Creating value for patients

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1 2010 Roche Annual Report Creating value for patients

2 Key figures Roche Group Index 2008 = Sales mchf 47,473 49,051 45,617 Free cash flow mchf 4,699 8,893 4, Research and development 2 mchf 9,050 9,509 8,704 Total dividend mchf 5, ,175 4, Operating profit 2 mchf 16,591 16,272 15,068 Number of employees 80,653 81,507 80, Income taxes 2 mchf 3,135 3,287 3,604 Total employee remuneration mchf 11,934 12,080 11, Net income mchf Patients on clinical trials 4 8,891 8,510 10, , , , Core Earnings per Share CHF Eco-efficiency rate Price development of non-voting equity security (Genussschein) in CHF Roche non-voting equity security Swiss Market Index (rebased) 1 Key figures indexed to 2008 = Core results. 3 Proposed by the Board of Directors. 4 Development phase I to IV. 5 For calculation of the Eco-Efficiency Rate see: Figures for 2008 as in Annual Report For a full index of Global Reporting Initiative (GRI) indicators used in the report see:

3 Highlights 2010 January EU Commission approves Herceptin for treatment of HER2- positive advanced stomach cancer January FDA approves Actemra for the treatment of moderately to severely active rheumatoid arthritis FEbruary Roche Annual General Meeting votes to increase shareholder dividend by 20% 20 % April Roche acquires Medingo to expand its position in the growing insulin delivery systems market June FDA expands Lucentis approval to include treatment of macular edema following retinal vein occlusion July athena clinical trial demonstrates high medical value of cobas 4800 HPV Test, which detects high-risk genotypes 16 and 18, in screening for cervical cancer 47,000 women september FDA clearance for cobas 8000 modular analyser series for highvolume lab testing september Roche named Healthcare Supersector Leader in Dow Jones Sustainability Indexes for second year running october Encouraging new clinical data for Avastin in ovarian, MetMAb in lung and T DM1 in breast cancer presented at ESMO conference october We report promising phase II results with RG7204 (BRAF inhibitor), a new targeted medicine for advanced melanoma NoVEmber We launch the Operational Excellence initiative to maintain long-term innovation capabilities DECEmber Phase II study with first-in-class compound RG1678 shows improvement in negative symptoms of schizophrenia

4 Pharmaceuticals pipeline Targeting areas of high unmet medical need Phase I Phase II Phase III Registration Project ID Project/Product Indication Project ID Project/Product Indication Project ID Project/Product Indication Project ID Project/Product Indication Oncology Oncology Oncology Oncology RG3639 dulanermin cancer RG7256 BRAF kinase inh metastatic melanoma RG7112 MDM2 antag solid and hematologic tumours RG7160 anti-egfr humab solid tumours RG7167 CIF/MEK dual inh solid tumours RG7304 RAF/ MEK dual inh solid tumours RG7321 PI3 kinase inh solid tumours RG7334 anti-plgf MAb solid tumours RG7414 anti-egfl7 MAb solid tumours RG7420 MEK inh solid tumours RG7421 MEK inh solid tumours RG7422 PI3 kinase inh solid and hematologic tumours RG7440 AKT inh solid tumours RG7444 anti-fgfr3 MAb multiple myeloma RG7459 IAP antag solid tumours, lymphoma ADC RG7593 anti-cd22 hematologic malignancies NME RG7594 antiangiogenic solid tumours RG7597 anti-her3 MAb metastatic epithelial tumours RG7686 anti-glypican MAb liver cancer CHU ALK inh NSCLC CHU solid tumours Inflammation and autoimmune disorders Virology RG4934 anti-il-17 MAb rheumatoid arthritis RG7185 CRTH2 antag asthma RG7413 anti-β7 rhumab ulcerative colitis RG7432 CHU nucleoside polymerase inh serine palmitoyltransferase inh Cardiovascular and metabolic diseases hepatitis C hepatitis C RG β-HSD inh metabolic diseases RG7236 Cat S antag cardiovascular risk in chronic kidney disease RG1273 pertuzumab early BC, HER2+ RG1273 pertuzumab mbc, HER2+, 2nd-line ADC RG3502 trastuzumab DM1 early BC, HER2+ RG3616 hedgehog pathway inh advanced basal cell carcinoma RG3616 hedgehog pathway inh operable basal cell carcinoma RG3638 anti-met MAb metastatic NSCLC RG7159 anti-cd20 MAb NHL, CLL RG7204 BRAF inh met melanoma, 2nd-/3rd-line RG7433 navitoclax (ABT-263) solid and hematologic tumours CHU topoisomerase I inh gastric cancer Inflammation and autoimmune disorders Virology RG3637 lebrikizumab asthma RG4930 OX40L MAb asthma RG7415 rontalizumab systemic lupus erythematosus RG7416 anti-lt α MAb rheumatoid arthritis RG3648 Xolair chronic idiopathic urticaria RG7449 anti-m1 prime MAb asthma RG3484 HPV16 immunotherapy cervical neoplasia RG7128 nucleoside polymerase hepatitis C inh prodrug RG7227 danoprevir hepatitis C Cardiovascular and metabolic diseases RG1512 anti-p selectin MAb cardiovascular disease RG7201 SGLT2 inh type 2 diabetes Central nervous system RG1450 gantenerumab Alzheimer s disease RG1594 ocrelizumab relapsing-remitting MS RG3487 nicotinic α7 receptor agonist Alzheimer s disease RG7090 mglur5 antag treatment-resistant depression EVO NMDA receptor antag treatment-resistant depression RG105 MabThera/Rituxan NHL, fast infusion RG105 MabThera/Rituxan NHL, SC formulation RG435 Avastin adj breast cancer, HER2+ RG435 Avastin+Herceptin mbc, HER2+, 1st-line RG435 Avastin adj NSCLC RG435 Avastin adj breast cancer, HER2-neg RG435 Avastin adj BC, triple negative RG435 Avastin relapsed ovarian cancer RG435 Avastin high-risk carcinoid RG435 Avastin GBM, 1st-line RG435 Avastin met colorectal cancer, treatment through multiple lines RG435 Avastin met breast cancer, 2nd-line RG597 Herceptin BC, HER2+, SC formulation RG597 Herceptin adj BC, HER2+, 2-yr treatment RG1273 pertuzumab mbc HER2+, 1st-line RG1415 Tarceva adj NSCLC RG1415 Tarceva NSCLC, EGFR mutationpositive, 1st-line ADC RG3502 trastuzumab DM1 mbc, HER2+, 1st-line ADC RG3502 trastuzumab DM1 advanced mbc, HER2+ RG7159 anti-cd20 MAb chronic lymphocytic leukemia RG7159 anti-cd20 MAb indolent NHL RG7204 BRAF inh metastatic melanoma, 1st-line Inflammation and autoimmune disorders RG1569 Actemra/RoActemra ankylosing spondylitis RG1569 Actemra/RoActemra RA, SC formulation RG1569 Actemra/RoActemra early rheumatoid arthritis RG1569 Actemra/RoActemra RA DMARD inadequate responders (head-to-head) Cardiovascular and metabolic diseases RG1439 aleglitazar cardiovascular risk reduction in type 2 diabetes RG1658 dalcetrapib atherosclerosis, cardiovascular risk reduction RG105 MabThera/Rituxan indolent NHL, 1st-line maint RG435* Avastin ovarian cancer, 1st-line RG435* Avastin+Xeloda met breast cancer, 1st-line RG1415* Tarceva NSCLC, EGFR mutationpositive, 1st-line Inflammation and autoimmune disorders Others RG105** MabThera/Rituxan ANCA-associated vasculitis RG1569 Actemra/RoActemra JIA, systemic onset CHU Epogin (EPOCH) chemother.-induced anemia Selected abbreviations adj adjuvant treatment ADC antibody-drug conjugate AMD age-related macular degeneration antag antagonist BC breast cancer CLL chronic lymphocytic leukemia DMARD disease-modifying antirheumatic drug GBM glioblastoma multiforme HER2+ HER2-positive HER2-neg HER2-negative HPV human papillomavirus inh inhibitor JIA juvenile idiopathic arthritis MAb monoclonal antibody maint maintenance treatment m, met metastatic (cancer) MS multiple sclerosis NHL non-hodgkin s lymphoma NME new molecular entity NSCLC non-small cell lung cancer RA rheumatoid arthritis SC subcutaneous RG7273 ABCA1 inducer dyslipidemia RG7418 anti-oxldl MAb secondary prevention of cardiovascular events RG7685 GIP/GLP-1 dual agonist type 2 diabetes Central nervous system RG1578 mglur2 antag depression RG1662 GABA-A α5 inverse cognitive disorders agonist RG7166 triple reuptake inh depression RG7412 anti-amyloid β-peptide Alzheimer s disease MAb Central nervous system Ophthalmology RG1594 ocrezulimab primary progressive MS RG1678 glycine reuptake inh schizophrenia, negative symptoms RG1678 glycine reuptake inh schizophrenia, suboptimally controlled RG3645 Lucentis diabetic macular edema RG3645 Lucentis AMD, high dose Legend Blue type Black type RG-No. CHU EVO Therapeutic protein, other biologic Small molecule First indication Additional indications Roche and/or Genentech managed Chugai managed Evotec Ophthalmology RG7417 anti-factor D MAb geographic atrophy Phase I Phase II Phase III Initial studies in healthy volunteers and possibly in patients Efficacy, tolerability and dose-finding studies in patients Large-scale studies in patients for statistical confirmation of safety and efficacy Registration Marketing application(s) filed in EU, US and/or Japan * Filed in EU ** Filed in USA Current as of January 2011

5 Our business Innovation is our answer to medical challenges. Through our research we create state-of-the-art diagnostics and pioneering medicines that help millions of people around the world. Focus on personalised healthcare At Roche we aim to develop novel medicines and diagnostics that will help patients live longer, better lives. We constantly strive for scientific excellence so that we can continue developing effective therapeutic options where previously there were none. As the world s largest biopharmaceutical company and the number one supplier of in vitro diagnostics, Roche has brought many highly effective drugs to market, including the industry s leading portfolio of cancer medicines. We were also one of the first companies to recognise the potential of personalised medicine. Today our expertise in molecular biology is enabling us to develop targeted medicines for specific patient groups. This contributes to better, safer, more cost-effective healthcare.

6 Contents Inside cover Key figures Inside cover Pharmaceuticals pipeline Highlights 2010 Letters to Shareholders 4 Letter from the Chairman 8 Letter from the CEO Roche Group 13 Group Results and Outlook 16 Group Strategy 24 Pharmaceuticals 27 Results 29 Sales review 36 Development highlights 45 Research and development 56 Diagnostics 62 Results Business area highlights 74 Research and development Corporate Governance, Remuneration Report 81 Corporate Governance 91 Remuneration Report Corporate Responsibility 104 Stakeholder engagement 105 Patients 115 People 122 Society 124 Responsible practices 131 Safety, security, health and environmental protection Independent Assurance Report 138 GRI statement

7 4 Roche Business Report 2010 Letter to Shareholders Franz B. Humer Dear Shareholders 2010 was a challenging year for the pharmaceutical industry. Market conditions, as anticipated for quite some time, became even tougher. In the wake of the financial crisis, high government budget deficits added to pricing pressures in the global healthcare sector. In Europe many governments cut drug prices significantly, while healthcare reform in the US resulted in higher rebates on prescription drugs. On the regulatory front, the hurdles for gaining approval of new medicines were raised even higher, dramatically increasing the cost of drug development and delaying access to innovative treatments. Amid these challenges, Roche posted good full-year results. However, we also felt the effects of the market changes I ve just described. In July the US Food and Drug Administration (FDA) rejected our application for accelerated approval of T DM1, even though this novel compound is expected to significantly improve the treatment of breast cancer. This will increase the clinical development costs for T DM1 and delay this

8 Letter to Shareholders Roche Business Report promising drug s approval. Late in the year the FDA announced its intention to withdraw approval of Avastin in combination with chemotherapy for first-line treatment of metastatic HER2-negative breast cancer. While a withdrawal will not affect US patients access to Avastin in its other approved cancer indications, it would adversely impact patients with this very serious disease. The day the FDA made its announcement, the European Medicines Agency (EMA) confirmed Avastin s value in the fight against breast cancer. In Europe women with advanced breast cancer will thus continue to have access to this treatment option. We are closely monitoring developments in healthcare policy around the world. Precisely because we believe our highly innovative products contribute in important ways to more effective, cost-efficient healthcare delivery, we consider it vital for the future that policymakers and health officials look not only at the costs of new medicines but also at the innovation they embody and the benefits they offer patients. Given the many diseases that still cannot be treated satisfactorily, or at all, medical progress should be viewed more as a public good that deserves vigorous political support. When we discuss innovation we must bear in mind that it is inherently risky. Pioneering research and development efforts sometimes produce breakthroughs, but they also can sometimes not achieve the desired endpoints. Taspoglutide is a case in point. We suspended a late-stage development programme on this new treatment for type 2 diabetes at a very late stage of development after careful assessment of the available safety and efficacy data. Our intense research and development activities also yielded some very strong and promising results last year. We currently have twelve new molecular entities in late-stage development, half of which are designed for targeted use in specific patient populations with the help of companion diagnostic tests. We have made enormous progress in personalised healthcare, helped by the close interplay between our Pharmaceuticals and Diagnostics Divisions. These developments represent major strides and make us confident that we will remain an industry leader. Roche convincingly met its sales and earnings targets for Excluding sales of our influenza medicine, Tamiflu, which as expected were down sharply for the year, Group sales rose 5% in local currencies. Net income attributable to Roche shareholders showed a strong increase, advancing 11% to 8.7 billion Swiss francs despite the costs associated with the Operational Excellence programme amounting to a considerable 1.3 billion Swiss francs. Core Earnings per Share, a key indicator of underlying business performance, increased 10% in local currencies (4% in Swiss francs). In view of the company s healthy cash flow and positive outlook the Board of Directors will propose a dividend increase for 2010 of 10% to 6.60 Swiss francs per share and

9 6 Roche Business Report 2010 Letter to Shareholders non-voting equity security (up from 6.00 Swiss francs for 2009). Subject to your approval at the Annual General Meeting (AGM), this will be Roche s 24 th consecutive annual dividend increase. Looking ahead to the Annual General Meeting on 1 March 2011, I would like to mention the upcoming changes on the Board of Directors. Walter Frey and Wolfgang Ruttenstorfer have decided not to stand for re-election. On behalf of the entire Board, I would like to thank them both for their dedicated service to Roche. During his long tenure on the Board Mr Frey, who runs a highly successful family company, has made significant contributions to the Group s growth and success. Among the strengths Mr Ruttenstorfer brought to the Board, his expertise on the growth markets in Eastern Europe and the Middle East has been particularly valuable. We intend to use this opportunity to strengthen the Board further by nominating addi- tional independent directors. As announced in December, Paul Bulcke (CEO Nestlé S.A.), Christoph Franz (chairman and CEO Deutsche Lufthansa AG) and Peter R. Voser (CEO Royal Dutch Shell plc) will be standing for election as new members of the Board. At the Annual General Meeting we will also propose that the term of Board members be reduced from three to two years. This will enable shareholders to influence the composition of the Board at shorter intervals in future. After ten years of exceptional service on the Corporate Executive Committee, Erich Hunziker has decided to retire from Roche at the end of March Erich Hunziker was appointed Chief Financial Officer in 2001, becoming Deputy Head of the Corporate Executive Committee in During his long career at Roche, Erich Hunziker was one of the key architects of the Group s successful development. I would like to take this opportunity to thank Erich Hunziker sincerely for his outstanding contribution to the Group s overall success. The Board of Directors has appointed Alan Hippe to succeed Erich Hunziker as Chief Financial Officer. Alan Hippe will join Roche as a member of the Corporate Executive Committee as of April Alan Hippe served as a member of the executive board of Continental AG from 2002 to Since April 2009 he has been CFO and a member of the executive board of ThyssenKrupp AG. Our company was honoured last year for outstanding achievements in a number of areas. I am particularly pleased that the Dow Jones Sustainability Indexes named us the Supersector Leader in healthcare for the second year in a row, ranking Roche as the world s most sustainable healthcare company. We firmly believe that sustainable corporate policies and practices ultimately create long-term value and promote innovation.

10 Letter to Shareholders Roche Business Report Our success as a company is built on scientific excellence that benefits patients. The successful integration of Genentech has further strengthened our innovative capabilities as the world s largest biotech company and the leading supplier of cancer medicines. We lead in personalised healthcare, are the world s number one supplier of in vitro diagnostics and have outstanding product portfolios in both the Pharmaceuticals and the Diagnostics Division. Our ability to create value for all stakeholders is crucial to our future success and we will continue to vigorously pursue this strategy. Franz B. Humer Chairman of the Board

11 8 Roche Business Report 2010 Letter to Shareholders Severin Schwan Dear Shareholders Sandro B. had been recently diagnosed with malignant melanoma shortly after his 28 th birthday. Malignant melanoma is one of the deadliest, most aggressive forms of skin cancer, with over 160,000 new cases reported worldwide each year. It is highly likely to metastasise at a very early stage, and once patients have developed metastases there are almost no treatment options available to them. Life expectancy following diagnosis is typically a matter of months. His doctors gave him four months to live. Sandro B. met the inclusion criteria for a phase II clinical trial in which we are testing our novel investigational drug RG7204 in patients with advanced malignant melanoma whose cancer cells carry a specific genetic mutation. A diagnostic test confirmed that he had this mutation. Before reflecting in more details on our clinical trials, I would like to briefly review the Group s business performance in Despite strong pressure on prices in the US and in Europe, the Pharmaceuticals and Diagnostics Divisions both posted good results. Excluding Tamiflu sales, which were down 2.3 billion Swiss francs for the year, sales in the Pharmaceuticals Division advanced 5%, above the overall market growth. Including Tamiflu, divisional sales declined 2% in local currencies to 37.1 billion Swiss francs. Growth was driven by key

12 Letter to Shareholders Roche Business Report products for oncology, ophthalmology, inflammatory and autoimmune disease and anemia. Thanks to continued strong demand for our anticancer medicines, we expanded our lead in this important market segment. In the Diagnostics Division sales advanced 8% in local currencies, again significantly outpacing the market and solidifying Roche s position as the leading supplier of in vitro diagnostics. Professional Diagnostics and Diabetes Care were the division s primary growth drivers. The Group s core operating profit grew faster than sales, rising by a robust 7% to 16.6 billion Swiss francs in local currencies. Profitability improved further, with the core operating margins in the Pharmaceuticals and Diagnostics Divisions advancing 1.9 percentage points to 39.9% and 3.8 percentage points to 21.1%, respectively. Once again, the earnings power of our operating businesses was also reflected in the Group s operating free cash flow, which last year reached a strong 14.1 billion Swiss francs. Thanks to our strong cash flow, by year s end we had already repaid a third of the debt incurred in connection with the Genentech transaction earlier than originally planned. Succeeding in our industry is tougher than ever. Pricing pressures are rising sharply and the requirements for approval and reimbursement of new medicines are becoming increasingly stringent. At Roche we additionally experienced setbacks with some of our late-stage development projects last year, including the diabetes drug taspoglutide. In response to these challenges, my colleagues on the Executive Committee and I decided to take appropriate action now to ensure Roche s long-term success. In November 2010 we launched the comprehensive Group-wide Operational Excellence programme, which is designed to strengthen the Group s productivity and innovative capacity in the years ahead. We have identified a wide range of opportunities to improve processes and raise productivity and efficiency. Implementation of the Operational Excellence programme is already underway and will continue through As a result of this initiative, the workforce of roughly 82,000 (at 30 June 2010) will be reduced by 4,800 positions, almost 6% of the global workforce. The greatest changes will be in the Pharmaceuticals Division, where we will be adjusting our global sales organisation and taking steps to improve efficiency and productivity in product development and optimise our manufacturing network. In the Diagnostics Division, the co-location of related business, R & D and operational functions at selected sites will enable the division to streamline its site network. We are taking these measures proactively, from a position of strength. Roche is the world s biggest biotech company, with 13 products and product lines that generate annual sales of over one billion Swiss francs each. And despite last year s setbacks, our research and de velopment pipeline remains one of the strongest in the industry. With our combined strengths in pharmaceuticals and diagnostics and proven expertise in molecular biology, we

13 10 Roche Business Report 2010 Letter to Shareholders are uniquely positioned to realise the promise of personalised healthcare to make treatments safer and more effective. The revolutionary advances we are starting to see in molecular biology give us a strategic competitive edge across a number of areas, including our ability to raise research productivity. Personalised healthcare paradigms increasingly shape our research and development programmes. We currently have twelve new molecular entities in late-stage development, half of which are tailored to specific patient populations. Our BRAF inhibitor for malignant melanoma, MetMAb for lung cancer, T DM1 and pertuzumab for breast cancer and other projects in virology and inflammation all represent potential major advances for patients. Similarly, our Diagnostics Division is developing a number of biomarkers to support therapeutic decision-making. Targeted therapies and diagnostic tests that contribute to better medical decisions not only improve patient care but also have health economic benefits that make them attractive to regulators and payers. One of the most impressive examples of personalised healthcare is RG7240, the drug used to treat malignant melanoma which I mentioned earlier. Thanks to insights into specific genetic changes in tumour cells, huge strides are being achieved now in clinical trials in a disease once considered virtually untreatable. Tumours generally develop from just one cell. Every cell continuously undergoes changes, known as mutations, that affect certain signalling pathways within the cell. Most mutations are corrected spontaneously, but some manage to evade the body s repair mechanisms, causing cells to divide uncontrollably and thus form tumours. Scientists have discovered that in over half of all melanoma patients, the disease is triggered by a highly specific mutation of the gene coding for the BRAF protein, which is involved in cell growth. A BRAF V600E mutation triggers uncontrolled cell growth and these cancer patients Sandro B. for example have virtually no prospect of being cured. RG7204, an oral cancer drug co-developed with our partner company Plexxikon, acts via a highly innovative mechanism to inhibit the BRAF protein implicated in the disease. The new drug specifically destroys those cells carrying the V600E mutation and does not attack healthy cells without the mutation. We have developed a diagnostic assay for use with the drug which is capable of detecting the V600E mutation in tumours, and will thus help identify patients who are very likely to respond to the new drug. This means the new drug will be used only in patients likely to benefit from the new treatment. The interim results of a phase III trial, which we published in January 2011, are very encouraging. For the first time, a personalised investigational medicine, RG7204, has shown a significant survival benefit in metastatic melanoma. This is an important advance

14 Letter to Shareholders Roche Business Report for people with the BRAF V600 mutation-positive form of the disease who have had extremely limited treatment options. Full data will be presented at a medical meeting later this year. Roche is working closely with global health authorities so that patients world- wide can already be treated with the new drug. The pursuit of treatments offering real benefits to patients is the core of our corporate strategy. Consistent with that strategy, we will continue to drive progress on our promising development portfolio. We expect results from a total of 19 phase II and phase III trials in 2011 and Based on our current late-stage portfolio, we expect to submit up to eight regu latory filings for approval of new molecular entities by the end of Moreover, we are currently working on more than 20 additional indications for existing products. Going forward, innovations that benefit patients will continue to drive our success. Through excellence in science, we strive to develop pioneering treatments and diagnostic tests that prolong patients lives and tangibly improve their quality of life. Roche owes its success to its employees. Thanks to their tremendous dedication and hard work we once again achieved our goals last year, despite an increasingly challenging market environment. On behalf of the entire Executive Committee, I would like to thank all our employees for their important contributions. Making sure that Roche remains an employer of choice is an important priority for me. So I am especially pleased to report that in 2010 our company was again voted a top employer in polls in a number of countries. Being a top employer is not just about giving as many employees as possible opportunities to develop professionally and make things happen in the company. Innovation depends on a diversity of views and approaches. One of the ways we re promoting diversity at Roche is by filling more managerial positions with women. At the start of 2010, we set ourselves the goal of increasing the proportion of women in the top 400 leadership positions by half to 20% over the next five years. I am happy to report that we made progress on this front as well last year. What happened to the young man with melanoma? Like many of the other trial participants, Sandro B. has responded well to our new drug for skin cancer. He is still alive and doing well. This is exactly what we have in mind when we talk about helping patients through excellence in science. Severin Schwan Chief Executive Officer

15 Roche Group Our Group posted solid overall results in a challenging market in Core operating profit grew faster than sales, and Core Earnings per Share increased at a double-digit rate. We are steadily making progress in personalised healthcare. Of the twelve new molecular entities now in our late-stage pipeline, half are targeted at specific patient populations.

16 Roche Group Roche Business Report Group Results and Outlook Overall results The Roche Group posted solid overall results in Group sales were stable in local currencies at 47.5 billion Swiss francs ( 3% in Swiss francs; 1% in US dollars). The good underlying growth of both divisions compensated for the expected decline in Tamiflu sales and the impacts of health- care reforms and austerity measures. Excluding Tamiflu, sales increased by 5% in local currencies. The Pharmaceuticals Division represented 78% of Group sales and the Diagnostics Division con- tributed 22%. Sales in the Pharmaceuticals Division declined by 2% in local currencies to 37.1 billion Swiss francs. Excluding Tamiflu, local growth was 5%, above market growth. Demand for the oncology drugs Avastin, MabThera/Rituxan, Herceptin, Xeloda and Tarceva continued to grow strongly. Additional major growth drivers were Actemra/RoActemra in rheumatoid arthritis, Mircera in anemia and Lucentis in ophthalmology. Actemra, which is now launched in some 50 countries including the United States, the EU and Japan, reached sales of 397 million Swiss francs in These positive factors compensated for most of the expected strong decline in Tamiflu sales, the reduction in CellCept sales due to US patent expiry in May 2009 and the impacts of the US healthcare reforms, European austerity measures and price cuts in Japan. The Diagnostics Division increased sales to 10.4 billion Swiss francs in 2010, growing 8% in local currencies (4% in Swiss francs; 8% in US dollars), thereby strengthening its leading market position. Major drivers were Professional Diagnostics with 11% sales growth and Diabetes Care with 4% sales growth. The Group s core operating profit increased by 7% in local currencies (2% in Swiss francs). The Pharmaceuticals Division increased its core operating profit by 4% in local currencies, driven primarily by cost synergies from the Genentech integration and productivity improvements. Core operating profit growth in the Diagnostics Division was 30% in local currencies, mainly resulting from sales growth due to new product launches and the ongoing operational efficiency programmes. The Group s core operating profit margin increased by 1.7 percentage points to 34.9%, with the Pharmaceuticals Division improving by 1.9 percentage points to 39.9% and the Diagnostics Division by 3.8 percentage points to 21.1%. In 2010 the Group s net income increased by 4% to 8.9 billion Swiss francs compared to Net income attributable to Roche shareholders rose 11% to 8.7 billion Swiss francs. The Group s operating free cash flow remained strong at 14.1 billion Swiss francs. A free cash flow of 4.7 billion Swiss francs was achieved in 2010 despite higher interest, tax and dividend payments. The Board of Directors is proposing an increase of 10% in the dividend for 2010 to 6.60 Swiss francs per share and non-voting equity security for approval at the Annual General Meeting. Of the debt raised in early 2009, 33% had already been repaid by 31 December In addition, the Group exercised its option to call for redemption a portion of the US dollar notes due 1 March Of the total principal amount of 2.75 billion US dollars, 1.0 billion US dollars will be redeemed in March The net debt position of the Group is 19.2 billion Swiss francs, a decrease of 4.7 billion Swiss francs from 31 December The Board of Directors is proposing an increase of 10% in the dividend for 2010 to 6.60 Swiss francs per share and non-voting equity security for approval at the Annual General Meeting.

17 14 Roche Business Report 2010 Roche Group This would be the 24 th consecutive increase of the dividend and corresponds to an increase in payout ratio from 49% in 2009 to 52% for Financial implications of Operational Excellence On 17 November 2010 the Group announced implementation plans for its Operational Excellence programme, which is aimed at adapting cost structures to an increasingly challenging market environment and achieving significant efficiency and productivity gains. The initiative is expected to generate savings of 1.8 billion Swiss francs in 2011, with projected savings of 2.4 billion Swiss francs from 2012 onwards. Implementation is scheduled to be substantially completed by the end of During the period from 2010 through 2012 Roche expects to incur restructuring costs totalling 2.7 billion Swiss francs. As a consequence of implementing the respective restructuring measures, significant costs were already incurred in The costs in 2010 of 1.3 billion Swiss francs mainly relate to severance payments and impairments of intangible assets. The Pharmaceuticals Division accounts for 1.2 billion Swiss francs of these costs, and 0.1 billion Swiss francs relate to the Diagnostics Division. Roughly 40% of the charges are non-cash, being mainly impairments of property, plant and equipment and intangible assets. Outlook 2011 In 2011, Group and Pharmaceuticals sales (excluding Tamiflu) are expected to grow at low single-digit rates in local currencies, reflecting the impact of US healthcare reform and European austerity measures. Pharmaceuticals sales are therefore expected to grow in line with the market. In 2011, Diagnostics sales are again expected to grow significantly ahead of the market, driven by further rollout of new products in all business areas. In spite of a more challenging environment and the introduction of an excise tax in the United States, Roche aims for Core Earnings per Share to grow at a high-single digit rate in 2011 at constant exchange rates. Roche aims to increase the dividend in line with Core Earnings per Share growth. Based on the strong operating free cash flow, Roche expects to reduce debt progressively and to return to a net cash position by The Group has expanded the presentation of its core results for Previously only Core EPS was shown, but now the full income statement for the Group and the operating results of the divisions are shown on both an IFRS and core basis. This allows a transparent assessment of both the actual results and the underlying performance of the business. The core results concept is fully described on pages of the Finance Report and reconciliations between the IFRS and core results are given there.

