Roche Holding AG

Ladies and gentlemen, welcome to Roche's full year results webinar 2025. My name is Henrik and I'm the technical operator for today's call. Kindly note that the webinar is being recorded. I'd 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, just star nine on your phone's star pad. When you then get selected to ask your questions, please follow the instructions from the phone and press star six to unmute yourself. One last remark, if you'd like to follow the presented slides on your end as well, please feel free to go to roche.com slash investors to download the presentation. At this time, it's our pleasure to introduce you to Thomas Schienecker, CEO of Wash Group. Mr. Schienecker, the stage is yours.

Thank you very much and good morning, good afternoon and good evening. I'm really, really excited to share with you the updates for the full year because we had an amazing fourth quarter, not only in terms of financial results, but also in terms of pipeline news. So let me get started on the normal overview slide. So group sales in 2025 grew with 7%. Pharma at 9%, diagnostics at 2%. Again, this was due to the China healthcare pricing reforms. Without that, diagnostics actually grew with 7% last year, with a very strong operating performance, with a core operating profit of plus 13%. in the cooperating margin plus 1.9 percentage points, in core EPS plus 11%. So you may ask, what's the difference between EPS and OP? Why is there a deceleration there? This is basically mostly driven through higher taxes. On the full year LOE impact, we had an impact of about 700 million. Now I come really to the exciting part. We had truly an outstanding Q4 when it comes to pipeline use. From a pharma regulatory perspective, the EU approval for Casiva and lupus nephritis, US and EU approval for Lunsumio as a subcut solution, third line plus follicular lymphoma, and US filing for gerodestrin in post-CDKI ER positive, HER2 negative metastatic breast cancer. Now come the many positive readouts that we had. Phase III, Phentrapid and PhenHand, so two positive studies in Phenabrutinib, one in PPMS, the other one in RMS. A positive Phase III study just already this year in EndSpring in MOGAD. positive phase three LIDERA study in adjuvant ER-positive HER2-negative breast cancer, a positive phase three PSGI in AHAS, and a positive phase three in GASIVA in INS, and another positive phase three GASIVA in SLE. And positive phase two in CT388 in obesity. And I know Theresa will go through a lot of these details with you, but you can see with very, very busy news flow. And I think there are more exciting things to come also this year. On the diagnostic side, regulatory approval of the Alexis Dengue test. Matt will talk about that. The Covus BVCV test and also the mass spectrometry extension of our menu. So exciting launches there as well. There is significant news flow ahead in 2026. We are awaiting the second phenobrutinib study in RMS. We are evading Persevera, so the gerodestrin in first line, EO-positive, HER2-negative metastatic breast cancer. We have other studies reading out for ITOV-B, but also for our Diverisib KRAS medicine. And further in Lonzumio and Garzalva. So again, I think very exciting. And we have a number of phase two readouts coming. So it could again be a very busy year in terms of transitions from phase two into phase three. And of course, everyone is talking about it our next generation sequencing solution and we promised it for many years now here it is so i'm super excited also personally that we are now coming with this very exciting solution to the market and uh yeah i think it will cause a couple of waves in the market Now, let me go through the growth rates and I don't think I have to cover too much on the left hand side. But what you can see on the slide is that we have consistently strong growth in the last two years. And even before that, when we had the washout of COVID 19 tests and the medicine, we had a good underlying growth. So we always said we will deliver and we delivered. Now, on the 2025, pharma kept growing at 9%. Diagnostics, we did have the healthcare pricing reforms impact in China. Without that, diagnostics would also have been growing consistently at 7% over this time period. Again, here, we just look at the full year, 9% growth, again, by the pharmaceuticals division, 2% by diagnostics, again, without the China effect, it's 7%, and Roche Group has 7% growth. And this is really driven across our entire portfolio. I think diagnostics, I already explained, and I know Matt will go into that further. But Biasmo, we have continued strong global growth. We do expect that we will see even more uptake in the next year when it comes to the US market. Now that we are also supporting more on the co-pay assistance foundations, and Theresa will go into that. Also, Xolair keeps growing significantly. Casiva, we have now launching in lupus nephritis, but you will see also the other indications really contributing to the growth in this business. Oncology growing well at 6%. For Fesco, we're now at global conversion rates above 50%. Ticentric returning to low single-digit growth. Senza growth driven by US and Japan. On the hematology side, Pol-V is strong now. We are reaching a US patient share of 36%. Col-V, Lonsumio, growth is driven by second line plus launch and third line plus DLBCL. Strong third line growth in follicular lymphoma. So you can see also in the Okavos franchise, we see now a strong uptake of the Subcut