Sanofi SA (SNY) 2014 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Sanofi second-quarter 2014 results conference call. I now hand over to Mr. Sebastien Martel, Vice President, Head of Investor Relations. Sir, please go ahead.

Thank you, and good morning, good afternoon, to everyone. Thanks for joining our call today to discuss our financial results for the second quarter and first half 2014. As always, the slides to this call are available on the Investors page of our website at www.sanofi.com. Before we begin, as you can see on slide 2, I'd like to remind all of you that information presented in this call will contain forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially. I refer you to our Form 20-F document on file with the SEC and also on our document de reference for a description of those risk factors.

On slide 3 you can see the agenda for the call. With us on the call today are Chris Viehbacher, our Chief Executive Officer, as well as Jerome Contamine, our Executive VP and Chief Financial Officer. First, Chris will discuss key highlights of the second quarter and first half. And then Jerome will review our financial performance during the period. After that, Chris will return and make concluding comments, and then we will take your questions. Dr. Elias Zerhouni will also join us for the Q&A session. And as you all know, Elias is the President of R&D at Sanofi. I will now turn the call over to Chris.

Thank you, Sebastien. Good morning, good afternoon, everybody. So I think we've got a good set of results here. You all know of course that really we've come out of the patent cliff since September of 2013 and we've seen steady growth of the Company, and the second quarter of this year is no exception. It continues that trend. Net sales up 6.4% at constant exchange rate obviously helped to a degree by the comparator period where we had the Brazilian situation. And we'll show you what the impact of that is, and it's certainly in the press release. That also, coupled with some pretty tight expense controls led to business earnings per share up 13.4%.

We've paid an awful lot of attention to cash flow, working capital management, so free cash flow was up actually faster than earnings. So we had an increase of 33% in the first half. That has also allowed us to return EUR4.8b to shareholders, EUR3.7b with the payment of the dividend. And we have year to date bought back about EUR1.1b in share buybacks.

The growth platforms have been the story for the last five years. They started five years ago at about 38% of sales. They are now 76.3% of sales that clearly doubled as a percentage of our sales, partly through the organic growth, partly of course because we lost the old blockbusters. Very good execution in emerging markets; very pleased to see Merial back to growth.

What I think is really interesting now about Sanofi is that we are I think becoming an R&D story. Most of you do not see Sanofi as an R&D story, and I know we're going to have to change that. But we'll come back and talk to that -- about that a little later in the presentation.

We've got three significant products under regulatory review now. There are another four projects in Phase IIb and III that will read out in the second half. And we have two new collaborations.

So moving to the next slide, you can also see though that one of the headwinds that we faced in the first half-year is a strong euro and a resulting foreign exchange impact, with foreign exchange not quite eliminating the growth of net sales. So we had an incremental sales of EUR0.5b offset by EUR440m in foreign exchange, and about EUR0.10 a share on the earnings per share line. Largely, I think this should be behind us. One never knows, and if I could predict exchange rates I'd probably be doing something else. But we are starting to see, I think, some weakening of the euro. And if nothing else, at least the stability of that is such that this shouldn't be such a major impact on the second half.

So we take all of that together and move into slide 7. We've obviously had a good performance, even when you eliminate Brazil, high single digit. So we've decided to adjust the guidance, narrowing it from 4.7% to about 6% to 8% so essentially moving this to the upper range of our guidance from the beginning of the year.

When we look at slide -- the next slide, on buybacks, one of the things that we have faced over the last couple of years was an awful lot of issuance of shares. Due to the performance of the share price a lot of our employees have not been able to exercise any stock options. And so really, about five years ago we were faced with quite a backlog of stock options. And given the strong share performance up until 2013, a lot of our employees have been able to exercise so while we've been buying back shares, this has largely been to offset dilution. That has now stabilized and so we actually have a higher net share buyback, having bought back about EUR1.1b in shares with only EUR252m in issuance.

Next slide is -- I think really, what we have been trying to do with the growth platforms. This is a risky business. If I even look at where the environment is today versus as little as three years ago, it wasn't that long ago when biotechs were all looking for money. Now everybody's flush with money. Three years ago, emerging markets were growing rapidly. Now we're seeing more strife in the world. And who knows where we're going to be in three years? We certainly see a much more challenging payer environment, for example, in the US. And to me, the way you deal with that is that you've got to have a business that can weather these storms. And that's what we try to do with the growth platforms; these are businesses that really have some level of competitive advantage, that don't have a patent.

Now, because of their nature and because of the variability of these businesses, they are a little bit more variable than some of our pharma investors are used to. But when you actually look over the last couple of years, they've largely been between 5% and 10%. So the average is the mid- to high-single digit, which is exactly what we've been trying to achieve. This provides the longer term cash flows and predictable growth outlook that we've been trying to achieve. And principally the reason for this is to be able to really exercise our core mission, which is research and development which by its very nature obviously requires big upfront investment and some big risks.

So I think when I look at that, I would say the strategy's clearly working. If we look to the next slide and look at the platforms individually, you can see emerging markets up strongly, but of course obviously helped by the weaker comparator period. When we strip out generics in Brazil, growth platforms grew 10.7%. So it's still double-digit growth instead of the 14.5% in the second quarter. And that same number is 9% in the first half.

Looking at emerging markets, if we also exclude generics in Brazil, emerging market growth was still 8.6% in the quarter and 6.5% in the first half. So again, we're still in that range of upper single digits on both emerging markets and on the growth platforms.

Diabetes continues to do well, with the US up 20%, emerging markets up 16%, and Europe, which obviously doesn't benefit from any price increases, up in upper single digits.

Consumer healthcare is up 9.2%, really across the board but particularly helped by a very successful launch of Nasacort. The whole category has -- of inhaled corticosteroids has actually -- nasal corticosteroids -- has actually grown as a result of the launch of Nasacort, and so we're very happy with that launch.

In our vaccines business, as we said at the end of the first quarter, we expected the quarter to be flat, and it was. It's not really rocket science. The lead times involved with vaccines mean that basically we can sell everything we can make and therefore it's really a matter of looking at lock release in vaccines. We had that supply issue last year. But the vaccine supply chain is one that takes a long time to fill. We have a lot of long lead times on some of these antigens. So that's why, as we look to the second half, we're going to be confident of getting back to growth.

Genzyme goes from strength to strength, up 29%, not just because of the rare disease franchise, which is clearly doing well, particularly driven by a 44% increase in Fabrazyme, but also I think Aubagio. And as we have said before, you don't have to beat Tecfidera. You only have to get your share of a clearly growing oral segment. Aubagio has its role. Every patient is different. You're talking about patients who are going to be on medication for decades. Physicians are looking for options. Not everybody has the same risk benefit profile. And so Aubagio is clearly gaining its share. Lemtrada off to a slow start, unsurprising, we've always said Lemtrada was going to be off to a slow start. This is a -- paradigm shifting drug, it's not going to be for everybody. People need to get used to using it. But equally, this medicine has demonstrated unprecedented levels of efficacy up against the gold standard comparator treatment.

Animal health growing at 6.2%. Really, the turnaround is not only as a result of the successful launch of NexGard, but really I think the stabilization of Frontline. Frontline, as you all know, is the biggest product in the entire animal health market. It is been -- it has been off patent for about four years. We have been losing about 6% market share every year. But up until last year we were doing that in a growing market, such that we could still grow Frontline on a net basis. Last year the seasonality was such that the whole market decreased for the first time, which really exacerbated the generic erosion. This year we've been able to stabilize Frontline sales. And the launch of NexGard then has been accretive to that growth. So we're expecting animal health now to stay on track for some time here.

