Roche Holding AG

Ladies and gentlemen, welcome to Roche House Year Results 2020 conference call. I am Sandra, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Severin Schwan, Chief Executive Officer. Please go ahead, sir.

Thank you. A warm welcome to all of you joining us for our half-year briefing. Let me get right into the summary. As you have seen, we had really a significant impact of COVID-19 in the month of May, which was really due to... the lockdown, the fact that patients couldn't see their doctors anymore and hospitals were really focusing in on COVID-19. As a result of that, treatments were delayed, routine diagnostics was delayed, and it shows up in our results. The good news is that since June, sales have been strongly recovering and we see this trend to continue into July. I should also point out that largely we are on track for readouts and also pivotal trial starts and we also are on track to launch three new molecular entities this year as planned. Very importantly we see continued good growth momentum for our newly launched medicines offsetting the biosimilar erosion which Of course, as expected, has been particularly strong in the United States. So new products up by 37% in pharma. Shifting to diagnostics, on the one hand, we had a similar impact like we have seen in pharmaceuticals. Patients not visiting their doctor, not going to the hospital. As a consequence, of course, routine testing down. On the other hand, we have seen very strong demand for our molecular COVID-19 tests and that has been compensating for the decline in the routine testing. We continue to ramp up test manufacturing capacity and we hope for good growth actually in the second half in diagnostics because we see the routine business returning and then of course we have this additional growth from the molecular testing side. We also have a number of additional COVID-19 tests to be launched in the coming months and Thomas will touch on those. So if we go right into the numbers on a group level for the first half, 1% up, diagnostics with 3% and pharmaceuticals with 1%. On the next slide you see the quarterly growth again 4 percent for the second quarter and let's look a bit deeper into the sales development during the second quarter and what you can see is that the growth started to slow down in April but it was still holding up but then it really declined significantly by 15 percent in the month of May and again This is entirely driven by the lockdown of the health care system and also the fact that we as Roche have a special focus on specialized medicines, which are typically and very often administered in a professional setting, where you would depend on infusion chairs, for example, or where you would get an injection by the health care professional. You see then, and that is really comforting, that healthcare systems have adapted. For a certain time, there was only a focus on COVID-19. In the meantime, there's a new equilibrium where healthcare systems are again ready for patients who suffer from other severe diseases such as cancer, autoimmune diseases, etc. And we see this immediately reflected in the pickup of sales. And as I said before, this trend continues into July. Here on the left-hand side of the chart, you see the regional split, and that's pretty much in line with expectations insofar as that we are returning to growth in Europe and international, where you know, biosimilars entered earlier. A big portion of that is behind us, and now we benefit from the new products. And, of course, in the U.S., it's just the other way around, where biosimilars have only entered this year. And accordingly, sales are impacted. And then on top, of course, we see the COVID-19 effects again. That is also reflected on the right hand side. You can see an overall impact of the entry of biosimilars of 2.1 billion decline in sales and that is more than compensated by the newly launched products with about 2.5 billion in the first half. That of course then also reflects in the share of the new products which is now getting close to 40 percent and that trend will certainly continue over the coming quarters. Here again a summary of the progress of our pipeline. Bill will certainly cover this in more detail. Just to say that we had an exceptionally strong progression of our pipeline in the first half 2020 which also continued into the second quarter. So that's really important for the long-term perspectives because that would typically not show up in the numbers. So that's really good to see. As far as profitability is concerned, we can keep our margins. In fact, at constant exchange rates, profitability even increased slightly higher than sales developments. And that brings me to the outlook. There is still a lot to come in terms of pipeline progression, both in terms of new molecular entities this year, as well as important pivotal trial starts. And as I mentioned earlier, there is a number of new COVID-19 tests being launched for the remainder of this year. So based on the strong recovery we have seen in June and also based on what we have seen in July, we confirm our financial outlook, which we gave at the beginning of this year, that is low to mid single-digit growth on the top line and EPS to grow in line with sales. And on that basis, we should be able to further increase the dividends And with this, I hand over to Bill.

