Basel, 1
February 2006
The Annual
Media Conference will be held at Roche in Basel starting at
10.00 CET.
Speeches
English
(The spoken
German
text is definitive)
- Franz
B. Humer
Chairman of the Board of Directors and CEO Slides
- Severin
Schwan
Member of the Executive Committee and Head of Diagnostics
Slides only
- William
M. Burns
Member of the Executive Committee and Head of Pharmaceuticals
Slides only
- Erich
Hunziker
Member of the Executive Committee and Chief Financial Officer
Slides
Franz
B. Humer
Ladies and
Gentlemen
Welcome
to Roche’s Annual Media Conference. As you will have seen from
this morning’s release, Roche had an outstanding 2005 — the
best year in our company’s history, in fact.
Before
briefing you on our key results, I would like to say a few words
about the recent and upcoming changes on our Corporate Executive
Committee and Board of Directors.
After a
long and successful career with our company, Heino von Prondzynski
has decided to leave Roche this year to pursue personal interests.
Effective 1 January 2006, he was succeeded by Dr Severin Schwan
as CEO of the Roche Diagnostics Division. Before accepting the
divisional CEO post, Dr Schwan was most recently in charge of
the division’s Asian operations, and prior to that he was Roche
Diagnostics’ CFO. Also effective 1 January, Burkhard Piper joined
Roche’s Enlarged Corporate Executive Committee. He now heads
Roche Diabetes Care, following the retirement of Staffan Ek.
In addition, the Roche Board of Directors intends to nominate
the Basel economist Prof. Beatrice Weder di Mauro for a seat
on the Board at the upcoming Annual General Meeting on 27 February.
If elected, she will succeed Rolf Hänggi, who has declined to
stand for re-election after 10 years on the Board. On behalf
of the Board of Directors and Corporate Executive Committee
I would like to take this additional opportunity to thank Mr
Hänggi for his many years of dedicated service to Roche.
I would
also like to say a word or two about a subject that held the
world’s and our attention last year. The threat of an influenza
pandemic posed, and continues to pose, a very special challenge
for Roche. All the discussion devoted to the avian influenza
virus H5N1 and Tamiflu serves as a reminder of how closely interconnected
healthcare innovation and corporate social responsibility are.
We have taken targeted action to fulfil that responsibility.
Even before governments began stockpiling Tamiflu, we initiated
a massive increase in production capacity for the drug at our
own risk. By the end of 2006 Roche will be capable of producing
300 million packs of Tamiflu a year — which is comparable to
total production capacity in the influenza vaccine sector.
We have
donated a total of over 5 million packs of Tamiflu to the WHO
for rapid local deployment if needed and sharply reduced the
price on deliveries of the drug for pandemic use. In addition,
we have granted our first sub-licences to companies in China
and India to manufacture Tamiflu for pandemic use, and we have
conducted talks with companies that could provide us with additional
manufacturing support if necessary. We will continue to give
this issue our full attention.
Now for
the key results in 2005. Commercially, financially and in terms
of our contributions to better healthcare, 2005 was an outstanding
year for us. We even exceeded some of our own high expectations.
Sales
in 2005 — Pharma business grows well ahead of the market
Sales showed organic growth of 6 billion Swiss francs, climbing
to a new record high of 35.5 billion Swiss francs. This was
a 19% rise over 2004 in local currencies and a 20% rise in Swiss
francs (20% in US dollars).
The Pharmaceuticals
Division was the main growth driver. Its sales increased 25%
for the year in local currencies (26% in Swiss francs, 25% in
US dollars), four times as fast as the global market. Despite
the expiry of the US patent on Rocephin, once Roche’s top-selling
medicine, the Pharmaceuticals Division increased its sales by
a truly impressive 5.5 billion Swiss francs to over 27 billion
Swiss francs. Roche Pharmaceuticals, Genentech and Chugai all
contributed to higher divisional sales with double-digit growth
rates.
In the Diagnostics
Division sales rose 4% in local currencies and 5% in Swiss francs
(5% in US dollars) to 8.2 billion Swiss francs, in line with
overall market growth. The division thus maintained its market
leadership position.
