Sanofi SA (SNY) 2015 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Sanofi first-quarter 2015 results announcement conference call. I will now hand over to Mr. Sebastien Martel, Head of Investor Relations. Sir, please go ahead.

Thank you. Good morning, good afternoon to everyone, and thanks for joining us to discuss Sanofi's financial results for the first quarter 2015. By the way, the slides to this call are available on the Investor's page of Sanofi.com.

Before we begin, as you can see on slide 2, I'd like to remind you that information presented in the call today will contain forward-looking statements that involve known and unknown risk, uncertainties and other factors that may cause actual results to differ materially. I refer you to our Form 20-F document, on file with the SEC, and also our document de reference for a description of these risk factors.

You can see on slide 5 -- sorry, you can see on slide 3 the agenda for the call. So we expect the call to last about an hour today. With us on the call are Olivier Brandicourt, our Chief Executive Officer; Jerome Contamine, Executive Vice President and Chief Financial Officer. Also joining us for the Q&A session will be Elias Zerhouni, President of Global R&D; Peter Guenter, Executive Vice President, Global Commercial Operations; Olivier Charmeil, Executive Vice President, Vaccines; David Meeker, Executive Vice President and Chief Executive Officer, Genzyme; and Carsten Hellman, Executive Vice President for Merial.

So without any further ado, I will now turn the call over to Olivier.

Thank you, Sebastien. Good morning and good afternoon to everyone who has joined our conference call today. I must say I'm very privileged to be here today representing a company with such a longstanding history of success in the healthcare industry. As you all know, I joined Sanofi on April 2. It has been great first weeks, providing me with many insights.

And let me start off today's call by sharing what is likely of most interest to you, which are my near-term priorities. First, I have started to work closely with the leadership teams, both in Europe and in the US, in particular across the commercial pharma organization, Genzyme and R&D. I'll be in China and Japan next month, and I want to go deep into the organization to learn more about our people, processes and capabilities because I want to understand the challenges and opportunities laying ahead. I will also lead the Company through a strategic review of its businesses, which is already underway in parallel.

Second, I'm intensely focused on the successful launch of multiple new medicines and vaccines.

Next, I will make sure that we continue the strong momentum in R&D and focus on driving innovation. I have already met our teams in the Boston and Frankfurt R&D hubs and with Regeneron. And I have also planned a deep dive on our R&D pipeline in the next few weeks.

And lastly, I will engage soon with Sanofi's key shareholders around the world to better understand their expectations.

I also wanted to take this first opportunity to share with you why I decided to join Sanofi and some of my initial observations. Sanofi is a diversified healthcare company, which is well positioned within our fast-evolving industry and benefits from established leadership in its main business areas. From the distance in my 28 years of experience in this industry, I've observed Sanofi as a company with great commercial strength and excellent marketing capabilities. Sanofi is a company with a strong heritage of commercial success, with products such as Plavix, Lovenox, Taxotere and Lantus, which have significantly improved the standard of care for the treatment of both serious diseases and chronic conditions.

So looking forward, I can see similar opportunities at Sanofi again today. And just to name a few examples, new medicines such as Praluent in hypercholesterolemia, the dengue vaccine, and dupilumab for atopic dermatitis and asthma, all have the potential to be groundbreaking therapies.

I also acknowledge the significant transformation of Sanofi's R&D organization over the past few years and recognize the efforts to further bolster the pipeline. In addition, I've been impressed by the openness to external innovation of our R&D teams. This is evidenced by our close collaboration with our partners, such as Regeneron and (inaudible).

Beyond Sanofi's innovative pipeline that addresses significant unmet medical needs, there are complementary ways to innovate, while maintaining financial discipline, smart lifecycle plans and post-marketing studies can lead to a dramatic improvement in medical practice. I also believe in commercial and marketing innovation, including integrated patient solutions, such as digital solution or line extensions in specific business segments.

In order to realize our full potential, I feel personally energized to engage with the people and teams of this Company. Engagement of our employees, as we know, is the responsibility of the management team, and high employee engagement is usually directly related to performance. Therefore I will strive to transform this high level of engagement at Sanofi into measureable achievements.

In my early weeks, I have observed firsthand the relative complexity of the organization and believe that there is opportunity for simplification along the way. However, this relative complexity will not be an impediment for us to reach operational excellence in the short and medium term.

Next, I know that you may have questions about the level of diversification and strategy. I won't attempt to answer these questions today. However, the Board and I are fully aligned around executing Sanofi's diversified business model. Clearly, we want to compete in businesses where we will win.

As we perform a thorough business review over the coming months, we will keep an open mind regarding further opportunities to optimize the Company's portfolio. We will share our thinking at a business-update meeting with the financial community at the appropriate time, likely in the second half of this year. And we will be in a position to announce the exact date at the time of our Q2 conference call.

In the meantime, I will ensure that we deliver on our commitments to shareholders. As Jerome will discuss with you in a minute, Sanofi has a good heart, a good start to 2015. This business momentum provides a solid foundation for the launch of our new products throughout the year. I personally will take an active role maximizing the potential of these critical launches.

