Sanofi-Aventis Q4 2009 Earnings Call Transcript

| About: Sanofi (SNY)

Sanofi-Aventis (SNY)

Q4 2009 Earnings Call Transcript

February 10, 2010 8:00 am ET


Sébastien Martel – VP, IR

Christopher Viehbacher – CEO

Hanspeter Spek – President, Global Operations

Wayne Pisano – SVP, Vaccines

Jérôme Contamine – EVP and CFO

Marc Cluzel – EVP, Global R&D

Laurence Debroux – SVP and Chief Strategy Officer


Sébastien Berthon – Exane BNP Paribas

Graham Parry – Bank of America/Merrill Lynch

Jo Walton – Credit Suisse

Eric Le Berrigaud – Raymond James

Philippe Lanone – Natixis Securities

Alexandra Hauber – J.P. Morgan

Norris Shirhan [ph] – ICAP

Jean Jacques Le Fur – Oddo Securities

Sébastien Martel

Okay. There we go. Hello, everyone, and welcome to the Sanofi-Aventis full year 2009 annual results. It's a pleasure to have you here. As always, I'd like to remind you that today's conference is actually also available through live webcast, and the slides that we'll show today are available on our Web site.

I must remind you that today's conference would contain forward-looking statements. And these statements will involve known and unknown risks and uncertainties and other factors that could cause actual results to differ materially. We can find details on – about those factors in our Form 20-F on file with the SEC as well as in our Document de Référence.

Today with us is our management team with our CEO, Christopher Viehbacher; Hanspeter Spek, President of Global Operations; Wayne Pisano, Senior Vice President of Vaccines; and, Jérôme Contamine, our Executive VP and CFO.

The presentation will be followed by a Q&A session. And at this stage, I will actually hand the conference over to Chris.

Christopher Viehbacher

Thank you, Sébastien. Good afternoon, everybody, welcome to Paris. In some ways, it seems a lot long ago than one year that I think I stood up and presented the first set of results for Sanofi. And it's certainly a pleasure to think back now after, certainly, my first year in office. And I think a lot's changed. I think a lot's changed in the industry, and a lot has changed very positively within the company.

So what's changed in the industry? I think one of the things that's getting interesting is that the famous cliff is now getting on to the spreadsheets. This is no longer something that they'll stay in the future. We're now into '11, '12, '13, and beyond. And I think the entire industry is starting to recognize that really share price is not being driven by our quarterly results anymore, but more of the long term.

I was talking to one of the bigger biotechs out of the J.P. Morgan conference. And it's incredible, we don't have any patent expiries before 2017, but we've already got people asking us how we're going to replace our patent cliff in 2017, and this element where the cliff gets anticipated. And what people are really looking for is this sustainable growth. And so, it's great and we need to have regular quarterly earnings. But I think the whole industry is now recognizing we need to address this issue beyond the cliff.

I think we are innovative the last year. We put out a floor guidance for 2013, which was really meant to have people focus on the fundamentals of Sanofi-Aventis and to really dispel some of the myths. Like for instance, if we can commit to the same level of profit as we did in sales in 2008, now it was also the commitment that we didn't believe that margins would erode on a net basis as we move into more diversified businesses. And I think we've seen some other companies now put some of those numbers out for the 20 – post patent cliff period.

I think we're all looking much more seriously at research and development. When I came into the company, my view of where we were as an industry is that up to now, we'd really only been doing tweaking, not real fundamental change. I go back to some of the research I did before coming into the company, which indicated that there were two things related to innovation. One is that there has to be some element of disruptive thinking, and two is that big companies not yet in our industry, but in other industries, are not very good in innovation, partly because we do everything to avoid anything disruptive, including disruptive thinking.

So I think there's a real rethinking of the model, how much we're investing in it. A lot is going to be dependent on how you execute on that. I think a lot of is people related, if not structurally related. And people with come up with different solutions. But I think as we get close to the cliff, as we see that some of the tweaking hasn't worked, I've certainly some of our own colleagues, and we are certainly doing the same.

It clearly is a global market. This was a business where the investor base really focused on the US. We can buy those weekly scripts, sometimes some of you got really keen in buying the daily scripts, and we got analogs everywhere. It's a business that was very easy to value. And now, actually, we're seeing markets in China, in India, in Latin America are real true growth drivers. Although I would say, when I talk to CEOs in other businesses, everybody's excited about emerging markets, whether you're in cement, whether you're in transportation, whether it be in electronics. And I sometimes think that actually in the healthcare sector, we still haven't really appreciated what kind of economic revolution is really going on in some of those markets.

I remember five years ago, we had huge issues of image. We can go back to the days when we sued Nelson Mandela. But I mean, we have issues on some of the marketing programs here. And there were litigations and product withdrawals. And if there's one thing that at least has come out of the – positively out of healthcare reform in the US, and your guess is as good as mine if anything else will come out of it, but I think we were not the bad guys. When we worked our way through, leading up to healthcare reform, we at the industry were very conscious that we did not want to be perceived as being the cause of the problems. And I think as we learned through healthcare before. Even though we have Democrats in power, in the White House and Congress, who are not the traditional allies of pharmaceutical industries, we weren't the bad guys. And I think it goes some way to demonstrating what this industry has done. It's starting to repair its image. And as I like to say, I thank the tanks [ph] for their contribution to us having a better image.

And we also have the economic crisis. That economic crisis – it's funny when you sit down with financial journalists who spend about 90% of their time covering the economic crisis. If they want, it's great to sit down and talk to someone in pharmaceuticals because you're not talking about the crisis for once. And it's true that as an industry we haven't yet really been hit by the crisis. I mean as I look at social security deficits in Europe, I wouldn't get too excited for very long. This will have a boomerang effect on us at some point.

But there have been a few hidden current issues. With the economic crisis, the IPO market really definitively dried out, for example. And with that, it became obvious that the only way for certain investors to really exit from some biotechnology investments, for example, was through Big Pharma. And so you're seeing some changes in the valuations and the ability to access assets in the biotech's face. And I remember getting asked by a number of our investors at the earlier part of this year about how we saw 2010. And I said, "Well one of the factors that's for me interesting is, does the IPO window open up again?" And I wasn't terribly optimistic at the time. There were others who were. Everybody I talked to today believes that that's not going to happen any time soon, which actually opens up opportunities in our industry.

So what happened with Sanofi-Aventis over the past year? I think I stood up in front of most of you last year and said, "If you thought about Sanofi-Aventis, you thought about Plavix, and you thought about Acomplia." One has just been withdrawn, and the other was about to go away. And there wasn't an awful lot of real understanding about the rest of the company. And the phrase that I use very often in 2009 was, "It's not the 20% of the business that goes away that's really interesting about Sanofi. It's the 80% that stays."

And on the basis of those very strong fundamentals, we identified a strategy really to go out there in long term and sustainable growth, to move away from the boom-bust cycle of small molecule patents based in Europe and the US. Under that, we grew the five growth platforms. But we're not only just promising growth, but because of the inherent nature of these businesses, huge capital investments, deep competencies, deep trust and confidence in brands that you build natural barriers to entry that go beyond patents. And those are the times of businesses that we wanted to be a part of in order to stabilize a little bit the inherently risky and volatile nature of the pharmaceutical business.

And I think I was also extremely transparent this time last year, I stood up and I've said, "We did not have enough new products in our portfolio to replace those things that we're going to lose to generics." This was a revelation to none of you. But it was an important admission so that we could actually get on. We're taking a much more radical view at what we want to do with research and development. And it became a strong rationale for entering into an external growth strategy. Because if we don't have enough, then we need to go and do deals. I look on the list here, 33 partnerships and acquisitions, EUR6.3 billion in actual cash flow out the door, a little more if you include Chattem, which we did before, but for which the cash flow will flow later.

On R&D, we went through the portfolio and governance, and I'll cover that in a minute. We developed a new R&D organization, which we're actually now able to rollout just this week as we concluded, particularly in France, some of the social consultation. We identified a program of cost reduction not just to reduce costs, but because we are shifting resources, reallocating resources, getting into different businesses, getting into different businesses with different cost structures. We had to become leaner, more nimble, and certainly more empowered when we look geographically. And so we identified that cost reduction program. And we have some new blood in our leadership, and I'll talk about that in a minute.

It's great to talk about strategy. And it's great to talk about the long term. Sometimes you hear people talk about the long term just because the short term is not so good. And that's a trap. Our first message is, "Yes, we're focused on building a long term business, but we haven't forgotten our obligations short term." And I think you see where the 13.1% increase in earnings per share are causing the change rates that this is a very strong performance. We got a nice little gift from the US government at the end of the year when an agreement was signed between France and United States on taxation, which added about 1.5 points of growth. So the underlying growth rate is pretty much in line with the guidance that we had given at the end of Q3, sales at 5.3%, also very credible performance.

This is a slide I think is something we're going to use on a constant basis. For now, the orange bucket on the right side of the slide contains only Plavix in Europe and Eloxatin. Later in the year, we'll be able to add tax up there. We'll certainly see the Plavix effect for a full year. We'll see the Eloxatin effect for a full year. Do we see something for Ambien CR? No. Do we see anything for Lovenox? No. What is true is that we know that between now and 2012, the inevitable is going to happen. We will lose sales to generics.

But I don't spend my days looking at the market share for Plavix. I look at Plavix as an area under the curve cash pile that we have to reinvest in the business in new sources of growth. And when I look at the left side, there you have those five growth platforms that we defined last year. And look at the growth rates, 19%, 19.4%, 19.2%, 26.8%, and these are EUR100 million businesses. You got EUR7.4 billion on those business in emerging markets growing at 19%. I mean EUR7.4 billion growing at 19% is pretty sexy. And we've got some new products being launched.

Today, those five growth platforms represent over 50% of the sales. And that green bucket is really what the future Sanofi-Aventis looks like. Because as we lose those generic products, that business is the one that carries through. Is it always going to go at 19%? Maybe not because as the base grows bigger, it will be harder to do. But a number of those businesses we have set ourselves targets for doubling on, emerging markets, diabetes and vaccines, for example. Now, of course not all of that growth is organic growth, and I think we've been very good at doing the bolt-on acquisitions, and Jérôme will take you through what's organic and what's been acquired.

So let me just take some of those just to a few things. Emerging markets is something that Sanofi has a clear leadership advantage in, and yes, everywhere you're going to go and all these results announcements you're going to hear a lot about emerging markets. But we've been in those places a lot longer than some other types of business. In India for over 50 years, been in China since 1982, first foreign company that set up in China. And the interesting thing about that is you develop actually deep relationships with a government, that you have solid management, you've got training capacities to find yourselves selling and marketing people, you've got a range of products.

The fact that these companies said there's no such thing as a small product, no such thing as a small market when everybody else was trying to trim and eliminate their failed business. It's now proving to be a strength of the company because you need a range of affordable medicines as you see emerging – as you see a middle class emerge. Now, these are all of the emerging markets. We're just not suddenly brick in. We don't just pick the selection of the most rapidly growing markets. We put everything in there. This is everything that's not United States, Canada, Europe, Western Europe, and Japan.

What was interesting is only a third of those sales are actually the brick in, which shows you how widely spread the Sanofi business is. Yes, we're also in the Indonesias, and Africas, and Thailands ,and Vietnams, and Venezuelas, and Algerias. So it's a business that is also nicely diversified because you look at the different colors according to the different regions. We've got actually good balance across there. And of course you've got leading positions, number one in Eastern Europe and Latin America, and in Africa and Middle East; number three in Asia, very, very strong basis on which to build upon. And the other question of course is always, "Well how profitable is that?" Forty-two percent is still a pretty nice operating margin considering that I'm not going to invest 15% of those sales in R&D. We can keep developing those businesses without diluting our overall margins.

Lantus, Lantus was a clear issue for us this year. We had those articles published in the Eventologia [ph]. Fortunately, all the world leaders have opinions, all the regulatory agencies stood up and said that these studies were not of high quality and could not really sustain the conclusions that some were drawing for them. And I think you see that in the sense that that business has continued nicely. We decided to go the extra mile, we've worked with a – leading physicians and regulatory agencies to do the right studies, and we'll have results in 2011.

In the meantime, 285 million people worldwide are living with type 2 diabetes. We will talk to the Chinese Minister of Health and you'll hear their top three priorities, type 2 diabetes, oncology, and cardiovascular disease. India's got the biggest population of type 2 diabetes patients. This isn't just a Western disease today. This is expanding everywhere. We've got mega trends that have people moving from rural areas to cities. That's changing their lifestyle, but it's also changing their income levels. As people get more money, they not only spend more money on healthcare, they spend more money on food. And that also leads to risk factors in type 2 diabetes.

