r

Market dynamics in the Healthcare Industry

The relevance of Roches strategy in the current

market environment
Dr. F.B. Humer, CEO

Roadshow Zurich, March 18th 2005

r
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 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.

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;
6. Increased government pricing pressures;
7. Interruptions in production;
8. Loss of or inability to obtain adequate protection for intellectual property rights;
9. Litigation;
10. Loss of key executives or other employees; and...
11. Adverse publicity or news coverage

For marketed products discussed in this presentation, please see full prescribing information on our
website www.roche.com

Five major dynamics in Healthcare market

The growing importance of doing it differently
- five answers
2004 results and outlook

1. Consolidation in the Pharma industry ongoing r

Top ten companies now above 50 %

Sanofi / Aventis
Pfizer /
Pharmacia

top 10 market share (%)

55
50

Roche / Chugai

45
40
35

Roche /
Syntex

Pfizer / W-L
GW / SB

AHP /
Cyanamid

30
25

Ciba /
Sandoz

Hoechst / MMD
Glaxo / Wellcome

Roche /
Bhringer M.

Rhone-Poulenc / Hoechst
Astra / Zeneca

Roche / Genentech

20
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Wood Mackenzie

2. Industry center is shifting to the US

European markets losing ground

Market dynamics
1990: US and Europe similar market size
2004: US twice the size of Europe
move of talented people to the US

Higher R&D investment in the US

1990: Europe invested twice as much as the US ( 21 bn)
2004: US invested around 30 % more ( 29 bn)

US now leading inventor of New Chemical Entities

70 % of sales of new medicines since 1998 generated in the US

3. Funding becoming more limited

Funding of
Healthcare

Co-paymentsystems

Slowdown
of Economy

Social
security systems
under pressure

Payments
by individuals

today

2020

4. Generisation risk

Not the same for all

US$ bn

Soft risk
Hard risk

20
15
10
5
0

2008E

2007E

2006E

2005E

2004E

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

Source: Deutsche Bank 2004

5. R&D productivity has been in decline

But the important question is sales value per drug

200

Indexed annual
sales

180
160

Indexed real
R&D spend

140

Indexed NME
approvals

120
100
80

no. of
of
no.
drugs
drugs

60
1998

1999

2000

2001

2002

2003

30

35

44

48

54

67

> U$ 1bn

10

> U$ 3bn

Outlook: Future growth will depend on the success of r

differentiated, targeted, and cost effective treatments
Global Pharmaceutical Market - Drivers & Restrainers
1600
Personalized
Medicine

1400

$ bn

1200

Geographic
Markets
Ageing
Population

1000
800
600

Global Pharma
Market Forecast
Value Range

Combination
Products

400

Targeted
Therapy

Cost Conscious
Prescribing

Global Generics
Initiative

Market
Segmentation
Primary Care
Market Maturity

200
0
2002

2005

2008

2011

2014

2017

2020

Five major dynamics in Healthcare market

The growing importance of doing it differently

- five answers
2004 results and outlook

high

1. Roche is a clear value player

Roche
Roche Focus
Focus

y
eg s
t
t
t ra e n

Medical
Differentiation

s ev gy, 50
ue value coloCYP4
l
Va high .g. On hip
e pliC
Am

Volume strategy
high volume events

low

e.g. Generics

low

Premium for innovation

high

Growth in Pharma driven by differentiated products

Higher prices for innovation

Specialty Care volume is not
changing

Av. Price per Unit1 (CHF)

Volume (stand. units bn)

Primary Care

2,000
1,800
1,600
1,400
1,200
1,000
800
600
400

but price per unit is higher for

Specialty Care and has grown faster

Specialty Care

Specialty Care

Primary Care

4.5
290
(16%)

290
(16%)

4.0
4.3

3.5
3.0

1,481
(84%)

1,559
(84%)

2.5
2.0
1.5
1.0
0.5

200
0

1998

2003

0.0

1.3
0.7
1998

2003

1.1
1998

2003

1. Standard unit defined as Number of units divided by Smallest common dose of a product form. Number of units = Number of tablets, ml or grams
sold x number of packages sold x Size of package.
Source: IMS (top 200 drugs worldwide), Marakon analysis

2. Non-mega-merged companies do better

Market share
Change in ethical drug market share (1995 - 2002)
12

"Non-mega-merged" companies

10

+10 %

8
6
4
2
0
-2

"Mega-merged" companies

Merck & Co,

J&J, Eli Lilly,
Roche

-2.8 %

-4
Pfizer, GSK, BMS, Aventis,
Pharmacia
Only top ten ranked companies considered in chart
Source: Wood Mackenzie

3. Unique innovation model

Roche expertise combined with external dynamism

Pharma

Diagnostics

Alliances and collaborations

Spin-offs

4. Biologics - increasing part in Innovation

Roche:
biggest producer
second biggest biotech
company

Biologics
Other

50
40
30

Partnering important
20

17
25

16

21

14

10

10

11

10

1999

2000

2001

21

22

2002

2003

FDA NCE approvals

Source: FDA

5. Diagnostics and Pharma under one roof:

Solutions along the value chain

Enable better medical decision making
test

predisposition
screening

test

targeted
monitoring

test

general
screening

test

diagnosis

test / drug

therapy
selection

test

monitoring

Earlier diagnosis

Patient stratification

periodic disease status checks

earlier treatment

differentiated treatment
use of pharmacogenomics
efficacy
avoid adverse events

Prevention
lifestyle, nutrition, medicine

Five major dynamics in Healthcare market

The growing importance of doing it differently
- five answers

2004 results and outlook

2004: Substantial progress in four key areas

Organic growth well above the market

1. Strategy: Pure Healthcare focus
Focus on high value businesses OTC divested

2. Operation: Record level

Sales growth substantially above world market - in both divisions
Record level of Group Operating Profit
Substantial improvement in operating margin1 (Group + 2.2 pp)
Strong increase in Net Income from continuing
businesses (+41 %) and more than doubled Group
Income
1

