Sanofi SA (SNY) 2017 Q2 法說會逐字稿

Ladies and gentlemen, good afternoon. Welcome to the Sanofi Q2 2017 Earnings Results Conference Call and Live Webcast.

I am Emma, the Chorus Call operator. (Operator Instructions) And the conference is being recorded. (Operator Instructions) The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Mr. George Grofik, Vice President, Head of Investor Relations at Sanofi. Please go ahead, sir.

Good morning, and good afternoon to everyone on the call. Thank you for joining us to review Sanofi's second quarter results. As usual, you can find the slides of this call on the Investors page of our website at sanofi.com.

Moving to Slide 2. I would like to remind you that information presented in this call contains forward-looking statements that 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 de Reference for a description of these risk factors.

With that, please advance to Slide 3, and let me introduce our speakers today. With me are Olivier Brandicourt, Chief Executive Officer; Jerome Contamine, Executive Vice President and Chief Financial Officer; Bill Sibold, Executive Vice President, Sanofi Genzyme; and Elias Zerhouni, President, global R&D. Also joining us for the Q&A session are Olivier Charmeil, Executive Vice President, General Medicines & Emerging Markets; Peter Guenter, Executive Vice President, Diabetes & Cardiovascular; Karen Linehan, Executive Vice President, Legal Affairs and General Counsel; David Loew, Executive Vice President, Sanofi Pasteur; and Alan Main, Executive Vice President, Consumer Healthcare.

First, Olivier will discuss the key highlights of the second quarter, then Bill will provide an update on our immunology franchise. After that, Elias will discuss recent advances in our Specialty Care pipeline. And finally, Jerome will review Sanofi's financial results before we open the call to Q&A.

Before we start, I'd like to remind you that as of the start of 2017, Sanofi's financial statements include the impact of the acquisition of the Boehringer Ingelheim Consumer Healthcare business, the divestment of our Animal Health business and the termination of the Sanofi Pasteur European vaccines JV.

In order to help you compare sales growth rates on a like-for-like basis, we will refer to growth at both constant exchange rates and constant structure. This has been noted in the slides at CER/CS.

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

Thank you, George. Good morning, and good afternoon to everyone. Welcome to our second quarter earnings conference call. So as in the first quarter, changes in structure had a distorting effect on our sales growth. Slide 5 provides a bridge to demonstrate like-for-like sales growth.

If we add back the EUR 394 million of sales that would have been generated in second quarter 2016 if we had owned the BI brands and European vaccines, then our second quarter sales growth in CER and at constant structure was 0.6%. In other words, we managed to deliver stable sales or even slight underlying growth despite the accelerated decline in our diabetes franchise that we had previously signaled.

For the half year, and on the same basis, our sales grew by 2% and speaks to the strength of our diversified business model.

On Slide 6, I'm pleased to report financial results in the second quarter, which were ahead of expectations. With the benefit of the structural changes I just mentioned, our second quarter sales grew by 5.5% CER to reach EUR 8.7 billion, and our business EPS increased by 1.5% to EUR 1.35. As in the first quarter, we were particularly encouraged by our business EPS performance, given the absence of contribution from our divested Animal Health business.

When we look at the results for the half year, we delivered CER sales growth of [5.5%] and business EPS of EUR 2.77, up 2.7%. As a result, we are raising our EPS guidance to reflect the year-to-date performance as well as our disciplined expense management.

Here on Slide 7, you can see the sales picture across our 5 global business units. In the second quarter, we again delivered strong double-digit growth in Sanofi Genzyme and Vaccines, which offset the anticipated further decline in our Diabetes & Cardiovascular unit. Unlike the first quarter, we only achieved stable sales in Consumer Healthcare. This mainly reflects seasonal factors in Europe, which I will discuss later, and which means the half year performance provides a better reference for the underlying performance of the business.

Turning to Slide 8. We are now looking at sales by franchise and geography in the second quarter. The overall picture is reassuring, as 5 of our franchises grew in the emerging markets, which once again contributed strongly to growth in the quarter. You can also see here that the main offsets to our second quarter performance were the pressures on our Diabetes and Established Product franchises in developed markets and seasonality impacting the performance of Consumer Healthcare in Europe.

Turning to our Specialty Care franchise on Slide 9. Sales grew by 13.5% in the quarter. The primary driver remained our multiple sclerosis franchise, which continues to gain share despite an increasingly competitive marketplace. Within the category, sales of our oral therapy Aubagio increased by over 30%, while our high-efficacy product, Lemtrada, also recorded double-digit growth. Taken together, sales of our MS franchise grew by 28% and exceeded EUR 0.5 billion for the first time in the quarter.

In Rare Diseases, the picture is similar to the first quarter, with double-digit momentum in Fabry and Pompe, mainly based on new patient accruals and stable sales in Gaucher. As a result, overall sales in Rare Diseases grew by around 6%.

Of course, the most exciting story in the quarter was the realization of our new immunology franchise. I'm delighted to report that Dupixent had a good reception in the U.S., with sales reaching EUR 26 million in the quarter.

For Kevzara, it's early days as we only launched in June, but we are already getting good feedback from the rheumatology community. And Bill Sibold, our new Head of Sanofi Genzyme, will provide you with some more detail on our immunology franchise in a few minutes.

Looking at Vaccines on Slide 10. We are very pleased to show second quarter sales growth of 19% at CER and constant structure. This followed a strong first quarter and takes our first half growth in Vaccine to 17%. Now you should not extrapolate this growth for the full year, given the high basis on comparison in our flu business in the second half. However, focusing on the second quarter, the 2 key drivers were our pediatric combination vaccines franchise and our meningitis vaccine, Menactra. Growth in our pediatric vaccines of 31% at CER and constant structure reflects strong in-market performance in Europe and China, especially from our AcXim family of pediatrics combination products. The 41% growth of Menactra, on the other hand, was boosted by CDC stocking.

On a geographic basis, it was especially pleasing to see the 32% growth at CER and constant structure of our European vaccine business, where we have really seized the opportunity to manage the business more effectively since the termination of our joint venture.

