Industry Focus Groups Pharma and Health Care Breakout Session

INDUSTRY FOCUS GROUPS PHARMA AND HEALTH CARE BREAKOUT SESSION

23–24 APRIL, MADRID TODAY’S SPEAKERS

Sandra Peter Narcisa Probst- Stevenson Chelaru Gonçalves Principal and Senior Senior Global Life Sciences Associate and Mobility Manager Leader International Compensation F. Hoffmann-La Mercer Consultant Roche, Basel, Switzerland Mercer

• Industry overview. • Mobility concerns: European vs. North American pharmaceutical/ chemical/health care companies. • Data-based comparisons: pharmaceutical/chemical/health care vs. general industry companies. • Client case study from F. Hoffmann-La Roche.

MAKE TOMORROW, TODAY PHARMACEUTICAL AND HEALTH CARE INDUSTRY OVERVIEW

Source: Deloitte Life Sciences Outlook, 2014 COPYRIGHT MERCER 2015 KEY INDUSTRY CHALLENGES INNOVATION IS THE ROOT CAUSE

• Patent protection on many • Since the millennium, US$250 blockbusters has expired billion in sales have been put from 2011 through 2015, at risk due to blockbuster PATENT CLIFF which poses a significant patent expiries. threat to future sales. • Forty-two percent of drugs that make up Pfizer’s pharmaceutical revenue have lost/will lose patent protection.

• Due to the increasing patent • Good for generics expiration, generic manufacturers. RISE OF companies are on the rise. GENERICS • There is also an increase in acquisition of generic pharmaceuticals.

• Established companies • 2014 M&A total value was strive to improve product more than US$300 billion. pipelines and portfolios, RISE IN M&A • Approx. 700 takeovers in the which leads to last three years. consolidation in the market. • Increase in M&A activities.

More than 98% vote by Life Technologies cast in favour of acquisition by Thermo Fisher Sanofi acquires Genzyme for Acquisition agreement of Scientific for $13.6 billion $20.1 billion Human Genome Sciences by GSK for $3 billion

Jan ‘11 Jul ‘11 Jan ‘12 Jul ‘12 Jan ‘13 Jan ‘14

Bristol-Myers Squibb Novartis and GlaxoSmithKline Takeda completes acquires Inhibitex for $2.5 agree complicated $18.5 billion acquisition agreement of billion (more than a dozen asset swap and OCT joint venture Nycomed for $13.7 billion deals made since 2012) Lilly purchases Novartis’s Animal Health business for $5.5 billion

• Recent events and the rise in • The EU, US, and China have made REGULATORY generics have prompted the trend some regulatory changes to CHANGES towards drug regulatory changes. increase the quality of drugs being produced — thus affecting the way things work.

• Increasing patent expiration, • Major national health care DEMAND increasing life expectancy, and the reform and maturing national CHANGES IN need for less expensive drugs is insurance systems in growth GROWTH fuelling greater demand for markets. MARKETS pharmaceuticals in growth markets.

• Health care spending cutbacks in • Government and payer pressure mature markets. to reduce costs. VALUE-BASED CARE MODEL • Most countries moving from volume- • It is no longer sufficient to based to value-based care models. demonstrate effectiveness — companies must now demonstrate value.

• Business remains tough for most. • Changing/challenging regulatory environment. • Rising costs of clinical trials. • Stronger than ever competition from generics. • Companies are reshaping themselves to try to realise cost efficiencies.

HR Focus

• Restructuring: • Centralisation: – Sales. – Support functions. – R&D. • Performance – Manufacturing. management. • Cost containment.

• Economic/business environment more buoyant. • Commercial model focused on sales rather than research and development. • Generics grabbing market share. • Companies trying to keep pace with growth. • Attracting and retaining talent are recurring issues.

HR Focus

• War for talent! • Local issues • Market competitiveness: (e.g. nationalisation/ – Allowances. political instability). – Base salary. • Centralisation: – Benefits. – Keeping HQ happy.

INDUSTRY CONTEXT IMPLICATIONS EXAMPLES

• Deep knowledge in the field is • Limited pool of qualified • Scientist, engineers, technical required for most roles in the individuals leads to intensified roles. industry — high barrier to war for talent. entry. TALENT • Constant poaching of best • Skilled and innovative talent is talent within the industry. key to new product • Mobility. development and innovation.