Other innovative products -- this is an area that's really going to grow over the next few years. And I'll come back and talk about that.

Moving to slide 11, you can see the geographic sales mix. Here you can see our single biggest region is still emerging markets. It grew at 11%, obviously with the Brazil effect in there.

Africa and Middle East, a little softer this quarter, largely in Africa, largely due to just some movements in the distribution channels. Obviously there's quite a collection of countries. Some of this also related to some of the turmoil in parts of northern Africa. You can see Eastern Europe, Russia and Turkey up 4.7%. So far Russia continues to perform well for us. Asia up 5.4%. Really the pharma business going at solid double digits behind that. That's just largely where some of the shortfall of vaccine supply has brought that number down to 5.4%. And Latin America growing a very robust 14.6%, when you exclude the Brazil and generics.

So emerging markets are always going to be a little bit of a variable phenomenon. But this is where 80% of the world is. And I don't think anybody can really exclude that part of the world as a key part of their market.

US doing well, largely on the back of Lantus. And Europe actually coming out of the patent cliff, and actually if you strip out the older products, we're seeing very satisfactory performance in Europe as well.

Merial I've largely talked about. Clearly we're moving from a product with Frontline where you put drops on the back of your dog or your cat's neck. And NexGard is for dogs. Here you can just toss your dog a beef-flavored chew once a month and you who have dogs know that anything you feed them makes them pretty happy. So it's got a pretty good marketing appeal.

Moving on to the next slide, this is where we're really moving into R&D. So we have three medicines under active review. The first is obviously the extremely important Toujeo. This has been filed in the US, in the EU and also recently in Japan. So it's a global filing and a global launch. This is a medicine that offers the efficacy and the confidence and safety of Lantus while offering lower hypoglycemia -- glycemic events. I was with some of our colleagues at the ADA this year. You talk to key opinion leaders. The number one concern that doctors have, even though these things are vanishingly rare, there is still always the worry about hypoglycemia. You talk about something that offers a hypoglycemic event and you've got a physician's attention. So I think it's really as simple as that in terms of positioning.

Lemtrada has been approved in 31 countries. The FDA has accepted a re-review of this, and we'll hear later on in the year. As I say, this is a product that clearly is working for patients and I think will grow ultimately to a big medicine, but it's going to take some time.

Cerdelga, I think is being lost sometimes in the limelight of all the other new product launches. But this is actually a very important medicine too. This is for Gaucher. These are people who have perhaps been taking an infusion every two weeks for their entire life since childhood. You can have adults, in fact, Genzyme has people that they started off with as children as patients, and now these people have children themselves.

I was talking to a key opinion leader in Sao Paulo recently who's got about 60 patients there. Her words to me was her patients are extremely excited about this. Not just because of the convenience of an oral, but if you've been going to an effusion center every two weeks for your life, and now you simply have to take a pill, for you it makes you feel, quote unquote, normal. So I think this will be an important launch for us all.

Now, moving to Alirocumab, the name we submitted to the agencies is Praluent. There's a lot that can be said about this. And to be honest, I think this is an area where we're really going to have to work, I would say. We clearly are looking differently inside the Company about how this drug is going to be used and in which segments, and the investment community. I think we have two opportunities to help better get the utilization understood. We'll be presenting all of these data in detail at the ESC in Barcelona at the end of August. And we also have an investor call planned at that time. So that'll go into really what's in the medical and the science.

And then we plan to do a New Medicines Day on November 20. This is really an opportunity to bring not only what we understand medically, but some of the aspects of our market research. For us, there are -- this is a market that is going to be segmented. This isn't a product that's going to replace all statins. But I think there is a huge underestimate of the unmet need that exists in this category. Now, someone who's had a heart attack who's still got high LDL despite high statins, has hypertension, has diabetes, and you offer a product that can reduce their cholesterol by 50% to 60% beyond where the statin has taken it, and you've got what appears to be a pretty benign safety profile, do you really think that they're going to wait for the outcomes study to actually prescribe this product?

The second thing is, is that even without the outcomes study, we were extremely encouraged by this interim look at the long-term safety study. Elias can comment on this afterwards. But I think those data that have already shown an imbalance between cardiovascular events between the treatment arm and non-treatment arm augur well for the longer-term outcome study. We do plan to file by the end of the year. And as we announced last evening, Regeneron and Sanofi acquired a priority review voucher from BioMarin. These types of vouchers are to encourage and motivate people to do research in rare pediatric diseases. A company can either use that voucher itself or sell it. In this case, BioMarin sold it to us. What you should understand is that the voucher can be used against any product for any indication. It is not to be used just for other rare disease type products. So this is an opportunity potentially to be able to get an accelerated review in the United States. This only applies to the United States, but for Praluent.

Now behind that -- and going to the next slide -- there are other new products. Dengue vaccine, we're expecting a second Phase III study. Now again I think one has to remember, when you're talking about vaccine efficacy, this isn't drug efficacy. This is about not only protecting the individual but reducing the reservoir of infected people who are available to infect others. Now unlike flu, this doesn't transmit itself. You need a mosquito to go from person to person. But the more you vaccinate, so this is why the more you vaccinate, the more you reduce the pool of people who are infected. And that's why the regulatory agencies set a hurdle rate of 25% efficacy, because this isn't drug-type efficacy. This is really trying to reduce the pool. And in fact the WHO is looking to reduce morbidity by 50% in -- by 2020 and mortality by 25%. And this dengue vaccine will be critical to it.

Most of our investors, unfortunately, live in the Northern Hemisphere, and are largely unaware of the significant public health issue in the Southern Hemisphere. This is also an urban-based disease. If you're in Singapore or Sao Paulo or in Kuala Lumpur, all of these cities have incredible difficulties with this. This fills hospitals. When you have an epidemic, there is no treatment available, and people, largely children to adolescents, people live in fear of this. And of course we have seen an 88% reduction of the dreaded hemorrhagic fever in this, and a 67% reduction in hospitalization. So I think -- I encourage everybody to look a little differently at the efficacy rates, because I can tell you when I talk to health ministers, they're pretty excited about this vaccine.

Dupilumab I think is going to be another game-changer. We're talking about atopic dermatitis. I've had our Executive Committee spend half-days with patients and physicians for all of our new products. Once you really see how difficult atopic dermatitis is for people to live with, you really understand what the opportunity is. If you go to IMS and look at what the market is, don't be surprised because there really isn't much that people can take with this. We're talking about people whose bodies are often at least 50% covered by this. There is an awful lot of other allergic diseases with this autoimmune disease. It's often associated with asthma. So -- and when we see the Phase IIb results, I could certainly tell you that the reaction of patients has been extraordinary for this drug.

Sarilumab with rheumatoid arthritis, despite the fact that you've got a number of TNF alpha drugs out there as well as Actemra, there is still clearly significant unmet need. Again, we've spent a lot of time with key opinion leaders. We saw the Phase III MOBILITY trial data that we presented a little earlier with very clear significant improvements in all three co-primary endpoints.

Now we're also always looking for things to keep our business fresh. We've had a licensing agreement with Lilly. The switch business and the OTC category is the most exciting part of that. We've been successful with Allegra, we've been successful with Nasacort, and I think that's the part that gave Lilly the confidence to provide us with the opportunity to switch Cialis. We have the rights in US, Europe, Canada and Australia. So now the ambition is to really get this ready for launch, probably around the time of patent expiry.

And the other of course is Medtronic. We talked about this on the investor call that we did at the ADA. Really looking at two things. How do we look at drug-device combination and how do we better leverage some of the care management? Type 2 diabetes is not just a question of medicines or devices. It is really trying to help patients cope with their disease and I think with the partnership of Medtronic, we can make a real difference here.

