Personnel Ratios Data on shares and - John Wiley & Sons · Holding and Finance Companies 96 Roche Securities 97 Roche Holding Ltd, Basel Financial Statements 102 Notes to the Financial

a) The adjusted figures are presented to improve the comparability of current and future consolidated results. They showthe recurring accounting effects of the new and revised International Accounting Standards, which became effectiveon 1 January 2000, and of the acquisition of the remaining outstanding shares of Genentech in June 1999 as if theyhad already taken place at the beginning of 1999. Furthermore, they exclude special items (impairment charge, gainfrom sales of Genentech and LabCorp shares, vitamin case, Genentech legal settlements and credit for changes inaccounting policy) and include only the continuing businesses, i.e. excluding Fragrances and Flavours.

b) EBITDA: Earnings before interest (and other financial income), tax, depreciation and amortisation (including impair-ment). This corresponds to operating profit excluding depreciation, amortisation and impairment.

c) Dividend 2000 as proposed by the Board of Directors. The 1999 figure does not include the special dividend relatingto the spin-off of the Fragrances and Flavours Division.

Key figures in millions of CHF

Figures reported in Figures reportedthe financial statements on an adjusted basisa)

2000 1999 % change 2000 1999 % change

Sales 28,672 27,567 +4 27,543 25,496 +8EBITDAb) 11,126 8,874 +25 7,068 6,647 +6Operating profit 7,131 6,421 +11 4,301 4,094 +5Net income 8,647 5,764 +50 5,014 4,401 +14Research and development 3,950 3,782 +4 3,919 3,732 +5Additions to property,plant and equipment 2,183 2,150 +2 2,115 1,984 +7

PersonnelNumber of employees at 31 December 64,758 67,695 –4 64,758 62,788 +3

RatiosEBITDA as % of sales 39 32 26 26Operating profit as % of sales 25 23 16 16Net income as % of sales 30 21 18 17Research and development as % of sales 14 14 14 15

Data on shares and non-voting equity securities in CHF

Earnings per share andnon-voting equity security (diluted) 1,024 668 596 510Dividend per share andnon-voting equity securityc) 115 100 +15 115 100 +15

Table of Contents 1

Roche GroupAnnual Report and Group Accounts 2000

Roche Holding Ltd, BaselAnnual Accounts 2000

Table of Contents

Letter from the Chairman 2Letter from the CEO 6Board of Directors and Executive Committee 10Group Performance at a Glance 14

DivisionsPharmaceuticals 16Diagnostics 28Vitamins and Fine Chemicals 36

Human Resources 42Safety and Environmental Protection 44

Finance 46Financial Review 47Consolidated Financial Statements 56Notes to the Consolidated Financial Statements 60Report of the Group Auditors 91Multi-Year Overview 92Consolidated Income Statement on an Adjusted Basis 95Holding and Finance Companies 96Roche Securities 97

Roche Holding Ltd, BaselFinancial Statements 102Notes to the Financial Statements 104Appropriation of Available Earnings 106Report of the Statutory Auditors 107

Roche – a Global Market Presence 108Operating Subsidiaries and Associated Companies 110

2 Letter from the Chairman

Our Group’s overall results for 2000 were good. Net income, operating

profit, EBITDA and sales all reached record highs. However, the figures

for last year also show lower than expected growth for our Pharmaceu-

ticals Division’s prescription medicines. The Diagnostics Division, by

contrast, not only held, but topped, its previous high market share in its

core businesses. Similarly, the Vitamins and Fine Chemicals Division

reinforced its global market leadership position while continuing to face

fierce competition.

Letter from the Chairman

Letter from the Chairman 3

Net income increased 50% for the year,reaching the remarkable total of 8.6 bil-lion Swiss francs. A further increasein operating profit and a very strongfinancial result were major contribu-tors to this impressive performance.Gains on special items, particularly thesuccessful sale of Genentech shares,also had a major impact on the Group’sfinancial statements for 2000.

On an adjusted basis, consolidatedsales advanced 8% over the previousyear to 27.5 billion Swiss francs.Expressed in local currencies, salesgrew 2%.

At the Annual General Meeting theBoard of Directors will propose adividend increase of 15%, from 100to 115 Swiss francs per share and non-voting equity security. If approved,this will be our fourteenth consecutivedividend increase.

2000 was a challenging year for ouremployees. Thanks to their profession-alism and forward-looking, proactivefocus, they played a pivotal role in ourrecord performance. I want to expressmy sincere appreciation to them allfor their personal contribution to ourGroup’s overall success.

After a long string of successes that areimpressive by any standards, sales ofour prescription medicines were anarea of special concern in 2000. As Inoted earlier, prescription drug saleswere weaker than expected, laggingbehind the average market growth rate.This had a negative impact on the priceof Roche securities. We are taking thisdevelopment very seriously and haveimplemented the necessary strategic

and organisational measures to dealwith it, particularly in the key US mar-ket. We expect sales growth in thePharmaceuticals Division to improvein the second half of 2001.

2000 saw a number of other positivedevelopments. Today we can note withsatisfaction, for example, that the

merger of Boehringer Mannheim andour Diagnostics Division has farexceeded our expectations and hasproven to be a strategically importantmove for the entire Group. The Phar-maceuticals Division also recordedadvances in several market segments,including consumer healthcare. Ourresearch and development portfolioforms a solid basis for the future. Thepositive sales growth posted by Genen-

tech should be mentioned here as well.Our majority interest in this leadingUS biotechnology company will con-tinue to be of major strategic impor-tance in the future.

The Vitamins and Fine Chemicals Divi-sion continued to meet the challengesof an intensely competitive market-place. Sales volumes increased for theyear, and the division achieved addi-tional cost savings through the intro-duction of improved productiontechnologies and processes.

Throughout its history our Group has been guided

by a commitment to innovation, and innovation will

remain the key to our success in the future.

Net income, operating profit, gross cash flow and sales

all reached record highs.

4 Letter from the Chairman

Lastly, on 8 June 2000 we spun off ourFragrances and Flavours Division as anindependent group operating underthe Givaudan name. Givaudan’s shareswere distributed as a special dividendto holders of Roche shares and non-voting equity securities.

Over the past two decades we havemade major progress towards our goalof ranking among the industry leadersin each of our businesses. But this is noguarantee of future success. We cannotafford to stand still, for we will be leftbehind if we do. We have the necessaryresources but must make the mostof them. This will involve questioningestablished ways of doing things andhaving the courage to strike out in newdirections. These are challenges requir-ing a great deal of personal initiativeand flexibility on everyone’s part.

Throughout its history our Grouphas been guided by a commitment toinnovation, and I am firmly convincedthat innovation will remain the keyto our success in the future. We willdevote our full energies to continuingon this path. In the years ahead we aimto achieve dynamic organic growthfuelled by an innovative product port-folio. And, as in the past, we willremain open to opportunities tostrengthen our position furtherthrough acquisitions and a diversenetwork of alliances.

Thank you, Fritz Gerber!

Fritz Gerber will be retiring as Chairman of the Board of Directors of Roche Holding Ltdat the Annual General Meeting on 3 April 2001. We would therefore like to pay tributehere to a man who, in his many years at Roche, has made such a major contribution tothe Group.

Fritz Gerber became Chairman of the Board of Directors and Chief Executive Officerin 1978. We have much to thank him for. For over twenty years he has been instrumentalin building Roche into a global leader. His farsighted and timely actions on so manyoccasions have helped Roche achieve extraordinary success and prepared it very well forthe challenges of the future. Time and again his ability to welcome change as an oppor-tunity and his openness to new ideas have proven to be decisive strengths. Fritz Gerberrealised well before many others that it was essential for the Group to focus on its corecompetencies, and he took the steps necessary to achieve that focus with skill andbreadth of vision. A great believer in people, he has always been keenly interested instaff development. The unwavering commitment to innovation he has shown throughouthis chairmanship has set an example for the entire Group. One of the first to recognisethe great potential of biotechnology, it was he who secured Roche a majority holding inthe US company Genentech.

The Board of Directors, Executive Committee and employees of Roche would like toexpress their deep appreciation to Fritz Gerber. In recognition of his outstanding service,the Board of Directors has decided to appoint him Honorary Chairman of Roche. He willalso remain a member of the Board of Directors of Roche Holding Ltd. We are delightedthat Mr Gerber will be retaining these close ties with our company.

Andres F. Leuenberger Franz B. HumerVice-chairman of the Board of Directors Delegate of the Board of Directors

Letter from the Chairman 5

Working together, Franz B. Humer,whom the Board of Directors haselected to succeed me as Chairman,the Executive Committee and ouremployees will build our Group’sfuture with entrepreneurial courage,vision and energy.

Fritz Gerber

6 Letter from the CEO

Roche can look back on a profitable 2000. Net income rose to 8.6 billion

Swiss francs, a robust gain of 50% over the previous year. Adjusted sales

increased 8% to 27.5 billion Swiss francs. Operating profit, including

gains from the sale of Genentech stock, was up 11% to 7.1 billion Swiss

francs, and gross cash flow (EBITDA) for the divisions showed even

stronger growth, advancing 25% to 11.1 billion Swiss francs. Financial

income, which once again was a significant contributor to Group

profitability, increased 106% to a strong 2.3 billion Swiss francs.

Letter from the CEO

Letter from the CEO 7

Our impressive earnings growth had avery positive impact on the Group’sfinancial position. The ratio of equityand minority interests to assetsincreased to 46%; at year’s end hold-ings of cash and marketable securitiestotalled nearly 21 billion Swiss francs;and after reporting a net debt of 3 bil-lion Swiss francs at the end of 1999,we have become a net creditor with anet liquidity position of 3 billion Swissfrancs. We will use our strong cash flowfor further investments in growing ourbusinesses and to strategically reinforceRoche’s presence as a leading health-care company.

Net income also increased for the yearon an adjusted basis, rising 14% to5 billion Swiss francs (to facilitate com-parisons, these figures exclude specialitems and include only continuingoperations). Another very good per-formance by the Diagnostics Division,which recorded double-digit gainsin sales and operating profit, and anexceptionally strong financial resultwere major growth drivers. Adjustedfinancial income increased 39% to1.7 billion Swiss francs.

While sales by the PharmaceuticalsDivision rose 7% in Swiss franc termsto 17.7 billion, they were up only 1%in local currencies. This slowdown ingrowth resulted in a loss of marketshare. Sales were affected by the expiryof patent coverage for Versed/Dormicum(anesthesia) and Ticlid (stroke) in theUnited States. Other factors includedseasonally weak sales of Rocephin (bac-terial infections) and flattening sales ofXenical (obesity) following extremelysuccessful launches in major markets.Adjusted operating profit, which

showed a gain of 6% to 3.2 billionSwiss francs, grew at roughly the samerate as sales.

We expect our pharmaceuticals sales toaccelerate in the second half of 2001.Our portfolio includes innovativeproducts for major therapeutic areas

such as oncology, virology and trans-plantation medicine. Last year we alsoacquired the global rights to Kytril, amedicine used in oncology. In connec-tion with this move, we sold the NorthAmerican marketing rights for Coreg(cardiovascular). We will be taking astep-by-step approach to developingthe market for Xenical further.

In 2000 we received six approvals inthe European Union, four in theUnited States and three in Japan fornew products and indications. Addi-tionally, we filed over ten regulatoryapplications in key markets, includingan application for Pegasys in hepati-tis C. Other new drugs, such as iban-dronate for osteoporosis and the HIVfusion inhibitor T-20, are in advanced-stage development. In terms of bothquantity and quality, our clinicalpipeline looks very promising, with atotal of 63 projects and 40 differentmolecules in development. Addition-ally, we have improved our positionfor future growth by pursuing an activelicensing policy. In February 2001,

Our impressive earnings growth had a very positive impact

on the Group’s financial condition. Just three years after

the Boehringer Mannheim acquisition, we have a high net

liquidity position and a very solid balance sheet.

ment. Development work on our novelTaqMan analyser is also well advanced.The first of a new generation of labora-tory systems designed to make routinePCR-based testing significantly fasterand easier, TaqMan automates everystep of the testing process, from samplepreparation to detection. We will alsocontinue steadily expanding our rangeof PCR-based test kits.

At Roche Molecular Biochemicals, thefourth of our diagnostics businesses,the focus is increasingly on supplyinginnovative system technologies for usein the pioneering fields of genomicsand proteomics, now areas of intenseresearch activity. The latest example isRTS 500, the world’s first commerciallyavailable system for automated cell-freeprotein synthesis. Launched in 2000,RTS 500 will play a major role in thefast-growing proteomics market.

The Vitamins and Fine ChemicalsDivision recorded volume increases inall major product segments, gainingmarket share against a background ofintense competition. However, priceerosion and the sale of the medicinalfeed additives business in early May2000 caused sales revenue to decline3% (9% in local currencies) to 3.6 bil-lion Swiss francs. As a result, operatingprofit was down 15% to 494 millionSwiss francs, despite improved produc-tivity. With new products coming tomarket, leading-edge competencies inresearch and production and anexpanding global presence, particularlyin the emerging markets of Asia andLatin America, we are ideally equippedto maintain our leadership in a com-petitive global market. We expect to seepositive sales growth in 2001.

8 Letter from the CEO

for example, we acquired an innovativeanticancer medicine in late-stage devel-opment from OSI Pharmaceuticals.

We also anticipate sustained growth inour consumer health business. Afterdeclining in 1999, sales of our OTCproducts rebounded last year, growing

by 7% (4% in local currencies) to1.7 billion Swiss francs. A tight focuson eight global brands was one factorcontributing to the turnaround.

The Diagnostics Division postedanother very good result against abackground of sluggish overall marketgrowth, with sales advancing 18% to6.3 billion Swiss francs. Expressed inlocal currencies, this was equivalent toan increase of 12%. As a result, wegained additional market share andstrengthened our global leadershipposition. Divisional operating profit,up 30% to 822 million Swiss francs,rose even more sharply, boosting thedivision’s profit margin by one per-centage point to 13%.

An uncompromising focus on cus-tomer needs and above-average salesgains in each of the division’s businessunits contributed to this record result.And the prospects for the current yearare excellent. At every stage of health-care delivery – from identifying diseasepredispositions to monitoring treat-ment responses – diagnostic tools arean increasingly important factor in

achieving cost-effective treatment out-comes that address the causes of dis-ease. All four Roche Diagnostics unitsproduced pioneering research for newor next-generation products that willmake us an even stronger competitor.We expect double-digit sales growth tocontinue.

The Accu-Chek blood glucose metermarketed by Roche Patient Care isalready Roche’s top-selling product,with annual sales totalling over 2 billion Swiss francs. Following thesuccessful integration of AVL MedicalInstruments, we are now also theleader in the fast-growing point-of-caresegment in hospital diagnostics.

Despite fierce market competition, weanticipate a positive future for RocheLaboratory Systems, as it continues tobenefit from the launch of additional,user-friendly analysers and new testreagents and pursues efforts to cutcosts and raise productivity.

Roche Molecular Diagnostics – witha market share of just over 50% theundisputed leader – continued torecord dynamic growth. Our tests areconsidered the gold standard for diag-nosing infectious diseases. During theyear we signed a licensing agreementwith Chiron Corporation relating totests for hepatitis C; the agreement,which marks the end of protracted liti-gation, has opened the way for inten-sive development of this attractive seg-

Another very good performance by the Diagnostics Division,

which recorded double-digit gains in sales and operating profit,

was a major growth driver.

Letter from the CEO 9

Additional lawsuits relating to theprice-fixing agreements revealed in1999 in the vitamins industry weresettled with indirect customers in theUnited States. The formal investigationopened in mid-2000 in the EuropeanUnion is still in progress. Adequateprovisions were made in 1999 for theexpenditures expected to arise fromthe vitamin case.

We have positioned ourselves well tomeet the challenges ahead. Ourstrengths include great financial flexi-bility, a very solid balance sheet, thePharmaceuticals Division’s strong pres-ence in the hospital and specialist seg-ments, our strategic collaboration withGenentech, a rich research and devel-opment pipeline, the turnaround ofRoche Consumer Health and ourglobal leadership in diagnostics andvitamins. As a global pharmaceuticalcompany and the world market leaderin diagnostics, we are convinced thatwe are ideally equipped to benefit fromthe revolution taking place in genetics,genomics and proteomics. With their

broad implications for medical science,these are the fields where interests indiagnostics and pharmaceuticals con-verge – and where groundbreakingintegrated healthcare solutions anddrugs tailored to the needs of specificpatient populations are being born.

Finally, the tremendous professional-ism and dedication of nearly 65,000

Roche employees around the globeremain a key success factor for thefuture. I would like to take this addi-tional opportunity to thank them allfor their hard work and the valuablecontributions they have made to build-ing and strengthening our company.Together, we will tackle the challengesahead and keep Roche on track forsuccess.

We will use our strong cash flow for further investments in

growing our businesses and to strategically reinforce Roche’s

presence as a leading healthcare company.

Franz B. Humer

10 Board of Directors and Executive Committee

Board of Directors andExecutive Committee

General Meeting elected Peter Brabeck-Letmathe, CEO of Nestlé, to join theBoard.

Former Cantonal Councillor KurtJenny will step down from the Board ofDirectors at the 2001 Annual GeneralMeeting, and Charles Weissmann willnot be available for another term. Intheir many years on the Board bothmen have contributed greatly to build-ing and strengthening the Group’sbusinesses, and we extend to them oursincere thanks. The Board of Directorsproposes that businessman and NationalCouncillor Walter Frey and John Bell,the Nuffield Professor of ClinicalMedicine at Oxford University, beelected as new members of the Board.

Board CommitteesWithin the scope of its responsibilities,the Board of Directors of RocheHolding Ltd has delegated certain tasksfor fuller attention to the Chairman

Board of DirectorsThe Board of Directors has electedFranz B. Humer as its new Chairman,subject to his re-election to the Boardat the Annual General Meeting on3 April 2001. Dr Humer will assumethe Chairmanship on 4 April 2001while continuing to serve as ChiefExecutive Officer.

In recognition of his major contribu-tions to Roche, the Board of Directorshas named long-standing ChairmanFritz Gerber Honorary Chairman ofthe Board. He will continue to serve onthe Board.

Werner Stauffacher retired from theBoard of Directors at the 2000 AnnualGeneral Meeting, following his appoint-ment as President of the Swiss Academyof Medical Sciences. We wish to thankProf. Stauffacher for his valuable con-tributions to the Group during his tenyears on the Board. The Annual

Board of Directors and Executive Committee 11

and Vice-chairmen of the Board, theAudit Committee, the Finance &Investment Committee and the Com-pensation Committee.

Chairman and Vice-chairmenThe Chairman and two Vice-chairmenof the Board of Directors serve jointlyas a Nomination Committee. In thiscapacity they prepare proposals to theBoard regarding the appointment ofnew members and are concerned withsuccession planning and the evaluationof candidates for the Executive Com-mittee.

Audit CommitteeThe Audit Committee is composedexclusively of Board members who arenot members of the Executive Com-mittee.

This committee assists the Board inoverseeing management of the Group’sbusinesses, particularly with respect tofinancial and legal matters and com-pliance with internal business andadministrative policies, including poli-cies on safety and environmental pro-tection. In particular, the committeereviews the scope and extent of exter-nal and internal audits, the indepen-dence and objectivity of the auditorsand the establishment of appropriateorganisational structures for safety andenvironmental protection.

Finance & Investment CommitteeThe Finance & Investment Committeeassists the Board of Directors on issuesrelating to finance, investment andcapital assets and in evaluating risks inthese areas. Specifically, the committeereviews:

– accounting systems and procedures– the organisation and scope of finan-

cial controlling– financial planning, budgets and bud-

get execution– financial reporting to shareholders

and the general public– financial investments

The committee approves capital expen-ditures and divestments valued at morethan 100 million Swiss francs.

Compensation CommitteeThe Compensation Committee iscomposed of three Board memberswho are not members of the ExecutiveCommittee. Upon application by theChairman, the committee approves theGroup’s compensation policy and thecompensation received by members ofthe Executive Committee, generalmanagers of major Roche affiliates andother high-level employees. In addi-tion, it approves employee option pro-grammes and other equity and profit-sharing devices and defines generalpolicy on company pension benefitsand other post-employment benefitplans.

Executive CommitteeAt the end of 2000 Henri B. Meierretired as Roche’s Chief Financial Offi-cer, a position he held for 15 years. TheBoard of Directors wishes to express itsdeep appreciation to Dr Meier, whoseoutstanding achievements have been adecisive factor in the Group’s success.He will continue to serve as a memberof the Board. Anton Affentranger hasbeen named as the new Chief FinancialOfficer.

William M. Burns became Head of thePharmaceuticals Division on 1 January2001. Franz B. Humer, who headed thedivision until the end of 2000, will nowconcentrate on overall Group manage-ment.

Richard Laube, Head of the Pharma-ceuticals Division’s global consumerhealth business, has been appointed tothe Executive Committee, effective1 January 2001.

I am confident that, with our new teams on the Board of

Directors and Executive Committee, we are ideally equipped

to keep our Group on track for success.Fritz Gerber, Chairman of the Board of Directors

12 Board of Directors and Executive Committee

Name, year of birth Term ends

Board of Directors Dr h.c. Fritz Gerber (1929) Chairman 2004**

Dr Andres F. Leuenberger (1938) � Vice-chairman 2006**

Rolf Hänggi (1943) � � Vice-chairman 2002**

Dr Franz B. Humer (1946) Delegate 2001**

Peter Brabeck-Letmathe (1944) � 2002**

André Hoffmann (1958) � � 2006**

Prof. Kurt Jenny (1931) � 2004**

Dr Henri B. Meier (1936) 2006**

Dr Andreas Oeri (1949) � 2004**

Prof. Charles Weissmann (1931) � 2001**

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

Board of Directors as of 1 January 2001 (from left):

Andres F. LeuenbergerKurt Jenny

Rolf HänggiAndré Hoffmann

Fritz GerberHenri B. Meier

Franz B. Humer Peter Brabeck-Letmathe

Charles WeissmannAndreas Oeri

� Finance & Investment Committee� Audit Committee� Compensation Committee

1 January 2001

** Franz B. Humer will stand for another term on the Board of Directors. Fritz Gerber will retire as Chairmanat the 2001 Annual General Meeting. The Board of Directors has elected Dr Humer as its new Chairman,subject to his re-election to the Board at the Annual General Meeting. Fritz Gerber will remain a memberof the Board after retiring as Chairman.

** Kurt Jenny will retire from the Board of Directors, and Charles Weissmann will decline another term onthe Board at the 2001 Annual General Meeting. The Board will propose that the Annual General Meetingelect Walter Frey and John Bell.

Board of Directors and Executive Committee 13

Executive Committee from 1 January 2001

(from left):William M. Burns

Jonathan KnowlesMarkus AltweggFranz B. HumerRichard Laube

Heino von ProndzynskiDaniel Villiger

Anton Affentranger

1 January 2001

Name, year of birth Position

Executive Committee Dr Franz B. Humer (1946) Chief Executive Officer

Anton Affentranger (1956) Chief Financial Officer

William M. Burns (1947) Pharmaceuticals Division

Heino von Prondzynski (1949) Diagnostics Division

Dr Markus Altwegg (1941) Vitamins and Fine Chemicals Division

Richard Laube (1956) Pharma Consumer Health

Prof. Jonathan Knowles (1947) Global Pharmaceutical Research

Dr Daniel Villiger (1955) Corporate Services

Secretary to the Pierre Jaccoud (1955)Executive Committee

Statutory Auditors of Ernst & Young LtdRoche Holding Ltd

Group Auditors PricewaterhouseCoopers AG

14 Group Performance at a Glance

Group Performanceat a Glance

Price development of non-voting equity security (Genussschein) in CHF

20,000

16,000

12,000

8,000

4,000

0

Roche non-voting equity security (adjusted) Swiss Market Index (rebased)

2000199919981997199619951994199319921991

Helped partly by special gains, Rochehas increased its profitability enor-mously in recent years, while continu-ing to strengthen its consolidatedbalance sheets. To facilitate compar-isons of medium-term performancechanges, the figures presented here for1999 and 2000 exclude special itemsand refer solely to ongoing operations– the spun-off fragrances and flavoursbusiness is therefore excluded.

Roche’s sales have averaged double-digit growth over the past five years,rising during this period to 27.5 billionSwiss francs. Net income and grosscash flow (EBITDA) have both climbedsteadily, and in 2000 exceeded 5 billionand 7 billion Swiss francs, respectively,for the first time. In order to remaina strong innovator and one of theworld’s leading healthcare groups in allmajor markets, we have consistentlyused our high cash inflows for invest-ments in research and development

projects and in expanding our market-ing and distribution operations.

In 2000 we saw another, impressiveimprovement in our balance sheetposition. Just three years after theBoehringer Mannheim acquisition,Roche is once again a net creditor, witha net liquidity position of 3.2 billionSwiss francs; the ratio of equity andminority interests to total assets rosethree percentage points in 2000 toa very solid 46%.

Sales by division in millions of CHF

PharmaceuticalsDiagnosticsVitamins and Fine ChemicalsFragrances and FlavoursOthers

Group figures

Net income in millions of CHF Net income per share and EBITDA in millions of CHF

non-voting equity security in CHF

7,000

6,000

5,000

4,000

3,000

0

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

| 96 | 971) | 98 | 99 | 00 | 96 | 971) | 98 | 99 | 00

Operating profit in millions of CHF Research and development in millions of CHF Additions to property,plant and equipment in millions of CHF

| 96 | 97 | 98 | 99 | 00

| 96 | 97 | 98 | 99 | 00 | 96 | 97 | 98 | 99 | 00 | 96 | 97 | 98 | 99 | 00

4,62

9

5,07

6 6 ,4

23

6,64

7

3,42

0

3,59

0

4,35

0

4,09

4

3,89

9

4,27

7

4,39

2

4,40

1

700

600

500

400

300

200

100

0

452 49

6

509

510

2,44

6

2,90

3

3,40

8

3,73

2

1,62

4

1,80

2

1,88

3

1,98

4

Group Performance at a Glance 15

1) Before special charges.1999/2000 figures on an adjusted basis; figures are not fully comparable to previous years due to Givaudanspin-off, Genentech transactions and accounting policy changes.

1,000

2,000

0

5,000

10,000

15,000

20,000

25,000

30,000

1,4146

3,329757

10,460

Tota

l 15,

966

1,928

3,803966

12,070

Tota

l 18,

767

2,040

3,630

4,616

14,376

Tota

l 24,

662

3,727

5,282

16,487

Tota

l 25,

496

3,605

6,252

17,686

Tota

l 27,5

43

| 96 | 97 | 98 | 99 | 00 |

5,01

4 596

7,06

8

4,30

1

3,91

9

2,11

5

Elsa K. is being treated for colorectalcancer with Xeloda, an anticancer drugthat is inactive until it reaches tumourtissues. The drug’s good tolerability profilehas improved Elsa’s quality of life. Andbecause she can take Xeloda in tablet form at home, she also has more time tospend with her grandchildren.

Roche develops diagnostic tests to promote more effective, individualised care in cancer patients. These tests make it possible to predict the probability of clinicalbenefit from a particular treatment and to monitor patients’ responses to medicineslike Xeloda and Herceptin.

In 2000 our pharmaceuticals business, which accounts for almost two-thirds of Group

sales, once again posted increases in sales revenue and operating profit.

