Sanofi SA (SNY) 2015 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Sanofi 2015 Q2 earnings call. I will now hand over to Mr. Sebastien Martel, head of Investor Relations. Sir, please go ahead.

Thank you, Laura; and good morning, good afternoon to everyone. Thank you for joining us to review Sanofi's second-quarter results. As always, the slides of this call have been posted on the Investors page of our website at Sanofi.com.

With me on the call today are Olivier Brandicourt, our Chief Executive Officer, and Jerome Contamine, Executive Vice President and Chief Financial Officer. Other members of our Executive Committee are also joining today for Q & A. We have got Olivier Charmeil, Executive Vice President, Vaccines; Peter Guenter, Executive Vice President, Global Commercial Operations; Carsten Hellmann, Executive Vice President, Merial; David Meeker, Executive Vice President, Genzyme; and Elias Zerhouni, President for Global R&D.

First Olivier will discuss the key highlights of the second quarter, and then Jerome will review Sanofi's financial results during the quarter. After that, as always, we will open for a Q&A session.

Before we begin, as you can see on slide 2 I would like to remind you that information presented in this call today contains forward-looking statements and involve known and unknown risks, 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 reference for a description of these risk factors.

With that, I would like to turn the call over to Olivier.

Thank you, Sebastien. Good morning, good afternoon to everyone. I would like to welcome you all to our second-quarter earnings conference call today.

Starting with slide 4, let me start off by saying that I am very pleased with our results in the second quarter. Our performance continues to be solid across the board, and while we are introducing a series of promising new products for future growth we are also advancing our late-stage pipeline.

Sales were up 4.9% at constant exchange rates, reflecting the strength of our diversified businesses. We delivered growth across all regions and businesses, except for diabetes.

We also reported solid financial results. Despite the expected higher operational expenses driven by the investments in our multiple new product launches, business EPS was EUR1.41 per share, up 5.1% at constant exchange rates.

Importantly, our second quarter was also strong on terms of innovation. Beyond our solid operational performance, we once again made significant progress in bringing innovative medicines to market.

First of all, I'm excited to highlight our great success in achieving FDA approval of Praluent, the first fully human monoclonal antibody targeting PCSK9 approved in the United States. Together with our partners at Regeneron, we are now ready to launch Praluent in the important US market.

In addition, we also received an earlier than expected positive opinion on Praluent from the CHMP in Europe a few days ago. We also expect to achieve further R&D milestones before the end of the year, with three regulatory submissions in the US of lixisenatide, LixiLan, and sarilumab. Of particular interest is, of course, our recent announcement of a new alliance with Regeneron in the fast emerging field of immuno-oncology, and I will introduce this important collaboration shortly.

Now turning to slide 5, let me provide you with some of the key figures of the second quarter. Sales reached EUR9.4 billion in the quarter and business EPS was EUR1.41 per share, up 4.9% and 5.1%, respectively, at constant exchange rates.

Similar to what we observed in the first quarter, we continued to see much stronger growth on a reported basis than at constant exchange rates for both top and bottom line due to the currency impact. On a reported basis, second-quarter sales were up 16.1% and business EPS was up 20.5%.

Moving to slide 6, I am encouraged by the operational performance across our business areas. Let me point out a few highlights.

Sales of Pharmaceutical were almost EUR8 billion, up 3.7% at constant exchange rates, representing more than 83% of total Group sales. Diabetes sales were EUR2 billion, down 3.8%, consistent with our expectations.

At Genzyme we saw another quarter of impressive double-digit growth, driven by the rare disease and multiple sclerosis franchises. Sales were up 26.6% and exceeded EUR900 million in the quarter.

Jumping to oncology, sales were up 3.6% and reached almost EUR400 million in the quarter. Despite generic competition, our oncology business remains a solid base for our renewed ambition to develop innovative cancer therapies that can make a difference to patients in the future.

Established product sales were over EUR3.1 billion in the second quarter, up 3.1%, a trend that we do not expect to continue in the second half.

In line with our expectations, the Vaccine business had a solid second quarter as well. Sales increased by 8.6% to almost EUR900 million, led by influenza and booster vaccines.

For Animal Health, Merial reported excellent performance, up 14.2%. Sales of approximately EUR700 million represented record quarterly performance of this business.

Now to slide 7, we take a closer look at the performance of our global diabetes franchise. The decline in diabetes sales was consistent with the previous quarter and in line with our previously communicated full-year expectations.

The pie chart on the left shows global diabetes sales represented 21.2% of total Group sales and were down 3.8%. Let me point out here that without the well-anticipated decline in diabetes, Group sales were up 7.3% in the quarter.

Diabetes sales in the US decreased 14% year-over-year to just over EUR1.1 billion, mainly reflecting the continued pricing impact on Lantus. Diabetes sales in the US accounted for 57% of worldwide diabetes sales or 12.1% of Group sales.

Importantly, diabetes sales outside the US represented 43% of total diabetes sales and increased 11.2% to EUR854 million, mostly absorbing the negative pricing impact of the US market. The table on the right-hand side shows that the diabetes performance worldwide was reasonably consistent from Q1 to Q2. As we move into the second half of 2015, we will be closely monitoring the impact of the expected launch of insulin glargine biosimilar in Europe and Japan.

Moving to slide 8, the launch of Toujeo is progressing in the US, with both initial marketshare as well as market access off to an encouraging start. As illustrated by the chart on the left side of the slide, we are successfully defending our position in the total US basal market since the launch of Toujeo in late March.

Sanofi's total glargine share, represented by our brands Lantus and Toujeo, remains stable and holds more than two-thirds of the entire basal market. Weekly TRx and NRx data for Toujeo shows early trends that are in line or better than other recent launched injectable diabetes products.

