Sanofi SA

PAR:SAN

Earnings Call Transcript 2019-Q2

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Sanofi Second Quarter 2019 Earnings Conference Call. I would now like to turn the conference over to George Grofik, Vice President, Head of Investor Relations at Sanofi. Please go ahead, sir.

[George Grofik, Head of Investor Relations]

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 Référence 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; Jean-Baptiste de Chatillon, Executive Vice President and Chief Financial Officer; and John Reed, Executive Vice President, Global R&D. Olivier will discuss key highlights, after which Jean-Baptiste will review the financials. John will then provide an update on R&D, and we will close with a Q&A session. Joining us for Q&A will be Olivier Charmeil, Executive Vice President, General Medicines and Emerging Markets; Karen Linehan, Executive Vice President, Legal Affairs and General Counsel; David Loew, Executive Vice President, Sanofi Pasteur; Alan Main, Executive Vice President, Consumer Healthcare; Bill Sibold, Executive Vice President, Sanofi Genzyme; and Dieter Weinand, Executive Vice President, Primary Care.With that, I'd like to turn the call over to Olivier.

[Olivier Brandicourt, CEO & Director]

Thank you, George. Good morning, good afternoon to everyone, and welcome to our second quarter earnings conference call. On Slide 5, we delivered continued sales and EPS growth in the second quarter. The results allow us to raise our guidance, and we now expect to grow approximately 5%, which is the high end of our previous full year guidance. Our second quarter sales were EUR 8.6 billion, up 3.9% at CER, and our business EPS increased by 4.8% to EUR 1.31. If we adjust for constant structure, our sales grew an impressive 5.8% on an organic basis. Slide 6 breaks down our second quarter sales performance to show the drivers of our organic growth. You can see that, as in the past 3 quarters, the underlying dynamics of our business are more than offsetting the impact of LOEs.On Slide 7, you can see the sales picture across our 5 GBUs on a constant structure basis. The highlight was the sustained rapid growth in our Specialty Care business, Sanofi Genzyme. However, we also benefited from very strong growth in our Vaccines business, Sanofi Pasteur, and from a good performance in China & Emerging Markets.On Slide 8, as in previous quarters, our diversified business structure clearly benefited us as we managed the impact of LOE headwinds in mature markets. In particular, Specialty Care and Vaccines showed impressive double-digit growth in both mature and Emerging Markets. In addition, our strong presence in Emerging Markets continued to be an important driver, with overall Emerging Markets sales up 10% in the quarter.Looking at our Specialty Care franchise on Slide 9. Sales grew by 22% at constant structure. Each of our franchises contributed to growth in the quarter. Rare Blood Disorders grew by 2% assisted by the successful launch of Cablivi in the U.S. The overall franchise performance was however constrained by ongoing competitive pressure in the U.S. for Eloctate. By contrast, our Immunology franchise continues to perform exceptionally well driven by Dupixent, which is now annualizing at around EUR 2 billion in sales. Kevzara also performed well with sales more than doubling. In Oncology, we delivered strong growth in China where our portfolio is transitioning towards Specialty Care. Of course, we look forward to expanding our Oncology portfolio following the recent European approval of Libtayo. In Multiple Sclerosis, we again delivered a double-digit increase in sales of Aubagio despite the arrival of new competition. And finally, Rare Disease reported a good quarter, continuing its consistent growth trend. Growth was again led by double-digit performances from our core franchises of Pompe, Gaucher and Fabry. On Slide 10, we highlight the continued outstanding launch of Dupixent. We continue to see strong double-digit growth in new patient starts across all specialists. We continue to drive deeper health care professional penetration in atopic dermatitis with approximately 45% of prescribers having written prescription for at least 5 patients. In our second indication, asthma, new-to-brand prescriptions continue to outpace recent analog launches. Our belief is that the opportunity in asthma lies in growing biologic market penetration was again confirmed with about 80% of Dupixent patients new to biologics. In June, the FDA approved our third indication, chronic rhinosinusitis with nasal polyposis, and our launch is underway. We estimate there are about 55,000 patients with highest need in the U.S. who have failed one surgery.Now turning to our strong vaccine performance on Slide 11, where our second quarter sales grew by 25%. The strong performance was mainly led by our pediatric portfolio with growth of more than 40%. Sales of Pentaxim in China were especially strong as we benefited not only from the return to full supply, but also from strong underlying demand growth. Pentacel also contributed to category growth helped by the low basis for comparison in the U.S. Booster vaccines were the other key driver in the quarter, with sales of close to 40%. On the R&D front, our fully liquid meningococcal vaccine, MenQuadfi, was accepted for FDA review with an action date set for next April. Finally on Vaccines, to help with your quarterly modeling, I want to make you aware that the roughly 1-month delay in strain selection by the WHO has impacted the timing of our flu deliveries. Consequently, we expect our flu vaccine sales to be significantly weighted towards the fourth quarter, which is the reverse situation compared with 2018.Turning to Primary Care on Slide 12. Sales declined 10% on a GBU basis adjusting for the EU generic divestment. Diabetes sales declined 13%. We again achieved solid growth outside the U.S. led by Emerging Markets. However, this was more than offset by an 18% decline in U.S. sales. Admelog was a bright spot in the quarter, but sales are likely to be lower in the coming quarters due to a downwards WAC price adjustment of 44%, which took effect this month. Turning to Praluent. Sales were down 2% as a result of a 30% decline in the U.S. As in the first quarter, volumes increased in the U.S., but net pricing was heavily impacted by rebating to improve access and affordability. We also received disappointing news in the form of an injunction on Praluent sales in Germany following the adverse patent infringement ruling. For your reference, first half sales of Praluent in Germany were EUR 20 million. Lastly, touching on established products, sales were down 9%, reflecting lower sales of Lovenox due to biosimilar competition in several European markets.Turning to CHC on Slide 13. Sales grew by 1.1%. Looking at the quarter, our U.S. business performed well. Sales were up 6% driven by the digestive category and our allergy brand, Xyzal. Overall growth in CHC was however lower as a result of the continued weak cough and cold season in Europe and the flat quarter in Emerging Markets. In addition, sales growth of the CHC GBU in the quarter was impacted by strengthening regulatory requirements, particularly in Europe, as well as the continued effect of divestments of nonstrategic brands. Together, these items reduced the reported growth rate by 2% and will continue to have a dampening effect on growth through the first part of 2020. That said, we continue to maintain our strong profitability with a BOI margin north of 30%. On Slide 14, as I mentioned earlier, our Emerging Markets business continues to be a core strength for Sanofi with sales up 10% in the second quarter. China remains a key driver with growth of 17% in the quarter.On Slide 15, I want to give a little more detail on China, which is now our second-largest market after the U.S., with 2018 sales of EUR 2.5 billion. Growth in the second quarter was driven by Vaccines, notably Pentaxim, and by our Specialty Care portfolio. On the other hand, as we had highlighted, Aprovel and Plavix were impacted by implementation of the volume-based procurement program. Sales of these 2 brands were flat in the quarter and are expected to be lower over the remainder of 2019. This will obviously have an impact on the growth of our Chinese pharma business, as you can see from the chart showing our sales breakdown. Looking forward, while our Established Products and Diabetes portfolio have served us well in China and contributed to our #4 ranking among multinationals, we aim to rebalance our business by accelerating new product launches, especially in Specialty Care. Six Sanofi products were recently listed by the National Medical Product Administration as medicines of urgent medical needs, including Dupixent. And we aim to submit more than 10 products for approval by the end of 2020. Separately, we see strong potential in China's counties where we have a dedicated sales force that we can leverage to drive sales outside the big cities. We believe that successful execution of this portfolio transition will allow us to sustain good growth over the mid- to long term in China. On my final slide, I want to update you on key R&D milestones for the coming 12 months. In terms of regulatory approvals, we await decisions on a number of important new opportunities, including Dupixent in adolescent AD and nasal polyps in Europe; isatuximab in relapsed-refractory multiple myeloma in the U.S. and Europe; MenQuadfi in the U.S.; and quadrivalent high-dose Fluzone in U.S. and Europe. We also have a number of pivotal readouts due to -- due, including new molecular entities: sutimlimab in cold agglutinin disease, and avalglucosidase alfa in Pompe. And lastly, we expect a number of proof-of-concept readouts. These include our SERD in metastatic breast cancer, sutimlimab in refractory ITP and the anti-IL33 in COPD. So the momentum in our R&D organization continues. John will give you more detail in his R&D update in few minutes from now, including some of our more important recent data readouts. And with that, I now hand over to Jean-Baptiste. Jean-Baptiste?

