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Executives

Severin Schwan – CEO

Pascal Soriot – COO, Pharmaceuticals

Daniel O'Day – COO, Diagnostics

Erich Hunziker – CFO and IT Officer

Karl Mahler – Head, IR

Analysts

Timothy Anderson – Sanford Bernstein

Sachin Jain – Merrill Lynch

Luisa Hector – Credit Suisse

Michael Leuchten – Barclays Capital

Alexandra Hauber – J.P. Morgan

Steve Scala – Cowen and Company

Marcel Brand – Credit Agricole

Jeff Holford – Jefferies

Amit Roy – Citigroup

Vincent Meunier – Exane BNP Paribas

Roche Holding AG (OTCQX:RHHBY) Q1 2010 Earnings Call Transcript April 15, 2010 8:00 AM ET

Operator

Good morning or good afternoon, depending where you’re attending from. I'm Stephanie, the Chorus Call operator for this conference. Welcome to the Roche first quarter 2010 conference call and live webcast. Please note that for the duration of the presentation, all participants will be in listen-only mode and the conference is being recorded. (Operator Instructions)

This call must not be recorded for publication or broadcast. At this time, I would like to turn the conference over to Dr. Severin Schwan, Chief Executive Officer. Please go ahead, sir.

Severin Schwan

Good afternoon, ladies and gentlemen, and welcome to our quarter one sales call. With me are Erich Hunziker, our CFO; and Pascal Soriot; and Daniel O'Day for our Pharmaceuticals and Diagnostics businesses, as well as, key members of our finance teams.

Please turn to slide five, you can see that we've had a very good start into 2010 with a 9% growth in local currencies on a group level and both divisions ahead of their respective markets. You see pharmaceutical sales were 10% up, if we exclude Tamiflu with solid growth of 8% in local currencies.

As to the currencies, you can see on slide six that we had a 3% impact on the group level, almost entirely due to the weakening of the U.S. dollar in the respective reporting period. As you are well aware and as you can see on slide seven, our growth is very much driven by biologics and for this very reason, the regulations on biosimilars and because of the U.S. healthcare reform has been of utmost importance for us.

On slide eight, we have summarized the key results as far as Roche is concerned and you can see that the 12 years of data exclusivity has been confirmed and that as expected the regulatory partners for biosimilars require clinical trials.

In terms of the financial impact of the U.S. healthcare reform, we welcome that healthcare coverage is expanded and this will certainly have a positive effect on our business in the long-term. However, in the short-term we will see additional rebates for Medicaid and certain hospital settings, which will have an impact of about 200 million Swiss francs in 2010.

Today, of course is a sales call, but turning to slide nine, let me also take the opportunity of reminding you of our strong pipeline and the fact that we want to launch six new molecular entities over the next five years.

Following our discussions with the FDA, I’m very pleased that we now expect one of those NMEs, namely T-DM1 already to be filed this year based on strong phase II data. Based on the good start, we confirm our outlook for 2010.

And with this, I’d like to turn over to Pascal for Pharmaceuticals.

Pascal Soriot

Good afternoon, everybody. It's really a pleasure to share with you our pharma Q1 results. So turning to page 12, as you can see we experienced a growth rate of about 10% in local currency in totality across the globe.

Excluding Tamiflu, we have an 8% growth rate and very strong result in every region as you can see here. There are a number of factors that influence this 8% growth rate. I just want to today tell you that the inventory valuation was very limited, very limited effect there.

And I'm happy to report that the underlying growth rate that we experienced here is about 5% to 6% if you include the CellCept and 7% to 8% if you exclude the effect of CellCept. So very much in line with the guidance we gave you for the whole year, which is mid single-digit growth excluding Tamiflu. And as you can see at the bottom of the chart here, the effect that we saw in Q4 is very much washed out with very good results for Q1.

Now moving on to page 13, Japan, where we experienced a growth rate of about 2%, excluding Tamiflu in the first quarter, we of course faced, like all our peers with price decreases for many of our products. However, the good news here is that the price impacts for most of our product was very minimal. The only decrease of substance affected Herceptin and was actually linked, so to an increase in volume, negotiation of larger volume and associated re-pricing for Herceptin.

Moving to page 14, it's really pleasing today to report this growth rate of about 12% for our oncology franchise, because I know a number of people actually at the end of last year were worried that our oncology franchise was slowing down. We actually told you that we expected a rebound in Q1 and a good growth rate for the whole of 2010.

And as you can see here, what we told you last year, actually, well, in January based on last year results was confirmed in the first quarter. You see here good growth across the various geographies, importantly, 19% growth in the international region, which once more demonstrates that the emerging markets are able to sustain the pricing of our innovative drugs and can grow strongly in these countries.

Page 15, if you look at individual brands, Avastin, MabThera and Herceptin all grew very nicely. Avastin actually essentially driven by lung cancer in Japan and colorectal and breast cancer in Europe.

MabThera, we have very strong uptake in CLL and also continued growth in intercontinental [ph] share in the international region and we have future growth that will come later this year and next year in the maintenance setting in Europe and the rest of the world.

Herceptin, 11% growth rate, this is essentially driven by the emerging markets but also very good growth in Europe and in the U.S. The gastric indication around the world but also extension of use in small tumor size is certainly having an impact. And as you can see here, very pleasing results for Herceptin as well. Xeloda and Tarceva are also doing very well.