Starting with Genzyme, we recently launched Cerdelga, the first oral therapy for Gaucher disease, strengthening our Gaucher franchise and reinforcing our leadership position. I visited Genzyme two weeks ago, and following my visit I was struck by Genzyme's unique culture, which has the patient at the heart of everything they do. This patient centricity has already had a positive influence on the broader Sanofi organization.

Genzyme is also making great progress in expanding in multiple sclerosis, with Aubagio, our oral MS therapy, and more recently with Lemtrada, the highly innovative treatment for multiple sclerosis recently launched in the US. Lemtrada sales in Q1 exceeded full-year 2014 sales and Genzyme continues to focus on training, certification and market access.

In February, Afrezza, a new inhaled insulin, was also launched in the US market. It's only been a couple of months since the launch. And because of requirements imposed by the FDA for starting patients on this therapy and the necessary time to gain market access, it will take time for Afrezza to demonstrate its full potential.

Just a few weeks ago we also launched Toujeo, our new once-daily, long-acting basal insulin, which was approved by the FDA. Earlier this week we received approval for the -- from the European regulatory authorities. Our diabetes team in Europe is also excited about the prospect of Toujeo.

In my second week, I met with the US diabetes team in Bridgewater, New Jersey, and we had an extensive discussion about the launch progress. I was reassured by the commercial readiness of the team. And I'm pleased to share with you today that we've made significant progress on market access and have already signed several contracts with payers. Indeed, we recently refined our contracting strategy and have started to secure earlier and broader market access than expected.

As of May 1, 2015, we will have more than 70% of commercial lives covered, with unrestricted access, as well as around 45% of lives in Medicare Part D plans. As a result, we expect the first-quarter performance in diabetes of low single-digit decline in sales at constant exchange rate to be indicative of full-year 2015 performance of the global diabetes business.

As early as July 24, we expect to hear from the FDA on their regulatory decision for Praluent for hypercholesterolemia. This new monoclonal antibody has the potential to be a revolutionary new treatment option for patients with high cardiovascular risk. While we made great progress in treating patients with hypercholesterolemia with statins in the last 20 years, cardiovascular death remains the leading cause of death in most countries.

In the Amgen US patent lawsuit concerning alirocumab, we recently have received a scheduling order that sets a trial date of March 7, 2016. The judge stated that in lieu of preliminary injunction proceedings, the court had granted Amgen an extradited trial date.

Moving onto vaccines, I'm also proud to see Sanofi Pasteur at the leading edge of making dengue the next preventable disease through our vaccination. We have now expanded our rolling submissions into endemic countries in Latin America, and we anticipate the first licenses to be granted in countries in Asia and Latin America in the second half of 2015. The current dengue fever outbreak in Brazil reminds us of the significant unmet need we are targeting with this vaccine.

Sanofi Pasteur also expects an FDA decision on PR5I, our hexavalent pediatric combination vaccine, during the third quarter of this year. It could become the first vaccine in the US approved to help protect against six important diseases, including hepatitis B.

As you know, we have other exciting late-stage pipeline opportunities in the near term. Our next R&D milestones for this year include regulatory submission of lixisenatide, our GLP-1, in the US, expected in the third quarter, following the positive ELIXA cardiovascular outcome data; upcoming Phase III results and expected regulatory submission of our insulin glargine lixisenatide combination project, LixiLan, in the fourth quarter; and the upcoming pivotal data and expected regulatory submission of sarilumab in rheumatoid arthritis before year end.

Last but not least, we are pleased that the Phase III trial for dupilumab in severe to moderate asthma has now started. This is the second indication for dupilumab, after severe and moderate atopic dermatitis. As you know, dupilumab has obtained breakthrough designation in AD.

As we present our Q1 results today, I'm pleased that Sanofi has delivered both top- and bottom-line growth, despite the previously announced headwinds facing Lantus in the US. This shows our strength and the value of our diversified business model.

With that, I will hand the call over to Jerome to walk you through the financial details of the first quarter. And given that I've joined the Company just four weeks ago, he will also discuss the operational performance of the businesses in the quarter. Jerome, over to you.

Thank you very much, Olivier, and good morning and good afternoon to everyone. So to begin, now I'm moving and turning to slide 8. Let me start by saying again that we are pleased with the performance of the Group in the first quarter of 2015.

Sales were EUR8.8b for the quarter. Our business EPS was EUR1.32 per share, up 2.4% and 2.6% respectively at constant exchange rates. As you notice as well, these both performance are ahead of consensus.

Looking at the slide, you can see much stronger growth on a reporting basis than at constant exchange rates for both top and bottom line due to the favorable currency impact for the quarter. This is highlighted in the grey bars.

As you can see from the chart on the right side, business EPS was better than what we anticipated for the quarter when we discussed our full-year results back in early February. Actually, while diabetes sales were in line with our expectations, we had higher sales, in particular from Genzyme on Merial, as well as a favorable situation in some emerging countries, in particular Venezuela, on tight control of our expenses.

As we move now to slide 9, let me provide you with the details of the FX impact on the top and bottom line over the past five quarters. As you will remember, the currency impact turned positive in the last quarter of 2014, mainly due to the strengthening of the US dollar compared to the euro. As you can see, this trend accelerated in the first quarter of 2015. Sales were positively impacted by EUR782m, plus 9.9% in the quarter.

