sanofi-aventis CEO Discusses Q2 2011 Results - Earnings Call Transcript

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by: SA Transcripts

sanofi-aventis (NYSE:SNY)

Q2 2011 Earnings Call

July 28, 2011 8:30 am ET


Sébastien Martel - VP, IR

Chris Viehbacher - CEO

Hanspeter Spek - President, Global Operations

David Meeker - COO Genzyme

Olivier Charmeil - SVP, Vaccines

Elias Zerhouni - President, Global R&D

Jérôme Contamine - EVP and CFO


Timothy Anderson - Sanford Bernstein

Michael Leuchten - Barclays Capital

Luisa Hector - Credit Suisse

Gbola Amusa - UBS

Graham Parry - Merrill Lynch

Mark Dainty - Citi

Mark Clark - Deutsche Bank

Mark Beards - Goldman Sachs

Damien Conover - Morningstar


Ladies and gentlemen, welcome to Sanofi 2011 second quarter results conference call. (Operator Instructions) I'll now handover to Mr. Sébastien Martel.

Sébastien Martel

Thank you. Hello everyone, and welcome to Sanofi's conference call on our Q2 2011 results. Before we start, I'd like to remind that our slides are available on the website. As always, I must advice you that our presentation today contains forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different. These factors are detailed in our Annual Report on Form 20-F and in the Document de Référence.

On Slide 3, you can see the agenda for the day. Basically the presentation will be slighted in four parts. First, Chris Viehbacher, our CEO, will share with you the key highlights for the quarter. Then Hanspeter Spek, President, Global Operations; David Meeker, Chief Operating Officer of Genzyme; Olivier Charmeil, Senior VP Vaccines will provide some color on the Q2 2011 business performance.

Dr. Elias Zerhouni, President, Global R&D, will review our upcoming key regulatory filings and will come back to the first Phase III results of Lemtrada. And in conclusion JérômeContamine, our CFO, will comment on the Q2 2011 financial performance. We will then host a Q&A session.

And without any further due, I will now hand the call over to Chris.

Chris Viehbacher

Thank you, Sebastien. Good morning, good afternoon, everybody. I'll first just give a very warm welcome to Dr. David Meeker, who is joining us for the first time. We thought it would be helpful for some of our investors who haven't been as familiar with the Genzyme portfolio of products to have David as COO of Genzyme to be able to provide some of that detail.

I am going to move straight to Slide 5, because I think it really best illustrates what's been going on in the company. As we have been predicting now for several years, obviously there is an impact of generics on the many blockbusters that have driven this company's success for many years.

I showed this slide for the first time at the first quarter. This is an update for what it looks like in the second quarter, to remind you the first part of the chart really shows the sales of those nine products that are subject to patent expiry.

In Q2 of 2009, the sales of those on the quarterly basis were €2.1 billion. And you can see when we fast forward for two years that those sales have melted to €773 million. And in fact the impact of generics in the second quarter was stronger even than in the first quarter, with an impact of about €800 million of sales lost to generics in Q2 versus $500 million in our first quarter.

But of course it also says that at least in terms of sales we're getting a major part of the cliff behind us. And that cliff gets more and more behind us with every quarter that passes. That's not really the story of the company though. The story of the company really has been the other side of the page, where you can see the growth platforms.

And as you know, we've made a massive effort two years ago to reallocate resources and shift management attention, and strategically align the whole company behind these growth platforms. And the growth platforms are not just there really to replace those lost sales. But to restructure the sales into areas of business that have natural barriers to entry. And which are substantially less exposed to patent expiries, to really avoid more of the same on the left side of that chart.

Now what you can see is, is that of course over time and again with each quarter that these growth platforms become an ever more important part of the company. And if we look at the sales of Genzyme plus the growth platforms, you can see that already two-thirds of the company are in this part of the business and those have performed well. So that's really where we're going. You're seeing increasingly the new Sanofi emerge with the green bars and really the bars on the left side are starting to disappear.

So if we move to the next chart, we can see what the impact is on earnings per share. Again, if we hadn't had the ability to consolidate Genzyme, sales of Sanofi would have been down 4%. As it is with the consolidation of Genzyme, those sales are up 6.9%. Sales on a constant exchange rate basis are affected obviously by those.

Then if we look at earnings per share, we have obviously a decrease of 12.1% without the benefit of the Genzyme consolidation. And with the Genzyme consolidation then we have 7.4% decline. Now so what's been going on with Genzyme, so we've made huge progress on integration. We basically began the integration just after we announced the deal in the middle of February.

We've had a global integration committee made up of executives from Genzyme and from Sanofi with basically that being chaired by Henri Termeer and myself. We had an executive committee in Cambridge last week. And basically came to the conclusion that the global integration effort was largely completed. So I think we've done a very good job of actually bringing these two companies together in a relatively short period of time, recognizing that Genzyme has 10,000 employees in 80 countries.

Now there are still some level of integration work going on, particularly in countries outside of the U.S. But largely we believe that from a global point of view we've made the key decisions on people and structures, how we want to organize our business. And I have to say on a people basis, we had a dinner together last week. And I think we've made a huge step in starting to move from the inevitable parts of integration, where we were we and you, and we all become more we.

Now what are we actually doing in terms of structure, we look at Genzyme's four businesses. And they were essentially the Personalized Genetic Health. There are the Biosurgery business, the Renal business, and the Oncology business. Then of course there's a new business, which comes from creating a new multiple sclerosis platform.

And we decided that, really the personalized intensely patient centric approach would really be best served with the Personalized Genetic Health business and the Multiple Sclerosis business. So the new perimeter of Genzyme, if you like, is the PGH, the rare diseases and the multiple sclerosis business.

Into that we have put the Sanofi MS product Aubagio. And this is actually quite an exciting opportunity to launch two major drugs in a category within a short time of each other. So we'll be able to become quite rapidly I think a leader in multiple sclerosis.

The other businesses we felt could benefit from Sanofi's size and scale, geographic presence around the world. And so the Oncology division of the two companies have merged. And that's really where the true integration has occurred. So we put our portfolios together. And that actually was very helpful, because we actually had an awful lot of extra capacity on the Sanofi side, given the patent expiries. So we believe those could help the oncology businesses.

Then in the pharmaceutical businesses, we put Renal business and the Biosurgery businesses in with Sanofi's businesses, because we can see some cross-selling opportunities. And again the opportunity to get some scale behind that.

Moving to the next one, you've seen this morning that we put out a press release separately on forecast for the CVR. Essentially when we went through due diligence, and if you remember on some of these calls, even before the close of the transaction, we had expressed some skepticism that the recovery could be as quickly as it had been forecasted.

And certainly as we went into due diligence and we're looking at the manufacturing forecast, we just felt that those were too optimistic. And so at that time to really bridge the gap between the two managements, we essentially reallocated US$1 of the CVR from Lemtrada to the manufacturing forecast.