I wanted to say a couple of words on the potential we see for Herceptin in many of our other innovative drugs in China on page 16. And as you can see here, there's a number of regions in China where we have reimbursement or partial reimbursement for Herceptin and Rituxan.

So it is possible at prices that are similar to what we experienced in Europe and the U.S. to get reimbursement in China. We've shown you before the kind of sales growth that we can experience each time we have – we achieve reimbursement with Pegasys certainly than others. So we certainly expect strong growth for Herceptin, MabThera in the years to come in China.

Slide 17, as Severin told you a minute ago, in the following discussions we had with the FDA, we made the decision to file early for breast cancer with T-DM1 on the basis of our phase II data, which as you know, as we communicated to you before, we’re very strong – we had very strong response rate in third line metastatic breast cancer patients. And so on the basis of these clinical results and after discussing with the FDA, we decided to file early. So we will be filing this year.

We’ll also be filing for ovarian, Avastin, on the basis of the clinical results we shared with you a bit earlier and we’ll be presenting at the ASCO in May. Speaking of the ASCO, if I move to page 18, I’d like to attract your attention to some of the highlights, some of the key presentations, for Avastin, Rituxan and Pertuzumab. Avastin, of course, the ovarian cancer results.

Also, the gastric cancer results even though we didn't need the primary end point. We look forward to sharing the totality of the results with you in the medical community, including the secondary end point analysis for gastric cancer.

We will also be presenting the PRIMA results, which are very, very strong for Rituxan and MabThera in maintenance setting. And the new adjuvant study called NEOSPHERE for Pertuzumab, which also is extremely exciting. So we really would like to invite you to look at those results at the occasion of the ASCO.

If I move to page 19, looking at the inflammation immunology franchise, we experienced a decline in the first quarter, compared to last year, essentially due to the declines from decline of CellCept. But if you exclude CellCept, the franchise grew by about 23%. Every product grew quite nicely there and by region, you can see in Europe and in international regions good growth.

I'm happy to report that Actemra is developing very well. We have strong growth in Japan and in Europe, if you look at page 20. We also have a very successful start in the United States. It's really too early to be able to judge, I must say, but the earlier results, the feedback we get from physicians and the early market research we have done to assess the perceptions of this drug by the medical community, those results are very, very encouraging.

We have a strong clinical program that is supporting Actemra moving forward in earlier rate. Also, we have a head-to-head study versus Humira and our subcutaneous program is well on track.

Moving to page 21 on taspoglutide, we’d like to remind you that we have a very broad TMF program supporting taspoglutide, taspoglutide will be presenting at the ADA in June. And all our studies made their primary end points so far. So we are very encouraged by those results.

Page 22, as you can see the virology franchise also doing very well. Pegasys is growing nicely, 15% growth in the first quarter. We saw a pretty strong growth for Tamiflu and we re-forecast the same as we communicated to you earlier for the full year.

On page 23, some of the highlights for quarter one. And as you can see here, quarter one was very rich in news and most of those news were actually very good news. We got six major approvals, Actemra in the United States, CLL in the United States for Rituxan, Avastin in China for colorectal cancer, Xeloda in Europe in the XELOX regimen and finally gastric cancer for Herceptin in Europe. So, strong quarter from the point of view of approvals.

We had five – four major filings, in fact I should say five. You have the four that are listed here, but we also have Xeloda in adjuvant breast cancer. Actemra, as you can see here, the LITHE study in RA was filed. We filed in Japan for Herceptin in gastric cancer in combination with Xeloda and also filing for maintenance treatment for Rituxan/MabThera in the U.S. and the EU. We initiated two major phase III studies with Aleglitazar and our BRAF inhibitor for metastatic melanoma.

And finally, we had three phase III studies with that. The first one in ovarian cancer, I think this one is really of special significance, not only because the study was positive and met its endpoint, but also because if you look at the studies had two arms, a shorter duration of treatment for Avastin and longer treatment duration was 15 months. And the 15-month arm is the one that showed superior and met its endpoint and this will have significance for treatment duration and we find those results very encouraging.

Of course, when you pursue innovation, you cannot succeed constantly, so we experienced less positive news with gastric and prostate with Avastin and those studies didn't meet their primary endpoint. But as I said a bit earlier, we look forward to sharing the totality of the data at the ASCO in particular the secondary endpoint.

Finally on page 24, we’d like to remind you of some of our key objectives for 2010. We have a major news flow, as you can see here with Avastin, ocrelizumab and many of our products. And in terms of filings, we have several filings, two of those we have already achieved MabThera in maintenance and Xeloda in adjuvant breast cancer. Just like to make two comments here.

One is Avastin gastric cancer is still listed because we haven't made a decision as to what we will do as far as filing in that indication. And Ocrelizumab RA is also there even though we suspended dosing patients in our ongoing program. We are analyzing the data before we made a decision as to the future of the RA program.

Thank you very much and I will hand out to Daniel.

Daniel O'Day

So, good morning, good afternoon everybody. It's – I would like to start on slide 26 by presenting the first quarter sales results for the Diagnostics Division. And the overall message here is that we continue to strengthen our world leading position in in-vitro diagnostics by growing significantly above the marketplace.

You can see in all of the business areas contributing to that growth. And in particular, the highest absolute contributors to growth in Professional Diagnostics in diabetes care and in our Applied Science division with the local growth rate of 9% overall for the division.

