Roche Holding AG

I would like to inform you that all participants are in listen-only mode during the call. After the presentation, there will be a question and answer session. You are invited to send in questions for this throughout the entire session using the Q&A functionality of Zoom. In addition to that, you may also raise your virtual hand to address your questions verbally. For participants joining via phone, to raise your hand, use star 9 on your phone's dial pad. When you then get selected to ask your questions, please follow the instructions from the phone and press star 6 to unmute yourself. One last remark, if you would like to follow the presented slides on Yearned as well, please feel free to go to woosh.com slash investors to download the presentation. At this time, it's my pleasure to introduce you to Thomas Schieneker, CEO of Woosh Group. Mr. Schieneker, the stage is yours.

Thank you very much and hello to everyone. Good morning, good afternoon, wherever you are. I'm really looking forward to sharing our happy results with you today. Now, let me take you through this slide first. We've had a very strong growth in the first half year. Group sales increased by 8%, excluding COVID by 5%, excluding COVID by 8%. And specifically in the second quarter, as you will see in a second, we had significant growth of 9% overall. Pharma is growing very well in the base business with 8%, diagnosis growing 9%. Both the COVID-19 sales decrease and also the LOE impact are both in line with guidance. The sales decrease in COVID-19 is 0.8 billion and also the LOE impact is 0.6 billion. There was not much COVID impact in the second quarter. Co-operating profit increased by 11%, so significant growth here due to good cost management and shifting resources within the organization. With that, our group core operating margin increased almost two percentage points. Our core EPS grew 9% and also our operating free cash flow grew 9%. We've achieved a number of key milestones in the second quarter. On the regulatory side for pharma, the EU approval for Ocrevus subcut in RMS and PPMS, Alicenza in adjuvant out-positive non-muscle lung cancer, US approval for the bismuth pre-filled syringe and PSGi in PNH, and also an FDA label update to Sosfimo in AMD. And also here we filed for DME and diabetic retinopathy. We have EU filing for Olivius in DMD, and we also have filing for Innovalisip, and we hope to get approval for Innovalisip in November this year. We also had a couple of positive pharma readouts, specifically in obesity space. On the diagnostic side, we had a number of launches here as well that will be covered by Matt, C703 in ISE for the core lab, a segment that's growing very strongly for us. The Colbert-Leard respiratory panel, which received FDA EUA approval. Cobus Pro serology solution, a market that we've not been in, the biggest market in the world for blood screening in serology. We're now entering that space in the US. The continuous glucose monitoring for diabetic patients, then also a number of tests that we've actually launched or received breakthrough designation that time period, and also the HP self-collection solution for the FDA. We have a number of trials and launches still ahead. On the phase three side, for example, gocyba and lupus nephritis. Phase two enabling readouts in Alzheimer's with tritonamab, PRASI, and others. For example, also the phase two data for our obesity medicine in diabetes, the CT868. On the diagnostic side, again, a number of launches still to come. I would like to highlight the mass spectrometry system, which is going to really revolutionize how mass spectrometry is done in hospitals. Here you see the sales growth. Again, great growth in both divisions, 5% overall growth. And if you exit COVID, really a significant high single digit growth. Here on the left-hand side, you can see the sales development over the last four and a half years in the total sales. Between 2020 and 2022, we had total COVID sales of 19 billion. We were the first company to develop diagnostic tests, and we also developed or brought to market two medicines that helped fight this pandemic. So we were a significant contributor. In 2023 and Q1 2024, we still had an impact then as the COVID was washing out. But if you look at the underlying growth, the underlying growth that you see on the right-hand side was really picking up, picking up in the last 1 and 1 half years. We went from somewhere low to mid single-digit growth to high single-digit growth over these 1 and 1 half years. See in 2023, we had 8%, Q1 7%. And now in Q2, we have even 9% growth. And as we mentioned before, there is no COVID impact in Q2 and you can see how these two curves now merge and we have 9% growth overall for the group in the second quarter. Again, looking at the same on a divisional level, you can see that on the pharma side, the base business growth has really accelerated over this time period. On the diagnostic side, we've always been growing seven to eight and now 9%. So we've delivered very solid growth in this division over a pretty long period of time. And we've now pretty much washed out most of our COVID impact there. Let me talk about some key drivers in Roche portfolio and specifically also the pharma portfolio. Diagnostics will be covered by Matt, but clearly some