Sanofi SA (SNY) 2002 Q3 法說會逐字稿

Thank you for waiting. Your Aventis conference call is due to be in shortly. Please continue to stay on the line. And once again, thank you for waiting.

Good morning, ladies and gentlemen, and welcome to the Aventis Conference Call. I would like to hand it over to Arvind Sood. Please go ahead, sir, and I will be standing by for questions.

Okay. Thank you very much, operator. Ladies and gentlemen, good morning this is Arvind K. Sood. I'm the Head of Investor Relations for Aventis. First of all, I'd like to welcome you to our conference call this morning, to discuss the results for the third quarter and first nine months of this year.

Just by the mere format, I'll take about 15 minutes to talk about the performance in Q3, in particular. After my presentation, I've also invited Dr. Terry Sorsak, who many of you know; he's the head of our global commercial operations. Terry will provide an update on some of our key strategic products. After Terry's presentation, we also have Patrick Langlois, who you also know; he's our CFO, and Patrick's going to give an update in terms of an outlook rather for the remainder of the year.

So with this, I would like to go ahead and get started. I think if I could characterize the third quarter of this year, perhaps we can summarize that in three key messages. First of all, sales and earnings growth for Q3 as well as that for the first 9 months of this year, bode very well for achieving our growth objectives on a full-year basis. Now despite the fact that the global pharmaceutical market is showing some signs of slowing down, growth of our strategic products has enabled us to realize very good growth in some of the key markets. And I'll develop this point a bit more in my presentation. Lastly, with 20% growth in earnings-per-share for Q3, we had once again one of the best growth rates within the pharmaceutical industry during the quarter. Looking specifically at our P and L for Q3, the reported sales for Q3 were EUR4.2 million, which represented a gain of 2.4%. When you strip off the translation impact, however, sales actually grew almost 11% for Q3. Now as you can well understand, currency was a huge issue in Q3. But the translation impact is most prominent on the sales line, only. Actually, while most of the conversion impact can be attributed to the deterioration of the US dollar (USD) against the EUR, the decline in the Japanese Yen and other Latin American currencies also played a significant role in the translation impact that we noticed on the sales line. Now just for the Q3 alone, the average EUR-to-USD rate was $0.98 as compared to $0.88 in Q3 of last year, which represents an 11% erosion in the value of the dollar relative to the EUR. Even though the USD contributed to nearly half of the translation effect, as I mentioned before, erosion in the Latin American currencies also featured prominently to the translation effect.

The Argentian Peso (ARS) and the Brazilian leal (BRL) featured most prominently in the Latin American currencies. Also, with the EUR at near parity with the USD and the average rate in Q4 up last year being about $0.89, the translation impact in Q4 can once again be expected to be meaningful. Looking at the gross margin line, the reported gross margin for Q3 increased nearly one percentage point to 73.6%, driven predominantly by an improved product mix in the pharmaceuticals business. Actually, the currency impact reduced gross margin by about 0.5 of a percentage point. Strategic products feature prominently toward the gross margin improvement. Strategic products as a percentage of sales grew 29.1% during the quarter, and now represent 55.5, almost 66% of sales, as compared to 47% of sales in the comparable quarter last year.

I think what's remarkable is that the strategic products represent 82% of our US sales. Overall sales in the US are now 40.7% of total. This once again bodes very well for one of the objectives that we had communicated some time ago, expecting to get up to 40% of our sales in the US market by 2004. Obviously at the end of Q3, we have already achieved this objective. Now in as much as the translation impact on the sales line has been significant, we have somewhat of a natural hedge, given the significant expense infrastructure that we have in the US. This is most apparent on the SG&A line, which declined nearly two percentage points when expressed as a percentage of sales, to 29.6%, as compared to $32.2% in Q3 of last year. About one percentage point of this is accounted for by the conversion impact. If you look at the R and D expense as a percentage of sales, it was stable, at 17.4%.

Looking at the operating profit, it rose 18%, to [EUR]1.1 billion. Equity earnings declined during the quarter to EUR63 million, mainly due to a lower contribution of the joint venture that we have in vaccines, together with Merck. The Aventis [inaudible] Merck-joined venture. EBITDA rose 15% with EBITDA margin increasing by three percentage points over the level in Q3 of last year to 27.9%. We continue to de-leverage the balance sheet. As a result, the interest expense declined to EUR40 million at the end of Q3. Miscellaneous expenses rose during the quarter, related to an adjustment in the market value of certain biotechnology investments. Mainly, our stake in Millennium as a result, pre-tax income rose 17%; net earnings rose 21%; and earnings-per-share rose 21% to $0.71, despite the slightly higher number of shares outstanding, at 793 million as compared to 786 million through the end of the third quarter. The increase in the shares outstanding is primarily due to increases related to the employee share ownership program.

Let me turn then to looking at performance within some of the key geographic areas. Sales in the US rose 21%, driven by strong performances by Allegra, which was up 32%, Taxotere up almost 36%, and Copaxalin, which was also up about 36%. We continue to gain market share with Allegra, and have now overtaken Claratin as the leading prescription, non-sedating antihistamine in the US market. I think this is also a very good indication of the leading position that we have with managed care organizations in the US. In particular, the pull through capability we have demonstrated despite the launch in the US of a new competitive product by Schering-Plough earlier this year. Lantis continues to do very well in the US, with Q3 sales of EUR66 million. We've now captured 32% of the market for intermediate and long-acting insulin. The most significant or marked loser has been the market for NPH insulin's in the US. This has lost over seven percentage points of share, with the clearly demonstrated benefits of Lantis.

We're also working together with the Coalition of the ADA, which is the American Diabetes Association, the NIH, or the National Institutes of Health, and the Academy of Diabetic Educators, toward the strategy of goal, aim and belief which is designed to enhance the awareness of maintaining blood glucose or [HPA1C] levels of less than 7%. Sales of Logonaut increased 5.6% in the US during the third quarter. Though the US growth on a year-to-date basis is 11%, and the global growth is 14%. While the growth in the US is below our initial expectations set at the beginning of the year, we believe that there are a couple of reasons behind this phenomenon. Let me go into a bit more description in terms of what's behind this trend.