Looking to the second half, we've got a lot of news flow. We've talked about the expected regulatory decision for Cerdelga in Q3, and then Lemtrada, the EU Cerdelga decision and the Fluzone quadrivalent intradermal in the US, all in Q4. We're planning to submit the hexavalent vaccine, the PR5i in the US in Q3. We already talked about Praluent in Q4. And we will be presenting in Barcelona the nine Odyssey trials. The dengue trial should be in Q3 as well. And we're starting Phase III for dupilumab in atopic dermatitis, our rotavirus vaccine with Shantha in India as well as our insulin lispro in diabetes.

So I'll just close with this, Thursday, November 20 to which you're all invited. We'll be doing this at Genzyme headquarters in Cambridge, Massachusetts. And I think we'll also have a satellite theater set up in London for people who prefer to stay in Europe. So we're going to be discussing the market opportunities, the shift of our portfolio, the biologics and further progress of our innovative R&D assets.

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

Thank you, Chris. Good morning, good afternoon, everyone. I will now take you through a bit more of the detail of the financials of the quarter. So I start with slide 20. So as Chris mentioned earlier, we delivered both strong top and bottom line growth at a constant exchange rate this quarter which reflects consistent execution on our strategy with sales of roughly EUR8.1b, which were up 6.4% and the business EPS which is reaching EUR1.17, up [13.4%]. Therefore our results were primarily driven by strong performance across our growth platform as well as selective investments on product launches on late-stage pipeline.

However, the strength of the euro, as mentioned by Chris, continues to impact our accounts when they are translated into euro into the second quarter, impacting sales and earnings by a similar amount as in the first quarter. So this quarter, more precisely, where sales were impacted by EUR443m or 5.5% negatively. And at the business EPS level which presents a negative currency impact of EUR8.9b -- 8.9%, sorry, of EUR0.10 in the quarter.

The currencies impacting sales in the second quarter were primarily the US dollar and the Japanese yen, but also the Brazilian real and the Russian ruble.

Of course we cannot predict exchange rate movements. But if you assume that the June 2014 exchange rate remain stable until end of 2014, the negative foreign currency impact on the full-year 2014 business EPS would be limited to approximately 5 percentage points, which is roughly speaking EUR0.25 in absolute amount. Therefore, we would expect a significantly lower impact for the second half of 2014 if exchange rates remain stable at the level of June 2014. With the same assumptions, the negative FX impact on the business EPS in Q3 is expected to be around 4 percentage points, while the negative FX impact would become much smaller in the fourth quarter of 2014 at around 1 percentage point.

Of course, we can always hope to have a stronger -- as an example, US dollar but here this is something that's very hard to predict.

For additional information regarding sales sensitivities to key currencies which may help you refine your modeling as the exchange rate evolves during the year, I invite you to refer to the last slide and the appendix of our Q2 slide deck.

Now I move to the next slide, slide 21. So before I dive into the details of the P&L, you can see here that we managed to keep our old costs items growing slower than our sales in Q2. As a result, our business operating income increased by 15% at CER. We posted a business operating margin of 26.6%, which is 1.3 percentage points higher than last year.

Before we move on to the expense line of the P&L in the next two slides, I'd like to point out a couple of other elements. First of all, the second quarter marks the first time that we are partially consolidating our ownership in Regeneron, which was 20% in the quarter. We now own 22% but we have consolidated 20%. We have highlighted to you last quarter that we expect to benefit from our investment in Regeneron by approximately EUR45m on a full-year basis for 2014, which in fact represents three quarters.

So the contribution from Regeneron is booked on the share of profit of associates line, on which a bit less than a third of these EUR45m during the quarter. Additionally I'd like to remind you that last year we recognized a gain on the other current operating income line of EUR165m from the sale of some US tail products to Covis. This year we have booked a gain of only EUR62m which coming from the return of our US rights for Eligard to the originator, who is TOLMAR.

Now I move to slide 22. So we see here that the cost of sales increased by a limited 2.2% on a constant exchange rate basis, to EUR2.6b in the quarter. Due to our significantly stronger sales growth, our gross margin improved by 0.9 percentage points, sorry, in this quarter versus the same quarter of last year. This favorable evolution mainly reflects the recovery in Brazil, of course but also strong improvement from Genzyme representing at the Genzyme level around 5 percentage points on the gross margin on Genzyme itself, and diabetes also, which was partly offset by unfavorable currency effects as well as a slightly negative mix impact from vaccines and animal health.

For the full year I can confirm that we continue to expect an improvement in our cost of sales ratio at constant exchange rate versus prior year, despite some competitive pressure at the payer level in the US impacting gross to net pricing.

I now turn to next slide, slide 23. We continue to control our R&D expenses rigorously while increasing investments in multiple Phase III programs at the same time. This quarter, our R&D expenses grew 3.2% to almost EUR1.2b, which is in line with the full-year guidance which we provided earlier in the year. This slight increase largely reflects higher investments in development programs for monoclonal antibodies, more than offsetting internal cost savings.

As already guided, we confirm to expect R&D expenses to slightly increase during 2014 while staying below the EUR5b threshold. Due to investments in our strong late-stage development and post-marketing programs, we continue to project a slight increase in R&D expenses in the coming two quarters.

Now I move to slide 24. We see that SG&A expenses increased slightly here again by 2.6% at constant exchange rate in the second quarter to EUR2.3b. This modest increase in SG&A largely reflects the commercial investment in our product launches, specifically for our multiple sclerosis franchise as well as for the launches of Nasacort OTC and our next generation flea and tick product, NexGard.

In the second half of the year we will be investing in the launches of Cerdelga and Lemtrada, as mentioned earlier by Chris. Overall we expect to keep the ratio of SG&A to sales basically stable compared to last year, which is in line with the guidance we communicated last February.

Looking at the lower part of the P&L, on the slide 25, we again highlight that business EPS was up 13.4% in the quarter and almost close to 10% for the first half. Of course, all these on a constant exchange rate basis. Net financial expenses also decreased in the second quarter to EUR94m compared to EUR137m in last year's second quarter, firstly as a result of a capital gain of EUR31m before tax, resulting from the sale of several financial investments. At the same time, our cost of net debt continued to decrease by 30 basis points.

Our tax rate was 25%, which is consistent with our full-year guidance but an increase of 3.8 percentage points from the same quarter last year, as you remember that we had a 24% average expected tax rate for the full year 2013, but as a result of that we're at 21.2% during the second quarter.

I also should point out that due to our share buyback activity this year, the average number of shares outstanding declined by approximately 11m relative to the same period of last year. As of July 15, we have bought back shares for a total amount of EUR1.1b.

On the next slide, slide 26, I should highlight that our EPS growth at constant exchange rate this quarter was largely organic; that's the message, when adjusting for the various other elements. Indeed, you can see on this slide the breakdown of the business EPS impact resulting from the recovery of generics in Brazil, from the lower contribution from the other operating income line versus last year and from the very low tax rate we had in Q2 2013. So clearly we posted a solid business EPS growth of 8.9% on a recurring basis this quarter excluding these elements.

Moving on the next slide, slide 27, we can see that free cash flow, as highlighted by Chris, increased by 33% faster than profit and reached almost EUR2.4b the first half of the year. This is a result of tight control on working capital and capital expenditures. This increase in free cash flow largely funded the acquisition of Regeneron shares in an amount of EUR1.4b total, including what we acquired in July, up to July 15, as well as EUR1.1b for the repurchase of our Company shares since the beginning of the year.