Thanks, Severin. So it was a remarkable first half in many ways for us. I think we were very pleased that in the midst of everything else going on with COVID, biosimilar impacts, that we were able to make tremendous advances in the pipeline. But at the same time, the fact that we were able to keep all our facilities running at full scale, at full volume, and we actually had one of our highest halves ever in terms of the percent of our medicines that were delivered on time in full. And so we're just so proud of everyone who's been working around the clock to make that happen and keep our patients in good supply. This slide, you know, just sort of tells the picture. as we started talking about this slide, I think several years ago, and the need to replace what would be lost in sales on AHNR with the pipeline. And you can see the core products in blue and sort of the newer franchises outside of oncology in sort of peach color. It's a long list and it continues to grow. And we had a lot of great progress in Q2, including the US approval of Dicentric in liver cancer. We had a positive Phase III result for IPAT in prostate cancer, and we look forward to the triple negative result with the patocertib. End spring, we now have our first approvals in Canada, Japan, and Switzerland in neuromyelitis optica spectrum disorder. Rizdiplam, we had the Part II results. This is the larger study confirming the impact of Rizdiplam in Type I SMAs. And again, look forward to a very rapid approval there. And then SPARC announced the longer-term follow-up data on their gene therapy for hemophilia A with a nice sustained result on factor VIII. So we also had FESGO approved, and that's the fixed-dose combination of Progetta plus Herceptin, and made continued progress with a number of other molecules that I will mention in the presentation. If I was going to summarize, you know, the overall result, I mean, we did have quite a strong COVID-19 impact, as Severin mentioned, due to the fact that most of our products are administered by healthcare professionals. And especially the month of May, I mean, people just stayed home. In Europe, in the U.S., in China, it began even earlier. And basically, you know, new initiations, new therapy starts, and a lot of existing patients delayed infusions. And so that was a really tough month. But we've seen a very good recovery beginning in early June and continuing through this day. And so we're really encouraged to see that. We've had strong results in immunology. I'll talk about more. The launches are on track. So we were concerned that we might have significant delays in filings or in reviews. But so far, that looks good. And in addition, we brought in, via partnership with Blueprint, Pralsetinib, which is also now on schedule to launch in 2020. So that's excellent to have a third new molecular entity to launch in the year. Our pivotal readouts have remained on track, and most of our studies are going. We've had a few delays in early trial starts, but it's been really remarkable how we've kept progress ongoing. And obviously, we're pleased at how we've weathered the storm so far, The ultimate impact will depend a lot on the length and severity of the pandemic. But we also see the health care system adapting, and we see hospitals and doctors, clinics, figuring out how to make sure that patients do get treated. And so we're confident that we won't see another month like May, and that makes us quite optimistic for the rest of this year and going forward. This is the breakdown by geography. You can see the overall growth of 1%. The U.S. at minus four, obviously that's our biggest market, but I'd say it's a pretty remarkable result when you consider that we had biosimilar launches in the last 12 months on all three of the biggest products. We had quite significant deterioration on those three products and the COVID impact, and we were able to basically deliver 96% of the sales of the prior half of 2019. I think actually all in all a pretty good result considering Europe at five despite COVID, Japan with biosimilar impacts at minus two, and then the rest of the world delivering a strong 11% growth in the midst again of the pandemic. So overall, not what we were hoping for at the beginning of the year, but we hadn't heard of COVID yet. And so I think we're pretty pleased at where we landed and what it means for the quarters ahead. In terms of the P&L, I think this has really evolved consistently with what we've been saying that our intentions are. In terms of royalties and other operating income, you see that down a bit due to Kibili. We think this is pretty much the last of that, and it's a relatively small impact. On the other hand, cost of sales down $600 million. That's really an excellent result, and it reflects a couple things, including the fewer write-downs. versus the first half of 2019. But it also includes significant cost savings measures that we've been taking over the last three or four years as part of our transformation, and we hope to see more positive trends like that in the years ahead. On M&D, we said we wanted to hold M&D flat, and that's exactly what we've done. And we've done that so that we can continue to invest in our world-leading R&D, which we also did. at 7% increase. And then GNA, it's a relatively small number, a larger percentage, but this really is, it's basically all Spark, FMI, and Flatiron, and some things that, you know, just with the acquisition of Spark that came in. So this is not a trend. So overall, we're able to deliver a 2% core operating profit on 1% sales growth, and I think, you know, reflects a tight financial management. This is the outlook on the portfolio sales. And essentially what you can see is the large bars on the bottom, the biosimilar impacts, and particularly in the U.S. with Europe and Japan also playing a role. We had a total biosimilar impact in U.S., Europe, and Japan of about 2.1 billion. Sorry, I should say that's biosimilar plus COVID impact of 2.1 billion. We originally had predicted a biosimilar impact of about $4 billion for the year, and we now think that the biosimilar plus COVID impact will be maybe around $4.7 billion a year for those three geographies. But it's a bit of a moving target on the COVID part. But we've seen the biosimilars come in with, I'd say, pretty much in line with what we thought, a little maybe on the heavy side. but the COVID impact was an additional one. So oncology sales were down 6% with the COVID impact being offset, sorry, COVID impact and biosimilar impact offset by growth in a lot of areas. Van Clexta growing in AML and CLL, Gaziva continuing to penetrate in CLL and first-line follicular, Polivi continuing gains there, and then Ticentric, which I'll come back to. If I Look at it by franchise. So the HER2 franchise, you see down 12%. Again, that combination of biosimilar impact on Herceptin and some COVID impact. But what I think is interesting to see here is that you see now that Cadsila and Progetta sales are actually larger than Herceptin, that Herceptin, which was about two-thirds of sales just a couple of years ago, is now down to a little over 40%. and really continued momentum there with Quetzila penetrating in early breast cancer and Progetta continuing to penetrate around the world. I mentioned the approval of the fixed-dose combination of Fezgo, and this is really what the impact of that is. So we demonstrated that this sub-Q fixed-dose combination is equivalent to the combination or the separate infusions of IV of Herceptin and Progetta And what you can see is we basically cut the infusion time, which ranged from 2 1⁄2 to 7 1⁄2 hours down to 20 to 40 minutes. So it's a pretty substantial benefit for women, especially on the early breast cancer regimens where they're only receiving, for most of the period, they're only receiving H plus P, not chemo. So basically it's a big change in what that experience looks like. We're now rolling that out in the U.S., and look forward to further approvals. Also in breast cancer, this is now in the HR-positive, HER2-negative space. We've got what we believe is potentially a best-in-class SIRD, which is really important because this is an established MOA where the current products don't really allow adequate dosing, and so We know this plays a meaningful role in breast cancer, and we believe we've got a molecule that's both very potent and also very well tolerated. And this was on display at the ASCO virtual conference. But what you can see on these charts is on the left in monotherapy and on the right in combination with palbo, really nice responses shown. And these are women with metastatic breast cancer with two or less lines of previous therapy. So it's a significant impact in an area of high unmet need, and we're moving forward rapidly. We're already in phase three testing of this compound. In hematology, what you see is a decline, mostly driven by the biosimilar uptake on abthera, rituxan. The bars don't tell the whole story, because with Van Clexta, the revenues that we share with AbbVie, we get that through a different line in the P&L and the other income line. And so if you included that in, you'd be a lot closer to the 1.5 billion bar, which was sort of the historical benchmark. And so I think we continue to demonstrate in hematology through a number of molecules that we're able to maintain our leading position. I want to mention a couple of those that are coming. And this is our two CD20, CD3 bispecific antibodies. I know it's a little complicated to keep track of because I think up until recently, we thought that we would be very happy to have one of these antibodies. But it turns out they have very different profiles. And what we find is with MOSIN, which we're developing in follicular lymphoma, I mean, this is a very efficacious and well-tolerated alternative for those patients that have exhausted the early line options. And we look forward to further development and bringing it into earlier line, but we think we've got the ability to file this data and we're hopeful that we can achieve an accelerated approval. But you can see, I think maybe the statistic that's most impressive to me is that 83% of patients remain in complete remission for up to 26 months off of the therapy, so after coming off of therapy. And when you think about that for third plus line patients, that's a major benefit, and also for a well-tolerated medicine. On GloFit, we have