At the business EPS level, we also experienced a positive currency impact of 10.2%, EUR0.12, in the same period. Other currencies impacted sales in the first quarter, primarily included the Chinese yuan, on the positive side, on the Russian ruble, on the negative side.

Clearly, on a reported basis, Sanofi benefited from a strong currency tailwind in the first quarter of 2015. Of course, we cannot predict the exchange rate movements, but when you apply average exchange rates of March 2015 to the three remaining quarters of the year, the additional positive FX impact on 2015 business EPS is estimated now to be approximately plus 12%.

As always, for additional information on ForEx sensitivities to key currencies, which may help you refine your modeling as the exchange rates evolve during the year, please refer to the first slide in the finance appendix of the slide deck.

Moving to slide 10, I will give you now some more color on our sales performance by business areas, following, as you can see, the comprehensive reporting structure of the Group as it is normally presented in our quarterly press releases. As you can see, our diversified business model continues to deliver, with sales growth driven mainly by Genzyme, animal health and, to a lesser extent, consumer healthcare. This positive momentum was partially offset by the anticipated decline in some other areas, as we are going to discuss now.

Going through these businesses individually, first of all total pharmaceutical sales were up 2.2% at constant exchange rate this quarter. As expected, our diabetes sales were down slightly, by 3.2% at constant exchange rate, reflecting the anticipated pricing pressure on Lantus in the US market. This was exactly in line with consensus.

As previously communicated, increased rebates from most contracts in the US for Lantus were required to secure favorable formulary position and became fully effective at the beginning of 2015. Consequently, the impact of higher rebates is visible from Q1 of this year.

While the market share of Lantus in the US remains stable compared to the fourth quarter, US Lantus sales were down 13.1% in the quarter versus Q1 last year. Of that, volume increased 2% and price was down 15%. For Lantus, the impact on price is expected to remain at a similar level for the remaining quarters in 2015. Outside the US, Lantus sales grew again, plus 18% in emerging markets and plus 6.3% in Western Europe in the quarter.

Moving onto consumer healthcare, we are pleased by the robust mid-single-digit growth delivered in the quarter, which is slightly above market growth. We benefited from a solid performance of Allegra in the US ahead of the spring allergy season, and we saw good growth of our CHC business in emerging market, 6.3%.

Genzyme definitely delivered another outstanding quarter, with 30.9% growth. This reflects our sustained leadership position in rare diseases, with continued success of Cerezyme, Fabrazyme and Myozyme. We are also pleased with the initial launch progress of Cerdelga, contributing to the growth of the Gaucher disease franchise.

Overall, sales of the rare disease business were up plus 15.9% at constant exchange rate in the quarter.

The other main driver of the Genzyme exceptional growth is our multiple sclerosis franchise, as already mentioned by Olivier, with Aubagio in the US and its rollout in the Europe, as well as the launch of Lemtrada in the US and Europe. Sales of the multiple sclerosis franchise were more than doubled during the quarter, representing a trajectory of blockbuster potential for the franchise in 2015.

Sales of generics reached EUR478m, growing 10.2% at constant exchange rate. Emerging markets represented 58% of our global generic sales and grew at 12.7% at constant exchange rate.

First-quarter growth of our oncology business was impacted by generic competition for Taxotere, mainly in Japan, but also in some emerging countries. As a result, oncology sales were down 7.3% constant exchange rate as well.

Established Rx brand sales were close to EUR3b, with a slight decline of minus 1.5% at constant exchange rate. In emerging markets, sales of products in this category were approximately EUR1.1b, up 9% in the quarter, while in mature markets sales were just over EUR1.8b, down 7%.

Please note that we expect generic versions of Plavix to enter the market in Japan as of mid-2015.

As we previously indicated during our full-year results call, vaccines sales declined in the first quarter, resulting from a delay in the Southern Hemisphere influenza campaign due to two strange -- two strains, sorry, changes. Consequently, Sanofi Pasteur sales were down 4.6% at constant exchange rate. Excluding flu, however, vaccines showed growth of 17.2%, driven by the performance of Pentacel and Menactra in the US, as well as Pentaxim in China.

Please keep in mind that in the second quarter of 2015 the Butantan Institute in Brazil will start to supply a significant part of the Brazilian flu market as a result of the technology transfer agreement which Sanofi Pasteur initiated 15 years ago. Sanofi Pasteur will continue to contribute to the Brazilian flu market, but to a lower extent.

Now, looking at the full year 2015 and excluding dengue vaccine sales, Sanofi Pasteur expects the yearly sales growth to be in the same range as last year.

Our animal health business delivered growth of 13.5% at constant exchange rate in the first quarter, reaching record quarterly sales for Merial. This reflects strong sales of NexGard in the US, which more than doubled versus the first quarter last year, stabilization of Frontline and strong performance of Heartgard, benefiting from the supply shortage of a competitor.

For the full year 2015, Merial does not expect to really sustain this double-digit sales growth, taking into account somewhat more competitive environment in pets and lower relative growth of NexGard for the remainder of the year than the first quarter due to a larger base for comparison in the prior year. Still, Merial will post -- sales growth should be in the same range as last year.

