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Sanofi (NYSE:SNY)

2013 Earnings Call

February 06, 2014 8:30 am ET

Executives

Sébastien Martel - Vice President of Investor Relations

Christopher A. Viehbacher - Chief Executive Officer, Director and Member of Strategy Committee

Jerome Contamine - Chief Financial Officer and Executive Vice President

Peter Guenter - Executive Vice President of Global Commercial Operations

Pascale Witz - Executive Vice President of Global Divisions & Strategic Development

Olivier Charmeil - Executive Vice President of Vaccines

David P. Meeker - Chief Executive Officer and President

Carsten Hellmann - Executive Vice President of Merial

Elias Adam Zerhouni - President of Global Research & Development

Analysts

Michael Leuchten - Barclays Capital, Research Division

Mark Clark - Deutsche Bank AG, Research Division

Philippe Lanone - Natixis Bleichroeder LLC, Research Division

Luisa Hector - Crédit Suisse AG, Research Division

Stephen McGarry - Societe Generale Cross Asset Research

Eric Le Berrigaud - Bryan Garnier & Co Ltd, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

Operator

Ladies and gentlemen, welcome to the Sanofi 2013 Full Year Results Conference Call. I will now hand over to Mr. Sébastien Martel, Head of Investor Relations. Sir, please go ahead.

Sébastien Martel

Thank you. Good morning, good afternoon. Hello, everyone. Thank you for joining our conference call to discuss financial results for Sanofi for the fourth quarter and year ended December 31, 2013. As always, our slides are available on the Investors page of our website. You can also follow our call today on the new Sanofi IR application on iPad or iPhone.

Before we begin, as you can see on Slide 2, I'd like to remind you that our information presented today in this call will contain forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. I refer you to our Form 20-F documents on file with the SEC and also our document reference for a description of these risk factors.

On Slide 3, you can see the agenda for the call. First, Chris will discuss key highlights, then Jerome will review our financial performance. Following our business head, we'll discuss operations, and Elias will provide you with an update on R&D. Chris will then come back and make concluding remarks, then we'll open the call to questions.

So with us today on the call are Chris Viehbacher, our Chief Executive Officer; Jérôme Contamine, our Senior VP and Chief Financial Officer; Peter Guenter, Executive Vice President, Global Commercial Operations; Pascale Witz, Executive VP, Global Division & Strategic Development; Olivier Charmeil, Executive VP, Vaccines; David Meeker, Executive VP and Chief Executive Officer of Genzyme; Carsten Hellmann, Executive VP, Merial; and Elias Zerhouni, President, Global R&D.

So without any further ado, I will now turn the call over to Chris.

Christopher A. Viehbacher

Thank you, Sébastien. Good morning and afternoon, everybody. So as we announced a year ago, we obviously were going to have a year at 2 different speeds. One was the first part of the year, where we still had a comparative period that included Plavix in the bottom line and Eloxatin in the top-end bottom line. And really, it's been since 1st of September 2012 that we got beyond the cliff, so we needed to get to 1st of September 2013 to get in the comparable period.

And I think you've now seen 4 months of pretty consistent performance post-cliff and very much in line with where we expected the business to start to perform following the cliff.

The growth platforms now account for 73% of sales compared to 43% in 2008. There's been a dramatic shift in the profile of sales in the business. I think one of the things that I'm most proud of, actually, which I think was one of the hardest things to do, is that Elias and his team have put together a pretty darn reasonable, I would say, one of the better pipelines in the industry with 9 high-potential late-stage projects.

What most people don't really see Sanofi as yet is that we've really become a biopharmaceutical company. 45% of our sales today come from biologics, and 80% of development pipeline projects are biologics. So you don't have to be a math genius to figure out that the percentage of sales from biologics is going to increase over time.

If we look at the quarterly sales growth on the next slide, you can see this profile emerging. Back in the third quarter, we'd already shared exceptionally the sales for the single month of September, which were mid single digits. And you can see that, that carried through into the fourth quarter with sales growth of 6.5%.

On the profit picture, it took us into the fourth quarter to get there, with clearly some expected one-offs, ones that really would -- have been envisaged from the start of the year. And we had, obviously, some one-off negatives as well, and we had a slightly higher tax rate. The real increase in growth, I think, is due to a favorable comparative period. But nonetheless, very strong organic growth underlying all of that.

If I look at the full year on Slide 7, obviously, the impact of Eloxatin is felt, with the sales slightly declining at 0.5% down at constant exchange rates. Obviously, the impact on the bottom line is bigger at 9.8%, largely still because, of course, we had almost 4.5 months of Plavix sales in 2012 which we didn't in 2013, and that represented about an EUR 800 million impact in 2013.

The real story of Sanofi are the growth platforms. It's on Page 8. Those growth platforms grew at 10% in the fourth quarter, with really all of them -- almost all of them performing pretty well.

Emerging Markets returned to double-digit growth at 10.4%. Diabetes for, again, I think, 12 consecutive quarters, has grown very strongly, 19%, certainly double digits. Vaccines is stable, but that's largely just because they began shipping in the middle of October from Toronto. That's been a progressive return to supply. But actually, it hides an extraordinarily successful flu season, and Olivier will talk about that a little later.

Our Consumer Healthcare business, at 6.1% for the quarter, 5.2%, extremely respectable performance in this type of business, especially since we had some challenges in distribution in China in the early part of 2013.

Genzyme, an extraordinarily strong success again in this year, fourth quarter sales driven very strongly by both Rare Diseases and a very successful launch of Aubagio. Animal Health really continuing a trend that we'd seen all year, principally affected by Frontline. But I think, as Carsten will say, we would expect to see a change in the direction of that performance at the beginning of the year.

The last line has, of course, traditionally been where Sanofi has been weak. And here you've got Other Innovative Products, the products that have been launched since 2009, all of EUR 705 million for the year. Even if we add Aubagio at EUR 166 million, which is included in the Genzyme line, we're still less than EUR 1 billion, and this is one of the weaker numbers of the industry.

But this is where I think you're going to see an awful lot of change going forward. Elias will talk about the launch of products like PCSK9 in dengue and the like. I think this will give us one of the stronger sources of growth going forward.

On Page 9, we have a dividend for the 20th consecutive year. We'll be increasing the dividend to EUR 2.80. This is a payout ratio of 55%. We've always said that 50% was a target but not a ceiling, and I think you can see that there. But a compound annual growth rate in the dividend, a 5% from the 2008 to 2013 period. And in addition to that, we did about EUR 1.6 billion of share buybacks, which is up considerably from 2012. And all of that, of course, leads to a total shareholder return of 98.9% over the period September 2008 to the end of last year.

So with that, I'll turn it over to Jérôme Contamine for a brief overview of the financial performance.

Jerome Contamine

Thank you, Chris. So I'll start with Slide 11, and I will put the focus on the FX effect as long as we have seen very significant currency movements over the period.

So as you can see from this slide, both our top and bottom lines have been affected by strengths of the euro versus all other currencies. As a matter of fact, the FX impact in 2013 on sales, as well as EPS, more than erased FX gains that we saw during 2012.

If you look at the fourth quarter more precisely, the strength of the euro continued, and we saw almost the same impact in the first quarter as we saw in the third quarter. So the results of the fourth quarter FX impact is EUR 0.16 decrease per share on the business EPS, which again was similar to the third quarter.

The main currency impact on sales on profit in this quarter was from the Japanese yen, on the U.S. dollar, but also a certain number of currencies in emerging markets. So actually, the negative impact on EPS of the Japanese yen and the U.S. dollar during this last quarter was JPY 0.05 for the yen and $0.10 for the dollar.

Now I move to Slide 12, look a bit more in detail into Q4 P&L results. So we see here that, as expected, Sanofi returned to growth. As Chris mentioned earlier, net sales increased 6.5%. Other revenues were EUR 88 million, which is a decrease of 33.6% versus last year, affecting the end of royalties on Enbrel sales in the U.S., which ended since last February.

The gross profit was up as well as sales by 5.3% at EUR 5.6 billion. The cost of sales this quarter reflects the impact of vaccine manufacturing issue in Toronto, which we're now [indiscernible]. So mix effects from lower sales of high-margin Companion Animal products, mainly Frontline, also an unfavorable currency variation. These items were, however, partially offset by the enhanced margins of our pharma operations and also Genzyme.

As you can see, our OpEx were down in Q4, demonstrating tight control, coupled with R&D as well as SG&A expenses.

Other current operating income and expense increased in Q4, this was mentioned already by Chris, to EUR 251 million. This was expected. That is an income of EUR 56 million in Q4 2012. This resulted from 2 elements: the first was EUR 92 million payment on ACTONEL, as previously disclosed by Warner Chilcott last October, ending the royalty income flow from this collaboration 1 year ahead of schedule. In addition, we also benefited from a settlement of EUR 93 million linked to a Rituxan arbitration between Hoechst and Genentech. This amount is smaller than the amount disclosed by Roche, by the way, for the ones who are following that, recognizing that a portion of the total payment had to be made by Sanofi to the initial inventory. I think there is nothing specific to report on the share of profit from associates on noncontrolling interest in the first quarter. All in all, our business operating income reached almost EUR 2.5 billion, going over 30% at constant exchange rate.

Now I move to Slide 13. Looking at the lower part of the P&L, we know that the financial expenses were lower in Q4 as we continue to reduce our net debt, but also because we had a EUR 29 million capital gain linked to the partial sale of a financial investment.

In line with our guidance for 2013, the effective tax rate for the full year was 24%. It was also 23.9% in the fourth quarter. As you probably remember, for the ones, again, who saw -- who look at that carefully, the Q4 2012 tax rate was adjusted to 19% to effect an average tax rate of 25.5% for the full year of 2012.

So of note, an unfavorable tax difference in the fourth quarter was compensated by the ACTONEL payment on the risks of settlement. So if I take all these elements aside, our business net in terms of the first quarter would have grown by 28%. Though most ratings rated good strength of our performance, it wasn't good.

Taking everything into account, our business net in terms of fourth quarter grew by 30.5%, and we delivered a solid business EPS of EUR 1.37 despite a negative currency impact of EUR 0.16. The average number of shares was basically stable during the quarter.

For the full year, moving to Slide 14, the net sales were stable at constant exchange rate, reaching EUR 32.9 billion. In line with our expectations, other revenues decreased to EUR 355 million, mainly reflecting the loss of exclusivity of Plavix in the U.S. in 2012. In 2013, the gross profit reached EUR 22.3 billion, down 4.8%.

