Sanofi Announces Strong Q3 2016 Results

On October 28, 2016 Sanofi reported Strong Q3 2016 Results (Press release, Sanofi, OCT 27, 2016, View Source [SID1234516097]).

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2016 guidance raised on strong third-quarter financial results

Aggregate Company sales(1) increased 3.0%(3) (up 2.1% at 2016 exchange rates) to €9,652 million.

IFRS EPS reported was up 4.0% to €1.30.

Business EPS(2) was up 12.4% at CER to €1.79 and up 11.2% on a reported basis.
Given the performance in the first nine months, Sanofi now expects 2016 Business EPS(2) to grow between 3%
and 5%(4) at CER, barring unforeseen major adverse events.

Continuing to execute the simplification of the portfolio consistent with our 2020 Roadmap
Decision to initiate a carve-out process in order to divest the EU Generics business within 12-24 months.

CHC asset swap with Boehringer Ingelheim on track to close around year-end.

Cost savings now expected to be at least €1.5 billion by 2018.

Initiating a €3.5 billion share repurchase program to be completed by the end of 2017
Solid sales performance despite continuing headwinds in diabetes and the Plavix LOE in Japan
Sanofi Genzyme (Specialty Care) GBU continues to deliver double-digit growth (+16.9%).

Sanofi Pasteur grew 14.4% supported by early flu vaccines shipment in the U.S.
Diabetes and Cardiovascular GBU sales decreased 2.5%. Global diabetes franchise sales declined 1.5%.
Aggregate sales in Emerging Markets(5) grew 5.6% driven by Diabetes and Rare Disease portfolios.

Major launches and regulatory updates
Toujeo generated worldwide sales of €167 million. LixiLan PDUFA date extended to November 2016.

Praluent now approved in 41 countries.

Dengvaxia generated sales of €30 million and is now approved in 13 countries.

Sarilumab: CGMP(6) observations during an FDA inspection of a Sanofi "fill-finish" facility could impact approval timing.

Dupixent (dupilumab) BLA accepted for priority review by U.S. FDA with March 29, 2017 PDUFA date.

Sanofi Chief Executive Officer, Olivier Brandicourt, commented:
"We have generated solid sales momentum in the third quarter and seen a strong contribution to our financial performance from savings and efficiencies arising from our more focused organization. As a result, we are able to increase our FY 2016 Business EPS guidance. In addition, we have continued to work diligently to progress our major launches and the pipeline. With the filing of Dupixent, we now have another important product under FDA review which we believe will enhance Sanofi’s growth profile in
the coming years."

(1) Including Merial (see Appendix 8 for definition of Aggregate Company sales) which is reported on a single line in the consolidated income statements in accordance with IFRS 5 (Non-current assets held for sale and discontinued operations).

Additionally, Sanofi comments include Merial for every income statement line using the term "Aggregate"; (2) In order to facilitate an understanding of operational performance, Sanofi comments on the business net income statement. Business net income is a non-GAAP financial measure (see Appendix 8 for definitions). The consolidated income statement for Q3 2016 and 9M 2016 is provided in Appendix 4 and a reconciliation of business net income to IFRS net income reported is set forth in Appendix 3; (3) Percentage changes in net sales and Aggregate sales are expressed at constant exchange rates (CER) unless otherwise indicated (see Appendix 8); (4) 2015 Business EPS was €5.64; (5) See page 8; (6) Current Good Manufacturing Practice
Investor Relations: (+) 33 1 53 77 45 45 – E-mail: [email protected] – Media Relations: (+) 33 1 53 77 46 46 – E-mail: [email protected]
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2016 third-quarter and nine-month Aggregate Sanofi sales
Unless otherwise indicated, all percentage changes in sales in this press release are stated at CER(7).

In the third quarter of 2016, Aggregate Company sales were €9,652 million, up 2.1% at 2016 exchange rates. Exchange rate movements had a negative effect of 0.9 percentage points, primarily reflecting the adverse evolution of the Argentine Peso, Chinese Yuan, and British Pound, which more than offset the positive effects from the Japanese Yen and Brazilian Real. At CER, Aggregate Company sales increased 3.0%. Year-to-date Aggregate Company sales reached €27,063 million, down 1.3% at 2016 exchange rates. Exchange rate movements had an unfavorable effect of 2.5 percentage points.

The first nine months performance included a negative currency impact related to the change of exchange rate applied for the translation of Venezuela operations, resulting from the evolution of the exchange system in February 2016 as well as from the persistent inability to exchange Venezuelan bolivars for U.S. dollars at the privileged official rate. In addition, in the first half of 2015, Sanofi benefited from a significant increase in product demand in Venezuela, due to buying patterns associated with local market conditions. As a consequence, sales in Venezuela were €9 million in the first nine months of 2016 compared to €423 million in the first nine months of 2015 (no sales were recorded in the third quarter of 2016 compared to €24 million in the third quarter of 2015). Excluding Venezuela, Aggregate Company sales increased 3.3% and 2.8% in the third quarter and first nine months of 2016, respectively.

Global Business Units
The table below presents sales by Global Business Units (GBU) and reflects the organization of Sanofi which became effective as of January 1, 2016. In this organizational structure, all Pharmaceutical sales in Emerging Markets are now included in the General Medicines and Emerging Markets GBU. This new reporting structure simplifies Sanofi, deepens specialization and allows clear focus on growth drivers.

Net Sales by GBU
(€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)

Sanofi Genzyme (Specialty Care)(a)
1,270
+16.9%
3,684
+19.1%

Diabetes and Cardiovascular(a)
1,585
-2.5%
4,687
-3.9%

General Medicines & Emerging Markets(b)
4,370
-2.4%(c)
13,358
-4.1%(e)

Sanofi Pasteur (Vaccines)
1,803
+14.4%
3,225
+11.0%(f)

Merial (Animal Health)
624
+4.0%
2,109
+10.3%

Total Aggregate Company sales
9,652
+3.0%(d)
27,063
+1.2%(g)

(a) Does not include Emerging Markets sales- see definition page 8; (b) Includes Emerging Markets sales for Diabetes & Cardiovascular and Specialty Care; (c) Excluding Venezuela: -1.9%; (d) Excluding Venezuela: +3.3%; (e) Excluding Venezuela:-1.4%; (f) Excluding Venezuela: +11.3%; (g) Excluding Venezuela:+2.8%;

Global Franchises
The table below presents sales by global franchise, which facilitates straightforward peer comparisons. Appendix 1 provides a reconciliation of sales by GBU and franchise.

Net sales by Franchise
(€ million)
Q3 2016
Change
(CER)

Developed
Markets
Change
(CER)

Emerging
Markets
Change
(CER)

Specialty Care
1,517
+18.5%
1,270
+16.9%
247
+26.5%(a)

Diabetes and Cardiovascular
1,929
+0.3%(b)
1,585
-2.5%
344
+14.2%(c)

Established Products
2,535
-7.4%(d)
1,587
-12.5%
948
+1.7%(e)

Consumer Healthcare (CHC)
791
-1.2%(f)
479
+1.3%
312
-4.7%(g)