Although sales of our prescription medicines did not grow as fast as the market average,

we achieved significant milestones in a number of major therapeutic areas, particularly

oncology, transplantation and virology. Sales by the US biotechnology company

Genentech, in which we hold a majority interest and with which we have a close

collaborative relationship, continued to outperform the US market. In the non-

prescription medicines sector, Roche Consumer Health recorded a substantial rise in

sales, showing that it is back on the growth track.

Roche submitted more than ten marketing applications for new chemical entities and

supplemental indications in 2000. Late in the year we also acquired the global rights to

Kytril, a drug used in chemotherapy.

Pharmaceuticals

Pharmaceuticals Division in brief

in millions of CHF change2000 99/00

Sales 17,686 +7%– Rx 13,910 +4%– Genentech 2,082 +37%– OTC 1,694 +7%

EBITDA1) 4,970 +7%Operating profit1) 3,249 +6%R&D expenditures 3,201 +5%Employees 41,409 +3%

1) On an adjusted basis.

Pharmaceuticals 17

18 Pharmaceuticals

operating profit reached 3,249 millionSwiss francs, with an operating marginof 18%. The division’s EBITDA totalled4,970 million Swiss francs, or 28% ofsales.

We are focusing our pharmaceuticalsbusiness on therapeutic areas withsignificant unmet medical needs andwhere we have special expertise andexperience. In 2000 we achieved fur-ther significant advances in severalof these areas.

Oncology – leadership built on inno-vation. We continued to reinforce ourstrong presence in oncology. Amongthe many factors contributing to theabove average growth potential of thismarket are major advances in earlydiagnosis, better targeted therapy basedon the identification of cancer sub-types and rapid acceptance of innova-tive new products.

Sales of Xeloda, a novel tumour-selec-tive cancer drug for oral use, grewby more than 70% to 150 millionSwiss francs. Xeloda monotherapy isapproved in over 40 countries formetastatic breast cancer resistant tocertain standard chemotherapies. Thisproduct was filed for breast cancertreatment in Japan in 2000. Studyresults published late in the yearshowed Xeloda and docetaxel to be thefirst chemotherapy combination toproduce superior survival in metastaticbreast cancer patients comparedwith monotherapy. Xeloda was alsoapproved for first-line treatment ofmetastatic colorectal cancer in Europe.The US Food and Drug Administration(FDA) has issued a letter of approva-bility for the drug in this indication.

Prescription medicines – globalpresence in key therapeutic areasreinforced. Sales by the PharmaceuticalsDivision rose 7% – 1% in local curren-cies – to 17,686 million Swiss francs in2000. Prescription drug sales (includingGenentech) increased to 15,992 millionSwiss francs, for a year-on-year growthrate of 7% in Swiss francs and 1% inlocal currencies. On an adjusted basis,

I am confident that we have the ability to launch one

to two major new products or additional indications

every year, ensuring continued growth for our

Pharmaceuticals Division in the coming years.Franz B. Humer, CEO, Head of the Pharmaceuticals Division until 31 December 2000

Pharmaceuticals 19

Top-selling prescription products (including Genentech)Product Generic name Indication Sales in 2000 in millions of CHF

Rocephin ceftriaxone Bacterial infections 1,710Roaccutan/Accutane isotretinoin Severe recalcitrant nodular acne 1,280

Xenical orlistat Weight loss, weight management 950Mabthera/Rituxan1) rituximab Low-grade non-Hodgkin’s lymphoma 900CellCept mycophenolate mofetil Transplantation, prevention of acute

rejection 790NeoRecormon epoetin beta Anemia 650Herceptin1) trastuzumab Metastatic breast cancer 540Viracept nelfinavir mesylate HIV infection 500

Dormicum/Versed midazolam Anesthesia and sedation 470Nutropin/Protropin1) somatropin/somatrem Growth hormone 390Furtulon doxifluridine Cancer of the colon, breast and stomach 340Activase1) alteplase Myocardial infarction 330Neupogen filgrastim; G-CSF Neutropenia 300Pulmozyme1) dornase alfa; DNase Cystic fibrosis 300Lexotan bromazepam Anxiety and tension states 290Invirase/Fortovase saquinavir HIV infection 280Rocaltrol calcitriol Osteoporosis 280Roferon-A interferon alfa-2a Hepatitis B and C, cancer 260Madopar levodopa + benserazide Parkinson’s disease 250Dilatrend carvedilol Heart failure, hypertension, angina pectoris 240Torem torasemide Hypertension 230Cymevene/Cytovene ganciclovir Cytomegalovirus infection 230Rivotril clonazepam Epilepsy 210

Major product approvals and launches in 20002)

Product Generic name Indication Country

CellCept mycophenolate mofetil Prevention of acute rejection in pediatric kidney transplantation USAPrevention of acute rejection in liver transplantation EU, Switzerland, USA

Herceptin1) trastuzumab Metastatic breast cancer EURoferon-A + ribavirin interferon alfa-2a Chronic hepatitis C EUTamiflu3) oseltamivir Treatment of influenza A and B Canada, Japan, Latin America

Prevention of influenza A and B USATreatment of influenza A and B in children aged one year and older USA

Xenical orlistat Weight loss, weight management Australia, ChinaXeloda capecitabine Metastatic colorectal cancer Australia, Canada, EU, Switzerland

1) Jointly marketed by Roche and Genentech 2) Includes supplemental indications; updated to mid-

February 20013) Jointly developed by Roche and Gilead Sciences

A total of eight medicines had sales of half a billionSwiss francs or more. Among the division’s top tenproducts, Roaccutan, Mabthera, CellCept, Neo-Recormon, Herceptin and Viracept all posted dou-ble-digit sales growth in local currencies. Xenicalconsolidated its position as the leading pharmaceu-tical for weight loss and weight management.

20 Pharmaceuticals

Herceptin sales were also up sharply,advancing by more than 70% to540 million Swiss francs. Herceptin isthe first breast cancer drug to selec-tively target the HER2 receptor, thusblocking signal pathways that causeuncontrolled cell growth. Roche intro-duced Herceptin in Europe in 2000,

and a marketing application was alsosubmitted during the year in Japan.Genentech markets this breakthroughtreatment in the United States, whileRoche holds exclusive marketing rightsin all other countries. Several large-scale studies are currently evaluatingadditional indications. During the yearwe entered into research alliances withBristol-Myers Squibb and Aventis to

facilitate the development of combina-tion regimens including Herceptin.

Mabthera/Rituxan, the first humanisedmonoclonal antibody approved forcancer treatment, likewise continued toshow strong growth, as sales climbedmore than 80% to 900 million Swiss

francs. This product is indicated forcertain forms of non-Hodgkin’slymphoma (NHL), a cancer of thelymphatic system. Roche holds world-wide marketing rights for Mabtheraoutside the United States and will co-market the drug in Japan. Used asmonotherapy or in combination withchemotherapy, Mabthera/Rituxan ishighly effective and is well tolerated bypatients. Our objective is to registerthe drug for first-line use in low-gradeNHL and in autoimmune diseases –areas in which Mabthera/Rituxan hasthe potential to revolutionise treatment.

Bondronat, a third-generation bisphos-phonate and the only bisphosphonateavailable in both intravenous and oralformulations for the management ofhypercalcemia of malignancy, experi-enced strong demand. In 2001 the oralform of Bondronat will be submitted

Sales by region Sales by therapeutic area

Prescription produtcs (including Genentech)

Japan 6% Others 8%Metabolic disorders 12%

Others 2%Central nervous system 12%

Infectious diseases, virology 22%

Europe 35%North America 40% Cardiovascular diseases 10%

Oncology 16%

Dermatology 9%

Inflammatory and autoimmune diseases 17%

Latin America 11%

Total sales of the division 1996–2000 in millions of CHF

17,500

15,000

12,500

10,000

7,500

5,000

2,500

0

10,4

60

12,0

70 14,3

76 16,4

87

17,6

86

| 96 | 97 | 98 | 99 | 00

duration and severity of the flu anddecreasing the risk of complications.The product is available for influenzatreatment in the United States, Japan,Canada, Switzerland and many coun-tries in the southern hemisphere. Theadditional data requested for our filingwith the EU regulatory authoritieswere submitted in February 2001 aswere applications for additional indica-tions. In the United States Tamifluwas approved for influenza preventionin adults and adolescents aged 13 yearsand older and for the treatment ofinfluenza in children aged one year orolder.

Roche’s next-generation interferon,Pegasys, was submitted for review bythe FDA in the United States for thetreatment of hepatitis C; an EU appli-cation was filed in February 2001.Two large-scale clinical trials compar-ing Pegasys with standard interferontherapy have shown Pegasys to provide

Pharmaceuticals 21

for approval for metastatic bone diseasein breast cancer patients.

Sales of NeoRecormon also rosestrongly in 2000, mainly due to thedevelopment of new market segmentsin oncology and dialysis. A marketingapplication for use in hematologicalcancers was filed in the EuropeanUnion in July.

In December Roche further strength-ened its oncology portfolio by acquir-ing the global rights to the anti-nauseadrug Kytril from SmithKline Beecham.Kytril is given to cancer patients tosuppress the severe and debilitatingnausea and vomiting associated withchemotherapy.

In early 2001 Roche and Genentechsigned an agreement with OSI Phar-maceuticals of New York for the co-development and commercialisationof a novel anticancer drug. The drug,known as OSI-774, is currently inphase II clinical trials for lung, headand neck and ovarian cancer.

Expanding our number 1 position inweight management. Xenical has estab-lished itself as the world’s leading pre-scription pharmaceutical for weight lossand weight management. It is the onlycommercially available weight lossproduct that acts locally in the gastro-intestinal tract, where it reduces absorp-tion of dietary fat by about 30%. Theproduct was rolled out during the yearin Australia and Indonesia and alsoreceived marketing authorisation inChina, Korea and Taiwan. Now thatXenical has been successfully launchedin major countries, we want to steadilydevelop the market for this novel

medicine. After a strong start sales in2000 levelled off and plans have beendeveloped to return to growth. Key activ-ities include programmes to informpatients about the health benefits of los-ing weight, educate them on the rightway to use Xenical to achieve long-termweight control and provide support andencouragement during therapy. Otherinitiatives are aimed at realising thedrug’s largely untapped potential in vari-ous patient populations (for example,overweight men) and address weight-related risk factors in patients with type2 diabetes, dyslipidemia and hyperten-sion. Recent studies have shown Xenicalto lead to significant weight loss andimproved weight control in patients withtype 2 diabetes, allowing some patientsto reduce their dose of glucose-loweringmedication. Roche has launched a clinicaldevelopment programme aimed atextending the use of Xenical to theseconditions. Research continues to charac-terise a second-generation lipase inhibi-tor and other approaches towards obesity.

Virology – major growth opportuni-ties. In the virology segment, Rochescored a major success with Tamiflu,the only oral neuraminidase inhibitor.In its first full year on the US market itbecame the leading influenza medicine.Tamiflu prevents the influenza virusfrom replicating, thus reducing the

By having our research, development and marketing

teams work even more closely, we are making

sure that our medicines optimally serve doctors’ and

patients’ needs and that we will be able to fully

realise our products’ potential in the future.William M. Burns, Head of the Pharmaceuticals Division since 1 January 2001

22 Pharmaceuticals

statistically superior efficacy in hepati-tis C. Pegasys is currently the onlypegylated interferon shown to be safeand effective in hepatitis C patientswho also suffer from liver cirrhosis.Hepatitis C is increasingly recognisedas a major cause of liver disease andliver failure. More than 170 millionpeople world-wide are infected withthis life-threatening virus.

In the HIV area, Viracept sales con-tinued their solid growth trend. Datafrom clinical trials showed thatpatients receiving Viracept remainedon therapy significantly longer andexperienced 85% fewer side effectsthan those taking another proteaseinhibitor. The twice daily dosing

schedule of Viracept is also felt to be anadvantage by patients.

Sales of the AIDS medicines Invirase/Fortovase declined in 2000 as a resultof an increasingly competitive market.Fortovase continues to deliver the fulltherapeutic potential of saquinavirand, used in combination with ritona-vir, has maintained its leadership inpre-treated patients. Very promisingnew data supporting the use of Forto-vase with once daily, low-dose ritonavirwere presented at the Conference onRetroviruses and Opportunistic Infec-tions in February 2001.

In the United States we submitted anew drug application for Valcyt for thetreatment of cytomegalovirus retinitisin patients with AIDS.

Further progress was made in develop-ing an entirely new class of anti-HIVmedicines known as fusion inhibitors,which prevent HIV from penetratingand infecting host cells. The fusioninhibitor T-20 entered phase III clinicaltrials in 2000, and phase II testing ofT-1249 will start in 2001.

Transplantation medicine – buildingon a position of strength. CellCept, apotent immunosuppressant used to pre-vent kidney, heart and liver transplantrejection, continued to show stronggrowth. The product was approved in2000 for use in liver transplantation inthe United States, the European Unionand Switzerland. In December CellCeptalso received US regulatory clearancefor use in pediatric kidney transplantrecipients. Additional data have con-firmed that low-toxicity immuno-suppressive regimens combining

Integrated Health Care Solutions – gaining momentumOur Integrated Health Care Solutions (IHCS) programmes offer opportunities toimprove healthcare delivery by combining innovative diagnostic tests and treatments.For patients, this opens the way for more individualised care. Our goal is to developproducts and services which will improve treatment outcomes with our medicines byenabling health professionals to make timely diagnoses, predict the probability ofclinical benefit and monitor treatment response.

Initial trials with a novel diagnostic test for the early detection of heart failure look verypromising. The test runs on our Elecsys analyser and will be launched in the second halfof 2001. The timely diagnosis of heart problems improves the chances of successfultreatment with cardiovascular medicines like Dilatrend and Torem.

In oncology, we scored a major technology breakthrough with the first assay capableof analysing paraffin-embedded tissues using the sensitive polymerase chain reaction(PCR) method. Tissue samples used to diagnose cancer are normally preserved inparaffin. In the near future this may lead to new tests for other cancers that overexpressthe HER2 protein; our anticancer medicine Herceptin currently offers highly targetedtherapy for HER2-positive breast cancer. New possibilities are also opening up formeasuring enzyme levels in tumours, an important parameter for the effective use of ouranticancer medicine Xeloda. Clinical trials are currently under way to validate specificbiomarkers designed to facilitate patient selection and thus substantially increase theresponse rate to this drug. We expect this to allow Xeloda therapy to be targetedeven more effectively in patients with breast and colorectal cancer.

Pharmaceuticals 23

CellCept and Zenapax significantlyimprove patients’ quality of life. Ourcommitment to transplantation medicinealso includes major funding for theRoche Organ Transplantation ResearchFoundation, an organisation that pro-motes clinical transplantation research.

Well-established products for anes-thesia, infections, severe acne andcardiovascular disease. Roaccutan/Accutane posted double-digit salesgrowth, helped particularly by thepositive sales trend in North America.This oral retinoid (vitamin A derivative)is a highly effective treatment for severenodular acne. Marketing applicationsfor a new formulation were filed dur-ing the year in the United States andCanada. In addition, we institutedvarious measures to defend the productagainst the possible entry of genericcompetitors into the US market in thesecond half of 2001. The range ofservices we provide to prescribers andtheir patients to optimise treatmentwith Roaccutan/Accutane has recentlybeen expanded further. In the UnitedStates, for example, the comprehensivepregnancy prevention programmefor patients taking the drug has beenstrengthened in an effort to preventfetal exposure to this potent retinoid.

The antibiotic Rocephin remained ourtop-selling medicine, with salestotalling 1.7 billion Swiss francs in2000. Outpatient parenteral antibiotictherapy with Rocephin continued toincrease. Use of the drug in outpatientsettings is already well established inthe United States, Canada, Italy, theUnited Kingdom, Argentina and Mex-ico, and is now also being introducedin China, Japan and Central America.

As expected, sales of Dormicum/Versed, a drug used in hospitals foranesthesia and sedation, fell nearly50%, to 470 million Swiss francs,due to patent expiry in the UnitedStates in mid-2000.

Sales of carvedilol (Dilatrend/Kredex/Coreg), used to treat hypertension,angina pectoris and chronic heartfailure, rose markedly in 2000, spurredby new data from a major internationalclinical study showing a significantsurvival benefit in patients with severechronic heart failure. Exclusive rightsto Coreg in North America were sold toSmithKline Beecham in December;SmithKline Beecham and Roche pre-viously co-promoted the product in theUnited States. We remain the supplierof this effective, safe and well-toleratedmedicine in all other countries.

Roche Consumer Health – focusingon strong brands. Sales by RocheConsumer Health, our OTC medicinesbusiness, rose 7% to 1,694 million

We’ve returned to growth in the OTC sector

by concentrating our efforts on building core

global brands.Richard Laube, Head of Roche Consumer Health

Focus on eight OTC brands in millions of CHF

Product Uses Sales

Aleve Analgesic 200Supradyn Multivitamin 175Bepanthen Skin care 140Rennie Antacid 135Redoxon Vitamin C 130Berocca Multivitamin 85Saridon Analgesic 65Elevit Pronatal Multivitamin 25

Swiss francs; in local currency termssales were up 4%. This significantturnaround after the previous year’sdecline in sales was due primarily torestructuring activities commencedin 1999 and our tighter focus on keyglobal brands.

Eight core brands now account for overhalf of our total consumer health sales.Sales of these brands increased 17% forthe year in Swiss francs and 12% inlocal currencies. Aleve became our top-selling product, thanks to healthy salesgrowth in existing markets, particularlythe United States, and roll-outs in newmarkets. Sales of Supradyn, RocheConsumer Health’s second strongestbrand, also showed a double-digit gain,with entries into new markets, notablySpain, and a product relaunch inthe United Kingdom driving growth.Supradyn 50+, a new formulationtailored specifically to the needs ofconsumers over 50, was successfullylaunched in a number of Europeanmarkets. All other core OTC brandsalso posted healthy growth, largely asa result of improved marketing activ-ities – particularly in the area of direct-to-consumer communications.

24 Pharmaceuticals

Sales growth was strongest in NorthAmerica, where Aleve sales rosesharply, and in Europe, where RocheConsumer Health ranks second inthe OTC market. In Latin America,particularly in Mexico, sales grewfaster than the market thanks to highlyfocused marketing.

Genentech – outperforming the mar-ket with new cancer therapies. Overthe years our close working relation-ship with Genentech has becomeincreasingly important from both ascientific and a commercial point ofview, and it continues to be extremelysuccessful. Roche has held a majorityinterest in this California-basedbiotechnology company since 1990. In2000 Genentech sales in the UnitedStates were up 37% – 22% in US dol-lars – to 2.1 billion Swiss francs.

Genentech focuses its research anddevelopment efforts on heart diseaseand cancer, the number 1 and number2 killer diseases in the United States.With two marketed anticancer prod-ucts and seven oncology projects in thepipeline, Genentech is well positionedto play an active part in the fightagainst cancer. At the American Society

of Clinical Oncology meeting in May2000, Genentech announced encourag-ing preliminary findings from severalphase II trials evaluating anti-VEGF, amonoclonal antibody that can starvetumours of their blood supply, therebyinhibiting tumour growth. Roche hasan option to co-develop and co-marketthis compound. Phase III trials arecurrently under way to assess the safetyand efficacy of anti-VEGF in colo-rectal, non-small cell lung and breastcancer. 2000 also saw the approval andlaunch of Genentech’s TNKase. Thedrug is currently under investigation infour clinical trials designed to evaluatevarious heart attack treatment regi-mens combining TNKase and otheragents.

Research productivity enhancedBoosting productivity and setting newstandards. We have recently imple-mented a variety of strategies – includ-ing initiatives in drug optimisation andnew lead chemistry and the creation ofa global research informatics system –to improve our productivity in thesearch for safe, effective medicines.Flexible, harmonised procedures havebeen established at all research sites toreduce the time and resources requiredto place compounds with our lifecycleteams. In 2000 a number of newresearch compounds went through thecritical preclinical evaluation process,with a total of seven new molecularentities being cleared for clinical test-ing. Eighteen new drug compounds areexpected to enter preclinical develop-ment by the end of 2001, for indica-tions ranging from obesity, depressionand Alzheimer’s disease to oncology,osteoporosis and HIV.

Sales by therapeutic area

Consumer self-medication

Skin and hair care 15%

Cold remedies 3%

Others 3%

Gastrointestinal products 11%

Vitamins 45%

Analgesics 23%

pharmaceuticals business, proteomicswill lead to an increased number ofpotential target molecules and providean additional stimulus for the discov-ery of new therapeutic compounds.One of the objectives of Roche’s pro-teomics research in diagnostics is toidentify proteins that can be used asnew markers in preclinical and clinicaltests for cancer, metabolic disorders,inflammatory disease and cardiovas-

Pharmaceuticals 25

New business model – Basilea Phar-maceutica. In 2000 we continued ourstrategy of focusing on core diseaseareas by spinning off some of our drugdiscovery activities into a new biotechstart-up, called Basilea Pharmaceutica;this followed earlier spin-outs resultingin the creation of two other biotechstart-ups: Novuspharma in Italy andActelion in Switzerland. As a result,Roche’s R&D know-how and decadesof accumulated intellectual propertyrelating to antibiotics, antifungals anddermatology have been integrated intoa broadly based biotechnology com-pany. Roche will retain a minorityinterest in Basilea Pharmaceutica, withthe option to acquire global develop-ment and marketing rights for selectedcompounds.

Genomics, genetics and proteomicsfor better healthcare solutions.Progress in deciphering the humangenome has provided scientists with awealth of information, but there is still agreat deal of work to be done to identifythe key genetic variations that makesome people susceptible to particulardiseases. At Roche we are striving tosupport these efforts, which is why wehave decided to step up our involvementin genetics and genomics and redirectthe focus of research at the Basel Insti-tute for Immunology. Established30 years ago, the Institute is being trans-formed into a centre for medical geno-mics which will be associated with theGroup’s global research organisation.

Over the next few years Roche’sPharmaceuticals and DiagnosticsDivisions will invest roughly 100 mil-lion Swiss francs in strengthening theGroup’s proteomics research. In our

156 research projects in major therapeutic areas

Metabolic diseases 24

Genitourinary diseases 8

Vascular diseases 12

Virology 20

Central nervous system 27Inflammatory diseases 25

Oncology 40

Pharmaceutical research centres

Basel, Switzerland Metabolic disordersCentral nervous systemVascular diseases

Kamakura, Japan OncologyNutley (New Jersey), USA Metabolic disorders

OncologyVascular diseases

Palo Alto (California), USA Central nervous systemInflammation/bone diseasesGenitourinary diseases

Penzberg, Germany OncologyWelwyn Garden City, UK VirologyRoche Center for Medical Genomics, Basel, Switzerland Basic research in genetics/genomics

26 Pharmaceuticals

We currently have 63 projects with a total of 40 different molecules in clinical development.These projects will generate the stream of newproducts ensuring our future growth.

Balanced product pipelineProduct Indication Phase

Bondronat (oral ibandronate) Treatment of bone metastases in breast cancer patients IIIAnti-VEGF1) Several types of solid tumours, in combination

with chemotherapy IIINeoRecormon (epoetin beta) Anemia in hematologic malignancies NDA* filedHerceptin (trastuzumab)2) Adjuvant therapy in breast cancer IIIMabthera/Rituxan (rituximab)2) Intermediate-/high-grade non-Hodgkin’s lymphoma,

in combination with chemotherapy IIIXeloda (capecitabine) Combination therapy in breast cancer IIIFusion inhibitor T-203) HIV infection IIIViracept(nelfinavir mesylate; new formulation) HIV infection IIIValcyt (oral valganciclovir) Prevention of cytomegalovirus disease in solid organ

transplantation IIIValcyt (oral valganciclovir) Treatment of cytomegalovirus disease in AIDS NDA filedPegasys (pegylated interferon alfa-2a) Chronic hepatitis C NDA filedPegasys (pegylated interferon alfa-2a)combined with ribavirin Chronic hepatitis C IIIPegasys (pegylated interferon alfa-2a) HIV/hepatitis C co-infection IIIOral ibandronate Prevention and treatment of post-menopausal

osteoporosis IIIAnti-CD11a monoclonalantibody (hu1124)4) Moderate/severe psoriasis IIIRoaccutan/Accutane (isotretinoin; new formulation) Severe/nodular acne NDA filedXenical (orlistat) Treatment and prevention of type 2 diabetes IIIXenical (orlistat) Weight loss and weight management in children IIIDilatrend (carvedilol) Severe chronic heart failure IIIDilatrend (carvedilol) Post-myocardial infarction IIIActivase (alteplase)5) Catheter clearance NDA filedXolair (omalizumab)6) Allergic asthma and seasonal allergic rhinitis NDA filedTNKase (tenecteplase; IIa/IIIa-combination)7) Acute myocardial infarction III

* NDA = new drug application.1) Genentech compound (opt-in candidate

for Roche)2) Genentech compound developed and/or

marketed with Roche 3) Jointly developed by Roche and Trimeris4) Jointly developed by Genentech and Xoma 5) Genentech project6) Jointly developed by Genentech, Tanox

and Novartis7) Studies being conducted with COR Therapeutics,

Schering-Plough, Merck and Aventis

Pharmaceuticals 27

cular disease. Such markers will yieldimportant information on the courseof these diseases and the efficacy ofthe drugs used to treat them.

Investing in the future. In 2000 Rocheinvested 3.2 billion Swiss francs inpharmaceutical R&D alone, a 5%increase over the previous year. Addi-tional research buildings becameoperational during the year at ourresearch centres in Penzberg (Germany)and Basel (Switzerland). Representingan investment of around 150 millionSwiss francs in each site, these newfacilities will further improve theefficiency of our research and devel-opment efforts.

Our alliance with deCode Genetics,Iceland, – the most comprehensive in acluster of important collaborationswith bioscience companies and univer-sities – produced some importantresults in 2000. These included theidentification of a gene linked toschizophrenia, providing the firstgenetic target for the development ofnew diagnostic and therapeuticapproaches to the disease. In addition,gene locations were identified forseveral risk factors causing or contrib-uting to stroke, Alzheimer’s disease,osteoporosis and peripheral arterialocclusive disease.

Outlook – well equipped for asuccessful future. We expect salesgrowth in the Pharmaceuticals Divi-sion to accelerate again in 2001.Recently launched products such asTamiflu, Xenical, Mabthera/Rituxan,Herceptin and Xeloda will be impor-tant growth drivers, as will the newlyacquired Kytril and well-establishedproducts such as CellCept and Neo-Recormon. In addition, we have filedfor approval of Pegasys in the UnitedStates and in Europe, and the develop-ment of new drugs such as ibandronateand the HIV fusion inhibitor T-20,both now in late-stage clinical testing,is progressing well.

The United States remains the world’smost important pharmaceutical mar-ket, which is why we intend to expandour presence there in future. In 2001we expect to see additional US salesgenerated by the roll-out of two newproducts, Pegasys and Valcyt, and bythe acquisition of Kytril and expandedlabelling for Xenical for the manage-ment of type 2 diabetes, a major newindication. The upcoming launch ofXeloda in Europe and continuedgrowth for our OTC brands are alsoexpected to help strengthen ourpharmaceuticals business in 2001.

With our broad range of marketedproducts and well-balanced R&Dpipeline, we are well equipped toachieve stronger organic growth in theyears ahead. At the same time weremain open to opportunities forlicensing agreements, acquisitions andalliances that will help us reinforceour position in the pharmaceuticalsindustry.

