Sanofi SA (SNY) 2010 Q1 法說會逐字稿

Welcome to the Sanofi-Aventis 2010 first quarter results conference call. I now hand over to Mr. Sebastien Martel. Please sir, go ahead,

Thank you. Hello, everyone, and welcome to the Sanofi-Aventis Q1 2010 conference call. As you know our slides are available already for download on the website.

As always I must advise you that the information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors. These may cause actual results to differ materially. Please refer to our Form 20F on file with the SEC and also Document de reference for a description of some of these factors.

So with us today on the call are our CEO Chris Viehbacher. Our President Global Operations, Hanspeter Spek. Our Senior Vice President Vaccines, Wayne Pisano. And our Executive VP Chief Financial Officer, Jerome Contamine. We also have Marc Cluzel, Executive VP of R&D, who will join us for the Q&A session following the presentation.

At this time I'd like to turn the call over to Chris.

All right, thank you, Sebastien. Good afternoon, good morning, everybody. So we've had a, we say, very good first quarter. Naturally the H1N1 vaccine given us some help and that's non-recurring revenue. But 15.9% growth in business earnings per at constant exchange rates is certainly a very good start. Obviously, that was helped by the sales but we've had some extremely good cost control in the quarter and we've seen some reduction in the R&D and SG&A ratios in the first (technical difficulty).

If I turn to page six, again the story about Sanofi-Aventis is all around trying to build these platforms of sustainable growth. We know that over the next two years we're going to lose a number of products, Eloxatin and Taxotere and Plavix, first in Europe and then in the US. And one day Ambien. Can't do much about that and that's all very visible.

And you see that on the right side of that in the first quarter sales obviously negatively impact by loss of sales, 96.6% Eloxatin sales. Of course we have been very successful in the first quarter in signing agreements with the various generic companies to essentially respect our patent and as a result of that they will be forced to stop selling on June 30.

We won't get an immediate benefit from that because of course they're going to be selling right up to June 30 and that means there will be some pipeline of stock out there in the trade. Exactly when we start to see a rebound in the Eloxatin sales is difficult to say but we believe it will be sometime towards the end of the year or early in 2011.

Plavix in Europe obviously also affected as generic versions of Plavix moved first from Germany in 2008 and now into other countries such as UK and France. So (technical difficulty) 47%. Interesting to note that one of the generic companies has had a major recall in Europe and I'll ask Hanspeter to say a few more words about that in a few minutes.

But the part that's really the fundamental story of Sanofi is again the growth platforms. It's where is the growth to come from going forward. This is about restructuring our business to reduce our dependence on blockbusters. And to look for those businesses which not only fill a gap but which have some element of natural barriers to entry so that we can look at longer term growth of the business in 2013 and beyond.

And as you know last year we put out a guidance saying that as a minimum we would expect to achieve the same level of sales and profit as we achieved in 2008. And really though what we also trying to do is, when we're standing in 2013 have the cliff behind us, that these businesses will be major growth drivers for us going forward.

And so what's the progress been on that. Well, emerging markets is clearly where Sanofi-Aventis has leadership. We are by far the number one company outside US, Europe and Japan. EUR2.274b of business, growing at a very robust 18.1%. And here we've excluded the H1N1 vaccine sales which obviously have inflated that because most of the H1N21 vaccine we sold in the first quarter was mostly to Southern Hemisphere countries.

Diabetes still growing at 11% across the world and of course there has been some effect of healthcare reform in those numbers and I'll touch on that in a little bit. But largely I think we're very happy to see a very good market share of Lantus and maintaining our position.

Vaccines growing obviously very strongly with EUR413m of H1N1 sales. Wayne Pisano, our head of Vaccines, will make a few more comments but clearly shipping that kind of volume has meant that some of the other vaccines had to be displaced so that we could fill and package all of that vaccine. So you're seeing some of the other vaccine sales off a little bit because we've had to postpone a little bit of our sales, which hopefully will be recovered in the second quarter. And again Wayne will say a word about that.

Consumer Health Care up 42.5%. And of course you're seeing the integration and consolidation of Chattem sales in that. And Multaq off to a continued good start in Germany and continued good progress in the US. I still tend to look at some benchmarks here, we're clearly doing better than some other more recent launches. But for me really the benchmark I look at is, if you do $100m of sales in the US in the first 12 months of a product you have a very successful product on your hands and we're well on our way to achieve that.

If I turn to page seven, here we are with a formula for growth that remains unchanged with our three priorities. Clearly looking to increase innovation in research and development. Knowing that we don't have enough in our pipeline as we said over a year ago. We've been aggressively pursuing external growth opportunities and you'll recall that we did approximately 33 transactions last year.

This year we're already up to seven. I can tell you that we've already signed 75 confidentiality agreements in the first quarter of this year alone. So we're continuing to aggressively pursue those opportunities. And, of course, adapting our Company to future challenges.

So if I flip just looking at some of these. Research and development, I think, has gone through a huge change in the past year. Marc Cluzel is here and will be able to perhaps answer some questions later.

This time last year first quarter results of 2009 was the day we announced a significant reduction in the portfolio of new products in our portfolio. We cut approximately 25% of the portfolio on this day a year ago. Now a year later actually I'm actually pretty encouraged by what I see as green shoots of growth and development coming in research and development.

We have gone though a significant reorganization. Because we're a European company we've, of course, had to spend significant time on consultation with our social partners. That concluded roughly towards the end of January and Marc has been rolling out a new organization moving from 11 hierarchical levels to six. So it pretty much has touched everybody in the R&D organization.

As I look at some of the things we've done, the creation of an Oncology business unit and a Diabetes unit, I think, has dramatically changed the outlook and thinking really of some of our teams in R&D. If I think about oncology in particular, I remember talking to a number of my friends in the oncology field saying, you know it's a real shame Sanofi-Aventis has been such a power house in oncology and now a lot of your best people are leaving, you don't really have much in your pipeline, it's a shame that you're going to give up this important franchise. And it's true, we had two or three products last year in our portfolio.

Well, today a year later we have 18 projects in Oncology alone, four of which are in Phase III and we've got two concurrent agreements with the FDA to have a priority review. I think by anybody's standards that's a dramatic turnaround, especially because when I look at the 18 projects we've got an awful lot of exciting things. I meet regularly with my own personal advisory board, some of the top oncologists in the world. We've had a very interesting meeting in Washington about four weeks ago where our Head of the Oncology business unit and Oncology research presented our portfolio and our approach, our new approach in research. And there was palpable excitement around the table. So I'm personally extremely happy to see that improvement, and I'll talk about diabetes in a moment.

Just two specific examples of that of course. Jevtana, for which we've now made a submission, we had a rolling submission under a priority review, as you all know we started in December. A rolling submission is where you start submitting data as you have it instead of waiting to gather it all up and submit one file. We completed that process on March 23. We've also had recently again confirmation of the priority review by the FDA.

I was meeting actually with an advocacy group in Los Angeles earlier this week all of whom also expressed excitement about this because the 30% survival improvement versus Taxotere treated prostate cancer is something I think will bring a lot of hope to patients. And I'm actually also very pleased to say that the TROPIC study that actually demonstrated those results had been accepted as a best of ASCO presentation for this year. Considering we've already published the results of this study it's actually quite exceptional that this also has, this has achieved that kind of recognition.

Of course by BiPar you know, we acquired that also just a year ago and what a difference again a year had made. We have presented those data at ASCO, moved into Phase III, that Phase III trial in triple negative metastatic breast cancer is now fully enrolled. It's actually doing so well that we want to make sure that we actually get as strong a label and claim as we can which really means letting that trial go and getting really good overall survival data. So we've decided to make sure that the FDA filing allows us to gather those data and we now expect that to be in Q1 of 2011.

We've also begun our Phase III study in advance squamous cell lung cancer and that's up and running and recruiting.

Now in the Diabetes side I'd also say, if you talk to the head of this new Diabetes unit, significant difference in how things are running. A year ago when we did our early R&D reviews we had one group developing a device in a corner really without much input from commercial. And we found for instance on developing the device for the combination of lixisenatide and Lantus that really we were wasting an awful lot of time and money on projects that weren't going to go anywhere.

Decision making has dramatically changed, the Head of that Diabetes unit reports into Hanspeter Spek and Marc Cluzel. So that person had not only the resources of R&D at his disposal he's got immediate access to the marketplace. All those people are co-located, decision making has shortened. And I think, I'll show you in a minute the example of the AgaMatrix project and how that has changed.

