Sanofi SA (SNY) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today’s Sanofi-Aventis 2006 first quarter sales and results conference call. For your information, this conference is being recorded. At this time, I’d like to turn the call over to your host, Mr. Sanjay Gupta, Head of Investor Relations. Please go ahead, sir.

Good morning and many thanks for joining us for Sanofi-Aventis first quarter 2006 earnings call. I’m Sanjay Gupta, Head of Investor Relations. I’m joined by Mr. Hanspeter Spek, Head of Operations, and Mr. Jean-Claude Leroy, our Chief Financial Officer.

During this conference call, we may make projections and forward-looking statements that are based on management’s current expectations, but actual results may differ materially due to various factors. For additional information about the factors that affect our business, kindly refer to our forward-looking statements and our 20-F.

The format of today’s call will be a short presentation followed by a Q&A session. Mr. Spek will now comment on the business during quarter one. Hanspeter?

Yes, thank you, Sanjay. Good morning, everybody out there. We are glad that you have decided to share the early morning with us to look at our first quarter results of 2006.

Now, those results are perhaps not as obvious as in previous years, when we used to report two-digit sales growth, but, as you probably know, there are some or one major segment, let’s say, which makes, on first glance at least, our sales performance a little bit look more decent than in past years. So if you agree, I propose that we go into the slide set and start on page number three, where you see the growth for the first quarter.

And evidently, you see a growth of total pharma sales of 3.3%, which is driven by a growth of 7.6% for the leading 15 products and a minus 4% growth for the base business. Much more impressive is the performance of our vaccines business, which is growing by nearly 31%, which then gives us an overall growth rate of 4.9% on a comparable basis.

In the geographic split, it becomes already evident where the technical problem is being situated, in the United States. Evidently, it’s there where we have lost patent protection for four products during the last four months in 2006 -- excuse me, in 2005. So consequently we have no growth to be reported on a comparable basis, once again, for our United States business.

In contrary, Europe still growing reasonably well, with 5.3%. And rest of the world, which, in our last presentation, is a declared focus for our future growth, is growing strongly with more than 13%, giving for our total developed sales then a growth rate of 6.8%.

Now, if we turn to slide number four, you see in very simple terms what the generic impact on our overall business and on our U.S. business is if we exclude the sales of those products which have lost the patent protection during the last four months. And I repeat again it was Allegra, Amaryl, Arava and the licensed in DDAVP products. You see then that we would have, on a theoretical basis, a 10.4% growth in our overall sales and, focusing just on the United States, a growth of 16.1% for the U.S. business.

Now, I may add here that, if you would compare those growth rates with the growth rates we have reported for the fourth quarter 2005, you would or you will see a perfect continuity in terms of performance. There is no change to be reported also as compared with the fourth quarter of 2005.

More focus then on the vaccines business on slide number five. So 31%, which means even an acceleration of our growth as reported for 2005. How is it being composed? Yes, of course, there is an important flu business growing by about 31%, which means the same growth as the overall activity, but you see that all other segments are growing very, very strongly. Meningitis/pneumonia is driven by Menactra, largely, growing by far more than 100%. The boosters are growing by 11%, polio and pertussis by 21% [sic - see presentation] and the travel and endemic vaccines by even 81%. So the performance is excellent.

The vaccine business is becoming more and more a very important part of our overall growth of our annual incremental sales and it is very much in line with our expectations. You will remember our continued communications that we believe that the vaccines business will do extremely well over the even years to come.

Now then, on page six, we go back to the pharmaceutical business. On first glance, you once again see where the limiting factors for our overall growth are. Evidently, it is Allegra and Amaryl, which have lost half or a quarter of their sales as compared to the first quarter 2005. For most of the other products, you see a very nice, even impressive, two-digit growth rate and an overall growth rate for the top 15 of 7.6%, or, corrected by the generic impacts, by 15%. And once again, also, this growth rate is very nicely in line with what we could report for the total year 2005.

A little bit more focus, then, on the major products - Ambien on page seven. Ambien and its class has been in a certain focus of public debate. We have commented on the issues. We have even started a specific advertising campaign in the United States. We can confirm today that this negative publicity has equally affected the total class. On one side, this is regretful, and on the other side it is understandable, because, yes, it is true that those side effects which have been reported anecdotally are true for the whole class.

Nevertheless, what you then see as a positive - there is a very positive on the right side of the chart - is the fact that Ambien came back to a very impressive two-digit growth rate in total prescriptions in the United States. We saw a certain dip coming from the press publications, but meanwhile in the latest weeklies we see that Ambien, Ambien CR as a whole family but also see the total class, has been growing already back to previous growth.

Conversion, we always have said that our major key performance indicator as a reference is the switch rate of Nexium. And as you see on the lower right side of the chart, we are slightly ahead of Nexium in terms of conversions, which means we are also satisfied with what is happening in exchanging Ambien IR by Ambien CR.

