Roche Annual Report 09

7 000 844 E

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che

| Annual R

eport 2009

Key figures

1 Key figures indexed to 2007 = 100.2 Before exceptional items.3 Proposed by the Board of Directors.4 Development phase I to IV.5 For calculation of the Eco-Efficiency Rate see:

www.roche.com/environment

Figures for 2007 as in Annual Report 2008.For a full index of Global Reporting Initiative (GRI) indicators used in the report see:www.roche.com/reporting_and_indices

E

Ro

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eport 2009

F. Hoffmann-La Roche Ltd4070 Basel, Switzerland

© 2010

www.roche.com

7 0 846

Excellence in Science

09 Roche Annual Report

All trademarks are legally protected.

Publ shed F Hoffmann- a Roc

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Key figures




00_L_Roche_AR09_ENG_Key figures indd 1 29 01 2010 14:20:10

http://www.roche.com/environment

www.roche.com/reporting_and_indices

The year 2009 in brief

GroupGroup sales increase by 10% • 1 to 49.1 billion Swiss francs (8% in Swiss francs; 7% in US dollars). Both divisions gain market share. Operating profit before exceptional items increases by 14% (8% in Swiss francs) to 15.0 billion • Swiss francs due to strong sales growth and continuing productivity improvements; at the same time investments in research and development increase by 12% to 9.9 billion Swiss francs.Effective 26 March 2009, Roche obtains full ownership of Genentech for a price of 47.0 billion US dollars, • or 52.7 billion Swiss francs. Genentech integration has been completed.Net income of 8.5 billion Swiss francs, down by 22% compared with the previous year due to exceptional • items relating to the Genentech transaction and integration.Excluding exceptional items, the Genentech transaction is already contributing to income: • income attributable to Roche shareholders increases by 9% to 9.8 billion Swiss francs.Core EPS at constant exchange rates 20% above 2008 (10% in Swiss francs).• Board proposes a dividend increase of 20% to 6.00 Swiss francs, the 23• rd consecutive year of dividend growth; this would increase the payout ratio to 53%.

PharmaceuticalsPharma sales grow by 11% (8% in Swiss francs; 8% in US dollars), almost twice the global market • growth rate, driven by leading cancer medications and Tamiflu (influenza medicine) as well as Lucentis (ophthalmology medicine).Tamiflu sales grow sharply to 3.2 billion Swiss francs following substantially increased demand during • the pandemic influenza A(H1N1) virus (‘swine flu’) outbreak.Operating profit margin before exceptional items increases • 1.2 percentage points at constant exchange rates (+0.2 percentage points in Swiss francs).Strong R&D pipeline with ten new molecular entities in late-stage clinical testing; six new compounds • entered phase I I I clinical trials in 2009.Actemra approved in US for treatment of rheumatoid arthritis in January 2010.•

DiagnosticsSales increase by 9% (4% in Swiss francs and 4% in US dollars) to 10.1 billion Swiss francs, more than • twice the market growth rate.Operating profit margin at constant exchange rates increases 0.4 percentage points (–0.4 percentage points • in Swiss francs).

OutlookFull-year 2010 sales for Pharmaceuticals and the Group expected to grow in the mid-single-digit range • 2. Expected decrease of Tamiflu sales from 3.2 to 1.2 billion Swiss francs.• Diagnostics sales expected to grow well ahead of market.• Planned research and development expenses will decline slightly in 2010 compared to 2009.• Roche confirms target of double-digit Core Earnings per Share growth • 3 in 2010.Based on the strong operating free cash flow, Roche expects to reduce debt progressively and to return • to a net cash position by 2015 while maintaining its attractive dividend policy.

1 Unless otherwise stated, all growth rates are in local currencies.2 Without Tamiflu sales.3 At constant exchange rates.Barring unforeseen events.

01_L_Roche_AR09_ENG_Highlights indd 1 29 01 2010 10:14 03

Pharmaceuticals pipeline | Focused on compounds with first-in-class or best-in-class potential

Project ID Project/Product Indication

Oncology

RG4733 γ-secretase inh solid tumours

RG7160 anti-EGFR huMAb solid tumours

RG7167 CIF/MEK inh solid tumours

RG7304 — solid tumours

RG7334 anti-PlGF MAb solid tumours

RG7347 anti-NRP1 MAb solid tumours

RG7112 MDM2 antag solid and hematologic tumours

RG3639 dulanermin cancer

RG7420 MEK inh solid tumours

RG7422 PI3 kinase inh solid and hematologic tumours

RG7321 PI3 kinase inh solid tumours

RG7414 anti-EGFL7 MAb solid tumours

CHU anti-Glypican MAb liver cancer

Inflammation and autoimmune disorders

RG7413 anti-Beta7 rhuMAb ulcerative colitis

RG7416 anti-LT alpha MAb rheumatoid arthritis

BTI VAP-1 inflammatory diseases

Virology

CHU serine palmitoyltrans-ferase inh

hepatitis C

CHU nitazoxanide hepatitis C

Cardiovascular and metabolic diseases

RG7089 Y2R peptide agonist type 2 diabetes

RG1512 anti-P selectin huMAb peripheral vascular disease

RG4929 11β-HSD inh type 2 diabetes

RG7234 11β-HSD inh type 2 diabetes

RG7273 ABCA1 inducer dyslipidemia

RG7376 CRAF inh polycystic kidney disease

RG7418 anti-oxLDL MAb secondary prevention of cardiovascular events

RG7426 (BHT-3021) type 1 diabetes

Central nervous system

RG1450 gantenerumab Alzheimer’s disease

RG1578 mGluR2 antag depression

RG1662 GABA-A agonist Alzheimer’s disease

RG7010 IGF1 PEG amyotrophic lateral sclerosis

RG7166 triple reuptake inh depression

RG7351 TAAR1 partial agonist depression

RG7412 anti-amyloid β-peptide MAb

Alzheimer’s disease

EVO NMDA receptor antag treatment-resistant depression

Ophthalmology

RG7417 anti-factor D MAb geographic atrophy

Phase I Phase II Phase III RegistrationProject ID Project/Product Indication

Oncology

RG435 Avastin multiple myeloma

RG435 Avastin metastatic melanoma

RG1273 pertuzumab neoadj breast cancer, HER2+

RG3502 trastuzumab-DM1 metastatic BC, HER2+, 3rd-line

RG3502 trastuzumab-DM1 metastatic BC, HER2+, 1st-line

RG3616 hedgehog pathway inh basal cell carcinoma

RG3616 hedgehog pathway inh colocrectal cancer

RG3616 hedgehog pathway inh ovarian cancer

RG7159 anti-CD20 huMAb non-Hodgkin’s lymphoma

RG3638 anti-MET huMAb metastatic NSCLC

RG7433 (ABT-263) solid and hematologic tumours

CHU topoisomerase I inh gastric cancer


RG667 palovarotene emphysema

RG3637 lebrikizumab asthma

RG4930 OX40L huMAb asthma

RG7415 rontalizumab systemic lupus erythematosus

RG3648 Xolair chronic idiopathic urticaria

Virology

RG3484 HPV16 immunotherapy cervical neoplasia

RG7128 nucleoside inh prodrug hepatitis C

RG7227 protease inh hepatitis C


RG1439 aleglitazar cardiovascular risk reduction

RG7201 SGLT2 inh type 2 diabetes


RG1594 ocrelizumab relapsing–remitting MS

RG1678 GLYT1 inh schizophrenia

RG3487 nicotinic α7 receptor agonist

Alzheimer’s disease

RG7090 mGluR5 antag treatment-resistant depression


Oncology

RG105 MabThera/Rituxan indolent NHL maint, 1st-line

RG340 Xeloda+Avastin adj colon cancer

RG340 Xeloda adj breast cancer

RG435 Avastin+MabThera diffuse large B cell lymphoma

RG435 Avastin adj colon cancer

RG435 Avastin prostate cancer

RG435 Avastin adj breast cancer HER2+

RG435 Avastin ovarian cancer, 1st-line

RG435 Avastin+Herceptin mBC, HER2+, 1st-line

RG435 Avastin adj NSCLC

RG435 Avastin met gastric cancer

RG435 Avastin adj breast cancer HER2–

RG435 Avastin adj BC, triple negative

RG435 Avastin mBC HER2–, combo hormonal therapy

RG435 Avastin ovarian cancer platinum-sensitive

RG435 Avastin mBC, 2nd-line

RG435 Avastin high-risk carcinoid

RG435 Avastin GBM, 1st-line

RG597 Herceptin SC formulation, BC HER2+

RG597 Herceptin adj BC HER2+, 2-yr treatment

RG1273 pertuzumab mBC HER2+

RG1415 Tarceva NSCLC EGFR mutationpositive, 1st-line

RG1415 Tarceva adj NSCLC

RG1415 Tarceva+Avastin NSCLC maint, 1st-line

RG7159 anti-CD20 huMAb chronic lymphocytic leukemia

RG7204 BRAF inh malignant melanoma

RG3502 trastuzumab-DM1 mBC HER2+, 2nd-line


RG105 MabThera/Rituxan ANCA-associated vasculitis

RG1569 Actemra/RoActemra JIA, systemic onset

RG1569 Actemra/RoActemra early rheumatoid arthritis

RG1594 ocrelizumab rheumatoid arthritis, PJD

RG3648 Xolair asthma, add-on therapy


RG1583 taspoglutide type 2 diabetes

RG1658 dalcetrapib dyslipidemia

Ophthalmology

RG3645 Lucentis diabetic macular edema

RG3645 Lucentis AMD, high dose

Others

RG3625 TNKase catheter clearance


Oncology

RG105* MabThera/Rituxan chronic lympocytic leukemia, 1st-line

RG105* MabThera/Rituxan chronic lympocytic leukemia, relapsed

RG340 Xeloda adj colon cancer, combo oxaliplatin

RG435* Avastin mBC 1st-line combo docetaxel

RG435 Avastin mBC 1st-line combo standard chemotherapies

RG597 Herceptin met gastric cancer HER2+

RG1415 Tarceva NSCLC 1st-line maintenance


RG105 MabThera/Rituxan rheumatoid arthritis, DMARD inadequate responders

RG3648* Xolair pediatric asthma

CHU eldecalcitol (ED-71) osteoporosis

Virology

RG127 Valcyte cytomegalovirus, extension of treatment

Ophthalmology

RG3645 Lucentis retinal vein occlusion

Others

CHU Epogin (EPOCH) chemo-induced anemia

Legend

Therapeutic protein, other biologic

Small molecule

Blue type First indication

Black type Additional indications

RG-No.CHUBTI EVO

Roche and/or Genentech managedChugai managedBioTie opt-inEvotec

Phase I Initial studies in healthy volunteers and possibly in patients

Phase II Efficacy, tolerability and dose-finding studies in patients

Phase III Large-scale studies in patients for statistical confirmation of safety and efficacy

Registra-tion

Marketing application(s) filed in EU, US and/or Japan

* Approved EU

Selected abbreviations

adj adjuvant treatmentAMD age-related macular

degenerationantag antagonistBC breast cancercombo combined withDMARD disease-modifying

antirheumatic drugGBM glioblastoma multiformeHER2+ HER2-positiveHER2– HER2-negativeHPV human papilloma virushu humanised

inh inhibitor JIA juvenile idiopathic arthritisMAb monoclonal antibodymaint maintenance treatmentm, met metastatic (cancer)MS multiple sclerosisNHL non-Hodgkin’s lymphomaNSCLC non-small cell lung cancerPJD prevention of joint

destructionr recombinantSC subcutaneous

Current as of January 2010

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Focus on unsolved medical problemsFor more than 110 years Roche has played a pioneer-ing role in healthcare. Today, as the world leader in in vitro diagnostics, we supply a wide range of diag-nostic instruments and tests for rapid and reliable disease detection and monitoring by doctors, labora-tories and patients themselves. As the world’s largest biotech company Roche has brought many highly effective drugs to market and become the world’s leading supplier of prescription drugs for cancer treatment. Our daily work focuses on disease areas where medical needs are great.

These include cancers, viral infections, metabolic and central nervous system disorders and inflammatory diseases. Roche is a pioneer in personalised health-care: we aim to fit treatments as closely as pos sible to patients’ needs — to make healthcare better, safer and more cost-effective.

Our Business | Innovation is our answer to medical challenges. Our daily work is saving patients’ lives and helping millions of people around the world through excellence in science.

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Contents

Inside cover Key figures Inside cover Pharmaceuticals pipeline

1 The year 2009 in brief

4 Letter to Shareholders

10 Roche Group 11 Group results 12 Outlook 14 Group strategy

20 Pharmaceuticals 21 Pharmaceuticals Division in brief 22 Results 24 Sales review 30 Development highlights 36 Research and development

46 Diagnostics 47 Diagnostics Division in brief 49 Results 52 Business area highlights 57 Research and development

64 Corporate Governance, Remuneration Report 65 Corporate Governance 75 Remuneration Report

88 Corporate Responsibility 89 In brief 90 Responsible practices 97 Patients 104 People 112 Society 114 Safety, security, health and environmental protection

121 Independent Assurance Report 122 GRI statement

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4 Roche Business Report 2009 Letter to Shareholders

Franz B. Humer

Dear Shareholders

Despite the sustained global financial and economic crisis, 2009 was a very successful year for Roche. Salesin both the Pharmaceuticals and the Diagnostics Division grew twice as fast as the market. Group salesincreased by 10% in local currencies to 49.1 billion Swiss francs, mainly driven by our leading medicinesto treat patients with cancer, viral infections, age-related blindness and other serious diseases. Sales ofthe influenza medicine Tamiflu, at 3.2 billion Swiss francs, also contributed significantly to revenue growth.Operating profit before exceptional items grew even more strongly than sales, advancing 14% in localcurrencies to 15.0 billion Swiss francs.

2009 will be remembered as one of the most important years in your company’s long history. Following themerger agreement with Genentech in March 2009 and the rapid finalisation of the transaction, we wereable to complete the integration by the end of the year. By combining Roche and Genentech we are not onlyincreasing operational efficiency but also promoting internal knowledge transfer. We are committed tostrengthening the Roche Group’s innovative power in the long term and to providing patients with inno-vative medicines through research of the highest quality.

Excellent research is and will remain a basic requirement for the development of therapies that are decisivefor patients’ health and quality of life. After concluding the Genentech integration we will continue tosystematically pursue diverse research approaches for innovative healthcare solutions. This creates scopefor creativity and increases the chances of devising sustainable medical and therapeutic progress. Forthis reason Genentech Research and Early Development will continue to function as an independent unit.

Letter to Shareholders

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5

Severin Schwan

In addition, combining the activities of the two companies in the areas of product development, productionand sales has already generated significant increases in productivity. Our aim is to achieve pre-tax annualsavings of approximately 1 billion Swiss francs by 2011.

The operating free cash flow of the Group increased by 27% to 15.7 billion Swiss francs despite significantnegative currency effects. Roche’s strong operating performance is also clearly reflected in Core Earningsper Share, which advanced 20% in local currencies (10% in Swiss francs).

As a result of exceptional costs of 2.7 billion Swiss francs, which were primarily integration-related,the Group’s operating profit in 2009 declined by 5% in local currencies (12% in Swiss francs) to 12.3 billionSwiss francs. Exceptional items also impacted net income, which declined by 22% compared with theprevious-year period to 8.5 billion Swiss francs. Excluding exceptional items, net income attributable toRoche shareholders increased by 9%.

In view of Roche’s strong full-year operating results, at the Annual General Meeting the Board of Directorswill propose an increase of 20% in the dividend for 2009 to 6.00 Swiss francs per share and non-votingequity security (2008: 5.00 Swiss francs). Subject to your approval, this will be the 23 rd consecutiveannual dividend increase.


6 Roche Business Report 2009 Letter to Shareholders

The rapid spread of the pandemic A (H1N1) influenza virus (‘swine flu’), which began in April 2009, pre-sented a major challenge not only for governments worldwide, but also for Roche during the past year. Wehave been supporting the World Health Organization (WHO) and national governments in global effortsto fight the new virus. In May Roche announced that an additional 5.65 million treatment courses of Tamifluwould be donated to replenish the WHO’s regional and rapid-response stockpiles. We had previouslygranted sublicences to three manufacturers to produce generic oseltamivir for pandemic use in China,India and specified developing countries, to ensure that local populations in these areas have access tothe medication. In addition, in July we initiated the Tamiflu Reserves Program to further improve Tamifluaccess in developing countries. In response to the increased WHO pandemic threat level, our network ofmanufacturing partners scaled up production to approximately 33 million treatment courses per month,and we are now able to supply up to 400 million packs annually, if required.

The Roche Group received significant recognition for achievements in several areas during the past year.The Dow Jones Sustainability Indexes named Roche the new ‘Super Sector Leader’ in Healthcare,ranking us as the most sustainable healthcare company worldwide. Roche and Genentech were alsoagain voted ‘best employer’ in a number of countries.

We would like to take this opportunity to thank the more than 80,000 Group employees worldwide for theoutstanding dedication and professionalism during this eventful and challenging time.

Scientific excellence and innovation in our core pharma and diagnostics businesses will continue to be thefoundation of our success. Aside from oncology, we are developing new therapeutics for metabolic andautoimmune diseases, viral infections and disorders of the central nervous system. As the world’s largestbiotech company we have one of the most promising R & D pipelines in the world. From a total of 59 newmolecular entities in clinical testing, ten are already in late stage development — which is remarkable by anystandards in our industry. In the last year alone, six new compounds entered late phase development,including potential new therapies for breast cancer and type 2 diabetes.

During the year we published exciting early phase clinical trial data on a targeted treatment and com-panion diagnostic in malignant melanoma patients whose cancer cells carry a specific genetic mutation;malignant melanoma is the deadliest form of skin cancer. The new compound effectively slowed tumorprogression and increased patients’ quality of life. This is a beacon of hope in the fight against a cancerthat until now has been regarded as virtually untreatable.

Among the key achievements in our Diagnostics Division are the start of the rollout of the cobas 8000modular analyser series for large medical laboratories and the launch of new products in the Accu-Chekline of blood-glucose monitors for people with diabetes.

At the end of 2009 William M. Burns, CEO of the Pharmaceuticals Division, Jürgen Schwiezer, CEO of theDiagnostics Division, and Jonathan K.C. Knowles, Head of Roche Group Research, left the CorporateExecutive Committee as planned. Each of them has made significant contributions to Roche’s success andhelped write an important chapter in the company’s history. Every generation of managers has the taskof ensuring Roche’s healthy future as an independent company. Bill Burns, Jonathan Knowles and JürgenSchwiezer have fulfilled this task in an exemplary manner driven by profound conviction. They have


7

significantly contributed to Roche’s strong market position and success. On behalf of the entire Board ofDirectors and the Corporate Executive Committee, we would like to thank them for their many years ofinvaluable service, loyalty to Roche and for the great working relationship we enjoyed.

In view of their outstanding industry knowledge, the Board of Directors will propose appointing WilliamM. Burns and Arthur D. Levinson, Chairman of Genentech Board of Directors, to the Board of Directors ofRoche Holding Ltd at the Annual General Meeting on 2 March 2010.

Prof. Horst Teltschik and Peter Brabeck have decided not to stand for re-election at the 2010 AnnualGeneral Meeting. We are very grateful for their valuable contributions to the company over a period of manyyears.

Barring unforeseen events, we expect sales in 2010 for the Pharmaceuticals Division and for the Groupto increase in the mid-single-digit range in local currencies 1. In the Diagnostics Division, we expect full-yearsales to grow considerably ahead of the market. Furthermore, we are aiming to achieve double-digitCore Earnings per Share growth at constant exchange rates in 2010. We anticipate that we will already haverepaid 25% of the debt raised to finance the Genentech transaction by the end of 2010. Based on theGroup’s strong operating free cash flow, Roche expects to return to a net cash position by the end of 2015.We will simultaneously maintain our attractive dividend policy.

Franz B. HumerChairman of the Board

Severin SchwanChief Executive Officer

Bringing Genentech fully into the Roche Group is a major step on the road to creating a stronger, even more innovative organisation

1 Excluding Tamiflu sales.


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Roche is tackling some of modern medicine’s greatest challenges in its search for medicines to combat serious illnesses for which no effective treatment exists. It’s a quest that requires both sophisticated technological capabilities and deep insights into molecular biology. To select optimal targets for drug treatment, you first need to understand the complex biological mechanisms driving a disease. In the case of Avastin, the targeted blockade of a blood-vessel growth factor — an approach first developed by Genentech scientists — starves tumours of the nutrients and oxygen they need to grow and spread. This has fundamentally changed the way we fight cancer. Avastin is currently approved to treat five types of cancer and is being investigated as a possible treatment in over 30 different tumour types, giving hope to thousands of patients.

Avastin is a monoclonal antibody used to treat advanced colorectal, breast, non-small cell lung and kidney cancer. In 2009 it was also approved in the US and eleven other countries for the treatment of relapsed glioblastoma multiforme, the most aggressive type of brain tumour.

She’s working on a starvation dietfor aggressive brain tumours


Roche Group | Very strong operating performance in 2009. Group sales, operating profit (before exceptional items) and Core Earnings per Share increased by double digits. Roche anticipates another doubledigit rise in Core EPS in 2010. The Group remains firmly focused on prescription drugs and in vitro diagnostics. Following the successful integration of Genentech, Roche is better equipped than ever to be a healthcare innovator.

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11

Roche GroupStrong sales and trading resultsTotal sales grew by 10% in local currencies (8% inSwiss francs; 7% in US dollars) to 49.1 billion Swissfrancs, with the Pharmaceuticals Division accountingfor 80% of Group sales and the Diagnostics Divisioncontributing 20%. Sales growth in both divisionsexceeded market growth.

Sales by the Pharmaceuticals Division increased11% in local currencies (8% in Swiss francs; 8% inUS dollars) to 39.0 billion Swiss francs or almostdouble the global market growth rate. Demand forthe Group’s cancer medicines Avastin, Herceptin,MabThera/Rituxan, Tarceva and Xeloda continued togrow strongly. Additional major growth drivers inthe Pharmaceuticals Division were Tamiflu in virologyand Lucentis in ophthalmology.

The Diagnostics Division achieved sales growth of 9%in local currencies (4% in Swiss francs; 4% in US dollars) to 10.1 billion Swiss francs, thereby strengtheningthe divisions leading market share of around 20%.

The Group’s operating profit before exceptional itemsincreased by 14% in local currencies (8% in Swissfrancs) to 15.0 billion Swiss francs. Operating profitin local currencies grew 15% to 14.2 billion Swissfrancs before exceptional items in the PharmaceuticalsDivision and 12% to 1.2 billion Swiss francs in theDiagnostics Division.

At constant exchange rates, the Group’s operatingprofit margin before exceptional items increased1.0 percentage points, with the Pharmaceuticals Division improving 1.2 percentage points and the Diagnostics Division 0.4 percentage points. Due to anunfavourable combination of exchange rate movements, however, the Group’s operating profit marginbefore exceptional items in Swiss francs increasedonly slightly, by 0.1 percentage points to 30.6%, withthe Pharmaceuticals Division improving 0.2 percentage points to 36.3% and the Diagnostics Divisiondecreasing 0.4 percentage points to 11.9%.

The Group’s operating free cash flow increasedstrongly, rising 34% in local currencies (27% in Swissfrancs) to 15.7 billion Swiss francs. The Group’sfree cash flow remained strong in 2009, increasing by3.9 billion Swiss francs to 8.9 billion Swiss francs.

Core EPS, which excludes exceptional itemsand amortisation and impairment of intangible assets,increased 20% in local currencies (10% in Swissfrancs).

Significant impact of Genentech integration and changes in Group organisationEffective 26 March 2009, the Group obtained fullownership of Genentech. Subsequently, the Groupcommenced a restructuring of its US Pharmaceuticalsbusiness as well as a number of global functions.During 2009 restructuring and integration costs of2.4 billion Swiss francs were incurred, mainly inconnection with the discontinuation of a constructionproject at the manufacturing site at Vacaville, California,termination costs for the closure of manufacturingoperations at Nutley, New Jersey, the closure of theresearch and development site at Palo Alto, California,and costs associated with the consolidation of theUS administrative functions in South San Francisco.Approximately 1.8 billion Swiss francs of these exceptional operating expenses are noncash items relatedmainly to impairments of manufacturing assets.

The Group financed the Genentech transaction bya combination of the Group’s own funds, bonds, notesand commercial paper. The Group raised net proceeds of 48.2 billion Swiss francs through a seriesof bond and note offerings. As a consequence, interestexpenses increased substantially in 2009, andfinancing costs exceeded financial income by 1.7 billion Swiss francs. By the end of 2009, the Grouphad already repaid debt of 6.9 billion Swiss francs.

Compared to 2008, net income decreased by 22% to8.5 billion Swiss francs, primarily due to exceptionalitems. Net income attributable to Roche shareholdersdeclined 13% to 7.8 billion francs. Excluding exceptional items, net income was down 3% and net income


12 Roche Business Report 2009 Roche Group

attributable to Roche shareholders was 9% highercompared to 2008.

The net debt position of the Group is 23.9 billionSwiss francs, a movement of 40.6 billion Swiss francsfrom a net cash position of 16.7 billion Swiss francson 31 December 2008 due to the 52.7 billion Swissfrancs used in the Genentech transaction.

OutlookBarring unforeseen events, Roche expects salesin 2010 for the Pharmaceuticals Division and forthe Group to increase in the midsingledigit rangein local currencies (excluding Tamiflu). In theDiagnostics Division, we expect fullyear sales togrow significantly ahead of the market. Despitean anticipated decrease in Tamiflu sales from 3.2to 1.2 billion Swiss francs, we are aiming to achievedoubledigit Core Earnings per Share growth atconstant exchange rates.

Roche expects research and development expenditures to decline slightly in 2010. However, the Group’sfocus remains firmly on innovation, and it willcontinue to invest to support its rich pharmaceuticalsdevelopment pipeline, which currently includesten new molecular entities and 30 additional indications for existing products in latestage development.Over the next 12–18 months the PharmaceuticalsDivision expects to file marketing applications forseveral major line extensions of our key cancer medicines including Avastin, MabThera/Rituxan andXeloda, as well as for taspoglutide for type 2 diabetes.

We expect to repay 25% of the debt raised to financethe Genentech transaction by the end of 2010.By 2011 the Group aims to achieve pretax annualsynergies of approximately 1 billion Swiss francs.Based on the Group’s strong operating free cash flow,we expect to reduce debt progressively and toreturn to a net cash position by 2015. We will simultaneously maintain our attractive dividend policy.


13

Corporate Sustainability: key achievements in 2009

Responsible Named Healthcare Super Sector Leader in Dow Jones Sustainability Indexes (DJSI).

practices Reselected for the DJSI World and STOXX indices and the FTSE4Good index.

Produced five new position papers on: stem cells and cloning; nanotechnology; biobanks;

personalised healthcare; and the value of our products and services.

Launched Group-wide phone line and web-based system for reporting violations of our

Code of Conduct.

Developed new Supplier Code of Conduct to describe our requirements in ethics;

safety, health an environment; innovation; supplier diversity; economic sustainability and

social responsibility.

Patients and access

to healthcare

OneWorld Health completed first screening of Roche’s chemical compound library

to find new drugs to treat diarrhea.

Joined a public-private partnership with Novo Nordisk and the World Diabetes Foundation

to improve care for children with diabetes in Africa.

Donated 5.65 million additional Tamiflu courses to replenish WHO stockpiles.

Launched Tamiflu Reserves Program to increase access in developing countries.

Provided free treatment to 40,500 patients in the US through the Roche/Genentech Access

programmes.

Disclosed all financial and in-kind support for patient organisations on our website.

People Global employee Listening to You survey resulted in 91% of employees expressing job

satisfaction at Roche.

Genentech voted Science magazine’s top employer for the seventh time.

Rolled out globally aligned performance management and compensation principles and

began to align these between Genentech and Roche.

Expanded global leadership programme portfolio, providing key programmes at every stage

in the leadership development and talent pipeline.

Society Launched new Corporate policy on philanthropic donations and non-commercial sponsorship.

Launched cancer awareness campaign in rural South Africa, which trains nursing staff, offers

free screening for breast, cervical and prostate cancers, and raises awareness of the disease.

Safety, health and Produced manual on energy efficient design standards for our buildings.

environmental

protection

Launched e-learning programme on safety, security, health and environmental protection

for all employees.

Launched the Roche Environmental Awareness in Chemical Technology (REACT) programme

to reduce the environmental impact of our products.

To learn more about Roche’s achievements in these areas, see the Corporate Responsibility section of this report on pages 88–120.



At Roche we focus on developing medicines and diagnostics that will help patients live longer, better lives. We strive to address unmet medical needs through excellence in science. With Genentech now fully integrated into the Roche Group, our research and development teams can collaborate on projects and share resources as never before. As part of the integration, however, we have also ensured that our future organisation will maintain the diversity of approaches essential for successful innovation.

Group Strategy


15

The Roche Business Model:Changing the practice of medicine

Our Focus Fitting treatments to patients

Our Distinctiveness Excellence in science

Our Delivery Value for all stakeholders

Roche Group BusinessWhile the demand for new and improved treatmentskeeps growing, so does the pressure to controlhealthcare costs. In this changing and challengingenvironment we seek to develop medically differentiated products — medicines and diagnosticsoffering significant clinical and health economicbenefits over existing options. To advance this goal,we have refined our business model along threedimensions: Our Focus, Our Distinctiveness and OurDelivery.

Our FocusOur success as a company is built on scientificdiscovery and innovation. We focus on prescriptionpharmaceuticals and in vitro diagnostics and haveno intention of branching out into other healthcaresectors such as generics, overthecounter medicines or medical devices.

Innovation is essential to addressing the many medical needs that are still unmet. Despite significantprogress in the fight against some of mankind’s mostserious diseases, there are still some 5,000 diseasesfor which no treatment exists. And patients’ responserates to many available treatments are unsatisfactory.Today, breakthroughs in science and technologyare transforming our understanding of disease biologyand promise to transform the practice of medicine.At Roche we are working to harness these discoveriesto make tomorrow’s treatments safer, more effectiveand more personalised — to better fit them topatients’ genetic profiles and other characteristics.

We believe that medically differentiated productsare more likely to obtain regulatory approval and beaccepted by patients, physicians and payers.

Our Delivery Roche aims to benefit all stakeholders:

• We want to improve the treatment optionsavailable to patients and doctors, enable medicallaboratories to work more efficiently and helpsocieties contain healthcare costs. We seek toensure that people who need our medicinesand diagnostics have access to them (see pages97–101).

• People who work at Roche have a chance to maketheir mark and improve lives. We seek to provideevery Roche employee with opportunities tocontribute, excel, learn and grow. In 2009 Rocheand Genentech again received ‘best employer’awards in a number of countries.

• We aim to provide our investors with a TotalShareholder Return in the top quartile of ourindustry peer set.

• We conduct our businesses responsibly and seekto have a sustainable, positive impact on societyand the environment. In 2009 we were rated as thenew Super Sector Leader in Healthcare on theDow Jones Sustainability Indexes, ranking us asthe world’s No. 1 company for sustainability in oursector.



Excellence in Science: Our Distinctiveness

Roche’s approach to innovation and excellence in science is distinctive in four ways:

Our Pharmaceuticals and Diagnostics Divisions haveunparalleled expertise in molecular biology. Bothdivisions have industryleading intellectual property andtechnology bases in this field, which they continue tostrengthen through internal development and acquisitions. This expertise equips Roche to play a pioneeringrole in advancing personalised healthcare.

We seamlessly integrate our pharma and diagnostics capabilities along the whole value chain.From discovery to commercialisation, our worldclasspharmaceuticals and diagnostics research organisationsare working together to create better, more costeffective treatment options tailored to patients’ needs.

We promote a diversity of approaches in our pursuit ofinnovation. Genentech Research and Early Development(gRED), Pharma Research and Early Development(pRED), Roche Diagnostics and Chugai operate independently within the Group, forming the hubs of aninnovation network that includes alliances with over150 outside companies.

We take a longterm perspective. Backed bya stable majority ownership dating back over 100 years,we keep our sights on sustainable longterm growthrather than shortterm gains. This is reflected in the company’s incentive system and approach to successionmanagement, and in farsighted business moves suchas our early investments in biotechnology.

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17

Roche Group ManagementOur management model is aimed at sustaining andstrengthening our culture of innovation. Like ourbusiness model, it has three elements: Our People,Our Decision Making and Our Structure.

Our PeopleOur success in drug research and development, ourability to deploy our combined expertise in pharmaceuticals and diagnostics to advance personalisedhealthcare and our skill in balancing longerterminvestment decisions with nearterm deliverables allultimately depend on one thing: our people (seepages 104–111). Roche’s 80,000 employees representevery continent and virtually every country on theglobe, and they bring to their work a diversity ofperspectives and experiences that are a key ingredient of creativity. Respect for diversity, a shared setof standards of integrity, the courage to reach beyondboundaries and a passion about what we do are theelements that bind us together as a company.

Our Decision MakingThe second component of our management modelsets out principles for effective decision making.Decisions need to be informed by a dialogue that issystematic, factbased, open and transparent. Forevery decision there should be a single, accountabledecision maker who collects and critically reviewsinformation and competing views. Empowerment iscrucial: so far as possible decision making shouldbe delegated to the lowest qualified level in theorganisation.

Our Structure Our organisational structure is designed for innovation. Our autonomous research and developmentcentres and alliances with external partners fosterdiversity. The truly global scale of the Group’s research, development, manufacturing and marketingoperations provides leverage as well as a globalreach for innovation and market success.

The Roche Management Model:Enabling an innovation-driven culture

Our People Integrity. Courage. Passion.

Our Decision Making Accountable and transparent

Our Structure Built for innovation


Actemra/RoActemra is a first-in-class monoclonal antibody for the treatment of rheumatoid arthritis. It binds to the interleukin-6 receptor and blocks the effects of the signalling protein IL-6, a key driver of inflammation in rheumatoid arthritis.

Searching for a safe and effective new medicine is like looking for a needle in a haystack: only one in many thousands of potential candidates ever completes the journey from idea to pharmacy shelf. Because we know that a diversity of approaches produces prom -ising ideas faster, Roche has built a unique innovation network of independent research and development (R & D) centres. In add i - tion to Roche’s pharmaceutical and diagnostic R & D units, it com prises Genentech Research and Early Development in the US and Chugai R & D laboratories in Japan, as well as alliances with around 150 partners worldwide. One of the most recent products of successful collaboration of this kind is Actemra/RoActemra, a biological medicine with a new target for use in patients with rheu-matoid arthritis. Discovered by Chugai and codeveloped with Roche, Actemra/RoActemra is now being made available to patients all over the world thanks to the global reach of the Roche Group.

He’s paving the way

for a new drug for rheumatoid arthritis


Pharmaceuticals | In 2009 demand for key medicines and efficiency gains resulted in double-digit increases in sales and operating profit. Thirteen major marketing approvals and positive results from 16 phase III clinical trials confirmed the division’s growth potential. The Pharmaceuticals Division is focused on translating excellence in science into effective medicines for patients. It combines cutting-edge research at Roche, Genentech in the US, Chugai in Japan and over 150 partners worldwide with global scale and reach in clinical development, manufacturing and commercial operations.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 20 29 01 2010 12:46 58

21

Pharmaceuticals Division in brief

Key figures

In millions of CHF% change

in CHF% change in

local currencies % of sales

Sales 38,996 8 11 100

— United States 14,805 6 5 38

— Western Europe 10,827 5 12 28

— Japan 4,765 43 29 12

— International (Asia—Pacific, CEMAI 1,

Latin America, Canada, Others)

8,599 4 13 22

Operating profit before exceptional items 14,154 9 15 36.3

Operating free cash flow 14,923 24 30 38.3

Research and development 8,896 13 13 22.8

1 CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

Pharma Executive Committee | 31 December 2009

William M. Burns 1 CEO Division Roche Pharmaceuticals

George B. Abercrombie 1 North America

Jennifer M. Allerton Informatics

Silvia Ayyoubi Human Resources

Ian Clark 2 Global Product Strategy

Jean-Jacques Garaud Development

Peter Hug Western Europe

Jonathan K.C. Knowles 1, 3 Group Research

Dominic P. Moorhead 1 Finance and Controlling

Christopher Murray 3 Commercial Operations, Chugai

Pascal Soriot 2 Commercial Operations, CEO Genentech

Klaus Strein 4 Pharma Research

Jan van Koeveringe1 Global Technical Operations

Dan Zabrowski Pharma Partnering

1 To 31 December 2009 — see also Corporate Governance. 2 From 1 January 2010: CEO Genentech (I. Clark), Chief Operating Ofiicer Pharmaceuticals Division (P. Soriot). 3 Extended team.4 Ad interim.