Just in terms of project of course our new once daily GLP-1 has met its primary endpoint in the GETGOAL program and we expect to start our Phase III program of the combo with Lantus in the fourth quarter of this year. And we believe that the combination is really obviously the potential, the big potential for the GLP-1 as a once a day product.

Now if I switch to the next page. If I could also say well where do I think some things have changed? There is clearly a change in our approach to external collaborations. I was talking to the head of a major public research institute who'd never really had contact with Sanofi-Aventis before but was just commenting to me how well the partnership that we signed last year is going.

I like to do an awful lot of after service calls and call up the heads of companies with whom we've done partnerships and I have had consistently positive feedback about - and these are companies that work with a lot of our competitors - at how positive the relationship is. So there's been a real change in culture and mindset.

Again I was at a conference in LA on Sunday. Somebody came up to me with a very interesting approach, I phoned up someone in Marc Cluzel's organization and already Monday there was contact between our R&D organization and that company. So this demonstrates some of the reactivity and proactivity that we're seeing.

And I think if I look at the AgaMatrix deal, this is an example of what we've been talking about in terms of putting the patient first. This is an industry that has been really focused on developing technologies and then going looking for a customer. But if you create a diabetes unit and say go help the diabetes patients they come up with something like the AgaMatrix device.

There's a massive market out there for blood glucose metering. But you know nobody needs to measure their blood glucose, the only reason you do that mostly is to adjust your dose of insulin. But most of these devices don't do that for you. You've got a device, you measure your blood glucose and then you've got to reach in your pocket and look at your little table for how that translates into the dose of your particular insulin.

What we're expecting to do is to be able to deliver an integrated solution where this is a blood glucose-metering device specific to Lantus. So you actually will be able to get the information you need, not the information that they supplier of device is offering you. I think it goes back to how do we help a person with diabetes. We're not going to stop just with these types of devices and we're looking at other things such as education and other devices. With 250m people suffering from Type 2 diabetes the commercial opportunity is huge.

In terms of creating that innovation I was very impressed when the team brought in this CureDM. It was a first-in-class human therapeutic peptide, so we actually have the opportunity for really regenerating and generating islet cells in the treatment of diabetes and of course this is an early stage so we've got an IND submission. But it's actually exciting looking at this mechanism of action and you know in type 2 diabetes we haven't seen an awful lot of novelty. But the technology and scientific understanding is really exploding. So I was quite excited about that project.

Vaccines hasn't been standing still either and we have actually signed a couple of deals already including the most recent one which is the strategic partnership with the US Naval Medical Research Center for a new travelers' diarrhea vaccine against ETEC.

Now obviously the other thing that we've been trying to do again is create those sustainable growth platforms. Move away from the dependence on small molecule blockbusters. Two areas we have identified for doing that were in Animal Health and Consumer Health Care. We've been able to strengthen our position in Animal Health having acquired the other half of Merial last year from Merck.

We've now completed a second stage of that agreement in announcing that we intend to combine Merial and Merck's Animal Health business, Intervet Schering-Plough. So we announced the intention to do that in Q1. The teams are meeting literally as we speak to get the integration up and running. That obviously creates a new global leader in Animal Health and so far everything is as we expected it, as we anticipated the deal.

The other major acquisition of course was Chattem. Consumer Health Care is a business that I believe very strongly in. It provides a customer focus. It has the protection of brands. We've been a very good Company actually in other part of the world, we weren't in the United States. Now we have a strong presence in US Consumer Health Care with Chattem.

But of course the real reason that we did that was we have the opportunity to switch in the first instance Allegra and I can confirm that we have filed that dossier with the FDA in March so we're up and running. The timeline for that is typically the same type of PDUFA timeline as you have for a new product. And obviously we're also looking at what products of Chattem we can launch elsewhere.

So if I move to slide 11. We try to depict kind of the energy and change that is going on within the Company. When you're the CEO you're always the kind of last to know things and everybody like to pass up good news. So what I try to do is get other sources of information, talk to people outside the Company who are doing business with us either as partners, as consultants, as analysts, as journalists. And actually I've been very happy to hear that a lot of people are also perceiving a lot of change going on with the Company.

I've talked about embracing the external collaborations. We've talked about the diversification of our growth platforms, which we're now expanding. We've been hiring a number of talented people from outside. For example, we don't have global purchasing function in the Company, or we had not, and yet we have a purchasing book of business of about EUR10.6b. So we've been able to hire the former head of purchasing from the French car company PSA. My belief is that car companies do this better than anybody. And we've decided to bring some of that talent inside, we've created a global purchasing function and believe that will contribute further to the cost savings program that we've already announced.

We had -- we've moved to shared services in a number of places. Obviously through the many mergers that we've been through we have numerous sites and often have accounting departments and payroll departments and IT departments in all of those sites. And so we have been moving to three or four big shared services platforms regionally and we've already implemented that in the US and we're in the process of doing that in France and in Europe. And looking elsewhere where we can find these kinds of savings.

And just speaking of cost savings we are progressing well. As you know we had anticipated EUR2b of cost savings between now and 2013. Jerome will give you an update but we're not only progressing well but we're ahead of target.

The Diabetes and Oncology divisions have been created. We're also now going to add a new division called the Ophthalmology business, which is based on the acquisition we did last year of Fovea. Ophthalmology is business that we like and want to further develop.

Presence in emerging markets, it doesn't matter what industry you're in if you're in cement, you're in hotels, you're in cars, emerging markets are important and that's particularly the case for us. And again you saw the 18% growth we had in those businesses. We continue to look at how we might strengthen that with bolt-on acquisitions. We are a leader today but with everybody investing we're going to be extremely vigilant that we protect that leadership.

And finally as I say that new R&D organization is rolling out. We had a first R&D review with the new organization a couple of weeks ago and again I think just the change in mindset and the quality of the projects that I think we're starting to build now. No question we've got a long way to go but I think just as I was thinking about preparing this presentation and where I was a year ago that is -- it feels good to see some of that change actually happening. It's certainly hard to change big organizations.

Have a look at page 12. Clearly a subject of considerable discussion in Q1 has been now the passage of healthcare reform in the US and what that means for us. And you've seen an awful lot of numbers coming from different companies. It's fair to say that obviously not only do not all measures actually come into play immediately, some have been retroactive, some are effective this year, some are effective next year.

Some of these also require significant estimates. Some of these are hard numbers, so for example the increase of Medicaid rebates from 15.1% to 23.1%, which is retroactive to January 1, is actually fairly easy to calculate. We know what those sales are and we can simply calculate the increased rebate.

If I look however at the application from Medicaid fee-for-service rebates to Managed Medicaid. For those of you who don't live in the US that is for those states who don't operate their own Medicaid organization but basically outsource that to managed care. Up until now we have been essentially negotiating with them as managed care organizations with the normal commercial level of rebates. The new healthcare reform law now says that Medicaid patient within those plans are eligible for the same level of rebate that we pay to Medicaid that's run by states.

Now this is actually a bigger number than just the 15.1% to the 23.1% because there are also rebates that are involved in CPI penalties. So as you all probably know that if you increase your price faster than the rate of inflation you rebate back the difference to Medicaid and that is a cumulative process. So now if you've had a product on the market for 10 years the cumulative rebate will now be eligible for that same product to the extent that a managed care organization has Medicaid patients.

There's also for the expansion of the 340B program, these are for hospitals that have a high percentage of indigent patients. They're allowed to buy drugs at a discount. The expansion is in two ways. One way is that now there'll be that discount available to drugs that are provided on an outpatient basis in those hospitals. And the second form of expansion is the definition of those hospitals will be expanded so that the 800 and some hospitals will grow, probably more than double actually, under the new definition.

From January 1 there is a so-called excise tax on branded Rx drug sales, that there are different percentages as you go up in sales. There's also going to be the coverage, the 50% rebate for the so-called donut hole in Medicare Part D. That one is probably the hardest one to estimate. It's estimated that about 17% of patients today actually land in the donut hole but it's not certain how much business we actually have there today, it's probably not a lot because there's a high degree of generic use in Medicare Part D. And therefore if the business increases there may be some volume benefit that actually offsets that. So that's probably the first volume offset that we might see in the business.

For Sanofi-Aventis we've taken a reserve in the first quarter of $35m to cover the retroactive pieces and the Medicaid fee-for-service rebates for the essentially the one week. Those -- that's actually a reserve against sales and that does get distributed across products. It's not evenly distributed across products because it depends on the nature of the product. Those products that have -- some products have higher Medicaid usage for instance and will bear a bigger brunt of that. So you need to start as you look at sales of all the different companies need to start understanding that.