We are particularly excited by our early success with US payors. We have already secured early and broad market access.

As of early August, 73% of lives are covered by commercial plans and have unrestricted access to Toujeo, including a large portion of lives with preferred Tier 2 access. As we have been able to enter early into the contract cycle for 2016 medical plans, 91% of those lives now have coverage with contracted formulary position and have unrestricted access to Toujeo. It should be noted too that about 60% of basal insulin prescriptions are in the Part D patient population.

Outside the US we also note the ongoing launch of Toujeo in Germany and the UK, and recent regulatory approvals in Japan, Canada, and Australia. In Europe, where we received approval in late April, the launch is helped by a strong and differentiated label versus Lantus.

Turning to slide 9 I would like to discuss performance of our growth drivers at Genzyme, beginning with the rare disease franchise, where we saw good growth momentum in the second quarter. We continue to build on our leadership position in the rare disease market, based on the sustained success of all key brands, including Cerezyme, Fabrazyme, and Myozyme.

Total sales of the franchise were EUR647 million, an increase of 9.1%, driven by the addition of new patients receiving therapy. Of note, Cerdelga, the only first-line oral therapy for Gaucher disease, is gradually contributing to the growth of the Gaucher franchise, with sales of EUR16 million in the second quarter.

Now moving to the multiple sclerosis franchise on slide 10, Genzyme reported another quarter of exceptional commercial success in this strategic area. Sales of our MS franchise more than doubled to EUR260 million in the second quarter, and the franchise is now on a trajectory of potentially over EUR1 billion of sales on an annualized basis.

Sales of Aubagio in the quarter were driven by strong growth in the US and France. To further promote the recognition of Aubagio among patients as an effective oral treatment option for multiple sclerosis, our teams have successfully launched a new global brand campaign promoting Aubagio as a treatment that Quietly Quiets MS.

Lemtrada had a good ramp-up in Q2 with sales of EUR56 million, driven by new patients starting with this innovative treatment option.

On the next slide, slide 11, you can see that the good second-quarter performance of the Vaccines business was not only a result of increasing trends on franchise sales in the Southern Hemisphere. Overall we saw a broadly positive sales momentum across many different product groups, except polio purchases and Hib vaccines, where we had a high comparison basis in Q2 2014.

Looking forward we remain excited regarding our ambition to significantly reduce the global burden of dengue with the help of our innovative vaccine candidate. Last month we completed the regulatory submissions in key endemic countries in Asia and Latin America.

We are now expecting the first license to be granted before the end of 2015. The recent dengue fever outbreak in Brazil once again underscored the huge unmet need in pandemic countries and the sizable opportunity for this breakthrough innovation.

As we recently announced, we have started to ship flu vaccines in the US and have committed to distribute more than 65 million doses this year. Looking at the full-year 2015, we continue to expect yearly sales growth to be in the same range as last year, when excluding dengue vaccine sales.

Turning to Animal Health on slide 12, the second-quarter performance of Merial continues the impressive recovery of this business. Sales increased 14.2% at constant exchange rate in the quarter, and Animal Health has now delivered its fifth consecutive quarter of growth.

This strong performance is driven by the success of NexGard in the companion animal market despite strong competition. Sales excluding NexGard were up 7.8% at constant exchange rate in the second quarter, helped by an effective marketing strategy to defend our Frontline franchise.

Outside the pets business we also benefited from the strength of our ruminant and avian businesses. As we enter the second half of the year, we maintain a positive view on Merial and expect a high-single-digit top-line growth in 2015.

Moving on to slide 13, we briefly review the performance of the Group by geography. All geographies as depicted in the chart delivered growth in the second quarter, including in the US, where the decrease in diabetes sales impacted the growth in the country.

Total sales in emerging market grew 7.5% to EUR3.2 billion in the quarter. Despite the economic slowdown in certain emerging markets such as Russia or Brazil, we remain focused on maximizing the growth opportunities in emerging markets.

On slide 14 I would like to introduce our new strategic alliance with Regeneron to develop treatments in the emerging field of immuno-oncology. This important collaboration establishes Sanofi's presence in cancer immunotherapy, which is projected to be among the largest drug classes ever.

Sanofi has always remained committed to developing innovative and effective cancer therapies. Significant unmet medical needs remain in oncology despite recent scientific progress with checkpoint inhibitors.

This opportunity will expand our oncology pipeline as we aim to develop best-in-class novel checkpoint antibodies and novel combination products. The alliance includes a PD-1 inhibitor, which is in Phase I, and a portfolio of antibodies including antibodies targeting LAG3, GITR, and PD-L1, which are currently in preclinical development.

Importantly, this collaboration will accelerate the development of multiple potential cancer treatments in the fast-evolving IO field with a scale and focus beyond our existing discovery agreement. The new alliance will provide the critical mass of investment needed to succeed in IO and align the capabilities and aspirations of both organizations. Jerome will discuss the financial terms of this new collaboration.

Turning to slide 15, Praluent is now the first approved PCSK9 inhibitor in the US and is poised to become a significant growth driver for Sanofi. Last Friday the FDA approved Praluent. This is an important new medical advance, and we are honored to provide the new therapeutic option as an adjunct to diet and maximally tolerated statin therapy for adult patients with heterozygous familial hypercholesterolemia or clinical atherosclerotic cardiovascular disease who require additional lowering of LDL-cholesterol.

Our teams have been working around the clock to make Praluent available to patients in the US. We continue to expect the uptake will be gradual, as we work on market access and build awareness within the broader medical community.

When it comes to the WAC price we took a value-based approach that strikes the right balance between the medical benefits to individual patients as well as the overall total value to the healthcare system. I'll remind you that cardiovascular disease is still the number-one killer in the US and worldwide.

