Sanofi SA

PAR:SAN

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to the Sanofi Q3 2018 Earning Results Conference Call and Live Webcast. I am Emma, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. George Grofik, Vice President, Head of Investor Relations at Sanofi. Please go ahead, sir.

[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 third quarter results. And 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 the 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; and Jean-Baptiste de Chatillon, Executive Vice President and Chief Financial Officer. Olivier will discuss key highlights of the quarter, Jean-Baptiste will then review the financials in detail, and we will close with a Q&A session.Joining us for Q&A will be Olivier Charmeil, Executive Vice President, General Medicines & 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; John Reed, Executive Vice President, Global R&D; and Bill Sibold, Executive Vice President, Sanofi Genzyme.And with that, I'd like to turn the call over to Olivier.

[Olivier Brandicourt, CEO & Director]

Thank you, George, and good morning, good afternoon to everyone. Welcome to our third quarter earnings conference call.Start with Slide 5. Sanofi delivered strong financial results in the third quarter. On a CER basis, our third quarter sales grew by 6.3% to EUR 9.4 billion. Our business EPS increased by 11.2% to EUR 1.84. This excellent performance was in line with the new growth phase we had indicated which would begin in the second half of the year.On Slide 6, we delivered organic sales growth in the third quarter of around 3%, which excludes a contribution from Bioverativ. In other words, we have reached the point where the underlying dynamics of our business are more than offsetting the impact of the LOEs on Lantus and sevelamer.On Slide 7, you can see the sales picture across our 5 GBUs. The highlight was again the double-digit growth in our Specialty Care business, Sanofi Genzyme. However, we also benefited in the quarter from the anticipated return to growth in our Vaccine business and from solid growth in CHC. Of course, the LOEs continued to be visible in the performance of DCV and GEM, but in each case, the year-on-year impact was less than in the second quarter.Turning to Slide 8. We are now looking at sales by franchise and geography. As in prior quarters, our diversified business structure clearly benefited us as we navigated our way through the LOE headwinds in mature markets. In particular, you see an impressive performance from our Emerging Market business with sales up 10%. The recovery of Pentaxim supply in China was an important contributor to this performance, but we also delivered broad-based growth across our franchises, with Specialty Care growing very rapidly.Expanding onto next slide on our Specialty Care franchise, sales grew by around 16% in the third quarter at constant structure and by close to 35%, including the acquisition of Bioverativ. Each of our franchises contributing to growth -- contributed to growth in the quarter. And if we take those in turns, our Rare Disease franchise reported another solid quarter with sales up 9%, led by a strong performance across core franchises of Pompe, up close to 14%; Gaucher, up 8%; and Fabry, up 12%. Meanwhile, a return to growth in the Multiple Sclerosis franchise was led by a 13% increase in sales of Aubagio. Our legacy Oncology franchise was driven by Emerging Markets, and we look forward to expanding our portfolio with the launch of Libtayo, which I will touch on later.Turning to our Rare Blood Disorder franchise, sales continued to grow. Although the 9% increase was lower than in the previous 2 quarters, importantly, the underlying performance remains good with Eloctate continuing to benefit from the growth in prophylaxis therapy and an increase in its share in moderate to severe patients, up to 18% in the U.S. Finally, we continue to be pleased with the rollout of our new Immunology franchise, which generated close to EUR 0.25 billion in sales.On Slide 10, I want to expand a little on our Immunology franchise. Dupixent is clearly the core driver of this franchise and reported another strong quarter. Sales grew by nearly 30% sequentially to EUR 225 million. Volume growth in the U.S. remained excellent and ahead of biologic launches in dermatology. Importantly, U.S. growth was demand-driven with trade inventory steady at around 4 weeks in the quarter and total prescriptions up 16% sequentially.Sales of Dupixent outside the U.S. are also gaining momentum. You may recall we launched in Japan in the second quarter and we launched in 4 more countries in the third quarter, taking the total to 13. What is especially pleasing is that our experience in new launch markets is generally replicating that in the U.S. in terms of outperforming biological analogs.We recently received approval for the asthma indication, which I will discuss in more detail on the next slide. However, we also submitted a supplemental BLA for Dupixent in adolescent AD under a breakthrough therapy designation in the third quarter. If approved, this will allow the benefits of the drug to be extended to patients as young as 12 years.Additionally, we also reported top line results from 2 Phase III trials in nasal polyposis, which met all primary and secondary endpoints. This will allow us to file for approval in this area of high unmet need and further expand the drug's use in type 2 comorbid indications.If I switch briefly to Kevzara, our Immunology asset for RA, we continue to make good underlying progress, although inventory movement slightly affected sales this quarter. In recent months, Kevzara has captured around 40% of new-to-brand prescriptions in the subcu IL-6 category, and demand for the category is growing at over 30% per year. Market access is set to broaden in 2019, so we remain optimistic on the outlook for Kevzara.On Slide 11, I want to finish my remark on Specialty Care by highlighting 3 important new approvals which will help to further drive this GBU. On October 19, we received FDA approval for Dupixent as an add-on maintenance treatment in patients with moderate-to-severe asthma aged 12 years and older, with an eosinophilic phenotype or with oral corticosteroid-dependent asthma. The label we received is the broadest of any biological -- biologic asthma treatment. We are well positioned to compete very effectively in this market given this differentiated label, our strong clinical data and our convenient at-home