First of all, we believe that US sales of Logonaut were affected by a change in the timing of the purchase by certain customers during the year. Let me explain what I mean by that. Let's think of the demand for Logonaut as a reservoir or a bank that we draw from or add to each quarter. The reported number for Logonaut sales in the US for Q3 of 2001 was USD214 million. From June of 2001 to September of 2001, the level of inventory at hand increased 2/10 of a month from 0.5 to 0.7. This increment equates to around USD11 million in sales. So it's adjusting a recorded number for this increase in inventory on hand. The true number, based on demand, would have been USD203 million.

Let's look at a similar analysis for the third quarter of 2002. The recoded sales number for US Logonaut sales was USD226 million in Q3. From June of 2002 to September of 2002, the inventory level declined from 0.72 to around 5/10 of a month 0.5 of a month. That corresponds to a dollar value of about USD13 million. Once again, if you adjust a recorded number of USD226 million in Q3 of this year in the US for this pipeline withdrawal, the adjusted demand number then becomes USD239 million. When you compare the demand-adjusted sales of USD239 million in Q3 of this year to a demand adjust of USD203 million in Q3 of last year, it translates into an underlying growth rate of 18%. The correlation between this and the publicly-available IMS pipeline withdrawal data is not hugely different. As a matter of fact, the IMS data shows underlying demand of 19.5% for the third quarter and 17.5% on a year-to-date basis. Even with an underlying growth rate of 18% for Q3, we believe especially after observing the trends over the last two quarters that the current US growth rate may also reflect the impact of a letter that was sent by Aventis to certain healthcare professionals.

This letter was sent out in the US medical community at the end of February of this year, outlining changes in the US Logonaut label. The changes included revised language regarding the use of Logonaut in patients with prosthetic heart valves. And Terry will address this issue in a bit more detail in just a few minutes. Since the label change, both Aventis as well as an outside consensus panel, have reviewed the additional data regarding the use of Logonaut in patients with mechanical heart valves. As a result, in October of this year, we have submitted a supplement to the FDA with a proposed revised label. Given the fact that we have one of the broadest spectrums of approved indications for Logonaut, we have now completed the doubling of our US sales force to nearly 700 representatives to support the use of Logonaut in the hospital settings as well as the primary care indications that we have at hand.

Let me quickly switch over to the French market, where overall sales in France rose 2.4%, with some of our strategic products leading the [program]. Logonaut was up 8%. Pritaid was up 25% and Taxotere up a strong 50% during the quarter. Ketek is off to a good start, following the recent launch in the French market, having captured close to 5% of the market share for oral antibiotics. We are making for market share gains at the expense of Augmentum, Cyprofloxicin and Zythromax. Sales in the German market rose 6.7% for the quarter, though this was partly due to an easier comparison to Q3 of last year. Based on the outcome of the recent elections in Germany, it appears that cost-containment measures as well as the pressure put on physicians and on the pharma industry is going to continue. Sales growth in Germany was driven by Tritaid, which was up 17%, Logonaut, which rose 16%, and Taxotere gaining 30% during the quarter. Sales of Lantis grew more than 50%, and we are now in the process of embarking on a program promoting the combination of Ameril plus Lantis to Divertologists.

Our market share within the long-acting segment in Germany is now over 40%. Actually, it's 42%. Despite significant cost-containment initiatives in Italy, we realized the growth of 11.7% during the quarter, driven by many of our key strategic products. I think that you're well aware of the 5% across the board price reduction, which was implemented in Italy earlier in the year. You may also be aware of the fact that reference prices based on daily-defined dose of pharmaceuticals will go into effect on January 1. Despite these cost-containment efforts, we expect to end the year with a sales gain in the range of about 8-9%.

Let me just make a few comments on our vaccines business. Sales in the North American market were strong, driven mainly by pediatric combination vaccines, or pediatric combos. In particular with a new presentation of a product called Diaptocil. This is a new acellular DPT, which stands for diphtheria pertussis tepus vaccine, which is designed to replace tripidia, as it does not contain the preservative thermazol. The flu vaccines also did very well despite the fact that 2001 was a strong flu season, though this year it's even better. Even though there were no meningitis outbreaks in the US this year, we have been promoting increased awareness of this disease, and the efforts are starting to pay off, particularly as we participate in college-sponsored immunization programs. We had reasonably good growth in the international market, as well, driven by pediatric combos the oral polio vaccine as well as the MMR, which is the measles, mumps and rubella vaccine. On a year-to-date basis, the vaccine business has increased just a little over 12% of sales, which is entirely consistent with a previously stated objective of realizing at least a 10% gain in sales on a full-year basis.

Let me stop at this point in time, and I would now like to ask Dr. [Terry Sorsak], who as I'd introduced before, is the head of our commercial operations, to make a few comments on our key products. Terry

Okay. Thanks Alvind. I would be commenting mostly on three products. Lantis. I will say also a few words on Lovenox to talk a little bit more in detail about the reasons behind the growth in the US. And I will also give you some update on Ketek.

So let's start with Lantis. The news for Q3 was the launch in the UK in August. As you may know, it's estimated that there were 2.4 million people with diabetes in the UK, 1 million of whom are undiagnosed. The diabetic population is likely to rise, according to external [inaudible] source to 3 million by 2010. Eighty-five of them expect to be Type 2 diabetes. We recently received a positive appraisal by Knights for using Type 2 diabetics on oral plus NPH insulin. These endorsements will be official very soon, by mid-November. Eight weeks after launch it's a bit early to give you an accurate assessment, but so far so good. The uptake has been more rapid than the uptake of Avendia, the benchmark in the UK market.

It's come to my attention there has been maybe some confusion regarding the availability of the Lantis spend in the UK market. I'd like to confirm that we have indeed launched the Lantis Optiset pan the disposable, at a price of EUR35.5. As well as the Optipan, which is the cartridge-based reusable pan at the price of EUR34.6. This was an important part of our launch. We expect to launch Lantis in Ireland this week, and the rollout in the rest of the European market will be complete by Q3 of next year. In the US, Lantis continued to grow and has reached now 31.6% market share of the intermediate and long-acting segment, and 12.6% of the total insulin market. As already mentioned, the market-share gain has been mainly from the NPH. In Germany, we have now more than 40% of the basal insulin market in market share, to the expense mostly also of the basal of novavostic.

