Sébastien Martel – VP, Head of Investor Relations Olivier Brandicourt – Chief Executive Officer Jérôme Contamine – EVP, Chief Financial Officer Olivier Charmeil – EVP, Vaccines Peter Guenter – EVP, Global Commercial Operations Elias Zerhouni – President, Global Research & Development.

Graham Parry – Bank of America Merrill Lynch Vincent Meunier – Morgan Stanley Luisa Hector – Exane BNP Paribas Michael Leuchten – Barclays Stephen McGarry – HSBC Bank Florent Cespedes – Société Générale Philippe Lanone – Natixis.

Ladies and gentlemen, welcome to the Sanofi 2015 Q3 Earning Call. I will now hand over to Sébastien Martel, Sir, please go ahead..

Thank you, operator. Good morning, good afternoon to everyone. Thank you for joining us to review Sanofi's third quarter results. As always, the slides of this call have been posted on the investor's page of our website at sanofi.com.

With me on the call today are Olivier Brandicourt, our Chief Executive Officer and Jérôme Contamine, Executive Vice President and Chief Financial Officer. All the members of our executive committee are also joining today for the Q&A section.

We have Olivier Charmeil, Executive VP, Vaccines; Peter Guenter, Executive VP, Global Commercial Operations; Carsten Hellmann, Executive VP, Merial; David Meeker, Executive VP, Genzyme; and Elias Zerhouni, President Global R&D.

First Olivier will discuss the key business results for the third quarter and then Jérôme will review Sanofi's financial results during the period. After that we'll open the call to Q&A.

As you can see on slide two, I'd like to remind you that information presenting in today's call will contain 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. Just before we begin I'll briefly mention that during the call percentage changes in sales will be expressed at constant exchange rates or CER unless otherwise indicated.

With that, I'd like to turn the call over to Olivier..

Gaucher, Fabry and Pompe. On the next slide, slide 10, you can see that our Vaccine business showed good sales growth of 5.5% in the third quarter. Major contributors to sales of €1.7 billion in the period where the U.S.

flu vaccines up 8.3%, the PPH family of vaccines up 17.8% driven primarily by strong sales in China, but also Menactra, up also 17.8% resulting from strong U.S. public sector purchasing. The overall performance of the flu franchise was stable as we had delayed supply in Western Europe and Mexico.

Importantly, we continue to be on track to deliver more than 65 million doses of flu vaccine in the important U.S. markets in the 2015 season and the Q3/Q4 split will be closer to a 60/40 breakdown this year versus a 69/31 breakdown last year.

Of note, the business operating margin of Sanofi Pasteur for the first nine months of 2015 is slightly above group average at 29.1%. As I mentioned last quarter, we continue to expect the first license to market our dengue vaccine before year end. This is a breakthrough innovation designed to help reduce the worldwide burden of dengue.

Launch preparations are fully on track and with an expected first wave of launches in endemic countries planned for 2016, we are aiming to maximize the impact of this new vaccine on public health through broad vaccination programs.

Now, turning to our Animal Health business on slide 11, the third quarter performance marks the sixth quarter of consecutive strong performance at Merial. Sales exceeded €600 million in the period, an increase of 9.3%. The Companion Animal segment continues to be the main driver with NexGard acceleration in the U.S.

which is supported by a successful advertising campaign. In the Production Animal segment sales were up 2.5% and constant exchange rates to €206 million driven by the avian business in emerging markets. Importantly, the business operating margin of Merial continues to be very solid at 28.5% for the first nine months of 2015.

Now on slide 12, looking at the global breakdown of sales, the two largest geographies, mainly the U.S. and emerging markets, continue to show growth in the third quarter. These two geographies represented over 70% of group sales this quarter.

Let me point out that emerging markets delivered double digit growth with strong contribution from Asia and in particular from China. Despite the economy slowdown in some emerging markets, all other emerging market regions continue to perform strongly during the quarter as well.

In Western Europe sales were slightly down for the quarter, reflecting lower sales of Renagel and Aprovel as a result of generating competition as well as lower [indiscernible] sales in CHC and delayed flu vaccine sales. Rest of world sales were also down, mainly because of generic competition to Plavix in Japan in the third quarter.

Now turning to slide 13, I want to share the early progress we are making with the launch of Praluent, addressing the major health and economic burden of cardiovascular disease. Following U.S. approval in late July and E.U. approval in late September the product was launched in the U.S.

within days and will become available in some major European countries by year end. Our comprehensive patient and prescribers support hub called My Praluent has already served as an effective platform for over 4000 prescribers.

