Sanofi SA (SNY) 2005 Q3 法說會逐字稿

Good day, and welcome to today’s Sanofi-Aventis third quarter 2005 results conference call. For your information, this conference is being recorded. At this time, I would like to turn the call over to your host, Mr. Sanjay Gupta, Head of Investor Relations. Please go ahead sir.

Good morning everybody. Welcome to our third-quarter results. With me today at Sanofi-Aventis are Mr. Hanspeter Spek, Head of Operations, Mr. Jean-Claude Leroy, our CFO and Laurent Lebruch, our Deputy CFO.

So the format for today’s call is going to be a brief presentation. I hope you’ve been able to download the slides from our website. If not, they are going to be projected live on the website also. So the call will begin with a small introduction by Jean-Claude Leroy and Hanspeter and subsequently we will take your questions in the limit of the time available.

Jean-Claude?

Thank you Sanjay. Good morning everybody. I will directly begin and if you want to follow on slide three, to make three comments on the figures of the three and nine months.

First thing I wanted to say about is very good performance in the third quarter of 2005 for Sanofi-Aventis. As you have seen, we have made close to 29% adjusted net income increase over last year, which, in turn, is 27.4% in an EPS level.

First, Allegra. We have to say a word of that and we have to say that in quarter -- the third quarter we have seen virtually no impact, or I should say a small impact, of Allegra in generic size in this quarter. This is for the future, beginning the first quarter of 2005, but we had very small impact.

Second, as you maybe noticed, there are a certain number of positive impacts in what we call the selected items area which helped the increase of the net profit in this quarter. I will be back later on in more detail. But let me summarize that by saying that with these items, mainly from capital gain on disposal of assets, we have had positive 7% -- around 7% impact in the -- on the third quarter EPS level. I mean by that that out of these selected items, our growth at EPS level on third quarter would have been around plus 20%.

In turn, if we look at the same criteria on the nine-month period with these selected items, that means that instead of 27.7% gross reducing the adjusted net income we would be around plus 25% or plus 24% adjusted EPS. These were the two main points I wanted to make to begin with and then I turn to Hanspeter who is going to talk to us about operations.

Yes, good morning. Merci, Jean-Claude. So I am starting to comment now on page number four. Well, whatever Jean-Claude said, I think it’s evident that the result is, first of all, driven by a very strong set of figures coming in from sales.

As you see, the growth of the leading 15 products is more or less on the same level as the nine-month period. The leading products now represent 63.9% of total sales, whilst last year at the same time, end of September, they were representing 60.5%.

If you go to the next line, base business, it’s a little minus of minus 1.1%. Nothing alarming. It is technical, as you know. We have lost a generic, a rather important product in the U.S., [PDVAP]. So this is the impact of this loss. We are very confident that by the end of 2005 the rest of the portfolio of the base business, the so-called base business, will be stable or slightly increasing.

So, for total pharma then, we end up with 9.4% for the third trimester which had a very strong base in 2004. So therefore I think it’s again fair to say that the 9.4% absolutely compares with this 10.5% for the nine-month period.

Further, the third trimester was highlighted by an extremely strong quarter for our Vaccine business, 27.8%. Overall, 18.5% after nine months. I am sure you have a number of questions and I also will supply you with a number of more detailed information. Overall, sales growth in the third trimester, absolutely identical with the year to date, plus 11%.

We continue to develop off the market. And this is also true for the U.S. market. You see that there is a little slow-down of our growth in the U.S.A., 12.9%, as compared to 14.9% on the nine-month period. Yes, we are also suffering from the slow-down of the U.S. market. The market on a year-to-date basis in the U.S. has been growing by 5.4%. And our growth in the U.S., according to IMS, has been 13.8%. So 2.5 times the U.S. market. But yes, also we are suffering from the recent trends in this market.

Europe, you see even a small acceleration. We are very content with our European business so far in 2005. We don’t expect major changes until the end of the year. But I am sure you will further question me later on what has to be expected from the French Government and to some extent of course also from the new Government forming up in Germany.

Earlier I had indicated that we had a poor start in the rest of the world. This has changed during the year. You see that the growth rate is accelerating 7.7% on the nine-month period, and 9.2% in the third quarter. Yes, in fact we had a number of weaknesses in the rest of the world and we are improving and consequently you see that the growth has accelerated.

If you agree, let’s flick now to page five. I think I can be very short on this. Overall, you see in detail of what I have said before. There are no major changes for the 15 leading products in terms of trend. Jean-Claude made a reference to Allegra. But it still is evident that we have no further growth in the third quarter with Allegra. But we have overall an 8.3% growth with Allegra, clearly indicating that before the generics came in we had a very, very good year and so we will see the real impact on Allegra only in the fourth quarter.

But already here, let’s keep in mind, so what we suffer is so far at least only suffering on the single forms, as you know. The D form, which represents about 25% of sales, at least so far it has not been affected by generics.

Some additional words now on the major products. On page six is the Ambien CR. Yes, we maintained our switch target of 50%. The product, Ambien CR, became available October 7 to the American trade and the wholesalers. And the most important thing we can report to date as you see on the graph, that we had an acceleration of the overall Ambien family on a weekly basis, in terms of total prescription, as you see. By mid-September we can report a very, very nice acceleration of total prescriptions.

