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Q3 earnings at sanofi-aventis will fall on low US dollar

French pharmaceutical company sanofi-aventis (S-A) is expected to post a decline in Q3 FY07 earnings, caused by high R&D spending and exchange rate effects caused by the weakening US dollar.

French pharmaceutical company sanofi-aventis (S-A) is expected to post a decline in Q3 FY07 earnings, caused by high R&D spending and exchange rate effects caused by the weakening US dollar.

The reduction in earnings is because S-A generates a third of its sales in US dollars, so EBIT is forecast to drop to a range of EUR 2.2bn to EUR 2.4bn, compared with EUR 2.5bn in Q3 FY06, according to analysts polled by Thomson Financial News. The US dollar fell 7.2 per cent against the euro in Q3.

Aurel Leven analysts predict Q3 FY07 EPS of EUR 1.20, compared with EUR 1.26 in Q3 FY06. They forecast that net income will be EUR 1.6bn, compared with EUR 1.7bn. They predict flat sales in the range of EUR 6.7bn to EUR 6.9bn, compared with sales of EUR 6.9bn in Q3 FY06.

Sales have been affected by the April 2007 patent expiry of S-A's anti-insomnia drug Ambien (zolpidem) in the US. Ambien turnover reached EUR 489m in FY06, while for FY07 Raymond James analysts estimate a 57 per cent drop to rest at FY07 of EUR 210m because of generic competition.

In Europe, S-A's cancer drug Elaxotin (oxaliplatin) also continues to face increased competition from generic copies. Raymond James analysts say that while the drug racked up EUR 144m of sales in Q3 FY06, which will decrease by EUR 94m in Q3 FY07. They added that the slight decline in turnover would translate into a more significant decline in operating profit, mainly because R&D expenses were growing more quickly than turnover.

Offsetting the negative impact will be the recent US court decision to extend patent protection on the company's blood-thinning drug Plavix (clopidogrel) until 2011. Flu vaccine sales will also have a positive impact, if S-A has shipped the majority of its vaccines in the quarter (one quarter earlier than in FY06). Raymond James analysts say this helped push up Q3 FY07 results of Novartis and GlaxoSmithKline (GSK).

30th September 2008

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