22 Roche Business Report 2009 Pharmaceuticals

Pharmaceuticals Division2009 was a transformational year for the Pharmaceuticals Division. After obtaining full ownership ofGenentech in March, Roche moved swiftly tocombine the two companies’ clinical development,manufacturing and commercial operations. GenentechResearch and Early Development remains an independent unit within the Roche Group, preserving thediversity of scientific approaches we believe helpsto drive innovation. The integration of Genentech waslargely complete by the end of the year.

In operational terms, 2009 was another very goodyear for the Pharmaceuticals Division, with doubledigit increases achieved in both sales and operatingprofit. Abovemarket sales growth was drivenprimarily by strong demand for key medicines fromthe Group’s virology and oncology portfolios. Theglobal spread of the pandemic A (H1N1) 2009influenza virus led to unprecedented demand forTamiflu from the second quarter on. Roche is cooperating with the World Health Organization and nationalgovernments to address the threat posed by thenew influenza strain and has increased productioncapacity to ensure adequate supplies of Tamiflu.

In addition to marketing authorisation for the targeted biologic Actemra/RoActemra, for rheumatoidarthritis, in the European Union and, in January 2010,the United States, the division also gained approvalsfor new indications for marketed products suchas Avastin (cancer) and MabThera/Rituxan (cancer,rheumatoid arthritis). Programmes aimed atexpanding the use of key products or supportingplanned marketing applications for new compoundsresulted in positive data from 16 major phase II Iclinical trials. Some of these results have already beenused to support regulatory filings. Good progresswas made in the clinical development of promisingnew product candidates such as ocrelizumab(rheumatoid arthritis, multiple sclerosis), TDM1(breast cancer), RG7204 (malignant melanoma),taspoglutide (type 2 diabetes) and RG1678(schizophrenia). The combined Roche and Genentech

R & D pipeline is now one of the richest in theindustry, with eight new molecular entities currentlyin phase II I/registration, 16 in phase II and 35 inphase I clinical development.

Results and main business developments

Sales by the Pharmaceuticals Division rose 11% inlocal currencies (8% in Swiss francs and US dollars)to 39.0 billion Swiss francs, or almost double theglobal pharmaceuticals market growth rate (6%) 1. Theworldwide spread of the pandemic A (H1N1) 2009influenza virus led to very strong demand for Tamiflufrom the second quarter on. Overall, Tamiflu contributed 2.6 billion francs, or 7 percentage points,to fullyear Pharmaceuticals sales growth. ExcludingTamiflu, the division’s sales increased 4% 2, drivenby demand for key products, including Avastin,Herceptin, MabThera/Rituxan, Lucentis, Mircera,Tarceva, Activase/TNKase and Actemra/RoActemra.

In operational terms, 2009 was another very good year for the Pharmaceuticals Division, with double-digit increases in both sales and operating profit. The integration of Genentech pro-ceeded swiftly and was largely complete by the end of the year.

1 Pharmaceutical market growth according to IMS (to end of September 2009).

2 Unless otherwise stated, all growth rates are in local currencies.

Sales by region

United States 38% (+5%)

Asia—Pacific 5% (+20%)

Latin America 6% (+7%)

Other regions 3% (+12%)

CEMAI 8% (+13%)

Western Europe 28% (+12%)

Japan 12% (+29%)

Italics = growth rates (local currencies). CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.


23

The integration of Genentech and operational restructuring made 2009 a transformational year for the Pharmaceuticals Division

Yearonyear sales growth in the fourth quarter (8%)was heavily impacted by planned reductions inwholesaler inventory levels in several major markets.These resulted in part from a comprehensive reviewof distribution channel exposure against the background of the global financial crisis. In addition,the harmonisation of distribution systems in the USfollowing the merger of Genentech and RochePharmaceuticals triggered a review of wholesalerinventory policy and subsequent destocking.

All regions contributed to the division’s strong salesgrowth. In the United States growth of key oncologyproducts, Tamiflu and Lucentis more than compensated for lower sales of CellCept and Boniva and thevoluntary withdrawal of Raptiva. Sales in WesternEurope were driven by demand for Tamiflu, Avastin,MabThera and Mircera, which more than offsetdeclining sales of NeoRecormon. Sales by Chugai inJapan increased strongly due to demand for Tamiflu,key cancer medicines and Actemra. Sales in theInternational region (Asia—Pacific, CEMAI 3, LatinAmerica, Canada, Others) were driven by demandfor Tamiflu, key cancer medicines and Pegasys.

In 2009 the Pharmaceuticals Division’s operatingprofit before exceptional items advanced significantlyfaster than sales, rising 15% in local currencies (9%in Swiss francs) to 14.2 billion Swiss francs. This strongincrease was driven mainly by the performance ofour key pharmaceutical products and ongoing measures to improve efficiency. The operating profitmargin increased 1.2 percentage points in local currencies (0.2 percentage points in Swiss francs) to36.3% despite increased investments for new productlaunches and in research and development. Thesignificant increase in R & D costs, up 13% to 8.9 billionSwiss francs, reflects investment in the division’sstrong latestage pipeline, including promising compounds such as dalcetrapib, taspoglutide, pertuzumaband TDM1. The rise in R & D expenses was alsodriven by higher impairments of intangible assets. At302 million, these were 203 million francs higher thanin 2008, due primarily to the termination of a numberof projects following a comprehensive review of the

combined Roche and Genentech portfolio (see below,p. 37). For more information on the division’s operating results, see the Finance Report (Part 2 of thisAnnual Report).

The division continued to generate a strong cash flowin 2009. Operating free cash flow increased 30% inlocal currencies (24% in Swiss francs) to 14.9 billionSwiss francs, driven by the strong operating performance. Continuous cost management and cashflow generation are key priorities at Roche. Thisis reflected in ongoing global initiatives to increaseoperational efficiency and productivity in areassuch as information technology, manufacturing andadministration. Further stimulus is now being providedby the Genentech integration, which involved amajor reorganisation not only of US pharmaceuticaloperations but also of the division’s global functions.Synergies are already being generated as a resultof the consolidation in South San Francisco of administrative functions for the combined US organisation,the closure of the Palo Alto site, and the reshaping ofglobal manufacturing operations (see Manufacturing infrastructure, below). We aim to achieve pretaxannual synergies of approximately 1 billion Swissfrancs by 2011.

Manufacturing infrastructureThe company is well on track with the integration andoptimisation of the combined Roche and Genentechsupply network and is reshaping its global manufacturing organisation to concentrate activities, aligncapacity requirements and improve efficiency. As partof the realignment, a second bulk drug productionunit at Genentech’s Vacaville (USA) facility will not becommissioned and a new unit at Roche’s Penzberg(Germany) plant will not be completed.

The Pharmaceuticals Division currently operates24 production sites worldwide. Although consolidation

3 Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.



is taking place in manufacturing, Roche continues toinvest in its supply network to ensure delivery ofmarketed medicines and products in clinical development. In May Roche opened an additional largescale,multipurpose chemical production unit in Florence,South Carolina (USA). A new production centrein Kaiseraugst (Switzerland) for the manufacture ofmedicines in sterile forms, including liquid andlyophilised vials and prefilled syringes, was inaugurated in June. In August Roche exercised an optionpreviously held by Genentech to purchase a biologicmanufacturing facility built by Lonza in Singapore.The stateoftheart facility, which is mechanicallycomplete, has been merged with an existing biologicmanufacturing facility built by Genentech. The combined Singapore operations — Roche’s first suchfacilities in Asia — will play a key role in the Group’sglobal manufacturing network. In November thetoppingout ceremony for a new technical researchand development building in Basel (Switzerland)took place. The new facility, scheduled for completionin 2011, will house a centre for the development ofproduction methods and the manufacture of clinicaltrials samples.

In response to the worldwide spread of the pandemicA (H1N1) influenza virus, our manufacturing organisation and supply chain management also met thechallenge of ensuring adequate Tamiflu supplies topatients worldwide. Roche and its manufacturingpartners rapidly increased production capacity forTamiflu to approximately 33 million treatment coursesper month and are now able to supply up to 400 million packs annually, if required.

Pharma Partnering updateCollaboration with external partners is an integral partof Roche’s R & D strategy. Access to external innovation through licensing and targeted acquisitions isa significant means of strengthening the R & D portfolioand expanding the Group’s technology capabilities.In 2009 Roche Pharmaceuticals signed a total of 55new agreements, including four product transactions

and 51 research and technology collaborations. Inaddition, ten product outlicensing agreements weresigned. Among the main transactions were a secondlicensing agreement with Plexxikon, announcedin January, for PLX5568 (RG7376), a novel kinaseinhibitor for polycystic kidney disease, and a furtheragreement with Evotec, announced in March, forphase II development of EVT 101 for treatmentresistant depression. Roche entered into a productdevelopment agreement with Tekmira Pharmaceuticalsin May to advance Roche’s first two RNA interference product candidates into human clinical testing.Both product candidates will be based on Tekmira’sstable nucleic acidlipid particle (SNALP) technology.

Genentech Partnering completed four product transactions, one outlicensing deal and 46 researchand technology collaborations during the year. Theseinclude an agreement signed in June with BayhillTherapeutics for an exclusive collaboration for Bayhill’spromising drug candidate BHT3021, currently inphase I development for type 1 diabetes. In OctoberGenentech signed an agreement with SurModics,granting Genentech an exclusive licence to useSurModics’ proprietary biodegradable microparticlesdrug delivery system to develop and commercialisea sustained drug delivery formulation of Lucentis. Theagreement also provides Roche and Genentechwith opportunities to develop additional compoundsfor the treatment of ophthalmic diseases.

Sales review — selected key products

The Pharmaceuticals Division’s sales growth isbroadly based. In 2009 eleven products from sixtherapeutic areas generated sales of over 1 billionSwiss francs each. Of these medicines, the topthree achieved sales of over 5 billion Swiss francseach. Combined sales of the Group’s top 20 pharmaceuticals amounted to 34.3 billion Swiss francs, or88% of total divisional sales.

Collaboration with external partners is an integral part of Roche’s R & D strategy. In all, Roche and Genentech signed more than 100 new partnering agree-ments in 2009, including product transactions and research and technol-ogy collaborations.


25

Sales of the division’s oncology portfolio rose 8% to 20.7 billion Swiss francs in 2009, led by Avastin, Herceptin, MabThera/Rituxan, Tarceva and Xeloda. Together, these five medicines accounted for around half of total pharma-ceutical sales.

Sales of the division’s oncology portfolio rose 8%to 20.7 billion Swiss francs in 2009, led by the keyproducts Avastin, Herceptin, MabThera/Rituxan,Tarceva and Xeloda. Together, these five medicinesaccounted for around half of total pharmaceuticalsales. An increase of 79% (+2.5 billion Swiss francs)in sales of antiviral medicines, for a fullyear total of5.9 billion francs, was driven primarily by demandfor Tamiflu. Overall sales of the renal anemia portfolioremained stable at 1.3 billion Swiss francs in anincreasingly competitive, costsensitive market. Salesin the combined inflammation/autoimmune/transplantation portfolio declined to 3.0 billion francs, withthe expected negative impact of the CellCept patentexpiry in the United States largely offset by thecontinued success of MabThera/Rituxan in rheumatoid arthritis, as well as strong uptake of Actemra/RoActemra in Japan and its initial launch markets inWestern Europe and elsewhere.

OncologySales of Avastin (bevacizumab), for advancedcolorectal, breast, lung and kidney cancer, and forrelapsed glioblastoma (a type of brain tumour), rose21% to 6.2 billion Swiss francs. Solid doubledigitgrowth was recorded in all regions, driven primarilyby continued uptake in colorectal, breast and lung

cancer. Uptake in Japan, where Avastin is currentlymarketed for advanced colorectal cancer, remainsparticularly strong and is expected to be enhancedby the product’s recent approval for advanced nonsmall cell lung cancer. Sales growth in the UnitedStates is being driven mainly by use in advancedbreast cancer and the new indications glioblastomaand kidney cancer, while high penetration rateswere maintained in established indications such aslung and colorectal cancer.

Overall sales (oncology and rheumatoid arthritis) ofMabThera/Rituxan (rituximab), for nonHodgkin’slymphoma (NHL), chronic lymphocytic leukemia(CLL) and rheumatoid arthritis (RA), rose 6% to6.1 billion Swiss francs. Sustained growth in theoncology segment was driven by uptake in CLLfollowing approval in the EU for firstline treatment 4

and in the relapsed/refractory disease setting in thefirst and third quarters, respectively. Lower salesgrowth in the US reflects the high levels of adoptionof Rituxan in its cancer indications. Sales in the RAsegment were an estimated 900 million Swiss francs,or 15% of the product’s total sales. Growth in thissegment is being driven by increasing and earlier use

Eleven products from six therapeutic areas generated sales of over 1 billion francs each

Sales by therapeutic area

Oncology 53% (+8%)

Inflammatory and autoimmune diseases, transplantation 8% (–6%)

Central nervous system 2% (–5%)

Respiratory 3% (+8%)

Metabolic diseases, bone diseases 7% (–4%)

Infectious diseases 1% (–8%)

Cardiovascular diseases 3% (–2%)

Virology 15% (+79%)

Others 2% (–29%)

Renal anemia 3% (0%)

Ophthalmology 3% (+24%)

Italics = growth rates (local currencies).

4 First-line treatment is the initial treatment given after diagnosis.


Chugai

pRED

gRED


Excellence in science:A unique diversity of approaches

150 Partners

Understanding the complex biology of disease is the biggest challenge we face in developing new and better medicines and diagnostics. Scientific breakthroughs are most likely to occur when scientists are free to tackle problems from different angles and in different ways. Our scientists have this freedom. We believe that a diversity of views, cultures and approaches promotes creativity, especially in research and early development. Our own autonomous research and development hubs, augmented by over 150 alliances, provide a natural climate for innovation.

pRED Roche Pharma Research andEarly Development

gRED Genentech Research andEarly Development

Following the integration of Genentech, pRED and gRED operateas autonomous innovation centres focusing on new drugtargets and new molecular entities (NMEs). They have their ownbudgets and external networks and take different approachesto turning excellent science into advances in medical care. This neworganisational structure preserves the values and culture thatenabled the Genentech success story while at the same timestrengthening Roche Pharma’s ability to develop novel medicines.It also makes it easier for our pharmaceuticals and diagnosticsresearchers to share knowledge and technologies across divisionalboundaries.

Oncology

Inflammation / Immunology


Ophthalmology

Virology

Metabolic/Cardiovascular

17

7

11

1

5

10

NMEs in phase I and II


27

Roche is cooperating closely with the World Health Organization and governments worldwide to support pandemic prepared-ness and supply Tamiflu to all patients in need.

of MabThera/Rituxan in patients with an inadequateresponse to one or more tumour necrosis factor(TNF) inhibitors. MabThera is well established as themedicine of choice following inadequate responseto TNF inhibitor treatment and is currently the marketleader in that segment in the EU.

Sales of Herceptin (trastuzumab), for HER2positivebreast cancer, increased 8% to 5.3 billion Swissfrancs. Solid growth throughout the year was drivenby continuing uptake for early breast cancer, especially in Japan and a number of emerging markets,as well as increasing market penetration in EasternEurope. Moderate sales growth in the US andWestern Europe reflects the high market penetrationachieved in both early and advanced breast cancerin these regions.

Sales of Tarceva (erlotinib), for advanced lung andpancreatic cancer, increased 10% to 1.3 billion Swissfrancs. Demand is being driven by increased useof the medicine in secondline 5 nonsmall cell lungcancer (NSCLC) outside the US and in metastaticpancreatic cancer. The main sales contributions camefrom Western Europe and the United States. The moremodest growth in US sales reflects stable penetrationin NSCLC and pancreatic cancer, the competitiveenvironment and reserve adjustments taken duringthe year, primarily for government programmesinvolving discounts.

Sales of Xeloda (capecitabine), for colorectal,stomach and breast cancer, increased 7% to 1.3 billionfrancs, driven primarily by strong gains in the UnitedStates, Japan and China. Growth is being drivenby use in metastatic breast cancer, adjuvant 6 coloncancer and metastatic colorectal cancer. In Chinathe majority of growth is coming from use in patientswith advanced stomach cancer, while in Japan Chugairecorded significant additional growth in the fourthquarter following approval of an expanded metastaticcolorectal cancer indication.

VirologyGlobal sales of the antiinfluenza medicine Tamiflu (oseltamivir) amounted to 3.2 billion Swiss francs in2009, an increase of 435%, or 2.6 billion Swiss francs,compared with 2008. This very high growth wasdriven by unprecedented demand from governmentsand in the retail pharmacy sector following the pandemic A (H1N1) 2009 influenza virus (‘swine flu’)outbreak, which began in April and spread rapidlyworldwide. Sales for pandemic stockpiling amountedto 1.9 billion francs for the full year.

Roche is working with national health authorities toexpand approval for pandemic use of Tamiflu toinclude children under one year of age, as well aspregnant and lactating women, and to gain regulatoryapproval for alternative methods of administering themedicine to infants and young children. The companyalso continues to cooperate closely with the WorldHealth Organization and governments worldwide tosupport pandemic preparedness and supply Tamiflu toall patients in need.

Sales of Pegasys (peginterferon alfa2a), for hepatitisB and C, totalled 1.7 billion Swiss francs in 2009,an increase of 5% over the previous year, driven bymarketshare gains in major markets. Growth isbeing helped by new study data demonstrating thesuperiority of Pegasys over other treatment options,increased use in the treatment of hepatitis B, andincreasing rates of hepatitis diagnosis and treatmentin emerging markets.

OphthalmologyUS sales of Lucentis (ranibizumab), for wet agerelated macular degeneration (AMD, the mostcommon form of agerelated blindness) rose 24% to1.2 billion Swiss francs. Strong doubledigit growththroughout 2009 was driven primarily by an increasein the number of injections administered to patients

5 Second-line treatment is given if the initial, or first-line, treatment does not work or if the cancer stops responding to it.

6 Adjuvant treatment is given after surgical removal of the tumour to lower the risk of relapse.



6,222 6,087 5,266 3,200 1,655

+21% *

Active substance:

bevacizumab

Indications :

colorectal cancer, breast cancer, non-small cell lung cancer, kidney cancer, glioblastoma

+6% *

Active substance:

rituximab

Indications :

non-Hodgkin’s lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis

+8% *

Active substance::

trastuzumab

Indications :

HER2-positive breast cancer

+435% *

Active substance :

oseltamivir

Indications :

treatment and prevention of influenza A and B

+5% *

Active substance :

peginterferon alfa-2a

Indication s:

hepatitis B and C

Avastin MabThera/Rituxan Herceptin Tamiflu Pegasys

Top-selling pharmaceuticals — Roche Group | in millions of CHF


29

1,576 1,560 1,304 1,260 1,198

–22% *

Active substance :

mycophenolate mofetil

Indications :

transplantation

–11% *

Active substance :

epoetin beta

Indication s:

anemia

+10% *

Active substance :

erlotinib

Indications :

advanced non-small cell lung cancer, advanced pancreatic cancer

+7% *

Active substance :

capecitabine

Indication s:

colorectal cancer, breast cancer, stomach cancer

+24% *

Active substance :

ranibizumab

Indications :

wet age-related macular degeneration

CellCept NeoRecormon, Epogin Tarceva Xeloda Lucentis **

Above-market sales growth was driven primarily by strong demand for key virology and oncology medicines

Images are not to scale.* Year-on-year sales growth in local currencies.** Jointly marketed by Genentech and Novartis.



In May 2009 the FDA granted accelerated approval for the use of Avastin for relapsed glioblas-toma, the most aggressive form of brain tumour. In January 2010 the agency approved Actemra for the treat-ment of adult patients with rheumatoid arthritis who have not responded to TNF inhibitor therapy.

in the first and second year of treatment, growth in thenumber of patients treated for wet AMD, and easierreimbursement.

AnemiaIn a highly competitive, pricesensitive market, salesof the renal anemia medication Mircera (methoxypolyethylene glycolepoetin beta), which is nowavailable in over 80 markets worldwide, showedconsistent growth throughout 2009, rising 252% to179 million Swiss francs. Sales are being drivenprimarily by the success of the product in the predialysis segment. Combined sales of the Group’sestablished anemia medicines, Roche’s NeoRecormonand Chugai’s Epogin (epoetin beta), declined 11% to1.6 billion Swiss francs. Outside Japan the combinedmarket share of Roche’s anemia franchise (Mirceraand NeoRecormon) continues to increase despitecompetition from new market entrants. The declinein NeoRecormon sales of 14% was due mainly toincreased price pressure as new biosimilars enter themarket. In contrast, the slight decline of Epogin inJapan (–1%) reflects stabilisation of the product’smarket share in the dialysis segment and continuedexpansion in the predialysis setting.

Inflammation and autoimmune disordersFollowing EU marketing approval in January 2009, byyearend the novel rheumatoid arthritis (RA) medicineRoActemra (tocilizumab, known as Actemra outsideEurope) had been launched in ten EU countries,including Germany, France, Spain and the UnitedKingdom. Sales uptake in the initial European launchmarkets has been strong. Following launches inadditional markets, including Switzerland, India andBrazil, Actemra/RoActemra is now available in over25 countries worldwide. The response from physiciansis very encouraging. Global sales rose 289% to 146million Swiss francs in 2009. In Japan, where Actemrawas approved for RA in adults and for related pediatric indications in April 2008, adoption and marketpenetration are progressing well, with doctors alreadyusing the medicine as a firstline biologic treatment inmany patients. Sales in Japan amounted to 98 millionSwiss francs, an increase of 146%.

TransplantationSales of CellCept (mycophenolate mofetil), for theprevention of solid organ transplant rejection,decreased 22% compared with 2008 to 1.6 billionSwiss francs. Sales in the US, the product’s largestmarket, declined sharply from May onwards followingexpiry of the US patent. The continuing erosion ofUS sales through generic competition is being offsetto some extent by solid growth elsewhere, especiallyin Latin America and Japan.

OthersAt the beginning of April Roche and Genentechannounced a phased voluntary withdrawal of thepsoriasis medicine Raptiva (efalizumab) from theUS market. The decision reflects our commitmentto patient safety and was based on the associationof Raptiva with an increased risk of progressivemultifocal leukoencephalopathy (PML), a rare andusually fatal disease of the central nervous system.As part of the measures agreed between the USFood and Drug Administration (FDA) and Genentech,the Raptiva marketing licence was revoked in July.Genentech continues to monitor patient safety.

Development highlights — key marketed products

In 2009 the Pharmaceuticals Division filed 23 majornew marketing applications and gained 13 majorregulatory approvals (see table, p. 31). Positive resultsfrom 16 major phase II I clinical trials investigatingadditional indications for existing key products or withnew products such as taspoglutide and ocrelizumabwere also reported (see table, p. 33). The followingsummaries present approvals, filings and majorclinical trial results for key marketed products, byindication.

Actemra/RoActemraApprovals | In January 2010 the US Food andDrug Administration (FDA) approved Actemra forthe treatment of adult patients with moderately to


31

In 2009 the division filed 23 major marketing applications and gained 13 major approvals

Major regulatory filings in 20091

Product Active substance Indication and/or dosage form Country

Avastin bevacizumab relapsed glioblastoma multiforme Switzerland

first-line metastatic breast cancer, combination

with standard chemotherapy

EU, USA, Japan,

Switzerland

ED-71 eldecalcitol osteoporosis Japan

Epogin epoetin beta chemotherapy-induced anemia Japan

Herceptin trastuzumab advanced HER2-positive gastric cancer EU, Switzerland

Lucentis ranibizumab macular edema following retinal vein occlusion USA

MabThera/

Rituxan

rituximab rheumatoid arthritis — patients with an inadequate

response to a disease-modifying antirheumatic drug;

prevention of joint damage2

EU, Switzerland

first-line chronic lymphocytic leukemia USA

relapsed or refractory chronic lymphocytic leukemia EU, USA, Switzerland

RG744

(Mircera)

methoxy

poly ethylene

glycol-epoetin beta

renal anemia Japan

Tarceva erlotinib non-small cell lung cancer, first-line maintenance

after chemotherapy

EU, USA, Switzerland

advanced pancreatic cancer Japan

Xeloda capecitabine adjuvant colon cancer, combination with oxaliplatin EU, Switzerland

Major regulatory approvals in 20091

Product Active substance Indication and/or dosage form Country

Avastin bevacizumab relapsed glioblastoma multiforme USA3, Switzerland

metastatic breast cancer; combination with docetaxel EU, Switzerland

first-line metastatic renal cell carcinoma, combination

with interferon alfa-2a

USA

unresectable advanced or recurrent non-squamous

non-small cell lung cancer

Japan

MabThera/ rituximab relapsed or refractory chronic lymphocytic leukemia EU, Switzerland

Rituxan first-line chronic lymphocytic leukemia EU

rheumatoid arthritis, guidance on retreatment in patients

with an inadequate response to anti-TNF therapy

USA

Actemra/

RoActemra

tocilizumab rheumatoid arthritis signs and symptoms EU, USA

Xeloda capecitabine advanced or refractory colorectal cancer, combination with

oxaliplatin, with or without Avastin

Japan

1 Includes supplemental indications; updated to 8 January 2010.2 A third indication, for use in patients not previously treated with methotrexate, is no longer being pursued (see p. 36).3 Accelerated approval (FDA).

07_L_Roche_AR09_ENG_Pharmaceuticals.indd 31 04.02.2010 12:39:20

4060

10%

20%

30%

40%

50%

60%

70%

1970

1972

1974

1976

1978

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

2000

2002

200

4

200

6

200

8 3 2 4 5 6 7 8 9 10 1


Discovering, developing and commercialising new medicines takes time and vision. To stay at the leading edge of innovation, it is essential to invest early in promising new technologies.

We were one of the first pharmaceutical companies to embrace biotechnology, which led to our acquiring a majority stake in Genentech in 1990. Today our biotech products are helping to improve the lives of countless patients in a variety of disease areas, and we are the number-one maker of biologics. We also invested in polymerase chain reaction (PCR) technology when it was still in its infancy — a decision which has helped us to become the global market leader in molecular diagnostics.

One of the technologies we are investing in today is RNA interference (RNAi), which offers a way to target and ‘turn off’ specific genes. RNAi-based medicines could prove a ground-breaking new approach to fighting disease and helping patients.

10 Biotech milestones

Excellence in science:Taking a long-term view

Biotech medicines, or biologics,today account for 65% ofRoche’s pharmaceutical sales —a percentage that has risensignificantly in recent years.Biologics normally have a moretargeted effect and are bettertolerated than conventionalchemical medicines.

Sales of biotech medicines

1970s Research onmonoclonalantibodyproduction

1978 Roche andGenentech’sfirst jointproject

1982 Recombinantinsulin

1986RoferonA

1990 Roche acquires60% ofGenentech

1997 MabThera/Rituxan

1998NeoRecormonHerceptin

2004 Avastin

2008 Actemra/RoActemra

1967Roche foundsInstitute forMolecularBiology

Sales Estimated Sales


33

Avastin is being tested in more than 450 studies in some 30 different tumour types

severely active rheumatoid arthritis (RA) who havehad an inadequate response to one or more tumournecrosis factor (TNF) inhibitors. Actemra, the firstinterleukin6 receptorinhibiting monoclonal antibody approved to treat RA, may be used alone or incombination with methotrexate or other diseasemodifying antirheumatic drugs.

Filings | In September Roche filed an applicationwith the EU’s European Medicines Agency (EMEA)to expand the marketing authorisation for RoActemrato include inhibition of the progression of joint damageand improvement of physical function in patientswith RA. The EU filing is supported by positive twoyear data from the phase II I LITHE trial.

Clinical milestones | An international phase II Istudy (TENDER) met its primary endpoint in November, showing that Actemra/RoActemra significantlyimproved disease signs and symptoms in childrenwith systemic onset juvenile idiopathic arthritis (sJIA)and confirming the results of earlier Japanesestudies. Roche plans to use the data to support global

regulatory filings in this indication. sJIA, a debilitatingand difficulttotreat disease that affects the wholebody, represents an area of high unmet medical need.

AvastinThe global development programme for Avastin is oneof the most comprehensive undertakings in cancerresearch since chemotherapy. More than 450 clinicaltrials worldwide with around 40,000 patients arecurrently investigating the use of Avastin in approximately 30 different tumour types (including colorectal,breast, nonsmall cell lung, brain, stomach, ovarian,prostate and others) and in different settings(advanced or earlystage disease). Results fromphase II I trials investigating the medicine’s potentialin patients with metastatic prostate, ovarian andstomach cancer are expected in 2010.

Approvals | In May the FDA approved the use ofAvastin in patients with previously treated (relapsed)glioblastoma multiforme (GBM), the most aggressiveform of brain tumour, under the agency’s acceleratedapproval programme. The EU’s Committee for

Positive outcomes achieved in 16 major phase II I trials

Disease area Product Indication Study

Oncology MabThera/Rituxan indolent non-Hodgkin’s lymphoma,

first-line maintenance treatment

PRIMA

Avastin second-line metastatic breast cancer RIBBON-2

Xeloda adjuvant treatment of colon cancer NO16968 (XELOXA)

Herceptin HER2-positive stomach cancer ToGA

Tarceva non-small cell lung cancer, first-line maintenance treatment

(overall survival data)

SATURN

Tarceva + Avastin non-small cell lung cancer, first-line maintenance treatment ATLAS

Inflammation Actemra rheumatoid arthritis, progression of joint damage LITHE, 2-year data

Actemra juvenile idiopathic arthritis, systemic onset TENDER

ocrelizumab rheumatoid arthritis, patients with inadequate response

to previous treatment with methotrexate

STAGE

Ophthal-

mology

Lucentis macular edema following central retinal vein occlusion CRUISE

Lucentis macular edema following branch retinal vein occlusion BRAVO

Metabolism taspoglutide type 2 diabetes T-emerge 1, 2, 4, 5, 7



Medicinal Products for Human Use (CHMP) issued anegative opinion in September regarding Roche’sapplication for approval of the same indication. TheUS and EU filings were based on strong clinicalresults from the phase II BRAIN study. Severalinvestigatorled studies continue to explore the roleof Avastin in relapsed GBM. In addition, a large,Roche sponsored phase II I study (AVAGLIO) in over900 patients with newly diagnosed GBM is currentlyunder way with the aim of global filings.

Roche received EU approval in July for Avastin incombination with docetaxel, a commonly used chemotherapy, in the firstline treatment of metastaticbreast cancer. The expanded indication follows EUapproval for combined Avastin and paclitaxel in 2007.In addition, in August the FDA approved Avastin incombination with interferon alfa2a for the treatmentof metastatic renal cell carcinoma, the most commontype of kidney cancer. This follows EU approval ofthe same indication in 2008.

In November Chugai received approval in Japan forAvastin for the treatment of advanced nonsmall celllung cancer.

Filings | Chugai filed a supplementary applicationin October to expand the approved indications forAvastin in Japan to include metastatic breast cancer,based on the results of the E2100, AVADO, andRIBBON1 trials and Japanese studies. In NovemberGenentech filed the AVADO and RIBBON1 data withthe FDA, with the aim of converting the currentaccelerated approval for HER2negative breast cancer(received in 2008) to full approval and allowingAvastin to be combined with further standardchemotherapies. In November Roche also filed theRIBBON1 data with the EU authorities.

Clinical milestones | Full results of the first phase II Itrial of Avastin in earlystage colon cancer (NSABPC08) were presented at the annual meeting of theAmerican Society of Clinical Oncology (ASCO) inMay 7. Although the study did not meet its primaryendpoint of improving diseasefree survival, the data

suggest that Avastin is active in patients with earlystage colon cancer. Further trials investigating Avastinin the adjuvant setting (earlystage disease, aftersurgery to remove the tumour) in colon, breast andlung cancer are ongoing. Results are expected in2010 from a separate, Rochesponsored internationalphase II I study (AVANT) assessing Avastin in combination with chemotherapy for earlystage coloncancer. In October patient recruitment was completedfor BEATRICE, a phase II I trial investigating Avastinin early HER2negative and hormone receptornegative breast cancer.

Full results of RIBBON2, a phase II I trial of Avastinas secondline treatment in women with advancedHER2negative breast cancer who had previouslyreceived chemotherapy, were presented at the SanAntonio Breast Cancer Symposium in December. Thestudy met its primary endpoint, showing that womenwho received Avastin in combination with commonlyused chemotherapies as secondline treatment hada 28% improvement in progressionfree survival 8

compared with chemotherapy alone. Genentech andRoche plan to file the RIBBON2 data in the USand the EU in 2010.

HerceptinFilings | Following an EU marketing application byRoche in September, the CHMP issued a positiverecommendation in December for the use of Herceptinin advanced (metastatic) HER2positive stomachcancer. This recommendation was issued in recordtime, reflecting the high unmet medical need and thestrength of the data from ToGA (see below).

Clinical milestones | Results from the internationalphase II I ToGA trial presented at the ASCO meeting inJune 7 showed that combining Herceptin with standardchemotherapy (Xeloda or intravenous 5fluorouracilplus cisplatin) extends the lives of patients with

Following an EU marketing application by Roche in Sep-tember, the CHMP issued a positive recommendation in December for the use of Herceptin in advanced HER2- positive stomach cancer. The filing was based on strong phase III data show-ing that Herceptin can extend survival in patients with in operable HER2- positive stomach cancer.

7 29 May to 2 June.8 Progression-free survival: the time patients live without

their disease getting worse.


35

Five-year follow-up data confirmed the long- term benefits of one year of adjuvant Herceptin treatment for HER2-positive breast cancer

advanced inoperable HER2positive stomach canceron average by nearly three months to 13.8 months.Patients with tumours exhibiting high levels of HER2experienced even greater benefit from the additionof Herceptin: their lives were extended by more thanfour months to 16 months on average.

In October Roche and Halozyme announced thestart of a phase II I trial investigating infusionfree,subcutaneous administration of Herceptin forwomen with HER2positive breast cancer. The newsubcutaneous formulation is based on Halozyme’sEnhanze technology.

Fiveyear follow updata from two large studiesevaluating adjuvant Herceptin in HER2positive earlystage breast cancer were presented at the SanAntonio Breast Cancer Symposium in December, confirming the longterm benefits of one year of treatmentwith Herceptin. N9831 and BCIRG006, conductedby the North Central Cancer Treatment Group andthe Breast Cancer International Research Group,respectively, showed that Herceptin reduced the riskof the cancer returning by about one third, comparedwith patients receiving chemotherapy alone. In bothstudies 80% or more of women receiving one yearof Herceptin were alive and free of the disease at fiveyears’ followup.

LucentisFilings | Based on the results of BRAVO and CRUISE(see below), in December Genentech filed a supplementary application with the FDA for approval of usein patients with macular edema following retinal veinocclusion.

Clinical milestones | Results of the phase II I BRAVOand CRUISE studies announced in July showed thatLucentis improved vision in patients with swelling inthe retina (macular edema) due to branch retinal veinand central retinal vein occlusion (RVO), respectively.RVO occurs when blood flow through a retinal veinbecomes blocked, causing swelling (macular edema)and hemorrhages in the retina, which may result inblurring or vision loss in all or part of one eye.