The estimated annual cost of acute coronary syndrome in the US ranges from $50,000 to $119,000. The overall burden of CVD is estimated to cost the US healthcare system around $315 billion a year and is projected to exceed $900 billion by 2013.

We expect the 75- and 100-milligram doses, which allows for titration, to be appealing to both patients and physicians. Last week the CHMP also recommended the approval of Praluent with a similar label.

On slide 16 we are currently expecting to submit three significant products for FDA review in the second half of the year. First, the positive ELIXA study supported the regulatory filing of lixisenatide in the US, and we have consequently submitted a dossier to the FDA this week.

Second, we recently announced positive top-line results in the LixiLan-O study, which demonstrated superiority over insulin glargine of lixisenatide for HbA1c in patients who are insufficiently controlled on oral antidiabetics. Results on the ongoing LixiLan-L study for patients not controlled on basal insulin will be available during the third-quarter 2015.

Following the analysis of the results of both Phase III studies, we will determine next steps in the regulatory process. Currently regulatory submissions are planned for Q4 2015 in the US and the first-quarter 2016 in Europe.

Lastly, three sarilumab Phase III studies in rheumatoid arthritis recently met their primary endpoints, allowing for US regulatory submission before year-end and one year later in the EU.

Turning to slide 17, we recently announced a new organizational structure which simplifies and focuses Sanofi to optimize growth. The structure establishes five global business units that will specialize in well-defined therapeutic categories to drive growth in their businesses.

They are: General Medicines and Emerging Markets, which will be led by Peter Guenter; Specialty Care, Sanofi Genzyme, led by David Meeker; Diabetes and Cardiovascular, led by Pascale Witz; Sanofi Pasteur, led by Olivier Charmeil; and Merial, led by Carsten Hellmann. The global business units will have clear P&L accountability and responsibility for driving global strategies to ensuring excellence in execution.

Similar to our R&D and industrial affairs organizations, other support functions will be globalized to better serve the global business units. This project will be progressively deployed over the next few months and targeted to be implemented as of January 1, 2016.

Turning to slide 18, we will be hosting a Sanofi Meet Management meeting on November 6 in Paris. As indicated in April, a thorough a review of all our businesses is underway. We would like to invite financial community to meet with our senior management team at Sanofi in order to discuss the outcome of the business review.

The objective of this seminar is to provide a roadmap for the Company towards 2020. We will also present the latest progress of our R&D pipeline on that day.

With that, I will now turn the call over to Jerome to discuss the details of our financial results in the second quarter.

Thank you very much, Olivier. Good morning, good afternoon to everyone. So I'm now on slide 20.

As Olivier highlighted earlier, we reported solid operational performance in the second quarter. Additionally we saw a continuation of strong FX tailwind, which we also observed in the previous two quarters. In the second quarter alone, shares were positively impacted by EUR910 million, plus 11.2 percentage points, and the impact on EPS was plus 15.4 percentage points or EUR0.18.

The favorable currency impact is mainly due to the stronger US dollar compared to the euro. As always, for additional information on foreign-exchange sensitivities to key currencies, please refer to the first slide in the Finance Appendix of the slide deck.

Now moving on to the P&L on slide 21, sales were EUR9.4 billion, an increase of 4.9% in the second quarter. Second-quarter gross profit was EUR6.5 billion, up 4.8% at constant exchange rates. I will discuss the details of the gross margin shortly after; I will therefore jump directly to other current operating income.

Other current operating income was negative EUR20 million as compared to positive EUR54 million during the same period of last year. As you may recall, in the second quarter of last year we had received a payment of EUR62 million from TOLMAR Pharmaceuticals for the return of the US rights to Eligard.

The share of profit from associates increased to EUR30 million in the second quarter, reflecting the consolidation of our share of profits of Regeneron. In total, business operating income, BOI, was EUR2.6 billion, up 4.7% at constant exchange rates, despite an increase in OpEx of 3.7% at constant exchange rates.

Looking at the items below the BOI on slide 22, net financial expenses were moderately higher as compared to the same period of the previous year. This is mainly the result of a capital gain of EUR31 million before tax, associated with the sale of a financial investment in the second quarter of last year, 2014.

The effective tax rate remained stable at 25% in the second quarter, and we reaffirm our tax rate guidance of around 25% for the full-year 2015. Business net income in the second quarter was EUR1.8 billion, up 4.2% at constant exchange rates, and we delivered business EPS of EUR1.41 in the second quarter, up 5.1% and up 20.5% on a constant exchange rate and reported basis, respectively.

As a result of our continued share buyback activity, the average number of shares outstanding decreased in the second quarter by almost 9 million shares after a decline of 11.5 million shares in the first quarter of 2015. The average number of shares outstanding as of June 30 was 1.306 billion shares.

Moving to slide 23, gross profit. Our gross profit increased by 4.8% at constant exchange rates. The second-quarter gross margin was 69.6% and reflects an improvement of 1 percentage point year-over-year.

As mentioned earlier, this improvement is driven essentially by the favorable impact from currency. Indeed, the positive impact from Genzyme and Renagel was offset by the negative impact of Vaccines mix and US Lantus. We continue to expect that the gross margin for 2015 will be between 68% and 69%, but most probably at the high end of the range.

Looking at the evolution of operating expenses also on slide 24, OpEx was EUR3.9 billion, up 14.4%, or 3.7% at constant exchange rate. The growth rate of operating expenses at constant exchange rates was in line with the first quarter and remained slightly below our expectations of mid-single-digit increase for the full-year 2015.

