Financial view: A sustainable business model. Alan Hippe, CFO

Transcription

1 Financial view: A sustainable business model Alan Hippe, CFO

2 Capital allocation and R&D Continuous productivity improvements Focus on cash generation and allocation

3 Solid margins with a high risk / high reward model Core operating profit margin (%) 1 45% R² = Pfizer Astra Amgen 35% Sanofi GSK Merck BMS Eli Lilly 25% Abbott Novartis Bayer 15% 30% 40% 50% 60% 70% 80% 90% 100% Branded pharma sales as % of Group 2 Source: Company reports, Roche analysis; 1 Based on average of fiscal years financials; 2 Based on 2010 data 3

4 The P&L reflects Roche s innovation based strategy Low on Marketing, General and Administration 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 R&D % sales 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 Astra Amgen Roche Sanofi Merck BMS GSK Novartis Eli Lilly Abbott Bayer Core operating profit margin % sales 17% 23% 27% 27% 39% 37% 36% 34% 34% 33% 31% 43% Source: Company reports, Roche analysis; Figures based on fiscal year 2011 financials 4

5 Return on R&D: Historically Roche has delivered Required peak sales per NME (CHF bn) Actual Launches CHF 2.1 bn Required performance to breakeven 1, at actual R&D expenses ( ) 1.1 Average # NMEs per year 1 Incl. recovery of cost of capital, Roche Pharma. Criteria includes: late stage portfolio, risk adjusted revenues, average profitability assumed, standard erosion curves 5

6 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 Required performance to breakeven 1, 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

7 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 Source: Bernstein Equity Research, Tufts University and Roche analysis 7

8 R&D spend: Balance between short and long term R&D spend by phase ~50% ~50% Invest for the future Invest for the near term Research/ Discovery Phase 0 Phase 1 Phase 2 Phase 3 Filing Phase 4 Note: Based on 2012 budget 8

9 Capital allocation and R&D Continuous productivity improvements Focus on cash generation and allocation

10 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

11 Example: Optimise research at pred Nutley Reduce complexity Close R&D centres (Nutley) Co-locate management TCRC Optimise resource allocation Increase investment in late stage Leverage support functions New Molecular Entities HY 2012 before R&D Phase I Phase II Phase III + Registration prioritisation HY 2012 after R&D prioritisation Re-fine infrastructure Reduce infrastructure costs (support functions / site infrastructure) Unify sites for non clinical safety and chemistry Welwyn Penzberg Basel Schlieren Shanghai Strategic sites Support Centers 11

12 Resource allocation: Optimising value streams CHF m 1 Restructuring costs 1,440 Net Savings Reinvestments and P&L impact 1, Offsetting price pressures in RDC and investment in RAS * Reinvestment in pipeline ~150 HY 2012 FY One-time costs Thereof cash out Net Savings R&D & Diagnostics reinvestment P&L savings Pharma IT Diagnostics 1 at avg HY 2012 fx * 2013 CHF 500 m, CHF +80 m 12

13 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 LIP refers to Lifecycle Investment Point 13

14 Example: Roche Diabetes Care securing longterm profitability RDC sales Growth (CER*) 6% 4% 2% Restructure and consolidate R&D organisation "One Global Operations" structure Optimise M&D investments Blood Glucose Monitoring (bgm) Insulin Delivery Systems Streamline Portfolio Maximise market uptake Invest Insulin pumps and CGM CER=Constant Exchange Rates 14

15 Capital allocation and R&D Continuous productivity improvements Focus on cash generation and allocation

16 High operating free cash flow and margin Group operating free cash flow (CHF bn) and margin 31.6% 32.0% 28.2% 26.1% +7% at CER 21.8% HY 2008 HY 2009 HY 2010 HY 2011 HY 2012 CER=Constant Exchange Rates 16

17 Managing risks: Accounts receivables in S. Europe 17

18 Credit Management & Receivables: Managing risk Greece - learning from the past to reduce future risk History 1 Action Impact AR balance meur AR balance meur AR balance meur Roche experienced strong sales growth trebling in size Accounts Receivables (AR) increased too, significantly Government had established a pattern of payment every 5 years Government issued bonds as payment Locally: fast execution to receive bonds ahead of our competitors Treasury: anticipated risk and sold into the market 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 1 Situation as of

19 Credit Management & Receivables: Managing risk Spain learning from the past to reduce future risk History Action Impact AR balance meur DSO Public debt 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 Escalation of tools used, including Individual regional account plans Change of commercial policy (CoD) Forfaiting (local banks and international funds) Significant reduction in AR due to Montoro Plan (June 2012) Focus: avoid future build up 19

20 Roche: Favorable risk profile due to sustainable cash flows leading to lower interest expenses Roche Deutsche Bank BNP Citi JPM Credit Suisse UBS 5 year Credit Default Swap (CDS)

21 Aiming for a sustainable net debt leverage of 0-15% S&P rating AAA J&J AA+ Merck AA Takeda AZ AA- Eli Lilly BMS A+ A Gilead A- Biogen BBB+ BBB BBB- BB Pfizer Abbott Sanofi Novartis Amgen 5 10 Becton D 15 Bayer 20 GSK 2011 (25%) 25 Roche 2010 (31%) Leverage 1 (%) 1 Net Debt / Total Assets (%); 2011 figures for all companies except Roche; Company reports; Bloomberg (June 14; 2012) 21

22 Continuous increase in dividends and pay-out ratio historically Dividend per share (CHF) Payout ratio of 55.3% % 5% 4% 3% Dividend yield (%) '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 2% 1% 0% Pay-out ratio calculated as dividend per share divided by core earnings per share (diluted) 22

23 We will continue to show strong commitment to Innovation AND Efficiency Innovation Efficiency Sales growth Profitability Cash Value 23