MabThera/Rituxan (oncology)Approvals | Roche received EU approval in Februaryfor MabThera in combination with chemotherapy forpreviously untreated chronic lymphocytic leukemia(CLL) and in August for use in patients with relapsedor refractory disease. CLL is the most common formof adult leukemia. In November the US Food andDrug Administration (FDA) issued a CompleteResponse to two supplemental Biologics LicenseApplications submitted by Genentech and BiogenIdec, for approval of Rituxan plus standard chemotherapy in previously untreated or treated CLL. TheFDA has not requested any new data to completeits review of these applications. The companies willcontinue final label discussions with the agency andremain committed to making Rituxan in combinationwith chemotherapy an FDAapproved option for peoplewith CLL.

Clinical milestones | In September Roche, Genentechand Biogen Idec announced positive results from aninternational phase II I study (PRIMA), showing thatMabThera/Rituxan maintenance therapy can significantly increase the time until the disease progressesin newly treated patients with advanced follicularlymphoma, a common type of nonHodgkin’s lymphoma. Because PRIMA met its endpoint during apreplanned interim analysis, the study was stoppedearly. Roche and Genentech plan to file data fromPRIMA with the EU and US health authorities toexpand the current marketing approval.

Updated results from the phase II I CLL8 study werepresented at the annual meeting of the AmericanSociety of Hematology in December. They showedthat patients with previously untreated CLL survivedtheir disease longer when treated with MabThera/Rituxan compared with chemotherapy alone. CLL8 isthe first trial to demonstrate improved overall survivalwith a specific firstline treatment for CLL.

MabThera/Rituxan (rheumatoid arthritis)Approvals | In October the FDA approved updatedRituxan prescribing information that includes guidanceon retreatment of laterstage rheumatoid arthritis



(RA) patients with an inadequate response to antitumour necrosis factor therapies. Clinical trial data onthe medicine’s ability to improve physical functionand slow joint damage for up to two years were alsoadded. At the same time, Genentech received a Complete Response from the FDA for the use of Rituxanplus methotrexate in patients with moderately toseverely active RA who no longer respond to treatment with a disease modifying antirheumatic drug,including methotrexate. Genentech is working withthe FDA to determine next steps regarding the filingfor this indication.

Filings | In June Roche submitted a combinedfiling to the EU health authorities to extend the marketing approval for MabThera as a firstline biologictherapy for rheumatoid arthritis (RA). The new indications being sought are for patients who have hadan inadequate response to methotrexate, the currentstandard treatment option, and for the preventionof joint damage across all RA patient populations. Thecombined filing followed positive results from theIMAGE, SERENE and MIRROR trials, which showedthat MabThera improves the signs and symptomsof RA and can significantly reduce the progressionof joint damage. Roche is no longer pursuing approvalfor a third indication originally included in the combined filing, for use in patients who have not hadprevious treatment with methotrexate, based on areassessment of the riskbenefit ratio in this patientpopulation.

TarcevaApprovals | In September the Chinese health authorities approved Tarceva for the secondline treatmentof patients with advanced nonsmall cell lung cancer(NSCLC).

Filings | In March Roche and OSI Pharmaceuticalssubmitted applications to the EMEA and the FDA,respectively, for approval of Tarceva as maintenancetherapy in patients with locally advanced or metastaticNSCLC whose disease has not progressed followingfirstline chemotherapy. Both filings were based ondata from the phase II I SATURN trial. In December

the FDA’s Oncologic Drugs Advisory Committeerecommended against approving Tarceva for this use.The agency is not bound by this recommendation.In January, following the submission by OSI of furtherdata, the FDA extended the review period for theapplication and is now expected to make a decisionby April 2010. In September Chugai filed a supplementary marketing application in Japan for approvalof Tarceva in pancreatic cancer.

Clinical milestones | Results from a phase II I study(ATLAS) released in February showed that Tarcevain combination with Avastin for firstline maintenancetreatment of patients with advanced NSCLC significantly delayed the time to disease progression. In JulyRoche, Genentech and OSI announced that theSATURN trial had met an important secondary endpoint of extending overall survival in patients withadvanced NSCLC who received Tarceva immediatelyafter initial chemotherapy. This builds on earlierresults from SATURN showing that Tarceva improvedprogressionfree survival, the trial’s primary endpoint.

XelodaApprovals | In September Chugai received approvalin Japan for additional indications for Xeloda andAvastin. Xeloda can now be used in combination withoxaliplatin chemotherapy, with or without Avastin,in the treatment of patients with metastatic colorectalcancer.

Filings | Roche filed an application in the EU inDecember for approval of Xeloda in combination withoxaliplatin for the adjuvant (postsurgical) treatmentof patients with early colon cancer, based ondata from the phase II I NO16968 (XELOXA) trial.

Research and developmentTo ensure a strong flow of suitable candidate moleculesinto its development pipeline, Roche has built aunique innovation network of independent researchand development centres. In addition to Roche andGenentech, it includes Chugai in Japan and alliances


37

with more than 150 partner organisations worldwide.This promotes a diversity of research approaches,as well as enabling access to new technologies andpromising drug candidates.

Genentech Research and Early Development (gRED)continues to operate as an independent unit. Similarly,the newly formed Pharma Research and Early Development organisation (pRED) enjoys full operationalautonomy. gRED continues to be inspired by thevalues and culture that led to Genentech’s success,while pRED will expand Roche’s capabilities tobring novel medicines to patients. At the same time,subject to existing thirdparty obligations, both unitsare now free to share information and technologiesthat can support and enhance their activities.

Close cooperation between the PharmaceuticalsDivision and Roche Diagnostics is a key strategicadvantage for our company. The two divisions canshare intellectual property, technologies and researchfindings freely. Among other things, this allows Rocheto combine and leverage both divisions’ leadershipin the key field of molecular biology. In addition, itenables diagnostics expertise to be seamlessly integrated into all parts of the pharmaceuticals R & Dprocess (see p. 38). This is central to Roche’s goal ofadvancing personalised healthcare, an approachthat seeks to tailor treatments to specific patient subpopulations based on emerging scientific understanding of biology and disease at the molecular level.

Over the next few years the division aims to expandits product portfolio with a new generation ofmedicines for patients suffering from cancer, metabolic and autoimmune diseases, viral infectionsand disorders of the central nervous system (CNS).Latestage development of promising anticancercompounds such as pertuzumab and TDM1(HER2positive breast cancer), RG7204 (malignantmelanoma) and RG7159 (leukemia, lymphoma) is ontrack. In addition, two novel compounds in themetabolic and CNS portfolios — aleglitazar (cardiovascular disease in highrisk type 2 diabetes patients)and RG1678 (negative symptoms of schizophrenia) —

are about to start phase II I development. At thesame time, we are also exploring new indications andformulations for existing products, including formulations of Herceptin (see above, p. 34) and otherbiologic medicines that can be administered by moreconvenient subcutaneous injection instead of intravenous infusion.

Following the integration of Genentech’s R & Dprojects into the Group’s global pharmaceuticalsportfolio, Roche and Genentech conducted acomprehensive review of the R & D pipeline in thefourth quarter. This resulted in decisions to terminatea number of earlystage development projects,ome of which have reverted to partner companies.The terminations, which were primarily driven byclinical data, are part of an ongoing effort to prioritiseresources towards a highly differentiated developmentportfolio of firstinclass or bestinclass medicines.

At the beginning of 2010 the division’s R & D pipelineincluded 111 projects in clinical development (phase Ito I I I). Of these, 59 involved new molecular entities(NMEs) and 52 involved additional indications. TenNMEs are in or about to enter latestage development (see table, p. 40). Thirty projects investigatingadditional indications for existing products are inphase II I. The Pharmaceuticals pipeline is shown inthe foldout inside the front of cover of this report.Further details are available at www.roche.com.

OncologyRoche’s clinical development pipeline in oncologyincludes 21 new molecular entities. The Pharmaceuticals Division is further strengthening its oncologyportfolio through new targeted therapeutic optionsand expanding into new indications. Four compoundsprogressed into latestage clinical testing in 2009.

RG7204 (PLX4032, collaboration with Plexxikon) is atargeted inhibitor of abnormal BRAF that exemplifiesthe Roche Group’s personalised healthcare approachusing biomarkers and diagnostic tools. BRAF is aprotein that relays growth signals inside cells. In certain types of cancer, genetic changes (mutations)

Roche, Genentech, Chugai and over 150 partners worldwide form a unique innovation network based on a diversity of approaches

RG7204 is a targeted inhibitor of abnormal BRAF that exemplifies the Roche Group’s personalised health-care approach. It is currently in late-stage clinical development for malignant melanoma. Roche is developing a dia g nostic test to identify patients whose tumours carry the abnormal BRAF gene.


www.roche.com

Diagnostics

Pharmaceuticals

Research and early development

Target selection

Lead generation

Phase 0 Phase I Phase II

Clinical development

Phase III Filing

Commercialisation

Discovery phase

Exploratory phase

Proof of concept

Confirmatory phase

Biomarker developmentTarget identification

Companion diagnostic feasibility and utilityPatient selection

Dx launch/post-launch assessmentTailored prescribing and monitoring

Market

Phase IV


1 Process

As a leading healthcare company with strengths in pharmaceuticals and diagnostics, we are well equipped to advance personalised healthcare. The organisational realignment imple-mented in our Pharmaceuticals and Diagnostics Divisions over the last several years enables them to collaborate seamlessly along the whole value chain, from discovery to commerciali-sation. This is particularly important since personalised healthcare starts early in the drug development process. Our Diagnostics Division is there from the beginning, with technologies and expertise to help identify potential drug targets, screen out less-promising candidate compounds and select suitable patients for clinical trials. In some cases collaboration results in a drug coupled with a companion diagnostic to guide treatment.

Excellence in science:Seamless collaboration


39

Close cooperation between the Pharma-ceuticals and Diagnostics Divisions is a key strategic advantage for Roche

lead to production of abnormal BRAF that is alwaysactive and causes uncontrolled proliferation of cancercells. Mutated BRAF is found in approximately 50%of malignant melanomas, the most deadly form of skincancer. Following positive phase I results, a phase IIclinical trial was initiated in September to investigateRG7204 in previously treated patients with BRAFmutationpositive malignant melanoma, and a phaseII I trial in previously untreated patients began inJanuary 2010. A diagnostic test is being developed incollaboration with Roche Molecular Diagnostics toidentify patients whose tumours carry the abnormalBRAF gene and are therefore most appropriate fortreatment with RG7204.

RG7159 (GA101), the first type II, glycoengineered,fully humanised antiCD20 monoclonal antibody,is currently being investigated in latestage clinicaltrials as a potential treatment for chronic lymphocyticleukemia (CLL) and nonHodgkin’s lymphoma(NHL). Data from phase II studies were presentedat the European Hematology Association meetingin June 2009 (CLL) and the American Societyof Hematology in December 2009 (CLL and NHL).A phase II I study in patients with CLL was initiatedin December 2009.

Pertuzumab (RG1273) is a HER2 dimerisationinhibitor that is being studied in combination withHerceptin and standard therapy in HER2positivebreast cancer. A phase II I study (CLEOPATRA)evaluating the addition of pertuzumab to Herceptinand chemotherapy in the firstline treatment ofpatients with advanced (metastatic) disease and aphase II trial (NEOSPHERE) investigating neoadjuvant(presurgical) treatment with pertuzumab are ongoing.

Trastuzumab-DM1 (TDM1, RG3502), a novel antibodydrug conjugate that combines an antiHER2monoclonal antibody and a powerful cytotoxic agent,is being investigated in the second and thirdlinetreatment of metastatic HER2positive breast cancer.A phase II I trial (EMILIA), investigating TDM1in the secondline treatment setting, began in thefirst quarter. Positive results from a phase II study

(TDM4374g), presented at the San Antonio BreastCancer Symposium in December, showed an objectiveresponse (tumour shrinkage) in 33% of women withadvanced (metastatic) HER2positive breast cancerthat had worsened following previous treatment.

RG3616 (GDC0499; collaboration with Curis) is anovel compound targeting the hedgehog signallingpathway, which is thought to be implicated in severalcancers. Following positive phase I results, a pivotalphase II study investigating RG3616 as a potentialtreatment for advanced basal cell carcinoma commenced in February. RG3616 is also being evaluatedin phase II studies as a firstline therapy for metastatic colorectal cancer and in the maintenance treatment of ovarian cancer.

Inflammation and autoimmune disordersRoche has eight new compounds in development forchronic and progressive autoimmune and inflammatorydiseases such as rheumatoid arthritis (RA) andasthma, five of which are in phase II or I I I clinical testing. Phase II I programmes are currently investigatingthe nextgeneration antiCD20 antibody ocrelizumabin several RA settings, including in patients whorespond inadequately to the current standard of care,methotrexate, or to tumour necrosis factor (TNF)inhibitors. The first of these, STAGE, in patients whodid not respond to treatment with methotrexate,was reported to have met its primary endpoint inDecember. While overall adverse events reported inthis study were comparable between the ocrelizumaband placebo treatment groups, a higher percentageof serious infections was observed in the pooled ocrelizumab groups compared with the placebo group. Anadditional major phase II I study (SCRIPT), in patientswith inadequate response to TNF inhibitors, is expected to report in 2010. Dosing in the FILM study,in patients not previously treated with methotrexate,has been stopped following reassessment of the riskbenefit profile in this patient population. A phase II Iprogramme investigating ocrelizumab in the treatmentof lupus nephritis (BELONG) was also discontinuedfollowing reassessment of the riskbenefit profile.



Metabolic and cardiovascular diseasesRoche’s metabolic and cardiovascular portfolio of12 new molecular entities at various stages of clinicaldevelopment includes three promising latestagecompounds. Dalcetrapib (RG1658, JTT705; licensedfrom Japan Tobacco), is a novel cholesterol estertransfer protein (CETP) inhibitor for the managementof cholesterol levels in the blood. Recruitment for thephase II I dalHEART programme is on track. A newimaging study, dalPLAQUE 2, was announced in thelast quarter of 2009, and patient recruitment hascommenced. Taspoglutide (RG1583, BIM51077;licensed from Ipsen) is a onceweekly human glucagonlike peptide1 (GLP1) hormone analogue for thecontrol of blood glucose levels. In late 2009 initialresults from five phase II I trials in the Temergeprogramme showed that taspoglutide consistentlyprovides powerful and durable glycemic control in

patients with type 2 diabetes. Aleglitazar (RG1439)is a peroxisome proliferatoractivated receptor (PPAR)coagonist with demonstrated effects on blood fats,blood pressure and blood glucose for the reduction ofcardiovascular morbidity and mortality in patients withtype 2 diabetes. A phase II I programme (ALECARDIO) is expected to begin recruitment early in 2010.

VirologyRoche currently has two direct antiviral agents indevelopment for the treatment of hepatitis C:the nucleoside polymerase inhibitor RG7128 (collaboration with Pharmasset) and the protease inhibitorRG7227 (ITMN191; collaboration with InterMune).Both of these oral agents entered phase IIb studiesduring the year. RG7128 and RG7227 are being investigated in combination with Pegasys and Copegus(ribavirin), and in combination with each other in

Ten new molecular entities in ongoing or planned late-stage studies

Compound Indication Status Market potential

ocrelizumab rheumatoid arthritis first phase III study (STAGE) met its primary endpoint

in fourth quarter 2009, results from additional studies

expected in 2010

best in class

trastuzumab-DM1 HER2-positive metastatic

breast cancer

phase III started in first quarter 2009

(second-line treatment)

first in class

pertuzumab HER2-positive metastatic

breast cancer

phase III started in 2008 first in class

RG7159 (GA101) non-Hodgkin’s lymphoma,

chronic lymphocytic

leukemia

phase III started in fourth quarter 2009

(chronic lymphocytic leukemia)

best in class

RG7204 (PLX4032) malignant melanoma registration studies started in 2009, January 2010 first in class

RG3616

(GDC-0499)

advanced basal

cell carcinoma

pivotal phase II started in first quarter 2009 first in class

RG1678 negative symptoms of

schizophrenia

positive phase II results in fourth quarter 2009,

phase III planned to start in 2010

first in class

aleglitazar cardiovascular high risk

in type 2 diabetes

phase III planned to start in first quarter 2010 first in class

taspoglutide type 2 diabetes first positive phase III results (T-emerge) in fourth

quarter 2009, additional results expected in 2010

best in class

dalcetrapib dyslipidemia,

cardiovascular high risk

phase III enrolment ongoing first in class


41

Cancer is not one disease but a group of more than 100 distinct disorders, each with its own medical challenges

The GlyT1 inhibitor RG1678 is being codeveloped with Chugai for the treat-ment of the negative symptoms of schizo-phrenia, an area of high unmet medical need. RG1678 has the potential to enable patients to better establish social relationships and parti cipate in every-day activities, re ducing the burden for patients and caregivers alike.

an interferonfree regimen. Results from a phase Istudy (INFORM1) investigating RG7227 combinedwith RG7128 in hepatitis C were presented at theannual American Association for the Study of LiverDiseases congress in November. They showed for thefirst time that an all oral, interferonfree regimencan lead to significant viral suppression in previouslyuntreated patients and patients in whom previoustreatment has failed.

Central nervous systemThe Roche portfolio has 12 novel compounds indevelopment for disorders of the central nervous system, including schizophrenia, multiple sclerosis andother serious conditions. One of these compounds isRG1678, a glycine transporter type 1 (GlyT1) inhibitordiscovered by Roche. It is being codeveloped globallywith Chugai for the treatment of the negative symptoms of schizophrenia, an area of high unmet medicalneed. RG1678 has the potential to enable patients tobetter establish social relationships and participatein everyday activities, reducing the burden for patientsand caregivers alike. In December Roche announcedthat a phase II trial with RG1678 had met its primaryand secondary endpoints, improving both the negativesymptoms and the personal and social functioningof patients with schizophrenia. The compound waswell tolerated at all doses tested. Roche has nowdecided to initiate phase II I clinical testing, with thefirst trial planned to start in 2010.

Also in December, Roche and its development partnerBiogen Idec reported positive results from a phase IItrial with the humanised antiCD20 monoclonalantibody ocrelizumab (RG1594) in patients withrelapsingremitting multiple sclerosis, one of the leading causes of neurological disability in young adults.Ocrelizumab showed a strong effect versus placebowith a highly statistically significant reduction in signsof disease activity as measured by brain lesions, theprimary endpoint.

Focus on unmet medical needs

Cancer | According to the latest InternationalAgency for Research on Cancer (IARC) estimate,in 2008 over 12 million people worldwide werediagnosed with cancer, and some 7.6 million died ofthe disease. The IARC anticipates that cancer willsurpass heart disease as the leading cause of deathworldwide in 2010 and also forecasts that by 2030there will be over 26 million new cases and 17 milliondeaths per year from cancer. In Europe alone, onein three people can expect to develop cancer in theirlifetime. Cancer is not one disease but a group ofmore than 100 distinct disorders, each with its ownmedical challenges.

Non-Hodgkin’s lymphoma | A group of over 30cancers that affect the lymphatic system. This classof cancer currently affects over 1.5 million peopleworldwide. Follicular lymphoma accounts for aboutone in four of all cases of nonHodgkin’s lymphoma.It can occur at any time during adulthood, thoughpeople are typically diagnosed during their sixties,and it affects as many men as it does women.

Chronic lymphocytic leukemia | The most commontype of leukemia in adults, accounting for approximately25–30% of all forms of leukemia. The incidence ofCLL in Western countries is around 2–4 per 100,000,and it is twice as common in men as in women.

Colorectal cancer | Cancer of the large intestineor rectum, which accounts for over 1 million newcases (around 10% of all newly diagnosed cancers)worldwide each year. It is the second most commoncause of cancer deaths in Europe and the thirdmost common worldwide.

Kidney cancer | This type of cancer is newly diagnosed in around 200,000 people and causes 100,000deaths worldwide every year, rates that are expectedto increase. Renal cell carcinoma accounts for 90%of all kidney cancers.



Breast cancer | The most common cancer amongwomen worldwide. Over 1 million women are newlydiagnosed and over 500,000 die from the diseaseeach year. As there are several different types ofbreast cancer, knowledge of tumour characteristicsis important for treatment decisions. Some 20–30%of women with breast cancer have tumours withabnormally high levels of a protein known as HER2.HER2positive tumours are particularly aggressive,fastgrowing and likely to relapse.

Lung cancer | The most common form of cancerworldwide and the leading cause of cancer deaths.There are an estimated 1.4 million new cases annually.Nonsmall cell lung cancer is the most commonform, accounting for approximately 80% of all cases.

Pancreatic cancer | A particularly aggressive diseasethat is extremely difficult to treat. It kills a higherproportion of patients in the first year after diagnosisthan any other cancer. The fifth leading cause ofcancer deaths in the developed world, pancreaticcancer claims nearly 80,000 lives every year.

Gastric (stomach) cancer | Accounts for over 1 millionnew cases and some 800,000 deaths each year, makingit the secondlargest cause of cancer deaths worldwide. The vast majority of cases occur in Asia, where,with lung cancer, it is the leading malignancy. Advancedstomach cancer is associated with a poor prognosis;the median survival time after diagnosis is approximately 10–11 months with currently available therapies.

Anemia | Occurs when the level of red blood cellsand/or the hemoglobin they contain falls belownormal, starving organs and tissues of oxygen. It isseen in over 80% of patients with chronic kidney(renal) disease, which affects more than 500 millionpeople worldwide. In addition, anemia affects threeout of four cancer patients undergoing chemotherapy.Patients with untreated anemia may need bloodtransfusions. The potential longterm effects of anemiainclude cardiovascular disease in renal patients,while in patients with cancer it is associated withdiminished quality of life.

Hepatitis B and C | The hepatitis B and C viruses(HBV, HCV), which are commonly transmitted throughbloodtoblood contact, cause acute and chronic liverdisease, potentially leading to liver failure, cirrhosisand liver cancer. Worldwide, 350 million people arethought to be chronically infected with HBV, a highlyinfectious virus that is responsible for an estimatedone million deaths annually. More than 170 millionpeople around the world are infected with HCV, and3 to 4 million new cases occur each year. Hepatitis Cis the main reason for liver transplantation. A recentstudy on the HCVrelated burden of disease in 22European countries estimated that between sevenand nine million people, or over 1% of the population,are infected with HCV.

Influenza, or flu | A highly contagious, debilitatingviral illness that occurs mainly in the autumn andwinter months in temperate climates and yearroundin tropical areas. It can be particularly dangerousfor young children, the elderly and people withchronic health problems who are at greater risk ofinfluenzarelated complications. Pandemics, or globalepidemics, are caused by novel strains of influenzato which people have no immunity. Pandemics occurevery 10 to 40 years and have been associated withsignificant levels of illness and, depending on the viralstrain, death. According to the World Health Organization, the currently circulating pandemic A (H1N1)2009 influenza virus appears to be as contagious asseasonal influenza and is spreading fast, particularlyamong people aged 10 to 45 years. The disease isgenerally clinically mild, but severe illness can occur.

Autoimmune disorders | Occur as a result of amistaken immune response to the body’s own tissues.The causes are unknown. Rheumatoid arthritis,multiple sclerosis and lupus erythematosus are amongthe most common autoimmune disorders, which affectmillions of people worldwide.

Rheumatoid arthritis (RA) | A chronic, progressiveinflammatory disease of the joints and surroundingtissues that is associated with intense pain, irreversible joint destruction and systemic complications.


43

B cells (a type of immune cell) are known to play akey role in the inflammation associated with RA.Several key cytokines, or proteins, are also involved,including TNF alfa, interleukin1 (IL1) and interleukin6 (IL6). IL6 has been identified as havinga pivotal role in the inflammation process. Around21 million people worldwide are thought to beaffected by RA.

Diabetes | Recognised as a global epidemic by theWorld Health Organization. The International DiabetesFederation estimates that some 360 million peopleworldwide will have diabetes by 2030. According tothe WHO, type 2 (adult onset) diabetes accounts foraround 90% of all cases. Uncontrolled type 2 diabetescan lead to severe complications such as cardiovascular disease, stroke, blindness, amputations,and kidney failure, resulting in significant healthcareburdens to society.

Schizophrenia | A severe mental disorder characterised by profound disruptions in thinking that affectlanguage, perception and the sense of self. Accordingto WHO estimates, schizophrenia affects approximately 24 million people worldwide and is most common in adults aged between 15 and 35 years. Thesymptoms of schizophrenia are broadly categorisedas positive, negative and cognitive. Positive symptomsare psychotic behaviours such as hallucinations anddelusions. Negative symptoms are associated withdisruption of normal behaviour and emotions, such asinability to sustain planned activity or a lack of motivation and interest in daytoday living. Cognitivesymptoms include trouble focusing or paying attention.Persistent negative symptoms are a major cause ofchronic disability. There is currently no marketedproduct available to treat the negative symptoms ofschizophrenia.


Roche is not only the world leader in in vitro diagnostics. We also syste m atically apply our diagnostic expertise to the research and development of new medicines. This helps us to develop pharmaceuticals that target the biological mechanisms that give rise to cancer. One example is RG7204 (PLX4032), currently being tested in phase I I clinical trials as a possible treatment for malignant melanoma, a type of skin cancer. RG7204 is a novel, highly selective BRAF kinase inhibitor that targets and destroys cancer cells harbouring a specific cancer causing gene mutation called BRAF V600E. To identify those patients whose tumours carry this mutation — and are therefore considered most likely to respond to this targeted medicine — Roche is developing a companion diagnostic test.

RG7204 is a promising compound in development for the treatment of BRAF mutationpositive patients with malignant melanomas, the deadliest form of skin cancer. This oral medicine — a selective kinase inhibitor — is being developed by Roche in collaboration with Plexxikon.

Together they’re taking aimwith an innovative medicinefor skin cancer


Diagnostics | In 2009 sales again grew well ahead of the market, with strong uptake of new products contributing to market share gains in key segments such as immunoassays and tissue diagnostics. All business areas launched major new products that Roche believes will help drive above-market growth in 2010. Efforts to enhance operational efficiency are ongoing throughout the division and contributed to higher operating profit in 2009. The division will continue and expand these efforts in order to improve productivity and profitability further.

09_L_Roche_AR09_ENG_Diagnostics indd 46 29 01 2010 01:58:39

47

Diagnostics Division in brief

Key figures

In millions of CHF% change

in CHF% change in

local currencies % of sales

Sales 10,055 4 9 100

— Professional Diagnostics 4,553 4 9 45

— Diabetes Care 2,969 0 6 29

— Molecular Diagnostics 1,183 2 5 12

— Applied Science 870 12 15 9

— Tissue Diagnostics 480 28 29 5

Operating profit 1,198 1 12 11.9

Operating free cash flow 1,152 92 102 11.5

Research and development 978 4 5 9.7

Diagnostics Executive Committee | 31 December 2009

Jürgen Schwiezer 1 CEO Division Roche Diagnostics

Manfred Baier Applied Science

Roland Diggelmann Asia—Pacific

Dirk H. Ehlers Professional Diagnostics

Christian Hebich Finance and Services

Michael Heuer EMEA (Europe, Middle East, Africa) and Latin America

Alexander Keller Global Platforms and Support

Frank Lennartz Human Resources

Hany Massarany Tissue Diagnostics

Daniel O’Day 2 Molecular Diagnostics

Frank Pitzer 3 Regulatory Affairs and Quality Management

Claus-Joerg Ruetsch 3 Legal

Michael Tillmann North America

Robert Yates Business Development

1 To 31 December 2009 — see Corporate Governance.2 Chief Operating Officer of Roche Diagnostics since 1 January 2010.3 Associate member.


48 Roche Business Report 2009 Diagnostics

Diagnostics DivisionRoche’s Diagnostics Division is the world’s leadingsupplier of in vitro diagnostics (IVDs). IVD tests —tests performed in a laboratory or at the point of careon blood and other samples from patients — are acritical source of objective information about healthand disease. Roche’s diagnostic instruments andreagents help doctors detect diseases, select appro-priate treatments and monitor patients’ responses tocare. In addition, scientists use the division’s researchproducts to gain a better understanding of thecauses of disease and discover new treatments.In over 150 countries the division serves customersspanning the entire healthcare spectrum — fromhospitals and commercial medical labs, to physicians,to patients with conditions requiring them to self-test.In 2009 Roche had a 20% share of the global IVDmarket, valued at an estimated 40 billion US dollarsin annual sales.1

Strategic prioritiesChanging demographics, new technologies andmounting pressure on budgets and pricing are amongthe trends shaping the healthcare market.The Diagnostics Division’s strategic priorities aredesigned to respond to these trends and capitaliseon the growth opportunities they present.

• Testing efficiency is one pillar of the division’sbusiness. Roche’s automated diagnostic systemsembody decades of engineering innovation.Future advances will include enhanced workflowintegration and IT capabilities supporting elec-tronic patient record management.

• Testing efficiency alone is not enough. Products ofhigh medical value are critical for sustainedcompetitiveness and growth. Novel Roche testsmark significant advances in oncology, cardiologyand other major therapy areas. Increased invest-ment in biomarker research and in trials todemonstrate the clinical utility of new tests willyield further innovations.

• Together, Roche’s Pharmaceuticals and DiagnosticsDivisions are working to advance personalised healthcare. Activities are aligned to help increasedrug R & D productivity, discover more targetedmedicines and drive development of companiondiagnostics. This has the potential to ‘revalue’diagnostics, which inform the majority of clinicaldecisions yet account for less than 3% of medicalspending.

• The Diagnostics Division is outperforming themarket in the Emerging Seven (E7) countries 2,most notably in China. To accelerate growthfurther, it is expanding its local organisations andinvesting in programmes to bring products tomarket more quickly.

• The division intends to improve its profitabilityfurther through a combination of strong salesgrowth and efficiency initiatives targeting virtuallyevery area of operations. This report containsinformation on progress made in 2009.

Roche’s Diagnostics Division is the global leader in the 40 billion US dollar in vitro diagnostics market. The division strives to develop systems that make testing more efficient and provide results of high medi-cal value.

1 Figures on market growth, market share and market size are estimates based on company and independent reports and Roche analysis.

2 E7 markets = Brazil, Russia, India, China, South Korea, Mexico and Turkey.

Sales by region

Europe/Middle 53% (+9%)

East/Africa

Japan 5% (+0%)

Asia—Pacific 10% (+25%)

Latin America 6% (+15%)

North America 26% (+4%)

Other 0% (–14%)

Italics = growth rates (in local currencies).


49

Divisional sales growth was broad based, extending across all five busi-ness areas and all major regional markets except Japan. All business areas again launched major new products in 2009.

Sales and instrument placements were up strongly in 2009

Results and main business developments

In 2009 the Diagnostics Division recorded salesof 10.1 billion Swiss francs, an increase of 9% in localcurrencies (4% in Swiss francs; 4% in US dollars)over 2008. 3 This was more than twice the estimatedIVD market growth rate (3–4%).

All five divisional business areas contributed to salesgrowth, led by Professional Diagnostics and DiabetesCare. Immunoassays and single-strip blood glucosemonitoring systems remained these businesses’primary growth drivers. Molecular Diagnostics’ coreblood screening and virology segments delivered asolid single-digit rise in overall sales. In the AppliedScience unit, strong demand for the MagNA Pure andLightCycler product lines fuelled further above-marketgrowth. The Tissue Diagnostics business, acquiredin 2008, continued to grow well ahead of the market,driven mainly by its advanced tissue staining portfolio.Instrument placements were again up significantlyfor the division as a whole and were a major growthdriver.

Geographically, the EMEA 4 and Asia—Pacific regionscontributed most to growth, with all five businessareas recording solid sales gains in these markets.Tissue Diagnostics remained the primary growthdriver in North America. In Japan Professional Diag-nostics and Applied Science grew moderately andTissue Diagnostics achieved high double-digit growth,but divisional sales there were flat overall, largelydue to reduced government IVD reimbursement andlower research funding.

Sales in the E7 markets grew 24% and accounted forover 10% of total divisional sales revenues. Increasedinvestment in these markets and strong demand forimmunoassays and other leading-edge Roche productscontributed to this strong, above-market growth.

The first two modules of the cobas 8000 analyserseries for high-throughput laboratories were launched

on schedule in the EU and other markets in thesecond half of the year. Roche expects this majoraddition to its cobas family of modular SerumWork Area systems to enhance its competitivenesssignificantly in both clinical chemistry and immuno-assays. Altogether, the division launched over20 major products in 2009.

The Diagnostic Division’s operating profit rose 12% inlocal currencies (1% in Swiss francs) to 1,198 millionSwiss francs, and the operating margin at constantexchange rates advanced 0.4 percentage points.These increases largely reflect sales growth, tight costmanagement and the significant one-time expensesrecorded in 2008, including those relating to the Ven-tana acquisition. In Swiss francs the margin decreasedby 0.4 percentage points, to 11.9%, due to a parti-cularly unfavourable combination of exchange ratemovements. For more information on the division’soperating results, see the Finance Report (Part 2of this Annual Report).

Efficiency gainsInitiatives to simplify core processes, consolidateservices, streamline product portfolios and reducetime to market are in place at a number of major sites.In 2009 such initiatives contributed to significantcost savings and helped the division limit headcountgrowth despite the acquisition of Swisslab andinnovatis and despite a substantial sales forceincrease in China. Notable successes included theconsolidation of regional call centres, the creationof shared service centres in North America andreductions in manufacturing costs. Existing and newprogrammes will be introduced at more sites toimprove productivity further and achieve additionalcost savings.

3 Unless otherwise stated, all growth rates are in local currencies.4 EMEA = Europe, Middle East and Africa.



2,969 1,627 1,275 566 314

+6% *

Market segment :

Diabetes management

+19% *

Market segment :

Immunoassays

+4% *

Market segment :

Clinical chemistry

+4% *

Market segment :

Virology

+8% *

Market segment :

Blood screening

Accu-Chek blood glucose

meters and insulin pump

systems

cobas e modules

Modular Analytics

Elecsys

cobas c modules

Modular Analytics

Cobas Integra

Cobas AmpliPrep

Cobas TaqMan

Cobas AmpliScreen

cobas TaqScreen

Roche’s top-selling diagnostics | sales in millions of CHF

Accu-Chek Mobile cobas e 601 cobas c 501 Cobas TaqMan 48 cobas TaqScreenMPX Test


51

An industry-leading portfolio of products for clinical testing, blood screening and life science research

293 281 255 141 139

+20% *

Market segment :

Coagulation monitoring

+28% *

Market segment :

Advanced tissue staining

+35% *

Market segment :

Gene expression research

+6% *

Market segment :

Hematology

+0% *

Market segment :

DNA sequencing

CoaguChek meters Immunohistochemistry

reagents

MagNa Pure Systems

Light Cycler Systems

Sysmex analysers 454 Genome

Sequencers

Images are not to scale.* Year-on-year sales growth in local currencies.

CoaguChek xs Ventana IHC reagents MagNA Pure LC2.0 Genome Sequencer FLXSysmex XT-4000i



Business area highlightsProfessional Diagnostics — above-market growth and major new productsRoche Professional Diagnostics is a leading supplierof instruments, tests, software and services forlaboratories and of decentralised testing products tosupport clinical decision making at the point of care.In 2009 the business area had a 15% share ofa global market estimated at 28 billion US dollars.

Professional Diagnostics’ full-year sales grew nearlytwice as fast as the market, rising 9% to 4,553 millionSwiss francs. Immunoassay and clinical chemistrysystems for laboratories, the two largest segmentsby sales, remained the primary growth drivers.Regionally, sales outpaced market growth everywhereexcept North America, where the industry as a wholeexperienced flat or negative sales growth in mostsegments as a result of the economic downturn.

The immunoassay business gained further marketshare on sales growth of 19%; this was roughly threetimes the market growth rate. Clinical chemistry salesgrew ahead of the market, advancing 4%. The place-ment rate for cobas modular analysers, particularlythe cobas 6000 series for mid-size laboratories,remained high, fuelling sales in both these segments.