Turning to slide 11, you can see that our businesses are also well balanced across geographies, which you know. Sales are roughly divided one-third in the US, one-third in emerging markets and one-third in Western Europe and the rest of the world. Indeed, our global diversification has always been a core strength of Sanofi.

Emerging markets were up 7.3% at constant exchange rates in the first quarter. All sub regions of emerging markets delivered positive growth during the quarter. In Venezuela, consumer buying patterns resulted in a significant phasing of sales in the quarter, in the first quarter. This is expected to reverse in the remaining quarters of the year. Sales in Venezuela were EUR200m in the first quarter of 2015, versus EUR66m in the same period of 2014.

This was partially offset by lower sales of influenza vaccines in emerging markets, as I mentioned already, which were EUR20m in the first quarter 2015, compared to EUR105m -- sorry -- in the same period of 2014. So excluding these items, emerging markets growth were up 7.3% in the period. Please note also that our emerging market sales of the pharma business have been up more than 10%.

We saw a continuous stabilization of our sales in Western Europe, and in the US, sales were up 1% at constant exchange rates, despite lower Lantus sales. Sales in the rest of the world region were down due to the loss of exclusivity for a certain number of products in Japan, including Taxotere, Merial on (inaudible). As I mentioned already, going forward, we also expect generic competition for Plavix to enter the market in Japan in the middle of the year.

Now I move to slide 12 to discuss certain items relevant to the P&L in the first quarter. I already commented the sales, EUR8.8b, up 2.4% at constant exchange rate. Other revenues were EUR80m, a decrease of 14.5% at constant exchange rate, due to a loss of most royalties received on Enbrel European sales.

First-quarter gross profit was EUR6.1b, up 1.8% at constant exchange rate, as cost of sales increased only 3.1% at constant exchange rate. I will come back to the evolution of our gross margin on our OpEx in the next slides.

Of note, the other current operating income and expense line included an FX loss of EUR66m in connection with Venezuela. Lastly, our associates income increased to EUR31m from EUR13m mainly due to the partial consolidation of our ownership of Regeneron, which is now accounted as with the equity method which was not accounted to the same methodology in the first quarter last year.

Consequently, we saw moderate business operating income growth in the first quarter, up 2.1%, at constant exchange rate, to EUR2.4b. All considered, business operating margin declined by only 20 basis points to 27.2% in the quarter, despite lower sales of Lantus in the US and, as expected, higher SG&A expenses in Q1 2015.

I now move to the slide 13 quickly, so looking at the lower part of the first quarter P&L. You can see that net financial expenses were slightly higher compared to the same period of the previous year. This is a result of the capital gain of EUR41m that we booked in the first quarter 2014 -- 2014, sorry, due to a partial sale of some financial investment, versus capital gain of only EUR16m from various small financial investments in the first quarter of this year.

The effective tax rate was 25% in the first quarter 2015, which was stable, versus the first quarter 2014. Our business net income in the first quarter was EUR1.7b. We delivered business EPS of EUR1.32 per share. The average number of shares decreased by 11.5m shares in the quarter to 1,308, shares, compared to 1,319.9m during the same period of 2014.

We are turning now to slide 14. You can look at the evolution of the gross margin. So in the first quarter, we saw a slight improvement in the gross margin, which increased 0.3 percentage points, 0.3%, to 69.3%. I really believe that it is a good achievement, as it both reflects improvement of our industrial performance and the positive impact on FX, which more than offset the impact from US diabetes and from our ramp up in biologic investments.

We expect now for the full year -- I'm assuming the FX rates remains at the same level of March 2015, our gross margin to be between 68% and 69% for the whole year.

In the next slide, we see that OpEx expenses increase 3.7% at constant exchange rate to EUR3.6b. R&D expenses decreased by 1.8% in the quarter due to the timing of clinical programs in 2015. This effect was more than offset by investments in new launches at Genzyme and US diabetes, as well as sales and marketing expenses in emerging markets. As a result, the R&D to sales ratio declined to 13.6%, while the SG&A to sales ratio increased to 27.7%. For the whole year 2015, we continue to expect profit growth in mid-single-digits area at constant exchange rates.

Slide 16, you can see that our net debt increased to close to EUR7.6b. This includes a translation impact of our debt held in US dollar, which represented an impact on the quarter EUR593m.

Free cash flow was just over EUR1.2b for the period. Our CapEx were EUR355m, versus EUR279m in the same period last year. This is clearly due to our investment in biologics and also for sustaining the launch of the Toujeo. Our change in working capital was negative this quarter as a result of higher inventory of the dengue vaccine and new products.

During the first quarter, we continued to buy back 9.2m shares of our own shares, for EUR794m. We also received proceeds of EUR247m from the exercise of stock options and shares issuance. All in all, we issued 6.9m shares in the quarter, including 3.1m [reference] shares. The net impact from share buyback was equivalent to EUR547m in the quarter.

I now move to my last slide, slide 17. So I conclude by reiterating our outlook for 2015. Our expectations for 2015 business EPS remains unchanged. 2015 business EPS should be stable to slightly growing versus 2014 at constant average exchange rates, barring major unforeseen adverse events. As highlighted before, on top of that, the positive currency impact on 2015 full-year business EPS is estimated now to be approximately plus 12%, assuming that exchange rates remain stable in the following three quarters at the average rates of March 2015.