significant launches in Q2 and upcoming launches that are going to support the growth of this division going forward. On the pharma side, let me start with oncology in orange. Here, I received approval for adjuvant R-positive non-small cell lung cancer in the EU and the US. And it's now also included in the NCCN guidelines as category one. We already talked about the breakthrough therapy designation for in the illicit. And the BDUFA date is 27th of November. On the hematology sides with HemLibra and Columv, HemLibra, we have the autoinjector in development. We've previously updated you on that. And we had a positive readout, phase three readout in second line DLBCL here with our bispecific. Our neurology franchise, where we're number one, is doing very well. We've received EU approval for subcut in Ocrevus, and we are waiting for the approval in the US for subcut. The BDUFA date is September 13th. We've also published positive five-year data in type 1 SMA. Xolea, we've had the positive readouts for food allergy, and we see really strong pickup. We already treated more than 15,000 patients, and we do expect that this is going to contribute to growth this year and also next year. Babaismo, what can I say? Doing fantastically well. There is really a strong momentum here, and this momentum will be further supported by, on the one hand, the US approval of the pre-filled syringe, also by the four-year follow-up data in DME, but also as we get more and more approvals or indications around the world, this will continuously support our growth rate. Let me also say we don't see any impact from the J-code in 1st of April in the US for the Regeneron molecule. And also SOSFIMO gives us another option, first now in AMD, but we want to take that also into other indications. And I already covered diagnostics. Let me just highlight four key launches in diagnostics. One is the ISE NEO and the COBRA C703, which gives us up to 100% higher throughput, really important for the large labs around the world. And with that, we are really solidifying our big advantage that we have over other companies when it comes to our portfolio. We've completely, over the last years, rejuvenated our core lab portfolio And we bring new systems to the market, mass spectrometry being one of them, which can be integrated into the Cobus Pro solution. And there's a synergy effect and a pull through because this is also going to support a growth rate in clinical chemistry and immunochemistry. And we already see that, and there's really a high desire for customers to have that. If they could take it with them after they see it, they would have. Unfortunately, it's too heavy for them to put it into their suitcase, but I can tell you we're definitely open to take orders. Continuous glucose monitoring space for diabetes, one of the biggest growth markets. We now bring in a solution that is differentiated in terms of the algorithms. So really excited to see that. And that should give us new momentum in diabetes care. Lastly, next generation sequencing, we're making very good progress. And we believe we have a really differentiated solution compared to what's on the market today when it comes to throughput and cost position. Now, let me just briefly highlight some progress on our key strategic initiatives. We've revised our 10-year goals, which we wrote out in the beginning of the year. We've revised our group strategy, which we've discussed with the board this week, and which we have also worked with others. with people in our company. So this is being rolled out. The same goes for the pharma strategy, where we clarified the 10-year direction in our five therapeutic areas, which are the ones we always show to you as well. In the diagnostic side, we actually refined our strategy in 2020. And at that time, we shifted about 500 million Swiss francs in R&D to development of certain assays, really high medical value assays, and also technologies. really accelerating some of these activities like mass spec, CGM, next generation sequencing point of care. And you can see that paying off with all the launches that are coming through in diagnostics. On the digital side, we really focused our digital health efforts setting peer priorities on really making our core business stronger with digital solutions on how we can differentiate. Also focusing very much in generative AI, where we have some key people in our organization that are driving that forward and with some partnerships, for example, with NVIDIA. On R&D Excellence, and I have an additional slide on that, we set a clear roadmap on how to achieve our productivity targets. You see a lot of the activity that we've done over the last months. We're really focusing our portfolio on best indices and first in class assets. We're augmenting our pipeline by bringing in great assets from the outside. And with that, we can accelerate the key assets where we believe this has the biggest opportunity and we can gain a lot of speed. Additionally, we are constantly working on operational excellence. So I believe that there are plenty of opportunities to still become a more efficient organization without losing any innovation and just making sure that the money that we have available, which is enough, is really focused on projects that will deliver impact. Just very briefly, and you