Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Sanofi (NYSE:SNY)

Q2 2012 Earnings Call

July 26, 2012 8:30 am ET

Executives

Sébastien Martel

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

Hanspeter Spek - President of Global Operations

Olivier Charmeil - Senior Vice President of Sanofi Pasteur - Vaccines Division

Jerome Contamine - Chief Financial Officer and Executive Vice President

Analysts

Richard Vosser - JP Morgan Chase & Co, Research Division

Michael Leuchten - Barclays Capital, Research Division

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

Philippe Lanone - Natixis Bleichroeder LLC, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Jo Walton - Crédit Suisse AG, Research Division

Mark Clark - Deutsche Bank AG, Research Division

Peter Verdult - Morgan Stanley, Research Division

Vincent Meunier - Exane BNP Paribas, Research Division

Operator

Welcome to the Sanofi 2012 Second Quarter Results Conference Call. I now hand over to Mr. Sébastien Martel and to Mr. Christoph Viehbacher. Sir, please go ahead.

Sébastien Martel

Thank you. Hi, everyone, and welcome to our second quarter conference call. As always I must advise you that the information presented today in the call contains forward-looking statements that involve known and unknown risks and uncertainties that may cause actual results to differ materially. So I'd like to please ask you to refer to our Form 20-F on file with the SEC and also our Document de Référence for a description of these risk factors.

So with me today on the call are Chris Viehbacher, our CEO; Hanspeter Spek, our President of Global Operations; Olivier Charmeil, Senior VP for Vaccines; and Jerome Contamine, our CFO.

Without any further ado, let me turn the call over to Chris.

Christopher A. Viehbacher

Well, good afternoon, good morning, everybody. This is a milestone quarter for Sanofi, not so much because of the results but clearly, on the 17th of May, the world's largest product, Plavix, lost its exclusivity in the marketplace, and that's clearly our biggest product. Of course, it's no surprise. It's something that we have been planning for, for well over 3 years. But in some ways and even though Eloxatin is going to lose exclusivity in a few weeks' time, this really, for us, starts a post-patent cliff period. So up to now, we've been preparing for the cliff, and now, we're coming through the cliff.

So if you look at the numbers on Page 5, you can see that sales were EUR 8.8 million, which on a constant exchange rate basis were up 0.4%, so essentially flat with the quarter last year. If I could just make 2 remarks. First is I personally believe that the best way to look at the underlying performance of a business is at a constant exchange rate. So I normally don't make any comments on exchange rate movements, but I will say we've clearly seen a very significant movement in this quarter as Jerome will show you a little later on, and only time will tell as to whether or not this is the normal volatility of exchange rates or whether we're seeing a structural and more long-term change in the value of the euro versus the dollar. But it certainly had a bigger than normal impact between our reported earnings and the constant exchange rates. That having been said, we obviously are going to continue to discuss everything at constant exchange rates.

Sales were flat, but in actual fact, of course, we had divested the Dermik dermatology business, and we gave back the -- finally, all the Copaxone co-marketing rights, which meant that if you put this on a like-for-like basis on the same constant business structure, actually, sales would have grown by 2.5%. This is contrasted, obviously, with an earnings per share number, and of course, you are all aware that the Plavix is, in the United States, not consolidated in the sales. BMS records the sales, and we get a profit share of both Plavix and Avapro. The impact on the quarter was EUR 331 million in terms of the loss of net income related to those 2 products, and that resulted in earnings per share declining to EUR 1.48 or 17.7% at a constant exchange rate basis.

On the next slide, again, this is very much in line with the picture we have been showing now for some time. You're all aware of the 9 products that were really going to go off patent between 2010 and 2012. Three years ago, Sanofi was facing the deepest and most concentrated patent cliff in the industry. Those -- the products that I just referred to had cumulative sales of EUR 2.2 billion in Q2 of 2009, so the quarterly number for those 9 products was EUR 2.2 billion. Those same products today represent EUR 752 million. So we've clearly lost EUR 1.5 billion on a quarterly basis, and that's before we lose Eloxatin, which is EUR 314 million. So really, by the time we get to the year end, we will have 95% of the patent cliff behind us.

Equally, we set out a strategy which was to look for new sources of sustainable growth through our growth platforms. And you can see in the second quarter of 2009, those growth platforms represented EUR 3.3 billion or about 45% of our sales. Since then, you've seen very strong growth to EUR 5.7 billion, largely organic but obviously, some through acquisitions, and those sales now represent approximately 2/3 of our sales.

So how are those growth platforms doing? And I think I'm particularly satisfied to see all of the growth platforms performing well. Emerging Markets is always a key strength of Sanofi, up close to 10%. Again, actually, if you were to put it on a constant structure basis, on the same basis that I mentioned earlier, that would actually be over 10%. I think if you look at the percentage of sales, we're clearly much stronger in this area than most of our competitors. And I think we just have a business that's well adapted to those markets, and Hanspeter will talk about those more.

Diabetes, EUR 1.4 billion, up 13.7%, very strong performance really across the world. Vaccines, up 3% and kind of some mixed news in there. We clearly have -- had an excellent flu season in the Southern Hemisphere. And Sanofi is really providing close to 3 out of 4 flu vaccines in the Southern Hemisphere, and that was very strong.

We have some manufacturing issues on supply for Pentacel. I'll point out right away that the manufacturing issues on Pentacel have nothing to do with the warning letter that was received. But just the length and the lead times of manufacturing means that because we weren't able to approve 3 batches, that we're going to have to -- we're going to face some supply constraints through to the first quarter of 2013. Equally, there's an interesting inactivated polio vaccine opportunity in Japan, and so we believe we'll still be on target for our Vaccines this year.

Consumer Health Care continues to grow certainly in Emerging Markets. And if you just took out the stocking effect of the initial launch, Allegra continues to grow well in the United States as well. So we saw overall double-digit growth of 11.3%.

Animal Health has come back nicely in the second quarter with growth of 9.1% at EUR 576 million. The new Genzyme, and you may recall that Genzyme has been redefined as being rare diseases and multiple sclerosis, both businesses up 9%, largely driven by Fabrazyme, and I'll talk about that in a little bit. Innovative products are EUR 152 million, and that's 4.5%.

Now the sales picture is one thing, but again, coming back to the fact that Plavix and Avapro are not consolidated in sales, we shouldn't lose sight of that impact. Back at our strategic seminar in September of 2011, we gave guidance on that number. We said that, that number would have an impact for 2012 of about EUR 1.4 billion. On an annualized basis, that would be EUR 2 billion. You can see that, really, already in the second quarter, we've lost EUR 331 million as a result of Plavix and Avapro generics, and that's very much in line with the guidance that we gave last year.