The cash flow statement also included a dividend payment of about EUR3.7b paid in the second quarter as well as significant investments in our Biotech partnerships, Regeneron, of course, but also Alnylam during the first half. As you can see, our net debt at the end of June was approximately EUR10.2b, which is in line with our net debt medium-term target.

In summary, we are pleased that we continued to execute our strategy under strong financial results of this quarter. As we look to the second half of the year, I just want to remind you of a few items for your modeling considerations.

First, we expect the continued progressive improvement of the supply situation for vaccines and a strong flu season as underlined earlier by Chris.

Second, recall that last year included the payment of EUR92m before tax for the amendment of the Actonel agreement with Warner Chilcott which was booked in Q4 2013 as well as an income of EUR93m before tax resulting from the recent Rituxan arbitration between Hoescht and Genentech in the fourth quarter.

We will also continue to invest in our late-stage pipeline which we look forward to discuss with you at our IR thematic seminar on new medicines on November 20.

So all these things considered, we increase slightly our guidance and now expect business EPS to grow between 6% and 8% this year. Before we turn to questions, I will now hand over to Chris to wrap up.

Thanks, Jerome. So I guess just to summarize, 75% of our sales are now being generated by growth platforms. And we've had three years of experience where you've seen that these growth platforms really are growing at high single digit on average. They can be bumpy, because of the nature of them, but over a long period of time I think they have proven their value.

Our business earnings per share has been adjusted from 4% to 7% growth to 6 -8% growth, largely on the back of a good performance in the first half, which we simply expect to continue, despite a more competitive payer environment in the US. Our late-stage pipeline, as you've seen, is moving now to launch execution. And we would expect actually new medicine launches to further redefine Sanofi as a biopharmaceutical leader, 45% of our sales today are already in biologics, 80% of our pipeline is biologics, and I believe today that we would rank second or third in terms of biggest biologic producer in the industry.

So with that, I'll turn it over to Sebastien for questions.

Thank you, Chris. Operator, we're now ready to open the call to questions. And as always, I'll ask participants to limit their questions to one or two at a time so that we can allow as many people as possible to participate into our Q&A session. You can always get back into the queue if you have further questions. Operator?

(Operator Instructions) Michael Leuchten, Barclays.

From Barclays. Two questions, please, one for Chris. The -- you've mentioned in the press release the increased payer pressure, and Jerome mentioned that as well in terms of gross to net conversion in the US. I just wondered whether you could add more color why that is specifically mentioned now and where you see the pressure within your business, particularly.

And then a question on the ODYSSEY trial, given you've put that taster in the press release yesterday on the long-term trial and a post-hoc analysis. Just wondering if Elias could talk to us about how those patients looked at baseline, maybe their baseline ADL level. What those CV event were post-hoc that you were looking at post-hoc? And whether there's any comment on the different time points where those events occurred, say one year versus 24 weeks and 18 months, or any color you can add overall. Thank you.

I think on the increased payer pressure, this is an industry phenomenon. I think I've certainly seen notes out from various companies who've held panels on this. This is partly due to the pressure from some new medicines. It's partly due to some of the pressures that some companies are facing from the ACA. And partly quite honestly just due to our own competitors.

You've got a number of people out there who are being much more aggressive in contracting to try to gain market share. And I think seeing this in some other areas, largely I think trying to seize upon the payer pressures to see whether there's an opportunity to gain share. Clearly, Sanofi's not about to yield share to anybody. And so -- but I think that's normal. I think, as I say, you've seen it with other companies. And it's just sort of something to keep an eye on.

Nonetheless, this comes back to the diversity of the Company, that yes, it's there, but even though we know it's there we can still, I think, maintain and possibly even slightly increase the outlook for the rest of the year.

Elias, do you want to say a few words about the long-term safety study?

Sure. So the long-term safety study's a study of about 2,341 patients. And in terms of what the baseline levels were, as you know we started every patient on statins. So all of them are on statins and their baseline levels are no different than the populations that would be selected upon these criteria. I can't be specific about levels, because I don't want to jeopardize publication rights and presentations at the ESC. In terms of the points that what -- in the pre-specified analysis we were looking at the MACE criteria, which are the exact same criteria that you would look at in a cardiovascular outcome study, which is the study that ODYSSEY is continuing on 18,000 patients.

The time points, there were pre-specified analysis where we would say first analysis would be at 50% of patients having been exposed more than 12 months and 25% at 18 months. So the analysis that we were reporting or we were observing a less than 0.5 difference in favor of Alirocumab is based on this planned interim analysis.

Many thanks.

Graham Parry, Bank of America Merrill Lynch.

Okay, thanks for taking my questions. So firstly on the Alirocumab priority review voucher, you use some conditionality in your statement of intent to use that, so phrases like potentially use or plan to use. So is there any risk at all that you might not be able to use it? And to what extent was that voucher purchase the result of any broader discussion with BioMarin?

And then on pricing, there's a lot of discussion around pricing above GLP-1 levels for these agents, possibly more towards the TNF agents. But some commercial players think that GLP-1's growth has been hampered by a premium price level to, say, Lantus. So could you just talk us through any rationale as to why this -- these agents could be priced above GLP-1 analyst?

And then finally on additional data that we could look at, are there any DSMB interim looks on the cardiovascular outcomes trial? Or should we expect any pharmacoeconomic data at the upcoming cardiology meetings? Thanks.

So on the voucher, let's say that at the end of day until you see ink drying on the NBA, I think anything is possible. But generally you have to give the agency three months' notice. You know there's two types of voucher. One is related to rare pediatric disease, the other is to tropical diseases. The tropical disease one actually requires a longer notice period and that's why the pediatric voucher -- the rare disease voucher is considered more valuable. This is a request to have an accelerated review.

Obviously you're back into the normal review cycle then. You can be awarded an accelerated review for any type of product, even without a voucher. But that doesn't always mean you're going to get it. But at this stage, all we can do is say we've acquired the voucher, and at this stage our intention would be to try to use it for that.

In terms of pricing, I don't want to get into this pricing today. But I will say that I do not consider, and certainly all our market research does not consider the GLP-1 market as a relevant comparator or an analog. We're looking at much different levels of efficacy and a much different type of market, and a much different set of treatment alternatives, as well as a much different set of outcomes. So I personally don't really pay much attention to GLP-1 when it comes to the Alirocumab. But this is where I think we will come back.

Our teams have done market research now. We obviously know more about this product today than we did even a week ago. And the robustness of the results is something that we'll be exploring with physicians and patients and you can -- as I say, you have a first look in Barcelona and then we'll try to bring all of that together in November.

Elias, do you want to take Graham's third question on other aspects of the outcomes trial?

Yes. This is a good question. So as you know, the long-term -- the cardiovascular outcome study called the ODYSSEY outcome is an event-driven design. In other words, we are basically dependent upon the event rate, the number of events observed that are adjudicated amongst the patients who are treated.

Now, in terms of those studies, there always are planned interim analyses that are performed during the conduct of the trial by the DSMB and to which we're blinded. During those times, the DSMB has total discretion to assess the risk benefit on both sides of the equation, if there are less events or more events in one arm versus another.

So we do have planned interim analysis at a certain number of events, as agreed upon with the agency, at which point the DSMB has discretion to continue or terminate the trial, depending on what is observed. That's pretty much all I can say, Graham.

And can I just follow up there? Have any of those events passed or can you give us any kind of feel for when they would be?

And also, the question on pharmacoeconomic data.

