F. Hoffmann La Roche Ltd. Business Information, Profile, and History

Company Perspectives:

We want to be innovative, and see change as an opportunity. Being active in high-technology fields, we must recognize new trends at a very early stage and be open to unconventional ideas. We see complacency as a threat. It is therefore our policy to encourage everywhere in the company the curiosity needed to be open to the world and to welcome change.

History of F. Hoffmann La Roche Ltd.

Founded in 1896 in Basel, Switzerland, F. Hoffmann-La Roche Ltd. has grown from a small drug laboratory into one of the world's leading research-based healthcare companies active in more than 130 countries. Roche is involved in the discovery, development, and manufacture of pharmaceuticals and diagnostic systems, and is a producer of vitamins and carotenoids. It has research centers in Switzerland, Japan, the United States, and Germany.

The company's Pharmaceutical division engages in the research and development, manufacture and distribution of pharmaceuticals for the treatment of infectious diseases, cardiovascular diseases, inflammatory and autoimmune diseases, bronchopulmonary diseases, metabolic disorders, and in the fields of virology, oncology, hematology, dermatology, and neurology.

The Diagnostics division engages in developing and marketing tools for research in genomics and proteomics, test methods for viruses such as HIV and HCV, integrated laboratory workstations, and devices for patients' own use. Its products are delivered through its affiliates all over the world.

Roche Vitamins and Fine Chemicals division is a bulk supplier of vitamins and carotenoids to the feed, food, pharmaceutical, and cosmetic industries. Its products include medicinal feed additives, amino acids, polyunsaturated fatty acids, feed enzymes, sunscreens, and emulsifiers.

The Early Years Under Fritz Hoffmann-La Roche

At the beginning of the 20th century, Fritz Hoffmann-La Roche's family had hoped that he would become a scientist, but when he showed no interest in a scientific career, his father, a wealthy Basel silk merchant, founded F. Hoffmann-La Roche & Co. for his son.

Hoffmann-La Roche was a talented entrepreneur who soon proved a success in his own right--and ahead of his time. He was committed to standardized packaging and to maintaining product quality and was convinced that the future belonged to branded pharmaceuticals. He recognized the importance of forming ties between the pharmaceutical industry and the community of academic scientists. Hoffmann-La Roche instituted the company's commitment to research, generously funding the company's facilities around the world to offer scientists a freedom in experimentation usually associated only with university laboratories.

Despite such well-intentioned policies, the young company experienced hardship in its early years; after only a few years in business, Hoffmann-La Roche faced bankruptcy. Disregarding his father's dying wish that he abandon the pharmaceutical business, Hoffmann-La Roche arranged for recapitalization (mainly from his own family). This time, the company enjoyed almost immediate success. Dr. Emil Barell, a young employee, developed several successful drugs: Thiocal, a cough medicine, and Digalen, an extract from the digitalis plant used in the treatment of heart disease. Other new products included Pantopon, a painkiller, and Sirolin, a cough syrup.

The revived company's future looked promising. By the eve of World War I, Hoffmann-La Roche's products sold on four continents. To standardize the marketing of products, the company adopted the name Roche (Hoffmann-La Roche's wife's maiden name) as its world trademark. Yet World War I created complications that threatened the success of its recent past.

The company's new factory in Germany, at Grenzach, produced a major share of Roche pharmaceuticals. But the Germans boycotted the company because they suspected it was supplying France; meanwhile, French doctors accused the company of being pro-German. In Britain, Roche products were blacklisted when the rumor spread that the company was producing poison gas for the German Army. Most devastating of all, the company lost more than 1 million francs in uncollected receivables in Russia during the Revolution.

This series of disasters forced the company to go public in 1919. Of the 4 million francs of paid-in capital used to reorganize the company, Fritz Hoffmann-La Roche supplied 3 million; the remainder came from his brother-in-law, two associates, and Dr. Barell. The following year, 1920, the company asked shareholders to double their subscriptions.

