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Market dynamics <strong>in</strong> the Healthcare Industry<br />
The relevance of <strong>Roche</strong>’s <strong>strategy</strong> <strong>in</strong> the current<br />
market environment<br />
Dr. F.B. Humer, CEO Bank am Bellevue, January 2005
This presentation conta<strong>in</strong>s certa<strong>in</strong> forward-look<strong>in</strong>g statements.<br />
These forward-look<strong>in</strong>g statements may be identified by words such<br />
as “believes”, “expects”, “anticipates”, “projects”, “<strong>in</strong>tends”, “should”,<br />
“seeks”, “estimates”, “future” or similar expressions or by discussion<br />
of <strong>strategy</strong>, goals, plans or <strong>in</strong>tentions. Various factors may cause actual<br />
results to differ materially <strong>in</strong> the future from those reflected <strong>in</strong> forward-look<strong>in</strong>g statements<br />
conta<strong>in</strong>ed <strong>in</strong> this presentation among others:<br />
r<br />
1. Pric<strong>in</strong>g and product <strong>in</strong>itiatives of competitors;<br />
2. Legislative and regulatory developments and economic conditions;<br />
3. Delay or <strong>in</strong>ability <strong>in</strong> obta<strong>in</strong><strong>in</strong>g regulatory approvals or br<strong>in</strong>g<strong>in</strong>g products to market;<br />
4. Fluctuations <strong>in</strong> currency exchange rates and general f<strong>in</strong>ancial market conditions;<br />
5. Uncerta<strong>in</strong>ties <strong>in</strong> the discovery, development or market<strong>in</strong>g of new products or new uses of exist<strong>in</strong>g<br />
products;<br />
6. Increased government pric<strong>in</strong>g pressures;<br />
7. Interruptions <strong>in</strong> production;<br />
8. Loss of or <strong>in</strong>ability to obta<strong>in</strong> adequate protection for <strong>in</strong>tellectual property rights;<br />
9. Litigation;<br />
10. Loss of key executives or other employees; and...<br />
11. Adverse publicity or news coverage<br />
For marketed products discussed <strong>in</strong> this presentation, please see full prescrib<strong>in</strong>g <strong>in</strong>formation on our<br />
website – www.roche.com
Five major dynamics <strong>in</strong> Healthcare market<br />
The grow<strong>in</strong>g importance of do<strong>in</strong>g it different -<br />
five answers<br />
Outlook
1. Consolidation <strong>in</strong> the Pharma <strong>in</strong>dustry ongo<strong>in</strong>g<br />
Top ten companies now above 50%<br />
r<br />
top 10 market share (%)<br />
55<br />
50<br />
45<br />
40<br />
35<br />
30<br />
25<br />
<strong>Roche</strong> /<br />
Syntex<br />
AHP /<br />
Cyanamid<br />
Ciba /<br />
Sandoz<br />
Hoechst / MMD<br />
Glaxo / Wellcome<br />
Pfizer /<br />
Pharmacia<br />
Pfizer / W-L<br />
GW / SB<br />
Rhone-Poulenc / Hoechst<br />
Astra / Zeneca<br />
<strong>Roche</strong> /<br />
Böhr<strong>in</strong>ger M.<br />
20<br />
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004<br />
Source: Wood Mackenzie<br />
<strong>Roche</strong> / Genentech<br />
<strong>Roche</strong> / Chugai<br />
Sanofi / Aventis
2. Industry center gravity is shift<strong>in</strong>g to the US<br />