So in terms of timelines, 2017/2018 is our timeline. There's plus/minus six months is possible on those dates, so I can't really predict more than that at this point. It's recruiting at the rate that we expect it to recruit and the event rate is what we expect. So I would say that we should hold ourselves to those timelines at this point.

In terms of pharmacoeconomics, let me say this; there are two fundamental questions that affect this field. One is are PCSK9 inhibitors capable of increasing the better outcomes that we see with statins, and there is a central question, which is that statins per se have a salutary effect that others -- other drugs have not proven. I think the results that we've reported yesterday in our long-term study with the 2,341 long-term patient cohort are the first evidence, in my view, that in fact that notion is not correct, that in fact lowering LDLC is having an additional impact on top of optimal statin therapy.

So because of that, that will change the pharmacoeconomics to a large extent given -- if confirmed, obviously, by the ODYSSEY long-term study in terms of the ability for us to lower the morbidity mortality of this disease beyond that of maximum statin treatment. So I think there is the first evidence. So in pharmacoeconomics terms, now you can see a baseline, an upside that is essentially indicating -- trending towards the upside, given the recent results.

In terms of the other parts of pharmacoeconomics, I would say that it's still evolving. We absolutely believe that there will be, as Chris said, a need for addressing unmet high-risk cardiovascular patient needs early in the -- after the launch of this product, even before the full cardiovascular outcome study is published because I don't think the risk benefit is something that you would want to weigh towards the risk in these patients. You would probably want to err on the side of giving the benefit of the doubt to the patient, given what we know today.

Thank you.

And I think just as an add to that because I agree with everything Elias just said, and this is why I think we need to spend some time with what we have learned. I think there is an assumption out there that there's statins and everybody's well controlled and the problem's solved. But in actual fact it's pretty astounding when we look at the number of people who, despite statin use, are nowhere near goal.

And I think that when you couple that with patients who have other risk factors, as one -- one cardio KOL described them as the gang of four between smoking, between high cholesterol, hypertension and diabetes. When you have those four conditions, this is the four controllable elements of cardiovascular disease. And this is really why cardiovascular death is still one of the leading causes of death.

So that's why I would say that we don't really look at the GLP-1, which is looking at a broad spectrum of patients in a broad spectrum of treatment. Here, you've got essentially -- LDL cholesterol is a factor in itself, but it's also effectively a biomarker for identifying patient options. And I think so you're going to see a much more targeted approach, and we don't really do that in the GLP-1 segment.

But again, this is something where you actually have to spend a fair amount of time. This is a -- it's a -- one needs a fairly granular analysis, but I think you'd probably be surprised at the numbers also involved. But we'll talk more about that another time.

Next question, please.

Peter Verdult, Citi.

Yes. Good afternoon, everyone. Peter Verdult from Citi. I've got two questions, one for Chris and one for either Jerome or Chris

With Toujeo and PCSK9 next year, that's two pretty big potential launches. If we then go and assume that you do get a broad label for PCSK9, how should we be thinking about the incremental commercialization efforts of both assets? If we were just to simply assume that there is a significant expansion in both the diabetes and the primary care sales force, is that the right way of thinking about it or can you help us think about it a bit more intelligently?

And then secondly, Jerome or Chris, lots of noise in the market regarding Big Pharma looking to divest established products. Can you just update us as to how much of a priority this is for you to explore these options for your EP business? And if it is on the cards, is it technically feasible to set up vehicles for tax inversion purposes? Thanks.

Right. So yes, I can tell you inside the Company things are pretty busy. We're -- in pretty much every business we've got new product launches either underway or about to get underway; Genzyme with Cerdelga and Lemtrada. We already talked about the others. Here, we've got Toujeo. We're still rolling out LixiLan, PCSK9 now.

The interesting thing I think is that clearly Sanofi, when we talk about this gang of four and you hear that diabetes is one of the four risk factors, obviously we are exploring what kinds of synergies we might get between these two.

I think next year -- we are already putting more money into the business. Last year we had a big investment bill building up our MS platform. This year, we had a significant net increase. So you don't necessarily see it in the numbers because we are busy driving savings out of the rest of the business, but we put well over EUR700m of new investment into the business just because of this burgeoning pipeline.

And next year I think we've got both continued pipeline investment and commercialization costs. I think it's too early to tell what impact that will be. I don't think we're looking at PCSK9 initially as a primary care product. However, I think we're going to be focused probably more on specialty audiences.

So I think a field force expansion will not necessarily be there, but you do have two big blockbusters here you're going to try to launch. So -- but I think what we've also seen is that we've been able to try to manage new investment while squeezing costs out of the rest of the business.

Just on the mature products, I'll let Jerome talk a little bit about some of this. I think the reality is, is that the mature product question has been around as long as I've been in the industry. It comes and goes, largely with patent cliffs. So as the industry's gone through a patent cliff, yesterday's blockbusters becomes today's mature products. And so we're all sitting there with a boatful of these.

The conundrum has always been, as long as I've been in this industry, we'd like to eliminate the dilution of our sales growth, but we don't really want to give up on the cash flows that those bring. And in particular, there's an awful lot of cash flow from those older products that go into funding research and development.

So there's a -- everybody I think is discussing in the industry. I think finding a solution that is not dilutive for our shareholders is critical. But when you look at the past, there haven't actually been that many deals done in this area.

Jerome, I don't know whether you want to add anything.

No, I don't know if there's anything to add. Chris made the point that, on the one hand, this is -- these products are dilutive on your growth from a financial standpoint, up to a certain extent. Defocusing the Company versus the focus on the new launches, but at the same time, you can generate precisely the cash flow and the profit, which help financing the rest of the business.

So the Holy Grail is not that obvious to find. And you hear a lot in the press about all these established product stories, but very few transactions actually take place.

So I don't think there is much more to say. And it's normal that in this industry everybody speaks about that, but at the end of the day, not much takes place. (multiple speakers)

But it is something everybody is actively looking at, and we can do something that would create value for shareholders. There are a whole host of technical issues that I'll spare you with on this, but if we can create value we'll try to do something.

Next question, please.

Tim Anderson, Sanford Bernstein.

Thank you. A couple of questions. On your M&A plans, that's the first question, you generally continue to only do smaller share buybacks and you've been pretty consistent in the past saying that you're looking mostly at bolt-on acquisitions. But when I take those two things together, you said that you'd have cash accruing on the balance sheet. So my question is really whether it's realistic to expect that you'll continue to look primarily at bolt-ons or at some point does the window open up here for you consider larger targets?

And the second question, in keeping with what seems to be Sanofi's goal, which is to be a diversified company, can we expect Sanofi to push into brand new areas or would it likely just build out existing areas, for example with something like medical devices or diagnostics ever be of interest to the Company or would the Company be interested in becoming more of a global generics player?

So look, acquisitions are in the DNA of this Company. This is the basis on which this has been built. And I think by nature we are -- we like to hunt. The issue is I think that the market situation has dramatically changed over the last three years, and particularly we're happy that we did our acquiring two or three years ago than today.

The basic problem is, is that by the time you pay a premium, and the premium is often driven by an awful lot of cash by some non-healthcare specialty investors now, all looking for higher returns, and then if you couple that with the people who are trying to do inversion deals who are willing to pay more of a premium because you get a synergy on the tax side, valuations are pretty robust. And by the time you've paid the premium and you say -- well, what value am I creating for our shareholders? You're often left saying -- there isn't really much left there for us to do that with. So I always like to say I don't get paid for making someone else's shareholders happy, which is pretty easy to do here, but it's a lot tougher to find shareholder value for us.