Focus on
healthcare
and
innovation

Net

Record
operating
performance

A leader in
Corporate
Governance
Solid
financial
basis

before exceptional items, continuing businesses

2004: Substantial progress in four key areas

Conditions in place for balanced financial income

3. Finance: Solid basis going forward
Group debt considerably reduced by CHF 6.3 bn
Net liquidity almost doubled (to CHF 11.7 bn)
Equity ratio up to 57 % (from 49 %)

4. Corporate Governance & Sustainability: Among the leaders

Independent Lead Director appointed

Focus on
healthcare
and
innovation

New CEC structure

Policy on clinical trial data base established
Inclusion of Roche in major SRI indices1
1

FTSE4Good, Dow Jones Sustainability Index (DJSI)

Record
operating
performance

A leader in
Corporate
Governance
Solid
financial
basis

10

2004: Sales growth well ahead of market

% change in
CHF
local

2003
CHF bn

2004
CHF bn

Pharmaceuticals

19.8

21.7

10

13

19

Roche Rx
Genentech Rx
Chugai Rx

13.2
3.4
3.2

14.0
4.5
3.2

5
34
1

8
45
3

14
45
10

7.4

7.8

14

27.2

29.5

12

18

1.8
2.3

1.8
-

-1
-100

1
-100

7
-100

31.2

31.3

Diagnostics

Group continuing
OTC (discontinuing)
VFC (discontinuing)1

Group

1 consolidated

USD
growth

until 30 September 2003

2004: Group results1

Record operating profit

Group continuing 2
CHF bn
Sales
EBITDA
% of sales
Operating profit
before exceptional items
% of sales
Changes Group organisation
Operating profit
% of sales
Financial income
Except. inc. bond con/red
Taxes
tax rate in %
Net income
% of sales
1

vs. 2003

% change
CHF local

Group
CHF bn

% change
CHF local

29.5
9.2
31.3

+9
+15
+1.7 p

+12
+19

31.3
9.6
30.6

+0
+11
+3.0 p

+3
+15

7.0
23.5
-0.2
6.2
20.9
-0.3
0.9
-1.9
28.4
4.3
14.7

+20
+2.2 p
+12
+0.6 p
-46
+35
-0.6 p
+41
+3.4 p

+24

7.3
23.2
2.3
9.0
28.7
-0.4
0.9
-2.3
24.7
6.6
21.2

+16
+3.1 p
+61
+10.8 p
-46
+62
-4.9 p
+116
+11.4 p

+20

+16

+65

excluding OTC & VFC

11

Operating profit1

Continuous improvement each year

Call to action

CHF bn

21.3%

8
7

20.2%
7.0
16.3%

6
5
4

23.5%

22.5%

23.8%

25.7%
21.4%
17.5%

17.3%

5.8

18.5% 19.0%

5.6

4.9

4.7

3.9

3.9
2.9

3
2

1.2

1.7

1.4

1.3

1
0
2001 2002 2003 2004

2001 2002 2003 2004

Group continuing

2001 2002 2003 2004

Pharmaceuticals

Diagnostics

before exceptional items

2005: Roche Pharma - An industry leading phase III

pipeline with 28 ongoing and planned projects*

building the base for future growth

MabThera

Phase III
IIIongoing
ongoing
Phase

CLL

MabThera

maintenance iNHL

Xeloda

mCRC 1st/2nd line combo

Xeloda

Avastin

MRA

Avastin

Bondronat

MRA

Avastin

Herceptin

Avastin

Herceptin

NSCLC

adjuvant CRC

adjuvant CRC combo

pancreatic Ca

Xeloda

Avastin

adjuvant BC

Phase III
IIIto
to start
start
Phase

Tarceva

pancreatic Ca

Tarceva

NSCLC 1st line

Tarceva

adjuvant NSCLC

mBC

Herceptin
gastric Ca

Avastin

ovarian Ca

RCC

MBP

adjuvant BC

mBC combo hormonal

CERA

renal anemia

RA

SoJIA

MabThera
AI diseases

MabThera

RA TNF non-responders

Xolair

pediatric asthma

Lucentis
MD

ED-71

osteoporosis

CERA

chemotherapy-induced
anemia

MabThera

RA DMARD failures

* excl. filed projects

12

Value creation through marketed mega brands

and a risk balanced, differentiated pipeline
Current

Future
Boniva
Boniva

Xeloda
Xeloda
Herceptin
Herceptin

Bondronat
Bondronat (MBP)
(MBP)

Molecular
Molecular
Diagnostics
Diagnostics

Avastin
Avastin

Tarceva
Tarceva
R744
R744(CERA)
(CERA)

Pegasys
Pegasys

ImmunoImmunoDiagnostics
Diagnostics

Diabetes
Diabetes
Care
Care

NeoRecormon
NeoRecormon

MRA
MRA
Insulin
Insulinsensitizer
sensitizer

CellCept
CellCept

MabThera
MabThera
MabThera
MabTherain
inRA
RA

Outlook
Pharmaceuticals
2005 local currency sales growth above the world market
2005 operating profit margin1 broadly in line with that of 2004
Diagnostics
2005 local currency sales growth above the world market
On our way to achieve an operating profit margin1 of around 23 % in 2006
Group
Balanced financial income in 2005

barring unforeseen events

before exceptional items

13

14