For the
first time ever, seven Roche medicines generated sales of more
than 1 billion Swiss francs (and US dollars) each — in some
cases significantly more. Counting our major Diabetes Care and
Centralized Diagnostics brands, we now have nine products with
annual sales in excess of one billion Swiss francs, giving us
a significantly broader revenue base than we had just a few
years ago when Rocephin was our only billion seller. I should
add that none of our major pharmaceuticals will be going off
patent within the next several years.
Pharma
sales in 2005 — A broad array of growth drivers
The results in the Pharmaceuticals Division are impressive.
Together, 10 key products generated 5.2 billion Swiss francs
in additional sales. Sales of the division’s 20 top-selling
products were up strongly for the year, showing a gain of 31%.
Only two of these 20 products (Rocephin and Dilatrend) showed
a drop in sales, following patent expiries in 2004 and 2005.
Sales in the therapeutic areas oncology, transplantation and
virology rose significantly faster than the respective market
averages. Demand was especially strong for
- three
oncology products: Avastin, which posted sales of 1.7 billion
Swiss francs in its first year on the market;
- MabThera/Rituxan,
our top seller with sales of over 4 billion Swiss francs;
- and Herceptin,
which generated over 2 billion Swiss francs in sales;
- and for
our anti-influenza medicine Tamiflu. It generated 1.6 billion
Swiss francs in revenue, roughly half of which came from pandemic
stockpiling orders.
Sales
growth accelerates in 4th quarter
Pharma sales grew especially strongly in the fourth quarter,
advancing 34% in local currencies. The anticancer medicines
Herceptin and Avastin were major factors behind this surge,
as was Tamiflu. As you can see, Roche Pharmaceuticals and Chugai
recorded the biggest jumps in their growth rates.
In the Diagnostics
Division, by contrast, fourth-quarter sales were up by just
3% from the year before. While the fourth quarter was the division’s
best of the year in absolute terms, the comparison period in
2004 was also strong. Another reason for last year’s subdued
divisional sales growth was that in the second half we began
rolling out a complete new generation of Accu-Chek products
for the key diabetes care segment. This year, in particular,
we expect our new diagnostic products to generate additional
sales momentum.
Group
results for 2005 — Sales and operating profit at all-time highs
Strong top-line growth had a very positive impact on the Group’s
earnings performance in 2005.
Group operating
profit (before exceptional items) rose by one-third to 9 billion
Swiss francs, and the corresponding operating profit margin
advanced 2.5 percentage points to 25.4%. This improvement was
achieved despite a further increase in R&D expenditure to
over 5.5 billion Swiss francs and despite significant investments
in new product launches and much lower gains from product divestments
than in 2004. Profit from continuing businesses (excluding OTC)
was up even more strongly, rising 43%.
Net income
– close to previous year’s result despite gain on sale of OTC
business in 2004
At 6.7 billion Swiss francs, Group net income was nearly as
high as the year before, despite income of 2.3 billion Swiss
francs recorded in 2004 from the divested consumer health (OTC)
business.
At the Annual
General Meeting the Board of Directors will propose a 25% dividend
increase to 2.50 Swiss francs per share and non-voting equity
security for 2005 (up from 2.00 Swiss francs in 2004). If approved
by the AGM, this will be Roche’s 19th dividend increase in as
many years.
Operating
profit margins: Pharma up significantly; Diagnostics down slightly
The Pharmaceuticals Division posted an operating profit (before
exceptional items) of 7.5 billions Swiss francs, an increase
of 37% over the previous year. The operating profit margin showed
a similarly strong gain, rising 2.4 percentage points to 27.4%.
Our leading anticancer medicines were the main contributors
to operating profit and margin growth in the division. This
strong earnings performance will enable us to continue investing
heavily in research and development and in expanding our production
base.
Roche Diagnostics’
operating profit (before exceptional items) remained at last
year’s record level of 1.7 billion Swiss francs. At 20.5%, the
division’s operating profit margin remained well above the industry
average, despite a decline of 0.8 percentage points from the
previous year. Strong pricing pressures, start-up costs for
new manufacturing facilities, costs related to the many new
products launched during the year and higher depreciation as
a result of an increase in instrument placements were the main
reasons for the margin decrease.
