Market environment
and Group strategy
Operating environment
The industry’s operating environment is characterised by two opposing sets of forces. We are experiencing driving forces in the form of constantly increasing demand for better healthcare solutions in both industrialised and emerging markets, coupled with dramatic progress in medical science and technologies that can help provide the tools to meet that demand. In contrast, our industry faces resisting forces from unprecedented pricing pressure and increasing regulatory hurdles. Innovation, in our view, will be the agent for bringing decisive positive change to this environment and for achieving sustainable growth.
Growing demand for better healthcare options
Despite continued breakthroughs in treating serious diseases, the need for medical care and for new treatments and tests remains enormous. Two-thirds of all known diseases – some 5,000 – still go undiagnosed or untreated. Even where treatments exist, response rates are unsatisfactory – only 50% of patients, on average, respond favourably to today’s medicines. Moreover, many treatments can cause serious side effects.
Genetic differences between patients are one of the main reasons why even the best treatments can sometimes be ineffective. People are different, but medicines are not yet differentiated. If these differences can be identified, the efficacy of medicines can be increased significantly. Diagnostic testing also holds tremendous potential for improving response rates. Today, it accounts for only 2% of healthcare spending, even though diagnostics adds value along the entire healthcare chain, from prevention to diagnosis to monitoring, and directs over 70% of medical decision-making.
Patients worldwide are waiting for better treatment options
Demand for better healthcare is also being driven by an expanding world population, which is expected to grow from seven billion in 2011 to nine billion by 2050. Additionally, sustained economic growth, ageing populations and unhealthy lifestyles point to a rising prevalence of acute and chronic diseases such as cancer, diabetes, rheumatoid arthritis, respiratory diseases, Parkinson’s and Alzheimer’s diseases. The four main non-communicable diseases – cardiovascular disease, cancer, chronic lung diseases and diabetes – already kill three in five people worldwide and cause great socioeconomic harm, especially in the developing world.
Increasing price pressure in major markets offset by growth in emerging markets
The slowdown of growth in pharmaceutical markets to low single-digit rates in recent years reflects the rising number of major products that have gone off-patent and, as a consequence, face generic competition. In addition, political pressure to contain healthcare costs has led several countries to impose significant price reductions on pharmaceutical products. Concerted austerity measures were taken by governments in Germany, France, Spain, the UK, Greece and other European countries, while government-mandated price cuts were introduced in Japan, China, India, Brazil and Russia. In the US, the government imposed a fee on branded pharmaceutical products as part of ongoing healthcare reforms and further savings are expected over the coming years for Medicare- and Medicaid-funded medicines. As a result of these cost containment measures, overall growth in developed markets is expected to remain stagnant.
In contrast to the modest outlook for industrialised countries, we expect continued high growth in emerging markets. This robust outlook is underpinned by rapid population increases, rising personal incomes and efforts to improve access to basic healthcare. We expect these favourable long-term trends to lead to rising awareness of health issues and an increased voice for patients in virtually all major emerging markets.
Today, eight emerging countries are among the top 20 healthcare markets. The Asian market has grown twice as fast as the overall global market in recent years. With a population of 1.35 billion, China is the world’s second-largest economic power and third largest pharmaceuticals market. Nearly one-quarter of the Chinese population will reach age 60 or above by 2030, and incidence rates of cancer and other chronic diseases increase as the population ages. In addition, governments are rapidly building diagnostics infrastructure that often requires highly automated instruments to bridge the gap in the number of skilled laboratory personnel.
Even though political volatility and talent retention are significant challenges in many emerging markets, they hold significant potential for the industry.
Rising regulatory hurdles for safety and value
Healthcare authorities, particularly those in the US and Europe, have continuously raised their standards in assessing the therapeutic benefits and safety of new drugs. It now takes ten to twelve years, on average, to bring a new pharmaceutical product to market, while new diagnostics require increasingly higher upfront investments to generate clinical data and demonstrate medical value.
At the same time healthcare authorities and research-driven companies are working more closely together to adapt to rapid advances in medical science and to improve regulatory science, the science of developing tools, standards and approaches to assessing the safety and value of new products.