We also continued to make important market access progress and recently secured branded Preferred Tier 2 commercial formulary position with Express Scripts. Decision from the position with other important payers, such as CVS and United, are pending. In addition to gaining greater U.S.

market access, near term expansion opportunities are focused on driving product awareness and adoption. We are also pleased to report that launches in the first European countries are underway. Overall, launch progress is consistent with our expectations of the gradual uptake in the market.

Slide 14 helps to illustrate the various pushes and pulls on the topline year-to-date 2015. What you can't see here from this great chart is the positive contribution of almost €600 million in sales from new product launches, in addition to the approximately €650 million in increased sales generated by other businesses over the last nine months.

This contribution more than offsets the €332 million decline in Lantus sales during the same period. As our new product launches become an increasingly important contribution to topline performance, I expect the balance of these pushes and pulls to further give you the impact of the headwinds facing Lantus.

On my last slide, slide 15, I'd like to highlight the timelines for the regulatory submissions of two high potential products. Both admissions are expected to be completed by year end. For sarilumab, the regulatory submission in rheumatoid arthritis in the U.S. is imminent and we expect to submit the product in the E.U.

during the third quarter of next year. The submission in Europe will include the results of a head-to-head Phase trial, the MONARCH study, comparing sarilumab with the leading anti-TNF drug, Humira. I'm pleased to report that this study is now fully enrolled.

Second, regarding Lixilan, based on recently-announced Phase 3 results, Lixilan-O and Lixilan-L, we plan to file this important addition to our diabetes portfolio later this year in the U.S. and shortly afterwards in the E.U. With that, I will now turn the call over to Jérôme to discuss the details of the financial results in the third quarter..

Thank you very much, Olivier and good morning, good afternoon to everyone. So I start with slide 17. As Olivier highlighted earlier, Sanofi grew both top and bottom line in the third quarter.

As you can see from this slide, the impact from the foreign exchange headwind on the net sales on business EPS has been easing in the third quarter mainly due to weaker currencies in emerging markets.

Of note Venezuela significantly reduced the positive FX impact in the period and I will return to the impact of this country in our P&L in just a minute. In the third quarter group sales were positively impacted by €508 million, plus 5.8 percentage points and the impact on EPS was plus 3.4 of percentage points or €0.05.

As always, for additional information on foreign exchange sensitivity to key currencies, please refer to the first slide in the final appendices of the slide deck. Now looking closer to the P&L on slide 18, sales were €9.6 billion, an increase of 3.4% in the third quarter. Gross profit was €6.682 billion in the period, up 4% at constant exchange rate.

As we come back to the details on gross margin and OpEx of the [indiscernible]. So therefore move straight to the other current operating income and expenses line. Other current operating income was negative €136 million in the quarter compared to positive €39 million during the same period of last year.

As you may recall, in the third quarter of last year we booked a €40 million gain for the termination of a license in the U.S. in this line. In the third quarter of 2015 other operating income include a foreign exchange loss of €157 million associated with a group subsidiaries base in Venezuela.

Following a change of Venezuelan bolivar rate versus the U.S. dollar used for translation of inter-company dollar denominated payables in light of the most recent transactions.

Continuing with the next line item, you will see that the share of profits from associates has almost doubled as compared to the same payout in the previous year, reaching €78 million for the third quarter alone.

This line, as we all know, includes Sanofi profit share from our equity [indiscernible] and the vaccine joint venture of Sanofi Pasteur with Merck in Europe. In total, business operating income was broadly stable at constant exchange rate when compared to the same quarter last year, reaching €2.8 billion in the third quarter 2015.

I now turn to slide 19 and review the items below the business operating income. Net financial expenses were lower as compared to the same period of the previous year.

The effective tax rate was down to 22.2% in the third quarter, which is now what reflects for the year, which is an expectation of a tax rate to be 24% for the full year 2015, down from the previous guidance of 25%.

Business net income in the third quarter was €2.1 billion, up 5% at CER and as mentioned earlier, we delivered business EPS of €1.61 in the third quarter, up 6.1% and up plus 9.5% on a constant exchange rate basis and reported basis respectively.

As a result of our continued opportunistic share buyback activity, the average number of shares outstanding decreased in the third quarter by approximately 8 million shares compared to the third quarter of 2014.

When it comes to the fourth quarter, as Olivier explained, we expect diabetes sales will have a somewhat adverse impact on the top line and we have flagged that we expect to continue to invest in OpEx behind our new launches on late stage pipeline. In addition, if you recall that there were two specific one-off items in the fourth quarter of 2014.

