Sanofi SA (SNY) 2007 Q3 法說會逐字稿

Good morning everybody. Thank you for joining us for our Q3 sales and results. On today's call, our participants from Sanofi-Aventis with me are Mr. Spek, Executive Vice President of Operations, Jean-Claude Leroy, our Executive Vice President of Finance and Legal, and Laurence Debroux, our CFO.

During the 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 statement and our 20-F.

We will begin the call by a short presentation by Mr. Spek on business performance during Q3, followed by a financial update from Mr. Leroy.

Yes, good morning everybody out there. Thank you so much for your interest in our Company even so early in the morning. Well, I think it's fair to state that the results we have to report today are superior, even very superior to the provisions and the consensus. And so I will try to explain to you why we have the good quarter to be reported as it is.

I propose that we go through the presentation and start with page three, where you see on a first glance that the growth in the major parts of our businesses is more or less in line between the third quarter and the nine months period by the end of September. If you go more in detail you see that this in detail is not absolutely true. And the first striking figure of course is the strong development of our Vaccine business which has been growing 49% in the third quarter as compared to 28% for the year-to-date period. I get back to the Vaccines more in detail, but just in anticipation, we had anticipated sales of flu vaccines in the third quarter which took place more in the fourth quarter last year. But you will later on see that overall our Vaccine business is doing extremely strongly also outside the flu business.

If you go down then on the chart you see that the trend in Europe is a little bit stronger. It was slightly negative for the year-to-date period and it is now slightly positive. You see that, of course, the development of Europe is slowed down by the end of patent for Eloxatin.

For the U.S. no major change in the overall trend. But if you take out Ambien IR you see that the development of our portfolio in the U.S. outside Ambien IR even accelerated to an impressive 23% as compared to 18% on the year-to-date basis. So it is clear that we were struck in the third quarter by a full effect of Ambien IR loss to generics which took place in the middle of May. So we didn't have the full effect in the second quarter, but we are now having it in the third.

The rest of the world continues with a positive, where we believe will be even a very positive growth rate of around 9%.

On page four then more in the details. I think the most impressive are the leading four products which all show a strong growth in the strong two digits. And you see also that all of those products have a more or less pronounced acceleration of their growth between the year-to-date growth and the third quarter. As indicated, before we have, of course, largely negative sales for the Ambien and Stilnox and Ambien CR family for the reasons you are, of course, very well aware of.

Overall, if we exclude the Ambien effect and the Eloxatin effect you see that the overall growth rate of our leading 15 products is absolutely comparable between the third quarter with 10.8% and 11.1% for the year-to-date.

Now on the major products I will be a little bit long on Plavix because we really believe we have a number of good news on Plavix. First of all on page number five you see that the sales in the U.S. of the product have been fully recovered. Meanwhile, what looks a little bit less impressive as the third quarter growth as compared with the second quarter can easily be explained with the fact that we had restocking effect in the second quarter by American wholesalers due to the disappearance of the generic. But if you look to the overall growth rate which is, by the way today not so easy, [which is] because there is a lot of back and forth in the reporting of IMS. But I think it's overall fair to state that we have a growth rate [in prescription] somewhere between 11% and 13%. So we are on a very good and very stable two digit trend with the product.

On the right side of page five an indication for eventually upcoming competition for Plavix. Of course, we are looking forward with considerable interest to the publication of the TRITON study November 4. But as the chart, this study (inaudible) study should have a positive outcome in terms of superiority would aim into a market segment which represents less than 10% of today Plavix sales.

On page six once again quite some information about the lifecycle management of Plavix, which we believe is a good reason for overall strong and sustainable and successful lifecycle management. As you see easily the product has been going since 1998 through a chain of major clinical trials which added in terms of indications and, consequently, also in terms of patients.

Lifecycle management is not over for Plavix. You see then on page number seven, that we intend within very short, further measures. First of all the launch of a 300mg tablet, which has been approved by the FDA quite recently, September 19. And which we intend to launch first in the United States and later on in Europe as of December 2007. We have further imminent results of a study called CURRENT which works on a 600mg loading dose of Plavix. And of course also those results will eventually have to be put into perspective with the TRITON trial supposed that the outcome is as such.

We continue to grow also through the other important growth driver which is length of treatment. And you see on the right side on page seven very nicely that we continue to grow in all sub-segments because duration is getting longer and longer.

The third quarter saw really then, on page eight, the breakthrough of Plavix in Japan. We had reported before that the start of Plavix in Japan had been a little bit difficult because there were limitations in terms of patients, in terms of duration of treatment and prescription. Those have been lifted by the end of the second quarter, and you see now a very strong growth in the third quarter. You can compare that in the third quarter we saw it as EUR17m as compared to EUR34m for the nine month period of 2006. And on the lower right side of the chart you see then that Plavix is on the way to become one of the most successful ever launches in Japan. Which means we estimate as of today that Plavix will grow the same successful rate it has been growing since 1998 in all other markets outside of Japan.

Page number nine, Lovenox still the second -- it's the first biggest, largest product of Sanofi-Aventis, still growing strong nearly 13% growth. It's also good to see that this is a growth not only in the United States but it's also in Europe and in the rest of the world. Also Lovenox is a very good piece of lifecycle management. As you see on the right side, major new results have been published recently on Lovenox. And as a consequence Lovenox is today included in every important trial for new potentially competitive ways of treatment. I'm talking about the new orals.

But also inside our own development program you know, of course, since our R&D we are actively working to define a successor to Lovenox. From what we know today we believe that most likely AVE 5026. And in this respect I would like to draw your attention to the publication of the so-called TREK study which will be presented by Dr. Lassen at the American Society of Hematology which takes place on December 10 in Atlanta. And we expect future guidance if this product may become the successor mid term to Lovenox, but for the time being it's doing extremely well.

Same is true then as illustrated on page ten for Lantus. Lantus meanwhile is quite some distance in number one worldwide insulin. You see again a very impressive growth rate of 31%. A growth rate which is more or less the same in all parts of the world. Which is of course a further indicator for future growth that the product starts now also to become really significant in the rest of the world. And you see then on the right side that the success of Lantus is largely driven by losses of NPH and Premix. And you see then also the development of the newer compounds like Byetta and Levemir on the lower right side of the page.