Now, if you turn to slide 27, it gives you a little more color into what's driving this business. And just as a reminder, the major source of competitive advantage for us in this business is the large installed base that we have as a market leader throughout the world. And you can see in each one of our businesses we have advanced in that regard. So on Professional Diagnostics, our clinical chemistry immunoassay business, we have strong placements in the cobas 6000 and 8000 and the introduction of three new assays on that platform throughout the world.

In Diabetes Care, we continued to expand our meter placement particularly ex-U.S. with those same innovative products lining up for filing and approval in the United States. Molecular Diagnostics has good underlying demand. There's some quarter-on-quarter effect there. But we continue to have good growth in our blood screening business in particular in the first quarter. And also strong rollout of the cobas 4800 system, which is our HPV and CT/NG system and we reiterate our intention to file in the United States for HPV with the ATHENA trial in the second quarter of this year.

In Applied Science, we had very strong growth that was driven predominantly by our PCR research use systems and array business and also significant growth in Asia Pacific and in particular in China with the placement of many of our systems.

Tissue Diagnostics continues the strategy of growth both in the United States in the advanced staining business and even higher growth ex-U.S. for the penetration of our tissue diagnostics, Ventana line into that marketplace.

Now as you move to slide 28, what I would like to do is just give you two examples of the instrument base that is driving the vast majority of the growth in the first quarter. I will start off with our Professional Diagnostics business. And here just to remind you, we began the introduction of our cobas 8000 system in this business, which is the system for very high throughput labs last year. But this is a modular system that we introduced over the course of multiple years.

And the C here refers to clinical chemistry whereas the E refers to the immunoassay modules. Particularly in the immunoassay business, we are enjoying a 15% growth this year in the first quarter. And as you can see here, we are preparing to launch the immunoassay module in the second half of this year that will connect with the clinical chemistry modules that we launched at the end of last year and the beginning of this year.

Moving to slide 29, you can see the Diabetes Care business continuing to launch innovative new products in the marketplace. The vast majority of the growth in the first quarter is driven by our Aviva Nano and our Performa Nano business. At the same time, we introduced at the end of last year and continuing into this year, two new meters that make significant advances in diabetes. One is a strip-free meter system for the Accu-Chek Mobile. And the other one is an integrated system that integrates our pump device and blood glucose monitoring in the Accu-Chek Combo. And these are being launched in many markets at Europe and in APAC.

Now if you move to slide 30, transitioning from the combo system, we announced this past Tuesday to full acquisition of Medingo, which is a patch pump technology. And this is an excellent complement to our durable pump business, but it allows for significant advantages. Just to give you an idea of the size of this market, the blood glucose market is around $9.5 billion. The insulin delivery market is about $1.6 billion and a high growth business at 11%.

And within this segment, although newly launched we see an over-proportional growth in the patch pump segment. Particularly in those that are new to the pump business. Now the hurdles that we have with the current durable pump business in the marketplace deal with the weight, size and the infusion set of the business as well as the high upfront costs.

The advantages of the Medingo Technology which will add to our Diabetes Care portfolio are that it is very small, lightweight, (inaudible) and it allows for greater patient convenience and also significant lower upfront cost for the patient.

This product is 5, 10-K approved in the United States. It was filed for approval in Europe and our key task now is to take this from a manual production process to a scale-up process for anticipated launch in 2012.

Finally, on slide 31, just to report on the scorecard for the division, we continue to roll out the products as committed to you at the end of last year with the green checkmarks. We reiterate our guidance for the year, which is to grow significantly above the market.

And I would just point your attention to the next diagnostic investor event, which will occur in conjunction with the AACC on July 26. Thank you for your attention. I turn it over to Erich Hunziker now for the financials.

Erich Hunziker

Thanks, Dan. Good morning, good afternoon, ladies and gentlemen. If we move to slide 33, I wanted to give you a very quick hint at the currency impact and you have much more detail on the charts 120 to 126. But maybe counterintuitive reading everyday about Greece and the problems of the euro, the good news for us is that the major impact in the first quarter originated actually by the U.S. dollar and the euro had a very minor impact on sales.

I know this is a sales call only, but most of you are very familiar that also our bottom line is mainly sensitive to the euro developments. So the first quarter definitely is nothing to worry about from this angle.

And if we go to chart 34, I can really report that we are even ahead of our scheduling debt repayment in a sense. We always said by the end of 2010 we wanted to have 25% of our debt paid down. The fact is actually that by today, we already have paid down 27% of the debt and our liquidity is absolutely in great shape even after serving all the bonds in March and paying out this very attractive dividend to all our shareholders. So this confirms that the maturity profile we had issued last year was totally in line with our business perspective and we are on a good track to pay down.

And this actually finished the presentation. You may have realized we wanted really to make room for as many questions as possible for you, to listen to you and to serve you as good as possible. So if we may have the first question, please?

Question-and-Answer Session

Operator

(Operator Instructions). The first question is from Mr. Timothy Anderson, Sanford Bernstein. Please go ahead, sir.

Timothy Anderson – Sanford Bernstein

Thank you. A few questions. On Avastin in breast cancer, in your mention of converting the accelerated approval in breast to full approval, do you expect that there will be an FDA advisory committee for this? Also on Avastin, do you expect that we will see any data from the Hellenic Oncology group trial, looking at six months versus 12 months Herceptin duration in early breast cancer at ASCO?