Professional Diagnostics’ immunoassay businesshas consistently grown at double-digit rates for thelast nine years thanks to a large installed base andsteadily expanding test menu. New tests introducedin 2009, like the Elecsys IL-6 (interleukin-6) immuno-assay (an aid in the management of critically illpatients) and the high sensitivity Elecsys Troponin Tassay (diagnosis of heart attack and cardiac riskstratification), were important growth drivers. In 2009Professional Diagnostics launched six immunoassaysand five new or second-generation clinical chemistrytests for a variety of therapy areas, including cardi-ology, women’s health and critical care. In 2010the business area will expand its test menu further,particularly in the US, where it expects to launcheight immunoassays.

Coagulation monitoring sales increased 20%,reinforcing Roche’s leadership in this segment.Sales of the top-selling CoaguChek XS monitorfor patient use were up strongly again, helpedby continued robust demand in Europe and expandedMedicare reimbursement for home coagulationtesting in the US. Studies indicate that self-testinghelps patients on anticoagulants to keep theirmedication within the therapeutic range and canreduce complications.

In August Professional Diagnostics began rolling outthe cobas 8000 modular analyser series for high-throughput laboratories in Europe and other marketsthat recognise CE Mark certification. The responseto this new flagship cobas platform has beenoverwhelmingly positive, with more than 20 ordersshipped by the end of 2009. Two clinical chemistrymodules (c 701 and c 502) were launched in 2009.By the end of 2010 four cobas 8000 clinical chemistryand immunoassay modules will be available world-wide in 38 customisable configurations. The newplatform is based on the same proven technologiesas the smaller cobas 6000 and cobas 4000 systems,with expanded sample handling and workflowcapabilities and enhanced quality managementfeatures to meet the needs of laboratories performingup to 15 million tests per year.

In September Roche concluded an exclusive licenseagreement with St. Vincent’s Hospital, Sydney(Australia) for worldwide patent rights relating tothe use of growth differentiation factor 15 (GDF-15)for the diagnosis of cardiac dysfunction. Elevatedcirculating levels of GDF-15 can help identify high-risk individuals with a variety of cardiovascularconditions, from stable coronary artery disease toheart failure. Together with an agreement signed withHannover Medical School (Hannover, Germany) inJanuary 2009, also relating to GDF-15, and Roche’sown patents in this field, this latest agreementwill further strengthen Roche’s leading position inthe diagnosis of cardiovascular diseases.

Immunoassay sales were again a major growth driver, increas-ing at roughly three times the market growth rate. The new cobas 8000 modular system will make Roche Professional Diagnostics an even stronger competitor in both immunoassay testing and clinical chemistry.


53

Diabetes Care — market leadership strengthenedRoche Diabetes Care develops and commercialisesblood glucose (BG) monitoring and insulin deliverysystems that enable people with diabetes to managetheir condition more effectively. It is the industryleader with a 31% share of the global BG monitoringmarket, worth nearly 7 billion Swiss francs in globalsales. Self-management is a cornerstone of diabetescare because so many daily activities affect bloodglucose levels. Frequent BG testing can lower the riskof serious long-term diabetic complications likestroke, amputation and blindness, while helping peoplewith diabetes to maintain and improve their qualityof life.

In 2009 Diabetes Care’s sales increased 6% to2,969 million Swiss francs. This was significantlyahead of global market growth, which was flatdue to the economic downturn. All regions exceptJapan delivered sales growth, with strong salescontributions from emerging markets. The Accu-ChekAviva and Accu-Chek Performa BG monitoringsystems remained the primary growth drivers. Accu-Chek Aviva, Roche’s top-selling BG monitoringsystem, continued to post strong double-digit salesgrowth.

Introduced in February 2009, the Accu-Chek Mobile,the first and only strip-free BG monitoring system,experienced excellent uptake in its launch marketsand contributed to market share gains in the high-value customer segment. At the end of 2009 it wasavailable in nine European countries. Accu-ChekMobile’s enhanced ease of use is appreciatedespecially by people with insulin-dependent diabeteswho need to test their BG frequently. The launchof the sleek Accu-Chek Aviva Nano and Accu-ChekPerforma Nano, designed especially for youngerusers, has also been a significant success; at the endof 2009 these new single-strip meters were availablein over 20 markets.

Sales of insulin delivery systems showed double-digitgrowth for the year, helped by excellent uptake ofthe new, interactive insulin pump system Accu-Chek

Combo, which was launched in nine markets during2009, and by continued strong demand for Accu-Chek infusion sets.

In September Diabetes Care announced interimdata from its Accu-Chek 360° View Outcome Study.The data indicate that people with type 2 diabeteswho are not receiving insulin can improve theirglycemic control by testing and analysing their BGlevels in a structured way and translating the resultsinto appropriate action. The 12-month study under-scores Roche’s commitment to enhancing the medicalvalue of diabetes self-management. The final resultswill be announced in June 2010.

Molecular Diagnostics — new products lay the foundation for future growthRoche Molecular Diagnostics develops and commer-cialises advanced diagnostic and blood screeningplatforms and tests based on Roche’s proprietaryreal-time polymerase chain reaction (PCR) technology.The fast-growing (+12%), highly competitive molecu-lar diagnostics market is valued at 4 billion Swissfrancs; Roche is the leader with a 32% market share.

Molecular Diagnostics’ full-year sales advanced 5%to 1,183 million Swiss francs. Growth was led by solidgains in the EMEA region, especially in the coreblood screening business. The fully automated cobasTaqScreen MPX Test, available in Europe since 2006and launched last year in the US, contributed stronglyto 8% growth in this segment, with significant com-petitive gains in several markets. This multiplex bloodscreening test detects five viral targets. In virology,the largest segment by sales, Molecular Diagnosticsretained its leading market share with 4% salesgrowth. Strong virology sales and new blood screeningaccounts in Portugal, Spain, Thailand and the UKresulted in above-market, double-digit sales growthin the Asia—Pacific and EMEA regions.

Since its EU launch in April, Roche’s LightCyclerMRSA Advanced Test has experienced positive uptakein countries where reporting methicillin-resistantStaphylococcus aureus (MRSA) infections is customary

The new Accu-Chek portfolio delivered solid sales growth in a difficult market

Excellent uptake of the latest Accu-Chek products helped drive above-market sales growth for Diabetes Care in 2009.

Molecular Diagnostics won several important new blood screening accounts in 2009, contributing to signifi-cant competitive gains in some markets.


Tec

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Biology

NeuroscienceOncology Inflammation Metabolism Virology

Pharma

Diagnostics

T-cell biologyGlycoengineering

RNA interference

Armed antibodies

In silico scienceStructure-based drug design

Nanotechnology form

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Innate immunityMyeloid cell biology

Apoptosis

Angio

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Sign

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DNA Sequencing454 Life Sciences

cobas

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cobas

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xCELLigenceCell analysis


5 Major disease areas

Over the years both Roche divisions have amassed tremendous expertise in molecular biology. Today they are applying this knowledge and a wide range of technologies in the pursuit of new tests and more targeted treatments in five major focus areas: oncology, inflammation, neuroscience, metabolism and virology. At the same time they are working together to gain further insights into molecular mechanisms that cause and drive disease. Every cancer drug development programme at Roche, for example, involves biomarker research aimed at validating treatment targets and identifying the patients most likely to respond to a new drug. Almost 30 years of cancer research at the molecular level have helped us develop new strategies that move us closer to the ultimate goal of one day curing cancer.

Excellence in science:Expertise in molecular biology


55

or required. Studies indicate that the test’s speed —it reliably identifies MRSA carriers in less than twohours, versus one to three days using conventionalmethods — can help significantly reduce the spread ofthis potentially deadly microbe in hospitals. Screeningfor MRSA is one of the fastest-growing segmentsin the North American molecular diagnostics marketand is expanding in EMEA and some Asia—Pacificmarkets. Roche expects to launch the LightCyclerMRSA Advanced Test in the US in 2010.

In December Molecular Diagnostics launched itsnew fully automated cobas 4800 System in Europeand other markets that accept CE Mark certification.The system is designed to meet the current andlong-term molecular diagnostic testing needsof mid- to high-throughput laboratories, and Rocheexpects it to become a significant growth driver.The test menu currently comprises dual target testsfor Chlamydia trachomatis (CT) and Neisseria gonorrhoeae (NG) (the bacteria that cause chlamydiainfections and gonorrhea) and a screening andgenotyping test for human papillomavirus (HPV),the most common sexually transmitted infection,which is responsible for nearly all cervical cancersworldwide. In Australia and New Zealand, wherethe cobas 4800 System has been available with theCT/NG tests since September, the market responsehas been very strong. Next-generation oncologyand microbiology assays for the system are in devel-opment.

In August Molecular Diagnostics completed enrolmentof patients into its pivotal ATHENA clinical trial.The trial, involving approximately 47,000 women,is designed to assess the value of screening womenfor cervical cancer using Roche’s cobas 4800 HPVassay together with a standard Pap smear. Initial trialdata will be available in February, and Roche expectsto file the full ATHENA data set with the Food andDrug Administration (FDA) in the second quarter of2010. If approved, the assay, which provides anaggregate result for 12 high-risk HPV genotypes andindividual results for HPV genotypes 16 and 18(the genotypes that put women at the greatest risk

of developing cervical cancer), could help increasethe sensitivity of screening for HPV infections that canlead to cervical cancer. When HPV DNA testing isperformed in conjunction with a Pap smear, morewomen will be identified with precancerous cervicaldisease during the first round of cancer screening,enabling appropriate medical intervention. Addition-ally, because of the greater sensitivity of HPV DNAtesting, women who are HPV DNA negative maypotentially be deferred to longer screening intervals.Moreover, identification of HPV genotypes 16 and 18provides actionable information guiding the clinicianto investigate further those women at the highest riskfor cancer.

Applied Science — broad-based growthRoche Applied Science supplies scientists in acade-mia and the biotech and pharmaceutical industrieswith instruments and highly specific reagents and testkits for a broad range of research applications. Theglobal life science research market, valued at 8 billionUS dollars, grew approximately 8% in 2009.

Applied Science’s sales for 2009 totalled 870 millionSwiss francs, an increase of 15% over the previousyear. The MagNA Pure and LightCycler product lines(nucleic acid sample preparation (NAP) and quanti-tative polymerase chain reaction (qPCR) analysis)were again the biggest contributors to growth, withsales up 35% helped by strong demand for instrumentsand reagents for pandemic influenza testing andsurveillance. In May Applied Science developed andlaunched the RealTime ready Influenza A/H1N1Detection Set for research use, just weeks after firstreports of the new pandemic flu virus in Mexico.The set enables rapid, accurate detection of the virus’sRNA (genetic material). The FDA granted EmergencyUse Authorization of the kit in November, making itavailable for clinical use in specially certified laborato-ries in the US. Other significant new productsinclude the fully automated MagNA Pure 96 Systemfor high-throughput NAP. Uptake by academicand industrial customers has been robust since thesystem’s global launch in September.

Roche developed a test for the new pandemic flu virus within weeks after the virus was first reported

Tests for hospital-acquired infections like MRSA and for human papillomavirus infection are two of the fastest-growing segments in molecu-lar diagnostics. In 2009 Roche launched competitive new products in both these segments in Europe.

Demand for instru-ments and reagents for pandemic flu testing were a major sales driver for Roche Applied Science in 2009.



Cell analysis systems showed very strong sales growthin 2009, driven mainly by the xCELLigence productline but also partly attributable to the acquisition ofinnovatis AG in March. Applied Science’s latest RealTime Cell Analyser — the xCELLigence RTCA DP(dual plate) instrument — has been a growth driversince its worldwide launch in April. Its value as acancer research tool was enhanced further by theNovember launch of the xCELLigence SystemCIM-Plate 16, a culture plate enabling scientiststo study cell migration and invasion dynamically,in real time, over the entire time span of an experiment.This may help researchers identify molecular targetsfor new drugs that inhibit cancer cells’ ability toinvade nearby tissues and migrate (metastasise)to distant parts of the body.

Microarray sales rose 44%, nearly four times theglobal array market growth rate. Growth was fuelledby continued strong performance of NimbleGen’sinnovative Sequence Capture technologies, whichideally complement the business area’s next-genera-tion sequencing systems, and by the introductionof the high-resolution, high-throughput MS 200Microarray Scanner.

Sales of DNA sequencing reagents showed a robust26% increase, but overall sales of DNA sequencingsystems were flat due to the economic downturn andthe resulting decline in research funding, particularlyin the US. The US administration’s 2009 stimuluspackage for biomedical research is expected to alle-viate the situation in 2010. The launch of a medium-

throughput, benchtop version of the GenomeSequencer (GS) FLX System in 2010 is expected tospur further growth. The GS Junior System will closethe market gap between low-throughput traditionalsequencing and the ultra-high-throughput of instru-ments like the GS FLX System, putting next-generationsequencing technology within the reach of thousandsof additional researchers worldwide.

Tissue Diagnostics — rapid penetration of new marketsRoche Tissue Diagnostics (Ventana Medical Systemsin North America) is the world’s leading supplier oftissue-based cancer diagnostics. Its instruments andreagent systems are used in histology, cytology anddrug discovery laboratories worldwide. In 2009 theunit had a 20% share of the tissue diagnostics market,which is valued at over 2 billion Swiss francs.

Tissue Diagnostics recorded sales of 480 millionSwiss francs in 2009, a 29% increase over the elevenmonths’ sales consolidated a year earlier following theVentana acquisition in February 2008. On a compa-rable basis, sales rose 21%, significantly outpacingthe market, which is estimated to be growing at 12%.

The business area’s core advanced tissue stainingportfolio remained the primary growth driver, withimmunohistochemistry (IHC) reagents for cancerdiagnosis and advanced staining instruments fuellingrobust 27% growth in this segment. Placementsof the fully automated BenchMark Ultra, successfullylaunched in North America and Europe in 2008,

1

(2010)

2009

2008

2007

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18

11

(25)*

23

Total

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Significant product launches by business area


57

accelerated steadily during the year. This is the firstand only system to perform simultaneous IHC andin situ hybridisation (ISH) testing on a single continu-ous and random access platform, enabling samplesto be added and removed at any time without inter-rupting workflow. Full-year sales of the Symphonyslide staining instrument and hematoxylin and eosinreagents for the high-volume primary staining marketgrew 39%.

Tissue Diagnostics won market share in all regions,with especially strong gains in Asia—Pacific and LatinAmerica. It successfully leveraged the existing Rocheinfrastructure to expedite the hiring of sales person-nel and the introduction of new products in EMEA,Asia—Pacific and Latin America, contributing toabove-market growth in these regions. By the close of2009 the business area had established its own salesorganisations in six of the E7 markets, and most of itsmajor instruments and IHC reagents were alreadyregistered and available in Brazil, India, China andMexico. Roche is addressing the increasing demandfor fully automated products in emerging markets,which is contributing to strong market share gainsthere.

In 2009 Tissue Diagnostics launched 17 new IHCreagents to aid in diagnosing various cancers, includ-ing leukemia, lymphoma and cancers of the colonand prostate. Working closely with Roche’s Pharma-ceuticals Division, it continued to develop exploratorytests that may one day lead to companion diagnosticsfor Roche therapies. As a direct result of this collabo-ration, Tissue Diagnostics expects two HER2 assaysto receive CE-IVD Marking in the first half of 2010for use as aids in assessing both breast and gastriccancer patients for whom Herceptin treatment isbeing considered.

Research and developmentRoche’s Diagnostics Division continues to investheavily in innovation. In 2009 research and develop-ment (R & D) costs totalled 978 million Swiss francs,an increase of 5% over 2008. R & D costs as a per-centage of sales remained stable at 9.7%. Projectsaccounting for a significant share of R & D spendingin 2009, and which will remain funding priorities in2010, include the ATHENA trial of Roche MolecularDiagnostics’ cobas 4800 HPV screening and geno-typing test in the US, development of the cobas8000 modular analyser series and development ofa next-generation molecular diagnostic platformfor mid- to high-throughput IVD testing and bloodscreening. The division also invested in developingnew products in its tissue diagnostics business.Expansion of the immunoassay menu will be a furthermajor focus of R & D investment in 2010.

The division’s R & D productivity has improved inrecent years. Since 2007 the number of major productlaunches has increased significantly, and the divisionexpects 2010 to be another excellent year in termsof strengthening its product portfolio (see chart onp. 56 and the tables of Major product launches onpp. 60–61).

The discovery and validation of biomarkers is essentialto realising the promise of personalised healthcare.In pharmaceutical R & D they have many uses, fromidentifying new therapeutic targets and screening outunpromising drug candidates to selecting appropriatepatient populations for clinical trials. In the clinic,biomarker tests increasingly provide invaluable infor-mation for early diagnosis and about disease pre-disposition, prognosis and the likelihood of treatmentresponse (response prediction), contributing to ear-lier, more targeted therapeutic interventions. Roche’sIVD portfolio already includes companion diagnosticscontributing to more effective treatment in a numberof conditions, including HER2-positive breast cancer,precancerous cervical changes caused by humanpapillomavirus infection, hepatitis B and C infectionand cytomegalovirus disease.

Roche has a biomarker programme for every drug that it is developing

The Diagnotics Divi-sion is focusing much of its R & D spending on high-growth areas like molecular diag-nostics, immuno-assays and tissue diagnostics.

Roche is working on potential companion diagnostic tests in all of the Group’s key disease areas of inter-est, particularly oncol-ogy.



more likely than seronegative patients to achievea significant improvement in their disease followingMabThera/Rituxan treatment. This could signala major advance over the current trial-and-errorapproach to treating RA, in which patients cyclethrough various treatment options until an optimumresponse is achieved. Roche already markets assaysfor rheumatoid factor and anti-CCP.

Every drug being developed at Roche has a biomarkerprogramme associated with it, and Diagnostics ex-pertise and advice are made available for each ofthese programmes. At the end of 2009 Roche hadfive biomarker tests in late stage and six in early stageclinical validation for use as potential companiondiagnostic tests and over 30 exploratory stagediagnostic programmes, in the areas of oncology,metabolism, virology, autoimmune and inflammatorydisease and central nervous system disorders. Therehas to be a strong case for a biomarker’s ability todetect disease or predict a clinical outcome before itmoves into late-stage validation, where the aim is toestablish clinical validity conclusively through furthertesting on samples collected in ongoing drug trials.

Given the Pharmaceuticals Division’s strong oncologyportfolio, identifying and validating biomarkers tosupport the use of Roche’s marketed and develop-mental cancer medicines is naturally a major focus ofresearch. Encouraging projects include a PCR-basedtest for BRAF V600E, a cancer-causing gene mutationassociated with poor prognosis in several cancers,including malignant melanoma. Developed by RocheMolecular Diagnostics, the test was proven essentialfor selecting suitable patients in a phase I trialwith the BRAF kinase inhibitor RG7204 in metastaticmelanoma. RG7204, which selectively targetsand induces cell death in tumours harbouring theBRAF V600E mutation, markedly prolonged progression-free survival in patients in the trial who tested positivefor the mutation. The test has also been usedsuccessfully in clinical trials to identify mutation-positive colorectal cancers. If RG7204 is approved,Roche expects to launch the BRAF V600E test as thecompanion diagnostic.

Two other highly promising biomarkers that havealready reached late-stage clinical validation are rheu-matoid factor and anti-cyclic citrullinated peptide(anti-CCP) — antibodies that are found in the blood ofmany rheumatoid arthritis (RA) patients. An analysisof pooled data from two clinical trials with MabThera/Rituxan in RA show that patients who are seropositivefor either of these antibodies are two to three times


59

GlossaryBiomarker | A characteristic that can be measuredand evaluated as an indicator of a normal biologicalprocess, a disease process or a response to a thera-peutic intervention. Elevated levels of the proteinHER2 in cancer, for example, are a biomarker for ahigh probability of response to Herceptin.

Cell analysis | Methods of measuring the propertiesof cells, including their size and shape, cellularparameters such as the presence of specific proteins,and cellular processes such as proliferation andgrowth. Cell analysis technologies play an importantrole in drug development and production.

CE Mark certification | Certification that an in vitro diagnostic (IVD) product complies with all safety,health and environmental requirements for use in theEuropean Union. Certified diagnostics are referredto as CE IVDs.

Clinical chemistry | A branch of diagnostics com-prising tests that detect and measure changes inthe chemical composition of body fluids and tissuesto diagnose or predict the course of a disease.

DNA sequencing | Methods of determining theorder of nucleotides (molecular building blocks) ingenetic material. Knowing an individual’s DNAsequence can provide insights into genetic changeswhich contribute to human disease or influencetreatment response. High-throughput technologiesread thousands of sequences at once.

HER2 (human epidermal growth factor receptor 2) | A protein involved in normal cellgrowth and found at increased levels in somecancers, including some breast and gastric cancers.Cancer cells may be tested in the laboratory forHER2 levels to help choose the most appropriatetreatment.

Immunoassay | A laboratory test that detects ormeasures a target substance in a sample usingan immunochemical reaction, in which an antibodybinds to a specific antigen. The target can be a drug,a protein or a virus, for example.

Immunohistochemistry (IHC) | A method of stainingbiological tissue samples to determine the presence,level and location of specific proteins in cells; used inthe diagnosis of cancer and other diseases.

In situ hybridisation (ISH) | A method of stainingbiological tissue samples to identify the presence andcopy number of specific genes or genetic mutationsin cells; used in the diagnosis of cancer and otherdiseases.

Polymerase chain reaction (PCR) | A laboratorymethod widely used in research and industry to makemillions of copies of a DNA sequence of interestvery quickly. Real-time PCR simultaneously amplifies(copies) and quantifies the targeted DNA molecule.

Virology | In molecular diagnostics, testing to detectcertain serious and prevalent viral infections (e.g. HIVand hepatitis C) or to monitor their treatment.



Product launches in the Diagnostics Division

Major product launches in 2009

Business area Product Market and quarter

Professional Diagnostics Elecsys immunoassays for PlGF (placenta growth factor) and sFlt1 (soluble fms-like tyrosine kinase 1) for the diagnosis of preeclampsia

EU Q1

Elecsys IL-6 (interleukin-6) immunoassay to aid the management of critically ill patients

EU Q1

Elecsys Troponin I Assay: test for cardiac-specific troponin I levels to predict mortality risk in patients with acute coronary syndrome

EU Q1

High-sensitivity Elecsys Troponin T immunoassay for the diagnosis of heart attack and cardiac risk stratification

EU Q1US Q4

Sysmex XT-4000i: mid- to high-throughput hematology analyser with test capabilities for whole blood and other body fluids

Contractual territory inEMEA Q2

cobas c 701 clinical chemistry module for the cobas 8000 analyser series for high-throughput laboratories. Throughput: up to 2,000 tests/hour

EU Q3

cobas p 501 and cobas p 701 automated storage and retrieval modules for bar-coded primary and secondary sample tubes

EU Q3

cobas c 502 clinical chemistry module for the cobas 8000 analyser series. Throughput: up to 600 tests/hour

EU Q4

Diabetes Care Accu-Chek Mobile: integrated lancing and blood glucose monitoring device employing a unique ‘no strip’ technology that replaces test strips with a continuous tape of 50 tests

EU Q1

Accu-Chek Aviva Nano and Accu-Chek Performa Nano: sleeker versions of the Accu-Chek Aviva and Accu-Chek Performa meters, offering an enhanced feature set

EU Q1

Accu-Chek Combo: interactive insulin delivery system combining an insulin pump and a blood glucose meter with broad data management capabilities; the meter also functions as a pump remote control

EU Q1

Accu-Chek Active: new version of an existing meter, featuring an extended memory and a number of fail-safe capabilities

EU Q1

Molecular Diagnostics LightCycler MRSA Advanced Test: automated real-time PCR-based test for methicillin-resistant Staphylococcus aureus. The test can identify MRSA carriers in under two hours

EU Q1

cobas p 630 instrument and AmpliLink 3.3 software: the only pre-analytical instrument to unite primary tube handling with fully automated sample prepa-ration, amplification and detection for molecular diagnostics

EU Q4

cobas 4800 platform for automated DNA extraction and real-time PCR amplification and detection; with tests for human papillomavirus, Chlamydia trachomatis and Neisseria gonorrhoeae

EU Q4

Applied Science NimbleGen MS 200: fully automated high-resolution microarray scanner for use with all NimbleGen DNA microarrays

Worldwide Q2

xCELLigence RTCA DP (dual plate) system: highly flexible medium-throughput system for real-time non-invasive cell analysis

Worldwide Q2

LightCycler 1536 system for high-throughput quantitative PCR analysis Worldwide Q2

MagNA Pure 96 high-throughput system for preparing nucleic acid samples for PCR analysis

Worldwide Q4

Tissue Diagnostics INFORM EGFR DNA Probe: detects extra copies of the epidermal growth factor receptor (EGFR) gene, an abnormality associated with non-small cell lung cancer

EMEA, APAC Q1

BenchMark XT advanced staining instrument LATAM, APAC Q1

BenchMark Ultra advanced staining system with continuous and random processing and STAT capabilities

Additional European markets, LATAM, Q1

Japan Q4

Intended use of CONFIRM anti-HER2/neu Primary Antibody and INFORM HER2 DNA Probe expanded to include analytical claims regarding perfor-mance with gastric as well as breast tissue samples

EMEA, APAC Q2

EU = European Union; EMEA = Europe, Middle East and Africa; APAC = Asia—Pacific; LATAM = Latin America; US = United States.


61

Major product launches planned for 2010 5

Business area Product Market and quarter

Professional Diagnostics cobas e 602 immunoassay module for the cobas 8000 modular analyser series for high-volume laboratories. Throughput: up to 170 tests/hour

EU Q1US Q3

Eight Elecsys immunoassays in the US; six in the EU Q1-Q4

cobas c 701 and cobas c 502 clinical chemistry modules for the cobas 8000 modular analyser series. Throughput: up to 2,000 and 600 tests/hour, respec-tively

US Q2

cobas p 501 and cobas p 701 automated storage and retrieval modules for bar-coded primary and secondary sample tubes

US Q2

cobas c 702 advanced clinical chemistry module for the cobas 8000 modular analyser series. Features automated reagent loading, enabling consolidation of a broader test menu. Throughput: up to 170 tests/hour

EU Q4

cobas b 123 benchtop multiparameter analyser (blood gas, electrolytes, CO-oximetry and metabolites) for use at the point of care

EU Q4

HIV combi 27 min: improved combination assay for HIV 1 antigen (p24) and HIV antibodies, enabling more reliable early detection of infection with the human immunodeficiency virus

EU Q4

Diabetes Care Accu-Chek Mobile: integrated lancing and blood glucose monitoring device employing a unique ‘no strip’ technology that replaces test strips with a continuous tape of 50 tests

Additional EU markets Q1-Q3

APAC Q1

Accu-Chek Combo: interactive insulin delivery system combining an insulin pump and a blood glucose meter with broad data management capabilities; the meter also functions as a pump remote control

Additional EU markets Q1

APAC Q1, US Q3-Q4

Accu-Chek Aviva Nano: sleeker version of the Accu-Chek Performa meter, offering an enhanced feature set

US Q3-Q4

Molecular Diagnostics LightCycler MRSA Advanced Test: automated real-time PCR-based test for methicillin-resistant Staphylococcus aureus

US Q2

Cobas AmpliPrep/Cobas TaqMan CMV (CE IVD): a viral load monitoring test that will enable physicians to improve the management of cytomegalovirus (CMV) disease in solid organ transplant patients

EU Q3

cobas TaqScreen DPX Test: multi-dye blood screening test designed to simultaneously provide a quantitative result for parvovirus B19 and a qualitative result for hepatitis A virus

EU Q3

Cobas AmpliPrep/Cobas TaqMan HIV-1 v2: second-generation test with a unique dual-target design enabling detection of two separate regions of the HIV-1 genome

US Q4

Cobas TaqMan 48 HIV v2 (CE IVD) High Pure virology test: offers a manual sample preparation option for customers with a low-volume workload

EU Q4

Applied Science GS Junior System: economical benchtop next-generation DNA sequencing system for smaller laboratories

Worldwide Q1

NimbleGen CGX-6 multiplex arrays: microarrays for high-resolution analysis of chromosomal abnormalities; capable of analysing six samples simultaneously

Worldwide Q1

xCELLigence RTCA HT instrument, for automated high-throughput cell analyses and screening

Worldwide Q1

SeqCap EZ Exome v.2: in-solution enrichment capture technology for targeted next-generation sequencing

Worldwide Q2

Next-generation ultra-high density NimbleGen microarrays Worldwide Q3–Q4

Tissue Diagnostics Dual colour/dual hapten in situ hybridisation (ISH) kit enabling target gene detection and control on a single slide. For use with all molecular markers; specifically to support HER2 testing

EU Q1

Ventana anti-HER2 neu (4B5) primary antibody and Ventana HER2 DNA probe: CE IVDs for assessing the likelihood of response to Herceptin treatment in both breast and gastric cancer patients

EU Q1–Q2

BenchMark GX: economical, low-volume advanced tissue staining platform that automates all slide processing steps from baking to staining

EU, APAC Q2

CE-IVD molecular probes targeting the enzyme TOP2A and the cell surface receptor IGF1R, for use as an aid in diagnosing and managing breast and lung cancer

EU Q2-Q4

Discovery Ultra: platform for immunohistochemistry and in situ hybridisation research, offering significant improvements in ease of use, workflow and flexibility

US, EU Q2APAC, Japan,

LATAM Q4

5 Planned launches may be delayed or not occur as a result of adverse regulatory decisions or other factors.EU = European Union; EMEA = Europe, Middle East and Africa; APAC = Asia—Pacific; LATAM = Latin America; US = United States.


Precision and speed count in modern molecular diagnostics. We’re working to improve both. Our genome sequencers can ‘read’ the building blocks of highly variable genes in a matter of days instead of weeks, which is how long it takes to achieve the same precision with conventional sequencing methods. This may one day help to extend and improve the lives of transplant patients. Currently we are investigating the use of our sequencers for HLA (human leukocyte antigen) genotyping of blood stem cells. Stem cell transplantation is performed to treat a number of diseases, including leukemia. Donors’ and recipients’ cells need to be as HLA-compatible as possible for treatment to be successful.

Studies have shown that the Genome Sequencer FLX System * is a power-ful research tool for high-resolution HLA genotyping, which is critical for people needing transplants. The closer the match between the donor’s and recipient’s HLA genes, the smaller the risk of transplant rejection. * Forlifescienceresearchonly.Notforuseindiagnosticprocedures.

They’re reading genes to help save lives one day


Corporate Governance | Roche’s commitment to all stakeholders is reflected in its operating businesses’ focus on value creation, in a management culture that conforms to modern standards of corporate governance and in the Group’s policy of communicating transparently.

Remuneration Report | Roche’s success depends on the abilities and dedication of its people. Recognition of this forms the basis of our remuneration policy and system.

11_L_Roche_AR09_ENG_Corporate Governance indd 64 29 01 2010 00:50:11

65

Roche complies with all relevant corporate governancerequirements, in particular with all applicable laws,the Swiss Stock Exchange (SIX Swiss Exchange)directives (including the commentaries thereto) andthe Swiss Code of Best Practice for Corporate Governance promulgated by the Swiss business federation‘economiesuisse’. The company’s internal governanceframework, particularly its Articles of Incorporationand Bylaws, embodies all the principles needed toensure that the company’s businesses are managedand supervised in a manner consistent with goodcorporate governance, including the necessary checksand balances. 1

Our printed Annual Report contains selected links tothe Roche website (www.roche.com). Readers arethus provided not only with a ‘snapshot’ of our company at the reporting date but are also directed tosources which they can consult at any time for uptodate information about corporate governance atRoche. Whereas each annual report covers a singlefinancial year ending 31 December, our websitecontains information of a more permanent nature aswell as the latest Roche news. Amendments toour company’s Articles of Incorporation and Bylawsand changes in the curricula vitae of the membersof the Board of Directors and the Corporate ExecutiveCommittee are published in timely fashion onour website, where they can be accessed by anyonelooking for this information.

Board of DirectorsAt the 91th Annual General Meeting (AGM) ofRoche Holding Ltd, on 10 March 2009, shareholdersreelected John I. Bell, André Hoffmann and Franz B.Humer as members of the Board of Directors fora term of three years as provided by the Articles ofIncorporation. At its organising meeting immediatelyfollowing the 2009 AGM, the Board of Directors hasapproved its committees’ structure and its committeememberships as shown on page 67.

At the AGM on 2 March 2010, the Board of Directorswill nominate DeAnne Julius and Beatrice Wederdi Mauro for reelection to the Board and Arthur D.Levinson and William M. Burns for election as newMembers of the Board for a term of three yearsas provided by the Articles of Incorporation. PeterBrabeckLetmathe and Horst Teltschik have decidedto retire as members of the Board of Directors aftermany years of distinguished service. The Board ofDirectors thanks for their dedication and their manycontributions to Roche.

Corporate Executive Committee

William M. Burns as CEO Division Roche Pharmaceuticals, Jürgen Schwiezer as CEO Division RocheDiagnostics and Jonathan Knowles as Head GroupResearch retired on 31 December 2009 and thereforestepped down as members of the Corporate ExecutiveCommittee. The Board of Directors thanks the leavingmembers of the Corporate Executive Committee fortheir dedication and their many contributions to Roche.

The Board of Directors of Roche Holding Ltd willnominate William M. Burns for election to the Boardat the AGM on 2 March 2010.

As part of the Genentech transaction, Pascal Soriotwas appointed as CEO of Genentech, Inc. and asa new member of the Corporate Executive Committeein April 2009. Pascal Soriot relinquished his roleas CEO Genentech, Inc. as of 31 December 2009 andwas appointed as COO Division Roche Pharmaceuticals starting on 1 January 2010.

Corporate Governance

1 http://www.roche.com/about_roche/corporate_governance.htm


http://www.roche.com/about_roche/corporate_governance.htm

66 Roche Business Report 2009 Corporate Governance

Board of Directors per 31 December 2009 (from left): Dr Franz B. Humer, Prof. Bruno Gehrig, André Hoffmann, Prof. Pius Baschera, Prof. Sir John Irving Bell, Peter Brabeck-Letmathe, Lodewijk J.R. de Vink, Dr Andreas Oeri, Dr DeAnne Julius, Walter Frey, Prof. Beatrice Weder di Mauro, Prof. Horst Teltschik, Dr Wolfgang Ruttenstorfer


67

A Corporate Governance and Sustainability Committee.B Audit Committee.C Remuneration Committee.D Presidium/Nomination Committee.E Non-executive director.

