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7 000 844 E

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| Annual R

eport 2009

Key figures

1 Key figures indexed to 2007 = 100.2 Before exceptional items.3 Proposed by the Board of Directors.4 Development phase I to IV.5 For calculation of the Eco-Efficiency Rate see:

www.roche.com/environment

Figures for 2007 as in Annual Report 2008.For a full index of Global Reporting Initiative (GRI) indicators used in the report see:www.roche.com/reporting_and_indices

E

Ro

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eport 2009

F. Hoffmann-La Roche Ltd4070 Basel, Switzerland

© 2010

www.roche.com

7 0 846

Excellence in Science

09 Roche Annual Report

All trademarks are legally protected.

Publ shed F Hoffmann- a Roc

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Key figures




00_L_Roche_AR09_ENG_Key figures indd 1 29 01 2010 14:20:10

http://www.roche.com/environment

www.roche.com/reporting_and_indices

The year 2009 in brief

GroupGroup sales increase by 10% • 1 to 49.1 billion Swiss francs (8% in Swiss francs; 7% in US dollars). Both divisions gain market share. Operating profit before exceptional items increases by 14% (8% in Swiss francs) to 15.0 billion • Swiss francs due to strong sales growth and continuing productivity improvements; at the same time investments in research and development increase by 12% to 9.9 billion Swiss francs.Effective 26 March 2009, Roche obtains full ownership of Genentech for a price of 47.0 billion US dollars, • or 52.7 billion Swiss francs. Genentech integration has been completed.Net income of 8.5 billion Swiss francs, down by 22% compared with the previous year due to exceptional • items relating to the Genentech transaction and integration.Excluding exceptional items, the Genentech transaction is already contributing to income: • income attributable to Roche shareholders increases by 9% to 9.8 billion Swiss francs.Core EPS at constant exchange rates 20% above 2008 (10% in Swiss francs).• Board proposes a dividend increase of 20% to 6.00 Swiss francs, the 23• rd consecutive year of dividend growth; this would increase the payout ratio to 53%.

PharmaceuticalsPharma sales grow by 11% (8% in Swiss francs; 8% in US dollars), almost twice the global market • growth rate, driven by leading cancer medications and Tamiflu (influenza medicine) as well as Lucentis (ophthalmology medicine).Tamiflu sales grow sharply to 3.2 billion Swiss francs following substantially increased demand during • the pandemic influenza A(H1N1) virus (‘swine flu’) outbreak.Operating profit margin before exceptional items increases • 1.2 percentage points at constant exchange rates (+0.2 percentage points in Swiss francs).Strong R&D pipeline with ten new molecular entities in late-stage clinical testing; six new compounds • entered phase I I I clinical trials in 2009.Actemra approved in US for treatment of rheumatoid arthritis in January 2010.•

DiagnosticsSales increase by 9% (4% in Swiss francs and 4% in US dollars) to 10.1 billion Swiss francs, more than • twice the market growth rate.Operating profit margin at constant exchange rates increases 0.4 percentage points (–0.4 percentage points • in Swiss francs).

OutlookFull-year 2010 sales for Pharmaceuticals and the Group expected to grow in the mid-single-digit range • 2. Expected decrease of Tamiflu sales from 3.2 to 1.2 billion Swiss francs.• Diagnostics sales expected to grow well ahead of market.• Planned research and development expenses will decline slightly in 2010 compared to 2009.• Roche confirms target of double-digit Core Earnings per Share growth • 3 in 2010.Based on the strong operating free cash flow, Roche expects to reduce debt progressively and to return • to a net cash position by 2015 while maintaining its attractive dividend policy.

1 Unless otherwise stated, all growth rates are in local currencies.2 Without Tamiflu sales.3 At constant exchange rates.Barring unforeseen events.

01_L_Roche_AR09_ENG_Highlights indd 1 29 01 2010 10:14 03

Pharmaceuticals pipeline | Focused on compounds with first-in-class or best-in-class potential

Project ID Project/Product Indication

Oncology

RG4733 γ-secretase inh solid tumours

RG7160 anti-EGFR huMAb solid tumours

RG7167 CIF/MEK inh solid tumours

RG7304 — solid tumours

RG7334 anti-PlGF MAb solid tumours

RG7347 anti-NRP1 MAb solid tumours

RG7112 MDM2 antag solid and hematologic tumours

RG3639 dulanermin cancer

RG7420 MEK inh solid tumours

RG7422 PI3 kinase inh solid and hematologic tumours

RG7321 PI3 kinase inh solid tumours

RG7414 anti-EGFL7 MAb solid tumours

CHU anti-Glypican MAb liver cancer

Inflammation and autoimmune disorders

RG7413 anti-Beta7 rhuMAb ulcerative colitis

RG7416 anti-LT alpha MAb rheumatoid arthritis

BTI VAP-1 inflammatory diseases

Virology

CHU serine palmitoyltrans-ferase inh

hepatitis C

CHU nitazoxanide hepatitis C

Cardiovascular and metabolic diseases

RG7089 Y2R peptide agonist type 2 diabetes

RG1512 anti-P selectin huMAb peripheral vascular disease

RG4929 11β-HSD inh type 2 diabetes

RG7234 11β-HSD inh type 2 diabetes

RG7273 ABCA1 inducer dyslipidemia

RG7376 CRAF inh polycystic kidney disease

RG7418 anti-oxLDL MAb secondary prevention of cardiovascular events

RG7426 (BHT-3021) type 1 diabetes

Central nervous system

RG1450 gantenerumab Alzheimer’s disease

RG1578 mGluR2 antag depression

RG1662 GABA-A agonist Alzheimer’s disease

RG7010 IGF1 PEG amyotrophic lateral sclerosis

RG7166 triple reuptake inh depression

RG7351 TAAR1 partial agonist depression

RG7412 anti-amyloid β-peptide MAb

Alzheimer’s disease

EVO NMDA receptor antag treatment-resistant depression

Ophthalmology

RG7417 anti-factor D MAb geographic atrophy

Phase I Phase II Phase III RegistrationProject ID Project/Product Indication

Oncology

RG435 Avastin multiple myeloma

RG435 Avastin metastatic melanoma

RG1273 pertuzumab neoadj breast cancer, HER2+

RG3502 trastuzumab-DM1 metastatic BC, HER2+, 3rd-line

RG3502 trastuzumab-DM1 metastatic BC, HER2+, 1st-line

RG3616 hedgehog pathway inh basal cell carcinoma

RG3616 hedgehog pathway inh colocrectal cancer

RG3616 hedgehog pathway inh ovarian cancer

RG7159 anti-CD20 huMAb non-Hodgkin’s lymphoma

RG3638 anti-MET huMAb metastatic NSCLC

RG7433 (ABT-263) solid and hematologic tumours

CHU topoisomerase I inh gastric cancer


RG667 palovarotene emphysema

RG3637 lebrikizumab asthma

RG4930 OX40L huMAb asthma

RG7415 rontalizumab systemic lupus erythematosus

RG3648 Xolair chronic idiopathic urticaria

Virology

RG3484 HPV16 immunotherapy cervical neoplasia

RG7128 nucleoside inh prodrug hepatitis C

RG7227 protease inh hepatitis C


RG1439 aleglitazar cardiovascular risk reduction

RG7201 SGLT2 inh type 2 diabetes


RG1594 ocrelizumab relapsing–remitting MS

RG1678 GLYT1 inh schizophrenia

RG3487 nicotinic α7 receptor agonist

Alzheimer’s disease

RG7090 mGluR5 antag treatment-resistant depression


Oncology

RG105 MabThera/Rituxan indolent NHL maint, 1st-line

RG340 Xeloda+Avastin adj colon cancer

RG340 Xeloda adj breast cancer

RG435 Avastin+MabThera diffuse large B cell lymphoma

RG435 Avastin adj colon cancer

RG435 Avastin prostate cancer

RG435 Avastin adj breast cancer HER2+

RG435 Avastin ovarian cancer, 1st-line

RG435 Avastin+Herceptin mBC, HER2+, 1st-line

RG435 Avastin adj NSCLC

RG435 Avastin met gastric cancer

RG435 Avastin adj breast cancer HER2–

RG435 Avastin adj BC, triple negative

RG435 Avastin mBC HER2–, combo hormonal therapy

RG435 Avastin ovarian cancer platinum-sensitive

RG435 Avastin mBC, 2nd-line

RG435 Avastin high-risk carcinoid

RG435 Avastin GBM, 1st-line

RG597 Herceptin SC formulation, BC HER2+

RG597 Herceptin adj BC HER2+, 2-yr treatment

RG1273 pertuzumab mBC HER2+

RG1415 Tarceva NSCLC EGFR mutationpositive, 1st-line

RG1415 Tarceva adj NSCLC

RG1415 Tarceva+Avastin NSCLC maint, 1st-line

RG7159 anti-CD20 huMAb chronic lymphocytic leukemia

RG7204 BRAF inh malignant melanoma

RG3502 trastuzumab-DM1 mBC HER2+, 2nd-line


RG105 MabThera/Rituxan ANCA-associated vasculitis

RG1569 Actemra/RoActemra JIA, systemic onset

RG1569 Actemra/RoActemra early rheumatoid arthritis

RG1594 ocrelizumab rheumatoid arthritis, PJD

RG3648 Xolair asthma, add-on therapy


RG1583 taspoglutide type 2 diabetes

RG1658 dalcetrapib dyslipidemia

Ophthalmology

RG3645 Lucentis diabetic macular edema

RG3645 Lucentis AMD, high dose

Others

RG3625 TNKase catheter clearance


Oncology

RG105* MabThera/Rituxan chronic lympocytic leukemia, 1st-line

RG105* MabThera/Rituxan chronic lympocytic leukemia, relapsed

RG340 Xeloda adj colon cancer, combo oxaliplatin

RG435* Avastin mBC 1st-line combo docetaxel

RG435 Avastin mBC 1st-line combo standard chemotherapies

RG597 Herceptin met gastric cancer HER2+

RG1415 Tarceva NSCLC 1st-line maintenance


RG105 MabThera/Rituxan rheumatoid arthritis, DMARD inadequate responders

RG3648* Xolair pediatric asthma

CHU eldecalcitol (ED-71) osteoporosis

Virology

RG127 Valcyte cytomegalovirus, extension of treatment

Ophthalmology

RG3645 Lucentis retinal vein occlusion

Others

CHU Epogin (EPOCH) chemo-induced anemia

Legend

Therapeutic protein, other biologic

Small molecule

Blue type First indication

Black type Additional indications

RG-No.CHUBTI EVO

Roche and/or Genentech managedChugai managedBioTie opt-inEvotec

Phase I Initial studies in healthy volunteers and possibly in patients

Phase II Efficacy, tolerability and dose-finding studies in patients

Phase III Large-scale studies in patients for statistical confirmation of safety and efficacy

Registra-tion

Marketing application(s) filed in EU, US and/or Japan

* Approved EU

Selected abbreviations

adj adjuvant treatmentAMD age-related macular

degenerationantag antagonistBC breast cancercombo combined withDMARD disease-modifying

antirheumatic drugGBM glioblastoma multiformeHER2+ HER2-positiveHER2– HER2-negativeHPV human papilloma virushu humanised

inh inhibitor JIA juvenile idiopathic arthritisMAb monoclonal antibodymaint maintenance treatmentm, met metastatic (cancer)MS multiple sclerosisNHL non-Hodgkin’s lymphomaNSCLC non-small cell lung cancerPJD prevention of joint

destructionr recombinantSC subcutaneous

Current as of January 2010

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Focus on unsolved medical problemsFor more than 110 years Roche has played a pioneer-ing role in healthcare. Today, as the world leader in in vitro diagnostics, we supply a wide range of diag-nostic instruments and tests for rapid and reliable disease detection and monitoring by doctors, labora-tories and patients themselves. As the world’s largest biotech company Roche has brought many highly effective drugs to market and become the world’s leading supplier of prescription drugs for cancer treatment. Our daily work focuses on disease areas where medical needs are great.

These include cancers, viral infections, metabolic and central nervous system disorders and inflammatory diseases. Roche is a pioneer in personalised health-care: we aim to fit treatments as closely as pos sible to patients’ needs — to make healthcare better, safer and more cost-effective.

Our Business | Innovation is our answer to medical challenges. Our daily work is saving patients’ lives and helping millions of people around the world through excellence in science.

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Contents

Inside cover Key figures Inside cover Pharmaceuticals pipeline

1 The year 2009 in brief

4 Letter to Shareholders

10 Roche Group 11 Group results 12 Outlook 14 Group strategy

20 Pharmaceuticals 21 Pharmaceuticals Division in brief 22 Results 24 Sales review 30 Development highlights 36 Research and development

46 Diagnostics 47 Diagnostics Division in brief 49 Results 52 Business area highlights 57 Research and development

64 Corporate Governance, Remuneration Report 65 Corporate Governance 75 Remuneration Report

88 Corporate Responsibility 89 In brief 90 Responsible practices 97 Patients 104 People 112 Society 114 Safety, security, health and environmental protection

121 Independent Assurance Report 122 GRI statement

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4 Roche Business Report 2009 Letter to Shareholders

Franz B. Humer

Dear Shareholders

Despite the sustained global financial and economic crisis, 2009 was a very successful year for Roche. Salesin both the Pharmaceuticals and the Diagnostics Division grew twice as fast as the market. Group salesincreased by 10% in local currencies to 49.1 billion Swiss francs, mainly driven by our leading medicinesto treat patients with cancer, viral infections, age-related blindness and other serious diseases. Sales ofthe influenza medicine Tamiflu, at 3.2 billion Swiss francs, also contributed significantly to revenue growth.Operating profit before exceptional items grew even more strongly than sales, advancing 14% in localcurrencies to 15.0 billion Swiss francs.

2009 will be remembered as one of the most important years in your company’s long history. Following themerger agreement with Genentech in March 2009 and the rapid finalisation of the transaction, we wereable to complete the integration by the end of the year. By combining Roche and Genentech we are not onlyincreasing operational efficiency but also promoting internal knowledge transfer. We are committed tostrengthening the Roche Group’s innovative power in the long term and to providing patients with inno-vative medicines through research of the highest quality.

Excellent research is and will remain a basic requirement for the development of therapies that are decisivefor patients’ health and quality of life. After concluding the Genentech integration we will continue tosystematically pursue diverse research approaches for innovative healthcare solutions. This creates scopefor creativity and increases the chances of devising sustainable medical and therapeutic progress. Forthis reason Genentech Research and Early Development will continue to function as an independent unit.

Letter to Shareholders

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5

Severin Schwan

In addition, combining the activities of the two companies in the areas of product development, productionand sales has already generated significant increases in productivity. Our aim is to achieve pre-tax annualsavings of approximately 1 billion Swiss francs by 2011.

The operating free cash flow of the Group increased by 27% to 15.7 billion Swiss francs despite significantnegative currency effects. Roche’s strong operating performance is also clearly reflected in Core Earningsper Share, which advanced 20% in local currencies (10% in Swiss francs).

As a result of exceptional costs of 2.7 billion Swiss francs, which were primarily integration-related,the Group’s operating profit in 2009 declined by 5% in local currencies (12% in Swiss francs) to 12.3 billionSwiss francs. Exceptional items also impacted net income, which declined by 22% compared with theprevious-year period to 8.5 billion Swiss francs. Excluding exceptional items, net income attributable toRoche shareholders increased by 9%.

In view of Roche’s strong full-year operating results, at the Annual General Meeting the Board of Directorswill propose an increase of 20% in the dividend for 2009 to 6.00 Swiss francs per share and non-votingequity security (2008: 5.00 Swiss francs). Subject to your approval, this will be the 23 rd consecutiveannual dividend increase.


6 Roche Business Report 2009 Letter to Shareholders

The rapid spread of the pandemic A (H1N1) influenza virus (‘swine flu’), which began in April 2009, pre-sented a major challenge not only for governments worldwide, but also for Roche during the past year. Wehave been supporting the World Health Organization (WHO) and national governments in global effortsto fight the new virus. In May Roche announced that an additional 5.65 million treatment courses of Tamifluwould be donated to replenish the WHO’s regional and rapid-response stockpiles. We had previouslygranted sublicences to three manufacturers to produce generic oseltamivir for pandemic use in China,India and specified developing countries, to ensure that local populations in these areas have access tothe medication. In addition, in July we initiated the Tamiflu Reserves Program to further improve Tamifluaccess in developing countries. In response to the increased WHO pandemic threat level, our network ofmanufacturing partners scaled up production to approximately 33 million treatment courses per month,and we are now able to supply up to 400 million packs annually, if required.

The Roche Group received significant recognition for achievements in several areas during the past year.The Dow Jones Sustainability Indexes named Roche the new ‘Super Sector Leader’ in Healthcare,ranking us as the most sustainable healthcare company worldwide. Roche and Genentech were alsoagain voted ‘best employer’ in a number of countries.

We would like to take this opportunity to thank the more than 80,000 Group employees worldwide for theoutstanding dedication and professionalism during this eventful and challenging time.

Scientific excellence and innovation in our core pharma and diagnostics businesses will continue to be thefoundation of our success. Aside from oncology, we are developing new therapeutics for metabolic andautoimmune diseases, viral infections and disorders of the central nervous system. As the world’s largestbiotech company we have one of the most promising R & D pipelines in the world. From a total of 59 newmolecular entities in clinical testing, ten are already in late stage development — which is remarkable by anystandards in our industry. In the last year alone, six new compounds entered late phase development,including potential new therapies for breast cancer and type 2 diabetes.

During the year we published exciting early phase clinical trial data on a targeted treatment and com-panion diagnostic in malignant melanoma patients whose cancer cells carry a specific genetic mutation;malignant melanoma is the deadliest form of skin cancer. The new compound effectively slowed tumorprogression and increased patients’ quality of life. This is a beacon of hope in the fight against a cancerthat until now has been regarded as virtually untreatable.

Among the key achievements in our Diagnostics Division are the start of the rollout of the cobas 8000modular analyser series for large medical laboratories and the launch of new products in the Accu-Chekline of blood-glucose monitors for people with diabetes.

At the end of 2009 William M. Burns, CEO of the Pharmaceuticals Division, Jürgen Schwiezer, CEO of theDiagnostics Division, and Jonathan K.C. Knowles, Head of Roche Group Research, left the CorporateExecutive Committee as planned. Each of them has made significant contributions to Roche’s success andhelped write an important chapter in the company’s history. Every generation of managers has the taskof ensuring Roche’s healthy future as an independent company. Bill Burns, Jonathan Knowles and JürgenSchwiezer have fulfilled this task in an exemplary manner driven by profound conviction. They have


7

significantly contributed to Roche’s strong market position and success. On behalf of the entire Board ofDirectors and the Corporate Executive Committee, we would like to thank them for their many years ofinvaluable service, loyalty to Roche and for the great working relationship we enjoyed.

In view of their outstanding industry knowledge, the Board of Directors will propose appointing WilliamM. Burns and Arthur D. Levinson, Chairman of Genentech Board of Directors, to the Board of Directors ofRoche Holding Ltd at the Annual General Meeting on 2 March 2010.

Prof. Horst Teltschik and Peter Brabeck have decided not to stand for re-election at the 2010 AnnualGeneral Meeting. We are very grateful for their valuable contributions to the company over a period of manyyears.

Barring unforeseen events, we expect sales in 2010 for the Pharmaceuticals Division and for the Groupto increase in the mid-single-digit range in local currencies 1. In the Diagnostics Division, we expect full-yearsales to grow considerably ahead of the market. Furthermore, we are aiming to achieve double-digitCore Earnings per Share growth at constant exchange rates in 2010. We anticipate that we will already haverepaid 25% of the debt raised to finance the Genentech transaction by the end of 2010. Based on theGroup’s strong operating free cash flow, Roche expects to return to a net cash position by the end of 2015.We will simultaneously maintain our attractive dividend policy.

Franz B. HumerChairman of the Board

Severin SchwanChief Executive Officer

Bringing Genentech fully into the Roche Group is a major step on the road to creating a stronger, even more innovative organisation

1 Excluding Tamiflu sales.


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Roche is tackling some of modern medicine’s greatest challenges in its search for medicines to combat serious illnesses for which no effective treatment exists. It’s a quest that requires both sophisticated technological capabilities and deep insights into molecular biology. To select optimal targets for drug treatment, you first need to understand the complex biological mechanisms driving a disease. In the case of Avastin, the targeted blockade of a blood-vessel growth factor — an approach first developed by Genentech scientists — starves tumours of the nutrients and oxygen they need to grow and spread. This has fundamentally changed the way we fight cancer. Avastin is currently approved to treat five types of cancer and is being investigated as a possible treatment in over 30 different tumour types, giving hope to thousands of patients.

Avastin is a monoclonal antibody used to treat advanced colorectal, breast, non-small cell lung and kidney cancer. In 2009 it was also approved in the US and eleven other countries for the treatment of relapsed glioblastoma multiforme, the most aggressive type of brain tumour.

She’s working on a starvation dietfor aggressive brain tumours


Roche Group | Very strong operating performance in 2009. Group sales, operating profit (before exceptional items) and Core Earnings per Share increased by double digits. Roche anticipates another doubledigit rise in Core EPS in 2010. The Group remains firmly focused on prescription drugs and in vitro diagnostics. Following the successful integration of Genentech, Roche is better equipped than ever to be a healthcare innovator.

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Roche GroupStrong sales and trading resultsTotal sales grew by 10% in local currencies (8% inSwiss francs; 7% in US dollars) to 49.1 billion Swissfrancs, with the Pharmaceuticals Division accountingfor 80% of Group sales and the Diagnostics Divisioncontributing 20%. Sales growth in both divisionsexceeded market growth.

Sales by the Pharmaceuticals Division increased11% in local currencies (8% in Swiss francs; 8% inUS dollars) to 39.0 billion Swiss francs or almostdouble the global market growth rate. Demand forthe Group’s cancer medicines Avastin, Herceptin,MabThera/Rituxan, Tarceva and Xeloda continued togrow strongly. Additional major growth drivers inthe Pharmaceuticals Division were Tamiflu in virologyand Lucentis in ophthalmology.

The Diagnostics Division achieved sales growth of 9%in local currencies (4% in Swiss francs; 4% in US dollars) to 10.1 billion Swiss francs, thereby strengtheningthe divisions leading market share of around 20%.

The Group’s operating profit before exceptional itemsincreased by 14% in local currencies (8% in Swissfrancs) to 15.0 billion Swiss francs. Operating profitin local currencies grew 15% to 14.2 billion Swissfrancs before exceptional items in the PharmaceuticalsDivision and 12% to 1.2 billion Swiss francs in theDiagnostics Division.

At constant exchange rates, the Group’s operatingprofit margin before exceptional items increased1.0 percentage points, with the Pharmaceuticals Division improving 1.2 percentage points and the Diagnostics Division 0.4 percentage points. Due to anunfavourable combination of exchange rate movements, however, the Group’s operating profit marginbefore exceptional items in Swiss francs increasedonly slightly, by 0.1 percentage points to 30.6%, withthe Pharmaceuticals Division improving 0.2 percentage points to 36.3% and the Diagnostics Divisiondecreasing 0.4 percentage points to 11.9%.

The Group’s operating free cash flow increasedstrongly, rising 34% in local currencies (27% in Swissfrancs) to 15.7 billion Swiss francs. The Group’sfree cash flow remained strong in 2009, increasing by3.9 billion Swiss francs to 8.9 billion Swiss francs.

Core EPS, which excludes exceptional itemsand amortisation and impairment of intangible assets,increased 20% in local currencies (10% in Swissfrancs).

Significant impact of Genentech integration and changes in Group organisationEffective 26 March 2009, the Group obtained fullownership of Genentech. Subsequently, the Groupcommenced a restructuring of its US Pharmaceuticalsbusiness as well as a number of global functions.During 2009 restructuring and integration costs of2.4 billion Swiss francs were incurred, mainly inconnection with the discontinuation of a constructionproject at the manufacturing site at Vacaville, California,termination costs for the closure of manufacturingoperations at Nutley, New Jersey, the closure of theresearch and development site at Palo Alto, California,and costs associated with the consolidation of theUS administrative functions in South San Francisco.Approximately 1.8 billion Swiss francs of these exceptional operating expenses are noncash items relatedmainly to impairments of manufacturing assets.

The Group financed the Genentech transaction bya combination of the Group’s own funds, bonds, notesand commercial paper. The Group raised net proceeds of 48.2 billion Swiss francs through a seriesof bond and note offerings. As a consequence, interestexpenses increased substantially in 2009, andfinancing costs exceeded financial income by 1.7 billion Swiss francs. By the end of 2009, the Grouphad already repaid debt of 6.9 billion Swiss francs.

Compared to 2008, net income decreased by 22% to8.5 billion Swiss francs, primarily due to exceptionalitems. Net income attributable to Roche shareholdersdeclined 13% to 7.8 billion francs. Excluding exceptional items, net income was down 3% and net income


12 Roche Business Report 2009 Roche Group

attributable to Roche shareholders was 9% highercompared to 2008.

The net debt position of the Group is 23.9 billionSwiss francs, a movement of 40.6 billion Swiss francsfrom a net cash position of 16.7 billion Swiss francson 31 December 2008 due to the 52.7 billion Swissfrancs used in the Genentech transaction.

OutlookBarring unforeseen events, Roche expects salesin 2010 for the Pharmaceuticals Division and forthe Group to increase in the midsingledigit rangein local currencies (excluding Tamiflu). In theDiagnostics Division, we expect fullyear sales togrow significantly ahead of the market. Despitean anticipated decrease in Tamiflu sales from 3.2to 1.2 billion Swiss francs, we are aiming to achievedoubledigit Core Earnings per Share growth atconstant exchange rates.

Roche expects research and development expenditures to decline slightly in 2010. However, the Group’sfocus remains firmly on innovation, and it willcontinue to invest to support its rich pharmaceuticalsdevelopment pipeline, which currently includesten new molecular entities and 30 additional indications for existing products in latestage development.Over the next 12–18 months the PharmaceuticalsDivision expects to file marketing applications forseveral major line extensions of our key cancer medicines including Avastin, MabThera/Rituxan andXeloda, as well as for taspoglutide for type 2 diabetes.

We expect to repay 25% of the debt raised to financethe Genentech transaction by the end of 2010.By 2011 the Group aims to achieve pretax annualsynergies of approximately 1 billion Swiss francs.Based on the Group’s strong operating free cash flow,we expect to reduce debt progressively and toreturn to a net cash position by 2015. We will simultaneously maintain our attractive dividend policy.


13

Corporate Sustainability: key achievements in 2009

Responsible Named Healthcare Super Sector Leader in Dow Jones Sustainability Indexes (DJSI).

practices Reselected for the DJSI World and STOXX indices and the FTSE4Good index.

Produced five new position papers on: stem cells and cloning; nanotechnology; biobanks;

personalised healthcare; and the value of our products and services.

Launched Group-wide phone line and web-based system for reporting violations of our

Code of Conduct.

Developed new Supplier Code of Conduct to describe our requirements in ethics;

safety, health an environment; innovation; supplier diversity; economic sustainability and

social responsibility.

Patients and access

to healthcare

OneWorld Health completed first screening of Roche’s chemical compound library

to find new drugs to treat diarrhea.

Joined a public-private partnership with Novo Nordisk and the World Diabetes Foundation

to improve care for children with diabetes in Africa.

Donated 5.65 million additional Tamiflu courses to replenish WHO stockpiles.

Launched Tamiflu Reserves Program to increase access in developing countries.

Provided free treatment to 40,500 patients in the US through the Roche/Genentech Access

programmes.

Disclosed all financial and in-kind support for patient organisations on our website.

People Global employee Listening to You survey resulted in 91% of employees expressing job

satisfaction at Roche.

Genentech voted Science magazine’s top employer for the seventh time.

Rolled out globally aligned performance management and compensation principles and

began to align these between Genentech and Roche.

Expanded global leadership programme portfolio, providing key programmes at every stage

in the leadership development and talent pipeline.

Society Launched new Corporate policy on philanthropic donations and non-commercial sponsorship.

Launched cancer awareness campaign in rural South Africa, which trains nursing staff, offers

free screening for breast, cervical and prostate cancers, and raises awareness of the disease.

Safety, health and Produced manual on energy efficient design standards for our buildings.

environmental

protection

Launched e-learning programme on safety, security, health and environmental protection

for all employees.

Launched the Roche Environmental Awareness in Chemical Technology (REACT) programme

to reduce the environmental impact of our products.

To learn more about Roche’s achievements in these areas, see the Corporate Responsibility section of this report on pages 88–120.



At Roche we focus on developing medicines and diagnostics that will help patients live longer, better lives. We strive to address unmet medical needs through excellence in science. With Genentech now fully integrated into the Roche Group, our research and development teams can collaborate on projects and share resources as never before. As part of the integration, however, we have also ensured that our future organisation will maintain the diversity of approaches essential for successful innovation.

Group Strategy


15

The Roche Business Model:Changing the practice of medicine

Our Focus Fitting treatments to patients

Our Distinctiveness Excellence in science

Our Delivery Value for all stakeholders

Roche Group BusinessWhile the demand for new and improved treatmentskeeps growing, so does the pressure to controlhealthcare costs. In this changing and challengingenvironment we seek to develop medically differentiated products — medicines and diagnosticsoffering significant clinical and health economicbenefits over existing options. To advance this goal,we have refined our business model along threedimensions: Our Focus, Our Distinctiveness and OurDelivery.

Our FocusOur success as a company is built on scientificdiscovery and innovation. We focus on prescriptionpharmaceuticals and in vitro diagnostics and haveno intention of branching out into other healthcaresectors such as generics, overthecounter medicines or medical devices.

Innovation is essential to addressing the many medical needs that are still unmet. Despite significantprogress in the fight against some of mankind’s mostserious diseases, there are still some 5,000 diseasesfor which no treatment exists. And patients’ responserates to many available treatments are unsatisfactory.Today, breakthroughs in science and technologyare transforming our understanding of disease biologyand promise to transform the practice of medicine.At Roche we are working to harness these discoveriesto make tomorrow’s treatments safer, more effectiveand more personalised — to better fit them topatients’ genetic profiles and other characteristics.

We believe that medically differentiated productsare more likely to obtain regulatory approval and beaccepted by patients, physicians and payers.

Our Delivery Roche aims to benefit all stakeholders:

• We want to improve the treatment optionsavailable to patients and doctors, enable medicallaboratories to work more efficiently and helpsocieties contain healthcare costs. We seek toensure that people who need our medicinesand diagnostics have access to them (see pages97–101).

• People who work at Roche have a chance to maketheir mark and improve lives. We seek to provideevery Roche employee with opportunities tocontribute, excel, learn and grow. In 2009 Rocheand Genentech again received ‘best employer’awards in a number of countries.

• We aim to provide our investors with a TotalShareholder Return in the top quartile of ourindustry peer set.

• We conduct our businesses responsibly and seekto have a sustainable, positive impact on societyand the environment. In 2009 we were rated as thenew Super Sector Leader in Healthcare on theDow Jones Sustainability Indexes, ranking us asthe world’s No. 1 company for sustainability in oursector.



Excellence in Science: Our Distinctiveness

Roche’s approach to innovation and excellence in science is distinctive in four ways:

Our Pharmaceuticals and Diagnostics Divisions haveunparalleled expertise in molecular biology. Bothdivisions have industryleading intellectual property andtechnology bases in this field, which they continue tostrengthen through internal development and acquisitions. This expertise equips Roche to play a pioneeringrole in advancing personalised healthcare.

We seamlessly integrate our pharma and diagnostics capabilities along the whole value chain.From discovery to commercialisation, our worldclasspharmaceuticals and diagnostics research organisationsare working together to create better, more costeffective treatment options tailored to patients’ needs.

We promote a diversity of approaches in our pursuit ofinnovation. Genentech Research and Early Development(gRED), Pharma Research and Early Development(pRED), Roche Diagnostics and Chugai operate independently within the Group, forming the hubs of aninnovation network that includes alliances with over150 outside companies.

We take a longterm perspective. Backed bya stable majority ownership dating back over 100 years,we keep our sights on sustainable longterm growthrather than shortterm gains. This is reflected in the company’s incentive system and approach to successionmanagement, and in farsighted business moves suchas our early investments in biotechnology.

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17

Roche Group ManagementOur management model is aimed at sustaining andstrengthening our culture of innovation. Like ourbusiness model, it has three elements: Our People,Our Decision Making and Our Structure.

Our PeopleOur success in drug research and development, ourability to deploy our combined expertise in pharmaceuticals and diagnostics to advance personalisedhealthcare and our skill in balancing longerterminvestment decisions with nearterm deliverables allultimately depend on one thing: our people (seepages 104–111). Roche’s 80,000 employees representevery continent and virtually every country on theglobe, and they bring to their work a diversity ofperspectives and experiences that are a key ingredient of creativity. Respect for diversity, a shared setof standards of integrity, the courage to reach beyondboundaries and a passion about what we do are theelements that bind us together as a company.

Our Decision MakingThe second component of our management modelsets out principles for effective decision making.Decisions need to be informed by a dialogue that issystematic, factbased, open and transparent. Forevery decision there should be a single, accountabledecision maker who collects and critically reviewsinformation and competing views. Empowerment iscrucial: so far as possible decision making shouldbe delegated to the lowest qualified level in theorganisation.

Our Structure Our organisational structure is designed for innovation. Our autonomous research and developmentcentres and alliances with external partners fosterdiversity. The truly global scale of the Group’s research, development, manufacturing and marketingoperations provides leverage as well as a globalreach for innovation and market success.

The Roche Management Model:Enabling an innovation-driven culture

Our People Integrity. Courage. Passion.

Our Decision Making Accountable and transparent

Our Structure Built for innovation


Actemra/RoActemra is a first-in-class monoclonal antibody for the treatment of rheumatoid arthritis. It binds to the interleukin-6 receptor and blocks the effects of the signalling protein IL-6, a key driver of inflammation in rheumatoid arthritis.

Searching for a safe and effective new medicine is like looking for a needle in a haystack: only one in many thousands of potential candidates ever completes the journey from idea to pharmacy shelf. Because we know that a diversity of approaches produces prom -ising ideas faster, Roche has built a unique innovation network of independent research and development (R & D) centres. In add i - tion to Roche’s pharmaceutical and diagnostic R & D units, it com prises Genentech Research and Early Development in the US and Chugai R & D laboratories in Japan, as well as alliances with around 150 partners worldwide. One of the most recent products of successful collaboration of this kind is Actemra/RoActemra, a biological medicine with a new target for use in patients with rheu-matoid arthritis. Discovered by Chugai and codeveloped with Roche, Actemra/RoActemra is now being made available to patients all over the world thanks to the global reach of the Roche Group.

He’s paving the way

for a new drug for rheumatoid arthritis


Pharmaceuticals | In 2009 demand for key medicines and efficiency gains resulted in double-digit increases in sales and operating profit. Thirteen major marketing approvals and positive results from 16 phase III clinical trials confirmed the division’s growth potential. The Pharmaceuticals Division is focused on translating excellence in science into effective medicines for patients. It combines cutting-edge research at Roche, Genentech in the US, Chugai in Japan and over 150 partners worldwide with global scale and reach in clinical development, manufacturing and commercial operations.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 20 29 01 2010 12:46 58

21

Pharmaceuticals Division in brief

Key figures

In millions of CHF% change

in CHF% change in

local currencies % of sales

Sales 38,996 8 11 100

— United States 14,805 6 5 38

— Western Europe 10,827 5 12 28

— Japan 4,765 43 29 12

— International (Asia—Pacific, CEMAI 1,

Latin America, Canada, Others)

8,599 4 13 22

Operating profit before exceptional items 14,154 9 15 36.3

Operating free cash flow 14,923 24 30 38.3

Research and development 8,896 13 13 22.8

1 CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

Pharma Executive Committee | 31 December 2009

William M. Burns 1 CEO Division Roche Pharmaceuticals

George B. Abercrombie 1 North America

Jennifer M. Allerton Informatics

Silvia Ayyoubi Human Resources

Ian Clark 2 Global Product Strategy

Jean-Jacques Garaud Development

Peter Hug Western Europe

Jonathan K.C. Knowles 1, 3 Group Research

Dominic P. Moorhead 1 Finance and Controlling

Christopher Murray 3 Commercial Operations, Chugai

Pascal Soriot 2 Commercial Operations, CEO Genentech

Klaus Strein 4 Pharma Research

Jan van Koeveringe1 Global Technical Operations

Dan Zabrowski Pharma Partnering

1 To 31 December 2009 — see also Corporate Governance. 2 From 1 January 2010: CEO Genentech (I. Clark), Chief Operating Ofiicer Pharmaceuticals Division (P. Soriot). 3 Extended team.4 Ad interim.


22 Roche Business Report 2009 Pharmaceuticals

Pharmaceuticals Division2009 was a transformational year for the Pharmaceuticals Division. After obtaining full ownership ofGenentech in March, Roche moved swiftly tocombine the two companies’ clinical development,manufacturing and commercial operations. GenentechResearch and Early Development remains an independent unit within the Roche Group, preserving thediversity of scientific approaches we believe helpsto drive innovation. The integration of Genentech waslargely complete by the end of the year.

In operational terms, 2009 was another very goodyear for the Pharmaceuticals Division, with doubledigit increases achieved in both sales and operatingprofit. Abovemarket sales growth was drivenprimarily by strong demand for key medicines fromthe Group’s virology and oncology portfolios. Theglobal spread of the pandemic A (H1N1) 2009influenza virus led to unprecedented demand forTamiflu from the second quarter on. Roche is cooperating with the World Health Organization and nationalgovernments to address the threat posed by thenew influenza strain and has increased productioncapacity to ensure adequate supplies of Tamiflu.

In addition to marketing authorisation for the targeted biologic Actemra/RoActemra, for rheumatoidarthritis, in the European Union and, in January 2010,the United States, the division also gained approvalsfor new indications for marketed products suchas Avastin (cancer) and MabThera/Rituxan (cancer,rheumatoid arthritis). Programmes aimed atexpanding the use of key products or supportingplanned marketing applications for new compoundsresulted in positive data from 16 major phase II Iclinical trials. Some of these results have already beenused to support regulatory filings. Good progresswas made in the clinical development of promisingnew product candidates such as ocrelizumab(rheumatoid arthritis, multiple sclerosis), TDM1(breast cancer), RG7204 (malignant melanoma),taspoglutide (type 2 diabetes) and RG1678(schizophrenia). The combined Roche and Genentech

R & D pipeline is now one of the richest in theindustry, with eight new molecular entities currentlyin phase II I/registration, 16 in phase II and 35 inphase I clinical development.

Results and main business developments

Sales by the Pharmaceuticals Division rose 11% inlocal currencies (8% in Swiss francs and US dollars)to 39.0 billion Swiss francs, or almost double theglobal pharmaceuticals market growth rate (6%) 1. Theworldwide spread of the pandemic A (H1N1) 2009influenza virus led to very strong demand for Tamiflufrom the second quarter on. Overall, Tamiflu contributed 2.6 billion francs, or 7 percentage points,to fullyear Pharmaceuticals sales growth. ExcludingTamiflu, the division’s sales increased 4% 2, drivenby demand for key products, including Avastin,Herceptin, MabThera/Rituxan, Lucentis, Mircera,Tarceva, Activase/TNKase and Actemra/RoActemra.

In operational terms, 2009 was another very good year for the Pharmaceuticals Division, with double-digit increases in both sales and operating profit. The integration of Genentech pro-ceeded swiftly and was largely complete by the end of the year.

1 Pharmaceutical market growth according to IMS (to end of September 2009).

2 Unless otherwise stated, all growth rates are in local currencies.

Sales by region

United States 38% (+5%)

Asia—Pacific 5% (+20%)

Latin America 6% (+7%)

Other regions 3% (+12%)

CEMAI 8% (+13%)

Western Europe 28% (+12%)

Japan 12% (+29%)

Italics = growth rates (local currencies). CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.


23

The integration of Genentech and operational restructuring made 2009 a transformational year for the Pharmaceuticals Division

Yearonyear sales growth in the fourth quarter (8%)was heavily impacted by planned reductions inwholesaler inventory levels in several major markets.These resulted in part from a comprehensive reviewof distribution channel exposure against the background of the global financial crisis. In addition,the harmonisation of distribution systems in the USfollowing the merger of Genentech and RochePharmaceuticals triggered a review of wholesalerinventory policy and subsequent destocking.

All regions contributed to the division’s strong salesgrowth. In the United States growth of key oncologyproducts, Tamiflu and Lucentis more than compensated for lower sales of CellCept and Boniva and thevoluntary withdrawal of Raptiva. Sales in WesternEurope were driven by demand for Tamiflu, Avastin,MabThera and Mircera, which more than offsetdeclining sales of NeoRecormon. Sales by Chugai inJapan increased strongly due to demand for Tamiflu,key cancer medicines and Actemra. Sales in theInternational region (Asia—Pacific, CEMAI 3, LatinAmerica, Canada, Others) were driven by demandfor Tamiflu, key cancer medicines and Pegasys.

In 2009 the Pharmaceuticals Division’s operatingprofit before exceptional items advanced significantlyfaster than sales, rising 15% in local currencies (9%in Swiss francs) to 14.2 billion Swiss francs. This strongincrease was driven mainly by the performance ofour key pharmaceutical products and ongoing measures to improve efficiency. The operating profitmargin increased 1.2 percentage points in local currencies (0.2 percentage points in Swiss francs) to36.3% despite increased investments for new productlaunches and in research and development. Thesignificant increase in R & D costs, up 13% to 8.9 billionSwiss francs, reflects investment in the division’sstrong latestage pipeline, including promising compounds such as dalcetrapib, taspoglutide, pertuzumaband TDM1. The rise in R & D expenses was alsodriven by higher impairments of intangible assets. At302 million, these were 203 million francs higher thanin 2008, due primarily to the termination of a numberof projects following a comprehensive review of the

combined Roche and Genentech portfolio (see below,p. 37). For more information on the division’s operating results, see the Finance Report (Part 2 of thisAnnual Report).

The division continued to generate a strong cash flowin 2009. Operating free cash flow increased 30% inlocal currencies (24% in Swiss francs) to 14.9 billionSwiss francs, driven by the strong operating performance. Continuous cost management and cashflow generation are key priorities at Roche. Thisis reflected in ongoing global initiatives to increaseoperational efficiency and productivity in areassuch as information technology, manufacturing andadministration. Further stimulus is now being providedby the Genentech integration, which involved amajor reorganisation not only of US pharmaceuticaloperations but also of the division’s global functions.Synergies are already being generated as a resultof the consolidation in South San Francisco of administrative functions for the combined US organisation,the closure of the Palo Alto site, and the reshaping ofglobal manufacturing operations (see Manufacturing infrastructure, below). We aim to achieve pretaxannual synergies of approximately 1 billion Swissfrancs by 2011.

Manufacturing infrastructureThe company is well on track with the integration andoptimisation of the combined Roche and Genentechsupply network and is reshaping its global manufacturing organisation to concentrate activities, aligncapacity requirements and improve efficiency. As partof the realignment, a second bulk drug productionunit at Genentech’s Vacaville (USA) facility will not becommissioned and a new unit at Roche’s Penzberg(Germany) plant will not be completed.

The Pharmaceuticals Division currently operates24 production sites worldwide. Although consolidation

3 Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.



is taking place in manufacturing, Roche continues toinvest in its supply network to ensure delivery ofmarketed medicines and products in clinical development. In May Roche opened an additional largescale,multipurpose chemical production unit in Florence,South Carolina (USA). A new production centrein Kaiseraugst (Switzerland) for the manufacture ofmedicines in sterile forms, including liquid andlyophilised vials and prefilled syringes, was inaugurated in June. In August Roche exercised an optionpreviously held by Genentech to purchase a biologicmanufacturing facility built by Lonza in Singapore.The stateoftheart facility, which is mechanicallycomplete, has been merged with an existing biologicmanufacturing facility built by Genentech. The combined Singapore operations — Roche’s first suchfacilities in Asia — will play a key role in the Group’sglobal manufacturing network. In November thetoppingout ceremony for a new technical researchand development building in Basel (Switzerland)took place. The new facility, scheduled for completionin 2011, will house a centre for the development ofproduction methods and the manufacture of clinicaltrials samples.

In response to the worldwide spread of the pandemicA (H1N1) influenza virus, our manufacturing organisation and supply chain management also met thechallenge of ensuring adequate Tamiflu supplies topatients worldwide. Roche and its manufacturingpartners rapidly increased production capacity forTamiflu to approximately 33 million treatment coursesper month and are now able to supply up to 400 million packs annually, if required.

Pharma Partnering updateCollaboration with external partners is an integral partof Roche’s R & D strategy. Access to external innovation through licensing and targeted acquisitions isa significant means of strengthening the R & D portfolioand expanding the Group’s technology capabilities.In 2009 Roche Pharmaceuticals signed a total of 55new agreements, including four product transactions

and 51 research and technology collaborations. Inaddition, ten product outlicensing agreements weresigned. Among the main transactions were a secondlicensing agreement with Plexxikon, announcedin January, for PLX5568 (RG7376), a novel kinaseinhibitor for polycystic kidney disease, and a furtheragreement with Evotec, announced in March, forphase II development of EVT 101 for treatmentresistant depression. Roche entered into a productdevelopment agreement with Tekmira Pharmaceuticalsin May to advance Roche’s first two RNA interference product candidates into human clinical testing.Both product candidates will be based on Tekmira’sstable nucleic acidlipid particle (SNALP) technology.

Genentech Partnering completed four product transactions, one outlicensing deal and 46 researchand technology collaborations during the year. Theseinclude an agreement signed in June with BayhillTherapeutics for an exclusive collaboration for Bayhill’spromising drug candidate BHT3021, currently inphase I development for type 1 diabetes. In OctoberGenentech signed an agreement with SurModics,granting Genentech an exclusive licence to useSurModics’ proprietary biodegradable microparticlesdrug delivery system to develop and commercialisea sustained drug delivery formulation of Lucentis. Theagreement also provides Roche and Genentechwith opportunities to develop additional compoundsfor the treatment of ophthalmic diseases.

Sales review — selected key products

The Pharmaceuticals Division’s sales growth isbroadly based. In 2009 eleven products from sixtherapeutic areas generated sales of over 1 billionSwiss francs each. Of these medicines, the topthree achieved sales of over 5 billion Swiss francseach. Combined sales of the Group’s top 20 pharmaceuticals amounted to 34.3 billion Swiss francs, or88% of total divisional sales.

Collaboration with external partners is an integral part of Roche’s R & D strategy. In all, Roche and Genentech signed more than 100 new partnering agree-ments in 2009, including product transactions and research and technol-ogy collaborations.


25

Sales of the division’s oncology portfolio rose 8% to 20.7 billion Swiss francs in 2009, led by Avastin, Herceptin, MabThera/Rituxan, Tarceva and Xeloda. Together, these five medicines accounted for around half of total pharma-ceutical sales.

Sales of the division’s oncology portfolio rose 8%to 20.7 billion Swiss francs in 2009, led by the keyproducts Avastin, Herceptin, MabThera/Rituxan,Tarceva and Xeloda. Together, these five medicinesaccounted for around half of total pharmaceuticalsales. An increase of 79% (+2.5 billion Swiss francs)in sales of antiviral medicines, for a fullyear total of5.9 billion francs, was driven primarily by demandfor Tamiflu. Overall sales of the renal anemia portfolioremained stable at 1.3 billion Swiss francs in anincreasingly competitive, costsensitive market. Salesin the combined inflammation/autoimmune/transplantation portfolio declined to 3.0 billion francs, withthe expected negative impact of the CellCept patentexpiry in the United States largely offset by thecontinued success of MabThera/Rituxan in rheumatoid arthritis, as well as strong uptake of Actemra/RoActemra in Japan and its initial launch markets inWestern Europe and elsewhere.

OncologySales of Avastin (bevacizumab), for advancedcolorectal, breast, lung and kidney cancer, and forrelapsed glioblastoma (a type of brain tumour), rose21% to 6.2 billion Swiss francs. Solid doubledigitgrowth was recorded in all regions, driven primarilyby continued uptake in colorectal, breast and lung

cancer. Uptake in Japan, where Avastin is currentlymarketed for advanced colorectal cancer, remainsparticularly strong and is expected to be enhancedby the product’s recent approval for advanced nonsmall cell lung cancer. Sales growth in the UnitedStates is being driven mainly by use in advancedbreast cancer and the new indications glioblastomaand kidney cancer, while high penetration rateswere maintained in established indications such aslung and colorectal cancer.

Overall sales (oncology and rheumatoid arthritis) ofMabThera/Rituxan (rituximab), for nonHodgkin’slymphoma (NHL), chronic lymphocytic leukemia(CLL) and rheumatoid arthritis (RA), rose 6% to6.1 billion Swiss francs. Sustained growth in theoncology segment was driven by uptake in CLLfollowing approval in the EU for firstline treatment 4

and in the relapsed/refractory disease setting in thefirst and third quarters, respectively. Lower salesgrowth in the US reflects the high levels of adoptionof Rituxan in its cancer indications. Sales in the RAsegment were an estimated 900 million Swiss francs,or 15% of the product’s total sales. Growth in thissegment is being driven by increasing and earlier use

Eleven products from six therapeutic areas generated sales of over 1 billion francs each

Sales by therapeutic area

Oncology 53% (+8%)

Inflammatory and autoimmune diseases, transplantation 8% (–6%)

Central nervous system 2% (–5%)

Respiratory 3% (+8%)

Metabolic diseases, bone diseases 7% (–4%)

Infectious diseases 1% (–8%)

Cardiovascular diseases 3% (–2%)

Virology 15% (+79%)

Others 2% (–29%)

Renal anemia 3% (0%)

Ophthalmology 3% (+24%)

Italics = growth rates (local currencies).

4 First-line treatment is the initial treatment given after diagnosis.


Chugai

pRED

gRED


Excellence in science:A unique diversity of approaches

150 Partners

Understanding the complex biology of disease is the biggest challenge we face in developing new and better medicines and diagnostics. Scientific breakthroughs are most likely to occur when scientists are free to tackle problems from different angles and in different ways. Our scientists have this freedom. We believe that a diversity of views, cultures and approaches promotes creativity, especially in research and early development. Our own autonomous research and development hubs, augmented by over 150 alliances, provide a natural climate for innovation.

pRED Roche Pharma Research andEarly Development

gRED Genentech Research andEarly Development

Following the integration of Genentech, pRED and gRED operateas autonomous innovation centres focusing on new drugtargets and new molecular entities (NMEs). They have their ownbudgets and external networks and take different approachesto turning excellent science into advances in medical care. This neworganisational structure preserves the values and culture thatenabled the Genentech success story while at the same timestrengthening Roche Pharma’s ability to develop novel medicines.It also makes it easier for our pharmaceuticals and diagnosticsresearchers to share knowledge and technologies across divisionalboundaries.

Oncology

Inflammation / Immunology


Ophthalmology

Virology

Metabolic/Cardiovascular

17

7

11

1

5

10

NMEs in phase I and II


27

Roche is cooperating closely with the World Health Organization and governments worldwide to support pandemic prepared-ness and supply Tamiflu to all patients in need.

of MabThera/Rituxan in patients with an inadequateresponse to one or more tumour necrosis factor(TNF) inhibitors. MabThera is well established as themedicine of choice following inadequate responseto TNF inhibitor treatment and is currently the marketleader in that segment in the EU.

Sales of Herceptin (trastuzumab), for HER2positivebreast cancer, increased 8% to 5.3 billion Swissfrancs. Solid growth throughout the year was drivenby continuing uptake for early breast cancer, especially in Japan and a number of emerging markets,as well as increasing market penetration in EasternEurope. Moderate sales growth in the US andWestern Europe reflects the high market penetrationachieved in both early and advanced breast cancerin these regions.

Sales of Tarceva (erlotinib), for advanced lung andpancreatic cancer, increased 10% to 1.3 billion Swissfrancs. Demand is being driven by increased useof the medicine in secondline 5 nonsmall cell lungcancer (NSCLC) outside the US and in metastaticpancreatic cancer. The main sales contributions camefrom Western Europe and the United States. The moremodest growth in US sales reflects stable penetrationin NSCLC and pancreatic cancer, the competitiveenvironment and reserve adjustments taken duringthe year, primarily for government programmesinvolving discounts.

Sales of Xeloda (capecitabine), for colorectal,stomach and breast cancer, increased 7% to 1.3 billionfrancs, driven primarily by strong gains in the UnitedStates, Japan and China. Growth is being drivenby use in metastatic breast cancer, adjuvant 6 coloncancer and metastatic colorectal cancer. In Chinathe majority of growth is coming from use in patientswith advanced stomach cancer, while in Japan Chugairecorded significant additional growth in the fourthquarter following approval of an expanded metastaticcolorectal cancer indication.

VirologyGlobal sales of the antiinfluenza medicine Tamiflu (oseltamivir) amounted to 3.2 billion Swiss francs in2009, an increase of 435%, or 2.6 billion Swiss francs,compared with 2008. This very high growth wasdriven by unprecedented demand from governmentsand in the retail pharmacy sector following the pandemic A (H1N1) 2009 influenza virus (‘swine flu’)outbreak, which began in April and spread rapidlyworldwide. Sales for pandemic stockpiling amountedto 1.9 billion francs for the full year.

Roche is working with national health authorities toexpand approval for pandemic use of Tamiflu toinclude children under one year of age, as well aspregnant and lactating women, and to gain regulatoryapproval for alternative methods of administering themedicine to infants and young children. The companyalso continues to cooperate closely with the WorldHealth Organization and governments worldwide tosupport pandemic preparedness and supply Tamiflu toall patients in need.

Sales of Pegasys (peginterferon alfa2a), for hepatitisB and C, totalled 1.7 billion Swiss francs in 2009,an increase of 5% over the previous year, driven bymarketshare gains in major markets. Growth isbeing helped by new study data demonstrating thesuperiority of Pegasys over other treatment options,increased use in the treatment of hepatitis B, andincreasing rates of hepatitis diagnosis and treatmentin emerging markets.

OphthalmologyUS sales of Lucentis (ranibizumab), for wet agerelated macular degeneration (AMD, the mostcommon form of agerelated blindness) rose 24% to1.2 billion Swiss francs. Strong doubledigit growththroughout 2009 was driven primarily by an increasein the number of injections administered to patients

5 Second-line treatment is given if the initial, or first-line, treatment does not work or if the cancer stops responding to it.

6 Adjuvant treatment is given after surgical removal of the tumour to lower the risk of relapse.



6,222 6,087 5,266 3,200 1,655

+21% *

Active substance:

bevacizumab

Indications :

colorectal cancer, breast cancer, non-small cell lung cancer, kidney cancer, glioblastoma

+6% *

Active substance:

rituximab

Indications :

non-Hodgkin’s lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis

+8% *

Active substance::

trastuzumab

Indications :

HER2-positive breast cancer

+435% *

Active substance :

oseltamivir

Indications :

treatment and prevention of influenza A and B

+5% *

Active substance :

peginterferon alfa-2a

Indication s:

hepatitis B and C

Avastin MabThera/Rituxan Herceptin Tamiflu Pegasys

Top-selling pharmaceuticals — Roche Group | in millions of CHF


29

1,576 1,560 1,304 1,260 1,198

–22% *

Active substance :

mycophenolate mofetil

Indications :

transplantation

–11% *

Active substance :

epoetin beta

Indication s:

anemia

+10% *

Active substance :

erlotinib

Indications :

advanced non-small cell lung cancer, advanced pancreatic cancer

+7% *

Active substance :

capecitabine

Indication s:

colorectal cancer, breast cancer, stomach cancer

+24% *

Active substance :

ranibizumab

Indications :

wet age-related macular degeneration

CellCept NeoRecormon, Epogin Tarceva Xeloda Lucentis **

Above-market sales growth was driven primarily by strong demand for key virology and oncology medicines

Images are not to scale.* Year-on-year sales growth in local currencies.** Jointly marketed by Genentech and Novartis.



In May 2009 the FDA granted accelerated approval for the use of Avastin for relapsed glioblas-toma, the most aggressive form of brain tumour. In January 2010 the agency approved Actemra for the treat-ment of adult patients with rheumatoid arthritis who have not responded to TNF inhibitor therapy.

in the first and second year of treatment, growth in thenumber of patients treated for wet AMD, and easierreimbursement.

AnemiaIn a highly competitive, pricesensitive market, salesof the renal anemia medication Mircera (methoxypolyethylene glycolepoetin beta), which is nowavailable in over 80 markets worldwide, showedconsistent growth throughout 2009, rising 252% to179 million Swiss francs. Sales are being drivenprimarily by the success of the product in the predialysis segment. Combined sales of the Group’sestablished anemia medicines, Roche’s NeoRecormonand Chugai’s Epogin (epoetin beta), declined 11% to1.6 billion Swiss francs. Outside Japan the combinedmarket share of Roche’s anemia franchise (Mirceraand NeoRecormon) continues to increase despitecompetition from new market entrants. The declinein NeoRecormon sales of 14% was due mainly toincreased price pressure as new biosimilars enter themarket. In contrast, the slight decline of Epogin inJapan (–1%) reflects stabilisation of the product’smarket share in the dialysis segment and continuedexpansion in the predialysis setting.

Inflammation and autoimmune disordersFollowing EU marketing approval in January 2009, byyearend the novel rheumatoid arthritis (RA) medicineRoActemra (tocilizumab, known as Actemra outsideEurope) had been launched in ten EU countries,including Germany, France, Spain and the UnitedKingdom. Sales uptake in the initial European launchmarkets has been strong. Following launches inadditional markets, including Switzerland, India andBrazil, Actemra/RoActemra is now available in over25 countries worldwide. The response from physiciansis very encouraging. Global sales rose 289% to 146million Swiss francs in 2009. In Japan, where Actemrawas approved for RA in adults and for related pediatric indications in April 2008, adoption and marketpenetration are progressing well, with doctors alreadyusing the medicine as a firstline biologic treatment inmany patients. Sales in Japan amounted to 98 millionSwiss francs, an increase of 146%.

TransplantationSales of CellCept (mycophenolate mofetil), for theprevention of solid organ transplant rejection,decreased 22% compared with 2008 to 1.6 billionSwiss francs. Sales in the US, the product’s largestmarket, declined sharply from May onwards followingexpiry of the US patent. The continuing erosion ofUS sales through generic competition is being offsetto some extent by solid growth elsewhere, especiallyin Latin America and Japan.

OthersAt the beginning of April Roche and Genentechannounced a phased voluntary withdrawal of thepsoriasis medicine Raptiva (efalizumab) from theUS market. The decision reflects our commitmentto patient safety and was based on the associationof Raptiva with an increased risk of progressivemultifocal leukoencephalopathy (PML), a rare andusually fatal disease of the central nervous system.As part of the measures agreed between the USFood and Drug Administration (FDA) and Genentech,the Raptiva marketing licence was revoked in July.Genentech continues to monitor patient safety.

Development highlights — key marketed products

In 2009 the Pharmaceuticals Division filed 23 majornew marketing applications and gained 13 majorregulatory approvals (see table, p. 31). Positive resultsfrom 16 major phase II I clinical trials investigatingadditional indications for existing key products or withnew products such as taspoglutide and ocrelizumabwere also reported (see table, p. 33). The followingsummaries present approvals, filings and majorclinical trial results for key marketed products, byindication.

Actemra/RoActemraApprovals | In January 2010 the US Food andDrug Administration (FDA) approved Actemra forthe treatment of adult patients with moderately to


31

In 2009 the division filed 23 major marketing applications and gained 13 major approvals

Major regulatory filings in 2009 1

Product Active substance Indication and/or dosage form Country

Avastin bevacizumab relapsed glioblastoma multiforme Switzerland

first-line metastatic breast cancer, combination

with standard chemotherapy

EU, USA, Japan,

Switzerland

ED-71 eldecalcitol osteoporosis Japan

Epogin epoetin beta chemotherapy-induced anemia Japan

Herceptin trastuzumab advanced HER2-positive gastric cancer EU, Switzerland

Lucentis ranibizumab macular edema following retinal vein occlusion USA

MabThera/

Rituxan

rituximab rheumatoid arthritis — patients with an inadequate

response to a disease-modifying antirheumatic drug;

prevention of joint damage 2

EU, Switzerland

first-line chronic lymphocytic leukemia USA

relapsed or refractory chronic lymphocytic leukemia EU, USA, Switzerland

RG744

(Mircera)

methoxy

poly ethylene

glycol-epoetin beta

renal anemia Japan

Tarceva erlotinib non-small cell lung cancer, first-line maintenance

after chemotherapy

EU, USA, Switzerland

advanced pancreatic cancer Japan

Xeloda capecitabine adjuvant colon cancer, combination with oxaliplatin EU, Switzerland

Major regulatory approvals in 2009 1

Product Active substance Indication and/or dosage form Country

Avastin bevacizumab relapsed glioblastoma multiforme USA 3, Switzerland

metastatic breast cancer; combination with docetaxel EU, Switzerland

first-line metastatic renal cell carcinoma, combination

with interferon alfa-2a

USA

unresectable advanced or recurrent non-squamous

non-small cell lung cancer

Japan

MabThera/ rituximab relapsed or refractory chronic lymphocytic leukemia EU, Switzerland

Rituxan first-line chronic lymphocytic leukemia EU

rheumatoid arthritis, patients with an inadequate response

to a disease-modifying antirheumatic drug

USA

Actemra/

RoActemra

tocilizumab rheumatoid arthritis signs and symptoms EU, USA

Xeloda capecitabine advanced or refractory colorectal cancer, combination with

oxaliplatin, with or without Avastin

Japan

1 Includes supplemental indications; updated to 8 January 2010.2 A third indication, for use in patients not previously treated with methotrexate, is no longer being pursued (see p. 36).3 Accelerated approval (FDA).


4060

10%

20%

30%

40%

50%

60%

70%

1970

1972

1974

1976

1978

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

2000

2002

200

4

200

6

200

8 3 2 4 5 6 7 8 9 10 1


Discovering, developing and commercialising new medicines takes time and vision. To stay at the leading edge of innovation, it is essential to invest early in promising new technologies.

We were one of the first pharmaceutical companies to embrace biotechnology, which led to our acquiring a majority stake in Genentech in 1990. Today our biotech products are helping to improve the lives of countless patients in a variety of disease areas, and we are the number-one maker of biologics. We also invested in polymerase chain reaction (PCR) technology when it was still in its infancy — a decision which has helped us to become the global market leader in molecular diagnostics.

One of the technologies we are investing in today is RNA interference (RNAi), which offers a way to target and ‘turn off’ specific genes. RNAi-based medicines could prove a ground-breaking new approach to fighting disease and helping patients.

10 Biotech milestones

Excellence in science:Taking a long-term view

Biotech medicines, or biologics,today account for 65% ofRoche’s pharmaceutical sales —a percentage that has risensignificantly in recent years.Biologics normally have a moretargeted effect and are bettertolerated than conventionalchemical medicines.

Sales of biotech medicines

1970s Research onmonoclonalantibodyproduction

1978 Roche andGenentech’sfirst jointproject

1982 Recombinantinsulin

1986RoferonA

1990 Roche acquires60% ofGenentech

1997 MabThera/Rituxan

1998NeoRecormonHerceptin

2004 Avastin

2008 Actemra/RoActemra

1967Roche foundsInstitute forMolecularBiology

Sales Estimated Sales


33

Avastin is being tested in more than 450 studies in some 30 different tumour types

severely active rheumatoid arthritis (RA) who havehad an inadequate response to one or more tumournecrosis factor (TNF) inhibitors. Actemra, the firstinterleukin6 receptorinhibiting monoclonal antibody approved to treat RA, may be used alone or incombination with methotrexate or other diseasemodifying antirheumatic drugs.

Filings | In September Roche filed an applicationwith the EU’s European Medicines Agency (EMEA)to expand the marketing authorisation for RoActemrato include inhibition of the progression of joint damageand improvement of physical function in patientswith RA. The EU filing is supported by positive twoyear data from the phase II I LITHE trial.

Clinical milestones | An international phase II Istudy (TENDER) met its primary endpoint in November, showing that Actemra/RoActemra significantlyimproved disease signs and symptoms in childrenwith systemic onset juvenile idiopathic arthritis (sJIA)and confirming the results of earlier Japanesestudies. Roche plans to use the data to support global

regulatory filings in this indication. sJIA, a debilitatingand difficulttotreat disease that affects the wholebody, represents an area of high unmet medical need.

AvastinThe global development programme for Avastin is oneof the most comprehensive undertakings in cancerresearch since chemotherapy. More than 450 clinicaltrials worldwide with around 40,000 patients arecurrently investigating the use of Avastin in approximately 30 different tumour types (including colorectal,breast, nonsmall cell lung, brain, stomach, ovarian,prostate and others) and in different settings(advanced or earlystage disease). Results fromphase II I trials investigating the medicine’s potentialin patients with metastatic prostate, ovarian andstomach cancer are expected in 2010.

Approvals | In May the FDA approved the use ofAvastin in patients with previously treated (relapsed)glioblastoma multiforme (GBM), the most aggressiveform of brain tumour, under the agency’s acceleratedapproval programme. The EU’s Committee for

Positive outcomes achieved in 16 major phase II I trials

Disease area Product Indication Study

Oncology MabThera/Rituxan indolent non-Hodgkin’s lymphoma,

first-line maintenance treatment

PRIMA

Avastin second-line metastatic breast cancer RIBBON-2

Xeloda adjuvant treatment of colon cancer NO16968 (XELOXA)

Herceptin HER2-positive stomach cancer ToGA

Tarceva non-small cell lung cancer, first-line maintenance treatment

(overall survival data)

SATURN

Tarceva + Avastin non-small cell lung cancer, first-line maintenance treatment ATLAS

Inflammation Actemra rheumatoid arthritis, progression of joint damage LITHE, 2-year data

Actemra juvenile idiopathic arthritis, systemic onset TENDER

ocrelizumab rheumatoid arthritis, patients with inadequate response

to previous treatment with methotrexate

STAGE

Ophthal-

mology

Lucentis macular edema following central retinal vein occlusion CRUISE

Lucentis macular edema following branch retinal vein occlusion BRAVO

Metabolism taspoglutide type 2 diabetes T-emerge 1, 2, 4, 5, 7



Medicinal Products for Human Use (CHMP) issued anegative opinion in September regarding Roche’sapplication for approval of the same indication. TheUS and EU filings were based on strong clinicalresults from the phase II BRAIN study. Severalinvestigatorled studies continue to explore the roleof Avastin in relapsed GBM. In addition, a large,Roche sponsored phase II I study (AVAGLIO) in over900 patients with newly diagnosed GBM is currentlyunder way with the aim of global filings.

Roche received EU approval in July for Avastin incombination with docetaxel, a commonly used chemotherapy, in the firstline treatment of metastaticbreast cancer. The expanded indication follows EUapproval for combined Avastin and paclitaxel in 2007.In addition, in August the FDA approved Avastin incombination with interferon alfa2a for the treatmentof metastatic renal cell carcinoma, the most commontype of kidney cancer. This follows EU approval ofthe same indication in 2008.

In November Chugai received approval in Japan forAvastin for the treatment of advanced nonsmall celllung cancer.

Filings | Chugai filed a supplementary applicationin October to expand the approved indications forAvastin in Japan to include metastatic breast cancer,based on the results of the E2100, AVADO, andRIBBON1 trials and Japanese studies. In NovemberGenentech filed the AVADO and RIBBON1 data withthe FDA, with the aim of converting the currentaccelerated approval for HER2negative breast cancer(received in 2008) to full approval and allowingAvastin to be combined with further standardchemotherapies. In November Roche also filed theRIBBON1 data with the EU authorities.

Clinical milestones | Full results of the first phase II Itrial of Avastin in earlystage colon cancer (NSABPC08) were presented at the annual meeting of theAmerican Society of Clinical Oncology (ASCO) inMay 7. Although the study did not meet its primaryendpoint of improving diseasefree survival, the data

suggest that Avastin is active in patients with earlystage colon cancer. Further trials investigating Avastinin the adjuvant setting (earlystage disease, aftersurgery to remove the tumour) in colon, breast andlung cancer are ongoing. Results are expected in2010 from a separate, Rochesponsored internationalphase II I study (AVANT) assessing Avastin in combination with chemotherapy for earlystage coloncancer. In October patient recruitment was completedfor BEATRICE, a phase II I trial investigating Avastinin early HER2negative and hormone receptornegative breast cancer.

Full results of RIBBON2, a phase II I trial of Avastinas secondline treatment in women with advancedHER2negative breast cancer who had previouslyreceived chemotherapy, were presented at the SanAntonio Breast Cancer Symposium in December. Thestudy met its primary endpoint, showing that womenwho received Avastin in combination with commonlyused chemotherapies as secondline treatment hada 28% improvement in progressionfree survival 8

compared with chemotherapy alone. Genentech andRoche plan to file the RIBBON2 data in the USand the EU in 2010.

HerceptinFilings | Following an EU marketing application byRoche in September, the CHMP issued a positiverecommendation in December for the use of Herceptinin advanced (metastatic) HER2positive stomachcancer. This recommendation was issued in recordtime, reflecting the high unmet medical need and thestrength of the data from ToGA (see below).

Clinical milestones | Results from the internationalphase II I ToGA trial presented at the ASCO meeting inJune 7 showed that combining Herceptin with standardchemotherapy (Xeloda or intravenous 5fluorouracilplus cisplatin) extends the lives of patients with

Following an EU marketing application by Roche in Sep-tember, the CHMP issued a positive recommendation in December for the use of Herceptin in advanced HER2- positive stomach cancer. The filing was based on strong phase III data show-ing that Herceptin can extend survival in patients with in operable HER2- positive stomach cancer.

7 29 May to 2 June.8 Progression-free survival: the time patients live without

their disease getting worse.


35

Five-year follow-up data confirmed the long- term benefits of one year of adjuvant Herceptin treatment for HER2-positive breast cancer

advanced inoperable HER2positive stomach canceron average by nearly three months to 13.8 months.Patients with tumours exhibiting high levels of HER2experienced even greater benefit from the additionof Herceptin: their lives were extended by more thanfour months to 16 months on average.

In October Roche and Halozyme announced thestart of a phase II I trial investigating infusionfree,subcutaneous administration of Herceptin forwomen with HER2positive breast cancer. The newsubcutaneous formulation is based on Halozyme’sEnhanze technology.

Fiveyear follow updata from two large studiesevaluating adjuvant Herceptin in HER2positive earlystage breast cancer were presented at the SanAntonio Breast Cancer Symposium in December, confirming the longterm benefits of one year of treatmentwith Herceptin. N9831 and BCIRG006, conductedby the North Central Cancer Treatment Group andthe Breast Cancer International Research Group,respectively, showed that Herceptin reduced the riskof the cancer returning by about one third, comparedwith patients receiving chemotherapy alone. In bothstudies 80% or more of women receiving one yearof Herceptin were alive and free of the disease at fiveyears’ followup.

LucentisFilings | Based on the results of BRAVO and CRUISE(see below), in December Genentech filed a supplementary application with the FDA for approval of usein patients with macular edema following retinal veinocclusion.

Clinical milestones | Results of the phase II I BRAVOand CRUISE studies announced in July showed thatLucentis improved vision in patients with swelling inthe retina (macular edema) due to branch retinal veinand central retinal vein occlusion (RVO), respectively.RVO occurs when blood flow through a retinal veinbecomes blocked, causing swelling (macular edema)and hemorrhages in the retina, which may result inblurring or vision loss in all or part of one eye.

MabThera/Rituxan (oncology)Approvals | Roche received EU approval in Februaryfor MabThera in combination with chemotherapy forpreviously untreated chronic lymphocytic leukemia(CLL) and in August for use in patients with relapsedor refractory disease. CLL is the most common formof adult leukemia. In November the US Food andDrug Administration (FDA) issued a CompleteResponse to two supplemental Biologics LicenseApplications submitted by Genentech and BiogenIdec, for approval of Rituxan plus standard chemotherapy in previously untreated or treated CLL. TheFDA has not requested any new data to completeits review of these applications. The companies willcontinue final label discussions with the agency andremain committed to making Rituxan in combinationwith chemotherapy an FDAapproved option for peoplewith CLL.

Clinical milestones | In September Roche, Genentechand Biogen Idec announced positive results from aninternational phase II I study (PRIMA), showing thatMabThera/Rituxan maintenance therapy can significantly increase the time until the disease progressesin newly treated patients with advanced follicularlymphoma, a common type of nonHodgkin’s lymphoma. Because PRIMA met its endpoint during apreplanned interim analysis, the study was stoppedearly. Roche and Genentech plan to file data fromPRIMA with the EU and US health authorities toexpand the current marketing approval.

Updated results from the phase II I CLL8 study werepresented at the annual meeting of the AmericanSociety of Hematology in December. They showedthat patients with previously untreated CLL survivedtheir disease longer when treated with MabThera/Rituxan compared with chemotherapy alone. CLL8 isthe first trial to demonstrate improved overall survivalwith a specific firstline treatment for CLL.

MabThera/Rituxan (rheumatoid arthritis)Approvals | In October the FDA approved updatedRituxan prescribing information that includes guidanceon retreatment of laterstage rheumatoid arthritis



(RA) patients with an inadequate response to antitumour necrosis factor therapies. Clinical trial data onthe medicine’s ability to improve physical functionand slow joint damage for up to two years were alsoadded. At the same time, Genentech received a Complete Response from the FDA for the use of Rituxanplus methotrexate in patients with moderately toseverely active RA who no longer respond to treatment with a disease modifying antirheumatic drug,including methotrexate. Genentech is working withthe FDA to determine next steps regarding the filingfor this indication.

Filings | In June Roche submitted a combinedfiling to the EU health authorities to extend the marketing approval for MabThera as a firstline biologictherapy for rheumatoid arthritis (RA). The new indications being sought are for patients who have hadan inadequate response to methotrexate, the currentstandard treatment option, and for the preventionof joint damage across all RA patient populations. Thecombined filing followed positive results from theIMAGE, SERENE and MIRROR trials, which showedthat MabThera improves the signs and symptomsof RA and can significantly reduce the progressionof joint damage. Roche is no longer pursuing approvalfor a third indication originally included in the combined filing, for use in patients who have not hadprevious treatment with methotrexate, based on areassessment of the riskbenefit ratio in this patientpopulation.

TarcevaApprovals | In September the Chinese health authorities approved Tarceva for the secondline treatmentof patients with advanced nonsmall cell lung cancer(NSCLC).

Filings | In March Roche and OSI Pharmaceuticalssubmitted applications to the EMEA and the FDA,respectively, for approval of Tarceva as maintenancetherapy in patients with locally advanced or metastaticNSCLC whose disease has not progressed followingfirstline chemotherapy. Both filings were based ondata from the phase II I SATURN trial. In December

the FDA’s Oncologic Drugs Advisory Committeerecommended against approving Tarceva for this use.The agency is not bound by this recommendation.In January, following the submission by OSI of furtherdata, the FDA extended the review period for theapplication and is now expected to make a decisionby April 2010. In September Chugai filed a supplementary marketing application in Japan for approvalof Tarceva in pancreatic cancer.

Clinical milestones | Results from a phase II I study(ATLAS) released in February showed that Tarcevain combination with Avastin for firstline maintenancetreatment of patients with advanced NSCLC significantly delayed the time to disease progression. In JulyRoche, Genentech and OSI announced that theSATURN trial had met an important secondary endpoint of extending overall survival in patients withadvanced NSCLC who received Tarceva immediatelyafter initial chemotherapy. This builds on earlierresults from SATURN showing that Tarceva improvedprogressionfree survival, the trial’s primary endpoint.

XelodaApprovals | In September Chugai received approvalin Japan for additional indications for Xeloda andAvastin. Xeloda can now be used in combination withoxaliplatin chemotherapy, with or without Avastin,in the treatment of patients with metastatic colorectalcancer.

Filings | Roche filed an application in the EU inDecember for approval of Xeloda in combination withoxaliplatin for the adjuvant (postsurgical) treatmentof patients with early colon cancer, based ondata from the phase II I NO16968 (XELOXA) trial.

Research and developmentTo ensure a strong flow of suitable candidate moleculesinto its development pipeline, Roche has built aunique innovation network of independent researchand development centres. In addition to Roche andGenentech, it includes Chugai in Japan and alliances


37

with more than 150 partner organisations worldwide.This promotes a diversity of research approaches,as well as enabling access to new technologies andpromising drug candidates.

Genentech Research and Early Development (gRED)continues to operate as an independent unit. Similarly,the newly formed Pharma Research and Early Development organisation (pRED) enjoys full operationalautonomy. gRED continues to be inspired by thevalues and culture that led to Genentech’s success,while pRED will expand Roche’s capabilities tobring novel medicines to patients. At the same time,subject to existing thirdparty obligations, both unitsare now free to share information and technologiesthat can support and enhance their activities.

Close cooperation between the PharmaceuticalsDivision and Roche Diagnostics is a key strategicadvantage for our company. The two divisions canshare intellectual property, technologies and researchfindings freely. Among other things, this allows Rocheto combine and leverage both divisions’ leadershipin the key field of molecular biology. In addition, itenables diagnostics expertise to be seamlessly integrated into all parts of the pharmaceuticals R & Dprocess (see p. 38). This is central to Roche’s goal ofadvancing personalised healthcare, an approachthat seeks to tailor treatments to specific patient subpopulations based on emerging scientific understanding of biology and disease at the molecular level.

Over the next few years the division aims to expandits product portfolio with a new generation ofmedicines for patients suffering from cancer, metabolic and autoimmune diseases, viral infectionsand disorders of the central nervous system (CNS).Latestage development of promising anticancercompounds such as pertuzumab and TDM1(HER2positive breast cancer), RG7204 (malignantmelanoma) and RG7159 (leukemia, lymphoma) is ontrack. In addition, two novel compounds in themetabolic and CNS portfolios — aleglitazar (cardiovascular disease in highrisk type 2 diabetes patients)and RG1678 (negative symptoms of schizophrenia) —

are about to start phase II I development. At thesame time, we are also exploring new indications andformulations for existing products, including formulations of Herceptin (see above, p. 34) and otherbiologic medicines that can be administered by moreconvenient subcutaneous injection instead of intravenous infusion.

Following the integration of Genentech’s R & Dprojects into the Group’s global pharmaceuticalsportfolio, Roche and Genentech conducted acomprehensive review of the R & D pipeline in thefourth quarter. This resulted in decisions to terminatea number of earlystage development projects,ome of which have reverted to partner companies.The terminations, which were primarily driven byclinical data, are part of an ongoing effort to prioritiseresources towards a highly differentiated developmentportfolio of firstinclass or bestinclass medicines.

At the beginning of 2010 the division’s R & D pipelineincluded 111 projects in clinical development (phase Ito I I I). Of these, 59 involved new molecular entities(NMEs) and 52 involved additional indications. TenNMEs are in or about to enter latestage development (see table, p. 40). Thirty projects investigatingadditional indications for existing products are inphase II I. The Pharmaceuticals pipeline is shown inthe foldout inside the front of cover of this report.Further details are available at www.roche.com.

OncologyRoche’s clinical development pipeline in oncologyincludes 21 new molecular entities. The Pharmaceuticals Division is further strengthening its oncologyportfolio through new targeted therapeutic optionsand expanding into new indications. Four compoundsprogressed into latestage clinical testing in 2009.