And last question on your CETP and inhibitor, you mentioned an interim analysis being done on that outcomes trial in 2011. From what I understand interim analyses aren't done very often in big cardiovascular outcomes trials. So I'm hoping you can give us a little bit more information here. Should we presume it's being done 150% of total events are reached? And does it embed a futility analysis and presumably this is an efficacy look?

Severin Schwan

Pascal?

Pascal Soriot

Okay. So, to address your first question. The breast cancer approval in the United States, it is difficult to say what the FDA will decide to do, of course, but we – I think it is reasonable to expect that there will be a no (inaudible) indeed. So that's our expectation but we can't be sure. We believe that on the basis of the data we presented, we should get approval for Avastin breast cancer. And so we look forward to the discussions with the FDA.

Second question was assessing six months versus 12 months. We don't expect any new data to be presented there at the ASCO. We have as you know, we have our own HER2 study running that we expect to show to demonstrate the 24 month statement will be spread to 12 months. But for this year I don't expect new data.

And the final question regarding the six [ph] interim analysis in 2011, that interim analysis was built in the protocol from the beginning. And we don't – the study will have to meet a certain threshold of overwhelming efficacy. So if we show the very strong efficacy then we could actually stop the study and then meet indeed a stretch NDA filing of 2012 or something like this. But of course, we will have to meet this criteria, the stopping criteria of superior efficacy.

Timothy Anderson – Sanford Bernstein

And I'm sorry. Just on dalcetrapib again, is there a futility analysis built into that? And is that being done once 50% of total events are being reached?

Pascal Soriot

There is also – yes, there is a future analysis that is built in that will be right at the end of this year actually but it's a safety analysis. And we don't expect that we will be filing on the basis – on the back of this analysis. It's just assessing the safety of the drug. The only time point – early time point that could lead to an early filing, if that's behind your question is the interim analysis of August or so 2011. And that one is an efficacy-driven analysis.

Timothy Anderson – Sanford Bernstein

Okay. Thank you.

Severin Schwan

You're welcome. Can we have the next the question, please?

Operator

Next question from Mr. Sachin Jain, Merrill Lynch. Please go ahead, sir.

Sachin Jain – Merrill Lynch

Hi. Thanks for taking my questions. Three important questions again, please. Firstly on T-DM1 with the earlier filing confirmed, wondered whether you could just revisit your thoughts on potential for premium pricing relative to Herceptin in the first indication, particularly when you think about future indications, whether cost per quality data may be stronger.

Secondly, again on Avastin breast cancer, just any thoughts on whether the Virgo Registry data is available at ASCO and whether you would have plan to use that data as part of any advisory committee meeting.

And then finally on taspoglutide, any color on whether the FDA has signed off as yet on your ability to use events from the original emerge studies as part of the safety filing, including data from T-emerge 8? Thank you.

Pascal Soriot

So Sachin, thanks very much for the question. T-DM1 premium pricing, you cannot answer this today. We are working on it. Certainly, this product can sustain premium pricing. There's no doubt in our mind. The question is what kind of pricing can it sustain in comparison to Herceptin. We are actually working on this and modeling the health economics of this drug and based on the expected clinical benefits.

We're also doing payor research both in the United States and Europe right now. So it's a little bit early to say what kind of pricing we would be able to sustain. In breast cancer, Avastin the registry, I have to say I don't know. We will have to get back to you on this one.

Severin Schwan

I don't know. And I need to check.

Pascal Soriot

Yeah. And the taspo question, the answer is we don't know yet.

Sachin Jain – Merrill Lynch

Thank you very much.

Severin Schwan

You’re welcome, Sachin. Next question please?

Operator

Next question from Ms. Luisa Hector, Credit Suisse. Please go ahead, ma'am.

Luisa Hector – Credit Suisse

Good afternoon. I have three questions. On Herceptin, can you tell us what proportion of sales perhaps are coming from gastric? Do you feel that gastric was contributing to Herceptin in the first quarter of 2010? And on Rituxan, I think you are saying that the RA indication is still growing. Is it fair to assume it's growing in both the U.S. and ex-U.S.?

And could you perhaps talk about the positioning of Rituxan and Actemra together and maybe a bit more color on the Actemra launch in that regard? And then finally, on the health-care reform, just to clarify, the Medicaid rebate that's backdated to the 1 January, that is fully booked into Q1 sales?

Pascal Soriot

So the first question, thanks very much. The first question, Herceptin gastric, it is a little bit difficult to assess the impact of gastric cancer because we don't yet have in Europe. And we don't yet have the research that we have run on a quality basis. It is reasonable to expect a small impact, but not a big impact yet because reimbursement – we don't have reimbursement; we don't have approval in a number of markets. In the U.S. our assessment is that the impact of gastric cancer is still very limited. There must be some off-label use, certainly, but it is relatively limited for the time being.

The growth you see for Herceptin is actually in the quarter one, is actually more influenced by the fact that in a number of regions in Europe, but also the United States, we have now been able to add the small tumor size, those small tumors that are less than a centimeter in size in the guideline. So they are in the NCCN Guidelines in the U.S. They are in the national guidelines in Europe. And this is certainly having an impact on our growth rate. You also see the impact of the growth in emerging countries from stem cell in Brazil. We are getting access to the public market. All of this is actually driving sales in quarter one. Gastric has a small impact, not much. I think gastric will be driving our growth moving forward for the rest of the year.