I will switch now to Lovenox now to give you some update on Ketek You know the figures that have been quoted already by Aviant. I will not add to the explanation Aviant gave you with regard to the purchasing patterns, which were already quite detailed, if not just to add that change of timing of purchasing by major customers can mean of course the timing in the year. It can also mean that some big accounts instead of ordering on a quarterly basis have changed their pattern and are ordering now on a yearly basis. We mentioned to you that the other reason that I will explain in more detail was with regard to the changes in the US label change for Logonox. Indeed after observing the trends during the last two quarters, we believe the US growth also reflects the impact of a letter we sent to certain healthcare professionals in the US medical community at the end of February 2002, outlining changes in the US Logonox label.

The changes included revised language regarding the use of Logonox in patients with prosthetic heart valves. First the warning section was changed to state that the use of Logonox is not recommended for thromboprophylaxis in patients with prosthetic heart valves. Cases of positive heart valve thrombosis were reported in patients with prosthetic heart valves who received Logonox thromboprophylaxis. The second modification was to change the warning section to state that pregnant women with prosthetic heart valves may be at higher risk for thromboembolism. The precaution section for pregnancy also was changed to reflect that the use of Logonox is not recommended for thrombophylaxis in pregnant women with prosthetic heart valves.

Since the label change, both Aventis and an outside consensus panel have reviewed the additional data regarding the use of Logonox in patients with mechanical prosthetic valve parts. As a result, we filed last week by the way, a supplement to the FDA for a proposed, revised label. If the FDA approves those changes to the Logonox prescribing information, we will of course practically communicate those changes to the medical community. On the other hand, as you know, we completed the doubling of our US sales force to nearly 700 sales reps last summer. And they will continue to be an important part in explaining to our physicians the benefits of Logonox.

An important thing to know is that about 2% of the potential US Logonox patients or nearly 300,000 people are estimated to have prosthetic heart valves in the US. The measure ratio of patients who are prosthetic heart valve patients are treated with chronic [inaudible]. In the case of surgical or dental procedures, these patients are frequently bridged to either Heparin or [inaudible] [Heparin]. The number of pregnant women with prosthetic heart valves, however, is estimated to be very small. Logonox is not used often in the US in treating pregnant women with a high risk of diabetes. So it appears that the use of Logonox in some patients, when you look at the market share trend corresponding to this change of label and information we give, has been affecting our market share. We saw in [inaudible] and everybody has the [IMS] data for Q2. Since about 10 days now, there was about a 3-percentage point decline in Logonox's share of patients receiving interjectable prophylactic [inaudible]. And it's estimated as I said that about 2% of the patients will receive [prophylaxis] [inaudible] as prosthetic heart valves. When you look at the market share and its different segments, it is really affecting our cardiology indications. With users switching back to unfracionated Heparin for unstable angina, for example, Logonox lost 3 percentage points in Q2.

On the other hand, in segments like the [inaudible], we were not affected as patients tend to be much younger. The percentage of patients with prosthetic heart valves in that segment is much less. Actually we did gain market share in both the knee and the head indication in orthopedic surgery, despite the efforts of our competitors [inaudible]. So this gives you another view basically of the issue with regard to the prosthetic heart valve, and the magnitude of the impact. Of course as we were not getting an impact in the first quarter for this issue, which you write, only at the end of February we will have the beta comparisons for the quarters moving forward in Q4 and Q1, which will still include those types of patients. We are confident that with, number one that revised labeling where we will go from the warning section to the precaution section. And also the now seven reps in the field, we will regain growth as we have seen so far.

So those two elements-both the change of timing-very well explained by Arvind. And I think the important part that you also need to remember on that front is the level of month in hand of inventory. You have heard a number of things with regard to inventory in the past month. You have also heard the level of month in hand for those other cases. In the case here of Logonox, what I can tell you is that we are at the moment I checked the figures yesterday at 0.47, which is in line with the 0.5 reported a few minutes earlier by Arvind, which is a very low inventory level. It's just a change in between quarters that as explained the difference. Which is confirmed by the way, again, by the IMS withdrawal data for the quarter and the year-to-date, as quoted by Arvind.

Let me switch now to Ketek. As you know, the big event for the third quarter was the launch in France. While it is early to claim success yet, it is off to a very good start and certainly above our own expectations. As we have captured, to be precise, 5.2% of the market shares at the last data point we have. At the same time, if you look at Avinox, which has been launched also at the same time a few days apart, at the same period of time, between the second week of September and the week of October 7th, Avinox reached 1.5% market share in the same period. As you know, Ketek is approved for marketing approval in the European Union. The label includes Ketek's clinical efficacy as you can see against both the benefit and resistance and the [inaudible] resistance; streptococcus [inaudible]. We also find in India in January 2002 for Ketek in Japan.

With regard to the US, as you know, the results of the 24,000-patient study comparing Ketek and Augmentin were presented at e-pat. The safety and effectiveness were comparable to that of Augmentin. Incidence of empathic events in both groups was mild, and no cases of clinical hepatitis were observed in the Ketek arm. Aventis is confident that the points outlined in the June 1, 2001, approval letter have been addressed and looks forward to working with the FDA to secure approval. As expected, there will be an FDA advisory committee meeting to discuss the Ketek MDA on January 8th of 2003. We are again confident that the points outlined in the June 1, 2001 approval letter have addressed, and that hopefully we will be able to secure approval with FDA. So those were the few points I wanted to make with regard to the product. Arvind?

Terry, many thanks for that. Let me now ask our chief financial officer, Patrick Langlois, to make a few concluding comments, together with an outlook for the remainder of the year. Patrick?

Yes and good morning. Yes again for Q3, a strong performance for Aventis. You have seen where we are year-to-date. So getting into the fourth quarter it's easy now to again to reconfirm the objectives we set up for the full year 2002. We call to see what were the objectives. Again, my method is a method of confidence that those objectives should be achieved.

In terms of top line, we said 11-12%. Year-to-date, we are 11.5%. So again we should be in the 11-12% for the full year in terms of activity. In terms of reported sales, because of the conversion impact, I think on the full-year reported sales, we should be going at sales of about 7%. Of course [inaudible] currency in the first quarter. But considering the level where we are today, we don't change too much in the remaining two months. We should be in terms of [inaudible] at about 6-7%. Again, actually, 11-12% for the year.