That means there is a tough base of comparison. We benefited last year to the sum of €79 million from divestiture of small products in Europe and also from a below trend tax rate of 21%.

Now moving to slide 20, our gross margin in the quarter was consistent with our expectations for the full year as quoted earlier this year and reaffirmed last quarter.

The third quarter gross margin reached 69.7%, up 1.3 percentage points, benefiting from the favorable FX impact, the strong performance of the multiple sclerosis franchise at Genzyme and a favorable mix within the Vaccines business. These drivers in the quarter more than offset the negative impact from lower sales in the U.S.

diabetes business on the launch of competition for Plavix in Japan. Consequently, we now expect our gross margin on the full year 2015 to be around 69%. Moving to slide 21 finally, I look closer at the evolution of operating margin expenses. OpEx was €8.8 billion, up 7.5% in the third quarter and €11.4 billion, up 5% in year-to-date September 2015.

This cost rate of operating expenses of 5% was fully in line with our previously [indiscernible] target of a mid-single-digit OpEx growth at constant exchange rate and we continue to expect the same growth rate of the full year 2015.

Third quarter R&D expenses of €1.4 billion were up almost 10% at constant exchange rate, effecting a higher spend on the development program for dupilumab, the ODYSSEY cardiovascular outcome study with Praluent on our new collaboration with Regeneron in the field of immuno-oncology, which we announced in the previous quarter.

For the first nine months of 2015 the ratio of R&D to net sales was 13.8%, which was 0.3 percentage points lower than the same period last year. SG&A expenses were €2.5 billion, effecting an increase of 6.2% at CER, mainly driven by investments in the direct-to-consumer campaign for Toujeo in the U.S., the launch of Praluent in the U.S.

as well and certain European countries, as well as a promotional [indiscernible] for multiple sclerosis brands and Animal Health advertising costs. For your modeling purposes, please let me reiterate at this point the importance of forex as a significant driver of our operational expense line.

In year-to-date September 2015, the impact of forex on OpEx was 8.9%. The significant increase simply reflects that a large part of our OpEx increase is in U.S. dollars. We continue to target to mid-single digit growth rate at constant exchange rate for OpEx for the whole year.

We have also noticed in our press release this morning that we have had a subsequent event related to our recently [indiscernible] issue with epinephrine auto-injector. The financial impact of this event depends on the duration and will be accounted for in the fourth quarter.

The initial estimate is a negative impact of approximately €100 million on business net income. On slide 22 let me finish my review of the financial results with some comments on the details of capital location. For the period of the first nine months 2015 the group generated over €5 billion in free cash flow, up 18%.

Capital expenditures were €1 billion during the same nine-month period. As of September 30, 2015, our net debt increased to €9.4 million, which is largely the result from this €3.7 million dividend paid to our shareholders during the second quarter.

During the first nine months we also returned €1.5 million to shareholders in the form of share repurchases, which we are partially funding by €552 million of proceeds on the issuance of new shares.

Net of disposals, another €1.4 billion expense on M&A business development activities during the first nine month period, including the Regeneron immune-oncology collaboration of €584 million and the acquisition of Caprelsa for around €150 million. The last slide of this presentation, slide 23, reaffirms our full year guidance.

Sanofi reaffirms its 2015 financial guidance with EPS to be stable to slightly growing at constant exchange rates. The positive currency impact on 2015 full year business EPS is estimated to be approximately 6% to 8% assuming that exchange rates remain stable in the next quarter at the average rate of September 2015.

At this point I would like to turn the call back to Sébastien to open the Q&A session..

Thank you very much, Jérôme. Operator, we're now ready to open the call to questions. As always I will remind participants to limit themselves to one or two questions at a time. You can always come back into the queue and we'll be happy to take your further questions if you have any. Operator, we're ready to open the Q&A session..

[Operator Instructions] The first question is from Graham Parry. Sir, please go ahead..

Great. Thanks for taking my questions. So firstly if I can ask a question about the mix of your guidance downgrade on the diabetes midterm outlook. It looks like it's entirely U.S. related but can I confirm that's correct and there's nothing changed in your outlook for the X-U.S.

markets? And can you help us understand whether that's more of a volume or a price expectation that's changing? And secondly on Toujeo you didn't mention in your revised expectations for Toujeo.

So can I just confirm that's also the case and you still expect to switch more than 15% to 20% of the Lantus franchise the consensus is currently assuming? And then thirdly on cost savings in regarding your comment about wanting to mitigate the impact of this, the guidance downgrade at the operating profit level, that sounds like cost savings again.