As a major global pharmaceutical com-pany and the world leader in in-vitrodiagnostics, we are in a unique positionto benefit from the emerging revolu-tion in medicine by exploiting syner-gies from the application of cutting-edge science in these complementarybusinesses.

By combining strong in-house R&D focused on seven

key therapeutic areas, successful strategic alliances and

significant investments in new technologies, we are

ensuring a steady stream of new drug candidates for

the future.Jonathan Knowles, Head of Global Pharmaceutical Research

A growing number of people are infectedwith the hepatitis C virus. Our highlysensitive and extremely reliable AmplicorHCV tests enable physicians like Dr K.of Aachen (Germany) to detect infectionswith the virus early and monitor patients’responses to treatment.

A number of international programmes are underway at Roche to develop optimaldiagnostic/therapeutic combinations for viral diseases. For example, we are currentlyworking on improved diagnostic tools to assist interferon treatment of hepatitis C.

Diagnostics 29

DiagnosticsIn 2000 the Diagnostics Division maintained the strong growth of previous years,

against a background of sluggish expansion in the global in-vitro diagnostics market.

Market share gains and another year-on-year increase in operating profit margin

enabled us to extend our global market leadership further. Sustained dynamic growth

in molecular diagnostics and another exceptionally good result from our diabetes

monitoring products were the main contributors to this strong performance. The success-

ful integration of AVL Medical Instruments made us the market leader in the rapidly

growing hospital emergency diagnostics market. The explosion of knowledge resulting

from the mapping of the human genome opens up exciting possibilities for new diag-

nostic products and further growth.

Diagnostics Division in brief


Sales 6,252 +18%– Patient Care 2,554 +25%– Laboratory Systems 2,437 +10%– Molecular Systems 750 +26%– Molecular Biochemicals 511 +18%

EBITDA1) 1,639 +19%Operating profit1) 822 +30%R&D expenditures 558 +8%Employees 15,631 +8%


30 Diagnostics

EBITDA rose 19% to 1,639 millionSwiss francs. A systematic focus oncustomer needs and above-averagesales gains in all four business seg-ments contributed to this record result.

Patient Care – impressive progress indiabetes monitoring and emergencydiagnostics. Roche Patient Care, sup-plier of the world’s leading productsfor people with diabetes and of innova-tive point-of-care diagnostic tests, con-tinued its successful track record ofprevious years, particularly in the dia-betes (blood glucose) monitoring sec-tor. With sales of some 2 billion Swissfrancs in 2000, the globally marketedAccu-Chek line of products for bloodglucose monitoring is now the RocheGroup’s top-selling brand. Total salesby Roche Patient Care were up 19%in local currencies.

Once again, the Accu-Chek Advan-tage/Comfort Strip blood glucose meterwas a major driver of sales growth inthe diabetes monitoring business. Atthe end of 2000 Roche launched Accu-Chek Compact, the world’s first fullyautomatic blood glucose meter. Muchsimpler to use (test strips from aninserted cartridge are automaticallyprepared and positioned) and excep-tionally accurate, it offers significantimprovements for patients.

Clinical tests that can be carried out atthe point of care are becoming increas-ingly important world-wide as a meansof making healthcare delivery moreefficient and controlling costs. Theacquisition of Austria-based AVL Med-ical Instruments (now Roche Graz) hassubstantially expanded our productportfolio in the high-potential hospital

Market leadership extended. In aslow-growing market Roche consoli-dated its leading position in all majorsegments thanks to innovative businessmodels and efficient marketing. Salesby the Diagnostics Division advanced18% – 12% in local currencies – to6,252 million Swiss francs. Operatingprofit was up 30% to 822 millionSwiss francs, and the Division’s

As the global market and technology leader in human

diagnostics, Roche is superbly placed to translate the

results of genomics and proteomics research into tests

that meet specific needs.Heino von Prondzynski, Head of the Diagnostics Division

Diagnostics 31

point-of-care segment (rapid diagnosisin emergency and intensive caremedicine) and at the same time madeRoche the market leader in this area.

Major new product launches in thepoint-of-care segment included Car-diac D-dimer and OPTI R. CardiacD-dimer is a new assay that allows doc-tors to rule out pulmonary embolismor deep vein thrombosis rapidly andreliably; it is used with Roche’s Cardiacreader, a proven instrument fordiagnosing damage to heart muscle.OPTI R, a blood gas analyser devel-oped by AVL Medical Instruments,employs reusable test cassettes tosimplify decentralised testing in oper-ating rooms and is also environmen-tally friendly and economical.

Optimal user-friendliness is a keyobjective of our research in the dia-betes care segment. Among otherthings, we are developing systems thatrequire smaller blood samples andcombine sampling and blood glucosedetermination in a single step. A long-term goal is the development of sys-tems that will enable non-invasiveblood glucose measurement, withoutthe need for blood-sampling. In thehospital point-of-care segment ourefforts are focused on developinghighly integrated diagnostic systemsfor emergency and intensive caredepartments.

Laboratory Systems – growing trendto cost-effective analysers. RocheLaboratory Systems, the world’s leadingsupplier of integrated analytical sys-tems for clinical laboratories, postedsales gains of 6% in local currenciesamid fierce competition and only

moderate market growth. Increasingly,hospitals and high-volume clinicallaboratories are asking for integrated,high-throughput systems that improvecost-efficiency. By responding to thesenew requirements with automatedpre- and post-analysis processing, anexpanded range of test menus andother innovative developments, we havefurther enhanced our already strongmarket position.

In the clinical chemistry segment,the new Cobas Integra 800 analyser waslaunched towards the end of 2000.Thanks to its outstanding user-friend-

liness and high precision, the newsystem will establish itself in themarket just as quickly as the smallerIntegra 400, demand for whichremained strong in its second year afterlaunch despite tough competition.Market response in the high-volumelaboratory segment to ModularAnalytics, an individually configurablehigh-throughput system combiningclinical chemistry and immunodiag-nostics, was very positive.

Sales of Elecsys analysers, for het-erogeneous immunoassays, once againshowed above-average growth. In


6,000

5,000

4,000

3,000

2,000

1,000

0

757

966

4,61

6

5,28

2 6,25

2

| 96 | 97 | 98 | 99 | 00

32 Diagnostics

hematology our cooperation with theJapanese company Sysmex was ex-tended to additional markets. Rocheheld its market share in the coagulationand automated urinalysis segments.

In work at its own research facilitiesand in cooperation with its Japanesepartner, Hitachi, Roche LaboratorySystems is pursuing projects to consol-

idate a full range of analytical systemson a common platform. This involvesharmonisation and consolidation ofseveral technologies in a single work-station and integration of sample han-dling and data management, permittingall-in-one solutions that can be indi-vidually configured in line with cus-tomers’ needs. We are also working onexpanded assay menus for the Elecsysline, focusing initially on tests forinfectious diseases. The main objectiveof our joint proteomics research initia-tive with the Pharmaceuticals Division(see p. 25) is the development of newdiagnostic markers for various types ofcancer, metabolic and inflammatorydisorders and cardiovascular diseases.

Molecular Systems – expanding thegold standard into new segments.With a market share of just over 50%,Roche Molecular Systems is the undis-

puted market leader in gene amplifica-tion-based molecular diagnostics. Thisis reflected in six years’ sustained rapidgrowth, which continued in 2000 withan impressive 18% local currencyincrease. These gains are also the resultof strong demand for products basedon the highly sensitive polymerasechain reaction (PCR) technique. PCRenables direct detection of pathogens

or individual genetic variations even inminute quantities of sample material.

Our tests for the detection of AIDS,hepatitis and other infectious diseases –regarded as the gold standard inmolecular diagnostics – continue torank among our top-selling products.Despite strong competition, AmplicorHIV-1 Monitor, which measures HIVconcentrations in blood, remained byfar the most frequently used quantita-tive AIDS test. Tests for sexually trans-mitted diseases and for screening bloodproducts, both segments with potentialfor further development, posted above-average growth.

Marketing applications were filed in theUnited States for two PCR-based testsfor monitoring AIDS treatment, bothalready successfully launched in othermarkets; two qualitative hepatitis C

Sales by region Sales by business unit

Asia–Pacific 11% South America 4% Molecular Biochemicals 8%

Laboratory Systems 39%Europe and Africa 45%North America 40%

Molecular Systems 12%

Patient Care 41%

Diagnostics 33

tests were submitted to the FDA andhave been accorded fast-track reviewstatus.

Licensing agreements concluded withUS-based Chiron Corporation coveringHIV and hepatitis C patent rightsmarked the end of protracted litigationand have set the stage for additionalfuture growth. In addition, in mid-2000 we signed an agreement with theUS company Applera which allowsRoche and Applera to develop andmarket products for all PCR-basedapplications. We expect this to furtherenhance our potential for growth in

the PCR market. To secure RocheMolecular Systems’ long-term success,we have decided to invest in newstate-of-the-art production facilities inNew Jersey for our entire range ofPCR tests.

Cobas TaqMan, a next-generationanalyser that will speed up and simplifyroutine PCR-based testing in high-throughput environments, is now inadvanced development. We are alsostepping up R&D activities with theaim of significantly expanding ourrange of PCR tests. Roche MolecularSystems is vigorously pursuing its

objective of translating the results ofthe Human Genome Project intodiagnostic products and individuallytailored healthcare solutions.

Molecular Biochemicals – at the fore-front in genomics and proteomics.Sales by Roche Molecular Biochemi-cals, which manufactures reagents andsystems for industrial and biomedicalresearch, were up 11% in local curren-cies, driven mainly by dynamic growthin the German and US markets. Marketshare gains in the United States wereparticularly strong.

Molecular Systems

Diagnostics Division – from research lab to patients

Molecular Systems

Molecular Systems

PCR-based assays and automated analysers for detectinginfectious diseases, cancer and cardiovascular andhereditary disorders; monitoring treatment; and investi-gating genetic causes of disease

Amplicor tests, Cobas Amplicor, AmpliScreen, AmpliPrep

Laboratory Systems

Integrated analytical systems for clinical laboratories;complete solutions for immunodiagnostics work areas;laboratory network solutions; reagents for clinical chemistryand immunodiagnostics; products for coagulation testing,hematology and automated urinalysis

Cobas Integra, Roche/Hitachi, Cobas Core, Elecsys, Stago,Sysmex, Miditron, Supertron

Patient Care

Diagnostic products for point-of-care testing and patientself-monitoring, such as blood glucose meters with accom-panying data management software; systems for coagula-tion monitoring, blood gas analysis and electrolyte determi-nation; urine test strips and rapid drugs-of-abuse screeningtests

Accu-Chek, Softclix, Camit, Cardiac Reader, OPTI, OMNI,Reflotron, Combur-Test, CoaguChek, OnTrak

Molecular Biochemicals

Reagents and systems for gene analysis, used in biomedicalresearch to investigate the causes of or predisposition todisease; specialty biochemicals for industry

Reagents for molecular and cell biology, LightCycler,Lumi-Imager, MagNa Pure LC, RTS 500

34 Diagnostics

This good result is due primarily tosales of Roche’s innovative LightCyclersystem, launched only two years ago,which have far exceeded expectations.LightCycler is employed principallyin genetic research and diagnostics forthe PCR-based amplification of geneticmaterial. This product line was ex-panded at the end of 1999 with thelaunch of MagNA Pure LC, a modulewhich offers fully automated nucleicacid isolation from various samplematerials for real-time detection in theLightCycler.

Roche Molecular Biochemicals is thuscontinuing its successful transforma-tion from reagent manufacturer todeveloper and supplier of innovativesystems for the breakthrough fields ofgenomics and proteomics. Of particu-lar significance here is the launch in2000 of the RTS 500, the world’s firstautomated system for cell-free proteinexpression. Until now the expression ofproteins coded for by particular genes,which is important for research intothe causes of disease and in otherareas, has been difficult; the requiredproteins could frequently not be syn-thesised quickly enough or in sufficientquantities. The new RTS 500 will there-fore play a major role in the rapidlydeveloping proteomics market.

Under an agreement signed in early2001 with Prionics, a Swiss biotechcompany, we will handle world-widedistribution of a screening test for thecattle disease BSE. The test, whichwas developed by Prionics, is already inuse in many European countries. Theagreement also provides for collabora-tion in developing tests that can beused to detect BSE in live animals andjoint development of diagnostic testsfor Creutzfeldt-Jakob disease in man.

The unit’s research efforts continue tofocus on developing new applicationsfor PCR-based diagnostics, especiallyin the fields of oncology, inflammatorydisease and cytology. Another keyarea is gene function analysis, a logicalextension of the Human GenomeProject – an undertaking which wouldhave been unthinkable without thehigh throughput and automation madepossible by PCR technology. RocheMolecular Biochemicals’ rapidly evolv-

Integrated healthcare benefits patientsCollaboration in virology between our Pharmaceuticals and Diagnostics Divisionscontinued to produce excellent results in the marketplace.

State-of-the-art treatment algorithms are being defined for HIV as part of severalcomprehensive programmes. Viral load monitoring, viral resistance genotyping andtherapeutic drug level monitoring, combined with the use of RetroGram decision supportsoftware to analyse results, are already helping physicians to chose the anti-HIV drugcombinations with the highest probability of success. This promotes effective use ofRoche’s medicines for HIV, such as Viracept and Invirase/Fortovase.

Our influenza programme marks a real breakthrough in the early detection and treatmentof this common viral illness. Combined use of our Real-Flu Surveillance system, rapidinfluenza test and innovative drug Tamiflu ensures targeted, effective influenza therapy.Additional strategies and tools are being developed to improve the detection and moni-toring of local influenza outbreaks and make diagnosis and treatment even more effective.

In clinical trials of Pegasys in hepatitis C, Amplicor HCV Monitor has been shown to bea reliable means of assessing clinical benefit after three months of therapy. This meansthat treatment can be reviewed early in patients whose predicted probability of responseis limited, and continued with the greatest potential for therapeutic benefit in patientsshowing a response.

All major Roche research sites have been equipped with the resources to identify inte-grated healthcare opportunities at the early stages of drug discovery and developmentand exploit them in improving treatment outcomes further.

Diagnostics 35

ing strategic role as the engine ofinnovation in the division reflects itswork and contacts at the forefront ofnew developments in all areas ofdiagnostics.

Optimally positioned for continueddynamic growth. All of the DiagnosticsDivision’s four business units have anexcellent basis for further growth.

Roche Patient Care has enormousgrowth potential, fuelled mainly by therapidly expanding diabetes market. Inthe hospital point-of-care segment ourexpanded product portfolio and know-how and the fact that Roche now con-trols the entire value chain, from R&Dright through to sales and marketing,give us a significant advantage. RochePatient Care will expand its productrange further in 2001 with the launchof two innovative blood gas and elec-trolyte analysers.

Launches of additional user-friendlyinstruments, expanded assay menusand cost-control and productivitymeasures will have a positive impact onRoche Laboratory Systems’ perfor-mance in a highly competitive businessenvironment. In immunochemistry, thelaunch of the Elecsys E-170 module,scheduled for early 2001, will con-tribute to sustained above-averagegrowth. The new module enhances theexisting system platform by combiningpreanalytics, clinical chemistry andimmunodiagnostics in a single work-station – a world-wide first.

The growth of knowledge on thegenetic basis of disease is also openingup a range of new business opportuni-ties for Roche Molecular Systems,

which is set to continue its pioneeringscientific work in this field. One trendexpected to stimulate additional salesin this segment is the rising demandfor products to screen donated bloodand its derivatives. Roche’s highlyaccurate PCR tests are already used totest a substantial proportion of allblood and plasma products. Our newAmpliPrep system for PCR samplepreparation, scheduled for launchsoon, brings us close to our objectiveof fully automated PCR testing.

The immensely promising fields ofgenomics and proteomics will be themain focus of Roche Molecular Bio-chemicals, whose objective will be totranslate research findings intoproducts for routine diagnosis.

Overall, we intend to step up ourresearch efforts, with a clear focus onhigh-growth markets. Our activitieswill be directed towards creating newmarkets and generating additionalbusiness with new services – for exam-ple, developing IT solutions to enablenetworking of data generated at severaldifferent locations (in the hospitallaboratory, at the patient’s bedside,etc.). Our top long-term priority isthe creation of intelligent, user-friendlysystems and services.

Vitamins play a crucial role in balancednutrition. Any number of factors, from physical exertion to emotional stress,smoking, illness or pregnancy, canincrease a person’s vitamin requirements.Roche vitamins are added to a multitudeof food products and beverages.

Vitamins are receiving more attention today than ever before, bothfrom the public at large and from researchers. Roche Consumer Health,a unit of the Pharmaceuticals Division, is the leading supplier of vitaminproducts, with a broad range of brands that includes Supradyn, Berocca,Redoxon and Elevit.

Vitamins and Fine Chemicals 37

Vitamins and Fine ChemicalsThe Vitamins and Fine Chemicals Division recorded significant volume growth in all

major product segments in 2000. However, the divestment of the medicinal feed additives

business and continued downward pressure on prices led to a decline in the value of sales.

As a result, operating profit was down despite efficiency gains and a rigorous focus on

costs.

We again expanded our leading market position, helped by new product launches, an

uncompromising focus on the needs of key global accounts and investments in modern

manufacturing processes aimed at raising productivity further. An important milestone

was marked by the completion of new production facilities for biotin and vitamin B2

in Grenzach (Germany) and for the formulation of vitamins and carotenoids in Sisseln

(Switzerland). These capital investments are part of a systematic effort to upgrade

all of the division’s plants to the latest technological standards, optimise manufacturing

capacity and consolidate production of key vitamins at the most suitable sites world-wide.

Vitamins and Fine Chemicals Division in brief


Sales1) 3,605 –3%– Vitamins 1,791 –3%– Carotenoids 763 +10%– Other fine chemicals 1,051 –5%

EBITDA1) 719 –10%Operating profit1) 494 –15%R&D expenditures 122 –6%Employees 7,257 –4%


38 Vitamins and Fine Chemicals

medicinal feed additives, sales revenuesadvanced 2% in Swiss francs. Theimpact of pricing pressures on marginswas only partially offset by increasedsales volumes and improvements inoperational efficiency. As a result,operating profit and EBITDA declinedto 494 million and 719 million Swissfrancs respectively; these figures areequivalent to 14% and 20% of sales.

Global demand for vitamins, carot-enoids and citric acid remained onthe increase in 2000. Once againour volume of sales expanded signifi-cantly faster than the market, withdouble-digit growth recorded forastaxanthin, vitamin B2, pantothenate,biotin, citric acid, polyunsaturatedfatty acids and feed enzymes. Wescored particularly strong market sharegains in the highly competitive citricacid market. Production capacity atour citric acid plants in Tienen (Bel-gium) and Wuxi (China) was expandedlast year as we moved to reinforce ourposition as one of the world’s leadingsuppliers in this segment.

Competitive pressures mounted as pro-ducers continued to consolidate. Bycontrast, the prices of several key vita-mins, including vitamins E, C and B2,stabilised in the second half of 2000,after slipping earlier in the year. In thecase of biotin, prices even rose mod-estly in response to strong marketdemand.

Following the sale of our medicinalfeed additives business to Alpharma,we can now focus our resources onour core businesses in vitamins,carotenoids and other fine chemicals.Vitamins today account for roughly

A good performance in a challengingmarketplace. Sales by the Vitaminsand Fine Chemicals Division were downslightly for the year, declining 3% (9%in local currencies) to 3,605 millionSwiss francs, as a result of price erosionand the divestment of our medicinalfeed additives business, completed inearly May 2000. Excluding sales of

Thanks to our economical, high-quality products for

the food, pharmaceutical, cosmetic and feed industries,

we are ideally equipped to continue expanding our

market leadership.Markus Altwegg, Head of the Vitamins and Fine Chemicals Division


one-half of divisional sales. In 2000attention centred particularly on theroll-out of new products such as lutein,a carotenoid that helps maintain eyehealth, and highly standardised natural-source vitamin E, and phytase, a feedenzyme co-developed with Novozymes,which increases the bioavailabilityof phosphorous in animal feeds, thusreducing the environmental impactand costs of animal production. We

also launched vitamin B2 manufacturedby fermentation, which we supply insignificantly improved product formsfor use in animal feeds, foods andpharmaceuticals.

Starting in 2001, our growth strategywill be augmented by a strategicalliance with Novozymes aimed atdeveloping major new feed enzymeproducts with benefits for livestockhealth and the environment. In mostmarkets Roche will sell the productscovered by the alliance.

Tailoring products to our customers’needs. Roche supplies a broad range ofproducts that contribute significantlyto improved nutrition and health. Ourmain customers are producers of pro-cessed foods, animal feeds, pharmaceu-ticals and cosmetics. In 2000 there wasan even tighter operational focus on

promising growth sectors and theneeds of major industrial customers.Among other things, this involvedorganisational changes allowing us tosupport customers even more effec-tively in developing tailor-made prod-ucts for their markets.

Pivotal role in animal nutrition. Salesof carotenoids to the animal nutritionindustry, the division’s largest market

segment, were exceptionally good. Thiswas due primarily to continued strongdemand for astaxanthin in the aqua-culture sector in Norway and Chile andfor canthaxanthin in Canada. Biotinsales were up, fuelled by this nutrient’simportant role in maintaining healthand performance in livestock and pets.A new phytase, Ronozyme P, wasapproved for marketing in a number of

countries, and has already contributedappreciably to good sales growth inthis product category. To enable us toserve the animal nutrition industryeven better in future, construction wasbegun on a vitamin premix plant forpet foods in Deinze (Belgium), and adecision was made to build additionalfeed premix facilities in Spain, Hun-gary, Korea and Vietnam.

A key supplier to the food and phar-maceutical industries. Sales to thefood-processing industry were also upsubstantially in volume terms, helpedby the growing trend to fortify staplefoods with vitamins. Demand forfunctional foods was stimulated byincreasing consumer awareness of theimportance of certain nutrients forhealth. By contrast, sales to the phar-

Sales by region Sales by customer segment

Asia–Pacific 18% Cosmetics 7%

Pharmaceuticals 20%

Europe and Africa 40%North and South America 42%

Food industry 21%

Animal feeds 52%


6,000

5,000

4,000

3,000

2,000

1,000


3,32

9

3,80

3

3,63

0

3,72

7

3,60

5

| 96 | 97 | 98 | 991) | 001)

40 Vitamins and Fine Chemicals

maceutical industry fell slightly, largelybecause of weak demand in the USdietary supplements sector. We havealso expanded our global network ofspecialised premix plants serving thefood and pharmaceutical industries inorder to strengthen our position as theleading supplier of vitamins in thesesegments. A new facility was completedin El Salto (Mexico), and additionalplants supplying these industries willbe built in South Africa and China.

The volume of sales rose in the cosmet-ics segment, thanks particularly tobrisk demand for vitamins. The marketfor sunscreens continues to expand asconsumers become increasingly awareof the importance of protecting theirskin from ultraviolet A and ultravioletB light. Sales of the ultraviolet A sun-screen Parsol 1789 were heavilyaffected by the loss of patent protec-tion in Europe.

Research and development — identi-fying and exploiting new marketopportunities. Research and develop-ment activities focused on optimisingour manufacturing processes in termsof quality, productivity and environ-mental performance and on developingnew products for customers in everysegment we serve.

Developing innovative product formu-lations is one of the division’s corecompetencies. New, higher-dose vita-min A formulas, combinations of vita-mins A and D and new beta-caroteneproducts were developed to meet ourcustomers’ needs even better.

As the trend towards functional foodsillustrates, lifestyle changes and longer

life expectancies are altering people’sideas and attitudes about nutrition,thus opening up significant marketopportunities. We have thereforestepped up our search for active com-ponents of natural products which canbe shown to have a beneficial effecton human health. Our developmentpipeline includes products to helpprevent osteoporosis, lower cholesterol,prevent cardiovascular disease andimprove cognitive function. Zeaxan-thin, a close relative of beta-carotene, isnow ready for market and will belaunched as a complement to lutein.Zeaxanthin helps to protect vision byreducing the risk of age-related eyedisease (macular degeneration).

Supplying the market with anexpanded range of new products fordisease prevention is one of the divi-sion’s prime goals. Here our effortswill benefit from science’s ever deeperunderstanding of the role of soundnutrition in health. Advances in thisarea are being facilitated by the use ofthe latest technologies in moleculargenetics, a field in which Roche is aleader. These technologies are finallymaking it possible to identify theunderlying causes of degenerativediseases and develop innovativeapproaches for combating them.

Investments targeted at maintainingcost leadership. Investments in prop-erty, plant and equipment totalled372 million Swiss francs in 2000 (com-pared with 450 million Swiss francsthe previous year) and were part of asystematic effort to optimise capacityat divisional production facilitiesworld-wide and concentrate manufac-turing at the best locations. The aim


is to achieve substantial additionalsavings that will reinforce our positionas the lowest-cost supplier of our keyproducts.

An important milestone in realisingthis strategy was the completion of newproduction facilities for biotin andvitamin B2 in Grenzach (Germany),representing an investment over thelast three years of roughly 200 milliondeutschmarks. In Dalry (Scotland) weare expanding capacity and upgradingour vitamin C manufacturing processesat a cost of 150 million pounds ster-ling; the first phase of construction willbe completed by spring 2001. Thestart-up of new facilities for carotenoidand vitamin powder formulations inSisseln (Switzerland) has establishedthis site as a divisional centre of excel-lence for powder manufacturing tech-nology. Sisseln will also be the site of anew vitamin E plant with an annualcapacity of 25,000 tonnes; the facilitywill be completed in three years andcost approximately 170 million Swissfrancs.

In October 2000 we opened one of theworld’s largest vitamin B6 factories inShanghai, in line with our strategic aimto further expand the division’s Chi-nese manufacturing base. Additionally,a new citric acid plant is being built inWuxi; it will begin manufacturing forChina’s domestic market and forexport in the second quarter of 2001.

Solid basis for profitable growth. TheVitamins and Fine Chemicals Divisionhas continued to strengthen its opera-tional structures. We have streamlinedour product portfolio and concen-trated our resources even more on key

customers and new growth opportuni-ties in our established core businesses:vitamins, carotenoids and fine chemi-cals. We expect to see continued strongdemand for our products, particularlyin the aquaculture and functional foodsegments. Newly launched products,such as natural-source vitamin E,lutein and our new feed enzyme, willstimulate additional sales growth.

One-half of research and developmentexpenditure is allocated to maintainand expand our cost leadership in vita-min production over the long term.Within the next ten years we want tocut the costs of manufacturing ourmain products in half with the help ofradically new production technologies.The programmes introduced last yearto make our regional marketing organ-isations more efficient will also help usto achieve our profitability targets.With our competitive edge in researchand production know-how and anexpanding global presence, particularlyin the emerging markets of Asia andLatin America, we are ideally equippedto maintain our leadership in a com-petitive but attractive global marketwith significant potential for growth.

Task Force SIGHT AND LIFE For years now Roche has been actively engaged in the fight against vitamin A deficiencyamong children in the developing world. Founded in 1986, the Task Force SIGHT ANDLIFE provides vitamin A free of charge to nutrition intervention programmes, fundsresearch projects and shares technical know-how. In 2000 SIGHT AND LIFE wasinvolved in nearly 300 projects — large and small — in Africa, Asia and Latin America.Activities included the distribution of roughly 4 million free vitamin A capsules and sup-port for training programmes for health workers. Together with the Vitamins and FineChemicals Division, SIGHT AND LIFE also supported programmes promoting the for-tification of staple foods. Since its inception, the Task Force has received 42 millionSwiss francs in funding from Roche.

of the medicinal feed additives busi-ness. Very strong sales growth and theacquisition of Austria-based AVL’smedical instruments business led toa marked increase in headcount in theDiagnostics Division. AVL MedicalInstruments’ employees were rapidlyintegrated into the division, andthe personnel adjustments neededto eliminate duplication were imple-mented in a socially responsible fashion. The cost of wages, salariesand employee benefits totalled7,583 million Swiss francs.

