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`
`-Novartis Exhibit 2163.001
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`fO ml
`
`c—
`C
`
`o-~-,.._ L -:
`
`~L a 4 i=
`
`i I
`
`.
`t
`I
`
`~
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`<I>
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`2
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`-
`
`Novartis Exhibit 2163.001
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Finance in Brief
`
`Sales
`CER growth %
`
`Core operating profit margin
`% of sales
`
`Key results
`
`Pharmaceuticals
`
`Diagnostics
`
`Group
`
`2019
`2018
`
`2019
`2018
`
`2019
`2018
`
`IFRS results
`Sales
`Operating profit
`Net income
`Net income attributable to Roche shareholders
`Diluted EPS (CHF)
`Dividend per share (CHF)
`
`Core results
`Research and development
`Core operating profit
`Core EPS (CHF)
`
`Free cash flow
`Operating free cash flow
`Free cash flow
`
`Net debt
`
`Capitalisation
` – Debt
` – Equity
`
`1) Proposed by the Board of Directors.
`
`
`
`
`+ 10.7
`+ 7.2
`
`+ 2.9
`+ 7.0
`
`+ 8.9
`+ 7.1
`
`2019
`(CHF m)
`
`61,466
`17,548
`14,108
`13,497
`15.62
`9.001)
`
`
`11,696
`22,479
`20.16
`
`20,921
`16,764
`
`43.3
`43.1
`
`15.2
`15.9
`
`36.6
`36.1
`
`% of sales
`2018
`
`
`26.0
`19.1
`18.5
`
`
`
`
`19.4
`36.1
`
`33.0
`26.1
`
`% change
`(CER)
`–53
`
`+4
`–22
`+19
`
`l= I==
`
`2018
`(CHF m)
`
`56,846
`14,769
`10,865
`10,500
`12.21
`8.70
`
`
`11,047
`20,505
`18.14
`
`
`18,741
`14,811
`
`
`
`(CHF)
`
`+8
`+19
`+30
`+29
`+28
`+3
`
`
`+6
`+10
`+11
`
`+12
`+13
`
`% change
`(CER)
`
`+9
`+21
`+32
`+31
`+30
`
`
`
`+6
`+11
`+13
`
`
`+11
`+12
`
`2019
`(CHF m)
`(2,505)
`
`50,230
`14,363
`35,867
`
`2018
`(CHF m)
`(5,652)
`
`49,136
`18,770
`30,366
`
`2019
`
`
`28.5
`23.0
`22.0
`
`
`
`
`19.0
`36.6
`
`
`34.0
`27.3
`
`(CHF)
`–56
`
`+2
`–23
`+18
`
`CER (Constant Exchange Rates): The percentage changes at constant exchange rates are calculated using simulations by reconsolidating both the 2019 and 2018 results at constant
`exchange rates (the average rates for the year ended 31 December 2018). For the definition of CER see page 168.
`
`Core results and Core EPS (earnings per share): These exclude non-core items such as global restructuring plans and amortisation and impairment of goodwill and intangible assets.
`This allows an assessment of both the actual results and the underlying performance of the business. A full income statement for the Group and the operating results of the divisions
`are shown on both an IFRS and core basis. The core concept is fully described on pages 161–164 and reconciliations between the IFRS and core results are given there.
`
`Free cash flow is used to assess the Group’s ability to generate the cash required to conduct and maintain its operations. It also indicates the Group’s ability to generate cash
`to finance dividend payments, repay debt and to undertake merger and acquisition activities. The free cash flow concept is used in the internal management of the business.
`The free cash flow concept is fully described on pages 164–166 and reconciliations between the IFRS cash flow and free cash flow are given there.
`
`Novartis Exhibit 2163.002
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Finance – 2019 in Brief
`
`Roche in 2019
`
`The Roche Group reported strong overall results in 2019. Sales grew by 9% at constant exchange rates (CER). IFRS net income increased
`by 32% (CER) and core earnings per share increased by 13% (CER).
`
`Sales
`
`Group sales increased by 9% (CER) to CHF 61.5 billion (8% growth in CHF terms).
`Pharmaceuticals sales growth was 11% (CER) due to the new medicines Ocrevus, Hemlibra, Tecentriq and Perjeta. In oncology, in addition
`to Tecentriq, there was continued growth in the HER2 franchise and Avastin. Biosimilars had an estimated negative impact of CHF 1.5 billion
`on 2019 sales. Immunology sales increased, led by Actemra/RoActemra and Esbriet.
`Diagnostics sales showed growth of 3% (CER) with the immunodiagnostics business being the major contributor.
