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Executive Summary

ROCHE's WORLDWIDE PHARMACEUTICAL R&D WILL BE DIRECTED FROM U.S. by Jurgen Drews, the new head of international drug R&D. Drews, who previously has been director of R&D in Basel,is moving to the U.S. to coordinate the company's worldwide R&D efforts as part of a management reorganization announced in Switzerland at the end of August. Drews has been in the Roche organization for over five years. He joined Roche's Swiss headquarters in 1985 from Sandoz. The firm has credited him with the reduction in pending R&D projects to about three dozen active current compounds. By shifting the worldwide headquarters for R&D to the U.S. and putting a senior exec from Basel in charge of the operation, Roche is attempting to balance and resolve the rivalries between its two major drug R&D operations. The Roche R&D restructuring accompanies a "divisionalization" of the company's various businesses. Pharmaceutical R&D will be an autonomous unit reporting to Basel senior corporate management, as will Roche's U.S. drug manufacturing and marketing operation, the non-U.S. drug businesses, the diagnostics and lab businesses, and vitamins and fine chemicals. The divisionalization essentially breaks up the previously semi-autonomous U.S. operation, Hoffmann-La Roche Inc., and aligns the different operating units with related operations outside the U.S. The restructuring by type of business, in lieu of geographical location, is similar to a reorganization unveiled by Sandoz in the spring of 1989 ("The Pink Sheet," May 1, 1989, T&G-13). The recent restructuring completes a cycle of reorganization begun in 1986. Hoffmann-La Roche, Inc. will continue to exist but primary line of reporting will be determined by the nature of the businesses. The diagnostics and chemicals businesses in the U.S., for example, will report to the chairman of the Swiss company, Fritz Gerber. All of Roche's pharmaceutical operations will report to Armin Kessler, the company's current chief operating officer. Kessler, also an ex-Sandoz exec, will remain located in Basel. Hoffmann-La Roche, Inc. President Irwin Lerner will head the U.S. drug business; Peter Simon will head the non-U.S. drug operations. Kessler, Lerner, Simon, Drews and Markus Altwegg will form a five-person strategic management board for the drug business. The breadth and depth of the pharmaceutical management board exhibits the attention being refocused onto Roche's core pharmaceutical business. By reducing the non-pharmaceutical responsibilities for Lerner, the head of the U.S. drug business, the company has set up a management structure more amenable to another U.S. purchase or other large-step expansion in the pharmaceutical area. Roche's U.S. drug business has been vigorous under Lerner's direction for the last 10 years, with the help of a wide network of co-marketing and co-development agreements. Roche Labs passed the $1 bil. sales mark in 1989 with a 14% volume growth on top of a 12% gain in 1988 ("The Pink Sheet" Jan. 22, p. 6). The symbolic shift of Roche's R&D headquarters to the U.S. coincides with Roche's Genentech purchase. While Genentech will be run as a separate company in deference to its newness within the organization and its West Coast biotech culture, Drews will sit on the board of the new company. The Nutley, N.J. research headquarters also may reflect the importance of the U.S. as a center and focus for clinical drug development worldwide. Some of Roche's overseas products in the 1980s appear to have been studied and developed with registrations outside the U.S. as the primary objective. For example, Roche's NSAID carprofen was more than five years late reaching the U.S. It also would not hurt Roche to have its R&D director in the U.S. if the company decides to pursue a more open public posture with the financial community. Like several of the Swiss companies, Roche has been taking small steps that could lead the company into the public markets in the future. The company revised its holding company and stock structure in May 1989.

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