Now, Plavix; major product, of course, of the Group. Also there very good news. We have reported a slight dissatisfaction with the performance in 2005 in the U.S. We had announced a number of measures, mainly reaccelerating our investments in DTC and a strategic shift of our promotional activities more into hospitals, and as you see the, product is reacting very nicely to this. We are back on a growth pattern which is very reasonable in terms of prescription growth, resulting in an overall increase of sales for this product of nearly 20% during the first quarter. And you see that this growth is largely coming from the U.S., with plus 27%.

There are other opportunities for Plavix ahead, as you may see on page number nine. We have just last week actively started promotion of Plavix with our co-promotion partner Sankyo-Daiichi in Japan. I may report that we have obtained a reimbursed price in Japan which is superior to the European average price, so also from the economic side this launch is very promising. But it is clear that, with the delay in launch as compared to the U.S. and Europe, there are also very high expectations from the medical and clinical side towards this product. And we are very confident to have a very reasonable and relatively rapid success in Japan with this product.

Still imminent, the review of an expanded labeling coming from the ST elevated myocardial infarction. As you know, we are under priority review with the FDA and also under review with the EMEA, and we expect to hear within relatively soon how those agencies judge on the file.

Then, Lovenox. Yes, of course, you have heard or read about the court decision on Lovenox concerning our appeal. We understand this as a very positive signal. Nevertheless, it’s evident we have to go back now to the first instance, but, yes, we take this as a positive decision and we are glad about it, but of course the battle continues.

Meanwhile, the product is doing very, very well, especially if you consider the volume of this product. You see on the right side of the chart number 10 that we have evidently invested into the right patient segment, which is medical patients, especially in the U.S. And then, overall, a growth rate of 28% to worldwide sales of about €620m, once again largely driven by the United States, but not only. You see also that the product now is starting really to become significant in the rest of the world segment.

We feel that the product, as illustrated on page number 11, has still a bright and sunny future ahead. It is evident that many, many patients who should receive heparinization don’t do so and this is true for all parts of the world. The figures we give here, for example, for the United States - 46% of patients treated are still being used with unfractionated heparin. We have published very recently very, very favorable data for Lovenox in comparison to unfractionated heparin.

And as you see from this chart, besides, it’s a large, large market open with 28m of patients who don’t receive any kind of protection. And so consequently, yes, we remain extremely positive about the future growth of this product.

Another major growth driver – and that’s not at all surprising, because, as you see on page number 12, it is more than a linear growth even – is Lantus, the number one branded insulin worldwide, which is growing at 42% during the first quarter. Once again, you see that this is a growth coming from all parts of the world. And as you see on the top of the bars on the left side, our sales outside the United States and Europe are growing now by nearly 100%, indicating clearly that diabetes becomes epidemic now also in the southern hemisphere.

Lantus is, nevertheless, in a competitive environment, as you see from page number three. As nearly usual, we have benchmarked our performance against Levemir and I think that the three graphs for France, Spain and Germany speak for themselves. Also, if Levemir has a certain development, which is the case in Spain, you see that Lantus reacts immediately to it and by far remains the leading compound, due to its unique profile, mainly headlined by a true 24 hour peakless profile.

Now, Taxotere. Taxotere is a product which continues to cause some concern in the United States. We still have reason not to be entirely content, despite the fact that, then, on a worldwide basis, the product is growing by more than 10, 11%. But if we look into the U.S., we still see standstill and, outside the U.S., we see then a growth of 17% or in the rest of the world part even by 25%.

This is, for us, continued encouragement not to give [up IMC] U.S. We have made major organizational changes in the United States, where, besides a technical reimbursement issue, our main problem is that we have lost positions in metastatic breast cancer. And despite good growth in the other indications, we are not able to compensate this, so consequently metastatic breast cancer is our major field of activity during the months to come in the United States.

Then, on page 15, finally, Eloxatin. Very healthy growth, 15%, as you easily can see from the chart. We have a number of interesting opportunities ahead. As you see, we are presenting new data in pancreatic cancer and in gastric cancer during the ASCO convention. You see further that we plan for stage two colon cancer to submit metaanalysis from various trials.

We had launched, during 2005, step by step, in meanwhile nearly all markets a new aqueous formulation. This formulation does extremely well. As you see, we have already 100% substituted the previous formulation, which obliges the nurses and the hospital personnel to make manipulations. And you see also that also in the United States we are approaching a 100% substitution by this new form, which, of course, contributes to the overall performance of the product.

To sum it up, yes, on first glance, our results look a little bit more modest. We have communicated during the end of 2005 very clearly that, in terms of upfront growth, so to say, we will have first a difficult nine months in 2006 and then should go back to the growth rates we have showed during the last years.

But nevertheless, I believe, if you go into the details, you see a totally healthy state of our major products and also the base business in all parts of the world. This is definitely the basis which makes us very confident for the ongoing year 2006. Jean-Claude.

Thank you, Hanspeter, and good morning, everybody. We will turn now to the first quarter adjusted consolidated income statement. And I will try to clarify about the contribution, particularly, of the selected items in addition to the normal course of business, if I may put it this way.

