Shaping the future of diabetes care - Roche

Shaping the future of diabetes care
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Heino von Prondzynski
Head of Roche Diagnostics
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The idea
Roche Diagnostics, the worldwide leader in Diabetes
monitoring, and
Disetronics, the worldwide number 2-player in insulin
pumps, want to combine ...
... their know-how, and shape the future of Diabetes
management
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Roche Diagnostics – focusing on high
value growth areas
• Leading Diagnostics company
• Broadest portfolio covering all
customer segments
• Strong growth in high margin
areas
• History of creating new
markets and shaping
healthcare
* growth in local currencies
margin
5,367 CHF m
+11 % growth*
(YTD Q3 ‘02 vs. Q3 ‘01)
1,858
732
429
440
1,908
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% sales (% growth*)
Diabetes Care 35 % (+15 %)
Molecular Dx 14 % (+19 %)
Applied Science 8 % (+8 %)
Near Patient Test’g 8 % (+7 %)
Centralized Dx 35 % (+8 %)
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Strategic rationale
Shaping the future Diabetes Care market
• Expanding Roche Diagnostic’s role in the rapidly
growing, profitable market for Diabetes
management
• Creating a platform for additional growth through
entry into the attractive insulin pump market
• Leveraging the Accu-Chek brand and proven
business models to a related Diabetes business
• Leading the vision of creating an automated
pancreas by combining blood glucose monitoring
with insulin delivery technologies, and the know
how of two leading companies
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Roche Diabetes Care
Gaining market share - in blood glucose market
others
Abbott
Bayer
Lifescan
Roche
7
8 10 11
11 10 10 9
16 17 16 14
32 30 28 29
34 35 36 37
1999 2000 2001 2002 est.
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Note: Other includes Generics, Private Label including Abbott’s activities, KDK, Therasense, other manufacturers
Source: Roche analysis - Market Share Tracking 14 Key Countries