* Committee chairperson. 1 January 2010

Board of Directors

Name (year of birth) Term ends First elected

Board of Directors Dr Franz B. Humer (1946) D *, E Chairman 2012 1995

Prof. Bruno Gehrig (1946) C *, D, E Vice-Chairman 2011 2004

André Hoffmann (1958) C, D, E Vice-Chairman 2012 1996

Prof. Pius Baschera (1950) A, E 2011 2007

Prof. Sir John Irving Bell (1952) C, E 2012 2001

Peter Brabeck-Letmathe (1944) E 2010 2000

Lodewijk J.R. de Vink (1945) C, E 2011 2004

Walter Frey (1943) A, B, E 2011 2001

Dr DeAnne Julius (1949) B *, E 2010 2002

Dr Andreas Oeri (1949) A *, E 2011 1996

Dr Wolfgang Ruttenstorfer (1950) B, E 2011 2007

Prof. Horst Teltschik (1940) A, B, E 2010 2002

Prof. Beatrice Weder di Mauro (1965) A, B, E 2010 2006

New proposed members of the Board of Directors, nominated for election at the Annual General Meeting on 2 March 2010

William M. Burns (1947)

Dr Arthur D. Levinson (1950)

Secretary to the Board of Directors Dr Gottlieb A. Keller (1954)

Honorary Chairman of the Board of Directors Dr Fritz Gerber (1929)



On this page Corporate Executive Committee per 31 December 2009 (from left): Dr Severin Schwan, William M. Burns, Dr Jürgen Schwiezer, Dr Erich Hunziker, Silvia Ayyoubi, Prof. Jonathan Knowles, Dr Gottlieb A. Keller, Pascal Soriot, Burkhard G. Piper, Osamu Nagayama, Per-Olof Attinger, Richard Scheller, René Kissling

Right page New members as of 1 January 2010 (from left): Daniel O'Day, Jean-Jacques Garaud, Dan Zabrowski


69


Name (year of birth) Position

Corporate Executive Committee Dr Severin Schwan (1967) CEO of the Roche Group

Dr Erich Hunziker (1953) Chief Financial Officer and

Deputy Head of the Corporate Executive Committee

William M. Burns (1947)* CEO Division Roche Pharmaceuticals

Dr Jürgen Schwiezer (1944)* CEO Division Roche Diagnostics

Prof. Jonathan K.C. Knowles (1947)* Head Group Research

Dr Gottlieb A. Keller (1954) General Counsel

Silvia Ayyoubi (1953) Head Human Resources

Pascal Soriot (1959) CEO Genentech, Inc.;

as of 1.1.2010 COO Division Roche Pharmaceuticals

As of 1 January 2010 Daniel O’Day (1964) COO Division Roche Diagnostics

Enlarged Corporate Executive Committee

Burkhard G. Piper (1961)*

Head Business Area Roche Diabetes Care

Per-Olof Attinger (1960) Head Communications

Osamu Nagayama (1947) President and CEO Chugai

Richard Scheller (1953) Head Genentech Research and Early Development (gRED)

As of 1 January 2010 Jean-Jacques Garaud (1955)

Head Roche Pharma

Research and Early Development (pRED)

Dan Zabrowski (1959) Head of Pharma Partnering

Secretary to the Corporate Executive Committee René Kissling (1966)

Statutory Auditorsof Roche Holding Ltd

KPMG Klynveld Peat Marwick Goerdeler SA (reporting years 2004–2008)KPMG AG (since 2009)Auditor in charge: John A. Morris (since 2004)

Chief Compliance Officer Dr Urs Jaisli (1956)

* Member until 31 December 2009.

New members as of 1 January 2010 (from left): Daniel O'Day, Jean-Jacques Garaud, Dan Zabrowski



As of 1 January 2010 Daniel O’Day was appointed asCOO Division Roche Diagnostics and as a newmember of the Corporate Executive Committee. Asof 31 December 2009, Burkhard Piper steppeddown as a member of the Enlarged Corporate Executive Committee and is reporting to Daniel O’Day.

In April 2009, Richard Scheller was appointed tothe Enlarged Corporate Executive Committee.He reports directly to Group CEO Severin Schwan.As the former Head of Genentech Research, heleads Genentech’s Research and Early Development(gRED) which will operate as an independent centrewithin the Roche Group.

JeanJacques Garaud was appointed as Head ofRoche Pharma Research and Early Development(pRED) and as a new member of the EnlargedCorporate Executive Committee.

Dan Zabrowski as Head of Pharma Partnering wasappointed as a new member of the Enlarged Corporate Executive Committee.

Information relating to Corporate Governance

Group structure and shareholders1 Roche’s operating businesses are organised into• two divisions: Pharmaceuticals and Diagnostics. ThePharmaceuticals Division comprises the two businesssegments Roche Pharmaceuticals and Chugai,whereas Genentech as the former third segment hasbeen integrated into Roche Pharmaceuticals. TheDiagnostics Division consists of the following fivebusiness areas: Applied Science, Diabetes Care,Molecular Diagnostics, Professional Diagnostics andTissue Diagnostics. Business activities are carried outthrough Group subsidiaries and associated companies. Significant subsidiaries and associated companies are listed in the Finance Report, Note 34 tothe Roche Group Consolidated Financial Statements(‘Subsidiaries and associates’, pages 122 to 124.

Major shareholders are listed in the Finance Report,• Notes 28 and 33 to the Roche Group Consolidated Financial Statements (‘Equity attributableto Roche shareholders’ and ‘Related parties’,pages 106 and 120) and in Note 4 to the FinancialStatements of Roche Holding Ltd (‘Significantshareholders’, page 141).André Hoffmann, ViceChairman of the Board of• Directors, and Andreas Oeri, Member of the Boardof Directors and Chairman of the Board’s Corporate Governance and Sustainability Committee,serve in their respective capacities on the Board andits Committees as representatives of the shareholders group with pooled voting rights and receivethe remuneration set forth in the RemunerationReport on page 77 and in the Finance Report,Note 33 to the Roche Group Consolidated FinancialStatements (‘Related parties’, page 120) and Note 6to the Financial Statements of Roche Holding Ltd(‘Board and Executive remuneration’, page 142).No other relationships exist with the shareholderswith pooled voting rights.There are no crossshareholdings.•

Capital structure2 Information on Roche’s capital structure is provided• in the Finance Report, Notes to the FinancialStatements of Roche Holding Ltd (page 140 and141). Additional details are contained in theArticles of Incorporation of Roche Holding Ltd. 2

Changes in equity are detailed in the Finance• Report, Notes to the Financial Statements ofRoche Holding Ltd (page 141).The company has a share capital of 160,000,000• Swiss francs, divided into 160,000,000 fully paidbearer shares with a nominal value of 1 Swiss franceach. There are no restrictions on the exerciseof the voting rights of these shares. Upon deposit,shares can be voted without any restrictions.There is no authorised or conditional capital.• In addition, 702,562,700 nonvoting equity• securities (NES) have been issued in bearer form.

2 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm


http://www.roche.com/about_roche/corporate_governance/article_of_incorporation.htm

71

They do not form part of the share capital andconfer no voting rights. Each NES confers the samerights as one share to participate in availableearnings and in any liquidation proceeds followingrepayment of the share capital. Roche’s NESand the rights pertaining thereto (including theprovisions protecting the interests of NES holders)are described in §4 of the Articles of Incorporationof Roche Holding Ltd.Information on debt instruments which have• been issued and on outstanding bonds is providedin the Finance Report, Note 27 to the RocheGroup Consolidated Financial Statements (‘Debt’,page 100).Additional information on employee stock options• is provided in the Finance Report, Note 11 tothe Roche Group Consolidated Financial Statements(‘Employee stock options and other equitycompensation benefits’, page 72).Roche has issued no options apart from employee• stock options, Stocksettled Stock AppreciationRights (SSARs) and options issued in connectionwith debt instruments.Neither the options awarded to employees nor• the debt instruments which have been issued haveany effect on Roche’s share capital.

Board of Directors and Corporate Executive 3 CommitteeInformation on each member of the Board of• Directors (including the years in which they wereelected and the years in which their terms end)and on each member of the Corporate ExecutiveCommittee is listed on pages 65 to 70. Curriculavitae and other information (including informationon board memberships) are available on theInternet. 3

The Annual General Meeting elects the members• of the Board of Directors in staggered electionsin which each nominee is voted on separately (see§18 of the Articles of Incorporation of RocheHolding Ltd 4 and the Minutes of the 91th AnnualGeneral Meeting of Roche Holding Ltd, held10 March 2009 5).

With the exception of Franz B. Humer, none of the• members of the Board of Directors has been amember of Roche’s Corporate Executive Committeeor served in an executive capacity at any Groupsubsidiary during the three financial years precedingthe current reporting period.The internal organisation of the Board of Directors• and the division of authority and responsibilitiesbetween the Board and management, the remits ofthe Board committees and the information andcontrol mechanisms available to the Board in itsdealings with corporate management are governedby the Bylaws. 6

The Board of Directors of Roche Holding Ltd is• organised so as to ensure that the Group’sbusinesses are conducted responsibly and with afocus on longterm value creation. To this end, theRoche Board has delegated certain responsibilitiesto several committees 7. Their composition andchairpersons as of 1 January 2010 are describedon page 67. Each committees’ authorities andresponsibilities are defined in detail in the Bylawsof the Board of Directors. 8

All the committees except the Presidium are chaired• by independent directors.According to the Bylaws of the Board of Directors• at the request of any of its members a Boardmeeting without the Chairman present may beconvened. The Roche Board meets once a year toassess the Chairman’s performance. This meeting,which is not attended by the Chairman, is chairedby one of the ViceChairmen.

3 http://www.roche.com/about_roche/management/ board_of_directors.htm and http://www.roche.com/about_roche/management/ executive_committee.htm


5 http://www.roche.com/about_roche/corporate_governance/annual_general_meetings.htm


7 http://www.roche.com/about_roche/corporate_governance/ committees.htm



http://www.roche.com/about_roche/management/board_of_directors.htm

http://www.roche.com/about_roche/management/executive_committee.htm


http://www.roche.com/about_roche/corporate_governance/annual_general_meetings.htm


http://www.roche.com/about_roche/corporate_governance/committees.htm



The Board of Directors has established a system of• controls which is continuously monitored by theAudit Committee and by the Corporate Governanceand Sustainability Committee and consists of thefollowing elements:— Reports on financial and operating risks (risk

management system)— System of internal controls over financial report

ing (see page 125 and 128 in the Finance report)— Internal audits— Group Compliance Officer and Compliance

officers in subsidiaries— Safety, Health and Environmental Protection

Department— Corporate Sustainability Committee— Scientific and Ethics Advisory Group (SEAG),

for issues relating to genetics and genetic engineering (established in 1999).

Each year several blackout periods are imposed• during which senior employees are prohibited fromtrading in company stock. The following blackoutperiods are in effect for 2010:

26 December to 3 February1 April to 15 April26 June to 22 July1 October to 14 October

Blackout periods can be changed by the Chairmanof the Board of Directors if circumstances warrant.In 2009 the Board of Directors met for five meet• ings, each from 3 to 6 hours in length *; once for afullday meeting*; and once for a threeday visitto a major subsidiary * which included a Board ofDirectors meeting *. The Board committees metas follows in 2009:— Presidium of the Board of Directors/Nomination

Committee: three meetings (approx. 2 hourseach *)

— Audit Committee: four meetings (approx. 3 to4 hours each *)

— Corporate Governance and Sustainability Committee: three meetings (approx. 3 hours each *)

— Remuneration Committee: three meetings 9

(approx. 2 to 3 hours each *).The members of the Corporate Executive Committee• are invited to attend for, and report in person on,those agenda items concerning them. Whenthe situation warrants, members of the EnlargedCorporate Executive Committee may also be invitedto attend. The Board committees invite the Chairman of the Board and other Corporate ExecutiveCommittee members to deliver reports at committee meetings and may elect to commissionindependent expert reports and call on the servicesof consultants. The risk management system issubject to continuous review, with findings beingpresented to the Audit Committee or the fullBoard.10 Internal Audit regularly briefs the AuditCommittee with reference to ongoing audit reports.Members of Internal Audit attend Audit Committeemeetings, as do external auditors. For informationon the external auditors, see page 73.There are no management contracts which fall• within the scope of Subsection 4.3 of theSIX Directive on Information relating to CorporateGovernance.

Remuneration, shareholdings and loans4 All details regarding remuneration, shareholdingsand loans are set forth in the separate Remuneration Report on pages 75 to 85 and in the FinanceReport, Notes 28 and 33 to the Roche GroupConsolidated Financial Statements (‘Equity attributable to Roche shareholders’ and ‘Related parties’,pages 106 and 120) and are listed in the Notes 6and 7 to the Financial Statements of Roche Holding Ltd (‘Board and Executive remuneration’ and‘Board and Executive shareholdings’, pages 142and 144).

* These figures indicate the actual length of meetings and do not include the directors' extensive pre-meeting preparations and post-meeting follow-up activities.

9 Remuneration Committee members are not permitted to con-tribute to or attend Remuneration Committee meetings at which matters concerning them are deliberated or decided.

10 Additional information is provided in the Finance Report, Note 32 to the Roche Group Consolidated Financial Statements, ‘Risk management’, page 113).


73

Audit Committee, see Article 8.1 of the Bylaws 12).The statutory auditors participated in all (four)meetings of the Audit Committee in 2009.

The reports of statutory auditors on the Consolidated Financial Statements and on the FinancialStatements can be found on pages 126 and 149,respectively, of this year’s Finance Report.

KPMG received the following remuneration fortheir services as statutory auditors of Roche Holding Ltd and other Roche companies:

2009 2008 (millions of CHF)

Auditing services 21.9 19.7

Audit-related services 3.7 4.6

Tax consultancy services 1.3 1.8

Total 26.9 26.1

The statutory auditors are elected each year by theAnnual General Meeting.

Ernst & Young Ltd received the following remuneration for their services as the auditors of Genentechand Chugai:

2009 2008 (millions of CHF)

Chugai (2008 Genentech

and Chugai) audits 2.2 5.4

Other consulting services

provided to Genentech

and Chugai 2.2 1.7

Total 4.4 7.1

Participatory rights of shareholders5 The participatory rights of shareholders are defined• in Roche’s Articles of Incorporation.11 As Rocheshares are issued to bearer, there are no restrictionson admission to Annual General Meetings, withthe exception that shares must be deposited withina specified period before the date of a meetingand an admittance card must be issued in the shareholder’s name, as provided in §12 of the Articlesof Incorporation. Any shareholder can elect tobe represented by another shareholder at an AnnualGeneral Meeting. The Articles of Incorporationcontain no restrictions on the exercise of votingrights, and the only quorum requirements arethose stipulated in §16, in conformity with theSwiss Code of Obligations.Under §10.2 of the Articles of Incorporation,• shareholders representing shares with a nominalvalue of at least 1 million Swiss francs can requestthe placement of items on the agenda of anAnnual General Meeting. This must be done nolater than 60 days before the date of the meeting.

Change of control and defensive measures6 The Articles of Incorporation contain no provisions• on the mandatory bid rule. Swiss law applies.There are no changeofcontrol clauses. Those• components of remuneration based on Roche NESwould be terminated in the event of an acquisition,and vesting period restrictions on preexistingawards would be removed, so that all such optionscould be exercised immediately.

Relationship to statutory auditors7 At the Annual General Meeting of Roche HoldingLtd on 10 March 2009, the shareholders votedto appoint KPMG AG (KPMG) as statutory auditors(information on how long the auditors and auditorin charge have been serving in these capacities isprovided on page 69). The statutory auditorsparticipate in Audit Committee meetings. They prepare written and oral reports on the results of theiraudits. The Audit Committee oversees and assessesthe auditors and makes recommendations to theBoard (for information on the responsibilities of the







Information policy8 As provided by §33 of the Articles of Incorpora• tion 13, corporate notices are published in the Swiss Official Gazette of Commerce and in other dailynewspapers designated by the Board of Directors(Basler Zeitung, Finanz und Wirtschaft, L’Agefi, Le Temps, Neue Zürcher Zeitung).Roche reports its halfyear and fullyear results in• business reports published in print and onlineformats and at media events. In addition, detailedfirst and thirdquarter sales figures are publishedeach year in April and October. The most currentlist of publication dates is available in English andGerman on the Internet.14

All relevant information and documents, including• all media releases, investor updates 15 and presentations to analyst and investor conferences areavailable on the Internet. Further publicationscan be ordered by email, fax or telephone: [email protected], tel. +41 (0)61 688 83 39;fax +41 (0)61 688 43 43.The contact address for Investor Relations is:• F. HoffmannLa Roche Ltd, Investor Relations,Corporate Finance, 4070 Basel, Switzerland;tel. +41 (0)61 688 88 80, fax +41 (0)61 691 00 14.Additional information, including details on specificcontact persons, is available on the Internet. 16

Chief Compliance Officer9 The Chief Compliance Officer with his complianceofficers network is committed to ensuring thatRoche corporate principles are consistently complied with throughout the Roche Group andalso serves as a contact person for shareholders,employees, customers, suppliers and the generalpublic on issues relating to the implementation ofand compliance with these principles. Employeesand other parties who become aware of violationsof Roche corporate principles can bring themto the attention of their managers or supervisors orreport them to the Chief Compliance Officer (UrsJaisli, direct phone number: +41 (0)61 688 40 18,email: [email protected]). Such disclosureswill be treated confidentially. In addition, as of theend of 2009, employees may anonymously report

irregularities or complaints in their correspondingmother language via a ‘speakup hotline’. TheChief Compliance Officer reports regularly to theCorporate Governance and Sustainability Committee.

Non-applicability/negative disclosure10 It is expressly noted that any information notcontained or mentioned herein is nonapplicableor its omission is to be construed as a negativedeclaration (as provided in the SIX Swiss ExchangeCorporate Governance Directive and the Commentary thereto).

14 http://www.roche.com/media.htm15 http://www.roche.com/investors.htm16 http://www.roche.com/investors/contacts.htm


http://www.roche.com/media.htm

http://www.roche.com/investors.htm

http://www.roche.com/investors/contacts.htm

75

SummaryRoche’s success depends on the abilities anddedication of its people. Recognition of this formsthe basis of our remuneration policy and system.

One of the primary aims of our remuneration policy isto encourage a long-term focus and align manage-ment’s interests with the interests of Roche’s share-holders and holders of Roche’s non-voting equitysecurities (NES).

This remuneration report will be submitted•separately for approval at the 2010 Annual GeneralMeeting.The remuneration of Corporate Executive•Committee (CEC) members and other seniorRoche executives is comprised of:— Base salary— Bonus— Special stock awards (non-voting equity

securities subject to vesting period 3–10 years)— Stock-settled Stock Appreciation Rights

(S-SARs) 1

— Performance Share Plan (PSP) awardsWith the exception of Severin Schwan and Silvia•Ayyoubi, none of the CEC members received anincrease in base salary in 2009. 2

Based on Roche’s share price performance, no•NES will be awarded for the 2007–2009 PSP cycle.The S-SARs granted in 2006, 2007 and 2008,•have strike prices above the current NES price andhave no value for the recipients. This can changeif Roche’s future NES price improves.There has been no change in the base remunera-•tion of the Board of Directors since 2001.

Please see the rest of this report for full details 3.

RemunerationpolicyRoche fundamentally renewed its remuneration policyin 2004 and revised it with minor changes in 2009.It is part of a framework of employee policies aimed atmotivating and retaining current employees, attractingtalented new ones and helping all Roche employeesto perform at consistently high levels. Our remunera-

tion policy is designed to foster value creation andreinforce a culture of performance and innovation,and it applies to non-managerial employees as wellas to managers. The key principles underpinning thispolicy are:

Focus on value creation•Pay for performance•Enabling employees to share in the company’s•successFairness and transparency in remuneration•decisionsA balanced mix of long- and short-term•remuneration componentsMarket-competitiveness.•

Base pay, bonuses, blocked non-voting equitysecurities (NES), awards of Stock-settled StockAppreciation Rights (S-SARs) and a PerformanceShare Plan support these principles. These remu-neration components are linked to our company’sfinancial performance and commercial success andthus align the interests of Roche employees withthose of the shareholders. The amount of the separatecomponents of remuneration for each individualmember of the Corporate Executive Committee isshown in the individual description of the remunera-tion of the Corporate Executive Committee in thisreport.

BasepayBase pay levels are determined according to marketdata for specific positions and individual employees’abilities, experience and performance over time. Payincreases are linked to individual performance and

RemunerationReport

1 See‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82.

2 On1April2008,thebasepayoftheCorporateExecutiveCommitteewasgenerallyincreasedforthelasttime.ForGottliebKellerresultedadifferencebetweenthebasepayreceivedforthecalendaryear2008and2009(seetableonpage78)duetotheincreaseofthebasepayonApril2008.

3 SeealsointheFinanceReport,Note33totheRocheGroupConsolidatedFinancialStatements(‘Relatedparties’,page120)andNotes6and7totheFinancialStatementsofRocheHoldingLtd(‘BoardandExecutiveremuneration’and‘BoardandExecu-tiveshareholdings’,page142and144).

12_L_Roche_AR09_ENG_Remuneration Report indd 75 29 01 2010 00:50 58

76 RocheBusinessReport2009 Remuneration Report

also take into account prevailing market conditions,affordability and the company’s overall economicsituation.

BonusesBonuses are awarded in recognition of individual con-tributions to value creation which go beyond normal jobexpectations, and they are meant to be an incentiveto create or strengthen new business opportunitiesand strive for outstanding results. Bonus amounts arelinked to Group or divisional business performanceand to the achievement of individual and functional,measurable and qualitative performance objectives.The Remuneration Committee of the Board of Directorshas defined the Corporate Executive Committeemembers bonuses in December 2009 based on resultsachieved for 2009.

SpecialstockawardsIn 2009 non-voting equity securities have beengranted to a selected number of Roche employees.The awards vest immediately but are blocked forthree years. Recipients have the option to extend theblocking period to ten years. The grant of those non-voting equity securities was awarded as part of thebonus payments for 2009 with the aim to both imme-diately reward the achievement of specific objectivesand to foster the interest in a long-term positivedevelopment.

Stock-settledStockAppreciationRights(S-SARs)Stock-settled Stock Appreciation Rights were intro-duced on 1 January 2005, thus establishing a uniformsystem of remuneration throughout Roche. S-SARsentitle holders to benefit financially from any increasein the value of Roche’s non-voting equity securitiesbetween the grant date and the exercise date. Detailedinformation is available on page 79 and page 82 to 85.

PerformanceSharePlanThe members of the Corporate Executive Committeeand other members of senior management (currentlysome 120 individuals worldwide) participate in thePerformance Share Plan (PSP). The PSP was estab-lished in 2002 for periods of three years each and

is based on a three-year comparison of the totalshareholder return (TSR) with 17 competing compa-nies 4. In 2009 there were three overlapping perfor-mance cycles, PSP 2007–2009, PSP 2008–2010 andPSP 2009–2011 of which PSP 2007–2009 closedon 31 December 2009.

Details for the PSP 2007–2009 calculation and addi-tional information are set forth in ‘Remunerationof members of the Corporate Executive Committee,D. Performance Share Plan (PSP)’, page 80.

RemunerationoftheBoardofDirectorsandtheCorporateExecutiveCommitteeEach year the Remuneration Committee, which isentirely comprised of independent external membersof the Board of Directors, sets remuneration for themembers of the Board of Directors and the CorporateExecutive Committee (cash payments, bonuses,options, Stock-settled Stock Appreciation Rights andpolicy decisions about pension benefits). The termsof the Performance Share Plan are determined annu-ally by the Board of Directors, acting upon recommen-dations from the Remuneration Committee. TheRemuneration Committee continuously tracks salarytrends in the market and reports to the Board ofDirectors. Information on this committee’s remit andits procedures for making remuneration decisionscan be found in the Bylaws of the Roche Board ofDirectors 5.

Following the revision of the remuneration policyincluding market comparisons with the world’s majorpharmaceutical companies, the Remuneration Com-mittee has determined the bonuses and remunerationof the Chairman of the Board of Directors, the mem-bers of the Corporate Executive Committee taking intoconsideration personnel changes. In doing so, thefollowing changes were noted:

4 Peersetfor2009:AbbottLaboratories,Amgen,Astellas,Astra-Zeneca,Bayer,BectonDickinson,BiogenIdec,Bristol-MyersSquibb,EliLilly,Gilead,GlaxoSmithKline,Johnson&Johnson,Merck&Co.,Novartis,Pfizer,Sanofi-Aventis,Takeda.

5 http://www.roche.com/about_roche/corporate_governance/article_of_incorporation.htm



77

Board of Directors and by each member of the Corpo-rate Executive Committee for 2009, in comparisonwith figures for previous years, and an outlook on theChairman’s remuneration development for 2010.

Remuneration1RemunerationofmembersoftheBoard1.1

ofDirectors| In 2009 the members of the Boardof Directors 6 received the remuneration shownin the table ‘Remuneration of members of the Boardof Directors’ below for their Board activities.

Remuneration of all members of the Board of Directorswill again remain unchanged for 2010. The non-executive members of the Board of Directors were notawarded any shares, non-voting equity securities,

A further important step for the transfer of duties•from the Chairman to the CEO has been completedwith the completion of the integration of Genen-tech. Accordingly, the Board plans to reduce theChairman’s base pay in 2010 (for detailed infor-mation see page 82).On 31 December 2009, William M. Burns, Jonathan•K.C. Knowles and Jürgen Schwiezer retired fromthe company and consequently stepped down asmembers of the Corporate Executive Committee.As of 1 January 2010 Daniel O’Day has taken•over as Chief Operating Officer (COO) of theDiagnostics Division.As of 1 January 2010 Pascal Soriot has taken over•his new function as COO of the PharmaceuticalsDivision.

The following pages provide detailed information onthe remuneration earned by each member of the

RemunerationofmembersoftheBoardofDirectors

Remuneration2009(inCHF)

Additionalcompensation2009forcommitteemembers/chairs7

(inCHF) Additionalspecialcompensation2009

F.B.Humer (seepage818) 50,000 (RemunerationasChairman

oftheBoardofDirectors

seepage818)

B.Gehrig 400,0009 –

A.Hoffmann 400,0009 –

P.Baschera 300,000 30,000

J. I.Bell 300,000 30,000

P.Brabeck-Letmathe 300,000 –

L. J.R.deVink 300,000 30,000

W.Frey 300,000 60,000

D.A.Julius 300,000 60,000

A.Oeri 300,000 60,000

W.Ruttenstorfer 300,000 30,000

H.Teltschik 300,000 60,000 Compensationforserving

ontheboardsofRoche

subsidiaries,seepage78

B.WederdiMauro 300,000 60,000 Seepage78

7 WiththeexceptionofmembersofthePresidiumandtheVice-Chairmen,BoardmembersreceiveCHF30,000/yearforeachcommitteetheyserveonandCHF60,000/yearforeachcommitteetheychair.

8 See‘G.HighesttotalremunerationtoamemberoftheBoardofDirectors',page81and82.9 RemunerationforservingasVice-ChairmanoftheBoard.

6 Foralistofmembers,theirpositionsandtheircommitteemem-bershipsandchairmanship,seepage67.



dollars (5,450 Swiss francs) for her participationat a course on ‘Audit Committees in a new Era ofGovernance’ at Harvard Business School.

Stock-settled Stock Appreciation Rights (S-SARs)10,stock options or Restricted Stock Units (RSUs) in2009. Horst Teltschik received honoraria amounting to19,635 euros (29,648 Swiss francs) for serving onthe boards of several Roche subsidiaries in Germany.Beatrice Weder di Mauro was reimbursed 5,000 US

10 See‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82.

Bonus

Bonusfor2009

Bonusfor2008

Bonusfor2007

Cashpayment(inCHF)

Specialstockawards(Blockednon-votingequitysecurities)

Total(inCHF)

Cashpayment(inCHF)

Cashpayment(inCHF)Number

Blockingperiod(years)

Value(inCHF)

S.Schwan 3,000,000 20,450 10 1,675,178** 4,675,178 3,000,000 2,500,000

S.Ayyoubi 1,000,000 4,485*** 3 637,909**** 1,637,909 500,000 *

W.M.Burns 4,000,000 13,046*** 3 1,606,905** 5,606,905 2,500,000 2,500,000

E.Hunziker 2,000,000 13,046*** 3 1,606,905** 3,606,905 2,200,000 2,200,000

G.A.Keller 1,000,000 9,931*** 10 813,506** 1,813,506 1,000,000 1,000,000

J.K.C.Knowles 1,000,000 – – 1,000,000 308,900 1,000,000

J.Schwiezer 2,000,000 – – 2,000,000 1,000,000 *

P.Soriot 2,000,000 – – 2,000,000 * *

Total 16,000,000 6,340,403 22,340,403

* NotamemberoftheCorporateExecutiveCommittee.** Dayvalueatgrantofnon-votingequitysecurities:CHF146.70/NES.Calculationofvalueinconsiderationofreductionofvaluedue

toblockingperiod(reducedmarketvalue:for3years=83.962%;for10years=55.839%).*** ExcludingcontributiontoAHV/IV/ALV:Swisssocialsecurityprogrammesprovidingretirement,disabilityandunemploymentbenefits.****Dayvalueatgrantofnon-votingequitysecurities:CHF169.40/NES.Calculationofvalueinconsiderationofreductionofvaluedue

toblockingperiod(reducedmarketvalue:for3years=83.962%).

RemunerationofmembersoftheCorporateExecutiveCommitteeA.Basepay| inCHF

Annualsalary2009

Annualsalary2008

Annualsalary2007

S.Schwan 2,875,002 2,283,340 1,100,000

S.Ayyoubi 725,004 481,670 *

W.M.Burns 2,000,000 2,000,000 2,000,000

E.Hunziker 2,000,000 2,000,000 2,000,000

G.A.Keller 1,500,000 1,350,000 900,000

J.K.C.Knowles 1,350,000 1,350,000 1,350,000

J.Schwiezer 1,200,000 1,200,000 *

P.Soriot 1,246,878 * *

Total 12,896,884

* NotamemberoftheCorporateExecutiveCommittee.


79

For 2009 the members of the Board of Directorsreceived remuneration totalling 18,608,650 Swissfrancs 11.

No additional remuneration was paid to members ofthe Board of Directors.

RemunerationofmembersoftheCorporate1.2ExecutiveCommittee| The general provisionsassigning authority for decisions on Corporate Execu-tive Committee remuneration to the RemunerationCommittee and to the Board of Directors are outlinedon page 76 of this remuneration report. For 2009the members of the Corporate Executive Committeereceived remuneration totalling 54,858,227 Swissfrancs 12.

B.BonusIn 2009 the bonus for some of the members of theCorporate Executive Committee is divided in two parts:

For three or ten years blocked non-voting equity•securities (granted in 2009) andCash payment due for payment at the end of•April 2010.

With the element of blocked non-voting equitysecurities the bonus reflects an even stronger linkto the long-term performance of the company.

11 See‘RemunerationofmembersoftheBoardofDirectors’,page77.

12 See‘RemunerationofmembersoftheCorporateExecutiveCommittee’,(A.–F.andH.)excludingAHV/IV/ALV,page78to83.

C.Stock-settledStockAppreciationRights(S-SARs)

S-SARs132009

(valueinCHF14)

S-SARs13

2008(valueinCHF14)

S-SARs13

2007(valueinCHF14)

S.Schwan 3,559,849 2,225,542 1,068,062

S.Ayyoubi 889,993 445,146 *

W.M.Burns 2,224,920 2,225,542 1,780,140

E.Hunziker 1,957,935 1,958,480 1,780,140

G.A.Keller 1,334,989 1,335,313 890,125

J.K.C.Knowles 1,334,989 1,335,313 890,125

J.Schwiezer 889,993 890,229 *

P.Soriot 1,401,735 * *

Total 13,594,403

* NotamemberoftheCorporateExecutiveCommittee.13 See‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82.14 Black-Scholesvalueasdescribedin‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82to85.

Valuesfor2007and2008accordingtoAnnualReport2008,page78.

At the present time the Stock-settled Stock Appreci-ation Rights granted in 2006, 2007 and 2008, most ofwhich can now be exercised, following the end ofthe vesting period in February 2010, have no value forthe recipients.15 Members of the Corporate ExecutiveCommittee additionally receive annual expense allow-ances of 30,000 Swiss francs, totalling 210,000 Swissfrancs, while Pascal Soriot, who was based in San

Francisco from March to December 2009,received allowances and tax equalisation totalling635,246 Swiss francs.

15 Seestrikepricesintable‘StockoptionsandS-SARs’,page85.



D.PerformanceSharePlan(PSP)The members of the Corporate Executive Committeeand other members of senior management (currentlysome 120 individuals worldwide) participate in thePerformance Share Plan (PSP).

In 2006 the PSP moved to overlapping three-yearperformance cycles, with a new cycle beginning eachyear. In 2009 there were thus three cycles in progress(PSP 2007–2009, PSP 2008–2010 and PSP 2009–2011);the PSP 2007–2009 ended on 31 December 2009.

Under the provisions of this plan, a number of non-voting equity securities (NES) have been reserved forthe participants in each cycle. The number of secu-rities actually awarded will depend on whether and towhat extent an investment in Roche securities (sharesand NES) outperforms the average return on aninvestment in securities issued by a peer set of com-parator companies 16. Comparisons are based on

the securities’ market prices and dividend yields,i.e. on Total Shareholder Return (TSR). To reduce theeffect of short-term market fluctuations, securityprices are averaged over the three months (October toDecember) prior to the start of a performance cycleand over the three months (October to December)at the end of the cycle. If Roche securities performas well as or better than those of 75% of the peerset and, in addition, Roche’s TSR increases at least10% during a cycle, the Board of Directors can electto increase the maximum NES award by as muchas two-fold. In the event that an investment in Rochesecurities underperforms the average return deliveredby the peer companies, fewer or no NES will beawarded.

In 2009 NES were reserved under the plan for membersof the Corporate Executive Committee as shown in

PerformanceSharePlan(PSP)

TargetnumberofNESforPSP

2009–2011

TargetnumberofNESforPSP

2008–2010

NoNESawardedforPSP

2007–2009

200917

Totalestimatedvalueof

PSPawards(2007–2009

and2008–2010and2009–2011)

(valueinCHF)

200818

Totalestimatedvalueof

PSPawards(2006–2008,

2007–2009and2008–2010)

(valueinCHF)

200718

ValueofPSPawards(2005–2007,2006–2008

and2007–2009)

(valueinCHF)

S.Schwan 5,011 1,965 – 408,793 217,804 557,264

S.Ayyoubi 1,002 638 – 96,104 84,392 *

W.M.Burns 4,009 3,276 – 426,901 447,200 1,612,918

E.Hunziker 4,009 3,276 – 426,901 454,188 1,904,622

G.A.Keller 3,006 1,474 – 262,528 202,908 738,912

J.K.C.Knowles – 2,211 – 129,564 318,392 1,364,636

J.Schwiezer 2,405 1,965 – 256,082 225,279 *

P.Soriot 2,104 1,638 – 219,281 * *

Total 21,546 16,443 – 2,226,154

* NotamemberoftheCorporateExecutiveCommittee.17 Totalestimatedvaluefor2009:

PSP2007–2009:noneoftheoriginallytargetedNESawarded.PSP2008–2010and2009–2011:Estimatedvaluecalculatedusingtheyear-endpriceasof31December2009,CHF175.80pernon-votingequitysecurity(NES),basedonthenumberofNESoriginallytargetedsubjecttochangesinthenumberandvalueofNESawardableundertheplanon31December2010and31December2011,respectively,andspreadovertherelevantperiodoftime,i.e.¹⁄³fortheyear2009.TheBoardofDirectorswillvoteontheactualallocationofNESoriginallytargetedon31December2010and

31December2011,respectively,accordingtotheTSRachieved.18DetailedcalculationseeAnnualReport2008,page79.

16 Seefootnote4,page76.


81

the table on page 80. The Board of Directors willdecide on the actual level of NES or cash equivalentawards for the cycles 2008–2010 and 2009–2011after the close of the 2010 and 2011 financial years,respectively. The aim of the PSP is to provide anincentive to participants to achieve steady valuegrowth.At the end of the PSP 2007–2009 cycle (based on athree-month moving average at constant exchangerates) with distributed dividends totalling 11.211 bil-lion Swiss francs (2007: 2.932 billion Swiss francs;2008: 3.967 billion Swiss francs; 2009: 4.312 billionSwiss francs), the TSR of the Roche securities (NESand shares) ranked #13, compared with its peerset of companies operating in the same industry.Therefore, according to the terms of the plan, theparticipants received none of the originally targetedNES (see table on page 80 for details).

E. IndirectbenefitsEmployer contributions made in 2009 to social securityschemes, pension plans and a Group-wide employeestock purchase plan (Roche Connect) in respectof members of the Corporate Executive Committee areshown in the table ‘Indirect benefits in 2009’ below.Roche Connect is a voluntary stock purchase planoffering employees the opportunity to buy Roche

non-voting equity securities (NES) up to an amountequal to 10% of their annual salary at a 20% discount.NES purchased under this plan are subject to aholding period, which is four years in Switzerland.