[Jean-Baptiste Chasseloup de Chatillon]

Thank you, Olivier, and good morning and good afternoon to everyone. So before discussing the details of the P&L, we would like to highlight the positive impact of ForEx on our reported second quarter figures. This mainly resulted from the stronger U.S. dollar. In total, the benefit to sales was 1.6% with an offset at business EPS level mainly due to the Argentinian peso. Looking forward, based on July 2019 average exchange rates, we expect a positive impact on 2019 business EPS of between 1% and 2%. On Slide 19, we delivered an increase in BOI despite the high base comparison in other operating income of last year. Our expense discipline is very clear in the SG&A line, which declined by 3% despite the cost of new launches on the continuing global rollout of Dupixent. R&D expense grew by around 5% due to investment in our late-stage pipeline on the incremental cost [ notably ]. Other operating income and expense includes our share of the profit and loss of the Regeneron monoclonal antibody alliance, net of marketing expenses incurred by Regeneron. The combined outflow in the quarter increased EUR 143 million versus EUR 46 million in Q2 2018 as the antibody collaboration is now breakeven this quarter, and we expect to be profitable in the second half of the year. Taking these factors together, BOI grew by 3%. On an IFRS basis, EPS was slightly negative, reflecting EUR 1.8 billion impairment charge mainly related to Eloctate.Looking now in detail at our cost line on Slide 20. The gross margin increased on a reported basis by 70 basis points to 72%. At TR, the increase was 50 basis points. The uplift in the quarter resulted from favorable geographic and product mix. It is now our expectation that the 2019 gross margin will be between 70% and 71% at constant exchange rate. Turning to OpEx. R&D growth was compensated by good SG&A control. Our OpEx performance underscore the change of mindset we are implementing across the organization. Overall, we expect to keep OpEx growth for the full year to around 1% with a similar trend over the next couple of years.On my final slide, we have increased our full year guidance for 2019 business EPS, and we now expect to grow approximately 5% at constant exchange rate. The impact of ForEx is expected to be around 1% to 2% positive, as I mentioned earlier. Given we delivered business EPS growth of 7% in the first half, we are confident of meeting our revised full year guidance. But for your modeling consideration, we expect growth to be lower in the second half. This reflects the impact of the China VBP program, a higher basis of comparison for Pentaxim and the outlook for Praluent in Germany and for Eloctate and the lower pricing on Admelog in the U.S. With that, I would like to turn the call over to John.

[John C. Reed]