• Emerging markets are • Tools and systems to support • Global/regional rewards becoming a core part of collaboration across alignment. companies’ growth strategies. geographies and • Benefits harmonisation. ORGANISATION organisations. • Mergers and acquisitions. RESTRUCTURE • Productivity and effectiveness • Consolidation of sales and of sales force. marketing.

• Increasing focus on driving • Need to develop talent • Compensation strategies that growth through development with new skillset and will attract and retain talent. of new/profitable products to entrepreneurial mindset. COMPENSATION minimise generics’ impact. • New approach towards • Questions over compensation rewards is required. levels in hot areas such as oncology and biotech.

MAKE TOMORROW, TODAY INTERNATIONAL ASSIGNMENT DRIVERS AND BARRIERS COMPANIES’ TOPMOST MOBILITY PROGRAMME CONCERNS, ACCORDING TO IMPORTANCE TO MANAGEMENT

Pharma/Chemical/Health Care Pharma/Chemical/Health Care Europe North America Finding suitable candidates Rank 1 Rank 1 for assignments

Current conditions are too costly Rank 2 Rank 2

Inability to use gained experience Rank 3 Rank 4 upon repatriation Performance level of employees Rank 4 Rank 3 on assignment Current conditions may not be Rank 5 Rank 5 attractive enough Current policies do not allow Rank 6 Rank 6 for flexibility Current policies do not reflect business needs (e.g. not enough Rank 7 Rank 7 policy segmentation)

Most important Least important

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 FINDING SUITABLE TALENT WHERE DOES THE INDUSTRY SEE AN INCREASE BY ASSIGNMENT PATTERN?

69% 61% 57% 57% 52% 50% 46% 40% 35% 32% 32% 29%

Technical-related Key strategic Talent development Younger assignees Technical-related Number of short-term assignments assignments long-term assignments to assignments assignments specific (e.g. remote) (experts) (experts) locations Pharma/Chemical/Health Care Europe Pharma/Chemical/Health Care North America

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 FINDING SUITABLE TALENT INDUSTRY DEMOGRAPHICS

AVERAGE AVERAGE PERCENTAGE OF PERCENTAGE TALENT AGES 35 44%OF TALENT 69% TO 55 FOR LTAs* <35 YEARS OLD FOR STAs* Companies reporting increase in assignee number patterns 70%

55% 50% 43% AVERAGE PERCENTAGE 34% 35% OF FEMALE ASSIGNEES* 18% From HQ to subsidiaries From subsidiaries to HQ From subsidiaries to subsidiaries Note: figures reported for Pharma/Chemical/Health Care Europe Pharma/Chemical/Health Care North America Pharma/Chemical/Health Care Europe COPYRIGHT MERCER 2015 COST MANAGEMENT AND TRACKING DO YOU TRACK ACTUAL COSTS AGAINST BUDGETED COSTS?

90% Pharma/Chemical 80% 77% /Health Care

s Europe t n

e 70% d

n Pharma/Chemical o 60% 56% p /Health Care s

e North America r

f 50% 44% o

% 40%

30% 23% 20%

10%

0% Yes No

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 LEVERAGING ASSIGNMENT EXPERIENCE DO YOU HAVE A MENTORING PROGRAMME FOR YOUR ASSIGNEES?

100% 91% Pharma/Chemical/ 90% Health Care 78% Europe 80% 70% Pharma/Chemical/ s t Health Care North n e 60% America d n o

p 50% s e r 40% f o

% 30% 22% 20% 9% 10% 0% Yes No

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 LEVERAGING ASSIGNMENT EXPERIENCE UPON REPATRIATION, DO YOU SURVEY ASSIGNEES ON THEIR SATISFACTION WITH THE ASSIGNMENT? s t

n 90%

e Pharma/Chemical/

d 77%

n 80% Health Care o

p Europe

s 70% e

r 59%

f 60% o Pharma/Chemical/

% 50% Health Care North America 40% 36% 30%

20% 12% 9% 9% 10% 6% 0% 0% Yes, general Yes, general Yes, individual Not conducted satisfaction survey satisfaction survey service provider conducted internally conducted by third satisfaction survey party

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 LEVERAGING ASSIGNMENT EXPERIENCE DO YOU SOLICIT FORMAL FEEDBACK ON THE ASSIGNMENT EXPERIENCE FROM BUSINESS UNIT MANAGERS?