Now, the company and you can see that from this chart, we continue to make very strong progress. You can see on the left, that in the first half of 2010 there was a significant decrease in production due to production issues. But that the recovery had been largely affected by the second half of 2010.

And the production in 2011 is showing the consistency of the production that we're able to achieve with roughly the same level. I would point out that's actually a slightly pessimistic view, because there was actually a key lot that was approved for release on the July 1st, had it been on the 30th that would have actually even shown a small increase versus H2 of 2010.

So Cerezyme is in exercise and now trying to build stock and really optimize the production. But I think it is in good shape. Fabrazyme, of course has been more difficult to come back and really get the yields out of the new cell banks. And you can see that between the first half and the second half last year that it was more difficult.

But the first half of 2011, we're seeing a significant increase. And I think there will be a significant increase again in the second half of year. So the progress is there. We're in line with the consent decree. And in fact the fill-finish operations in Allston, which were partly at the root of the consent decree were stopped. And that's ahead of schedule.

So we've got every confidence in the recovery of manufacturing. It's just that the actual levels of production are not going to lead to what was originally forecast. For Sanofi there is no real difference, because we never built the higher forecast into our plans. And so this has no significant impact on the outlook for Sanofi and where we're going with our Genzyme colleagues.

The next slide, I think, is also important and Elias will go into this in a little bit more in detail. But I think I am extremely happy to see progress firming up in a number of areas of the company and particularly in R&D. We've had a number of milestones, some of which are related to R&D and some aren't.

Obviously, we completed the divestiture of our Dermik business. I like dermatology, but we had no critical mass in that business and saw no clear path in getting it. And so we decided to sell that business. And what I think was a very good price.

Jevtana has now been approved in the EU and the rollout is in progress. Certifect, which is a new parasiticide for dogs has been launched in the U.S. is extremely important, because of the key element at front line to our business, and Hanspeter will go in a little more detail on that.

We did have some positive Phase III results in second line colorectal cancer for Zaltrap. And you'll see more detail of those presented later in the year. Lyxumia has also had a lot of data presented at the ADA, earlier this year. Lemtrada, of course you saw the Phase III data. And I think Elias will talk a little bit more about that.

We've got a new product semuloparin coming along for VTE prevention in chemotherapy patients. Hexaxim in vaccines. We started the process for licensure in emerging markets. There is sarilumab, which had positive Phase IIb results in rheumatoid arthritis. And so that's looking very positive in an interesting market as well.

Not everything goes well, of course and sarilumab results in ankylosing spondylitis didn't work. And of course, we had the PALLAS study in Multaq, which was stopped due to side effects. So I think there is a lot of good progress on R&D. And Elias will give some more benefit to that.

I think the one thing I would say is, we did recall the portfolio, if you remember two years ago, and took out 35% to 40% of the portfolio. What I think was good is that the stress test that we put on the portfolio that year, I think really generated a set of decisions on which products to keep, which appear to have been validated two years later. Because almost everything that we decided to keep has now progressed and is looking at being filed. So that gives me some confidence that some of the discipline and rigor that we need in the decision gates for development are in place, and are better predictive of success and development.

So if we could go to the next slide. We've also made some personnel changes. So we strengthened our management team. We announced this morning the appointment of David-Alexandre Gros as our Chief Strategy Officer. This looks at business development and M&A.

But it's also an opportunity to make sure that we've got enough strategic thinking going on at the executive committee level, a lot going on in healthcare, a lot more integration in healthcare. There is opportunity everywhere. And David's background is both a physician, a consultant and banker, I think will add lot to our team.

With the departure of Belen Garijo to Merck Serono, Peter Guenter has moved up to head our European operations as Senior Marketing Executive, most recently running our German operations. One of the things that we did in as part of the integration of now both Merial and Genzyme is to take advantage of that and move to a new support function model in North America. Rather than having all of these support functions duplicated in our five U.S. businesses.

We created a new organization to support those businesses. And that would be headed by Greg Irace, who has been running our U.S. pharmaceutical business. And as he moves up, we have brought in Anne Whitaker, who was previously running a major part of GSK's U.S. business.

The growth platforms continued to perform well. Double-digit growth in emerging markets for the first half. Diabetes solutions doing extremely well; Lantus up 14.5%, I think is good; Consumer Healthcare clearly driven by the Allegra launch; Animal Health up 6.7%.

You are going to see in vaccines in Animal Health that second quarter growth was a little lower. This is largely seasonal and shifts between first and second quarter. Vaccines you're used to seeing it. Animal health of course you are less used to seeing, because we haven't consolidated for that long.

But you have seasonality with the fixed season and so there's no real change to the underlying growth. You're just seeing the quarterly variations. Emerging markets, Hanspeter will take you through as well. The growth in emerging markets looks a little lower, but that's really related to a couple of specific markets, and are largely from the point of view a different comparative period for the last year.

So finally, if I take all of that together and look at the outlook for 2011, obviously, we've decided to update our guidance for 2011, now that we've been able to consolidate Genzyme. So the earnings per share guidance that we had at the start of the year, which to remind you, we expected it to be down 5% to 10%. That's now been raised, so that we would expect earnings per share to be down by 2% to 5%.

So I think the business is in good shape. Quarter two basically is again demonstrating the execution of our strategy. Every quarter takes us less out of the realm of generic risk and more into the realm of sustainable patent growth.

So with that, I'll turn it over to Hanspeter Spek.

Hanspeter Spek

Thank you, Chris. Good morning. I kindly ask you to move on to Page Number 14, where you'll find certain in-depth analysis of our quarterly sales. You'll see that the sales on a comparable level are at the same level €8.3 billion. We continue to lose to generics €778 million, as we have seen in Christmas part, evidently this is still very significant. Lovenox and Taxotere makes a vast majority of those €778 million, but it is very significantly less than in the previous semesters.

The growth platforms we have seen also contribute significantly approximately half to (inaudible). And yes it is the first time then the contribution of Genzyme, which further helps us to compensate a negative forex impact of more than €500 million which largely, but not only of course comes from the U.S. dollar.

On Page 15, the traditional focus on our performance in emerging markets. We have to this growth rate as in previous quarters 12.3% equal €2.5 billion. This would be 7% excluding Genzyme anti-Avian flu effect.

You see then as the emerging markets have become our largest most important market segment, more important than the U.S. and Western Europe. If you then analyze the emerging markets, inside you'll see that by far the largest contribution, which is growth coming from so called BRIC countries, Brazil, Russia, India and China.

In the previous quarters we had a little bit of a question mark during 2010 on our performance on Lantus. And I described that by the third and fourth quarter 2010, what we are doing in order to correct this performance. And I'm happy to report today, that we're back to the two-digit growth already in the first quarter with 13% for Lantus, which we further accelerated now to 14.5%. It's a product that achieved close to €1 billion in a single quarter. But also overall, our Diabetes division which achieved nearly €1.2 billion sales is growing very impressively with 12.4%.