F. Otherremuneration,emolumentsandloansGottlieb Keller received a nonrecurring specialpayment of 50,000 Swiss francs for his 25 years’service for the company. In 2009 pensions totalling2,083,820 Swiss francs were paid to two formerCorporate Executive Committee members. Fourmembers of the Corporate Executive Committeereceived a total of 93,750 US dollars (102,187 Swissfrancs) for serving on the Chugai Board.

G.HighesttotalremunerationtoamemberoftheBoardofDirectorsFranz B. Humer as the chairman was the memberof the Board with the highest total remuneration for2009 (see ‘Remuneration of members of the Boardof Directors’, page 77 to 79). The Chairman’s remu-neration consists of base salary and bonus awards.As Chairman of the Board after the handover of hisexecutive function as CEO at the Annual GeneralMeeting on 4 March 2008, he did not receive anyadditional S-SARs or NES from new PSP cycles andwas no longer enrolled in any Roche stock optionplan or S-SARs.

Indirectbenefitsin2009

Pensionfunds/MGB19(inCHF)

AHV/IV/ALV20

(inCHF)RocheConnect

(inCHF)

Paymentsfortaxconsultingservices

(inCHF)

S.Schwan 456,941 386,096 69,790 5,488

S.Ayyoubi 449,635 117,920 2,375 1,937

W.M.Burns 37,120 405,969 30,000 33,378

E.Hunziker 650,892 311,819 49,992 5,985

G.A.Keller 530,330 177,106 37,500 –

J.K.C.Knowles 37,357 132,927 9,375 39,446

J.Schwiezer 77,695 128,335 9,600 5,563

P.Soriot 254,576 248,408 4,166 3,809

Total 2,494,546 1,908,580 212,798 95,606

19 MGB:StiftungderF.Hoffmann-LaRocheAGfürMitarbeiter-Gewinnbeteiligung(employeeprofit-sharingfoundationsupplementingoccupationalpensionbenefits).

20AHV/IV/ALV:Swisssocialsecurityprogrammesprovidingretirement,disabilityandunemploymentbenefits.



The Board of Directors intends to reduce the Chair-man’s base salary in 2010 to 4 million Swiss francs(as of 1 April 2010). His total remuneration, includingbonuses, contributions to pension funds and addi-tional compensation (expense allowance) will, depend-ing on the achievement of objectives, not exceed themaximum amount of 11 million Swiss francs.

H.HighesttotalremunerationtoamemberoftheCorporateExecutiveCommitteeSeverin Schwan as CEO was the member of theCorporate Executive Committee with the highest totalremuneration for 2009 (see ‘Remuneration of mem-bers of the Corporate Executive Committee’, A.–F.,page 78 to page 81). No additional remuneration waspaid to current or former members of the CorporateExecutive Committee.

Securityholdings1.3 | Directors André Hoffmannand Andreas Oeri and members of the founders’

families who are closely associated with them belongto a shareholder group with pooled voting rights.At the end of 2009 this group held 80,020,000 shares(50.01% of issued shares). Detailed information aboutthis group can be found in the Finance Report, Note33 to the Roche Group Consolidated Financial State-ments (‘Related parties’, page 120) and in the Note 4to the Financial Statements of Roche Holding Ltd(‘Significant shareholders’, page 141). In addition, asof 31 December 2009 the members of the Boardof Directors and persons closely associated with themand the members of the Executive Committee andpersons closely associated with them held shares andNES as shown in the table on page 84.

Stockoptions/Stock-settledStockAppreciation1.4Rights(S-SARs)| At 31 December 2009 Franz B.Humer (being the only member of the Board of Direc-tors holding options and as of 1 January 2005 S-SARsdue to his former position as CEO) and the members

HighesttotalremunerationtoamemberoftheBoardofDirectors

2009(inCHF)

200821(inCHF)

Salary

Cashbonus

Specialstockawards(for10yearsblockednon-voting

equitysecurities22)

Total

6,030,000

2,200,000

2,792,018

11,022,018

6,030,000

5,000,000

–

11,030,000

PerformanceSharePlan23

2007–200924

Total Noneawarded 918,61325

Pensionfunds/MGB26 2,995,109 2,955,697

RocheConnect 75,000 64,585

Total (value) 14,353,552 27 15,228,951

21 FordetailedcalculationoftheremunerationasChairmanandCEOfor2008seeAnnualReport2008,page81.22 Bonusinformoffor10yearsblockednon-votingequitysecurities;34,084non-votingequitysecurities(NES),dayvalueatgrant

ofnon-votingequitysecurities:CHF146.70/NES.Calculationofvalue(includingcontributiontoAHV/IV/ALV)inconsiderationofreductionofvalueduetoblockingperiod(reducedmarketvalue:for10years=55.839%.

23 FranzB.HumerdoesnottakepartinthePSP2008–2010and2009–2011.24 PSP2007–2009:NoneoftheoriginallytargetedNESawarded.25 PSPaward.26 MGB:StiftungderF.Hoffmann-LaRocheAGfürMitarbeiter-Gewinnbeteiligung(employeeprofit-sharingfoundationsupplementing

occupationalpensionbenefits).27 IncludesadditionalcompensationforCommitteemembers,paymentsfortaxconsultingservices,remunerationforservingonthe

ChugaiBoard,notincludingemployercontributiontoAHV/IV/ALV(CHF762,644).


83

(forreasonsotherthanretirement),whilevestedoptionsmustbeexercisedwithinalimitedperiodoftime.ThefairvalueoftheoptionsiscalculatedatthedateofissueusingtheBlack-Scholesformulaandasiftheoptionsweretradable,withan11%deductionfortheaveragetwo-yearvestingperiod.

TheS-SARsshowninthetableonpage85wereintroducedbyRocheon1January2005inplaceofstockoptions.S-SARsentitleholderstobenefitfinanciallyfromanyincreaseinthevalueofRoche’sNESbetweenthegrantdateandtheexercisedate.ThestrikepriceforS-SARsunderthetermsofthismulti-yearplanwastheclosingpriceforRocheNESonthefirstdayoftradingaftertheRocheAnnualMediaConference.AllS-SARsvestwithinthreeyearsofthegrantdate:i.e.one-thirdvestattheendofoneyear,one-thirdattheendoftwoyears,andone-thirdattheendofthreeyears.VestedS-SARsmust

oftheCorporateExecutiveCommitteeheldoptionsandStock-settledStockAppreciationRights(S-SARs;firstintroducedon1January2005)asshowninthetable‘StockoptionsandS-SARs’onpage85.

AlloftheoptionsshowninthetablewereissuedbyRocheasemployeestockoptions.EachoptionentitlestheholdertopurchaseoneRochenon-votingequitysecurity(NES).

Underthetermsofthismulti-yearoptionplan,thestrikepriceforoptionsshownwastheclosingpriceforRocheNESonthelastdayoftradingpriortotheRocheAnnualMediaConference.Alloftheoptionsshownarenon-tradable.One-thirdoftheoptionsaresubjecttoavestingperiodofoneyear,one-thirdhaveavestingperiodoftwoyears,andone-thirdavestingperiodofthreeyears.Unvestedoptionslapsewithoutcompensationifemploymentisterminatedvoluntarily

Highest total remuneration to a member of the Corporate Executive Committee

2009 (in CHF)

2008 28 (in CHF)

Salary

Cash bonus

Special stock awards (for 10 years blocked non-voting

equity securities 29 )

Total

2,875,002

3,000,000

1,675,178

7,550,180

2,283,340

3,000,000

–

5,283,340

S-SARs

(Black-Scholes value 30 at grant minus 11%) 3,559,849 2,225,542

Performance Share Plan 31

(2008–2010, 2009–2011)

Total 408,793 217,804

Pension funds/MGB 32 456,941 202,320

Roche Connect 69,790 48,956

Total (value) 12,101,478 33 8,018,883

28 For detailed information see Annual Report 2008, page 82.29 Calculation see ‘Remuneration of members of the Corporate Executive Committee, B. Bonus’, page 78.30 Black-Scholes value as described in ‘Stock options/Stock-settled Stock Appreciation Rights (S-SARs)’, page 82 to 85.31 Basic rules and detailed calculation see ‘Remuneration of members of the Corporate Executive Committee, D. Performance Share Plan’,

page 80, footnote 17, respectively.32 MGB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing

occupational pension benefits).33 Includes an annual expense allowance, payments for tax consulting services and remuneration for serving on the Chugai Board exclud-

ing employer contribution to AHV/IV/ALV payments.

12_L_Roche_AR09_ENG_Remuneration Report.indd 83 05.02.2010 09:37:42


Securityholdings(at31December2009)

Shares(number)

NES(number)

Closerelatives’

securityholdings(number/type)

Others(number)

Board of Directors

F.B.Humer 3 196,528 – Stockoptions,S-SARssee1.4

B.Gehrig 50 150 – –

A.Hoffmann –* 365,200** – 250,000UBSLong/ShortCertificateslinkedto

RocheBearerShares/RocheNon-Voting

Equitysecurities(Valor:10690162,

ISIN:CH0106901629)

365,000OTCCalloptionsUBSAGon

RocheNon-VotingEquitysecurities,

21.08.2008–20.08.2010(Valor:4103145)**

P.Baschera 1 – – –

J. I.Bell 300 1,647 – –

P.Brabeck-Letmathe 800 2,195 – –

L. J.R.deVink – – – 1,000AmericanDepositoryReceipts(ADR),

RHHBY,USISIN:US7711951043

W.Frey 72,500 – – –

D.A.Julius 350 – 1,550NES –

A.Oeri –* 351,793 250,000UBSLong/ShortCertificatelinkedto

RocheBearerShares/RocheNon-Voting

Equitysecurities(Valor:10690162,

ISIN:CH0106901629)

W.Ruttenstorfer 1,000 – – –

H.Teltschik 385 – – –

B.WederdiMauro 200 – – –

Total 75,589 917,513 1,550 NES


S.Schwan 3 32,996 270NES Stockoptions,S-SARssee1.4

S.Ayyoubi 3 12,113 – Stockoptions,S-SARssee1.4

W.M.Burns 3 78,167 – Stockoptions,S-SARssee1.4

E.Hunziker 3 60,635 – Stockoptions,S-SARssee1.4

G.A.Keller 1,063 27,937 140NES Stockoptions,S-SARssee1.4

J.K.C.Knowles 3 19,558 – Stockoptions,S-SARssee1.4

J.Schwiezer 3 11,032 – Stockoptions,S-SARssee1.4

P.Soriot 2 6,276 – Stockoptions,S-SARssee1.4

Total 1,083 248,714 410 NES

* Sharesheldbytheshareholdersgroupwithpooledvotingrightsnotlisted.** Share-settledloantransactionasof21August2008reportedtoSIXSwissExchange.


85

be exercised (converted into NES) within seven yearsof the grant date, and unexercised S-SARs lapsewithout compensation. The fair value of the optionsis calculated at the date of issue using the Black-Scholes formula and as if the options were tradable,with an 11% deduction for the average two-yearvesting period.

The strike prices, expiry dates and grant values foroptions and S-SARs are shown in the table above.The numbers of options and S-SARs as calculatedat the time of issue have been entered as values inthe table ‘Remuneration of members of the CorporateExecutive Committee, C. Stock-settled Stock Appre-ciation Rights (S-SARs)’ on page 79.

StockoptionsandS-SARs

NumberofstockoptionsandS-SARsheldbycurrentandformermembersoftheCorporateExecutiveCommitteeon31December2009(S-SARsfirstissuedin2005)

200934 200834 200734 200634 200534 200435 200335 Total

Corporate Execu-

tive Committee

S.Schwan 175,362 105,576 29,190 15,696 4,98335 1,864 1,635 334,306

S.Ayyoubi 43,842 21,117 3,243 2,517 3,957 2,360 – 77,036

W.M.Burns 109,602 105,576 48,651 26,160 34,074 14,874 – 338,937

E.Hunziker 96,450 92,907 48,651 26,160 34,074 20,915 – 319,157

G.A.Keller 65,763 63,345 24,327 15,696 3,150 4,000 – 176,281

J.K.C.Knowles 65,763 63,345 24,327 15,696 – – – 169,131

J.Schwiezer 43,842 42,231 9,819 5,565 8,871 5,610 – 115,938

P.Soriot 69,051 63,345 29,190 23,544

+

21,636

– – 206,766

Total 669,675 557,442 217,398 152,670 89,109 49,623 1,635 1,737,552

Former Corporate

Executive Commit-

tee members

F.B.Humer None36 None36 48,651 52,317 85,179 55,775 – 241,922

Strikeprice(CHF) 145.40 195.80 229.60 195.00

196.50

123.00 129.50 77.80

MarketpriceperNES

on31December2009

(CHF)

175.80

Expirydate 5.2.2016 31.1.2015 8.2.2014 2.2.2013

2.1.2013

3.2.2012 3.2.2011 25.2.2010

Grantvalueper

option

and(startingin2005)

perS-SARinCHF

(Black-Scholesvalue

minus11%)

20.30 21.08 36.59 34.02

37.02

20.89 31.92 16.27

34 S-SARs.35 Stockoptions.36Asof2008FranzB.HumerdoesnotreceiveanyadditionalS-SARs.


When biotechnology was in its infancy thirty years ago, nobody would have guessed that it would one day give rise to a completely new class of powerful, targeted medicines: monoclonal antibodies (MAbs). Today, MAbs are being used successfully not only in the fight against cancer but also to treat rheumatoid arthritis. It took courage, skilful management and long-term commitment to enable Roche to invest in this technology at such an early stage. The skill and dedication of our people was vital in transforming MAbs into a medical and business success story. Today, around two thirds of all Roche drugs are based on biotechnology, and a new approach — joining MAbs with chemotherapy — promises to make the treatment of cancer even more targeted, with fewer side effects.

T-DM1 is a novel antibody-drug conjugate that combines two anti-tumour strategies in one medicine: the directed binding of a monoclonal antibody to a highly expressed cancer protein, leading to the targeted delivery of a potent chemotherapy agent. This selectively kills cancer cells and minimises damage to healthy tissue.

He’s sharpening his weaponsfor the fight against advanced breast cancer


Corporate Responsibility | As a leading healthcare company, our goal is to develop and make available products and services that address unmet medical needs and are of real value to society. We aim to provide tangible improvements in patients’ health, quality and length of life – this is our core contribution. We do this in a responsible and sustainable manner that respects the needs of the individual, the society and the environment. To make this possible, we are committed to finding and retaining talented people and developing their skills.

14_L_Roche_AR09_ENG_Corporate Responsibility Part1 indd 88 29 01 2010 00:11:24

89

Our pursuit of scientific excellence enables us toaddress unmet medical needs, helping patients leadlonger and better lives. We pioneer differentiatedmedicines and translate those into benefits for patientsthrough outreach programmes. Our efforts to under-stand disease biology and to develop medicinesand diagnostics that prevent, detect, correctly diag-nose and effectively treat disease help us achieveour goal of personalised healthcare (PHC) throughoutour value chain.

As we see it, our greatest responsibility is to keep upthis work. Our medicines take between eight andtwelve years to bring to market, so a focus on long-term success is critical. We run our business in asustainable manner that respects individuals, societyand the environment, and we find, retain and developtalented people to make this possible. Our values ofintegrity, courage and passion guide the daily be-haviour and decisions of all employees, and we seekevidence of these values from leaders in particular.These values encapsulate the working environmentand attitudes required to create innovative thinking.

Our approachWe try to balance economic prosperity, social commit-ment and environmental protection in every aspectof our business. We believe this creates value for allour stakeholders and helps earn their trust andcommitment. Engaging with relevant groups ensuresour approach is effective. We have identified sixmaterial corporate responsibility areas:

Innovation capacities• Value of Roche products and services• Pricing and reimbursement conditions• Access to Roche products and services• Relationship with stakeholders• Being an attractive and responsible employer.•

We monitor the effectiveness of our approach and ourprogress in these areas using a set of key perfor-mance indicators (KPIs), for which we now have twofull years of data. While these KPIs are for internalmanagement only, we include a range of performancemeasures throughout this section of our annual

report, and on our website. Our efforts were rewardedin 2009 when Roche was named healthcare supersector leader in the Dow Jones Sustainability Indexes(DJSI) for the first time. Roche has been included inthe DJSI World Indexes for six consecutive years andis included in the FTSE4Good Index.

Managing corporate responsibilityCorporate responsibility is an integral part of our dailywork rather than the duty of a single department.Our Corporate Sustainability Committee (CSC) co-ordinates our approach. With representatives from allcore functions and businesses across the Group, theCSC reports to the Corporate Executive Committeeand the Board’s Corporate Governance and Sustain-ability Committee. The CSC works to identify andassess significant social, ethical and environmentalrisks as well as related opportunities. It also developsand revises corporate positions and guidelines ontopics of key interest to our stakeholders. In October2009 the CSC held its fifth annual workshop,attended by around 60 employees across the Group.Main topics discussed were access to healthcareand the value of our products and services. Duringthe year, the CSC developed five new position paperson topics related to corporate responsibility.

2010 objectivesRemain one of the top healthcare companies• in the DJSIIntegrate best practices from Genentech’s• sustainability activitiesImprove energy efficiency (gigajoules per• employee) by 10% by 2014 from 2009.

More on the webSustainability principles, strategy and management: • www.roche.com/principles Stakeholder engagement: • www.roche.com/stakeholder_dialogue Corporate Sustainability Committee Charter: • www.roche.com/csr_committees Key performance indicators: • www.roche.com/sus-kpi.pdfSafety, health and environment performance: • www.roche.com/she_figures_and_facts Employee topline figures: www.roche.com/employees•

In brief


http://www.roche.com/principles

http://www.roche.com/stakeholder_dialogue

http://www.roche.com/csr_committees.htm

http://www.roche.com/sus-kpi.pdf

http://www.roche.com/she_figures_and_facts.htm

http://www.roche.com/corporate_responsibility/employees.htm

90 Roche Business Report 2009 Corporate Responsibility

How we do things is as important as what we do.The trust of the many diverse groups we encounter inthe course of our work depends on us carrying outeach and every aspect of our business responsibly.As an innovation driven company we focus on under-standing the mechanisms underlying the diseaseand translating this into developing products thatimprove patients’ health. This often means exploringemerging technologies as they could provide im-portant medical breakthroughs and form the basis ofour product pipeline in the long term. At the sametime, we must assess any risks or ethical dilemmasthat cutting-edge technologies pose with greatscrutiny before and while using them.

Customer relationshipsOur customers range from patients, healthcare pro-fessionals, hospitals and reference laboratories topublic and private healthcare payers. Understandingand responding to their different needs and expec-tations helps to improve our commercial effectiveness.Various customer groups provide input into:

Product profiles, for example the ease of use of• medication, instrument specificationsClinical development plans, for example by• designing and participating in trialsPublication of trial results• Regulatory filing• Development of health outcome studies• Disease awareness plans and product information• Education and awareness programmes• Treatment guidelines.•

We also obtain feedback from customer groupsthrough our medical liaisons and clinical researchassociates, advisory boards, and education andawareness programmes we are involved in.

We carry out comprehensive market research andanalysis, often at a divisional or local level, to help usmeet specific market needs. Each country organi-sation is responsible for managing its relationshipwith its customers and sharing relevant informationwithin the Group. We have a range of initiatives toenable this such as UNITE a company-wide database

providing instant reports and information based onhistorical information, customer feedback and marketanalysis, to aid our planning.

Customer satisfaction is particularly important inconsumer businesses. Patients with diseases such asdiabetes, who use our products daily, tend to giveregular feedback, which is pivotal to future productdevelopment. We also use detailed market researchand focus groups to develop products and servicesthat simplify daily diabetes management.

Half our Diagnostics employees work in customerservice and support. We also encourage employeeswith little or no contact with customers to spendtime learning about their needs. For example, RocheDiagnostics in Rotkreuz, Switzerland, has a customerorientation programme during which technicalspecialists spend nine months attending workshops,visiting laboratories and hospitals, and evaluatingwhat they have learned before presenting theirfindings to management. They worked on projectsincluding an online survey to help improve the wayhealthcare providers cope with methicillin-resistantStaphylococcus aureus — a major problem in hospitals.

Pandemic preparednessIn 2009 the World Health Organization (WHO)declared a global pandemic of H1N1 influenza. Infor-mation from the WHO and the US Center for Dis-ease Control and Prevention (CDC) indicated thatTamiflu was one of only two approved antivirals withactivity against the novel strain. These events trig-gered Roche to implement its pandemic plan, whichhad been in development since 2004, with a focuson increasing Tamiflu production and distribution tomeet increased demand, and ensure low-incomecountries had access to the drug. Our policies for theprioritisation of drug supply were in accordance withPreparing for the Next Influenza Pandemic — Roles and Responsibilities of Roche and Other Stakeholders,published in May 2008.

Tamiflu stockpiles | We have worked with the WHOand governments to build stockpiles of Tamiflu and

Responsible practices


91

help prepare for a flu pandemic. In 2005 we do-nated three million treatment courses for the WHO’sRapid Response stockpile. We stored the stockpileuntil 2009, when the WHO distributed it to 72 ofthe world’s neediest countries. In 2006 we donatedand shipped an additional two million treatmentcourses for the WHO’s Regional stockpile, which hasalso been distributed to countries in need.

In May 2009 we agreed to donate a further five mil-lion courses to replenish both stockpiles. We alsoagreed to establish a stockpile of 650,000 treatmentcourses of pediatric capsules, which we providealong with instructions for mixing the contents withfood, for children unable to swallow them whole.This brings the total number of treatment coursesdonated to around 11 million.

Since 2005 we have been providing governmentsTamiflu at substantially reduced prices to assist theirpandemic preparedness. However, we recognisedthat many developing countries were unable to createan adequate stockpile even at reduced prices. In July2009 we launched the Tamiflu Reserves Programmeto increase access in these countries. We produceand store Tamiflu for specified developing countries ata significantly reduced price, and spread the costover a number of years. We will ship the stockpile ifthe WHO announces a flu pandemic, or when a gov-ernment requests it to deal with a national outbreak.

To further increase availability, we have licensedcompanies in China and India to manufacture genericoseltamivir. We have also supported the efforts of aSouth African manufacturer by giving them accessto the knowledge and skills needed to produceoseltamivir. They can now produce the drug freely aswe do not enforce patents in sub-Saharan Africa.

Roche Diagnostics produced a polymerase chainreaction (PCR) based test for the H1N1 strain of theflu virus using our LightCycler System, within weeksof the virus being identified. In November 2009 theUS Food and Drug Administration granted EmergencyUse Authorisation of this RealTime Ready Influenza

A/H1N1 test. It allows rapid and accurate identificationof patients infected with the virus so appropriatepatient management can start as early as possible.

Emerging data underscore the important role the drugplayed in reducing the impact of this most recentflu pandemic. For example, a recent study by Jain et alfrom the US Centre for Disease Control, publishedin the New England Journal of Medicine, reported onthe clinical outcome of patients hospitalised withH1N1 influenza in 2009. The study showed that anti-viral drugs were the only treatment that made a statis-tically significant difference in helping patients torecover, and that oseltamivir was the antiviral takenin around 90% of cases.

Public policyThe private sector has a crucial and legitimate roleto play in developing public policy. We share ourexpertise with policymakers to help develop effectivelaws, regulations and policies relating to publichealth, as well as more general areas affecting ourbusiness, such as tax policy. Our good practiceguidelines for working with government officials guideour employees on doing so in an appropriate andprofessional manner.

Much of our public policy work takes place throughour membership of industry bodies such as theEuropean Federation of Pharmaceutical Industries andAssociations (EFPIA), the European DiagnosticsManufacturers Association (EDMA) and the Interna-tional Federation of Pharmaceutical Manufacturersand Associations (IFPMA), as well as their nationalmembers. We also meet directly with policymakerssuch as governments, public health organisations,think tanks and academics.

Our major public policy work in 2009 included:Working with the World Business Council for• Sustainable Development, European Roundtableof Industrialists and Prince of Wales CorporateLeaders Group on Climate Change on policystatements ahead of the Copenhagen ClimateConference in December



Showing Members of the European Parliament• around our animal facility in Basel during thedevelopment of the animal research directive, todemonstrate our welfare standards and theimportance of animal research in healthcareCo-organising a dinner debate on animal• research in the European Parliament with theEuropean Platform for Patient Organisations,Science and Industry (EPPOSI)Explaining our position on proposed legislation• covering pharmacovigilance, information topatients and counterfeit medicines to Membersof the European Parliament.

Combating counterfeits | Counterfeit pharmaceuti-cal and diagnostic products are illegal and a seriousglobal public health problem. They endanger patients,undermine confidence in healthcare systems andcompanies, infringe intellectual property rights andwaste valuable healthcare budgets.

We continuously monitor and improve product secu-rity and use technology to quickly identify counterfeits.We take part in national and international industryand governmental efforts to strengthen the law, im-prove enforcement, train local officials and educatethe public.

In 2009 we updated our position on counterfeiting,which is available on our website. We are taking partin an EFPIA pilot project in Sweden of a trackingsystem which traces drugs back to their source,improving patient safety. We apply a unique barcodeto each pack of medicine produced, which pharma-cists scan when dispensing the medicine to check itis authentic. We continue to provide input, throughEFPIA, into the proposed EU legislation on counter-feiting.

Generic and biosimilar products | The patent peri-ods for some innovative biological products such asproteins and antibodies are expiring, and productsclaiming to be similar are appearing on the market.While it is relatively easy to copy chemical drugs, bio-logical products have complex molecular structures

and are obtained from living systems using advancedprocesses that are very difficult to reproduce. Moretesting is needed to demonstrate the similarity, safetyand efficacy of follow-on products compared with theoriginal.

We believe biosimilars should be subject to well-defined and transparent regulations that cover devel-opment, approval and post-authorisation procedures,based on those for the original products.

In 2009 we worked with regulatory authorities andindustry bodies, particularly the International Federa-tion of Pharmaceutical Manufacturers and Associa-tions, to ensure policymakers fully understand biosim-ilar science. This work will support the creation ofappropriate policies regarding future biosimilar mono-clonal antibodies and the naming of biopharmaceuti-cals. Roche has also made scientific and medicalpresentations on biosimilars to regulators, scientistsand other key audiences, and contributed to scientificjournals.

Political contributions | Roche does not financiallysupport individual politicians anywhere. US employ-ees can make personal contributions through theHoffmann-La Roche Good Government Committee(GGC), a voluntary political action committee, or par-ticipate in the Roche Action Programme.

Integrity and complianceThe Roche Group Code of Conduct guides ouremployees’ business behaviour.

In December 2009 we launched the Roche GroupSpeakUp telephone line and web service foremployees to raise concerns about compliance withthe Code of Conduct, anonymously if preferred.A third-party organisation operates SpeakUp andPricewaterhouseCoopers has provided assurance thatthe system protects employees’ identities.

In 2009, 141 business ethics incidents were reportedto the Chief Compliance Officer. We investigated themall and took corrective actions where necessary with


93

73 employment contracts being terminated as a resultof unethical behaviour.

We launched several initiatives to stimulate the shar-ing of best practices among Roche’s 110 localcompliance officers, including a Compliance Officers’Network, a series of regional compliance meetingsand a dedicated intranet site. The compliance officershelp line managers to control risks locally and meetthe requirements of our Group Code of Conduct.

We also updated our performance managementsystem to ensure we assess employees not just onwhether they achieve their objectives, but also onhow they achieve them.

Finally, we set up an Export Compliance Council toensure our manufacturing and distribution sites meetthe complex legal requirements for selling andexporting our products.

Risk and crisis managementOur Risk Management Charter defines our riskmanagement approach and responsibilities, and isavailable on our website along with a full list ofrisks to our business. We include significant social,environmental and ethical risks identified in theGroup risk management process.

Responsible marketingThere are strict regulations and industry guidelineson the sale and marketing of medicines and diagnos-tics, to make sure they are prescribed, administeredand used correctly, and that patients understandthe benefits and risks of taking them.

Healthcare professionals need to be able to selectthe best treatment option for their patients. Weprovide scientific and clinically relevant informationthat enables them to prescribe or use our products incircumstances which deliver the greatest medicalbenefit to the patient. A list of the external guidelinesand codes of practice we follow when marketingour products is available on our website.

In 2009 we introduced a sustainability risk manage-ment process and targets for our marketing agencies.We also introduced a new standard operating pro-cedure and related training to strengthen compliancewith marketing codes in our pharmaceutical anddiagnostics businesses.

We do not sell over-the-counter medicines and sodo not advertise directly to consumers in the majorityof our markets. In the US, where it is legal to adver-tise prescription medicines, we have detailed policiesin place to ensure this is done legally and ethically.We send all television advertising campaigns to theFood and Drug Administration for approval beforebroadcast.

We decided to end our membership of the Pharma-ceutical Research and Manufacturers Association(PhRMA) in the United States and instead join theBiotechnology Industry Organization (BIO), of whichGenentech was already a member.

Sustainable supply chainRoche spent around 18 billion Swiss francs on prod-ucts and services in 2009. These range from rawmaterials and active pharmaceutical ingredients toequipment, laboratory and office supplies, and ser-vices like consultancy, travel and marketing. We mustensure these suppliers meet the necessary social andenvironmental standards to secure reliable suppliesand enable the sustainable growth of our company.

Our approach is to:Raise awareness with our supply officers• Raise awareness with suppliers• Help suppliers improve their standards• Develop joint initiatives to increase their perfor-• mance.

We endorse the Pharmaceutical Industry Principles(PSCI Principles) which require suppliers to imple-ment Responsible Supply Chain Management in theareas of ethics, safety, health and environment (SHE),social responsibility, management systems, innovationand economic sustainability, and are committed to



integrating these Principles into our business. In 2009we developed a new Supplier Code of Conduct, whichincludes the PSCI Principles, and now require all oursuppliers to sign our Code of Conduct.

Our Pharmaceuticals and Diagnostics Divisions auditbusiness-critical suppliers and assess new suppliersto identify and correct problems, using external andinternal auditors. We share our expertise and providetraining to help suppliers implement any requiredimprovements. Internal auditors carry out follow-upinspections to ensure suppliers have made thenecessary changes. In 2009 we audited social andsafety, health and environmental standards at 40existing suppliers and carried out follow-up auditsat five. We rejected or ceased trading with one sup-plier that we could not help to improve. The mainarea for improvement our audits flagged up wasindustrial hygiene.

We are in the process of extending our sustainableprocurement activities to suppliers of non-productionmaterials and services.

We have established a financial risk managementprocess in procurement to identify suppliers at risk ofbankruptcy and to mitigate those risks. We continuedto apply our supply chain risk management processto all suppliers of key raw materials, drug substancesand drug products. We also worked with suppliersof materials for key Roche drug products to ensurethey have business continuity plans for pandemic risk.

Research practicesEthical concerns sometimes arise as we push scientificboundaries and explore new technologies to developinnovative new therapies and diagnostics. We mustexplore and carefully manage these concerns toensure the opportunities presented are not lost.

Ethics in R & D | Our global position on clinicalresearch commits us to high ethical standards andclarifies our position on specific areas of concern.We updated this position in 2009 to include straight-forward answers to frequently asked questions about

clinical research, such as what the different trialphases are and what the end of a trial means for thepatients taking part.

As part of our clinical trials programme, we storebiological material such as tissue, organs, blood andother bodily fluids in human specimen repositories,or biobanks. These are invaluable for learning moreabout disease and exploring possible treatments.They also contain sensitive information about theperson who provided the sample. We are dedicated toprotecting donors’ privacy and ensuring they are fullyinformed about how their sample and data will beused before they agree to take part.

We have a clear procedure for resolving ethicaldilemmas employees encounter in their work. If theycannot resolve the issue within their team, employeescan contact our Global Ethics Liaison Office, whichwill consult peers and internal experts to find asolution. An internal committee handles any remainingconcerns, and our independent Clinical ResearchEthics Advisory Group (CREAG) provides counsel onthe toughest challenges. We also provide regularonline ethics training for employees. In 2009 the GlobalEthics Liaison Office received 21 queries. All wereresolved without escalation.

The CREAG meets annually to review concerns raisedwith the Global Ethics Liaison Office and discussother relevant topics. In 2009 we updated the CREAGon recent queries handled by the Global Ethics Liai-son Office, as well as on the status of the employeeethics education programmes. The CREAG alsoreviewed the latest revisions to the Declaration ofHelsinki, a statement of ethical principles for medicalresearch involving human subjects released by theWorld Medical Association.

Another independent panel, the Science and EthicsAdvisory Group (SEAG), advises and guides uson genetics, genomics and proteomics. In 2009 theSEAG advised on issues including the use andstorage of human biological materials in specificresearch projects. We expanded the SEAG’s advisory


95

In the scientific category, first place went to a teamwhich found a new in vitro test for detecting toxiccompounds before testing new drugs on animals. Ourdiagnostics business developed the test, which is nowavailable for pharmaceutical preclinical research. Thewinning project in the lab care and animal manage-ment category gradually rehabilitated monkeys thathad been housed individually back into larger groups,increasing their social interaction and improving theirwellbeing. We will implement these and other projectsinto our operations wherever possible, and run the3Rs Award again in 2011.

In 2009 we created a new joint science and technol-ogy laboratory in Basel between the Pharmaceuticalsand Diagnostics Divisions aimed at investigatingorgan toxicities of drugs. Using an innovative cell ana-lyser system, xCELLigence, researchers can testwhether pharmacologically active substances arelikely to prove toxic to organs such as the heart andliver, by continuous, real-time viewing of the cellsreaction to the molecule. This can be performed inthe early preclinical stage of research, making manyanimal studies redundant.

We also established an internal Animal Welfare EthicsCommittee to examine all studies in non-humanprimates before regulatory approval, and to adviseemployees working with animals. This committeewill become fully operational in 2010.

Innovation and new technologies | Evolving tech-nologies such as nanotechnology, stem-cell researchand systems biology have many potential benefits inpharmaceuticals and diagnostics. These advantagesmust be carefully balanced with the ethical dilemmasand potential risks posed, and we assess these withgreat scrutiny before entering new fields.

Nanotechnology is the manipulation of materials ona scale 80,000 times smaller than the diameter of ahuman hair. It has potential in many areas, particularlydrug delivery, regenerative medicine and small-scale,portable diagnostics. However, many questionsremain about the effects nanotechnology may have on

functions, with their agreement, to cover all innovativetechnologies such as nanotechnology and stem-cellresearch.

Animal welfare | We recognise and take seriouslypublic concern about animal research. However, wecould not develop life-saving medicines such as can-cer drugs without it. While we work hard to find anduse alternative methods, the limitations of thosemethods mean we still need to test new drugs andtechnologies on animals for safety and legal reasons.

In 2009 we used a total of 478,252 animals in ourresearch, of which around 98% were mice and rats.

We are committed to the 3Rs concept of replacinganimal tests where possible, reducing the number ofanimals we use, and refining existing scientific prac-tices, animal welfare and husbandry. All employeesand contractors who perform animal testing for usmust comply with applicable laws and meet or exceedindustry standards.

We continued our 3Rs Award for Innovation andContinual Improvement in Animal Welfare withinRoche in 2009. Fifteen teams of scientists and animalcare specialists from our research sites entered forawards in two categories.