also, I think, quite a remarkable result. If you look at the higher dose cohorts, the response rate of 50% and complete response rate of 34% in patients the second and third and later lines of DLBCL. So this is really excellent data. We look forward to hopefully discussions, productive discussions with regulators about accelerating the approval of this one as well. Moving on to T-Centric. So we've had a nice consistent sales curve. Again, unfortunately, a bit impacted and disrupted by COVID in particular. there was a decrease in new patients coming in and seeking therapy. And so when you have a rapidly growing product, you're more affected by a disruption in the healthcare system. But what we see here is continued gains in areas like non-small cell lung cancer, which is the biggest indication, but also small cell lung cancer and TNBC, where we're beginning to penetrate around the world. As I mentioned, we've received approval for the first-line liver cancer indication now in the U.S., and we filed in the EU and China, and we're working with regulators in both China and in the EU to really speed that approval because it's an excellent benefit. And I'm pleased to say we're already seeing the sales curve in the U.S. coming up and the demand growing, both with the COVID recovery but also having that new liver cancer indication. So looking forward to continued growth of T-Centric. Also in the cancer immunotherapy and lung area, we announced the results at ASCO of a second, sorry, a phase two study of tiragolamab, sorry. We've usually been calling it anti-tigit, but this is a novel cancer immunotherapy mechanism of action that is additive to the benefit of checkpoint inhibitor, which is a really exciting gain because I think many of us have been waiting now for seven or eight years for the thing that's going to really boost the checkpoint inhibitor and cancer immunotherapy to the next level. And we're pretty excited about the phase two data that we've seen. We saw excellent results in phase 1B. We ran this study. This is the result in the high PD-L1 expressors. You see a hazard ratio of 0.3, so a 70% reduction in progression of disease or death. And so we're super excited about this. We've already begun phase three studies in non-small cell lung cancer, small cell lung cancer, and we are commencing phase three studies in a number of other indications that are not yet named. But stay tuned for more on that. Very, very promising molecule. Moving over to immunology. So this was a mix of things. We had probably the hardest thing was the biosimilar impact in rituxan. So rituxan was down about 34% year over year. But in a number of other areas, a really strong result. Esbried and Zoller, despite considerable competition, maintaining growth, and Actemra up significantly based on its continued sales in autoimmune conditions, but also its use in treating patients with COVID-19 pneumonia. And we'll have results on the Covactive Phase 3 study of Actemra in C19 very soon. Neuroscience, starting with Ocrevus in MS, So Ocrevus was disrupted in two ways by COVID-19. First was the general disruption in the health care system, but also because there were questions about immunomodulatory agents in autoimmune conditions like MS and potential complications with COVID-19. We're pleased that so far we've been looking at our pharmacovigilance work and a number of international registries And so far, we don't see anything of particular concern there. And I think now physicians and the MS community is, I think, sort of getting through those concerns. But what we've seen since the month of May is a very strong recovery for Ocrevus. We see good results in terms of patients getting infused, and we look forward to Ocrevus being back on the growth track in terms of quarter-over-quarter growth. beginning with Q3. Still in neuroscience, really excited about the ris de plam, the part two results of the firefish study. And so this is the larger study that confirms the earlier results seen in a small number of patients. And so, you know, keeping in mind that these are babies who would ordinarily either die either die or have to be put on ventilators by the age of about 13 months. And so we initiated these babies, I think, a median between five and six months of age. So they had already had significant disability, significant accrual of damage. And with Rizdiplam, we were able to deliver really remarkable results with a convenient oral once-a-day formulation. So 29% of these babies were able to sit up by the 12-month point. Very significantly, and this means a lot in this area, 95% of infants that were surviving were able to swallow after 12 months of treatment. And that's a big deal from a practical standpoint and their ability to thrive. And you can see a number of other endpoints here. But we are looking forward to approval. The PDUFA date is in late August. And the FDA has worked really great partners in terms of trying to speed this therapy for these babies and their families. Moving on to the hemophilia A franchise. So this is Hemlibra. We're now up to 23% total US patient share. As you can see, the sales declined a bit quarter over quarter in Q2. However, what we see in terms of patient initiations and that dynamic is essentially what's happened is that we're keeping the existing patients But new patients, particularly in the U.S., that dynamic of patients going in to see the doctor and to get a change of therapy was really disrupted by COVID. And what happened was in March, when the patients saw the COVID-19 happening, in a lot of cases they got extra doses because it's a self-administered product. And so Some of what you see in Q1 is some stocking at the patient level, which was then bled off over Q2. So we think what's actually happened is the number of patients has stayed relatively stable, and we think that with the sort of return to a more normal setting in health care anyway, not that the rest of the world will all be back on track, but health care, professionals are figuring out how to see patients in the midst of COVID, and we're looking forward to resuming growth with Hemlibra as well. Oh, I should have mentioned, also in the hemophilia A space, so SPARC, as I said, they went to the ISTH virtual congress about a week ago and showed their updated data on patients with up to two to up to 3.3 years of treatment on the gene therapies on 8011, which is their lead candidate for hemophilia A. And, again, the safety profile looked quite good, and we were really pleased to see a nice, stable expression of factor VIII. And so we were very optimistic moving forward with our partners at SPARC and excited to welcome them to the Rochefold and see what we can do for patients with hemophilia A. This is late-breaking. I think probably many of you saw last night these results were released at the ASRS virtual Congress. And it's a really exciting day because we've been working on alternative delivery systems for ranibizumab, Lucentis, for at least 15 years. This was our latest and best effort, I think. It's a small compartment about the size of a grain of rice that's surgically implanted into the vitreous of the eye, and then it can be refilled. So it's a one-time surgery, and then it's refilled once every six months. And the chart you see is a comparison of monthly injections of ranibizumab versus the six-monthly refill of the port delivery system. And essentially, you see identical efficacy. And what this is really about is the ability for patients to get two doses a year and have really a full protection. Because what happens in the marketplace today is patients will get monthly or bimonthly injections, but then after six months, 12 months, a year, they start to fall off and they're only getting three or four injections a year and they're losing their vision. And so what we hope to do is deliver really long-term solution that's both convenient for patients, but really maintains their vision. And so we're hoping to file this by around the end of the year, the beginning of next year, and look forward to bringing this to patients very soon. And just a reminder, we have the rights to the ranabizumab port delivery system around the world, so we plan to launch it in major countries around the world very soon. So this is sort of the summary, and you can see we hope to have four NMEs counting Fesco, The fixed dose combination this year, which is a modern times record for us. In Q2, our sales of the new products was up to 39%. And I think it's just a testament of what we continue to do and deliver. And we're really proud of all our folks in product development and research and the folks that deliver the products and manufacture them and that we've been able to keep this going in the midst of the pandemic. I want to make sure I invite all of you to our Roche Pharma Day. This will be our virtual Pharma Day, and it's going to be on September 14th. So you'll get to hear from a number of those people, the very people who are delivering this pipeline, and get to ask more questions and learn more about the program. So I look forward to seeing you all there. And then finally, this is the late stage news flow. I do want to mention the red Xs. You know, we take risks. We're pioneering. I don't think there's any company that has more pioneering products than we have, and with that comes some failures along the way. So Adasa Nutlin, we took straight from Phase 1B to Phase 3. It didn't work out in AML. We hope we'll be able to yet deliver more Good news for people with AML, but unfortunately, IDES and NUTLIN is not going to be it. Ticentric plus Avastin in ovarian cancer, this was something that we really anticipated with a lot of hope, but we knew, again, it was a significant risk because ovarian cancer thus far had resisted attempts to tackle it with checkpoint inhibitors. We thought maybe the addition of Avastin would do it, but unfortunately that wasn't the result. and Balavaptin in autism. Again, really pioneering the first of a real clinical trial of this sort in autism. But alas, we'll have to keep working on it. But overall, there were 11 significant progressions on the chart already this year, and we've got a number of more important ones to go for the rest of the year. So we're looking forward to that. And with that, I'm going to hand it over to someone who's maybe the busiest person in the world in the first half of 2020, our head of diagnostics, Thomas.