For the year, the business operating income was 9.3% (sic) [EUR 9.3 billion], so reflecting clearly the low performance during the first half of the year on the high comparison, being down 11.1%. So this clearly reflects a residual impact from the patent cliff on some temporary operational changes experienced up to August, as you remember, but also then the return to growth for the remainder of the year.

Just as a reminder as well, to be very precise, this P&L also includes the disposal of some paid products to [indiscernible] in the U.S., Q2 2013, reaching an amount of EUR 166 million before tax, as well as the 2 other elements which I mentioned for Q4.

The effective tax rate was 24% versus 25.5% in 2012, obviously in line with the guidance that I gave back in Q2. The business net income decreased by 9.6% to EUR 6.7 billion. And as a result, we finished the year with a business EPS of EUR 5.05, but also, in consolidation rate, EUR 5.54 per share.

Now I will give some more details on the cost lines, so I'll move to Slide 15. So starting with the cost of sales. So the cost of sales in 2013 increased by 3.3% at constant exchange rate. This was mainly due to the Toronto manufacturing issues for vaccine, but also unfavorable currency impact.

Looking at the year, the ratio, cost of sales for net sales was 33.4% versus 31.7% in 2012. But here, it also reflects the end of the revenues from former [indiscernible] which we're still basing this from during the first half of the year. For 2014, we expect our cost of sales to sales ratio to improve versus 2013 on a constant exchange rate basis.

Slide 16. We were able to maintain our R&D expenses flat again in 2013 while continuing to advance on our most valuable R&D assets. R&D expenses were stable at EUR 4,770,000,000 while below the EUR 5 billion ceiling that we have provided for the year.

R&D expenses reflect continued significant reduction of our internal fixed costs, but also higher investments supporting late-stage R&D pipeline projects. For 2014, we expect R&D expenses, driven by a number of late-stage studies, to slightly increase in absolute terms.

SG&A, Slide 17. For the full year, we hear also -- see that SG&A expenses were stable, reaching EUR 8.6 billion. It demonstrates our ability to tightly control sales and marketing costs to keep general expenses flat and also to invest behind our growth platforms such as, this year, our multiple sclerosis franchise, but also some emerging markets.

In 2014, we expect that SG&A would increase somewhat in absolute terms to sustain our growth platforms and to prepare for launches. However, the SG&A-to-sales ratio as a ratio should be stable to slightly decreasing.

Slide 18, just an update on our cost saving programs. So I'll remind you that now, back 2 years ago, we announced that we would save EUR 2 billion by the end of 2015. So I can now report to you that we expect to save this EUR 2 billion 1 year in advance, by the end of 2014. Already, we have achieved more than 85% of this cost-reduction program over the last 2 years. During this 2 years, we have reinvested around half of these savings to support growth platforms, product launches and late-stage clinical trials.

In 2014, we expect the remaining EUR 300 million to EUR 400 million savings to come mainly from cost of saves, i.e. from manufacturing productivity, but we plan to reinvest these savings to support product launches and late-stage R&D programs.

Slide 19, cash flow. So we generated a strong cash flow during the fourth quarter. All in all, we have generated EUR 6.5 billion of free cash flow, which is lower than previous year, but the decrease is less than the decrease of profit, showing that we have a good consummation rate of our profit into cash.

As a matter of fact, we tightly controlled our CapEx, which were reduced from EUR 1.4 billion to EUR 1.2 billion between 2012 and 2013. We also tightly controlled our working capital requirement, which was reduced, driven in part by the decreasing daily sales outstanding, DSO, by 6 days.

During the same period, we realized proceeds of over EUR 1 billion from the exercise of stock options on performance shares and bought back EUR 1.6 billion of share outstanding for the year. Much of this was to compensate for the dilution of the exercise of stock options.

The dividend payment was slightly above EUR 3.6 billion. As a result, our net debt, net financial debt now, was reduced by EUR 1.7 billion, down to around EUR 6 billion at the end of 2013.

So to summarize our financial achievements, we closed the year with a return to growth in the first quarter on both top and bottom lines. We delivered strong free cash flow and reached a further reduction of our net financial debt while returning a net amount of close to EUR 4.3 billion to our shareholders with dividend payments and share buyback programs.

Going forward, we plan to sustain strong shareholder returns, and our Board of Directors is proposing an increased dividend payments of EUR 2.80 per share, leading to a payout of around 55%.

I will now return the call over to business head, and I'll start with Peter Guenter. Peter?

Peter Guenter

So thanks, Jérôme, and good morning or good afternoon to everybody. So my checklist today is really to provide an overview of the geographical performance of our commercial operations.

So let me start with a look at our Emerging Markets on Slide #21. As you can see, we recorded a double-digit sales growth in Emerging Markets in the fourth quarter, making up close to 35% of our total group sales. So with sales of EUR 2.9 billion in the fourth quarter and around EUR 11 billion for the full year 2013, the Emerging Markets growth platform makes up the largest geographical segment of our business.

Now within Emerging Markets, we do continue to see various dynamics across the regions. You can see that 3 out of our 4 regions in Emerging Markets delivered double-digit growth in the fourth quarter.

Latin America, very satisfying. We grew the business by 10% to EUR 825 million in the fourth quarter. Within our Generics business in Brazil, showed nice recovery and strong improvement in the fourth quarter with sales of EUR 59 million, up close to 24%.

In Asia, you can see that sales grew by 15.4%, reaching EUR 776 million in the fourth quarter. In this region, China recorded a very strong performance, growing 35% to EUR 400 million in the fourth quarter as a result of both the progressive recovery of the pharmaceutical sales and also very strong vaccine sales.

Africa and Middle East continue to contribute to the double-digit growth in Emerging Markets, reporting EUR 568 million of sales in the fourth quarter.

Finally, looking at Eastern Europe, Russia and Turkey, this region's growth of 5% was driven by sales mainly in Russia of EUR 250 million, up 10%, and also by Turkey, with sales growth of 16% for the quarter.

If we go to Slide #22, we show really how Sanofi is poised to capture future growth in fast-growing markets. Our scorecard in Emerging Markets summarizes key metrics of our leading position and how we will continue to leverage our existing presence in these regions.

Moving from left to right, you can see that Sanofi is the undisputed #1 health care company in emerging markets, with a market share of 5.7%. Our leadership position is well balanced between BRIC and non-BRIC countries. We have a broad and strong presence in these markets in terms of product portfolio, sales force size of over 23,000 people and a very wide network of 37 industrial sites.

This really puts us in a unique position to capitalize on ongoing trends related to demographics, organization, expansion of the middle-class, higher disposable incomes and, consequently, a strong increase in the demand for health care.

As we continue to hone our execution strategy in fast-growing markets, we will maximize our growth opportunities in these regions in the years to come.

So if you move to Slide #23 and we look at the other geographies, we can really see also improving sales trends throughout 2013 in the U.S., representing 31% of sales, but also in Western Europe, making up 23% of sales. Specifically, I want to highlight the performance in the fourth quarter, where, both in the U.S. and Europe, we have returned to growth.

So with that, I will turn over to Pascale to discuss Diabetes and CHC business performance.

Pascale Witz

Thank you, Peter. So let's start with Diabetes on Slide 24, where we see the Lantus impressive performance showing yet another year of double-digit growth, reaching sales of EUR 5.7 billion in 2013. Lantus is clearly the first choice for insulin therapy. With over 8 million patients worldwide, more than 10 years of clinical experience and extensive cardiovascular safety data, Lantus reported its 12th consecutive quarter of growth in Q4 2013, with sales up 20%.

Part of this success is supported by the conversion of the -- to the SoloSTAR plan, which now represents 58% of the U.S. sales and the majority of the sales in Europe. Our other innovative pen solutions contribute to the success of Lantus in other geographies.

So turning on to Lyxumia on Slide 25. We reiterate the key benefits of our once-daily prandial GLP-1 Lyxumia, which complements basal insulin. Lyxumia has a pronounced post-prandial glucose-lowering effect and a limited risk of hypoglycemia. It can be used in combination with oral therapies and with basal insulin.

It is now commercially available in several countries, including Germany, U.K., Spain, Japan and Mexico, and we are encouraged by its initial market uptick. So as for the U.S., we continue to expect to resubmit our NDA to the FDA in 2015 after completion of the ELIXA cardiovascular outcome trial.

Turning now to Slide 26, where we look at another of our growth platforms with Consumer Healthcare. We are the third-largest consumer health care player in a large but fairly fragmented OTC market.

Q4 sales were up 6.1%, reaching EUR 722 million. For the full year, total sales were EUR 3 billion, up 5%, driven by the growth in the U.S. and in Emerging Markets. Our top 7 brands today account for 40% of total sales. And very recently, we have been busy preparing for the launch of Nasacort OTC in the U.S., which occurred this week, right in time for the spring allergy season. Nasacort OTC 24, which will be the first and only nasal spray in its class to be available without a prescription.

With that, I will turn it over to Olivier Charmeil to review the Vaccine business.

Olivier Charmeil

Thank you, Pascale. Hello, everyone. Good morning, good afternoon.

On Slide 27, we see that Sanofi Pasteur delivered stable sales of EUR 3.7 billion in 2013. This was achieved despite significant supply constraints last year. Importantly, seasonal flu vaccine savings for '13 set a new record, and I will discuss this franchise on the next slide.

In mature markets, we generated EUR 2.4 billion. We are pleased to report that volumes of our pertussis-containing vaccines are recovering as a resolution of the Toronto production issues on track.

In Europe, the Sanofi Pasteur MSD joint venture started the rollout of the 6-in-1 pediatric vaccine, Hexyon, in 2013. Additional country launches for this product are expected through 2014.

In the U.S., Menactra sales were impacted by phasing, reflecting a high comparison basis in Q4 2012, which included CDC supplying this market, while our VaxServe business continued to expand.

In Emerging Markets, continued growth were mainly driven by Pentaxim penetration. Also, the rollout of Hexaxim in Emerging Markets that is now launched across 4 continents in more than 15 countries continued nicely. Lastly, we expect the World Health Organization to prequalify our Shan 5 vaccine in the first half of 2014.

Now turning to Slide 28. Looking at flu vaccines specifically, as you can see on this slide, our differentiation strategy resulted in flu sales of EUR 929 million in 2013, an increase of 9.3%.