Breakdown of animals used in research | in 2009

Mice 86.6%

Rats 11.4%

Guinea pigs 0.33%

Hamsters 0.17%

Gerbils 0.41%

Fish 0.18%

Frogs 0.02%

Dogs 0.14%

Rabbits 0.53%

Primates 0.15%

Other 0.09%



Lobby through EFPIA on the proposed EU• legislation on counterfeit medicinal productsEstablish a 3Rs database for sharing best practices• in animal testing within RocheLaunch Roche’s Ethics Committee on animal• welfareCommence audit of suppliers in indirect spend.•

More on the webResponsible marketing, risk management and compliance: • www.roche.com/business_integrity_and_responsible_marketing_ www.roche.com/risk_management_and_compliance Pandemic influenza and Tamiflu information: • www.roche.com/roche-influenza www.pandemictoolkit.com The Pharmaceutical Industry Principles for Responsible Supply • Chain Management: http://pharmaceuticalsupplychain.org Patents, counterfeiting and biosimilars: • www.roche.com/medical_value_patents_and_pricing www.roche.com/patents Innovation, new products and technologies: • www.roche.com/csr_research_and_development www.roche.com/innovation_and_technologies All position papers: • www.roche.com/policies_guidelines_and_positions

people and the environment. The risks and benefitshave to be carefully evaluated before nanotechnologyis used in medical products. We believe that existingsafety tests and regulations provide an appropriateframework for doing so.

Stem cells and their applications offer an enormouspotential for the treatment and relief of chronicpain and even for the cure of diseases, extending andenhancing the quality of life. However, the researchalso raises ethical questions, because some peoplebelieve embryonic stem cells are humans with aright to life and should not be used in research ortreatments.

Roche is keenly aware of the tremendous potential ofthis resource for basic science and future health-care applications. We have, therefore, entered intoresearch collaborations. For example, we work withStem Cells 4 Safer Medicines (SC4SM) in the UKand with Cellular Dynamics International Inc in theUS. Roche began stem-cell research and its relatedapplication as a discovery tool and we plan to beginresearch to use stem cells as a potential therapeuticmodality. Roche also plans to develop expertiseto become technically enabled in this research areaand to conduct research on human embryonic stemcells and their use in drug discovery.

In 2009 we held a stem-cell research workshop inpartnership with Cambridge University in the UK.Attendees included 70 Roche specialists and 17academic experts. They discussed stem cell scienceand possible applications, as well as steps for indus-try to take to maximise the medical and businessopportunities presented.

2010 objectivesImplement the Roche Group SpeakUp Line• Launch the revised Roche Group Code of Conduct• and update the Behaviour in Business e-learningprogrammeRoll out new supplier code of conduct and include• compliance with this in our existing supplier auditprogramme


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Patients in all aspects of healthcare benefit from ourproducts and services. Our differentiated medicinesand diagnostics come from diverse approaches toresearch and development. We constantly pursuescientific excellence, which helps us tailor our prod-ucts and services in a way that ensures PersonalisedHealthcare. This means patients can lead longerand better lives because they receive treatments thatmore effectively prevent and cure disease, alleviatesymptoms and hasten recovery.

We can amplify this contribution to society by:Helping to improve access to our products• Ensuring they provide value for money• Providing factual information on our products• Listening and responding to customers’ views.•

The value of medicines and diagnosticsDifferent people experience disease and respondto treatment in different ways. Our approach ofpersonalised healthcare (PHC) takes this into accountand fits treatment to different groups of patients.We use our diagnostic expertise to deepen our under-standing of disease, how treatments work and howdifferent patients respond. This helps us developbetter, safer drugs and identify the patients who willbenefit most, improving clinical outcomes andincreasing cost effectiveness. In 2009 we publisheda new position on personalised healthcare todescribe our approach in more detail.

Healthcare payers have to make difficult decisionsabout granting access to, or providing reimbursementfor, healthcare products and services, based oncost effectiveness and budget constraints as well asmedical need and clinical impact. These decisionshave a profound effect on patients and their families,and can influence where research-based companieslike Roche focus their future investment. Objective,consistent and open processes are essentialfor assessing the total value of medical products,to individual patients and to society as a whole,throughout their lifecycle, so that the decisions madeare fair.

The majority of healthcare payers recognise the medicaland economic value of our products. For example,while cancer drugs such as Herceptin and Xelodamay seem costly, not only do they extend the lives ofpatients with terminal illness and prevent diseaserecurrence in patients with earlier stage cancer,they can also ease pressure on healthcare budgetsby reducing or preventing hospital visits, surgery andthe need for palliative care. In many cases, they helppatients return to work more quickly.

In 2009 we published a new position on assessingthe value of our products and services, which containsa series of guiding principles for carrying out suchassessments. We employ experienced health econo-mists who work with health authorities to understandand provide robust evidence regarding the economicand health benefits of our products and serviceswithin the relevant regional and local healthcaresystems.

We also engage with healthcare payers throughouta product’s lifecycle. We provide guidance on assess-ing the value of our products and services (HealthTechnology Assessment — HTA) prior to them decid-ing reimbursement and funding conditions.

Global access to healthcarePatients can access our products through doctors,hospitals, laboratories and pharmacies in roughly180 countries. While we sell the majority of our prod-ucts in developed countries with advanced health-care systems, around a third of the world’s populationlacks adequate access to healthcare. The WorldHealth Organization (WHO) lists many of our productsas essential medicines.

Our industry has an important role to play in partsof the world where healthcare standards and aware-ness of the causes, prevention and treatment ofdisease are lower. But there are many other systemicproblems contributing to health inequalities, andwe cannot tackle these alone. We work with govern-ments, non-governmental organisations (NGOs),patient groups and healthcare providers to tackle

Patients



service to speed up the delivery of HIV test results inremote areas.

Cancer kills more people in developing countries eachyear than AIDS, malaria and tuberculosis combined.More than half of all cancer cases are in the develop-ing world, but only about 5% of global cancerresources are spent there. International healthcareprogrammes focus on infectious diseases and thereis very little oncology investment, infrastructure orexpertise. As a leading provider of cancer therapies,we have an important role to play in tackling thisbadly neglected problem.

In 2009 we evaluated new partnerships to improvetraining in cancer care for healthcare workers in sub-Saharan Africa. We will focus on sharing our expertiserather than simply cash or drug donations, as webelieve that building local capabilities will make a big-ger difference in the long term. Training will takeplace locally to encourage healthcare professionalsto stay in their home country rather than leaving foropportunities abroad.

We also joined the Changing Diabetes in Childrenprogramme in 2009. This is a public/private partner-ship between Novo Nordisk, the World DiabetesFoundation and governments in African countries.The project aims to make life better for the growingnumber of diabetes patients in Africa, where thestandard of care is often poor. The objective is to pro-duce care guidelines, educate healthcare workers andensure all children entering the programme are regis-tered and monitored so their condition can be con-trolled. The first phase will target Cameroon, theDemocratic Republic of Congo, Guinea-Conakry,Tanzania and Uganda.

In 2008 we gave the Institute for OneWorld Healthaccess to our chemical compound library so it couldsearch for new medicines to treat childhood diarrhea.OneWorld Health completed the first screening in2009, and identified 40 compounds to investigate aspossible new treatments.

health inequalities and increase access to ourproducts. We tailor our approach in different regionsto cater for their specific needs.

Access for those most in need | The world’s leastdeveloped countries (LDCs) are hardest hit by dis-ease and have the poorest healthcare systems to dealwith this burden. There are too few hospitals, labora-tories and healthcare professionals to meet demand.We aim to increase access to healthcare in poorcountries in sustainable ways that include:

Fair patent and pricing policies• R&D into diseases with unmet medical needs• Partnerships with governments, NGOs and others• Education, training and knowledge-transfer.•

Our approach is to jointly develop access programmesthat raise awareness, educate and train, and assistin developing healthcare infrastructure. This collabo-rative approach ensures needs are met, while futurebusiness opportunities for both sides are enhancedthrough the increased capability of institutions andorganisations in developing countries.

The illustration shows the circumstances under whichwe do not file or enforce any patents. It also illustratesour no-profit pricing policy in action.

In 2009 we completed our technology transfer ini-tiative (TTI), through which we shared the knowledgerequired to produce our HIV treatment saquinavirwith local manufacturers, free of charge. We workedwith all 41 interested manufacturers and reachedagreement with 13 companies in the LDCs, which arenow free to produce saquinavir or use this know-ledge to produce other products. We also held threeAfrican Good Manufacturing Practice (GMP) train-ing seminars to improve locally produced essentialmedicines.

We also continued our partnership with the ClintonFoundation’s HIV/AIDS initiative (CHAI). Together wehave established and trained seven labs for HIV test-ing, developed a novel solution for diagnosing andmonitoring HIV in infants, and devised a text message


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68% of people living with HIV covered by our no profit prices for antiretroviral medicines

Global access to healthcare

Pricing and patents in least-developed countries

– No patents filed or enforced on any medicines– Two antiretroviral HIV medicines sold at no profit, covering 68% of HIV patients– Valcyte sold at reduced prices to NGOs treating AIDS-related cytomegalovirus

Pricing and patents in other sub-Saharan African countries

– No patents filed or enforced on antiretroviral HIV medicines– Two antiretroviral HIV medicines sold at no profit– Valcyte sold at reduced prices to NGOs treating AIDS-related cytomegalovirus

– Two antiretroviral HIV medicines sold at reduced profitPricing for low and lower- to middle-income economies

Planning for pandemic influenza – Tamiflu donated to World Health Organization stockpiles for countries most in need– Tamiflu sold at reduced prices to developing countries– Tamiflu Reserves Programme creates stockpiles for developing countries– Tamiflu sub-licensing agreements in China and India and technology transfer

agreement in South Africa

Access programmes in wealthy nations

– Roche Patient Assistance Program and Genentech Access Solutions provide adviceand financial support for uninsured or underinsured patients

– Over 40,000 patients benefitted from these patient assistance programmes in 2009

Tackling HIV/AIDS in the developing world

– AIDS technology transfer agreements in Bangladesh, Ethiopia, Kenya, South Africa,Tanzania and Zimbabwe

– Employee secondments in Ethiopia, Niger, Swaziland and Togo– UNICEF & European Coalition of Positive People AIDS Orphan Programmes in Malawi– Amplicare supplies HIV viral load tests in sub-Saharan Africa, South America and

the least-developed countries– Clinton Foundation HIV/AIDS initiative (CHAI) in sub-Saharan Africa

Broader healthcare partnerships in the developing world

– Phelophepa Healthcare Train in rural South Africa– New oncology sustainability initiative in sub-Saharan Africa in 2010– Changing Diabetes in Children with Novo Nordisk and the World Diabetes Foundation

in Cameroon, the Democratic Republic of Congo, Guinea-Conakry, Tanzania and Uganda– Institute for OneWorld Health on infectious diseases– Google.org on infectious diseases in Kenya



In July 2009 we teamed up with Google.org on an ini-tiative to help predict and prevent emerging infectiousdiseases in East Africa. Roche donated a genomesequencing system to be installed in the InternationalLivestock Research Institute laboratory in Nairobi,Kenya. The initiative will begin by investigating RiftValley Fever, a disease spread by mosquitoes whichis potentially lethal to people and livestock.

We produced our first Access to Medicines and Diag-nostics report in 2009. This contains more details ofall our policies and programmes to increase access toour products and is available on our website.

Access in emerging markets | Healthcare in middle-income countries is improving and presents a sub-stantial opportunity for Roche. However, each coun-try’s healthcare system is at a different stage ofdevelopment and has its own specific needs. Wework in partnership with governments in these coun-tries to help establish processes and clinical trial pro-grammes and improve education.

Our dedicated Medical Affairs Group developsspecific programmes for individual emerging markets,where many patients cannot afford the long-termtreatment necessary for diseases such as cancer,hepatitis C and rheumatoid arthritis. In China, forexample, we offer cost-sharing programmes for ouroncology drugs to ensure access to the patients whowill benefit most. In South Korea, our reduced pricesfor cancer drugs cover the entire population, while inEgypt, which has one of the highest rates of hepatitisC infection in the world, we provide Pegasys at aspecial low price for public sector patients.

We also supply our products to private payers inemerging markets, and work with insurance andre-insurance companies in China and Russia toexpand private insurance coverage and increaseaccess to our medicines. We continue to supplytwo HIV medicines at reduced prices in the lowand lower-middle income countries defined by theWorld Bank.

Access in the developed world | We work closelywith payers in all countries to demonstrate the medi-cal and economic value of our products and weestablish prices that enable access. However, manypeople in developed countries cannot afford treat-ment or the insurance to pay for it. In the US, whereas yet there is no universal healthcare system, weprovide free drugs to those in need through both theRoche Patient Assistance Program (PAP) and theGenentech Access to Care Foundation (GATCF). In2009, 22,200 patients benefited from the PAP and18,500 patients received free treatment throughGATCF. We also support industry efforts to raiseawareness of assistance programs via the Partnershipfor Prescription Assistance.

In 2010, following the merger of Roche and Genen-tech, GATCF will assume responsibility for the RochePAP patients to create one of the five largest charita-ble foundations in the US.

GATCF is part of Genentech’s broader programmeto help patients gain access to prescribed therapies.The Genentech Access Solutions department com-prises nearly 400 employees who help patients navi-gate the complex US reimbursement landscape.

For insured patients, Genentech Access Solutionsclarifies benefits coverage and reimbursement re-quirements, helping find ways to assist in coveringpatient expenses where possible. Uninsured patientsor patients who qualify for assistance can obtain freemedicine from GATCF.

In 2009 the service advised 82,000 people about cov-erage and reimbursement issues and GATCF provided18,500 patients with free treatment worth a total of295 million US dollars.

In Japan, Chugai established the Academy for Ad-vanced Oncology (CHAAO) in 2009, to help bringstandards of cancer research and treatment up to thesame standards as those in Europe and North America.


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Patients and facilities benefiting from clinical trials (excludes Genentech)

2009 2008

Number of clinical trials 1,493 1,535

Number of healthcare centres

involved 27,457 26,652

Number of patients in phase

I–IV clinical trials 269,895 235,420

present both research and clinical findings at medicaland scientific meetings and engage with key leadersin each field.

We collect the information gained through clinicaltrials and post-marketing surveillance and use this fora continuous assessment of the benefits and risksof a product in development or an established medi-cine. We also use it to better plan new clinical devel-opment programmes. We provide this information toregulatory authorities as required.

We apply strict data protection principles to allpersonal medical data collected during clinical trials,in line with our directive on the protection of personaldata. These principles apply equally to data aboutour customers, suppliers and employees.

Patient safetyAll medicines may cause adverse effects (side effects)in some patients. Our priority is to make sure the ben-efits of taking our products in clinical developmentand our medicines outweigh any identified or expec-ted safety risk. We have robust processes operatingworldwide to understand our medicines and theiradverse events and to minimise their likelihood. Medi-cines are regularly analysed against various referencedatabases to help us detect potential safety signals.All our products in clinical development have anindividual safety management plan and all our medi-cines have a risk management plan reviewed andapproved by major health authorities.

Continuous monitoring and working with the healthauthorities enable regular updates to prescription

Impact of our access programmes

2009 2008

% of HIV-infected patients

living in countries eligible

for no-profit medicines 68% 68%

% of HIV-infected patients

living in countries eligible

for reduced-price medicines 83% 83%

Patients benefiting from USA

patient assistance programmes 40,000+ 38,000+

Clinical trialsClinical trials are essential to demonstrate the safetyand efficacy of new drugs. They also provide educa-tional, financial and medical support for participatinghospitals and access to the latest treatments forcancer, arthritis and other diseases. Patients takingpart in trials receive free access to the most advancedtherapies during the trial and when there are no validtherapeutic alternatives this continues until the drugis available for sale or on prescription. We do notperform clinical trials in countries where we do notplan to market the drug.

People seeking new clinical trials to take part in orwishing to learn from the results of completed trialscan access this information at www.roche-trials.com.

As of 31 December 2009 the site contained detailsof 649 pharmaceutical protocols, 28 diagnostic proto-cols and 283 trial results. These studies cover morethan 95 conditions including Alzheimer’s disease,asthma, around 33 cancers, cardiovascular disease,depression, diabetes, hepatitis, HIV/AIDS, influenzaand obesity. The website had more than 430,000page visits in 2009 representing more than 65,000visitors. Details of our clinical trials are also availablethrough the International Federation of Pharmaceu-tical Manufacturers and Associations (IFPMA) clinicaltrials portal at www.ifpma.org/clinicaltrials, andthe US National Institutes of Health’s global registryat www.clinicaltrials.gov. We publish our clinicaltrial data to ensure that all lessons from these trialsare made accessible to the wider community. We also



instructions (labelling and product information),including emerging safety information, contraindica-tion and special precautions of use. When necessary,letters are sent to physicians and healthcare provid-ers allowing them to adjust their medical practice.

Diagnostics products may give erroneous results,caused by a product performance or user handlingissue. This could eventually lead to an incorrect ther-apy for a patient. During the development of diagnos-tic products, extensive testing is performed usingpatient samples under various realistic conditions toensure optimal performance of the final product.

We investigate all reported adverse events to ascer-tain if they are related to our products. If there is alink, we re-evaluate whether the benefits of the medi-cine or diagnostic product still outweigh the risks.We also have robust procedures in place to promptlyinform patients, physicians, healthcare providersand regulators of any new product safety information.

We have a robust process to ensure that productscan be recalled rapidly and withdrawn from circulationif unanticipated issues with their quality arise. In 2009there were no recalls involving the public.

Patient advocacyWe share with patient groups an interest in helpingpatients understand and manage their diseaseand gain access to the information and treatmentthey need.

While their aims vary, each patient group interactswith many patients and carers, understands theirneeds and priorities and knows how to provide emo-tional support and practical advice. We describeour approach to working with patient groups in ourposition statement and guidelines for working withpatient groups, which are available on our website.

Transparency is fundamental to successful partner-ships with patient groups. In 2009 we listed all thepatient groups we support financially on our website,by country and with a short description of the activity

we support. We publicly list patient groups we givenon-financial support to if the support is significant ormeaningful, as guided by European Federation ofPharmaceutical EFPIA Industries and Associations.

Examples of patient advocacy we supported in 2009include the World Hepatitis Alliance’s work to raiseawareness of viral hepatitis and promote action toimprove patient care. We continued to support theEuropean Patients’ Rights Day organised by ActiveCitizenship each year. In 2009, 34 patient groups in24 European countries celebrated the third Patients’Rights Day.

Education and awarenessOur affiliates often get involved in initiatives to raiseawareness of disease. For example, Roche Turkeyheld a one-day cycling event at a shopping mall inIstanbul, in partnership with the Turkish BicycleFederation and the Ministry of Health’s cancer controldepartment. Roche made a donation to the patientorganisation, Hand-in-Hand Against Cancer, on be-half of each person taking part. Demonstrationson prosthetic breasts helped train women in self-examination.

In Brazil, 12 million people have diabetes but 44%do not realise it. Roche Diabetes Care challengedfashion students to design a practical and fashionableaccessory for carrying Accu-Chek blood sugar testsand other diabetes care items, to raise awarenessof the disease among teenagers and young adults.

2010 goalsInitiate Roche oncology sustainability initiative in• sub-Saharan AfricaExpand partnership with Albert Einstein College of• Medicine in Ethiopia to include oncology trainingHost, in collaboration with Novo Nordisk and the• World Diabetes Foundation (WDF), a LeadershipForum in Africa to address the Diabetes epidemic.


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More on the web Personalised healthcare: • www.roche.com/phc_in_r_d Roche position statements on personalised healthcare, access • to medicines and diagnostics, pricing, neglected diseases, and working with patient groups: www.roche.com/policies_guidelines_and_positions Access to medicines report • www.roche.com/sust-access.pdfProgrammes in LDCs: • www.roche.com/programmes_in_least_developed_and_ developed_countries Programmes in developed countries: • www.pparx.org www.GenentechAccessSolutions.com Roche trials and patient safety: • www.roche-trials.com www.roche.com/clinical_trials www.roche.com/managing_medication_safety List of patient groups supported: • www.roche.com/patient-groups


http://www.roche.com/programmes_in_least_developed_and_developed_countries


People

is illustrated by our consistent ranking as an Employerof Choice (see the table below for a selection of ourawards).

‘I truly believe that we’re in the golden age of diseaseresearch and drug discovery. It is now possible totackle disease biology with the same rigour as basicbiology. Because of this convergence of medicineand science, I can’t think of a better place to be thanGenentech. The quality of the science here is onpar with that of top academic institutions. It is exhila-rating to experience the combination of scientificexcellence with state-of-the-art resources, enormouslytalented colleagues and the culture of risk-taking wehave here.’

Marc Tessier-Lavigne, Ph.D., Executive Vice President,

Research, and Chief Scientific Officer

For over a century, Roche has stood for innovation andentrepreneurship. Our history of achieving our busi-ness goals and excelling in science and innovation isa result of consistently employing the best people.

We succeed because of our people — people who arepassionate about making a difference to patients’lives; people who lead and drive change; people wholive our corporate values — integrity, courage andpassion. We have 81,507 employees behind our cur-rent success.

We keep our employees engaged and performing atthe highest level by creating a working environmentin which everyone feels valued and respected; wherethey can develop to their fullest potential and canmake their own mark. Our progress in achieving this

Employer of choice — Selected external awards (with rankings 1 to 3)

Award Roche site Rank Description

Science Magazine’s Top Employer Genentech 1st Genentech won the Biopharmaceutical

Industry prize for the seventh time

San Francisco Business Times

Best Place to Work

Genentech 1st The rank is based on employee responses

to a questionnaire and includes

companies in the Bay area with more

than 1,501 employees

Total E-Quality Germany Roche Germany n.a. Total E-Quality awarded for the second

time for Roche’s successful and sustained

equal opportunities commitment

Arizona Bioindustry Association

Bioscience Company of the Year

Ventana Medical

Systems/Roche

Tissue Diagnostics

1st The award recognised Ventana’s

development and growth

Best Places to Work Survey,

Best Pharma/Biotech Company

Roche Denmark 1st Roche was voted Best Pharma/Biotech

Company in Denmark for the fourth

consecutive year, and second amongst

all sectors

Actualidad Económica

Best Companies to Work For

Roche Spain 1st Roche ranked 1st in the Pharma Industry

and 5 th overall

Trendence Top Employer Roche Switzerland 3 rd Switzerland’s students voted Roche

the country’s third best employer in its

Technology & Science edition

15_L_Roche_AR09_ENG_Corporate Responsibility Part2 indd 104 29 01 2010 09:43 51

105

Engaged employeesThe global Listening to You survey, conducted in early2009, aimed to measure the effectiveness of internalcommunications and employees’ attitudes to the com-pany and their work. Over 30,000 employeesresponded.

Overall, 91% of respondents expressed satisfaction intheir job and felt they were appropriately engagedby Roche. The vast majority (89%) felt proud to workfor Roche and would recommend the Group to othersas a good place to work.

Nearly 90% said they have access to the informationthey need to do their job well. Employees felt wellinformed about our major products, business strategyand financial performance. We will carry out anothersurvey in 2011.

Employees (FTE *) by operating divisions

2009 2008 Variance

New Pharma 48,341 47,551 1.7%

Chugai 6,632 6,590 0.6%

Diagnostics 25,967 25,404 2.2%

Other 567 535 6.0%

Total 81,507 80,080 1.8%

* full-time equivalent, FTE.

Employees by contract types

2009 2008 Variance

Regular (FTE) 79,631 78,320 1.7%

Temporary (FTE) 1,876 1,760 6.6%

Headcount 82,428 80,400 2.5%

Full time (HC) 77,866 76,058 2.4%

Part time (HC) 4,562 4,342 5.1%

Asia | 14,169

Europe | 35, 310

+2.1 %

North America | 25, 412

-1.6 %

-1.2 %

+6.4 % +0.5 %

+8.5 %

Australia | 891Africa | 795

Latin America | 4, 930

Roche Employees worldwide

Today we employ some81,500 employees,around 2% more thanin 2008. All of themare driven by the samespirit and pursue thesame goal: to createnew and better ways toprevent, diagnose andtreat new diseases.

Employees

Variance 2008 | 2009



During the Roche-Genentech integration, we pro-vided relevant information to employees quickly andtransparently using an integration web portal andemployee road shows. The electronic platform allowedus to communicate management decisions instantlyand attracted, on average, 12,000 unique visitors perweek between April and August — mainly from theUS and Switzerland. We held road shows at all affectedsites and used them to introduce new members ofthe management team. We filmed these events andposted the videos online. Together with key presenta-tions, these videos provided direct input on strategicdirection and other news stories. Pictures and per-sonal stories from employees helped people fromeach company connect more easily.

A survey at Genentech showed that employees remainpositive after the merger — despite having experi-enced uncertainty and loss as a result. Genentechemployees remain proud of their culture and its posi-tive impact on patients’ lives.

The survey also showed that Genentech’s focuson patients and commitment to science inspires andmotivates employees. Almost all employees (93%)are committed to the success of the merged company,want to stay with the company for at least a year(91%), or want to stay at Genentech for a long time(86%).

Fostering diversityOur focus is to ensure diversity in our workforce.An inclusive work environment allows us to leveragethe potential of all employees irrespective of age,gender, ethnicity, disability, work style, experiences,family situation, or working needs.

We do not tolerate discrimination of any form, asstated in our worldwide employment policy. Wehave management training programmes and a widerange of initiatives at affiliate level to encourageand safeguard employee diversity. For example, ourNutley site in the US has a dedicated departmentto manage diversity. It sets annual plans to evaluatehow employment decisions may adversely affect

certain candidates and to demonstrate progresstowards government goals for women and minorities.

We sponsor and support a number of employee affinitygroups, associations and networks. The GO & E —Genentech Out & Equal Group — aims to promotea workplace environment that embraces all employeesregardless of their sexual orientation. AAIB —African Americans in Biotechnology — is dedicatedto achieving a culturally diverse environment whichimproves the development of drugs to addressthe unmet medical needs of a more culturally diversepatient population.

The Integra project at Roche Spain also encouragesgreater understanding of disability among employeesand aims to increase the number of hires with dis-abilities. In Italy, collaboration with local institutionsover the last two years has enabled us to recruit andonboard five additional disabled persons.

People from over 79 countries — from Australia,Uruguay to South Africa — work for Roche in Switzer-land. In total more than 126 nationalities are repre-sented worldwide at Roche.

Women account for nearly half (46%) of employees and37% of managers globally. Women also make up morethan 46% of the workforce in over 90 of our 140 affili-ates. In 33, women account for more than 50% of man-agement. Examples include Australia, where womenaccount for 68% of employees and 58% of manage-ment, and Hungary with 81% and 75%, respectively.

Gender diversity

2009 2008 2007

Women in total

workforce 46% 46% 45%

Women in management 37% 37% 32%

Women in senior

management 28% 29% —

Women in executive

management positions

i.e. top 120 9% 8% 7%


107

‘Genentech challenges our scientists to discover newbiology and to translate these findings into novelmedicines to help patients. Success requires a fear-lessness and willingness to attack the most difficultscientific and clinical problems and not to be deterredby the trials and tribulations of scientific discoveryand unknowns of medicine. I feel fortunate to have theopportunity to work alongside our research, develop-ment and clinical scientists to meet these challenges.’

Andrew C. Chan, MD, PhD, Senior Vice President, Immunology and

Antibody Engineering

We recognise innovation among our employees throughinternal awards. These include prizes for improvinganimal welfare in our trials, implementing innovativeinformatics solutions and proposals that improvepatients’ lives. The Roche Pharma CEO Awards recog-nise teams that have passionately pursued innovativesolutions for patients, creatively improved the waywe work and pushed science, marketing and opera-tions to the next level. In 2009 more than 165 teamsfrom every region, disease biology area and functionparticipated in the programme. Winning teamsincluded Roche employees at every stage in theircareers — from young post-docs to senior researcherswith decades of experience.

Our Postdoc Fellowship programme awards our bestscientists with grants to conduct exploratory research,which helps us reinforce our talent pipeline in R & D.

‘Knowledge is an essential aspect in Roche that multi-plies when it is shared and cleverly used. The keyis to develop a participatory management style whereteams share their ideas and develop different waysof doing things in a framework of mutual understand-ing. It is a privilege to work in a company that recog-nises the performance and potential of its talentsregardless of their background and experiences evenwhere these might not reflect the traditional route orthe expected profile. Roche encourages its employeesto rise to, and face professional challenges thusallowing them to grow and reach different positions.’

María Jesús Alsar, Onco-Hematology Director, Spain

Women In Leadership Network, Basel and GenentechWomen Professionals both aim to provide a forumfor women which recognises their unique strengthsand talents and in which experiences can be sharedand leveraged.

Encouraging innovationRoche is a global, innovation-led company. We haveto balance the need for efficiency and consistencythrough standardisation with a competitive environ-ment in which innovation thrives.

Innovation is driven by different and often conflictingapproaches, ideas and experiences. While ensuringthat our main functional processes are aligned acrossthe Roche Group, including Genentech, we decidedto keep the research and development laboratories(Genentech Research and Early Development — gRED)independent to ensure its interaction with externalresearch institutions was not disrupted. gRED has itsown budget, portfolio management and culture — allof which are fundamental to innovation. We createda parallel Pharma Research and Early Developmentorganisation (pRED) comprising the various R & Dcentres outside Genentech to stimulate the differentperspectives critical to successful innovation.

Employees FTE by function

2009 2008 2007

Servicing 13,408 12,292 12,215

Manufacturing &

Logistics 16,395 15,381 14,262

Marketing &

Distribution 28,682 28,426 28,107

Research &

Development 18,894 18,518 18,580

General &

Administration 4,128 5,463 5,440

Total 81,507 80,080 78,604



Turnover (regular employees) *

2009

Total 7%

Europe 5.1%

Latin America 13.4%

North America 7.8%

Asia 7.2%

Australia 10.9%

Africa 18.3%

* Including non standard temporary contract ends.

Reasons for leaving

2009

Employer-related 40%

Employee-related 51%

Neutral* 9%

* Such as temporary contract ends, health issues and retirements.

Roche’s turnover shows a strong decreasing trend(–30%). This trend is confirmed particularly by thenumber of employees leaving of their own accord(from 58% in 2006 to 51% in 2009). Over 35% of ouremployees have been with Roche for more thanten years.

Developing employees Development is a priority for all employees in an inno-vation-driven organisation. We want employees todevelop to their fullest potential and support them atevery stage in doing so.

Performance management | Regular feedback andan open dialogue between employees and theirmanagers is a critical activity for which we hold bothmanagers and employees accountable. In 2009, 92%of our employees took part in performance manage-ment programmes and 43% in formal career develop-ment planning.

Attracting employeesWe work hard to keep our recognition as an employerof choice. This is critical to our ability to hire andretain outstanding people who are committed to ourgoal of improving people’s health and quality of life.

Roche’s strong and sustainable brand enables usto attract the right people. We have built a large anddiverse pool of candidates, dedicated in-houserecruitment teams and globally aligned recruitmentprocesses, standards and technology. Our careerswebsite expanded in 2009 to improve the local visibilityof all available positions (including at Genentech).The site had some two million unique visitors in 2009and registered more than 388,400 spontaneousapplications. We also continued to roll out Taleo, ourglobal e-recruiting platform. Launched in 2005in just three countries, Taleo is now available in over62 countries worldwide.

We continued to deploy our global employer brandin 2009 — ‘Make your mark. Improve lives’ — to improveawareness of Roche as an employer of choice andto differentiate us from our competitors.

Hiring and retention | A large integration requiresa sharp focus on retention. Our decision to maintainGenentech’s unique research operations was onemeasure to aid retention, accompanied by additionalhealth benefits, outplacement services and cashpayments. We have continued to attract top scientistsand other high-profile talent since the deal wasclosed. Genentech hired 1,364 people in 2009, in-creasing its total workforce by 12% .

Staffing rates

2009 2008

Number of vacancies 11,268 13,911

New hires 8,192 9,169

Internal staffing rate 29.3% 34.5%

External staffing rate 70.6% 65.5%


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potential leaders (3.8% of total headcount), of whichone third are women.

Within the global leadership portfolio, we have pro-grammes addressing each category of high-potentialleaders — from those who will assume a Globalleadership position in the long term to those who cansucceed a key position holder in the short term.In 2009 these programmes targeted the top 5% ofemployees and included:

Explorations — includes an assessment of leader-• ship skills, feedback and coaching by seniorleaders early in an employee’s career, to enablethem to build focused development plans.In 2009, 24 employees participated (7 women).Perspectives — a two-year programme in which• we prepare early high-potential leaders forsignificant management responsibilities. They workin four different functions and regions. In 2009,9 participants joined for the first time (4 women).Horizons — gives mid-term high-potential employ-• ees an accelerated global and cross-functionaldevelopment experience in critical areas such asleadership, innovation, risk taking, customerorientation and change. In 2009, 48 employeesparticipated (12 women).Reflections — provides an assessment of the most• senior high-potential employees on their individualstrengths, areas of improvement and potentialbased on the Roche Values & Leadership Compe-tencies. In 2009, 21 candidates (3 women) tookpart.

At a time of significant organisational changes, wefilled more than 30% of our open positions internally.

International Mobility | While some 7,865 vacancies(70% of the total) are filled by external candidates,we offer professional and personal developmentopportunities to our own employees through internalmoves. This not only helps Roche retain key personnel,it enables us to leverage potential within the Group.An increasing amount (over 12%) of this mobilitygoes across affiliate and national boundaries. Of our495 expatriates and cross-boundary employees,

Employee training

2009 2008

Total training spend (millions

CHF) 146 139

Training spend per employee

(CHF) 1,794 1,734

Total number of training hours

(million) 2.16 2.40

Average training hours per

employee 26 29

Number of postdocs, students

and interns * 429 335

* excluding Genentech and Chugai.

Learning | Roche offers extensive support to em-ployees for the development of functional, profes-sional and leadership skills. Our major Diagnosticsand European Pharma affiliates, accounting for38% of the total Roche population, offered nearly13,000 courses in 2009 through our commonCHRIS platform. Over 28,000 training sessions(classroom and web) took place and we registeredclose to 552,000 bookings.

Succession and talent management | In an organi-sation characterised by change, leadership skillsare increasingly important. During 2009 we ensuredfull coverage of our Global leadership programmeportfolio, providing key programmes at every stage inthe leadership development pipeline. In 2010 Roche’sLearning and Development department will createa common framework for leadership development,linking Global leadership programmes with existinglocal, regional and functional initiatives. This willgive employees and managers access to a catalogueof leadership programmes.

High-potential leaders are people with the ability totake on critical senior roles in the short, mid orlong term. Identifying and developing these employeesensures we have a robust and diverse pool of can-didates for critical positions. We identify and confirmthese individuals in talent assessments and reviewsduring the year. In 2009 we identified 3,119 high-



We also reviewed compensation practices at Rocheand Genentech, and moved 10,653 Genentechemployees to Roche long-term incentives. This meansthat apart from Chugai employees, all long-termincentives in the Group are now on the same RocheHoldings securities. More changes to align Rocheand Genentech compensation practices and theperformance metrics used for incentives will comeinto effect in 2011.

Benefits | Through competitive benefits programmeswe help to create an attractive workplace.

Over 97% of our affiliates offer extensive benefits plans.Most go beyond government schemes and includehealth checks and free access to a wide range ofmedical services. We have also introduced programmesthat encourage a healthy lifestyle through wellnessprogrammes, health education, fitness centres, swim-ming pools and relaxation initiatives. We now haveTai-Chi classes at our Brazilian, Italian and Mexicanaffiliates and have incorporated it in workshopsapplied by our Lifecycle teams. We have been triallingpower napping and are offering healthy food optionsat our headquarters in Basel. We continue to offerbenefits to our retirees at several of our affiliates, suchas Switzerland — including access to employeerestaurants, sports and leisure activities and travelchecks.

We have increased our focus on flexible workingarrangements. After successful pilots at our Welwynsite in the UK, our Basel headquarters introduceda pilot to accommodate different working stylesor family situations through home working and desksharing. The pilot aimed to identify more attractiveand flexible working arrangements for office workers,as well as testing efficient and sustainable use ofoffice space and infrastructure.

Genentech introduced an online tool allowingemployees to assess whether their tasks are eligiblefor flexible work arrangements.

26% are women, all of them representing 55 differentnationalities.

To encourage mobility within the Group, in 2009 weintroduced the Intercompany Transfer and LocalForeign Hire Policy. This facilitates the recruitment andrelocation of foreign hires and of permanent cross-border moves within the Group. Local mobility initia-tives such as our Local Plus policy in China helpattract top talent to China, especially individuals whohave international experience and want to return.