will get much more of an update on R&D excellence and all the fantastic progress that has been made in the autumn. But just along these six areas, we set very clear and ambitious R&D objectives. And these are triggered into the bonus system and MBOs for our people. And we've defined clear roadmaps on how to achieve these productivity levers. We've already last year defined the bar. So the bar is five criteria that each molecule needs to have in order to be worth being in our pipeline. And we constantly assess our pipeline to this bar. This has meant also that we have stopped a number of assets. But we've also brought in assets. We're also accelerating other assets. So you can really see that we are managing our portfolio really holistically, and you can expect us that this is now kind of routine. We established end-to-end governance, really making sure that our organization works seamlessly between the different R&D engines, also that we have high gates so that as we move things into the different phases, we have de-risked assets much earlier. We've accessed some of the best external innovation. We're really optimizing our R&D engines and looking at investing into technologies like generative AI. But there's definitely opportunities to become even better in this, and it's a big focus. The other focus was around talent and culture and mindset, really bringing some of the best people into the organization to make sure that we have key people for the five different disease areas. And we rolled out a high-performance organization concept in the beginning of the organization, really differentiating also performance and pay. Now, let me give you a brief outlook. Over the last nine years, we've launched 20 new medicines. PSKI is the last one, the C5 inhibitor. This has been launched in China, Japan, and the US. We will continue to roll it out in other countries. We will also continue to expand into other indications. In a Melissa, I believe I've covered already, fantastic new medicine, fantastic data. And it has received prior review by the FDA and breakthrough therapy designation, really showing that this is a really great molecule. We'll take it into earlier lines, but also into other cancers. So there is a big opportunity here with Invalicit. On the right-hand side, you can see our pharma sales and how much of the new product, what's the percentage of the contribution from the new portfolio? And you see that keeps increasing. With Ronapref going out, the increases would have been even higher if that wouldn't have gone out. Now, we have a number of key growth drivers on the pharma side and on the diagnostic side. On the pharma side, we all know pharma, there are certain risks in development. Only one out of 10 medicines at the end makes it. Even in phase three, only about 70% to 75%, if you look at the industry average, actually makes it through phase three. So not all of them will make it, but we're confident that with what we have in the pipeline and what we'll continue to add to the pipeline, that we can continue our growth momentum. On the diagnostic side, let me just say here projects are de-risked much earlier. And in fact, the last year before the launch is really mostly a handover from manufacturing, from R&D to manufacturing. So there is not a lot of risk in terms of the pipeline here. Let me just highlight some of them. We mentioned also in the recent release pterogolimab, where we had disappointing data in Sky6. Here, this is about Sky1, but we have reviewed our pterogolimab program. We've had two more programs that we've stopped, and you can be ensured that we will be diligent around this as well. In Olisip, I mentioned Diverisip. We highlighted at ASCO that we have a phase three start here against some competitive molecules. We believe this is potential best in disease. I mentioned the filing in the EU. So we've received the conversations were very positive with the regulatory bodies. was disclosed also that, unfortunately, that phase two didn't work. But it's good that we did risk in the phase two. So that's exactly what we want to do. And we know that geographic atrophy is very hard to treat disease. I don't think I have to cover a lot about obesity. And I'm sure you have a number of questions about that. I already mentioned the launches on the diagnostic side. Really excited how this is developing. We have a very positive outlook for 2024 with a continued strong growth in our base business. There's not so much COVID effects anymore and also the LOE impact is less. So we can confirm our guidance on the group sales. And we do believe that with the momentum we have, this will carry us into 2025 as well. Overall, I mentioned the sales, but we increase our core EPS outlook to now high single digit growth in core EPS because of the strong momentum that we have in terms of operating profit growth as well in the strong cost control. And you can imagine that we're shifting a lot of funds to really make sure that the money is put to good use and in places where we have the biggest impact. I still see opportunities to continue to do that. so that we will continue to, in this year, increase our margin and for future years, at least maintain, if not extend our margins. With that, I hand over to Alan, that will give you a bit more of a deep dive into the finances.