administration. Furthermore, we believe we have a unique advantage over other biologics as a significant proportion of these patients suffer from type 2 comorbidities in which Dupixent is either approved, in the case of AD, or in which we expect to getting approval, in the cases of nasal polyposis and eosinophilic esophagitis. We were also pleased to receive FDA approval for Libtayo in advanced cutaneous squamous cell carcinoma. This is the first and only drug to be approved in the U.S. in this potentially life-threatening form of skin cancer. The launch is underway with our partner, Regeneron, and we expect the European approval decision to follow in the first half of 2019.Finally, we received European approval for Cablivi for the treatment of the rare clotting disorder known as acquired TTP. Launch is underway in this potentially serious condition, and we hope also to receive FDA approval by the action date of February 6, 2019. Of course, we plan to invest appropriately behind these launches to optimize their success.On Slide 12, I'm turning now to Vaccines. Here, our third quarter sales grew by 8% led by the rapid supply recovery of Pentaxim in China as we successfully resolved the supply constraint. This in turn drove 20% growth in our PPH franchise. Sales of our flu portfolio in the northern hemisphere grew by 3% despite what we anticipate will be a slightly greater weighting towards Q4 delivery than in the prior year. This performance was driven by our differentiated portfolio with Flublok making a strong contribution in the U.S. and Vaxigrip QIV performing well in Europe. Indeed, our overall European Vaccines performance remained strong, supporting our decision to take full control of this business.We are also able, in the quarter, to share positive initial Phase III data for MenQuad TT, our fully liquid next-generation follow-on to Menactra. Taken together, we now expect sales of our Vaccines GBU to grow in the mid- to high single-digit range in the second half of '18, which is slightly above our previous mid-single digit expectation.Turning to DCV on Slide 13. We were pleased to see Praluent pick up momentum with sales up 64% in the quarter. We gained category share mainly due to our exclusive coverage by Express Scripts. Of course, our improved access came at the cost of significantly higher rebates as we have previously indicated. In total. We have improved the utilization management criteria for close to 40% of our U.S. commercial lives, which represents around 50% of sales in this channel. For 2019, while our payer coverage looks a bit lower than 2018, the quality of this coverage has improved. The change in commercial coverage is largely due to certain plan. We have already publicly announced their decisions to exclude Praluent from their formulary in 2019, in addition to CBS, which became effective earlier this year.Moving to our Diabetes franchise, sales declined by 9% in the quarter, consistent with our 2015, 2018 guidance. Similar to prior quarters, we achieved solid growth outside the U.S., mainly in Emerging Markets, but this was more than offset by a 24% decline in U.S. sales. Our non-U.S. sales now account for around 60% of the franchise. And in the U.S., we achieved good early sales of Admelog due to access in managed Medicaid.When we look through our U.S. Diabetes contracting situation for 2019, we have maintained broad coverage for our glargine products on the majority of U.S. formularies. Our commercial coverage is essentially unchanged and we experienced a modest reduction in coverage in Part D, which represents around 1/3 of our total glargine volumes. As expected, the negotiations with payers were highly competitive and you should anticipate average pricing to decline further. I'm nevertheless pleased with our overall level of expected coverage for the coming year.Turning to our CHC business on Slide 14. Sales grew by 4.1% in the quarter, with balanced growth across all geographies and key categories. The main driver continued to be our Emerging Markets region, where we achieved a 5% increase in sales, mainly led by Latin America and Africa Middle East. In contrast with the previous 2 quarters, our mature markets regions also showed consistent sales growth with Europe and the U.S. each up approximately 3%.Overall, our broad geographic footprint and leadership position in CHC continues to drive growth ahead of the average of our global peers based on the latest market research data. We are also fully in line with our expectations from a growth and synergy point of view following the acquisition of the BICHC business in early 2017.On Slide 15, as I touched on earlier, our market-leading Emerging Markets business continues to be a core strength for Sanofi, with sales up 10% in the third quarter and 8% for the first 9 months. Our 4 regional groupings here delivered either high single-digit or double-digit growth. As in prior quarters, China remained the particular highlight, with strong growth in both Pharmaceuticals and Vaccines.To follow on my -- to my previous point about China on Slide 16, we decided during the quarter to further focus and refine our GBU structure. This recognizes both the growing importance of Emerging Markets, and especially China, but also the possibility to gain operational benefits by combining our established products and DCV portfolios in mature markets.As a consequence, in 2019, we will implement a new structure in which our GEM and DCV business units will be reorganized into 2 new GBUs: our Primary Care Unit, which will be led by Dieter Weinand, who joined us from Bayer; and our China and Emerging Market Unit, which will be led by Olivier Charmeil. We expect significant benefits to arise from the greater focus in each new GBU.On my final slide, I want to update you on key upcoming R&D milestones. In terms of regulatory approval, we expect decision on several key opportunities namely Cablivi in aTTP in the U.S.; Libtayo in CSCC in Europe; and Dupixent in adolescent AD in the U.S. We also expect the ODYSSEY OUTCOMES label update from the FDA in April. We also have a number of pivotal read-outs due to -- due in the coming quarters, including isatuximab in multiple myeloma and sutimlimab in cold agglutinin disease. And lastly, we expect a number of proof-of-concept read-outs. This include our SERD in breast cancer and our CEACAM ADC in solid tumor.So the coming quarters will remain very busy for our R&D organization.Now it gives me great pleasure to hand over to our new CFO, Jean-Baptiste de Chatillon.