We were happy also to report during the past quarter positive Phase III results for the upcoming intended launch of Lyxumia, which has been presented during the ADA. Also, another product out of our insulin portfolio accelerates nicely. It's close to 30% growth of sales in the second quarter in the United States, but also outside.

Another close platform becoming more and more important is Consumer Healthcare, as you'll find it on Page 17. Also there we see an accelerated growth of close to 18%, achieving €644 million in the second quarter. This is a growth largely driven by Allegra, which we launched in March 2011, due to a switch from our prescription for OTC status in the United States. The product has sold into first half €143 million. And as such, we immediately leapfrogged on to second market rank. And we are quite proud confirming this achievement.

But also outside the U.S., we continue to track the growth of this activity. And as we gave us an example, the launch for example, Lactacyd in China, and we very actively build and rebuild our portfolio of CHC products. Also, in Europe and the acquired countries and this kind of growth will continue in the upcoming quarters.

Generics then on Page Number 18. And as the growth platform performing extremely nice, with 17.6%, sales above €400 million. You know our policy in this respect we have a more opportunistic approach to generics. As you know, we strongly concentrate on the emerging market. There we feel that it is most adequate to proposed generics as contribution to make medication affordable. Consequently 64% of our generics comes for those markets. And they grow nearly 14% with €279 million.

In the United States, we have a more defensive attitude. We've continuously since years now, launch authorized generics through our partner. And we continue to do so with Ambien and quite recently with Taxotere. Overall our strategy has to access one is in Europe and in the Eastern European and Middle East country, driven by Zentiva. And in the South Americas, driven by our acquisition of Medley, which by the way continues to perform extremely well.

And last words on Animal Health, Chris had indicated that, Animal Health has a strong seasonality overall, coming from the flea and tick season in the first quarter of any calendar year. This has been even more pronounced for the first quarter in 2011, because we were in a kind of defense that against the upcoming generics.

And we can state that at least for the time being, we have not won the war. But we have won a number of battles won in the marketplace, where we defended our market share very successfully in the United States, but also in Europe, but also in part, as you see from the chart, we have two court battles leading to effects as three of our generic competitors in the U.S. are obliged to withdraw from the market.

So we believe that semester in the second half of 2011, we'll bring back from Merial to the expected growth rate, which will be in the range of 5% to 7% for the total year and to CCS effect. Our recent launch in the fleas and ticks segment in the United States will contribute and will build for certain patients, upcoming new generation of those products, which we intend then to launch as of 2013 and 2014.

So far on the pharmaceutical, and I'll pass now on to David Meeker to give you more insight on the performance of Genzyme.

David Meeker

Thank you, Hanspeter. So the second quarter for Genzyme was a solid quarter with revenues of €796 million. So in the context of continuing to work our way through the supply challenges. And deal with the distractions that inevitably a company in acquisition has we've been working through the integration part of this.

The quarter was up 16% year-on-year and that was driven predominantly by a strong performance in our Personalized Genetic Health business, up 36%. And if you look at the pie chart on the right, you can see that within our group's Enzyme Replacement therapies this growth came predominantly from Cerezyme of 58%. Cerezyme picture was driven predominantly by the increase in supply and the stabilization, increased consistency of our ability to produce, that Chris highlighted earlier.

Myozyme and Lumizyme up 42%, this is the products that very much launch days. And that reflects just increase in growth of the product overall. Importantly the balance of this portfolio Synvisc up 17%, again this is a product that's relatively despite being an older product has enormous room to grow given the still relatively low penetration of (inaudible) into the osteoarthritis market up 17%.

And Renagel and Renvela, again the main dominant offering, if you will, within the phosphate binder space, in excess of 52% share in the U.S. up 14%. We're on track and continued to make progress, dealing with the consent decree. And as Chris highlighted, have discontinued fill-finish activities.

The good news on Fabrazyme is that we have again consistently been able to supply at our current level. And we're working toward being able to move definitively out of the supply constraints, which will require approval of our new plant in Framingham. And finally, of course we were quite encouraged by the initial positive topline results from the first Phase III study, which Elias will review shortly.

And now over to Olivier.

Olivier Charmeil

Good morning, everyone, good afternoon. So Q2 for us in the south hemisphere the end of the season for flu. The pattern for this year has been a little bit different from the pattern of last year, with more phase coming into the first quarter. So overall this translate for the total vaccine business into growth for the quarter of 3.4% and year-to-date performance at the end of June of 6%.

We had a record sale in terms Southern Hemisphere flu with a growth showing more 41% growth. We are very happy with the performance that has been very much driven by our performance in Latin America, in Brazil, where we have taken the benefit of some unlocked potentials that we have been able to save. And of course a very strong performance in our overall markets for flu is in excess of 70%.

In the meantime, we continue to defend our position in the U.S. I mean that cost has been showing in the last couple of months a very strong experience. Our market share remains close to 90%. And in the emerging market we continue our roll-out of our axim family, we have just launched in China.

Our axim family continued to show strong growth with Pentaxim growing more than 36%. We are very happy also to announce that the licensure process for Hexaxim as just being initiated. Hexaxim which is the six-in-one is very important growth driver for the emerging market. And the process has just started.

Regarding flu and looking at the upcoming Northern Hemisphere flu campaign, after Fluzone that was launched last year, we got the licensure for the intradermal form that we will be launching. And we for the time being are very happy after the first shipments that started on July 18th. Now we are very happy with the trade bookings and that's as expected.

I now handover to Dr. Elias Zerhouni.

Elias Zerhouni

Thank you, Olivier. In terms of research and development, all I can say is that, the organization is extremely busy following as you know the stress testing, that Chris mentioned before, and focusing on delivering on the portfolio. And I'm pleased to report that we're busy in fact filing six new molecular entities in the next nine months.

The first one was filed this month is Kynamro, mipomersen which is indicated in homozygous familial hypercholesterolemia and severe heterozygous familial hypercholesterolemia. And has been filed in July this month in the EU and will be filed in the fourth quarter in the U.S.

Visamerin/Mulsevo, semuloparin was one of the best highlights of ASCO. And is the first therapy to prevent venous thromboembolism and pulmonary embolism in chemo-treated patients. And we're planning to file that in the third quarter of 2011 in the U.S. and the EU. Aubagio or teriflunomide which is another new therapy for relapsing multiple sclerosis, will be filed in the third quarter of 2011 in the U.S. and first quarter 2012 in the EU.

Zaltrap or aflibercept, which is a VEGF-Trap, but has the particularity of being able to trap normally VEGF-A. But B and PIGF and has been successful in second line metastatic colorectal cancer, and will be filed in the third quarter 2011 in the U.S. and the fourth quarter 2011 in the EU. You heard about good results in Lyxumia or lixisenatide and this new molecular entity will be filed for Type-2 diabetes in the fourth quarter of 2011 in the EU.

And finally, we've had the CARE-MS I results from Lemtrada alemtuzumab for relapsing multiple sclerosis, which will filed in the first quarter of 2012 in the U.S and the EU. And obviously, this is putting quite a stress on an organization. It's unusual to have six filings coming in such a short order. But we're happy to be able to announce that.