solution, as we also discussed, and Evristi is the leading SMA solution and medicine now with more than 21,000 patients on treatment. So overall, we've achieved the upgraded guidance. On mid-single-digit sales growth, we had 7%. And you may remember in the IR call in Q3, you asked, why are we not upgrading the guidance on sales? And my answer was, because 7% is still mid-single-digit, and we delivered 7%. So we delivered on what we also communicated. On core EPS, we upgraded the guidance from high single digit to high single digit to low double digit. And why did we do that? Because we already knew that we would land in double digit range. So we wanted to include it in that range. And that's why we upgraded it at the time. And we further increased the dividends in Swiss franc. So I can say we, for the second year, upgraded the guidance during the year and we ended up on the upper end of these two guidances every time in 24 and in 25. Now what's super exciting is the growth outlook. And the growth outlook has fundamentally changed based on some of the phase three readouts that we have seen in Q4. Geodestrin, our third, has had two positive readouts, one with Evira and the second one with Lidera. Lidera reading out early, we expected the readout only next year, but based on the very significant results, it read out early already this year. We're now waiting for the perseverer data, but we clearly see that we have a very active and very good molecule in hand. Not only is it going to replace the standard of care and it's going to become the new backbone in this field, but it's so safe and tolerable that we do believe that this will become the standard of care. Fenabrutinib in MS, we had two positive studies here in RMS and in PPMS. And now Theresa will go into that. We're still waiting for the second, the FENHANCE-1 study in RMS in order to be able to file this. You will see the data in not too distant future. But again, we are very excited with the data that we have seen. GACIVA, the same. We've had already positive data in lupus nephritis. Now we had two more additional phase three data. Again, something that will give us momentum in the midterm. On the MICIBAR and in NSPRING, we had two trials each. And each of the two trials, we always had two arms and two different doses. In one trial, in both of those, it was fully positive trial. In the second trial, one dose was positive, the other one was negative. Now, this was always a very close call. And based on the conversations we had with the FDA, we do believe that the FDA will support filing here. So this is the midterm. And in the long term, what's also exciting is that we had 10 NMEs moving into phase three. That's a record for us. We've never had 10 NMEs moving into phase three. And these are all NMEs with substantial revenue and patient impact attached to them. Now, we know the other part or topic that's on your mind is our agreement with the US government. Now, the agreement we reached with the US government is not an LOI, it's a contract with the US government. And based on this contract with the US government, which is terminated for the next three years, we get an exemption from tariffs and we get an exemption of the demo projects. In return, we agree to the Medicaid rebates in some of our portfolio. We agree to the encouragement of other wealthy nations to reward biopharmaceutical innovation and to pay their share to contribute to innovation. And we also support the direct to patient medication access with our influenza portfolio, sofluza and tummy flu, and also future medicines with which we can go direct to patients. Also, we agreed to invest in the United States $50 billion over the next five years. This includes R&D and PP&E investments. And for example, on the red dots on the right hand side, you can see where these investments are happening. In North Carolina, Holy Springs, we are investing $2 billion in manufacturing for our CVRM portfolio. In Indianapolis, we're investing in CGM manufacturing. And in Boston, we're investing in our research hub as well as we're going to invest more in Genentech in San Francisco. But we already have a very strong manufacturing and R&D network present in the United States. Now it's all about delivering on the next innovation cycle. So I think we have good growth momentum. We do believe we can sustain that good growth momentum. And how do we keep that beyond 2030? Well, one is we've made substantial progress on our initiatives in order to prepare the company for future success. For the last three years, we've been talking about high performing organization, about delivery and about execution. And I do believe we've delivered on that. We've introduced the bar so that we focus on those medicines with the highest impact. We have an intentional focus in terms of TAs and disease areas. And we look at the portfolio as an overall investment portfolio with certain risk and reward profiles that we want to balance to have the right portfolio. We're expanding into new technologies, not only in DIA, but also in pharma. And we're implementing AI across the value chain. And we've made good progress in R&D. Now, more than 60% of the NMEs are post-bar. 66% of the late stage projects have best in disease potential. We want to get to 80%. And 60% more average peak sales per pipeline project. If you actually take not end of 23, if you take it end of 22, it's even higher. And the same for the total portfolio value. Since end of 23, it's about 45%. If you look at end