[Jean-Baptiste Chasseloup de Chatillon]

Thank you, Olivier. Good morning and good afternoon to everyone. It's a great pleasure to be here on my first Sanofi earnings call.On Slide 19, before discussing the details of the P&L, I would like to highlight the impact of ForEx on our reported third quarter figures. Currency movements reduced reported sales by 2.6% or EUR 232 million, while business EPS was impacted by 3% or EUR 0.05. The diminished impact compared with the previous 2 quarters was largely the result of strengthening of the U.S. dollar. Looking forward, based on October average exchange rates, we expect the impact on 2018 business EPS to be around minus 6%, which is unchanged from our estimate in July.Looking on Slide 20 at the third quarter P&L, the 11.2% increase in business EPS benefited from the strong top line growth, which Olivier described, together with a reduction in the effective tax rate to 22%, which is in line with the expected full year rate. In addition, there was a small benefit from the reduced share count as a result of repurchases. On Slide 21, our BOI line needs a little explaining as there are a number of pushes and pulls. In particular, the growth in OpEx was somewhat inflated by the acquisition of Bioverativ and Ablynx. I will discuss this in more detail on the next slide. The year-on-year change in other operating income was also adversely impacted by a high base for comparison in Q3 2017 as it included close to EUR 70 million of noncomparable gain. However, more than offsetting the movement in other operating income, we booked a substantial increase in associate contribution, which was mainly driven by discrete items in the equity accounting treatment of our ownership in Regeneron, including adjustments related to IFRS versus U.S. GAAP on the prior period true-up based on actual reported results. Taking these elements together, BOI grew by 6.4%, and we maintained our BOI margin at just over 32%.On Slide 22, looking now in more detail at our cost line. The gross margin decreased by 70 basis points to 71.6%. The reduction was partly driven by the continued erosion in sales from our U.S. loss of exclusivity on a slightly lower gross margin ratio for our Vaccines business, partially offset by our growing Specialty Care franchise.For the first 9 months, our gross margin was broadly unchanged at 71.3%. For the full year, we continue to expect our gross margin to be between 70% and 71% at constant exchange rate. To give you more precision in our modeling -- in your modeling, it is reasonable to assume we may land in the middle of this range or close to our 2017 ratio, which was 70.6%.Looking next at OpEx, R&D and SG&A spend grew by 9.5% and 1.6%, respectively, at constant exchange rate as we invested in new launches and in our late-stage pipeline. Overall, OpEx grew by 4.5%.As I mentioned, growth was impacted by consolidation of Bioverativ and Ablynx. Excluding these acquisitions, overall OpEx would have grown by just 1.3%. R&D would have been up 4.5% and SG&A down 0.6%, which we believe indicates continued discipline in cost management. For the full year, we expect OpEx to grow around 4% at constant exchange rate, which is a slight ramp-up from our previous guidance of 3% to 4% as a result of launched investments.On Slide 23, I am providing an update on our financial position. At the end of September, net debt stood at EUR 18.7 billion, increase over the 9 months largely reflected net spend of EUR 13 billion on acquisitions on payment of our annual dividend. In addition, we repurchased around EUR 1 billion of shares over the period and we received EUR 2.1 billion in proceeds from divestments, most of which related to the EU Generics business disposal. Over the year-to-date, our free cash flow was EUR 3.2 billion.On Slide 24, we are raising the bottom end of our full year guidance. Our business EPS are now expected to grow between 4% and 5% at constant exchange rate. This expresses our confidence in the quality of our results on strengths of our business. The impact of ForEx on the reported business EPS is expected to be around minus 6%, as I mentioned earlier. When considering your fourth quarter models, you should keep in mind that the divestment of Zentiva will have an adverse impact of roughly EUR 200 million on revenues. You should also note that while the comparable quarter in 2017 included a 10% per share impact -- EUR 0.10 per share impact related to Dengvaxia, this was partly offset by an abnormally low tax rate of 18.7%.Turning to 2019, well, to preempt any questions you may have on the outlook, we will provide guidance in the usual way with our fourth quarter results on February 7. We are, of course, confident in the new growth phase we have entered. However, we would not want you to extrapolate the type of double-digit EPS growth we have just reported for the third quarter.For your modeling consideration, you should note that in addition to the dilutive impact of the EU generated disposal in the first 9 months, we expect an increased contribution to the Part D coverage gap of approximately EUR 240 million. Furthermore, we intend to fully support the launches of Dupixent in asthma, Cablivi on Libtayo, which will put upward pressure on SG&A. And finally, we continue to expect a lag in the growth in Praluent sales due to higher rebate.With that, I would like to turn the call back to Olivier.

[Olivier Brandicourt, CEO & Director]

Thank you, Jean-Baptiste. Before I close, I want to draw your attention to this slide which captures the evolution of our business in terms of new product contributions versus LOE. We said in July that the adverse impact of LOEs had peaked in the first half. And here, you see clearly that it is the case. What this also shows is that our new product launches are now delivering revenues greater than the LOE impact. So this really supports our confidence that Sanofi is entering a new growth phase.So in summary, on Slide 27, we delivered a strong Q3 performance with the anticipated return to growth. We received 3 new approvals which will help fuel our Specialty Care business. And we have taken further action to focus our structure to support our growth ambition.And with that, over to you, George.

[George Grofik, Head of Investor Relations]

Thank you, Olivier. And we will now open up the call to your questions. [Operator Instructions]

[Operator]

[Operator Instructions] First question comes from the line of Peter Verdult with Citi.