A Second Era of Growth and Expansion: 1920-1945

The year 1920 also marked the death of Fritz Hoffmann-La Roche. Barell assumed the role of president and ushered in a new era of growth and expansion. At the same time, an American, Elmer H. Bobst, became general manager of the company's U.S. subsidiary. The U.S. branch had been established in 1905, and Bobst's regime had been a resounding success: Under his leadership the company introduced Allonal, a pain reliever, which became the company's first million-dollar product.

Then a tragedy occurred in the Hoffmann-La Roche family that changed the course of company leadership: Emanuel, Fritz' eldest son, died in a car accident. In the late 1930s, Emanuel's widow married Paul Sacher, founder and conductor of the Basel Chamber Orchestra. Sacher assumed control of 49 percent of company shares--the interests of his wife, his stepson, Lukas Hoffmann, and his stepson-in-law, Jakob Oeri, a Basel surgeon. All three men filled seats on the board of directors. Sacher remained active in company decisions into the late 1980s.

In the years preceding World War II, the company's strategy shifted; it gradually moved from extracting medicines from natural sources to synthesizing them, and its most important breakthrough came in the large-scale production of synthetic bulk vitamins. Barell obtained a process for synthesizing vitamin C as early as 1933. Later successes included vitamins A and E. In 1971 the company enjoyed between 50 and 70 percent of the world market for vitamins, and production continued to grow.

As World War II approached, the company's American subsidiary assumed greater importance. In 1928, Nutley, New Jersey had become the site of the company's U.S. headquarters; when war and possible Nazi invasion of Switzerland threatened, the company prepared to expand the Nutley site. Company interests were also transferred to a Canadian holding company called Sapac. American operations in Nutley came under the administration of Sapac, whose vast production and research operations soon made it virtually an independent company.

Not only were assets transferred in the early 1940s, but Emil Barell himself moved to Nutley until the end of the war. Differences in their personalities and their approaches to business caused Bobst and Barell to disagree constantly, and, in 1944, Bobst resigned. He went on to assume control of the struggling Warner-Lambert Company and directed one of the most impressive comebacks in the pharmaceutical industry. Barell hired Lawrence Barney, recruited from the prestigious Wisconsin Alumni Research Foundation, to be president of the U.S. branch. Barney remained at Roche for the next 20 years. Emil Barell died in 1953 at the age of 79. His successor, Albert Caflisch, served until 1965.

Innovations in Research and Development: 1945-1965

The years between 1945 and 1965 were important to the company not only in terms of changes in executives, but also because of innovations in research and development. During this period, Roche released its line of phenomenally successful benzodiazepines, Valium and Librium, developed after years of research by scientist Leo Sternbach.

Librium was introduced in 1960. This new tranquilizer was revolutionary in its ability to relieve tension without simultaneously causing apathy. Before long, the company was barely able to keep up with demand; it now held the patent to the one of the best-selling prescription drugs in the world--the best-selling drug in the United States. In 1963, Roche introduced Valium to the market, and, by 1969, Valium exceeded Librium in popularity. Never before had a pharmaceutical company introduced two significant market successes in so short a time. By 1971, some 500 million patients had used one or the other of the drugs, generating an estimated US$2 billion in sales. With several years to go before patents expired, the two drugs continued to break sales records.

Difficulties in the 1970s

The company's success in developing benzodiazepine tranquilizers, however, was no protection from the vicissitudes of the daily operations of a large multinational company. Hoffmann-La Roche's pricing policy came under attack when the British Monopolies Commission discovered that Roche Products Ltd., the U.K. subsidiary of Hoffmann-La Roche, was paying the parent company the sums of US$925 a kilo for Librium and US$2,300 a kilo for Valium. In Italy, a country in which there are no drug patents, the costs per kilo were US$22.50 and US$50 respectively. Based on these findings, the Monopolies Commission ordered the company to reduce its prices 50 to 60 percent in the United Kingdom and to repay excess profit estimated at US$30 million.