18 Roche Group Roche Business Report Key achievements in 2010 Business/Finance achievements Products and pipeline Patients and access to healthcare People Society Responsible practices Safety, security, health and environmental protection Pharmaceuticals sales (excluding Tamiflu) increased above market growth Diagnostics sales growth significantly ahead of market Core operating profit margin up significantly in both divisions Double-digit rise in Core Earnings per Share (at constant exchange rates) 10% dividend increase proposed for reporting year key drug approvals, including approved new indications for Actemra, Herceptin, Lucentis and MabThera/Rituxan Twelve new molecular entities in late-stage development, six with a personalised healthcare approach Four new molecular entities moved into late-stage clinical development: lebrikizumab (asthma), MetMAb (lung cancer) and RG7128 (hepatitis C), Ocrelizumab (multiple sclerosis) Fifty diagnostic tests and instruments launched in key markets Defined new pricing arrangements to increase patient access to our medicines in emerging markets Expanded commitment not to file or enforce patents in Low Income Coutries (LIC) as defined by the World Bank Launched EDUCARE progamme in Africa with International Atomic Energy Agency (IAEA) to establish online university to provide oncology training to doctors Genentech voted Science magazine s top employer for the eighth time, Roche rose from 17 th to 5 th place Increased percentage of women in key positions from 13% to 16% Published more than 1,200 scientific articles, nearly 60 in high-impact journals such as Nature, Science and Cell Employees generated over 1.2 million Swiss francs in annual Children s Walk to support AIDS orphans in Malawi Refurbished the primary health coach of the Phelophepa health train in South Africa First year of the Roche SpeakUp line for reporting violations of our Code of Conduct demonstrated responsible use by employees Launched global marketing and sales compliance questionnaire to further promote good business conduct Rolled out Supplier Code of Coduct to over 500 suppliers and received their commitment Introduced online procurement training, completed by over 3,000 employees Roche named Healthcare Supersector Leader in Dow Jones Sustainability Indexes for second year running Reduced our eco-balance measure of total environmental impact by 10%, five years ahead of target Kept greenhouse gas emissions stable despite significant growth of the company To learn more about Roche s achievements in the area of Corporate Responsibility see pages

19 16 Roche Business Report 2010 Roche Group Group Strategy A changing healthcare sector The dynamic of the healthcare markets is more and more impacted by the tension between steadily rising demand and limited financial resources. The growing pressure on healthcare budgets means that increasingly new funds will only be available for real innovations products that offer patients significant added value compared with conventional treatments. Despite the current challenges, the pharmaceutical industry has excellent prospects over the long term. Key drivers of this success include rising life expectancy, increasing prosperity in developing countries, numerous diseases for which there are as yet no effective therapies and, last but not least, rapid scientific and technological advances. The world s population continues to expand, and people are living longer on average. Greater life expectancy means a rise in age-related diseases such as cancer, diabetes, rheumatoid arthritis, Parkinson s and Alzheimer s. This is true not only of the industrialised world but increasingly of developing countries and emerging markets too. Moreover, there are still no effective therapies for some 5,000 diseases, and patient response to existing drugs is often unsatisfactory. There is consequently substantial unmet medical need and increasing demand for more targeted diagnostics and more effective and better-tolerated therapies. A shift in the growth dynamic from Western to Far Eastern and Latin American markets has been apparent for some time. This trend will become even stronger in future: by 2013 the emerging markets will account for some 50% of the growth in the global pharmaceutical market, and their share of the world market will increase to around 25%. The Asian pharmaceutical market, for example, has grown twice as fast as the overall global market in recent years. China where Roche again expanded its presence significantly in 2010 has become the thirdlargest pharmaceutical market after the United States and Japan in Demographic changes and growing demands on medical care are placing an ever greater burden on healthcare systems. The recent financial and economic crisis and the resulting government deficits in Europe and the United States have further exacerbated the situation. Political pressure to curb healthcare costs has therefore grown. In Europe, several countries imposed significant price reductions on pharmaceutical products in Healthcare reform in the United States has led to an increase in drug rebates under government health insurance plans, and a new consumption tax on pharmaceutical sales is planned for In addition, US and European regulatory authorities have significantly raised the bar for approval of new products and are taking a much more critical look at the therapeutic benefits and safety of new drugs. Decisions about which medicines to administer are being made increasingly by public agencies and health insurers rather than by physicians.

20 Roche Group Roche Business Report Transforming the practice of medicine Tapping the vast potential of modern science Personalised healthcare: tailoring treatment to patients In order to remain competitive in the future despite a tougher global environment in the healthcare industry, Roche is pursuing a clear innovation strategy based on outstanding scientific achievements. We have con- fidence in modern science s vast potential for developing therapies and diagnostic tests that will reduce suffering and help people to live longer, healthier lives. In particular, we see significant opportunities in the fast-growing body of knowledge about the molecular basis of diseases. A deeper understanding of disease mechanisms and the growing range of established and new therapeutic approaches is enabling us to develop more specific, targeted products. Through our medically differentiated therapies we want to offer patients and doctors significant medical benefit in terms of effectiveness, quality and safety, to provide laboratories with efficiency gains and to give payers health economic benefits. We also strive to ensure patients access to treatments. Targeted, cost-effective therapies can play a key role in overcoming current challenges in the healthcare sector. State-of-the-art diagnostics will also become increasingly significant in a rational healthcare system: diagnostics currently account for only around 2% of healthcare spending, yet around 70% of all med- ical decisions depend on accurate, fast diagnosis. Here, too, there is vast potential. Patients with the same clinical diagnosis may re spond very differently to the same medicines. While treatment may be effective and successful in some patients, others may experience undesirable side effects or the desired clinical benefit does not occur. This phenomenon is due in many cases to genetic and other molecular differences between individual patients. Treatments tailored to different patient populations have medical and economic advantages and are consequently not only important for patients and phy- sicians but are also welcomed by regulatory agencies and health insurers. In addition, early selection of patients who are highly likely to respond to a new compound increases the success rate in drug development while also lowering development costs. Combining strengths in pharmaceuticals and diag- nostics with proven expertise in molecular biology, Roche is uniquely positioned to make its personalised healthcare strategy a reality. Thanks to the close cooperation between the Pharmaceuticals and Diagnostics Divisions, under a single roof, on everything from research to sales, Roche is committed to the systematic pursuit of personalised healthcare. This concept is becoming a reality for more and more of our development projects.

21 18 Roche Business Report 2010 Roche Group Pairing targeted therapies with companion diagnostics Roche already has a number of products that are custom-made for specific patient populations and have become established standard treatments, including therapies for HER2-positive breast and stomach cancer and for infections caused by hepatitis B and hepatitis C viruses. Our late-stage pipeline contains twelve new molecular entities, six of which are tailored to specific patient groups and have a companion diagnostic test. These include new drugs for skin, lung and breast cancer and for viral and infectious diseases (see features on page 19 and 21). Encouraging results in the battle against malignant melanoma Roche s developmental drug RG7204 (BRAF inhibitor) is currently being tested in patients with advanced malignant melanoma in a final phase III clinical trial. Diagnosed worldwide in about 160,000 people each year, malignant melanoma is the most aggressive form of skin cancer. Thanks to insights into specific genetic changes in tumour cells, huge strides are being achieved now in a disease once considered virtually untreatable. Developed on the basis of biomolecular findings, RG7204 is an oral drug that specifically inhibits the deadly chain of events associated with the development of melanoma. In roughly half of all melanoma patients, the disease is triggered by a dangerous mutation of the BRAF gene. A Roche assay developed to detect this mutation will help identify patients very likely to respond to RG7204. Initial phase II trial data are encouraging: disease progression was significantly delayed, tu- mours shrank markedly in over 50% of patients and there was a noticeable improvement in patients quality of life. Extending the lives of lung cancer patients Non-small cell lung cancer (NSCLC) is the most frequent tumour-related cause of death in the world. According to preliminary data from a phase II trial, combining the novel monoclonal antibody MetMAb with Tarceva (erlotinib) nearly doubles progres- sion-free survival in certain patients with non-small cell lung cancer. These patients tumour cells carry an abnormally high concentration of a cell surface protein known as the Met receptor. These receptors can be identified using molecular tis- sue tests. The monoclonal antibody MetMAb binds specifically to Met receptors and prevents activation of a cancer-promoting growth factor. Roche is also developing a diagnostic test for detecting epidermal growth factor receptor (EGFR) mutations for pa- tients with NSCLC. Patients with EGFR mutations re- spond especially well to the anticancer drug Tarceva, so determining EGFR mutation status would help oncologists to personalise and optimise cancer treatment (see also personalised healthcare for lung cancer on page 22 and 23). Progress in the fight against stomach cancer Stomach (gastric) cancer is the second-leading cause of cancer-related deaths in the world, with over 900,000 new cases diagnosed each year. In 2010 European, US and South Korean regulators approved Herceptin for use in HER2-positive metastatic stomach cancer. Already an established therapeutic option in breast cancer, Herceptin is one of the most successful examples of personalised healthcare to date. The HER2 biomarker is detected in about 16 18% of gastric tumours. A fast, reliable test for HER2 status provides critical guidance in both approved Her- ceptin indications, helping doctors to identify the patients most likely to respond to the drug. Her- ceptin plus chemotherapy has been shown to prolong the lives of patients with stomach cancer by up to 35%.

22 Roche Group Roche Business Report MAPK signalling Diagnostics Therapeutics Molecular test * (PCR) identifies patients carrying a mutated BRAF gene Active ingredient (BRAF inhibitor RG7204) targets melanoma cancer cells in patients with mutated BRAF gene Met signalling Diagnostics Therapeutics Tissue test * identifies tumours with high expression of the Met receptor Antibody (MetMAb RG3638) docks on Met receptor and inhibits cancer-triggering growth factor HER signalling Diagnostics Therapeutics Tissue test* determines HER2 receptors or HER2 gene expression Antibody-drug conjugate binds to HER2 receptors (Herceptin) and linked chemo therapy agent penetrates cancer cell (T DM1, RG3502) * These tests are being developed by Roche Diagnostics. Precision two-pronged attack on breast cancer Preliminary results from a phase II study of trastuzumab-dm1 (T DM1) in HER2-positive metastatic breast cancer show that the drug shrank tumours in one-third of the women who had failed prior ther- apies. Known as an antibody-drug conjugate, T DM1 links trastuzumab, the active ingredient of Hercep- tin, with the potent chemotherapeutic agent DM1. This represents a new targeted two-in-one approach to treating cancer: The antibody trastuzumab binds to HER2-positive cancer cells and blocks a signalling pathway that makes tumours grow, while the chemotherapy agent DM1 penetrates and destroys the cancer cells. Another potential new weapon against breast cancer is pertuzumab (RG1273), the first of a novel class of targeted therapeutics known as HER dimerisation inhibitors. RG1273 blocks HER2 from pairing with other HER proteins, thus preventing the abnormal ac- tivation of signal cascades that occurs in cancer cells.

23 20 Roche Business Report 2010 Roche Group Combining forces against hepatitis C Hepatitis C virus (HCV) causes acute and chronic liver diseases that can lead to liver failure, cirrhosis and cancer. There are currently over 180 million people infected with HCV worldwide. Diagnostic tests based on PCR technology can now measure viral load in the blood of patients with chronic hepatitis C infection and determine which of the four different HCV subgroups (genotypes) is present. The disease can then be treated by pegylated interferons tailored to the respective genotype and viral load level, such as the Roche product Pegasys. The viral load test is also used after a few weeks to check treatment response. In many patients, the virus can be completely eliminated. For chronic hepatitis C patients who do fail to benefit from interferon-based therapy, several small antiviral molecules are in clinical development at Roche. The focus here is on hepatitis C subtype 1 infection, which is very difficult to treat. Initial results show that in patients who have not responded to interferons, the new combined treatment can achieve a 99.9% reduction in blood viral load within just two weeks. Hope for asthma sufferers Asthma still represents a major unmet medical need. Moreover, the underlying disease mechanisms are not the same in all cases. Our scientists have discovered that, in a particular set of patients, certain genes are activated in the wrong place and at the wrong time by the chemical messenger interleukin-13 (IL-13), a key mediator in asthma reactions. Reducing IL-13 levels could thus be a way of relieving asthma symptoms in this patient subpopulation. This approach is currently being tested in a phase II trial with lebrikizumab (RG3637), involving the measurement of a key biomarker called periostin. It may make it possible to identify the patients most likely to respond to an anti-il-13 antibody like RG3637. Roche Diagnostics is currently developing an appropriate assay. Once just a vision, personalised healthcare is increas ingly becoming a reality, helped by pioneering efforts at Roche. For years we have been working to advance more personalised treatment options across all our therapeutic areas of interest. Going for- ward, we are ideally equipped to remain at the forefront of this groundbreaking new approach to healthcare and to continue realising its tremendous potential for all our stakeholders.

24 Roche Group Roche Business Report HER signalling Diagnostics Therapeutics Tissue test* determines HER2 receptors or HER2 gene expression Antibody (pertuzumab RG1273) inhibits pairing of HER1, HER2 and HER3 receptors and thus prevents fatal signalling in cancer cells Hepatitis C virus Diagnostics Therapeutics Molecular test* (PCR) to determine levels of circulating Hepatitis C virus HCV nucleoside polymerase inhibitor (RG7128) prevents reproduction of hepatitis C viruses Lebrikizumab Diagnostics Therapeutics IL-13 molecule Immunoassay* measures the serum level of the protein periostin (an IL-13 gene product) and thus detects lung inflammation driven by IL-13 Antibody (lebrikizumab RG3637) inhibits chemical messenger interleukin-13 that triggers inflammation in asthmatic reactions * These tests are being developed by Roche Diagnostics.

25 22 Roche Business Report 2010 Roche Group From precise diagnosis to more personalised therapy Non-small cell lung cancer (NSCLC) is the world s number one cause of cancerrelated death, the most common form being adenocarcinoma. The illustrations show how diagnostic tests can provide patients suffering from NSCLC and their physicians with information about a tumour s molecular profile, the likelihood of response to drug therapy and the most appropriate therapeutic options. The diagnosis of lung cancer is complex. Imaging technologies are often used for an initial examination. Roche has developed several immunohistochemistry and in situ hybridisation tests to determine the exact type of tumour present Initial diagnosis Tissue samples from the patient are first examined in the pathology laboratory to see whether cancer cells are present. If irregularities in cellular shape or structure are found, more extensive tests are required. 3 Prognosis The pathologist then characterises the tumour on the basis of cell differentiation and other criteria. Roche is currently developing a number of molecular biomarkers that will enable physicians to predict the course of cancers as accurately as possible. 2 Specific cancer diagnosis Roche has developed several immunohistochemistry and in situ hybridisation tests for use on the Bench- Mark family of instruments that reliably determine the type and subtype of lung tumour present.

26 Roche Group Roche Business Report The pathologist grades the tumour by looking at the individual cells and determining the extent of cell differentiation. 3 4 Roche has tests on the market and in development to help physicians understand the mechanisms driving cancer growth and thus select the treatments most likely to benefit specific patients. Roche s Avastin and Tarceva have become pillars in the treatment of lung cancer. Roche continues to develop new compounds for targeted cancer therapy. 5 4 Tests A number of genes have been identified as growth drivers in non-small cell lung cancer (NSCLC). These include the EGFR gene, the Met receptors and the Pl3 kinase. Tests from Roche help doctors understand the mechanisms driving tumour growth and thus to select drugs most likely to work best for a particular patient. Roche has several tests on the market or in development which use three key technologies immunohistochemistry (IHC), in situ hybridisation (ISH) and the polymerase chain reaction (PCR). 5 Therapy Roche s anticancer medicines Avastin (bevacizumab) and Tarceva (erlotinib) play a crucial role in the treatment of lung cancer. And the company is currently developing a number of new innovative drugs to address cancer-specific pathways and offer patients targeted therapies. In addition, Roche Diagnostics offers a blood test enabling physicians to monitor responses to cancer treatment.

27 Pharmaceuticals Solid localcurrency growth in sales of strategic products and core operating profit despite lower Tamiflu revenues and a tougher market environment, additional approvals for key medicines and progress with promising projects in our late-stage development pipeline made 2010 a successful year. The Pharmaceuticals Division is focused on translating excellence in science into effective medicines for patients. It combines cuttingedge 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.

28 Pharmaceuticals Roche Business Report Pharmaceuticals Division in brief Sales in millions of CHF Core operating profit in millions of CHF Number of employees 35,961 38,996 37,058 13,594 14,836 14,776 54,813 54,141 53, Key figures In millions of CHF % change in CHF % change in local currencies % of sales Sales 37, United States 14, Western Europe 9, Japan 4, International (Asia Pacific, CEMAI 1, Latin America, Canada, Others) 9, Core operating profit 14, Operating free cash flow 12, Research and development (core basis) 8, CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent. Pharmaceuticals Management Team 31 December 2010 Pascal Soriot 1, 2 Hal Barron 2 Ian Clark 2 Tuygan Göker 2 Meeta Gulyani 2 Peter Hug 2 Michael Knierim 2 David Loew 2 Luke Miels 2 Patrick Mongrolle 2 Jörg Rupp 2 Patrick Yang 2 Chief Operating Officer Pharmaceuticals, Head of Pharma Medicines Global Product Development, Chief Medical Officer Commercial Operations, North America and CEO, Genentech Commercial Operations, CEMAI Global Portfolio Management Commercial Operations, Western Europe Human Resources Global Product Strategy Commercial Operations, Asia Pacific Finance Commercial Operations, Latin America Global Technical Operations Jean-Jacques Garaud 1 Osamu Nagayama 1 Richard Scheller 1 Dan Zabrowski 1 Pharma Research and Early Development (pred) President and CEO, Chugai Genentech Research and Early Development (gred) Roche Partnering 1 Member of the Corporate Executive Committee see Corporate Governance, p Member of the Pharma Medicines Leadership Team.

29 26 Roche Business Report 2010 Pharmaceuticals Pharmaceuticals Division Solid local-currency growth 1 in sales of strategic products and core operating profit, additional marketing approvals for strategic products, and progress with a range of promising projects in our late-stage R & D pipeline made 2010 a successful year overall for the Pharmaceuticals Division. Growth was driven primarily by strong demand for key medicines from the Group s oncology and inflammatory disease portfolios. Following the end of the influenza A (H1N1) pandemic and completion of government stockpiling orders, sales of Tamiflu declined strongly. We achieved important product development successes in 2010, including expanded marketing ap prov als for Actemra/RoActemra for rheumatoid arthritis in the US and the EU, Herceptin for stomach cancer (EU and US), MabThera/Rituxan for chronic lymphocytic leukemia (US) and maintenance treatment of follicular lymphoma (EU), and Lucentis for macular edema following retinal vein occlusion (US). Key regulatory filings included marketing applications for Actemra/RoActemra for juvenile idiopathic arthritis in the EU and US, Herceptin for stomach cancer in Japan and Avastin for advanced ovarian cancer in the EU. During the year we made decisions to move several projects into late-stage development, including ocrelizumab for multiple sclerosis, RG7128 for hep- atitis C, lebrikizumab for asthma and RG3638 (MetMAb) for lung cancer. Positive results from clin- ical trials with other late-stage compounds such as RG7204 (BRAF inhibitor) for melanoma, RG7159 (GA101) for non-hodgkin s lymphoma and chronic lymphocytic leukemia, and T DM1 and pertuzumab for HER2-positive breast cancer were published or presented at major medical conferences during These targeted compounds are designed to move the standard of care for these diseases and improve patient survival. Roche s pharmaceutical pipeline currently includes 12 new molecular entities in latestage development. Sales by region United States 38% ( 1%) Asia Pacific 6% (+8%) Latin America 7% (+20%) Other regions 3% ( 9%) CEMAI 9% (+4%) Western Europe 25% ( 5%) Japan 12% ( 12%) Italics = growth rates (local currencies). CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent. At the same time, 2010 was a year of significant challenges. Pressure on healthcare budgets in many countries and healthcare reforms in the United States, the world s largest market for pharmaceuticals, translated into mandatory reductions in reimbursement prices or higher rebates on medicines under statutory health insurance or governmentfunded programmes. These developments already had a noticeable impact on sales in 2010, and we expect this to continue into 2011 and beyond. In addition, we experienced several product development setbacks in The most serious of these were the decision to suspend phase III testing of taspoglutide for type 2 diabetes, and regulatory developments in the US and EU concerning Avastin as a treatment for advanced breast cancer. In December the European and US health authorities announced decisions that are pivotal in determining whether Avastin remains available as a treatment for metastatic breast cancer. We believe strongly that patients should have this option and are pleased that the European authorities continue to support the use of Avastin in this indication. It is disappointing that the US Food and Drug Administration (FDA) has come to a different conclusion after reviewing the same set of data. We believe that women with HER2- negative metastatic breast cancer living in the US should also have Avastin as a treatment option, and we have requested a hearing with the FDA accordingly (see p. 37). Responding to the tougher operating environment and setbacks outlined above, we continued to strengthen our Pharmaceuticals organisation to 1 Unless otherwise stated, all growth rates are in local currencies.

30 Pharmaceuticals Roche Business Report increase efficiency and maintain its focus on innovation. We believe that the measures now being implemented through the Group s Operational Excellence programme will enhance Roche s ability to deliver breakthrough medicines for patients, allowing us to expand further in high-growth emerging economies while strengthening our presence in established markets. Results and main business developments Sales by the Pharmaceuticals Division in 2010 declined 2% in local currencies ( 5% in Swiss francs, 1% in US dollars) compared with 2009 to 37.1 billion Swiss francs. Excluding Tamiflu, the division s local-currency sales grew 5%, above the global market. In addition to the Group s five main cancer medicines, the primary sales drivers were Lucentis, Actemra/RoActemra and Mircera. Growth from these and other pharmaceuticals largely compensated for lower sales of Tamiflu, CellCept and NeoRecormon/Epogin. Together, the top six sales drivers Avastin, MabThera/Rituxan, Herceptin, Lucentis, Actemra/RoActemra and Xeloda contributed over 1.3 billion Swiss francs in additional sales in Due to the passing of the influenza A (H1N1) pandemic, a relatively mild influenza season and the completion of most government stockpiling orders, sales of Tamiflu declined strongly, to 873 million Swiss francs (2.3 billion francs lower than in 2009). Sales expanded fastest in the International region (8%, or 11% excluding Tamiflu), driven by demand for MabThera, Herceptin, Avastin and other key medicines in emerging markets. Particularly strong growth was recorded in Latin America (20%), led by Brazil and Venezuela. Solid growth in the Asia Pacific region (8%) was led by China and Taiwan. A slight decrease in the United States ( 1%) reflects significantly lower sales of Tamiflu and CellCept, as well as healthcare reform impacts affecting all major products. A 5% decline in sales in Western Europe was due primarily to markedly lower sales of Tamiflu and NeoRecormon and the effects of government austerity measures introduced in a number of countries, including Greece and Spain in the second quarter and Germany in the third quarter. Together, Excluding Tamiflu, Pharmaceuticals Division sales grew 5%, above the global market. healthcare reforms in the United States and austerity measures in Europe had a negative impact on total sales of approximately 530 million Swiss francs or 1.5 percentage points. Excluding Tamiflu, sales in the US and Western Europe increased 4% and 2%, respectively, compared with market growth 2 of 3% and 2%. A decline in sales of 12% in Japan reflects both significantly lower demand for Tamiflu and the impact of revised National Health Insurance reimbursement prices that came into effect in April. Excluding Tamiflu, Japanese sales grew 3% in a virtually flat market. Core operating profit 3 grew 4% in local currencies and was stable in Swiss francs at 14.8 billion Swiss francs. The corresponding margin increased 1.9 percentage points to 39.9%, driven by synergies from the merger with Genentech and productivity improvements. This was achieved despite the expected sharp decline in Tamiflu sales and the impact of health - care reforms and austerity measures. A reduction of 1% in marketing expenses was achieved through tight cost management, which more than covered an increase in allowances for bad debts in Southern Europe. Research and development expenses declined 2% versus 2009 thanks to resource priori- tisation while securing long-term growth through the rich R & D pipeline. In addition to investments in phase III initiations, the metabolism franchise and the earlier-stage neurology portfolio, research and development expenses included costs associated with the discontinuation of the ocrelizumab rheumatoid arthritis programme (see p. 51, below) and project termination costs associated with the Operational Excellence programme. 2 Pharmaceutical market growth according to IMS (to end of September 2010). 3 Unless otherwise stated all results are on a core basis (see p. 14, above, and p. 144 of the Finance Report).

31 28 Roche Business Report 2010 Pharmaceuticals The core operating profit margin increased 1.9 percentage points to 39.9%. The division s full-year operating free cash flow remained strong at 12.9 billion Swiss francs. The decrease of 9% compared with 2009 primarily reflects the payment in 2010 of certain large 2009 year-end accruals, including employee retention and severance payments, and high royalty payments relating to strong Tamiflu sales in the second half of The Pharmaceuticals Division is on track to achieve its goal of pre-tax annual synergies from the Genentech merger of approximately 1 billion Swiss francs by Synergies of over 800 million Swiss francs were achieved in For more information on the division s operating results, see the Finance Report (Part 2 of this Annual Report). In the year under review the Pharmaceuticals Division incurred significant non-core costs associated with restructuring measures implemented under the Operational Excellence programme. Most of these costs relate to severance payments following reductions in positions in sales and marketing, global manufacturing, global development, and research and early development, as well as impairments of intangible assets. Manufacturing infrastructure Integration of the Roche and Genentech manufacturing and supply networks continued in 2010, as initiatives were implemented to ensure that global demand for commercial and clinical supplies of our medicines can be met and that necessary adaptations to our growing pipeline are made in time. A number of important milestones were achieved in In April Hillsboro Operations (Oregon, USA) was officially inaugurated. By 2013 Hillsboro will be the US commercial filling and packaging facility for our medicines, supplementing facilities in Germany and Switzerland. In addition, expansion of the Kentucky Distribution Center was completed in The facility now serves as the primary distribution centre for all products marketed in the United States. In all, Global Technical Operations facilities passed more than 30 health authority inspections in Our biotech production facility in Singapore received its first approvals by the US Food and Drug Administration (FDA), to manufacture Lucentis and Avastin biologic bulk drug substance for commercial use in the US. Approval by the EU authorities is targeted for Our Kaiseraugst (Switzerland) facility successfully launched Actemra product for commercialisation in the United States 14 days after FDA approval. Our bulk drug manufacturing facilities in South San Francisco, Vacaville and Oceanside (California, USA) received Class A certification, an international business award recognising system - atic process improvements. As part of the continuous evaluation of our global manufacturing network, we are always reviewing and analysing our structures, organisations, processes and operations. In 2010 we sold facilities located in Isando (South Africa) and Karachi (Pakistan). In addition, plants in Montevideo (Uruguay) and Nutley (New Jersey, USA) were closed, and we continue to plan for the closure of certain operations in Mannheim (Germany) and Basel (Switzerland). Following a detailed analysis of organisational structures and processes as part of the Group-wide Operational Excellence programme, Global Technical Operations will further refine its organisational structure to improve operational efficiencies, optimise manufacturing assets and consolidate the technical development and clinical supply network. Some activities will be reorganised in California, Mannheim and other sites by the end of 2013, resulting in a reduction of approximately 750 positions. In addition, Roche intends to seek buyers for its US sites in Florence, South Carolina, and Boulder, Colorado, potentially affecting an additional 600 jobs. Together with activities initiated in the last two years, these changes will reduce the number of manufacturing locations from 21 to 15 by the end of 2013.

32 Pharmaceuticals Roche Business Report Sales by therapeutic area Oncology 57% (+7%) Inflammatory and autoimmune diseases, transplantation 8% (+3%) Central nervous system 3% (+2%) Respiratory 3% (+7%) Metabolic diseases, bone diseases 7% ( 1%) Infectious diseases 1% ( 2%) Cardiovascular diseases 3% ( 3%) Virology 10% ( 39%) Others 1% ( 10%) Renal anemia 3% ( 6%) Ophthalmology 4% (+27%) Italics = growth rates (local currencies). Partnering activities Collaboration with external partners has long been a cornerstone of Roche s R & D strategy. Access to external innovation through licensing and targeted acquisitions is a significant means of strengthening the R & D portfolio and expanding the Group s technology capabilities. In 2010 Roche Partnering signed a total of 52 new agreements, including one prod - uct transaction and 40 research and technology collaborations. In addition, ten product outlicensing agreements were signed. Among Roche Partnering s main transactions in 2010 were an agreement with Belgian company remynd to develop novel therapeutics that could slow down neurodegeneration in Parkinson s and Alzheimer s patients. A new collaboration was agreed with Aileron Therapeutics to discover, develop and commercial- ise a novel class of drugs called stapled peptide ther- apeutics, a potentially transfor mative technology to create drugs for important disease targets that are intractable to currently available modalities. In December Roche acquired Marcadia Biotech, a privately owned US company focusing on the devel- opment of innovative therapeutics for metabolic diseases. Marcadia s research and development programmes on new peptide therapies for the treatment of type 2 diabetes and obesity will be integrated into Roche s R & D portfolio. These include next gener- ation peptides such as MAR701, currently in phase I development for type 2 diabetes. Several partners were added to Roche s Expanding the Innovation Network (EIN) project, which is designed to create and deepen relations with leading academic insti- tutions worldwide. Under a new EIN partnership with Harvard University, Roche provides strategic questions and know-how to Harvard, with Harvard providing innovative solutions. Genentech Partnering completed four product transactions and 16 research and technology collaborations in 2010, supporting the cutting-edge work of Genentech Research and Early Development. Among these is an expansion of the antibody-drug conjugate collaboration with Seattle Genetics in oncology. New collaborations in immunology included an exclusive licensing agreement with Swiss-based antibody specialist NovImmune, covering an anti-il-17 antibody that has the potential to benefit patients across a range of autoimmune diseases. A novel research programme was agreed with US company Adimab, which will use its proprietary discovery platform to identify fully human antibodies against two targets selected by Genentech. Under the agreement, Genentech has rights to commercialise antibodies generated from the collaboration. Sales review selected key products The Pharmaceuticals Division s broad-based portfolio of marketed products includes ten medicines from

33 30 Roche Business Report 2010 Pharmaceuticals Top-selling pharmaceuticals Roche Group in millions of CHF 6,461 6,356 5,429 1,645 1,458 Avastin MabThera/Rituxan Herceptin Pegasys Lucentis ** +9% * +9% * +7% * +2% * +27% * Active substance: bevacizumab 1 Active substance: rituximab 1 Active substance: trastuzumab 1 Active substance: peginterferon alfa-2a 1 Active substance: ranibizumab 1 Indications: colorectal cancer, breast cancer, non-small cell lung cancer, kidney cancer, glioblastoma Indications: non-hodgkin s lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis Indications: HER2-positive breast cancer, advanced HER2-positive stomach cancer Indications: hepatitis B and C Indications: wet age-related macular degeneration, macular edema following retinal vein occlusion

34 Pharmaceuticals Roche Business Report Thanks to the Pharmaceuticals Division s broad-based portfolio, Roche is one of the world s leading providers of clinically differentiated medicines for cancer, viral and inflammatory diseases, and metabolic disorders. 1,426 1,325 1,290 1,285 1,013 Xeloda Tarceva CellCept NeoRecormon, Epogin Bonviva/Boniva +17% * +6% * 15% * 15% * +1% * Active substance: capecitabine 2 Active substance: erlotinib 2 Active substance: mycophenolate mofetil 2 Active substance: epoetin beta 1 Active substance: ibandronate 2 Indications: colorectal cancer, breast cancer, stomach cancer Indications: advanced non-small cell lung cancer, advanced pancreatic cancer Indications: transplantation Indications: anemia Indications: osteoporosis 1,2 The images above show molecular diagrams representing the active substance of each medicine (1 = therapeutic protein, 2 = small molecule). * Year-on-year sales growth in local currencies. ** US sales. Lucentis is marketed outside the United States by Novartis.

