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Executives

Severin Schwan – CEO

Pascal Soriot – COO, Pharmaceuticals Division

Daniel O’Day – COO, Diagnostics Division

Alan Hippe – Chief Financial and IT Officer

Karl Mahler – Head, IR

Analysts

Alexandra Hauber-Schuele – JPMorgan

Vincent Meunier – Exane BNP Paribas

Sachin Jain – Merrill Lynch

Jack Scannell – Sanford Bernstein

Michael Leuchten – Barclays Capital

Michael Leacock – RBS

Marietta Miemitz – Societe Generale

Keyur Parekh – Goldman Sachs

Naresh Chouhan – Liberum Capital

Roche Holding Ltd. (OTCQX:RHHBY) Q2 2011 Earnings Conference Call July 21, 2011 9:00 AM ET

Operator

Good morning, and good afternoon. I am Myra, the Conference Call Operator for this conference. Welcome to the Roche’s Half Year Results 2011 Conference Call. 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)

At this time, I’d like to turn the conference over to Dr. Severin Schwan, Chief Executive Officer. You will now be joined into the conference room. Thank you.

Severin Schwan

Good afternoon and welcome to our briefing on the half year result. As you have seen this morning, we have increased our earnings outlook for the full year to around 10%. The key driver for that is really the ongoing implementation of the operational excellence program which is proceeding faster than we originally planned. Over the next minute, I’d like to lead you through the key figures of the half year results and then focus a bit on the question of R&D productivity before I hand over to my colleagues.

You have seen sales excluding Tamiflu up by 2% local currencies, fully on track for the full year guidance we gave you at the beginning of this year. If you correct for Tamiflu then, yeah, let in terms of sales Pharmaceutical Division down 1% excluding Tamiflu up 1%, Diagnostics up 5%. What you have seen is an enormous impact of the Swiss franc in terms of our reported results.

Alan will cover currencies in much more detail. Let me just emphasize one element here very clearly and that is the vast majority of our operating cost base is outside of Switzerland, number one. And number two, our financing cost related to the Genentech acquisition in 2009 are in U.S. dollars.

So, from that perspective, we have a natural hedge both on an operating level and on a non-operating level. If you combine that result improvement in productivity from operational excellence, you see core operating profit margin up for the Group at 38% relative to sales and you see this also reflected in the cash flow which is now up at 32% relative to sales, actually also up in Swiss francs in spite of the headwinds we have in Swiss francs in the quarter’s result. And also look how this has developed over the last three years. In 2008, we were still at 22%. And if you have seen, earnings per share up by 10% for the half year and we expect the same momentum to continue for the second half that is why we have increased our outlook for the full year to around 10%.

Now let me just comment on R&D. As you know, relative to our peers, we spend more in absolute terms but also relative to sales into research and development. And this really reflects our strategy. This reflects our focus on our two core businesses, Pharmaceuticals and Diagnostics. And we also want to maintain a leading position on the research and development side. At the same time, you can see that our marketing and distribution expenses, our administration expenses are at the very low end of the industry and if you combine the various factors, we have healthy core operating profit margins.

Now, based on our strategy for innovation, based on an over-proportional investment into R&D, of course we also want to have an over-proportional outcome of R&D and that brings us right into the question of R&D productivity and I’d just like to very high level focus on two aspects.

The first one and there is no doubt in my mind and I think this is generally accepted really the key driver for R&D productivity of course is excellence in science and its ability to reduce attrition rates. Typically, in the industry you have attrition rates of 96%. Only four products out of hundred make it through the pipeline from phase zero to the market.

These are independent outside data from 2005 to 2009 and you’ve seen historically we had an attrition rate which was twice as good as the industry. And you can immediately see 1 percentage point in attrition as a huge impact. Actually 1% improvement in attrition means a 10% improvement in the R&D productivity. If you come from 9 to 10, that is a 10% improvement.

So, there’s no doubt attrition by the nature of our industry, by the nature of the complexity of the human body at the end is the key lever to drive R&D productivity and that has a lot to do with the understanding of the disease biology. We think that we are very proficient to drive R&D productivity with the combination of Pharmaceuticals and Diagnostics which allows us to stratify patient groups in a much more targeted way and it has a lot to do with a rigorous decision making when you transition the approach from the early stages to the late stages along the pipeline.

As you know, in 2010 we had setbacks in the late-stage pipeline and actually in 2010 we are falling back to industry average. You look at the results in the first half year, we had seven late-stage trials reading out and seven out of the seven late-stage trials delivered positive result, and Pascal will comment on that in more detail. There is one very important lever for R&D productivity. I think this will continue to be the most important lever excellent in type.

At the very same time, efficiency is not only important in marketing or in administration and manufacturing, it is also very important in research and development and we have set ourselves as a management the target to keep R&D expenses at the same absolute level in spite of the expanding late-stage pipeline we enjoy as a company and that means we have to do more with a better resource allocation. And actually we have delivered on that. If you look back into 2010, it slightly decreased our R&D spend in particular in pharma and also if you look into the half year figures we kept R&D stable, slightly decreased it for pharma again in spite of the ramp up of projects which we have in the late-stage pipeline. I remind you in 2007 we had two new molecular entities in the late-stage pipeline. Now we have 12 new molecular entities in the late-stage pipeline.

Here I’d like to focus on one point and that’s about innovative trial design. What we want to do is we want to run our trials better, faster and cheaper. To give you an example for trial I think which we have set up in an innovative and better way is aleglitazar and we looked at aleglitazar data in the early development, we have seen that we reduced both glucose levels and lipid levels. Now traditionally that’s the drug would have been established or developed as a diabetes drug. Result, now we are positioning aleglitazar as a cardiovascular drug. We go for a clinically endpoint mortality and mobility because we saw that not only the glucose level was going down, we also saw that all the lipid markets were going down like LDL, HDL going up, triglycerides, et cetera.

And if you look now what has happened over the recent past, I think this was a very wise decision. Just seeing how the regulatory landscape has evolved in diabetes, I’m really glad that we have positioned this not as a diabetes drug but as a cardiovascular drug, that clinically outcomes along mortality and morbidity. An example for – and that will make a huge difference, that’s a question of having a drug or not having a drug eventually. I’d also like to give you an example for faster drug development and I think it’s a very timely one. You have seen the data for pertuzumab which we presented last rather the top line results, which we communicated last week with the positive results of our late-stage Phase III trials in pertuzumab in breast cancer.

Now traditionally, you will develop a drug and reduce it with Herceptin in the metastatic setting and then if you have positive data in the metastatic setting that’s what we did in Herceptin, then we will try moving it on into earlier lines of treatment and eventually into adjuvant treatment. Now, when we look at pertuzumab is that this is just not fast enough. How can we do this in a better more innovative way and what we embarked on very early on was the NEOSPHERE trial and those are the setting in the neoadjuvant setting. There are very short trials before you do the surgery of the tumor and because that it is neoadjuvant trial which is, it was a very small compared to adjuvant trials, a very small trial, our confidence level was way so much that we certainly immediately start to initiate adjuvant trials for pertuzumab.

Now that beside this that unlike with the more traditional trial design in the past where we would have developed a certain phase in the metastatic breast cancer setting and then move it forward into adjuvant setting now include in parallel because we I think increased our confidence level with this innovative neoadjuvant trial.

In parallel, we could start preparing the adjuvant trial and of course now that is a big, big advantage because now on top of it we have positive trial results from metastatic setting and we are already underway in the adjuvant setting and that can make the difference of years actually if you compare pertuzumab to Herceptin and of course increases the value you will get out of those franchises without investing more money. And of course, we will look very hard to reduce the trial complexity to make really sure how many data do we really need for a late-stage trial, are there also data which we actually don’t need for filing to reduce the complexity wherever we can and we also see potential doing that.

And lastly, of course there is a more traditional efficiency improvement which we have triggered very much with operational excellence in the fourth quarter last year where we have looked very carefully, are we doing the right work at the right side or can we transition certain functions to cheaper places as we did, we consolidated certain trial side to set our procurement savings and so on. So, if I look forward what I’d like to emphasize that it’s really this balance on the one hand of lurking on the productivity and at the same time of course advancing our pipeline. And I hope that you agree that what we have done over the first half of this year is testimony exactly to this approach. We have improved our productivity. We have increased our earnings outlook for the full year and we’re seeing the fruits of an expanding pipeline, namely with three filings of new molecular entities this year and Pascal will cover this in more detail.

So, with that I’d like to hand over to Pascal. Thank you.

Pascal Soriot

Thank you, Severin. Good afternoon, everybody. Really a pleasure to be here to present our half year Pharma results. This – my presentation is relatively simple. Actually there’s really two things I’d like you to remember today is, one is, we are very much on track to deliver our financial goals for this year, in fact if anything we’re probably a little bit ahead which explains why we adjusted our guidance for the year. Our operational excellent plans in particular are progressing very well, in fact we’re ahead of schedule. So, from a financial view point, we’re much on track was what we told you we would achieve this year.

The second point and it’s almost a most important one, is that the pipeline is actually gaining strength very rapidly now. A year ago standing here and trying to tell you that the future would be sunny when it was raining everywhere and we were regularly facing setbacks, it was very difficult to convince you. Hopefully, we now have a little bit more data to give you more confidence that what we told you is going to happen. Over the last few months we haven’t had a single study that has read out negatively. In fact, you could go and start from late last year to this day, every single study has read out positively. So, I don’t want to become too optimistic either. This is a high risk business we are in and of course we have to expect that we have more setbacks but certainly so far so good. And some of the data that you will see later at various conferences between now and the end of the year, I am sure we’ll impress you quite a lot and confirm what I am telling you now.

