Finance Report
`
`Novartis Exhibit 2164.001
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Finance
`
`.
`1n brief
`
`Key results
`
`Pharmaceuticals
`
`Diagnostics
`
`Group
`
`2013
`201 2
`
`2013
`2012
`
`2013
`201 2
`
`Sales l'"ti I I = I I
`
`I I
`
`I
`
`Core operating profit margin.
`
`l"''j'~ I I I I I I I
`I I I I I I I I
`
`I
`
`I
`
`+6.7
`+ 4.7
`
`+4.3
`+ 3.9
`
`+6.2
`+4.5
`
`44.4
`44.0
`
`20.8
`21.3
`
`38.3
`37.7
`
`IFRS results
`Sales
`Operating profit
`
`Net income
`Net income attributable to Roche shareholders
`Diluted EPS (CHF)
`
`Dividend per share (CHF) •J
`
`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
`- Eq uity
`
`1) Proposed by the Board of Directors.
`
`2013
`(mCHF)
`
`2012
`(mCH F)
`
`(CHF)
`
`% change
`(CER)
`
`2013
`
`% of sales
`2012
`
`46.780
`16,376
`11,373
`11,164
`12.93
`7.80
`
`8.700
`17,904
`14.27
`
`45.499
`14,125
`9,660
`9,427
`11.03
`7.35
`
`8.475
`17, 160
`13.49
`
`16,381
`5,403
`
`16,135
`5,376
`
`+ 3
`+ 16
`+ 18
`+ 18
`+ 17
`+6
`
`+ 3
`+ 4
`+ 6
`
`+ 2
`+ 1
`
`+6
`+ 20
`+ 22
`+ 22
`+ 22
`
`+5
`+8
`+ 10
`
`+5
`+6
`
`2013
`(mCHF)
`
`2012
`(mCH F)
`
`(6.708)
`
`(10,599)
`
`39,884
`18,643
`21,241
`
`41 ,340
`24,590
`16.750
`
`35.0
`24.3
`23.9
`
`18.6
`38.3
`
`35.0
`11.5
`
`(CHF)
`
`-37
`
`-4
`-24
`+27
`
`31.0
`21.2
`20.7
`
`18.6
`37.7
`
`35.5
`11.8
`
`% change
`(CER)
`
`-38
`
`+2
`-22
`+ 37
`
`CER (Constant Exchange Rates): The percentage changes in Constant Exchange Rates are calculated using simulations by reconsolidating both the 2013 and
`2012 results at constant currencies (the average rates for the year ended 31 December 2012).
`
`Core results and Core EPS (earnings per share): These exclude non-core items such as global restructuring charges and the amortisation and impairment of goodwill
`and intangible assets. This allows a transparent 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 144-147 and
`reconciliations between the I FRS and core results are given there.
`
`Novartis Exhibit 2164.002
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Finance – 2013 in brief
`
`Roche in 2013
`
`Sales
`
`Operating results
`
`The Roche Group reported strong overall results in 2013. Core operating profit grew ahead of
`sales, and core earnings per share increased by 10% at constant exchange rates (CER). The Swiss
`franc was stronger at average rates against some major currencies, notably the Japanese yen and
`US dollar, which had a negative overall impact on the income statement and cash flows expressed
`in Swiss francs.
`
`Group sales increased by 6% (CER) to 46.8 billion Swiss francs (+3% growth in Swiss franc terms).
`Pharmaceuticals sales growth was 7% (CER). The strong growth in both established and new
`oncology products, Actemra/RoActemra in rheumatoid arthritis and Lucentis in ophthalmology
`was partially offset by decreases in sales of Pegasys and Bonviva/Boniva as well as the loss of
`Evista sales in Japan.
`Diagnostics sales grew by 4% (CER), ahead of the market, with Professional Diagnostics being
`the major contributor.
`
`Core operating profit increased by 8% (CER) to 17.9 billion Swiss francs (+4% growth in Swiss
`franc terms). The sales growth and cost savings from various global restructuring plans offset
`the higher operating costs from investments in key markets as well as the impacts from price
`pressure and increased competition. The core operating margin increased by 0.6 percentage
`points to 38.3%.