Next slide please. There has been some good news in CARE-MS I, which has been positive in Phase III for topline results that we released. With a 55% reduction in relapse rate over Rebif, which is an interferon-beta 1a inhibitor over two years compared to Rebif. This is a remarkable reduction which is conforming Phase IIb results.

However, we could not confirm the Phase IIb in sustained accumulation of disability. They were not statistically significant results on time to six month sustained accumulation of disability. With 8% of patient with Lemtrada and 11% of patients with Rebif, having showing sustained accumulation of disability. And safety profile was consistent with Phase II clinical trial experience.

So as I said, we are planning to filings on the basis obviously of CARE-MS I and we're expecting the results of CARE-MS II. The difference between the two trials is, one is being performed on treatment-naive patients, whereas the CARE-MS II is performed on treatment experienced patients. And we'll have the results in the fourth quarter 2011 and are prepared to file in the first quarter of 2012.

And we are happy to see the fast track status was granted by the FDA for Lemtrada. As we go forward looking to continue our development jointly obviously between Aubagio, which is coming as you heard from Sanofi and Lemtrada, which is coming from Genzyme as a new approach, a new franchise in multiple sclerosis.

With that, I'll turn it over to Jérôme Contamine, our Executive Vice President and CFO.

Jérôme Contamine

Thank you, Elias. So first on Slide 26. So I come back on the phase, I mean the lot of things you've been said already. So just to remind you of the few technical comments. The first one is that Q2 2010 include has been restated with Merial being consolidated, which has been represented. So clearly I mean it is not what we posted last year of Q2, which includes 100% of Merial.

The second is that as we shared already, the second quarter has been the most challenging in terms of generic impact on sales, precisely because of the Taxotere being genericized as from the beginning of April. Therefore, we post a minus 4% organic decrease over the quarter.

I mean clearly this is on the always toughest point I'd say in terms of generic impact on sales that we'll see over the year 2011. And I'll remind you that as from Q3, we already had the generic of Lovenox as from the July 27th. So therefore on a like-for-like basis, the impact of generification will be somewhat lower from Q3.

Genzyme is clearly a contributor. And I mean, allows us to post an overall growth and this is clearly planting our gain. And I mean it's in line with our strategy of both a certification and creating new growth platforms. And on top of that on a like-for-like basis, you remember that the exchange rate of the dollar against the euro was a strong dollar in Q2, which was not the case in Q1 in 2010, and exactly the reverse this year.

So we have a strong negative impact of forex on Q2, which is 6.4%. Mainly driven by, somewhat stronger euro and a weaker dollar, as you can see. But all-in-all, with all these effects, we post sales of Q2, which are slightly up against the sales of Q1 on the account basis.

So also if I look at the P&L, this P&L is for Q2 is impacted by the consolidation of Genzyme, as well as the change of mix. So I think it deserves some explanation. So when we have stable sales on the reported basis and increased sales on the currency exchange rate basis, we have decrease on operating income. This was expected let's say and in line with our guidance. But still I think deserves some explanations, which I will give more, following the coming slides.

So if I start with a gross margin on cost of sales, I said at the Q1 presentation that, the level we had reached in Q1 was basically the flow we should reach for the full year between 30.5% and 31%. And again 31% is the highest level we should see. So we should remain in this trend.

There is some Q2 specific negative impact of the shift of mix with the loss of say, some highly profitable products impacting by 2.5% of gross margin, if I compare it to Q1 2010. On top of that the exchange rate has not been favorable, because we are positioned more in euro and not other currencies. So here again and if I compare Q2 2010 to Q2 2011, we have a negative 0.5% impact of the exchange rate.

One word on Genzyme, Genzyme contribution to this cost of sales ratio is very slight accretion by renal. The gross margin of Genzyme has been between 70% and 71%. Let's say 70.5% i.e., the cost of sales for Genzyme for the Q2 has been around 29.5%.

So now I move to the R&D expense. I would say that along with the high activity, which Elias has described, I think that we have been able to stabilize our R&D expenses on the comparable basis. Of course Genzyme adds some expense and precisely €145 million for the quarter, which is normal. So if I exclude that, we have a slight decrease on the R&D expense, despite activity on late stage phases both in pharma, but also in vaccine, because we are really in the process of the Phase III basis study for cyclical study for (inaudible).

And clearly we have been able to reach that, thanks to the decrease of infrastructure cost as well as our internal cost over the period. So we now take advantage of the actions we've taken over the past two years. So that we are able to stabilize on a comparable basis, R&D expense for the quarter.

SG&A, here again I think maybe some explanation. I mean we here again include Genzyme contribution. This is before the synergies we are planning to generate. So we have an increase of SG&A to sales ratio. In fact, if I take out Genzyme, the SG&A expense has decreased as compared to last year, and doing somewhat better than during the first quarter on a comparable basis.

And once again, if I include Genzyme, we are going to implement some synergies in particular on support functions. So that we'll benefit from that in the coming quarters on all over for the year of 2012, so that we can come back to a level of ratio, which was in line with the, let's say, our objective, which is to be more in the range of 25% to 26%.

Below the operating income, then if I look at the net income, I mean I'm proud to show that despite of the increase of the gross debt and the net debt, the net financial expense have been kept stable. And this is a result of the very good cost of financing that we achieved for the Genzyme acquisition.

As you can see from the Slide 32, the average gross debt over the quarter has been slightly above €20 billion, so net debt being around €13 billion, when the average gross debt in Q2 2010 was €9 billion on the net debt of around €4 billion.

So on one hand we'll be a less of the cost of carry of having cash on the balance sheet. But on the other hand we also benefit on average cost of gross debt, which has been significantly reduced, thanks to the good financing conditions for the Genzyme acquisition. As you can from this slide, the average rate of the cost of debt for the quarter for the gross debt has been 2% compared to 4%, which was now the heritage of older debt on the balance sheet.

One word on the tax rate. So we have revised our effective tax rate for the year. We have taken into account Genzyme consolidation, but we have also taken into account the evolution of our split of activity between various countries and having more profits being generated in countries with lower tax rate, and also some extra optimization on our ability to benefit from the lower tax rate on royalties being paid in our French operations.

So all-in-all the tax rate for the year will be 27.5%, so lower than what I said at the beginning of the year. We have taken the impact for the two quarters in our P&L in the second quarter. Therefore, the tax rate for the second has been 26.5%, which in fact in line with an average 27.5% for the first half year.

Now I move to Slide 33. I think that Chris had mentioned that already, as well as David. We have revised up our objective of cost synergies for the integration of Genzyme from US$600 million to US$700 million. This is a result of an extensive work, which has been performed, both in terms of putting together and putting in place a new organization on evaluating in detail, where the synergies could be generated.