Clearly with Lantus, superb product, over EUR3 billion in turn over, we're going at 22% GLP-1 in the pipeline, not sure if it's going to be that competitive on its own, but I think it'll make a nice product in combination with Lantus. We've got a new insulin sensitizer that we brought in from Wellstat. And obviously, in creating a diabetes unit, what we're really trying to do is start with type 2 diabetes patient and see how we can help that person.

I love the vaccines business. It's the first thing I told Wayne Pisano when we first met. The good news is I love the vaccines business, bad news is I love the vaccines business, so you're going to get lots of love and attention. And the reason I like it is because in a world where healthcare costs are spiraling, my personal view is that we will not get those costs under control until we actually be more on prevention, and vaccinations is the sweet spot of that. Ask Bill Gates where he'd rather spend his next dollar out of his foundation, he'll tell you it's vaccines. In fact, in Davos you saw that he doubled his commitment to vaccines from $5 billion to $10 billion. And we're certainly going to be looking for our market share of that.

This fast-growing market has been increasing share of our business up to 12% of total sales now. And we decided to strategically strengthen that business last year with the acquisition of Shantha. That brings us a portfolio of new vaccines in development that are adapted to the emerging markets. We didn't have a rotavirus vaccine. If you don't have a rotavirus vaccine, you will never be big in emerging markets. We have now an ability to produce the polio vaccine at a very low cost. Bill Gates is putting $400 million into India to fight polio. And I'm sure you've heard me talk about the 25 million babies that are born in a country where there're 600 million cell phones, so I tell you that there's a huge potential in pediatric vaccines.

Consumer Health Care; consumer health care is an important business for two reasons. First reason is, it's inherent in its business. I mean we have a brand like No-Spa in Russia that's been around for 60 years. We had other brands in other countries that have been a long, long time. It's that faith and trust in a brand that protects the business. There's no patent on Doliprane. It is the number one selling paracetamol in France. It is our number one selling product by volume in France, assumed to be the number one selling product by value as well. So that's one reason.

The other reason is, if you ever look at what happens when you do surveys of employees in companies at different industries, one thing that is particular to the pharmaceutical industry is that we always scored low on any kind of customer orientation. I think being in a consumer business is extremely important to bringing back the customer focus, which has sadly been lacking in this business. Now we would start with the technology and then go find the customer. Now we need to start with patients. Now we were missing obviously a presence in the United States as they're obviously one of the key markets. We had an opportunity to acquire Chattem. Other people had tried to acquire Chattem, and they said, "No, thanks."

Our team came up with the idea, "Well, we have a Allegra to switch." Chattem does about EUR450 million of sales. Over-the-counter Zyrtec and over-the-counter Claritin today sell over EUR400 million each. Now if Allegra can get anywhere near that level, we can dramatically impact Chattem sales, plus, we're obviously going to look in that portfolio and see what we can launch in Latin America or in Canada. Another point down obviously it's not just in the US that we want to expand, but in (inaudible), we'll come back to it, and we've done this in China as well.

We are also not mind – we are also still mindful of our core mission, which is to bring new hope and new medicines to patients. And we made a very good start on that, launched a product called Multaq for April circulation in the United States. A big milestone for us because after whole Acomplia into the back hole, it was a sense of could this company get a major product approved by the FDA. And we managed to get that hurdle out of the way. We can show that we can. And we're up to an extremely strong start from the launch, getting very good reimbursement pick up, tracking well to our expectations, had a very strong launch in Germany and we'll be rolling that out in the rest of Europe and throughout the year.

We bought two cancer products to the FDA who provided us with approval to file a fast track submission. These are basically rolling submissions. Not too many companies can say that they got two fast track approvals – process approvals in one month. And one is obviously our own home grown cabazitaxel for which we've had some extremely positive results in second line prostate cancer. The other is obviously the PARP inihibitor first in class, which is progressing well, Phase III, tracking ahead of progress in terms of recruitment of Phase III.

Pentacel; Pentacel vaccine, which took over 70% of the market. Panenza, which was our non-adjuvanted H1N1 vaccine. And of course, we extended our Lantus franchise with very successful and award-winning devices, notably SoloSTAR and ClickSTAR.

So these are – this is where we have been with our growth platforms. Really, to drive those things, I set myself three objectives. Where was I going to stand 90% of my personal time? You come into a new company, there're all kinds of things you can look at. You can get distracted in a lot of things. I wanted to spend personal time in three areas, increasing innovation and research and development, external growth because we don't have enough new products short term to sell – to create growth, and third was obviously transforming the company. Because it's one thing to say you want to be an OTC. It's one thing to say you want to be in emerging markets. But the resource and the drive in the company is still Plavix, Taxotere, and Ambien. So you got to ship 110,000-person organization in a different direction.

So we look at R&D, we've had have four products approved, 15 new projects in clinical development, 30 projects terminated. So as you saw, our research and development expenses declined in the fourth quarter by about 7%. Nothing to do with our commitment to R&D, it's just simply that we weeded out projects and we had savings. We have actually reinvested significant amounts of money in the projects that we have brought in. We have really boosted the R&D budget for vaccines. But despite that, we were able to recover money. Now this is mostly variable costs that were associated with the projects that we terminated. Well the other thing that I remember saying last year was nobody thinks Sanofi-Aventis is having any interest in biologicals. Sixty percent of our development portfolio today are biologics and vaccines.

The partnerships was another area where there's been absolutely massive cultural change. If you go outside into Paris, go ask anyone, go ask somebody at a university in Paris, go ask a French biotech company, go ask an American biotech company. What kind of relationship do they have with Sanofi? And they'll tell you, "Well actually, not that much." I mean, we are a company like a lot of pharmaceutical companies that believe, "Hey, we have everything we need. Thank you very much. And we're working in an internal basis."

Credit to Mark and his team, in the midst of actually redesigning an organization, we've also been able to sign a significant number of partnerships and in-licensing deals where clearly R&D had to be there as champions. To me, the biggest single change that I think I've seen in the company is this rapid opening up, being willing to sign on partnerships. It's easy to sign deals. But if you go talk to a CEO of a biotech anywhere today, they're looking at Sanofi with completely different eyes. The way we did not integrate BiPar, the way we did not integrate Fovea is a model actually of how Big Pharma will need to work in collaboration, not in domination, with smaller, more creative companies. And of course, the new R&D organization as I say is already being rolled out.

So for 2010, where 2009 was a cleaning up process, getting some culture change going, signing some deals, 2010, certainly where I'm spending my time and where Mark is spending his time is now building that pipeline. And our objective and our ambition is by 2013, not necessarily have all of those things launched because use that won't be realistic. But I do think that we can move an awful lot more assets into Phase III and have a reasonably robust Phase III portfolio by time we get to 2013.

So we move things in progress, we've got new regulatory submissions. Wayne will talk about some of those in the vaccines. And of course, we have had a number of approvals this year. And what's also heartening to see is this is not a company that was previously known for life cycle management. Life cycle management has an important role. It's not a substitute for innovation, but you can't ignore it. And I think things like flu high dose in the US, a great example of that, I think the – if we look at the Plavix for atrial fibrillation, that's another example.

So when you look at it, we've actually been busy. I mean we've got not only the existing partnership, but an enhanced partnership with Regeneron, which is our platform for creating monoclonal antibodies. We've got cancer deals going on with the Exelixis and Merrimacks of this world, and we see other molecules. We have partnerships with some of the most prestigious academic institutions in the world. CalTech apparently views us now as their preferred partner. We're in China. We have partnerships here in France. We talked about BiPar and Fovea, which becomes our ophthalmology platform. And of course, vaccines have already led that. And we've already just signed our first deal in Sanofi Pasteur this year with the KaloBios deal.

Acquisitions, number one question I got all year 2009, "Are you going to do a big deal?" I said, "Never say never", but what we're really focused on are small to mid-sized acquisitions that fit with our growth platform. I think we have been boringly consistent with that message. We have developed acquisitions and partnerships in vaccines, consumer healthcare, generics, which really for me is an emerging market story, not real generic diversification. Of course, we have the other half of Merial, more or less propped in our lap when Merck decided to acquire Schering-Plough. And we're obviously now in end phases of discussions with Merck as to whether or not we take the next step and merge our animal health business with Merial with Merck's Schering-Plough's Intervet business. And I would expect a decision in the next few weeks on that.

So I'll finish in saying, we also have – none of these is possible without a highly engaged and motivated team. When you come in to an organization, especially if we come in as CEO, you know nobody. You do their first budget reviews. You don't know who's the sand bagger. And you don't know who's the hopeless optimist. And yet, you have to create massive change rapidly. What do you do with the leadership? You can fire everybody, bring in everybody new, and then they're all as blind as you are in terms of what's good and what's not in the organization. You don't do anything, you don't get any new blood and any new energy. I think we've got a good balance. We have nine members in the executive committee. Three have come from outside the company. Three we have promoted from within. And three bring that solid experience and expertise that we desperately need.

We are as international as our company, 90% of our sales are outside of France. We have a global team. We got more passports than numbers of the executive committee. So this is a team that did it. And actually as I sat back over Christmas and thought about the year, I was amazed and impressed at how well this company responded to the challenge to transform. Changing 110,000-person organization is like steering a big tanker ship. But it is turning and we are making progress. I'm not about to declare victory yet, but I think we've made excellent progress.

With that, I'll ask Hanspeter to take us through to some of the details on some of our operations, and have him followed by Wayne Pisano.

Hanspeter Spek

Thank you, Chris. Good afternoon. As Chris said, I will try to guide through our performance slides in 2009. Evidently, let me start with the sales. You see the overall sales peak of EUR29.3 billion and an overall growth of 5.3%. You've heard that these – that there has been a growth in all parts of the world, 3% in Europe, 2.8% in the United States, 12% in the rest of the world. It also states that the fourth quarter brought an acceleration of growth with the exception of Europe, due to the increasing general application of Plavix. But our sales in the United States accelerated to nearly 10% growth, and in the rest of the world, sales accelerated to 18%. This is partly, but not only explained by what you see then in the fourth quarter for vaccine sales. A 65% of growth, which has largely considered it to increase of sales in the United States, but to a much lesser extent, that would be acceleration of growth in the rest of the world.

Overall, I think it's fair to say that we have well resisted the generic competition. I dare to remind you that this is the kind of competition, which we had originally not planned for 2009. We were not supposed to lose the protection of Plavix in Europe, and we continue to fight against this on various levels. And we were not expecting to lose by a court decision the protection of Eloxatin in the United States. It's the point of time when it happened and also against this we continue to litigate.

Now how has this been construed overall by a process of strong growth rates and by established Lovenox and Lantus? Both products have now overpass EUR3 billion of annual sales. While this may be to some extent for Lantus being nearly normal, given the underlying disease and its increase as outlined by Chris, Lovenox is a – from my point of view, really remarkable for a product, which is about 20 years on the market to continue to grow by nearly 9%. Taxotere continues to do also very well, one of the truly leading oncology products. Aid indications now as oncology tract would have more of indications and Lovenox, excuse me, Taxotere selling's easy for the first time, more than EUR2 billion sales.

I have nothing to say – at the onset, vaccines, evidently Ranaps, we knew were going to be there, but let me make two comments on consumer healthcare and generics. In both fields, we have undertaken an important stretch. We have made acquisitions. We have made organizational changes. We have made also management changes. And you see very impressive growth rates, consumer healthcare on a level without Chattem achieving EUR1.4 billion sales has been growing 27%, and our generics, mainly through Zentiva, but also through Medley in Brazil and Latin America has been growing by nearly 200% from a small base, but meanwhile also achieving EUR1 billion of sales.

For the first time, you see a figure for Merial, which we started to incorporate by acquiring the outstanding 50%. You see a modest growth rate of 0.4%, which clearly indicates that Merial was struck by the economic crisis. I'll give you some – more insight on Merial in an instant, but I would like to indicate already here that Merial sales, according to the overall recovery of the economy, nicely, we accelerated them in the fourth quarter.

Talking about organization, Chris also has mentioned this already, we have decided to create two divisions, an Oncology Division and Diabetes Division, and the underlying motivation is quite evident. We have competitors who performed strong, and then we analyzed them. Why are they strong? It's simple to say because they focus on one disease. And to reference a competitor in the field of diabetes, of course, is Novo Nordisk. Now it's good to see that to get between these sales level of total sales in diabetes is getting smaller and smaller. You see then from the chart in 2006. There was a gap of 39%. And in 2009, we have closed this gap to 25%. And yes, it is truly, it is our ambition to become the leading company in diabetes. And I believe we are in a good way.