Pharmaceutical companies are also being challenged to justify the value of their products, as many countries have implemented health technology assessment (HTA) procedures to improve healthcare services by making pricing, reimbursement and funding decisions using the methods of evidence-based medicine. This is a rapidly evolving field in Europe and the US. Other countries, meanwhile, are introducing value-based decision-making or value-based pricing to their HTA systems to meet the expectations and needs of their citizens. Consequently, decisions about what medicines to administer are increasingly being made by public agencies and health insurers rather than by physicians.
Expanding knowledge of disease biology presents vast potential
Even though science is transforming the delivery of healthcare, today’s medicines address only about 150 targets within the more than two million proteins in the human body, many of which may be implicated in disease. Clearly, we are just beginning to understand disease processes.
The vast potential for further advances is steadily being revealed with findings in new branches of research, such as genomics or proteomics. As researchers refine their knowledge of diseases at the molecular level, their insight is leading to new strategies for detecting and fighting disease. Take, for example, the knowledge derived from molecular research that cancer is not just cancer: the term covers approximately 250 different conditions, almost all of which affect body tissues. Thanks to ultramodern methods for sequencing the genome scientists know of some 350 genes involved in the genesis of cancer. These include the so-called breast cancer genes BRCA1 and BRCA2 and a recently discovered mutated gene, found in about 50% of all skin cancers and in approximately 8% of all solid tumours.
The search to identify genes critical to the development of cancers is by no means complete. Scientists worldwide are participating in the Cancer Genome Project, an integrated research venture that aims to detect all the mutations that cause the 50 most common types of cancer. Efforts such as these hold enormous promise to rapidly expand our knowledge of disease biology and, in turn, transform the treatment of disease through targeted diagnostic methods and medicines adapted to the genetic constitution of degenerated cells.
Understanding disease mechanisms
New technologies allow better understanding of diseases
Up
Roche strategy
Roche’s mission has remained virtually unchanged since the company was founded in 1896: to improve health and help patients live longer, better lives. The entrepreneurial spirit and inventiveness of our founders still define our culture. Today, they provide the basis for medical advances, such as those pioneered by Roche in the development of therapeutic antibodies, that have led to the company becoming the world leader in cancer medicines.
To continue anticipating and creating new trends, we are harnessing our increasing understanding of disease biology to make tomorrow’s treatments safer, more effective and more personalised – to better fit them to patients’ genetic and other characteristics. Over the past decade Roche has pursued a strategy of developing medically differentiated medicines and diagnostics. We believe that such products are more likely to obtain regulatory approval and be accepted by patients, physicians and payers because they provide value to the entire healthcare system and, in turn, to our other stakeholders.
Working together from discovery to market
Focus on innovation in pharmaceuticals and diagnostics
We are convinced that innovation in healthcare is the driving force for discovering and developing better and more costefficient treatments. By focusing on prescription medicines and in vitro diagnostic tests (IVDs) that create real value for patients and physicians, Roche is positioned to succeed in an increasingly challenging operating environment. As cost pressures mount, payers will channel funding into options that offer the greatest incremental benefits for patients.
By strategically aligning our organisation around our Pharmaceuticals and Diagnositics Divisions and encouraging interdivisional collaboration throughout the value chain – from discovery to commercialisation – we have created distinct competitive advantage: targeted therapies that offer medical and economic value exceeding other options.
Our Pharmaceuticals and Diagnostics Divisions must, however, succeed in their own right, given their distinct business models and success factors. We therefore maintain separate organisations for each business, including product and leadership responsibilities, while aligning both groups across the value chain for advancing personalised healthcare.
Pharmaceuticals
Our Pharmaceuticals Division strives to discover and develop first- and best-in-class targeted therapies that provide unique benefits to patients. By pursuing scientific excellence and maintaining high levels of R&D, we expect to continue delivering medically differentiated products that address unmet medical needs. We will keep our focus on areas where we believe our expertise can make a difference: oncology, virology, inflammatory and autoimmune disorders, cardiovascular and metabolic disorders and diseases of the central nervous system.