Thank you, Jean-Baptiste, and good morning, and good afternoon to everyone. Well, it's my pleasure to update you on the continuing evolution of Sanofi R&D beginning with Slide 23. As we explained in February, our high-level vision for Sanofi R&D emphasizes continuing our efforts to reshape the portfolio. First and foremost, our aim is to substantially elevate our impact for patients by increasing the level of innovation in the Sanofi portfolio through a commitment to greater investment in first-in-class and significantly differentiated best-in-class medicines. To achieve this vision, we announced a reallocation of our R&D resources to priority therapeutic areas that we believe offer the greatest opportunity to advance the standard of care for patients with a focus on diseases where the unmet medical need remains very high. We also said we will support the new focus by leveraging our broad range of therapeutic modalities and by accelerating our most promising early-stage programs.Looking forward, our aspiration is for the Sanofi pharma portfolio to evolve towards a state where roughly 80% or greater of our R&D investments are in first-in-class or best-in-class molecules; where we envision that approximately 70% of the portfolio is likely to be biologics; and where we aim to accelerate the progress that has been made in improving internal drug discovery, such that around 2/3 of the pipeline should come from our Sanofi labs. I firmly believe we can deliver on this goal given the building blocks we're putting in place. Those building blocks include leveraging the recent Bioverativ and Ablynx acquisitions to bolster and reshape the portfolio, while also helping to increase our internal productivity with their technology platforms and expert scientists; shifting our allocations of internal resources to prioritize investments in Specialty Care indications where we believe Sanofi has the best opportunity to deliver results that matter most to patients; focusing our internal discovery efforts by announcing recently, for example, our intention to exit cardiovascular research given that, compared to several other therapeutic areas, the science is not as plentiful with compelling disease targets and the investment to reach definitive answers in the clinic can often be very high; establishing disease area strategies for all our therapeutic areas to align research with development, with commercial and bring more focus to the R&D organization; restructuring the immuno-oncology discovery collaboration with Regeneron to increase our freedom to operate as well as exiting several other collaboration agreements for technical or strategic reasons; and finally, building up our CMC biologics capabilities to support a pipeline that features multispecific antibodies and nanobodies; as well as rationalizing our footprint to bring more of our resources where they're most needed to drive the pipeline; bringing new talent into the organization, such as Dietmar Berger, our new Head of Global Development, a man who has led development teams to 13 drug registrations, including 11 in oncology and 2 in hematology; and then finally, elevating our competencies in digital internally and through collaborations.Slide 24 shows the impact of our prioritization with a shift in the balance of our investment towards Specialty Care and Vaccines. This is true both for our research projects and our development-stage programs. You'll also note that the total number of projects is higher partly due to organic growth and partly due to the Bioverativ and Ablynx acquisitions. Now moving to Slide 26 shows the key outcome of the execution of our strategy, namely the shift in our mid- to late-stage pipeline towards internal or wholly owned molecules. In total, 8 of our 12 expected NME submissions over the next 5 years are Sanofi-owned programs. This is a departure from our recent past where we have been significantly reliant on partnered assets for which Sanofi shares economics. Furthermore, a high proportion of these assets are first- or best-in-class. Slide 27 highlights the positive pipeline momentum we have recently achieved. In particular, you see here 5 promising molecules that have each delivered positive data presented at scientific conferences in the last quarter. These assets are completely aligned with Sanofi's commercial and R&D goals as they span the Specialty Care categories of Oncology and Rare Blood Disorders as well as Vaccines. I want to spend a bit more time on each of these molecules beginning with isatuximab, our anti-CD38 monoclonal antibody. Now on Slide 28, we presented the detailed results of the pivotal ICARIA study of isatuximab at ASCO and at EHA last month. We're particularly pleased with the results of ICARIA as this is the first Phase III trial to demonstrate prolongation of PFS, progression-free survival, when adding an anti-CD38 antibody to the standard-of-care combination, pom-dex, for the indication of relapsed-refractory multiple myeloma. As you can see, the median PFS for the combination of isatuximab and pom-dex was 11.5 months compared with only 6.5 months for pom-dex with a robust hazard ratio of 0.6. Of note, 11.5 months is the longest PFS observed in this population. And the PSF benefit was consistent across all major subpopulations, as I'll show in a moment. Furthermore, we observed reversal of renal dysfunction, a significant comorbidity that often plagues patients with myeloma. Isatuximab was also well tolerated with no need for post-infusion medications. On the back of the ICARIA results, we filed a BLA in the United States and in Europe, and we received an action date from the FDA of April 30, 2020. Now I know many of you are thinking about the patient journey in the anti-CD38 category with the competitor recently reporting that a subcutaneous formulation could reduce its administration time. However, it's important to note that a visit to the hospital is still necessary, and there are multiple steps involved in administering anti-CD38s, which may include initial blood work, pre- and post-infusion medications, and appropriate post-treatment monitoring before the patient leaves the clinic. Consequently, even with the subcutaneous formulation, we believe the overall patient journey time for the current standard of care may still be ours. This could be broadly comparable to our molecule based on isatuximab's recently optimized infusion time of 75 minutes from the third infusion onwards and, importantly, its lack of need for post-infusion monitoring. Furthermore, we will begin studies on a subcutaneous formulation of isatuximab in the second half of this year, and we are optimistic we'll further reduce the total administration time. Moving to Slide 29 shows the consistency of that PSF benefit across prespecified subgroups in ICARIA. These included the most difficult-to-treat patients such as those with high-risk cytogenetics, those refractory to lenalidomide and those with renal impairment. In fact, this is the first Phase III study to show a reversal of renal dysfunction in this population with anti-CD38 therapy. In short, we believe the impressive and differentiated results from ICARIA will position isatuximab very competitively in the relapsed-refractory setting once approved. To close on isatuximab, Slide 30 sets out our comprehensive development program across the treatment continuum of multiple myeloma. You will see that in all cases from later lines to newly diagnosed and even smoldering disease, we have included the modern standard of care within our clinical protocols with the results we achieve will be relevant to real-world clinical practice. You can see that our development program is very strategically designed to add isatuximab to the future standard-of-care combination regimens across all lines from later lines to newly diagnosed and smoldering disease. In fact, we may have the opportunity to generate Phase III data with isatuximab