R&D expenses of EUR1.3 billion were up 8.6%, but broadly stable at constant exchange rates, reflecting lower spend in diabetes, alirocumab and oncology but higher spend on dupilumab. Second-quarter SG&A expenses increased 17.4%, or 5.9% at constant exchange rates, reaching EUR2.6 billion, driven by launches in multiple sclerosis, animal health, and diabetes.

For your modeling purposes, please let me reiterate at this point the importance of ForEx impact as a significant driver of our operational expense line. As you noticed in Q2 2015, the impact of foreign exchange in OpEx were more than 10%.

This significant increase simply reflects the large part of our OpEx increase is in US dollars. We continue to target a mid-single-digit growth rate at constant exchange rates for OpEx, including the new IO alliance, for the year 2015.

Let me return to discuss the terms precisely of the IO alliance with Regeneron. This is on slide 25. We are clearly all excited about this major new collaboration with Regeneron that will last -- research will last to eight years.

As you can see on the left-hand side, Sanofi will make an upfront payment of $265 million to secure access to Regeneron's research capability and technologies in IO. Sanofi and Regeneron will invest over $1 billion, split 75-25 for discovery immunotherapy on all novel combination IO antibody candidates. In addition, Sanofi will reallocate over a period of three years the total of $75 million to the immuno-oncology alliance, which will come from its $160 million annual contribution to the existing antibody collaboration.

Regeneron will be responsible through the stage of proof of concept, at which time Sanofi has opt-in rights. Following the proof of concept opt-in by Sanofi, the partners will share R&D costs on alternate development lead and US commercialization.

For antibodies where Regeneron leads development, development costs will be shared equally and Regeneron will book US sales. For antibodies where Sanofi leads development, Regeneron will pay 50% of the costs through the IO collaboration development balance, using a similar mechanism as the current alliance; and Sanofi will book sales globally. Worldwide profits will be shared 50-50.

On the right-hand side of the slide, you can see that we also secure rights to Regeneron's PD-1 inhibitor through the upfront payment of $375 million for Regeneron 2810, which is their lead IO candidate. As you know, PD-1 and PD-L1 antibodies are emerging as a backbone drug for IO combination therapies.

We will split $650 million of future development costs 50-50. Worldwide profits will also be split 50-50.

Lastly, Sanofi will make a milestone payment to Regeneron in the amount of $375 million if the PD-1 inhibitor or its combinations reach $2 billion in sales. Of note, this collaboration is expected to lead to incremental R&D expenses of around $60 million in 2015, and potentially between $200 million and $250 million in 2016, subject to R&D progress.

I now move to slide 26, which gives the details of capital allocation. I am pleased with the significantly increased free cash flow in the first half of 2015, reaching EUR3.1 billion, up 29% year-over-year. Capital expenditures were EUR667 million during the six-month period, higher than last year, which was EUR529 million, as we said already earlier this year, as we are investing more in biologic abilities and capacity.

As of June 30, 2015, our net debt increased to EUR9.7 billion, which is largely the result of the EUR3.7 billion dividend paid to our shareholders during the second quarter. We also returned another EUR1.2 billion to shareholders in the form of share buyback during the first six months of the year. Including EUR462 million of proceeds from the issuance of new shares, the net buyback activity was EUR781 million in the first half of 2015.

I now moved to slide 27. So we clearly had a solid financial performance in the first half of 2015, which resulted in the 3.8% increase in business EPS during the period. In the second half of the year, however, we expect a few elements which will impact our financial performance.

First, we expect slower sales growth for Venezuela and Merial in the second half of the year compared to the first half of the year. We also anticipate the potential launch of insulin glargine biosimilar in Europe and the onset of generic competition to Plavix in Japan, Renagel in Europe, as well as possibly in the US -- here I speak Renagel.

Separately, despite continuous rigorous cost management we expect an accelerated increase in OpEx in the second half of the year. R&D expenses in the second half of the year will be impacted by the funding of our new IO alliance, the Phase IV program for Toujeo, or the Phase III trial of dupilumab in asthma. SG&A expenses in the second half of the year will reflect our investment in the launch of Praluent and the Toujeo DTC campaign in the US.

So with these financial considerations in mind, I am turning to slide 28. I would like to conclude my comments today by reaffirming our existing financial guidance for the year and reiterate our outlook for 2015, with EPS to be stable to slightly growing at constant exchange rates.

The positive currency impact on 2015 full-year business EPS is estimated to be approximately 10%, assuming that exchange rates remain stable in the next two quarters at the average rates of June 2015. At this point I would like to turn the call back to Sebastien, who will [pose] the Q&A.

Thank you, Jerome. Laura, we are now ready to open the call to questions. As a reminder, I would like to ask participants to limit themselves to one or two questions at a time before returning to the queue. Laura, if you could remind participants how to ask questions, over to you.

(Operator Instructions) Florent Cespedes, Societe Generale.

Good afternoon, gentlemen. Thank you very much for taking my question. Two quick ones.

First a question for Olivier on the simplification. Could you elaborate a bit on your plans and on the impact of the simplification strategy? Notably in terms of potential cost avoidance, given that we understand that you are planning to have some globalization of the support function.

My second question is for Olivier Charmeil on the dengue vaccine. Could we have an idea of the ramp-up profile of this product? And what could be the impact on the Vaccines margin? Do we have to anticipate higher COGS and higher marketing costs? Thank you very much.

All right, Florent. So you are talking about the reorganization which we have announced a couple of weeks ago.

Yes, the aim is focus and simplification. It has to do with marketing a portfolio which has increased now very substantially, believing that in pharmaceuticals today you need specialization.

It's very different to try to defend an established product portfolio versus launching a new mAb in a very specialized area. So that's the reason why that was -- the first intention is really to build those specific BUs on the pharmaceutical side, which are joining the two other BUs we have already and which have clearly demonstrated the value of being vertically aligned.