Let me begin on page 18 by giving words on the net sales. Hanspeter just mentioned a 4.9% growth on a comparable basis. That did translate to 9.6% on a reported basis and it is mainly due to the impact of exchange rates. This 5.4% difference is mainly due to the U.S. dollar, but not only to the U.S. dollar. The U.S. dollar is 3.3 percentage points intact, but there are also other currencies - such as Canadian dollar, Brazilian real, Mexican peso, from one side, the other side of the world, Taiwanese dollar, the Korean won - which impacted positively our reported sales.

If I go down to the gross margin ratio, you can see an improvement by 0.3 percentage points, up to 77.6%. There are two components. Let me begin by other revenues.

There is a good improvement, 19%, which is directly derived by the strong performance of Plavix and Avapro in the U.S. On the other side, what is, I guess, of notice is the stability of cost of goods sold on sales ratio, despite the negative impacts of generics, of Allegra and so on, as Hanspeter just mentioned. So I guess this is the most important part and definitely that means that there are positive impacts, mainly the activity and the product mix, which have balanced these negative impacts.

Going down, on R&D you remember that the performance in 2005, we ended up the full year at plus 2%, with the fourth quarter at plus 6.6%. We reached finally 13.3% during the first quarter of ’06 and this is now the direct translation of the financing of these ongoing phase III clinical trials we announced earlier.

In the selling and general expenses area, 6.8%. This is to be put in relationship with the 9.6% of increase in sales. Now, two components. As usual, we give you a small indication. We are facing sustained increase in selling expenses. I mean by that that it is not far from the sales growth in this area, while to the contrary we are on a continuing reduction in G&A, as we were during last year.

A small word about other current operating income and expenses, just to mention that there is an additional item which is in comparison to last year. It’s not only the P&G relationship around Actonel. It’s also revenues coming with [Frasco], with this U.S. company with which we work on our authorized generics, mainly Allegra. All of that brings us to an operating income current of €2.4b, an increase by 12.9% over last year. And I guess this is representative of the normal course of business increase during that first quarter.

If we go down now to other items from operating current to operating income, then you have big figures in that first quarter - €533m positive impact as compared to the €17m of last year first quarter. Well, mainly, this is derived from capital gain on disposals.

We already mentioned with you in the past the Exubera capital gain we made when selling the Exubera to Pfizer. We, at that time, said that it was something which would bring a capital gain of around €300m after tax. After the closing arrived, as you can see, we come to a figure which is a little higher - €461m before tax – which, we will see later, translates in €384m.

In addition to that, there was another item which is worth mentioning, which is the sale of the remaining stake, 30%, in the Animal Nutrition business, which occurred during the first quarter. And we booked a pre-tax capital gain of €45m. Therefore, the operating income is increasing by 37% to close to €3b.

Let me go down now to the net financial expense, another improvement in this first quarter, which is a €76m difference between €30m and €106m last year. Two components, mainly. First, interest charge on the debt. You see another improvement of around €56m, which is directly derived from the variation of the level of debt of the Company.

On the other front, we had a favorable contribution of financial instruments, €37m versus €10m last year. Remember the two main components, the Rhodia equity swap and the CSL derivative. CSL is the Australian company to which we sold the Aventis Behring business some years ago.

A word about the effective tax rate. What you can see on the first quarter of ’06 is a rate at 28.5%, to be compared to 31.8% last year. Now, this year, it is made of two components. The first one is the income tax on the Exubera capital gain. And on this one, we had a 16.6% tax rate on the capital gain. Why so low? Just because you have to remember that, when we signed the contract with Pfizer, we shared, if I may put it this way, the income tax burden. It was determined at that time that the local government taxes would be paid by Pfizer, which explains why it’s such a low rate.

If I exclude this capital gain item of the analysis, we come back to 30.7%. And well, you will remember that last year - I mean the full year - we had a 31.3% effective tax rate. I mentioned in February that, because of the Allegra situation in the U.S. and the high tax rate in the U.S., we would have a mechanical decrease in the effective tax rate. That’s exactly the situation we’re seeing in this first quarter.

Then, a few words about share of profit and loss from associates. You see a good increase over last year. Two components, again - the BMS alliance, again, the Plavix and Avapro situation in the U.S., but also worth to mention the substantial growth once again of Merial. Minority interests, directly driven by BMS - the other way around, this is their share of that territory which we are managing - showing also a good growth.

So, finally, we are coming down to a net income by €2.173b, which shows a 53.6% increase over last year, translates into €1.62 per share, to be compared to €1.06 last year. But I guess that, once again, the analysis is worth to look at the selected items’ impact to be more transparent. And as we’ve shown on this slide, page 23, you see that there is a major impact in this quarter, which comes down to €466m after tax, to be compared to close to zero last year. I mentioned the main components - capital gain and the financial instruments, the derivatives - a little bit earlier.

So it is worth to say that there was a big impact, the reason for which we made the comparison before the impact of these selected items. And excluding those, as you can see, our adjusted net income is showing an increase by 20.4%, which translates into 19.8% on an adjusted EPS basis; in other words, €1.27 per share to be compared to €1.06.