with the most frequently used combinations, for example, with VRD, Velcade, Revlimid, dexamethasone, in newly diagnosed patients potentially before daratumumab. Consequently, we believe we are poised to generate a compelling and competitive data package with isatuximab. I would also add that because isatuximab binds to a different epitope on CD38 that can base different biological properties, the possibility still exists to show a best-in-class profile. These biological differences include superior blocking of the enzymatic activity of CD38 that is thought to contribute to immunosuppressive tumor microenvironments; a superior bili to stimulate the expansion of tumor-attacking effector T cells; and a much reduced ability to activate complement, which reduces the risk of infusion reactions and probably explains why isatuximab usage requires no post-infusion medication.On Slide 31, I want to highlight another promising oncology molecule, and this is our antibody-drug conjugate against the cell surface glycoprotein known as CEACAM5, a so-called oncofetal [ action ] -- antigen that is expressed highly in the developing fetus then turned off in adult tissues becoming reexpressed on several types of solid tumors. The first targeted indication for this molecule is second- and third-line non-squamous non-small cell lung cancer, which has an specially poor prognosis after initial lines of therapy. Roughly 20% of these lung cancers expressed high levels of CEACAM5. At ASCO, we reported that our molecule achieved proof-of-concept in heavily pretreated third-line patients who expressed high levels of CEACAM5. Specifically, we observed a response rate of 25%, which is more than double that seen with the standard of care, docetaxel, and a disease control rate of 62%. Importantly, treatment was relatively well tolerated with grade 3 or higher adverse events seen in only around 10% of patients and with fewer than 5% of patients experiencing neutropenia. The main side effect was keratopathy, a side effect commonly encountered with antibody drug conjugates representing a noninflammatory disease in the cornea that reversed without treatment discontinuation. Given this profile, our anti-CEACAM5 has a potential to become a new standard of care in second-line non-squamous, non-small cell lung cancer with high expression of CEACAM5, a patient group with high unmet need. We aim to start a registrational study before the end of this year. Okay, leaving oncology and moving to Slide 32. I want to build on our Rare Blood Disorder franchise. We're developing fitusiran in hemophilia. This is a novel RNA interference molecule that reduces antithrombin levels, taking the brakes off the coagulation system. Given its unique mechanism of action, fitusiran has a potential to be a first treatment for both hemophilia A and B with or without inhibitors. To this end, our Phase III program examines fitusiran across the spectrum of hemophilia settings. Our plan is to submit in 2020. We believe fitusiran may have a differentiated profile compared with existing products. In addition to the breadth of usage, it will be delivered as a small volume, fixed-dose subcutaneous injection for adolescents and adults. In addition, fitusiran has a number of other practical advantages in that it is potentially stable at room temperature, is less likely to interfere with other blood assays, and an antidote is available in the market for reversal should it be required. We recently reported updated clinical data on fitusiran at the ISTH meeting. Our safety program, over 60 patients have received treatment with fitusiran with more than 25 treated for over a year. Where bleeding episodes have been encountered, those have been successfully treated with low-dose factor or using bypassing agents. And finally, we completed -- we implemented a risk-mitigation program to manage thrombosis risk. The interim efficacy data from the Phase II open-line extension program demonstrated substantial reductions in annualized bleeding rates in both noninhibitor and inhibitor settings and when compared with both on-demand and prophylactic therapy. So thus far, we have data to potentially set up fitusiran as an innovative and differentiated pan-hemophilia agent, and we look forward to receiving the Phase III results next year.On Slide 33, the next promising molecule I would like to highlight is BIVV001, which we believe could be a breakthrough treatment for hemophilia A with a well-understood mechanism of action and potentially attractive safety profile. BIVV001 is a fusion protein that combines a region from von Willebrand factor and a component called XTEN to extend the half-life of recombinant Factor VIII. This unique construct means BIVV001 is the first Factor VIII treatment able to overcome the so-called von Willebrand ceiling, which limits the half-life of current therapies. We recently reported proof-of-concept data at ISTH regarding safety treatment with BIVV001 was well tolerated and no subjects developed inhibitors. The exciting part, however, is the half-life, which, at more than 40 hours, was threefold higher than [ FVIII ]. This resulted in mean Factor VIII activity after 1 week of approximately 10% normal levels, depending on the dose of BIVV001. 10%, mind you, is above the threshold typically considered to constitute best practice in hemophilia patient management. So what we potentially have in our portfolio is a highly efficacious recombinant protein that has the potential to protect against all bleeds with weekly dosing. And because the pharmacology appears to be very consistent from week to week, regular monitoring of factor levels would not be required with BIVV001, which, for hemophilia sufferers, is analogous to diabetics having consistently robust glucose homeostasis such that they would no longer need to monitor their blood glucose. Consequently, we're moving BIVV001 into Phase III studies in the second half. Okay, leaving hematology and moving to Slide 34. The final project I want to mention is our partnered anti-RSV monoclonal nirsevimab, previously referred to as SP0232. The clinical need is very high, as 9 in 10 children worldwide are expected to be infected with respiratory syncytial virus in their first 2 years. And the vast majority of those who become hospitalized as a result of infection are otherwise healthy. Currently, no vaccine is available for the prevention of RSV. Nirsevimab is a -- much more potent than previously -- previous antibodies, such that one dose can provide protection for an entire season. Consequently, we are positioning nirsevimab as a passive immunity solution for all infants in their first season and for high-risk infants and children for their first 2 seasons. We recently reported strong efficacy in a Phase IIb study in healthy preterm infants aged 29 to 35 weeks. Compared with placebo, nirsevimab reduced RSV-confirmed lower respiratory tract infections by a striking 70% and RSV-confirmed hospitalizations by 78%. Based on the unmet need, we have received breakthrough and prime designations in the U.S. and Europe, respectively, and we're moving quickly with Phase III beginning this month.On my final slide, 35, I want to reiterate the take-home points. Number one, we are accelerating the transformation of Sanofi R&D by bringing more focus to the organization, emphasizing investments in Specialty Care, shifting more of the portfolio to biologics and seeking to elevate the level of innovation of portfolio; number two, we are supporting this transformation by enhancing our technological capabilities in biologics and in digital and data science; number three, the pipeline is building momentum having recently reported positive data on priority programs in Rare Blood Disorders, Oncology and Vaccines; and finally, as Olivier highlighted, we have a rich news flow of clinical data expected in the coming year. So with that, I would like to hand things back over to Olivier.