of 22 as a comparator, we're more than 60% higher. And this is a risk adjusted value. So we do believe we've made a significant move when it comes to our pipeline in terms of higher rewards and also manageable risk. We have a strong on-market portfolio. In the mid-term, we have great readouts that are going to help us sustain our growth. But we have many, many enemies that will read out before the end of this decade. And many of them can be significant contributors to the sales of our company. And here you can see the prioritization that we have done over the years in our portfolio. really taking out high risk, low value projects and adding higher value projects with very strong data as a foundation that gives us more confidence into phase three. And this has resulted in a significant shift in our portfolio value. As mentioned, this is year end 23 as a baseline. If you take year end 22, it's even significantly higher. And on the diagnostic side, As I mentioned, we have been experiencing the headwinds in China from the healthcare pricing reforms. These headwinds will become a lot less in 2026. It will be gone in 2027. We will continue to grow significantly this year. We expect mid single digit growth, but then back to mid to high single digit growth. And these products that you see here can each contribute additional billion when it comes to sales per year. And again, very excited about the sequencer that's coming. Now, let me go through the outlook. For 2026, we again have an exciting year when it comes in terms of pipeline readouts. But then after that, 27, 28, 29 will have many different enemies that will have phase three readouts. In 26, I just want to highlight a couple, Persevera for gerodestrin, Fenobrutinib, Itofbi, Diverisib, a number that can also continue to drive our growth in next years. And of course, we have a number of phase two readouts in obesity. Two of them already have been positive this year. So we had a very good start. So the year ended well in terms of readouts and the year started well in terms of readouts. So we are very positive in terms of the momentum that we have and that we can continue this momentum. And these are the 19 medicines that we can launch by the end of the decade. Now, it's clear that not all 19 ultimately will make it. But these are really substantial contributions that they can deliver to the future business of our company and to patients out there. So I'm very excited about what's ahead for us. Now, let me talk about the 2026 guidance. In group sales, again, we expect mid single-digit sales growth. In core EPS, high single-digit core EPS growth. And we do believe that we can continue to further increase the dividend in Swiss francs. With that, I hand over to Theresa. To Alan, yeah.

That's good, I think. Well, no, no, I like that. Yeah, welcome from my side as well. As Thomas said, great pipeline progress. And that really then combined with great financial results. I think that's really, that's a great setup. And thanks to the whole Roche team for delivering that. So let's go into the results right away. And here's the overview. And I will focus on the right-hand side, so really the changes in constant rates. Sales plus 7%. Matt and Theresa will go into this. 9% on the pharma side, 2% on the Daya side. As said, I think on the Daya side, with the impact from China, Matt will highlight this. The cooperating profit plus 13%. So you see really good cost containment, but at the same time, we have invested where it really matters. And I will lead you through this. And then Thomas mentioned it, slower momentum on the coordinate income and the core EPS, yes, driven by a higher tax load, roughly 600 million, 579 million more taxes that we had to pay, which brought the momentum a little bit down. IFRS net income up 58%. And you know where it comes from. It comes from a base effect from last year. We had two goodwill impairments accounting for 3.2 billion negatively. If you adjust for that, I think it would be a plus 20%, which in my opinion mirrors very well the operational performance. Well, now I come to the cash flow. We could now debate quite a bit about the cash flow. I think you see it, 16.2 billion down from 20.2 billion. Let me say here, we had really a very strong December when it comes to sales and quite an increase in accounts receivables. They will convert into cash. So automatically what I'm saying, I'm expecting quite a strong cash year, 2026. The other piece here is in the net trade working capital inventories. We had the situation that we had to deal with the tariffs. So we brought inventories up a little bit that contributed to this. And last but not least, we have invested more into intangible assets, roughly 600 million. I come to this, but I think that explains the number very well. As I said, I think we will recover quite well. on the cash flow side in 2026. Let me say, I will also highlight this, net debt came down at the same time. I will lead you through this. Good. I think when you look really at the bridge here for the sales, in constant rate, 7% up, as you can see. When you go from the left-hand side to the right-hand side, there is a plus 2% because we have the currency impact in, which is quite significant with my minus 5 percentage points. Let me focus on the middle. You see pharma and the loss of exclusivity of minus 745 million in total, plus 9%, as mentioned. And then you see the situation in Daya, where we have a 7% growth, excluding China, and we have then an impact of