Roche Holdings AG

How the business, R&D, and manufacturing synergies of the Swiss drug giant helped it to become the largest biotech manufacturer in the world.

Roche Holdings, AG is a Basel, Switzerland-based global healthcare company. In 2014, Roche sales were CHF 49.9Bn (approximately $50.7Bn) and, at 25% of global production, the firm was the largest manufacturer in the biotech sector [1][2]. Morgan Stanley Industry analysts predict Roche to experience a growth in EBITDA to a “best in class” 40% by 2018 [1]. Roche’s success is due in large part to the alignment of its business model with its operating model; a feat made all the more challenging by Roche’s global network of subsidiaries and collaborators.

Business Model

In its 2014 Annual report, Roche states that its business model seeks “to make a significant difference to patients, reaching as many people in need as possible whilst continuously reinvesting in innovation to develop diagnostic tests and breakthrough treatments” [2]. After strategically divesting its applied sciences business in 2013, Roche has focused on creating and capturing value through the research, development, and production of pharmaceutical and medical diagnostic products worldwide. This involves not only developing innovative products that meet previously unmet medical needs, but producing and selling those drugs at low-cost as well. The business model’s focus on lowering cost is driven by factors that include increased scrutiny of healthcare costs by payer networks and the increased prevalence of generic and biosimilar pharmaceuticals.

Operating Model

In 2007, Roche re-organized its global pharmaceutical operations into geographically concentrated Disease Biology Areas (DBA) [3]. This re-organization of the operating model co-located all Research and Development (R&D) and manufacturing personnel for a given DBA into singular geographic regions. The DBAs are responsible for managing compounds from drug discovery, through medical proof-of-concept, and to market [3]. This operating model drives both collaborative innovation and drives down costs by both reducing overlap in R&D roles and by creating synergies between Roche’s manufacturing and research functions. The R&D and manufacturing/supply-chain elements of Roche’s operating model also individually complement the firm’s business model.

R&D Operations

Roche’s operating model is more R&D-focused than those of its competitors. The firm spends over the industry average in R&D in a manner that is assessed to have a “higher focus (oncology, immunology, [Central Nervous System] and better prioritization (gated approach, faster development).” Additionally, analysts assess that “with more resources shifting to new and strategic products, [analysts] think that Roche can better absorb the ongoing increase of R&D costs” [4]. Roche states in its 2014 annual report that it plans to spend CHF 3Bn over the course of ten years to build improved research facilities and open, modular office spaces at its Basel headquarters [2]. Roche announced plans to divest itself of four underutilized global manufacturing facilities in order to commit CHF 300Mn into a facility dedicated to small molecule research in Kaiseraugst, Switzerland [5]. While small molecules remain a core segment of Roche’s business, its R&D apparatus is heavily committed to the development of biologics (see image for differences in size and complexity between biologics and small molecules). This effort is apparent in Roche’s 1990 acquisition of a majority interest and 2008 purchase (for $49.5 Bn) of San Francisco-based biotechnology firm Genentech [6]. This shift in R&D operations to biologics shielded Roche from recent revenue decreases suffered by Roche competitors due to patent expirations and development of generic drugs. In addition to collaborations with biopharma firms, Roche’s R&D operations model also leverages relationships with educational institutions such as Massachusetts General Hospital [7].

Comparison of Molecular Mass and Complexity of Small Molecules vs. Biologics

Comparison of Molecular Mass and Complexity of Small Molecules vs. Biologics


Human Capital

Roche’s internal and external collaborative efforts are highly dependent on human capital, and the human resources side of Roche’s operating model is appropriately structured with initiatives ranging from incentive-based compensation structures, paid sabbatical programs, and talent scouts that seek out the best R&D talent [2].

Manufacturing and Supply-Chain

In October of 2013, Roche announced that it would allocate CHF 800M to the construction of manufacturing facilities and manufacturing technology in order to account for increased demand for its biologics offerings [8]. Additionally, Roche is investing in tracking and tracing technologies that will not only streamline its supply-chain, but will also cut losses that the company currently experiences due to counterfeiting of its products [2].