So as you can see from the graph on the right side of the slide. Clearly, a large part of it should come from support functions as well as consolidation of IT systems. Also, there will be some synergies to be generated benefiting from though Sanofi and Genzyme organization in R&D, particular in the U.S. And when it comes to operations since 30th March related to the integration of the Oncology business of Genzyme, within the Oncology business of Sanofi.

So all-in-all $700 million of synergy, this should be achieved by the end of 2013. Don't ask me as instead, if it would be fourth quarter or third quarter. So you can say that at least we'll get $700 million fully impact 2014. And we'll do our outmost to accelerate, let's say the ramp up of these synergies.

Cash flow, which is on next Slide 34. So if I take the quarter, we have generated €1.6 billion of free cash flow, €2 billion from net cash flow from operating activity, €428 million of CapEx. And from Q2 of this year, we take into account the CapEx we spend on Genzyme on the new facilities as well as the upgrade of existing facilities. So its €90 million, which are coming from come Genzyme, because the rest is therefore in line with what we posted during the first quarter.

The sources on using of funds table takes into account the acquisition of Genzyme for this quarter, for this is obviously the bulk of €13.6 billion. You can see on the slide. And we have paid in cash €1.5 billion in dividend in cash, plus some share repurchase for €100 million. So all-in-all the net debt at the end of the quarter is around €13.2 billion, which is basically one time EBITDA. And shows that we are still have a very stronger capital structure and balance sheet structure.

So if I had to just summarize, before moving to Q&A. The overall H1 2011, the growth platforms have generated a double-digit sales increase and of course these assets made into account Genzyme. We keep that despite a very significant generic headwind over the quarter by €1.3 billion, it was a full first half of the year.

We manage to limit the impact on our EPS evolution, which is down 6%, if I exclude the impact of H1N1. We are again on track to deliver €2 billion of cost savings objectives by the end of 2011. This refers to our previous plan of (inaudible) to the integration of Genzyme, which stands on top on the $700 million senior SMUs I mentioned before.

On the last slide please. Now we can say that including Genzyme, our exposure to a patent expiry and let's say old not growing products has been reduced again. And growth platform push Genzyme represent more than 65% of our overall sales.

With that, I think I'll pass it over to Sébastien.

Sébastien Martel

Thank you, Jerome. We're now ready to open the call to any questions you may have. Like always we have many people listening into the call today. So I'd kindly ask you to limit your questions to one or two at a time to allow as many participants as possible to join the Q&A. Operator?

Question-and-Answer Session


(Operator Instructions) We have our first question from Mr. Tim Anderson from Sanford Bernstein.

Timothy Anderson - Sanford Bernstein

A question on Genzyme and then one on Multaq. On the missed milestone, the easy interpretation is that your progress in fixing manufacturing is going slower than expected. But if I heard you right, you seem to be saying that it might have just been overly optimistic timeline set by Genzyme and not by Sanofi. Is that correct?

And then, just looking at the history of manufacturing issues, the drug companies they tend to drag on longer than companies originally think. And I'm wondering how much you're willing to reassure us that this won't happen and that things like the 1Q 2012 milestone you set out for Fabrazyme will be met?

Then on Multaq, can you assure us that Multaq won't be removed from major markets like the U.S. and Western Europe? You have two trials now showing worse outcomes, ANDROMEDA and PALLAS. And only one trial showing better outcomes, which is ATHENA. And then on PALLAS, were the CV events adjudicated?

Chris Viehbacher

I'll ask Elias to take the Multaq question. Just I will confirm what you said on the missed milestone, Tim, that's why we built the CVR in. The issue though I would say here is that you talk about biological manufacturing. So in some cases, in a lot of places, and I know this from previous consent decree experience, sometimes hard to get the full capacity going again, because you essentially have an awful lot of duplication of effort between trying to get the manufacturing back again and doing all the things like training and quality.

Here, the issue is really around yields. And that's just a question of the art of biological manufacturing. You remember there was a viral contamination; the facility had to be sterilized. So new cell banks were there.

Cerezyme was actually up and running to expectations. Fabrazyme, it's really just been a challenge of getting the cell banks back to previous levels of productivity. The real increase in supply will come with the increase in capacity at Framingham in the first quarter. And assuming our validation runs work out well. And I think we will confident in saying that they'd come through.

So that's why we are pained to say, the number was not going to be met. We didn't believe the number back in the time we did the CVR. And I think that's been confirmed that doesn't diminish the very significant progress that has been achieved on getting the Allston facility back up and running. So perhaps Elias you could address the Multaq question.

Elias Zerhouni

So in the first quarter that you asked, Tim, was whether or not we can be confident that Multaq will not be removed. I think personally that I can never predict the behavior of regulatory agencies. But we are confident that in its current indication Multaq shows all of the evidence that we had accumulated in the ATHENA trial.

And specifically in patients with paroxysmal or persistent atrial fibrillation, but remember that we focus on that population patients, early patient's in early atrial fibrillation that have converted to sinus rhythm or were in sinus rhythm at the beginning of the therapy. Whereas the PALLAS trail is completely different, it's a permanent atrial fibrillation population over six month. And these patients, as you know, have a higher incidence of underlying cardiovascular issues. So I don't think the ATHENA trial or the other populations that you mentioned are comparable. So from my standpoint, I think we need to fully evaluate the data.

As you asked the question about adjudication, as of last week we had 40% rate of adjudication. Both the EMEA and the FDA wanted to see all the data over the summer, and we're adjudicating. Hopefully we will be fully adjudicated by September. And that will give us a basis to really to come back to you and tell you what we think.

Again, I think it's important to understand that the expansion of the indication was really never included in our projections. As you know, we do not do that until we have positive results and are in line for registration.

Operator: The next question is from Mr. Vincent Meunier from Exane BNP Paribas.

Vincent Meunier - Exane BNP Paribas

I have two questions, please. A follow-up on the manufacturing issues at Genzyme. Can you please give us a guideline, any guidance on the volumes you think you will be able to reach for Fabrazyme and Cerezyme? And also if possible, the sales amount corresponding to that volumes for 2011? And the second question is on Eloxatin U.S. Can you please give us an update on the situation regarding the patent litigation?

Chris Viehbacher

I mean I think on the, Vincent, in terms of the volumes, the only thing that we can tell you now is in fact, we believe that we can continue to supply Cerezyme patients. All Cerezyme patients are getting a full dose today. And so we believe that there will be consistent manufacturing going forward. And essentially supply and demand are in sync. And we are mostly just trying to get the yields up a little bit, so that we can start to build further stock.

Fabrazyme, we said that essentially supply will increase when we have the Framingham facility approved. So at this stage I think we're expecting stable second half production, perhaps some increase. But I think at the moment we're willing to commit to being able to maintain supply for existing patients. And then we can update the forecast once the Framingham facility comes online.

Vincent Meunier - Exane BNP Paribas

And maybe if the work regarding Cerezyme, are you able right now to build inventories or not?

Chris Viehbacher

No, not yet. We have some inventory, but it is still fairly tight. And that's why we need to production level somewhat to be able to really build up stock.