Can you clarify that, that's the case and that we should be expecting an updated cost savings number along with your midterm outlook next Friday? Thank you..

Okay. So thank you, Graham. I'll take the midterm outlook, right? The 2015 to 2018 and again your question was related to ex-U.S. So the balance between U.S. and ex-U.S. it's mainly, mainly U.S. of course, U.S.-based. Using the same trends that we have seen during the last quarter's there.

In addition, of course, on Lantus the fact that we will see and we have assumed three biosimilars right on the market. And in addition, our midterm includes half of the guidance related to Lyxumia penetration, Afrezza penetration, which is of course U.S. driven. Lyxumia, it's a balance of Europe and the U.S.

and again, half of the guidance you have the BGM as I mentioned during my remarks, business which in that case is mainly European. So it's a mix, but the biggest impact is by and large coming from the U.S. side. Your second question was related to Toujeo.

Do you want to take that question, Peter?.

Yeah, I can take the question. Hi, Graham. So you've seen in the slides actually that if you look at European uptake, it's delivering really to the promise and you've seen the German numbers and actually we see that constantly in all the countries we have launched in Europe.

In the U.S., if I look at the latest data in NBRx, as Olivier mentioned, we're at 14%. We're at total NRx now close to 4%. We're at total TRx 2.5% in the latest weekly data. If you add all that together, we still think that we will be ahead of the numbers that you mentioned, which is 15% to 20% as a share of Toujeo in the overall glargine business..

All right. Graham, your third question was related to mitigate. So we used the word in order to indicate through cost savings, as you mentioned. We were going to partially offset the impact of our new guidance. So the translation of mitigate in that case is partially offset..

So thank you very much, Graham.

Next question, please?.

The next question is from Vincent Meunier. Sir, please go ahead..

Thank you for taking my questions. The first one is another one on the diabetes outlook. Lantus and Lyxumia contributed to the lower midterm targets. How do you think Lixilan can offset this and could you quantify how much will be then protected? I have a second question on Praluent.

Can you please give us an update on the timing for the publication of the CV outcome study? And the last question is on the R&D spending. It was up by 10% in Q3 at constant exchange rate. You say that it's due to dupilumab, ODYSSEY and the new investment in IO. Should we expect this growth at the same level going forward? Thank you..

Thank you very much. So we can start with Elias, can you start with the CV outcome....

All right. So as you know the CV outcome study is an event-driven study. And so the timing will depend on the accumulation of adjudicated events. Right now what we have planned are interim studies that the DSMB is obviously going to look at a 50% event and then a futility analysis of 75% event.

So in terms of timing if you look at the recruitment rate that we have, it could be mid-2016 or end of 2016. Can't tell you exactly the timing but by next year we should have at least the interim studies. Now if nothing happens in those studies and the study continues, as you know by the planning that we have it will be about 2017 second half..

Very good. Thank you, Elias. Jérôme, do you want to talk about R&D expenses in....

Well I think that, Vincent, we mentioned already earlier this year that our R&D expense would tend to increase for the reasons which we finally saw this quarter. We are clearly seeing that the return we get from the R&D investment is increasing. We can just measure that by the value of the assets, which are coming from our pipeline.

Now for beyond 2015 which is more of a [virtue] [ph] to what we are going to say for medium term financial outlook next week. So let's wait for next week to get some more detailed guidance beyond 2015..

Okay. Thank you, Jérôme. Vincent on your question on LixiLan, of course, it's based on the results we have obtained. LixiLan will be an important asset in our diabetes portfolio and that asset has been accounted for and is part of our guidance. Thank you very much, Vincent.

Next question, please?.

The next question is from Luisa Hector. Madam, please go ahead..

Thank you very much for taking my questions. So going back to the glargine franchise, could you add any more color on whether this is more of a volume or a price impact particularly in the U.S. please? And on the three drugs where you've downgraded the expectation based on the latest penetration rates, Lyxumia, blood glucose and [indiscernible].

Are you still looking for growth from those products? And would you say that your numbers are perhaps more in line with where consensus was for those? And I noticed in other diabetes for the U.S. there was a larger number than usual in the third quarter. I just wondered if there was anything unusual there and whether Toujeo had any stocking effect.

Thank you..

Okay. So let me start with the first question on volume of price. You have seen that we have indicated that glargine altogether, Toujeo and Lantus, we were able to maintain our volume, right, TRx share of the basal market. So volume wise we've been stable. Of course Toujeo, it was about, a significant number of switches from Lantus to Toujeo.

