Sanofi SA (SNY) 2003 Q1 法說會逐字稿

Thank you. Sir, you've now been connected. Please go ahead, and I shall be standing by for the questions.

Okay, Operator. May thanks. Ladies and gentlemen, good morning. This is Arvind Sood from Aventis. Let me be the first to welcome you this morning to our Q1 results conference call. Let me also thank you for our participation this morning. I know it's a very difficult company with a number of companies reporting.

Just by the way of format, I've invited our chairman of the management board, Igor Landau], to actually make a few comments about our overall pharmaceutical business. Following Igor's presentation, we also have Patrick Langlois, CFO, who's going to review the financial results for the first quarter. Then he will also make a few comments on the overall outlook for the remainder of the year.

Of course, after that, we should have sufficient time for q-and-a. With that, I'd like to go ahead and ask Igor to make a few opening comments. Igor?

Thank you, Arvind.

Ladies and gentlemen, good morning. I wanted to tell you first that we are quite happy with the results we are showing for Q1. Especially because, as you know, we were hurt quite severely by the currencies during this quarter-just to talk about the overall impact. Patrick is going to comment on that in more detail.

Our sales suffered a 12.2% impact, but despite that, we were able to report excluding currency, a sales growth of 3.5%, and even higher, as Patrick is also going to explain. It's close to 6%, if we exclude some divestment and some one-time business we did last year. Even more importantly, our EPS despite this currency impact, grew 13%. If we were to exclude, as we have noted in the press release, the currency impact, our EPS would have actually grown 25%.

What is probably even more important than these results from Q1 is that the growth of the business during this first quarter reinforced our confidence in achieving our yearly objective, which I remind you are, as sales excluding currency, are high single-digit; and as far as earnings are concerned, mid-to-high teens.

What we've seen in Q1 makes us confidant to make it for the year for a number of reasons. The first one is that the majority of our strategic products do continue to grow very rapidly, and even show an accelerating growth. This is true for Taxotere, where we being to see the impact of the new indication we just got in longer accounts [inaudible]. It's true for [inaudible]. It's true for lenders.

Basically, we see with the last market in which we introduced it-the UK-there was very quick uptake, which means that we are accumulating experience. We are very pleased to see that this product begins to deliver what we're looking for, which means used in early [internization] in Diabetes II patients. Also, [Acturnel], which now benefits a lot of market in the once-a-week population, continues to grow very quickly. Vaccines had a very good quarter. [inaudible] even though we had in France a tough Q1 in the antibiotic setting. It was a poor season on one hand and a lot of effort from the government to reduce use of [antibiotics]. This antibiotic has shown good results.

The second reason is that even if some of our [tape] products are declining at a faster rate than we were used to, a big part of this decline is leaning to on one hand offset bulk sales or third-party sales on business which are much less profitable than the rest of our business. Secondly, this is attributed also to the point I was making before with the situation in France-particularly in the antibiotic setting.

Lastly, to come back on the two products for which a lot of discussion has occurred between you and us in the past month-mainly Allegra and Lovenox-we feel that Q1 demonstrated, though not completely. We always say we have to wait to the end of Q2 to have the proof of the pudding. But the development in Q1 is exactly on track with what we thought. Allegra is showing a sales growth of 2% in the States, despite destocking and despite a clear delay in the allergy season.

When we look at total Rx until the end of March, we are up 10%. When I look at the evolution of the business we are promoting-namely, the tablets-180 mg of Allegra [D]-we are continuing to gain market share and do slightly better than [Xertek]. You know that we don't have as [Xertek] has, a [inaudible] zero population. If I look at the tablets, we are basically developing in line with our expectations.

As far as Lovenox is concerned, the growth in the US is slightly or above 6%. Basically, we see month after month of acceleration in the demand. We have [inaudible] stops at the end of the year. You know that we are working on four different market segments, and trained in all these market segments. It's either stabilizing three out of four. We begin to regain market share [based on] [inaudible].

We have cleaned the inventory issues, and we shouldn't forget that when we compare Q1 of 2003 to Q1 of 2002, we compare the quarters before we received the warning letter. We have a quarter where we don't yet have the final answer of the FDA. We have received an approval letter on this issue of [Vulva], and very quickly now we are going to be able to have the proper woman. That is, pregnant women with possible prosthetic heart valves should be careful. As you know, this represents an insignificant number of the target population.

So, we are really optimistic about Lovenox. As I say, Q1 confirms our goal to make growth in the States for the whole year of 15%.

Another point on Lovenox, you may have noticed in the Q1 press release that we are continuing to seek reinforcement in our intellectual property. This is one of the reasons. Another reason why we are excited to reissue our [618] [package].

As far as pharmaceutical is concerned, we are perfectly on line with what we expected. We were able to deliver, despite the currency impact, and as far as the rest of the year, we are going to enjoy the rollout of [Planters], the rollout of Taxotere in London, the same in Actonel. We are going to begin to enjoy faster much faster growth in Allegra and in Lovenox. Also important, we are also on track for our filings. I remind you that we plan to file hopefully for [five new] products this year. On top of that, to file Taxotere on new indications [inaudible] embraced prostate and gastric. So we have a full plate in front of us, and I would say so far, so good.