On the other side, we are creating global functions which aims will be to support those global BUs optimally, and for each leader heading those global functions to have a clear understanding of deployment of resources across the world in those different businesses. So again it's simplification, making sure we are executing our global strategies from global to local, and bringing the best potential support to those business.

The aim ultimately is to simplify, as I said, and focus. We think the consequence, to your point, will be to generate some saving where we see redundancy when we will build those new businesses from bottom-up. But it would be very difficult at this point to tell you what those savings will be -- and I would add, if any, to be honest, so that would be my answer. Olivier?

Thank you for your question regarding dengue. It is a little bit too premature to give you a precise answer about the ramp-up.

As we speak we have filed in seven countries. We will have filed in 20 countries by the end of the year that represent roughly half of the worldwide population at risk of dengue. We are expecting to get the first registration by the end of the year.

Regarding the ramp-up for 2016 and 2017 onwards, it will be very much dependent on the objective country-by-country in terms of getting the impact of dengue reduction. This will be a combination of routine immunization and of catch-up [court]. Some countries might decide to move fast in order to get a better protection within a reasonably short period of time.

With regard to cost of goods, we can say that the gross margin for dengue is going to be above average. So we should expect an improvement in terms of gross margin due to the launch of dengue.

With regard to the commercial cost, we are planning a moderate increase of our commercial cost. I remind you that a significant portion of our sales for dengue are going to be public market sales. Of the private market sales, there will be an increase in terms of commercial cost. We will focus in the countries that are going to put in place broad catch-up program, and we will synergize also as much as we can with our colleagues from Pharma to leverage the Group.

Thank you very much.

Tim Anderson, Bernstein.

I just wanted to clarify your earlier comments on the recent reorganization. Did you say that it would not necessarily lead to any cost savings? That's my first question.

Second question is on M&A. The Company obviously has a long history of doing deals. Nothing substantial has happened since Genzyme a few years ago.

I'm wondering how the Company is viewing the landscape at the moment, along the lines of current valuations of potential targets. Is M&A potentially on hold for the Company, given the recent change in leadership and also the reorganization and the need to reassess the direction of the Company?

Then my last question is on biosimilar Lantus. You note on one of your slides that it has launched in two Eastern European markets. I'm wondering if you can tell us what the effective price is of the biosimilar relative to Lantus in those two markets.

All right, Tim, thank you for your questions. Again I would like to come back to the aim of achieving this transformation first. I mentioned focus, simplification; it will increase speed of decision-making.

During the first quarter I insisted that we need to have single point of accountability to improve governance, and that's part of the equation. Overall decreasing complexity across the organization, and because of what I mentioned about specialization, I think that should lead to engaging more deeply our customers in those different lines of businesses.

One point is to allocate resources more effectively and efficiently. So if we do that and if we do the last one, then we should logically see some savings.

That should lead to some saving that could be reinvested in the business and R&D. So is that the answer?

The second is M&A. M&A, yes, it's part of the tools we may use for the right opportunity. I think that's what we are saying for a little while.

We have not been engaged in M&A in the last two or three years. But before that, as you underlined, Sanofi was involved in midsize like Genzyme or bolt-on acquisitions such as Merial and Chattem. And this is definitely part of that we can continue to do or start again to do. Our balance sheet is pretty strong, and our debt level is low, and that would be my answer.

On the biosimilar Lantus, yes, we do have some information; and Peter Guenter will give you that.

Yes. Hi, Tim. As we speak we have three countries actually in Europe. We of Czech Republic, Slovakia, and Estonia where the product has been introduced. The price differential compared to the Lantus price varies between 15% and 20%.

What is also already known is that we expect Lilly to launch in the UK, which would be their first significant market, obviously. We expect them to launch in September, and we know that the price differential there will be 15%, to be precise.

Michael Leuchten, Barclays.

Thank you, it's Michael Leuchten from Barclays. Two questions, please.

Just sorry, going back to the GBU setup and just asking you about potential conflicts between disrupting the organization and the launches. Some of your launches will have to reach across the GBUs. I'm just wondering why you think the timing of setting those GBUs up now when you are going through the execution phase of those launches is the right timing.

Then the second question on Toujeo, you stressed the access of the product both in the commercial plans and also in Medicare. Yet the NRx share of IMS is still relatively low compared to Lantus. So given you have the access certainly in the Tier 2 or from a Tier 2 perspective, what is holding the NRx share back since launch? Thank you.

Thank you, Michael. Good question for the first one. Of course the aim is to put in place a transformation or reorganization in the next six months without disrupting the launches.

But it happens that two of our main launches are happening in one division, which is the Diabetes and Cardiovascular team. And global teams, regional teams, and local teams are actually not changing, as they're going to be part now of the same organization.

Before that global teams may not have had the same impact in terms of guidance to the local ones. So that's what we are improving.

But overall verticalizing those teams should not disrupt those launches. But again, good question, and we are keeping that in mind. We are involving the minimum number of individuals in planning for that transformation, and we're trying to be the least possible disruptive.

To the question on Toujeo in the US NRx, TRx, Peter?

Yes, Michael, so the access data, which are actually excellent of course is also some that gradually build up over the second quarter. And the data that are on the slide are of course the situation as of August 1, 2015.

So it is not that we have that kind of access as from April 2015, which was actually the first month of the launch. So that is one element.