Olivier Charmeil

It looks that in the topic there no use on the appeal by Sun, and you saw that there was a nice uptake such in sales in the second quarter.

Vincent Meunier - Exane BNP Paribas

And do you have any idea of the calendar for that or it's uncertain?

Olivier Charmeil

There is a hearing set, but there is no exact date. So it's entirely up to the District Judge, who has re-received the trial. And evidently they have neither knowledge nor influence on setting off the trial.

Chris Viehbacher

The timing of U.S. legal decision is notoriously difficult to predict.


The next question is from Michael Leuchten from Barclays Capital.

Michael Leuchten - Barclays Capital

I had two questions please, number one on your guidance, it looks like you've amended that for Genzyme and Genzyme only despite the fact that your growth platforms are going quite well. Your tax rate is coming down. I was just wondering, do I read caution into that your peers and specifically in the U.K. you've made very cautious comments about the industry outlook, not only this year, but certainly going forward, so any color there would be welcome?

And then secondly on the Genzyme synergies, I'm surprised not to see more synergies coming out of the R&D, so I though I would maybe be where most of the overlap between the organizations are. Why isn't there more synergy potential at this point in time?

Chris Viehbacher

On the guidance this is potentially our best, as to what the outlook is. There's still enough a lot moving around. We shouldn't forget that we still have that we launched Xyzal and we've had Ambien CR, which we cannot say, but which have an impact on the results. Obviously, if we can do better we will continue to do better. But today I will say that we don't really see anything on the immediate horizon in terms of the U.S. or U.S. pharma outlook.

Now clearly the situation in Europe remains challenging. And you've seen some recent moves in Spain for example and across the board reduction in price. So just given were deficits are, I think most of the industry would like to see how that shapes up. But we believe the company's going to go. In terms of synergies and R&D, let Elias take that one.

Elias Zerhouni

There are two reasons that I can give you. First of all the perimeter of synergies in R&D is not what was initially in the budget of R&D in Genzyme. For example, the initial R&D budget was $821 million approximately, but some of that was not really R&D, there was product support.

And in our approach to R&D expenditures at Sanofi, these would have been more appropriately allocated to different items. So the synergies are really achieved on two-thirds of the preexisting Genzyme budgets. And that's what you see.

The second is that we have decided to actually concentrate all of our research activities in Boston, in what we call a Boston Hub. And therefore, if you look at the total plan that concerns the rest of R&D, it didn't make sense to extract more synergies out of the Boston region. Because remember, we have Sanofi Pasteur there, plus oncology.

And we think it's a strategic move for R&D to have a much larger footprint in the Boston area, because of the open innovation model that we are adopting. So those are the reasons why you might see a little bit of a discrepant sort of percentage.

David Meeker

One of the things on this is, what we haven't really included in this is the full impact of what Genzyme will do for the overall company. I mean to give you an example, really the acquisition of Genzyme and Merial put us in a much different situation in the U.S. for example. So two years ago, we had a pharma operation in New Jersey and a vaccine operation in Pennsylvania.

Now with these five businesses that we have, we've moved to a shared service transaction model, and now moving to a shared support function model. Not only there to help achieve synergies in Genzyme and Merial. But we would expect to see cost savings in the rest of the business, which we actually haven't put in here, because they're not necessarily.

Specifically, the results of the integration savings, so some of the savings are coming out. We haven't fully evaluated all of those. I think Elias is going also through an exercise in all of R&D now, and saying, okay, there are some immediate synergies.

So in other words what we're trying to do is establish some very clear accountability for some immediate synergy targets that we need to achieve. But there is kind of a second layer, if you like, looking at, okay, now as we look at the broader group with all of these businesses, the further cost savings that we can be making and those aren't really in these numbers.


You have a next question from Luisa Hector from Credit Suisse.

Luisa Hector - Credit Suisse

I have a couple of questions on the enzyme business of Genzyme. So firstly on Cerezyme, can you quantify the impact of the Latin American tender in the second quarter? And on Cerezyme, are you seeing switch backs from VPRIV. Can you just give a bit of color on what that split of patients that you're seeing there.

And then on Fabrazyme, how confident are you that you can regain share in Fabry's in that ex-U.S. region, given that it surly has had an opportunities there? And then on Eloxatin, was there a stocking effect during the second quarter? And then finally on the tax rate, obviously, you're now guiding to that lower tax rate. But over time should we still expect it to creep up as you lose the benefit of the lower tax from the Plavix, Aprovel royalties?

Hanspeter Spek

A lot of interest is (inaudible). So I know there was no stocking effect. In country we found a little bit more stock of the generics and we had expected. So there is no stocking effect on our side at all.

Chris Viehbacher

David, you want to take Cerezyme and Fabrazyme?

David Meeker

So I think the first question was on the Brazilian tender that was less than 10% of the overall total. I don't have the exact number here, but to give you a perspective. With regard to switching in the VPRIV Cerezyme markets, these enzyme replacement markets tend to have relatively little switching overall. And I think we're still pretty early in that experience. But I would say for the moment, both companies have supply constraints, which were impacting the overall market. So it's not particularly dynamic from a switching standpoint. So we'll see where that goes. It's quite early.

With regard to Fabrazyme, of course that's a more complicated history, when we prior to having these supply limitations back in 2009 in competitive markets. For example in Europe, we had in excess of 70% share with the shortage. We actively worked with Shire to move patients to Replagal product in markets, where Replagal was available, to ensure that all patients in those markets could access at least to the great extent possible, some form of enzyme replacement therapy.

So I think how confident are we? We took 70% share in the beginning, based on what we felt was a strong competitive positioning in terms of the value offering of Fabrazyme. I think once we get back to full supply, we'll see how this market shapes out.

Luisa Hector - Credit Suisse

Can I just quickly ask with the CVR, and not like the most impairment that you're going to miss this year. How are you actually being controlled for best efforts on that?

David Meeker

Actually, it's all the Genzyme team that has been doing the manufacturing, and in fact with the head of Genzyme manufacturing up until the 30th of June. He has decided to leave the company for personal reasons. And as a result, we've appointed the former Head of Sanofi Pasteur manufacturing, he was previously Head of Global Manufacturing, Sanofi Pasteur. So he stepped across to become Global Head of manufacturing for Genzyme.

But essentially where we are, is because we've produced the enzyme in lot, and then we purify it. And given the lead times, we can kind of already see that the enzyme that has to be produced for the second half of the year already exists. And the lots that will be produced in the second half of the year won't be purified in time for the end of the year.

So we already know the yields. We already know the lead times. And in fact, actually Henri Termeer has been within the company, up until 30th of June. So I think plenty of people have had oversight and it's all pretty clear. So I don't know David do you want to add to that?

David Meeker

Obviously in terms of the diligence, the Genzyme employee base, I mean the CBR was out there. But the intensity and the pressure to make products, given the patient populations that we serve is extremely high. So again it's hard to quantify that. And if that helps at all understand that the pressure's going to drive here is left to CBR and then just the fact that we've been under-serving these markets. And that's a pretty high motivation.