RG7204 (PLX4032, collaboration with Plexxikon) is atargeted inhibitor of abnormal BRAF that exemplifiesthe Roche Group’s personalised healthcare approachusing biomarkers and diagnostic tools. BRAF is aprotein that relays growth signals inside cells. In certain types of cancer, genetic changes (mutations)

Roche, Genentech, Chugai and over 150 partners worldwide form a unique innovation network based on a diversity of approaches

RG7204 is a targeted inhibitor of abnormal BRAF that exemplifies the Roche Group’s personalised health-care approach. It is currently in late-stage clinical development for malignant melanoma. Roche is developing a dia g nostic test to identify patients whose tumours carry the abnormal BRAF gene.


www.roche.com

Diagnostics

Pharmaceuticals

Research and early development

Target selection

Lead generation

Phase 0 Phase I Phase II

Clinical development

Phase III Filing

Commercialisation

Discovery phase

Exploratory phase

Proof of concept

Confirmatory phase

Biomarker developmentTarget identification

Companion diagnostic feasibility and utilityPatient selection

Dx launch/post-launch assessmentTailored prescribing and monitoring

Market

Phase IV


1 Process

As a leading healthcare company with strengths in pharmaceuticals and diagnostics, we are well equipped to advance personalised healthcare. The organisational realignment imple-mented in our Pharmaceuticals and Diagnostics Divisions over the last several years enables them to collaborate seamlessly along the whole value chain, from discovery to commerciali-sation. This is particularly important since personalised healthcare starts early in the drug development process. Our Diagnostics Division is there from the beginning, with technologies and expertise to help identify potential drug targets, screen out less-promising candidate compounds and select suitable patients for clinical trials. In some cases collaboration results in a drug coupled with a companion diagnostic to guide treatment.

Excellence in science:Seamless collaboration


39

Close cooperation between the Pharma-ceuticals and Diagnostics Divisions is a key strategic advantage for Roche

lead to production of abnormal BRAF that is alwaysactive and causes uncontrolled proliferation of cancercells. Mutated BRAF is found in approximately 50%of malignant melanomas, the most deadly form of skincancer. Following positive phase I results, a phase IIclinical trial was initiated in September to investigateRG7204 in previously treated patients with BRAFmutationpositive malignant melanoma, and a phaseII I trial in previously untreated patients began inJanuary 2010. A diagnostic test is being developed incollaboration with Roche Molecular Diagnostics toidentify patients whose tumours carry the abnormalBRAF gene and are therefore most appropriate fortreatment with RG7204.

RG7159 (GA101), the first type II, glycoengineered,fully humanised antiCD20 monoclonal antibody,is currently being investigated in latestage clinicaltrials as a potential treatment for chronic lymphocyticleukemia (CLL) and nonHodgkin’s lymphoma(NHL). Data from phase II studies were presentedat the European Hematology Association meetingin June 2009 (CLL) and the American Societyof Hematology in December 2009 (CLL and NHL).A phase II I study in patients with CLL was initiatedin December 2009.

Pertuzumab (RG1273) is a HER2 dimerisationinhibitor that is being studied in combination withHerceptin and standard therapy in HER2positivebreast cancer. A phase II I study (CLEOPATRA)evaluating the addition of pertuzumab to Herceptinand chemotherapy in the firstline treatment ofpatients with advanced (metastatic) disease and aphase II trial (NEOSPHERE) investigating neoadjuvant(presurgical) treatment with pertuzumab are ongoing.

Trastuzumab-DM1 (TDM1, RG3502), a novel antibodydrug conjugate that combines an antiHER2monoclonal antibody and a powerful cytotoxic agent,is being investigated in the second and thirdlinetreatment of metastatic HER2positive breast cancer.A phase II I trial (EMILIA), investigating TDM1in the secondline treatment setting, began in thefirst quarter. Positive results from a phase II study

(TDM4374g), presented at the San Antonio BreastCancer Symposium in December, showed an objectiveresponse (tumour shrinkage) in 33% of women withadvanced (metastatic) HER2positive breast cancerthat had worsened following previous treatment.

RG3616 (GDC0499; collaboration with Curis) is anovel compound targeting the hedgehog signallingpathway, which is thought to be implicated in severalcancers. Following positive phase I results, a pivotalphase II study investigating RG3616 as a potentialtreatment for advanced basal cell carcinoma commenced in February. RG3616 is also being evaluatedin phase II studies as a firstline therapy for metastatic colorectal cancer and in the maintenance treatment of ovarian cancer.

Inflammation and autoimmune disordersRoche has eight new compounds in development forchronic and progressive autoimmune and inflammatorydiseases such as rheumatoid arthritis (RA) andasthma, five of which are in phase II or I I I clinical testing. Phase II I programmes are currently investigatingthe nextgeneration antiCD20 antibody ocrelizumabin several RA settings, including in patients whorespond inadequately to the current standard of care,methotrexate, or to tumour necrosis factor (TNF)inhibitors. The first of these, STAGE, in patients whodid not respond to treatment with methotrexate,was reported to have met its primary endpoint inDecember. While overall adverse events reported inthis study were comparable between the ocrelizumaband placebo treatment groups, a higher percentageof serious infections was observed in the pooled ocrelizumab groups compared with the placebo group. Anadditional major phase II I study (SCRIPT), in patientswith inadequate response to TNF inhibitors, is expected to report in 2010. Dosing in the FILM study,in patients not previously treated with methotrexate,has been stopped following reassessment of the riskbenefit profile in this patient population. A phase II Iprogramme investigating ocrelizumab in the treatmentof lupus nephritis (BELONG) was also discontinuedfollowing reassessment of the riskbenefit profile.



Metabolic and cardiovascular diseasesRoche’s metabolic and cardiovascular portfolio of12 new molecular entities at various stages of clinicaldevelopment includes three promising latestagecompounds. Dalcetrapib (RG1658, JTT705; licensedfrom Japan Tobacco), is a novel cholesterol estertransfer protein (CETP) inhibitor for the managementof cholesterol levels in the blood. Recruitment for thephase II I dalHEART programme is on track. A newimaging study, dalPLAQUE 2, was announced in thelast quarter of 2009, and patient recruitment hascommenced. Taspoglutide (RG1583, BIM51077;licensed from Ipsen) is a onceweekly human glucagonlike peptide1 (GLP1) hormone analogue for thecontrol of blood glucose levels. In late 2009 initialresults from five phase II I trials in the Temergeprogramme showed that taspoglutide consistentlyprovides powerful and durable glycemic control in

patients with type 2 diabetes. Aleglitazar (RG1439)is a peroxisome proliferatoractivated receptor (PPAR)coagonist with demonstrated effects on blood fats,blood pressure and blood glucose for the reduction ofcardiovascular morbidity and mortality in patients withtype 2 diabetes. A phase II I programme (ALECARDIO) is expected to begin recruitment early in 2010.

VirologyRoche currently has two direct antiviral agents indevelopment for the treatment of hepatitis C:the nucleoside polymerase inhibitor RG7128 (collaboration with Pharmasset) and the protease inhibitorRG7227 (ITMN191; collaboration with InterMune).Both of these oral agents entered phase IIb studiesduring the year. RG7128 and RG7227 are being investigated in combination with Pegasys and Copegus(ribavirin), and in combination with each other in

Ten new molecular entities in ongoing or planned late-stage studies

Compound Indication Status Market potential

ocrelizumab rheumatoid arthritis first phase III study (STAGE) met its primary endpoint

in fourth quarter 2009, results from additional studies

expected in 2010

best in class

trastuzumab-DM1 HER2-positive metastatic

breast cancer

phase III started in first quarter 2009

(second-line treatment)

first in class

pertuzumab HER2-positive metastatic

breast cancer

phase III started in 2008 first in class

RG7159 (GA101) non-Hodgkin’s lymphoma,

chronic lymphocytic

leukemia

phase III started in fourth quarter 2009

(chronic lymphocytic leukemia)

best in class

RG7204 (PLX4032) malignant melanoma registration studies started in 2009, January 2010 first in class

RG3616

(GDC-0499)

advanced basal

cell carcinoma

pivotal phase II started in first quarter 2009 first in class

RG1678 negative symptoms of

schizophrenia

positive phase II results in fourth quarter 2009,

phase III planned to start in 2010

first in class

aleglitazar cardiovascular high risk

in type 2 diabetes

phase III planned to start in first quarter 2010 first in class

taspoglutide type 2 diabetes first positive phase III results (T-emerge) in fourth

quarter 2009, additional results expected in 2010

best in class

dalcetrapib dyslipidemia,

cardiovascular high risk

phase III enrolment ongoing first in class


41

Cancer is not one disease but a group of more than 100 distinct disorders, each with its own medical challenges

The GlyT1 inhibitor RG1678 is being codeveloped with Chugai for the treat-ment of the negative symptoms of schizo-phrenia, an area of high unmet medical need. RG1678 has the potential to enable patients to better establish social relationships and parti cipate in every-day activities, re ducing the burden for patients and caregivers alike.

an interferonfree regimen. Results from a phase Istudy (INFORM1) investigating RG7227 combinedwith RG7128 in hepatitis C were presented at theannual American Association for the Study of LiverDiseases congress in November. They showed for thefirst time that an all oral, interferonfree regimencan lead to significant viral suppression in previouslyuntreated patients and patients in whom previoustreatment has failed.

Central nervous systemThe Roche portfolio has 12 novel compounds indevelopment for disorders of the central nervous system, including schizophrenia, multiple sclerosis andother serious conditions. One of these compounds isRG1678, a glycine transporter type 1 (GlyT1) inhibitordiscovered by Roche. It is being codeveloped globallywith Chugai for the treatment of the negative symptoms of schizophrenia, an area of high unmet medicalneed. RG1678 has the potential to enable patients tobetter establish social relationships and participatein everyday activities, reducing the burden for patientsand caregivers alike. In December Roche announcedthat a phase II trial with RG1678 had met its primaryand secondary endpoints, improving both the negativesymptoms and the personal and social functioningof patients with schizophrenia. The compound waswell tolerated at all doses tested. Roche has nowdecided to initiate phase II I clinical testing, with thefirst trial planned to start in 2010.

Also in December, Roche and its development partnerBiogen Idec reported positive results from a phase IItrial with the humanised antiCD20 monoclonalantibody ocrelizumab (RG1594) in patients withrelapsingremitting multiple sclerosis, one of the leading causes of neurological disability in young adults.Ocrelizumab showed a strong effect versus placebowith a highly statistically significant reduction in signsof disease activity as measured by brain lesions, theprimary endpoint.

Focus on unmet medical needs

Cancer | According to the latest InternationalAgency for Research on Cancer (IARC) estimate,in 2008 over 12 million people worldwide werediagnosed with cancer, and some 7.6 million died ofthe disease. The IARC anticipates that cancer willsurpass heart disease as the leading cause of deathworldwide in 2010 and also forecasts that by 2030there will be over 26 million new cases and 17 milliondeaths per year from cancer. In Europe alone, onein three people can expect to develop cancer in theirlifetime. Cancer is not one disease but a group ofmore than 100 distinct disorders, each with its ownmedical challenges.

Non-Hodgkin’s lymphoma | A group of over 30cancers that affect the lymphatic system. This classof cancer currently affects over 1.5 million peopleworldwide. Follicular lymphoma accounts for aboutone in four of all cases of nonHodgkin’s lymphoma.It can occur at any time during adulthood, thoughpeople are typically diagnosed during their sixties,and it affects as many men as it does women.

Chronic lymphocytic leukemia | The most commontype of leukemia in adults, accounting for approximately25–30% of all forms of leukemia. The incidence ofCLL in Western countries is around 2–4 per 100,000,and it is twice as common in men as in women.

Colorectal cancer | Cancer of the large intestineor rectum, which accounts for over 1 million newcases (around 10% of all newly diagnosed cancers)worldwide each year. It is the second most commoncause of cancer deaths in Europe and the thirdmost common worldwide.

Kidney cancer | This type of cancer is newly diagnosed in around 200,000 people and causes 100,000deaths worldwide every year, rates that are expectedto increase. Renal cell carcinoma accounts for 90%of all kidney cancers.



Breast cancer | The most common cancer amongwomen worldwide. Over 1 million women are newlydiagnosed and over 500,000 die from the diseaseeach year. As there are several different types ofbreast cancer, knowledge of tumour characteristicsis important for treatment decisions. Some 20–30%of women with breast cancer have tumours withabnormally high levels of a protein known as HER2.HER2positive tumours are particularly aggressive,fastgrowing and likely to relapse.

Lung cancer | The most common form of cancerworldwide and the leading cause of cancer deaths.There are an estimated 1.4 million new cases annually.Nonsmall cell lung cancer is the most commonform, accounting for approximately 80% of all cases.

Pancreatic cancer | A particularly aggressive diseasethat is extremely difficult to treat. It kills a higherproportion of patients in the first year after diagnosisthan any other cancer. The fifth leading cause ofcancer deaths in the developed world, pancreaticcancer claims nearly 80,000 lives every year.

Gastric (stomach) cancer | Accounts for over 1 millionnew cases and some 800,000 deaths each year, makingit the secondlargest cause of cancer deaths worldwide. The vast majority of cases occur in Asia, where,with lung cancer, it is the leading malignancy. Advancedstomach cancer is associated with a poor prognosis;the median survival time after diagnosis is approximately 10–11 months with currently available therapies.

Anemia | Occurs when the level of red blood cellsand/or the hemoglobin they contain falls belownormal, starving organs and tissues of oxygen. It isseen in over 80% of patients with chronic kidney(renal) disease, which affects more than 500 millionpeople worldwide. In addition, anemia affects threeout of four cancer patients undergoing chemotherapy.Patients with untreated anemia may need bloodtransfusions. The potential longterm effects of anemiainclude cardiovascular disease in renal patients,while in patients with cancer it is associated withdiminished quality of life.

Hepatitis B and C | The hepatitis B and C viruses(HBV, HCV), which are commonly transmitted throughbloodtoblood contact, cause acute and chronic liverdisease, potentially leading to liver failure, cirrhosisand liver cancer. Worldwide, 350 million people arethought to be chronically infected with HBV, a highlyinfectious virus that is responsible for an estimatedone million deaths annually. More than 170 millionpeople around the world are infected with HCV, and3 to 4 million new cases occur each year. Hepatitis Cis the main reason for liver transplantation. A recentstudy on the HCVrelated burden of disease in 22European countries estimated that between sevenand nine million people, or over 1% of the population,are infected with HCV.

Influenza, or flu | A highly contagious, debilitatingviral illness that occurs mainly in the autumn andwinter months in temperate climates and yearroundin tropical areas. It can be particularly dangerousfor young children, the elderly and people withchronic health problems who are at greater risk ofinfluenzarelated complications. Pandemics, or globalepidemics, are caused by novel strains of influenzato which people have no immunity. Pandemics occurevery 10 to 40 years and have been associated withsignificant levels of illness and, depending on the viralstrain, death. According to the World Health Organization, the currently circulating pandemic A (H1N1)2009 influenza virus appears to be as contagious asseasonal influenza and is spreading fast, particularlyamong people aged 10 to 45 years. The disease isgenerally clinically mild, but severe illness can occur.

Autoimmune disorders | Occur as a result of amistaken immune response to the body’s own tissues.The causes are unknown. Rheumatoid arthritis,multiple sclerosis and lupus erythematosus are amongthe most common autoimmune disorders, which affectmillions of people worldwide.

Rheumatoid arthritis (RA) | A chronic, progressiveinflammatory disease of the joints and surroundingtissues that is associated with intense pain, irreversible joint destruction and systemic complications.


43

B cells (a type of immune cell) are known to play akey role in the inflammation associated with RA.Several key cytokines, or proteins, are also involved,including TNF alfa, interleukin1 (IL1) and interleukin6 (IL6). IL6 has been identified as havinga pivotal role in the inflammation process. Around21 million people worldwide are thought to beaffected by RA.

Diabetes | Recognised as a global epidemic by theWorld Health Organization. The International DiabetesFederation estimates that some 360 million peopleworldwide will have diabetes by 2030. According tothe WHO, type 2 (adult onset) diabetes accounts foraround 90% of all cases. Uncontrolled type 2 diabetescan lead to severe complications such as cardiovascular disease, stroke, blindness, amputations,and kidney failure, resulting in significant healthcareburdens to society.

Schizophrenia | A severe mental disorder characterised by profound disruptions in thinking that affectlanguage, perception and the sense of self. Accordingto WHO estimates, schizophrenia affects approximately 24 million people worldwide and is most common in adults aged between 15 and 35 years. Thesymptoms of schizophrenia are broadly categorisedas positive, negative and cognitive. Positive symptomsare psychotic behaviours such as hallucinations anddelusions. Negative symptoms are associated withdisruption of normal behaviour and emotions, such asinability to sustain planned activity or a lack of motivation and interest in daytoday living. Cognitivesymptoms include trouble focusing or paying attention.Persistent negative symptoms are a major cause ofchronic disability. There is currently no marketedproduct available to treat the negative symptoms ofschizophrenia.


Roche is not only the world leader in in vitro diagnostics. We also syste m atically apply our diagnostic expertise to the research and development of new medicines. This helps us to develop pharmaceuticals that target the biological mechanisms that give rise to cancer. One example is RG7204 (PLX4032), currently being tested in phase I I clinical trials as a possible treatment for malignant melanoma, a type of skin cancer. RG7204 is a novel, highly selective BRAF kinase inhibitor that targets and destroys cancer cells harbouring a specific cancer causing gene mutation called BRAF V600E. To identify those patients whose tumours carry this mutation — and are therefore considered most likely to respond to this targeted medicine — Roche is developing a companion diagnostic test.

RG7204 is a promising compound in development for the treatment of BRAF mutationpositive patients with malignant melanomas, the deadliest form of skin cancer. This oral medicine — a selective kinase inhibitor — is being developed by Roche in collaboration with Plexxikon.

Together they’re taking aimwith an innovative medicinefor skin cancer


Diagnostics | In 2009 sales again grew well ahead of the market, with strong uptake of new products contributing to market share gains in key segments such as immunoassays and tissue diagnostics. All business areas launched major new products that Roche believes will help drive above-market growth in 2010. Efforts to enhance operational efficiency are ongoing throughout the division and contributed to higher operating profit in 2009. The division will continue and expand these efforts in order to improve productivity and profitability further.

09_L_Roche_AR09_ENG_Diagnostics indd 46 29 01 2010 01:58:39

47

Diagnostics Division in brief

Key figures

In millions of CHF% change

in CHF% change in

local currencies % of sales

Sales 10,055 4 9 100

— Professional Diagnostics 4,553 4 9 45

— Diabetes Care 2,969 0 6 29

— Molecular Diagnostics 1,183 2 5 12

— Applied Science 870 12 15 9

— Tissue Diagnostics 480 28 29 5

Operating profit 1,198 1 12 11.9

Operating free cash flow 1,152 92 102 11.5

Research and development 978 4 5 9.7

Diagnostics Executive Committee | 31 December 2009

Jürgen Schwiezer 1 CEO Division Roche Diagnostics

Manfred Baier Applied Science

Roland Diggelmann Asia—Pacific

Dirk H. Ehlers Professional Diagnostics

Christian Hebich Finance and Services

Michael Heuer EMEA (Europe, Middle East, Africa) and Latin America

Alexander Keller Global Platforms and Support

Frank Lennartz Human Resources

Hany Massarany Tissue Diagnostics

Daniel O’Day 2 Molecular Diagnostics

Frank Pitzer 3 Regulatory Affairs and Quality Management

Claus-Joerg Ruetsch 3 Legal

Michael Tillmann North America

Robert Yates Business Development

1 To 31 December 2009 — see Corporate Governance.2 Chief Operating Officer of Roche Diagnostics since 1 January 2010.3 Associate member.


48 Roche Business Report 2009 Diagnostics

Diagnostics DivisionRoche’s Diagnostics Division is the world’s leadingsupplier of in vitro diagnostics (IVDs). IVD tests —tests performed in a laboratory or at the point of careon blood and other samples from patients — are acritical source of objective information about healthand disease. Roche’s diagnostic instruments andreagents help doctors detect diseases, select appro-priate treatments and monitor patients’ responses tocare. In addition, scientists use the division’s researchproducts to gain a better understanding of thecauses of disease and discover new treatments.In over 150 countries the division serves customersspanning the entire healthcare spectrum — fromhospitals and commercial medical labs, to physicians,to patients with conditions requiring them to self-test.In 2009 Roche had a 20% share of the global IVDmarket, valued at an estimated 40 billion US dollarsin annual sales.1

Strategic prioritiesChanging demographics, new technologies andmounting pressure on budgets and pricing are amongthe trends shaping the healthcare market.The Diagnostics Division’s strategic priorities aredesigned to respond to these trends and capitaliseon the growth opportunities they present.

• Testing efficiency is one pillar of the division’sbusiness. Roche’s automated diagnostic systemsembody decades of engineering innovation.Future advances will include enhanced workflowintegration and IT capabilities supporting elec-tronic patient record management.

• Testing efficiency alone is not enough. Products ofhigh medical value are critical for sustainedcompetitiveness and growth. Novel Roche testsmark significant advances in oncology, cardiologyand other major therapy areas. Increased invest-ment in biomarker research and in trials todemonstrate the clinical utility of new tests willyield further innovations.

• Together, Roche’s Pharmaceuticals and DiagnosticsDivisions are working to advance personalised healthcare. Activities are aligned to help increasedrug R & D productivity, discover more targetedmedicines and drive development of companiondiagnostics. This has the potential to ‘revalue’diagnostics, which inform the majority of clinicaldecisions yet account for less than 3% of medicalspending.

• The Diagnostics Division is outperforming themarket in the Emerging Seven (E7) countries 2,most notably in China. To accelerate growthfurther, it is expanding its local organisations andinvesting in programmes to bring products tomarket more quickly.

• The division intends to improve its profitabilityfurther through a combination of strong salesgrowth and efficiency initiatives targeting virtuallyevery area of operations. This report containsinformation on progress made in 2009.

Roche’s Diagnostics Division is the global leader in the 40 billion US dollar in vitro diagnostics market. The division strives to develop systems that make testing more efficient and provide results of high medi-cal value.

1 Figures on market growth, market share and market size are estimates based on company and independent reports and Roche analysis.

2 E7 markets = Brazil, Russia, India, China, South Korea, Mexico and Turkey.

Sales by region

Europe/Middle 53% (+9%)

East/Africa

Japan 5% (+0%)

Asia—Pacific 10% (+25%)

Latin America 6% (+15%)

North America 26% (+4%)

Other 0% (–14%)

Italics = growth rates (in local currencies).


49

Divisional sales growth was broad based, extending across all five busi-ness areas and all major regional markets except Japan. All business areas again launched major new products in 2009.

Sales and instrument placements were up strongly in 2009

Results and main business developments

In 2009 the Diagnostics Division recorded salesof 10.1 billion Swiss francs, an increase of 9% in localcurrencies (4% in Swiss francs; 4% in US dollars)over 2008. 3 This was more than twice the estimatedIVD market growth rate (3–4%).

All five divisional business areas contributed to salesgrowth, led by Professional Diagnostics and DiabetesCare. Immunoassays and single-strip blood glucosemonitoring systems remained these businesses’primary growth drivers. Molecular Diagnostics’ coreblood screening and virology segments delivered asolid single-digit rise in overall sales. In the AppliedScience unit, strong demand for the MagNA Pure andLightCycler product lines fuelled further above-marketgrowth. The Tissue Diagnostics business, acquiredin 2008, continued to grow well ahead of the market,driven mainly by its advanced tissue staining portfolio.Instrument placements were again up significantlyfor the division as a whole and were a major growthdriver.

Geographically, the EMEA 4 and Asia—Pacific regionscontributed most to growth, with all five businessareas recording solid sales gains in these markets.Tissue Diagnostics remained the primary growthdriver in North America. In Japan Professional Diag-nostics and Applied Science grew moderately andTissue Diagnostics achieved high double-digit growth,but divisional sales there were flat overall, largelydue to reduced government IVD reimbursement andlower research funding.

Sales in the E7 markets grew 24% and accounted forover 10% of total divisional sales revenues. Increasedinvestment in these markets and strong demand forimmunoassays and other leading-edge Roche productscontributed to this strong, above-market growth.

The first two modules of the cobas 8000 analyserseries for high-throughput laboratories were launched

on schedule in the EU and other markets in thesecond half of the year. Roche expects this majoraddition to its cobas family of modular SerumWork Area systems to enhance its competitivenesssignificantly in both clinical chemistry and immuno-assays. Altogether, the division launched over20 major products in 2009.

The Diagnostic Division’s operating profit rose 12% inlocal currencies (1% in Swiss francs) to 1,198 millionSwiss francs, and the operating margin at constantexchange rates advanced 0.4 percentage points.These increases largely reflect sales growth, tight costmanagement and the significant one-time expensesrecorded in 2008, including those relating to the Ven-tana acquisition. In Swiss francs the margin decreasedby 0.4 percentage points, to 11.9%, due to a parti-cularly unfavourable combination of exchange ratemovements. For more information on the division’soperating results, see the Finance Report (Part 2of this Annual Report).

Efficiency gainsInitiatives to simplify core processes, consolidateservices, streamline product portfolios and reducetime to market are in place at a number of major sites.In 2009 such initiatives contributed to significantcost savings and helped the division limit headcountgrowth despite the acquisition of Swisslab andinnovatis and despite a substantial sales forceincrease in China. Notable successes included theconsolidation of regional call centres, the creationof shared service centres in North America andreductions in manufacturing costs. Existing and newprogrammes will be introduced at more sites toimprove productivity further and achieve additionalcost savings.

3 Unless otherwise stated, all growth rates are in local currencies.4 EMEA = Europe, Middle East and Africa.



2,969 1,627 1,275 566 314

+6% *

Market segment :

Diabetes management

+19% *

Market segment :

Immunoassays

+4% *

Market segment :

Clinical chemistry

+4% *

Market segment :

Virology

+8% *

Market segment :

Blood screening

Accu-Chek blood glucose

meters and insulin pump

systems

cobas e modules

Modular Analytics

Elecsys

cobas c modules

Modular Analytics

Cobas Integra

Cobas AmpliPrep

Cobas TaqMan

Cobas AmpliScreen

cobas TaqScreen

Roche’s top-selling diagnostics | sales in millions of CHF

Accu-Chek Mobile cobas e 601 cobas c 501 Cobas TaqMan 48 cobas TaqScreenMPX Test


51

An industry-leading portfolio of products for clinical testing, blood screening and life science research

293 281 255 141 139

+20% *

Market segment :

Coagulation monitoring

+28% *

Market segment :

Advanced tissue staining

+35% *

Market segment :

Gene expression research

+6% *

Market segment :

Hematology

+0% *

Market segment :

DNA sequencing

CoaguChek meters Immunohistochemistry

reagents

MagNa Pure Systems

Light Cycler Systems

Sysmex analysers 454 Genome

Sequencers

Images are not to scale.* Year-on-year sales growth in local currencies.

CoaguChek xs Ventana IHC reagents MagNA Pure LC2.0 Genome Sequencer FLXSysmex XT-4000i



Business area highlightsProfessional Diagnostics — above-market growth and major new productsRoche Professional Diagnostics is a leading supplierof instruments, tests, software and services forlaboratories and of decentralised testing products tosupport clinical decision making at the point of care.In 2009 the business area had a 15% share ofa global market estimated at 28 billion US dollars.

Professional Diagnostics’ full-year sales grew nearlytwice as fast as the market, rising 9% to 4,553 millionSwiss francs. Immunoassay and clinical chemistrysystems for laboratories, the two largest segmentsby sales, remained the primary growth drivers.Regionally, sales outpaced market growth everywhereexcept North America, where the industry as a wholeexperienced flat or negative sales growth in mostsegments as a result of the economic downturn.

The immunoassay business gained further marketshare on sales growth of 19%; this was roughly threetimes the market growth rate. Clinical chemistry salesgrew ahead of the market, advancing 4%. The place-ment rate for cobas modular analysers, particularlythe cobas 6000 series for mid-size laboratories,remained high, fuelling sales in both these segments.

Professional Diagnostics’ immunoassay businesshas consistently grown at double-digit rates for thelast nine years thanks to a large installed base andsteadily expanding test menu. New tests introducedin 2009, like the Elecsys IL-6 (interleukin-6) immuno-assay (an aid in the management of critically illpatients) and the high sensitivity Elecsys Troponin Tassay (diagnosis of heart attack and cardiac riskstratification), were important growth drivers. In 2009Professional Diagnostics launched six immunoassaysand five new or second-generation clinical chemistrytests for a variety of therapy areas, including cardi-ology, women’s health and critical care. In 2010the business area will expand its test menu further,particularly in the US, where it expects to launcheight immunoassays.

Coagulation monitoring sales increased 20%,reinforcing Roche’s leadership in this segment.Sales of the top-selling CoaguChek XS monitorfor patient use were up strongly again, helpedby continued robust demand in Europe and expandedMedicare reimbursement for home coagulationtesting in the US. Studies indicate that self-testinghelps patients on anticoagulants to keep theirmedication within the therapeutic range and canreduce complications.

In August Professional Diagnostics began rolling outthe cobas 8000 modular analyser series for high-throughput laboratories in Europe and other marketsthat recognise CE Mark certification. The responseto this new flagship cobas platform has beenoverwhelmingly positive, with more than 20 ordersshipped by the end of 2009. Two clinical chemistrymodules (c 701 and c 502) were launched in 2009.By the end of 2010 four cobas 8000 clinical chemistryand immunoassay modules will be available world-wide in 38 customisable configurations. The newplatform is based on the same proven technologiesas the smaller cobas 6000 and cobas 4000 systems,with expanded sample handling and workflowcapabilities and enhanced quality managementfeatures to meet the needs of laboratories performingup to 15 million tests per year.

In September Roche concluded an exclusive licenseagreement with St. Vincent’s Hospital, Sydney(Australia) for worldwide patent rights relating tothe use of growth differentiation factor 15 (GDF-15)for the diagnosis of cardiac dysfunction. Elevatedcirculating levels of GDF-15 can help identify high-risk individuals with a variety of cardiovascularconditions, from stable coronary artery disease toheart failure. Together with an agreement signed withHannover Medical School (Hannover, Germany) inJanuary 2009, also relating to GDF-15, and Roche’sown patents in this field, this latest agreementwill further strengthen Roche’s leading position inthe diagnosis of cardiovascular diseases.

Immunoassay sales were again a major growth driver, increas-ing at roughly three times the market growth rate. The new cobas 8000 modular system will make Roche Professional Diagnostics an even stronger competitor in both immunoassay testing and clinical chemistry.


53

Diabetes Care — market leadership strengthenedRoche Diabetes Care develops and commercialisesblood glucose (BG) monitoring and insulin deliverysystems that enable people with diabetes to managetheir condition more effectively. It is the industryleader with a 31% share of the global BG monitoringmarket, worth nearly 7 billion Swiss francs in globalsales. Self-management is a cornerstone of diabetescare because so many daily activities affect bloodglucose levels. Frequent BG testing can lower the riskof serious long-term diabetic complications likestroke, amputation and blindness, while helping peoplewith diabetes to maintain and improve their qualityof life.

In 2009 Diabetes Care’s sales increased 6% to2,969 million Swiss francs. This was significantlyahead of global market growth, which was flatdue to the economic downturn. All regions exceptJapan delivered sales growth, with strong salescontributions from emerging markets. The Accu-ChekAviva and Accu-Chek Performa BG monitoringsystems remained the primary growth drivers. Accu-Chek Aviva, Roche’s top-selling BG monitoringsystem, continued to post strong double-digit salesgrowth.

Introduced in February 2009, the Accu-Chek Mobile,the first and only strip-free BG monitoring system,experienced excellent uptake in its launch marketsand contributed to market share gains in the high-value customer segment. At the end of 2009 it wasavailable in nine European countries. Accu-ChekMobile’s enhanced ease of use is appreciatedespecially by people with insulin-dependent diabeteswho need to test their BG frequently. The launchof the sleek Accu-Chek Aviva Nano and Accu-ChekPerforma Nano, designed especially for youngerusers, has also been a significant success; at the endof 2009 these new single-strip meters were availablein over 20 markets.

Sales of insulin delivery systems showed double-digitgrowth for the year, helped by excellent uptake ofthe new, interactive insulin pump system Accu-Chek

Combo, which was launched in nine markets during2009, and by continued strong demand for Accu-Chek infusion sets.

In September Diabetes Care announced interimdata from its Accu-Chek 360° View Outcome Study.The data indicate that people with type 2 diabeteswho are not receiving insulin can improve theirglycemic control by testing and analysing their BGlevels in a structured way and translating the resultsinto appropriate action. The 12-month study under-scores Roche’s commitment to enhancing the medicalvalue of diabetes self-management. The final resultswill be announced in June 2010.

Molecular Diagnostics — new products lay the foundation for future growthRoche Molecular Diagnostics develops and commer-cialises advanced diagnostic and blood screeningplatforms and tests based on Roche’s proprietaryreal-time polymerase chain reaction (PCR) technology.The fast-growing (+12%), highly competitive molecu-lar diagnostics market is valued at 4 billion Swissfrancs; Roche is the leader with a 32% market share.

Molecular Diagnostics’ full-year sales advanced 5%to 1,183 million Swiss francs. Growth was led by solidgains in the EMEA region, especially in the coreblood screening business. The fully automated cobasTaqScreen MPX Test, available in Europe since 2006and launched last year in the US, contributed stronglyto 8% growth in this segment, with significant com-petitive gains in several markets. This multiplex bloodscreening test detects five viral targets. In virology,the largest segment by sales, Molecular Diagnosticsretained its leading market share with 4% salesgrowth. Strong virology sales and new blood screeningaccounts in Portugal, Spain, Thailand and the UKresulted in above-market, double-digit sales growthin the Asia—Pacific and EMEA regions.

Since its EU launch in April, Roche’s LightCyclerMRSA Advanced Test has experienced positive uptakein countries where reporting methicillin-resistantStaphylococcus aureus (MRSA) infections is customary

The new Accu-Chek portfolio delivered solid sales growth in a difficult market

Excellent uptake of the latest Accu-Chek products helped drive above-market sales growth for Diabetes Care in 2009.

Molecular Diagnostics won several important new blood screening accounts in 2009, contributing to signifi-cant competitive gains in some markets.


Tec

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Biology

NeuroscienceOncology Inflammation Metabolism Virology

Pharma

Diagnostics

T-cell biologyGlycoengineering

RNA interference

Armed antibodies

In silico scienceStructure-based drug design

Nanotechnology form

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Innate immunityMyeloid cell biology

Apoptosis

Angio

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Sign

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DNA Sequencing454 Life Sciences

cobas

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cobas

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xCELLigenceCell analysis


5 Major disease areas

Over the years both Roche divisions have amassed tremendous expertise in molecular biology. Today they are applying this knowledge and a wide range of technologies in the pursuit of new tests and more targeted treatments in five major focus areas: oncology, inflammation, neuroscience, metabolism and virology. At the same time they are working together to gain further insights into molecular mechanisms that cause and drive disease. Every cancer drug development programme at Roche, for example, involves biomarker research aimed at validating treatment targets and identifying the patients most likely to respond to a new drug. Almost 30 years of cancer research at the molecular level have helped us develop new strategies that move us closer to the ultimate goal of one day curing cancer.

Excellence in science:Expertise in molecular biology


55

or required. Studies indicate that the test’s speed —it reliably identifies MRSA carriers in less than twohours, versus one to three days using conventionalmethods — can help significantly reduce the spread ofthis potentially deadly microbe in hospitals. Screeningfor MRSA is one of the fastest-growing segmentsin the North American molecular diagnostics marketand is expanding in EMEA and some Asia—Pacificmarkets. Roche expects to launch the LightCyclerMRSA Advanced Test in the US in 2010.

In December Molecular Diagnostics launched itsnew fully automated cobas 4800 System in Europeand other markets that accept CE Mark certification.The system is designed to meet the current andlong-term molecular diagnostic testing needsof mid- to high-throughput laboratories, and Rocheexpects it to become a significant growth driver.The test menu currently comprises dual target testsfor Chlamydia trachomatis (CT) and Neisseria gonorrhoeae (NG) (the bacteria that cause chlamydiainfections and gonorrhea) and a screening andgenotyping test for human papillomavirus (HPV),the most common sexually transmitted infection,which is responsible for nearly all cervical cancersworldwide. In Australia and New Zealand, wherethe cobas 4800 System has been available with theCT/NG tests since September, the market responsehas been very strong. Next-generation oncologyand microbiology assays for the system are in devel-opment.

In August Molecular Diagnostics completed enrolmentof patients into its pivotal ATHENA clinical trial.The trial, involving approximately 47,000 women,is designed to assess the value of screening womenfor cervical cancer using Roche’s cobas 4800 HPVassay together with a standard Pap smear. Initial trialdata will be available in February, and Roche expectsto file the full ATHENA data set with the Food andDrug Administration (FDA) in the second quarter of2010. If approved, the assay, which provides anaggregate result for 12 high-risk HPV genotypes andindividual results for HPV genotypes 16 and 18(the genotypes that put women at the greatest risk

of developing cervical cancer), could help increasethe sensitivity of screening for HPV infections that canlead to cervical cancer. When HPV DNA testing isperformed in conjunction with a Pap smear, morewomen will be identified with precancerous cervicaldisease during the first round of cancer screening,enabling appropriate medical intervention. Addition-ally, because of the greater sensitivity of HPV DNAtesting, women who are HPV DNA negative maypotentially be deferred to longer screening intervals.Moreover, identification of HPV genotypes 16 and 18provides actionable information guiding the clinicianto investigate further those women at the highest riskfor cancer.

Applied Science — broad-based growthRoche Applied Science supplies scientists in acade-mia and the biotech and pharmaceutical industrieswith instruments and highly specific reagents and testkits for a broad range of research applications. Theglobal life science research market, valued at 8 billionUS dollars, grew approximately 8% in 2009.

Applied Science’s sales for 2009 totalled 870 millionSwiss francs, an increase of 15% over the previousyear. The MagNA Pure and LightCycler product lines(nucleic acid sample preparation (NAP) and quanti-tative polymerase chain reaction (qPCR) analysis)were again the biggest contributors to growth, withsales up 35% helped by strong demand for instrumentsand reagents for pandemic influenza testing andsurveillance. In May Applied Science developed andlaunched the RealTime ready Influenza A/H1N1Detection Set for research use, just weeks after firstreports of the new pandemic flu virus in Mexico.The set enables rapid, accurate detection of the virus’sRNA (genetic material). The FDA granted EmergencyUse Authorization of the kit in November, making itavailable for clinical use in specially certified laborato-ries in the US. Other significant new productsinclude the fully automated MagNA Pure 96 Systemfor high-throughput NAP. Uptake by academicand industrial customers has been robust since thesystem’s global launch in September.

Roche developed a test for the new pandemic flu virus within weeks after the virus was first reported

Tests for hospital-acquired infections like MRSA and for human papillomavirus infection are two of the fastest-growing segments in molecu-lar diagnostics. In 2009 Roche launched competitive new products in both these segments in Europe.

Demand for instru-ments and reagents for pandemic flu testing were a major sales driver for Roche Applied Science in 2009.



Cell analysis systems showed very strong sales growthin 2009, driven mainly by the xCELLigence productline but also partly attributable to the acquisition ofinnovatis AG in March. Applied Science’s latest RealTime Cell Analyser — the xCELLigence RTCA DP(dual plate) instrument — has been a growth driversince its worldwide launch in April. Its value as acancer research tool was enhanced further by theNovember launch of the xCELLigence SystemCIM-Plate 16, a culture plate enabling scientiststo study cell migration and invasion dynamically,in real time, over the entire time span of an experiment.This may help researchers identify molecular targetsfor new drugs that inhibit cancer cells’ ability toinvade nearby tissues and migrate (metastasise)to distant parts of the body.

Microarray sales rose 44%, nearly four times theglobal array market growth rate. Growth was fuelledby continued strong performance of NimbleGen’sinnovative Sequence Capture technologies, whichideally complement the business area’s next-genera-tion sequencing systems, and by the introductionof the high-resolution, high-throughput MS 200Microarray Scanner.

Sales of DNA sequencing reagents showed a robust26% increase, but overall sales of DNA sequencingsystems were flat due to the economic downturn andthe resulting decline in research funding, particularlyin the US. The US administration’s 2009 stimuluspackage for biomedical research is expected to alle-viate the situation in 2010. The launch of a medium-

throughput, benchtop version of the GenomeSequencer (GS) FLX System in 2010 is expected tospur further growth. The GS Junior System will closethe market gap between low-throughput traditionalsequencing and the ultra-high-throughput of instru-ments like the GS FLX System, putting next-generationsequencing technology within the reach of thousandsof additional researchers worldwide.

Tissue Diagnostics — rapid penetration of new marketsRoche Tissue Diagnostics (Ventana Medical Systemsin North America) is the world’s leading supplier oftissue-based cancer diagnostics. Its instruments andreagent systems are used in histology, cytology anddrug discovery laboratories worldwide. In 2009 theunit had a 20% share of the tissue diagnostics market,which is valued at over 2 billion Swiss francs.

Tissue Diagnostics recorded sales of 480 millionSwiss francs in 2009, a 29% increase over the elevenmonths’ sales consolidated a year earlier following theVentana acquisition in February 2008. On a compa-rable basis, sales rose 21%, significantly outpacingthe market, which is estimated to be growing at 12%.

The business area’s core advanced tissue stainingportfolio remained the primary growth driver, withimmunohistochemistry (IHC) reagents for cancerdiagnosis and advanced staining instruments fuellingrobust 27% growth in this segment. Placementsof the fully automated BenchMark Ultra, successfullylaunched in North America and Europe in 2008,

1

(2010)

2009

2008

2007

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18

11

(25)*

23

Total

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Significant product launches by business area


57

accelerated steadily during the year. This is the firstand only system to perform simultaneous IHC andin situ hybridisation (ISH) testing on a single continu-ous and random access platform, enabling samplesto be added and removed at any time without inter-rupting workflow. Full-year sales of the Symphonyslide staining instrument and hematoxylin and eosinreagents for the high-volume primary staining marketgrew 39%.

Tissue Diagnostics won market share in all regions,with especially strong gains in Asia—Pacific and LatinAmerica. It successfully leveraged the existing Rocheinfrastructure to expedite the hiring of sales person-nel and the introduction of new products in EMEA,Asia—Pacific and Latin America, contributing toabove-market growth in these regions. By the close of2009 the business area had established its own salesorganisations in six of the E7 markets, and most of itsmajor instruments and IHC reagents were alreadyregistered and available in Brazil, India, China andMexico. Roche is addressing the increasing demandfor fully automated products in emerging markets,which is contributing to strong market share gainsthere.

In 2009 Tissue Diagnostics launched 17 new IHCreagents to aid in diagnosing various cancers, includ-ing leukemia, lymphoma and cancers of the colonand prostate. Working closely with Roche’s Pharma-ceuticals Division, it continued to develop exploratorytests that may one day lead to companion diagnosticsfor Roche therapies. As a direct result of this collabo-ration, Tissue Diagnostics expects two HER2 assaysto receive CE-IVD Marking in the first half of 2010for use as aids in assessing both breast and gastriccancer patients for whom Herceptin treatment isbeing considered.

Research and developmentRoche’s Diagnostics Division continues to investheavily in innovation. In 2009 research and develop-ment (R & D) costs totalled 978 million Swiss francs,an increase of 5% over 2008. R & D costs as a per-centage of sales remained stable at 9.7%. Projectsaccounting for a significant share of R & D spendingin 2009, and which will remain funding priorities in2010, include the ATHENA trial of Roche MolecularDiagnostics’ cobas 4800 HPV screening and geno-typing test in the US, development of the cobas8000 modular analyser series and development ofa next-generation molecular diagnostic platformfor mid- to high-throughput IVD testing and bloodscreening. The division also invested in developingnew products in its tissue diagnostics business.Expansion of the immunoassay menu will be a furthermajor focus of R & D investment in 2010.

The division’s R & D productivity has improved inrecent years. Since 2007 the number of major productlaunches has increased significantly, and the divisionexpects 2010 to be another excellent year in termsof strengthening its product portfolio (see chart onp. 56 and the tables of Major product launches onpp. 60–61).

The discovery and validation of biomarkers is essentialto realising the promise of personalised healthcare.In pharmaceutical R & D they have many uses, fromidentifying new therapeutic targets and screening outunpromising drug candidates to selecting appropriatepatient populations for clinical trials. In the clinic,biomarker tests increasingly provide invaluable infor-mation for early diagnosis and about disease pre-disposition, prognosis and the likelihood of treatmentresponse (response prediction), contributing to ear-lier, more targeted therapeutic interventions. Roche’sIVD portfolio already includes companion diagnosticscontributing to more effective treatment in a numberof conditions, including HER2-positive breast cancer,precancerous cervical changes caused by humanpapillomavirus infection, hepatitis B and C infectionand cytomegalovirus disease.

Roche has a biomarker programme for every drug that it is developing

The Diagnotics Divi-sion is focusing much of its R & D spending on high-growth areas like molecular diag-nostics, immuno-assays and tissue diagnostics.

Roche is working on potential companion diagnostic tests in all of the Group’s key disease areas of inter-est, particularly oncol-ogy.



more likely than seronegative patients to achievea significant improvement in their disease followingMabThera/Rituxan treatment. This could signala major advance over the current trial-and-errorapproach to treating RA, in which patients cyclethrough various treatment options until an optimumresponse is achieved. Roche already markets assaysfor rheumatoid factor and anti-CCP.

Every drug being developed at Roche has a biomarkerprogramme associated with it, and Diagnostics ex-pertise and advice are made available for each ofthese programmes. At the end of 2009 Roche hadfive biomarker tests in late stage and six in early stageclinical validation for use as potential companiondiagnostic tests and over 30 exploratory stagediagnostic programmes, in the areas of oncology,metabolism, virology, autoimmune and inflammatorydisease and central nervous system disorders. Therehas to be a strong case for a biomarker’s ability todetect disease or predict a clinical outcome before itmoves into late-stage validation, where the aim is toestablish clinical validity conclusively through furthertesting on samples collected in ongoing drug trials.

Given the Pharmaceuticals Division’s strong oncologyportfolio, identifying and validating biomarkers tosupport the use of Roche’s marketed and develop-mental cancer medicines is naturally a major focus ofresearch. Encouraging projects include a PCR-basedtest for BRAF V600E, a cancer-causing gene mutationassociated with poor prognosis in several cancers,including malignant melanoma. Developed by RocheMolecular Diagnostics, the test was proven essentialfor selecting suitable patients in a phase I trialwith the BRAF kinase inhibitor RG7204 in metastaticmelanoma. RG7204, which selectively targetsand induces cell death in tumours harbouring theBRAF V600E mutation, markedly prolonged progression-free survival in patients in the trial who tested positivefor the mutation. The test has also been usedsuccessfully in clinical trials to identify mutation-positive colorectal cancers. If RG7204 is approved,Roche expects to launch the BRAF V600E test as thecompanion diagnostic.

Two other highly promising biomarkers that havealready reached late-stage clinical validation are rheu-matoid factor and anti-cyclic citrullinated peptide(anti-CCP) — antibodies that are found in the blood ofmany rheumatoid arthritis (RA) patients. An analysisof pooled data from two clinical trials with MabThera/Rituxan in RA show that patients who are seropositivefor either of these antibodies are two to three times


59

GlossaryBiomarker | A characteristic that can be measuredand evaluated as an indicator of a normal biologicalprocess, a disease process or a response to a thera-peutic intervention. Elevated levels of the proteinHER2 in cancer, for example, are a biomarker for ahigh probability of response to Herceptin.

Cell analysis | Methods of measuring the propertiesof cells, including their size and shape, cellularparameters such as the presence of specific proteins,and cellular processes such as proliferation andgrowth. Cell analysis technologies play an importantrole in drug development and production.

CE Mark certification | Certification that an in vitro diagnostic (IVD) product complies with all safety,health and environmental requirements for use in theEuropean Union. Certified diagnostics are referredto as CE IVDs.

Clinical chemistry | A branch of diagnostics com-prising tests that detect and measure changes inthe chemical composition of body fluids and tissuesto diagnose or predict the course of a disease.

DNA sequencing | Methods of determining theorder of nucleotides (molecular building blocks) ingenetic material. Knowing an individual’s DNAsequence can provide insights into genetic changeswhich contribute to human disease or influencetreatment response. High-throughput technologiesread thousands of sequences at once.

HER2 (human epidermal growth factor receptor 2) | A protein involved in normal cellgrowth and found at increased levels in somecancers, including some breast and gastric cancers.Cancer cells may be tested in the laboratory forHER2 levels to help choose the most appropriatetreatment.

Immunoassay | A laboratory test that detects ormeasures a target substance in a sample usingan immunochemical reaction, in which an antibodybinds to a specific antigen. The target can be a drug,a protein or a virus, for example.

Immunohistochemistry (IHC) | A method of stainingbiological tissue samples to determine the presence,level and location of specific proteins in cells; used inthe diagnosis of cancer and other diseases.

In situ hybridisation (ISH) | A method of stainingbiological tissue samples to identify the presence andcopy number of specific genes or genetic mutationsin cells; used in the diagnosis of cancer and otherdiseases.

Polymerase chain reaction (PCR) | A laboratorymethod widely used in research and industry to makemillions of copies of a DNA sequence of interestvery quickly. Real-time PCR simultaneously amplifies(copies) and quantifies the targeted DNA molecule.

Virology | In molecular diagnostics, testing to detectcertain serious and prevalent viral infections (e.g. HIVand hepatitis C) or to monitor their treatment.



Product launches in the Diagnostics Division

Major product launches in 2009

Business area Product Market and quarter

Professional Diagnostics Elecsys immunoassays for PlGF (placenta growth factor) and sFlt1 (soluble fms-like tyrosine kinase 1) for the diagnosis of preeclampsia

EU Q1

Elecsys IL-6 (interleukin-6) immunoassay to aid the management of critically ill patients

EU Q1

Elecsys Troponin I Assay: test for cardiac-specific troponin I levels to predict mortality risk in patients with acute coronary syndrome

EU Q1

High-sensitivity Elecsys Troponin T immunoassay for the diagnosis of heart attack and cardiac risk stratification

EU Q1US Q4

Sysmex XT-4000i: mid- to high-throughput hematology analyser with test capabilities for whole blood and other body fluids

Contractual territory inEMEA Q2

cobas c 701 clinical chemistry module for the cobas 8000 analyser series for high-throughput laboratories. Throughput: up to 2,000 tests/hour

EU Q3

cobas p 501 and cobas p 701 automated storage and retrieval modules for bar-coded primary and secondary sample tubes

EU Q3

cobas c 502 clinical chemistry module for the cobas 8000 analyser series. Throughput: up to 600 tests/hour

EU Q4

Diabetes Care Accu-Chek Mobile: integrated lancing and blood glucose monitoring device employing a unique ‘no strip’ technology that replaces test strips with a continuous tape of 50 tests

EU Q1

Accu-Chek Aviva Nano and Accu-Chek Performa Nano: sleeker versions of the Accu-Chek Aviva and Accu-Chek Performa meters, offering an enhanced feature set

EU Q1

Accu-Chek Combo: interactive insulin delivery system combining an insulin pump and a blood glucose meter with broad data management capabilities; the meter also functions as a pump remote control

EU Q1

Accu-Chek Active: new version of an existing meter, featuring an extended memory and a number of fail-safe capabilities

EU Q1

Molecular Diagnostics LightCycler MRSA Advanced Test: automated real-time PCR-based test for methicillin-resistant Staphylococcus aureus. The test can identify MRSA carriers in under two hours

EU Q1

cobas p 630 instrument and AmpliLink 3.3 software: the only pre-analytical instrument to unite primary tube handling with fully automated sample prepa-ration, amplification and detection for molecular diagnostics

EU Q4

cobas 4800 platform for automated DNA extraction and real-time PCR amplification and detection; with tests for human papillomavirus, Chlamydia trachomatis and Neisseria gonorrhoeae

EU Q4

Applied Science NimbleGen MS 200: fully automated high-resolution microarray scanner for use with all NimbleGen DNA microarrays

Worldwide Q2

xCELLigence RTCA DP (dual plate) system: highly flexible medium-throughput system for real-time non-invasive cell analysis

Worldwide Q2

LightCycler 1536 system for high-throughput quantitative PCR analysis Worldwide Q2

MagNA Pure 96 high-throughput system for preparing nucleic acid samples for PCR analysis

Worldwide Q4

Tissue Diagnostics INFORM EGFR DNA Probe: detects extra copies of the epidermal growth factor receptor (EGFR) gene, an abnormality associated with non-small cell lung cancer

EMEA, APAC Q1

BenchMark XT advanced staining instrument LATAM, APAC Q1

BenchMark Ultra advanced staining system with continuous and random processing and STAT capabilities

Additional European markets, LATAM, Q1

Japan Q4

Intended use of CONFIRM anti-HER2/neu Primary Antibody and INFORM HER2 DNA Probe expanded to include analytical claims regarding perfor-mance with gastric as well as breast tissue samples

EMEA, APAC Q2

EU = European Union; EMEA = Europe, Middle East and Africa; APAC = Asia—Pacific; LATAM = Latin America; US = United States.


61

Major product launches planned for 2010 5

Business area Product Market and quarter

Professional Diagnostics cobas e 602 immunoassay module for the cobas 8000 modular analyser series for high-volume laboratories. Throughput: up to 170 tests/hour

EU Q1US Q3

Eight Elecsys immunoassays in the US; six in the EU Q1-Q4

cobas c 701 and cobas c 502 clinical chemistry modules for the cobas 8000 modular analyser series. Throughput: up to 2,000 and 600 tests/hour, respec-tively

US Q2

cobas p 501 and cobas p 701 automated storage and retrieval modules for bar-coded primary and secondary sample tubes

US Q2

cobas c 702 advanced clinical chemistry module for the cobas 8000 modular analyser series. Features automated reagent loading, enabling consolidation of a broader test menu. Throughput: up to 170 tests/hour

EU Q4

cobas b 123 benchtop multiparameter analyser (blood gas, electrolytes, CO-oximetry and metabolites) for use at the point of care

EU Q4

HIV combi 27 min: improved combination assay for HIV 1 antigen (p24) and HIV antibodies, enabling more reliable early detection of infection with the human immunodeficiency virus

EU Q4

Diabetes Care Accu-Chek Mobile: integrated lancing and blood glucose monitoring device employing a unique ‘no strip’ technology that replaces test strips with a continuous tape of 50 tests

Additional EU markets Q1-Q3

APAC Q1

Accu-Chek Combo: interactive insulin delivery system combining an insulin pump and a blood glucose meter with broad data management capabilities; the meter also functions as a pump remote control

Additional EU markets Q1

APAC Q1, US Q3-Q4

Accu-Chek Aviva Nano: sleeker version of the Accu-Chek Performa meter, offering an enhanced feature set

US Q3-Q4

Molecular Diagnostics LightCycler MRSA Advanced Test: automated real-time PCR-based test for methicillin-resistant Staphylococcus aureus

US Q2

Cobas AmpliPrep/Cobas TaqMan CMV (CE IVD): a viral load monitoring test that will enable physicians to improve the management of cytomegalovirus (CMV) disease in solid organ transplant patients

EU Q3

cobas TaqScreen DPX Test: multi-dye blood screening test designed to simultaneously provide a quantitative result for parvovirus B19 and a qualitative result for hepatitis A virus

EU Q3

Cobas AmpliPrep/Cobas TaqMan HIV-1 v2: second-generation test with a unique dual-target design enabling detection of two separate regions of the HIV-1 genome

US Q4

Cobas TaqMan 48 HIV v2 (CE IVD) High Pure virology test: offers a manual sample preparation option for customers with a low-volume workload

EU Q4

Applied Science GS Junior System: economical benchtop next-generation DNA sequencing system for smaller laboratories

Worldwide Q1

NimbleGen CGX-6 multiplex arrays: microarrays for high-resolution analysis of chromosomal abnormalities; capable of analysing six samples simultaneously

Worldwide Q1

xCELLigence RTCA HT instrument, for automated high-throughput cell analyses and screening

Worldwide Q1

SeqCap EZ Exome v.2: in-solution enrichment capture technology for targeted next-generation sequencing

Worldwide Q2

Next-generation ultra-high density NimbleGen microarrays Worldwide Q3–Q4

Tissue Diagnostics Dual colour/dual hapten in situ hybridisation (ISH) kit enabling target gene detection and control on a single slide. For use with all molecular markers; specifically to support HER2 testing

EU Q1

Ventana anti-HER2 neu (4B5) primary antibody and Ventana HER2 DNA probe: CE IVDs for assessing the likelihood of response to Herceptin treatment in both breast and gastric cancer patients

EU Q1–Q2

BenchMark GX: economical, low-volume advanced tissue staining platform that automates all slide processing steps from baking to staining

EU, APAC Q2

CE-IVD molecular probes targeting the enzyme TOP2A and the cell surface receptor IGF1R, for use as an aid in diagnosing and managing breast and lung cancer

EU Q2-Q4

Discovery Ultra: platform for immunohistochemistry and in situ hybridisation research, offering significant improvements in ease of use, workflow and flexibility

US, EU Q2APAC, Japan,

LATAM Q4

5 Planned launches may be delayed or not occur as a result of adverse regulatory decisions or other factors.EU = European Union; EMEA = Europe, Middle East and Africa; APAC = Asia—Pacific; LATAM = Latin America; US = United States.


Precision and speed count in modern molecular diagnostics. We’re working to improve both. Our genome sequencers can ‘read’ the building blocks of highly variable genes in a matter of days instead of weeks, which is how long it takes to achieve the same precision with conventional sequencing methods. This may one day help to extend and improve the lives of transplant patients. Currently we are investigating the use of our sequencers for HLA (human leukocyte antigen) genotyping of blood stem cells. Stem cell transplantation is performed to treat a number of diseases, including leukemia. Donors’ and recipients’ cells need to be as HLA-compatible as possible for treatment to be successful.

Studies have shown that the Genome Sequencer FLX System * is a power-ful research tool for high-resolution HLA genotyping, which is critical for people needing transplants. The closer the match between the donor’s and recipient’s HLA genes, the smaller the risk of transplant rejection. * Forlifescienceresearchonly.Notforuseindiagnosticprocedures.

They’re reading genes to help save lives one day


Corporate Governance | Roche’s commitment to all stakeholders is reflected in its operating businesses’ focus on value creation, in a management culture that conforms to modern standards of corporate governance and in the Group’s policy of communicating transparently.

Remuneration Report | Roche’s success depends on the abilities and dedication of its people. Recognition of this forms the basis of our remuneration policy and system.

11_L_Roche_AR09_ENG_Corporate Governance indd 64 29 01 2010 00:50:11

65

Roche complies with all relevant corporate governancerequirements, in particular with all applicable laws,the Swiss Stock Exchange (SIX Swiss Exchange)directives (including the commentaries thereto) andthe Swiss Code of Best Practice for Corporate Governance promulgated by the Swiss business federation‘economiesuisse’. The company’s internal governanceframework, particularly its Articles of Incorporationand Bylaws, embodies all the principles needed toensure that the company’s businesses are managedand supervised in a manner consistent with goodcorporate governance, including the necessary checksand balances. 1

Our printed Annual Report contains selected links tothe Roche website (www.roche.com). Readers arethus provided not only with a ‘snapshot’ of our company at the reporting date but are also directed tosources which they can consult at any time for uptodate information about corporate governance atRoche. Whereas each annual report covers a singlefinancial year ending 31 December, our websitecontains information of a more permanent nature aswell as the latest Roche news. Amendments toour company’s Articles of Incorporation and Bylawsand changes in the curricula vitae of the membersof the Board of Directors and the Corporate ExecutiveCommittee are published in timely fashion onour website, where they can be accessed by anyonelooking for this information.

Board of DirectorsAt the 91th Annual General Meeting (AGM) ofRoche Holding Ltd, on 10 March 2009, shareholdersreelected John I. Bell, André Hoffmann and Franz B.Humer as members of the Board of Directors fora term of three years as provided by the Articles ofIncorporation. At its organising meeting immediatelyfollowing the 2009 AGM, the Board of Directors hasapproved its committees’ structure and its committeememberships as shown on page 67.

At the AGM on 2 March 2010, the Board of Directorswill nominate DeAnne Julius and Beatrice Wederdi Mauro for reelection to the Board and Arthur D.Levinson and William M. Burns for election as newMembers of the Board for a term of three yearsas provided by the Articles of Incorporation. PeterBrabeckLetmathe and Horst Teltschik have decidedto retire as members of the Board of Directors aftermany years of distinguished service. The Board ofDirectors thanks for their dedication and their manycontributions to Roche.

Corporate Executive Committee

William M. Burns as CEO Division Roche Pharmaceuticals, Jürgen Schwiezer as CEO Division RocheDiagnostics and Jonathan Knowles as Head GroupResearch retired on 31 December 2009 and thereforestepped down as members of the Corporate ExecutiveCommittee. The Board of Directors thanks the leavingmembers of the Corporate Executive Committee fortheir dedication and their many contributions to Roche.

The Board of Directors of Roche Holding Ltd willnominate William M. Burns for election to the Boardat the AGM on 2 March 2010.

As part of the Genentech transaction, Pascal Soriotwas appointed as CEO of Genentech, Inc. and asa new member of the Corporate Executive Committeein April 2009. Pascal Soriot relinquished his roleas CEO Genentech, Inc. as of 31 December 2009 andwas appointed as COO Division Roche Pharmaceuticals starting on 1 January 2010.

Corporate Governance

1 http://www.roche.com/about_roche/corporate_governance.htm


http://www.roche.com/about_roche/corporate_governance.htm

66 Roche Business Report 2009 Corporate Governance

Board of Directors per 31 December 2009 (from left): Dr Franz B. Humer, Prof. Bruno Gehrig, André Hoffmann, Prof. Pius Baschera, Prof. Sir John Irving Bell, Peter Brabeck-Letmathe, Lodewijk J.R. de Vink, Dr Andreas Oeri, Dr DeAnne Julius, Walter Frey, Prof. Beatrice Weder di Mauro, Prof. Horst Teltschik, Dr Wolfgang Ruttenstorfer


67

A Corporate Governance and Sustainability Committee.B Audit Committee.C Remuneration Committee.D Presidium/Nomination Committee.E Non-executive director.

* Committee chairperson. 1 January 2010

Board of Directors

Name (year of birth) Term ends First elected

Board of Directors Dr Franz B. Humer (1946) D *, E Chairman 2012 1995

Prof. Bruno Gehrig (1946) C *, D, E Vice-Chairman 2011 2004

André Hoffmann (1958) C, D, E Vice-Chairman 2012 1996

Prof. Pius Baschera (1950) A, E 2011 2007

Prof. Sir John Irving Bell (1952) C, E 2012 2001

Peter Brabeck-Letmathe (1944) E 2010 2000

Lodewijk J.R. de Vink (1945) C, E 2011 2004

Walter Frey (1943) A, B, E 2011 2001

Dr DeAnne Julius (1949) B *, E 2010 2002

Dr Andreas Oeri (1949) A *, E 2011 1996

Dr Wolfgang Ruttenstorfer (1950) B, E 2011 2007

Prof. Horst Teltschik (1940) A, B, E 2010 2002

Prof. Beatrice Weder di Mauro (1965) A, B, E 2010 2006

New proposed members of the Board of Directors, nominated for election at the Annual General Meeting on 2 March 2010

William M. Burns (1947)

Dr Arthur D. Levinson (1950)

Secretary to the Board of Directors Dr Gottlieb A. Keller (1954)

Honorary Chairman of the Board of Directors Dr Fritz Gerber (1929)



On this page Corporate Executive Committee per 31 December 2009 (from left): Dr Severin Schwan, William M. Burns, Dr Jürgen Schwiezer, Dr Erich Hunziker, Silvia Ayyoubi, Prof. Jonathan Knowles, Dr Gottlieb A. Keller, Pascal Soriot, Burkhard G. Piper, Osamu Nagayama, Per-Olof Attinger, Richard Scheller, René Kissling

Right page New members as of 1 January 2010 (from left): Daniel O'Day, Jean-Jacques Garaud, Dan Zabrowski


69


Name (year of birth) Position

Corporate Executive Committee Dr Severin Schwan (1967) CEO of the Roche Group

Dr Erich Hunziker (1953) Chief Financial Officer and

Deputy Head of the Corporate Executive Committee

William M. Burns (1947)* CEO Division Roche Pharmaceuticals

Dr Jürgen Schwiezer (1944)* CEO Division Roche Diagnostics

Prof. Jonathan K.C. Knowles (1947)* Head Group Research

Dr Gottlieb A. Keller (1954) General Counsel

Silvia Ayyoubi (1953) Head Human Resources

Pascal Soriot (1959) CEO Genentech, Inc.;

as of 1.1.2010 COO Division Roche Pharmaceuticals

As of 1 January 2010 Daniel O’Day (1964) COO Division Roche Diagnostics

Enlarged Corporate Executive Committee

Burkhard G. Piper (1961)*

Head Business Area Roche Diabetes Care

Per-Olof Attinger (1960) Head Communications

Osamu Nagayama (1947) President and CEO Chugai

Richard Scheller (1953) Head Genentech Research and Early Development (gRED)

As of 1 January 2010 Jean-Jacques Garaud (1955)

Head Roche Pharma

Research and Early Development (pRED)

Dan Zabrowski (1959) Head of Pharma Partnering

Secretary to the Corporate Executive Committee René Kissling (1966)

Statutory Auditorsof Roche Holding Ltd

KPMG Klynveld Peat Marwick Goerdeler SA (reporting years 2004–2008)KPMG AG (since 2009)Auditor in charge: John A. Morris (since 2004)

Chief Compliance Officer Dr Urs Jaisli (1956)

* Member until 31 December 2009.

New members as of 1 January 2010 (from left): Daniel O'Day, Jean-Jacques Garaud, Dan Zabrowski



As of 1 January 2010 Daniel O’Day was appointed asCOO Division Roche Diagnostics and as a newmember of the Corporate Executive Committee. Asof 31 December 2009, Burkhard Piper steppeddown as a member of the Enlarged Corporate Executive Committee and is reporting to Daniel O’Day.

In April 2009, Richard Scheller was appointed tothe Enlarged Corporate Executive Committee.He reports directly to Group CEO Severin Schwan.As the former Head of Genentech Research, heleads Genentech’s Research and Early Development(gRED) which will operate as an independent centrewithin the Roche Group.

JeanJacques Garaud was appointed as Head ofRoche Pharma Research and Early Development(pRED) and as a new member of the EnlargedCorporate Executive Committee.

Dan Zabrowski as Head of Pharma Partnering wasappointed as a new member of the Enlarged Corporate Executive Committee.

Information relating to Corporate Governance

Group structure and shareholders1 Roche’s operating businesses are organised into• two divisions: Pharmaceuticals and Diagnostics. ThePharmaceuticals Division comprises the two businesssegments Roche Pharmaceuticals and Chugai,whereas Genentech as the former third segment hasbeen integrated into Roche Pharmaceuticals. TheDiagnostics Division consists of the following fivebusiness areas: Applied Science, Diabetes Care,Molecular Diagnostics, Professional Diagnostics andTissue Diagnostics. Business activities are carried outthrough Group subsidiaries and associated companies. Significant subsidiaries and associated companies are listed in the Finance Report, Note 34 tothe Roche Group Consolidated Financial Statements(‘Subsidiaries and associates’, pages 122 to 124.

Major shareholders are listed in the Finance Report,• Notes 28 and 33 to the Roche Group Consolidated Financial Statements (‘Equity attributableto Roche shareholders’ and ‘Related parties’,pages 106 and 120) and in Note 4 to the FinancialStatements of Roche Holding Ltd (‘Significantshareholders’, page 141).André Hoffmann, ViceChairman of the Board of• Directors, and Andreas Oeri, Member of the Boardof Directors and Chairman of the Board’s Corporate Governance and Sustainability Committee,serve in their respective capacities on the Board andits Committees as representatives of the shareholders group with pooled voting rights and receivethe remuneration set forth in the RemunerationReport on page 77 and in the Finance Report,Note 33 to the Roche Group Consolidated FinancialStatements (‘Related parties’, page 120) and Note 6to the Financial Statements of Roche Holding Ltd(‘Board and Executive remuneration’, page 142).No other relationships exist with the shareholderswith pooled voting rights.There are no crossshareholdings.•

Capital structure2 Information on Roche’s capital structure is provided• in the Finance Report, Notes to the FinancialStatements of Roche Holding Ltd (page 140 and141). Additional details are contained in theArticles of Incorporation of Roche Holding Ltd. 2

Changes in equity are detailed in the Finance• Report, Notes to the Financial Statements ofRoche Holding Ltd (page 141).The company has a share capital of 160,000,000• Swiss francs, divided into 160,000,000 fully paidbearer shares with a nominal value of 1 Swiss franceach. There are no restrictions on the exerciseof the voting rights of these shares. Upon deposit,shares can be voted without any restrictions.There is no authorised or conditional capital.• In addition, 702,562,700 nonvoting equity• securities (NES) have been issued in bearer form.

2 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm


http://www.roche.com/about_roche/corporate_governance/article_of_incorporation.htm

71

They do not form part of the share capital andconfer no voting rights. Each NES confers the samerights as one share to participate in availableearnings and in any liquidation proceeds followingrepayment of the share capital. Roche’s NESand the rights pertaining thereto (including theprovisions protecting the interests of NES holders)are described in §4 of the Articles of Incorporationof Roche Holding Ltd.Information on debt instruments which have• been issued and on outstanding bonds is providedin the Finance Report, Note 27 to the RocheGroup Consolidated Financial Statements (‘Debt’,page 100).Additional information on employee stock options• is provided in the Finance Report, Note 11 tothe Roche Group Consolidated Financial Statements(‘Employee stock options and other equitycompensation benefits’, page 72).Roche has issued no options apart from employee• stock options, Stocksettled Stock AppreciationRights (SSARs) and options issued in connectionwith debt instruments.Neither the options awarded to employees nor• the debt instruments which have been issued haveany effect on Roche’s share capital.

Board of Directors and Corporate Executive 3 CommitteeInformation on each member of the Board of• Directors (including the years in which they wereelected and the years in which their terms end)and on each member of the Corporate ExecutiveCommittee is listed on pages 65 to 70. Curriculavitae and other information (including informationon board memberships) are available on theInternet. 3

The Annual General Meeting elects the members• of the Board of Directors in staggered electionsin which each nominee is voted on separately (see§18 of the Articles of Incorporation of RocheHolding Ltd 4 and the Minutes of the 91th AnnualGeneral Meeting of Roche Holding Ltd, held10 March 2009 5).

With the exception of Franz B. Humer, none of the• members of the Board of Directors has been amember of Roche’s Corporate Executive Committeeor served in an executive capacity at any Groupsubsidiary during the three financial years precedingthe current reporting period.The internal organisation of the Board of Directors• and the division of authority and responsibilitiesbetween the Board and management, the remits ofthe Board committees and the information andcontrol mechanisms available to the Board in itsdealings with corporate management are governedby the Bylaws. 6

The Board of Directors of Roche Holding Ltd is• organised so as to ensure that the Group’sbusinesses are conducted responsibly and with afocus on longterm value creation. To this end, theRoche Board has delegated certain responsibilitiesto several committees 7. Their composition andchairpersons as of 1 January 2010 are describedon page 67. Each committees’ authorities andresponsibilities are defined in detail in the Bylawsof the Board of Directors. 8

All the committees except the Presidium are chaired• by independent directors.According to the Bylaws of the Board of Directors• at the request of any of its members a Boardmeeting without the Chairman present may beconvened. The Roche Board meets once a year toassess the Chairman’s performance. This meeting,which is not attended by the Chairman, is chairedby one of the ViceChairmen.

3 http://www.roche.com/about_roche/management/ board_of_directors.htm and http://www.roche.com/about_roche/management/ executive_committee.htm


5 http://www.roche.com/about_roche/corporate_governance/annual_general_meetings.htm


7 http://www.roche.com/about_roche/corporate_governance/ committees.htm



http://www.roche.com/about_roche/management/board_of_directors.htm

http://www.roche.com/about_roche/management/executive_committee.htm


http://www.roche.com/about_roche/corporate_governance/annual_general_meetings.htm


http://www.roche.com/about_roche/corporate_governance/committees.htm



The Board of Directors has established a system of• controls which is continuously monitored by theAudit Committee and by the Corporate Governanceand Sustainability Committee and consists of thefollowing elements:— Reports on financial and operating risks (risk

management system)— System of internal controls over financial report

ing (see page 125 and 128 in the Finance report)— Internal audits— Group Compliance Officer and Compliance

officers in subsidiaries— Safety, Health and Environmental Protection

Department— Corporate Sustainability Committee— Scientific and Ethics Advisory Group (SEAG),

for issues relating to genetics and genetic engineering (established in 1999).

Each year several blackout periods are imposed• during which senior employees are prohibited fromtrading in company stock. The following blackoutperiods are in effect for 2010:

26 December to 3 February1 April to 15 April26 June to 22 July1 October to 14 October

Blackout periods can be changed by the Chairmanof the Board of Directors if circumstances warrant.In 2009 the Board of Directors met for five meet• ings, each from 3 to 6 hours in length *; once for afullday meeting*; and once for a threeday visitto a major subsidiary * which included a Board ofDirectors meeting *. The Board committees metas follows in 2009:— Presidium of the Board of Directors/Nomination

Committee: three meetings (approx. 2 hourseach *)

— Audit Committee: four meetings (approx. 3 to4 hours each *)

— Corporate Governance and Sustainability Committee: three meetings (approx. 3 hours each *)

— Remuneration Committee: three meetings 9

(approx. 2 to 3 hours each *).The members of the Corporate Executive Committee• are invited to attend for, and report in person on,those agenda items concerning them. Whenthe situation warrants, members of the EnlargedCorporate Executive Committee may also be invitedto attend. The Board committees invite the Chairman of the Board and other Corporate ExecutiveCommittee members to deliver reports at committee meetings and may elect to commissionindependent expert reports and call on the servicesof consultants. The risk management system issubject to continuous review, with findings beingpresented to the Audit Committee or the fullBoard.10 Internal Audit regularly briefs the AuditCommittee with reference to ongoing audit reports.Members of Internal Audit attend Audit Committeemeetings, as do external auditors. For informationon the external auditors, see page 73.There are no management contracts which fall• within the scope of Subsection 4.3 of theSIX Directive on Information relating to CorporateGovernance.

Remuneration, shareholdings and loans4 All details regarding remuneration, shareholdingsand loans are set forth in the separate Remuneration Report on pages 75 to 85 and in the FinanceReport, Notes 28 and 33 to the Roche GroupConsolidated Financial Statements (‘Equity attributable to Roche shareholders’ and ‘Related parties’,pages 106 and 120) and are listed in the Notes 6and 7 to the Financial Statements of Roche Holding Ltd (‘Board and Executive remuneration’ and‘Board and Executive shareholdings’, pages 142and 144).

* These figures indicate the actual length of meetings and do not include the directors' extensive pre-meeting preparations and post-meeting follow-up activities.

9 Remuneration Committee members are not permitted to con-tribute to or attend Remuneration Committee meetings at which matters concerning them are deliberated or decided.

10 Additional information is provided in the Finance Report, Note 32 to the Roche Group Consolidated Financial Statements, ‘Risk management’, page 113).


73

Audit Committee, see Article 8.1 of the Bylaws 12).The statutory auditors participated in all (four)meetings of the Audit Committee in 2009.

The reports of statutory auditors on the Consolidated Financial Statements and on the FinancialStatements can be found on pages 126 and 149,respectively, of this year’s Finance Report.

KPMG received the following remuneration fortheir services as statutory auditors of Roche Holding Ltd and other Roche companies:

2009 2008 (millions of CHF)

Auditing services 21.9 19.7

Audit-related services 3.7 4.6

Tax consultancy services 1.3 1.8

Total 26.9 26.1

The statutory auditors are elected each year by theAnnual General Meeting.

Ernst & Young Ltd received the following remuneration for their services as the auditors of Genentechand Chugai:

2009 2008 (millions of CHF)

Chugai (2008 Genentech

and Chugai) audits 2.2 5.4

Other consulting services

provided to Genentech

and Chugai 2.2 1.7

Total 4.4 7.1

Participatory rights of shareholders5 The participatory rights of shareholders are defined• in Roche’s Articles of Incorporation.11 As Rocheshares are issued to bearer, there are no restrictionson admission to Annual General Meetings, withthe exception that shares must be deposited withina specified period before the date of a meetingand an admittance card must be issued in the shareholder’s name, as provided in §12 of the Articlesof Incorporation. Any shareholder can elect tobe represented by another shareholder at an AnnualGeneral Meeting. The Articles of Incorporationcontain no restrictions on the exercise of votingrights, and the only quorum requirements arethose stipulated in §16, in conformity with theSwiss Code of Obligations.Under §10.2 of the Articles of Incorporation,• shareholders representing shares with a nominalvalue of at least 1 million Swiss francs can requestthe placement of items on the agenda of anAnnual General Meeting. This must be done nolater than 60 days before the date of the meeting.

Change of control and defensive measures6 The Articles of Incorporation contain no provisions• on the mandatory bid rule. Swiss law applies.There are no changeofcontrol clauses. Those• components of remuneration based on Roche NESwould be terminated in the event of an acquisition,and vesting period restrictions on preexistingawards would be removed, so that all such optionscould be exercised immediately.

Relationship to statutory auditors7 At the Annual General Meeting of Roche HoldingLtd on 10 March 2009, the shareholders votedto appoint KPMG AG (KPMG) as statutory auditors(information on how long the auditors and auditorin charge have been serving in these capacities isprovided on page 69). The statutory auditorsparticipate in Audit Committee meetings. They prepare written and oral reports on the results of theiraudits. The Audit Committee oversees and assessesthe auditors and makes recommendations to theBoard (for information on the responsibilities of the







Information policy8 As provided by §33 of the Articles of Incorpora• tion 13, corporate notices are published in the Swiss Official Gazette of Commerce and in other dailynewspapers designated by the Board of Directors(Basler Zeitung, Finanz und Wirtschaft, L’Agefi, Le Temps, Neue Zürcher Zeitung).Roche reports its halfyear and fullyear results in• business reports published in print and onlineformats and at media events. In addition, detailedfirst and thirdquarter sales figures are publishedeach year in April and October. The most currentlist of publication dates is available in English andGerman on the Internet.14

All relevant information and documents, including• all media releases, investor updates 15 and presentations to analyst and investor conferences areavailable on the Internet. Further publicationscan be ordered by email, fax or telephone: [email protected], tel. +41 (0)61 688 83 39;fax +41 (0)61 688 43 43.The contact address for Investor Relations is:• F. HoffmannLa Roche Ltd, Investor Relations,Corporate Finance, 4070 Basel, Switzerland;tel. +41 (0)61 688 88 80, fax +41 (0)61 691 00 14.Additional information, including details on specificcontact persons, is available on the Internet. 16

Chief Compliance Officer9 The Chief Compliance Officer with his complianceofficers network is committed to ensuring thatRoche corporate principles are consistently complied with throughout the Roche Group andalso serves as a contact person for shareholders,employees, customers, suppliers and the generalpublic on issues relating to the implementation ofand compliance with these principles. Employeesand other parties who become aware of violationsof Roche corporate principles can bring themto the attention of their managers or supervisors orreport them to the Chief Compliance Officer (UrsJaisli, direct phone number: +41 (0)61 688 40 18,email: [email protected]). Such disclosureswill be treated confidentially. In addition, as of theend of 2009, employees may anonymously report

irregularities or complaints in their correspondingmother language via a ‘speakup hotline’. TheChief Compliance Officer reports regularly to theCorporate Governance and Sustainability Committee.

Non-applicability/negative disclosure10 It is expressly noted that any information notcontained or mentioned herein is nonapplicableor its omission is to be construed as a negativedeclaration (as provided in the SIX Swiss ExchangeCorporate Governance Directive and the Commentary thereto).

14 http://www.roche.com/media.htm15 http://www.roche.com/investors.htm16 http://www.roche.com/investors/contacts.htm


http://www.roche.com/media.htm

http://www.roche.com/investors.htm

http://www.roche.com/investors/contacts.htm

75

SummaryRoche’s success depends on the abilities anddedication of its people. Recognition of this formsthe basis of our remuneration policy and system.

One of the primary aims of our remuneration policy isto encourage a long-term focus and align manage-ment’s interests with the interests of Roche’s share-holders and holders of Roche’s non-voting equitysecurities (NES).