The second element I would say is that the latest data we have now, weekly data, we have an NRx share of 2%. But I would also like you to take home that if you look at the so-called new to the brands prescription for the month of May, which is the latest data we have, we are actually at 15.7%

You should know that in the NRx data there is a lot of actually renewal of TRx, which is counted for us as NRx. So the NRx is not really a fully reliable reflection of what is the marketshare we take with Toujeo in the dynamic segment of the market. And last I would add that if you compare the absolute TRxes and NRxes and you compare it with recent launches in the field of diabetes in US, that we are actually tracking on par or better compared to a couple of these launches.

Allow me also, even if you don't ask it, we have some first data coming in from the European launches, so Germany obviously very important country. I remind you that when we launched the product in the price list, which was June 1 actually, we had the good situation that we had a full reimbursement as of day one, as when we were listed. And there the latest weekly data already indicates that we have an overall marketshare of 3.5% in volume after six to seven weeks, which indicates of course that the combination of good access, a very competitive label really allows you to make -- apparently again early days -- but by far the most successful launch a diabetes over the last years in Germany.

Thank you.

Tim Race, Deutsche Bank.

Ted Race here, Deutsche Bank. Just a couple of questions following on, on diabetes first. Just if you could you spell out which patients you are actually getting those NRxes with for Toujeo, are you getting the lower-hanging fruit or is this active switches really that you're seeing?

And just perhaps any comment on what your competitor has done in this segment in the last few months, seeing the uptake they are getting.

Then switching tracks to dupilumab, will we be seeing any published data of the long-term follow-up from the Phase II anytime soon this half of the year? Will you actually press-release that information?

And then what does a Breakthrough Status actually allow you to do in terms of filing, given that you will get the pivotal data at the end of this year or start of next year? I will leave it there and get back in the queue.

All right. Thank you very much, Tim. David is here again, on who are those patients we are capturing today.

Yes, so the first data we have, of course Europe it's extremely early but probably it's not going to be that different from the US. In US we have a bit more data obviously. So roughly I can say that 60% is switch from Lantus; 25% are real new patients to insulin; and roughly the remainder of the 15% are switches from other basal insulins, so Levemir and NPH.

Again early data of course; probably this can vary little bit in the next couple of months. But that's an early trend.

In terms of what the competition is doing, well, you know the situation is quite different between Europe and US. In US there is no degludec. In Europe there is degludec at least in some markets. Although you also have seen that Novo has decided to withdraw degludec in Germany because of an insufficient value assessment of the IQWiG or the G-BA. And actually if you look at the other European companies where degludec is launched today, the inroads are actually extremely limited, which probably also has to do with the premium pricing strategy in Europe. So, so far we haven't seen a lot of impact of this product.

Thank you very much, Peter. Elias, dupilumab?

Yes, so in dupilumab, as you know, we have a program ongoing in atopic dermatitis and we should be -- we are already in Phase III in atopic dermatitis. We should be reading out next year second-half.

In asthma we already talked about our Phase IIb. I don't know if that's what you're referring to. It will be essentially presented at a next scientific meeting. We already talked about our Phase IIb in atopic dermatitis, which is what got us into the Phase III programs.

So if you look at the impact of the accelerated approval, if you assume that our Phase IIIs, which are recruiting quite well in atopic dermatitis, work out, we will be able to essentially submit towards the end of 2016. And acceleration -- and under a Breakthrough designation certainly gives you the opportunity to accelerate that, although the Agency really is not committed obviously. But we do expect a four-month acceleration given the track record of Breakthrough designations. And again the AD results will be presented in first quarter of 2016.

Seamus Fernandez, Leerink Partners.

Thanks very much for the questions. Just a few here.

First off on Aubagio, can you just update us on any strategies for potentially extending the Aubagio patent life? You are seeing good success in the US; can you just give us an update on where those patients are coming from, specifically?

Second question is on the Praluent opportunity. As we think about your updates on the recent conference call, you mentioned that you anticipate that the outcomes trial would complete -- I think it said by 2017. Does that actually mean that it's by the end of 2017, or no later than the end of 2016? Just wondering for a little bit of clarification there.

Then the last question. As we think about the second half of this year, I think some may have hoped that a guidance increase may have been attendant to this, today's earnings upside report. As we think about the spending in the second half of this year, how much of that is really driven behind the increased support behind the launch of Praluent in particular? Thanks a lot.

Very good. Thank you, Seamus. A question on Aubagio, David. Can you answer the patent question and the US patient question?

Yes. On the patent, the method-of-use patent which is issued and gives us coverage up through April 2022 and then the opportunity for patent extension out through 2026, so that is the situation there. There's no other additional filings per se that would change that picture.

With regard to the overall market situation, again Olivier highlighted the brand campaign, which I think is noteworthy because I think it speaks pretty directly to the way Aubagio has been growing. The brand campaign is Quieting MS Quietly.

It just speaks to the fact that this is a drug that in the real world setting has been incredibly well tolerated, and the efficacy results have been very consistent with what we expected coming out of our clinical trial development program. So just highlights the importance of real-world data.

The consequence is that we've been growing market share. We're up 2 points year-on-year. We were about 3.5% at the end of quarter two last year; we're at 5.5% share in the US.

Perhaps more interesting that of the new brands starts are up most recently in the month of June to 12%. So again we just see steady increases.

And the European experience is even more robust. In certain countries where there's strong double-digit marketshare, ranging all the way up to a high of 20% in Denmark for example. So it's just a drug the people are discovering.

The patients that are coming, a majority are coming from switches, over two-thirds, and the majority of those actually come from Tecfidera. So we're getting, just as you expected, good uptake and the switching is coming from other therapies.

Thank you very much, David. Praluent, the cardiovascular outcome study, Elias?

Yes. The answer really, as you know, the cardiovascular outcome trial is an event-driven trial and so you cannot really fix a date by which you are going to be able to finish. We have projections; we are really on target to complete recruitment in the next couple months -- in two, three months, by November probably we hope -- given the recruitment rates.