New technologies and ongoing realign-ments in response to changing marketneeds continue to make tough de-mands on the flexibility and dedica-tion of all our employees. Displayinghigh levels of motivation, skill and pro-fessionalism, they have met the chal-lenge of rapid structural change,mastering increasingly complex tasksand further enhancing Roche’s per-formance.

42 Human Resources

Human Resources

Our success is determined in large measure by

the qualifications and motivation of our employees.

By continuing to promote a performance-based

culture, we intend to be the company the best people

want to work for.Daniel Villiger, Head of Corporate Services

Continuing development makes toughdemands. At the end of 2000 theRoche Group employed 64,758 peopleworld-wide. This is 2,937 less than the1999 figure, due to the spin-off of theFragrances and Flavours Division inmid-2000 and the divestment by theVitamins and Fine Chemicals Division

Europe-wide programme designed topromote international experience shar-ing and transfer of know-how. TheVitamins and Fine Chemicals Divisionhas revamped its management develop-ment and succession planning, with themain focus on preparing successors forkey posts.

September 2000 saw the ground-break-ing ceremony for Roche’s new interna-tional training and conference centrefor senior managers, Roche ForumBuonas, which is being established onthe scenic Buonas Peninsula, Lake Zug,Switzerland. The new complex willincorporate a conference area, meetingrooms, a restaurant and an accommo-dation wing. If the ambitious timetableis met, we expect the centre to be oper-ational early in 2002.

Commitment to performance cultureand ethical business practices.Roche’s management culture is per-formance-based – we give excellence

Continual expansion of leadershipskills, professional abilities andsocial competence. In 2000 westepped up our efforts to provide ouremployees with first-rate opportunitiesfor personal and professional develop-ment. This is done primarily by offer-ing challenging management positionsat local and international levels, manyof them involving complex projectmanagement tasks. Roche encouragescontinuous assessment of the trainingand development needs of middle andsenior managers to prepare them forsuch posts. In 1999 Roche initiated aGroup-wide programme with an indi-vidual focus to develop leadershipskills in collaboration with LondonBusiness School. Several hundredsenior managers from Roche affiliatesworld-wide will take part in this two-part programme, which will run until2002. A similar programme will now beimplemented extensively in the Phar-maceuticals Division. In autumn 2000the Diagnostics Division started a

Headcount by division at year end2000 1999 change % change

Pharmaceuticals 41,409 40,299 1,110 +3Diagnostics 15,631 14,456 1,175 +8Vitamins and Fine Chemicals 7,257 7,551 –294 –4Fragrances and Flavours – 4,907 –4,907 –100Others 461 482 –21 –4Roche Group 64,758 67,695 –2,937 –4

Headcount by region at year endEurope 32,533 33,861 –1,328 –4– Switzerland 8,659 9,725 –1,066 –11North America 17,682 18,449 –767 –4Latin America 5,857 6,398 –541 –8Asia 6,908 7,124 –216 –3Africa, Australia, Oceania 1,778 1,863 –85 –5Total 64,758 67,695 –2,937 –4

Human Resources 43

its due. This is supported by identifyingcritical performance areas and creatingindividual development plans for allemployees. We reward high achieverswith performance-based salary compo-nents, a system which we continuedto extend to additional managementlevels in 2000. Roche offers a wide rangeof attractive career opportunities toemployees with development potentialand above-average commitment.

The Executive Committee has decidedto continue the Group-wide workshopsconducted in 1999 to explain and dis-cuss Roche’s corporate principles andissues relating to behaviour in busi-ness, with the addition of new topics.The subjects to be covered in the nextphase are the protection of personaldata, the use of Roche electronic com-munication tools, and businessintegrity. The programme is designedto impart rules for behaviour in busi-ness that will enable Roche employeesto perform their tasks in a way that isexemplary in every respect. We firmlybelieve that business practices basednot only on ethical and social but alsoenvironmental responsibility (seeSafety and Environmental Protection,p. 44) are the cornerstone of commer-cial success.

Sustainable development. As an inno-vative, globally active healthcare group,Roche is committed to putting theprinciple of sustainable developmentinto practice responsibly and appro-priately. We intend to maintain ouralready high health, safety and envi-ronmental protection (S&E) standardsand continually improve performancein these areas, as shown by our partici-

44 Safety and Environmental Protection

pation in the chemical industry’s world-wide Responsible Care programmeand other initiatives. We are taking theinitiative with efficient solutions thatare helping to improve communityacceptance at all Roche productionlocations. In doing so, we are consciousof the dynamic interdependence ofeconomic, environmental and socialissues.

Given the nature of our manufacturingactivities, our principal aim is to pro-mote eco-efficiency by continuallyimproving our existing productionprocesses or replacing them with fun-damentally new ones. Accordingly,integrated safety and environmentalprotection controls accounted for asubstantial part of Roche’s total S&Eexpenditure in 2000.

Accidents and incidents. In 2000Roche again remained free of majorincidents. Unfortunately, however, wehave to report that a serious accident atone of our plants in China claimed the

Safety andEnvironmental Protection

The safety of our products and processes and the

protection of our employees and the environment from

unwanted effects of our activities are essential to

Roche’s long-term success.Hans Künzi, Head of Corporate Safety and Environmental Protection

organisations and other bodies(including the OECD, ILO and CEFIC)working to improve the safe manage-ment of chemicals. We are particularlyactive in programmes that focus onhigh production volume chemicals. Inthe past two years the chemical indus-try has launched a number of interna-tional initiatives to speed up theseactivities and improve our knowledgeof chemicals used world-wide in largequantities. In addition, Roche is amajor contributor to the global chemi-cal industry’s Long-range Research Ini-tiative, which aims to increase ourunderstanding of the ways in whichchemicals interact with the humanbody and the environment.

coal-fired power plant in China.Another significant reduction wasachieved in emissions of volatileorganic compounds (VOCs), thoughemission levels did vary from siteto site owing to varying productionvolumes. Our contributions to envi-ronmental protection also receivedpublic recognition. Implementationof a new, eco-efficient synthesis of theantiviral agent ganciclovir enabled a90% reduction in waste, for which ourfacility in Boulder (Colorado) receivedthe Presidential Green ChemistryChallenge 2000 Award. In Mexico ourfacility in Cuernavaca received theClean Industry Award.

The total volume of chemical wastedeclined far more steeply than produc-tion volume. Successful implementa-tion of our policy of eliminating sub-stances that contribute to depletion ofthe ozone layer and replacing themwith alternative solutions continued.Roche took an important step towardsthe goal of sustainable developmentwith the introduction of a fermenta-tion process for vitamin B2 production.Thanks to the new process, consump-tion of non-renewable raw materials isreduced by 80%, VOC emissions by50% and emissions to water by 66%.Moreover, the resulting waste is com-postable, allowing natural recycling.

Commitment to sound environmentalpolicy. For many years Roche has con-tributed its expertise to international

Safety and environmental protection expenditure in millions of CHF

2000 1999

Investment 165 154Operating costs 368 379Total expenditure 533 533

Safety and Environmental Protection 45

life of a young employee, the first fatal-ity at a Group facility in many years. Itwas caused by human error, a factorthat even the most sophisticated safetymeasures can never completely offset.There were two incidents involvingfires, one at our factory in Morocco,the other at one of our French produc-tion facilities, which resulted in prop-erty damage only.

Overall, the number of occupationalaccidents remained at the previousyear’s low level, an achievement towhich training, continuing educationand rigorous S&E audits throughoutthe Group certainly made an importantcontribution. 40 S&E audits conductedat Roche facilities in 20 countries againconfirmed the Group’s uniformlyhigh health, safety and environmentalstandards. This positive trend was againreflected in awards to Roche facilities:our factory in Clarecastle (Ireland)received awards from the National IrishSafety Organisation and the Depart-ment of Enterprise, Trade and Employ-ment for logging one million man-hours without lost worktime due toaccidents, and our plant in Florence(North Carolina) was similarly hon-oured by the US Occupational Safetyand Health Administration.

Successful environmental protectionmeasures. The good environmentalprotection record of previous years wasmaintained overall, although problemswith atmospheric emissions led to aninvestigation by the authorities at oneGroup company. Energy consumptiondeclined slightly, in step with a modestdrop in production volume. By con-trast, CO2 emissions increased for theyear, following the acquisition of a

46 Finance

In 2000 Roche achieved a record net income of CHF 8.6 billion, an increase

of 50% over 1999. As in the previous year the operating result was enhanced

through placing Genentech shares in the market which contributed CHF 3.9 bil-

lion to Group operating profit and CHF 2.5 billion to Group net income. In

addition, finance and treasury operations contributed a strong net financial

income of CHF 2.3 billion including gains from the sale of LabCorp shares. On

an adjusted basis, excluding the effects from these items, changes in accounting

policies and the Fragrances and Flavours business spun off in June 2000, Group

net income increased 14% over 1999. As a result of the strong cash flow Roche

has – three years after the Corange acquisition – become a net creditor again

with a net liquidity position of CHF 3.2 billion. The ratio of equity and minor-

ity interests to total assets improved from 43% to 46%.

Finance

Financial Review 47

Highlights in millions of CHF

Figures reported Figures reported in the financial statements on an adjusted basis

2000 1999 % change 2000 1999 % change

Sales 28,672 27,567 +4 27,543 25,496 +8EBITDA 11,126 8,874 +25 7,068 6,647 +6Operating profit 7,131 6,421 +11 4,301 4,094 +5Net income 8,647 5,764 +50 5,014 4,401 +14

Record results In 2000 the Roche Group achieved record results. Consolidated sales reached 28.7 billion Swissfrancs, an increase of 4% over the previous year, EBITDA increased by 25% to 11.1 billion Swissfrancs, operating profit reached 7.1 billion Swiss francs, a rise of 11% compared to 1999, and netincome rose by 50% to 8.6 billion Swiss francs. These results were driven by higher operating andfinancial income and substantial gains on the sale of Genentech and LabCorp shares.

On an adjusted basis, the results of the Roche Group also reflect a strong performance. Groupsales rose by 8% to 27.5 billion Swiss francs, EBITDA increased by 6% to 7.1 billion Swiss francs,operating profit by 5% to 4.3 billion Swiss francs and net income by 14% to 5.0 billion Swissfrancs. The adjusted figures are presented to improve the comparability of current and futureresults and are given for both 2000 and 1999. They are shown on a continuing basis, without theFragrances and Flavours business, and adjust for the accounting effects of various special itemsand changes in International Accounting Standards. A description of the adjustments is given onpage 50.

Double-digit sales growth in Diagnostics; sales growth in Pharmaceuticals reduced due to patentexpiry and generic competition

The reported Group sales growth of 4% was influenced by the spin-off of Givaudan in June 2000.On an adjusted basis, i.e. excluding the sales of Fragrances and Flavours, the Roche Groupachieved a growth rate of 8% in Swiss francs or 2% in local currencies. Furthermore, the saleof the Medicinal Feed Additives (MFA) products in May 2000 influenced the top-line results.Excluding MFA and Fragrances and Flavours, the Group posted a sales growth of 9% in Swissfrancs and 3% in local currencies.

Financial Review

In 2000 Roche again recorded record profits, as net

income rose 50% over the previous year to 8.6 billion

Swiss francs.Henri B. Meier, Chief Financial Officer until 31 December 2000

With growth rates of 18% in Swiss francs and 12% in local currencies, sales of the DiagnosticsDivision once again outpaced the market. Sales in Patient Care, Molecular Systems and MolecularBiochemicals all grew at double-digit rates in local currencies. Pharma sales rose 7% in Swissfrancs and 1% in local currencies. The good performance of certain established and new productssuch as Mabthera/Rituxan, Herceptin, NeoRecormon, Cellcept and Roaccutan/Accutane waspartially offset by generic competition for Versed and Ticlid in the United States after patents hadexpired. After a strong start sales of Xenical levelled off in 2000. Sales by the Vitamins andFine Chemicals Division increased by 2% in Swiss francs, but declined by 4% in local currencies,excluding the MFA products. Sales volumes continued to grow strongly while price levels aftera 7-year decline on average have now stabilised.

Further increase of EBITDA and operating profitGroup EBITDA increased by 25% to 11.1 billion Swiss francs and the operating profit increased by11% to 7.1 billion Swiss francs. The main drivers for this strong result are a 4% increase in grossprofit, another substantial gain on the sale of Genentech shares and the absence of furtherunprovided expenses for settling the vitamin case. The gross profit margin remained stable. Mar-keting and distribution costs grew faster than sales to exploit the market potential of establishedand new products. Net other operating income reflected gains from the continuing realignment ofthe product portfolio. On an adjusted basis, i. e. excluding special items, changes in accountingpolicies and the Fragrances and Flavours business, EBITDA rose by 6% to 7.1 billion Swiss francsand operating profit by 5% to 4.3 billion Swiss francs.

Roche has by far the highest amortisation charge of the large pharmaceutical companies as aresult of its acquisitions (instead of mergers) and the use of International Accounting Standards.In 2000, the amortisation charge was 1.5 billion Swiss francs or 5% of sales compared to 0–2% ofsales for our main competitors.

The EBITDA margins for Diagnostics and Pharmaceuticals remained practically unchanged, whilethe Vitamins EBITDA margin declined slightly as a result of lower average prices.

Givaudan spin-off completedOn 8 June 2000 the Fragrances and Flavours Division was listed on the Swiss Exchange as anindependent company under the name Givaudan. The shares in Givaudan were distributed as aspecial dividend to all holders of Roche shares and non-voting equity securities on a one-for-one basis. The annual impact of the spin-off on the results of the Roche Group, as shown in theadjusted figures, is a reduction of sales by 8%, operating profit by 6% and net income by 3%.

Acquisition of Kytril to strengthen Roche’s oncology portfolioIn December 2000 Roche acquired the global rights to Kytril for 1.1 billion US dollars fromSmithKline Beecham in connection with its merger with Glaxo Wellcome. In 1999 Kytril achievednet sales of 550 million Swiss francs. Roche also sold to SmithKline Beecham the exclusiverights to Coreg in the United States and Canada for 400 million US dollars.

Substantial gain on sale of Genentech sharesOn 29 March 2000 the Group sold 17.3 million shares of Genentech through a public offeringyielding proceeds of 2.8 billion US dollars. The resulting pre-tax gain after incidental costswas 3.9 billion Swiss francs. Roche now holds 58% of Genentech, which corresponds approximatelyto the majority holding acquired in 1990.

48 Financial Review

Major steps in settling vitamin case in the United States During 2000 Roche completed two major steps for settling the vitamin case in the United States.On 28 March 2000 a US federal judge approved the overall settlement agreement to a classaction suit brought by the US buyers of bulk vitamins. Several customers in the class action havedecided to opt out of the overall settlement and pursue claims against the Group individually.On 10 October 2000 an overall agreement with indirect customers and end-consumers in theUnited States was announced. Outside the United States, the European Commission issueda Statement of Objections in July 2000 against 13 producers of bulk vitamins, including Roche.The global provisions recorded in 1999 remain the current best estimate of the total liability.

Another strong financial resultTotal financial income reached 2.3 billion Swiss francs in 2000. This strong positive result isprimarily driven by net gains on sales of marketable securities including shares of LabCorp. InJune 2000 LabCorp called for redemption its entire convertible preferred stock, part of which washeld by Roche as a portfolio investment. During the conversion process Roche realised a pre-taxgain of 296 million Swiss francs. In October 2000 Roche reduced its holding in LabCorp to 33%,realising a pre-tax gain of 660 million Swiss francs. The gain on the October sale is excluded fromthe adjusted results.

Financial condition strengthened furtherIn 2000, the Group achieved an impressive cash flow. The gross cash flow of the Group (EBITDA)increased by 25% to 11.1 billion Swiss francs reflecting the improvements in the operating resultincluding the gain from the sale of Genentech shares. Furthermore, the improvement of the work-ing capital turnover and the financial income contributed substantially. Net liquidity was strength-ened by 6.1 billion Swiss francs in total during the year. At 31 December 2000 the net liquidityamounted to 3.2 billion Swiss francs (compared to net debt of 2.9 billion Swiss francs at31 December 1999). The ratio of equity and minority interests to total assets increased from 43%at year-end 1999 to 46% at the end of 2000.

Offsetting impacts of new and revised International Accounting StandardsSeveral new and revised standards issued by the International Accounting Standards Committeebecame effective from 1 January 2000. The effects of the changes in accounting policiesregarding business combinations and intangible assets amount to 1.4 billion Swiss francs, whichwas largely offset by the impact from the new standard on impairment of assets of 1.2 billionSwiss francs. The accounting effects of all major acquisitions since 1990 are now reported ina consistent manner.

Financial Review 49

With our capacity to generate a high cash flow and

our very solid financing we are highly flexible and well

equipped for the future.Anton Affentranger, Chief Financial Officer since 1 January 2001

Consolidated income statements in millions of CHF

Figures reported Figures reported in the financial statements on an adjusted basis

2000 1999 % change 2000 1999 % change

Sales 28,672 27,567 +4 27,543 25,496 +8Cost of sales (9,163) (8,874) +3 (8,445) (7,813) +8Gross profit 19,509 18,693 +4 19,098 17,683 +8

Marketing and distribution (8,746) (7,813) +12 (8,507) (7,377) +15Research and development (3,950) (3,782) +4 (3,919) (3,732) +5Administration (1,242) (1,174) +6 (1,201) (1,103) +9Amortisation of intangible assets (1,474) (1,207) +22 (1,439) (1,371) +5Impairment of long-term assets (1,147) – – 14 – –Other operating income (expense), net 232 14 +1,557 255 (6) –Gain from sales of Genentech shares 3,949 4,461 –11 – – –Vitamin case – (2,426) –100 – – –Genentech legal settlements – (345) –100 – – –Operating profit 7,131 6,421 +11 4,301 4,094 +5

Financial income (expense), net 2,337 1,134 +106 1,723 1,242 +39Profit before taxes 9,468 7,555 +25 6,024 5,336 +13

Income taxes (2,272) (1,902) +19 (1,026) (992) +3Profit after taxes 7,196 5,653 +27 4,998 4,344 +15

Changes in accounting policies 1,395 27 +5,067 – – –Income applicable to minorityinterests 33 88 –63 (7) 61 –Share of result of associated companies 23 (4) – 23 (4) –Net income 8,647 5,764 +50 5,014 4,401 +14

Diluted earnings per share and non-voting equity security (CHF) 1,024 668 596 510

Adjusted results: The consolidated results for 2000 and 1999 are significantly influenced by various special items andalso by changes in International Accounting Standards. To improve the comparability of current and future consolidatedresults adjusted figures are calculated for both years. They are used in the internal management of the business and arehelpful when reviewing the trends in the Group’s results. • The adjusted results are shown on a continuing basis. The results of the Fragrances and Flavours Division are excluded

as if the Givaudan spin-off had already taken place on 1 January 1999. Sales by the Vitamins and Fine ChemicalsDivision to the Fragrances and Flavours Division are reclassified as sales to third parties.

• The adjusted results also exclude the gains on the sales of Genentech shares, the gain on the sale of LabCorp sharesin October 2000, the costs of the vitamin case and Genentech legal settlements.

• The 1999 adjusted results show the recurring accounting effects of the new and revised International AccountingStandards that became effective on 1 January 2000, and of the acquisition of the remaining outstanding shares inGenentech in 2000 as if they had already taken place at the beginning of 1999.

• The adjusted figures exclude the charges recorded in the second half of 1999 and in 2000 relating to the fair-valueadjustments of inventories associated with the Genentech acquisition.

• The above adjustments have also led to corresponding modifications to income taxes and to income applicableto minority interests. The minority interest figure for 1999 is calculated as if the participation in Genentech as at31 December 1999 had applied throughout the whole of 1999.

An analysis of the adjustments is given on page 95, and explanations of the adjusting items are given in Notes 1, 3, 5, 6and 7 to the Consolidated Financial Statements.

50 Financial Review

Sales on an adjusted basis in millions of CHF

% change% change (local

By division 2000 1999 (CHF) currencies)

Pharmaceuticals 17,686 16,487 +7 +1Diagnostics 6,252 5,282 +18 +12Vitamins and Fine Chemicals 3,605 3,727 –3 –9Total sales 27,543 25,496 +8 +2

Gross profitIn 2000 gross profit increased by 816 million Swiss francs to 19.5 billion Swiss francs. The grossprofit margin remained at 68%. On an adjusted basis, i.e. excluding primarily Fragrances andFlavours, gross profit reached 19.1 billion Swiss francs, an increase of 1.4 billion Swiss francs.On this basis, the gross profit margin also remained stable at 69%. The gross profit margin wasimproved by a favourable change in the division mix with a higher share of high-margin busi-nesses and further productivity improvements in all divisions. However, this was offset by contin-ued pressure on prices, in particular for Vitamins and Fine Chemicals, and a new generationof products in Diagnostics with increased production and service costs.

Marketing and distributionMarketing and distribution expenses increased by 933 million Swiss francs or 12% to 8.7 billionSwiss francs. On an adjusted basis, i.e. excluding Fragrances and Flavours, marketing and distri-bution expenses rose by 1.1 billion Swiss francs or 15% to 8.5 billion Swiss francs. The majorfactors involved were the increased efforts in Pharmaceuticals to build the market for Xenical andTamiflu, the increased support for the new oncology products and pre-marketing expenses forupcoming product launches. Other factors were the increased marketing spend by Diagnostics tofoster its leading position in the industry and to build new markets.

Research and developmentThe 4% rise in research and development costs was almost exclusively attributable to Genen-tech’s in-license and collaboration agreements and increased spending on later-stage clinicaltrials. Excluding Genentech, research and development costs remained at the level of 1999.Research and development costs as a percentage of sales on Group level were stable at 14%. ForPharmaceuticals, which account for more than 80% of the Group’s research and developmentexpenses, they remained at 18%.

AdministrationAdministration costs grew by 6%, and by 9% on an adjusted basis, i.e. excluding Fragrances andFlavours. This increase was slightly greater than the growth in sales mainly as a result ofincreased legal costs due to competitive conditions and governmental inquiries more than offset-ting savings from improved processes.

Amortisation of intangible assetsThe significant increase of amortisation expenses was primarily driven by a half-year amortisationof intangible assets and goodwill resulting from the acquisition of the remaining outstandingGenentech shares in June 1999. On an adjusted basis, the increase in amortisation of intangibleassets was primarily due to foreign currency effects.

Impairment of long-term assetsThe adoption of new International Accounting Standards resulted in impairment charges of1.2 billion Swiss francs relating to intangible assets acquired prior to 2000. Further impairmententries during 2000 resulted in a net impairment credit of 14 million Swiss francs as shown inthe adjusted results.

Financial Review 51

52 Financial Review

Other operating income (expense), netOther operating income (expense), net increased by more than 0.2 billion Swiss francs mainly dueto higher gains from ongoing realignments of the product portfolio and higher royalty incomedespite increased royalty and restructuring expenses.

Operating profitOperating profit rose by 11% to 7.1 billion Swiss francs primarily driven by a 4% increase in grossprofit, the 3.9 billion Swiss francs gain on the sale of Genentech shares and no further unpro-vided expenses for the vitamin case. Operating profit on an adjusted basis increased from 4.1 to4.3 billion Swiss francs in 2000. The margin on sales on an adjusted basis declined from 16.1%in 1999 to 15.6%.

Divisional results on an adjusted basis in millions of CHF

VitaminsPharma- and Fineceuticals Diagnostics Chemicals Other Group

Year ended 31 December 2000Divisional sales to third parties 17,686 6,252 3,605 – 27,543EBITDA 4,970 1,639 719 (260) 7,068– as % of sales 28 26 20 – 26Operating profit 3,249 822 494 (264) 4,301– as % of sales 18 13 14 – 16

Year ended 31 December 1999Divisional sales to third parties 16,487 5,282 3,727 – 25,496EBITDA 4,656 1,380 799 (188) 6,647– as % of sales 28 26 21 – 26Operating profit 3,069 633 584 (192) 4,094– as % of sales 19 12 16 – 16

EBITDA (Earnings before interest and other financial income, tax, depreciation and amortisationincluding impairment) measures the gross cash generation of the divisions. The divisionaloperating profit margins furthermore reflect the different fixed asset intensities of the businessesand the acquisition history.

The EBITDA margin of the Pharmaceuticals Division remained at 28%. The higher marketingcosts for Xenical, Tamiflu and the new oncology products and the pre-marketing expenses forupcoming product launches were offset by higher sales with an improved gross profit marginand by gains from the continuing realignment of the product portfolio.

The Diagnostics Division maintained its EBITDA margin at 26%. The higher marketing efforts ledto correspondingly higher sales. The operating profit margin increased by 1 percentage point.

The strong long-term competitive pressure in the Vitamins and Fine Chemicals business con-tinued. However, the division was able to offset the sales price decline to some extent byfurther productivity improvements and volume increases. EBITDA decreased by one percentagepoint to 20%.

The result of ‘Other’ consists of the costs of Corporate Headquarters. In 2000 they increasedsubstantially due to restructuring costs relating to the Basel Institute for Immunology and the vol-untary solidarity contribution to the Holocaust Victim Assets Litigation (Swiss Banks Litigation).

Financial Review 53

Financial income (expense), netTotal financial income (expense), net showed a substantial increase of over 100% to 2.3 billionSwiss francs. Key factors were profits achieved on the marketable securities portfolio, despiteweak stock markets, together with the gain on the sale of LabCorp shares, which reduced theGroup’s participation to 33%, and the gain on the portfolio investment in LabCorp convertibles.With higher net liquidity available than in 1999, interest income increased substantially. Thisincrease largely compensated the rise in interest expenses resulting from additional debt andfrom increases in the discounted value of provisions. The net result on foreign exchangetransactions also improved compared to the previous year. Even after exclusion of the gain onthe October sale of LabCorp shares, total financial income (expense), net rose by 39%. An analysis of its components is given in Note 10 to the Consolidated Financial Statements.

Net incomeNet income rose by 50% to 8.6 billion Swiss francs in 2000. This represents a return on sales of30%. On an adjusted basis, the increase amounted to 14%.

Balance sheet in millions of CHF

2000 1999 % change

Long-term assets 34,798 35,800 –3Current assets 34,737 34,631 –Total assets 69,535 70,431 –1

Equity 27,608 26,954 +2Minority interests 4,428 3,047 +45Non-current liabilities 23,642 25,574 –8Current liabilities 13,857 14,856 –7Total equity, minority interests and liabilities 69,535 70,431 –1

One of the most notable factors in the development of the Group’s balance sheet during the yearwas the spin-off of Givaudan, excluding assets of 3.9 billion Swiss francs and liabilities of 1.2 bil-lion Swiss francs from the Roche Group’s balance sheet. A further significant development wasthe acquisition of the global rights to Kytril for 1.1 billion US dollars, which added to intangibleassets. There was also a change in accounting policy under which the Group reclassified as areduction from equity 4.2 billion Swiss francs of own equity instruments, which in previous yearswere reported as marketable securities.