I now turn back the call to Olivier for his conclusion.

Thank you, Jerome. Let me wrap up the presentation with a few concluding remarks on slide 19. So we indeed had a good start to the year. First, we delivered top-line growth with sales up 2.4% at constant exchange rates, thanks to the solid performance of Genzyme and Merial and despite lower US sales of Lantus. Then, we also posted strong financial results.

Led by higher OpEx driven by new launches, our business EPS was up 2.6% at constant exchange rate, and lastly, as I mentioned earlier, we made great progress in bringing innovative medicine to market, with important milestones achieved for late-stage R&D projects and multiple new product launches underway or imminent.

At this point, I would like to turn the call back to Sebastien to open the Q&A session.

Thank you, Olivier. Operator, we're now ready to open the call to questions. As we wait, I will ask you to limit yourself to one or two questions at a time to allow as many participants as possible in the Q&A session. You can always return to the queue if you have further questions.

(Operator Instructions). Michael Leuchten, Barclays.

Thank you. It's Michael Leuchten from Barclays. Two questions from me, please. One for Olivier. The Capital Markets Day in the second half is setting yourself quite an ambitious timetable to communicate your view of the Company's strategy and positioning going forward. But one of the challenges I think in the recent past has been accountability within the organization.

So just wondering, are you thinking around the timing, and then secondly, how do you think you will be addressing the softer factors, as opposed to the hard monitoring of launches and maybe R&D productivity?

And then the second question, for Jerome, I appreciate your comments around the operating expenses still expected to grow 5% in the full year, but it did grow less than that in the first quarter, and if we think about the timing of the additional launches coming through, where exactly do you expect acceleration to kick in on the operating expense side, please. Thank you.

Yes, Michael, unfortunately, it was not clear. We couldn't listen very well or hear very well, sorry. I understand the Capital Market Day. As I said in my remarks, we think we're going to do that in the second half.

I really need to go through deep business reviews. As I said, we've launched this strategic planning review also in parallel. We think we may have both results sometime during the second half, most probably during the third quarter -- fourth quarter, sorry. And we'll give you the exact date during our call for the second quarter.

And the question on accountability, I'm not sure I understood what you meant. You said in this organization, accountability has not been usually very clear. Well, let me tell you one thing. If that is the case, and I've not seen that yet, I will make sure that doesn't last too long.

Yes, Michael, so on OpEx, so as you noticed, our OpEx in the first quarter increased by 3.7%. I continue to guide around 5% increase. I said mid-single digits, so not actually to be too precise, but let's say around 5% OpEx increase for the whole year.

So here, two things. OpEx are R&D plus SG&A. So on R&D, clearly, I don't think the pattern of decreased net R&D expenses, which you saw during the first quarter, will be repeated in the next quarter. Clearly, we have a large clinical trial program, and we expect to see that increasing somewhat. And you recall that this is what we gave as a full-year guidance when we had the call in February.

When it comes to SG&A, I won't go into too much detail, but maybe you should recall a few things. First of all, we have now a fully fledged sales and marketing organization for Lemtrada, which has its own sales force. And this happened to take place in the second half, let's say basically in the fourth quarter, so on a like-for-like basis, it will continue to impact our OpEx evolution in Genzyme between quarter to quarter.

Second, clearly, we are going to invest more behind the preparation of the launch of Praluent, as we go, and even more if we launch it, which clearly we expect to get that to take place in the second half of the year. And then, as you know, there is also some seasonality in the OpEx, whether you take vaccines or you take Merial. It's not just the regular evolution.

So all together, there is nothing really new here. We need to invest in sustaining the launches of these very exciting products, and also there are some mechanical effects which are just resulting from investment that we did on the full-year impact you will have in the coming quarters.

Thank you, Jerome. Next question, please?

Vincent Meunier, Morgan Stanley.

Hello. Thank you for taking my questions. So the first one is on the US diabetes trend. So I understand that the 15% price decline in first quarter will remain at similar level in the remaining of the year, so can you elaborate on the impact for Toujeo? What is, for instance, the net price of Toujeo versus Lantus now and how it is likely to evolve in the next quarters?

And the second question is on Genzyme, which is an important driver for you not only for the top line but also for the bottom line. Can you please give more details on the profitability of Genzyme, and should we expect the new product launches to cap further improvements of the profitability of Genzyme?

All right. Thank you, Vincent. So I think the first question is for Peter. Peter, are you ready to answer the question on Toujeo? And then, David, you will take the question on Genzyme.

Yes, Vincent, so thanks for the question. A couple of points on Lantus Toujeo. So first, we have some very encouraging signs that now since five consecutive months, our overall market share within the basal insulin market has stabilized at the level of 69%, if you look at the Rxs.

As already mentioned by Olivier in the introduction, we are making extremely good and fast progress with market access, and actually, beyond our expectations. And that is actually due to a refinement -- a recent refinement of our contracting strategy on the overall glargine franchise.