If I look at Genzyme, Genzyme sales are going to be a little choppy for a little while, because obviously, a number of batches that were produced even before we acquired the company caused us to have some stocking issues towards the third and the fourth quarter last year. The approval of the Framingham facility has allowed us to now produce Fabrazyme in that facility while producing also a few more batches in the Allston facility. And most of our focus has been to satisfy Fabrazyme patients, particularly given that REPLAGAL was not approved in the U.S. And we've been keen to get those people who are on the Compassionate Release program from Shire switched over to Fabrazyme, and you can see that there has been a very strong growth on that.

On Cerezyme, everything is going along as planned. The decrease versus last year is really an effect of we acquired the company in that second quarter of 2011, and there's just -- it's just really shipping delays that caused some shipments to go from first quarter into second quarter 2011. But you can see when we look at the last 4 quarters that there's been a steady improvement in Cerezyme sales. As we've always said, we don't really see a significant improvement rapidly in Cerezyme because of the competitive situation. But the production issues are all well underway and under control, and Myozyme continues to progress as well.

If we move now to some key regulatory milestones. Zaltrap, we have a PDUFA date of August 4, 2012, here, coming up in a couple of weeks on second line metastatic colorectal cancer with a European approval scheduled for the fourth quarter. Aubagio, our oral multiple sclerosis drug, also has a PDUFA date of September 12 and a European approval timing of first quarter. We have Kynamro coming along. We have Lyxumia, where we have a CHMP opinion in the [indiscernible] quarter. We would expect to have our interim cardiovascular safety data ready to allow an FDA submission in December of this year. And of course, Lemtrada has been filed with a PDUFA date in the second quarter of 2013 and a similar opinion in Europe in the second quarter of 2013 as well. So we'll see how things go, but everything looks to be on track at the moment.

If I look at also now our development, we announced this week the major ODYSSEY program, which is -- which really puts Sanofi as the first company in the race on the PCSK9 target to enter at least into Phase III. So if all holds well, then our PCSK9 product, which we're developing with our partner, Regeneron, really has an opportunity to be the first in class compound here. We're talking about a product that is injected subcutaneously every 2 weeks. This is a major program, with 22,000 patients in them, and we have, really because of the significance of this opportunity, created an entire PCSK9 Development & Launch Unit, which really brings together everybody from medical, from regulatory, from commercial to manufacturing to ensure that the company has the right focus and sense of urgency behind this very promising project.

So with that, I'll turn it over to Hanspeter Spek, who can give us a little bit more color on the quarterly developments in the business. Hanspeter?

Hanspeter Spek

Yes. Thank you, Chris. Good morning. Good afternoon. Chris has said that we had a solid quarter. And if you look to my first chart, which is Page 13, you see confirmation. We have achieved approximately EUR 1.9 billion sales. This compares with EUR 8.5 billion for the first quarter 2012.

Perhaps more importantly, what Chris mentioned, that this quarter really has become a kind of turning point for the whole company. And our portfolio trends you see when you compare the growth platforms, with losses due to generification and due to the departure of Copaxone and Dermik, you see then that for the first time, the growth platforms more than equalize the losses of genericized products and transfers. We have achieved EUR 386 million in this quarter coming from growth platforms, whilst in the last quarter, first quarter 2012, they have achieved exactly EUR 100 million less, EUR 287 million. And yes, finally, they also have been helped by the ForEx impact. This has been quite significant, with nearly EUR 0.5 billion this quarter compared to EUR 187 million for the last. So overall, a 6.2% growth including all of those effects.

Turning the page to look to the Emerging Markets. Yes, we had, again, record sales in this quarter with EUR 2.8 billion, equalizing across of nearly 10%, record sales in the sense that this was, again, EUR 200 million more of sales than in the first quarter. Consequently, the share of Emerging Markets in our total sales has risen to 31.8%. And to give you a reference, this is approximately 5 points more than for the second and third best positioned companies in those markets which, to my knowledge, are Roche and GSK.

On the other side, our exposure to the difficult market of Europe has been reduced now to approximately 24 percentage points of our total portfolio. And to give you, once again, an approximate reference, this is about 10 points less than for -- in Novartis and 4 points less than for GSK. So of course, we are extremely satisfied with our overall situation in terms of exposure to growth but also exposure to potentially negative growth, where we not only maintain our market-leading position but are even able to further expand on this.

Why are we doing so? I believe for a number of reasons. We have, historically, a very strong foothold. I believe that this company also has a very strong cultural understanding of those markets. But if you translate this in figures and facts, it is important to note that yes, our growth in BRIC countries is even stronger with more than 15%. But I feel it's equally important that BRIC, in terms of Emerging Markets, is not everything, because the non-BRIC countries represent 65% of our Emerging Market sales, which evidently means that we are less sensitive to eventual setbacks of those 4 BRIC countries. Nevertheless, as you see on the right hand of the Chart #15, continue to do well with 14%, 9%, 20% and 21% of growth. So we are absolutely able to compensate more moderate growth as we currently see from Eastern Europe and Turkey by very accelerated and strong growth trends coming from Latin America, Asia and Africa and Middle East.

A look to the major parts of our portfolio. The first one on Page 16 is Diabetes. You will remember that we had a very strong first quarter. The second quarter is absolutely in line with this. So in -- for the total Diabetes portfolio, a growth of 13.7%, which compares with the first quarter at 14.4%. Also, the performance of Lantus is maintained in relative figures, 16.5% compared to 17.2%. Evidently, evidently on -- in absolute terms, on a more important growth even, we have achieved exactly EUR 100 million more in the second quarter in terms of Lantus sales as in the first quarter. And yes, I think it's fair to say that also the recent data congress brought a number of good news for us. Past note is important as a confirmation to Lantus. Due to everything, we now have data. It doesn't represent any increased risk in terms of cancers.

On the following page, a look to Oncology. We had another good quarter for Oncology, with sales more or less on same level of the previous quarter, EUR 751 million. It is, of course, large. Also, it's a very good quarter, because in the third quarter, we are expecting the out of patent situation as outlined by Chris before. But in the same quarter of the year, we expect to have a new approval with Zaltrap, which means a new opportunity to use our experienced sales forces, our experienced marketing teams to push into a new future. This top-end and other products to be coming in the following years.

Still on portfolio on Page 18, strong Consumer Health sales to be reported for the second quarter. In absolute terms, this quarter is approximately EUR 70 million below the last quarter. This is due mainly to Allegra. Allegra had been stocked in the second quarter 2011, due to its launch in the U.S. market. Evidently, the stocking does not repeat, but Allegra overall shows a very positive growth in terms of sellout in the U.S., and we are extremely content with its performance.