So if I start with sales, essentially as Severin told you, we grew for the first six months by 1% excluding Tamiflu, 2% in the U.S., minus 4% in Europe and I’d come back to this in a second, Japan minus 1% and 6% in the international region and this was 1% for quarter one and the same for quarter two. Now if I look at it by region, first of all in the United States we grew by 2%. Before actually going to regional numbers, let me just say that this 1% compares with a market growth of about 0.7% as reported by Evaluate Pharma. Decision Resources report 0.4%, Evaluate Pharma 0.7% growth, IMS as you know reports higher growth rate but IMS totally underestimates the amount of rebates that are paid out in the United States. So clearly we are with 1% very much in line with the market growth on a global basis.

In the U.S. our Actemra and Lucentis are doing quite well. Of course we were impacted negatively by Avastin in metastatic breast cancer and as was expected, Pegasys is also negatively impacted with the warehousing of patients. This is from the United States but it’s actually tool in every region around the world. And the good news though for Pegasys is that our market share keeps increasing in most of the critical markets around the world. We’re now above 80% market share, in some countries we had 85% market share and the other good news is we have in the United States since the launch of the two PIs we have seen an uptake in, a very rapid increase in prescriptions for Pegasys. So, this is going to turn around in next six months for sure.

Europe, Europe is a difficult region right now. We have been experiencing substantial price reductions as a result of the healthcare reforms that have taken place throughout the region. We have a price reduction, a price effect of about 4% in Europe alone, so that is a pretty substantial impact. The second negative factor is of course Avastin. Even though the impact in Europe is much less than in the U.S., we still, we’re affected to some extent. And finally, we also are facing the effect of losing current protection on CellCept. So, the combination of those effects is suddenly having a negative impact on our top line even though several of our products like Herceptin, Hepsera and very importantly Actemra are growing very nicely.

In Japan, we experienced a minus 1% decline. Avastin, Herceptin, Actemra are doing well. Having said this, we are still facing or feeling the impact of the price reductions that we experienced last year and importantly starting in April 2010 and importantly in the quarter two we also had the impact of the earthquake that delayed some of the supplies to wholesalers, also impacted our ability to supply the market and we could – it was difficult for us to drive prescriptions knowing that we could hardly supply the market.

Finally, in the emerging region the so-called international region, we grew by 6% which is a very reasonable growth rate but is actually hiding variation around the world but the core international here in our case is made of three sub-regions. In Asia-Pacific, we’re growing very, very well. In fact, China for the first six months grew by 33%. We’re also growing very well in Latin America by 13%, 14% and the issue we’ve been facing is more what we call Middle East, Africa and eastern region markets. Middle East for obvious regions, you read the papers and listen, watch the TV every day, this region is certainly facing challenges and this has impacted our sales. And in the Eastern part of Europe, in particular in Russia, we’ve had delayed tenders and delayed supplies for some of our products. So, suddenly fragmented view, fragmented results in this region but the good news is Asia-Pacific is doing extremely well, China particular, Latin America is doing well and in the rest of the international region we will catch up in the second half of 2011.

If you look at it by product, the products that are driving our goals are those that you’ve been used to seeing, the Herceptin, Lucentis, et cetera, and of course the one that you don’t see driving growth is Avastin. It has a pretty substantial negative impact on our top plan but it is very much in line with what we told you would happen. You see growth in Japan and the international region and you see a substantial decline in the U.S. and Europe essentially driven by breast cancer. Most of the decline here is of price reduction in Europe or alternatively volume impacts for the breast cancer issue in particular in the United States. But we are very much on track. If you look at it here at the midpoint for the year, we are declining by $250 million. We are on track with what we told you for the full year. The second half of the year should see an improvement for Avastin. You see also here what I was mentioning a few minutes ago, Pegasys is the effect of the warehousing, market share increasing where the market is really decreasing rapidly so it’s impacting our sales. The patent clause for CellCept, the biosimilars impact on our EPO franchise and – so those are negative factors for us in the first six months.

So, as Severin told you a minute ago, we have certainly been very active focusing on managing our costs and I can tell you that I spend a fair amount myself making sure that our operational excellence plans were implemented on time and in fact we were faster than we originally thought. And you see the effect of all this hard work on the P&L M&D spend, commercial investment reduced by 9%, R&D by 2% and the G&A spend actually reduced by 11%. What you see here is an increase of 8% because the excise tax that we’re paying in the United States which really is a tax on turnover is actually from an accounting viewpoint charged to the G&A line, but essentially a lot of work managing this cost base over the last six months which led us to factors and to increasing our operating profit.

A few words on oncology products. MabThera is certainly benefiting a lot from our MetMAb’s indication. I think there is certainly a lot of potential in that indication, in particular in the non-U.S. part of the world and we are certainly focusing a lot on these. Avastin, I have talked about already. And Herceptin, as you can see here growing by 10%, single-digit growth rate in Europe and in the U.S. and high growth rate in the emerging countries and all of this is essentially due to increased HER2 testing. We have in many countries strong partnerships now in between the Diagnostics Division and the Pharma Division driving the Ventana HER2 testing and this has had tremendous impact even in developed countries like European markets where we have been able to increase the HER2 positivity right, sole introduction of the better superior Ventana test, was it good enough for you, Dan, superior test? Yeah, good okay.

And Xeloda and Tarceva also growing in the first six months. Lucentis grew by 32%. So, the good news here is that our patient sharing our view is increasing and as you know our biggest competitor in the segment is Avastin. So, Avastin is declining and Lucentis is growing 24%. In AMD, we’ve seen some impact and from Avastin due to the CATT study and I would expect further impact for the rest of the year. Having said that, the one tool that we haven’t been able to use yet is this Johns Hopkins study because it hasn’t been published. It is a very powerful study but it needs to be published so we can actually leverage it fully and suddenly it will help us manage the impact of Avastin in the AMD indication over the next few months. But certainly a challenging indication to manage.

And finally, we have DME we’ll be filing in the second half of this year and certainly this is going to be an opportunity for Lucentis to grow over the next 12 to 18 months. Of course, we would be facing the competition of VEGF trial. Actemra, almost a 100% growth in the first half of this year. Important message for you as far as Actemra today is the rich, the rest of data that we will actually be able to leverage over the next two years, let’s say.

First of all, we’ve launched the JIA indication. This is a small indication very important to patients. Those kids are really in need of new solutions and Actemra is very effective there. But importantly, when a physician knows that you can give a little hug to a child, it sends them a signal of safety. And so there is a strong message here of safety because we give it to children and there’s also a strong message of efficacy of Actemra because JIA is a very difficult indication.

We have the ACT RAY study and when you see at the ACEA the results, the ACT RAY results, you would be impressed. We will be filing next year for DMARD IR in the United States. We will be getting the results of the head-to-head trial with against Humira and finally we’ll be also filing the subcu formulation of Actemra. So, a lot of news that should help us drive further roles for Actemra.

Finally, we are starting to, we’re preparing to launch three NMEs, Zelboraf to start with, and we should certainly hear from the FDA pretty soon for this agent. Our discussions with the FDA are proceeding very well so far. So, we are very hopeful that we should be able to get approval relatively soon and we are planning to get approval in Europe by the end of this year. So, everybody is in full swing for the launch. Vismodegib, also we will file very soon and everything is proceeding very well. In fact the discussions we’ve had with the European authorities have been very positive, even though as you remember this is only a Phase II study and typically in Europe you could not file with this kind of data. We haven’t got the certainty it would be possible but we’re very hopeful we can file not only in the U.S. but also in Europe. And finally, pertuzumab and those are also data that when you see them later this year instead of 10 year, I am sure you’ll be impressed with. We believe those data would enable us to file as we were planning to in 2011.

The pipeline, I won’t go through all this projects but essentially this is supporting what I told a bit earlier, every single study that has read out so far has been positive and as you can see we’ve had lots of studies with lots of different product, so very strong, very rich pipeline with Zelboraf, Lucentis, Avastin and et cetera, et cetera.

And finally in term of the news flow for the rest of this year, you will see the data, precise data for T-DM1 in comparison with Herceptin, taxane, the ESMO. The European Society of Respiratory Medicine you would see the MILLY and MOLLY Phase II data for lebrikizumab. Dalcetrapib, we had the second interim, the first, sorry, interim analysis last week and essentially we were given the green light. We can continue with this study. There is no safety signal of any sort. And so this is good news, even though that was our expectation of course. This is certainly good news. The next critical milestone now is the interim analysis II, early 2012, which is this one and efficacy of utility analysis. And you will see the results of dal-VESSEL and dal-PLAQUE, the ESC in Paris in August. GA101, you will see our Phase II at ASH in comparison to MabThera/Rituxan, the CLEOPATRA pertuzumab data I’ve talked about, San Antonio and finally the subcu data in the HANNAH study, you should see the top line data next year.

So, net-net as I told you in introduction, we’re on track. I think really the important message for you today is the pipeline is gaining strengths constantly and we’re now getting ready to launch three NMEs in the next few months.

Thank you so much and I think, Dan, it is for you now. Thank you.

Daniel O’Day

Thank you very much. Good afternoon everybody and well thank you, Pascal, for recognizing that it is a very exciting time at Roche right now for actually for two divisions to be working together. We’re very excited about the launch of the BRAF compound. And of the 12 late-stage compounds that Pascal spoke about, six have companion diagnostics in all six within Roche Diagnostics. So, it’s a great chance for us to collaborate. I’m glad to see you speaking about Diagnostics, it’s very good. We need to get you more on that too, that’s good.

But to review the results for the first half of the year on Diagnostics, it’s the world leading company in Diagnostics. We continue to drive strong growth. We launched 25 major new tests in the first half of this year and seven new or significant upgraded platforms. And you can see this is driven to a large degree in the first half of the year by our Professional Diagnostics Group and also our Tissue Diagnostics Group, but an overall growth of 5% in local currencies.

Regionally, we grew in all of the regions and in particular in the first half of this year we had good growth in North America and also in Asia Pacific. I’m particularly happy about the North American growth because it is an area that I have spoken to you about before that we’ve been concentrating on now for the past couple of years to fill our portfolio gap between Europe and North America and also really work on our commercial execution. And in fact, if you take out Diabetes Care which I will speak at the next slide about which has a decline in the United States and I’ll explain the reasons why, if you look at the rest of our businesses in North America, we’re growing by 9% in the first half of this year in the largest diagnostics market in the world. So, a very strong growth in North America and also Asia Pacific with 17% growth, the E7 markets in general growing very strong for Diagnostics and continued good growth in China as well.