Chris Viehbacher

And given that we could sell anything we could produce. I mean obviously there's a whole lot more interest in producing more and also for the recent David's point of view. Do you want to say about tax rate?

Jérôme Contamine

Yes, you're right, Luisa. I mean you still should assume that it will be undertaking the tax rate when our patents and particular on Plavix comes to an end. So we are continuing to optimize as you can see. And we managed a little bit better than what we expected and take advantage of the recent of tax legislations here and there.

But I think that you could assume that we should be back to somewhere between 28 and 29 next year or probably going closer to 30, let's say, after we have totally lost paternal on Plavix. Of course, unless there is some other products going forward, which could, I mean better than Plavix, which will come into production. But If I think about the coming two years, I mean this is what I can give you as an overall average guidance.


We have our next question from Mr. Gbola Amusa from UBS.

Gbola Amusa - UBS

On Multaq and the Plavix data, just given the counter indications on heart failure. Are you able to say, whether the cardiovascular events are correlated with severity of the heart failure? And then one quick second question, which should be straight forward. In terms of globalizing Genzyme should we continue to assume that Allston and Framingham are the facilities needed to fulfill incremental global capacity?

Elias Zerhouni

In terms of the cardiovascular events and correlation with the level of cardiovascular failure, we know already that there is in fact a correlation that is more severe. The cardiovascular failure is more likely you'll have cardiovascular events. We know that from the previous studies. And that's why in the current indication, we do not recommend the use of Multaq for a Class IV congestive heart failure for example. So we know scientifically, there is such a correlation.

In the PALLAS study, obviously we had more severe patients, who had permanent atrial fibrillation as opposed to the current indication with non-permanent atrial fibrillation. And by nature you'll have more severe patients in that category. Now in terms data relative to PALLAS study, in terms of fully evaluating the correlation, we're not through that analysis yet. We have not adjudicated every case. We're doing this diligently. And hopefully by September we'll know the most specific terms. That's that answer to your question.

Gbola Amusa - UBS

Is there any risk though that the counter indication on heart failure could be moved, and the current indication could be moved to less severe forms of heart failure based on the PALLAS data?

Elias Zerhouni

In the current indication, we actually do not recommend. And it is in the label to use it in severe Class III or Class IV. We know that correlation and we see a very good reason to use Multaq in Class I, II or mild-Class III, so it's already in there.

David Meeker

Regarding to global manufacturing supplies, so between Allston and Framingham, we currently are supplying our existing population out of six 2000 liter bioreactors in Allston, with approval of the Framingham plant and the bioreactors will come on sequentially. But we will end up with four additional 2000 liter bioreactors. And that will, as I said, enable us to supply globally, both the Fabry and Gaucher populations. Our Myozyme and Lumizyme patient population has served out of our Geel, Belgium plant, where we have two 4000 liter bioreactors with the third 4000 liter bioreactor scheduled to be approved by the end of this year.


We have a next question from Mr. Graham Parry from Merrill Lynch.

Graham Parry - Merrill Lynch

I was just wondering first of all on the guidance uplift, because I just looked at the top-end of the range and if compared to the previous guidance, it's down 5%. The difference really here is the 3% mechanical Genzyme accretion with no synergies. You talked about on the Q1 call that you should theoretically be benefiting from some synergies on the better tax rate. So does that mean you're seeing something in the business, which is worse now than it was when you gave your prior guidance at the beginning of the year? And if not then, is there any potential synergies we should be expecting to accrue through the rest of the year?

Second, on the Eloxatin case, if you can just give us a feel for why wouldn't the Eloxatin judge rule the same way in the some cases he did previously? And then thirdly a question on iniparib, just wondering if you're in a position now to confirm whether you need a new Phase III trial for the second third line triple-negative breast cancer indication?

David Meeker

Let me take the first question, Graham. I'm not totally in agreement with your math. We gave an initial guidance, and there was no Genzyme mentioned then, between minus 5 or minus 10. At this time, we have no generic of Taxotere. We have no generic of Xyzal.

So clearly to reach the highest range of the guidance, we'll have to assume that there would not be any generic. And we don't know if you remember at the time when would happen since generic of Taxotere. So if I take the Genzyme aside by no way, if I put it back to where we were in February, you would have been able to reach a 5%. So it's a high range of the guidance.

So it's not just adding an upper range of the guidance and heading the nice Genzyme on top of that we have more information. And unfortunately I mean is what we said in February, I mean they are now generic of Taxotere. We don't know yet exactly what will happen on Lovenox. So clearly, I mean if there is no generic of Lovenox up to the end of the year, it will help us to be on the higher end of the new guidance.

So it has nothing to do with Genzyme or nothing to do with the rest of business going lower than expected. It's clearly how you came back to not only math, but also history of the various times when we announced the settlements.

Olivier Charmeil

Perhaps on the Eloxatin, I mean the basic answer of course Mark, is that we cannot speculate on the outcome of our patent trial, especially not in the U.S. In the strategic case I remind you is that we already had lost this case past one-and-a-half years ago, which was shortly against our own odds. And then we had won it again. So of course, I attend to your underlying optimism of why should we lose it, but evidently we can only exclude it.

Hanspeter Spek

In terms of iniparib, internally we are focusing on understanding the results that we've had. We have ongoing trials. As you know, we have a Phase III in non-small cell lung cancer. And we are focusing our understanding the mechanism of action, more precisely. And I think we've made progress there for identifying biomarkers that are more predictive of response.

And obviously, once that's done, we will make that determination obviously in terms of Phase III. But at this point, I cannot say a 100% that we're going to do that. But I'll tell you, the one thing we know is based on all the results we have and that is a molecule that will continue to hold the task, as we understand it better.

Graham Parry - Merrill Lynch

And just a follow-up from that, so do you have a timeline for which you think you'd make a go, no-go decision without indication?

Chris Viehbacher

Probably about the end of the year beginning of next year.


We have a next question from Mr. Mark Dainty from Citi.

Mark Dainty - Citi

Just two quick ones. On the Lantus lixisenatide combination, you mentioned in the press release, you're going to start Phase III in 2013, which I think is a bit of a delay. So can you just give us some color as to what's causing that? And then on the global rollout of the non-enzyme replacement products for Genzyme, you mentioned Synvisc, I think this quarter, should we expect a sort of big impact for the rest of this year. Is it going to be more 2012? And would you guys sort of give us any numbers as to what sort of revenue synergies we might see? Thanks.

Elias Zerhouni

On the lixi line, the explanation is very straight forward. The FDA changed its stance in terms of how to conduct trials when you do combinations, by insisting that the device used for commercial application be the same device that we used for the Phase III trial. And putting together a device that can accomplish that goal, delayed the program by the appropriate amount of time. That's the only reason that the program is delayed at this time.