European markets loos<strong>in</strong>g ground<br />
r<br />
• Market dynamics<br />
– 1990: US and Europe same market size<br />
– 2004: US twice the size of Europe<br />
‣ lead to move of talented people to the US<br />
• Higher R&D <strong>in</strong>vestment <strong>in</strong> the US<br />
– 1990: Europe <strong>in</strong>vested twice as much as the US (EUR 21 bn)<br />
– 2004: US <strong>in</strong>vests around 30% more (EUR 29 bn)<br />
• US now lead<strong>in</strong>g <strong>in</strong>ventor for New Chemical Entities<br />
– 70% of sales of new medic<strong>in</strong>es s<strong>in</strong>ce 1998 generated <strong>in</strong> the US
2. US-driven growth <strong>in</strong> world Pharma market<br />
r<br />
Lat<strong>in</strong><br />
America<br />
3 %<br />
RoW<br />
7 %<br />
Lat<strong>in</strong><br />
America<br />
4 %<br />
RoW<br />
7 %<br />
North<br />
America<br />
50 %<br />
Japan<br />
14%<br />
Europe<br />
26 %<br />
North<br />
America<br />
59%<br />
Japan<br />
10 %<br />
Europe<br />
23 %<br />
2002:<br />
US$ 409 billion<br />
CAGR ('02–'07): 10%<br />
(range 9-10%)<br />
2007:<br />
US$ 657 billion<br />
Source: IMS Health, IMS Market Prognosis, May 2003<br />
Constant Dollars; does not reflect unaudited countries at this time<br />
CAGR: compound annual growth rate
3. Fund<strong>in</strong>g is limited<br />
r<br />
Fund<strong>in</strong>g of<br />
Healthcare<br />
Social<br />
security systems<br />
under pressure<br />
Slowdown<br />
of Economy<br />
Co-paymentsystems<br />
Payments<br />
by <strong>in</strong>dividuals<br />
today 2020<br />
Cost pressure a reality today and even tougher <strong>in</strong> the future
4. Generisation risk<br />
Up to U$ 70 billion of branded US sales at risk over<br />
the next four years<br />
r<br />
US$ bn<br />
20<br />
Soft risk<br />
Hard risk<br />
15<br />
10<br />
5<br />
0<br />
2008E<br />
2007E<br />
2006E<br />
2005E<br />
2004E<br />
2003<br />
2002<br />
2001<br />
2000<br />
1999<br />
1998<br />
1997<br />
1996<br />
1995<br />
1994<br />
Source: DB, 2004
5. R&D productivity has been <strong>in</strong> decl<strong>in</strong>e<br />
But the important question is the sales value per drug<br />
r<br />
200<br />
180<br />
160<br />
140<br />
120<br />
100<br />
Indexed<br />
annual sales<br />
Indexed real<br />
R&D spend<br />
Indexed NME<br />
approvals<br />
80<br />
60<br />
1998 1999 2000 2001 2002 2003<br />
No. of of<br />
drugs<br />
30<br />
2<br />
35<br />
4<br />
44<br />
5<br />
48<br />
8<br />
54<br />
9<br />
67<br />
10<br />
> U$ 1bn<br />
> U$ 3bn
Outlook: Future growth will depend on the success of<br />
differentiated, targeted, and cost effective treatments<br />
r<br />
Global Pharmaceutical Market - Drivers & Restra<strong>in</strong>ers<br />
$bn<br />
1600<br />
1400<br />
1200<br />
1000<br />
800<br />
600<br />
400<br />
200<br />
Comb<strong>in</strong>ation<br />
Products<br />
Cost Conscious<br />
Prescrib<strong>in</strong>g<br />
Targeted<br />
Therapy<br />
Age<strong>in</strong>g<br />
Population<br />
Global Generics<br />
Initiative<br />
Geographic<br />
Markets<br />
Primary Care<br />
Market Maturity<br />
Personalized<br />
Medic<strong>in</strong>e<br />
Market<br />
Segmentation<br />
Global Pharma<br />
Market Forecast<br />
Value Range<br />