Generics
453
+1.3%(h)
257
+2.8%
196
-0.5%(i)
Vaccines
1,803
+14.4%
1,458
+16.4%
345
+6.6%
Animal Health
624
+4.0%
468
+1.1%
156
+13.3%
Total Aggregate net sales
9,652
+3.0%(j)
7,104
+2.1%
2,548
+5.6%(k)
(a) Excluding Venezuela: +25.9%; (b) Excluding Venezuela: +0.4%; (c) Excluding Venezuela: +15.2%; (d) Excluding Venezuela: -6.9%; (e) Excluding Venezuela: +3.4%; .(f) Excluding Venezuela: -1.0%; (g) Excluding Venezuela: -4.1%; (h) Excluding Venezuela: +2.2%; (i) Excluding Venezuela:+1.5%; (j) Excluding Venezuela: +3.3%; (k) Excluding Venezuela: +6.6%.
(7) See Appendix 8 for definitions of financial indicators.
The table below presents sales by global franchise for the first nine months of 2016.
Net sales by Franchise
(€ million)
9M 2016
Change
(CER)
Developed
Markets
Change
(CER)
Emerging
Markets
Change
(CER)
Specialty Care
4,381
+18.8%(a)
3,684
+19.1%
697
+17.5%(b)
Diabetes and Cardiovascular
5,723
-1.8%
4,687
-3.9%
1,036
+8.2%(c)
Established Products
7,743
-8.5%(d)
4,930
-11.6%
2,813
-2.9%(e)
Consumer Healthcare (CHC)
2,496
-2.9%(f)
1,584
+1.7%
912
-9.3%(g)
Generics
1,386
+0.8%(h)
810
+0.9%
576
+0.8%(i)
Vaccines
3,225
+11.0%(j)
2,268
+9.2%
957
+15.3%(k)
Animal Health
2,109
+10.3%
1,645
+7.4%
464
+21.1%
Total Aggregate net sales
27,063
+1.2%(l)
19,608
+0.5%
7,455
+3.0%(m)
(a) Excluding Venezuela : +19.3%; (b) Excluding Venezuela : +20.1%; (c) Excluding Venezuela : +12.9%; (d) Excluding Venezuela : -6.1%; (e) Excluding Venezuela : +4.4%; (f) Excluding Venezuela: +0.7%; (g) Excluding Venezuela: -0.7%; (h) Excluding Venezuela: +3.0%; (i) Excluding Venezuela: +5.7%; (j) Excluding Venezuela: +11.3%;(k) Excluding Venezuela: +16.5%; (l) Excluding Venezuela: +2.8%; (m) Excluding Venezuela: +8.7%.
Pharmaceuticals
Third-quarter sales for Pharmaceuticals increased 0.5% to €7,225 million. Growth in the Multiple Sclerosis, Rare Disease and Cardiovascular franchises offset a decrease in Diabetes, CHC and Established Rx Products. Year-to-date sales for Pharmaceuticals decreased 0.9% to €21,729 million. Excluding Venezuela, year-to-date sales for Pharmaceuticals increased 0.9%.
Rare Disease franchise
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Cerezyme
183
+1.6%
564
+4.5%
Myozyme / Lumizyme
185
+16.0%
533
+12.8%
Fabrazyme
176
+20.4%
492
+15.0%
Aldurazyme
53
+12.5%
151
+7.5%
Cerdelga
28
+55.6%
77
+75.0%
Total Rare Diseases
708
+14.3%
2,061
+12.4%
In the third quarter, Gaucher (Cerezyme and Cerdelga) sales grew 6.3% to €211 million, reflecting Cerezyme growth in Emerging Markets (up 26.9% to €56 million) and the increasing contribution of Cerdelga (€28 million versus €18 million in the third quarter of 2015). Year-to-date Gaucher sales increased 9.5% to €641 million.
Third-quarter sales of Fabrazyme increased 20.4% to €176 million. The strong global momentum of Fabrazyme is a result of continued accrual of new patients as a result of patients switching from competing products and earlier stage patient identification and treatment. Year-to-date sales of Fabrazyme were up 15.0% to €492 million.
Sales of Myozyme/Lumizyme increased 16.0% to €185 million in the third quarter, mainly due to new patient accruals as a consequence of increased patient identification. Year-to-date sales of Myozyme/Lumizyme increased 12.8% to €533 million.
Multiple Sclerosis franchise
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Aubagio
334
+49.8%
928
+56.8%
Lemtrada
112
+69.1%
308
+95.1%
Total Multiple Sclerosis
446
+54.3%
1,236
+64.9%
Third-quarter sales of Aubagio were up 49.8% to €334 million driven by the U.S. (up 50.9% to €239 million) and Europe (up 41.5% to €75 million). Aubagio is currently the fastest growing oral disease modifying therapy in the Multiple Sclerosis market with patient market share of 9.0% in the U.S. (IMS NSP TRX – second week of October). Year-to-date sales of Aubagio increased 56.8% to €928 million.
In the third quarter, sales of Lemtrada increased 69.1% to €112 million, including €64 million in the U.S. (up 66.7%) and €37 million in Europe (up 81.8%), mainly generated in the UK. Year-to-date sales of Lemtrada were up 95.1% to €308 million.
Oncology franchise
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Jevtana
88
+12.8%
266
+12.7%
Thymoglobulin
70
+12.7%
204
+11.2%
Taxotere
45
-22.4%
137
-18.5%
Eloxatin
43
-24.1%
129
-19.5%
Mozobil
39
+8.3%
111
+7.6%
Zaltrap
16
-10.5%
50
-13.6%
Total Oncology
363
-2.4%
1,084
-1.6%
In the Third quarter, Oncology sales decreased 2.4% to €363 million, reflecting lower sales of Taxotere and Eloxatin. Year-to-date sales of Oncology were €1,084 million, down 1.6%.
Sales of Jevtana increased 12.8% to €88 million in the third quarter led by the U.S. (up 21.9% to €38 million) and Japan. Year-to-date sales of Jevtana were up 12.7% to €266 million.
Third-quarter Thymoglobulin sales increased 12.7% to €70 million supported by sales in China. Year-to-date sales of Thymoglobulin were up 11.2% to €204 million.
Third-quarter sales of Eloxatin were down 24.1% to €43 million reflecting generic competition in Canada. Over the same period, sales of Taxotere (docetaxel) decreased 22.4% (to €45 million) due to generic competition in Japan. Year-to-date sales of Taxotere and Eloxatin were down 18.5% (€137 million) and down 19.5% (€129 million), respectively.
Diabetes franchise
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Lantus
1,391
-9.8%
4,251
-10.7%
Toujeo
167
265.2%
411
ns
Total glargine
1,558
-1.9%
4,662
-3.5%
Amaryl
92
+1.1%
273
-4.7%
Apidra
94
+6.8%
272
+2.2%
Insuman
32
-8.3%
98
0.0%
BGM (Blood Glucose Monitoring)
16
+6.7%
50
+6.4%
Lyxumia
9
-11.1%
26
-3.7%
Total Diabetes
1,805
-1.5%
5,396
-3.0%(a)
(a) Excluding Venezuela: -2.3%;
In the third quarter, Diabetes franchise sales were down 1.5% to €1,805 million, reflecting lower sales of Lantus in the U.S. Third-quarter U.S. Diabetes sales were down 5.4% to €1,013 million. Outside the U.S., sales were €792 million, an increase of 3.9% driven by Emerging Markets (up 13.6% to €341 million). Sales in Europe were €325 million, a decrease of 0.6%. In Europe, sales of Toujeo offset lower sales of Lantus. Year-to-date sales for the Diabetes franchise were €5,396 million, down 3.0%.
Third-quarter sales of Sanofi’s glargine (Lantus and Toujeo) were €1,558 million, down 1.9%. In the U.S., Sanofi’s glargine sales of €980 million were down 5.1%. In Europe, sales of Sanofi’s glargine increased 0.4% to €248 million despite the launch of a biosimilar glargine in several European markets. Year-to-date sales of Sanofi’s glargine were €4,662 million, down 3.5%.
Over the quarter, sales of Lantus were €1,391 million down 9.8%. In the U.S., as anticipated, sales of Lantus decreased 13.5% to €858 million mainly reflecting lower average net price and patients switching to Toujeo. In Europe, third-quarter Lantus sales were €215 million (down 11.0%) while in Emerging Markets, sales were €232 million (up 13.4%) driven by China and Russia. Year-to-date sales of Lantus were €4,251 million, down 10.7%.
Third-quarter sales of Toujeo were €167 million of which €122 million were recorded in the U.S. and €33 million were from Europe. The global roll-out of this product continues and Sanofi expects Toujeo to be available in over 40 countries by the end of 2016. In Japan, the two-week prescription limit was lifted in September 2016, resulting in a significant increase in market share (9.2% the second week of October- IMS Market Share of the Basal insulin market in International Units). Year-to-date sales of Toujeo were €411 million.
Sales of Amaryl were €92 million, up 1.1% in the third quarter, of which €74 million were generated in Emerging Markets (up 6.8%). Year-to-date sales of Amaryl were €273 million, down 4.7%.