You will understand that I will not give you any details between the different elements of this mix for competitive reasons. The key point really here is that on top of the stabilization of the Lantus market share, which obviously is a stable base now for the Toujeo launch, we have 70% of commercial lives covered without restrictions and already close to 50% of the Part D population, which is really, according to our knowledge, an extremely rapid access of the market.

Another point I would like you to mention is that we have reissued our long-term guidance on diabetes, which is flat to slightly growing, so there is no change in our long-term guidance on diabetes. And we continue to be absolutely convinced that the switch rate of Lantus to Toujeo will beat the consensus, which is today, as you probably know, at 20%.

Now, in terms of initial feedback on Toujeo launch, obviously, it's extremely early days. We have launched the product since less than a month. What I can tell you is that the initial feedback from the customers is very good, which is frankly to us not a surprise. You know that we have a permanent in stream in the US market of 1m patients on a yearly basis of new to be insulinized patients, and these are obvious candidates for Toujeo.

And then next pool of patients is of course those patients who are today not optimally treated with the existing basal insulin, whether that is Lantus or any other basal insulin, either for reasons of insufficient HbA1c control, either for reasons of hypos or a combination of both, and frankly it is of course obviously often a combination of both.

So on pricing, the only thing I can tell you on top of that is that the WACC price so the whole sale of acquisition cost price, is between Lantus and Toujeo, is identical on a unit-per-unit price. But, of course, I cannot give you any more detail on that pricing.

All right, thank you, Peter. David, are you ready to answer the question on Genzyme?

Yes, so Genzyme within Sanofi, we don't break out a full, complete P&L, so we can't give exact profitability for Genzyme. The early R&D is carried on the corporate page, and shared services also are carried on our corporate page, so like I said, the exact numbers aren't forthcoming.

But what I can tell you is that the rare disease business is, even when you do roughly calculations, robustly profitable. And that profitability is quite a stable situation. Pricing has remained relatively stable. The other lines on the P&L have a certain level of stability, so I think that should continue to be profitable, robustly profitable, with continuing growth. There's good prospects for the rare disease business.

The MS business, launching two of these -- both of these products in the past 18 months, obviously, there's a significant investment that goes along with that. We did turn profitable last year, even acknowledging we don't have full insight, if you will, into all aspects that might hit that P&L, but the MS franchise, I think Jerome highlighted that we're on track on fairly steep growth pattern here. And I think the profitability from this point forward should grow quite significantly for the MS business, as well. So absent numbers, those are the trends.

All right. Thank you very much, David.

Next question, please?

Steve Scala, Cowen.

Oh, thank you. A couple on Toujeo. Can you elaborate on the refined contracting strategy in the US and why a refinement was necessary and what is the refinement relative to? So, for instance, is it a refinement versus the strategy you had a year ago, or is it a more recent shift?

And related to that, the prior guidance for Toujeo was well more than 20% of the glargine franchise in three years, so based on this refined contracting strategy, are you ready to refine that estimate and maybe make it well more than 50% in three years? Thank you.

Thank you, Steve. So that's again for you, Peter.

Yes, Steve, so thanks for the question. The contracting strategy is indeed a recent refinement of the contracting strategy, and as I mentioned before, the strategic aim is really to speed up the market access for Toujeo, because we are fully committed and fully confident to the long-term potential of this project, and, of course, the strategic importance of not only having new patients but also switching patients from the existing Lantus to the new Toujeo.

In terms of where we should land, this is a very difficult question. We are today not ready to give you any precise number, but we remain committed to what we said during the New Medicines Day. That is to say we are confident that we will switch -- we have switch rates well above the consensus that is out there today, which is 20%.

And I remind you also that the access that we have already got so far is without restrictions, which is of course also facilitating the subscription by the physicians.

Thank you.

All right. Thank you, Steve. Next question, please?

Jo Walton, Credit Suisse.

Well, if I can ask a question on Genzyme, I wonder if you could tell us a little bit more about the uptake of Cerdelga. You've obviously just launched it. It's been into a few countries. Can you tell us where it's being used? Is it patient holidays? Just give us a little bit more of a sense of how quickly we could see that ramp up.

Sure. Yes, I think when we launched Cerdelga, the oral therapy for Gaucher disease, the spirit of that launch was that we created a choice for patients. The data show that it was highly comparable to Cerezyme or enzyme replacement therapy, and so we expected going in that it would be the right option for some patients, not for others. So today, we're pleased with our launch.

I think what I would encourage you to look at, as I said last time, is the overall Gaucher franchise. We're growing at over 10% at the current rate globally.

In the US, we have over 200 patients on therapy. The number of patients who are going through screening to make sure that they have the right mutation to be able to metabolize the drug, that is also -- I think those numbers look good. So, again, my focus here is very much on the overall franchise, less on the Cerdelga uptake specifically. But I'm pleased so far with where we are.

Thank you.

Florent Cespedes, Societe Generale.

Good afternoon gentlemen, thank you for taking my questions. Two quick questions, the first for Olivier. So as I said, in your previous company, we appreciated your pragmatic approach or your balanced view on the group. Now, at Sanofi, what could you do to increase visibility on the Group? Could you envisage maybe to give a kind of aspirational, long-term guidance later this year, during the investor day or something more kind of precise guidance, like at Bayer? Could we have your thoughts on that?