`
`Operating results
`
`Core operating profit increased by 11% (CER) to CHF 22.5 billion (10% increase in CHF terms).
`Research and development expenditure grew by 6% (CER) to CHF 11.7 billion on a core basis, with focus on the oncology, neuroscience
`and immunology therapeutic areas. Research and development costs represented 19.0% of Group sales.
`IFRS operating results include non-core expenses (pre-tax) of CHF 5.0 billion. The major factors were CHF 1.5 billion amortisation charges
`for intangible assets, CHF 1.8 billion impairment of goodwill and intangible assets, notably CHF 0.8 billion relating to the Diabetes Care business.
`
`Non-operating results
`
`Financing costs (IFRS) increased by 28% to CHF 1.0 billion due to early debt redemption losses of CHF 0.2 billion.
`Income tax expenses (IFRS) decreased by 23% at CER to CHF 2.5 billion. The effective core tax rate for 2019 decreased to 16.3% mainly due
`to the impacts from the resolution of several tax disputes.
`
`Net income
`
`IFRS net income increased by 32% at CER to CHF 14.1 billion (+30% in CHF terms) due to the base effect of high goodwill impairment in 2018.
`Core earnings per share increased by 13% at CER to CHF 20.16 (+11% in CHF terms).
`
`Cash flows
`
`Operating free cash flow increased to CHF 20.9 billion. The underlying cash generation led to an increase of operating free cash flow of 11%
`at CER (+12% in CHF terms).
`Free cash flow increased by 12% at CER (+13% in CHF terms) to CHF 16.8 billion, driven by the higher operating free cash flow.
`
`Financial position
`
`Net working capital decreased by 16% (CER) driven by the Pharmaceuticals Division.
`Net debt decreased by CHF 3.1 billion to CHF 2.5 billion. The free cash flow more than covered the dividends and the CHF 4.6 billion net cash
`payments for Spark Therapeutics. Gross debt decreased by 22% (CER) to CHF 14.4 billion.
`Credit ratings strong: Moody’s at Aa3 and Standard & Poor’s at AA.
`
`Shareholder return
`
`Dividends. A proposal will be made to increase dividends by 3% to CHF 9.00 per share. This would represent the 33rd consecutive year of
`dividend growth and would result in a pay-out ratio of 44.6%, subject to AGM approval.
`Total Shareholder Return (TSR) was 33% representing the combined performance of share and non-voting equity security.
`
`Novartis Exhibit 2163.003
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Roche Group
`
`Finance in Brief
`
`Finance – 2019 in Brief
`
`Financial Review
`
`Roche Group Consolidated Financial Statements
`
`Notes to the Roche Group Consolidated Financial Statements
`
`Inside cover
`
`1
`3
`42
`48
`
`1. General accounting principles
`2. Operating segment information
`3. Revenue
`4. Net financial expense
`5. Income taxes
`6. Mergers and acquisitions
`7. Global restructuring plans
`8. Property, plant and equipment
`9. Goodwill
`10. Intangible assets
`11. Inventories
`12. Accounts receivable
`13. Marketable securities
`14. Cash and cash equivalents
`15. Other non-current assets
`16. Other current assets
`17. Accounts payable
`
`48
`51
`56
`59
`60
`63
`67
`70
`71
`75
`79
`79
`80
`80
`81
`81
`82
`
`18. Other non-current liabilities
`82
`19. Other current liabilities
`82
`20. Provisions and contingent liabilities
`83
`21. Debt
`89
`22. Equity attributable to Roche shareholders
`94
`23. Subsidiaries
`97
`24. Non-controlling interests
`100
`25. Employee benefits
`101
`26. Pensions and other post-employment benefits
`101
`27. Equity compensation plans
`107
`28. Leases
`111
`29. Earnings per share and non-voting equity security 116
`30. Statement of cash flows
`117
`31. Risk management
`119
`32. Related parties
`131
`33. List of subsidiaries and associates
`134
`34. Significant accounting policies
`138
`
`Report of Roche Management on Internal Control over Financial Reporting
`
`Statutory Auditor’s Report to the General Meeting of Roche Holding Ltd, Basel
`
`Independent Reasonable Assurance Report on Internal Control over Financial Reporting
`
`Multi-Year Overview and Supplementary Information
`
`Roche Securities
`
`Roche Holding Ltd, Basel
`
`Financial Statements
`
`Notes to the Financial Statements
`
`Appropriation of Available Earnings
`
`Statutory Auditor’s Report to the General Meeting of Roche Holding Ltd, Basel
`
`149
`150
`156
`158
`169
`
`172
`174
`179
`180
`