I would like to briefly comment on Dengvaxia. After the first state program in Parana, we are now in discussions on an expanded vaccination program in Brazil. While it is too early to provide further details on the timing and scope, we are certainly encouraged by these discussions.

Turning to Slide 11. Sales on our Global Diabetes franchise declined 12% in the second quarter. This compares with the 6% decline we reported in the first quarter and was primarily driven by a 23% decline in the U.S., which more than offset high single-digit growth in emerging markets. As a reminder, we cautioned on our first quarter call that we expected the U.S. Diabetes decline to accelerate over the remainder of the year. This remains the case. This reflects the phased impact of formulary exclusion at CVS and UnitedHealth as well as a high basis of comparison in last year's fourth quarter. Consequently, it remains our expectation that diabetes performance in 2017 is highly likely to come in below our minus 4% to minus 8% multiyear guidance range on a compounded basis. Within this tough overall picture, we do expect to report further progress for our 2 newly launched products. Toujeo continues to gain share in important markets and has now reached 13% share in Europe and as high as 18% in early-launch markets such as Germany. In Japan, market share reached more than 15%. And the first launches of Toujeo in EM, emerging market, are also very encouraging.

Also for Soliqua, our basal insulin GLP-1 combo, our U.S. market access is improving, and we have secured access for 62% of commercial lives as of July.

Finally, it is too early to comment on the contracting discussions underway for 2018. Although individual payer decision are likely to emerge in the coming days and weeks, we will provide a comprehensive U.S. payer coverage update with our third quarter results, in line with our usual practice.

Turning to slide 12. I mentioned earlier that our Consumer Healthcare business was affected by seasonal factors in the second quarter, resulting in stable sales. The main adverse factor was a strong and early cough and cold season in Europe, which boosted first quarter sales at the expense of the second quarter. Reflecting this, second quarter European CHC sales were down 7.8% at CER and constant structure, 7.8%. On the other hand, we were pleased to see a continued sequential recovery in our CHC business in emerging markets, where sales grew by 4.6% at CER and constant structure as compared with 1.3% in the first quarter. This highlight was a return to growth in Russia after several tough quarters.

In the first half of 2017, growth for the CHC business at CER and constant structure was 2.4%. We believe this is more representative of the underlying performance in the business than the performance in either Q1 or Q2.

Let me close on this slide by reconfirming that the integration of BI is progressing according to plan and that we continue to move towards full recognition of sales. We expect to recognize more than 95% of BI CHC sales by the end of the year.

Finally, turning to sales by region on Slide 13. You can see that our emerging market's performance demonstrated steady growth in the quarter, with sales up 6.6% at CER and constant structure. Second quarter sales in China was 17% as the vaccine recovery we had expected continues to materialize.

And with that, I would like now to hand over to Bill Sibold. Bill?

Thank you, Olivier. It's a pleasure to be here and have the opportunity to update you on our immunology franchise.

Beginning with Dupixent. We are very pleased with the way the launch is tracking across a number of important metrics. First, if we look at TRx performance, prescriptions are trending ahead of other recent biologic launches in dermatology, including Cosentyx, and the trajectory remains strong.

Second, we have talked about targeting 7,000 U.S. physicians. And I'm pleased to say that we are really getting the message across, with over 5,100 physicians having prescribed the drug as of last week.

Third, we also talked about an estimated patient population of 300,000 U.S. adult patients. So far, over 13,000 patients have been prescribed Dupixent, which, given we are only a few months into the launch, is a figure we think is very encouraging.

Fourth, looking at U.S. market access. You have heard us describe how 2 of the largest PBMs, Express Scripts and CVS, provided immediate coverage from launch and with utilization management criteria consistent with the label. We are progressing well with over 30% of commercial lives under contract, and we are expecting to have broad contracted market access by the end of the year, again with appropriate utilization management criteria. Of course, it is still early days, and this figure will fluctuate, but we are currently seeing prior authorization approval rates of 73% across all plans. And within the plans where we have contracts in place, it is encouraging to see that the prior authorization approval rates are around 83%. Given this early market access, we were able to generate EUR 26 million in sales in the quarter, which largely reflects end user demand and negligible contribution from inventory build.

Finally, on Dupixent. Of course, it's not just about the U.S., and we were delighted to have received a positive CHMP recommendation on July 21, which was earlier than we had expected and puts us on track to launch in Germany, our first European market, around year-end. In addition, our Phase III program in severe asthma is close to delivering top line results, and we plan to file an sBLA in this indication in the fourth quarter.

I want to turn next to Kevzara, which we launched in the U.S. in June and which was recently approved in Europe. Here, we only have a few weeks launch experience, so it's very early days indeed. What we can say is we believe we are launching into the large but competitive rheumatoid arthritis market with a strong label which highlights Kevzara's consistent efficacy across key patient groups, including inadequate responders to methotrexate and to anti-TNFs. We have strong radiological evidence in the label, which clearly shows the benefit of Kevzara on both joint erosion and joint space narrowing as well as a convenient every other week subcutaneous dosing with a choice of 2 doses. We are already receiving good position feedback on our message in a marketplace where the trends are towards less cycling of anti-TNFs and increasing use of monotherapy. Of course, Kevzara is launching into a much more competitive category than Dupixent. It will take time to build broad market access, although we do expect a majority of our target population in commercial plans to have access by the end of the year.

So to close, we are launching 2 very attractive, differentiated immunology assets at Sanofi Genzyme and are encouraged by the early trends thus far.

With that, I would like to hand it over to Elias.

Thank you, Bill, and it's my pleasure to speak to you today. I'm going to focus on 2 important advances in our Specialty Care pipeline, namely the PD 1 inhibitor and fitusiran for hemophilia.

Beginning on Slide 18 with the PD-1. We're very excited to be moving it forward in the registrational Phase II study in cutaneous squamous cell carcinoma. Cutaneous squamous cell carcinoma is the second most common skin cancer and is responsible for several thousand deaths annually in the U.S. We're ahead in this indication, and this represents our pass-to-market strategy in the PD-1 space.

At ASCO, we presented positive clinical data from a Phase I study, which showed that in patients with advanced cutaneous -- CSCC, our PD-1 was associated with a 46% overall response rate, a 69% disease control rate and was generally well tolerated. So we look forward to the results of our registration study and are planning to submit to the FDA in metastatic cutaneous squamous cell carcinoma in Q1 2018.

