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.