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Media Release

Basel, 7 February 2007

Annual Media Conference

The Annual Media Conference was held at Roche in Basel.

Speeches English

(The spoken German text is definitive)

Franz B. Humer

Ladies and Gentlemen

Welcome to our media conference on Roche’s full-year results for 2006.

Roche turned in an excellent performance last year. Operationally, financially and in terms of delivering genuine medical advances to patients, 2006 was an outstanding year for us. We gained additional market share and achieved another significant improvement in the Group’s profitability. In addition, we were reselected for inclusion in both Dow Jones Sustainability Indexes and the FTSE4Good Index.

Let’s take a closer look at the figures.

Excellent sales growth
2006 was the Group’s sixth straight year of double-digit sales growth in local currencies. Sales in local currencies advanced 17% to a record 42 billion Swiss francs. The 6.5 billion Swiss franc increase over 2005 revenues was all organic growth — none of it was generated through acquisitions.

Our Pharmaceuticals Division was the main growth driver. Its sales grew three and a half times as fast as the market, driven primarily by strong demand for key medicines in our oncology, transplantation and virology portfolios (including Tamiflu). Very significantly, sales of our cancer medicines were up roughly 40% for the year, to 15 billion Swiss francs. Our oncology portfolio now accounts for about half of our total pharmaceutical sales.

Roche Diagnostics’ sales accelerated over the course of the year, increasing 5% in local currencies for the year as a whole. This was slightly above the average market growth rate. The division’s Centralized Diagnostics unit, which supplies products and services to the commercial and hospital-based laboratory sectors, was the main contributor to growth. Once again, sales grew at above-market rates in all regions except North America. With its 19% market share, the division remains the global market leader in in-vitro diagnostics by a wide margin. The market environment has begun to change in recent months, in the wake of major acquisitions by Siemens and General Electric. These transactions have given us two formidable new competitors, and we will not underestimate them. Our strategy of focused innovation, however, remains unchanged. Severin Schwan will have more to say about this later during the conference.

Operating profit and net income grow faster than sales
Strong sales growth, combined with lower cost growth relative to sales, had a very positive impact on the Group’s earnings performance.

Operating profit (before exceptional items) for the Roche Group as a whole increased by one-fourth to roughly 12 billion Swiss francs. Over the last five years we have seen a threefold increase in the Group’s operating profit.

The Group’s operating profit margin improved further, to nearly 28%. At the same, investment in our divisions’ rich research and development pipelines rose to a combined total of 6.6 billion Swiss francs. This is also a new record. In addition, we invested heavily in launch activities, product and technology licences and the construction of new biopharmaceutical manufacturing facilities.

Net financial income was also significantly higher last year.

Net income totalled 9.2 billion Swiss francs (after income taxes of approximately 3.4 billion Swiss francs). This is a third higher than the net income posted in 2005 and the highest profit ever recorded by Roche. Core EPS — core earnings per share and non-voting equity security — rose 26% to 9.86 Swiss francs.

In view of these excellent results, the Board of Directors intends to propose a substantial dividend increase of 36% — to 3.40 Swiss francs per share and non-voting equity security — at our Annual General Meeting on 5 March. If approved by the shareholders, this will bring our total dividend payout to approximately 3 billion Swiss francs, compared with 2.2 billion the year before. So the aim is not only to provide shareholders with their 20th consecutive dividend increase, but also to distribute a dividend that truly reflects last year’s record performance. Equally important, the sharp dividend increase the Board intends to propose is a reflection of the Group’s strong net cash position and our confidence in the future.

Given the considerable public interest in issues relating to executive compensation, I’d like to call your attention to our expanded remuneration report for 2006, which you’ll find on pages 50 to 57 of our Business Report. The remuneration report, which is now a section in its own right of our year-end review, provides transparent and detailed information about the remuneration paid to each director on the Roche Board and each member of our Corporate Executive Committee and gives a detailed breakdown of my total remuneration, which is set by our Board’s Remuneration Committee. Let me take this opportunity to add that we do not have any ‘golden parachutes’ at Roche.

Operating profit margin up significantly in the Pharmaceuticals Division
The Pharmaceuticals Division’s operating profit (before exceptional items) topped the 10 billion Swiss franc mark for the first time last year, and the division’s operating profit margin showed a significant increase of 4.1 percentage points, to 31.7%. The margin increase was primarily due to further productivity gains as well as to average sales growth of 30% for our 20 top-selling medicines.

Thanks to strong bottom-line growth in recent years, Roche’s Pharmaceuticals Division is now also one of the industry’s top companies in terms of profitability.