Third-quarter sales of Apidra were up 6.8% to €94 million, reflecting lower sales in the U.S. (down 8.8% to €31 million), which were more than offset by the performance in Emerging Markets (up 33.3% to €19 million) and Europe (up 10.0% to €32 million). Year-to-date sales of Apidra increased 2.2% to €272 million.
Sanofi has recently been informed by U.S. payers of the 2017 formulary status for its products. Despite the anticipated introduction of biosimilar glargine, Lantus and Toujeo remain competitively positioned on the vast majority of formularies in the U.S. Given the recent performance of our diabetes franchise in the EU and Emerging Markets, as well as the aforementioned coverage in the U.S., Sanofi continues to expect global diabetes sales over the period from 2015 to 2018 to decline at an average annualized rate of between 4% and 8% at CER.
Cardiovascular franchise
Praluent (alirocumab, collaboration with Regeneron) was launched in the U.S. and in a number of European markets in 2015 and 2016. Third-quarter sales of Praluent were €35 million of which €28 million were in the U.S. and €6 million in Europe. Praluent was launched in Japan in July. Year-to-date sales of Praluent were €68 million reflecting significant payer utilization management restrictions in the U.S. and limited market access in Europe.
Third-quarter sales and first nine-month sales of Multaq were €89 million (up 3.5%) and €259 million (up 1.6%), respectively. In August 2016, the District Court of Delaware ruled in favor of Sanofi in the Multaq patent litigation holding that the defendants infringe both of the patents at suit; the ‘800 Formulation patent and the 167 Method of Use patent, expiring in 2018 and 2029, respectively. Both defendants appealed that ruling in September.
Established Rx Products
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Plavix
401
-9.9%
1,181
-18.5%(b)
Lovenox
404
-4.0%
1,222
-2.5%(c)
Renvela/Renagel
245
+2.9%
687
-0.6%
Aprovel/Avapro
174
+7.2%
518
-8.4%(d)
Synvisc /Synvisc-One
100
+4.2%
297
+1.3%
Myslee/Ambien/Stilnox
77
+1.4%
225
+0.5%
Allegra
31
-18.2%
145
-10.0%
Other
1,103
-12.7%
3,468
-9.3%(e)
Total Established Rx Products
2,535
-7.4%(a)
7,743
-8.5%(f)
(a) Excluding Venezuela: -6.9%; (b) Excluding Venezuela: -16.3%; (c) Excluding Venezuela: -1.7%; (d) Excluding Venezuela: -0.4%; (e) Excluding Venezuela: -6.5%; (f) Excluding Venezuela: -6.1%;
Third-quarter sales of Established Rx Products decreased 7.4% to €2,535 million, reflecting generic competition to Plavix in Japan, the impact of the termination of Auvi-Q commercialization in the U.S. and lower sales in Venezuela. Excluding Venezuela and Auvi-Q, sales of Established Rx Products were down 4.8%. In Emerging Markets, sales of Established Rx Products were €948 million, up 1.7% (up 3.4% excluding Venezuela). In the U.S., sales of Established Rx Products were down 13.2% (to €375 million). Excluding Auvi-Q, sales of Established Rx Products were down 0.5% in the U.S. In Europe, sales of Established Rx Products decreased 7.6% to €856 million. Year-to-date sales of Established Rx Products decreased 8.5% to €7,743 million and 6.1% excluding Venezuela.
In the third quarter, sales of Lovenox decreased 4.0% to €404 million reflecting generic competition in the U.S. (down 25.0% to € 12 million) and lower sales in Europe (down 2.3% to €248 million) and in Emerging Markets (down 3.1% to €120 million). In September, two enoxaparin biosimilars were approved in the European Union. Year-to-date sales of Lovenox were €1,222 million down 2.5%.
Third-quarter sales of Plavix decreased 9.9% to €401 million due to generic competition in Japan that started in June 2015 (sales in Japan were down 48.3% to €88 million), which was partially offset by the growth in China (up 18.1% to €190 million). Year-to-date sales of Plavix decreased 18.5% to €1,181 million (16.3% excluding Venezuela).
Sales of Renvela/Renagel were up 2.9% to €245 million in the third quarter driven by the U.S. (€206 million, up 8.4%). In Europe, sales of Renvela/Renagel were down 27.6% to €20 million due to generics competition. Sanofi now expects generic competition in the U.S. in the first half of 2017. Year-to-date sales of Renvela/Renagel decreased 0.6% to €687 million.
Sales of Aprovel/Avapro increased 7.2% to €174 million in the third quarter. Year-to-date sales of Aprovel/Avapro decreased 8.4% to €518 million (stable excluding Venezuela).
In the third quarter and the first nine months of 2015, sales of Auvi-Q and Allerject were €61 million and €113 million, respectively. Sanofi no longer commercializes this product and no sales were recorded in 2016.
Consumer Healthcare
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Allegra
94
+3.3%
331
-2.9%
Doliprane
69
+7.7%
223
+2.3%
Enterogermina
38
+18.2%
123
+2.4%
Essentiale
29
-30.4%
100
-22.0%
Nasacort
23
-14.8%
91
-8.9%
Lactacyd
20
-23.1%
61
-29.8%
Maalox
18
-9.5%
63
-10.7%
No Spa
22
4.5%
62
+3.0%
Magne B6
19
-9.5%
55
-6.5%
Dorflex
21
-4.8%
55
-3.1%
Other CHC Products
438
+0.9%
1,332
+0.3%
Total Consumer Healthcare
791
-1.2%(a)
2,496
-2.9%(b)
(a) Excluding Venezuela: -1.0%; (b) Excluding Venezuela: +0.7%;
In the third-quarter, Consumer Healthcare (CHC) sales were €791 million, down 1.2%. Excluding Venezuela and the divestiture of smaller products, CHC sales decreased 0.1% impacted by Russia. Third-quarter sales of CHC in the U.S. increased 3.3% to €216 million. This was driven by a solid performance across the portfolio partially offset by Allegra (up 1.9% to €54 million) and Nasacort (down 20.8% to €19 million), which were both impacted by a mild U.S. allergy season. In addition, Nasacort is facing an increasingly competitive environment.
In Emerging Markets, sales were down 4.7% to €312 million (down 4.1% excluding Venezuela) reflecting lower sales in Russia. In Russia, sales were significantly impacted by the challenging local economic situation. In the quarter, sales in Europe decreased 1.5% to €195 million reflecting the divestitures of small products and the solid performance of Doliprane (up 9.4% to €58 million). Year-to-date sales of CHC reached €2,496 million, down 2.9% (up 2.3% excluding Venezuela and the divestiture of several small products).
Sanofi continues to expect the exchange of Sanofi’s animal health business with Boehringer Ingelheim’s consumer healthcare business (initiated in December 2015 and signed in June 2016) to close around year-end 2016, subject to approval by regulatory authorities in different territories.
Generics
Third-quarter sales of Generics increased 1.3% to €453 million (up 2.2% excluding Venezuela) driven by the U.S. (up 8.3% to €38 million) and Europe (up 2.0% to €197 million), which more than offset the slight decrease in Emerging Markets (down 0.5% to €196 million). Year-to-date sales of Generics were up 0.8% to €1,386 million (up 3.0% excluding Venezuela).
As announced in our 2020 strategic roadmap, Sanofi has carefully reviewed all options and has decided to initiate a carve-out process in order to divest its Generics business in Europe. Sanofi will be looking for a potential acquirer that will leverage the mid and long-term sustainable growth opportunities for this business. Sanofi confirms its commitment to its Generics business in other parts of the world and will further focus on the Emerging Markets in order to develop its business in those countries.
Vaccines
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Polio/Pertussis/Hib vaccines
(incl. Pentacel, Pentaxim and Imovax)
324
-0.3%
951
+10.7%
Meningitis/Pneumonia vaccines
(incl. Menactra)
254
-1.5%
515
+4.2%
Adult Booster vaccines (incl. Adacel )
104
-21.1%
288
-15.6%
Influenza vaccines
(incl. Vaxigrip and Fluzone)
989
+34.6%
1,105
+28.0%
Travel and other endemic vaccines
77
-18.8%
261
-2.5%
Dengvaxia
30