`Research and development expenditure grew by 5% (CER) to 8.7 billion Swiss francs on a core
`basis, driven by investments in the oncology and neuroscience therapeutic areas. R&D costs
`were 18.6% of Group sales.
`IFRS operating results include non-core items of 1.5 billion Swiss francs. This includes 1.2 billion
`Swiss francs for the amortisation and impairment of goodwill and intangible assets and 0.5 billion
`Swiss francs of income from the reversal of previous property, plant and equipment impairment.
`
`Non-operating results
`
`Net financial expenses decreased by 0.3 billion Swiss francs to 1.7 billion Swiss francs driven
`by lower interest expenses partially offset by higher net foreign exchange losses.
`
`Net income
`
`Cash flows
`
`Financial position
`
`Shareholder return
`
`IFRS net income increased by 22% at CER to 11.4 billion Swiss francs (+18% in Swiss franc terms),
`due to the strong core operating results, lower financing costs and lower global restructuring
`charges.
`Core earnings per share increased by 10% in constant currencies (+6% in Swiss francs).
`
`Operating free cash flow of 16.4 billion Swiss francs, up 5% at CER due to higher operating
`profit.
`Free cash flow of 5.4 billion Swiss francs, up 6% at CER due to higher operating free cash flow
`and lower interest paid.
`Repayment of debt is ahead of schedule with 67% of the notes and bonds issued in 2009
`to finance the Genentech transaction being repaid by the end of 2013.
`
`Net working capital increased by 1% (CER), as higher levels of inventories due to launches
`and growth of key products, higher safety stock levels and increased demand in key markets were
`mostly offset by increased payables and accrued liabilities.
`Net debt position improved by 3.9 billion Swiss francs to 6.7 billion Swiss francs.
`Credit ratings strong: Moody’s at A1 and Standard & Poor’s at AA.
`
`Dividends. A proposal will be made to increase dividends by 6% to 7.80 Swiss francs per share.
`This will represent the 27th consecutive year of dividend growth and will result in a pay-out ratio
`of 54.7%, subject to AGM approval.
`Total Shareholder Return (TSR) was 39% representing a combined performance of share
`and non-voting equity security.
`
`Novartis Exhibit 2164.003
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`ROCHE GROUP
`
`Finance in brief
`
`Finance - 2013 in brief
`
`Financial Review
`
`Roche Group Consolidated Financial Statements
`
`Notes to the Roche Group Consolidated Financial Statements
`
`1. General accounting principles
`2. Operating segment information
`3. Net financial expense
`4.
`Income taxes
`5. Business combinations
`6. Global restructuring plans
`7. Property, plant and equipment
`8. Goodwill
`9.
`Intangible assets
`10.
`Inventories
`11. Accounts receivable
`12. Marketable securities
`13. Cash and cash equivalents
`14. Other non-current assets
`15. Other current assets
`16. Accounts payable
`17. Other non-current liabilities
`
`52
`55
`58
`59
`62
`64
`67
`70
`72
`75
`75
`76
`76
`77
`77
`78
`78
`
`18. Other current liabilities
`19. Provisions and contingent liabilities
`20. Debt
`21. Equity attributable to Roche shareholders
`22. Chugai
`23. Non-controlling interests
`24. Employee benefits
`25. Pensions and other post-employment
`benefits
`26. Equity compensation plans
`27. Earnings per share and non-voting equity
`security
`28. Statement of cash flows
`29. Risk management
`30. Related parties
`31. Subsidiaries and associates
`32. Significant accounting policies
`
`78
`79
`83
`87
`90
`92
`93
`93
`
`101
`105
`
`106
`107
`117
`119
`124
`
`Report of Roche Management on Internal Control over Financial Reporting
`
`Report of the Statutory Auditor on the Consolidated Financial Statements
`
`Report of the Independent Auditor on Internal Control over Financial Reporting