35 32 Roche Business Report 2010 Pharmaceuticals six therapeutic areas that generated sales of over 1 billion Swiss francs each in Of these, the top three recorded sales of well over 5 billion Swiss francs each. Combined sales of the Group s top 20 pharmaceuticals amounted to 32.6 billion Swiss francs, or 88% of divisional sales. Sales of the division s oncology portfolio rose 7% to 21.3 billion Swiss francs in 2010, led by key products Avastin, MabThera/Rituxan, Herceptin, Xeloda and Tarceva. Together, these five medicines accounted for over half of total pharmaceutical sales. Sales of antiviral medicines declined 39%, for a full-year total of 3.5 billion Swiss francs, due mainly to the sharp decline in sales of Tamiflu. Overall sales of the renal anemia portfolio declined by 6% to 1.2 billion francs, with strong demand for Mircera outweighed by decreasing sales of NeoRecormon/Epogin. Sales in the combined inflammation/autoimmune/transplantation portfolio rose 3% to 3.0 billion francs: growing demand for MabThera/Rituxan for rheumatoid arthritis and strong uptake of Actemra/RoActemra offset continued generic erosion of CellCept in the United States. Oncology Global sales of Avastin (bevacizumab), for advanced colorectal, breast, lung and kidney cancer, and for relapsed glioblastoma (a type of brain tumour), rose 9% to 6.5 billion Swiss francs, reflecting continued positive uptake of the product overall. Sales growth in Western Europe (7%) was driven primarily by continued uptake for breast cancer and improved uptake for colorectal and lung cancer. Austerity measures introduced during the year in Greece, Spain, Germany and other markets resulted in a progressive flattening of growth in the region as a whole that was particularly noticeable in the fourth quarter. Sales in the US were flat for the year, reflecting reserve adjustments due to the healthcare reforms enacted in 2010 and regulatory and reimbursement uncertainty regarding the metastatic breast cancer indication (see p. 37); together these factors led to a decline in sales in the second half-year, especially the fourth quarter. Avastin maintained its high US market share in its metastatic colorectal and lung cancer indications. Very strong sales growth in Japan (51%) was driven by continued good uptake in colorectal and non-small cell lung cancer. Very strong growth was also recorded in Latin America (42%). In the third quarter Avastin was launched in China in its first indication, first-line treatment of metastatic colorectal cancer; initial uptake has been very encouraging. Full-year sales (oncology and autoimmune diseases) of MabThera/Rituxan (rituximab), for non-hodgkin s lymphoma (NHL), chronic lymphocytic leukemia (CLL) and rheumatoid arthritis (RA), totalled 6.4 billion Swiss francs in 2010, an increase of 9% versus Sustained growth in the oncology segment was driven by uptake in CLL and continued strong use in NHL in Western Europe and the US. Solid doubledigit growth in the International region, including strong gains in key emerging markets, reflects uptake of the medicine in its NHL indications. The European rollout of MabThera in a new indication, first-line maintenance treatment of patients with follicular lymphoma, commenced in the fourth quarter. Estimated sales of MabThera/Rituxan in the RA segment reached the 1 billion Swiss franc mark in 2010 (16% of the product s total sales), 17% higher than in Growth is being driven by increased use in patients with an inadequate response to one or more tumour necrosis factor inhibitors and by growing acceptance of six-month repeat treatment intervals. Global sales of Herceptin (trastuzumab), for HER2- positive breast cancer and HER2-positive metastatic stomach cancer, rose 7% to 5.4 billion Swiss francs on sustained, solid single-digit growth in the United States and Western Europe, and double-digit gains in the International region. Herceptin maintained its high market penetration in breast cancer, with sales also benefitting from initial uptake for stomach cancer in EU countries and other markets. In addition, improvements in the quality of HER2 testing are expanding the population of patients eligible for treatment with Herceptin. In Japan, where Herceptin has a market share of approximately 90% in its breast cancer indications, a stable sales volume and revised reimbursement prices from April resulted in a significant decline in sales revenue compared with Xeloda (capecitabine), for colorectal, stomach and breast cancer, generated total sales of 1.4 billion Swiss francs, an increase of 17% compared with Growth was driven primarily by strong gains in the United States, Japan and China, the product s

36 Pharmaceuticals Roche Business Report three largest markets. Global sales of Xeloda are benefitting from a number of new indications, including stomach cancer in China, an expanded metastatic colorectal cancer indication in Japan, and adjuvant 4 colon cancer in Europe, as well as increased patient share in metastatic breast cancer in the US and EU. Sales of Tarceva (erlotinib), for advanced lung and pancreatic cancer, increased 6% to 1.3 billion Swiss francs, driven mainly by increased use in the second-line non-small cell lung cancer setting. The main contributions to growth came from the International region, Japan and the US. Mid-singledigit growth in the US reflects steady demand in the lung and pancreatic cancer indications and the impact of government healthcare reforms. Against a background of stable demand, sales in Western Europe declined slightly, mainly as a result of government-mandated price reductions and rebates in several major markets. Sustained strong sales growth in Japan (37%) reflects continued market pene tration and oncologists increasing confidence in the benefits of treatment with Tarceva. Virology Worldwide sales of Pegasys (peginterferon alfa-2a), for hepatitis B and C, increased 2% to 1.6 billion Swiss francs in Flat sales in the United States and sales decreases in Western Europe, Japan and certain other mature markets were offset by growth in the International region, especially Asia Pacific and CEMAI 5 countries. The product s market share continued to expand in the main European markets, the US and Japan. Global sales continued to benefit from clinical data reinforcing the superiority of Pegasys over other treatment options and increased use in hepatitis B. The hepatitis C market is poised for major expansion, with the introduction of a new generation of direct-acting antiviral agents expected from 2011 onwards. Because Pegasys the leading pegylated interferon is used in most hepatitis treatment development programmes today, it is expected to become the backbone of future combination therapies with the new antivirals (see also p. 51, below). Following exceptional demand in 2009 due to the influenza A (H1N1) pandemic, sales of Tamiflu (oseltamivir), for influenza A and B, totalled 873 million Swiss francs in 2010, 73% (2.3 billion francs) lower than in With government stockpiling orders largely completed by early 2010 and the influenza A (H1N1) pandemic passing its peak, sales fell sharply in the last three quarters. Sales were also affected by relatively mild influenza seasons in both hemispheres during Roche remains ready to address potential threats posed by influenza and is maintaining production capacity in cooperation with exter nal manufacturing partners to enable a rapid response to future significant outbreaks or government stockpiling orders. Ophthalmology US sales of Lucentis (ranibizumab), for wet agerelated macular degeneration and macular edema following retinal vein occlusion, rose 27% to 1.5 billion Swiss francs. Strong growth throughout 2010 was driven primarily by increases in the total number of patients receiving Lucentis and the time patients are on treatment. The US launch of Lucentis for the treatment of macular edema (swelling in the retina) following retinal vein occlusion began in late June, and initial uptake is encouraging. Lucentis was discovered by Genentech, which retains commer cial rights in the United States. Novartis has exclusive commercial rights for the rest of the world. Inflammation and autoimmune disorders As the global rollout of the novel rheumatoid arthritis medicine Actemra (tocilizumab, known as RoActemra in the EU) continued, sales in 2010 totalled 397 million Swiss francs, a rise of 177% over Uptake of Actemra/RoActemra in the EU, the United States and other launch markets remains very encouraging. Around 60% of US rheumatologists have already prescribed the medicine. Continued strong sales growth in Japan reflects increas - ing use of Actemra as a first-line biologic. Chugai announced in August that the Japanese health authorities had removed the approval conditions for Actemra for the rheumatoid arthritis and polyar ticular-course juvenile idiopathic arthritis indica tions. 4 Adjuvant treatment is given after surgical removal of the tumour to lower the risk of relapse. 5 CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

37 Clinical development a long process that continues even after market launch Creating value for patients means investing skill and resources in a long, uncertain journey 10,000 molecules investment 10 molecules 50 volunteers or patients Preclinical development 3 6 years Phase I 1 2 years Preclinical testing evaluates a drug s safety profile and pharmacological effects in the laboratory. Every promising new compound must pass rigourous preclinical testing before it can be studied in humans. New drugs usually undergo both in vitro (in test tubes, cell cultures and isolated organs) and in vivo (animal) testing. Computer models are playing an increasingly important role in preclinical development. Data from preclinical tests are essential for determining whether a drug is safe enough to be administered to people in clinical trials. Phase I trials test the safety of various doses of a new drug. During phase I trials researchers are looking at how the drug is absorbed, distributed and changed (metabolised) in the body, how it is eliminated, how long these processes take, and whether there are any unwanted effects. These trials involve only a small number of people usually healthy volunteers. In some cases people whose disease is very advanced (cancer, for example) may also participate.

38 100 1,000 * patients 2 3 molecules 500 patients 1 2 molecules 15,000 patients 1 molecule Phase II Phase III Phase IV years (or more) years from market entry on Phase II trials test the new drug in people who have the disease it is designed to treat. The number of patients in phase II trials is limited but usually larger than in phase I studies. In addition to further safety testing, these trials identify appropriate dose ranges and test whether the drug demonstrates clinical efficacy (proof of concept). Many new drugs fail in phase II testing. A new drug moves into phase III clinical trials only if the phase I and phase II trial results suggest it might benefit patients in signficant ways. Phase III trials compare the new drug with current treatments or, in some trials, with a placebo. Many phase III trials last a long time, typically a year or more, and may involve several thousand patients in several countries. Phase III trials must include a large number of patients so that investigators can evaluate the differences between types of treatment. Regulatory agencies normally require results from phase III trials before approving a new drug. Phase IV trials are conducted after a drug has been approved by regulatory agencies and launched on the market. Also known as post-marketing trials, they are designed to gather broader, real-world experience with the new drug in routine medical practice. Phase IV trials generate additional data on safety and efficacy in large numbers of patients and in particular patient subgroups. They can also provide further information on how the drug works in comparison or in combination with other treatments. Even large phase III trials cannot identify all potential side effects: this is another area where phase IV trials provide essential additional information. Roche maintains a system of risk assessment programmes to identify and evaluate side effects that did not appear in phase I III trials. * Patients per trial; 5 20 (or more) trials.

39 36 Roche Business Report 2010 Pharmaceuticals Further major approvals for Actemra/RoActemra, Herceptin, MabThera/Rituxan and Lucentis. The decision gives more patients access to Actemra and follows positive results from a routine post- marketing surveillance programme. Actemra/ RoActemra is now available in some 50 countries worldwide. Anemia and transplantation Sales of the renal anemia medication Mircera (me thoxy polyethylene glycol-epoetin beta) rose 51% to 255 million Swiss francs. Demand for Mircera, which is now available in over 100 countries worldwide, is coming mainly from the predialysis segment and new patient commencements. Combined sales of the Group s established anemia medicines, Roche s NeoRecormon and Chugai s Epogin (epoetin beta), declined 15% to 1.3 billion Swiss francs. Roche Pharmaceuticals overall share of the European anemia market remained stable despite increasing biosimilar competition, due mainly to the strong performance of Mircera in the major EU countries and a robust market share by volume for NeoRecormon in the renal indication. A 10% decline in sales of Epogin in Japan was due mainly to competition in the dialysis market and a lower National Health Insurance reimbursement price, factors which outweighed increased demand for the medicine in the predialysis segment. At 1.3 billion Swiss francs for the full year, sales revenue from CellCept (mycophenolate mofetil), for the prevention of solid organ transplant rejection, remained significant. The sales decrease of 15% was due primarily to the loss of patent exclusivity in the United States in The resulting losses to competition from generic versions were partly offset by sales growth in Japan and the International region. Development highlights key marketed products In 2010 the Pharmaceuticals Division filed 20 major new marketing applications and gained 18 major regulatory approvals (see tables, pp. 38 and 39). The following summaries present approvals, filings and major clinical trial results for key marketed products, by indication. Actemra/RoActemra Approvals In January 2010 the US Food and Drug Administration (FDA) approved Actemra for the treatment of adult patients with moderately to severely active rheumatoid arthritis (RA) who have had an inadequate response to one or more tumour necrosis factor (TNF) inhibitors. Actemra, the first interleukin-6 receptor-inhibiting monoclonal antibody approved to treat RA, may be used alone or in combination with methotrexate or other disease modifying antirheumatic drugs. In June the Euro pean Commission extended the product s existing marketing approval to include treatment with RoActemra plus methotrexate to reduce the rate of progression of joint damage and improve physical function in patients with rheumatoid arthritis. The new indication, which is based on two-year data from a global phase III study (LITHE), came just over a year after the medicine s initial EU approval, further reinforcing its value as an effective treatment for RA. In January 2011 the FDA approved Actemra for a similar indication (inhibition and slowing of structural joint damage, improvement of physical function, and achievement of major clinical response in adults with moderately to severely active RA), based on a supplemental Biologics License Application (sbla) submitted by Genentech in March Filings In October Genentech submitted a second sbla to the FDA and Roche submitted an Accelerated Assessment application to the European Medicines Agency (EMA), seeking to extend the approved indications of Actemra/RoActemra to include treatment of systemic juvenile idiopathic arthritis (sjia). Both applications are based on positive data from the global phase III TENDER study. There are currently no approved therapies in the EU or US for sjia, a debilitating and difficult-to-treat

40 Pharmaceuticals Roche Business Report disease that affects the whole body and represents an area of high unmet medical need. Avastin Since its initial approval in 2004 in the United States for advanced colorectal cancer, Avastin has made anti-angiogenic therapy a fundamental pillar of cancer treatment. Avastin is approved in many countries for the treatment of advanced stages of colorectal, breast, non-small cell lung and kidney cancer. It is also available in the US and 29 other countries for the treatment of patients with glioblastoma (a type of brain cancer). Nearly a million patients have been treated with Avastin so far. More than 1,000 ongoing Roche-sponsored or -supported, or independently conducted clinical trials are investigating the use of Avastin in over 50 tumour types (including colorectal, breast, non-small cell lung, brain, gastric, ovarian and others) and different settings (advanced or early-stage disease). Breast cancer In December, following a review of all relevant data, the European Committee for Medicinal Products for Human Use (CHMP) supported the continued first-line use of Avastin in combination with paclitaxel chemotherapy, describing it as a valuable treatment option for patients suffering from metastatic breast cancer. Paclitaxel is the chemotherapy most frequently used and also most frequently partnered with Avastin to control the disease. The committee also considered combinations of Avastin with two other types of chemotherapy, based on data from the AVADO and RIBBON-1 trials. The CHMP recommended that the combination with docetaxel be removed from the Avastin label and that the combination with capecitabine (Xeloda) not be approved. A decision by the European Commission on these recommendations is expected early in The CHMP opinion does not affect the other approved uses of Avastin in the European Union for advanced colorectal, kidney and lung cancer. Also in December the FDA announced a number of regulatory decisions concerning the use of Avastin for metastatic breast cancer in the US. The most important of these is the agency s decision to initiate the process to withdraw the current conditional ( accelerated ) approval for Avastin for first-line treatment of metastatic breast cancer. Roche and Genentech have requested a hearing pursuant to the FDA s Notice of Opportunity for Hearing. We believe this would provide an opportunity to present our views that the data are clinically meaningful and meet the applicable legal and regulatory standards for continued approval. Until the conclusion of these proceedings, Avastin remains FDA-approved for use in combination with paclitaxel for metastatic HER2-negative breast cancer. At the same time the FDA issued complete responses for all other pending applications concerning Avastin in metastatic breast cancer, saying that the applications failed to support the extension of the proposed indications: for firstline treatment in combination with docetaxel (based on AVADO) and in combination with standard chemotherapy (based on RIBBON-1), and for second- line treatment in combination with standard chemotherapy (based on RIBBON-2). These decisions do not affect the availability of Avastin for its approved uses in other types of cancer in the United States. Approvals In February the Chinese health authorities approved Avastin for the treatment of metastatic colorectal cancer, its first indication in this important market. Filings In December Roche filed an application with the EU authorities for approval of Avastin as frontline treatment for ovarian cancer, based on the results of the phase III GOG218 and ICON-7 trials (see below, Clinical Milestones). Clinical milestones Two large phase III trials involving some 3,400 patients have demonstrated the potential of Avastin in ovarian cancer. Results from GOG218 were presented at the annual meeting of the American Society of Clinical Oncology (ASCO) in June. The trial met its primary endpoint of extending progression-free survival (the period a patient lives without the disease getting worse) in women with previously untreated advanced ovarian cancer. ICON-7, a further trial with Avastin in ovarian cancer, reported positive results in early July. The data were presented at the European Society for Medical Oncology (ESMO) conference in October. In addition to the EU filing in December, Roche plans to use the results of both trials to support a regulatory application for this additional indication in the US in Clinical trial results led to a number of adjustments in the Avastin development programme in As

41 38 Roche Business Report 2010 Pharmaceuticals Major regulatory filings in Product Clinical data supporting filing Indication and/or dosage form Country Actemra/ LITHE (2-year data) rheumatoid arthritis, reduction or inhibition of progression USA RoActemra of joint damage and improvement of physical function ML21753 rheumatoid arthritis signs and symptoms, China (refiled) progressive joint damage TENDER systemic onset juvenile idiopathic arthritis EU, USA Avastin RIBBON-2 metastatic breast cancer, second-line treatment USA ICON-7, GOG 218 metastatic ovarian cancer EU Herceptin ToGA advanced HER2-positive gastric cancer USA, China Herceptin ToGA advanced HER2-positive gastric cancer Japan + Xeloda MabThera/ Rituxan PRIMA advanced follicular lymphoma, first-line maintenance following induction treatment with MabThera/Rituxan EU, USA, Switzerland plus chemotherapy RAVE ANCA-associated vasculitis USA Mircera ML20680 renal anemia China CORDATUS correction of symptomatic anemia in adults with chronic EU, Switzerland (NH20052) kidney disease who do not yet need dialysis, once-monthly administration Tarceva emerging data metastatic non-small cell lung cancer with EGFR- EU from clinical trials, ongoing clinical experience activating mutations, first-line treatment Xeloda NO16968 (XELOXA) adjuvant colon cancer, combination with oxaliplatin Switzerland data in the public advanced or refractory gastric cancer in patients who Japan domain are not candidates for curative surgery XELOX (NO16966) metastatic colorectal cancer, combination with oxaliplatin China (refiled) 1 Includes supplemental indications. phase III trials with Avastin in stomach (AVAGAST) and prostate (CALGB 90401) cancer did not meet their primary endpoints of extending overall survival, Roche has decided not to pursue regulatory filings for these indications. A phase III programme investigating the addition of Avastin to standard treatment with MabThera/Rituxan plus chemotherapy for diffuse large B cell lymphoma, an aggressive form of non-hodgkin s lymphoma, was discontinued after a safety and efficacy analysis showed an unfavourable benefit risk assessment. Following evaluation of phase III data (AVANT), Roche has discontinued development of Avastin in adjuvant colorectal cancer. The results and decision on adjuvant colorectal cancer do not affect the use of Avastin in the metastatic (advanced) colorectal cancer setting, where the medicine has demonstrated a clinically meaningful progression-free and overall survival benefit in both first- and second-line treatment. Avastin has shown a positive benefit risk ratio in these and all other approved metastatic cancer indications. Herceptin Approvals The European Commission approved Herceptin in combination with chemotherapy for use in patients with metastatic stomach (gastric) cancer exhibiting high levels of HER2, in January Approvals for the same indication were received in Switzerland in May and the US in October, following priority review by the FDA. Filings In June the Japanese health authorities gave priority review status to an application sub -

42 Pharmaceuticals Roche Business Report Major regulatory approvals in Product Clinical data supporting filing Indication and/or dosage form Country Actemra/ OPTION, TOWARD, rheumatoid arthritis signs and symptoms USA RoActemra RADIATE, AMBITION, LITHE (6-month data) LITHE (2-year data) rheumatoid arthritis, reduction or inhibition of progression of joint damage and improvement of physical function EU, Switzerland, USA 2 Avastin AVF 2107, E3200, metastatic colorectal cancer China NO16966 (global); ARTIST (China) Herceptin ToGA advanced HER2-positive gastric cancer EU, USA, Switzerland Lucentis CRUISE, BRAVO macular edema following retinal vein occlusion USA MabThera/ CLL-8 first-line chronic lymphocytic leukemia USA Rituxan REACH relapsed or refractory chronic lymphocytic leukemia USA PRIMA advanced follicular lymphoma, first-line maintenance EU, Switzerland following induction treatment with MabThera/Rituxan plus chemotherapy REFLEX rheumatoid arthritis, inhibition of progression of joint EU damage and improvement of physical function Mircera CORDATUS correction of symptomatic anemia in adults with EU, Switzerland (NH20052) chronic kidney disease who do not yet need dialysis, once-monthly administration Tarceva SATURN non-small cell lung cancer, first-line maintenance after USA, EU chemotherapy Xeloda NO16968 (XELOXA) adjuvant colon cancer, combination with oxaliplatin EU 1 Includes supplemental indications. 2 January mitted in March by Chugai, for approval of Herceptin for advanced HER2-positive stomach cancer. In June Roche submitted an application for approval of the same indication in China. Clinical milestones In December patient enrolment was completed for a phase III study with a new subcutaneous formulation of Herceptin in women with HER2-positive breast cancer. Herceptin is currently given intravenously over 30 to 90 minutes. The innovative subcutaneous formulation, which is based on Halozyme s Enhanze technology (see p. 128), is expected to take less than five minutes to administer and may allow patients with HER2- positive breast cancer to receive treatment in their physician s office or at home, without having to go to a hospital. Lucentis Approvals In June the US Food and Drug Administration (FDA) approved Lucentis for the treatment of patients with macular edema (swelling in the retina) following retinal vein occlusion (RVO). The approval followed a six-month priority review by the FDA. RVO occurs when blood flow through a retinal vein becomes blocked, causing swelling (macular edema) and hemorrhages in the retina, which may result in blurring or vision loss in all or part of one eye. MabThera/Rituxan (oncology) Approvals In February the FDA approved Rituxan combined with fludarabine and cyclophosphamide chemotherapy for people with either previously untreated (first-line) or previously treated (relapsed

43 Will it Disease area Oncology Indication Second-line HER2-positive metastatic breast cancer Trials EMILIA (TDM4370g / BO21977) No. of patients 551 (recruited as of December 2010) No. of study sites 216 No. of countries 22 Jone F., participant in the EMILIA study (T DM1), Houston

44 work? Wayne C., T DM1 Medical Director, Genentech, South San Francisco

45 T DM1 an antibody drug conjugate Creating value for patients means building on good treatments to make them even better 1970s Non-specific chemotherapy agents 2000 Herceptin (trastuzumab) the new standard of care for HER2-positive metastatic breast cancer The future? ADC targets chemotherapy specifically to tumour cells Points of attack Cancer cell Healthy cell Chemotherapy Attacks both healthy and cancerous cells Trastuzumab + chemo The monoclonal antibody trastuzumab specifically targets HER2-positive tumour cells T DM1 Attacks cancer cells only, no conventional chemotherapy burden DM1 As the first therapeutic antibody targeting a specific cancer-related biomarker to receive FDA approval, Herceptin (trastuzumab) launched a revolution in the treatment of breast cancer. We continue to build on that breakthrough with trastuzumab DM1 (T DM1), a novel antibody-drug conjugate (ADC) being developed T DM1 to treat HER2-positive breast cancer. T DM1 combines two powerful anticancer approaches in one medicine. The trastuzumab antibody component Trastuzumab blocks the signals that make HER2-positive cancer cells more aggressive and sends a message to the patient s immune system to destroy the cancer cells. It also delivers DM1, a potent chemotherapy agent, directly to the tumour cells to induce cell death. Stable linker T DM1 may offer patients with HER2-positive breast cancer effective treatment that spares them the burden and side effects of conventional chemotherapy. EMILIA is a phase III registration trial comparing single-agent T DM1 treatment with combined lapatinib (another HER2-targeted drug) plus capecitabine (Xeloda) chemotherapy in women with advanced HER2-positive breast cancer. Further trials are testing T DM1 in combination with Roche s pertuzumab, another next-generation HER-targeting antibody therapy.

46 Pharmaceuticals Roche Business Report or refractory) CD20-positive chronic lymphocytic leukemia, based on the results of the CLL-8 and REACH trials. Following regulatory applications by Roche and Genentech in the first quarter, in Octo- ber the European Medicines Agency (EMA) approved MabThera as maintenance treatment for people with follicular lymphoma who have re- sponded to induction therapy; the FDA is currently reviewing Genentech s sbla for the same indica- tion and has set an action date in late January Both submissions were based on the results of the PRIMA study, which showed that continuing MabThera/Rituxan for two years (maintenance therapy) in patients who responded to initial treatment with MabThera/Rituxan plus chemotherapy nearly doubled progression-free survival, compared with those who did not receive maintenance treatment. Clinical milestones Based on positive results from a phase Ib study in patients with follicular lymphoma, in July Roche decided to advance a new subcuta ne ous formulation of MabThera, also based on Halozyme s Enhanze technology, into phase III development. Subcutaneous administration has the potential to significantly simplify treatment by shortening administration time to less than ten minutes and improving patient comfort. A phase III trial is expected to start in the first quarter of Positive data from a phase III study of MabThera/ Rituxan in patients with advanced follicular lymphoma who did not have symptoms (asymptomatic disease) were presented at the annual meeting of the American Society of Hematology in December. The study showed that immediate administration of single-agent MabThera/Rituxan as induction therapy followed by continued (maintenance) treatment with MabThera/Rituxan delayed the need for chemoor radiotherapy and extended progression-free survival, compared with watchful waiting. These are the first phase III data to show that initial use of MabThera/Rituxan monotherapy as induction followed by maintenance can provide clinical benefit for patients with asymptomatic follicular lymphoma, a disease that is commonly treated only when symptoms appear (an approach known as watchful waiting ). MabThera/Rituxan (inflammation) Approvals Roche received regulatory approval in October for two additions to the existing EU marketing authorisation for MabThera in rheumatoid arthritis: based primarily on data from the REFLEX study, the indications were expanded to include inhibition of progression of joint damage and im- prove ment of physical function; and information on enhanced treatment responses in seropositive RA patients (see below, Clinical milestones) was added to the product s prescribing information. Filings In October, based on data from the phase II/III RAVE study, Genentech and Biogen Idec submitted a supplemental Biologics License Application to the FDA for approval of Rituxan for ANCAassociated vasculitis, a group of rare, severe, lifethreatening autoimmune diseases characterised by inflammation of blood vessels leading to organ damage. There are currently no approved therapies for the condition, and treatment-associated toxicities are common with the unapproved standard of care, cyclophosphamide. Clinical milestones An analysis of samples from patients with RA who participated in two phase III trials was presented at the European League Against Rheumatism (EULAR) annual congress in June. It showed that testing for specific blood markers at the time of diagnosis could have a significant impact on treatment decisions and lead to improved patient quality of life. Approximately 80% of RA patients have at least one of two characteristic biomarkers produced by autoreactive B cells rheumatoid factor (RF) and anticyclic citrullinated peptide (anti- CCP) in their blood. Such patients are referred to as seropositive. Data from a pooled cohort of the two studies showed that, while both seropositive and seronegative patients benefitted from treatment with MabThera/Rituxan, the response was enhanced in the seropositive population. Additional biomarker analyses from other phase III studies are pending. MabThera/Rituxan is the first and only selective B cell targeted therapy available for RA. Tarceva Approvals In April the US Food and Drug Administration (FDA) approved Tarceva as a maintenance treatment for patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) whose

47 44 Roche Business Report 2010 Pharmaceuticals Roche has 12 innovative new molecular entities in late-stage development, including six potential personalised healthcare medicines with planned companion diagnostic tests. disease has not progressed after four cycles of platinum-based first-line chemotherapy. In April the European Commission approved Tarceva as monotherapy for maintenance treatment in patients with advanced non-small cell lung cancer (NSCLC) whose disease remains largely unchanged (known as stable disease) after platinum-based initial chemotherapy. Both approvals are based on data from the phase III SATURN study, which showed that, compared with placebo, Tarceva significantly improved overall survival in patients with stable disease. Patients with advanced NSCLC and stable disease after initial chemotherapy have tumours that progress faster, are more resistant to further lines of chemotherapy and have a poorer prognosis compared with patients who have a complete or partial response to initial chemotherapy. Filings In June Roche submitted an application to the European Medicines Agency (EMA) to extend the current marketing approval for Tarceva to include first-line treatment of patients with advanced NSCLC with EGFR-activating mutations. The application is supported by emerging data from clinical trials and ongoing clinical experience, including new data from the OPTIMAL trial presented at ESMO (see below). Tarceva is the only epidermal growth factor receptor (EGFR) inhibitor approved for use in maintenance and second-line treatment settings in patients with advanced or metastatic NSCLC, irrespective of the presence of EGFR-activating mutations. A licence for Tarceva for use in the firstline setting would allow physicians to personalise early treatment according to EGFR activating mutation status, while people with NSCLC without EGFR-activating mutations would continue to benefit from treatment with Tarceva in later lines of therapy. Clinical milestones Results from a randomised phase III study (OPTIMAL) presented at the European Society for Medical Oncology (ESMO) congress in October demonstrated that first-line treatment with Tarceva extended progression- free survival in patients with advanced NSCLC with EGFR-activating mutations to more than one year, almost three times longer than patients who received conventional chemotherapy. Interim results from a second trial investigating Tarceva in this indication (EURTAC) are expected in the first quarter of As many as 30% of Asian patients with lung cancer and an estimated 10% of lung cancer patients in Western countries have this distinct form of NSCLC. Xeloda Approvals In March the EU authorities approved Xeloda in combination with oxaliplatin (a com - bin ation known as XELOX) for the adjuvant (postsurgical) treatment of patients with early colon cancer. The approval was based on results from the NO16968 (XELOXA) study, one of the largest studies of patients with stage III (early) colon cancer, which showed that patients taking XELOX immediately after surgery lived disease-free for longer compared with those treated with a chemotherapy regimen consisting of 5-fluorouracil plus leucovorin. Filings In Japan Chugai filed marketing applications with the Ministry for Health, Labour and Welfare in March for approval of Xeloda combined with Herceptin for the treatment of advanced HER2-positive stomach cancer and in September for Xeloda in advanced or refractory gastric (stomach) cancer in patients who are not candi - dates for curative surgery. Clinical milestones A data analysis completed in June showed that NO17629, a phase III trial investigating Xeloda in combination with docetaxel for the adjuvant (postsurgical) treatment of women with early breast cancer, did not meet its primary endpoint of extending disease-free survival but did meet the secondary endpoint of extending overall sur vival. Roche has decided not to pursue regulatory filings for this indication.