Reflecting
the Group’s strong performance, we created 3,600 new jobs last
year, bringing the total number of Roche employees worldwide
to over 68,000. Roughly 10% of the new jobs are located in Switzerland,
where we added 360 new employees to the payroll and now employ
8000 people.
Strong
financial position — high cash flow & healthy balance sheet
The Group’s financial condition improved further in 2005. We
continued to reduce debt and further strengthened our balance
sheet.
- Net cash
increased significantly, from 3.9 to 11.2 billion Swiss francs
- and free
cash flow reached 7.8 billion Swiss francs.
- Since
2002 the ratio of equity to total assets has improved from
40% to 60%.
To give
you another indication of the excellent financial shape Roche
is in: at the end of last year Standard & Poor’s and Moody’s
awarded us credit ratings of AA+ and Aa1, respectively — the
second highest ratings assigned by these agencies.
Group
well equipped for further growth — Very good progress on development
projects
A look at our pharmaceuticals and diagnostics pipelines and
our filing and launch activities show how well equipped Roche
is for continued growth.
All 15 of
our phase III trials met their primary endpoints in 2005 — an
exceptionally high success rate in our industry.
Last year
we launched a number of major products, including Boniva and
two innovative new oncology products: Avastin, for colorectal
cancer, and Tarceva, for lung cancer. Roche is the only healthcare
company with five anticancer medicines on the market that have
been shown to increase patient survival. Our oncology portfolio
delivered 42% growth last year, reinforcing our position as
the world’s leading supplier of medicines for cancer. There
is no question that last year’s American Society of Clinical
Oncology (ASCO) Meeting in May was a watershed event for us.
The clinical outcomes we reported with drugs like Herceptin
and Avastin generated a tremendous amount of excitement at the
meeting, which is the most important gathering of cancer specialists
in the world.
There is
also a great need for innovative new treatments for rheumatoid
arthritis. One of the most common autoimmune diseases, rheumatoid
arthritis is a disorder in which the immune system mistakenly
attacks and destroys the joints and various tissues. We made
good progress in 2005 on projects to develop novel biotherapeutics
for this prevalent condition. Clinical trial data have confirmed
that one of our top-selling anticancer medicines, MabThera,
also offers a new approach to treating rheumatoid arthritis.
And a product being developed by Chugai – Actemra - has been
shown in clinical trials to slow joint damage significantly
and noticeably improve the disease’s painful symptoms. The prospects
are good that Roche will soon be a major player in this disease
area.
For Roche
Diagnostics 2005 was a year focused on launching new products,
particularly for diabetes management. We significantly increased
placements of immunodiagnostic instruments, and we expanded
into markets where Roche had never competed before — notably
DNA sequencing. The rollout of our AmpliChip CYP450 Test in
Europe and the United States represents an important step towards
more personalised medicine. This DNA chip-based test marks the
beginning of a new generation of diagnostic tools that can identify
clinically relevant genetic variations and thus help improve
treatment outcomes.
Innovation
is Roche’s core aspiration and greatest strength. We aspire
to be distinctive in our ability to drive value creation through
the discovery, development and commercialisation of medically
differentiated products.
Roche is
pursuing market leadership in the emerging field of personalised
healthcare, which is gaining in importance as advances in areas
such as genetic profiling enable earlier diagnosis and facilitate
better patient stratification. Because of their clinical and
economic benefits, preventive therapies and targeted medicines
will appeal not only to patients but to payers and regulators
as well.
We intend
to continue pursuing profitable, above-market growth by focusing
on medically differentiated products.
Goals
for 2006 — Continued double-digit growth
Barring unforeseen events, Roche reaffirms its positive outlook
for 2006. We expect our Pharmaceuticals and Diagnostics Divisions
both to grow faster than the market in local currencies, and
we anticipate continued double-digit growth in the Pharmaceuticals
Division and for the Group.
Sales growth
is expected to be stronger in the second half of 2006 than in
the first. The reasons for this include a base effect due to
the patent expiries for Rocephin and Copegus as well as an increase
in output and deliveries of pandemic readiness supplies of Tamiflu
in the second half of the year.