The record earnings, fed by the Genentech and LabCorp share sales and the strong results ofon-going activities, were largely responsible for turning the net debt position of 2.9 billion Swissfrancs at the start of the year into a net liquidity position of 3.2 billion Swiss francs by its end.They also helped raise the Group’s ratio of equity and minority interests to total assets from 43%to 46% over the same period.

The ‘Knock Out’ bonds were repaid at maturity, and some of the ‘Helveticus’ convertible bondswere also exercised. The consequent reduction in the Group’s borrowings was nevertheless morethan offset by the issue of the ‘Sumo’ and ‘LYONs’ bonds.

The implementation of new and revised International Accounting Standards on intangible assetsand business combinations at 1 January 2000 resulted in an increase of 1.4 billion Swiss francs inintangible assets. However, a reduction in intangible assets of a similar magnitude arose follow-ing the implementation of the new Standard on impairment of assets at the same date, so that thenet effect on the balance sheet was minor. The changes are purely of an accounting nature andhave no impact on the Group’s cash flows.

54 Financial Review

Cash flows in millions of CHF

2000 1999

Operating activities before income taxes 6,204 2,557Income taxes paid (all activities) (2,288) (830)Operating activities 3,916 1,727Financing activities (2,538) (895)Investing activities (832) (867)Net effect of currency translation on cash (36) 103Increase (decrease) in cash 510 68

Cash flows from operating activities (before income taxes) increased by 3.6 billion Swiss francsdue to the improved operating result, better working capital performance and reduced outflows inrespect of the vitamin case and restructuring. Income taxes paid in 2000 were considerablyhigher, mainly due to the Genentech and LabCorp share sales. Financing activities cash flowsbenefited from the 4.1 billion Swiss francs proceeds from the issue of the ‘Sumo’ and ‘LYONs IV’bonds which exceeded the outflows on the ‘Knock Out’ and ‘Helveticus’ bonds. Meanwhile, the5.7 billion Swiss francs proceeds from the Genentech and LabCorp transactions were partly usedin the Kytril acquisition (1.9 billion Swiss francs) and in additions to property, plant and equip-ment (2.2 billion Swiss francs). The remainder was reinvested in net purchases of marketablesecurities, to give a net cash outflow from investing activities of 0.8 billion Swiss francs.

Foreign exchange ratesExchange rates against the Swiss franc were:

31 December Average 31 December Average 31 December2000 2000 1999 1999 1998

1 USD 1.64 1.69 1.60 1.50 1.371 EUR 1.52 1.56 1.61 1.60 1.601 GBP 2.45 2.56 2.58 2.43 2.29100 JPY 1.43 1.57 1.57 1.33 1.18

Compared to 1999 the US dollar was on average 13% stronger against the Swiss franc, whilethe euro was around 3% weaker. The net effect of these differing exchange rate patterns on theGroup’s sales was a positive 6 percentage points.

The US dollar’s 3% strengthening against the Swiss franc on a year-end basis contrasted withthe weakening of the euro (–6%) and the Japanese yen (–9%). The divergence in trends tended tomitigate effects on the Group’s balance sheet.

Financial Review 55

Introduction of the euroThe introduction of the euro has presented various opportunities to streamline the conduct ofthe business. With regard to systems, the business processes and IT systems of European Groupcompanies have been adapted to handle euro-denominated transactions. The companies con-cerned are able to deal with dual-currency transactions in the transition period to 2002, andthose located in EMU countries will be converting to the euro for accounting purposes duringthe course of 2001.

J F M A M J J A S O N D

CHF/USD exchange rate

1.641.631.60

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.852000 1999

Consolidated income statement in millions of CHF

Year ended 31 December2000 1999

Sales4 28,672 27,567Cost of sales (9,163) (8,874)Gross profit 19,509 18,693

Marketing and distribution (8,746) (7,813)Research and development 4 (3,950) (3,782)Administration (1,242) (1,174)Amortisation of intangible assets13 (1,474) (1,207)Impairment of long-term assets1, 13 (1,147) –Other operating income (expense), net 9 232 14Gain from sales of Genentech shares3 3,949 4,461Vitamin case5 – (2,426)Genentech legal settlements6 – (345)Operating profit 7,131 6,421

Financial income (expense), net10 2,337 1,134Profit before taxes 9,468 7,555

Income taxes11 (2,272) (1,902)Profit after taxes 7,196 5,653

Changes in accounting policies1 1,395 27Income applicable to minority interests23 33 88Share of result of associated companies14 23 (4)

Net income 8,647 5,764

Basic earnings per share and non-voting equity security (CHF)22 1,036 668

Diluted earnings per share and non-voting equity security (CHF)22 1,024 668

Consolidated Financial StatementsReference numbers indicate corresponding Notes to the Consolidated Financial Statements

56 Consolidated Financial Statements

Consolidated Financial Statements 57

Consolidated balance sheet in millions of CHF

31 December2000 1999

Long-term assetsProperty, plant and equipment12 13,785 14,240Intangible assets13 15,870 15,672Investments in associated companies14 652 535Other investments 1,558 1,736Deferred income tax assets11 460 1,170Other long-term assets15 2,473 2,447Total long-term assets 34,798 35,800

Current assetsInventories16 5,754 6,546Accounts receivable – trade17 5,519 6,178Current income tax assets11 435 408Other current assets18 2,381 2,633Marketable securities19 18,086 16,814Cash19 2,562 2,052Total current assets 34,737 34,631

Total assets 69,535 70,431

EquityShare capital21 160 160Non-voting equity securities (Genussscheine) 21 p.m. p.m.Own equity instruments21 (4,166)Retained earnings 31,839 26,669Other reserves (225) 125Total equity 27,608 26,954

Minority interests23 4,428 3,047

Non-current liabilitiesLong-term debt24 16,167 15,962Deferred income tax liabilities11 2,535 3,895Liabilities for post-employment benefits8 2,502 2,764Provisions26 2,036 1,694Other non-current liabilities 402 1,259 Total non-current liabilities 23,642 25,574

Current liabilitiesShort-term debt24 5,451 5,702Current income tax liabilities11 882 728Provisions26 1,959 2,660Accounts payable – trade and other 2,215 2,378Accrued and other current liabilities20 3,350 3,388Total current liabilities 13,857 14,856

Total equity, minority interests and liabilities 69,535 70,431

p.m. = pro memoria. Non-voting equity securities have no nominal value (see Note 21).

58 Consolidated Financial Statements

Consolidated statement of changes in equity in millions of CHF


Share capital21

Balance at 1 January and at 31 December 160 160

Non-voting equity securities (Genussscheine) 21

Balance at 1 January and at 31 December p.m. p.m.

Own equity instruments21

Balance at 1 January as previously reported –Adjustment from change in accounting policies (3,291)Balance at 1 January as restated (3,291)Movements during the year (875)Balance at 31 December (4,166)

Retained earningsBalance at 1 January 26,669 21,655Net income 8,647 5,764Dividends paid21 (835) (750)Givaudan spin-off – special dividend and transfer of net assets 7, 21 (2,642) –Balance at 31 December 31,839 26,669

Other reserves– Equity conversion options

Conversion option embedded in ‘Sumo’ bonds24 24 –– Currency translation differences

Balance at 1 January 125 (149)Gains (losses) recognised during the year (374) 274Balance at 31 December (249) 125

Balance other reserves at 31 December (225) 125

Total equity at 31 December 27,608 26,954

p.m. = pro memoria. Non-voting equity securities have no nominal value (see Note 21).

Consolidated Financial Statements 59

Consolidated cash flow statement in millions of CHF


Cash flows from operating activitiesNet income 8,647 5,764Non-operating income and expenses* (1,516) 657Operating profit 7,131 6,421Depreciation of property, plant and equipment12 1,374 1,246Amortisation of intangible assets13 1,474 1,207Impairment of long-term assets1, 13 1,147 –Effects of Genentech transactions, vitamin case and Genentech legal settlements28 (3,791) (1,550)Other adjustments for non-cash operating income and expense28 (90) 619(Increase) decrease in working capital 367 (2,618)Costs of vitamin case paid5 41 (1,282)Costs of Genentech legal settlements paid6 (337) (75)Restructuring costs paid26 (338) (910)Payments made for defined benefit post-employment plans8 (309) (290)Other operating cash flows (465) (211)Cash flows from operating activities, before income taxes paid 6,204 2,557Income taxes paid (2,288) (830)Total cash flows from operating activities 3,916 1,727

Cash flows from financing activitiesProceeds from issue of long-term debt28 4,143 4,175Repayment of long-term debt28 (3,062) (3,689)Transactions in own equity instruments21 (875)Increase (decrease) in short-term borrowings (747) 70Interest and dividends paid28 (1,737) (1,436)Givaudan spin-off – special dividend and Givaudan cash balances 7, 21 (465) –Other 205 (15)Total cash flows from (used in) financing activities (2,538) (895)

Cash provided by operating and financing activities 1,378 832

Cash flows from investing activitiesPurchase of property, plant and equipment, and intangible assets12, 13 (2,402) (2,413)Disposal of property, plant and equipment, and intangible assets12, 13 200 376Acquisition of subsidiaries, associated companies and products28 (2,686) (6,222)Divestments of subsidiaries, associated companies and products28 6,809 7,353Interest and dividends received28 743 459Purchases of marketable securities, net of sales, and other (3,496) (420)Total cash flows from (used in) investing activities (832) (867)

Net effect of currency translation on cash (36) 103Increase (decrease) in cash 510 68

Cash at beginning of year 2,052 1,984Cash at end of year19 2,562 2,052

* Non-operating income and expenses consist of the following income statement items: financial income (expense), net,income taxes, changes in accounting policies, income applicable to minority interests, and share of result of associatedcompanies.

Notes to the Consolidated Financial StatementsReference numbers indicate corresponding Notes to the Consolidated Financial Statements

1. Summary of significant accounting policies

Basis of preparation of the consolidated financial statementsThe consolidated financial statements of the Roche Group have been prepared in accordancewith International Accounting Standards, using the historical cost convention. They wereauthorised for issue by the Board of Directors on 26 February 2001.

The preparation of the consolidated financial statements requires management to make estimatesand assumptions that affect the reported amounts of revenues, expenses, assets and liabilities,disclosure of contingent liabilities at the date of the financial statements. If in the future suchestimates and assumptions, which are based on management’s best judgement at the date of thefinancial statements, deviate from the actual circumstances, the original estimates and assump-tions will be modified as appropriate in the year in which the circumstances change.

Consolidation policyThese financial statements are the consolidated financial statements of Roche Holding Ltd,a company registered in Switzerland, and its subsidiaries (hereafter ‘the Group’).

The subsidiaries are those companies controlled, directly or indirectly, by Roche Holding Ltd,where control is defined as the power to govern the financial and operating policies of an enter-prise so as to obtain benefits from its activities. This control is normally evidenced when RocheHolding Ltd owns, either directly or indirectly, more than 50% of the voting rights of a company’sshare capital. Companies acquired during the year are consolidated from the date on whichoperating control is transferred to the Group, and subsidiaries to be divested are included up tothe date of divestment. Companies acquired to be resold are not consolidated but are classifiedas assets held for sale and carried at cost. Assets identified for divestment in the following yearare reclassified as assets held for sale within other current assets. These assets normally consistmainly of inventories, property, plant and equipment, and other long-term assets.

Investments in associated companies are accounted for by the equity method. These are com-panies over which the Group exercises significant influence, but which it does not control. Thisis normally evidenced when the Group owns 20% or more of the voting rights of the company.Interests in joint ventures are reported using the line-by-line proportionate consolidation method.Other investments are carried at cost after deducting appropriate provisions for permanentimpairment and are included in long-term assets.

60 Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements 61

Foreign currency valuationAssets and liabilities of Group companies reporting in currencies other than Swiss francs(foreign entities) are translated into Swiss francs using year-end rates of exchange. Sales,costs, expenses, net income and cash flows are translated at the average rates of exchange forthe year. Translation differences due to the changes in exchange rates between the beginningand the end of the year and the difference between net income translated at the average andyear-end exchange rates are taken directly to equity. Exchange gains and losses on hedges ofnon-Swiss franc net investments and on intercompany balances of a long-term investment natureare also taken to equity. On the divestment of a foreign entity, the cumulative currency translationdifferences relating to that foreign entity are recognised in income as part of the gain or losson divestment.

Gains and losses on exchange arising in Group companies from the translation into their localreporting currency of their financial assets and liabilities denominated in foreign currencies andfrom the settlement of foreign currency transactions are included in income.

Certain Group companies maintain financial information for Group reporting purposes in US dollars, Swiss francs or euros where these are the functional currencies of the companiesconcerned. The effect of exchange rate differences between the local currency and theUS dollar, Swiss franc or euro in respect of financial assets and liabilities is included in income.

Sales and cost of salesSales represent amounts received and receivable for goods supplied and services rendered tocustomers after deducting volume discounts and sales taxes. Cost of sales includes the cor-responding direct production costs and related production overhead of goods manufactured andservices rendered.

Research and developmentResearch costs are charged against income as incurred, with the exception of buildings andmajor items of equipment, which are capitalised and depreciated. Development costs are alsocharged against income as incurred since the criteria for their recognition as an asset arenot met.

Employee benefitsWages, salaries, social security contributions, paid annual leave and sick leave, bonuses, optionsand non-monetary benefits are accrued in the year in which the associated services are renderedby employees of the Group. Where the Group provides long-term employee benefits, the cost isaccrued to match the rendering of the services by the employees concerned.

The Group operates a number of defined benefit and defined contribution plans throughout theworld. The cost for the year for defined benefit plans is determined using the projected unit creditmethod. This reflects service rendered by employees to the dates of valuation and incorporatesactuarial assumptions primarily regarding discount rates used in determining the present value ofbenefits, projected rates of remuneration growth, and long-term expected rates of return forplan assets. Discount rates are based on the market yields of high-quality corporate bonds in thecountry concerned. Differences between assumptions and actual experiences, and effects ofchanges in actuarial assumptions are allocated over the estimated average remaining workinglives of employees, where these differences exceed a defined corridor. Past service costs areallocated over the average period until the benefits become vested. Pension assets and liabilitiesin different defined benefit schemes are not offset unless the Group has a legally enforceableright to use the surplus in one plan to settle obligations in the other plan.


The Group’s contributions to the defined contribution plans are charged to the income statementin the year to which they relate.

TaxationIncome taxes include all taxes based upon the taxable profits of the Group, including withholdingtaxes payable on the distribution of retained earnings within the Group. Other taxes not basedon income, such as property and capital taxes, are included within operating expenses or financialexpenses according to their nature.

Provision for income taxes, mainly withholding taxes, which could arise on the remittance ofretained earnings, principally relating to subsidiaries, is only made where there is a current inten-tion to remit such earnings.

Deferred income taxes are provided using the liability method, under which deferred tax conse-quences are recognised for temporary differences between the tax bases of assets and liabilitiesand their carrying values for financial reporting purposes. Deferred income tax assets relating tothe carry-forward of unused tax losses are recognised to the extent that it is probable that futuretaxable profit will be available against which the unused tax losses can be utilised.

Current and deferred income tax assets and liabilities are offset when the income taxes are leviedby the same taxation authority and when there is a legally enforceable right to offset them.

Property, plant and equipmentProperty, plant and equipment are initially recorded at cost of purchase or construction and aredepreciated on a straight-line basis, except for land, which is not depreciated. Estimated usefullives of major classes of depreciable assets are as follows:

Buildings and land improvements 40 yearsMachinery and equipment 5–15 yearsOffice equipment 3 yearsMotor vehicles 5 years

Investment grants or similar assistance for projects are initially recorded as deferred income(in other non-current liabilities) and are subsequently recognised as income over the useful livesof the related assets. Repairs and maintenance costs are recognised as expenses as incurred.Borrowing costs are not capitalised. Assets acquired under finance leases are depreciated overtheir estimated useful lives. Payments made under operating leases are charged against incomeon a straight-line basis over the period of the lease.

Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the first-in first-out method.

Cash and marketable securities Cash comprises cash on hand and time, call and current balances with banks and similar institu-tions. This definition is also used for the cash flow statement. Marketable securities are shown atthe lower of cost or market value.


Debt instruments The proceeds, net of expenses, of bonds issued with warrants are allocated between the bondsand the warrants in proportion to their respective fair market values at the time of issue. Anydiscount arising from the low coupon rate and represented by the difference between the prin-cipal amount and the net proceeds is charged to interest expense over the life of the bonds.Obligations arising from warrants issued with debt instruments are accrued over the periodthe warrants are outstanding, to meet the maximum cash obligation at the date when thewarrants are exercisable.

Provisions Provisions are recognised where a legal or constructive obligation has been incurred which willprobably lead to an outflow of resources that can be reasonably estimated.

Financial instruments Gains and losses from forward exchange contracts, options and currency swaps used to hedgepotential exchange rate exposures are deferred and then offset against losses and gains on thespecific transactions being hedged. The fee agreed in establishing each contract is amortisedover the duration of the contract. Interest differentials under swap arrangements, forward rateagreements and interest rate caps used to manage interest rate exposures are recognised byadjustments to interest expense. When such derivative financial instruments are used for tradingpurposes any gains and losses from changes in their market value are taken to income as theyarise. Certain covered call option contracts entered into by the Group require that underlyingsecurities be lodged with the financial institutions involved in the arrangement.

The fair values at the balance sheet date are approximately in line with their reported carryingvalues unless specifically mentioned in the Notes to the Consolidated Financial Statements.

International Accounting Standards Several revised or new standards issued by the International Accounting Standards Committeeand interpretations of the Standing Interpretations Committee became effective from 1 January2000. These are listed below and their effects, if any, are described.

In total, recurring operating costs in 2000 are 33 million Swiss francs higher than under theprevious methods of accounting. In recording the effects of changes in accounting policy theGroup follows the allowed alternative of retaining the previous year’s figures as reported andof displaying the effect in the current year’s income statement.

‘Property, plant and equipment’, ‘Provisions, contingent liabilities and contingent assets’and ‘Events after the balance sheet date’. No adjustments were necessary as a result of theseimplementations, as the Group’s accounting policies previously reflected the measurement prin-ciples in these new or revised standards.

‘Share capital – reacquired own equity instruments’. The Group’s holdings in its own equityinstruments are recorded as a deduction from equity. The original cost of acquisition, considera-tion received for subsequent resale of these equity instruments and other movements arereported as changes in equity. Previously these instruments were recorded in marketable securi-ties. Had they been treated as own equity instruments in 1999, reported earnings per share wouldhave been approximately 3% higher. These instruments have been acquired primarily to meet theobligations that may arise in respect of certain of the Group’s debt instruments.


‘Impairment of assets’. When the recoverable amount of an asset, being the higher of its netselling price and its value in use, is less than its carrying amount, then the carrying amount isreduced to its recoverable value. This reduction is reported in the income statement as an impair-ment loss. Value in use is calculated using estimated cash flows, generally over a five-year period,with extrapolating projections for subsequent years. These are discounted using an appropriatelong-term interest rate. Previously the value in use was calculated using cash flow projections onan undiscounted basis. The new standard is required to be adopted on a prospective basis.

As a result, effective 1 January 2000, the Group recognised impairment charges of 1,161 millionSwiss francs relating to acquired intangible assets. A reduction in deferred tax liabilities of348 million Swiss francs was also recorded, giving a net charge of 813 million Swiss francs in theconsolidated results. Under the Group’s previous accounting treatment, no impairment wouldhave arisen. As a result of the impairment, the net book value of intangible assets was reduced bythe amount of the impairment charge, and consequently amortisation in 2000 was 130 millionSwiss francs lower than it would have been under the previous policy.

Further impairment entries that arose during the year are disclosed in Note 13.

‘Intangible assets’ and ‘Business combinations’. Goodwill is recorded as an intangible assetand is the surplus of the cost of acquisition over the fair value of identifiable assets acquired. Anygoodwill and fair value adjustments are treated as assets and liabilities of the acquired companyand are recorded in the local currency of that company.

Patents, licences, trademarks and other intangible assets are initially recorded at fair value.Where these assets have been acquired through a business combination, this will be the fairvalue allocated in the acquisition accounting. Where these have been acquired other thanthrough a business combination, the initial fair value will be cost.

All intangible assets are amortised over their useful lives on a straight-line basis. Estimated usefullives of major classes of intangible assets are as follows:

Goodwill 5–20 yearsPatents, licences, trademarks Lower of legal duration and and other intangible assets economic useful life, up to a maximum of 20 years

As required for the implementation of these new and revised standards the Group has reviewedthe accounting for its previous acquisitions. This process included the acquisitions of Genentech,Nicholas, Syntex, Tastemaker and Corange. The Group has recalculated the goodwill and otherassets and liabilities arising from significant acquisitions since 1995 and has adjusted the carry-ing values accordingly, as is required by the new and revised standards. Furthermore, in connec-tion with acquisitions made prior to 1995, the Group now reports as intangible assets the goodwillwhich had previously been written-off to equity, and has recalculated this goodwill and otherassets and liabilities arising from these acquisitions. Thus the accounting effects of the Group’sacquisitions are reported in a consistent manner. In addition, non-acquisition-related intangibleassets have been reviewed to ensure that they meet the recognition and measurement criteriaof the new standard.

As a result, as of 1 January 2000, the Group recorded certain reclassifications and adjustments ofthe original purchase accounting allocations to reflect the revised balances, the approximateamount of amortisation up to 1 January 2000 and effects on taxation balances and minority inter-ests. These are as follows:


Other Deferredintangible income Minority

In millions of CHF Goodwill assets taxes interests Total

Items not previously recognised 12,901 1,727 – – 14,628Provisions now charged to expense (711) – – – (711)Transfers 1,079 (1,079) – – –Prior changes in Group organisation (628) – – – (628)Amortisation, net (10,283) (1,505) – – (11,788)Deferred income tax effects, net – – 49 – 49Minority interests – – – (155) (155)Net credit to income 2,358 (857) 49 (155) 1,395

As a result of this change in accounting policy, the carrying value of intangible assets increasedas of 1 January 2000. Consequently the Group’s amortisation charge in 2000 was 104 millionSwiss francs higher than it would have been under the previous policy. Most of this increase wasin the Diagnostics Division.

If the new and revised standards on ‘Intangible assets’ and ‘Business combinations’ had beenapplied in 1999 then the Group’s net assets at 31 December 1999 would have been higher by1,395 million Swiss francs, and the recurring operating costs would have been 187 million Swissfrancs higher than reported.

New standards for 2001. For the Consolidated Financial Statements for 2001, a new Interna-tional Accounting Standard ‘Financial instruments: recognition and measurement’ will come intoeffect. The standard requires that all financial assets and financial liabilities are recognised onthe balance sheet, including all derivatives. The financial statements will be affected by the intro-duction of fair value accounting for certain marketable securities, investments and derivatives.For certain marketable securities and investments designated as available for sale, the Groupintends to recognise the changes in fair value in equity until the asset is sold.

The assessment of the impact of the standard on the Group’s financial position as of 1 January2001 will be reported in the 2001 consolidated financial statements as an adjustment to retainedearnings at 1 January 2001, with no restatement of previously reported amounts for the yearended 31 December 2000. As a result retained earnings will increase by approximately one billionSwiss francs. The most significant part of this relates to other investments, the fair value of whichis approximately one billion Swiss francs higher than the carrying value as at 31 December 2000.

The new International Accounting Standard on ‘Investment property’, effective from 1 January2001, is not expected to have a significant impact on the Group’s financial statements.

International Accounting Standards will continue to be developed and revised in the future. Thiswill lead to further adaptations of the Group’s accounting policies in the coming years.

2. Financial risk management

Financial risk management within the Group is governed by policies approved by senior manage-ment. These policies cover foreign exchange risk, interest rate risk, market risk, credit risk andliquidity risk. Group policies also cover areas such as cash management, investment of excessfunds and the raising of short- and long-term debt.


When deemed appropriate, certain of the above risks are altered through the use of financialinstruments. Group management believes that, in order to create the optimum value for theGroup, it is not desirable to eliminate or mitigate all possible market fluctuations. Financial instru-ments are selectively used to create and optimise value. Group companies report details of thefinancial instruments outstanding and financial liquidity position to Group Treasury on at least amonthly basis.

Foreign exchange riskThe Group operates across the world and is exposed to movements in foreign currencies affectingits net income and financial position, as expressed in Swiss francs.

Transaction exposure arises because the amount of local currency paid or received for trans-actions denominated in foreign currencies may vary due to changes in exchange rates. For manyGroup companies income will be primarily in the local currency. A significant amount of expen-diture, especially for purchase of goods for resale and interest on and repayment of loans will bein foreign currencies. Similarly, transaction exposure arises on net balances of monetary assetsheld in foreign currencies. Group companies manage this exposure at a local level, if necessaryby means of financial instruments such as options and forward contracts. In addition, GroupTreasury monitors total worldwide exposure with the help of comprehensive data received on amonthly basis.

Translation exposure arises from the consolidation of the foreign currency denominated finan-cial statements of the Group’s foreign subsidiaries. The effect on the Group’s consolidated equityis shown as a currency translation movement. The Group hedges significant net investments inforeign currencies by taking foreign currency loans or issuing foreign currency denominated debtinstruments. Major translation exposures are monitored on a regular basis.

A significant part of the Group’s cash outflows for research, development, production and admin-istration is denominated in Swiss francs, while a much smaller proportion of the Group’s cashinflows are Swiss franc denominated. As a result, an increase in the value of the Swiss franc rela-tive to other currencies has an adverse impact on consolidated net income. Similarly, a relativefall in the value of the Swiss franc has a favourable effect on results published in Swiss francs.

Interest rate riskInterest rate risk arises from movements in interest rates which could have adverse effects onthe Group’s net income or financial position. Changes in interest rates cause variations in interestincome and expenses on interest-bearing assets and liabilities. In addition, they can affect themarket value of certain financial assets, liabilities and instruments as described in the followingsection on market risk.

The interest rates on the Group’s major debt instruments are fixed, as described in Note 24,which reduces the Group’s exposure to changes in interest rates. Group companies manage theirshort-term interest rate risk at a local level, if necessary using financial instruments such asinterest rate forward contracts, swaps and options.

Market riskChanges in the market value of certain financial assets, liabilities and instruments can affect thenet income or financial position of the Group. The Group’s long-term investments are held forstrategic purposes, and changes in market value do not affect the carrying value, unless a perma-nent loss in value is indicated. The Group’s marketable securities are held for fund managementpurposes. The risk of loss in value is reduced by a very careful review prior to investing, concen-tration of investments and continuous monitoring of the performance of investments and changesin their risk configuration.


Credit riskCredit risk arises from the possibility that the counter-party to a transaction may be unable orunwilling to meet their obligations causing a financial loss to the Group.

Trade receivables are subject to a policy of active risk management focussing on the assessmentof country risk, credit availability, ongoing credit evaluation and account monitoring procedures.There are no significant concentrations within trade receivables of counter-party credit risk,due to the Group’s large number of customers and their wide geographical spread. Country risklimits and exposures are continuously monitored.

The exposure of other financial assets and liabilities to credit risk is controlled by setting a policyfor limiting credit exposure to high-quality counter-parties, continuously reviewing credit ratings,and limiting individual aggregate credit exposure accordingly.

Liquidity riskGroup companies need to have sufficient availability of cash to meet their obligations. Individualcompanies are responsible for their own cash management, including the short-term investmentof cash surpluses and the raising of loans to cover cash deficits, subject to guidance by theGroup and, in certain cases, to approval at Group level.