We also see a more and more important impact from the acquisitions in Consumer Health Care we have exercised in 2011, mainly in China but not only where you see them coming from the Emerging Markets. We have an increase of nearly 27% for Consumer Health, which is a further acceleration, because in the first quarter we saw this growth rate has been approximately 22%.

You may remember then, on Page 19, I said for the previous quarter, I had predicted that our Animal Health division, Merial, would come back growth. I'm happy to report that this became true in the second quarter. As you see, we have growth for the quarter alone of approximately 9%. This is a growth equally driven by Companion Animals and Production Animals, very much in line with our strategy for this activity, which is mainly based in strengthening Production Animal segment, maintaining the important Companion Animals and enlarging our footprint from a geographical point of view, which we can see very nicely also in the second quarter results for Merial.

Season on Pharma and saying so, I pass on for Vaccines with Olivier Charmeil. Olivier?

Olivier Charmeil

Thank you, Hanspeter. Hi, everyone. Good morning. Good afternoon. So as Chris just mentioned, our Vaccine business benefited during Q2 from the seasonal flu campaign in the Emerging Market. Our Q2 sales now reach EUR 783 million, up 3%. Our growth has been very much driven by our strong performance in the Emerging Market as well as mixed performance in mature market.

Getting back to Emerging Markets, we saw a very strong of 22.9% at constant exchange rates. This is very much driven by another record flu season, and we achieved more than 54 million doses during H1 in the Southern Hemisphere after a very strong year last year.

While we are on flu and we are getting ready for the flu season in the U.S., we are the first to get the licensure. We had the first treatment 10 days ago. And we have solid -- we observed solid pre-booking, especially for our differentiated forms, both flu high dose -- Fluzone high dose and Fluzone intradermal.

Getting back to H1, mixed performance in the mature markets to date, very strong Adacel sales showing a growth of more than 30%. And we are very happy about our performance of Menactra. We have defined the competition. We continue to maintain a high market share. We, today, own more than 80% of the market.

As Chris mentioned, we face, and you're aware, a temporary order limitation for Pentacel in the U.S. We think the beginning of the year, we are facing some manufacturing delays. We will get back to full supply, meaning that today I am continuing to ship, but we will get back to full supply during Q1 2013. In the upcoming months, we will face some shortfall on Pentacel, but that will be partially offset by the fact that we will ship more and more single entities.

Looking ahead, nice opportunities are taking shape with the IPV. That will be added to the Japan immunization schedule on September 1. It's a significant opportunity for us in Japan. Another opportunity is also taking shape. It's the Hexaxim launch. We got the positive opinion of EMEA during the month of June, and it will open the opportunity of Hexaxim, so our [indiscernible] combination for the international market.

Before handing over to Jerome and to the financials, on the profitability side, a nice growth of 19.6% of our business operating income on a reported basis. We also had very encouraging results on dengue, which were announced yesterday.

Jerome, I hand over to you now.

Jerome Contamine

Okay. Thank you, Olivier. So I'm now turning to the P&L. So to start with the P&L, I mean, the -- of course, the Q2 P&L reflects the impact of the loss of exclusivity of Plavix and Avapro, which we see are visible on 2 lines, which are the other revenues, the royalties, declining from EUR 422 million to EUR 247 million. And also, on the share of profit coming from associates, which is the other line, which is hit by the Plavix loss of exclusivity, going down from EUR 278 million to EUR 222 million.

But at the same time, we have also had to taken -- to take an increase of the reserve under the litigation in connection with ramipril in Canada, which in fact is a judgment which has been taken by the court, and the amount will go to the generic producers coming back to the fore. We have appealed for this judgment, but we have however taken the reserves, which explains the variation on the other operating income.

But there are also a lot of positive elements in this P&L, as I will discuss later on, both in terms of growth of sales, in terms of evolution of R&D, declining by 1.2% on a constant exchange rate basis and even more on SG&A, which have declined by 4.3% on a constant exchange rate basis between Q2 2011 and Q2 2012. You'll see as well that including all this effect and including this reserve [indiscernible], we have BOI, business operating margin, 31.3%, which is very much in line with what we gave as a guidance of the overall 2012 BOI.

Chris mentioned already the positive impact or the favorable impact of exchange rates, but you could argue that this is something which is always volatile. But you could also say that being -- having the last part of our cost being denominated in euro, we benefit from a weak euro and a strong U.S. dollar as well as strong other currencies, such as the Japan yen and the yuan. So it's fair to say that, in fact, when we have our stock, which is denominated in euro, is only 25% or so of our sales, which are generated in euro. So in fact, I mean, we are largely exposed to other currencies, which are now becoming stronger. So you'll see the impact for Q1 and of course, even more for Q2. So for Q2, which was plus 5.8% on sales and plus 8% on profit. Of course, we cannot bet on the future, and we'll stick to the constant exchange rate guidance, that it's clear that if it goes on as it is today, it will have a favorable impact on the reported sales and profit in the coming quarters.

Cost of sales. Well, I think it's good news. We are ending -- getting to the situation where we get to cost of sales to sale ratio basically flat, which tells that we are now able to compensate -- so the productivity announcement that we have already launched now for a few years, to compensate for the operation of the mix on the loss of exclusivity on sale of very highly profitable products. So now we are around 31%. If I take into account the loss exclusivity of Eloxatin in Q3, I think we can confirm the guidance we gave at the beginning of the year of having a cost of sales to sales ratio, which should be around 31.5%.

Also, on R&D, I mean we clearly keep control on R&D cost. R&D expenses have declined from -- by 1.2%. In fact, it's a much further decline in terms of internal expense, which has declined by more than 5% over this quarter compared to same quarter last year as a result of the reorganizations we have implemented, also the creation of the Boston hub in the U.S., taking advantage of the acquisition of Genzyme. But at the same time, we are investing somewhat more in late stage phases, which I think is a positive sign, in particular on the PCSK9 as well as our new formulation of Lantus and Lyxumia. So all in all, good control on R&D. Clearly, R&D to sales ratio is therefore kept lower than the level we had last year.

The same for SG&A. SG&A has gone by -- down by 4.3%. In fact, we have invested more on gross platforms, definitely on Diabetes and also in Emerging Market. But at the same time, we are trimming our organization in mature markets and also, a benefit from the synergies that we are implementing now with Genzyme, in particular on the G&A side. So if I take all that together, you now see that the SG&A to sales ratio is 1.4% below the level we had. That's after the acquisition of Genzyme in Q2 2011, which basically says that we are on track to generate Genzyme synergies, which I recall you, we are planning to reach EUR 500 million, $700 million, and we should have generated overall these whole synergies by the beginning of 2013.