0<br />
2002 2005 2008 2011 2014 2017 2020
Five major dynamics <strong>in</strong> Healthcare market<br />
The grow<strong>in</strong>g importance of do<strong>in</strong>g it different -<br />
five answers<br />
Outlook
1. Companies can be successful <strong>in</strong> both segments<br />
But we are a clear ‘value player’<br />
r<br />
Medical<br />
Differentation<br />
high<br />
low<br />
Volume <strong>strategy</strong><br />
high volume events<br />
e.g. Generics<br />
<strong>Roche</strong> Focus<br />
Value <strong>strategy</strong><br />
high value events<br />
e.g. Oncology<br />
low<br />
Premium for <strong>in</strong>novation<br />
high
Differentiated and personalized Medic<strong>in</strong>es are critical<br />
to rema<strong>in</strong> competitive <strong>in</strong> the high-value segment<br />
r<br />
• Reduced regulatory pressure<br />
• Lower risk of adverse events<br />
• Stronger market exclusivity<br />
•Premium prices<br />
• More efficient utilization of market<strong>in</strong>g resources
Growth <strong>in</strong> Pharma driven by differentiated products<br />
Higher prices for <strong>in</strong>novation<br />
r<br />
Specialty Care volume is not<br />
chang<strong>in</strong>g…<br />
Volume<br />
(Stand. Units bn)<br />
… but price per unit is higher for<br />
Specialty Care and has grown faster<br />
Av. Price per Unit 1 (CHF)<br />
2,000<br />
1,800<br />
1,600<br />
1,400<br />
1,200<br />
1,000<br />
800<br />
600<br />
400<br />
200<br />
0<br />
Primary Care<br />
290<br />
(16%)<br />
1,481<br />
(84%)<br />
Specialty Care<br />
290<br />
(16%)<br />
1,559<br />
(84%)<br />
1998 2003<br />
1. Standard unit def<strong>in</strong>ed as ‘Number of units’ divided by ‘Smallest common dose of a product form’. Number of units = Number of tablets, ml or grams<br />
sold x number of packages sold x Size of package.<br />
Source: IMS (top 200 drugs worldwide), Marakon analysis<br />
4.5<br />
4.0<br />
3.5<br />
3.0<br />
2.5<br />
2.0<br />
1.5<br />
1.0<br />
0.5<br />
0.0<br />
0.7<br />
Primary Care<br />
1.3<br />
1.1<br />
Specialty Care<br />
4.3<br />
1998 2003 1998 2003
Some reasons why we are not <strong>in</strong> the<br />
generic bus<strong>in</strong>ess<br />
r<br />
• Comparably small part of the Pharma market (~10%)<br />
• Large number of competitors (~400)<br />
• Low profitability (world wide average ~11%)<br />
– it’s a ‘cost plus’ bus<strong>in</strong>ess<br />
– product profitability not susta<strong>in</strong>able - marg<strong>in</strong>s decl<strong>in</strong>e with<br />
number of players<br />
– profit must constantly be renewed with ‘off-patent’ products
2. Non-mega-merged companies do better<br />
Market share<br />
r<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
-2<br />
-4<br />
Change <strong>in</strong> ethical drug market share (1995 - 2002)<br />
"Mega-merged" companies<br />
-2.8 %<br />
Only top ten ranked companies considered <strong>in</strong> chart.<br />
Source: Wood Mackenzie<br />
"Non-mega-merged" companies<br />
+10 %<br />
Merck & Co,<br />
J&J, Eli Lilly,<br />
<strong>Roche</strong><br />
Pfizer, GSK, BMS, Aventis,<br />
Pharmacia
3. Unique <strong>in</strong>novation model<br />
<strong>Roche</strong> expertise comb<strong>in</strong>ed with external dynamism<br />
