Family businesses

Roche scion André Hoffman on benefits of family ownership

The great-grandson of drugmaker’s founder discusses corporate governance and M&A

‘People have come to recognise the benefits of stable ownership’: André Hoffmann by Lake Geneva

Andrew Ward SEPTEMBER 21, 2015

André Hoffmann runs his affairs from a long, wood-floored office on the upper storey of a grand
villa overlooking Lake Geneva in Morges, Switzerland. The snow-capped summit of Mont Blanc
glistens in the distance, while the rigging of sailing boats clanks rhythmically in the nearby
marina.

It is just the kind of setting that would be expected of the scion of one of Switzerland’s great
business dynasties.

Mr Hoffmann, vice-chairman of Roche, the pharmaceuticals group his great-grandfather

founded, knows this picture of inherited wealth and power rankles with some investors, not to
mention corporate governance experts.

“I was born into those shares and therefore in some circles I’m considered not to be an
appropriate board member,” he says, in a rare interview over lunch of local cheese, ham and
salad.

After years spent studiously avoiding the spotlight, Mr Hoffmann wants to answer these critics
at a time when family control of companies has been facing fresh scrutiny. Boardroom tensions
at Volkswagen in April led to the resignation of Ferdinand Piëch as chairman of the company his
grandfather helped create. Meanwhile, Samsung, the South Korean conglomerate, has been at
war with US activist investors over efforts to shore up family control.
Such controversies are less likely at Roche, where the founding Hoffmann-Oeri family installed
professional managers at an early stage and have been relatively hands-off guardians in the
decades since. Yet, with half the shareholder voting rights to their name, the family maintains a
firm grip.

“When I was doing my MBA at Insead [in 1990] the prevailing view was that family owners
should get out of the way,” he says. “But this has changed as people have come to recognise the
benefits of stable ownership.”

Viewed over the long term, shareholders have been given little reason to question the
stewardship of Mr Hoffmann and his relatives. Roche has been one of the world’s best-
performing pharma companies in the past decade as it seized leadership of the industry’s most
valuable category: cancer drugs.

But sentiment has recently turned more cautious as investors fret about the company’s ability to
sustain its dominance of oncology when blockbusters such as Avastin and Herceptin lose patent
protection in years ahead. Shares in Roche are up almost 90 per cent in the past five years but
down 3 per cent this year, while the S&P pharmaceuticals index is up 7 per cent.

Mr Hoffmann says he is confident of the company’s

The beauty of the structure
is that we call the shots in
the long run by controlling
the AGM. But we can’t
ignore short-term investor
sentiment because it
affects our cost of capital
“There have not been many really large megadeals that have added value,” he says. “I’m not sure
that is the best solution for the industry.”
ability to renew its drugs portfolio from what he
describes as the strongest research and
development pipeline in the industry. But he adds:
“We are not complacent.”
Many drug companies have been seeking shortcuts
to growth in a record round of mergers and
acquisitions during the past year. Roche has been
on the peripheries of the action with deals such as
its $8.3bn takeover of InterMune of the US. Mr
Hoffmann is wary of more transformational M&A.

One potential megadeal touted in the past was a tie-up between Roche and its local rival
Novartis. The companies — Europe’s two largest pharma groups by revenues — are 3km apart
on opposite banks of the river Rhine in Basel. Novartis owns 33 per cent of the voting shares in
Roche as a result of an abortive push by the former to engineer a merger 15 years ago. Mr
Hoffmann does not expect the idea to be revived.

“Is Basel big enough for two major pharmaceuticals companies? I believe yes. The question will
come back time and time again but, at the moment, the family is absolutely not interested in
entering into any strategic collaboration [with Novartis].” He thinks Novartis may sell its stake
eventually as the opportunity cost of tying up so much capital “burns a hole in their pocket”. But
it is “a non-issue” for Roche. “We can go on like this for a long time.”

Aged 57, Mr Hoffmann succeeded his father, Luc, on the Roche board in 1996 and serves
alongside his cousin Andreas Oeri. He combines the job with chairmanship of the family’s asset
management company, Massellaz, and non-profit roles including the vice-presidency of the
World Wide Fund for Nature, which his father co-founded.

Growing up in the wetlands of France’s Camargue region, where the Rhône meets the
Mediterranean, Mr Hoffmann inherited his father’s passion for conservation. Business, on the
other hand, was something he says he had to learn through stints as a banker in London and
project manager at Nestlé.

Some critics mutter about a lack of pharmaceuticals experience on the Roche board, particularly
since Franz Humer, a company veteran, stepped down as chairman last year to be replaced by
Christoph Franz, former chief executive of Lufthansa, the German airline.

Mr Hoffmann says he has built plenty of industry expertise over the past two decades and
bristles at suggestions he is a passive figurehead. “I am an active participant,” he insists.

Family control of Roche is not quite as solid as it once was after Mr Hoffmann’s cousin, Maja
Oeri, withdrew from the relatives’ collective voting pool in 2011. This reduced the pool’s holding
from 50 per cent to 45 per cent, but Ms Oeri has said she does not expect to vote against the
family even if she is no longer formally bound to the group. “It’s a little less robust than it was
five years ago but it still works,” says Mr Hoffmann.

Dynastic power runs through both sides of Mr Hoffmann’s family. His mother was an Austrian
countess descended from Russian nobility. This heritage is reflected in the large painting of
Kirill Razumovsky, an 18th-century Ukrainian statesman, which hangs over his desk. Just as
Razumovsky’s title of Grand Hetman was abolished by Catherine the Great, Mr Hoffmann says
the family would act if things went wrong at Roche.

“The beauty of the structure is that we call the shots in the long run by controlling the AGM. But
we can’t ignore short-term investor sentiment because it affects our cost of capital.” Mr
Hoffmann reports an excellent relationship with Severin Schwan, Roche’s chief executive. But
he adds: “If there was a manager who wasn’t good enough, they would go quickly.”

Start-ups: The patient capital approach

As his family’s senior representative on the board of Roche, André Hoffmann
is responsible for safeguarding the legacy of his great-grandfather, who co-
founded the 119-year-old company. But could he also help build a new force
in the healthcare industry?
 The 57-year-old Swiss was an early investor in the US start-up Inovalon,
which manages and analyses healthcare data. It raised $600m in a Nasdaq
initial public offering in February and currently has a valuation of $3.2bn.
Mr Hoffmann owns 14 per cent of the stock and sits on the board. The
Maryland-based company aims to help care providers and insurers make
sense of the proliferating volumes of medical data being generated as health
systems are digitised.
Mr Hoffmann made his investment after being introduced to its founder,
Keith Dunleavy, a medical doctor and computer scientist, by a mutual
acquaintance 10 years ago. He says he has tried to bring the same long-term
view to Inovalon as his family fosters
at Roche.
Mr Dunleavy says Mr Hoffmann has been a valuable mentor. “He is very
good at distilling enormous amounts of information and helping guide
towards a decision.” There are no connections with Roche but drugmakers
could benefit if Inovalon can help make health systems more efficient —
freeing resources to spend on medicines. “Healthcare is moving from a world
of volume to value and quality,” says Mr Dunleavy. “In order to make that
shift, you need good data.”

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