[Peter Verdult, Director]

It's Peter Verdult from Citi. Just 2 questions, maybe first for David. If we just go a little deeper into the dynamics of Vaccines, how much of the guidance upgrade for H2 is simply due to 10% supply issues resolving quicker than expected versus either you having better visibility or stronger outlook on the flu business or increasing demand in China following the issues facing the local industry? And then my second question, if I may, for John Reed. Could you talk a little about the changes that you started to make to the R&D organization and processes since taking over? I realize it's early days, but would be interested in anything you're willing to shed light on there. And then just going to the early-stage pipeline, which assets are most promising in your view? Particularly interested in your thoughts on TGF-beta, BTK and some of your early-stage oncology assets, HSV-2.

[Olivier Brandicourt, CEO & Director]

Thank you, Peter. So David, Pentaxim in China?

[David Loew, Executive Vice President of Pasteur]

Yes, Peter. So for Pentaxim in China business perspective, out of the 8.2% growth, which is the equivalent of EUR 157 million, Pentaxim China was represented EUR 52 million, so that's about 1/3 of our growth, or in absolute, that's 2.5% of the growth rate of the 8.2%. Out of this 2.5% growth absolute, part of it is, of course, coming from the restocking. And I would say it's probably roughly half of it, so let's say, 4.2%. And the rest is really shot in arm. We see that the shot in arm are developing very well. We were able to release the Pentaxim earlier than when we have estimated originally. We saw the Chinese authorities accelerating the release. And we have, of course, now a relatively significant demand, one, because you have Pentaxim catch-up of like those 2 or those 3. But you also have high demand because of the vaccine scandals in China. So our outlook has improved for Pentaxim in China. So -- and outside of the U.S., that means outside of Pentaxim in China, we are still growing still 6%. And why is it that? So we have seen across all the franchises very solid growth. You asked your second question regarding flu. The Flublok launch is going very well. We are actually exceeding slightly our expectations, which is why we have upped the guidance somewhat. And what we have observed also on flu is that the fever, which had a little bit of delay in releasing the doses of the whole industry, so they took about a 2 weeks' delay, that has led to a situation where the Fluzone High-Dose has not kicked in so much yet in Q3, is going to come into Q4. So that's kind of the second reason why we upped our guidance there.

[Olivier Brandicourt, CEO & Director]

All right, John. Well, Peter, I remind you that John started, I think, 3, 4 months ago, so not yet huge change but early plans. So go ahead, John.

[John C. Reed]

Yes. Thanks for your question. Really enjoying the early days here at Sanofi and working with the team to continue our evolution as an R&D organization. In terms of the organizational direction, we've been focusing on what we call the 4Ps of pipeline; pace, in other words, the speed with which we deliver; patients; and people. Maybe I'll just make a couple of comments about pipeline. Going forward, we're excited to be continuing the momentum we have to press forward with more first-in-class and best-in-class molecules. We're looking at further ways that we can build our newfound strengths in biologics, particularly with the Nanobody platform that Ablynx brings to us. So we're seeing more and more representation in the pipeline of biologics. And our mix of investments in therapeutic areas is really emphasizing what we see as the 3 growth areas for the future of Oncology, Immunology, Rare Diseases including Rare Blood Disorders. So we're really excited about the progress we are making. And you referenced -- well you wanted to get some thoughts from me about what I see in the pipeline as potentially exciting molecules. Well, there certainly are several in the area of oncology. We've made a lot of progress in the last year. We now have 12 molecules in the clinic. If you count our collaboration with Regeneron, among those, several have shown early signs of encouraging efficacy such as our antibody-drug conjugate that's targeting the CEA molecule for solid tumors as well as our oral SERD drug. So we're really excited about the progress we're seeing there. In Immunology, Dupi continues to amaze. We've referenced the new data from nasal polyposis as another example where every endpoint, primary, secondary, was hit at a statistical level of significance that didn't require that you are a mathematical wizard in order to see the benefit. And then finally, in the area of rare, including Rare Blood Disorders, really excited about some of the molecules there such as venglustat, an oral brain penetrant molecule that modulates the ceramide glycolipid pathway, a molecule that we're developing for 5 different indications, as well as the Bioverativ portfolio with the next-generation version of Eloctate and sutimlimab, which are molecules that have shown early proof-of-concept and will be moving into pivotal studies next year. So it's -- the pipeline has a lot of momentum right now and it's great to be onboard here at Sanofi.

[Operator]

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

[Florent Cespedes, Senior Equity Analyst]

Two quick ones. First, a big-picture question for you, Olivier. As you are now back to growth, the question remains how sustainable is this growth, we understand that you have new product launches, but what about the cost control? And also what are the expenses you have to launch -- to support the launch of the new products? And then if you could give us some color, your thoughts on the profile of the company and the sustainability of the growth going forward. That's my first question. Second question is for Alan. On consumer, the U.S. reported 3% growth this quarter. Same kind of question, how sustainable is it? Do you still have the pressure from the private label there? If you could give us some color on that front, that would be very helpful.

[Olivier Brandicourt, CEO & Director]

All right, thank you, Florent. Alan, do you want to start within your sector?

[Alan Main, Executive Vice President of Consumer Healthcare]

Yes. Thanks for the question, Florent. Yes, we did see a recovery in the U.S. performance with a growth of just below 3%, and that was driven by our Allergy, Cough and Cold portfolio, which is up about 8%. And our Pain portfolio, as you know, we have a large share in the topical pain market there of almost 11%. So again, we saw some positive momentum with our Allergy portfolio. Although it's off the main allergy season, we do get a second peak in the U.S. as you know, what's called the ragweed season. We saw positive momentum in both Nasacort and Xyzal. So overall, the first 9 months of the U.S. sales were down by 3% because of our weaker allergy season as I mentioned, I think in the last quarterly call. But we're seeing a positive momentum coming into the year-end. So overall, we're happy with the recovery and we believe that we will continue to see growth in the U.S. market in the next few months.

