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sanofi-aventis (NYSE:SNY)

Q1 2012 Earnings Call

April 27, 2012 09:00 a.m. ET

Executives

Sébastien Martel - VP, IR

Chris Viehbacher - CEO

Jerome Contamine - CFO

Hanspeter Spek - President, Global Operations

Analysts

Tim Anderson – Sanford Bernstein

Mark Dainty - Citigroup

Peter Verdult – Morgan Stanley

Luisa Hector – Credit Suisse

Vincent Meunier – Exane BNP Paribas

Mike Leuchten – Barclays

Philippe Lanone – Natixis

Kyle Rasbach – Cowen & Co.

Jeff Holford – Jefferies

Operator

Welcome to the Sanofi Conference Call. I’ll now hand over to Mr. Sébastien Martel. Sir, please go ahead.

Sébastien Martel

Thank you. Hello everyone and welcome to our First Quarter Conference Call. As always, I would like to draw your attention to the Safe Harbor statements. I must advise you that information presented in the call today will contain forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to differ materially. I invite you to refer to our [inaudible] with the SEC and also out for description of those factors.

Today with us on the call, we have Chris Viehbacher, our CEO, Hanspeter Spek our President of Global Operations as well as Jerome Contamine, our CFO. Without any further adieu I will hand the call over to Chris.

Chris Viehbacher

Thank you Sébastien. Good morning and good afternoon everybody. I think we have got a very strong set of results in the first quarter. Sales up 7% at constant exchange rate. Business earnings per share up 7.2% at constant exchange rates, clearly benefiting from the acquisition of Genzyme, which you may remember was completed on the 4th of April last year. I think it’s always useful to come back and say where we have been going strategically. If I go back to 2009, you will all remember that really the story around Sanofi was in genericized products, how many sales were going to be lost. And you can really see the cliff graphically here. The products, and they are noted in the footnote on the bottom that are subject to patent expiry amounted to some €2.2 billion in Q2 of 2009, which was kind of the last quarter before the cliff started. That €2.2 billion on the same set of products today is now down to €813 billion.

So, as we have seen and I think we have roughly €250 million drop in the quarter due to generics in the first quarter, but that’s down from the average of about €500 million from what we have been seeing up till now. So, increasingly we get the cliff behind us, certainly from a sales point of view it’s pretty much behind us. From a profit of view of course the second shoe has now dropped on the patent cliff. We are really about T minus three weeks from the patent expiry of Plavix in the US. Avapro went at the end of March, and of course we’ll see generic activity restart actually in August of this year. But clearly the impact of Plavix is the biggest one.

This shouldn’t be a surprise for anyone. We have been detailing this amount since September of last year. This is roughly a €2 billion effect on a full 12 month basis because this is occurring in May, we are obviously not going to have a full 12 month. So the impact on the bottom-line and on net after tax profit of losing both Plavix and Avapro to generics is around €1.4 billion for the year. So Q1 obviously is great because we still have Plavix. You know, the next fourth quarters are certainly going to be impacted by that.

But none of that is a surprise, it’s something we have been preparing for quite some time. We built our growth platforms not only as a means to compensate for the loss of sales but to put Sanofi on a track for sustainable growth. These are all businesses that we believe are not depended on patents that has long lives because of either our strategic positioning or the extensiveness of capital investment, the knowhow, faith in brands. But we believe the growth platforms provide long term sustainable growth.

To that we now add new Genzyme. New Genzyme is essentially the rare disease business today and will in future include the multiple sclerosis business. So Genzyme is really focused on Cerezyme and Fabrazyme. Myozyme, Thyrogen, Aldurazyme, and to that we will add Aubagio and Lemtrada as we launch those and you can see the benefit of the improvement in production. We hit an important milestone in the first quarter and that the new production facility in Framingham, Massachusetts was approved by both the FDA and EMA. Already in the first quarter we were able to fully supply patients on Fabrazyme in the United States and we are now looking on extending supply to other markets.

This means of course that we will now be able to shift our production of Fabrazyme from Austin progressively to Framingham which simplified Austin allows us to get faster out of our consent decree situation. And really I think it can have an important benefit in terms of capacity for Cerezyme. As you can see all of these have performed pretty well. We have good solid performance.

Diabetes is up 14.4%, really driven by Lantus with over 17% increase. Emerging markets going at close to 10% including obviously the benefit of Genzyme but also including the effect of vaccines. Vaccines is not showing stellar growth, but this is nothing more than what we see on the Northern hemisphere in the third and fourth quarter. Some years we have the flu vaccine in the third quarter some years it’s in the fourth quarter. Well, the same kind happens in the southern hemisphere in their winter time. Sometimes it’s in the first quarter as it was last year. This year the sales will be in the second quarter.

Hanspeter will come back on Animal Health, but again I think you will see that actually when you look at it on a quarterly basis the business continues to perform in line with expectations.

The Cerezyme is now coming through, we are busy ramping up. Approval of a site doesn’t mean immediate release of product. We have essentially been able to sell the three validation batches, but there is a time that is necessary to ramp up production. We continue for the moment to still produce Fabrazyme in Allston as well as in Framingham and progressively we will phase that out.

But I think you can see extremely good results on that rare disease portfolio. I think we are very confident certainly of share gain in Fabrazyme because it is objectively a better product, five times the enzyme for the same price. And Cerezyme I think we have an opportunity because as you will have seen Shire didn’t get its extended capacity at its Lexington facility approved and we know that up till know Shire has been capacity constrained as well.

So as we gain capacity this I think gives us an opportunity in Cerezyme. I think the difficulty of Shire with its Lexington facility does demonstrate that none of this is easy. There is always a certain fragility of biological manufacturing and I think it underlines the importance of Genzyme’s recovery.

I think, one of the things that’s really emerging from Sanofi over the last year or so is a very strong late stage pipeline. Now, we did a lot of work two or three years ago to clean out the products that we didn’t see applied value. What really is interesting to me is not so much of what we threw out but what we kept. And what we kept actually I think has really stood the test of time which tells me that we were sufficiently rigorous in deciding what to keep so much so that of course we submitted five new molecular entities in the last nine months, Kynamro which is for homozygous familial hypercholesterolemia and severe heterozygous familial hypercholesterolemia in Europe, and that has been submitted now in the US in the first quarter.

