sanofi aventis

Research and DevelopmentSanofi-Aventis

BS4Danil+Eric+Karim+Andrew+David

What is R&D for you?

Telecom

Pharmacy

Car maintenance

Construction

Agriculture

Main R&D ratios in Accounting

• R&D Intensity R&D expenses / Sales

• R&D per employee R&D expenses / N of employees

• R&D growth rate R&D expenses Year 2/ R&D expenses Year 1

Lev and Sougiannis, 1996, Studies Outcome for US & UK

R&D investments

Market Value=

R&D Intensity for different businesses

R&D Scorecard – UK DTI

Sanofi-AventisCase Study

Sanofi

French

Pharmacy

Founded in 1976 by Elf

Number of acquisitions

Sanofi

Aventis 2003 2002 2001 Sanofi-Synthelabo 2003 2002 2001

Net sales 17 815 20 622 22 941 Net sales 8 048 7 448 6 488Co-promotion income 252 161 Cost of goods sold (1 428) (1 378) (1 253)Production costs and expenses (5 377) (6 578) (7 943) Gross profit 6 620 6 070 5 235

(5 365) (6 866) (7 178) Research and development expenses(1 316) (1 218) (1 031)Research and development (2 924) (3 420) (3 481) Selling and general expenses (2 477) (2 428) (2 306)Restructuring expenses (251) (68) (50) Other operating income/(expense), net 248 190 208Goodwill amortization (480) (1 021) (650) Operating profit 3 075 2 614 2 106Operating income 3 670 2 830 3 639 Intangibles – amortization and impairment(129) (129) (68)

(107) 51 85 Financial income/(expense), net 155 85 102Interest (expense) income – net (151) (309) (704) Income before tax and exceptional items3 101 2 570 2 140

(501) 1 120 (134) Exceptional items 24 10 2812 911 3 692 2 886 Income taxes (1 058) (746) (842)

Provision for income taxes (929) (1 430) (1 111) Net income before income from equity investees, goodwill amortization and minority interests2 067 1 834 1 579Minority interests (29) (86) (142) Income from equity investees, net 20 20 14Preferred remuneration (52) (85) (128) Goodwill amortization (8) (8) (7)Net income 1 901 2 091 1 505 Net income before minority interests 2 079 1 846 1 586

Minority interests (3) (87) (1)Net income 2 076 1 759 1 585

Aventis

French

Pharmacy

Therapeutic proteins

Founded 1999

Aventis

Aventis 2003 2002 2001 Sanofi-Synthelabo 2003 2002 2001

Net sales 17 815 20 622 22 941 Net sales 8 048 7 448 6 488Co-promotion income 252 161 Cost of goods sold (1 428) (1 378) (1 253)Production costs and expenses (5 377) (6 578) (7 943) Gross profit 6 620 6 070 5 235Selling, general and administrative costs and other operating income (expenses)(5 365) (6 866) (7 178) (1 316) (1 218) (1 031)Research and development (2 924) (3 420) (3 481) Selling and general expenses (2 477) (2 428) (2 306)Restructuring expenses (251) (68) (50) 248 190 208Goodwill amortization (480) (1 021) (650) Operating profit 3 075 2 614 2 106Operating income 3 670 2 830 3 639 (129) (129) (68)Equity in earnings of affiliated companies(107) 51 85 Financial income/(expense), net 155 85 102Interest (expense) income – net (151) (309) (704) 3 101 2 570 2 140Miscellaneous non-operating income and expenses – net(501) 1 120 (134) Exceptional items 24 10 281Income before taxes and minority interests2 911 3 692 2 886 Income taxes (1 058) (746) (842)Provision for income taxes (929) (1 430) (1 111) 2 067 1 834 1 579Minority interests (29) (86) (142) 20 20 14Preferred remuneration (52) (85) (128) Goodwill amortization (8) (8) (7)Net income 1 901 2 091 1 505 2 079 1 846 1 586

Minority interests (3) (87) (1)Net income

Net SalesR&D expensesR&D intensityR&D growth

2001

Sanofi

Net SalesR&D expensesR&D intensityR&D growth

2001 2002

6448(1253)16%

Sanofi

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

Sanofi

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

2004

8048(1428)16%8%

Sanofi

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

2004

8048(1428)16%8%

2001

Sanofi

Aventis

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

2004

8048(1428)16%8%

2002 2001

22941(3481)15%

Net SalesR&D expensesR&D intensityR&D growth

Sanofi

Aventis

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

2004

8048(1428)16%8%

2003 2002 2001

20622(3420)17%-2%

22941(3481)15%

Net SalesR&D expensesR&D intensityR&D growth

Sanofi

Aventis

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

2004

8048(1428)16%8%

2003 2002 2001

20622(3420)17%-2%

22941(3481)15%

2004

17815(2924)16%-15%

Net SalesR&D expensesR&D intensityR&D growth

Sanofi

Aventis

Net SalesR&D expensesR&D intensityR&D growth

2001 2002 2003

6448(1253)16%

7448(1378)16%18%

2004

8048(1428)16%8%

2003 2002 2001

20622(3420)17%-2%

22941(3481)15%

2004

17815(2924)16%-15%

Net SalesR&D expensesR&D intensityR&D growth

Sanofi

Aventis

Sanofi-AventisSanofi-Aventis 2004

Net sales 15 043Cost of goods sold (3 753)Gross profit 11 290Research and development expenses (7 455)Selling and general expenses (4 500)Other operating income/(expense), net 360Operating profit (305)Amortization and impairment of intangibles (1 563)Financial income/(expense), net 25Income before tax and exceptional items (1 843)Exceptional items (402)

Income taxes (819) R&D Intensity ( % Sales) 49,6%

Net income before income from equity investees, goodwill amortization and minority interests(3 064)Income from equity investees, net (261)Goodwill amortization (292)Net income before minority interests (3 617)Minority interests 7Net income (3 610)

2004

Sanofi-Aventis

Net SalesR&D expensesR&D intensity

15043(7455)50%

2004

Net SalesR&D expensesR&D intensity

2001 2002 2003

6448(1253)16%

7448(1378)16%

2004

8048(1428)16%

2003 2002 2001

20622(3420)17%

22941(3481)15%

2004

17815(2924)16%

Net SalesR&D expensesR&D intensity

15043(7455)50%

Paradox

?One Manager Banker

2003

8048(1428)16%

17815(2924)16%

15043(7455)50%

2004

320 pages

(thank you prof. Capkun)

200320022001

20622(3420)17%

22941(3481)15%

2004

17815(2924)16%

…. ($5046)

R&D expenses

($2409)

+

Sanofi-AventisAventis

R&D expenses

Net Sales

R&D intensity

($7455)

15043

50%

Sanofi-Aventis

2004

Net SalesR&D expensesR&D intensity

15043(7455)50%

2006 2007

28052(4537)16%

27568(4575)16%

2008

28373(4430)16%

Class QUIZ

?

Class QUIZ

?What are the three main ratio used in accounting for analysing R&D expenditure?

R&D Intensity R&D per employee R&D growth rate

Class QUIZ

?Name three industries with high R&D intensity.

PharmacyElectronicsSoftware

Class QUIZ

?How should R&D expenses be treated in accounting while merging two companies?

1. Estimate Market value of R&D of acquired company up to date

2. Add it to current yearly R&D expenses of acquiring company