Gross margin, the objective is one percentage point. We should wind up close to that number for the full year. Year-to-date we are 74.2 versus 73.2 nine months in 2001. So we are on track for this objective. EBITDA. [inaudible] we have opposition. We said that we should be growing EBITDA at about 15% for the full year. That means in terms of margin, EBITDA to sales should be roughly 1-2 percentage points. Margin improvement for the full year where we stand today at the end of nine months, we are a little bit more than two percentage points, because we are 25.3 versus 22.6 for the first nine months of 2001. So again, we should be in line with this objective. And of course the EPS objective of 25-30% EPS calls for the full-year, year-to-date we are 29%. So we are comfortable to achieve also this objective.

I'd just like to highlight also that when we look at the performance of the full year, there'll be some so-called let's say one-time even which impacts, of course, the earnings-per-share for Aventis. I just want to remind everyone that we had some expenses we needed. We did two licensing deals in 2002, which is the Jental and the Victal and the total amount is about EUR70 million. We have also the consequences of these so-called [inaudible] market on the mid-India biotech investment, which is today about a [EUR]130 million write-down in the value of this investment, because of the share distribution of that company. So in total, we will support something of about [EUR]200 million in negative impact on the full year. And again, in spite of this, the objective is to be about 25-30% EPS increase for the full year.

Of course you are going to have the question of what about 2003. So I'm going to disappoint you again, because I'm not going to give you any specific guidance. This is not the time to do it. We will do it in early February when we release the full-year 2002. But let me make some few comments related to 2003. Our strategic products are doing well. You see their performance in 2002. You know the potential for growth coming from these products. We feel comfortable that these strategic products will continue to drive Aventis' top line growth in 2003, in spite of some slow-down of growth in some specific markets. So [inaudible] based on the [inaudible] assessment today following our discussion with the managed care institutions in the US, we are confident that we can grow [inaudible] next year. But of course before getting into any specific number, we want to assess the situation of your [inaudible] which likely could be approved by the end of November. I think it's important for us to be see the evolution of the steps which [inaudible] in the first two months, and the potential impact, if any, it has on these dynamic products. So again we would be in a much, much better position to give guidance in early February about 2003.

The last comment I would like to make is that at Aventis we are very confident that this company can continue to deliver superior earnings growth in 2003. A margin improvement as we have seen in 2002. And could remain and should remain one of the fastest, in terms of earnings growth for 2003. So those are the few comments I wanted to make around 2003. Because I think that's what we can say today. But again, we'll visit all of this in more specific and positive numbers early February 2003.

Okay, Patrick. Many thanks for that. Operator, at this point in time, we'd like to open the session to invite any questions that might be out there. Would you please review the procedure?

Thank you. We will now poll for questions using our quick-queue polling feature. If you have a question, please press the number "1," on your telephone keypad. That's the hash or a "#" sign to cancel. One again, the number "1," on your telephone keypad to ask a question. The first question today comes from Peter Tessler. Please go ahead and answer your company name.

Peter Tessler from One Investments. A couple of questions one is if you could give us some information on the effects impact further down the P and L? Whether they're particular items and maybe understanding underlying growth in SG&A, and R&D, for example? Secondly, if you can, given the discussion on inventory on Lovenox, if you can give us some kind of idea of whether there are any other products where the month's outstanding inventory has changed in a material way during the quarter? And on Lovenox, particularly, if you could try and remove this inventory and discussion from a quarter-to-quarter basis, and try to understand what the year-to-date 2002 would be on an inventory-neutral basis?

And lastly, if you could commit a comment on the impact of the [Millennium] investment in Q3? I didn't catch what the number was on that. Thank you.

I'm sorry on the what?

The biotech investment.

Oh, yes. The biotech investment. Okay. Let me start with the currency impact. As you have seen and as Arvind described, the currency impact on the top line is a little bit more than 8 percentage points. More than 50% coming from the US and [inaudible] EUR coming from American currencies and coming from some other currencies like the JPY.

The impact on the net income is a slight negative. It's about a 4-5% negative impact on the net income in the top quarter. I just want to say also that if you look at it on the full-year basis, the impact of the currency on the earnings-per-share of a 29% increase is about let's say close to zero, at 1% or 1 point. So it's not significant. Why? Because we have, as Arvind mentioned, a natural hedge because of how we spend and where we spend the money. Because also of our hedging policy. So that's the situation we are in today. Which is to say what we have said previously, responding to some questions about the currency impact. Yes, it's important or can be important to the top line but on the bottom line, it's limited impact.

Is it possible to say what the underlying growth of R&D and SG&A was?

Yes. I was going to get to that question.

Okay.

On the SG&A line, we have excluding currency something of about 4% increase. A real increase compared to last year. In terms of R&D, we are considering about [7-8]% real increase in R&D, compared to last year.

Okay. Thank you.

Peter, let me address your question about the inventory levels, and Terry Sorsak may have some additional comments on that. You know first of all, I think you'll agree that when we're talking about differences in terms of 4/10 of a month or 7/10 of a month, we're not talking about huge, huge inventory levels. We are essentially talking about a shift in the purchasing patterns that can create some aberrations in terms of sales comparisons from one quarter to the other. The reality is that the numbers I'd given during my earlier presentation. You know, if you look at 7/10 of a month at the end of September of last year, some of this also was driven by the fact that after September 11th, many of the elective procedures had been deferred. As a result, you saw some temporary build-up of inventory, as Terry gave a very up-to-date number. Of course as you compare that to Q3 of this year, that number has now declined substantially to 0.42 and I believe that's the number he had mentioned.

Now as you can imagine, we were concerned, as we expected the investment community to be concerned, looking at the Logonox numbers. That's the reason we went into so much detail. I really apologize for being so long-winded about this. But I really felt that this was one of the key elements that had to be explained to the investment community at large. To your questions specifically, as to how these numbers correlate on a year-to-date basis. If you look at the pure pipeline withdrawal data, which is provided by IMS, on a year-to-date basis, that would correspond to growth of about 17.5%. After we'd made our own computation in terms of demand-adjusted sales using the same equations that I just described before, that corresponds to a sales gain of about 16%. So again, the difference is not huge. Now this pipeline data, as you know, again reflects a demand for hospitals as well as open care. It's basically a projected sample of withdrawal and inventory levels from wholesale as well as chain warehouses. And you know it basically accounts for 55-60% of the dollar sales. So it's a sample representative which accounts for the difference obviously in terms of the computations that we have made and the pipeline withdrawal data that the IMS is showing. Is that clear?