The second question related to Rituxan RA. In the U.S. we don't see a lot of growth in rheumatoid arthritis with Rituxan. A little bit, not much we see growth outside the U.S. in RA. And in the United States, the focus right now is very much on Actemra. Of course, to address your question, Actemra is – in their own run, the positioning for Actemra is really the first-line biology agent. And in fact, we are doing – we are hoping that we will position it as a first-line agent for RA in the long run, but certainly first line biology in the midterm. And MabThera/Rituxan because of its profile will probably be more an agent to be used for TNF failure or first-line biologic failure. So you can imagine Actemra being used first and Rituxan second.

And there is room for both products because patients unfortunately will evolve and their disease will keep progressing. And this is a very broad market with a lot of patients, a very large market, lots of anti-TNF, so there's room for the two products. And the last question regarding healthcare reform, the answer is yes. We have $37 million accounted for in terms of Medicaid rebates in the first quarter.

Luisa Hector – Credit Suisse

Thank you.

Severin Schwan

Can we have the next question, please?

Operator

Next question from Michael Leuchten, Barclays Capital. Please go ahead, sir.

Michael Leuchten – Barclays Capital

Thanks for taking my question. One follow-on question on the healthcare reform, not on the U.S. side but on the European side. We've seen quite a few countries now making comments about pricing levels and healthcare reform going forward. How do you budget for that internally at the moment? How do you think about that?

And then another question on the international markets, since you flagged that, looking at your disclosure since the beginning of 2009, the growth rate, excluding Tamiflu and constant exchange rate is somewhere between 7% and 16%, quite a wide range. Do you have a feel for what the underlying sustainable growth rate is in that part of your business?

Severin Schwan

This is Severin. If I can take the first question on the health-care reforms outside of the U.S, I mean, continued price pressure is not new. We see this continuing in Europe. We have, as you know the usual biannual price decrease in Japan. I would say the one event which stands out is the first announcement of the German government on German healthcare reform. At this point of time, it is really too early to say what the exact impact will be.

We, at any rate, stick to our guidance for the rest of this year. But it is still in a draft status. We are at the status where we have been in the U.S. sometime ago. So it is too early to say how this will actually play out, for the international markets, Pascal?

Pascal Soriot

Yes. For the international markets, it varies according to regions because the international region is of course made of very different markets that are growing at different rates based on their own economies. And of course, as you know, China is not only leading the pack in terms of overall growth from an economic, but also from a pharmaceutical market viewpoint.

In the first quarter, the number, the growth rate you saw here for the international region is influenced by tenders and the timing of those tenders. And especially in Russia, we had tenders coming in the first quarter that came in the first quarter of this year, not last year. In fact, the year before, they came in the last quarter. So that influences the overall growth rate. I would say the underlying growth rate across the international region is probably around 10% with a higher growth rate for Asia.

Michael Larvden – Barclays Capital

Thank you.

Severin Schwan

Can we have the next question, please?

Operator

Next question from Mrs. Alexandra Hauber, J.P. Morgan.

Alexandra Hauber – J.P. Morgan

Thank you. Good morning. I have two questions. Firstly, on Herceptin, I was surprised this morning in the presentation when I saw that 18% Japanese price cut. But you refer to some volume contracts and I was just wondering whether you could give us anymore color on this, how exactly that trade-off happens.

And the second question is just, is actually to Erich. You mentioned that the 5billion debt pay-down in the first quarter and obviously you've also paid the dividend, but you probably didn't quite have 10billion free cash flow in the first quarter. So I was wondering whether you could give us any idea what net debt figures actually are at the moment.

Erich Hunziker

Okay. Actually, it will not surprise you. It went slightly up because the first quarter is definitely the most cash out quarter. It will not surprise you all our bonds are served on an annual basis, their interest rates. And we repaid, as you have seen in my chart, we repaid a dollar bond and we repaid also some one-year notes. And therefore and the dividend was paid out. So it will not surprise you that our net debt situation has worsened by the end of the first quarter. But as I said, I am absolutely not worried by this seasonality of liquidity. Our liquidity position is absolutely strong at the moment.

Alexandra Hauber – J.P. Morgan

But that change in the net debt is – you haven't really just replaced the bond with tapping in the commercial paper market. You really have tapped into your marketable securities, I would assume. So we should still see the benefit on the financial bottom line?

Erich Hunziker

Yes.

Pascal Soriot

The other question Alexandra, relates to Herceptin in Japan. And in Japan, you tend to negotiate. Often you negotiate price, it's a little bit like to do in France on the basis of a kind of a price volume agreement with the payer. And because the product has been very successful in Japan in adjuvant and metastatic breast cancer, we exceeded the budget that had been originally negotiated with the government. And therefore, we got us a higher than expected price decrease to compensate for the higher than expected volume growth that we experienced.

Alexandra Hauber – J.P. Morgan

Okay. Is there another big threshold when there is the next big price cut coming? Or was that just an initial one?

Erich Hunziker

Sorry. I'm not sure I heard the question. There was some noise on the line. Did you ask me if we (inaudible).

