Annual discussion with the CEO
It has become an agreeable tradition that Roche’s CEO meets the entire Committee of the Roche Employees’ Association (AVR) at the beginning of each year to give them a face-to-face briefing on the previous year’s figures. This year was no different. “2018 exceeded our expectations,” explained Roche CEO Severin Schwan during the discussion on Wednesday 30 January. According to the CEO, there were two reasons for this. Firstly, the market entry of biosimilars in the USA was delayed, which means they will only start to impact on Roche’s sales this year. Secondly, the market responded significantly better than expected to new Roche products such as Ocrevus, Hemlibra and Perjeta.
After the briefing, the AVR had an opportunity to ask questions. AVR President Adnan Tanglay wanted to know how Roche measured the success of reorganisations. The CEO emphasised that the primary goal of restructuring exercises was to increase the effectiveness and agility of the organisation. For instance, it was important to launch medicines faster. “If we can reduce costs at the same time, so much the better,” said Schwan. While a feedback loop was important in restructuring measures, things should not be taken too far. “We shouldn’t try to eliminate bureaucracy at one end, only to reintroduce it at the other in an attempt to measure the savings,” said the CEO.
The AVR then went on to ask about the future of the Basel site and the relocation of services to low-wage countries. Here Schwan’s answer was surprisingly direct: “Switzerland is a high-cost country. Any function that does not create high value and is not closely linked to the site will not have a future here.” Back-office and routine functions would gradually be either fully automated or outsourced to other countries, since staff costs can be up to five times higher in Switzerland compared with other countries. “We can’t halt this process,” the CEO was keen to emphasise. “There is no advantage in creating artificial biotopes that can’t survive in the marketplace.” That would only create a “bow wave” that would ultimately become unstoppable. “We prefer to do it in a controlled fashion and when we have sufficient time.” The situation was different with scientists and similar highly qualified professionals. They like to be close to universities and other biotech companies, and to have a certain infrastructure around them. That was why sites such as Basel would still be needed in the future. “Roche has to go along with it,” said Schwan. Nevertheless, he expects staffing levels in Switzerland to remain stable overall.
Referencing the acquisitions of Flatiron and Foundation Medicine (FMI) in 2018, Tanglay’s next question was whether Roche would soon have its own digitalisation unit. In response, Schwan said that the information business was still very small. “Our primary goal at the moment is to use synergies with our existing business. The value most definitely comes from Pharmaceuticals at present, but we are starting to see synergies with Diagnostics too.”
The last subject was the non-competition clause for departing top managers. “What happened to it?” asked the AVR President in a reference to Daniel O’Day, who is due to start at the Californian pharmaceutical company Gilead shortly after his departure from Roche. Schwan explained that departing managers are generally bound by a duty of confidentiality with regard to business secrets. Furthermore, the individual in question would cease working on “sensitive” projects with immediate effect. “Anyone who leaves prematurely has to agree to make concessions,” continued the CEO. However, it went without saying that such contracts were not made public. Furthermore, there were legal restrictions. California did not recognise non-competition clauses, for example.
This brought January’s discussion session to a close. The AVR will meet Severin Schwan for strategic discussions once again in August, albeit on a smaller scale.