This is an important population for us because, although a little bit more severe, this really relates the groundwork for the PCSK9 coming along which even though will have a higher – will have a larger patient population it gets us already involved in this field commercially. Aubagio, this week we have AAM and while a lot of excitement is around Lemtrada we shouldn’t forget that. This is a drug that has shown equal efficacy to the standard of care Rebif with all of the convenience of oral dosing. So I think we have a significant opportunity with Aubagio, especially when we are looking at launching both Aubagio and Lemtrada over the next 12 months.

Visamerin, in VTE prevention in chemo-treated patients and we have seen, we have got an advisory committee coming up on that and that really is an indication where nothing is there today. Lyxumia, GLP-1, this is progressing well in Europe. We are waiting for the cardiovascular study in October and would expect to file in the US towards the end of 2012. Zaltrap is progressing well in second line metastatic colorectal cancer both in Europe and was filed in the US in February. And I think we have got a good opportunity really to get back into the field commercially also with Zaltrap here.

Two exciting compounds in the pipeline, obviously the PCSK9, a number of analysts as well as journalists really pointing out that the PCSK9, probably one of the most exciting targets in the industry today. We appear to have a lead on that. We also were able to publish extremely interesting Phase-II data and our Phase-III program is set to start shortly.

Lemtrada, I'm going to come on to in a minute but we have been able to, really for the first time show the data of the care MS-2 study. Up till now we have been – we had to be circumspect in what we said simply because we didn’t want to dilute the impact of this presentation at AAM this week.

I have got three slides on Lemtrada, and I really only just want to focus on this because – I think Lemtrada has had a certain reputation out there and I have to say I used to share it. When we were acquiring Genzyme I think we rightly had some question about the ultimate value in the absence of data because of the long history of development. Equally, I think one has to give credit to where data are there and where the data are showing a different story. And I think actually – particularly when you look at the care RMS2 study the data nothing short of stunning.

Obviously because of its history, Genzyme and before them Bayer set the hurdle high on their Phase III. I mean they knew that if they are going to come to market they had to have an extremely convincing set of results.

When you look at MS studies, there are really two axis on which you look at this. The first is the score of your EDSS, which is really a score showing disability, zero being great, 10 being not so great. And then the question is how long can you show some kind of benefit in slowing down disability. So, the minimum you have to do for regulatory is three months. Obviously the higher hurdle is six months.

Then of course the question is, what are you comparing it to? Well, if you are going to give someone a sugar pill with MS, you are probably not going to see them do very well. So it’s a lot easier to show that you have got some level of efficacy here. However, because of this high hurdle, the need to really have a credibility, I think Genzyme did an extraordinary thing and put an active comparator, and they didn’t even pick the most advantageous comparative, they took the toughest one. They took Rebif. And you can see how many people have actually done this against Rebif, essentially nobody.

So the data that really Lemtrada are showing are difficult to compare to anybody else’s studies because no one else has subjected their molecule to the same set of rigor and high hurdle that Lemtrada has. So what do they show? Well, let's look at relapse.

I mean relapse is extremely important, and these are all two-year studies with follow-up periods. So this isn’t a flash in the pan type thing. This is a disease where patients are going to play a big role. Now patients want to have two things. First is, you want to be disease free. You want to be feeling better. And you are going to feel this in terms of whether you have a relapse or not. So when you look at the number of patients that had not had any relapse for two years, you are looking at 78% for Lemtrada versus best in class Rebif which is only 59%. So if you ask patients what do you prefer you are going to find a very strong preference for those who don’t have any relapse because this feels like you are getting back to a normal life.

Now, the other thing is disability, and we know that MS is a progressive disease, and this is going to have an impact on your quality of life. Up until now all drugs have done trials to really show that they slow down the progressive nature of the disability. And again, zero is good, 10 is bad, so an increase is not good. And you can see the black line up top which is Rebif. And through the course of the study, you saw that patients actually progressively did worse on Rebif.

What happened with Lemtrada? Well, we can see that actually for the very first time a drug actually showed that you can improve the situation of disability. So you have got a longer period without relapse and you’ve got an improvement in disability scores. Even I can sell this drug.

So where we are going, R&D milestones for the remainder of 2012, we will be filing Lemtrada in Q2. As I already said Lyxumia in Q3, we will be presenting the origin studies at the ADA. The retrospective cohort studies will also be presented at the ADA. The TOWER headline Phase III results in remitting multiple sclerosis will be in Q3. Dengue vaccine results also in Q3, we are going into Phase III in Q3 with the anti-APCSK9 and we will start our second Phase III with our anti-IL-6.

So with that, I’ll turn it over to Hanspeter Spek for review of the operations.

Hanspeter Spek

Thank you, Chris. Good morning, good afternoon. I would like to share some additional information focusing on the growth platforms and you find as a first chart beginning with number 17 the performance in the emerging markets. If you remember we had achieved for the first time and as the first company 10 billion of sales in emerging markets during 2011. You see then that this 2.6 billion we had once again a very strong quarter, it was off nearly 10%, 9.9% to be precise if you concentrate on separate countries the growth even has been 16.5%.

If you look to the four different segments we have spelled out on the chart, you see that overall we have a strong growth rate. So we are able to also compensate less stronger growth rates as in Eastern Europe and Turkey. You know that Turkey has been for several times now by price cuts and overall we have to see that Eastern Europe in terms of growth is approaching more and more Western Europe, but from the other segments which closed between 8% and 16% overall we achieved to compensate single digit performances.

In diabetes, we had a very, very impressive acceleration during the second half of 2011 and this performance continues. You see that in the first quarter we achieved 1.3 billion sales, nearly 18%, respectively 14% of course at constant exchange rate.