This remuneration report will be submitted•separately for approval at the 2010 Annual GeneralMeeting.The remuneration of Corporate Executive•Committee (CEC) members and other seniorRoche executives is comprised of:— Base salary— Bonus— Special stock awards (non-voting equity

securities subject to vesting period 3–10 years)— Stock-settled Stock Appreciation Rights

(S-SARs) 1

— Performance Share Plan (PSP) awardsWith the exception of Severin Schwan and Silvia•Ayyoubi, none of the CEC members received anincrease in base salary in 2009. 2

Based on Roche’s share price performance, no•NES will be awarded for the 2007–2009 PSP cycle.The S-SARs granted in 2006, 2007 and 2008,•have strike prices above the current NES price andhave no value for the recipients. This can changeif Roche’s future NES price improves.There has been no change in the base remunera-•tion of the Board of Directors since 2001.

Please see the rest of this report for full details 3.

RemunerationpolicyRoche fundamentally renewed its remuneration policyin 2004 and revised it with minor changes in 2009.It is part of a framework of employee policies aimed atmotivating and retaining current employees, attractingtalented new ones and helping all Roche employeesto perform at consistently high levels. Our remunera-

tion policy is designed to foster value creation andreinforce a culture of performance and innovation,and it applies to non-managerial employees as wellas to managers. The key principles underpinning thispolicy are:

Focus on value creation•Pay for performance•Enabling employees to share in the company’s•successFairness and transparency in remuneration•decisionsA balanced mix of long- and short-term•remuneration componentsMarket-competitiveness.•

Base pay, bonuses, blocked non-voting equitysecurities (NES), awards of Stock-settled StockAppreciation Rights (S-SARs) and a PerformanceShare Plan support these principles. These remu-neration components are linked to our company’sfinancial performance and commercial success andthus align the interests of Roche employees withthose of the shareholders. The amount of the separatecomponents of remuneration for each individualmember of the Corporate Executive Committee isshown in the individual description of the remunera-tion of the Corporate Executive Committee in thisreport.

BasepayBase pay levels are determined according to marketdata for specific positions and individual employees’abilities, experience and performance over time. Payincreases are linked to individual performance and

RemunerationReport

1 See‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82.

2 On1April2008,thebasepayoftheCorporateExecutiveCommitteewasgenerallyincreasedforthelasttime.ForGottliebKellerresultedadifferencebetweenthebasepayreceivedforthecalendaryear2008and2009(seetableonpage78)duetotheincreaseofthebasepayonApril2008.

3 SeealsointheFinanceReport,Note33totheRocheGroupConsolidatedFinancialStatements(‘Relatedparties’,page120)andNotes6and7totheFinancialStatementsofRocheHoldingLtd(‘BoardandExecutiveremuneration’and‘BoardandExecu-tiveshareholdings’,page142and144).

12_L_Roche_AR09_ENG_Remuneration Report indd 75 29 01 2010 00:50 58

76 RocheBusinessReport2009 Remuneration Report

also take into account prevailing market conditions,affordability and the company’s overall economicsituation.

BonusesBonuses are awarded in recognition of individual con-tributions to value creation which go beyond normal jobexpectations, and they are meant to be an incentiveto create or strengthen new business opportunitiesand strive for outstanding results. Bonus amounts arelinked to Group or divisional business performanceand to the achievement of individual and functional,measurable and qualitative performance objectives.The Remuneration Committee of the Board of Directorshas defined the Corporate Executive Committeemembers bonuses in December 2009 based on resultsachieved for 2009.

SpecialstockawardsIn 2009 non-voting equity securities have beengranted to a selected number of Roche employees.The awards vest immediately but are blocked forthree years. Recipients have the option to extend theblocking period to ten years. The grant of those non-voting equity securities was awarded as part of thebonus payments for 2009 with the aim to both imme-diately reward the achievement of specific objectivesand to foster the interest in a long-term positivedevelopment.

Stock-settledStockAppreciationRights(S-SARs)Stock-settled Stock Appreciation Rights were intro-duced on 1 January 2005, thus establishing a uniformsystem of remuneration throughout Roche. S-SARsentitle holders to benefit financially from any increasein the value of Roche’s non-voting equity securitiesbetween the grant date and the exercise date. Detailedinformation is available on page 79 and page 82 to 85.

PerformanceSharePlanThe members of the Corporate Executive Committeeand other members of senior management (currentlysome 120 individuals worldwide) participate in thePerformance Share Plan (PSP). The PSP was estab-lished in 2002 for periods of three years each and

is based on a three-year comparison of the totalshareholder return (TSR) with 17 competing compa-nies 4. In 2009 there were three overlapping perfor-mance cycles, PSP 2007–2009, PSP 2008–2010 andPSP 2009–2011 of which PSP 2007–2009 closedon 31 December 2009.

Details for the PSP 2007–2009 calculation and addi-tional information are set forth in ‘Remunerationof members of the Corporate Executive Committee,D. Performance Share Plan (PSP)’, page 80.

RemunerationoftheBoardofDirectorsandtheCorporateExecutiveCommitteeEach year the Remuneration Committee, which isentirely comprised of independent external membersof the Board of Directors, sets remuneration for themembers of the Board of Directors and the CorporateExecutive Committee (cash payments, bonuses,options, Stock-settled Stock Appreciation Rights andpolicy decisions about pension benefits). The termsof the Performance Share Plan are determined annu-ally by the Board of Directors, acting upon recommen-dations from the Remuneration Committee. TheRemuneration Committee continuously tracks salarytrends in the market and reports to the Board ofDirectors. Information on this committee’s remit andits procedures for making remuneration decisionscan be found in the Bylaws of the Roche Board ofDirectors 5.

Following the revision of the remuneration policyincluding market comparisons with the world’s majorpharmaceutical companies, the Remuneration Com-mittee has determined the bonuses and remunerationof the Chairman of the Board of Directors, the mem-bers of the Corporate Executive Committee taking intoconsideration personnel changes. In doing so, thefollowing changes were noted:

4 Peersetfor2009:AbbottLaboratories,Amgen,Astellas,Astra-Zeneca,Bayer,BectonDickinson,BiogenIdec,Bristol-MyersSquibb,EliLilly,Gilead,GlaxoSmithKline,Johnson&Johnson,Merck&Co.,Novartis,Pfizer,Sanofi-Aventis,Takeda.

5 http://www.roche.com/about_roche/corporate_governance/article_of_incorporation.htm



77

Board of Directors and by each member of the Corpo-rate Executive Committee for 2009, in comparisonwith figures for previous years, and an outlook on theChairman’s remuneration development for 2010.

Remuneration1RemunerationofmembersoftheBoard1.1

ofDirectors| In 2009 the members of the Boardof Directors 6 received the remuneration shownin the table ‘Remuneration of members of the Boardof Directors’ below for their Board activities.

Remuneration of all members of the Board of Directorswill again remain unchanged for 2010. The non-executive members of the Board of Directors were notawarded any shares, non-voting equity securities,

A further important step for the transfer of duties•from the Chairman to the CEO has been completedwith the completion of the integration of Genen-tech. Accordingly, the Board plans to reduce theChairman’s base pay in 2010 (for detailed infor-mation see page 82).On 31 December 2009, William M. Burns, Jonathan•K.C. Knowles and Jürgen Schwiezer retired fromthe company and consequently stepped down asmembers of the Corporate Executive Committee.As of 1 January 2010 Daniel O’Day has taken•over as Chief Operating Officer (COO) of theDiagnostics Division.As of 1 January 2010 Pascal Soriot has taken over•his new function as COO of the PharmaceuticalsDivision.

The following pages provide detailed information onthe remuneration earned by each member of the

RemunerationofmembersoftheBoardofDirectors

Remuneration2009(inCHF)

Additionalcompensation2009forcommitteemembers/chairs7

(inCHF) Additionalspecialcompensation2009

F.B.Humer (seepage818) 50,000 (RemunerationasChairman

oftheBoardofDirectors

seepage818)

B.Gehrig 400,0009 –

A.Hoffmann 400,0009 –

P.Baschera 300,000 30,000

J. I.Bell 300,000 30,000

P.Brabeck-Letmathe 300,000 –

L. J.R.deVink 300,000 30,000

W.Frey 300,000 60,000

D.A.Julius 300,000 60,000

A.Oeri 300,000 60,000

W.Ruttenstorfer 300,000 30,000

H.Teltschik 300,000 60,000 Compensationforserving

ontheboardsofRoche

subsidiaries,seepage78

B.WederdiMauro 300,000 60,000 Seepage78

7 WiththeexceptionofmembersofthePresidiumandtheVice-Chairmen,BoardmembersreceiveCHF30,000/yearforeachcommitteetheyserveonandCHF60,000/yearforeachcommitteetheychair.

8 See‘G.HighesttotalremunerationtoamemberoftheBoardofDirectors',page81and82.9 RemunerationforservingasVice-ChairmanoftheBoard.

6 Foralistofmembers,theirpositionsandtheircommitteemem-bershipsandchairmanship,seepage67.



dollars (5,450 Swiss francs) for her participationat a course on ‘Audit Committees in a new Era ofGovernance’ at Harvard Business School.

Stock-settled Stock Appreciation Rights (S-SARs)10,stock options or Restricted Stock Units (RSUs) in2009. Horst Teltschik received honoraria amounting to19,635 euros (29,648 Swiss francs) for serving onthe boards of several Roche subsidiaries in Germany.Beatrice Weder di Mauro was reimbursed 5,000 US

10 See‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82.

Bonus

Bonusfor2009

Bonusfor2008

Bonusfor2007

Cashpayment(inCHF)

Specialstockawards(Blockednon-votingequitysecurities)

Total(inCHF)

Cashpayment(inCHF)

Cashpayment(inCHF)Number

Blockingperiod(years)

Value(inCHF)

S.Schwan 3,000,000 20,450 10 1,675,178** 4,675,178 3,000,000 2,500,000

S.Ayyoubi 1,000,000 4,485*** 3 637,909**** 1,637,909 500,000 *

W.M.Burns 4,000,000 13,046*** 3 1,606,905** 5,606,905 2,500,000 2,500,000

E.Hunziker 2,000,000 13,046*** 3 1,606,905** 3,606,905 2,200,000 2,200,000

G.A.Keller 1,000,000 9,931*** 10 813,506** 1,813,506 1,000,000 1,000,000

J.K.C.Knowles 1,000,000 – – 1,000,000 308,900 1,000,000

J.Schwiezer 2,000,000 – – 2,000,000 1,000,000 *

P.Soriot 2,000,000 – – 2,000,000 * *

Total 16,000,000 6,340,403 22,340,403

* NotamemberoftheCorporateExecutiveCommittee.** Dayvalueatgrantofnon-votingequitysecurities:CHF146.70/NES.Calculationofvalueinconsiderationofreductionofvaluedue

toblockingperiod(reducedmarketvalue:for3years=83.962%;for10years=55.839%).*** ExcludingcontributiontoAHV/IV/ALV:Swisssocialsecurityprogrammesprovidingretirement,disabilityandunemploymentbenefits.****Dayvalueatgrantofnon-votingequitysecurities:CHF169.40/NES.Calculationofvalueinconsiderationofreductionofvaluedue

toblockingperiod(reducedmarketvalue:for3years=83.962%).

RemunerationofmembersoftheCorporateExecutiveCommitteeA.Basepay| inCHF

Annualsalary2009

Annualsalary2008

Annualsalary2007

S.Schwan 2,875,002 2,283,340 1,100,000

S.Ayyoubi 725,004 481,670 *

W.M.Burns 2,000,000 2,000,000 2,000,000

E.Hunziker 2,000,000 2,000,000 2,000,000

G.A.Keller 1,500,000 1,350,000 900,000

J.K.C.Knowles 1,350,000 1,350,000 1,350,000

J.Schwiezer 1,200,000 1,200,000 *

P.Soriot 1,246,878 * *

Total 12,896,884

* NotamemberoftheCorporateExecutiveCommittee.


79

For 2009 the members of the Board of Directorsreceived remuneration totalling 18,608,650 Swissfrancs 11.

No additional remuneration was paid to members ofthe Board of Directors.

RemunerationofmembersoftheCorporate1.2ExecutiveCommittee| The general provisionsassigning authority for decisions on Corporate Execu-tive Committee remuneration to the RemunerationCommittee and to the Board of Directors are outlinedon page 76 of this remuneration report. For 2009the members of the Corporate Executive Committeereceived remuneration totalling 54,858,227 Swissfrancs 12.

B.BonusIn 2009 the bonus for some of the members of theCorporate Executive Committee is divided in two parts:

For three or ten years blocked non-voting equity•securities (granted in 2009) andCash payment due for payment at the end of•April 2010.

With the element of blocked non-voting equitysecurities the bonus reflects an even stronger linkto the long-term performance of the company.

11 See‘RemunerationofmembersoftheBoardofDirectors’,page77.

12 See‘RemunerationofmembersoftheCorporateExecutiveCommittee’,(A.–F.andH.)excludingAHV/IV/ALV,page78to83.

C.Stock-settledStockAppreciationRights(S-SARs)

S-SARs132009

(valueinCHF14)

S-SARs13

2008(valueinCHF14)

S-SARs13

2007(valueinCHF14)

S.Schwan 3,559,849 2,225,542 1,068,062

S.Ayyoubi 889,993 445,146 *

W.M.Burns 2,224,920 2,225,542 1,780,140

E.Hunziker 1,957,935 1,958,480 1,780,140

G.A.Keller 1,334,989 1,335,313 890,125

J.K.C.Knowles 1,334,989 1,335,313 890,125

J.Schwiezer 889,993 890,229 *

P.Soriot 1,401,735 * *

Total 13,594,403

* NotamemberoftheCorporateExecutiveCommittee.13 See‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82.14 Black-Scholesvalueasdescribedin‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82to85.

Valuesfor2007and2008accordingtoAnnualReport2008,page78.

At the present time the Stock-settled Stock Appreci-ation Rights granted in 2006, 2007 and 2008, most ofwhich can now be exercised, following the end ofthe vesting period in February 2010, have no value forthe recipients.15 Members of the Corporate ExecutiveCommittee additionally receive annual expense allow-ances of 30,000 Swiss francs, totalling 210,000 Swissfrancs, while Pascal Soriot, who was based in San

Francisco from March to December 2009,received allowances and tax equalisation totalling635,246 Swiss francs.

15 Seestrikepricesintable‘StockoptionsandS-SARs’,page85.



D.PerformanceSharePlan(PSP)The members of the Corporate Executive Committeeand other members of senior management (currentlysome 120 individuals worldwide) participate in thePerformance Share Plan (PSP).

In 2006 the PSP moved to overlapping three-yearperformance cycles, with a new cycle beginning eachyear. In 2009 there were thus three cycles in progress(PSP 2007–2009, PSP 2008–2010 and PSP 2009–2011);the PSP 2007–2009 ended on 31 December 2009.

Under the provisions of this plan, a number of non-voting equity securities (NES) have been reserved forthe participants in each cycle. The number of secu-rities actually awarded will depend on whether and towhat extent an investment in Roche securities (sharesand NES) outperforms the average return on aninvestment in securities issued by a peer set of com-parator companies 16. Comparisons are based on

the securities’ market prices and dividend yields,i.e. on Total Shareholder Return (TSR). To reduce theeffect of short-term market fluctuations, securityprices are averaged over the three months (October toDecember) prior to the start of a performance cycleand over the three months (October to December)at the end of the cycle. If Roche securities performas well as or better than those of 75% of the peerset and, in addition, Roche’s TSR increases at least10% during a cycle, the Board of Directors can electto increase the maximum NES award by as muchas two-fold. In the event that an investment in Rochesecurities underperforms the average return deliveredby the peer companies, fewer or no NES will beawarded.

In 2009 NES were reserved under the plan for membersof the Corporate Executive Committee as shown in

PerformanceSharePlan(PSP)

TargetnumberofNESforPSP

2009–2011

TargetnumberofNESforPSP

2008–2010

NoNESawardedforPSP

2007–2009

200917

Totalestimatedvalueof

PSPawards(2007–2009

and2008–2010and2009–2011)

(valueinCHF)

200818

Totalestimatedvalueof

PSPawards(2006–2008,

2007–2009and2008–2010)

(valueinCHF)

200718

ValueofPSPawards(2005–2007,2006–2008

and2007–2009)

(valueinCHF)

S.Schwan 5,011 1,965 – 408,793 217,804 557,264

S.Ayyoubi 1,002 638 – 96,104 84,392 *

W.M.Burns 4,009 3,276 – 426,901 447,200 1,612,918

E.Hunziker 4,009 3,276 – 426,901 454,188 1,904,622

G.A.Keller 3,006 1,474 – 262,528 202,908 738,912

J.K.C.Knowles – 2,211 – 129,564 318,392 1,364,636

J.Schwiezer 2,405 1,965 – 256,082 225,279 *

P.Soriot 2,104 1,638 – 219,281 * *

Total 21,546 16,443 – 2,226,154

* NotamemberoftheCorporateExecutiveCommittee.17 Totalestimatedvaluefor2009:

PSP2007–2009:noneoftheoriginallytargetedNESawarded.PSP2008–2010and2009–2011:Estimatedvaluecalculatedusingtheyear-endpriceasof31December2009,CHF175.80pernon-votingequitysecurity(NES),basedonthenumberofNESoriginallytargetedsubjecttochangesinthenumberandvalueofNESawardableundertheplanon31December2010and31December2011,respectively,andspreadovertherelevantperiodoftime,i.e.¹⁄³fortheyear2009.TheBoardofDirectorswillvoteontheactualallocationofNESoriginallytargetedon31December2010and

31December2011,respectively,accordingtotheTSRachieved.18DetailedcalculationseeAnnualReport2008,page79.

16 Seefootnote4,page76.


81

the table on page 80. The Board of Directors willdecide on the actual level of NES or cash equivalentawards for the cycles 2008–2010 and 2009–2011after the close of the 2010 and 2011 financial years,respectively. The aim of the PSP is to provide anincentive to participants to achieve steady valuegrowth.At the end of the PSP 2007–2009 cycle (based on athree-month moving average at constant exchangerates) with distributed dividends totalling 11.211 bil-lion Swiss francs (2007: 2.932 billion Swiss francs;2008: 3.967 billion Swiss francs; 2009: 4.312 billionSwiss francs), the TSR of the Roche securities (NESand shares) ranked #13, compared with its peerset of companies operating in the same industry.Therefore, according to the terms of the plan, theparticipants received none of the originally targetedNES (see table on page 80 for details).

E. IndirectbenefitsEmployer contributions made in 2009 to social securityschemes, pension plans and a Group-wide employeestock purchase plan (Roche Connect) in respectof members of the Corporate Executive Committee areshown in the table ‘Indirect benefits in 2009’ below.Roche Connect is a voluntary stock purchase planoffering employees the opportunity to buy Roche

non-voting equity securities (NES) up to an amountequal to 10% of their annual salary at a 20% discount.NES purchased under this plan are subject to aholding period, which is four years in Switzerland.

F. Otherremuneration,emolumentsandloansGottlieb Keller received a nonrecurring specialpayment of 50,000 Swiss francs for his 25 years’service for the company. In 2009 pensions totalling2,083,820 Swiss francs were paid to two formerCorporate Executive Committee members. Fourmembers of the Corporate Executive Committeereceived a total of 93,750 US dollars (102,187 Swissfrancs) for serving on the Chugai Board.

G.HighesttotalremunerationtoamemberoftheBoardofDirectorsFranz B. Humer as the chairman was the memberof the Board with the highest total remuneration for2009 (see ‘Remuneration of members of the Boardof Directors’, page 77 to 79). The Chairman’s remu-neration consists of base salary and bonus awards.As Chairman of the Board after the handover of hisexecutive function as CEO at the Annual GeneralMeeting on 4 March 2008, he did not receive anyadditional S-SARs or NES from new PSP cycles andwas no longer enrolled in any Roche stock optionplan or S-SARs.

Indirectbenefitsin2009

Pensionfunds/MGB19(inCHF)

AHV/IV/ALV20

(inCHF)RocheConnect

(inCHF)

Paymentsfortaxconsultingservices

(inCHF)

S.Schwan 456,941 386,096 69,790 5,488

S.Ayyoubi 449,635 117,920 2,375 1,937

W.M.Burns 37,120 405,969 30,000 33,378

E.Hunziker 650,892 311,819 49,992 5,985

G.A.Keller 530,330 177,106 37,500 –

J.K.C.Knowles 37,357 132,927 9,375 39,446

J.Schwiezer 77,695 128,335 9,600 5,563

P.Soriot 254,576 248,408 4,166 3,809

Total 2,494,546 1,908,580 212,798 95,606

19 MGB:StiftungderF.Hoffmann-LaRocheAGfürMitarbeiter-Gewinnbeteiligung(employeeprofit-sharingfoundationsupplementingoccupationalpensionbenefits).

20AHV/IV/ALV:Swisssocialsecurityprogrammesprovidingretirement,disabilityandunemploymentbenefits.



The Board of Directors intends to reduce the Chair-man’s base salary in 2010 to 4 million Swiss francs(as of 1 April 2010). His total remuneration, includingbonuses, contributions to pension funds and addi-tional compensation (expense allowance) will, depend-ing on the achievement of objectives, not exceed themaximum amount of 11 million Swiss francs.

H.HighesttotalremunerationtoamemberoftheCorporateExecutiveCommitteeSeverin Schwan as CEO was the member of theCorporate Executive Committee with the highest totalremuneration for 2009 (see ‘Remuneration of mem-bers of the Corporate Executive Committee’, A.–F.,page 78 to page 81). No additional remuneration waspaid to current or former members of the CorporateExecutive Committee.

Securityholdings1.3 | Directors André Hoffmannand Andreas Oeri and members of the founders’

families who are closely associated with them belongto a shareholder group with pooled voting rights.At the end of 2009 this group held 80,020,000 shares(50.01% of issued shares). Detailed information aboutthis group can be found in the Finance Report, Note33 to the Roche Group Consolidated Financial State-ments (‘Related parties’, page 120) and in the Note 4to the Financial Statements of Roche Holding Ltd(‘Significant shareholders’, page 141). In addition, asof 31 December 2009 the members of the Boardof Directors and persons closely associated with themand the members of the Executive Committee andpersons closely associated with them held shares andNES as shown in the table on page 84.

Stockoptions/Stock-settledStockAppreciation1.4Rights(S-SARs)| At 31 December 2009 Franz B.Humer (being the only member of the Board of Direc-tors holding options and as of 1 January 2005 S-SARsdue to his former position as CEO) and the members

HighesttotalremunerationtoamemberoftheBoardofDirectors

2009(inCHF)

200821(inCHF)

Salary

Cashbonus

Specialstockawards(for10yearsblockednon-voting

equitysecurities22)

Total

6,030,000

2,200,000

2,792,018

11,022,018

6,030,000

5,000,000

–

11,030,000

PerformanceSharePlan23

2007–200924

Total Noneawarded 918,61325

Pensionfunds/MGB26 2,995,109 2,955,697

RocheConnect 75,000 64,585

Total (value) 14,353,552 27 15,228,951

21 FordetailedcalculationoftheremunerationasChairmanandCEOfor2008seeAnnualReport2008,page81.22 Bonusinformoffor10yearsblockednon-votingequitysecurities;34,084non-votingequitysecurities(NES),dayvalueatgrant

ofnon-votingequitysecurities:CHF146.70/NES.Calculationofvalue(includingcontributiontoAHV/IV/ALV)inconsiderationofreductionofvalueduetoblockingperiod(reducedmarketvalue:for10years=55.839%.

23 FranzB.HumerdoesnottakepartinthePSP2008–2010and2009–2011.24 PSP2007–2009:NoneoftheoriginallytargetedNESawarded.25 PSPaward.26 MGB:StiftungderF.Hoffmann-LaRocheAGfürMitarbeiter-Gewinnbeteiligung(employeeprofit-sharingfoundationsupplementing

occupationalpensionbenefits).27 IncludesadditionalcompensationforCommitteemembers,paymentsfortaxconsultingservices,remunerationforservingonthe

ChugaiBoard,notincludingemployercontributiontoAHV/IV/ALV(CHF762,644).


83

(for reasons other than retirement), while vestedoptions must be exercised within a limited period oftime. The fair value of the options is calculated atthe date of issue using the Black-Scholes formulaand as if the options were tradable, with an 11%deduction for the average two-year vesting period.

The S-SARs shown in the table on page 85 wereintroduced by Roche on 1 January 2005 in placeof stock options. S-SARs entitle holders to benefitfinancially from any increase in the value of Roche’sNES between the grant date and the exercise date.The strike price for S-SARs under the terms of thismulti-year plan was the closing price for Roche NESon the first day of trading after the Roche AnnualMedia Conference. All S-SARs vest within three yearsof the grant date: i.e. one-third vest at the end ofone year, one-third at the end of two years, and one-third at the end of three years. Vested S-SARs must

of the Corporate Executive Committee held optionsand Stock-settled Stock Appreciation Rights (S-SARs;first introduced on 1 January 2005) as shown in thetable ‘Stock options and S-SARs’ on page 85.

All of the options shown in the table were issued byRoche as employee stock options. Each option entitlesthe holder to purchase one Roche non-voting equitysecurity (NES).

Under the terms of this multi-year option plan, the strikeprice for options shown was the closing price forRoche NES on the last day of trading prior to the RocheAnnual Media Conference. All of the options shownare non-tradable. One-third of the options are subjectto a vesting period of one year, one-third have avesting period of two years, and one-third a vestingperiod of three years. Unvested options lapse withoutcompensation if employment is terminated voluntarily

HighesttotalremunerationtoamemberoftheCorporateExecutiveCommittee

2009(inCHF)

200828(inCHF)

Salary

Cashbonus

Specialstockawards(for10yearsblockednon-voting

equitysecurities29)

Total

2,875,002

3,000,000

1,675,178

7,750,180

2,283,340

3,000,000

–

5,283,340

S-SARs

(Black-Scholesvalue30atgrantminus11%) 3,559,849 2,225,542

PerformanceSharePlan31

(2008–2010,2009–2011)

Total 408,793 217,804

Pensionfunds/MGB32 456,941 202,320

RocheConnect 69,790 48,956

Total (value) 12,101,478 33 8,018,883

28 FordetailedinformationseeAnnualReport2008,page82.29Calculationsee‘RemunerationofmembersoftheCorporateExecutiveCommittee,B.Bonus’,page78.30Black-Scholesvalueasdescribedin‘Stockoptions/Stock-settledStockAppreciationRights(S-SARs)’,page82to85.31 Basicrulesanddetailedcalculationsee‘RemunerationofmembersoftheCorporateExecutiveCommittee,D.PerformanceSharePlan’,

page80,footnote17,respectively.32 MGB:StiftungderF.Hoffmann-LaRocheAGfürMitarbeiter-Gewinnbeteiligung(employeeprofit-sharingfoundationsupplementing

occupationalpensionbenefits).33 Includesanannualexpenseallowance,paymentsfortaxconsultingservicesandremunerationforservingontheChugaiBoardexclud-

ingemployercontributiontoAHV/IV/ALVpayments.



Securityholdings(at31December2009)

Shares(number)

NES(number)

Closerelatives’

securityholdings(number/type)

Others(number)

Board of Directors

F.B.Humer 3 196,528 – Stockoptions,S-SARssee1.4

B.Gehrig 50 150 – –

A.Hoffmann –* 365,200** – 250,000UBSLong/ShortCertificateslinkedto

RocheBearerShares/RocheNon-Voting

Equitysecurities(Valor:10690162,

ISIN:CH0106901629)

365,000OTCCalloptionsUBSAGon

RocheNon-VotingEquitysecurities,

21.08.2008–20.08.2010(Valor:4103145)**

P.Baschera 1 – – –

J. I.Bell 300 1,647 – –

P.Brabeck-Letmathe 800 2,195 – –

L. J.R.deVink – – – 1,000AmericanDepositoryReceipts(ADR),

RHHBY,USISIN:US7711951043

W.Frey 72,500 – – –

D.A.Julius 350 – 1,550NES –

A.Oeri –* 351,793 250,000UBSLong/ShortCertificatelinkedto

RocheBearerShares/RocheNon-Voting

Equitysecurities(Valor:10690162,

ISIN:CH0106901629)

W.Ruttenstorfer 1,000 – – –

H.Teltschik 385 – – –

B.WederdiMauro 200 – – –

Total 75,589 917,513 1,550 NES


S.Schwan 3 32,996 270NES Stockoptions,S-SARssee1.4

S.Ayyoubi 3 12,113 – Stockoptions,S-SARssee1.4

W.M.Burns 3 78,167 – Stockoptions,S-SARssee1.4

E.Hunziker 3 60,635 – Stockoptions,S-SARssee1.4

G.A.Keller 1,063 27,937 140NES Stockoptions,S-SARssee1.4

J.K.C.Knowles 3 19,558 – Stockoptions,S-SARssee1.4

J.Schwiezer 3 11,032 – Stockoptions,S-SARssee1.4

P.Soriot 2 6,276 – Stockoptions,S-SARssee1.4

Total 1,083 248,714 410 NES

* Sharesheldbytheshareholdersgroupwithpooledvotingrightsnotlisted.** Share-settledloantransactionasof21August2008reportedtoSIXSwissExchange.


85

be exercised (converted into NES) within seven yearsof the grant date, and unexercised S-SARs lapsewithout compensation. The fair value of the optionsis calculated at the date of issue using the Black-Scholes formula and as if the options were tradable,with an 11% deduction for the average two-yearvesting period.

The strike prices, expiry dates and grant values foroptions and S-SARs are shown in the table above.The numbers of options and S-SARs as calculatedat the time of issue have been entered as values inthe table ‘Remuneration of members of the CorporateExecutive Committee, C. Stock-settled Stock Appre-ciation Rights (S-SARs)’ on page 79.

StockoptionsandS-SARs

NumberofstockoptionsandS-SARsheldbycurrentandformermembersoftheCorporateExecutiveCommitteeon31December2009(S-SARsfirstissuedin2005)

200934 200834 200734 200634 200534 200435 200335 Total

Corporate Execu-

tive Committee

S.Schwan 175,362 105,576 29,190 15,696 4,98335 1,864 1,635 334,306

S.Ayyoubi 43,842 21,117 3,243 2,517 3,957 2,360 – 77,036

W.M.Burns 109,602 105,576 48,651 26,160 34,074 14,874 – 338,937

E.Hunziker 96,450 92,907 48,651 26,160 34,074 20,915 – 319,157

G.A.Keller 65,763 63,345 24,327 15,696 3,150 4,000 – 176,281

J.K.C.Knowles 65,763 63,345 24,327 15,696 – – – 169,131

J.Schwiezer 43,842 42,231 9,819 5,565 8,871 5,610 – 115,938

P.Soriot 69,051 63,345 29,190 23,544

+

21,636

– – 206,766

Total 669,675 557,442 217,398 152,670 89,109 49,623 1,635 1,737,552

Former Corporate

Executive Commit-

tee members

F.B.Humer None36 None36 48,651 52,317 85,179 55,775 – 241,922

Strikeprice(CHF) 145.40 195.80 229.60 195.00

196.50

123.00 129.50 77.80

MarketpriceperNES

on31December2009

(CHF)

175.80

Expirydate 5.2.2016 31.1.2015 8.2.2014 2.2.2013

2.1.2013

3.2.2012 3.2.2011 25.2.2010

Grantvalueper

option

and(startingin2005)

perS-SARinCHF

(Black-Scholesvalue

minus11%)

20.30 21.08 36.59 34.02

37.02

20.89 31.92 16.27

34 S-SARs.35 Stockoptions.36Asof2008FranzB.HumerdoesnotreceiveanyadditionalS-SARs.


When biotechnology was in its infancy thirty years ago, nobody would have guessed that it would one day give rise to a completely new class of powerful, targeted medicines: monoclonal antibodies (MAbs). Today, MAbs are being used successfully not only in the fight against cancer but also to treat rheumatoid arthritis. It took courage, skilful management and long-term commitment to enable Roche to invest in this technology at such an early stage. The skill and dedication of our people was vital in transforming MAbs into a medical and business success story. Today, around two thirds of all Roche drugs are based on biotechnology, and a new approach — joining MAbs with chemotherapy — promises to make the treatment of cancer even more targeted, with fewer side effects.

T-DM1 is a novel antibody-drug conjugate that combines two anti-tumour strategies in one medicine: the directed binding of a monoclonal antibody to a highly expressed cancer protein, leading to the targeted delivery of a potent chemotherapy agent. This selectively kills cancer cells and minimises damage to healthy tissue.

He’s sharpening his weaponsfor the fight against advanced breast cancer


Corporate Responsibility | As a leading healthcare company, our goal is to develop and make available products and services that address unmet medical needs and are of real value to society. We aim to provide tangible improvements in patients’ health, quality and length of life – this is our core contribution. We do this in a responsible and sustainable manner that respects the needs of the individual, the society and the environment. To make this possible, we are committed to finding and retaining talented people and developing their skills.

14_L_Roche_AR09_ENG_Corporate Responsibility Part1 indd 88 29 01 2010 00:11:24

89

Our pursuit of scientific excellence enables us toaddress unmet medical needs, helping patients leadlonger and better lives. We pioneer differentiatedmedicines and translate those into benefits for patientsthrough outreach programmes. Our efforts to under-stand disease biology and to develop medicinesand diagnostics that prevent, detect, correctly diag-nose and effectively treat disease help us achieveour goal of personalised healthcare (PHC) throughoutour value chain.

As we see it, our greatest responsibility is to keep upthis work. Our medicines take between eight andtwelve years to bring to market, so a focus on long-term success is critical. We run our business in asustainable manner that respects individuals, societyand the environment, and we find, retain and developtalented people to make this possible. Our values ofintegrity, courage and passion guide the daily be-haviour and decisions of all employees, and we seekevidence of these values from leaders in particular.These values encapsulate the working environmentand attitudes required to create innovative thinking.

Our approachWe try to balance economic prosperity, social commit-ment and environmental protection in every aspectof our business. We believe this creates value for allour stakeholders and helps earn their trust andcommitment. Engaging with relevant groups ensuresour approach is effective. We have identified sixmaterial corporate responsibility areas:

Innovation capacities• Value of Roche products and services• Pricing and reimbursement conditions• Access to Roche products and services• Relationship with stakeholders• Being an attractive and responsible employer.•

We monitor the effectiveness of our approach and ourprogress in these areas using a set of key perfor-mance indicators (KPIs), for which we now have twofull years of data. While these KPIs are for internalmanagement only, we include a range of performancemeasures throughout this section of our annual

report, and on our website. Our efforts were rewardedin 2009 when Roche was named healthcare supersector leader in the Dow Jones Sustainability Indexes(DJSI) for the first time. Roche has been included inthe DJSI World Indexes for six consecutive years andis included in the FTSE4Good Index.

Managing corporate responsibilityCorporate responsibility is an integral part of our dailywork rather than the duty of a single department.Our Corporate Sustainability Committee (CSC) co-ordinates our approach. With representatives from allcore functions and businesses across the Group, theCSC reports to the Corporate Executive Committeeand the Board’s Corporate Governance and Sustain-ability Committee. The CSC works to identify andassess significant social, ethical and environmentalrisks as well as related opportunities. It also developsand revises corporate positions and guidelines ontopics of key interest to our stakeholders. In October2009 the CSC held its fifth annual workshop,attended by around 60 employees across the Group.Main topics discussed were access to healthcareand the value of our products and services. Duringthe year, the CSC developed five new position paperson topics related to corporate responsibility.

2010 objectivesRemain one of the top healthcare companies• in the DJSIIntegrate best practices from Genentech’s• sustainability activitiesImprove energy efficiency (gigajoules per• employee) by 10% by 2014 from 2009.

More on the webSustainability principles, strategy and management: • www.roche.com/principles Stakeholder engagement: • www.roche.com/stakeholder_dialogue Corporate Sustainability Committee Charter: • www.roche.com/csr_committees Key performance indicators: • www.roche.com/sus-kpi.pdfSafety, health and environment performance: • www.roche.com/she_figures_and_facts Employee topline figures: www.roche.com/employees•

In brief


http://www.roche.com/principles

http://www.roche.com/stakeholder_dialogue

http://www.roche.com/csr_committees.htm

http://www.roche.com/sus-kpi.pdf

http://www.roche.com/she_figures_and_facts.htm

http://www.roche.com/corporate_responsibility/employees.htm

90 Roche Business Report 2009 Corporate Responsibility

How we do things is as important as what we do.The trust of the many diverse groups we encounter inthe course of our work depends on us carrying outeach and every aspect of our business responsibly.As an innovation driven company we focus on under-standing the mechanisms underlying the diseaseand translating this into developing products thatimprove patients’ health. This often means exploringemerging technologies as they could provide im-portant medical breakthroughs and form the basis ofour product pipeline in the long term. At the sametime, we must assess any risks or ethical dilemmasthat cutting-edge technologies pose with greatscrutiny before and while using them.

Customer relationshipsOur customers range from patients, healthcare pro-fessionals, hospitals and reference laboratories topublic and private healthcare payers. Understandingand responding to their different needs and expec-tations helps to improve our commercial effectiveness.Various customer groups provide input into:

Product profiles, for example the ease of use of• medication, instrument specificationsClinical development plans, for example by• designing and participating in trialsPublication of trial results• Regulatory filing• Development of health outcome studies• Disease awareness plans and product information• Education and awareness programmes• Treatment guidelines.•

We also obtain feedback from customer groupsthrough our medical liaisons and clinical researchassociates, advisory boards, and education andawareness programmes we are involved in.

We carry out comprehensive market research andanalysis, often at a divisional or local level, to help usmeet specific market needs. Each country organi-sation is responsible for managing its relationshipwith its customers and sharing relevant informationwithin the Group. We have a range of initiatives toenable this such as UNITE a company-wide database

providing instant reports and information based onhistorical information, customer feedback and marketanalysis, to aid our planning.

Customer satisfaction is particularly important inconsumer businesses. Patients with diseases such asdiabetes, who use our products daily, tend to giveregular feedback, which is pivotal to future productdevelopment. We also use detailed market researchand focus groups to develop products and servicesthat simplify daily diabetes management.

Half our Diagnostics employees work in customerservice and support. We also encourage employeeswith little or no contact with customers to spendtime learning about their needs. For example, RocheDiagnostics in Rotkreuz, Switzerland, has a customerorientation programme during which technicalspecialists spend nine months attending workshops,visiting laboratories and hospitals, and evaluatingwhat they have learned before presenting theirfindings to management. They worked on projectsincluding an online survey to help improve the wayhealthcare providers cope with methicillin-resistantStaphylococcus aureus — a major problem in hospitals.

Pandemic preparednessIn 2009 the World Health Organization (WHO)declared a global pandemic of H1N1 influenza. Infor-mation from the WHO and the US Center for Dis-ease Control and Prevention (CDC) indicated thatTamiflu was one of only two approved antivirals withactivity against the novel strain. These events trig-gered Roche to implement its pandemic plan, whichhad been in development since 2004, with a focuson increasing Tamiflu production and distribution tomeet increased demand, and ensure low-incomecountries had access to the drug. Our policies for theprioritisation of drug supply were in accordance withPreparing for the Next Influenza Pandemic — Roles and Responsibilities of Roche and Other Stakeholders,published in May 2008.

Tamiflu stockpiles | We have worked with the WHOand governments to build stockpiles of Tamiflu and

Responsible practices


91

help prepare for a flu pandemic. In 2005 we do-nated three million treatment courses for the WHO’sRapid Response stockpile. We stored the stockpileuntil 2009, when the WHO distributed it to 72 ofthe world’s neediest countries. In 2006 we donatedand shipped an additional two million treatmentcourses for the WHO’s Regional stockpile, which hasalso been distributed to countries in need.

In May 2009 we agreed to donate a further five mil-lion courses to replenish both stockpiles. We alsoagreed to establish a stockpile of 650,000 treatmentcourses of pediatric capsules, which we providealong with instructions for mixing the contents withfood, for children unable to swallow them whole.This brings the total number of treatment coursesdonated to around 11 million.

Since 2005 we have been providing governmentsTamiflu at substantially reduced prices to assist theirpandemic preparedness. However, we recognisedthat many developing countries were unable to createan adequate stockpile even at reduced prices. In July2009 we launched the Tamiflu Reserves Programmeto increase access in these countries. We produceand store Tamiflu for specified developing countries ata significantly reduced price, and spread the costover a number of years. We will ship the stockpile ifthe WHO announces a flu pandemic, or when a gov-ernment requests it to deal with a national outbreak.

To further increase availability, we have licensedcompanies in China and India to manufacture genericoseltamivir. We have also supported the efforts of aSouth African manufacturer by giving them accessto the knowledge and skills needed to produceoseltamivir. They can now produce the drug freely aswe do not enforce patents in sub-Saharan Africa.

Roche Diagnostics produced a polymerase chainreaction (PCR) based test for the H1N1 strain of theflu virus using our LightCycler System, within weeksof the virus being identified. In November 2009 theUS Food and Drug Administration granted EmergencyUse Authorisation of this RealTime Ready Influenza

A/H1N1 test. It allows rapid and accurate identificationof patients infected with the virus so appropriatepatient management can start as early as possible.

Emerging data underscore the important role the drugplayed in reducing the impact of this most recentflu pandemic. For example, a recent study by Jain et alfrom the US Centre for Disease Control, publishedin the New England Journal of Medicine, reported onthe clinical outcome of patients hospitalised withH1N1 influenza in 2009. The study showed that anti-viral drugs were the only treatment that made a statis-tically significant difference in helping patients torecover, and that oseltamivir was the antiviral takenin around 90% of cases.

Public policyThe private sector has a crucial and legitimate roleto play in developing public policy. We share ourexpertise with policymakers to help develop effectivelaws, regulations and policies relating to publichealth, as well as more general areas affecting ourbusiness, such as tax policy. Our good practiceguidelines for working with government officials guideour employees on doing so in an appropriate andprofessional manner.

Much of our public policy work takes place throughour membership of industry bodies such as theEuropean Federation of Pharmaceutical Industries andAssociations (EFPIA), the European DiagnosticsManufacturers Association (EDMA) and the Interna-tional Federation of Pharmaceutical Manufacturersand Associations (IFPMA), as well as their nationalmembers. We also meet directly with policymakerssuch as governments, public health organisations,think tanks and academics.

Our major public policy work in 2009 included:Working with the World Business Council for• Sustainable Development, European Roundtableof Industrialists and Prince of Wales CorporateLeaders Group on Climate Change on policystatements ahead of the Copenhagen ClimateConference in December



Showing Members of the European Parliament• around our animal facility in Basel during thedevelopment of the animal research directive, todemonstrate our welfare standards and theimportance of animal research in healthcareCo-organising a dinner debate on animal• research in the European Parliament with theEuropean Platform for Patient Organisations,Science and Industry (EPPOSI)Explaining our position on proposed legislation• covering pharmacovigilance, information topatients and counterfeit medicines to Membersof the European Parliament.

Combating counterfeits | Counterfeit pharmaceuti-cal and diagnostic products are illegal and a seriousglobal public health problem. They endanger patients,undermine confidence in healthcare systems andcompanies, infringe intellectual property rights andwaste valuable healthcare budgets.

We continuously monitor and improve product secu-rity and use technology to quickly identify counterfeits.We take part in national and international industryand governmental efforts to strengthen the law, im-prove enforcement, train local officials and educatethe public.

In 2009 we updated our position on counterfeiting,which is available on our website. We are taking partin an EFPIA pilot project in Sweden of a trackingsystem which traces drugs back to their source,improving patient safety. We apply a unique barcodeto each pack of medicine produced, which pharma-cists scan when dispensing the medicine to check itis authentic. We continue to provide input, throughEFPIA, into the proposed EU legislation on counter-feiting.

Generic and biosimilar products | The patent peri-ods for some innovative biological products such asproteins and antibodies are expiring, and productsclaiming to be similar are appearing on the market.While it is relatively easy to copy chemical drugs, bio-logical products have complex molecular structures

and are obtained from living systems using advancedprocesses that are very difficult to reproduce. Moretesting is needed to demonstrate the similarity, safetyand efficacy of follow-on products compared with theoriginal.

We believe biosimilars should be subject to well-defined and transparent regulations that cover devel-opment, approval and post-authorisation procedures,based on those for the original products.

In 2009 we worked with regulatory authorities andindustry bodies, particularly the International Federa-tion of Pharmaceutical Manufacturers and Associa-tions, to ensure policymakers fully understand biosim-ilar science. This work will support the creation ofappropriate policies regarding future biosimilar mono-clonal antibodies and the naming of biopharmaceuti-cals. Roche has also made scientific and medicalpresentations on biosimilars to regulators, scientistsand other key audiences, and contributed to scientificjournals.

Political contributions | Roche does not financiallysupport individual politicians anywhere. US employ-ees can make personal contributions through theHoffmann-La Roche Good Government Committee(GGC), a voluntary political action committee, or par-ticipate in the Roche Action Programme.

Integrity and complianceThe Roche Group Code of Conduct guides ouremployees’ business behaviour.

In December 2009 we launched the Roche GroupSpeakUp telephone line and web service foremployees to raise concerns about compliance withthe Code of Conduct, anonymously if preferred.A third-party organisation operates SpeakUp andPricewaterhouseCoopers has provided assurance thatthe system protects employees’ identities.

In 2009, 141 business ethics incidents were reportedto the Chief Compliance Officer. We investigated themall and took corrective actions where necessary with


93

73 employment contracts being terminated as a resultof unethical behaviour.

We launched several initiatives to stimulate the shar-ing of best practices among Roche’s 110 localcompliance officers, including a Compliance Officers’Network, a series of regional compliance meetingsand a dedicated intranet site. The compliance officershelp line managers to control risks locally and meetthe requirements of our Group Code of Conduct.

We also updated our performance managementsystem to ensure we assess employees not just onwhether they achieve their objectives, but also onhow they achieve them.

Finally, we set up an Export Compliance Council toensure our manufacturing and distribution sites meetthe complex legal requirements for selling andexporting our products.

Risk and crisis managementOur Risk Management Charter defines our riskmanagement approach and responsibilities, and isavailable on our website along with a full list ofrisks to our business. We include significant social,environmental and ethical risks identified in theGroup risk management process.

Responsible marketingThere are strict regulations and industry guidelineson the sale and marketing of medicines and diagnos-tics, to make sure they are prescribed, administeredand used correctly, and that patients understandthe benefits and risks of taking them.

Healthcare professionals need to be able to selectthe best treatment option for their patients. Weprovide scientific and clinically relevant informationthat enables them to prescribe or use our products incircumstances which deliver the greatest medicalbenefit to the patient. A list of the external guidelinesand codes of practice we follow when marketingour products is available on our website.

In 2009 we introduced a sustainability risk manage-ment process and targets for our marketing agencies.We also introduced a new standard operating pro-cedure and related training to strengthen compliancewith marketing codes in our pharmaceutical anddiagnostics businesses.

We do not sell over-the-counter medicines and sodo not advertise directly to consumers in the majorityof our markets. In the US, where it is legal to adver-tise prescription medicines, we have detailed policiesin place to ensure this is done legally and ethically.We send all television advertising campaigns to theFood and Drug Administration for approval beforebroadcast.

We decided to end our membership of the Pharma-ceutical Research and Manufacturers Association(PhRMA) in the United States and instead join theBiotechnology Industry Organization (BIO), of whichGenentech was already a member.

Sustainable supply chainRoche spent around 18 billion Swiss francs on prod-ucts and services in 2009. These range from rawmaterials and active pharmaceutical ingredients toequipment, laboratory and office supplies, and ser-vices like consultancy, travel and marketing. We mustensure these suppliers meet the necessary social andenvironmental standards to secure reliable suppliesand enable the sustainable growth of our company.

Our approach is to:Raise awareness with our supply officers• Raise awareness with suppliers• Help suppliers improve their standards• Develop joint initiatives to increase their perfor-• mance.

We endorse the Pharmaceutical Industry Principles(PSCI Principles) which require suppliers to imple-ment Responsible Supply Chain Management in theareas of ethics, safety, health and environment (SHE),social responsibility, management systems, innovationand economic sustainability, and are committed to



integrating these Principles into our business. In 2009we developed a new Supplier Code of Conduct, whichincludes the PSCI Principles, and now require all oursuppliers to sign our Code of Conduct.

Our Pharmaceuticals and Diagnostics Divisions auditbusiness-critical suppliers and assess new suppliersto identify and correct problems, using external andinternal auditors. We share our expertise and providetraining to help suppliers implement any requiredimprovements. Internal auditors carry out follow-upinspections to ensure suppliers have made thenecessary changes. In 2009 we audited social andsafety, health and environmental standards at 40existing suppliers and carried out follow-up auditsat five. We rejected or ceased trading with one sup-plier that we could not help to improve. The mainarea for improvement our audits flagged up wasindustrial hygiene.

We are in the process of extending our sustainableprocurement activities to suppliers of non-productionmaterials and services.

We have established a financial risk managementprocess in procurement to identify suppliers at risk ofbankruptcy and to mitigate those risks. We continuedto apply our supply chain risk management processto all suppliers of key raw materials, drug substancesand drug products. We also worked with suppliersof materials for key Roche drug products to ensurethey have business continuity plans for pandemic risk.

Research practicesEthical concerns sometimes arise as we push scientificboundaries and explore new technologies to developinnovative new therapies and diagnostics. We mustexplore and carefully manage these concerns toensure the opportunities presented are not lost.

Ethics in R & D | Our global position on clinicalresearch commits us to high ethical standards andclarifies our position on specific areas of concern.We updated this position in 2009 to include straight-forward answers to frequently asked questions about

clinical research, such as what the different trialphases are and what the end of a trial means for thepatients taking part.

As part of our clinical trials programme, we storebiological material such as tissue, organs, blood andother bodily fluids in human specimen repositories,or biobanks. These are invaluable for learning moreabout disease and exploring possible treatments.They also contain sensitive information about theperson who provided the sample. We are dedicated toprotecting donors’ privacy and ensuring they are fullyinformed about how their sample and data will beused before they agree to take part.

We have a clear procedure for resolving ethicaldilemmas employees encounter in their work. If theycannot resolve the issue within their team, employeescan contact our Global Ethics Liaison Office, whichwill consult peers and internal experts to find asolution. An internal committee handles any remainingconcerns, and our independent Clinical ResearchEthics Advisory Group (CREAG) provides counsel onthe toughest challenges. We also provide regularonline ethics training for employees. In 2009 the GlobalEthics Liaison Office received 21 queries. All wereresolved without escalation.

The CREAG meets annually to review concerns raisedwith the Global Ethics Liaison Office and discussother relevant topics. In 2009 we updated the CREAGon recent queries handled by the Global Ethics Liai-son Office, as well as on the status of the employeeethics education programmes. The CREAG alsoreviewed the latest revisions to the Declaration ofHelsinki, a statement of ethical principles for medicalresearch involving human subjects released by theWorld Medical Association.

Another independent panel, the Science and EthicsAdvisory Group (SEAG), advises and guides uson genetics, genomics and proteomics. In 2009 theSEAG advised on issues including the use andstorage of human biological materials in specificresearch projects. We expanded the SEAG’s advisory


95

In the scientific category, first place went to a teamwhich found a new in vitro test for detecting toxiccompounds before testing new drugs on animals. Ourdiagnostics business developed the test, which is nowavailable for pharmaceutical preclinical research. Thewinning project in the lab care and animal manage-ment category gradually rehabilitated monkeys thathad been housed individually back into larger groups,increasing their social interaction and improving theirwellbeing. We will implement these and other projectsinto our operations wherever possible, and run the3Rs Award again in 2011.

In 2009 we created a new joint science and technol-ogy laboratory in Basel between the Pharmaceuticalsand Diagnostics Divisions aimed at investigatingorgan toxicities of drugs. Using an innovative cell ana-lyser system, xCELLigence, researchers can testwhether pharmacologically active substances arelikely to prove toxic to organs such as the heart andliver, by continuous, real-time viewing of the cellsreaction to the molecule. This can be performed inthe early preclinical stage of research, making manyanimal studies redundant.

We also established an internal Animal Welfare EthicsCommittee to examine all studies in non-humanprimates before regulatory approval, and to adviseemployees working with animals. This committeewill become fully operational in 2010.

Innovation and new technologies | Evolving tech-nologies such as nanotechnology, stem-cell researchand systems biology have many potential benefits inpharmaceuticals and diagnostics. These advantagesmust be carefully balanced with the ethical dilemmasand potential risks posed, and we assess these withgreat scrutiny before entering new fields.

Nanotechnology is the manipulation of materials ona scale 80,000 times smaller than the diameter of ahuman hair. It has potential in many areas, particularlydrug delivery, regenerative medicine and small-scale,portable diagnostics. However, many questionsremain about the effects nanotechnology may have on

functions, with their agreement, to cover all innovativetechnologies such as nanotechnology and stem-cellresearch.

Animal welfare | We recognise and take seriouslypublic concern about animal research. However, wecould not develop life-saving medicines such as can-cer drugs without it. While we work hard to find anduse alternative methods, the limitations of thosemethods mean we still need to test new drugs andtechnologies on animals for safety and legal reasons.

In 2009 we used a total of 478,252 animals in ourresearch, of which around 98% were mice and rats.

We are committed to the 3Rs concept of replacinganimal tests where possible, reducing the number ofanimals we use, and refining existing scientific prac-tices, animal welfare and husbandry. All employeesand contractors who perform animal testing for usmust comply with applicable laws and meet or exceedindustry standards.

We continued our 3Rs Award for Innovation andContinual Improvement in Animal Welfare withinRoche in 2009. Fifteen teams of scientists and animalcare specialists from our research sites entered forawards in two categories.

Breakdown of animals used in research | in 2009

Mice 86.6%

Rats 11.4%

Guinea pigs 0.33%

Hamsters 0.17%

Gerbils 0.41%

Fish 0.18%

Frogs 0.02%

Dogs 0.14%

Rabbits 0.53%

Primates 0.15%

Other 0.09%



Lobby through EFPIA on the proposed EU• legislation on counterfeit medicinal productsEstablish a 3Rs database for sharing best practices• in animal testing within RocheLaunch Roche’s Ethics Committee on animal• welfareCommence audit of suppliers in indirect spend.•

More on the webResponsible marketing, risk management and compliance: • www.roche.com/business_integrity_and_responsible_marketing_ www.roche.com/risk_management_and_compliance Pandemic influenza and Tamiflu information: • www.roche.com/roche-influenza www.pandemictoolkit.com The Pharmaceutical Industry Principles for Responsible Supply • Chain Management: http://pharmaceuticalsupplychain.org Patents, counterfeiting and biosimilars: • www.roche.com/medical_value_patents_and_pricing www.roche.com/patents Innovation, new products and technologies: • www.roche.com/csr_research_and_development www.roche.com/innovation_and_technologies All position papers: • www.roche.com/policies_guidelines_and_positions

people and the environment. The risks and benefitshave to be carefully evaluated before nanotechnologyis used in medical products. We believe that existingsafety tests and regulations provide an appropriateframework for doing so.

Stem cells and their applications offer an enormouspotential for the treatment and relief of chronicpain and even for the cure of diseases, extending andenhancing the quality of life. However, the researchalso raises ethical questions, because some peoplebelieve embryonic stem cells are humans with aright to life and should not be used in research ortreatments.

Roche is keenly aware of the tremendous potential ofthis resource for basic science and future health-care applications. We have, therefore, entered intoresearch collaborations. For example, we work withStem Cells 4 Safer Medicines (SC4SM) in the UKand with Cellular Dynamics International Inc in theUS. Roche began stem-cell research and its relatedapplication as a discovery tool and we plan to beginresearch to use stem cells as a potential therapeuticmodality. Roche also plans to develop expertiseto become technically enabled in this research areaand to conduct research on human embryonic stemcells and their use in drug discovery.

In 2009 we held a stem-cell research workshop inpartnership with Cambridge University in the UK.Attendees included 70 Roche specialists and 17academic experts. They discussed stem cell scienceand possible applications, as well as steps for indus-try to take to maximise the medical and businessopportunities presented.

2010 objectivesImplement the Roche Group SpeakUp Line• Launch the revised Roche Group Code of Conduct• and update the Behaviour in Business e-learningprogrammeRoll out new supplier code of conduct and include• compliance with this in our existing supplier auditprogramme


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Patients in all aspects of healthcare benefit from ourproducts and services. Our differentiated medicinesand diagnostics come from diverse approaches toresearch and development. We constantly pursuescientific excellence, which helps us tailor our prod-ucts and services in a way that ensures PersonalisedHealthcare. This means patients can lead longerand better lives because they receive treatments thatmore effectively prevent and cure disease, alleviatesymptoms and hasten recovery.

We can amplify this contribution to society by:Helping to improve access to our products• Ensuring they provide value for money• Providing factual information on our products• Listening and responding to customers’ views.•

The value of medicines and diagnosticsDifferent people experience disease and respondto treatment in different ways. Our approach ofpersonalised healthcare (PHC) takes this into accountand fits treatment to different groups of patients.We use our diagnostic expertise to deepen our under-standing of disease, how treatments work and howdifferent patients respond. This helps us developbetter, safer drugs and identify the patients who willbenefit most, improving clinical outcomes andincreasing cost effectiveness. In 2009 we publisheda new position on personalised healthcare todescribe our approach in more detail.

Healthcare payers have to make difficult decisionsabout granting access to, or providing reimbursementfor, healthcare products and services, based oncost effectiveness and budget constraints as well asmedical need and clinical impact. These decisionshave a profound effect on patients and their families,and can influence where research-based companieslike Roche focus their future investment. Objective,consistent and open processes are essentialfor assessing the total value of medical products,to individual patients and to society as a whole,throughout their lifecycle, so that the decisions madeare fair.

The majority of healthcare payers recognise the medicaland economic value of our products. For example,while cancer drugs such as Herceptin and Xelodamay seem costly, not only do they extend the lives ofpatients with terminal illness and prevent diseaserecurrence in patients with earlier stage cancer,they can also ease pressure on healthcare budgetsby reducing or preventing hospital visits, surgery andthe need for palliative care. In many cases, they helppatients return to work more quickly.

In 2009 we published a new position on assessingthe value of our products and services, which containsa series of guiding principles for carrying out suchassessments. We employ experienced health econo-mists who work with health authorities to understandand provide robust evidence regarding the economicand health benefits of our products and serviceswithin the relevant regional and local healthcaresystems.

We also engage with healthcare payers throughouta product’s lifecycle. We provide guidance on assess-ing the value of our products and services (HealthTechnology Assessment — HTA) prior to them decid-ing reimbursement and funding conditions.

Global access to healthcarePatients can access our products through doctors,hospitals, laboratories and pharmacies in roughly180 countries. While we sell the majority of our prod-ucts in developed countries with advanced health-care systems, around a third of the world’s populationlacks adequate access to healthcare. The WorldHealth Organization (WHO) lists many of our productsas essential medicines.

Our industry has an important role to play in partsof the world where healthcare standards and aware-ness of the causes, prevention and treatment ofdisease are lower. But there are many other systemicproblems contributing to health inequalities, andwe cannot tackle these alone. We work with govern-ments, non-governmental organisations (NGOs),patient groups and healthcare providers to tackle

Patients



service to speed up the delivery of HIV test results inremote areas.

Cancer kills more people in developing countries eachyear than AIDS, malaria and tuberculosis combined.More than half of all cancer cases are in the develop-ing world, but only about 5% of global cancerresources are spent there. International healthcareprogrammes focus on infectious diseases and thereis very little oncology investment, infrastructure orexpertise. As a leading provider of cancer therapies,we have an important role to play in tackling thisbadly neglected problem.

In 2009 we evaluated new partnerships to improvetraining in cancer care for healthcare workers in sub-Saharan Africa. We will focus on sharing our expertiserather than simply cash or drug donations, as webelieve that building local capabilities will make a big-ger difference in the long term. Training will takeplace locally to encourage healthcare professionalsto stay in their home country rather than leaving foropportunities abroad.

We also joined the Changing Diabetes in Childrenprogramme in 2009. This is a public/private partner-ship between Novo Nordisk, the World DiabetesFoundation and governments in African countries.The project aims to make life better for the growingnumber of diabetes patients in Africa, where thestandard of care is often poor. The objective is to pro-duce care guidelines, educate healthcare workers andensure all children entering the programme are regis-tered and monitored so their condition can be con-trolled. The first phase will target Cameroon, theDemocratic Republic of Congo, Guinea-Conakry,Tanzania and Uganda.

In 2008 we gave the Institute for OneWorld Healthaccess to our chemical compound library so it couldsearch for new medicines to treat childhood diarrhea.OneWorld Health completed the first screening in2009, and identified 40 compounds to investigate aspossible new treatments.

health inequalities and increase access to ourproducts. We tailor our approach in different regionsto cater for their specific needs.

Access for those most in need | The world’s leastdeveloped countries (LDCs) are hardest hit by dis-ease and have the poorest healthcare systems to dealwith this burden. There are too few hospitals, labora-tories and healthcare professionals to meet demand.We aim to increase access to healthcare in poorcountries in sustainable ways that include:

Fair patent and pricing policies• R&D into diseases with unmet medical needs• Partnerships with governments, NGOs and others• Education, training and knowledge-transfer.•

Our approach is to jointly develop access programmesthat raise awareness, educate and train, and assistin developing healthcare infrastructure. This collabo-rative approach ensures needs are met, while futurebusiness opportunities for both sides are enhancedthrough the increased capability of institutions andorganisations in developing countries.

The illustration shows the circumstances under whichwe do not file or enforce any patents. It also illustratesour no-profit pricing policy in action.

In 2009 we completed our technology transfer ini-tiative (TTI), through which we shared the knowledgerequired to produce our HIV treatment saquinavirwith local manufacturers, free of charge. We workedwith all 41 interested manufacturers and reachedagreement with 13 companies in the LDCs, which arenow free to produce saquinavir or use this know-ledge to produce other products. We also held threeAfrican Good Manufacturing Practice (GMP) train-ing seminars to improve locally produced essentialmedicines.

We also continued our partnership with the ClintonFoundation’s HIV/AIDS initiative (CHAI). Together wehave established and trained seven labs for HIV test-ing, developed a novel solution for diagnosing andmonitoring HIV in infants, and devised a text message


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68% of people living with HIV covered by our no profit prices for antiretroviral medicines

Global access to healthcare

Pricing and patents in least-developed countries

– No patents filed or enforced on any medicines– Two antiretroviral HIV medicines sold at no profit, covering 68% of HIV patients– Valcyte sold at reduced prices to NGOs treating AIDS-related cytomegalovirus

Pricing and patents in other sub-Saharan African countries

– No patents filed or enforced on antiretroviral HIV medicines– Two antiretroviral HIV medicines sold at no profit– Valcyte sold at reduced prices to NGOs treating AIDS-related cytomegalovirus

– Two antiretroviral HIV medicines sold at reduced profitPricing for low and lower- to middle-income economies

Planning for pandemic influenza – Tamiflu donated to World Health Organization stockpiles for countries most in need– Tamiflu sold at reduced prices to developing countries– Tamiflu Reserves Programme creates stockpiles for developing countries– Tamiflu sub-licensing agreements in China and India and technology transfer

agreement in South Africa

Access programmes in wealthy nations

– Roche Patient Assistance Program and Genentech Access Solutions provide adviceand financial support for uninsured or underinsured patients

– Over 40,000 patients benefitted from these patient assistance programmes in 2009

Tackling HIV/AIDS in the developing world

– AIDS technology transfer agreements in Bangladesh, Ethiopia, Kenya, South Africa,Tanzania and Zimbabwe

– Employee secondments in Ethiopia, Niger, Swaziland and Togo– UNICEF & European Coalition of Positive People AIDS Orphan Programmes in Malawi– Amplicare supplies HIV viral load tests in sub-Saharan Africa, South America and

the least-developed countries– Clinton Foundation HIV/AIDS initiative (CHAI) in sub-Saharan Africa

Broader healthcare partnerships in the developing world

– Phelophepa Healthcare Train in rural South Africa– New oncology sustainability initiative in sub-Saharan Africa in 2010– Changing Diabetes in Children with Novo Nordisk and the World Diabetes Foundation

in Cameroon, the Democratic Republic of Congo, Guinea-Conakry, Tanzania and Uganda– Institute for OneWorld Health on infectious diseases– Google.org on infectious diseases in Kenya



In July 2009 we teamed up with Google.org on an ini-tiative to help predict and prevent emerging infectiousdiseases in East Africa. Roche donated a genomesequencing system to be installed in the InternationalLivestock Research Institute laboratory in Nairobi,Kenya. The initiative will begin by investigating RiftValley Fever, a disease spread by mosquitoes whichis potentially lethal to people and livestock.

We produced our first Access to Medicines and Diag-nostics report in 2009. This contains more details ofall our policies and programmes to increase access toour products and is available on our website.

Access in emerging markets | Healthcare in middle-income countries is improving and presents a sub-stantial opportunity for Roche. However, each coun-try’s healthcare system is at a different stage ofdevelopment and has its own specific needs. Wework in partnership with governments in these coun-tries to help establish processes and clinical trial pro-grammes and improve education.

Our dedicated Medical Affairs Group developsspecific programmes for individual emerging markets,where many patients cannot afford the long-termtreatment necessary for diseases such as cancer,hepatitis C and rheumatoid arthritis. In China, forexample, we offer cost-sharing programmes for ouroncology drugs to ensure access to the patients whowill benefit most. In South Korea, our reduced pricesfor cancer drugs cover the entire population, while inEgypt, which has one of the highest rates of hepatitisC infection in the world, we provide Pegasys at aspecial low price for public sector patients.

We also supply our products to private payers inemerging markets, and work with insurance andre-insurance companies in China and Russia toexpand private insurance coverage and increaseaccess to our medicines. We continue to supplytwo HIV medicines at reduced prices in the lowand lower-middle income countries defined by theWorld Bank.

Access in the developed world | We work closelywith payers in all countries to demonstrate the medi-cal and economic value of our products and weestablish prices that enable access. However, manypeople in developed countries cannot afford treat-ment or the insurance to pay for it. In the US, whereas yet there is no universal healthcare system, weprovide free drugs to those in need through both theRoche Patient Assistance Program (PAP) and theGenentech Access to Care Foundation (GATCF). In2009, 22,200 patients benefited from the PAP and18,500 patients received free treatment throughGATCF. We also support industry efforts to raiseawareness of assistance programs via the Partnershipfor Prescription Assistance.

In 2010, following the merger of Roche and Genen-tech, GATCF will assume responsibility for the RochePAP patients to create one of the five largest charita-ble foundations in the US.

GATCF is part of Genentech’s broader programmeto help patients gain access to prescribed therapies.The Genentech Access Solutions department com-prises nearly 400 employees who help patients navi-gate the complex US reimbursement landscape.

For insured patients, Genentech Access Solutionsclarifies benefits coverage and reimbursement re-quirements, helping find ways to assist in coveringpatient expenses where possible. Uninsured patientsor patients who qualify for assistance can obtain freemedicine from GATCF.

In 2009 the service advised 82,000 people about cov-erage and reimbursement issues and GATCF provided18,500 patients with free treatment worth a total of295 million US dollars.

In Japan, Chugai established the Academy for Ad-vanced Oncology (CHAAO) in 2009, to help bringstandards of cancer research and treatment up to thesame standards as those in Europe and North America.


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Patients and facilities benefiting from clinical trials (excludes Genentech)

2009 2008

Number of clinical trials 1,493 1,535

Number of healthcare centres

involved 27,457 26,652

Number of patients in phase

I–IV clinical trials 269,895 235,420

present both research and clinical findings at medicaland scientific meetings and engage with key leadersin each field.

We collect the information gained through clinicaltrials and post-marketing surveillance and use this fora continuous assessment of the benefits and risksof a product in development or an established medi-cine. We also use it to better plan new clinical devel-opment programmes. We provide this information toregulatory authorities as required.

We apply strict data protection principles to allpersonal medical data collected during clinical trials,in line with our directive on the protection of personaldata. These principles apply equally to data aboutour customers, suppliers and employees.

Patient safetyAll medicines may cause adverse effects (side effects)in some patients. Our priority is to make sure the ben-efits of taking our products in clinical developmentand our medicines outweigh any identified or expec-ted safety risk. We have robust processes operatingworldwide to understand our medicines and theiradverse events and to minimise their likelihood. Medi-cines are regularly analysed against various referencedatabases to help us detect potential safety signals.All our products in clinical development have anindividual safety management plan and all our medi-cines have a risk management plan reviewed andapproved by major health authorities.

Continuous monitoring and working with the healthauthorities enable regular updates to prescription

Impact of our access programmes

2009 2008

% of HIV-infected patients

living in countries eligible

for no-profit medicines 68% 68%

% of HIV-infected patients

living in countries eligible

for reduced-price medicines 83% 83%

Patients benefiting from USA

patient assistance programmes 40,000+ 38,000+

Clinical trialsClinical trials are essential to demonstrate the safetyand efficacy of new drugs. They also provide educa-tional, financial and medical support for participatinghospitals and access to the latest treatments forcancer, arthritis and other diseases. Patients takingpart in trials receive free access to the most advancedtherapies during the trial and when there are no validtherapeutic alternatives this continues until the drugis available for sale or on prescription. We do notperform clinical trials in countries where we do notplan to market the drug.

People seeking new clinical trials to take part in orwishing to learn from the results of completed trialscan access this information at www.roche-trials.com.

As of 31 December 2009 the site contained detailsof 649 pharmaceutical protocols, 28 diagnostic proto-cols and 283 trial results. These studies cover morethan 95 conditions including Alzheimer’s disease,asthma, around 33 cancers, cardiovascular disease,depression, diabetes, hepatitis, HIV/AIDS, influenzaand obesity. The website had more than 430,000page visits in 2009 representing more than 65,000visitors. Details of our clinical trials are also availablethrough the International Federation of Pharmaceu-tical Manufacturers and Associations (IFPMA) clinicaltrials portal at www.ifpma.org/clinicaltrials, andthe US National Institutes of Health’s global registryat www.clinicaltrials.gov. We publish our clinicaltrial data to ensure that all lessons from these trialsare made accessible to the wider community. We also



instructions (labelling and product information),including emerging safety information, contraindica-tion and special precautions of use. When necessary,letters are sent to physicians and healthcare provid-ers allowing them to adjust their medical practice.

Diagnostics products may give erroneous results,caused by a product performance or user handlingissue. This could eventually lead to an incorrect ther-apy for a patient. During the development of diagnos-tic products, extensive testing is performed usingpatient samples under various realistic conditions toensure optimal performance of the final product.

We investigate all reported adverse events to ascer-tain if they are related to our products. If there is alink, we re-evaluate whether the benefits of the medi-cine or diagnostic product still outweigh the risks.We also have robust procedures in place to promptlyinform patients, physicians, healthcare providersand regulators of any new product safety information.

We have a robust process to ensure that productscan be recalled rapidly and withdrawn from circulationif unanticipated issues with their quality arise. In 2009there were no recalls involving the public.

Patient advocacyWe share with patient groups an interest in helpingpatients understand and manage their diseaseand gain access to the information and treatmentthey need.

While their aims vary, each patient group interactswith many patients and carers, understands theirneeds and priorities and knows how to provide emo-tional support and practical advice. We describeour approach to working with patient groups in ourposition statement and guidelines for working withpatient groups, which are available on our website.

Transparency is fundamental to successful partner-ships with patient groups. In 2009 we listed all thepatient groups we support financially on our website,by country and with a short description of the activity

we support. We publicly list patient groups we givenon-financial support to if the support is significant ormeaningful, as guided by European Federation ofPharmaceutical EFPIA Industries and Associations.

Examples of patient advocacy we supported in 2009include the World Hepatitis Alliance’s work to raiseawareness of viral hepatitis and promote action toimprove patient care. We continued to support theEuropean Patients’ Rights Day organised by ActiveCitizenship each year. In 2009, 34 patient groups in24 European countries celebrated the third Patients’Rights Day.

Education and awarenessOur affiliates often get involved in initiatives to raiseawareness of disease. For example, Roche Turkeyheld a one-day cycling event at a shopping mall inIstanbul, in partnership with the Turkish BicycleFederation and the Ministry of Health’s cancer controldepartment. Roche made a donation to the patientorganisation, Hand-in-Hand Against Cancer, on be-half of each person taking part. Demonstrationson prosthetic breasts helped train women in self-examination.

In Brazil, 12 million people have diabetes but 44%do not realise it. Roche Diabetes Care challengedfashion students to design a practical and fashionableaccessory for carrying Accu-Chek blood sugar testsand other diabetes care items, to raise awarenessof the disease among teenagers and young adults.

2010 goalsInitiate Roche oncology sustainability initiative in• sub-Saharan AfricaExpand partnership with Albert Einstein College of• Medicine in Ethiopia to include oncology trainingHost, in collaboration with Novo Nordisk and the• World Diabetes Foundation (WDF), a LeadershipForum in Africa to address the Diabetes epidemic.


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More on the web Personalised healthcare: • www.roche.com/phc_in_r_d Roche position statements on personalised healthcare, access • to medicines and diagnostics, pricing, neglected diseases, and working with patient groups: www.roche.com/policies_guidelines_and_positions Access to medicines report • www.roche.com/sust-access.pdfProgrammes in LDCs: • www.roche.com/programmes_in_least_developed_and_ developed_countries Programmes in developed countries: • www.pparx.org www.GenentechAccessSolutions.com Roche trials and patient safety: • www.roche-trials.com www.roche.com/clinical_trials www.roche.com/managing_medication_safety List of patient groups supported: • www.roche.com/patient-groups


http://www.roche.com/programmes_in_least_developed_and_developed_countries


People

is illustrated by our consistent ranking as an Employerof Choice (see the table below for a selection of ourawards).

‘I truly believe that we’re in the golden age of diseaseresearch and drug discovery. It is now possible totackle disease biology with the same rigour as basicbiology. Because of this convergence of medicineand science, I can’t think of a better place to be thanGenentech. The quality of the science here is onpar with that of top academic institutions. It is exhila-rating to experience the combination of scientificexcellence with state-of-the-art resources, enormouslytalented colleagues and the culture of risk-taking wehave here.’

Marc Tessier-Lavigne, Ph.D., Executive Vice President,

Research, and Chief Scientific Officer

For over a century, Roche has stood for innovation andentrepreneurship. Our history of achieving our busi-ness goals and excelling in science and innovation isa result of consistently employing the best people.

We succeed because of our people — people who arepassionate about making a difference to patients’lives; people who lead and drive change; people wholive our corporate values — integrity, courage andpassion. We have 81,507 employees behind our cur-rent success.

We keep our employees engaged and performing atthe highest level by creating a working environmentin which everyone feels valued and respected; wherethey can develop to their fullest potential and canmake their own mark. Our progress in achieving this

Employer of choice — Selected external awards (with rankings 1 to 3)

Award Roche site Rank Description

Science Magazine’s Top Employer Genentech 1st Genentech won the Biopharmaceutical

Industry prize for the seventh time

San Francisco Business Times

Best Place to Work

Genentech 1st The rank is based on employee responses

to a questionnaire and includes

companies in the Bay area with more

than 1,501 employees

Total E-Quality Germany Roche Germany n.a. Total E-Quality awarded for the second

time for Roche’s successful and sustained

equal opportunities commitment

Arizona Bioindustry Association

Bioscience Company of the Year

Ventana Medical

Systems/Roche

Tissue Diagnostics

1st The award recognised Ventana’s

development and growth

Best Places to Work Survey,

Best Pharma/Biotech Company

Roche Denmark 1st Roche was voted Best Pharma/Biotech

Company in Denmark for the fourth

consecutive year, and second amongst

all sectors

Actualidad Económica

Best Companies to Work For

Roche Spain 1st Roche ranked 1st in the Pharma Industry

and 5 th overall

Trendence Top Employer Roche Switzerland 3 rd Switzerland’s students voted Roche

the country’s third best employer in its

Technology & Science edition

15_L_Roche_AR09_ENG_Corporate Responsibility Part2 indd 104 29 01 2010 09:43 51

105

Engaged employeesThe global Listening to You survey, conducted in early2009, aimed to measure the effectiveness of internalcommunications and employees’ attitudes to the com-pany and their work. Over 30,000 employeesresponded.

Overall, 91% of respondents expressed satisfaction intheir job and felt they were appropriately engagedby Roche. The vast majority (89%) felt proud to workfor Roche and would recommend the Group to othersas a good place to work.

Nearly 90% said they have access to the informationthey need to do their job well. Employees felt wellinformed about our major products, business strategyand financial performance. We will carry out anothersurvey in 2011.

Employees (FTE *) by operating divisions

2009 2008 Variance

New Pharma 48,341 47,551 1.7%

Chugai 6,632 6,590 0.6%

Diagnostics 25,967 25,404 2.2%

Other 567 535 6.0%

Total 81,507 80,080 1.8%

* full-time equivalent, FTE.

Employees by contract types

2009 2008 Variance

Regular (FTE) 79,631 78,320 1.7%

Temporary (FTE) 1,876 1,760 6.6%

Headcount 82,428 80,400 2.5%

Full time (HC) 77,866 76,058 2.4%

Part time (HC) 4,562 4,342 5.1%

Asia | 14,169

Europe | 35, 310

+2.1 %

North America | 25, 412

-1.6 %

-1.2 %

+6.4 % +0.5 %

+8.5 %

Australia | 891Africa | 795

Latin America | 4, 930

Roche Employees worldwide

Today we employ some81,500 employees,around 2% more thanin 2008. All of themare driven by the samespirit and pursue thesame goal: to createnew and better ways toprevent, diagnose andtreat new diseases.

Employees

Variance 2008 | 2009



During the Roche-Genentech integration, we pro-vided relevant information to employees quickly andtransparently using an integration web portal andemployee road shows. The electronic platform allowedus to communicate management decisions instantlyand attracted, on average, 12,000 unique visitors perweek between April and August — mainly from theUS and Switzerland. We held road shows at all affectedsites and used them to introduce new members ofthe management team. We filmed these events andposted the videos online. Together with key presenta-tions, these videos provided direct input on strategicdirection and other news stories. Pictures and per-sonal stories from employees helped people fromeach company connect more easily.

A survey at Genentech showed that employees remainpositive after the merger — despite having experi-enced uncertainty and loss as a result. Genentechemployees remain proud of their culture and its posi-tive impact on patients’ lives.

The survey also showed that Genentech’s focuson patients and commitment to science inspires andmotivates employees. Almost all employees (93%)are committed to the success of the merged company,want to stay with the company for at least a year(91%), or want to stay at Genentech for a long time(86%).

Fostering diversityOur focus is to ensure diversity in our workforce.An inclusive work environment allows us to leveragethe potential of all employees irrespective of age,gender, ethnicity, disability, work style, experiences,family situation, or working needs.

We do not tolerate discrimination of any form, asstated in our worldwide employment policy. Wehave management training programmes and a widerange of initiatives at affiliate level to encourageand safeguard employee diversity. For example, ourNutley site in the US has a dedicated departmentto manage diversity. It sets annual plans to evaluatehow employment decisions may adversely affect

certain candidates and to demonstrate progresstowards government goals for women and minorities.

We sponsor and support a number of employee affinitygroups, associations and networks. The GO & E —Genentech Out & Equal Group — aims to promotea workplace environment that embraces all employeesregardless of their sexual orientation. AAIB —African Americans in Biotechnology — is dedicatedto achieving a culturally diverse environment whichimproves the development of drugs to addressthe unmet medical needs of a more culturally diversepatient population.

The Integra project at Roche Spain also encouragesgreater understanding of disability among employeesand aims to increase the number of hires with dis-abilities. In Italy, collaboration with local institutionsover the last two years has enabled us to recruit andonboard five additional disabled persons.

People from over 79 countries — from Australia,Uruguay to South Africa — work for Roche in Switzer-land. In total more than 126 nationalities are repre-sented worldwide at Roche.