My second question, for Elias. Could we have more details on why you decided to stop the different projects in R&D in oncology, Crohn's and ophthalmology? Is it due to the lack of differentiation, safety or prioritization? Thank you very much.

All right, Florent. So your question -- again, we couldn't hear you very well, but it's on the LT guidance later this year. To be honest, it would be premature for me to tell you that I'm going to switch to a guidance, the same type of guidance we have and we had at Bayer, for instance.

I have to go through what I described, business review and strategic planning and come to a conclusion of how to best guide in future years. So it's definitely something I have in mind. That's certainly there. But you need to give me some time.

So R&D, Elias.

Yes, so the question relates, if I heard it properly, about the decisions we made in oncology. Fundamentally, we decided to focus on the most promising programs, the CD38 antibody program, the four antibody drug conjugate programs we have and the c-MET kinase. And, as you mentioned, we -- I critically reviewed all the other programs, with their results, and some were primarily terminated because of lack of differentiated efficacy.

We thought in a couple for signals that I didn't think could be managed forward, given the competitive environment, and the third reason is we're also working on the very early portfolio in immuno-oncology that we wanted to make some room for, which we'll talk about later.

Thank you, Elias. So again, our apologies, but as I just said before you, Florent, we had a power cut. And at the time, we had a question from Jo Walton on Lantus, so maybe, Peter, if you want to take this one.

Yes, so maybe the part of the question we still received before the power cut was the situation of Lantus in Western Europe, and I guess also by extension, your question would also pertain to the overall Lantus Toujeo. So a couple of points on Western Europe, so we are doing well we are very pleased by the performance, you know there is definitely no price increase in Europe,rather a (technical difficulty) erosion and we have again delivered more than 6% growth on Lantus in the first quarter. And we are very competitive in the basal segment in quasi all the countries in Western Europe. For what converns Toujeo, the good news is that in Germany, Toujeo will not have to through the AMNOG procedure, and we have seen in the last few years especially in the field of diabetes some major drawbacks of diabetes drugs going through the unknown procedure, so that is very good news.

And a little bit like in the US, by the way, we have been making very strong progress on contracting with the German (spoken in German) with the German [seg] funds, so we are confident of having a good lift up in Germany. Also, you know that we got a registration end of last week.

We have a very competitive label this time in Europe. So all this makes us pretty confident, actually, on the European launch of Toujeo. So that is a little bit the picture I can paint to you in a nutshell for Europe.

Thank you, Peter. We're going to take the next question, please.

Graham Parry, Bank of America.

Great. Thanks for taking my questions. So, firstly, Olivier, you've outlined your priorities for the near term and discussed the strategic review, but can you give us a feel for the extent of that strategic review?

So do you think the scope of the Company, as it sits right now, is about right? So is the review about tinkering around the edges, or is there something potentially more cathartic than this about to happen?

And then secondly, on Toujeo, could you just give us a feel for initially where patients are coming from? Is this predominantly new patients or switches from Lantus? And on the access, how much of that is tier two preferred status or perhaps just in a same or better tier than Lantus, rather than just being unrestricted access? Thank you.

All right, thank you, Graham. Since we are on Toujeo, can you take the Toujeo question first?

Yes, hi, Graham. So as I already mentioned, in terms of patient sourcing, so there are two obvious segments, so it's approximately 1m new patients in the US. So this is for us the low-hanging fruit we're going after aggressively, and also those patients that are not at goal experiencing hypos, combination of both or fear of hypos, and we have all programs in place, actually, to make sure that we maximize the revenue stream of these two segments.

Your questions on market access, tier two, tier three, it's dependent from plan to plan. Obviously, today, there is a mixture of both in commercial. You probably will have captured that we have a good effort in place with copayment offset programs, whether this is a classical couponing program or with a more automated co-pay offset program in the pharmacies, with Relay Health. So actually, the co-pay for the patient is very competitive compared to what is out there for existing basal insulins.

And in the Medicare Part D, actually, as it becomes public in the coming days, you will see a lot of actually tier two coverage.

All right, Graham, on the strategic review, this is again going to be the subject of the next few months, but I want to be clear. What I was referring to for the second half of the year will be a business update rather than a presentation on a strat plan for the overall group.

Now, I have to say the Board and I, we are already fully aligned around executing what Sanofi's diversified business model is. And we keep in mind that while diversified, we want to compete in businesses where we can and we will win. So we'll keep also an open mind regarding further opportunities to optimize the company's portfolio while we are doing that thorough business review and strategic review. So that's what I can share at this point.

So thank you, Graham. Next question, please.

Tim Anderson, Sanford Bernstein.

Hi. I'm imagining that you'll say it's too early to comment on 2016 in terms of the outlook for the diabetes franchise, but investors are certainly looking past 2015 at this point and into 2016, because the landscape gets more competitive and I think more uncertain for Lantus and Toujeo with Lilly coming to market and with Novo probably coming to market. Wondering if you can at least confirm directionally how you expect that franchise, your overall diabetes franchise, to perform in 2016? Would it be safe to assume that it would likely be lower in 2016 overall than what it would be in 2015?