Thank you. Thank you very much, Bill. And yeah, welcome everyone to today's conference call. Yeah, the first half year growth has been pretty good with more than 3% growth. Actually, it's pretty much in line with what we had expected for the first half year. although the mix has been very different to what we would have expected in the beginning of the year. And you basically see two stories here. One is around more of our core business of centralized and point of care, but also in tissue diagnostics and diabetes care, where we had significant impacts in Q2, but also some of them were already in Q1, but mostly in April and May, with major lockdowns happening across the world. A lot of routine testing, checkups, all the surgeries, everything was postponed. And talking to a number of doctors, at least on the European side, they were told to postpone all the surgeries to make sure that they would be ready for COVID. But actually, the impact was not as high as they had thought. And so there was actually not that much going on in hospitals at that time. So the impact overall was really significant in that time period with 20-25%, but this was compensated by molecular diagnostics. And I'll show you a bit more about the molecular diagnostics business in a second. But really, if you take just Q2 in molecular diagnostics, it grew more than 100%. So really driven by our COVID-19 PCR portfolio, which is needed to identify infections. Looking at the different regions, you see North America doing very well with 13% growth. EMEA, Latin America, where we would expect them with 5% to 6% growth. Now, in EMEA and LATAM, you can say that the impact in the second quarter due to COVID-19 that was negative kind of equaled out the effect that we had on the positive side with the PCR assay. In North America, the downturn of the routine business was not quite as severe. plus also the diabetes care business did better in North America than in EMEA that time. Now, what's a bit different of a story is Asia-Pacific. And Asia-Pacific was really hit much harder, much earlier, specifically in China. China had a negative growth in the first half year of minus 17%. And specifically in February and March, we had already early lockdowns in China. And in March itself, the decline of our core business was minus 50% just in one month. So really significant. And I remember I was asked by a lot of people at that time, do I believe that the same effect will be in other parts of the world in terms of the magnitude? I said no, because in China, you don't have a primary care segment, which means that if someone wants to go to the doctor, they don't have a GP that they can go to. They have to go directly to the hospital. And obviously in China during that time, all the hospitals were also focused on COVID solely. So really that made the downturn that significant. And at that time, we still didn't have as many PCR tests as we have available right now. So this is a bit the story between the different regions. Now, taking a closer look at the different business areas, clearly you can see immunodiagnostics down 12%, clinical chemistry down 14%. Also in diabetes care and tissue diagnostics, you see those declines. And this is really the delay in checkups, in normal diagnostics that you would do, which is actually quite concerning because cancer doesn't stop just because of COVID. And obviously there are a number of people that have not been diagnosed of cancer, because they simply couldn't go to the hospitals and everyone was focused on COVID. Now, looking at molecular diagnostics, you see the significant growth. And molecular diagnostics, you have a number of different businesses that are in this area. One is blood screening. Another is cervical cancer screening. But also other infectious diseases like HIV, hepatitis C. All of those saw a significant decline in the molecular business in the second quarter. Again, very concerning if cancer is not diagnosed early, and this could have potential negative impacts also in the future for these patients. On the other hand, you see virology and the light mix systems growing at 115% and 171%. Within virology, we book our high-throughput assay, but there are also other assays like, for example, HIV and hepatitis C booked in there. Now, if we look at Q2 alone, we had approximately 200% growth in virology, despite the fact that we had actually a decline in the other parameters. Within the LightMix 6 systems, which is more the low-throughput portfolio, just looking at Q2 alone, we had a growth of 250%. So you can see the significance of that effect. Now, as mentioned earlier by Severin and Bill, April and May were definitely the harder months, but really in June we saw already extremely good growth on the diagnostic side because you see the routine business slowly coming back, and also for the first weeks of July we see very good growth. So I'm confident and optimistic that as the routine business is coming back and we have the continued upside, on the COVID portfolio that we'll see a very good second half of the year. Now, looking at our P&L, again, growing more than 3%. On the top line, we have really delivered, I would say, on the bottom line, with more than 9% growth on the cooperating profit side. And this was done through good cost control measures. Now, going down line by line, on the cost of sales, we had an increase of 5%. there were really three factors that were contributing to that. One is we had significantly more hardware sales in the first half year, actually twice as many as we would have normally in the molecular business. We had also more depreciation because of that. And the last point was really the distribution cost because we had to charter a number of flights during the time with the lockdown periods. Normal flights would not leave. It was very hard to get products into the different countries. So we had to charter flights to make sure that we could get product there on time to help patients. M&D, significant reduction, minus 6%, good control of our operating expenses. R&D, this is where we want to invest. We're investing in innovation. We've developed a lot of new products in the first half year. This really drove that. And G&A is only a very small number. So this has really contributed to the very good growth on the core operating profit side. Now, so what have we launched in the first couple of months this year on the COVID-19 or SARS-CoV-2 diagnostics portfolio? We've actually managed to launch seven different products that support this global pandemic in fighting this pandemic. Importantly is our molecular solutions portfolio because this is needed to identify active infections. The TILMOL-BO light mix modular SARS-CoV-2 assay was launched already in January. And remember, I mean, the sequence of the virus was only known in January. So these are really records that are being broken in order to help patients and society out there. Plus, on that platform, we actually enable a lot of tests also from other companies. On the high-throughput platform, we were the first to get emergency use approval. And this is obviously the 6800 and 8800, and it's under huge demand globally because there's no system out there that can do as many tests in such a short period of time as these systems. We have in development and will soon launch a multiplex assay on the high-throughput systems, which can then differentiate flu A, flu B, and the SARS-CoV-2 virus. This is obviously important as we get into the flu season in the Northern Hemisphere to make sure we have a differential diagnostics between influenza and this new virus. We are also going to launch the same multiplex assay on our point-of-care system, the LIAT. That's about the size of an espresso machine. And you see the cartridges just left to the machine in which we then deliver these assays. And here we are also very close to bringing that to the market. Antibody assays are also... important to fight this pandemic for multiple reasons. One, to really understand the immunology and how the immune system responds to this virus. Also to understand, are people really immune? For how long are they immune? And also to really understand the prevalence. And early May, we launched our nuclear capsid anti-SARS-CoV-2 assay, and I'll talk about that in the next slide. It will soon launch a second assay, and I will also talk about that on the next slide. Alexis IL-6 is used to identify the levels of interleukin-6 in the body. Interleukin-6 is an inflammatory marker looking at the potential of cytokine storm, increased inflammatory response. Do people need to get ventilated and moved into the intensive care unit? On the right-hand side, in point of care, you see that also we will be launching a rapid antibody assay in the near future. We have a number of digital solutions that we have launched. Let me just pick one or two. The Navify Symptom Tracker, this is a solution that helps healthcare professionals to stay in contact with patients that are not hospitalized but are infected with COVID-19 and to monitor their situation And if the situation deteriorates, if the patient deteriorates, they can then act quickly and bring the patient to the hospital. The Roche VTEC Algo for blood gas, I think, is also extremely innovative and very important also in this setting. The patients that are hospitalized and ventilated, they need to have the blood gas taken quite often to see how the oxygen levels are doing in the patients. And normally you would do that by puncturing the artery, which is below the muscles and has a very thick membrane. And so it's very painful for patients and also very difficult for physicians to take the blood gas and actually takes quite trained physicians to do that. With this algal, we can take venous blood from the veins. and actually convert that into blood gas values from the artery, which makes a huge benefit to patients. So let's take a closer look at the antibody assays. As mentioned, we've launched a Lexis anti-SARS-CoV-2 assay, which is targeting the nucleocapsid in early May. And this is really a sandwich assay. So it's not using an indirect method with some of the other tests are using, which means that we're really selecting for mature antibodies, because mature antibodies are corresponding to neutralizing antibodies. We've confirmed the excellent performance through internal as well as external studies, as shown on the slide, and also we have done some print analysis, which kind of looks at the neutralizing effects of the antibodies in an in vitro setting with live cells, but it's an in vitro setting, and was a very good correlation to our antibody assay, which is important because, obviously, you don't want to infect, reinfect patients and do kind of in vivo experiments. So this is the gold standard on how to assess that. Now we are going to bring to market another assay, which is targeting the spike proteins. And furthermore, this assay will be a quantitative assay, and today there is no real quantitative assay on the market. This will be important in the context of vaccines, because you will need to monitor the level of the antibody in the blood. And we also see that most likely the two tests will be used in combination. And of course, if you have it on the same system, you can take it from the same blood sample. It's a huge benefit. There will be a combination of the two because we see patients, most of the patients develop antibodies against both proteins from the virus, but some only against nucleocapsid and others only against spike. So there will be likely a combination to give even better understanding. Now there has been some data, although very small numbers, that have shown that antibodies vein over time, so reduce over time, And a lot of times there is discussion, so does that mean that people will not be immune after a couple of months? What we know from also the immune system is that we have memory cells, and these memory cells, once they're triggered again with another exposure to these viruses, they then trigger antibody production much faster in a much more effective way, which means that these people then don't have such a severe reaction. But there's a lot still to be learned about this virus, and clearly these antibody assays are very important to truly understand that. In fact, we're in discussions with many of the leading vaccine companies who want to use both the nucleocapsid and the spike antibody assay from us. Within the molecular diagnostics area, we brought Cobus Prime to market in Q2. And Cobus Prime is really, really unique. Now, if you look at the normal core labs, you have them completely automated. But this is still not the case within molecular labs. And that's why in many cases you see the turnaround times of the COVID tests not being the same that you would expect because there's still a lot of manual intervention. In fact, with the 6800 and 8800, those systems are fully automated. That means you can put the samples online. on to the system, in the evening you can go home, the next morning all the samples are done. There's no other system out there that can do that. In other systems you always have manual interventions. But what you have always to do, depending on the vials that you get, the sample types, is potentially unscrew and kind of treat the samples. Now with the pre-analytics that we have, you can handle all kinds of molecular sample types. This is the first of its kind. No other company in the world has such a solution. This is a huge step forward to really automate the molecular lab. And this obviously reduces manual steps significantly, but also errors and gives with that more confidence in results. Within the tissue diagnostics business, we've launched two CIVD algorithms. with whole slide analysis. One is for PD-L1. The other one is for HER2 dual-ish. This is important because, and these algorithms were trained by leading pathologists and it's using artificial intelligence. It's important because to give really standardized and good answers in terms of expression of these different genes, you really need... you know, to use more modern technology. The eye alone cannot read it to the same level of accuracy. Specifically, also, if you tend to multiplexing, as we'll go into more in the future, visual pathology will play just a huge, huge role. Overall, we are on track in 2020 with all our launches. Obviously, this slide does not include any of our COVID portfolio where we've launched already seven solutions. And we'll launch another four in the near future. So really, the team has done a fantastic job to manage through this very difficult, really once in a lifetime pandemic in a really, really good way. And if someone would have told me that our core business would have been impacted in Q2 by 20 to 25% in April and May, I would not have thought that we would be able to compensate that with products. that we didn't even know in January that we would develop. So this is a huge performance of the organization, and I have to say I thank all the employees and their families because many of them have not seen their family for the last weeks and months. So overall, doing very well on the portfolio and going to launch a number of additional assays in oncology, infectious diseases, and diabetes, and we'll continue to work on building out and making sure that we have the best pipeline in the industry. And with that, I hand over to Alan.