On page 11 a new growth driver which starts really to contribute to the overall success of Lantus which is the device SoloSTAR. We have put up here two examples from very different markets. You see that at the launch of SoloSTAR in France has been a clear booster to the overall growth of the product, as of May. And you see even more impressively on the right side of the chart same is being true for Lantus and SoloSTAR in the United States. Both the products have been launched about four to six weeks after.

On page 12 it gives me a little bit of a -- of being proud. Why? Because it's about three years ago that I committed sadly we should be able to bring Taxotere to a two digit growth. Yes I'm happy to report that since 2005 the third quarter has been the highest growth for this product with nearly 14%. This is a growth which is driven by Europe with nearly 19%, but it is also very well supported by the United States and the rest of the world. The product is really on the way to become a major reference in all important cancer indications. To my knowledge it is the product with the widest field of indication. As you see on the right side of the chart the product can be used in eight different indications which are all amongst the most dramatic and most important kinds of cancer.

I made the comment that necessarily the third quarter has been hampered by the loss of Ambien IR sales. We are content to report that this has been comforted by a very stable development of Ambien CR. On page 13 you see that sales of Ambien CR are stable with quite some distance from the second leading brand which evidently is Lunesta, and we are now in the process of optimizing our field force allocation in this respect and our promotional investment. And as I could tell you earlier we have shifted the field force resources from Ambien IR after the out of patent to new products, such as Xyzal, which you then find on the next page number 14.

On Xyzal for the time being only very early data as you see on the lower right side. We have only three data points to be reported. But, nevertheless, we are very proud about them. You see that the product has reached nearly 3% of new prescriptions. This is as compared with other benchmarks in this specific indication but also outside. A very, very encouraging early success signal, we find a high degree of interest for this product, which on the other side, is not a total surprise because there is always about a third of patients which is being unsatisfied with the available kind of treatments. Nevertheless, we clearly have to say that we are very much amazed by the early launch success. Of course, this has to be stabilized and further extended in the weeks to come, but we really have a good start together with our partner UCB.

On page 15 the importance, the unavoidable comment on the Base Business. You know our philosophy in this respect. It is truly the basis of our business especially in international, and to a lesser extent in Europe. You see then that the overall business is more or less stable. If you exclude Ketek it's just minus 1%. And you see then that this kind of business is still growing in international with more than 5%. And you see with nearly 10%, 12% in the so-called BRIC countries and in Mexico. So we feel very much confirms with our strategy to continue to adequately support this part of our portfolio, which represents about EUR9b of annual sales.

Now on the Vaccines then on page 16. I had indicated that the major reason for growth has been anticipated flu business for the third quarter which we had last year in the fourth quarter. I may use the opportunity to tell you that we believe that overall the number of doses to be sold to be shipped in the full year 2007 will be very comparable with 2006. This is approximately 50m units. To give you an indication we had sold last year in the third quarter 9m units, this year it has been 29m units, than in the fourth quarter 2006 we had shipped 42m. And by simple maths we now estimate that in the fourth quarter we will ship approximately 21m, which then adds up to those 50m or 51m which we have available. As you know, of course, the major issue in this respect is industrial capacity.

Independently of the influenza business you see on the chart number 16 then that all other products also have very impressive growth rates, with a little exception of polio and pertussis. But you see then meningitis plus 96%, boosters 43%, travel plus 11%. So this adds up to really spectacular 49% of growth in the third quarter.

On page number 17 more in detail Menactra. Yes, we strongly believe that Menactra is one of those new products in the field of vaccine which will become a blockbuster in the traditional sense of pharmaceutical products achieving sales as superior to EUR1b. You see then the impressive growth between September 2006 and 2007. And please once again keep in mind that we could sell much, much more if there would be industrial capacity, which is today not the case. You know from our previous contact that we are heavily investing into industry and that we are positive and confident to have a significant extension of industrial capacity as of 2009/2010. But for the time being those sales you see to nearly 100% come from the United States. Nevertheless, they are truly spectacular.

Same is true for Gardasil. Gardasil then on page number 18, a product within the joint venture with Merck, which means we are jointly selling this product in Europe. And consequently the sales you see here on the page 18 are just the sales as achieved by this joint venture here in Europe. You see once again that sales between the second and the third quarter doubled. And yes without any doubt also Gardasil is one of those products I mentioned before. Becoming a blockbuster in the world of vaccine is driven by further extension of marketing authorization from a geographical point, but also from a user point as we get more access to younger and larger populations.

So far on the products, I said before I try to explain to you why the third quarter was such a good quarter for us. I think I did this now on the sales side. Let me make some comments also on the cost side, on the cost within operation.

In page 19 you find some detail on the European market [theatre]. It's evident that Europe continues to change. It's evident that Europe changes into a more difficult, into a more complex environment. This is especially true for decision making for access, for permission. And consequently in Europe it's definitely at this point of time where we all have to change, where we have to adapt, where we have to strengthen the role of key account management, where we have to adjust our way of functioning to totally new ways of doing business. I'm referring to the tender which has been announced by the German (spoken in German). Also if this tender now is being delayed for legal reasons, I personally do not doubt that this tender way of doing business will more and more become part of the European practice.

So we need new expertise and, yes, we have to adapt. And on page 20 you see an example of how we adapt. You see then on the left side that, for example, in North America and Europe we have reduced our number of sales representatives over the last two years by nearly 3,000. I recently read an announcement from another company that they are supposed to reduce their headcount in field force in the United States by 1,200 or 1,400. We have made those reductions of nearly 3,000 without making announcement. That's a different style. But I believe the figures are impressive and they are there.

And the other side of the coin of course is that we believe while the European and the North American business model is changing, we believe that the rest of the world business model still stays more or less the same at least what effectiveness of traditional pharmaceutical sales force is concerned. And, consequently, we have invested, we have enlarged as you see then on the right side, our field forces in the rest of the world. This is primarily true for Brazil, it's true for China and for India.