That's what you would expect, right? And as of today, the volume on Toujeo is driven about 75% by switches. So the answer to your question is more net price, but it's not due to a change in our commercial terms during the quarter.

It is mainly driven by what I alluded to or mentioned in my remarks, which has to do with a much larger and non-anticipated volume in government channels and more specifically Medicaid, 340B, DOD, and VA, which are now representing about 30% of our total Lantus volume.

And prescription in that segment we are growing around 20%, especially on Medicaid and 340B. And as I'm sure you know, when you have increased your price regularly over time, in those segments you have a CPI penalty which of course drives much less profitable return on those prescriptions. So I think that is the answer to your question.

Now in the longer term, of course, when biosimilar I'm talking about now [indiscernible] will come up, we have to expect an impact on prices in order to compete effectively within the glargine market. So your second question has to do with....

Yeah, this was basically Lyxumia numbers versus consensus and Afrezza numbers versus consensus. Obviously we don't guide precisely on a per-product basis but we have indeed [re-based] [ph] in these expectations of both products. And I don't have the consensus figures....

It would be difficult for us, Luisa, to give you whether or not we are above or below consensus on those two assets. But again the message is we have revised our forecast with lower penetration of both compounds.

Next question, please?.

Thank you. The next question is from Tim Anderson, Sir, please go ahead..

Hi. Thank you. On your kind of multi-year planning assumptions, are you expecting that Lilly is the only biosimilar seller? Because my understanding is that U.S.-based Merck is likely to file their glargine in the next handful of months most likely. And related to that, when you sued Lilly it triggered the 30-month stay. Then you settled with Lilly.

I'm assuming that, that settlement is completely independent and wouldn't preclude you from suing other companies like Merck that could then cause a delay there? And then a question on mergers and acquisitions. So often in the drug space companies do M&A when they see their future growth prospects slowing.

Today you're saying your biggest franchise will slow more than you anticipated. So that begs the question of you might seek to fill in the gaps? And historically you've done lots of deals, some of those have been big.

Can we assume at this point that everything is on the table in terms of M&A and there's no upper limit to deal size? Or are you more likely to stick with smaller bolt-on types of transactions like Genzyme for example?.

All right, Tim. Biosimilars we have assumed in our midterm guidance, as I mentioned we have assumed three biosimilars on the market at the end of the period. However we also indicated that we don't think there would be residual and therefore we would compete on the marketplace. So that's the answer.

I don't want to answer into the legal aspect of what could be our strategy or not against some of those biosimilars, our company filing for biosimilars. Regarding M&A, now the sector has been very active, right, for M&A transaction in recent years.

And from our point of view some of the valuation observed were so high we were not entirely convinced of the value creation for shareholders.

Now, interesting evaluation now with the number of healthcare companies have started to come down since the summer and it remains to be seen of course, to whether or not the value of those assets are now more reasonable and the rewards for shareholders can be more realistic as to the price they can expect from the asset or company.

Now Sanofi itself, we've been less active as you know in the last few years. It doesn't mean, however, that our M&A team has not actively reviewed opportunities. But we have remained financially disciplined and we will continue to be.

Now in the meantime as a result we have a very strong balance sheet with lower net debt level and strong free cash flow generation and current cost of borrowing remains providing financial flexibility and this element could allow us to act very swiftly if we come across attractive opportunities. So that's what I would answer.

M&A is a very useful tool for the months and years to come, which we will be able to use. Again when we are creating shareholder value to strengthen the strategic areas, we are going to compete in. So that's what I would answer. And your question around bolt-ons likely would be certainly more in the space of bolt-on acquisitions and anything else.

So at this point we can move to next question, please..

Next question, please..

We have a question from Jeff [indiscernible]. Please go ahead..

Hi. Thanks very much for taking my questions. Still on the same themes. A year ago your predecessor made a big cut, almost to the date today.

Just wanted to get a bit more from you on your confidence that this is enough of a guidance change around the diabetes franchise and Tim's already mentioned that others like Merck coming in just really a bit more, you really think that that's probably a very conservative look at this market.

And just if you can build into that, what your thinking is on how Lilly is going to price in the U.S.

and whether this is going to be a battle for exclusive contracts or you think you both can coexist with individual payers? And then the second question is your response on diabetes and how you're going to try and mitigate some of that, as you put it, could it be that it's the broader mix of your business that potentially needs to change? Maybe potentially also be considering changing that mix through disposals and M&A potentially.

So I just wondered if that had come up in your thinking, in your strategic review? And generally if you could just give us a bit more perspective on your longer term thoughts about managing the business. Is it more important to defend earnings through cost-control or buybacks? Or is your preference really to invest for growth? Thank you..