And I guess that here, to finish up, it is interesting to stay a few minutes on this one. Again, I mentioned earlier that there was a positive currency impact from the sales. If we translate that at the bottom line basis, and I will just talk about the U.S. dollar/euro impact. You remember that we said that the sensitivity was 0.6% of gross per cent of difference. You know that there were $0.11 difference between the $1.20 conversion rate of this year, to be compared to $1.31 last year, so directly you can measure the impact of the U.S. dollar bottom line. We are talking of 6.6% of gross, so I don’t make the calculation or maybe I make it; you see that the gross on this first quarter out of the selected, excluding the selected items, was closer to 13%.

And I guess that it is a good and fair view of what happened during this quarter, mainly remembering that the selected items are more something which are most volatile and unpredictable. And I guess that, again, that does explain why we are just mentioning our guidance for the full year, which is that plus 10% [inaudible] 1.25 euro to the dollar and with that level of €300m after tax selected items compared to the €165m on the full year last year. Thank you very much.

Okay, operator, we can go to the Q&A session now, please.

Thank you very much, sir. [OPERATOR INSTRUCTIONS]. Today’s first question will be coming from Mr. Tim Anderson of Prudential Securities. Please go ahead, sir.

Thank you. A few questions. On Acomplia, are you guys still guiding for a second half ’06 launch in the U.S.?

On dronedarone, can you confirm whether the PDUFA date has passed for this product and when we might hear an update from you on what’s going on with FDA?

And then, last question, in the quarter you obviously came in well ahead of, I think, everyone’s estimates, yet you’re maintaining full-year guidance. And I’m wondering what the biggest uncertainties are that lay ahead for the rest of the year that make you reluctant to raise the guidance at this point. And I’m wondering if the biggest swing factor there is launching new products like rimonabant.

Tim, thank you for your questions. On Acomplia, I think we can say absolutely nothing else. We remain confident and prepared to launch Acomplia during the second half of 2005 -- in 2006, excuse me. We remain in a permanent exchange with the FDA.

In Europe, we are very actively now preparing for the first launches. If the usual delays are being respected, which are driven by the purely administrative recognition of the positive opinion which has been expressed on Acomplia, we are confident to launch in the first markets, then, in the period July/August. And those first markets, traditionally in Europe, are the United Kingdom and Germany.

On dronedarone, we are waiting for reactions from the FDA. We can say nothing else because, for evident reasons, we are obliged just to sit and wait and hear whatever from the FDA comes.

Okay, on the guidance. Thank you for the question. It’s fair to say -- you’re totally right that we have to explain a little bit further to you. There are two parts and there will be two parts in my answer.

First, as I mentioned earlier on the selected items area, it is fair to say that we reached €466m after tax at the end of the first quarter. Now, I mentioned that these items are mainly volatile and unpredictable, which, in turn, tells us that we cannot predict exactly where we are going to be, even -- so I have nothing new to report in this area today.

More importantly, the truly business side of the Company now, you mentioned the launch and this is fair and true. Hanspeter mentioned that the launch of Plavix in this month in Japan. Obviously, as of that second quarter of ’06, we will put investment behind Plavix in Japan to make a success of this launch.

In addition to that, because of this approval of Acomplia in Europe, we intend to launch, as again Hanspeter mentioned, during the second part of the year in some European countries. And again, it is fair to say that we will put every mean which is necessary behind this product to make a success.

So we have to expect more commercial and marketing expenses in the rest of the year, proportionately, than we did have during the first quarter, which is the main reason for which we don’t move our full-year guidance. In other words, what happened during that first quarter is exactly in line with what we said for the full year.

Okay. Thank you very much.

Thank you, Mr. Anderson. Our next question will be coming from Mr. Philippe Lanone of Ixis. Please go ahead.

Yes, good morning. Three questions, if I may. Number one, can you update us on the Apidra launch and also on the market share of Lantus. From what Nova is publishing, there seems to be a [pattern] expressed in terms of presentation of the analog market in Europe. Could you elaborate on that?

Also, we were expecting some provisions on the Apotex settlement in the first quarter. Can you tell us if there are any and what will be the figures for the next quarters?

And lastly, could you give us some indication on the pricing for Plavix? Has there been any recent price increase? Thank you.

Well, I'll start with Plavix then. Yes, there has been a price increase at the very beginning of the year of 4% in the United States. Unfortunately, for the reasons you are aware of, there are no other price increases outside the United States that will be mentioned. Nevertheless, I mention again the very good price we have obtained in Japan for the ongoing launch.

Now, on Lantus, well, you will understand that I don't want to comment on what [Eventualin] or Novis has been communicating. But once again, if you look to the slide number 13 of our today's slide set, you see the major development in three major markets. And that chart confirms that also in the United States we are continuing to grow and we grow very strongly and we are gaining market share.

On Apidra, things are very, very early. We have a nice prospect and all over [inaudible] sales in the United States and in France, which are the most recent launch markets. We are just two months or three months post launch. We are performing according to our expectations but, given the recent launch schedule, I cannot say much more than this.