48 Pharmaceuticals Roche Business Report Research and development Roche s Pharmaceuticals Division is committed to discovering and commercialising innovative medicines that represent true medical value in areas of high unmet need. To ensure a strong flow of suitable candidate molecules into its development pipeline, Roche has built a unique innovation network of independent research and development centres. In addition to Roche and Genentech, it includes Chugai in Japan and alliances with more than 150 partner organisations worldwide. This promotes a diversity of research approaches and enables access to new technologies and promising drug candidates. Close cooperation between the Pharmaceuticals Division and Roche Diagnostics is a key strategic advantage for our company. It ensures that diagnostics expertise is seamlessly integrated into all partsof the pharmaceutical R & D process. This is central to Roche s goal of advancing personalised healthcare (PHC), an approach that seeks to tailor treatments to specific patient subpopulations based on growing scientific understanding of biology and disease at the molecular level. Two recent examples of the progress that Roche is making towards PHC in the development of therapies for difficult-to-treat diseases are RG3638 (MetMAb) for lung cancer and RG7204 (BRAF inhibitor) for malignant melanoma. Roche Diagnostics is developing diagnostic tests designed to guide appropriate use of both compounds in their target patient populations. Roche s research on antibody drug conjugates as a means of treating cancer is another example of a highly targeted approach with the potential of improving outcomes while reducing the side effects of treatment. T DM1, for HER2- positive breast cancer, is the most advanced of these projects. For more information, see below, Oncology, and also pp. 18 and 19 of this report. As part of the Group s Operational Excellence programme, the Pharmaceuticals Division is prioritising its R & D investments in order to dedicate resources to projects with the highest potential. Following a comprehensive portfolio review, Roche decided to discontinue R & D activities in RNA interference, consolidate internal functional resources and reduce the number of Pharma Research and Early Development sites from 11 to seven, thereby reducing fixed costs and making funds available for additional external research partnerships and promising new programmes entering phase II clinical development. At the beginning of 2011 the division s R & D pipe- line included 102 projects in clinical development (phase I to III and filed for regulatory review). Of these, 62 involved new molecular entities (NMEs) and 40 involved additional indications. Twelve NMEs are in late-stage development (see table, p. 47). Twenty-two projects investigating additional indications for existing products are in phase III. The Pharmaceuticals pipeline is shown in the fold-out inside the front cover of this report. Further details are available at Roche and Genentech 376 projects in research and early development (discovery, phases 0 II) January 2011 Roche and Genentech 39 projects in phase III (or marketing applications filed) January 2011 Inflammation 65 Metabolic 29 Others 12 Ophthalmology 3 Virology 65 Oncology 26 Metabolic 2 CNS 3 Ophthalmology 2 Inflammation 6 CNS 63 Oncology 139

49 46 Roche Business Report 2010 Pharmaceuticals Four additional NMEs advance into late-stage development: MetMAb (lung cancer), lebrikizumab (asthma), RG7128 (hepatitis C), ocrelizumab (MS). Oncology Roche s clinical development pipeline in oncology includes 29 new molecular entities. The Pharmaceuticals Division is further strengthening its oncology portfolio through new targeted therapeutic options and expanding into new indications. Six oncology NMEs are now in late-stage clinical testing. Pertuzumab (RG1273) is a HER2 dimerisation inhi bitor that is being studied with the current standard of care, Herceptin plus chemotherapy, in HER2- positive breast cancer. Data from a phase II trial (NEOSPHERE) investigating pertuzumab and Herceptin plus docetaxel chemotherapy in HER2- positive early breast cancer were presented at the San Antonio Breast Cancer Symposium in De- cem ber. The results showed that the two antibodies plus docetaxel given in the neoadjuvant setting (before surgery) improved the rate of complete tumour disappearance in the breast by more than half compared with Herceptin plus docetaxel chemotherapy. Based on the encouraging efficacy results from NEOSPHERE, pertuzumab will also be studied as adjuvant (postsurgical) therapy in HER2-positive early breast cancer. The phase III clinical programme in this setting is scheduled to start in late Results and related regulatory filings are expected in 2011 from a phase III study (CLEOPATRA) evaluating the addition of pertuzumab to Herceptin and chemotherapy in the first-line treatment of patients with advanced (metastatic) disease. Trastuzumab DM1 (T DM1, RG3502) is a novel anti body drug conjugate that combines the therapeutic effect of trastuzumab (the active substance of Herceptin) with intracellular delivery of DM1, a highly potent chemotherapy agent, to specifically target HER2-positive tumours (see p. 42). Data from a randomised phase II trial (TDM4450g) with T DM1 in previously untreated HER2-positive metastatic breast cancer presented at the ESMO conference in October showed efficacy comparable to Herceptin plus chemotherapy, the standard of care, along with a significantly reduced side effect burden. Final results from this study are expected in Two phase III registration studies in metastatic HER2- positive breast cancer are ongoing, and we plan to submit global marketing applications in EMILIA, investigating T DM1 in pretreated patients, is expected to yield data on progressionfree survival in 2012 and overall survival in MARIANNE, a comparative trial of first-line treatment with either T DM1 alone or T DM1 plus pertuzumab versus Herceptin plus chemotherapy, began in July. Both trials are investigating therapeu- tic options that target HER2-positive tumours while sparing patients the burden and side effects of conventional chemotherapy. RG7204 (PLX4032, collaboration with Plexxikon) is a first-in-class molecule designed to selectively inhibit a cancer-causing, mutated form of the BRAF protein found in approximately half of metastatic melanoma tumours. Promising results from a phase II clinical trial (BRIM2) were presented in November at the International Melanoma Research Congress. The data showed that RG7204 shrank tumours in over half of patients with previously treated BRAF V600E mutation-positive metastatic melanoma. Median progression-free survival in the study was 6.2 months. Typically, progression-free survival for these patients is approximately two months. A phase III trial (BRIM3) in previously untreated BRAF mutation-positive metastatic melanoma patients met its primary endpoints in January 2011, with an interim analysis showing significantly improved overall and progression-free survival in patients who received RG7204 compared with those treated with dacarbazine, the current standard of care. Roche Molecular Diagnostics is developing a companion diagnostic, cobas 4800 BRAF V600 Mutation Test (see pp. 59, 69, 78), to identify patients whose tumours carry the abnormal BRAF gene and are therefore appropriate for treatment with RG7204.

50 Pharmaceuticals Roche Business Report Twelve new molecular entities in ongoing or planned late-stage studies Compound Indication Status Expected first filing pertuzumab HER2-positive metastatic phase III started in breast cancer, first line trastuzumab DM1 HER2-positive metastatic phase III started in first quarter breast cancer, first and second line RG7204 (BRAF inhibitor) metastatic melanoma phase III trial in first-line treatment met primary endpoints in January RG3616 (hedgehog pathway inhibitor) RG7159 (GA101) advanced basal cell carcinoma pivotal phase II started in first quarter chronic lymphocytic phase III started in fourth quarter leukemia, non-hodgkin s (chronic lymphocytic leukemia) lymphoma RG3638 (MetMAb) solid tumours LIP 1 decision made, preparing for phase III post-2013 lebrikizumab asthma LIP 1 decision made, preparing for phase III post-2013 aleglitazar cardiovascular risk reduction phase III initiated in first quarter 2010 post-2013 in type 2 diabetes dalcetrapib dyslipidemia, cardiovascular phase III enrolment completed in second quarter 2013 high risk 2010 RG7128 (HCV polymerase hepatitis C LIP 1 decision made, preparing for phase III 2013 inhibitor) RG1678 (glycine negative symptoms of phase III started November reuptake inhibitor) schizophrenia, suboptimally controlled positive symptoms of schizophrenia ocrelizumab multiple sclerosis (RRMS and PPMS) phase III planned to start in first quarter (PPMS) and second quarter (RRMS) 2011 post Lifecycle investment point (decision to commence late-stage development leading to submission of marketing applications). RG3616 (GDC-0499; collaboration with Curis) is a novel compound targeting the hedgehog signalling pathway, which is thought to be implicated in sev eral cancers. A pivotal phase II study with registration potential is currently investigating RG3616 as a potential treatment for advanced basal cell carcinoma (BCC). RG3616 is also being evaluated in a phase II study as a therapy for operable BCC. In the fourth quarter Roche decided to discontinue development of the compound in ovarian and colorectal cancer due to lack of benefit in phase II trials. RG7159 (GA101) is the first type II, glycoengineered, anti-cd20 monoclonal antibody being investigated in late-stage clinical trials as a potential treatment for non-hodgkin s lymphoma (NHL) and chronic lymphocytic leukemia (CLL). It has been specifically designed to enhance the destruction of cancerous B cells by activating other immune cells to attack the cancer cells and by inducing direct cell death. In two phase II studies presented at the American Society of Hematology annual meeting in Decem- ber, treatment with RG7159 produced promising response rates in very difficult-to-treat patients with either indolent or aggressive NHL who had not responded to multiple prior treatments, including MabThera/Rituxan. Further clinical data for RG7159 in NHL and CLL are expected in Phase III studies of RG7159 versus MabThera/Rituxan in aggressive and indolent NHL are scheduled to start in RG3638 (MetMAb) is a unique monoclonal antibody that binds specifically to the c-met protein receptor. The Met pathway can be inappropriately activated in cancer and lead to invasive growth. New phase II

51 What are the Disease area Metabolic and cardiovascular diseases Indication CV risk reduction in patients with type 2 diabetes Trials ALECARDIO No. of patients 6,000 No. of study sites 750 No. of countries 24 Ragnar B., participant in the ALECARDIO (aleglitazar) trial, Stockholm

52 implications? Anita M.-W., Operations Program Leader, Roche Basel

53 Aleglitazar Creating value for patients means focusing on the unsolved issues For patients with type 2 diabetes (T2D), blood glucose control is no longer the biggest concern. More than 60% of patients with diabetes die from heart disease and stroke, not from an inability to control blood glucose. And 10% of patients who experience an acute coronary syndrome (ACS) event, such as a heart attack, die within one year. Currently, there are no drugs on the market that specifically and effectively control their high risk of cardiovascular disease. Aleglitazar, a dual PPAR α/γ co-agonist developed at Roche, may become the first compound with the potential to reduce cardiovascular morbidity and mortality specifically in high-risk patients with T2D. Aleglitazar is an excellent example of translational medicine: biochemical parameters, animal data, and biomarkers of efficacy and safety consistently supported hypotheses that were later proven in clinical settings. Increased risk of heart attack and stroke associated with T2D Healthy people People who have had a heart attack or stroke ALECARDIO, an innovative global, randomised, controlled phase III clinical trial with some 6,000 patients, is now testing the hypothesis that aleglitazar can reduce cardiovascular morbidity and mortality in patients with T2D who have suffered a recent ACS event. People with T2D People with T2D who have had a heart attack or stroke Risk Demonstrating the multiple effects of aleglitazar Conventional trial in people with T2D 1 2 years Reduction of blood glucose levels 5 years Trial with aleglitazar in T2D high-risk subpopulation Blood glucose Blood fats Hypertension Focused on reducing cardiovascular risk in people with type 2 diabetes Saving lives

54 Pharmaceuticals Roche Business Report data presented at the annual European Society for Medical Oncology (ESMO) conference in October showed a significant increase in progression-free survival for patients with high Met-expressing nonsmall cell lung cancer (NSCLC) who were treated with MetMAb plus Tarceva. Based on this data, in September Roche advanced the compound into latestage development for the second- and third-line treatment of NSCLC. A phase III study in patients with high Met-expressing NSCLC is expected to start in Roche Tissue Diagnostics is developing a companion diagnostic test to identify patients with high Met-expressing NSCLC who are most likely to respond to treatment with RG3638 (see pp. 19, 59, 74). A phase II study to investigate the addition of MetMAb to chemotherapy, with or without Avastin, for the treatment of triple negative metastatic breast cancer is expected to enrol its first patient in the first quarter of Inflammation and autoimmune disorders Roche has eight new compounds in development for chronic and progressive autoimmune and inflammatory diseases such as rheumatoid arthritis (RA) and asthma, five of which are in phase II clinical testing. Lebrikizumab is a humanised monoclonal antibody designed to bind specifically to interleukin-13, a protein thought to play a key role in the airway inflammation, hyperresponsiveness and obstruction experienced by asthma patients. The compound is being developed for the treatment of moderate to severe persistent asthma. Patient recruitment for two key phase II trials (MOLLY and MILLY) has been completed. Based on promising phase II results with lebrikizumab in patients whose symptoms remained uncontrolled on inhaled corticosteroids, with or without a second controller, Roche has decided to advance the molecule into late-stage clinical testing. In May Roche and Biogen Idec announced their decision to discontinue development of ocrelizumab (RG1594) for rheumatoid arthritis (RA). Following a detailed analysis of the efficacy and safety results from the RA programme, the companies concluded that the overall benefit risk profile of ocrelizumab was not favourable in RA, taking into account currently available treatment options, including MabThera/Rituxan. Development of ocrelizumab as a therapy for multiple sclerosis is continuing (see p. 52). Metabolic and cardiovascular diseases Roche has nine new compounds in development for metabolic and cardiovascular diseases. Dalcetrapib (RG1658, JTT-705; licensed from Japan Tobacco) is a novel cholesteryl ester transfer protein (CETP) modulator being tested for its ability to reduce cardiovascular events in patients with stable coronary heart disease following a recent acute coronary syndrome event. The phase III dal-heart programme is on track: recruitment for the phase III dal-out- COMES trial has been completed, with over 15,600 participants enrolled. Results from two phase IIb studies (dal-vessel and dal-plaque) are expected in 2011, and recruitment for a further phase III study (dal-plaque 2) is ongoing. These supporting studies are investigating the potential impact of dalcetrapib treatment on atherosclerotic plaque burden, using imaging techniques and functional tests. Aleglitazar (RG1439) is an innovative investigational treatment designed to reduce the incidence and impact of cardiovascular mortality, non-fatal heart attack and stroke in patients with a recent acute coronary syndrome and type 2 diabetes. A global phase III programme (ALECARDIO) began recruitment early in Aleglitazar has the potential to be the first therapy to specifically reduce cardiovascular risk in people with type 2 diabetes. Taspoglutide (RG1583, BIM51077; licensed from Ipsen) is a once-weekly human glucagon-like peptide-1 (GLP-1) hormone analogue in development for the treatment of type 2 diabetes. In September Roche communicated its decision to stop administering taspoglutide to patients in global phase III clinical trials, based on higher than expected patient discontinuation rates observed in analyses of data from the T-emerge programme, and also due to the antibody-monitoring plan implemented to address serious hypersensitivity reactions. After careful assessment of the relevance of the T-emerge safety and efficacy data to support future regulatory approval in type 2 diabetes, including consideration of the current portfolio evaluation initiative, Roche has decided to discontinue the taspoglutide T-emerge development programme.

55 52 Roche Business Report 2010 Pharmaceuticals As the first in a new class of medicines, RG1678 has the potential to redefine the therapeutic approach to a range of psychiatric disorders. Virology Roche currently has two direct-acting antiviral agents in late-stage development for hepatitis C: the nucleoside polymerase inhibitor RG7128 (partnered with Pharmasset) and the protease inhibitor danoprevir (RG7227). Both of these oral agents are being investigated in combination with Pegasys and ribavirin, and in combination with each other in an interferonfree regimen. RG7128 interim phase IIb results showed good efficacy and tolerability, with no evidence of viral resistance after three months therapy in combination with Pegasys and ribavirin. A phase I trial (INFORM-1) of RG7128 and danoprevir as an interferon-free combination showed significant viral suppression. A phase III programme with RG7128 is expected to begin in In October 2010 Roche acquired the global rights to danoprevir, to increase the strategic flexibility of the Group s hepatitis C portfolio. there are currently no approved treatments. The first of six planned trials began in November As the first in a new class of medicines, RG1678 has the potential to redefine the therapeutic approach to a range of psychiatric disorders and deliver clinical benefits beyond those achievable with current treatment options. In October Roche and Biogen Idec reported posi - tive results from a phase II trial with the humanised anti-cd20 monoclonal antibody ocrelizumab (RG1594) in patients with relapsing-remitting multiple sclerosis (RRMS), one of the leading causes of neurological disability in young adults. Data presented at the annual meeting of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) showed that, compared with placebo, ocrelizumab significantly reduced signs of disease activity, as measured by brain lesions and annualised relapse rate, with no opportunistic infections reported. Two phase III studies will begin in the second quarter of 2011 to explore the drug s efficacy in RRMS compared with interferon, the current standard of care. A phase III study investigating the potential of ocrelizumab in patients with primary progressive multiple sclerosis (PPMS) is planned to start in the first quarter of In October Genentech and Biogen Idec amended their collaboration on antibodies targeting CD20 and agreed that Genentech will have respon sibility for the further development of ocrelizumab in multiple sclerosis in the US. Central nervous system The Roche portfolio has 10 novel compounds in development for disorders of the central nervous system, including schizophrenia, multiple sclerosis and other serious conditions. One of these compounds is RG1678, a novel glycine reuptake inhibitor being developed for the treatment of schizophrenia, an area of high unmet medical need. Promising data from a phase II proof-of-concept study with RG1678 in patients with negative symptoms of schizophrenia were presented at the annual meeting of the American College of Neuropsychopharmacology in December. A global phase III programme has been initiated to investigate RG1678 in combination with antipsychotics in patients with either negative symptoms or suboptimally controlled positive symptoms of schizophrenia, indications for which

56 Pharmaceuticals Roche Business Report Focus on unmet medical needs Cancer According to the latest International Agency for Research on Cancer (IARC) estimate, in 2008 over 12 million people worldwide were diagnosed with cancer, and some 7.6 million died of the disease. The IARC anticipated then that cancer would surpass heart disease as the leading cause of death worldwide in The agency also forecasts that by 2030 there will be over 26 million new cases and 17 million deaths per year from cancer. In Europe alone, one in three people can expect to develop cancer in their lifetime. Cancer is not one disease but a group of more than 100 distinct disorders, each with its own medical challenges. Non-Hodgkin s lymphoma A group of over 30 cancers that affect the lymphatic system. This class of cancer currently affects over 1.5 million people worldwide, and some 350,000 new diagnoses are made each year. Follicular lymphoma accounts for about one in four of all cases of non-hodgkin s lymphoma. It can occur at any time during adulthood, though people are typically diagnosed during their sixties, and it affects as many men as it does women. Chronic lymphocytic leukemia The most common type of leukemia in adults, accounting for 25 30% of all forms of leukemia. The incidence of CLL in Western countries is approximately 3 per 100,000, and it is twice as common in men as in women. Colorectal cancer Cancer of the large intestine or rectum, which accounts for over 1 million new cases (around 10% of all newly diagnosed cancers) worldwide each year. It is the second most common cause of cancer deaths in Europe and the third most common worldwide. Breast cancer The most common cancer among women worldwide. Over 1.4 million women are newly diagnosed and over 450,000 die from the disease each year. As there are several different types of breast cancer, knowledge of tumour characteristics is important for treatment decisions. Some 15 25% of women with breast cancer have tumours with abnormally high levels of a protein known as HER2. HER2-positive tumours are particularly aggressive, fast-growing and likely to recur. Lung cancer The most common form of cancer worldwide 6 and the leading cause of cancer deaths. There are an estimated 1.4 million new cases annually. Non-small cell lung cancer is the most common form, accounting for approximately 80% of all cases. Malignant melanoma The deadliest and most aggressive form of skin cancer. The life expectancy of people with advanced melanoma is usually short, with less than one in four expected to be alive one year after diagnosis. Every year an estimated 40,000 people worldwide die from the disease; the number of new cases in developed countries is expected to double, to 227,000 per year, by Approximately 50% of melanomas carry activating mutations in the BRAF protein, a key component of the RAS RAF signalling pathway involved in normal cell growth and survival. These mutations cause the pathway to be overactive, which may lead to excessive growth and cancer. It is estimated that approximately 8% of all solid tumours carry BRAF V600 mutations. Pancreatic cancer A particularly aggressive disease that is extremely difficult to treat. It kills a higher proportion of patients in the first year after diagnosis than any other cancer. The fifth leading cause of cancer deaths in the developed world, pancreatic cancer claims nearly 80,000 lives every year. Kidney cancer This type of cancer is newly diagnosed in around 200,000 people and causes 100,000 deaths worldwide every year, rates that are expected to increase. Renal cell carcinoma accounts for 90% of all kidney cancers. 6 Excluding non-melanoma skin cancers, most of which are easily treated and not life-threatening.

57 54 Roche Business Report 2010 Pharmaceuticals Gastric (stomach) cancer Stomach cancer is the second most common cause of cancer-related deaths in the world and the fourth most commonly diagnosed cancer. It accounts for over 1 million new cases and some 800,000 deaths each year. The vast majority of cases occur in Asia, where, with lung cancer, it is the leading malignancy. Advanced (metastatic) stomach cancer is associated with a poor prognosis: the median survival time after diagnosis is months with currently available therapies. Early diagnosis of this disease is challenging because most patients with early-stage disease do not show symptoms. Age-related macular degeneration (AMD) A major cause of gradual or sudden, painless, central visual loss in the elderly and a leading cause of vision loss in people aged 60 and older. There are two forms of AMD wet and dry. All cases begin as the dry form, but 10 15% progress to the wet form, which can result in sudden and severe central vision loss. In wet AMD, new blood vessels grow under the retina and leak blood and fluid, causing deterioration of the macula, the portion of the eye responsible for fine, detailed central vision. More than 1.7 million Americans have the advanced form of this condition. Anemia Occurs when the number of red blood cells or the hemoglobin molecules they contain falls below normal, resulting in insufficient oxygen reaching organs and tissues. It is seen in up to 80% of patients with chronic kidney (renal) disease, which affects more than 500 million people worldwide. In addition, anemia affects three out of four cancer patients undergoing chemotherapy. Patients with untreated anemia may need blood transfusions. The potential long-term effects of anemia include cardiovascular disease in renal patients, while in patients with cancer it is associated with diminished quality of life. Hepatitis B and C The hepatitis B and C viruses (HBV, HCV), which are commonly transmitted through blood-to-blood contact, cause acute and chronic liver disease, potentially leading to liver failure, cirrhosis liver cancer, and death. Worldwide, 350 million people are thought to be chronically infected with HBV, a highly infectious virus that is responsible for an estimated one million deaths annually. More than 170 million people around the world are infected with HCV, and three to four million new cases occur each year. Hepatitis C is the main reason for liver transplantation. A recent study on the HCV-related burden of disease in 22 European countries estimated that between seven and nine million people, or over 1% of the popula tion, are infected with HCV. Autoimmune disorders Occur as a result of a mistaken immune response to the body s own tissues. The causes are unknown. Rheumatoid arthritis, multiple sclerosis and lupus erythematosus are among the most common autoimmune disorders, which affect millions of people worldwide. Rheumatoid arthritis (RA) An autoimmune disease characterised by inflammation that leads to stiff, swollen and painful joints, ultimately resulting in irreversible joint damage and disability. More than 20 million people worldwide and twice as many women as men suffer from RA. In addition to inflammation of the joints, such as the hands, feet and wrists, RA can cause fatigue, heart disease and increase the likelihood of developing other complications such as osteoporosis, anemia, and problems with the lungs and eyes. It can shorten life expectancy by 6 10 years. B cells (a type of immune cell) are known to play a key role in the inflammation associated with RA. Several key cytokines, or proteins, are also involved, including interleukin-6 (IL-6), TNF alfa and interleukin-1 (IL-1). IL-6 has been identified as having a pivotal role in the inflammation process.

58 Pharmaceuticals Roche Business Report Multiple sclerosis (MS) An often debilitating autoimmune disease in which nerve impulses passing through the central nervous system are disrupted due to damage to the brain and spinal chord. This leads to unpredictable and highly variable symptoms ranging from abnormal sensations and reduced coordination to pain, paralysis, visual impairment and a decline in cognitive and other functions. According to WHO estimates, approximately 1.3 million people worldwide are living with the disorder, which is usually diagnosed in adults aged between 20 and 40 years. Relapsing-remitting multiple sclerosis (RRMS), the most common form, is characterised by acute exacerbations with full or partial recovery between attacks. Primary progressive multiple sclerosis (PPMS) is characterised by neurological disability from onset, with symptoms gradually worsening over time. Diabetes Recognised as a global epidemic by the World Health Organization. The International Diabetes Federation estimates that some 360 million people worldwide will have diabetes by According to the WHO, type 2 (adult onset) diabetes accounts for around 90% of all cases. Uncontrolled type 2 diabetes can lead to severe complications such as cardiovascular disease, stroke, blindness, amputations, and kidney failure, resulting in significant healthcare burdens to society. Schizophrenia A severe mental disorder that distorts the way a person thinks, acts, expresses emotions, perceives reality and relates to others. According to WHO estimates, schizophrenia affects approximately 24 million people worldwide and is usually diagnosed in adults aged between 15 and 35 years. The symptoms of schizophrenia are broadly categorised as positive, negative and cognitive. Positive symptoms are psychotic behaviours such as hallucinations and delusions. Negative symptoms include apathy, social withdrawal, lack of drive and reduced ability to feel pleasure in everyday life. Cognitive deficits include difficulty concentrating or following instructions, difficulty completing tasks, memory problems, and disorganised thinking. Persistent negative symptoms are a major cause of burden for patients and caregivers. Glossary Adjuvant treatment Treatment given after surgical removal of a tumour to lower the risk of relapse. Disease-free survival The length of time after treatment for a specific disease during which a patient survives with no sign of the disease. First-line treatment The initial treatment given after diagnosis, including the first treatment given after metastatic cancer has been diagnosed. Maintenance treatment Treatment given to prevent a disease getting worse or to prevent a cancer from recurring when it has disappeared following initial therapy. Metastatic disease Cancer that has spread from the original site of a tumour to other parts of the body. Also referred to as advanced disease. Neoadjuvant treatment Treatment given to reduce the size of a tumour before surgical removal is attempted. Overall survival The time from the start of treatment until the patient dies. Progression-free survival The length of time during and after treatment during which a patient lives without the disease getting worse. Second-line treatment Treatment given if the initial, or first-line, treatment does not work, or if the cancer stops responding to it.

59 Diagnostics In 2010 sales again grew well ahead of the market, with market share gains in key segments such as immunoassays and tissue diagnostics. Efforts to enhance operational efficiency continue throughout the division and contributed to higher operating profit in All business areas launched new products that will help drive abovemarket growth in 2011.

60 Diagnostics Roche Business Report Diagnostics Division in brief Sales in millions of CHF Core operating profit in millions of CHF Number of employees 9,656 10,055 10,415 1,754 1,742 2,202 25,404 25,508 26, Key figures In millions of CHF % change in CHF % change in local currencies % of sales Sales 10, Professional Diagnostics 4, Diabetes Care 2, Molecular Diagnostics 1, Applied Science Tissue Diagnostics Core operating profit 2, Operating free cash flow 1, Research and development (core basis) Diagnostics Leadership Team 31 December 2010 Daniel O Day Manfred Baier Colin Brown * (Dirk H. Ehlers) Paul Brown Roland Diggelmann Peter Finckh Christian Hebich Michael Heuer David LaPré Annette Luther Kent Kost Hany Massarany Wataru Ogawa Jack Phillips Burkhard G. Piper ** Claus-Joerg Ruetsch Cris Wilbur Robert Yates Chief Operating Officer Roche Diagnostics Applied Science Professional Diagnostics Molecular Diagnostics Asia Pacific Platforms & Support Finance and Services EMEA (Europe, Middle East, Africa) and Latin America Operations Communications Quality and Regulatory Tissue Diagnostics Japan North America Diabetes Care Legal Human Resources Business Development * From 1 June ** To 31 December 2010.