But the thing about this is, is that the winds change pretty quickly. So we continue to look, we continue to play this on a half-by-half basis on the year. We're back to EUR10b in our debt target. As we look and we don't find anything to do beyond the bolt-ons, then we buy back shares. But we don't want to say that -- hey, we'll never find something that adds value, and so we prefer to keep some of the strategic flexibility.

I will say that we're prepared not only to be evaluated on the deals we've done, but also on the deals we haven't done. And I have to say, most of our shareholders when I talk to them are not keen for us to do anything.

You do get a lot of bankers telling you that when everybody does an acquisition the share price goes up. And so I've a lot of investors coming to me saying -- we hope you're not listening to all this -- because how long is that really going to last, especially if you end up with companies that -- where you've got a lot on your balance sheet and you're not generating return on?

On the diversified -- diversification, I think we're -- we've said in the past and I'll say -- certainly confirm again today, Tim, we're happy with the perimeter. There is a balance to be struck between diversification and management bandwidth, quite honestly. I think we've got our hands full on this, so I would expect us to be building out versus expanding.

I have to say I really don't know anything about medical devices, and even where we want to be in devices, we'll prefer to partner, which is why we decided to get together with Medtronic, for example. We recognize that we have some competencies and some products that can be useful to Medtronic, but Medtronic knows a lot about things that we don't know about. And so where we need to be in a broader area we'll do it through partnership.

So -- and for the rest of it, yes, pretty much everything is open in terms of build-out, subject again to creating value for Sanofi shareholders.

Next question, please. Operator, we can -- can we have the next question, please?

Vincent Meunier.

Good afternoon, gentlemen. Thank you for taking my questions. The first one is a follow-up on Alirocumab, and particularly on the post-hoc analysis of the ODYSSEY long-term trial. Can you please tell us if you think the result of that study can be part of the label of the products and then would give you an advantage before the publication of the ODYSSEY outcomes trial?

And the second question is another follow-up on the situation currently in the industry. Is it fair to assume a marked deceleration of Lantus in 2015 because of the flattening price in the US and the growing rebate and assuming that what's happening is an industry event, as you said?

Elias, do you want to talk about the label question first?

Sure. So in terms of the long-term study, which involves the 2,341 patients, one thing I'd like to stress to you all is that we've been extremely careful to design quality over speed in our trials. We have 5,000 patients. We didn't go to 12 weeks, we went to 24 weeks. We didn't go to 12-months follow-up, but to 18-months follow-up. We have 75, 150 and 200 milligram doses. So the quality of the program allows us in fact to submit the data at the time of submission.

Will it be in the label? Obviously, we need the cardiovascular outcome study, the 18,000-patient study to make it in the label. But it will certainly, I hope, be in the clinical section.

The impact obviously is that this is the first solid quality evidence of a differential effect on cardiovascular outcomes of Alirocumab on top of statin. So I'm pretty confident and hopeful that it will make it to the clinical section, but not in the label itself on the first try as it needs to be confirmed by the larger study.

Is there going to be an advantage? I think in generic terms there will be a significant advantage, I believe, in having shown some definitive or strong early evidence of better outcomes with PCSK9. In particular, one of the things that we have been very careful in our design is to focus on high-risk cardiovascular populations, the ones most in need of intervention.

So my answer is I'm obviously intending to put this data in our submission for inclusion in the clinical section. And the second is, yes, from the scientific and medical standpoint there's clearly an advantage in having demonstrated through this very careful, more long-term program that we have done, where we have really explicitly favored quality over speed. I think this will make a significant difference, in my opinion, and I hope so.

Yes. And I would just add, I think one particular area where we might have some benefit is actually in Europe because I think obviously economic hurdles for new drugs are much higher in Europe. And we might have anticipated some payers saying -- well, that's great you reduce LDL, but we want to see outcomes.

I think it might be interesting to see, while this wasn't the primary endpoint by any means, and we do need to be prudent about how we look at this, nonetheless, I think it is an important signal and I think, just from a medical ethics point of view at that point, I think we'll certainly get some European payers to potentially look at this differently than they might have otherwise done.

The second question was on the --

Question on Lantus trajectory.

Yes, the Lantus trajectory. So this is -- there's a number of factors that are going to go on obviously in 2015. First is there's a biosimilar arrived. As you know, there's a Markman hearing that has been scheduled for this fall and there's a court hearing.

The trial is scheduled currently to take place in September of 2015. Unless there's a summary judgment, one wouldn't expect a biosimilar until the decision on patent infringement has been taken, which will probably take you out into 2016.

Then of course, obviously with the launch of Toujeo we are going to considerably deprioritize Lantus because we believe Toujeo is a much better product. So you are going to, in any case, see a decline in Lantus as we ramp up effort behind Toujeo. Difficult to predict on the rest in the market. The whole diabetes space is clearly a very competitive space.

Equally, I think we have put a lot more focus in our US business on sales force execution. And we have actually seen NRX share gain now over the last seven or eight weeks, and actually TRx share gain again.

The other effect, although very modest at the moment, is that there does appear to be some benefit in the -- from the ACA. We are seeing the overall diabetes market grow a little faster in 2014 than it did in 2013. Now, we all know that those who are enrolling in the exchanges to a great degree are people who previously had healthcare insurance and are just switching. But there's probably 20% to 30% of new patients coming in that didn't have healthcare insurance before. There are also -- there is also some evidence that some smaller employers are starting to get insurance.

Now, the offset to that of course is that the new insurance often comes with much higher co-pays and coinsurance. So that's why I think we have to be extremely prudent about actually seeing any real benefit in volume, but there appears to be some.

What we can also say for our diabetes business, that we have just hired a new head of our diabetes business unit and that person formerly used to work for Novo Nordisk. So we're looking for some new energy in that part of our business in the US.

Chris, if I may, I just want to add one more detail that I don't think I made clear. The statement was -- this was in terms of the long-term study that we have reported on. The statement was made this was a post-hoc analysis.

I want to make sure everybody understands that we actually pre-specified that analysis in the plan submitted to the FDA, so it's not a discretionary post-hoc second look. It is a pre-specified analysis on the [Maze] criteria, the same ones we use in the long-term cardiovascular outcome-driven study of the 18,000 patients that we are continuing. So I just want to make sure it's a pre-specified analysis, which really means that it has a high likelihood of being taken into consideration and hopefully included in the clinical study sections, at least of the label. Thanks.

Thank you, Elias. Next question, please.

Mark Clark, Deutsche Bank.

Yes. Good afternoon, gentlemen. Firstly, a question on a pipeline product, the CD38 antibody for multiple myeloma. It's a shame it doesn't start with AZD because everyone would put a billion in front of it. But would you be planning to file on the Phase II study you've started in the way that Genmab potentially will with its Daratumumab? If not, when will you be in a position to start the Phase III combination studies?

And a second question about Toujeo, just to follow on from your previous comments, Chris, about deprioritizing Lantus and you thinking it's a better product. Clearly, when we talk to investors the feedback from many other -- from many in the market is that they're not convinced Toujeo is a better product. But financial commentators don't determine prescribing. What is your market research, coming back from actual prescribing physicians on Toujeo versus Lantus? Thank you.

Elias, want to deal with the (multiple speakers) asset 38.

So on the 38 asset, obviously your point is well taken. This is exactly what we are working towards. We are hoping to be able to accelerate the plan; we are ready for both options; it will -- essentially on the results. And at this point we are just accumulating the results.

In terms of (technical difficulty), we will hope -- we hope to definitely (technical difficulty) in Phase II concurrently, and we hope (technical difficulty) Phase III in 2015; can't tell you exactly when.