`
`Multi-Vear Overview and Supplementary Information
`
`Roche Securities
`
`ROCHE HOLDING LTD, BASEL
`
`Financial Statements
`
`Notes to the Financial Statements
`
`Appropriation of Available Earnings
`
`Report of the Statutory Auditor on the Financial Statements
`
`Inside cover
`
`1
`3
`46
`52
`
`135
`136
`138
`140
`150
`
`154
`156
`164
`165
`
`Novartis Exhibit 2164.004
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Financial Review
`
`Roche Group results
`
`Sales in billions of CH F
`
`Core operating profit in billions of CH F
`
`2013
`2012
`2011
`
`% CER growth
`
`50
`
`+6.2
`+ 4.5
`+ 1.4
`
`I'
`
`1·
`
`I "
`
`I "
`
`Net income attributable to Roche shareholders in billions of CH F
`
`Core EPS in CHF
`
`2013
`2012
`201 1
`
`12
`
`11.2
`9.4
`
`9.3
`
`20
`
`15
`
`%of sales
`
`38.3
`37.7
`35.6
`
`14.27
`13.49
`
`12.30
`
`The Roche Group's results fo r 2013 showed growth in its core operating activ ities. w ith sales up by 6% and core operating
`profit up by 8% at constant exchange rates (CER). and sales increasing in all regions. Investments continued to develop
`the product pipeline and to secure future sales growth, notably through research and development, which increased by 5%
`on a core basis. The strong operating performance, combined w ith lower financing costs, resu lted in an increase in Core EPS
`of 10% at constant exchange rates. The strong operating results were also evident in the operating free cash flow, which
`increased by 5% to 16.4 billion Swiss francs or 35% of sales.
`
`Sales in the Pharmaceuticals Div ision rose by 7%, driven by 10% growth in the oncology portfolio w ith significant growth in
`recently launched medicines as well as established products. The key growth driver in oncology was the HER2 franchise w ith
`Avastin, MabThera/Rituxan and Zelboraf also making significant contributions. Sales of Actemra/RoActemra and Lucentis
`also increased. Key emerging markets showed growth of 12%, led by 21% sales growth in China. Diagnostics sales grew
`at 4%, consolidating the d ivision's leading market position. The major growth area was Professional Diagnostics. while sales
`in Diabetes Care declined.
`
`Core operating profit increased by 8%, w ith the Pharmaceuticals Division growing at 7% and Diagnostics at 4%. In the
`Pharmaceuticals Div ision cost of sales grew at 9% due to higher sales volumes. initial costs of implementing supply chain
`strategies for futu re growth, compliance costs and negative exchange rate impacts. The 3% increase in marketing and
`distribution costs was driven by investments to expand the business in emerging markets and to increase pati ent access
`to medicines. In research and development the 5% increase arose mainly in the oncology and neuroscience franchises.
`w ith the focus on new indications for recently launched products and other developments, such as PD- Ll targeted therapy
`and the advancement of programmes fo r Alzheimer's disease. In the Diagnostics Division profitability remained stable
`as increased sales were offset by higher operating costs. These were driven by pricing impacts and growth in instrument
`placements, especially in the US, higher research and development costs and the new Medical Device Tax in the US.
`
`Roche Group - Financial Review I Roche Finance Report 201 3
`
`3
`
`Novartis Exhibit 2164.005
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`In 2013 there were two major one-off impacts in the core results. The release of previously accrued reserves for the 340B
`Drug Discount Program had a positive impact of 182 million Swiss francs on US pharmaceuticals sales and 145 million Swiss
`francs on core operating profit. There were also 302 million Swiss francs of income from changes to the Group’s pension
`plans in the core operating profit.