Women account for nearly half (46%) of employees and37% of managers globally. Women also make up morethan 46% of the workforce in over 90 of our 140 affili-ates. In 33, women account for more than 50% of man-agement. Examples include Australia, where womenaccount for 68% of employees and 58% of manage-ment, and Hungary with 81% and 75%, respectively.

Gender diversity

2009 2008 2007

Women in total

workforce 46% 46% 45%

Women in management 37% 37% 32%

Women in senior

management 28% 29% —

Women in executive

management positions

i.e. top 120 9% 8% 7%


107

‘Genentech challenges our scientists to discover newbiology and to translate these findings into novelmedicines to help patients. Success requires a fear-lessness and willingness to attack the most difficultscientific and clinical problems and not to be deterredby the trials and tribulations of scientific discoveryand unknowns of medicine. I feel fortunate to have theopportunity to work alongside our research, develop-ment and clinical scientists to meet these challenges.’

Andrew C. Chan, MD, PhD, Senior Vice President, Immunology and

Antibody Engineering

We recognise innovation among our employees throughinternal awards. These include prizes for improvinganimal welfare in our trials, implementing innovativeinformatics solutions and proposals that improvepatients’ lives. The Roche Pharma CEO Awards recog-nise teams that have passionately pursued innovativesolutions for patients, creatively improved the waywe work and pushed science, marketing and opera-tions to the next level. In 2009 more than 165 teamsfrom every region, disease biology area and functionparticipated in the programme. Winning teamsincluded Roche employees at every stage in theircareers — from young post-docs to senior researcherswith decades of experience.

Our Postdoc Fellowship programme awards our bestscientists with grants to conduct exploratory research,which helps us reinforce our talent pipeline in R & D.

‘Knowledge is an essential aspect in Roche that multi-plies when it is shared and cleverly used. The keyis to develop a participatory management style whereteams share their ideas and develop different waysof doing things in a framework of mutual understand-ing. It is a privilege to work in a company that recog-nises the performance and potential of its talentsregardless of their background and experiences evenwhere these might not reflect the traditional route orthe expected profile. Roche encourages its employeesto rise to, and face professional challenges thusallowing them to grow and reach different positions.’

María Jesús Alsar, Onco-Hematology Director, Spain

Women In Leadership Network, Basel and GenentechWomen Professionals both aim to provide a forumfor women which recognises their unique strengthsand talents and in which experiences can be sharedand leveraged.

Encouraging innovationRoche is a global, innovation-led company. We haveto balance the need for efficiency and consistencythrough standardisation with a competitive environ-ment in which innovation thrives.

Innovation is driven by different and often conflictingapproaches, ideas and experiences. While ensuringthat our main functional processes are aligned acrossthe Roche Group, including Genentech, we decidedto keep the research and development laboratories(Genentech Research and Early Development — gRED)independent to ensure its interaction with externalresearch institutions was not disrupted. gRED has itsown budget, portfolio management and culture — allof which are fundamental to innovation. We createda parallel Pharma Research and Early Developmentorganisation (pRED) comprising the various R & Dcentres outside Genentech to stimulate the differentperspectives critical to successful innovation.

Employees FTE by function

2009 2008 2007

Servicing 13,408 12,292 12,215

Manufacturing &

Logistics 16,395 15,381 14,262

Marketing &

Distribution 28,682 28,426 28,107

Research &

Development 18,894 18,518 18,580

General &

Administration 4,128 5,463 5,440

Total 81,507 80,080 78,604



Turnover (regular employees) *

2009

Total 7%

Europe 5.1%

Latin America 13.4%

North America 7.8%

Asia 7.2%

Australia 10.9%

Africa 18.3%

* Including non standard temporary contract ends.

Reasons for leaving

2009

Employer-related 40%

Employee-related 51%

Neutral* 9%

* Such as temporary contract ends, health issues and retirements.

Roche’s turnover shows a strong decreasing trend(–30%). This trend is confirmed particularly by thenumber of employees leaving of their own accord(from 58% in 2006 to 51% in 2009). Over 35% of ouremployees have been with Roche for more thanten years.

Developing employees Development is a priority for all employees in an inno-vation-driven organisation. We want employees todevelop to their fullest potential and support them atevery stage in doing so.

Performance management | Regular feedback andan open dialogue between employees and theirmanagers is a critical activity for which we hold bothmanagers and employees accountable. In 2009, 92%of our employees took part in performance manage-ment programmes and 43% in formal career develop-ment planning.

Attracting employeesWe work hard to keep our recognition as an employerof choice. This is critical to our ability to hire andretain outstanding people who are committed to ourgoal of improving people’s health and quality of life.

Roche’s strong and sustainable brand enables usto attract the right people. We have built a large anddiverse pool of candidates, dedicated in-houserecruitment teams and globally aligned recruitmentprocesses, standards and technology. Our careerswebsite expanded in 2009 to improve the local visibilityof all available positions (including at Genentech).The site had some two million unique visitors in 2009and registered more than 388,400 spontaneousapplications. We also continued to roll out Taleo, ourglobal e-recruiting platform. Launched in 2005in just three countries, Taleo is now available in over62 countries worldwide.

We continued to deploy our global employer brandin 2009 — ‘Make your mark. Improve lives’ — to improveawareness of Roche as an employer of choice andto differentiate us from our competitors.

Hiring and retention | A large integration requiresa sharp focus on retention. Our decision to maintainGenentech’s unique research operations was onemeasure to aid retention, accompanied by additionalhealth benefits, outplacement services and cashpayments. We have continued to attract top scientistsand other high-profile talent since the deal wasclosed. Genentech hired 1,364 people in 2009, in-creasing its total workforce by 12% .

Staffing rates

2009 2008

Number of vacancies 11,268 13,911

New hires 8,192 9,169

Internal staffing rate 29.3% 34.5%

External staffing rate 70.6% 65.5%


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potential leaders (3.8% of total headcount), of whichone third are women.

Within the global leadership portfolio, we have pro-grammes addressing each category of high-potentialleaders — from those who will assume a Globalleadership position in the long term to those who cansucceed a key position holder in the short term.In 2009 these programmes targeted the top 5% ofemployees and included:

Explorations — includes an assessment of leader-• ship skills, feedback and coaching by seniorleaders early in an employee’s career, to enablethem to build focused development plans.In 2009, 24 employees participated (7 women).Perspectives — a two-year programme in which• we prepare early high-potential leaders forsignificant management responsibilities. They workin four different functions and regions. In 2009,9 participants joined for the first time (4 women).Horizons — gives mid-term high-potential employ-• ees an accelerated global and cross-functionaldevelopment experience in critical areas such asleadership, innovation, risk taking, customerorientation and change. In 2009, 48 employeesparticipated (12 women).Reflections — provides an assessment of the most• senior high-potential employees on their individualstrengths, areas of improvement and potentialbased on the Roche Values & Leadership Compe-tencies. In 2009, 21 candidates (3 women) tookpart.

At a time of significant organisational changes, wefilled more than 30% of our open positions internally.

International Mobility | While some 7,865 vacancies(70% of the total) are filled by external candidates,we offer professional and personal developmentopportunities to our own employees through internalmoves. This not only helps Roche retain key personnel,it enables us to leverage potential within the Group.An increasing amount (over 12%) of this mobilitygoes across affiliate and national boundaries. Of our495 expatriates and cross-boundary employees,

Employee training

2009 2008

Total training spend (millions

CHF) 146 139

Training spend per employee

(CHF) 1,794 1,734

Total number of training hours

(million) 2.16 2.40

Average training hours per

employee 26 29

Number of postdocs, students

and interns * 429 335

* excluding Genentech and Chugai.

Learning | Roche offers extensive support to em-ployees for the development of functional, profes-sional and leadership skills. Our major Diagnosticsand European Pharma affiliates, accounting for38% of the total Roche population, offered nearly13,000 courses in 2009 through our commonCHRIS platform. Over 28,000 training sessions(classroom and web) took place and we registeredclose to 552,000 bookings.

Succession and talent management | In an organi-sation characterised by change, leadership skillsare increasingly important. During 2009 we ensuredfull coverage of our Global leadership programmeportfolio, providing key programmes at every stage inthe leadership development pipeline. In 2010 Roche’sLearning and Development department will createa common framework for leadership development,linking Global leadership programmes with existinglocal, regional and functional initiatives. This willgive employees and managers access to a catalogueof leadership programmes.

High-potential leaders are people with the ability totake on critical senior roles in the short, mid orlong term. Identifying and developing these employeesensures we have a robust and diverse pool of can-didates for critical positions. We identify and confirmthese individuals in talent assessments and reviewsduring the year. In 2009 we identified 3,119 high-



We also reviewed compensation practices at Rocheand Genentech, and moved 10,653 Genentechemployees to Roche long-term incentives. This meansthat apart from Chugai employees, all long-termincentives in the Group are now on the same RocheHoldings securities. More changes to align Rocheand Genentech compensation practices and theperformance metrics used for incentives will comeinto effect in 2011.

Benefits | Through competitive benefits programmeswe help to create an attractive workplace.

Over 97% of our affiliates offer extensive benefits plans.Most go beyond government schemes and includehealth checks and free access to a wide range ofmedical services. We have also introduced programmesthat encourage a healthy lifestyle through wellnessprogrammes, health education, fitness centres, swim-ming pools and relaxation initiatives. We now haveTai-Chi classes at our Brazilian, Italian and Mexicanaffiliates and have incorporated it in workshopsapplied by our Lifecycle teams. We have been triallingpower napping and are offering healthy food optionsat our headquarters in Basel. We continue to offerbenefits to our retirees at several of our affiliates, suchas Switzerland — including access to employeerestaurants, sports and leisure activities and travelchecks.

We have increased our focus on flexible workingarrangements. After successful pilots at our Welwynsite in the UK, our Basel headquarters introduceda pilot to accommodate different working stylesor family situations through home working and desksharing. The pilot aimed to identify more attractiveand flexible working arrangements for office workers,as well as testing efficient and sustainable use ofoffice space and infrastructure.

Genentech introduced an online tool allowingemployees to assess whether their tasks are eligiblefor flexible work arrangements.

26% are women, all of them representing 55 differentnationalities.

To encourage mobility within the Group, in 2009 weintroduced the Intercompany Transfer and LocalForeign Hire Policy. This facilitates the recruitment andrelocation of foreign hires and of permanent cross-border moves within the Group. Local mobility initia-tives such as our Local Plus policy in China helpattract top talent to China, especially individuals whohave international experience and want to return.

We have also revised our international assignees policyto improve the flexibility needed to address markettrends, changing demographics and evolving businessneeds. This revision responds to the findings ofa survey of 600 assignees and their partners. Therevised policies will be rolled out in 2010.

Rewarding and recognising employeesThe total compensation package we offer makesa significant contribution to attracting, rewarding,recognising and retaining the right people.

Our total remuneration costs in 2009 amounted to12 billion Swiss francs (an increase of 8.5% from 2008).Our base pay packages reward individual perform-ance, recognising both what was achieved and howit was done. Through variable pay, we incentiviseemployees who create new opportunities and strivefor outstanding results. Variable pay is driven byindividual and team objectives and by the Group, divi-sional and affiliate performance.

We want our employees to share in our success.Through Roche Connect, employees in most countriescan purchase Roche’s non-voting equity securitiesat a discount of up to 20%. In 2009, 16,604 employeesin 42 countries — 37% of those eligible — participatedin Roche Connect, 1% more than in 2008. We alsoaward non-voting equity securities to managers, basedon their performance, through the Roche Long TermIncentives Plan. A total of 3,480 managers took partin 2009, with 589 joining for the first time.


111

We also aimed to increase the consistency of ourbenefits programmes around the organisation. Ourgoal is to align benefit programmes within countriesso we can offer attractive benefits to all our em-ployees, regardless of affiliate or division, consistentlyand efficiently.

In 2009 we started the harmonisation of the benefitplans of our North American affiliates — coincidingwith the Genentech integration. We will launch the newprogramme in October 2010, and it will come intoeffect on 1 January 2011. Similar benefit-harmonisa-tion programmes are ongoing in Switzerland, Spain,France and the United Kingdom.

As a result of the financial crisis and the fall in globalequity markets, some of our pension funds around theworld faced challenges maintaining a healthy fundingposition. Where underfunding has arisen, Rochehas taken steps to develop appropriate strategiesin accordance with the local statutory regulationsand practices, and in consultation with employeerepresentatives, including additional cash injectionsand recovery plans. Some of our major pensionfunds have removed early retirement incentives andhave introduced more flexible retirement modelsto anticipate the impact of an ageing workforce.

Simplifying and aligning processes in Human Resources All of our HR processes (except those at Genentechand Chugai) now run on one Common HR InformationSolution (CHRIS). This uses transactional and report-ing systems and is aligned with Taleo, our globale-recruiting solution.

Introduced in July 2009, CHRIS replaces severallegacy solutions and enables standardised, streamlinedand simplified HR processes across the Roche Group.Our aim is to ensure consistent HR services andincreased efficiency. CHRIS covers 149 affiliates andrepresentative offices and 78% of Roche employees.Genentech and Pharma North America will fullyjoin in 2011. CHRIS is managed by a global supportorganisation and network of servicing hubs.

Human rights and labour relationsRoche has a comprehensive employment policy,which covers human rights. The Group ComplianceOfficer monitors this policy and serves as a contactfor all employees.

Roche respects the right of employees to freedomof association and collective bargaining. More than6,708 of our employees are union members andover 37,713 are members of organisations that freelyrepresent them (in countries where this is legal).The Roche Europe Forum represents nearly 34,900employees in 26 countries. At global level, we haverecently installed an Employee Relations officer.

Our directive on the protection of personal data safe-guards information about employees and complieswith the relevant local legislation. Where appropriate,we have negotiated data privacy agreements betweendifferent parts of the business or with works councils.

More on the webEmployees: www.roche.com/employees• Group policies, positions and guidelines: • www.roche.com/policies_guidelines_and_positionsGlobal careers portal: http://careers.roche.com• Employment policy: www.roche.com/employment_policy.pdf• Core standards: www.roche.com/commitments•



Our support for communities focuses on programmesand areas that are aligned with our business model.We believe we can enhance the innovation, sustainabil-ity and impact of our business through appropriatedonations, sponsorship and employee volunteering.This inspires and motivates our staff and ensuresRoche remains a committed corporate citizen.

Monitoring the impact of our community work givesa more accurate assessment of our programmes’success than publishing detailed financial informationabout our donations. For example, our GeneticsEducation Programme for educators in Switzerlandand Germany reached nearly 1,250 people. With60 teachers enrolled in the workshops, the subsequentknowledge transfer reached their colleagues, pupils,and even friends and family. We will expand it inSwitzerland and neighbouring regions of Germanyin 2010.

All philanthropic donations and non-commercialsponsorships are monitored internally through theFinancial Group Reporting System. The CorporateSustainability Committee is responsible for monitoringtheir impact.

In 2009 the Roche Group approved an updated Corpo-rate Policy on Philanthropic Donations and Non-Commercial Sponsorship. The policy stipulates that allphilanthropic projects should focus on innovation,collaboration, quality and sustainability. It comfirmsour priority areas as humanitarian and social, scienceand education, culture and arts, and community andenvironment. Our humanitarian and social programmesinvolve promoting sustainable access to our medi-cines and diagnostics. We only donate drugs in disas-ter and pandemic situations.

The policy also ensures our donations target afocused number of non-governmental organisations(NGOs) to which we can make a significant differ-ence, rather than diluting our donations amonga large number of NGOs. We exclude governmental,political and religious organisations.

Community support in 2009 by area

% of total

Humanitarian and social projects 75%

Science and education 17%

Arts and culture 5%

Community and environment 3%

Supporting future science Young scientists are our future employees. Nurturingtheir talent ensures Roche remains an innovativeand successful company. For example, we have foun-dations to support research and education pro-grammes around the world, including the Fondationd’entreprise Roche in France, the global RocheOrgan Transplantation Research Foundation and theGenentech and Roche Foundations in the US.

The Roche Postdoc Fellowship Programme completedits first full year in 2009. The programme aimsto encourage creativity in science and strengthenacademic networks through support for talentedpost-doctorate students on two- to four-year researchprojects with leading academic institutions. In 2009we offered 19 post-doctorates, taking our total sincethe programme launched in 2008 to 52 people.We plan to increase that number to 100 by the endof next year.

In 2009 we piloted the Research Exchange ScholarsProgramme. The initiative supports science educationby giving gifted secondary school students the chanceto go on international exchanges. The first exchangefeatured two biotechnology specialist schools fromthe US and Germany. Three students from eachschool undertook a six-week internship at the other,which included individual mentoring ata local university.

The 2009 Congress of the European Society for Medi-cal Oncology (ESMO) awarded Roche in recognitionof our support for its Young Oncologist Fellowshipprogramme. We have supported ESMO since it wasfounded in 1975 through clinical and transnationalfellowships. These have helped young oncologists gain

Society


113

We set up the Roche Employee Action and CharityTrust (Re & Act) in 2006 as an independent charityorganisation to manage employee donations. Itdistributes funds to community projects and disasterrelief efforts around the world. Since an earthquakein 2007 Re & Act has maintained ongoing assistanceand reconstruction in the town of Chocos, Peru.In 2009 the project built a community canteen and12 new homes capable of withstanding anotherquake, as well as completing the community’s dam.

The annual Roche Children’s Walk has been goingsince 2003. However, it did not take place in 2009 asit has been moved from December to July to increaseparticipation. Nonetheless, Re & Act’s work withthe European Coalition of Positive People and UNICEF,Switzerland, which both have long-term projectsto support children impacted by HIV/AIDS in Malawi,continued. Roche employees were still invited todonate in 2009 and we guaranteed financial coverageto ensure the children do not suffer in the interim.To date, the walk has raised enough money to build andfurnish 18 new classrooms, accompanying teachers’offices and sanitation and hygiene facilities for nearly1,500 primary school children. The sponsored walkhas also helped fund education for 108 secondaryschool students and five further education students.

In rural South Africa there is just one doctor for every4,000 patients. The Phelophepa Health Care Trainaims to reduce the burden by providing a mobile healthclinic to more than 45,000 people. We have supportedthe service since it began 15 years ago and in 2009additional funding from Roche contributed to a cancerhealth awareness service. The new service includescancer screening, training for staff, community cancerawareness events, patient counselling and educationfocused on breast, cervical and prostate cancer.

More on the web Roche social programmes: • www.roche.com/societyRoche ’n’ Jazz: www.roche-n-jazz.net • Re & Act: http://react.roche.com•

research experience in renowned European cancercentres. Our ongoing education programmes includea two-day bioethics teaching workshop for secondaryschool teachers in the US and our partnership withthe New Jersey Institute of Technology to supporta one-day education programme for primary andsecondary teachers.

Encouraging innovation in the artsWe support music and the arts because the creativityand innovation of those disciplines reflects ourbusiness model. We believe lessons can be sharedbetween arts and science. In 2009 we held thethird Roche Continents event to encourage artisticinvolvement among young people. Around 100 futurechemists, biologists, medics, psychologists, musi-cians, set designers, recording engineers and operasingers from universities all over Europe attendedart and science workshops and contemporary classicalmusic performances at the Salzburg Festival.

Roche Commissions sees us sponsor a new musicalpiece by an outstanding contemporary composerevery two years. Toshio Hosokawa will present hiswork in 2010. In addition, Chugai again sponsored theStar Philharmonic Christmas Concert in Yokohama,Japan, which supports early cancer discovery andtreatment.

Supporting our communitiesWe want employees to contribute to their local com-munities, so we encourage them to identify theprojects that they feel would be most worthwhile.While Roche has a range of Group projects, weencourage staff to fundraise and volunteer alongsidetheir work commitments.

Genentech Goes to Town is a community relationsproject set up in 1993. Genentech gives employees25 US dollars worth of vouchers to spend in localshops over two weeks, encouraging them to developlocal businesses. The programme has spent morethan 1.9 million US dollars in local shops since incep-tion, with more than 200 businesses participating.



Safety, security, health and environmental protection(SHE) are critical for our business. We take SHEinto consideration in all our activities. The Roche Cor-porate Principles and SHE Policy commit us to thehighest SHE standards. In 2009 we invested 159 mil-lion Swiss francs in SHE infrastructure and 294 millionSwiss francs in SHE operating costs.

SHE managementA 36-strong team coordinates SHE within Roche. Wehave 680 full-time SHE employees to ensure ourperformance. New SHE Officers attended a trainingweek to learn about our SHE Policy, strategy, Guide-lines and processes. Attendees discussed Roche’sSHE responsibilities and how to access relevantexpertise. They also learnt how to establish and main-tain a risk management system at their sites. Weheld regional workshops for existing SHE Officers ontopics such as energy efficiency, security and indus-trial hygiene.

Everyone at Roche is responsible for ensuring healthand safety and for minimising the environmentalimpacts of our operations. We need everyone to under-stand our SHE standards, so we offer site-specifictraining, including lectures and practical courses. Wehave also begun a basic one-hour SHE e-learningmodule for all employees. In 2009, 60,052 employeesreceived an average 2.7 hours of SHE training each.

It is important to understand SHE risks across thebusiness, so we can develop local safety measures aswell as Group-level responses. We list all SHE riskson a web-based inventory accessible by all managersacross the business. Individual site managers andSHE Officers implement the SHE Policy and Guide-lines locally. In the Pharmaceuticals and DiagnosticsDivisions, eco-delegates raise awareness of environ-mental issues.

We monitor the implementation of the SHE Policyusing regular site audits and we use the resultsto improve performance. In 2009 we conducted27 audits, revealing no major deficiencies buthighlighting the need to update site risk analyses.

We train employees who handle chemicals as part oftheir work to use them properly and we providesafety data sheets for over 1,000 specific chemicalson our website.

We hold our ECOmpetition every three years to raiseawareness of environmental issues among employeesby encouraging them to suggest new ways to reduceour impacts. The 2009 competition — our fifth — elicitedmore than 335 proposals from 428 people at 46 sites.The 29 winners included:

Roche Palo Alto, US — retrofitting cooling equip-• ment to replace halogenated hydrocarbon(HCFC) with hydrocarbon refrigerants (propaneor propylene)Roche Jacarepaguá, Brazil — recovering solutions• from tubing using a polystyrene plug rather thanwater and nitrogenChugai Pharma, Japan — regenerating emergency• batteries in uninterrupted power supplies insteadof replacing them.

The annual Roche Responsible Care Awards encour-age sites to suggest energy efficiency improvements.In 2009, 50 submissions from 21 sites stood out,including:

Roche Bezares, Mexico — Solar boilers installed• to provide hot waterRoche Diagnostics, US — Controlled lighting• during quiet periodsRoche Diagnostics, India — A special glass façade• was installed to save energy costs.

SecurityWe appointed a Corporate Security Officer (CSO)in 2007. In 2009 we set up a network of morethan 100 Site Security Officers (SSOs) and issueda Corporate Directive to define their responsibilities,as well as our security principles and generalprocesses. The Directive describes minimum stand-ards to protect employees, visitors, physical assets,products and business-sensitive information.

We also introduced a global security incidentreporting tool that allows SSOs and the CSO to analyse

Safety, security, health and environmental protection


115

incidents and establish corrective measures. In 2009we focused on counterfeit products and prevented thesale of significant quantities of fake products.

Health and safetyThe Roche Accident Rate (RAR) measures thenumber of working days lost due to occupationalaccidents per employee per year.

In 2009 the RAR was 0.074. This represents a 5.9%improvement from 2008 and is comfortably below the0.079 Group goal for 2010.

Health and safety

2009 2008 2007

Roche Accident Rate 0.074 0.078 0.076

Occupational accidents 392 474 482

Occupational illnesses 227 270 311

Work-related fatalities 0 0 1

Work-related accidents

per million working

hours 2.92 3.42 3.46

We expect contractors who work on Roche premisesto follow the same safety rules as employees.Contractors were involved in 152 accidents in 2009(in addition to those reported for employees),resulting in an injury frequency rate of 1.32 (accidentsper 100,000 working hours).

Employees suffered 227 cases of occupational illnessesin 2009, a decrease from 270 in 2008. The numberof working days lost was 607 — the same level as in2008. Locomotor disorders, especially repetitive straininjuries, accounted for more than two-thirds of thetotal. We work to reduce these injuries through localergonomic programmes, improved office equipmentand individual assessments. Genentech’s ergonomicsprogramme addresses cumulative trauma andincludes a dedicated training website. The South SanFrancisco site has three ergonomics showroomsallowing staff to test products for the office, plant andlaboratory.

A Group-level body investigates significant SHEincidents and communicates the relevant findingsacross the company, including for use in trainingprogrammes, where suitable.

Environmental footprintOur environmental footprint takes into considerationresearch and production as well as product packag-ing, distribution, use and disposal.

We use the Swiss Agency for the Environment’s(BAFU) ‘eco-balance’ method to calculate our envi-ronmental footprint. It reflects resource use aswell as emissions and waste. In 2009 our eco-balancewas 4.6, an improvement of 7.1% from 2008. Thisreflects significantly reduced emissions to air andorganic materials discharged to water. We arecurrently operating within our target eco-balance of5.92 for 2015.

We also measure environmental expenditure in rela-tion to sales to help ensure we target our investmentin the areas where it will have the most impact.The calculation gives us an Eco-Efficiency Rate (EER),as shown in the table below. This combines dataon energy use, waste, emissions to air and water withexpenditure on environmental protection and sales(a detailed definition is available on the Roche Groupwebsite). In 2009 our EER was 84.02, an improve-ment of 7.8%.

Eco-efficiency rate

2009 2008 2007

Sales (million CHF) 49,051 45,617 46,133

Environmental expend-

iture (million CHF) 186 209 232

Environmental damage

(millions of environ-

mental damage units) 3,14 2.80 2.96

EER 84.02 77.95 67.19

The Roche Environmental Awareness in ChemicalTechnology (REACT) programme promotes sustainablechemistry practices in our R & D labs around the world.



sions factors at some sites whose electricity providersrecalculated the less emission-intensive proportion oftheir energy mix.

Greenhouse gas emissions | tonnes CO2 equivalent

2009 2008 2007

Total emissions 1,053,118 1,062,114 1,052,407

Total emissions

per million CHF

of sales 21.47 23.28 22.81

The 7.8% reduction in emissions in relation to salesshows that Roche is reducing energy use while thebusiness grows.

In 2009 we developed a standard for integratingenergy efficiency management into building projects.This accompanied a new Group-wide Manual onEnergy Efficient Design, which will help us designfuture facilities and refurbished buildings to minimiseenergy use.

Milan has a problem — it is one of the most pollutedcities in Europe. Smog is at a record level, far aboveEuropean Union limits. Roche Monza (Italy) begana programme to reduce its environmental impacts in2007 by modifying transport, increasing recycling and

REACT sets sustainable chemistry guidelines tomeasure the benefits. For example, the Mass IntensityFactor measures the ratio of inputs of raw materialsagainst outputs, while solvent selection guidelines helpemployees choose less harmful solvents. The pro-gramme aims to: support Roche’s sustainability goals;share best practices around the Group; raiseemployee awareness; increase recognition for R & D’ssustainability work; and reduce costs.

Energy and climate changeOur position paper on Greenhouse Gases and ClimateChange guides our Group strategy for decreasingemissions.

We regularly analyse Roche’s vulnerability to thechanging climate. We have not identified any sig-nificant risks to our business from climate change,or any specific business opportunities.

Roche’s energy and fuel use in 2009 totalled13,898 terajoules, an increase of 1.7% from 2008. Thisis mainly due to the inclusion of Genentech’s carfleet for the first time. Energy use is approximately176 gigajoules per employee, a small decrease since2008.

Energy use | terajoules

2009 2008 2007

Total energy use 13,898 13,662 13,664

Total energy use

per million CHF of sales 0.283 0.299 0.296

Total energy use

per employee 0.176 0.178 0.179

Our climate strategy focuses on energy use, whichaccounts for most of our carbon dioxide (CO2) emis-sions. We convert amounts of CO2 and other green-house gas (GHG) emissions such as halogenatedhydrocarbons leaking from refrigeration equipmentinto CO2-equivalents. In 2009 we emitted 1,053 thou-sand tonnes of CO2-equivalents, an absolute decreaseof 0.8% from 2008. This reduction comes despiteincreased energy consumption due to revised emis-

Energy use by type | %

Fuel used by 11.1

company vehicles

Oil 2.1

Fuel due to business 15.2

air travel

Grid electricity 29.2

District heating 3.9

Waste/ 0.9

Renewable energy

Natural gas 37.6


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Genentech met its own 2010 GHG emissions reductiongoal two years ahead of schedule. It will now join therest of Roche’s US affiliates in pursuing a new goal ofdecreasing emissions by 13% by 2013.

Roche has a Group directive on energy conservationwhich promotes local initiatives. It includes energyefficiency standards for new and existing electricalequipment and requires sites to conduct energyaudits.

The 2009 audits identified opportunities to improveour buildings, utilities, plants and processes, includingthose at Genentech. These include improved meteringand monitoring, retro-commissioning buildingsand adapting lighting and air-conditioning systems.

reducing energy use through sensor lights andenergy-saving light bulbs. In 2009 the site increasedits focus. Lifegate, an external environmental organi-sation based in Monza, now monitors energy andwater use, waste disposal, logistics and employeetransport. The site has also started buying 10% of itsenergy from renewable sources. In addition, an inter-nal awareness campaign has encouraged employeesto get involved in energy-saving initiatives. So far,the site has reduced CO2 emissions by around 45%.

The US Environmental Protection Agency (EPA) hascommended our US affiliates for meeting their goal toreduce GHG emissions by 18% between 2001 and2010 ahead of time. Roche US has pledged to reduceemissions by a further 13% from 2008 to 2013.

Reduce total energy consumption and greenhouse gas emissions

Energy use by selected types 2009

Fuel used by company vehicles Introduced a new target for our European com-pany car fleet to include only vehicles producingno more than 120 grams of carbon dioxide (CO2)per kilometre by the end of 2011.

10%

40%

Fuel due to business air travel Video and teleconferencing facilities have beenestablished at all sites and are widely supported.Employees are encouraged to use trains andto consolidate several business trips into one.

15%

Grid electricity and natural gas Our first priority is to reduce usage of energy.For the energy we do use we look for ways ofimproving the efficiency, such as heat recovery.In addition we encourage the use of greenenergy wherever sensible. To help drive this in2009 we released our Group-wide Manualon Energy Efficient Design for the constructionof future facilities that minimise energy use.

30%



Ozone depletionThe target date for Roche’s directive to phase outhalogenated hydrocarbons (CFCs and HCFCs), whichdamage the ozone layer and affect the climate, hasbeen extended from 2010 to 2012 or 2015, dependingon the local situation. This is due to a lack of acceptedalternatives in some countries. Genentech has notyet defined a target date, but is committed to phasingthese gases out.

Replacements for HCFCs and CFCs, such as HFCs(hydrofluorocarbons) and PFCs (perfluorinatedcarbons), do not affect the ozone layer but they cancontribute to climate change and are persistent inthe environment, so we do not consider them a long-term alternative. Roche has a target to phase outHFCs and PFCs by 2015. Genentech and other recentacquisitions will work to a separate deadline, to bedefined in 2010. Some technical problems continue toprevent us from replacing these in all applications,but we are working to find alternative technologies.

Ozone-depleting chemicals | tonnes

2009 2008 2007

Halogenated

hydrocarbons holdings 179.8 144.6 148.2

Halogenated

hydrocarbons

emissions 6.5 3.4 4.7

Roche’s halogenated hydrocarbons inventory increased24.3% in 2009 due to the introduction of Genentech’sholdings to the Group total. Without this increase,Roche’s holdings would have decreased 6%.

Emissions to airEmissions to air from our operations include volatileorganic compounds (VOCs), particulates, nitrogenoxides (NOx) and sulphur dioxide (SO2). We aimto reduce these emissions, which can contribute toair pollution, smog and acid rain. In 2009 we reducedVOC emissions by 16.9% to 177 tonnes. Our emis-sions of particulates, NOx and SO2 were 27 tonnes,

Despite these central functions, we give sites thefreedom to develop their own emissions reductionstrategies. We believe this approach improves resultsbecause sites are more familiar with their own needsand circumstances. For example, Roche Shanghaihas an ongoing project to increase energy efficiency.The programme has seen the introduction of tripleand double glazing, optimal insulation, geothermalheating and cooling, low-power energy systems andsolar water heating.

Business travel accounts for approximately 15.2% ofour total CO2 emissions overall and our car fleet isresponsible for approximately 11.1%. Employees areencouraged to use trains when travel is necessaryand to consolidate several business trips into one.Video and teleconferencing facilities also help us mini-mise travel. For example, Roche Finland worked withWWF Finland to host the American Society of ClinicalOncology’s annual meeting virtually. In June 2009around 180 customers attended the conference fromtheir clinics, participating through video streaming.Several sites now use Telepresence® systems, whichsignificantly improve the quality of videoconferencing,encouraging increased usage.

A new target for our European company car fleetaims to ensure we will use vehicles producing no morethan 120 grammes of CO2 per kilometre by the endof 2011. This will cut CO2 emissions by 5,400 tonnesand save two million litres of fuel per year.

A number of sites have launched initiatives to encour-age staff not to use private cars to commute to work.At Genentech, for example, the gRide programme haspromoted alternatives such as vanpooling, masstransit, cycling, walking and Genenbus shuttles since2006. The shuttles were updated in 2009 with newer,more efficient models that meet the US EPA’s 2007standard for particulate emissions. At Rotkreuz,Switzerland, we have introduced an annual bonus of360 Swiss francs for staff who commute to workwithout using a car or motorbike.


119

286 tonnes, and 9 tonnes, respectively. These fluctuateat low levels from year to year.

Emissions to air | tonnes

2009 2008 2007

VOCs 177 213 240

Particulates 27 27 25

Nitrogen oxides 286 193 169

Sulphur dioxide 9 10 12

WasteAround 96% of our chemical waste is incinerated,the disposal method with the least environmentalimpact. In 2009 we produced 27,605 tonnes of chemi-cal waste, an 11.8% decrease from 2008. This doesnot include waste that can be reused as raw materialsby other companies. In 2009 we sold around4,000 tonnes (mostly solvents) for reuse.

In 2008 we engaged in significant building activ-ity, while 2009 was characterised by buildingdemolition. We generated 53.7% less general waste(19,828 tonnes) but our recycling rates increased374%, due to 104,817 tonnes of building rubble madeavailable for recycling (mostly metals and concretesold to other companies for reuse). Excluding thisbuilding rubble we recycled 30,671 tonnes, 7.3%more than last year. We decreased general waste sentto landfill by 63.6%. 31% of the total 19,828 t wereincinerated.

Waste | tonnes

2009 2008 2007

General waste

produced 19,828 42,823 17,480

General waste

per million CHF

of sales 0.4 0.94 0.38

Chemical waste

produced 27,605 31,295 38,167

Chemical waste

per million CHF

of sales 0.56 0.69 0.83

We monitor landfill sites to ensure our chemical wastedoes not pose a risk to human health or the environ-ment. Some landfills need to be sustainably remedi-ated. In 2009 we completed a project to remediate theHirschacker landfill in Grenzach, Germany. Rochevoluntarily financed this project. In 2009 we madeavailable approximately 247 million Swiss francs forother such projects.

Water We need clean water for manufacturing, but weunderstand the need to reduce our water use. Basedon the Global Reporting Initiative’s definition ofwater consumption (water used in products, cooling,and irrigation), our use increased by 16.3%. Weused 2.8 million m3 of water in 2009.

The water we use can be contaminated during manu-facturing, so we treat wastewater to ensure it issafe for people and the environment. We continue todevelop ways to increase our capacity to treat waste-water around the Group.

One of the winning submissions of ECOmpetition 2009came from Roche Penzberg, Germany. The submissionoutlines a proposal to use residual water from thedistillation of purified water to generate steam for theplant’s boiler.

In 2009 we decreased the amount of organic materialdischarged into water courses after treatment by74% to 154 tonnes. This is mainly due to a recalcula-tion of data from two sites because investigations intodifferences at similar sites revealed that they hadover-reported in previous years. We also released426 kilograms of heavy metals such as chromium,copper and zinc, 21.8% less than in 2008.

Our new goal to reduce toxicity of dischargedwastewater reflects the generally lower toxicity oforganic matter from biotech operations than fromchemical production.



Compliance and incidentsRoche did not receive any significant SHE fines in 2009.We meet all local laws or regulations as a minimum.However, our Group policies are often stricter thanthese. We control substances that could be misusedto produce narcotics, toxins or chemical and bioweapons. These substances, which we keep in smallsupply, are often regulated and we ensure compliancewith all applicable legislation.

2010 objectivesReduce the Roche Accident Rate by 20% by 2010• from the 2005 baselineImprove total eco-balance by 10% by 2015 from• 2005 baseline (points/employee)Reduce total energy consumption by 10% by 2010• from 2005 baseline (gigajoules/employee)Receive no significant SHE-related fines.•

Medium- and long-term objectivesAverage four hours of SHE training per employee• Reduce the Roche Accident Rate (RAR) to 0.07• and work-related accidents per million workinghours to below 3 by 2015Improve our eco-balance by 15% by 2020, from• a 2010 baselineImprove energy efficiency (measured as gigajoule• per employee) by 10% by 2014 and 20% by 2019compared with 2009Increase the proportion of renewable energy used• to 20% by 2020Reduce the toxicity of discharged wastewater by• 20% by 2020 from a 2015 baseline.

More on the webSHE performance: • www.roche.com/she_performance Safety, security, health and environmental protection: • www.roche.com/environmentSafety, security, health and environmental protection (SHE) • Policy: www.roche.com/safety_health_and_environmental_ protection.pdf Group fact sheets, positions, policies and guidelines: • www.roche.com/policies_guidelines_and_positions Genentech sustainability report: • www.gene.com/gene/about/environmental/

Water

2009 2008 2007

Water withdrawn

(million cubic metres) 18.6 21.0 21.0

Water used


Wastewater discharged

to treatment plant


Organic matter

discharged to

watercourses

after treatment (tonnes) 154 592 641

Heavy metals

discharged to

watercourses after

treatment

(kilogrammes) 426 545 605

Pharmaceuticals in the environment (PiE)Traces of pharmaceutical products end up in the envi-ronment, raising fears that they may later be found infood and water sources. This is usually due to normalpatient use, although manufacturing and improperdisposal also contribute. We offer retailers financialincentives to return unused or old products so we candiscard them properly. We analyse the risk of pharma-ceuticals entering the environment in our life-cycleapproach to product development, minimisingreleases where possible. Manufacturing sites aredesigned and operated to reduce active ingredientsentering wastewater.

Although current evidence suggests little presence ofPiE, we recognise the need for more research intolong-term effects. In 2009 we undertook a thoroughrisk assessment of the active ingredient oseltamivir(Tamiflu) being excreted into the environment duringheavy pandemic use. The assessment found no signifi-cant risk. Our 2008 position paper on PiE describesour aim to monitor risks and Roche is a member ofinternational and local bodies studying the impacts oftrace chemicals in surface and ground water.


http://www.roche.com/safety_health_and_environmental_protection.pdf

121

To the Corporate Sustainability Committee ofRoche Holding Ltd, Basel (‘Roche’).

We have performed assurance procedures to provide assuranceon the following aspects of the 2009 corporate responsibilityreporting of Roche.

Subject matterData and information disclosed in the corporate responsibilityreporting of Roche and its consolidated subsidiaries, excludingChugai Pharmaceutical Co., Ltd., for the business year endedDecember 31, 2009 on the following aspects:

The management and reporting processes with respect to•the corporate responsibility reporting and to the preparationof SHE and people key figures as well as the controlenvironment in relation to the data aggregation of thesekey figures;The SHE key figures in the tables on pages 114 to 120 and•some selected people key figures disclosed on pages 104to 111 of the Roche Annual Report 2009; andCompliance information concerning the compliance•functions, the compliance organisation and the managementof cases reported through the Roche Group SpeakUp Line,the latter with a focus on data privacy and protection ofindividual’s anonymity as disclosed on page 92 of the RocheAnnual Report 2009, excluding ethical incident data.

CriteriaThe Roche Group internal corporate responsibility reporting•guidelines based on the Responsible Care programmeHealth, Safety and Environmental Protection reportingguidelines published by the European Chemical IndustryCouncil CEFIC and the ‘Sustainability Reporting GuidelinesG3’ published on October 2006 by the Global ReportingInitiative (GRI); andThe defined procedures by which SHE and people key•figures are gathered, collated and aggregated internally.The Roche Group business principles, the internal Group•SpeakUp guidelines based on the directive on use ofRoche Group SpeakUp Line and good practice proceduresby which compliance functions and speak up lines aredesigned, managed and operated.

Responsibility and methodologyThe accuracy and completeness of corporate responsibility indi-cators are subject to inherent limitations given their nature andmethods for determining, calculating and estimating such data.Our assurance report should therefore be read in connectionwith Roche’s internal guidelines, definitions and procedures onthe reporting of its corporate responsibility performance.

Independent Assurance Report

The Roche Corporate Sustainability Committee is responsiblefor both the subject matter and the criteria. Our responsibility isto provide a conclusion on the subject matter based onour assurance procedures in accordance with the InternationalStandard on Assurance Engagements (ISAE) 3000.

Main assurance proceduresOur assurance procedures included the following work:

Evaluation of the application of Group guidelines • |Reviewing the application of the Roche internal corporateresponsibility reporting guidelines;Site visits • | Visiting selected sites of Roche’s Pharmaceuti-cals and Diagnostics Divisions in Switzerland, Germany,France, Spain, Italy and China. The selection was based onquantitative and qualitative criteria;Interviewing personnel responsible for compliance matters,internal corporate responsibility reporting and datacollection at the sites we visited and at the Group level todetermine the understanding and application of Rocheinternal corporate responsibility guidelines;Visiting the premises of People Intouch in Amsterdam.Interviews with People Intouch staff involved in design,implementation and operations of the SpeakUp solution.Assessment of the key figures • | Performing tests ona sample basis of evidence supporting selected SHE andpeople key figures (Roche accident rate, energy consump-

tion, CO2 emissions related to energy consumption, releaseof halogenated hydrocarbons, use of water, fines in relationto safety and environmental protection, headcount/FTE data,staff turnover, senior management positions and laborpractices information) concerning completeness, accuracy,adequacy and consistency;Review of the documentation and analysis of relevant •policies and basic principles | Reviewing the relevantdocumentation on a sample basis, including group sustain-ability policies, management and reporting structures anddocumentation.Assessment of the processes and data con solidation • |Reviewing the appropriateness of the management andreporting processes for corporate responsibility reporting;and Assessing the consolidation process of data at thegroup level.Assessment of speak-up processes and systems •(case management) | Walk through the speak up processby using a practical example and assessing the following:protection against unauthorised access; connections andprocesses to external service providers and externalbusiness partners; processes in place for administration,logging, monitoring and backup/restore all in relation to thedata privacy and anonymity.


122 Roche Business Report 2009 Independent Assurance Report

ConclusionsIn our opinion

The internal corporate responsibility reporting guidelines are•being applied properly;The internal reporting system to collect and aggregate SHE•and people key figures is functioning as designed andprovides an appropriate basis for its disclosure; andThe Roche Group SpeakUp Line systems and processes are•designed following good practice procedures with regard todata privacy and anonymity.

Based on our work described in this report and the assessmentof criteria, nothing has come to our attention that causes us tobelieve that the data and information mentioned in the subjectmatter and disclosed with the Sustainability Reporting inthe Roche Annual Report 2009, excluding ethical incident datadoes not give a fair picture of Roche’s performance.

Zurich, 19 January 2010PricewaterhouseCoopers AG

Dr Thomas Scheiwiller Stephan Hirschi

The Global Reporting Initiative sustainability reporting guidelines

With this years’ Annual Report we continue our approach ofaligning our sustainability reporting to the guidelines of theGlobal Reporting Initiative (GRI).

For the third time, Roche is of the opinion that the A+ levelof the GRI G3 guidelines applies to its Annual Report 2009.This was checked with and confirmed by the GRI.

Details of how we report against each indicator can be foundat www.roche.com/reporting_and_indices

Severin Schwan


Published byF. Hoffmann-La Roche Ltd4070 Basel, SwitzerlandTel. +41 (0)61 688 11 11Fax +41 (0)61 691 93 91

Media OfficeGroup Communications 4070 Basel, SwitzerlandTel. +41 (0)61 688 88 88Fax +41 (0)61 688 27 75

Investor Relations4070 Basel, SwitzerlandTel. +41 (0)61 688 88 80Fax +41 (0)61 691 00 14

World Wide Webwww.roche.com

Corporate Sustainability CommitteeTel. +41 (0)61 688 40 18E-mail: [email protected]

To order publicationsTel. +41 (0)61 688 83 39Fax +41 (0)61 688 43 43E-mail: [email protected]

Next Annual General Meeting:

2 March 2010

Cautionary statement regarding forward-looking statementsThis Annual Report contains certain forward-looking state-ments. These forward-looking statements may be identified by words such as ‘believes’, ‘expects’, ‘anticipates’, ‘projects’, ‘intends’, ‘should’, ‘seeks’, ‘estimates’, ‘future’ or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forward-looking statements contained in this Annual Report, among others: (1) pricing and product initiatives of competi-tors; (2) legislative and regulatory developments and eco-nomic conditions; (3) delay or inability in obtaining regulatory approvals or bringing products to market; (4) fluctuations in currency exchange rates and general financial market condi-tions; (5) uncertainties in the discovery, development or marketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, unexpected side effects of pipeline or marketed products; (6) increased government pricing pres-sures; (7) interruptions in production; (8) loss of or inability to obtain adequate protection for intellectual property rights; (9) litigation; (10) loss of key executives or other employees; and (11) adverse publicity and news coverage.

The statement regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Roche’s earnings or earnings per share for 2009 or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Roche.

All trademarks mentioned enjoy legal protection.

Links to third party pages are provided for convenience only. We do not express any opinion on the content of any third party pages and expressly disclaim any liability for all third party information and the use of it.

The Roche Annual Report is published in German and English.

Printed on non-chlorine bleached, FSC-certified paper.

The Roche Annual Report is issued by F. Hoffmann-La Roche Ltd, Basel, Group Communications.

The cover photograph shows a ribbon diagram of rituximab, the therapeutic protein at the heart of MabThera/Rituxan. This targeted bio-logic medicine is used to treat non-Hodgkin’s lymphoma, chronic lymphocytic leukemia and rheumatoid arthritis.

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Leading in biotechnology.Improving patient care.

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Table of Contents

Roche Group 2Finance in brief 2Finance — 2009 in brief 3Financial Review 4Roche Group Consolidated Financial Statements 30Notes to the Roche Group ConsolidatedFinancial Statements 36Report of Roche Management on Internal Control over Financial Reporting 125Report of the Statutory Auditoron the Consolidated Financial Statements 126Report of the Independent Auditoron Internal Control over Financial Reporting 128Multi-Year Overview and Supplementary Information 130Roche Securities 136

Roche Holding Ltd, Basel 138Financial Statements 138Notes to the Financial Statements 140including Board and Executive remuneration disclosures as required by Swiss Law 142Appropriation of Available Earnings 148Report of the Statutory Auditor on the Financial Statements 149

2 Roche Finance Report 2009 Roche Group — Finance in brief

Finance in brief

2009 2008 % change % of sales(mCHF) (mCHF) (CHF) (LC) 2009 2008

Sales 49,051 45,617 +8 +10

Research and development 9,874 8,845 +12 +12 20.1 19.4

Operating profit before

exceptional items 15,012 13,896 +8 +14 30.6 30.5

Operating free cash flow 15,722 12,378 +27 +34 32.1 27.1

Net income 8,510 10,844 –22 17.3 23.8

Net income attributable

to Roche shareholders 7,784 8,969 –13

Free cash flow 8,893 4,979 +79 18.1 10.9

Core EPS (CHF) 1) 12.19 11.04 +10 +20

Dividend per share 2) in CHF 6.00 5.00 +20

31 December 31 December % change2009 2008 (CHF)

Net cash (debt) (23,867) 16,682 –

Capitalisation 51,830 57,911 –11

— Debt 42,416 4,089 +937

— Equity 9,414 53,822 –83

1) See page 134 for definition of Core EPS.2) Proposed by the Board of Directors.LC = local currencies

Finance Executive Committee

Erich Hunziker Chief Financial Officer

Peter Eisenring Tax and Insurance

Marco Frei Pension Asset Management

Andreas Knierzinger Treasury

Karl Mahler Investor Relations

Carole Nuechterlein Venture Funds

Erwin Schneider Accounting and Controlling

Nigel Sheail Corporate Development

Pharmaceuticals +10.9

+4.7

2009

2008

Key results

Local sales growth %

36.3

36.1

Operating profit margin before exceptional items, % of sales

Diagnostics +8.7

+10.5

2009

2008

11.9

12.3

Group +10.5

+5.9

2009

2008

30.6

30.5

3Roche Finance Report 2009Finance — 2009 in brief

Finance — 2009 in brief

Sales• Group sales increased by 10% in local currencies to 49.1 billion Swiss francs. Excluding Tamiflu sales

the increase was 5% in local currencies.• Pharmaceuticals sales increased by 11% in local currencies or 3.0 billion Swiss francs, almost twice the

global market growth thanks to virology, in particular Tamiflu, the key oncology products and Lucentis in ophthalmology. This was achieved in spite of the reduction in CellCept sales due to the patent expiry inthe United States.

• Tamiflu sales grew sharply by 2.6 billion Swiss francs to 3.2 billion Swiss francs driven by the currentpandemic A (H1N1) 2009 influenza virus (‘swine flu’) outbreak.

• Diagnostics sales increased by 9% in local currencies to 10.1 billion Swiss francs, driven by sales growth inProfessional Diagnostics and Diabetes Care. This was more than twice the estimated IVD market growth rate.

Operating results• Operating profit before exceptional items increased by 14% in local currencies to 15.0 billion Swiss francs

thanks to strong sales growth and continuing productivity improvements, which more than covered increasedinvestments in research and development.

• Operating profit margin before exceptional items and at constant exchange rates increased by 1.0 percentagepoints, with increases of 1.2 percentage points in the Pharmaceuticals Division and 0.4 percentage pointsin the Diagnostics Division. Exchange rates had an unfavourable impact of approximately 1 percentage pointon Group, Pharmaceuticals and Diagnostics margins.

• Research and development expenditure increased 12% in local currencies to 9.9 billion Swiss francs,representing 20.1% of Group sales, due mainly to continued investment in the strong late-stage pipeline.

• Effective 26 March 2009 Roche obtained full ownership of Genentech for a total cash consideration of 47.0 bil-lion US dollars or 52.7 billion Swiss francs. Exceptional restructuring costs of 2.4 billion Swiss francs wereincurred in respect of the integration of Genentech and related restructuring in the Pharmaceuticals Division,notably of manufacturing operations.

Treasury• As a consequence of the Genentech transaction, the Group’s treasury results changed significantly

during 2009, with the net financial result being an expense of 1.7 billion Swiss francs, primarily drivenby the higher interest expenses.

• Of the 48.2 billion Swiss francs bond and notes issued in early 2009 to finance the Genentech transaction,6.9 billion Swiss francs already repaid in the second half of 2009.

Financial condition• Strong financial condition with free cash flow of 8.9 billion Swiss francs, up 79% from 2008.• Swing of 40.6 billion Swiss francs from a net cash position of 16.7 billion Swiss francs at 31 December 2008

to a net debt position of 23.9 billion Swiss francs at 31 December 2009 to finance the Genentech transaction.• Following the Genentech transaction Moody’s lowered Roche’s rating to A2 from Aa1 and Standard & Poor’s

lowered Roche’s rating to AA– from AA+.

Net income and Core EPS• Net income decreased by 22% to 8.5 billion Swiss francs, primarily driven by the exceptional items relating

to the Genentech transaction and the restructuring of the Pharmaceuticals manufacturing operations. DilutedEPS decreased by 12%, less than the decrease in net income due to the positive impact of 100% ownershipof Genentech.

• The Genentech transaction was accretive with net income attributable to Roche shareholders (beforeexceptional items) increasing 9% to 9.8 billion Swiss francs.

• Core EPS was 20% higher at constant exchange rates and 10% higher in Swiss francs.

Shareholder return• Increase in Total Shareholder Return (TSR), i. e. share price growth plus dividends, of +12% combined

performance of share and non-voting equity security.• Increase in proposed dividend of 20% to 6.00 Swiss francs, representing the 23rd consecutive year

of dividend growth.• If approved by shareholders, this will result in an increased payout ratio of 53% and a higher dividend yield

on Roche shares of 3.3% and on non-voting equity securities of 3.4%, based on year-end prices.

4 Roche Finance Report 2009 Roche Group — Financial Review

Roche Group

Financial Review

Group operating results

In 2009 the Group continued its strong operating performance from previous years with a significant positivecontribution from increased Tamiflu sales. The Group maintained the planned investments in research anddevelopment and completed the transaction to take full ownership at Genentech while making significantprogress on the related integration and restructuring activities. Total sales grew by 10% in local currencies(8% in Swiss francs; 7% in US dollars) to 49.1 billion Swiss francs, with the Pharmaceuticals Divisionrepresenting 80% of Group sales and the Diagnostics Division contributing 20%. Demand for medicinesfrom the Group’s oncology franchise remained strong with Avastin, Herceptin, MabThera/Rituxan, Tarcevaand Xeloda all contributing to an overall 8% growth. Additional major growth drivers in the PharmaceuticalsDivision were Tamiflu in virology and Lucentis in ophthalmology. Mircera showed steady sales developmentin Western Europe and Actemra/RoActemra continued with strong growth in Japan and was launched inseveral countries in Western Europe and in other markets. These positive factors offset the reduction in salesfollowing expiry of the US patent for CellCept. In the Diagnostics Division the main growth areas wereProfessional Diagnostics and Diabetes Care. Tissue Diagnostics continued to show strong sales increases.Sales growth in both divisions exceeded market growth.

The Group’s operating profit before exceptional items increased by 14% in local currencies (8% in Swissfrancs), well above sales growth of 10%, reflecting the Group’s focus on cost management as well as top linegrowth. The Pharmaceuticals Division increased its operating profit before exceptional items by 15% in localcurrencies, driven by strong sales growth of 11% combined with overall under-proportionate growth in costs.Research and development expenses grew by 13% in local currencies, reflecting investment in the Group’sstrong late-stage pipeline, including promising compounds such as dalcetrapib, taspoglutide, pertuzumab andT-DM1. The rise in R & D expenses was also driven by higher impairments of intangible assets. At 302 millionSwiss francs, these were 203 million Swiss francs higher than in 2008, primarily as a result of recent clinicaldata, technology assessments and portfolio prioritisation decisions. Operating profit growth in the DiagnosticsDivision was 12% in local currencies, with the main factors being sales growth, tight cost managementand the absence of the accounting impact of last year’s acquisition of Ventana. At constant exchange rates,the Group’s operating profit margin before exceptional items increased by 1.0 percentage points, with thePharmaceuticals Division improving by 1.2 percentage points and the Diagnostics Division by 0.4 percentagepoints. When translated into Swiss francs however, the Group’s operating profit margin before exceptionalitems increased only slightly by 0.1 percentage points to 30.6%, due to a particularly unfavourable combina-tion of exchange rate movements (see tables and further analysis on pages 18—19).

2009

2008

2007

+10.5

+5.9

+10.2

Sales | in billions of CHF

% LC growth

0 10 20 30 40 50

30.6

30.5

31.4

Operating profit before exceptional items | in billions of CHF

% of sales

0 5 10 15 20

5

The Group’s operating free cash flow increased strongly by 34% in local currencies (27% in Swiss francs)to 15.7 billion Swiss francs following the improved results of the business and the absence in 2009 of the netcash outflows associated with Genentech’s stock option plans in 2008.

The Pharmaceuticals Division incurred exceptional operating expenses of 2.4 billion Swiss francs relatingto the Genentech transaction and the restructuring of the Pharmaceuticals Division, notably in manufacturingoperations. There was also an increase in provisions for major legal cases. The comparative periodcontained exceptional operating income of 271 million Swiss francs from litigation settlement at Genentechand expenses of 243 million Swiss francs from the initial stages of Pharmaceuticals Division reorganisation.This swing of 2.8 billion Swiss francs in exceptional items in total led to a decline of the Group’s operatingprofit of 12% in Swiss francs and 5% in local currencies. Non-cash items account for 1.8 billion Swiss francs of the exceptional operating expenses, relating mainly to the impairments of manufacturing sitesannounced in the first half of 2009.

Group operating results for 2009

Pharmaceuticals Diagnostics Corporate Group(mCHF) (mCHF) (mCHF) (mCHF)

Sales 38,996 10,055 – 49,051

Operating profit before exceptional items 14,154 1,198 (340) 15,012

— margin, % of sales 36.3 11.9 – 30.6

Operating free cash flow 14,923 1,152 (353) 15,722

— margin, % of sales 38.3 11.5 – 32.1

Group operating results — Development of results compared to 2008

Pharmaceuticals Diagnostics Corporate Group

Sales

— % increase in local currencies +11 +9 – +10

Operating profit before exceptional items

— % increase in local currencies +15 +12 +30 +14

— margin: percentage point increase +0.2 –0.4 – +0.1

Operating free cash flow

— % increase in local currencies +30 +102 +31 +34

— margin: percentage point increase +4.8 +5.3 – +5.0

Pharmaceuticals operating resultsThe Pharmaceuticals Division increased its sales by 11% in local currencies (8% in Swiss francs; 8% inUS dollars) to 39.0 billion Swiss francs, almost double the global market growth. Operating profit beforeexceptional items was 14.2 billion Swiss francs. At constant exchange rates, the operating profit marginincreased by 1.2 percentage points due to sales growth and overall lower cost growth, in spite of significantlyincreased research and development expenses, including impairment charges, and lower gains from productdisposals. When translated in Swiss francs however, the margin increased only by 0.2 percentage pointsto 36.3%, due to a particularly unfavourable combination of exchange rate movements (see tables and furtheranalysis on pages 18—19). At constant exchange rates, in the first half of 2009 the margin increased by2.9 percentage points year-on-year, followed by a reduction of 0.3 percentage points in the second half of2009. This reduction was primarily driven by accelerated R & D growth including impairments of intangibleassets in the second half, which accounted for a negative swing of 1.5 percentage points.


Marketing costs increased only moderately in local currencies while still promoting the growing oncologyand rheumatoid arthritis portfolios. Investments were made in broader indications, particularly for Avastin,as well as for the launch of Actemra/RoActemra in Western Europe and some other countries. The strongincrease in research and development expenses, significantly above the increase in sales, was due tocontinued high investments in the strong pipeline and expanded portfolio, the large number of late-stageclinical trials and impairment of intangible assets.

For more information on the divisional business and its pipeline, see the Business Report (Part 1 of thisAnnual Report).

Pharmaceuticals Division results

2009 2008 % change % change(mCHF) (mCHF) (CHF) (local currencies)

Sales 38,996 35,961 +8 +11

Royalties and other operating income 1,948 2,148 –9 –10

Cost of sales (9,535) (8,963) +6 +6

Marketing and distribution (6,964) (6,696) +4 +6

Research and development (8,896) (7,904) +13 +13

General and administration (1,395) (1,572) –11 –11


exceptional items 14,154 12,974 +9 +15

— margin, % of sales 36.3 36.1 +0.2 +1.2

Operating free cash flow 14,923 12,053 +24 +30

— margin, % of sales 38.3 33.5 +4.8 +5.7

SalesThe major growth drivers were strong Tamiflu sales in the virology therapeutic area, key products in oncologyand Lucentis in ophthalmology. Sales in the renal anemia therapeutic area remained stable in an increasinglycompetitive, cost-sensitive market. Sales in inflammation/autoimmune/transplantation declined by 6% dueto the expected negative impact of the CellCept patent expiry in the United States. This was partly offset bythe continued success of MabThera/Rituxan in rheumatoid arthritis and also by continued strong growthof Actemra/RoActemra in Japan and, post-launch, in several markets of Western Europe and elsewhere.Sales in the metabolism/bone portfolio declined by 4%, mainly due to lower Bonviva/Boniva sales in the USfollowing generic competition and a decline in the bisphosphonate market.

Pharmaceuticals Division — Sales by therapeutic area for 2009

Sales % changeTherapeutic area (mCHF) % of sales (local currencies)

Oncology 20,740 53 +8

Virology 5,932 15 +79

Inflammation/Autoimmune/Transplantation 2,955 8 –6

Metabolism/Bone 2,666 7 –4

Renal anemia 1,318 3 0

Others 5,385 14 –1

Total 38,996 100 +11

In 2009 the Top 20 Pharmaceuticals products, which represented 88% of the Pharmaceuticals portfolio,grew 14% with the majority of products showing sales growth. Besides Tamiflu, the local sales growth of thePharmaceuticals Division was primarily came from eight products: Avastin, Herceptin, MabThera/Rituxan,Lucentis, Mircera, Tarceva, Activase/TNKase and Actemra/RoActemra. These eight products represent 53%of the portfolio (2008: 52%; 2007: 46%) and together generated over 2.0 billion Swiss francs of additionalsales compared to 2008. Sales of CellCept declined due to the patent expiry in the United States in May2009. Other sales declines were primarily due to generic erosion following patent expiry, strong competitionin certain franchises and product disposals as well as the voluntary withdrawal of Raptiva in the US. Thesewere partly compensated for by steady growth and launch impacts of Mircera and Actemra/RoActemra.

7

Pharmaceuticals Division — Sales of Top 20 products for 2009

Sales % changeProduct (mCHF) % of sales (local currencies) Franchise

Avastin 6,222 16 +21 Oncology

MabThera/Rituxan 6,087 16 +6 Oncology/IAT 1)

Herceptin 5,266 14 +8 Oncology

Tamiflu 3,200 8 +435 Virology

Pegasys 1,655 4 +5 Virology

CellCept 1,576 4 –22 IAT 1)

NeoRecormon/Epogin 1,560 4 –11 Renal anemia, Oncology

Tarceva 1,304 3 +10 Oncology

Xeloda 1,260 3 +7 Oncology

Lucentis 1,198 3 +24 Ophthalmology

Bonviva/Boniva 1,058 3 –2 Metabolism/Bone

Xolair 620 2 +10 Respiratory diseases

Valcyte/Cymevene 564 1 +6 Virology

Pulmozyme 501 1 +5 Respiratory diseases

Activase/TNKase 455 1 +34 Cardiovascular diseases

Nutropin 400 1 –3 Metabolism/Bone

Xenical 397 1 –13 Metabolism/Bone

Neutrogin 385 1 –14 Oncology

Rocephin 307 1 –9 Infectious diseases

Madopar 286 1 –2 Nervous System

Total Top 20 products 34,301 88 +14

Other products 4,695 12 –9

Total 38,996 100 +11

1) Inflammation/Autoimmune/Transplantation.

Avastin | Sales rose 21% to 6.2 billion Swiss francs in 2009. Sustained growth in all regions was drivenprimarily by continued uptake in colorectal, breast and lung cancer. In the United States sales growth camemainly from use in advanced breast cancer and the new indications in glioblastoma and kidney cancer,while high penetration rates were maintained in established indications such as lung and colorectal cancer.Sales in Japan (+74%), where Avastin is approved for advanced colorectal and non-small cell lung cancer,remain particularly strong.

MabThera/Rituxan | Overall sales rose 6% to 6.1 billion Swiss francs. Growth in the oncology segmentwas driven by the uptake in chronic lymphocytic leukemia following approvals in the EU during the year.Lower sales growth in the US (3%) reflects the high levels of adoption in the product’s cancer indications.Increased sales in the rheumatoid arthritis (RA) segment are due to increasing and earlier use of MabThera/Rituxan in patients with an inadequate response to one or more tumour necrosis factor (TNF) inhibitors.MabThera/Rituxan is well established as the medicine of choice following the inadequate response to TNFinhibitor treatment and is currently the market leader in that segment in the EU. An estimated 900 millionSwiss francs of sales were generated in the RA indication, representing 15% of overall product sales.

Herceptin | Sales of Herceptin increased 8% to 5.3 billion Swiss francs in 2009, driven by continued uptakein early breast cancer, especially in Japan (+25%) and a number of emerging markets as well as increasingmarket penetration in Eastern Europe. Moderate sales growth in the US and Western Europe reflects the highmarket penetration achieved in both early and advanced breast cancer in these regions.


Tamiflu | Global sales of the anti-influenza medicine Tamiflu totalled 3.2 billion Swiss francs in 2009,an increase of 2.6 billion Swiss francs, or over 400%, on last year. This very high growth was driven byunprecedented demand from governments and in the retail pharmacy sector following the pandemicA (H1N1) 2009 influenza virus (‘swine flu’) outbreak, which began in April 2009 and spread rapidly acrossthe world. Sales for pandemic stockpiling amounted to 1.9 billion Swiss francs. Roche is co-operating closelywith the World Health Organization and governments worldwide to support pandemic preparedness andsupply Tamiflu to all patients in need.

Pegasys | In 2009 sales of Pegasys rose 5% to 1.7 billion Swiss francs. Growth was driven by market-sharegains in major markets.

CellCept | Sales of CellCept for the prevention of solid organ transplant rejection decreased 22% comparedwith 2008 to 1.6 billion Swiss francs. As expected, sales in the United States, the product’s largest market,fell sharply year-on-year after the first quarter as a result of the expiry of the product’s US patent in May 2009.The continuing erosion of US sales through generic competition is being offset to some extent by continuedsolid growth elsewhere, particularly in Latin America and Japan.

NeoRecormon/Epogin | Combined sales of Roche’s NeoRecormon and Chugai’s Epogin (epoetin beta)were down 11% compared to 2008. The decline in NeoRecormon sales of 14%, primarily driven by WesternEurope, was mainly due to increased price pressure as new biosimilars enter the market. The slight declinein sales of Epogin in Japan (down 1%) reflects stabilisation of the product’s market share in the dialysissegment and continued expansion in the predialysis setting.

Tarceva | Sales increased by 10% reflecting the growing use of the medicine in second-line non-small celllung cancer outside the US and in metastatic pancreatic cancer, with the main sales contributions comingfrom the United States and Western Europe. The more modest growth in US sales reflects stable penetrationin NSCLC and pancreatic cancer, the competitive environment and reserve adjustments taken during theyear for government programmes involving discounts.

Xeloda | Overall sales rose 7% to 1.3 billion Swiss francs coming primarily from growth in the UnitedStates, Japan and China. Growth came from the use of the medicine in metastatic breast cancer, adjuvantcolon cancer and metastatic colorectal cancer.

Lucentis | US sales of Lucentis, for wet age-related macular degeneration (AMD), increased 24% to 1.2 billion Swiss francs compared to 2008. Strong growth was driven primarily by an increase in the numberof injections administered to patients in the first and second years of treatment, growth in the numberof patients treated for wet AMD and easier reimbursement.

Bonviva/Boniva | In a highly competitive market, sales of Bonviva/Boniva (ibandronic acid) for the treatmentof postmenopausal osteoporosis declined by 2% compared to 2008. The decline was driven by the US,down 16% due to generic competition and a decline in the bisphosphonate market. Sales in the WesternEurope and International (Asia—Pacific, CEMAI, Latin America, Canada and Others) regions increasedby 12% and 33% respectively.

Mircera | In a highly competitive, price-sensitive market, sales of the renal anemia medication Mircera showedconsistent growth throughout 2009, rising 252% to 179 million Swiss francs. Sales growth was due primarilyto the success of the product in the predialysis segment.

Actemra/RoActemra | Following EU marketing approval in January 2009 of the novel rheumatoid arthritis(RA) medicine RoActemra (known as Actemra outside Europe), by the end of the year the medicine had beenlaunched in ten EU countries, including Germany, France, Spain and the United Kingdom. Sales uptake in theinitial European launch markets has been strong. Launches also took place in additional markets, includingSwitzerland, India and Brazil. Global sales rose 289% to 146 million Swiss francs. In Japan, where Actemrahas been approved for RA in adults and for related pediatric indications since April 2008, adoption andmarket penetration are progressing well, with doctors already prescribing the medicine as a first-line biologictreatment for many patients. Sales in Japan amounted to 98 million Swiss francs, an increase of 146%.

9

See the Business Report (Part 1 of this Annual Report) for more information on Roche’s pharmaceuticalproducts.

Sales by region | Sales continued to grow across all regions. Growth in the United States was 5%, in linewith local market growth, with the success of the oncology products, Tamiflu and Lucentis, covering forthe patent expiry of CellCept, the voluntary withdrawal of Raptiva, and reductions in sales of Bonviva/Bonivadue to pricing pressure caused by increased competition. The Pharmaceuticals Division continued to gainmarket share in the Western Europe, CEMAI and Asia—Pacific regions, driven by further strong sales growthof Tamiflu, Avastin, Herceptin, MabThera/Rituxan, Mircera, Tarceva, Bonviva/Boniva and Pegasys. Sales inJapan increased strongly due to high Tamiflu sales, as well as the success of Avastin, Herceptin and Actemrawhich more than compensated for lower Neutrogin sales. Total Tamiflu sales increased strongly, particularlyin Western Europe, Japan and other markets, due to government and corporate pandemic stockpiling.There were also higher seasonal sales resulting from increased demand following pandemic A (H1N1) 2009influenza virus cases in many countries.

Pharmaceuticals Division — Sales by region for 2009

Sales % changeRegion (mCHF) % of sales (local currencies)

United States 14,805 38 +5

Western Europe 10,827 28 +12

Japan 4,765 12 +29

CEMAI 1) 3,270 8 +13

Latin America 2,331 6 +7

Asia—Pacific 1,944 5 +20

Other regions 1,054 3 +12

International 8,599 22 +13

Total 38,996 100 +11

1) Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

Operating resultsRoyalties and other operating income | The decline of 200 million Swiss francs or 10% in local currencieswas in particular due to 268 million Swiss francs lower gains on disposal of products, which were only partlyoffset by higher royalty income and income from out-licensing agreements. The decline in gains from disposalof products was mainly due to some significant product disposals in 2008 totalling 494 million Swiss francs,notably for Meda and Actavis. Gains from disposal of products in 2009 of 226 million Swiss francs are allpart of the continuous realignment of the product portfolio and mainly relate to the divestment of some tailproducts in Latin America. The increase in out-licensing income was mainly driven by two significant milestonepayments from GlaxoSmithKline, one for 84 million Swiss francs related to orlistat OTC approval by the EUand the other one for 81 million Swiss francs for Bonviva/Boniva. Royalties and other operating income aspercentage of sales decreased by 1.0 percentage points to 5.0%.

Pharmaceuticals Division — Royalties and other operating income

2009 2008 % change(mCHF) (mCHF) (local currencies)

Royalty income 1,280 1,234 +3

Income from out-licensing agreements 442 420 +3

Income from disposal of products and other 226 494 –53

Total 1,948 2,148 –10


Cost of sales | Costs increased by 6% in local currencies driven by a 11% rise in manufacturing cost ofgoods sold and period costs. This increase was in line with sales growth, with efficiency gains in productionoffsetting unfavourable product mix impacts and an inventory write-off of 141 million Swiss francs followingthe voluntary withdrawal of Raptiva from the US market. Royalty expenses increased by 13% to 2,331 millionSwiss francs (2008: 2,105 million Swiss francs) mainly due to royalty expenses on higher Tamiflu sales.Expenses for collaboration and profit-sharing agreements increased by 2% in local currencies mainly dueto Genentech’s payments of 1,417 million Swiss francs (2008: 1,330 million Swiss francs) to Biogen Idec,Novartis and OSI in respect of MabThera/Rituxan, Xolair and Tarceva. The expenses for the profit-sharingarrangement with GlaxoSmithKline decreased by 12% in local currencies due to lower Bonviva/Bonivasales in the United States and reached 407 million Swiss francs (2008: 462 million Swiss francs). Amortisationof intangible assets decreased by 55% in local currencies as some intangible assets became fully amortisedduring 2009. As a percentage of sales, cost of sales decreased by 0.5 percentage points to 24.4% (2008:24.9%).

Pharmaceuticals Division — Cost of sales


Manufacturing cost of goods sold and period costs (5,008) (4,463) +11

Royalty expenses (2,331) (2,105) +13

Collaboration and profit-sharing agreements (1,948) (1,908) +2

Restructuring expenses (1) – –

Amortisation of intangible assets (221) (477) –55

Impairment of property, plant and equipment (26) (10) +150

Impairment of intangible assets – – –

Total (9,535) (8,963) +6

Marketing and distribution | Costs increased moderately by 6% in local currencies and reached 7.0 billionSwiss francs (2008: 6.7 billion Swiss francs) with the focus on the oncology portfolio and the rollout ofadditional approved indications of Avastin. High levels of investment continued in Pegasys and there werelaunches of Actemra/RoActemra in rheumatoid arthritis. Additionally further investments were focussedon emerging markets. Marketing and distribution costs as a percentage of sales decreased by 0.7 percentagepoints to 17.9% (2008: 18.6%).

Research and development | The significant increase of 13% in local currencies to 8.9 billion Swiss francsreflects investment in Roche’s strong later-stage pipeline, including promising compounds such as dalcetrapib(CETP inhibitor for dyslipidemia), taspoglutide (GLP-1 analogue for type 2 diabetes), pertuzumab and T-DM1(both for HER2-positive breast cancer). Moreover impairments of intangible assets increased by 203 millionSwiss francs compared to the comparative period. The 302 million Swiss francs impairment of intangibleassets, 0.8 percent of sales, relates primarily to decisions to discontinue projects due to recent clinical data,technology assessments and portfolio prioritisation. Research and development costs as a percentageof sales were 22.8% compared to 22.0% in 2008 and 21.2% in the first half of 2009. The division spent196 million Swiss francs on the in-licensing of pipeline compounds and technologies, which are capitalisedas intangible assets as required by IFRS. Excluding impairment and amortisation charges, the divisionspent 8.8 billion Swiss francs on internal and purchased R & D from in-licensing and other alliance deals,representing 22.5% of sales. In addition a further 48 million Swiss francs was spent on the acquisitionof Memory Pharmaceuticals.

11

Pharmaceuticals Division — Investments in research and development


Research and development expenses 8,896 7,904 +13

Less non-cash items

— Amortisation of intangible assets (32) (34) –8

— Impairment of intangible assets (302) (99) +206

Research and development expenses

excluding non-cash items 8,562 7,771 +11

Product intangibles — not available for use 183 363 –50

Technology intangibles 13 – –

Research and development related capital

expenditure 196 363 –46

Total investments in research and development 8,758 8,134 +8

General and administration | Overall costs decreased by 11% in local currencies, driven by loweradministration costs and the one-time effects of divestments in 2009 and 2008. Restructuring expenses andprovisions for legal and environmental matters increased. Overall general and administration expenses asa percentage of sales decreased to 3.6% from 4.4%.

Pharmaceuticals Division — General and administration


Administration (1,294) (1,497) –13

Legal and environmental settlements (96) (1) over 1,000

Business combinations (8) (8) +8

Gains (losses) on divestment of businesses 11 (46) –

Restructuring expenses (43) (32) +29

Gains (losses) on disposal of property,

plant and equipment (1) (7) –87

Other general items 36 19 +65

Total (1,395) (1,572) –11

Exceptional itemsMajor legal cases | Provisions for major legal cases increased by 320 million Swiss francs, based onmanagement’s current estimates of the ultimate liabilities that are expected to arise, taking into account thedevelopment of the various litigation and arbitration processes and any negotiations to resolve thesecases. In 2008 income of 271 million Swiss francs was recorded from the release of a provision followingthe 24 April 2008 California Supreme Court decision in the City of Hope litigation. Additional informationis given in Note 25 to the Consolidated Financial Statements.

Changes in Group organisation | Effective 26 March 2009 the Group obtained full-ownership of Genentechand further continued the implementation of the reorganisation of the Group’s US Pharmaceuticals businessannounced on 21 July 2008. Subsequently, the Group commenced a restructuring of its Pharmaceuticalsmanufacturing operations, particularly in the biotech network. During 2009 expenses of 2,415 million Swissfrancs were incurred, mainly in connection with the discontinuation of a construction project at the manu-facturing site at Vacaville, California, termination costs for the closure of manufacturing operations at Nutley,New Jersey, and the research and development site at Palo Alto, California. In addition costs were incurredfollowing the reorganisation including the transfer of the research operations from Palo Alto to Nutley andthe transfer of commercial operations from Nutley to South San Francisco. Approximately 1.8 billion Swissfrancs of the exceptional operating expenses are non-cash items which relate mainly to impairments ofmanufacturing sites. Additional information is given in Note 8 to the Consolidated Financial Statements.


The Group currently anticipates that these restructuring activities will be substantially completed by theend of 2010. The total cost is expected to be in the order of 3.4 billion Swiss francs, which includes 243 mil-lion Swiss francs that were incurred in 2008. Approximately 2.2 billion Swiss francs of this total is non-cash.The carrying value of property, plant and equipment was reduced by 1.2 billion Swiss francs by the end of2009, and is anticipated to be reduced by approximately 1.5 billion Swiss francs in total by the end of 2010,mostly relating to manufacturing facilities.

Pharmaceuticals Division — Total operating results


Operating profit before exceptional items 14,154 12,974 +15

Major legal cases (320) 271 –

Changes in Group organisation (2,415) (243) +876

Operating profit 11,419 13,002 –6

Operating free cash flowThe Pharmaceuticals Division continued to generate a strong cash flow. Operating free cash flow increasedby 30% in local currencies driven by the excellent operating performance. Operating profit cash adjustmentsincreased mainly due to the 1.8 billion Swiss francs non-cash element of changes in Group organisation.Furthermore, non-cash provision expenses exceeded provision payments by 781 million Swiss francs in 2009,while in 2008 provision payments exceeded non-cash provision expenses by 542 million Swiss francs, mainlyas 476 million US dollars were paid by Genentech from existing provisions to settle litigation. Net workingcapital decreased by 669 million Swiss francs in 2009. The main factor was higher accounts payable dueprimarily to deferred income from prepaid Tamiflu consignment deliveries and increased royalty payables toGilead with respect to Tamiflu. Overall inventory levels decreased slightly in absolute terms, and as a percent-age of sales inventories decreased by 2 percentage points in constant currencies to 10.5%, with operationalinitiatives reducing average product inventory on hand, especially for the biologic products. Accountsreceivable increased by 6% in local currencies, which was under-proportional to sales growth. As a percent-age of sales, accounts receivable dropped by 1 percentage point in constant currencies to 20.0%. Overallcapital expenditure was lower than in 2008. As a percentage of sales, operating free cash flow of the Pharma-ceuticals Division increased to 38.3% compared to 33.5% in 2008.

Pharmaceuticals Division — Operating free cash flow

2009 2008(mCHF) (mCHF)

Operating profit 11,419 13,002

— Depreciation, amortisation and impairment 3,214 1,652

— Provisions 781 (542)

— Equity compensation plans 587 302

— Other 269 84

Operating profit cash adjustments 1) 4,851 1,496

(Increase) decrease in net working capital

— Accounts receivable (575) (587)

— Inventories 157 38

— Accounts payable 1,120 530

— Other (33) 4

Total (increase) decrease in net working capital 669 (15)

Investments in property, plant and equipment (1,789) (2,021)

Investments in intangible assets (227) (409)

Operating free cash flow 14,923 12,053

— as % of sales 38.3 33.5

1) Operating profit cash adjustments include the elimination of depreciation, amortisation and impairment charges and the replacementof the operating income/expenses for provisions, equity compensation plans and disposals of property, plant and equipment andintangible assets with their cash equivalents. A detailed breakdown is provided on page 135.