If I go down to the financial part of the P&L, well, one thing which I -- maybe deserve to be mentioned. So I confirm the effective tax rate of 28%. Last year, we guided down the effective tax rate to 27%. And this was done in Q2, which impacted positively. It was a double effect, I'd say, because we did in Q2 the effective tax rate for the second quarter. So as a matter of fact, I mean you see here there is a discrepancy. But the 28% is what has been given at the beginning of the year as a guidance, which I confirm today. So the EPS, and this you know, has gone up by -- has gone down, sorry, by 17% but around 10% on a reported [indiscernible] rate at EUR 1.48.

Cash flow. Continuing to generate strong cash flow. So despite the fact that we had a decrease in profit over the quarter, we had a -- on the stable profit on a reported basis, we had an increase of free cash flow, which shows that we have a good control of working capital and CapEx. Those have been lower than last year in terms of amount of spend for the first half of the year. And therefore, the free cash flow is keeping close to EUR 4 billion over the first half of the year. The investments in acquisitions have been pretty limited, mainly in Pluromed, as you may remember, in connection with our biosurgery franchise and also, the acquisition of Newport in the Animal Health, in the swine area.

And the rest of the cash generated has been totally sent back to shareholders, so dividend payment, share buybacks, which we did mainly during the first quarter. So all in all, as you can see, it's around 100% of the free cash flow, which was sent back over the first half of the year to shareholders and therefore, bringing us -- bringing the debt -- net debt slightly higher than the level we had for the end of 2011 toward EUR 11.3 billion. So we are clearly now heading to situation where we should be, if we don't do any acquisition, clearly somewhere below EUR 10 billion and if we do some bolt-on acquisitions around our strategy, in the EUR 10 billion area, which is our medium-term objective.

So before turning to questions, I mean, I can just summarize the performance of the H1. I think that we have clearly posted solid sales growth if we exclude the key genericized products and the fact that we are still in the patent cliff, but we are -- this is starting to fade away and will be fading away in the coming quarters after the loss of exclusivity of Eloxatin. We confirm now our leadership in Emerging Markets, obviously. And I think that Hanspeter has well described our strengths in these areas and the solidity of our positions in many geographic areas.

We clearly continue to focus on management of our cost base and the -- control our cost and invest selectively where we think we have to invest and trim down all the G&A cost. And of course, the net -- the business, I think, is impacted by Plavix and Avapro but this is exactly in line with what we have given as a guidance last September. And all in all, I think that despite the fact that we are facing challenging global environment, as we are facing, clearly, changes, in particular in Europe, while we are definitely confident in delivering the guidance we gave you at the beginning of the year. Sébastien?

Sébastien Martel

Thank you very much, Jerome. We're now ready to open the call to any questions you may have. As always, I'll ask you to just take one question at a time to allow as many people as possible to participate into the discussion. Operator, we're ready for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Mr. Richard Vosser from JPMorgan.

Richard Vosser - JP Morgan Chase & Co, Research Division

It's Richard Vosser from JPMorgan. The question is around the progression of margin through 2012 and '13, 2 elements into that. Just wondering what the effect of incremental investments are in terms of building the multiple sclerosis franchise. Clearly, you've mentioned that September, you could have Aubagio on the market in the U.S. and Lemtrada maybe on the market by the end of the year. Two, so just wondering about the effect of the incremental investment on the 2012 and '13 margin. And also, could you update us on the plans for the restructuring that you've outlined, the EUR 2 billion savings, where we are with those and how that might affect the progression of the margin as well?

Jerome Contamine

Well, on your first question on the effect on the investments, in particular behind our MS franchise, but I think you could add as well what we'll have to -- will invest behind Lyxumia. It's a bit risky, but we are going to invest more. We are rolling out our plans. I mean, I think it's a bit early to say what will be the exact net impact, because on the other hand, we are continuing to cut down here and there on our more mature areas. So it will be a balance which we have to be -- taken into account. So I just, first, confirm that the margin for 2012 will be between 31% and 32%. I can confirm as well that medium term, we will increase this margin. But then, as you said, I mean the timing of this improvement will somewhat depend upon the investments we'll do, and exactly the scope of this improvement will depend somewhat upon the investments we do quarter-by-quarter on these new franchises. So I mean that's where we'll -- I mean we'll go more into detail when we get into the 2013 guidance. On the restructuring, I mentioned already that the share which was supposed to come from the Genzyme integration is really on its way. The reference base was 2010 base cost. We aim to save $700 million. I must say that as early as beginning of 2013, we'll have achieved 100% of these savings. For the rest of the EUR 2 billion, well, I think that we should be, by the end of the year, around 1/3 of the total. So all in all, we'll have achieved, beginning of 2013, the full synergies on Genzyme. And on top of that, we'll have achieved around 1/3 of our overall EUR 2 billion cost saving plan.

Operator

The next question is from Mr. Michael Leuchten from Barclays.

Michael Leuchten - Barclays Capital, Research Division

It's another one for Jerome along the same line. At the strategic update day, Jerome, you did offer a quite detailed guidance on line items in the P&L, and I think your aim was to really address the potential impact from Plavix and Avapro. Now looking more how the year has shaped up so far, I'm not quite sure those line item guidances still hold. Could you address that please? And then also, structurally, you're keeping your 31% to 32% guidance for the margin even though you seem to get a bit more benefit from the other lines. So how does that tie in with the guidance as well, please?

Jerome Contamine

Well, I think I tried to address -- remember which guidance I gave, and I think that, a, we said that the -- once again, the operating -- the net operating margin should increase from the 31% to 32% level onwards, and I think I can confirm that, as I said, answering to the previous question and what really still remains to be adjusting the pace of that depending upon the launch of new products and the investments behind these new products. The second thing, which probably you've noticed if you just cumulate the figures I gave you is that clearly, we are -- we'll be able to achieve, at least in 2012, around 40% of the overall EUR 2 billion platform. In other term, it will be much more than the average 25% of the 4-year plan. So we are clearly front-loading these -- the savings -- I mean, the Q2 results after the Q1 results confirmed our ability to reduce cost. Third, I think that I said as well that we should be able, when the gross margin will decline around 70% as a result of those change of mix but also the loss of other revenues coming from, in particular, Plavix, which will be somewhat of a floor. So the 70%, I think we should maintain and then increase. So the growth margin will be increased, keeping in mind that, of course, the Plavix impact will be still visible in the first quarter and beginning of second quarter of 2013 on a like-for-like basis. So we need all of us to be aware that we are just starting for 4 quarters, and we have just had 6 weeks, so there remain 46 weeks to get through before we don't see -- we don't speak anymore about the impact of Plavix on a like-for-like basis. So we need to be somewhat patient in that respect but also, I mean, clearly look forward and look at what the outlook of the underlying growth of the business. In terms of R&D expense, I think that we gave the guidance that it will be flat to declining. And I can just confirm that we will maintain here an R&D envelope flat to declining, so in the range of where we are this year. And I think last year, we were around EUR 5 billion, slightly less. It was actually EUR 5 billion, so I think this is pretty precise. The SG&A ratio was supposed to improve and is already improving. So I mean there is no absolute figure, but if you assume that something like 25% including G&A is something which could be a reasonable target, again, it may vary somewhat on a quarter-by-quarter basis either because we invest more on one quarter and less on another quarter or because we are going to invest to ship on some launches, we should be somewhere around 25%. So all in all, I think that I can, a, confirm this guidance. I mean, you can see from Q2 that we have achieved a lot of that putting aside the Plavix impact. And I can confirm as well that in the medium term, we expect to have the profit growing faster than the sales. So the 5% sales will transform into a higher growth in profit on the -- an average CAGR basis from 2012 to 2015.