`
`During 2013 the Group has continued the implementation of a number of major restructuring initiatives to position the
`business for the future. The operational closure of the Nutley site in the US, which was announced in 2012, was completed
`on schedule at the end of 2013. On 14 October 2013 the Pharmaceuticals Division published details of investments to increase
`its global biologic medicine manufacturing network capacity. As part of this a bulk drug production unit at the Vacaville
`site in California that had been discontinued and fully written down in 2009 will be brought back into service, resulting in
`a reversal of the previously incurred impairment charges of 531 million Swiss francs. The Diagnostics Division continued
`the implementation of various global programmes in the Diabetes Care and Applied Science businesses to address long-
`term profitability. On 23 April 2013 the Group announced that the Applied Science business area’s portfolio of products will
`be integrated within the other business areas of the Diagnostics Division. Overall, the costs of the Group’s restructuring
`activities in 2013 were over 1.9 billion Swiss francs lower compared to those in 2012. Impairment charges of 0.6 billion Swiss
`francs were recorded for goodwill and intangible assets, notably for product intangibles in the Pharmaceuticals Division’s
`hepatitis C virus (HCV) franchise and goodwill in the Tissue Diagnostics business. Taken together with the growth of the
`underlying business, there was an increase in IFRS net income of 22% at constant exchange rates.
`
`Operating free cash flow was 16.4 billion Swiss francs, an increase of 5% at constant exchange rates. This increase reflects
`the cash generation of both divisions, partly offset by higher capital expenditure for property, plant and equipment and
`investments in intangible assets. Free cash flow was 5.4 billion Swiss francs, 6% higher than in 2012. This was primarily due
`to a higher operating free cash flow and lower interest payments as the Group’s debt continues to be repaid. These were
`partially offset by the higher annual dividend.
`
`In 2013 the Swiss franc appreciated against some currencies, in particular the Japanese yen and US dollar, but weakened
`against the euro. The overall impact is negative on the results expressed in Swiss francs compared to constant exchange
`rates, with impacts of 3–4 percentage points on sales, core operating profit and core EPS. The exchange rates used and
`currency sensitivities are given on page 34.
`
`4
`
`Roche Finance Report 2013 | Roche Group – Financial Review
`
`Novartis Exhibit 2164.006
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Income st at ement
`
`IFRS results
`Sales
`Royalties and other operating income
`
`Cost of sales
`Marketing and distribution
`Research and development
`
`General and administration
`Operating profit
`
`Financing costs
`
`Other financial income (expense)
`Profit before t axes
`
`Income taxes
`Net income
`
`Attributable to
`
`- Roche shareholders
`- Non-controlling interests
`
`EPS - Basic (CH F)
`
`EPS - Diluted (CHF)
`
`Core results
`Sales
`
`Roya lties and other operating income
`Cost of sales
`
`Marketing and distribution
`Resea rch and development
`
`General and administration
`Operating profit
`
`Financing costs
`
`Other financial income (expense)
`Profit before t axes
`
`Income taxes
`Net income
`
`Attributable to
`- Roche shareholders
`
`- Non-controlling interests
`
`Core EPS - Basic (CH F)
`Core EPS - Diluted (CHF)
`
`2013
`(mCHF)
`
`2012
`(mCHF)
`
`%change
`(CHF)
`
`% change
`(CER)
`
`46.780
`1,832
`(1 1,948)
`(8,373)
`(9,270)
`(2,645)
`16,376
`
`( 1,580)
`(119)
`14,677
`
`(3,304)
`
`11,373
`
`11,164
`209
`
`13. 16
`12.93
`
`46.780
`1,832
`(1 1,892)
`(8,24 1)
`(8.700)
`(1,875)
`17,904
`
`( 1,580)
`(119)
`16,205
`
`(3,679)
`
`12,526
`
`12,3 16
`210
`
`14.52
`14.27
`
`45,499
`1,945
`(12,175)
`(8,539)
`(9,552)
`(3,053)
`14,125
`
`(1,923)
`(43)
`12,159
`
`(2.499)
`
`9,660
`
`9,427
`233
`
`11.12
`11.03
`
`45,499
`1,945
`(11,444)
`(8,392)
`(8,475)
`(1,973)
`17,160
`
`(1,923)
`(43)
`15,194
`
`(3.429)
`
`11 ,765
`
`11,531
`234
`
`13.60
`13.49
`
`+ 3
`-6
`-2
`-2
`-3
`-13
`+1 6
`
`-18
`+ 177
`+21
`
`+32
`+1 8
`
`+ 18
`-1 0
`
`+ 18
`+ 17
`
`+3
`- 6
`+4
`-2
`+3
`-5
`+4
`
`-18
`+ 177
`+7
`
`+ 7
`+ 6
`
`+ 7
`-1 0
`
`+7
`+6
`
`+ 6
`-4
`+2
`+ 1
`- 1
`-12
`+20
`
`-17
`+240
`+25
`
`+37
`+22
`
`+22
`+9
`
`+23
`+22
`
`+ 6
`-4
`+8
`+2
`+5
`-3
`+8
`
`-17
`+240
`+10
`
`+ 11
`+10
`
`+ 10
`+9
`
`+ 11
`+ 10
`
`As disclosed in Note 32 to the Consolidated Financial Statements and as discussed below on page 45. the income statement for 201 2 has been restated following
`the accounting policy changes which were adopted in 201 3. In the restated results of 2012 this causes a reduction in net financial income of 164 million Swiss francs.