61 58 Roche Business Report 2010 Diagnostics Diagnostics Division Roche s Diagnostics Division is the world s leading supplier of in vitro diagnostics (IVDs). Performed in a laboratory or at the point of care on blood, tissue and other samples from patients, IVD tests are a crit- ical source of objective information helping doctors detect diseases, select appropriate treatments and monitor patients responses to care. In addition, scientists use the division s research products to gain a better understanding of the causes of disease and to discover new treatments. In over 130 countries Roche Diagnostics serves customers spanning the entire healthcare spectrum from hospitals and commercial medical labs, to physicians, to patients with conditions requiring them to self-test. The division offers a wide range of technologies allowing the detection and analysis of DNA, RNA and proteins on a large base of instruments installed worldwide. Already among the broadest in the industry, Roche s IVD test menu is steadily expand- ing and drawing on the latest scientific advances. In 2010 Roche had approximately a 20% share of the global IVD market, which is valued at an estimated 44 billion US dollars in annual sales. 1 Strategic priorities Scientific progress, new technologies and changing demographics are among the trends expanding the healthcare market. On the other hand, there is mounting pressure on healthcare budgets and costs worldwide. Diagnostics can capitalise on all these trends by translating scientific insights into products that bring patients real medical benefit and, at the same time, contribute to significant cost savings. Enabling precise and timely disease diagnosis and treatments to be targeted at the patients most likely to benefit is of great value, both for the well-being of the patient and in allocating medical resources where they will be most effective. The Diagnostics Division s strategic priorities: Improving testing efficiency is one pillar of the division s strategy. Roche s automated diagnostic systems embody decades of engineering inno- vation. Testing components, visualisation and ana - lysis units and workflow management systems have continuously improved to include new tech- Sales by region Europe/Middle East/Africa 50% (+6%) Japan 5% (+4%) Asia Pacific 12% (+20%) Latin America 7% (+16%) North America 26% (+5%) Italics = growth rates (in local currencies). nologies and simplify processes, meeting the requirements of all customers regardless of lab size, location or testing experience. Demonstrating medical value is becoming the main driver of differentiation in the diagnostics market, contributing to the revaluation of IVDs. Despite their fundamental impact on the majority of clinical decisions, IVDs currently account for less than 2% of medical spending and are clearly undervalued. There are two main categories of diagnostics that contribute to better healthcare decisions. Stand-alone diagnostics offer value by enabling the precise and timely diagnosis of diseases and facilitating early screening for dis- ease predisposition and prognosis. Examples include the molecular human papillomavirus (HPV) test in screening for cervical cancer, the MRSA test to diagnose infection with methicillin-resistant Staphylococcus aureus, and the PIGF and sflt-1 immunoassays in testing for pre eclampsia. Companion diagnostics are tests that enable doctors to identify the patients most likely to benefit from a particular treatment or to monitor responses to it. Roche already markets companion diagnostics for a number of indications, with more in late stage development (see list on page 59). Deploying diagnostic tests in drug development is crucial to help increase R & D productivity and develop more targeted medicines. Roche Diagnostics is collaborating closely with the Pharmaceuticals Division and external pharma 1 Market size based on company and independent reports.

62 Diagnostics Roche Business Report Roche companion diagnostics on the market or in late development Disease Area Disease Drug Diagnostic Test * Technology Application Virology CMV Valcyte CMV viral load PCR Monitoring HBV Pegasys and other HBV viral load PCR Monitoring antivirals HBV Pegasys, peginterferon HBsAg levels Immunoassay Monitoring alpha-2b (Merck/SP) HCV Pegasys, peginterferon HCV viral load PCR Monitoring alpha-2b (Merck/SP) HCV Polymerase inhibitor (R7128) HCV viral load PCR Monitoring HCV Protease inhibitor (R7227) HCV viral load PCR Monitoring HIV Antivirals HIV viral load PCR Monitoring HIV abacavir (GlaxoSmithKline) HLA-B 5701 genotype PCR Screening Oncology Breast cancer Herceptin, lapatinib (GlaxoSmithKline) Breast cancer Tamoxifen and other hormonal therapies HER2 expression/ IHC, ISH Selection gene amplification ER/PgR expression IHC Selection Breast cancer pertuzumab (RG1273) HER2 expression/ IHC, ISH Selection gene amplification Breast cancer T DM1 (RG3502) HER2 expression/ IHC, ISH Selection gene amplification Cancer compound (Merck) p53 mutations Microarray Selection Colon cancer Colon cancer cetuximab (Merck), panitumumab (Amgen) cetuximab (Merck), panitumumab (Amgen) KRAS mutations PCR Selection (TheraScreen) KRAS mutations PCR Selection Gastric cancer Herceptin HER2 expression/ IHC, ISH Selection gene amplification Melanoma BRAF inhibitor (RG7204) BRAF V600E mutation PCR Selection NSCLC gefitinib (AstraZeneca), Tarceva ** NSCLC Tarceva **, gefitinib (AstraZeneca) EGFR mutations PCR Selection (TheraScreen) EGFR mutations PCR Selection NSCLC MetMAb (RG3638) MET expression IHC Selection NSCLC TG4010 (Transgene) MUC1 expression IHC Selection Pancreatic CP-4126 hent1 expression IHC Selection cancer (Clovis Oncology) Inflammation Asthma lebrikizumab (RG3637) Serum periostin levels, Immunoassay Selection CEA, IgE Rheumatoid MabThera/Rituxan RF, anti-ccp Ab Immunoassay Selection arthritis SLE rontalizumab (RG7415) IFN-induced genes PCR Selection Others Osteoporosis Bonviva/Boniva and other bisphosphonates B-Crosslaps; P1NP levels Immunoassay Monitoring Transplantation CellCept MPA levels Immunoassay Monitoring black type = on the market, grey type = in development; * not available in all markets. monitoring = monitoring of patient s response to a particular treatment; screening = screening of patients for a particular genetic variation of HLA-associated with hypersensitivity to abacavir; selection = selection of patients eligible for a particular treatment (** = selection of patients eligible for earlier treatment). anti-ccp = antibodies against cyclic citrullinated peptide; BRAF = B-isoform of the rapidly growing fibrosarcoma oncogene; CEA = carcinoembryonic antigen; CMV = cytomegalovirus; HBV = hepatitis B; HBsAg = HBV surface antigen; HCV = hepatitis C; HER2 = human epidermal growth factor receptor 2; HIV = human immunodeficiency virus; hent1 = human equilibrative nucleoside transporter; EGFR = epithelial growth factor receptor; ER = estrogene receptor; IHC = immunohistochemistry; ISH = in situ hybridisation; IFN = interferon; KRAS = member of the Ras family of oncogenes; MPA = mycophenolic acid; NSCLC = non-small cell lung cancer; PCR = polymerase chain reaction; P1NP = procollagen type 1 N-terminal propeptide; PgR = progesterone receptor; RF = rheumatoid factor; SLE = systemic lupus erythematosus; SP = Schering Plough.

63 60 Roche Business Report 2010 Diagnostics Roche s top-selling diagnostics sales in millions of CHF Accu-Chek Aviva Nano cobas e 602 cobas c 502 cobas TaqMan 48 Ventana IHC reagents 2,718 1,957 1, Accu-Chek monitoring systems cobas e modules, Modular Analytics, Elecsys cobas c modules, Modular Analytics, Cobas Integra Cobas AmpliPrep/ Cobas TaqMan immunohistochemistry and in situ hybridisation +4% * +17% * +5% * +2% * +17% * Market segment: Blood glucose monitoring Market segment: Immunoassays Market segment: Clinical chemistry Market segment: Virology (hepatitis C, hepatitis B, HIV) Market segment: Advanced tissue staining Business unit: Diabetes Care Business area: Professional Diagnostics Business area: Professional Diagnostics Business area: Molecular Diagnostics Business area: Tissue Diagnostics

64 Diagnostics Roche Business Report An industry-leading portfolio of diagnostic tests and instruments for clinical testing and life science research. CoaguChek XS cobas TaqScreen DPX Test cobas b 123 POC Accu-Chek Combo MagNA Pure LC CoaguChek Cobas AmpliScreen, cobas TaqScreen cobas systems for blood gases, hospital blood glucose systems Accu-Chek insulin delivery systems MagNA Pure, LightCycler +19% * 0% * +4% * +11% * 12% * Market segment: Coagulation monitoring Market segment: Blood screening Market segment: Intensive care Market segment: Insulin Delivery Systems Market segment: DNA purification and gene expression Business area: Professional Diagnostics Business area: Molecular Diagnostics Business area: Professional Diagnostics Business unit: Diabetes Care Business area: Applied Science Images are not to scale. * Year-on-year sales growth in local currencies.

65 62 Roche Business Report 2010 Diagnostics partners on new medicines and their use in per sonalised settings (see also the R & D section on page 74). To further accelerate growth in emerging seven (E7) countries 2 the division is expanding its local organisations and investing in programmes to bring products to local markets more quickly. The division intends to further improve its profitability through a combination of strong sales growth and efficiency initiatives targeting virtually every area of operations. This report contains information on the progress made in Results and main business developments In 2010 the Diagnostics Division recorded sales of 10.4 billion Swiss francs, an increase of 8% in local currencies over (4% in Swiss francs; 8% in US dollars). This was significantly above the estimat- ed IVD market growth rate (5%) 4. Diagnostics sales increase 8%, significantly ahead of the market. All five divisional business areas contributed to sales growth, led by Professional Diagnostics and Diabetes Care. Immunoassays and blood glucose monitoring systems remained these businesses primary growth drivers. Strong demand for advanced tissue stain- ing products continued to fuel above-market growth in Tissue Diagnostics. Virology was the main con- tributor to sustained sales growth in Molecular Diagnostics. Strong sales of cell analysis and genomics systems were Applied Science s main growth drivers. Instrument placements were again up significantly for the division as a whole and were a major growth driver in all segments. Sales again outpaced the market in all regions. Growth was very strong in Asia Pacific (20%) particularly in China and South Korea driven mainly by Professional Diagnostics. Despite pricing challenges, sales outperformed the market in both mature and emerging EMEA 5 economies (6%), helped by strong performances by Professional Diagnostics and Diabetes Care. Professional Diagnostics and Tissue Diagnostics were the primary growth drivers in North America (5%). In Japan (4%) overall divisional sales grew faster than the market with Professional Diagnostics strong performance off- setting continuing challenges in Diabetes Care. Increased investment and strong demand for immunoassays and other leading-edge Roche products contributed to robust above-market growth in the E7 emerging markets (21%), which in 2010 accounted for almost 13% of total divisional revenues. On a Swiss franc basis, the division s core operating profit for 2010 increased 26% (30% in local cur- rencies) to 2,202 million Swiss francs, while the core operating profit margin advanced 3.8 percentage points to 21.1%. These increases largely reflect the strong performance of Roche s key diagnostic products as well as ongoing initiatives to improve operational excellence. For more information on the division s operating results, see the Finance Report. The division launched a total of 39 tests, which ex - panded the immunoassay menu in infectious diseases, extended the molecular test panel in virology and further strengthened the tissue assay port- folio in oncology. In addition, 11 instruments were launched in key markets facilitating maximum efficiency in state-of-the-art testing in clinical labo- ratories, re search centres and point-of-care units (see table of product launches on page 76). In 2011 the division plans to launch 18 key products, including the US introduction of Accu-Chek Combo for the management of blood glucose in diabetes, the cobas 4800 HPV Test for cervical cancer screen- ing and the cobas 4800 BRAF Mutation Test in melanoma (see table of product launches on page 78). Data from three clinical studies were presented at major scientific congresses: ATHENA, a large registration trial investigating the benefits of HPV testing 2 E7 countries = Brazil, Russia, India, China, South Korea, Mexico, Turkey. 3 Unless otherwise stated, all growth rates are in local currencies. 4 Market growth based on company and independent reports (to end of September 2010). 5 EMEA = Europe, Middle East, Africa.

66 Diagnostics Roche Business Report in screening for cervical cancer, PROTECT, a randomised trial studying the NT-proBNP biomarkerguided approach in treatment of heart failure, and the STeP trial aiming at improvement of diabetes management through structured testing. All three trials demonstrated the high medical value of Roche diagnostic products (see R & D section on page 74). Operations Roche Diagnostics Business Areas (BAs) are innovation engines, translating our growing understanding of diseases into new products and applications. The BA headquarter sites in Rotkreuz, Switzerland (Professional Diagnostics), Mannheim, Germany (Dia- betes Care), Pleasanton, USA (Molecular Diagnostics), Penzberg, Germany (Applied Science), and Tucson, USA (Tissue Diagnostics), are the division s main R & D sites, with additional centres of excel- lence located in Branford, USA (454 Life Sciences), Madison, USA (NimbleGen), and Indianapolis, USA (Diabetes Care). In September Roche opened a new Diagnostics Operations Complex for R & D and production in Penzberg. A new immunoassay production unit in Mannheim was inaugurated in October. In 2010 a lifecycle management approach was in- troduced to establish a stronger connection be tween each BA and its markets. Lifecycle teams are ac- count able for the development, filing, approval and launch of new products to maximise their value from launch to obsolescence. In addition, two new global cross-ba functions have been created to help maintain the focus on product profitability and pro cess efficiency. Global Operations will drive operational excellence in manufacturing, supply chain and direct procurement, while Global Quality & Regulatory will ensure submission quality and reduce time to approval. The established Global Platforms and Support function will continue to play a key role in instrument and software development and customer service. As announced in November over the next two to three years Roche Diagnostics intends to transferthe production of chemical raw materials and analytics services from Mannheim to Penzberg (both in Germany), blood gas and electrolytes monitor- ing activities from Graz (Austria) to Rotkreuz (Swit- zerland) and the Diabetes Care R & D activities on insulin delivery systems from Burgdorf (Switzerland) to Mann heim (Germany). The division believes that these measures, which are part of the Groupwide Operational Excellence programm, will enable it to enhance system integration, leverage exist- ing capacities and reduce infrastructure costs while maintaining the focus on customers and innovation. The division regularly assesses the mix of in-sourcing and out-sourcing in its manufacturing and supply chain operations. In general, activities which involve proprietary technology or enable Roche to leverage internal expertise are in-sourced. Operations are out-sourced when this offers economies of scale or other advantages while ensuring the continued integrity of Roche s products and services. In recent years the level of out-sourcing has grown in line with sales. Business development Collaborations with academia, research institutes and other private and commercial organisations give Roche Diagnostics rapid access to relevant medical, scientific and technological advances. Intellectual property (IP) exchange is a strategic component of Roche s ability to offer customers the most extensive portfolio of tests and technologies year after year. In-licensing is an important opportunity for Roche to access markers and technologies, whereas outlicensing of IP can help establish novel markers and technologies from Roche more rapidly in the marketplace by involving more players to develop and educate the market. It is thus vital for Roche Diagnostics to have excellent internal processes to identify IP rapidly and to maintain close contact with partner companies for both in- and out-licensing agreements. In 2010 Roche completed major acquisitions in Diabetes Care (Medingo Ltd.) and Tissue Diagnostics (BioImagene Inc.) and entered into a number of research and technology collaborations in Diabetes Care (with InterComponentWare), Molecular Diagnostics (with the German Cancer Research Centre) and Applied Science (with IBM and DNA Electronics). Moreover, the division signed over 80 licensing agreements, approximately half of them in-licensing IP to broaden Roche s innovation base (see Business area highlights for more details).

67 Can we find Disease area Virology / Oncology Indication HPV (as a risk factor for cervical cancer) Trial Registration trial ATHENA No. of participants 47,208 No. of study sites 61 No. of countries 1 (USA) Chantal H., a potential participant in the ATHENA trial, Basel

68 out sooner? Rita S., Head of Assay Development, Roche Pleasanton

69 cobas 4800 HPV Test Creating value for patients means proving the medical value of a diagnostic test in a rigorous clinical trial Biomarker identification and clinical validation Collaborations with research groups in academia and industry Development of diagnostic test Education of healthcare professionals Regulatory approval Show sensitivity and specificity Reimbursement Health economics Successful diagnostic test on market Demonstrate medical value The Roche ATHENA trial enrolled over 47,000 women, screening participants for cervical cell changes using both the Pap smear and the cobas 4800 HPV DNA Test (for 14 high-risk HPV genotypes). The results revealed that one in ten women of those aged 30 years or older who tested positive for HPV genotypes 16 or 18 were found to have cervical pre-cancer despite normal Pap smear tests. The cobas 4800 HPV Test enables physicians to identify women with cervical pre-cancer missed using cytology alone. Persistent infection with high-risk human papillomavirus (HPV) is the leading cause of cervical cancer, implicated in more than 99% of all cases. Screening enables early identification and removal of pre-cancerous lesions, dramatically reducing the incidence and mortality of cervical cancer worldwide. However, many studies have shown that the Pap smear, which samples cells from the cervix and is currently the most common test used to detect cervical cancer, does not have adequate sensitivity, and that up to 50% of precancerous lesions are missed with a single Pap smear. Thousands of women ultimately diagnosed with cervical cancer had normal Pap smear results.

70 Diagnostics Roche Business Report Business area highlights Professional Diagnostics Professional Diagnostics is a leading supplier of instruments, tests, software and services for clinical laboratories and decentralised testing products to support clinical decision making at the point of care (POC). In 2010 it had a 15% share of a growing global market worth 30 billion US dollars. Professional Diagnostics full-year sales grew about twice as fast as the global market, rising 11% to 4,858 million Swiss francs and outpacing market growth in all regions. Immunoassays were a key growth driver, with sales up 17% in For a decade this segment has consistently grown at double-digit rates, thanks to a strong installed base and an ever-expanding test menu. Sales of clinical chemistry and coagulation monitoring products grew 5% and 19%, respectively. In 2010 Professional Diagnostics launched eight new or next-generation immunoassays in the US or markets recognising the CE Mark, including six tests to diagnose or monitor infectious diseases hepatitis A and C, HIV, herpes simplex virus (HSV-1 and HSV-2) and rubella (see table of product launches on page 76). Three new or next-generation clinical chemistry products were also introduced in CE markets. In 2011 Professional Diagnostics will expand its immunoassay menu further, with new assays covering a range of disease areas, including infectious diseases and oncology. Demand for the cobas 8000 modular analyser series remained strong in First launched in 2009, this platform for high-throughput testing is now available in all key markets, including the US. Following the introduction of the cobas e 602 immunoassay module, high-volume laboratories are now able to fully consolidate their serum work areas. Roche offers a com- prehensive portfolio of standardised integrated systems for clinical laboratories of all types and sizes, from the stand-alone, low-volume cobas 4000 and the medium-volume cobas 6000 to the cobas 8000 modular analyser series for high-volume laboratories. In the US Professional Diagnostics also launched the cobas p 501 and p 701 post-analytical units, which automate the storage and retrieval of sample tubes, and cobas u 411, a semi-automated urine test strip analyser. The rollout of the new cobas b 123 POC blood gas analyser commenced in Europe and several markets in Latin America and Asia Pacific. Targeting specifically at the POC segment and capable of delivering many vital results in time-critical situa- tions, this instrument is an important advance in blood gas analysis, the leading segment in hospital POC testing. The US launch of cobas b 123 POC is expected in Strong growth in coagulation monitoring reinforced Roche s leading position in this segment. Continued strong demand for portable testing systems, such as the top-selling CoaguChek XS system, and expanded Medicare coverage for home coagulation testing in the US were key factors contributing to growth. Studies have repeatedly shown that self-testing helps patients on anticoagulants to keep their medica- tion within the therapeutic range and can minimise the risk of complications. Delivering on the promise of personalised healthcare, the PROTECT trial, presented at the American Heart Association meeting in November, demonstrated a significant reduction in total cardiovascular events when heart failure therapy was guided by concen trations of the cardiac biomarker NT-proBNP. Because of this strong clinical benefit, the trial was stopped early to allow all patients access to this new treatment strategy (see R & D section on page 74). To further strengthen its cardiology portfolio, Roche signed a cross-license agreement with Alere Inc. giving each party semi-exclusive worldwide rights for natriuretic peptide biomarkers proven for their diagnostic usefulness in a variety of cardiovascular diseases. In collaboration with the American College of Cardiology, Professional Diagnostics is developing a web portal for biomarkers, allowing physicians to access the latest information on cardiac biomarkers and encouraging its application in clinical practice. Diabetes Care Diabetes Care develops and commercialises blood glucose (BG) monitoring and insulin delivery systems that enable people with diabetes to manage their condition more effectively. The goal of diabetes therapy is to maintain the BG levels in a (near-) normal range and thus avoid diabetes-related complications. Diabetes Care not only offers individual product

71 68 Roche Business Report 2010 Diagnostics innovations, but combines these to form integrated solutions that encompass all areas of diabetes management. It is the industry leader with a 32% share of a global BG monitoring market worth over 8 billion US dollars. In 2010 Diabetes Care s sales rose 4% to 2,959 million Swiss francs. This was well above the global market growth rate in an environment that remains challenging due to the uncertain economic recov- ery and general price pressure. Sales of BG monitoring systems (4%) were driven by Accu-Chek Aviva and Accu-Chek Performa, which showed strong double-digit growth, supported by strong market up- take of the sleek versions Accu-Chek Aviva Nano and Accu-Chek Performa Nano especially designed for young high-frequency testers. By the end of 2010 these devices were available in 36 countries across Europe, Latin America and Asia Pacific. The Accu- Chek Mobile also posted significant sales growth. This BG monitoring system s strip-free technology is particularly appreciated by insulin-dependent pa- tients who measure their blood glucose frequently and thus benefit most from enhanced testing convenience. Introduced in 2009, the Accu-Chek Mobile is now available in 12 countries in Europe and Asia Pacific. In the EU maltose-independent strip chemistries for the Accu-Chek Aviva, Accu-Chek Performa, Accu-Chek Compact and Accu-Chek Mobile product lines received regulatory approval in June and were immediately rolled out. Diabetes Care posted strong growth in Europe, Latin America and Asia Pacific, with significant contributions from emerging markets. In the US sales de- creased 2% slightly underperforming the market, which remained negatively impacted by the macroeconomic environment, resulting in price pressures and slow volume growth. US and Japanese regu- latory approvals for the maltose-free strip chemistries, expected in 2011, will enable the latest additions to the Accu-Chek portfolio to be launched in the US and Japan and are anticipated to boost sales in these key markets. Insulin delivery systems posted double-digit sales growth, driven mainly by continued strong uptake of the new interactive insulin pump system Accu-Chek Combo, now available in 27 countries in Europe, Latin America and Asia Pacific. In May Diabetes Care acquired micropump specialist Medingo, enhancing its portfolio with an innovative micropump. This acquisition will enable Roche to bring integrated insulin delivery systems to a broader range of people with diabetes and offer users a wider range of options to suit their needs. Diabetes Care remains committed to exploring and developing new diabetes management concepts as demonstrated by the Structured Testing Protocol (STeP) clinical study in type 2 diabetic patients not using insulin. Presented at the Annual Meeting of the European Association for the Study of Dia- betes (EASD) in September, the STeP study shows that glycemic control can be significantly improved when therapy is adjusted on the basis of structured BG monitoring and pattern analysis (see R & D section on page 74). The visualisation and assessment of BG and in- sulin data are pivotal to effective diabetes management, yet sharing the data continues to pose sig- nificant challenges for people with diabetes and healthcare professionals alike. To address this issue, Diabetes Care is partnering with ehealth specialist InterComponentWare to develop a web-based diabetes management solution that improves the inter- action between patients and their caregivers based on securely shared, well-structured information. Molecular Diagnostics Molecular Diagnostics develops and commercial- ises advanced diagnostic and blood screening platforms and tests based on Roche s proprietary real-time polymerase chain reaction (PCR) tech- nology. With a 32% market share, Roche is the leader in the highly competitive molecular diagnostics market, valued at 4 billion US dollars and growing 7%. This year marks the 25th anniversary of PCR s debut to the scientific community. PCR s unique ability to exponentially amplify small amounts of target DNA has resulted in numerous diagnostic techniques which would otherwise be too time consuming or impossible to perform. Molecular Diagnostics continued its steady per- formance in 2010, with sales advancing 4% to 1,189 million Swiss francs. Growth was led by virology (2%), which currently accounts for about half of the business area s sales. Demand for the cobas

72 Diagnostics Roche Business Report system, launched in late 2009, was strong with the system now installed in 25 countries in Europe, Asia Pacific, Latin America and Canada. cobas 4800 offers full automation for mid- to high-throughput testing; the menu currently includes dual target tests for Chlamydia trachomatis and Neisseria gonorrhoeae and a screening and genotyping test for human papillomavirus (HPV). Regionally, North America sales showed good growth, while sales held steady in the EU. Latin America and Asia Pacific posted excellent double-digit growth. Strong contribution from the E7 markets was led by Russia and Mexico. In 2010 Molecular Diagnostics added four new or next-generation tests to its portfolio in virology and infectious diseases. Thanks to the first-of-its-kind dual-pcr target HIV viral-load test, which greatly im- proves the ability of physicians to make informed treatment decisions, Molecular Diagnostics won a major contract in South Africa for over half a million tests per year. Roche s next-generation HBV test, which received the CE Mark in 2008, is now also available in the US. This test enables broader genotype detection and increased workflow flexibility in the management of HBV. In the blood screening segment, the first duplex assay for simultaneous de- tection of parvovirus B19 and the hepatitis A virus was successfully launched in the EU and other markets recognising the CE Mark, contributing to im- proved safety of human plasma products. FDA ap- proval of this test is expected in The LightCycler MRSA Advanced Test, Roche s flagship product in the hospital-acquired infections market, was approved and launched in the US in July. Studies indicate that the test s speed it identifies methicillin-resistant Staphylococcus aureus (MRSA) carriers in less than two hours, versus one to three days using conventional culture-based methods can help significantly reduce the spread of this potentially deadly microbe in hospitals. Screening for MRSA is one of the fastest-growing segments in the North American molecular diagnostics market. The test was launched in the EU and other markets which recognise the CE Mark in 2009 (see table of product launches on page 76). Data from ATHENA, a Roche-sponsored US registration trial assessing the utility of the cobas 4800 HPV Test in screening for cervical cancer, were presented at the International Papillomavirus Conference in Montreal. The data confirm the increased accuracy of human papillomavirus (HPV) DNA testing, including 16/18 genotyping, over conventional cytologic Pap testing (see R & D section on page 74). Supported by the ATHENA results, Roche filed the HPV test in the US in June, with approval expected in the second half of This test received CE Mark certification in late 2009 and experienced a strong market uptake in CE markets throughout To further expand its testing potential in cervical cancer, Roche entered into a research collaboration with the German Cancer Research Center (DKFZ). Recent findings by the DKFZ indicate that the relative amounts of specific RNA markers in HPV-infected cells enable highly accurate discrimination of cervical cancer and highgrade from low-grade lesions and thus facilitate more specific prediction of women s risk for developing cervical cancer. Molecular Diagnostics is building a best-in-class oncology portfolio by securing relevant intellectual property, developing robust assays and providing complete in vitro diagnostics solutions covering sample preparation, through to results analyses and reporting. In 2010 Roche obtained a worldwide co- exclusive licence from Johns Hopkins University and Qiagen for the development of diagnostic assays for the biomarker phosphoinositide 3-kinase (PI3K). The PI3K pathway plays a major role in several cancers, including colorectal, gastric, breast and endometrial, and is currently a central focus of cancer drug deve-lopment. Roche has also obtained a license from Genzyme Corporation to develop a test for epidermal growth factor receptor (EGFR) mutations as a companion diagnostic for Tarceva. In recent studies patients with non-small cell lung cancer (NSCLC) carrying mutations in the EGFR gene showed enhanced response to and may benefit most from treatment with Tarceva. The EGFR mutation test, along with further oncology tests for the BRAF V600 mutation and KRAS mutations, are scheduled for launch on cobas 4800 in Applied Science Applied Science supplies scientists in academia and the biotech and pharmaceutical industries with instruments, reagents and test kits for a broad range of research applications. The global life science research market, valued at 8 billion US dollars, grew approximately 8% in Applied Science has roughly 10% share of this market.

73 Have I chosen Disease area Central Nervous System Indication Schizophrenia Trials 6 phase III trials No. of patients 3,600 No. of study sites 240 No. of countries 27 Kenneth B., participant in a clinical trial with RG1678, New York

74 wisely? Daniela A., Research Project Leader in Central Nervous System (CNS), Roche Basel

75 RG1678 a first-in-class GRI for schizophrenia Creating value for patients means having the courage to go where needs are great and others have failed Available therapies Effective against positive symptoms Significant side effects Positive symptoms often still occur in the stable phases between acute episodes RG1678 Effective against negative symptoms Potential to treat suboptimally controlled positive symptoms Fewer side effects New mechanism of action Affecting nearly 24 million people worldwide, schizophrenia is a severe mental disorder that distorts the way a person thinks, acts, expresses emotions, perceives reality and relates to others. It is a lifelong disease that cannot be cured. On average it shortens life expectancy by 20 years due to the higher risk of suicide and also due to cardiovascular and pulmonary events. Because of negative symptoms, which usually have the greatest impact on quality of life, patients may be unable to live independently, hold jobs, establish personal relationships and manage everyday social situations. Many drugs developed to treat negative symptoms have failed in clinical trials, and the few available treatments offer only modest benefits. RG1678, a glycine reuptake inhibitor (GRI) developed at Roche, may be the first drug to treat the negative symptoms of schizophrenia. Representing an entirely novel approach, RG1678 normalises glutamate neurotransmission by increasing synaptic levels of glycine, thereby targeting an important pathway in psychiatric disorders. It has the potential to become first-in-class compound of this type for the treatment of schizophrenia. In addition, RG1678 in combination with current treatments has the potential to treat suboptimally controlled positive symptoms, with little or no increase in side effects. Its novel mode of action could also have valu able therapeutic applications in other psychiatric disorders.