Diagnostics
Our Diagnostics Division is by far the world’s leading supplier of IVDs, with a market share of 20%. We develop instruments and tests for disease screening, for diagnosis and monitoring in laboratories and at the point of care and for patient self-management. The division’s continued success depends on the focused pursuit of testing efficiency and medical value. By testing efficiency, we mean offering laboratories complete test menus and solutions for efficient workflow and information management, ensuring that patients receive fast, accurate and reliable test results. We are also devoting substantial resources to acquiring intellectual property and developing novel IVDs with high medical value, that provide patients and physicians with answers to key medical questions, and to validating and demonstrating the medical and economic benefits of those tests.
Leverage our expertise in molecular biology
The rapidly expanding knowledge base of disease biology and of the causes of disease holds enormous potential to provide significant benefits to patients. Our early understanding of molecular biology prompted us make significant investment in genetic engineering and related molecular sciences while these exciting new approaches were still in their infancy. Today, Roche is the world’s largest biotechnology company, with 14 biological products on the market. These biologics constitute 65% of our product portfolio, compared with an industry average of just 16%.
As our understanding of the molecular mechanisms of disease grows, so does our ability to develop targeted treatments that can make important contributions to healthcare management and society. Our strengths in biotechnology research, development and manufacturing mean that we are ideally equipped to transform breakthrough innovations in science into benefits for patients.
Deliver Personalised Healthcare
By combing our expertise and strengths in diagnostics and pharmaceuticals, we are paving the way for Roche Personalised Healthcare. Drawing on the growing body of knowledge and our own research findings of the molecular causes of disease, we can now demonstrate that, in many cases, Personalised Healthcare
- identifies patients most likely to best respond to a specific treatment
- enhances the cost effectiveness of healthcare through the stratification of the patient population
- increases the efficiency and productivity of research and development
- supports the development of safer, more effective treatments, thus reducing the risk and cost of side effects
- improves medical outcomes and quality of life for patients
Today, we are interweaving the knowledge of our Pharmaceuticals and Diagnostics Divisions with increasing effectiveness throughout the development process for new medicines and tests:
- Many of our novel active substances have made an excellent showing in scientific studies.
- Our skin cancer drug, Zelboraf, and its companion test were both approved in the US in 2011 in record time.
- Our cancer drug, Tarceva, received approval in the EU for an additional indication linked to the use of a Roche diagnostic test.
- One-half of our medicines in late-stage development have companion tests and are tailored to specific patient populations.
- All of our pharmaceutical projects have biomarker programmes (200+).
Foster innovation and empower people
Roche relies on a global network of specialised research centres, all operating with a high degree of autonomy. In addition, Roche Pharmaceuticals partners with about 150 companies worldwide. This approach reflects our view that innovative research stems from fresh ideas and is most likely to flourish in a company with strong in-house capabilities and a diverse external network of partnerships.
Our goal is to lead through innovations in science by combining the critical mass of Big Pharma with the flexibility and entrepreneurial spirit of smaller business units. This extends to our talent management processes, which are all designed to recognise and drive innovation. We also focus on creating a working environment in which everyone feels valued and respected. Fostering diversity is essential for our success, and we are striving to increase the number of females in key positions by at least 50% from 2009 levels by 2014.
Creating sustainable value
Our commitment to discovering and developing innovative products and services that are both commercially and medically successful is, and will continue to be, our most important contribution to society. For Roche, business sustainability is about the creation of shared value. We aim to provide value to all stakeholders – be they patients, doctors, employees, investors or society at large. Indeed, our success in improving patient’s lives hinges largely on our ability to integrate the elements of sustainability – social, environmental and economic – throughout our operations and culture.
We strive, therefore, to achieve the following in all aspects of our business:
- Innovation through a focus on pharmaceuticals and diagnostics
- Broader access to our products for patients in need of new medicines
- Respect for our employees, including offering high-quality, rewarding employment
By making sustainability a part of everything we do, and coordinating those efforts through our Corporate Sustainability Committee, we encourage a corporate culture that seeks the highest levels of sustainability. Roche, moreover, acknowledges the United Nation’s Guiding Principles on Business and Human Rights and recognises and follows the international standard ISO 26000 guidance on social responsibility.
The effectiveness of this approach was reaffirmed in 2011 when Roche was named the most sustainable global healthcare company for the third consecutive year in the Dow Jones Sustainability Indexes.