`See also the Investor Update from 21 March 201 3. A reconciliation to the previously published income statement is provided in Note 32 to the Consolidated Financial
`Statements.
`
`Roche Group - Financial Review I Roche Finance Report 2013
`
`5
`
`Novartis Exhibit 2164.007
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Sales
`In 2013 sales increased by 6% at constant exchange rates (+3% in Swiss francs; +4% in US dollars) to 46.8 billion Swiss
`francs. Sales in the Pharmaceuticals Division rose 7% with the HER2 franchise, Avastin, MabThera/Rituxan, Actemra/
`RoActemra and Lucentis all growing strongly. Emerging market (E7) sales in Pharmaceuticals grew by 12%, led by 21%
`growth in China, and now represent 11% of the division’s sales. The Diagnostics Division recorded sales of 10.5 billion Swiss
`francs, an increase of 4% at constant exchange rates, consolidating its leading market position. The major growth area was
`Professional Diagnostics, which represents more than half of the division’s sales and grew by 8%, while Diabetes Care sales
`decreased by 3%.
`
`Divisional operating results for 2013
`
`Sales
`Core operating profit
` – margin, % of sales
`Operating profit
` – margin, % of sales
`Operating free cash flow
` – margin, % of sales
`
`Pharmaceuticals
`(mCHF)
`
`
`
`Diagnostics
`(mCHF)
`
`Corporate
`(mCHF)
`
`36,304
`16,108
`44.4
`15,633
`43.1
`14,976
`41.3
`
`10,476
`2,177
`20.8
`1,241
`11.8
`1,962
`18.7
`
`–
`(381)
`–
`(498)
`–
`(557)
`–
`
`Divisional operating results – Development of results compared to 2012
`
`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
`
`Diagnostics
`
`Corporate
`
`
`+7
`
`+7
`+0.1
`
`+18
`+4.0
`
`+5
`–0.9
`
`
`+4
`
`+4
`0
`
`+5
`0
`
`+9
`+0.9
`
`
`–
`
`–26
`–
`
`–41
`–
`
`+20
`–
`
`Group
`(mCHF)
`
`46,780
`17,904
`38.3
`16,376
`35.0
`16,381
`35.0
`
`Group
`
`
`+6
`
`+8
`+0.6
`
`+20
`+4.1
`
`+5
`–0.5
`
`Core operating results
`The Group’s core operating profit increased by 8% at constant exchange rates (4% in Swiss francs) and the Group’s core
`operating profit margin improved by 0.6 percentage points to 38.3% of sales. In 2013 there were two major one-off impacts
`in the core results. There was the release of sales reserves previously accrued for the 340B Drug Discount Program in the
`US which had a positive impact of 182 million Swiss francs on sales and 145 million Swiss francs on core operating profit.
`There was also income of 302 million Swiss francs recorded from changes to the Group’s pension plans. At constant exchange
`rates, these effects had a combined positive margin impact of 0.8 percentage points for the Group, 0.5 percentage points
`for the Pharmaceuticals Division and 0.7 percentage points for the Diagnostics Division. Excluding these two factors, core
`operating profit grew by 5% for the Group and the Pharmaceuticals Division and by 1% in the Diagnostics Division. Currency
`translation had a negative impact of 3.4 percentage points on the operating results. There was a minor currency effect on
`the Group’s core operating margin, as the positive effect of 0.3 percentage points for the Pharmaceuticals Division was offset
`by a negative effect of 0.5 percentage points for the Diagnostics Division.