In response, the company petitioned the House of Lords to overturn the government's order. Adolf Jann, head of Hoffmann-La Roche since Caflisch's death in 1965, vigorously defended the company's pricing policies. Formerly known for its unwillingness to disclose financial information, the company now put its financial cards on the table, running full-page newspaper advertisements defending its prices on the basis of its traditionally high costs for research and development. Information about company sales and profits were made public for the first time. In 1973, US$500 million of the US$1.2 billion volume at Roche was attributable to the sale of Valium and Librium.

Among consumers increasingly alarmed about the escalating costs of drugs, the company's arguments were generally ignored, and Germany, the Netherlands, Australia, Sweden, and South Africa began investigations of their own. By 1980, after years of litigation, Roche had emerged from the controversy virtually unscathed, having agreed to adhere thereafter to a system of voluntary price restraints.

The tumultuous price wars of the 1970s were not the only source of difficulties for the company. In 1976 a poison cloud of TCDD, a dioxin found in Agent Orange, escaped from Icmesa, an Italian chemical factory owned by Roche. TCDD is an unwanted byproduct of trichloropenol, a drug produced by Icmesa. Although the cause of the poison cloud remains speculative, experts believe that on the day of the accident the temperature in the reactor was accidentally allowed to rise to 300 degrees centigrade, 125 degrees greater than the safe temperature for production.

Nearly 80,000 domestic fowl and half the pigs in the area died as a result of the accident. Six days after the blast, the first case of chloracne, a human skin disease caused by TCDD, was reported. The company alerted the authorities by supplying a map of the area that they believed to be contaminated and advising that the area be evacuated. The Italian government, with the full assistance of the company, initiated investigative procedures and decided to evacuate 267 acres on which some 700 people lived. An additional 5,000 people, living in the periphery of the area, were instructed about preventive measures. Despite these precautions, there were finally 136 confirmed cases of chloracne. Roche paid more than US$17 million in 1978 to cover the costs of decontamination and the relocation and settlement of displaced people; in 1980, the company paid Italian authorities a further US$114 million in compensation.

The 1980s-1990s: Reorganization and Acquisition

In 1978 there was another change of the guard at Roche, with Fritz Gerber becoming head of the company. Gerber led Roche into a joint venture to market Zantac, an antiulcer drug with GlaxoSmithKline, the British pharmaceutical company, in the 1980s. Using 750 Roche salespeople, the two companies challenged GlaxoSmithKline's popular drug Tagamet, and their aggressive marketing strategies led Zantac to capture 25 percent of the market in little more than six months. Roche also moved to the forefront of genetic engineering, particularly in its production of interferons. Roferon-A, released on the market in June 1986, was marketed as a treatment for rare forms of cancer.

The late 1980s and early 1990s were also a time of reorganization at Roche. In the spring of 1986, the heads of all Roche companies met to discuss the company's structure and, as a result, individuals business units were strengthened and made increasingly autonomous. Accounting and reporting practices were standardized and modernization measures were implemented in all areas. In 1989, the company transformed its businesses into true divisions, which began to operate like independent companies. The spin off of Givaudan (formerly the Fragrances and Flavors division) in 2000 left Roche with three divisions: Pharmaceuticals, Diagnostics, and Vitamins and Fine Chemicals.

Roche also made some major acquisitions in the 1990s. In a move that attracted widespread attention, Roche purchased a majority shareholding in California's leading biotech company, Genentech, Inc. in 1990. Further strengthening its position in the worldwide healthcare market, in 1991, it purchased Nicholas, a European-based producer of nonprescription medicines. In 1994 it took over Syntex Corporation, which became Roche Bioscience, one of the company's major research and development sites, and led to staff cuts in research, production, and marketing totaling 5,000 jobs. The acquisitions in the late 1990s of Boehringer Mannheim and the Corange Group, strengthened the Diagnostics division and made Roche the world leader in the area of diagnostics products.