We estimate for the year an effect of approximately $220m so overall that would be about 0.7% of global sales or about 2.7% of our US pharma only sales, that is without vaccines. And, of course, far be it for European companies to better predict what's going to happen in US politics and US companies, but we are like most of our European colleagues and anticipated the passage of the law and so those numbers do not affect the guidance that we issued with the fourth quarter results.

So I'll finish with the targeted dates and give you some idea about what kind of news flow you might expect from the Company. We have two monoclonal antibodies progressing extremely nicely. These are two Regeneron sourced molecules. The first is the Anti-PCSK9 for cholesterol reduction. Obviously we're not the only one in this hunt and so we're looking for proof of concept data in Q2.

The Anti-NGF, which is a new class of drug for osteoarthritic pain, we would expect to have Phase II data. We would expect the US regulatory submission for Menactra in the infant toddler group.

Q3 we will have the presentation of those Phase III data in monotherapy for the GLP-1 that I talked about. We're also going to try to do an investor relations seminar on Diabetes and Oncology just to give an update on how is this new structure working to begin with. And to provide a little bit more insight into the projects that we have in Diabetes and Oncology.

In Q4 we'll have the US launch of Fluzone High Dose. We're going to have the second line data in colorectal cancer, the VELOUR study, coming through. Teriflunomide in MS will provide some Phase III data. We have a product called Temusi in CLI, we'll have some Phase III data on that. We've already talked about the combo between Lantus and the GLP-1. We'll start our Phase III studies with the Dengue vaccine which promises to be potentially the biggest vaccine we've every sold, if that's a success. And we'll start Phase IIb with the insulin sensitizer that we brought in last year from Wellstat.

We would expect antitrust authority clearance for the ISP Merial merger in the Q1 of next year and again that submission of BSI-201, the BiPar compound in triple negative breast cancer at the start of next year.

So with that, Hanspeter, I'll turn it over to you.

Yes, thank you, Chris. Good morning, good afternoon. We turn now onto page number 15 where you see our overall sales development during the first quarter. Total sales have been EUR7,385m, equal a growth rate of 5.8%.

I think the most remarkable for the first quarter is really that we start to translate strategy into measurable results. As you see from that bar chart, yes, there has been negative developments, mainly from Eloxatin, to a much lesser extent also Plavix. And then there are the growth platforms like CHC, Generics and eventually also the Vaccines. We see a relatively small figure, EUR26m from Multaq but I can again as last quarter confirm to you that this is exactly what we have in our budget for the first quarter and I will come back to Multaq in more detail in a couple of minutes. Also notable that in the first quarter we have a negative effect from ForEx, equal EUR133m.

On the next page, then page 16, you see what Chris already has highlighted but in more detail. From the emerging markets a very, very good growth of 18%, EUR2.274b excluding the H1N1 effect. If we would include it we would get in triple figures of growth rate. You see than also on the chart that meanwhile 31% of our sales come from the emerging markets. Very close to Western Europe. And meanwhile significantly larger than what comes from the USA with 26% of our sales.

Then you see on the right side of the chart that this is true for all parts within the emerging markets. 16% of growth from Latin America, even 38% from Eastern Europe and Turkey, 13% from Asia and close to 8% from Africa and Middle East. Which means the growth in the emerging markets is really widely distributed all over the planet.

On page 17 where do we stand, what could be achieved in the first quarter in Diabetes, this newly founded division, which we created effectively January 1. Now overall a growth rate of 10% equals EUR790m and you see then once again that the strongest growth comes from the rest of the world part 24% and we see once again 21% in emerging markets, and Japan with close to 41%.

We have increased our share of voice in the US and I believe we have done so for two or three different reasons. First of all, we have to see that the market is much more busy than in the past. We have seen significant investment in the market coming from new substances, from new molecules and to be named of course GLP-1 but also PTP-4.

Second, we see that overall the market has slowed a little bit down in the fourth quarter already and since the first quarter. This may be due to co-pay, it may be due also to the overall economic situation in the United States. The third argument which made us increase our contribution in terms of investment to the market is that, yes, we want to ramp up our investment in the United States because we intend to launch blood glucose measures in the second half of 2010 and we are also already preparing for those launches.

Overall in Lantus I think it's important to underline that our market share in terms of value, in terms of prescriptions, in terms of total prescriptions as well as in terms of new prescriptions, is stable or is slightly increasing so also this is then confirming what I just said at the beginning. We have today a market which is much more busy in the part.

Worth mentioning also that we advance nicely with Apidra, 29% growth. We have repositioned Apidra some time ago as the partner of choice of Lantus and we have supported Apidra further by the launch of SoloSTAR and evidently this is working well.

Often overlooked that we still have a large product with Amaryl which is totally under generic but with is a very flexible policy in commercial we have put this product in a stable phase after losing the patent already as of 2005. You see the product has achieved more than EUR100m of sales in the first quarter, growing very nicely by 13% and this once again in the emerging markets.

We believe further that the first quarter as you see on page 18 brought a number of good news for the future perspectives of our Diabetes activities. You have learned a couple of weeks ago that we could publish first positive results coming from Phase III study on our GLP-1, lixisenatide, as a once a daily product. We have further announced that we will be starting first Phase III clinical trials in the fourth quarter 2010 of a rather promising combination of this product lixisenatide and Lantus.

We have further signed agreements with AgaMatrix, which gives us access to a very innovative new devices in the measurement of blood glucose. And we will be starting to launch those products in the United States but also outside in Europe and into developing parts of the world by the end of 2010.

Last but not least, we have signed a deal with CureDM for a totally new product, first in its class, regenerative compound to restore ability to produce insulin. Which it is true today is in very early stages but conceptually without any doubt presenting a breakthrough if first clinical results will confirm.

What we have achieved in Diabetes is equally true for Oncology, it's the second division which was also created at the beginning of this year. On page 19 you see the summary. There is an existing business with Taxotere. You see a modest growth rate of 1.9%, which is mainly due to a modest growth in Europe and outside Europe. But if you look to the US the growth is close to 10%.

So we have some destocking in these figures. We have also the beginning of genericification of Taxotere in Europe but as said before in the United States the product continued to grow very, very nice. We have also in support of this received the FDA approval for Taxotere 1-vial which we'll be launching within very short within the United States and later on in the year also outside.

You have definitely read about the recent settlement we could obtain with approximately two handful of generic companies in context of Eloxatin in the US. I believe it's fair to say that this is a rather unique settlement which in essence will give us back the market access for Eloxatin late in the year.

Chris has pointed out and said it's difficult to assess the effect and more importantly even the onset of the effect. But it is nevertheless fair to recall that the product, before it went into the hands of generic companies, had achieved annual sales of well about EUR1b in the United States. We have kept the Eloxatin price always on the same level despite the appearance of generics so I think this gives you an approximate vision how much the product can then achieve as of the end of 2010 and during 2011 and large parts of 2012.

Jevtana, also good news. We have reported very good news in context with Phase III clinical trials as well as an overall survival results in progression-free. And we expect, having obtained very recently just a couple of days ago a fast track revision by the FDA, so we are confident and optimistic to launch the product in the fourth quarter of 2010.

Good progress also with BSI-201, the product which we acquired through BiPar. A product, which will have a unique positioning in triple negative breast cancer. We are in a rolling process concerning its filing. We expect more results out of Phase II and more importantly out of Phase III during the first quarter 2011. And are aiming therefore evidently for a launch during 2011 and equally are preparing already today clinical trials in other indications.

On page 26 now more details then on Multaq. You see that we are on a good growth curve in the United States. We have achieved EUR20m in the first quarter, which means we are well trending towards those EUR100m of sales, which Chris just mentioned as a good benchmark for a large product in the first year of launch. We have obtained in the fourth quarter towards the very end of 2009 very, very good coverage in the managed care situation with 70% of coverage in commercial and in Medicare of approximately 50%. So also this has contributed to a nice acceleration of in market sales during the first quarter.

We have significant success in Germany, which was the second launch market after the United States. You see here some benchmarks Januvia and Victoza and evidently the performance of Multaq is well above.

By the very end of March we have -- we received a positive NICE recommendation which we take as a further encouragement. I can report to you that we also have received during the last week a positive evaluation by the Australian authorities concerning the access to national health care. So also in these directions we see good opportunities.