We support the launch of Ambien CR with 3,500 sales reps. This is a very high share of work to our knowledge. About 1,500 people are today supporting [Lunetta]. We can say to date not very much in terms of quantitative data. We know that we have so far a [switch share] of approximately 5% which, of course, is negligible. But please keep in mind we are only three weeks out in the field.

What we can say from the qualitative market research is very, very encouraging. We have a higher recall. We see very clearly that the doctors immediately understand the concept of the product and within [swift] maintenancing, place a very important role. And, as you know, we have changes in our labeling so it was very good.

Allegra, most of it has been said now on page seven. We have launched, via Prasco, an authorized generic by September 14. We have discontinued all Allegra activities for the single product which means we continue with one field force to promote the Allegra-D as long as we have no direct competition. We have redeployed the relevant sales force people, mainly to Ambien CR and, to a lesser extent, to Ketek. And we have discontinued our contract with these kind of sales forces as you see from the chart.

We have applied immediately also on the legal level for an immediate injunction, for preliminary injunction. As the hearing ended November 3, and the judge has given no ruling so far. We are waiting for the ruling and it can come any day. So far, so good. We cannot give any additional information on the potential outcome as it is obvious.

On page eight, Lovenox. You see that the product on a worldwide basis has a very, very consistent growth from quarter to quarter. We increased sales by approximately €70m each quarter. And you see that the major growth drivers are still the same. It is largely hospital business evidently, and we think it is a business which is driven approximately half by the so-called medical patient.

On page nine, Plavix. More or less the same picture. First of all if you look to the right of the chart you see the growth curve since the beginning of 2001. You see that the growth more or less is linear. You see on the left side that the growth in relative terms is nearly precisely the same over three quarters, which means evidently, said in absolute terms, we even have accelerated the growth over the first three quarters this year.

How is this being done? I think out of the chart you find on page 10, it’s worth mentioning that we had, by the end of last week a very, very impressive presentation and publication of the COMMIT data into Lantus which, in short, says if you keep on top of [tropical] sales to 1m patients you may save 10,000 of those patients.

This publication has been picked up by worldwide media and very, very intensely. Independently on chart 10, as you see on the left, we have good reactions to our increased effects in American heart research. This concerns, in the first instance, at least, cardiology patients and [indiscernible] syndrome patients where you see a very nice enticing upswing in the FTEs since January.

We further can report that the second very important growth driver, the length of treatment, shows a similar positive picture. You see that out of five indications we have very nice and even very impressive increases everywhere. But spoken so confidently for 2006, we have decided to double this prescription market to reinforce our benefit around the stroke indications.

Page 11, Taxotere. Yes, it’s a little bit patient, but as you see from the chart, it is a little bit of concern only still in the U.S. We see a certain acceleration in U.S., not to the extent we would like to see. But we have a very good example, and it’s Europe. And you see that in Europe the growth of the product, once again, is accelerating with 26% as compared to 19% for the third quarter and the nine-month period.

Nevertheless, there is very encouraging signs in the U.S. as well, on the right side of the chart, you see the increase in penetration -- market penetration in early stage breast cancer patients. This is, of course, driven also by recent publications which showed that Taxotere has a leading edge over its major competitors.

The second [dropback] in business is our oncology partners then on page 12, Eloxatin, as the headline says, “choose the best chemotherapy first”. In simple terms, Eloxatin became the reference drug and the first choice and then later it’s been combined with biologicals. And as you see we have increased our share now to 66.4%. There Eloxatin is the standard combination partner of Avastin.

You see further that we have an extremely high penetration now in stage III adjuvant setting of approximately 59%. Please keep in mind that so far we have no group indications. Firstly, for the earlier adjuvant settings I and II. But to a certain extent, of course, there is also out-of-label use.

Page 13, and out of our major growth drivers, Lantus. Lantus doing extremely well in Europe. You see that sales increase has further accelerated from 38 to 44%. And, in the U.S., we remain on a very, very high level, close to 40%. You see that the absolute growth obviously has further increased from quarter to quarter also in the United States.

And to anticipate one of the frequent questions, how is Levemir doing, you see that the penetration of the German market remains relatively modest and did not at all impact on the monthly performance of Lantus if you see both products in the total insulin market.

Now, coming to the end, two words on the vaccines. Yes, spectacular growth. 27.8% in the third quarter. As you see from the left side of the chart, number 14, this is not at all only or even in majority a growth coming from the flu vaccinations which, given the public hype, you could have expected. The most important growth drivers are polio, pertussis and meningitis. And then on the right side, you see the successful launch of Menactra, which is a major part of our meningitis portfolio. You see how nicely sales are going up from quarter to quarter. And yes, I am extremely confident on Menactra.

You see, you have probably followed that during the reporting period there have been interrogations with the FDA. I can indicate that this has not at all affected the growth performance of the product and I am ready to give you more information during the question and answer.

Last but not least, I was talking about the public hype about the avian flu. You see on page 15 a summary of what is going on in this context. Yes, first of all, it is clear that our Company is playing a leading role in this field. Second, yes, we are in conversations with all major governments all over the world. There is a strong mobilization. And Sanofi-Aventis plays a lead role in this.