`Novartis Exhibit 2163.004
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Financial Review | Roche Group
`
`Financial Review
`
`Roche Group results
`
`Sales in billions of CHF
`
`Core operating profit in billions of CHF
`
`0
`
`10
`
`20
`
`30
`
`40
`
`50
`
`60
`
`0
`
`5
`
`10
`
`15
`
`20
`
`% CER growth
`
`2019
`2018
`2017
`
`+8.9
`+7.1
`+5.2
`
`Net income attributable to Roche shareholders in billions of CHF
`
`Core EPS in CHF
`
`0
`
`2
`
`4
`
`6
`
`8
`
`10
`
`12
`
`14
`
`0
`
`5
`
`10
`
`15
`
`20
`
`2019
`2018
`2017
`
`13.5
`10.5
`8.6
`
`% of sales
`
`36.6
`36.1
`35.7
`
`20.16
`18.14
`15.34
`
`In 2019 the Roche Group reported sales growth of 9% at constant exchange rates (CER) and this led to core operating profit growth
`of 11% and an increase in Core EPS of 13%. IFRS net income increased by 32% due to this business growth and the base impact of the
`high goodwill impairments in 2018. The sales growth continued to be driven by the Pharmaceuticals Division’s new medicines, which
`more than compensated for biosimilar competition. The Group further improved its operating profitability, while continuing its investments
`in research and development and supporting the launch of new products. Operating free cash flow was CHF 20.9 billion, an increase of
`11%, driven by the higher cash generation of the pharmaceuticals business.
`
`Divisional operating results for 2019
`
`Sales
`Core operating profit
` – margin, % of sales
`Operating profit
` – margin, % of sales
`Operating free cash flow
` – margin, % of sales
`
`
`
`Pharmaceuticals
`(CHF m)
`48,516
` 21,015
` 43.3
` 17,946
` 37.0
` 20,536
` 42.3
`
`Divisional operating results – Development of results compared to 2018
`
`Sales
` – % increase at CER
`Core operating profit
` – % increase at CER
` – margin: percentage point increase
`Operating profit
` – % increase at CER
` – margin: percentage point increase
`Operating free cash flow
` – % increase at CER
` – margin: percentage point increase
`
`
`
`Pharmaceuticals
`
`+11
`
`+12
`+0.4
`
`+23
`+3.6
`
`+14
`+1.1
`
`Diagnostics
`(CHF m)
`12,950
` 1,966
` 15.2
` 242
` 1.9
` 963
` 7.4
`
`Diagnostics
`
`+3
`
`+1
`–0.4
`
`–46
`–2.3
`
`–28
`–3.3
`
`Corporate
`(CHF m)
`–
`(502)
`–
`(640)
`–
`(578)
`–
`
`Corporate
`
`–
`
`+7
`–
`
`+3
`–
`
`+11
`–
`
`Group
`(CHF m)
`61,466
` 22,479
` 36.6
` 17,548
` 28.5
` 20,921
` 34.0
`
`Group
`
`+9
`
`+11
`+0.6
`
`+21
`+2.7
`
`+11
`+0.5
`
`Roche Finance Report 2019 | 3
`
`Novartis Exhibit 2163.005
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Roche Group | Financial Review
`
`Sales in the Pharmaceuticals Division were CHF 48.5 billion (2018: CHF 44.0 billion), an increase of 11% at CER. New products were
`the major growth driver, with Ocrevus, Hemlibra, Tecentriq and Perjeta together contributing an additional CHF 4.4 billion (CER) of new
`sales. This more than offset the estimated CHF 1.5 billion (CER) impact of biosimilars on sales in Europe, Japan and, from the second
`half of 2019, the US. Broader market penetration led to a 36% sales increase in China to CHF 3.1 billion. Ocrevus sales were 57% higher at
`CHF 3.7 billion, led by the US. The launch and rollouts of Hemlibra continued with sales reaching CHF 1.4 billion. Tecentriq sales grew in
`all regions, with the largest contributions coming from higher demand in the US and Europe as well as newly launched indications. Perjeta
`sales were CHF 3.5 billion, an increase of 29%, with growth across all regions. Avastin sales were 4% higher mainly due to growth in
`China and the US. In Europe and Japan, sales of MabThera/Rituxan and Herceptin fell by CHF 1.2 billion (CER) in 2019 due to biosimilar
`competition. In the US, the first biosimilar versions of MabThera/Rituxan, Herceptin and Avastin came to market in the second half of
`2019, and had an estimated CHF 0.3 billion (CER) impact on sales. The Diagnostics Division reported sales of CHF 12.9 billion, an increase
`of 3% at CER. The major growth area was Centralised and Point of Care Solutions, which represented 60% of the division’s sales
`and which grew by 3%, led by growth in the immunodiagnostics business of 6%. Molecular Diagnostics sales increased by 6% due to
`increased demand in blood screening. Diabetes Care sales increased by 1% driven by the Accu-Chek Guide product line in North America.