50
Other vaccines
25
-24.1%
55
-30.8%
Total Vaccines (consolidated sales)
1,803
+14.4%
3,225
+11.0%*(a)
*Comparability based on the new presentation of VaxServe sales (see below)
(a) Excluding Venezuela: +11.3%;
VaxServe sales
VaxServe is a U.S. entity of the Vaccines segment. VaxServe activities include products distribution in the U.S. in channels that are not the primary focus of Sanofi Pasteur. VaxServe complements its Sanofi Pasteur products offering by distributing vaccines and other products from third party manufacturers. All VaxServe sales were reported on the line Net sales in the past.
In order to provide more relevant published information, VaxServe sales of non-Sanofi products are reported in the line Other revenues in the income statement from January 1, 2016. Accordingly, prior period comparative net sales have been reclassified to the line Other revenues.
The 2015 quarterly and full-year 2015 business P&L as well as sales of GBUs and franchises by geographic region reflecting this reclassification are available on the Investors section of Sanofi’s website.
In the third quarter of 2015 and in full-year 2015, sales of VaxServe(8) of non-Sanofi products were €136 million and €482 million, respectively.
Vaccines
In the third quarter, consolidated Vaccines sales increased 14.4% to €1,803 million driven by the U.S (up 19.1% to €1,261 million) supported by the flu vaccines franchise. In Emerging Markets sales of vaccines increased 6.6% driven by the solid performance of our AcXim family (excluding China) and the launch of Dengvaxia partially offset by a local market disruption in China. Year-to-date sales of Sanofi Pasteur were up 11.0% to €3,225 million.
Third quarter sales of Polio/Pertussis/Hib Vaccines were down slightly (0.3%) to €324 million. In Emerging Markets, sales of the franchise decreased 2.2% to €170 million impacted by the local market disruption in China resulting in lower sales of Pentaxim and Polio vaccines and offsetting the growth of Pentaxim and Hexaxim in other regions. In the U.S., sales of Polio/Pertussis/Hib Vaccines decreased 8.0% to €91 million reflecting lower sales of Pentacel (down 18.9% to €61 million). As previously communicated, Sanofi Pasteur is experiencing Pentacel manufacturing delays and supply is expected to improve by late fourth quarter 2016. Year-to-date sales of Polio/Pertussis/Hib vaccines were up 10.7% to €951 million.
Dengvaxia, the world’s first dengue vaccine is now approved in 13 countries (Bolivia, Brazil, Cambodia, Costa Rica, El Salvador, Guatemala, Indonesia, Mexico, Paraguay, Peru, the Philippines, Thailand, and Singapore). In the third quarter of 2016, sales of Dengvaxia were €30 million reflecting the second shipment for the public dengue immunization program in the Philippines, the first dose of the public vaccination program in Paraná State in Brazil, as well as sales on the private market. Year-to-date sales of Dengvaxia were €50 million.
Sales of Influenza vaccines increased 34.6% to €989 million in the third quarter, driven by the U.S. (up 45.0% to €834 million) reflecting favorable phasing as well as Sanofi Pasteur’s strategy to offer differentiated influenza vaccines. Year-to-date sales of Influenza vaccines were up 28.0% to €1,105 million.
Third-quarter Menactra sales were up 1.7% to €242 million, of which €219 million was generated in the U.S (down 1.3%). Year-to-date sales of Menactra increased 5.7% to €479 million.
Adult Booster vaccines sales decreased 21.1% to €104 million in the third quarter, impacted by increased competitive pressure in the U.S. towards Adacel and a contraction of the U.S. Tdap (Tetanus, Diphtheria, acellular Pertussis) market. Year-to-date sales of Adult Booster vaccines decreased 15.6% to €288 million.
(8) Sales of VaxServe in Q3 2016 and in the first nine month of 2016 are provided in the Financial Results
Third-quarter sales of Travel and other endemic vaccines were €77 million, down 18.8% due to a supply constraint for rabies and hepatitis A vaccines. Year-to-date sales of Travel and other endemic vaccines decreased 2.5% to €261 million.
Sales of Sanofi Pasteur MSD (not consolidated), the joint venture with Merck & Co. in Europe, increased 5.2% (on a reported basis) to €299 million driven by Hexyon (pediatric hexavalent vaccine) and Gardasil. Year-to-date sales of Sanofi Pasteur MSD were up 9.4% (on a reported basis) to €639 million. In March, Sanofi Pasteur and Merck announced their intent to end their joint vaccines operations in Europe, Sanofi Pasteur MSD, to pursue their own distinct growth strategies in Europe. Sanofi Pasteur and Merck expect the separation to be completed by the end of 2016, subject to local labor laws and regulations as well as regulatory approvals.
Animal Health(9)
Net sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
Companion Animal
400
+0.7%
1,422
+10.1%
Production Animal
224
+10.2%
687
+10.8%
Total Animal Health
624
+4.0%
2,109
+10.3%
of which vaccines
202
+3.0%
619
+8.5%
of which fipronil products
112
-17.4%
462
-10.1%
of which avermectin products
111
-4.3%
423
+6.2%
In the third quarter, Animal Health sales increased 4.0% to €624 million driven by strong performance of Ruminant business in the U.S. and NexGard. Year-to-date sales of Animal Health were up 10.3% to €2,109 million.
Third-quarter sales of the Companion Animals segment were up 0.7% to €400 million reflecting the strong performance of NexGard (Merial’s next generation flea and tick products for dogs in the U.S.) and NexGard Spectra as well as lower sales of the Frontline family of products and HeartGard mostly linked to phasing of promotional activities. Year-to-date sales of the Companion Animals segment were up 10.1% to €1,422 million.
Sales of the Production Animals segment were up 10.2% to €224 million in the third quarter due to strong performance of Ruminant business in the U.S. Year-to-date sales of the Production Animals segment were up 10.8% to €687 million.
Aggregate Company sales by geographic region
Aggregate Sanofi sales (€ million)
Q3 2016
Change
(CER)
9M 2016
Change
(CER)
United States
4,001
+7.0%
10,085
+3.5%
Emerging Markets(a)
2,548
+5.6%
7,455
+3.0%
of which Latin America
714
+8.5%
1,983
-8.5%
of which Asia
853
+4.0%
2,490
+8.0%
of which Africa, Middle East and South Asia(b)
699
+8.1%
2,103
+10.0%
of which Eurasia(c)
251
-1.1%
780
+4.4%
Europe(d)
2,264
-0.5%
6,996
+1.5%
Rest of the World(e)
839
-12.2%
2,527
-12.6%
of which Japan
421
-21.4%
1,314
-23.9%
Total Aggregate Sanofi sales
9,652
+3.0%
27,063
+1.2%
World excluding U.S., Canada, Western & Eastern Europe (except Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico
India, Pakistan, Bangladesh, Sri Lanka
Russia, Ukraine, Georgia, Belarus, Armenia and Turkey
Western Europe + Eastern Europe except Eurasia
Japan, South Korea, Canada, Australia, New Zealand, Puerto Rico
Third-quarter Aggregate sales in the U.S. grew 7.0% to €4,001 million driven mainly by double digit growth of the multiple sclerosis franchise (up 54.0%), rare disease franchise (up 10.7%) and Vaccines (up 19.1%). The U.S. sales performance also included lower sales of the diabetes franchise (down 5.4%), and the withdrawal of Auvi-Q from the market in the fourth quarter of 2015. Year-to-date sales in the U.S. increased 3.5% to €10,085 million.
(9) Merial is reported on a single line in the consolidated income statements in accordance with IFRS 5 (Non-current assets held for sale and discontinued operations). As of September 30,2016, Sanofi continues to report the performance of Merial, which remained an operating segment consistent with IFRS 8.
Aggregate sales in Emerging Markets increased 5.6% to €2,548 million in the third quarter (up 6.6% excluding Venezuela) driven by Rare Disease (up 41.5%), Diabetes (up 13.6%) and Animal Health (up 13.3%). In the Asia region, Aggregate sales grew 4.0% to €853 million in the third quarter reflecting lower sales in China (down 1.5% to €551 million), where the local vaccines market disruption offset the strong performance of Pharmaceuticals (up 13.6%). In Latin America, third-quarter Aggregate sales increased 8.5% to €714 million (up 12.3% excluding Venezuela) driven by sales in Argentina, Mexico and Brazil. Aggregate sales in Brazil increased 4.4% to €302 million driven by the strong performance of rare diseases and the contribution of Dengvaxia. Aggregate sales in the Eurasia region were down 1.1% to €251 million reflecting lower sales in Russia (down 18.2% to €110 million) despite strong performance in Turkey. Sales in Russia were impacted by lower CHC sales which more than offset the strong performance of diabetes and Established products. In Africa, the Middle-East and South Asia, Aggregate sales were up 8.1% to €699 million sustained by Middle-East (up 10.1%) and India. Year-to-date sales in Emerging Markets increased 3.0% to €7,455 million. Excluding Venezuela, Aggregate year-to-date sales in Emerging Markets grew 8.7%.
Third-quarter Aggregate sales in Europe decreased 0.5% to €2,264 million. The performance of Multiple Sclerosis (up 53.3%) and Rare Disease (up 8.3%) were offset by lower sales of Established products (-7.6%). In Europe, year-to-date sales increased 1.5% to €6,996 million.
Aggregate third-quarter sales in Japan decreased 21.4% to €421 million, impacted by generic Plavix competition (down 48.3%). In Japan, year-to-date sales decreased 23.9% to €1,314 million.
R&D update
Consult Appendix 6 for full overview of Sanofi’s R&D pipeline
Regulatory update
Regulatory updates since the publication of the second quarter results on July 29, 2016 include the following:
In September, the U.S. Food and Drug Administration (FDA) accepted for priority review the Biologics License Application (BLA) for Dupixent (dupilumab) for the treatment of adult patients with inadequately controlled moderate-to-severe atopic dermatitis. The application has been given a Prescription Drug User Fee Act (PDUFA) target action date of March 29, 2017. Furthermore, in October the FDA granted breakthrough designation status for Dupilumab in atopic dermatitis ages 12-18 moderate to severe patients and ages 6-11 for severe patients.
In September, the Marketing Authorization Application of SAR342434 (insulin lispro) was accepted for review in the European Union for the treatment of diabetes.

In August, Sanofi submitted updated information on the pen delivery device as part of the New Drug Application (NDA) for iGlarLixi (also known as LixiLan, the investigational once-daily fixed-ratio combination of basal insulin glargine and GLP-1 receptor agonist lixisenatide) for the treatment of adults with type 2 diabetes. The additional information, submitted at FDA’s request, constitutes a Major Amendment to the NDA, resulting in an extension of the Prescription Drug User Fee Act goal date by three months, to late November 2016.

In July, the sarilumab Marketing Authorization Application was accepted for review by the European Medicines Agency.
Manufacturing deficiencies have been raised by the FDA during a routine Current Good Manufacturing Practice (CGMP) inspection of a Sanofi manufacturing facility, which conducts "fill and finish" activities. Sanofi has provided comprehensive responses to the FDA for the cited deficiencies. Given that the CGMP status of this facility is still under review by the FDA, it is unclear whether this situation will impact the approval for sarilumab on its PDUFA date of October 30, 2016.

At the end of October 2016, the R&D pipeline contained 43 pharmaceutical new molecular entities (excluding Life Cycle Management) and vaccine candidates in clinical development of which 12 are in Phase III or have been submitted to the regulatory authorities for approval.

Portfolio update
Phase III:
In October, detailed results from LIBERTY AD SOLO 1 and SOLO 2, two placebo-controlled Phase 3 studies evaluating Dupixent (dupilumab) in adult patients with inadequately controlled moderate-to-severe atopic dermatitis were presented at the Annual European Academy of Dermatology and Venereology (EADV) Congress and published in The New England Journal of Medicine (NEJM).

Positive new six-year investigational data from the extension study of Lemtrada (alemtuzumab) in patients with relapsing remitting multiple sclerosis (RRMS) were presented in September at the Congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS).

A new post-hoc analysis of data from the LixiLan-L pivotal Phase III clinical trial was presented at the European Association for the Study of Diabetes (EASD) and found that more patients who received iGlarLixi (the fixed-ratio combination of insulin glargine and GLP-1 receptor agonist lixisenatide) reached their daily post-prandial glucose target than those who received only insulin glargine. IGlarLixi is currently under review in the United States and Europe.

Detailed positive results from ODYSSEY ESCAPE, a Phase III trial which evaluated Praluent (alirocumab) injection in patients with an inherited form of high cholesterol known as heterozygous familial hypercholesterolemia (HeFH) who require regular apheresis treatment were presented at the ESC Congress.

In October, Alnylam announced the development discontinuation of revusiran, an investigational RNA interference therapeutic that was being developed for the treatment of hereditary ATTR amyloidosis with cardiomyopathy.
Phase II:
GZ389988, a TRKA antagonist, entered Phase IIa in osteoarthritis.
Phase I:
SAR440340, a monoclonal antibody (alliance with Regeneron), entered Phase I in immuno-inflammation therapeutic area.
SAR247799, a S1P1 agonist entered Phase I in the cardiovascular portfolio.
It has been decided not to pursue the development of SAR366234, an EP2 receptor agonist.

Collaboration
In September, Sanofi and Verily Life Sciences LLC, (formerly Google Life Sciences), an Alphabet company, announced the launch of Onduo, a joint venture created through Sanofi and Verily’s diabetes-focused collaboration. Onduo’s mission is to help people with diabetes live full, healthy lives by developing comprehensive solutions that combine devices, software, medicine, and professional care to enable simple and intelligent disease management.

2016 third-quarter and first nine months Aggregate financial results(10)
Business Net Income(10)
In the third quarter of 2016, Sanofi generated Aggregate sales of €9,652 million, an increase of 2.1% (up 3.0% at CER). Year-to-date Aggregate sales were €27,063 million, down 1.3% (up 1.2% at CER).

Aggregate other revenues increased 22.7% to €276 million and include VaxServe sales of non-Sanofi products (up 38.2% to €188 million) following the change in presentation as of January 1, 2016(11). Year-to-date Aggregate other revenues increased 1.0% to €604 million of which €360 million were generated by VaxServe (up 4.0%)

Third-quarter Aggregate gross profit increased 3.8% to €6,933 million and 4.6% at CER. The Aggregate gross margin ratio improved by 1.1 percentage points to 71.8% versus the third quarter of 2015. The positive impact from the multiple sclerosis and rare disease franchises, pharmaceuticals in China and industrial productivity largely offset the negative impact of U.S. Diabetes, and Plavix generic competition in Japan. Sanofi now expects its 2016 Aggregate gross margin ratio to be around 70% at CER. Year-to-date Aggregate gross margin ratio improved by 0.6 percentage points to 71.0% versus the first nine months of 2015.

Aggregate Research and Development expenses decreased 6.5% to €1,267 million, (down 6.4% at CER) in the third quarter. This decrease reflected lower spend on Praluent and dupilumab combined with cost containment actions. In the first nine months of 2016, the ratio of Aggregate R&D to Aggregate sales was 0.3 percentage points higher at 14.3% compared to the same period of 2015.

Aggregate selling general and administrative expenses (SG&A) increased 1.1% to €2,489 million in the third quarter. At CER, Aggregate SG&A was up 1.8% mainly reflecting pre-launch costs for sarilumab and dupilumab and the costs related to an earlier Flu campaign in the U.S. General & Administrative expenses decreased 2.4% at CER largely due to cost savings initiatives. The ratio of Aggregate SG&A to Aggregate sales decreased 0.2 percentage points to 25.8% compared with the third quarter of 2015. In the first nine months of 2016, the ratio of Aggregate selling and general expenses to Aggregate sales was 0.4 percentage points higher at 27.9% compared with the first nine months of 2015.

Third-quarter Aggregate other current operating income net of expenses was -€121 million versus -€136 million for the same period of 2015. In the third quarter of 2016, this line included a charge of €90 million related to a settlement of a litigation related to Cipro generic. In the first nine months of 2016, other current operating income net of expenses was -€65 million versus -€223 million for the same period of 2015.

The Aggregate share of profits from associates was €72 million in the third quarter. The Aggregate share of profits from associates included Sanofi’s share in Regeneron profit as well as Sanofi’s share of profit in Sanofi Pasteur MSD (the Vaccines joint venture with Merck & Co. in Europe). In the first nine months of 2016, the share of profits from associates was €125 million versus €139 million for the same period of 2015.

Aggregate non-controlling interests were -€31 million in the third quarter versus -€25 million in the third quarter of 2015. In the first nine months of 2016, non-controlling interests were -€81 million versus -€87 million for the same period of 2015.

Third-quarter Aggregate business operating income was up 11.3% to €3,097 million. At CER, Aggregate business operating income increased 12.8%. The ratio of Aggregate business operating income to Aggregate net sales increased 2.7 percentage points to 32.1% versus the same period of 2015. Year-to-date Aggregate business operating income increased 0.2% to €7,766 million (or up 3.6% at CER). In the first nine months of 2016, the ratio of Aggregate business operating income to Aggregate sales increased 0.5 percentage points to 28.7%.

Net Aggregate financial expenses were €84 million in the third quarter versus €105 million in the third quarter of 2015 reflecting lower cost of debt. Year-to-date net financial expenses were €278 million versus €314 million for the same period of 2015.

Third-quarter effective tax rate (including Animal Health) was 24.0% compared with 22.2% in the same periods of 2015. Year-to-date effective tax rate was 24.0% stable versus the same period of 2015.

Third-quarter business net income(10) increased 9.7% to €2,300 million (up 11.1% at CER). The ratio of business net income to Aggregate sales was 23.8%, an increase of 1.6 percentage points compared with the third quarter of 2015. Year-to-date business net income increased 0.7% to €5,702 million, (up 4.1% at CER). The ratio of business net income to net sales increased 0.5 percentage points to 21.1% compared to the first nine months of 2015.

(10) See Appendix 4 for 2016 third-quarter and 2016 first nine months Consolidated income statement; see Appendix 8 for definitions of financial indicators, and Appendix 3 for reconciliation of business net income to IFRS net income reported. (11) See page 7, chapter on Vaccines

In the third quarter of 2016, business earnings per share(10) (EPS) increased 11.2% to €1.79 on a reported basis and 12.4% at CER. The average number of shares outstanding was 1,288.5 million in the third quarter of 2016 versus 1,305.5 million in the third quarter of 2015. In the first nine months of 2016, business earnings per share(10) was €4.43, up 2.3% on a reported basis and up 5.8% at CER. The average number of shares outstanding was 1,287.9 million in the first nine months of 2016 versus 1,306.6 million in the first nine months of 2015.

2016 guidance
Given the performance in the first nine months, Sanofi now expects 2016 Business EPS(2) to grow between 3% and 5% at CER, barring unforeseen major adverse events. In addition, the currency impact on 2016 full-year business EPS is estimated to be around -4%, applying September 2016 average rates to the fourth quarter of 2016.

From business net income to IFRS net income reported (see Appendix 3)
In the first nine months of 2016, the main reconciling items between business net income and IFRS net income reported were:
A €1,280 million amortization charge related to fair value remeasurement on intangible assets of acquired companies (primarily Aventis: €379 million and Genzyme: €647 million) and to acquired intangible assets (licenses/products: €104 million). A €403 million amortization charge on intangible assets related to fair value remeasurement of acquired companies (primarily Aventis: €103 million and, Genzyme: €216 million), and to acquired intangible assets (licenses/products: €36 million) was booked in the third quarter. These items have no cash impact on the Company.

An impairment of intangible assets of €73 million (of which €22 recorded in the third quarter linked to revusiran). This item has no cash impact on the Company.

An impairment of €161 million related to Alnylam investment for the difference between historical cost and market value based on the stock price as of September 30, 2016. On October 5, 2016, Alnylam announced the decision to end revusiran development program. As a consequence, the Alnylam stock price dropped by 48% on October 6, 2016.

A charge of €94 million (of which €27 million in the third quarter) reflecting an increase of Bayer contingent considerations linked to Lemtrada (charge of €61 million, of which €20 million on the third quarter) and CVR fair value adjustment (charge of €34 million, of which €7 million on the third quarter).

Restructuring costs and similar items of €690 million (including €63 million in the third quarter) mainly related to transformation in Europe and North America.

A €746 million tax effect arising from the items listed above, comprising €450 million of deferred taxes generated by amortization charged against intangible assets, €234 million associated with restructuring costs (and similar items), €23 million associated with impairment of intangible assets and €23 million associated with fair value remeasurement of contingent consideration liabilities. The third quarter tax effect was €198 million, including €143 million of deferred taxes generated by amortization charged against intangible assets, €24 million associated with restructuring costs (and similar items), a charge of €7 million associated with impairment of intangible asset and €8 million associated with fair value remeasurement of contingent consideration liabilities (see Appendix 3).

In "Share of profits/losses from associates and joint-ventures", an income of €18 million net of tax (which included a charge of €36 million related to third quarter of 2016), mainly relating to the share of fair-value re-measurement on assets and liabilities of associates and the share of amortization of intangible assets of acquired associates and joint-ventures. This item has no cash impact on the Company.

A tax of €113 million on dividends paid to shareholders of Sanofi.
(10) See Appendix 4 for 2016 third-quarter and 2016 first nine months Consolidated income statement; see Appendix 8 for definitions of financial indicators, and Appendix 3 for reconciliation of business net income to IFRS net income reported
In Animal Health items, a net expense of €99 million (which included a net expense of €86 million related to the third quarter of 2016), mainly relating to a tax expense arising from the preparation steps of the exchange transaction with Boehringer Ingelheim and to the change in deferred tax charge resulting from taxable temporary differences relating to investments in subsidiaries since it is likely that these differences will reverse.

Capital Allocation
In the first nine months of 2016, net cash generated by operating activities decreased 4.9% to €4,761 million after capital expenditures of €1,072 million and an increase in working capital of €862 million. This net cash flow has contributed to finance a share repurchase (€1,403 million), dividend paid by Sanofi (€3,759 million), acquisitions and partnerships net of disposals (€724 million) and restructuring costs and similar items (€513 million). As a consequence, net debt increased from €7,254 million at December 31, 2015 to €8,905 million at the end of September 2016 (amount net of €11,995 million cash and cash equivalents).
Taking into account the future cash flow outlook and expected closing of the asset swap with Boehringer Ingelheim around the end of 2016, the Company announced a share repurchase program of €3.5 billion that it will initiate in 2016 and complete by the end of 2017.

Fresenius Medical Care reports strong third quarter and confirms full year guidance

On October 27, 2016 Fresenius Medical Care reported strong third quarter and confirmed full year guidance(Press release, Fresenius, OCT 27, 2016, View Source [SID1234516096]).

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Group revenue +9% (+9% at constant currency), driven by a strong performance in Health Care services
EBIT growth in line with revenue growth, supported by very good development in Latin America and Asia-Pacific
Significant net income growth of 27% (+17% excluding special items1)
Care Coordination with positive growth momentum (revenue +29%) and improved sequential margin of 5% (+60 basis points) in line with expectations
Full year 2016 guidance confirmed

Key figures – third quarter 2016
$ million Q3 2016 Q3 2015
Net revenue 4,598 4,231 +9%
Operating income (EBIT) 670 614 +9%
Net income2 333 262 +27%
Net income (excl. special items)1,2 333 284 +17%
Basic earnings per share (in $) 1.09 0.86 +26%
Key figures – first nine months 2016
$ million 9m 2016 9m 2015
Net revenue 13,224 12,390 +7%
Operating income (EBIT) 1,851 1,665 +11%
Net income2 855 713 +20%
Net income (excl. special items)1,2
855 735 +16%
Basic earnings per share (in $) 2.80 2.34 +19%

"We are very pleased with our performance in the third quarter of 2016, which is the result of a strong execution in all regions, the success of our Global Efficiency Program as well as further expansion of our global footprint," said Rice Powell, Chief Executive Officer of Fresenius Medical Care. "Care Coordination services maintain excellent growth momentum which will help us to extend our range of health care services even further. Based on our strong result for the third quarter, we hereby confirm our guidance for the full-year 2016."

Revenue & earnings
Net revenue for the third quarter improved by 9% and reached $4,598 million (+9% at constant currency), mainly driven by a strong performance in Health Care services. Contributing revenues of $3,734 (+10%), Health Care services was largely supported by an improvement in US revenue per treatment (+$3) as well as a strong organic growth. Dialysis products revenue increased by 4% to $864 million in the third quarter, mainly driven by higher sales of machines, dialyzers and products for acute care.
Net revenue in the first nine months of 2016 increased by 7% (Health Care services revenue +8%/+9% at constant currency; dialysis products revenue +2%/+4% at constant currency).

In the third quarter, operating income (EBIT) increased by 9% to $670 million, in line with revenue growth. The operating income margin increased by 10 basis points to 14.6%, underlining a stable earnings quality. The increase in EBIT margin was mainly driven by the positive development in Latin America after the divestiture of our dialysis service business in Venezuela in the previous year’s third quarter as well as a strong performance in Asia-Pacific. The EBIT margin in North America was impacted by higher personnel expenses for dialysis services, partially offset by lower costs for health care supplies and a higher volume with commercial payers.
For the first nine months of 2016, operating income (EBIT) increased by 11% to $1,851 million.

Net interest expense in the third quarter remained at the previous year’s level ($100 million). For the first nine months of 2016, net interest expense increased by 1% to $308 million, mainly due to lower interest income as a result of the repayment of interest bearing notes receivables in the fourth quarter of 2015, partially offset by a lower debt level.

Income tax expense decreased by 2% to $164 million in the third quarter. This translates into an effective tax rate of 28.8%, a decrease of 400 basis points compared to the third quarter of 2015 (32.8%). This decrease was mainly driven by a lower tax expense as a result of released tax liabilities in the third quarter of 2016 due to tax audit settlements with tax authorities, as well as a favorable impact from the prior-year non-tax deductible loss from the divestiture of our dialysis service business in Venezuela.
For the first nine months of 2016, income tax expense increased to $471 million, translating into an effective tax rate of 30.5% (-190 basis points).

Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA increased by 27% to $333 million in the third quarter. Excluding the 2015 impacts of (i) the after tax loss, $26.9 million, from the divestment of our dialysis service business in Venezuela and (ii) the realized portion of the after tax gain, $4.8 million, from the sale of our European marketing rights for certain renal pharmaceuticals to our joint venture, Vifor Fresenius Medical Care Renal Pharma, net income increased from $284 million to $333 million (+17%) in the third quarter. Based on approximately 306.0 million shares (weighted average number of shares outstanding), basic earnings per share (EPS) increased from $0.86 to $1.09 (+26%); EPS excluding special items increased from $0.93 to $1.09 (+17%).

For the first nine months of 2016, net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA increased by 20% to $855 million.

Segment development
In the third quarter, North America revenue increased by 10% to $3,300 million (72% of total revenue). Health Care services revenue grew by 10% to $3,068 million, of which Care Coordination contributed $618 million (+29%), supported by significant organic revenue growth of 24%. Dialysis care revenue contributed $2,450 million (+6%), driven by increased revenue per treatment and higher volumes of dialysis treatments with commercial payers. Dialysis products revenue grew by 7% to $232 million, due to increased product sales (especially machines and dialyzers). Operating income in North America came in at $536 million (+4%). The operating income margin of 16.2% was in line with the second quarter of 2016, but weaker than the previous year’s third quarter ( 90 basis points). This decline was mainly attributable to higher personnel expenses, a cost impact related to the vesting of long term incentive plan grants and growth in lower-margin Care Coordination, partially offset by lower cost for health care supplies. The operating income margin in Care Coordination came in at 5.0%, an increase of 60 basis points over the second quarter 2016, but below the previous year’s third quarter margin of 6.8%.

For the first nine months of 2016, North America revenue increased by 9% to $9,512 million. Operating income increased by 16% to $1,486 million.