But yes, it is also true, we are only at the beginning of having an effective vaccination in this field, but we are very, very optimistic that during 2006 things will make it to the market.

So, overall, we feel a very, very good third quarter. But, nevertheless, a third quarter perfectly also in line with the previous one. And so we remain very confident for the rest of the year.

And I pass it again over to Jean-Claude concerning the results.

Thank you Hanspeter. I will stay on chart number 16, and then we will go directly to 19 in the meantime. And we will comment on some of the components of the Q3 P&L.

To begin with, as you have maybe seen this quarter, there is changes compared to the past reported increase in net sales is 11.6%, which is higher given than the comparable basis figure which, in remind you, was 11%. This is due to two factors. First one being that the U.S. dollar currency is the same as it was in Q3 of ’04. In addition to that there were few positive moves in other currencies as compared to last year.

Going to the gross margin level, you see something which is stable at the ratio to sales. There are, as you know, two components which have to be taken into account at that level. The first is the royalty income - other income. And this shows a stable amount while as far as the cost of goods sold is concerned, we are still decrease -- these cost of goods is still decreasing as a ratio to sales for the reasons we indicated earlier, level of activity in the plants, the purchasing policy effect and obviously the product mix.

I want to address a word about R&D now. You see a small increase, 1.6%. I remind you that when we did the same exercise in Q2 of this year we saw that it was decreasing by 1%. So this is a small plus in the R&D expense level.

What do we have to say on this one? First, that the clinical trials are on track. In addition to that I can tell you that we have been actually accelerating, recruiting in the R&D area during summer which, in turn, means that we should see that R&D level increasing quarter by quarter in the next period to come.

SG&A, same kind of trend that we’ve seen earlier this year, meaning by that that the efforts behind the products are accelerating. And I can tell you that the level of growth of these expenses during Q3 was even higher than the growth at the sales level. To the contrary, as far as the SG&A are concerned, the decrease is even greater than it was in Q1 and then in Q2, meaning by that that the level of synergy we are achieving, and I will be back in the conclusion with that, is still running according to plan.

Just a word about other current operating income. You might see in the detailed P&L that we show a smaller figure as compared to last year. This is -- there are again two components in this area. First the share -- our share of profits derived from agreements with [stocker]. And am talking mainly of Procter & Gamble with Actonel. This shows an increase -- a good increase.

The other item which goes the other way, is the results of the hedging policy. And I am talking mainly of the U.S. dollar versus euro. We have been hedging around 1.25 during this year. You know that during Q3 the average dollar/euro cross was around 1.22. So where we saw in this area positive impact for the first part of the year, we have seen a negative one during quarter number three.

Of interest to notice the operating income current level which, with the €2,653m is showing a 20.2% growth over last year and also a ratio of 36.8% to sales. This is an improvement by more than 2.5 percentage points over 2004.

Other operational charges, what is worth to mention is a capital gain we have realized on the sale of our Oral Health business. You may recall that was in the frame of the renegotiation with Procter & Gamble on Actonel, there was a clause of changing control. We gave Procter & Gamble an option to buy our Oral Health business. They did decide to acquire this business and that was done during Q3 of ’05 and then realized at this occasion capital gain by around €70m.

There is another item which is worth mentioning and explaining which is the financial income and expense. You see a very important improvement at this level in our Group since we are showing a charge -- a net charge of €19m in Q3 which is to be compared to a charge by €213m in the third quarter of ’04. Obviously there are the usual reasons of decreasing the debt, decreasing the cost of debt because of renegotiation, generation of cash flow.

In addition to that there were also some capital gains in this area. We disposed during quarter number three of some of our stakes in some listed biotech companies, minority stakes, as mentioned, and at this occasion we realized around €64m of capital gain, reason for which I will be back on these selected items, etc., to clarify everything. But just -- let’s just say that there is this impact also in Q3.

A word on income tax, and not on income tax, but income tax rate. You have seen that it was 31.1% this quarter which is to be compared to 29.9% in Q3 of ’04. I remind you that for the full 2004 year, the effective tax rate was 30.9% which remains a good order of magnitude for this year.

Our share in companies, companies consolidated under the acquisition method, the only comment I will make this quarter is the fact that the gross of the disposal of the chemical company [Backer], the German company during the summer, we don’t have that contribution any more. It was a positive figure in Q3. As a matter of fact it was also a negative figure in ’04. So you will see the difference next quarter.

So, we are down to the net income level with €1,923m, which is to be compared to that €1,494m last year. That’s a 28.7% increase. And, importantly, 26.7% as a ratio to sales.

EPS, I already made a comment, and I will now go to slide number 19 to comment about the selected items I was mentioning. These items are exactly the same that we discussed together last quarter, namely the restructuring costs. You see that we could say that gain is almost over in Q3 of ’05.

The gain on disposal and bid defense costs, this is the line item where we have the Oral Health business capital gain I mentioned earlier. While, in the third item, we had this gain on disposal of financial assets, [this is about] the listed company I was mentioning earlier.