The Group maintains sufficient reserves of cash and readily realisable marketable securities tomeet its liquidity requirements at all times. In addition, the strong international creditworthinessof the Group allows it to make efficient use of international capital markets for financing pur-poses.

3. Group organisation

An overview of the operating subsidiaries and associated companies is included on pages 110 to111. In addition to the operating companies, the Group has holding and finance companies.

GenentechOn 13 June 1999 the Group exercised its option to acquire the remaining outstanding SpecialCommon Stock of Genentech, Inc. on 30 June 1999. As a result, Genentech became a whollyowned subsidiary of the Group. The total consideration of 4,007 million US dollars (6,222 millionSwiss francs) included the contribution by the Group to Genentech of the funds required byGenentech to purchase the outstanding Genentech Special Common Stock and the cost toGenentech of settling outstanding obligations under its employee stock option plan. The consid-eration paid was allocated to the assets and liabilities of Genentech, and consequently the totalcarrying value of Genentech increased by 6,222 million Swiss francs. As part of this the Grouprecorded a write-up of inventory of 298 million Swiss francs. During 2000 158 million Swiss francsof this was recognised as cost of sales through the sale of inventory (1999: 140 million Swissfrancs).

On 23 July 1999 and 21 October 1999 the Group sold a total of 34% of the Common Stock ofGenentech through public offerings yielding total proceeds of 4.9 billion US dollars (7.4 billionSwiss francs). The total resulting pre-tax gain of 4.5 billion Swiss francs is calculated as thedifference between the proceeds of the sales, net of incidental costs, and the proportion of netassets.

On 29 March 2000 the Group sold 17.3 million shares of Genentech through a public offeringyielding proceeds of 2,771 million US dollars (4,599 million Swiss francs). The resultingpre-tax gain after incidental costs was 3,949 million Swiss francs. Roche’s ownership interestin Genentech at 31 December 2000 was 58%.


Other acquisitions and divestments On 22 December 2000 the Group acquired the global rights to Kytril (granisetron) from SmithKlineBeecham for a cash consideration of 1,114 million US dollars (1,871 million Swiss francs).

On 22 December 2000 the Group also sold its exclusive rights to Coreg (carvedilol) in the UnitedStates and Canada to SmithKline Beecham for 400 million US dollars (660 million Swiss francs).The Group will remain the supplier of carvedilol in all markets outside the United States andCanada.

As a result of the acquisition of Kytril, the acquisition of the medical instruments division of AVLand certain other smaller acquisitions, additional intangible assets of 2,267 million Swiss francswere recorded. Total cash outflow from other acquisitions was 2,351 million Swiss francs and theinflow from other divestments was 1,087 million Swiss francs.


4. Segment information in millions of CHF

Divisional informationVitamins Fragrances

Pharma- and Fine Continuing and2000 ceuticals Diagnostics Chemicals Others operations Flavours Group

Segment revenuesSegment revenue/divisional sales 17,831 6,252 3,696 – 27,779 1,193 28,972Less inter-divisional salesa) (145) – (125) – (270) (30) (300)Divisional sales to third parties 17,686 6,252 3,571 – 27,509 1,163 28,672

Segment results/operating profit 5,879 822 494 (264) 6,931 200 7,131

Segment assets and liabilitiesDivisional assetsb) 24,657 11,962 4,406 60 41,085 – 41,085Other segment assetsc) 530 41 82 – 653 – 653Segment assets 25,187 12,003 4,488 60 41,738 – 41,738Non-segment assetsd) 27,797Total assets 69,535

Divisional liabilitiesb) (501) (280) (158) (1) (940) – (940)Other segment liabilitiesc) (2,007) (1,496) (1,196) – (4,699) – (4,699)Segment liabilities (2,508) (1,776) (1,354) (1) (5,639) – (5,639)Non-segment liabilitiesd) (31,860)Total liabilities (37,499)

Other segment informationCapital expendituree) 3,209 1,023 385 8 4,625 68 4,693Depreciation 742 387 209 4 1,342 32 1,374Amortisation 993 430 16 – 1,439 35 1,474Impairment of long-term assets 1,147 – – – 1,147 – 1,147Research and development costs 3,201 558 122 38 3,919 31 3,950Share of result ofassociated companies – 34 (11) – 23 – 23Investments inassociated companies 101 432 31 88 652 – 652Number of employees 41, 409 15,631 7,257 461 64,758 – 64,758

a) Transfer prices for inter-divisional sales are set on an arm’s length basis.b) Divisional assets consist primarily of property, plant and equipment, intangible assets, receivables and inventories.

Divisional liabilities consist of trade accounts payable.c) Other segment assets and liabilities consist of assets and liabilities which can be reasonably attributed to the reported

business segments. These include pension assets and liabilities and some provisions.d) Non-segment assets and liabilities mainly include current and deferred income tax balances, and financial assets and

liabilities, principally cash, marketable securities, investments in associated companies, other investments and debt. e) Capital expenditure comprises additions to intangible assets (including goodwill) and additions to property, plant and

equipment, including those arising from acquisitions.


Vitamins FragrancesPharma- and Fine Continuing and

1999 ceuticals Diagnostics Chemicals Others operations Flavours Group

Segment revenuesSegment revenue/divisional sales 16,684 5,283 3,832 – 25,799 2,231 28,030Less inter-divisional salesa) (197) (1) (183) – (381) (82) (463)Divisional sales to third parties 16,487 5,282 3,649 – 25,418 2,149 27,567

Segment results/operating profit 7,287 771 (1,842) (192) 6,024 397 6,421

Segment assets and liabilitiesDivisional assetsb) 25,138 10,142 4,440 56 39,776 2,977 42,753Other segment assetsc) 534 35 100 – 669 17 686Segment assets 25,672 10,177 4,540 56 40,445 2,994 43,439Non-segment assetsd) 26,992Total assets 70,431

Divisional liabilitiesb) (674) (346) (149) (1) (1,170) (72) (1,242)Other segment liabilitiesc) (2,033) (1,660) (1,384) – (5,077) (141) (5,218)Segment liabilities (2,707) (2,006) (1,533) (1) (6,247) (213) (6,460)Non-segment liabilitiesd) (33,970)Total liabilities (40,430)

Other segment informationCapital expendituree) 6,507 633 477 6 7,623 131 7,754Depreciation 672 336 169 4 1,181 65 1,246Amortisation 776 323 46 – 1,145 62 1,207Research and development costs 3,048 516 130 38 3,732 50 3,782Share of result ofassociated companies – (4) – – (4) – (4)Investments inassociated companies – 515 2 18 535 – 535Number of employees 40,299 14,456 7,551 482 62,788 4,907 67,695

a) Transfer prices for inter-divisional sales are set on an arm’s length basis.b) Divisional assets consist primarily of property, plant and equipment, intangible assets, receivables and inventories.

Divisional liabilities consist of trade accounts payable.c) Other segment assets and liabilities consist of assets and liabilities which can be reasonably attributed to the reported

business segments. These include pension assets and liabilities and some provisions.d) Non-segment assets and liabilities mainly include current and deferred income tax balances, and financial assets and

liabilities, principally cash, marketable securities, investments in associated companies, other investments and debt. e) Capital expenditure comprises additions to intangible assets (including goodwill) and additions to property, plant and

equipment, including those arising from acquisitions.


Geographical information

Sales to third parties 2000 (by destination) Segment assetsa) Capital expenditureb)

Switzerland 509 4,083 1,313European Union 9,012 15,157 867Rest of Europe 1,266 435 43Europe 10,787 19,675 2,223North America 10,636 17,296 1,992Latin America 2,928 2,143 253Asia 3,394 2,214 175Africa, Australia and Oceania 927 410 50Segment total 28,672 41,738 4,693

Non-segment assetsc) – 27,797 –Consolidated total 28,672 69,535 4,693

1999Switzerland 455 4,168 515European Union 9,326 14,107 842Rest of Europe 1,090 395 30Europe 10,871 18,670 1,387North America 10,130 18,922 6,076Latin America 2,577 2,372 133Asia 3,109 2,923 124Africa, Australia and Oceania 880 552 34Segment total 27,567 43,439 7,754

Non-segment assetsc) – 26,992 –Consolidated total 27,567 70,431 7,754

a) Segment assets consist primarily of property, plant and equipment, intangibles, receivables and inventories. Segmentliabilities are not included.

b) Capital expenditure comprises additions to intangible assets (including goodwill) and additions to property, plant andequipment, including those arising from acquisitions.

c) Non-segment assets mainly include current and deferred income tax assets, and financial assets, principally cash,marketable securities, investments in associated companies and other investments.

5. Vitamin case

Following the settlement agreement with the US Department of Justice on 20 May 1999 regardingpricing practices in the vitamin market, the Group recorded pre-tax expenses of 2,426 millionSwiss francs in respect of the vitamin case in 1999. Cash outflows in 1999 were 1,282 millionSwiss francs.

On 28 March 2000 a US federal judge approved the overall settlement agreement to a classaction suit brought by the US buyers of bulk vitamins. Several customers in the class action havedecided to opt out of the proposed settlement and pursue claims against the Group individually.As these individual suits are still in process it is not possible to determine the timing and amountof the ultimate settlement of these claims.


On 10 October 2000 settlement agreements were executed with Attorneys General and privateclass counsels representing US indirect purchasers and consumers in 22 states and with Attor-neys General in respect of governmental entities in 43 states. The class action settlements remainsubject to court approval. If approved, Roche will pay up to 171 million US dollars, plus interestand legal fees. Certain suits in other states are still in process and it is not possible to determinethe outcome of these claims.

On 6 July 2000 the European Commission issued a Statement of Objections against 13 producersof bulk vitamins, including Roche. This is the beginning of the Commission’s formal investi-gation into the vitamin case and it is not yet possible to determine the ultimate outcome of thisinvestigation.

The provisions that were recorded in respect of the vitamin case at 31 December 1999, less theamounts utilised during 2000, remain the Group’s best current estimate of the total liability thatmay arise. Therefore no additional expenses have been charged in 2000. Net cash inflows in 2000were 41 million Swiss francs. Following the opt-out of some of the US buyers of bulk vitaminsfrom settlement agreement, the Group received a repayment of part of the amounts paid into atrust fund in 1999.

6. Genentech legal settlements

On 19 November 1999 the Group’s subsidiary Genentech reached a settlement agreement withthe University of California regarding alleged patent infringement involving Genentech’s humangrowth hormone products. Furthermore, Genentech made a payment to settle an investigation bythe United States federal authorities relating to past clinical, sales and marketing activities asso-ciated with a human growth hormone. The total pre-tax expense recorded in 1999 was 345 millionSwiss francs. All payments in respect of these matters have been made.

7. Givaudan spin-off in millions of CHF

On 8 June 2000 the Group’s Fragrances and Flavours Division was spun off as an independentcompany under the name of Givaudan. The shares in Givaudan were distributed on this date as aspecial dividend to the holders of Roche shares and non-voting equity securities. As a result ofthe spin-off, assets totalling 3.9 billion Swiss francs and liabilities totalling 1.2 billion Swiss francswere transferred to Givaudan.

The results and cash flows of the Fragrances and Flavours Division up until the spin-off in June2000 are included in the consolidated figures. However, the consolidated balance sheet is shownafter the spin-off and does not include this Division’s assets and liabilities.

The sales, results, assets, liabilities and net cash flows of the Fragrances and Flavours Division aspart of the Roche Group are shown as discontinuing operations in the following table.


Continuing operations Discontinuing operations Group GroupStatement of income 2000 1999 2000 1999 2000 1999

Sales 27,779 25,799 1,193 2,231 28,972 28,030Less inter-divisional sales* (270) (381) (30) (82) (300) (463)Sales to third parties 27,509 25,418 1,163 2,149 28,672 27,567

Operating profit 6,931 6,024 200 397 7,131 6,421Financial income (expense), net 2,383 1,242 (46) (108) 2,337 1,134Result before taxes 9,314 7,266 154 289 9,468 7,555

Income taxes (2,226) (1,797) (46) (105) (2,272) (1,902)Result after taxes 7,088 5,469 108 184 7,196 5,653

Changes in accounting policies 1,395 29 – (2) 1,395 27Minority interests 33 88 – – 33 88Share of result of associated companies 23 (4) – – 23 (4)Net income 8,539 5,582 108 182 8,647 5,764

Balance sheet at 31 DecemberProperty, plant and equipment 13,785 13,304 – 936 13,785 14,240Intangible assets 15,870 14,492 – 1,180 15,870 15,672Other long-term assets 5,143 5,577 – 311 5,143 5,888Current assets 34,737 33,329 – 1,302 34,737 34,631Total assets 69,535 66,702 – 3,729 69,535 70,431

Long-term debt 16,167 15,948 – 14 16,167 15,962Other non-current liabilities 7,475 7,730 – 1,882 7,475 9,612Current liabilities 13,857 13,754 – 1,102 13,857 14,856Total liabilities 37,499 37,432 – 2,998 37,499 40,430

Net assets 32,036 29,270 – 731 32,036 30,001

Statement of cash flowsOperating activities 3,726 1,436 190 291 3,916 1,727Financing activities (2,727) (749) 189 (146) (2,538) (895)Investing activities (743) (743) (89) (124) (832) (867)Net effect of currency translation on cash (51) 94 15 9 (36) 103Increase (decrease) in cash 205 38 305 30 510 68

* Transfer prices for inter-divisional sales are set on an arm’s length basis.


8. Employee benefits in millions of CHF

Amounts recognised in arriving at operating profit are as follows:2000 1999

Wages and salaries 6,156 5,613Social security costs 746 719Post-employment benefits: defined benefit plans 298 322Post-employment benefits: defined contribution plans 58 41Other employee benefits 325 236Total employees’ remuneration 7,583 6,931

The number of employees at the year-end was 64,758 (1999: 67,695).

Post-employment benefitsMost employees are covered by retirement benefit plans sponsored by Group companies. Thenature of such plans varies according to legal regulations, fiscal requirements and economic con-ditions of the countries in which the employees are employed. Other post-employment benefitsconsist mostly of post-retirement healthcare and life insurance schemes, principally in the USA.Plans are usually funded by payments from the Group and by employees to trusts independentof the Group’s finances. Where a plan is unfunded, a liability for the whole obligation is recordedin the Group’s balance sheet.

The amounts recognised in arriving at operating profit for post-employment defined benefit plansare as follows:

2000 1999

Current service cost 333 311Interest cost 675 677Expected return on plan assets (714) (645)Net actuarial (gains) losses recognised 2 –Past service cost 3 7(Gains) losses on curtailment (1) (28)Total included in employees’ remuneration 298 322

The actual return on plan assets was 1,175 million Swiss francs (1999: 932 million Swiss francs).


The movements in the net asset (liability) recognised in the balance sheet for post-employmentdefined benefit plans are as follows:

2000 1999

At the beginning of the year– as previously reported (2,078) (2,107)– effect of implementing the revised International – Accounting Standard for Employee Benefits in 1999 – 39– as restated (2,078) (2,068)

Changes in Group organisation and Givaudan spin-off 3, 7 84 (4)Total expenses included in employees’ remuneration (as above) (298) (322)Contributions paid 174 165Benefits paid (unfunded plans) 135 125Currency translation effects and other 134 26At end of year (as below) (1,849) (2,078)

Amounts recognised in the balance sheet for post-employment defined benefit plans are asfollows:

2000 1999

Unfunded plansRecognised asset (liability) for actuarial present value of unfunded obligations due to past and present employees (2,423) (2,648)

Funded plansActuarial present value of funded obligationsdue to past and present employees (9,034) (9,028)Plan assets held in trusts at fair value 10,448 10,046Plan assets in excess of actuarial present value of funded obligations 1,414 1,018

Less– unrecognised actuarial (gains) losses (862) (467)– unrecognised past service costs 22 19Recognised asset (liability) for funded obligations due to past and present employees 574 570

Asset (liability) recognisedDeficit recognised as part of liabilities for post-employment benefits (2,502) (2,764)

Surplus recognised as part of other long-term assets15 653 686Total net asset (liability) recognised (1,849) (2,078)

The above amounts include non-pension post-employment benefit schemes, principally medicalplans, with an actuarial present value of obligations of 690 million Swiss francs (1999: 703 millionSwiss francs) and plan assets of 649 million Swiss francs (1999: 576 million Swiss francs). Therelated net liability recognised is 147 million Swiss francs (1999: 190 million Swiss francs). Actu-arial gains of 106 million Swiss francs (1999: 63 million Swiss francs) were unrecognised.

Amounts recognised in the balance sheet for post-employment defined benefit plans are predom-inantly non-current and are reported as long-term assets and non-current liabilities.


Included within the fair value of the assets of the funded plans are 30 (1999: 1,700) of the Group’snon-voting equity securities with a fair value of 0.5 million Swiss francs (1999: 32 million Swissfrancs).

The Group operates defined benefit schemes in many countries and the actuarial assumptionsvary based upon local economic and social conditions. The range of assumptions used inthe actuarial valuations of the most significant defined benefit plans, which are in countries withstable currencies and interest rates, is as follows:

Discount rates 3 to 8% (1999: 3 to 8%)Projected rates of remuneration growth 2 to 9% (1999: 2.5 to 9%)Expected rates of return on plan assets 3 to 10% (1999: 3.5 to 10%)Healthcare cost trend rate 4 to 10% (1999: 4 to 9%)

9. Other operating income (expense), net in millions of CHF

2000 1999

Royalty income 626 504Other operating income 1,132 826Total other operating income 1,758 1,330

Royalty expense (740) (561)Restructuring expense (46) (4)Other operating expense (740) (751)Total other operating expense (1,526) (1,316)

Total other operating income (expense), net 232 14

10. Financial income (expense), net in millions of CHF

2000 1999

Gains from sale of marketable securities and other 3,522 2,529Losses from sale of marketable securities and other (761) (621)Net gain from sale of marketable securities and other 2,761 1,908Interest and dividend income 738 532Interest expense (1,487) (1,237)Exchange gains (losses), net 325 (69)Total financial income (expense), net 2,337 1,134

11. Income taxes in millions of CHF

Income tax expensesThe amounts charged in the income statement are as follows:

2000 1999

Current income taxes 2,913 1,103Deferred income taxes (641) 799Total charge for income taxes 2,272 1,902

The Group’s parent company, Roche Holding Ltd, and several of the Group’s operating companiesare domiciled in Switzerland. The maximum effective rate of all income taxes on companiesdomiciled in Basel, Switzerland, is 8% for holding companies and 25% for operating companies(1999: 8% and 25%).

Since the Group operates across the world, it is subject to income taxes in many different taxjurisdictions. The Group calculates its average expected tax rate as a weighted average of the taxrates in the tax jurisdictions in which the Group operates.


The Group’s effective tax rate differs from the Group’s expected tax rate as follows:2000 1999

Group’s average expected tax rate 20% 20%

Tax effect of– Income not taxable (3%) (2%)– Expenses not deductible for tax purposes 3% 3%– Benefit of prior year tax losses not previously recognised – –– Other differences (3%) (3%)– Gain from sales of Genentech shares 8% 2%– Gain from sales of LabCorp shares 2% –– Impairment of long-term assets (3%) –– Vitamin case – 6%– Genentech legal settlements – (1%)Group’s effective tax rate 24% 25%

Income tax assets and liabilitiesAmounts recognised in the balance sheet for income taxes are as follows:

2000 1999

Current income taxesCurrent income tax assets 435 408Current income tax liabilities (882) (728)Net current income tax asset (liability) in the balance sheet (447) (320)

Deferred income taxesDeferred income tax assets 460 1,170Deferred income tax liabilities (2,535) (3,895)Net deferred income tax asset (liability) in the balance sheet (2,075) (2,725)

Amounts recognised in the balance sheet for deferred taxes are reported as long-term assets andnon-current liabilities, of which approximately 50% and 15% respectively is current.

Deferred income tax assets are recognised for tax loss carry forwards only to the extent thatrealisation of the related tax benefit is probable. The Group has no significant unrecognised taxlosses. Deferred income tax liabilities have not been established for the withholding tax and othertaxes that would be payable on the unremitted earnings of certain foreign subsidiaries, as suchamounts are currently regarded as permanently reinvested. These unremitted earnings totalled24.8 billion Swiss francs at 31 December 2000 (1999: 19.2 billion Swiss francs).

The deferred income tax assets and liabilities and the deferred income tax charges (credits) areattributable to the following items:

Property, plant and Otherequipment, and Restructuring temporary

2000 intangible assets provisions differences Total

Net deferred income tax asset (liability) atbeginning of year (3,128) 302 101 (2,725)Adjustment from changes in accounting policies1 49 – – 49On issue of debt instruments24 – – (128) (128)(Charged) credited to the income statement 312 (144) 473 641Changes in Group organisation and Givaudan spin-off 3, 7 (54) (8) (55) (117)Currency translation effects and other (521) (4) 730 205Net deferred income tax asset (liability)at end of year (3,342) 146 1,121 (2,075)


Property, plant and Otherequipment, and Restructuring temporary

1999 intangible assets provisions differences Total

Net deferred income tax asset (liability) atbeginning of year (2,030) 637 237 (1,156)Adjustment from change in accounting policies – – (12) (12)(Charged) credited to the income statement (358) (363) (78) (799)Changes in Group organisation (646) – (89) (735)Currency translation effects and other (94) 28 43 (23)Net deferred income tax asset (liability)at end of year (3,128) 302 101 (2,725)

12. Property, plant and equipment in millions of CHF

Buildingsand land Machineryimprove- and Construction 2000 1999

Land ments equipment in progress Total Total

Net book valueAt beginning of year 739 5,634 6,159 1,708 14,240 12,704Currency translation effects (8) 2 (77) (118) (201) 1,121Changes in Group organisation,including Givaudan spin-off 3, 7 (59) (443) (384) (57) (943) 25Additions 36 128 951 1,068 2,183 2,150Disposals (32) (18) (33) (37) (120) (514)Transfers – 337 849 (1,186) – –Depreciation charge – (212) (1,162) – (1,374) (1,246)At end of year 676 5,428 6,303 1,378 13,785 14,240

At 31 DecemberCost 676 8,319 13,498 1,378 23,871 24,199Accumulated depreciation – (2,891) (7,195) – (10,086) (9,959)Net book value 676 5,428 6,303 1,378 13,785 14,240

At 31 December 2000 the capitalised cost of machinery and equipment under finance leasesamounts to 356 million Swiss francs (1999: 317 million Swiss francs) and the net book value ofthese assets amounts to 250 million Swiss francs (1999: 231 million Swiss francs).

Operating lease commitmentsAt 31 December the future minimum payments under non-cancellable operating leases were asfollows:

2000 1999

Within one year 191 184Between one and five years 437 352Thereafter 39 104Total minimum payments 667 640

Total rental expense in 2000 for all operating leases was 322 million Swiss francs (1999: 305 mil-lion Swiss francs).

The Group has no significant capital commitments for the purchase or construction of property,plant and equipment.

13. Intangible assets in millions of CHF

Patents, licences,trademarks 2000 1999

Goodwill and other Total Total

Net book valueAt beginning of year 5,389 10,283 15,672 10,757Changes in accounting policies1 2,358 (857) 1,501 –Currency translation effects 172 (104) 68 724Changes in Group organisation,including Givaudan spin-off 3, 7 (805) 1,859 1,054 5,316Additions – 219 219 263Disposals (2) (21) (23) (181)Amortisation charge (562) (912) (1,474) (1,207)Impairment charge – (1,147) (1,147) –At end of year 6,550 9,320 15,870 15,672

At 31 DecemberCost 17,762 16,849 34,611 20,207Accumulated depreciation (11,212) (7,529) (18,741) (4,535)At end of year 6,550 9,320 15,870 15,672

On 1 January 2000 the Group recognised an impairment charge of 1,161 million Swiss francswhen implementing a change in accounting policy (see Note 1). In 2000 a credit of 14 millionSwiss francs is recognised, based on changes in the recoverable amounts of impaired assetsduring the year.

14. Investments in associated companies in millions of CHF

The Group has investments in associated companies as listed below. Equity investments in asso-ciated companies have been accounted for using the equity method.

Share of net income Balance sheet value2000 1999 2000 1999

Laboratory Corporation of AmericaHoldings (USA) 34 (4) 429 17

Other investments accounted for using the equity method (11) – 223 20Total investments accounted for using the equity method 23 (4) 652 37

Laboratory Corporation of America Holdings (USA) –non-voting convertible mandatorily redeemable 8.5%preferred stock (at cost) – 498Total investments in associated companies 652 535

Laboratory Corporation of America HoldingsThe Group has a non-controlling 32.6% interest (1999: 47.6%) in Laboratory Corporation of Amer-ica Holdings (LabCorp), which operates clinical laboratories in the United States. LabCorp wascreated in 1995 from the merger of Roche Biomedical Laboratories, Inc. with and into NationalHealth Laboratories Holdings, Inc., with Roche owning 49.9% of the new company. In 1997the Group purchased non-voting convertible preferred stock of LabCorp which was held at costas a portfolio investment.


On 6 June 2000 LabCorp announced that it had called for the redemption on 7 July 2000 all of itsoutstanding convertible preferred stock. During this redemption period, the Group sold sufficientof its holding in LabCorp’s ordinary stock such that the Group’s non-controlling interest inLabCorp would be at a similar level after the redemption date as it was before. The Group realiseda pre-tax gain of 296 million Swiss francs during this process. On 17 October 2000 the Groupsold 4,000,000 shares of LabCorp, resulting in a pre-tax gain after incidental costs of 660 millionSwiss francs. The above transactions resulted in a total cash inflow of 1,123 million Swiss francs.

Basilea PharmaceuticaOn 17 October 2000 the Group contributed cash of 206 million Swiss francs to establish a newlyformed Swiss company, Basilea Pharmaceutica Ltd (Basilea). The Group also transferred certainknow-how and intellectual property in antibiotics, antifungals and dermatology, and property,plant and equipment to Basilea for a consideration of 6 million Swiss francs. On 31 October 2000the Group sold 51% of the shares of Basilea. The Group retains a non-controlling interest inBasilea.

15. Other long-term assets in millions of CHF

2000 1999

Recognised surplus on funded pension plans8 653 686Loans receivable 491 596Prepaid employee benefits 420 375Other 909 790Total other long-term assets 2,473 2,447

Loans receivable comprise all loans to third parties with a term of over one year. Other long-termassets consist of various assets not otherwise shown separately from which the Group expectsto derive economic benefits in over one year.

16. Inventories in millions of CHF

2000 1999

Raw materials and supplies 963 1,298Work in process 545 575Finished goods 4,525 4,942Less: provision for slow moving and obsolete inventory (279) (269)Total inventories 5,754 6,546

Inventories held at net realisable value have a carrying value of 26 million Swiss francs (1999: 25 million Swiss francs).

17. Accounts receivable – trade in millions of CHF

2000 1999

Accounts receivable 5,759 6,309Notes receivable 109 123Less: provision for doubtful accounts (349) (254)Total accounts receivable – trade 5,519 6,178

At 31 December 2000, accounts receivable – trade include amounts denominated in US dollarsequivalent to 2.0 billion Swiss francs (1999: 1.9 billion Swiss francs) and amounts denominated ineuros and EMU national currencies equivalent to 1.9 billion Swiss francs (1999: 1.8 billion Swissfrancs).