Breaking that down by our businesses and I’m going to speak about some of these in more detail in future slides, Professional Diagnostics growing by 9%, in fact a 14% growth in the immunoassay business. In Diabetes Care, we have a 1% growth. As I’ve explained in the past, this is a market that is more affected by the current economic environment and in particular where we have launched our new products that are doing well Asia Pacific, Japan saw very strong growth for these new products and due to the increased regulatory hurdles in the United States, we are still awaiting our product approval in the United States which is affecting the top line growth on the global basis. As soon as we get that approval, we’ll able to take those competitive products and get them into that number one market in the United States as well. Molecular Diagnostics had some very good news in the late-stage development and beginning of launches well as trials speak about with good growth in the Molecular Diagnostics business particularly in North America.

In the Applied Science business, we had really our Tamiflu effect which is the H1N1 virus that occurred in 2010 that is not occurring in 2011 and that really explains the 4% decline. In the absence of the H1N1 effect, we have a flat growth there and we’re in the process now of launching some new products into our PCR-based Applied Science Research business for the second half of this year.

And then finally Tissue Diagnostics, really strong growth 16% is the market leader in Tissue Diagnostics continuing to drive both growth in the United States the home market for our Tissue Diagnostics business but even faster growth outside the United States as we penetrate the cancer pathology market.

So, in the pin outline, the 5% local currency sale growth translated to a 5% overall cooperating profit growth and the bottom line, we continue to be focusing on efficiencies in Diagnostics and as I’ve spoken to you about in the past we have a keen focus on our cost of sales line and here again we have that in check relative to our sales growth and continue to have efficiency programs to make sure that we’re constantly improving efficiency in terms of product mix and in terms of our operational effectiveness.

Now we have had some increased investment because of opportunities in the M&D and R&D side for the first half of this year. M&D, and I’ll speak about why that is, we’ve invested significantly in launching into the HPV market in the Unites States for the approval of that product. And in R&D we have some significant investments in our Roche Tissue Diagnostics as we go to the next generation of instrumentation there, that will help us drive that 16% growth. I would expect as we move into the second half of the year for the M&D and R&D line to moderate a bit more because we had heavier investments in the first half of the year than I expect in the second half of the year. And I expect them to become more in line with sales as we go into the second half of this year, so we can continue to drive our core operating profit.

Now, I’d like to take four different key events from our businesses. Just to explain how our Roche strategy of testing efficiency and medical value is playing out in the marketplace. And this is our number one business Professional Diagnostics and it’s the major portion of that business which is the Serum Work Area business and the reason I want to emphasize this is because Pascal always gets to show slides with 1 billion or more products on it and I think it’s important to note that if you take just the immunoassay business here.

It’s made up yes of almost 90 different assays, more than 20,000 to 30,000 instrument placements but it is in fact 1 billion Swiss franc business that has been growing at double-digit CAGR for the past ten years, just to give you an idea of the robustness and to – the competitive barriers of entry in this business and you can see once again with both the introduction of our new platform, our cobas 8000 now everywhere in the world, five new immunoassays to add to those almost to 100, very innovative for we’ve launched now our vitamin, total vitamin D assay in Europe, we launched our HPV assay on this platform, which works hand in hand with Pegasys, particularly in the emerging market to drive both our HPV assay and also the Pegasys’s product in those marketplaces in the future and several new assays to deal with oncology.

And finally, if you remember in the previous results reporting, we announced the acquisition of PVT, which is another pre-analytic instrument software program to further drive our business in this area. So, a very robust business, a business that we continue to add to quarter-by-quarter and it’s one that we’re quite confident with the innovation going on in immunoassay that we’re in a very good position to be able to continue to have a leadership position in this business.

I am very pleased to say that actually earlier than expected we received approval for our HPV assay in the United States. In fact it was only after eight months of review by the FDA where we expect the PMAs in principle to take 18 months in the U.S. marketplace which means we were able to launch this product early. We launched it now in May of this year when we expected to launch it more towards the second half of this year. And the ATHENA trial that supports this assay is one of the largest, in fact the largest clinical trial ever done in Diagnostics and it gives us a differentiating ability to penetrate what is now the largest single assay in Diagnostics in the world. It’s more than CHF250 million opportunity in the United States.

And we have differentiated data. We have similar aspects to the competition in terms of sensitivity and specificity but what we do here is specifically identify out of the more than 100 genotypes that could potentially be present in identifying cervical cancer. There are two HPV genotype of 16 and 18 that account for more than 70% of cervical cancer in females which is the second leading cause of death in females, cancer death in females and we know that if we catch it early we can prevent it. What we demonstrated with our assays is that in fact we can identify one out of 10 women that have a normal Pap smear anomaly that in fact could go on to develop pre-cancer in a prospective way, and because we have the strength of this data now, we intend to take this beyond just to our lab customers, we even installed and it explains also some of the expense we’ve occurred in the M&D line.

We have installed a physician sales force in Diagnostics, which we will go to OB-GYNs in the United States with this very convincing data to drive prescription of 16 and 18 genotyping into labs as well. So we’re just beginning to roll this out now. The sales force started calling on physicians in June and we’ve gotten some very good qualitative response and we expect towards the second half of this year to see uptick of this product in the United States’ marketplace.

We also announced actually just Tuesday of this week the signing of the intent to acquire a company called MTM which is the company in Heidelberg, Germany. And this is I think an important part of our strategy and the strength of Roche to combine two very different technologies for the benefit of one particular disease state. Here we’re talking still about cervical cancer and we’re talking about different aspects of testing for cervical cancer.

So first just to explain MTM and what the value in MTM is. It’s about a 100% company that came out of the German Red Cross that identified a particular biomarker and has robust patent around this biomarker called p16. And what p16 is, it’s a biomarker that in the presence of persistence HPV infection in women, it’s over expressed in women that have then, that HPV infection turn the cell to a cancerous cell. So the identification of over expression of p16 allows us to identify those women’s specifically with cancer and those that need to be referred on to additional treatment.

So these two technologies worked very well together. The HPV genotype on the one hand, a high volume, highly sensitive screening assay, which identifies those women at highest risk of developing cervical cancer combined with now what will be a tissue diagnostic test on our Ventana Roche Tissue Diagnostic large installed base of instrument to take those women at risk and identify the presence of carcinogenic cervical cancer in women in both cytology and eventually in histology, which allows us essentially from end-to-end from cervical cancer to have a complete product offering and I would say it’s pretty impressive data that we’ve seen with this p16, where we see a very significant increase in the level of specificity in comparison to the Pap smear for this test, which will allow us to essentially to have end-to-end VNA testing, p16 testing in the field of cervical cancer screening and make a big difference to women around the world.

So, we’re very excited about this. Look for the closure of this deal and look for the ability to leverage our Tissue Diagnostics and Molecular Diagnostics business together against one cancer.

Pascal already mentioned this, very exciting news as well. In June we got FDA approval for HER2 D-ISH assay within the United States. This is the product we’ve launched ex-U.S. and within 12 months ex-U.S. have achieved market leadership position to show you the strength of this assay but the advantage of this assay for identifying HER2 related cancers is twofold. One from a testing efficiency standpoint, it does in one day what was done in three days with the current FISH assay in the marketplace and it can be done in a better workflow for pathologists. Pathologists don’t have to go into a dark room, they can use a bright field like microscopy and they can see these two DNA markers in the presence of morphology which is different than what we have in our test today.

But I think the most important medical value aspect of this test is that we’ve been able to identify HER2 patients that were missed with the test that’s available today. So, it has 96% concordance to fish but what we’ve seen is in those equivocal results that by an independent group of pathologists they’ve been able to identify HER2 in patients that were missed by the current standard of therapy. So, very exciting because as Pascal mentioned, it allows us to make sure that no woman is missed with breast cancer for Herceptin treatment and for some of the other HER2 treatments that we have in our pipeline as we move forward.

With that, I just want to reemphasize our guidance for the year in terms of continuing to grow faster than the market and also we’d like to say we’re on target in terms of our major products that we intended to deliver to the marketplace so far in half year and very importantly I’d like to invite you all back here to an event on September 21st, it will be an event that’s specifically targeted Roche event for diagnostic PHC and we’ll be able to have a chance to really get into our technologies in much more detail, the benefit we provide to patients and the uniqueness that Roche has in terms of being able to drive the embittered Diagnostic marketplace. So, I hope you can all make it back here for that as well.

With that, thank you very much and it’s a great pleasure to introduce well for the first time here Alan Hippe to the stage to present the finance results. Thank you.

Alan Hippe

Yeah, thanks a lot, Dan.

Daniel O’Day

There you go.

Alan Hippe

Thanks for the hand over. And it’s not the first time here, it’s the first time here for Roche admittedly and so a great pleasure. Welcome. Great opportunity to be with Roche and I think the results and what we have achieved and what this team has achieved is really outstanding, at least in my perception. I have also to thank the team because really they supported me over the last three months brining me more into detail. I still have issues with FISH and D-ISH and different associations when it comes to this and I also want to thank this team sitting here, tired faces I am seeing, yeah because they’re all bored and they kept them awake with all my questions but okay.

When I talk about achievements here are the highlights, core EPS growths at plus 10% and it came from both sides, on one hand from the operating profit and you’ve seen that already from Severin and the other point is the financial result and the taxes. That helped us really to provide that acceleration of core EPS growths and we have a strong operating free cash flow, 27% growth in local currency plus 7% in Swiss francs. So even its Swiss francs our cash flow has risen and we have done on basis of the good cash generation early buyback of our 2013 euro bond, we bought €962 million back, gave us a hit of about 90 million, 89 million Swiss francs to be very precise here and in the P&L but we realize the positive NPV, so we saw it is a good action to do.