We've also started several studies of our PD-1 in other indications this past quarter, and these included a Phase III in first-line non-small cell lung cancer and a Phase II in metastatic and locally advanced basal cell carcinoma. We're also excited about our proprietary anti-CD38 antibody, isatuximab, which we have entered into a Phase I/II study in multiple myeloma in combination with our PD-1. Of course, isatuximab is an important part of our immuno-oncology efforts and continues to advance in Phase III as per plan. These programs, together with innovation platforms we're advancing based on mRNA and antibody drug conjugates, form the key elements of our strategy to rebuild a competitive position in oncology.

If we move now to Slide 19, I'd like to speak about fitusiran. We and our partner, Alnylam, recently reported the results of the Phase II open-label extension study in patients with hemophilia A and B, and we're very encouraged by the efficacy findings, which showed a significant drop in the annualized bleed rate, or ABR, in an exploratory post hoc analysis. Across all patients, Fitusiran was associated with an ABR of 1 compared with a pre-study mean of 20. And for those with inhibitors, the corresponding figures were 0 and 38. So among Fitusiran-treated patients, we noticed that nearly half were bleed-free over the observation period, which extended as far as 20 months; and 2/3 reported no spontaneous bleeding. When we look at safety, 1/3 of patients showed liver enzyme elevations, but most resolve with continuous dosing, and we think it's likely that this was related to preexisting hep C infection. Consequently, we do not consider this a cause for concern, although we will be closely monitoring this. And additionally, we will screen our patients with active HCV disease from our Phase III program.

So this brings me to the ATLAS Phase III program, which we initiated this month and which will include 3 clinical trials in around 250 patients across the spectrum of hemophilia. This program will be broad, including patients with hemophilia A and B with and without inhibitors, with prophylactic as well as on-demand treatment.

And so we expect top line results in mid- to late 2019. Again, the rest of the portfolio is progressing as per plan.

And with that, I would like to hand over to Jerome.

Thank you, Elias, and good morning, good afternoon to everyone. Before discussing the details of the P&L, I would like to highlight that foreign change contributed positively to our reported second quarter figures, although the impact was diminished when compared with the first quarter, given the recent appreciation of the euro.

In total, currency movements added 0.9% or EUR 76 million to reported sales on 1.6% or $0.02 per share to reported business EPS. For the full year, we now estimate the positive impact of business EPS to be up approximately 1% based on June 2017 average rates, which, you will note, is below our previous estimate of 3% to 4%. For more detail, I invite you to consider, as usual, the slide provided in the appendix, which, I'll remind you, are on a full year basis.

I'll now move to Slide 22. Looking at the P&L on a reported basis, sales were EUR 8.7 billion, representing 5.5% CER growth. You can see on this slide that, as for the first quarter, we faced a significant impact from the divestment of Animal Health, which contributed EUR 128 million in net income in Q2 last year. This impact resulted in our business net income showing a slight CER decline to EUR 1.7 billion. Against this, as promised, we offset this headwind by share repurchases, and so our business EPS grew by 1.5% to EUR 1.35. For the year, we continue to expect a tax rate of 24% to 25%.

Slide 23. To give you a clearer picture for the ongoing business, we provide you with our P&L at CER and constant structure. In this quarter, the increase in gross profit nearly matched sales growth as the benefit of efficiency savings on Specialty Care growth almost offset the impact of the accelerated decline in U.S. Diabetes. The key message, however, is that we again delivered operating leverage, with our BOI up 4.1% on sales that were up 0.6%. This represents a 90 basis points improvement in BOI margin, which we delivered through a combination of carefully controlled expenses and simplification savings.

Slide 24 examines our cost ratios in more details. Our gross margin declined by 10 basis points, as discussed on the previous slide. For the full year, we expect now the gross margin to be between 70% and 71% at CER, which is below the level reported in H1 and mainly reflects the impact of increasing diabetes pricing pressures, which we expect to be largely offset by mix on productivity benefits.

Turning to OpEx. At CER and constant structure, expenses in the second quarter were up a little -- small, 0.5%, versus in prior year. R&D expenses were up 3.1%, reflecting investment in new Phase III programs, while SG&A expenses were down 0.9% as savings more than offset launch costs in immunology.

For the full year of 2017, we expect R&D spending to continue to expand as a result of the pipeline investments that Elias highlighted. For SG&A, we will continue to step up investment behind our immunology launches, but this impact will be largely absorbed by savings in other areas, including the impact of CHC duration.

Overall, we maintain our expectation that OpEx in 2017 will grow in CER at a similar rate as last year off a constant structure base approximately of EUR 15.4 billion in 2016.

On Slide 25, I'd like to highlight a few elements in our net debt evolution. We ended June with net debt of EUR 7.5 billion as compared with EUR 8.2 billion at the end of 2016. There were a number of large items, as you see in H1, including more than EUR 5 billion combined of outflows to shareholders related to our annual dividend payment on share repurchases and partly offsetting this, the EUR 4.3 billion of net cash received on the BI asset swap. Importantly, our free cash flow remained strong at EUR 2.3 billion in the first half.

Turning to our EUR 3.5 billion share buyback program. We bought 4.8 million shares during the second quarter. This brings our total repurchase activities since Q3 2016 to EUR 3.2 billion.

To close, on Slide 26, we are pleased with our performance in the first half of the year, which was ahead of specifications. On the full year, we continue to expect growing headwinds from our U.S. Diabetes business and from increased launch on pipeline investments, offset by solid progress across the rest of the company on our cost saving programs.

Overall, based on our solid first half performance, we are pleased to raise our full year guidance for business EPS, which we now expect to be broadly stable at CER. As I mentioned earlier, the FX benefit on business EPS is expected to be about 1%.

With that, I would like to turn the call back to Olivier for closing remarks.

Thank you, Jerome. So to summarize, with the benefit of our diversified business model and again, disciplined expense management, we delivered a first half financial performance ahead of expectations, which enabled us to lift our guidance. We achieved this against a backdrop of a tough U.S. payer environment in diabetes, for which we were fully prepared. Meanwhile, we have continued to build for the future, with the successful launch of Dupixent in the U.S. and the advance of key pipeline assets and platforms.