So, if we make these comparisons between the impact in Q3 ’05 and before, you see that it shows a positive impact of €159m on the income -- sorry, €159m, I put that to Q3 ’04 on the income before income tax, and that was the reason for which I was mentioning that impact. If you go directly to the bottom line, to the net result, which is a little bit over 7% which is to be not taken out, but which explains a little bit more than 7% of our increase at the EPS level on quarter number three. And if we make the same kind of exercise at the end of the nine-month period showing, as compared to a 26.6% improvement at the EPS level, without these selected items it would be a 24% increase as compared to the same period of last year.

A few words now on the next page on the reduction in debt. The net debt, as you can see, is back to €11.6b, which is to be compared to the €12.8b which we showed at the end of the first half. So another improvement by €1.2b. But we have to say, just to make some comments, you know that we made -- I mentioned some disposal of assets, Backer, some biotech companies, the Oral Health business. All in all, we are talking of €700m.

On the other side, you may recall that we [subsidized] in the squeeze out of Hoechst during this third quarter. And this was done for an amount which was close to €700m. So rather no impact of two -- of these two components.

So we should -- we could say that we are with a clear 1.2 improvement -- €1.2b. I have to say, to add that during this quarter, I say we have finished the old policy which was to sell some receivables. So we, as a matter of fact, there were €500m of receivables which were sold as at the end of 2004. We bought back to the Company 300 of them during the first half. And we finished up during Q3. So, when I’m talking of Q3, the real cash -- net cash flow improvement is €1.4b.

So if we go to the conclusion before turning to the Q&A session, I would say that you’ve seen we’ve had, again during the third quarter, a very interesting top line rapid growth ahead of market and, again, without or close to no impact from the Allegra situation.

Very important, as Hanspeter mentioned, acceleration in the Vaccine business, supported by Menactra. I can today confirm that we will do more than 75% in cumulative synergies by the end of 2005. That shows that through the P&L we have seen. And that drives us to say that we can conclude the adjusted guidance at the EPS level for the full year of at least 20%.

Now, obviously, the last quarter for the full year will be impacted by the generic [litigation] of Allegra in the U.S. And it will be also impacted by another special item. You have maybe seen in the press release today that the Board of Directors yesterday decided to make an increase in share capital reserves to employees. This operation will take place before the end of the year with a maximum of 0.5% of the Group’s share capital.

Now, this will have an impact on the P&L because the rule under IFRS tells us that if you give an advantage to the employee, you have to put that in the P&L. Since we are giving the usual 20% rebate to the employee, we mean by that that they will participate actively in this operation for consideration which is around €54 a share. The advantage of the 20% rebate is around €13.5 a share.

Now, if we were to have 0.5% -- I mean the totality of the operation being subscribed, that would mean a maximum impact of close to €100m through the P&L. And I remind you that this is before an after-tax impact. All of that is the reason for which we can confirm this guidance of at least 20%, even though we would have -- we will have some impact during Q4 of again Allegra and this special [capital] effect.

Thank you very much.

[Duncan], we can open it up for questions and answers now please.

[OPERATOR INSTRUCTIONS]. Our first question comes from Tim Anderson of Prudential Securities.

Thank you. A couple of questions. On Taxotere, sales in the U.S., just looking at the growth, it seems like they’re moderating quite a bit, even with the reimbursement issue being fixed and even despite the increased penetration into early breast cancer. So I’m just wondering, do you expect to see a pick-up of that growth rate, or is that a growth rate that’s probably sustainable at that rate going forward?

And then on Menactra and the recent wording in the U.S. on [Guyan Baray], I’m wondering if you’re seeing any impact on sales since that’s come out or if the market is largely shrugging that off.

And then last questions on Acomplia, just hoping whether you can update us whether you expect an advisory committee meeting and when exactly, and reconfirm your launch timing expectations for that in the U.S?

Yes, thank you Tim. I think I start with Acomplia first. Evidently there has been some misunderstanding, a certain hiccup in the market that following a communication of our President, Jean-Francois Dehecq, which was simply a misinterpretation because he said we expect the next news from the FDA in the first half of 2005 which is entire -- specific, this is entirely true. Perhaps not totally precise.

The action date, of course, is February 2006 which means until everything is possible, but what we do today is we continue to have an excellent dialogue with the agency. As from the very beginning of this project, I have said so before, and Gerard Le Fur has mentioned several times, this is a project we have always developed in very, very close collaboration with the FDA. And this is also true today which means we are in a permanent dialogue. We receive questions, we give answers, which is the usual process of any approval of a major new compound.

Now, as far as advisory boards are concerned, we have no notification as of today which makes it very unlikely that there will be an advisory board before the end of the year, but there could be still an advisory board in January. We don’t know because we have not received the notification and it is relatively useless to speculate about it.

But I can just confirm everything is going exactly according to schedule. We are totally confident that this product will make it to the market in close collaboration with the American agency and, of course, also with the European agency.

Now, on Menactra, as I said before, yes, there has been communication with the FDA and the CDC. They investigated a number of cases of side effects. And at this time there is no basis to conclude that the vaccine caused those side effects at all.

There are several mentionings from people from the agencies. I can quote one. According to Jesse Goodman, Director of FDA Center of Biologics Evaluation and Research, “at the present time there are no changes in recommendations for vaccinations. Individuals should continue to follow their doctor’s recommendations.”