We have also revised our international assignees policyto improve the flexibility needed to address markettrends, changing demographics and evolving businessneeds. This revision responds to the findings ofa survey of 600 assignees and their partners. Therevised policies will be rolled out in 2010.

Rewarding and recognising employeesThe total compensation package we offer makesa significant contribution to attracting, rewarding,recognising and retaining the right people.

Our total remuneration costs in 2009 amounted to12 billion Swiss francs (an increase of 8.5% from 2008).Our base pay packages reward individual perform-ance, recognising both what was achieved and howit was done. Through variable pay, we incentiviseemployees who create new opportunities and strivefor outstanding results. Variable pay is driven byindividual and team objectives and by the Group, divi-sional and affiliate performance.

We want our employees to share in our success.Through Roche Connect, employees in most countriescan purchase Roche’s non-voting equity securitiesat a discount of up to 20%. In 2009, 16,604 employeesin 42 countries — 37% of those eligible — participatedin Roche Connect, 1% more than in 2008. We alsoaward non-voting equity securities to managers, basedon their performance, through the Roche Long TermIncentives Plan. A total of 3,480 managers took partin 2009, with 589 joining for the first time.


111

We also aimed to increase the consistency of ourbenefits programmes around the organisation. Ourgoal is to align benefit programmes within countriesso we can offer attractive benefits to all our em-ployees, regardless of affiliate or division, consistentlyand efficiently.

In 2009 we started the harmonisation of the benefitplans of our North American affiliates — coincidingwith the Genentech integration. We will launch the newprogramme in October 2010, and it will come intoeffect on 1 January 2011. Similar benefit-harmonisa-tion programmes are ongoing in Switzerland, Spain,France and the United Kingdom.

As a result of the financial crisis and the fall in globalequity markets, some of our pension funds around theworld faced challenges maintaining a healthy fundingposition. Where underfunding has arisen, Rochehas taken steps to develop appropriate strategiesin accordance with the local statutory regulationsand practices, and in consultation with employeerepresentatives, including additional cash injectionsand recovery plans. Some of our major pensionfunds have removed early retirement incentives andhave introduced more flexible retirement modelsto anticipate the impact of an ageing workforce.

Simplifying and aligning processes in Human Resources All of our HR processes (except those at Genentechand Chugai) now run on one Common HR InformationSolution (CHRIS). This uses transactional and report-ing systems and is aligned with Taleo, our globale-recruiting solution.

Introduced in July 2009, CHRIS replaces severallegacy solutions and enables standardised, streamlinedand simplified HR processes across the Roche Group.Our aim is to ensure consistent HR services andincreased efficiency. CHRIS covers 149 affiliates andrepresentative offices and 78% of Roche employees.Genentech and Pharma North America will fullyjoin in 2011. CHRIS is managed by a global supportorganisation and network of servicing hubs.

Human rights and labour relationsRoche has a comprehensive employment policy,which covers human rights. The Group ComplianceOfficer monitors this policy and serves as a contactfor all employees.

Roche respects the right of employees to freedomof association and collective bargaining. More than6,708 of our employees are union members andover 37,713 are members of organisations that freelyrepresent them (in countries where this is legal).The Roche Europe Forum represents nearly 34,900employees in 26 countries. At global level, we haverecently installed an Employee Relations officer.

Our directive on the protection of personal data safe-guards information about employees and complieswith the relevant local legislation. Where appropriate,we have negotiated data privacy agreements betweendifferent parts of the business or with works councils.

More on the webEmployees: www.roche.com/employees• Group policies, positions and guidelines: • www.roche.com/policies_guidelines_and_positionsGlobal careers portal: http://careers.roche.com• Employment policy: www.roche.com/employment_policy.pdf• Core standards: www.roche.com/commitments•



Our support for communities focuses on programmesand areas that are aligned with our business model.We believe we can enhance the innovation, sustainabil-ity and impact of our business through appropriatedonations, sponsorship and employee volunteering.This inspires and motivates our staff and ensuresRoche remains a committed corporate citizen.

Monitoring the impact of our community work givesa more accurate assessment of our programmes’success than publishing detailed financial informationabout our donations. For example, our GeneticsEducation Programme for educators in Switzerlandand Germany reached nearly 1,250 people. With60 teachers enrolled in the workshops, the subsequentknowledge transfer reached their colleagues, pupils,and even friends and family. We will expand it inSwitzerland and neighbouring regions of Germanyin 2010.

All philanthropic donations and non-commercialsponsorships are monitored internally through theFinancial Group Reporting System. The CorporateSustainability Committee is responsible for monitoringtheir impact.

In 2009 the Roche Group approved an updated Corpo-rate Policy on Philanthropic Donations and Non-Commercial Sponsorship. The policy stipulates that allphilanthropic projects should focus on innovation,collaboration, quality and sustainability. It comfirmsour priority areas as humanitarian and social, scienceand education, culture and arts, and community andenvironment. Our humanitarian and social programmesinvolve promoting sustainable access to our medi-cines and diagnostics. We only donate drugs in disas-ter and pandemic situations.

The policy also ensures our donations target afocused number of non-governmental organisations(NGOs) to which we can make a significant differ-ence, rather than diluting our donations amonga large number of NGOs. We exclude governmental,political and religious organisations.

Community support in 2009 by area

% of total

Humanitarian and social projects 75%

Science and education 17%

Arts and culture 5%

Community and environment 3%

Supporting future science Young scientists are our future employees. Nurturingtheir talent ensures Roche remains an innovativeand successful company. For example, we have foun-dations to support research and education pro-grammes around the world, including the Fondationd’entreprise Roche in France, the global RocheOrgan Transplantation Research Foundation and theGenentech and Roche Foundations in the US.

The Roche Postdoc Fellowship Programme completedits first full year in 2009. The programme aimsto encourage creativity in science and strengthenacademic networks through support for talentedpost-doctorate students on two- to four-year researchprojects with leading academic institutions. In 2009we offered 19 post-doctorates, taking our total sincethe programme launched in 2008 to 52 people.We plan to increase that number to 100 by the endof next year.

In 2009 we piloted the Research Exchange ScholarsProgramme. The initiative supports science educationby giving gifted secondary school students the chanceto go on international exchanges. The first exchangefeatured two biotechnology specialist schools fromthe US and Germany. Three students from eachschool undertook a six-week internship at the other,which included individual mentoring ata local university.

The 2009 Congress of the European Society for Medi-cal Oncology (ESMO) awarded Roche in recognitionof our support for its Young Oncologist Fellowshipprogramme. We have supported ESMO since it wasfounded in 1975 through clinical and transnationalfellowships. These have helped young oncologists gain

Society


113

We set up the Roche Employee Action and CharityTrust (Re & Act) in 2006 as an independent charityorganisation to manage employee donations. Itdistributes funds to community projects and disasterrelief efforts around the world. Since an earthquakein 2007 Re & Act has maintained ongoing assistanceand reconstruction in the town of Chocos, Peru.In 2009 the project built a community canteen and12 new homes capable of withstanding anotherquake, as well as completing the community’s dam.

The annual Roche Children’s Walk has been goingsince 2003. However, it did not take place in 2009 asit has been moved from December to July to increaseparticipation. Nonetheless, Re & Act’s work withthe European Coalition of Positive People and UNICEF,Switzerland, which both have long-term projectsto support children impacted by HIV/AIDS in Malawi,continued. Roche employees were still invited todonate in 2009 and we guaranteed financial coverageto ensure the children do not suffer in the interim.To date, the walk has raised enough money to build andfurnish 18 new classrooms, accompanying teachers’offices and sanitation and hygiene facilities for nearly1,500 primary school children. The sponsored walkhas also helped fund education for 108 secondaryschool students and five further education students.

In rural South Africa there is just one doctor for every4,000 patients. The Phelophepa Health Care Trainaims to reduce the burden by providing a mobile healthclinic to more than 45,000 people. We have supportedthe service since it began 15 years ago and in 2009additional funding from Roche contributed to a cancerhealth awareness service. The new service includescancer screening, training for staff, community cancerawareness events, patient counselling and educationfocused on breast, cervical and prostate cancer.

More on the web Roche social programmes: • www.roche.com/societyRoche ’n’ Jazz: www.roche-n-jazz.net • Re & Act: http://react.roche.com•

research experience in renowned European cancercentres. Our ongoing education programmes includea two-day bioethics teaching workshop for secondaryschool teachers in the US and our partnership withthe New Jersey Institute of Technology to supporta one-day education programme for primary andsecondary teachers.

Encouraging innovation in the artsWe support music and the arts because the creativityand innovation of those disciplines reflects ourbusiness model. We believe lessons can be sharedbetween arts and science. In 2009 we held thethird Roche Continents event to encourage artisticinvolvement among young people. Around 100 futurechemists, biologists, medics, psychologists, musi-cians, set designers, recording engineers and operasingers from universities all over Europe attendedart and science workshops and contemporary classicalmusic performances at the Salzburg Festival.

Roche Commissions sees us sponsor a new musicalpiece by an outstanding contemporary composerevery two years. Toshio Hosokawa will present hiswork in 2010. In addition, Chugai again sponsored theStar Philharmonic Christmas Concert in Yokohama,Japan, which supports early cancer discovery andtreatment.

Supporting our communitiesWe want employees to contribute to their local com-munities, so we encourage them to identify theprojects that they feel would be most worthwhile.While Roche has a range of Group projects, weencourage staff to fundraise and volunteer alongsidetheir work commitments.

Genentech Goes to Town is a community relationsproject set up in 1993. Genentech gives employees25 US dollars worth of vouchers to spend in localshops over two weeks, encouraging them to developlocal businesses. The programme has spent morethan 1.9 million US dollars in local shops since incep-tion, with more than 200 businesses participating.



Safety, security, health and environmental protection(SHE) are critical for our business. We take SHEinto consideration in all our activities. The Roche Cor-porate Principles and SHE Policy commit us to thehighest SHE standards. In 2009 we invested 159 mil-lion Swiss francs in SHE infrastructure and 294 millionSwiss francs in SHE operating costs.

SHE managementA 36-strong team coordinates SHE within Roche. Wehave 680 full-time SHE employees to ensure ourperformance. New SHE Officers attended a trainingweek to learn about our SHE Policy, strategy, Guide-lines and processes. Attendees discussed Roche’sSHE responsibilities and how to access relevantexpertise. They also learnt how to establish and main-tain a risk management system at their sites. Weheld regional workshops for existing SHE Officers ontopics such as energy efficiency, security and indus-trial hygiene.

Everyone at Roche is responsible for ensuring healthand safety and for minimising the environmentalimpacts of our operations. We need everyone to under-stand our SHE standards, so we offer site-specifictraining, including lectures and practical courses. Wehave also begun a basic one-hour SHE e-learningmodule for all employees. In 2009, 60,052 employeesreceived an average 2.7 hours of SHE training each.

It is important to understand SHE risks across thebusiness, so we can develop local safety measures aswell as Group-level responses. We list all SHE riskson a web-based inventory accessible by all managersacross the business. Individual site managers andSHE Officers implement the SHE Policy and Guide-lines locally. In the Pharmaceuticals and DiagnosticsDivisions, eco-delegates raise awareness of environ-mental issues.

We monitor the implementation of the SHE Policyusing regular site audits and we use the resultsto improve performance. In 2009 we conducted27 audits, revealing no major deficiencies buthighlighting the need to update site risk analyses.

We train employees who handle chemicals as part oftheir work to use them properly and we providesafety data sheets for over 1,000 specific chemicalson our website.

We hold our ECOmpetition every three years to raiseawareness of environmental issues among employeesby encouraging them to suggest new ways to reduceour impacts. The 2009 competition — our fifth — elicitedmore than 335 proposals from 428 people at 46 sites.The 29 winners included:

Roche Palo Alto, US — retrofitting cooling equip-• ment to replace halogenated hydrocarbon(HCFC) with hydrocarbon refrigerants (propaneor propylene)Roche Jacarepaguá, Brazil — recovering solutions• from tubing using a polystyrene plug rather thanwater and nitrogenChugai Pharma, Japan — regenerating emergency• batteries in uninterrupted power supplies insteadof replacing them.

The annual Roche Responsible Care Awards encour-age sites to suggest energy efficiency improvements.In 2009, 50 submissions from 21 sites stood out,including:

Roche Bezares, Mexico — Solar boilers installed• to provide hot waterRoche Diagnostics, US — Controlled lighting• during quiet periodsRoche Diagnostics, India — A special glass façade• was installed to save energy costs.

SecurityWe appointed a Corporate Security Officer (CSO)in 2007. In 2009 we set up a network of morethan 100 Site Security Officers (SSOs) and issueda Corporate Directive to define their responsibilities,as well as our security principles and generalprocesses. The Directive describes minimum stand-ards to protect employees, visitors, physical assets,products and business-sensitive information.

We also introduced a global security incidentreporting tool that allows SSOs and the CSO to analyse

Safety, security, health and environmental protection


115

incidents and establish corrective measures. In 2009we focused on counterfeit products and prevented thesale of significant quantities of fake products.

Health and safetyThe Roche Accident Rate (RAR) measures thenumber of working days lost due to occupationalaccidents per employee per year.

In 2009 the RAR was 0.074. This represents a 5.9%improvement from 2008 and is comfortably below the0.079 Group goal for 2010.

Health and safety

2009 2008 2007

Roche Accident Rate 0.074 0.078 0.076

Occupational accidents 392 474 482

Occupational illnesses 227 270 311

Work-related fatalities 0 0 1

Work-related accidents

per million working

hours 2.92 3.42 3.46

We expect contractors who work on Roche premisesto follow the same safety rules as employees.Contractors were involved in 152 accidents in 2009(in addition to those reported for employees),resulting in an injury frequency rate of 1.32 (accidentsper 100,000 working hours).

Employees suffered 227 cases of occupational illnessesin 2009, a decrease from 270 in 2008. The numberof working days lost was 607 — the same level as in2008. Locomotor disorders, especially repetitive straininjuries, accounted for more than two-thirds of thetotal. We work to reduce these injuries through localergonomic programmes, improved office equipmentand individual assessments. Genentech’s ergonomicsprogramme addresses cumulative trauma andincludes a dedicated training website. The South SanFrancisco site has three ergonomics showroomsallowing staff to test products for the office, plant andlaboratory.

A Group-level body investigates significant SHEincidents and communicates the relevant findingsacross the company, including for use in trainingprogrammes, where suitable.

Environmental footprintOur environmental footprint takes into considerationresearch and production as well as product packag-ing, distribution, use and disposal.

We use the Swiss Agency for the Environment’s(BAFU) ‘eco-balance’ method to calculate our envi-ronmental footprint. It reflects resource use aswell as emissions and waste. In 2009 our eco-balancewas 4.6, an improvement of 7.1% from 2008. Thisreflects significantly reduced emissions to air andorganic materials discharged to water. We arecurrently operating within our target eco-balance of5.92 for 2015.

We also measure environmental expenditure in rela-tion to sales to help ensure we target our investmentin the areas where it will have the most impact.The calculation gives us an Eco-Efficiency Rate (EER),as shown in the table below. This combines dataon energy use, waste, emissions to air and water withexpenditure on environmental protection and sales(a detailed definition is available on the Roche Groupwebsite). In 2009 our EER was 84.02, an improve-ment of 7.8%.

Eco-efficiency rate

2009 2008 2007

Sales (million CHF) 49,051 45,617 46,133

Environmental expend-

iture (million CHF) 186 209 232

Environmental damage

(millions of environ-

mental damage units) 3,14 2.80 2.96

EER 84.02 77.95 67.19

The Roche Environmental Awareness in ChemicalTechnology (REACT) programme promotes sustainablechemistry practices in our R & D labs around the world.



sions factors at some sites whose electricity providersrecalculated the less emission-intensive proportion oftheir energy mix.

Greenhouse gas emissions | tonnes CO2 equivalent

2009 2008 2007

Total emissions 1,053,118 1,062,114 1,052,407

Total emissions

per million CHF

of sales 21.47 23.28 22.81

The 7.8% reduction in emissions in relation to salesshows that Roche is reducing energy use while thebusiness grows.

In 2009 we developed a standard for integratingenergy efficiency management into building projects.This accompanied a new Group-wide Manual onEnergy Efficient Design, which will help us designfuture facilities and refurbished buildings to minimiseenergy use.

Milan has a problem — it is one of the most pollutedcities in Europe. Smog is at a record level, far aboveEuropean Union limits. Roche Monza (Italy) begana programme to reduce its environmental impacts in2007 by modifying transport, increasing recycling and

REACT sets sustainable chemistry guidelines tomeasure the benefits. For example, the Mass IntensityFactor measures the ratio of inputs of raw materialsagainst outputs, while solvent selection guidelines helpemployees choose less harmful solvents. The pro-gramme aims to: support Roche’s sustainability goals;share best practices around the Group; raiseemployee awareness; increase recognition for R & D’ssustainability work; and reduce costs.

Energy and climate changeOur position paper on Greenhouse Gases and ClimateChange guides our Group strategy for decreasingemissions.

We regularly analyse Roche’s vulnerability to thechanging climate. We have not identified any sig-nificant risks to our business from climate change,or any specific business opportunities.

Roche’s energy and fuel use in 2009 totalled13,898 terajoules, an increase of 1.7% from 2008. Thisis mainly due to the inclusion of Genentech’s carfleet for the first time. Energy use is approximately176 gigajoules per employee, a small decrease since2008.

Energy use | terajoules

2009 2008 2007

Total energy use 13,898 13,662 13,664

Total energy use

per million CHF of sales 0.283 0.299 0.296

Total energy use

per employee 0.176 0.178 0.179

Our climate strategy focuses on energy use, whichaccounts for most of our carbon dioxide (CO2) emis-sions. We convert amounts of CO2 and other green-house gas (GHG) emissions such as halogenatedhydrocarbons leaking from refrigeration equipmentinto CO2-equivalents. In 2009 we emitted 1,053 thou-sand tonnes of CO2-equivalents, an absolute decreaseof 0.8% from 2008. This reduction comes despiteincreased energy consumption due to revised emis-

Energy use by type | %

Fuel used by 11.1

company vehicles

Oil 2.1

Fuel due to business 15.2

air travel

Grid electricity 29.2

District heating 3.9

Waste/ 0.9

Renewable energy

Natural gas 37.6


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Genentech met its own 2010 GHG emissions reductiongoal two years ahead of schedule. It will now join therest of Roche’s US affiliates in pursuing a new goal ofdecreasing emissions by 13% by 2013.

Roche has a Group directive on energy conservationwhich promotes local initiatives. It includes energyefficiency standards for new and existing electricalequipment and requires sites to conduct energyaudits.

The 2009 audits identified opportunities to improveour buildings, utilities, plants and processes, includingthose at Genentech. These include improved meteringand monitoring, retro-commissioning buildingsand adapting lighting and air-conditioning systems.

reducing energy use through sensor lights andenergy-saving light bulbs. In 2009 the site increasedits focus. Lifegate, an external environmental organi-sation based in Monza, now monitors energy andwater use, waste disposal, logistics and employeetransport. The site has also started buying 10% of itsenergy from renewable sources. In addition, an inter-nal awareness campaign has encouraged employeesto get involved in energy-saving initiatives. So far,the site has reduced CO2 emissions by around 45%.

The US Environmental Protection Agency (EPA) hascommended our US affiliates for meeting their goal toreduce GHG emissions by 18% between 2001 and2010 ahead of time. Roche US has pledged to reduceemissions by a further 13% from 2008 to 2013.

Reduce total energy consumption and greenhouse gas emissions

Energy use by selected types 2009

Fuel used by company vehicles Introduced a new target for our European com-pany car fleet to include only vehicles producingno more than 120 grams of carbon dioxide (CO2)per kilometre by the end of 2011.

10%

40%

Fuel due to business air travel Video and teleconferencing facilities have beenestablished at all sites and are widely supported.Employees are encouraged to use trains andto consolidate several business trips into one.

15%

Grid electricity and natural gas Our first priority is to reduce usage of energy.For the energy we do use we look for ways ofimproving the efficiency, such as heat recovery.In addition we encourage the use of greenenergy wherever sensible. To help drive this in2009 we released our Group-wide Manualon Energy Efficient Design for the constructionof future facilities that minimise energy use.

30%



Ozone depletionThe target date for Roche’s directive to phase outhalogenated hydrocarbons (CFCs and HCFCs), whichdamage the ozone layer and affect the climate, hasbeen extended from 2010 to 2012 or 2015, dependingon the local situation. This is due to a lack of acceptedalternatives in some countries. Genentech has notyet defined a target date, but is committed to phasingthese gases out.

Replacements for HCFCs and CFCs, such as HFCs(hydrofluorocarbons) and PFCs (perfluorinatedcarbons), do not affect the ozone layer but they cancontribute to climate change and are persistent inthe environment, so we do not consider them a long-term alternative. Roche has a target to phase outHFCs and PFCs by 2015. Genentech and other recentacquisitions will work to a separate deadline, to bedefined in 2010. Some technical problems continue toprevent us from replacing these in all applications,but we are working to find alternative technologies.

Ozone-depleting chemicals | tonnes

2009 2008 2007

Halogenated

hydrocarbons holdings 179.8 144.6 148.2

Halogenated

hydrocarbons

emissions 6.5 3.4 4.7

Roche’s halogenated hydrocarbons inventory increased24.3% in 2009 due to the introduction of Genentech’sholdings to the Group total. Without this increase,Roche’s holdings would have decreased 6%.

Emissions to airEmissions to air from our operations include volatileorganic compounds (VOCs), particulates, nitrogenoxides (NOx) and sulphur dioxide (SO2). We aimto reduce these emissions, which can contribute toair pollution, smog and acid rain. In 2009 we reducedVOC emissions by 16.9% to 177 tonnes. Our emis-sions of particulates, NOx and SO2 were 27 tonnes,

Despite these central functions, we give sites thefreedom to develop their own emissions reductionstrategies. We believe this approach improves resultsbecause sites are more familiar with their own needsand circumstances. For example, Roche Shanghaihas an ongoing project to increase energy efficiency.The programme has seen the introduction of tripleand double glazing, optimal insulation, geothermalheating and cooling, low-power energy systems andsolar water heating.

Business travel accounts for approximately 15.2% ofour total CO2 emissions overall and our car fleet isresponsible for approximately 11.1%. Employees areencouraged to use trains when travel is necessaryand to consolidate several business trips into one.Video and teleconferencing facilities also help us mini-mise travel. For example, Roche Finland worked withWWF Finland to host the American Society of ClinicalOncology’s annual meeting virtually. In June 2009around 180 customers attended the conference fromtheir clinics, participating through video streaming.Several sites now use Telepresence® systems, whichsignificantly improve the quality of videoconferencing,encouraging increased usage.

A new target for our European company car fleetaims to ensure we will use vehicles producing no morethan 120 grammes of CO2 per kilometre by the endof 2011. This will cut CO2 emissions by 5,400 tonnesand save two million litres of fuel per year.

A number of sites have launched initiatives to encour-age staff not to use private cars to commute to work.At Genentech, for example, the gRide programme haspromoted alternatives such as vanpooling, masstransit, cycling, walking and Genenbus shuttles since2006. The shuttles were updated in 2009 with newer,more efficient models that meet the US EPA’s 2007standard for particulate emissions. At Rotkreuz,Switzerland, we have introduced an annual bonus of360 Swiss francs for staff who commute to workwithout using a car or motorbike.


119

286 tonnes, and 9 tonnes, respectively. These fluctuateat low levels from year to year.

Emissions to air | tonnes

2009 2008 2007

VOCs 177 213 240

Particulates 27 27 25

Nitrogen oxides 286 193 169

Sulphur dioxide 9 10 12

WasteAround 96% of our chemical waste is incinerated,the disposal method with the least environmentalimpact. In 2009 we produced 27,605 tonnes of chemi-cal waste, an 11.8% decrease from 2008. This doesnot include waste that can be reused as raw materialsby other companies. In 2009 we sold around4,000 tonnes (mostly solvents) for reuse.

In 2008 we engaged in significant building activ-ity, while 2009 was characterised by buildingdemolition. We generated 53.7% less general waste(19,828 tonnes) but our recycling rates increased374%, due to 104,817 tonnes of building rubble madeavailable for recycling (mostly metals and concretesold to other companies for reuse). Excluding thisbuilding rubble we recycled 30,671 tonnes, 7.3%more than last year. We decreased general waste sentto landfill by 63.6%. 31% of the total 19,828 t wereincinerated.

Waste | tonnes

2009 2008 2007

General waste

produced 19,828 42,823 17,480

General waste

per million CHF

of sales 0.4 0.94 0.38

Chemical waste

produced 27,605 31,295 38,167

Chemical waste

per million CHF

of sales 0.56 0.69 0.83

We monitor landfill sites to ensure our chemical wastedoes not pose a risk to human health or the environ-ment. Some landfills need to be sustainably remedi-ated. In 2009 we completed a project to remediate theHirschacker landfill in Grenzach, Germany. Rochevoluntarily financed this project. In 2009 we madeavailable approximately 247 million Swiss francs forother such projects.

Water We need clean water for manufacturing, but weunderstand the need to reduce our water use. Basedon the Global Reporting Initiative’s definition ofwater consumption (water used in products, cooling,and irrigation), our use increased by 16.3%. Weused 2.8 million m3 of water in 2009.

The water we use can be contaminated during manu-facturing, so we treat wastewater to ensure it issafe for people and the environment. We continue todevelop ways to increase our capacity to treat waste-water around the Group.

One of the winning submissions of ECOmpetition 2009came from Roche Penzberg, Germany. The submissionoutlines a proposal to use residual water from thedistillation of purified water to generate steam for theplant’s boiler.

In 2009 we decreased the amount of organic materialdischarged into water courses after treatment by74% to 154 tonnes. This is mainly due to a recalcula-tion of data from two sites because investigations intodifferences at similar sites revealed that they hadover-reported in previous years. We also released426 kilograms of heavy metals such as chromium,copper and zinc, 21.8% less than in 2008.

Our new goal to reduce toxicity of dischargedwastewater reflects the generally lower toxicity oforganic matter from biotech operations than fromchemical production.



Compliance and incidentsRoche did not receive any significant SHE fines in 2009.We meet all local laws or regulations as a minimum.However, our Group policies are often stricter thanthese. We control substances that could be misusedto produce narcotics, toxins or chemical and bioweapons. These substances, which we keep in smallsupply, are often regulated and we ensure compliancewith all applicable legislation.

2010 objectivesReduce the Roche Accident Rate by 20% by 2010• from the 2005 baselineImprove total eco-balance by 10% by 2015 from• 2005 baseline (points/employee)Reduce total energy consumption by 10% by 2010• from 2005 baseline (gigajoules/employee)Receive no significant SHE-related fines.•

Medium- and long-term objectivesAverage four hours of SHE training per employee• Reduce the Roche Accident Rate (RAR) to 0.07• and work-related accidents per million workinghours to below 3 by 2015Improve our eco-balance by 15% by 2020, from• a 2010 baselineImprove energy efficiency (measured as gigajoule• per employee) by 10% by 2014 and 20% by 2019compared with 2009Increase the proportion of renewable energy used• to 20% by 2020Reduce the toxicity of discharged wastewater by• 20% by 2020 from a 2015 baseline.

More on the webSHE performance: • www.roche.com/she_performance Safety, security, health and environmental protection: • www.roche.com/environmentSafety, security, health and environmental protection (SHE) • Policy: www.roche.com/safety_health_and_environmental_ protection.pdf Group fact sheets, positions, policies and guidelines: • www.roche.com/policies_guidelines_and_positions Genentech sustainability report: • www.gene.com/gene/about/environmental/

Water

2009 2008 2007

Water withdrawn

(million cubic metres) 18.6 21.0 21.0

Water used


Wastewater discharged

to treatment plant


Organic matter

discharged to

watercourses

after treatment (tonnes) 154 592 641

Heavy metals

discharged to

watercourses after

treatment

(kilogrammes) 426 545 605

Pharmaceuticals in the environment (PiE)Traces of pharmaceutical products end up in the envi-ronment, raising fears that they may later be found infood and water sources. This is usually due to normalpatient use, although manufacturing and improperdisposal also contribute. We offer retailers financialincentives to return unused or old products so we candiscard them properly. We analyse the risk of pharma-ceuticals entering the environment in our life-cycleapproach to product development, minimisingreleases where possible. Manufacturing sites aredesigned and operated to reduce active ingredientsentering wastewater.

Although current evidence suggests little presence ofPiE, we recognise the need for more research intolong-term effects. In 2009 we undertook a thoroughrisk assessment of the active ingredient oseltamivir(Tamiflu) being excreted into the environment duringheavy pandemic use. The assessment found no signifi-cant risk. Our 2008 position paper on PiE describesour aim to monitor risks and Roche is a member ofinternational and local bodies studying the impacts oftrace chemicals in surface and ground water.


http://www.roche.com/safety_health_and_environmental_protection.pdf

121

To the Corporate Sustainability Committee ofRoche Holding Ltd, Basel (‘Roche’).

We have performed assurance procedures to provide assuranceon the following aspects of the 2009 corporate responsibilityreporting of Roche.

Subject matterData and information disclosed in the corporate responsibilityreporting of Roche and its consolidated subsidiaries, excludingChugai Pharmaceutical Co., Ltd., for the business year endedDecember 31, 2009 on the following aspects:

The management and reporting processes with respect to•the corporate responsibility reporting and to the preparationof SHE and people key figures as well as the controlenvironment in relation to the data aggregation of thesekey figures;The SHE key figures in the tables on pages 114 to 120 and•some selected people key figures disclosed on pages 104to 111 of the Roche Annual Report 2009; andCompliance information concerning the compliance•functions, the compliance organisation and the managementof cases reported through the Roche Group SpeakUp Line,the latter with a focus on data privacy and protection ofindividual’s anonymity as disclosed on page 92 of the RocheAnnual Report 2009, excluding ethical incident data.

CriteriaThe Roche Group internal corporate responsibility reporting•guidelines based on the Responsible Care programmeHealth, Safety and Environmental Protection reportingguidelines published by the European Chemical IndustryCouncil CEFIC and the ‘Sustainability Reporting GuidelinesG3’ published on October 2006 by the Global ReportingInitiative (GRI); andThe defined procedures by which SHE and people key•figures are gathered, collated and aggregated internally.The Roche Group business principles, the internal Group•SpeakUp guidelines based on the directive on use ofRoche Group SpeakUp Line and good practice proceduresby which compliance functions and speak up lines aredesigned, managed and operated.

Responsibility and methodologyThe accuracy and completeness of corporate responsibility indi-cators are subject to inherent limitations given their nature andmethods for determining, calculating and estimating such data.Our assurance report should therefore be read in connectionwith Roche’s internal guidelines, definitions and procedures onthe reporting of its corporate responsibility performance.

Independent Assurance Report

The Roche Corporate Sustainability Committee is responsiblefor both the subject matter and the criteria. Our responsibility isto provide a conclusion on the subject matter based onour assurance procedures in accordance with the InternationalStandard on Assurance Engagements (ISAE) 3000.

Main assurance proceduresOur assurance procedures included the following work:

Evaluation of the application of Group guidelines • |Reviewing the application of the Roche internal corporateresponsibility reporting guidelines;Site visits • | Visiting selected sites of Roche’s Pharmaceuti-cals and Diagnostics Divisions in Switzerland, Germany,France, Spain, Italy and China. The selection was based onquantitative and qualitative criteria;Interviewing personnel responsible for compliance matters,internal corporate responsibility reporting and datacollection at the sites we visited and at the Group level todetermine the understanding and application of Rocheinternal corporate responsibility guidelines;Visiting the premises of People Intouch in Amsterdam.Interviews with People Intouch staff involved in design,implementation and operations of the SpeakUp solution.Assessment of the key figures • | Performing tests ona sample basis of evidence supporting selected SHE andpeople key figures (Roche accident rate, energy consump-

tion, CO2 emissions related to energy consumption, releaseof halogenated hydrocarbons, use of water, fines in relationto safety and environmental protection, headcount/FTE data,staff turnover, senior management positions and laborpractices information) concerning completeness, accuracy,adequacy and consistency;Review of the documentation and analysis of relevant •policies and basic principles | Reviewing the relevantdocumentation on a sample basis, including group sustain-ability policies, management and reporting structures anddocumentation.Assessment of the processes and data con solidation • |Reviewing the appropriateness of the management andreporting processes for corporate responsibility reporting;and Assessing the consolidation process of data at thegroup level.Assessment of speak-up processes and systems •(case management) | Walk through the speak up processby using a practical example and assessing the following:protection against unauthorised access; connections andprocesses to external service providers and externalbusiness partners; processes in place for administration,logging, monitoring and backup/restore all in relation to thedata privacy and anonymity.


122 Roche Business Report 2009 Independent Assurance Report

ConclusionsIn our opinion

The internal corporate responsibility reporting guidelines are•being applied properly;The internal reporting system to collect and aggregate SHE•and people key figures is functioning as designed andprovides an appropriate basis for its disclosure; andThe Roche Group SpeakUp Line systems and processes are•designed following good practice procedures with regard todata privacy and anonymity.

Based on our work described in this report and the assessmentof criteria, nothing has come to our attention that causes us tobelieve that the data and information mentioned in the subjectmatter and disclosed with the Sustainability Reporting inthe Roche Annual Report 2009, excluding ethical incident datadoes not give a fair picture of Roche’s performance.

Zurich, 19 January 2010PricewaterhouseCoopers AG

Dr Thomas Scheiwiller Stephan Hirschi

The Global Reporting Initiative sustainability reporting guidelines

With this years’ Annual Report we continue our approach ofaligning our sustainability reporting to the guidelines of theGlobal Reporting Initiative (GRI).

For the third time, Roche is of the opinion that the A+ levelof the GRI G3 guidelines applies to its Annual Report 2009.This was checked with and confirmed by the GRI.

Details of how we report against each indicator can be foundat www.roche.com/reporting_and_indices

Severin Schwan


Published byF. Hoffmann-La Roche Ltd4070 Basel, SwitzerlandTel. +41 (0)61 688 11 11Fax +41 (0)61 691 93 91

Media OfficeGroup Communications 4070 Basel, SwitzerlandTel. +41 (0)61 688 88 88Fax +41 (0)61 688 27 75

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World Wide Webwww.roche.com

Corporate Sustainability CommitteeTel. +41 (0)61 688 40 18E-mail: [email protected]

To order publicationsTel. +41 (0)61 688 83 39Fax +41 (0)61 688 43 43E-mail: [email protected]

Next Annual General Meeting:

2 March 2010

Cautionary statement regarding forward-looking statementsThis Annual Report contains certain forward-looking state-ments. 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, among other things, 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 Annual Report, among others: (1) pricing and product initiatives of competi-tors; (2) legislative and regulatory developments and eco-nomic conditions; (3) delay or inability in obtaining regulatory approvals or bringing products to market; (4) fluctuations in currency exchange rates and general financial market condi-tions; (5) uncertainties in the discovery, development or marketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, unexpected side effects of pipeline or marketed products; (6) increased government pricing pres-sures; (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 and news coverage.

The statement regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Roche’s earnings or earnings per share for 2009 or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Roche.

All trademarks mentioned enjoy legal protection.

Links to third party pages are provided for convenience only. We do not express any opinion on the content of any third party pages and expressly disclaim any liability for all third party information and the use of it.

The Roche Annual Report is published in German and English.

Printed on non-chlorine bleached, FSC-certified paper.

The Roche Annual Report is issued by F. Hoffmann-La Roche Ltd, Basel, Group Communications.

The cover photograph shows a ribbon diagram of rituximab, the therapeutic protein at the heart of MabThera/Rituxan. This targeted bio-logic medicine is used to treat non-Hodgkin’s lymphoma, chronic lymphocytic leukemia and rheumatoid arthritis.

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