100% 91% Pharma/Chemical/ 90% Health Care

s Europe t

n 80% e 70% d Pharma/Chemical/ n 70% o Health Care North p s 60% e America r f

o 50% % 40% 30% 30% 20% 9% 10% 0% Yes No

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 MOBILITY OBSTACLES DO YOU HAVE ASSIGNEES IN HIGH-RISK LOCATIONS?

80% Pharma/Chemical/ 70% 67% Health Care s

t Europe n

e 60% 57% d

n Pharma/Chemical/ o

p 50% Health Care North s 44% e

r America f

o 40% 33% % 30%

20%

10%

0% Yes No

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 DATA-BASED COMPARISONS PHARMA/CHEMICAL/HEALTHCARE VS. GENERAL INDUSTRY COMPANIES

MAKE TOMORROW, TODAY INTERNATIONAL ASSIGNMENT PROGRAMME ADMINISTRATION CENTRALISATION OF ASSIGNMENTS

48% 50%

45% 48%

GENERAL INDUSTRY PHARMA/CHEMICAL/HEALTH CARE

Centralised Partly centralised Fully decentralised

CENTRALISED PARTLY CENTRALISED FULLY DECENTRALISED Totally managed by the Admin responsibilities split Managed completely by home and global mobility admin between global mobility admin host offices without involving global team within a corporate team and the regional/local mobility admin team centre offices, business units

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 INTERNATIONAL ASSIGNMENT PROGRAMME ADMINISTRATION SERVICE DELIVERY MODEL

General Industry 28.5 64.6 5.9

Pharma/Chemical/Health Care 17.4 67.4 15.2

In house Partially outsourced/co-sourced Fully outsourced

Fully outsourced: Strategic Partially outsourced/ planning performed by co-sourced: Certain functions In house: Mobility services corporate representatives, performed by corporate provided by corporate with majority of transactional representatives, with others representatives mobility functions performed performed by a single service by a single service provider provider or multiple providers or multiple providers

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 ALTERNATIVE INTERNATIONAL ASSIGNMENTS ON THE RISE

75%

62% 63% 60% 56% 54% 53% 50%

40% 41%

25% 23%

Short-term Local-plus Intra-regional Development Commuters Global nomads assignments assignments assignments assignments Pharma/Health Care General Industry

Source: Worldwide Survey of International Assignment Policies and Practices COPYRIGHT MERCER 2015 MANAGEMENT CHALLENGES WHAT ARE THE MAIN CHALLENGES IN MANAGING DIFFERENT ASSIGNMENT TYPES?

ASSIGNMENT GENERAL PHARMA/ RESPONSE TYPE INDUSTRY HEALTH CARE Developmental/ 51% 25% • Managing exceptions. training 46% 50% • Cost containment. 47% 39% • Controlling assignment length. Short-term 36% 39% • Cost containment. 41% 14% • Managing exceptions. Intra-regional 37% 28% • Tax compliance. 49% 75% • Managing retirement. Global nomad 40% 75% • Managing tax. 43% 56% • Inequity between countries (some Local-plus more attractive than others). 42% 60% • Benefits issues.

Source: Mercer Alternative International Assignments Policies and Practices Survey COPYRIGHT MERCER 2015 DEVELOPMENTAL ASSIGNMENTS MAIN REASONS FOR USE 47% of pharma/health care companies have developmental assignments

88% To develop managers’ careers (73%)

75% To develop non-managers’ careers (62%)

50% To complete specific projects (67%)

38% They are cheaper than normal expatriate packages (14%)

25% To fulfil temporary skill shortages at the host location (59%)

25% To transfer skills (69%)

Figures in parenthesis are for general industry.

Source: Mercer Alternative International Assignments Policies and Practices Survey COPYRIGHT MERCER 2015 DEVELOPMENTAL ASSIGNMENTS WHICH ELEMENTS ARE THE SAME/REDUCED/ ELIMINATED COMPARED TO A TYPICAL LTA/EXPAT PACKAGE?