`
`The Pharmaceuticals Division’s core operating profit increased by 12% at CER, ahead of the sales growth. Royalty and other operating
`income decreased by CHF 0.4 billion in total, with a fall of CHF 0.7 billion following the expiry of the Cabilly patent at the end of 2018,
`partially offset by product disposal gains and higher profit-share income. Cost of sales increased by 7%, below the sales growth, with
`manufacturing costs growing 3% due to a favourable product mix and lower inventory write-offs, and royalty expenses growing 33%.
`Marketing and distribution costs grew by 10% due to increased spending on product launches and rollouts including Tecentriq, Ocrevus
`and Xofluza as well as ramp-up of marketing activities in new strategic businesses. Research and development costs grew by 6%,
`with oncology, neuroscience and immunology representing significant areas of spending.
`
`In the Diagnostics Division core operating profit increased by 1% at CER, behind the 3% sales growth. Cost of sales grew by 6% due
`to higher costs from external suppliers and for technical and engineering services. Research and development increased by 1% due to
`spending on new projects within the Centralised and Point of Care Solutions portfolio and on laboratory automation.
`
`IFRS operating profit increased by 23% in the Pharmaceuticals Division and fell by 46% in the Diagnostics Division, with the results of
`both divisions impacted by impairments of goodwill and intangible assets in both the current year and the comparative period. The 2019
`results include CHF 1.8 billion of these impairments, with the largest item being the goodwill impairment of CHF 0.8 billion relating to the
`Diabetes Care business. Impairments of goodwill and intangible assets in 2018 were CHF 3.3 billion, including CHF 1.8 billion relating to
`the InterMune acquisition. Amortisation of intangible assets was CHF 1.5 billion and there were CHF 1.2 billion of expenses from global
`restructuring plans.
`
`Operating free cash flow was CHF 20.9 billion, an increase of 11% at CER, due to higher cash generation of the pharmaceuticals business
`and lower capital expenditure, partly offset by higher investments in intangible assets. Net working capital decreased compared to 2018
`driven by the Pharmaceuticals Division with higher rebate and chargeback accruals and lower net trade working capital. The free cash
`flow was CHF 16.8 billion, an increase of CHF 2.0 billion, mainly due to the higher operating free cash flow.
`
`Financing costs were 28% (CER) higher on an IFRS basis at CHF 1.0 billion mainly due to losses on early debt redemption of CHF 0.2 billion
`in 2019. Net income from equity securities showed gains of CHF 0.2 billion from Roche Venture Fund investments. Income tax expenses
`were lower, with the Group’s effective core tax rate at 16.3% compared to 19.7% in 2018. This was mainly due to the impacts from the
`resolution of several tax disputes, which had an impact of 2.1 percentage points on the effective core tax rate in 2019. The implementation
`of the Swiss tax reform in 2019 had a non-core transitional impact on the Group’s deferred tax positions of CHF 0.2 billion, which had no
`impact on tax payments in 2019.
`
`Net income increased by 32% at CER on an IFRS basis to CHF 14.1 billion and by 14% on a core basis to CHF 18.1 billion, driven in both
`cases by the operating results. The IFRS net income was additionally affected by the base impact of significant goodwill impairments in 2018.
`
`The results expressed in Swiss francs were negatively impacted by the stronger Swiss franc on average against the euro and Latin American
`currencies, partly offset by the appreciation of the US dollar against the Swiss franc. There was a 1 percentage point impact on sales
`and core operating profit expressed in Swiss francs compared to constant exchange rates and a 2 percentage point impact on Core EPS.
`
`4 | Roche Finance Report 2019
`
`Novartis Exhibit 2163.006
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Income statement
`
`IFRS results
`Sales
`Royalties and other operating income
`Revenue
`Cost of sales
`Marketing and distribution
`Research and development
`General and administration
`Operating profit
`
`Financing costs
`Other financial income (expense)
`Profit before taxes
`
`Income taxes
`Net income
`
`Attributable to
` – Roche shareholders
` – Non-controlling interests
`
`EPS – Basic (CHF)
`EPS – Diluted (CHF)
`
`Core results 1)
`Sales
`Royalties and other operating income
`Revenue
`Cost of sales
`Marketing and distribution
`Research and development
`General and administration
`Operating profit
`
`Financing costs
`Other financial income (expense)
`Profit before taxes
`
`Income taxes
`Net income
`
`Attributable to
` – Roche shareholders
` – Non-controlling interests
`
`Core EPS – Basic (CHF)
`Core EPS – Diluted (CHF)
`
`1) See pages 161–164 for the definition of core results and Core EPS.
