EuroBusinessMedia (EBM): Sanofi, a global and diversified healthcare leader, reports results for 2012. Chris Viehbacher, welcome. You are the CEO of Sanofi. What are your comments on the Group's full-year results for 2012?
Chris Viehbacher: Well, 2012 was clearly a milestone year. It was the year that Plavix’s patent finished in the United States back in May. It was really also the year that the last of our historic blockbusters, which have really driven the growth of the company for the last decade, really came to an end. We see that in the results: earnings were down 12.8%, that’s pretty much in line with what we expected at the beginning of the year. We had guided the street to -12% to -15%, so actually I think we have come through the patent cliff in a very solid way. What’s really important is to focus on the business for the future and the best way to look at that is our growth platforms. Our growth platforms achieved sales of 23.5 billion euros and that was a growth of 10%, and what’s really important is that those now represent 70% of the business. So when you look to say “Where is Sanofi going?” you really have to look at these growth platforms, because increasingly they are the new Sanofi. What I think was also important about 2012 is that we really made some extraordinary progress on R&D. We have been tackling this and looking at new ways to get better both on development and improve our innovation and research. When I look at it I see we’ve got nine approvals in the last 12 months which I think, by anybody’s standards, is an awful lot. And we’re going to have phase III results coming on another six products coming along. So I think increasingly, as we look to the future, the foundations that we have been laying in R&D will be accretive to our outlook as we go forward.
EBM: In two months from now, you will celebrate the two-year anniversary of your acquisition of Genzyme. Can you share with us the performance highlights for 2012, including manufacturing, sales and R&D pipeline?
Chris Viehbacher: I’m particularly proud of the Genzyme performance in 2012. The critical piece that we had to get right in Genzyme was really first of all to integrate it, but also to bring manufacturing back on stream. When I look at the performance, we started off the year with getting the new Framingham facility approved. That was critical to bringing on new capacity for Fabrazyme®. We were helped by our competitor’s inability to get Replagal® approved in the US, so that meant we could really utilise our new capacity to start regaining market share, but most importantly to be able to fully satisfy patient needs. This has been very difficult for the culture of Genzyme. This is a very patient-centric organisation, and not being able to fully supply patients with the medicines they need has really weighed on the company, and the fact that we have been able to get supply going again was actually very instrumental in our ability to really bring Genzyme into the Sanofi family. And they performed beautifully. They pulled out all of the stops to really make sure that patients were able to get back on Cerezyme®, on Fabrazyme®, Myozyme® continued to grow. So I think the rare disease business is now in good shape to grow.
The other exciting thing in Genzyme is that we are now building a brand new Multiple Sclerosis franchise. We saw the approval last year in the US of Aubagio®. The initial results are very good. They are tracking to the Gilenya® launch and I think that’s probably going to be surprising to most people to see Aubagio® do this well. We have submitted Lemtrada™ both to the European authorities but also we’ve now had acceptance of the file in the US, so we are now also busy preparing for a Lemtrada™ launch. And I can tell you, it’s pretty rare in this industry to be able to launch two important medicines in a major therapeutic area like Multiple Sclerosis. So when you look at Genzyme today, its rare disease business is growing, it’s got its manufacturing back on track and we’ve got exciting new launches. That’s why I say I’m pretty proud of what has happened at Genzyme this year.
EBM: What is your update on your growth in Emerging Markets? Do you think that double digit growth remains achievable in the context of increasing pricing pressure and uncertain economic environment in a few countries?
Chris Viehbacher: Emerging markets remain a core strength of Sanofi, almost a third of our sales - 31.9 %, 11.1 billion euros in sales. Last year they grew at 8.3%. Eastern European markets, which we include in emerging markets, grew slower, really affected by the general economic difficulties of the European Union. But if I look at Latin America, Asia, Africa and the Middle East, all of those grew at 10%. Sanofi continues to reinforce its leadership in this area. We were able to acquire businesses, to bolster our business in Vietnam, in Nigeria, in Columbia last year. So that business continues to grow. I continue to believe that emerging markets is the single biggest growth opportunity for this industry and Sanofi is pretty well positioned to take advantage of that.
EBM: Has the performance of the diabetes growth platform met your expectations in 2012? Can you elaborate on your strategy to grow your diabetes franchise given the evolving competitive environment?