[Olivier Brandicourt, CEO & Director]

Thank you very much, John. So let me summarize. We achieved a number of important R&D milestone in the quarter. We sustained our new growth phase with sales momentum over the past 4 quarters averaging close to 5% at CER. Growth benefited from an accelerated contribution from Dupixent clearly as we executed on new indication and indications and geographic expansion. We achieved improved top line growth while keeping OpEx growth around 1% in the first half of the year, and we have raised our EPS guidance to approximately 5% growth. So before I hand over to George to start the Q&A session, many of you will be aware that this will be my last quarterly earnings call with Sanofi as I will retire as CEO at the end of August. I would like to take this opportunity to thank you all for your interest in Sanofi. I would also like to thank my executive colleagues and Sanofi employees worldwide for their hard work in supporting the transformation of the company over the past 4.5 years. And with that, over to you, George, to start the Q&A.

[George Grofik, Head of Investor Relations]

We will now open up the call to your questions. [Operator Instructions]

[Olivier Brandicourt, CEO & Director]

All right.

[Operator]

[Operator Instructions] The first question comes from the line of Graham Parry of Bank of America.

[Graham Glyn Charles Parry]

So firstly, best wishes to Olivier in your -- whatever your next venture is, and thanks very much for all the timely information over the time you've been at Sanofi. And then first question is just on Dupixent. It was growing ahead of prescriptions in the U.S. quarter-on-quarter. So I just wanted to clarify if there's any stock or rebate benefit in there. Or are we just seeing lower deductibles in the second quarter as patients have been through that? I don't suppose you're just not paying as much co-pay there. And then secondly, on BIVV001, you flagged there the strong proof-of-concept data at ISTH. And you talked about second-half Phase III start. When in Phase III do you think you'll actually start being able to dose patients there? And if you could help us just understand a little bit more about trial design there. Do you think you're going to stick at the weekly dosing at either the 50 or 65 days? Or do you think you'll move up the dose higher and shoot for something in the 2 weekly range?

[Olivier Brandicourt, CEO & Director]

All right. Thank you very much, Graham. So starting with Dupixent, Bill, low deductible and great inventory and everything.

[William J. Sibold, Executive Vice President of Genzyme]

Great. So thanks for the question, Graham. And first of all, just to say, from Q2 to Q1 here, you're right. The -- a part of the driver in there is some favorable gross to net, but the majority is driven by demand. So about 55% of it is driven by demand, about 36% gross to net. And just as you had said it, it's people that have finished their co-pay support, so that reflects positively in Q2. And then less than 10% of it is inventory. Now just to anticipate the question on year-over-year Q2 '18 versus Q2 '19, 77% is driven by demand. There's about 13% on gross to net. And just to remind everyone, our first price increase with Dupixent was in July of last year at 3% and then we took a 3% in January of this year, so that led to some favorability in gross to net as well. And then there was about 10% on inventory versus last year. And the inventory fluctuations are just within our 3 to 5 week that we talked about, nothing unexpected. Just -- it's a day or 2 here or there. So that's going to continue to fluctuate over time.

[Olivier Brandicourt, CEO & Director]

All right. Thank you very much, Bill. ISTH and BIVV001 and the design of the Phase III study, John, please.

[John C. Reed]

Yes. Graham, thanks for your question and for your interest in BIVV001. With respect to the dose, 50 versus 65, we actually haven't reached the final decision. Both of them are pretty effective at maintaining that factor level close to 10% after 1 week. 65 clearly more consistently does, but 50 is close. And so we're having internal debates about what it'll finally be, so I can't tell you exactly yet. And the date of the start is in the second half of this year. I don't remember the exact date. We can get that for you offline.

[Graham Glyn Charles Parry]

And second, just to follow up. The 50 to 65 is weekly, but is there any scope here to go to 2 weekly by pushing the dose higher in Phase II is more of the question?

[John C. Reed]

Not at this point.

[Olivier Brandicourt, CEO & Director]

Okay. Thank you, John. Thank you, Graham.

[Operator]

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

[Peter Verdult, Director]

Peter here from Citi. Two questions. Jean-Baptiste, Q1, Q2 showing a very strong gross margin and OpEx control gross margin ahead and OpEx control in line with your guidance, despite increased R&D investment. I'm just trying to gauge the upside risks around your efficiency drive across the P&L. So wondering if you could spend a little time detailing some of the more fruitful initiatives you've undertaken as well as whether you could confirm whether you are in line, ahead or behind the internal targets you set last year.And then secondly, sorry, Bill, just to go back to Dupixent. We're all looking at it hawkishly, yet we all managed to miss by 20%. I know you've detailed some of the reasons, but are you now in a position to give us a little more detail on the breakdown between atopic dermatitis and asthma in the U.S.? Just to get a little more handle on the dynamics there.

[Olivier Brandicourt, CEO & Director]

Thank you, Peter. All right, initiative in cost management, Jean-Baptiste?

[Jean-Baptiste Chasseloup de Chatillon]

Well, yes, thank you for that question. But maybe for just word on gross margins, the same drivers have been impacting us as in Q1. As you mentioned, in Q1 and Q2, it was a [ as John had said ] Dupixent, of course, which is related by gross margin level and also China, which remain pretty high with a VBP, which is now kicking in really second half. So that's why we raised our gross margin guidance for the year to 70% to 71%, which is, of course, helpful. We have, on the cost side, room for improvement, both in COGS and on SG&A, and that should help also to maintain our gross margin.Of course, on the SG&A side, the OpEx side, you see that we have between our late-stage pipeline on the rollout of Dupixent. We have many opportunities of reinvesting to fuel the growth of the company. So that's why we keep our 1% guidance for this year and the next 2 year in terms of around 1% for the growth of OpEx. So no specific worries on that front. What I can tell you is that I can feel that there is a real beginning of change of mindset in the way we deal with cash in the company, and that's not -- a [ tight ] quarter is really starting to be very significant in terms of action plans in the countries and within the teams.

[Olivier Brandicourt, CEO & Director]

Okay. Thank you, Jean-Baptiste. Bill?

[William J. Sibold, Executive Vice President of Genzyme]

Yes. So Peter, thanks for the question. I mean look, the way to characterize Dupixent growth is it's just strong all around. 51% sequential growth globally, 168% year-over-year and its contribution from AD from asthma, new indications, geographies. So it's really about the momentum across the whole product. And you asked specifically about the U.S. We, on Slide 10, have broken out the U.S. quarter-on-quarter NBRx growth, which is 25% overall. And that was driven by 23% derm, 22% allergists, and as you'd expect, a little bit higher growth rate, 59% with pulmonologist since the launch of asthmas new.For competitive reasons, we're not going to break out the mix in allergists at the moment because that's the group that's writing for both AD and asthma. So a highly competitive market, and we want to keep some of our information proprietary.

[Olivier Brandicourt, CEO & Director]

All right. Thank you. Thank you, Bill. Thank you, Peter.

[Operator]

Your next question comes from the line of Florent Cespedes from Societe Generale.

[Florent Cespedes, Senior Equity Analyst]

Two quick ones. First on hemophilia, please. Could you share with us your view on this business? The performance for the first half is not exactly where I was expecting to be.My second question is for Alan on consumer. Could you please tell us -- I'd like to try to understand why the performance on Emerging was a bit softer in Q2 as you see some recovery or more dynamic performance for the rest of the year and follow-up on consumer. What could be done to reenergize the business in Europe or, as you maybe mentioned during the call, we would have to wait until the first half of next year? And Olivier, I would like to thank you very much and to wish you [Foreign Language].