Our undisputed leadership position in flu vaccines is based on the sales of 215 million doses sold worldwide, of which 66 million dose were distributed into the U.S. market. Overall, 75% of our total doses were sold in the Northern Hemisphere and 25% in the Southern Hemisphere.

We now have, in the U.S., a market share of 50% on the flu market, proving the relevance of our differentiation strategy. We have successfully differentiated our products to better serve patients and physicians, offering a range of options that feed specific needs that share proven [indiscernible] for elderly people: Fluzone Quadrivalent vaccine, a 4-strain influenza vaccine, that offer broader protection; and Fluzone ID, which is administered through an intradermal microinjection.

In 2013, 41% of flu vaccine sales were from differentiated flu vaccines, up from 26% in 2012, and we expect this trend to continue. For 2014, given the ongoing resolution of our manufacturing issues in Toronto, we can confirm that we aim to return to annual sales growth.

In H1, sales are expected to be stable versus last year, but only due to a high comparable basis.

In the second part of the year, we expect a stronger performance than the previous year.

Now I will pass the presentation over to David Meeker to discuss Genzyme business results.

David P. Meeker

Thank you, Olivier. So as Chris noted, Genzyme had an extremely strong fourth quarter, growing 31%, leaving us at 26% -- approximately 26% growth for the year. And if you look at the Rare Disease business unit specifically, it contributed -- it grew at 17.7%, leaving that business unit up 16.6% for the year, almost EUR 2 billion.

This result was driven predominantly by our 3 main products: Cerezyme, Fabrazyme and Myozyme, each of which had strong double-digit growth.

If you look at Cerezyme specifically, it's the product that was approved in 1991, so almost 20 years or more than 20 years later, we are still seeing significant growth in this market, suggesting we haven't fully begun to address the unmet medical need here. And that product grew 14% year-on-year.

Fabrazyme regained its #1 position in just 4 quarters since coming back to full supply, growing 39% for the year. And again, this is a product with significant room still to grow.

Myozyme remains the only approved therapy for Pompe disease. Again, we're relatively early in its life cycle.

We remain committed to developing new therapies for Rare Diseases. We've got our next-generation ERT in the clinic for Pompe disease. And we have started development of a new oral therapy for Fabry disease.

As many of you, I'm sure, know, we announced a expanded collaboration with Alnylam, which we're quite excited about. This is a new novel platform RNA interference. They're a company that has a stated goal of having 5 products in the clinic by 2015. Their lead product for familial amyloid polyneuropathy is currently in Phase III, and they're on track or ahead of their stated goal of getting 5 products into the clinic. So we believe this will be a significant contributor to the Rare Disease portfolio as we move forward.

Now if you move to Slide 30, I'll just say a few words about Cerdelga, our new oral therapy for Gaucher disease. We believe this will offer a real meaningful choice to patients with Gaucher disease, eliminating some of the infusion challenges that a lifelong therapy entails.

This is the largest clinical program that's ever been run for Gaucher disease. Over 400 adults were treated in 29 countries. Of note, we did not study this specifically in pregnancy and children, and so this will be a therapy, certainly initially, which is targeted to the adult population. The children and pregnant population is about 25% to 30% of the overall Gaucher population.

So our Phase III program included 2 trials predominantly. One was in naïve patients and the second was in patients who were switched from Cerezyme. If you look at the graph on the right, you can see the primary end point, a reduction of spleen volume of 30%, which compares quite favorably to what we see with enzyme-replacement therapy. For the noninferiority trial comparing Cerezyme and enzyme, again, Cerezyme met the noninferiority criteria.

Both -- Cerdelga is currently in a review by both the EMA and the FDA, and we have been granted priority review by the FDA.

So if we move to Slide 31 and look at the MS franchise, this is obviously a very significant market, a $15 billion market. And we believe we're well positioned to enter this market. Aubagio, in its first full year post launch, delivered EUR 166 million in sales and had a very strong fourth quarter, driven by both continued good performance in the U.S. and a strong launch in Germany and the Nordic countries. We had received EMA approval for Aubagio in August. Lemtrada has received regulatory approvals in the EU as well as Canada, Mexico and Australia, and we began our EU launch in the fourth quarter. We did receive a complete response letter from the FDA in late December. As you know, we are in the process of appealing that decision. It was obviously a disappointing decision, and as a result of that, the CBR milestone for U.S. approval by March 31, 2014, will not be met.

I think it's important to put this in a bit of context. As we look at the overall franchise and the unmet medical need in the multiple sclerosis market, U.S. patients represent about 400,000 out of the 2.1 million patients affected with MS. And we fully expect that 3 quarters of this world will have access to Lemtrada, and of course, as I indicated, we'll continue to work with the FDA to find hopefully a path forward.

So we're quite excited about the contribution to a market that still has a pretty significant unmet medical need.

With that, I'll turn it over to Carsten Hellmann to describe the Merial.

Carsten Hellmann

Thank you, David. Since I joined the company in September last year, our primary focus has been on gearing up Merial for the launch of our next generation of flea and tick control products for pets and to build a strong business platform for growth in 2014 and beyond.

As you can see on Slide 32, full year sales of the Animal Health business were approximately EUR 2 billion in 2013, down 5.3%. Clearly, Companion Animal sales, which represents 6% of sales, suffered from a weak flea and tick season in the spring 2013 as well as increased competition from Frontline generics.

But having said that, we have to bear in mind that all other businesses were growing, and Production Animal sales were up 2.1% and that represents 40% of sales. Frontline has been the major driver of our business, but its patent expired several years ago. So what is important now, though, is to regain the franchise through innovation and commercial excellence, and that's exactly what we have with NexGard and Broadline we're about to launch.

NexGard, a chewable novel oral flea and tick product for dogs, was just launched in the U.S. It's basically a treat for dogs as a little beef treat. Regulatory approval is expected in Europe soon, and we also would like to launch the product in EU in time for the flea and tick season, which we expect to do.

Broadline, a new topical product for internal and external parasite control in cats, will be launched in Europe also in Q1 2014.

Also, other new launches are planned, and we will launch a number of new products in the next 3 years. And interestingly, these future growth drivers are equally split over our Companion and Production Animals segments.

With that, I will now turn it over to Elias Zerhouni to provide an R&D update.

Elias Adam Zerhouni

Well, thank you, Carsten. As mentioned by Chris, I think we're seeing a real turnaround in our R&D portfolio. As you'll see as I present the data, 2013 has really been a year where we've recovered the ability to push forward the very promising, robust, advanced pipeline with significant data milestones all throughout 2013.

As you can see on the slide, we've had the successful completions of Phase III studies in U300, which is the replacement or the improved insulin that is being developed, as I will describe later.

Alirocumab has also extensive results, extensive recruitments in a very large program which we will talk about as go forward, as well as other programs such as Dupilumab, which has been named the "Clinical Advance of the Year."

So when you look at the slide, you see that these 6 exciting programs are advancing, but they also reflect the broader scope of our portfolio across different disease areas. And as Chris mentioned earlier, it's really important to note the strong shift of our pipeline to Biologics. Biologics have a historically high rate of success, which increases the robustness of our portfolio. And as you look at the innovation content of our portfolio, you'll be amazed, in my view, to see that over half of the programs are now in the first-class category -- best-in-class category, first-in-class category. So I'll walk you through the individual programs in more details later.

And on Slide 35, I'd like to show you an overview of our approvals and regulatory submission that we achieved in 2013. We delivered 7 product approvals in the key markets in 2013. We have 2 projects in registration, Cerdelga and you heard from David about Lemtrada, which has been approved in 32 countries except in the U.S. for the reasons you heard.

As we look forward on Slide 36, we have essentially 9 late-stage, high-value projects that may potentially be filed over the next 4 years in several disease areas, including diabetes, vaccines, cardiovascular and immunology.

Based on our new strategy for research and development, some of these potential filings also demonstrate how we've been able to work successfully with our partners and be able to integrate better external and internal innovation into significant growth opportunities for Sanofi.

So I'd like to go into more specifics for you. If you look on Slide 37, U300 is a good example of how we're aligning our R&D programs with our growth platforms. With U300, we're developing the next generation of basal insulin for a broad diabetes population. And the excitement around U300 is due to its really exceptional pharmacological profile. As the slide shows, it has less excursions than Lantus and the PK level, which leads to a much better PD -- pharmacodynamic effectiveness over the 24-hour period of administration.

So if you look at the data from the addition program, it suggests that at equal efficacy, U300 is associated with a lower incidence of hypoglycemic events. Importantly, in the titration phase as well as in the maintenance phase of U300 therapy, we're noticing a decrease in the hypoglycemic event rates.

We studied over 3,500 patients in our U300 trials, and we expect to submit this data to the regulatory authorities, both in the U.S. and Europe, in the second quarter of 2014.

On Slide 38, I'd like to highlight another key asset in our diabetes pipeline, LixiLan. You've heard from Pascale how important this combination can be. By combining insulin glargine with Lixisenatide, our GLP-1, which has a pronounced post-prandial effect in a fixed-ratio single daily injection, is being developed as an option in the management of diabetes. We've just commenced Phase III studies, whereby a fixed-ratio solution is delivered in a disposable pen device.

And if you really look at our program, we're targeting 2 populations. The first one is what we call the LixiLan-O study for oral therapy, which is being conducted in patients who are not controlled or insufficiently controlled oral therapies. Here, what we're trying to achieve is show that as a first injection, it is the best medical approach to combine, actually, our Lixisenatide with insulin for those not at goal with oral therapy.

In the second study, what we intend to demonstrate is the value of combining in-patients who are on insulin therapy and are not at goal the benefit of the complementary actions of GLP-1 and basal insulins on the effectiveness of therapy, both in terms of weight gain, in terms of post-prandial control and in overall insulin sparing and hypoglycemia control. So given the significant delay of degludec in the U.S., LixiLan may potentially be the first to market with this combination, which makes sense, and we are targeting late 2015 to submit the dosage to the FDA.

So I'd like to switch now to our very high-value asset in cardiovascular. If you look on Slide 39, I'm talking about our PCSK9 monoclonal antibody called alirocumab, which is targeting hypercholesterolemic patient populations at high cardiovascular risk with unmet needs.

And if you look at the total population worldwide today -- not worldwide, sorry, in the U.S. and EU5, we have about 62 million patients were treated. And when you look at these patients, the patients that have a high risk for complications of cardiovascular disease are about 35 million. And if you look at the ones who have the highest unmet need, you have a population of 21.6 million, in particular patients who are intolerant to statins, diabetic patients who are at 2x, 3x the risk of the normal population for macrovascular or cardiovascular complications, as well as patients who have a cardiovascular event who need a better protection.

