Sanofi Management Discusses Q2 2012 Results - Earnings Call Transcript

Sanofi (SNY)

Q2 2012 Earnings Call

July 26, 2012 8:30 am ET

Executives

Sébastien Martel

Christopher A. Viehbacher - Chief Executive Officer, Director and Member of Strategy Committee

Hanspeter Spek - President of Global Operations

Olivier Charmeil - Senior Vice President of Sanofi Pasteur - Vaccines Division

Jerome Contamine - Chief Financial Officer and Executive Vice President

Analysts

Richard Vosser - JP Morgan Chase & Co, Research Division

Michael Leuchten - Barclays Capital, Research Division

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

Philippe Lanone - Natixis Bleichroeder LLC, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Jo Walton - Crédit Suisse AG, Research Division

Mark Clark - Deutsche Bank AG, Research Division

Peter Verdult - Morgan Stanley, Research Division

Vincent Meunier - Exane BNP Paribas, Research Division

Presentation

Operator

Welcome to the Sanofi 2012 Second Quarter Results Conference Call. I now hand over to Mr. Sébastien Martel and to Mr. Christoph Viehbacher. Sir, please go ahead. .

Sébastien Martel

Thank you. Hi, everyone, and welcome to our second quarter conference call. As always I must advise you that the information presented today in the call contains forward-looking statements that involve known and unknown risks and uncertainties that may cause actual results to differ materially. So I'd like to please ask you refer to our Form 20-F on file with the SEC and also our Document de Référence for a description of these risk factors.

So with me today on the call are Chris Viehbacher, our CEO; Hanspeter Spek, our President of Global Operations; Olivier Charmeil, Senior VP for Vaccines; and Jerome Contamine, our CFO.

Without any further ado, let me turn the call over to Chris.

Christopher A. Viehbacher

All right. Good afternoon, and good morning, everybody. This is a milestone quarter for Sanofi, not too much because of the results but clearly, on the 17th of May, the world's largest product, Plavix, lost its exclusivity in the marketplace, and that's clearly our biggest product. Of course, it's no surprise. It's something that we have been planning for for well over 3 years. But in some ways and even though Eloxatin is going to lose exclusivity in a few weeks' time, this really, for us, starts a post-patent cliff period. So up to now, we've been preparing for the cliff, and now, we're coming through the cliff.

So if you look at the numbers on Page 5, you can see that sales were EUR 8.8 million, which on a constant exchange rate basis were up 0.4%, so essentially flat with the quarter last year. I think I'll just make 2 remarks. First is I personally believe that the best way to look at the underlying performance of the business is at a constant change rate. So I normally don't make any comments on exchange rate movements, but I will say we've clearly seen a very significant movement in this quarter as Jerome will show you a little later on, and only time will tell as to whether or not this is a normal volatility of exchange rates and whether we're seeing a structural and more long-term change in the value of the euro versus the dollar. But it certainly had a bigger than normal impact between our reported earnings and the constant exchange rates. That having been said, we obviously are going to continue to discuss everything at constant exchange rates.

Sales were flat, but in actual fact, of course, we had divested the Dermik dermatology business, and we gave back the -- finally, all the Copaxone co-marketing rights, which meant that if you put this on a like-for-like basis on the same constant business structure, actually, sales would have grown by 2.5%. This is contrasted, obviously, with an earnings per share number, and of course, you are all aware that the Plavix is, in the United States, not consolidated in the sale. BMS records the sales, and we get a profit share of both Plavix and Avapro. The impact on the quarter was EUR 331 million in terms of the loss of net income related to those 2 products, and that resulted in earnings per share declining to EUR 1.48 or 17.7% at a constant exchange rate basis.

On the next slide, again, this is very much in line with the picture we have been showing off for some time. You're all aware of the 9 products that were really going to go off patent between 2010 and 2012. Three years ago, Sanofi was facing the deepest and most concentrated patent cliff in the industry. Those -- the products that I just referred to had cumulative sales of EUR 2.2 billion in Q2 of 2009, so the quarterly number for those 9 products was EUR 2.2 billion. Those same products today represent EUR 752 million. So we've clearly lost 1.5 billion on a quarterly basis, and that's before we lose Eloxatin, which is EUR 314 million. So really, by the time we get to the year end, we will have 95% of the patent cliff behind us.

Equally, we set out a strategy which was to look for new sources of sustainable growth through our growth platforms. And you can see in the second quarter of 2009, those growth platforms represent a EUR 3.3 billion or about 45% of our sales. Since then, you've seen very strong growth to EUR 5.7 billion, largely organic but obviously, some through acquisitions, and those sales now represent approximately 2/3 of our sales.

But how are those growth platforms doing? And I think I'm particularly satisfied to see all of the growth platforms performing well. Emerging Markets is always a key strength of Sanofi, up close to 10%. Again, actually, if you would put it on a constant structure basis, on the same basis that I mentioned earlier, that would actually be over 10%. I think if you look at the percentage of sales, we're clearly much stronger in this area than most of our competitors. And I think we just have a business that's well adapted to those markets, and Hanspeter will talk about those more.

Diabetes, EUR 1.4 billion, up 13.7%, very strong performance really across the world. Vaccines, up 3% and kind of some mixed news in there. We clearly have -- had an excellent flu season in the Southern Hemisphere. And Sanofi is really providing close to 3 out of 4 flu vaccines in the Southern Hemisphere, and that was very strong.

We have some manufacturing issues on supply for Pentacel. I'll point out right away that the manufacturing issues on Pentacel have nothing to do with the warning letter that was received. But just the length and the lead times of manufacturing means that because we weren't able to approve 3 batches, that we're going to have to -- we're going to face some supply constraints through to the first quarter of 2013. Equally, there's an interesting inactivated polio vaccine opportunity in Japan, and so we believe we'll still be on target for our Vaccines this year.

Consumer Health Care continues to grow certainly in Emerging Markets. And if you just took out the stocking effect of the initial launch, Allegra continues to grow well in the United States as well. So we saw overall double-digit growth of 11.3%.

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