Thanks, Thomas. I agree, by the way, with Bill, that you're the busiest, one of the busiest guys in the world, especially on the diagnostic side. I totally agree with that. But I think really, how should I say it, kidding, but on the other hand, I think we all have been very busy. I think when I look at Sarah and when I look at Bill, I think it has been outstanding months, and not just for us, I think for the company as a whole. And I would like to take the opportunity to thank everybody for the contributions that we have made to patients in that period. And Thomas keeps saying this is perhaps the period where we have been even closer to our purpose, doing now what patients need next than ever before. And it's amazing to see that. So let me jump into it. I think the highlights, I will tap basically on all of these points. You might see the point on cash flow. I will talk about that. Happy with the financial result, I will talk about it. IFRS net income up 3%. I know that's redundant, and Saren has talked about that slide. Nevertheless, I wanted to take it as kind of a hook, as an intro into what I would like to say. And you see the momentum that we have had. But I think let's be honest here. I think it started really in March in China, where we had the first impacts on the diagnostic side in the routine testing. And then in April, I think really the US and Europe came into play. And then Latin America followed. And therefore, I think we're all glad to see the rebound in June, which basically started end of May already, but really got more pronounced in June. And it got even more pronounced when you look at July. When you look really at sales, I think My colleagues did a great job in explaining the sales and how that looks like. Let me first refer to the Swiss franc impact that we have seen as the Swiss franc has strengthened basically against every currency. You see really we have a minus really before every figure that you see in that change to percent in Swiss francs. So let's look really at the constant exchange rates. You see the cooperating profit up 2%. Margin relatively stable. I will talk about that good cost discipline. The core net income really up 3%. Here, really, the text comes into that. I will talk about this. Core EPS, and you see a slowing momentum, and you might ask yourself, why is that? Well, sugar, I had a tremendous first half from a profit point of view. So I think when we take that out and that momentum, we get to the plus 2%. IFRS net income, we'll talk about this. And then you see where the income packed on the cash flow, which at least in my opinion is not concerning, as we have invested quite well into our future business. Good. Let's go first. And here's the bridge about the core EPS development. And let me really refer to the point first. We have grown the core EPS in constant rates by 1.9%. And you see that operations contributed over proportionally with 3.6 percentage points. So a couple of things evidently went against us. And let me lead you through this. First point is the gains on product disposals, which went against us. And that's simply the fact that we have less product disposals done in the first half of 2020 compared to the first half, 2019. The difference is $305 million. Now, you might ask yourself, okay, what's going to happen with that difference? Are there any further deals in the second half? And that's how it looks like. We think we can compensate around $200 million in the second half to close that gap that we have seen in the first half. Royalties and other operating income is the next topic to talk about. And here you see a positive contribution compared to last year. And this is we had a couple of settlements, I think, when Clexa plays into this quite nicely. So I think that helped us out quite a bit here with more than $100 million. And then you see the gains on equity security, pretty balanced. And we have a couple of things. And you know we have here market-to-market valuation. But that means when we have a participation in a company traded out there, I think we certainly follow the stock price. So very happy with that result. And then we have the taxes. We had a couple of resolution of tax disputes in the first half of 2019. And that also happened in the first half of 2020, relatively balanced. And you see it here. So let's say both halves really benefited from relatively special impacts. Good. With that, let's go to the P&L. And I think the P&L is testimony first to what we have promised at the end of the year. 2019, that we would like to shift funds into R&D, and we have started to do so. And you see it already here. Sales, I skipped. You see the royalties and other operating income. Here is really the switch between the gap on the product disposals and, let's say, the other impacts, positive impacts that we have had. The cost of sales, I think Bill explained it, I think went down $620 million in pharma alone. So what you see here is really a saving of $484 million. compared to the first half of 2019. M&D, $80 million coming from Thomas and from diagnostics, positively pretty flattish when it comes to pharma. R&D, that's where we have invested in. But you see really with the savings, we even overcompensated that. And then we have G&A, which is a relatively small number, admittedly, compared to the others. Nevertheless, there is work to do. We have roughly $80 million from the new acquisitions with Spark, FMI, and Flatiron. Let me also emphasize that Spark is something we have consolidated new. So I think that's an add-on here of roughly $50 million. And then we have really prepared our shared service centers to really contribute to further transformations in the future. So we're going to see that happening in the second half. Overall, cooperating our profit up by 2%. I'm very happy about this. When you look at royalties and other operating income, I think you see really that the number went down from roughly $1.3 billion to roughly 1.1 billion. That's the block on the right-hand side. And you know we had this topic of Kibili, which is the first red bar, for quite a while. We lost last year on Kibili alone on that line, 700 million. I think now we're down to minus 75 million. The good news is that that's basically the last substantial impact that we're going to see, or let's say the last substantial negative impact that we're going to see from Kibili. So I would say that story is behind us. royalty income, others. I've talked about that couple of settlements. Outlicensing income and other operating income very much driven by Van Clexta. And then once again, the point about the product disposals. I see a very happy with the margins in constant rates, very stable, partially even increased. Let me outline here that the gross margin has improved from 80.5% to 81.8%. So I think we are really trending into the right direction here. The core net financial result, first you see here an improvement of roughly $25 million, which is a good thing. Equity securities I've talked about already, pretty balanced with everything we have ongoing there. Net interest rate income small, a couple of impacts from funding costs in the U.S. dollar on the FX line. And then you see the interest expenses, which is a significant improvement, certainly also due to the bond redemptions that we have done in the second half of 2019. So with all of that, I think really this is moving into the right direction. Yeah, tax rate and the group core tax rate, to be precise. We came from a low base in half year 2019 of 16.7%. And we even decreased that a little bit to 16.5% at half year 2020. And as said, in both half years, we had really resolutions of tax disputes, which contributed positively to the development of the group core tax rate. I think for the second half, what I expect is really a group core tax rate of about 18%. When you look at the effective tax rate, you might have seen that this increased from 14% to 16.9%. The 16.9%, by the way, very near to the group core tax rate. And here, certainly, we had an impact last year from the revaluation of deferred tax asset based on the Swiss tax reform. Here are the non-core items very quickly through that. Cooperating profit up 2%. I've talked about that. It's a starting point. Global restructuring plans a little bit less compared to last year. But let's say it's not like that COVID has been a major slowdown for our transformation programs. They will go on. And as we've said, I think we want to contribute to the improvement of the P&L, putting more into R&D and saving on other cost lines. amortization of intangible assets, stable impairment of intangible assets. Let me outline here. We had a couple of impairments last year. We have this year an impact coming from Spark because of the delay of the HEMA program. So we have a small impairment in here. We have M&A and alliance transactions, pretty stable. And then legal and environmental, here we have a positive impact coming from a release of a provision of an old court case referring to a product called Accutane That case is over, which is great after a long period. So we could release a provision here of 350 million U.S. dollars. Do you see the IFRS profit going up 6 percent? Then the total financial result and taxes deteriorating by 200 million. And that's the effect that I've explained before coming from the Swiss tax reform that we had last year. So the IFRS net income all in is increasing by 3 percent. So let me move to cash. You see really here how it looks like cash goes down. I think diagnostics developed differently and has improved. They had less spent on the intangible assets, but foremost, they improved operationally. When you really look at the bridge here, and you see we have quite a deterioration from $7.5 billion operating free cash flow to roughly $5 billion at half year 2020. It all starts with the operating profit net of cash adjustments, and here really Accutane once again comes into play because suddenly there is no cash impact. We just released a provision. The loan is $350 million. It basically explains that. Then you see the net working capital increase by more than a billion, and this is very, very much driven by inventories, which I think is basically a good message because, well, we are preparing for the new launches on the pharma side, so I think that's a good thing to have. On the other hand, We have ramped up inventories on the diagnostic side when it comes to instruments, and I think that's very healthy in the current environment, and we are very sure this will convert into cash. And then you see PP&E here. This is a little bit more investment coming from Shugai as they ramp up their new R&D side. And then you see the investments in intangible assets, which have increased by $610 million, and I think that's really where we're putting the money where our mouth is. And this is foremost, really, investments that we have done in intangible assets on the pharma side. So I would say, well, OK, there's a deterioration, but I think we are moving in the right direction with all the investments that we have done. And what that means to net debt is pretty clear. On the right-hand side, you see the net debt situation end of June 2020, minus 8.8. We deteriorated a little bit by 400 million. I would say that was very much triggered by the investments in intangible assets. And you see where we're coming from year-end 2019, minus 2.5. Certainly, I talked about the operating free cash flow. We had a little bit on taxes and treasury. And I have to say, we will have higher tax payments in the second half. And then we've paid the dividend, which is certainly the major impact here. And that led to the net debt position end of June 2020. Balance sheet, I don't want to go through everything here. Basically, we had a tradeoff between cash and marketable securities. You see the reduction of roughly $6 billion. And with that, we reduced liabilities. Very quick comments here on other current assets. What happened here, the accounts receivables went up. And don't forget, the balance sheet is really now compared to the end of the year 2019. That certainly looks different in the cash flow. as the cash flow is a change-for-change comparison. But here the accounts receivables went up $800 million, and inventories went up, as mentioned already. Other non-current assets, the intangible assets, went up by roughly $600 million, as you've seen in the cash flow. And then really when you go to the right-hand side and to the liabilities itself, certainly provisions went down, as you can imagine, the current liabilities as well as the accounts payable. The non-current liability is pretty stable, and you see a relatively stable equity development. With that, let's go to currency. And that's not a great picture, I admit. But as long, I think, as we look at the P&L, I feel pretty OK. Certainly, cash is the major point I'm looking at. And you know we have a pretty good natural hedge all over the world. So I think I feel good with that. So this exposure is more for reporting purposes. You see, really, the impact at Javier with minus 5 percentage points on sales, minus 7 percentage points on the cooperating profit. and minus 8 percentage points on the core EPS. And when we really keep the exchange rate stable at half year and then project the currency impact at full year, you see basically there is no change of the impacts. But we all know this is a model and a very static model, and we're sure that the reality will look different at the end of the year and hopefully better. I think really here's the outlook confirmed. You've heard from Bill that we have changed a little bit our view on the biosimilar impact, including the COVID impact, which I think is a very important point here. Nevertheless, I think we keep the guidance and confirm it and feel very comfortable with that. And with that, I think we're happy to take your questions. Thank you so much.