Thanks, Thomas. Yeah, I think you've seen the great sales dynamic. And when you bring that together with reasonable resource allocation, I think you end up with great results. And I think that's what we've shown the first half. And before I dig into this, let me do a little bit of advertising. about the upcoming IR events. There's a lot going on. I think really September, big months for us and a great month to look forward to. We will share full data of the positive phase one for CT3 at eight, so the injectable on the obesity side and also phase one CT996, so the oral in obesity at the European Association for the Study of Diabetes. See that on the slide. And that's followed by the traditional pharma day with updates on the group strategy and the pharma strategy. So surely also an update on R&D excellence. And then in October, we will share the Trontinumab phase one to be expansion core data in Alzheimer's disease at the clinical trials on Alzheimer's disease conference. Good, let's get into the results. And I think it's really a great set of numbers. So let me start on the sales side. And Matt and Teresa will do a great deal to dig deeper into the sales. So let me mention again, the 5% growth in constant rates, 8% when you exclude the COVID impacts. You see the cooperating profit up 11%, even 4% when it comes to Swiss francs. I think great momentum here from good cost, cost control, resource allocation, prioritization. And then you see really the core net income with 8% increase. So where is the mitigation of dynamic coming from? And that comes on one hand from the financial result, higher debt on a balance sheet, therefore higher interest charges. And second is taxes. There's the minimum tax in Switzerland, the pillar two top up tax, which certainly led to higher tax charges. And then you see the cornered income to core EPS, 9%. So we have a higher dynamic in the core EPS. Theresa will talk about sugar, I'm sure, in Japan. And there certainly we see a reduction in sales coming from COVID. On top of that, really, I think the contribution from sugar was a bit lower compared to Japan. The first half 2023, and that leads to a higher dynamic in core EPS. IFRS net income impacted by impairments with the minus 4%. And then the operating free cash flow looks so boring with 8 billion in both half years. But in fact, we overcompensated an impact coming from EPS. last year, we had an inflow from Rona brief of about a billion. And I think we compensated this first half. So really, really strong cash generation. Free cash flow with the plus 1%. Why do we lose dynamic compared to the operating free cash flow? That's clear because we have shifted last year a tax payment from the first half to the second half. Good. Very quickly on the sales bridge for the group. What you see is from left to right, you see half-year 2023 with 29.8 billion. You see half-year 2024 with the 20.8 billion, certainly in constant rates, plus 5%. And then you see really the dire base business with the increase. You see the dire COVID sales impact of a minus 242 million. Then you see the significant impact from the former portfolio vary positively here. Then you see what we lost on the Rona brief sales, 518 million, and then the loss of explosivity at 600 million. If you added that together, you come to a minus 1.4 billion, which worked against us half year to half year. When you look really at the P&L, I think really 5% sales growth, 11% corporate profit growth, which I mentioned a couple of times, already in constant rates. When you look at the absolute number, it's 1.5 billion and the corporate profit of 1.1 billion. And when you go through the lines, let me go through that first. I think in the other revenue, that's Van Clexta and that's also Xolia with the great data on food allergies, which certainly helps us here. You see the cost of sales was a minus 168 million. Both divisions had significant volume increase. So the group plus 10%, DIA plus 4%, Pharma plus 13% even. And we have a very reasonable cost of sales increase with 2%. Nevertheless, we had an effect from last year. Last year, we released a provision at half year, COVID-related provision of 276 million. If you were adjusting for this, cost of sales would have even gone down. So I think very, very good cost control in that line. Same applies to R&D. We know we have a relatively high R&D level. Nevertheless, you see really both divisions were very focused on applying here a very, very reasonable allocation of resources. And we move on as we have really higher impacts now coming from other from other compounds. And therefore, I think in the portfolio makes a lot of sense. SG&A driven by M&D. M&D increased by 111 million and explains the growth that you see here. That means automatically corporate and administration were flat, even a slight decrease here. So also here, well-applied cost control. And then really other operating income and expenses was a minus 212 million, minus 30%. You know, we sell our tail end products where we have lost exclusivity really after a certain period. We do that on a very regular basis. In the first half of 2024, we had lower gains on divestment proposals of 225 million. So that explains that number very well. What is remarkable is when you take the release of the provision, the cost of sales line of 276 million, which was a base effect from last year, And you take the reduction of gains of product divestments of 225 million. That's a 501 million, which basically worked against us. So when you take that into account, you see how strong these results really are. Okay, with that, I think the margins, I think I have to mention that I think margin really went up with plus 1.9 percentage points in constant rates. Pharma division went up with roughly one percentage point and the diagnostics division was a strong plus 3.3 percentage points. As Thomas has said, ambition is very clear, really maintaining with that level somehow and then really defending the margin moving on. So I think a great step forward here. Coronet financial results deteriorated by 276 million in Swiss francs. When you get concentrates, a minus 306 million. Major drivers, obvious, high interest expenses. We have done M&A last year of about 10 