Excellent performance of Lantus helps by now 51% of quarterly sales in the US through SoloSTAR. A solid performance is 8% in Western Europe and really outstanding performance in emerging markets at 32%, which means that if you go more into details in the emerging markets we have close to 64% in China, 35% in Russia, 30% in Brazil, and 57% in Mexico. So after having analyzed, also Novo Nordisk same for the first quarter, we are satisfied with this performance.

We believe that we have to continue. Of course we have outstanding very interesting research from a large long term study using insulin in Type 2 patients origins this will be published in June and we expect from this study not only more information on this so called cancer risk concerning Lantus but also on other – especially cardiovascular outcome of an early insulinization therapy.

Equally positive our performance in the first quarter is Oncology sales of nearly €750 million close to 17% respectively 13% percent growth. Jevtana has nicely contributed to this, but we also see that after we have intensified focus and investment on the – formally by Genzyme management promoted oncology product [inaudible] as source productivity this April of 8%.

We have mitigated news on Zaltrap, less positive, evidently it’s the failure of the product in prostate cancer, but the very same day we have obtained the information to have a priority review by the FDA which makes us very optimistic to be able to launch the product if this review concludes positively before the end of [inaudible].

Now on something which maybe sometimes overlooked. Our performance resource product which are off patent, and you find on page 25 Plavix and Lovenox. And you see that Plavix in those countries where the product has been also ready as of 2010 and then based on evidence in 2011. The product still is achieving €359 million of sales only in the first quarter and this is due to a nearly 12% growth in Japan where the product still has a number of years of patent life ahead of it but also 5.2% closer to €200 million from the other emerging markets.

On the right side of the chart Lovenox performance even more remarkable, I believe was in €400 million just during the first quarter, a growth of 12%. So it says outside the U.S. where the product more or less never has been patent protected and is undergoing direct competition from [inaudible] many years. I believe [inaudible] inside US Lovenox performed [inaudible] patients mainly but not only due to the fact that we have seen no additional entries of a generic product. But I think it’s fair to say that also we have extreme customer loyalty [inaudible] evidently helped by continued supply problems of our existing competitors.

The consumer healthcare became a more and more substantial growth platform for us during 2011, mainly through the launch of Allegra and a number of acquisitions. We can report for the first quarter the continuous development – again [inaudible] growth rate of 13 respectively 11%. We have been looking at this – a lot of interest how Allegra would behave in its second allergy season. And as you see this sales of €87 million in the first quarter the product does extremely well, and therefore contributed to the overall impressive sales number of €805 million, which once again is also supported by a very strong performance in emerging markets, which is close to 20. And inside a very impressive contribution of our recent acquisition in China, Sunstone, and they are mainly a product [inaudible].

Chris has made already a comment on the performance of Pasteur which is seasonally effective. We have a [inaudible] of 11% in the mature market and minus 13% in the emerging markets which is as said due to the different seasonality of a few in the southern hemisphere. We assume strong [inaudible] truly normalized during the second quarter, and overall we are optimistic to achieve another record sales for the first half of 2012. [Inaudible] report said after we had a [inaudible] number of changes concerning the supervision and the management of our joint venture we see a slightly improved performance during this first quarter.

Last but not least, on Merial or Animal Heath activity, we have a slightly negative sales growth. You see from the chart on page number 23. This is first of all due to an extremely strong first quarter in 2011, which has been artificially high because we had obtained important sales for foot-and-mouth disease vaccines and for Bluetongue virus disease vaccines in the first quarter of 2011, which could not be repeated in the first quarter of 2012.

Nevertheless, we are convinced that Merial business will equalize the performance into second quarter and will go to growth into second half of 2012. The performance as of today is exactly in line with [inaudible]. So I’ll close here and I’ll pass on to Jérôme Contamine on the financials.

Jérôme Contamine

Thank you Hanspeter. I’m now on slide 25. This is just a recap of the [inaudible] stage from Q1 2011 to Q1 of 2012. So as you see, we have lost €235 million sales from the general integration of our key products and hence mainly Taxotere. I’ll remind you that we are still selling Taxotere with no competition in the US in the first quarter of last year and a few other products. We also have the impact of the end of the agreement with Teva to sell Copaxone in Europe and because of the disposal of our Dermik business we have also negative element on the like-for-like basis due to this two elements which is the next column.

On the contrary, the growth platforms, as described by Chris and Hanspeter before, have contributed to €287 million of increased sales, so basically compensating from the – even more than from the seasonal health product negative impact and of course the [inaudible] was not compensated. But the general consumers there was definitely compensated by the Genzyme contribution.

Here on this slide you have the sale Genzyme did in the first quarter of 2011, so the evaluation of Genzyme sales have now been taken into account into the cost platform as we quantify Genzyme as a growth platform from now.

Finally, I remind you that in the first quarter of 2011, the exchange rate of US dollar against Euro was 1.37, during this quarter it was 1.31, so clearly we are benefiting in Euro accounts from the slightly weaker Euro against main currencies and in particular the US dollar. So we have a positive impact of the currency evaluation of €187 million. So all in all, our sale has grown over the quarter by 9.4% including 7% on a consolidation and freight basis.

On the P&L you all noticed that we have posted a strong P&L i.e. with good ratios whether it’s a gross margin ratio or exchange ratio and we will [inaudible]. Before that on slide 26, I would like us to say that this is the last quarter where when you compare P&L in Q1 of 2012 is of course impacted by the [inaudible] of Genzyme which was not consolidated during the first quarter of 2011. So from the second quarter we won’t see any such variation.

The second thing which can be noticed on this slide is that we finally posted a business operating margin which is above the business appointed margin that we posted in Q1 2011, which I think in the environment where we are with generic competition and switch of business, it’s really a good achievement. It was somewhat helped by a positive outcome of a litigation of settlement on a litigation we had, which has impacted other calendar for [inaudible] income it’s not the full difference between 2011 and 2012, also because 2011 was negatively impacted by the acquisition expenses related to Genzyme. So when the impact of this non-recurring events let's say is definitely there – I mean, it’s a small impact [inaudible].