Yeah.

I'm sorry, sir.

No worries. I just wanted to thank all the speakers. It's Carl speaking. Just to give you a kind of an update, we have 800 people on the web. We have 120 people over the line. So it's over 900 people. So that's a great interest, which is good, but which also poses a bit of a problem because we have also a long list of questions. I also can see it from the system. So if you maybe could kindly restrict the questions to one question per person, and if we could make sure that we give short answers, and not too long ones that would also be good so that we can have at least a bit of a chance to work through the questions we received. And with this one, Severin, I would like to hand it over to you. And if there is an online question, I will just step in and read it then to all of us.

Excellent. Thank you, Karl. Can we have the first question, please?

The first question comes from Vimal Kapadia from Bernstein. Please go ahead.

Great. Thank you very much for taking my question. So you've currently given up the growth rate by a month at the group level, but could you provide us the details for growth in pharma and diagnostics by month? And tied to that with the diagnostics, you suggested some level of return in June normality for routine testing. So is it fair to say that for the remainder of the year growth rates could be significantly higher than the month of June when we consider the increased PCR and antibody testing? Thank you.

Right. So perhaps I can give a first shot at it. We don't disclose the growth rates now on a divisional level on a monthly basis. But what I should say is that diagnostics typically is always a little bit ahead of the curve because first people get diagnosed and then they get treated. And we have seen this also on the monthly sales development. So, for example, the impact in China was a bit earlier on, and we see a similar pattern here for diagnostics over the months. And actually that gives me also confidence for the second half of the year because as diagnostics is an early indicator, that kind of is a positive signal on the pharma side as well. But overall a good trend actually for both divisions, diagnostics and for pharma. On the diagnostic side, clearly there is a certain upside potential because we see the routine business coming back and as far as the molecular diagnostics business is concerned, there is no doubt that we will sell anything we can produce over the next half year. So we should actually see a very positive momentum on the diagnostic side due to molecular testing.

Great. Thank you very much.

Can we have the next question, please?

The next question comes from Sachin Yahin from BML. Please go ahead.

Hi. It's Sachin Jain here from Bank of America. Just a quick follow-up to the last comment. Could you just remind us of where your testing capacity is for both molecular and serology and how adoption is running relative to that capacity for the two separate tests? And then one quick one for Bill on the pharma gross margin. You gave us some color on the improvement year on year. Can you talk to the sustainability of the existing levels?

Thanks. Okay. So we are not communicating. our detailed capacities. But I can say that really the vast majority of the sales impact you have seen from COVID-19 is really from molecular testing. So there is a much lower effect from antibody testing. Part of it is also because those antibody tests are very cheap. and there is less of an adoption, less of a penetration due to the uncertainty around immunity, et cetera. Having said that, we do believe that antibody testing is very important. It helps you to follow the pandemic, the evolution of the pandemic. It's valuable information to take public measures. And actually, antibody tests will get more important as soon as vaccines will be available. So it remains an important contribution to the crisis. But if you look at the financials, both in the half year and what they expect for the full year, it's really driven by molecular diagnostics.

And regarding the margin in pharmaceuticals and how sustainable it is, we actually think based on both the product mix and the continued productivity improvements that we're making in manufacturing, that it is sustainable and we might even make some gains over the coming years.

Next question, please.

Thank you. The next question comes from Joe Walton from Credit Suisse. Please go ahead. Mr. Walton, your line is open.

Joe, might it be that you are on mute? And perhaps we can go to the next question, please.

The next question comes from Emmanuel Papadakis from Barclays International. Please go ahead.

Thanks very much. Second question, Emmanuel from Barclays. I missed Carl's instruction. I'm not sure how many questions we have. I'll take two. That's okay. Decentric and liver, you alluded to the initial signs of an uptick, it doesn't seem to be particularly visible in current U.S. weekly prescription trends. So perhaps you could just talk about your confidence and the size of commercial opportunity we should be thinking about there for the second half of the year in the U.S. And then maybe one CD25 statistics. You talked about having two rather than the absolutely expected one. It seems like as soon as this map is being positioned in FL, glifitamab, and DLDCL, you could just talk about why you think those are particularly, if that's true, those are particularly well suited to those two indications. And then on glycytomab, it sounds like your confidence in an accelerated approval is perhaps somewhat lower. Actually, you could just talk about the degrees of optimism there and timing. Thank you.

Bill, over to you. Great.

Yeah, so with respect to Ticentric in liver, liver cancer is more common in Asia, for sure, than in the West. but there's still a significant unmet need. We think that the range may be 300 to 400 million peak sales in the U.S., and we have every reason to believe we'll achieve a good penetration in that based on the really high efficacy of T-Centric plus Avastin. And so, yeah. We could be at the higher end of the range within, you know, 18 or 24 months. In terms of the question about the two anti-CD20, CD3 antibodies in, oh, and sorry, let me just clarify. My answer about Ticentric, I'm talking about U.S. sales, but we do plan to get approval in Europe and China even yet in 2020. So the total sales potential is, we think, well over a billion in liver cancer. On the CD20, CD3 molecules, yeah, they do have very different properties. Glufitinib can be dosed in combination with rituxan because it's a two-to-one antibody receptor format, and so it allows it to compete with rituxan. That gives it additional opportunities in terms of other lines of therapy. As monotherapy in late line, where we are right now, it's very efficacious, which other therapies, including Mosin, we haven't seen that level of efficacy in the relapsed DLBCL setting. But it is a little harder to manage because you have a little more of the cytokine release syndrome. It requires more careful management, which wouldn't be, well suited to use in follicular lymphoma. Follicular lymphoma, you tend to have an older population, and patients are not able to tolerate the same level of adverse events. And there you're really looking for something to extend life, extend progression-free survival. And Moson is very well tolerated. of the T-cell bispecific antibodies, you know, it's exceptionally well-tolerated. So basically that's the difference. You have sort of a really strong efficacy, but a more potent medicine on the DLBCL side. On follicular lymphoma, you've got something that gives you a really nice extension of life and disease-free life, but also well-tolerated.

Thank you. In terms of timing,

Oh, sorry. Yeah, on timing, we're in active discussions on both molecules. I don't wish to signal any diminished confidence in glufitinib. It's just we're a little further along in the discussions on MOSIN. And I think it would be hard to speculate on timing, but we would hope to have sufficient data now to pursue accelerated approvals. It's just a matter of the time it takes to kind of work through that with the regulators and file. Thank you.

Good. Can we have the next question, please?

The next question comes from Andrew Baum from CT. Please go ahead.

Thank you. First question on your serology COVID-19 SARS-CoV-2 diagnostics. When should we expect to have validation in a clinical trial? that ITG levels are a biomarker for COVID immunity. I assume such trials are already underway in healthcare workers at high risk of exposure. And then second question, and forgive me if I've missed it, but I don't think Roche is prosecuting any therapeutic antibodies against SARS-CoV-2. I find that, if correct, somewhat surprising given the bioengineering competence you have at both Roche and Genentech. Can you just perhaps help me understand why Roche isn't participating down that particular approach, if I haven't or missed it?

Thomas.