[Olivier Brandicourt, CEO & Director]

All right, thank you, Alan. Florent, I'm not going to give you now the guidance for '19, as you know, so we're staying with '18. But you can see there what are the drivers, right? So we're now expecting to grow 4% to 5%. So we said it. This new growth phase is a result of Lantus and sevelamer U.S. generic impact having annualized. We have resolved the Pentaxim supply constraint in China. We have this very strong growth of both Dupixent, a little less yet on Kevzara and Praluent, but they are growing. We have the 3 launches we mentioned in the initial remarks. Admelog is also very encouraging during this quarter. We're launching Dupixent in asthma. We have this increasing contribution from Bioverativ. And as Alan just highlighted, CHC has now reached a growth rate which we were anticipating and it's specifically encouraging in emerging markets and more particularly in China. So those are the growth drivers and they are definitely there to remain. Now for cost savings, because that also is the nature of your question, we had achieved, as you remember, EUR 1.5 billion cost savings. Most of it are entirely reinvested into the business, but we achieved it 1 year earlier. And you can see that in the first months of '18, we have continued to show strict cost management, and that's most specifically visible on our G&A line. We are not finished in term of simplification, and that's a very important piece. And our Primary Care business unit and what we've put in together is a very good example of how we are trying not only to simplify but, of course, to be even more disciplined in our cost line. So I would say more to come on the cost discipline programs in the future, and I would just stop here. Do you want to say anything else, Jean-Baptiste, on the cost side, maybe?

[Jean-Baptiste Chasseloup de Chatillon]

As you know, we are in this growing phase, so we are really looking at being as efficient as possible which is putting the right level of resources in front of our challenges. So yes, we will, of course, fuel the growth with Genzyme having higher resources to face the launches, but we will keep a good discipline as has been done with the EUR 1.5 billion plan on the -- you see our G&A trend in this quarter. So yes, strong discipline, but we want to keep the momentum of the growth and we will do what's necessary for it. As I mentioned, Florent, we will have OpEx growth on the full year, I said around towards the high end. That's between 4% and 5%. So that reflects the acquisitions we've just done. But, of course, going forward, we want to keep the G&A bit as controlled as possible.

[Operator]

Next question comes from the line of Luisa Hector with Exane.

[Luisa Caroline Hector, Pharma Research Analyst]

I wondered if we could get a bit more information on the Dupixent launch. How is the reimbursement looking for 2019 in the U.S.? And are you ready with the reimbursement in asthma? Or do we still need to see that pick up over time? And any comments on how you'll differentiate yourself in asthma now you have the label? I know you've touched upon the breadth of the label, but anything else when you compare yourself to the existing injectables in terms of administration at home versus having to go into the office, anything -- any color there? And then the second question would be on your Regeneron collaboration. How soon could we expect that to turn profitable? Or is it still very much in that launch phase with heavy costs still?

[Olivier Brandicourt, CEO & Director]

Thank you very much, Luisa. So let's start with Dupixent and the differentiation in asthma and where we are in terms of coverage.

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

Okay. So Luisa, it's Bill, thank you very much for the question. Let me start with asthma and our thoughts on the label here. I mean, we're really excited about this label. We think it's the broadest asthma label. We think that we have the best efficacy. We've got a unique mechanism of action. We have the ability to work in co-morbidities of type 2 disease, and we're the most convenient. So I think on all those fronts, we feel very comfortable that we can compete not only by having, we think, the broader label, but we think that our efficacy really stands out. And one of the things I'll point to in the label as well is this indication for OCS-dependent patients. That is something that makes us quite unique. And again, I think it's -- and that is irrespective of eosinophil level. So overall, we're excited on all those fronts. And I will recall, as I said from a convenience perspective, we're a subcu administration. And if you look at the others, they are all IV administration. So that will be certainly very convenient for patients. Just regarding a little bit about the question of how is Dupixent doing overall, I think, you heard from Olivier, we continue to have very positive trends in atopic dermatitis. More than 63,000 patients have been prescribed Dupixent in the U.S. and we have just strong, across all of our metrics, results -- continued results here. So about 600 new patients are receiving a filled Dupixent prescription on a weekly basis. We've got breadth in prescribers, over 12,000 prescribers now. And the thing that I really like to look at is the number of prescriptions per physician. And about 68% of the prescribers have written at least 2 prescriptions, 51% have written at least 3, and about 40% have written at least 4. So that's a good sense of the breadth. Regarding turning into 2019, we expect strong coverage still. Now I will remind you that we are just starting with asthma. We are in payer discussions. We would expect to -- this quarter to be able to announce some progress on our payer discussions. And clearly, as we get into Q1 and Q2 of next year, we think that we will have progressed pretty deeply with being able to give an update on where we stand. But we're expecting quite favorable coverage with Dupixent.

[Olivier Brandicourt, CEO & Director]

Thank you very much, Bill. Luisa, on your Regeneron question. So for the full year 2019, we still expect that Regeneron-mAb collaboration will still be loss-making as we are in a commercial investment period with the launches of Dupixent, Kevzara and Praluent. Now, of course, when you are modeling the profitability of the collaboration, you do have a number of different variables to consider. The launch curve of Dupixent in asthma, the success of our new contracting strategy for Praluent and the rate of uptake of Kevzara. So we're also investing in classes with -- so 3 compounds are in classes with competitors and strong competitors. So you are in asthma, you are in RA, even in the PCSK9 class. So we may decide to reevaluate moving forward the lot of resources we need to maximize launch success. So our base case scenario today for the collaboration is to turn profitable more in 2020. But of course, precise timing depends on the balance between the different variables I just mentioned. So that's what I would say.