minus 579 million coming really from the healthcare pricing reform in China, which means a minus 24% of sales in China itself. Good, with that, let's go through the P&L. I talked about the sales growth. Other revenue, I think on one hand, we had a lower milestone income compared to last year, minus 87 million, but we also had higher royalty income. That's why this is very, very stable and really looks good. Cost of sales, both divisions. increased their cost of sales by 7%, but with very different dynamics. I think really from a volume point of view in pharma, plus 13%. So very, very clearly, I think here a driver for the plus 7% growth on the cost side. I think that growth was also a little bit supported by royalty expenses. And the diet division plus four percent on the volume side compared now to a plus seven percent growth on the cost side. So what is that triggered by? Well, very clearly, the health care reform plays a role here. So China once again, but also higher costs related to placing of machines. which certainly fuels a future growth of diagnostics, so well invested here. We had certainly investments into the new technologies like CGM, Lumiera, etc. And last but not least, we had a tariff impact on the diagnostic side of 64 million half-year impact. So that's also something we potentially have to deal with in 2026. Cooperating profit up 13%, a nice margin increase. When you look at the margins itself, I think really in constant rates overall, plus 1.9 percentage points for the group, you see a nice progression on the pharma division. You see a decrease of minus 1.1 percentage points in CER on the diagnostic division side, which is explainable given that here a significant portion of the sales in China went away. When you look at the core financial results, and really here, interestingly, I think really in CER, we have an increase, and you look at Swiss francs, we have a decrease. And I think really what that speaks for is, well, the US dollar is weak, hurts us a little bit in the P&L, but helps us with the financial result. That's one conclusion here. You see the equity securities with minus 88. I see the market has recovered, but we have some investments in the Roche venture fund where we wait for data. So hopefully a better year ahead. Net interest income, we had less cash available, led to less income here. Interest expenses with plus 69 million concentrated would be rather flattish. But let me say here certainly the weak US dollar helped. And then we have really here other, and these are predominantly less hyperinflation impacts compared to last year. So with that, let's go to the tax rate. thomas mentioned it i mentioned it already let's focus on the middle yeah of the slide first you see really the effective tax rate full year 2024 excluding the resolution of tax disputes 18.1 percent and then you see the effective tax rate full year 2025 excluding the resolution of tax disputes 19.5 percent so you really see uh the increased momentum here but both years yeah were really mitigated by the resolution of tax disputes in 2024 that was a positive of 263 million representing the minus 1.4 percentage points and in 2025 it was a lower effect plus 185 million in constant rates resulting in minus 0.9 percentage points leading to the effective tax rate full year 2025 with 18.6 percent Well, for 2026, I think we will hover more to a 20% tax rate. Core EPS. On the core EPS side, this is the bridge here. I think for me, the most important point to say is it's driven by operations. The increase in core EPS is driven by operations. And I think there's nothing better to say here. Look, I think the product disposals, you've seen the P&L, I think less income coming from that. uh financial income and expenses are negative in constant rates the slides in concentrate that's a negative is roughly 60 million and then effective tax rate changes as said this is the once again mentioned increase on the tech side yeah that we have seen here so operations was the major driver all other effects on that slide worked against us when you look at non-core the ifrs income i've mentioned the ifrs income see it on the right hand side plus 58 percent cooperating profit i've mentioned as well this plus 13 perhaps two points to mention on that slide one is the global restructuring plans you see where the restructuring charges have increased by roughly 300 million i would argue that's a positive because that gives us savings in the future and then i think you see the impairments of intangible assets as mentioned not a lot of impact in 2025 In 2024, with 4.6 billion negatively, an enormous impact, very much driven by the two Goodwill impairments for Spark and Flatiron, accounting both together, minus 3.2 billion. With that, let's go to the cash. And here's the story. When you look at the left-hand side, 20.2 billion, I've mentioned that already in 2024. And then you see in constant rates full year 2025 with 17.7 billion. Well, you see really when you go back to the left-hand side, the operating profit, net of cash adjustments, I think that's the positive momentum coming from operations, really positive. And then you see the networking capital movement. And out of that net working capital movements, minus 2.2 billion comes from net trade working capital. And as I said, predominantly driven by accounts receivables. Let me mention here that has nothing to do with extended payment terms for certain products and nothing to do with Webismo. This is really, we have