Operational excellence and productivity improvements, actions implemented and on-track and everybody knows. I have seen quite something in my carrier and I think I’m impressed. I’m really impressed with the execution capabilities at Roche and how this program is really realized. So very impressive and as said, program is well on-track and doing good.

Kind of a summary, of all the figures you’ve seen and now brings that together on the Group level and Severin has talked about sales already. So I’m skipping that. Our cooperating profit going up by 5% in local currency and then you see really what happens to coordinate income was a plus 11% and these are the drivers that I’ve mentioned already and I will pick you a little bit into this. And then core EPS growth that I have mentioned and to make the picture complete, the IFRS net income also growing by 10% in local currency.

Where does it come from and this is kind of a summary for what has been said and especially coming from the cost side. And you see really good things here and I think the royalties and the other operational income here is not really major deviations that we have seen, number is roughly $800 million. I think cost of sales is important to mention, especially when you look into manufacturing costs, they were down by 2% and Pharma went up by 5%, so in line with sales growth on the Diagnostics side. And here certainly operational excellence shows the first impact. And M&D I think quite with an achievement and certainly this is driven by Pharma and here the cost went down by 9% and relatively massive head count reduction whereby in Dia we had an increase of about 7% and Dan elaborated about this one.

R&D, particularly pretty much stable as you can see but as said, Pharma went down by 2%, Diagnostics went up by 11%, so net we are pretty much stable and intend to keep such stable over the year. And you see G&A well a little bit diluted by excise tax but on purpose we brought that in here. So, G&A excluding the excise tax at a minus 6% which gave us overall the ability to drive cooperating profit up by 5% in local currencies.

When you look at the margins, margin at the Roche Group for the group cooperating profit went up to 38.1% would have been even higher with local currencies, so I seeing a good achievement. On the other hand what you can see certainly is in our reported numbers, yeah what the hit really is and I will show you in a second what the number would have been in with constant exchange rate based on 2010. But I think very clear for our reported numbers is a hit but I will dig into that what the currency impact really means to us in case of cash flow in a second. And Pharma Division goes up to 43.9%, also we acquired a momentum in Diagnostics pretty much flat and we will see what the year brings.

This is a chart you have seen in the past. This is operational excellence and in fact what’s going to happen with the company and what operational excellence is all about. We took this original chart just to remind you on what was said and look here, here is really the operational excellence savings figure and now I’d like to show you where the company stands in case of operational excellence. Because what has happened and I’ll started on the right hand side you don’t mind, because on the right hand side you see the core operating profit for half year 2011 at a constant currency rate of 2010 and then you see the number jumps to 9.3 in comparison to the 8.3 you have seen before. So this is let’s say the starting point and compare that with the core operating profit at half year 2010, roughly 8.8.

And we add the impacts of all the austerity measures, U.S. healthcare, European measures, the Japanese price cut with minus 400 roughly, then you see all the impacts from Tamiflu but also let’s say from expiring patterns et cetera, which gave us a negative impact of a minus 724 and we have admit that in your printout it’s a minus 720, so we had a slight hypo in here. The right number was a minus 724 and then you see the profit growth of the underlying business, yeah with the plus 584 which I think definitely driven and Pascal has described that from Herceptin, Actemra, et cetera. And here comes operational excellence and so Genentech integration with plus 950 and I think that underlines the importance of that program and how well it was executed and I think I am not shy to state we’re well on-track here getting to the 1.8, in the course of this year we have a plus 950, operational excellence is 850, yeah, so I think we’re really on track in this case.

Currency, and now a little bit, yeah, a little bit of an exclusion yeah, concerning currency. First of all translation exposure, so as natural hedge through the cost base Severin has elaborated about it, I would dig little bit more into this by giving you really by region sales and the operating costs and transaction exposures, yeah, are hedged, so we have a natural hedge and we’re not going to hedge really translational risks but transaction exposures, mainly response and receivables we do, yeah. And as you remember from the Genentech transaction pretty much of debt was hedged into U.S. dollar, which I think was the very, very reasonable action to do because well it’s obviously an asset which generates U.S. dollar and you want to pay back the debt with U.S. dollars, so wisely done.

Greece, well we had quite some receivables, yeah, in Greece and we converted them into a bond, I think it also was a good thing to do and we sold them. And we had a discount of 26% but we have now the cash so I think that’s also good thing and well I think I come really from cash background, yeah, I cannot hide it, yeah. And cash is what counts. So 36 million left yeah from this exposure which I think is also quite a good achievement. And we are well aware of the fact, yeah, that in Europe at least the financial crisis is not over, yeah, and you could even argue about U.S. and the rest of the world. But what we’re doing really is we’re monitoring our exposure especially in Southern Europe very, very diligently and I think that’s really one of the things on top of our list and we go through this and I think we have the right measures in place here to do the right things.

Currency exposure, and here you see and this is what Severin has referred to at the beginning really on one hand the sales and on the other side is the operating cost in the respective regions, in the currency that we have in these regions. And what you see certainly is that the Swiss franc is not playing a dominating role in our business. So, it is about 2% of sales and 17% of the total operating costs. I think much more significant are the exposures that we’re having in euro and in others.

In U.S. dollar I can say and I referred to the debts which came with Genentech to the company already, we have roughly $930 million expenses in U.S. dollar, yeah, for let’s say financial expenses coming basically from the debt we’re having in U.S. dollar. So, even this exposure is reduced quite significantly by these costs. So, in fact it’s euro and it is others and look here how others look like so there is quite an exposure. So, volatility coming from currency is definitely something we have to live with. I think the major point for us is here from a cash flow point of view we think we’re well hedged, yeah. I think when you compare that to other companies I think that is and I can say that I think really a good exposure to have.

When we go to here we go how we see the impact, then you see it half year coming really from the Swiss franc and impact in sales everybody talked about in this morning of minus 12%, in the cooperating profit it’s a minus 15% and in core EPS it’s also a minus 14%, so quite significant. So, we thought and yeah, gave it a thought should we give really clear guidance for year and we think that’s reasonable to do and here it is. And for the full year we think yeah when the currency rates that we’ve had at half year 2011 remains until year end, we will pretty much have the same impact as we have had at half year.

With that, I will go to the financial result because evidently as I said, a driver of our EPS gross at half year 2010 at one point 2 billion and these are reported numbers and now at roughly a minus 800 million and you see where it comes from the reduction, it comes from the interest expenses and certainly all the transactions which were done was the bond repurchase has helped here. And you see the currency impact here net was a plus 107 and here certainly it’s also disclosed in our financial statement and an impact from Venezuela where we had a huge devaluation in Venezuela yeah and then for our business we had an appreciation of the Venezuelan currency which accounts roughly 64 million in that number.

And then you see the early bond redemptions. And the early bond redemptions account here positively with a 55, so how is that going? We have done another bond buyback in the first half of 2010 and that had an impact of negatively minus CHF144 million. The transaction we have done in the first half 2011 had an impact of minus CHF89 million and then the difference is plus 55.

I think the other effects are definitely minor and we that let’s go to the balance sheet and well here it is the balance sheet and what you see is the currency impact. You cannot really read a lot from our balance sheet. One thing is perhaps remarkable, when you look really here the equity, yeah, it goes from 12% to about 20% now the equity ratio, which underlines really the capabilities and the profitability of Roche.

I think what I think is we should outline is the cash generation also covers the cash margin and well we are pretty much in the middle of the pack, you see Gilead, you see Biogen and perhaps not the best peers to compare us with because they have a lot of royalties and by the way also coming from Roche. So we are really here in the middle, yeah, with our roughly 30%. When you look at the average, yeah, it’s a 27% excluding Biogen and Gilead and you see the progress that we have made already and the progress was driven and a little bit surprising at least in my opinion from networking capital that helped us and lower investments and CapEx we have had. So let see how that works. We want to drive that further and I think cash is really what counts at the end and that gives us a lot of financial flexibility.

With that I come to my last slide and you see the increasing profitability that we have had. The operating profit margin increased quite significantly. We deliver on the productivity improvements from head count point of view. The head count is reduced here by 3000 people further 800 are notified and going to leave the company in line with operational excellence. When you look at sites, we have done closures or divestitures bolder, which gave us a negative impact on kind of impairments of 117 million in the first half, you have Burgdorf, you have Kulmbach, Graz and Palo Alto. Palo Alto has given us a positive gain of 64 million and proceeds of roughly 200 million. So, this really contributed also to the cash flow. The cash generation I have mentioned already and we are committed yet to an attractive dividend policy and what we brought in and I thing Severin mentioned that, that we maintain at least last year’s dividend in Swiss franc to share, that’s what we have in our mind, so to give kind of a flow to the current currency fluctuations.

With that, yeah, I’m through with my presentation. Thanks a lot for your attention.

Severin Schwan

Thank you, Alan. When I listen to you, I start to forget that you’re only with Roche for a couple of weeks, that’s really great to see. Alan had a really good start. Before we move into the Q&A session, I’d just like to share some logistics notes with you. So, for the next 45 minutes or so, relax, relax, for the next 45 minutes we’ll have Q&As here in the primary session and afterwards as usual we have two breakout sessions of one which is headed by Pascal for Pharma, the other one which is headed by Dan for Diagnostics. That will then be switched in between and Alan and myself will stay here in this room.

And I would also like to remind that afterwards at 4:30 we’ll have an informal reception with some drinks and canapé, so that you also have the opportunity for those who have a bit of time to meet us, the management for some further discussions. So before we split out into the breakout home, so let’s get into the questions here for the plenum and I see a number of hands going up. Can we start here in the second row and then we’ll go upfront.

Question-and-Answer Session

Alexandra Hauber-Schuele – JPMorgan

Thank you. Alexandra Hauber from JPMorgan. First, on your increased guidance I am still a bit confused but really is better because on one side you’re saying you’re head of operational excellence, on the other side you’re reiterating a 1.8 billion target for operational excellence. So, I’m wondering whether it’s something else altogether such as for instance R&D was very low, is that just a phasing because a lot of the Phase IIIs, the new ones, GA101, neoadjuvant, pertuzumab only starting now and so maybe you pushed some cost into 2012 which is really why you’re ahead, it’s not that?