Wow, a lot of questions here. So I mean to your question, Jeff, on what can Lilly, or what Lilly will do in the U.S., it's a different question to answer. Regarding the portfolio discussion, I would prefer to keep that discussion for next week, Friday.

I think it would be more appropriate to have that discussion there, including overall capital allocation, frankly. So on the diabetes and the guidance.

Peter, do you want to give the answer to Jeff?.

Well I think if, that's one you want for comment on the biosimilar, of course we cannot speculate what the pricing of Lilly would be. The only fact that we know, of course, is what Lilly is doing in Europe, and there we see indeed that they're coming in with, I would call it a reasonable price discount compared to the Lantus prices.

Let's say between 15% and 20%, depending on the country. By the way, we see so far relatively limited penetration of the biosimilar of Lilly in Europe, with the exception of one or two minor countries. And then on the diabetes guidance, of course, you will have noticed that the range of that guidance is a relatively large range.

And as Olivier mentioned before, he is confident that this is a robust guidance with a certain degree of prudence baked into it..

Yeah. You used, Jeff, you used very conservative; we have used conservative. So it's generally conservative. But maybe now it's to the degree of very conservative. Thank you. Next question please..

The next question is from Michael Leuchten. Sir, please go ahead. Q - Michael Leuchten Thank you. It's Mike Leuchten, from Barclays. So I'm afraid I need to go back to the diabetes franchise, please. Because I think I get what you're saying about channel mix, but what I don't understand is why that would all happen in the fourth quarter this year.

So the timing of the rebates, the timing of the channel mix into the government programs, why did that all come to a head in the third quarter and going into the fourth quarter? And then also, why does it then extend into 2015 to 2018? Because your longer term reduced guidance compounds that into the years thereafter. So that's question number one.

And then question number two is just in terms of the biosimilar, so the basal insulin market overall in your long-term guidance, what do you assume the volume growth of this market is going to be, please?.

Okay. For the first question Jérôme has the answer..

So Michael, I mean, you know – maybe year how it works. Actually, when you sell a dose of Lantus, you don't know in which channel this is being sold. So in fact, the way you do it is that you take some assumptions on your share on the various channels.

And when it comes to the government channels, it's a bit later that you actually know how much has been told through these channels, in particular because then you get particular from Medicaid invoices actually coming from the various states, I mean the 51 states of the U.S. And this can even be back deals which come back to 2014.

And actually that is what is happening now that we get back deals which are some of them deferring to 2014 or beginning of 2015 which are somewhat increasing the assumptions we took.

And then, of course, when you see that your share of sales taking place in the Medicaid channel is increasing, you have to take that into your own models that you revise a bit up to share the level of average rebates that you assume to pay on a quarterly basis to the various channels.

So if you put all that together, it may impact your variation over one quarter.

So more precisely, if you take the first quarter, the fact that we are – now we know that we're writing in the book a bit more of these rebates in the fourth quarter, including some back bills coming from 2014 and we know as well that back, and I think it was mentioned earlier today that back in 2014 we took a price increase so that we are sort of the heart, I mean comparison base for 2014.

So there is no acceleration as such, but a sort of recalculation of the share of Medicaid and part of it is a result of Affordable Care Act, which is driving more patients into the Medicaid or the Medicare segments. So altogether, this share has increased to the area of 16%, 17% and on top of that, a few other channels.

Now, your second part, which is about the midterm outlook, I mean then you start to rethink I mean which channel do I sell? What are the rebates happening in each of these channels? And of course, if you look at the end of the period, I mean we take into account the biosimilars, which were mentioned before and of course, although that case is [indiscernible] models.

I mean, there are others and here is why you come to a rep. So you should not conclude, there is this trend for clearly more things sold in government channels now in the rights is of course a combination of various assumptions..

Thank you very much, Jérôme. And, Michael, your second question regarding the assumption on the market growth, right, of basal, we have taken a rather conservative assumption of low single-digit growth from the basal market growth. And I understand that it may be more conservative than some of our competitors, but that's what we have put in..

Thank you. Next question please..

Next question is from Stephen McGarry. Sir, please go ahead..

Hi there. Thanks a lot. Two quick questions. I mean In terms of most of the glargine, the diabetes franchise of minus 4 to minus 8 compound, obviously within that you've got growth product such as Toujeo, LixiLan and what not coming through.

And between pressure on Lantus and switching from Lantus to Toujeo it certainly suggests that we're going to have a sustained double digit decline in Lantus reported sales.