76 Diagnostics Roche Business Report Applied Science posted 4% growth on sales totalling 868 million Swiss francs. Growth drivers were the cell analysis segment (thanks to increased demand for solutions in oncology and stem cell research), genomics (formerly reported as sequencing and mi- croarray businesses) and custom biotech (due to recovery of the global economy). Sales of the MagNA Pure and LightCycler product lines for sample preparation and quantitative PCR analysis declined due to dramatically lower demand for influenza A (H1N1) virus testing. All regions showed sales increases except Latin America, where the negative effect of decreased H1N1 testing was particularly pronounced. Sales in Asia Pacific were exceptionally strong (15%), led by China and India. Sales for cell analysis systems remained robust, fuelled by full integration of the innovatis product portfolio and steadily increasing demand for xcelligence automated real-time cell analysers (RTCA). In September Applied Science expanded this product line by launching the RTCA HT In- strument for high-throughput analysis and the RTCA Cardio Instrument for label-free cardiotoxic- ity testing. Double-digit increases in sequencing reagent and microarrays sales fuelled growth in genomics (17%), helped by strong worldwide demand for the GS Junior DNA sequencer, launched in May. This medium-throughput benchtop version of the Genome Sequencer FLX System bridges the gap between lowand high-throughput sequencing and offers solutions in nearly every field of biological research. Thanks to its size, efficiency and competitive price, it puts next-generation sequencing technology within the reach of thousands of researchers around the world. In response to the worldwide surge in research projects involving resequencing of the human genome to study diseases in large populations, Applied Science is making additional investments to develop systems targeting this application. In November Applied Science entered into an exclusive partnership with DNA Electronics for the development of a low-cost, high-throughput DNA sequencer. The sys- tem will combine 454 Life Sciences long-read sequencing technology with DNA Electronics inexpensive, highly scalable method for electrochemical detection. Moreover, the third generation of se- quencing is already on the horizon and promises the next leap in performance. In June Roche and IBM signed an agreement to develop a nano pore-based single molecule sequencer to directly read and decode human DNA, based on IBM s DNA transistor technology. This approach promises gains in costefficiency, throughput, scalability and speed compared with other sequencing technologies currently available or in development. NimbleGen complemented its offering on the cytogenetics microarray workflow system, including arrays for simultaneous analysis of multiple samples, instruments, reagents, as well as analysis and vi- sualisation software, now providing a comprehensive solution for high-resolution cytogenetic analyses of chromosomal abnormalities. Applied Science took further steps towards transition of its products from pure research use into routine diagnostic tools (IVDs). A pre-investigational Device Exemption (pre-ide) submission for NimbleGen s microarray platform has been filed with the FDA; its approval is the pre-requisite for obtaining FDA clearance for Roche s cytogenetic microarrays for use as IVDs. These microarrays, which detect chromosomal abnormalities, could spearhead a product transition into IVDs and are currently under development to demonstrate their medical value and diagnostic utility. Tissue Diagnostics Tissue Diagnostics (Ventana Medical Systems in North America) is the world s leading supplier of tissue-based cancer diagnostics. Its instruments and reagent systems are used in histology, cytol- ogy and drug discovery laboratories worldwide. In 2010 the unit had a 25% share of the tissue diag- nostics market, which is valued at over 2 billion US dollars and grew approximately 9 10%. Tissue Diagnostics significantly outpaced the market in 2010, recording sales of 541 million Swiss francs, an increase of 17% compared to the year- earlier period. Advanced tissue staining immunohistochemistry (IHC) and in situ hybridisation (ISH) was the main growth driver (17%), reflecting strong reagent sales and robust uptake of the fully automated BenchMark ULTRA system for simultaneous IHC and ISH testing on a single

77 74 Roche Business Report 2010 Diagnostics Data from the ATHENA trial were presented at the International Papillomavirus Conference in Montreal in July. This Roche-sponsored US registration trial, the largest ever performed in this indication, aimed to assess the utility of the cobas 4800 HPV Test in screening for cervical cancer. The data clearly conplatform. This system, which is now available in 51 countries worldwide, sets new standards in terms of random slide access, user-friendliness and highquality results. The business area performed strongly worldwide, growing two to four times as fast as the market in Europe, Latin America and Asia Pacific. Sales in these regions benefited from intensified commercialisation efforts outside the US, synergies with Roche Pharmaceuticals in HER2 testing in breast and gastric cancer and the introduction of BenchMark GX at an economic price in emerg- ing markets. In 2010 Tissue Diagnostics launched 15 new antibodies for IHC testing to support the diagnosis of various cancer types (see table of product launches on page 76). Six DNA probes for ISH testing were added to the molecular assay menu in the EU and other markets recognising the CE Mark, including two new molecular DNA tests for the human epidermal growth factor receptor 2 (HER2) gene, enabling accurate, timely assessment of the likelihood of re- sponse to treatment with Herceptin in breast and gastric cancer. A DNA probe targeting the insulinlike growth factor 1 receptor (IGF-1R) gene was added to Tissue Diagnostics non-small cell lung cancer biomarker panel, which also includes assays for EGFR and Met. Strengthening its position in prostate cancer testing, Tissue Diagnostics secured the exclusive rights from AsymmetRx Inc. for use of the p63 biomarker and launched two DNA probes enabling the determination of ERG genomic rearrangements on a single slide. While the p63 biomarker is the gold standard for the differential diagno- sis of prostate cancer, ERG genomic rearrangements have been shown to be a reliable prognostic marker of prostate cancer-specific mortality in certain patient groups. The advanced staining instrument portfolio was bolstered worldwide with two new additions: Discovery ULTRA, an automated IHC and ISH platform designed for use in the research setting and offering improvements in ease of use, workflow and system flexibility, and BenchMark GX, a low-volume, automated tissue staining instrument designed for cancer diagnostics professionals who want to expand their test menu and adopt automation with reduced investment. With placements in over 25 countries by the end of 2010, acceptance of BenchMark GX has been very strong, particularly in developing markets. VANTAGE, an advanced workflow management system for improved productivity and patient safety, launched in , continued to gain momentum with sales more than doubling compared to the year-earlier period. Tissue Diagnostics completed two acquisitions: BioImagene Inc., a leader in digital pathology analysis and workflow, with products enabling generation of high-resolution whole-slide digital images from glass microscope slides as well as software to view, analyse and manage tissue images, complementing and strengthening the offering in image analysis and information management; and Mariposa Bio- Science, an innovator in the field of antibody production to support Roche s production of best-in- class antibodies. Research and development In 2010 research and development (R & D) costs (core basis) in the Diagnostics Division totalled 890 mil- lion Swiss francs, a decline of 2% in local currencies compared to R & D costs as a percentage of sales decreased to 8.6%. In line with overall divisional strategy, the focus was on developing next-gene- ration platforms to improve testing efficiency and on developing new tests and demonstrating their medical value with robust clinical data. Clinical validation is relatively new in the IVD industry. Besides signif- icant investment, it requires expertise in clinical devel- opment and increased interaction with non-traditional customers such as payers and healthcare professionals (see feature on page 66). Being able to draw on Roche Pharmaceuticals long-standing ex- pertise in clinical validation gives Roche Diagnostics an advantage over most other IVD companies. In 2010 three major clinical trials demonstrating the significant medical value of Roche products were presented at scientific congresses:

78 Diagnostics Roche Business Report firmed the increased accuracy of human papilloma- virus (HPV) DNA testing over conventional cytologic Pap testing. Out of 47,000 women enrolled in this trial, one in ten of those aged 30 years or older who tested positive for HPV genotypes 16 or 18 were found to have cervical pre-cancer despite normal Pap tests. The cobas 4800 HPV Test detects 14 high- risk genotypes of HPV, twelve as a pooled result, and genotypes 16 and 18 individually. As demonstrated by ATHENA, this test helps physicians to recognise and treat precursors of cervical cancer earlier, possibly before it spreads in the body. Each year around half a million women worldwide are diagnosed with cervical cancer and more than 250,000 succumb to the disease. Final results of PROTECT (Pro-BNP Outpatient Tailored Chronic Heart Failure Therapy), a prospective randomised clinical trial in 151 patients, were presented at the American Heart Association congress in Chicago in November by the main study inves- tigators from Harvard University and Massachusetts General Hospital. Promoting a new paradigm in the management of heart failure, the results demonstrated that NT-proBNP-guided heart failure care was associated with a significant 56% reduction in total cardiovascular events, such as worsening heart failure, heart failure hospitalisation, and cardio- vas cular death, as compared with standard treatment. As heart failure ranks among the most costly chronic conditions in developed countries, reducing the risk of cardiovascular events not only contributes to better patient outcomes but is also likely to reduce healthcare costs. The Roche NT-proBNP test is available at the point-of-care and in laboratories worldwide where it runs on the cobas platforms. It is estimated that as many as 23 million people worldwide have heart failure with 550,000 new cases diagnosed each year in the US alone and a mortality rate that exceeds that of many cancers. The STeP (Structured Testing Protocol) study, a prospective 12-month clinical trial in 483 non-insulintreated people with type 2 diabetes, was present- ed at the Annual Meeting of the European Association for the Study of Diabetes (EASD) in Stockholm in September. The study demonstrated that the use of this new diabetes management approach including structured self-monitoring of blood glucose (SMBG), data visualisation, pattern analysis and derivedtherapy adjustments contributes significantly to a reduction of HbA1c values, improves glycemic control and helps to reduce diabetes-specific psychological distress and depression. While SMBG is widely accepted as a core component of effective diabetes management in people on insulin therapy, the value of SMBG has so far remained controversial for insulin-naive people, representing a large part of all people with type 2 diabetes. In addition to the medical value of IVD tests applied in the clinic, diagnostics today play a number of critical roles in drug development, from identifying new therapeutic targets and screening out un- promising drug candidates to selecting appropriate patient populations for clinical trials. Some may also become companion diagnostics for patient selec- tion, response prediction or therapeutic monitor- ing. Every drug under development at Roche has its own associated biomarker programme, and Diag- nostics expertise and advice are made available for each of these programmes. In 2010 the Diagnostics and Pharmaceuticals Divisions, including pred, gred, Pharma Medicines and Chugai, collaborated on more than 160 projects across all disease areas of interest at Roche. More than half of these projects were in oncology, followed by inflammation, CNS, virology and metabolic diseases. In addition, the Diagnostics Division collaborated with several other pharma ceutical companies to develop companion diagnostics for key biomarkers, particularly in on cology.

79 76 Roche Business Report 2010 Diagnostics Product launches in the Diagnostics Division Major product launches in 2010 Business area Product name Product description Market Timelines Professional EU, APAC, Q4 Diagnostics LATAM Diabetes Care Molecular Diagnostics Applied Science Six immunoassays in virology and infectious diseases Two immunoassays in other disease areas Three clinical chemistry products cobas e 602 module for cobas 8000 modular analyser series cobas b 123 POC system cobas c 701/ cobas c 502/cobas e 602 modules for cobas 8000 modular analyser series HIV combi 27 min: for improved combined testing of HIV-antigen and HIV-antibodies enabling more reliable early detection of HIV infection HSV-1 IgG and HSV-2 IgG: for quantitative detection of IgG antibodies to HSV Rubella IgM: to diagnose rubella infection in women anti-hcv: for presumptive diagnosis of HCV infection anti HAV: to diagnose HAV free ß-HCG and PAPP-A: to evaluate a risk of trisomy 21 in pregnancy STAT NT-proBNP: to evaluate the risk of heart failure next-generation tests for HbA1c and ferritin, and new MultiControl ClinChem immunoassay module with over 80 immunoassays and a throughput of 170 tests/hour for very high volume laboratories multi-parameter blood gas analyser for use at the point of care and in laboratories clinical chemistry and immunoassay modules for very high volume laboratories EU, APAC, LATAM US US US EU, APAC, LATAM US EU, APAC, LATAM Q4 Q1 Q2 Q4 Q1 Q1 Q1 2 EU Q3 4 EU, APAC, Q4 LATAM US Q3 4 cobas u 411 semi-automated urine test strip analyser US Q4 cobas p 501/cobas p 701 post-analytical units for automated storage and retrieval of bar-coded primary and secondary sample tubes US Q4 Maltose-independent for Accu-Chek Aviva, Accu-Chek Performa, EU, APAC, Q3 4 strip chemistries Accu-Chek Mobile, Accu-Chek Compact LATAM Four molecular tests in virology and infectious diseases NimbleGen CGX-6 multiplex array GS Junior NimbleGen cytogenetic workflow system RTCA Cardio Instrument RTCA HT Instrument Cobas AmpliPrep/Cobas TaqMan Dual Target HIV-1 Test v2.0: for simultaneous detection of two regions of the HIV genome LightCycler MRSA Advanced Test: automated real-time PCR-based test for MRSA cobas TaqScreen DPX Test: for simultaneous quantitative detection of parvovirus B19 and a qualitative result for HAV Cobas AmpliPrep/Cobas TaqMan HBV Test v2.0: new-generation HBV viral-load test, which enables broader genotype detection and improved workflow flexibility for high-resolution analysis of chromosomal abnormalities, capable of analysing six samples simultaneously economic benchtop next-generation sequencing system for smaller laboratories complete solution for high-resolution cytogenetic analysis, including instruments, arrays, analysis and visualisation software for real-time cell analysis for functional monitoring of cardiotoxicity and arrhythmic effects for real-time high-throughput label-free impedance-based cell analysis US US EU US WW WW WW WW WW Q3 Q3 Q3 Q4 Q1 Q2 Q2 Q3 Q3

80 Diagnostics Roche Business Report Major product launches in 2010 Business area Product name Product description Market Timelines Tissue Diagnostics Fifteen antibodies for anti-e-cadherin, anti-p63, Basal Cell Cocktail (anti-p63 and US, EU Q1 4 IHC testing in cancer anti-keratin), anti-p120 catenin, anti-cyclin D1, anti-cd44, anti-ck5/6, anti-cam5.2, anti-cd7, anti-cd10, anti-ck17, anti-hent1, anti-moc-31, anti-gpc3, anti-ck10 One antibody for IHC testing in infectious diseases anti-helicobacter pylori EU Q1 Six DNA probes for ISH testing in cancer BenchMark GX DDISH HER2 Probe, SISH HER2 Probe, IGF-1R Probe, TOP2A Probe, 5pERG Probe, 3pERG Probe for economical low-volume automated advanced tissue staining EU Q2 4 EU, APAC Discovery ULTRA for automated advanced tissue staining in the research setting US, EU Q1 2 black type = new product/first market launch, grey type = new product/launch in additional markets. APAC = Asia Pacific; EU = European Union; LATAM = Latin America; US = United States; WW = worldwide. Q2 DDISH = dual colour dual hapten ISH; HAV = hepatitis A; HbA1c = hemoglobin 1Ac; HBV = hepatitis B; HCG = human chorionic gonadotropin; HCV = hepatitis C; HIV = human immunodeficiency virus; HPV = human papillomavirus; HSV = herpes simplex virus; IHC = immunohistochemistry; ISH = in situ hybridisation; MRSA = methicillin-resistant Staphylococcus aureus; NT-proBNP = N-terminal fragment of B-type natriuretic peptide; PAPP-A = pregnancy-associated plasma protein; RTCA = real-time cell analyser; SISH = silver ISH; STAT = short turn-around time (tests used in emergency).

81 78 Roche Business Report 2010 Diagnostics Key product launches planned for 2011 Business area Product name Product description Market Timelines Professional Diagnostics Two immunoassays Total Vitamin D: to measure vitamin D2 and D3 with greater precision HE4: aid in detecting ovarian cancer EU EU H1 H1 cobas c 702 module for cobas 8000 modular analyser series cobas b 123 POC system clinical chemistry module with throughput of 2,000 tests/hour for high-volume laboratories multi-parameter blood gas analyzer for use at the point of care and in laboratories Diabetes Care Accu-Chek Mobile LCM next-generation strip-free blood glucose monitoring system EU H2 with an integrated lancing device; significantly smaller than current version, with enhanced functionality Accu-Chek Nano sleek version for high-frequency users US H2 Accu-Chek Combo interactive insulin delivery system combining insulin pump and blood glucose monitoring system with broad data management capabilities US H2 Molecular Diagnostics Applied Science Tissue Diagnostics Four molecular tests in oncology and infectious diseases GS G Type HLA Primer Sets GS FLX Titanum-XL 4.2M CGH and 2.1M CGH/SNP arrays ER/PR antibody for IHC testing HER2 Dual Colour ISH Probe for ISH testing FutureView US, EU cobas 4800 BRAF V600 Mutation Test: for identification of the V600 mutation in the BRAF gene cobas 4800 KRAS Mutation Test: for identification of mutations in the KRAS gene cobas 4800 EGFR Mutation Test: for identification of mutations in the EGFR gene cobas 4800 HPV Test: detects HPV 16 and HPV 18 individually and 12 other high-risk genotypes in a pooled result EU, US EU EU US H2 H2 H2 H2 for HLA genotyping on the GS Junior System or GS FLX WW H1 System new sequencing chemistry; enables extended read lengths WW H1 on the GS FLX system (sequencing kit) ultra-high resolution arrays for CGH validation and combined WW H2 CGH/SNP validation with 4.2 million and 2.1 million features for discovery of variations in gene copy numbers and single nucleotides to support the diagnosis of breast cancer on US H1 BenchMark ULTRA to support the diagnosis of breast cancer US H2 next-generation detection system for BenchMark platforms; delivers greater specificity, flexible detection options and improved turnaround time black type = new product/first market launch; grey type = new product/launch in additional markets. EU = European Union; US = United States; WW = worldwide. US US, EU H1 H2 H1 BRAF = B-isoform of the rapidly growing fibrosarcoma oncogene; CGH = comparative genomic hybridisation; EGFR = epithelial growth factor receptor; ER/PR = estrogene receptor/progesterone receptor; HE4 = human epididymis protein 4; HER2 = human epidermal growth factor receptor 2; HLA = human leukocyte antigen; HPV = human papillomavirus; IHC = immunohistochemistry; ISH = in situ hybridisation; KRAS = member of the Ras family of oncogenes; SNP = single nucleotide polymorphism.

82 Diagnostics Roche Business Report Glossary Biomarker A characteristic that can be measured and evaluated as an indicator of a normal biological process, a disease process or a response to a therapeutic intervention. Elevated levels of the protein HER2 in cancer, for example, are a biomarker for a high probability of response to Herceptin. Cell analysis Methods of measuring the properties of cells, including their size and shape, cellular parameters such as the presence of specific proteins, and cellular processes such as proliferation and growth. Cell analysis technologies play an important role 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 the European Union. Certified diagnostics are referred to as CE IVDs. Clinical chemistry A branch of diagnostics comprising tests that detect and measure changes in the chemical composition of body fluids and tissues to diagnose or predict the course of a disease. DNA sequencing Methods of determining the order of nucleotides (molecular building blocks) in genetic material. Knowing an individual s DNA sequence can provide insights into genetic changes which contribute to human disease or influence treatment response. High-throughput technologies read thousands of sequences at once. Immunoassay A laboratory test that detects or measures a target substance in a sample using an immunochemical reaction, in which an antibody binds to a specific antigen. The target can be a drug, a protein or a virus, for example. In situ hybridisation (ISH) A method of staining biological tissue samples to identify the presence and copy number of specific genes or genetic mutations in cells; used in the diagnosis of cancer and other diseases. Micropump for insulin delivery A next-generation insulin pump, small, light-weight, discrete-to-wear that delivers insulin without tubing. It combines keyfeatures of durable insulin pumps with the best attributes of tube-free patch pumps providing flexibility and freedom for a broader range of insulindependent people with diabetes. Microarray A device for determining genetic changes that may contribute to human disease or influence treatment response. High-density microarrays evaluate thousands of DNA and RNA sequences at once. Point-of-care (POC) testing Diagnostic testing performed at or near the site of patient care using transportable (often handheld) instruments and test kits. Results are available immediately helping to speed clinical decision-making. Polymerase chain reaction (PCR) A laboratory method widely used in research and industry to make millions of copies of a DNA sequence of interest very quickly. Real-time PCR simultaneously amplifies (copies) and quantifies the targeted DNA molecule. Virology In molecular diagnostics, testing to detect certain serious and prevalent viral infections (e.g. HIV and hepatitis C) or to monitor their treatment. Immunohistochemistry (IHC) A method of staining biological tissue samples to determine the pres- ence, level and location of specific proteins in cells; used in the diagnosis of cancer and other diseases.

83 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.

84 Corporate Governance Roche Business Report Corporate Governance Roche complies with all relevant corporate governance requirements, in particular with all applicable laws, the Swiss Stock Exchange (SIX Swiss Exchange) directives (including the commentaries thereto) and the Swiss Code of Best Practice for Corporate Governance promulgated by the Swiss business federation economiesuisse. The company s internal governance framework, particularly its Articles of Incorporation and Bylaws, embodies all the principles needed to ensure that the company s businesses are managed and supervised in a manner consistent with good corporate governance, including the necessary checks and balances. 1 Our printed Annual Report contains selected links to the Roche website ( Readers are thus provided not only with a snapshot of our company at the reporting date but are also directed to sources which they can consult at any time for upto-date information about corporate governance at Roche. Whereas each annual report covers a single financial year ending 31 December, our website contains information of a more permanent nature as well as the latest Roche news. The company s Articles of Incorporation, Bylaws and the curricula vitae of the members of the Board of Directors and the Corporate Executive Committee are published on our website. Board of Directors At the 92 nd Annual General Meeting (AGM) of Roche Holding Ltd, on 2 March 2010, shareholders re-elected DeAnne Julius and Beatrice Weder di Mauro as members of the Board of Directors for a term of three years as provided by the Articles of Incorporation. Peter Brabeck-Letmathe and Horst Teltschik have decided to retire as members of the Board of Directors after many years of distinguished service. Arthur D. Levinson and William M. Burns were elected as new Members of the Board for a term of three years as provided by the Articles of Incorporation. At its organising meeting immediately following the 2010 AGM, the Board of Directors has approved its committees structure and its committees memberships as shown on page 83. At the AGM on 1 March 2011, the Board of Directors will propose shortening the term of office of new or directors for re-election from three to two years and the Board will nominate Pius Baschera, Bruno Gehrig, Lodewijk J. R. de Vink and Andreas Oeri for re-election to the Board and Paul Bulcke, Peter R. Voser and Christoph Franz for election as new Members of the Board. Walter Frey has decided to retire as member of the Board of Directors after ten years of distinguished service. The Board of Directors thanks Walter Frey for his long-standing engagement and his many contributions to Roche which started already with his activities as a member of the Board of Roche Pharma AG in Germany from 1996 to 1998 before becoming a Board member of Roche Holding Ltd in Wolfgang Ruttenstorfer decided to resign as a member of the Board of Directors of Roche Holding Ltd after four years of service. The Board of Directors thanks Wolfgang Ruttenstorfer for his valuable work and contribution to Roche. Corporate Executive Committee Starting on 1 January 2010 Pascal Soriot, Member of the Corporate Executive Committee since April 2009, and Daniel O Day were appointed as COO Division Roche Pharmaceuticals and COO Division Roche Diagnostics and as a new member of the Corporate Executive Committee, respectively. Erich Hunziker, Chief Financial Officer, Chief Information Officer and Deputy Head of the Corporate Executive Committee, has decided to retire from Roche at the end of March 2011 and plans to focus on a number of board memberships. The Board of Directors of Roche Holding Ltd thanks Erich Hunziker for his many years of exceptional service and outstanding contributions to the Group s success. The Board of Directors has appointed Alan Hippe to succeed Erich Hunziker as Chief Financial Officer. 1

85 82 Roche Business Report 2010 Corporate Governance Board of Directors per 31 December 2010 (from left): Dr Franz B. Humer, Prof. Bruno Gehrig, André Hoffmann, Dr Andreas Oeri, Prof. Pius Baschera, Prof. Sir John Irving Bell, William M. Burns, Lodewijk J. R. de Vink, Dr DeAnne Julius, Walter Frey, Dr Arthur D. Levinson, Dr Wolfgang Ruttenstorfer, Prof. Beatrice Weder di Mauro.

86 Corporate Governance Roche Business Report Board of Directors Name (year of birth) Term ends First elected Board of Directors Dr Franz B. Humer (1946) D *, E Chairman Prof. Bruno Gehrig (1946) C *, D, E Vice-Chairman André Hoffmann (1958) C, D, E Vice-Chairman Prof. Pius Baschera (1950) A, E Prof. Sir John Irving Bell (1952) C, E William M. Burns (1947) B, E Lodewijk J. R. de Vink (1945) C, E Walter Frey (1943) A, B, E Dr DeAnne Julius (1949) B *, E Dr Arthur D. Levinson (1950) C, E Dr Andreas Oeri (1949) A *, E Dr Wolfgang Ruttenstorfer (1950) B, E Prof. Beatrice Weder di Mauro (1965) A, B, E New proposed members of the Board of Directors, nominated for election at the Annual General Meeting on 1 March 2011 Paul Bulcke (1954) Peter R. Voser (1958) Dr Christoph Franz (1960) Secretary to the Board of Directors Dr Gottlieb A. Keller (1954) Honorary Chairman of the Board of Directors Dr Fritz Gerber (1929) A Corporate Governance and Sustainability Committee. B Audit Committee. C Remuneration Committee. D Presidium/Nomination Committee. E Non-executive director. * Committee chairperson. 1 January 2011

87 84 Roche Business Report 2010 Corporate Governance Corporate Executive Committee per 31 December 2010 (from left): Dr Severin Schwan, Dr Pascal Soriot, Daniel O Day, Dr Erich Hunziker, Silvia Ayyoubi, Dr Gottlieb A. Keller, Dr Richard Scheller, Dr Jean-Jacques Garaud, Dr Dan Zabrowski, Osamu Nagayama, Dr Stephan Feldhaus, Per-Olof Attinger.

88 Corporate Governance Roche Business Report Corporate Executive Committee Name (year of birth) Position Corporate Executive Committee Dr Severin Schwan (1967) CEO of the Roche Group Dr Erich Hunziker (1953) Chief Financial and IT Officer/ Deputy Head of the Corporate Executive Committee Dr Pascal Soriot (1959) COO Division Roche Pharmaceuticals Daniel O Day (1964) COO Division Roche Diagnostics Dr Gottlieb A. Keller (1954) General Counsel Silvia Ayyoubi (1953) Head Human Resources As of 1 April 2011 Dr Alan Hippe (1967) Chief Financial and IT Officer Enlarged Corporate Executive Committee Osamu Nagayama (1947) Dr Richard Scheller (1953) Dr Jean-Jacques Garaud (1955) Dr Dan Zabrowski (1959) Dr Stephan Feldhaus (1962) President and CEO Chugai Head Genentech Research and Early Development (gred) Head Roche Pharma Research and Early Development (pred) Head of Roche Partnering Head Group Communications Secretary to the Corporate Executive Committee Per-Olof Attinger (1960) Statutory Auditors of Roche Holding Ltd KPMG Klynveld Peat Marwick Goerdeler SA (reporting years ) KPMG AG (since 2009) Auditor in charge: John A. Morris (since 2004) Chief Compliance Officer Dr Urs Jaisli (1956) Alan Hippe will join Roche as a member of the Corporate Executive Committee as of April As of 1 January 2010 Jean-Jacques Garaud was appointed as Head of Roche Pharma Research and Early Development (pred) and together with Dan Zabrowski as Head of Roche Partnering. Both were appointed as new members of the Enlarged Corporate Executive Committee. Effective 1 August 2010 Stephan Feldhaus was appointed Head Group Communications and Member of the Enlarged Corporate Executive Committee reporting to Severin Schwan and replacing Per-Olof Attinger, who took over a newly created position as Head CEO Office and Secretary to the Corporate Executive Committee reporting to Severin Schwan.