[Operator]

The next question comes from the line of Graham Parry with Bank of America Merrill Lynch.

[Graham Glyn Charles Parry]

Just wanted to follow up on the cost savings questions asked earlier, probably Jean-Baptiste, if you can just help us understand what experience you bring from the autos industry, which is obviously a fairly low-margin industry that could be applicable to pharma? And when you expect to quantify any cost savings or additional cost savings beyond the last EUR 1.5 billion program which is now completed? And then secondly, on consumer, Emerging Markets growth has slowed down from double digits to mid-single digits in the quarter. Perhaps if you could give us just a little bit more color behind what's behind that? And do you think Emerging Market consumer can continue to deliver a high single, low double-digit growth going forward? Or are you now seeing an impact of the global economic slowdown in that segment of the division?

[Olivier Brandicourt, CEO & Director]

Thank you very much, Graham. We'd start with Alan on the consumer and Emerging Market.

[Alan Main, Executive Vice President of Consumer Healthcare]

Yes. Hi, Graham. I wouldn't read too much into one quarter in the Emerging Markets. I mean, we've seen a very strong year so far, particularly in Latin America, as you know. But we're also starting to see a recovery in our Russian operations. So overall, the -- we've seen Latin America business growing by 4.5% in this quarter, but very strong underlying growth in some of our key categories. We've had Allergy, Cough and Cold growth up almost 18%, Digestive at 9%. We did have some stock issues as a result of supply following the Mexican earthquake to our Mexican operations. So that's impacted a little bit the third quarter. So again, we hope to recover that situation relatively quickly. So again, as you know, Emerging Markets is quite a significant part of our portfolio. It's about EUR 1.6 billion overall. And that actually is why we're sometimes impacted a bit more on the ForEx side, which might impact a little bit some of the consensus readings. But overall, we are very positive about the Emerging Market performance and it's continuing into the future.

[Olivier Brandicourt, CEO & Director]

Thank you very much, Alan. Graham, so we had a program, as you remember, even before Jean-Baptiste came onboard. And we created that business transformation office at the EXCOM level and Dominique Carouge is our head of that business transformation and he has worked on the last 6, 7 months on identifying, streamlining initiatives which we're going to put in place very soon. So we had not, again, concluded that we were finished in terms of simplification and cost savings and I would say efficiency in general. We will have probably more to say on the subject of cost saving in the coming months. I can't tell you exactly when, but we'll definitely go back to you with more details. Having said that, Jean-Baptiste, your experience at Peugeot and how much you can take advantage of that experience at Sanofi?

[Jean-Baptiste Chasseloup de Chatillon]

Well, I think that a high-margin business or low-margin business doesn't change the equation. We are competing and we need to beat the competition and be better, and that's what counts. So efficiency is much more important than just cost-cutting. And what I found very interesting coming into Sanofi is the capacity to pivot and to follow the big swinger we have in our growth on -- from one franchise to another, which takes, of course, dominant mergers to reduce cost on one hand and push the growth on the other hand. And that, of course, I will pursue actively with all the team.

[Operator]

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

[Jo Walton, Managing Director]

I've just got a couple of product-related questions and looking at the access data that you've given us. So last year, when you gave us the expected coverage, you split it between preferred and non-preferred. You've just given us one number now, and perhaps the difference is not so relevant. But one product which has got a big drop-down next year is Toujeo. And looking at consensus expectations, they're still at the view that this new product would show strong growth, presumably in the U.S. as well as ex-US. Given the sharp downdraft in terms of access, do you think that is still realistic? And I'd also like to ask about Admelog and the expectations there. Obviously, you had a very strong initial period. What sort of level of coverage do you think that will have next year?

[Olivier Brandicourt, CEO & Director]

All right. So my comment on keeping the broad coverage -- or the same coverage than last year. I think you have seen on one slide, we are keeping it in commercial when it comes to glargine, with the exception of Medicare Part D. And as you know, CVS and Aetna is in the process of combining their businesses. So CVS has excluded Lantus and Toujeo from their commercial formulary since the beginning of '17 and then from 75% of their CVS SilverScript Medicare plans starting in January '18. And for '19, Aetna has chosen to exclude Lantus and Toujeo from their formulary, but in the Medicare Part D section as well. And that is affecting about 3 million lives based on the 2018 lives, which previously had access to Lantus and Toujeo under Aetna plans. So that's what I would say on the access in the U.S. for glargines. Again, I did mention the pressure -- the competition and the pressure on pricing too. However, Toujeo, we have to look at it worldwide. It has been slightly declining in the U.S. this quarter. But it is growing significantly in Europe, and we are seeing very good early sign of growth also in emerging markets. So I would say you're right to look at Toujeo as being a growing agent in our diabetes franchise in the future overall. Now Admelog in Q3, you've seen, I thought -- I think it was EUR 26 million sales. It's -- these good results for the quarter was mainly due to our access, and we were very clear in previous quarter about that in Managed Medicaid. And our market entry strategy for Admelog at launch was really focused on accessing Managed Medicaid channels as well as cash channels for uninsured and underinsured patients. Now if your question is related to what's coming in the future regarding commercial and Medicare channels outside the Managed Medicaid, the book of business as you know is very much split between 2 products, 2 branded products, which controls the vast majority of the market and they are -- this book of business is very much driven by exclusive contracts. So due to the timing of our launch of Admelog during the second quarter of '18, we'll likely not be contracted in Medicare in '19. So -- and we see that happening, that type of access rather in 2020. So just a comment on access of Admelog. But we're very pleased with what we've seen so far during the third quarter, exclusively in Managed Medicaid.