13

Diagnostics operating resultsThe Diagnostics Division increased sales to 10.1 billion Swiss francs in 2009, growing 9% in local currencies(4% in Swiss francs; 4% in US dollars). This growth was more than twice the estimated in-vitro diagnosticsmarket rate, thereby strengthening the division’s leading market share of around 20%. The operating profitincreased by 12% in local currencies and by 1% in Swiss francs to 1,198 million Swiss francs, driven bythe sales growth, tight cost management and the significant one-off expense items in 2008 including thoserelating to the Ventana acquisition. At constant exchange rates, the operating profit margin increasedby 0.4 percentage points. When translated in Swiss francs however, the margin decreased slightly by 0.4 percentage points to 11.9%, due to a particularly unfavourable combination of exchange rate movements(see tables and further analysis on pages 18—19). At constant exchange rates, the margin increased by2.3 percentage points in the first half of 2009 compared to 2008, followed by a reduction of 1.3 percentagepoints in the second half of 2009 compared to 2008. Continual improvements in operational efficiency couldnot fully compensate the impact of impairment of intangible assets and additional royalty expenses, whichaccounted for a negative swing of 1.8 percentage points in the second half of 2009. Ongoing initiatives toimprove operational efficiency include simplifying core processes, consolidation of service functions and theestablishment of regional call centres, combined with the streamlining of product portfolios and intensifiedphase out of old and low-selling products.

For more information on the divisional business and its pipeline, see the Business Report (Part 1 of thisAnnual Report).

Diagnostics Division results

2009 2008 % change % change(mCHF) (mCHF) (CHF) (local currencies)

Sales 10,055 9,656 +4 +9

Royalties and other operating income 152 139 +9 +10

Cost of sales (5,080) (4,698) +8 +12

Marketing and distribution (2,511) (2,474) +1 +5

Research and development (978) (941) +4 +5

General and administration (440) (495) –11 –9

Operating profit 1,198 1,187 +1 +12

— margin, % of sales 11.9 12.3 –0.4 +0.4

Operating free cash flow 1,152 600 +92 +102

— margin, % of sales 11.5 6.2 +5.3 +5.6

SalesThe Diagnostics business continued to grow at more than twice the market rate with an increase of 9% inlocal currencies over 2008. Major drivers were Professional Diagnostics with 9% sales growth, leveragedby Immunodiagnostics, and Diabetes Care with 6% sales growth through sales of Accu-Chek blood glucosemonitoring systems. Sales in Molecular Diagnostics increased by 5% driven by virology and blood screeningproducts. Applied Science sales grew by 15% in particular due to sales of systems and reagents for nucleicacid purification and PCR analysis. Sales of Tissue Diagnostics totalled 480 million Swiss francs driven bysales in the advanced tissue staining market. On a comparable year-on-year basis, sales in Tissue Diagnosticsrose 21% in local currencies.

Diagnostics Division — Sales by business area for 2009

Sales % changeBusiness area (mCHF) % of sales (local currencies)

Professional Diagnostics 4,553 45 +9

Diabetes Care 2,969 29 +6

Molecular Diagnostics 1,183 12 +5

Applied Science 870 9 +15

Tissue Diagnostics 480 5 +29

Total 10,055 100 +9


Professional Diagnostics | Sales grew at roughly twice the market rate, rising 9% to 4,553 million Swissfrancs. The immunoassay business gained additional market share on sales growth of 19%, due mainlyto new placements of the cobas modular analysers, especially the cobas 6000, and strong sales of assaysfor cardiac markers and hepatitis C virus. Clinical chemistry sales rose 4%, in line with growth in this moremature market. The cobas 8000 modular analyser series for high-throughput laboratories received CE Markcertification in August. The rollout of this new flagship serum work area platform commenced with the high-speed c701 and c502 clinical chemistry modules, now available in several configurations in the EU andother markets recognising CE Marking. Four cobas 8000 clinical chemistry and immunoassay modules willbe available worldwide offering 38 customisable configurations by the end of 2010.

Diabetes Care | Sales rose 6% to 2,969 million Swiss francs. Sales of blood glucose (BG) monitoringsystems continued to show growth that was significantly above the market, which has been impacted bythe economic downturn, particularly in the US. Accu-Chek Aviva and Accu-Chek Performa remained the primary growth drivers, helped by the recently launched Accu-Chek Aviva and Performa Nano meters.The first strip-free monitoring system, the Accu-Chek Mobile, launched in nine markets, experienced excellentmarket uptake. Insulin delivery systems posted strong growth, helped by uptake of the new Accu-ChekCombo interactive insulin pump/BG meter combination which was launched in nine key markets in 2009.Promising preliminary results from the Accu-Chek 360° View Outcome study were presented at the recentEuropean Diabetes Congress. They suggest that new diabetes management concepts employing structuredBG testing can contribute to improved glycemic control and medical outcome in non-insulin-dependentpatients with type 2 diabetes.

Molecular Diagnostics | Sales rose 5% to 1,183 million Swiss francs. Blood screening was the primarygrowth driver, with sales up 8%, slightly ahead of the market for the period, due to new contracts in Spain,Portugal, Thailand and competitive gains in the UK. The unit maintained its leadership in virology with 4%sales growth. In December Molecular Diagnostics launched the new, fully automated cobas 4800 system inmarkets accepting CE Mark certification. The menu currently comprises tests for Chlamydia trachomatis (CT)and Neisseria gonorrhoeae (NG), and a screening test for human papillomavirus (HPV) that simultaneouslyidentifies the high-risk genotypes 16 and 18.

Applied Science | Sales totalled 870 million Swiss francs, an above-market increase of 15% over last year.The MagNA Pure and LightCycler systems (nucleic acid purification and PCR analysis) were the largestcontributors to growth (35%), helped by strong demand for instruments and reagents for pandemic influenzatesting and surveillance. The RealTime pandemic A (H1N1) 2009 influenza virus test, launched for researchuse in May 2009, just weeks after the new virus was detected, has generated strong sales. The US Food andDrug Administration (FDA) granted Emergency Use Authorization (EUA) of the kit in November, making itavailable for clinical use in certified labs in the US. Sales of DNA sequencing reagents were up 26%, butoverall sales of DNA sequencing systems were flat due to the economic downturn and the resulting declinein research funding, notably in the US.

Tissue Diagnostics | Sales totalled 480 million Swiss francs, a 29% increase over the eleven months’ salesconsolidated in 2008 following the Ventana acquisition in February of that year. On a comparable year-on-yearbasis, sales rose 21%, significantly outpacing the market, due to leveraging the existing Roche infrastructureto cover previously under-served markets. Advanced tissue staining remained the primary growth driver,with reagents for immunohistochemistry (IHC) testing and advanced staining instruments like the BenchMarkUltra fuelling robust 27% growth in this segment. In the high-volume primary staining market sales wereup 39%, driven by the automated Symphony system and reagents for hematoxylin/eosin staining. During 2009the business area launched 17 new IHC reagents for use in helping to diagnose various cancers, includingleukemia, lymphoma and cancers of the colon, prostate, lung and stomach.

See the Business Report (Part 1 of this Annual Report) for more information on Roche’s diagnostics productsand business areas.

15

Sales by regions | Divisional sales grew ahead of the market in all regions except Japan, where pricecuts offset volume growth. The EMEA (Europe, Middle East and Africa) and Asia—Pacific regions contributedmost to growth, with all five business areas recording solid gains in these markets. In North America,in tough market conditions, the main growth-driver was Tissue Diagnostics. In Japan, growth in ProfessionalDiagnostics, Tissue Diagnostics and Applied Science was offset by sales declines in Molecular Diagnostics,which was affected by weak market growth and price cuts, and in Diabetes Care where sales wereimpacted by competitive and pricing pressures. Sales in the emerging seven (E7) markets (Brazil, Russia,India, China, South Korea, Mexico and Turkey) grew 24% and accounted for over 10% of divisional sales.Growth came from increased investments in these markets with sales force and sales support, combined witha strong demand for immunoassays and other leading-edge products in the Roche portfolio.

Diagnostics Division — Sales by region for 2009

Sales % changeRegion (mCHF) % of sales (local currencies)

EMEA 1) 5,314 53 +9

North America 2,639 26 +4

Asia—Pacific 987 10 +25

Latin America 584 6 +15

Japan 499 5 0

Other regions 32 0 –14

Total 10,055 100 +9

1) Europe, Middle East and Africa.

Operating resultsRoyalties and other operating income | Income of 152 million Swiss francs was 10% higher in localcurrencies compared to 2008. Royalty income increased by 27% in local currencies, mainly as a result ofhigher pro-BNP and HCV royalty income. Out-licensing income can vary significantly from period to perioddue to being more of a one-off nature, and in 2009 declined by 54% in local currencies.

Diagnostics Division — Royalties and other operating income


Royalty income 129 102 +27

Income from out-licensing agreements 15 33 –54

Income from disposal of products and other 8 4 +106

Total 152 139 +10

Cost of sales | The overall increase of 12% in local currencies was higher than sales growth due to anincrease in manufacturing cost of goods sold and period costs. In addition the comparative period includedan acquisition accounting effect of 33 million Swiss francs of expenses relating to the fair-value write-up ofVentana’s inventory. Excluding this acquisition accounting effect, manufacturing cost of goods sold and periodcosts grew by 13% in local currencies, due to continued investments to expand market share through place-ments of the new Accu-Chek meters, start-up costs for the Accu-Chek Mobile production and an increasedinstalled instrument base in Professional Diagnostics, with related higher depreciation. Impairments of productintangibles amounted to 57 million Swiss francs due to reduced revenue expectations for some acquiredproducts. Total cost of sales as a percentage of sales increased to 50.5% (50.0% excluding impairmentsof intangible assets) in 2009 compared to 48.7% in 2008.


Diagnostics Division — Cost of sales


Manufacturing cost of goods sold and period costs (4,255) (3,956) +12

Royalty expenses (315) (278) +15

Collaboration and profit-sharing agreements (1) (1) –44

Restructuring expenses – – –

Amortisation of product intangibles (448) (450) +1

Impairment of property, plant and equipment (4) (8) –51

Impairment of product intangibles (57) (5) +933

Total (5,080) (4,698) +12

Marketing and distribution | The increase of 5% in local currencies was mainly due to investments to competitively fund the sequencing, array and cellular analysis businesses in Applied Science and to further increase global market share of the recently acquired Tissue Diagnostics business. Marketing and distribution as a percentage of sales was 25.0% compared to 25.6% in 2008.

Research and development | Costs increased by 5% in local currencies reflecting investments intoTissue Diagnostics to develop new products and Molecular Diagnostics for the ATHENA trial for a HPV claimin the US. In addition, there was an intangible asset impairment of 23 million Swiss francs. As a percentageof sales, research and development costs remained stable at 9.7%. Excluding the impairment, researchand development expenses as a percentage of sales declined slightly to 9.5%.

Diagnostics Division — Investments in research and development


Research and development expenses 978 941 +5

Less non-cash items

— Amortisation of intangible assets (8) (8) –3

— Impairment of intangible assets (23) – –

Research and development expenses

excluding non-cash items 947 933 +3

General and administration | General and administration costs decreased by 9% in local currencies,primarily following the absence in 2009 of significant one-off expenses in 2008. The decline in administrationcosts of 3% is due to continuous efficiency improvements of the underlying cost structure and to the inclusionin 2008 of 15 million Swiss francs of Ventana integration costs. Excluding one-off expenses in 2008, generaland administration expenses as a percentage of sales remained basically stable at 4.4% compared to 4.5%in 2008.

Diagnostics Division — General and administration


Administration (362) (384) –3

Legal and environmental settlements (5) (15) –65

Business combinations 1 (41) –

Restructuring expenses (27) (27) +6

Gains (losses) on disposal of property,

plant and equipment (4) (2) +33

Other general items (43) (26) +68

Total (440) (495) –9

17

Operating free cash flowThe operating free cash flow of the Diagnostics Division increased by 102% in local currencies, driven bystrong operating performance. Operating profit cash adjustments increased mainly due to provisions, as non-cash provision expenses exceeded provision payments by 62 million Swiss francs in 2009, while in2008 provision payments exceeded non-cash provision expenses by 52 million Swiss francs. Net workingcapital increased by 259 million Swiss francs, mainly due to an increase in accounts receivable followingstrong sales in the fourth quarter of 2009. Inventories increased slightly, mainly as a result of preparation forthe launch of the cobas 8000. As a percentage of sales, operating free cash flow of the Diagnostics Divisionincreased to 11.5% compared to 6.2% in 2008.

Diagnostics Division — Operating free cash flow

2009 2008(mCHF) (mCHF)


— Depreciation, amortisation, impairments 1,269 1,120

— Provisions 62 (52)

— Equity compensation plans 29 15

— Other 54 39

Operating profit cash adjustments 1) 1,414 1,122

(Increase) decrease in net working capital

— Accounts receivable (319) (233)

— Inventories (85) (251)

— Accounts payable 143 21

— Other 2 (1)

Total (increase) decrease in net working capital (259) (464)

Investments in property, plant and equipment (1,193) (1,237)

Investments in intangible assets (8) (8)

Operating free cash flow 1,152 600

— as % of sales 11.5 6.2


Corporate operating costsGeneral and administration | In local currencies costs in 2009 were 30% higher at 340 million Swiss francs(265 million Swiss francs in 2008), primarily due to an increase of 50 million Swiss francs in environmentalprovisions in the residual vitamins and fine chemicals business and contributions of 21 million Swiss francsto the state-managed pension insurance scheme in Germany. Operating free cash flow was a net outflowof 353 million Swiss francs (2008: net outflow of 275 million Swiss francs) mainly due to the higher operatingexpenses.


Foreign exchange impact on operating resultsThe Group’s exposure to movements in foreign currencies affecting its operating results, as expressedin Swiss francs, is summarised by the following key figures and comments.

Growth (reported in local currencies and Swiss francs)

% change (local currencies) % change (CHF)2009 2008 2009 2008

Sales +10 +6 +8 –1

Operating profit before exceptional items +14 +4 +8 –4

Exchange rates against the Swiss franc

31 December Average 31 December Average2009 2009 2008 2008

1 USD 1.04 1.09 1.06 1.08

1 EUR 1.49 1.51 1.49 1.58

100 JPY 1.12 1.16 1.17 1.05

During 2009 the euro and many other currencies weakened against the Swiss franc, which reduces on trans-lation the Swiss franc amount of any revenues and expenses in euros and these other currencies. At the sametime US dollar was stable and the Japanese yen strengthened against the Swiss franc. This strengtheningupon translation in the Group’s income statement increases the Swiss franc amount of revenues and expensesdenominated in yen.

In the Pharmaceuticals Division, on a sales level, the negative translation impact from the euro and othercurrencies is only partly offset by the positive impact of the yen, with sales growth in local currencies being11% compared to 8% in Swiss francs. At an operating profit level the effect is more noticeable, due torelatively higher expenses and asset intensity in eurozone countries and the United States comparedto Japan. Operating profit before exceptional items increased 15% in local currencies compared to 9% inSwiss francs, and the margin increase of 1.2 percentage points in local currencies only translates toa margin increase of 0.2% in Swiss francs.

In the Diagnostic Division the effects are more pronounced due to the relative strength and asset intensityof the Diagnostics Division in Germany. The business in Japan represents a relatively smaller proportionof the overall Diagnostics results, while at the same time one of the key third-party suppliers for diagnosticsinstruments is a Japan-based company that is invoicing in yen. In combination this means that the negativeimpact of the euro is stronger and the yen does not have a strong positive impact. This results in sales growthin local currencies of 9% only translating into 4% in Swiss francs. Similarly the operating profit before excep-tional items increase of 12% in local currencies translates to only 1% in Swiss francs, while the local currencymargin increase of 0.4 percentage points translates into a Swiss franc margin decline of 0.4% in Swiss francs.

The sensitivity of Group sales and operating profit before exceptional items in absolute terms to a 1%movement in foreign currencies against the Swiss franc during 2009 are shown in the table below.

19

Currency sensitivities


Impact of 1% rise in average exchange rate Sales exceptional itemsversus the Swiss franc (mCHF) (mCHF)

US dollar +175 +42

Euro +132 +62

Japanese yen +53 +21

All other currencies +109 +66

Non-operating resultsNon-operating results

2009 2008 % change(mCHF) (mCHF) (CHF)

Operating profit 12,277 13,924 –12

Associates – 1 –100

Financial income 792 1,123 –29

Financing costs (2,460) (887) +177

Exceptional financing costs (377) – –

Profit before taxes 10,232 14,161 –28

Income taxes (2,870) (3,305) –13

Income taxes on exceptional items 1,148 (12) –

Net income 8,510 10,844 –22

Attributable to

— Roche shareholders 7,784 8,969 –13

— Non-controlling interests 726 1,875 –61

Net income before exceptional items 10,474 10,828 –3

Attributable to

— Roche shareholders 9,798 9,001 +9

— Non-controlling interests 676 1,827 –63

The Group financed the Genentech transaction by a combination of the Group’s own funds, bonds, notesand commercial paper. The Group raised net proceeds of 48.2 billion Swiss francs through a series of bondand note offerings. As a consequence the underlying dynamics of the Group’s Treasury results changedsignificantly during 2009, with a substantial increase in interest expenses. In 2009 financing costs exceededfinancial income by 1,668 million Swiss francs. In addition, exceptional financing costs of 377 million Swissfrancs were recorded for one-time costs directly attributable to the transaction. The tax impact of the financingcosts contributed to the decline of the Group’s effective tax rate before exceptional items to 21.5% comparedto 23.4% in 2008. Net income decreased by 22% primarily due to the exceptional items. Excluding these,net income was down 3% due to higher financing costs. However the income attributable to Roche share-holders, before exceptional items, was 9% higher than in 2008 as lower non-controlling interests followingthe Genentech transaction more than compensated for the associated higher financing costs.


Financial incomeFinancial income was 792 million Swiss francs in 2009, declining 29% compared to 2008. Interest incomeand income from debt securities were 218 million Swiss francs, down 44% due to lower market interest rates,a change in the asset allocation from bonds into lower-yielding money instruments and lower debt securityholdings. Net income from equity securities was 36 million Swiss francs compared to 133 million Swiss francsin 2008. Expected returns on pension plan assets were 507 million Swiss francs, down 26% comparedto 2008 due to a lower asset base at the year-end 2008. A full analysis of financial income is given in Note 5to the Consolidated Financial Statements.

Financing costsFinancing costs were 2,460 million Swiss francs, 1,573 million Swiss francs higher than in 2008 reflectingthe additional financing costs for new debt issued in connection with the Genentech transaction fromthe effective date of 26 March 2009 to 31 December 2009. The interest cost of pension plans was 656 millionSwiss francs, a slight increase compared to 2008. A full analysis of financing costs is given in Note 5 to theConsolidated Financial Statements.

Exceptional financing costsIn order to execute the Genentech transaction, the Group liquidated certain debt securities into cash.This resulted in a net loss on these transactions of 238 million Swiss francs. Furthermore, due to the prevailingfinancial conditions in the first quarter of 2009, the Group issued bonds and notes in advance of the trans-action totalling 48.2 billion Swiss francs through a series of debt offerings. The interest expense on theseinstruments for the bridging period between their issue and the completion of the Genentech transaction on26 March 2009 was 139 million Swiss francs.

Income taxesThe Group’s effective tax rate before exceptional items declined to 21.5% compared to the 2008 rate of23.4%. The main driver was the additional financing costs for the Genentech transaction from the effectivedate of 26 March 2009 to 31 December 2009.

A net tax benefit of 817 million Swiss francs was recorded for the exceptional operating items connectedwith the Genentech transaction and the related reorganisation of the pharmaceuticals business. In addition,an income tax benefit of 147 million Swiss francs in respect of Genentech’s stock options is clearlyattributable to the Genentech transaction. Other exceptional tax items are shown in the table below.

Analysis of the Group’s effective tax rate

2009 2008Profit Income Profit Income

before tax taxes Tax rate before tax taxes Tax rate(mCHF) (mCHF) (%) (mCHF) (mCHF) (%)

Group’s effective tax rate before

exceptional items 13,344 (2,870) 21.5 14,133 (3,305) 23.4

Major legal cases (320) 123 38.4 271 (105) 38.7

Changes in Group organisation (2,415) 964 39.9 (243) 93 38.3

Exceptional financing costs (377) 61 16.2 – – –

Group’s effective tax rate 10,232 (1,722) 16.8 14,161 (3,317) 23.4

Net financial result before exceptional items | in millions of CHF

0–1,000–2,000–3,000 1,000 2,000

(1,668)

236

834

Net financial result

2009

2008

2007

Financial incomeFinancing costs

0–1,000–2,000–3,000 1,000 2,000

21

Net income and Earnings per share

In 2009 Group net income decreased by 22% to 8.5 billion Swiss francs compared to 2008, mainly dueto the exceptional items relating to the Genentech transaction and the restructuring of the Pharmaceuticalsmanufacturing operations. Diluted EPS decreased by 12%, less than the decrease in net income due tothe positive impact of 100% ownership of Genentech. Net income attributable to Roche shareholders declined13% to 7.8 billion Swiss francs. Of the total 726 million Swiss francs non-controlling interests, 431 millionSwiss francs are attributable to Genentech non-controlling interests until 25 March 2009 and 277 millionSwiss francs to Chugai non-controlling interests. Excluding exceptional items, net income attributableto Roche shareholders rose 9%.

Diluted EPS

2009 2008(CHF) (CHF) % change

Group 9.02 10.23 –12

Core 12.19 11.04 +10

The decrease in diluted EPS was due to the decrease in net income attributable to Roche shareholders,as described above. The Core EPS, which excludes exceptional items and amortisation and impairment ofintangible assets, increased 20% in local currencies (10% in Swiss francs) reflecting the positive developmentof the underlying business for Roche shareholders. Supplementary net income and EPS information isgiven on page 134. This includes calculations of Core EPS and reconciles these to the Group’s published IFRSresults.

Cash flows and net cash

2009

2008

2007

8.9

5.0

4.0

Operating free cash flow | in billions of CHF

15.7

12.4

10.7

Free cash flow | in billions of CHF

0 03 36 69 912 1215 15

2009

2008

2007

7.8

9.0

9.8

Net income attributable to Roche shareholders | in billions of CHF

0 2 4 6 8 10 12 0 2 4 6 8 10 12

12.19

11.04

11.85

Core EPS | in CHF


Free cash flow

Pharmaceuticals Diagnostics Corporate Group(mCHF) (mCHF) (mCHF) (mCHF)

2009

Operating profit 11,419 1,198 (340) 12,277

Operating profit cash adjustments 1) 4,851 1,414 51 6,316

(Increase) decrease in net working capital 669 (259) (62) 348

Investments in property, plant and equipment (1,789) (1,193) (2) (2,984)

Investments in intangible assets (227) (8) – (235)

Operating free cash flow 14,923 1,152 (353) 15,722

Treasury activities (667)

Taxes paid (1,767)

Dividends paid (4,395)

Free cash flow 8,893

2008

Operating profit 13,002 1,187 (265) 13,924

Operating profit cash adjustments 1) 1,496 1,122 (7) 2,611

(Increase) decrease in net working capital (15) (464) (2) (481)

Investments in property, plant and equipment (2,021) (1,237) (1) (3,259)

Investments in intangible assets (409) (8) – (417)

Operating free cash flow 12,053 600 (275) 12,378

Treasury activities 166

Taxes paid (3,514)

Dividends paid (4,051)

Free cash flow 4,979


The free cash flow of the Group in 2009 increased significantly by 3.9 billion Swiss francs to 8.9 billionSwiss francs. This increase was primarily due to a higher operating free cash flow and lower tax payments.These factors more than covered the higher dividend payments of 4.4 billion Swiss francs.

The underlying business continued to show good cash generation with the operating free cash flowincreasing by 34% in local currencies (27% in Swiss francs). This was in contrast to the decrease in operatingprofit, due to the impact of a number of non-cash items, notably expense for provision in 2009. Theseare shown in the breakdown on page 135. Net working capital was reduced slightly overall despite thecontinued growth of the business. Capital expenditure in total was slightly lower than the previous year.

In the third quarter of 2009 significant interest payments were made for the new debt issued in 2009. Themajor coupon payment dates are in the first and third quarter each year. Total taxes paid in 2009 decreasedby 1.7 billion Swiss francs compared to 2008 driven by a one-time 1.1 billion Swiss francs tax benefit onthe settlement of stock options with Genentech employees upon closing of the transaction.

23

Net cash | in millions of CHF

31 December 2008

Cash and cash equivalents 4,915

Marketable securities 15,856

Long-term debt (2,972)

Short-term debt (1,117)

Net cash at beginning of period 16,682

Free cash flow for 2009 8,893

Transactions in own equity instruments (622)

Business combinations, net of divestments of subsidiaries (83)

Hedging and collateral arrangements 3,264

Changes in ownership interests in subsidiaries (52,714)

Currency translation, fair value and other movements 713

Net change in net cash (40,549)

31 December 2009

Cash and cash equivalents 2,442

Marketable securities 16,107

Long-term debt (36,143)

Short-term debt (6,273)

Net cash (net debt) at end of period (23,867)

The purchase of all outstanding publicly held shares in Genentech, including the settlement of Genentech’soutstanding employee stock option plans and payment of related fees and expenses resulted in a cashoutflow of 47.0 billion US dollars (52.7 billion Swiss francs), as described in Note 3 to the ConsolidatedFinancial Statements. This was recorded to equity as a change in ownership interest in subsidiaries.

The free cash flow described above already compensated for almost 9 billion Swiss francs of the cash usedfor the Genentech transaction, even taking into account the Group’s record dividend payment. Own equityinstruments were purchased to cover the Group’s obligations for its equity compensation plans.

A positive cash flow of 3.3 billion Swiss francs was generated from the hedging and collateral arrangementsthat were set up following the financing of the Genentech transaction (see the ‘Debt’ section below andNote 27 to the Consolidated Financial Statements). As the fair value of the derivative instruments moved updue to a weaker US dollar, cash collateral of net 1.5 billion Swiss francs was delivered to Roche. In additionthe Group generated cash flows of 1.8 billion Swiss francs from realised gains on hedging derivatives withshorter maturities that were settled during 2009.

The net debt position of the Group is 23.9 billion Swiss francs, a movement of 40.6 billion Swiss francs froma net cash position of 16.7 billion Swiss francs at 31 December 2008 due to the 52.7 billion Swiss francs usedin the Genentech transaction.


Balance sheet

Condensed balance sheet

31 December 2009 31 December 2008(mCHF) (mCHF) % change

Property, plant and equipment 17,697 18,190 –3

Goodwill and intangible assets 14,266 15,474 –8

Other non-current assets 4,123 3,821 +8

Cash and marketable securities 18,549 20,771 –11

Other current assets 19,930 17,833 +12

Total assets 74,565 76,089 –2

Debt (current and non-current) (42,416) (4,089) +937

Other non-current liabilities (6,941) (7,191) –3

Other current liabilities (15,794) (10,987) +44

Total liabilities (65,151) (22,267) +193

Total net assets 9,414 53,822 –83

Capital and reserves attributable to Roche shareholders 7,366 44,479 –83

Equity attributable to non-controlling interests 2,048 9,343 –78

Total equity 9,414 53,822 –83

Debt 42,416 4,089 +937

Equity 9,414 53,822 –83

Capitalisation 51,830 57,911 –11

A full consolidated balance sheet is given on page 33 of the Consolidated Financial Statements.

The Group completed the purchase of the non-controlling interests in Genentech effective 26 March 2009(see Note 3 to the Consolidated Financial Statements). Based on the revised International AccountingStandard 27 ‘Consolidated and Separate Financial Statements’ (IAS 27), which was adopted by the Group in2008, this transaction was accounted for in full as an equity transaction. As a consequence, the carryingamount of the consolidated equity of the Group was reduced by 52.2 billion Swiss francs, of which 8.5 billionSwiss francs was allocated to eliminate the book value of Genentech non-controlling interests. This account-ing effect significantly impacts the Group’s net equity, but has no effect on the Group’s business or itsdividend policy. The transaction was not accounted for as a business combination, and therefore no additionalgoodwill or intangible assets were recorded.

Non-current assets | Property, plant and equipment declined due to impairments of certain PharmaceuticalsDivision manufacturing sites, in particular the discontinuation of a construction project at the manufacturingsite at Vacaville, California. Intangible assets decreased by 16% due to amortisation and higher impairmentcharges.

2009

2008

2007

Balance sheet | in billions of CHF

AssetsLiabilities

0–20–40–60–80 20 40 60 80

51.8

57.9

60.3

Debt plus equity

0 2010 30 40 50 60

Capitalisation | in billions of CHF

25

Current assets | Accounts receivable were higher in local currencies, reflecting the growth of the business.Inventory levels reduced slightly overall showing improvements to operational efficiency. Cash and marketablesecurities declined by 11%. Other current assets also increased by 1.5 billion Swiss francs due to the fairvalue movements in derivatives hedging the non-US dollar-denominated debt.

Debt | There was a significant increase in debt to finance the Genentech transaction. In February andMarch 2009, the Group performed a series of bond and note offerings generating net proceeds of 48.2 billion Swiss francs. The carrying value of debt at 31 December 2009 was 42.4 billion Swiss francs,compared to 4.1 billion Swiss francs at 31 December 2008.

Other non-current and current liabilities | The overall balance increased by 4.6 billion Swiss francs mainlydue to 3.4 billion Swiss francs higher accrued and other current liabilities, which includes 1.5 billion Swissfrancs in respect of the cash collateral received in respect of the derivates that hedge debt. There was alsoan increase of 0.9 billion Swiss francs in provisions, primarily for litigation and restructuring.

Total net assets/equity | The most significant movements in equity were the impact of the change in owner-ship interests in Genentech of 52.2 billion Swiss francs changes, the net income of 8.5 billion Swiss francs,the dividend payments of 4.4 billion Swiss francs and currency translation gains of 3.1 billion Swiss francs.Overall capitalisation, being total debt plus equity, declined by 11%, with the decrease in the second halfof 2009 being due to debt repayments. The split between debt and equity changed significantly comparedto 2008.

DebtTo finance the Genentech transaction, the Group issued bonds and notes equivalent to 48.2 billion Swissfrancs in February and March 2009. Of the debt raised in early 2009, 6.9 billion Swiss francs had already beenrepaid by the end of 2009, either by repayment on maturity of six-month debt or by early redemption.

The maturity schedule of the Group’s bonds and notes outstanding at 31 December 2009 is shown in thetable below, which includes those instruments that were already in issue prior to the Genentech transaction.

Bonds and notes: nominal amounts by contractual maturity

US dollar Euro UK Sterling Swiss francprincipal principal principal principal Total 1) Total 1)

(mUSD) (mEUR) (mGBP) (mCHF) (mUSD) (mCHF)

2010 3,500 1,500 2) – – 5,650 5,858

2011 931 – – – 931 965

2012 2,500 – – 2,500 2) 4,911 5,092

2013 – 5,250 2) – – 7,526 7,803

2014 2,750 – – – 2,750 2,851

2015—2020 5,500 2,750 2) 1,250 2) 1,500 12,898 13,373

2021 and beyond 3,000 1,750 2) 250 – 5,910 6,128

Total 18,181 11,250 1,500 4,000 40,576 42,070

1) Total translated at 31 December 2009 exchange rates.2) The proceeds from these bonds and notes were swapped into US dollars, and therefore in the financial statements the bonds and

notes have economic characteristics equivalent to US dollar-denominated bonds and notes.

The Group entered into derivative contracts with third parties to hedge the foreign exchange risk arising frombonds and notes issued in currencies other than US dollar. The total exposure hedged at issuance of thesebonds and notes was approximately 25 billion Swiss francs (see Note 27). Collateral agreements were enteredwith the derivative counterparties to mitigate counterparty risk (see Notes 27 and 32).


The Group plans to meet its debt obligations using cash generated from the underlying business. In 2009Free Cash Flow was 8.9 billion Swiss francs, which includes the cash generated from operations, as well aspayment of interest, tax and dividends. Of the debt raised to finance the Genentech transaction, 25% of itwill have been repaid by the end of 2010.

For short-term financing requirements, the Group has a commercial paper program in the United States underwhich it can issue up to 7.5 billion US dollars of unsecured commercial paper notes and committed creditlines of 2.5 billion euros and 950 million US dollars available as back-stop lines. Commercial paper notestotalling 0.3 billion US dollars were outstanding as of 31 December 2009. For longer term financing the Groupmaintains strong long-term investment-grade credit ratings of AA- by Standard & Poor’s and A2 by Moody’swhich should facilitate efficient access to international capital markets.

Pensions and other post-employment benefitsPost-employment benefit plans are classified as ‘defined contribution plans’ if the Group pays fixedcontributions into a separate fund or to a third-party financial institution and will have no further legal orconstructive obligation to pay further contributions. In 2009 expenses for the Group’s defined contributionplans were 295 million Swiss francs (2008: 253 million Swiss francs).

All other plans are classified as ‘defined benefit plans’, even if the Group’s potential obligation is relativelyminor or has a relatively remote possibility of arising. The funding and asset management of the Group’svarious defined benefit plans is overseen at a corporate level. Plans are usually established as trustsindependent of the Group and are funded by payments from the Group and by employees, but in some casesthe plan is unfunded and the Group pays pensions to retired employees directly from its own financialresources.

Funding status of defined benefit pension and other post-employment benefit plans

2009 2008(mCHF) (mCHF)

Funded plans

— Fair value of plan assets 10,530 9,438

— Defined benefit obligation (11,267) (10,504)

— Over (under) funding (737) (1,066)

Unfunded plans

— Defined benefit obligation (3,486) (3,078)

Funding status | Overall the Group’s defined benefit plans continue to be adequately funded despitethe financial turbulence during 2009 with the funding status at 93% compared to 90% at the beginning of theyear. The main movements came from an increase in the fair value of plan assets following declines in globalfinancial markets in previous years. A small overall decline in discount rates caused an increase in the definedbenefit obligation.

Expenses recorded in income statement | Total pension expenses in 2009 relating to the Group’s definedbenefit plans were 464 million Swiss francs compared to 281 million Swiss francs in 2008. The increaseof 39% is primarily due to a lower expected return on plan assets arising mainly as a consequence of a lowerasset base at the year-end 2008. Based on the revised actuarial assumptions at the end of 2009, totalpension expenses for 2010 are expected to remain broadly stable compared to 2009.

Full details of the Group’s pensions and other post-employment benefits are given in Note 10 to theConsolidated Financial Statements.

27

Roche securitiesShare price and market capitalisation (at 31 December)

2009 2008 % change

Share price (CHF) 181.00 168.70 +7

Non-voting equity security (Genussschein) price (CHF) 175.80 162.50 +8

Market capitalisation (billions of CHF) 151 141 +8

Roche ranked number 8 among a peer group of 18 healthcare companies 1) as listed below, in terms of TotalShareholder Return (TSR), i.e. share price growth plus dividends, in 2009 when measured in Swiss francsat actual exchange rates. Year-end return was +11% for the Roche share and +12% for the Roche non-votingequity security. The combined performance of share and non-voting equity security was +12% comparedto a weighted average return for the peer group of +11% at actual exchange rates.

1) Peer group for 2009: Abbott Laboratories, Amgen, Astellas, AstraZeneca, Bayer, Becton Dickinson, Biogen Idec, Bristol-Myers Squibb,Eli Lilly, Gilead, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Pfizer, Roche, Sanofi-Aventis, Takeda.

Proposed dividendThe Board of Directors is proposing an increase of 20% in the dividend for 2009 to 6.00 Swiss francs pershare and non-voting equity security (2008: 5.00 Swiss francs) for approval at the Annual General Meeting.This is the 23rd consecutive increase in the dividend. If the dividend proposal is approved by shareholders,dividend payments on the shares and non-voting equity securities in issue will amount to 5.2 billion Swissfrancs (2008: 4.3 billion Swiss francs), resulting in a payout ratio of 53% (2008: 49%). Based on the prices atyear-end 2009, the dividend yield on the Roche share is 3.3% (2008: 3.0%) and the yield on the non-votingequity security is 3.4% (2008: 3.1%). Further information on the Roche securities is given on pages 136—137of the Finance Report.

75

80

85

90

95

100

105

110

115

Roche share Roche GS Peer Set Index

Total Shareholder Return development | in %

31 Dec. 08 31 March 09 30 June 09 30 Sept. 09 31 Dec. 09


Information per share and non-voting equity security

2009 2008(CHF) (CHF) % change

Basic EPS 9.07 10.43 –13

Diluted EPS 9.02 10.23 –12

EPS (continuing businesses before exceptional items) 11.37 10.28 +11

Core EPS 12.19 11.04 +10

Equity attributable to Roche shareholders per share 8.61 51.74 –83

Dividend per share 6.00 5.00 +20

For further details please refer to Notes 28 and 29 of the Consolidated Financial Statements and page 134of the Finance Report. Payout ratio is calculated as dividend per share divided by earnings per share(continuing businesses before exceptional items).

Financial risksThe Group’s risk profile has changed significantly following the Genentech transaction, as bonds and notesof 48.2 billion Swiss francs were issued during 2009. As a consequence, at 31 December 2009 the Grouphas a net debt position of 24 billion Swiss francs (31 December 2008: net cash position of 17 billion Swissfrancs). The financial assets of the Group are managed in a conservative way with the objective to meetthe Group’s financial obligations at all times.

Asset allocation | A significant portion of the cash and marketable securities the Group currently holds willbe used for debt redemptions and interest service in March 2010. Liquid funds are either held as cash or areinvested in high-quality, investment-grade fixed income securities with a short-term investment horizon tomeet those liquidity requirements. During 2009, Roche reduced its bond portfolio by 7.1 billion Swiss francsas bonds matured or were sold. The higher holdings in shares are due to the reclassification of certainequity securities from long-term investments into short-term marketable securities, as they are no longerconsidered as strategic investments.

Cash and marketable securities

2009 2009 2008 2008(mCHF) (% of total) (mCHF) (% of total)

Cash and cash equivalents 2,442 13 4,915 24

Money market instruments 15,040 81 7,961 38

Bonds, debentures and other investments 753 4 7,844 38

Shares 314 2 51 0

Total cash and marketable securities 18,549 100 20,771 100

Credit risk | Credit risk arises from the possibility that counterparties to transactions may default on theirobligations, causing financial losses for the Group. Despite significant market difficulties since mid-2008,the rating profile of the Group’s 18.2 billion Swiss francs fixed income marketable securities remained strong,with 99% being invested in the A-AAA range. The Group signs netting and collateral agreements withthe derivatives counterparties in order to mitigate counterparty risk on derivative positions. The counterpartyprofile of the Group’s 10.5 billion Swiss francs trade receivables remains well diversified across types of customer and regions, with some wholesaler concentration in the US.

Liquidity risk | Liquidity risk arises through a surplus of financial obligations over available financial assetsdue at any point in time. The Group’s approach to liquidity risk is to maintain sufficient readily availablereserves in order to meet its liquidity requirements at any point in time. In addition to current liquidity position,the Group has strong cash generation ability. Those future cash flows will be used to repay debt instrumentsin the coming years.

29

Even after the Genentech transaction, Roche enjoys strong long-term investment-grade credit ratings of AA-by Standard & Poor’s and A2 by Moody’s. At the same time Roche is rated at the highest available short-termratings by those agencies. In the event of financing requirements, the ratings and the strong credit of Rocheshould permit efficient access to international capital markets, including the commercial paper market.The Group has committed credit lines with various financial institutions totalling 5.1 billion Swiss francs(2008: 5.2 billion Swiss francs), of which 4.7 billion Swiss francs serve as back-stop line for the commercialpaper programme. As at 31 December 2009, no debt has been drawn under these credit lines.

Market risks | Market risk arises from changing market prices of the Group’s financial assets or financialliabilities. The exposures are predominantly related to changes in interest rates, foreign exchange rates andequity prices. The Group uses Value-at-Risk (VaR) to assess the impact of market risk on its financialinstruments. VaR data indicates the value range within which a given financial instrument will fluctuate witha pre-set probability as a result of movements in market prices. The VaR data in the table below indicatethe economic loss level over a period of one month which with 95% probability will not be exceeded. Actualfuture economic gains and losses associated with our treasury activities may differ materially from the VaRanalyses performed due to the inherent limitations associated with predicting the timing and amount ofchanges to interest rates, foreign currency exchange rates and equity investment prices, particularly in periodsof high market volatilities. Furthermore, the VaR numbers below do not include a credit risk component.

Market risk of financial instruments

31 December 2009 31 December 2008(mCHF) (mCHF)

VaR — Interest rate component 717 27

VaR — Foreign exchange component 43 96

VaR — Other price component 57 62

Diversification (98) (52)

VaR — Total 719 133

At 31 December 2009, the total VaR of the financial assets and liabilities was 719 million Swiss francs(31 December 2008: 133 million Swiss francs). The interest rate VaR increased substantially to 717 millionSwiss francs driven by the 48.2 billion Swiss francs of bonds and notes issued in the first quarter of 2009.As all newly issued debt is held at amortised cost, the interest rate VaR is a sole metric for economic fairvalue changes, but there is no impact on the carrying value or profit and loss of the Group. The foreignexchange VaR decreased as hedges of non-US dollar cash flows from future royalty income at Genentechwere unwound. Other price risk arises mainly from movements in the prices of equity securities and remainedrelatively stable. At 31 December 2009, the Group held equity securities with a market value of 0.6 billionSwiss francs (31 December 2008: 0.6 billion Swiss francs). This includes holdings in biotechnology companies,which were acquired in the context of licensing transactions or scientific collaborations.

Further information on financial risk management and financial risks and the VaR methodology is includedin Note 32 to the Consolidated Financial Statements.

International Financial Reporting StandardsThe Roche Group has been using International Financial Reporting Standards (IFRS) to report its consolidatedresults since 1990. In 2007 the Group early adopted IFRS 8 ‘Operating Segments’ and IAS 23 (revised)‘Borrowing Costs’, which were required to be implemented from 1 January 2009 at the latest. In 2008 theGroup early adopted the revised versions of IFRS 3 ‘Business Combinations’ and IAS 27 ‘Consolidated andSeparate Financial Statements’, which are required to be implemented from 1 January 2010 at the latest.In 2009 the Group has implemented revisions to IAS 1 ‘Presentation of Financial Statements’, the effectsof which are described in Note 1 to the Consolidated Financial Statements. The Group has also implementedvarious other amendments to existing standards and interpretations, which have no material impact on theGroup’s overall results and financial position.

30 Roche Finance Report 2009 Roche Group — Roche Group Consolidated Financial Statements

Roche Group Consolidated Financial Statements

Reference numbers indicate corresponding Notes to the Consolidated Financial Statements.

Roche Group consolidated income statement for the year ended 31 December 2009 | in millions of CHF


Sales 2 38,996 10,055 – 49,051

Royalties and other operating income 2 1,948 152 – 2,100

Cost of sales (9,535) (5,080) – (14,615)

Marketing and distribution (6,964) (2,511) – (9,475)

Research and development 2 (8,896) (978) – (9,874)

General and administration (1,395) (440) (340) (2,175)

Operating profit before exceptional items 2 14,154 1,198 (340) 15,012

Major legal cases 25 (320) – – (320)

Changes in Group organisation 8 (2,415) – – (2,415)

Operating profit 2 11,419 1,198 (340) 12,277

Associates 15 –

Financial income 5 792

Financing costs 5 (2,460)

Exceptional financing costs 5 (377)

Profit before taxes 10,232

Income taxes 6 (2,870)

Income taxes on exceptional items 6 1,148

Net income 8,510

Attributable to

— Roche shareholders 7,784

— Non-controlling interests 726

Earnings per share and non-voting equity security 29

Basic (CHF) 9.07

Diluted (CHF) 9.02

31

Roche Group consolidated income statement for the year ended 31 December 2008 | in millions of CHF


Sales 2 35,961 9,656 – 45,617

Royalties and other operating income 2 2,148 139 – 2,287

Cost of sales (8,963) (4,698) – (13,661)

Marketing and distribution (6,696) (2,474) – (9,170)

Research and development 2 (7,904) (941) – (8,845)

General and administration (1,572) (495) (265) (2,332)

Operating profit before exceptional items 2 12,974 1,187 (265) 13,896

Major legal cases 25 271 – – 271

Changes in Group organisation 8 (243) – – (243)

Operating profit 2 13,002 1,187 (265) 13,924

Associates 15 1

Financial income 5 1,123

Financing costs 5 (887)

Profit before taxes 14,161

Income taxes 6 (3,305)

Income taxes on exceptional items 6 (12)

Net income 10,844

Attributable to

— Roche shareholders 8,969

— Non-controlling interests 1,875

Earnings per share and non-voting equity security 29

Basic (CHF) 10.43

Diluted (CHF) 10.23


Roche Group consolidated statement of comprehensive income | in millions of CHF

Year ended 31 December2009 2008

Net income recognised in income statement 8,510 10,844

Other comprehensive income

Available-for-sale investments 28 355 (420)

Cash flow hedges 28 75 16

Currency translation of foreign operations 28 3,054 (2,998)

Defined benefit post-employment plans 28 (5) (1,522)

Other comprehensive income, net of tax 3,479 (4,924)

Total comprehensive income 11,989 5,920

Attributable to

— Roche shareholders 28 10,911 4,285

— Non-controlling interests 30 1,078 1,635

Total 11,989 5,920

33

Roche Group consolidated balance sheet | in millions of CHF

31 December 2009 31 December 2008 31 December 2007

Non-current assets

Property, plant and equipment 12 17,697 18,190 17,832

Goodwill 13 8,261 8,353 6,835

Intangible assets 14 6,005 7,121 6,346

Associates 15 16 9 9

Financial long-term assets 16 481 940 1,333

Other long-term assets 16 452 451 527

Deferred income tax assets 6 2,573 1,829 1,317

Post-employment benefit assets 10 601 592 1,332

Total non-current assets 36,086 37,485 35,531

Current assets

Inventories 17 5,648 5,830 6,113

Accounts receivable 18 10,461 9,755 9,804

Current income tax assets 6 244 268 263

Other current assets 19 3,577 1,980 2,452

Marketable securities 20 16,107 15,856 20,447

Cash and cash equivalents 21 2,442 4,915 3,755

Total current assets 38,479 38,604 42,834

Total assets 74,565 76,089 78,365

Non-current liabilities

Long-term debt 27 (36,143) (2,972) (3,834)

Deferred income tax liabilities 6 (1,099) (1,409) (1,527)

Post-employment benefit liabilities 10 (4,726) (4,669) (3,696)

Provisions 25 (700) (654) (688)

Other non-current liabilities 26 (416) (459) (723)

Total non-current liabilities (43,084) (10,163) (10,468)

Current liabilities

Short-term debt 27 (6,273) (1,117) (3,032)

Current income tax liabilities 6 (2,478) (2,193) (2,215)

Provisions 25 (1,618) (804) (1,517)

Accounts payable 22 (2,300) (2,017) (1,861)

Accrued and other current liabilities 23 (9,398) (5,973) (5,829)

Total current liabilities (22,067) (12,104) (14,454)

Total liabilities (65,151) (22,267) (24,922)

Total net assets 9,414 53,822 53,443

Equity

Capital and reserves attributable to Roche shareholders 28 7,366 44,479 45,483

Equity attributable to non-controlling interests 30 2,048 9,343 7,960

Total equity 9,414 53,822 53,443


Roche Group consolidated statement of cash flows | in millions of CHF


Cash flows from operating activities

Cash generated from operations 31 19,304 17,626

(Increase) decrease in working capital 349 (524)

Payments made for defined benefit post-employment plans 10 (467) (353)

Utilisation of provisions 25 (709) (1,061)

Other operating cash flows 167 3

Cash flows from operating activities, before income taxes paid 18,644 15,691

Income taxes paid (1,767) (3,514)

Total cash flows from operating activities 16,877 12,177

Cash flows from investing activities

Purchase of property, plant and equipment (2,984) (3,139)

Purchase of intangible assets (235) (418)

Disposal of property, plant and equipment 113 69

Disposal of intangible assets 3 –

Disposal of products 169 472

Business combinations 7 (98) (3,004)

Divestments of subsidiaries 34 15 40

Interest and dividends received 31 306 611

Sales of marketable securities 14,968 16,666

Purchases of marketable securities (15,171) (12,758)

Other investing cash flows 5 (261)

Total cash flows from investing activities (2,909) (1,722)

Cash flows from financing activities

Proceeds from issue of bonds and notes 27 48,197 –

Redemption and repurchase of bonds and notes 27 (7,421) (2,188)

Increase (decrease) in commercial paper 27 (261) (107)

Increase (decrease) in other debt 27 (133) (317)

Hedging and collateral arrangements 27 3,264 –

Change in ownership interest in subsidiaries

— Genentech 3 (52,708) –

— Chugai 4 – (934)

— Ventana 7 – (1,285)

— Memory 7 (6) –

Interest paid (748) (216)

Dividends paid (4,395) (4,051)

Genentech

— Genentech equity compensation plans 11 108 735

— Genentech share repurchases 3 – (844)

Equity-settled equity compensation plans, net of transactions

in own equity instruments 11 (651) (235)

Chugai share repurchases 4 (14) –

Other financing cash flows – –

Total cash flows from financing activities (14,768) (9,442)

Net effect of currency translation on cash and cash equivalents (1,673) 147

Increase (decrease) in cash and cash equivalents (2,473) 1,160

Cash and cash equivalents at 1 January 4,915 3,755

Cash and cash equivalents at 31 December 21 2,442 4,915

35

Roche Group consolidated statement of changes in equity | in millions of CHF

Reserves Non-Share Retained controlling Total

capital earnings Fair value Hedging Translation Total interests equity

Year ended 31 December 2008

At 1 January 2008 160 49,905 125 – (4,707) 45,483 7,960 53,443

Net income recognised in income

statement – 8,969 – – – 8,969 1,875 10,844

Available-for-sale investments – – (372) – – (372) (48) (420)

Cash flow hedges – – – 9 – 9 7 16

Currency translation of foreign operations – – 16 – (2,833) (2,817) (181) (2,998)

Defined benefit post-employment plans – (1,504) – – – (1,504) (18) (1,522)

Total comprehensive income – 7,465 (356) 9 (2,833) 4,285 1,635 5,920

Business combinations 7 – – – – – – 321 321

Dividends paid – (3,969) – – – (3,969) (95) (4,064)

Equity compensation plans, net of

transactions in own equity instruments – 691 – – – 691 574 1,265

Genentech and Chugai share

repurchases 3, 4 – (472) – – – (472) (372) (844)

Changes in ownership interests

in subsidiaries

— Chugai 4 – (530) – – – (530) (404) (934)

— Ventana 7 – (964) – – – (964) (321) (1,285)

Changes in non-controlling interests – (45) – – – (45) 45 –

At 31 December 2008 160 52,081 (231) 9 (7,540) 44,479 9,343 53,822


At 1 January 2009 160 52,081 (231) 9 (7,540) 44,479 9,343 53,822

Net income recognised

in income statement – 7,784 – – – 7,784 726 8,510

Available-for-sale investments – – 352 – – 352 3 355

Cash flow hedges – – – 60 – 60 15 75

Currency translation of foreign operations – – (22) (4) 2,747 2,721 333 3,054

Defined benefit post-employment plans – (6) – – – (6) 1 (5)

Total comprehensive income – 7,778 330 56 2,747 10,911 1,078 11,989

Business combinations 7 – – – – – – 4 4

Dividends paid – (4,300) – – – (4,300) (95) (4,395)


transactions in own equity instruments – 77 – – – 77 178 255

Genentech and Chugai

share repurchases 3, 4 – (9) – – – (9) (5) (14)


in subsidiaries

— Genentech 3 – (43,777) – – – (43,777) (8,464) (52,241)

— Memory 7 – (2) – – – (2) (4) (6)

Changes in non-controlling interests – (13) – – – (13) 13 –

At 31 December 2009 160 11,835 99 65 (4,793) 7,366 2,048 9,414

36 Roche Finance Report 2009 Roche Group — Notes to the Roche Group Consolidated Financial Statements

Notes to the Roche Group ConsolidatedFinancial Statements

Reference numbers indicate corresponding Notes to the Consolidated Financial Statements.

1. Summary of significant accounting policiesBasis of preparation of the consolidated financial statementsThe consolidated financial statements of the Roche Group have been prepared in accordance withInternational Financial Reporting Standards (IFRS) and comply with Swiss law. They have been preparedusing the historical cost convention except that, as disclosed in the accounting policies below, certainitems, including derivatives and available-for-sale investments, are shown at fair value. They were approvedfor issue by the Board of Directors on 28 January 2010 and are subject to approval by the Annual GeneralMeeting of shareholders on 2 March 2010.

The preparation of the consolidated financial statements requires management to make estimates andassumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosureof contingent liabilities at the date of the financial statements. If in the future such estimates and assumptions,which are based on management’s best judgement at the date of the financial statements, deviate from theactual circumstances, the original estimates and assumptions will be modified as appropriate in the yearin which the circumstances change.

Changes in accounting policies that arise from the application of new or revised standards and interpreta-tions are applied retrospectively, unless otherwise specified in the transitional requirements of the particularstandard or interpretation. Retrospective application requires that the results of the comparative periodand the opening balances of that period are restated as if the new accounting policy had always beenapplied. In some cases the transitional requirements of the particular standard or interpretation specify thatthe changes are to be applied prospectively. Prospective application requires that the new accounting policyonly be applied to the results of the current period and the comparative period is not restated. In additioncomparatives have been reclassified or extended from the previously reported results to take into accountany presentational changes.

Consolidation policyThese financial statements are the consolidated financial statements of Roche Holding Ltd, a companyregistered in Switzerland, and its subsidiaries (‘the Group’).

The subsidiaries are those companies controlled, directly or indirectly, by Roche Holding Ltd, where controlis defined as the power to govern the financial and operating policies of an enterprise so as to obtain benefitsfrom its activities. This control is normally evidenced when Roche Holding Ltd owns, either directly orindirectly, more than 50% of the voting rights or currently exercisable potential voting rights of a company’sshare capital. Special Purpose Entities are consolidated where the substance of the relationship is that theSpecial Purpose Entity is controlled by the Group. Companies acquired during the year are consolidatedfrom the date on which control is transferred to the Group, and subsidiaries to be divested are included upto the date on which control passes from the Group. Inter-company balances, transactions and resultingunrealised income are eliminated in full. Changes in ownership interests in subsidiaries are accounted foras equity transactions if they occur after control has already been obtained and if they do not result ina loss of control.

37

Investments in associates are accounted for using the equity method. These are companies over which theGroup exercises, or has the power to exercise, significant influence, but which it does not control. This isnormally evidenced when the Group owns 20% or more of the voting rights or currently exercisable potentialvoting rights of the company. Balances and transactions with associates that result in unrealised incomeare eliminated to the extent of the Group’s interest in the associate. Interests in joint ventures are reportedusing the line-by-line proportionate consolidation method.

Segment reportingThe determination of the Group’s operating segments is based on the organisation units for whichinformation is reported to the Group’s management. The Group has two divisions, Pharmaceuticals andDiagnostics. Revenues are primarily generated from the sale of prescription pharmaceutical productsand diagnostic instruments, reagents and consumables, respectively. Both divisions also derive revenue fromthe sale or licensing of products or technology to third parties. Certain headquarter activities are reportedas ‘Corporate’. These consist of corporate headquarters, including the Corporate Executive Committee,corporate communications, corporate human resources, corporate finance, including treasury, taxes andpension fund management, corporate legal and corporate safety and environmental services. Previously withinthe Pharmaceuticals Division there had been three sub-divisions, Roche Pharmaceuticals, Genentech andChugai. Following the completion of the Genentech transaction (see Note 3), the Genentech sub-division wasmerged into the Roche Pharmaceuticals sub-division, and the Chugai sub-division is aggregated as partof the Pharmaceuticals Division in these consolidated financial statements.

Transfer prices between operating segments are set on an arm’s length basis. Operating assets andliabilities consist of property, plant and equipment, goodwill and intangible assets, trade receivables/payables,inventories and other assets and liabilities, such as provisions, which can be reasonably attributed to thereported operating segments. Non-operating assets and liabilities mainly include current and deferred incometax balances, post-employment benefit assets/liabilities and financial assets/liabilities such as cash,marketable securities, investments and debt.

Foreign currency translationMost Group companies use their local currency as their functional currency. Certain Group companiesuse other currencies (such as US dollars, Swiss francs or euros) as their functional currency where this is thecurrency of the primary economic environment in which the entity operates. Local transactions in othercurrencies are initially reported using the exchange rate at the date of the transaction. Gains and losses fromthe settlement of such transactions and gains and losses on translation of monetary assets and liabilitiesdenominated in other currencies are included in income, except when they are qualifying cash flow hedgesor arise on monetary items that, in substance, form part of the Group’s net investment in a foreign entity.In such cases the gains and losses are deferred into equity.

Upon consolidation, assets and liabilities of Group companies using functional currencies other than Swissfrancs (foreign entities) are translated into Swiss francs using year-end rates of exchange. Sales, costs,expenses, net income and cash flows are translated at the average rates of exchange for the year. Translationdifferences due to the changes in exchange rates between the beginning and the end of the year and thedifference between net income translated at the average and year-end exchange rates are taken directlyto equity. On disposal of a foreign entity, the identified cumulative currency translation differences withinequity relating to that foreign entity are recognised in income as part of the gain or loss on divestment.


RevenuesSales represent amounts received and receivable for goods supplied to customers after deducting tradediscounts, cash discounts and volume rebates, and exclude value added taxes and other taxes directly linkedto sales. Revenues from the sale of products are recognised upon transfer to the customer of significantrisks and rewards. Trade discounts, cash discounts and volume rebates are recorded on an accrual basisconsistent with the recognition of the related sales. Estimates of expected sales returns, charge-backsand other rebates, including Medicaid in the United States and similar rebates in other countries, are alsodeducted from sales and recorded as accrued liabilities or provisions or as a deduction from accountsreceivable. Such estimates are based on analyses of existing contractual or legislatively mandated obligations,historical trends and the Group’s experience. If the circumstances are such that the level of sales returns,and hence revenues, cannot be reliably measured, then sales are only recognised when the right of returnexpires, which is generally upon prescription of the products to patients. Other revenues are recordedas earned or as the services are performed. Where necessary, single transactions are split into separatelyidentifiable components to reflect the substance of the transaction. Conversely, two or more transactionsmay be considered together for revenue recognition purposes, where the commercial effect cannot beunderstood without reference to the series of transactions as a whole.

Cost of salesCost of sales includes the corresponding direct production costs and related production overheads ofgoods sold and services rendered. Royalties, alliance and collaboration expenses, including all collaborationprofit-sharing arrangements are also reported as part of cost of sales. Start-up costs between validationand the achievement of normal production capacity are expensed as incurred.

Research and developmentIn addition to its internal research and development activities, the Group is also party to in-licensing and similar arrangements with its alliance partners. The Group may also acquire in-process research anddevelopment assets, either through business combinations or through purchases of specific assets.

Internal research costs are charged against income as incurred. Internal development costs are capitalisedas intangible assets only when there is an identifiable asset that can be completed and that will generateprobable future economic benefits and when the cost of such an asset can be measured reliably. The Groupdoes not currently have any such internal development costs that qualify for capitalisation as intangibleassets. Internal development costs are therefore charged against income as incurred since the criteria fortheir recognition as an asset are not met.

In-process research and development assets acquired either through in-licensing arrangements, businesscombinations or separate purchases are capitalised as intangible assets as described below. Once availablefor use, such intangible assets are amortised on a straight-line basis over the period of the expected benefitand are reviewed for impairment at each reporting date.

Licensing, milestone and other upfront receipts and paymentsRoyalty income is recognised on an accrual basis in accordance with the substance of the respectivelicensing agreements. If the collectability of a royalty amount is not reasonably assured, those royalties arerecognised as revenue when the cash is received. Certain Group companies receive from third parties upfront,milestone and other similar payments relating to the sale or licensing of products or technology. Revenueassociated with performance milestones is recognised based on achievement of the deliverables as defined inthe respective agreements. Upfront payments and licence fees for which there are subsequent deliverablesare initially reported as deferred income and are recognised in income as earned over the period of thedevelopment collaboration or the manufacturing obligation.

Payments made by Group companies to third parties and associates for such items are capitalised asintangible assets.

39

Employee benefitsWages, salaries, social security contributions, paid annual leave and sick leave, bonuses, and non-monetarybenefits are accrued in the year in which the associated services are rendered by employees of the Group.Where the Group provides long-term employee benefits, the cost is accrued to match the rendering of theservices by the employees concerned. Liabilities for long-term employee benefits are discounted to takeinto account the time value of money, where material.

Pensions and other post-employment benefitsMost employees are covered by defined benefit and defined contribution post-employment plans sponsoredby Group companies. The Group’s contributions to defined contribution plans are charged to the appropriateincome statement heading within the operating results in the year to which they relate. The accounting andreporting of defined benefit plans are based on recent actuarial valuations. The defined benefit obligationsand service costs are calculated using the projected unit credit method. This reflects service rendered byemployees to the dates of valuation and incorporates actuarial assumptions primarily regarding discount ratesused in determining the present value of benefits, projected rates of remuneration growth and long-termexpected rates of return for plan assets. Discount rates are based on the market yields of high-quality corpo-rate bonds in the country concerned. Past service costs are allocated over the average period until thebenefits become vested. Current and past service costs are charged to the appropriate income statementheading within the operating results. Pension plan administration and funding is overseen at a corporatelevel and any settlement gains and losses resulting from changes in funding arrangements are reportedas general and administration expenses within the ‘Corporate’ segment. The expected returns on plan assetsand interest costs are charged to financial income and financing costs, respectively. Actuarial gains andlosses, which consist of differences between assumptions and actual experiences and the effects of changesin actuarial assumptions, are recorded directly in equity. Pension assets and liabilities in different definedbenefit plans are not offset unless the Group has a legally enforceable right to use the surplus in one plan tosettle obligations in the other plan. The recognition of pension assets is limited to the total of the presentvalue of any future refunds from the plans or reductions in future contributions to the plans and any cumulativeunrecognised past service costs. Adjustments arising from the limit on the recognition of assets for definedbenefit plans are recorded directly in equity.

Equity compensation plansCertain employees of the Group participate in equity compensation plans, including separate plans atGenentech (prior to the Genentech transaction) and at Chugai. The fair value of all equity compensationawards granted to employees is estimated at the grant date and recorded as an expense over the vestingperiod. The expense is charged to the appropriate income statement heading within the operatingresults. For equity-settled plans, an increase in equity is recorded for this expense and any subsequent cashflows from exercises of vested awards are recorded as changes in equity. For cash-settled plans, a liabilityis recorded, which is measured at fair value at each reporting date with any movements in fair value beingrecorded to the appropriate income statement heading within the operating results. Any subsequent cashflows from exercise of vested awards are recorded as a reduction of the liability.

Property, plant and equipmentProperty, plant and equipment are initially recorded at cost of purchase or construction, and include allcosts directly attributable to bringing the asset to the location and condition necessary for it to be capable ofoperating in the manner intended by management. These include items such as costs of site preparation,installation and assembly costs and professional fees. The net costs of testing whether the asset is functioningproperly, including validation costs, are also included in the initially recorded cost of construction. Interestand other borrowing costs incurred with respect to qualifying assets are capitalised and included in thecarrying value of the assets.


Property, plant and equipment are depreciated on a straight-line basis, except for land, which is notdepreciated. Estimated useful lives of major classes of depreciable assets are as follows:

Land improvements 40 years

Buildings 10—50 years

Machinery and equipment 5—15 years

Diagnostic instruments 3—5 years

Office equipment 3 years

Motor vehicles 5 years

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for asseparate components. The estimated useful life of the assets is regularly reviewed and, if necessary, the futuredepreciation charge is accelerated. Repairs and maintenance costs are expensed as incurred.

LeasesWhere the Group is the lessee, leases of property, plant and equipment where the Group has substantiallyall of the risks and rewards of ownership are classified as finance leases. Finance leases are capitalisedat the start of the lease at fair value, or the present value of the minimum lease payments, if lower. The rentalobligation, net of finance charges, is reported within debt. Assets acquired under finance leases aredepreciated in accordance with the Group’s policy on property, plant and equipment. If there is no reasonablecertainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated overthe shorter of the lease term and its useful life. The interest element of the lease payment is charged againstincome over the lease term based on the effective interest rate method. Leases where substantially all ofthe risks and rewards of ownership are not transferred to the Group are classified as operating leases.Payments made under operating leases are charged against income on a straight-line basis over the periodof the lease.

Where the Group is the lessor, which primarily occurs in the Diagnostics Division, assets subject to financeleases are initially reported as receivables at an amount equal to the net investment in the lease. Assetssubject to operating leases are reported within property, plant and equipment. Lease income from financeleases is subsequently recognised as earned income over the term of the lease based on the effective interestrate method. Lease income from operating leases is recognised over the lease term on a straight-line basis.

Business combinations and goodwillBusiness combinations are accounted for using the acquisition method of accounting. The considerationtransferred in a business combination is measured at fair value at the date of acquisition. This considerationincludes the cash paid plus the fair value at the date of exchange of assets given, liabilities incurred orassumed and equity instruments issued by the Group. The fair value of the consideration transferred alsoincludes contingent consideration arrangements at fair value. Directly attributable acquisition-related costsare expensed in the current period and reported within general and administration expenses. At the dateof acquisition the Group recognises the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired business. The identifiable assets acquired and the liabilities assumed areinitially recognised at fair value. Where the Group does not acquire 100% ownership of the acquiredbusiness non-controlling interests are recorded as the proportion of the fair value of the acquired net assetsattributable to the non-controlling interest. Goodwill is recorded as the surplus of the considerationtransferred over the Group’s interest in the fair value of the acquired net assets. Any goodwill and fair valueadjustments are recorded as assets and liabilities of the acquired business in the functional currency ofthat business. Goodwill is not amortised, but is assessed for possible impairment at each reporting date andis additionally tested annually for impairment. Goodwill may also arise upon investments in associates, beingthe surplus of the cost of investment over the Group’s share of the fair value of the net identifiable assets.Such goodwill is recorded within investments in associates. Changes in ownership interests in subsidiariesare accounted for as equity transactions if they occur after control has already been obtained and if theydo not result in a loss of control.

41

Intangible assetsPurchased patents, licences, trademarks and other intangible assets are initially recorded at cost. Wherethese assets have been acquired through a business combination, this will be the fair value allocatedin the acquisition accounting. Intangible assets are amortised over their useful lives on a straight-line basisbeginning from the point when they are available for use. Estimated useful life is the lower of the legalduration and the economic useful life. The estimated useful life of intangible assets is regularly reviewed.

Impairment of property, plant and equipment and intangible assetsAn impairment assessment is carried out when there is evidence that an asset may be impaired. In additionintangible assets that are not yet available for use are tested for impairment annually. When the recoverableamount of an asset, being the higher of its fair value less costs to sell and its value in use, is less than itscarrying value, then the carrying value is reduced to its recoverable amount. This reduction is reported in theincome statement as an impairment loss. Value in use is calculated using estimated cash flows, generallyover a five-year period, with extrapolating projections for subsequent years. These are discounted usingan appropriate long-term pre-tax interest rate. When an impairment loss arises, the useful life of the assetin question is reviewed and, if necessary, the future depreciation/amortisation charge is accelerated.The impairment of financial assets is discussed below in the ‘Financial assets’ policy.

Impairment of goodwillGoodwill is assessed for possible impairment at each reporting date and is additionally tested annually forimpairment. Goodwill is allocated to cash-generating units as described in Note 13. When the recoverableamount of the cash-generating unit, being the higher of its fair value less costs to sell or its value in use,is less than its carrying value, then the carrying value of the goodwill is reduced to its recoverable amount.This reduction is reported in the income statement as an impairment loss. The methodology used in theimpairment testing is further described in Note 13.

InventoriesInventories are stated at the lower of cost and net realisable value. The cost of finished goods and work inprocess includes raw materials, direct labour and other directly attributable costs and overheads basedupon the normal capacity of production facilities. Cost is determined using the weighted average method.Net realisable value is the estimated selling price less cost to completion and selling expenses.

Accounts receivableAccounts receivable are carried at the original invoice amount less allowances made for doubtful accounts,trade discounts, cash discounts, volume rebates and similar allowances. An allowance for doubtful accountsis recorded for the difference between the carrying value and the recoverable amount where there is objectiveevidence that the Group will not be able to collect all amounts due. Trade discounts, cash discounts, volumerebates and similar allowances are recorded on an accrual basis consistent with the recognition of the relatedsales, using estimates based on existing contractual obligations, historical trends and the Group’s experience.Long-term accounts receivable are discounted to take into account the time value of money, where material.

Cash and cash equivalentsCash and cash equivalents include cash on hand and time, call and current balances with banks and similarinstitutions. Such balances are only reported as cash if they are readily convertible to known amounts of cash,are subject to insignificant risk of changes in value and have a maturity of three months or less from the dateof acquisition. This definition is also used for the statement of cash flows.


ProvisionsProvisions are recognised where a legal or constructive obligation has been incurred which will probablylead to an outflow of resources that can be reasonably estimated. In particular, restructuring provisions arerecognised when the Group has a detailed formal plan that has either commenced implementation or beenannounced. Provisions are recorded for the estimated ultimate liability that is expected to arise, taking intoaccount foreign currency effects arising from their translation from their functional currency into Swiss francsand the time value of money, where material. A contingent liability is disclosed where the existence of theobligation will only be confirmed by future events or where the amount of the obligation cannot be measuredwith reasonable reliability. Contingent assets are not recognised, but are disclosed where an inflow ofeconomic benefits is probable.

Fair valuesFair value is the amount for which a financial asset, liability or instrument could be exchanged betweenknowledgeable and willing parties in an arm’s length transaction. It is determined by reference to quotedmarket prices or by the use of established valuation techniques such as option pricing models and thediscounted cash flow method if quoted prices in an active market are not available (‘fair value hierarchy’).Valuation techniques will incorporate observable market data about market conditions and other factors thatare likely to affect the fair value of a financial instrument. Valuation techniques are typically used for derivativefinancial instruments. The fair values of financial assets and liabilities at the reporting date are not materiallydifferent from their reported carrying values unless specifically mentioned in the Notes to the ConsolidatedFinancial Statements. Information on fair value hierarchy is included in Note 32 on risk management.

Financial assetsFinancial assets, principally investments, including marketable securities, are classified as either ‘Fair-value-through-profit-or-loss’, ‘Available-for-sale’, ‘Held-to-maturity’ or ‘Loans and receivables’. Fair-value-through-profit-or-loss financial assets are either classified as held-for-trading or designated upon initial recognition.Held-for-trading financial assets are acquired principally to generate profit from short-term fluctuations inprice. Financial assets are designated as fair-value-through-profit-or-loss if doing so results in more relevantinformation by eliminating a measurement or recognition inconsistency. Held-to-maturity financial assetsare securities with a fixed maturity that the Group has the intent and ability to hold until maturity. Loans andreceivables are financial assets created by the Group or acquired from the issuer in a primary market.They are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. All other financial assets are considered to be available-for-sale.

All financial assets are initially recorded at fair value, including transaction costs, except for assets at fair-value-through-profit-or-loss, which exclude transaction costs. All purchases and sales are recognised onthe settlement date. Fair-value-through-profit-or-loss financial assets are subsequently carried at fair value,with all changes in fair value recorded as financial income in the period in which they arise. Held-to-maturityfinancial assets are subsequently carried at amortised cost using the effective interest rate method. Available-for-sale financial assets are subsequently carried at fair value, with all unrealised changes in fair valuerecorded in equity except for interest calculated using the effective interest rate method and foreign exchangecomponents. When the available-for-sale financial assets are sold, impaired or otherwise disposed of,the cumulative gains and losses previously recognised in equity are included in financial income for thecurrent period. Loans and receivables are subsequently carried at amortised cost using the effectiveinterest rate method.

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Financial assets are individually assessed for possible impairment at each reporting date. An impairmentcharge is recorded where there is objective evidence of impairment, such as where the issuer is inbankruptcy, default or other significant financial difficulty. In addition any available-for-sale equity securitiesthat have a market value of more than 25% below their original cost, net of any previous impairment,will be considered as impaired. Any available-for-sale equity securities that have a market value below theiroriginal cost, net of any previous impairment, for a sustained six-month period will also be considered asimpaired. Any decreases in the market price of less than 25% of original cost, net of any previous impairment,which are also for less than a sustained six-month period are not by themselves considered as objectiveevidence of impairment. Such movements in fair value are recorded in equity until there is objectiveevidence of impairment or until the asset is sold or otherwise disposed of. For financial assets carried atamortised cost, any impairment charge is the difference between the carrying value and the recoverableamount, calculated using estimated future cash flows discounted using the original effective interest rate.For available-for-sale financial assets, any impairment charge is the amount currently carried in equity forthe difference between the original cost, net of any previous impairment, and the fair value. An impairmentloss is reversed if the reversal can be related objectively to an event occurring after the impairment losswas recognised. For debt securities measured at amortised cost or available-for-sale, the reversal is recognisedin income. For equity securities held available-for-sale, the reversal is recognised directly in equity.

A financial asset is derecognised when the contractual cash flows from the asset expire or when the Grouptransfers the rights to receive the contractual cash flows from the financial assets in a transaction inwhich substantially all the risks and rewards of ownership of the financial asset are transferred. Any interestin transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

DerivativesDerivative financial instruments are initially recorded and subsequently carried at fair value. Apart from thosederivatives designated as qualifying cash flow hedging instruments as discussed in the ‘Hedging’ policybelow, all changes in fair value are recorded as financial income in the period in which they arise. Embeddedderivatives are recognised separately if not closely related to the host contract and where the host contractis carried at amortised cost.

Hedge accountingFor the purposes of hedge accounting, hedging relationships may be of three types. A ‘fair value hedge’is a hedge of the exposure to changes in fair value of a recognised asset or liability, or an unrecognised firmcommitment, or an identified portion of such an asset, liability or firm commitment, that is attributable toa particular risk and could affect profit or loss. A ‘cash flow hedge’ is a hedge of the exposure to variabilityin cash flows that is attributable to a particular risk associated with a recognised asset or liability or ahighly probable forecast transaction and could affect profit or loss. A ‘hedge of a net investment in a foreignoperation’ is a hedge of the foreign currency exposure on a net investment in a foreign operation.

To qualify for hedge accounting the hedging relationship must meet several strict conditions on documentation,probability of occurrence (for cash flow hedges), hedge effectiveness and reliability of measurement.If these conditions are not met, then the relationship does not qualify for hedge accounting. In this casethe hedging instrument and the hedged item are reported independently as if there were no hedging relation-ship. In particular any derivatives are reported at fair value, with changes in fair value included in financialincome.

For qualifying fair value hedges, the hedging instrument is recorded at fair value and the hedged itemis recorded at its previous carrying value, adjusted for any changes in fair value that are attributable to thehedged risk. Any changes in the fair values are reported in financial income.


For qualifying cash flow hedges, the hedging instrument is recorded at fair value. The portion of any changein fair value that is an effective hedge is included in equity, and any remaining ineffective portion is reportedin financial income. If the hedging relationship is the hedge of the foreign currency risk of a firm commitmentor highly probable forecasted transaction that results in the recognition of a non-financial asset or liability,the cumulative changes in the fair value of the hedging instrument that have been recorded in equity areincluded in the initial carrying value of the asset or liability at the date of recognition. For all other qualifyingcash flow hedges, the cumulative changes in the fair value of the hedging instrument that have beenrecorded in equity are included in financial income when the forecasted transaction affects net income.

For qualifying hedges of net investment in a foreign entity, the hedging instrument is recorded at fair value.The portion of any change in fair value that is an effective hedge is included in equity. Any remainingineffective portion is recorded in financial income where the hedging instrument is a derivative and in equityin other cases. If the entity is disposed of, then the cumulative changes of fair value of the hedginginstrument that have been recorded in equity are reclassified to income.

DebtDebt instruments are initially recorded at cost, which is the proceeds received, net of transaction costs.Subsequently they are reported at amortised cost. Any discount between the net proceeds received and theprincipal value due on redemption is amortised over the duration of the debt instrument and is recognisedas part of financing costs using the effective interest rate method. The Group derecognises a financial liabilitywhen its contractual obligations are discharged, cancelled or expired.

Certain debt instruments have been designated as ‘fair-value-through-profit-or-loss’ where doing so resultsin more relevant information as it eliminates or significantly reduces measurement or recognition inconsistencies.Such debt instruments were reported at fair value, based on quoted prices in an active market, withmovements in fair value reported within financial income. The Group’s last such instrument was redeemedon 6 July 2009 as disclosed in Note 27.

TaxationIncome taxes include all taxes based upon the taxable profits of the Group, including withholding taxespayable on the distribution of retained earnings within the Group. Other taxes not based on income, such asproperty and capital taxes, are included within general and administration expenses.

Liabilities for income taxes, mainly withholding taxes, which could arise on the remittance of retainedearnings, principally relating to subsidiaries, are only recognised where it is probable that such earningswill be remitted in the foreseeable future.

Deferred income tax assets and liabilities are recognised on temporary differences between the tax bases ofassets and liabilities and their carrying values in the financial statements. Deferred income tax assets relatingto the carry-forward of unused tax losses are recognised to the extent that it is probable that future taxableprofit will be available against which the unused tax losses can be utilised.

Current and deferred income tax assets and liabilities are offset when the income taxes are levied by thesame taxation authority and when there is a legally enforceable right to offset them. Deferred income taxesare determined based on the currently enacted tax rates applicable in each tax jurisdiction where theGroup operates.

Discontinued businesses and non-current assets held for saleA discontinued business is a component of the Group’s business that represents a separate major line ofbusiness or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.Reclassification as a discontinued business occurs upon disposal or when the operation meets the criteriato be classified as held for sale, if earlier.

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A disposal group is a group of assets that are to be disposed of as a group in a single transaction, togetherwith the liabilities directly associated with those assets that will be transferred in the transaction. The assetsand liabilities in a disposal group are reclassified as held for sale if their value will be recovered principallythrough a sale rather than through continuing use. The disposal group must be available for sale in its currentcondition and the sale must be highly probable.

Immediately before classification as held for sale, the measurement of all assets and liabilities in a disposalgroup is updated in accordance with applicable accounting policies. Then, on initial classification as held forsale, disposal groups are recognised at the lower of carrying value and fair value less costs to sell. Impairmentlosses on initial classification as held for sale are included in the income statement.

Own equity instrumentsThe Group’s holdings in its own equity instruments are recorded as a deduction from equity. The originalpurchase cost, consideration received for subsequent resale of these equity instruments and othermovements are reported as changes in equity. These instruments have been acquired primarily to meet thepotential obligations to employees that may arise in respect of certain of the Group’s equity compensationplans.

Management judgements made in applying accounting policiesThe application of the Group’s accounting policies may require management to make judgements, apart fromthose involving estimates, that can have a significant effect on the amounts recognised in the consolidatedfinancial statements. Management judgement is particularly required when assessing the substance of trans-actions that have a complicated structure or legal form. These include, but are not limited to, the followingareas:

Revenue recognition | The nature of the Group’s business is such that many sales transactions do nothave a simple structure. Sales agreements may consist of multiple components occurring at different times.The Group is also party to various out-licensing agreements, which can involve upfront and milestonepayments that may occur over several years. These agreements may also involve certain future obligations.Revenue is only recognised when, in management’s judgement, the significant risks and rewards of ownershiphave been transferred and when the Group does not retain continuing managerial involvement or effectivecontrol over the goods sold or when the obligation has been fulfilled. For some transactions this can result incash receipts being initially recognised as deferred income and then released to income over subsequentperiods on the basis of the performance of the conditions specified in the agreement.

Consolidation of subsidiaries and associates | The Group periodically undertakes transactions that mayinvolve obtaining the right to control or significantly influence the operations of other companies. Thesetransactions include the acquisition of all or part of the equity of other companies, the purchase of certainassets and assumption of certain liabilities and contingent liabilities of other companies, and entering intoalliance agreements with other companies. Also included are transactions involving Special Purpose Entitiesand similar vehicles. In all such cases management makes an assessment as to whether the Group hasthe right to control or significantly influence the other company’s operations, and based on this assessmentthe other company is consolidated as a subsidiary or associated company. In making this assessmentmanagement considers the underlying economic substance of the transaction and not only the contractualterms.