Now, on Apotex?

On Apotex. I am sure that you -- all of you followed the release of Bristol-Myers on this issue and I can definitely confirm what they did and what they said about that. So, in summary, yes, we did book -- they did book an amount of $20m, $20m each, which is the minimum payment which we would have to do to Apotex if in the event that the agreement is finalized. Let me give you just a few words on this one.

You remember that in March we announced a proposed settlement with Apotex related to this litigation. We've since submitted this settlement to the FTC and to the Attorney General for review. Again, we cannot predict at this point on time how long it will take to evaluate the agreement. And, as we indicated in our release, there is a significant risk that the required antitrust clearance will not be obtained.

I can just finish to say that I'm sure that you have a lot of other questions. You asked me how much we would book in the next quarter. All of that depends on the review of the FTC and the Attorney General. And even though then you have questions, I would ask for your understanding that we can't elaborate any more on this subject for the time being.

Okay, thank you.

Thank you very much, sir. Our next question will be coming from a Mr. Graham Parry of Merrill Lynch. Please go ahead, sir.

Hi, good morning. Thanks for taking my questions. Firstly, on Acomplia, can you just confirm that you have had a meeting with the FDA post your approvable letter and that your second half launch guidance is based on the discussions you've had from that meeting?

Secondly, are you hiring additional reps in Europe for the Acomplia launch in the second half of the year?

Third, on Ambien, if you could just give us the split out that's Ambien CR?

And finally, on the FTC settlements, do you have a better feel for when the FTC may respond and any timing there? And if they do reject the settlement, is legal action against FTC an option? Thanks.

I will follow up on Apotex. I am sorry but I already mentioned that I won't elaborate any more on the subject, so we can do whatever you want. Let me remind you. This dossier, this file is under review with FTC and the State Attorney General and up until the time we have an answer, we won't elaborate any more on this one. And please just refer to the press release we issued at that time in March and help us to understand that we cannot go any further in this area.

And on the Ambien, you will understand that we don't give splits inside the product families. But as an indicator, you can take [that you] said about 21, 22% of our new patients are being put on Ambien CR, so you -- I think you can easily define from this what happens with IR.

On Acomplia, we don't intend to increase our rep sales force inside Europe consequent to the imminent launch, except perhaps small increases in smaller markets. But in the major markets we do this with our existing forces.

Then, on the ongoing conversations with the FDA, I cannot confirm to you that we had one meeting, as your question has been posed. I said earlier that we are in a permanent dialogue with the agency and I have nothing to add to this. But as also previously stated, yes, we are still planning and we continue to plan for a launch also in the U.S. in the second half of 2006.

Okay, thanks very much.

Thank you, Mr. Parry. Our next question will be coming from Mr. Jerome Berton of Aurel Leven Securities. Please go ahead.

Yes, good morning, gentlemen. Just a quick follow-up question with regard to Plavix. Could you update us on your ongoing discussions with Dr. Reddy’s, please?

Sorry, once again, on this issue of the Plavix litigation and agreement with Apotex and so on, just repeating what we said and wrote in March, that we made contact with Dr. Reddy’s just after signing the agreement with Apotex. And I will stay at that stage, once again, on the global subject of this litigation and settlement.

Can we have the next question, please?

The next question will be coming from Mr. Sebastien Berthon of Exane. Please go ahead.

Yes, good morning, gentlemen. A few questions on the one-offs for this quarter. They are €44m in other divestments apart from [inaudible] Animal Nutrition and Exubera. Are there are any specific items there?

And also, on the financial non-recurring items, you put the €30m on there. Could you give us a split of any specifics on Rhodia and CSL?

And on the Apotex payment, if I understand well, the $20m you took in Q1. In what line of the P&L is that?

And lastly, could you give us the sales of Ketek and Apidra in this quarter, please?

Okay. First, the capital gain you were referring, it's pre-tax €45m capital gained by -- when selling this remaining stake once again of the Animal Nutrition activity, which belonged to the Aventis area world in the past, so I can confirm.

On this other two, the €30m investment [inaudible] in the financial instrument and other, I can confirm the two components once again, which are first the Rhodia derivative and second the CSL derivative. I have to add up that on the Rhodia side the contract ended up in [Avro], so it's about the last time we're talking of that -- of this item. And again, I confirm these were these two elements of the components of these line items.

On the payment, the reserve for payment to Apotex, we booked $20m before tax. Obviously, we made it afterwards, so that’s after tax and in euros, and it is in the line item of the income coming from associates.

Now, on your two questions concerning sales, quarterly sales of Ketek have been €64m and Apidra €8m.

Thank you.

Thank you very much for your question, sir. We'll now go to Mr. John Murphy of Goldman Sachs. Please go ahead, sir.

Yes, good morning. I have two questions, please. First, can you talk a little bit more about performance in France and maybe give us a bit more background to the dynamics, please, in that now difficult market?