89 86 Roche Business Report 2010 Corporate Governance Information relating to Corporate Governance 1 Group structure and shareholders Roche s operating businesses are organised into two divisions: Pharmaceuticals and Diagnostics. The Pharmaceuticals Division comprises the two business segments Roche Pharmaceuticals and Chugai, whereas Genentech as the former third segment has been integrated into Roche Pharmaceuticals. The Diagnostics Division consists of the following five business areas: Applied Science, Diabetes Care, Molecular Diagnostics, Professional Diagnostics and Tissue Diagnostics. Busi- ness activities are carried out through Group subsidiaries and associated companies. Significant subsidiaries and associated companies are listed in the Finance Report, Note 34 to the Roche Group Consolidated Financial Statements ( Subsidiaries and associates, page 131). Major shareholders are listed in the Finance Report, Notes 28 and 33 to the Roche Group Consolidated Financial Statements ( Equity attributable to Roche shareholders and Related parties, pages 114 and 129) and in Note 4 to the Financial Statements of Roche Holding Ltd ( Significant shareholders, page 154). André Hoffmann, Vice-Chairman of the Board of Directors, and Andreas Oeri, Member of the Board of Directors and Chairman of the Board s Corporate Governance and Sustainability Committee, serve in their respective capacities on the Board and its Committees as representatives of the shareholders group with pooled voting rights and receive the remuneration set forth in the Remuneration Report on page 93 and in the Finance Report, Note 33 to the Roche Group Consolidated Financial State- ments ( Related parties, page 129) and Note 6 to the Financial Statements of Roche Holding Ltd ( Board and Executive remuneration, page 155). No other relationships exist with the shareholders with pooled voting rights. There are no cross-shareholdings. 2 Capital structure Information on Roche s capital structure is provided in the Finance Report, Notes to the Financial Statements of Roche Holding Ltd (pages 153 and 154). Additional details are contained in the Articles of Incorporation of Roche Holding Ltd. 2 Changes in equity are detailed in the Finance Report, Notes to the Financial Statements of Roche Holding Ltd (page 154). The company has a share capital of 160,000,000 Swiss francs, divided into 160,000,000 fully paid bearer shares with a nominal value of 1 Swiss franc each. There are no restrictions on the exer- cise of 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 non-voting equity securities (NES) have been issued in bearer form. They do not form part of the share capital and confer no voting rights. Each NES confers the same rights as one share to participate in available earnings and in any liquidation proceeds following repayment of the share capital. Roche s NES and the rights pertaining thereto (including the provisions protecting the interests of NES holders) are described in 4 of the Articles of Incorporation of Roche Holding Ltd. Information on debt instruments which have been issued and on outstanding bonds is provided in the Finance Report, Note 27 to the Roche Group Consolidated Financial Statements ( Debt, page 108). Additional information on employee stock options is provided in the Finance Report, Note 11 to the Roche Group Consolidated Financial Statements ( Employee stock options and other equity com- pensation plans, page 79). Roche has issued no options apart from employee stock options, Stock-settled Stock Appreciation Rights (S-SARs) and options issued in connection with debt instruments. Neither the options awarded to employees nor the debt instruments which have been issued have any effect on Roche s share capital. 2 article_of_incorporation.htm

90 Corporate Governance Roche Business Report Board of Directors and Corporate Executive Committee Information on each member of the Board of Directors (including the years in which they were elected and the years in which their terms end) and on each member of the Corporate Executive Committee is listed on pages 81 to 85. Curricula vitae and other information (including information on board memberships) are available on the Internet. 3 The Annual General Meeting elects the members of the Board of Directors in staggered elections in which each nominee is voted on separately (see 18 of the Articles of Incorporation of Roche Holding Ltd 4 and the Minutes of the 92 nd Annual General Meeting of Roche Holding Ltd, held 2 March ). With the exception of Franz B. Humer, William M. Burns and Arthur D. Levinson none of the members of the Board of Directors has been a member of Roche s Corporate Executive Committee or served in an executive capacity at any Group sub- sidiary during the three financial years preceding the current reporting period. The internal organisation of the Board of Directors and the division of authority and responsibilities between the Board and management, the remits of the Board committees and the information and control mechanisms available to the Board in its dealings with corporate management are governed by the Bylaws. 6 The Board of Directors of Roche Holding Ltd is organised so as to ensure that the Group s businesses are conducted responsibly and with a focus on long-term value creation. To this end, the Roche Board has delegated certain responsibilities to several committees 7. Their composition and chairpersons as of 1 January 2011 are described on page 83. Each committees authorities and re- sponsibilities are defined in detail in the Bylaws of 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 Board meeting without the Chairman present may be convened. The Roche Board meets once a year to assess the Chairman s performance. This meeting, which is not attended by the Chairman, is chaired by one of the Vice-Chairmen. The Board of Directors has established a system of controls which is continuously monitored by the Audit Committee and by the Corporate Governance and Sustainability Committee and consists of the following elements: Report on financial and operating risks (risk management system) System of internal controls over financial reporting (see pages 135 and 138 in the Finance Report) Internal audits Group Compliance Officer and Compliance officers in subsidiaries Safety, Health and Environmental Protection Department Corporate Sustainability Committee Science and Ethics Advisory Group (SEAG), for issues relating to genetics and genetic engineering (established in 1999). Each year several black-out periods are imposed during which senior employees are prohibited from trading in company stock. The following black-out periods are in effect for 2011: 26 December 2010 to 2 February 1 April to 14 April 26 June to 21 July 1 October to 13 October Black-out periods can be changed by the Chairman of the Board of Directors if circumstances warrant. In 2010 the Board of Directors met for five meetings, each from 3 to 6 hours in length *; once for a full-day meeting *; and once for a three-day * These figures indicate the actual length of meetings and do not include the directors extensive pre-meeting preparations and post-meeting follow-up activities. 3 board_of_directors.htm and executive_committee.htm 4 article_of_incorporation.htm 5 annual_general_meetings.htm 6 article_of_incorporation.htm 7 committees.htm 8 article_of_incorporation.htm

91 88 Roche Business Report 2010 Corporate Governance Board and Board Committees attendance 2010 Board Presidium/ Nomination Committee Remuneration Committee Audit Committee Corporate Governance and Sustainability Committee Number of meetings F. B. Humer 5 5 B. Gehrig A. Hoffmann P. Baschera 5 2 J. I. Bell 5 4 W. M. Burns ** 5 5 L. J. R. de Vink 5 4 W. Frey D. A. Julius 5 5 A. D. Levinson ** 4 3 A. Oeri 5 3 W. Ruttenstorfer 5 5 B. Weder di Mauro Not a member of that committee. ** Board and Committee member since 2 March visit to a major subsidiary * which included a Board of Directors meeting *. The Board committees met as follows in 2010: Presidium of the Board of Directors/Nomination Committee: five meetings (approx. 2 hours each *) Remuneration Committee: four meetings 9 (approx. 2 to 3 hours each *) Audit Committee: five meetings (approx. 3 to 4 hours each *) Corporate Governance and Sustainability Committee: three meetings (approx. 3 hours each *). The Board of Directors regularly conducts a selfassessment of its performance. The members of the Corporate Executive Committee are invited to attend for, and report in person on, those agenda items concerning them. When the situation warrants, members of the Enlarged Corporate Executive Committee may also be invited to attend. The Board committees invite the Chairman of the Board and other Corporate Executive Committee members to deliver reports at committee meetings and may elect to commission independent expert reports and call on the services of consultants. The risk management system is subject to continuous review, with findings being presented to the Audit Committee or the full Board. 10 Internal Audit regularly briefs the Audit Committee with reference to ongoing audit reports. Members of Internal Audit attend Audit Committee meetings, as do external audi- tors. For information on the external auditors, see page 89. Members of the Corporate Executive Committee have a maximum ordinary notice period of twelve months. There are no management contracts which fall within the scope of Subsection 4.3 (annex) of the SIX Directive on Information relating to Corporate Governance. 4 Remuneration, shareholdings and loans All details regarding remuneration, shareholdings and loans are set forth in the separate Remuneration Report on pages 91 to 101 and in the Finance Report, Notes 28 and 33 to the Roche Group * 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 contribute 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 121.

92 Corporate Governance Roche Business Report Consolidated Financial Statements ( Equity attributable to Roche shareholders and Related parties, pages 114 and 129) and are listed in the Notes 6 and 7 to the Financial Statements of Roche Holding Ltd ( Board and Executive remune ration and Board and Executive shareholdings, pages 155 and 157). 5 Participatory rights of shareholders The participatory rights of shareholders are defined in Roche s Articles of Incorporation. 11 As Roche shares are issued to bearer, there are no restrictions on admission to Annual General Meetings, with the exception that shares must be deposited within a specified period before the date of a meeting and an admittance card must be issued in the shareholder s name, as provided in 12 of the Articles of Incorporation. Any shareholder can elect to be represented by another shareholder at an Annual General Meeting. The Articles of Incorporation contain no restrictions on the exercise of voting rights, and the only quo- rum requirements are those stipulated in 16, in conformity with the Swiss Code of Obligations. Under 10.2 of the Articles of Incorporation, shareholders representing shares with a nominal value of at least 1 million Swiss francs can request the placement of items on the agenda of an Annual General Meeting. This must be done no later than 60 days before the date of the meeting. 6 Change of control and defensive measures The Articles of Incorporation contain no provisions on the mandatory bid rule. Swiss law applies. There are no change-of-control clauses. Those components of remuneration based on Roche NES would be terminated in the event of an acquisi- tion, and vesting period restrictions on pre-existing awards would be removed, so that all such options could be exercised immediately. 7 Relationship to statutory auditors At the Annual General Meeting of Roche Holding Ltd on 2 March 2010, the shareholders voted to appoint KPMG AG (KPMG) as statutory auditors (information on how long the auditors and auditor in charge have been serving in these capacities is provided on page 85). The statutory auditors parti cipate in Audit Committee meetings. They prepare written and oral reports on the results of their audits. The Audit Committee oversees and assesses the auditors and makes recommendations to the Board (for information on the responsibilities of the Audit Committee, see Article 8.1 of the Bylaws 12 ). The statutory auditors par ticipated in four meetings of the Audit Committee in The reports of statutory auditors on the Consolidated Financial Statements and on the Financial Statements can be found on pages 136 and 162, respectively, of this year s Finance Report. KPMG received the following remuneration for their services as statutory auditors of Roche Holding Ltd and other Roche companies: (millions of CHF) Auditing services Audit-related services Tax consultancy services Total The statutory auditors are elected each year by the Annual General Meeting. Ernst & Young Ltd received the following remuneration for their services as the auditors of Chugai: (millions of CHF) Chugai audits Other consulting services provided to Chugai * Total * In 2009: Genentech and Chugai. 8 Information policy As provided by 33 of the Articles of Incorporation 13, corporate notices are published in the Swiss Official Gazette of Commerce and in other daily newspapers designated by the Board of 11 article_of_incorporation.htm 12 article_of_incorporation.htm 13 article_of_incorporation.htm

93 90 Roche Business Report 2010 Corporate Governance Directors (Basler Zeitung, Finanz und Wirtschaft, L Agefi, Le Temps, Neue Zürcher Zeitung). Roche reports its half-year and full-year results in business reports published in print and online formats and at media events. In addition, detailed first- and third-quarter sales figures are published each year in April and October. The most current list of publication dates is available in English and German on the Internet. 14 All relevant information and documents, including all media releases, investor updates 15 and presentations to analyst and investor conferences are available on the Internet. Further publications can be ordered by , fax or telephone: roche.com, tel. +41 (0) , fax +41 (0) The contact address for Investor Relations is: F. Hoffmann-La Roche Ltd, Investor Relations, Group Finance, 4070 Basel, Switzerland; tel. +41 (0) , fax +41 (0) Additional information, including details on specific contact persons, is available on the Internet Non-applicability/negative disclosure It is expressly noted that any information not contained or mentioned herein is non-applicable or its omission is to be construed as a negative declaration (as provided in the SIX Swiss Exchange Corpo rate Governance Directive and the Commentary thereto). 9 Chief Compliance Officer The Chief Compliance Officer with his compliance officers network is committed to ensuring that the Roche Group Code of Conduct 17 is consistently complied with throughout the Roche Group. He also serves as a contact person for shareholders, employees, customers, suppliers and the general public on issues relating to the implementation of and compliance with this Code. Employees and other parties who become aware of violations of the Roche Group Code of Conduct can bring them to the attention of their managers or supervisors or report them to the Chief Compliance Officer (Urs Jaisli, direct phone number: +41 (0) , roche.com). Such disclosures will be treated confidentially. In addition, as of the end of 2009, employees may anonymously report irregularities or complaints in their corresponding mother language via a speak-up hotline. The Chief Compliance Officer reports regularly to the Corporate Governance and Sustainability Committee code_of_conduct.htm

94 Remuneration Report Roche Business Report Remuneration Report Summary Roche s success depends on the abilities and dedication of its people. Recognition of this forms the basis of our remuneration policy and system. One of the primary aims of our remuneration policy is to encourage a long-term focus and align management s interests with the interests of Roche s shareholders and holders of Roche s non-voting equity securities (NES). This remuneration report will be submitted separately for approval at the 2011 Annual General Meeting. The remuneration of Corporate Executive Committee members and other senior Roche executives is comprised of: Base salary (fixed) Bonus (variable) Stock-settled Stock Appreciation Rights (S-SARs) 1 (variable) Performance Share Plan (PSP) awards (variable) Under the PSP no NES will be awarded. The S-SARs granted in 2006, 2007, 2008, 2009 and 2010 have strike prices above the NES price as of 31 December 2010 and have no value for the recipients. This can change if Roche s future NES price improves. There has been no change in the base remuneration of the Board of Directors since A balanced mix of long- and short-term remuneration components Market competitiveness. Base pay, bonuses, blocked non-voting equity securities (NES), awards of Stock-settled Stock Appreciation Rights (S-SARs) and a Performance Share Plan (PSP) support these principles. These remuneration com- ponents are linked to our company s financial perfor- mance and commercial success and thus align the interests of Roche employees with those of the shareholders. The amount of the separate components of remuneration for each individual member of the Corporate Executive Committee is shown in the individual descrip- tion of the remuneration of the Corporate Executive Committee in this report. Base pay Base pay (cash payment) levels are determined according to market data of the world s biggest pharmaceuticals companies 3 for specific positions and individual employees abilities, experience and perfor- mance over time. Pay increases are linked to individual performance and also take into account prevailing market conditions 3 and the company s overall economic situation. Base pay and pay increases are conclusively monitored and determined by the Remuneration Committee. Please see the rest of this report for full details 2. Remuneration policy Roche fundamentally renewed its remuneration policy in 2004 and reviewed it in 2010, reconfirming the key principles. It is part of a framework of employee policies aimed at motivating and retaining current employees, attracting talented new ones and helping all Roche employees to perform at consistently high levels. Our remuneration policy is designed to foster value creation and reinforce a culture of performance and innovation, and it applies to nonmanagerial employees as well as to managers. The key principles underpinning this policy are: Focus on value creation Pay for performance Enabling employees to share in the company s success Fairness and transparency in remuneration decisions Bonuses Bonuses (cash payment) are awarded in recognition of individual contributions to value creation which go beyond normal job expectations, and they are meant to be an incentive to create or strengthen new business opportunities and strive for outstanding results. Bonus amounts are linked to Group or divisional business performance considering profit, 1 See Stock options/stock-settled Stock Appreciation Rights (S-SARs), page 95, 98 and See also in the Finance Report, Note 33 to the Roche Group Consolidated Financial Statements ( Related parties, page 129) and Notes 6 and 7 to the Financial Statements of Roche Holding Ltd ( Board and Executive remuneration and Board and Executive shareholdings, page 155 and 157). 3 Peer set for 2010: Abbott Laboratories, Amgen, Astellas, AstraZeneca, Bayer, Becton Dickinson, Biogen Idec, Bristol-Myers Squibb, Eli Lilly, Gilead, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Pfizer, Sanofi-Aventis, Takeda.

95 92 Roche Business Report 2010 Remuneration Report Variable remuneration elements (bonuses, S-SARs and PSP) in relation to fixed base pay of the Members of the Corporate Executive Committee Bonus S-SARs PSP Individual target value (in % relation to value of base pay) Minimum Maximum (in % relation to value of base pay) Performance criteria Split in % a) Group objectives b) Individual objectives max. 100% 100% 33.33% (based on annual base pay measured at 1 January of first year of cycle) 0% 0% 0% 200% 150% 66.66% (Cash payment) (Value development (Value development determined by determined by performance of NES performance of NES after grant) after grant) Group objectives (Group Individual contributions Group performance of and divisional business upon the Remuneration TSR in relation to performance) and Committee s decision at TSR performance individual objectives its own discretion of peer set considering profit, (see page 95 to 96) sales growth, OPAC (Operating Profit After Capital Charge) 70% n.a. 30% n.a. 100% sales growth, OPAC (Operating Profit After Capital Charge) performance and to the achievement of individual and functional, measurable and qualitative performance objectives. For reasons of competi- tiveness Roche does not disclose details of individual objectives of the members of the Corporate Exec- utive Committee. The Remuneration Committee of the Board of Directors has defined the Corporate Ex- ecutive Committee members bonuses in December 2010 based on results achieved for Stock-settled Stock Appreciation Rights (S-SARs) Stock-settled Stock Appreciation Rights were introduced on 1 January 2005, thus establishing a uniform system of remuneration throughout Roche. S-SARs entitle holders to benefit financially from any increase in the value of Roche s non-voting equity securities between the grant date and the exer- cise date. Awards are allocated individually upon the Remuneration Committee s decision at its own discretion. Detailed information is available on page 95 and page 98 to 99. Performance Share Plan The members of the Corporate Executive Committee and other members of senior management (cur- rently some 120 individuals worldwide) participate in the Performance Share Plan (PSP). The PSP was established in 2002 for periods of three years each and is based on a three-year comparison of the total shareholder return (TSR) with 17 competing companies 3. In 2010 there were three overlapping performance cycles, (PSP , PSP and PSP ) of which PSP closed on 31 December Details for the PSP calculation and addi- tional information are set forth in Remuneration of members of the Corporate Executive Committee, D. Performance Share Plan (PSP), page 95. Remuneration of the Board of Directors and the Corporate Executive Committee Each year the Remuneration Committee, which is entirely comprised of independent external members of the Board of Directors, sets remuneration for the

96 Remuneration Report Roche Business Report members of the Board of Directors and the Corporate Executive Committee (cash payments, bonuses, options, Stock-settled Stock Appreciation Rights and policy decisions about pension benefits). The terms of the Performance Share Plan are determined annually by the Board of Directors, acting upon recommen- dations from the Remuneration Committee. The Remuneration Committee continuously tracks salary trends in the market of the world s biggest pharmaceuticals companies 3 and reports to the Board of Directors. Information on this committee s remit, powers and its procedures for making remuneration decisions can be found in the Bylaws of the Roche Board of Directors 4. Following the revision of the remuneration policy including market comparisons with the world s major pharmaceutical companies 3, the Remuneration Committee has determined the bonuses and remu- neration of the Chairman of the Board of Directors, the members of the Corporate Executive Committee taking into consideration personnel changes. The following pages provide detailed information on the remuneration earned by each member of the Board of Directors and by each member of the Corporate Executive Committee for Remuneration 1.1 Remuneration of members of the Board of Directors In 2010 the members of the Board of Directors 5 received the remuneration in cash shown 4 article_of_incorporation.htm 5 For a list of members, their positions and their committee memberships and chairmanship, see page 83. Remuneration of members of the Board of Directors Remuneration 2010 (in CHF) Additional compensation 2010 for committee members/chairs 6 (in CHF) Additional special compensation 2010 F. B. Humer (see page 97 7 ) 50,000 (Remuneration as Chairman of the Board of Directors see page 97 7 ) B. Gehrig 400,000 8 A. Hoffmann 400,000 8 P. Baschera 300,000 30,000 J. I. Bell 300,000 30,000 W. M. Burns 250, ,000 L. J. R. de Vink 300,000 30,000 W. Frey 300,000 60,000 D. A. Julius 300,000 60,000 A. D. Levinson 250, ,000 A. Oeri 300,000 60,000 W. Ruttenstorfer 300,000 30,000 B. Weder di Mauro 300,000 60,000 Remuneration of former members of the Board of Directors Remuneration 2010 (in CHF) Additional compensation 2010 for committee members/chairs 6 (in CHF) Additional special compensation 2010 P. Brabeck-Letmathe 50, H. Teltschik 50, See page 94 6 With the exception of members of the Presidium and the Vice-Chairmen, Board members receive CHF 30,000/year for each committee they serve on and CHF 60,000/year for each committee they chair. 7 See G. Highest total remuneration to a member of the Board of Directors, pages 97 and Remuneration for serving as Vice-Chairman of the Board. 9 Prorated remuneration for the period from March to December Prorated remuneration for the period from January to March 2010.

97 94 Roche Business Report 2010 Remuneration Report in the table Remuneration of members of the Board of Directors on page 93 for their Board activities. Remuneration of all members of the Board of Directors will again remain unchanged for Beside the cash payments, the non-executive members of the Board of Directors were not awarded any shares, non-voting equity securities, Stock-settled Stock Appreciation Rights (S-SARs) 11, stock options or Restricted Stock Units (RSUs) in Horst Teltschik received honoraria amounting to 19,635 euros (27,096 Swiss francs) for serving on the boards of several Roche subsidiaries in Germany. William M. Burns received honoraria amounting to a total of 25,000 US dollars (26,000 Swiss francs) for serving as a member of the Board of Directors of Chugai Pharamaceutical Co., Ltd. Since his election to the Board of Directors of Roche Holding Ltd Arthur D. Levinson received payments for his consulting work and for his Board membership of Genentech amounting to 342,367 US dollars (356,062 Swiss francs). For 2010 the members of the Board of Directors received remuneration totalling 14,662,589 Swiss francs 12 (2009: 18,608,650 Swiss francs). No additional remuneration was paid to members of the Board of Directors. 1.2 Remuneration of members of the Corporate Executive Committee The general provisions assigning authority for decisions on Corporate Executive Committee remuneration to the Remuneration Committee and to the Board of Directors are outlined on pages 91 to 93 of this remuneration report. 11 See Stock options/stock-settled Stock Appreciation Rights (S-SARs), page See Remuneration of members of the Board of Directors, page 93. Remuneration of members of the Corporate Executive Committee A. Base pay in CHF Annual salary 2010 Annual salary 2009 Annual salary 2008 S. Schwan 3,750,000 2,875,002 2,283,340 S. Ayyoubi 1,100, , ,670 E. Hunziker 2,000,000 2,000,000 2,000,000 G. A. Keller 1,500,000 1,500,000 1,350,000 D. O Day 1,000,000 * * P. Soriot 2,000,000 1,246,878 * Total 11,350,000 * Not a member of the Corporate Executive Committee. Due to obligations from his former Roche assignment in the US, Daniel O Day received the following payments in 2010: Mortgage subsidy 15,000 US dollars (15,600 Swiss francs), for financial/tax service 9,796 US dollars (10,188 Swiss francs). Daniel O Day received in addition 82,415 Swiss francs for the schooling of his children. For 2010 the members of the Corporate Executive Committee received remuneration totalling 38,759,516 Swiss francs 13 (2009: 54,858,227 Swiss francs). B. Bonus All members of the Corporate Executive Committee will receive the bonus 2010 as a cash payment due for payment at the end of April On 31 December 2010 the Stock-settled Stock Appreciation Rights granted in 2006, 2007, See Remuneration of members of the Corporate Executive Committee, (A. F. and H.) excluding AHV/IV/ALV, page 94 to 98.

98 Remuneration Report Roche Business Report Bonus Bonus for 2010 Bonus for 2009 Bonus for 2008 Total (in CHF) Total (in CHF) Total (in CHF) S. Schwan 3,000,000 4,675,178 3,000,000 S. Ayyoubi 1,000,000 1,637, ,000 E. Hunziker 2,000,000 3,606,905 2,200,000 G.A. Keller 1,000,000 1,813,506 1,000,000 D. O Day 1,300,000 * * P. Soriot 3,312,500 ** 2,000,000 * Total 11,612,500 * Not a member of the Corporate Executive Committee. ** Including an additional compensation for the successful integration of Genentech amounting to 1,312,500 Swiss francs, paid in C. Stock-settled Stock Appreciation Rights (S-SARs) S-SARs (value in CHF 15 ) S-SARs (value in CHF 15 ) S-SARs (value in CHF 15 ) S. Schwan 3,559,911 3,559,849 2,225,542 S. Ayyoubi 1,068, , ,146 E. Hunziker 1,779,990 1,957,935 1,958,480 G. A. Keller 1,335,010 1,334,989 1,335,313 D. O Day 890,030 * * P. Soriot 1,779,990 1,401,735 * Total 10,412,953 * Not a member of the Corporate Executive Committee. 14 See Stock options/stock-settled Stock Appreciation Rights (S-SARs), page Black-Scholes value as described in Stock options/stock-settled Stock Appreciation Rights (S-SARs), page 98 and 99. Values for 2008 and 2009 according to Annual Report 2009, page 79. and 2009 most of which can be exercised, follow- ing the end of the vesting period in February 2010, had no value for the recipients. 16 Members of the Corporate Executive Committee additionally receive annual expense allowances of 30,000 Swiss francs, totalling 180,000 Swiss francs. D. Performance Share Plan (PSP) The members of the Corporate Executive Committee and other members of senior management (currently some 120 individuals worldwide) participate in the Performance Share Plan (PSP). In 2006 the PSP moved to overlapping three-year performance cycles, with a new cycle beginning each year. In 2010 there were thus three cycles in progress (PSP , PSP and PSP ); As in the previous year for the PSP , the PSP ended on 31 December 2010 without any awards of targeted NES. Under the provisions of this plan, a number of nonvoting equity securities have been reserved for the participants in each cycle. The number of se- curities actually awarded will depend on whether and to what extent an investment in Roche securities (shares and NES) outperforms the average return 16 See strike prices in table Stock options and S-SARs, page 101.

99 96 Roche Business Report 2010 Remuneration Report on an investment in securities issued by a peer set of comparator companies 17. Comparisons are based on the securities market prices and dividend yields, i.e. on Total Shareholder Return (TSR). To reduce the effect of short-term market fluctuations, security prices are averaged over the three months (October to December) prior to the start of a performance cycle and over the three months (October to December) at the end of the cycle. If Roche securities perform as well as or better than those of 75% of the peer set and, in addition, Roche s TSR increases at least 10% during a cycle, the Board of Directors can elect to increase the maximum NES award by as much as two-fold. In the event that an investment in Roche securities underperforms the average return delivered by the peer companies, fewer or no NES will be awarded. In 2010 NES were reserved under the plan for members of the Corporate Executive Committee as shown in the table below. The Board of Directors will decide on the actual level of NES or cash equivalent awards for the cycles and after the close of the 2011 and 2012 financial years, respectively. The aim of the PSP is to provide an incentive to participants to achieve steady value growth. At the end of the PSP cycle (based on a three-month moving average at constant exchange rates) with distributed dividends totalling billion Swiss francs (2008: billion Swiss francs; 2009: billion Swiss francs; 2010: billion Swiss francs), the TSR of the Roche securities (NES and shares) ranked #15, compared with its peer set of companies operating in the same in- dustry. Therefore, according to the terms of the plan, the participants received none of the originally targeted NES (see table below for details). E. Indirect benefits Employer contributions made in 2010 to social security schemes, pension plans and a Group-wide employee stock purchase plan (Roche Connect) in respect of members of the Corporate Executive Committee are shown in the table Indirect benefits in 2010 on page 97. Roche Connect is a voluntary stock purchase plan offering employees the opportunity to buy Roche non-voting equity securities (NES) up to an amount equal to 10% of their annual salary at a 20% dis- 17 See footnote 3, page 91. Performance Share Plan (PSP) Target number of NES for PSP Target number of NES for PSP No awards of targeted number of NES for PSP Total estimated value of PSP awards ( , and ) (value in CHF) No NES awarded in 2010 for PSP (value in CHF) 2009 No NES awarded in 2009 for PSP (value in CHF) S. Schwan 5,991 5, ,425 S. Ayyoubi 1,597 1, ,688 E. Hunziker 3,994 4, ,470 G. A. Keller 2,995 3, ,046 D. O Day 1, ,479 * P. Soriot 3,994 2, ,475 Total 20,568 16,036 1,671,583 * Not a member of the Corporate Executive Committee. 18 Total estimated value for 2010: PSP : none of the originally targeted NES awarded. PSP and : Estimated value calculated using the year-end price as of 31 December 2010, CHF per non-voting equity security (NES), based on the number of NES originally targeted subject to changes in the number and value of NES awardable under the plan on 31 December 2011 and 31 December 2012, respectively, and spread over the relevant period of time, i.e. ¹ ³ for the year The Board of Directors will vote on the actual allocation of NES originally targeted on 31 December 2011 and 31 December 2012, respectively, according to the TSR achieved.

100 Remuneration Report Roche Business Report Indirect benefits in 2010 Pension funds/mgb 19 (in CHF) AHV/IV/ALV 20 (in CHF) Roche Connect (in CHF) Payments for tax consulting services (in CHF) S. Schwan 456, ,284 89,588 8,827 S. Ayyoubi 986, ,919 3,000 6,118 E. Hunziker 622, ,889 50,004 6,225 G. A. Keller 529, ,250 37,500 D. O Day 304,350 56,524 7,294 5,918 P. Soriot 311, ,067 Total 3,209,803 1,199, ,386 27, MGB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing occupational pension benefits). 20 AHV/IV/ALV: Swiss social security programmes providing retirement, disability and unemployment benefits. count. NES purchased under this plan are subject to a holding period, which is four years in Switzerland. F. Other remuneration, emoluments and loans In 2010 pensions and two payments for tax consulting services totalling 2,118,892 Swiss francs were paid to four former Corporate Executive Committee members. Members of the Corporate Executive Committee have a maximum notice period of twelve months. In connection with the new company and personnel structure, members of the Corporate Executive Committee can receive compensation amounting to one annual base pay in case of termination of the contract by the company (termination through no fault and not based on lack of performance) until the age of sixty. G. Highest total remuneration to a member of the Board of Directors Franz B. Humer as the chairman was the member of the Board with the highest total remuneration for 2010 (see Remuneration of members of the Board of Directors, page 93). The Chairman s remuneration consists of base salary and bonus awards. As Chairman of the Board after the handover of his execu- tive function as CEO at the Annual General Meeting on 4 March 2008, he did not receive any additional S-SARs or NES from new PSP cycles and was no longer enrolled in any Roche stock option plan or S-SARs. According to the announcement in the Annual Report 2009, the Board of Directors reduced the Chairman s base salary in 2010 to 4 million Swiss Highest total remuneration to a member of the Board of Directors 2010 (in CHF) (in CHF) Salary Bonus Total 4,507,500 2,200,000 6,707,500 6,030,000 4,992,018 11,022,018 Pension funds/mgb 22 2,995,801 2,995,109 Roche Connect 75,000 75,000 Total (value) 10,033, ,353, For detailed calculation of the remuneration as Chairman and CEO for 2009 see Annual Report 2009, page MGB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing occupational pension benefits). 23 Includes additional compensation for Committee members (CHF 50,000), payments for tax consulting services (CHF 49,130) and Chugai advisory mandate USD 150,000 (CHF 156,000), not including employer contribution to AHV/IV/ALV (CHF 565,871).