And with that, I would like to hand over to George to start the Q&A.

We will now open up the call to your questions. (Operator Instructions)

(Operator Instructions) First question comes from the line of Florent Cespedes of Societe General.

Two quick ones. First for Peter on Diabetes on Soliqua. Could we have more color on the perception from doctors on this product? And what could boost the sales because the access is quite good already? Because it's around 30 -- 60% according to what you provided on the slide. My second question is for Elias on immuno-oncology. What is your strategy in lung cancer as you have already multiple players in this field with different strategies? And could we have more color on the design of your new Phase III in first-line [Lundbeck]?

All right. Thank you very much, Florent. Soliqua, Peter, a few words.

Yes. So Florent, thanks for the question. So actually, there are 2 elements, which we are confronted with today. Number one is what you could qualify as clinical inertia. So remember that doctors have been used to titrates with basal insulins. And actually now, you have a better option, which is called Soliqua. But, of course, you have to really work a lot on medical education, peer-to-peer interactions, et cetera. And actually, we have kind of changed a little bit our mix to, indeed, boost more this kind of interaction because we have to change a treatment paradigm that doctors have been used to for the last 10 years. So that is number one. Number two, your question on market access. It's true that we have a good number of -- 62% commercial access, but that is actually a very recent number. So actually, those positive decisions by big PBMs actually only kicked in, in the last couple of weeks, so it is too early to see the effect of that. So expect a gradual increase of Soliqua, which is actually coupled to progressively changing that medical paradigm -- or treatment paradigm and also taking more and more profit of an improved access.

Florent, on oncology, it was -- for the last 18 months to 2 years, and we mentioned that in our road map, oncology was a key strategic imperative, right, to step up our investment in that field. So I think -- and we expanded, you remember, our research effort by the expansion of our partnership with Regeneron. And we are seeing already, a few months later, the output of that expansion. And you heard Elias, PD-1 is up for potential submission during the first quarter 2018. So nothing that we have not -- my point is nothing that we have not indicated during the last few quarter. And I think we're going relatively fast in -- not leapfrogging, but advancing on that journey. So with that, Elias, do you want to give details?

Sure, sure. Specifically on the lung cancer strategy, we made a decision with our partner, Regeneron, over 2 years ago that we would focus on the PD-1 mechanism, not the PD-L1. Second, we have also studies that internally tell us about biomarkers that we can use to better select the population. So our strategy is very straightforward. We're going to go for first-line lung cancer strategy in a selected population based on a combination of biomarkers that we have developed and hopefully, show and be the second company to prove that the PD-1 antibody can be effective in first-line lung cancer. We have other work based on biomarker analyses that we've done that show that CD38 could be a player -- a major checkpoint inhibitor as well, and we have isatuximab, and we have in Phase I other targets like LAC 3 and TGF-beta that we intend to strategically combine. Some are internal assets, some are Regeneron PD-1 and LAC 3 assets. So our strategy is to really catch up first in the first-line lung cancer. We found an entry indication in CSCC, followed by basal cell carcinoma, that will allow us to get an earlier approval than planned, and then follow up with entry into the lung cancer area.

Next question comes from the line of Graham Parry of Merrill Lynch.

So the first one's on Dupixent. Do you have any sense of the mix of prescriptions you're getting? And specifically within the initial prescriptions, what proportion of these are for a pack of 2 syringes or just the initial loading dose of 2 syringes? And how many for the loading dose plus a second pack for the month following? Just the question's angle because the number came in slightly below consensus, so we might be using the wrong mix of the 2-pack or the 1-pack prescriptions. And do you have any sense of who the prescribing physicians are at the moment? Is it mostly allergists or dermatologists? And any kind of feel for the severity of patients? Second question is on PARP inhibitors. Both Merck and Bristol have now signed deals to partner in part through their I/O portfolios. You've got knowledge of that space, obviously, from your Medivation due diligence, so to what extent do you think that class is important to be a major player in oncology as an adjunct to I/O in the future? And then thirdly, could you just quantify the minor divestment gains in other operating income expense and the contribution in that line from the Boehringer Ingelheim Consumer Health portfolio?

Thank you, Graham. So Bill? Dupixent is a mix of prescription and defining the profile of the prescribing physicians.

So overall, with the prescriptions that we have coming in, they are -- an overwhelming majority is through dermatologists at this point, and that's what we expected. And the profile of the patients coming in, early in the launch, they tend to be a little bit more the severe patients. Physicians are prioritizing the patients that they're putting forward. So again, as expected. Regarding the loading dose in that. So let me just provide a little background. So we recommend writing the prescription to include the loading and the maintenance dose, okay? And for each box of Dupixent, there are 2 presold syringes in it. Some physicians, however, are writing 2 prescriptions: 1 for the loading dose, so 2 presold syringes; and 1 for the maintenance, which is another box. And we think that the overwhelming majority are following the recommendation of writing the script to include the loading and the maintenance dose. We do note in some of the prescription data, as we -- early in the launch today, a comparison of NRx to NBRx, that there was probably about 20% that would be double-counted, where they wrote an individual prescription for the loading dose and for maintenance. So that's the best direction that we can give at this point.

All right. Thank you very much, Bill. Elias, on the PARP inhibitors.

Sure. Well, I think the first statement is that PARPs already have a place in oncology therapies. I think we do not have a PARP ourselves. We're very focused on our immuno-oncology PD-1 and other -- both Sanofi assets and Regeneron assets. So I really can't comment about the competitive nature of this field. There are several players. The mechanism in itself, I think, is a valid one, at least in the subcategory of patients. So that I think more data will come, and we'll see with the announced partnerships that you know whether or not it will have a synergistic role with checkpoint inhibitors. But at this point, we are not players in that space.

Thank you, Elias. Jerome, details on the rest?