So you can see that the market is significant, and for us, what is really important is to be able to bring a set of solutions with alirocumab that will serve the patient population as the needs are apparent in these patients. So as you can see, we're normally talking about a large population of patients and about a large program designed to address these very significant subcategories of patients who, today, are not at goal.

Now it is going to be a very exciting year for alirocumab. We will indeed have many Phase III results from the very large global clinical program, which is involving 14 trials and over 23,000 patients.

You've already heard our results from our first Phase III study, ODYSSEY Mono, showed that alirocumab has monotherapy, a reduced mean LDL-cholesterol level. It was almost 3x the amount of -- achieved with ezetimibe, from 15.6% for ezetimibe to 47.2% with alirocumab.

We expect to share all the data from other Phase III programs mid year, and our plan is to start regulatory filings based on LDL cholesterol in early 2015 outside the U.S., and we expect to follow with our FDA submission during 2015.

On another note, I'd like to also echo what Chris was saying on our next slide, and that is that we have a strategy going forward of not only having a research in the growth platforms that we know, Diabetes and Rare Disease and Vaccines, but also create new growth platforms through R&D innovation.

And in that regard, we believe that immunology is a very significant opportunity for Sanofi. We have strengths across the group from Vaccines to Rare Diseases to our MS, Multiple Sclerosis, franchise. And so we're putting the resources together, and we're building an approach and a portfolio around areas where we know there are significant unmet needs.

A good example, and I'm showing you here, is Sarilumab, which is the first fully human, high affinity, IL-6 receptor monoclonal antibody which can be administered subcu every 2 weeks.

And we have developed this in rheumatoid arthritis, which is a large market with a large demand for more effective therapies, especially in patients who have been on the dominant therapy, which is TNF-alpha inhibitors, but 1/3 of these patients ultimately fail to respond to TNF-alpha inhibition. And when you look at our results, you can see that in the head-to-head study in rheumatoid arthritis between IL-6 class medication and Humira on the monotherapy basis, this class of IL-6 agents is actually superior.

If you look at our positive first Phase III trial in moderate-to-severe rheumatoid arthritis, we've had robust efficacy of goals across all 3 primary endpoints. In particular, the fact is that we've seen remarkable inhibition of the progression of structural damage on x-ray. Clearly, when you look at this, it's important to realize that what we're doing is to build a portfolio approach that is based on science.

And if you look at IL-6, IL-6 is a very key molecule in the immunological response of patients to many different diseases. And so what I think we're seeing here is actually IL-6 advancing in the total spectrum of solutions and approaches and therapies for many of these patients.

So as we go forward, we are going to share additional Phase III data in 2015 from the ongoing Phase III trials, and we start our regulatory submission process next year as well.

Moving on to another exciting antibody, again in immunology, on Slide 42 is Dupilumab. And Dupilumab was named the "Clinical Advance of the Year" in 2013 by Scrip Intelligence. And this is something that we wanted to do, take new targets that can really make a significant change in areas of fully unmet needs.

And if you look at this molecule, this is a monoclonal antibody that is binding to the alpha part of the IL-4 receptor. But that's -- what's interesting is that it's also the common part of the IL-13 receptor. So in some ways, you're killing 2 birds with 1 stone, which really led us to observe significant efficacy in 2 indications, atopic dermatitis and a large opportunity in asthma with the results that we have observed, with an 87% reduction, for example, in the number of asthma exacerbations in percentage of patients with severe -- moderate-to-severe asthma.

So we see a large opportunity there, and we see a large opportunity in atopic dermatitis, where there is -- there are more than 12 million people suffering from atopic dermatitis, and at least 10%, 15% of them have a severe form of the disease, as you can see, for example, in this child in this picture. And standard therapies usually involve corticosteroids, we have no -- which have no limitations. So we've already presented Phase IIa data. We are going to present the rest of our data at the Medical Congress in March, and our Phase IIb is expected in the second quarter of 2014.

Why do we see a large opportunity? Because typically, in immunology, when you are effective against one fundamental mechanism, you generally have effects across multiple indications, and we're looking at many other indications for this molecule which seems to be extremely effective in affecting the IL-4/IL-13 pathway.

I'd like to also turn to a major growth platform for us, and that is our Vaccine. Our Vaccines pipeline projects at Sanofi Pasteur are pretty unique. Frankly, when you look at the total vaccine world, very few companies have 2 significant Phase III trials in vaccines addressing significant public health problems that are growing.

The first-in-class dengue vaccine, which is being developed by Sanofi Pasteur, is addressing a growing global threat. In fact, if you look particularly in Asia and Latin America, there are over 2.5 billion people at risk for this disease. There are estimated to be 100 million symptomatic dengue cases worldwide per year, and over 500,000 of those patients require hospitalization. More importantly, there's a 2.5% mortality rate with severe dengue. It is a public health priority in Asia and Latin America today, but it will be even more important in the future as global warming affects the distribution of the mosquito carrying the disease.

It is an ambitious development program undertaken by Sanofi Pasteur. The Phase IIb results in 4,000 children observed efficacy against 3 of the 4 serotypes involved. More importantly, it was the first time that a vaccine approach was demonstrated to be safe in dengue, and we're eagerly awaiting the results of the Phase III studies, the 2 large-scale studies in Asia and Latin America involving 31,000 children and adolescents, which we'll hear about in the second half of 2014.

There was another unmet need that the research team at Sanofi Pasteur saw, on Slide 44, and that is the prevention of primary symptomatic clostridium difficile infections. I think in the U.S., it's one of the most common causes of health care-associated infections, especially in the aged population. There are over 28,000 deaths and up to 450,000 hospital admissions with an associated cost of care of up to $3.4 billion. So we're targeting patients at high risk of clostridium difficile infections.

We have entered development for this vaccine, which is, as I said, very common. And this vaccine was shown to be both safe and immunogenic in both Phase I and Phase II trials with broad antibody responses to the 2 toxins, Toxin A and Toxin B, which are the primary pathogenic elements of the clostridium difficile infection. And then we decided to start the multinational Phase III trial in the third quarter of 2013, which will include 15,000 adults. This is a case-driven study and is expected to be completed by the end of 2017. In recognition of this very important unmet need, CBER, the Biologics division at the FDA, has assigned a fast-track designation to our Phase III study.

So as I conclude my review here for our high-potential pipeline projects, we can see that we have over 9 projects that are going to be filing and being very active in the Phase III development milestones and regulatory milestones that we expect in 2014.

Obviously, Cerdelga, which has already submitted to the FDA regulatory submissions that are expected, as you can see on the slide. Clearly, the R&D pipeline is heavily weighted towards biologics, which typically have a higher success rate in the late phase, so we're very optimistic. And I think that as we see, going forward, there's going to be a flurry of news -- noise in 2014 and '15, and we definitely look forward to reporting our progress to you in the months to come.

And so as I conclude, I'd like to turn it back over to Chris to conclude the overall presentation.

Christopher A. Viehbacher

Thanks, Elias. So as we look down to -- for the outlook for the year, we would expect that the business return to growth as we've seen in the fourth quarter, really from 1st of September, will continue through the year. We are extremely busy preparing for the launch of new products. We have launches rolling out. We have launches that have -- have launches that are being prepared. We clearly have a number of major development programs in place, but that all notwithstanding, we believe that earnings per share will likely rise between 4% to 7%, more than 2013 at constant exchange rate, always barring major unforeseen adverse events.

I think 2014 is certainly one that's exciting for us. This is the first year that we're looking at growth for the whole year. This is the first year that we've got the patent cliff behind us.

And in addition to the growth platforms, we now have real tangible assets that we're looking at in R&D. So it's busy at Sanofi, and we now look forward to taking some of your questions. Thanks very much.

Question-and-Answer Session

Operator

[Operator Instructions] We have a question from Michael Leuchten from Barclays.

Michael Leuchten - Barclays Capital, Research Division

A question on your guidance, please. Clearly, consensus was or is quite a lot more optimistic about the orders for 2014, which is probably understandable given the momentum that you carry out of Q4 with your growth platforms driving a lot of growth. Your comments are, on a cost base, very helpful. But working it backwards, consensus was looking for about EUR 1 billion less in operating expenses than your guidance seems to imply, assuming that you're comfortable with the top line momentum. And that seems to be mostly within the marketing and sales and G&A cost base. So could you just offer us more color as to where you see the investment potential and requirements? So that's question number one. And then question number two on the balance sheet. The dividend's gone up -- or is going up by 1%. Your net debt-to-asset ratio is now about 7%. That's a very healthy balance sheet. Going forward, what's your thought about cash allocation, please?