The product has been launched during the first quarter in various European markets. And the evaluation of the product in France is going on. We have been confronted with this press, especially in France during the first quarter which evidently was not founded because the evaluation is going on and this press has been corrected by a statement of the French authorities that the evaluation is not at all terminated. And we expect more news during the second quarter.

Lovenox and Plavix then, on page 21. Lovenox has worldwide presence of EUR1,655m equal or close to 2.5%. You see then once again the same picture, 21% growth of Lovenox in rest of the world. The product is doing extremely well, selling nearly EUR100m with a growth of 44%. And also in the US, the product on a very, very high level of sales is doing very well with an 18% growth.

Negative of course, the development in Europe. But also here we had some, in a certain sense at least, good news. You may remember that the two major generic companies, Sandoz and Ratiopharm were obliged to destroy their products because of quality problems coming from the Indian supplier during the months of March and April. Consequently, we have regained a significant part of the market with the original and giving you as one indication Germany, where we have achieved 10% more market share in the last week. Those are good results. I'm not so confident that they stay over time but nevertheless I remain optimistic that this will bring back some of the sales to the original, which in most of the European markets, we market at competitive prices.

Lovenox 4.7% growth and EUR769m. You see this is a product which of course remains under debate in the US. And I'm afraid that also during today's call we can give you no real news in principle. But it is a product which still continues to grow outside the United States by 12%, where it is achieving more than 40% of its overall sales.

Now the two other growth platforms in very, very short. You see on Consumer Health with 43% and Generics with by far more than 100%, very impressive growth rates. It is evidence that both are strongly driven by our recent acquisitions to be named Chattem and on the other side Medley and Zentiva and Kendrick. But it is also true that there is strong organic growth which you see very nicely on the right side, with 32%. So our overall policy to adapt very opportunistically to generic competition and then if needed to compete also via volume and through price, continues to be also successful and meanwhile contributes in a very nice way to the overall performance of the Group.

Page 23, the update on Merial for the first quarter. You see that we have a stable market situation. But also I think quite encouraging, the growth of 4.9% for Production animals, which is the smaller part of our portfolio which is largely driven by companion animals and one of those arguments of course that also led to the recent decision to enter into a merger together with Merck, which we are actively working on. And we progress here very nicely. And next step of course will be to agree with the respective authorities on the necessary divestment program.

Now the next page, 24, goes to Vaccines, and I pass on to Wayne.

Thank you, Hanspeter. In the first quarter we had a very strong quarter with EUR944m of sales, up 56%. Obviously, one of the main drivers for the quarter was the completion of shipments of H1N1 pandemic vaccine. Sales were EUR413m for pandemic vaccine. Many of these sales came from Mexico and Brazil. Mexico we delivered over 20m doses, and in Brazil over 40m doses. And Brazil being in the Southern Hemisphere, they're now in the immunization stage for a potential second wave and for their -- also for their seasonal campaign.

Importantly, we received a positive opinion from the CHMP for Humenza. This is our adjuvanted pandemic vaccine. This is important should there be a second wave in the Northern Hemisphere this fall and for future use in other pandemics.

Our sales in the first quarter were impacted from a timing perspective across much of the portfolio because of the focus on the filling and packaging and delivery of H1N1. An example of that is the Southern Hemisphere seasonal campaign where we normally complete shipment in March. This year we will have shipments through April. But it's on track and on budget when you look at the total for the Southern Hemisphere seasonal. We've also seen a pediatric inventory reduction in the US from the CDC. And this is seen across all manufacturers. This has had an impact on Pentacel. We see this as a temporary situation and we expect sales to be pretty much in line with budget for the full year.

Emerging markets were -- continued to be strong. Obviously, Southern Hemisphere, Brazil and Mexico were really enhanced by the H1N1. We've seen good performance from our travel & endemic vaccines, up nearly 25%. And this month we have filed for the intradermal vaccine Fluzone in the US. And we're in the midst of launching that product right now in Australia under the brand name of Intanza.

So all in all a strong quarter for vaccines, driven by H1N1. And we expect to see recovery over the next several quarters for the rest of the line.

So, I guess, back to you, Hanspeter.

Yes, so let me sum up how we see the first quarter in terms of sales. As I said, it is really a remarkable trend, so performance clearly shows that the measures in terms of acquisitions start to contribute to the overall performance. Evidently the quarter has been also very much helped by the performance within Vaccines.

We have further expanded our strong and market leading positions in emerging markets. And we remain confident that this will continue for the quarters to come.

Multaq is on track. We have good progress in all launch markets so far. And the decision in France is imminent during the second quarter. We have invested more in diabetes because we feel that the market is changing and that we also feel that it's growing opportunity, mainly from our intended entry into the blood glucose monitoring. We had positive news for Plavix to a lesser extent or much larger extent for Eloxatin, which will help us not so much in this year but will help us very significantly as of the end of the year into 2011 and 2012.

Now on the financials, I pass on to Jerome Contamine.

Thank you, Hanspeter. Good morning, good afternoon, everybody. So I will go from the slide 27 through the P&L. So starting with the sales, and I'm going to view what is organic, what is external growth, what is FX impact. FX has been already commented. Just recall that even if we see now the euro becoming quite the weak currency in the world, it was not still the case during Q1, if you were to compare Q1 with Q1 2009 where the US dollar actually was weak -- was stronger, sorry. So in other terms the US dollar has been weaker against the euro during Q1. It is now going the other way around, obviously.

On the other hand, we have benefited from the positive impact of the revaluation of emerging markets currency. We start to see in our sale the positive impact of the fact that the emerging markets and the emerging currency are now getting stronger, in particular again against the euro.

The external growth contribution has been close to 4%, which I think is remarkable and just shows the impact of our strategy to also chase for acquisitions to partly compensate for the generification impact of some of our products. I'll just remind you that neither Zentiva nor Oenobiol nor of course Chattem were consolidated in 2009. So you have the detail of figures with the contribution of Zentiva in terms of change in structure.

Organic growth has been up 1.97% -- 1.9%, sorry. Obviously this takes into account the negative impact of the generic of Eloxatin and Plavix, which making us losing around EUR450m i.e. around 6.5% of our sales. So we have compensated for that obviously, thanks to the growth of our growth platforms either in emerging market or in diabetes or in vaccines.

Moving to the next slide, our cost of sales. You remember that I said at the time of the Q4 -- release of Q4 and the annual accounts release in February that we should be around 29% cost of sales to sales ratio as compared to 26.8% for the whole 2009. Actually we are slightly better than that. But you have to take into account that we also benefited from the average mix, which is the favorable due to H1N1 during the first quarter for the vaccine business in particular.

On the other hand, as expected, the mix of business is changing. And we have had an impact of a bit more than 1% on our cost of sales, it will be a bit less in the forthcoming quarters. I don't think that we would achieve less of the generic development on the new business we are in. And we have the impact of the higher price of raw heparin, which also was -- we've already highlighted before by 0.9%. And for this quarter, it may change the coming quarters again, we have slightly negative effect from the currencies as long as we produce more in euro and produce less in dollar, we sell less -- more in dollar and less in euro proportionate.

Moving on to slide 29, I think that we're rather satisfied with the results of our cost savings programs, as this slide shows rapidly. As you can see, both our R&D to sales ratio and our SG&A to sales ratio have improved significantly, each of them by more than 1%. When it comes to R&D, beyond just reducing costs it's also the shift of the R&D content which is maybe more important, with still higher spending on Vaccines, slightly lower spending on Pharma. But if I look at Pharma, more spending on the new molecules and particularly on the external R&D as a result of our partnerships and we start to see the effect in terms of internal cost of our reorganization. But we should see more as from Q2 as long as the implementation of the new organization on the social front as well has now taken place, but has taken place all over Q1. So we see the full impact as from Q2.

When it comes to SG&A we always tend to be among the best in class. And I think that remains the case with a ratio of 23.1% to be compared to 24.4% last year. Basically you can see that not only we are of course cut -- while it's unfortunate but it is natural, our sales and marketing costs has shifted to Eloxatin and to Plavix in those areas where we are competing with generics. But also we have continued to generate more cost savings. And we have been able to even decrease our overall absolute amount of SG&A despite of the impact of acquisitions which obviously have brought some new SG&A. So we have compensated for that all over the year 2009 and beginning of 2010. And at the end of the day we have a decrease in absolute terms SG&A for Q1 2010 compared to Q1 2009.