Yeah. So first, around the serology SARS-CoV-2 assay. As mentioned, we have launched already the assay against the nuclear capsid protein of the virus. And here we have some neutralizing studies that are in vitro setting. Now you have also, you know, of course, patients that are being followed on a longitudinal way. And what appears to happen is that people do lose antibodies over time. And, of course, that asks, that then poses the question, will vaccines actually work if you lose antibodies in such a period of time? And the immune system is quite complex, and there are T cells and there are B cells, and basically they have a certain memory of immunity. So even if antibodies wait over time, it could be that these antibodies then get reactivated, or this development of antibodies gets reactivated because of this memory, and that people are protected then afterwards. So a lot of these studies are ongoing. But, I mean, this is really a very novel virus that's behaving very differently than, for example, also the first SARS virus that appeared in Asia in the early 2000s. I mean, their antibodies stayed for more than two years. And so although the sequence is very similar, the behavior of the virus is very different. Maybe I just wanted to add to the question before on the routine testing. I mean, we definitely see a good return of the routine testing, but we're still not back 100% to the level where we would have been before the COVID time. But it makes us very optimistic because we see the upside of the PCR assays, the antibody assays, and all the things that we're launching, including also expansion activities. But it's clearly not back 100% to normal yet. And even in China, it's not back to 100% normal.

Hi, Andrew. Regarding therapeutic antibodies for SARS-2, you're right. We've been very close to this field, and it's something that we're very interested in. Our assessment was that we would focus our energies on Actemra and a number of other immunomodulators, and we've got an antifibrotic. So we actually have Actemra studies, but also studies of three or four other molecules in the clinic, including a couple of experimental products. And then we've also discussed how we could partner with others that are making therapeutic antibodies. There's numerous companies doing that. And so we may yet do that. And basically our goal with respect to COVID-19 is to use all of our capacities, research, development, manufacturing, in whatever way we can maximize our impact on the crisis. So stay tuned for more.

Maybe a kind of a gentle reminder that we may have one question per person and short answers, so otherwise you have no chance to get through. Thank you.

Very good. Can we have the next question, please?

The next question comes from Tim Anderson from Wolfie Research. Please go ahead.

Thank you. I have a question on a pipeline drug that you didn't mention, but you pay tribute to in your slide deck, which is your Tau MAB. It's in a randomized, fairly large, placebo-controlled Phase II study, nearly 500 patients. Efficacy is the primary endpoint. ClinTrial says it should have completed in June, so I'm assuming that means we'll hear results on that in the second half. I know it's only phase two, but it seems large enough and long enough such that you could potentially see an efficacy signal, or is that unrealistic? And what do you need to see out of that trial to advance to phase three? Could it just be biomarker engagement, or do you need to see an efficacy signal?

Yeah, thanks for the question. It's something we are still hoping to see data this year on, and we're really excited about the program. As to what we would need to see to move it forward, I mean, it's a little hard to say because it is a phase two, and in Alzheimer's, you know, but I think we would be looking for at least, you know, really some compelling biomarker evidence and hopefully some hints about clinical advocacy.

Thank you.

Next question, please.

The next question comes from Joe Walton from Crevices. Please go ahead.

I apologize for being lost before. Joe Walton from Credit Suisse. Just a quick one on clarification, please, on your comments on the COVID and biosimilar impact. It was going to be four, it's now 4.7. Is that 4.7 just within the biosimilars, i.e. a contraction of the market and loss of share, or does that go more broadly across your whole portfolio? It's obviously a bigger number and yet I'm interested in whether that number, what that number has gone to, and also what the offset is. It's just presumably higher profitability. So lower sales, higher profitability gets you to the same number that you had as your idea at the beginning of the year.

Right. Welcome back, Joe. Bill.

Sure. Historically, we've given our guidance about biosimilar based on the three main areas, U.S., Europe, and Japan. So the original guidance on biosimilar impact was we said we would have about 4 billion of declines on A, H, and R in those three geographies, U.S., Europe, and Japan. Of course, we didn't foresee COVID-19, and now that we see declines, it's difficult for us to allocate the reason for the decline to biosimilars versus COVID-19 with precision, okay? So now what we're saying is for those three geographies where we had expected 4 billion, approximately 4 billion for the year, we now expect 4.7 billion for the year. We saw 2.1 for the year. And again, sorry, for the first half, we saw 2.1 and that included the total impact, so biosimilar plus COVID-19. So essentially what we think will happen is that the impact of biosimilars will increase in the second half, but the impact of COVID will decrease in the second half, and our total estimate is about 4.7. Does that answer your question?

Yes, it does. Thank you.

Thank you. Can we have the next question, please?

The next question comes from Louisa Hector from Berenberg. Please go ahead.

Hello. Thank you for the call. So I wonder if you could comment on the write-down of SPARC. What was the reason for the reduced sales expectation? Is this a competitor issue or perhaps a more positive sign that you expect higher sales for Hemlibra? And on the Haemophilia A gene therapy, When do you expect to have the optimized dose and regimen data that you need to move into pivotal studies? Thank you.

Right. So on the SPARC, essentially what's happened there is the goalpost has shifted a bit, and largely because of Hemlibra. So what we've seen is that with Hemlibra, you have patients who are able to get therapy that's as infrequent as once a month subcutaneous, and the vast majority of patients have zero bleeds. So with that kind of performance, the impetus for patients who are well-controlled on a medicine that's as convenient as Emlibra to go and try a gene therapy when there's still a number of questions remaining, questions like what percent of patients will benefit from And will the benefit last for years and years? Because obviously with hemophilia, it's a lifetime condition. And there's also a sense, at least today, that if you get a gene therapy, it might be a one-time thing that you won't have an opportunity to get a gene therapy later in life. So as we sat down with the leadership at SPARC, and they are considering the input from physicians and patients, with hemophilia, they're basically saying, hey, we think the goalpost needs to be really high. We need to have a really well-tolerated immunosuppression regimen to go along with the gene therapy. And so they've got some good leads on that. They want to optimize that and really deliver something that they believe will be sort of that ultimate solution for patients. So I hope that answers your question. I think certainly the prospects for Hemlibra have never looked better And I think we are also very confident that SPARC, with the nice duration data that they showed recently and their gene therapy for hemophilia, with an opportunity to optimize the dosing regimen and the immunosuppression regime, that we would hope to have that launching phase three studies next year and go from there. And then as to the other gene therapies, I think we'll have to wait and see what other competitor gene therapies in hemophilia A. Right.

Thank you.

Let's have the next question, please.

The next question comes from from Goldman Sachs. Please go ahead.

Good afternoon. Just following up on Joe's question, how much incremental COVID impact is built into your 4.7 billion guidance for the rest of the year? And separately, kind of as you look at the second quarter, how much COVID impacts already happened? I guess what we're all trying to understand is mathematically, it looks like 0.7 billion in incremental COVID impact. Most of it should have happened in the second quarter. And therefore, you're by a similar hit in second quarter would be meaningfully lower than what people might have expected. So, if you can just help us understand the math of that 4.7 billion, both kind of quarterly and as well as biosimilar versus COVID, that would be very helpful. Thank you.

Yeah. Again, you know, we've been having to do the math as well because there's not, you know, there's really not reliable data on the COVID-19 impact. It has varied even within our, you know, products like Progetta, T-Centric that were not impacted by biosimilars. And then, you know, so it's sort of difficult to sort out. Exactly. But our best guess is that the impact of COVID in Q2 was approximately 400 million. And and so, yeah, that that and that we think the impact in the second half would be certainly less than 400 million a quarter. So and beyond that, I don't think I'd want to speculate more. But you can you can sort of fill in the blanks and and. And then let us know what you come up with as well. But we think 4.7 is our best guess.

Next question, please.

The next question comes from Steve Scala from Cohen. Please go ahead.

Thank you. A question for Thomas. I know Roche is not providing specifics on PCR testing manufacturing capacity requirements, But the company previously has said it expected a doubling from 15 million to 30 million tests per month. Is that on track both in terms of magnitude and timing? Thank you.