And then everything depends on the accumulation of events and the event rate, because this is a trial that stops at a certain number of events that are adjudicated. That is why we have such a large window.

We do have an interim analysis at the 75% point. Again I cannot tell you when that will happen. But I think the window between 2016, the end of 2016, beginning of 2017, or the end of 2017, I can't tell you more, but this is within that window there are modeling estimates that we will reach the number of events needed to analyze the data.

All right. Thank you very much, Elias. On the last one I understand what you are saying. We had a very solid financial performance during the first half of 2015; however in the second half we expect that we face exclusivity losses and higher OpEx, and those will impact our financial performance.

So as anticipated, among those challenges we have the initial launches of insulin glargine biosimilar in multiple European countries, and we have seen already as we mentioned earlier some of that happening in small country, in Eastern Europe. And the onset of generic competition to Plavix, and Plavix has been one of the most successful brands in Japan. So that genericization happening there will have an impact on our P&L in Japan and Renagel in Europe, where we have seen very little genericization until now, as well as possibly going forward in the US.

So that is for the top line. When it comes to the OpEx, I think Jerome covered most of what we're going to face during the second half.

R&D funding of our new newly announced IO alliance with Regeneron. We also are working on a series of very important Phase IV program studies for Toujeo in order to generate the data which may have an impact on our US label ultimately. We also have Phase III trial which you heard Elias mentioning on dupilumab in asthma, and our continued investments in new launches.

You mentioned Praluent. Until now it was prelaunch, right? Now we are in full-scale launch. Of course I am not going to give you any number, but it's much more significant.

Again, at the same time I want to send a message that we are obviously remaining rigorous in the way we manage our costs, and we always are continuing to look for opportunities to become more efficient. But we will face that series of additional expenses, and as a result we have decided to reaffirm our existing financial guidance for the year and therefore reiterate our outlook for 2015 with our EPS to be stable to slightly growing at constant exchange rate.

Thank you, Olivier.

Maybe I can just add one point for you to understand the guidance. If you look back at our 2014 second half we had two one-offs which were disclosed, actually. One was a gain associated with termination of a license in the US for one product in Q3 for EUR40 million before tax. Another one was a capital gain following the sale to a third-party of some products, mainly in France and Italy in Q4, for EUR79 million.

So it helps you on also understanding from a financial standpoint what leads to the guidance.

Thank you very much, Jerome. Next question, please.

Graham Parry, Bank of America.

Thanks for taking the questions. Firstly on diabetes and the pricing outlook into 2016, presumably you are quite far through the contracting process now for Lantus and Toujeo. So can you give us a feel as to whether you expect similar or smaller price declines in 2016 in the basal insulin franchise? And perhaps how many of the current Lantus and Toujeo contracts already extend into 2016 flat pricing.

Secondly on the dengue vaccine, the three-year pool data from the Phase III trials recently published in the NEJM seem to throw some conflicting results around the under-nine-year-old population that suggests vaccination may only be in the older population over nine. Could you give us any thoughts on whether that dampens the enthusiasm of governments looking to purchase the vaccine and whether you still see the ability to supply the vaccine as the biggest determinant of sales, rather than demand?

Then thirdly on OpEx growth, bearing in mind the increased OpEx growth we are looking at in the second half, to what extent should we expect that to continue into next year? Should we think of OpEx growth in 2016 at a similar rate to 2015 or potentially even faster? Thanks.

Thank you, Graham. I will take the first one on diabetes. For 2016 as you can imagine future pricing in the US will be a little hard to predict given the fact that there are many elements which might have an influence -- biosimilar being one, degludec launch being another, and all of that has to be considered.

However, to the point you were raising, we can confirm that the majority of Lantus and Toujeo contracts in commercial and Part D are multiyear. However, they do have a standard language included in the agreement where terms and conditions may be changing or may change.

So further price erosion on insulin glargine has been embedded in our 2015 to 2018 guidance for diabetes, which by the way we are not changing. So I just want to make that point. It is -- that additional price impact has been included in our guidance on diabetes for the next few years.

All right, second question on vaccine and dengue, Olivier?

The global dengue burden is high in the population of nine and above, as presented in the IR seminar in Boston. In countries like Brazil, Mexico, Malaysia, 90% of the cases reported with dengue are in the population of nine-plus. So we do not intend to revise our internal forecast. We will continue to generate data in the upcoming years as for the ongoing surveillance studies for the below nine population with the objective of seeking an extension of indicationin vaccine it is not unusual to go step-by-step especially for the children population.

Olivier Brandicourt Thanks, Olivier. Opex Growth ? Jerome?

Hello, Graham. As you can imagine, Graham, it's too early to give you any guidance on the opex evolution for 2016 we have not even started our budget process. Well it's fair to consider that everything being equalwe are going to invest on a full-year basis beyond these new launches; I also mentioned the investment in connection with the IO agreement for 2016, which will be in the range of $200 million. So all together there could be some increase of OpEx, but clearly the magnitude is something we will discuss later back in -- when we give again for 2016.

Thank you, Jerome. We'll take a couple more analysts on the Q&A session please, operator.

Alexandra Hauber, UBS.

Thank you for taking my questions. Firstly on Lemtrada, can you please give us some dynamics on new patient adds in the US? But also in Germany, where it's been on the market for longer, are you still adding patients month-on-month or are you reaching plateau somewhere?

Secondly going back to the question of the second-half performance, given that you alluded to Plavix as probably one of the bigger LOEs you've seen in Japan, and that will be probably everyone who is focused on Japanese generics will jump after this, what sort of erosion should we expect here for Plavix in Japan?