18. Other current assets in millions of CHF

2000 1999

Accrued interest income 122 127Prepaid expenses 1,346 1,122Assets held for sale – 367Other receivables 913 1,017Total other current assets 2,381 2,633

Assets held for sale include inventories, property, plant and equipment, and other long-termassets of products identified for divestment in the following year.

19. Cash and marketable securities in millions of CHF

2000 1999

Equity securities 11,347 12,593Bonds and debentures 4,669 2,700Money market instruments 2,070 1,521Total marketable securities 18,086 16,814Total cash 2,562 2,052Total cash and marketable securities 20,648 18,866

Equity securities: These consist primarily of readily saleable securities.

Bonds and debentures: Contracted maturity Amount Range of interest rates

2000Within one year 1,054 3.0–9.8%Between one and five years 1,163 1.0–11.8%Over five years 2,452 2.0–7.6%

1999Within one year 378 4.0–6.9%Between one and five years 1,285 1.5–7.8%Over five years 1,037 2.8–8.2%

The weighted average interest rate is approximately 4.7% for the bonds and debentures(1999: 5.9%).

Money market instruments: These generally have fixed interest rates ranging from 3.1% to4.8% (1999: 1.3% to 6.3%) depending upon the currency in which they are denominated. They arecontracted to mature within one year of 31 December 2000.

As of 31 December 2000 the fair value of marketable securities is approximately 18.2 billion Swissfrancs (1999: approximately 17.4 billion Swiss francs).

20. Accrued and other current liabilities in millions of CHF

2000 1999

Deferred income 161 142Accrued payroll and related items 768 668Interest payable 298 302Other accrued liabilities 2,123 2,276Total accrued and other current liabilities 3,350 3,388


21. Equity

Share capitalAt 31 December 2000 and 1999, the authorised and called-up share capital was 1,600,000 shareswith a nominal value of CHF 100 each.

Based on information supplied to Roche by a shareholders’ group with pooled voting rights,comprising the Hoffmann and Oeri-Hoffmann families, that group holds 800,200 shares as in thepreceding year. (This figure does not include any shares without pooled voting rights that areheld outside this group by individual members of the group.) There were no transactions withthese individuals other than those in the ordinary course of business.

Non-voting equity securities (Genussscheine)As of 31 December 2000 and 1999, 7,025,627 non-voting equity securities had been issued. UnderSwiss company law these non-voting equity securities have no nominal value, are not part of theshare capital and cannot be issued against a contribution which would be shown as an asset inthe balance sheet of Roche Holding Ltd. Each non-voting equity security confers the same rightsas any of the shares to participate in the net profit and any remaining proceeds from liquidationfollowing repayment of the nominal value of the shares and, if any, participation certificates.In accordance with the law and the Articles of Incorporation of Roche Holding Ltd, the companyis entitled at all times to exchange all or some of the non-voting equity securities into shares orparticipation certificates.

Own equity instrumentsAs at 31 December 2000 the Group held 284,566 (1999: 251,589) of its own non-voting equitysecurities and financial instruments to acquire these securities. These have been acquired pri-marily to meet the obligations that may arise in respect of certain of the Group’s debt instru-ments. For 2000 the Group’s holdings in its own equity instruments are recorded as a deductionfrom equity.

DividendsOn 9 May 2000 the shareholders approved the distribution of a dividend of CHF 100 per shareand non-voting equity security (1999: CHF 87) in respect of the 1999 business year. The distribu-tion to holders of outstanding shares and non-voting equity securities totalled 835 million Swissfrancs and has been charged to retained earnings in 2000. The shareholders also approved thespecial dividend in respect of the Givaudan spin-off. The accounting effect of this distribution,which primarily includes the carrying value in the Group’s financial statements of the assets andliabilities of Givaudan, totalled 2,642 million Swiss francs and has been included with the specialdividend as a movement in retained earnings in 2000.

22. Earnings per share and non-voting equity security

Basic earnings per share and non-voting equity security2000 1999

Net income (millions of CHF) 8,647 5,764

Number of shares (thousands)21 1,600 1,600Number of non-voting equity securities (thousands)21 7,026 7,026Weighted average number of own non-voting equity securities held (thousands)21 (277)Total (thousands) 8,349 8,626

Basic earnings per share and non-voting equity security (CHF) 1,036 668


Diluted earnings per share and non-voting equity securityFor the calculation of diluted earnings per share and non-voting equity security in 2000,the weighted average number of shares and non-voting equity securities outstanding is adjustedto assume conversion of all dilutive potential shares or non-voting equity securities.

2000

Net income (millions of CHF) 8,647Elimination of interest expense, net of tax, of convertible debt instruments, where dilutive (millions of CHF) 114Net income used to calculate diluted earnings per share (millions of CHF) 8,761

Weighted average number of shares and non-voting equity securities in issue (thousands) 8,349Adjustment for assumed conversion of convertible debt instruments, where dilutive (thousands) 203Weighted average number of shares and non-voting equity securities in issue used to calculate dilutive earnings per share (thousands) 8,552

Diluted earnings per share and non-voting equity security (CHF) 1,024

23. Minority interests in millions of CHF

2000 1999

At beginning of year 3,047 1,149Change in accounting policies1 155 –Givaudan spin-off7 (2) –Acquisition of Genentech Special Common Stock – (1,298)Sales of Genentech shares3 649 2,892Conversion option embedded in the ‘LYONs IV’ notes issued in 200024 172 –Minority share of Group net income, net of tax (33) (88)Exercise of Genentech stock options 381 240Currency translation effects and other 59 152At end of year 4,428 3,047

Of which:Genentech 4,377 2,993Other 51 54Total minority interests 4,428 3,047

GenentechAs of 31 December 2000 the minority interest of 42% in Genentech is publicly held by third par-ties. The Group’s transactions in Genentech shares are described in Note 3.

At 31 December 2000 Genentech had options outstanding under its employee stock option planswhich entitled the holders on exercise of the options to purchase 40.9 million shares at pricesranging from USD 12.53 to USD 95.66. Of these options outstanding 13.4 million were exercisableat that date.


24. Debt in millions of CHF

2000 1999

Amounts due to banks and other financial institutions 4,427 5,157Debt instruments 13,510 12,553Capitalised lease obligations 206 213Other borrowings 13 25Total debt 18,156 17,948Less: current portion of long-term debt (amounts due within one year) (1,989) (1,986)Total long-term debt 16,167 15,962

Short-term debt totalling 5,451 million Swiss francs (1999: 5,702 million Swiss francs) consistsof the current portion of long-term debt, as shown in the above table, together with short-termbank loans and overdrafts and other short-term debt amounting to 3,462 million Swiss francs(1999: 3,716 million Swiss francs).

Repayment terms of long-term debt2000 1999

Within one year 1,989 1,986Between one and two years 2,519 3,180Between two and three years 3,507 1,359Between three and four years 3,470 4,625Between four and five years 1,520 2,718Thereafter 5,151 4,080Total long-term debt 18,156 17,948

The ‘LYONs’ zero coupon US dollar exchangeable notes (see below) are reflected as due the firstyear that the holders of the notes can request the Group to purchase the notes.

The fair value of long-term debt is 20.8 billion Swiss francs (1999: 19.5 billion Swiss francs). Thisis calculated based upon the present value of the future cash flows on the instrument, discountedat a market rate of interest for instruments with similar credit status and cash flows.

Amounts due to banks and other financial institutionsInterest rates on these amounts, which are primarily denominated in US dollars, euros and EMUnational currencies, average approximately 5% (1999: 5%). Repayment dates vary between 1 and15 years.

Debt instrumentsThe carrying value of the Group’s debt instruments is given in the table below. Supplementaryinformation about the Group’s debt instruments, including redemption and conversion terms,if any, is given on pages 99 to 101.



Economic interest rate if

held to maturity 2000 1999

Swiss franc bonds‘Bullet’ 2% due 2003, principal 1.25 billion Swiss francs 1.78% 1,245 1,242‘Rodeo’ 1.75% due 2008, principal 1 billion Swiss francs 2.66% 923 912

US dollar bonds‘Knock Out’ 2.75% due 2000, principal 1 billion US dollars 6.20% – 1,586‘Bull Spread’ 3.5% due 2001, principal 1 billion US dollars 8.60% 1,610 1,506‘Chameleon’ 6.75% due 2009, principal 1 billion US dollars 6.75% 1,622 1,584

Japanese yen bonds‘Samurai’ 1% due 2002, principal 100 billion Japanese yen 5.19% 1,051 1,011

Swiss franc convertible bonds‘Helveticus’ dividend-linked convertible bonds, due 2003, principal 1 billion Swiss francs – 215 990

Zero coupon US dollar exchangeable notes‘LYONs II’ due 2010, principal 2.15 billion US dollars 7.00% 1,785 1,618 ‘LYONs III’ due 2012, principal 3 billion US dollars 6.375% 2,301 2,098‘LYONs IV’ due 2015, principal 1.506 billion US dollars 2.75% 1,363 –

Japanese yen exchangeable bonds‘Sumo’ 0.25% due 2005, principal 104.6 billion Japanese yen 1.00% 1,388 –

Limited conversion preferred stock – 7 6

Total debt instruments 13,510 12,553

The economic interest rate if held to maturity is the market rate of interest at the date of issuancefor a similar debt instrument, but with no conversion rights or discount upon issuance.

Issue of ‘LYONs IV’ US dollar notes exchangeable into Genentech sharesOn 19 January 2000 the Group issued zero coupon US dollar exchangeable notes due 19 January2015 with a principal amount of 1,506 million US dollars. The notes are exchangeable into sharesof the Group’s subsidiary, Genentech, at any time prior to maturity. If all of the notes wereexchanged into Genentech shares, the Group’s percentage of ownership of Genentech woulddecrease by 2.5%.

Net proceeds from the issue were 980 million US dollars (1,562 million Swiss francs). These wereinitially allocated as 2,369 million Swiss francs of debt, 1,094 million Swiss francs of unamortiseddiscount, 172 million Swiss francs of minority interest (in respect of the conversion optionembedded in the notes) and 115 million Swiss francs of deferred tax liability.

Issue of ‘Sumo’ Japanese yen bonds exchangeable into non-voting equity securitiesOn 26 April 2000 the Group issued 0.25% Japanese yen exchangeable bonds due 25 March 2005with a principal amount of 104.6 billion Japanese yen. The bonds are exchangeable into non-voting equity securities until 17 March 2005.

Net proceeds from the issue were 98.76 billion Japanese yen (1,599 million Swiss francs). Thesewere initially allocated as 1,694 million Swiss francs of debt, 132 million Swiss francs of unamor-tised discount, 24 million Swiss francs of equity (in respect of the conversion option embedded inthe bonds) and 13 million Swiss francs of deferred tax liability.


Repayment of ‘Knock Out’ US dollar bondsOn the due date of 14 April 2000 the Group repaid the principal amount of 1 billion US dollars ofthe 2.75% US dollar bonds originally issued in 1993. The resulting cash outflow was 1,648 millionSwiss francs.

Exercise of ‘Helveticus’ Swiss franc convertible bondsDuring May 2000 ‘Helveticus’ dividend-linked Swiss franc convertible bonds due 2003 with a principal amount of 698 million Swiss francs were exercised. The resulting cash outflow was659 million Swiss francs. Other smaller amounts were exercised during the year.

Swiss franc convertible bondsAn annual payment distribution amount is paid on 31 July for each bond of CHF 9,530 par valuein the place of a fixed rate of interest. This annual payment distribution amount equals twotimes the ordinary and/or extraordinary dividend declared on one non-voting equity security ofRoche Holding Ltd for the business year ended on 31 December which was nineteen monthsprior to 31 July for the relevant year.

Unamortised discountIncluded within the carrying value of debt instruments are the following unamortised discounts:

2000 1999

Swiss franc bonds 82 96US dollar bonds 41 124Japanese yen bonds 55 95Swiss franc convertible bonds 1 9Zero coupon US dollar exchangeable notes 5,443 4,524Japanese yen exchangeable bonds 103 –Total unamortised discount 5,725 4,848

25. Financial instruments in millions of CHF

In appropriate circumstances the Group uses financial instruments as part of its risk managementand trading strategies. This is discussed in Note 2. The majority of the derivative financial instru-ments outstanding at the year-end consist of forward contracts entered into by foreign affiliatesfor the purchase of currencies for settling intra-Group liabilities.

The notional principal values, fair values and carrying values of derivative financial instrumentsheld by the Group are shown in the table on page 87. The notional amounts do not represent theamounts actually exchanged by the parties, and therefore are not a measure of the Group’s expo-sure. Fair value is determined by reference to quoted market prices and the use of establishedestimation techniques. The carrying values are those included in the consolidated balance sheetas either other current assets or accrued liabilities.


Notional principal Carrying2000 amount Fair value value

Foreign currency derivatives – forward exchange contracts and swaps 8,223 156 84– options 1,391 18 17Interest rate derivatives– swaps 4,289 (34) 5– other 114 – 1Other derivatives 1,512 97 99Total derivative financial instruments 15,529 237 206

1999Foreign currency derivatives – forward exchange contracts and swaps 7,933 (5) (49)– options 6,088 4 101Interest rate derivatives– swaps 4,482 (48) 1– other 633 (6) –Other derivatives 1,807 210 189Total derivative financial instruments 20,943 155 242

The net unrecognised gains on open contracts which hedge future anticipated foreign currencysales amounted to 75 million Swiss francs (1999: 44 million Swiss francs). These gains will berecognised in the income statement when these open contracts mature at various dates up to oneyear from the balance sheet date.

26. Provisions in millions of CHF

Restructuring Other 2000 1999provisions provisions Total Total

At beginning of year 748 3,606 4,354 3,352Changes in Group organisation and Givaudan spin-off 3, 7 16 (10) 6 (54)Additional provisions created 75 368 443 2,673Unused amounts reversed (69) (96) (165) (62)Utilised during the year (338) (632) (970) (1,903)Increase in discounted amount due to passage of time or change in discounting rate – 77 77 –Currency translation effects and other (4) 254 250 348At end of year 428 3,567 3,995 4,354

Of which:Current portion of provisions 216 1,743 1,959 2,660Non-current portions of provisions 212 1,824 2,036 1,694Total provisions 428 3,567 3,995 4,354

Restructuring provisions arise from planned programmes that materially change the scope ofbusiness undertaken by the Group or the manner in which business is conducted. Suchprovisions include only the costs necessarily entailed by the restructuring which are not asso-ciated with the ongoing activities of the Group. The creation of such provisions is recorded asa charge against other operating income, except where they arise from the restructuring of newlyacquired companies, in which case they are included in the acquisition accounting and henceform part of the goodwill.


Other provisions consist mainly of legal, environmental and similar matters. Other provisionsinclude provisions in respect of the vitamin case (see Note 5).

27. Contingent liabilities

The operations and earnings of the Group continue, from time to time and in varying degrees,to be affected by political, legislative, fiscal and regulatory developments, including those relatingto environmental protection, in the countries in which it operates. The industries in which theGroup is engaged are also subject to physical risks of various kinds. The nature and frequency ofthese developments and events, not all of which are covered by insurance, as well as their effecton future operations and earnings are not predictable.

Provisions have been recorded in respect of the vitamin case, as disclosed in Note 5. Theseprovisions are the Group’s best current estimate of the total liability that may arise. As the variousinvestigations outside the United States of America and private civil suits are still in progress itis possible that the ultimate liability may be different from this.

28. Cash flow statement in millions of CHF

Cash flows from operating activitiesCash flows from operating activities are those derived from the Group’s primary activities,as described in the divisional review. This is calculated by the indirect method, by adjusting theGroup’s operating profit for any operating income and expenses that are not cash flows (for example depreciation and amortisation), and for movements in the Group’s working capital.Operating cash flows also include income taxes paid on all activities, including, for example,the taxes paid on the Genentech and LabCorp share sales.

Effects of Genentech transactions, vitamin case and Genentech legal settlements 2000 1999

Gain on sale of Genentech shares3 (3,949) (4,461)Charge for vitamin case5 – 2,426Charge for Genentech legal settlements6 – 345Genentech inventory write-up charged3 158 140Total (3,791) (1,550)

Other adjustments for non-cash operating income and expenseExpense for defined benefit post-employment plans 8 298 322Other adjustments (388) 297Total (90) 619

Cash flows from financing activities Cash flows from financing activities are primarily the proceeds from issue and repayments of theGroup’s equity and debt instruments. They also include interest payments and dividend paymentson these instruments. Cash flows from short-term financing, including finance leases, are alsoincluded. These cash flows indicate the Group’s transactions with the providers of its equity anddebt financing.

Cash flows from short-term borrowings are shown as a net movement, as these consist of a largenumber of transactions with short maturity.


Proceeds from issue of long-term debt 2000 1999

‘LYONs IV’ zero coupon exchangeable US dollar notes due 201524 1,562 –‘Sumo’ 0.25% exchangeable Japanese yen bonds due 200524 1,599 –‘Chameleon’ 6.75% US dollar bonds due 200924 – 1,537Long-term bank loans and other borrowings24 982 2,638Total 4,143 4,175

Repayment of long-term debtRepayment of ‘Knock Out’ 2.75% US dollar bonds24 (1,648) –Exercise of ‘Helveticus’ dividend-linked Swiss francs convertible bonds24 (659) (1)Long-term bank loans and other borrowings24 (755) (3,688)Total (3,062) (3,689)

Interest and dividends paidInterest paid (902) (686)Dividends paid (835) (750)Total (1,737) (1,436)

Cash flows from investing activitiesCash flows from investing activities are principally those arising from the Group’s investments inproperty, plant and equipment and intangible assets, and from the acquisition and divestment ofsubsidiaries, associated companies and businesses. Cash flows connected with the Group’sportfolio of marketable securities and other investments are also included as are any interest anddividend payments received in respect of these securities and investments. These cash flowsindicate the Group’s net reinvestment in its operating assets and the cash flow effects of thechanges in Group organisation, as well as the cash generated by the Group’s other investments.

Cash flows from marketable securities, including income and capital gains and losses, are shownas a net movement on the Group’s portfolio, as these consist of a large number of positions whichare not held on a long-term basis.

Acquisitions of subsidiaries, associated companies and products 2000 1999

Cash contribution to Basilea14 (206) –Acquisition of Genentech Special Common Stock3 – (6,222)Other acquisitions3, 14 (2,480) –Total (2,686) (6,222)

Divestments of subsidiaries, associated companies and productsProceeds on sales of Genentech shares3 4,599 7,353Proceeds on sales of LabCorp shares14 1,123 –Other divestments3 1,087 –Total 6,809 7,353

Interest and dividends receivedInterest received 542 303Dividends received 201 156Total 743 459


29. Subsequent events

At the Annual General Meeting on 3 April 2001, the shareholders will be asked to approve a100 for 1 stock split of the shares and non-voting equity securities of Roche Holding Ltd.If approved the split will take place after changes in the relevant Swiss company law will haveentered into force.

Report of the Group Auditors

To the General Meeting of Roche Holding Ltd, Basel

As auditors of the Group, we have audited the Consolidated Financial Statements of the RocheGroup on pages 56 to 90 for the year ended 31 December 2000.

These Consolidated Financial Statements are the responsibility of the Board of Directors ofRoche Holding Ltd. Our responsibility is to express an opinion on these Consolidated FinancialStatements based on our audit. We confirm that we meet the Swiss legal requirements con-cerning professional qualification and independence.

Our audit was conducted in accordance with auditing standards promulgated by the Swiss pro-fession and with the International Standards on Auditing issued by the International Federationof Accountants, which require that an audit be planned and performed to obtain reasonableassurance about whether the Consolidated Financial Statements are free from material misstate-ment. We have examined on a test basis evidence supporting the amounts and disclosures inthe Consolidated Financial Statements. We have also assessed the accounting principles used,significant estimates made and the overall consolidated financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the Consolidated Financial Statements of the Roche Group present fairly, in allmaterial respects, the financial position at 31 December 2000, and the results of operations andthe cash flows for the year then ended in accordance with International Accounting Standards,and comply with relevant Swiss law.

We recommend that the Consolidated Financial Statements submitted to you be approved.

PricewaterhouseCoopers AG

William D. Kirst Ralph R. Reinertsen

Basel, 26 February 2001

Report of the Group Auditors 91

92 Multi-Year Overview

Statistics, as reported 1991 1992

Statement of income in millions of CHF

Sales 11,451 12,953EBITDA 2,208 2,893Operating profit 1,386 2,013Net income 1,482 1,916Research and development 1,727 1,998Balance sheet in millions of CHF

Long-term assets 8,478 9,293Current assets 16,567 18,290Total assets 25,045 27,583Equity 14,429 16,046Minority interests 511 581Non-current liabilities 7,029 6,809Current liabilities 3,076 4,147Additions to property, plant and equipment 1,139 1,293PersonnelNumber of employees at end of year 55,134 56,335Key RatiosNet income as % of sales 13 15Net income as % of equity 10 12Research and development as % of sales 15 15Current ratio % 539 441Equity and minority interests as % of total assets 60 60Sales per employee in thousands of CHF 208 230Data on shares and non-voting equity securitiesNumber of shares 1,600,000 1,600,000Number of non-voting equity securities (Genussscheine) 7,025,627 7,025,627Total shares and non-voting equity securities 8,625,627 8,625,627Total dividend in millions of CHF 236 312Earnings per share and non-voting equity security (diluted) in CHF 172 222Dividend per share and non-voting equity security in CHF 28 37Cash and warrants in addition to dividend (adjusted) in CHF 13 –Cash and warrants in addition to dividend (unadjusted) in CHF 25 –

a) If 1991 warrants held to final exercise date.b) In addition to the normal dividend, the shareholders approved for each share and each non-voting equity security a special

RO 100 centenary warrant worth CHF 36 on date of issue or, at the holder’s option, a cash equivalent of CHF 36.c) 1997 net income and related key ratios are shown after special charges of 6,308 million Swiss francs, net of tax, incurred following

the Corange acquisition and include Corange only in respect of balance sheet data.

Multi-Year Overview

Multi-Year Overview 93

1993 1994 1995 1996 1997 c) 1998 1999 2000

14,315 14,748 14,722 15,966 18,767 24,662 27,567 28,6723,278 3,635 4,176 4,629 5,076 6,423 8,874 11,1262,348 2,656 3,057 3,420 3,590 4,350 6,421 7,1312,478 2,860 3,372 3,899 (2,031) 4,392 5,764 8,6472,269 2,332 2,290 2,446 2,903 3,408 3,782 3,950

9,522 13,549 12,632 15,487 32,453 27,952 35,800 34,79821,404 22,684 22,932 24,289 22,323 27,927 34,631 34,73730,926 36,233 35,564 39,776 54,776 55,879 70,431 69,53517,914 16,422 17,554 20,780 18,250 21,666 26,954 27,608

625 861 799 835 1,187 1,149 3,047 4,4287,921 10,034 11,554 12,727 21,181 21,416 25,574 23,6424,466 8,916 5,657 5,434 14,158 11,648 14,856 13,8571,407 1,355 1,490 1,624 1,802 1,883 2,150 2,183

56,082 61,381 50,497 48,972 51,643 66,707 67,695 64,758

17 19 23 24 –11 18 21 3014 17 19 19 –11 20 21 3116 16 16 15 15 14 14 14

479 254 405 447 158 240 233 25160 48 51 54 36 41 43 46

255 240 292 326 363 370 407 443

1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000 1,600,0007,025,627 7,025,627 7,025,627 7,025,627 7,025,627 7,025,627 7,025,627 7,025,6278,625,627 8,625,627 8,625,627 8,625,627 8,625,627 8,625,627 8,625,627 8,625,627

404 474 552 647 716 750 863e) 992f)

287 332 391 452 (235) 509 668 1,02448 55 64b) 75 83 87 100e) 115f)

– 77a) – 36 – 190d) – –– 153a) – 36 – 190d) – –

d) If 1996 warrants held to final exercise date.e) Dividend 1999 does not include the special dividend relating to the spin-off of the Fragrances and Flavours Division.f) Dividend 2000 as proposed by the Board of Directors.

94 Multi-Year Overview

Sales by division in millions of CHF

1996 1997 1998 1999 2000

Pharmaceuticals 10,460 12,070 14,376 16,487 17,686Diagnostics 757 966 4,616 5,282 6,252Vitamins and Fine Chemicals 3,329 3,803 3,630 3,649 3,571Fragrances and Flavours 1,414 1,928 2,040 2,149 1,163Others 6 – – – –Total 15,966 18,767 24,662 27,567 28,672

Sales by geographical area in millions of CHF

Switzerland 291 320 445 455 509European Union 4,923 5,588 8,799 9,326 9,012Rest of Europe 635 841 1,017 1,090 1,266Europe 5,849 6,749 10,261 10,871 10,787North America 5,946 6,974 8,698 10,130 10,636Latin America 1,568 1,991 2,455 2,577 2,928Asia 2,003 2,333 2,453 3,109 3,394Africa, Australia and Oceania 600 720 795 880 927Total 15,966 18,767 24,662 27,567 28,672

Additions to property, plant and equipment by division in millions of CHF

Pharmaceuticals 1,156 1,204 858 963 1,132Diagnostics 72 128 439 568 603Vitamins and Fine Chemicals 282 394 442 450 372Fragrances and Flavours 84 71 144 165 68Others 30 5 – 4 8Total 1,624 1,802 1,883 2,150 2,183

Additions to property, plant and equipment by geographical area in millions of CHF

Switzerland 366 307 295 335 361European Union 420 457 703 826 731Rest of Europe 6 13 28 30 31Europe 792 777 1,026 1,191 1,123North America 650 793 591 668 610Latin America 40 74 98 133 229Asia 129 138 141 124 173Africa, Australia and Oceania 13 20 27 34 48Total 1,624 1,802 1,883 2,150 2,183

Consolidated Income Statement on an Adjusted Basis 95

Reconciliation of reported figures to adjusted basis in millions of CHF

Sales to Operating Net 2000 third parties EBITDA profit income

As reported in the financial statements 28,672 11,126 7,131 8,647Discontinuing operations (1,163) (267) (200) (108)Reclassification of sales to Givaudan as sales to third parties 34 – – –Impact of fair value adjustmentto Genentech inventories – 158 158 158Impairment of long-term assets – – 1,161 1,161Gain on sale of Genentech shares – (3,949) (3,949) (3,949)Gain on sale of LabCorp shares – – – (660)Income taxes – – – 1,200Change in accounting policies – – – (1,395)Income applicable to minority interests – – – (40)Adjusted 27,543 7,068 4,301 5,014

1999As reported in the financial statements 27,567 8,874 6,421 5,764Discontinuing operations (2,149) (524) (397) (182)Reclassification of sales to Givaudan as sales to third parties 78 – – –Impact of fair value adjustment to Genentech inventories – 140 140 140Impact of new/revised IAS – (153) (187) (187)Additional amortisation on Genentech acquisition as if effective 1 January 1999 – – (193) (193)Gain on sale of Genentech shares – (4,461) (4,461) (4,461)Vitamin case – 2,426 2,426 2,426Genentech legal settlements – 345 345 345Income taxes – – – 805Change in accounting policies – – – (29)Income applicable to minority interests – – – (27)Adjusted 25,496 6,647 4,094 4,401

Consolidated Income Statement on an Adjusted Basis

96 Holding and Finance Companies

Boehringer Mannheim (Far East) Pte. Ltd., SingaporeBoehringer Mannheim France Holding S.A., Meylan, FranceCorange Deutschland Holding GmbH, Mannheim, GermanyCorange Ltd., Hamilton, BermudaHoffmann-La Roche France SAS, Neuilly-sur-Seine, FranceRoche Capital Corporation, Panama City, PanamaRoche Capital Market International Limited, St. Peter Port, GuernseyRoche Capital Transactions Limited, Hamilton, BermudaRoche (China) Limited, Shanghai, ChinaRoche Deutschland Holding GmbH, Grenzach-Wyhlen, GermanyRoche Financial Management, Inc., Panama City, PanamaRoche Financial Products Limited, Hamilton, BermudaRoche Finanz AG, Basel, SwitzerlandRoche Holding (UK) Limited, Welwyn Garden City, Great BritainRoche Holdings, Inc., Wilmington, Delaware, USARoche International Finance (Bermuda) Ltd, Hamilton, BermudaRoche International Finance Corporation Limited, St. Peter Port, GuernseyRoche International Ltd., Hamilton, BermudaRoche Kapitalmarkt AG, Basel, SwitzerlandRoche Pharmholding B.V., Mijdrecht, NetherlandsRoche Treasury Management Europe Ltd, Basel, SwitzerlandSapac Corporation, Ltd., Montevideo, UruguaySyntex Corporation, Panama City, Panama

The above companies are wholly owned by the Group.