Operator

The next question is from Mr. Tim Anderson from Sanford Bernstein.

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

A couple of questions. Lantus has been doing very well recently. It obviously faces new competition at some point from Novo. I'm hoping you might be able to -- might be willing to take a best guess at what the recent delay was, what that could be related to. I know you've disputed some of their data in their claims in the past, and I'm wondering if you think SPA may share some of those same concerns. Second question, on the FDA warning letters related to your 2 vaccine plants, can you frame out what the impact would be from a worst-case scenario, whereby let's say you have to shut down the plants? So I'm wondering how much product is theoretically at risk. And sometimes, once the FDA has a company on its radar, then it starts to find more problems. Can you say whether FDA has been through your other vaccine plants recently and signed off on them?

Christopher A. Viehbacher

Hanspeter, I'll take the...

Hanspeter Spek

First, I'll take the Lantus question. I think that the evidence -- and the evidence is so nice that I cannot avoid to talk about it. I think it's evidence that there is a delay. It's evidence that this will help Lantus, and I think it's evidence that the fact that there is now a public hearing will make everything public which is supposed to be public. So evidently, we are -- yes, we are content with this situation in each and every respect. The Lantus evidence is all I could speculate about. And if you go back to our previous conferences, we have managed -- we have, at various times, said that we believe that parts of the results are flawed. We have stressed that we believe that parts of the results are clinically not very evident, and I evidently don't know why the SPA is setting up such a hearing on it. In fact, we have referred to -- there is the open label study design. There is a question of when Lantus has been dosed and is -- we consider as not being legalities. There is some question on the confidence and the robustness of the hypo reporting. We have raised question marks on the clinical relevance of the improvement of hypos overall, and finally, we have raised question marks on the importance of the titration of the dose. So all of this may lead to more complicated labeling discussions, but once again, all of this is speculation. The good thing is that everything will be public in relatively short time, and then we will see and we will take note of it.

Christopher A. Viehbacher

Olivier, you want to take the warning letter question?

Olivier Charmeil

Yes. So 1 or 2 elements of the FDA warning letter we received addressed some aspects of our quality system, management aspect, to be a little bit more precise, the control of the environment and documentation procedure as well as recall management procedure. The 2 -- the warning letter that raised the issue of Toronto and of Marcy [ph] are totally unrelated. These were routine inspection that -- in the Vaccines as well in Biologics, a routine inspection come almost every 2 years. So the 2 inspections that took place were routine inspections, and we will continue that inspection in the next of couple of months. And we are waiting in the next couple of weeks an inspection of Swistora [ph], which is a routine inspection. With regard to impact of supply, the notification we received from FDA is going to be -- to have an impact on one of our product, which is the BCG [indiscernible]. We have decided, voluntarily and proactively before we got the warning letter, to discontinue the production, because we thought that it was the best way in order to be back on the market as soon as possible, which means that we will have a [indiscernible] situation for 12 -- a little bit more than 12 months. We will get back to full to supplier at the end of 2013, the impact in terms of sales, and the sales of [indiscernible] BCG were in 2011 in the range of EUR 40 million.

Christopher A. Viehbacher

And I'll just maybe add. Last year, we had something like 150 external regulatory inspections of our plants worldwide. So there's somebody inspecting a plant of Sanofi on any particular given day, including about 1 to 2 FDA inspections per month. We've clearly taken it, like the warning letter, seriously. But at the same time, I think it is also true that we have seen increased vigilance in biological manufacturing, and that's just something that everybody has to keep up. We had a -- the only previous warning letter we had was -- in recent times, was in Frankfurt, and we see that being successfully resolved. So we will commit to, obviously, making sure that this doesn't develop into anything more. But I think the -- I think there's a trend if you look at the number of warning letters that the FDA has issued over the last few years. The FDA has doubled the number of inspectors, and this is a policy of really becoming tough on quality, and we actually agree with that. It's extremely important that, that cog be at the top. But again, if you look at the number of plants, the number of inspections, I think Sanofi has a very strong reputation in quality, and we intend to address this warning letter with all due process and speed.

Operator

The next question is from Mr. Philippe Lanone from Natixis.

Philippe Lanone - Natixis Bleichroeder LLC, Research Division

Two questions, if I may, one on emerging markets. Very strong this quarter, plus 10%, but with Vaccine up a lot and Pharma up 8%. So I wondered whether your comments on double digit over the year can be applied to Pharma, excluding Vaccine. And if so, going forward, we can also bet on double digit keeping in mind that some of the competitors have given up on that target, whether we can apply that on Sanofi. And also, on Merial, very strong performance in the quarter, plus 9%, well above what we had in mind when you bought the company of something like 3% to 4% per year. So I wonder whether there was an impact from new products, in France especially. And [indiscernible] business, what kind of sustainable growth rate we can factor in for this business?

Hanspeter Spek

I'll start with Merial. There is an insignificant impact of new product. There's a little of an impact. You may remember we had an acquisition in the U.S., in Wisconsin during the second quarter. And so sales have been consolidated for the first time, but once again, it is insignificant. It is much more seasonal what we see in the second quarter. You should not expect that the business, overall, will end up as 7% or even 8% for the total year. I think if you estimate a close of 4% to 5%, and you are probably closer to reality, and you are definitely close to what we expect in terms of patch in France. This year I believe that midterm, Merial has better growth perspective, because it's grown very actively on new compounds, new products, also combination products, also oral product to replace Frontline, and not only to replace it but to really settle on top of it incremental sales. And those products will become available as of the end of 2013 and '14, and then you should see an accelerated growth into magnitude of let's say 7% or 8% without any further external growth coming from acquisition. Now on the Emerging Market front, the Pharma piece, I don't want to put the bar too high for Olivier, who will answer for you for Vaccines. But no, honestly, I think I cannot commit that internally, we will grow with 2 digits, because evidently, the base is permanently growing. And we should start then to look, in 2013, more to absolute growth than to relative growth, because if you go back to last 3 or 4 years, we have expanded base by billions of sales. And evidently, for just mathematical reasons, we cannot maintain a 10% growth for the years to come. And on Vaccines, Olivier?