Overall, our sales achieved nearly EUR3.8 billion in diabetes, composed of approximately EUR3 billion growing by 22.5% for Lantus, but meanwhile also Apidra doing well with a growth rate of nearly 39% and sales of EUR137 million . Beyond, we have than EUR0.5 billion additional sales from other products. These are historical products of the company, but playing still a very important role especially in the developing markets.

We have undertaken important efforts in the field of device. We sell and we give away today our devices, which are entirely developed and produced in-house. So we control the total value chain and we control innovation. And it's fair to say and it's recognized from the external growth said our devices today have mark in leading positions because of the practicability for dissipation.

So we put all of this together, industrial development, commercial resources, R&D resources, and we have re-proofed it around our insulin production in Frankfurt, which is by far as the nearest – the largest production site for insulin in the world. So the focus, we build a company inside the company of Sanofi-Aventis, and we believe that we leap-frog towards our competition and we see that we are in a good way already in 2009 when we have started to do so.

Similarly, in oncology, we have undertaken the same endeavors. The headquarters will be bi-national. We will have a network here in France, and another one in Cambridge, in Massachusetts, United States. We went to Cambridge despite the fact that we have various installations in New Jersey and in Pennsylvania. But we believe that Cambridge is really the heart of oncology today. And we intend to benefit from this as an environment – as a neighborship.

As I mentioned before, Taxotere is the locomotive of this portfolio today. The sales of nearly EUR2.2 billion, this is solid growth of 6%. We are active in life cycle management. We have filed for another ninth indication, early-stage breast cancer, and that we have new forms, which will be launched as of now Europe and in the United States. And finally, they have also applied for pediatric extensions in terms of protection for this product.

The new oncology division, which we have created in 2009 has an extremely good start and a lot of it has been because we have three products which approached launch. One, the Eterna cabazitaxel, which comes out of our own research, supposedly this will be indicated in a prostate cancer where we have a huge franchise. Prostate cancer is a lead indication for Taxotere. And Taxotere is the mostly used (inaudible) toxic in these indications. So the Eterna will go into second line therapy after Taxotere. We have received fast track designation by the FDA. And we have a rolling submission, which will be finished by the end of the first quarter. So we are optimistic, confident to be able to launch this product by the end of 2010 or very early in 2011.

BSI-201 is a totally different story. It comes from an acquisition. It is one of the most fortunate acquisitions that this company ever has made. Perhaps it's even a reference in the industry because very shortly after the acquisition, the acquired company came up. It's a very, very positive Phase II result. And on those results, we have received the another fast track destination in triple negative breast cancer, which is a devastating disease. Today there's nearly no treatment at all, and we have been granted this fast track by the FDA. And as the relative trials are very, very well progressing and we are supposed to submit the final files and the final details by the end of 2010, so we are looking forward to a launch in 2011.

Last but not least, Aflibercept, all three – Phase III, twice are progressing exactly. This is in line with our planning, and we are supposed to conclude all those trials by the end of the first quarter, this are subsequent submissions and approximately three months after. Aflibercept goes to another major indication in cancer, which is colon cancer, which is a historical position we have still today, evidently with Eloxatin, and we are eager to continue with Aflibercept.

Some comments on Multaq. I have said earlier today that Multaq, of course, is a classical cardiovascular product. Its performance in terms of penetration is in line with those products. And you see that we are progressing quite well in the United States. We have achieved 90,000 scripts in approximately four months. We do better than the competitors. We have been launching in the same month as on Clizel [ph], and for us more importantly Praziquel [ph]. And what w see today in dollar rise, the new prescriptions is – that the performance of Multaq is approximately twice as strong as the performance of those two competitors and especially referring to Praziquel. We continue to follow up since the interest also from the angle of Plavix of course.

We aim to market in Germany in two months. And I can only say this is all prudent after two months. As I said, we are doing extremely well. We believe that we have very well prepared this market. Germany is a very interesting market historically, very sensitive for anti-arrhythmic tracts. Once again we have the same benchmark, and we do so far much better than the other product. But of course, I have to remain prudent because it's only two months. But nevertheless it is a very strong beginning we see in the second major market. The launch in France is imminent. And of course we will continue to launch over the year in all other European markets and also overseas.

A little bit more of detail for Plavix and Lovenox, I gave you the overall figures already before. Now on Plavix, I think it's impressive to say that the US sales are growing by nearly 13%. Once again, our product is off at this stage. Once again, to be underlined, the product is facing for the first time real competitions from Praziquel for the last 10 years. We hardly had any competitor except Aspirin of course. So the product that continues to do extremely well. We have filed for de-facto patent extension by pediatric extension. We are supposed to file in the third quarter for patent extension.

You see sales performance of Japan, EUR339 million. And I think its worth to put this a little bit in perspective is what we are losing in Europe. In very simple terms, we have compensated everything, but we loss in Europe to the unexpected appearance of generics by increased sales in Japan. So we have lost approximately EUR150 million. And you see, it's a growth rate of nearly 60%. We have fully compensated this in Japan. And that's even more remarkable because in Japan we don't share anything. This Bristol-Myers Squibb in Japan has been not part of the overall agreements, which means that the gains in Japan are entirely ours, whilst in very simple terms, the share of losses with our partner in Europe. So overall, at least in 2009, this was a very well-balanced performance due to an excellent performance in Japan there. Yes, I strongly believe that Plavix will become a blockbuster product on the market alone.

On Lovenox, I have commented on the really fabulous magnitude of the product. Nevertheless, let's keep in mind that this is what we are discussing permanently in the US is only – nevertheless, but only 60% of sales is EUR3 billion. The other 40% are the factors in generic or competitive situations since a year – since more than 10 years, we have eased the generics in some markets, or we have products, which are very similar. There is Pfizer on the market. There have been historically (inaudible) and Novartis on the market. Nevertheless, in those markets, Lovenox continues to grow at nearly 10%.

For the US, we have nothing new, we know as much as you. Nevertheless, we believe that this is a subject of public health, and it is in this respect that we continue to fight – that we continue to defend the positions that we are convinced it is necessary if the FDA gives access to generics, are they substitutable or non-substitutable, that it should be based on clinical evidence as the European authorities, EMEA, has decided within their guidelines. In this respect, we have informed the US Pharmacopeia, and have received positive feedback. We have to see what the final stand of the FDA will be in this respect.

Consumer healthcare, we have today in 2009 without and before the integration of Chattem sales of approximately EUR1.4 billion, and they have been extremely doing well with the close of nearly 27%. And this we have achieved more or less with household remedies. We have done some life-cycle management. We have started to structure our portfolio. We have optimized our portfolio. We have started to organize from a local level. And yes, we have also reinforced our management team. By the end of 2009, we have made some recruitments and have nominated an overall worldwide responsible for CS development and this is a direct responsibility for the European market.

Chattem has finished the 2009 well, very well. Those results are public. And we are working today in line with the overall opportunities and this is necessity because it is still not closed to integrate Chattem in our strategies. And the major part of the strategy of course is, as mentioned by Chris, the switch of Allegra, which without any doubt is an extremely strong brand not only in CS, but especially in the US. It's an extremely customer friendly – friend because it has the lowest rate of sedation. It has a very, very attractive package insert from a customer point of view. And we will file for switching in the first quarter of 2010 and are confident that we will switch the product early 2011. And the Chattem management is eager in doing so because it gives Chattem the opportunity to double its size over a number of years o come.

I promised to give you some insight into Merial. I'm experiencing Merial, it's a lot of pleasure. It's a real excitement, and not only for the decision which is imminent now because it's a business, which is closed to pharmaceuticals, and nevertheless it is very different to pharmaceuticals. And for me, the most impressive is the strong correlation with the business and the overall economic condition of the market. And then when you see here set approximately 66% of Merial sales are companion animal sales, cats and dogs, largely driven by FRONTLINE, which is the leading brand of the total animal health business selling more than EUR1 billion. It is clear that this type of product is sensitive to overall economic recession.

And so, yes, it is true that during the first three semesters of 2009, Merial had negative sales. The fourth quarter came back with a growth of nearly 4%. And so, overall sales have been stabilized for the total year, which in respect to our competitors is a good, even very good, performance because all the other major companies, we are currently now number three in the animal health market, are in regression for the total year 2009.

You see, first is at – according to the portfolio around companion animals, of course Merial is strongly US-based. There's a good and there's a bad news. The good news definitely is that significant potential outside the United States in the rest of the world section, and we believe that Sanofi-Aventis can contribute in guiding Merial, also the future combination with Merck given our experience in the emerging markets. And here, beyond the Chattem, the right side gives you some illustration of what recession meant here. I think it's easy to state that the first quarter 2009 had an impact in terms of overall economic conditions. But (inaudible) sees that our sales strongly came back already in the second quarter and be continued until the fourth quarter.

Overall, EUR7.4 billion sales, 19%. If you focus only on BRIC-M, even 24%. And overall, this is a market share of 6%. And also, this figure has been mentioned before. It's for us to be repeated, 25% of our today's sales come out of those parts of the world. And this is without any doubt a strong promise for our future.

In wrapping it up, I think it's fair to say we had a strong first quarter, supported by vaccines, but also by underlying growth, overall 5.3% of sales growth in 2009. We have a very, very good start with our ambitions in consumer health care and generics, which were boosted by targeted and well-fitted acquisitions. We have a very encouraging status on new product coming from research Multaq in the US and also in the first major market in Europe. And it has given a different direction in terms of organization for all our growth platforms, diabetes and oncology. Oncology is a very, very promising short term future, end of 2010 and 2011. And yes, we have continued to build up our historical strengths in the emerging markets. And also, this gives us a lot of confidence and trust into the upcoming years.

Thank you so much.

Wayne Pisano

Okay. Taking a look at the vaccine division, 2009 was both an exciting and overall an excellent year in terms of our performance. Revenue was slightly over EUR3.4 billion, up 19%. We had strong performance across all of our franchises. As Hanspeter referenced, we had an exceptionally strong fourth quarter, over EUR1 billion of sales. A lot of that is linked to H1N1 and the pandemic. And I'll address that in a moment. But before that, we'd like to look at our basic business.

In our Polio/Pertussis/Hib franchise, our pediatric franchise, we had over 20% growth. The business today is over EUR0.75 billion. And this is business is being driven globally. In the US, the first of the Pentacel launch – Chris referenced that our market share against one other competitor is now at 70% after our first full year in the marketplace.

Our product, Pentaxim, another pentavalent vaccine that is used throughout the international markets, continues to grow significantly. This was introduced in 2005 in Mexico and Turkey. It is now being introduced throughout the Latin American region, throughout Eastern Europe and the Middle East.

Our pneumonia and meningitis franchise was up 6%. The catch-up market for bacterial meningitis is – has probably – has reached its peak in the US. We continue to grow the greatest opportunity for bacterial meningitis now will be in the international marketplace as long term and new indications in North America.

The emerging markets was up 16%. Our business is approaching EUR1 billion now in international markets, and so a strong growth there. Now, total sales on H1N1 in the fourth quarter were EUR440 million. This was in line with the guidance that we gave where we had projected sales to be about EUR1 billion between the end of 2009 and 2010. So let's take a look at the influenza marketplace.

This was a record year for the vaccine division. Sales for seasonal and H1N1 were in excess of EUR1 billion. I think the thing we're most proud of is our performance in the seasonal marketplace, nearly EUR600 million of sales, market share globally at 45% in the southern hemisphere, over 70%. On the chart, we are showing the seasonal vaccine sales of Sanofi Pasteur, GSK, AstraZeneca. Novartis does not report their sales by seasonal or H1N1, so we don't have that data. Directionally, we think that's similar to GSK.

The importance of the seasonal business is that this is the sustainable business. This is the business that is repeated year-in and year-out. A pandemic is a global health emergency. It is opportunistic. It's our role and responsibility as a manufacturer to meet the expectations of the World Health Organization and the governments. But it's not a business that is going to repeat itself year-in and year-out. That's the seasonal business.

We were the only manufacturer to deliver 100% of their seasonal commitments in the US. And this was an interesting year from a seasonal manufacturing perspective because the B strain that was selected the World Health Organization was an exceptionally low-yielding B strain based upon historical norms. We were able to use one of our facilities in the US to continue production of seasonal into September and deliver in excess of 50 million doses in the US marketplace. And again, we're the only manufacturer to deliver their full commitments.