Alan Hippe

No, no, no, as far as R&D is concerned, if I may just interrupt on that one, this is a firm commitment that we keep R&D stable slightly declining for Pharma for 2011 and this has nothing to do with shifting of course. That is really the recite of increasing productivity. That is really coming back to what I showed you in the very beginning in terms of how we are driving productivity. R&D remains a matter of excellence in science as I said but it’s not an area where you can’t drive productivity. So, this is not a simple facing that is true, genuine savings which we want to realize in this area.

Alexandra Hauber-Schuele – JPMorgan

And that’s, goal of keeping it stable extends beyond 2011?

Alan Hippe

From what I can see now in the portfolio and from the development I can see, I expect this to continue. As you know we don’t give precise guidances for longer-term periods but let me answer this in qualitative terms, from all I see and how our portfolio develops, I would expect a similar trend as we go forward.

Alexandra Hauber-Schuele – JPMorgan

Okay, then since you mentioned the excellence in size and I have no doubt that you probably have lower attrition rate in oncology than anyone in the world but I am not – how confident are you that you can transfer this excellence in size into the other areas outside oncology? And then I have another question on oncology specifically, it’s obviously very good news to hear that you have proof of concept for GA101 versus Rituxan.

Can you give us a little bit more color now that you have that, know how that life cycle management is going to plan out? You have these two Phase III studies which are starting in non-Hodgkin’s lymphoma but they’re probably not going to read out until 2015 and in order for us to get an idea when they going to read out, can you show how much improvement you’re expecting on the three year PFS you’re getting with Rituxan alone?

Alan Hippe

Pascal?

Pascal Soriot

Yeah, so a tough question actually and it’s not obvious one. I think the message here for GA101 is that it remains one of our most risky projects in the portfolio and that’s the topic with a risky project, GA101 is a risky project. This is very clear. Having said that, what we saw in Phase II was sufficient to justify moving into Phase III which those two Phase III studies you mentioned. Now the team, the life-cycle team is preparing a plan what we call a life-cycle plan internally that they will then present to LSBC, a strategy portfolio committee to actually expand this program. I can’t tell you exactly how, when and what studies we will, how we proceed here but we will expand the program. The question is that that remains a risky project, I think it should.

Alexandra Hauber-Schuele – JPMorgan

And risky because the benchmark is so high?

Alan Hippe

Because the benchmark is very high because MabThera is you know a great product and it’s a high benchmark.

Daniel O’Day

We had a question here in the middle, yes.

Vincent Meunier – Exane BNP Paribas

Thank you for taking my questions. Vincent Meunier from Exane BNP Paribas. The first question is for Mr. Hippe. What are your initial thoughts regarding the Pharma industry, especially regarding the challenges the industry is facing currently in terms of patent expiries are in the productivity and more generally what can be improved in your view? The second question is for, regarding the Operational Excellence Program. You said that you think you are ahead of the schedule, what is ready ahead of the schedule and what is may be tougher than initially anticipated? And the last question is on Avastin in breast cancer in Europe, are there any relief in your view due to, thanks to the labeling with Xeloda and what can we expect here and are there any impact from the U.S. situation.

Severin Schwan

Alan you want to start off?

Alan Hippe

Yeah fine. No problem. I think my initial thought yeah, about the pharma industry, first of all it was a very conscious decision yeah, to come to the pharma industry, so I asked myself beforehand, yeah, how is that going and certainly I see yeah, the challenges in the pharma industry with the price pressure coming up, on the other hand I think Severin talked about it, productivity is something we have to look into and where perhaps the industry can make progress. So I think the great opportunity is to combine innovation and clearly innovation focused strategy with some kind of productivity and I think that is something which I think is very interesting.

Furthermore, I think in industry which has a high degree of regulation and has a relatively consolidated structure that we can’t discuss what consolidated then really means, but I think all the businesses that I have seen so far have been very, very robust businesses to my experience and I think that was something which definitely is and that will be intriguing for me. And let me say one thing very clear, I think that Roche is very well positioned here yeah because when you mentioned patent expiries, I think compare ourselves with other companies, I think we are here in a very, very comfortable situation and we will see how that biosimilar thing plays out that I think really I have a very tough positive impression especially when it comes to Roche because there will be winners and losers in this industry.

And improvements, I have to say well, it is not like that I think there is, how should I say. I got the question this morning yeah is this a restructuring case? Not at all. I think this company is a world-class company and operates on a world class level and there are always things we can improve, no doubt about that and we work on this. But is it like that this is something which is easily done very low-hanging fruit. I think it is quite a challenge for us yeah and we will face it together and we had good discussions about productivity and we will go on and we will find things and we’ll get better. But it is not like something disruptive comes to my mind. I think it’s an evolutionary process that we face.

Daniel O’Day

Thank you, Alan. On operational excellence, Pascal, you want to comment on that why we are ahead.

Pascal Soriot

Yeah.

Alan Hippe

How it is going?

Pascal Soriot

What we have had actually on many fronts essentially the restructuring of the commercial organization went faster, it very quickly in the United States but you would expect that. But it went also fast in Europe. Of course in Europe we tend to be slower because we have to negotiate with unions country-by-country and we of course had in some cases challenging discussions because people always challenge the need to restructure when you have the kind of profitability that we showed you. But we moved actually relatively quickly. So, the reorganization of the commercial organization we did quickly.

I think in development we’ve made a tremendous progress also. There’s still an enormous amount of work to do that we plan to do over the next two years. So, we’re really reinventing the way we do clinical trials and the way we do development. We have made enormous progress already.

The dal-OUTCOMES 2 study, dalcetrapib the second study, the dal-OUTCOMES 2 study, we spent, believe me, a lot of time looking at how can we do it cheaper than the first one. And our cost per patient is reduced by more than 50% compared to dal-OUTCOMES one. So, don’t try to done assuming it can reduce our development cost by 50% but it’s an example of where we suddenly have been able to reduce cost substantially. In other cases, the cost is still pretty high but we’re also managing the portfolio, prioritizing, development we’ve done well, in manufacturing we’ve done well.

We’ve had a couple of hiccups. You probably read that the Florence site on the East Coast that we plan, we’re planning to divest, we said we’re not able to do this because the market is not very supportive to divest the manufacturing, small molecular manufacturing plants. So, the offers we got were really not sustainable. We said, on top of it we said we need to give ourselves a little bit more time to plan on manufacturing requirements for the next two to three years, especially knowing what we will need for dalcetrapib. So, we gave ourselves another few months to know more about dalcetrapib and therefore what we need. So, manufacturing, we had a couple of hiccups but I would say overall we’ve done quite well and maybe I can probably rest in one since the Avastin Europe breast cancer.

We lost, as you know we lost the Taxotere part of the label and in some countries like France, for instance, the switch to paclitaxel, Taxol was very, very fast. In other countries, it takes a little bit more time. So, we are in a process of shifting the core prescription of Avastin to Taxol and then we now have zeroed on top of the label which is a recent event and of course will drive growth. So, I have to say I think with Avastin, we’ve kind of hit the bottom and we are kind of starting to level off and we start growing, we should start growing again over the next few months.

Daniel O’Day

Perhaps just an additional comment on Avastin, you know that the really sharp decline of Avastin happened in the fourth quarter last year. So, what we expect to see is a continued decline into the third quarter but this should then level off substantially into the fourth quarter of this year. Good. We have another from Sachin, yes. Can we have the mic here in the second row?

Sachin Jain – Merrill Lynch

Thank you very much. It’s Sachin Jain from Merrill Lynch. A few question. Firstly, just a follow up on GA101, I wonder if you can provide some color on what efficacy benefit relative to Rituxan you think; A, would be clinically relevant from a physician feedback respective and; B, necessary to protect you against cheaper priced potential buy as soon as Rituxan.

And secondly, on dalcetrapib, wonder if you’re willing to give some color on the next efficacy interim analysis, just some color on both from a positive and negative perspective what would drive that stock relative to the 15%, relative rich reduction, the primary endpoint I think is powerful.

And a follow on dalcetrapib, you talked about the pertuzumab and progressing in broader indications very quickly, I appreciate that dalcetrapib is very high risk but it won’t stay as you get comfortable to move beyond the existing high risk and potentially narrower ACS patient pool. When would you start thinking about a broader patient pool in your existing trial? And then just very quickly on the tax rate, how sustainable is the first half tax rate? Thanks.

Alan Hippe

Pascal, GA101?

Pascal Soriot

Yeah, GA101 essentially what we are looking for is a 30% improvement, very, very minimum but we a very – that’s our target let’s say that if you achieve let’s say 15%, you would still have a viable product, the problem is the investment. The question is you have two stages, one is to get approval, two is to get your investment in an environment where what we’ll be getting is biosimilars.

So, if you look at it from a regulatory point of view, I would say 10% to 15%, I mean 10% will be a below end but 15% would still would be okay. But if we really want to replace MabThera we need more than that there is no question from a peer viewpoint. And then the answer would depend country by country. In the United States as the market is today you can certainly we would do very well with a 15% improvement. In some markets in Europe, it would be much more challenging from our investment viewpoint. So, yeah.

Alan Hippe

Dalcetrapib.

Daniel O’Day

Yeah, dalcetrapib I wasn’t too sure yeah, I missed the part of your question, Sachin, actually.

Sachin Jain – Merrill Lynch

So, it’s a two part, one any color on the efficacy component of the next interim analysis, any idea of relative risk reduction that would, I can see Karl shaking his head, that would stop for, that would stop that study either direction post of a negative relative to the primary endpoint parallel 15% relative risk? And then the second question was Severin talked about starting pertuzumab and adjuvant as well as metastatic very early, at what point do you get comfortable enough with the docetaxel profile, appreciating it is very high risk to take it beyond the existing ACS patient pool?