And second, as you mentioned there, your patent drag eases in the fourth quarter of the year and so we should see top line growth coming back more strongly. What we've also seen with other companies when they've gone through periods like this, though, there's also been a strong acceleration in earnings growth. Now, with the caveats of the launch costs around Acomplia, for example, in the U.S., is there any reason why we should not also anticipate an acceleration in earnings as well, when we see that -- as we move into next year?

Well, if I take the last one, again, the structure of -- even though, as you know, we don't give any forecast on a quarterly basis, we had that yearly guidance and we want to stick to that way of giving you figures. For the next year, I said that -- earlier that there are these launch costs which are to be taken into consideration for the rest of the year.

Yes, obviously, if you take on a quarter-per-quarter comparison, as you may say that the fourth quarter should be better than the rest, because we are comparing something which is more comparable at least from the sales level. But globally, and we want to stay and remain global, it is fair to say that the plus 10 -- around plus 10% is the figure we want to keep for the rest, for the global year. And when it comes to 2007, you will understand that I have nothing to say at that stage.

Now, on France, of course you know that we don't give a split on our sales in France. But, nevertheless, yes, this is a serious situation we are facing, together with the industry in France. I just can repeat what the major issues of these interventions by the French government are. So, first of all, it's an increase of a so-called tax on drug sales, which has been previously 0.6% and now is going up to 1.76%.

Then we have suffered a price decrease of 15% for all of those products which are no more covered by a patent. Then there has been further sharpenings of the system in place concerning reference prices, the so-called -- the TFR. There is an encouragement of generic substitution. There has been a reimbursement of nearly 160 pharmaceutical products, out of which also some of our products. And I may add that no major product of our portfolio has been concerned by this measure. And there will be some additional measures to be expected on the hospital market.

So, what to say, first is the government once has issued a target of 2.8b as overall savings coming from the pharmaceutical industry. Our market share in France is, as you probably know, about 17%. So this gives you a very, very rough estimate of what we have to compensate.

Now, the only positive thing I can add to this is that, to a large extent, we had anticipated this in our budget for 2006. So you may consider that, despite the severity of those measures, it is incorporated into our guidance, as reconfirmed previously by Jean-Claude.

Thanks very much.

Thank you very much, Mr. Murphy. The next question will be from Alexandra Hauber of Bear Stearns. Please go ahead.

Thank you very much. Good morning. Firstly, on Ambien, it seems like your conversion seems to be stalling a bit. It has been around 19, 20% for the last eight, 12 weeks. Do you plan any major initiative to give that some new impetus?

Secondly, I was wondering on your pediatric vaccines, you mentioned strong polio sales in the international zone. Is that just a one-off -- was that a one-off contract or is that a new sustainable level going forward?

And I was also wondering whether you could comment on the billion or so HHS contract which you have seen yesterday for cell culture. You didn't get any further award after last year's award. But it seems the amounts are -- basically, I cannot figure out how the amount has been allocated. I was wondering whether you could shed some light into that.

And also, whether you could let us know when you will be booking your pandemic flu contracts. You said before upon shipment, but I was under the impression you're going to -- you store this into this quarter anyway, so technically there will be no shipment. Does it mean you're not going to book those sales at all this year?

If I begin by the last question, we did not add any sales from H5N1 in the first quarter. So this is to come during the remaining of the year. I cannot predict exactly what is going to be the pace or the split between quarters. That I don't know. But we should be booking this contract during the rest of the year.

On the other question related to the 1b grant which was given yesterday by the U.S. government, yes, we didn't get anything. Sanofi Pasteur didn't get anything. I remind you that last year we got that $93m reward for the cell culture. I won't say a lot on this one, except that you have to remember that these grants are actually paid on a milestone basis, depending on the results of the various trial phase of any trial. And the report, the rest -- the allocation for 2006, yes, are done but the root program of the U.S. government is not totally done.

Let me just add that the amount put aside by the U.S. government in 2006 is more than the combined amount in '03, '04 and '05. And, given that we were the first beneficiaries in 2005, we were actually not eligible for this program, this first series of grants in 2006. But we are on track with the cell culture program. You know we have indicated our intention to start trials before the end of this year and we expect to finalize the cell cultures some time towards the end of the decade.

And, sorry, this is just a general question. Because the amounts, they look almost -- I'm sure they're not random but that's how they look like. Do companies -- how do they work? Do you apply for specific programs and then you get a grant according to the size of the program? Or is it just a top-down decision which allocates certain amounts to certain companies?

I think there is a procedure which confirms RPF and discussions and we went through the procedure last year. But I'm not aware about what the process was for the current year.

Okay.

Now, on Ambien, yes, Alexandra, I agree we -- I would not say stalled, but we have a slowdown during the last four to eight weeks in conversion. We believe there are two reasons. The first one is the one I mentioned earlier, which means the negative press the whole class and we had was, of course, not at all encouraging further switch between IR and CR.