[Olivier Brandicourt, CEO & Director]

Thank you very much, Florent. Okay. I take the first one. So yes, we took on impairment charge on Eloctate and that was -- and it is primarily due to the greater-than-expected share loss to Hemlibra. So I think Hemlibra share gain as maybe not be totally surprising to everyone. But certainly, the magnitude of it has surprised almost everyone. So at the time of the Bioverativ acquisition, we really believed that in the noninhibitor market, the U.S. sales trajectory would be slower due to, at the time, there were multiple serious safety events which were reporting on Hemlibra. And we knew, thanks to Bioverativ, that historically, this market was rather sticky and very, very oriented towards safety. So very safety conscious, if you want, and more specifically in the hemophilia A market. So that's the historical perspective.Now looking ahead, we do not expect -- we do expect competitive pressure to continue, of course. However, we do see some points of differentiation, which are built within Eloctate. And more specifically, what we have talked about but maybe not sufficiently, which is this big advantage in joint health and also in ITI, the immune tolerance induction, which we have presented data on recently. So that's one thing.To continue on future performance outside the U.S. and over the next few years, we are planning potential launches in additional markets within Latin America and -- but also Asia.And finally, while we have taken an impairment charge on Eloctate to reflect what I described before, we still believe -- and that's I think the key of your question, the Bioverativ acquisition will deliver substantial value for Sanofi. And on a strategic basis, it is going to be the foundation of a wider Rare Blood Disorder franchise. And we think we are, with Bioverativ, ready to build an industry-leading franchise which goes beyond hemophilia, hence your question around blood franchise, rather than specifically hemophilia. We do have sutimlimab for CAD, but also ITP. We just talked about BIVV001, which, at one point, will be the follow-on compound to Eloctate with a very and much stronger profile, as you heard from John. So all of that in addition to the early gene therapy programs that were a part of the portfolio of Bioverativ, and here, I'm talking about Sangamo focused research on beta-thalassemia and sickle cell disease, in addition to also the San Raffaele hospital collaboration on lentiviral gene therapy for hemophilia. All of that constitutes a strong pipeline, which we are very confident in. So this is a long answer, but I felt that I needed to give that to you. So CHC, Alan?

[Alan Main, Executive Vice President of Consumer Healthcare]

Yes. Thanks, Florent, for the question. First of all, in Emerging Markets, overall, the first half has been quite strong with a growth of 4%. It was a little bit more biased towards the first quarter. The second quarter was flat mainly reflecting lower performance in the allergy cough and cold, so more of a seasonal impact. As well as the pain category in Brazil being relatively flat. That was offset by some price increases in Argentina, the offset inflation and a continuing strong growth in China, Eurasia and Southeast Asia. So overall, I think it's more a phasing issue. We'll continue to see strong growth in the second half in the Emerging Markets. You talked about Europe. And of course, Europe has been impacted probably the most by seasonality over the last 2 quarters and also by the portfolio divestments that we've made of nonstrategic brands. So as those divestments grandfather, of course, that will start to have a positive effect. We also mentioned the tightening regulatory environment. That's also impacting Europe, to some extent. For example, with new ICH guidelines and a stronger position from ANSM in France in terms of some old INNs requiring us to reformulate or withdraw some of our older products in Europe. And that's why we have given the guidance that will have an impact through the rest of this year into the early part of next year. But it's impacting predominantly the older portfolio. That's not our focus categories. So underlying growth, I think, is still going to be seen as quite positive.

[Olivier Brandicourt, CEO & Director]

Thank you. Thank you, Florent.

[Operator]

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

[Luisa Caroline Hector, Pharma Research Analyst]

So it's a pipeline question on 2 of the cancer drugs you highlighted. So the SERD and then the anti-CEACAM. So they're both in relatively dynamic spaces where we're seeing quite long PFS times. So I just wonder whether you can say any more on your thoughts on the trial design for the pivotal studies or the positioning of each of those assets as you move forward towards Phase III. For the SERD, you've got that space of the CDK46. Are you thinking of this as a potentially even an adjuvant therapy eventually? And how will you start if -- assuming the Phase II comes through positively? So how do you see your SERD fitting in?And then on the CEACAM, again, lots of movement within the non-small cell lung. So anything more you can say? Because I see both assets you have down with a kind of filing time line towards 2023. So just essentially trying to think about the positioning and the duration of those Phase III studies.

[Olivier Brandicourt, CEO & Director]

Thank you. Thank you, Luisa. John?

[John C. Reed]

Yes. Thanks for the question. I'll start with SERD. The -- right now, we're focusing on the Phase Ib, testing the SERD in combination with palbociclib in the anticipation that if that combination proves successful from a technical standpoint, we could move that end into the frontline metastatic breast cancer setting. We're also gearing up to do a randomized study of our SERD against standard-of-care anti-hormonal therapy as a test of moving into a monotherapy environment, which would set the stage for adjuvant today. Although as you know, adjuvant may change in the future if palbociclib becomes part of that -- part of the therapy there. So things are moving along, and we're really continuing to develop a deep understanding of the SERD and how best to position it. The CEACAM5, we think, is very attractive in this second-line setting for non-small cell lung cancer. As you know, most patients these days are getting chemotherapy plus a PD-1. And when they fail that, they have very few options left. They typically go onto a variety of different chemo regimens or CYRAMZA. The side effect profile of those therapies and their efficacies are -- leave much to be desired. Our first study is going to be a head-to-head against docetaxel in the second-line setting. We are also planning to do a Phase Ib in combo with CYRAMZA to see if that is a combination that could be deployed as a way to get even better efficacy if the safety profile proves to be satisfactory. And in terms of the time lines, I would say on the CEACAM5, there is the possibility to bring that forward faster depending on how some of the interactions go with the regulatory authorities. We'll be meeting with the FDA next month, in fact. So we'll be having discussions around that. I think 2023 is probably a fairly conservative date for that. For the SERD, it's -- we're still -- we still have much to learn yet, and so I would just stick with the 2023 for now. But if there are opportunities to bring that forward, we'll obviously emphasize that in the future.

[Olivier Brandicourt, CEO & Director]

Thank you, Luisa.