Thank you very much. So in the first weeks and months of the pandemic, our team was focused on really increasing capacity. From our normal levels of PCR testing, we have increased capacity approximately four times of what we would normally sell. And we have done that predominantly through two means. One is really 24-7. And the second thing that we have done is actually we have activated all of our backup tools. Now, what we've done back in March and April, we've ordered many different production lines. that normally take 12 to 18 months. And there are very few companies that can actually deliver those production lines, and specifically around consumables, because it's actually much more difficult to ramp consumables than the test itself. And we have to ramp in total of 17 different products. And so these consumable production lines will come up live starting soon. and throughout the next months and year. So we are very confident that we can continue to ramp up significantly from the 4X that we had from previous levels of testing. Thank you.

Can we have the next question, please? Yes, there is one question from the web. Maybe I can just, Bill, this is one for you. This is the question on the PDS for delivery system. and the uniqueness of the port delivery system. So the question is from Eric Liberigo. If you can basically reformulate a kind of a Lucentis now or a biosimilar Avastin and put it into these, let's say, port delivery. So is that possible or not possible? So how protected is this solution?

Right, right. Well, first off, you can't put a monoclonal antibody in the port delivery system. So Lucentis is a protein fragment. It's not a full antibody. And so it's basically a port delivery system for some sort of high density medicine could go in that. I mention it because as you know, we have a product called furosemab, which is a Ang2VegF bispecific antibody that we're studying right now in AMD and other macular disorders. And unfortunately, that bispecific antibody, if it works, won't be able to go into the port delivery system. But fortunately, our colleagues in P-RED are working on an antibody fragment that's an ANG2-VEGF bispecific that could go in the port delivery system. So I think the answer is we're not worried about Avastin or, yeah, some other antibody competing in there. And as to Lucentis, which is ranibizumab, you know, We have IP on the device, and we think we have a good path to both provide a great benefit for patients but also realize a good return.

We're already getting over time. I understand we have still many questions being submitted. So let's take perhaps two, three more questions. And can I have Carl persuade me just to take four questions? Can we have the first of Another four questions. Thanks.

The first question comes from Michael Leuchten from UBS. Please go ahead.

Thank you very much. Just going back to the farmer gross margins, maybe for Alan and for Bill, I'm assuming distancing in the manufacturing sites have been a challenge in the first half, yet your volume is up significantly. So has this been a significant factor that could actually make your life easier in the second half where distancing becomes easier and maybe shift turnovers are better, or is that a variable that doesn't really matter that much? Thank you.

Yeah, I would just say it's not a significant factor. Our manufacturing processes are pretty highly automated, and I guess what I would say is that, yeah, distancing isn't really a factor in the pharmaceutical manufacturing in general, because they're large factories and the density of personnel is rather low for our products.

Good. Thanks for the concise answer. If we can have the next question, please.

The next question comes from Simon Baker from Redburn. Please go ahead.

Thank you for taking my question. It's a question about catch up both within the farm and diagnostics. As we move into the second half of the year, we've already seen growth rates rebound in June. But presumably there is a capacity constraint within the system to catch up on those missed admissions and missed diagnoses. So I was wondering what time frame are you assuming that that catch up will take to complete? Is this something that's going to run into 2021? Or do you expect to recapture those delayed sales all in 2020? Thanks so much.

I mean, just on a high level, recapturing kind of suggests that we would make up for the lost sales. I wouldn't see that. If you miss your appointment and, say, you miss your routine diagnostics, that doesn't mean that the next time you go to your appointment you have two tests instead. You would really... you know, lose much of the sales which you lose due to that. And likewise, for many of the medicines, it's not that you kind of take a higher dose or a more frequent administration because you missed an administration back in May. So I wouldn't call it recapture. I think... from what we see is that healthcare systems are adapting and they are opening up again for patients who suffer from other diseases than COVID-19. And so we are coming back to the old levels rather than you have a big rebound effect. Is there anything you would like to add, Bill, Thomas? If this is not the case, then let's take the next question.

The next question comes from Richard from JP Morgan. Please go ahead.

Hi. Thanks for taking my question. Just a question on looking at the different impact you might be seeing across the U.S. in terms of the recovery. So southern states are spiking more. Are you seeing a slower recovery there compared to other areas in the U.S.? And maybe also more globally international operations was clearly affected. So just outside of the U.S., how are you seeing the recovery maybe in areas such as Brazil, Latin America, and throughout the globe, mainly thinking pharma products, but also, I suppose, diagnostics? Thanks very much.

Thank you for the question. I mean, what we have seen on a very high level is that we had most of the earliest recovery in Asia, Then Europe followed. And, of course, in the U.S., the situation is still pretty severe. I mean, Bill, any comments on a regional level?

Yeah, it's a mixed picture. For example, in the U.S., even though the case count that you can look on the Internet and see is quite high now and really as high as it's been of new cases, We don't see anything like the level of shutdown in activity or impact on the use of our medicines that we saw in sort of late April, May. So in that sense, the health care system seems to be adapting quite a bit. And despite the case count, a lot is sort of continuing. On the other hand, I think more in developing countries where we are starting to see a little more of an impact, that's obviously a smaller part of our overall business.

Okay, thank you. So one more question, please. Severin, if you are generous.

And I apologize for the rest already.

Let's see how complex the next question is. Can we have the next question, please?

The next question comes from Richard Parks from Exxon. Please go ahead.

Hi. Thanks for taking my question. You've obviously seen it's just on in-office administered drugs where you've obviously been seeing an impact. Specifically on Tocentric, we've seen K-trudel approved for over six weeks, which is obviously an advantage in the pandemic phase. I'm just wondering if that's impacted your share of new patient starts and whether you expect any of that to persist. And then maybe you could just talk about any efforts to mitigate impacts on in-office administered drugs if we do see a second wave in the fall, any efforts that you're making there. Thanks very much.

Yeah, with respect to T-Centric, I think we're pretty well differentiated in our main indications. There's specific reasons why patients are getting T-Centric that don't really have much to do with the dosing frequency. So I don't think we see that as much of a factor. And with respect to measures we can take, yeah, we've been working really hard with the healthcare professionals to try to figure out alternative options for patients. In some cases, it could be at-home dosing. In some cases, expediting approvals with regulators on the shorter dosing regimens, which we now have for Ocrevus in the EU. We've got that down to a two-hour infusion. We've applied for that with FDA and hope to have that soon. So we're making those kind of steps, and, yeah, we'll continue those efforts. Thanks.

So let's have one last more question. Let me go into the last question.

I already would like to apologize with Naresh, Marc Purcell, and Sam Fassetti, whom we cannot address because they had other questions over the web or are still in the queue. We will get back to them later on. So I just wanted to make maybe one last one now, and then we'll get back to the others.

Very good. Good. So great. Let's have the next question.

Yes, sir. The next question comes from Peter Welford from Jefferies. Please go ahead.

Hi, thanks. I wanted to keep Thomas busy. He might feel this is a bit of a time off. Just last question on diagnostics, just with regards to antigen tests. That never came up. I wonder if Roche is developing an antigen test for COVID and what they potentially see of the role of that. Thank you.

Yeah, that's also a very good question. So the antigen test is actually antibodies. that are targeting the antigen of the virus, as you know. And usually, they would target the spike part of the virus. And we've looked at that development, and we have something ongoing internally. Looking at the sensitivity of what's out there on the market, it varies between 80% and 84% sensitivity. this is basically where we are at right now as well. And I mean it's clear, if you compare the sensitivity to PCR, PCR will always be more sensitive. Then of course it depends against which PCR assay you compare it to. We have probably the most sensitive PCR assay on the market, which can go down to 24 copies per mil. The sensitivity of the antigen assay would then probably be in the 100,000 with 80 to 84 percent sensitivity. And so that means in terms of broad population screening of asymptomatic patients, this would probably not be the right choice. And that's why when the FDA approved those assays, they approved it under the remark that if it's negative, you have to reconfirm it with a PCR assay. And obviously most are negative, so you have to do a lot of PCR assays following that. But there could be a setting in really patients that are very sick and most likely have a very high level of virus, and then it could work. But it's a bit tricky because you cannot get to that same, not even close to the sensitivity of PCR.

Thank you. Thank you very much for the great interest. It was a pleasure that you joined us virtually. We look forward to the next physical in-person meeting. Until then, thanks again. Bye-bye.