Olivier Charmeil

So we always say that we have an accelerating growth in the next couple of years and with a slower growth at the first -- in the first phase of the period and the second phase of the period. So growth will be accelerating due first after the full impact of the launch of Hexaxim in the international market. That was a significant portion of our growth. Due also to the impact of our flu differentiation strategy. We are starting with our flu differentiation strategy, and this was evident in the U.S., a significant portion of our gross. And the last element and towards the end of the period will be the impact of dengue, and that will be evident in the Emerging Market, a significant portion of our growth.

Christopher A. Viehbacher

I think the issue you're raising is one that you've analyzed, line of business in Emerging Markets, and I think you have to get away from a Western Europe, American view of the marketplace. Emerging Markets are not segmented like they are in U.S. The consumer business, the branded generic business, the branded business, Vaccines are all -- for instance, if you take Asia, all under single management. And quite honestly, if you look at channels of distribution, the way the products are sold, I don't think you can kind of start saying, "Well, what about your Pharma business? What about your consumer business." If we look at it as a marketplace, you got to look at a China, you look at an India, you don't look at Pharma within it, because it's an artificial thing to look at Pharma versus any other segment. The other thing is, of course, on a quarterly basis, you got different countries. You're going to have a Turkey in here somewhere, and you may have a higher percentage of Pharma in one market than you do in another. We have indicated through to 2015 that we expect to see double-digit growth of Emerging Markets, but that isn't necessarily Pharma. That's across the whole piece. So we don't really see any change to that. We grew 10% in 2011. We grew over 10% in 2012. We've got a broad mix of business. Remember, nobody's really got the extensive local manufacturing. Nobody's gone up really the same without this product portfolio. I mean, the biggest selling product in Brazil is Dorflex. We don't sell Dorflex anywhere else, but it sells great in Brazil. And that's why we are in consumer and branded generics and all of the other businesses. When you're in Brazil, for example, we -- you're going to go do a tender with the Brazilian government, well, suddenly, we look at everything, including Vaccines, Genzyme and our Pharma business, because there, it helps to be one single company. In other markets, there's different channels of distribution, and we're going to operate definitely. So I wouldn't get too scientific about trying to pick out different pieces of the business in the Emerging Markets. Look at Emerging Markets, we try to give you the piece for each line of business, like we've seen with Diabetes. You've seen Diabetes growing at 21% in the market. We don't see any real reason why that's going to slow down. But again, if we're going to -- we have to go into 80 countries, and all these different lines of business and say why is this and one another. And I think the most important thing that we're trying to do with this business is say, "Here's where we see this business growing to 2015." And that, to me, where most of our investors are, where's the longer-term growth coming from, and we're going to be in the business. It's going to be a lot harder, and we've said it before, but analyzing Emerging Markets on a quarterly basis is just too tricky.

Operator

The next question is from Mr. Graham Parry from Bank of America Merrill Lynch.

Graham Parry - BofA Merrill Lynch, Research Division

First was on the lack of guidance upgrade following a 5% beat versus consensus in the second quarter and 10% in first quarter, of course tracking below consensus expectations. And that was only offset this quarter by a one-off in the other expenses line, which turns into a gain in Q3. So I was just wondering what is it that's holding back the company from increasing guidance. What is it that you think that we're being too optimistic of having in the second half of the year? And second question is just on pricing in Europe. Could you give the explicit impact for your business in the Pharma business, the pricing in Europe into the second quarter? And then thirdly, on Aubagio, you've disclosed the PDUFA date for the 12th of August now, which I think means the FDA would have had to have notified you of a panel by now if there is going to be one. So could you confirm whether there is a panel coming and if there isn't, how we should read that?

Christopher A. Viehbacher

All right. You're a little hard to understand there, Graham, but I think we got it. [Indiscernible] first question is on guidance. Look, the business is performing well, and we're very happy with the way the business is performing. Equally, we're in a very challenging macroeconomic environment. Most experts will tell you that big chunks of the world are going to be in recession by October. So our view is it's no time to be raising guidance until you see what the -- we don't live on an island here. We all live in a big macroeconomic environment. Even though the pharmaceutical industry is largely sheltered from that, I think we want to see how that develops. We also have Eloxatin coming through in August, and I think it makes sense to see how that plays out. But in general, we're very happy with the performance of the growth platforms and where the business is going. You see we've got clearly control of our costs and making good progress on the pipeline. On Aubagio, I'll take that, and then let you go on the European one. We've had an extension on the review of the FDA. That's why we've got a new PDUFA date of September 12. So that's pretty much in line with the expectation that we've given all along, which was Q3. There is, at this point in time, no confirmation of an advisory committee. I don't think I would interpret one way or another whether there is going to be one or not. I'm not sure that -- the FDA is not required to have one, but it's not exceptional that there be one if they decide to have one. So everything we've seen is that Aubagio is doing pretty well. On European prices, Hanspeter?

Hanspeter Spek

Well, on European prices, what we are aware of is that the Italian government is preparing interventions which most likely, definitely, probably, they'll hit into the second half of 2012. It's a little bit early to assess the magnitude, but it will be something on an annual basis, which may touch us between EUR 50 million and EUR 100 million of sales. Our sales in Italy were well above EUR 1 billion, so it is significant for Italy. For the overall European business, it is not so significant. Of course, there are question marks which we cannot answer to. One of the important question mark concerns the French market as the French market, so far, is very much in line with this -- what has been given out as a guidance from the previous government, but of course, this could be subject to change. We have to see what happens at what we call here in France la rentrée, when everybody comes back from holidays in September, October, if there will be additional projects. Beyond, we don't see anything significant until the end of the year. We have to see how Europe will be doing overall in 2013.

Christopher A. Viehbacher

But, in general, Europe is clearly the most challenging region in the world today. We have the highest level of government reimbursement. That's why we've been very happy to see the percentage of our sales drop to 24%. Longer term, we see that dropping further, in fact, as a percentage of our overall sales. It's why businesses like Animal Health and Consumer Health are very important, because these are not subject to government price controls. On average, we've estimated the price impact to be of the order of EUR 300 million. It's not significantly different than past years. It's been said it's kind of part of doing business and what we've always expected. So it's unfortunate, because I think the pharmaceutical industry is sometimes picked upon too much. When governments are looking for austerity programs, drugs don't represent a big percentage of cost, and at the same time, they all want more investments in research and manufacturing. So it's just -- you can read the newspapers. You see what a difficult situation Europe is in, but I think we've taken that into account in our budgets and our guidance.