Yes. Actually, we have disposed of some minor CHC assets. As you mentioned, these are not really linked to Boehringer. They are linked to refocusing our own portfolio. And as a matter of fact, these were more from Sanofi assets in some emerging markets. And also, we have, as a result of the decision from the EU, decided to -- we had to dispose of some minor assets, which were disposed to Ipsen, as you may remember, also coming from the Sanofi portfolio. So altogether, this contributed to a minor profit of EUR 25 million, which is reported in the other operating line -- operating top line. And there is another piece here, which is more resulting from the streamlining of our organization, which is the result of disposal of some building and some property in different countries, which was another contributor by EUR 50 million. So this, altogether, makes some EUR 43 million, which is before tax. So I mean, a -- basically very normal, very much in line with our overall strategy to focus on the most evaluated assets and I would say, something, which, after tax, seems to be a pretty minor.

So if I can follow up on the -- if I can, just very quickly for -- on the BI elements. I think at the beginning of the year, you said that some of the profits of BI and CHC and why you're transferring assets will have been booked through the other operating income expense line. Just can you clarify, there was none in the quarter then?

There was a little in Q2, which I think appears in the same line of kind of EUR 10 million. So it's pretty minor. More or less now we are reporting normal, I'd say, P&L.

The next question comes from the line of Vincent Meunier of Morgan Stanley.

The first one is a follow-up on Dupixent. So we've seen a stabilization of NRx over the few past weeks. I mean, you talked about the dynamics. But can you please tell us what's happening in terms of gross to net? And what we should expect in the coming quarters in terms of gross to net? The second question is on diabetes and the guidance. So we understand that you will make a comprehensive update on the PBM negotiations at Q3 results. You have decided to upgrade your guidance now. So should we understand that you do not anticipate a too harsh outcome or, at least, not harsher than the cautious comments you've reiterated?

All right. Good question, Vincent. Dupixent, the perceived NRx stabilization, Bill?

Yes. I mean, look we've seen some volatility in prescriptions. However, we feel that the underlying demand remained very strong. We haven't seen anything which concerns us. I think that there's been good, steady demand. And I think just one of the things to keep in mind here is that this is a market that we're still in the process of developing. It's the first biologic in atopic dermatitis, and it's only been available for 4 months, when you compare that to Psoriasis Biologics, they've been on the market for 14 years. So physicians and practices are gaining experience with both the product and how they're processing patients through their practice, so we see that it remains a strong demand and remain optimistic. As far as the question on the gross to net. On the -- at launch, I think you heard we talked about the net price in the low 30s, and that's the only guidance that we've given or will give.

Okay. Thank you, Vincent. So PBM negotiation, yes, we said we would give you the full picture at the start of the third quarter. We are still in negotiation with some large -- others are going to publish their decision very quickly or very soon rather, as you know. All that put together, yes, we are confident that we can deliver the guidance we just expressed. So assumptions regarding PBM negotiation and gross to net are part of our guidance.

Your next question comes from the line of Luisa Hector of Exane.

On Vaccines, you had strong a quarter. So I just wondered if you could highlight some of the positives and how sustainable they are. I'm seeing strength in the pediatric in Europe as a region, maybe China pediatric. And then perhaps you could outline the contribution you expect from protein sciences in the flu segment there in terms of sales opportunity. And then on Dupixent, just a quick question on your target number of prescribers. You talked about the 5,100 you have prescribed, but did you have a target for this year? And then finally, in terms of use of cash. Could you update us on any plans around the buyback now that you're close to completion of the cash on the BI asset swap?

All right. Vaccine, David? Anyone?

Oh, thanks. Yes, thanks, Luisa. So on Vaccines, we have seen good growth based on our pediatric franchise on flu. Also somewhat on Meninge. We have also launched Quadracel in pediatric. There were some phasing effects that Olivier mentioned on Menactra by CDC and on IPV by UNICEF in this quarter, which was earlier than what you usually see. This adds up to about EUR 60 million. If you normalize for this, it brings the growth to about 11%, which we anticipate to continue to see. In looking forward, how sustainable it is? Our 2 key growth drivers, pediatric and flu, are anticipated to continue to strong -- to grow strongly. Flu in the U.S., albeit is becoming somewhat more competitive, but we have a very strong leadership position, with very high market shares in our differentiated flus on high dose. You have also seen early shipments despite us having the largest volumes off the market. In terms of regions, we will continue to see good growth in Europe, also in China, with Pentaxim growing very strongly now after the Shandong resolution and emerging markets in general. Then on the protein science...

Yes, protein science. David, do you want to pursue or...

Yes, on protein science, we have to be careful. There is still the process of going through FTC, so we can't really comment more about this at this moment, but we will come back to you once we get the green light.

All right. Thank you, David. Dupixent target prescription?

Yes. No, the initial targeted physician is about 7,000. We're growing the number of physicians prescribing every day, so we expect that the 5,100 number that we reported as of last week will continue to grow.

Okay. And Jerome, use of cash?

Yes. We -- so as you know, I mean, up to kind of end of Q2, we have both -- we have executed our program of EUR 3.5 billion as we are not expecting to realize up to EUR 3.2 billion. So we purchased altogether around EUR 16 million sales since the beginning of the year. Part of this program was already executed in Q4 last year. So clearly, we'll continue to stick to what we said and base our strong net cash flow position. I mean, we do not exclude some opportunity for limited buy back, as we said earlier. Clearly, of course, this would not prevent us from eventually looking at financing some M&A if and when this would appear as (inaudible).

All right. Thank you, Jerome. Thank you very much, Luisa.

The next question comes from the line of Richard Vosser of JPMorgan.

Just on consumer. You highlighted going forward around 2% growth, which I think is weaker than most people would expect, but we have seen weakness across the space. So perhaps, could you give us some color maybe on the underlying market dynamics, whether you see a continuing market slowdown that seems to be pointed to by other players? And what really is the cause of this market slowdown? And then second question, just on multiple sclerosis. Just -- you obviously had continued good growth of that franchise of both products, but how do you see the competitive situation? Obviously, very strong uptake from a recently launched competitor. Are you seeing any impact on Lemtrada or Aubagio or should we see that going forward?

All right. Thanks, Richard. CHC?