Christopher A. Viehbacher

Yes. So first of all, guidance of 4% to 7% is going to put us pretty well in this industry. I don't think it's going to be too many companies are going to outperform us this year. I think the biggest issue that people are going to have to work through is looking through the 2013 P&L. People are clearly focused on, yes, there's going to be some upside this year because we don't have the downsides from last year. But equally, there are EUR 350 million of nonrecurring income. Now we never know how much that's going to be. Some of that we envision, some of it we don't, some of it just -- someone offers you suddenly to buy out your royalty stream. Well, you don't always have that in plans. But if you actually look at that, then I think you'll find that, actually, there's a good healthy underlying organic growth in that. Remember, you've got a tax rate that's going from 24% to 25%, 25%, 26%. So you lose a little bit there. There's no question that we are putting more money into R&D and to launches, but I don't think you're going to see expense-to-sales ratios dramatically changing. We're going to be largely in line with 2013. I think it's really trying to -- for people to egg at the baseline for organic growth rate, make sure people are getting the exchange rate movement. I mean, there's been quite a significant decline in a lot of exchange rates. Say, who would have thought 2 years ago that the euro would be one of the strongest currencies in the world. I don't know whether that's going to stay or not, but it clearly had an impact in this year, and we've seen some currency turbulence at the beginning of this year as well in some emerging markets. So for us, well, we're really focused on -- first of all, I don't think the -- even the guidance that we've just given you is included in our share price. I don't think people are really looking at the pipeline and, therefore, some of the level of investment. But again, I don't think you're going to see anything that's really a disruptive trend versus what you saw really in the fourth quarter. You just have to take into account those -- that nonrecurring income and the underlying tax rate. Concerning capital allocation, yes, the balance sheet is healthy. I think we're lower than our target net debt rate. But I think there's a -- there are a number of things in progress. Obviously, there's all kinds of speculation about what may or may not occur with L'Oréal's shares, so I think it's useful to, at the moment, at least, to keep some financial flexibility depending on how that is. And to answer any questions on that, I have no idea whether anything is going to happen on that. There's a very conditional element. But given that there is this kind of level of speculation, I think that's one thing we're certainly keeping an eye on. We have begun to acquire some Regeneron shares. We've bought about 0.75% back from -- out in the open market. No particular hurry on accumulating shares, but we did issue a 13D that said we would, over time, tend to move to about a 20% shareholding in Regeneron. We had an investment in Alnylam. And I think that type of investment is a good one. I had a number of meetings in San Francisco with investors. I look at something like Alnylam not only as a way of accessing innovative technology. I mean, we're talking about RNA interference, where we actually are using the Genzyme Rare Disease knowledge to be able to access that because, in today's world -- there was a real fundamental shift in biotech last year. 50 IPOs means that not everybody feels they have to do deals. Deals have become more expensive. And I think if you really want to have these types of collaborations, you have to bring more than just cash. And so I think we've been able to take a stake in Alnylam. This gives Alnylam some financial independence. We not only bought that, though, we bought Genzyme's know-how into Rare Diseases. And Rare Diseases are very interesting, not just from, well, the public health or even the commercial interest, but you're also going to start to test some of these new technologies in Rare Diseases largely because you really genetically better understand targets in this area. And so RNA interference is going to be something that could well be in diseases beyond Rare Diseases, but this is where you're really going to have the proof of concept. So I could imagine a series of those types of relationships with Alnylam. There's -- I can't say how many we would do or how fast, but I think those are also capital-sparing types of arrangements. We're not buying the whole company, and we're not betting on one single asset. There are 7 very interesting and significant projects in Alnylam, and having a number of those, not all in Rare Diseases, obviously, either. So the objective is clearly not to accumulate cash on the balance sheet. We haven't abandoned our $10 billion net debt. But I think we're now entering into a process of, particularly with the patent cliff behind us and a lot more stability in the outlook, of being thoughtful about exactly where we're going to use the capital. The guidance on M&A, the EUR 1 billion to EUR 2 billion on acquisitions, still holds. That would include things like the Alnylam-type investment in that EUR 1 billion to EUR 2 billion. So I guess, it's watch this space, but I'd say the idea of picking a net debt target was to say to the shareholders that we don't want to see that cash accumulating.

Operator

We have a question from Mark Clark from Deutsche Bank.

Mark Clark - Deutsche Bank AG, Research Division

A couple of things. Firstly is a question for Jerome about the tax rate. The tax rate has trended in the last few years better than your initial sort of midterm assumptions, I think. So we're down at 24%. It's heading back to 25%, 26%. Can you tell us why it's heading north, and is there anything you can do to mitigate this, potentially move it downwards again, thinking patent boxes and the like? Secondly, in terms of the guidance for this year, I mean, I know you've already answered some question earlier, Chris, about this, but I would counter that you made about 350 of nonrecurring income, but you also had about 300 of nonrecurring hit in Brazil. Those 2 are pretty much a wash. Are you simply being conservative here after the disappointments of 2013? And could I say, would you rule out raising the guidance later in the year, or are there no circumstances in which you could envision that happening? And finally, looking into 2015, the news on the Lantus litigation in the U.S. potentially means that you've got a clear runway through to mid 2016, at least. Assuming the tax rate doesn't deteriorate further, should you not -- and I'm not pushing you for a financial forecast here. But arithmetically, it would seem likely that you churn acceleration in growth in '16 over '15 given that the -- there's moving parts in your business. I just wondered if you could comment there.

Christopher A. Viehbacher

Well, Mike, I mean, I'm quite certain you don't expect me to sound [ph] being conservative. I will say, certainly, lowering guidance is not an agreeable experience and not something that I think any company should do on a regular basis. I think -- look, we live in a world where a lot of things can happen. We're at the beginning of the year. In the past, we have not ruled out raising guidance later in the year. Personally, I think at the start of the year, let's see how things go. I think we've had a good 4 months of performance under our belt. I'm extremely pleased with the new leadership I have sitting around this table, some of whom you've heard here. And we have a -- we really renewed commercial leadership in the business. I think there's an awful lot going for us with pipeline, potentially a longer run to establish U300. My real objective is not really to focus on just the guidance. Phase I really was to establish a different type of company, get some longer-term growth platforms going, do a dramatic restructuring of research and development and put together a [indiscernible] portfolio. And quite honestly, I have to say, being able to have these many assets in late stage considering we started from nothing 5 years ago, I think I'm extremely pleased about. Now we're really focused on building those assets and shaping them and bringing them to market because everything else we've done up until now is stuff we inherited from the past. This is kind of a new generation of products. And these are products we can shape. These are products we can love. These are products we can really bring to market with excitement. My view is that this industry is still dramatically undervalued. We moved this industry from P/Es of 8, 9, 4 or 5 years ago, to kind of a 12, 13 range. But in the meantime, the broader stock market is sitting there right anywhere from 16 to 18, depending on which market you look at. If people who make soft drinks and widgets can be trading at 16 to 18, I don't see why we as an industry should be there. And to me, that's what the objective is, is how do I get this company's P/E to that 16-to-18 range. And we're only going to do that by being able to demonstrate that, yes, there is a solid base in the business with these growth platforms and that these new products will deliver. Not everybody is going to buy into that vision day 1, not that everybody bought into the growth platform vision 5 years ago day 1, either. But that's what -- where I think the value creation comes from. So yes, last year was not agreeable. Maybe that has an impact on that. But we're focused on delivering this on the existing business and really these new products. And that's really what we're going to be communicating about. If you look at the top 10 asset picks of most analysts, 8 of them are cancer products. I'm not so sure people really understand what the potential is in atopic dermatitis. You go to IMS, you've got steroid use today, and so we've got a job to do at really outlining what the commercial potential of that is. People are looking at IL-6 and saying, well, ACTEMRA's out there. It's sitting there with EUR 1 billion. This is a $21 billion biologics market. You look at what happened with the multiple sclerosis market as orals hit this, I think as you see multiple IL-6s coming to market, you're going to dramatically shift this market. And you've got a market where people switch between therapies. So I hear sometimes people comparing Sarilumab to ACTEMRA. That's not really the way to look at this. The objective is, how do you win in a marketplace like that? How does the shift go from TNFas to IL-6s? How do you get your market share of that? And I'm looking at dengue vaccine, and I see sort of peak sales forecasts of $200 million. I'd say we can do better than that. But again, we have to do a much better job of really now giving the granularity of where we see this marketplace. We are busy recruiting an awful lot of people inside the company and bringing expertise into some of these areas. We certainly have it in dengue. We have it in our rheumatoid arthritis. But even we can do an awful lot more in asthma. That's an area I personally know well. But that's where the real excitement of the business is, and that is the area, I think, that is dramatically underappreciated within the company, and that's our fault. That's our job to do better at. Now that we got the patent cliff behind us, this is really Phase II of this company, is now really demonstrating that we can be innovative, that we can actually bring the products. Remember, this is a company that hasn't brought a lot of new products to market in the last 10 years. So we've got some rusty muscles on this, but we've also got an awful lot of activity going on, on that.

Mark Clark - Deutsche Bank AG, Research Division

Okay. And can I just follow up and ask Jerome for the specifics on the tax rate?

Jerome Contamine

Mark, so I think that you can look at the tax rate evolution that we'd like to have, in particular. So at the end of the day, you'll remember that now for why we won that, everything being equal. We have less [indiscernible] low tax rate, at least for a while, as long as we have less being used from patents. We have less that we use from patented drugs. On the -- just back 1 year ago, we said, well, it should be 24% in 2013, 26% in 2014 and 28% in 2015. So today, what we say and what I say is that we could do a bit better. This is why we're giving out guidance. It could be 25%, 26%. And you could say, well, why do you think you know it's [indiscernible] earlier. But as a matter of fact, I mean, it's pretty difficult to assess it more precisely. I mean, just as an example, think that the highest tax rate we have in the world are Japan and the U.S. So if the yen goes down, your other tax rates goes down. That's surprising, but that's true. So just this example shows that -- I mean, be too precise in the tax rate is not [indiscernible]. The second thing is, well, I mean, as time is passing, both our tax team but also tax facilities don't stay idle. So on one hand, we have a lot of tax audits ongoing, as you know. I mean, everything which happens in this industry is always of peak magnitude. So I mean, you need to take reserves on the issue you may have. And [indiscernible] also pricing, as an example. And then, of course, when we have the outcome of this [indiscernible], then you may reverse some of these reserves depending upon what happens. I mean, that has been the case this year. As you know, this -- at the same time, our team is not idle either and trying to optimize, so we have made some progress here. So I think today, the best assumption I can give you of 2014 is somewhere above, I mean, north of 25. And I can say as well that, everything being equal, we should probably see an increase of tax rate in 2015, when, time passing, if we have more good news for -- coming from patented products, then hopefully, this [indiscernible] is right. I mean, we will see the tendency going just around everything we need. My [indiscernible] for 2014.

Operator

Next question from Philippe Lanone from Natixis.

Philippe Lanone - Natixis Bleichroeder LLC, Research Division

A couple of questions, if I may. First, I see that you have quite a recovery of your business in Europe, which is up, I think, 2%. So could you comment on the evolution of prices for your business in Europe? And is there something specific to Q4? Can we extrapolate that to '14? Also, can you give us some flavor on the Lyxumia launch in Germany in terms of market share and what kind of forecast we can do for '14? And lastly, I think that there is some generification of Renagel, especially. Can you comment on when it will happen and what kind of generification it will be? It will be a steep generic or just soft one?

Christopher A. Viehbacher

Yes, I'll turn that over to Peter.