[Operator]

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

[Richard Vosser, Senior Analyst]

Just an extra question on the CEACAM5, first of all. Just could you give us some help on the durability of the response that you've seen so far in the 17 patients? We've obviously seen other ADCs have promising early data and then some of that efficacy fall away. So just to give us some idea what that durability is on that product? And then secondly, just going on to Eloxatin, just thinking about future potential pressure in China. Obviously not at the moment, but should we think of Eloxatin having some pressure in the future?

[Olivier Brandicourt, CEO & Director]

Thank you. Thank you, Richard. Durability of response, John, with the CEACAM5, do you know?

[John C. Reed]

Yes. Evaluation is still ongoing. I don't know that we reached a median duration response yet. So we're still collecting data on that. It's -- I guess I'd like to say it's been encouraging. I would also note that we had a 62% disease control rate as well in addition to the 25% overall response rate. So we'll have more updates for you in the future.

[Olivier Brandicourt, CEO & Director]

Okay. And Eloxatin in China, Olivier?

[Olivier Charmeil, Head of China & Emerging Markets]

Yes. So there have been no official communication and the extension in terms of product of the scope of the VBP. So it's too early to say whether Eloxatin could be impacted in the future.

[Olivier Brandicourt, CEO & Director]

Okay. All right. Thank you, Richard.

[Operator]

Your next question comes from the line of Thibault Boutherin from Morgan Stanley.

[Thibault Boutherin, Equity Analyst]

So the first one is on Praluent. Could you give us an update on the situation of the U.S. litigations with Amgen in terms of time line or the next event and your expectation for the U.S. and for Praluent? And beyond the risk of injunction, I will be interested in your view on potential compensatory damages that may arise and how these damages would be shared between Sanofi and Regeneron. And the second question, a pipeline question on avalglucosidase alfa. So could you tell us more on your next-generation Pompe program? Could you tell us more about your expectations for these assets, how you think about it in terms of acceleration of growth of the Pompe franchise versus potential cannibalization of your existing assets?

[Olivier Brandicourt, CEO & Director]

All right. Thank you very much, Thibault. We're going first with Karen. We're lucky to have Karen Linehan with us today. So Karen, do you want to give the status of the U.S. litigation?

[Karen Linehan, Executive VP of Legal Affairs & General Counsel]

Sure, and thanks for the question. As you may know, in February of this year, a jury found that 3 of the claims of Amgen's patents were valid and 2 were not. So in other words, the jury had a split decision. There was a hearing on permanent injunction. The judge has not ruled on that. And business continues as usual in the U.S. You should note that we filed some post-trial motions, one seeking to overturn portions of the jury verdict that were unfavorable to Sanofi and Regeneron, and we raised a ruling on these motions. The Court has requested an oral argument, which will take place on the 8th of August and it will be very short, both of them. But please be aware if there's any adverse ruling against Sanofi and Regeneron, both parties are prepared to go to the Court of Appeals for the Federal Circuit.We cannot speculate how long this will continue. And no matter what the length, we're committed to defending this case to ensure Praluent continues to be available to the appropriate patients in the U.S. The issue of damages has not been addressed by either the judge or the jury, and I think it's premature to comment on that. But if there were any, they would be shared.

[Olivier Brandicourt, CEO & Director]

Okay. Second question on avalglucosidase. Bill, do you have anything on this?

[William J. Sibold, Executive Vice President of Genzyme]

Yes, sure. Great. So thanks for the question. We're really excited about this product. And just to orient you, it's a second-generation ERT for patients with Pompe. And this was discovered in house by our researchers. And it's -- the design -- it's specifically designed to enhance the receptor targeting enzyme uptake through greater affinity for the M60 receptors on muscles with the aim of having greater glycogen clearance and therefore potentially more efficacy than Myozyme. And just to give you an idea, we saw 5x higher uptake than Myozyme in vivo. So we are hopeful that this will be a product which is better than Myozyme. And we will continue our efforts still with diagnosis and treatment in this area. So we believe that this -- we're the leaders now, and this an extension of our leadership. And we'll be reading out more data in the future.

[Olivier Brandicourt, CEO & Director]

And the question was would you planning -- are you planning for some level of cannibalization? The answer is probably, at some level, of course.

[William J. Sibold, Executive Vice President of Genzyme]

Yes. [ Who else -- ] sure. Assuming that it shows that it's superiority, in which case, we would expect that patients would want to be on this drug, yes.

[Olivier Brandicourt, CEO & Director]

Yes. Okay. Thank you, Thibault.

[Operator]

Next question comes from the line of Jo Walton from Crédit Suisse.

[Jo Walton, Managing Director]

Can I just clarify one thing first? I wondered if we could ask Jean-Baptiste to repeat the Regeneron contribution -- or rather Regeneron payment in other operating income. The line went a bit crackly.My 2 questions. One would be on U.S. reform. We've seen the Senate proposals, and one of which appears to remove the pennies rule for Medicaid. Now given the size of a product like Lantus and the ability to have taken prices well over CPI over many, many years, I wonder if you could tell us what the impact of removing the pennies rule and actually having to pay out if the proposals stay as they are -- remains.And my second question would be on Dupixent ex U.S., and I wonder if you could tell us a little bit more about the adoption and how it's going in Europe and, in particular, what may happen to pricing in Europe as you add incremental indications, which typically result in countries asking for price cuts.

[Olivier Brandicourt, CEO & Director]

All right. Thank you very much, Jo. So Jean-Baptiste starts with the other income.

[Jean-Baptiste Chasseloup de Chatillon]

Yes. Thank you very much. In other operating income and expense, so it includes our share of the profit and loss of the Regeneron monoclonal antibody alliance net of marketing expenses incurred by Regeneron. So the combined outflow in the quarter increased to EUR 143 million versus EUR 46 million in Q2 last year. This is because we are now breakeven -- positive breakeven. And we expect to be profitable in the second half -- from the second half of the year. Remember, up to now, we were mentioning early 2020. We are now with accelerated growth of Dupixent already at breakeven and looking forward to have some profit. So on these lines, we will be recording, on top of the selling expenses incurred by Regeneron, half of the profit and loss of the P&L of the alliance. So that will be going negative on this line linked to the success of the partnership.

[Olivier Brandicourt, CEO & Director]

All right. Thank you very much, Jean-Baptiste. Dupixent, Bill, ex U.S.?