Moving to page 30. Well, I can be short. I think that there are two things which maybe deserve come comment. On the share of profit or loss of associates, the one, the first one is an improvement by EUR38m, which is the result of a very good performance of Plavix mainly. In the US we benefit from our share of our venture with BMS in the US. And secondly, we see the full impact of the 100% consolidation of Merial, so that we are basically doubling the contribution of Merial year-on-year. The only variation is linked to the translation impact of the US dollar into euro, if you compare the two quarters.

So all in all, if I move then to page 31, we have been able to stabilize our net financial expense in spite of the slight increase of the debt to finance acquisitions. As planned, our income tax rate -- effective tax rate, is up 28%, which was what has been the level for the whole year -- the whole year 2009. So we have 1% below the level of Q1 2009. And we have posted, as you've noticed, EUR2,427m of business net income, which is up 9% -- 9.7%, sorry, on the current exchange rate basis and more than 16% on a constant exchange rate basis. So we have improved the net margin. Despite of generics impact, we have improved the net margins year-on-year.

The next slide is just to recall you what have -- what we are taking in terms of restructuring costs. So we have taken some restructuring charges or provisions, should I say, in connection with the reorganization of our Chemical activity in France, which we have announced by the end of Q1, and which will be implemented over time and which will make significant savings on cost of sales going further.

Cash, we have continued to have strong cash flow, page 33 or slide 33. The free cash flow has been above EUR1.8b, and that both financed our CapEx program over the quarter but also all the acquisitions on in-licensing we have signed up, in particular the acquisition of Chattem, which is a main contributor to financial spending over the quarter. So with some variation because we bought back some minority interest in our affiliate in India, we have basically stabilized our debt there's a slight increase by EUR300m if you compare end of 2009 and end of the quarter 2010. So basically I think it's a very good sign that, just over the quarter, we've been able to finance an acquisition of Chattem without increasing our net debt.

Next slide, I think that Chris has already commented on that. We have accrued for $35m in our Q1 sales for Medicaid rebates in connection with the healthcare reform in the US. And we expect -- we assume, that the overall impact for the full year will be around $220m for the full year 2010 including the $35m. Of course this is for -- some aspects and just evaluations for reasons that Chris has already well described some minutes ago.

As you expected, we have factored all this impact in our guidance. When we release our guidance in February we are not exactly clear on what will be the exact factors. But we embedded basically what actually has been finally voted in. So this is why clearly we are not revising our yearly guidance for 2010.

So if I have to summarize, I think that we have really delivered a very good first quarter, very solid and good. I will not come back on sales performance, clearly driven by acquisition on H1N1. We are on track to deliver more cost savings than planned. I recall you that we have planned to save at least EUR600m in 2010 as compared to 2008. And clearly we are ahead of schedule. We also are ahead of sales growth in terms of business EPS growth. So we are leveraging our P&L.

And we can confirm that even if we won't have any more H1N1 sales in the coming quarters, even if we had these sales in the last quarter of last year, I'm also taking into account the timing of generification of our main products last year, which may have an impact -- will have an impact on the like-for-like basis. We confirm that the business earnings per share should grow between 2% and 5% at constant exchange rate, of course barring unforeseen major adverse events.

And last but not least, we have continued to generate strong cash flow, stabilized our debt, and keep all our funding ability to continue to look for potential bolt-on acquisitions along with our strategy.

Now I think we can pass to questions maybe, Sebastien?

Thank you, Jerome. Indeed we are now ready to answer any questions participants may have. I'll ask people to please limit themselves to just one or two questions at a time to allow as many people to participate in the call. As you know we have more than 40 analysts covering us, and I know that many people are eager to ask questions, so thanks for respecting that. Operator?

(Operator Instructions). We have a question from Mr. Mark Dainty from Citi. Please sir, go ahead.

Thank you. Just two questions on diabetes, please. With the next generation insulin analog, I see that's started Phase IIA, I couldn't see anything on the clinicaltrials.gov yet. So if that all goes to plan, could you give us an indication of when you might start Phase III?

And then on the combination of the GLP-1 with Lantus, could you just confirm whether this device is intended to be a fixed ratio of Lantus to GLP-1, or whether you're intending to have, say, a fixed dose of GLP-1 and be able to titrate the Lantus dose individually. Thanks.

Well, on the second part it wouldn't work if it weren't titratable on the insulin, so we would confirm it's not a fixed dose. Marc, perhaps you can say more on both those questions?

Yes, I can confirm that it would be fixed dose of GLP-1 and variable dose of insulin, of course. And for the first question, I have some difficulty to listen?

First question, Marc, was about the entry in Phase IIA for the long-acting insulin. Mark Dainty's already asking when are we moving into Phase III. But I think we're just entering Phase IIA.

So yes, I think we have given some date for submission of the long-acting insulin which is in 2013, 2014, something like that. So it gives some indication about the Phase III.

And launched in 2015?

That's it.

Yes? Next?

We have another question from Mr. Sebastien Berthon from Exane BNP. Please, sir, go ahead.

Yes, hello, gentlemen. Two questions, please. The first on Lantus. You have mentioned in the press release there's an inventory effect in Q1 in the US. Could you quantify it or give us an order of magnitude. And also is the slowdown in the market, in the diabetes market in the US, does it have any impact on your target to double Lantus sales by 2012? I calculate that it implies at least 15% or 16% growth per annum to 2012. That's the first question.

Second question is with regards to emerging markets, I calculate that your growth, excluding H1N1 and acquisitions, is probably around 7%. Could you confirm that number and give us a little bit of color of which are the best and worst performing regions for you in this area? Thanks.

All right, so as far as Lantus goes, I think the first part of the question, Sebastien, was how much of the HCR was applicable to Lantus. Essentially I think what we were saying is I think we saw a difference of about EUR35m between consensus forecasts for Lantus and what we're reporting, and at least half of that was related to the reduction due to healthcare reform.

In terms of ability to double the business, we're not going to change the target based on one month's performance. I think you've heard our commitment to invest in the brand. Market share's continuing to do well. And we don't see anything in this that affects the long-term potential. I think the idea of the AgaMatrix deal is not really just so much to sell some business in the devices, but actually to sell more Lantus. And I know, Hanspeter, you've had some numbers on that. Do you want to say a little bit more about that?

Well, I think it is a bit too early, also for tactical reasons, to go too much into detail. But we believe that our engagement into device will be approximately by half driven by real sales of devices and strips and so on and so forth, and half by a better dosing of our products in this field. We can say today approximately 70%, perhaps 60% of patients are under-dosed. And we work in a direction together with AgaMatrix to improve compliance and correct dosing, which naturally will translate into incremental sales.

I have something to add on GLP-1 which might be interesting for the combo. That when you are looking to the result of the first Phase III, the first point that we said that what was of interest of GLP-1 with Lantus was a good control of the postprandial peak, and it's what we achieved very, very satisfyingly.

The second point, you know that one of the problems with GLP-1, that you need titration at the beginning because of the vomiting effect. And we look at the result of our GLP-1. We always said that we have less vomiting effect. And you can see that in fact titration is not a benefit. In fact, we have the same result that with or without titration, which is also another interest for the correct administration of the combo.

I think the other thing I would say on Lantus is obviously that we're really starting to push in emerging markets on Lantus and in certain markets we have new capacities coming on stream which will help us to achieve the growth rates that we've been looking for.

You asked about underlying growth rates in emerging markets. And which countries are doing well. Before I turn it over to Hanspeter, I would just point out that actually we're trying to provide you with the full picture of emerging markets. So our definition of emerging markets is anything that's not North America, Europe, Western Europe and Japan. So it's not just BRIC countries or a selected basket of countries, it's all countries and all products. And as you look at the different companies, as we've tried to benchmark, not everybody actually is defining emerging markets in the same way.

I'll turn it over to you, Hanspeter to say a few highlights in emerging markets.

I would say that overall the performance is more or less equal if you take acquisitions out. You see on page 16 that we have a 13% growth rate in Asia. In Asia we didn't do any acquisitions which would have had an impact on our growth in sales in the first quarter. Of course, Latin America, we benefit from the acquisition of Medley and to a much less extent because of its size from Kendrick. And in Eastern Europe we benefited evidently from Zentiva. But if you take it out, all parts of the growth are increasing their natural sales, so to say, in double digit.

And then on Africa 7.7% looks relatively modest. Nevertheless, I recall many, many years where the African market was not growing at all and compared with Europe, which is not growing either today, 7.7% are not such a bad figure. So once again these three bigger parts have an equal growth rate of two digits, even if we take the acquisitions out. And in Africa we see an acceleration of course in the upper one -- single digits, which once again I feel is not so bad as a basis, given also the fact that in Africa we are by far market leader for historical reasons already.