Alan Hippe

Well the dal-OUTCOMES 2 studies already expanding the patient population.

Daniel O’Day

So, we are already as far as dalcetrapib is concerned we’re already preparing for this extension.

Alan Hippe

Yeah, actually so we may begin, I was talking about that study, and we may not have talked much about it. We’re preparing for a second study dal-OUTCOMES two study and that would expand the patient population beyond ACS when we launch it. So...

Daniel O’Day

So, we’re preparing for that but the study has not yet started. So that’s where we stand.

Alan Hippe

And this is the study I was referring to before where we would basically reduce the cost.

Daniel O’Day

Yeah, and on that...

Alan Hippe

But we haven’t decided to go forward. We’re just preparing, and if we launch it, then essentially we are ready to do it at a much lower cost.

Daniel O’Day

Right. As far as the interim data are concerned, of course we know as much as you know. We will, it’s event driven. So, as soon as the events come through, we will see whatever sides are. The read out, the plan read out is for end of 2012, for December 2012. So that’s a target date. Good. There was a third question on the tax rate, Alan.

Alan Hippe

Yeah, well I think you know how it is. With taxes it depends very much in which region we have very successful and not so successful so let’s see. I think it cannot be more than just an indication but I think it should be around yeah, the number or the percentage rate that you’ve seen at half year. But we have certain fluctuations and that’s how it is.

Daniel O’Day

Good. So, let’s move up here, perhaps in the third row and then I’ll start from the back forward again.

Jack Scannell – Sanford Bernstein

Jack Scannell, Sanford Bernstein. Two questions on the R&D productivity point. I think the first one is lots of us would love to believe that basic science and improvements in basic science, reduced attrition, it makes drug discovery more effective and efficient. The trouble is history show that isn’t true. The problem with the small molecules approved once it enters human trial to stay constant for about 60 years. Despite massive advances in basic science, returns on R&D investment have declined over last 60 year despite massive investments in basic science.

Now given that, why should investors believe that improvements in basic science from here against turn that around? That’s the first question. And the second question is if one spends about 8 billion a year roughly, roughly on R&D for the next few years and for the last – and previous few years, that should be generating profits and revenue sometime in the future. So, given a run rate of around 8 billion now roughly, roughly what incremental revenue and profit should one see around 2020, ‘21, ‘22 to just, to share with decent return on that investment?

Alan Hippe

On your more general question, and I talk about excellent in science, I am not talking about basic research. We are not a public institution which sponsors basic research. It is true the societies are putting literally billions if not trillions if you look at it over the longer period into basic science. We are not in this business. So, the money we spend into R&D is not basic science. If I talk about excellence in science then I’m talking about translating the increasing knowledge we have about diseases, about the molecular biology of diseases, into drugs. We’re not in basic science to make this very clear, number one.

Number two, you’re absolutely right and that is a fact that the productivity, the R&D productivity in the industry has massively declined over the last decades. We have to spend a constant output if you like of about 20 to 25 new molecular entities per year if you look at it on a long-term basis and it’s true that the R&D costs have almost reasoned exponentially in the ‘90s and in the last decade.

So, the industry as a whole, the productivity of the industry as a whole has come down. I can tell you that for our strategic reviews what we did. When we looked into this topic of R&D productivity, we look not only at what has happened with the industry as a whole. We looked what have been the differences between the different players. And I can tell you that there is a huge difference, there is a huge difference between the different players. You have groups where there’re groups of companies where the R&D productivity was lousy by any standards, some of them don’t exists any more. And then you have a group of companies, their productivity actually was pretty good.

If you look at Roche, our productivity has been much, much better versus the industry standard. Now part of that is you have seen this 4.9 which is an external study therefore I used it. Part of that is also because we entered into biologics very early and what you said about small molecules is of course true.

Many of the small molecules which you move into the clinics fallout because of toxic reasons. That of course is much to a much lesser degree the case in biologics and that is one of the reasons our early entry into biologics where our productivity over the past decade has been substantially higher than the competitors’ productivity. And of course it is our ambition and I think not only our ambition but our obligation to produce a better R&D productivity because we over-proportionally invest into R&D.

That must be the goal for us. And I hope to shed some color on how we are going to do that, but I do believe that the understanding of the disease biology not necessarily that you do the basic research yourself but that you are closely tied into academic institutions, for example, that you closely work together with the external world to understand the disease biology has always been a big strength. The portion has been part of the better than industry productivity in the past. So, that I hope sheds some light on your R&D question. There was a second one.

Jack Scannell – Sanford Bernstein

The second one (inaudible) sorry, the second one was given roughly, roughly CHF8 billion...

Alan Hippe

About what...

Jack Scannell – Sanford Bernstein

What kind of run rate profit should one see if you are generating these returns in relativity roughly?

Daniel O’Day

Well, I can only – yeah no, I mean here literally looking forward 10 years and who knows exactly what the price level will be in 10 years, who will know exactly how the regulatory framework will be in 10 years. What I do expect in more qualitative terms is that the environment will get tougher. And the reason why I believe that is because I don’t see any light on the horizon in terms of household deficits, at least in the developed countries around the world. I see a continued explosion of healthcare cost as we go forward and that will put enormous pressure on the system. And I think that the size of allocation mechanism which you will see in the long-term for payers will be what is the additional benefit per patient. That will be the decisive allocation. If it’s really getting tough in the system, if it starts to crunch, then people will look at how much benefit, medical benefit, clinical benefit do I get out from the dollar I invest into the healthcare system.

That will be the decisive factor. And the only way how you can drive and how you can improve healthcare delivery in my opinion is innovation. And I believe eventually what we will see in 10, 20 years is a consolidation of the industry in two camps. You will have on the one hand companies who really focus on generics. There will of course be a demand for generics and that is a matter of economies of scale, that is a matter of driving down the cost and making a margin on a high volume. And then you will see a number of distinct companies who really drive innovation, who really drive medical benefit and a differentiation for the individual patient.

Now the coup in between and the programs in between and I will claim there are still lots of those kind of programs around and there might be some in the Roche portfolio and we have to read them out. All of those will not be successful and all of those will not be sustainable. And I think one element which we see increasingly and I think where we have a competitive position and a sustainable competitive position across the industry is the notion of personalized healthcare. Now we’ve been talking about this for a long time.

This is now getting reality. If you look into our late-stage pipeline out of the 12 new molecular entities, six of them that is half of our portfolio are examples of targeted therapies MetMAb, for example, which we presented recently at ASCO, lebrikizumab, pertuzumab , et cetera, et cetera. And why this is so powerful is not only because of the medical value but because it makes healthcare delivery much more effecting.

Reality today is that 50% of drugs are wasted. If we can target it much better to such populations of patients of course the medical value per patient will go up. So, to come back to your question I cannot tell what exactly will be the price leverage in 20/20 I cannot tell you what exactly will be the regulatory framework around the world not only in the U. S. in Europe increasingly so also in the emerging market I wouldn’t know but what I’m absolutely certain it’s about a medical differentiation it’s about the innovation I think for truly lifesaving drugs there will be a demand also in future there will be winner and losers and I believe with our strategy with our focus on innovation we will be on winning side. Thank you. I made my point I hope. Yes please, I promise to go into the very back, can we with the second microphone in the last row up there yeah? If another 20 minutes so.

Michael Leuchten – Barclays Capital

It’s Michael Leuchten from Barclays Capital. One question for and Allen may be very nice presentation on cash flow generation operating cash flow 7% in Swiss franc what I didn’t really get from your presentation is what you’re going to do with it you started paying down some of the 2013 bond you left your option open on the dividend what’s your thought on the 2014 debt target that is may be an old target now, what do you think about the cash position on the balance sheet.

And then a question for Pascal, if I look at the distribution on the international markets there seems to be a discectomy between the bigger products and the more mature products. And the more mature products don’t do as well as the bigger products. Why is that the case, why do I not see the organization pushing the entire portfolio, is that just regional differences or is there a difference in strategy between the portfolio?

Alan Hippe

Perhaps if I can take your first question essentiality the use of cash. Now in a context of the Genentech transaction in 2009 you know that in addition to our shareholders we got a new stake holder cope and that was bond holders. And at that time, it was very important in the communication to signal to the market that we’re diligent about cash flows and that we are committed to generate the necessary cash flows to step by step pay down our debt according to the maturities of the bonds. And remember back that was during in the middle of the financial crisis. We closed the Genentech deal, I think it was March 2009, so this was really, really at the bottom.

So at that time what we did is we signaled to the market that we expect with the Genentech transaction to be able to be cash positive or net debt positive by 2015. And from what you have seen over the recent past actually the cash flow was even exceeding the original plans and that led to the repurchase of certain bonds in the markets. So in the meantime, I will say the environment has changed a bit. Otherwise at that time this was really, really critical in the meantime the trust of our bondholders in the liability of our cash flows and in the financial strength of the companies fully established.

And therefore in this context you shouldn’t see this goal which we have given ourselves in 2009 to be net cash positive in 2015 like as a goal that we will kind of if this was the goal for the sake of being there, because obviously we are under-leveraged in such situation and I think it’s a good goal in terms of monitoring cash flows internally in the company and keeping the discipline in terms of cash flows. If you have this goal and if you work along it but probably we will never come to this situation that we are under-leveraged.

Now I keep saying here let’s close the bridge when we have to close the bridge, but at one point we will be confronted with the question of use of cash and there’re really two options, one is that we use the cash for licensing opportunities for M&A transactions and you have seen what we have done over the years, you know our policy in this respect and the other one is some form return it to the shareholders.

Now, I don’t want to be more concrete at the point. Let’s see how things develop. With the current leverage I think we still have some time before we have to make the respective decisions. But don’t regard, don’t consider this net cash positive as a sacred cow everything is kind of determine to get to this net cash positive event in 2015. I hope this gives you a bit of color. Why we have given ourselves the goal but how we see it in the broader context and I think also the environment has changed since March 2009. If we can continue in the, perhaps, just over there...

Pascal Soriot

Avastin.