r<br />
Pharma<br />
Diagnostics<br />
Alliances and collaborations<br />
Sp<strong>in</strong>-offs
4. A considerable part of our research is <strong>in</strong> ‘biologicals’ r<br />
Published Success Rates<br />
Small Molecules<br />
KMR<br />
(99-03)<br />
Phase 0 57 %<br />
1 30 %<br />
2 29 %<br />
3 62 %<br />
Fil<strong>in</strong>g 100 %<br />
Phase 1<br />
To approval 6 %<br />
Therapeutic Prote<strong>in</strong>s (TP)<br />
CMR Tufts<br />
(96-98)<br />
Phase 0<br />
1 74 % 84 %<br />
2 60 % 72 %<br />
3 87 % 75 %<br />
Fil<strong>in</strong>g 88 % 100 %<br />
Phase 1<br />
To approval 34 % 45 %<br />
A 3 to 4 times higher success rate for TPs
Biologics- <strong>in</strong>creas<strong>in</strong>g part <strong>in</strong> Innovation<br />
r<br />
•<strong>Roche</strong>:<br />
– biggest producer<br />
50<br />
Biologics<br />
Other<br />
– second biggest biotech<br />
company<br />
• Partner<strong>in</strong>g important<br />
40<br />
30<br />
20<br />
25<br />
16<br />
14<br />
17<br />
21<br />
10<br />
0<br />
10 11 10<br />
21 22<br />
1999 2000 2001 2002 2003<br />
Source: FDA<br />
FDA NCE approvals
5. Diagnostics and Pharma under one roof:<br />
Solutions along the value cha<strong>in</strong><br />
Enable better medical decision mak<strong>in</strong>g<br />
test test test<br />
test<br />
drug<br />
test<br />
r<br />
predisposition<br />
screen<strong>in</strong>g<br />
targeted<br />
monitor<strong>in</strong>g<br />
general<br />
screen<strong>in</strong>g<br />
diagnosis<br />
therapy<br />
selection<br />
monitor<strong>in</strong>g<br />
Earlier diagnosis<br />
– periodic disease status checks<br />
– earlier treatment<br />
Prevention<br />
– lifestyle, nutrition, medic<strong>in</strong>e<br />
Patient stratification<br />
– differentiated treatment<br />
– use of pharmacogenetics<br />
→ efficacy<br />
→ avoid adverse events
Five major dynamics <strong>in</strong> Healthcare market<br />
The grow<strong>in</strong>g importance of do<strong>in</strong>g it different -<br />
five answers<br />
Outlook
<strong>Roche</strong> is actively shap<strong>in</strong>g its future<br />
… by acquisitions and dispos<strong>in</strong>g of non-core bus<strong>in</strong>esses<br />
r<br />
Start<strong>in</strong>g po<strong>in</strong>t H1 '00 ...<br />
Sales CHF 13.6 billion<br />
Diagnostics<br />
22 %<br />
13 %<br />
Vitam<strong>in</strong>s &<br />
F<strong>in</strong>e Chem.<br />
6 %<br />
OTC<br />
H1 '04<br />
CHF 14.6 billion<br />
Diagnostics<br />
27 %<br />
59 %<br />
73 %<br />
Pharma<br />
Pharma<br />
Cont<strong>in</strong>uous improvement of bus<strong>in</strong>ess mix
Strong presence <strong>in</strong> Specialty Care<br />
Grow<strong>in</strong>g brands <strong>in</strong> key franchises<br />
r<br />
Hepatitis<br />
Pegasys<br />
Copegus<br />
Transplant<br />
CellCept<br />
Oncology<br />
MabThera<br />
Hercept<strong>in</strong><br />
Xeloda<br />
Avast<strong>in</strong><br />
Tarceva<br />
Anaemia<br />
NeoRecormon<br />
R744 (CERA)<br />
Rheumatoid Arthritis<br />
MRA<br />
MabThera<br />
Launched products<br />
Pre-registration or pipel<strong>in</strong>e products
Selective entry <strong>in</strong>to Primary Care<br />
We will decide on how to proceed, based on differentiation<br />
Primary Care<br />