Alexandra Hauber – J.P. Morgan

Yeah. But it looks to me what you're saying is that this for the volume, that is already achieved rather than for an anticipated volume growth in the future. So I was just wondering whether there's another threshold, if you reach that one, whether there is another sort of major price cut which would be out of the ordinary in about two years time?

Erich Hunziker

To be honest, I don't know precisely. I would have to get back to you on this one, but I would assume the answer probably is there would be no major impact. But we will check and get back to you on it.

Alexandra Hauber – J.P. Morgan

Thank you.

Severin Schwan

Can we have the next question, please?

Operator

Next question from Mr. Steve Scala, Cowen and Company. Please go ahead.

Steve Scala – Cowen and Company

Thank you. I have four brief questions. First, it was stated that the inventory impact was very limited in the first quarter, but can you tell us whether it was a positive or a negative impact? Secondly, what were Actemra U.S. sales? Third, what were the issues with Ocrelizumab in RA, which are causing you to rethink it? And then lastly, what is the status of the AVANT study and when would you expect a read out? Thank you.

Pascal Soriot

So the inventory impact, the inventory impact was I don't know – positive or negative. Depends how you look at it. Let's say that the – there was a slight increase in channel inventory that led to a small impact of 1% on the growth rate. We will always experience variations from one quarter to another in terms of the level of inventory that exists in the channel. So, it's never going to be completely zero. But certainly 1% is at the level that you could consider, that you could ignore. So it's very small.

Second question was Actemra. Sales in the U.S. were, for the quarter 5 million. As I said, it is too early really to judge the sales per se. We started really launching in February fully. The only thing we know so far is the feedback from market research and from physicians is very good. As you realize in the U.S, you of course have to gain reimbursement from each individual commercial payer. And as far as Medicare, you get a theoretical measured reimbursement except that you get a temporary code which typically in the first few months doesn't really work so well. And physicians are never sure patients will be reimbursed, so they're very cautious. So right now, we're working through all those normal issues to gain full reimbursement. And then the sales should accelerate from Q2 onwards.

Thirdly, Ocrelizumab RA, we experienced an imbalance in infections in the Ocrelizumab arm, especially in coming out of Asia. We are right now analyzing the data to understand what they mean, whether we have differences between low dose, high dose, it is too early to judge, so. But the IDMC recommended that we should stop dosing patients out of being cautious here. The AVANT study, right now we are expecting it to read out by the end of this year. It is event-driven as you know, so it could vary, but right now our best guess is end of this year.

Steve Scala – Cowen and Company

Thank you.

Severin Schwan

You're welcome. Can we have the next question, please?

Operator

Next question from Mr. Marcel Brand [ph], Credit Agricole. Please go ahead.

Marcel Brand Credit Agricole

Thanks for taking my question. You said pricing overall had a limited impact in the quarter. Could you give us maybe a number of what the overall pricing impact in pharma was? Then on Ocrelizumab, why does it take so long for the Phase II data to be presented in detail? Obviously the American Academy, it didn't come? And yes, that's already it.

Pascal Soriot

Well, Ocrelizumab MS is, it's not taking long. It's just that we made the decision to present those data at a Congress. And so, there's nothing really special related to this. It's a decision we've made from the point of view of communication of the data to the medical community. We want to make sure those are presented to a Congress where they can be recognized by the experts who come.

Pricing, I can't tell you the precise number. We'll have to get back to you on this, but I would expect it's relatively low. You have to keep in mind, as we have mentioned before, first of all, outside the U.S. there is never any price increase. So rarely, in fact, typically a price decrease is whether excess or appeals in Japan, you have price decreases. And around the world you tend to have price decreases for us and everybody else in the industry. Where we are with threshold is that many of our peers are able to increase price in the U.S. by 10%, sometimes more. And of course, your question becomes very relevant for those.

In our case, because of the niche of our portfolio, we don't increase price much at all. So in the United States, the price effect typically would be – sorry – 2% or 3% per year, so you take 2% or 3% in the United States and a zero or negative impact from the rest of the world. So that gives you an idea that the total price increase effect which we could give to you separately is in any case relatively marginal.

Marcel Brand Credit Agricole

Thanks.

Severin Schwan

You are welcome. Can we have the next question, please?

Operator

The next question is from Jeff Holford, Jefferies.

Jeff Holford Jefferies

Hi. I have got three questions, please. The first is on CellCept. I wonder, if just in the U.S., ex-U.S., you can just give us the current split on also – give an indication in transplant as far as you can measure that. Secondly, I wonder if you can at all quantify the level of destocking that you did have in Japan in the first quarter of this year. And just lastly, on AVANT, are there any subgroups in that study that you are now prospectively looking at, given some of the more sustained benefits you saw in some subgroups in the CO8 study and could you potentially have regulatory discussions on the back of some of the subgroups that were seen in both the CO8 and AVANT studies? Thanks.

Pascal Soriot

So the second question actually is Japan. We had a small impact but very small in fact, the price decreases we experienced in Japan this year were relatively limited except for Herceptin. Herceptin had a substantial price decrease for the reasons we discussed. Many of our other products didn't experience big price decreases at all, actually and so the destocking effect in the first quarter at the wholesaler level and hospital level was very limited. So I will not say – I could not say we had a big effect there. In terms of the AVANT study in the subgroup, I can't answer that question right now. I don't think we have any specific subgroup analysis planned for. It doesn't mean that when the study read out, we could not go back and retrospectively do some further analysis of subgroups, but there is no pre-planned analysis of various subgroups.