Yes, it is.

I would add to it, Arvind, that it is standard in the American market, to have 2-3 months in hand in inventory. The reason is by the wholesaler and not driven by incentives of the manufacturers. So if the difference is basically 2-3 weeks here, as all of our figures have been below that, as you well described the explanation behind the figures. A number of our company was on this very markets are pretty much higher month in hand we are at 0.5 month.

I understand that.

That's the kind in the American market. It's 2-3 weeks in the trade.

I understand that. Were there any other products whereby you could notice this as a meaningful week or two difference in inventory?

No, not really. As a matter of fact again, as we went through this exercise, we made a pretty close assessment. That's the reason I wanted to highlight that given the fact that this is largely a hospital product, given the fact that after September 11th last year, there was a postponement of many of the elective procedures that may have accounted for some of the differences that we saw in terms of inventory levels. You know, the reality is that most of our wholesalers which would account for in excess of 80% of our business, we have electronic agreements. So at any given point in time, we can very closely monitor what the inventory level is out there. And we are not aware of any significant or any meaningful aberrations in terms of inventory. Patrick, would you address Peter's question about the biotechnology?

Yes. In fact, it's related to our equity stake in Millennium. You remember the agreement we had with [inaudible] we signed with Millennium in 2001? I thought that part of this settlement was for us to buy something with key participation in this company, which is more than 2-3%. But because of the evolution of the share price on the market, we had to do some market-to-market evaluation. In fact, the number we were quoting was the number of about EUR130 million negative impact coming from that market-to-market.

Is that year-to-date? What was it? Q3?

It's year-to-date and I hope it's not going to happen again in Q4.

Okay. And Q3 was, I assume?

Same number.

Same number. Okay. Thank you.

Also in Q3. For the first nine months, Peter. In the third quarter, we have about a [EUR]20 million market-to-market [inaudible]; [EUR] [20-30] million we needed to have investment in [bio].

All right. Thank you very much.

Thank you. The next question comes from Philip Lennon Lennon. Please go ahead and answer your company name.

Good morning. Two quick questions. First of all, on Lovenox if I understand correctly, in the fourth quarter this year, you should still have some impact on leveling change. But the actual sales of Aventis should be none, where the demand inaudible is sales. So we should see from fourth quarter something like more plus 17% in the US. So will that be the case? Also could you elaborate on the price effect on Lovenox in Q3, and the rebates? And lastly, a small question on Ectinel, which is down in Q2 worldwide, it's 134 versus 146. Is there some inventory issue here or so?

Terry, would you like to address the Lovenox question?

Yes. With regard to Lovenox, expect indeed the demand and withdrawals to be high for the next quarter. So we will have figures that are in line with the demand you've seen so far and were quoted today. With regard to the IMS withdrawal which is reported already by Arvind in the range of 17%. Nevertheless, indeed the base, if you remove the impact of the specific [inaudible] patients, the basis comparison moving forward with the pure of that base only in Q2 or Q3. So you can expect to have the impact of the one letter still be present in Q4 and in Q1. But with regard to the demand, your figure is in line with what we have quoted today. Also, don't expect changes really of inventory level in the fourth quarter for this year.

Okay. On the price?

On the price? No significant change of rebate. Even if the composition is actually sometimes a little bit tougher. Especially on the [inaudible]. We have not seen on average our rebate level going down in the last quarter.

Philip Lennon, in terms of your question on Actinel, actually the global sales that we have reported, again, this is not what we consolidate. But the global sales of the product are EUR134 million. That compares to EUR81 million in Q3 of last year. So the evolution there has been pretty strong. A bulk of the benefit that we've seen on this product of course has been since the launch of the once-weekly version, which occurred I believe back toward the end of June or early July.

If I'm correct, it's down on the Q2 2002 level. I just wanted to know if there was any reason significant.

I'm not aware of any, Terry. Do you have any comments on that?

No. I'm not so sure. You're talking about?

The total sales of Actinel for Q3, we have as EUR134.

Both P and G and S.

Yes.

We have market share continuing to grow everywhere on Actinel. I don't have any specific

Yes. Okay.

Philip Lennon, we'll check into that to see if there's anything to account for the trend. But our case at this point in time, we are not aware of anything specific.

Okay.

Okay?

Thank you. The next question comes from [Joseph Harris]. Please go ahead and answer your company name.

Yes. Good morning. It's Joe Harris, UBS Warburg. I've got three questions. First of all, I think we've done this in some depth. But just to clarify. There were no abnormal inventory moves of Lovenox in Q4 2001 in the US market. And they impacted the reported growth out of 2002 and I just wanted to triple check on that, I guess. Secondly, in terms of their future competition. I'm sure you guys saw the market trend typical data that got reported over the weekend. I just wondered if any [inaudible] on that. [inaudible] abstract. I just wondered if you guys had seen any. Are we going into a [inaudible] type situation here where your headliner efficacy-theoretical headline efficacy benefit in terms of CBC prophylactics but then something sinister crops up on the bleeding? Do you have any information on that product in terms of [inaudible] bleeding, for example in different-aged patients and different-weight patients, etc? The third question, Patrick, I just wondered if there were any hedging games reported in the third quarter, or during the first nine months on the SG&A line. Thank you.

Good morning. A lot of questions, there. Okay. Let me address a couple of those. And I'm sure Terry will have some items to add to those questions as well. First of all, in terms of the inventory level, remember what I'd mentioned for Logonox specifically in Q4 of last year? It was that there was some buildup of inventory after September 11th. Mainly due to the postponement of elective procedures. As a matter of fact, if you look at the amount of inventory at hand, through the end of Q4 of last year, it was exactly the same or roughly the same as what we had at hand at the end of Q3. So about 6/10 of a month. Now with Terry's outline, given the fact that at the end of Q3 of this year, we were already down to 0.42, we would expect to see this replenishment. We would expect to see this replenishment as we get into Q4 of this year. You know, on this Melegatron situation, Stewart, I couldn't have described it better myself in terms of what this data may or may not potentially implicate. You know first of all the 62.3% reduction that they have talked about seems to apply to a criteria which really includes proximal DVT, which has to be determined by venographics. As far as the cases with symptomatic venous thromboembolism are concerned, they were rare. As a matter of fact, they were below 1% in the total product population.