Chris Viehbacher

I think a few things about the Synvisc to keep in mind. One is the viscosupplementation market does have a significant seasonality. Q2 tends to be by far in the year the strongest quarter, but then we tend to hold then Q3, Q4, with Q1 often being a down quarter. So again, if you look at that product going forward, keep that in mind.

Second is, in Genzyme's hand, that product was predominantly a U.S. product. And the vast majority of the revenues came out of the U.S. with relatively little presence outside the U.S. So the advantage is that putting us together with the Sanofi organization is that their global reach will provide, I think a significant opportunity.

What will determine the rate of growth in global markets as with any products is reimbursement, and that's something that again will take some time, and certainly a number of countries to work through. So whether it will be a 2012 event that you'll see the big ex-U.S. growth or in subsequent years, again we'll see. But those will be the factors that will dictate sort of the performance of that product going forward.


The next question is from Mr. Mark Clark from Deutsche Bank.

Mark Clark - Deutsche Bank

Two questions, firstly for Jerome. You've put out a figure of €0.75 to €1 of accretion from Genzyme in 2013 on announcing the deal. I just wondered whether you have sort of re-run the numbers. And firstly whether you can sort of give us confidence that you're happy with that range still? And whether there is any finessing of that range? And secondly a question to Elias, we've had a lot of data recently at the ADA, et cetera, on potential Lantus competitor degludec. Just wondered if you could give us your perspective on that. And how you expect to compete the Lantus against degludec in future?

Jérôme Contamine

Mark, on your first question, I maintain this guidance. And I knew that it was based on exchange rate of dollar against the euro of 1.3. And I think that this is a range, which we can confirm taking into account the ramp-up of the (C&T) as well as the growth profile of the various products of Genzyme.

Elias Zerhouni

In terms of the question about Lantus and degludec, I mean clearly when you look at the published data, there are lots of questions that we have about exactly the construct of the head-to-head trial. As a physician, I can tell you, you'll have different rates of hypoglycemia, if you take an insulin at midnight as opposed to dinnertime.

And we think that by construct these make some differences appear, not really significant in the relevant category. So I don't think there is no evidence to, in my satisfaction, that Lantus is not actually the best basal insulin at this point. We'll see more data as they are published. We don't have the full data. We do have data ourselves, comparing a dinnertime versus midnight versus other times of the day. So we've published them seven years ago. And we've had over 10 years of experience in that. So we're very confident that Lantus will hold its own.

Chris Viehbacher

I mean I'll go a little further. I think when those data were presented at ADA, I can tell you there were a number of physicians in the audience that questioned even some of the ethics behind that study of trying to artificially induce even more hypoglycemia. And I think dosing two products, who are compared at different times is not in my view a fair comparison. And so we'll be able to fill a little bit more data. But quite honestly, I seriously question the ethics behind the way that data being presented.

David Meeker

I'll now go one step further. I think I feel reassured that if you have to do that to prove superiority, there is something superior about our Lantus.


The next question is from Mr. Mark Beards from Goldman Sachs.

Mark Beards - Goldman Sachs

Firstly, Jerome, I just want to confirm you gave an SG&A guidance for the year range of 25% to 26%. Secondly, you haven't mentioned that much about why the non-BRIC growth rate was so low, if you could go into that in a bit more detail? And then finally, how stable is the Cerezyme net pricing been since coming back on to the market?

Jérôme Contamine

I think it has been said before that there are certain differences between the second quarter 2011 and second quarter 2010, which is a little bit more true for the non-BRIC countries, which has to do with seasonality of cough and cold seasons and other technical effects like distribution in Russia.

Now outside BRIC, we see a lesser growth in two major markets. One is Russia, inside BRIC of course and the other one is Turkey, which is for as one of the major outside BRIC emerging markets. In Turkey it has mainly to do with price cuts, which appeared by the end of last year and also at the beginning of this year. So this is what you see, beside I see no substantial differences. Once again the technical effect and so is a specific effect on Turkey.

Chris Viehbacher

With regard to the Cerezyme pricing question, obviously pharmaceutical pricing globally is under increased pressure. And we're not immune from that in rear disease world. But that said, we historically have done reasonably well in either being carved out as an exception or having a more moderated impact. And I would say that's where it holds the supply shortage that had no specific impact at all on our pricing.

Jérôme Contamine

On the SG&A to sales ratio, what I meant is following. Last year we had an average ratio of 25.2%. Clearly the ratio for the quarter and probably still for the coming two quarters will be effective by just the addition of SG&A expense from Sanofi and SG&A expense from Genzyme. And clearly as long as we are implementing synergies and that you saw from the slide on this specific topic, a large part of the synergy are on support function, specifically G&A. On top of it, it is also on the (inaudible) of SG&A in operations and part of oncology. We're saying that we could, I mean, rapidly over the quarter, so it will come back to a ratio which would be more in line with what we had in 2010, i.e., somewhere between 25% and 26%.


We have our last question from Mr. Damien Conover from Morningstar.

Damien Conover - Morningstar

Just a product specific question on Taxotere in the emerging markets. It looks like sales were down about 30% in the quarter. I think, traditionally as we look at some of these products entering the latter parts of their lifecycle in emerging markets, we kind of expect a little bit longer of a tail. Just I was wondering, if there is anything specific going on with Taxotere in the emerging markets?

David Meeker

Now once again, you have seen the affect of Turkey, but besides there is nothing to report. We have a similar situation inside and outside. But once again, we had a price cut in Turkey, which additionally damaged the performance of some products.

Chris Viehbacher

All right, so I think it's time to wrap up. In our view a solid quarter obviously a busy quarter. We've been busy integrating not only Genzyme, but also Merial, because Merial is now a wholly-owned company. And I think we've spend a good amount of time thinking about how to integrate both and we now move really over the coming quarters into execution mode. Clearly driving the synergies out of our businesses, making sure that we can now drive a lot of the revenue synergies, which we really don't quantify at the moment. But it's pretty clear on businesses like Renal and in particular Biosurgery that there can be a significant benefit from having Sanofi sales reps behind that.

In terms of guidance, I think we've overcome a number of things. And there is an increased guidance, because we are more positive on our outlook, but as always, we continue to drive the businesses as hard as we can. A number of things I think will come back on the 6th of September, as you know, we're doing an investor seminar. We'll be able to deeper dive into each of these different businesses, have a look at some of the medium-term outlook for those businesses. So we'll certainly look forward to seeing all of you there.

And let's says, in the meantime we continue to march trough the cliff, getting it further and further behind us. And we are driving our growth platforms. And I think I am personally extremely excited about the opportunities that both Merial and Genzyme present for the business.

And also I'll just come back and say, look for a company where everybody thinks there's no pipeline, having six NMEs to file over the next nine months, is something I don't think I've ever seen in my career before. So I think that provides a very positive outlook for where our R&D could go in the future as well.

So thanks everybody for listening. And hopefully we'll see many of you on 6th of September. Thank you.


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

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