Okay. Richard, it's Alan here. Yes, as you probably have seen from some of the reported numbers from our competitors, there seems to have been a slowdown versus prior year in the first half of 2017. This has really been driven in quarter 2 by seasonal factors. Predominantly, an early but short cough and cold season in Europe, which impacted significantly the numbers. It obviously benefited Q1 at the expense of Q2. Having said that, we still continue to see underlying positive trends in the CHC market. Both Nicholas Hall and I [amassed] as you know the forecasters for this sector. Both continue to see long-term growth in the 4% to 5% range. Of course, this does fluctuate from year to year depending on the seasonality, mainly driven by cough, cold and allergy. But, of course, the pain market also gets often impacted during low cough, cold seasons. Of course, for Sanofi CHC specifically, we have quite a strong footprint in emerging markets, which is one of the faster-growing areas. So we believe that, overall, based on our geographical footprint and our category focus, that we still maintain our long-term interest in this market.

All right. Thank you very much, Alan. Richard, on MS, we are not seeing a negative impact on Aubagio or Lemtrada so far. And at this point, there is no reason to expect a significant negative impact. Of course, it's very early days, but it looks like OCREVUS, which has reached about 20% of switches over a relatively short period of time, a period of 4 weeks, has got switches from -- mainly from TYSABRI, and I think that's around 40%. So at this point, the OCREVUS launch is tracking in line with what we have projected, but we'll have more details. So Bill, do you want to give a little bit more color on maybe Lemtrada and OCREVUS, what's going on there?

Yes, sure. Thanks, Olivier. So this is -- since we've been in this market, it's been an extremely competitive market. We launched relatively late in the game, with a fairly established market, and the franchise has been performing extremely well over that time and continues to this quarter, performed very well. Obviously, OCREVUS new launch seems to be off to a good start. It's -- as Olivier said, it has been our high efficacy segment, where we also have Lemtrada. And when you look at Lemtrada, the efficacy of it still offers a very unique profile in that the product is delivered with 5 infusions per week, nothing for 12 months, and then 3 infusions 12 months later. And we've seen, when we released our 6-year data last year, that after 5 additional years with no therapy, over 50% of patients had not required additional therapy. So when you look at comparisons of the efficacy, this is a treatment which affords a very durable effect over many years, and will be presenting additional data at the upcoming ECTRIMS meeting in Paris later this year. So it's -- again, what we expect to happen with OCREVUS coming in the market is the high efficacy segment to grow. It's currently at about 10% globally. And we think as the high efficacy segment continues to grow, that, that is a good news for Lemtrada for the future.

All right. Thank you very much, Bill.

The next question comes from the line of Jo Walton of Credit Suisse.

If I could return to the consumer business. At the time of the acquisition of the business, you suggested that the combined pro forma consumer margin would reach 30% by 2018. Given the deterioration, at least the short-term deterioration in the background for the consumer business, is that still a realistic target? And when might you be able to split out that consumer P&L as you promised us? And secondly, I wonder if I could ask you a bit more about your view on U.S. pricing going through to next year. I know that you don't want to give too much detail. But Express Scripts have just published their exclusions, and I see that Renagel has been excluded for 2018. And I just wonder if you could comment on whether you are feeling that 2018 is just an evolution from 2017 or whether there's going to be a step change of more competition, whether you feel that the payers have got better at enforcing formulary adherence, whether you're finding it more difficult to bypass formularies with couponing, et cetera. Just some sort of general comment as we are thinking clearly about our 2018 numbers.

All right. Thank you, Jo. Alan, do you want to answer specific question on the margin for next year in your business?

Yes, absolutely. Thanks, Jo, for the question. I mean, as you know, the Sanofi stand-alone CHC business had a best-in-class BOI contribution percentage of close to 30%. And we still believe that by optimizing the 2 portfolios and delivering against the cost synergies that we had planned by combining both Sanofi and BI CHC business, we will still be able to deliver this best-in-class profitability. So we don't believe, even though there's perhaps a slight slowdown in the first half in the overall top line revenue growth, that we have any need to change that commitment in terms of BOI contribution in 2018. In terms of the actual reporting, out of CHC, obviously, it would not be so helpful in 2017 because as you know from previous calls that we are only gradually bringing all of the business across. We still have transitional distribution of sales agreements with BI. We now have about 75% of the business transitioned. We'll have about 95% by the year-end. So giving you a view in 2017, we'll actually be perhaps more confusing than anything else, and we're certainly looking at how we would perhaps report out CHC separately for 2018.

Okay. Good. Thank you, Alan. ESI, Renagel, Olivier I mean, Tom, any comment there?

So FDA has granted license to one generic company for both forms that represent 90% of the market. Those 2 forms are now on the market as a powder and it has been on as since June and the tablets that have been on in the market since last week. Looking more midterm, all depend on the ability of this generic company to be able to manufacture volume; and second, whether all the generic companies will get approval by the end of the year, which is our currently our assumption.

All right. Thank you very much. In general, Jo, if you look at the U.S., our business, structure-wise, is a piece we just talked about with Established Products and DCV and then Specialty. Specialty, as you know, we launched in 2 products. We have the price -- there is no reason to believe that we would face pricing pressures there. In the rest of the business with rare disease and MS, we're not planning to see deterioration of our pricing there. So remain DCV business, where -- as you would expect, we are under pressure and in our gross to net. And I'm going to ask Peter to make a general comment about how you see the future prices in your area.

Yes. So Jo, I think it's really related to therapeutic areas. And even the field of diabetes, you have still therapeutic areas or still classes, which are relatively preserved from gross to net deterioration. And then others, of course, like insulin, which have even more pressure, and that is also not only but also due to the fact that you have now the first follow-on biologic competing in that class. So you're a de facto with some kind of pseudo- generification confronted. So I think it's a little bit difficult to answer to your question in a very monolithic manner, but I think you really have to have a granular view looking sort of TA by TA. And within that TA, you have buckets where there is more commoditization, therefore more price pressure and others with less. Now you referred to ESI. So you have seen there's no insulin exclusion on this ESI national formulary, which also shows our commitment to keep our access to patients as large as possible.

All right. Thank you very much, Peter. Thank you, Jo.

Next question comes from the line of Philippe Lanone of Natixis.