`
`2019
`(CHF m)
`
`61,466
`2,285
`63,751
`(18,351)
`(10,960)
`(12,774)
`(4,118)
`17,548
`
`(993)
`59
`16,614
`
`(2,506)
`14,108
`
`13,497
`611
`
`15.77
`15.62
`
`
`61,466
`2,285
`63,751
`(16,363)
`(10,513)
`(11,696)
`(2,700)
`22,479
`
`(962)
`59
`21,576
`
`(3,514)
`18,062
`
`17,416
`646
`
`20.35
`20.16
`
`Financial Review | Roche Group
`
`2018
`(CHF m)
`
`56,846
`2,651
`59,497
`(17,269)
`(10,109)
`(12,092)
`(5,258)
`14,769
`
`(770)
`149
`14,148
`
`(3,283)
`10,865
`
`
`10,500
`365
`
`12.29
`12.21
`
`
`56,846
`2,635
`59,481
`(15,464)
`(9,905)
`(11,047)
`(2,560)
`20,505
`
` (744)
`149
`19,910
`
`(3,929)
`15,981
`
`
`15,593
`388
`
`18.25
`18.14
`
`% change
`(CHF)
`
` +8
`–14
`+7
`+6
`+8
`+6
`–22
`+19
`
`+29
`–60
`+17
`
`–24
`+30
`
`
`+29
`+67
`
`+28
`+28
`
`
`+8
`–13
`+7
`+6
`+6
`+6
`+5
`+10
`
`+29
`–60
`+8
`
`–11
`+13
`
`
`+12
`+66
`
`+12
`+11
`
`% change
`(CER)
`
`+9
`–15
`+8
`+7
`+9
`+5
`–21
`+21
`
`+28
`–64
`+19
`
`–23
`+32
`
`
`+31
`+64
`
`+31
`+30
`
`
`+9
`–14
`+8
`+7
`+7
`+6
`+6
`+11
`
`+28
`–64
`+10
`
`–10
`+14
`
`+13
`+63
`
`+13
`+13
`
`Roche Finance Report 2019 | 5
`
`Novartis Exhibit 2163.007
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Roche Group | Financial Review
`
`Leases
`
`Effective 1 January 2019 the Group has implemented IFRS 16 ‘Leases’. IFRS 16 replaces existing leases guidance, including IAS 17 ‘Leases’.
`The Group applied the cumulative catch-up method option for the transition, meaning that the comparative 2018 results have not been
`restated. Further details are given in Note 28 to the Annual Financial Statements.
`
`The main impact of the new standard is to bring operating leases onto the balance sheet. The new standard results in the carrying value
`of leased assets (‘right-of-use assets’) increasing by CHF 1.2 billion as of 1 January 2019, with lease liabilities increasing by a similar amount.
`These leases represent primarily office facilities and motor vehicles. The application of the new standard results in part of what has been
`previously reported as operating lease costs being recorded as interest expenses. Given the leases involved and the prevailing low interest
`rate environment, the Group does not currently expect this effect to be material, with the amount in 2019 being CHF 18 million.
`
`The application of the new standard does not materially impact the Group’s Alternative Performance Measures. There are classification
`changes within Core EPS and operating free cash flow, but the totals are largely unaffected, while the Group’s definition of net debt does
`not include lease liabilities. The new standard does have an impact on EBITDA. Further details are given on pages 161 to 168.
`
`Mergers and acquisitions
`
`On 17 December 2019 the Group acquired a 100% controlling interest in Spark Therapeutics, Inc. (‘Spark Therapeutics’), a publicly
`owned US company based in Philadelphia, Pennsylvania, that had been listed on Nasdaq Stock Market. Spark Therapeutics is a fully
`integrated commercial company committed to discovering, developing and delivering gene therapies. Spark Therapeutics is reported
`in the Pharmaceuticals Division. The cash purchase consideration was USD 4.8 billion (equivalent to CHF 4.7 billion). During 2019
`there was CHF 146 million of non-core income from the reversal of contingent consideration provisions. Further details are given in
`Notes 6 and 31 to the Annual Financial Statements.
`
`Global restructuring plans
`
`During 2019 the Group continued with the implementation of various global restructuring plans initiated in prior years.