As it relates to H1N1, we began production in France since September after we completed our seasonal production. We began in June with one of our facilities in the US, and switched that over to the second facility over in October. We produced over 1 million doses of bulk antigen and delivered slightly over 100 million doses of H1N1 in the fourth quarter. We had a contract with the US government with our largest contract to deliver 75 million doses by the end of December. That's exactly what we did. We had also delivered 5 million doses to Mexico by the end of December, which was our commitment to Mexico. We've fulfilled the remainder part of that commitment, which is for an additional 15 million doses in the first two months of this year.

As we look forward into the influenza marketplace, clearly H1N1 is an issue still in the first quarter, particularly in the southern hemisphere as they now move towards their – the influenza season in the late second quarter. We expect sales to be comparable year-over-year 2009 and 2010 as it relates to H1N1. We have a number of new products that we'll be introducing for seasonal vaccine.

The Fluzone High Dose IM product was licensed in late December. This product provides superior immune response for the elderly. This is important because the elderly could not get the same level of protection as healthy adults. Their immune system – they're older. Their immune system doesn't respond as well. This product clearly provides (inaudible). We have very high aspirations for it starting in 2010. And then in Europe and in Australia – in Australia actually, in three months, we've launched an intradermal seasonal vaccine. This provides tremendous patient's convenience because it's a dermal injection, so it's not intramuscular. We also are expanding our overall flu capacity. We brought a new facility on line in the US this past year. But we're building facilities in Ocoyoacac, Mexico and Shenzhen, China. These facilities are on track and scheduled to come on line in 2012.

Looking at our pipeline and the progress on R&D, in the upper left-hand corner of the products that were approved in 2009, Fluzone High Dose, I mentioned that was approved just before the Christmas break. We licensed the H1N1 vaccine Panenza here in Europe as well as an H1N1 in the US. And Intanza, the intradermal vaccine was licensed in the first half of the year. That will be launched in Europe this coming season.

The upper right-hand box is the submissions that were submitted and are under review right now. IMOJEV is the first once a day or single injection vaccine for Japanese encephalitis. We filed in Australia and Thailand. As it relates to Europe and North America, this has been more so a travel vaccine. The real need and opportunity is in Asia-Pacific, where this is endemic. There are over 30,000 deaths a year from Japanese encephalitis. We have filed Pediacel. This is a pentavalent pediatric vaccine. It's an all liquid product. It is standard of care in Canada, the UK, and the Netherlands. So we have a full European dossier that was submitted. And we have filed for our adjuvanted pandemic vaccine, Humenza. That's under final review here right now here in Europe.

In the low left-hand corner, it gives you a perspective of the projects that were added to our pipeline in 2009. There's been a lot of work being done in the nosocomial area. Chris referenced the deal with KaloBios that is for a disease called pseudomonas aeruginosa. This is a disease that – it's a bacterial disease predominantly found in hospitals. And this is an issue for patients who are on mechanical ventilators. And 60% of patients on ventilators for more than four days contract this disease. And this is a project that now is in Phase I.

We also have a Staph aureus vaccine that is in the exploratory phase. And through the acquisition of Shantha, we have basically strengthened our IO platform for the developing world, but more importantly have added to our pipeline and it's very complementary. Rotavirus is in Phase I, and actually will be entering Phase II this month. HPV is another product in the pipeline from Shantha. And then we added a periodontal vaccine. Periodontal disease is caused by bacteria. And so we have a product that is now in the exploratory phase for that.

Looking at the milestones, and there were many, but the two I'd like to focus in on are basically Clostridium difficile and on the dengue vaccine. Both projects have been through Phase IIB. Our dengue vaccine has a very large critical program. And last week, we completed the enrollment for the pivotal efficacy study in Thailand for the first dose.

So looking forward, we expect the vaccine industry to experience significant growth over the next five years, and Sanofi Pasteur is poised to participate in that. We expect strong sales performance in 2010. The role of emerging markets, same as pharmaceuticals, is going to continue to grow. Coming off the base EUR944 million, we clearly will be over a EUR1 billion in 2010. We have a very strong position in our key franchises, Polio/Pertussis/Hib, meningitis, and of course influenza. Our pipeline continues to progress as planned. And the final B switch, it's very important in vaccines is to have the capacity to produce the vaccines for the large populations of the emerging markets.

We have 15 capital projects underway right now. I mentioned the two influenza ones in China and Mexico, but we have a new Hib facility under construction in Marseilles. We have expansion of our polio facility in Marseilles to meet the needs of socio polio eradication. A number of new filling facilities will be coming on line, and of course the dengue facility in Neuville is under construction and will be on line in time for the launch by the end of 2013.

So thank you. And at this point, I'll turn it over to Jérôme Contamine. Jérôme?

Jérôme Contamine

Thank you, Wayne. So good afternoon. I will now go through the financials. We had already a lot of comments about the sales, and I'm just here to emphasize the contribution of both organic, acquisition, and Forex impact, possible for the full year and then for the fourth quarter.

So for the full year, the overall growth – organic growth has been 4%, which is quite good. And the contribution of acquisition or – of channel structure has been only 1.3% as long as – I'll just remind you that last year, we were still consolidating sales of Copaxone, which we are not consolidating anymore this year. We'll just get the payment from Teva. So this has a negative valuation impact on the (inaudible) basis. So on the other hand, clearly, we've had a positive contribution of both Zentiva and Medley.

We do note constantly that Merial, as you know, because we are planning to go for the Phase II, which is a combination of Merial with ISP. Therefore, we are continuing to just take the net result of Merial in our P&L basically and not considering the sales.

The Forex impact for the full year has been (inaudible) limited at another day, only 1%. But as we all know, that'll be high situation of the currencies, and considering during Q1 2010. The overall positive contribution of the dollar has been around 2%, and the Yen also had 1% positive contribution, the other currencies having a slightly negative contribution, leading to this overall 1%.

When it comes to organic growth, the 4% in fact includes generification, of course, of those Plavix and Eloxatin-Plavix yield on Eloxatin. If I take out that just to see what is underlying growth for the overall group, that Plavix in Europe and Eloxatin in the US, we come to around 6% organic growth, which is I think a very good achievement.

Now for the fourth quarter, some more variations possible on the currency. Because if you recall – if you remember in 2008, the Q4 was a high for the US dollar against the Euro. So we are exactly the opposite situation as compared to the one we had during the first week (inaudible). So we have a negative impact of the currencies. Of the overall general structure, we have the all – overall contribution – the full contribution of both Zentiva and Medley, and also Enoviol [ph], which have not been (inaudible) because it's smaller. And we don't have any more – by comparison anymore negative contribution of Copaxone of the organic growth and we have (inaudible) of which 5.6%.

If we are going to this 5.6%, I can say, on one hand is that it's been held by the pandemic flu state by EUR362 million. But on the other hand, it has been hit with a full impact of both the generic competition of Plavix in Europe and Eloxatin. So if I include these two elements, we'll gain the underlying organic growth of the rest of the activity as being 6.4%.

I go quickly to the P&L because we have been now – been looking at this in the morning. The overall gross margin is slightly above last year, helped by more other revenues. As we all know, other revenues are mainly royalties we get from our partners, and in particular from BMS in connection with Plavix and Plavix (inaudible), and also, of course, helped by the increase of net sales.

The R&D expense for the overall year has been slightly down at the constant (inaudible) level by 1.4%, and I will give some more comments later on, on that. Our SG&A has been kept flat. In fact, there's 1.1% despite of the contribution of acquisitions. The acquisition, of course, contributed by a bit more than EUR200 million, and EUR230 million. So in fact through acquisitions, the SG&A overall absolute spending has decreased, has also compensated for inflation on salaries and so on, which is a result of the good cost management that we have been embarking on – embarked on and will continue to do.

The other operating income and expenses as we – appear here, you find the payments, mainly the differences due to the payment made by Teva on Copaxone, so we end up with a very nice increase on the operating profits margin from 35.4% to 38.1%.

If you comment on the various ratios and evolution of cost of sales, SG&A around – or possible cost of sales. When you look at the overall year, we are basically flat, from 26.6% to 26.8% ratio of cost of sales to sales. Now if you look at Q4, you see some percent – it's slightly different as your ratio has went up from 27.2% to 30.2%. Here I think it is some self-explanation because some of them are just runoffs and some them will continue next year.

One of our mainly – this impact of the donation of H1N1 to the vaccines to WHO, you remember that we have taken this commitment. We have taken the cost of that into our cost of goods, some others have taken this into SG&A business and (inaudible). So this is – this accounts for 1.6% of the – on the negative side. Also, it accounts here variation, which was positive of other first three quarters, have been slightly negative on the first quarter. Clearly, we are positive more in Euro when we are sending in dollars, which will go the other way around in Q1 2010.

And overall, there are two things, which will last also in 2010. The first thing is clearly the mix effect. We are selling less blockbusters in the US. We are selling more products, more volume in emerging markets. We are selling more generics. And as we have the opportunity already to say, this will have some influence despite of all the efforts in our industry our colleagues are doing in the cost of sales ratio. So looking forward, looking in 2010, you could consider that the overall impact of those mix effect led to the switch of the business, but also of the acquisitions we account for 1.5% increase of the cost of sales to sales ratio if you compare 2010 to 2009.

The other impact, which will last in 2010, maybe not forever, is the increase of raw material costs, in particular for raw heparin. You know that the raw heparin costs has increased in the heparin crisis last year very significantly. This has started to go first into inventories and now is going into cost of sales. So you have not seen that immediately in our cost of sales in 2009. To a large extent, you'll start to see it in Q4. If I look forward in 2010, we should expect here again around 4.6% to 4.7% of impact of this – of raw heparin. Of course, it could come back, but I think this is sure because it is in the inventories today.

So all in all, if I want to give you guidance, you could assume that the cost of sales to sales ratio should be in the rate of around 29%, let's say, depending upon other expense rate situation, depending upon various elements. And as you know, when we gave this long term for 2013, we clearly said, "Well, it will be a general mix." So clearly, we see some increase or decrease of the gross margins due to these effects I told on mix, and we will see some compensation, both in terms of investing reduction costs, but still you have a light impact on the gross margin, and also some compensation both in terms of SG&A and in terms of R&D costs so that at the end of the day, on the bottom line, you will see stability of – basic stability of margins in 2013 as compared to 2008. So we are really now in this story.

And fortunately, figures from both R&D and our SG&A are going the right directions. For R&D, well, there is no magic figure. Of course, we always say that we don't aim to spend either of 15%, or 16%, or 14% of sales. The point is to make the R&D more innovative to have products and to make it also very efficient. And this is what we have started to do as part of the transforming program, which has been largely commented upon already. In fact, just in 2009, it's starting to see that there is a start of shift of the R&D spending to less internal spending, more spending into partnerships, more spending into vaccines, and overall, a slight decrease on the overall spending of R&D on even more – if you look at the ratio of R&D to sales.

In other view, you can see here the former R&D has gone down by 6.5%. And if I exclude all what is spent on new partnerships, we have been even down more than 10%. But we have reinvested into new partnerships in the range of (inaudible) 5% in 2009. On this scale, we clearly continue as part of transforming in 2010, and you will see real shift in the way we spend the R&D, the way we can use of these costs, and the way we put more contribution into external research and also external products or products which are coming from external sources.

SG&A, as the tradition in Sanofi-Aventis, we are among the best and we continue to be among the best. So one point more, we are down 25%. This is really the result of all efforts we've made to cut down costs. Of course, we adjust our save on not getting spend to products and to the generification when it comes, but it goes beyond that. This new way of doing marketing is having a more efficient savings for us. It's also shifting our production, our business, our activity, our sales from high cost countries to low cost countries from the (inaudible) to emerging markets. And also, we have embarked when it comes to SG&A into a series of cost reductions with sharing of expertise, with sharing of common share values as we go in 2010. So once again, quite notable that we have stabilized our SG&A while we have increased our sales and while have done acquisitions, which by concessions and by some new SG&A, new sales on marketing costs and general costs as well.

A few more words on the cost savings plan, which is part of this whole story, and as I say that we are able to compensate for the evolution of the mix business. Clearly, it's coming from the cost savings program. We are more than – in fact, we are ahead of schedule. In 2009, we have already saved EUR480 million on the base of activity of 2008, which is our reference, our baseline. And obviously, if you remember, we've said that we aim to save at least EUR600 million in 2010. Obviously, it has been achieved – having achieved for already late in 2009, which are (inaudible) and cost savings, which we'll continue to attend. We should, clearly, save more than EUR600 million in 2010 and contribute to the guidance and the evolution of the net results in case – we'll comment in a few minutes. So we can say that we are ahead of schedule for the old plan, and that most probably, we will achieve the EUR2 billion savings before 2013. Will it be in 2012 or will be in 2011? It's a bit early to say, but this is where we are. All areas that I mentioned (inaudible) to spend more time maybe at this stage, all areas of the company are contributing to these cost savings plan, and will contribute in 2010.

If I now – I go down to the net income here, I'll go very quick. First of all, clearly, what is most visible is an increase of the net income to sales ratio from 26.1% to 28.9%. On this slide, I would just comment one thing, which is profits coming from my associates, it's approximately what we get from our partnership with BMS, which is our – our interest in the BMS profit in the BMS venture, profits in the US mainly. And here, you will now see, and clearly if I could say so, the contribution of Merial. Merial is 50% over nine months and 100% over three months. So all in all, it makes a nice increase, also somewhat helped by some translation in fact. But still, there's been an underlying increase in the contribution of Merial despite the fact that Merial has been a bit selling in Europe, with the stability of sales as better as discussed two minutes ago.

Also, two other comments and more financials, first of all on the cost of debt (inaudible) on tax. Well cost of debt, of course, we have increased our overall debt due to acquisitions, not that much, but still. And we have been able to stabilize, basically, our cost of debt, our net financial expense. It is due to the reduction of the cost of gross debt from the 4.8% to 4.1%. We have done two bond issues, which were already placed all over the year, and which now gives us high visibility in terms of maturity from 4 to 10 years. On the other side, to a lower extent, the – as we mentioned, we get from the Treasury, the cash is very limited. So it somewhat compensates this improvement of cost of debt. But still, we have been able to stabilize the overall net financial expenses.

Tax rate, we had a nice – of course, we expected that to last for a while, but we had a nice gift, let's say, from both sides of the Atlantic, from the US and from France. Going forward, we are not going to pay with earnings tax on the dividends we paid from the US to France. And this has a retroactive effect back towards the 1st of January, 2009. This is why we have revised our tax rate for 2009 from 29% to 28%. And going forward, this will continue. So in other terms, for 2010, I think we can plan today to have a tax rate which would remain around 28%, instead of the 29% we are used to before. So this is where we stand today. So I think you can take that into your computations for 2010.

Well just to comment on Q4, I mean we have had the best performance with – on the constant exchange basis, plus 18%. You can wonder how much is the contribution of the tax rate evolution. In fact, none of that match because I'll remind you that last year, end of 2008, for different reasons, more – the German situation also, we had also revision in Q4 of the average tax rate. So if I compare on like-for-like basis, the positive contribution on the variation of the total EPS from this decrease of tax rate has been around 3.4%. So if I exclude that, we are still at 15% during Q4. On a full year, this is a contribution of a bit more than 1%, 1.3%, 1.4%. So as you said at the very beginning, our underlying operational performance has been in line or slightly ahead of the guidance we gave at the end of Q3.

Adjusted margins at 2010, we are going to report on one aggregate, which is not in (inaudible), but as business net income. The reason for that is to make it simple and not to struggle about the fact – to know where amortization of intangibles would go. Is it up the goal or below the adjusted net income? Basically, if you do an acquisition, it goes – you should go below. If you do in-licensing, you should go above. Now, everything will go below what I consider more as a cash earnings per share. It doesn't make a big difference. I think this has been discussed to you also in several occasions, including end of last year.

If I take the 2009 figures, as you can see, the base will be EUR8.629 billion. And in terms of earnings per share, the business earnings per share, has been in 2009 EUR6.61. The rate of growth has been exactly the same if I take the adjusted EPS over business EPS. And you will see – you get new documentation, the trend for the previous years and you will see that there is also not very much difference. So I mean, once again, the guidance we are going to give and the quarterly results we will give in terms of aggregate will be based on this business net income going forward, and not anymore on the adjusted net income. Of course, our consolidated net income is not hedging due to that. It's not just a question of repetition of the various lines of the P&L as it described once again from this slide, on which maybe I will not comment precisely.

A few words on cash, actually, I mean we have generated a very strong free cash flow. I must say that when I came in one year ago, I was really – can we really generate EUR4 billion of free cash flow? Yes, we can. Yes, we can. So we have generated EUR4.3 billion, after dividends, of free cash flow this year, which is really a record. After spending CapEx and CapEx on new plants in vaccines, new plants in biological plants and for industrials, but before acquisitions. So we have been able to finance the last part of acquisitions with this free cash flow.

And the overall EUR6.6 billion of acquisitions have been financed, let's say, by more than two-thirds by the free cash flow. So that the net debt, even if it has increased, remains very low at EUR4.1 billion as compared to EUR48 billion of equity, and that's compared to an EBITDA, which is around EUR12 billion. So this is a ratio of net debt to EBITDA, which is around EUR12.3 billion, which keeps us among the best in the industry. Obviously, it shows that we still have – I mean, we do have the financial strength to the acquisitions. So the question of acquisition is not a question of financing, it's a question of attractiveness of these acquisitions, both from a strategic point of view and from a financial point of view.

And finally on dividends, so what we are proposing today and what we tend to present to the general meeting is an increase of dividend by 9.1%, a round figure, from 2.20 to 2.40 (inaudible). As we said on major occasions, I mean we will – I mean we don't want to go for a payout policy when we know that there will be fluctuation in our P&L quarter-after-quarter due either to exchange rate variation or due to immediate impact of the generification on one quarter.

So we have taken the view that we should have more medium term strategy when it comes to dividends evolution, which is compatible with the medium term and long term sustainable growth that we want to deliver and along with what we have said when we released our long term guidance. So what we clearly say today is that we want to be able to continue to at least maintain and regularly grow and of course grow progressively our dividend, and this is how commitment going further, while we are increasing the dividend by 9%, a nice 9% for 2009 to be paid I think on the 26th of May, 2010.

So that's a short wrap-up, you have already lots of that, so very solid performance, continued cost management, EPS growth ahead of sales and the achievement of guidance, strong cash flow generation, and as Chris mentioned already, the transformation of the group. And nearly through – if you just look at the evolution of the contribution of the growth platforms into sales, it should take the overall 2009 as compared to 2008 is 47% as compared to 42%. But if you take just Q4, it's already 53% as compared 45%. So clearly, if you look at 2010. The contribution of the growth platforms will be much more than 50% of the overall sales of the group because it will be the main contributor and show us how we are transforming the group.

Chris maybe?

Christopher Viehbacher

Thank you, Jérôme. Again, so what does 2010 look like? I'm not going to apologize. It's going to look like 2009. We've got a strategy. You don't change your strategy every year. I think well we really are focused on execution. I think I've said before, strategy is actually the easy part. Execution is the hard part. So our formula for growth remains unchanged, and we'll going to continue to pursue with the same passion and energy that we did in 2009.

In R&D, as I said, I think whereas we were looking more at the clean-up and change, getting some cultural change to occur, we're going to put some runs on the board now in terms of actually bringing in more innovation in the research and development. We clearly have an opportunity to accelerate high potential late stage candidates, like our PARP inhibitor. There are some exciting things in early stage. I think our policy is not going to be to say, "Let's go do big pipeline reviews and everything else." From my experience is that you can a mouthful about R&D structures, you can talk a mouth load about R&D portfolio, and you get zit for it in your value and you give an awful lot of information to your competitors. So we'll probably not talk enough a lot about anything that's in early stage, and really wait until what our company hears from the market. But there are some interesting things.

I was talking with one investor recently and let slip that we had our PC SK9 in there. "Why? Do you have a PC SK9? This is hot property in the pharmaceutical industry." And, "Yes, we have one of those." And these are things that we will clearly be looking to really accelerate and bring forward. Obviously, Wayne has the very robust vaccines portfolio. Sanofi Pasteur really started to look outside and do the research collaboration for the rest of the company.

There is a significant shift in budget going on. Now one of the things, actually, I look at most is not so much how we're spending in R&D as a percentage of sales. That's going to go up and down depending on what the opportunities are. I'm not committing to any number, and we will spend it even if we don't have something to do, which is something I've certainly seen in my career. But what is important is, to me, the fixed and the variable cost ratio. This is a business in R&D. Wherever you are, whether in biotech or you're in Big Pharma, we fail more than we succeed.

And what you really need is flexibility to move resources. You gain some money for a number of years, not 10, but probably more than one, and you measure that. And if you got something, you continue to finance them. If you don't, pull that money back and put it into an opportunity that looks even better. You can't do that if you do not have a more flexible spending. And of course, we're now just actually starting the new R&D organization. Again, we're moving from 11 management layers to 6, significant flattening of the organization, empowering of people, putting scientists into scientific jobs instead of management jobs.

We're going to continue spending. If you want to know what we're going to do, look at what we've done. I think it's a model that works. One of the things that we were able to do is we combined insulin plants one day in Russia, buy a vaccines company in India. We can then go buy a generic OTC in Brazil. We can buy a biotech company on the West Coast, do a few research partnerships. There're an awful lot of stuff, and one investor commenting, "Wow, 33 deals. For some people, that's a whole career. For you guys that was one year."

We can only really do that for two reasons, one is, I think Laurence Debroux who is heading up here has an absolutely incredible team, I think best in class in the industry, in being able to screen, evaluate, and close transactions. But the other is, by doing those science organizations and having them as bolt-on to your global – to your growth platforms, you can them quickly pass them into the line management. So if we do a Medley, it goes off to our general manager in Brazil and that's his job to make sure it all works. Buy the insulin plant in Russia, that's up to our general manager in Russia to deal with afterwards. And we have, I think, extremely high quality general management in our operating company.

You can't do that if you have these giant deals where you're going to get bogged down. But you can do that where you've got a crack team upfront hunting, searching, closing, and then a team to actually drive the value afterwards. So we're going to continue to do that since they are going to be consistent with our growth platform. And the R&D model will continue recognizing that you can't have those kinds of deep relationships with 100 companies. So we will continue to do that, but we need to be selective and really be partnering with the best because it is actually an awful lot of work managing these partnerships.

The growth platforms are there. We've been able to acquire companies. I remember, people asked me a year ago, "Well, can you really find anything in OTC?" I have to say, if you asked me a year ago, I would have said, "Probably not that much to buy in OTC." I remember my US team saying, "Well, we're interested in OTC." "I don't think there's anything to buy in the US." Guess what? We found something to buy in the US. A lot of people says, "Is there anything ready to buy in vaccines?" Well, we found a company in India. So if you hunt, you will find. And I think we'll continue to do that. And I think we've been very good at that. Yes, we are seeing – we are headed track on cost savings. I think that's a natural fallout as we move the business into two other areas, and we will evaluate and see whether we need to update our targets at a later stage.

So guidance, I mean Jérôme and I had one conversation – it's been a hundred conversations on guidance. We thought we had it nailed, and then there are all these rumors that came out about Lovenox. And how do we deal with Lovenox? And does Lovenox actually face generic before we get the guidance?

So here's what we decided to do and we know we'll be very open and transparent with you. I'll tell you, we really don't know what the impact of Lovenox generics would be in 2010. It depends on whether this is substitutable or non-substitutable generics. This may depend on whether there's one or there's two. And the theories there, you hear all kinds of things. So rather than try to come up with multiple scenarios, what we decided to do is say, "Let's take Lovenox out of the equation." Because quite honestly, you know as much as we do about what's going on with the Lovenox generics.

So let's give you an anchor point, a reference point that you can then take as to what's happening in the rest of the business. So we have taken into account generics in Europe with Plavix and Eloxatin in the US, for Taxotere later on, and the others. But we haven't taken Lovenox into this number. If you don't take Lovenox into that, then we believe we can do 2% to 5% earnings per share growth at constant exchange rate, which we believe is a little bit more than most of what you're expecting. Obviously, we don't bring that into account. We don't really know what is happening. I think Hanspeter talked about certainly letters that we had with the US Pharmacopeia. We remain firmly convinced that there are significant safety issues to a substitute of most generics. And we will continue to do what is needed to make sure that those in decision making situations are aware of that.

However, a Lovenox generic, and particularly a substitutable one, would have an impact that would probably – depending on when (inaudible) has some impact on our 2010 numbers. It doesn't really have an impact longer term. When we did our 2013 numbers, we didn't assume that Lovenox just continues to grow at 8%, 9% as it has the last 20 years. We did assume that the new two oral medicines that come along will take a share of that, and we've decided to put in there, really from the point of view or reorienting the company, a non-substitutable generic. It turns out that actually when you do that, there's so little left of Lovenox in the US. That if there were a substitutable generic of Lovenox to be approved very shortly, we would not change our change our guidance for 2013 in terms of our minimum floor on sales and profit.