Alan Hippe

Sorry, sorry. Thank you, Pascal.

Pascal Soriot

Yeah, I mean, sorry. Let me just make maybe first a general comment is that our firm belief is that the international markets over time will actually behave exactly like Europe and the U.S. and the room you see, the place you see today for branded copies will disappear and those markets will polarize between generics, whole generics and in innovative medicines. So, what really anything we do with products that are out of patent, trying to promote branded copies like some of our peers are doing, we don’t believe it’s a good use of our cash from a long-term perspective.

So, having said that, we still promote some products where we see there is an opportunity to reasonable cost. We do it in China. For instance, we promote ceftriaxone, Rocephin. We promote Madopar. So, some products that maybe out of patent if we've seen in a given market there is really an opportunity, we do it. But in a great scheme of things, given the pressure that we have to manage our resources, we see more value investing in new projects, new products and development while we promote older products that are out of patent which we don’t believe would rest upon that much. And so, we focus our commercial investment in our so called bigger products, the Herceptin, MabThera. There is still enormous amount of growth that could come out of those. So this is clearly our priority.

Alan Hippe

Thank you. Yes please?

Michael Leacock – RBS

Thank you. This is Michael Leacock from the RBS. Just briefly on your R&D productivity on slide 11, I have a few specific questions on that. Firstly, you should have said us that Roche is just every two times better than the industry standard. What point in those successive transitions is Roche most successful or maybe what points? Secondly, the data presented is ‘05 to ‘09.

We’re now in mid of ‘11, where would you say the numbers are more likely to be today? And most importantly really the key transition certainly as far as the industry is concerned is the failure between Phase I and Phase II were 25%, although you’ve been very clear about your late-stage trial success rate, could you be a little more clear about your Phase I to Phase II transitions please?

Alan Hippe

Right. Now, first of all versus industry. As I said beforehand, I think what you do see is a difference between companies, who had a strong foot in the biologics market and those companies who were more footed in this small molecules market and one of the reasons why we have this about average success rates over this period, which I show 2005 to 2009 was certainly related to the fact that we’re very much in biologics and that is typically a question of toxicity safety where you have more of target events with small molecules.

Now, perhaps before I’ll come to the question where do I see the critical interfaces along of the value of China and how we managed this approach, perhaps just also on the data, this is data until 2009 and indeed in 2010, we were certainly not satisfied with our success rate in the late stage.

I mean, all of, aware of the various setbacks we had and we really came down in 2010. Now if you look into 2011, we here we’re really having, couldn’t be more perfect. We had a series of I mean a 100% hit rate in the late-stage trials since then. So, we have seen a fluctuation between 2010 and 2011 and that’s where I hope us to see as we go forward into 2011 and the years to come.

Now what are critical points in moving forward compounds along the value chain. I mean first of all as far as research is concerned, I repeat myself I do believe it’s a lot about understanding the biology of diseases. You have to be at the forefront. If you just read about a new target in some publication, it based to a fast follower. If you are really entrenched in the scientific community, if you really know what’s going on, if you really understand better than others what is happening here, I think you can choose your targets much more carefully, you can move forward in the research setting really the most promising compounds.

Now as we move forward, in terms of the value chain, I think traditionally a very critical one is preclinical clinical. A lot of things work beautifully in mice. Unfortunately, they do not work as well in human beings. So, a lot of attrition happens from the preclinical into the clinical phase, something we refer to as the translational research. And we have lots of efforts underway to make sure that we manage this interface in a good way. Two elements perhaps in this context.

One, an organizational one, if you look at how we have organized chiret and piret. then you notice that this is not a traditional organization as you see it in many Pharma companies, research development, which is clinical development and then marketing and sales, et cetera. We have combined research and early development on the one hand and late-stage development for the Group as a whole on the other hand, and I think this was a wise decision. When I listen into the organization, I hear a lot of excitement about the fact that the research organization is looking at things both from a preclinical and from a clinical point of view and that almost changes the mindset of people. I think this is an important element.

The other important element is when I talk about this transition between preclinical and clinical is that you can’t succeed on your own. I mean the human body is so complex, if you think of all these biomarker opportunities, et cetera, it’s extremely important that you link up with academia. And very often traditionally what you see is the researchers link up with the researchers in academia and the clinicians link have with the clinicians in hospitals, et cetera. But this interface which is so critical internally between research and clinical is equally important in the structure of your external relationships.

And if you look at what has also – we haven’t publicized it a lot but if you look at what we have done in this regard over the last three years, we have buildup 10 what we call translational hubs with external partners and those are typically networks we have one in France for example, we have one in Singapore, we have two in Switzerland, we have one with Harvard in the U. S., we have one in Toronto, we have one in Netherlands.

Those are typically networks where you work together internally between the researchers and the clinicians, very often together with our diagnostics people, when it comes to biomarker research development of assays and if you have, if you like a mirror to the outside where you work together with lots of institutions and you cross and you almost force the outside to also think across the pre-clinical clinical wall if you like and that has been I think very fruitful and a lot of very interesting stuff has come out of that approach. So that is very important.

Now if you move on into the later stages of development, then really where you see and you refer to that, where you see the cost going up is when you go into Phase II of course for the trial and then very much so into Phase III. Now, the way we are setup here isn’t and Pascal mentioned that moment ago, we have what we call, so called late-stage life cycle, late-stage portfolio committee, LSPC.

And Hal Barron heading this LSPC, our Head of Global Development together with David Loew, the Head of Marketing. And it would be this LSPC which sets the criteria to move projects from the early development which is in our terms is the Tarceva, the Genentech and the period of research and early development organization. They would setup the criteria, the target product profiles if you like for transitioning into phase III. And that is not a classical approach. But in a way it’s almost too late at that point so what we do is for every project in our portfolio. We set these criterias but we work already together with early development folks when they enter into Phase II.

Now why is this important? First of all, if you wait too long and you go into Phase II and only at Phase III, you discuss whether the criteria are fulfilled or not, it’s too late in a way because you have already wasted the money in Phase II potentially and also you get a bias into the decision making because the people who move things into Phase II, they really, really want to push it into Phase III.

But if you define the criteria already beforehand, so before, together with late stage we’re kind of like an outsider within independent. You get much more vigorous decision making into your process, much more vigorous decision making and that leads to a situation where either you don’t move projects forward into Phase II to start with or what happens and this is very interesting to see, you move them forward with a completely different trial design and that makes a huge difference.

And then you really answer the questions, which are critical already in Phase II so that you can set up the Phase III trial. And then if we move on into Phase III, there I would say it’s also a lot about driving the machinery, being efficient, looking at whether you have made clever arbitrage, for example, as we discussed in the context of operational excellence. How do we simplify our data needs for our trials, the dal-OUTCOME 2 example, for example et cetera, et cetera.

So, I don’t think – I hope it gives you a bit of a flavor how we look at it. I don’t think there is the recipe. It’s a lot of factors which play together and at critical points at each stage of the pipeline. Thank you. If we, perhaps the lady here in that hall.

Marietta Miemitz – Societe Generale

Marietta Miemitz, Societe Generale. Couple of questions please. The first one is on dalcetrapib, are you actually willing to share with us the stopping criteria for efficacy or of utility at the interim analysis or asked a different way, why are you so confident that the interim analysis will inform your divestment decisions with regard to the production sites given that normally your would expect the DSMB to just let it run after the interim analysis and you will not get an indication as to how likely it is to meet the primary endpoint? Should I ask my second question later?

Daniel O’Day

Sorry, you have second question, sorry.

Marietta Miemitz – Societe Generale

Oh, sorry, the second question is just would you mind running by us the patents for Herceptin and MabThera in your international regions? I am just trying to understand whether in the international regions the patents run a lot longer than Western Europe or whether there are any reasons to assume that a biosimilar, if it does actually get approved and launched in Western Europe, would not also be launched and used in the international regions? Thank you.

Pascal Soriot

Okay. So, on the first one, Karl, help me. Do we disclose stopping criteria?

Karl Mahler

No.

Pascal Soriot

No, we don’t. I am sorry for that. But let me give you a general answer on dalcetrapib just to put it a bit into perspective, I always keep saying this is the biggest proof of concept study we have ever done. We, as you know we are investigating whether HDL really is leading to a better mortality and morbidity and nobody has shown this in the past and we will only know when the recites read out. And you know as much as I do. We just simply don’t know. And by the nature of an interim study you of course could get results or it will continue as planned until the end of 2012. It’s event driven and we’ll see what events come in. That’s all I can say and we have to wait.

Marietta Miemitz – Societe Generale

(Question Inaudible)

Pascal Soriot

No, this is not.

Marietta Miemitz – Societe Generale

(Question Inaudible)

Alan Hippe

No, no, as far, you’re referring to the Florence side, which we are not divesting. The simple reason why we are not divesting Florence is because economically it doesn’t make sense. We do operational excellence to reduce our cost.

So, if we end up selling a site or even having to pay for a site and then we have to produce the products which we are currently producing at Florence at a higher cost, it just doesn’t make sense. It’s as simple as that. It’s an economic decision. I mean just because we have operational excellence going and then we come along and we announce the rich and relatively close to Florence but then if we come along and we are offered here conditions which makes it more expensive to produce the products which we’re currently producing in Florence in spite of the over-capacities we have and which are in the market, we’re just not doing it because it’s economically stupid and it has nothing to do with dalcetrapib. We do that because it makes economic sense point.

Now on your second question regarding the patents, now we don’t disclose the exact patent expiries for Herceptin and MabThera on a country basis outside of the U.S. and we do that for competitive reasons. So, that’s the reason why I can’t give you more information here. It’s really to protect the shareholder value of Roche and we don’t want to make it easier for by biosimilar companies by disclosing all the patents we have in the respective markets. But roughly as you know that the patents for MabThera and Herceptin in Europe expire slightly different times across Europe, mid of this decade. So, our strategy clearly here is that we come up with better products which move to standard of care by then. And in this context of course the news which we communicated to you on pertuzumab last week obviously very, very important because we believe that we can move to standard of care and that should enable us to protect our two franchise in Europe.