The second one, and this is one we have very actively addressed, is the difference in reimbursement between IR and CR. As you probably know, the question is to which extent you are in second tier reimbursement. Naturally, IR is still in a more favorable position than CR. And by adequate means in our commercial policy we have addressed this issue in the very recent weeks and we see very nice progress in moving more CR into second tier positions. And I'm relatively confident that this will translate in a reacceleration of switch rates during the second quarter.

So, could you quantify how many of -- how many formula is carrying it in large percentages of --?

No. No, but significant.

Now, last point on pediatrics, there is nothing substantially new. I can just, in general terms, say that we remain very confident concerning this program but, once again, we are in the hands of the FDA. But I can confirm that we are doing everything to deliver [inaudible] data in the time.

Sorry, I wasn't actually asking about the pediatric vaccines. I don't know whether --

[Inaudible].

Yes, because there was a strong acceleration and you mentioned strong polio sales in the international zone in slide five. So I was wondering if there was a special one-off contract or whether it’s just much, much above previous year's levels.

Yes, this is basically linked to oral polio vaccines and you know the sales can fluctuate from quarter to quarter, depending upon when you get [inaudible] from Unicef and other international organizations. So it's essentially OPV sales which are the component. But the fact that our pediatric vaccines continue to grow nicely in Europe, and you know that Pentacel is currently undergoing a review in the United States and we will expect to hear about it some time next year.

Okay, thank you.

Thank you for your question, Miss Hauber. Our next question is coming from Mr. Paul Mann of Deutsche Bank. Please go ahead.

Hi. Just -- most of my questions have been asked, actually, but just can you reconcile the difference between prescription growth and revenue growth for developed Avapro sales and Plavix sales? It's clear that a price increase of 4% on Plavix and probably a price increase on Avapro, but also there's been a change in rebates, maybe some stocking and some currency impact as well.

Well, on Avapro, yes, there has been a change in policy and you probably have followed the call on -- from BMS on the same subject. And we have benefited from a certain switching of our commercial policy to major accounts. If you look to the Plavix performance, it is relatively easy. You just take the prescription total, you add to it the price increase, which has been 4% as mentioned earlier today, beginning of this year. There is a very slight stock reduction on top of it and then you more or less have the exact figure as reported in our sales growth.

As I mentioned, that BMS also indicated in its conference call that they had some changes in [inaudible] so that had an impact.

Mr. Mann, does that answer your question, sir?

That's okay, thanks. Yes.

Thank you very much, sir. We now go to Jo Walton of Lehman Brothers. Please go ahead.

Good morning. I wonder if you could tell us a little bit more about the gross margin. Considering that you've lost so many products, you've sustained your gross margin extremely well. Is this something that you can continue for the next three quarters, until the generic situation has gone? Is this something to do with foreign exchange?

Could you also please tell us, you mentioned that Merial had done well. Has the Sanofi Pasteur vaccine joint venture also done equally well?

Okay, I'll start the gross margin. I guess that your question is directly related to the cost of goods in the P&L. You're right there. We had that good comparison versus last year, which is also, by the way, a good comparison with the fourth quarter of 2005 because it shows an improvement.

Are we capable of sustaining? What is -- another effect is that [TVT], I should have said volume, which in terms is the same explanation. We had good volume because when we are talking generally of the sales evolution out of the generic, you've seen through the Hanspeter explanation that we've kept around the same kind of volume evolution so far. For the remaining of the year, I said in February that more or less we should keep the same kind of cost of goods sold for the year. So I won't change the answer and I guess that the first quarter about demonstrates that.

If I may just add that to this, Jo, we have stressed from the very beginning, I mean the beginning of Sanofi Aventis, that we give a large priority to our industrial activity by reintegrating volumes which have been given outside our own industrial perimeter, which we have meanwhile reintegrated. So, to a certain extent, you see a very nice increase of our industrial occupation also reflected in this cost of goods and subsequently gross margin percentage. And, yes, we will continue to exercise this policy of doing everything to occupy our own factories by reintegrating and, of course, driving our volume.

What was your other question?

Merial and Sanofi Pasteur.

Okay. So, what can we say about Sanofi Pasteur? We can give a word about the sales structure of the JV. And in this area -- I'm just looking for the exact figure. Sorry, just a sec, here we go. On the first quarter, the sales of the JV were 144m. It's a 12.5% increase over last year.

You may remember that we had that [Exabac] setback during last year. So, again, we made the comparison just to give you a better understanding of how the business is running out of that. And we said -- and we are on a reported basis that, if we were to exclude Exabac from the comparison, we would show up a 35% increase in sales. And this is a bit new to the pace of development of the JV in Europe. So we are having a good evolution in sales, as well as we do in the rest of the vaccine business.

Thank you.

Thank you, Ms. Walton. We'll now go to [Michael Luchton] of HSBC. Please go ahead.

Thanks for taking my question. I just had one on Lovenox in the U.S. Certainly the product seems to have broken a growth trend in dollar terms, excluding the exchange rate impact. And I was wondering whether that's really truly underlying or whether there is anything one-off for the quarter in there.

I did not phonetically get the end of your question. Could you please repeat?