Chris Viehbacher: I think the first thing we need to look at is the backdrop to all of this. We’ve got an increasing incidence of particular type 2 diabetes. This is clearly related to the rising trends of obesity. This is an increase in middle class, because diets are changing. You have an urbanisation of the population and this is changing lifestyle but also access to care issues. So pretty much wherever you go in the world, it doesn’t matter which country you are in, you are seeing an increase in type 2 diabetes. Now from a public health point of view, this is clearly worrying but it also means that it is an opportunity to help in therapeutic solutions and that’s where Sanofi is well positioned. We are in the post-oral segment with our insulins. We have the gold standard of treatment with Lantus®. No product has the safety and efficacy profile that Lantus® does. And you see the confidence in that product. It grew 19% last year. But we are also starting to expand our portfolio again. We’ve seen the recovery of Apidra®, which grew at 16%. We are thinking about our devices, we’ve designed a device specifically for emerging markets, a reusable cartridge pen, called All-Star™ which we are rolling out in India but which could be easily rolled out amongst a number of countries. We have just seen the approval of Lyxumia® in Europe, this is our GLP-1. We have submitted the file also in the United States so Lyxumia® will start to contribute. We are thinking about our whole family of insulins, so we have gone back and launched Insuman® in a number of markets. And I think really we have a full, complete family of insulins. We also have a biosimilar program in place and there will be two new products going into clinical development in the first quarter. LixiLan continues to be a priority for us. This is the combination of Lyxumia® and Lantus®. We had a technical setback on the device, but I think this is still going to be an extremely important product for us. We also have a fixed ratio device that’s in phase II. So, I think when you look at the overall diabetes franchise, this is going to be a very strong contributor to Sanofi’s growth over the coming years.
EBM: What is your update on the R&D Pipeline? Looking ahead at 2013, are there any particular milestones or approvals anticipated?
Chris Viehbacher: We have now built a company that can grow almost independent of R&D, and this has been extremely important because R&D is a very risky enterprise and I didn’t really want to have a business where we are dependent on the launch of one product or another. When you look at the strength of our growth platforms, this provides the long-term sustainability of the business, to actually be able to invest in R&D. Of course, innovation still has to be at the core of our company. And what I’m particularly happy about in 2012 is that we are now seeing the emergence of what I think is a pretty robust phase III pipeline. And I think we’ve actually seen a lot of successes in our approvals. Most notably, we’ve seen the approval of Zaltrap® in second line metastatic colorectal cancer. We have seen our GLP-1 for diabetes, Lyxumia®, approved in the EU. We have seen the first antisense drug ever approved in the US, Kynamro™ for familial hypocholesterolemia. So we are making some solid progress on the approval front. We saw last year the approval also of Aubagio® in the United States in Multiple Sclerosis, and we’ve got a number of submissions coming along. Lemtrada™ will be clearly an exciting product in Multiple Sclerosis as well. It’s been submitted in the EU and in the US. When I also look at what’s coming along, we’ve got 18 products that could be launched between now and 2015. 48% of those are in biologics. Biologics are pretty important because generally – there’s no guarantees in any of this – but generally you have a higher probability of success with biologicals than with small molecules, but it’s nice to have that balance. We’ve got some extraordinary assets in there, like a PCSK9. This is probably the hottest target in the pharmaceutical industry today, and right now we’re in the lead on that. We’ve got a JAK2 for myelofibrosis coming along. We’ve got a Dengue vaccine coming along. Dengue really potentially affects half of the world’s population. A very important asset for us. We have otamixaban in patients suffering from ACS with planned invasive procedures for their treatment. So when I look at it, we’re covering areas in oncology, in vaccines, cardiovascular, areas where we have been traditionally strong. Behind that there’s an IL-6, we’ve got an IL-4. So I think we are seeing the emergence of a pipeline that is - of course - completely underappreciated, but that’s a little bit normal in the pharmaceutical industry. Nonetheless, as I look forward into the company, given that we have this base of business that grows, because of our growth platforms, the launch of these products now becomes very interesting in terms of its accretion to that overall growth picture. So they say we are not known as an R&D story, but I think increasingly you’re going to see Sanofi and R&D being very much mentioned in that vein.
EBM: Pfizer’s decision to spin off its Animal Health business has increased the Street’s attention to this market. Are there any reasons why you would not consider a similar move for Merial at this point?