Now while we're on the subject of 2013, a number of you have wisely pointed out, "Well, your guidance is versus 2008 is just at 13%, now you're offering another 2% to 5%. Look, if this goes up and I go down here to 20–, what happens in the meantime?" We don't want to get into the game of giving long term guidance every six months. We will update it at the right point in time. I would point out that it's always been a minimum guidance. There are a number of levers that we can look at. There is going to be some turbulence over the next two to three years.

I think I mentioned last year that our goal is to try to continue to exceed expectations. I think we were able to do that in each and every quarter of this year. And that's going to be the way we're going to do it. But I would say I stand here before you extremely confident that no matter what happens on generics, we will give the – at the minimum, achieve that 2013 guidance.

So with that, I think we'll turn to questions. Obviously, in addition to Wayne, Hanspeter, and Jérôme, we've got Marc Cluzel, who heads Global Research and Development; and Laurence Debroux, who heads our merging and acquisition team long range planning as Chief Strategy Officer.

Question-and-Answer Session

Christopher Viehbacher

All right, Sébastien.

Sébastien Berthon – Exane BNP Paribas

Yes, hello. This is Sébastien Berthon from Exane BNP Paribas. Two quick questions please, one on diabetes and one on emerging markets. I noticed your target have overtaken Novo Nordisk within the next year in diabetes. There's a 25% gap on sales as you mentioned. How do you see how you can gain market share against Novo given that they are launching their own GLP-1 in probably two years before yours, and also have a next generation wave of insulins, which is probably three or four years ahead of yours? So should we assume that this gap will be by acquisitions? That's the diabetes question.

And regarding emerging markets, obviously, growth has picked up over the year. If you think – I mean your growth still seems to be slightly below the emerging markets pharma sales growth. Any particular regions where you see particularly intense competition? And should we assume in the future that as a big leader in emerging markets, which you are right now, you will have to give a little bit of market share to your competitors or you're still confident you can grow actually in line with the market there?

Hanspeter Spek

In diabetes, you may have noticed that I didn't give a year when we take over Novo Nordisk. It's a target. It's overall a target. Evidently, Novo Nordisk will continue to grow. It depends on various aspects. I believe that we have a certain attention to developing costs as opposed to where we are, usually, stronger even, much stronger than Novo Nordisk. So it will largely depend – we can take advantage of it into the – even in large business.

The second element is definitely new products. They have tried to launch a new product in the US. This took them some while with this – we all know we have to see how this product and how in class it will perform. In any case, they have a new product. For the time being, we have managed the products we have on (inaudible) let's say, three years from today. We believe we are in a better position once again. We have a number of single agents under development. And yes, I personally have quite some expectations of the combination, which I've already mentioned earlier today by this – of GLP-1, this Lantus. We also work, as you know, on a long-lasting Lantus. So it will be based on new products, which will contribute.

And to circle on these – the environment of pharmaceuticals, which means mainly blood glucose monitoring, and also devices like pens, I believe that everything is, for the time being, open. But I'm confident that we will be a little bit faster than Novo Nordisk on the actual post monitoring. This is not a simple blood glucose monitoring, but it is who will succeed to connect best those devices with the individual pharmaceutical product offer. Who comes up with this first will have definitely, once again, a (inaudible). But overall, if you look, we have gained about 16,000 in the last three to four years. So I think it's safe to say it will take us at least another three to five years to match up this. But it's a nice (inaudible) they say in French.

On the emerging markets, I think we have to be really careful when looking to IMS and the emerging markets. We know that the IMS figures are entirely wrong in those markets which have high shares in free goods, and that's where we place in any kind of discount payment advantages and so forth. So as a consequence, the data for Brazil, for example, is totally misleading. It's misleading. So what we have started to do here really is benchmark our sales – our own sales against what our major competitors report in their financial reporting.

Who are the major competitors? I think once again it's easy. Our major competitors in those parts, for historical reasons, is GSK. They have an edge (inaudible) speaking Africa, but we have a leading edge in the rest of Africa. In Asia Pacific, we are really head-to-head. And in South America, once again, we are in front of them.

Novartis is still best, and (inaudible) I see a lot of communication. But then you go to the markets, you see a lot less. This is easy to say, but not so easy to do. Then you have a company like ours, being now 20 years in China. This is really our largest interest because you have really (inaudible), you have developed the structures, and you have the adequate management, which in all of those markets, is the key. You have good management, you can (inaudible).

Christopher Viehbacher

And I will just add on that, to me, it's not a market share thing. Market share is really, if you have a developed market and you got to go steal share from somebody. There is going to be an element of competition in those markets. But the real issue is really the growth in those markets. So you take China, for example, there's pretty much everybody on the East Coast of China. But the further you go inland, and in particular as you go west of the Szechuan provinces, not everybody is there. And so, you're not interested in whether your market share is bigger or smaller than Bayer or Pfizer at that point. It is, how do you find reps, train them up, get them in the finer positions. We have a range of products that you can use to match that.

You take up Brazil, there is more of a market share game, and in Mexico. But you've got other markets where it really is market expansion, market development issue. So for me, I think one of the core things is how well is that business is growing. And if it's growing at nice strong double digits, then you do want to benchmark yourselves in some ways. But it is also all about growth. We also know that not all of the products – not only do you not have the issue in IMS because of the rebate mechanisms, you also have a whole range of products that aren't always covered. I mean vaccines are actually very poorly covered even in places like the United States. We also have very poor coverage of some OTC in that regard, so.

It is a benchmark. We have a kind of a look at it. But personally, I'm looking at top line growth and making sure that's going – generally, the best way to measure this is, "What's macroeconomic growth doing?" If macroeconomic growth is good, you've got more emerging middle class and they're going to be spending more. And you really – you will have the organization and the product portfolio to go after that growth.


Graham Parry – Bank of America/Merrill Lynch

Thanks. It's Graham Parry from Bank of America/Merrill Lynch. And two questions, the first one's just to come back to your commentary on generic Lovenox. And you sound a little more cautious than perhaps in the past. I just wanted to clarify whether that was just due to the chatter that you've heard about the wholesaler request or whether you're hearing anything specifically from the FDA that indicates the decision may be coming soon.

And secondly, your former colleague, Glaxo Smith Kline, just recently put some hard numbers out there on internal rate of return on acquisitions and also internal rate of return on R&D expenditures. I'm just wondering if you have any similar metrics you could share with us.

And then thirdly on emerging markets grade, I think in your press release you have said that that is a 0.9% fourth quarter grade at constant exchange rates if we exclude acquisitions. I'm just wondering, could you just take away that to the 19%, which includes acquisitions? Or how much is acquisitions and how much is currency? And is there anything specific that you can point to as to why grade pull is relatively slow just in the fourth quarter? Thanks.

Christopher Viehbacher

All right. With Lovenox, we don't know anything more than the chatter. The FDA talks to the generic applicants, not to us. So we're just prudent and listening to that. And we've heard the rumors that they're talking to wholesalers in the like. We have a fire drill early in December, where there's all kinds of chatter that this is going to be a Christmas present to Momento, and Santa Claus did not deliver. We've had another fire drill in the second week of January. So we just said, "While there's lots of chatter out there, it seemed to be more intense than typical chatter, but we have no information on that."

In terms of IRRs and things like that, I mean to a degree – and I'll let Laurence and Jérôme take a crack at this. It depends on, to me, a little bit about what type of business to this you're buying. An IRR makes no sense on a – to me, on a biotech company, to tie they're invaluable investment is a total waste of money. And there is no medium happy ground in there. If you're buying an OTC company, however, then I think you termed it into a more traditional return on investment criteria.

But Laurence, maybe you'll give it a crack, or Jérôme, if you'd like to answer that?

Laurence Debroux

Well we do calculate the number of metrics, including IRR on every project. I cannot tell you there is a magic number that we apply, and we discuss each project on an individual basis, and based on its merits, and based on the types of projects that you're looking at, whether it's more R&D oriented or totally OTC types of projects. And we discuss that to Jérôme to see what should apply on a project-by-project basis. So I don't think we will give you a target at the company level.

Jérôme Contamine

We can say that, of course, all projects have to be – or acquisitions, let's say, have to be – have to have an IRR, which is significantly involved in the cost of capital of the group. Then you need to think about what is the cost of capital risk you'd take. And here, you have to weigh that with the area that you (inaudible) you are in so that you would do that with the expected IRR for a project in Thailand is right or not, much higher than the one we will get in the US.

One important issue is also to what extent is it wrong to have – do we have a wrong perspective or not? So here, I would say, because very (inaudible) of the question one, when do you get the risk on the capital, which is above your cost of capital? And here, I would say, if you are into a (inaudible) like Chattem, where you have five generations of production, you have a very, very long horizon, you could really accept what return of capital, which is above the cost of capital, let's say, after you are seven or you're eight. And if you go a more a high risk project, well you have to assume that you need to have a cost of capital – your return on capital above the IRR three or four. And that means you will be around five or six, that could it be arranged and we will accept to go this type of range when going for business, which offers a long term visibility.

Christopher Viehbacher

Personally, I think if you ever make an acquisition decision on that type of analysis, you're not going to get very far. I think I'd like to look first at a company and say, "What do we bring as management that current management isn't doing? What can we do in terms of sales growth? And where is there a good business rationale opportunity?" If you can really come up with a good equity story around that, then the numbers will generally work if it's a good margin business. If you go and decide on an IRR, quite honestly, I'd rather not touch the business, so it's probably too close to the line to call.

On the growth rate of the 19-point whatever in the–

Jérôme Contamine

The emerging markets, the overall growth rate was already at 19%. There is no currency effect at all. This is at the constant exchange rate – on the constant exchange rate basis. If I recall properly, the organic growth rate for the full year has been 7.5%, keeping in mind that this includes the impact of the economy crisis at the beginning of the year, specifically in Latin America. And you remember that during the first quarter, I would say, – the two first quarters, the growth in Latin America was slightly lower, particularly in Mexico and to some extent in Brazil. We are really recovering from that.

So the first quarter organic growth rate has been (inaudible) the average growth rate of the year, so we are catching that to the 10% average we are aiming at. Once again, I mean this year, people tend to forget. But when we're in Q1, we are still at the end of the currency crisis, and we will – I mean the concession was going down. So yes, the key thing I'd like you to get from that is we are seeing an increase in organic growth rate around emerging market sales over the year, and in particular in Q4 as I compare to the previous quarters. And I think on average, the 10% objective, which we had, organic plus acquisitions, is definitely advancing, which remains our objective on the remainder of the year though.

Christopher Viehbacher

You want to add to that Hanspeter? I mean you had a slide that actually showed–

Hanspeter Spek

That's the only thing you will see again. You'll definitely see a strong difference in the first quarter – second quarter, which was at least on the level of the previous one. It's not an acceleration. It's (inaudible).

Christopher Viehbacher

It wasn't actually just the economic crisis, and in Mexico in particular, was hard hit, also because they suffered particularly hard from the H1N1 crisis. They went through a two-week where they shut down travel and businesses. And I think the Mexican economy was down something like 7% at the beginning of the year. Brazil, it started also in negative territory, and moved into neutral zone as halfway through the year, and came back into growth in the second half.

When you consider that we have a huge exposure to Latin American economy, in particular, we have over billion euros of sales certainly in Brazil, and close to that in Mexico, that will actually start to weigh on the results. But I think Jérôme is right that we would be expect to be growing in double digits in those markets, enhanced by acquisitions.

Oh my, other side.

Jo Walton – Credit Suisse

Jo Walton from Credit Suisse. I've got a couple of general questions and a few other public ones. The general one though is really to do with R&D expense. I wonder if you can tell us, of your EUR6 billion of licensing and acquisition spending, how much of that was effectively buying R&D externally, but other companies who did the same work internally would have put through the P&L? I'm particularly concerned that we see a reduction in the R&D as a percentage of sales, but not actually seeing a reduction in spending. And I wonder how investors are supposed to mark you to this because now you're not even including the amortizations that might ultimately come out of it. It seems to be getting a free ride on the spending that's never going to appear in an earnings number that you've asked investors to look at.

Could you also give us some help on the profitability of Lovenox in the US, just very, very prudently? If it does it go in the US, is it a more than averagely profitable product, a less than averagely profitable product? Do you have any – a variable cost that you can remove from it in terms of promotion or will the loss in sales pretty much go through in the short term to the bottom line?

And then, I'd like to just ask on Multaq, can you tell us where the 34% Tier 2 for the PARP fees is actually accessed? Is that good or bad? I don't know. It doesn't sound brilliant, but I guess you feel that it is. So what could that go up to?