And finally, your last question I think related to CellCept. And I guess your question relates to CellCept in the U.S. versus the rest of the world, so if I give you the data for Q1 2010, because it's probably the more up-to-date data, the U.S. now represents about 20-something-percent of the total global sales. So it's relatively on a quality basis, so it's relatively limited. We have certainly declined and a bit more than 20% of our robust sales come out of the U.S. now.

Jeff Holford Jefferies

Sorry. I was just wondering if you can break out the sales between some of the indications that they use whether it is – and what the mix is in transplant and autoimmune disease, if possible?

Pascal Soriot

Well, in the United States, essentially you could assume what's left is really transplantation. Most of the immune use of the drug has been lost to generics and it was lost to generics very rapidly. In fact, we have been able to stabilize – not stabilize but almost stabilize the sales, decline is very, very slow now in terms of our total share with CellCept and we have been able to stabilize it functionally, thanks to the transplantation part of the franchise.

Jeff Holford Jefferies

Can you just remind us of the mix outside of the U.S., please?

Pascal Soriot

Excuse me?

Jeff Holford Jefferies

Can you just remind us of the mix of the transplants also outside of the U.S. as well, please?

Pascal Soriot

This I can't tell you from – what I know is that it varies substantially from country to country but I could not tell you from memory. I think it is very limited outside the U.S. because essentially we don't have reimbursement and in most countries outside the United States, at least in Europe, if you don't have reimbursement, you don't get off-label use and physicians really stick to that. So I think it's very limited but I can't tell you the exact number offhand.

Jeff Holford Jefferies

That's great. Thank you.

Severin Schwan

You are welcome. Can we have the next question please?

Operator

Next question from Mr. Amit Roy, Nomura. Please go ahead sir.

Amit Roy Citigroup

How are you? I'm not working at Nomura. Just a couple of questions, firstly on Avastin, you presented a full overall survival data of the AVADO study in San Antonio. And at the same time, the abstract book's data, the RIBBON-1 data in full was just represented in San Antonio, but for some reason wasn't. I'm surprised to see that we don't see the full overall survival data driven more at ASCO, especially considering the interim Helpid [ph] ratio is greater than one on death. So when were we getting interim 1 at ASCO this year or when will we be getting that data, especially considering the approval process for the FDA?

And secondly, on taspoglutide, are you looking at any way of reducing the vomiting rate, the nausea and vomiting rate that is associated with taspoglutide at higher doses? I guess my question is if you had to go to a 10 milligram dose to be equivalent to Lantus, are there any ways you can then deal with this vomiting rate – vomiting and nausea rate that one is experiencing?

And lastly, just more of a philosophical question on Herceptin, do you see any potential from not generics, but actually genuine biosimilars of Herceptin, such that a competitor company essentially takes the HER2 antibody, develops it themselves formerly in Phase III clinical trials and launches it as a separate branded drug. Do you see that potential existing for Herceptin in the future? Many thanks.

Karl Mahler

Yeah. Amit, Karl speaking here. For the update or survival, we usually present the data and they are mature but let me check when we are going to present it to them. If we have it for you, as we always do, we share it with the public. There is no problem with that. For the rest of, Pascal, if you…

Pascal Soriot

I'll take the easier one. taspoglutide, yes, we are looking at how we can manage the Novie Arvo [ph] meeting. And essentially, you have two avenues we can explore. One is titration, start with lower dose and titrate up and certainly we will be looking at this. And the second option is time of registration. If you give the drug in the morning, it is logical to assume that you may have more nausea in the morning that you will have it if you give it at night with a full meal.

So we are looking at time of administration of drug. So we're going to look at both of those to see whether we can manage the Norvie Arvo [ph] meeting as we move forward. And Herceptin, I hope I captured your question precisely. In the United States, of course, we are not talking about biosimilars for a long time and just for memory, the healthcare legislation states that a biosimilar would have to show similarity, which has to be now defined by the FDA. The similarity is understood today as demonstrated by head-to-head study of a biosimilar versus Herceptin, demonstrating similar efficacy, non-inferiority efficacy. So that is very important because it may mean very large studies. On top of this, to be fully reimbursed, approved and reimbursed, for not only new patients, but also patients on Herceptin, the biosimilar would have to demonstrate intangibility. So they would have to demonstrate that you can switch from Herceptin to biosimilar, back to Herceptin, back to a biosimilar, which is what physicians will do in practice without impacting efficacy. So, you can see in the U.S., the weather [ph] is pretty high.

In Europe, it is of course possible to imagine a biosimilar in a number of companies, as you probably know, will be working on – some of them working on that. I think what is important to remember is that every biosimilar is going to be made out of a cell line that is not our cell line. So essentially even if you develop the same – a drug that looks the same, it is not necessarily the same biologically because it hasn't been made with the same cell line. And we will be working, we are working – we will be working with the authorities to share our point of view in terms of the science that surrounds those biosimilars. But, of course, we can imagine that they may be able to make it to the market at some point in time.

Amit Roy Citigroup

Just on my question, rather than the biosimilar what I meant was essentially a competitive firm making their own HER2 antibody, doing a full development package and just doing a Phase III clinical trial in say first-line metastatic breast and so you end up with a different drug but essentially a competitor in the HER2 space is probably similar especially with a head-to-head study. And since that would be a pretty easy win for one of the large U.S. competitors to do, who got large sales forces not selling very much at the moment, rather than a biosimilar per se. And just another point of clarification, have you submitted the full overall survival data to the FDA in your regional submission back in November for RIBBON-1?

Pascal Soriot

So, I mean, the first question is anybody can of course at any point in time develop a new monoclonal antibody that has efficacy in breast cancer that will be competing with Herceptin. But to do this, you have to develop it completely as you just mentioned yourself; it would take years.

Severin Schwan

And as long as it doesn't interfere with our patent.

Pascal Soriot

And as long as it doesn't interfere with our patent, for sure. So if it doesn't interfere with our patent and they develop it fully, yes, they could get there. But they would get there after – if they started now, they would get there after we've lost patent. So, I'm really not sure practically who would want to do that, actually.

Karl Mahler

Yes. And for the finding, we always update the filing continuously, so whenever we have new data, we usually file it. I really need to check what was filed at the time and if there is an update to be done, honestly I don't know. But if you could give me a call later on, I could get back to you and share with you whatever we have filed or not. We think that we have a very compelling – in order to get full approval in the United States, just to conclude or to summarize our position.

Amit Roy Citigroup

Many thanks, Karl.

Severin Schwan

You are welcome. Can we have the next question, please?

Operator

Next question from Mr. Vincent Meunier, Exane BNP Paribas. Please go ahead sir.

Vincent Meunier Exane BNP Paribas

Hello. Thank you for taking my questions. The first one is on Avastin in China. Can you please give us guidance on the timings for the reimbursement discussions with the health authorities there and also, any color regarding the size of the targeted population there. And also, what are the potential indications outside colorectal cancer, maybe in lung cancer, for example? The second question on taspoglutide, that's a follow-up question, just to understand well. Do you have the possibility to file early 2011 on the back of the interim results of the cardiovascular study or do you have to wait for the full cardiovascular results?

Pascal Soriot

Well, for the Avastin China, just from memory, we have approval for colorectal cancer at this point in time. Essentially, we will be marketing Avastin in China like we have been marketing our other drug Herceptin and MabThera [ph] for a long time, i.e. in the so-called out-of-pocket or private market. So those are patients who pay themselves or alternatively have private insurance. There's a growing population in China especially in the large cities, people working for companies that provide health insurance and so those are the people we would be marketing the drug to.

In terms of getting reimbursement at the level of provinces, it is going to take quite a long time, as we have experienced with Herceptin and MabThera, so it's a progressive effort. We're making good progress with Herceptin and MabThera but Avastin, you shouldn't expect it will impact us in the very near term. The other indications are that we are working at – looking at our lung cancer of course and breast cancer. And also, we'll be looking at gastric cancer. So we need to do local studies and so we are in the process of working on those indications. But the biggest potential is colorectal and lung in China. As far as – then you had another question which was taspo. The T-emerge 8, just from memory, this is a cardiovascular safety study and so we basically expect that it will read out next year and enable us to file in 2011 and we don't expect that we will be able to file earlier than that.

Vincent Meunier Exane BNP Paribas

Did you consider that you can file an interim results from the T-emerge 8 trial or do you think that you will need the complete results of T-emerge 8?

Pascal Soriot

It's a question of events. It's a question of a number of events. Essentially, we have calculated the sample size and based on the event rate that we will expect in this population so that we will file as soon as we have a risk ratio of less than 1.8 as the FDA guidelines indicate and then the full study will be filed later on. But there is – in our plan today, we will file as soon as we reached enough events to demonstrate the risk level less than 1.8 and that would be in 2011. So we are doing it as fast as we can. There is no way that we could file earlier than that.

Vincent Meunier Exane BNP Paribas

Thank you.

Severin Schwan

You are welcome and this leads us with time for one more last question, please.

Operator

We have a follow-up question from Mr. Marcel Brand, Credit Agricole. Please go ahead.

Marcel Brand Credit Agricole

Sorry to follow up on the previous question. I didn't understand the answer well. There is or there is not, in your expectation, an FDA advisory committee meeting on Avastin in breast cancer?

Pascal Soriot

Well, the answer is actually we don't know. It's probably why you didn't get the responses. In fact, we don't know and we can't decide for the – at the end. They haven't told us what they will do. We can only speculate and in the context of speculating, it will be reasonable to expect that they might call (inaudible) because of course this is a very important decision to make, not only for Avastin in breast cancer, but also as a precedence for future products. What is the – what is the value of PFS? When and how do they accept PFS as an endpoint versus overall survival? They really have to kind of establish some more moving forward. So it will be reasonable to expect they might call and know that but we can't decide for them and they haven't told us anything.

Marcel Brand Credit Agricole

Thanks very much.

Severin Schwan

You're welcome. And this brings us to the end. Ladies and gentlemen, thanks a lot for your continued interest in Roche and looking forward to a continued attractive year for Roche and all the contacts with you in the future. Thank you.

Operator

Ladies and gentlemen, the conference is now over. Thank you for choosing the Chorus Call facility and thank you for participating in the conference. You may now disconnect your lines. Good bye.

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Source: Roche Holding AG Q1 2010 Earnings Call Transcript

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