I have not seen very many authorized generics. How much share do you think you can hang on to? And is that authorization over a certain period of time?

And the third question just very quickly. Yesterday when I read the press release on LixiLan I was a little bit confused about the language you were using, that you are considering next step in the regulatory plans, and then you define those plans. Does that mean those plans are subject to change? And is there any risk that the filings will be pushed out? Thank you.

All right. Thank you, Alexandra. So David, on the Lemtrada question first?

The way I would think about Lemtrada is first and foremost this is a therapy that requires a bit of a mind shift, a paradigm shift for the community, so there has been that lag in a sense as people get their heads around a new way of treating MS. Secondly there's significant logistics for this product, which include training in REMS, enrollment in a REMS program to ensure that the drug can be used safely and effectively. Then third of course the usual reimbursement challenges.

So I think the way I would look at the current Lemtrada launch, the patients who are enrolling in the REMS program, which is the leading indicator, if you will, as to future, has been accelerating. We've essentially doubled the number of patients enrolling on a monthly basis going back to earlier this year, coming out of February. Remember we put the sales force fully in place only at the beginning of February.

So we are seeing a ramp, and again I would expect it to continue. But we're still reasonably early.

Thank you, David. Plavix, LOE, Japan impact, authorized generic, and all of that, Peter?

Hi, Alexandra, what I can tell you is that we have 30 companies who have launched in total 66 generics, so it shows of course the magnitude of the pie, I would say. Now there is one specificity you should know, is that actually Plavix is the only one who has the full spectrum of what I would call atherothrombotic indications; so post-MI, post-ACS, post-stroke, and PAD. Whereas the generics do not have that yet to the extent that both ACS and PAD are still protected.

So we have worked very, very hard and diligently with the team to make that very clear to both physicians and pharmacies, which makes me believe that probably we'll have a generification curve which might be a little bit better, if you will, than other recent examples that we have seen in Japan.

What I can tell you is that the generics erosion rate -- we have to be careful it's only four weeks -- but let's say that after the initial stocking, so let's say week three and week four, we are around 20% generification rate, which is actually a little bit better than we thought and which is actually also better than recent generification of big blockbusters like for example the Diovan.

Very good. Thank you, Peter. LixiLan, Elias?

Yes, our expectations on LixiLan are the same. Clearly we have a very good result in LixiLan-O. In this quarter we should be getting the final results of LixiLan-L; and as you know, you need two Phase IIIs to be able to determine your regulatory approach, and this is what we've met.

So we are still on line for the fourth quarter of 2015 in the US and for the first quarter of 2016 in the European Union.

Thank you very much, Elias.

We're going to take one last analyst please, operator.

Vincent Meunier, Morgan Stanley.

Thank you for taking my questions. The first one is on the IO. The combinations are becoming a priority for all the players. Can you explain how you think you can differentiate versus much more advanced projects?

And also, can you explain how and when you will make combinations? If for instance you consider acquisitions at some point, who will decide and who will pay between Sanofi and Regeneron?

And I have a second question on Praluent. Can you explain what is the difference in terms of positioning between the pen and the prefilled syringe in terms of pricing, profitability, and maybe market access? Thank you.

Definitely Elias, why don't you answer the IO questions?

I think in the IO question, as you or we evaluated the field and because we have actually current assets within the current discovery alliance with Regeneron -- we have several multiple assets in the IO field that we have evaluated or are very familiar with, of which three are in the late preclinical stage and one is already in the Phase I stage.

Also our analysis of the field showed this is early. If you look at the response rate for current therapies of IO, you see that there are some patients who respond extremely well, but many others who do not. And on top of it you have a significant toxicology effect.

So in terms of combination with other products, we have in our portfolio several assets which we evaluated and which we think can be very early combined with the clinical assets that we currently have. The PD-1 is a backbone to combinations; but also LAG-3 and maybe PD-L1.

So we're looking at a strategy whereby having this agreement we can speed up and scale up our ability to explore a vast field of combinations with the antibodies that we are jointly working with Regeneron, other combinations with assets that we internally have -- such as BCG vaccine as just one example, which is well known to stimulate the immune system -- but others that we will certainly be able to discuss later.

In terms of acquiring from third parties, obviously we will consider significantly strategic assets from third parties, as we know that combinations not with just antibodies are only important, because as you want to modulate the immune system both to remove brakes on the immune system but also activate it, certainly opportunities will come which will then be discussed by the partners. The contract actually contemplates these acquisitions, obviously, at a 50-50 cost, 50-50 benefit generally is the principle that we will follow.

So when you look at that you realize that our choice here has been an expansion of an existing collaboration with clinical and pre-clinical assets that can be combined with existing clinical assets in our own portfolio and that of others. And that all of those considerations have been taken into account before really triggering this renewal and extension of our effort with Regeneron, combined with our internal efforts as well.

Okay, very good. Thank you very much, Elias. So Praluent positioning of the pen versus the syringe?

Yes, Vincent, the pricing is actually the same, so there's no difference between the PFS, the prefilled syringe, and the autoinjector. I think the whole principle which is around Praluent is the choice. We give the choice for the patient, for the physician, between the 75 and 150 milligrams; we give the choice between the prefilled syringe and the autoinjector.

Of course it is fair to assume that the majority, or if not the vast majority of patients, will opt for the autoinjector. But that's basically what I can tell you around this number.

Okay. Thank you very much, Peter.

I think we are closing the call now. Thank you very much all for joining us. Just reminding you that our Q3 results will be on October 29, and we hope to have the pleasure to host you at our Meet Management meeting on November 6. So thank you very much, everyone.

Ladies and gentlemen, thank you for your attendance. This call is being concluded. You may now disconnect.