So if I move to the next slide, I think that some of you have been somewhat positively surprised by cost of sales to sales ratio. I would say that this cost of sales to sales ratio is really in line with what we anticipated. That's [inaudible] where we have seen a deterioration of this ratio along the [inaudible] where we were expecting from higher generic competition on loss of exclusivity of some of our main products.

We are now in a period where we are basically able to compensate through productivity improvement. The remaining impact on the cost of sales ratio of this genericized products. On top of that, we have an improvement of the cost of crude heparin and a slight positive impact of exchange rate on the like-for-like basis.

So we are really heading towards where the guidance we gave at the beginning of the year, i.e., that the [inaudible] ratio should be somewhere around 31.5% when you see we are now about stabilized. We don’t think it’s a good sign that we are both really achieving this productivity improvements but also that we are getting out of this period where we are regularly in decline of ratio but now we are stabilized and that we will be able from next year to improve this ratio.

On the year again I think we clearly had a good control on our cost and I would say specifically on our internal cost. So we start to benefit from the new reorganization of our research on the closure of our New Jersey site and the function of whole research activity in the US to our Massachusetts, Cambridge site. So we see that there is a decline of our internal expense, and at the same time we continue to invest into a late stage development fees.

So, all in all as you can see the ratio of R&D to sale has improved if I compare to Q1 2011, and even if I compare to Q1 2010, it’s an improvement by 0.7. I think it’s clearly a good achievement in terms of streamlining and improving – on the cost side the productivity of R&D expense on investment, when on the efficiency side we also see that there are some new latest orders which are now coming closer to finding an even big find.

So we could say also that the benefit from the discussion of Genzyme, I already mentioned the closure of our New Jersey research site and we are [inaudible] synergies with Genzyme on the R&D side.

Our SG&A is very much the same. We have digested basically the impact of Genzyme, we are going to do some improvement [inaudible] savings but now we are back to a ratio of 24.9%, which is very similar to the one we achieved during Q1 2011. There is of course some variability quarter by quarter in terms of sales and marketing expenses, but I think that we are clearly satisfied with the efforts and achievements we have reached in terms of cost containment and as you can see, if I had included on a pro forma basis Genzyme for Q1 2011 then the SG&A expense is down by 4.9%.

On the next slide, there is not much to say I can just highlight that the net financial expenses are slightly higher than Q1 2011, which is not surprising because in Q1 2011, we had no debt associated to the financing of Genzyme, but I could see on the reverse that we have now – we had to leverage €8 billion more debt during Q1 2012, the increase of financial expenses was very limited showing that we have been able to finance Genzyme at a very, very low cost of debt.

The effective tax rate we expect for the full year, as I mentioned already on the February 8th is 28% leading to a business net income increasing by 12.5% or 8.4% on a constant exchange rate base. Of course, we have slightly more shares outstanding during Q1 2012. As I already told you that we pay our dividend partly in shares during Q2, but the difference is pretty limited as we have brought back a large part of the new shares we issued at the time of the payment of dividend in shares. As you can see, if I now look at the business EPS, the business EPS is increasing by 7.2% on a cost of exchange rate basis from €1.66 to €1.85.

Cash flow, I’m pretty – I see we are pretty satisfied with this slide. It shows the ability of the group to generate free cash flow on the [inaudible] debt. We have generated €2.4 billion of free cash flow after payment of CapEx and taking into account the variation of working capital, which basically we did have a good control and [inaudible] neutral. So it’s an increase of free cash flow of 23%.

We have had limited acquisitions over the quarter mainly established payments or milestones in connection with licensing. We continue to do opportunistic share buyback along with offer guidance in that respect, so we bought €400 million shares. So altogether what we have bought back during the second half of 2011 is around €1.5 billion of share that we bought back.

So all in all our net debt is now down to €8.6 billion, so you could sense below the €10 billion target we have. I just remind you that we’re going to pay the dividend in a few weeks now. I think [inaudible] so the debt by the end of June will be above €10 billion, that we are clearly heading to a direction where we should close to this €10 billion level by yearend which is what we already highlighted in the previous presentation.

To summarize before taking questions I think that we have really achieved a good performance on those growth platforms. We clearly see the positive contributor of Genzyme by [inaudible] both in terms of growth, in terms of synergies, in terms of R&D, in terms of pipeline. Clearly we have seen some significant progress on our late stage pipeline in particular. We continue to have sustained cost control, and before we can reaffirm clearly our guidance for the full year, what I remind you is a decline of profit just taking into account the huge impact of credit loss of patent in the U.S. a decline of profit between minus 12% or minus 15% under cost exchange rate basis.

With that I think I’ll turn back to Sébastien to handle next page.

Sébastien Martel

Thank you, Jérôme. We are now ready to take questions. As always, I’ll ask you to limit the number of questions to one or two at a time. You can always get back into the queue to allow as many people as possible to participate into the call. Operator, we can open the Q&A session.

Question-and-Answer Session

Operator

Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] The first question is from Tim Anderson from Sanford Bernstein. Please go ahead.

Tim Anderson – Sanford Bernstein

Thank you. I have a couple of questions. The first one is on the ORIGIN trial and I fully understand you can’t say anything about the results, but I am hoping you can in broader terms say how this trial could theoretically be impactful or not from a commercial perspective to the franchise, if the primary endpoint is either hit or missed?

And then second question is on the various drugs that are filed for regulatory review or that will soon be filed, I’m hoping you can answer two different questions, which of those products has the highest eventual sales potential in your opinion, and which of those products is perhaps the riskiest in terms of a regulatory outcome?

Chris Viehbacher

Well, I mean I think on ORIGIN, we’re going to – we want to save this for ADA. I think we started trying to dance around this and sort of say, well, we think this would have an impact on that. I think let’s just wait for the ADA. I think the second question Tim was, which one do we think has the highest impact, the ones already filed, is that right?

Tim Anderson – Sanford Bernstein

Yeah. It’s really – of the ones that have been filed or soon will be filed, which of those could be the biggest in terms of eventual sales potential? And then, also which of those products do you think embeds the most regulatory risk in terms of getting a favorable regulatory outcome.