Business combinations | Where the Group acquires control of another business, the considerationtransferred has to be allocated to the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired business, with any residual recorded as goodwill. This processinvolves management making an assessment of the fair value of these items. Management judgement is particularly involved in the recognition and measurement of the following items:

• Intellectual property. This may include patents, licences, trademarks and similar rights for currentlymarketed products, and also the rights and scientific knowledge associated with projects that are currentlyin research or development phases.

• Contingencies such as legal and environmental matters.

• Contingent consideration arrangements.

• The recoverability of any accumulated tax losses previously incurred by the acquired company.

In all cases management makes an assessment based on the underlying economic substance of the itemsconcerned, and not only on the contractual terms, in order to fairly present these items.

Leases | The Group is party to leasing arrangements, both as a lessee and as a lessor. The treatment of leasing transactions in the financial statements is mainly determined by whether the lease is consideredto be an operating lease or a finance lease. In making this assessment, management looks at the substanceof the lease, as well as the legal form, and makes a judgement about whether substantially all of the risksand rewards of ownership are transferred. Arrangements which do not take the legal form of a lease butthat nevertheless convey the right to use an asset are also covered by such assessments.

Key assumptions and sources of estimation uncertaintyThe preparation of the consolidated financial statements in conformity with IFRS requires management tomake estimates and assumptions that affect the application of policies and reported amounts of assets,liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based onhistorical experience and various other factors that are believed to be reasonable under the circumstances,the results of which form the basis for making the judgements about carrying values of assets and liabilitiesthat are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accountingestimates may be necessary if there are changes in the circumstances on which the estimate was based,or as a result of new information or more experience. Such changes are recognised in the period inwhich the estimate is revised.

The key assumptions about the future and key sources of estimation uncertainty that have a significant riskof causing a material adjustment to the carrying value of assets and liabilities within the next twelve monthsare described below.

Revenue recognition | If the circumstances are such that the level of sales returns, and hence revenues,cannot be reliably measured, then sales are only recognised when the right of return expires, which isgenerally upon prescription of the products to patients. In order to estimate this, management uses publiclyavailable information about prescriptions as well as information provided by wholesalers and otherintermediaries.

Sales allowances | The Group has provisions and accruals for expected sales returns, charge-backsand other rebates, including Medicaid in the United States and similar rebates in other countries, whichat 31 December 2009 total 1,062 million Swiss francs. Such estimates are based on analyses of existingcontractual or legislatively-mandated obligations, historical trends and the Group’s experience. Managementbelieves that the total provisions and accruals for these items are adequate, based upon currently availableinformation. As these deductions are based on management estimates, they may be subject to change as better information becomes available. Such changes that arise could impact the provisions and accrualsrecognised in the balance sheet in future periods and consequently the level of sales recognised in theincome statement in future periods.

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Property, plant and equipment and intangible assets, including goodwill | The Group has property,plant and equipment with a carrying value of 17,697 million Swiss francs as disclosed in Note 12. Goodwillhas a carrying value of 8,261 million Swiss francs (see Note 13) and intangible assets have a carrying valueof 6,005 million Swiss francs (see Note 14). All of these assets are reviewed annually for impairmentas described above. To assess whether any impairment exists, estimates are made of the future cash flowsexpected to result from the use of the asset and its eventual disposal. Actual outcomes could varysignificantly from such estimates of discounted future cash flows. Factors such as changes in the planneduse of buildings, machinery or equipment, or closure of facilities, the presence or absence of competition,technical obsolescence or lower than anticipated sales of products with capitalised rights could result in shortened useful lives or impairment. Changes in the discount rates used could also lead to impairments.

Pensions and other post-employment benefits | Many of the Group’s employees participate in post-employment defined benefit plans. The calculations of the recognised assets and liabilities from such plansare based upon statistical and actuarial calculations. In particular the present value of the defined benefitobligation is impacted by assumptions on discount rates used to arrive at the present value of future pensionliabilities, and assumptions on future increases in salaries and benefits. Furthermore, the Group’s independentactuaries use statistically based assumptions covering areas such as future withdrawals of participants fromthe plan and estimates of life expectancy. At 31 December 2009 the present value of the Group’s definedbenefit obligation is 11,267 million Swiss francs for funded plans and 3,486 million Swiss francs for unfundedplans (see Note 10). The actuarial assumptions used may differ materially from actual results due tochanges in market and economic conditions, higher or lower withdrawal rates, longer or shorter life spansof participants, and other changes in the factors being assessed. These differences could impact theassets or liabilities recognised in the balance sheet in future periods.

Legal provisions | Group companies are party to various legal proceedings, including claims arising fromtrade, and the most significant matters are described in Note 25. Legal provisions at 31 December 2009 total549 million Swiss francs. Management believes that the total provisions for legal proceedings are adequatebased upon currently available information. However, given the inherent difficulties in estimating liabilitiesin this area, it cannot be guaranteed that additional costs will not be incurred beyond the amounts accrued.Additional claims could be made which might not be covered by existing provisions or by insurance.There can be no assurance that there will not be an increase in the scope of these matters or that any futurelawsuits, claims, proceedings or investigations will not be material. Such changes that arise could impactthe provisions recognised in the balance sheet in future periods.

Environmental provisions | The Group has provisions for environmental remediation costs, which at31 December 2009 total 247 million Swiss francs, as disclosed in Note 25. The material components of theenvironmental provisions consist of costs to fully clean and refurbish contaminated sites and to treat andcontain contamination at certain other sites. Future remediation expenses are affected by a number ofuncertainties that include, but are not limited to, the detection of previously unknown contaminated sites,the method and extent of remediation, the percentage of waste material attributable to the Group at theremediation sites relative to that attributable to other parties, and the financial capabilities of the otherpotentially responsible parties. Management believes that the total provisions for environmental matters areadequate based upon currently available information. However, given the inherent difficulties in estimatingliabilities in this area, it cannot be guaranteed that additional costs will not be incurred beyond theamounts accrued. The effect of the resolution of environmental matters on the results of operations cannotbe predicted due to uncertainty concerning both the amount and the timing of future expenditures.Such changes that arise could impact the provisions recognised in the balance sheet in future periods.


Income taxes | At 31 December 2009 the net liability for current income taxes is 2,234 million Swiss francsand the net asset for deferred income taxes is 1,474 million Swiss francs, as disclosed in Note 6. Significantestimates are required to determine the current and deferred assets and liabilities for income taxes. Someof these estimates are based on interpretations of existing tax laws or regulations. Management believes thatthe estimates are reasonable and that the recognised liabilities for income tax-related uncertainties areadequate. Various internal and external factors may have favourable or unfavourable effects on the income taxassets and liabilities. These factors include, but are not limited to, changes in tax laws, regulations and/orrates, changing interpretations of existing tax laws or regulations, future levels of research and developmentspending and changes in overall levels of pre-tax earnings. Such changes that arise could impact the assetsand liabilities recognised in the balance sheet in future periods.

Changes in accounting policiesIn 2007 the Group early adopted IFRS 8 ‘Operating Segments’ and IAS 23 (revised) ‘Borrowing Costs’which were required to be implemented from 1 January 2009 at the latest. In 2008 the Group early adoptedthe revised versions of IFRS 3 ‘Business Combinations’ and IAS 27 ‘Consolidated and Separate FinancialStatements’ which are required to be implemented from 1 January 2010 at the latest.

In 2009 the Group has implemented revisions to IAS 1 ‘Presentation of Financial Statements’ the effects ofwhich are described below. The Group has also implemented various other amendments to existing standardsand interpretations, which have no material impact on the Group’s overall results and financial position.

IAS 1 (revised) ‘Presentation of Financial Statements’ | Amongst other matters, the revised standardrequires some changes to the format of the statement of comprehensive income, the statement of changes inequity and requires some additional disclosures in the Notes to the Financial Statements, notably disclosingthe pre-tax and tax impact of items of other comprehensive income (see Note 6). The balance sheet alsoincludes the opening balances as at the beginning of the comparative period, and this is also reflected in therelevant Notes to the Financial Statements. The Group has also simplified the presentation of its equity byreporting ‘own equity instruments’ together with ‘retained earnings’. The changes from the implementationof the revised standard are purely presentational and have no impact on the Group’s overall results andfinancial position.

The Group is currently assessing the potential impacts of the other new and revised standards andinterpretations that will be effective from 1 January 2010 and beyond, and which the Group has not earlyadopted. The Group does not anticipate that these will have a material impact on the Group’s overallresults and financial position.

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2. Operating segment informationDivisional information | in millions of CHF

Pharmaceuticals Diagnostics Corporate Group2009 2008 2009 2008 2009 2008 2009 2008

Revenues from external

customers

Sales 38,996 35,961 10,055 9,656 – – 49,051 45,617

Royalties and other operating

income 1,948 2,148 152 139 – – 2,100 2,287

Total 40,944 38,109 10,207 9,795 – – 51,151 47,904

Revenues from

other operating segments

Sales 7 8 10 9 – – 17 17

Royalties and other

operating income – – – – – – – –

Elimination of

inter-divisional revenue (17) (17)

Total 7 8 10 9 – – – –

Segment results


exceptional items 14,154 12,974 1,198 1,187 (340) (265) 15,012 13,896

Major legal cases (320) 271 – – – – (320) 271

Changes in Group organisation (2,415) (243) – – – – (2,415) (243)

Operating profit 11,419 13,002 1,198 1,187 (340) (265) 12,277 13,924

Capital expenditure

Business combinations 57 631 50 3,266 – – 107 3,897

Additions to property, plant

and equipment 1,644 1,940 1,191 1,245 2 2 2,837 3,187

Additions to intangible assets 228 410 8 8 – – 236 418

Total capital expenditure 1,929 2,981 1,249 4,519 2 2 3,180 7,502

Research and development

Research and development costs 8,896 7,904 978 941 – – 9,874 8,845

Other segment information

Depreciation of property, plant

and equipment 1,255 1,022 721 649 5 5 1,981 1,676

Amortisation of intangible assets 253 511 459 458 – – 712 969

Impairment of property, plant

and equipment 1,118 20 9 8 – – 1,127 28

Impairment of goodwill – – – – – – – –

Impairment of intangible assets 588 99 80 5 – – 668 104

Equity compensation plan expenses 522 469 45 31 28 13 595 513


Net operating assets | in millions of CHF

Assets Liabilities Net assets2009 2008 2007 2009 2008 2007 2009 2008 2007

Pharmaceuticals 31,068 32,483 32,590 (8,885) (7,213) (7,898) 22,183 25,270 24,692

Diagnostics 19,027 18,750 16,323 (2,340) (2,141) (2,263) 16,687 16,609 14,060

Corporate 152 156 232 (199) (248) (271) (47) (92) (39)

Total operating 50,247 51,389 49,145 (11,424) (9,602) (10,432) 38,823 41,787 38,713

Non-operating 24,318 24,700 29,220 (53,727) (12,665) (14,490) (29,409) 12,035 14,730

Group 74,565 76,089 78,365 (65,151) (22,267) (24,922) 9,414 53,822 53,443

Information by geographical area | in millions of CHF

Revenues from external customers Non-current assetsRoyalties and

other operating Property, plant Goodwill and Sales income and equipment intangible assets

2009

Switzerland 499 427 2,744 2,326

European Union 16,219 59 4,902 2,265

— of which Germany 3,320 57 3,481 2,210

Rest of Europe 1,568 – 45 2

Europe 18,286 486 7,691 4,593

United States 17,208 1,499 6,554 9,074

Rest of North America 948 2 123 93

North America 18,156 1,501 6,677 9,167

Latin America 2,940 22 485 18

Japan 5,036 87 1,776 486

Rest of Asia 3,166 4 959 –

Asia 8,202 91 2,735 486

Africa, Australia and Oceania 1,467 – 109 2

Total 49,051 2,100 17,697 14,266

2008

Switzerland 509 493 2,625 2,366

European Union 15,601 272 4,732 2,381

— of which Germany 3,200 252 3,321 2,334

Rest of Europe 1,521 16 43 3

Europe 17,631 781 7,400 4,750

United States 16,362 1,449 8,095 10,032

Rest of North America 932 1 117 90

North America 17,294 1,450 8,212 10,122

Latin America 2,975 2 397 22

Japan 3,532 54 1,807 579

Rest of Asia 2,920 – 287 –

Asia 6,452 54 2,094 579

Africa, Australia and Oceania 1,265 – 87 1

Total 45,617 2,287 18,190 15,474

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Supplementary information on sales by therapeutic areas in the Pharmaceuticals Division and by businessareas in the Diagnostics Division are given on pages 6—8 and 13—14 respectively. Sales are allocated togeographical areas by destination according to the location of the customer. Royalties and other operatingincome are allocated according to the location of the Group company that receives the revenue. EuropeanUnion information is based on members of the EU as at 31 December 2009.

Major customersThe US national wholesale distributor, AmerisourceBergen Corp., represented approximately 6 billionSwiss francs (2008: 6 billion Swiss francs) of the Group’s revenues. Approximately 82% of these revenueswere in the Pharmaceuticals operating segment, with the residual in the Diagnostics segment. The Groupalso reported substantial revenues from the US national wholesale distributors, Cardinal Health, Inc.and McKesson Corp., and in total these three customers represented approximately a quarter of the Group’srevenues.

3. GenentechEffective 7 September 1990 the Roche Group acquired a majority interest of approximately 60% of Genentech,Inc., a biotechnology company in the United States. On 13 June 1999 the Group exercised its option toacquire the remaining shares of Genentech on 30 June 1999, at which point Genentech became a 100%owned subsidiary of the Group. On 23 July 1999, 26 October 1999 and 29 March 2000 the Group completedpublic offerings of Genentech’s common stock, which reduced the Group’s majority interest to 60%. The common stock of Genentech became publicly traded and was listed on the New York Stock Exchange,under the symbol ‘DNA’. During 2004 the Group’s ownership of Genentech decreased by 2.45% due to theconversion and redemption of the ‘LYONs IV’ US dollar exchangeable notes. At 31 December 2008 theGroup’s interest in Genentech was 55.8%.

Genentech transactionOn 21 July 2008 the Group announced a proposal to purchase all of the outstanding shares of Genentechcommon stock not owned by Roche at a price of USD 89.00 in cash per share, equivalent to a total cash payment of approximately 43.7 billion US dollars (the ‘Roche Proposal’). On 24 July 2008 Genentechannounced that a special committee of its Board of Directors composed of its independent directors(the ‘Special Committee’) had been formed to review, evaluate, and, at the Special Committee’s discretion,negotiate and recommend or not recommend the acceptance of the Roche Proposal. On 13 August 2008Genentech announced that the Special Committee did not support the proposal.

On 9 February 2009 Roche Investments USA Inc., a wholly owned subsidiary of the Group, commenceda cash tender offer for the publicly-held Genentech shares at USD 86.50 per share. On 12 March 2009,Roche entered into a merger agreement with Genentech pursuant to which the Group made a successfultender offer to purchase all of the shares of Genentech not already owned by the Group for USD 95.00per share in cash (the ‘Genentech transaction’). As a result, Genentech became a wholly-owned subsidiaryof the Group, effective 26 March 2009.

The cash consideration for the purchase of all public shares, including shares issuable under Genentech’soutstanding employee stock option plans and payment of related fees and expenses, amounted toapproximately 47 billion US dollars, as set out in the table below. These amounts have been recordedto equity as a change in ownership interest in subsidiaries.


Genentech transaction

USD millions CHF millions

Purchase of publicly held shares 44,400 49,774

Settlement of outstanding employee stock options 2,412 2,704

Directly attributable transaction costs 205 230

Total cash consideration 47,017 52,708

Income tax effects (417) (467)

Change in ownership interest in subsidiaries 46,600 52,241

Translated at spot rate on date of transaction (26 March 2009) 1 USD = 1.12 CHF

The Group financed the Genentech transaction by a combination of the Group’s own funds, bonds, notesand commercial paper. The Group raised net proceeds of approximately 48.2 billion Swiss francs througha series of debt offerings, as described in Note 27. All newly issued debt is senior, unsecured and has beenguaranteed by Roche Holding Ltd.

The impacts of the Genentech transaction and the related reorganisation of Roche’s pharmaceuticals businesson the Group’s results are described in Note 8.

Genentech share repurchasesOn 15 April 2008 Genentech’s Board of Directors approved an extension of the existing stock repurchaseprogramme authorising Genentech to repurchase up to 150 million shares of Genentech’s common stock fora total of 10 billion US dollars through 30 June 2009. Since the programme’s inception through 31 December2008, Genentech had repurchased approximately 89 million shares for a total of approximately 6.5 billionUS dollars. During 2008 the net cash outflow from repurchases of Genentech common stock was 780 millionUS dollars or 844 million Swiss francs. No repurchases were made during 2009.

4. ChugaiEffective 1 October 2002 the Roche Group and Chugai completed an alliance to create a leading research-driven Japanese pharmaceutical company, which was formed by the merger of Chugai and Roche’s Japanesepharmaceuticals subsidiary, Nippon Roche. The merged company, known as Chugai, is a fully consolidatedsubsidiary of the Group. At 31 December 2009 the Group’s interest in Chugai was 61.6% (2008: 61.5%).

The common stock of Chugai is publicly traded and is listed on the Tokyo Stock Exchange under the stockcode ‘TSE:4519’. Chugai prepares financial statements in conformity with accounting principles generallyaccepted in Japan (JGAAP). These are filed on a quarterly basis with the Tokyo Stock Exchange.

Roche’s relationship with ChugaiChugai has entered into certain agreements with Roche, which are discussed below:

Basic Alliance Agreement | As part of the Basic Alliance Agreement signed in December 2001, Rocheand Chugai entered into certain arrangements covering the future operation and governance of Chugai.Amongst other matters these cover the following areas:

• The structuring of the alliance.

• Roche’s rights as a shareholder.

• Roche’s rights to nominate members of Chugai’s Board of Directors.

• Certain limitations to Roche’s ability to buy or sell Chugai’s common stock.

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Chugai issues additional shares of common stock in connection with its convertible debt and equitycompensation plans, and may issue additional shares for other purposes, which affects Roche’s percentageownership interest. The Basic Alliance Agreement provides, amongst other matters, that Chugai willguarantee Roche’s right to maintain its shareholding percentage in Chugai at not less than 50.1%.

Licensing Agreements | Under the Japan Umbrella Rights Agreement signed in December 2001, Chugaihas exclusive rights to market Roche’s pharmaceutical products in Japan. Chugai also has first right of refusalon the development and marketing in Japan of all development compounds advanced by Roche.

Under the Rest of the World Umbrella Rights Agreement signed in May 2002, Roche has the right of firstrefusal on the development and marketing of Chugai’s development compounds in markets outside Japan,excluding South Korea, if Chugai decides that it requires a partner for such activities.

Further to these agreements, Roche and Chugai have signed a series of separate agreements for certainspecific products. Depending on the specific circumstances and the terms of the agreement, this may resultin payments on an arm’s-length basis between Roche and Chugai, for any or all of the following matters:

• Upfront payments, if a right of first refusal to license a product is exercised.

• Milestone payments, dependent upon the achievement of agreed performance targets.

• Royalties on future product sales.

These specific product agreements may also cover the manufacture and supply of the respective productsto meet the other party’s clinical and/or commercial requirements on an arm’s-length basis.

Research Collaboration Agreements | Roche and Chugai have entered into research collaborationagreements in the areas of small molecule synthetic drug research and biotechnology based drug discovery.

DividendsThe dividends distributed to third parties holding Chugai shares during 2009 totalled 87 million Swiss francs(2008: 74 million Swiss francs) and have been recorded against non-controlling interests (see Note 30).Dividends paid by Chugai to Roche are eliminated on consolidation as inter-company items.

Tender offer for Chugai sharesOn 22 May 2008, the Group announced a tender offer to acquire additional common shares of Chugaito increase the Group’s ownership of Chugai’s issued shares from 50.1% to 59.9%. The tender offer was fullysubscribed at the offer price of 1,730 Japanese yen per share and on 24 June 2008 the Group acquired54.9 million common shares of Chugai for a cash consideration of 95.0 billion Japanese yen (912 million Swissfrancs). Taking into account the shares that had previously been repurchased by Chugai but not retired,the Group’s ownership in Chugai’s outstanding shares increased to 61.5%. The total cash outflow of 934 million Swiss francs, including directly attributable costs of 22 million Swiss francs, has been recordedto equity as a change in ownership interest in subsidiaries.

Chugai share repurchasesDuring 2009 Chugai repurchased 640,800 of its common shares. As a result the Group’s ownership inChugai increased to 61.6% from 61.5%. The total cash outflow, including repurchases of fractional shares,was 1.2 billion Japanese yen (14 million Swiss francs). There were no share repurchases in 2008.

Other mattersDetails of Chugai’s equity compensation plans are given in Note 11. Details of the ‘Series 6 ChugaiPharmaceutical Unsecured Convertible Bonds’, of which the remaining outstanding bonds were fully redeemedin 2008, are given in Note 27.


5. Financial income and financing costsFinancial income | in millions of CHF


Gains on sale of equity securities 55 231

(Losses) on sale of equity securities (4) (1)

Dividend income 1 5

Gains (losses) on equity security derivatives, net 2 13

Write-downs and impairments of equity securities (18) (115)

Net income from equity securities 36 133

Interest income 179 698

Gains on sale of debt securities 7 23

(Losses) on sale of debt securities (9) (168)

Gains (losses) on debt security derivatives, net 44 (44)

Gains (losses) on financial assets at fair-value-through-profit-or-loss, net – (64)

Write-downs and impairments of long-term loans (3) (53)

Net interest income and income from debt securities 218 392

Expected return on plan assets of defined benefit plans 10 507 688

Foreign exchange gains (losses), net (990) (393)

Gains (losses) on foreign currency derivatives, net 1,023 328

Net foreign exchange gains (losses) 33 (65)

Net other financial income (expense) (2) (25)

Total financial income 792 1,123

Financing costs | in millions of CHF


Interest expense (1,733) (214)

Amortisation of debt discount 27 (47) (1)

Gains (losses) on debt derivatives, net – (4)

Gains (losses) on redemption and repurchase of bonds and notes, net 27 (9) –

Gains (losses) on financial liabilities at fair-value-through-profit-or-loss, net 6 5

Time cost of provisions 25 (21) (21)

Interest cost of defined benefit plans 10 (656) (652)

Total financing costs (2,460) (887)

Net financial income | in millions of CHF


Financial income 792 1,123

Financing costs (2,460) (887)

Net financial income (1,668) 236

Financial result from Treasury management (1,519) 200

Financial result from Pension management (149) 36

Net financial income (1,668) 236

55

Exceptional financing costsAs described in Note 3, effective 26 March 2009 the Group purchased all publicly owned shares ofGenentech for USD 95.00 per share in cash, with the total cash consideration of the transaction,including shares issuable under Genentech’s outstanding employee stock option plans and paymentof related fees and expenses, being approximately 52.7 billion Swiss francs.

In order to execute this transaction, the Group liquidated certain debt securities into cash. This resultedin a net loss on these transactions of 238 million Swiss francs. Furthermore, due to the prevailing financialconditions, the Group issued bonds and notes in advance of the transaction totalling 48.2 billion Swiss francsthrough a series of debt offerings, as described in Note 27. The interest expense on these instruments forthe bridging period between their issue and the completion of the Genentech transaction on 26 March 2009was 139 million Swiss francs.

These amounts are disclosed separately in the income statement in order to fairly present the Group’sresults in the overall context of the Genentech transaction and related reorganisations in the Group’sPharmaceuticals Division. The total income tax benefit recorded in respect of exceptional financing costswas 61 million Swiss francs.

Exceptional financing costs | in millions of CHF

2009 2008

Gain (loss) on liquidation of debt securities (238) –

Interest expense incurred on newly issued bonds and notes

during bridging period (139) –

Total income (expense) (377) –

6. Income taxesIncome tax expenses | in millions of CHF

2009 2008

Current income taxes (3,701) (3,617)

Adjustments recognised for current tax of prior periods 160 35

Deferred income taxes 671 277

Total income (expense) (2,870) (3,305)

Income taxes on exceptional itemsAs described in Note 8, the Group incurred exceptional expenses totalling 2,415 million Swiss francs inconnection with the Genentech transaction and the related reorganisations in the Group’s pharmaceuticalsbusiness. Furthermore, as described in Note 5, the Group incurred exceptional financing costs totalling377 million Swiss francs in connection with the financing of the Genentech transaction. As disclosedin Note 25, expenses incurred in respect of major legal cases were 320 million Swiss francs (2008: incomeof 271 million Swiss francs). The income tax effects of these items in 2009, as shown in the table below, are disclosed separately in the income statement in order to fairly present the Group’s results in the overallcontext of the Genentech transaction and related reorganisations in the Group’s Pharmaceuticals Division.


An income tax benefit of 207 million Swiss francs was recorded in respect of Genentech’s stock optionsplans in 2009 following the increase in Genentech’s share price in 2009 prior to the completion of the Genentech transaction. Of this income tax benefit, approximately 147 million Swiss francs are clearlyattributable to the Genentech transaction, and therefore has been allocated as part of exceptional incometaxes. This amount has been calculated as the difference between the income tax benefit calculated ata share price of USD 86.50, being the price per share of Roche’s tender offer of 9 February 2009, and theincome tax benefit calculated at the final agreed tender offer price in the merger agreement at USD 95.00per share.

Income taxes on exceptional items | in millions of CHF

2009 2008

Current income taxes 235 –

Deferred income taxes 913 (12)

Total income tax (expense) benefit on exceptional items 1,148 (12)

Since the Group operates internationally, it is subject to income taxes in many different tax jurisdictions.The Group calculates its average expected tax rate as a weighted average of the tax rates in the taxjurisdictions in which the Group operates. This rate changes from year to year due to changes in the mix ofthe Group’s taxable income and changes in local tax rates. The average expected rate decreased in 2009compared to 2008 with the main driver being the additional financing costs from the Genentech transactionfrom 26 March 2009 onwards. The Group’s effective tax rate can be reconciled to the Group’s averageexpected tax rate as follows:

Reconciliation of the Group’s effective tax rate

2009 2008

Average expected tax rate 22.1% 23.0%

Tax effect of

— Utilisation of previously unrecognised tax losses –0.1% –0.2%

— Non-taxable income/non-deductible expenses +0.7% +1.2%

— Genentech equity compensation plans +0.1% +0.5%

— Other differences –1.3% –1.1%

Group’s effective tax rate before exceptional items 21.5% 23.4%

2009 2008Profit Income Profit Income

before tax taxes Tax rate before tax taxes Tax rate(mCHF) (mCHF) (%) (mCHF) (mCHF) (%)

Group’s effective tax rate before

exceptional items 13,344 (2,870) 21.5 14,133 (3,305) 23.4

Major legal cases 25 (320) 123 38.4 271 (105) 38.7

Changes in Group organisation 8 (2,415) 964 39.9 (243) 93 38.3

Exceptional financing costs 5 (377) 61 16.2 – – –

Group’s effective tax rate 10,232 (1,722) 16.8 14,161 (3,317) 23.4

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Tax effects of other comprehensive income | in millions of CHF

2009 2008Pre-tax Tax After-tax Pre-tax Tax After-tax amount benefit amount amount benefit amount

Available-for-sale investments 369 (14) 355 (508) 88 (420)

Cash flow hedges 117 (42) 75 28 (12) 16

Currency translation of foreign

operations 3,054 – 3,054 (2,998) – (2,998)

Defined benefit post-employment plans (72) 67 (5) (2,184) 662 (1,522)

Other comprehensive income 3,468 11 3,479 (5,662) 738 (4,924)

Income tax assets (liabilities) | in millions of CHF

2009 2008 2007

Current income taxes

— Assets 244 268 263

— Liabilities (2,478) (2,193) (2,215)

Net current income tax assets (liabilities) (2,234) (1,925) (1,952)

Deferred income taxes

— Assets 2,573 1,829 1,317

— Liabilities (1,099) (1,409) (1,527)

Net deferred income tax assets (liabilities) 1,474 420 (210)

Deferred income tax assets are recognised for tax loss carry forwards only to the extent that realisationof the related tax benefit is probable. The Group has unrecognised tax losses, including valuation allowances,as follows:

Unrecognised tax losses: expiry

2009 2008Amount Applicable Amount Applicable(mCHF) tax rate (mCHF) tax rate

Within one year – – – –

Between one and five years 90 24% 68 22%

More than five years 480 19% 223 31%

Total unrecognised tax losses 570 20% 291 29%

Deferred income tax liabilities have not been established for the withholding tax and other taxes that wouldbe payable on the unremitted earnings of certain foreign subsidiaries, as such amounts are currently regardedas permanently reinvested. These unremitted earnings totalled 26.5 billion Swiss francs at 31 December 2009(2008: 41.7 billion Swiss francs).


The deferred income tax assets and liabilities and the deferred income tax charges (credits) are attributableto the following items:

Deferred income taxes: movements in recognised net assets (liabilities) | in millions of CHF

Property, plant and Other equipment, and temporary

intangible assets differences Total


Net deferred income tax asset (liability)

at 1 January 2008 (2,739) 2,529 (210)

Ventana acquisition 7 (545) 123 (422)

Other business combinations 7 (121) 2 (119)

(Charged) credited to the income statement 157 108 265

(Charged) credited to other comprehensive income 28 – 738 738

(Charged) credited to equity from equity

compensation plans and other transactions

with shareholders – 113 113

Currency translation effects and other 208 (153) 55


at 31 December 2008 (3,040) 3,460 420



at 1 January 2009 (3,040) 3,460 420

Lonza Singapore acquisition 7 – – –

Other business combinations 7 (22) 24 2

(Charged) credited to the income statement 431 1,153 1,584

(Charged) credited to other comprehensive income 28 – 11 11

(Charged) credited to equity from equity

compensation plans and other transactions

with shareholders – (460) (460)

Currency translation effects and other 25 (108) (83)


at 31 December 2009 (2,606) 4,080 1,474

7. Business combinationsAcquisitions — 2009Lonza Singapore | In 2006 Genentech entered into a supply agreement for the manufacture of certainGenentech products at a facility under construction in Singapore by Lonza Group Ltd. (‘Lonza’) which iscurrently expected to receive US Food and Drug Administration (‘FDA’) licensure in 2010. Genentechwas committed to fund the pre-commissioning production qualification costs at this facility and, upon FDAlicensure, Genentech was committed to purchase 100% of products successfully manufactured at the facilityfor a period of three years after commissioning of the facility. Genentech also received an exclusive optionto purchase Lonza’s Singapore facility during the period from 2007 up to one year after FDA licensurefor a purchase price of 290 million US dollars. Genentech also entered into a loan agreement with Lonza toadvance up to 299 million US dollars to Lonza for the construction of the Singapore facility. If Genentechexercised its option to purchase the facility then any outstanding advances may be offset against thepurchase price. If Genentech did not exercise its purchase option then the advances may be offset againstsupply purchases. Regardless of whether the purchase option is exercised, Genentech will be obligedto make a milestone payment of 70 million US dollars if certain performance milestones were met at thefacility being constructed.

59

For accounting purposes, due to the nature of the supply agreement and Genentech’s involvement in the construction of the buildings, Genentech has been considered to be the owner of the assets during theconstruction period even though the funds to construct the building shell and some infrastructure costsare paid by Lonza. As at 31 December 2008, construction in progress totalling 284 million Swiss francs hadbeen capitalised and a liability for the financing obligation totalling 46 million Swiss francs had been recorded,which is net of 225 million US dollars (238 million Swiss francs) that had been advanced by Genentechto Lonza.

On 28 August 2009 Genentech Singapore Pte. Ltd, (‘Genentech Singapore’) exercised the option topurchase 100% ownership in Lonza Biologics Singapore Pte. Ltd. (‘Lonza Singapore’). Lonza Singaporeis a cell culture biologic manufacturing facility, which is mechanically complete. It is expected to produceAvastin (bevacizumab) bulk drug substance, has 80,000 litres of fermentation capacity and is locatedon approximately 10 acres with an option for up to 20 additional acres. As part of the integration betweenRoche’s and Genentech’s combined technical operations, the biotechnology production facilities in Singaporehave been merged and now operate under the name of Roche Singapore Technical Operations. With theexercise of the option and resultant merger, approximately 230 Lonza employees joined Genentech SingaporeTechnical Operations, for a total site headcount of approximately 325. As at 28 August 2009, under theprevious accounting treatment described above, construction in progress totalling 284 million US dollars(301 million Swiss francs) had been capitalised and a similar liability for the financing obligation had beenrecorded. In addition 225 million US dollars had been advanced by Genentech to Lonza.

The transaction value was 376 million US dollars, which consists of 306 million US dollars for the Singaporefacility and 70 million US dollars of various milestone payments. Of this amount 225 million US dollars wasoffset by loans previously made by Genentech to Lonza. The net transaction value was 151 million US dollars(159 million Swiss francs), of which 108 million US dollars (114 million Swiss francs) was cash paymentsin 2009 and 43 million US dollars (46 million Swiss francs) in accrued milestone payments that will be madein 2010. For accounting purposes, 94 million US dollars (99 million Swiss francs) was allocated to the settle-ment of the existing financing obligation and 14 million US dollars (15 million Swiss francs) to the acquisitionof the Lonza Singapore business. This has been allocated as follows:

Lonza Singapore acquisition: net assets acquired | in millions of CHF

Carrying value Fair value Carrying value prior to acquisition adjustments upon acquisition

Property, plant and equipment – – –

Intangible assets – – –

Inventories 16 – 16

Deferred income taxes – – –

Cash 1 – 1

Other net assets (liabilities) (2) – (2)

Net identifiable assets 15 – 15

Goodwill –

Purchase consideration 15

Other acquisitions | Effective 1 January 2009 the Group acquired an 89.6% controlling interest in MemoryPharmaceuticals Corp. (‘Memory’), a publicly owned US company based in Montvale, New Jersey, thathad been listed on the NASDAQ under the symbol ‘MEMY’. Memory develops innovative drug candidatesfor the treatment of debilitating central nervous system (CNS) disorders such as Alzheimer's disease andschizophrenia. Memory is reported as part of the Pharmaceuticals operating segment. The acquisition will further strengthen the Group’s research and development pipeline in areas such as Alzheimer’s disease.The purchase consideration was 48 million Swiss francs, paid in cash.


There were other minor business combinations in the Diagnostics business with a total purchase considerationof 57 million Swiss francs, of which 55 million Swiss francs was in cash and 2 million Swiss francs from a contingent consideration arrangement. A liability of 2 million Swiss francs was recognised at the acquisitiondate, based on management’s best estimate at that time of the probability–adjusted expected cash outflowfrom the arrangement. As at 31 December 2009 the amount recognised for this arrangement was reduced tozero, based on the most recent management estimates.

The combined purchase consideration has been allocated as follows:

Other acquisitions — 2009: net assets acquired | in millions of CHF


Property, plant and equipment 3 – 3

Goodwill 3 (3) –

Intangible assets

— Product intangibles: in use – 17 17

— Marketing intangibles – 25 25

— Product intangibles: not available for use – 47 47

Inventories 7 – 7

Provisions (4) – (4)

Deferred income taxes 3 (1) 2

Cash 19 – 19


Net identifiable assets (liabilities) 9 85 94

Non-controlling interests (4)

Goodwill 15


Subsequent to the effective date of the acquisition on 1 January 2009, the Group purchased the remainingshares in Memory held by third parties to give the Group a 100% interest in Memory. The cash considerationwas 6 million Swiss francs, which has been recorded to equity as a change in ownership interest insubsidiaries.

Goodwill represents a control premium and synergies that can be obtained from the Group’s existingbusiness. None of the goodwill recognised is expected to be deductible for income tax purposes.

The fair value of other net assets (liabilities) includes receivables with a fair value of 4 million Swiss francswhich includes an allowance for doubtful accounts of 1 million Swiss francs.

Directly attributable acquisition-related costs of 2 million Swiss francs were incurred in these acquisitions.These are reported within general and administration expenses in the current period as part of the operatingresult of the Pharmaceuticals operating segment (1 million Swiss francs) and the Diagnostics operatingsegment (1 million Swiss francs).

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Acquisitions — 2009: impact on results | in millions of CHF

Revenues from Inventory external fair value Amortisation of

customers adjustment intangible assets Operating profit Net income

Impact on reported results

Lonza Singapore – – – – –

Memory a) – – – (32) (21)

Pharmaceuticals Division – – – (32) (21)

Minor business combinations 18 – (5) – –

Diagnostics Division 18 – (5) – –

Group 18 – (5) (32) (21)

Estimated impact on results

if acquisition assumed effective

1 January 2009

Lonza Singapore – – – – –

Memory a) – – – (32) (21)

Pharmaceuticals Division – – – (32) (21)

Minor business combinations 24 – (7) 1 1

Diagnostics Division 24 – (7) 1 1

Group 24 – (7) (31) (20)

The above figures exclude directly attributable acquisition-related costs of 1 million Swiss francs related to acquisitions by thePharmaceuticals Division and 1 million Swiss francs related to acquisitions by the Diagnostics Division. Corresponding tax impactsare also excluded.a) The figures exclude integration costs of 22 million Swiss francs related to Memory. Corresponding tax impacts are also excluded.

Acquisitions — 2009: net cash outflow | in millions of CHF

Cash consideration Cash in Net cash paid acquired company outflow

Lonza Singapore (15) 1 (14)

Other acquisitions (103) 19 (84)

Total (118) 20 (98)

The above cash consideration does not include the subsequent payment of 6 million Swiss francs to purchasethe remaining shares in Memory held by third parties to give the Group a 100% interest in Memory. This isreported as financing cash flow in the statement of cash flows within the heading ‘Change in ownership inter-est in subsidiaries’.

Acquisitions — 2008Ventana | Ventana Medical Systems, Inc. (‘Ventana’), a publicly owned US company based in Tucson,Arizona that had been listed on the NASDAQ under the symbol ‘VMSI’. Prior to 8 February 2008, the Groupowned shares in Ventana representing 0.4% of the outstanding shares of Ventana. Effective 8 February 2008the Group acquired a further 70.5% of the outstanding shares of Ventana and obtained control of Ventana.Ventana develops, manufactures and markets instrument/reagent systems that automate slide preparationand staining in clinical histology and drug discovery laboratories. Ventana’s clinical systems are used in thediagnosis and treatment of cancer and infectious diseases and their drug discovery systems are used bypharmaceutical and biotechnology companies to accelerate the discovery of new drug targets and to evaluatethe safety of new drug compounds. Ventana is now reported as part of the Diagnostics operating segment.The acquisition of Ventana, a leader in the fast-growing histopathology (tissue-based diagnostics) businesssegment, will allow the Group to broaden its diagnostic offerings and complement its world leadership inboth in-vitro diagnostic systems and oncology therapies.


The purchase consideration was 2,532 million Swiss francs in cash. This has been allocated as follows:

Ventana acquisition: net assets acquired | in millions of CHF


Property, plant and equipment 87 8 95

Goodwill 16 (16) –

Intangible assets

— Product intangibles: in use 17 802 819


Inventories 26 34 60

Deferred income taxes 120 (542) (422)

Cash 45 – 45

Other net assets (liabilities) (47) (17) (64)

Net identifiable assets 264 839 1,103

Non-controlling interests (321)

Goodwill 1,750

Purchase consideration 2,532

Goodwill represents the strategic value to the Group of entering the tissue diagnostics business area.It also represents the premium paid over the traded market price to obtain control of the business. Noneof the goodwill recognised is expected to be deductible for income tax purposes. The non-controllinginterests in Ventana were measured at their proportionate share (29.1%) of Ventana’s identifiable net assets.

The fair value of other net assets (liabilities) includes receivables with a fair value of 117 million Swiss francs.Included within this fair value is an allowance for doubtful trade accounts receivable of 2 million Swiss francs.Finance lease receivables totalling 9 million Swiss francs are also included in this total and the gross amountdue under these contracts is 9 million Swiss francs.

The Group recognised a gain of 5 million Swiss francs as a result of measuring at fair value its 0.4% equityinterest in Ventana held prior to the acquisition date. This gain is included in financial income for 2008.Directly attributable acquisition-related costs of 41 million Swiss francs were incurred in the transaction.These are reported within general and administration expenses in the current period as part of theoperating result of the Diagnostics operating segment.

Subsequent to the effective date of the acquisition on 8 February 2008, the Group purchased the remainingshares in Ventana held by third parties to give the Group a 100% interest in Ventana. The cash considerationwas 1,285 million Swiss francs, which has been recorded to equity as a change in ownership interest insubsidiaries.

Other acquisitions | Effective 23 May 2008 the Group acquired a 100% controlling interest in Piramed Ltd.(‘Piramed’), a privately owned biotechnology company based in the UK. Piramed discovers and developsnew medicines primarily for the treatment of cancer and immune inflammatory disorders such as arthritisand asthma. Piramed is a leading company in the discovery of highly selective drugs that inhibit differentisoforms of PI3-K enzymes that are increasingly recognised as key players in a wide variety of diseaseprocesses. Piramed is reported as part of the Pharmaceuticals operating segment. The acquisition will furtherstrengthen the Group’s research and development pipeline in oncology and inflammatory disease. Thepurchase consideration was 183 million Swiss francs. This consisted of 176 million Swiss francs paid in cashand 7 million Swiss francs from a contingent consideration arrangement. The contingent considerationarrangement consists of a potential milestone payment of 15 million US dollars which is due upon thecommencement of phase I I clinical trials for Piramed’s oncology programme. A liability of 7 million US dollars(7 million Swiss francs) was recognised at the acquisition date, based on management’s best estimate atthat time of the probability–adjusted expected cash outflow from the arrangement. As at 31 December 2009the amount recognised for this arrangement was increased to 15 million US dollars (16 million Swiss francs)based on the most recent management estimates, and consequently an additional 8 million Swiss francscharge was recorded in the 2009 operating results.

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Effective 24 September 2008 the Group acquired a 100% controlling interest in ARIUS Research Inc.(‘ARIUS’), a publicly owned Canadian biotechnology company that had been listed on the TSX under thesymbol ‘ARI’. ARIUS discovers and develops antibody therapeutics to treat cancer and other diseases,including a proprietary antibody platform, which rapidly identifies and selects antibodies based on theirfunctional ability to affect disease before progressing into clinical development. ARIUS is reported as part ofthe Pharmaceuticals operating segment. The acquisition will further strengthen the Group’s developmentalportfolio, initially within the areas of oncology and inflammatory diseases where this new technique offerspotentially broad therapeutic applications. The purchase consideration was 201 million Swiss francs,paid in cash.

Effective 30 September 2008 the Group acquired a 100% controlling interest in Mirus Bio Corporation(‘Mirus’), a privately owned US biotechnology company based in Madison, Wisconsin. Mirus (now renamedRoche Madison Inc.) focuses on the discovery and development of innovative nucleic acid based technologies,including a proprietary RNAi (ribonucleic acid interference) delivery platform. Mirus is reported as partof the Pharmaceuticals operating segment. The acquisition will further strengthen the Group’s research anddevelopment pipeline in RNAi therapeutics, which provides the capabilities to target complex diseasessuch as cancer, respiratory or metabolic disorders. The purchase consideration was 136 million Swiss francs,paid in cash.

There were other minor business combinations with a total purchase consideration of 17 million Swiss francs.

The combined purchase consideration for other acquisitions has been allocated as shown below.

Other acquisitions — 2008: net assets acquired | in millions of CHF


Property, plant and equipment 4 (1) 3

Intangible assets

— Product intangibles: in use – 26 26


— Technology intangibles: in use – 92 92

Deferred income taxes – (119) (119)

Cash 13 – 13


Net identifiable assets (3) 251 248

Goodwill 289


Goodwill represents a control premium and synergies that can be obtained from the Group’s existingbusiness. None of the goodwill recognised is expected to be deductible for income tax purposes.

The fair value of other net assets (liabilities) includes receivables with a fair value of 3 million Swiss francswhich is expected to be fully collectable.

Acquisitions — 2008: net cash outflow | in millions of CHF

Cash consideration Cash in Net cash paid acquired company outflow

Ventana (2,532) 45 (2,487)

Other acquisitions (530) 13 (517)

Total (3,062) 58 (3,004)


The above cash consideration paid for Ventana does not include the subsequent payment of 1,285 millionSwiss francs to purchase the remaining shares in Ventana held by third parties to give the Group a 100%interest in Ventana. This is reported as financing cash flow in the statement of cash flows within the heading‘Change in ownership interest in subsidiaries’.

8. Changes in Group organisationAs described in Note 3, on 21 July 2008 the Group announced an offer to purchase all outstanding sharesof Genentech. Following the closing of a transaction, Genentech’s South San Francisco site would becomethe headquarters of the Group’s combined pharmaceuticals operations in the United States. On 21 July 2008the Group also announced that Roche’s pharmaceuticals business in the US would close manufacturingoperations at its site in Nutley, New Jersey, and commercial operations would be moved to Genentech.The research site at Palo Alto, California, would be closed with the research activities being transferred toNutley and to Genentech. Subsequent to these announcements, initial restructuring activities startedat the Nutley and Palo Alto sites in 2008.

The Genentech transaction was completed effective 26 March 2009. Following this the PharmaceuticalsDivision initiated a detailed integration programme to align the Genentech business and the rest ofthe Roche’s pharmaceuticals business. Genentech’s South San Francisco site is being established as theheadquarters of the pharmaceuticals business in the US, including commercial operations for the US market.Genentech Research and Early Development is being set up as an autonomous unit while Genentech’s late-stage development activities are being integrated with the global Pharmaceuticals Division network.The integration programme includes prioritising projects within the shared portfolio and eliminating activitiesthat are either duplicated or no longer required, notably in the administration function.

Following the completion of the transaction, the Pharmaceuticals Division carried out a detailed reassessmentof its global manufacturing network, with particular emphasis on its biotech manufacturing facilities. As aresult several manufacturing facilities and construction projects are being discontinued, notably a bulk drugproduction unit on part of the site at Vacaville in California.

The Group currently anticipates that these restructuring activities will be substantially completed by theend of 2010. The total cost is expected to be in the order of 3.4 billion Swiss francs, which includes 243 mil-lion Swiss francs that were incurred in 2008. Approximately 2.2 billion Swiss francs of this total is non-cash.The carrying value of property, plant and equipment was reduced by 1.2 billion Swiss francs by the endof 2009, and is anticipated to be reduced by approximately 1.5 billion Swiss francs in total by the end of 2010,mostly relating to manufacturing facilities.

Significant costs were incurred as described below. These are disclosed separately in the income statementdue to the materiality of the amounts and in order to fairly present the Group’s results. Costs of otherrestructuring programmes that are less material and do not fundamentally change the Group’s organisationare expensed in the current period and reported within the respective functional expense.

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Changes in Group organisation | in millions of CHF

2009 2008

Employee-related costs

— Termination costs 227 99

— Pensions and other post-employment benefits (33) (12)

— Genentech Employee Retention Program expenses – 94

— Genentech stock options: accelerated vesting expenses 236 –

— Other retention plans and other employee benefits 40 15

— Other employee-related costs 100 6

Total employee-related costs 570 202

Site closure costs

— Impairment of property, plant and equipment 1,083 10

— Accelerated depreciation of property, plant and equipment 103 26

— Other site closure costs 232 5

Total site closure costs 1,418 41

Impairment of intangible assets 286 –

Other reorganisation expenses 141 –

Total 2,415 243

The total income tax benefit recorded in respect of changes in Group organisation was 964 million Swiss francs(2008: 93 million Swiss francs).

Genentech Employee Retention Program | On 18 August 2008 Genentech announced a broad-basedemployee retention program, consisting of two retention plans that together cover substantially all employeesof the company. The program was estimated to cost approximately 375 million US dollars payable in cashand has been implemented in lieu of Genentech’s 2008 annual stock option grant. Total expenses forthe retention program in 2009 were 192 million Swiss francs (2008: 146 million Swiss francs). If Genentechhad granted an annual stock option award, as in previous years, with the same total value as the retentionprogram then the costs would have been expensed over the four-year vesting period and the amountexpensed in 2009 would have been approximately 192 million Swiss francs (2008: 52 million Swiss francs).Accordingly the additional incremental costs incurred for the retention plan are reported as part of changesin Group organisation, since these are directly attributable to the Genentech transaction.

Genentech Employee Retention Program expenses | in millions of CHF

2009 2008

Cost of sales 9 –

Marketing and distribution 48 14

Research and development 93 26

General and administration 42 12

Total included in operating profit before exceptional items 192 52

Changes in Group organisation – 94

Total Genentech Employee Retention Program expenses 192 146

Genentech stock options | As part of the merger agreement of 12 March 2009 between Roche andGenentech, upon the successful completion of the tender offer on 26 March 2009, the remaining outstandingGenentech employee stock options were fully redeemed for cash. For accounting purposes the remainingfair value was expensed for the options that were not fully vested at that time.


Genentech stock options: accelerated vesting expenses | in millions of CHF

2009 2008

Genentech Stock Option Plan 217 –

Genentech Employee Stock Purchase Program 19 –

Total Genentech stock options: accelerated vesting expenses 236 –

9. Employee benefitsEmployee remuneration | in millions of CHF

2009 2008

Wages and salaries 8,781 8,363

Social security costs 934 948

Defined contribution post-employment plans 295 253

Operating expenses for defined benefit post-employment plans 10 315 317

Equity compensation plans 11 359 513

Changes in Group organisation

— Genentech Employee Retention Program 8 192 146

— Genentech stock options accelerated vesting expenses 8 236 –

— Termination costs 8 227 99

Other employee benefits 592 526

Employee remuneration included in operating results 11,931 11,165

Expected return on plan assets for defined benefit post-employment plans 10 (507) (688)

Interest cost for defined benefit post-employment plans 10 656 652

Total employee remuneration 12,080 11,129

Other employee benefits consist mainly of life insurance schemes and certain other insurance schemesproviding medical coverage and other long-term and short-term disability benefits. The charges for employeebenefits in the operating results are included in the relevant expenditure line by function. The expectedreturn on plan assets and interest cost from defined benefit plans are included as part of financial incomeand financing costs, respectively (see Note 5).

10. Pensions and other post-employment benefits The Group’s objective is to provide attractive and competitive post-employment benefits to employees, whileat the same time ensuring that the various plans are appropriately financed and managing any potentialimpacts on the Group’s long-term financial position. Most employees are covered by pension plans sponsoredby Group companies. The nature of such plans varies according to legal regulations, fiscal requirementsand market practice in the countries in which the employees are employed. Other post-employment benefitsconsist mostly of post-retirement healthcare and life insurance schemes, principally in the United States. Post-employment benefit plans are classified for IFRS as ‘defined contribution plans’ if the Group pays fixedcontributions into a separate fund or to a third-party financial institution and will have no further legal orconstructive obligation to pay further contributions. All other plans are classified as ‘defined benefit plans’,even if the Group’s potential obligation is relatively minor or has a relatively remote possibility of arising.Consequently most of the Group’s post-employment benefit plans are classified as ‘defined benefit plans’for the purpose of these financial statements.

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Defined contribution plansDefined contribution plans typically consist of payments by employees and by the Group to fundsadministered by third parties. Payments by the Group were 295 million Swiss francs (2008: 253 million Swissfrancs). No assets or liabilities are recognised in the Group’s balance sheet in respect of such plans,apart from regular prepayments and accruals of the contributions withheld from employees’ wages andsalaries and of the Group’s contributions.

Defined benefit plansThe Group’s major defined benefit plans are located in Switzerland, the United States, Germany, the UnitedKingdom and Japan. Plans are usually established as trusts independent of the Group and are funded by payments from the Group and by employees. In some cases, notably for the major defined benefit plansin Germany, the plan is unfunded and the Group pays pensions to retired employees directly from its ownfinancial resources.

Current and past service costs are charged to the appropriate income statement heading within the operatingresults. Pension plan administration and funding is overseen at a corporate level, and any settlement gainsand losses resulting from changes in funding arrangements are reported as general and administrationexpenses within the Corporate segment. The expected returns on plan assets and interest costs are chargedto financial income and financing costs, respectively. Actuarial gains and losses are recorded directly inequity. The recognition of pension assets is limited to the total of the present value of any future refunds fromthe plans or reductions in future contributions to the plans and any cumulative unrecognised past servicecosts. Adjustments arising from the limit on the recognition of assets for defined benefit plans are recordeddirectly in equity.

Defined benefit plans: expenses | in millions of CHF

2009 2008Other post- Other post-

Pension employment Pension employment plans benefit plans Total plans benefit plans Total

Current service cost 335 18 353 320 17 337

Past service cost 2 8 10 (3) 8 5

(Gain) loss on curtailment (47) (1) (48) (22) (3) (25)

(Gain) loss on settlement – – – – – –

Total operating expenses 290 25 315 295 22 317

Expected return on plan assets (475) (32) (507) (647) (41) (688)

Interest cost 597 59 656 593 59 652

Total financial (income) expense 122 27 149 (54) 18 (36)

Total expense recognised

in income statement 412 52 464 241 40 281

The funding of the Group’s various defined benefit plans is overseen at a corporate level. Qualifiedindependent actuaries carry out valuations on a regular basis and for major plans annually as at the reportingdate. For funded plans, which are usually trusts independent of the Group’s finances, the net asset/liabilityrecognised on the Group’s balance sheet corresponds to the over/under funding of the plan, adjusted forunrecognised past service costs. For unfunded plans, where the Group meets the pension obligations directlyfrom its own financial resources, a liability for the defined benefit obligation is recorded in the Group’sbalance sheet. Pension assets and liabilities in different defined benefit plans are not offset unless the Grouphas a legally enforceable right to use the surplus in one plan to settle obligations in the other plan.Amounts recognised in the balance sheet for post-employment benefits are predominantly non-currentand are reported in non-current assets and liabilities.


Defined benefit plans: funding status | in millions of CHF

2009 2008Funded Unfunded Funded Unfunded

plans plans Total plans plans Total

Fair value of plan assets 10,530 – 10,530 9,438 – 9,438

Defined benefit obligation (11,267) (3,486) (14,753) (10,504) (3,078) (13,582)

Over (under) funding (737) (3,486) (4,223) (1,066) (3,078) (4,144)

Unrecognised past service costs (18) (1) (19) (21) (1) (22)

Limit on asset recognition (3) – (3) – – –

Reimbursement rights 104 16 120 76 13 89

Net recognised asset (liability) (654) (3,471) (4,125) (1,011) (3,066) (4,077)

Reported as

— Defined benefit plans 481 – 481 503 – 503

— Reimbursement rights 104 16 120 76 13 89

Post-employment benefit assets 585 16 601 579 13 592

Post-employment benefit liabilities (1,239) (3,487) (4,726) (1,590) (3,079) (4,669)

Net recognised asset (liability) (654) (3,471) (4,125) (1,011) (3,066) (4,077)

Further detailed information on plan assets and the defined benefit obligation is given below.

Defined benefit plans: fair value of plan assets and reimbursement rights | in millions of CHF

2009 2008Fair value Reim- Fair value Reim-

of plan bursement of plan bursement assets rights Total assets rights Total

At 1 January 9,438 89 9,527 12,170 116 12,286

Expected return on plan assets 500 7 507 680 8 688

Actuarial gains (losses) 691 33 724 (2,787) (22) (2,809)

Currency translation effects and other (31) (4) (35) (463) (7) (470)

Employer contributions 338 (5) 333 217 (6) 211

Employee contributions 68 – 68 61 – 61

Benefits paid — funded plans (474) – (474) (440) – (440)

Past service cost – – – – – –

Divestment of subsidiaries – – – – – –

Curtailments – – – – – –

Settlements – – – – – –

At 31 December 10,530 120 10,650 9,438 89 9,527

2009 2008

Invested as

— Shares and other equity instruments 4,709 4,033

— Bonds, debentures and other debt instruments 4,179 4,106

— Property 583 242

— Other assets 1,179 1,146

Total 10,650 9,527

Included within the fair value of plan assets are 27 thousand of the Group’s shares with a fair value of 5 million Swiss francs (2008: 27 thousand shares with a fair value of 5 million Swiss francs) and 407 thousand of the Group’s non-voting equity securities with a fair value of 71 million Swiss francs(2008: 337 thousand non-voting equity securities with a total fair value of 55 million Swiss francs).

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Defined benefit plans: defined benefit obligation | in millions of CHF

2009 2008Other post- Other post-

Pension employment Pension employment plans benefit plans Total plans benefit plans Total

At 1 January 12,669 913 13,582 12,988 1,002 13,990

Current service cost 335 18 353 320 17 337

Interest cost 597 59 656 593 59 652

Employee contributions 68 – 68 61 – 61

Actuarial (gains) losses 619 174 793 64 (53) 11

Currency translation effects and other (32) (24) (56) (794) (65) (859)

Benefits paid — funded plans (427) (47) (474) (399) (41) (440)

Benefits paid — unfunded plans (122) (12) (134) (131) (11) (142)

Past service cost 5 8 13 – 8 8

Divestment of subsidiaries – – – (11) – (11)

Curtailments (47) (1) (48) (22) (3) (25)

Settlements – – – – – –

At 31 December 13,665 1,088 14,753 12,669 913 13,582

Of which

— Funded plans 10,451 816 11,267 9,807 697 10,504

— Unfunded plans 3,214 272 3,486 2,862 216 3,078

Actuarial assumptionsActuarial assumptions are unbiased and mutually compatible estimates of variables that determine theultimate cost of providing post-employment benefits. They are set on an annual basis by local managementand actuaries and are subject to approval by corporate management and the Group’s actuaries. Actuarialassumptions consist of demographic assumptions on matters such as mortality and employee turnover,and financial assumptions on matters such as salary and benefit levels, interest rates, return on investmentsand costs of medical benefits. The Group operates defined benefit plans in many countries and the actuarialassumptions vary based upon local economic and social conditions.

Demographic assumptions | The most significant demographic assumptions relate to mortality rates.The Group’s actuaries use mortality tables which take into account historic patterns and expected changes,such as further increases in longevity. The mortality tables used for the major schemes are:

• Germany: Heubeck tables 2005G.

• Japan: National Census (No. 20 Life Table).

• Switzerland: BVG 2005.

• United Kingdom: non-pensioners — S1NA_L table rated up 1.5 years (male) and 0.5 years (female).Future improvements: medium cohort (from 2002) with a 1% underpin (from 2009)

• United Kingdom: pensioners — S1NA_L table rated up 1.5 years. Future improvements: medium cohort(from 2002) with a 1% underpin (from 2009).

• United States: RP2000 projected to 2010.

Rates of employee turnover, disability and early retirement are based on historical behaviour within Groupcompanies.

Financial assumptions | These are based on market expectations for the period over which the obligationsare to be settled. The ranges of assumptions used in the actuarial valuations of the most significant plans,which are in countries with stable currencies and interest rates, are shown below.


Defined benefit plans: financial actuarial assumptions

2009 2008Weighted Weighted

average Range average Range

Discount rates 4.65% 2.35%—8.50% 4.84% 2.40%—8.75%

Expected rates of return on plan assets 5.23% 0.80%—10.50% 5.67% 0.70%—9.50%

Expected rates of salary increases 3.52% 2.00%—6.53% 3.50% 2.00%—6.53%

Medical cost trend rate 8.19% 7.80%—8.20% 8.76% 7.90%—8.80%

Discount rates, which are used to calculate the discounted present value of the defined benefit obligation, are determined with reference to market yields on high quality corporate bonds, or government bondsin countries where there is not a deep market in corporate bonds. The currency and term of the bonds isconsistent with the obligation being discounted. The interest cost included in the income statement is calculated by multiplying the discount rate by the defined benefit obligation.

Expected returns on plan assets are based on market expectations of expected returns on the assets infunded plans over the duration of the related obligation. This takes into account the split of the plan assetsbetween equities, bonds, property and other investments. The calculation includes assumptions concerningexpected dividend and interest income, realised and unrealised gains on plan assets and taxes andadministration costs borne by the plan. These are based on long-term market expectations and the actualperformance is continually monitored by corporate management. Due to the long-term nature of the obliga-tions, the assumptions used for matters such as returns on investments may not necessarily be consistentwith recent historical patterns. The expected return on plan assets included in the income statement iscalculated by multiplying the expected rate of return by the fair value of plan assets. The difference betweenthe expected return and the actual return in any twelve month period is an actuarial gain/loss andis recorded directly to equity. The actual return on plan assets was a gain of 1,191 million Swiss francs(2008: loss of 2,107 million Swiss francs).

Expected rates of salary increases, which are used to calculate the defined benefit obligation and the currentservice cost included in the income statement, are based on the latest expectation and historical behaviourwithin Group companies.

Medical cost trend rates are used to calculate the defined benefit obligation and the current service costincluded in the income statement of post-employment medical plans. These take into account the benefits setout in the plan terms and expected future changes in medical costs. Since the Group’s major post-employment medical plans are for US employees, these rates are driven by developments in the United States.The effect of one percentage point increase or decrease in the medical cost trend rate is shown below.

Defined benefit plans: sensitivity of medical cost trend rate | in millions of CHF

2009 2008+1% –1% +1% –1%

Current service cost and interest cost 8 (7) 9 (8)

Defined benefit obligation 113 (94) 87 (74)

Funding summaryA five-year summary of the funding status of the Group’s defined benefit plans is shown in the table below.

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Defined benefit plans: summary of funding status | in millions of CHF

2009 2008 2007 2006 2005

Funded plans

— Fair value of plan assets 10,530 9,438 12,170 11,632 10,858

— Defined benefit obligation (11,267) (10,504) (10,646) (11,002) (10,976)

— Over (under) funding (737) (1,066) 1,524 630 (118)

Unfunded plans

— Defined benefit obligation (3,486) (3,078) (3,344) (3,596) (3,630)

Increase (decrease) in funding status

arising from experience adjustments

— Fair value of plan assets 691 (2,787) 40 626 547

— Defined benefit obligation (33) (126) (235) (249) 49

Increase (decrease) in funding status

arising from changes in actuarial

assumptions

— Fair value of plan assets – – – – –

— Defined benefit obligation (760) 115 1,295 384 (1,148)

Cash flowsThe Group incurred cash flows from its defined benefit plans as shown in the table below.

Defined benefit plans: cash flows | in millions of CHF

2009 2008

Employer contributions — funded plans (333) (211)

Benefits paid — unfunded plans (134) (142)

Total cash inflow (outflow) (467) (353)

Based on the most recent actuarial valuations, the Group expects that employer contributions for fundedplans in 2010 will be approximately 183 million Swiss francs, which includes an estimated 13 million Swissfrancs of additional contributions. Benefits paid for unfunded plans are estimated to be approximately 137 million Swiss francs.

Amounts recorded in equityThe actuarial gains and losses recognised in the statement of comprehensive income were losses of 69 millionSwiss francs (2008: losses of 2,820 million Swiss francs), pre-tax. The total amount at 31 December 2009was an accumulated loss of 1,502 million Swiss francs (2008: accumulated loss of 1,433 million Swiss francs).

In addition the recognition of pension assets is limited to the total of the present value of any future refundsfrom the plans or reductions in future contributions to the plans and the cumulative unrecognised pastservice costs. Adjustments arising from this limit on asset recognition are recorded directly in equity. In 2009this adjustment was a decrease of 3 million Swiss francs (2008: increase of 636 million Swiss francs).


11. Employee stock options and other equity compensationbenefits

The Group operates several equity compensation plans, including separate plans at Genentech (prior tothe Genentech transaction) and Chugai. Effective 1 January 2005 the Group adopted IFRS 2 ‘Share-basedPayment’. Amongst other matters, the standard requires that the fair value of all equity compensation planawards granted to employees be estimated at grant date and recorded as an expense over the vesting period.The expense is charged against the appropriate income statement heading.

Expenses for equity compensation plans | in millions of CHF

2009 2008

Cost of sales 84 70

Marketing and distribution 60 101

Research and development 65 174

General and administration 150 168

Total operating expenses before exceptional items 359 513

Changes in Group organisation 8 236 –

Total operating expenses 595 513

Share option plans

Roche Option Plan 6 7

Genentech Stock Option Plan 330 336

Chugai Stock Acquisition Rights 1 2

Total share option plans 337 345

Other equity compensation plans

Special Stock Awards 22 –

Roche Connect 13 13

Genentech Employee Stock Purchase Program 37 33

Roche Stock-settled Stock Appreciation Rights 142 120

Roche Restricted Stock Unit Plan 17 –

Chugai Retirement Stock Acquisition Rights 1 –

Roche Performance Share Plan 17 15

Roche Stock Appreciation Rights 9 (13)

Total other equity compensation plans 258 168

Total operating expenses 595 513

of which

— Equity-settled 586 526

— Cash-settled 9 (13)

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Cash inflow (outflow) from equity compensation plans | in millions of CHF

2009 2008

Genentech equity compensation plans

Genentech Stock Option Plan 81 620

Genentech Employee Stock Purchase Program 27 115

Total cash inflow from Genentech equity compensation plans 108 735

Cash outflow from Genentech share repurchases 3 – (844)

Other equity-settled equity compensation plans

Roche Option Plan exercises 28 15

Chugai Stock Acquisition Rights exercises – –

Roche Connect costs (13) (13)

Total other equity-settled equity compensation plans 15 2

Cash outflow from transactions in own equity instruments (666) (237)

Total cash inflow (outflow) from other equity-settled equity

compensation plans, net of transactions in own equity instruments (651) (235)

Cash-settled plans

(included as part of movements in net working capital)

Roche Stock Appreciation Rights (17) (35)

The net cash outflow from transactions in own equity instruments arises from sales and purchases of non-voting equity securities (Genussscheine) and derivative instruments thereon which are held for the Group’spotential conversion obligations that may arise from the Group’s equity-settled equity compensation plans.These derivative instruments mainly consist of call options that are exercisable at any time up to their maturity(see Note 28).

In addition to the above cash flows, upon the completion of the Genentech transaction the remaining outstanding Genentech employee stock options were fully redeemed for cash. The resulting cash outflowwas 2,704 million Swiss francs, which was reported as a change in ownership interest in subsidiaries(see Note 3).

Roche Long-Term | During 2005 the Group implemented a new global long-term incentive programmewhich is available to certain directors, management and employees selected at the discretion of the Group.The programme consists of Stock-settled Stock Appreciation Rights (‘S-SARs’), with the Group havingthe alternative of granting awards under the existing Roche Option Plan. In 2009, following the integrationof Genentech, the Group also established a Restricted Stock Unit (‘RSU’) plan. The first awards of thisplan were made in September 2009 to employees at Genentech. The S-SARs are issued in accordance withthe Roche S-SAR Plan (the Regulations of 1 January 2005 including amendments effective as of 1 January2007 and the addenda, including the Roche S-SAR Plan’s 2009 Addendum United States as of 1 September2009). The Remuneration Committee determines the number of non-voting equity securities (Genussscheine)

that will be available under the plan each year. The above regulations collectively provide that 60 million non-voting equity securities (Genussscheine) will be available for issuance under the Roche S-SAR Planover a ten-year period. The RSUs are issued in accordance with the Roche Restricted Stock Unit Plan(the Regulations effective 1 September 2009), under which 10 million non-voting equity securities (Genuss-

scheine) will be available for issuance over a ten-year period. Further details of both plans are given in the relevant sections below. Within the meaning of Section 25102(o) of Title 4 of the California CorporationsCode and Sections 260.140.41 and 260.140.42 of Title 10 of the California Code of Regulations, approvalof these Consolidated Financial Statements constitutes approval of the Roche S-SAR Plan and the RocheRestricted Stock Unit Plan, each of which is described in these Consolidated Financial Statements, by amajority of Roche Holding Ltd’s outstanding securities entitled to vote.


Share option plansRoche Option Plan | Awards under this plan give employees the right to purchase non-voting equitysecurities (Genussscheine) at an exercise price specified at the grant date. The options, which are non-tradable equity-settled awards, have a seven-year duration and vest on a phased basis over three years,subject to continued employment. The Group covers such obligations by purchasing non-voting equitysecurities or derivatives thereon (see Note 28). With the introduction of Roche Long-Term in 2005, the number of options granted under the Roche Option Plan was significantly reduced, as most eligibleemployees now receive Roche Stock-settled Stock Appreciation Rights instead.

Roche Option Plan — movement in number of options outstanding

2009 2008Number Weighted average Number Weighted average

of options exercise price of options exercise price(thousands) (CHF) (thousands) (CHF)

Outstanding at 1 January 1,394 154.71 1,203 139.50

Granted 377 149.57 362 194.64

Forfeited (32) 194.07 (40) 199.24

Exercised (277) 100.68 (131) 111.80

Expired (5) 115.50 – –

Outstanding at 31 December 1,457 162.92 1,394 154.71

— of which exercisable 810 155.81 890 127.45

Roche Option Plan — terms of options outstanding as at 31 December 2009

Options outstanding Options exercisableNumber Weighted average Weighted average Number Weighted average

outstanding years remaining exercise exercisable exercise Year of grant (thousands) contractual life price (CHF) (thousands) price (CHF)

2003 83 0.18 79.22 83 79.22

2004 296 1.17 129.50 296 129.50

2005 92 2.17 123.20 92 123.20

2006 107 3.17 195.19 107 195.19

2007 170 4.18 229.69 115 229.69

2008 337 5.11 194.56 116 194.59

2009 372 6.20 149.59 1 145.40

Total 1,457 3.87 162.92 810 155.81

Genentech Stock Option Plan | The Genentech Stock Option Plan was adopted in 1999 and amendedthereafter. In April 2004 Genentech’s shareholders approved an equity incentive plan. The plans allow for thegranting of various stock options, incentive stock options and stock purchase rights to employees, directorsand consultants of Genentech. The options granted, which are non-tradable equity-settled awards, had a ten-year duration and vested on a phased basis over four years, subject to continued employment. Upon thecompletion of the Genentech transaction (see Notes 3 and 8) the remaining outstanding options were fullyredeemed for cash. For accounting purposes the remaining fair value was expensed for the options that werenot fully vested at that time, as described in Note 8.

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Genentech Stock Option Plan — movement in number of options outstanding

2009 2008Number Weighted average Number Weighted average

of options exercise price of options exercise price(millions) (USD) (millions) (USD)

Outstanding at 1 January 77 63.06 92 60.94

Granted – – 1 79.23

Forfeited – – (3) 80.52

Exercised (1) 52.66 (13) 44.83

Expired – – – –

Genentech transaction 3 (76) 63.14 – –

Outstanding at 31 December – – 77 63.06

— of which exercisable – – 56 56.51

Chugai Stock Acquisition Rights | During 2003 Chugai adopted a Stock Acquisition Rights programme.The programme allows for the granting of rights to employees and directors of Chugai. Each right entitlesthe holder to purchase 100 Chugai shares at a specified exercise price. The rights, which are non-tradableequity-settled awards, have a ten-year duration and vest after two years.

Chugai Stock Acquisition Rights — movement in number of rights outstanding

2009 2008Weighted average Weighted average

Number exercise price Number exercise priceof rights (JPY) of rights (JPY)

Outstanding at 1 January 12,966 217,288 13,002 217,089

Granted 3,300 169,600 – –

Forfeited (190) 212,089 – –

Exercised (231) 154,556 (36) 145,400


Outstanding at 31 December 15,845 208,333 12,966 217,288

— of which exercisable 12,545 218,522 9,416 184,633

Chugai Stock Acquisition Rights — terms of rights outstanding at 31 December 2009

Rights outstanding Rights exercisableWeighted average Weighted average Weighted average

Number years remaining exercise Number exercise Year of grant outstanding contractual life price (JPY) exercisable price (JPY)

2003 1,064 3.50 145,400 1,064 145,400

2004 2,109 4.25 167,500 2,109 167,500

2005 2,492 5.25 164,900 2,492 164,900

2006 3,380 6.25 224,500 3,380 224,500

2007 3,500 7.25 303,900 3,500 303,900

2008 — no awards – – – – –

2009 3,300 9.25 169,600 – –

Total 15,845 6.49 208,333 12,545 218,522

Issues of share options in 2009 | Issues of share options in 2009, including the methodology used tocalculate fair value and the main inputs to the valuation models, are described below.


Issues of share option plans in 2009

Chugai Stock Roche Genentech Stock Acquisition

Option Plan Option Plan Rights

Number of options granted 377 thousand 0.2 million 3,300

Underlying equity Roche non-voting Genentech Chugai shares

equity securities common stock in blocks of 100

Currency Swiss francs US dollars Japanese yen

Vesting period Progressively Progressively After 2 years

over 3 years over 4 years

Contractual life 7 years 10 years 10 years

Weighted average fair value of options issued 16.81 22.68 590

Option pricing model used Binomial Binomial Binomial

Inputs to option pricing model

— Share price at grant date 146.56 85.36 168,700

— Exercise price 149.57 85.36 169,600

— Expected volatility 25% 25% 34.59%

— Expected dividend yield 6.7% 0% 2.02%

— Early exercise factor 1.609 1.484 n/a

— Expected exit rate 5.7% 8.6% 0%

Volatility for Roche and Chugai options was determined primarily by reference to historically observed pricesof the underlying equity. Volatility for Genentech options was determined primarily by reference to the impliedvolatility of Genentech’s traded options. Risk-free interest rates are derived from zero coupon swap ratesat the grant date taken from Datastream. The early exercise factor describes the ratio between the expectedmarket price at the exercise date and the exercise price at which early exercises can be expected, basedon historically observed behaviour.

Other equity compensation plansSpecial Stock Awards | In March and December 2009 the Group issued Special Stock Awards to certaindirectors, management and employees selected at the discretion of the Group. The awards consist ofimmediately vesting non-voting equity securities (Genussscheine). The fair value of the awards was calculatedon the basis of the market value of Roche non-voting equity securities at the date of issue.

Special Stock Awards — awards issued in 2009

March 2009 December 2009 Total

Number of awards issued (thousands) 105 43 148

Fair value per unit at grant (CHF) 146.70 169.40 153.30

Total fair value at grant (CHF millions) 15 7 22

Roche Connect | This programme enables all employees worldwide, except for those in the United Statesand certain other countries, to make regular deductions from their salaries to purchase non-voting equitysecurities (Genussscheine). It is administered by independent third parties. The Group contributes to the programme, which allows the employees to purchase non-voting equity securities at a discount (usually20%). The administrator purchases the necessary non-voting equity securities directly from the market.At 31 December 2009 the administrator held 1.6 million non-voting equity securities (2008: 1.4 million).The programme has been operational since 1 October 2002. During the year the cost of the plan was 13 million Swiss francs (2008: 13 million Swiss francs), which was reported within the relevant expenditureline by function.

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Genentech Employee Stock Purchase Program (ESPP) | Genentech had an employee stock purchaseprogramme that allowed employees to purchase Genentech’s common stock at 85% of the lower of marketvalue at the grant date or purchase date. In 2009 a total of 0.4 million shares of Genentech common stockwere purchased (2008: 1.8 million shares) resulting in a cash inflow of 27 million Swiss francs (2008: 115 million Swiss francs). During the year the cost of the plan was 37 million Swiss francs (2008: 33 millionSwiss francs), which was reported within the relevant expenditure line by function. Upon the completionof the Genentech transaction (see Notes 3 and 8) the remaining outstanding awards were fully redeemed forcash. For accounting purposes the remaining fair value was expensed for the awards that were not fullyvested at that time, as described in Note 8.

Roche Stock-settled Stock Appreciation Rights | With the introduction of Roche Long-Term in 2005,the Group offers Stock-settled Stock Appreciation Rights (S-SARs) to certain directors, management andemployees selected at the discretion of the Group. The S-SARs give employees the right to receive non-voting equity securities (Genussscheine) reflecting the value of any appreciation in the market price of thenon-voting equity securities between the grant date and the exercise date. The rights, which are non-tradableequity-settled awards, have a seven-year duration and vest on a phased basis over three years, subjectto continued employment. The Group covers such obligations by purchasing non-voting equity securities,or derivatives thereon (see Note 28).

Roche S-SARs — movement in number of rights outstanding

2009 2008Number Weighted average Number Weighted average of rights exercise price of rights exercise price

(thousands) (CHF) (thousands) (CHF)

Outstanding at 1 January 13,063 191.72 7,782 185.60

Granted 14,342 155.85 6,397 194.25

Forfeited (780) 191.64 (477) 206.55

Exercised (440) 129.88 (639) 131.40


Outstanding at 31 December 26,185 173.12 13,063 191.72

— of which exercisable 7,506 187.61 4,221 170.86

Roche S-SARs — terms of rights outstanding at 31 December 2009

Rights outstanding Rights exercisableWeighted Weighted

Number Weighted average average Number average outstanding years remaining exercise exercisable exercise

Year of grant (thousands) contractual life price (CHF) (thousands) price (CHF)

2005 1,570 2.17 123.39 1,570 123.39

2006 2,007 3.17 195.16 2,007 195.16

2007 2,657 4.17 229.34 1,794 229.33

2008 5,909 5.10 194.26 2,063 194.33

2009 14,042 6.47 155.99 72 145.47

Total 26,185 5.42 173.12 7,506 187.61

The weighted average fair value of the rights granted in 2009 was calculated using a binomial model.The inputs to the model were consistent with those used for the Roche Option Plan 2009 awards givenpreviously, except that the early exercise factor was 1.379 and the expected exit rate was 7.1%.The resulting weighted average fair value per right is CHF 17.67 giving a total fair value of 253 millionSwiss francs which is charged over the vesting period of three years.


Roche Restricted Stock Unit Plan | For the first time in September 2009 the Group issued Restricted StockUnits (RSUs) awards to certain directors, management and employees selected at the discretion of theGroup. These first awards were made only to employees at Genentech. The RSUs, which are non-tradable,represent the right to receive non-voting equity securities (Genussscheine) which vest only after a three yearperiod. The weighted average fair value of the awards granted in 2009 was CHF 147.22 calculated on thebasis of the market value of Roche non-voting equity securities at the date of issue, discounted to take intoaccount that the awards would not accrue for any dividends during the vesting period.

Roche RSUs — movement in number of awards outstanding

2009Number of awards

(thousands)

Outstanding at 1 January –

Granted 1,257

Forfeited (10)

Transferred to participants –

Outstanding at 31 December 1,247

— of which exercisable –

Chugai Retirement Stock Acquisition Rights | For the first time in 2009 Chugai issued stock acquisitionrights in lieu of the abolition of the Retirement Gratuities System for Directors. The 785 rights issued havea thirty-year duration and vest upon the holder’s retirement as a director of Chugai. Each right entitlesthe holder to purchase 100 Chugai shares at an exercise price of 100 Japanese yen. The total fair value ofrights issued was equivalent to 1 million Swiss francs, which was calculated using a binomial model withinputs consistent with those used for the Chugai Stock Appreciation Rights given previously.

Roche Performance Share Plan | The Group offers future non-voting equity security awards (or, at thediscretion of the Board of Directors, their cash equivalent) to certain directors and key senior managers.The programme was established at the beginning of 2002 and currently operates in annual three-year cycles.The terms of the currently outstanding awards are set out in the table below. The amount of non-voting equitysecurities allocated will depend upon the individual’s salary level, the achievement of performance targetslinked to the Group’s Total Shareholder Return (shares and non-voting equity securities combined) relativeto the Group’s peers during the three-year period from the date of the grant, and the discretion of the Boardof Directors. These are non-tradable equity-settled awards. Each award will result in between zero and twonon-voting equity securities, depending upon the achievement of the performance targets.

Roche Performance Share Plan — terms of outstanding awards at 31 December 2009

2007—2009 2008—2010 2009—2011

Number of awards outstanding (thousands) 71 83 107

Vesting period 3 years 3 years 3 years

Allocated to recipients in Feb. 2010 Feb. 2011 Feb. 2012

Fair value per unit at grant (CHF) 239.49 201.22 156.06

Total fair value at grant (CHF millions) 19 18 18

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The weighted average fair value of the awards granted in 2009 was calculated using a Monte Carlo simulation.The input parameters to the model were the covariance matrix between Roche and the other individualcompanies of the peer group based on a three-year history and a risk-free rate of 1.44%. The valuation alsotakes into account the defined rank and performance structure which determines the payout of the PSP.