Holding and Finance Companies

Roche Securities 97

Roche Securities

100 Roche American Depositary Receipts (ADRs) are equivalent to one non-voting equity security (Genussschein). ADRs have been traded in the United States over-the-counter market since July 1992.

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Number of shares and non-voting equity securitiesa)

1996 1997 1998 1999 2000

Number of shares (nominal value CHF 100) 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000Number of non-voting equity securities(Genussscheine) (no nominal value) 7,025,627 7,025,627 7,025,627 7,025,627 7,025,627Total 8,625,627 8,625,627 8,625,627 8,625,627 8,625,627

Data per share and non-voting equity securityc) in CHF

Net income 452 (235)d) 509 668 1,003Equity 2,409 2,116 2,512 3,125 3,201Dividend 75 83 87 100e) 115 f)

Stock price of shareb) High 16,545 23,066 26,278 27,348 26,375Low 13,626 14,623 20,633 24,210 16,800Year-end 14,696 21,898 24,210 25,305 20,100

Stock price of non-voting High 10,172 14,379 17,112 18,760 18,755equity security Low 8,428 10,095 13,085 15,489 14,900(Genussschein)b) Year-end 10,095 14,059 16,245 18,319 16,510Historic stock prices (unadjusted)Share Year-end 15,100 22,500 24,875 26,000 20,100Non-voting equity security Year-end 10,415 14,505 16,760 18,900 16,510

Market capitalisation (unadjusted) in millions of CHF

Year-end 97,332 137,907 157,550 174,384 148,153

Key ratios (year-end)Net income as % of equity 19 –11d) 20 21 31Dividend yield of shares in % 0.5 0.4 0.3 0.4 0.6Dividend yield of non-voting equity securities (Genussscheine) in % 0.7 0.6 0.5 0.5 0.7Price/earnings of shares (unadjusted) 33 –96 49 39 20Price/earnings of non-voting equity securities(Genussscheine) (unadjusted) 23 –62 33 28 16

a) Each non-voting equity security (Genussschein) confers the same rights as any of the shares to participate in theavailable earnings and any remaining proceeds from liquidation following repayment of the nominal value of theshares and the participation certificate capital (if any). Shares and non-voting equity securities are listed on the SwissExchange. Roche Holding Ltd has no restrictions as to ownership of its shares or non-voting equity securities.

b) All stock price data reflect daily closing prices. Stock price figures prior to 8 June 2000 are adjusted for the effectsof the Givaudan spin-off. The adjustment factors used are 0.97325 (shares) and 0.96925 (non-voting equity securities),which are the factors used by independent financial institutions.

c) The net income per share and market capitalisation figures assume that the own equity instruments held areoutstanding.

d) 1997 net income and related key ratios are shown after special charges of 6,308 million Swiss francs, net of tax,incurred following the Corange acquisition and include Corange only in respect of balance sheet data.

e) 1999 dividend does not include the special dividend relating to the spin-off of the Fragrances and Flavours Division.f) 2000 dividend as proposed by the Board of Directors.

Ticker symbols

Share Non-voting American equity security Depositary Receipt

Reuters ROCZ.S ROCZg.S ROHHY.PKBloomberg RO SW ROG SW ROHHY USSWX Swiss Exchange RO ROG –

98 Roche Securities

Outstanding bonds

Summarised bond terms

‘Bull Spread’ 1991 to 16 May 2001Face value: USD 1,000,000,000Coupon: 3.5%Issuer: Roche Holdings, Inc.Keep well: Roche Holding LtdAttached warrants: relating to Roche bearer shares

‘Samurai’ 1994 to 15 May 2002Face value: JPY 100 billionCoupon: 1% Issuer: Roche Financial Management, Inc.Keep well: Roche Holding LtdAttached warrants: relating to Roche non-voting equity securities(Genussscheine)

‘LYONs’ 1995 to 20 April 2010Face value: USD 2,150,000,000Coupon: ZeroIssuer: Roche Holdings, Inc.Keep well: Roche Holding LtdExchange right: Roche ADSs

‘Helveticus’ 1995 to 31 July 2003Face value: CHF 1,000,650,000Coupon: 2 times ordinary and/or extra-ordinary dividend on non-voting equity securities (Genussscheine)Issuer: Roche Capital Market International LimitedKeep well: Roche Holding LtdConversion right: Roche non-voting equity securities

Exchange terms and warrants

The warrants were exercised on 16 May 1994. Each holder of100 warrants received CHF 10,000 in cash.

The warrants were exercised on 15 June 1998. Each holder of100 warrants received CHF 7,100 in cash.

The Notes are exchangeable for American Depositary Shares(ADSs) at an adjusted exchange ratio of 4.84495 exchangeADSs per USD 1,000 principal amount at maturity of the Notes.The exchange ratio was changed in accordance with the inden-ture agreement, dated 20 April 1995, with an effective date of8 June 2000. The Group will purchase any Note for cash, at theoption of the holder, on 20 April 2003 for a purchase priceper USD 1,000 principal amount of the Notes of USD 617.78. Inaddition, the Notes will be redeemable at the option of theGroup in whole or in part at any time after 20 April 2003 at theissue price plus accrued original issue discount (OID).

Each bond of CHF 9,530 par value is exchangeable for one non-voting equity security of Roche Holding Ltd at any time duringthe life of the bond. In accordance with the terms of the bondsan additional cash payment of CHF 200 is made upon conver-sion of each bond of CHF 9,530 par value.

Roche Securities 99

Outstanding bonds


‘LYONs’ 1997 to 6 May 2012Face value: USD 3,000,000,000Coupon: ZeroIssuer: Roche Holdings, Inc.Keep well: Roche Holding LtdExchange right: Roche ADSs

‘Rodeo’ 1998 to 20 March 2008Face value: CHF 1,000,000,000Coupon: 1.75% Issuer: Roche Kapitalmarkt AGKeep well: Roche Holding LtdAttached warrants: Roche non-voting equity securities(Genussscheine)

‘Bullet’ 1998 to 21 March 2003Face value: CHF 1,250,000,000Coupon: 2% Issuer: Roche International Finance Corporation LimitedKeep well: Roche Holding Ltd

‘Chameleon’ 1999 to 6 July 2009Face value: USD 1,000,000,000Coupon: 6.75%Issuer: Roche Holdings, Inc.Keep well: Roche Holding Ltd


The Notes are exchangeable for American Depositary Shares(ADSs) at an exchange ratio of 3.62514 exchange ADSs perUSD 1,000 principal amount at maturity of the Notes. Theexchange ratio was changed in accordance with the indentureagreement, dated 6 May 1997, with an effective date of 8 June2000. The Group will purchase any Note for cash, at theoption of the holder, on 6 May 2004 and 6 May 2008 for a pur-chase price per USD 1,000 principal amount of the Notes ofUSD 605.29 and USD 778.01, respectively. In addition, the Noteswill be redeemable at the option of the Group in whole or inpart at any time after 6 May 2004 at the issue price plusaccrued original issue discount (OID).

100 warrants entitle the holder on 20 March 2001 (the exercise date):(a) to receive a cash payment of CHF 2,000 if the average closingprice of the non-voting equity security in the period 14–20 March2001 (‘the relevant price’) is at least CHF 20,700or(b) at the option of the Group:(i) to receive a cash payment equal to the difference betweenthe relevant price and CHF 18,700 if the relevant price isbetween CHF 18,700 and CHF 20,700, or(ii) to buy one non-voting equity security at the exercise price ofCHF 18,700.In accordance with the terms of the warrants the upper andlower relevant price were adjusted as of 8 June 2000.

–

–

100 Roche Securities


The Notes are exchangeable for Genentech shares at anexchange ratio of 8.65316 Genentech shares per USD 1,000principal amount at maturity of the Notes. The Group hasthe right to pay cash equal to the market value of the Genen-tech shares in lieu of delivering Genentech shares. The Groupwill purchase any Note for cash, at the option of the holder,on 19 January 2004 and 19 January 2010 for a purchase priceper USD 1,000 principal amount of the Notes of USD 740.49and USD 872.35, respectively. In addition, the Notes will beredeemable at the option of the Group in whole or in part atany time after 19 January 2004 at the issue price plus accruedoriginal issue discount (OID).

Each bond of JPY 1,410,000 par value is exchangeable for onenon-voting equity security of Roche Holding Ltd at an exchangeratio of 1.03292. The bonds will be redeemable at maturityat the issue price (96.4%) plus accrued original issue discount(OID) at 100%.

In accordance with the terms of the bonds the exchange ratiowas adjusted as of 8 June 2000.

Roche Securities 101

Outstanding bonds


‘LYONs’ 2000 to 19 January 2015Face value: USD 1,506,342,000Coupon: ZeroIssuer: Roche Holdings, Inc.Keep well: Roche Holding LtdExchange right: Genentech common stock

‘Sumo’ 2000 to 25 March 2055Face value: JPY 104,600,000,000Coupon: 0.25%Issuer: Roche Holdings, Inc.Keep well: Roche Holding LtdExchange right: Roche non-voting equitysecurities (Genussscheine)

Income statement in millions of CHF

2000 1999

IncomeIncome from participations 1,335 1,133Interest income from loans to Group companies 71 36Interest and investment income 12 22Other income 60 6Total income 1,478 1,197

ExpenseFinancial expense (2) (1)Administration expense (14) (14)Other expense (93) (10)Total expense (109) (25)

Profit for the year before taxes 1,369 1,172

Taxes (9) (7)

Net profit for the year 1,360 1,165

Financial Statements

102 Financial Statements

Roche Holding Ltd, Basel

Balance sheet at 31 December in millions of CHF

2000 1999Long-term assetsParticipations 3,871 3,940Loans to Group companies 807 727Total long-term assets 4,678 4,667

Current assetsAccounts receivable from Group companies 2,380 1,630Other accounts receivable 245 156Prepaid expenses and accrued income 1 1Marketable securities 8 7Liquid funds 217 726Total current assets 2,851 2,520

Total assets 7,529 7,187

EquityShare capital 160 160Non-voting equity securities (Genussscheine) p.m. p.m.General legal reserve 300 300Free reserve 3,193 3,019Special reserve 2,152 2,168Available earnings:– Balance brought forward from previous year 6 10– Net profit for the year 1,360 1,165Total equity 7,171 6,822

Non-current liabilitiesProvisions 44 75Total non-current liabilities 44 75

Current liabilitiesAccounts payable to Group companies 235 286Other liabilities 74 1Accrued liabilities 5 3Total current liabilities 314 290

Total liabilities 358 365

Total equity and liabilities 7,529 7,187

p.m = pro memoria. Non-voting equity securities have no nominal value.

Financial Statements 103

General

The financial statements of Roche Holding Ltd, Basel, are prepared in accordance with the provi-sions of Swiss company law and accepted business principles.

Valuation methods and translation of foreign currencies

In the balance sheet, assets and liabilities are disclosed at net realisable values. Exceptionsto this rule are participations, which are shown at their acquisition values less appropriatewrite-downs, and marketable securities, which are shown at the lower of cost or market value.Unrealised foreign currency gains on balance sheet items are deferred. Expenses and income,as well as foreign currency transactions, are translated at exchange rates ruling at the relevanttransaction dates.

Details to specific items

IncomeTotal income of 1,478 million Swiss francs in 2000 is 281 million Swiss francs higher than in theprevious year due to better operating but also because of increased financial income.

TaxesThe tax charge includes corporate income and capital taxes, withholding taxes and stamp duty.

EquityTotal equity equals 95% of total assets as in the previous year.

Share capitalAs in the previous year, share capital amounts to 160 million Swiss francs. It consists of 1,600,000bearer shares with a nominal value of CHF 100 each.

Non-voting equity securitiesAs in the previous year, there are 7,025,627 non-voting equity securities (Genussscheine) with nonominal value.

GuaranteesGuarantees in favour of Group companies total 9 million Swiss francs (previous year 8 millionSwiss francs).

At the time of preparing the balance sheet no risks arising out of these contingent liabilities werediscernible.

Pledged assetsAssets with a total book value of 8 million Swiss francs (previous year 7 million Swiss francs) havebeen pledged as security for the Company’s own commitments.

Notes to the Financial Statements

104 Notes to the Financial Statements

ParticipationsThe major participations are listed on pages 96 and 110 to 111.

Important shareholdersAll shares in the Company have been issued to bearer, and for this reason the Company doesnot keep a register of shareholders. The following figures are based on information from share-holders, the shareholder validation check at the Annual General Meeting of 9 May 2000 andon other information available to the Company.

800,200 (previous year 800,200) shares: Shareholders’ group with pooled voting rights, comprisingDr L. Hoffmann, Ms V. Michalski-Hoffmann, Ms M.-A. Hoffmann, Mr A. Hoffmann, Ms V. Oeri-Hoffmann, Dr A. Oeri, Ms S. Duschmalé-Oeri, Ms C. Oeri, Ms B. Oeri and Ms M. Oeri.a)

268,721 (previous year 178,901) shares: BZ Gruppe Holding Aktiengesellschaft, Wilen, Switzer-land.b)

a) Information supplied by the shareholders as of 31 December 2000. This figure of 800,200 shares does not includeshares without pooled voting rights held outside the group by individual members of the group.

b) Figures as of 31 December 2000 supplied by BZ Gruppe Holding Aktiengesellschaft.

Notes to the Financial Statements 105

Proposals to the General Meeting in CHF

2000 1999

Available earningsNet profit for the year 1,359,532,021 1,164,667,191Balance brought forward from previous year 5,602,760 9,991,059Total available earnings 1,365,134,781 1,174,658,250

Appropriation of available earningsDistribution of an ordinary dividend of CHF 115 gross per share and non-voting equity security (Genussschein)as against CHF 100 last year (991,947,105) (862,562,700)Distribution of a special dividend of CHF 15.39 grossfor allocating one share of Givaudan Ltd for each shareand non-voting equity security – (132,748,400)Transfer to free reserve (365,721,270) (173,744,390)Total appropriation of available earnings (1,357,668,375) (1,169,055,490)

To be carried forward on this account 7,466,406 5,602,760

Appropriation of Available Earnings

106 Appropriation of Available Earnings

Report of the Statutory Auditors

To the General Meeting of Roche Holding Ltd, Basel

As statutory auditors we have audited the accounting records and the financial statements(income statement, balance sheet and notes, pages 102 to 105) of Roche Holding Ltd, Basel, forthe year ended 31 December 2000.

These financial statements are the responsibility of the Board of Directors. Our responsibility is toexpress an opinion on these financial statements based on our audit. We confirm that we meetthe legal requirements concerning professional qualification and independence.

Our audit was conducted in accordance with auditing standards promulgated by the Swiss pro-fession, which require that an audit be planned and performed in such a manner as to obtainreasonable assurance about whether the financial statements are free from material misstatement.We have examined on a test basis evidence supporting the amounts and disclosures in thefinancial statements. We have also assessed the accounting principles used, significant estimatesmade and the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, the accounting records, the financial statements and the proposed appropriationof available earnings comply with Swiss law and the company’s articles of incorporation.

We recommend that the financial statements submitted to you be approved.

Ernst & Young Ltd

Jürg Zürcher Philipp Schaffter

Basel, 26 February 2001

Report of the Statutory Auditors 107

108 Roche – a Global Market Presence

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Roche –a Global Market Presence

Roche – globale Marktpräsenz 109

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HondurasHungaryIndiaIndonesiaIrelandIsraelItalyJapanMalaysiaMexicoMoroccoThe NetherlandsNew ZealandNicaraguaNorwayPakistanPanamaPeruPhilippinesPolandPortugalPuerto RicoRussiaSingaporeSouth Africa

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South KoreaSpainSwedenTaiwanThailandTurkeyUruguayUSAVenezuela

110 Operating Subsidiaries and Associated Companies

Switzerland: F. Hoffmann-La Roche Ltd,Basel | Roche Ltd, Sisseln | Teranol Ltd,Lalden | Roche Pharma (Switzerland) Ltd,Reinach | Roche Diagnostics (Schweiz)Ltd, Rotkreuz | Roche Diagnostics Inter-national Ltd, Cham | Roche VitaminsEurope Ltd, Birsfelden | Roche InstrumentCenter Ltd, Rotkreuz | Roche ConsumerHealth Ltd, Kaiseraugst | ••Basilea Phar-maceutica Ltd, Basel. Argentina: Produc-tos Roche S.A. Química e Industrial,Olivos. Australia: Roche Products Pty.Limited, Dee Why | Roche VitaminsAustralia Pty. Limited, French Forest |Syntex Australia Limited, North Sydney |Roche Diagnostics Australia Pty. Limited,Castle Hill. Austria: Roche Austria GmbH,Vienna | Roche Diagnostics GmbH,Vienna. Bangladesh: Roche BangladeshLtd., Dhaka. Belgium: N.V. Roche S.A.,Brussels | S.A. Citrique Belge N.V., Tienen |Roche Vitamins N.V., Deinze-Astene |Roche Diagnostics Belgium SA, Brussels.Bermuda: Syntex PharmaceuticalsInternational Limited, Hamilton. Brazil:Produtos Roche Químicos e Farmacêuti-cos S.A., São Paulo | Colborn-Dawes S.A.,São Paulo. Canada: Hoffmann-La RocheLimited, Toronto | Roche Vitamins CanadaInc., Cambridge, Ontario. Chile: ProductosRoche Ltda., Santiago de Chile. China:Roche (China) Limited, Shanghai |•Shang-hai Roche Pharmaceuticals Limited,Shanghai | •Roche Taishan (Shanghai)Vitamin Products Ltd., Shanghai | •RocheSunve (Shanghai) Vitamins Ltd., Shang-hai | •Roche New Asiatic (Shanghai)Vitamins Ltd., Shanghai | •RocheZhongya (Wuxi) Citric Acid Ltd, Wuxi |Roche Diagnostics (Shanghai) Limited,Shanghai | Roche Hong Kong Limited,Hong Kong | Roche Diagnostics (HongKong) Limited, Hong Kong. Colombia:Productos Roche S.A., Bogotá. CostaRica: Productos Roche Interamericana

S.A., San José | Roche Servicios S.A., SanJosé | Roche Costa Rica S.A., San José.Czech Republic: Roche s.r.o., Prague.Denmark: Roche a/s, Hvidovre. DominicanRepublic: Productos Roche DominicanaS.A., Santo Domingo. Ecuador: RocheEcuador S.A., Quito. Egypt: Rovigypt Ltd.,Giza | Roche (Egypt) Ltd., Giza. El Sal-vador: Productos Roche (El Salvador)S.A., San Salvador. Finland: Roche Oy,Espoo. France: Hoffmann-La RocheFrance SAS, Neuilly-sur-Seine | ProduitsRoche S.A., Neuilly-sur-Seine | RocheDiagnostics S.A., Meylan | Roche Vita-mines France S.A., Village-Neuf | Labo-ratoires Roche Nicholas S.A., Gaillard.Germany: Roche Deutschland HoldingGmbH, Grenzach-Wyhlen | CorangeDeutschland Holding GmbH, Mannheim |Hoffmann-La Roche Aktiengesellschaft,Grenzach-Wyhlen | Roche NicholasDeutschland GmbH, Eppstein | Dr. Schief-fer Arzneimittel GmbH, Cologne | RocheDiagnostics GmbH, Mannheim | GalenusMannheim GmbH, Mannheim | HestiaPharma GmbH, Mannheim | Roche Vita-mine GmbH, Grenzach-Wyhlen. GreatBritain: Roche Products Limited, WelwynGarden City | Roche Diagnostics Ltd,Lewes | Roche Vitamins (UK) Ltd, WelwynGarden City | Roche Registration Limited,Welwyn Garden City. Greece: Roche (Hel-las) S.A., Athens. Guatemala: ProductosRoche Guatemala S.A., Guatemala City.Honduras: Productos Roche (Honduras),S.A., Tegucigalpa. Hungary: Roche (Hun-gary) Ltd, Budapest. India: Roche Scien-tific Company (India) Private Limited,Mumbai. Indonesia: P.T. Roche Indonesia,Jakarta. Ireland: Roche Products (Ireland)Limited, Dublin | Roche Ireland Limited,Clarecastle. Israel: Roche Pharmaceuti-cals (Israel) Ltd., Tel-Aviv. Italy: RocheS.p.A., Milan | Roche Diagnostics S.p.A.,Milan | Istituto delle Vitamine S.p.A.,

The Group holds an interest of over 90% inmost of the companies listed below. Exceptionsare marked either with a single dot•• = Group interest 50–90%or with a double dot•• = Group interest <50%.

31 December 2000

Includes changes in Group membershipup to February 2001.

Operating Subsidiaries and Associated Companies

Operating Subsidiaries and Associated Companies 111

Milan. Japan: Nippon Roche K.K., Tokyo |••Nutritec Co., Ltd., Tokyo | RocheDiagnostics K.K., Tokyo | Roche VitaminsJapan K.K., Tokyo. Malaysia: RocheMalaysia Sdn Bhd, Kuala Lumpur | RocheDiagnostics (Malaysia) Sdn Bhd, KualaLumpur | Roche Vitamins (Malaysia) SdnBhd, Kuala Lumpur. Mexico: ProductosRoche, S.A. de C.V., Mexico City | SyntexS.A. de C.V., Mexico City | Grupo RocheSyntex de México, S.A. de C.V., MexicoCity | Lakeside de México, S.A. de C.V.,Mexico City. Morocco: •Produits RocheS.A., Casablanca. The Netherlands: RochePharmholding B.V., Mijdrecht | RocheNederland B.V., Mijdrecht | Roche Diag-nostics Nederland B.V., Almere. NewZealand: Roche Products (New Zealand)Limited, Auckland | Roche Vitamins (NewZealand) Limited, Auckland | RocheDiagnostics New Zealand Pty. Ltd., Auck-land. Nicaragua: Productos Roche(Nicaragua) S.A., Managua. Norway:Roche Norge A/S, Oslo. Pakistan: RochePakistan Ltd., Karachi. Panama: Produc-tos Roche Interamericana S.A., PanamaCity | Productos Roche Panamá S.A.,Panama City. Peru: Productos RocheQuímica Farmacéutica S.A., Lima. Philip-pines: Roche (Philippines) Inc., Makati |Roche Vitamins Philippines, Inc., Manila.Poland: Roche Polska Sp. z o.o., Warsaw |Roche Diagnostics Polska Sp. z o.o.,Warsaw | Roche Witaminy Polska Sp.z o.o., Mszczonów. Portugal: Roche Far-macêutica Química Lda, Amadora | RocheSistemas de Diagnósticos, SociedadeUnipessoal, Lda., Linda-A-Velha. PuertoRico: Syntex Puerto Rico, Inc., Humacao.Russia: Roche Moscow Ltd., Moscow.Singapore: Roche Singapore Pte. Ltd.,Singapore | Roche Diagnostics AsiaPacific Pte. Ltd., Singapore | Roche Vita-mins Asia Pacific Pte. Ltd., Singapore.South Africa: Roche Products (Proprie-

tary) Limited, Johannesburg. SouthKorea: Roche Korea Company Ltd.,Seoul | Roche Diagnostics Korea Co. Ltd.,Seoul | Roche Vitamins Korea Ltd., Seoul.Spain: Roche Farma S.A., Madrid (from1 March 2001) | Roche Vitaminas S.A.,Madrid | Andreu Roche S.A., Madrid |Syntex Roche S.A., Madrid | Roche Diag-nostics, S.L., Barcelona | BoehringerMannheim Roche S.A., Madrid. Sweden:Roche AB, Stockholm | Roche Diagnos-tics Scandinavia AB, Bromma. Taiwan:Roche Products Ltd., Taipei | Roche Diag-nostics Ltd., Taipei | Roche VitaminsTaiwan Limited, Taipei. Thailand: RocheThailand Limited, Bangkok | ••RovithaiLimited, Bangkok | ••Roche Diagnostics(Thailand) Limited, Bangkok. Turkey:Roche Müstahzarları Sanayi AnonimSirketi, Istanbul | Roche Diagnostik Sis-temleri Ticaret A.S., Istanbul. Uruguay:Roche International Ltd., Montevideo |Sapac Corporation Ltd., Montevideo.USA: Roche Holdings, Inc., Wilmington(Delaware) | Hoffmann-La Roche Inc.,Nutley (New Jersey) | Roche LaboratoriesInc., Nutley (New Jersey) | Roche VitaminsInc., Parsippany (New Jersey) | RocheMolecular Systems, Inc., Pleasanton(California) | American Roche Interna-tional Inc., Little Falls (New Jersey) | RocheCarolina Inc., Florence (South Carolina) |•Genentech, Inc., South San Francisco(California) | Syntex (U.S.A.) L.L.C., PaloAlto (California) | Roche Colorado Corpo-ration, Boulder (Colorado) | •Bayer-Roche L.L.C., Morristown (New Jersey) |••Laboratory Corporation of AmericaHoldings, Burlington (North Carolina) |Roche Diagnostics Corporation, Indiana-polis (Indiana). Venezuela: ProductosRoche S.A., Caracas.

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Next Annual General Meeting:3 April 2001

All trademarks mentioned enjoy legal protection.

The Roche annual report is published in German (original language) and English.

The Roche annual report is issued by F. Hoffmann-La Roche Ltd,Basel, Corporate Communications.

Design: Wirz Identity AG, ZurichTypesetting: Stauffer-Febel AG, BaselLithos: Photolitho Sturm AG, Muttenz-BaselPrinters: Birkhäuser+GBC AG, Graphische Unternehmen,Reinach-BaselBinding: Buchbinderei Grollimund AG, Reinach-Basel

Cover:The background picture shows a computer-assisted molecularmodelling of the active ingredient of Herceptin, a drug for thetreatment of breast cancer.

Sales by region1)

Diagnostics 23%

Others 3%Asia 12%

North America 37%

Pharmaceuticals 64%

Europe 38%

Latin America 10%

Employees by division

Vitamins and Fine Chemicals 13%

Diagnostics 24%

Vitamins and Fine Chemicals 11%

Pharmaceuticals 64%

Employees by region

Others 3%Asia 11%

Europe 50%

Latin America 9%

North America 27%

Sales by division1)


Others 1%

Personnel Ratios Data on shares and - John Wiley & Sons · Holding and Finance Companies 96 Roche Securities 97 Roche Holding Ltd, Basel Financial Statements 102 Notes to the Financial

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