And a question first on Dupixent. So the 7,000 prescribers target, which was mentioned initially with -- about people -- doctors who already were used to prescribe biologics especially Cosentyx. So I wonder what would be the total dermatologist pool that you can aim beyond the 7,000? That's the first question. The second one, could you clarify on the guidance you gave for the second half on diabetes, saying that it would be worse. Is it worse than the first half or than the second quarter? Or can we take the second quarter maybe as a proxy for second half in terms of rate of decline? And maybe last question on Lovenox, which in Europe is beginning to decline due to biosimilars. So could you give us an indication of what kind of a patent decline we should expect and if there will be several biosimilars?

Thank you, Philippe. We're starting with Dupixent again, 7,000 target. How much more dermatologist is there?

Right. So when you look in the U.S., there's about 14,000 dermatologists. However, many of these are excluded because they may have a specific focus on cosmetic surgery or something. So the target number of dermatologists that we're looking at is about 4,600, and we really believe those are the dermatologists that will drive the business. We also have about 1,200 allergists, immunologists that we're targeting. And nurse practitioners and PAs are around 1,200 as well. We think that we've done a good job on the targeting. However, if there's physicians that demonstrate an interest in using the product or that they're treating atopic dermatitis, we would, of course, add them. But we don't expect that, that's going to be a number that grows significantly.

All right. Thank you. Olivier, do you want to talk about Lovenox biosimilars?

Yes. So for Europe, for Lovenox, now we have posted a decrease of 7.3%, which is a combination of high decrease but also volume. You know that as we speak, we are both one biosimilar component. We are expecting in the coming months and we hear comments on the market that the most of biosimilars are going to be approved in the upcoming months. The Low-Molecular Weight Heparin market is very specific market. You know that first treatment a day are relatively low and more on -- comparable to the one not biologic product. Low-molecular heparin are, of course, acute and long-acute treatments with double points of neutralization, we own a very high market share due to our long-term experience. So overall, we see biosimilar entry at an increase of competition in an already very competitive market. We are anticipating, of course, some acceleration of the decrease both in terms of volume and in terms of price in the upcoming months depending on the numbers of competitors that are going to enter into the market.

Thank you, Olivier. So Philippe, in the second half, we -- on diabetes, we expect an accelerated decline of the U.S. diabetes sales relative to what we have seen during the first half of '17. And the driver for that -- drivers for that, the -- first, the impact of phalanges exclusion from the UnitedHealthcare formulary. That was only partially realized during the first half and is now expected to have -- been in to second half. That's one. The second is there is a high base for comparison in the fourth quarter 2016, and that was due to various gross to net consideration, which included the reduced costs associated with co-pay programs and also coverage gap. So without getting into the details, that's the reason why we think we're going to see a tougher second half when it comes to our diabetes franchise.

The next question comes from the line of Peter Verdult of Citi.

Pete Verdult, Citi. Just firstly, could you help frame in both the time lines you're working to with respect to the Regeneron collaboration turning profitable. I know it's also the 20th you've made or sunk also a considerable amount of money front-end loaded the R&D investment to the tune of EUR 4.5 billion. So just wanting to know whether 2018 is too soon to think you might get some payback on that or you're thinking more towards the end of the decade or beyond. I realized you're going to get specifics, but I would like you to help frame the time line for us. Second, Olivier, on PCSK9, can we just put the Amgen PI to one side and just focus on the commercial outlook for the class? Is there any scenario where you will provide higher rebates or lower the price to drive access? The constant feed that we get from the U.S. is cardiologists are frustrated. They can't get their patients on drug. The quarterly sales performance for both you and the competitor continue to be lackluster. I just wanted to know if this is optional on the table or are you banking on the ODYSSEY outcomes data coming through and driving increased time access on the back of label updates and guideline changes? And then lastly if I may, just to squeeze a quick one in for Elias or Olivier on business development. When you think how the Medivation story has soured a little since the Pfizer acquisition and the apparent high profile saviors in immuno-oncology first line lung over the past year, do you expect to see evaluations around Oncology assets to become more realistic going forward? Or are you still seeing expectations are stretched?

All right. Good -- 3 good, broad questions. On the Regeneron, to get the value of our investment already in 2018, that is too early in our forecast. It's more -- it's a longer term time line that you have provided. I'm going to ask Jerome to add some colors there.

Yes. Peter, it's a -- I mean, it's a broad -- it's a complex question, honestly. And the reason being, quite simply, that it is one thing you wish you valued to which you've -- how we have spent so far in R&D, which Regeneron for us would be a [limited] agreement. But this has been expensed in our P&L, and this relates to the R&D, R plus D that we spent so far on the so-called development balance that Regeneron gives us back over time when the alliance gets profitable. So this probably will take a bit of time. And as you may remember, I mean, there is a cap of the reimbursement that Regeneron gathered into on a yearly basis, which is 10% of the overall profitability of the alliance, a combination of pass through Regeneron P&L. Your second question relates more -- and my reason why I say it's maybe a bit complex is that there is -- as a matter of fact today, we have 2 alliances basically. We believe I would say 3, but maybe 2. One is a mAb alliance, which those target. And Vivaxim and Kevzara, fourth. And then there is the IO alliance, which is another one, which has slightly different structure, as you know, with better high upfront but our commitment is lower. So I mean, if you think that you just refer to the first alliance, this mAb alliance, which is supposed to end by the end of the year, and then you think would be some detail in scale as we're going closer to profit, as Olivier said. But it's key as well we need to take the overall P&L of this alliance, including Dupixent launch cost together as well as higher on P&L with the R&D releases pending. I mean, clearly this gives us that the switches, they get even our P&L. They got more into a more positive area by the end of the decade. I think that's maybe the way to put it. I'll also remind you that we own 22% in Regeneron stock, which contributes to our lion share of profit or loss and which has contributed more positively this year compared to last year for all these reasons. So if I put all that together, I mean, fully, this is also a bit more detailed, but I think that's a bit the way you could on this figure see, keeping in mind that we have moved together, you could say today, around 50-plus percent of the forward profit, let's say. And on top of that, we have this reimbursement of the different developments on our shares are profitable.