Diabetes: a problem of epidemic proportion
millions of people
350
300
250
200
150
100
50
0
WHO global estimates of people with diabetes
150
120
30
+ 3 % CAGR
240
60
2002 2025
Sources: WHO Report / Zimmet, P. Et al. Global and societal
implications of the diabetes epidemic, Nature 2001
300
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20 % are on
insulin therapy
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Blood glucose monitoring is 30 % of
the overall Diabetes market
7.0
glucose
monitoring
Source: Roche analysis
1.5
insulin
delivery
5.0
8.0
insulin oral
antidiabetic
therapy
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CHF 21.5 billion
(2001)
30 %
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Glucose monitoring and insulin delivery
Combining to improve treatment outcome
value
driver:
blood glucose
monitoring*
CHF 4.5 billion
+10 % p.a.
superior
treatment outcome
* for people with diabetes on insulin treatment
insulin
delivery
CHF 1.5 billion
+11 % p.a.
insulin therapy
CHF 5 billion
+5 % p.a.
stronger
marketing position
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Monitoring and therapy delivery are converging
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Disetronic’s pump technology a key component
Insulin
Delivery
Blood
Glucose
Monitoring
Syringe
Strips
Pens
Pump
Meters and Strips
Integrated
Strips Systems
today future
Pump/ blood Glucose Meter Communication
Open-loop
Automated Pancreas
Closed-loop
Automated Pancreas
Insulin Algorithm
Continuous Monitoring
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Roche adding marketing and sales
muscle to penetrate US market
Animas
1 %
* top 13 countries
US market 2001
Disetronic
17 %
Medtronic/
Minimed
82 %
total: CHF 550 m
non-US market 2001
Disetronic
70 %
total: CHF 160 m
Medtronic/
Minimed
30 %
total market* 2001: CHF 710 million
with approximately 11 % growth p.a.
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Insulin delivery market far from saturation
• Intensive insulin therapy gaining in acceptance
• World-wide > 200,000 pump users
– North America > 130,000
– Europe > 60,000
– Rest of world max. 10,000
• Pump therapy known and accepted in more and more countries
• Reimbursement environment improving
• Continuous glucose monitoring will increase market potential for
pumps significantly
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Entry into insulin pump market
Growth opportunities on many levels
• Increase market share in existing markets (e.g. US)
• Expand pump penetration in Europe
• Improved sales of Roche Diagnostics current glucose
monitoring systems with improved access to
endocrinologists and high frequency testers
• Efficiencies in R&D due to coordination and streamlining of
project portfolio
• Generating pump sales in countries other than North
America and Europe
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Willy Michel
Founder and Chairman, Disetronic
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Disetronic, the world’s No. 2 in insulin pumps
Double digit sales and profitability growth
• Disetronic Business HY 2002/ 03 vs HY 2001/ 02
– consolidated total sales 157 million CHF
(+13.6 % in local currencies, +8.5 % in CHF)
– net profit 29 m CHF (+35.5 %)
– earnings per share 14.97 CHF (+34.6 %)
– around 1,270 employees in EU and USA
Injection
Systems
24.1 %
75.9 %
2001/2002 sales mix
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Infusions Systems
- sales 115 m CHF
- up by +9.2 % (local)
- global market share ~30 %
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Infusion Systems Division: Insulin pumps
• Continuous insulin administration
in accordance with individually
programmed requirement profile
• Additional dosage possible at any
time (e.g. mealtimes)
• Administration of insulin to the
body via an infusion set
• 3 models:
- H-TRONplus: The proven one
- D-TRONplus: The innovative one
- Dahedi: The discreet one
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Business model with two elements
bringing profitability
• Insulin pumps
• Consumables
- glass and plastic cartridges
- batteries
- carrying systems
- various infusion sets
(catheters changed 3-4 days)
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Dr Erich Hunziker
Chief Financial Officer, Roche
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Proposed transaction structure
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Effected through two consecutive but concurrent steps
Disetronic
Sales: 300 m CHF
Infusion Systems
Sales: 228 m CHF
Injection Systems
Sales: 72 m CHF
Disetronic = 34 % or 0.66 million shares committed by major shareholder
= 61 % or 1.18 million shares are publicly traded
Step 1: Public tender offer on 100 % of outstanding Disetronic shares
CHF 670 for each Disetronic share = 1.84 million x 670 CHF 1 230 mm
2 GS* per Disetronic Share = 3.7 million GS 350 mm
Total Offer 1 580 mm
Step 2: Sale of Injection business from Disetronic to Mr. Michel 420 mm
Net Cost to Roche after consuming the tender offer 1 160 mm
* Assumes Roche Genussscheine (GS) at 95 CHF per share
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Valuation
Share development of Disetronic
CHF / Share
Average:
10 days CHF 536, 1 month CHF 557, 3 months CHF 563, 1 year CHF 670
1600
1400
1200
1000
800
600
400
200
0
02 January 2002 02 April 2002 02 July 2002 02 October 2002 02 January 2003
Offer
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543 CHF
7.02.03
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Transaction multiples based upon the
tender offer
01/02 2004E
EV/ Sales 4.9 3.3
EV/ EBIT 35 17
EV/ EBITDA 25 14
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Outlook financials
• EBIT impact:
– slightly dilutive for the Roche group in 2003 and slightly accretive in
2004
– dilutive for Roche Diagnostics in 2003 and slightly accretive in 2004
Overall, guidance for the Roche Group and
Diagnostics unchanged
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Public tender offer on Disetronic shares
Timing / next steps
• Pre-announcement (Voranmeldung) February 10
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• Corporate due diligence February - March
• Disetronic Extraordinary shareholder meeting March
• Publication of tender offer March 24
• End of first offer period (20 bank days) April 22
• Announce interim results of tender offer End April
• Closing May - June
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Appendix

About Roche Diabetes Care
• Pioneer in the development of blood
glucose monitoring systems
• Sales and growth Q3 ’02 (vs. Q3 ’01)
• 1.86 m CHF, +15 % (local)
• Market Share* 2002E: 37 %
• Main products:
• Accu-Chek Advantage
• Accu-Chek Active
• Accu-Chek Compact
* Estimate based on Q1-Q3 2002
Accu-Chek Active
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Accu-Chek Advantage
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Accu-Chek Compact

Disetronic – who they are
• A leading global supplier of medical
devices and systems for the
administration of liquid medication for
ambulatory therapies
• The world’s No. 2 in insulin pumps for
the treatment of diabetes…
• … and the largest independent
manufacturer of injection pens for
various therapies
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Diabetes is not curable, but it is manageable
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• Detect diabetes at an early stage and treat it correctly
– Type I (10 %) – insulin therapy
– Type II (90 %) – insulin, oral, exercise, diet etc...
• Blood glucose levels for people with diabetes are generally
too high and subject to extreme fluctuations
• Insulin is lacking or completely unavailable – or it is
available but not sufficiently effective
• Insulin therapy:
– measure blood glucose levels regularly
– determine insulin requirement
– administer insulin
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Blood glucose monitoring market
Sustained double digit growth
CHF million
16'000
14'000
12'000
10'000
8'000
6'000
4'000
2'000
0
4,250
local CAGR 1995-2000 = 14%
4,845
5,765
6,465
9,500
15,000
1998 1999 2000 2001 2005 2010
local growth 14 % 14 % 12 %
Note: includes, lancets, diabetes urine testing, other
Source: Roche analysis
CAGR 00-05
= 11 %
CAGR 05-10
= 10 %
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