Financial view:
A sustainable business model
Alan Hippe, CFO
Capital allocation and R&D
Continuous productivity improvements
Focus on cash generation and allocation
Solid margins with a high risk / high reward model
Core operating
profit margin (%)1
45%
R² = 0.6198
Astra
Pfizer
Amgen
Sanofi
35%
GSK
Merck
BMS
Eli Lilly
25%
Abbott
15%
30%
Novartis
Bayer
40%
50%
60%
70%
80%
90%
100%
Branded pharma sales as % of Group2
3
Source: Company reports, Roche analysis; Based on average of fiscal years 2009 - 2011 financials; Based on 2010 data
1
2
The P&L reflects Roche’s innovation based strategy
Low on Marketing, General and Administration
Core operating profit margin
% sales
R&D % sales
Eli Lilly
Amgen
Roche
BMS
Merck
Novartis
Astra
Sanofi
GSK
Pfizer
Abbott
Bayer
Eli Lilly
Novartis
Pfizer
Bayer
Merck
GSK
Astra
Abbott
BMS
Sanofi
Roche
Amgen
21%
20%
19%
18%
17%
16%
15%
14%
14%
13%
10%
8%
M&D+G&A % sales
33%
32%
29%
29%
29%
29%
28%
26%
24%
24%
23%
18%
Pfizer
43%
Astra
39%
Amgen
37%
Roche
36%
Sanofi
34%
Merck
34%
BMS
33%
GSK
31%
Novartis
27%
Eli Lilly
27%
Abbott
Bayer
23%
17%
4
Source: Company reports, Roche analysis; Figures based on fiscal year 2011 financials
Return on R&D: Historically Roche has delivered
Required peak sales per NME
(CHF bn)
Actual Launches 2001-2010
CHF 2.1 bn
Required performance to breakeven1, at actual
R&D expenses (1996-2005)
1.1
1
Average # NMEs per year
Incl. recovery of cost of capital, Roche Pharma. Criteria includes: late stage portfolio, risk adjusted revenues, average profitability
assumed, standard erosion curves
5
R&D productivity: Our plans tell us that we will
also be delivering in the future
Required peak sales per NME
(CHF bn)
Illustrative
Planned launches 2011-2016
Required performance to breakeven1,
at actual R&D expenses 2011 onwards
Average # NMEs per year
1 Incl. recovery of cost of capital at planning exchange rates, Roche Pharma. Criteria includes: late stage portfolio, risk adjusted revenues,
average profitability assumed, standard erosion curves
6
Roche: R&D well balanced from a risk & disease
point of view
2012 Roche budget
Oncology
Metabolism
Inflammation
CNS
Virology
0%
5%
10%
15%
20%
25%
30%
Industry average probability of success – Phase 0 to Registration
7
Source: Bernstein Equity Research, Tufts University and Roche analysis
R&D spend: Balance between short and long term
R&D spend by phase
Research/
Discovery
~50%
~50%
Invest for
the future
Invest for the
near term
Phase 0
Phase 1
Phase 2
Phase 3
Filing
Phase 4
8
Note: Based on 2012 budget
Capital allocation and R&D
Continuous productivity improvements
Focus on cash generation and allocation
Productivity improvements: Through Innovation
AND continuous Efficiency programs
Innovation
Efficiency
Illustrative return
Efficiency
Innovation
Base
Base
Increase
success rate
Reduce time
to market
"Innovation"
Reduce cost
base
Innovation
+ Efficiency
Source: Nature Reviews (Eric David, Tony Tramontin and Rodney Zemmel (McKinsey & Co.), Vol. 8, 609, Nature Reviews | Drug
Discovery), Roche analysis
10
Example: Optimise research at pRED
Nutley
Reduce
complexity
• Close R&D centres (Nutley)

• Co-locate management
TCRC
New Molecular Entities
80
11
Optimise
resource
allocation
• Increase investment in late stage
60
8
8
16
18
35
36
2009
2010
40
• Leverage support functions
20
21
11
11
23
23
47
42
38
2011
HY 2012
before R&D
prioritisation
HY 2012
after R&D
prioritisation
0
Phase I
Re-fine
infrastructure
• Reduce infrastructure costs
(support functions / site
infrastructure)
• Unify sites for ‘non clinical
safety and chemistry’
Welwyn
Basel
Phase II
Phase III + Registration
Penzberg
Schlieren
Shanghai
Strategic sites
Support Centers
11
Resource allocation: Optimising value streams
CHF m1
Restructuring costs
Net Savings
1,440
1,196
289
410
110
49
110
920
510
HY 2012
FY 2012+
One-time costs
Pharma
IT
Offsetting price
pressures in RDC and
investment in RAS
810
190
858
Reinvestments
and P&L impact
Thereof
cash out
580*
430
190
20
190
240
370
Net
Savings
R&D &
Diagnostics
reinvestment
Reinvestment
in pipeline
~150
P&L
savings
Diagnostics
12
1
at avg HY 2012 fx
* 2013 CHF 500 m, 2014+ CHF +80 m
Example Development: Productivity initiative in
development
Completed efficiency 
initiatives
Roche Genentech Integration
Transactional Outsourcing
Ongoing RETHINK D initiatives
Improve probability of technical
success / reduce risk in trials read
outs (ex: use predictive endpoints)
Using modern tools to speed up
processes and bring trials closer to
patients (ex: collect data directly
from patients etc.)