`
`Global restructuring plans: costs incurred in 2019 in millions of CHF
`
`Global restructuring costs
` – Employee-related costs
` – Site closure costs
` – Divestment of products and businesses
` – Other reorganisation expenses
`Total global restructuring costs
`
`Additional costs
` – Impairment of goodwill
` – Impairment of intangible assets
` – Legal and environmental cases
`
`Total costs
`
`
`
`Diagnostics1)
`
`176
`38
`(16)
`143
`341
`
`
`0
`0
`(1)
`
`340
`
`Site consolidation2)
`
`171
`69
`1
`15
`256
`
`Other plans3)
`
`526
`28
`0
`55
`609
`
`
`0
`0
`43
`
`299
`
`
`0
`0
`0
`
`609
`
`Total
`
`873
`135
`(15)
`213
`1,206
`
`
`0
`0
`42
`
`1,248
`
`1)
`2)
`3)
`
`Includes strategy plans in the Diagnostics Division.
`Includes the Pharmaceuticals Division’s strategic realignment of its manufacturing network and resourcing flexibility in the biologics manufacturing network.
`Includes plans for outsourcing of IT and other functions to shared service centres and external providers.
`
`6 | Roche Finance Report 2019
`
`Novartis Exhibit 2163.008
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Financial Review | Roche Group
`
`Diagnostics Division. Strategy plans in the Diagnostics Division incurred costs of CHF 228 million mainly for employee-related matters.
`Expenses for IT process optimisation plans were CHF 71 million.
`
`Site consolidation. Costs from the Pharmaceuticals Division’s strategic realignment of its manufacturing network were CHF 132 million
`and mainly related to the exit from the manufacturing site at Clarecastle, Ireland. The expected costs of the environmental remediation
`at the Clarecastle site were reassessed and resulted in an increase in the provisions by CHF 43 million. Employee-related costs of
`CHF 91 million were recorded for the redesign of manufacturing at the South San Francisco site. Costs for the resourcing flexibility plan
`in the biologics manufacturing network were CHF 84 million, which included the closure of the manufacturing plant in Rio de Janeiro
`in Brazil.
`
`Other global restructuring plans. Initiatives in the Pharmaceuticals Division incurred costs of CHF 272 million, mainly employee-
`related. Other major items were CHF 90 million for plans for outsourcing of IT and other functions to shared service centres and external
`providers and CHF 72 million at Chugai.
`
`In 2018 total global restructuring costs were CHF 0.9 billion. Further details are given in Note 7 to the Annual Financial Statements.
`
`Impairment of goodwill and intangible assets
`
`Pharmaceuticals Division. The Pharmaceuticals Division recorded impairment charges to intangible assets of CHF 633 million.
`Impairment charges of CHF 381 million related to the full or partial impairments of five different compounds due to either clinical data
`assessments or decisions to stop the development of the respective compounds. A charge of CHF 168 million related to the full
`impairment of a compound purchased separately, driven by a change in the development plan. Impairment charges of CHF 78 million
`related to the partial impairment of a compound developed together with an alliance partner, mainly driven by reduced revenue
`forecasts.
`
`Diagnostics Division. The Diagnostics Division recorded impairment charges of CHF 1,123 million. The major part of this was a charge
`of CHF 779 million for the partial write-off of goodwill related to the Diabetes Care business. The impairment is a result of revised market
`assumptions related to the blood glucose monitoring area and a slower than expected growth in other parts of this business. In the
`Molecular Diagnostics business there was a charge for a full impairment of CHF 259 million for the product intangible assets acquired as
`part of the GeneWeave acquisition. The main factors leading to this were updated assumptions on timelines, research and development
`expenses and production costs. In addition, there was an impairment of CHF 85 million in the Sequencing business for the full write-off
`of product intangible assets acquired as part of the Ariosa acquisition. This was mainly due to a change in timelines for the launch of
`related sequencing products.
`
`In 2018 there were impairment charges of CHF 2.4 billion in the Pharmaceuticals Division. The largest item was a charge of CHF 1.8 billion
`relating to the goodwill and intangible assets from the InterMune acquisition in 2014. The Diagnostics Division recorded impairment
`charges of CHF 1.0 billion. The major part of this was in the sequencing business.
`
`Further details are given in Notes 9 and 10 to the Annual Financial Statements.
`
`Legal and environmental cases
`
`Based on the development of the various litigations, notably the Avastin/Lucentis investigations and the Meso case, there was a net
`increase in provisions of CHF 369 million. This was a major element of the 2019 expenses for legal cases of CHF 422 million. The expected
`costs of the environmental remediation at the Clarecastle site in Ireland were reassessed and resulted in an increase in the provisions.