The Diagnostics Division’s operating margin decreased 5.2 percentage points for the year, partly as a result of various one-time factors. This decline was more than offset by growth in the Pharmaceuticals Division, however. At 16.3%, the Diagnostics Division’s operating profit margin is still well above the industry average, and the same applies to cash flow, as reflected by a divisional EBITDA margin of over 28%. The lower operating margin in our Diagnostics Division was primarily due to further investments in product launches, continued pressure on prices and the previously announced impairment charges on intangible assets relating to Disetronic in the second half of 2006. Royalty income from licences also declined last year, following the expiry of a number of patents on polymerase chain reaction (PCR) technology.

At the same time, a number of product rollouts helped the division to strengthen its position in all segments. Major new products include a portfolio of new diabetes management devices and Centralized Diagnostics’ recently launched cobas 6000 series of modular analysers.

Nearly 4,600 new jobs
Worldwide our strong businesses created close to 4,600 new jobs last year, most of them in the Pharmaceuticals Division. Approximately 400 of the new jobs are here in Switzerland. This brings to 7,500 the total number of new jobs our Group has created in the last two years. We expect this trend to continue in 2007.

We are very pleased about Roche having again been named as one of the best companies to work for by several respected publications, including the journal Science. Out of a field of more than 300 biotech and pharmaceutical companies included in the Science survey, Roche was ranked third and Genentech again captured first place.

Our definition of innovation
Not only is the world’s population steadily growing larger, but people are also living longer. As a result, diseases like cancer, Alzheimer’s disease, diabetes and rheumatoid arthritis represent an increasing burden on society. Many of these diseases cannot yet be adequately treated, much less cured. As we see it, the demand for effective treatments is therefore certain to continue rising, and our core mission is to deliver a steady stream of innovative new healthcare options to help meet that demand. We’re not interested in innovation for its own sake. To satisfy our definition of ‘innovation’ a product or service has to help people live longer, healthier lives and enjoy a better quality of life. Anything less, I might add, is also unlikely to be accepted by the market as a real advance and reimbursed accordingly.

Given our focus, research and development are obviously critical to our business, and we spent 18 million Swiss francs on R&D every day last year. In the Pharmaceuticals Division R&D expenditures totalled about 18% of sales, making Roche one of the most research-intensive companies in the industry.

Focus on medically differentiated products – Strengthened business base
Our success is built on a broad product portfolio. Annual sales of innovative products like MabThera/Rituxan, Herceptin and Avastin now approach 5, 4 and 3 billion Swiss francs, respectively. A few years ago we had six medicines and diagnostics franchises generating annual sales of over 1 billion Swiss francs each. Today that total has increased to ten, and by the end of the year we expect it to increase even further.

Investigating more effective medicines for a wide range of cancers has been a major focus of our R&D activities for a number of years now and has produced important findings. Recent trial data provide impressive additional evidence of the pivotal role that Herceptin can play in the treatment of breast cancer, for example. And in the case of Avastin, data from clinical trials have shown a survival benefit in four major tumour types — colorectal, lung, breast and kidney cancer.

Cancer isn’t the only therapeutic area where Roche has made major contributions in recent years. We’ve also brought products to market that represent significant improvements over existing treatment options for hepatitis, HIV and osteoporosis. Our aim is to achieve similar advances in additional therapeutic areas, including autoimmune and metabolic disorders and diseases of the central nervous system. In 2006 we did just that for rheumatoid arthritis.

New medicines for rheumatoid arthritis
Rheumatoid arthritis is a very promising new therapeutic area for Roche — and one that we expect to grow significantly in importance over the next few years.

In 2006 MabThera/Rituxan received its first marketing approvals — in the US and EU — for the treatment of rheumatoid arthritis patients who fail to respond to other treatments. MabThera/Rituxan is the first medicine shown to significantly slow the progression of joint damage in this patient population.

We are also seeing very good results in trials of Actemra, a therapeutic antibody product that Roche is co-developing with Chugai. Data from phase III trials in Japan, and more recently also from phase III trials in the European Union and the United States, show a significant improvement in rheumatoid arthritis symptoms in patients receiving Actemra.

2007/2008: Group well equipped for further growth
Last year Roche received 14 major marketing approvals and filed 13 marketing applications with the regulatory authorities. In addition, nine phase III studies were successfully completed (met their primary endpoints).

A look at our drug and diagnostics pipelines and filing and launch activities shows how very well equipped we are for further growth. This year and next we expect to receive a total of 18 product approvals for new indications or in new markets. Thirty-eight projects are in late-stage development, with products currently being tested in more than 45 phase III clinical trials.

At Roche Diagnostics the focus will be on strengthening our diabetes care franchise, including the introduction of insulin pumps in the United States, and on expanding our IT offerings.

We also intend to consolidate our leading position in personalised healthcare by intensifying collaboration between our Pharmaceuticals and Diagnostics Divisions in this area.

New model for pharmaceutical R&D
As announced this past Monday, we intend to introduce a new research and development model in the Pharmaceuticals Division during the course of this year. This is not a cost-cutting exercise. On the contrary: our R&D spend has increased significantly in recent years, and will continue to increase in the future.