To sum it up then on page 21. Once again without making a large announcement we continue to fine tune. We try to continue to become more effective in the way we invest our SG&A resources. You see then that we have driven down this ratio from 2004 31.3% to 26.3% on the year-to-date 2007. I think we have done this carefully, we have done this in respect of our people, but we also have done it in really driving our business further in terms of productivity. And yes, to really sum it up then, the third quarter is a good confirmation that this strategy is producing results.

So thank you so much. Now behind the sales and the operating expenses I pass on to Jean-Claude Leroy.

Thank you Hanspeter. Good morning everybody, and I believe that this chart is a good transition to go through quickly through the financials of the quarter. And as usual I will go through at the various slides beginning page 25, keeping in mind that the P&L detail which is shown in slide 23 and 24.

Unfortunately, I have to begin with the exchange rate issues, page 25. And the quick comment I will make is that when you see the impact of exchange rates on Q3 of '07 the 2 minus point -- 2.4% this is entirely due to the weakening of the U.S. dollar. When we look on the nine month basis, and the U.S. dollar represent around three quarters of the 3.7% decrease in the posting of sales. So we're starting with an increase of 1.8% on a reported basis on this quarter.

To go further down other revenue which are increasing by EUR60m. The main reason obviously is the recovery of Plavix on the U.S. market even though, as you know now, we do not have in 2007 the revenue of (inaudible) Fipronil and Merial we used to have in the past. The contract was ended as of the end of 2006.

When it comes now to the cost of sales you see a slight increase in the cost of goods to sales ratio from 26.7% to 27%. Now obviously this is entirely due to the impact of the generification of Ambien IR in the U.S. which is even heavier than the 0.3%, because we have also a favorable product mix effect during the quarter. And I would say that those kind of comment are exactly the same when it comes to the nine months so I won't repeat.

When it comes to other current and -- no sorry I will go on under R&D expense. R&D expense are increasing by a small percent in Q3. So now on a nine month basis we're at 1.5% increase. And as usual we give you the impact of the increase excluding currency, so you see that it's 4.4% increase on a nine month basis.

As Hanspeter mentioned on the SG&A line further reduction in the sales ratio, I won't comment much more. He said about everything. I may remind you though that in the Q3 of '06, you remember this quarter where we had the hurt of the generic -- launch of generic of Plavix in the U.S., we had the tight monitoring of the expenses in '06. So the basis for comparison was already a tight one, so the decrease you see, this really a further effort as again Hanspeter mentioned.

Other current operating expense, income and expense, slight decrease versus last year. We've mentioned, obviously, reduced contribution from Prasco now. This is on the Allegra and it is normal to see that the revenue decreasing. The rest is negative ForEx. I don't have to explain that with the continuous decrease, weakening in the dollar, we have negative impact. But it's, as I say, it's only EUR40m on the quarter which translates to, by the way, to around the same amount as of the end of the nine months. And once again it's the difference you see overall of another decrease of the dollar from one month to the other. On the nine months reporting, nothing much to add, everything was said as of the end of the first half, except the ForEx which I just mentioned.

So I will go further down to the operating income current line, which as you can see, is up 5.2% at EUR2.6b. So another improvement in the ratio when compared to the net sales 37%, and we've redeveloped what Hanspeter mentioned earlier to give you the main explanations of this further improvement.

Down to the operating income not much to say, not much to report on this quarter. Most of the information once again were already existing as of the end of the first half, so I will pass quickly.

To go to the next financial expense, as you can see we've given the detail of the interest charge on debt amount. If I look at the figures as of the nine months you see that we are showing a drop by EUR176m to be compared to EUR250m last year. I can tell you that the decrease is obviously more than mainly driven by the decrease in the debt level, and we have a small negative impact in the [increase of] interest rate. And we are showing right away that that level as of the end of the third quarter is EUR4.5b, which is an improvement by a little bit than EUR1b as compared to the situation we described as of the end of the first half.

Going down further in the P&L, tax rate I have some comment to make. We have a negative charge this quarter of EUR30m, 3 0, which is made of two different components. The first one is directly linked to the new tax rate which are going to be operating as of 2008, an important decrease from 40% to 32% in Germany. Now we have to take care of that from a consolidated perspective on the different income tax and that drove us to take a charge of EUR51m which is a one shot during -- and pure accounting matter, by the way -- during the third quarter. The other way around we had plus 21% of net reversal of provisions for resolution of tax audit. This net EUR30m charge will show up in selected item which I'll show you a little bit further. I can confirm to you that the effective tax rate of 2007 has been and is still 30.7%.

Not that many comment on the next one, share of profit or loss from associates and minority interest, except to say that first we -- that's where we see the recovery of Plavix in the U.S., first. But second, Merial is always doing better every quarter. And third factor, when it comes to the JV, Pasteur JV with vaccine, this in the Vaccine business with Merck, we've seen a recovery of bottom line during the third quarter. You've seen the level of sales of Gardasil during the third quarter, so we now we are back in a profitable situation as of this third quarter.

Going to page 34 so selected item. As you can see nothing to report in '06. And that EUR30m tax charge which I just described, obviously when you go to the nine months you would remember that in '07 we had some French restructuring cost in France, as well as we had already the first quarter some tax resolution. So that end up with a plus of EUR151m when last year mainly we had gain on disposal of assets and you would remember on Exubera.

So page 35 to sum it up, we are going directly to the adjusted EPS which is EUR1.37, and excluding selected items we are posting an 11.1% growth at EUR1.40. Now as you know that this has been hurted by the difference in the exchange rate as compared to last year. And once again and especially for comparison purposes with our peers we are showing what it comes up to in U.S. dollar, and showing that this quarter ends up with an increase by 19.3% at the EPS level.

On the nine months accumulated that translates directly to -- sorry on page 35 sorry on page -- well, I don't find out but never mind. At the end -- well, I'll be back later. I will go through in the right order.

Page 36, the share buyback. So just to give you the situation you see that as of the end of the third quarter we bought back 11.7m shares which account for EUR706m. I can tell you that we went further during the first part of October, up to October 10 where we stopped because our window period which was shut because we would release the Q3 figures. And we are now up to EUR863m of share buyback, which represent around 1% of our share capital.