`
`6
`
`Roche Finance Report 2013 | Roche Group – Financial Review
`
`Novartis Exhibit 2164.008
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Pharmaceuticals Division. The division increased its core operating profit by 7% at constant exchange rates, driven by
`growth of the underlying business with a 7% increase in sales. Cost of sales increased by 9% due to higher sales volumes,
`initial costs of implementing supply chain strategies for future growth, compliance costs and negative exchange rate impacts.
`Research and development costs increased by 5%, mainly in the oncology and neuroscience franchises, and while there
`was a 4% increase of general and administration costs they were stable as a percentage of sales.
`
`Diagnostics Division. Core operating profit increased 4%, again driven by growth of the underlying business, with
`a 4% increase in sales. Cost of sales increased by 6%, more than the sales growth, due to pricing impacts. There was also
`a growth in instrument placements, especially in the US. Marketing and distribution costs decreased by 2% as a result
`of lower spending in the Diabetes Care and former Applied Science businesses and due to lower bad debt expenses.
`Research and development costs increased by 7% due to continuing investments into next-generation platforms. General
`and administration costs increased by 8% due to the costs of the new Medical Device Tax in the US and ongoing IT systems
`projects. These increases were partly offset by income recorded for changes to the Group’s pension plans.
`
`Global restructuring plans
`During 2013 the Group continued with the implementation of several major global restructuring plans initiated in prior years,
`notably the reorganisation of research and development in the Pharmaceuticals Division and programmes to address the
`long-term profitability in the Diabetes Care and former Applied Science businesses in Diagnostics. Additionally, there was
`income of 531 million Swiss francs from the reversal of previously incurred impairment charges for a bulk drug production
`unit at the Vacaville site in California.
`
`Global restructuring plans: costs incurred in millions of CHF
`
`2013
`Global restructuring costs
` – Employee-related costs
` – Site closure costs
` – Other reorganisation expenses
`Total global restructuring costs
`
`Additional costs
` – Impairment of goodwill
` – Impairment of intangible assets
` – Legal and environmental costs
`
`Total costs
`
`Diagnostics 1)
`
`Pharma R& D 2)
`
`Other plans 3)
`
`
`
`89
`48
`83
`220
`
`35
`12
`3
`
`270
`
`
`
`132
`(491)
`66
`(293)
`
`–
`–
`–
`
`(293)
`
`44
`38
`157
`239
`
`–
`–
`(53)
`
`186
`
`Total
`
`
`
`265
`(405)
`306
`166
`
`35
`12
`(50)
`
`163
`
`1)
`2)
`3)
`
`Includes restructuring of the Diabetes Care and former Applied Science business areas.
`Includes closure of the Nutley site and associated infrastructure and environmental remediation costs.
`Includes the Operational Excellence programme (Pharmaceuticals and Diagnostics).
`
`Diagnostics Division – Diabetes Care and Applied Science restructuring. On 23 April 2013 the Group announced
`that the Applied Science business area’s portfolio of products will be integrated within the other business areas of the
`Diagnostics Division. This will streamline decision-making and enhance technology flow from research use to the clinical
`setting. On 26 September 2013 Roche Diabetes Care announced its ‘Autonomy and Speed’ initiative which will enable the
`business to focus on Diabetes Care specific requirements, speed up processes and decision-making and drive efficiencies.
`In 2013 total costs of 220 million Swiss francs were incurred, mainly for headcount reductions, IT-related costs and site
`closure costs. In addition, goodwill impairment charges of 35 million Swiss francs were incurred for the write-off of the
`goodwill from the Innovatis and 454 Life Sciences acquisitions in the former Applied Science business area.