-15%
Jan 2010
Cost/LIP
2011
Cost/LIP
2012
Target
Cost/LIP
2015
Plan
13
LIP refers to Lifecycle Investment Point
Example: Roche Diabetes Care securing longterm profitability
RDC sales
Growth
(CER*)
6%
•
Restructure and consolidate R&D
organisation
•
"One Global Operations" structure
•
Optimise M&D investments
4%
2%
2009
2010
2011
Blood Glucose
Monitoring (bGM)
Insulin Delivery
Systems
Streamline Portfolio
Maximise market uptake
Invest
Insulin pumps and CGM
14
CER=Constant Exchange Rates
Capital allocation and R&D
Continuous productivity improvements
Focus on cash generation and allocation
High operating free cash flow and margin
Group operating free cash flow (CHF bn) and margin
31.6%
28.2%
26.1%
21.8%
32.0%
+7% at CER
7.17
6.78
6.43
6.86
4.81
HY 2008
HY 2009
HY 2010
HY 2011
HY 2012
16
CER=Constant Exchange Rates
Managing risks: Accounts receivables in S. Europe
17
Credit Management & Receivables: Managing risk
Greece - learning from the past to reduce future risk
History1
Action
AR balance mEUR
Impact
AR balance mEUR
• Roche experienced strong sales
growth trebling in size
• Government issued bonds as
payment
• Accounts Receivables (AR)
increased too, significantly
• Locally: fast execution to receive
bonds ahead of our competitors
• Government had established a
pattern of payment every 5 years
• Treasury: anticipated risk and sold
into the market
AR balance mEUR
• New Credit Policy introduced –
Cash on Delivery in Pharma and
Dia
• Bonds write down impact 26%
however avoided 70% write down
experienced by many still holding
18
1
Situation as of 2010
Credit Management & Receivables: Managing risk
Spain – learning from the past to reduce future risk
History
Action
AR balance mEUR
• AR rose significantly with an
increase in sales, plus bias of
portfolio to hospital sector
• Growing delay of payments from
public accounts
• No issues with private accounts
Impact
DSO – Public debt
• Escalation of tools used, including
– Individual regional account plans
– Change of commercial policy
(CoD)
AR balance mEUR
• Significant reduction in AR due to
“Montoro Plan” (June 2012)
• Focus: avoid future build up
– Forfaiting (local banks and
international funds)
19
Roche: Favorable risk profile due to sustainable
cash flows leading to lower interest expenses
700
600
500
400
Roche
Deutsche Bank
BNP
Citi
JPM
Credit Suisse
UBS
5 year Credit Default Swap (CDS)
300
200
100
0
2006
2007
2008
2009
2010
2011
2012
20
Aiming for a sustainable net debt leverage of
0-15%
S&P rating
AAA
J&J
AA+
AA
Merck
Takeda
Pfizer
Abbott
Sanofi
Novartis
AZ
AA-
Eli Lilly
BMS
A+
A
Amgen
Becton D
Gilead
A-
Roche
2011 2010
GSK (25%) (31%)
Bayer
Biogen
BBB+
BBB
BBBBB+
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Leverage1 (%)
21
1
Net Debt / Total Assets (%); 2011 figures for all companies except Roche; Company reports; Bloomberg (June 14; 2012)
Continuous increase in dividends and pay-out
ratio historically
2011
Payout ratio
of 55.3%
Dividend
per share
(CHF) 8
Dividend
yield (%)
6%
6.60
6.80
6.00
6
5.00
5%
4%
4.60
4
3.40
2.50
2.00
2
1.00
0.83 0.87
0.64 0.75
0.55
0.37 0.48
0.18 0.20 0.28
0
1.15
1.30
1.45
3%
2%
1.65
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
1%
0%
22
Pay-out ratio calculated as dividend per share divided by core earnings per share (diluted)
We will continue to show strong commitment to
Innovation AND Efficiency
Innovation
Efficiency
Sales
growth
Profitability
Cash
Value
23