I was just wondering, the strong performance in dollar terms of Lovenox for the first quarter, I was wondering whether that's truly underlying or whether there is a first quarter impact and that it will not be -- or would not be sustainable going forward?

No, no. No, absolutely not. There are no one-time events or major changes in pricing policy, unfortunately perhaps. No, it is really truly reflecting the actual performance and the clinical medical usage.

Thank you.

Thank you very much, sir. We'll now go to Kiyoshi Ando of Nikkei. Please go ahead.

Good morning. I have a question concerning Plavix launch in Japan. Can you give me roughly what is the market size that you're looking for in Japan for this drug? And do you think that this will boost your overall market share in the country, as other foreign companies are doing recently?

And secondly, concerning vaccine business, some foreign companies are starting to see Japan as a good market for that as well, and plan for the clinical studies in Japan. Do you think that kind of study is possible in the near future?

Well, first I'll take the vaccines. First, I would agree and we will agree that, yes, Japan of course is a very interesting market for all those reasons, which means pandemic, epidemic. We see this now real innovation possible in the field of vaccines, consequently higher prices, higher margins. On the other side, pressure on healthcare costs and some [inaudible].

On the other side, I think it's fair, once again, which is not unusual for Japan, to underline that the access to the Japanese market is a little bit more complicated than to other markets. There are some strong local companies in this respect, as there is a lot of joint venture activity. But the overall judgment we entirely share with you, that Japan also in this respect is getting more attractive.

Now, on Plavix, well, we have not given a guidance on our targets this year with the Plavix launch. Nevertheless, two references. Ticlopidine, before the usual policy of price reduction has been applied, was a product achieving more than 400m. Of course, there’s first of all the price difference now between triclopidine and clopedogrel, as also mentioned earlier. And, yes, there is a different profile because clopedogrel is a product that’s presenting much less of a potential risk in terms of side effects, and it's got a potentially larger clinical usage of clopedogrel as compared with triclopidine.

So, overall, I think it is clear that we are expecting sales on a, let's say, four, five year basis between 0.5b and 1b coming out of Japan.

Thank you.

Thank you, Mr. Ando.

Can we take a couple of questions, please?

We have the next question is from [Eileen Robert] of La Tribune. Please go ahead.

Good morning. I have a question about the arbitrage process going on with Rhodia, as it is supposed to be -- a decision is supposed to be taken this year. I wanted to know if you had booked any provision on the subject, as Rhodia is claiming €600m from you.

Okay. Generally, we don't give any detail on our risk and what we put in the books. As an exception, remember that we already said officially to one question last year that we didn't book anything as far as the Rhodia arbitrage potential consequences may be for Sanofi-Aventis. So today I can confirm that we have not changed our policy. So, no, we have no reserve for this situation in our books.

Okay, thank you.

Okay, can we have one last question please?

Yes, sir. The last question for this conference is to be coming from Michael Leacock of ABN Amro. Please go ahead, sir.

Thank you. I have a few brief questions. Firstly, on the European filing or recommendation for approval for Rimonabant, you've also got the name Zimulti, which apparently took an 85-day review time. Is that mainly a brand name difference or is there some other difference there?

Secondly, I wonder if you could just share with us the generic landscape for Loxetine. I think the patent certificate expired in April in ’06 in the U.K.

And thirdly, I believe you were due to have a final decision on the Albemarle arbitration. That's the environmental issue. I wondered if that's happened. I think it was due for Q1 '06, and if you could give us a guidance of what sort of scale of charge there might be there.

I will take your last question. Same that you've seen, this is true that we -- there was a court hearing on this subject, which is related to the environmental cost on this Albemarle site. And the question was who was to pay for these costs. And the court said that we and Albemarle have a certain period of time to come up with agreement, otherwise the answer would be given by experts. And we are just in that period where we have to discuss with Albemarle, to try and come up to a common view of how much is to be charged for each company.

Now, on Eloxatin and Loxetine, we have to differentiate in our answer. First of all, there is an end of data exclusivity. Second, there is a process patent. Third, there is a solution patent. And on top of this, all those data vary from market to market. So the end of exclusivity is usually by the end of '06. The process patent lasts until 2013 and the solution patent even to 2015.

Nevertheless, I think it is clear that in some minor markets we have to expect generic competition on the solution -- excuse me, not on the solution, on the [lioform] by the end of 2006. As, for example, in the Scandinavian market there has been recently an application for such a product in Finland.

Now, the last question then, really on Zimulti, that’s a very easy one. Zimulti is a secondary trademark. We have applied for two registrations on the European level. But I can confirm that in Europe it definitely will launch under the already well-established trademark of Acomplia, and that Zimulti is nothing but a secondary trademark we may use later on for technical reasons.

So, at this point of time, I may, in the name of my friend Jean-Claude Leroy and Sanjay Gupta, thank you once again for your attention, for your questions and for your interest in the Company. You may be sure that we will do our very, very best to confirm in the upcoming quarters what we have been able to show in the first one.

Thank you once again for your attention and have a good day. Bye-bye.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for your participation. I wish you a great day.