Graham Parry - BofA Merrill Lynch, Research Division

And can I just follow up very quickly on Aubagio? What it was -- what was it that actually triggered the extension? Did you have to file additional data?

Christopher A. Viehbacher

That's just the normal to and fro of questions, and in the responses, they just decided they want a little bit more time. I mean, you know this division, Graham. That -- it's not unusual or exceptional.

Operator

The next question is from Jo Walton from Crédit Suisse.

Jo Walton - Crédit Suisse AG, Research Division

I've got 2 questions, please. I wonder if you could tell us a little bit more about why Lantus is doing so well in the U.S. Prescriptions only seem to be growing at 4% or 5%, and yet, your sales are growing at 19%. Is there any stocking in here? Or is the IMF data increasingly unreliable? And Lantus in Europe seems only to be growing at 1% or 2%. Do you think that that is a level which we're likely to continue to see? And the second question is about your dengue vaccine. I know that you're very excited about that as an opportunity. The main big studies don't seem to conclude until 2014 or beyond. How realistic is it to be able to file, particularly for broad pediatric use, until those are all concluded?

Hanspeter Spek

First, I take Lantus. First go to the difficulties, which is Europe. Yes, what you see is moderate and modest in terms of value growth. The volume growth in year-to-date in Europe by the end of April is 9%, which means the negative difference comes from price. And we had a number of price reductions, most significant one in Europe, in France, given the size of the product in France, where we have the lower supplies, for example, by 5%, but there's only one example here. [indiscernible] was struck by a pharma price decrease in Germany, which we had to execute in 2011 in order to get a broader reimbursement situation, similar situation in Switzerland in [indiscernible] product finally at all reimbursements in Italy. So the product has swelled, but we have made concessions in price. If those remain the only concessions in price, you will see a very nice increase close to 2 digits in 2013, but of course, this cannot be granted. Now the American situation is an -- overall, a very healthy situation. We can see that we grow in each and every aspect, but we also have so to say very honestly and clearly that this is also supported by price increases. We have a price increase in approximately 12% in the overall growth in the U.S. But if you go more into detail, you see a very nice growth. In total prescriptions, you'll see an even more promising growth in terms of new prescriptions and new patients, which indicates that we probably will see even further accelerations in the quarters to come. All other trends are equally positively. We have a continued very nice increase in SoloSTAR usage. So the product, overall, does well I believe, because the product, intrinsically, is extremely strong. And as you may remember, we have taken the decision repetitively in 2010 and in 2011 to increase our promotional forces behind it, and evidently, our process is paying off.

Christopher A. Viehbacher

Dengue vaccine, Olivier.

Olivier Charmeil

So dengue is a [indiscernible]. People -- there is no treatments, no prevention available against dengue. It's a major public health issue in Latin America and in Asia Pacific. It's the first time that both efficacy is demonstrated, but what is also extremely important is that the profile of the product is excellent in terms of safety and in terms of [indiscernible] ability. So we have said that based on the results of these kinds of studies and we'll be discussing with the regulatory authorities that's [indiscernible] between the endemic countries. That's where we will [indiscernible] with the regulatory [indiscernible], and then we will see. So [indiscernible], the proof of efficacy gives us a lot of comfort. More importantly is the safety of [indiscernible]. As you know that one of the concern of the new dengue vaccine was safety, and here, safety is really good.

Operator

The next question is from Mark Clark from Deutsche Bank.

Mark Clark - Deutsche Bank AG, Research Division

I just want to take you back to the investor seminar from September last year, where as -- you set out the individual components of that 5% sales growth forecast with double digits in Emerging Markets, Genzyme; high single digit in Diabetes, Consumer Health; and Animal Health, mid-single digits. And I just wondered has anything in the intervening 12 months or nearly 12 months made you revisit any of those assumptions. Or do you still remain confident in each and every one of those assumptions? Clearly, in the last year, we've seen a lot worse pricing in Europe and so on and so forth. The macro environment has worsened. But I wonder if you could speak to your confidence in those targets.

Christopher A. Viehbacher

I don't think really that anything has changed. And I think, actually, the performance you've seen, actually, in the 3 quarters since then have pretty much confirmed those. So I look at the business and I see it trending in the same path as when we looked at it this time last year before we did the medium-term guidance.

Operator

The next question is from Mr. Peter Verdult from Morgan Stanley.

Peter Verdult - Morgan Stanley, Research Division

Pete Verdult here from Morgan Stanley. Chris, we've heard some diverging views from other CEOs this week about the environment regarding business development. So firstly, I'd just be interested in your thoughts on BD and whether you think current valuations out there have become incrementally more or less attractive versus 12 months ago. And then just part b to the question is essentially use of cash. I mean, you've made it clear that dividend is your priority. We're fast approaching your net debt target. So in the absence of business development, I just want to know whether your stance on buybacks and share returns or buybacks has changed at all in the last 12 months.

Christopher A. Viehbacher

Well, I mean I think -- I tell you, when I look at BD valuations, I'm glad we did Genzyme when we did. I think we would have had a lot more competition today and would potentially have had to [indiscernible] paying a higher price, not that I think we might have done that. There's no question that some companies have been through their bigger mergers and have become more active. I think a number of companies have had pipeline setbacks and are looking to replace things. And so if I look at Europe, U.S. at least in terms of BD, I think valuations are -- there may be some value to be found. In Emerging Markets, clearly, prices have gone up. So I think you have to go a little further. I mean, I think where we have been able to drive value is actually kind of trying to buy ahead of the curve. I suspect that you could never buy Medley today for what we paid for Medley in 2009 or even a Zentiva for that matter. So we're -- I'm not going to buy anything that I don't see having a value to the Sanofi shareholder. I get a lot of stuff presented to me by banks. It's immediately evident how I can make someone else's shareholders rich, but that's not what I'm paid to do. And I think we also -- I should point out you've got a number of members of the executive committee sitting around this table here. All of us have equity compensation programs, half of which is tied to return on investment criteria, so -- and I think we're probably the only major pharma company to do that. It's -- every conversation I have with investors is that one of the reasons that they actually ask for buybacks was not so much that they believe a buyback's going to help the share price because they don't believe -- they don't have faith in pharma management to handle capital. So I'm hoping that when we look at our track record over the last 3 years, that the acquisitions have not only driven value but have really driven the transformation of this company towards sustainable growth platforms. Concerning the use of cash, there I'd say we do have a target of net debt of EUR 10 billion. There's EUR 3.5 billion goes to paying the dividend every year. There's about EUR 1.5 billion goes to CapEx requirements for continuing to operate the business. We'll do about EUR 1 billion to EUR 2 billion in bolt-on acquisitions, and of course, that doesn't completely use the cash flow. So if we aren't able to find anything that meets our specs -- and to give you an example, yes, we looked at Amolin, but I can tell you we weren't in the final bidding because we didn't think that we could drive value for Sanofi shareholders. So unless we can do that, then you look at, okay, what are you going to do. I mean, the idea of announcing EUR 10 billion net debt is to say it's not the intention of management to let cash accumulate on the balance sheet. Unless we can find a good use for cash, then we need to find an intelligent way of returning it. My view on buybacks has always been that I didn't believe in buybacks when -- just because our PE was at one time around 7 or 8, largely because at that point, people see risk profile as being too strong. And generally, companies in that situation who've done buybacks haven't seen that improve. If you can get -- and I've said this in the last couple of years. If you get to a situation where there is a stable to perhaps positive outlook of the business, then there may be an advantage in actually doing that. And we've said we'll do this on an opportunistic basis. I'd really like to ensure that we see the share price progress and that people really become as confident in the future of the company as we are, and I think we'll take it from there. But again, bottom line is the objective of management is neither to go spend money on things that we don't see as driving value for Sanofi shareholders, and we can't get to our own equity compensation programs if we don't meet certain hurdle rates. And two is we're not going to allow cash to accumulate on the balance sheet.