EMEA revenue increased by 2% to $675 million in the third quarter of 2016 (+4% at constant currency). Health Care services revenue for the EMEA segment increased by 8% (+10% at constant currency) to $335 million. This was mainly the result of contributions from acquisitions (8%), partially offset by the negative effect of exchange rate fluctuations (2%). Dialysis treatments increased by 9% in the third quarter. Dialysis products revenue decreased by 3% (-1% at constant currency) to $340 million. The decrease was driven by lower sales of renal drugs (whose marketing rights were sold in 2015) and dialyzers, partially offset by higher sales of machines and bloodlines. Operating income in the EMEA segment decreased by 4% to $125 million in the third quarter due to the prior-year impact from the gain resulting from the sale of European marketing rights for certain renal pharmaceuticals, an unfavorable impact from manufacturing costs as well as higher bad debt expense. This was partially offset by favorable foreign exchange effects. The operating income margin decreased to 18.5% ( 120 basis points).

For the first nine months of 2016, EMEA revenue increased by 1% to $1,982 million (+4% at constant currency) and operating income decreased by 3% to $395 million.

Asia-Pacific revenue grew by 13% (+8% at constant currency) to $427 million in the third quarter. The region recorded $192 million in Health Care services revenue, based on an increase of 5% in dialysis treatments. With an 11% growth in revenue to $235 million (+12% at constant currency), the product business showed an excellent sales performance across the entire dialysis products range. Operating income showed a significant increase (+25%) to $85 million. The operating income margin increased substantially to 19.8% (+190 basis points). This was primarily driven by the positive impact from overall business growth and favorable foreign exchange effects.

For the first nine months of 2016, Asia-Pacific revenue grew by 8% to $1,198 million (+8% at constant currency) and operating income increased by 3% to $225 million.

Latin America delivered revenue of $192 million, an increase of 9% and an impressive improvement of 27% at constant currency. Health Care services revenue increased by 6% to $139 million (+31% at constant currency) as a result of higher organic revenue per treatment primarily driven by a retrospective reimbursement rate increase, contributions from acquisitions and growth in same market treatments, partially offset by the effect of the divested dialysis care business in Venezuela. Dialysis treatments increased by 1% in the third quarter. Dialysis products revenue increased by 19% to $53 million (+18% at constant currency), as a result of higher sales of dialyzers, concentrates and bloodlines. Operating income came in at $20 million supported by the impact from higher revenue in the region, partially offset by unfavorable foreign currency effects and higher costs mainly related to inflation. The operating margin increased to 10.5%.

For the first nine months of 2016, Latin America revenue decreased by 10% to $520 million (+13% at constant currency) and operating income increased by 86% to $47 million.

Cash flow
In the third quarter of 2016, the company generated $439 million in net cash provided by operating activities, representing 9.5% of revenue ($579 million in the third quarter of 2015). The decrease was primarily attributable to a discretionary cash contribution of $100 million to Fresenius Medical Care’s pension plan assets in the United States. The number of DSO (days sales outstanding) came in at 72 days, an increase of 2 days compared to the second quarter of 2016.

In the first nine months of 2016, the company generated net cash provided by operating activities of $1,296 million, representing 9.8% of revenue.

Employees
As of September 30, 2016, Fresenius Medical Care had 108,851 employees (full-time equivalents) worldwide, compared to 102,591 employees at the end of September 2015. This increase of 6% was primarily attributable to our continued organic growth.

Recent events: Acquisition of Sandor Nephro Services in India
In September 2016, Fresenius Medical Care acquired 85% of equity interest in the Indian dialysis group Sandor Nephro Services from a group of investors. Established in 2011, Sandor Nephro Services is India’s second largest dialysis care provider. Under the brand name "Sparsh Nephrocare" the company operates a network of more than 50 dialysis centers across the country. With the acquisition, Fresenius Medical Care has clearly strengthened its core business in one of the fastest growing economies of the world. Sandor Nephro Services is expected to generate revenue of around $3 million in full year 2016. Fresenius Medical Care expects the investment to be accretive in 2017 on earnings after tax.

Outlook 2016 confirmed
Based on the positive business development in the first nine months 2016, Fresenius Medical Care confirms its full year outlook 2016. The company expects a currency-adjusted revenue growth between +7% and +10% for 2016. Net income attributable to shareholders of Fresenius Medical Care AG & Co. KGaA is expected to increase by +15% to +20% over the previous year.

Grupo Oncoclínicas Expands Treatment Capabilities with Varian Advanced Radiotherapy Equipment and Software

On October 27, 2016 Varian Medical Systems (NYSE: VAR) reported Grupo Oncoclínicas, the largest private cancer center network in Latin America, acquired thirteen medical linear accelerators, five TrueBeam and eight VitalBeam, as part of a multi-phase program to expand the radiotherapy capabilities in its centers across Brazil (Press release, InfiMed, OCT 27, 2016, View Source [SID1234516094]). To support advanced treatment capabilities, Grupo Oncoclínicas has also ordered Varian’s software including the Eclipse treatment planning system, InSightive analytics solution, RapidPlan knowledge-based treatment planning software, Velocity multi-modality imaging software, and ARIA oncology information system. Varian will be installing the equipment and software at several clinics over the next three years.

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The Varian TrueBeam and VitalBeam medical linear accelerators are built from the same platform and are designed to enable high-quality rapid and precise image-guided treatment. Grupo Oncoclínicas will have the first cancer centers in Latin America equipped with the VitalBeam systems.

"Grupo Oncoclínicas and Varian share a commitment to increasing patient access to the most advanced cancer treatments," said Hélio Salmon, radiotherapy director of Grupo Oncoclínicas. "By utilizing the TrueBeam and VitalBeam systems and Varian software as part of our radiotherapy expansion project, together we are giving patients across Brazil powerful new tools in the fight against cancer. This partnership also allows us to collaborate on the development of clinical protocols for advanced radiotherapy techniques such as hypofractionation."

"We are proud Grupo Oncoclínicas has selected Varian as its radiotherapy partner in the expansion of its cancer treatment centers in Brazil," said Chris Toth, president Oncology Systems Americas at Varian. "We are committed to working closely with them on the installation of this advanced equipment and increasing access to cancer care in Brazil."

Eclipse software creates an optimized radiotherapy treatment plan based on a physician’s dose instructions, and information about the size, shape and location of the tumor to be treated. The software incorporates unique features such as RapidPlan knowledge-based planning, which makes it easier and faster to plan sophisticated cancer treatments like intensity-modulated radiotherapy (IMRT), image-guided radiotherapy (IGRT), and RapidArc radiotherapy.

InSightive analytics software allows users to easily explore their clinical and operational data to uncover trends that may lead to improved outcomes. ARIA is a comprehensive electronic medical record and image management system that aggregates patient data into an organized, oncology-specific medical chart with functional components for managing clinical, administrative and financial operations for medical, radiation and surgical oncology.

About Varian Medical Systems

Thermo Fisher Scientific Reports Third Quarter 2016 Results

On October 27, 2016 Thermo Fisher Scientific Inc. (NYSE: TMO), the world leader in serving science, reported its financial results for the third quarter of 2016, ended October 1, 2016 (Press release, Thermo Fisher Scientific, OCT 27, 2016, View Source [SID1234516086]).

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Third Quarter 2016 Highlights

Revenue increased 9% to $4.49 billion.
GAAP diluted earnings per share (EPS) increased 1% to $1.19.
Adjusted EPS grew 13% to $2.03.
Strengthened presence in clinical markets by receiving FDA clearance to launch new DRI Hydrocodone assay and two new EliA IgG thyroid tests as well as extend use of BRAHMS PCT sepsis test to the emergency room.
Increased capabilities to support biopharma growth in Asia-Pacific markets with new clinical packaging and supplies facility in Seoul, South Korea, and expansion of cryogenic storage and logistics operations in Tokyo, Japan.
Completed acquisition of FEI Company, adding leading electron microscopy products that strengthen offerings for attractive structural biology and materials science markets, and significantly enhance our customer value proposition.
Adjusted EPS, adjusted operating income, adjusted operating margin and free cash flow are non-GAAP measures that exclude certain items detailed later in this press release under the heading "Use of Non-GAAP Financial Measures."

"We delivered another great quarter, with excellent earnings growth on solid top-line results," said Marc N. Casper, president and chief executive officer of Thermo Fisher Scientific. "We drove strong operational performance while successfully executing our growth strategy to position Thermo Fisher for an even brighter future.

"In the quarter, we strengthened our offering for clinical customers by expanding our menu of tests for detecting sepsis, opioids and thyroid disease, and launching new quality control software to ensure the accuracy of results in the clinical laboratory. In Asia-Pacific, we increased our biopharma services capabilities in South Korea and Japan to support the growing number of clinical trials and continue our strong growth momentum in the region.

"We were also pleased to complete our acquisition of FEI earlier than expected. We look forward to the new opportunities we have to create value for our customers, including broadening the use of FEI’s leading imaging technologies in the life science research markets that we serve."

Third Quarter 2016

For the third quarter of 2016, revenue grew 9% to $4.49 billion, versus $4.12 billion in the third quarter of 2015. Organic revenue growth was 4%; acquisitions increased revenue by 5% and currency translation decreased revenue slightly.

GAAP Earnings Results

GAAP diluted EPS increased to $1.19, versus $1.18 in the same quarter last year. GAAP operating income for the third quarter of 2016 was $541 million, compared with $563 million in the third quarter of 2015. GAAP operating margin was 12.0%, compared with 13.7% in the third quarter of 2015. GAAP operating results reflect acquisition-related charges in the 2016 period.

Non-GAAP Earnings Results

Adjusted EPS in the third quarter of 2016 grew 13% to $2.03, versus $1.80 in the third quarter of 2015. Adjusted operating income for the third quarter of 2016 increased 11% compared with the year-ago quarter. Adjusted operating margin was 23.0%, compared with 22.6% in the third quarter of 2015.

2016 Guidance Update

Thermo Fisher is raising its revenue and adjusted EPS guidance for 2016 to reflect the addition of FEI, strong operational performance in the first nine months and a more favorable foreign exchange environment. The company now expects revenue to be in the range of $18.25 to $18.39 billion versus its previous guidance of $17.84 to $18.00 billion, which would result in revenue growth of 8% over 2015. The company is also raising its adjusted EPS guidance to a new range of $8.19 to $8.30 versus the $8.07 to $8.20 previously announced, which now results in 11% to 12% growth year over year.

Segment Results

Management uses adjusted operating results to monitor and evaluate performance of the company’s four business segments, as highlighted below. Since these results are used for this purpose, they are also considered to be prepared in accordance with GAAP.

Life Sciences Solutions Segment

In the third quarter of 2016, Life Sciences Solutions Segment revenue grew 14% to $1.23 billion, compared with revenue of $1.08 billion in the third quarter of 2015. Segment operating margin was 30.1% versus 30.8% in 2015.

Analytical Instruments Segment

Analytical Instruments Segment revenue grew 15% to $0.90 billion in the third quarter of 2016, compared with revenue of $0.78 billion in the third quarter of 2015. Segment operating margin was 21.2% versus 18.8% in the 2015 quarter.

Specialty Diagnostics Segment

Specialty Diagnostics Segment revenue in the third quarter increased 3% to $0.80 billion in 2016, compared with revenue of $0.78 billion in the third quarter of 2015. Segment operating margin was 26.8% versus 26.4% in the 2015 quarter.

Laboratory Products and Services Segment

In the third quarter of 2016, Laboratory Products and Services Segment revenue grew 7% to $1.75 billion, compared with revenue of $1.64 billion in the third quarter of 2015. Segment operating margin was 14.8% versus 15.2% in the 2015 quarter.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including adjusted EPS, adjusted operating income and adjusted operating margin, which exclude certain acquisition-related costs, including charges for the sale of inventories revalued at the date of acquisition and significant transaction costs; restructuring and other costs/income; and amortization of acquisition-related intangible assets. Adjusted EPS also excludes certain other gains and losses that are either isolated or cannot be expected to occur again with any regularity or predictability, tax provisions/benefits related to the previous items, benefits from tax credit carryforwards, the impact of significant tax audits or events and the results of discontinued operations. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods. We also use a non-GAAP measure, free cash flow, which is operating cash flow, net of capital expenditures, and also excludes operating cash flows from discontinued operations to provide a view of the continuing operations’ ability to generate cash for use in acquisitions and other investing and financing activities. We believe that the use of non-GAAP measures helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company’s performance, especially when comparing such results to previous periods or forecasts.

For example:

We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.

We exclude certain acquisition-related costs, including charges for the sale of inventories revalued at the date of acquisition and significant transaction costs. We exclude these costs because we do not believe they are indicative of our normal operating costs.

We exclude the expense and tax effects associated with the amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives of 5 to 20 years. In 2016, based on acquisitions closed through the end of the third quarter, our adjusted EPS will exclude approximately $2.42 of expense for the amortization of acquisition-related intangible assets. Exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.

We also exclude certain gains/losses and related tax effects, benefits from tax credit carryforwards and the impact of significant tax audits or events (such as the effect on deferred tax balances of enacted changes in tax rates), which are either isolated or cannot be expected to occur again with any predictability and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business or real estate, gains or losses on significant litigation-related matters, gains on curtailments of pension plans, the early retirement of debt and discontinued operations.

We also report free cash flow, which is operating cash flow, net of capital expenditures, and also excludes operating cash flows from discontinued operations to provide a view of the continuing operations’ ability to generate cash for use in acquisitions and other investing and financing activities.

Thermo Fisher’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the company’s core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. Such measures are also used by management in their financial and operating decision-making and for compensation purposes.

The non-GAAP financial measures of Thermo Fisher’s results of operations and cash flows included in this press release are not meant to be considered superior to or a substitute for Thermo Fisher’s results of operations prepared in accordance with GAAP. Reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the accompanying tables. Thermo Fisher does not provide GAAP financial measures on a forward-looking basis because we are unable to predict with reasonable certainty and without unreasonable effort items such as the timing and amount of future restructuring actions and acquisition-related charges as well as gains or losses from sales of real estate and businesses, the early retirement of debt and the outcome of legal proceedings. The timing and amount of these items are uncertain and could be material to Thermo Fisher’s results computed in accordance with GAAP.

Agenus Reports Third Quarter Financial Results and Recent Highlights

On October 27, 2016 Agenus Inc. (NASDAQ: AGEN), an immuno-oncology (I-O) company developing antibodies, including checkpoint inhibitors and other checkpoint modulators and cancer vaccines, reported an update on its progress and reported financial results for the third quarter ended September 30, 2016 (Press release, Agenus, OCT 27, 2016, View Source [SID1234516081]).

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Agenus Logo
"In the third quarter we advanced our pre-clinical and clinical programs and focused our efforts on our product development plans with an intent to commercialize Agenus’ first generation of I-O products in the next five years," commented Garo H. Armen, Ph.D., Chairman and CEO of Agenus. "We have delineated our clinical development path as it relates to our monoclonal antibodies, targeting the foundational immune checkpoints CTLA-4 and PD-1. In addition, we are steering our antibody vaccine combinations towards the clinic. Our world class team, along with our diverse portfolio and capabilities, are key differentiators for Agenus to compete in the field and to deliver on the promise of immunotherapy."

Recent Highlights

Our first CTLA-4 antibody AGEN1884 advanced in the clinic.
Our novel checkpoint antibodies and vaccine programs progressed in various stages of development.
GlaxoSmithKline’s Shingrix vaccine candidate containing Agenus’ QS-21 Stimulon for prevention of shingles in adults aged 50 years or older, was filed for US regulatory approval.
Jean-Marie Cuillerot, M.D. appointed Vice President and Global Head of Clinical Development.
James Gorman, M.D., Ph.D. appointed Vice President of Strategic Planning and Portfolio Management.
Projected Near-Term Milestones

Phase 1 trial initiation for OX40 agonist INCAGN1949 in collaboration with Incyte.
Phase 1 trial initiation for PD-1 antagonist AGEN2034.
Clinical study initiation combining CTLA-4 and PD-1 antagonists.
Third party-sponsored randomized trial initiation for Prophage together with a checkpoint antagonist in newly diagnosed glioblastoma.
Phase 1 trial initiation for AutoSynVax.
Consummation of additional strategic partnerships.
Third Quarter 2016 Financial Results

For the third quarter ended September 30, 2016, Agenus reported a net loss attributable to common stockholders of $40.8 million which includes $18.7 million of non-cash expenses. This compares to a net loss attributable to common stockholders for the third quarter of 2015 of $13.2 million which included $4.1 million of non-cash income. Net loss was $0.47 per share, and $0.16 per share, basic and diluted, for the three months ended September 30, 2016 and 2015, respectively. The increase in net loss attributable to common stockholders for the three months ended September 30, 2016, compared to the net loss attributable to common stockholders for the same period in 2015, was largely due to the $22.7 million increase in non-cash expenses primarily from fair value adjustments of the contingent obligations in addition to $4.9 million applicable to the advancement of the checkpoint and cancer vaccine programs.

For the nine months ended September 30, 2016, the company reported a net loss attributable to common stockholders of $101.0 million, which includes $35.9 million in non-cash expenses, compared with a net loss attributable to common stockholders of $72.4 million, which included $22.5 million in non-cash expenses, for the nine months ended September 30, 2015. Net loss was $1.16 per share and $0.95 per share, basic and diluted for the nine months ended September 30, 2016 and 2015, respectively.

Cash, cash equivalents and short-term investments were $95.4 million as of September 30, 2016.