Yes, on Toujeo, Mark, I think we'll come back on November 20 -- the one thing I will say is that there is still a number of people in the Company who launched Lantus. And it seems that the financial community didn't really think much of the prospects of Lantus either. So I think, as you say, it's probably a pretty good thing that it's physicians prescribing these products.

Thank you.

The next question, please.

Steve Scala, Cowen.

Thank you. Two questions, first - Chris, can you help us create an expectation for the rollout of Toujeo and Alirocumab in 2015? The Company clearly is excited and optimistic and your experts apparently are as well. Should we conclude that payer adoption will be brisk and the rollouts will be very strong, or would you urge us to be more cautiously on the rollouts?

Second question is, in the past the Company has noted its early efforts in immune-oncology and how there is improvement opportunity for PD-1, or improvement activity upon PD-1 activity. So will this be a topic at your Thematic Seminar and, if so, would you care to give us a preview of what you may say at this point?

So I think on rollouts again, I think -- rather than answering the question -- because I have to say that, on particular Alirocumab, this is actually a -- we are talking about a paradigm shift in treatment here, just because of the extraordinary level of efficacy.

When you are talking to key opinion leaders -- nobody really knows what happens when your LDL goes below 70. And -- so -- and the fact that we've just had these phase III results, as well as the long-term study, we are going back and updating our market research on this.

But -- and then there's also a whole lot of other questions, because -- there are, for instance, two doses here. You've got a 75 milligram and a 150 milligram, which actually Amgen does not have. And -- you are going to have two schools of thought here about lower is better or faster, versus -- this is a new class of drug -- let's do what cardiologists have tended to do, which is to titrate up.

So there are a lot of moving parts in how this is going to take place. You've -- so we are actually doing a lot of work on that and I'd really rather give you -- a more detailed answer on November 20, because it's pretty rich.

Now Toujeo is I think a lot simpler. We do think this is a better medicine. We are going to be driving to get a maximum rollout. We will be on Alirocumab too, I just -- it's just early days to give you some sense of that. But Toujeo clearly is -- we want to actually really get behind this next-generation insulin.

On immuno-oncology -- I'll let Elias comment a little bit more on this. The only thing I would say is that every expert I have talked to in this -- no matter what they think about immuno-oncology is going to develop, will always say that we are just really at the beginning here. It's obviously an area of significant unmet need. This is going to be a major area of research and development for at least the next decade. And so -- we are all looking to position ourselves in this area, but nobody should think that -- the train has left the station on that.

Elias, do you want to say anymore on that?

Yes, I was going to echo that and, second, I would say also that you should know that we have probably one of the largest and most active antibody drug conjugate program, with four assets in late pre-clinical and early-clinical, which give us a basis to understand in fact key aspects of immuno-oncology, which is the targeting on the cancer cell.

In addition to that, we have a very active collaboration with Regeneron on checkpoints, and our view is that, as Chris said, this is not a sprint; this is going to be a marathon. And I think, based on our understanding of the science and, as I said before, really our teams are favoring quality over speed here. We believe that some of the outcomes will be driven by combinations, because the immune system is not a -- one-brake/one-accelerator system, but many brakes/many accelerators, and that depends on the tumors.

Clearly we are in the field and we intend to, as Chris said, be part of this marathon as much as anybody else. And we have some unique assets that we will present later on, perhaps at the November session if things are mature at this point.

Thank you.

Philippe Lanone, Natixis.

Hello, gentlemen. Thank you for taking my question. Could you give a bit more color on Merial, going forward? Because the Q2 was quite spectacular and even stripping out NexGard is only a slight decline. So what will be the situation; what should we model for the rest of the year and 2015?

And a quick question on Aubagio, because it's becoming -- it will become quite a significant drug, and that has exclusivity until 2017. Should we stop the story here, or do you have any possibility to go beyond that, especially whether there's, I understand, another patent to -- up until 2022?

So Merial, it did get back to growth. As I said, there is at least a part of this that's related to Frontline, and that's clearly because of the weather conditions for the flea and tick season is much better, which has had an impact on both NexGard and Frontline.

I think the other is -- is that we brought new leadership into Merial last year. We have re-prioritized resources and I think we are doing a good job on really getting the Merial rejuvenated and energized -- much better advertising, much more of a focus on getting a promotion going. Merial management believes that they are going to be able to continue -- mid-single-digit growth, certainly in the next quarter and the end of the year.

Longer term -- NexGard is extremely important, but clearly, we need to expand that. And we are really looking at building upon the pets franchise. We've had a few setbacks on some of our biologic vaccine production, which I think we are sorting out. So I actually think we should be able to keep the momentum going in Merial.

Aubagio, yes, you are right -- I think Aubagio is running at almost a EUR400m run rate today. My recollection is that -- well we first have 10 years of data exclusivity in Europe, so that takes us to 2023. And in the US I think that takes us out to --

2017 -- September 2017. We also have some method-of-use patent that goes until 2022, and further patents on formulation, as well as process that actually go beyond that.

Yes -- our teams are -- today are looking at this for the US beyond 2020, because of the additional patents. How much beyond 2022, I think is still yet to be determined.

Thank you.

Steve McGarry, Societe Generale.

Hi, good afternoon, gents, just two quick questions. Firstly, just given the payer pressure in the US, given that you are effectively in a duopoly with Lantus, do you still believe that you've scope for price increases there?

And secondly, on the Regeneron stake, when Sanofi's stake crossed 20% you added a director to the Regeneron board, so what's the overall strategy for the Regeneron stake? Is it to ensure that a third party doesn't acquire your partner?

And given that Sanofi increased its stake so far this year it's close to Regeneron's all-time highs, when you could have allocated capital elsewhere. Does that indicate a time sensitivity for Sanofi to get its stake to its target level? Thanks.

On payers, I think -- a lot of the -- there's two types of price increases, obviously. There's the WACC price, the list price changes and then there's the net price changes.

Largely the list price changes are a function of competitor activity. To a great extent I think Lantus was seen as being lower priced compared to its value -- its therapeutic value, if you compared it to, for instance, GLP-1s or to DPP-4s even. And I think we've got better price alignment with that -- Lantus today has a daily treatment cost of around $8, so still less than the GLP-1s, but more in line with the DPP-4s.

Then the question is how much of that price increase can you translate to the bottom line? And I think that's where there's increasing pressure. So we need to keep volume moving. We need to also, I think, continue to work with payers to really show how do we get to better outcomes? Because the real target is not lower prices of medicines, but it's better outcomes for patients at a lower cost.

And I think actually doing a better job with partnering with some of our payers, could actually help us on that. And that's largely why we've moved on this path of integrated care, and moving beyond the pill.

I think outcomes are going to be much more important in the payer environment, and I don't think, as a company, we could really just continue to supply a medicine. I think you have to -- we try to think about what can you combine this with; with devices; with education; with programs; with information, to actually help patients cope with their disease because -- Type 2 diabetes is probably one of the number 1 cost drivers for the whole healthcare system. We know if you take a more proactive intervention that you can actually reduce the cost of patients, while giving them better health. So I think there's a big prize to be had actually in diabetes, and we probably need -- we need probably better collaboration within that.

On Regeneron, the logic -- I think the logic of buying more shares of Regeneron is simply that we believe in the products that we are developing with them. Whether you look at Alirocumab -- you look at Sarilumab -- you look at Dupilumab, plus we see a whole range of other compounds coming down the path, we believe that we Regeneron has, not only an ability to generate antibodies, but their ability to have replicated the human immune system inside of a mouse really allows you to validate targets on a quicker basis.

And the way the arrangement has been historically set up is that we not only fund the research, but we fund 100% of the development. And then we share the profits with a reimbursement model for the research and development.