Peter, on PCSK9, I'd like to start by saying that we are still very, very committed, right, to make [fajulent] a real success. It is, as you know, truly an innovative product. And which frankly should, over time, change medical -- cardiovascular medical practice. So our teams on both side, Regeneron and Sanofi, are really fully committed to the brand. We're spending and we're investing a lot of time and money behind the launch of the brand, and we're making sure that physicians understand the appropriate patient profile. So we're spending a lot of time on education and educate those physicians. So because we believe so strongly into the future, mid and long term -- midterm and long term of the brand. And of course, we are relying also a lot on the ODYSSEY results, the large study we are waiting the results from, as you know, during the first quarter. We think the ODYSSEY outcome data will provide a more complete understanding of the effect of PCSK9 inhibition on cardiovascular event in general. So to come back to your precise question, we will do everything to maximize the brand. And frankly, all options are on the table. So without going more in details, I just wanted to make sure you understand, we will -- everything will be considered. Now on the -- on Elias -- go after Medivation, our experience in Medivation and what's happening in the IO space. Do we see oncology assets becoming -- being priced more reasonably? No real feeling for that. I'm not sure that would be the case mid- or long term. Elias, do you want to add anything?

No, I think you're right. I think what we're seeing, our valuations are really hard to justify. I think the only significant change would be a pricing structure change in the oncology, which we do not see given the demand and the unmet need, but I think this is an evolution. At this point, clearly, the valuations are still very high.

Okay. Thank you, Elias. Thank you, Peter.

Next question comes from the line of Keyur Parekh of Goldman Sachs.

Two broad ones please. The first one for Olivier. Olivier, you kind of obviously -- just following on the previous question. Can you lay down your appetite for a transformational deal if kind of the valuation were to work out. Just your -- in your mind, how do you think about disruption kind of from such a transaction versus the benefits of accretion? That's one. And the second is on the diabetes franchise, just help us think through. Kind of you've obviously been kind of trying to keep the volume with some of your promotional schemes and kind of couponing. Just how successful do you think they have been? And while not mentioning specifics, have they actually helped you as you've gone through negotiations for the 2018 formulary access?

So that's a good question. On diabetes, Peter, on couponing impact.

Yes. So I think if you look at the results we have, you remember in the first quarter, we commented on the CVS retention rates, which actually now that we have the second quarter in, we have an overall retention of 50% in CVS. You remember there is a national formulary and then the custom plans. And the national formulary redemption is 41%. And the custom plans, a redemption of 70%. And then UnitedHealthcare, actually we see very similar redemption rates. So end of Q2 for United, we have a 56% redemption rate. So it is very consistent, I would say. Of course, this compares better with benchmarks, and we do believe that it is in our strategic interest to keep the volumes for further expansion in the years to come. And it's very difficult to predict what's going to happen in 2018 and beyond. But it's clear that the more patients we have on large and the more this will build and consolidate our strategic platform in the future.

Thank you very much, Peter. And on your question on transformational deal. It's not on the table. Frankly, nothing has changed since we issued our 2020 road map when it comes to M&A. We're not in a hurry to do M&A. However, if opportunities arise, we want them to be in very strategic areas, which we presented at the time, either in the bucket we called at the time, sustaining leadership; or the other, which was build competitive positions. CHC was one of the example in that bucket. So strategic fit comes really first. Value-creation, of course, to shareholders, and you know the metrics we are using there, which is a return on investment -- on invested capital, exceeding our WACC over a period of 3 to 5 years. Of course, EPS accretion, but that objective is only secondary to value-creation. And of course, pipeline, because healthy pipeline has been significantly strengthened under the leadership of Elias in the last of 5, 6 years. But we believe our R&D capabilities could be, of course, further strengthened and enhanced. So that would be my answer. Really, no change versus what we have said all along. So thank you very much, Keyur.

The question comes from the line of Jack Scannell of UBS.

Two questions, one on multiple sclerosis, one on oncology. One thing that struck me, and I'm sure I'm not the only person, is that you and other companies posted pretty good MS numbers. Aubagio, in particular, seems to be up much more in the U.S. in terms of revenue and script, which at least contradicts some of the payer rhetoric one hears. Can you confirm you have been having some net price increases on Aubagio? Is there some sort of stocking issue which is flattering things? And then secondly, another IO question. IO to some people looks very, very crowded. To me, in fact. But if one was convinced that there's a difference between PD-1 and PDL-1, maybe it would look a little bit less crowded. I noticed that you're going with a PD-1. Do you think there is a meaningful difference between the 2 classes of agent?

Okay. MS question, Bill?

Yes. So with Aubagio, there hasn't been any price increases this year. I think you have to -- when you think about the Aubagio business, it's -- as it's now more of an -- it's established, the majority of the sales, obviously, overwhelming majority are coming from patients that are on drug versus new patients coming onboard. However, we continue to see that Aubagio is the fastest growing oral product. And that the clinical profile, the real world profile that physicians are seeing in patients, has led to increased use of the product. So at the core of it, it's a great product, and I think that's what the -- what you're seeing in the numbers.

All right. Thank you very much, Bill. So on the technical question about potential differences, Elias, on PD-1, PDL-1? It is a pretty hot topic.

Yes, this is a great question. Everybody is having the same question across the field. So let me tell you what we think. I mean, when you compare 2 mechanisms, one being the receptor, one being the ligand, you have 3 scenarios that can explain the differences. One, that the antibodies are not as effective on one or the other targets. And for PDL-1, I'll just remind you that there are 2 ligands, PDL-1 and PDL-2. So that's one fact. The second is the mechanism itself, a potent mechanism of checkpoint inhibition or NAs. And the third point is differences in populations. Now we, as I told to you, believe that PD-1 is the right selection, the right target based on many data that we have generated ourselves and our partner, Regeneron. We do believe that there is a potential for PD-1 to be superior. We do not know that at this point. I wouldn't venture to say that this is proven at this point. There are hints that indeed tell us that. And we've made a choice, and this is a choice we're making here. We're going after PD-1. We do not have a PDL-1 in development.

All right. Thank you very much, Elias. Thank you very much, Jack. And with that, I'm turning over to Mr. Grofik.

Great. Thank you all for dialing into today's call. This will conclude today's call. The IR team will be around for any additional questions you may have.

Very good. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.