`There were no other significant developments affecting the 2019 financial results. Further details are given in Note 20 to the Annual
`Financial Statements.
`
`Net income and earnings per share
`
`IFRS net income increased by 30% in CHF terms and by 32% at CER, while the diluted EPS increased by 28% in CHF terms and by 30%
`at CER. Core net income increased by 14% and Core EPS increased by 13%, both at CER. The core basis excludes non-core items such
`as global restructuring costs, amortisation and impairment of goodwill and intangible assets, and income and impacts from the accounting
`for merger and acquisition transactions and alliance arrangements. The amount of net income attributable to non-controlling interests
`increased by 64% due to the increased contribution of Chugai to the overall Group results.
`
`Roche Finance Report 2019 | 7
`
`Novartis Exhibit 2163.009
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Roche Group | Financial Review
`
`Net income
`
`IFRS net income
`
`Reconciling items (net of tax)
` – Global restructuring plans
` – Intangible asset amortisation
` – Goodwill and intangible asset impairment
` – Mergers and acquisitions and alliance transactions
` – Legal and environmental cases
` – Pension plan settlements
` – Transitional effect of changes in US tax rates
` – Transitional effect of Swiss tax reform
` – Normalisation of equity compensation plan tax benefit
`Core net income
`
`
`
`2019
`(CHF m)
`14,108
`
`
`970
`1,380
`1,570
`(52)
`417
`(1)
`–
`(236)
`(94)
`18,062
`
`2018
`(CHF m)
`10,865
`
`
`759
`1,110
`3,107
`21
`131
`4
`(35)
`–
`19
`15,981
`
`% change
`(CHF)
`+30
`
`
`+28
`+24
`–49
`–
`+218
`–
`–
`–
`–
`+13
`
`% change
`(CER)
`+32
`
`+29
`+23
`–50
`–
`+221
`–
`–
`–
`–
`+14
`
`Supplementary net income and EPS information is given on pages 161 to 164. This includes calculations of Core EPS and reconciles
`the core results to the Group’s published IFRS results.
`
`Financial position
`
`Financial position
`
`Pharmaceuticals
`Net working capital
`Long-term net operating assets
`Diagnostics
`Net working capital
`Long-term net operating assets
`Corporate
`Net working capital
`Long-term net operating assets
`Net operating assets
`
`Net debt
`Lease liabilities
`Pensions
`Income taxes
`Other non-operating assets, net
`Total net assets
`
`
`
`2019
`(CHF m)
`
`1,441
`29,116
`
`2,742
`11,036
`
`(240)
`(5)
`44,090
`
`(2,505)
`(1,219)
`(6,535)
`1,312
`724
`35,867
`
`2018
`(CHF m)
`
`2,472
`25,215
`
`2,697
`11,625
`
`(214)
`(44)
`41,751
`
`(5,652)
`–
`(6,140)
`(89)
`496
`30,366
`
`% change
`(CHF)
`
`% change
`(CER)
`
`–42
`+15
`
`+2
`–5
`
`+12
`–89
`+6
`
`–56
`–
`+6
`–
`+46
`+18
`
`–36
`+17
`
`+5
`–3
`
`+13
`–78
`+8
`
`–53
`–
`+9
`–
`+45
`+19
`
`Compared to the start of the year the Swiss franc appreciated against the euro and the US dollar. This had a negative translation impact
`on the net operating assets, which was partly offset at Group level by the natural hedge from the Group’s US dollar-denominated debt.
`The exchange rates used are given on page 30.
`
`8 | Roche Finance Report 2019
`
`Novartis Exhibit 2163.0010
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Financial Review | Roche Group
`
`In the Pharmaceuticals Division net working capital decreased by 36% at CER. This was mainly due to higher rebate and chargeback
`accruals. Excluding this, net trade working capital in the Pharmaceuticals division was 1% lower, with a decrease in inventories due to
`write-offs and lower inventories for mature products. Trade receivables increased due to the underlying sales growth. Long-term net
`operating assets increased by 17% largely due to the Spark Therapeutics acquisition, where the initial purchase price allocation added
`CHF 4.5 billion to goodwill. In the Diagnostics Division there were increases in net working capital of 5% and 4% in net trade working
`capital. These were driven by an increase in trade receivables due to the growth in sales, and by an increase of inventories due to quality
`issues and an increase in instruments pending placement. Long-term net operating assets decreased by 3% following impairment
`charges to goodwill and intangible assets.