And a final one for your flu product, you talk about your high dose flu for the elderly. Can you give us some sense of what proportion of the market for flu vaccines is delivered to the elderly? Is that like a big opportunity? And could you get a price premium, any ace-type endorsement that would actually drive the market share towards that product?

Christopher Viehbacher

So let's take the R&D question first. And then, first in terms of where do you put the amortization. And I know this is not going to make a difference for quite a while because you don't start amortizing until you actually launch a product. And if we get there, we'll all be happy. We actually do disclose the number as far as I understand. We're not putting it in that number just to be consistent. And we've actually looked at what our peer companies do, so we want to be in line with that. And sometimes, by the way, that amortization number, in my experience doesn't actually land up on the R&D line. It lands up on the cost of sales line, for example. So I think we will try to do that.

We have had a net reduction in R&D spending internally, and we have added back on projects. So if you see a reduction in the minus 7%, it's actually a net reduction in spending. Yes, you buy in R&D, but if it was R&D that you didn't spend from the past, I think that number loss was also around 600.

Jérôme Contamine

We have invested in-licensing EUR325 million. That's for 18 partnerships. So I think you have to compare what you can compare. The thing about what it means in terms of the range of products coming from (inaudible) to Phase II, this doesn't include investment in BiPar. And BiPar as you now recall, it has been disclosed that the overall spending, if we go to approval to (inaudible) is EUR500 million. But we are not yet there, by far, from there.

So if I put all that together, I mean as – because that's originally with Marc, I think the cost of external R&D versus internal research front and bringing the product in NFA to (inaudible), remains definitely quite competitive.

Laurence Debroux

And also, as we've done some early agreement on R&D, which are really research collaborations, you put in the – in your assets what you say as milestones. But then, after that, our R&D is going to work on this product and that's going to flow through the P&L. So what you put in the assets, of course, will only be amortized when you launch a product, or if you're not lucky, getting (inaudible) from points. And that's going to be below the business net income. But then, when you get the amino portfolio, they'll continue the life within portfolio, so you have the expense.

Christopher Viehbacher

And I think, so if you take Regeneron as example, Regeneron flows through Marc's budget. If you take BiPar, the cost of developing now this asset in Phase III is sitting actually in R&D expense. What we're also doing is say, "We're going to do an R&D partnership. Wonderful." But that doesn't necessarily come on top. So we're also looking at allocating resources according to where the best project is. And if we're going to do this. We will probably stop doing something else.

I don't know any other way to actually present it. We can certainly look at how we do it. For me, the biggest advantage is, if you cap – if you buy this, it's a different thing than if you spent it yourself because by the time you buy it, you discharge a huge amount of risk. Whereas, if you've been extending, you've got a lot more risk because you're still in that process of not having discharged risk. So for me, net-net, you're in a better situation.

And what?

Hanspeter Spek


Christopher Viehbacher

Lovenox, yes.

Hanspeter Spek

So we don't probably say individual profitability of products. So I ask to remain a little bit in quickly. Lovenox is a very profitable product for us in the US. But we have even more profitable products. Now you can guess. We have significant costs allocated. We have massive sales force behind it. We promote the products, of course, in the hospital, and we also promote it in the retail segment, which depending on the outcome we would have. I think we discussed this issue before and said it's a huge difference between a substitutable and a non-substitutable.

I heard today that somebody from Novartis seems to have said this thing would have a substitutable. It's actually a big opportunity if we want to have non-substitutables, there would perhaps even hesitate to commercial it. This perhaps is a little bit accelerated because (inaudible) we would have survived so far the situation in Momento. So it's very difficult to say. But if we would have a non-substitutable, we would very, very moderately adjust our spending.

If we would have substitutable, we would radically, of course, reduce headcount and also variable expenses. So the 4% commercial are reasonable, are reasonable given the fact that we have less than six months to achieve it, and that we have launched in the second half. I understand that it is getting more and more difficult to get on the coverage as more – as the year is progressed because you have more difficulties to get access. I think our maximum coverage would be 70% across, which is what we have with our top product.

I am much more proud about the fact that we have nearly 60% coverage in managed care, which is definitely a very good result.

Christopher Viehbacher

Yes, I'll echo that. Pretty much now, most managed care organizations will want to have an experience with the product for six months before the PMP [ph] committees meet. And to the extent that you are on Part D formularies, that's even worse. And when you think of the average person with A-fib [ph] is already the age of 70, you've got quite a bit of exposure to Part D. Now, 57% is not good, compared to, say, a product that is – that's been on the market for three or four years. I mean, the big blockbusters typically get to 80%, 90% Tier 2 coverage. But to do that before that even fixed-month window is actually pretty good. The numbers on one of our sites is usually good seriously.

Wayne Pisano

We would high dose (inaudible).

Christopher Viehbacher

Oh yes, high dose.

Wayne Pisano

Okay. So the high dose formulation in the US, (inaudible) to the population, over 65 is in the (inaudible) from foreign in the US. So like most developed countries, that is the large market segment. US market varies in size year-to-year because of the supplies and shortages. But ballpark, 120 million in the United States, at least half of that is the elderly population.

We have been in discussions with regard to reimbursement with Medicare. It will be reimbursed. Your question on premium price, yes, it will have a premium price. I'm not ready to give you the specific price, other than to say more than double the intramuscular vaccine. And in terms of the ACIP, ACIP is scheduled to meet in June. That's when they make their recommendations to the upcoming influenza season. And we feel very strongly that they will be recommending this product to the elderly population. But the data comparing immunogenecity is absolute. This product provides a secure immune response. And that's irrefutable. I think that the elderly is pretty excited about that.

Christopher Viehbacher

Someone over here, let's take this side of the room.

Eric Le Berrigaud – Raymond James

Eric Le Berrigaud, Raymond James. Three questions, first on operating cash flow. It seems that in 2009, the operating cash flow was flat versus 2008 at EUR8.5 billion in the back of working capital negative EUR550 million. Could you talk about what you're doing in terms of working capital to make it – to make some improvements there, especially in terms of inventories, for instance, for the years to come beyond profits?

Second, on Merial, is it fair to expect that you would exercise the second option to merge Merial and Intervet if and only if accretion is larger than the 3%, 4% points EPS accretion that you mentioned for Merial as a stand-alone company? Or is there any other metrics that you're looking at to whether or not to exercise a second option?

And lastly, on diabetes, could you elaborate a little bit further on the next generation insulin that's entered into Phase I, the concept behind it in terms of very long-acting, and also on PN2034, just to tell a bit more of what kind of mechanism of action it is?

Christopher Viehbacher

Do the operating cash flow.

Jérôme Contamine

On operating cash flow, well first of all you should – well, I don't like to enter in too many details, but first thing is that the operating cash flow takes into account the research costs as we are going to – we are just spending. So if I exclude this element – I mean you can use it or not, but you know that we have embarked just a number of restructuring. So this impact is around EUR500 million plus, EUR550 million. If I exclude that, you would see an improvement of operating cash flow by EUR500 million.

The second thing in terms of working capital. Yes, you're right to say that the working capital has increased by EUR840 million, if I recall properly. Well first of all, the activity has grown by – so we should think the inventory towards save ratio – actually here, you have some variations because we took some provisions on some tax line last year linked to – so I mean you should compare on a net – on a gross basis, it varies. But to remain that we have inventories in the range of nine months. And I think Philippe could comment on that industrial activity. But we have some plans to reduce that.

I mean, in this business what I learned is that the first thing is never be short of product when you're able to sell it, so let's get on to other businesses. We have always a balance to keep for many reasons, first, for public care reasons, some business reasons. So that's my comment.

In terms of receivables, we are – we see a slight decrease of receivables to sales. And this is basically due to the expansion of activity of different carriers, such as generic business, typically the Zentiva. So we have some plans to work – always to work together with Zentiva to reduce the – to reduce their receivables. Now let's be clear, I mean there are some countries where the payment timing is decided upon by states. So I mean we can't do much around that, but here with hospitals.

So last thing we shall be negative this year on the – the other area because we are spending much less – sorry, we are spending less. We have less debt to our suppliers, which is negative in our working capital. So in short, we are working on our receivables. We have some plans to reuse our inventories, but still I think this will remain an advantage or so to have product available. So under that concern, all in all, we see a working capital level. But we have some plans to reduce it in 2010.

Christopher Viehbacher

So concerning Merial, obviously, it is going to be a factor as to what is the combined would look like versus a Merial stand-alone. And I'll let (inaudible) comment a little further. I mean I think you would say that if you look to the Merial with a significant part of its business really in two products in pets sectors, particularly in the US, that we don't expect to see generic activity in animal health like you see in human health. But there are some generic activities, which will be expected to affect growth.

If you look at an Intervet business, this is a business that's really production animal based. And in fact, in that part of the business, even when you think of themselves as being in – part of the animal business, it's protein production. And essentially, if you look at the emerging markets opportunity, the fact that you've got a growing world population, a population that is expected to expand by 3 billion people over the next few decades, there's a huge interest in productivity around food supply and food chain, which also has a direct factor related to that as being the underlying health of the animals that generate the protein.

Also, as you have emerging market macroeconomic growth, people tend to want to have better food. And what you see as people gain more money, they want more protein. So you have to look at, first of all, a strategic element and come to some conclusions about the relative the value propositions.

Perhaps, Laurence, you'd like to comment further.

Laurence Debroux

To give you an idea of the accretion of the step one, if we say that's step one. It's obviously quite a short term metric. And whenever you compare two projects, you see one of them include – combining with someone else still having to divest some products immediately for competition reasons. And the other one is savings on the loan, if you compare only on these kinds of metrics, you handicapped the combination project if you look very short term.

And accretion is by definition something that you look short term, which is the sanity check, which of course we will say – and we are taking when we look at these projects. But I would say it's definitely not the driving metrics. Driving metrics is the generation of value long term serenity of the business, and long term growth that we can have with this project.

Christopher Viehbacher

For the diabetes.

Marc Cluzel

So our products from which (inaudible) its efficacy in the mid term, it is an insulin sensitizer. To give you an idea of its potency, it's exactly as the potency of the BiPar, but without the side effects of BiPar. And it is definitely not the BiPar. We have a – is the continuation on this site, and it's extremely active on diabetics to restoring sensitivity to insulin. And at the same time, we have proof of activity on this compound, on top of most of the active antidiabetic – oral antidiabetic compound with a very good activity.

Before we go into Lolar [ph], which is our long acting insulin, we'd like to go back a little bit to what was already said by Hanspeter, under the association of our GLP-1 and Lantus. We have more and more the feeling – speaking with – we're stepping a little bit on (inaudible), that what is, to me, important is not the best control of HbA1c, but in fact it's also the control of the peak of glucose during the day. And that we can achieve that only with the good association of a relativity short-acting GLP-1, which is our case, and tie that also to GLP-1 without too much side effects. And we actually said that in terms of mitigating effect, we are really at least, with what you have said so far, in the low-end of side effects. So it's really an association, which is willing to address not the problem of HbA1c, but the problem of control of HbA1c and the peak of glucose. And so it is interest of the once a day GLP-1 because you cannot achieve that with the once a week in GLP-1.

And for Lolar, which is the long-acting, you have to consider two points, that one day is perhaps not enough so we are looking to increase the duration of insulin. So we do not know exactly how long it can leave it, should be definitely more that one day. And at the same time, you can always white-wash – whiter than white, so we have very few hypoglycemia with Lantus, but have still some kind of hypoglycemia with Lantus. And so, we are aiming with a longer duration of action to reduce the – as a maximum – as a possibility of hypoglycemia with an insulin, which is quite an achievement again.

Christopher Viehbacher

Can we try this side of the room?

Philippe Lanone – Natixis Securities

Philippe Lanone, Natixis Securities. I have three quick questions, sorry. First on the combination of Lantus with the GLP-1, what time – can you elaborate a bit more on the timeframe as it is a combination it would actually be fast to go to the market, while we're looking at three to four years before in the market?

Second question on Taxotere, when – did you file for the pediatric extension? Are you confident that you will get it in time before the generic arise in May? So should we put in the model actually generic Taxotere in November?

And last point, I noticed that the others line in the sales model, which is EUR6 billion in sales, was only declining by 2%, which is better than the past, and actually in the fourth quarter it was up. So does it mean that generic – that emerging markets are catching on here? And should we project growing or stable states here versus declining before that?

Christopher Viehbacher

Okay. Jérôme?