`
`7
`
`Roche Group – Financial Review | Roche Finance Report 2013
`
`Novartis Exhibit 2164.009
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Pharmaceuticals Division – Research and Development reorganisation. On 26 June 2012 the Group announced a
`streamlining of the research and development activities within the Pharmaceuticals Division. The planned operational closure
`of the US site in Nutley, New Jersey, was completed on schedule by the end of 2013. During 2013 total costs of 239 million
`Swiss francs were incurred. These costs include additional provisions of 88 million Swiss francs to cover site running costs
`until the expected divestment in 2015. There was a further impairment of 35 million Swiss francs to the carrying value of
`the Nutley site, based on the most recent external property market data. Costs for other employee-related, site closure and
`reorganisational matters were 116 million Swiss francs. The first results of the environmental investigations showed that
`the expected cost of remediation may be lower than originally expected and accordingly the environmental provisions were
`reduced by 53 million Swiss francs.
`
`Other global restructuring plans. On 14 October 2013 the Pharmaceuticals Division announced investments to increase
`its global biologic medicine manufacturing network capacity to meet the rising demand for licensed biologics and expected
`pipeline growth. A part of this a bulk drug production unit at the Vacaville site in California that had been discontinued and
`fully written down in 2009 will be put back into service. This resulted in income of 531 million Swiss francs from the reversal
`of previously incurred impairment charges. During 2013 costs of 126 million Swiss francs were incurred for the previously
`announced Operational Excellence programme, mainly for employee-related and site closure costs in the Pharmaceuticals
`Division and employee-related and site closure costs in the Diagnostics Division for the sites in Burgdorf, Switzerland and
`Graz, Austria. Other plans totalled 112 million Swiss francs.
`
`Merger and acquisitions
`On 1 July 2013 the Group acquired a 100% controlling interest in Constitution Medical Investors, Inc. (‘CMI’), a US
`private company based in Massachusetts. CMI is the developer of a highly innovative hematology testing system, which
`is designed to provide faster and more accurate diagnosis of blood-related diseases, helping to improve patient care.
`CMI is now reported in the Diagnostics operating segment as part of the Professional Diagnostics business area. The
`purchase consideration was 220 million US dollars in cash and up to 255 million US dollars from a contingent consideration
`arrangement.
`
`Impairment of goodwill and intangible assets
`In 2013 impairment charges for goodwill and intangible assets of 35 million Swiss francs and 12 million Swiss francs were
`incurred for the Applied Science restructuring initiative described above. Based on the latest business plans prepared during
`the second half of 2013, a goodwill impairment of 253 million Swiss francs was recorded in the Tissue Diagnostics business
`area within the Diagnostics Division. The main factor leading to this impairment was reduced revenue expectations in the
`US. These follow from recent changes in the College of American Pathologists guidelines for the use of negative reagent
`controls in immunohistochemistry testing which reduced volumes and changes which reduced the reimbursement amount
`to laboratories. In addition, unrelated to global restructuring, impairments totalling 286 million Swiss francs were recorded
`in the Pharmaceuticals Division following a portfolio reassessment within the hepatitis C virus (HCV) franchise. Further
`impairment charges of 64 million Swiss francs were recorded by the Pharmaceuticals Division for various smaller projects.
`Further details are given in Notes 8 and 9 to the Consolidated Financial Statements.
`
`Pensions and other post-employment benefits
`During 2013 operating income of 302 million Swiss francs was recorded for past service costs from changes to the Group’s
`pension plans in Switzerland, the United Kingdom and Germany. This represents the one-time impact of the adjustment
`of the pension liability for the plan changes. Of this amount, 131 million Swiss francs were recorded in the Pharmaceuticals
`Division and 67 million Swiss francs in the Diagnostics Division. The remaining 104 million Swiss francs of income were
`allocated to Corporate, mainly attributable to previously divested businesses. In addition some of the US pension plans made
`an offer to deferred vested members to settle part of the defined benefit obligation for a lump sum payment, which resulted
`in a one-time settlement gain in the IFRS results of 19 million Swiss francs. Further details are given in Note 25 to
`the Consolidated Financial Statements.