So there doesn't appear to be any indication in the abstract that there was any significant advantage that [Melegatron] has over Logonox. Especially when it came to the clinically relevant endpoint that I had just mentioned. You know as far as the rate of bleeding events is concerned, I think you're well aware of the fact that it was actually three times as much in the [Melegatron] group compared to Logonox. It was 3.3% as compared to 1.2%. So that's always like the data. At this point in time, I think that's entirely consistent with the analogy that you had used in terms of what the ultimate label may or may not look like for Melegatron. Patrick, would you address toward the question about the hedging?

Yes. What I can tell you is that we have on a year-to-date basis about EUR50 million, roughly, of profit coming from hedging. Mitigating of course the conversion impact in the [inaudible]. It's about the same as what it was during the first nine months of 2001. It's roughly the same. There is no variance between the two numbers. When you look at just the [inaudible] number for 2002, we have in fact goes again to market-to-market and the [inaudible] negative impact charge on this line of about [EUR]30 million in Q3 of 2002

Okay. Thank you very much.

Thank you. The next question comes from [James Coldswell]. Please go ahead and answer your company name.

Good morning. This is [James Coldswell] with Merrill Lynch. Questions. If you look at the overall sales growth, a lot of your tail products or older products seem to have fallen quite dramatically. I was wondering why that was. Was it currency or whatever? Or had you actually just sold some products? Secondly, your currency hedging for next year. How are you fixed at today's rates, considering next year, in terms of earnings? Then of course the final Lovenox question. On the fourth quarter. Terry, you said if you took an underlying demand of about 17%, does that allow for the prosthetic usage? You said that that was like-for-like. But 17% of the people are already presumably not using a prosthetic valve. So that's going to be the actual comparison of it.

Yes. That's a good point. As you have seen, in the first quarter, the IMS withdrawal was at 19%. We're year-to-date at 17%. I don't see any reason why this demand will not continue as the impact of the prosthetic heart valve have already impacted us, basically. We'd have just the comparison that would be pure [inaudible] only in Q2 and Q3.

Right. So the underlying growth for Q4 and into next year is actually more like 20% that you're deducting. This is after the prosthetic effect.

Terry Sorsak and Arvind K. Sood: Yes. That is correct.

That is correct. Yes.

And if I could just add to what Terry has already said. Now of course, as I had mentioned before, my apologies, James, is when we had started to analyze these trends. We first noticed the trend in Q2 of this year. So again, you know that as we get into Q2 of next year, trends will become normalized given the fact that the prosthetic heart valve population adjustment would have been fully eliminated out of the comparison.

Yes. The products where we have a decrease of about 9% in terms of activity this quarter, as compared to Q3 2001, I think we should mention about two specific points. First, if I could say some sale of bulk coming from our [inaudible] operations. We are selling some active ingredients to third parties. That is a decrease of about 13%. [inaudible] more than we see of our own product. We do seem to see the work we do for third-party activities. [inaudible] related to our [inaudible] product lines. We have a strong product [inaudible] which is a product for the treatment of Acne, which has a negative impact, which is mostly related to increased competition from Novartis, who is spending a huge amount of money on their offer. [inaudible] so we have something [inaudible] back from [inaudible] from their new product line. So it's mostly coming from these two products. For the rest of the other products, we are mostly in line with our plan, which was just to remind everyone that these products should decrease by 1-2% on a two-year basis.

Thank you. Currency for next year.

Yes. We are working on the assumption for a plan and [inaudible] at about [unfinished]. I'm just going to hold the USD to EUR at about 0.95, which is slightly higher than the average of what we are seeing this year. And of course, we are adapting a hedging policy on top of the potential hedge we have. We are adapting our hedging policy to protect our business and our earnings based on the 0.95 EUR to USD.

Thank you.

Thank you. The next question comes from [Joe Wilson]. Please go ahead and answer your company name.

[inaudible] from Lehman. If I could just say start on the effects could you just make it a little simpler for me? With the hedging that you have in place and everything staying as it is today, what would be the impact on your earnings for next year? Have you actually managed to mean that there would be no impact on earnings? Or that there would just be less of an impact on earnings. Secondly, I wonder if you could give us just a little bit more detail behind the discussions you talk about that you had with managed care, and in the US. So for example, do you think you could give us some information on what proportion of your sales you think will be covered by managed care? What proportion of those managed care sales do you see? Have they changed to the co-payment? Perhaps an increase from Tier 2 to Tier 3? To some more color on that? I'm sorry to go back to Logonox. But is there a situation where you did mention that fragment was a tougher competitor. Is it that although low molecular weight Heparins are now catching you up, in terms of indication? Or at least by the perception of the hospitals, in terms of indication? Such that you are more likely to grow in lines with the market than continue to gain market share? And you also made a comment that some purchases are now only buying on an annual basis rather than on a quarterly basis. Does this mean that we could see more lumpy sales of Logonox? Is this a big proportion of the market? Finally, on Logonox, could you just remind us what proportion of this drug is actually now prescribed or used in an outpatient setting? It's always very difficult to believe some of the in-market demand when it's just within a hospital, and it's never been as reliable as some of the outpatient data.

The line was fading away.

Yes, [Joe]. Unfortunately, the line was extremely feeble. I think we captured most of your questions. But if we haven't, please remind us so that we can address your questions in detail.

I'll take the first one, the [inaudible] chance looking at next year, based on what I told you, it was using [inaudible] 0.95 to the USD, and having a hedging policy to protect this, compared to DHS, we have [inaudible] but we should not expect any currency impact next year versus this year. I hope that there is no further significant change coming from Latin American currencies or whatever because of post-election on those currencies is much more difficult. But based on these most important currencies for us, we should be protected and not have very significant [inaudible] in terms of earnings, next year.