[Operator]

Next question comes from the line of Seamus Fernandez with Guggenheim Securities.

[Seamus Christopher Fernandez]

So just wanted to ask a quick question on how the performance of the blood -- the new Hemophilia business is moving forward. It seems like you have pretty strong results in international markets, whereas the U.S. appears to be slowing down quite a bit. Just wanted to get a sense of how you see the evolution of the Hemophilia business going forward.

[Olivier Brandicourt, CEO & Director]

Thank you, Seamus. That's going to be a question for Bill. Bill, you'll have to talk about the difference between Eloctate and Alprolix and what's happening in Canada, I think.

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

Yes. That makes sense. So thanks, Seamus. So overall was a 9% growth as we talked about, and that includes non-U.S. sales of about EUR 66 million, and Japan is the primary contributor there. Eloctate Q3, EUR 193 million, which was 11% year-over-year; for the U.S., that was 14%; in Japan, 24%. Alprolix generated EUR 88 million in Q3, which was up 3%, including 6% in the U.S. and 1% in Japan. I think pointing out Canada here is important and there was a reduction year-over-year in Canada, which led to an overall impact of just over 4% on the growth rate such that the rate would have been 13% overall removing Canada. And the reason for that is the loss of the tender that went into effect on April 1 of this year. And we had created strong demand and growth in Canada ahead of the tender. And the removal of the use of the brand except in certain cases, particularly adults, in comparison to last year, is impacted as a result. So overall, we are extremely excited about the business. We have what we believe are the best-in-class factor replacements and look forward to continued growth of that franchise.

[Operator]

Next question comes from the line of Richard Vosser with JPMorgan.

[Richard Vosser, Senior Analyst]

Question on caplacizumab please and just thinking about the launch in, I suppose, Europe and then potentially looking ahead to the U.S. I'm thinking about the pricing strategy and the launch uptake expectations that we can think about there. Second question, just going back to flu. Just interested in the sort of market share gains and uptake that you're getting from Flublok given its superior profile and how you expect that to develop forward in terms of market share gains, maybe incremental doses that you can get and growth of that franchise.

[Olivier Brandicourt, CEO & Director]

Thank you, Richard. We'll start with Cablivi and the launch and the prices.

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

Sure. Great. Thank you, Richard. So we are really excited about Cablivi. As Olivier said, it is 1 of the 3 launches that we have going on in October alone, which is exciting for us as a company. And talking a little bit about Cablivi for a moment, this is a real breakthrough therapy. And we have just launched a few weeks ago, actually in Germany. And we see this as addressing really significant unmet needs. These patients have really no indicated therapy really at the moment, and this is being potentially a real lifesaver for them. We know the stats show that we decrease mortality, we decreased the number of days of plasma exchange, we decreased the days in the hospital, and we decrease the days in the ICU and decrease the permanent organ damage. So we also decrease recurrence. So this is a really innovative product and we are very, very excited. Now, as it relates to -- I'll give you a little bit about the launch going on in Germany. We spent a lot of time focusing on just where these patients get treated. So we have a good understanding of the centers in which they are being treated, and we think it's about 70 target centers where we see a lot of the patients that are being treated. We're still early and the referral patterns and so forth are still being established. It's going to take a little bit of time for the community to be educated by this and be ready to be thinking of Cablivi when they have the diagnosis of aTTP. To give you a sense here for the price in Germany is EUR 160,000. That would be assuming 35 doses. So recall, you have the in-patient portion. And then after you're discharged, you would continue on therapy with at-home administration for 30 days. So if you assume a 5 days in-patient and 30 days as an outpatient, so 35 days, that's how you can calculate the EUR 160,000. And just -- we're getting ready for launch in the U.S. as well. As Olivier said, February 6 is the action date. Teams are being put in place. We're assessing that market, the referral patterns there, where we're going to target and we're on track for approval from a commercial readiness perspective.

[Olivier Brandicourt, CEO & Director]

All right. Let's go back to Flublok.

[David Loew, Executive Vice President of Pasteur]

So your question on Flublok, as you know, this is our second flu vaccine which is truly clinically differentiated, proven in clinical trial. And therefore, we do assume that we are going to gain significant market share, especially in the segment where it is differentiated which is the 50 years, 65 years of age. It is, however, too early still yet to tell you the exact figures because we are in the middle of the flu season. And we have seen, with the shipment, that the shipments are developing very positively. Now we have to see how the shot in arm are going to behave, and I think we can probably tell you more about it beginning of next year when we have much more data on the real shot in arm. But we are clearly very positive on Flublok, and we are very satisfied with the uptake we have seen so far.

[Operator]

The next question comes from the line of Emmanuel Papadakis with Barclays.

[Emmanuel Douglas Papadakis, MD & Head of European Pharmaceuticals Research]

Just one detail -- minor detail one. I'm wondering if you can give us any more granularity on the associates line in terms of what was the true-up versus the other items? It was a follow-up for John Reed's. One of the assets of note in the pipeline, you didn't mention anything in diabetes, and I was just interested to get your perspective on the GLP, GIP assets you have in early development following some of the recent data in that space and your perspective on whether that is a competitive opportunity indeed, your outlook on that class of medicines overall. And then the last question was just a follow-up on, if I sneak one in on Dupi, the asthma label. You noted the comorbidity, there was quite high degree of comorbidity with asthma and nasal polyps in the -- noted in the trial release. Just wonder if you could comment on how much of an incremental opportunity you think that will be when that eventually launches.