For
2006 we are aiming for core earnings per share growth roughly
in line with sales growth, despite significant investments in
the launch of new products and of established products for use
in new indications.
I
think you will agree that Roche has another good year ahead
of it.
Erich
Hunziker
Good morning
Ladies and Gentlemen
2005:
Strong operational performance translates into net income
Building on our excellent operating performance, Roche Finance
made important contributions to the further strengthening of
the Group. We have significantly increased net financial income
and net cash and we have strengthened the balance sheet. As
a result the Roche Group has further increased its strategic
flexibility.
Continuous
commitment to transparency
In 2005 we have continued to increase the transparency of
our financial reporting: the Finance Report as an integral part
of the Annual Report provides detailed information on the entrepreneurial
performance of the Group. We have successfully completed the
credit rating process we announced three years ago. The rating
awarded would enable us to access attractive credit markets.
Group
performance 2005 – 2004 profit from divested OTC business mostly
compensated
Due to the excellent operating results of our core businesses
and the positive financial result, the profit from continuing
businesses increased by 2.016 billion Swiss francs or 43%. This
increase mostly compensated for the 2.3 billion Swiss francs
income in 2004 from the divested consumer health business.
Group
operating performance 2005 – Strongest results in Roche history
The clear strategic focus on our core businesses Pharma
and Diagnostics is showing attractive results at operating level.
While our innovative products have gained market share, we have
kept our cost basis under control and consequently the operating
expenses are increasing at a rate below sales growth. The significant
increase of cost of sales is mainly due to royalty payments
on our successful Pharma products like MabThera/Rituxan, Tarceva
and Tamiflu. Due to continuous productivity improvements at
our production sites we were able to keep the increase in cost
of sales under control. Overall, operating results are growing
significantly faster than sales.
2005:
Positive financial result
The fundamental changes we have implemented over recent
years mean that the quality of the financial result has improved
significantly. Interest income is now higher than interest expenses.
2005:
Record Cash Flow from operating activities
Both core businesses Pharma and Diagnostics show a significant
increase in EBITDA. Although sales have increased significantly,
net working capital has actually decreased, so that we show
a very attractive “free cash flow” of 7.8 billion Swiss francs.
Genentech has issued debt of 2.6 billion Swiss francs, while
Roche has reduced its debt position further. In total cash and
marketable securities increased to 20.9 billion Swiss francs.
Significant
strengthening of net cash position
Based mainly on the strong operating result the net cash
position of the Group significantly strengthened.
Solid
financial base – Strong and improving equity ratio
Due primarily to the very attractive net income, equity
increased further.
Further
improved balance sheet
With this strengthened balance sheet Roche has significantly
increased its strategic flexibility to strengthen the core businesses
Pharma and Diagnostics.
Cash
dividends per share – Again a substantial increase in 2005
In the last 19 years Roche has continuously increased its
dividend. Based on the excellent result the Board of Directors
proposes to the Annual Shareholder Meeting of February 27, 2006
that we increase the dividend by 25% to 2.50 Swiss francs per
share and non-voting equity security.
Moving
to EPS target from now on
Some years ago Roche was a conglomerate with many quite
diverse businesses. During the strategic focus process we gave
our investors guidance on several items such as operating margin.
After completing the focus process, and based on the significantly
increased transparency in the financial field, we will now join
our peers in concentrating on giving a target for Earnings Per
Share. Since EPS can be calculated in many forms our Finance
Report gives detailed definitions, reconciliations and background
information. From our point of view the “Core EPS” is an excellent
yardstick for investors to monitor the continuous performance
of the underlying business and it is a measurement that we use
internally too. This definition would for example exclude the
effects generated by the sale of the consumer health business
in 2004.
Outlook
Let me close with our outlook for 2006. Barring unforeseen
events:
- We anticipate
above-market sales growth in both divisions in local currencies.
We expect a continued double-digit growth for Pharma and for
the Group.
- We expect
sales growth will be stronger in the second half of the year
than in the first. The reasons for this include the washout
of Rocephin and Copegus in the first half and the build up
of Tamiflu pandemic deliveries, mainly in the second half
due to the significant expansion of production capacity.
- Our target
for Core EPS is to grow in line with sales
