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Roche Holdings AG Basel (RHHBY.PK)

Q3 2010 Earnings Call

October 14, 2010 8:00 am ET

Executives

Severin Schwan - CEO

Pascal Soriot - COO, Roche Pharmaceuticals

Daniel O'Day - COO, Roche Diagnostics

Eric Hunziker - CFO

Hal Barron - EVP Global Development and CMO, Genentech

Stefan Frings - Avastin Franchise Director, Roche

Analysts

Timothy Anderson - Sanford Bernstein

Sachin Jain - Merrill Lynch

Alexandra Hauber - JPMorgan

Andrew Kocen - Redburn Partners

Marcel Brand - Credit Agricole

TheStreet Recommends

Amit Roy - Nomura

Vincent Meunier - BNP Paribas

Keyur Parekh - Goldman Sachs

Andrew Baum - Morgan Stanley

Luisa Hector - Credit Suisse

Presentation

Severin Schwan

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Good afternoon, ladies and gentlemen, and welcome also from my side to our quarter three sales call. As you've seen, we delivered a solid sales growth for the first nine months on the Roche Group level at 6% in local currencies if we exclude expected decline of Tamiflu. Pharmaceuticals was up by 5% in local currencies, Diagnostics up by 8%, significantly above the market.

If we turn to Page 6, you know that we have started a productivity initiative called Operational Excellence this year. I'd just like to reemphasize again we are doing this off a position of strength, and we continue to focus on innovation.

We have now 12 new molecular entities in the late stage pipeline, which I believe is industry leading. The environment is getting more challenging. We're all aware of the increasing price pressure in the U.S. and Europe, increasing regulatory hurdles. This is the reason why we adept our processes to get the necessary financial flexibility to continue to invest in our strong pipeline and to protect our profitability. As we announced earlier, we will communicate the detailed measures before yearend.

If we turn to Page 7, again, here you can see that we've further progressed our late-stage pipeline. We have now up to 14 new molecular entities in the late-stage pipeline, and a number of exciting data, if we turn to Page 8, have just recently been announced at ESMO namely for T-DM1 in breast cancer, MetMAb, Tarceva in lung cancer and Avastin for ovarian cancer.

I don't want to put too much emphasis on external service, but it is good to see, as you can see on Slide 9, that the Science magazine just recently announced that Genentech again ranked number one in terms of top employers in the biopharmaceutical industry, and it's also good to see that Roche is ranking among the top five players. And I believe this underlines our continued commitment to innovation in science.

To conclude with Page 10, we confirm our outlook for 2010 based on the performance for the first nine months. The mid single-digit growth for the Group and Pharma, excluding Tamiflu, is significantly above the market growth in Diagnostics and the double-digit for core EPS earnings.

And with this, I'd like to hand over to Pascal Soriot.

Pascal Soriot

Thanks, Severin, and good afternoon everybody. As Severin just told you, we experienced a very robust third quarter. On a cumulative basis, as you see on Slide 12, the Pharmaceuticals division, excluding Tamiflu, grew by 5% in the third quarter, and so a growth rate of about 4%. This is after of course the impact of the healthcare reform, which we estimated about 1.5% on a global basis, including both the U.S. and European effects. So our growth rate without this would have been close to 6%.

So a 5% growth rate, excluding Tamiflu, for the first nine months places us in line with the market growth rate. I would even suggest that we are slightly ahead of the market growth rate, because growth rates reported by AMS and others for the market tend to underestimate the impact of rebates increasingly common in the marketplace in the United States. So far so good. We are in very much in line with the market and certainly above.

On Page 13, you can see what are the products that are driving our growth and which products are slowing us down. Of course, the biggest from the point of view of holding us back is Tamiflu. We lost $1.2 billion in sales with Tamiflu in the first nine months compared to the previous year, and this was totally expected, because the pandemic sales are of course behind us.

We're also impacted by the sale by CellCept. The patent expiry of CellCept is still having a drag on our topline, but it should actually be finished for quarter four. Quarter four last year in the United States for CellCept was low, and we should not have this negative impact of CellCept in Europe any more moving forward.

I'd like to spend a few minutes talking to you about the products that are driving our growth, because each of them is really experiencing pretty good growth. If you look at Avastin in the quarter grew about 7% in local currency, MabThera/Rituxan 6%, Herceptin 8%, Lucentis 34%, Xeloda 16% and Tarceva 9%. So a very healthy growth rate across the entire portfolio.

And if you were to look at MabThera and Herceptin, what is happening is actually exactly what we told you several months ago that you should be expecting for both MabThera and Herceptin we have low single-digit growth rate in both the U.S. and Europe. And the growth of these two products is driven by the international region.

Let me just give you a couple of numbers. We grew MabThera by 16% in the third quarter in the international region, and it was 14% the quarter before. So the growth is accelerating in growth rate. Herceptin grew by 29% in the quarter three in the international region versus 20% in the previous quarter. So those products are very much on track with what we told you before.

Avastin is growing by 34% in quarter three in the international region. Now, the effect that we are noticing is a slowdown in the United States and to a lesser degree a little bit in Europe, but much less. And certainly in United States, that slowdown in sales is linked very much to the uncertainty surrounding the breast cancer indication, and this is probably something that will remain until we have reached a conclusion as far the breast cancer indication in the U.S.

Moving on to Slide 14, oncology sales across the board grew by 8%. Avastin, I just talked about a minute ago, grew by 11% on a year-to-date basis. We launched in China. We have good uptake in Japan. We still see a good growth in colorectal cancer around the world. And lung cancer is stable or even growing in Europe. And of course, breast cancer is certainly a more difficult situation.

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