Roche continued to launch new products throughout the 1990s: Inhibace, an antihypertensive, in 1990; Mabthera, for cancer therapy; and Zenapex, to prevent organ rejection after transplant, in 1997. Inhibace was the first Roche product designed with the aid of computer modeling techniques and won the 1999 Prix Galien, Roche's fourth such award. Other landmarks in the 1990s included the 1991 acquisition of worldwide marketing rights to the polymerase chain reaction from Cetus Corporation, which opened the way to developing better diagnostic tests, and the 1995 discovery of a new class of therapeutics, protease inhibitors, for treatment of AIDS.

In the mid- to late 1990s, the company again changed leadership. Franz Humer, who had been head of the Pharmaceuticals division since 1995, was elected chief executive officer in 1998, replacing Fritz Gerber, who remained president of the board. Humer also replaced Gerber as president in 2001. The era of Franz Humer promised to be as eventful as those of his predecessors. In 1999, Roche inaugurated its new R&D facility in Basel. It also acquired the rest of Genentech and, in 2001, acquired Amira Medical, a corporation active in the diabetes monitoring business. During the early years of the 21st century, the company formed an alliance with Chugai of Japan in 2001, establishing its footing in the world's second largest healthcare market. Other 2001 partnerships included those forged with the Mayo Clinic, Combinatrix Corporation, and Millenium Pharmaceuticals, Inc. in the United States; deCODE genetics in Iceland; Prionics Inc. in Switzerland; and Innogenetics NV in Belgium. The decision to separate the company's vitamins business marked its commitment to concentrate on its core pharmaceuticals and diagnostics businesses.

Principal Subsidiaries:F. Hoffmann-La Roche Ltd.; Genentech, Inc.; Givaudan-Roure SA; Hoffmann-La Roche Inc.; Roche AG; Roche Consumer Health (Worldwide) SA; Hoffmann Roche Diagnostics Corporation; Roche Molecular Biochemicals; Tegimenta AG; Teranol Ltd.

Principal Competitors:Abbott Laboratories; AstraZeneca PLC; Aventis; Bristol-Myers Squibb Company; GlaxoSmithKline PLC; Merck and Company, Inc.; Pfizer Inc.

Chronology

• Key Dates:
• 1896: F. Hoffmann-La Roche & Co. is founded in Basel, Switzerland.
• 1919: The company goes public.
• 1920: Fritz Hoffmann-La Roche dies and Emil Barell assumes the role of president; and Elmer Bobst becomes head of the company's U.S. subsidiary.
• 1928: Nutley, New Jersey, becomes the site of the company's U.S. headquarters; and company interests are transferred to Sapac, a Canadian holding company.
• 1944: Elmer Bobst resigns.
• 1953: Emil Barell dies and Albert Caflisch replaces him.
• 1960: The company introduces Librium, a benzodiazepine tranquilizer that relieves tension without causing apathy.
• 1963: The company introduces Valium and it exceeds Librium in popularity.
• 1965: Caflisch dies and Adolf Jann assumes control of the company.
• 1978: Fritz Gerber becomes chairman of the board.
• 1986: The company releases Roferon-A, a treatment for rare forms of cancer.
• 1990: The company restructures into divisions; Roche purchases a majority shareholding in California's leading biotech company, Genentech, Inc.
• 1994: The company acquires Syntex Corporation, which becomes Roche Bioscience, a major R&D development site.
• 1995: Fritz Gerber becomes chief executive officer.
• 1998: Franz Humer becomes chief executive officer.
• 1999: Roche inaugurates a new R&D facility in Basel.
• 2000: Roche spins off its Fragrances and Flavors division as a new company, called Givaudan.
• 2001: Roche acquires Amira Medical, a corporation active in diabetes monitoring.