I'm sorry, back, page 37 before going to the conclusion. The page 37 so is the accumulative result, bottom line as of the end of the nine month period. So as you can see we're coming up with EUR4.10 per share, obviously excluding selected item which is an increase by 5.9%. Once again because of the dollar decreases versus 2006, I'm giving you the figures in U.S. dollar for a comparison purpose. And as you can see, we are showing a $5.50 a share, up 14.3%, which I believe compares rather well to the competition.

Now because of that good third quarter which we've tried to explain to you, we have decided to raise our guidance for the full year '07. And in that respect we are now saying that we anticipate to be able to deliver a growth by 10% of the EPS, obviously, excluding selected items. And we keep on saying at an exchange rate of 1.25. Why? Simply because remember that 1.25 is the average rate of the year 2006, so this gives you a direct comparison between the two years, and to understand the performance of the Company.

So to finish up, to conclude, what we said at the end of the second quarter, on August 1, we highlighted some items such as tight control, high profitability, strength and the guidance. Simply to tell you that I believe that this third quarter just illustrated that we are going on the same way, the same policy, the same direction and that we are proud to be able to deliver this improvement during the third quarter.

Thank you much.

Thank you Jean-Claude. [Alex], can you open the call up to questions please?

(OPERATOR INSTRUCTIONS). Our first question comes from Andrew Baum from Morgan Stanley. Please go ahead.

Good morning. Congratulations on a nice quarter. Just one point of clarification. If I do the math I end up on a, assuming currency remains unchanged until the end of the year, a forecast of EUR5.03, which incidentally is meaningfully below consensus, but would also imply somewhere around a EUR0.95 fourth quarter. Could you just clarify whether aside from the saving of vaccines we should expect any other unusual events in Q4 associated with any of the line items on the cost side? In particular R&D spend, is it back-end loaded and that's why you're not pushing up the guidance more, given the progression you had in Q3?

Do you hear me?

I can hear you Jean-Claude.

Okay. When it comes to the EPS, yes, we have all these currency fluctuations which are not that easy to track in figures. What we are saying is that, and I will leave you to figure out what will be the exchange rate for the full year, but fair to say, remember that last year we posted a EUR4.88 share EPS before selected items. What we're saying today is that we're going to make a 10% increase over this figure.

Now obviously at the 1.25 exchange rate euro against dollar, you remember and this is still valid, that the sensitivity of [variation] is 0.6% of gross percent of difference in the average of the conversion rate. So I guess globally speaking you have all the elements to figure out the EPS for the full year.

Now to better answer to your question, fair to say, and Hanspeter was clear on that, that what has been done at the sales level making the flu season earlier than in '06 definitely, and he gave the figures for the dose, it's going to show up in the Q4 which is going to be lower when it comes to flu vaccine than it was in the fourth quarter of '06 definitely. Now for the rest there is no major items inventory issue which we anticipate when we give the full year guidance.

And should we assume this is you're being conservative or you think given that there's only one quarter left, a level of EUR5.03 is really what you think you're going to deliver for the full year, assuming currency unchanged?

As I told you, I'm not going to give you the exchange rate so I am not confirming EUR5.03. I'm just saying that 4.88 plus 10% is what it takes at the parity of EUR1.00 for $1.25. And let's go with that. So I'm neither optimistic nor pessimistic.

Okay, thank you.

Next question please, Alex.

We now have a question from Tim Anderson from Sanford Bernstein. Please go ahead.

Can you update us on your expectations for generic Lovenox in the U.S. and whether that might show up in the next 12 months? How confident are you the FDA will side with you versus not side with you?

Second question is, any sense of timing for an Appeals Court trial on Plavix in the U.S.?

And then third question is just a general one on your pipeline. There is several novel mechanisms of action in phase three and I'm hoping you can narrow down to maybe the top two products that excite you the most in terms of being good, realistic, commercial opportunities.

Perhaps I start with the last question. I can only quote Laurence Debroux with respect to when she gets the question, used to say 'you see I have two daughters, and if you ask me which daughter I love more, it's impossible to answer'. So I have not two daughters so my point of view is a little bit different slightly only. For me the best products are always the closest because it's a new excitement, it is a new opportunity and it is usually the lowest risk.

So yes, what I'm looking to is from a more pragmatic standpoint what are the next products. I think the next products are -- one is [Auron] where we really expect to get some very important final news within the next, let's say, six months as of today. And the second group of products which excites me, I made an allusion to it earlier, are those products in the environment of Florinox where we even expect some strong orientation within the next four weeks coming from the Congress of the American Society of Hematology.

But we have showed a very interesting excitement within our overall portfolio. To really be more precise you have to know more, you have to know the labeling in order to extrapolate on sales potential. And by nature for some of those products it's further down the road, but the two I mentioned are pretty close and yes, those are my most exciting candidates.

And coming to the question on Plavix. I suspect that your question was about the appeal on the Plavix case in the U.S. We have no agenda for the time being. So we may expect that it comes some time in '08 but have definitely no precise information to report that.

On Lovenox?

On Lovenox, nothing new. You know of course that they are two issues, a strictly legal one which is under appeal concerns the patent protection. There is nothing new to be reported. And then on the other side the regulatory environment. Also there is nothing new. We can only look then to events in the surroundings. We had very massive questions on Momenta's developments in the last year. So to say we have, of course, taken note that Momenta announced a significant delay for the time being. But this is really all we can report.

I tried to show in my earlier presentation that we continue to believe in this product. We continue to do lifecycle management. We drive this product with remarkable growth rate all over the world of 13%, and we work very actively on its successes. So that's all I can say, unfortunately or fortunately I don't know.

Okay. Thank you.

Next question, please.

We will now take a question from Sebastien Berthon from Exane. Please go ahead.

Yes, hello gentlemen. Sorry to disturb you again with the guidance. I'll probably ask Andrew's question a different way. To date you have a 6% growth in EPS, adjusted EPS plus 6%, plus 5.9%. If we take the current rate until the end of this year, there are only two months left so the average year -- the average rate this year should be relatively easy to find. Your implied EPS is a decline of 10% to 15% on the very low base because you had no revenues from Plavix in the U.S. last year. So I was just wondering, I know you like to be cautious but why are you so cautious on your Q4 earnings?

And secondly, just wanted to know whether there were any stocking effects, positive or negative this quarter?

And lastly, when do you intend to release the phase two results for AVE5530 and AVE2268? Thank you.

So back to the guidance. Once again, it's not pessimistic nor optimistic. You're right when you're saying that there were rather low sales of Plavix in the U.S. in the fourth quarter of 2006. So we had a small contribution. So we will have something showing a good comparison during the fourth quarter. The other way around, remember that Ambien IR was rather brilliant during the fourth quarter of 2006 and it has been genericised since. So these are two factors which I'm not going to say they equal each other. But they are definitely of the same order of magnitude. So at the end of the day, unfortunately it's not going to make much difference when you compare these two items.

So no, there is no conservatism per se. I understand that it is a bit difficult to translate in I say natural figures with so called exchange rates. That's the reason for which we try and stay based on $1.25 once again because this is the average of 2006. Now make all the calculation.

But once again, remember that we are increasing the guidance because we are monitoring the expansion especially SG&A line. This is the reason for which we are changing.

Maybe another item which I could explain which is the impact of the share buyback program. Even though we maybe a little bit over 50% of the EUR3b which we have discussed and which is to be realized before the next general meeting in mid-May of 2008, the impact on the EPS won't show up very much as of the end of 2007. That means you can anticipate around, a positive of around 0.3% impact on the full 2007 year. That may also explain that we seem to be conservative but in this respect we are not. The impact of this program will show up definitely in 2008 a little bit on the Q4 but definitely in 2008.

Did I say about two questions for 2268 and 5530? You have previously guided that the results will be available to us towards the end of the year. So you can expect the results to be released in the first half of 2008. So there will be several opportunities. I don't know which one would be the appropriate one, but starting from the full year results up to the ADA.

And on stocking, any items to mention?

Nothing unusual.

On stocking.

No, absolutely nothing unusual or -- our U.S. stock continues to be low in general terms. We are below one month most of the time, 0.4 months, 0.5 months. There have been no effects coming from price increases or anything. The only thing which has been reported is the anticipated sale of flu vaccines. But beside that I see no change in stock at all.

Okay, thank you very much.

Next question.

We now have a question from Alexandra Hauber from Bear Stearns. Please go ahead.

Yes, good morning gentlemen.

Morning.

Firstly, could you just let us know how many doses of Menactra you've actually sold year-to-date and compare that to your full year comparison -- sorry, your full year availability? I remember you've said in the past there's something like 7m doses available for this year.

Secondly, I was wondering whether you could make a comment on the profitability of PM MSD. I know you gave us the numbers just jointly for PM MSD and Merial and it looks like quarter on quarter this number is flat despite the strong increase of your PM MSD sales. Is that because you're still investing heavily or is that -- or is it more like an increase in profitability but PM MSD is offset by a decline in Merial profitability?

Third question is can you please remind us of your hedging policy? Is the dollar really totally unhedged, or is there some hedging gains you're taking somewhere and therefore $1.25 is maybe -- maybe you don't feel -- you feel the impact of the exchange rate as much as your comment to the guidance may make us believe?

Then I just have a final question on the German tender. Hanspeter, you mentioned that it's on hold for legal reasons. Can you just give us your best guess what's going to happen next?

Let me -- first of all perhaps let me start. Now since the last time I want the consensus figures, and I would like to congratulate you since you really have estimated our quarterly sales by EUR4m precisely.

So beside of that on the tender, the tender is really in the middle of the legal battle in Europe. What I can give you is really just an estimate which is the feedback I get from our German management. We don't believe that the tender will be really getting green light from the German institutions and Court before the end of the first quarter. And this is perhaps even an optimistic or pessimistic as you see it, estimate, because there are a number of opportunities for those people litigating on the tender to continue to slow down the process.

So on the tender nevertheless, the tender will come. If it's this tender or in another way, this is open. But it is all on the procedure. Nobody really seriously believes in Germany that the tender itself could be taken out of the market by legal means.

On your second question on the Menactra doses, our best estimate today is that we will be selling 7m doses this year in 2007 and approximately 1m doses more in 2008, so 8m doses. And the real breakthrough in the sense of real expansion of capacity we expect for 2009 and 2010, full effect in 2010.

Now on Merial and Pasteur MSD, the JV between Merck and Sanofi. Merial, as I said has been showing continuous growth in their bottom line, in their net result. That shows up directly in our bottom line. Now with the small impact of the exchange rate -- once again and I'm sorry because we are booking in euros -- but apart from that it's still showing a growth even in euro.

Coming to the vaccine JV, it is fair to say that the first part of the year was dedicated to heavy investment for Gardasil. So what I'm saying is that the profitability was not really a profitability during the first half. But now because of the level of the sales already achieved with Gardasil, and remember that we are at EUR180m over the nine months period, yes the profitability is bad during the third quarter. And we are sure that it will continue to improve.

Coming to the, once again to the dollar and hedging policy. When we determine the guidance in mid-February of 2007 and we choose to take the $1.25 comparator once again, it was simply because it was the actual average of the year '06. It had unfortunately nothing to do with the hedging policy because already at that time the exchange rate was down.

As a matter of fact I can report that we've not hedged per se the transaction during the year '07. Another way to put it is that we are hedging when we invoice. But as you can imagine, it doesn't make much difference at the end of the day.

Okay. Sorry, can I just clarify, Hanspeter, whether you could disclose how many doses of Menactra you've sold already so far this year?

Alexandra, we cannot give you the exact number of doses. But as you know, the bulk of Menactra business is always in Q3 because that's the time the university students go back to campus and then a lot of campuses (Inaudible) require the students to be vaccinated. So it's the majority of the business in the course of the year is in Q3. And as you can see, our Q3 figures are up by almost 100% compared to the year before.

Okay. I guess my question -- yes (inaudible). It looks like much more geared towards the third quarter than in the previous year, but I think that's fine.

Okay, thank you.

We now have a question from Graham Parry from Merrill Lynch. Please go ahead.

Thanks for taking my questions. Could you just clarify the 11% growth in the third quarter on your portfolio excluding Eloxatin and Ambien IR, how much of that actually came from price and how much was volume?

And could you comment on the pricing outlook for your key brands, particularly in the U.S. and Medicare Part D plans going into 2008?

And secondly on SG&A, with the declining SG&A quarter on quarter, how much of that realistically is phasing or how much is just a traditionally low third quarter spend? And what kind of scale of increase should we be looking at for the fourth quarter? I'm just trying to do, as many others are, to get to your guidance. Thanks.

So, let's start with the prices. I think the answer to prices is an easy one if you assume that there is hardly any price increase outside the United States. That's really where we are. We have literally no price increases at all in Europe and marginal price increases in some Latin American countries. But outside it is in the U.S.

So we had in the United States in the third quarter a 4.7% Lantus price increase which was in July. And we had price increases for Allegra and Ambien of approximately 9%. The Allegra price increases of hardly any importance because you see of course Allegra has lost most of its sales to generic. The Ambien price increase was a tactical price increase driven by the competitive environment and was in our overall pricing strategy for the Ambien family. Firstly we have a 5% price increase in the U.S. on Nasacort which is a minor product. And we had a 1.5% price increase for Taxotere which is a major product, but obviously 1.5%, we really realize only a fraction because of the specific channels of this product.

All of those price increases have taken place in September. I think it's fair to say that the impact on the third quarter results have been minor because of our agreement with the American wholesalers. There is no anticipated buying possible.

Back to the SG&A line, it's fair to say that the third quarter is one of the lowest quarter in the year simply because July and August not necessarily makes two months during the year.

Now remember what I said about what happened during the third quarter of '06 because of the blow of Plavix in the U.S. There was a quick and important reaction inside the Company. So when we are comparing this year to last year, what we are showing is an actual improvement, a decrease in the -- in these expenses, which is purely showing the continuous monitoring of these. So be sure that whatever the absolute terms are -- and once again, Q3 is generally one of the lowest -- we will continue to monitor our SG&A also during the first quarter.

Perhaps I may add to this that during the last six, nine months we have taken some measures in France where we see the full effect in the fourth quarter for contractual reasons. A similar situation is true for the United States. So as far as my part in SG&A is concerned, I really can confirm to you that you will see in 2004 -- in the fourth quarter 2007, at least a continuation of the trend you observed in the third quarter.

And sorry, could you comment on the pricing outlook for 2008 as well, please?

Well, I think unfortunately there is nothing really new to be announced for 2008. No price increases in Europe. I believe that overall the American market needs an increased degree of sensitivity towards prices. If this will lead to overall lower price increases for the industry I don't dare to predict. I believe nevertheless that for our major products, you will see a policy which is very similar to what we have done in 2007.

Alex, can we have the next question, please?

The next question comes from [Philippe Langham] from Natixis. Please go ahead.

Good morning gentlemen. My question has been already asked in several forms. I will try again. If we look at the Vaccines business in the third quarter, we have seen that Menactra is probably a one-off for the fourth quarter, flu partly also. So I wondered what the underlying growth is in the third quarter and if we could see a decline in actual terms in the fourth quarter? Because if we extrapolate something like [10% to 17%] growth for the full year, that gives actually a decline in the fourth quarter in the Vaccines business. Is this assumption right?

Also, you've mentioned your effects in terms of cost cutting in sales force in worldwide. I wondered what the picture is in France and Germany especially where you have also announced a plan at the end of last year. Could you at least quantitatively comment on the sales force evolution there?

And last point mainly on cost of goods. It's slightly up which is logical with Ambien. I wondered what we could extrapolate for the next few quarters if you have some initiative there that could trigger a decline?

Let me first start with the question concerning the Vaccines. I really kindly ask you for your understanding that we will not give a quarterly outlook. Perhaps overall to that extent, yes, but not going into the various activities. Nevertheless, what you say on Menactra, I largely underline. The third quarter is an exceptional quarter for Menactra. But nevertheless, please keep in mind that the target population for Menactra in terms of age and so on is getting permanently extended.

But the Vaccine business overall, you see we have since 2007 -- 2005, heavily invested into the Vaccine business, not only from the industrial side but also in terms of promotion, in terms of presence in the market. We have put in nearly all markets all over the world the organization of vaccines directly in parallel with the pharmaceutical organizations where we start to gain synergies, and where we get more impact on the sales front.

So I think it is fair to say that the Vaccine business since we are managing it within Sanofi-Aventis has seen a real booster. And if you go back to the presentation on page 16, stay in the words of boosters. The boosters which is an important, but by far not the most important part of the Vaccine business, is growing by 43%. The travel business which is a very traditional business is growing by 11%. So the overall business is doing better because there is more focus, there is more management attention and there is also more investment behind it. And therefore, yes, this business will continue to grow for -- not only for the quarters to come but for the years to come I believe. And there we are very confident.

Thank you.

I think I've said already that we would ship roughly 20m doses of flu vaccines in Q4 compared to 42m last year. So that's an unconfirmed figure for Q4 that we have already given.

Now on the question on cost cutting, which is a term we don't like so much. We believe that the industry today is really in an opportunity because it's so evident that the industry has to change. Risk is relatively low because first of all everybody is changing so it's much less important than in the years behind us that you may lose share. The question really is what do you do, how do you do it, where you allocate your means, if you find new ways of promoting the products when you have to face the fact that the situation of pharmaceutical sales force is losing impact. So we try to do that. And this leads at the end to cost cutting, it is true and obvious into third quarter. And this will continue into fourth quarter and during all of the year of 2008.

Now the situation in Germany is a little bit more delicate and it has to do with what we discussed before in context which is famous, tenders. The stock of the tenders will be accelerated for a certain period of time. To my understanding the market changes in Germany (inaudible). I consider it today as a mistake to cut off sales forces in Germany because we are in the middle of something which has been put on hold by the intervention on the tender.

Therefore, our adaptations in Germany are approximately I would say one year behind to what we have done, for example, in France. And they are approximately six months behind what we are currently doing in the U.K. In the U.K. we have another situation which comes to the same effect, loss of effectiveness of sales forces. There is a new decision body called the PCTs, they more or less decide what general practitioners are allowed to prescribe. So we have put a social plan into place in the U.K. as of now. But we are not there to date but I think that before in the first quarter 2008 we will see much clearer. And yes, then we have to continue what has to be done also in Germany.

Coming to the cost of goods. As I mentioned during the third quarter, we are seeing the impact of the generic. This is normal and I'm sure you've seen that looking at the reports of our competitors, the trend is exactly the same. It's a mechanical effect. So we are, I'd say, coping with this line item. I don't want to enter into more detail but you know it takes time when it comes to this line item. You don't just cut the expenses from one month to the other. So you may see a decrease, a small decrease in this line as well as you see it with competitors for the same reason. Which is the impact of generic on big products when they are such a generifications.

Okay. Thank you.

We will now take a question from Jo Walton from Lehman Brothers. Please go ahead.

Thank you. Can you update us on the situation with Acomplia in Europe? Areas where you're getting reimbursement, areas where you're getting repeat prescriptions, some help there please?

Looking at Ambien in the U.S., it's relatively easy to switch people to a CR formulation if you can make it cheaper, when the Ambien Immediate Release goes off patent. Can you give us some idea of whether you're losing any people back from Ambien CR back to Ambien IR and how perhaps formularies are handling CR now there is generic Ambien available?

And finally in terms of your SG&A you've made fabulous progress in reducing your SG&A. You've told us that there is more to come. Is there anything that you've been able to do that is substantially different in terms of making your sales forces more productive? Or is this just we have overestimated the need to have sales forces to generate sales?

That's a very good question, not only, but especially the last one. I had a lot of contact necessarily in terms of field force productivity and I have been really impressed by the openness of the sales forces all over in Europe, but also in the United States to discuss. Because those people feel since perhaps longer times than we, that they lose impact. And the major demand from the sales force people which is being articulated I can summarize is, 'give us more flexibility. Let's get us out of those totally defined action plans where you believe we have to work like machines because the market is no more like it'.

So the overall aim of everything we try to do is to gain flexibility, to have the flexibility to allocate resources wherever there is opportunity. Because the common point between Europe and the United States is access, permission. If you have no permission, people are not working productively. They are getting frustrated and the consequences are evident. So I don't know what the answer is in this respect. We believe that beyond pure cutting, it is really, in this respect, the most important to gain flexibility, to get more sophisticated mode of action where the various parts of field forces to work together in a more measured kind of situation than in silos.

And perhaps a third idea to the question is that in many European markets, we see a raising importance of specialists, which of course has consequences on the GP sales forces and pharmacies. So we reinforce our presence in pharmacies. Remarkably strong, sitting here in France. We even went so far that in metropolitan areas in France we have established a home delivery service where we deliver to pharmacies our products three times a day. Which of course in France is much more reasonable to be put in place as in France one out of four boxes a pharmacist purchase every day comes from Sanofi-Aventis. But we have similar situations in other markets all over the world. If I think of Brazil, of Mexico and Germany, for example.

So I think, in summary, there is no overall concept in the simple mind you just cut your sales forces. No. We have to get more flexibility to put the resources where they are really productive.

On Ambien in the United States then, I am not aware that we would be losing patients from Ambien CR back to Ambien IR or Ambien generic. What we see which is causing our concern is the role of the pharmacists in the U.S. market. And we have seen confirmations that there have been switches of pharmacists. For patients who came in with an Ambien CR prescription and for one or the other reasons, the pharmacists said 'look, I could also dispense Ambien IR or a generic'. Which, de facto, he has not the right to do. So we've felt to be obliged to write a letter to American pharmacists that such a practice would be considered illegal. But I think those are just single cases. Overall, it is not such an issue from a quantitative point of view.

In terms of managed care, Ambien before the appearance of generic had no extremely strong support from managed care because the product and its competitors are considered as a lifestyle medication. What we have today is, if I compare Ambien CR with the previous situation of Ambien IR, it is more or less the same. In very rough terms, we have about 20% access for Ambien CR, which is a low figure if you compare, of course, with, let's say, Plavix where the access is 95%.

Thank you very much.

We will now take a question from Michael Leacock from ABN Amro. Please go --.

Good morning, gentlemen. Thank you for taking my question. I have two quick questions. Firstly, just going back to this impressive performance in the SG&A, could you tell us a little bit more about where within the SG&A the cost savings are coming? What's coming from the sales line, what's from general, what's from admin? And really, how much further can you go, do you think, in say the next two to three years in terms of that trend of continuingly declined SG&A?

And secondly, flu pricing. I wonder if you could tell us what the vaccine pricing is doing in the U.S. this year? And what are the prospects for the next few years? Any change of a material rise in the price?

Sanjay, do you want to take the flu price?

Yes, okay. So up to this point in the season 2007, 2008, we would like to price the flu vaccines approximately 3% superior to what we had in the same period last year. However, we are clear that there is the additional price erosion slightly going forward and especially for the late season shipment. But up to this point, we have a slightly positive trend compared to last year.

On the other part, on the SG&A, it's a little bit delicate because we don't give a split between, let's say, the promotional side of it and what is general administration. I think that (inaudible) it's fair that in the industry, the true general administration part is about 45% of sales. So I think this can help you as a guidance.

What we do as of today is to have a more or less identical reduction from both parts, from the as I call it promotional or commercial part of SG&A and the pure administrative part. That's, at least, our ambition. By major, promotion is a little bit in the lead in terms of timely implementation because we have more flexibility for various reasons. We have external sales forces for example, which we can cut off much more easily than people which are -- who are really on our payroll.

The second part of the question, yes, that's nothing but ambition. But, yes, I think that we understand it as a challenge and as a commitment to show in 2008 a continuation of reductions which we have reported today, for the last three or four years. And we have the ambition to continue in the same manner and with the same speed.

Thanks very much.

Can we have the last couple of questions please?

Okay. We now have a question from Amit Roy from Citigroup. Please go ahead.

Hello, yes, thank you. Amit Roy from Citigroup here. Just a question -- three questions. Firstly on Lovenox. My understanding is that Lovenox has gone generic in Canada and I was just wondering what your experience would be for the sales you're getting of Lovenox in Canada, in terms of what pricing erosion you're seeing there, just to get a flavor of it?

Secondly, on Dronedarone, you mention you're looking for new Dronedarone data coming soon. I was just wondering what steps have you taken to address the issues you've seen with the increase in mortality within the original Dronederone trials and the question the FDA had with the original package?

And lastly on biotinated [idraparamex], when can we see some data on this one?

Let's start with Lovenox and the generic competition in Canada. There is access to generic competition, but there is no competition in Canada. The sales of the generic there are absolutely marginal and this has not changed the competitive environment at all.

As I said before, I believe that the, or should I say, the sensitivity for generic competition in the Lovenox environment is very much different to the other markets for various reasons. It's largely a hospital-driven market. It is a market where we have contracts. It is a market which traditionally has been a kind of negotiation market, where we make agreements, where we give discount. And it is a market which is very much depending on the fact that the generic has the full scope of indications as the original Lovenox does, it is not always the case. Not only in Canada, it is also not the case in Europe, where we have a generic competition since many years. And the hospital pharmacists clearly are privileged to have the product which has the largest scope of indication in order to avoid issues inside the institutions.

As far as Dronedarone is concerned, we have initiated, after the increase of mortality in the previous Phase III trial, we have started a new trial which is [ATINA], as an acronym. And we are expecting the result of exactly this [ATINA] trial during the first quarter 2008. And, of course, it is not adequate to make any speculations but evidently the aim of the trial is to confirm a non-increase of mortality. So this is one axis for the future development.

Then in parallel there is a trial going on comparing Dronedarone with the only product it could be ever compared to, which is (inaudible). This is a trial we have initiated on the request of the European Authorities which we expect equally in 2008. Where the aim is not so much to show superiority in terms of effect, but to show superiority in terms of safety profile, which is a big, big point of (inaudible), as you probably know.

Last but not least, the [idraparamex], the results are due in 2008, in line with what we have communicated during the R&D Day. This has filings then in early 2009.

Can I confirm that that's the biotinated [idraparamex] in 2008?

Excuse me, I didn't understand you phonetically.

Sorry. Can I confirm that is the [idraparamex]?

Exactly, yes. This is the kind of [idraparamex] where we concentrated all our efforts on for drug safety reasons, but also in light of the protection this form of [idraparamex] enjoys.

Thank you.

The last question please, Alex.

Our question comes from [Eric Verico] from Raymond James. Please go ahead.

Yes, good morning. I have two questions please. First on Acomplia, I'd like if you can give us an update. And perhaps to expand Jo's question, are you pleased with the performance in Europe? Could you explain for instance specific situations in some countries, and perhaps if you expect some restrictions to disappear in the short period of time?

And second, you provide us the currency impact on the R&D budget. Could you provide any kind of impact on SG&A, quantitatively or qualitatively? Thank you.

Okay. Perhaps I take the Acomplia question first and give some time to my friends in China to think of the latter.

No, I am not pleased with the performance of Acomplia because the performance is stable, or I'd say it a little bit unpleasantly, is flat. Now why is this the case? Evidently, the event in the U.S., it was refuted by the FDA, gave a hit to the product. Then later when the [MEA] expressed it's decision, we have been obliged to make it (inaudible) letter which is not a positive event for any product. And we don't (inaudible).

The more positive side is that we are pleased by the recent extension of the clinical section by the MEA. There is more mentioning about diabetes in the clinical section, which is very much in line how we intend to continue to develop the products because all our clinical trials go into the direction of diabetes. We continue to be pleased with the success we have to keep the product in the hands of the right patients. Where we have marvelous results in the neighborhood of 95%. And we are pleased that the safety profile of the product, at least as of today, as we speak, in terms of [pharmacovigilance] doesn't show any disturbing signal of an increase of evidence of side effects or any new kinds of side effects.

What we expect is that we should succeed to carefully develop the product by extensioning of availability. The next important country where we hope to have this in the next weeks, or the very next months, is a decision concerning the reimbursement in Spain and then during the first quarter 2008, Italy. But overall, we have to be clear and open with you in the sense that within the current environment the product will see only marginal progress. And the next important step for this product is as of 2009 when we expect to have a clear-cut access through a clear-cut indication in diabetes, where we have a new starting point with all the countries, with all the institutions to get reimbursement. Which of course in the European field is the major element you have to overcome to get any product into a significant amount of sales.

On the SG&A, the answer will be qualitative. I confirm to you that Q3 is showing a further decrease on a comparable basis, meaning at the same currency level. So this is still true. And once again, I would say, it's even more visible if you are looking at the ratio of the SG&A to sales.

So I assume this has been the last question. I have to -- I have the pleasure to conclude this meeting which was for us a good meeting. We are proud about our results. We are confident that we will be able to continue with this kind of performance in the fourth quarter, and not only. We will continue to drive our key franchises which are oncology, thrombosis, cardiovascular, diabetes. And, of course, Vaccines, which has been, in the third quarter, really showing a very positive performance.

We will continue to be build up our margin transparency in the light of recent R&D Day. And it is clearly our understanding that we have to deliver in respect to commitments which we have taken. We believe only a couple of weeks later things already get more clearer. I refer to what I said concerning the upcoming data on the Lovenox success. The fourth quarter and the first quarter 2008 will deliver a number of new data in this respect, and of course we look forward in confidence to this.

Jean-Claude has showed you that we are very well progressing with the share buyback program and (technical difficulty) continued until May 2008, the point of date of our next general assembly.

Thanks once again for your interest. I believe that the next meeting date for us together will be Tuesday, February 12, when we will announce our results of 2007 and discuss them with you. And I hope very much that we could convince you that those will be good results in the light of the third quarter. Thanks again. Bye bye.

Ladies and gentlemen that will conclude today's conference call. Thank you for your participation. You may now disconnect.