Chris Viehbacher

You know I don’t think we really see – on the regulatory outcome I mean I would rather predict the weather than predict a regulatory outcome. Right now as I look at it I don’t particularly see a higher risk on any of them, and actually I think everything so far we’ve seen everything is progressing well. I mean they are all in different categories. Kynamro obviously doesn’t have the same size population as a Lyxumia. At the same time I would suspect that that’s probably a little bigger than most people think. This is a drug that really has a very clear meaningful benefit in those patients that need the drug and there isn’t anything else there today. I actually think, I think Kynamro is probably underestimated.

Lyxumia is extraordinarily important for our diabetes franchise and getting that – and then I think particularly because – I think it’s fair to say that we see big synergy with Lantus especially because you can either add GLP1 to insulin or add insulin to this which Victoza can't. So I think that one is a big one. You know the Visamerin is going to be kind of a tricky one, because there isn’t anything there today. Is there something that physicians prefer to use today in terms of Lovenox, well we’ll see. But I think actually having the data and showing the clear benefit is going to open up an opportunity.

You can figure out what Zaltrap is going to do as because that market is pretty well known. And Aubagio I think is also one that’s probably underestimated. I mean you’ve got a very – you’ve got an oral treatment. It is clearly shown to be equal and as we could see to standard of care, but it is becoming a competitive field.

The one it hasn’t been filed yet, but clearly is about to be filed is Lemtrada. Actually I know their sales forecast are all over the map. I personally think actually – and I recognize I'm changing my opinion on this, but I'm changing my tune on the basis of data. I think this is going to be a major drug. People are concerned about safety. I don’t see the reason for that. We have seen higher incidence on impact for thyroid, but thyroid conditions are not uncommon in this population and indeed others and are pretty easily treated with standard therapy.

The ITP has not been as severe as we have seen outside the population and has all been reversed. If you look at the Tysabris or the Gilenyas of this world there are some concern around fatal side effects. So far we haven’t seen anything like that with Lemtrada. I mean the biggest thing I think with them part of that we are going to have to really change people’s minds about it. This is, you know, I still see comments of that this is an immune suppressant. It actually isn’t, you know. This is acting on the lymphocyte and somehow in the repopulation of these lymphocytes we are rebalancing the immune system. This is a drug that’s in and out pretty rapidly. You know you are getting five infusions and then nothing for a year, and then another three infusions and then that’s it. And if you can go several years without relapse you can see some improvement in disability.

I think this is potentially the best in class, and I would not agree that this is going to be used actually in the most severe patients. Because I think when you get out there and you see where the patients – where the side effects are versus the others I think we are into stack up pretty well now. We know this is a conservative audience, 80% of the treatments are still in ABCR, which tells you the conservative nature of physicians. But each of those drugs are selling well over a billion dollars, and so I don’t see why this one wouldn’t be.

I guess the final one is really dengue. You know this is a vaccine. The disease that actually affects 230 million people every year roughly half the world’s population is potentially affected by this. This is a first in class vaccine. We are about five years ahead of everybody else in this. So you’ve clearly got that. You know we’ll see Phase II be results of that later this year. If they are strong enough we have some countries that we know would be prepared [inaudible].

Okay, thank you. Obviously later on we will talk about the PCSK-9, but that’s not ready to be filed so that could be quite major too.

Operator

Thank you. The next question is from Mark Dainty from Citi, please go ahead.

Mark Dainty - Citigroup

Thank you. Two quick questions. Firstly on a Aubagio, findings might suggest that you would know whether you were going to need an outcome from the FDA. We haven’t seen – I was just wondering if you could add some color. And then just a quick question about productivity improvements. Could you quantify in Euro terms what that would be? Thank you.

Chris Viehbacher

We haven’t seen –we are in discussion with the FDA, some sort of regulatory decision is expected by Q3, but we haven’t heard anything either about that outcome at this stage. That doesn’t mean that there will be or won’t be, we just – we haven’t heard anything.

Mark Dainty - Citigroup

Okay.

Unidentified Company Representative

Well, on the first question. I mean you could [inaudible] I’d say to quantify it in Euro because lots of [inaudible] taking to a town [inaudible] mix over time. So it means not just a direct equation. So it’s somewhat more complex, but what I can say is that we are now – I mean reaching from 4% productivity improvement per year. So if you say on this 4% I would apply to pharma, would not [inaudible] try to vaccine which is somewhat of a longer term improvement, but you should take just [inaudible] and take 4%, you are right it was something like €200 million to €250 million.

Mark Dainty - Citigroup

Okay. Can I just – a quick follow-up then? I mean if you take what you are saying in terms of productivity improvements in SG&A and R&D as sort of around 5%, 6% and you are adding your 2 millions for COGS you are already getting close to a billion a year for this year and you targeted €2 billion by 2015. So I'm just wondering how quickly can it reach to €2 billion and really how far you are going to go.

Unidentified Company Representative

I think that you have to go step by step. So I mean we are really heading into the right direction. I mean clearly the Q1 results show that we are generating savings [inaudible] improve as well as synergies with the execution of Genzyme on Merial ,possibly somewhat faster that what we we expected. But I think it’s a bit early to revise how much we can achieve for the full year and keep in mind that we will remain some [inaudible] on the course of the quarter [inaudible]. So yes I think we remember that we have given publicly to save 2 billion from 2012 to 2015, and well there is a good chance that it is more than – the average proportion of a business [inaudible] that we need someone to be cautious and I like somewhat to wait for the next quarter to give you somewhat precise revised quantification for the first kill. We have to take into account the expense, we are going to appreciate two new launches.

You know we give the 2 billion target on the net basis not on a gross basis so we take into account also the extra expenses which was linked to the launches of the serial quarters we have heard just two minutes ago.