billion. You will see that mirrors certainly on the debt side. That's the major driver here. I think all the rest are more minor impacts. When you look at the core tax rate, quite a story. We went from the effective tax rate 16.9% half year 2023 to 17.3% half year 2024. And we have two components. One is the impact of the Pillar 2 top-up tax, so the minimum tax, which was applied in Switzerland. relatively proactively, I have to say. You see now a 1.8 percentage points impact here. So slightly higher than the 1.5 percentage points. Why is that? Well, we have paid a little bit more in the first half than we will pay in the second half. So I think that's one element here. What is certainly nice to see is a reduction on our, let's say, normal corporate tax rate of 15.5% compared to a 16.9% at half year 2023. And here the major impact is really profit distribution in the group. So that's a little bit of an unusual setup that we're having here. Let me say, you know, I mentioned that the group tax rate should go to 19.5% on the full year. I think that's perhaps more on the higher side. Perhaps 19% is a better figure at this stage, but very clear there will be a little bit of a rebalancing of the effective tax rate. Okay, core EPS development. Well, you see the plus 8.9% on top, which is the 9%, which we all have mentioned multiple times. And I think this 9% is certainly a great indicator why we thought really bringing up the guidance for core EPS makes sense, especially for the second half. You see that comes from operations doing very well. Then the product disposal that I've mentioned was the minus 225 million. Financial income and expense in totality was a minus 306. And then the tax rate change was a minus 176. Yeah, really working then against us. Okay, non-core, on the non-core side, well, starting with the cooperating profit plus 11, then the global restructuring plans, I would argue basically in what we have done also last year, 100 million more. You see really the impairments of intangible assets with the minus 803 million. I would argue that's very well related to what we do in R&D excellence. So cleaning up the portfolio, looking really what should be there, what shouldn't be there, making also room to put other stuff into our R&D budget. M&A and the alliance transactions was a minus 32 million, some carbon costs playing into this. And then legal and environmental, I think we had a major release of a provision last year related to a legal case that didn't come back in 2024. And then I think when you put everything together, you see the IFRS net income with a decline of minus 4% in constant rates, minus 11% interest rates. OK, let me get to the cash flow. Very important for us as we want to do more M&A and we want to control the debt level, want to control the interest charges. So I think really, really good when we generate more cash. And we do, as you can see, you see really on the left hand side, 7.7 billion half year 2023 in constant rates. And then you get on the right hand side to the 8.4 billion half year 2024 in constant rates. And you see the bridge here. I think the operative performance is just great with plus 1.2 billion. You see then the net trade working capital movement with a minus 487 million. That is the effect from the Rona brief inflow that we have seen in the first half 2023. Certainly, we had positive effects against this. And I think all the other effects are not very significant. Given a good cash flow development, you see the foreign exchange impact even is relatively reasonable. On the cash flow side. OK, so how about that? And when we look at the debt level on end of and that's now an end year and look at the end of 2023 with minus 18.7 and we look at half year 2024, that's an increase of 6.9 billion. And very clearly, you see in between what it was driven by. On one hand, well, good operating free cash flow generation. I've talked about that. We paid taxes of about 2 billion. We paid the dividend of 7.9 billion. And then we had M&A of 2.5 billion. And that M&A of 2.5 billion, that's Karmat. We paid Karmat the 3.1 billion US dollars, 2.7 billion Swiss francs in the first half of 2024. So let me also mention the gross debt on the balance sheet is 34.4 billion. Okay, balance sheet, I think I can cut that short. The increase in assets is coming from Karmat, goodwill of roughly a billion, intangible assets of roughly 1.8 billion. And then you see really the liabilities going up, the current liabilities and the non-current liabilities. That's the debt increase I've talked about. OK, with that, currencies on everybody's mind. I think really we see a little bit light at the end of the tunnel. But well, very clearly, I think currency rates are volatile. We can't control them. But what you see is when you look really at the impact on sales in Q2, it was a minus two percentage point. So while we see the impacts get smaller for half year, a minus five percentage points, a minus seven percentage points on cooperating profit, a minus eight percentage points on core EPS. If you remain all the currency rate stable until year end, you see really smaller impact. So for full year, a minus three percentage points, a minus five percentage points for cooperating profit and a minus six percentage points for core EPS. And you see on sales, based on that modeling, we expect even zero impacts. So I think it all goes in the right direction. We had a strengthening of the yen yesterday. So I think that all helps us a little bit. Let's see how it comes out at year end. I think Thomas talked about the guidance very clearly, the group sales growth with min-cycle-digit sales growth. I think a couple of topics in the second half, which I think really we have to take into account, and then the core EPS, I think just a derivative of the performance that we have had in the first half. I think we have excluded here the impact from the resolution of the tax disputes in 2023, which was – A story of the second half of 2023, the impact was 774 million in constant rates, so quite significant. So please take that into account. But this is very well in line, the structure of the guidance as we have started the year with. Good. And I think with that, I'm happy to hand over to Teresa.