for, especially for Webismo, payment terms for a longer period for the last couple of years, and we have not changed them. So this is really because we had a strong December and that brought the account receivables up. We have the higher inventories on the pharma side that explains the minus 2.2 billion. We have the investments in PP&E, placements in diagnostics for the positive, side investments that we have done. And then we have the investments in intangible assets, the increase of 645 million, very much driven by Sealand. and the deal we have done there. Then foreign exchange kicks in with minus eight percentage points, quite significantly leads us to an operating free cash flow of 16.2 billion. Well, I think when you look at the margins, I think that tells the same story here. When you look for it, I can just really point back to the fact that we will recover in 2026. Now, when I talk about cash, I have to talk about the net debt development and debt in total as well. And said, I think, interestingly, when you look really at net debt at the end of 2024 with minus 17.3 billion, if you compare that on the right hand side with the net debt position at the end of 2025, we have reduced by 1.1 billion. So you might ask yourself, okay, the cash flow was not so strong. How is that possible? Did they invest less, especially on the M&A side? No, we didn't. I think that the numbers are really on the lower part of the slide. As you can see on the right hand side, you see what we've invested in tangible assets in an M&A is pretty equal. 4.6 billion in 2024 and even more in 2025 with 5.1 billion. One driver here is the weaker US dollar. And you see it really when you look really on this bar, minus 10.7 billion dividends, MNI and alliance transactions and other, there is the currency translation point with plus 1.8 billion. That is a major driver and helps us on the debt side. By the way, we have decreased gross debt by 3.1 billion and certainly as 70% of our gross debt is in U.S. dollar, the U.S. dollar helps in that sense to bring the debt down, at least when we report in Swiss francs. Good. With that, quick comment on the balance sheet. Not too much to say when you look really on the left-hand side where we have the assets. I think cash and market securities went a little bit down. Nothing to mention here. Paid the dividend, all of that. When you look at other current assets, well, higher trade receivables, as mentioned already, mostly coming from the pharma side. And when you look really at the non-current assets, that was driven by higher intangible assets of 4.1 billion, mostly acquisitions accounting for plus 2.5 billion. On the right-hand side, you see the liabilities and the equity. The current liabilities increased mainly due to the higher accounts of payables and bank creditors, some loans here. And the non-current liabilities decrease slightly due to the decrease in long-term debt. I've mentioned the 3.1 billion already. Leads us to an equity increase quite nicely and now an equity ratio of 38%. Good. Leads me to the currencies. Well, yeah, I think really the volatility is certainly disturbing and the weak US dollar is something we're fighting against. You see really the result for the full year, a minus 5 percentage points on sales, a minus 8 percentage points on cooperating profit, a minus 7 percentage points on core EPS. To be honest, if you apply today's rates, that would be basically the same picture for 2026 if we keep all that rates from today until the end of the year 2026. I think it would be basically the same impact. when you compare at year end 2025 and you keep these currency rates stable until the end of 2026 you see it really on the box down low the impact would be minus four percentage points on sales and minus six percentage points on core operating profit and core eps this topic remains yeah in 2026. good core eps I think really we want to set the base right for you for the core EPS. And what is the starting point? Because we have currency effects in the core EPS. So let me lead you through this. You see on the left hand side, the 19.46 Swiss francs per share. um as reported and then i think really we adjust for 0.37 swiss francs yeah to get to the 19.83 um swiss francs per share which would be the starting base yeah for your calculations in 2000 or for if you like for the core aps in 2026 so let me explain now the 0.37 swiss francs What you see here, these are the exchange rate effects. This is a result of dividing the 2025 currency losses of minus 273 million Swiss francs, as well as the 2025 losses on net monetary position in hyperinflationary economies of minus 48 million. This is shown in note four of the consolidated financial statements on page 64. So on page 64, you find that these two numbers, net of taxes and non-controlling interest by the number of diluted shares of 803 million. And this number is outlined in note 29 of the finance report on page 126. Just to confirm that, which is, I think, quite a positive because it sets the higher bar for us, so to say. So hopefully a little bit of a positive for the projections for 2025. Here's the guidance again. Thomas has alluded to it. Let me mention to it the loss of exclusivity impact that we have estimated or that we expect of roughly a billion for 2026. So relatively narrow to what we had for 2025 and well in line between the one and 1.5 billion that we've indicated to you that we will have on an ongoing basis. And with that, I have the pleasure to hand over to Teresa.