Daniel O’Day

More or less they are very similar. But we don’t disclose those dates country-by-country as Severin told you but the dates are very similar. The U.S. is a special case with much longer patent protection.

The rest of the world will come together for both Herceptin and MabThera. As far as the interim analysis chief lawyer tells us we can’t disclose the starting holds, but you will understand that this interim analysis is important because if we hit the futility criteria and we stop the study for efficacy and end up with a very strong efficacy, imagine that you don’t sell the same volume of a product that has a 30% improvement of mortality, morbidity versus a product that would still be viable but only improves, reduces mortality by say 15%. In other days when you could sell product like Plavix with 10% improvement are probably counted and payers are becoming more difficult. So that that would certainly give us an indication of how big the product can be.

Alan Hippe

Okay, perhaps if we go forward again.

Unidentified Analyst

(inaudible). Only two questions please. First, very short one on Zelboraf, you suggested the very soon answer from the FDA if I’m not wrong you filed in May. So, even with the six months prior to review it drives us to November, could it be even faster than that?

And second question is on your outlook for 2011 full year on core EPS. If we listen to each of you, it looks like second half is much better than first half. First of all, the comparison basis is lower. You won’t get Tamiflu, you won’t get Avastin fourth quarter. You have less healthcare reform impact. Then in international region we could see some tenders back in Russia Diagnostics. You should see less expenses in M&D. Coming on the savings at least as many savings in H2 than in H1. So, how old this translate into a similar growth in H2 than in H1 to drive full year at 10% growth?

Alan Hippe

Now, first on Zelboraf of course, it’s up to the FDA to decide when they are ready to approve the product. So, we couldn’t be more precise at that time but I think what Pascal indicated is that due to the extremely strong data we have seen with BRIM3. The FDA is really is extremely supportive to move this drug to patients as soon as possible and I think it’s fair to say that we are on an accelerated track here.

I mean the medical benefit of this drug is so enormous and if you have such an event then the FDA is really, really behind it and this is helping and pushing to get it to patients as soon as possible. So will see when we bring it to the market. What I can say is we are very confident that we launched in the U.S. in the second half of the year, and indeed this could depending on the decision of the FDA already be earlier than end of 2011.

In terms of the outlook for the full year, well an outlook is and outlook. You know there are always uncertainties in an outlook and they’re many factors playing into such a forecast, to our best knowledge if we put all of this together we came to the conclusion that we increase our guidance from high single digits to around 10% and I would like to live it at that.

You can then of course go into various elements, you can take all kind of assumptions and come out a little bit better, a little bit worse, the only one which I perhaps would add just as another consideration in the elements which we’re considering is that we had a good improvement in the tax rate in the first half of the year. So if you look into the second half of the year and Alan has indicated that kind of roughly we will keep this tax rate then you don’t see the leverage on the tax side which we have seen in the first half you wouldn’t see this leverage in the second half of the year. I don’t want to over emphasize this point either but there but there are many points and all I want to say if you put all of that together we come to around 10%. Yes, Please? We have a question there.

Keyur Parekh – Goldman Sachs

All right, it’s Keyur Parekh from Goldman Sachs. Two questions for Mr. Hippe if I may. First, if you just conceptually, theoretically think about an industry where you invest $8 billion, $9 million a year into R&D, and on the back end assume 4% success rate. How do you think about it from a capital allocation perspective?

And, secondly you spoke about your view of the industry being split longer term between winners and losers. Clearly, I know where Roche management stands and where it will end up. But the investors seem to be suggesting a very different group on where you will end up. What are we missing, either in terms of your strategy or it’s execution?

Pascal Soriot

Alan, you want to give it a shot?

Alan Hippe

I think, we are here to create value, I think for certainly. We serve the needs of the patients, but I think when we look at capital markets we have to create value. I think, that’s the simple answer from my side to this end when it comes to investment and I think Severin said all this about how the pipeline looks like and certainly also Pascal, how plan is promising. We can argue, how long this timeline is, and how you do your valuation, but I think at the end there has to be value. And let’s say, let some I am also here, at least it was one of my how should I say triggers to come to Roche, because I see value here.

Daniel O’Day

Barry, to add one point I think to contrast $7 billion or $8 billion investment with a 4% success rate is probably the one contrast because what you do is you take a series of options as you spend your money now and first of all our view is that the probability is more like 9%, 10% of success for our product to go from research and development, but we don’t due to market but we don’t spend 8 billion in research.

We spend 8 billion for the whole value chain. And the success is right when you spend money in life cycle is much higher. So, in terms of your PTS relative to the investment, it is a very different proposition when you invest it in life cycle management and we spend a lot of money in life cycle management. We move a product from Phase II to Phase III like MetMAb and the first time we move it into a Phase III, was one indication and then we expand the scope of the product and we turn it into a very big product based on this life cycle activity. So, you really have to look at it as a series of options that you take further in the life of product.

Keyur Parekh – Goldman Sachs

So, in that context and what’s the right way of thinking about a return on your 9 billion in investments?

Alan Hippe

(inaudible).

Keyur Parekh – Goldman Sachs

What’s an acceptable capital allocation return from that perspective?

Alan Hippe

Well, I mean to give you an investors answer, I mean of course you have to at least and the cost of capital as a minimum but what I really don’t like to do and I’ve always been very explicit about that to run behind our research in their labs, go through all of this products and ask them what the internal rate of return is. This is ridiculous, absolutely ridiculous. You cannot do that.

Especially if it comes to the early part of the value chain, if you talk about research, if you talk exploratory development, I mean it just, it’s kind of, I mean lets walk together through some labs and then we make a list of all the projects and then we walk out of the lab and say what are the criteria, what is the internal rate of return et cetera, et cetera and then we walk back to these people and say can you please fill it out for me and make a spreadsheet out of it and then we sit here and say well now this project has to go, this project has not to go, this project has not to go. In the early part this is about the quality of science. There is a lot of catchment. This is a lot about people.

When I looked at the Genentech transaction, when I looked at what are we buying here, I was not having a little spreadsheet calculating my internal rate of return of trevat. I was most concerned about the quality of science. I was most concerned about keeping those people motivated, have an organization, which really kind of is excited and which remains excited as part of the Roche Group. That’s much, much more important. When you then come into the later stages, then it’s much more of a kind of how shall I say, hot numbers scheme. And then we do this calculations.

Then we look and we go into the details and backend we save money. What is the probability, what is the probability that we bring this product to the market, what is the commercial potential, what is potential prices here? What is the time schedules involved in here and what are the discount factors as still make this factors. It is more like building factory if you like but I warn you to look at the Pharma business and to the R&D business, as if you could manage it on a spreadsheet. This is not possible. You have to manage productivity. You have to manage the cost that you, I mean, there is internal rate of returns at a very early stage, it doesn’t work. Nobody can tell me this. And I take it up with everybody, and then we walk through some labs and we do a deep briefing at the end of the day and I am sure 100 out of 100 here will agree with me.

Keyur Parekh – Goldman Sachs

Thank you.

Alan Hippe

Perhaps if we take one more question here, in the Middle and then we breakout in the respective sessions. Here in the middle, gentleman in the middle.

Naresh Chouhan – Liberum Capital

Thanks. It’s Naresh Chouhan from Liberum Capital. Just couple of questions from me Please go ahead, on your slide showing 2011 core operating profit versus 2010, you’ve shown 950 million Swiss francs of cost savings, (inaudible) which is obviously all of what you achieved in 2000 – I’m sorry in the first half and should we assume the whole 2.4 billion to the bottom line and if not then where do you expect to reinvest the savings and can you give us a guidance to what you may think?

Alan Hippe

I don’t know, to be very clear if we talk about savings. We are , we talk about real savings and we’re not in this game, here we’re safe and then the reinvest part of it. And if you look at the chart, what is very important to note here is you see the profit growth from the underlying business and that includes the cost which I needed to drive this business. You remember these four boxes and the third green box I think was the profit from the ongoing business and all of the cost which we need for this ongoing business, be it in diagnostics, be it in the emerging markets where we invest a lot, that is all included in this third box. So, the 950 million is true savings and the same of course is true for the total amount. We want to save the 2.4 billion.

Now, as far as the 950 million our concern for the first half of this year about 100 million as through related to the Genentech integration 850 are related to the operational excellence. So, this is not reinvested in anything else.

Naresh Chouhan – Liberum Capital

And then on pertuzumab and you’ve talked in the past packaging and pertuzumab and Herceptin at the same price as Herceptin to help protect against biosimilars or should we assume pertuzumab is launched as a standalone product and if when we have Avastin is then packaged along with the Herceptin and they kind of Herceptin type for us?

Alan Hippe

Pascal you want to comment on that?

Pascal Soriot

Yeah, what we have talked about in the past is the pricing of the combination the core formulation of the two medico is an option of cross with that and we are looking whether it is physical but the key is really even if these are separate drugs for our products how do you price them through because I mean first of all we needed to know what the Pertuzumab’s clinical benefits were now we have better idea now so we can start thinking about how we would price this so what is the value of Pertuzumab as an agent and two is how much is it possible to price for the treatment of help to make us an investments selling the combined the two and when you define this is how do you split the cross in between their asset and Pertuzumab so I don’t have the answer yet.

Luckily we have another few months to figure that one out I know how to price Pertuzumab in isolation relatively quickly, what I need to figure out now is the logistics and how do we practically implement the pricing of the combination it’s clearly a need for us to help pay us manage per cost. Because the role of cost is kind of an issue even if the two products are very cost effective or will be cost effective there is of course a limit to the ability to the willingness of payer going to pay and that’s the affordability part of it so we need to help them and we need to figure out how do we do this considering of course the fact that the pricing or receipting over time is going to decline because of lack of patent protection.

So I don’t have the answer yet.

Severin Schwan

Thank you very much for the interest and with this I suggest that we split out into the breaking Groups. Pharma and Diagnostics will be I think in this direction.

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