`
`The decrease in net debt was due to the free cash flow of CHF 16.8 billion, partly offset by the dividend payments of CHF 7.7 billion and
`net cash payments of CHF 4.6 billion for the Spark Therapeutics acquisition. This led to a reduction in gross debt to CHF 14.4 billion
`from CHF 18.8 billion at the end of 2018. The net pension liability was 9% higher at CHF 6.5 billion following decreases in discount rates.
`Net deferred tax assets increased mainly due to the Swiss tax reform, impairment of intangible assets and equity compensation plans.
`The resolution of tax disputes reduced current tax liabilities. Lease liabilities of CHF 1.2 billion were a result of the accounting changes
`in IFRS 16 that brought operating leases onto the balance sheet effective 1 January 2019.
`
`Free cash flow
`
`Free cash flow
`
`Pharmaceuticals
`Diagnostics
`Corporate
`Operating free cash flow
`Treasury activities
`Taxes paid
`Free cash flow
`
`
`
`2019
`(CHF m)
`20,536
`963
`(578)
`20,921
`(614)
`(3,543)
`16,764
`
`2018
`(CHF m)
`17,851
`1,416
`(526)
`18,741
`(642)
`(3,288)
`14,811
`
`% change
`(CHF)
`+15
`–32
`+10
`+12
`–4
`+8
`+13
`
`% change
`(CER)
`+14
`–28
`+11
`+11
`–5
`+7
`+12
`
`See pages 164–166 for the definition of free cash flow and a detailed breakdown.
`
`The Group’s operating free cash flow was CHF 20.9 billion, an increase of 11% at CER. This was due to higher cash generation of the
`pharmaceuticals business partly offset by higher investments in intangible assets. Net working capital was lower due to increases in
`accruals for rebates and chargebacks and a reduction in net trade working capital in the Pharmaceuticals Division. The free cash
`flow was CHF 16.8 billion, an increase of 12% at CER. This was due to the higher operating free cash flow, partly offset by higher tax
`payments.
`
`Roche Finance Report 2019 | 9
`
`Novartis Exhibit 2163.0011
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Roche Group | Financial Review
`
`Pharmaceuticals Division operating results
`
`Pharmaceuticals Division operating results
`
`
`
`IFRS results
`Sales
`Royalties and other operating income
`Revenue
`Cost of sales
`Marketing and distribution
`Research and development
`General and administration
`Operating profit
` – margin, % of sales
`
`Core results 1)
`Sales
`Royalties and other operating income
`Revenue
`Cost of sales
`Marketing and distribution
`Research and development
`General and administration
`Core operating profit
` – margin, % of sales
`
`Financial position
`Net working capital
`Long-term net operating assets
`Net operating assets
`
`Free cash flow 2)
`Operating free cash flow
` – margin, % of sales
`
`1) See pages 161–164 for the definition of core results.
`2) See pages 164–166 for the definition of free cash flow.
`
`2019
`(CHF m)
`
`48,516
`2,198
`50,714
`(11,593)
`(7,905)
`(11,221)
`(2,049)
`17,946
`37.0
`
`48,516
`2,198
`50,714
`(10,180)
`(7,604)
`(10,228)
`(1,687)
`21,015
`43.3
`
`
`1,441
`29,116
`30,557
`
`20,536
`42.3
`
`2018
`(CHF m)
`
`43,967
`2,553
`46,520
`(10,491)
`(7,068)
`(10,299)
`(3,874)
`14,788
`33.6
`
`
`43,967
`2,553
`46,520
`(9,504)
`(6,939)
`(9,586)
`(1,549)
`18,942
`43.1
`
`
`2,472
`25,215
`27,687
`
`
`17,851
`40.6
`
`% change
`(CHF)
`
`+10
`–14
`+9
`+11
`+12
`+9
`–47
`+21
`+3.4
`
`
`+10
`–14
`+9
`+7
`+10
`+7
`+9
`+11
`+0.2
`
`
`–42
`+15
`+10
`
`+15
`+1.7
`
`% change
`(CER)
`
`+11
`–15
`+9
`+11
`+12
`+9
`–47
`+23
`+3.6
`
`+11
`–15
`+9
`+7
`+10
`+6
`+8
`+12
`+0.4
`
`
`–36
`+17
`+12
`
`+14
`+1.1
`
`10 | Roche Finance Report 2019
`
`Novartis Exhibit 2163.0012
`Regeneron v. Novartis, IPR2021-00816
`
`
`
`Sales overview
`
`Pharmaceuticals Division – Sales by therapeutic area
`
`Oncology
`Immunology
`Neur