Last point-as far as our non-stretching asset. You know that one of our priorities is to find a solution for our blood business. The discussions are progressing, and we remain optimistic to be able to achieve a solution during the course of this year. As far as our chemical assets, you have seen that we are disposing today of close to 9% of our [Irodia] shares, bringing it down to 15%. We remain committed to dispose of all of our chemical assets during 2003, or at the latest, 2004.

On the whole, we are pursuing the goals that we clearly explained when we presented the 2002 results. We also very much are active on the licensing front. As I said, so far, so good. We'll see at the end of Q2 if we are as we think we will be-on track with what we expect.

Now I will had it over to Patrick, who is going to give you some monetary explanation of some of the points we have mentioned in the press release. He'll also talk a little bit about our decisions on the share buy-back. Then we are at your disposal to answer questions.

Thank you, Igor. Good morning, everyone. Let me comment on the first quarter performance and the [P&L], which has been [inaudible] morning. I'll focus my comments first on the core business, that I may consult afterwards with some comments on the non-core activities.

As you can see, the reported sales for Q1 declined 8.8%. As expected, the currency had significant impact on our reported sales. [If we take] the currency back, our sales increased 3.4%. The negative currency impact is coming first from the US dollar devaluation versus the Euro. As you look at Q1 to Q1, there is a decline of the US dollar by about 22.4% in the first quarter, compared to the same period. This had a negative impact in terms of reported sales of about 7.7 percentage points.

The second element which I mentioned also earlier during the quarter, is the impact of the Latin American currency devaluation. As you remember, we had some significant devaluation from some of the currencies. During the first quarter 2002 or at the end of the quarter of 2002, it had a negative impact of about 1.9 percentage points. Also, there are 2.7 percentage points negative coming from this order of currencies-the Turkish Pound, the Sterling, the Canadian Dollar and so forth and so on. Again, slightly more than 12 percentage points negative currency impact.

At [3.4] in terms of activities, I think it's important for you to understand that in the first quarter of 2002, we mentioned about this one-shot production term of products in France, which was done with the French-held authorities, in light of the potential terrorism threat. We sold €77 million of antibiotics to the French-held [AutoDisease], which affected the first quarter of 2002, of course. Of course, that doesn't affect 2003.

We also have to remember that as we announced during the fourth quarter of 2002, the divestment of some products we made to [King] Pharmaceuticals, [inaudible] of course had some negative impact in terms of sales [appreciation]. If you were to take these two elements into account, instead of 3.4% of real sales performance, it's 5.8%.

The gross margin. The gross margin is about 74.1%. Most [inaudible] compare to last year. If you were to exclude currency impact-we had a negative currency impact of 0.7. Excluding currency, we are 74.8%, which is clearly in line with our full year objectives. Again, we could have achieved a better performance, but the sales devaluation in the first quarter of Allegra and Lovenox as Igor described a few minutes earlier, had a slight negative impact on the [capital appreciation] of gross margin in the first quarter. Again, [Andrew] will comment in a few minutes that our outlook for the year has not changed.

In terms of S G and A, another decline substantially, as a percentage of sales, to 31.4%, compared to 33.5%. Last year, of course you had to take into account if [inaudible] or in terms of the spending, from a quarterly basis. But you have to understand also as we have said several times, that because we spend a significant part of sales and marketing expenses-promotional money in the US-we have a natural hedge.

Instead of just a decrease of 19% on a reported basis for this line, if you exclude currency, we have a decline of 7.2%. The significant part of this decline is coming from general and administration expenses. If you were to look at just the G and A expense, excluding currency, we had decreased by more than 18%; totally in line with the productivity and initiatives we are developing for the company in order to improve our productivity.

You have to take into account in this line order that we also have again coming from the transaction and the hedging strategy of the company. In the first quarter, in this [inaudible] and others, we have [€]32 million of income coming from currency hedging. That [mitigates] a little bit in the translation loss. We [inaudible]. This €32 million again, in the first quarter of 2003 has to be compared with the loss of [€]21 million production hedging loss in the first quarter of 2002.

EBITDA margin improved by 2 percentage points, in spite of [inaudible] after the terms, EBITDA is flat. Again, EBITDA on the constant currency should have increased by 11%. We have a negative currency impact, translation and transaction. Net of the two, we have a negative impact of € [112].

Interest expense declined €22 million, mostly due to the [inaudible] debt of the company, and favorable interest rates environment.

Other news. [SGI] that we have again this year with the evolution of the equity market-especially the market on biotech. We had to do some write-down for the [Medium] and the [Genta] equity positions we have with these two companies. This represents 36 million Euro negative impact in this, [shown in this slide].

tax rate. We are headed to 35% tax rate for the core business, which is the objective of this year. That leads to an EPS gross of 13.3% on a reported basis. And again, on a [inaudible] tax rate, EPS should be about 25% gross, if you were to exclude the currency devaluation.

Let me make some comments about the non-core business. You have summarized income statements for the non-core business. Of course, the comparison is difficult because as we had in the first quarter of 2002, the Aventis [core] science business was in fact sold in May 2002. So the first quarter, we had the full impact of Aventis [core] science, as well as Aventis [animaticution], which was I think for two months in 2002. This explains the significant evolution of change that we [inaudible].

The element that we'd like to mention which impacts the non-core P and L is the market-to-market negative impact for our two chemical holdings, [Irrodia] and [Clarian]. Looking at the share price, at the end of March 2003, compared to what it was in December of 2002, we had to do a write down of the evaluation for [Irrodia] for an amount of about 115 million Euro. So we brought the value from 7.9 to about 5.3 Euro per share. We also had an impact coming from the adjustment in the market value of [Clarian], which is about 154 million Euro, because of the significant share price decreasing in the first quarter of 2003.

Of course, it's just a market-to-market, meaning that we have to do it of course in every quarter. We have to do it every time. An increase of [inaudible] these two equity positions. But just to highlight the activity of this [inaudible], we had to do it based on the share price of the two companies to date, which was about €35-40 million less of a write down, based on the [inaudible] share price for these two companies.

The write down of [the client] has a more negative impact, because there is no tax benefit with it, whether write down or any potential loss. [inaudible] value, because it's considered as a foreign holding in Germany. So there is no core tax benefit of the write down coming from the [Clarian] holding.

Those are the comments I wanted to make about the non-core. Just a quick information, even if we don't disclose cash flow on a quarterly basis. We do it at the end of June. But just to mention that at the end of Q1-March 31, 2003, the net debt of the company is about €3.6 [billion] -slightly higher than what it was at the end of December. The main reason, as you know when we define net debt-we always define net debt as being the debt on the liability side. The gross debt minus the marketable securities. As we have the [Clarion] shares as part of the marketable securities, the fact that we have marked down the value of the client's shares by about €150 million explains the evolution of the net debt of December 2002 to the end of March 2003. That is, in terms of overall [inaudible] performance, for Aventis, good performance. We usually have seen in the past that during the first quarter, we were increasing significantly [inaudible] previous years, including [inaudible] working capital.

As far as the outlook, I think there's not much more to say after what Igor mentioned to you. [inaudible] of course, to our overall objectives. I just want to mention that when we say that, we say that based on the currency situation, which is at least for the Euro Dollar, a [inaudible] 106-107. Meaning that [cycle] from what we told you in February. Why 106-107, was because we feel today with the evolution of the US Dollar and the Euro, it's more likely it's going to be 101 or 102.

Of course, you know the sensitivity of the evolution of the currencies. The one I described in February-it's still exactly the same. Meaning [inaudible] 5% devaluation of the Euro to the Dollar. It should have an impact in terms of earnings force of about 2-3%, as we said earlier. So still, we may [inaudible].

Nothing more to add on the outlook. Just a quick word about the share buy-back. We have made the decision at the management board and the supervisory board, to be much more proactive in terms of share buy-back. As you know, we have done some in the past, but it was more [inaudible]. The market was on an ad hoc basis.

We want to spend about 1 [billion] Euro over the next 12 months. We feel that the company has a good or much better financial situation. We feel that we can do it now without impairing or [inaudible] any initiative we could make in terms of buying or using the balance sheet for any pharmaceutical operations. So we can combine force. We feel that because of the effectiveness and the [inaudible] of the share price, we should be more proactive with this 1 billion share buy-back over the next 12 years.

Those are the few comments I wanted to make. I think Igor now should join us.

Yes, thanks very much, Patrick. We would like now to open it up for the q-and-a session. Operator, if you could please review the procedure for the q-and-a session?

Certainly, sir. Thank you. Ladies and gentlemen on the phone, if you are going to ask a question today, please press the number 1 on your telephone touch pad. Once again, that's the number 1 on your telephone if you would like to ask a question. If you need to cancel your question at any time, you may press the hash or pound key. Thank you.

Sir, your first question comes from [Frederick Desdouey]. Please go ahead. From [Xane], in Paris.

Good morning. I have two questions concerning Lovenox and [Ketek]. First, on Lovenox. Can you come back on what is behind your strategy of refilling or reissuing the [inaudible]? Are you going to monitor what's happening now in Lovenox and why you're doing that now?

Second thing, on [Ketek]. Can you be a little more precise on when you think you will refine the information requested by the [ADA]? So when you think you could launch? And what [inaudible] to have [Ketek] on the market for the next season? Thank you.

Lovenox. Basically, we have a process in place within Aventis where we review periodically in-depth the pattern situation for our key products. As a result of this review, in order to defend or even more to strengthen the intellectual property we have on Lovenox, we decided to use something which is from time-to-time used in the States, which is a process of reissuance of patent. During this reissuance, though existing parts remain of course in place. But we think that by taking this initiative, on the whole, Lovenox patterns would be strengthened.

The second question, on [Ketek]-it's difficult for me to give you a precise date. The only comment I can make is that since we last talked about it at the beginning of February, a lot of discussion, of course, and conclusions have been drawn from these discussions with the FDA. So the definition of the different analyses that the FDA wants to perform is almost completed. A lot of work has already been done. I don't know. We don't know for sure, because it's an ongoing process.

The moment at which we will be finally sending all the analysis to the FDA-because on some points, we are still in discussion with them. Of course, it's difficult to assess how long the FDA is going to take to answer or to give its position, once we have provided this analysis. But my personal feeling, following all this process and discussion with the FDA and internal work, is that our goal to get an approval by the end of the year is doable-even if it's not 100% guaranteed that it would take one or two months less or one or two months more.

That's I think the best we can say, at this stage. But the progress is good.

Just to confirm on the Lovenox situation. You [had] mentioned [precisely] in the pattern. Just to make my question more clear-if you're not able to make those changes in the patterns, does that increase the risk of having a generic competition on the way after 2004?

No, the first point is, as you know-patterns is a complex subject. We don't see any reason to give to potential competitors all the cards to fight us even better. That's why we usually document our legal strategy. As far as a specific question is concerned, you will have the answer you are seeking, because we are going to fight this reissuance in a week. This is a public process. Normally, the [PTO] takes four to six weeks to review it, and then makes it public.

So without committing our legal strategy, at least the specific points which we are going to change, are going to be made public in due time.

So there's no big secret.

No, there will be no big secret.

Okay.

Thank you, sir. Your next question comes from [John Murphy] of Goldman Sachs, in London. Please go ahead.

Yes. Good morning, gentlemen. Just a couple of questions. Can you talk about any significant price changes you saw in the first quarter? Particularly with regard to some of the key products? Second, with regard to Lantus. There, we saw-particularly if you look at the first quarter on a fourth quarter-a bit of a slowdown on Lantus. Prescription trends-particularly in the US, however-look strong. Is there anything else underlying this, so you can maybe update us? Thanks a lot.

In terms of [inaudible] changes, there's nothing significant. Basically, the impact is close to nil in the [inaudible] evolution. Certainly, for Lantus. The good news is that when we look at the last marketing which we introduced in the UK, I recently saw analysis showing that looking at the sales achieving absolute terms during the first six months, this was the second-biggest sales achieved in six months in the whole pharmaceutical industry-faster than Viagra, etc, etc. That shows that the more we go, the more we gain confidence and clout on how to introduce it, and how to present what we feel. The real innovation behind Lantus is the benefits of early [internization].

As far as the States are concerned, there is no significant trend. Basically, the market share and the new prescriptions that we had at the end of March is [Euro]17.5, or 0.6%. We haven't seen any decline in the country. We are gaining market share against everybody.

Thanks very much.

You're welcome.

John, just to add to what Igor just said-actually in the US now, we are the leading insulin product. With the 17.6% market share that Igor just mentioned. We are now the leading insulin product, and we have surpassed Humulin in new prescriptions.

Operator, could we move on to the next question?

Certainly, sir. Thank you. Your next question comes from [Jo Walton] of Lehman Brothers in London. Please go ahead.

A few questions, please. If we look at your overall level of sales on an activity basis, you have been doing 10-12%. We're now down to about 6% if we exclude the [inaudible] of King and the bulk sales for anti-terrorism of antibiotics. We're still down about 6% of what a historic rate has been. That's a very large amount to just come from a reduction in bulk sales. I wonder if you could tell us a little bit more about that reduction in activity growth, and whether it's the sort of level that we should expect, going forward? Are there more quarters' effect on this reduction in bulk?

Could you also clarify please, for Lovenox? Are you expecting 15% growth in the US for this year? Or as I thought you said before, an exit rate of 15%? And on Allegra, is there any update that you can give us in terms of covered lives, or whatever? We receive a lot of pushback from Aventis. It may well be that you've got the same number of people in Tier 2 and Tier 3, but the level of prior authorization and the actual hassle for someone that's only a seasonal user is so immense that as we come into the more seasonal part of the business, we'll start to see a reduction of sales in Allegra, year-on-year.

Okay, [Jo]. The reason for this 6% overall growth on a like-to-like basis-actually, not even 6% but 5.8%--has to be put in perspective with two elements, I think. The first is the overall from our business. It's not going to grow this year, in my opinion, at the same pace that it has in the previous years. This is something I have repeatedly said; at least that's my opinion. That's what I've repeatedly said in different discussions, including with you.

The second point is the clear reason why we are still at 6% is that our two biggest products-Allegra and Lovenox in Q1 grew in the US for Allegra only 2% of sales reported and Lovenox 6.5%.

We still continue to believe that for the full year, Lovenox should grow at 15%. That's not the exit rate. That's what we think will be the case for the full year. Secondly, that Allegra's 2% in sales is mainly due to the inventory destocking and also to the late allergy season. But that for the full year, Allegra is going to show a stronger number. That's why we say that for the full year, our goal of achieving high single-digit sales excluding currency is still something we really feel is achievable.

The second point on Allegra. I will not give you the exact number of lifes covered. The only thing I can tell you is that hasn't changed in the last month. The big majority of Allegra is in Tier 2, and so far we haven't seen changes.

Could I just ask for a Japanese sales number for Allegra, please?

Yes, you can ask what the figure was. Somebody must have the figure, here.

Jo, to add something on this order of products. Something we don't mention, but which has some impact, is that on the bulk business, as we have sold we also are getting some plants. That means that some contract manufacturing sales we are doing are usually not very profitable--we get just a commission on them. As we are improving the manufacturing productivity, we are continuing to diverse some plants. So we have lost, of course, that [inaudible].

Could you tell us what the annual sales levels of those sorts of businesses are?

I think we could expect on a full-year basis, coming from that, something close to 60-70 million Euro dollars.

[Jo Walton], for Allegra, I'm told that we never gave the number.

I guess we hadn't communicated the number in the past. But I can tell you that in Japan on an activity basis, sales of Allegra are up about 10%. Close to 10%, in Q1.

I just wanted to mention a couple of other things. I think it's impotent to keep in mind again that, going back to the US market, to focus on the total prescriptions for the Allegra family as a whole. If you recall, in Q1 of last year, we were switching. We were actively switching the patients from the [50] mg capsule formulation to the tablet formulation. Of course, that resulted in the generation of new prescriptions. That skews the comparison for the Q1 of this year. That's the reason I would suggest looking at the total prescription growth, which was highlighted as about 10% by Igor, in his comments.

In addition to that, if you focus exclusively on the Allegra 180 mg-the once-daily formulation-and compare that to actual [Xertek] tablets-we are doing far better. We're showing some significant growth in terms of new prescriptions, as far as this version is concerned. The [Xertec] family as a whole appears to be doing better than Allegra, primarily because of the syrup formulation. They have a captive audience, at this stage. On a prescription-only basis, they're the only product at this stage with a syrup formulation.

Just two other very quick comments. The national pollen count, as you probably know, is roughly 10% below last year, as of April 7. This, as a matter of fact, is the lowest level that we've seen in about four years. Also, wholesaler destocking also had an effect. So far, through the end of the first quarter, we've seen that the destocking has continued. Now of course, as we get into the second quarter, the inventory level would have to be replenished. So we would expect the reported level of sales to match up to the prescription activity.

We have a lot of numbers. So to summarize, excluding currency, Q1 is up 3.4%. This is the number that we think should be high single-digit in 2003. So it's not 6% excluding Biotox, excluding what we sold-which is going to become high single-digit, but it's the 3.4% which is going for the year, we think, to be at the end high digit-digit. Neither taking into account [Biotox] nor what we sold to [King]. That [makes it clear].

Thank you.

Yes.

Operator, the next question?

Thank you very much. Your next question comes from [Stewart Harris] of UBS in London. Please go ahead.

Yes. Good morning. Just a few quick questions. With regard to Lovenox, what is likely to drive the sales growth in Europe for the rest of the year? Just looking at your presentation? The penetration and the indication looks to be recovered in the fourth quarter. I guess specifically looking at the unstable effect on the population, are you going to hit the 40% level and stay there until synergy reports? Or do you feel you can go through that level before 2004?

Second question-you've got your target tax rate of 35%. Is that what we should expect for the foreseeable future? I guess finally, just to go back on [Ketek]. In probability, how confident are you that no extra trial data will [go back] to clinical trials to be required for the FDA to approve the product? Thank you.

On the tax aspect of 35% for the quarter, for the year, and probably next year. We will continue to try to improve, but at this stage, 35% is a good basis.

Lovenox. I would like to first give you a few numbers. The sales in Q1 of 2003 were €260 million. To compare with [€]255 in Q1 of 2002, [€]238 in Q2 of 2002, [€]226 in Q3 of 2002, and [€]249 in Q4 of 2002. Basically, what we think is this. First, Q1 was by far the highest quarter compared to the four others. In terms of comparison, Q2 of 2003 versus Q2 of 2001 and Q3 and Q4, the comparison is going to be easier, because these were really much lower quarters than we had hoped, because of the ambiguity about the warning letter. When we say that we're expecting 15% for the full year, I don't consider it personally as a huge success, because we're going to compare with low numbers in 2002.

Point two, the biggest opportunities still remain in the medical population. We ought to mention two points. The first one is about 7-8 million people in the US represent the total potential. So far, we are only treating about 1 million. In terms of opportunity, the opportunity is there. In terms of clinical benefit, all the clinical studies we've done-in particular [Medivox]-shows that that's the right way to treat--usually prophylactically-in this population. Lastly, when you look at how many patients are still treated with standard aspirin versus low-molecular weight Heparin, which means Lovenox in the States-compared to Europe, there is still a very wide gap. That's why my colleagues and I have explained that we don't see any reason why the development in the States during this year, but the year after that should be significantly different than what we've seen in Europe.

We introduced this drug in the States five to eight years after Europe, and we've seen the [part] in Europe, and we're convinced we'll see the same [part] in the States. That's the basis of our confidence.

On your question regarding Ketek. There are no additional clinical studies being required by the FDA. There are two components to the request that they've made. One is to provide them with some additional analysis of certain components of the large studies that we've presented before. Secondly, they've asked for some additional post-marketing and surveillance information.

Keep in mind that in conjunction with the advisory meetings, we had given them post-market and surveillance information on 1.5 million patients. They have requested the same information for the months of December and January.

So no discussions with the FDA after all about additional [inaudible]

No. Not at all.

Thank you very much.

You're welcome.

Thank you, sir. Your next question comes from [Ben Yo] of [HSBC] in London.

Good morning. It's [Ben Yo] and [HSBC]. I had a question on Taxotere, here. The growth in the US is very strong, at 45%. I was wondering is that an underlying figure, or was that a wholesale movement in there?

Secondly, just coming back on this Allegra versus [Xertec] question. [Xertec] grew 33% in the US, despite the delayed allergy season. Is it just the syrup effect that they're competing with you? Does that mean that their portfolio is significantly stronger than yours in terms of marketing in the US?

Thank you for your question. As far as Taxotere is concerned, basically the growth is mainly linked to on one hand continuous growth in the previous indication we had. Plus, the beginning of the impact of this new indication in first treatment of lung cancer-which itself represents a potential of €1.5 billion. That's why we think this product is going to become a very big product. Each new indication opens a new market, if we call this product by a new name. Each time, it could be a potential blockbuster.

So we think that this growth-I can't tell you it's going to be 45% quarter-to-quarter, but the growth is going to remain solid. And as I said, we are fighting for another bunch of very important indications by the end of the year.

So that 45% figure is a true underlying figure-is in effect by the wholesalers for any price increases?

Yes, yes, yes. As far as the comparison with Allegra and [Xertec], the key difference, as you mentioned, has to do with the formulation of [Xertec]. Basically, I was also puzzled with the very good number reported by Pfizer. So I asked for a very detailed analysis. It's clear that when you take total prescription share including [Xertec] syrup and compare Allegra and [Xertec], even if Allegra totally remains the biggest alternative product, [Xertec] has increased faster than Allegra. But if you exclude [Xertec] syrup and compare the two, then not only basically in total [earnings], [Xertec] went from 28% to something like 33-34%, and we went from 40% market share in total [earnings] to slightly over 45%.

Clearly, the difference is syrup. You know that we couldn't develop a syrup [inaudible] population for Allegra. That's why we're not competing on this segment.

Do you feel that's quite a large disadvantage now in marketing, if Pfizer can market the whole portfolio including syrup?

Right. So you have a [inaudible] for sure. But for the rest, so far, we are able to compete on the tablets. If you look at the evolution, since the beginning of the year, by concentrating on [118] mg once daily, and [Allegra D], where we concentrate our efforts, I don't see [Xertec] gaining any ground.

That's an important distinction, [Ben]. If you look at the Allegra family as Igor has just outlined, and you compare that to [Xertec] including the syrup, the syrup represents about 10 percentage points of the total prescription market share that [Xertec] has. When you strip that out, in terms of new prescriptions, we're going at a faster pace when you compare to Allegra once daily to the [Xertec] tablet.

Which is not a disadvantage for the others, but for the [inaudible], clearly.

Okay. Thank you very much.

You're welcome.

Thank you, sir. Your next question comes from [Alexandra Harbor] at Bear Stearns in London. Please go ahead.

Hello. Just a couple of questions. Just a very small one. The restructuring charge which you took in the first quarter of €0.03 per share-about €30 million. Could you just tell us roughly how much went into which line item, within your operating costs?

Secondly, coming back to the visions of the [618] pattern-You state in your press release that the reissuance is typically used to seek modifications in the specification. When you say "typically," it makes it sound that these sort of things happen very often. You mentioned that you're regularly reviewing your entire patented [inaudible]. Could you just give us some statistics from within Aventis of how often you apply for reissuance, and what your success rate is? Ideally, some industry statistics, too.

Also, I was wondering if you really ask for modification of the specs? If yes, why? According to US patent law, a reissuance can't really increase the scope of the patent. So I can't really see why you'd get that protection. Actually, you do reissue of patents because the original patent is wholly or in part defective or invalid, because there was an error. So I just wanted to ask you to comment on this one.

Secondly, on the non-core businesses. Can I just clarify that the [Vodia] write down actually fully went into equity income. Also, whether the contribution from [Vodia] in your equity income is just a write down or whether in addition to that, you also take your 25% share of the pretax in that line. The background to that question, of course, is, if you assume the write down was in the equity income line, then everything else would've been zero.

Also, on the non-core business. Could you comment on the deterioration of the gross margin. Was it [inaudible], and did that impair the sale or the price to CSL? In view of that, are you still comfortable with the allocation of debt of €1.5 billion last year?

Then since your question on Allegra destocking, could you actually give us an average stock level? The IMS data typically circulating within the company talks about destocking. Is that a destocking after a price increase? Could you say you normally manage speculated buying, or is there actually a signal by the wholesalers that they think next quarter will be bad for you?

Then just a question for Patrick on the full-year objective on the gross margins. Since you say it's a 1% decrease of the gross margin, I was just wondering-will we see that really? Or is that an underlying decrease and there wasn't any currency effect? So your reported gross margin-will it actually be down 1%? Thank you.

The first question was about the restructuring charge.

Yes. The breakdown is about €30 million on a pretax basis. We have about €3 million in costs of goods. We have €19 million in the restructuring. We have €8 million in Asiatic.

Thank you.

Now maybe you have the non-core [Rhodia] equity income.

On the equity line, you have on the write down of the value of [Rhodia], which is €115 million write down based on the share price solution of [inaudible] between December and March. There was anther question on [bearing]?

My question was, in addition to that write down, did you also book on the equity income line of the non-core [inaudible] contribution from [Rhodia]?

No. Absolutely not.

So it's now basically just being treated as a financial asset.

Since we've decided to do market-to-market adjustment to the value. It's like this. We don't pick up any equity income or equity loss, in the position we have with [Rhodia]

And the equitable contribution from [Backer and Dye] in the first quarter to equity income was Euro?

[inaudible / crossing]

It's slightly positive. Yes. You are right.

As far as [Bearing] is concerned, yes. We have some decrease in the gross market evolution of Aventis [Bearing], which is mostly referred to as a pricing situation, in this industry. Like [inaudible] products like [Atvamin] and [IVIG]. We have some decrease, yes, in gross margin. That's in effect what we want to do. The sale of that business as far as the descriptions, I cannot tell you where we are, to date. [inaudible] We are still [inaudible] with them.

As far as the €1.5 million-I mentioned at the end of last year that yes, this is our objective. We feel comfortable with this objective-getting contribution in terms of debt or proceeds or cash. Whatever-from getting rid of all the non-core either assets or liabilities-and still being able to achieve the €1.5 billion.

As far as the gross margin is concerned, what we've said for the full year as guidance is this. In February, to be able to achieve the 1 percentage point improvement in gross margin. We are talking about currency impact. This is still the objective. Of course, currency still has some impact.

We should be able to achieve that objective. Of course, if there is a further significant decrease of the US Dollar, it would impair us a little bit, but the objective is to get back one percentage point with the gross margin-taking into account the currency.

Coming back to Lovenox-the first point. Then I will specifically readdress the reissue stuff. Remember that Lovenox is a very complex product. So even with or without patterns, Lovenox is [now] 100% characterized. So it's not just another chemical. It's a biological product. In itself, it's a challenge. This is one of the reasons why we applied the citizen's petition earlier in the year, really to make the FDA aware that we are talking about a biological product. Lovenox is very specific and not the same product as other low-weight molecular Heparin. That's why we feel for that reason, it should be treated specially.

As far as intellectual property is concerned, what is a reissue procedure? It's a procedure which provides a patentee with the opportunity to make modifications of one or more issued patents. Specification of claims, such as improvements to operability and clarity and language of the specification. What it is is pretty clearly defined.

What we are looking for will be noted in due time. As I said, it's a public procedure. But we don't want to comment now or even later on our legal strategy, for very obvious reasons, which are competitive.

So basically, you're saying it's a clarification of claim language, which you're looking into. Coming back to my original question, just from your own experience, since you apparently do that all the time, at least reviewing the patents-what is the Aventis-

No, up 'til now, we haven't used these procedures. It's something that when you look at the statistics, it's difficult to draw a conclusion, because it hasn't been used that often. I was saying that we're regularly looking at patents because it's the secret that is the key for any pharma company. We take appropriate steps according to each specific situation. In that specific situation, we thought it would be a good idea to strengthen even further what we already had.

Needless to say, Alexandra, we are not the first ones to use this process. Other patentees have also used the reissue process.

Then there was the question about the inventory destocking on Allegra.

Ah, yes. The inventory at the end of last year was close to €4.8. At the end of March, it's €0.5 [%] of sales. We feel this is destocking is close to being finished. Okay?

Operator, could we have the next question, please?

Certainly, sir. Your next question comes from [Kevin Stockjer] of [SG Cowen] in London. Please go ahead.

Good morning. I've got a couple of questions. One is, could you give us some idea of where you see your net debt for the group at the end of 2003? Secondly, on the submission for Taxotere for [adjutant] breast cancer. Your presentation in the main body suggests in 2003 that the last slide 25 hedges it a little bit more end of 2003 to early 2004. Which of those is your view?

Finally, could you update us on [Exubera]? Have you got to do clinical data? Have you made a decision on when you think that might be submitted to the FDA?

The first question, Patrick?

Yes. The first question. If we don't do anything-just managing the business and getting the cash flow, divesting what we expect, we should expect to achieve quite a good decrease [inaudible] take into account, now. Of course, the share buyback and the pace, of course, [inaudible]

Second point, there are specific acquisitions or [projections] from the common side. So it's difficult to give a specific number. But let's say if we were not [inaudible] would have done significant [inaudible] acquisitions.

Taxotere. We plan to present the result of [adjutant] breast cancer on December 03-06, in San Antonio. At about the same time, we plan to [fight]. For [Exubera], we hope to be able at the end of the year to be more precise in terms of defining timing. As you know, it's something complex. The study of lung function is something new. Once we have the research, we will have to discuss it with the FDA, although a lot of discussions had already taken place before we launched the new studies. We will discuss it again with the FDA, and at that time, I think we'll be able to come away with something more precise. Today, I can't comment about it in more detail.

Operator, we're going on 11.15, so maybe we can take a couple more questions.

Thank you, sir. Your next question comes from [Marcel Bright] of [Aggroco and Zuerich].

Yes. Good morning. I have one brief question, only. Could you please tell us what the percentage of [tail] product sales is in the major European markets? France, Germany, Italy? How do you expect these [tail] products to develop in the next couple of months, in light of the changes in the health care systems, which are likely to occur in the future?

I don't have the precise figure in front of me, but I would guess that it represents something like 10% of total sales.

Ten percent of total sales below the top 15?

No, no. Ten percent of the overall pharmaceutical sales.

Okay.

It's difficult to answer your question, because we are continually selling some products. But on a like-to-like, maybe minus-8.

On a like-to-like, it could be something in the magnitude of about 8. It could be more if you compare on a reported basis, because as Igor said, we are continuing to divest the products. [It makes much more sense] to divest them.

Thank you.

You're welcome.

Thank you, sir. Your next question comes from [Juliette Bisrogye] from [CC] Capital in London. Juliette, please go ahead.

I think we lost Juliette. Let's take one last question from someone else, if there is one.

Hello?

Yes.

I'm sorry; I didn't press any buttons.

Thank you, madam. We'll move on to the next question. Eric LeBegeur from [Texas Blic] from Paris.

Yes. Good morning. Three questions, please. First you mentioned the market share of Lovenox was stabilizing or even slightly improving in the US. Could you comment on the growth rate of the market itself. Second question, on Lovenox. To what extent do you see the [inaudible] for Lovenox increasing in 2003? Third question on the level of inventories. You mentioned that absolute numbers for Allegra. Could you provide a similar number for Lovenox? At the end of March last year, the end of March this year and even for the full year last year? And maybe the behavior of all [inaudible] during the month of April.

Final question is on same products, again. It seems that in diabetes, especially, non-[inaudible] are down by 32%. Could you give us perhaps some color of where it comes from? The vary strong decline?

Could you repeat your questions one by one, please?

Yes. The growth rates of the markets for Lovenox in the US. Is this the same market share? That's one thing. But how fast is the growth of the market?

Eric, this is Arvind. Lovenox is a predominant portion, as you know, of the low-molecular weight Heparin market in the US. I think you can reasonably assume, though we don't have the exact numbers, it's going to be roughly in the range of 6-8% in terms of the overall market. The growth of dominance in Lovenox...

Not only low-molecular weight, but the total market for Heparin, in volume terms.

Yes. But if you look at the total rest of the Heparin market, that's actually declining in the unfractionated Heparin. Again, if you go back to the trends that were shown in one of those slides, specifically for the unfractionated Heparin market, you'll notice that we're starting to regain the market share for most of the key indications. That's the reason I just brought you through the numbers of 6-8%. We can verify that, just to be sure.

Basically, the market grows at the pace of Lovenox. The Heparin market doesn't grow. What we want is to replace Heparins I and II. We want to be able to use the product in the vertical indication. In the situation where they [won't, they'll use nothing].

Basically, I think the market data is irrelevant because we are creating a market or replacing Heparin.

On your second question, in terms of the direct-to-consumer promotion allocations that we've made to Lovenox, keep in mind that we are not talking about incremental allocations, here. In the past, we've had a different campaign, focusing more specifically on the [Skellar Lex] campaign. We've included once again some information in the presentation. But this is just a switch in the campaign to reinforce the prevalent and the role of venous thrombosis in specific indications.

Your last question was if we have information on the inventory at hand for Lovenox, just the same as we have presented for Allegra. The inventory on hand at the end of last year was 0.66 of a month. This had actually moved down at the end of March to about 0.45. So once again, this goes back again to what Igor was saying. The comparison is going to be favorable. First of all, because the basis of comparison is going to be low, from the second quarter of last year. The inventory levels are reasonable, at this point in time to the extent that we would expect the replenishment.

The [inaudible] figures in April? Do you already have some data?

No. Not yet.

Finally, on the diabetes case.

We don't understand the situation.

Eric, would you please repeat the question again?

Yes. If we look at figures for the diabetes franchise, and if it's [inaudible] and Lantus, the rest of the franchise is down by 32%.

The rest is peanuts.

Oh, no. It's not. It was €2,065. It's €180. So probably partially it's currency. But there's the same kind of presence as for antibiotics in France. There may be some specific reasons for that. What of Germany? Germany is a main part of your business.

There is no reason we couldn't offhand, but we'll look at it and come back to you.

Either myself or [Philippe] will come back to you.

Thank you.

Is there a last burning question?

We have three more people in the queue. Do you want to take all three?

What I would suggest is that let's take one more. For the rest that we've not been able to address at this point of the call, John, myself and Philippe will be around. So please feel free to call us. We'll just take the one last question before we close the meeting.

Your last question comes from [Andrew Baum] from Morgan Stanley in Miami. Please go ahead, sir.

Can you hear me?

Yes.

Good morning. A couple of questions. Firstly, I wonder what's the shortfall in Lovenox over the course of last year? You gave a number of factors, including the onselling by bulk buyers turning a profit-the inventory-the Dear Doctor letter. I wonder now with the benefit of additional data if you can try to segment how much of the shortfall was due to each of those factors?

The second question very briefly relates to capacity for Lantus. Could you just give us the percentage of the current market that you are now in a position to supply and/or have launched in that market.

For the first question, we don't have the analogies on hand. But you can feel free to contact our investor relations people, and they will try to come up with something more accurate than we might have right now. As far as Lantus capacity is concerned, basically from mid-year onwards, we will be able to supply the world.

Okay. That's great. Thank you.

In my concluding comments, let me just add maybe a little bit of color to your very first question. You should assume that for comparative purposes, the whole rechanneling issue has now been addressed. It was not a significant component of the weakness we've seen. A bulk of that just related to the impact of the Dear Doctor letter that you're well aware of. We're taking corrective action, as far as that is concerned.

There's just one analysis that I would remind you of. You know again, hypothetically, if you take the sales for Q2 plus Q3 plus Q4 of last year and compared them to the sales in Q1 of this year, in local dollar terms, just to exclude the currency effect, it again ends up being about 9%--a little bit over 9%. Again, as we get into a similar type of comparison as we progress with the year, beginning with the second quarter, once again the comparisons are going to be better, given the relatively weak quarters that we had last year. That's one of the key reasons that we're comfortable on a full-year basis that we should be able to get to about a 15% growth, as far as the US market is concerned.

With that, I'd like to thank all of you for your participation. As I had mentioned before, if you have any other follow-on questions, please feel free to call us in our investor relations department.

Thanks, again.

Thank you.