[inaudible], I can answer on the Lovenox question with regard to funding. When I said, "tougher," as you remember, it was answering a question about rebates. They are tougher at basically proposing bigger rebates in order to get through the door. Actually, if you look at the overall market share, although not in the West, we are maintaining this market share and although not in the US, we are maintaining this market share fragment is not really progressing. So it's just that the battle, in order to get through the door of some accounts, with regard to rebates, it's getting more aggressive on their side. This is what I meant. You can check the IMS data, as well as we do.

If I could just add to what Terry just said, Joe. You know the reality is that if you look at the comparative landscape in the US today, it's still relatively clean as compared to Europe. You have a fragment, which really does not have any demonstrated advantage over Logonox, in most indications, particularly in unstable angina, where they did not demonstrate superiority over unfractioned Heparin. But you know even more importantly, you remember all the concern that people had at the beginning of the year about the inroads that [inaudible] might be able to make? You might recall the commentaries made during the second quarter conference call, that a EUR3 million sale through the first half of this year, Erythro was a non-event? You know with EUR5 million in sales through the end of the first nine months now, Erythro remains anonymous. So in terms of once again the broad scope of indications that we have on Logonox, especially the kind of growth that we've been realizing over the last couple of years in particular with many of the newer indications like unstable angina, like medical prophylaxis, we feel the prognosis for this product is very good.

Let me just make a couple of comments on the managed care situation particularly as it correlates to Allegra. Again, given the fact that we have Terry today, he may have some additional comments on this. First of all, the bulk of sales of Allegra as you can imagine given the nature of the product and given that indications are indeed accounted for by managed care. Now we anticipate some changes in managed care as we have outlined in the past. Especially once the Claritin OTC becomes available in the over-the-counter market. We think there are two or three key variables that we need to keep in mind or that we need to very closely assess. One of them is the listing. Is managed care going to be inclined to be listing such antihistamines? We think not. For the simple reason that this is very much of a brand-driven category. The individuals who get on Allegra therapy are chronic users. As a matter of fact, we have repeatedly stated in the past that about 25% of the patients actually account for 75% of the prescriptions of Allegra.

Prior authorization. Again, not a very high probability. It's a cumbersome process to administer. It has a lot of different steps involved. Physicians have to go through a lot of steps to put this in place. What may indeed and what will indeed happen is something that you've outlined. Which would be a move from the current year of reimbursement. Allegra to date, in excess of 80% of the prescriptions are reimbursed in the Tier 1 or Tier 2 of co-payments and we believe that there's a high likelihood that this will move up to Tier 3, where the net out-of-pocket costs to the patients will move up to about USD30. But then if you correlate that with an assumption of how Claritin OTC is going to be priced, which should be roughly the same level. We think that given the brand awareness, given the brand loyalty that patients have, and given the fact that they are in these chronic users, that they will continue to stick to Allegra therapy. That's one of the reasons we have very adamantly made the comment that we believe our plans are indeed to grow this product next year in the US. Terry, anything else you would like to add to that?

No. There is no specific news with regard to what decisions have been made at managed-care level. The good news is that by now, if they would have decided to de-list us from some familiar areas, we would be informed. Because they would have to give us notice. So apparently, we have tried, but there is no de-listing that has been notified to us. More as we just discussed, a move from one year to another.

Thank you.

Thank you. The next question comes from John Murphy. Please go ahead and answer your company name.

Yes. Good morning, gentlemen. This is John Murphy, Goldman Sachs. First, it's a treat to come back on the SG&A issue. You made a couple of points. Firstly, that SG&A increased year-on-year around four percent ex-currency. But also earlier on, in terms of the SG&A to sales ratio, I think we saw about a 2.5% benefit of which 1 point was due to currency benefit. Could you maybe talk about the benefits elsewhere? How much, for example, was due to the positive impact of Actinel? How much do you use to continue synergy benefits? Should we view this as perhaps some sort of indicative thing going forward? My second question, is probably for Terry. Could you maybe talk a little bit about maybe the Allegra dynamics in Japan, and the competitive scenario, as you see it currently? Thanks.

On your first question, John. Let me get you the specifics when Arvind was explaining the evolution of the [issue] [inaudible], he explained about the particulars of what percent was related to this conversion impact, because we spend more in the US relatively speaking than in the rest of the world. There are two other factors less important also, which explain this percentage to be lower. It's first in terms of G and A in Q3. We could expect that in Q4 but at least in Q3. That we have a lower level of Asianic expenses not related to synergies, related to political activity. Effort we do throughout the company. We have also in Q3 a little bit of mixed impact. You see the true performance of the vaccine business in Q3 somewhere around 21-22%. As you know, on the Asian A that is in the vaccine business is much lower than in the West of the pharma and the prescription business. So we also some benefit in terms of this ratio coming from governments with the vaccine impact.

As far as the guidance, I'd say for the full year, Asianic lines should be in the range of about 31%, roughly. Perhaps a little bit more. 31-32%. We should see again in Q4 something could shake loose of about I'd say close to 30-31% Asian and other [inaudible] sales. In these two quarters of Q3 and Q4, they're lower than what we had in the first part of the year. Because some expenses were front-end loaded especially with the market conditions. So for the full year, we should be at about 31-32% of sales on the Asianic line.

I will answer on the Allegra side, of course. The other question is on the penetration of Claritin that's just been launched in September by Schering-Plough and Shinobi. As you may have seen, looking at IMS data, and if you look at IMS data, you need to at this point in time, because there are a very low number of weeks on the market. You need to look at the weekly market share. After a very large stocking that they have done, Claritin has actually gone down to a more normal level after stocking, with the market share at 4.6. That was September 20th. It's now at 4.2 market share the week of October 18th. In the same period of time, we basically continue to grow slightly to 11.5-12.1% weekly market share. The product that declined the most was [inaudible], who is the leader in Japan. So I would say so far, after the restocking, the market share of Claratin has been slightly declining, and ours has been flat or slightly growing.

As you know, the battle at this time of the year is not in [inaudible] but with regard to a dermatological indication prior to the season. We have a big effort in terms of promotion made by Claritin, Schearing and Shinoki. They increased their sales force from 450 to 750 reps. So a number of details that are beyond anything that's been seen on this market. Of course, we are following, in terms of [inaudible], and we're prepared to an aggressive shareholder voice on their side that we are matching and that we will be even reinforcing in the course of 2003.

Thanks very much, indeed.

Operator, since we are past 11:15 now Continental European time, could we perhaps take two last questions, please?