And second question for you is on dupilumab. In the press release and the slide deck, you talk about various upcoming catalysts across the pipeline. I didn't see on there the first Phase III readout of dupilumab in atopic dermatitis. I thought that might happen by year end, but can you give us updated timing for when investors might learn about the first -- the readout of that first Phase III trial?

Well, I'll answer, Tim, the first question quickly. Our guidance of stable between 2015 to 2018 for our diabetes business is confirmed, so stable to slightly increasing. So that has not changed. And to give you a more granular picture for 2016 at this point would be very difficult.

So the other question has to do LixiLan or dupilumab? Dupilumab.

Well, maybe, Peter, you want it say a word about LixiLan, as this is obviously part of the outlook.

So in the long-term outlook there are, as you mentioned yourself, a couple of elements. There are competitive elements. There are elements of the increasing Sanofi portfolio in diabetes. Of course, there's price pressure on the market. We have baked in all these elements in the long-term guidance, and for example, if you think about LixiLan now that we have the ELIXA positive study, we will have the readouts of the LixiLan studies in the third quarter this year.

We will file LixiLan, of course, subject to a positive readout of phase III by the end of this year, and LixiLan would therefore be the first and only fixed-dose combo between a basal insulin and a GLP-1, with proven cardiovascular safety and for the insulin and for the GLP-1.

You know also that both products fit extremely well together. Lantus is working on FPG, Lixi working on PPG, so this is a very synergistic combination. So we definitely think that this is one of the assets we have in the portfolio which is a little bit overlooked by some of you, I must say, and we are pretty excited by this product.

So I think I'll turn it over to Elias for the question on dupilumab.

Yes, so as you know, we started our Phase IIIs in the fourth quarter of 2014. Our plans are to submit the application for dupilumab in the fourth quarter of 2016. Also, you should know, we started Phase III for asthma, and remember, we have a breakthrough designation for the FDA for atopic dermatitis. So those are our plans.

I can't predict exactly when the Phase IIIs will finish, but that's within the timeline that you requested.

Thank you, Elias. We're going to take a couple more questions. We've extended the call a little bit beyond what we said, given the power break we had, so we'll take two more analysts on the call. Next, please.

Alexandra Hauber, UBS.

Thank you for taking my question. I have a question for David first. Given that a lot of the Lemtrada revenue occurred up front, can you please maybe give us some idea about the addition of patients, what you see? Are they adding at a regular, similar weekly patient adds, or are they accelerating or was there a bonus upfront?

And then secondly, Peter, sorry, if I come back again to the pricing question in diabetes. So to summarize everything that I've heard so far is, on the one side, you're saying the 15% price effect will stay the same for Lantus through all this year, yet there has been a refinement in the contracting strategy which was required to change the guidance.

I therefore conclude that that refinement is related to Toujeo and therefore means greater discounts in the year than you had previously anticipated. Is that conclusion correct, or am I missing something? Thank you very much.

All right. Thank you, Alexandra. David, Lemtrada?

Yes, Alexandra, so there was no bolus up front. I think the way to think about this is there's certain mechanics that go with the Lemtrada launch and specifically the REMS program, so the first three months of the launch or post-approval period was intensely focused on getting healthcare providers, physicians, pharmacies, etc., trained and certified on the REMS. So we made tremendous progress there.

The full sales force was onboard as of the beginning of February, so we're basically into our third month of our formal launch in that sense. And what we're seeing is a steady ramp in the number of patients who are signing up for the program. In other words, the patients themselves have to enter the REMS program, and that's one of our signs there. So I would -- it's been a -- there's no bolus, a steady ramp from the initial launch.

Thank you, David. Peter?

Yes, Alexandra, I think I try to answer as good as I could, and any additional granular information would be giving away commercially sensitive information. So I beg you for your understanding.

Thank you.

Okay. We're going to take one last question, operator.

Philippe Lanone, Natixis.

Hello, gentlemen. Thank you for taking my question. A couple if may. One for Olivier on Praluent, because obviously, you come from a company initially that has been a cholesterol leader. How can you see -- can you give us more color on how you see the potential of that drug and how Sanofi is well prepared to launch it, keeping in mind that the current consensus is $1.8b? What are your ambitions on Praluent today?

And second question, on the biosimilar insulin lispro, which is in Phase III, can you give us some calendar here for launching and how you will position that versus your other two short-acting insulins, Afrezza and Apidra?

Okay. Praluent, just to give you what I did, and let me answer your question. So I spent a fairly good amount of time -- actually, with the global and US team, to just assess our preparedness for the launch. And I think we are refining a few things, but we are well on our way to be actually very ready for the launch.

So I feel -- if that is your question, I feel pretty good that we are going to put on the market, of course, a very powerful medicine, but we'll have prepared -- we'll be prepared for a very successful launch.

So what is the second question? It's for you.

Yes, the question is a straightforward question about lispro. As you know, our strategy has been it be a complete solution provider for diabetic patients, and a rapid insulin is part of that scenario. So as part of that strategy, we think biosimilars, especially in different markets, are going to be critical to provide that full spectrum, if you will, and so that's part of the strategy here.

Okay, thank you, Elias. Olivier, we're now ready to close the call. So thanks very much to all participants for your interest today in Sanofi, and we look forward to talk to you very soon.

Thank you. Thank you, everyone.

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