing assets on hand
29
Avastin: All main cancer types - late and early
intervention
3rd
line
9
9
9
9 9
1 line
9
9 1 line9
9Adjuvant
1 line
9 Adjuvant
BC
Completed
Adjuvant
9
NSCLC
9CRC
9 InOngoing
preparation
3rd
line
2nd line
st
3rd
line
2nd line
2nd line
GIST
Pancreatic
Ovarian
Prostate
st
st
RCC
30
15
Avastin: Establish as combination partner
to current standards
CRC
• 5-FU/Leucovorin
NSCLC
• Platinum-based
chemotherapy
• Irinotecan
™
Oxaliplatin
™
Xeloda
o New biologics
™
™
Single agent (navelbine or
gemcitabine)
Non-platinum based
regimens
™ Tarceva
BC
• Taxanes
™
Anthracyclines
™
Xeloda
o Hormones
o Herceptin
o New biologics
o New biologics
• positive data
™ trials ongoing
o trials planned
31
Performance up- date
The current market environment- external factors
Defining priorities
Securing the long term value propositions
Roche's core strengths
32
16
Focus on differentiated products paying off
Sales doubling, operating profits tripling
Group sales1 (CHF bn)
Group operating profit2 (CHF bn)
45
14
40
35
12
27.9%
25.9%
22.9%
10
30
25
20
21.3%
20.2%
8
16.3%
6
15
4
10
5
2
0
0
2001 2002 2003 2004 2005 2006
1 Pharmaceuticals
2 before
and Diagnostics
2001 2002 2003 2004 2005 2006
33
exceptional items
Low generic risk
Long-term sustainable business
Sales erosion due to generisation (% of 2004 sales)
100%
80%
Average
European peers
60%
40%
Roche
20%
0%
2004
Source: citigroup
2006
2008
2010
2012
2014
34
17
Roche has a unique „investment case“
Roche: Unique geographic risk diversification
USA
(Greater)
Europe
Japan
Latin
America
Asia China
Roche: Unique “pillars of value” risk diversification
Tamiflu
Herceptin
Boniva
Tarceva
Avastin
in CRC
Actemra
Xeloda
NeoRecormon
Mircera
Avastin
in NSCLC
Avastin
in BC
Pegasys
ImmunoDiagnostics
MabThera in RA
CellCept
MabThera
Diabetes Care
Molecular
Diagnostics
JTT- 705
(R1658)
GLP-1
R 1583
FUTURE PILLARS
35
BIG PHARMA
r
BIOTECH
… beyond ‘big Pharma’ and Biotech‘
36
18
We Innovate Healthcare
19