Peter Guenter

So first on Europe, actually, what you see is 2 phenomena. The first is that you start to see some fraction of the launches we have in Europe. So we have the Lyxumia launch. We have a couple of other launches having been rolled out in 2012 and going forward in 2013, so that's the first phenomenon. And the second one is also that you see that, slowly but certainly, you see the progressive washing out of the patent, mostly in Europe, on the other RX business. So if you take these 2 together, obviously, you come to a much nicer picture in Europe. And I think the trend you have seen in Q4 is something you can probably expect more of that going forward. And on the question about Lyxumia, so actually, we have launched this product now in a couple of European markets. So we have launched it in Japan. We have launched it in Mexico. And we see actually a pretty consistent picture of market share gains which are doing much better than the initial launch, for example, of Byetta, Bydureon. And we reached market shares in the neighborhood between 6%, 7%, 8%, 9%, up to 10%, 11% depending on the markets. Specifically, your question was around Germany. So in Germany, we reached pretty quickly a market share of about 8%. You might recall that we are discussing now with the German association of synchronous a [ph] pricing because the IQWiG, which is the HTA watchdog in Germany, did not give a added therapeutic benefit to Lyxumia for the reason of an inadequate comparator. And we are still in these pricing negotiations. Third point on Renagel, yes, in 2014, the patent goes off in the United States. This being said, today, we have -- there is no registration of a generic of [indiscernible], so I cannot answer your question with a high degree of precision. The only thing factually I can tell you is that today, we have no sights of upcoming generics in the registration pipeline.

Operator

We have a question from Luisa Hector from Crédit Suisse.

Luisa Hector - Crédit Suisse AG, Research Division

Firstly, on Lantus, could you give us the split of volume and price for Lantus in the U.S. in 2013? And has there been any change in your strategy now that you have the litigation ongoing and the 30-month stay. So I'm thinking the size of the sales force, the pricing strategy, any changes there? And then maybe I'm afraid to come back on the guidance because, again, I'm still struggling a little bit with it here because there are so many positive drivers and not so much in the way of negatives. Perhaps you could tell us whether there are any significant items that lead to you having that range of 4% to 7%. And just to check maybe on other pharma in Europe because that has been quite a negative drag, but it does seem to have eased in the last 2 quarters. So just to check whether you think that could deteriorate in 2014 or whether we're seeing a more stable situation there in Europe.

Christopher A. Viehbacher

So on Lantus, I think, for the U.S., Pascale?

Pascale Witz

Yes, well, I can start. Well, for Lantus in the U.S., we see a price volume, a split of about 2/3, 1/3. Globally, it's more 1/2 and 1/2, so that's what we have been seeing. On the litigation on Lilly, I mean, as you have seen, we can see that there has been an infringement of some of our patents. And we have started a process, and it will follow its due course. So at this stage, we cannot really project on what can happen along these lines.

Christopher A. Viehbacher

Yes, and concerning the 30-month stay, I mean, let's wait and see. I mean, the underlying strategy is still very much the game plan, which is we have a U300, which is a next-generation insulin. We have 4 studies now that demonstrate safety and efficacy, so we've got a fileable drug. I think Elias gave you a very clear understanding of where we see that differentiating versus Lantus, not only on the hypos but also on the full 24-hour coverage. It's both a PK and a PD study, while degludec has -- had kind of oriented everybody to the importance of hypos, but that was largely because degludec has a 40-hour half-life. And so they preferred not to talk about that part of the story. We've got LixiLan now is starting Phase III. We've got Lyxumia rolling out. We would be able to start to file Lyxumia, even in [indiscernible], next year. So there's a broader portfolio here. In terms of investment, I think we continue to want to defend the whole sector. In terms of the 30-month stay, clearly, we had a deep analysis of this, including external attorneys. When you have the situation, we can request information from the biosimilar filer. And that's why we believe that there is infringement on 4 of the patents. Normally, that 30-month stay will only end if Lilly could get a summary judgment, and I'm not going to be speculating on court processes in the U.S. But obviously, we wouldn't have launched this if we didn't think that we had a very robust case to defend this. I think the major -- that does hold the major benefit of that, and clearly, you've got an even better time to establish U300 as the standard in diabetes care. Jerome, why don't you take a crack at the guidance since I...

Jerome Contamine

I mean, to me, I mean, Chris explained it already. I mean, the [indiscernible] with the simple. On one hand -- and I think [indiscernible] also expressed it. So on one hand, it's true that we should have natural recovery on the negative one-off events as we had last year, such as the Virginia situation, but also the Toronto manufacturing issues with pertussis from supply in the market in the U.S. for a period of time. At the same time, to make things simple, we have EUR 350 million of nonrecurring event that we cannot count on when we keep the guidance. We don't know what will happen, as Chris mentioned, but I mean, you can count on that when you give guidance. On the top of that, we are growing 1% more, our increase on tax rate. So basically, these 2 elements are watched. So if you exclude these 2 elements and you think about the underlying business, and if you compare to the competition, and I don't want to compare, but just look at the guidance which were given by some of our competitors, I mean, I feel that it's really going to be strong guidance that we give today. And well, I mean, that's basically obvious. I mean, I don't see that the 4% to 7% is just a [indiscernible] of the business. More or less, it could count like that. It's plus or minus 1%. So I don't think there is anything hidden. I think that, as I said, we should see an improvement on the cost of sales to sales ratio, which, of course, requires an effort because there is an evolution of business mix. I'll say as well that the R&D and the SG&A should increase somewhat. But the ratio at the end of the day of the OpEx to [indiscernible] move to be getting close to what we have experienced in 2013. I don't know, maybe slightly better, slightly below. I mean, it's really of the marginal variation. And if you put all that together, I mean, that's how we'll kind of guide you to the guidance, if I could say so, at this stage of the year.

Luisa Hector - Crédit Suisse AG, Research Division

Okay. And then in other operating income, we'll just get that negative effect of the ACTONEL, Copaxone washing out as well?

Jerome Contamine

Yes, I mean, the light is [indiscernible]. We have a [indiscernible], some [indiscernible] there. So I mean, that's -- I mean, direct, that will not come from that, that [indiscernible], that is. The rest will be mutual. Maybe I should also add that, I mean, the consensus tend to give a glow on the final for expenses, consequently, when you reduce your debt, and I don't know exactly what these expectations or anticipation here. I mean, you don't reduce that matured cost of debt, quite simply because, I mean, the revenue you get from the deposits are pretty low. At the same time, you use [indiscernible], and as Chris mentioned [indiscernible] and we have bought some shares from Regeneron. Part of the powerful expense includes also the computed -- I mean, the computed cost of -- final from cost of the pensions. And this is [indiscernible], some saying, which is a [indiscernible], so we'll just use a long-term rate, and this we not share from one year to another. But then on December 30 [ph], it was EUR 160 million. You remember, this is a newer IFRS [indiscernible] that we apply to '13. So there is a part which is not moving at all. The rate is decreasing, but not hugely. So if you put all that together, I think that most of the P&L is in there.

Luisa Hector - Crédit Suisse AG, Research Division

And the European pharma tale, that seems to be doing a bit better. Does the outlook look positive?

Peter Guenter

Well, it's, of course, an incredibly long list of many, many, many products. And you're right, if you compare the last quarter with the average of the year, it looks better. What you see in there is a lot of small generifications that are washing out. You might also see a little bit less of a price pressure because you are narrowing or you are nearing, let's say, the bottom of the wave in terms of price pressure, how far you can get. So I think you will see in 2014, moving forward, still a negative picture on this, what we call the tail of the tale, but perhaps a little bit less negative than the full year 2013.

Christopher A. Viehbacher

And I think the reason it's also hard to say is that the tail gets smaller, and therefore, the erosion actually can mechanistically get a little smaller as well.

Operator

The question from Steve McGarry from Societe Generale.

Stephen McGarry - Societe Generale Cross Asset Research

Three questions. Firstly, just on U300, when you look at its profile, it seems sensible to combine now, at some point, with a Lixisenatide as a combination. Is that something that's on the cards, and when could we expect to hear something on that? Secondly, on eliglustat, can you give any guidance on what the potential pricing of that product could be? Because obviously, being a small molecule, if you priced it right up in the average of Cerezyme, you would assume that the profitability could be significantly higher. And then thirdly, if you look at the R&D costs over this, let's say, 2014 to 2016 time span, you have the Lixisenatide cardiovascular outcome studies completing. Several of the alirocumab Phase III is completing, and the Sarilumab Phase III is completing as well. Could we have actually a situation over the next couple of years where we could see R&D decline in real terms?

Christopher A. Viehbacher

I like the last question. We'll hear from our R&D chief, but I'm not getting too many messages that R&D is going to decline. We'll take these in order. Elias, why don't you answer the question on [indiscernible] and Lyxumia and then maybe how you see R&D costs evolving? And then we'll turn it over to David on the pricing for eliglustat.

Elias Adam Zerhouni

So on the combo, as you know, we already [indiscernible] the approval in the label for Lyxumia to combine Lyxumia on top of Lantus. And so we have a lot of data actually validating the notion that by combining the 2, you get a better effect because you can actually provoke a weight loss with Lyxumia and counteract the weight gain of insulin. But in addition, we see what we call insulin dose sparing. In other words, patients don't go up as fast and they have lower doses of insulin, which ultimately is providing a good combination. So LixiLan is essentially the representation in a single product that can be used by patients as they go into the first injectable. And so if you really think about the importance of that from the medical standpoint, this is a shift in the medical practice that will basically say, well, if you have to take a GL -- an injectable, you have to really combine the 2. So that, we proved. And therefore, the next step is going to be to enhance that with the unique pharmacological profile of U300. But right now, Lantus is approved, so we're doing the LixiLan development because we have good medical evidence. We're going to do the LixiLan development, get a much better read about the efficacy of this, especially in the first injectable space, and obviously develop that with U300 as we learn more from our current trials.

Christopher A. Viehbacher

R&D budget.

Elias Adam Zerhouni

R&D budgets, you're putting me in the best spot here because we don't tend to negotiate budgets with Chris in the call. But think about it. I mean, if you look at our pipeline, not only the one that is being developed, and you look at the requirements of the regulatory agencies in terms of regulatory mandated studies, what the trend is worldwide is that as you succeed, you also have to sustain the approval through often post-marketing studies, and then you can hear from David about Lemtrada, for example, and so on. The second is that we have also a rich midstage portfolio which should really reinforce our current portfolio. We have very exciting molecules. One is an anti-CD38 monoclonal antibody I haven't talked to you about. We have a sarcopenia monoclonal antibody against GDF-8, which is also coming to development. We're having proof-of-concept studies. So personally, I see a pretty stable R&D budget. We're going to continue to do what we've done, and I know it's restructuring the fundamental budget structure of R&D to try to put more money into our development, more money into our collaborations to enrich the portfolio as we go forward. So I don't -- I see a pretty stable or a slightly increasing budget, really.