Can you confirm if that's the case? And then secondly in terms of the biosimilars and how bad this could possibly get, does your assumption for biosimilars assume that fee products in the U.S. market? Or is it X-U.S. predominantly? Thanks..

Okay. So on the last one, the biosimilars, it's U.S and on the ex-U.S. So it's really global and certainly U.S. and Europe. That is our assumption.

Now on the midterm guidance, again the Toujeo glargine assumptions we have made is 2% to 4% decline with the increasing pricing pressure of those biosimilars on the market on Lantus while Toujeo will continue to grow. So that's what I think I can say about that piece of our guidance.

Peter do you want to add anything there?.

All right. Thanks. Jérôme alluded to the number of balls in the air and the whole model obviously and at the end of the day you get a couple of positive elements like Toujeo, like LixiLan, there are a couple of negative elements like for example, the mix into the Medicaid channels.

So for your information we saw this year, an 18% increase for our glargine business in the Medicaid channels. And if you look at the total government channels like Medicaid, DOD, FDA, et cetera, this is now accounting for 33% of the Lantus sales.

So you see that the increase, which is pretty high on the level, which is already 33% of the total grand sales in the U.S. you get a pretty significant negative leader on that and that is exactly what you see, of course, in Q3 and you will see more of that moving forwards. So as Jérôme said it is a model.

There are, of course, assumptions in that model and more than that, I am not breaking out..

All right. We're going to take a couple more out of these questions please. The one for last..

The next question is from Florent Cespedes. Sir, please go ahead..

Good afternoon gentleman. Florent Cespedes from Société Générale. So three quick questions. First to come back on the diabetes guidance, maybe could you give us a little more color on the shape of the decline notably in 2016, as you will not have biosimilar on the U.S.

market? So is it a fair assumption to assume that next year will maybe lessen the pressure and bend toward the end of the full year period as you assume no biosimilars, we should see an acceleration? Second question is on the emerging markets. You reported a pretty strong quarter here, even on some almost double digit.

Could you give us maybe more color on these technicalities and could you give us into the gross rate in China for pharma only? And maybe last question, on the vaccines for Olivier Charmeil.

Could you give us more color on your expectations for Q4 as it's quite a volatile business? And also on Dengue vaccines as I see that you expect to launch by the end of the year. Could it be possible to have more than one country by the end of this year? Or it is to be delayed toward early 2016? Thank you..

All right. Let's start with Olivier Charmeil.

Do you want to answer his question on vaccines, Olivier, please?.

Okay. So I'll guide you on Q4 we are expecting a strong quarter. Double digit growth which for the last quarter is going to be very much driven by the second part of the flu season that we have in the U.S. a flu season that is going to be more geared versus last year in the Q4. We are on track to get into another of the core seasons in the U.S.

with more than 65 million doses in the U.S. So we are very happy with the way the core of that. Our differentiation strategy is very successful, so it's both nice in terms of Praluent but also in terms of price behind those performance it has continued to progress very nicely.

With regard to Dengue, as we have indicated in the previous quarter we closed, we are expecting to get the first license by the end of this year. It could be one, two countries. Difficult to say whether we are going to have sales this quarter for dengue; it will depend on exactly when we get the first license.

What you should keep in mind should we get sales, it will be very, very minimal, but we are expecting to get license for dengue this quarter..

Okay. Thank you very much, Olivier. Peter, emerging markets..

Yes. So actually, we're extremely happy with our Q3 results in the emerging market. It is a very consistent performance. It is a continuation of already a strong second quarter and it is actually across the businesses across the regions, so it's a very consistent performance.

Your specific question on China and on pharma, so I can tell you that we have third quarter growth on pharma of 16%. And actually again, it is very, very consistent.

We have very good performances with our cardiovascular and also basically Plavix and Aprovel, diabetes portfolio, LOVENOX is growing well, [indiscernible] is growing well and even our oncology business unit is doing well with Eloxatin and Taxotere, also partly benefiting from label extensions on Eloxatin last year.

I think the reasons, of course, are multiple of that outperformance of the market, by the way, which is actually pretty strong. I think we have an ideal portfolio for China and with basically treating chronic diseases, we are less subject to market slide, for example, antibiotics that go down faster than markets like diabetes.

Second, you might remember that in the last quarter last year we again added the wave of what we call our county expansion strategy or geographical expansion strategy, which of course, bears fruit and so this is another reason why we are doing so well.

Now, in terms of outlook, it's a bit difficult really to understand exactly how this is going to play out today in China. Besides, of course, the economic outlook, you know that a couple of reforms have been taken in that market this year and actually it is not so easy to predict.

