Roche is keeping a close watch on information technology companies as potential emerging competitors for the pharmaceutical industry, CFO Erich Hunziker told the recent J.P. Morgan health care conference in San Francisco.

"Of course, we are still proud to be part of big pharma, and yes of course together with our partners from Genentech we are proud to be part of big biotech, but we also want to keep a foot in the door if information technology becomes a business in high-tech health care," Hunziker said.

Hunziker noted that Roche conducted a long-term strategic review in July.

Looking a decade into the future, Roche's management team sees "software, data management [and] information" services as potentially important skills.

"We have a very high respect for companies which at the moment are not so strong in our core business yet," Hunziker said.

"I can tell you that we take companies like General Electric extremely seriously and we follow very closely what they are doing in actually having access to information around all our properties."

Roche is one of a handful of large pharma companies that has maintained a strong presence in the diagnostics sector, giving it a different perspective on the opportunities in information technology.

The company is careful to ensure that it does not give away the value of its medical technology to IT partners, Hunziker added.

Roche wants to avoid "being reduced to a partner or data producer, and somebody else is then taking all these data points and is bringing them into expert systems for software, which in the end actually capture the value which our customers are paying for."

Hunziker's analysis echoes the position embraced by SmithKline Beecham in the 1990s, when the company made DPS the centerpiece of an "informatics" business line. The company sold DPS and its Clinical Labs divisions in 1999 before merging with Glaxo Wellcome (¹ Also see "SB Exits "Ix": Informatics Legacy Embodied By R&D Head Yamada" - Pink Sheet, 15 February, 1999., p. 14).

Hunziker stressed that the transformation "is not happening this year....But if we are talking about medium to long term, we take this very seriously."

"We are monitoring very closely what is going on in this field and [keeping] a foot in the door to actually not be outside if these developments...create long-term value, which we consider will be the case."

Roche is also envisioning the evolution of the pharma business away from a dependence on large sales forces, Hunziker said.

After a series of product setbacks in the U.S. at the end of the 1990s, Roche has focused its marketing efforts on specialty care, giving it a unique position to comment on the overall reassessment of sales infrastructure in the pharma business (² Also see "Big Pharma “Cost Structure” Needs Attention, Lilly CEO Says" - Pink Sheet, 8 December, 2003., p. 7).

Since withdrawing from the primary care market, Roche has been telling investors that it will be easy to ramp back up its U.S. sales presence if and when it is in a position to launch primary care products with blockbuster potential (³ Also see "Roche Specialty Market Focus Provides Refuge In “Unstable Environment”" - Pink Sheet, 28 July, 2003., p. 28).

At the J.P. Morgan conference, Hunziker suggested that the company may instead find it no longer needs a large sales force even if the new products do emerge.

"The next generation of our products in primary care will not be before four to five years," Hunziker noted. "I'm not so convinced that the thousands of sales reps model will be the actual model once we come to the market with our products."

"If you ask me, the sales force model in the U.S. in the primary care sector is not sustainable," Hunziker declared.

"No other industry has been able to sustain that sales rep model into the 21st century. When we were young, we had insurance sales reps, tax sales reps, computer sales reps."

"They are all gone, because efficiency in the other industries has actually forced these companies to [re-engineer] their value chain."

"Don't misunderstand me: I have been a sales rep myself and I have the highest respect for them," Hunziker said.

"But I think gradually over the next years there will be a change into more of a customer service model really adding value."

In the near term, Roche has all the sales reps it needs, Hunziker said. The sales team that had been promoting the antibiotic Rocephin has been reallocated to support the launch of the osteoporosis therapy Boniva .

Boniva was approved in 2003, but the launch is awaiting approval of a once-monthly dosage form. Roche has signed on GlaxoSmithKline to co-promote the drug.

"It would be absolutely wrong to invest in a sales force or acquire a sales force in the U.S." at this time, Hunziker concluded. "I think that if we need them in four years, they will be cheaply available."

The lack of a full primary care sales division "isn't dampening our existing value chain, and down the road we are seeing increasingly that the low number of sales reps might even be a competitive advantage."

Roche is also excited about the long-term potential for its investment in an R&D infrastructure in China.

"We see China in 10 years from now as an exporter of intellectual property," Hunziker said.

"As a high-tech health care company responds to that global access, we have to be early on in these markets when the fundamentals are laid for the development of these markets."

Roche has opened a new research center in Shanghai, Hunziker noted.

The decision was not made simply "because at the moment salaries are lower," he maintained. Instead, it is because "you find a lot of extremely well-educated global citizens of Chinese origin there."

"Most of these people we have hired have been educated outside of China, but they went back with the clear condition to achieve something for China."

As a result, Roche is reasonably confident that China's relatively recent embrace of intellectual property protections on pharmaceuticals will last.

"China would be stupid if they would not respect intellectual property rights long-term," Hunziker said, because "you have a whole generation of extremely bright people going home" to participate in the new opportunities for R&D.

"Of course, we have to be careful," Hunziker acknowledged, "but altogether we are very pleased with where we stand in China."

"By the way," Hunziker added, "there is nothing negative to be said" about the pricing of modern pharmaceutical brands in China, and the market "is growing quite nicely."

Hunziker's presentation at J.P. Morgan was his first appearance before the U.S. investor community since being named deputy head of Roche's Corporate Executive Committee in mid-December. In his new role, Hunziker will chair executive committee meetings when CEO Franz Humer is not in attendance.

One reason for the change is to allow Humer "to focus even more on [his] role as chairman of the board of directors," Roche said.

In addition, the number of "permanent participants" in the executive committee group has been expanded beyond the six full members (Humer, Hunziker, Pharma Division President William Burns, Diagnostic Division President Heino von Prondzynski, R&D head Jonathan Knowles and HR head Gottlieb Keller).

The new "permanent participants" will be Global Pharma Development head Eduard Holdener, Pharma Partnering head Peter Hug, Diabetes Card Diagnostics head Staffan Ek, Corporate Communications head Rolf Schlapfer, and Chugai CEO Osamu Nagayama.

Hunziker highlighted the inclusion of the heads of pharmaceutical partnering and development in the group as "a clear sign that the Roche Group is absolutely committed to innovation."

Holdener joined Roche in 1986 as a clinical researcher in the company's oncology team; he was named head of development for Roche Japan in 1995 and global head of development in 1999.

Hug joined Roche Pharma in Switzerland as a marketing executive in 1983. He served in marketing and management divisions in several European divisions of Roche before being named head of partnering in 2004.

Roche Vision Of Rx Future Includes IT And China, But Not Large Sales Force

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