[William J. Sibold, Executive Vice President of Genzyme]

Yes, sure. So thanks for the question, Jo. We're seeing a very similar uptake in every country that we've launched in. And in the -- around the world, that is similar to what we've seen in the U.S. And just as a comparator, we have been anywhere from 2 to 7x the uptake of the Cosentyx launch, another strong dermatology launch or well-recognized dermatology launch. So that -- that's been a consistent story everywhere, and it's still very early obviously. In asthma, we're just getting going, but we would also expect to see a strong demand there. Now regarding the pricing, as we -- we always thought of this as being priced as a multi-indication product. So that was taken into account when we had our first discussions and -- or our first internal plans and ultimately discussions with payers. You're right that there can be some downward pressure on pricing as a result of next indications. That's been taken into consideration, and we're trying to mitigate that to the best extent that we can.

[Olivier Brandicourt, CEO & Director]

All right. Thank you, Bill. Jo, on the U.S. reform, I know you specifically asked on the A&P cap. But I just want to start by saying, as a company and as an industry, as you know, we oppose the Senate Finance Committee legislation, right? And the reason is because it does very little to what we try to do since the beginning, which is to improve the affordability for the large majority of patients. So that's number one. But also because it introduces price control in the Medicare Part D program. So that's our position. As you know, it's a moving target. Nothing is finalized, but you're right. Within the different proposal of that draft bill, there is one piece has to do with the A&P cap for Medicaid. And there are several versions which have been considered for removing that cap. And the latest we are aware of, the latest proposal suggests a modification of the maximum rebate cap moving from 100%, which is, today, to the 125%. However, that would only kick in during the fourth quarter of 2022. And it will be launched to -- it will be pegged to the launch year price. So that's one thing. But the second is even more important. It would not apply retrospectively. And that has to do with your question on Lantus. So we don't feel that would be applied retrospectively. Therefore, Lantus should not be affected. However, prospectively, you will have to -- companies will have to be very careful with price increases and the potential CPI impact on Medicaid. So that's what I would say at this point. So thank you very much, Jo.

[Operator]

Next question comes from the line of Simon Baker from Redburn.

[Simon P. Baker, Head of Pharmaceutical Research]

Two, please. Firstly, on Praluent. You indicated that in the second quarter, U.S. sales were down 37% impacted by significantly higher rebates. From this prescription data we've seen, it looks like volumes are up about 65%, which would suggest probably that there were some prior period adjustments within that quarter. So I wonder if you could give us a little bit more color on that.And then secondly, Jean-Baptiste, you talked about the OpEx growth this year of 1% being an indication of the growth in the coming years. I assume that statement was made prior to the -- Friday's inquisitor termination. Could you give us an idea what sort of impact that would have, the elimination of that promotion would have on OpEx over the coming years?

[Olivier Brandicourt, CEO & Director]

All right, very good. Dieter, did you get the question on Praluent U.S.?

[Dieter Weinand, Executive Vice President of Primary Care]

Yes. So indeed, the volume has been growing very nicely in the U.S. since we launched new NDC. And we got the expanded label for all across the [ country ] to be the only product for -- with that label now. We have seen our NDRx share grow by 8 percentage points. And we have seen total RX as -- TRxs grow by 2 points, so we are encouraged by the momentum. That was offset obviously by continued pricing pressure in the U.S. That did not completely offset the volume growth that we have experienced in the U.S. So that really explains there was nothing unusual in prior quarters. So that is just how the market has evolved. Going forward, I would hope that prices would stabilize and we would see that volume translate into revenue growth as well.

[Olivier Brandicourt, CEO & Director]

Okay. Thank you, Dieter. OpEx growth, coming back to third question, Jean-Baptiste?

[Jean-Baptiste Chasseloup de Chatillon]

Yes. You're perfectly right. Of course, the fact that we will not foresee the Zynquista launch will be positive for next year and even for the second half in OpEx. So that's why we -- with our around 1% growth, we have an extra opportunity for reinvestment case to fuel our growth in other areas of the business.

[Olivier Brandicourt, CEO & Director]

Okay. Thank you very much, Simon.

[Operator]

Next question comes from the line of Jordan McDonnell (sic) [ McConnell ] from Deutsche Bank.

[Jordan McConnell, Research Analyst]

This is Jordan McConnell from Deutsche Bank. Just the first one, please. Can you elaborate on your expectations for Dupixent in COPD and highlight any data you have in-house supporting that progression into Phase III trials? Just looking to understand your level of confidence in that program. And then secondly, do you have any feedback from the Cablivi launch that you can share? And just how is that tracking versus your expectations?

[Olivier Brandicourt, CEO & Director]

Okay. Thank you, Jordan. John, do you want to take the COPD question on Dupixent?

[John C. Reed]

Yes, I'd be happy to take that. Thanks for the question. I -- it's thought that at least a subset of COPD patients have a component of type 2 inflammation, which is an area where we know Dupixent really excels in squashing that inflammation. So we're doing a study, as you're probably aware, to test that. In the same study, we're comparing Dupixent with the IL-33 molecule and then doing a combo as well. And from this then, we'll have much better insights into the relevance of those cytokines and that immunobiology relevant to COPD. The [ PTS ] right now, we would put -- probably [ technical ] success. We put standard levels on it for Phase II studies, so we're just waiting for data. And with the data, we can then make decisions about where we go from here.

[Olivier Brandicourt, CEO & Director]

All right. Thank you, John. Second question was feedback on Cablivi.

[William J. Sibold, Executive Vice President of Genzyme]

On Cablivi, great. Thanks for the question. So we're really pleased with the initial demand and usage in our early markets. And just to remind you, we're now launched in Germany, Denmark, Austria and of course the U.S. And we'll have some other Nordic countries that are planned to launch later this year. And with each one of these, it's building the market from scratch. This is something -- it's a completely new, innovative therapy. And so that takes a little time. But overall, we're tracking well in each of the markets. And the feedback has been really quite impressive from physicians and patients. We're hearing stories of lives that have been saved. And I think this has been really transformational. So it's early, but so far very pleased.

[Olivier Brandicourt, CEO & Director]

All right. Thank you, Bill. Thank you, Jordan. So with that, I think it's the end of our call. Again, I wanted to thank you very much for your interest in Sanofi. And with that, I wish you well. Thanks, everybody.

[Operator]

That does conclude our conference for today. Thank you for participating. We now will disconnect.