Thank you. The next question comes from [Alexander Hauser]. Go ahead and answer your company name.

Good afternoon [inaudible]. Sorry. I have two more follow-up questions on Lovenox and SG&A. Can you just say why particularly you lose market share in cardiology? Is it just because you lose those patients with prosthetic heart valves? Or is it because the cardiologists in particular are very concerned about any safety issues whatsoever? Why are they switching back on Section 8 to Heparin? If there is a problem, which is specifically, only related to Lovenox or to [inaudible] Heparin? Just a follow-up question to SG&A, to follow up to John's question. In the questionnaire that you sent out along with the press releases, you specifically referred to royalties and better profitability of Actinel. It has contributed to the reduction in the SG&A line. Now from the way that you answered John's questions, can I now conclude that these two effects are now not important at all? And if that's not the case, on what products do you actually receive royalties, or do you actually pay those royalties in before? Then the third question on Helix. Do you still expect to achieve EUR1 billion sales this year? But you would apply a very large fourth quarter? If not, where have you been too ambitious?

Okay. On the Lovenox question, the arterial indication got hit by the prosthetics-warning letter. More because of bridging. And there was a little bit of confusion that of course we are counter-acting on by [offering side] information of the cardiologists, who are more sensitive of course to issues of prosthetic heart valves than other populations of physicians. And we saw that not only were there exclusions of patients with prosthetic heart valves, but also they're more cautious now including for bridging patients in between the event and the oral prophylaxis. So that has been impacting our share as well as, of course, the proportion of patients with prosthetic heart valves, which is much higher in the cardiology patients than it is, for example, for an orthopedic surgeon.

On your question, there are actually two comments I can make on the Actinel. The recent contribution in the year 2002 was about EUR30 million coming from Actinel in this line. And it's about in Q3 in 2001, in spite of the sales increase, the argument is quite complex. But we think that we have in Q3 of 2001 and Q3 of 2002 roughly the same position of about EUR30 million. As far as the sub royalty that has come, coming from a royalty increase, we have just one element in this line which sees an increase compared to last year, which is some royalty [we will] receive from Japan on [inaudible] product, which is a magnitude of about EUR25 million.

Okay. Thank you.

Alexandra Hauser, on your question about de-list. If you look at the trends of the product on a year-to-date basis, they're pretty decent. Again, up over 33%. You know of course when we made the comment that we expect de-list to become a blockbuster, we didn't specify to the last Euro in terms of what the projected sales would be. But if this trend continues in Q4, certainly it can come very close if not hit the EUR1 billion mark. As you can see, the performance on Helix was fine.

Thank you.

Could we take the last question, operator?

Thank you. The last question today comes from [Andr Baum]. Please go ahead and answer your company name.

Yes. It's Andrew Baum from Morgan Stanley. I think [inaudible] for the call. Sorry to press the questions on Lovenox. It just strikes me that given the data that you have behind this product now, [inaudible], this drug ought to be doing a lot better in the US than it appears to be doing. Even if you look at the underlying growth. Aside from the three issues which you site as potentially [inaudible] back growth, given that you've now doubled the sales force, is there something else there? Is it the unwillingness of the cardiologists to titrate the drugs and the efficacy to test it? What are the areas of pushback that you're actually getting from the cardiologists in the US? That's the first question. My second question is on Ketek. Again, you say the FDA panel meeting is expected. Given you have an approvable letter, could you just give some comments on exactly why you're expecting that? Then thirdly, in relation to the reimbursement environment in France, could you give us a sense of which products? The absolute level of sales that you have in front, where generics currently exist, given the introduction of referenced pricing, how much do you think that has the potential to hit your forces' revenue within that market?

Gerry, would you the first question on Logonox?

Yes. I would remind that we are quite a leader with a top market share in the US. So we are pushing basically the growth in the market.

Not compared to the other Luminex. But the weight that you have of the market share of unfracionated [inaudible / crossing].

On that front, basically, as I said, we are creating. We are expanding the market of the [inaudible] brand by getting a number of people to switch from USH to the brand that you just said. Your question was more, "With now 700 reps, should we see a better effective penetration?" Just from my view that was just finished, the wrap-up of the sales force which [was finalized by] the end of the summer. We expect to have the impact of it right now. As you know, when you double the sales force, you have to retrain people. You have to reallocate territories to sales reps. It takes a few weeks for this to be settled and readdressed, to reacquaint with the conductors on these territories and so on and so on. We are now basically since September, ready to have the full impact of this additional sales force. So we indeed expect to use that impact indeed to correct whatever perception because of the warning letter having been left at the level of the cardiologists. But more importantly, the main driver for the expansion of the sales force was to take much more advantage of the medical indication.

Andrew, just on your question on Ketek, you know, we have felt all along that there could be an advisory meeting. So that's one of the reasons we had made the comment that this is something that was expected. I think you're well aware of the fact that this was a sizeable study. We're talking about 24,000 patients. The analysis of this study has been completed and has been provided to the FDA. So again, in light of the magnitude of the study, we are not at all surprised that there would be an advisory panel to review this data.

Now in terms of your question on the reimbursement environment in France, there are a couple of things. First of all, other pharma companies are conducting business in France. I think you know the company I'm talking about. We do have a significant portion of the portfolio, for which there are generic alternative available on the French market. If I had to give you a rough number, I'd say it's probably close to 40%. Now any potential impact that we see from the change in the reimbursement environment here, we would expect to more than offset with the strong growth that we're seeing in the French market through many of our strategic products.

But I think we should acknowledge that it's getting tougher, and the generic penetration in France in the past three months is much faster than what we have ever seen. Indeed, the good thing is as you may know also from the press, the government is ready to be more flexible on the pricing. The French government is ready to be more flexible on the pricing of innovative products. Which will help us to offset the decline on the rest of our portfolio.

Very good point, Terry. Thanks for that. Ladies and gentlemen, let me thank you at this point in time for your participation, this morning. I recognize because of the time constraints we may not have gotten to some of you with your questions. I would invite you to call up myself, John Gilardi, Philip Lennonpe Zeisser. We are available to address any further questions or comments that you might have. Once again, thanks for your participation this morning.

Thank you. That concludes today's conference call. You may now disconnect your lines. Thank you. Goodbye.