R&D activities in the Pharmaceuticals Division will be focused on five therapeutic fields: oncology, virology, inflammatory diseases, diseases of the central nervous system and metabolic diseases. These are all areas of high unmet medical need where we possess the expertise to make a real difference.

Each of the ‘Disease Biology Areas’ (DBAs) that will be created under the new model will combine all activities in a specific therapeutic field, from research and development to strategic marketing. The DBAs will be headed by cross-functional Disease Biology Area Leadership Teams (DBLTs) based in Basel, Nutley and Palo Alto. These teams will manage the seamless development of new compounds from drug discovery to proof of concept.

This new model is designed to ensure that Roche’s steadily expanding R&D operation is suitably equipped to meet increasingly complex requirements. By simplifying and accelerating the multiple decision-making processes involved, the model will be more efficient and effective in translating research activity in each therapeutic area into clinically differentiated medicines. It will also enable the Group’s growing number of clinical development projects to be integrated more quickly into the portfolio.

The upshot will be an organisation capable of moving future healthcare innovations through the pipeline more quickly and efficiently — for the benefit patients and healthcare professionals.

Outlook
Compared with many of our competitors, our continued success — both financially and in terms of bringing valuable new medicines and diagnostics to market — puts us in a strong position to meet the challenges and capitalise on the opportunities of today’s healthcare environment.

Our focus on prescription pharmaceuticals and diagnostics, our biotech expertise, our global research and development network and the fact that we don’t have any products that will be going off patent in the near future are all important competitive advantages in a changing marketplace.

This year we expect sales in both divisions to grow faster than the market, and we anticipate double-digit sales increases in the Pharmaceuticals Division and for the Group as a whole.

Once again, we are aiming this year for Core EPS to grow in line with Group sales – despite significant investments in research, development, production and distribution.

Erich Hunziker

Good morning Ladies and Gentlemen

2006: Strong operating and financial performance
Building on our excellent operating performance, Roche Finance made important contributions to the further strengthening of the Group. We have significantly increased net financial income and net cash and we have strengthened the balance sheet. As a result the Roche Group has further increased its strategic flexibility.

2006 Group results - Sales drive profit and margin increase
Due to the excellent operating results of our businesses and the strong financial result, net income grew by 2.3 billion Swiss francs or 34%. This is the best result Roche ever achieved.

2006: Strong sales growth and improved quality of business drive profit
The clear strategic focus on Pharma and Diagnostics is showing attractive results at an operating level. While our innovative products have gained market share, we have kept our cost basis under control and consequently operating expenses are increasing at a rate below sales growth. Due to economies of scale and continuous productivity improvements at our production sites we were able to keep the growth in cost of sales under control, despite the significant increase in royalty expenses on our successful Pharma products like MabThera/Rituxan, Tarceva and Tamiflu. The increase in R&D expenses underlines our strong commitment to innovation. Overall the growth rate of the operating result is considerably stronger than sales growth.

2006: Financial result - Strong increase due to equity and interest income
The fundamental changes we have implemented over recent years mean that the quality of our financial results has improved substantially. Interest income is now higher than interest expenses. Equity income was strong in 2006 due to the sale of certain Pharma and Biotechnology shares.

Net financial income - Significant contribution to bottom line at reduced risk
This overview confirms the turnaround of Roche Finance: in line with the expectations of our investors, we generate significant contributions to the Roche result with low Value-atRisk.

Core EPS rising steadily
This important yardstick shows the continuing improvement of the Roche performance.

Free cash flow of CHF 4.3 bn in 2006 - Continuously strong EBITDA of both divisions
Both divisions, Pharma and Diagnostics show a significant increase in EBITDA. Although we continued our investment into biotechnology production sites and in the in-licensing of pipeline compounds and technologies, we show a very attractive “free cash flow” of 4.3 billion Swiss francs. In total, cash and marketable securities increased to 24.3 billion Swiss francs.

2006: Net cash increase driven by Roche – Increase of almost CHF 5 billion
Based mainly on the strong operating result the net cash position of the Group significantly strengthened.

2006: Equity increase driven by strong net income
Due primarily to the very attractive net income, equity increased further.

2006: Balance sheet: Very solid with 63% equity ratio and 83% long-term financing
With this strengthened balance sheet Roche has significantly increased its strategic flexibility to further strengthen Pharma and Diagnostics.

Economic success translated into shareholder returns – Again a substantial increase in 2006
In the last 20 years Roche has continuously increased its dividend. Based on the excellent result the Board proposes to the Annual Shareholder Meeting of March 5, 2007 that we increase the dividend by 36% to 3.40 Swiss francs.

Our growth objectives for 2007
Let me close with our outlook for 2007. Barring unforeseen developments:

  • We expect a continued double-digit local sales growth for Pharma and the Group.
  • We anticipate above-market sales growth in both divisions in local currencies.
  • Our target for Core EPS is to grow in line with sales.