Chris Viehbacher

I think it’s fair to say that given – you know, nobody ever feels like you won an organization that you can take a lot of cost out. But once you loose some patents and you are under pressure on profits it’s amazing when you start looking at things how you can take cost out of the business. I mean when we launched our first €2 billion program I can tell you that you know there was not a belief that this is going to be easy, we ended up doing it in two years instead of four years. I think I would agree with Jorlem [ph] it’s a little early to say, but equally I think there has been some very strong done on looking at just things on efficiency, how we organize ourselves, every piece of the business actually has things that could be run much tighter. So I could certainly say that I’m extremely confident that we will get the €2 billion, but we are going to be reinvesting in some of that and new product launches, but we will give you an update later, but we are certainly pretty confident about the cost savings.

Mark Dainty - Citigroup

Okay. Thank you very much.

Operator

Thank you The next question is from Peter Verdult from Morgan Stanley. Please go ahead.

Peter Verdult – Morgan Stanley

Hey, good afternoon Peter Verdult from Morgan Stanley. Chris, just suppose the only guidance, given what you have achieved in Q1 and you stated conservatism regarding planning for our Avapro and Plavix generics, I would just like to better understand what actually needs to go wrong for Sanofi to feel not to comfortably exceed your current EPS guidance for the year?

And then on Lantus, can you just remind us what the US sales forces in – for promoting Lantus currently and what your plans are if any going forward. I mean quickly I don’t – Hanspeter Spek on the ORIGIN study. Just a clarification we know it can represent the ADA, can you just clarify other results in the house or have anyone from senior management actually seen the top line data for ORIGIN?

Chris Viehbacher

So guidance, we’re confirming guidance. We’ve ever updated guidance after one quarters worth of results. We give guidance because we have a degree of confidence in achieving it. Having them said we live in a reasonably dangerous world with the macroeconomic situation where it is, I would say that one of the things that has progressed is that a lot of the uncertainties that used to be associated with Sanofi are pretty much gone.

We used to worry about when are we going to get for Lovenox? Well, we kind of know that. What’s going to happen with the growth platforms versus the patent expiries and I think we’ve built up these growth platforms and they own 63% of sales these days. So they have real critical mass and so I think borrowing anything that’s really unusual in the macroeconomic environment, right now I don’t think we do see anything that would put us off our game. At the same time I think it would be far too early, we won’t have enough data really yet to see how things are going to go to change the guidance at this stage? Do you want to talk about salesforce?

Hanspeter Spek

Yes, I think for understandable reasons we don’t be really precise on the number of FTEs, but there’s an overall orientation. Evidently we have significantly unchanged – increased the support during 2011 which then triggered the nice increases you saw. As the second orientation of course we try to match and we successfully matched usually with Novo Nordisk, and as the last perhaps very recent comment we have taken notes that I believe today Novo Nordisk announced to increase the overall headcount in US by 15% and we would be prepared to do the same each times it comes. So, if you mentioned Novo Nordisk you will get a pretty good picture.

Now on origin, again I don’t want to say much more than what Chris had said before, please keep mind this is a very huge file. It is the largest file ever than on insulin, it’s more than 12,000 patients it’s up to seven years. So, it is not possible to start say this is success, this will be not a success because there is multiple outcome, there are kind of question of benefit of earlier or later insulinization. There is the question on cardiovascular outcome. So, it will be an extremely interesting report and evidently I cannot go any further.

Peter Verdult – Morgan Stanley

Thanks.

Operator

Thank you. The next question is from Luisa Hector from Credit Suisse. Please go ahead.

Luisa Hector – Credit Suisse

Hello, I have got two questions please. So, firstly on emerging markets, you certainly seem to have very strong quarter compared to some of your peers, were there any particular large tenders in the quarter that we should be aware of? And then secondly, for Jérôme, just going back to the other operating income, just to check on understanding you correctly, so the licensed litigations settlement, are you saying that that’s somewhere in the region of €50 million or €100 million and also can you explain what that was with regard to?

Jerome Contamine

I did phonetically not understand the middle part of your question when you were referring to emerging markets. Would you please kindly repeat it.

Luisa Hector – Credit Suisse

Of course. So for emerging markets, you had a particularly good quarter compared to your peers. So just wanted to check whether there were any large tender orders during Q1 that we should be aware of?

Jerome Contamine

Absolutely not, more into contrary, the development we had in Africa was charged below 10% was – was a little bit marked by tenders which were delayed also with the overall situation in the Northern part of Africa. So there is no upside from tenders at all.

Luisa Hector - Credit Suisse

Thank you.

Hanspeter Spek

On your second question, Luisa, I can say that the net impact on the – as you know, we have a midyear guidance by around 10% and we can say that around 3% was due to this – to this positive outcome of this license litigation. I mean the actual topic, the kind of disclose precisely because of the other topic I wanted to actually disclose. I can just tell you that it came out to a pretty good forward [inaudible].

Chris Viehbacher

I think you meant there was – of the 10% deep versus consensus of 3% was related to that settlement. So without that, we will still – and ahead by about 7%.

Luisa Hector – Credit Suisse

Okay. Thank you very much.

Operator

Thank you. The next question is from Vincent Meunier from Exane BNP Paribas. Please go ahead.

Vincent Meunier – Exane BNP Paribas

Hello, thank you for taking my questions. The first one is, on your strategy on acquisitions and both on acquisitions, you were talking about the possibility to spend €1 billion, €2 billion in both on acquisitions and emerging markets few months ago. I think that nothing happened. So what’s going on on this? And the second question is with regards to the anti-PCSK9. In the Phase II data infection rates as well as injection site reactions occurred, what’s you view on that with regards to the Phase III trial and also the device? Thank you.

Chris Viehbacher

Well, I mean on the €1 billion to €2 billion, it was meant to be a guidance versus a target. I think we constantly are looking at things, but it’s a little like fishing. You never sure of – you may be out there fishing, but you are never sure when the fish is actually going to come in over the boat. I think it’s fair to say that – I would say that pretty much all of the acquisitions we’ve done have been able to drive some significant value, because we’ve kind of been ahead of everybody else. I can tell you that there are plenty of people wondering why they missed Medley for example. I think Chattem acquisition really showed a lot of value because we had Allegra. So I think we spend our time looking at things, we are not here just about to go jumping on some things.