Christopher A. Viehbacher

And I mean, I'll just say I think Elias has done a great job also of restructuring the nature of the costs. And we started off with the equivalent of 15,000 people and we went down to 9,000 people. So there has been quite a significant shift away from the fixed cost of R&Ds into program costs. And when you've got over 20,000 people on PCSK9 and you've got an IL-4 program, an IL-6 program, you've got a dengue vaccine, you've got a C. difficile program, these are all big programs. We want to move more into the clinic in Genzyme. So it's actually getting to a point where I'm not so sure we're going to be able to fund everything within the EUR 5 billion envelope. I don't see that exploding. And I'm not about to see it go up until we really demonstrate to shareholders that they really see all the value in that. But I think it is a [indiscernible], and if you look at the Regeneron relationship, this is really generating quite a series of targets. The molecule is coming along behind that. Alnylam will likely generate a number of new clinical programs. So R&D is really clicking at the moment. And I think we've done an awful lot to carve out some of the fixed costs. We're not going to give up on that. But in all transparency, I don't think we can really say that the R&D is going to decline. It probably will start to gradually increase, not faster than sales, but it probably will start to increase, not necessarily this year but probably from 2015 onwards. Dave, do you want to talk about eli?

David P. Meeker

Yes. So pricing, not surprising why we don't reveal or make decisions about pricing until close to launch, when we understand the label and the indication and the other factors which will help guide that. But a couple of things to think about this. One is people often underestimate the cost of development in Rare Diseases. They think programs are smaller and cheaper, easier in some way. I'll remind you of the largest program we're on yet to date with 400 patients, and we first we put eliglustat into development back near 2000. So we're 14 years along. We're not done. And as Elias indicated, it will for sure come with postmarketing commitments, as all of these approvals do. So there's a significant investment that goes into these, so that's a consideration. With regard to the market itself on the community, our goal will be to really create a choice for the patients. The results of the clinical data that we have to date, again, is highly favorable. We're extremely encouraged by how it compares to Cerezyme. And so again, we want to leave physicians and patients with the ability to make a choice, not have it driven unduly by economics that might force somebody to choose a less-than-optimal choice for them. And as we said, Cerdelga won't be for everybody. There'll be a significant number of patients who will be remaining on enzyme replacement therapies, specifically Cerezyme, and they should. So those are the things we'll take into consideration as we develop pricing.

Operator

A question from Eric Le Berrigaud from Bryan Garnier.

Eric Le Berrigaud - Bryan Garnier & Co Ltd, Research Division

Four questions, please. First is on cost of goods. It looks like, in vaccines, cost of goods went up by 8.8% in 2013. So is it fair to expect that to partially or even perhaps fully disappear in '14? Could you expect cost of goods to go down by the same magnitude as it go up in '13? And a more general question, do we have to expect also cost of goods to go down beyond vaccines that -- for the global statement about cost of goods in 2014? Second question is very short, on share buyback. Above and beyond what could happen with L'Oréal, could you commit to the same kind of statement you made 1 year ago, saying that you should at least offset any option exercise and to keep the number of shares stable? And if nothing happens with L'Oréal, could you make any EUR 1 billion or EUR 2 billion share buybacks? Third question, on the price of PCSK9, I know it's very early day. But how could we see this kind of product? What could be the good benchmark? Could basal insulin as a chronic injectable product be a good benchmark? Or is it more into the specialty care and so more expensive? Any kind of insight into how we can think about that? And lastly, and sorry that it's guidance, but it's not annual guidance. It's a more general question about how you move towards guidance and visibility. As you move through the end of your patent cliff, it looks like it's now less clear than it was and less clear than your peers. Less clear than it was because we used to have a mid-term guidance, and we no longer have this long-term guidance. And less than peers because others are providing some kind of sales growth estimates, and we only have EPS estimates with you. So could we perhaps -- could you perhaps tell us whether the mid-term guidance, saying 5% growth, at least for top line and bottom line above top line, beyond '13 that is now behind us, is relevant going forward? Could that be the case for '14, for instance? And in other words, is there any leverage between top and bottom line?

Christopher A. Viehbacher

Jerome, why don't you first take the cost of sales and the share buyback?

Jerome Contamine

Yes. Okay. So on the cost of sales, probably, I mean, Olivier can comment more specifically on vaccines. Yes, we continue to see some productivity improvement on our pharma business. And this will be the main driver for improvement of the cost of sales to sales ratio, keeping in mind that contrary to the previous years, we don't have the negative effect of dilution coming from the end of sales from blockbusters. So it's clear on the, let's say, traditional pharma business, we should see some improvement this year. The biologic part is a bit more complex because biologics, in general, are always a bit more difficult to forecast. We also have a rate of destructions of the products that we cannot put through to the market, which is a bit uncertain when you start the year, so we can keep some budget. And there are some plans and some actions being taken to reduce the level of destructions that we experienced last year from our manufacturing activities, but it's a bit difficult to forecast. And this is one way to measure it. But there are many aspects of the yield, as another example, which are more uncertain to forecast when it comes to cost of goods and parts of cost. You should also keep in mind, and this goes to -- into the cost of goods, that as long as you have not received a full visibility on the Phase III results, we take as a charge all the lots you produce for the new product. This is true, for instance, Cerdelga. In fact, it's true for dengue, definitely. So when it comes to vaccine, to your point, 2014, we still experience the charge-off as also lots we will provide for testing up to the time of approval. So in that respect, not a good year from an accounting standpoint. As long as you get -- it goes through approval -- in fact, as long as we submit, then we don't charge anymore and we capitalize this type of cost. So the last point is that there will be some lagging effect in vaccines. When it comes to all the costs that we incur in connection with the fixing of the Toronto aspect, a large part went into the P&L, but part of it went also into the inventories, necessarily. And this will be unwinded in 2014. So a little bit technical, but I think that's important for you to understand that the main driver from the improvement of cost of goods in 2014 will come from pharma and then from Genzyme, which will experience now several years of improvement and getting closer to the end of the consent decree. Vaccine, it will be positive. And I think that we should be aware that there will be some business to be done on some specific elements, such as the one I mentioned. So all in all, improvement in the cost of goods ratio, this is really our objective, at constant exchange rate. On top of that, it may have a slight impact, driven firstly from the pharma productivity. On the share buyback, yes, Eric, we can commit to compensate because of dilution. That's been our objective now for a while, and we continue to do that. Are we going to go beyond that? I mean, just look at Q4. We did a bit more acquisition of shares versus what we issued as a new share [indiscernible] stock option exercise. Quite simply, you never know exactly how many shares can be -- or how many stock options can be exercised. But if you think more generally, I mean, back to what we said, I mean, we need to wait to see what happens on L'Oréal. I mean, you will know well that this -- it can -- I mean, it will be subdued at least, I mean, in the coming months. But we don't know more. I mean, just read the press. And we are still looking at acquisition as -- even the size of small acquisitions as a way to enhance our businesses.

Christopher A. Viehbacher

I think it's a little premature to think about PCSK9 pricing. I could certainly tell you that you're thinking too low on basal insulin. First of all, I think we would say that our own basal insulin pricing was way too low. That's why we've been doing the price increases. Even after the price increases, we're still at around $6 a day in the United States, where little round-like pills in the form of DPP-4s are about 40% to 50% above that. And Victoza is sitting there at anywhere from $12 to $18 based on dose. And I think you can take it from there. There's going to be a lot of work in terms of thinking about early populations, later populations. There's still quite a big population of just statin intolerance and with the familial hypercholesterolemia. And obviously, we've got a competitive situation, so we'll be attentive to that. But I think you've got an extremely efficacious drug. For the moment, it appears to be a highly tolerable drug. I can certainly tell you that concerns around injection part don't seem to be an issue if you think about the fact that we've got over 20,000 patients on Phase III. Amgen does. Pfizer has got one of them going, and it has been no trouble to recruit patients, very low dropout rates. So I think the acceptance of that form of therapy seems to be, at least on the basis of clinical studies, to be favorable. So then I think we'll probably give some closer guidance to that as we get closer to launch, probably sometime in 2015. In terms of mid-term guidance, look, mid-term guidance was done in September 2011. When we were facing the patent cliff, people really had no idea where we were going to go. We talked about the different ranges of growth. I personally think, when I look at the fourth quarter, we're very much in line with that medium-term guidance. If you think about the old MICHELIN Guide to Sanofi, if you remember, when we sort of said double digits for this and high single digits for that and low single digits for the other, I don't really see any need to change any of that. I think the medium term of this company is now going to be driven more by product launches. You're going to see more and more new products coming along. And so I think that -- and that is always a much more difficult thing to predict. I think right now, we're just very happy to be back to growth and establishing more of a track record of growth through the year. We'll consult with investors and see whether it's worth it. But personally, mid-term guidance is always a dicey thing to do. I mean, I remember the 2009 guidance that we gave for 2013. Well, in the meantime, you've got Obamacare comes into this, you've got austerity programs in Europe, you've got acquisitions. And it's actually not that easy to kind of track where things are necessarily going to go. So I guess we'll think about it. But for the moment, I would say, if you go back to that old slide from September 2013 on where you see the growth platform is going, I personally don't really see that much that has to change. I mean, we performed a little slower on Emerging Markets and a lot faster on Diabetes. But broadly, I think we're still tracking to that. 2013 meant we were a year later in really coming to where we wanted to be, but where we've ended up is, I think, where we thought we would be a couple of -- or 3 years ago.

Eric Le Berrigaud - Bryan Garnier & Co Ltd, Research Division

Do you expect sales to meet the 5%-plus mid-term guidance this year, Chris?

Christopher A. Viehbacher

We're into 2014, so -- and as you know, traditionally, and we do like tradition here, that we give you earnings per share guidance. That's not something we give on a short-term basis.

Operator

A question from Graham Parry from Bank of America.

Graham Parry - BofA Merrill Lynch, Research Division

Just starting off on the margin outlook into 2014. During the guidance you've given there on the cost ratios for COGS, you've guided constant exchange rates. Just wondered if you could give us a feel for the impact of FX on that ratio. And with R&D and SG&A, the guidances that you're saying about the increases there, is that in constant exchange rates or reported? And if it's constant exchange rate, again, can you give a feel for FX sensitivity there? Secondly, on use of cash again, I'm afraid, at which point do you think you would have an effect for L'Oreal and then are still looking at excess cash flow beyond that, that you may need to deploy into excess dividends or buybacks? And then finally, if I can just push you there, Chris, on your 2015 guidance comment. If we take your 2012 sales base and grow it at 5% per year less the currency impact that you saw, that would equate -- that you've seen, at least in 2013, and then expected spot rates in 2014, it would still imply about EUR 36.6 billion of revenue. To get there, you would have to be delivering something around 7%-plus CAGR in sales this year and next year. Do you think that's achievable?