Quarterly sales of EUR400m in Africa and Middle East I think is exceptional. And that's a nice base from which to grow. I would probably say the one market that has been a little bit more problematic has been Mexico, largely because Mexico is an emerging market in one way, but is obviously highly dependent on the American economy and so has been a little bit more affected by what's going on in the US. And we of course have significant sales of close to EUR1b, all businesses combined in Mexico, again where we are more present than some of our comparator companies.

Can I maybe just add one technical or -- technical point which I think is worth mentioning? Along with what Wayne has explained, we have put all the emphasis on the sale of H1N1 vaccines during Q1. So if you and but on the other hand we have postponed the sales of flu vaccine, seasonal flu vaccine, through Southern Hemisphere. So if you just tend to deduct the H1N1 and then you tend to deduct the acquisitions, you can put something which is going on the wrong side just because there is a postponement of sales of other vaccines but H1N1 to the Southern Hemisphere down to April. So -- and I think this is maybe the thing which leads you to the calculation you've done. But if I take the rest, we have been growing double digit as has been shown already in basically all areas we are in.

That's very helpful, thank you very much.

We have a question from Mrs. Alexandra Hauber from JP Morgan. Please, miss, please go ahead.

Alexandra, are you there?

Alexandra, you might be on mute.

Hello, can you hear me now?

Yes.

Okay, that's fine. Sorry, some technology issues. I have two vaccine questions for Wayne. I do understand the phasing issues which have impacted the vaccine business in the first quarter. But if I look at the geographic split, it looks like in the US you were particularly weak, and I understand the Pentacel issue, and you've explained Menactra, the catch-up opportunity is no longer there. But everything was weak, even the adult booster and the vaccines, did you have any special US effect this quarter? Or is there -- have you just not explained all the one-timers on the US business?

The second question, last year at the Vaccines Day you gave a target for 2010 vaccine sales which was EUR4b. And when I look now at the first quarter performance, given that the H1N1 opportunity's already in, that seems a bit challenging. Can you still deliver that figure? And has the H1N1 actually lived up to the expectation to get to the EUR4b?

Okay. So I'll start with the US. There was quite a few things going on in the US in the first quarter, particularly as relates to the CDC. The CDC reduced inventories on virtually all products that is purchased through the Vaccine for Children program, the VFC program, which is 60% of the market. So if you look at vaccine sales across all the manufacturers, you'll see pediatric vaccines, booster vaccines, are all down generally quarter-to-quarter. And that is expected to resolve over the course of the remainder of the year. The -- one of the issues was the CDC works their budget, their contracting ends on March 31. And so they're into a new contracting cycle. So we think that's really a temporary issue in the US.

Menactra is -- it is pretty much on budget ending first quarter. We expected Menactra to continue to show decline as the catch-up marketplace becomes smaller and smaller. At this point we've not seen much impact from Menveo. Obviously they're -- it's just now in launch phase. And we knew that long term our growth for Menactra is going to be coming from the international markets. And just this week we have signed a contract with Saudi Arabia for a two-year contract to deliver 2m to 2.5m doses of Menactra. So that's going pretty much as we had envisioned.

As relates to the EUR4b number that we had said was our target at the December Vaccines Day, that's still our target. It's going to be challenging to reach and at this point we probably will come up a little short of that. Everything will really depend upon what happens with H1N1. The H1N1 right now is pretty much where we said it was consensus wise that we would have comparable sales year-to-year. We had actually expected sales to be even stronger from a budgeting perspective. We have had some order cancellations, particularly in Europe.

But I think we have to really wait and see how this evolves in the second half of the year. Right now we're moving into the influenza season in the Southern Hemisphere. We're seeing H1N1 started to resurge, whether it becomes more epidemic only time will tell.

We do expect a very strong year in terms of our seasonal vaccine for the Northern Hemisphere. I can tell you that the demand for the vaccine is at an all-time high. I think the decision that we took last year to complete our seasonal production before we switched to H1N1 is proving to be -- have been the right decision for the customers. And we have many customers who are now coming to Sanofi Pasteur and Sanofi Pasteur MSD and giving us more of their business because of the fact that we were able to deliver all the product last year and so they're giving us more of the business for this coming season.

If I just can add something, Alexandra. Yes, Wayne is describing the situation. But just depending on the exchange rate of the dollar against the euro anyway it will be extremely short to -- extremely close to, sorry to the EUR4b, maybe even above, depending upon how the US dollar and the euro will be heading. So I think we can maintain globally this objective for this year.

Okay. Thank you.

We have a question from Mrs. Luisa Hector from Credit Suisse. Please, madam, go ahead.

Good afternoon. I've got two questions, one of them just following up on vaccines and specifically on Menactra. So you've just commented about the situation in the US. But I'm just wondering if basically whether we can actually see growth again in that US market since we have the Menveo launch? And then, although you're filing in the infants in the second quarter it seems that there's fairly negative views coming out of the Immunization Committees, given that the infant schedule is so busy. So just wonder what you can comment on the US side there.

And the second question is on Taxotere. So as I understand it, there are I think three generic applications which are actually through the 505B2 route, and there's a court decision pending on this. And then there's just one ANDA application where the actual court case, we're still waiting for a date for that one. So is there a chance that we don't actually see true generic competition in November when the patent expires?

Perhaps I'll start with the second question, it's easier one. It's the way you ask the question, I can only answer this yes. Yes, there is a risk that as of December we may see generic competition. What is the probability of the risk? That's much more difficult to assess.

But that competition would most likely be by generics approved through the 505B2 route, so non-substitutable? Unless the ANDA filer launches at risk?

There things get more difficult and I don't want to speculate. You will understand for us the impact is the same, i.e. if it's one route or the other. So, yes, we cannot at all exclude it. There are some important question marks through the citizen petition. I had outlined also said we are in the process of obtaining a one-vial form. The overall patent situation is relatively, how should I say, vast. It's several patents. So it is really difficult to say, but it's the way you ask the question. Yes, there is a risk because some of the patents go off.

Okay, thanks.

Okay, in terms of Menactra. I think that we will see growth again in the US. I don't think we will see growth in the US year over year this year or next year, and the reason being is that at this point, as you pointed out, the ACIP has taken a position that they do not envision recommending any bacterial meningococcal vaccine for the infant series.

They've made that decision because there's a very low level of this disease right now, but this is a disease that tends to be cyclical and it clearly is a very serious disease and it's a disease that is vaccine preventable. So I think once -- we're in a good position from an epidemiology perspective to say that the disease is at an all-time low, but the data has always indicated that over a 10-year period this is a disease that will ebb and flow.

Our position has been that our real growth for Menactra is into the international market and we have been working to license Menactra in the international markets. We're licensed now in the Gulf States and, as I said in my presentation, this week Saudi Arabia signed a two-year contract to purchase 2m to 2.5m doses of Menactra.

So I think that the growth will come, but it's not necessarily going to come from the US. We will file the Infant/Toddler momentarily. And I think ACIP will have to look at the epidemiology and, right now, they don't have a product to recommend or not recommend. No product is indicated below two years of age. So I think once they have a product in hand they'll have to go back and look a little more carefully at their recommendation.

We have a question from Mr. Graham Parry from Merrill Lynch. Please, sir, go ahead.

Okay, thanks for taking my questions. Just going back to your long-acting insulin analog, I was just wondering if you could actually give us the exact dosing regimen that you'd be looking to take into Phase II and Phase III. Could that actually be a weekly product or is that going to be less frequent than that?

Secondly, on Menactra declines you indicate that you didn't see much impact from the Menveo launch, but was any of that decline related to any inventory de-stocking? And is it fair to assume that, going forward, the overall market you're now seeing declining, so regardless of whether it's Menveo or Menactra that's taking the share, that that will be a declining market overall?

And then, thirdly, just a long-range question. You're actually coming within four to five-year horizon now for the Lantus patent expiry and, apart from your GLP-1 analog combination, I was just wondering how you're starting to think about a pricing strategy just for mono Lantus in the face of biosimilar competition. So are you thinking price pressure to maintain share or escalating prices to maximize sales from any diminishing market share? Any insights on that you could offer us would be great. Thanks.

Perhaps I can take the first question on long-acting insulin. You can consider that since we are currently in Phase I/Phase II it's very premature to give any information about the potential dose of Phase III. Definitely we are looking for the dose which is giving the best coverage, mainly in terms of decreasing quite -- with the total disappearing -- total dispersion of hypoglycaemia which is really one of the main attribute -- what should be one of the main attributors of this compound.