Just to state we are, as of today, totally in line with this. We have not seen any negative impact on the demand on Menactra -- on the vaccinations of Menactra, especially in the United States. And this is perfectly translated into the sales performance, as commented earlier on.

Now, on Taxotere. Yes, I have to say what I said before and what is, I believe, nicely outlined in the presentation. What is possible with Taxotere, we show, we demonstrate very impressively in Europe and our American friends, our own American friends have to hurry up to get on the same level of performance.

But, I have to admit that whilst we are resisting very, very successfully generic pricing of Taxol in Europe, we still continue to have difficulties with reimbursement issues in the U.S. in the private sector which, according to the mechanics in place in the American market, are a little bit difficult to be addressed.

Nevertheless, we do our best. We have made a number of changes in terms of organization. We have refocused our sales forces in the U.S. according to the various indications we have. And overall, we expect and we assure a more disciplined bi-indication orientation of our American promotions.

First, we have reinforced, as of October, the promotion in the neurology indication because we have started for the first time to promote Taxotere also to neurology surgeons in the private segment where on top we hope to gain some synergies with our other products also, both of which are Xatral and Eligard. So results to come in the upcoming quarter.

Okay. Thank you.

Next question please.

Thank you. Our next question comes from Jo Walton of Lehman Brothers.

Good morning. A few please. Just a technical one. Do you have an asset value for Lovenox? You have obviously written off a large part of the value of Allegra. Assuming that the Lovenox patent goes, what would the asset write down be there?

Secondly, you’ve made a comment about increasing the promotion on Plavix next year in stroke, together with Bristol Myers. Do we read into that together an increased level of overall promotion behind Plavix?

Could you also tell us if there has been any impact in terms of the third quarter or what you might expect in the fourth quarter ahead of Acomplia? I think we’re assuming there’s some impact on the SG&A line before the product is launched.

And could you also tell us a little bit about the tail. You’ve done fantastically well with your top 15 products. Could you tell us a little bit about how you see the tail developing going forwards please?

Yes, Jo, good morning. Let me start with the tail business. We see that the tail business for the time being is flat. And this is what we are really aiming for. We take everything which is more than plus/minus zero really as an up side. Please keep in mind that this business is first struck by out-of-patent situations. I make the reference to [PDVAP].

It is also, to a certain extent, seasonal because you find all the antibiotic products in this part of the portfolio. The antibiotics have a good base coming from the last season 2004/2005. It’s a little bit too early. But for the time being we have not too many infections. Here in Paris as you know we have a number of other problems. But we have to see if we have a similar season.

So, overall, we anticipate that in 2005, and I dare to say also in 2006, this part of the portfolio at least will remain flat. Everything else is a good upside.

Ramp up Acomplia, yes, you will see some more impact in the fourth quarter than you could see in the third quarter. We make a number of recruitments. But nevertheless, the impact will remain moderate because the full impact according to the launch schedule will then hit the figures of the first quarter 2006 and second quarter thereafter.

Promotion of Plavix in the U.S., it’s a little bit premature because we have not finally decided with Bristol-Myers Squibb how much we will invest in 2006 in Plavix in the U.S. I think it’s fair to say that we will increase investment overall, as we have done in the last years. But I am not able to give you a precise figure.

More on stroke, we will do some additional clinical trials in stroke which means necessarily that the results will be available only as by 2007/2008. But we will also refocus in promotions which means mainly a reallocation of our resources, and not necessarily an increase. But I repeat to say, overall, there will be an increase in the investment, more or less proportional to the increased savings we anticipate for 2006.

Now, firstly, what I have to say we could call the accounting question between Lovenox and Allegra. It is worth mentioning that when we made the allocation of the purchase [price], I mean by that, the acquisition price of Aventis, the €53b, it was made obviously among products, projects and remaining goodwill, taking into account deferred taxes and so on and so on. So it is fair to say that Lovenox, as Allegra, were components and are components of our assets.

I won’t go into detail because I don’t feel it’s very necessary to give each and every product value in the balance sheet. But I have to mention that you have seen in the consolidated books now, I am back to the consolidated books, we think the net result performance of the third quarter, we’ve made a reserve for impairment of assets which, globally speaking, amount to €459m after tax, after deferred tax.

Now, within this amount there are €339m which have been dedicated, if I may say so, to Allegra. But how did we do? We figured out in the, I would say, in the past months that Allegra would go on the market to the end of 2006 just because of the fact that the judge pushed forward the discovery period inside the beginning of 2006 which, in turn, meant to us that we were supposed to realize sales, normal sales, I should say, before generification up to the end of 2006.

Because of the generification and in the launch, the [Atrix] launch which was made during September, we therefore had to revise this value and bringing back, I would say, around 15 months of value to the P&L through the impairment. And this is the result of that €339m net of tax of impact that we have seen during the third quarter of 2005.

Thank you.

Thank you. Matthew Weston of Lehman Brothers has our next question.