I have some concern when I see what some of our competitors are doing and some of the valuations that are being paid. You really got to look a little further and in little different places to create value so we are not just doing what your competitors are doing. So it’s meant to be a guidance, but I wouldn’t say that hey, if we don’t do €1 billion to €2 billion by July that we are falling behind.

On the PCSK9, so we would expect that the device will be some sort of auto injector device for patients to use themselves. We haven’t really seen any big issues with injection side reactions been very few discontinuations for this reason in the study that we’ve seen to date. We’re not even really like to know what the actual number is, so I don’t see that as being a big issue.

Vincent Meunier – Exane BNP Paribas

Okay. Thank you very much.

Operator

Thank you. The next question is from Mike Leuchten from Barclays. Please go ahead.

Mike Leuchten – Barclays

Thank you it’s Michael from Barclays. Just one question on Lantus. Your friendly competitor said at Lilly you are quite aggressive with the view on biosimilar Lantus I think to suggest that the analogs market to data margin could be split in three ways with equal shares between improved products Lantus has it is today and the biosimilars, just wondering what your answer to that would be? Thank you.

Unidentified Company Representative

It’s a simple answer is that we don’t share this points for many reasons, if you look to penetration I’ll see biosimilars which are to-date is market you see penetrations which are much, much lower than what you have been transporting Lilly for. Second we believe that the impact of devices will play another role for not to say we’ll present as an hurdle to a more rapid penetration of biosimilars. So we don’t this point of view at all on the fact perhaps another positive information we have obtained the prolongation of our patent protection – our overall protection due to the pediatric use at the couple of stage because also from a fewer time plant if the feel is rather comfortable.

Chris Viehbacher

I think we’ve got a new formulation coming. We have record number of SoloSTAR users and we know from others. You have to at some point go back and look at analogues among these forecasts. You can’t just have people hoping for things which is what this Lilly forecast sounds like. You don’t see that kind of a market situation in the other markets, if you go back and look at respiratory devices, for example, we know that the device plays a big role in patient preference, I believe Lilly’s own comments have said that they don’t expect this to be a substitutable product. So how do – how are they going to get this, I mean, you can go look at other cases like the growth hormones, erythropoietins, interferons, we haven’t seen that so far, it doesn’t mean it won’t happen but I think you’re going to see something like this is going to be a fourth entry into a market. This is going to be essentially a me-too insulin analogue and for entry into a me-too market has got anywhere from probably around 10% market share. I mean I think that’s what you have seen in some of the biosimilar markets, I think that’s what you probably see here. And by the time you take into account devices and new formulations and the fact that Lily remember is not really present much in emerging markets. So they don’t the presence set in Novartis really does. So I don’t think we wouldn’t share the same to Hanspeter’s point we don’t share the same forecast as Lily does.

Mike Leuchten – Barclays

Thank you.

Operator

Thank you. The next question is from Philippe Lanone from Natixis. Please go ahead.

Philippe Lanone – Natixis

Good afternoon gentlemen. One question again on the emerging markets because if there is no special items in the Q1 it must be a product mix and geographic mix that makes you much better than especially your UK competitors. So we should be able to project that for the next quarter. Do you think it will be the case that we can project about 8% comparable for the next two quarters of the emerging markets? Can you make it comment on price component of the emerging market as it deteriorated especially in the quarter? One – maybe if I may, another one on the other prescription product line that seems to be deteriorating a bit faster than usual at minus 6%. Are there any special items here so that it continues this way?

Unidentified Company Representative

Well I basically expect a similar growth for the upcoming [inaudible]. I have this limitation of China, which answers also your second question. We have seen not a negative size impact on our presence in China during the first quarter but we expect price changes for the rest of the year. We can only speculate for the time being on which products there may be an impact on Plavix or maybe an impact on Lantus for the time being. We don’t know. So in summary I have to leave a certain question mark in terms of continued growth for the second and the third quarter for China, but for the other markets being it Latin America or being it Africa, I don’t see this at least as of today.

The negative clause of the other product is mainly driven by the dents you have in the European community and the European community once again is hit by all sorts of interventions, there are mainly price cuts which occurred during the last 12 months and on top of it we have a pretty negative scenario in Turkey as far as the emerging markets are concerned coming from price.

Philippe Lanone – Natixis

Okay. Can I have maybe a follow up on organic growth you were almost at 0% organic growth in last quarter and you will have less headwinds where the vaccines and Taxotere in the second quarter if emerging markets go the same way. Can we hope to have a positive organic growth in Q2?

Chris Viehbacher

Yeah, let's not get into doing guidance on a quarterly basis here. I would say, look, I think we have always said that 2011 was where we felt to be the bottom of our patent cliff on a sales basis, gluing there profit basis because what don’t consolidate Plavix and MSO in the US and there is a piece of that this year. How fast we can get back out I mean it’s kind of a little bit of a mix. It’s pretty hard to predict where quarterly sales are but I think the kind of the 0% organic growth that you saw is this kind of consistent with the message that we have been giving all along that we got to a point where the organic growth is able to offset the patent expirees.

Philippe Lanone – Natixis

Thank you very much.

Operator: Thank you, the next question is from Kyle Rasbach from Cowen & Co. Please go ahead.

Kyle Rasbach – Cowen & Co.

Thank you for taking my question. I was just going to ask another question on the – with Lixisenatide. I was curious beyond the combination with Lantus what you might see as some of the differentiating features of this drug. And I was also curious if you believe that there may be a good strategic reason for Sanofi to add another GLP-1 to your portfolio. Thank you.

Hanspeter Spek

For the time being we really try to have Lyxumia and why Lyxumia because we believe it is the ideal combination partner with insulins and more specifically of course is with Lantus. The profile of the product is very favorable to see it as a preferred partner and that’s our intended positioning. If there will be other products also same charge cannot be deducted of today. Lyxumia shows very good tolerability beside the disease to titrate because you have only one titration set to make while the other product also shows you may speculate about need several titration sets. So we believe that this product is not the first in charge but we believe that it has a very attractive profile especially for us very strong positions.