101 98 Roche Business Report 2010 Remuneration Report Highest total remuneration to a member of the Corporate Executive Committee 2010 (in CHF) (in CHF) Salary Bonus Total 3,750,000 3,000,000 6,750,000 2,875,002 4,675,178 7,550,180 S-SARs (Black-Scholes value 25 at grant minus 11%) 3,559,911 3,559,849 Pension funds/mgb , ,941 Roche Connect 89,588 69,790 Estimated value of targeted (not awarded) NES according to Performance Share Plan 27 (* , , no awards/value of NES of ) Total 502,425 * 408, Total (value) 11,396, ,101, For detailed information see Annual Report 2009, page Black-Scholes value as described in Stock options/stock-settled Stock Appreciation Rights (S-SARs), page 98 to MGB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing occupational pension benefits). 27 Basic rules and detailed calculation see Remuneration of members of the Corporate Executive Committee, D. Performance Share Plan, page 96, footnote 18, respectively. 28 Includes an annual expense allowance (CHF 30,000), payments for tax consulting services (CHF 8,827), excluding employer contribution to AHV/IV/ALV payments. francs (as of 1 April 2010) and determined at the end of 2009 that his total remuneration, including bonuses, contributions to pension funds and ad- ditional compensation (expense allowance) will, depending on the achievement of objectives, not exceed the maximum amount of 11 million Swiss francs. The shareholders agreed to this maximum amount with the approval of the Remuneration Report 2009 at the Annual General Meeting on 2 March The effective total remuneration was 8.8% below of the determined maximum and 30.1% lower than H. Highest total remuneration to a member of the Corporate Executive Committee Severin Schwan as CEO was the member of the Corporate Executive Committee with the highest total remuneration for 2010 (see Remuneration of members of the Corporate Executive Committee, A. F., page 94 to page 97). No additional remuneration was paid to current or former members of the Corporate Executive Committee. 1.3 Security holdings Directors André Hoffmann and Andreas Oeri and members of the founders families who are closely associated with them belong to a shareholder group with pooled voting rights. At the end of 2010 this group held 80,020,000 shares (50.01% of issued shares). Detailed information about this group can be found in the Finance Report, Note 33 to the Roche Group Consolidated Financial Statements ( Related parties, page 129) and in the Note 4 to the Financial Statements of Roche Holding Ltd ( Significant shareholders, page 154). In addition, as of 31 December 2010 the members of the Board of Directors and persons closely associated with them and the members of the Executive Committee and persons closely associated with them held shares and NES as shown in the table on page Stock options/stock-settled Stock Appreciation Rights (S-SARs) At 31 December 2010 Franz B. Humer and William M. Burns (being the only members of the Board of Directors holding options and as of 1 January 2005 S-SARs due to their former positions) and the members of the Corporate Executive Committee held options and Stock- settled Stock Appreciation Rights (S-SARs; first

102 Remuneration Report Roche Business Report introduced on 1 January 2005) as shown in the table Stock options and S-SARs on page 101. All of the options shown in the table were issued by Roche as employee stock options. Each option entitles the holder to purchase one Roche non-voting equity security (NES) at a specified strike price at grant. The strike prices, expiry dates and grant values for options and S-SARs are shown in the table on page 101. The numbers of options and S-SARs as calculated at the time of issue have been entered as values in the table Remuneration of members of the Corporate Executive Committee, C. Stock-settled Stock Appreciation Rights (S-SARs) on page 95. Under the terms of this multi-year option plan, the strike price for options shown was the closing price for Roche NES on the last day of trading prior to the Roche Annual Media Conference. All of the options shown are non-tradable. One-third of the options are subject to a vesting period of one year, one-third have a vesting period of two years, and one-third a vesting period of three years. Unvested options lapse without compensation if employment is terminated voluntarily (for reasons other than retirement), while vested options must be exercised within a limited period of time. If employ- ment is involuntarily (layoff or redundancy, job elimination or reduction in force) terminated, granted but unvested options vest immediately and must be exercised within six months or they are forfeited. The fair value of the options is 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-year vesting period. The S-SARs shown in the table on page 101 were introduced by Roche on 1 January 2005 in place of stock options. S-SARs entitle holders to benefit financially from any increase in the value of Roche s NES between the grant date and the exercise date. The strike price for S-SARs under the terms of this multi-year plan was the closing price for Roche NES on the first day of trading after the Roche Annual Media Conference. All S-SARs vest within three years of the grant date: i.e. one-third vest at the end of one year, one-third at the end of two years, and onethird at the end of three years. Vested S-SARs must be exercised (converted into NES) within seven years of the grant date, and unexercised S-SARs lapse without compensation. The fair value of the options is 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 twoyear vesting period.

103 100 Roche Business Report 2010 Remuneration Report Security holdings (at 31 December 2010) Shares (number) NES (number) Close relatives security holdings (number/type) Others (number) Board of Directors F. B. Humer 3 197,215 S-SARs see ROGTPK Tracker-plus Cert. Zürcher Kantonalbank on Roche Genussschein (ROG) as underlying, Valor , ISIN: CH B. Gehrig A. Hoffmann * ,000 UBS Long/Short Certificates linked to Roche Bearer Shares/ Roche Non-Voting Equity securities (Valor: , ISIN: CH ) P. Baschera 1 J. I. Bell 300 1,647 W. M. Burns 3 79,254 Stock options, S-SARs see 1.4 L. J. R. de Vink 31,600 American Depository Receipts (ADR), RHHBY, US ISIN: US W. Frey 72,500 D. A. Julius 350 1,550 NES A. D. Levinson A. Oeri * 307, ,000 UBS Long/Short Certificate linked to Roche Bearer Shares/ Roche Non-Voting Equity securities (Valor: , ISIN: CH ) W. Ruttenstorfer 1,000 B. Weder di Mauro 200 Total 74, ,259 1,550 NES Corporate Executive Committee S. Schwan 3 35, NES Stock options, S-SARs see 1.4 S. Ayyoubi 3 12,213 Stock options, S-SARs see 1.4 E. Hunziker 3 62,458 Stock options, S-SARs see 1.4 G. A. Keller 1,253 31, NES S-SARs see 1.4 D. O Day S-SARs see 1.4 P. Soriot 2 6,314 S-SARs see 1.4 Total 1, , NES * Shares held by the shareholders group with pooled voting rights not listed.

104 Remuneration Report Roche Business Report Stock options and S-SARs Number of stock options and S-SARs held by current and former members of the Corporate Executive Committee on 31 December 2010 (S-SARs first issued in 2005) Total Corporate Executive Committee S. Schwan 154, , ,576 29,190 15,696 4, , ,114 S. Ayyoubi 46,335 43,842 21,117 3,243 2,517 3,957 2, ,371 E. Hunziker 77,223 96,450 92,907 48,651 26,160 34,074 20, ,380 G. A. Keller 57,918 43,842 63,345 24,327 15, ,128 D. O Day 38,613 21,762 20,133 10,269 5,856 96,633 P. Soriot 77,223 69,051 63,345 29,190 23, , ,636 Total 451, , , , ,105 43,014 25,139 1,592,615 Former Corporate Executive Committee members F. B. Humer None 31 None 31 None 31 48,651 52,317 42, ,557 W. M. Burns None , ,576 48,651 26,160 34, ,063 Strike price (CHF) Market price per NES on 31 December 2010 (CHF) Expiry date Grant value per option and (starting in 2005) per S-SAR in CHF (Black-Scholes value minus 11%) S-SARs. 30 Stock options. 31 As of 2008 Franz B. Humer does not receive any additional S-SARs. Franz B. Humer received stock options and S-SARs as a Member of the Corporate Executive Committee until As of 2010 Wiliam M. Burns does not receive any additional S-SARs. William M. Burns received stock options and S-SARs as a Member of the Corporate Executive Committee until 2009.

105 Corporate Responsibility In 2010 the Dow Jones Sustainability Indexes named Roche Supersector Leader in healthcare for the second consecutive year. Sustainability is at the core of our business practices and this positioning reflects our commitment to running our business in a way that is ethical, responsible and creates long-term value for stakeholders. During the year we made progress on our long-term diversity and energy goals and introduced new programmes to increase access to our products.

106 Corporate Responsibility Roche Business Report Corporate responsibility in brief We focus on developing new medicines and diagnostics that address unmet medical need and help patients lead longer, better lives. Discovering and developing these products remains our greatest responsibility. The nature of our business means we always think long term. It takes eight to twelve years to bring our medicines to market, so being sustainable is critical for our success, as well as for our customers, sup- pliers and partners. We aim to balance the needs of individuals, society and the environment in our work, and to be a rewarding employer that attracts talented people. Our values of integrity, courage and passion guide employees to do the right thing in their work. Our approach We focus on the corporate responsibility issues that are most relevant to our stakeholders and have the greatest potential to impact our business. We monitor our progress using key performance indicators (KPIs) for each issue. During 2010 we revised our KPIs to align them with our strategic framework, ensure they support our long-term business strategy and goals, and further integrate responsible behaviour throughout the business. The updated KPIs measure the value we create for four main stakeholder groups: employees, patients, investors and society. We report against several of these KPIs, plus additional performance measures, throughout this Annual Report and on our website. the sixth annual sustainability workshop, attended by sustainability experts from around the Group. Access to medicines and diagnostics and the value of our products and services remained high on the agenda this year, while a working group discussed our new KPIs. More on the Web Sustainability principles: CSC Charter: KPIs: Roche management of sustainability Board of Directors Corporate Executive Committee Board Committee for Corporate Governance and Sustainability Corporate Sustainability Committee (CSC) Core Team and Working Team In 2010 we were named Supersector Leader in healthcare for the second year running in the Dow Jones Sustainability Indexes (DJSI), in recognition of our commitment to sustainable practices. We use this index and other analyses to evaluate our performance, and to identify areas where we can improve or learn from others. Key material sustainability topics Managing corporate responsibility At Roche, corporate responsibility is an integral part of everyone s work and is coordinated by our Cor- porate Sustainability Committee (CSC), as shown in the diagram. The CSC identifies and assesses sig- nificant social, ethical and environmental risks and opportunities, and develops and revises corporate positions and guidelines on related topics. It met formally four times in 2010 and, in September, hosted A network of more than 150 colleagues from all relevant Corporate and Divisional Functions

107 104 Roche Business Report 2010 Corporate Responsibility Stakeholder engagement We aim to create value for our stakeholders through the medical benefits our products provide, our daily business activities, and specific activities with each group. We regularly seek stakeholders views when formulating business strategy, setting priorities including those relating to Corporate Responsibil- ity (CR), and throughout product development. We believe in two-way dialogue where both parties learn from each other. The table shows examples from 2010, and there is further information on our website. More on the Web Stakeholder engagement: Stakeholder engagement in 2010 Stakeholder group Examples of engagement Results of engagement Patients and patient groups Healthcare professionals (HCPs) Governments, regulators and industry Healthcare payers Employees Investors Suppliers and business partners Non-governmental organisations Communities Media Ran workshops for patient groups in several countries, including France and Germany Reviewed informed consent forms with patient advocacy group, EGAN Market research and needs assessment among HCPs in US and top five EU countries Virtual conference services for HCPs Participated in industry initiatives on topics such as biosimilars Developed guidelines for misuse of compounds with the World Anti-Doping Agency Worked with payers to develop methods to evaluate and compare the effectiveness of medicines Developed a pricing toolkit and computer models in association with payers Group-wide programmes to promote our strategic framework Ran management town hall meetings at major sites Attended over 70 investor meetings and conferences Worked with key suppliers to commit to our new Supplier Code of Conduct Began aligning supplier audit protocols with those of other PSCI members Worked with the Access to Medicines Index on its 2010 ranking Engaged with Amnesty International, Declaration of Bern and others on organ donation in China Donated time, money and expertise to causes such as AIDS orphans in Malawi and clean water in Uganda Contributed to local communities through initiatives such as Roche Genetics Education Programme Over 120 corporate press releases and trade news updates Better understanding of patients needs so we can help them manage their disease Consent forms easier for patients to read and understand Improved understanding of customer needs Over 3,000 HCPs participated in American Society of Clinical Oncology virtual conference Development of effective public health policies and regulations, and shared learnings Roche and WADA signed a memorandum of understanding Development of tools to assess costeffectiveness Improved understanding among payers of the value of our products and services Increased awareness and understanding of the strategic framework among the global work force Improved investor understanding of our business model, strategy and late-stage pipeline Minimised supply chain risks Extended supplier audits to business critical service providers (indirect spend) Ensure recognition for our access programmes Launched project with the Chinese Ministry of Health to establish an organ donation system Help to reduce health inequalities Maintain positive relationships with communities Support the next generation of scientists Maintain a positive media image and protect our reputation

108 Corporate Responsibility Roche Business Report Patients Excellence in science is furthering our understanding of the mechanisms of disease. We are using this knowledge to develop medically differentiated new therapies and help improve patients quality of life. Furthermore, by fitting treatments to patients and achieving better outcomes, personalised healthcare makes more efficient use of healthcare budgets. We can increase this contribution to society by: demonstrating the medical and economic value of our products helping to improve global access to healthcare running safe and ethical clinical trials ensuring patient safety building relationships with patients groups listening and responding to customers views. The value of medicines and diagnostics Healthcare payers have to balance medical need and clinical impact with the cost of new medicines and the allocation of scarce budgets. This has led to the development of a variety of methods for determin- ing appropriate coverage and reimbursement rates by examining the clinical, economic, social and ethical implications of a medical technology. These are broadly termed Health Technology Assess- ments (HTAs). Different providers use different HTAs, resulting in varying healthcare priorities, delivery and access levels. Our health economists and reimbursement managers work with national and local health authorities to demonstrate the economic and health benefits of our products and services within each healthcare system. We engage with payers and providers throughout a product s lifecycle, and provide guidance on how to assess the value of our products and services through evaluations such as HTAs. In markets such as the UK, we have developed models that assess the costs and clinical consequences of certain thera- pies compared with different treatment options, to help payers and healthcare providers make in- formed choices. We work with payers to agree pricing arrangements that suit their needs. Our approach considers a range of options for reaching a mutually agreeable price, such as volume-based and other discounts, price capping, cost sharing and payment by results. This work was particularly important for main- taining access to our products in 2010, when many governments focused on reducing healthcare budgets or restricting their growth, to help manage public finances. Our positions on personalised healthcare, assessing the value of our products and services, and pricing describe our approach in more detail and are available on our website. It is essential that payers can assess our products using objective, consistent and open processes, which consider the full cycle of care as well as clinical and economic value, for individual patients and for society. For this reason, we have a global department that sets and maintains prices for our portfolio, throughout the product lifecycle. It also ensures our clinical trials assess the cost effectiveness as well as efficacy. When setting the price for a new test or drug, we look at the medical benefit it provides, and compare its lifecycle value with the available alternatives. Many of our products help reduce treatment times and the need for surgery or palliative care, minimise hospital stays, prevent disease from returning, and speed patients return to work. The associated savings are also taken into account. Additionally, we consider local reimbursement models, population size and prevalence of the disease, and level of unmet need. Global access to healthcare The provision of healthcare is a shared responsibility, and lack of access to medicines and diagnostics is one of many systemic causes of healthcare inequality. Other barriers include lack of disease awareness, low levels of diagnosis, and limited healthcare infrastructure and budgets. We have an important role to play in tackling the global healthcare challenge. We work with governments, healthcare providers, the media, patient groups and non-governmental organisations (NGOs) to increase access and tackle these wider problems. Health needs in developing countries and emerging markets differ from those in the developed world. We create tailored programmes to boost access to our products, plus research and development (R & D) models for the discovery of new products for these regions. We are committed to finding sustainable

109 106 Roche Business Report 2010 Corporate Responsibility and impactful ways to make a long-term difference to healthcare. The illustration shows some of our programmes to increase access to healthcare, and there are further details on our website. Access for those most in need The World Health Organization (WHO) lists many of our drugs as essential medicines. These and our other products are available through doctors, hospitals, laborato- ries and pharmacies in over 160 countries mainly in those with established healthcare systems. However, around a third of the world s population does not have adequate access to healthcare. Poorer countries suffer the highest levels of disease and have the weakest healthcare systems. Many face a critical shortage of healthcare professionals and facilities, as well as low levels of understanding of the causes, prevention and treatment of disease. We aim to provide sustainable access to healthcare in these countries based on: Sustainable patent and pricing policies Partnerships with governments, NGOs and others Education, training and knowledge-transfer R & D into diseases with unmet medical needs. We have not filed or enforced patents for any of our medicines in the Least Developed Countries (LDCs) defined by the United Nations since In 2010 we expanded this policy to include the Low Income Countries (LICs) defined by the World Bank, cover- ing another six countries. In addition, we do not file or enforce patents for any antiretroviral HIV medicines in sub-saharan African (ssa) countries. We supply two HIV medicines at no-profit prices in the LDCs and ssa, and we provide these medicines at reduced prices in lower-middle-income countries. Valcyte, our medicine for AIDS-related cytomegalo- virus retinitis, is available at reduced prices for NGOled AIDS treatment programmes in the LDCs, LICs, ssa, and lower-middle-income countries. We focus on developing partnerships with governments and NGOs in these countries. Our aim is to estab lish programmes that raise awareness, train healthcare providers, and improve infrastructure. This approach increases the capabilities of healthcare systems so they can start to sustainably meet patient needs. This increases access to healthcare, and 40 new drug leads selected by OneWorld Health to investigate as potential new treatments for childhood diarrhoea 47,000 patients received free medicines through the Genentech Access to Care Foundation 19,500 1,100,000 infants tested for HIV through the AmpliCare Initiative employees participated in the annual Children s Walk to support care centres and provide educational opportunities for AIDS orphans in Malawi, as well as local community activities develops new markets for our products and services in the longer term. In 2010 we joined forces with the International Atomic Energy Agency (IAEA) to launch EDUCARE, a major new programme to improve cancer care in Africa. Cancer kills more people each year in devel- oping countries than AIDS, malaria and tuberculo- sis combined, yet there is very little oncology investment. The programme is establishing an online university offering comprehensive training in several areas of cancer management, and a network for doctors to share knowledge and experience with their peers. Roche is providing financial support, con-

110 Corporate Responsibility Roche Business Report ,000, countries where Roche does not file or enforce patents for any of its medicines treatment courses of anti-influenza medicine Tamiflu donated to WHO for countries most in need, two sublicensing agreements reached and the Tamiflu Reserves Programme established for developing countries 3 12 months employees can go on secondment to contribute their skills and expertise to help make a difference in health services in LDCs 83% of HIV-infected patients eligible for no-profit or reduced-price Roche medicines 45,000 people reached each year in rural South Africa by the Phelophepa Healthcare train 13 4 AIDS technology agreements reached with companies in LDCs and ssa for on-site technical help to manufacture generic versions of Roche s HIV medicine saquinavir pilot countries selected for online university courses in oncology under the EDUCARE initiative in ssa, in partnership with IAEA 450 2,000 children supported in ssa in monitoring their diabetes through a partnership with Novo Nordisk s Changing Diabetes in Children programme orphaned children given primary healthcare plus other services and assistance through Re & Act and support to the UNICEF & ECPP AIDS Orphan programmes sultation and expertise. In 2010 we identified suitable sites for pilot programmes in Ghana, Zambia, Tan- zania, and Uganda, where we will begin training programmes in We also have a number of programmes for increasing access to diagnostic tests. We are a partner in Novo Nordisk s Changing Diabetes in Children programme, along with the World Diabetes Foundation and several African governments. More than 450 children in Africa were enrolled in the programme by the end of They received education in diabetes care and access to insulin and diabetes supplies provided by Roche. We also help to train healthcare workers, patients and their families. In 2010 we took part in workshops for healthcare workers in Cameroon and Uganda, and participated in the Diabetes Leadership Forum Africa More than 260 participants from 32 sub-saharan African countries attended this event, to discuss the appropriate response to the increasing burden of diabetes and other non-communicable diseases in Africa. A number of our partnerships improve research into neglected diseases of the developing world. For example, in 2010 we launched a research fellowship together with the WHO s programme for research and training into tropical diseases (TDR), the Gates

111 108 Roche Business Report 2010 Corporate Responsibility Foundation and the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA). This fellowship gives researchers from developing countries first-hand experience of state-of-the-art processes and techniques, to help improve their research and clinical development expertise. Roche ranked sixth in the 2010 Access to Medicines Index, an independent ranking of 20 research- focused pharmaceutical companies based on 106 indicators. We are pleased with this score, partic- ularly as the index focused on diseases outside our areas of specialty, and so did not take into account our EDUCARE cancer initiative or diagnostics access programmes. Access in emerging markets Improving healthcare standards in middle-income countries present a substantial market opportunity for Roche. The market research agency IMS estimates that by 2012, the value of emerging markets will equal roughly 80% of US market value and exceed that of Western Europe. Our emerging markets strategy focuses on speeding up regulatory approvals and supporting market development, primarily in major emerging economies such as Brazil, China, India and Russia. Every country s healthcare system is at a different stage of development and has different needs. We work with governments in each country to help establish appropriate policies, processes and programmes, such as disease awareness, local clin- ical trials and training for healthcare professionals. We also develop specific pricing programmes for individual emerging markets, where many patients cannot afford long-term treatment for diseases Boosting cancer care in Morocco In Morocco, our partnership with the Lalla Salma Association Against Cancer (ALSC) has helped increase cancer awareness and access to treatment, and led to the launch of the first national cancer plan. This plan includes the construction of new cancer centres, expanded screening programmes, and education and awareness initiatives. We also partner with ALSC to provide access to our cancer treatments for the eight million Moroccans living below the poverty line, who otherwise fall outside the healthcare system. ALSC buys the drugs at a much reduced price, and Roche donates the money received to help strengthen healthcare infrastructure in the country. In ,300 cancer patients received free treatment as a result of this partnership. Our efforts are paying dividends, as the market for cancer treatments has more than quadrupled in the last five years. At a special ceremony in November 2010, Roche accepted the International Award from Princess Lalla Salma for our efforts. such as cancer, hepatitis C and rheumatoid arthritis. In 2010 we negotiated commercial access programmes in middle-income countries for our hepatitis drug Pegasys, as well as for our cancer drugs Avastin, Herceptin, MabThera and Tarceva. For example, India has a high hepatitis C infection rate, coupled with low levels of diagnosis and limited Impact of our HIV access programmes HIV-infected patients living in countries eligible for no-profit medicines HIV-infected patients living in countries eligible for reduced-price medicines 68 % 83 %

112 Corporate Responsibility Roche Business Report access to treatment. Counterfeit medicines present further challenges. Our Pharmaceuticals and Diagnostics Divisions have set up screening camps, blood banks and dialysis clinics to help overcome these problems. We have also engaged supply chain security experts Kezzler to provide encryption software that enables consumers to verify that their medicine is genuine when they buy it, using their mobile phone. Cost-assistance programmes are available in India based on the recommendation of the treat ing doctor. As a result of these combined efforts, the number of patients receiving Pegasys and our cancer drugs has dramatically increased. Access in the developed world Even in countries with advanced healthcare systems, many people cannot afford treatment or the insurance to pay for it. In the United States, Genentech helps patients to access our medicines, regardless of their ability to pay. Genentech Access Solutions helps insured patients navigate the complexities of health insurance coverage by explaining what their policy covers and what they need to pay for, and by helping them find payment support programmes where possible. In 2010 we assisted more than 107,000 people. The Genentech Access to Care Foundation (GATCF) provides free medicines to uninsured and underinsured patients who meet certain financial and medical criteria. In 2010 GATCF provided free medicines to more than 47,000 patients. Safe and ethical clinical trials Clinical trials are essential to demonstrate that new medicines are safe and effective and that diagnostic tests provide useful data. They also provide important information about the cost-effectiveness of a treatment and how this improves quality of life. In addition, trials provide participating hospitals with educational, financial and medical support, and give patients access to the latest therapies. Patients receive free treatment during the trial, and until the drug is available through the healthcare system if no approved alternative exists. We have strict policies and processes to ensure the safety, well-being and legal rights of people taking part in clinical trials. In addition, we do not perform trials in countries where we do not plan to market the medicine being tested. We incorporate the Inter- national Conference on Harmonisation (ICH) Good Clinical Practice (GCP) guidelines into our clinical trial programmes, and train, monitor and audit all those involved to ensure compliance. In 2010 we revised the information we provide to patients taking part in Roche trials with help from the European Genetic Alliances Network (EGAN), to make it clearer and easier to understand. Clinical trials Number of clinical trials 1,429 1,552 1,596 Number of healthcare centres involved 30,006 31,447 29,886 Number of patients in phase I IV clinical trials 327, , ,674 Roche and Genentech. People can search for clinical trials to take part in or learn from the results of completed trials at As of 31 December 2010 the website contained details of 842 protocols and 385 trial results. These studies cover more than 100 conditions including Alzheimer s disease, asthma, around 30 cancers, cardiovascular disease, depression, diabetes, hepatitis, HIV/AIDS, influenza and obesity. The website had 194,241 visitors in Details of our clinical trials are also available through the International Federation of Pharma- ceutical Manufacturers and Associations (IFPMA) clinical trials portal, and the US National Institutes of Health s global registry. We store biological material used in clinical trials, such as tissue, organs, blood and other bodily fluids, in human specimen repositories, or biobanks. This material is invaluable for learning more about diseases and exploring possible treatments. They also contain sensitive information about the person providing the sample. We are dedicated to protecting donors privacy and ensuring they are fully informed about how their sample and data will be used before they agree to take part in a trial. We apply equally strict measures to all personal data about customers, suppliers and employees, in line with our directive on the protection of personal data.

113 Can I handle Disease area Oncology Indication First-line metastatic colorectal cancer Trial AVEX (Avastin in the Elderly with Xeloda), MO19286 No. of patients 280 fully recruited No. of study sites 54 No. of countries 10 Daisy D., St. Michael s Hospital, Oncology Clinical Research Group, Toronto

114 this? Jane A., Senior International Clinical Trial Manager, Roche Basel

115 Phase IV clinical trials with Avastin in advanced colorectal cancer Creating value for patients means doing post-approval trials so an effective medicine can benefit an even wider population Increasing the number of patients who can benefit from Avastin Duration of treatment ML18147 (TML) ML20907 (CAIRO3) ML21768 (AIO0207) 2012 * * * 760 ML19033 (NordicACT) 2012 * 249 MO18420 (DREAM) 2013 * 640 New chemotherapy combinations ML21662 (TRIBE) 2014 * 450 Avastin MO19286 (AVEX) 2012 * 280 MO18725 (OLIVIA) 2014 * 80 Special populations * First results expected Number of patients in trial Nearly a million patients have been treated with Avastin since it was first launched in 2004, and this breakthrough cancer medicine is being developed further in an extensive clinical trial programme. Cancer treatment is constantly evolving as oncologists try new drug combinations. Phase IV clinical trials, conducted after a medicine has entered the market, can generate valuable new insights, even for a drug as thoroughly studied as Avastin. Phase IV trials provide important additional information on safety and efficacy in the real-life setting of routine oncology practice, and on the use of Avastin in special populations, such as the elderly. Many phase IV trials are further evaluating Avastin in patients with metastatic colorectal cancer. Some are designed to determine the optimal duration of treatment, while others are investigating new combinations of Avastin with other medicines.

116 Corporate Responsibility Roche Business Report Organ transplantation In 2010 an NGO raised concerns that organs used in two Roche clinical trials in China may have been harvested without consent, and possibly from executed prisoners. The trials into the use of the immunosuppressant CellCept in organ transplants involve 298 patients at 16 accredited transplant centres, and are being carried out to establish whether the standard CellCept dose will safely and effectively prevent organ rejection in people of Chinese origin. For clinical trials in China we follow the same scientific, medical and ethical standards as in all other countries. We support a worldwide ban on any use of organs from executed prisoners, as well as on the death penalty. However, as in many countries, Chinese legislation prevents pharmaceutical companies from determining the origin of transplant organs. We will complete the two trials but have no plans to carry out further transplantation trials in China at this stage. Any future trials will continue to adhere to the Declaration of Istanbul on Organ Trafficking and Transplant Tourism and the WHO Guiding Principles on Human Cell, Tissue and Organ Transplantation. We contributed to changes in Chinese legislation in As a result of these changes, the number of transplants from living donors has increased. Efforts to introduce a system for people in China to sign their consent to donate an organ are also having a positive effect. We strongly believe that organ do- nation by freely consenting donors is the most effective way to contribute to an ethical and sustainable solution in this area of medical practice. We welcome all support in this area, to improve the situation for patients in need of organs. Patient safety Any medicine may cause side effects in some patients. Our priority is to make sure the benefits outweigh the risks. We have robust processes in all countries to monitor how patients react to our medicines. We regularly analyse medicines against various reference databases to help us spot poten- tial safety risks. All products in clinical development have a safety management plan, and all marketed medicines have a risk management plan reviewed and approved by major health authorities. We investigate all reported side effects to find out whether our product caused them. If there is a link, we re-evaluate whether the benefits of the medicine or test still outweigh the risks. We also have procedures in place to promptly inform patients, physicians, healthcare providers and regulators of any new product safety information. We update product labelling and information with new safety information as required and, when necessary, write to healthcare providers with updated advice on the use of our products. We have a strict product recall process to ensure we can withdraw products rapidly on the rare occasions that quality problems do arise. In 2010 there were no recalls involving the public. Patient advocacy Transparency is essential when pharmaceutical companies partner with patient advocates. We declare our patient group partnerships on our website, along with a short description of the partnership s activities. We also declare significant or meaningful non- financial support, as guided by the European Fed- eration of Pharmaceutical Industries and Associations (EFPIA). Our position statement and guidelines for working with patient groups describe our approach and are available on our website. Patient groups are important partners for Roche. They give us insight into the challenges facing patients and their families, and share our interest in helping patients to understand and manage their condition. Examples of our patient advocacy in 2010 include running workshops in Frankfurt, Germany, and Brussels, Belgium, to help patient groups improve the support they provide people living with disease. In

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