Good morning. It’s Matthew Weston from Lehman Brothers. Myself and Jo back to back. Two questions, if I may. Firstly on Eloxatin. In the release you mentioned the 80% switch to the new solution formulation in the U.S. and France. Could you just remind me whether or not you believe that new formulation gives you any additional intellectual property and what you feel the patent expiry date is on Eloxatin?

And secondly, on the employee share offer in Q4, could you just -- I’m afraid I didn’t understand your comments. Could you tell me whether the maximum €100m charge is pre- or post-tax?

Okay. I will take the last one. I was giving figures of the maximum impact and I was saying that if there were 100% of these operations which would be subscribed by the personnel, then we would have a charge by a small €100m. Now this -- before tax. Now this is not tax deductible, which therefore means that the impact on the net profit line would also be, in this instance, the maximum at close to €100m.

On Eloxatin patents, our current patents which are pure product bi-process patents run out in 2013. And the solution is further patented until 2015. So yes, it provides a benefit in terms of IP.

Thank you.

Thank you. Francois Schmitt of Exane BNP has our next question.

Yes, hello gentlemen. Three questions please. First, could you please update us on the market share progress of Taxotere in its different indications?

Second, what other elements were there in the €650m depreciation charge other than Allegra?

And finally, if we look at your guidance, the EPS growth over 20%, this would imply rather flat EPS growth in the fourth quarter. Might that not be conservative? Thank you.

So I take the Taxotere question first and give some time for Jean-Claude to think about the fourth quarter. So the up side is that we have today in breast cancer, we have in obviously patient share of 26%. In first-line metastatic breast cancer, the penetration rate is 27%. Once again, August 2005.

In [non-small] lung cancer -- in lung cancer, the patient market share in first line is relatively flat. It’s 23% in August 2005. But you should keep in mind that we saw a decline in 2004 so we are recovering. And in second line we expanded to nearly 75%. Hormone refractory prostate cancer, last but not least, our current market share is [80%].

Just to add in second line where we -- in lung cancer, it’s not really a key area for us because that is where the new products are entering in and the focus area for us is first line.

And overall, if you want, the Taxotere sales come about close to 45 to 50% from breast cancer, which is a key driver for the future. Lung cancer accounts for about 22% and prostate cancer for about 14% of Taxotere sales.

Okay, on the -- again, on the impairment of assets, you were mentioning that €651m impact in Q3. This is -- and you are right, this is before tax. That doesn’t take care of everything because there is another component which is in the item of the companies booked under the equity method, which is a net of tax impact of €55m which is the reason for which I was referring to everything after tax, €459m.

So, if I want to give a little bit more information about the €339m net of tax impact of Allegra, there is another one which is €55m, which is shown in that special line item, share of profit and loss of associates, and which is related to a vaccine you may recall, the [Exadact] vaccine, which is a vaccine which is sold by the JV between Sanofi Pasteur and Merck. And because the European authorities decided that this vaccine was [hold] for as long as it takes to bring back a component, which is the hepatitis B, which makes a desirable effect, if I may put it this way, this put an impairment to the P&L of, again, €55m net of tax in this one.

Now, in addition to that, there are, I would say, small amounts of distribution, to give an example, it’s one R&D project which brings €50m net of tax impact to the P&L during this quarter. You may recall that the way we make the purchase allocation -- price allocation, we book R&D for around €5b before tax at the -- on the asset side of the balance sheet under IFRS.

Now, the rule of the game is that this is being amortized just when it comes to the -- when the product comes to the market. But if it doesn’t come to the market then it goes through impairment directly to the P&L. So we’ve seen a little bit of that, around €60m in the second quarter. We see an additional amount which is of the same magnitude during the third quarter. And unfortunately, because of the IFRS rule which is to capitalize R&D, we will see during the next period, I am sure, other impact to the P&L because of that way of accounting R&D.

Now, as far as the guidance is concerned, it is fair to say that we’ve had a very good third quarter and, in turn, with a nine-month performance which is rather interesting. Now, we don’t change our guidance. I mentioned earlier that there is the Allegra impact which is to come in quarter number four. I said that there is up to €100m impact in the increase in share capital, just as we view a figure of €100m would be a 2% of the 2004 net profit level.

Now, we are lengthening the guidance which says that we are going to make at least 20%. We are not saying any more. That won’t change. And this doesn’t mean 20%. It means at least 20%. And I have nothing to add at that level. News to come in February.

I think it may help you with your models if I give you some additional information on Allegra, in the sense what happened so far. Let’s start with the sales.

We have sold in the third quarter $366m of the product and out of this, $89m have been Allegra-D sales and $268m have been single-entity sales which means we had a performance versus previous year across the whole product of 98%. But the single entity was only 92%, whilst the Allegra-D was 119%. So clearly the Allegra-D is doing very well.

If you look now on a year-to-date basis, we have sold until the end of September $1,162m, out of which 168 have been single, and $294 have been D. Single has a performance of 102% as compared to previous year, Allegra-D, 119%. The total year to date was 106%, indicating that we had a very good year. And I can clearly tell you that we were above budget at this point of time. So already from this, the impact on the third quarter was relatively limited.