[Olivier Brandicourt, CEO & Director]

All right. Thank you, Emmanuel. So Jean-Baptiste, the true-up in associates which -- how big it is?

[Jean-Baptiste Chasseloup de Chatillon]

Yes. Thank you for this question. I should have given an indication. It's like half of the amount which is adding to the -- to this true-up plus the difference in accounting. So yes, that's the order of magnitude.

[Olivier Brandicourt, CEO & Director]

So it's 50% of the total of EUR 153 million.

[Jean-Baptiste Chasseloup de Chatillon]

EUR 153 million. Half of it.

[Olivier Brandicourt, CEO & Director]

Okay. So that's the answer, Emmanuel. Diabetes, John?

[John C. Reed]

Yes. Emmanuel, thank you for the question. So we have actually several things in the clinic or close to the clinic. Efpeglenatide, of course, is the weekly GLP-1 agonist that we're developing. But then behind that, we have these next-generation increments where we combine the activities of GLP-1 with either glucagon receptor agonist, or GIP, or both in a triagonist. So we are exploring all of these different mechanisms. The most advanced, in our case, is a dual agonist of GLP-1 together with a glucagon receptor. We're still exploring ways to present that drug with up-titration scheme, et cetera, and looking at what the benefits of glucagon receptor agonism may or may not be for the patients as we look at both glucose and -- glucose regulation as well as weight loss. The -- we're assessing, from the recent data that have been presented, the GLP-GIP combination, that from the recent data in the field looks particularly exciting. So we're really looking very hard at that whole portfolio of molecules, and we'll be looking at what we can do to accelerate that program.

[Olivier Brandicourt, CEO & Director]

All right. Thank you, John. Dupixent, Bill?

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

Yes. Thanks, Emmanuel. First of all, we are really excited about the data release that we had with nasal polyps. And I think what it does is it confirms this effect that Dupixent has on type 2 disease. And a way to think about it is that's very much kind of upper respiratory and also with -- compared to the lung, which is a lower respiratory. So really kind of the one airway idea that we are having an impact on these various type 2 diseases. There is quite a bit of overlap. When I say overlap, comorbidity. In the QUEST study, for instance, our asthma study, about 13% of patients had nasal polyps history. And in the sinus studies for nasal polyps, 59% of patients had comorbid asthma. So again, we think that if patients will be treated for the primary diagnosis and then if they have these other type 2 comorbidities, that is certainly going to make Dupixent more attractive for physicians and we believe for patients.

[Operator]

Last question comes from the line of David Evans with Kepler Cheuvreux.

[David Paul Evans, Senior Equity Research Analyst]

I was -- just wanted to follow-up on Eloctate. I was just wondering, can you express your level of confidence that Eloctate will continue to grow sales through 2019 and 2020, given there can obviously be change in competition in that market. Secondly, on Dupixent in asthma. Given your broader label, are there specific subpopulations within asthma where you think you can see especially fast uptake, initially, for instance in patients here on oral steroids that have low eosinophils? And do you think Dupi can -- or is it more a question that Dupi will grow the overall market rather than take share?

[Olivier Brandicourt, CEO & Director]

All right. A lot to Bill. Maybe I can answer our confidence in Eloctate. First, patient on therapy, what we're seeing is that continue to grow, maybe at a slightly slowing rate recently because the total switch market has slowed down slightly in the U.S. But the Eloctate switch capture remains the highest, as Bill said earlier, in the market. And we have very high patient satisfaction, which is, itself, leading to a high retention rate. It continues -- Eloctate continues to be the #1 prescribed extended -- half-life extended factors VIII in the U.S. and with the largest number of patient, I think we have 2,500 patients treated. So all the indicators are really very positive for the coming 2 years certainly. And as you know, there is also one characteristic of Eloctate, which we think is rather unique, is joint -- knee protection. So altogether, we continue to be very, very optimistic about the future trajectory of Eloctate, considering against a very big reservoir of patients who are not under prophylaxis yet. So do you want to add anything, Bill, and then move to the Dupixent question?

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

No. I think that's right. I mean, ultimately, it's the profile of Eloctate. We think it is the best factor. We don't think factor replacement is going away. It's the fundamental approach to treating the disease. Regarding asthma, look, where we have our differences, we have the indication for the OCS-dependent asthma, which I think is something which allows us to immediately be in that population. We've only been out there for a week-or-so at this point, but there's a lot of enthusiasm by physicians that look at it just as for a patient that meets the criteria that has asthma. So it's not to say niche it anywhere, it's saying, hey, this is -- they believe that with the broad label and what we believe the best efficacy, that this is a good product to go to. The other comment I will just make is that, you look at the 2 physician audiences, pulmonologists and allergists. And certainly, it would be allergists. They've had experience for the last 18 months with atopic dermatitis. So this is moving to just a new indication with a product that they know. And for the pulmonologists, pulmonologists have not been so able to infuse product and practice. They're not set up that way. So we'd see us going to the pulmonologist with a subcu possibility with Dupixent, that we would expect to see better uptake in that group for use of a biologic now because there's one that they can use easily. So we think that's going to be broadly used. We have areas of differentiation and we're very enthusiastic. But we're a week into it, so it's -- we're just at the beginning. We'll report back next quarter with how things are going.

[Olivier Brandicourt, CEO & Director]

Thank you very much, Bill. Thank you, David. Thank you, everyone, and have a very good day. Thank you. Bye-bye now.

[Operator]

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