Roche Stock Appreciation Rights | Some employees of certain North American subsidiaries of the Groupreceive Stock Appreciation Rights (SARs) as part of their compensation. The SARs, which are non-tradablecash-settled awards, may be exercised after a vesting period of between one and three years for a cashpayment, based upon the amount by which the market price of the Group’s American Depositary Receipts(ADRs) at the point of exercise exceeds the strike price (grant price at issuance). Following the implementationof Roche Long-Term (see above), the Group does not plan to award any further cash-settled SARs andno awards have been made since 2004. On 9 January 2009 the ratio of ADRs to non-voting equity securities(Genussscheine) was changed from 2:1 to 4:1. The information below has been restated for this change.

Roche Stock Appreciation Rights | in millions of CHF

2009 2008

Liability at 31 December 35 43

Intrinsic value of vested rights at 31 December 35 43

Roche Stock Appreciation Rights — terms of rights outstanding at 31 December 2009

Rights outstanding and exercisableNumber outstanding

and exercisable Weighted average Year of grant (thousands) Expiry price (USD)

2003 360 Feb. 2010 14.41

2004 1,439 Feb. 2011 26.04

Total 1,799 23.71

The fair value at 31 December 2009 was calculated using a binomial model. The inputs to the model werethe ADR price at 31 December 2009 (USD 42.20), the exercise prices given in the above table, and otherinputs consistent with those used for the Roche Option Plan 2009 awards given previously.


12. Property, plant and equipment Property, plant and equipment: movements in carrying value of assets | in millions of CHF

Buildingsand land Machinery and Construction

Land improvements equipment in progress Total

At 1 January 2008

Cost 1,092 10,207 14,681 3,424 29,404

Accumulated depreciation and impairment – (3,172) (8,400) – (11,572)

Net book value 1,092 7,035 6,281 3,424 17,832


At 1 January 2008 1,092 7,035 6,281 3,424 17,832

Additions 11 144 877 2,155 3,187

Disposals (13) (11) (61) (12) (97)

Ventana acquisition 7 15 25 25 30 95

Other business combinations 7 – – 3 – 3

Divestments of subsidiaries 34 (4) (46) (51) (6) (107)

Transfers – 1,692 1,262 (2,954) –

Depreciation charge – (479) (1,197) – (1,676)

Impairment charge – (17) (11) – (28)

Currency translation effects (28) (406) (401) (184) (1,019)

At 31 December 2008 1,073 7,937 6,727 2,453 18,190

Cost 1,073 11,410 15,203 2,453 30,139

Accumulated depreciation

and impairment – (3,473) (8,476) – (11,949)

Net book value 1,073 7,937 6,727 2,453 18,190


At 1 January 2009 1,073 7,937 6,727 2,453 18,190

Additions 2 31 972 1,832 2,837

Disposals (3) (21) (64) (47) (135)

Lonza Singapore acquisition 7 – – – – –

Other business combinations 7 – – 3 – 3

Divestments of subsidiaries 34 – – – – –

Transfers – 789 1,062 (1,851) –

Depreciation charge – (505) (1,476) – (1,981)

Impairment charge – (687) (338) (102) (1,127)

Currency translation effects (18) (34) (29) (9) (90)

At 31 December 2009 1,054 7,510 6,857 2,276 17,697

Cost 1,054 12,022 16,467 2,377 31,920

Accumulated depreciation

and impairment – (4,512) (9,610) (101) (14,223)

Net book value 1,054 7,510 6,857 2,276 17,697

Impairment charges arise from changes in the estimates of the future cash flows expected to result fromthe use of the asset and its eventual disposal. Factors such as changes in the planned use of buildings,machinery or equipment, or closure of facilities, the presence or absence of competition and technical obso-lescence could result in shortened useful lives or impairment. Impairment charges of 30 million Swiss francs(2008: 18 million Swiss francs) are reported as part of ‘Cost of sales’, 14 million Swiss francs (2008: zero)in ‘Research and development’ and 1,083 million Swiss francs (2008: 10 million Swiss francs) are reportedas part of ‘Changes in Group organisation’ (see Note 8). The major part of the impairment reported in‘Changes in Group organisation’ relates to the discontinuation of a bulk drug production unit on part of thesite at Vacaville in California, which was fully written-down.

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Borrowing costs totalling 9 million Swiss francs using a rate of 4.79% (2008: 42 million Swiss francs usinga rate of 4.79%) were capitalised as property, plant and equipment.

Leasing arrangements where the Group is the lesseeFinance leases | As at 31 December 2009 the capitalised cost of property, plant and equipment underfinance leases was 157 million Swiss francs (2008: 174 million Swiss francs) and the net book value of theseassets was 43 million Swiss francs (2008: 53 million Swiss francs).

Finance leases: future minimum lease payments under non-cancellable leases | in millions of CHF

Future minimum lease Present value of futurepayments minimum lease payments

2009 2008 2009 2008

Within one year 1 3 1 3

Between one and five years 1 2 1 1

More than five years – – – –

Total 2 5 2 4

Future finance charges – – – 1

Total future minimum lease

payments (undiscounted) 2 5 2 5

In addition to the above, Genentech leasing arrangements are disclosed below.

Operating leases | Group companies are party to a number of operating leases, mainly for plant andmachinery, including motor vehicles, and for certain short-term property rentals. The arrangements do notimpose any significant restrictions on the Group. Total operating lease rental expense was 424 millionSwiss francs (2008: 411 million Swiss francs).

Operating leases: future minimum lease payments under non-cancellable leases | in millions of CHF

2009 2008

Within one year 235 220

Between one and five years 432 412

More than five years 175 173

Total minimum payments 842 805

Leasing arrangements where the Group is the lessorFinance leases | Certain assets, mainly diagnostics instruments, are leased to third parties through financelease arrangements. Such assets are reported as receivables at an amount equal to the net investment inthe lease. Lease income from finance leases is recognised over the term of the lease based on the effectiveinterest rate method.

Finance leases: future minimum lease payments under non-cancellable leases | in millions of CHF

Gross investment in lease Present value of futureminimum lease payments

2009 2008 2009 2008



More than five years 2 2 2 2

Total 86 68 81 63

Unearned finance income (4) (3) n/a n/a

Unguaranteed residual value n/a n/a 1 2

Net investment in lease 82 65 82 65


The accumulated allowance for uncollectible minimum lease payments was 2 million Swiss francs(2008: 1 million Swiss francs). There were no contingent rents recognised in income.

Operating leases | Certain assets, mainly some diagnostics instruments, are leased to third parties throughoperating lease arrangements. Such assets are reported within property, plant and equipment. Lease incomefrom operating leases is recognised over the lease term on a straight line basis.

Operating leases: future minimum lease payments under non-cancellable leases | in millions of CHF

2009 2008

Within one year 107 94

Between one and five years 224 212

More than five years 2 –

Total minimum payments 333 306

At 31 December 2009, machinery and equipment with an original cost of 2,742 million Swiss francs(2008: 2,356 million Swiss francs) and a net book value of 1,175 million Swiss francs (2008: 997 million Swissfrancs) was being leased to third parties. There was no contingent rent recognised as income.

Genentech leasing arrangementsIn December 2004 Genentech entered into a Master Lease Agreement with Slough SSF LLC, which was subsequently acquired by Health Care Properties (‘HCP’) for the development of property adjacent toGenentech’s South San Francisco site. The development includes a total of eight buildings, which aresubject to separate agreements as contemplated by the Master Lease Agreement. HCP as the developer willconstruct the building shell for each building and Genentech will finish the interior of each building aslaboratory or office space, as applicable. The construction of the first buildings was completed in 2006,at which point the lease term for those buildings was deemed to begin. Construction of the final buildingswas completed during 2008. The lease term expires twelve years from the occupation of the final building.Genentech has two five-year renewal options for each building and has an option to purchase the variousbuildings at different dates between 2016 and 2020. Genentech also has a right of first refusal with respectto each building or the entire development should HCP consider selling part or all of the development.

As at 31 December 2009 the total carrying value of property, plant and equipment from this agreementwas 213 million Swiss francs (2008: 239 million Swiss francs) and the carrying value of the leasing obligationwas 273 million Swiss francs (2008: 291 million Swiss francs). Estimates of the total future minimum leasepayments anticipated by the entire Master Lease Agreement are shown below.

Estimated total future minimum lease payments under HCP leases | in millions of CHF

Total minimumPrincipal Ground lease Interest lease payment



More than five years 181 50 36 267

Total 270 92 111 473

Capital commitmentsThe Group has non-cancellable capital commitments for the purchase or construction of property, plant andequipment totalling 0.8 billion Swiss francs (2008: 2.0 billion Swiss francs).

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13. GoodwillGoodwill: movements in carrying value of assets | in millions of CHF

2009 2008

At 1 January 8,353 6,835

Lonza Singapore acquisition 7 – –

Ventana acquisition 7 – 1,750

Other business combinations 7 15 289

Impairment charge – –

Currency translation effects (107) (521)

At 31 December 8,261 8,353

Allocated to the following cash-generating units

Pharmaceuticals Division

— Roche Pharmaceuticals 2,122 2,139

— Chugai 124 129

Total Pharmaceuticals Division 2,246 2,268

Diagnostics Division

— Diabetes Care 770 770

— Professional Diagnostics 1,728 1,752

— Molecular Diagnostics – –

— Applied Science 246 247

— Tissue Diagnostics 782 799

— Strategic goodwill (held at divisional level and not allocated

to business areas) 2,489 2,517

Total Diagnostics Division 6,015 6,085

Total Group 8,261 8,353

There are no accumulated impairment losses in goodwill. The goodwill arising from investments in associatesis classified as part of the investments in associates (see Note 15).

Goodwill impairment testingPharmaceuticals Division | The division’s sub-divisions are the cash-generating units used for the testingof goodwill. For Chugai, the recoverable amount is based on fair value less costs to sell, determined withreference to the publicly quoted share prices of Chugai shares. For Roche Pharmaceuticals, the recoverableamount used in the impairment testing is based on value in use. The cash flow projections used are basedon the most recent business plans approved by management. These assume no significant changes inthe organisation of the division and include management’s latest estimates on sales volume and pricing, and production and other operating costs. These reflect past experience and are projected over five years.The cash flow projections used do not extend beyond management’s most recent business plans. Thediscount rate used is based on a rate of 7.7%, which is derived from a capital asset pricing model usingdata from Swiss capital markets, including Swiss Federal Government ten-year bonds and the Swiss MarketIndex. A weighted average tax rate of 25.5% is used in the calculations. Management believes that anyreasonably possible change in any of the key assumptions would not cause the carrying value of goodwillto exceed the recoverable amount.


Diagnostics Division | The division’s business areas are the cash-generating units used for the testing ofgoodwill. The goodwill arising from the Corange/Boehringer Mannheim acquisition and part of the goodwillfrom the Ventana acquisition is recorded and monitored at a divisional level as it relates to the strategicdevelopment of the whole division and cannot be meaningfully allocated to the division’s business areas.Therefore the cash-generating unit for this goodwill is the entire division. The recoverable amount usedin the impairment testing is based on value in use. The cash flow projections used are based on the mostrecent business plans approved by management. These assume no significant changes in the organisation ofthe division and include management’s latest estimates on sales volume and pricing, and production andother operating costs. These reflect past experience and are projected over five years. The estimates for theTissue Diagnostics business area are projected over ten years, which management believes reflects the long-term nature of this business. The cash flow projections used do not extend beyond management’s mostrecent business plans. The discount rate used is based on a rate of 7.7%, which is derived from a capitalasset pricing model using data from Swiss capital markets, including Swiss Federal Government ten-yearbonds and the Swiss Market Index. A weighted average tax rate of 25.5% is used in the calculations.Management believes that any reasonably possible change in any of the key assumptions would not causethe carrying value of goodwill to exceed the recoverable amount.

14. Intangible assetsIntangible assets: movements in carrying value of assets | in millions of CHF

Product Product intangibles: Marketing Technology

intangibles: not available intangibles: intangibles:in use for use in use in use Total

At 1 January 2008

Cost 14,251 1,514 – 772 16,537

Accumulated amortisation

and impairment (9,583) – – (608) (10,191)

Net book value 4,668 1,514 – 164 6,346


At 1 January 2008 4,668 1,514 – 164 6,346

Ventana acquisition 7 819 570 – – 1,389

Other business combinations 7 26 253 – 92 371

Additions 55 363 – – 418

Disposals – – – – –

Amortisation charge (927) – – (42) (969)

Impairment charge (5) (99) – – (104)

Currency translation effects (223) (100) – (7) (330)

At 31 December 2008 4,413 2,501 – 207 7,121

Cost 14,304 2,568 – 805 17,677


and impairment (9,891) (67) – (598) (10,556)

Net book value 4,413 2,501 – 207 7,121

Allocation by operating segment

— Pharmaceuticals 1,291 1,946 – 140 3,377

— Diagnostics 3,122 555 – 67 3,744

Total Group 4,413 2,501 – 207 7,121

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Product Product intangibles: Marketing Technology

intangibles: not available intangibles: intangibles:in use for use in use in use Total


At 1 January 2009 4,413 2,501 – 207 7,121

Lonza Singapore acquisition 7 – – – – –

Other business combinations 7 17 47 25 – 89

Additions 40 183 – 13 236

Disposals (3) – – – (3)

Amortisation charge (673) – (4) (35) (712)

Impairment charge (225) (405) – (38) (668)

Currency translation effects (41) (22) – 5 (58)

At 31 December 2009 3,528 2,304 21 152 6,005

Cost 13,759 2,750 42 790 17,341


and impairment (10,231) (446) (21) (638) (11,336)

Net book value 3,528 2,304 21 152 6,005

Allocation by operating segment

— Pharmaceuticals 911 1,760 – 114 2,785

— Diagnostics 2,617 544 21 38 3,220

Total Group 3,528 2,304 21 152 6,005

Significant intangible assets as at 31 December 2009 | in millions of CHF

Operating Net book Remaining segment value amortisation period

Product intangibles in use

Tanox acquisition Pharmaceuticals 422 10 years

Chugai acquisition Pharmaceuticals 353 3—11 years

Corange/Boehringer Mannheim acquisition Diagnostics 1,147 8 years

Igen acquisition Diagnostics 332 7 years

Ventana acquisition Diagnostics 622 8 years

Product intangibles not available for use

Alnylam alliance Pharmaceuticals 245 n/a

Ventana acquisition Diagnostics 535 n/a

Classification of amortisation and impairment expenses | in millions of CHF

2009 2008Amortisation Impairment Amortisation Impairment

Cost of sales

— Pharmaceuticals 221 – 477 –

— Diagnostics 448 57 450 5

Marketing and distribution

— Diagnostics 3 – – –

Research and development

— Pharmaceuticals 32 302 34 99

— Diagnostics 8 23 8 –

Changes in Group organisation

— Pharmaceuticals – 286 – –

Total 712 668 969 104


Internally generated intangible assetsThe Group currently has no internally generated intangible assets from development as the criteria for therecognition as an asset are not met.

Intangible assets with indefinite useful livesThe Group currently has no intangible assets with indefinite useful lives.

Impairment of intangible assetsImpairment charges arise from changes in the estimates of the future cash flows expected to result from theuse of the asset and its eventual disposal. Factors such as the presence or absence of competition, technicalobsolescence or lower than anticipated sales for products with capitalised rights could result in shorteneduseful lives or impairment.

2009 | In 2009 the Pharmaceuticals operating segment recorded an impairment charge of 588 million Swissfrancs and the Diagnostics operating segment recorded an impairment charge of 80 million Swiss francs.

In the Pharmaceuticals operating segment an impairment charge of 286 million Swiss francs was recordedrelated to the Pharmaceuticals Division reorganisation (see Note 8). The integration programme includesprioritising projects within the shared portfolio. The assets concerned were fully written down by thesecharges. An impairment charge of 286 million Swiss francs was also recorded in respect of product intangiblesnot available for use and follows from recent clinical data and portfolio prioritisation decisions relating to certain projects either with alliance partners or acquired in business combinations. The assets concerned,which were not yet being amortised, were written down to their recoverable amount of 321 million Swissfrancs, based on a value in use calculation using a discount rate of 7.7%. In addition an impairment chargeof 16 million Swiss francs was recorded relating to intangible assets in use. These followed the regularupdating of the division’s business plans and technology assessments in the second half of 2009. The assetswere written down to their recoverable amount of 66 million Swiss francs, based on a value in use calculationusing a discount rate of 7.7%.

In the Diagnostics operating segment an impairment charge of 80 million Swiss francs was recorded.This was in respect of intangibles assets in use and followed the regular updating of the division’s businessplans and technology assessments in the second half of 2009. The assets were written down to theirrecoverable amount of 71 million Swiss francs, based on a value in use calculation using a discount rateof 7.7%.

2008 | In the Pharmaceuticals operating segment an impairment charge of 30 million Swiss francs wasrecorded in the first half of 2008 and a further 69 million Swiss francs were recorded in the second half of2008. These relate to product intangibles not available for use and follow from decisions to terminatedevelopment of three compounds with alliance partners. The assets concerned, which were not yet beingamortised, were fully written down by these charges. In the Diagnostics operating segment an impairmentcharge of 5 million Swiss francs was recorded in the second half of 2008 relating to product intangible assetsin use. These followed the regular updating of the division’s business plans and technology assessments inthe second half of 2008. The assets were written down to their recoverable amount of 13 million Swiss francs,based on a value in use calculation using a discount rate of 8.4%.

Intangible assets that are not yet available for use mostly represent in-process research and developmentassets acquired either through in-licensing arrangements, business combinations or separate purchases.As at 31 December 2009 the carrying value of such assets in the Pharmaceuticals Division is 1,760 millionSwiss francs. Of this amount approximately 52% represents projects that have potential decision pointswithin the next twelve months which in certain circumstances could lead to impairment. Due to the inherentuncertainties in the research and development process, such assets are particularly at risk of impairmentif the project in question does not result in a commercialised product.

87

Potential commitments from alliance collaborationsThe Group is party to in-licensing and similar arrangements with its alliance partners. These arrangementsmay require the Group to make certain milestone or other similar payments dependent upon the achievementof agreed objectives or performance targets as defined in the collaboration agreements.

The Group’s current estimate of future third-party commitments for such payments is set out in the tablebelow. These figures are not risk adjusted, meaning that they include all such potential payments thatcan arise assuming all projects currently in development are successful. The timing is based on the Group’scurrent best estimate. These figures do not include any potential commitments within the Group, such asmay arise between the Roche and Chugai businesses.

Potential future third-party collaboration payments as at 31 December 2009 | in millions of CHF

Pharmaceuticals Diagnostics Group

Within one year 127 14 141

Between one and two years 186 7 193

Between two and three years 155 2 157

Total 468 23 491

15. AssociatesThe Group’s investments in associates are accounted for using the equity method. The goodwill arising frominvestments in associates is classified as part of the investments in associates.

Investments in associates | in millions of CHF

Share of net income Carrying value2009 2008 2009 2008 2007

Total investments in associates – 1 16 9 9

The Group has no significant investments in associates and there were no material transactions betweenthe Group and its associates. Additional information about associates is given in Note 34.

16. Financial and other long-term assetsFinancial and other long-term assets | in millions of CHF

2009 2008 2007

Available-for-sale investments 315 588 836

Held-to-maturity investments 5 16 19

Loans receivable 18 16 19

Long-term trade receivables 45 73 190

Restricted cash 41 205 226

Other 57 42 43

Total financial long-term assets 481 940 1,333

Long-term employee benefits 226 230 273

Other 226 221 254

Total other long-term assets 452 451 527


Financial long-term assets are held for strategic purposes and are classified as non-current. The available-for-sale investments are mainly equity investments. Unquoted equity investments classified as available-for-sale are generally measured at cost, as their fair value cannot be measured reliably. These are primarilyinvestments in private biotechnology companies, which are kept as part of the Group’s strategic allianceefforts. The carrying value of equity investments held at cost is 34 million Swiss francs (2008: 25 million Swissfrancs, 2007: 26 million Swiss francs). The average effective interest rate of held-to-maturity investments is0.2% (2008: 2.5%). Loans receivable comprise all loans to third parties with a term of over one year.

17. InventoriesInventories | in millions of CHF

2009 2008 2007

Raw materials and supplies 814 702 603

Work in process 763 1,003 1,168

Finished goods and intermediates 4,509 4,466 4,590

Less: provision for slow-moving and obsolete inventory (438) (341) (248)

Total inventories 5,648 5,830 6,113

In 2009 expenses relating to inventories expensed through cost of sales totalled 9,263 million Swiss francs(2008: 8,419 million Swiss francs).

18. Accounts receivableAccounts receivable | in millions of CHF

2009 2008 2007

Trade accounts receivable 10,540 9,781 9,811

Notes receivable 270 181 190

Other 24 23 23

Allowances for doubtful accounts (273) (147) (139)

Charge-backs and other allowances (100) (83) (81)

Total accounts receivable 10,461 9,755 9,804

At 31 December 2009 accounts receivable include amounts denominated in US dollars equivalent to 2.3 bil-lion Swiss francs (2008: 2.8 billion Swiss francs, 2007: 3.8 billion Swiss francs) and amounts denominatedin euros equivalent to 3.9 billion Swiss francs (2008: 3.9 billion Swiss francs, 2007: 3.8 billion Swiss francs).

Allowances for doubtful accounts receivable: movements in recognised liability | in millions of CHF

2009 2008

At 1 January (147) (139)

Additional allowances created (192) (79)

Unused amounts reversed 54 36

Utilised during the year 9 12

Currency translation effects 3 23

At 31 December (273) (147)

Net bad debt expense was 138 million Swiss francs (2008: 43 million Swiss francs). Significant concentrationswithin trade receivables of counterparty credit risk are described in Note 32.

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19. Other current assetsOther current assets | in millions of CHF

2009 2008 2007

Accrued interest income 4 145 37

Derivative financial instruments 24 1,756 262 70

Restricted cash 1 – 889

Other 669 624 593

Total financial current assets 2,430 1,031 1,589

Prepaid expenses 499 452 355

Other 648 497 508

Total non-financial current assets 1,147 949 863

Total other current assets 3,577 1,980 2,452

Derivative financial instrument assets are primarily related to hedges on the non-US dollar denominatedbonds and notes issued to finance the Genentech transaction. Restricted cash in 2007 includes 889 millionSwiss francs of the surety bond posted by Genentech in connection with the City of Hope litigation (seeNote 25). Following the settlement of this litigation the entirety of the pledged amount became unrestrictedcash and available for use in Genentech’s operations during the third quarter of 2008.

20. Marketable securitiesMarketable securities | in millions of CHF

2009 2008 2007

Financial assets at fair-value-through-profit-or-loss

Held-for-trading investments

— Bonds and debentures – 1,027 1,129

Designated as fair-value-through-profit-or-loss

— Bonds and debentures – – 78

— Money market instruments and time accounts

over three months – – 167

— other investments – – 178

Total financial assets at

fair-value-through-profit-or-loss – 1,027 1,552

Held-to-maturity financial assets


over three months 11 – –

Total held-to-maturity financial assets 11 – –

Available-for-sale financial assets

— Shares 314 51 292

— Bonds and debentures 753 6,814 7,624


over three months 15,029 7,961 10,965

— Other investments – 3 14

Total available-for-sale financial assets 16,096 14,829 18,895

Total marketable securities 16,107 15,856 20,447


Marketable securities are held for fund management purposes and are classified as current. They areprimarily denominated in US dollars. Other investments held for strategic purposes are classified as non-current (see Note 16). During 2009 all held-for-trading investments, which had been held at Genentech,were sold.

Shares | These consist primarily of readily saleable equity securities.

Bonds and debentures | The carrying values, contract maturity and average effective interest rate of debtsecurities is shown below.

Bonds and debentures | in millions of CHF

2009 2008Average effective Average effective

Contracted maturity Amount interest rate Amount interest rate

Within one year 261 3.01% 2,612 5.81%

Between one and five years 339 2.42% 4,178 5.81%

More than five years 153 2.84% 1,051 5.35%

Total bonds and debentures 753 2.71% 7,841 5.75%

Money market instruments | These generally have fixed interest rates ranging from 0% to 9.65%(2008: 0.05% to 5.50%) depending upon the currency in which they are denominated. They are contractedto mature within one year of 31 December 2009.

21. Cash and cash equivalentsCash and cash equivalents | in millions of CHF

2009 2008 2007

Cash

— Cash in hand and in current or call accounts 2,396 1,999 2,792

Cash equivalents

— Time accounts with a maturity of three months or less 46 2,916 963

Total cash and cash equivalents 2,442 4,915 3,755

22. Accounts payableAccounts payable | in millions of CHF

2009 2008 2007

Trade accounts payable 1,299 1,053 1,188

Other taxes payable 442 437 406

Dividends payable 15 15 –

Other accounts payable 544 512 267

Total accounts payable 2,300 2,017 1,861

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23. Accrued and other current liabilitiesAccrued liabilities and other current liabilities | in millions of CHF

2009 2008 2007

Deferred income 562 262 231

Accrued payroll and related items 2,026 1,838 1,566

Interest payable 1,138 95 104

Derivative financial instruments 24 343 194 80

Other accrued liabilities 5,329 3,584 3,848

Total accrued and other current liabilities 9,398 5,973 5,829

24. Derivative financial instrumentsThe Group uses derivative financial instruments as part of its risk management activities. This is discussedin Note 32. Derivative financial instruments are carried at fair value. The methods used for determining fairvalue are described in Note 1.

Derivative financial instruments | in millions of CHF

Assets Liabilities2009 2008 2007 2009 2008 2007

Foreign currency derivatives

— Forward exchange contracts 25 155 29 (343) (119) (71)

— Cross-currency swaps 1,698 – – – – –

— Other – 21 4 – (32) (4)

Interest rate derivatives

— Swaps 11 20 7 – (1) –

— Other 2 23 – – – (1)

Other derivatives 20 43 30 – (42) (4)

Total derivative financial

instruments 19, 23 1,756 262 70 (343) (194) (80)

Hedge accountingThe Group’s accounting policy on hedge accounting, which is described in Note 1, requires that to qualify forhedge accounting the hedging relationship must meet several strict conditions on documentation, probabilityof occurrence, hedge effectiveness and reliability of measurement.

As described in Note 32, the Group has financial risk management policies for foreign exchange risk, interestrate risk, market risk, credit risk and liquidity risk. When deemed appropriate, certain of the above risks aremanaged by using derivatives. While many of these transactions can be considered as hedges in economicterms, if the required conditions are not met, then the relationship does not qualify for hedge accounting.In this case the hedging instrument and the hedged item are reported independently as if there were nohedging relationship, which means that any derivatives are reported at fair value, with changes in fair valueincluded in financial income.

The Group generally limits the use of hedge accounting to certain significant transactions. Consequentlyas at 31 December 2009 the Group has no fair value hedges, cash flow hedges or hedges of net investmentin a foreign entity that meet the strict requirements to qualify for hedge accounting, apart from thosedescribed below.


Cash flow hedgesThe Group has issued bonds and notes to finance the Genentech transaction (see Note 27). On some of thebonds and notes which are denominated in euros and sterling, the Group has entered into cross-currencyswaps to hedge foreign exchange and interest rate risk. These cash flow hedges qualify for hedge accounting.As at 31 December 2009 such instruments, which are designated and qualify for hedge accounting,are recorded as assets with a fair value of 1,698 million Swiss francs. There was no ineffective portion.

In 2008 Genentech had partly hedged non-US dollar cash flows from future royalty income and developmentexpenses expected over the next one to five years. Genentech entered into zero-cost collar option contracts.As at 31 December 2008, none of the options were in-the-money, hence no cash flows were expected fromthese derivatives. The options, which are designated and qualify for hedge accounting, were recorded as anet liability with a fair value of 11 million Swiss francs. Those hedges were unwound during 2009. There wasno material ineffective portion.

The expected undiscounted cash flows from qualifying cash flow hedges, including interest payments duringthe duration of the derivative contract and final settlement on maturity, are shown in the table below.

Expected cash flows of qualifying cash flow hedges | in millions of CHF

0—3 4—6 7—12 1—2 2—3 3—4 4—5 Over 5Total months months months years years years years years

Year ended

31 December 2009

Cash inflows 20,903 815 – – 815 815 8,618 454 9,386

Cash outflows (19,185) (830) – – (830) (832) (7,762) (447) (8,484)

Total 1,718 (15) – – (15) (17) 856 7 902

Year ended

31 December 2008

Cash inflows – – – – – – – – –

Cash outflows – – – – – – – – –

Total – – – – – – – – –

The undiscounted cash flows in the table above will affect profit and loss as shown below. These includeinterest payments during the duration of the derivative contract but do not include the final settlement onmaturity.

Expected cash flows of qualifying cash flow hedges with impact on profit and loss | in millions of CHF

0—3 4—6 7—12 1—2 2—3 3—4 4—5 Over 5Total months months months years years years years years

Year ended

31 December 2009

Cash inflows 5,412 815 – – 815 815 815 454 1,698

Cash outflows (5,417) (830) – – (830) (832) (828) (447) (1,650)

Total (5) (15) – – (15) (17) (13) 7 48

Year ended

31 December 2008

Cash inflows – – – – – – – – –

Cash outflows – – – – – – – – –

Total – – – – – – – – –

The changes in the hedging reserve within equity are shown in Note 28.

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Fair value hedgesThe Group has hedged some of its fixed-term debt instruments with interest rate swaps. As at 31 December2009 such instruments, which have been designated and qualify as fair value hedges, are recorded in thebalance sheet as an asset with a fair value of 11 million Swiss francs (2008: asset of 20 million Swiss francs).During 2009 a loss of 9 million Swiss francs was recorded on these interest rate swaps (2008: gain of 14 million Swiss francs). As the fair value hedge has been highly effective since inception, the result of theinterest rate swaps is largely offset by changes in the fair value of the hedged debt instruments.

The Group has equity investments in various biotechnology companies that are subject to a greater riskof market fluctuation than the stock market in general. To manage part of this exposure the Group has enteredinto forward contracts, which have been designated and qualify as fair value hedges. As at 31 December2009 such instruments are recorded as assets with a fair value of 20 million Swiss francs (2008: assetsof 42 million Swiss francs). During 2009 a loss of 22 million Swiss francs was recorded on these forwardcontracts (2008: gain of 19 million Swiss francs). The result of the forward contracts is offset by thechanges in the fair value of the hedged equity investments.

The Group uses other derivatives, not designated in a qualifying hedge relationship, to manage its exposuresto foreign currency, interest rate, equity market and credit risks. The instruments used may include interestrate swaps, cross-currency swaps, forwards contracts, options.

25. Provisions and contingent liabilitiesProvisions: movements in recognised liabilities | in millions of CHF

Legal Environmental Restructuring Employee Other provisions provisions provisions provisions provisions Total


At 1 January 2008 1,102 203 193 277 430 2,205

Additional provisions created 125 3 191 110 426 855

Unused amounts reversed (354) (18) (17) (10) (39) (438)

Utilised during the year (618) (22) (91) (76) (254) (1,061)

Unwinding of discount 5 15 4 1 1 – 21

Currency translation effects (47) (9) (13) (23) (32) (124)

At 31 December 2008 223 161 264 279 531 1,458

Of which

— Current portion 90 19 186 60 449 804

— Non-current portion 133 142 78 219 82 654

Total provisions 223 161 264 279 531 1,458


Legal Environmental Restructuring Employee Other provisions provisions provisions provisions provisions Total


At 1 January 2009 223 161 264 279 531 1,458

Additional provisions created 513 101 457 131 582 1,784

Unused amounts reversed (113) (3) (22) (12) (62) (212)

Utilised during the year (64) (20) (157) (126) (342) (709)

Unwinding of discount 5 5 13 1 2 – 21

Other business combinations 7 – – 2 – 2 4

Currency translation effects (15) (5) (13) 4 1 (28)

At 31 December 2009 549 247 532 278 712 2,318

Of which

— Current portion 514 17 421 60 606 1,618

— Non-current portion 35 230 111 218 106 700


Expected outflow of resources

— Within one year 514 17 421 60 606 1,618

— Between one to two years 17 19 61 33 37 167

— Between two to three years 6 46 28 28 20 128

— More than three years 12 165 22 157 49 405


Major legal casesIncome (expense) from major legal cases is disclosed separately in the income statement due to the materialityof the amounts and in order to fairly present the Group’s results. In 2009 provisions for major legal caseswere increased by 320 million Swiss francs, based on management’s current estimates of the ultimateliabilities that are expected to arise, taking into account the development of the various litigation and arbitrationprocesses and any negotiations to resolve these cases. In 2008 income of 271 million Swiss francs wasrecorded following the 24 April 2008 California Supreme Court decision in the City of Hope litigation (seebelow). This consisted of the 310 million US dollars released to income as a favourable litigation settlement,net of amounts recorded in respect of final settlement negotiations with the City of Hope National MedicalCenter. Costs of other litigation matters that are less material are expensed in the current period and reportedwithin general and administration expenses. The total income tax recorded in respect of major legal caseswas a benefit of 123 million Swiss francs (2008: expense of 105 million Swiss francs).

Legal provisionsLegal provisions consist of a number of separate legal matters, including claims arising from trade, in variousGroup companies. The majority of any cash outflows for these other matters are expected to occur withinthe next one to three years, although these are dependent on the development of the various litigations.Significant provisions are discounted by between 4% and 5% where the time value of money is material.

Environmental provisionsProvisions for environmental matters include various separate environmental issues in a number of countries.By their nature the amounts and timings of any outflows are difficult to predict. The estimated timings of thesecash outflows are shown in the table above. Significant provisions are discounted by between 5% and 6%where the time value of money is material.

Restructuring provisionsThese arise from planned programmes that materially change the scope of business undertaken by theGroup or the manner in which business is conducted. Such provisions include only the costs necessarilyentailed by the restructuring which are not associated with the recurring activities of the Group. The timingsof these cash outflows are reasonably certain on a global basis and are shown in the table above.Significant provisions are discounted by between 3% and 4% where the time value of money is material.

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Employee provisionsThese mostly relate to certain employee benefit obligations, such as sabbatical leave and long-servicebenefits. The timings of these cash outflows can be reasonably estimated based on past performance andare shown in the table above. Significant provisions are discounted by 6% where the time value of moneyis material.

Other provisionsOther provisions mostly relate to sales returns and various other provisions from Group companies that do notfit into the above categories. The timings of cash outflows are by their nature uncertain and the best estimatesare shown in the table above. These provisions are not discounted as the time value of money is not materialin these matters.

Contingent liabilitiesThe operations and earnings of the Group continue, from time to time and in varying degrees, to be affectedby political, legislative, fiscal and regulatory developments, including those relating to environmentalprotection, in the countries in which it operates. The industries in which the Group operates are also subjectto other risks of various kinds. The nature and frequency of these developments and events, not all of whichare covered by insurance, as well as their effect on future operations and earnings, are not predictable.

The Group has entered into strategic alliances with various companies in order to gain access to potentialnew products or to utilise other companies to help develop the Group’s own potential new products. Potentialfuture payments may become due to certain collaboration partners achieving certain milestones as defined inthe collaboration agreements. The Group’s best estimates of future commitments for such payments are givenin Note 14.

Pharmaceuticals legal casesOn 10 June 2002 Genentech announced that a Los Angeles County Superior Court jury voted to award theCity of Hope National Medical Center (‘City of Hope’) approximately 300 million US dollars in compensatorydamages based on a finding of a breach of a 1976 agreement between Genentech and the City of Hope.On 24 June 2002 the jury voted to award the City of Hope 200 million US dollars in punitive damages in thesame case. On 13 September 2002 Genentech filed a notice of appeal of the jury verdict and damages awardswith the California Court of Appeal. On 21 October 2004 the Court of Appeal affirmed the verdict anddamages awards in all respects. Also, on 21 October 2004 Genentech announced that it would seek reviewby the California Supreme Court, which has discretion over which cases it will review. On 24 November 2004Genentech filed its petition for review by the California Supreme Court and on 2 February 2005 the CaliforniaSupreme Court granted this petition. The appeal to the California Supreme Court was heard on 5 February2008 and on 24 April 2008 overturned the award of 200 million US dollars in punitive damages to the City ofHope, but upheld the award of 300 million US dollars in compensatory damages. On 9 May 2008 Genentechpaid 476 million US dollars to the City of Hope, reflecting the amount of compensatory damages awarded,plus interest thereon from the date of the original decision on 10 June 2002. On 31 March 2009 Genentechand the City of Hope National Medical Center resolved all remaining issues regarding additional royaltiesand other amounts that Genentech owes to City of Hope under the 1976 agreement for third-party productsales and settlement of a third-party patent litigation, including those that occurred after the 2002judgement by a Los Angeles County Superior Court jury.

During the appeals process interest had accrued on the total amount of the damages at a simple annualrate of 10%. During 2008 interest of 11 million Swiss francs was recorded as the time cost of provisions withinfinancing costs.

A full provision, totalling 776 million US dollars as at 31 December 2007, had been recorded for these awards.As a result of the 24 April 2008 California Supreme Court decision, provisions totalling 310 million US dollarswere released to income in 2008 as a favourable litigation settlement, of which 200 million US dollars relatesto the original award recorded in 2002 as an exceptional major legal case expense and 110 million US dollarsrelates to interest accrued as a charge to financing costs in the intervening periods.


On 3 October 2002 Genentech entered into an arrangement with third-party insurance companies to post asurety bond in connection with this judgment. As part of this arrangement Genentech had pledged 788 millionUS dollars in cash and investments to secure this bond. This amount, which was equivalent to 889 millionSwiss francs at 31 December 2007, was recorded as restricted cash within other current assets in the AnnualFinancial Statements. During the third quarter of 2008 the court completed certain administrative proceduresto dismiss the case. As a result the restrictions were lifted from the restricted cash and investments and thefunds became available for use in Genentech’s operations.

On 4 October 2004 Genentech received a subpoena from the United States Department of Justice, requestingdocuments related to the promotion of Rituxan. Genentech co-operated with the government’s associatedinvestigation. Previously the investigation had been both civil and criminal in nature. Genentech was informedin August 2008 by the criminal prosecutor who handled this matter that the government has declined toprosecute Genentech criminally in connection with this investigation. The civil matter was still ongoing.Through counsel Genentech continued to have discussions with government representatives about the statusof their investigation and Genentech’s views on this matter, including potential resolution. On 20 October2009 the government notified Genentech that it had decided not to make any civil claim against Genentech.The government’s investigation was initiated by a complaint that was filed under seal in the US District Courtfor the Eastern District of Pennsylvania in 2003 by an individual plaintiff. The complaint was unsealed on31 December 2009 and is currently the basis of civil litigation by the plaintiff against Roche Holdings, Inc.and Genentech. The Group intends to vigorously defend itself. The outcome of this civil litigation cannotbe determined at this time.

On 13 May 2005 a request was filed by a third party for re-examination of US Patent No. 6,331,415(‘the Cabilly patent’) that is co-owned by Genentech and the City of Hope National Medical Center andunder which other companies have been licensed and are paying royalties. On 7 July 2005 the US Patentand Trademark Office (‘the Patent Office’) ordered a re-examination of this patent. On 25 February 2008the Patent Office mailed a final Patent Office action rejecting all the claims of the Cabilly patent. Genentechfiled a notice of appeal challenging the rejection on 22 August 2008. Genentech’s opening appeal briefwas filed on 9 December 2008. Subsequent to the filing of the appeal brief, the Patent Office continued withthe re-examination. On 12 and 13 February 2009 Genentech filed further responses with the Patent Officethat included proposed amendments to three claims of the patent (claims 21, 27, and 32) and the claimsthat depend on these three claims. On 23 February 2009 the Patent Office issued a Notice of Intent to Issue a Re-examination Certificate (‘NIRC’), confirming the patentability of all claims of the Cabilly patent asamended. None of the amendments have a commercial impact on the Cabilly patent. The NIRC is final andnon-appealable. A re-examination certificate was issued on 19 May 2009 reflecting the formal terminationof these proceedings in Genentech’s favour.

On 30 May 2008 Centocor, Inc. filed a patent lawsuit against Genentech and City of Hope in the US DistrictCourt for the Central District of California. The lawsuit relates to the Cabilly patent and seeks a declaratoryjudgment of patent invalidity and unenforceability with regard to the Cabilly patent and of patent non-infringe-ment with regard to certain of Centocor’s products. Centocor filed an amended complaint on 3 September2008. Genentech answered the complaint on 19 September 2008 and also filed counterclaims against Centocoralleging that four Centocor products infringe certain Genentech patents. Genentech filed an amendment tothose counterclaims on 10 October 2008 and Centocor answered these counterclaims on 26 November 2008.Discovery is ongoing in the lawsuit. The Cabilly patent, which expires in 2018, relates to methods usedby Genentech and others to make certain antibodies or antibody fragments, as well as cells and DNA usedin these methods. Genentech has licensed the Cabilly patent to other companies and derives significantroyalties from these licences. The outcome of this matter cannot be determined at this time.

97

On 8 October 2009, Glaxo Group Limited, SmithKline Beecham Corporation, and GlaxoSmithKline LLC(collectively ‘GSK’) filed a patent lawsuit against Genentech and City of Hope in the US District Court forthe Southern District of Florida. The lawsuit relates to the Cabilly patent and seeks a declaratory judgmentof patent invalidity and unenforceability with regard to the Cabilly patent and of patent non-infringementwith regard to a certain GSK product. On 16 December 2009 Genentech filed a motion to dismiss, or in thealternative to transfer to the Central District of California. The outcome of this matter cannot be determinedat this time.

In 2006 Genentech made development decisions involving its humanised anti-CD20 programme, and itscollaborator, Biogen Idec Inc., disagreed with certain of Genentech’s development decisions related to humanised anti-CD20 products. The disputed issues were submitted to arbitration. On 15 June 2009Genentech received the decision from the arbitrators, which included certain favourable and certain adverserulings relating to some of Genentech’s development decisions and programmes. The decision deniedall monetary damages sought by both parties and did not change the collaboration profit split arrangement.

Hoffmann-La Roche Inc. (‘HLR’) and various other Roche affiliates have been named as defendants innumerous legal actions in the United States and elsewhere relating to the acne medication Accutane. The litigation alleges that Accutane caused certain serious conditions, including, but not limited to, inflam-matory bowel disease (‘IBD’), birth defects and psychiatric disorders. As of 31 December 2009 HLR isdefending approximately 714 actions brought in various federal and state courts throughout the United Statesfor personal injuries allegedly resulting from their use of Accutane. Most of the actions allege IBD as a resultof Accutane use. On 26 June 2009 HLR announced that, following a re-evaluation of its portfolio of medicinesthat are now available from generic manufacturers, rapidly declining brand sales in the US and high costsfrom personal-injury lawsuits that it continues to defend vigorously, it had decided to immediately discontinuethe manufacture and distribution of the product in the United States.

All of the actions pending in federal court alleging IBD were consolidated for pre-trial proceedings in a Multi-District Litigation in the United States District Court for the Middle District of Florida, Tampa Division.In July 2007 the District Court granted summary judgment in favour of HLR in the lead federal IBD cases.The plaintiffs appealed and in August 2008 these rulings were affirmed by the United States Court of Appealsfor the Eleventh Circuit. In October 2009 the District Court granted summary judgment in favour of HLR inthe next five federal IBD cases. The plaintiffs appealed in November 2009. One recently filed matter remains.

All of the actions pending in state court in New Jersey alleging IBD were consolidated for pre-trial proceedingsin the Superior Court of New Jersey, Law Division, Atlantic County. As of 31 December 2009 juries in theSuperior Court have ruled in favour of the plaintiff in five cases, assessing total compensatory damagestotalling 26 million US dollars. The first verdict was reversed on appeal; the re-trial is scheduled for January2010. HLR has appealed the second verdict to the Superior Court of New Jersey, Appellate Division and iscurrently in the process of post-trial briefing for the remaining trial, which involved three plaintiffs.

In October 2007 a jury in the Circuit Court of Escambia County, Florida, returned a verdict in favour of theplaintiff, assessing total compensatory damages of 7 million US dollars, subsequently reduced to 6.8 millionUS dollars by the court, against the Company. In October 2009, the District Court of Appeal, State of Floridareversed and entered judgment as to HLR. The plaintiff has sought review in the Supreme Court of Florida.

Additional trials are scheduled for 2010. Individual trial results depend on a variety of factors, includingmany that are unique to the particular case and therefore the trial results to date may not be predictiveof future trial results. The Group continues to defend vigorously the remaining personal injury casesand claims.


HLR and Roche Laboratories Inc. (‘RLI’), along with approximately 50 other brand and generic pharma-ceutical companies, have been named as defendants in several legal actions in the United States relating tothe pricing of pharmaceutical drugs and State Medicaid reimbursement. The primary allegation in theselitigations is that the pharmaceutical companies misrepresented or otherwise reported inaccurate AverageWholesale Prices (‘AWP’) and/or Wholesale Acquisition Costs (‘WAC’) for their drugs, which prices wereallegedly relied upon by the States in calculating Medicaid reimbursements to entities such as retail pharma-cies. The States, through their respective Attorney General, are seeking repayment of the amounts theyclaim were over-reimbursed. The time period associated with these cases is 1991—2005. As of 31 December2009, HLR and RLI are defending 10 actions brought in seven States, including four matters in New York,and one in each of the following states: Alabama, Mississippi, New Jersey, Kansas, Hawaii, and Iowa.Discovery is currently pending in each of these cases. HLR and RLI intend to vigorously defend themselvesin these matters. The outcome of these matters cannot be determined at this time.

HLR, along with various other branded pharmaceutical companies, has been named as a defendant inseveral legal actions in the United States brought by retail pharmacies relating to the discounting practicesfor Brand Name Prescription Drugs (‘BNPD’). In these BNPD litigations, the plaintiffs allege that they weredenied discounts for certain prescription drugs that were offered to other mail order and managed careentities, which denial is claimed to be a violation of the Robinson-Patman Act (‘RPA’). The RPA is a Federallaw that prohibits unlawful price discrimination. In addition, the plaintiffs alleged that the defendantsconspired in their refusal to offer them certain discounts. The conspiracy claims against all defendants werepreviously settled, with only the RPA claims remaining to be litigated. As of 31 December 2009 HLR isdefending approximately 120 BNPD actions brought by approximately 3,000 retail pharmacies in variousfederal and state courts throughout the United States. Discovery is currently pending in each of these cases.HLR is not currently scheduled for a trial in any of these BNPD matters in 2010. HLR intends to vigorouslydefend itself. The outcome of these matters cannot be determined at this time.

On 19 November 2007 Novartis Vaccines & Diagnostics, Inc. (the former Chiron affiliate of Novartis) fileda lawsuit against Trimeris, Inc. and four Roche Group companies: Hoffmann-La Roche Inc., F. Hoffmann-La Roche Ltd, Roche Laboratories Inc. and Roche Colorado Corp., in the US District Court for the EasternDistrict of Texas. The complaint seeks an injunction and damages for the manufacture and sale of Roche’santi-AIDS drug Fuzeon in the United States. Novartis alleges these activities infringe the claims of US PatentNo. 7,285,271. At Roche and Trimeris’s request the case has been transferred to the US District Court forNorth Carolina. The outcome of this matter cannot be determined at this time.

On 28 June 2003 Mr Ubaldo Bao Martinez filed a lawsuit against the Porriño Town Council and GenentechEspaña S. L. in the Contentious Administrative Court Number One of Pontevedra, Spain. The lawsuitchallenges the Town Council’s decision to grant licenses to Genentech España S. L. for the constructionand operation of a warehouse and biopharmaceutical manufacturing facility in Porriño, Spain. On 16 January2008 the Administrative Court ruled in favour of Mr Bao on one of the claims in the lawsuit and orderedthe closing and demolition of the facility, subject to certain further legal proceedings. On 12 February 2008,Genentech España S. L. and the Town Council filed appeals of the Administrative Court decision at the HighCourt in Galicia, Spain. In addition, through legal counsel in Spain, Genentech is co-operating with the LonzaGroup Ltd (‘Lonza’) to pursue administrative remedies, including seeking additional permits for the facility.Genentech sold the assets of Genentech España S. L., including the Porriño facility, to Lonza in December2006, and Lonza has operated the facility since that time. Under the terms of that sale, Genentech retainedcontrol of the defence of this lawsuit and agreed to indemnify Lonza against certain contractually definedliabilities up to a specified limit, which is currently estimated to be approximately 100 million US dollars.Genentech’s indemnification obligation to Lonza, if any, cannot be determined at this time.

99

On 8 May, 11 June, 8 August, and 29 September 2008, Genentech was named as a defendant, along withInterMune, Inc. and its former chief executive officer, W. Scott Harkonen, in four separate class-action com-plaints filed in the US District Court for the Northern District of California on behalf of plaintiffs who allegedlypaid part or all of the purchase price for a product that was licensed by Genentech to Connectics Corporationand was subsequently assigned to InterMune. Genentech responded to these complaints with a motion todismiss these matters, which was granted on 28 April 2009. Plaintiffs filed amended complaints including onlystate law claims on 28 May 2009. Genentech responded to these complaints with another motion to dismiss,which was held on 11 September 2009. The Court again granted Genentech’s motion to dismiss with respectto all claims, but with leave for plaintiffs to replead specific claims under California unfair competition law.Plaintiffs filed an amended class action complaint on 23 December 2009 naming Genentech as a defendantin claims for unfair competition law, false advertising law, consumer remedies law, consumer protectionlaw, and unjust enrichment. Genentech intends to seek dismissal of this amended complaint. The outcomeof this matter cannot be determined at this time.

Subsequent to the announcement of the Roche Proposal to purchase all of the outstanding shares ofGenentech common stock not owned by Roche (see Note 3), more than thirty shareholder lawsuits have beenfiled against Genentech and/or the members of its Board of Directors, and various Roche entities includingRoche Holdings, Inc. (RHI) and Roche Holding Ltd (Roche Holding AG). The cases have been settled and on9 July 2009 the settlement was approved by the Delaware Court of Chancery.

On 27 October 2008 Genentech and Biogen Idec Inc. filed a complaint against Sanofi-Aventis DeutschlandGmbH (‘Sanofi’), Sanofi-Aventis US LLC and Sanofi-Aventis US Inc. in the Northern District of Californiaseeking a declaratory judgement that certain Genentech products, including Rituxan, do not infringe Sanofi’sUS Patents 5,849,522 (‘the ‘522 patent’) and 6,218,140 (‘the ‘140 patent’) and a declaratory judgementthat the ‘522 and ‘140 patents are invalid. Also on 27 October 2008 Sanofi filed suit against Genentech andBiogen Idec in the Eastern District of Texas, Lufkin Division, claiming that Rituxan and at least eight otherGenentech products infringe the ‘522 and ‘140 patents. Sanofi brought claims for preliminary and permanentinjunctions, compensatory and exemplary damages, and other relief. Genentech challenged the venue ofthe Texas case and, after an opinion by the Federal Circuit Court of Appeals, the Texas and California caseshave been consolidated in the Northern District of California. Discovery in these consolidated matters isongoing. In addition on 24 October 2008 Hoechst GmbH filed with the ICC International Court of Arbitration(Paris) a request for arbitration with Genentech, relating to a terminated agreement between Hoechst’spredecessors and Genentech that pertained to the above patents and related patents outside the UnitedStates. Hoechst is seeking payments on royalties on sales of Genentech products, damages for breachof contract, and other relief. The hearing for the arbitration has been set for August 2010. Genentech intendsto vigorously defend itself. The outcome of these matters cannot be determined at this time.

26. Other non-current liabilitiesOther non-current liabilities | in millions of CHF

2009 2008 2007

Deferred income 109 174 243

Other long-term liabilities 307 285 480

Total other non-current liabilities 416 459 723


27. DebtDebt: movements in carrying value of recognised liabilities | in millions of CHF

2009 2008

At 1 January 4,089 6,866

Proceeds from issue of bonds and notes 48,197 –

Redemption and repurchase of bonds and notes (7,421) (2,188)

Increase (decrease) in commercial paper (261) (107)

Increase (decrease) in other debt (133) (317)

(Gains) losses on redemption and repurchase of bonds and notes, net 5 9 –

Amortisation of debt discount 5 47 1

(Gains) losses on financial liabilities at fair-value-through-profit-or-loss, net 5 (6) (5)

Currency translation effects and other (2,105) (161)

At 31 December 42,416 4,089

Consisting of

— Bonds and notes 41,710 3,035

— Commercial paper 270 529

— Amounts due to banks and other financial institutions 136 77

— Genentech leasing obligations 7, 12 273 337

— Finance lease obligations 2 4

— Other borrowings 25 107

Total debt 42,416 4,089

Reported as

— Long-term debt 36,143 2,972

— Short-term debt 6,273 1,117

Total debt 42,416 4,089

The fair value of the bonds and notes is 45.4 billion Swiss francs (2008: 3.0 billion Swiss francs, 2007: 5.5 bil-lion Swiss francs) and the fair value of total debt is 46.1 billion Swiss francs (2008: 4.0 billion Swiss francs,2007: 6.8 billion Swiss francs). This is calculated based on the observable market prices of the debtinstruments or the present value of the future cash flows on the instrument, discounted at a market rate ofinterest for instruments with similar credit status, cash flows and maturity periods.

There are no pledges on the Group’s assets in connection with debt.

101

Bonds and notesRecognised liabilities and effective interest rates of bonds and notes | in millions of CHF

Effective interest rateUnderlying Including instrument hedging 2009 2008 2007

US dollar-denominated notes — floating rate 3 months LIBOR

Notes due 25 February 2010, principal 3 billion US dollars +1.13% n/a 3,110 – –

Notes due 25 February 2011, principal 931 million US dollars +2.10% n/a 964 – –

US dollar-denominated notes — fixed rate

4.50% notes due 1 March 2012, principal 2.5 billion US dollars 4.84% n/a 2,578 – –




European Medium Term Note programme —

floating rate 3 months EURIBOR

Notes due 4 March 2010, principal 1.5 billion euros +1.05% +0.92% 2,229 – –

European Medium Term Note programme — fixed rate

4% notes due 9 October 2008, principal 750 million euros 4.16% n/a – – 1,240

4.625% notes due 4 March 2013, principal 5.25 billion euros 4.82% 5.53% 7,759 – –

5.5% notes due 4 March 2015,

principal 1.25 billion pounds sterling 5.70% 5.83% 2,065 – –



5.375% notes due 29 August 2023,

principal 250 million pounds sterling 5.46% n/a 411 377 553

Swiss franc bonds

‘Rodeo’ 1.75% due 20 March 2008,

principal 1 billion Swiss francs 3.00% n/a – – 998

2.5% bonds due 23 March 2012,

principal amount 2.5 billion Swiss francs 2.68% 3.10% 2,490 – –

4.5% bonds due 23 March 2017,

principal amount 1.5 billion Swiss francs 4.77% n/a 1,477 – –

US dollar bonds

‘Chameleon’ 6.75% due 6 July 2009,

principal 487 million US dollars 6.77% n/a – 522 568

Genentech Senior Notes

4.40% Senior Notes due 15 July 2010,

principal 500 million US dollars 4.53% n/a 528 549 569


principal 1 billion US dollars 4.87% n/a 1,037 1,058 1,127


principal 500 million US dollars 5.39% n/a 518 529 564

Japanese yen convertible bonds issued by Chugai

‘Series 6 Chugai Pharmaceutical Unsecured Convertible Bonds’

1.05% due 30 September 2008 (2007: outstanding principal

amount 42 million Japanese yen) 1.05% n/a – – –

Total 41,710 3,035 5,619


Bonds and notes: maturity | in millions of CHF

2009 2008 2007

Within one year 5,867 522 2,238

Between one and two years 964 549 568

Between two and three years 5,068 – 569

Between three and four years 7,759 – –

Between four and five years 2,826 – –

More than five years 19,226 1,964 2,244

Total bonds and notes 41,710 3,035 5,619

Unamortised discount included in carrying value of bonds and notes | in millions of CHF

2009 2008 2007

US dollar notes 222 – –

Euro notes 91 – –

Swiss franc bonds 33 – –

Sterling notes 24 5 8

Total unamortised discount 370 5 8

Fair Value OptionIn 2005 the Group applied the Fair Value Option on three of its outstanding debt instruments on which theGroup had been applying fair value hedge accounting in the past. These debt instruments are the ‘EuropeanMedium Term Note programme’ Euro bonds, the ‘Chameleon’ US dollar bonds and the ‘Rodeo’ Swissfranc bonds. These instruments were fully redeemed at their due dates in 2008 and 2009. The Fair ValueOption treatment is based on the elimination of an accounting mismatch which had been recognisedbetween the hedging swaps (reported at fair value) and the hedged bonds (reported at amortised cost).

Issuance of new bonds and notes — 2009The Group financed the Genentech transaction (see Note 3) by a combination of the Group’s own funds,debt securities, and commercial paper. The Group raised net proceeds of approximately 48.2 billion Swissfrancs through a series of debt offerings, as described below. All newly issued debt is senior, unsecuredand has been guaranteed by Roche Holding Ltd.

US dollar-denominated notes | On 25 February 2009 the Group completed an offering of US dollar-denominated notes to qualified institutional buyers in the United States under Rule 144A and to personsother than US persons outside the United States under Regulation S of the US Securities Act of 1933.The Group received approximately 16.3 billion US dollars aggregate net proceeds from the issuance and sale of these fixed and floating rate notes. On 20 March 2009 the Group completed a further offeringof US dollar-denominated notes under Rule 144A of the US Securities Act of 1933. Roche receivedapproximately 2.5 billion US dollars in aggregate net proceeds from the issuance and sale of these fixedrate notes. The terms and proceeds of the notes were as follows:

Issuance of US dollar-denominated notes

Principal amount Net proceedsUSD millions CHF millions

Floating rate notes due 2010 3,000 3,477

Floating rate notes due 2011 1,250 1,448

Fixed rate 1.95% notes due 2009 2,500 2,808





Total 19,000 21,681

103

European Medium Term Note programme | On 4 March 2009 the Group issued euro- and sterling-denominated fixed and floating rate notes. The terms and proceeds of the notes were as follows:

Issuance of European Medium Term Notes

Principal amount Net proceedsEUR millions GBP millions CHF millions

Floating rate EUR notes due 2010 1,500 – 2,214

Fixed rate 4.625% EUR notes due 2013 5,250 – 7,701

Fixed rate 5.5% GBP notes due 2015 – 1,250 2,045



Total 11,250 1,250 18,556

Subsequent to the debt issuances, the proceeds of all notes were swapped into US dollars. As a result,in these financial statements, the notes have economic characteristics equivalent to US dollar-denominatednotes.

Swiss franc-denominated bonds and notes | On 23 March 2009 the Group completed an offering of Swissfranc-denominated fixed-rate bonds. The terms and proceeds of the bonds were as follows:

Issuance of Swiss franc-denominated bonds

Principal amount Net proceedsCHF millions CHF millions

Fixed rate 1.2% bonds due 2009 4,000 3,998



Total 8,000 7,960

Subsequent to the debt issuances, the proceeds of the 2009 and 2012 Swiss franc-denominated bonds wereswapped into US dollars. As a result, in these financial statements, the bonds have economic characteristicsequivalent to US dollar-denominated bonds.

Cash inflows from issuance of bonds and notes | in millions of CHF

2009 2008

US dollar-denominated notes 21,681 –

European Medium Term Note programme euro- and

sterling-denominated notes 18,556 –

Swiss franc-denominated notes 7,960 –

Total cash inflows from issuance of bonds and notes 48,197 –

Collateral agreements | Collateral agreements were entered with the derivative counterparties to theabove currency swaps to mitigate counterparty risk. As the fair value of the derivative instruments moved upduring 2009 due to a weaker US dollar, cash collateral of 1.5 billion Swiss francs had been delivered toRoche as at 31 December 2009. This collateral is recorded as an increase in cash and a correspondingincrease in accrued liabilities. At the same time the Group delivered cash collateral of 62 million Swiss francsfor those derivatives which had a negative fair value. This collateral paid is recorded as an increase in othercurrent assets and a corresponding decrease in cash. In addition the Group generated cash flows of 1.8 billionSwiss francs from realised gains on hedging derivatives with shorter maturities that were settled during 2009.

Redemption and repurchase of bonds and notes — 2009Redemption of ‘Chameleon’ US dollar bonds | The Group redeemed these bonds with a remainingoutstanding principal value of 487 million US dollars, which had a due date of 6 July 2009, at the originalissue amount plus accrued original issue discount (‘OID'). The effective interest rate of these bondswas 6.77%. The cash outflow was 530 million Swiss francs. There was no gain or loss recorded in the incomestatement upon the redemption.


Redemption and repurchase of US dollar-denominated notes | The Group redeemed notes with a principal value of 2,500 million US dollars, which had a due date of 23 September 2009, at the originalissue amount plus accrued original issue discount (‘OID’). The effective interest rate of these bonds was1.98%. The cash outflow was 2,560 million Swiss francs. There was no gain or loss recorded in the incomestatement upon the redemption.

In addition the Group repurchased floating rate notes with a principal value of 319 million US dollars andoriginal due date of 25 February 2011, at various dates during 2009 in open market purchases. The effectiveinterest rate of these bonds was 3 months LIBOR plus 2.10%. The cash outflow was 331 million Swiss francs.A loss of 9 million Swiss francs was recorded in the income statement upon the repurchase.

Redemption of Swiss franc-denominated notes | The Group redeemed notes with a principal value of4,000 million Swiss francs, which had a due date of 23 September 2009, at the original issue amount plusaccrued original issue discount (‘OID’). The effective interest rate of these bonds was 1.30%, or 2.20%including associated hedging instruments. The cash outflow was 4,000 million Swiss francs. There was nogain or loss recorded in the income statement upon the redemption.

Redemption, repurchase and conversion of bonds and notes — 2008Redemption of ‘Rodeo’ Swiss franc bonds | On the due date of 20 March 2008 the Group redeemedthese bonds at the original issue amount plus accrued original issue discount (‘OID’). The effective interestrate of these bonds was 3.00%. The cash outflow was 1,000 million Swiss francs and there was no gainor loss recorded on the redemption.

Redemption of European Medium Term Note programme Euro bonds | On the due date of 9 October2008 the Group redeemed at the original issue amount plus accrued original issue discount (‘OID').The effective interest rate of these bonds was 4.16%. The cash outflow was 1,188 million Swiss francs andthere was no gain or loss recorded on the redemption.

Conversion and redemption of ‘Series 6 Chugai Pharmaceutical Unsecured Convertible Bonds’ |During 2008 the remaining outstanding bonds with a face value of 42 million Japanese yen (0.4 millionSwiss francs) were either converted to shares of Chugai or redeemed at the issue price on the due date of30 September 2008. The Group’s percentage ownership of Chugai was unaffected by this conversion,as the Group had bonds convertible into Chugai shares that mirrored those that Chugai had outstandingwith third parties. There was no gain or loss recorded in the income statement upon the conversionand redemption. The cash outflow was less than 1 million Swiss francs.

Cash outflows from redemption, repurchase and conversion of bonds and notes | in millions of CHF

2009 2008

‘Chameleon’ US dollar bonds (530) –

US dollar-denominated notes (2,891) –

Swiss franc-denominated notes (4,000) –

‘Rodeo’ Swiss franc bonds – (1,000)

European Medium Term Note programme Euro bonds – (1,188)

Japanese yen convertible bonds issued by Chugai – –

Total cash outflows from redemption, repurchase

and conversion of bonds and notes (7,421) (2,188)

105

Commercial paperGenentech commercial paper program | In October 2007 Genentech established a commercial paperprogram under which it can issue up to 1 billion US dollars of unsecured commercial paper notes. Maturitiesunder the program generally vary from overnight to five weeks and cannot exceed 397 days. As at 31 December 2008 unsecured commercial paper notes with a principal amount of 500 million US dollarsand an average interest rate of 0.80% were outstanding. These amounts were due at various dates until23 January 2009. During the first six months of 2009 the Group fully redeemed these notes at maturity attheir principal value. The effective interest rate of these notes was 0.80%. The cash outflow was 543 millionSwiss francs and there was no gain or loss recorded on the redemption. There have been no further issuancesduring 2009. Genentech has terminated its commercial paper program as of 15 May 2009 and there wereno amounts outstanding at 31 December 2009.

Roche Holdings, Inc. commercial paper program | In March 2009 Roche Holdings, Inc. established a commercial paper program under which it can issue up to 7.5 billion US dollars of unsecured commercialpaper notes guaranteed by Roche Holding Ltd. Committed credit lines of 2.5 billion euros and 950 millionUS dollars are available as back-stop lines. Maturity of the notes under the program cannot exceed 365 daysfrom the date of issuance. The net cash inflow during 2009 was 282 million Swiss francs. As at 31 December2009 unsecured commercial paper notes with a principal amount of 260 million US dollars and an averageinterest rate of 0.13% were outstanding. These amounts were due at various dates until 20 January 2010.

Movements in commercial paper obligations | in millions of CHF

2009 2008

At 1 January 529 675

Net cash proceeds (payments) (261) (107)

Currency translation effects 2 (39)

At 31 December 270 529

Of which

— Genentech commercial paper program – 529

— Roche Holdings, Inc. commercial paper program 270 –

Total 270 529

Amounts due to banks and other financial institutionsThese amounts are denominated in various currencies, notably in Chinese renminbi, and the average interestrate was 4.1%. The average interest rate in 2008 was 4.5%, when the balance was primarily denominatedin Chinese renminbi. Repayment dates are up to eight years and 65 million Swiss francs (2008: 61 millionSwiss francs) are due within one year.


28. Equity attributable to Roche shareholdersChanges in equity attributable to Roche shareholders | in millions of CHF

ReservesShare Retained Fair

capital earnings value Hedging Translation Total


At 1 January 2008 160 49,905 125 – (4,707) 45,483


statement – 8,969 – – – 8,969

Available-for-sale investments

— Valuation gains (losses)

taken to equity – – (671) – – (671)

— Transferred to income statement

on sale or impairment – – 163 – – 163

— Income taxes – – 88 – – 88

— Non–controlling interests – – 48 – – 48

Cash flow hedges

— Gains (losses) taken to equity – – – (55) – (55)

— Transferred to income statement a) – – – 83 – 83

— Transferred to the initial carrying

value of hedged items – – – – – –

— Income taxes – – – (12) – (12)

— Non-controlling interests – – – (7) – (7)


operations

— Exchange differences – – 16 – (2,998) (2,982)

— Accumulated differences transferred

to income statement on divestment 34 – – – – (16) (16)

— Non-controlling interests – – – – 181 181

Defined benefit post-employment plans

— Actuarial gains (losses) 10 – (2,820) – – – (2,820)

— Limit on asset recognition 10 – 636 – – – 636

— Income taxes – 662 – – – 662

— Non-controlling interests – 18 – – – 18

Other comprehensive income,

net of tax – (1,504) (356) 9 (2,833) (4,684)

Total comprehensive income – 7,465 (356) 9 (2,833) 4,285

Dividends paid – (3,969) – – – (3,969)


transactions in own equity instruments – 691 – – – 691

Genentech and Chugai share

repurchases 3, 4 – (472) – – – (472)


in subsidiaries

— Chugai 4 – (530) – – – (530)

— Ventana 7 – (964) – – – (964)

Changes in non-controlling interests – (45) – – – (45)

At 31 December 2008 160 52,081 (231) 9 (7,540) 44,479

a) Of amounts transferred to income statement, losses of 86 million Swiss francs were reported as ‘Royalties and other operating income’and gains of 3 million Swiss francs as ‘Financial income’.

107

Changes in equity attributable to Roche shareholders | in millions of CHF

ReservesShare Retained Fair

capital earnings value Hedging Translation Total


At 1 January 2009 160 52,081 (231) 9 (7,540) 44,479


statement – 7,784 – – – 7,784

Available-for-sale investments

— Valuation gains (losses)

taken to equity – – 162 – – 162

— Transferred to income statement

on sale or impairment – – 207 – – 207

— Income taxes – – (14) – – (14)

— Non-controlling interests – – (3) – – (3)

Cash flow hedges

— Gains (losses) taken to equity – – – 2,090 – 2,090

— Transferred to income statement a) – – – (1,973) – (1,973)

— Transferred to the initial carrying

value of hedged items – – – – – –

— Income taxes – – – (42) – (42)

— Non-controlling interests – – – (15) – (15)


operations

— Exchange differences – – (22) (4) 3,081 3,055

— Accumulated differences transferred

to income statement on divestment 34 – – – – (1) (1)

— Non-controlling interests – – – – (333) (333)

Defined benefit post-employment plans

— Actuarial gains (losses) 10 – (69) – – – (69)

— Limit on asset recognition 10 – (3) – – – (3)

— Income taxes – 67 – – – 67

— Non-controlling interests – (1) – – – (1)

Other comprehensive income,

net of tax – (6) 330 56 2,747 3,127

Total comprehensive income – 7,778 330 56 2,747 10,911

Dividends paid – (4,300) – – – (4,300)


transactions in own equity instruments – 77 – – – 77

Genentech and Chugai

share repurchases 3, 4 – (9) – – – (9)


in subsidiaries

— Genentech 3 – (43,777) – – – (43,777)

— Memory 7 – (2) – – – (2)

Changes in non-controlling interests – (13) – – – (13)

At 31 December 2009 160 11,835 99 65 (4,793) 7,366

a) Of amounts transferred to income statement, losses of 12 million Swiss francs were reported as ‘Royalties and other operating income’and gains of 1,985 million Swiss francs as ‘Financial income’.


The Group completed the purchase of the non-controlling interests in Genentech effective 26 March 2009,as described in Note 3. Based on the revised International Accounting Standard 27 ‘Consolidated andSeparate Financial Statements’ (IAS 27), which was adopted by the Group in 2008, this transaction wasaccounted for in full as an equity transaction. As a consequence, the carrying amount of the consolidatedequity of the Group was reduced by 52.2 billion Swiss francs, of which 8.5 billion Swiss francs wasallocated to eliminate the book value of Genentech non-controlling interests. This accounting effect significantlyimpacts the Group’s net equity, but has no effect on the Group’s business or its dividend policy.

Share capitalAs of 31 December 2009, the authorised and issued share capital of Roche Holding Ltd, which is the Group’sparent company, consisted of 160,000,000 shares with a nominal value of 1.00 Swiss franc each, as in thepreceding year. The shares are bearer shares and the Group does not maintain a register of shareholders.Based on information supplied to the Group, a shareholder group with pooled voting rights owns 50.0125%(2008: 50.0125%) of the issued shares. This is further described in Note 33. Based on information suppliedto the Group, Novartis Ltd, Basel, and its affiliates own 33.3330% (participation below 331⁄3%) of the issuedshares (2008: 33.3330%).

Non-voting equity securities (Genussscheine)As of 31 December 2009, 702,562,700 non-voting equity securities have been authorised and were in issueas in the preceding year. Under Swiss company law these non-voting equity securities have no nominal value,are not part of the share capital and cannot be issued against a contribution which would be shown as anasset in the balance sheet of Roche Holding Ltd. Each non-voting equity security confers the same rightsas any of the shares to participate in the net profit and any remaining proceeds from liquidation followingrepayment of the nominal value of the shares and, if any, participation certificates. In accordance with the lawand the Articles of Incorporation of Roche Holding Ltd, the Company is entitled at all times to exchange allor some of the non-voting equity securities into shares or participation certificates.

DividendsOn 10 March 2009 the shareholders approved the distribution of a dividend of 5.00 Swiss francs per shareand non-voting equity securities (2008: 4.60 Swiss francs) in respect of the 2008 business year. The distribu-tion to holders of outstanding shares and non-voting equity securities totalled 4,300 million Swiss francs(2008: 3,969 million Swiss francs) and has been recorded against retained earnings in 2009. The Board ofDirectors has proposed dividends for the 2009 business year of 6.00 Swiss francs per share and non-votingequity security which, if approved, would result in a total distribution to shareholders of 5,175 million Swissfrancs. This is subject to approval at the Annual General Meeting on 2 March 2010.

Own equity instrumentsHoldings of own equity instruments in equivalent number of non-voting equity securities

31 December 2009 31 December 2008(millions) (millions)

Non-voting equity securities 6.7 3.0

Derivative instruments 7.4 8.5

Total 14.1 11.5

Own equity instruments are recorded within equity at original purchase cost. Details of own equityinstruments held at 31 December 2009 are shown in the table below. Fair values are disclosed for informationpurposes.

109

Own equity instruments at 31 December 2009: supplementary information

Equivalent number of non-voting

equity securities Strike price Market value(millions) Maturity (CHF) (CHF millions)

Non-voting equity securities 6.7 n/a n/a 1.1

Derivative instruments 2 Feb. 2012 — 123.00 —

7.4 22 Jan. 2016 229.60 0.2

Total 14.1 1.3

Non-voting equity securities and derivative instruments are held for the Group’s potential conversionobligations that may arise from the Roche Option Plan and Roche Stock-settled Stock Appreciation Rights(see Note 11). These mainly consist of call options that are exercisable at any time up to their maturity.

The Group holds none of its own shares.

ReservesFair value reserve | The fair value reserve represents the cumulative net change in the fair value of available-for-sale financial assets until the asset is sold, impaired or otherwise disposed of.

Hedging reserve | The hedging reserve represents the effective portion of the cumulative net change in thefair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Translation reserve | The translation reserve represents the cumulative currency translation differencesrelating to the consolidation of Group companies that use functional currencies other than Swiss francs.

29. Earnings per share and non-voting equity securityBasic earnings per share and non-voting equity securityFor the calculation of basic earnings per share and non-voting equity security, the number of shares and non-voting equity securities is reduced by the weighted average number of its own non-voting equity securitiesheld by the Group during the period.

Basic earnings per share and non-voting equity security

Group2009 2008

Net income attributable to Roche shareholders (CHF millions) 7,784 8,969

Number of shares (millions)28 160 160

Number of non-voting equity securities (millions) 28 703 703

Weighted average number of own non-voting equity

securities held (millions) (5) (3)

Weighted average number of shares and non-voting

equity securities in issue (millions) 858 860

Basic earnings per share and non-voting equity security (CHF) 9.07 10.43


Diluted earnings per share and non-voting equity securityFor the calculation of diluted earnings per share and non-voting equity security, the net income andweighted average number of shares and non-voting equity securities outstanding are adjusted for the effectsof all dilutive potential shares and non-voting equity securities.

Potential dilutive effects arise from the employee stock option plans. The exercise of outstanding vestedemployee stock options would have a dilutive effect. The exercise of the outstanding vested Chugai and,prior to the Genentech transaction, Genentech employee stock options would have a dilutive effect if the netincome of Chugai or Genentech is positive. The diluted earnings per share and non-voting equity securityreflects the potential impacts of these dilutive effects on the earnings per share figures.

Diluted earnings per share and non-voting equity security

2009 2008

Net income attributable to Roche shareholders (CHF millions) 7,784 8,969

Increase in non-controlling share of Group net income,

net of tax, assuming all outstanding Genentech and Chugai

stock options exercised (CHF millions) (39) (159)

Net income used to calculate diluted earnings

per share (CHF millions) 7,745 8,810


equity securities in issue (millions) 858 860

Adjustment for assumed exercise of equity compensation plans,

where dilutive (millions) 1 1


equity securities in issue used to calculate diluted

earnings per share (millions) 859 861

Diluted earnings per share and non-voting equity security (CHF) 9.02 10.23

111

30. Non-controlling interestsChanges in equity attributable to non-controlling interests | in millions of CHF

2009 2008

At 1 January 9,343 7,960

Net income recognised in income statement

— Genentech 3 431 1,659

— Chugai 4 277 200

— Other non-controlling interests 18 16

Total net income recognised in income statement 726 1,875

Available-for-sale investments 3 (48)

Cash flow hedges 15 7

Currency translation of foreign operations 333 (181)

Defined benefit post-employment plans 1 (18)

Other comprehensive income, net of tax 352 (240)

Total comprehensive income 1,078 1,635

Ventana acquisition 7 – 321

Memory acquisition 7 4 –

Dividends paid to non-controlling shareholders

— Chugai 4 (87) (74)

— Other non-controlling interests (8) (21)

Equity compensation plans, net of transactions in own equity instruments 178 574

Genentech and Chugai share repurchases 3, 4 (5) (372)

Changes in ownership interests in subsidiaries

— Genentech 3 (8,464) –

— Chugai 4 – (404)

— Ventana 7 – (321)

— Memory 7 (4) –

Changes in non-controlling interests 13 45

At 31 December 2,048 9,343

Of which

— Genentech 3 – 7,397

— Chugai 4 2,004 1,901

— Other non-controlling interests 44 45

Total non-controlling interests 2,048 9,343

31. Statement of cash flowsCash flows from operating activitiesCash flows from operating activities arise from the Group’s primary activities in the Pharmaceuticals andDiagnostics businesses. These are calculated by the indirect method by adjusting the Group’s operating profitfor any operating income and expenses that are not cash flows (for example depreciation, amortisation andimpairment) in order to derive the cash generated from operations. This and other operating cash flows areshown in the statement of cash flows. Operating cash flows also include income taxes paid on all activities.


Cash generated from operations | in millions of CHF

2009 2008

Net income 8,510 10,844

Add back non-operating (income) expense

— Associates 15 – (1)

— Financial income 5 (792) (1,123)

— Financing costs 5 2,460 887

— Exceptional financing costs 5 377 –

— Income taxes 6 2,870 3,305

— Income taxes on exceptional items 6 (1,148) 12


Depreciation of property, plant and equipment 12 1,981 1,676

Amortisation of intangible assets 14 712 969

Impairment of intangible assets 14 668 104

Impairment of property, plant and equipment 12 1,127 28

Operating expenses for defined benefit post-employment plans 10 315 317

Operating expenses for equity-settled equity compensation plans 11 586 526

Net (income) expense for provisions 25 1,572 417

Other adjustments 66 (335)

Cash generated from operations 19,304 17,626

Cash flows from investing activitiesCash flows from investing activities are principally those arising from the Group’s investments in property,plant and equipment and intangible assets, and from the acquisition and divestment of subsidiaries,associates and businesses. Cash flows connected with the Group’s portfolio of marketable securities andother investments are also included, as are any interest and dividend payments received in respect of thesesecurities and investments. These cash flows indicate the Group’s net reinvestment in its operating assetsand the cash flow effects of business combinations and divestments, as well as the cash generated bythe Group’s other investments.

Interest and dividends received | in millions of CHF

2009 2008

Interest received 305 606

Dividends received 1 5

Total 306 611

Cash flows from financing activitiesCash flows from financing activities are primarily the proceeds from the issue and repayment of the Group’sequity and debt instruments. They also include interest payments and dividend payments on theseinstruments. Cash flows from short-term financing, including finance leases, are also included. These cashflows indicate the Group’s transactions with the providers of its equity and debt financing. Cash flowsfrom short-term borrowings are shown as a net movement, as these consist of a large number of transactionswith short maturity.

Significant non-cash transactionsOf the total purchase consideration of 376 million US dollars for Lonza Singapore, 225 million US dollars(238 million Swiss francs) was a non-cash settlement of loans previously made by Genentech to Lonza.See Note 7 for further information.

113

32. Risk managementGroup risk managementRisk management is a fundamental element of the Group’s business practice on all levels and encompassesdifferent types of risks. At a group level risk management is an integral part of the business planning andcontrolling processes. Material risks are monitored and regularly discussed with the Corporate ExecutiveCommittee and the Audit Committee of the Board of Directors. Financial risk management specifically isdescribed in further detail below.

Financial risk managementThe Group is exposed to various financial risks arising from its underlying operations and corporate financeactivities. The Group’s financial risk exposures are predominantly related to changes in foreign exchangerates, interest rates and equity prices as well as the creditworthiness and the solvency of the Group’scounterparties.