Operator

The last question is from Mr. Vincent Meunier from Exane BNP.

Vincent Meunier - Exane BNP Paribas, Research Division

A very simple one. The restructuring in France, can you please make an update on the situation with unions? And is there any risk you could not reach your target of cost cutting given the upcoming negotiations with the French government? You were talking about la rentrée and the fact that there will be also negotiations for drug prices. It could weigh in the balance during the negotiations also with unions.

Christopher A. Viehbacher

I mean what we're doing in France is what we've already done in the rest of the world and I won't go through the whole model. I think you all understood where we want to go with our research model. This is really research, not development. We do want to align that with the key research ecosystems in the world and the creation of hubs. Genzyme has allowed us to take a much more transformative approach to research. The reality is, is that our research in France hasn't really come up with a new medicine in 20 years, and therefore, we have to take a much more productive approach to how we do this. It is a reorganization within France. It's not externalizing research to other countries. It is a top line model. And our -- and all the discussions we've had are that people really understand that. I mean there's no point having a national champion in research and development unless everybody sees that as being a very strong national champion. We clearly have to -- we are in France. We have to be seen to do this the way we do things in France here, and we are. Sanofi has a long tradition of social dialogue and treating our employees with care, and we continue to do that. But it's not really related to our cost reduction program per se. It's really about changing the R&D paradigm, which we've seen I think become successful in other countries. So we continue to -- we have not announced a formal plan. The idea was to have a period of dialogue and discussion, and that is going well so far. So we'll keep you updated as progress comes.

Sébastien Martel

All right. We're now ready to just conclude. I'll ask Chris whether he wants to say any points to wrap up.

Christopher A. Viehbacher

Yes. I mean I think Q2 is really just further evidence of management execution of what we have said we wanted to do. You've got a very stable business perimeter. I think the Genzyme integration has gone extremely well. We're now on a like-for-like basis as we look at quarters with Genzyme, so you have an opportunity to look at the growth platforms on an organic basis. And I think the growth platforms have all done I think very well. And I think we've been able to demonstrate some outperformance even in some areas versus our competitors.

Certainly, I think the fundamental strength of Sanofi in Emerging Markets I think can be seen. We're not subject to a few countries. We are probably more geographically diversified than anybody else, and we do have strength in market, including more relevant product portfolios and production levels. I think you've also seen us be very disciplined on cost management. I think what I'm particularly proud of is that our commercial teams have been able to deliver sales performance while we have been actually executing a tight cost performance, because we are clearly also investing in things like prelaunch. I mean, the multiple sclerosis investment, for example, doesn't start next year. We have been investing already this year significant amounts in things like multiple sclerosis. There is significant new investment going on in the PCSK9 Phase III program. We are clearly funding a very ambitious Phase III program in the dengue vaccine. We have a very important Phase III program ongoing in U300. So it's not hard to actually cut cost. What's really difficult is to be able to fund the things that are for growth in the medium term and still meet the short-term objectives. And I think management teams here are showing that ability to deal with those trade-offs.

I do think we have some promising new vaccines and medicines coming on. The dengue vaccine is -- I was reading a Forbes article this morning quoting a specialist who had nothing to do with the trial but a specialist at Johns Hopkins who described the results as exciting. I mean we've been working on this vaccine for 20 years. All efforts to develop a vaccine in the past have failed on the basis of safety. And so we've not only been able to demonstrate a proof of efficacy in this study, but I think the safety profile may not be appreciated by everybody. But if you look at the history of dengue vaccines, this is where everything has ended up on the rocks. So the fact that we have this strong safety profile is extremely important. Being -- potentially having the first-in-class on the PCSK9, the launches of Lemtrada and Aubagio are clearly very important. I think, particularly, Lemtrada is a potential game changer in multiple sclerosis and Aubagio, probably an underestimated opportunity as well. Lyxumia coming along is important for our diabetes franchise, and we have an opportunity to add to our cancer portfolio with Zaltrap.

So growth platforms coming on, tight cost management, good progress on R&D. And as I was saying earlier, I mean I think Q2 is very much in line with our medium-term guidance. We're looking to return to growth with a forecast of 5% compound annual growth rate on sales between 2012 and 2015. And I think when you look at a constant structure basis -- and remember, even on the top line, we lost EUR 163 million still on generic erosion. Now it's not the EUR 500 million that we've seen the past quarters, but we're not even adjusting for that. Just take like-for-like businesses and include the generic erosion, the fact that we can get to 2.5% sales growth is, for me, an important sign that we can get back to growth. I think we're in fundamentally strong businesses with Diabetes and Consumer and Animal Health, where there are huge growth potential still there. So it's not like we're dealing with a lot of mature businesses. All of these have an opportunity to go.

I think the cost management that leads to credence that we can have a leveraged P&L going forward, so the questions on margins. We believe that we can do better than the 31% to 32% over time. And of course, I think we've demonstrated that we are also very interested in making sure that our shareholders benefit from the progress of the company, and we continue our commitment to increasing the dividend payout to 50% of our business earnings per share. And we would expect to achieve that with the payment of our 2013 dividend in 2014.

So all in all, here in France, we're in -- it's a little like end of term at school many years ago. I mean everybody's ready to go on vacation, and I think we're all ready for that. But I would say that as we go on vacation here, I think we can say the company is doing well. We've come through the patent cliff. When I think about how nervous everybody was around Plavix back in 2009 and how confident we have come through this quarter, I think the company has made huge progress. And I'm certainly looking forward to coming back in September and continue to build the business further.

So I wish all of you a very good summer and safe vacations, and we'll talk to you in the fall. Thanks very much.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Sanofi Management Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts