Sanofi Q3 2013 - Interview with CFO Jérôme Contamine en

EuroBusiness Media (EBM): Sanofi, a global and diversified healthcare leader, reports results for the third quarter of 2013. Jérôme Contamine, welcome. You are the Chief Financial Officer of Sanofi. What are your comments on the group’s financial performance in the third quarter? Did you face more currency headwinds than in the first half?

Jérôme Contamine: First of all, the third quarter has marked an inflection point as Sanofi has seen the end of the patent cliff impact at the end of August. As a matter of fact, the sales for the third quarter reached €8.4 billion, showing a slight increase of 0.6% versus the third quarter in 2012 on a constant exchange rate basis.
Also, the Growth Platforms have continued to grow and now represent close to 75% of our overall sales, and they have been growing 5.5% over the quarter. When it comes to profit, our net profit, or business net profit, has still declined, less than the previous quarter, by 9%. And, here again, the currency headwind has impacted negatively, on a current exchange rate basis, by 17 cents, which has been somewhat higher than what we have seen in the previous quarters. I also have to add that while the overall quarter has seen basically a slight increase in sales, we have seen the inflection point as more important in September, where we have seen sales growing by mid-single digit.

EBM: Lantus® has delivered double-digit sales growth for 11 consecutive quarters. How sustainable is this growth rate and can you comment further on your next generation insulin U300?

Jérôme Contamine: You’re right, Diabetes has posted its 11th consecutive quarter of double-digit growth. More precisely, we have grown the sales of our Diabetes franchise by 20.1% at €1.67 billion. The core of it is, of course, coming from Lantus®, which has posted more than €1.4 billion, growing in particular in the US by 30%, helped by both price increases but also a switch from vials to SoloSTAR®. When it comes to our new glargine formulation U300, we expect it to really be the prolongation of Lantus® but also a new contributor to Diabetes management. As you know, the PK/PD profile of U300 is different and the first results, or the first studies of EDITION I and II, have shown similar efficacy versus Lantus® with reduced nocturnal hypoglycemia. We are now expecting the result of the EDITION III and IV, which are both imminent, and we continue to expect the filing during the first half of 2014.

EBM: How is the shortage situation of your Pertussis-containing vaccines, Pentacel® and Adacel®, progressing? What is the outlook for flu vaccines this year, and is it reasonable to expect stable vaccines sales for the full year despite the supply limitations you faced in 2013?

Jérôme Contamine: The Q3 sales of Vaccines reached €1.3 billion, which is down by 7.2% on a constant exchange rate versus last year. This is mainly due to the shortage of supply of both Pentacel® and Adacel® to the US market, and some phasing of the sales of our flu vaccines, in particular in the US. So, it’s true that we are still facing some manufacturing issues when it comes to the production of Pentacel® and Adacel®, and now we expect the supply to resume during the Q4 with a progressive recovery, which is a delay of one quarter versus what we expected earlier. At the same time, the flu season should show record sales. The phasing is a bit different from last year, but this is supported by strong supply in the US but also by the recent positive results of the High-Dose Fluzone® vaccine versus the regular. So at the same time, as you know, in June of last year, the FDA has approved the new Fluzone® Quadrivalent flu vaccine of sanofi pasteur. So therefore today, we are building a family of Fluzone® vaccines, which include the regular, the High-Dose, the Intradermal and the Quadrivalent.

EBM: How is the growth outlook in Emerging Markets evolving, given that you have been facing some challenges in Generics in Brazil in Q2 and more recently a slowdown of the pharmaceutical market in China?

Jérôme Contamine: Emerging Market sales reached 2.652 million Euros, which is an increase of 2.8% versus the third quarter of 2012. The sales have still been affected by the evolution of generic sales in Brazil but also by the slowdown of the pharmaceutical market in China.
When it comes to Brazil, the situation is now getting back to normal. We resumed sales as from mid-August and the overall sales for Brazilian generics have reached €17 million over the quarter. As long as we are now entering into the fourth quarter, both the inventory in the trade and the level of volume of sales are basically back to normal, and we should see that during the fourth quarter. In China, our overall sales have reached €351 million, which is an increase of 5%. So therefore, it is affected by the slowdown of the pharmaceutical market during the third quarter. But at the same time, we continue to post an overall growth in China. It’s clear that the detailing activity has been reduced over the summer. We are starting to get back to normal levels and we are seeing recovery starting in September, and more importantly in October.

EBM: What drove the nice rebound in Consumer Healthcare sales in the third quarter?

Jérôme Contamine : In the third quarter, the sales of our Consumer Healthcare products have increased by almost 10%. This has been driven by the double-digit growth of our main brands, being Essentiale®, Doliprane®, and No Spa®, as examples. It also has been driven by the re-launch and the sales into the stores of the iconic antacid brand Rolaids®. This brand has been acquired last year by Chattem and is now just being re-launched in the US market.
Finally, we have also got approval by the FDA of Nasacort®, which is an anti-allergy for nasal allergies, which will be made available in the US from the Spring of next year, and this will be the first in its category and its class as an OTC product on the US market.

EBM: Could you tell me where Cerezyme® and Fabrazyme® stand in market share against their main competitors in Rare Diseases? Are you satisfied by the launch trajectory of Aubagio® and Lemtrada™ in Multiple Sclerosis?

Jérôme Contamine: The Genzyme Rare Disease franchise has shown, again, a very good quarter. The sales have reached €485 million, growing by more than 10%, driven by a switch of patients but also by accrual of new patients. Also, during this quarter, we got the approval of the filing of eliglustat in Europe, which is now under review.
But at the same time, Genzyme is continuing to roll out its plan in Multiple Sclerosis. So for the quarter, the sales of Aubagio® have reached €44 million, just for the US. We got the approval for the EMA (European Medicines Agency) in Europe, with the new active substance attribute, and we are just now rolling out the sales, on the launch of Aubagio® in Europe. When it comes to Lemtrada™, we also got approval in Europe with a very good indication and we are just on the verge of launching. And in the US, the FDA Ad Com is planned for November 13th.

EBM: Given the fierce competition on Frontline®, is it safe to expect your Animal Health sales to decrease by around 5% until you introduce your next-generation product, NexGard™?

Jérôme Contamine: Merial, our Animal Health division has seen a challenging year this year. This was somewhat expected because Frontline® was getting more competition, but it has been a bit tougher than expected. So, if I look at the first nine months, we have seen the sales of Merial declining by around 5%, driven by the competition for Frontline®, both from other products as well as from generics. And I would say that I expect this to continue over the whole year. So yes, all in all, we should see the sales of Merial declining year-on-year by around 5%. At the same time, the good news is what we got in September with the FDA approving the new generation for fleas and ticks, NexGard™, which is a chewable, and NexGard™ should be launched on the US market at the time of the coming flea and tick season.

EBM: How meaningful are the results of your first Phase III trial for your new anti-cholesterol agent, alirocumab?

Jérôme Contamine: In October, we announced the results of the first Phase III studies of a set of a large programme of Phase III studies which were embarked on when it comes to alirocumab. So the results of this ODYSSEY MONO, which is a study on using alirocumab in mono-therapy, was also a comparative study versus ezetimibe. And the results are extremely good, as we’ve seen the LDL-Cholesterol or “bad” cholesterol being reduced by three times more than ezetimibe. Also, interestingly, most of the patients have stayed under the low dose, 75 mg, over the period of the study. Then, we expect additional results of other Phase III studies to read out from the ODYSSEY programme in 2014.

EBM: Now that the patent cliff is in the rear-view mirror, what is your business EPS guidance for the full year 2013 and do you assume a strong rebound of growth in the fourth quarter to support reaching your full year targets?

Jérôme Contamine: Taking into account the expected return to growth during the last quarter, but also the impact of the extended shortage of vaccines during the Q3, the earnings per share is now expected to be at the lower end of the guidance we gave last July. Therefore, our Business EPS in 2013 should be around 10% lower that the level we reached in 2012.

EBM: Jérôme Contamine, Chief Financial Officer of Sanofi, thank you very much.

Jérôme Contamine: Thank you.

Paris, October 30, 2013 — Sanofi, a global and diversified healthcare leader, reports results for the third-quarter of 2013. Jérôme Contamine, Chief Financial Officer of Sanofi, comments on results and outlook.
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