Wayne, you want to go with the Menactra again?

Could I have him just restate the question? You're asking about Menveo and the impact. Is that --?

So I guess there are two questions in there, Wayne. The first one is whether any of the impact was actually related to an inventory de-stock, as, I guess, the fridge space is made for Menveo stocking, so you actually see a de-stocking of Menactra.

And the second was just in terms of the overall market, whether you see the overall US market now shrinking; that seemed to be the implication. So regardless of whether it's Menveo or Menactra that's taking the sales, that actually the total US market should shrink year on year from here going forward.

Okay. Well, we have not seen much impact at all from Menveo in terms of de-stocking. Menactra is on budget for the first quarter, which is below last year first quarter. And the reason for that is that the product is recommended by ACIP for 11 years of age, where they ask all 11 year olds to be immunized. They also recommend that there's a catch-up market for 12 to 18 years of age and each year, Menactra's been in the marketplace now five years, your catch-up market becomes smaller and smaller. Either the patient has been immunized or the patient leaves the age group. And so you eventually get down to the targeted birth cohort as the ultimate size of the market.

And you see this in many of the adolescent and adult vaccines. I think if you looked at the HPV vaccines you will see the same phenomena that you have peak sales in the second year of launch and then you see a decline for several years until you reach steady state. Future growth then comes from new indications or new age groups and that's the one we're pursuing with the Infant/Toddler.

Now on the question of prices in context with Lantus and in the large context with diabetes, yes, I believe that the prices will go down over time due to new competitors, due to out-of-patent situations, but on the other side we have evidently the demand base. And the demand in diabetes we are convinced will more than outweigh eventual price concessions and just to give two figures. There are estimates from IDF that today about 285m patients are being treated for diabetes and that figure would increase to 438m by 2013, which is equal to a 54% increase.

Or another angle, for China only the Chinese Diabetes Association gives a prevalence of diabetes at 40m. There is another figure for China talking even for 94m patients, and out of those 40m or 94m, which is a large difference, I admit, but, more importantly, today only 12m are diagnosed and only 2m are treated with insulin products. So, yes, prices will go down but this will be outweighed by something which will be totally driven by volume.

And, yes, of course then the cuts will be newly distributed, but I have good reason to believe that we are on the good side, given our capacity and our overall holistic approach to diabetes which we don't understand only in proposing a product like Lantus but also in proposing more and more also accompanying services to really ensure we get a full access to this enormous potential.

We have a question from Mr. Mark Clark from Deutsche Bank. Please, sir, go ahead.

Yes, good afternoon. I just wanted to ask a little bit about the dynamics of long-acting insulins. You've mentioned with your follow-on long-acting, much like Novo Nordisk, looking to reduce or minimize hypoglycemia. But in practice how many patients on Lantus or, indeed, Levemir experience hypoglycemia? My understanding is that it's a pretty small number.

And, secondly, what proportion of patients on Lantus -- or, rather, let me rephrase that. What proportion of your prescriptions for Lantus are effectively patients who are stable on that treatment and, therefore, unlikely to be switch candidates? If could you talk us through dynamics it would be great.

There is few hypoglycemia with Lantus. I do not know exactly the number, but they are relatively minimal but they are still there, they're still present. And so definitely I think when you are looking for a long-acting insulin you should not look only for the duration of action, but you should also look for reducing the side effects which are also -- which are present with the previous drug. So I think you should not look only to reducing hypoglycemia. You should look at both duration of action and hypoglycemia, but the two factors are not independent.

What is the main factors -- sorry, thank you. No, I'm sorry. I got the paper in between. No, definitely the market share of the new insulin is not to take all the market of Lantus. The purpose of the new insulin is, in fact, in the patients who are not well equilibrated with Lantus or who prefer to have a total coverage is to be switched both for hypoglycemia and also for duration of action. For duration of action at the present time we still to make our enquiry. It's not totally obvious. And I'm sorry to say that on that we are still making our calculus. It's not totally obvious that an insulin every two weeks or every two days or every three days is a perfect way, so we are still working a little bit on that.

And, again, I think we will come back following our result of Phase II with a clear explanation about the selection of the dose, and again both on hypoglycemia, because it is still -- this is still a problem with long-acting insulin, even if it's slightly decreased versus the short-acting, and also on the duration of action possible.

Okay. And you wouldn't care to hazard a guess as to what proportion of your Lantus sales effectively are repeat scripts as opposed to new ones?

I think it (multiple speakers).

I didn't understand your question phonetically. In Lantus, your question --

He's trying to get the scripts, our new prescriptions.

I would say 20% are new prescriptions, 80% are repeated prescriptions. Now in respect to any innovation, I believe it's fair to say that if a patient is well controlled there is absolutely no reason to switch him. Each doctor is extremely content to have an insulin patient well controlled and he will not change for anything new unless there is really a need. So necessarily all products coming newly in the market have to drive through new patients. Fortunately, or unfortunately, there are enough of them.

Okay, thank you very much.

We have a question from Mr. Andrew Baum from Morgan Stanley. Please, sir, go ahead.

Hi, thanks for the question. Could you update us, Jerome, on your manufacturing footprint? I was thinking of your gross margin and fixed to variable cost ratio given the declines in volumes you're going to face. Could you just update us on the planned number of plant closures over the next three years and where we are benchmarking against?

You have two questions; one on the manufacturing costs and the other one is on the SG&A. That's it?

No, not SG&A. I just want to know some sense of -- I suspect you have, or you will have, overcapacity because of the reducing demands for volume, at least in your Western territories. So to try and get an update on where you are in terms of consolidating those sites, and is there any change in your plans to reduce the number of total plants over the next two to three years?

Okay. No, I would not exactly put it like that. In fact, after all the total volumes we are going to produce worldwide are going to increase. This is a basic thing in terms of volumes as the result of expansion of sales in emerging market, so we don't have any volume issue as such. Of course, we have some activities which are definitely declining. Typically, activities or production which are linked to products which are becoming generified as you know. Even if here we still continue to produce part of the API, like we do with Plavix with our own generic, but also there is a switch from chemical products to biological products.

So the long-term plan in manufacturing is how to move the production from one place to another, or from places to other places, to both save cost, to have a production which are closer to the markets, in particular for emerging markets, with the exception of some key products on which we want to control or continue to control the technology, typically, Lantus. And the second move is to switch chemical facilities to biological facilities and, typically, our chemical - the plan to restructure our Chemical operations in France is typically devoted to that.

We are closing one plant in a Paris suburb, we are moving some production to other plants and we are switching all our Chemical installation in Neuville to a biological factory, to vaccines. This is where we are building our facility to produce the Dengue vaccine. So all this what is going around, if I just take all what has been announced over the last year which will be implemented over the three years to come, we have announced the closure of Kansas City in the US, we have announced the closure of Dagenham in the UK, we've announced, as I mentioned, the closure of Romainville in France, we have announced the closure of a plant in Mexico, we are on the verge to close some other plants elsewhere.

So it's an ongoing process with always a time-lag effect between the time you announce it and you decide it and you get the profits just because, in between, you have to transfer the production. So this is all what is going around. So I would not say so much that it's a question of available capacity. It's a question of adaptation of the capacity to the product markets you are selling in. Now, if you think about the cost of sales to sales ratio, it's fair to say that when we are growing volumes the sales per unit tend to decline when you are not selling products like I mentioned already, Eloxatin and then tomorrow Plavix in the US. So it's clear that the average added value per unit tend to decrease so this is what we are fighting against.

If I now take 2010, as I said already, we are losing all in all and, despite of the cost savings we are doing, we are losing all in all -- we should lose around 2% of cost of sales to sales ratio. And this is really if I put aside the impact of the variation of the raw material costs of heparin, which is coming from 0.8% into this 2%. There is 1.2% which is coming basically half from the evolution of the composition of our portfolio and half from the impact of acquisition on a like-for-like basis. Because we acquired last year more generic companies where you have definitely -- or OTC companies where we have definitely less R&D spending but -- and somewhat, it depends, variable, it depends upon cases, SG&A spending. But definitely you have slightly lower gross margin. So I don't know if it answers your question but this is basically where we are now.

Maybe I can just add a few things. First, Andrew, I think there is a misperception that your costs go up because you lose volume; that's not actually the case, in our case, in any case. So I think you have to look at companies in different ways. We're not a company that's dominated by these big blockbusters. We are in value, but not in volume. And so as we lose Plavix, for example, the amount of volume actually is relatively low compared to what the value is. And the only reason your gross margin will go up is not because your costs go up.