Jérôme Contamine

For Taxotere, it's really basically I think we did our job, so I expect we'll have that extension until November. For the GLP-1 versus Lantus, we started already in the past the work, not with definite in device. So as your reason, I would say, it's closed to 2013 for the combination of the GLP-1 versus Lantus.

Christopher Viehbacher

So the GLP-1 will get approved and be launched first and then the combination will follow. On Taxotere, we've answered, and then the other revenue?

Hanspeter Spek

Yes. You're right, that the (inaudible) comes to the fact that we are – I mean we benefit from a higher sales in emerging markets. But looking forward, I mean you have always to know, you have to wait to make your positions. And one is to early look by products, another one is to look by growth platforms and try to combine these two to see where we're heading. Because we are really – another way to look at the metrics of sales, which is to say, “Well, see how the growth products, how the other main product, which are due to be generified, and then there is a fake product in mature countries, and then the same in mature countries." I mean, still doing really well, but probably still continuing to decline. So that's basically your answer is you have (inaudible).

Christopher Viehbacher

Now, one of the reasons I think it's good to look at emerging markets, and you're going to have products that are going rapidly, some that aren't, but there is a portfolio effect in some of these markets where you need to a have range of products. Some of them will grow well. And so, it depends on which matrix you're looking at. If it's part of the growth platform, it'll get lost because the high growth products are offsetting that. But you need those other ones to be present in the marketplace. But that's why we also show you the line-by-line so you can see that, yes, there is still a part of the business that is stable, but it doesn't decrease much in some cases in growth.

Next, Alexandra.

Alexandra Hauber – J.P. Morgan

Thank you. Alexandra Hauber from J.P. Morgan. First question is just a follow-up question again to the GLP-1 combo product. When I first saw it, I said, "Well it's probably going to do – once the GLP-1 is approved, you can probably do some paper NDA, so that's going to go quite quickly." But then you were talking about potentially looking at this one end point as in the glucose piece, so I thought that's going to delay. But still you talked about 2013, so should how should I reconcile the two things? Is it that you're just going to try on the market and then generate the data later on potentially on that end point?

Second question is on – turning back to the Fluzone high dose, let's assume you've got tremendous recommendations from the Asec, could you – would be able to ship something like 30 million doses of that? And could you just go through how we should think about this, what's happening on the distributor versus the doctor level? Because I understand the typical flu vaccine you actually sell to the distributor, but to this one you probably would market to a doctor. So maybe you could win them both from this year, but how would it look like next year?

This definition completes the difference, I think one of the reasons why the pet numbers got so bad because all of a sudden they include the healthcare payables. So I was just wondering, given that – do you know it's particularly high risk and bigger than the hospital business? And since you have Taxotere and Eloxatin, what's your exposure to risk, if anything, and how you deal with this? Have you been taking very new vitals? Is this the number we should worry about sitting at some point now?

Christopher Viehbacher

GLP-1, Lantus.

Marc Cluzel

I will reassure you still for the situation in diabetes, HbA1c is still a good standard, so we'll just – GLP-1 and HbA1c were (inaudible) study, which are needed now at the present time. It is for – in terms of positioning, which is a little bit different than registering. We will try to position the association Lantus and GLP-1 as a treatment of choice in order to control, in fact, the daily peak of glucose. And we will do a study to demonstrate that we are good – we are the better control of the peak of glucose, and with any kind of association. But I think, I'm not sure that we need – definitely to have that into label at the time of the launch. Definitely, we need to have data to support our assumption that we need at the same time to have a better control of HbA1c, but also better control of the peak of glucose. There is a lot of that happening into this direction, by the way.

Christopher Viehbacher

And high dose flu?

Wayne Pisano

Hopefully, you're not going to settle 30 million doses in 2010. I think it's going to take a couple of years to build this product in the US. So will it be 30 million at peak sales? We believe so, which is one of the reasons why we built the new flu facility in the US because the high dose IM consumes four times the amount of antigen as a typical IM influenza vaccine. So you have to have the capacity to handle that first.

And in terms of the distribution, you may recall, maybe not, but 10 years ago, there was a severe influenza vaccine shortage in the US, and the entire industry shipped through distributors, and the stock market for flu vaccines went from $5 a dose to $25, $30, $40 a dose. After that year, we took all of our distribution direct because we bore the brunt of the complaining of the price gouging. And yet, it really was – it was in the distribution channel where that occurred.

That's given us a couple of advantages, one is we have a much closer customer intimacy because we do ship direct, so we have a more consistent loyalty with customers. We know who cancels orders. We know who basically sticks with us, good year and bad year. And obviously, we rank those customers, and so a loyalty that builds both ways. So I think in 2010, it will be the launch year, and peak sales probably three years out. And that'll be when the facilities are fully on line and operational to support that kind of volume.

Christopher Viehbacher

And Jérôme, on the Greek hospital debt?

Jérôme Contamine

Well first of all, the beauty of the sanity model is that we are presently aware. So we are not different specifically for any country or for any IRR, or whatever. So actually Greece represents a bit more than 1% of those ERE [ph] sales. We of course – sorry?

Laurence Debroux


Jérôme Contamine


Laurence Debroux

And so, you have been – possibly accumulated over many years those payable systems?

Jérôme Contamine

Yes, I mean, in term of sales, it represents a big loss at 1%. So I maybe made a mistake, 1% of our overall sales. In terms of outstanding receivables, actually, I think the ratio of outstanding receivables to sales, it has even slightly decreased last year. All in all, it came to the public and the private sector much below one year. And we have improved the situation right again at the beginning of this year. And I think that Laurence, Hanspeter, myself, and the private people, we are following that very carefully. Well we have taken some provisions – some reserves against that, but not much because these figures are showing that we have already – already in debt.

So the exposure is – at the end of day, runs unlimited. And I think as well even there is some concerns about the future of the Greek economy, I mean, should you still believe that you are logging to be paid by Greek hospitals, I doubt it means that it would be the case because at the end of the day, it would mean back to all the questions around the risks of that country belonging to the Euro zone.

So yes, this exists. I mean, we are all going to face – we have been facing crisis in Venezuela, or in Russia, or maybe one day in India, or one day here and there. But at the end of the day, I mean the risk is really very, very mitigating. And once again, the overall outstanding receivable is around EUR200 million, which we have taken already on reserve. And within that (inaudible), part of it is hospitals.

Christopher Viehbacher

Back row?

Norris Shirhan – ICAP

It's Norris Shirhan [ph] from ICAP. A question on emerging markets please, GSK said they've had to walk away from a number of emerging markets because the price had become too high and I know it's got a lot of activity. Your 2013 guidance includes further emerging markets. Our positions, as you just said – how do you plan to extract more value than your peers so you don't destroy value in emerging markets?

And then a question on the debt level and of the CapEx, and debt, you have around EUR4 billion left, if you plan to continue acquiring, should we assume the current debt level is one which you are comfortable with?

Christopher Viehbacher

I'll start off with the emerging markets. I can certainly say that we've look at a few deals, the GSK did that – we didn't get anywhere close to even looking at. So I would say, if anything, our hurdle rates are much lower than when they where because we were scratching our head as to how they could justify doing the ones they did. You want to think the – the reality is that there's an awful lot of stuff out there. The deals that you're talking about are things, for instance, there's another Big Pharma company like DMS have been selling off. There are other deals out there and you do have to go looking.

And for us, I think you've heard we put higher hurdle rates on some of these investments. If it's in an emerging market, it's got a much higher hurdle rate to achieve than elsewhere. And we haven't actually done that many deals actually in emerging markets, not because there weren't any companies, there are 4,000 companies in China alone. There are 400 pharmaceutical companies in India. But you do have to find those ones that really do add value. And I would say that when you look at what we have done, I think we actually have met what shareholders would expect us to do in terms of driving value.

Do want to take a bit question Hanspeter?

Hanspeter Spek

Yes. I mean we're stuck into the very low level basically of EUR1.8 billion net debt. As you said, because of acquisitions, we have increased our net debt up to EUR4 billion. Still, take this EUR4 billion and think about the EUR4 billion of free cash flow we are going to generate with one year after dividends. It means basically that if we were not to do any deal in 2010, which won't be the case, we have only Chattem, we would be able to bring that debt to zero by the end of 2010.

So I really feel that we are definitely still very comfortable. All the rating agencies share this view. We the regular discussion with them. You that we have AA rating with Standard & Poors, and A1 ratings with Moodys. And they both agree that we have headroom to do some – to do those acquisitions. And of course, this will depend upon which acquisitions we would do, how stronger the cash flows generated by these acquisitions, how visible also is the cash flow that we are going to generate.

But clearly, I feel and if we compare to the competition, a lot of our main competitors, a lot of competitors have debt to EBITDA ratio, which are much beyond 1%, even 1.5%, or even some of them 2%, not speaking about smaller companies. So I don't say we are going to go to 2%, but I feel that it's a 0.3% ratio of debt to EBITDA, we are really on the lower end of the level of that as we can be. So once again, I think it will not definitely – we should not limit our ability to do these acquisitions. We'd extend if these deals make sense for us on strategic point of view, which was not discussed today, but also from the (inaudible) point of view on a case-by-case basis.

Christopher Viehbacher

All right, another question in the back?

Jean Jacques Le Fur – Oddo Securities

Jean Jacques Le Fur, Oddo Securities. Some question about BSI-201, the first one is, if what I understood Hanspeter was saying that the filing date is expected to be late this year for breast cancer. So my question is, is there any chance to try to file with the phase II data earlier than late this year, so that means a few weeks or months?

The second question is, will we have a chance to see the phase II that (inaudible) in the next few weeks, and in which manner we can see this data?

And last question on VSI, could we have an update on the patent situation? If I remember well, the patent is to expire in 2013. So what is your expectation for the US to get probably a five-year additional extension?

And I have another question on the combo Lantus with GLP-1, just to try to understand the advantage of the GLP-1 is not to have any dosage of glucose in the blood. So when adding an insulin, you will have to do such dosage? So don't you think you will lose the advantage of having a GLP-1 – of the GLP-1 with combining with an insulin? Thank you.

Hanspeter Spek

It's a good question, but I think you need to look the other way. Either, once you need insulin, in fact, the risk with the quick-acting insulin is in fact is to get rid of the peak of glucose, but at the same time you expose your patient to hypoglycemia. So if you are able to add – in-patient, we need insulin, Lantus first, then GLP-1, you get rid of the upshot peak of glucose without hypoglycemia, and on top of that, with a potential advantage on weight because you know that with insulin you are getting weight.

In terms of the VSI for submission. No, it's based on an interim analysis of the ongoing study, which is in fact doing more factors than expected. But still I do not expect it will be possible to do as – internalize this also. We need to be absolutely sure whether this is going to give an advantage in terms of survival. And so, because it might be – the drug is active, we have lesser than expected, and so we are increasing a little bit of the time in order to get these events. And the second question that I do–

Jean Jacques Le Fur – Oddo Securities

It's the Phase II data.

Hanspeter Spek

On breast cancer remission or on lung cancer? On lung cancer, this research is starting.

Unidentified Participant


Hanspeter Spek

Sorry? For that I apologize. I don't know exactly when it's supposed to be published. So I cannot answer this question now. But I'm sure that Sébastien can tell that. And the sub-question–?

It is true that we have one certain in 2017, but we have many also patents, so we are not commenting, and we will submit, so I'm not commenting on that patent we are submitting (inaudible). But we are expecting in 2011 – in fact making this large life cycle management program, that patent would be extended after 2020.

Christopher Viehbacher

We know that the 2013 date is absolutely relevant anywhere because you will have at a minimum five years to data exclusivity from launch, plus the fact you can't launch – you can't file for generic in that five-year data exclusivity period. So you typically are going to be working with at least seven years from launch. We know that there is a patent extension that could take you up to 2018 depending on what indications, and general counsel is sitting right over there. But I think you could even imagine a patent situation that goes beyond 2018. But I think, what we certainly said is we're going to have those seven years in US, and then obviously in Europe, we've got the 10 years in (inaudible) everything.

Marc Cluzel

We have a patent for the use in cancer, which goes up to 2018, plus the extensions there.

Hanspeter Spek

We have also – I would not go into all the details, but we can – because when – since all the patents are not still registered, but we have patent which is covering some product likely above 2020. It's why we are making stock – staffing a life cycle management.

Christopher Viehbacher

Right. So you've been very patient. We thought we might – if you would like to continue the discussion and questions in a little bit more convivial fashion, we'd like to invite you to a drink outside afterwards. We certainly like to celebrate our first year as a management team together. I think we had a great year. We appreciate the support of investors and analysts alike, and look forward to having a drink with you. So thank you very much everybody.

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