Kyle Rasbach – Cowen & Co.

Any other strategic reasons to consider another GLP-1?

Chris Viehbacher

You know, just given all the speculations going on, I think we are just going to leave it t just there. I suspect this is kind of a backdoor question around the [Unclear] situation and we couldn’t comment on any specific targets. We are very happy as Hanspeter said that with our GLP-1 I think it marries extremely well. We are committed to not only the launching as an individual product but you may remember we have got a considerable investment in developing this as a combination product with Lantus and would expect to go into Phase-3 with the combination product in early 2013.

Kyle Rasbach – Cowen & Co.

Great, thank you.

Unidentified Company Representative

Okay, Rachel we are going to take two more questions.

Operator

The last question is from Richard Wass from J.P. Morgan. Please go ahead.

Unidentified Analyst

Hi, Richard [Unclear] from J.P. Morgan. Thanks for taking my question. Just a couple of questions please. Firstly what you are seeing, update some – how you are seeing the situation of bad debts across Europe given the obvious fiscal crisis. And in France, how are you seeing the taxation situation developing around the presidential election candidate? So anything you could help us on with those two would be good. And just one on the diabetes franchise. I think we are seeing taking a little bit of incremental share in the US. If you could focus around the dynamics there and how you might resolve those, that would be useful too. Thanks very much.

Chris Viehbacher

Well let's take the first two and then I will take the last one.

Jerome Contamine

On the bad debts well A, we need to keep in mind that our total sales in the countries which are mostly back to the [inaudible] to the clients. So you could say that the overall exposure we have spent to the client. So far we have not seen your daily significant derivation of cost. I need to accept the Greek situation. Of our payment conditions, so we are used to the fact that in some Southern European countries hospitals tend to pay late or public sector tends to pay late. But this has not really deteriorated over the last 18 months let's say. So very, very marginally, so I would not say today that it is really [inaudible] attention but it is also a scenario of business in concern.

The taxation in France, well, it’s very difficult to read through the programs from the candidates. Basically there is a trend towards somewhat increase of fluctuations business, but will be not on [inaudible] corporate situation. So when it comes to corporations not so clear that it will be some significant duration on top of that. I remind you that today we are making only 3% of our safe in France, and I mean we have the taxation scheme adapted to IP taxation on royalty linked to IP which can bring you farewell and which I don’t think is going to change, because [inaudible] is still looking for sustaining all time innovation in biological sector and other sectors as well. So nothing dramatic as I see today, but once again it’s a bit difficult to read the crystal warranties in a particular situation.

Kyle Rasbach – Cowen & Co.

Cool. Thanks.

Unidentified Company Representative

But on Lantus and [inaudible] in the U.S. I’m expecting nothing alarming. Lantus keeps by far the lion share in the segment of analogues which is approximately 80% market share. The overall market including Lyxumia and [inaudible] in total prescriptions and Lantus is trying approximate between 7% and 9.5% depending on the timeframe that you are looking at. A 9.5% is year-to-date February 2012 which means we continue to build up market share [inaudible] but we see absolutely no reason to be allowed.

Kyle Rasbach – Cowen & Co.

Thank you.

Unidentified Company Representative

Alright. Who is going to take the last question now?

Operator

The final question comes from Jeff Holford from Jefferies. Please go ahead.

Jeff Holford – Jefferies

Hi there, thanks for taking my question. Just quickly on the upcoming [inaudible] just wanted to get your perspective if that comes to the market. How it will might affect the market dynamics and then just wants your latest view internally and assumptions around potential timings of any generics of Lovenox in Europe? Thank you.

Unidentified Company Representative

I mean quite honestly I’m not even sure why Pfizer is bothering here. You know you already got two players in here and where did these market you know doing a market share strategy and rare diseases doesn’t strike me as being a particular intelligence strategy. But in any case you know the product is approved I believe it’s in Brazil and hasn’t done extremely well. And we certainly been able to maintain a big share of that even with our constraint supply situation. Obviously the product has had some difficulty in getting approved everywhere else including in the U.S. which suggest that there are some wrinkles around this product. So you know even if it does I would suspect we will have plenty of ammunition to fend the Cerezyme here.

Jeff Holford – Jefferies

On Lovenox generics in Europe [inaudible].

Unidentified Company Representative

Well, Lovenox the European market is totally different to other markets mainly because the low molecular market in Europe has seen competitions in 10-15 years as say is a group of product which is very – very similar perhaps not buyer similar but pretty similar since many years consequently intensive competition on price and on contract. And we have seen sharp battles between Novartis, CSK, previously Pfizer and [inaudible]. So I don’t see a lot of opportunity for biosimilar low molecular rate Heparin because since it’s really nothing users no innovate aspect to it come today biosimilar low molecular rate Heparin in Europe. So I believe a very – very low penetration for those products.

Jeff Holford – Jefferies

That’s great. Thank you.

Unidentified Company Representative

Alright we had made agreement to some [inaudible] that we would keep the call within an hour and 15 minutes and I think we are just about there. But I will let Chris conclude the call.

Chris Viehbacher

You know I think again we keep giving one quarter further every year every time through the path in question one quarter closer to getting back to our gross situation. You know I look at the performance of the growth platforms. Obviously lot going on over, but you know very good performance in the first quarter and that’s really what's going to go at Sanofi going forward. Last September we gave a medium term outlook which suggested a compound annual growth in sales of about 5% between 2012 and 2015.

You know when I look at the growth platforms I look at actually an increasingly robust portfolio of new drugs coming along. And I look at the very strong cost control with all of our colleagues there has been able to implement, I continue to be confident in the medium term outlook as a business and we are on track with where we said we will be. And this is just one more month of good solid execution. So I thank everybody for your interest in your questions and we will talk again next quarter.

Operator

Ladies and gentlemen this now concludes our conference call. Thank you all very much for attending.

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