Christopher A. Viehbacher

Well, Graham, nice try, but I think I've said all I'm going to say about 2015. It's one thing to give this kind of guidance when you're 3, 4 or 5 years away. I think when you're here, I mean, clearly, if we start talking about 2015, I'm effectively giving guidance for 2 years instead of 1 year. And I think we'd like to focus on 2014. And use of cash, I mean, you'd do us all a great favor if you could go ask Nestlé the question about what they're going to do, and then if you wouldn't mind also calling up L'Oréal, then you could tell us, and I think I could answer your question a little bit more. But it really -- I think, if you listen to what's out there and the rumors, I mean, all we know is that the shareholder pact comes to an expiry in April, I believe it is. There's no guarantee that Nestlé moves into April. But one will see, I think, that, that will be kind of a first card to turn over, if you like. But to a degree, we're flying pretty blind on this ourselves. Obviously, L'Oréal is a major shareholder. This is highly price-sensitive information, and they're not about to share anything with us. And I suspect L'Oréal doesn't have any greater clarity other than Peter Brabeck's comments a few months ago, either. So I guess, all I can really do, I know it's not very satisfactory, but is watch this space. It is clearly something that is worth looking at. It's pretty obvious, without again spending hours on spreadsheets, that it would be accretive to do. But you'd have to put that into the whole calculation of what are your other uses of capital and how much of it is occurring. Remember, this is something that generates a high degree of cash flow for L'Oréal. So it's not necessarily the case that L'Oréal puts all or any of the stake up for sale for Sanofi, even if Nestlé decides to sell back some. So all of that is an unknown. So we, in the circumstance, I think, want to keep our powder dry. But beyond that, we really don't know any more than you yourself do. And so just as a final bit, I'll turn it over to Jerome on the margins and the -- everything, when we talk about margins, it is at constant exchange rates. But I don't know, Jerome, whether you can shed more light on this?

Jerome Contamine

Yes, okay. So Graham, maybe a few lemons to give you a flavor but maybe not an answer on all your questions, and [indiscernible] to try. So maybe to start on the cost margin, I mean, I can't -- because I mean, what I can say, as you know, is that we have been -- I mean, we have been taking the view that we should manufacture locally for years. And this was done not only for FX reasons or competitive reasons, but it's also done to access to market. So this, no wonder, is more than -- if 80% and 90% of our production which is manufactured locally when it comes to Emerging Markets. And well, when it comes to Europe and the U.S. or Japan, it's a bit different because the driver is more maybe to know our own historical positions. But to give you a flavor, and if I take 2013 -- and of course, you know that in 2013, we suffered from a big headwind from -- coming from currencies. The impact of the cost margin of the currency fluctuation has been in the range of 0.4%. So to give you a flavor, I mean, if you go further, I mean, you can take many assumptions, extremely complex to compute. Also the sources, the API real value are also varying, so we try to optimize. But I think that it gives you a view. When it comes to the rest, I mean, I will more give you some sensitivity on currencies on the profitability. And here, I mean, 2 elements. So first of all, where are the revenues coming from? And just as a reminder, there is 1/3 of the revenues which is denominated in U.S. dollars. We have 7% of our revenues which are denominated in yen. We have 25% of our revenues which are denominated in euro. And of course, the rest is denominated in many other currencies. So next currency coming, interestingly, is the Chinese yuan, which represents 4%, and then the Brazilian real is 3% and the pound is 2% and the Australian dollar, Aussies, again, another 2%. So I can go further, but just to tell you that after we go beyond the U.S. dollar and the yen, it starts to get scattered in many currencies. Now when it comes to the EPS, we could take the net income, the business net income, a 1% variation of the euro versus the dollar. So if you move from, let's say, EUR 137 million to EUR 135-point-something million, 1% less, has an impact of 0.5% on our 2014 business EPS. On the 1% valuation of the yen versus the euro, it has an impact of 0.1% on our business EPS. So I think with that, you have the main sensitivities which will allow you also to compute the impact of the main 2 currencies. Of course, the other currencies, each of them has some impact, but it starts to be more complex to compute. And anyway, it's below the threshold of 0.1% of our business EPS.

Operator

We have the last question from Tim Anderson from Sanford Bernstein.

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

I'm sorry, just going back to 2015 -- or sorry, the 2014 earnings guidance, some companies just simplify it and give us the impact of all the different currencies at current rates. I'm just hoping you can do that. I've looked at the slide, and it gives us only part of the answer. The second question is, historically, Sanofi has done a lot of acquisitions over the decades. You haven't done much since Genzyme. I'm assuming some of this relates to the L'Oréal situation. But if L'Oréal ends up not going through, you end up not buying that stake, why wouldn't you look out -- look and potentially go out and pursue larger targets? So in areas like consumer health and animal health, we've got assets up for sale by some of your peer companies. I guess one of my questions is, what's your penchant for acquisitions in those 2 areas? And why not potentially go larger because that's certainly been part of the growth strategy over time? And then last question on U300. Is there -- can you kind of assure us that there's really no regulatory risk at this point with that product, whether it's on CV safety or manufacturing or anything else? It seems like it's one of your more important near-term products here.

Christopher A. Viehbacher

Yes. Let me just take the 2 last ones and then ask Jerome about the FX. I mean, on -- I would say, first of all, the L'Oréal situation is not really weighing on acquisition strategy. I think I've been pretty clear over the years, my first priority is to invest in the business, but have to be invest profitably in the business. The real problem has been -- is that I've seen plenty of opportunities to make someone else's shareholders wealthy. I haven't really seen that many opportunities where I can create value for Sanofi shareholders. We have been pretty rigorous on our return metrics. Accretion is not enough to do a deal for us. It does have to meet return on investment criteria. We are also in a situation where, I think, organic growth is actually -- is pretty good. And so I'm not really looking at something and, "Okay, well, I've got a gap here or there." It is true that there are some assets that appear to be in play. It's not clear that they are all for sale. I think there's some people who want to do swaps, it seems, and there's some who may be selling. On animal health, we're reasonably constrained because of antitrust. We obviously look at everything, and we're not really inhibited by it. There are some other antitrust concerns on some other areas. But yes, I mean, if we can do a deal that meets our return on investment criteria that is within our existing perimeter, and then that is our first priority. The question is always can you get a deal done at the right price. And even, as I say, it's not really clear whether L'Oréal even sells the whole stake. And certainly, that level of acquisition of shares doesn't really inhibit us on any of the other deals that you're talking about anyway, Tim. So I wouldn't want to put it in a position where we absolutely have to wait to see what L'Oréal is going to do before we move on anything. We are forging ahead in the way that we've always done. We have a very active team. It is true that we have not done a number of the deals that others have done. We have looked at them all, and we just felt that, as I say, they didn't meet our criteria, but we are -- we have been, historically, a company that has grown by acquisition and would like to continue to be that. But again, I think we want to be known as disciplined. On U300, I think we told you as much as we know and can say. We've given headline information. More of these studies will be published at upcoming congresses. Remember, this is a concentrated form of insulin glargine. The main benefit of this is that really because of the concentration, the default degrades at a different rate. So that's why you get a different PK/PD profile. But from a molecular point of view, we, at the moment, are of the impression that basically the safety profile of Lantus carries forward. We would believe that the origin, for instance, data that is currently in the Lantus label could transfer over to the U300 because of that. So as much as we know, we've been able to disclose. You know as well as I do that in science, nothing is ever 100%. And I don't want to give an absolute guarantee that nobody could give. But where we sit today, we've told you what we know. Just on the FX, Jerome, your suggestion?

Jerome Contamine

Well, I was wondering, I mean, if by going further, we would be more precise. But I will give you a further, then. So a, once again, I mean, if I look at 2013, 90% of the exchange rate impact is coming from the U.S. dollar and the yen. So this has been the main impact. Now I've tried to make a case relation. Assuming that all other Emerging Market currencies would have been at the level of December 2013 instead of being at the average level of 2013, of course, here, I assume that all currencies are moving in the same direction, which, of course, won't be the case in 2014. So if we assume that, altogether, the impact is in the range of between 1.5% and 2% of the profit. So in other terms, if you move all the exchange rates from where we were, average 2013, to December 2013 for Emerging Markets, the EPS would have been somewhere between 1.5% and 2% lower than what we published.

Christopher A. Viehbacher

In fact, we've seen the yen strengthening a little bit. So I mean, I think, quite honestly, I think all we can really do is tell you what the sensitivity is, as Jerome has done. I mean, we'd be happy for suggestions and perhaps we could take it offline sometime, Tim. I mean, we'd be happy to make it transparent. We just -- there's just a risk of confusing people more about it. But predicting where that could go is obviously difficult for all of us. So thank you, everybody, for -- I apologize for having gone over. But given the interesting questions, we decided to extend the session. I think 2013 had, certainly, bumps, really with the Brazil situation and the Toronto situation. I think the fourth quarter has shown that we have been able to address both of those issues. I think the fourth quarter -- not only in the fourth quarter, but September sales were largely in that, so we've got 4 months of performance. Now 4 months of performance is no more than 4 months of performance, but I think you saw very good growth again in Emerging Markets, some very strong growth in Diabetes, Genzyme performing extraordinary well, our consumer business, I think, performing well. We would expect a much better performance out of vaccines. First quarter, as Olivier had mentioned, remember that there was an extraordinary situation where we were actually able to still continue to sell the flu vaccine in the U.S. in the first quarter, which is highly unusual. But I think as you look at it for the whole year, we're going to see a much better performance out of Sanofi Pasteur. And I think the same is true of Animal Health. We're already rolling out NexGard. We'll be rolling out Broadline. And a lot will depend still a little bit on, well, to a degree, on the seasonality. But I think we've got not only those 2 products coming along, but actually there are another 10-or-so new products coming along in Animal Health as well. So pretty much everywhere we look, we've got innovation going on in our portfolios, including Consumer Health, where we've got the Nasacort switch ongoing. So we're looking forward to a much better year in 2014. You've got guidance for the early part of the year. And of course, what we would traditionally do is give you an update, as appropriate, at the half year point as we've looked at the first 6 months' results. So thank you, everybody, for listening, and we'll see you all soon on a roadshow somewhere in the world. Take care.

Operator

Ladies and gentlemen, this concludes the conference call. Thank you all for attending. You may now disconnect.

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