Let's put it this way. If you have a 25% cost of sales, and you know that, obviously, products like Plavix have far less than 25% cost of sales, now you take a Plavix out of there, mathematically the average is 25%. Now you take something out that has less than 25%; that means you know that other products have more than 25%. So all you're really doing is having a mix change. To give you an idea, in France our biggest selling product by volume is Doliprane. We have an entire factory devoted to that. If you think about the fact that we're in the Generics business, we're in the Consumer Healthcare business, actually we don't see decreases, as Jerome says, in volume.

Now we do see, because of the shift in our portfolio -- and today almost 27%, almost a third, of our new product portfolio is Biologicals and, therefore, we have an excess capacity in Chemical manufacture. For example, in France we have seven plants. We're actually closing three of those plants because, of course, well for two of those there are Biological facilities and the employees will transfer to new plants, you can't, of course, produce Biologicals in a Chemical plant. So we're actually closing Chemical plants, concentrating the production in a fewer number of plants and, as Jerome has said, we have a program to restructure and improve capacity utilization.

But because of the businesses we're going into and expanding into emerging markets, we actually don't have a volume issue. It's also why a company like ours can't really outsource much because there's so much volume. Just to give you an idea, in Consumer Health might have -- business might have one-tenth the sales of a pharma business and four times the volume. So there is a difference in value and volume that, particularly for a more diversified company like ours, means it's a little different.

But as Jerome says, the margin will -- gross margin will probably decrease just mathematically, not because costs are going up, because of mix. What we would anticipate -- and you're seeing us do this on trading expenses, being able to reduce those margins. And in particular because some of those businesses into which we're entering, like Generics and Consumer businesses, don't have a 15% R&D spend against them, that we believe that our operating margins will stay roughly the same. So that was one of the main reasons we said in 2013 that we believe we can achieve the same level of profit as 2008 and the sales will be the same. So that, by definition, means that we expect the operating margins to remain roughly constant.

Thank you.

We're going to take one last question, please.

We have a question coming from Eric Le Berrigaud from Raymond James. Please, sir, go ahead.

Yes, good afternoon. I can push my chance to ask three, I'm sorry. The first one would be on BSI-201, just to see when you could unveil the Phase II data in non-small cell lung cancer, whether it might be ASCO or any other congress.

Second question is Eloxatin in the US. How would you help or guide us in modeling pricing for the drug in 2011 once generic would be off the market?

And, lastly, on Menactra again, I'm sorry. It's good to hear that you have succeeded in signing an agreement with Saudi Arabia for 2m doses, but with the new manufacturing coming on-stream with another 100m doses, and by 2016 with another 100m, that brings the total to 400m. Is it still fair to expect sales of Menactra to double like manufacturing capacity will in the same -- in the meantime?

Marc, you want to take the BSI question?

Yes, so for BSI we decided to enter directly Phase III without Phase II based on the outstanding result in the breast, and also based on the PARP expression, because there is two other type of tumors on top of breast which is expressing a lot of PARP which is lung and which ovarian cancer, and so we took the decision to jump directly into Phase III.

And also based on another factor which is extremely important, which is the excellent tolerability of the product. Because most of the time, in fact, when you are doing Phase II in oncology is to get the best regimen because most of the time you are adding toxicology. And so because you are adding toxicology you need to pick up the best regimen. And I think so far what is absolutely impressive with BSI-201 is the lack of toxicity or side effect, which is -- rather atypic for an oncology product. So for these three reasons we decided to jump. And also fourth one, of course, which is competitive landscape, we decided to go directly into Phase III.

It's true that I think we did pick the tumors were PARP is the greatest. But actually some -- now experts are saying that actually PARP inhibition could play a role in pretty much most tumors types and we're not exactly sure what level makes that sense. So we're looking at other tumor types beyond the lung and the ovarian, because it may be that this PARP inhibitor could play a broader role.

Eloxatin pricing, Hanspeter?

Well, I think the answer has to have two sides. The first one, when we talk about a settlement with those eight or 10 generic companies, the word settlement could be understood. The matter of fact is that those companies have been for more than a year on the market and they should not have been on the market because they are violating our patent. Consequently, we have kept our prices up and, yes, we intend to re-enter the market at the original prices and I think the least to say is that this our good right.

Now the other side of the answer is that since this is an unprecedented case and, given the structure of the American market for oncology products, we are sensitive that this may raise issues with -- in terms of distribution, in terms of availability of the product. And we have entered into conversations with those ensuring distribution of oncology products in the United States in order to minimize those inconveniences in the best interests of our market partner but, more importantly, also in the interests of the patients. And I am confident that we will find a very good way.

Wayne, on that Menactra capacity?

Okay. Well, first of all, the new facility will come on line at the end of this year and it will have a capacity to be able to produce up to 20m doses. We need that facility in order to secure the registration of the product globally. This facility has been designed to meet all global regulatory requirements; FDA, EMEA as well as the international markets. And so until I have that facility it's -- we cannot license the product in Europe or some of the international markets.

So the capacity will be consumed by US, Europe and by a lot of international markets. And if you just look at Saudi Arabia alone needing 1m doses a year, we'll be licensing the product in Brazil, in Mexico, throughout the Latin American region, as well as in the Asia Pacific region. So if you're just looking at US, no, we don't need 20m dose capacity. But when you look at the global demand and the global need for bacterial meningitis vaccines, this facility will be serving it globally and we expect to use the full capacity.

Do you still expect the full capacity in 2016 to be close to 400m doses?

I'm not sure where you're getting those numbers from. Our capacity for Menactra in the new facility is 20m doses. Could you be confusing flu capacity with meningitis capacity?

Including the Chinese and then the Mexican capacities of -- in 2012.

Okay, that's influenza. So we're (multiple speakers).

That's influenza capacity.

Yes. We're building a flu facility in China and Mexico, both have 25m dose capacity. And then between France and the US we have capacity to produce 250m doses of influenza but, clearly, we use all that capacity today on flu.

Okay, thank you.

Okay, so I think we need to wrap up. Again, we've had a good first quarter but, of course, the future of the Company is not based on first quarter and we still, as an executive team here, are spending most of our time in rebuilding the long-term franchise of this business. The levers we really have are obviously around R&D, what we do with our cash and how we manage our costs. I think on R&D, as I said, I think we've really moved an awful lot. We've got a long way to go. But I do think that we've managed to really clean out the portfolio and have a good solid base on which to build.

You know we're at 27% of the portfolio without Vaccines is in Biologicals. Over 50% of the portfolio is in external projects. We have a whole new organization that is in place. And I think the other thing I would say is -- and this is a lesson that I've actually taken away that I hadn't actually anticipated when we did it. Last year we cleaned out the portfolio. We announced the termination of about 25% of our portfolio. But that had a hidden silver lining to it, in that that meant that we actually had people and budget capacity to actually do, I think, an unprecedented number of licensing deals.

And what it, in fact, did was allow us to actually go out and buy the best of what we could find outside the Company. My experience over the years has been that, typically, if you want to bring in something you're constantly fighting with existing projects in your own internal pipeline. You do an R&D budget and you always have more projects than you have budget for, and then somewhere midway along the year you come with an interesting in-licensing opportunity, the first thing you run into was where are you going to get teams, where are you going to get the budget.

So I think one of the reasons we've been able to renew the pipeline in the way we did is that we actually had the budget and people capacity to do it. So I can't claim it was our plan to do, but it certainly has highlighted the -- how much value you can find outside the Company, and that certainly encourages me to continue along with Marc and with Michel de Wilde, our Head of R&D in Sanofi-Pasteur, to continue that approach.

Obviously, we continue also to look at external growth. We've completed two deals already in the first quarter with Chattem and with Merial. We have made sure that all of those acquisitions are being properly bedded down and integrated. I think it's also a credit to the depth of management that we have, particularly in our regions, that we've been able to do a diverse set of deals and have the management capability internally to actually integrate that. Because of the size of those deals none of them are distracting from a global point of view.

So we continue to hunt out there and I think the environment is actually still quite promising for that. And of course a further lever is our cost structure, and you've heard from Jerome that we're making better than expected progress, and I think we actually have an awful lot more that we can do in that. So I think as I look forward, saying we've been able to transform the business away from our historic growth drivers of Plavix and Taxotere and Lovenox, and move to new businesses, and I think we continue to make very good progress on all of those platforms, again, continue to show the growth that is going to be needed to be able to build this business over the longer term.

So thanks for listening in and we'll talk to you next quarter. Bye.