14% 14% 14% 57% 29% 57% 57% 29% 57% 57% 71% 43% 57% 29% 86% 14% 57% 57% 14% 14% 43% 43% 29% 29% 29% 14% 14% 14% 14%

Same Reduced Eliminated

Source: Mercer Alternative International Assignments Policies and Practices Survey COPYRIGHT MERCER 2015 CASE STUDY F. HOFFMANN-LA ROCHE

MAKE TOMORROW, TODAY ABOUT ROCHE BASIC FACTS AT GLANCE

àRoche in 60 sec

• Founded 1896 in Basel, Switzerland. Founding families still hold majority stake. • Commitment to responsibility and culture values. • Employing over 88,500 people worldwide. • Our products are sold in more than 150 countries, on all continents. • Group Sales 2014: CHF 47.5 billion. • M&A: InterMune 8.9 billion, Santaris 450 million, Seragon 1,725 million. • Dow Jones Sustainability Index — for the sixth consecutive year.

Oncology Neuroscience

Diagnostics

Ophthalmology Infectious diseases Rare diseases

SSF GM TEAM SSC Budapest TEAM Supports all outbound CHRIS Set-up/ assignees from North Global Maintenance America, Latin America

Basel GM TEAM Supports all outbound assignees from Europe, Middle East, Africa, Australia, Asia

Direct Roche Presence Distributors COPYRIGHT MERCER 2015 OUTLINE OF ROCHE’S MOBILITY STRATEGY

• To get the right people to the right locations — cost effectively and compliantly.

• The function has three key areas of focus and seeks to be:

• Customer-oriented. • Strategically minded. • Compliance-focused.

• 2009/10 — International Assignment (IA) policies review: focus on flexibility for assignee. • 2011 — IA processes optimisation: upgrade enterprise tool. • 2012/13 — Change team structure, eWorkflow: electronic IA approval process. • 2013 — HR user experience: customer survey, eLearning for Global/Local HRBPs, improving IA internal documents and processes. – Employee experience: satisfaction survey, white board animations. • 2013/14 — IA policy review: Diversity & Inclusion, provision, text revision. – Assignee user experience: International Assignee Roadmap.

• Long-term Assignment Policy (including Localisation Policy). – Assignment duration: 1–5 years. • Short-term Assignment Policy (including Localisation Policy). – Assignment duration: 3–12 months. • Special Programme Assignment Policy. – Assignment duration: three months up to two years. • Secondment Policy. – Supporting humanitarian contribution to health. • Governance of Foreign Local Hires Policy.

“Home-based” concept in which home country contractual conditions remain in place, such as (wherever possible): • Remuneration structure. • Benefits. • Taxation (10% tax relief). – In general, no equalisation for LTIAs. • Whenever possible, flexible salary split.

Depending on the type of assignment, and/or if accompanied or unaccompanied, the following additional general benefits in kind apply, and are leading market practice:

• Immigration support. • 10% tax relief. • Housing. • Tax briefing and tax return preparation services (including for working spouse). • Child education (pre-school through • Transportation. secondary).

Depending on the type of assignment, and/or if accompanied or unaccompanied, the following additional general benefits in kind apply, and are leading market practice:

• Relocation services. • Spouse/partner allowance or support. • Health insurance coverage. • Child care (also during pre-IA trip). • Security briefing. • Language, cultural training. • Club membership.

Depending on the type of assignment, and/or if accompanied or unaccompanied, the following additional general benefits in cash may apply, and are leading market practice:

Cost-of-Living Allowance (COLA)

Quality-of-Living Allowance (QUOLA)

Home Leave Allowance

Market Allowance (Immigration driven)

Separation Allowance

Bank Transfer Fees

• Does your company have specific policies which support mobility for the millennial generation?

• As an organisation, do you still primarily rely on the balance sheet to move around your talent?

• Have you introduced more cost-effective solutions to support the mobility needs of certain parts of the business? Equity issues?

• Continue implementation of enterprise tool. • Increase assignee experience consistency. • Global cost capture and payroll reporting. • Diversity & Inclusion: focus on inter- and intra-emerging markets. • Budget to actuals/accruals/variance analysis. • Assignee retention analysis — What proportion of assignees do we lose after repatriation and localisation? • Introduction of a possible commuter policy. • Introduction of tiered level of assignment policies — augmentation of the balance sheet.