Boniva<br />
R483 (Insul<strong>in</strong> Sensitizer)<br />
R411 (asthma)<br />
R673 (depression)<br />
JTT-705 (dyslipidemia)<br />
Differentiated products – alone or or with a partner
Next 5-yr growth com<strong>in</strong>g from tangible assets<br />
Supported by products with low development risk<br />
r<br />
Contribution to growth <strong>in</strong> 2004-2009<br />
Average annual growth <strong>in</strong> %<br />
+<br />
Current<br />
Products<br />
Lifecycle<br />
Extension<br />
Bondronat<br />
Pegasys<br />
Hercept<strong>in</strong><br />
Others<br />
Preregistration<br />
Avast<strong>in</strong><br />
Tarceva<br />
Boniva<br />
Development<br />
Products<br />
CERA<br />
MRA<br />
Insul<strong>in</strong> sensitizer<br />
R411Asthma<br />
NK-1<br />
Omnitarg<br />
Others<br />
Genericised<br />
Products<br />
Roceph<strong>in</strong><br />
NeoRecormon<br />
Dilatrend<br />
Others<br />
illustrative<br />
MabThera<br />
Hercept<strong>in</strong><br />
Xeloda<br />
CellCept<br />
Pegasys<br />
Bondronat<br />
Others
<strong>Roche</strong> cl<strong>in</strong>ical development<br />
Close to doubl<strong>in</strong>g the success rate for NMEs over<br />
the past 5 years<br />
<strong>in</strong> %<br />
100<br />
80<br />
60<br />
40<br />
44<br />
Actions taken on<br />
high attrition-rate<br />
38<br />
45<br />
60<br />
71<br />
r<br />
20<br />
0<br />
'96-'00 '97-'01 '98-'02 '99-'03 '00-'04
High<br />
Innovation<br />
<strong>Roche</strong> pipel<strong>in</strong>e<br />
Innovative and risk balanced<br />
“Ground-Breakers”<br />
NK1<br />
(depression)<br />
Insul<strong>in</strong><br />
Sensitiser<br />
Phase II and III late stage<br />
MabThera<br />
(TNF)<br />
Bondront (MBP)<br />
Dual <strong>in</strong>tegr<strong>in</strong><br />
<strong>in</strong>hibitor Hercept<strong>in</strong><br />
(asthma) (adjuvant)<br />
CERA<br />
MabThera<br />
(RA, 1st)<br />
MRA (RA)<br />
MabThera<br />
(CLL)<br />
Pegasys<br />
(HBV)<br />
Avast<strong>in</strong><br />
“Indication Extensions<br />
and Known<br />
Mechanisms”<br />
Tarceva<br />
Boniva<br />
Xeloda<br />
(adjuvant)<br />
r<br />
Low<br />
“Novel Follow-Ons”<br />
High<br />
Development Risk<br />
“Me-toos”<br />
Low<br />
Oncology<br />
Anaemia Virology Inflammatory diseases /<br />
Bone<br />
Metabolism<br />
CNS
Where did our <strong>strategy</strong> take us?<br />
Development over the past years<br />
r<br />
Diagnostics: from a niche player to global<br />
market leader<br />
World leader <strong>in</strong> oncology<br />
products with sales over CHF 1 bn<br />
Quantum leap <strong>in</strong> Japan<br />
No. 2 <strong>in</strong> biotech<br />
11 1<br />
8 1<br />
1 6<br />
32 4
Value creation through marketed mega brands<br />
and a risk balanced, differentiated pipel<strong>in</strong>e<br />
r<br />
Pegasys<br />
Hercept<strong>in</strong><br />
Diabetes<br />
Care<br />
Current<br />
Xeloda<br />
Molecular<br />
Diagnostics<br />
NeoRecormon<br />
Avast<strong>in</strong><br />
Future<br />
Boniva<br />
Bondronat (MBP)<br />
Tarceva<br />
R744 (CERA)<br />
MRA<br />
Immuno-<br />
Diagnostics<br />
CellCept<br />
MabThera<br />
Insul<strong>in</strong> sensitizer<br />
MabThera <strong>in</strong> <strong>in</strong> RA RA
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