Chris Viehbacher: I think the first thing one has to say is that animal health is fundamentally a good market. Merial is particularly strong in the pets segment. And pets are not only a bit like a consumer business in the longevity of the assets, but they are actually starting to become very interesting in emerging markets as well. To give an example, in China it’s estimated that there are 6 to 7 million cats and dogs under veterinary supervision. So there is a significant opportunity for us, even outside our traditional markets of US and Europe. To give you an idea of the longevity of assets, look at our core brand, Frontline®. Four years have passed since the patent has gone and this is still the only blockbuster, billion dollar plus brand in the industry. And of course, this is a franchise we are going to continue not only to defend, but we have new versions of that product coming along that will extend that franchise. If I take Heartgard®, it still is a major multi-hundred million dollar product, even though the patent went over 10 years ago. There is also, of course, a production animal business in that and that’s very important because as the world’s population grows, we need to think about food supply and we need to think about the quality of animals in that food supply. So our vaccines business grew very strongly in 2012 and the other thing that we have put a lot of emphasis on is the development of emerging markets, not only in the pets segment I just talked about but in production animals and that grew at double digits at 14%. What’s quite interesting about our animal health business versus our competitors though is the profitability. We are talking about close to a 31% operating margin. This is more or less in line with our pharmaceutical business. So there’s not really a benefit to thinking about a spin-off in terms of margin enhancement, because we are actually much more profitable in this business than our competitors. Now, the synergy of this business is a little different. Many of our businesses have synergies downstream in the market place. Where we get synergies from this business is really upstream, at R&D level. Most drugs are tested on animals. The whole origin of the animal health business was really human health drugs that work in animals. If you look at major areas of unmet need in pets today; they are diabetes, oncology needs and that’s where Sanofi is strong in its R&D. We also get some significant synergies at a manufacturing level. We’re one of the major vaccine manufactures in animal health, but also in human health. Now you can’t use the same facilities, but you can share common platforms in terms of engineering, of quality systems, of IT systems. So if I look at the fundamentals, I think animal health is going to be a very strongly growing business for us going forward. And it’s one that I think is very synergistic with the businesses that we have.
EBM: You are well below your net debt target of 10 billion euros by the end of 2012. Can you remind us of the company’s priorities in terms of capital allocation?
Chris Viehbacher: The first priority is to continue to invest in the business if we can. And I think Sanofi has demonstrated that it has been able to find and integrate acquisitions well. And I would expect we would be spending in the order of 1 to 2 billion euros per year on bolt-on acquisitions to our growth platforms. Beyond that, the dividend has clearly been a core part of the value story of the share price and we have committed to expanding the pay-out ratio to 50% by the payment of the dividend for 2013, next year in 2014. This year we have increased again the dividend, this time by 4.5% to 2.77 euros, and that represents a 45% pay-out ratio. So we are well along the way to respecting our commitment on pay-out ratio. And of course, the company remains open to opportunistic share buy-backs; in 2012 for example we bought back over €800 million in shares. Principally our objective is to absorb any dilution, but equally over time it’s clear that management’s job is not to accumulate cash on the balance sheet.
EBM: Can you update us on the implementation of the savings program which aims to save 2 billion euros by 2015?
Chris Viehbacher: We are on track to achieve our target of 2 billion euros of savings in 2015. I think we are a company that actually has been good at managing our resources effectively. Our first 2 billion euros program that we announced in 2009 was achieved two years early. And this one is well on its way as well. But I think one of the most important things to remember is that you cannot save your way to prosperity. At some point you have to make sure you’re investing for the future. And I think what’s exciting in Sanofi is that we have a pipeline that’s coming, we are launching new products. So we fully expect to save around 500 million euros again in 2013. But I think it’s going to be important to reinvest some of those savings. And that’s what we’re doing. We keep our ratios well under control, we have one of the lowest operating expense ratios to sales in this industry. But I think it’s also important to make sure that Lemtrada™ is launched successfully, that Lyxumia® is launched successfully and that we have this exciting phase III program come along. So I think we are getting the right balance between making sure we are efficient, but also preparing the company for the future.
EBM: And finally, what is your guidance for 2013 and what is your update on your longer term guidance?
Chris Viehbacher: When I look at 2012, clearly our growth platforms performed well and as I now look at 2013 I expect that performance to continue. That’s really what is driving the underlying performance of Sanofi and I don’t see any change to that. Now, the backdrop of course is that we had an impact of Plavix® patent expiry in May of 2012. Last year that had an impact of 1.3 billion euros on after tax profits and the impact in 2013 is expected to be 800 million euros. Nothing new in that because we said that already over 18 months ago. So what you’re going to see is really two dynamics. You’re going to see in the first half an impact of that comparative period where we will still be having a challenge with that. But by the second half, we return to growth. So what does all that mean? It means that we expect in 2013 business EPS to be flat to down 5%. That’s completely in line with the medium-term guidance that we gave 18 months ago, which really envisages a compound annual growth rate of sales between 2012 and 2015 being of the order of 5% and earnings per share being in excess of the sales growth. So that hasn’t changed. We are still very confident in the outlook of the business.
EBM: Chris Viehbacher, CEO of Sanofi, thank you very much.
Chris Viehbacher: Thank you Adrian.