`
`8
`
`Roche Finance Report 2013 | Roche Group – Financial Review
`
`Novartis Exhibit 2164.0010
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Legal and environmental settlements
`In addition to the reversal of environmental remediation costs of 53 million Swiss francs for the Nutley site mentioned
`above, a further 246 million Swiss francs of legal and environmental costs were recorded, unrelated to global restructuring
`plans. These include a further increase of 138 million Swiss francs to the estimated remediation costs of a landfill site near
`Grenzach, Germany, that was previously used by manufacturing operations that were closed some years ago.
`
`Treasury and taxation
`Financing costs were 1.6 billion Swiss francs, a decrease of 17%, with interest expenses being 23% lower at constant
`exchange rates as debt was repaid. Other financial income (expense) was a net expense of 119 million Swiss francs, mainly
`due to losses following the devaluation of the Venezuelan bolivar and foreign exchange hedge costs. Core tax expenses
`increased by 11% to 3.7 billion Swiss francs and the Group's effective core tax rate was stable at 22.7% (2012: 22.6%).
`The main factors were the higher percentage of core profit contribution coming from tax jurisdictions with relatively higher
`local tax rates than the average Group rate, notably in the US, mostly offset by the retrospective re-enactment of the
`2012 US research and development tax credit rules in January 2013.
`
`Net income and earnings per share
`IFRS net income and diluted EPS both increased by 22% at constant exchange rates driven by the strong operating
`performance, significantly lower global restructuring expenses and lower financing costs. On a core basis, which excludes
`non-core items such as global restructuring costs and the amortisation and impairment of goodwill and intangible assets,
`net income and core EPS both increased by 10%. This was driven by the strong operating performance and lower financing
`costs. Core EPS grew by 7% when excluding the positive impacts from the 3408 Drug Discount Program in the US and
`from the changes to the Group's pension plans.
`
`Supplementary net income and EPS information is given on pages 144-147. This includes calculations of core EPS and
`reconciles the core results to the Group's published IFRS results.
`
`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
`Pensions
`In come taxes
`Other non-operating assets, net
`Total net assets
`
`2013
`(mCHF)
`
`5,451
`12,952
`
`2,782
`11,250
`
`(58)
`(443)
`31,934
`
`(6,708)
`(5,426)
`1,838
`(397)
`21,241
`
`2012
`(mCHF)
`
`5,548
`12,955
`
`3,347
`11,382
`
`(71)
`(309)
`32,852
`
`(10,599)
`(6,553)
`1,581
`(531)
`16,750
`
`%change
`(CHF)
`
`% change
`(CER)
`
`-2
`+O
`
`-17
`-1
`
`-18
`+43
`-3
`
`-37
`-17
`+16
`-25
`
`+27
`
`+10
`+4
`
`-13
`0
`
`-18
`+43
`+2
`
`-38
`-18
`+18
`-29
`
`+37
`
`Compared to the start of the year the Swiss franc appreciated significantly against the Japanese yen. There was also
`a slight appreciation against the US dollar and Brazilian real and a slight weakening against the euro. These effects resulted
`in a negative translation impact on the balance sheet positions at 31 December 2013. The exchange rates used are given
`on page 34.
`
`Roche Group - Financial Review I Roche Finance Report 2013
`
`9
`
`Novartis Exhibit 2164.0011
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`In the Pharmaceuticals Division net working capital increased by 10% at constant exchange rates. This was mainly driven
`by an increase of 24% in inventories due to recent and upcoming product launches and expected higher sales demand. There
`were also higher levels of safety stock on selected products and temporary bridging stocks as a result of changes in supply
`chain strategy. Trade receivables decreased by 2% mainly as a result of continuing strong collections, which more than offset
`effects of underlying business growth. Trade payables increased by 34% following initiatives to improve cash management,
`including extension of payment terms. Long-term net operating assets grew by 4% mainly due to increases in property, plant
`and equipment. The main factor was biologic medicine manufacturing network investments, which resulted in an impairment
`reversal of a bulk drug production unit at the Vacaville site in the US, which had previously been impaired in 2009. This was
`partially offset by the impairment of intangible assets for the hepatitis C virus (HCV) franchise.
`
`In Diagnostics the decrease in net working capital of 13% was driven by an increase in trade payables