Financial risk management within the Group is governed by policies reviewed by the boards of directorsof Roche or Chugai as appropriate to their areas of statutory responsibility. These policies cover credit risk,liquidity risk and market risk. The policies provide guidance on risk limits, type of authorised financialinstruments and monitoring procedures. As a general principle, the policies prohibit the use of derivativefinancial instruments for speculative trading purposes. Policy implementation and day-to-day risk managementare carried out by the relevant treasury functions and regular reporting on these risks is performed by therelevant accounting and controlling functions within Roche and Chugai.

Carrying value and fair value of financial assets | in millions of CHF

Carrying value by asset classFVtPLa)-

Available- FVtPLa)- held for Held to Loans and Fair By line items in Notes for-sale designated trading maturity receivables Total value


Accounts receivable – – – – 10,461 10,461 10,461

Accrued interest income – – – – 4 4 4

Marketable securities:

— Money market instruments and

time accounts over 3 months 15,029 – – 11 – 15,040 15,040

— Bonds and debentures 753 – – – – 753 753

— Shares 314 – – – – 314 314

— Other investments – – – – – – –

Cash and cash equivalents – – – – 2,442 2,442 2,442

Derivative financial instruments – – 1,756 – – 1,756 1,756

Available-for-sale investments 315 – – – – 315 315

Held-to-maturity investments – – – 5 – 5 5

Loans receivable – – – – 18 18 18

Long-term trade receivables – – – – 45 45 45

Other financial current assets – – – – 669 669 669

Restricted cash – – – – 42 42 42

Other long-term assets – – – – 57 57 57

Total 16,411 – 1,756 16 13,738 31,921 31,921

a) Fair-value-through-profit-or-loss.


Carrying value by asset classFVtPLa)-

Available- FVtPLa)- held for Held to Loans and Fair By line items in Notes for-sale designated trading maturity receivables Total value


Accounts receivable – – – – 9,755 9,755 9,755

Accrued interest income – – – – 145 145 145


— Money market instruments and

time accounts over 3 months 7,961 – – – – 7,961 7,961

— Bonds and debentures 6,814 – 1,027 – – 7,841 7,841

— Shares 51 – – – – 51 51

— Other investments 3 – – – – 3 3

Cash and cash equivalents – – – – 4,915 4,915 4,915

Derivative financial instruments – – 262 – – 262 262

Available-for-sale investments 588 – – – – 588 588

Held-to-maturity investments – – – 16 – 16 16

Loans receivable – – – – 16 16 16

Long-term trade receivables – – – – 73 73 73

Other financial current assets – – – – 624 624 624

Restricted cash – – – – 205 205 205

Other long-term assets – – – – 42 42 42

Total 15,417 – 1,289 16 15,775 32,497 32,497

a) Fair-value-through-profit-or-loss.

Following the implementation of amendments to IFRS 7 ‘Financial Instruments: Disclosures’ that werepublished in March 2009 the Group has established a fair value hierarchy that reflects the significance ofinputs used in making the fair value measurements. The fair value hierarchy includes the following threelevels:

• Level 1 — quoted prices in active markets for identical assets and liabilities

• Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities

• Level 3 — unobservable inputs

Fair value hierarchy of financial assets and liabilities at 31 December 2009 | in millions of CHF

Level 1 Level 2 Level 3 Total

Financial assets recognised at fair value



over 3 months 1,862 13,167 – 15,029

— Bonds and debentures 388 346 19 753

— Shares 294 20 – 314

Derivative financial instruments – 1,756 – 1,756

Available-for-sale investments 112 169 – 281

Total 2,656 15,458 19 18,133

Financial liabilities recognised at fair value

Derivative financial instruments – (343) – (343)

Total – (343) – (343)

Available-for sale investments exclude equity securities held at cost of 34 million Swiss francs, as those arenot carried at fair value (see Note 16).

115

At 31 December 2009 level 1 financial assets consist of treasury bills, bonds and quoted shares. Level 2financial assets consist primarily of commercial paper, certificates of deposit, derivative financial instrumentsand unquoted shares. Level 3 financial assets consist of auction-rate student loan securities. These securitieswere valued based on broker-provided valuation models, which approximate fair value. During 2009, therewere no significant transfers between level 1 and level 2 and vice versa.

Changes in fair value of Level 3 financial assets | in millions of CHF

2009

At 1 January 292

Impairment charges (3)

Valuation gains (losses) taken to equity 95

Gains (losses) recognised in the income statement 5

Sales (376)

Currency translation difference 6

At 31 December 19

Credit riskCredit risk arises from the possibility that counterparties to transactions may default on their obligations,causing financial losses for the Group. The objective of managing counterparty credit risk is to prevent lossesof liquid funds deposited with or invested in such counterparties.

The maximum exposure to credit risk resulting from financial activities, without considering nettingagreements and without taking account of any collateral held or other credit enhancements, is equal tothe carrying value of the Group’s financial assets.

Trade receivables | These are subject to a policy of active credit risk management which focuses on theassessment of country risk, credit availability, ongoing credit evaluation and account monitoring procedures.The objective of the management of trade receivables is to sustain the growth and profitability of the Groupby optimising asset utilisation whilst maintaining risks at an acceptable level. Except as noted below, there isno significant concentration of counterparty credit risk due to the Group’s large number of customers andtheir wide geographical spread. Risk limits and exposures are continuously monitored by country and by thenature of counterparties. Additionally, the Group obtains credit insurance and similar enhancements whenappropriate to protect the collection of trade receivables. As at 31 December 2009 no collateral was held forloans and receivables (2008: none).

At 31 December 2009 the Group’s combined trade accounts receivable balance with three US nationalwholesale distributors, AmerisourceBergen Corp., Cardinal Health, Inc. and McKesson Corp., was equivalentto 1.3 billion Swiss francs representing 13% of the Group’s consolidated trade accounts receivable(2008: 1.4 billion Swiss francs representing 15%).

Nature and geographical location of trade receivables (not overdue) counterparties | in millions of CHF

2009 2008Whole- Whole-salers/ salers/

Regions Total Public distributors Private Total Public distributors Private

Switzerland 89 37 9 43 130 51 10 69

European Union 2,340 994 812 534 2,053 953 643 457

Rest of Europe 456 12 394 50 479 11 405 63

North America 2,006 82 1,235 689 2,011 154 1,622 235

Latin America 501 132 189 180 474 142 192 140

Japan 1,472 – 1,447 25 1,439 – 1,402 37

Rest of Asia 756 114 251 391 685 97 255 333

Africa, Australia

and Oceania 224 64 77 83 154 30 58 66

Total 7,844 1,435 4,414 1,995 7,425 1,438 4,587 1,400


Cash and marketable securities | These are subject to a policy of restricting exposures to high-qualitycounterparties and setting defined limits for individual counterparties. These limits and counterpartycredit ratings are reviewed regularly. Investments in marketable securities are entered into on the basisof guidelines with regard to liquidity, quality and maximum amount. As a general rule, the Group investsonly in high quality securities with adequate liquidity. Cash and short-term time deposits are subjectto rules which limit the Group’s exposure to individual financial institutions.

Rating analysis of cash and fixed income marketable securities (market values)

2009 2009 2008 2008(mCHF) (% of total) (mCHF) (% of total)

AAA-range 8,978 49 9,884 48

AA-range 7,065 39 5,390 26

A-range 1,945 11 4,525 22

BBB-range 245 1 912 4

Below BBB-range 2 0 9 0

Total 18,235 100 20,720 100

Derivatives | The Group signs netting and collateral agreements under an ISDA (International Swapsand Derivatives Association) master agreement with the respective counterparties in order to mitigatecounterparty risk on derivative positions. During 2009 the Group entered into derivative contracts with thirdparties to hedge the foreign exchange risk arising from bonds and notes issued by the Group’s US affiliate,Roche Holdings, Inc. in currencies other than US dollar. The total exposure hedged at issuance of thesebonds and notes was approximately 25 billion Swiss francs (see Note 27). As the fair value of the derivativeinstruments moved up due to a weaker US dollar, net cash collateral of 1.5 billion Swiss francs wasdelivered to the Group.

Overdue assets | Financial assets which are past due but not impaired total 2.8 billion Swiss francs(2008: 2.7 billion Swiss francs).

Analysis of overdue but not impaired financial assets by class | in millions of CHF

Total amount under 1—3 4—6 6—12 more thanoverdue 1 month months months months 1 year


Loans and receivables 2,805 504 609 632 454 606


Loans and receivables 2,656 560 681 543 438 434

As at 31 December 2009 there are no financial assets whose terms have been renegotiated (2008: none).

Liquidity riskLiquidity risk arises through a surplus of financial obligations over available financial assets due at any pointin time. The Group’s approach to liquidity risk is to maintain sufficient readily available reserves in orderto meet its liquidity requirements at any point in time. Group liquidity is reported to senior management ona monthly basis.

Roche and Chugai enjoy strong credit quality and are rated by at least one major credit rating agency.The ratings will permit efficient access to the international capital markets in the event of major financingrequirements. In addition, the Group has unused committed credit lines with various financial institutionstotalling 5.1 billion Swiss francs (2008: 5.2 billion Swiss francs).

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Contractual maturity analysis of financial liabilities | in millions of CHF

0—3 4—6 7—12 1—2 2—3 3—4 4—5 Over 5Total months months months years years years years Years

Year ended

31 December 2009

Total debt a) 59,671 7,135 40 962 2,835 6,894 9,486 4,102 28,217

Trade payables 1,299 1,279 17 1 2 – – – –

Accruals 7,321 6,091 531 650 49 – – – –

Derivative financial

instruments 343 334 6 3 – – – – –

Other liabilities:

current & non-current 1,308 808 52 66 128 8 210 11 25

Total financial

liabilities 69,942 15,647 646 1,682 3,014 6,902 9,696 4,113 28,242

Year ended

31 December 2008

Total debt a) 5,617 702 46 623 685 135 135 136 3,155

Trade payables 1,053 1,038 14 – 1 – – – –

Accruals 5,379 3,727 429 1,162 61 – – – –

Derivative financial

instruments 194 194 – – – – – – –

Other liabilities:

current & non-current 1,343 788 66 132 136 9 170 27 15

Total financial

liabilities 13,586 6,449 555 1,917 883 144 305 163 3,170

a) Total debt in the above table shows undiscounted cash flows, whereas the carrying value in the consolidated balance sheet reflectsdiscounted cash flows.

Market riskMarket risk arises from changing market prices of the Group’s financial assets or financial liabilities. Marketrisk may affect the Group financial result and the value of Group equity.

The Group uses Value-at-Risk (VaR) to measure the impact of market risk on its financial instruments.Roche has defined VaR limits to manage market risk. VaR data are reported on a monthly basis and indicatethe value range within which a given financial instrument will fluctuate with a pre-set probability as a resultof movements in market prices. VaR is a statistical measure which implicitly assumes that value changes ofthe recent past are indicative of value changes in the future. VaR figures do not represent actual or expectedlosses, or possible worst-case losses over the stated period.

VaR figures are calculated using a historical simulation approach. For each scenario, all financial instrumentsare fully valued and the total change in value and earnings is determined. All VaR calculations are basedon a 95% confidence level and a holding period of 20 trading days over the past ten years. This holding periodreflects the time required to change the corresponding risk exposure, should this be deemed appropriate.Longer holding periods increase the probability of higher value changes and lead to increased VaR figures.

Actual future gains and losses associated with our treasury activities may differ materially from the VaRanalyses performed due to the inherent limitations associated with predicting the timing and amountof changes to interest rates, foreign currency exchanges rates and equity investment prices, particularly in periods of high market volatilities. Furthermore, the VaR numbers below do not include the effectof changes in credit spreads.


Market risk of financial instruments | in millions of CHF

31 December 2009 31 December 2008

VaR — Foreign exchange component 43 96

VaR — Interest rate component 717 27

VaR — Other price component 57 62

Diversification (98) (52)

VaR — Total market risk 719 133

At 31 December 2009 the total VaR of the financial assets and liabilities was 719 million Swiss francs(31 December 2008: 133 million Swiss francs). The interest rate VaR increased substantially to 717 millionSwiss francs driven by the 48.2 billion Swiss francs of bonds and notes issued in the first quarter of 2009.As all newly issued debt is held at amortised cost, the interest rate VaR is a sole metric for economic fairvalue changes, but there is no impact on the carrying value or profit and loss of the Group. The foreignexchange VaR decreased as hedges of non-US dollar cash flows from future royalty income at Genentechwere unwound. Other price risk arises mainly from movements in the prices of equity securities andremained relatively stable. At 31 December 2009, the Group held equity securities with a market value of0.6 billion Swiss francs (31 December 2008: 0.6 billion Swiss francs). This includes holdings in biotechnologycompanies, which were acquired in the context of licensing transactions or scientific collaborations.

Foreign exchange riskThe Group operates across the world and is exposed to movements in foreign currencies affecting theGroup financial result and the value of Group’s equity. Foreign exchange risk arises because the amount oflocal currency paid or received for transactions denominated in foreign currencies may vary due to changesin exchange rates (‘transaction exposures’) and because the foreign currency denominated financialstatements of the Group’s foreign subsidiaries may vary upon consolidation into the Swiss franc denominatedGroup Financial Statements (‘translation exposures’).

The objective of the Group’s foreign exchange risk management activities is to preserve the economic valueof its current and future assets and to minimise the volatility of the Group’s financial result. The primary focusof the Group’s foreign exchange risk management activities is on hedging transaction exposures arisingthrough foreign currency flows or monetary positions held in foreign currencies. The Group does not currentlyhedge translation exposures using financial instruments.

The Group monitors transaction exposures on a daily basis. The net foreign exchange result and thecorresponding VaR parameters are reported on a monthly basis. The Group uses forward contracts, foreignexchange options and cross-currency swaps to hedge transaction exposures. Application of theseinstruments intends to continuously lock in favourable developments of foreign exchange rates, therebyreducing the exposure to potential future movements in such rates.

Interest rate riskInterest rate risk arises from movements in interest rates which could affect the Group financial resultor the value of Group equity. Changes in interest rates may cause variations in interest income and expense.In addition, they may affect the market value of certain financial assets, liabilities and hedging instruments.The primary objective of the Group’s interest rate management is to protect the net interest result.

Interest rate exposures and the corresponding VaR parameters are reported on a monthly basis. The Groupuses forward contracts, options and swaps to hedge its interest rate exposures. Depending on the interestrate environment of major currencies, the Group will use these instruments to generate the appropriate mixof fixed and floating rate exposures.

119

Other price riskOther price risk arises mainly from movements in the prices of equity securities. At 31 December 2009,the Group held equity securities with a market value of 0.6 billion Swiss francs (2008: 0.6 billion Swissfrancs). This amount includes holdings in biotechnology companies, which were acquired in the contextof licensing transactions or scientific collaborations. Due to the nature of their business, biotechnologycompanies are exposed to greater equity volatilities than general stock market fluctuations.

The Group manages the price risk through placing limits on individual and total equity investments. These limits are defined both as a percentage of total liquid funds and as an absolute number for individualequity investments. Equity price risk is reported as a VaR figure on a monthly basis to senior management.

Impairment of financial assetsDuring 2008 impairments of shares were triggered by a significant or prolonged price decline belowcost value. In 2009 impairments of loans and receivables were mainly due to an increase in the expected non-recoverability of trade receivables (see also Note 18).

Impairment losses by asset classes | in millions of CHF

2009 2008

Loans and receivables (138) (43)

Available-for-sale financial assets

— Shares – (75)

— Investments (18) (40)

— Debt securities (3) (53)

Total impairment losses (159) (211)

CapitalThe Group defines the capital that it manages as the Group’s total capitalisation, being the sum of debt plusequity, including non-controlling interests. The Group’s objectives when managing capital are:

• To safeguard the Group’s ability to continue as a going concern, so that it can continue to provide benefitsfor patients and returns to investors.

• To provide an adequate return to investors based on the level of risk undertaken.

• To have available the necessary financial resources to allow the Group to invest in areas that may deliverfuture benefits for patients and returns to investors.

• To maintain sufficient financial resources to mitigate against risks and unforeseen events.

The Group completed the purchase of the non-controlling interests in Genentech effective 26 March 2009,as described in Note 3. Based on the revised International Accounting Standard 27 ‘Consolidated and SeparateFinancial Statements’ (IAS 27), which was adopted by the Group in 2008, this transaction was accounted forin full as an equity transaction. As a consequence, the carrying amount of the consolidated equity of the Groupwas reduced by 52.2 billion Swiss francs, of which 8.5 billion Swiss francs was allocated to eliminate the bookvalue of Genentech non-controlling interests. This accounting effect significantly impacts the Group’s netequity, but has no effect on the Group’s business or its dividend policy.

Capital is monitored on the basis of the capitalisation, which is calculated as being debt plus equity(including non-controlling interests). This is reported to senior management as part of the Group’s regularinternal management reporting. The Group’s capitalisation is shown in the table below.


Capital | in millions of CHF

2009 2008 2007

Capital and reserves attributable to Roche shareholders 28 7,366 44,479 45,483

Equity attributable to non-controlling interests 30 2,048 9,343 7,960

Total equity 9,414 53,822 53,443

Total debt 27 42,416 4,089 6,866

Capitalisation 51,830 57,911 60,309

The Group is not subject to regulatory capital adequacy requirements as known in the financial services industry.

The Group has a majority shareholding in Chugai (see Note 4). Chugai is a public company and its objectives,policies and processes for managing its own capital are determined by local management.

33. Related partiesControlling shareholdersThe share capital of Roche Holding Ltd, which is the Group’s parent company, consists of 160,000,000 bearershares. Based on information supplied by a shareholder group with pooled voting rights, comprising at31 December 2009 of Ms Vera Michalski-Hoffmann, Ms Maja Hoffmann, Mr André Hoffmann, Dr AndreasOeri, Ms Sabine Duschmalé-Oeri, Ms Catherine Oeri, Ms Maja Oeri, Mr Jörg Duschmalé and Mr LukasDuschmalé, that group holds 80,020,000 shares as in the preceding year, which represents 50.0125% of theissued shares. This figure does not include any shares without pooled voting rights that are held outsidethis group by individual members of the group.

Mr André Hoffmann and Dr Andreas Oeri are members of the Board of Directors of Roche Holding Ltd.Mr Hoffmann received remuneration totalling 400,000 Swiss francs (2008: 400,000 Swiss francs) and Dr Oerireceived remuneration totalling 360,000 Swiss francs (2008: 360,000 Swiss francs).

There were no other transactions between the Group and the individual members of the above shareholdergroup.

Subsidiaries and associatesA listing of the major Group subsidiaries and associates is included in Note 34. Transactions between theparent company and its subsidiaries and between subsidiaries are eliminated on consolidation. There wereno significant transactions between the Group and its associates.

Key management personnelMembers of the Board of Directors of Roche Holding Ltd receive an annual remuneration and payment fortheir time and expenses related to their membership of Board committees. Total remuneration of the Board ofDirectors, excluding the Chairman, in 2009 totalled 4 million Swiss francs (2008: 4 million Swiss francs).

The Chairman of the Board of Directors and members of the Corporate Executive Committee of Roche HoldingLtd receive remuneration, which consists of an annual salary, bonus and an expense allowance. The Grouppays social insurance contributions in respect of the above remuneration and pays contributions to pensionand other post-employment benefit plans for the Chairman of the Board of Directors and members of the Corporate Executive Committee. The Chairman of the Board of Directors and members of the CorporateExecutive Committee also participate in certain equity compensation plans as described below. The terms,vesting conditions and fair value of these awards are disclosed in Note 11. New members of the CorporateExecutive Committee (Mr Soriot in 2009 and Ms Ayyoubi in 2008) are included in the table below for thefull calendar year in which they joined the CEC.

121

Remuneration of the Chairman of the Board of Directors and members of the Corporate ExecutiveCommittee | in millions of CHF

2009 2008

Salaries, including bonuses and expenses 38 32

Special Stock Awards 9 –

Social security costs 3 3

Pensions and other post-employment benefits 5 5

Equity compensation plans 16 14


Total 72 55

For the purposes of these remuneration disclosures the values for equity compensation plans, includingthe Special Stock Awards, are calculated based on the fair value that the employee receives taking intoaccount the preliminary assessment of any completed performance conditions. Further information on this isgiven in the detailed disclosures regarding executive remuneration that are required by Swiss law whichare included in the financial statements of Roche Holding Ltd, Basel on pages 142—147. The fair values usedin Note 11 represent the cost to the Group at grant date and reflect amongst other matters the observedexercise behaviour and exit rate for the whole population that receive the awards and initial simulations ofany performance conditions. The value thus calculated for the cost to the Group for equity compensationplans, including the Special Stock Awards, granted to key management personnel was 30 million Swiss francs(2008: 15 million Swiss francs).

Special Stock Awards | During 2009 the Chairman of the Board of Directors and members of theCorporate Executive Committee were granted 96,750 Special Stock Awards (2008: none) in lieu of partof their cash-settled bonus for the financial year 2009.

Roche Long-Term | During 2009 members of the Corporate Executive Committee were granted669,675 Stock-settled Stock Appreciation Rights (S-SARs) and no Roche Option Plan (ROP) or RestrictedStock Unit (RSU) awards (2008: 494,097 S-SARs and no ROP or RSU awards).

Roche Connect | During 2009 contributions paid by the Group with respect to the Chairman of theBoard of Directors and members of the Corporate Executive Committee totalled 0.3 million Swiss francs(2008: 0.3 million Swiss francs).

Roche Performance Share Plan | During 2009 members of the Corporate Executive Committeewere targeted with 21,546 awards of the 2009—2011 cycle (2008: 14,805 awards from the 2008—2010cycle). Each award will result in between zero and two non-voting equity securities, depending uponthe achievement of the performance targets.

Transactions with former members of the Corporate Executive Committee | Pensions totalling 2 millionSwiss francs (2008: 2 million Swiss francs) were paid by the Group to two former Corporate ExecutiveCommittee members.

The detailed disclosures regarding executive remuneration that are required by Swiss law are included in thefinancial statements of Roche Holding Ltd, Basel on pages 142—147. The total remuneration of key managementpersonnel given above of 72 million Swiss francs (2008: 55 million Swiss francs) corresponds to the sumof the remuneration for the Chairman of the Board of Directors given on page 142 and remuneration of theCorporate Executive Committee given on page 143.

Post-employment benefit plansTransactions between the Group and the various post-employment defined benefit plans for the employeesof the Group are described in Note 10.


34. Subsidiaries and associatesDivestments of subsidiariesEffective 31 August 2009 the Group sold its wholly-owned subsidiary Lakeside de México SA de CV (‘Lakeside’) for 17 million Swiss francs in cash.

Effective 3 October 2008 the Group sold its wholly-owned subsidiary Cenexi SAS (‘Cenexi’), including themanufacturing facility in Fontenay-sous-Bois, France, for 56 million Swiss francs in cash.

Gain (loss) on divestment of subsidiaries | in millions of CHF

2009 2008

Consideration 17 56

Net assets disposed

— Property, plant and equipment 12 – (107)

— Cash (2) (16)

— Other net assets (3) 5

— Accumulated currency translation adjustments 28 (1) 16

Gain (loss) on divestment 11 (46)

The total gain (loss) on divestment has been reported within general and administration expenses in thecurrent period as part of the segment result of the Pharmaceuticals operating segment. The net cash inflowfrom divestments was 15 million Swiss francs (2008: 40 million Swiss francs).

Listed companies

Share capital Equity interestCountry Company City (in millions) (in %)

Switzerland Roche Holding Ltd Basel CHF 160.0Stock Exchange: SIX Swiss Exchange ZurichValor Share: 1203211Valor Genussschein: 1203204ISIN Share: CH0012032113ISIN Genussschein: CH0012032048Market Capitalisation: CHF 151,295.8 m

Japan Chugai Pharmaceutical Co., Ltd. Tokyo JPY 335.2 61.6Stock Exchange: TokyoISIN: JP3519400000Market Capitalisation: JPY 946,888.5 m

Non-listed companies


Argentina Productos Roche S.A. Química e Industrial Buenos Aires ARS 83.0 100

Australia Roche Diagnostics Australia Pty. Limited Castle Hill AUD 5.0 100Roche Products Pty. Limited Dee Why AUD 65.0 100

Austria Roche Austria GmbH Vienna EUR 14.5 100Roche Diagnostics GmbH Vienna EUR 1.1 100Roche Diagnostics Graz GmbH Graz EUR 0.4 100

Belgium N.V. Roche S.A. Brussels EUR 32.0 100Roche Diagnostics Belgium S.A. Brussels EUR 3.8 100

Bermuda Chemical Manufacturing and Trading Company Limited Hamilton USD 9.6 100Roche Capital Services Ltd. Hamilton RUB 0.3 100Roche Catalyst Investments Ltd. Hamilton USD (–) 100Roche Financial Investments Ltd. Hamilton USD (–) 100Roche Financial Management Ltd. Hamilton USD (–) 100Roche Financial Services Ltd. Hamilton USD 0.1 100Roche International Ltd. Hamilton USD (–) 100Roche Intertrade Limited Hamilton USD 10.0 100Roche Operations Ltd. Hamilton USD 1.0 100Roche Services Holdings Ltd. Hamilton USD (–) 100Syntex Pharmaceuticals International Ltd. Hamilton USD (–) 100

Brazil Produtos Roche Químicos e Farmacêuticos S.A. São Paulo BRL 41.7 100Roche Diagnostica Brasil Ltda. São Paulo BRL 284.7 100

Bulgaria Roche Bulgaria EOOD Sofia BGN 5.1 100

123

Canada Chempharm Limited Toronto CAD (–) 100Hoffmann-La Roche Limited Toronto CAD 40.3 100Sapac Corporation Ltd. St. John CAD (–) 100

Chile Roche Chile Limitada Santiago de Chile CLP 70.9 100

China Roche (China) Holding Shanghai USD 30.0 100Roche Diagnostics (Hong Kong) Limited Hong Kong HKD 10.0 100Roche Diagnostics (Shanghai) Limited Shanghai USD 1.0 100Roche Hong Kong Limited Hong Kong HKD 10.0 100Roche R&D Center (China) Ltd. Shanghai USD 6.3 100Shanghai Roche Pharmaceuticals Limited Shanghai USD 19.5 70

Colombia Productos Roche S.A. Bogotá COP 26,923.7 100

Costa Rica Roche Servicios S.A. Heredia USD (–) 100

Croatia Roche D.O.O. Zagreb HRK 4.8 100

Czech Republic Roche s. r. o. Prague CZK 200.0 100

Denmark Roche a/s Hvidovre DKK 4.0 100Roche Diagnostics a/s Hvidovre DKK 1.3 100

Dominican Republic Productos Roche Dominicana S.A. Santo Domingo DOP 0.6 100

Ecuador Roche Ecuador S.A. Quito USD 1.1 100

El Salvador Productos Roche (El Salvador) S.A. San Salvador SVC 0.2 100

Estonia Roche Eesti OÜ Tallinn EEK 2.0 100

Finland Roche Diagnostics Oy Espoo EUR 0.2 100Roche Oy Espoo EUR (–) 100

France Roche Diagnostics S.A. Meylan EUR 16.0 100Roche S.A.S. Neuilly-sur-Seine EUR 38.2 100Ventana Medical Systems S.A. Illkirch EUR 0.9 100

Germany Galenus Mannheim GmbH Mannheim EUR 1.7 100NimbleGen Systems GmbH Pleiskirchen EUR (–) 100Roche Beteiligungs GmbH Grenzach-Wyhlen EUR 3.6 100Roche Deutschland Holding GmbH Grenzach-Wyhlen DEM 10.0 100Roche Diagnostics Deutschland GmbH Mannheim EUR 1.0 100Roche Diagnostics GmbH Mannheim EUR 94.6 100Roche Innovatis AG Bielefeld EUR 1.2 100Roche Kulmbach GmbH Kulmbach EUR (–) 100Roche Pharma AG Grenzach-Wyhlen EUR 61.4 100Swisslab GmbH Berlin EUR (–) 100

Greece Roche (Hellas) S.A. Athens EUR 19.8 100Roche Diagnostics (Hellas) S.A. Athens EUR 23.7 100

Guatemala Productos Roche Guatemala S.A. Guatemala GTQ 0.6 100

Honduras Productos Roche (Honduras), S.A. Tegucigalpa HNL (–) 100

Hungary Roche (Hungary) Ltd. Budapest HUF 30.0 100Roche Services (Europe) Ltd. Budapest HUF 3.0 100

India Roche Diagnostics (India) Pvt. Ltd. Mumbai INR 69.1 100Roche Scientific Company (India) Pvt. Ltd. Mumbai INR 10.0 100

Indonesia P.T. Roche Indonesia Jakarta IDR 1,323.0 98.3

Ireland Roche Ireland Limited Clarecastle EUR 1.9 100Roche Products (Ireland) Limited Dublin EUR (–) 100

Italy Roche Diagnostics S.p.A. Milan EUR 18.1 100Roche S.p.A. Milan EUR 34.1 100

Japan Roche Diagnostics K.K. Tokyo JPY 2,500.0 100

Latvia Roche Latvija SIA Riga LVL 0.2 100

Lithuania UAB Roche Lietuva Vilnius LIT 0.8 100

Luxembourg Pharminvest S.A. Luxembourg EUR 28.0 100

Malaysia Roche (Malaysia) Sdn Bhd. Kuala Lumpur MYR 4.0 100Roche Diagnostics (Malaysia) Sdn Bhd. Kuala Lumpur MYR 0.9 100

Mexico Roche Servicios de México, S.A. de C.V. Mexico City MXN 3.5 100Productos Roche, S.A. de C.V. Mexico City MXN 80.4 100

Morocco Roche S.A. Casablanca MAD 9.5 100

Netherlands Roche Diagnostics Nederland B.V. Almere EUR 2.3 100Roche Finance Europe B.V. Woerden EUR 2.0 100Roche Nederland B.V. Woerden EUR 10.9 100Roche Pharmholding B.V. Woerden EUR 467.8 100

New Zealand Roche Diagnostics NZ Limited Auckland NZD 3.0 100Roche Products (New Zealand) Limited Auckland NZD 13.5 100

Nicaragua Productos Roche (Nicaragua) S.A. Managua NIO (–) 100

Norway Roche Diagnostics Norge A/S Oslo NOK 5.8 100Roche Norge A/S Oslo NOK 6.2 100

Pakistan Roche Pakistan Limited Karachi PKR 38.3 100

Panama Productos Roche Interamericana S.A. Panama City USD 0.1 100Productos Roche Panamá S.A. Panama City PAB (–) 100Roche Products Inc. Panama City USD 0.5 100Syntex Puerto Rico Inc. Panama City USD (–) 100Technical Development Corp. Panama City CHF 0.8 100

Peru Productos Roche Química Farmacéutica S.A. Lima PEN 11.1 100



Philippines Roche (Philippines) Inc. Makati PHP 300.0 100

Poland Roche Diagnostics Polska Sp. z o.o. Warsaw PLN 8.0 100Roche Polska Sp. z o.o. Warsaw PLN 25.0 100

Portugal Roche Farmacêutica Química Lda. Amadora EUR 1.1 100Roche Sistemas de Diagnósticos Sociedade Unipessoal Lda. Amadora EUR 2.6 100

Puerto Rico Roche Operations Ltd. Ponce USD (–) 100

Romania Roche Romania S.R.L. Bucharest RON 472.1 100

Russian Federation Roche — Moscow Ltd. Moscow RUB 2.6 100Limited Liability Company Roche Diagnostics Rus Moscow RUB (–) 100

Serbia Roche D.O.O. Beograd Belgrade EUR 1.9 100

Singapore Roche Diagnostics Asia Pacific Pte. Ltd. Singapore SGD 7.4 100Roche Singapore Pte. Ltd. Singapore SGD 4.0 100Roche Singapore Technical Operations, Pte. Ltd. Singapore USD 70.0 100

Slovakia Roche Slovensko, S.R.O. Bratislava EUR 0.3 100

Slovenia Roche D.O.O. Pharmaceutical Company Ljubljana EUR 0.2 100

South Africa Roche Products (Proprietary) Limited Johannesburg ZAR 60.0 100

South Korea Roche Diagnostics Korea Co., Ltd. Seoul KRW 22,969.0 100Roche Korea Company Ltd. Seoul KRW 13,375.0 100

Spain Andreu Roche S.A. Madrid EUR 0.1 100Roche Diagnostics S.L. Barcelona EUR 18.0 100Roche Farma S.A. Madrid EUR 54.1 100Syntex Roche S.A. Madrid EUR 0.1 100

Sweden Roche AB Stockholm SEK 20.0 100Roche Diagnostics Scandinavia AB Bromma SEK 9.0 100

Switzerland Disetronic Handels AG Burgdorf CHF 0.1 100Disetronic Holding AG Burgdorf CHF 9.7 100Disetronic Medical Systems AG Burgdorf CHF 0.9 100F. Hoffmann-La Roche Ltd Basel CHF 150.0 100GlycArt Biotechnology Ltd. Schlieren CHF 0.3 100Hoffmann-La Roche Ltd. Basel CHF 0.5 100IMIB Institute for Medical Informatics and Biostatistics Ltd. Basel CHF 0.1 100Rabbit-Air Ltd. Zurich-Kloten CHF 3.0 100Roche Capital Market Ltd. Basel CHF 1.0 100Roche Diagnostics (Switzerland) Ltd. Rotkreuz CHF 1.0 100Roche Diagnostics AG Rotkreuz CHF 5.0 100Roche Diagnostics International Ltd. Steinhausen CHF 20.0 100Roche Finance Ltd. Basel CHF 409.2 100Roche Long Term Foundation Basel CHF 0.5 100Roche Pharma (Switzerland) Ltd. Reinach CHF 2.0 100

Taiwan Roche Diagnostics Ltd. Taipei TWD 80.0 100Roche Products Ltd. Taipei TWD 100.0 100

Thailand Roche Diagnostics (Thailand) Limited Bangkok THB 103.0 100Roche Thailand Limited Bangkok THB 12.0 100

Turkey Roche Diagnostik Sistemleri Ticaret A.S. Istanbul TRY 30.0 100Roche Müstahzarlari Sanayi Anonim Sirketi Istanbul TRY 249.5 100

Ukraine Roche Ukraine LLC Kiev USD 0.5 100

United Kingdom Piramed Limited Berkshire GBP 12.8 100Roche Diagnostics Ltd. Lewes GBP 32.6 100Roche Holding (UK) Limited Welwyn Garden City GBP 100.0 100Roche Products Limited Welwyn Garden City GBP 98.3 100Roche Registration Limited Welwyn Garden City GBP (–) 100

United States 454 Life Sciences Corporation Branford USD (–) 100BioVeris Corporation Gaithersburg USD (–) 100Disetronic Medical Systems Inc. Fishers USD (–) 100Genentech, Inc. South San Francisco USD (–) 100Genentech USA, Inc. South San Francisco USD (–) 100Hoffmann-La Roche Inc. Nutley USD 3.0 100IGEN International, Inc. Wilmington USD (–) 100Memory Pharmaceuticals Corp. Montvale USD (–) 100Roche Carolina Inc. Florence USD (–) 100Roche Colorado Corporation Boulder USD (–) 100Roche Diagnostics Corporation Indianapolis USD (–) 100Roche Diagnostics Operations, Inc. Indianapolis USD (–) 100Roche Finance USA Inc. Little Falls USD (–) 100Roche Holdings, Inc. Wilmington USD 1.0 100Roche Laboratories Inc. Nutley USD (–) 100Roche Madison Inc. Madison USD (–) 100Roche Molecular Systems, Inc. Pleasanton USD (–) 100Roche NimbleGen, Inc. Madison USD (–) 100Roche Palo Alto LLC Palo Alto USD (–) 100Spring Bioscience Corp. Fremont USD (–) 100Therapeutic Human Polyclonals, Inc. Palo Alto USD (–) 100Ventana Medical Systems, Inc. Tucson USD (–) 100

Uruguay Roche International Ltd. — Montevideo Branch Montevideo UYU (–) 100

Venezuela Productos Roche S.A. Caracas VEF 0.2 100

(–) = share capital of less than 100,000 local currency units.


125Roche Finance Report 2009Roche Group — Report of Roche Management on Internal Control over Financial Reporting

Report of Roche Management on Internal Control over Financial Reporting

Report of Roche Management on Internal Control over Financial ReportingThe Board of Directors and management of Roche Holding Ltd are responsible for establishing andmaintaining adequate control over financial reporting. The internal control system was designed to providereasonable assurance over the reliability of financial reporting and the preparation and fair presentationof consolidated financial statements in accordance with International Financial Reporting Standards.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even thosesystems determined to be effective may not prevent or detect misstatements and can provide only reason-able assurance with respect to financial statement preparation and presentation. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions or that the degree of compliance with the policies or procedures maydeteriorate.

Management assessed the effectiveness of its system of internal control over financial reporting as of31 December 2009 based on the criteria for effective internal control over financial reporting describedin Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). Based on this assessment, management has concluded that the systemof internal control over financial reporting was effective as of 31 December 2009.

The Statutory Auditor KPMG AG, have audited the consolidated financial statements of Roche Holding Ltdfor the year ended 31 December 2009, in accordance with Swiss Auditing Standards and with theInternational Standards on Auditing (ISA). They have also issued a report on the effectiveness of the Group’ssystem of internal control over financial reporting. This report is set out on pages 128—129.

Franz B. Humer Erich HunzikerChairman of the Board of Directors Chief Financial Officer and Deputy Head

of the Corporate Executive Committee

Basel, 28 January 2010

126 Roche Finance Report 2009 Roche Group — Report of the Statutory Auditor on the Consolidated Financial Statements

Report of the Statutory Auditor on theConsolidated Financial Statements

Report of the Statutory Auditor on the Consolidated Financial Statements to the Annual General Meeting of Roche Holding Ltd, BaselAs statutory auditor, we have audited the consolidated financial statements (income statement, statementof comprehensive income, balance sheet, statement of cash flows, statement of changes in equity and noteson pages 30 to 124) of Roche Holding Ltd for the year ended 31 December 2009.

Board of Directors’ Responsibility | The Board of Directors is responsible for the preparation and fairpresentation of the consolidated financial statements in accordance with International Financial ReportingStandards (IFRS) and the requirements of Swiss law. This responsibility includes designing, implementingand maintaining an internal control system relevant to the preparation and fair presentation of consolidatedfinancial statements that are free from material misstatement, whether due to fraud or error. The Boardof Directors is further responsible for selecting and applying appropriate accounting policies and makingaccounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility | Our responsibility is to express an opinion on these consolidated financialstatements based on our audit. We conducted our audit in accordance with Swiss law, Swiss AuditingStandards and International Standards on Auditing. Those standards require that we plan and perform theaudit to obtain reasonable assurance whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment, includingthe assessment of the risks of material misstatement of the consolidated financial statements, whether dueto fraud or error. In making those risk assessments, the auditor considers the internal control system relevantto the entity’s preparation and fair presentation of the consolidated financial statements in order to designaudit procedures that are appropriate in the circumstances. An audit also includes evaluating the appro-priateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion | In our opinion, the consolidated financial statements for the year ended 31 December 2009 givea true and fair view of the financial position, the results of operations and the cash flows in accordance withInternational Financial Reporting Standards (IFRS) and comply with Swiss law.

127

Report on Other Legal RequirementsWe confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA)and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible withour independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirmthat an internal control system exists, which has been designed for the preparation of consolidated financialstatements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

KPMG AG

John A. Morris François RouillerLicensed Audit Expert Licensed Audit ExpertAuditor in Charge


128 Roche Finance Report 2009 Roche Group — Report of the Independent Auditor on

Internal Control over Financial Reporting

Report of the Independent Auditor on Internal Control over Financial Reporting

Report of the Independent Auditor on Internal Control over Financial Reporting to the Annual General Meeting of Roche Holding Ltd, BaselWe have examined the Roche Group’s system of internal control over financial reporting as of 31 December2009, based on criteria established in Internal Control — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).

The Board of Directors and management of Roche Holding Ltd are responsible for maintaining effectiveinternal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting as included in the accompanying Report of Roche Management on Internal Controlover Financial Reporting. Our responsibility is to express an opinion on the company’s internal control overfinancial reporting based on our examination. An entity’s internal control over financial reporting is aprocess effected by the entity’s Board of Directors, management, and other personnel, designed to providereasonable assurance regarding the reliability of financial statements prepared in accordance withInternational Financial Reporting Standards (IFRS) and includes those policies and procedures that (1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are recordedas necessary to permit the preparation of financial statements in accordance with the applicable financialreporting framework; and (3) provide reasonable assurance regarding the prevention or timely detectionof the unauthorised acquisition, use, or disposition of the entity's assets that could have a material effect onthe entity’s financial statements.

We conducted our examination in accordance with the International Standard on Assurance Engagements3000 (ISAE 3000). This standard requires that we plan and perform our examination to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our examination included obtaining an understanding of internal control over financial reporting,testing and evaluating the design and operating effectiveness of internal control, and performing suchother procedures as we considered necessary in the circumstances. We believe that our examination providesa reasonable basis for our opinion.

Because of the inherent limitations of internal control over financial reporting, including the possibility ofmanagement override of controls, misstatements due to error or fraud may occur and not be detected. Also,projections of any evaluation of internal control over financial reporting to future periods are subject to therisk that internal control may become inadequate because of changes in conditions or because the degreeof compliance with the policies or procedures may deteriorate.

129

In our opinion, the Roche Group maintained, in all material respects, effective internal control, over financialreporting as of 31 December 2009, based on criteria established in Internal Control — Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with Swiss Auditing Standards and International Standards on Auditing,the consolidated financial statements of Roche Holding Ltd for the year ended 31 December 2009 and ourreport dated 28 January 2010 expressed an unqualified opinion on those consolidated financial statements.

KPMG AG

John A. Morris François Rouiller


130 Roche Finance Report 2009 Roche Group — Multi-Year Overview and Supplementary Information

Multi-Year Overview and Supplementary Information

Multi-year overviewStatistics, as reported

2000 2001 2002

Statement of income | in millions of CHF

Sales 28,672 29,163 29,453

EBITDA 11,126 6,438 7,993

Operating profit 7,131 3,247 1,335

Net income attributable to Roche shareholders 8,647 3,697 (4,026)

Research and development 3,950 3,893 4,257

Balance sheet | in millions of CHF

Non-current assets 34,798 36,411 33,143

Current assets 34,737 38,875 30,852

Total assets 69,535 75,286 63,995

Non-current liabilities (23,642) (25,772) (22,850)

Current liabilities (13,857) (15,647) (15,372)

Total liabilities (37,499) (41,419) (38,222)

Net assets 32,036 33,867 25,773

Capital and reserves attributable to Roche shareholders 27,608 28,973 20,810

Equity attributable to non-controlling interests 4,428 4,894 4,963

Additions to property, plant and equipment 2,183 1,931 2,044

Personnel

Number of employees at end of year 64,758 63,717 69,659

Key ratios

Net income attributable to Roche shareholders as % of sales 30 13 –14

Net income as % of equity, attributable to Roche shareholders 31 13 –19

Research and development as % of sales 14 13 14

Current ratio % 251 248 201

Equity and non-controlling interests as % of total assets 46 45 40

Sales per employee in thousands of CHF 443 458 427

Data on shares and non-voting equity securities

Number of shares 1,600,000 160,000,000 160,000,000

Number of non-voting equity securities (Genussscheine) 7,025,627 702,562,700 702,562,700

Total shares and non-voting equity securities 8,625,627 862,562,700 862,562,700

Total dividend in millions of CHF 992 1,121 1,251

Earnings per share and non-voting equity security (diluted) in CHF 1,024 4.37 (4.80)

Dividend per share and non-voting equity security in CHF 115 1.30 1.45

Information in this table is stated as reported. Changes in accounting policies arising from changes in International Financial ReportingStandards and the 100 for 1 stock split in 2001 are not applied retrospectively.

131

2003 2004 2005 2006 2007 2008 2009

31,220 31,273 35,511 42,041 46,133 45,617 49,051

8,609 9,566 11,404 14,436 17,068 16,637 18,028

5,592 8,979 8,669 11,730 14,468 13,896 15,012

3,069 6,641 5,787 7,880 9,761 8,969 7,784

4,766 5,093 5,705 6,589 8,385 8,845 9,874

29,820 28,670 33,739 33,519 35,349 37,485 36,086

29,666 29,406 35,626 40,895 42,834 38,604 38,479

59,486 58,076 69,365 74,414 78,183 76,089 74,565

(18,658) (14,882) (18,130) (14,908) (10,422) (10,163) (43,084)

(11,664) (9,901) (9,492) (12,692) (14,454) (12,104) (22,067)

(30,322) (24,783) (27,622) (27,600) (24,876) (22,267) (65,151)

29,164 33,293 41,743 46,814 53,307 53,822 9,414

23,570 28,223 34,922 39,444 45,347 44,479 7,366

5,594 5,070 6,821 7,370 7,960 9,343 2,048

2,265 2,357 3,428 3,878 3,648 3,187 2,837

65,357 64,703 68,218 74,372 78,604 80,080 81,507

10 21 16 19 21 20 16

13 24 17 20 22 20 106

15 16 16 16 18 19 20

254 297 375 322 296 319 174

49 57 60 63 68 71 13

482 483 521 565 587 570 602

160,000,000 160,000,000 160,000,000 160,000,000 160,000,000 160,000,000 160,000,000

702,562,700 702,562,700 702,562,700 702,562,700 702,562,700 702,562,700 702,562,700

862,562,700 862,562,700 862,562,700 862,562,700 862,562,700 862,562,700 862,562,700

1,423 1,725 2,156 2,933 3,968 4,313 5,175a)

3.61 7.81 6.71 9.05 11.16 10.23 9.02

1.65 2.00 2.50 3.40 4.60 5.00 6.00a)

a) Dividend 2009 as proposed by the Board of Directors.


Sales by division | in millions of CHF

2005 2006 2007 2008 2009

Pharmaceuticals 27,268 33,294 36,783 35,961 38,996

Diagnostics 8,243 8,747 9,350 9,656 10,055

Total 35,511 42,041 46,133 45,617 49,051

Sales by geographical area | in millions of CHF

2005 2006 2007 2008 2009

Switzerland 501 471 489 509 499

European Union 11,715 13,823 15,465 15,601 16,219

— of which Germany 2,624 2,993 3,277 3,200 3,320

Rest of Europe 1,061 1,307 1,620 1,521 1,568

Europe 13,277 15,601 17,574 17,631 18,286

United States 12,667 15,685 17,069 16,362 17,208

Rest of North America 812 985 1,004 932 948

North America 13,479 16,670 18,073 17,294 18,156

Latin America 2,033 2,539 2,784 2,975 2,940

Japan 3,948 3,713 3,562 3,532 5,036

Rest of Asia 1,803 2,384 2,681 2,920 3,166

Asia 5,751 6,097 6,243 6,452 8,202

Africa, Australia and Oceania 971 1,134 1,459 1,265 1,467

Total 35,511 42,041 46,133 45,617 49,051

133

Additions to property, plant and equipment by division | in millions of CHF

2005 2006 2007 2008 2009

Pharmaceuticals 2,613 3,030 2,588 1,940 1,644

Diagnostics 813 846 1,058 1,245 1,191

Corporate 2 2 2 2 2

Total 3,428 3,878 3,648 3,187 2,837

Additions to property, plant and equipment by geographical area | in millions of CHF

2005 2006 2007 2008 2009

Switzerland 376 350 418 421 315

European Union 910 995 993 960 972

— of which Germany 545 661 660 591 646

Rest of Europe 25 15 30 17 20

Europe 1,311 1,360 1,441 1,398 1,307

United States 1,739 2,061 1,679 1,212 866

Rest of North America 13 47 34 21 13

North America 1,752 2,108 1,713 1,233 879

Latin America 63 101 133 127 115

Japan 197 201 230 292 230

Rest of Asia 75 69 103 116 285

Asia 272 270 333 408 515

Africa, Australia and Oceania 30 39 28 21 21

Total 3,428 3,878 3,648 3,187 2,837

European Union information is based on members of the EU as at 31 December 2009. The comparative information has been restatedto include new EU members for the whole five-year period.


Supplementary Net Income and EPS InformationThe Group’s basic and diluted earnings per share information is given in Note 29 to the ConsolidatedFinancial Statements on pages 109—110. Supplementary EPS information is given below on net income of continuing businesses before exceptional items and also on core net income, which additionally excludesamortisation of intangible assets and the related impacts on income taxes and non-controlling interests.

Profit from continuing businesses before exceptional items and Core net income | in millions of CHF

2009 2008

Net income 8,510 10,844

Major legal cases 320 (271)

— income taxes (123) 105

197 (166)

Changes in Group organisation 2,415 243

— income taxes (964) (93)

1,451 150

Exceptional financing costs 377 –

— income taxes (61) –

316 –

Profit from continuing businesses before exceptional items 10,474 10,828

Non-controlling interests

— net income (726) (1,875)

— exceptional items (major legal cases) – 73

— exceptional items (changes in Group organisation) 50 (25)

(676) (1,827)

Net income attributable to Roche shareholders

(before exceptional items) 9,798 9,001

Amortisation and impairment of intangible assets 1) 1,094 1,073

— income taxes (373) (356)

— non-controlling interests (13) (52)

708 665

Core net income 10,506 9,666

1) Does not include impairment of intangible assets of 286 million Swiss francs (2008: zero) that are already included in ‘Changes inGroup organisation’ (see Note 8 to the Consolidated Financial Statements).

EPS (continuing businesses before exceptional items) and Core EPS

EPS (continuing businesses before exceptional items) Core EPS

2009 2008 2009 2008

Net income attributable to Roche shareholders (CHF millions) 9,798 9,001 10,506 9,666

Increase in non-controlling share of net income, net of tax, assuming

all outstanding Genentech and Chugai stock options exercised (34) (154) (36) (159)

Net income used to calculate diluted earnings per share 9,764 8,847 10,470 9,507

Per share information (millions of shares and non-voting equity securities)

Weighted average number of shares and non-voting equity securities in issue 858 860 858 860

Adjustment for assumed exercise of equity compensation plans,

where dilutive 1 1 1 1

Weighted average number of shares and non-voting equity

securities in issue used to calculate diluted earnings per share 859 861 859 861

Earnings per share (diluted) (CHF) 11.37 10.28 12.19 11.04

135

Supplementary Operating Free Cash Flow InformationDivisional operating free cash flow information | in millions of CHF

Pharmaceuticals Diagnostics Corporate Group2009 2008 2009 2008 2009 2008 2009 2008

Depreciation,

amortisation and

impairment

Depreciation of property,

plant and equipment 1,255 1,022 721 649 5 5 1,981 1,676

Amortisation of intangible

assets 253 511 459 458 – – 712 969

Impairment of property,

plant and equipment 1,118 20 9 8 – – 1,127 28

Impairment of intangible

assets 588 99 80 5 – – 668 104

Total 3,214 1,652 1,269 1,120 5 5 4,488 2,777

Other adjustments

Add back

— Expenses for equity-settled

equity compensation plans 516 476 42 36 28 14 586 526

— Net (income) expense

for provisions 1,331 322 206 127 35 (15) 1,572 434

— Net gain from disposals (161) (397) 10 13 – (5) (151) (389)

— Non-cash working

capital and other items 173 (18) 16 1 1 – 190 (17)

Deduct

— Net cash flow from

equity compensation plans 71 (174) (13) (21) (3) (5) 55 (200)

— Utilisation of provisions (550) (864) (144) (179) (15) (18) (709) (1,061)

— Proceeds from disposals 257 499 28 25 – 17 285 541

Total 1,637 (156) 145 2 46 (12) 1,828 (166)

Operating profit

cash adjustments 4,851 1,496 1,414 1,122 51 (7) 6,316 2,611

EBITDA


exceptional items 14,154 12,974 1,198 1,187 (340) (265) 15,012 13,896

Depreciation, amortisation

and impairments

— Total Group 3,214 1,652 1,269 1,120 5 5 4,488 2,777

— Add back exceptional items (1,472) (36) – – – – (1,472) (36)

EBITDA 15,896 14,590 2,467 2,307 (335) (260) 18,028 16,637

— margin, % of sales 40.8 40.6 24.5 23.9 – – 36.8 36.5

136 Roche Finance Report 2009 Roche Group — Roche Securities

Roche Securities

250

200

150

100

50

300

Roche share Swiss Market Index (rebased)

Price development of share | in CHF

2005 2006 2007 2008 2009

Four Roche American Depositary Receipts (ADRs) are equivalent to one non-voting equity security (Genussschein). ADRs have beentraded in the United States over-the-counter market since July 1992.

Information in these tables is restated for the change in the ratio for the ADRs from 1:1 to 2:1 effective 24 January 2005 and the changein the ratio for the ADRs from 2:1 to 4:1 effective 9 January 2009.

150

100

50

200

250

Roche non-voting equity security Swiss Market Index (rebased)

Price development of non-voting equity security (Genussschein) | in CHF

2005 2006 2007 2008 2009

60

40

20

80

100

Roche ADR S&P 500 Index (rebased)

Price development of American Depositary Receipt (ADR) | in USD

2005 2006 2007 2008 2009

137

Number of shares and non-voting equity securities a)

2005 2006 2007 2008 2009

Number of shares

(nominal value: CHF 1.00) 160,000,000 160,000,000 160,000,000 160,000,000 160,000,000

Number of non-voting equity securities

(Genussscheine) (no nominal value) 702,562,700 702,562,700 702,562,700 702,562,700 702,562,700

Total 862,562,700 862,562,700 862,562,700 862,562,700 862,562,700

Data per share and non-voting equity security | in CHF

2005 2006 2007 2008 2009

Net income 6.71 9.05 11.16 10.23 9.02

Equity 40.49 45.73 52.57 51.57 8.54

Dividend 2.50 3.40 4.60 5.00 6.00c)

Stock price of share b) Opening 150.00 219.20 247.50 213.00 168.70

High 230.00 252.50 266.25 229.50 182.10

Low 139.00 198.00 209.70 155.20 130.30

Year-end 219.20 247.50 213.00 168.70 181.00

Stock price of non-voting

equity security (Genussschein) b) Opening 130.90 197.30 218.50 195.60 162.50

High 206.90 227.00 240.10 208.60 179.00

Low 120.60 185.80 190.30 148.20 124.10

Year-end 197.30 218.50 195.60 162.50 175.80

Market capitalisation | in millions of CHF

2005 2006 2007 2008 2009

Year end 170,879 191,575 171,060 140,678 151,296

Key ratios (year-end)

2005 2006 2007 2008 2009

Net income as % of equity 17 20 21 20 106

Dividend yield of shares in % 1.1 1.4 2.2 3.0 3.3

Dividend yield of non-voting

equity securities (Genussscheine) in % 1.3 1.6 2.4 3.1 3.4

Price/earnings of shares 33 27 19 16 20

Price/earnings of non-voting

equity securities (Genussscheine) 29 24 18 16 19

a) Each non-voting equity security (Genussschein) confers the same rights as any of the shares to participate in the available earningsand any remaining proceeds from liquidation following repayment of the nominal value of the shares and the participation certificatecapital (if any). Shares and non-voting equity securities are listed on the SIX Swiss Exchange. Roche Holding Ltd has no restrictionsas to ownership of its shares or non-voting equity securities.

b) All stock price data reflect daily closing prices.c) Dividend 2009 as proposed by the Board of Directors.

Ticker symbols

Share Non-voting equity security American Depositary Receipt (ADR)

SIX Swiss Exchange RO ROG –

Bloomberg RO SW ROG VX RHHBY US

Reuters RO.S ROG.VX RHHBY.PK

138 Roche Finance Report 2009 Roche Holding Ltd, Basel — Financial Statements

Roche Holding Ltd, Basel

Financial Statements

Income statement | in millions of CHF


Income

Income from participations 5,075 3,390

Interest income from loans to Group companies 98 227

Interest and investment income 11 23

Guarantee fee income from Group companies 280 –

Other income 26 19

Total income 5,490 3,659

Expenses

Financial expenses (22) (88)

Administration expenses (31) (33)

Other expenses (25) (21)

Total expenses (78) (142)

Profit for the year before taxes 5,412 3,517

Taxes (27) (18)

Net profit for the year 5,385 3,499

139

Balance sheet | in millions of CHF

31 December 2009 31 December 2008

Non-current assets

Participations 4,683 4,580

Long-term loans 2 –

Long-term loans to Group companies 665 4,509

Total non-current assets 5,350 9,089

Current assets

Short-term loans to Group companies 2,000 3,000

Accounts receivable from Group companies 3,367 67

Other accounts receivable 1 1

Marketable securities 2,069 91

Liquid funds – –

Total current assets 7,437 3,159

Total assets 12,787 12,248

Equity

Share capital 160 160

Non-voting equity securities (Genussscheine) p.m. p.m.

General legal reserve 300 300

Free reserve 4,706 5,519

Special reserve 2,152 2,152

Available earnings:

— Balance brought forward from previous year 1 2

— Net profit for the year 5,385 3,499

Total equity 12,704 11,632

Non-current liabilities

Provisions 35 35

Total non-current liabilities 35 35

Current liabilities

Accounts payable to Group companies 15 559

Unrealised foreign currency gains – –

Other liabilities 33 22

Total current liabilities 48 581

Total liabilities 83 616

Total equity and liabilities 12,787 12,248

p.m. = pro memoria. Non-voting equity securities have no nominal value.

140 Roche Finance Report 2009 Roche Holding Ltd, Basel — Notes to the Financial Statements

Notes to the Financial Statements

1. Summary of significant accounting policiesBasis of preparation of the financial statementsThe financial statements of Roche Holding Ltd, Basel, are prepared in accordance with the provisionsof Swiss law.

ParticipationsThe major participations of the company are listed in Note 34 to the Roche Group Consolidated FinancialStatements.

Valuation methods and translation of foreign currenciesMarketable securities are reported at the lower of cost or market value. All other assets, including partici-pations, are reported at cost less appropriate write-downs. Assets and liabilities denominated in foreigncurrencies are translated into Swiss francs using year-end rates of exchange, except participations which aretranslated at historical rates. Transactions during the year which are denominated in foreign currenciesare translated at the exchange rates effective at the relevant transaction dates. Resulting exchange gains andlosses are recognised in the income statement with the exception of unrealised gains which are deferred.

TaxesThe tax charge includes corporate income and capital taxes.

2. EquityShare capitalAs in the previous year, share capital amounts to 160 million Swiss francs. The share capital consists of160,000,000 bearer shares with a nominal value of 1 Swiss franc each. Included in equity are 702,562,700non-voting equity securities (Genussscheine). They are not part of the share capital and confer no votingrights. However each non-voting equity security (Genussschein) confers the same rights as any of the sharesto participate in the available earnings and in any remaining proceeds from liquidation following repaymentof the nominal value of the share capital and, if any, participation certificates.

141

Movement in recognised amounts | in millions of CHF

General Share legal Free Special Available Total

capital reserve reserve reserve earnings equity

As at 1 January 2007 160 300 4,647 2,152 3,537 10,796

— Net income – – – – 4,238 4,238

— Dividends paid – – – – (2,933) (2,933)

— Transfer to free reserve – – 604 – (604) –

As at 31 December 2007 160 300 5,251 2,152 4,238 12,101

— Net income – – – – 3,499 3,499

— Dividends paid – – – – (3,968) (3,968)

— Transfer to free reserve – – 268 – (268) –

As at 31 December 2008 160 300 5,519 2,152 3,501 11,632

— Net income – – – – 5,385 5,385

— Dividends paid – – – – (4,313) (4,313)

— Transfer to (from) free reserve – – (813) – 813 –

As at 31 December 2009 160 300 4,706 2,152 5,386 12,704

3. Contingent liabilitiesGuaranteesThe company has issued guarantees for certain bonds and notes, commercial paper and credit facilitiesof Group companies. The nominal amount outstanding at 31 December 2009 was 40.3 billion Swiss francs(2008: 420 million Swiss francs). This increase was primarily due to the additional bonds and notes issuedin 2009 by Group companies to finance the Genentech transaction, which are guaranteed by the Company.These are described in Note 27 to the Roche Group Consolidated Financial Statements on pages 100—105.

4. Significant shareholdersAll shares in the Company are bearer shares, and for this reason the Company does not keep a registerof shareholders. The following figures are based on information from shareholders, the shareholder validationcheck at the Annual General Meeting of 10 March 2009 and on other information available to the Company.

80,020,000 (2008: 80,020,000) shares: Shareholder group with pooled voting rights, comprisingat 31 December 2009 of Ms Vera Michalski-Hoffmann, Ms Maja Hoffmann, Mr André Hoffmann,Dr Andreas Oeri, Ms Sabine Duschmalé-Oeri, Ms Catherine Oeri, Ms Maja Oeri, Mr Jörg Duschmaléand Mr Lukas Duschmalé. a)

53,332,863 (2008: 53,332,863) shares (participation below 331⁄3%): Novartis Ltd, Basel including affiliatesthereof. b)

a) Information supplied by the shareholders. This figure of 80,020,000 shares does not include shares without pooled voting rights heldoutside this group by individual members of the group.

b) Figures as of 31 December 2009 supplied by Novartis Ltd, Basel.


5. Risk managementThe detailed disclosures regarding risk management that are required by Swiss law are included in the RocheGroup Consolidated Financial Statements on pages 113—120.

6. Board and Executive remunerationBoard of DirectorsMembers of the Board of Directors of Roche Holding Ltd receive an annual remuneration and payment fortheir time and expenses related to their membership of Board committees.

Remuneration of members of the Board of Directors | in thousands of CHF

2009 2008

B. Gehrig 400 409

A. Hoffmann 400 400

P. Baschera 330 330

J. I. Bell 330 330

P. Brabeck-Letmathe 300 300

L. J.R. de Vink 330 330

W. Frey 360 360

D.A. Julius 360 360

A. Oeri 360 360

W. Ruttenstorfer 330 330

H. Teltschik 390 391

B. Weder di Mauro 365 360

Total remuneration of Board of Directors 4,255 4,260

The Chairman of the Board of Directors, Dr Franz B. Humer, received remuneration as shown in the tablebelow.

Remuneration of the Chairman of the Board of Directors | in thousands of CHF

2009 2008

Annual salary, including bonuses and expenses 8,230 11,030

Special Stock Awards 2,792 –

Pensions and other post-employment benefits 2,995 2,956

Equity compensation plans 75 983


Total remuneration received 14,354 15,229

Social security costs 763 1,521

Total 15,117 16,750

Corporate Executive CommitteeMembers of the Corporate Executive Committee (‘CEC’) of Roche Holding Ltd receive remuneration,indirect benefits and participate in certain equity compensation plans as shown in the table below.The Group’s CEO, Dr Severin Schwan, was the member of the Corporate Executive Committee with thehighest total remuneration and his remuneration is also disclosed. New members of the CorporateExecutive Committee (Mr Soriot in 2009 and Ms Ayyoubi in 2008) are included for the full calendar yearin which they joined the CEC.

143

Remuneration of the members of the Corporate Executive Committee | in thousands of CHF

2009 2008— of which — of which

Total CEC S. Schwan Total CEC S. Schwan

Annual salary, including bonuses and expenses 29,742 5,905 21,384 5,313

Special Stock Awards 6,543 1,675 – –

Pensions and other post-employment benefits 2,495 457 2,422 202

Equity compensation plans 16,033 4,039 12,557 2,493

Other employee benefits 248 25 145 11

Total remuneration received 55,061 12,101 36,508 8,019

Social security costs 1,909 386 1,777 287

Total 56,970 12,487 38,285 8,306

Special Stock Awards | During 2009 the Chairman of the Board of Directors and members of the CorporateExecutive Committee were granted a total of 96,750 Special Stock Awards. The Chairman of the Boardof Directors received 34,084 awards and members of the CEC received a total of 62,666 awards, of which20,450 awards were granted to Dr Schwan. The fair value of these awards for the employee is calculatedbased on the fair value of non-voting equity securities (Genussscheine) at the grant date (CHF 146.70or CHF 169.40) discounted to take into account the period in which they are blocked (3 years: 83.962%,10 years: 55.839%).

Employer contribution to social security schemes and pension plans | The Group pays social insurancecontributions in respect of the above remuneration and pays contributions to pension and other post-employment benefit plans for the Chairman of the Board of Directors and members of the Corporate ExecutiveCommittee.

Equity Compensation Plans | The Chairman of the Board of Directors and members of the CorporateExecutive Committee also participate in certain equity compensation plans as described below. The termsand vesting conditions of these awards are disclosed in Note 11 to the Consolidated Financial Statements.The fair values used in the Consolidated Financial Statements represent the cost to the company atgrant date and reflect amongst other matters the observed exercise behaviour and exit rate for the wholepopulation that receive the awards and initial simulations of any performance conditions. For the purposesof these remuneration disclosures the values are calculated based on the fair value that the employeereceives taking into account the preliminary assessment of any completed performance conditions.

The Chairman of the Board of Directors and members of the Corporate Executive Committee are eligible toparticipate in Roche Connect, a programme that enables employees to make regular deductions from theirsalaries to purchase non-voting equity securities. The Group contributes to the programme, which allows theemployees to purchase non-voting equity securities at a discount (usually 20%).

During 2009 members of the Corporate Executive Committee were granted 669,675 Stock-settled StockAppreciation Rights (S-SARs). The individual awards relating to 2009 are shown in the table below. The fairvalue of these awards for the employee is 20.30 Swiss francs, which is calculated using the Black-Scholesformula, assuming holding until maturity, and deducting 11% for the average two-year vesting period.The Chairman of the Board of Directors was not granted S-SARs in 2009 and 2008.


Members of the Corporate Executive Committee and other members of senior management participate inthe Roche Performance Share Plan (PSP). The Group has three overlapping three-year PSPs. The targetawards for the three-year cycle are defined at the beginning of the cycle and the awards are considered toform part of the employee’s remuneration in three equal annual amounts over the three-year cycle. Eachaward will result in between zero and two non-voting equity securities (Genussscheine), depending upon theachievement of the performance targets, and the discretion of the Board of Directors. The individual awardsrelating to 2009 are shown in the table below. The number of the awards is calculated as follows:

• PSP 2007—2009: At the end of the cycle the performance targets were not achieved and accordingly theparticipants received none of the originally targeted non-voting equity securities (Genussscheine).

• PSP 2008—2010: One non-voting equity security (Genussschein) per award.

• PSP 2009—2011: One non-voting equity security (Genussschein) per award.

• The resulting allocations are multiplied by the non-voting equity security (Genussschein) price at 31 December 2009 of 175.80 Swiss francs to give the fair value for the remuneration received by theemployee.

Remuneration from equity compensation plans in 2009 | in thousands of CHF

Roche Connect S-SAR awards PSP awardsEmployer S-SAR ’09 S-SAR ’09 PSP ’07—’09 PSP ’08—’10 PSP ’09—’11 PSP Total

contributions (number) fair value (number) (number) (number) fair value fair value

Total CEC 213 669,675 13,594 – 16,443 21,546 2,226 16,033

— of which

S. Schwan 70 175,362 3,560 – 1,965 5,011 409 4,039

In 2008 the total remuneration of the Corporate Executive Committee from equity compensation plans was13 million Swiss francs, of which 2 million Swiss was attributable to Dr Schwan, the member of the CorporateExecutive Committee with the highest total remuneration.

Other employee benefits | This includes tax advisory costs, and remuneration of Dr Schwan, Dr Hunziker,Mr Burns and Prof. Knowles for serving on the Chugai Board of Directors. In 2009 this also includes a specialpayment to Dr Keller of 50,000 Swiss francs for his 25 years’ service to the Group.

Transactions with former members of the Corporate Executive Committee | Pensions totalling 2 millionSwiss francs were paid by the Group in 2009 to two former Corporate Executive Committee members(2008: 2 million Swiss francs).

7. Board and Executive shareholdingsBoard of DirectorsDirectors Mr André Hoffmann and Dr Andreas Oeri and other members of the founder’s families who areclosely associated with them belong to a shareholder group with pooled voting rights. At the end of 2009this group held 80,020,000 shares (50.01% of issued shares). Detailed information about this group is givenin Note 4. In addition at the end of the year the members of the Board of Directors and persons closelyassociated with them held shares and non-voting equity securities (Genussscheine) as shown in the tablebelow.

145

Shareholdings of members of the Board of Directors

Non-voting equity securitiesShares (Genussscheine) Other

2009 2008 2009 2008

F.B. Humer 3 3 196,528 153,919 b), c)

B. Gehrig 50 50 150 50

A. Hoffmann – a) – a) 365,200 d) 365,200 d) e)

P. Baschera 1 1 – –

J. I. Bell 300 300 1,647 1,647

P. Brabeck-Letmathe 800 800 2,195 2,195

L. J.R. de Vink – – – – f)

W. Frey 72,500 72,500 – –

D.A. Julius 350 350 – 1,550 g)

A. Oeri – a) 90,000 a) 351,793 1,640,460 e)

W. Ruttenstorfer 1,000 1,000 – –

H. Teltschik 385 385 – –

B. Weder di Mauro 200 200 – –

Total 75,589 a) 165,589 a) 917,513 2,165,021

a) Figure does not include shares held in the shareholder group with pooled voting rights.b) Special Stock Awards held at 31 December 2009: Dr Humer holds 32,614 Special Stock Awards (see Note 6).c) Equity compensation awards: Roche Option Plan, S-SARs and Roche Performance Share Plan. See below.d) Mr Hoffmann entered into a call options agreement with UBS on 365,000 Roche non-voting equity securities for the period

21 August 2008—20 August 2010.e) Mr Hoffmann and Dr Oeri each hold 250,000 UBS Long/Short Certificates on Roche bearer shares (RO) versus Roche non-voting

equity securities (ROG).f) Mr de Vink holds 1,000 Roche American Depositary Receipts (ADRs).g) Close relatives of Dr Julius hold 1,550 Roche non-voting equity securities (Genussscheine) (2008: zero).

Corporate Executive CommitteeMembers of the Corporate Executive Committee and persons closely associated with them held shares andnon-voting equity securities (Genussscheine) as shown in the table below.

Shareholdings of members of the Corporate Executive Committee

Non-voting equity securitiesShares (Genussscheine) Other

2009 2008 2009 2008

S. Schwan 3 3 32,996 9,468 a), b), c)

S. Ayyoubi 3 3 12,113 7,161 a), b)

W.M. Burns 3 3 78,167 53,460 a), b)

E. Hunziker 3 3 60,635 43,839 a), b)

G.A. Keller 1,063 1,063 27,937 21,854 a), b), d)

J.K.C. Knowles 3 3 19,558 33,065 b)

J. Schwiezer 3 3 11,032 10,960 b)

P. Soriot 2 n/a 6,276 n/a b)

Total 1,083 1,081 248,714 179,807

a) Special Stock Awards held at 31 December 2009: Dr Schwan, Ms Ayyoubi, Mr Burns, Dr Hunziker and Dr Keller hold a totalof 60,958 Special Stock Awards, respectively 20,450; 4,485; 13,046; 13,046; and 9,931, (see Note 6).

b) Equity compensation awards: Roche Option Plan, S-SARs and Roche Performance Share Plan. See below.c) Close relatives of Dr Schwan hold 270 Roche non-voting equity securities (Genussscheine) (2008: 270).d) Close relatives of Dr Keller hold 140 Roche non-voting equity securities (Genussscheine) (2008: 140).


At 31 December 2009 the Chairman of the Board of Directors and members of the Corporate ExecutiveCommittee held Stock-settled Stock Appreciation Rights (S-SARs, first issued in 2005) and Roche Option Planawards (issued before 2005) as shown in the table below. The awards held by Dr Humer, the current Chairmanof the Board of Directors, were issued to him in his previous capacity as a member of the Corporate ExecutiveCommittee. Each option entitles the holder to purchase one Roche non-voting equity security (Genussschein)

at a specified strike price. The terms and vesting conditions of these awards are disclosed in Note 11 to theConsolidated Financial Statements and additional supplementary information is in the Remuneration Report,which is included in the Business Report (Part 1 of this Annual Report) on pages 75—85.

Roche Option Plan and S-SARs awards held at 31 December 2009

Year of issue 2009 2008 2007 2006 2005 2004 2003 Total

S. Schwan 175,362 105,576 29,190 15,696 4,983 1,864 1,635 334,306

S. Ayyoubi 43,842 21,117 3,243 2,517 3,957 2,360 – 77,036

W.M. Burns 109,602 105,576 48,651 26,160 34,074 14,874 – 338,937

E. Hunziker 96,450 92,907 48,651 26,160 34,074 20,915 – 319,157

G.A. Keller 65,763 63,345 24,327 15,696 3,150 4,000 – 176,281

J.K.C. Knowles 65,763 63,345 24,327 15,696 – – – 169,131

J. Schwiezer 43,842 42,231 9,819 5,565 8,871 5,610 – 115,938

P. Soriot 69,051 63,345 29,190 45,180 – – – 206,766

Total CEC 669,675 557,442 217,398 152,670 89,109 49,623 1,635 1,737,552

F.B. Humer – – 48,651 52,317 85,179 55,775 – 241,922

Total 669,675 557,442 266,049 204,987 174,288 105,398 1,635 1,979,474

Strike price (CHF) 145.40 195.80 229.60 195.00 a) 123.00 129.50 77.80 –

Expiry date Feb. 2016 Jan. 2015 Feb. 2014 Feb. 2013 a) Feb. 2012 Feb. 2011 Feb. 2010 –

a) Mr Soriot’s 2006 awards include 21,636 awards that have a strike price of CHF 196.50 and expire in January 2013.

At 31 December 2009 the Chairman of the Board of Directors and members of the Corporate ExecutiveCommittee held PSP awards from the three PSP performance cycles 2007—2009, 2008—2010 and 2009—2011as shown in the table below. The awards held by Dr Humer, the current Chairman of the Board of Directors,were issued to him in his previous capacity as a member of the Corporate Executive Committee. The termsand vesting conditions of these awards are disclosed in Note 11 to the Consolidated Financial Statementsand additional supplementary information is in the Remuneration Report on pages 75—85 of the BusinessReport (Part 1 of this Annual Report). Each award will result in between zero and two non-voting equitysecurities (Genussscheine), depending upon the achievement of the performance targets and the discretionof the Board of Directors. At the end of the 2007—2009 cycle the performance targets were not achievedand accordingly the participants received none of the originally targeted non-voting equity securities(Genussscheine). The total target number of awards for the other outstanding cycles as at 31 December 2009are shown in the table below.

147

Roche Performance Share Plan awards held at 31 December 2009

PSP 2008—2010 PSP 2009—2011

S. Schwan 1,965 5,011

S. Ayyoubi 638 1,002

W.M. Burns 3,276 4,009

E. Hunziker 3,276 4,009

G.A. Keller 1,474 3,006

J.K.C. Knowles 2,211 –

J. Schwiezer 1,965 2,405

P. Soriot 1,638 2,104

Total 16,443 21,546

Allocation date Feb. 2011 Feb. 2012

At 31 December 2008 the Chairman of the Board of Directors and members of the Corporate ExecutiveCommittee at that time held a total of 1,196,726 Stock-settled Stock Appreciation Rights and RocheOption Plan awards, and had outstanding a total of 58,464 awards granted under the Roche PerformanceShare Plan.

148 Roche Finance Report 2009 Roche Holding Ltd, Basel — Appropriation of Available Earnings

Appropriation of Available Earnings

Proposals to the Annual General Meeting | in CHF

2009 2008

Available earnings

Balance brought forward from previous year 590,269 1,832,184

Net profit for the year 5,385,342,397 3,498,521,585

Transfer from free reserve – 813,050,000

Total available earnings 5,385,932,666 4,313,403,769

Appropriation of available earnings

Distribution of an ordinary dividend of CHF 6.00 gross

per share and non-voting equity security (Genussschein)

as against CHF 5.00 last year (5,175,376,200) (4,312,813,500)

Transfer to free reserve – –

Total appropriation of available earnings (5,175,376,200) (4,312,813,500)

To be carried forward on this account 210,556,466 590,269

149Roche Finance Report 2009Roche Holding Ltd, Basel — Report of the Statutory Auditor on the Financial Statements

Report of the Statutory Auditor on the Financial Statements

Report of the Statutory Auditor on the Financial Statementsto the Annual General Meeting of Roche Holding Ltd, BaselAs statutory auditor, we have audited the financial statements (income statement, balance sheet and noteson pages 138 to 148) of Roche Holding Ltd for the year ended 31 December 2009.

Board of Directors’ Responsibility | The Board of Directors is responsible for the preparation of the financialstatements in accordance with the requirements of Swiss law and the company’s articles of incorporation.This responsibility includes designing, implementing and maintaining an internal control system relevant to thepreparation of financial statements that are free from material misstatement, whether due to fraud or error.The board of directors is further responsible for selecting and applying appropriate accounting policies andmaking accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility | Our responsibility is to express an opinion on these financial statements basedon our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Thosestandards require that we plan and perform the audit to obtain reasonable assurance whether the financialstatements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor’s judgment, including the assessmentof the risks of material misstatement of the financial statements, whether due to fraud or error. In makingthose risk assessments, the auditor considers the internal control system relevant to the entity’s preparationof the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system.An audit also includes evaluating the appropriateness of the accounting policies used and the reasonablenessof accounting estimates made, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.

Opinion | In our opinion, the financial statements for the year ended 31 December 2009 comply with Swisslaw and the company’s articles of incorporation.

150 Roche Finance Report 2009 Roche Holding Ltd, Basel — Report of the Statutory Auditor on the Financial Statements

Report on Other Legal RequirementsWe confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA)and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible withour independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that aninternal control system exists, which has been designed for the preparation of financial statements accordingto the instructions of the Board of Directors.

We further confirm that the proposed appropriation of available earnings complies with Swiss law andthe company’s articles of incorporation. We recommend that the financial statements submitted to you beapproved.

KPMG AG

John A. Morris François RouillerLicensed Audit Expert Licensed Audit ExpertAuditor in Charge


Published byF. Hoffmann-La Roche Ltd4070 Basel, SwitzerlandTel. +41 (0)61 688 11 11Fax +41 (0)61 691 93 91

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To order publicationsTel. +41 (0)61 688 83 39Fax +41 (0)61 688 43 43E-mail: [email protected]

Next Annual General Meeting:

2 March 2010

Cautionary statement regarding forward-lookingstatementsThis Annual Report contains certain forward-lookingstatements. These forward-looking statements may be identi-fied by words such as ‘believes’, ‘expects’, ‘anticipates’,‘projects’, ‘intends’, ‘should’, ‘seeks’, ‘estimates’, ‘future’ orsimilar expressions or by discussion of, among other things,strategy, goals, plans or intentions. Various factors maycause actual results to differ materially in the future from thosereflected in forward-looking statements contained in thisAnnual Report, among others: (1) pricing and productinitiatives of competitors; (2) legislative and regulatory devel-opments and economic conditions; (3) delay or inability inobtaining regulatory approvals or bringing products to market;(4) fluctuations in currency exchange rates and generalfinancial market conditions; (5) uncertainties in the discovery,development or marketing of new products or new uses ofexisting products, including without limitation negative resultsof clinical trials or research projects, unexpected side effectsof pipeline or marketed products; (6) increased governmentpricing pressures; (7) interruptions in production; (8) lossof or inability to obtain adequate protection for intellectualproperty rights; (9) litigation; (10) loss of key executivesor other employees; and (11) adverse publicity and newscoverage.

The statement regarding earnings per share growth is nota profit forecast and should not be interpreted to meanthat Roche’s earnings or earnings per share for 2009 or anysubsequent period will necessarily match or exceed thehistorical published earnings or earnings per share of Roche.


The Roche Annual Report is published in German and English.

Printed on non-chlorine bleached, FSC-certified paper.

The Roche Annual Report is issued by F. Hoffmann-La Roche Ltd, Basel, Group Communications.

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