It remains to be seen whether the complementary nature of Roche’s business and operating models will shield it from the increasing prevalence of biosimilar compounds (loosely comparable to generic drugs in small molecules) or increasing cost-cutting pressure in the healthcare industry. For the time being, however, the synergies of these two models have served Roche well and make it a winner in the 2015 TOM challenge.

  1. Meunier, Walker, Guyon-Gellin, and Chen. “Roche: Pipeline 1, Biosimilars 0”. Morgan Stanley Report (accessed on Thomson Reuters ONE).
  2. Roche Holdings AG Annual Report. (
  3. Thomson Reuters Cortellis. “Roche AG: Company and Pipeline Overview Report”. 6 December, 2015.
  4. Meunier, Walker, Guyon-Gellin, and Chen. “Roche: Increases in manufacturing, not just R&D”. Morgan Stanley Report (accessed on Thomson Reuters ONE).
  5. Rundquist, Odile. “Roche to Restructure its Manufacturing Network for Small Molecules”. Helvea Baader Bank Group Report. 13 November, 2015.
  6. Thomson Reuters ONE. “Roche Deal History”.
  7. Thomson Reuters Cortellis. “Roche AG: Competitive Landscape Report”. 6 December, 2015.
  8. Copley, Caroline. “Roche to Spend 800 million on manufacturing, create 500 jobs.” Reuters. 14 October, 2013.
  9. Media Credit:


Unilever: More Than a Just a Marketing Company


Systematizing Success at Inner City Public Schools

Student comments on Roche Holdings AG

  1. Roche’s pivot to biotech exposes it to competitive challenges stemming from the increase adoption of regulatory frameworks for the approval of biosimilars and also the increasing investment generic manufacturers are making to expand their capabilities to produce and distribute biosimilars. In light of these emerging threats, what strengths do you identify in Roche’s operational model that gives them an edge in the marketplace?

  2. Thorough investigation of a complicated industry and company. Incredible to me how simply rearranging the R&D structure was able to create significant cost savings. I’m curious what made them decide to sell their drugs at low costs. It seems like they should be able to charge an average price on their drugs compared to competitors. Do the specifically provide cheap alternatives to consumers who have poor or no healthcare? Great comparison of the the two models!

  3. Great post! This semester, I have been hearing a number of biotech companies talk about Roche as an acquirer or as an investor in their business. This at first surprised me until I found out that Roche has a venture fund arm. The decision to support a venture fund seems to support even further their excellent alignment of operating and business models. In order to further their commitment to the generation and dissemination of innovative biotechnology they have not only focused on their own R&D, but also on promising initiatives outside of their own company. This furthers not only a financial interest to capture returns on these investments, but also allows them to be involved in the management and strategic decisions of these companies. If you are interested, here is more information on the venture fund:

  4. Great article!

    Do you see any downsides to the DBA organization decision? I see the point you make about the benefits of aligning manufacturing and research functions within a disease biology area, but does it reduce collaboration across DBAs? Does this mean that potential for expanded applications beyond the main target disease/marker are missed? Are key R&D techniques and advances communicated across teams, so that learning is shared beyond the DBA? I think the operating model makes a lot of sense but I would probably want to see particular initiatives promoting cross-DBA sharing in order to maximize company-wide learning and avoid inefficiencies.

  5. Thanks for the post! It’s very interesting to see how they’ve chosen to organize their R&D department along the axis of DBA’s. I wonder how other large biotech firms (like Amgen for instance) have designed their R&D organizations and what the pros/cons of the different approaches are.

    This was partially referenced in one of the earlier comments, but I would be interested in better understanding their strategy around in-house research vs. acquisitions/partnerships. Biotech is clearly a space where a lot of innovation occurs in academia or in very small single-product companies, so I wonder to what extent Roche’s operating model includes this type of external opportunity seeking as well.

  6. Thanks for the great post! I enjoyed learning more about the operating model and was struck by how much the firm is investing in their R&D capabilities. Many of their competitors have pulled capital that used to be allocated to R&D and diverted it to M&A. Roche’s move could increase the risk level of their product portfolio; however, it could also give them a long-term advantage as they consider new areas of development. I am curious to see if they pull back their R&D budget slightly if the valuations of various HC companies come down and make it more affordable to buy than build.

Leave a comment