Now, what happened since? We have had only $85m sales of Allegra in September which means we were significantly then below our budget, but there were still very substantial sales. Then the new generic situation kicks in. And as of today, which means by October 21, Allegra single keeps about 19% of total prescriptions, and 81% have gone to generic. And out of those 81%, Prasco, the authorized generic, is holding 23% of prescriptions. And we estimate that by the end of this year, this will go up to about 35 to 40%. We see a permanent increase, please keep in mind that we had a certainty layer of approximately two weeks to the generic coming from [pay back].

So this is where we stand today. I can only add, once again, that we have filed for preliminary injunctions as this is going on, and we have to see during the next days what comes out of this litigation.

Thank you.

Thank you. Our next questions comes from [Rajni Padia] from Bear, Stearns.

Good morning gentlemen. It’s Rajni Padia from Bear, Stearns. Just a couple of questions. First is on dronedarone. I was wondering whether you had any further comments to make on your discussions with the FDA?

And second on the vaccines business, I was wondering with the 5 -- with the H5M1 vaccine, the bulk concentrate that you have provided to the U.S. Government, do you have any information on the actual dose needed to treat individual patients because you’ve just given us details on the bulk rather than therapeutic dose. And then I was wondering whether you could give us an update on the travel vaccine business that you have?

And finally, I was just wondering whether you could quantify the off-label usage of Eloxatin in early adjuvant colorectal cancer? Thanks.

I start with the last first. I would prefer not to quantify off-label use for many reasons. One is that the data, by nature, is not very reliable.

Second, on dronedarone, there is nothing new. It’s the same process behind pharma and biologics with the agency. We receive questions, we give answers. Beside, I cannot give you any further information, not that I would not be willing to, but it’s simple the situation as it is.

Now, on the avian flu vaccine, what can I tell you? We have delivered in the first quarter 2005 2m doses to the American Government. And we have signed a contract with the United States Department of Health and Human Services to produce a vaccine. And we have entered into an agreement to produce roughly 20m doses. In parallel, the European [drive on this] vaccine are still drawing on, and we expect them to be finalized by the end of 2005.

Now, what the real future of this vaccine is concerned, we have to see there are a number of open questions which have to be settled until the end of the year from a European angle but also from the U.S. The first one is what is the concentration of the antigens in each dose.

The second one is the number of strains in each dose. And the third one is how does the overall environment develop, which means the [acidity] of the strength. But also after issues like the development of antigen treatment, we have to see what is the impact. And coming from this it would be not very serious today to give any figures on the future market or on our capacity to produce.

To sum it up, we are very, very, very actively working in this field. Nevertheless, in terms of protection of the people, significant protection will not be achieved before the beginning of 2006 and during 2006.

I think it’s fair to add that we have the trials going on in France right now. And we should get the data for these trials some time end of this year or early next year and that is when we will know better.

The trials which were conducted in the U.S. by the NIAID were not conducted by Sanofi-Aventis. And although the Director of NIAID said that the product was effective, we still don’t have detailed information on these trials.

About the travel vaccines, Aventis had some issues relating to production. And there was a warning from the FDA some time in early 2004. These issues are primarily behind us. We plan to introduce Imogam, which is the rabies product, in Q1 2006. And the facility has been re-inspected by the FDA and we don’t anticipate any further issues in this franchise.

Thanks very much.

Thank you. Kiyoshi Ando of Nikkei has our next question.

Good morning. Kiyoshi Ando of Japanese newspaper, Nikkei. You mentioned that in the rest of the world you have done very well in the third quarter, but can you specify a little bit further which area of the rest of the world you have done so well, including the situation in Japan, if you would please?

Well, to address Japan, we have a growth rate today of approximately 8% in Japan, which means we are doing well ahead of the market. To my knowledge we are the fastest growing international company in Japan.

Beside, as well to mention those major countries where we have been weak at the beginning and where we improved, I think the most important to be mentioned are Mexico, Brazil and Australia. In all those three major markets we had a relatively poor start and we see very nice improvement since the second trimester 2005, and it is translated into the third trimester 2005 as well.

And you expect this growth to accelerate into 2006?

It is a little bit early to give a guidance on 2006, but yes, yes, we believe in fact that given the difficulties of the American market, given the maintained rigidity of the European market segment, yes, we believe that major growth has to come and will come out of the rest of the world markets. And let’s not forget, this has been one of the most – or the leit-motif of this new company and those small markets. Yes, we believe that those markets will kick in and that’s what I see for the pharmaceutical industry in the future.

Thank you.

Duncan, we have time for a couple of questions.

Thank you. Our next question is from John Murphy of Goldman Sachs.

Yes, good morning. A couple of questions please. Firstly within R&D, I think you made a comment saying that the cost would increase quarter by quarter going forward. I wondered whether you meant specifically as a percentage of sales or just that we see cumulative increases.

Secondly, in the very impressive vaccines performance, were there any contracts there that you saw during the third quarter and, if so, could you talk about the length of those please?

And third, I wonder if you could confirm on Alvesco that you filed all outstanding data required for that product with the FDA?

Well, I start with Alvesco. As we said earlier, we prefer that you address Alvesco questions to the inventor, which is Altana. We have an agreement with Altana which doesn’t consent to avoid any ambiguity concerning the information.

Jean-Claude, you would like to --?

To give you an answer about R&D perspective, I was meaning --should R&D expenses should show an increase in comparison with the corresponding period of the year before. And we don’t talk about R&D as a percentage of sales because we feel it doesn’t have much meaning when big phase III are over and when you are not ready right away for another phase III or another countdown to substitute. That should mean even a decrease for a short period of time in the R&D which is not something which shows that you are in bad health, but just what that’s like. Now, remember that on a global basis we are talking of €4b a year. So it’s a lot of money. And a small increase is already a lot of money in itself.

I think you did mention though, perhaps at the half-year stage, that you were targeting for a spend towards 15% by the end of the year. I just wondered, given the third quarter, whether that had changed at all?

No, the mention I made was at the beginning of the year, not in July or August. But in any case remember that this year we already explained that there were a lot of synergies that were included in R&D. I can tell you that it does go on which, in turn, explains a part of the fact that there is no big increase or there is no increase at all in the R&D line item. Be assured that it’s going to change next year and it will already begin to change in Q4 of this year.

Now, on the vaccines, once again, you find a split of the vaccine sales on page three out of 23 of our press release. And as you see, the business is largely driven from meningitis and the [diet] booster vaccines which already indicates that the flu vaccines don’t play the role you may, perhaps, consider.

Nevertheless, on the flu vaccines, some additional information here. We have some early sales in flu vaccines. We have provided so far approximately 60m doses for the upcoming season, which is approximately 10% more than at the same point last year. But once again, that’s not significant for the performance of the activity.

The performance of the activity is driven by Menactra on the meningitis side, and then by two new launches that you see in the press release, Adacel and Decavac, which have been launched in July 2005 and January 2005 respectively. So it is a very, very healthy business, relatively free of seasonal aspects as it presents by the end of September.

And generally speaking, to forecast the sales of the flu I think I try –- I would discourage you to do it from a quarterly basis. It’s much more representative if you compare one year to another year because, depending upon the month of shipment, it can impact a different quarter. So sometimes it’s September, sometimes it’s October, so it’s really not relevant on a quarterly basis.

Thank you, one last question, Duncan.

Thank you. Our next question comes from Graham Parry of Merrill Lynch.

Good morning. Most of my questions have been answered. If perhaps you could just give a little bit more detail, you mentioned on the contract sales organizations and the cancellation of reps there in relation to the generic Allegra. Could you give us a feel for how many reps that actually would affect?

And also if you could give us a feel for predominantly which cost lines the one-off expense from the share capital increase would go through? Is this predominantly in R&D or is it spread across most of the operating cost lines? Thanks.

Well, on the sales force issue, our understanding is that it is interesting to have contracted sales force, also to have a certain amount of flexibility in case things happen. And this can be upside, it can be downside, as in the case of Allegra.

We have today in the U.S. one major contracted sales force, as I indicated before, still active on Allegra-D. Now, I cannot give you any provisions because this really depends on the further outcome of the litigation. Besides, we have a contracted sales force in most of the major markets active, except Japan.

As far as the treatment of that special item and the increase in share capital impact on the P&L, I would say that the treatment -- the accounting treatment is in the consideration with the auditors. It should be under financial expense line items. But in any case be assured that we are going to tell you as soon as we know, and at least when we deliver the Q4 results we will be clear on this one.

Okay. Thank you very much. We will have a few words of conclusion from Mr. Spek.

Yes, I think I can be extremely short and precise. Yes, we are proud to have presented those figures to you this morning. Those figures which are highlighted, first of all, by a strong performance once again of our leading 15 products which are more or less leaders in terms of their performance of being entirely positive. We have a base business which continues to behave well, which is totally in line with our objectives.

We have a geographical distribution of our performance which we feel is very, very favorable. We continue in all parts of the world to perform above the market. We see the slow-down of the American market, of course, with cautiousness and with a lot of interest. Nevertheless, our continued success in Europe for us is an indicator that we will be very, very well prepared also to master growing difficulties in the United States successfully.

The Vaccine business will become the fleuron of our business, as we would say in French. The performance is exceptional. It is perfectly in line with several announcements of our President who said he is in certain convictions that the vaccine business will show high double-digit growth over the next years, very well superior to the pharmaceutical markets. So we are very happy and very proud to have this activity, from which we expect a lot.

This all has translated into a financial performance which we consider exceptional. You see we have very nicely performed against our integration target. You see further that we have significantly already reduced our debt by approximately €4b. We have delivered synergy faster than previously announced.

And yes, this Group also shows its strength because the recent problem we caught by surprise from Allegra has been very well and very rapidly reacted upon. And it has not changed our guidance until the end of the year, which is being entirely maintained and is reading, as you know, superior to 20%.

Last but not least, we are entirely also confident with our research. We can report that our ongoing progress concerning dronedarone and, even more important, Acomplia, are going exactly according to schedule. So we remain confident that those products will become available during the beginning of 2005 in order to further strengthen our portfolio.

So, overall, we feel a very, very positive picture for this still young and new company and once again thank you for your interest. And have a very good day. Bye.

Thank you very much.

Thank you. Bye.

Thank you. Ladies and gentlemen, that will conclude today’s conference. Thank you for your participation. Have a nice day. You may now disconnect.