So our belief is that we are creating an awful lot of value inside of Regeneron. We get a piece of that to the profit share. If we want to expand Sanofi shareholders' participation in that value creation, the best way to do that is to increase our own shareholding, and that's what we've done. So we actually do see it as a very good use of capital, largely because, as I say, the faith that we have in the products that we are jointly developing.

Okay, that's great thanks.

Operator, we probably have time now only for a couple more questions from the next two participants. So the one before last question, please.

Alexandra Hauber, UBS.

Thanks for taking my questions. Firstly, on R&D, you hinted on pressure on the R&D budget in the second half and potentially beyond. Can you just qualitatively describe what is driving that? I can see already the new Phase III program should be coming on, but there's on the other side probably at least not increasing costs anymore on PCSK9; Dengue, MS is probably coming down. Diabetes -- LixiLan is probably just replacing what you are winding down on Toujeo. So is it all in the early stuff where we normally don't see much? So that doesn't drive the R&D budget so much. So if you could just describe the key drivers -- where you see the key pressures.

Second question, for Chris, you said on Lantus you are not going to yield share to anybody. Yet., in the first half at least, you have been not growing as fast as the market in the long-acting insulin analog. So question is I think you grew 4% TRx; the market grew 7%.

Why is that? Is that due to disciplined contracting? I'm asking because out of it you've seen at the end of the day the issue for Advia, because it was good while it lasted. Then the big issue is the step down, when you finally do get -- accept a lower price. I was just wondering whether there could be similar issue here.

And then final question, on M&A, I recall that before the Genzyme acquisition you used to say you had a limit from the Board. And does such a limit still exist, or do you foresee to fulfill all the usual criteria that you see good return for shareholders?

So Elias, do you want to do a preview of the R&D budget review there?

Alexandra, I wish the reality was --

(Multiple speakers).

I wish the reality was what you describe, Alexandra -- if you really look at it -- first of all the long-term study for Alirocumab continues all the way to 2017/2018. It's an 18,000-patient study, so it's quite a driver.

In terms of -- so PCSK9, I don't think you are going to see a reduction year on year, even though we've finished all the early -- all the phase IIIs. We have a couple more ongoing.

Second, IL-4 is going into its phase III. IL-4 is not just a single molecule/single indication; it's actually a class of indication, so it's going into Phase -- going to read the Phase II at the end of this year, and go to Phase III in asthma. We have nasal polyposis as well, and there are -- up and coming. We've launched LixiLan in Phase III, which is ongoing at this point.

In addition to that we are looking at the early portfolios you mentioned, which I think is very vibrant. We have seven projects there that have, again, what I call the high-quality/low-attrition index that -- we have directed and driven the R&D organization at Sanofi to focus on quality, rather than quantity. And our attrition rate, if you really look at it over the past three, four years has been very low.

So we believe that's going to be important. In addition to that, I think something that perhaps is not -- well, I appreciate it -- a significant portion of the R&D budget has to go. Once you are successful, like in Toujeo, for example, in submitting a drug, you have to continue to spend behind it, for two reasons.

One is the regulatory requirements imposed by the regulatory agencies are actually quite significant, and increase every time you succeed. So with Lemtrada, for example, I expect that with the approval, hopefully, in the US, that there will be some regulatory requirements.

And third, as you well know, today payers of payer-driven studies are extremely important to build within the R&D budget. So all in all I don't see pressure lowering on our budget, in fact the opposite, because of all the needs of both the pre-launch/post-launch activities, regulatory activities and the pretty rich portfolio we have today.

Thank you.

But I can give you more details at some other point and, hopefully in November, we will have that also covered for you.

Thank you.

So, on Lantus -- we've got -- TRx growth is certainly growing at about 4 -- well, last two quarters it's 4.5% and the first quarter 4.6%. We compare that to a select insulin market that grew at 4.1% and 4.1%, so we've been outgrowing that. Now, Detemir has outperformed Lantus a little bit in some of that period, but -- they've got a 20% market share to our 80% market share, there. So -- it's kind of hard, given the amplitude of the two numbers.

Largely what we have been focusing on is field force excellence. I would say that I think, when you've got 80% market share, there's always a risk of not being as energized as one could be. And I think a lot of effort has gone into that by our US team. So, but we are not -- we don't see anything really in terms of outperforming in the marketplace.

In terms of pricing, this is something that is affecting everybody but, again, I think there is an element here of, not necessarily getting into price wars, but really -- and getting into battles with payers, but really saying this is the most expensive part of healthcare. We can give people all the great medicines that we can, but if they don't really have a change in diet or exercise, or other lifestyle elements, you are not necessarily going to get to better outcomes. And that's really again coming back to why we want to get into integrated care, is to really try to have some influence on the overall patient treatment experience besides the insulin.

On M&A, I'm not sure what the limit was that you are talking about. We've never had a limit; don't consider there to be a limit. We -- the only thing that we do as I said, accretion is not the only investment criterion, which can often be the case in our industry historically. We also look to achieve a return on investment that at least meets and preferably exceeds our WACC requirements, our cost of capital.

And in fact, we, as management, believe that allocation of capital is a core part of what management is supposed to do. So for our Executive Committee -- in fact all of senior management who get equity compensation, 50% of the performance criterion and all of our equity compensation is -- has performance conditions. There are no -- there's no equity compensation without performance criterion. And half of that is actually a return on assets at calculation so, in other words, doing something that is not generating a return, even if it's accretive, actually would cause us to miss our own equity compensation targets.

So it -- if you actually went back to the Genzyme acquisition, one of the reasons that we held on as long as we did was the acquisition was clearly accretive at a much higher price, but at a much higher price we wouldn't have been able to meet our return-on-investment criteria.

Thank you, Chris. Operator, we are going to take the very last question, please. We are just over 4 p.m. here in Paris.

Florent Cespedes, Exane BNP Paribas.

Good afternoon, gentlemen. Thank you very much for taking my questions. Two quick ones. First, on Dengue vaccines, could you remind us the timing and the ramp up you see for the products, and remind us also which are the priority countries?

And second question is a quick clarification on Frontline. The sales are no longer declining, but when you said earlier that you expect mid-single-digit growth, is it for the division or is it for Frontline? Thank you.

So, for Dengue, we would expect in the third quarter the second Phase III results. And on that basis we would be expecting to do a filing in the first quarter of next year. And at that point this will be a question of countries choosing to give this priority access. We would expect the first launch countries to be in Latin America, Mexico, Brazil, Colombia, and possibly if I look at Asia, Singapore and Malaysia, as priority countries.

We are actually already ramping up production, so the initial production comes out of a pilot plant. And we are creating stock. We are currently running validation lots in our new facility. Assuming those validation lots are qualified, then the validation lots are also available for sale.

So, I think you'll probably start to see the initial sales, and possibly as early as the fourth quarter of 2015, and should be going for full year of -- certainly of 2016.

On Frontline, we've -- we are looking at around this mid-single digit, roughly around 5% for the whole of Merial. I think it's a strong result that we got Frontline stabilized. But clearly the growth in the flea and tick business will certainly come more from NexGard. But given the size of Frontline and the importance of that, it's important that we maintain -- that we maintain the sales of that as well.

Thank you very much.

And Chris, we'd like to conclude the call now, and obviously thank participants for their attentions. As we mentioned during the call, there will be an IR thematic call around ESC on Alirocumab, and we will send shortly a save-the-date for that.

And we'll also -- and I'm sure you've noted already the date of November 20, for our IR thematic seminar on new medicines. We'll also be sending a save-the-date for that.

With that I would wish everybody a good end of day.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.