But of course, obviously price pressure in China that has already started in the past, which is actually not very new, is of course predicted to continue. But all in all, a very decent quarter in the third quarter and consistent across the geographies and the businesses..

our immuno-oncology alliances, alliance, with the sales mix, which can include other difficult year in diabetes. But that would be mitigated by growth from our other franchises and the growing sales contribution, of course, for new products. So we can discuss that aspect a little further next week.

And when it comes to specifically on diabetes in 2016, the only thing I can tell you is we do not expect significant additional pressure on rebates for both Lantus and Toujeo. However, of course, based on what you heard in the last half-hour, the pressure through government channels may still be there..

Thanks. Thank you very much, Florent. So last question..

Yes. Operator, we're ready for the last question please..

The last question is from Philippe Lanone. Sir, please go ahead..

Hello, gentlemen. Thank you for the question.

One on the PCSK9 market, because from the prescription we can get it seems that Repatha is taking off more rapidly than Praluent, so could you add some more color here? And even if you're not talking so much about 2016, maybe a question for Jerome on currency? Because the currency situation seems to be less favorable because of EM countries, and I guess in 2016 that we might have a slight negative currency impact based on what we have today? And also maybe quite a comment on tax rate for modeling purposes because there's been lower in the second-half of 2015 than in the first half.

So should we project that for next year?.

All right. Thank you very much, Philippe. If you want, then you start with the currency and then....

I mean the beauty, whatever I mean of currencies is that they are extremely volatile and so it's always extremely difficult to predict. So everything being equal, I think you're right of course. I mean we are going to compare and start with a much higher base in 2016, when you compared 2016 to 2015.

I mean the gain, I mean the overall positive headwind for the full year is between 6% or 8% which, of course is still quite important. In 2015, we should not expect to see that next year. Are we going to have a negative headwind? Well maybe I don't know yet. I mean you need to go country by country and of course the U.S.

dollar-euro exchange rate remains the first driver beyond any other one. So I would wait a bit to think how it's going to work. However you can just refer to the tables we now give you regularly, so it's something you can do on your own many, many calculations if you so want.

I think there is a lot of those variables so hopefully that's enough for you to make these calculations and of course the IR team is here also to help you in that respect. On the tax rate, wow, it's always a bit difficult to predict tax very precisely tax rate.

There are many elements which influence the tax rate, including I mean the share of profit which you generate in which country and this may depend upon the profitable growth, on the profit of your activity to a certain extent when you increase your sales in the Lantus and Lixi, taxable income which goes to a Germany and Germany has a higher average tax income than the average of the group, so surprisingly several other tax rate.

So altogether you remember that we guided at the trend was towards an increase. I mean back in 2014, we were at 24%. We guided for 25%. I mean we managed to get 1% improvement which we have posted this quarter for the full year. But I will say that the trend up remains a tendency, even if we try to improve that.

So do consider that the tax rate increase, which we have guided for medium term, remains true. And if we can clearly do a bit better, we'll do..

Thank you very much, Jérôme. So regarding your question on Praluent, I will caution that it's very early days, frankly, in the launch. And it's – we would recommend not to over-interpret PCSK9 market data.

The PCSK9 prescription data at this point is extremely small compared to of course the expected size of the market and again at this point we do not view the differences in product performance as really representing the underlying demand.

And when you look at the data itself and the NPA prescription data, they are underreporting some specialty pharmacy indication for Praluent regarding Accredo. And Accredo, however, provides the data for [indiscernible] so and we are not part of it.

In addition, our prescriptions are very much into the patient assistance program and also what we call the breech program where patients are waiting for coverage by their insurance company and of course, those prescriptions and those patients are not captured by IMS.

So overall at this point, it's really the – the task is to get coverage for those patients and the future patients and we're very optimistic based on what happened with Express Script and we are waiting now for two other very important PBMs to give us their answers and their decision.

But very importantly, we continue to be confident in Praluent, its clinical program in the education. The number of prescribers we have now in the My Praluent hub, which is over 4000 prescribers now. Seventy-five percent of them are specialists, about 25% are GPs and insofar they are prescribing very much at 90% cases the 75 milligram dose.

So we think we have the flexibility there of the joule dosage. So that's what I would answer. Thank you very much..

Thank you, Olivier. So at this stage we'd like to thank all participants in today's call and I obviously will be very pleased to share with you the world map for the group in our coming meet – management meeting on November 6, which will take place here in Paris in our corporate HQ. With that, goodbye..

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect..