Research and Development

Sanofi-Aventis

BS4
Danil+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
R&D
investments
= Market
Value

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

R&D Intensity for
different businesses

R&D Scorecard – UK DTI

Sanofi-Aventis
Case Study
 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 6 488
Co-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
Selling, general and administrative costs
(5 365)and other
(6 866)operating
(7 178)incomeResearch
(expenses)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 248 190 208
Goodwill amortization (480) (1 021) (650) Operating profit 3 075 2 614 2 106
Operating income 3 670 2 830 3 639 Intangibles – amortization and impairment (129) (129) (68)
Equity in earnings of affiliated companies
(107) 51 85 Financial income/(expense), net 155 85 102
Interest (expense) income – net (151) (309) (704) Income before tax and exceptional items 3 101 2 570 2 140
Miscellaneous non-operating income (501)
and expenses
1 120– net (134) Exceptional items 24 10 281
Income before taxes and minority interests
2 911 3 692 2 886 Income taxes (1 058) (746) (842)
Provision for income taxes (929) (1 430) (1 111) Net income before income from equity2 067 investees,1 goodwill
834 amortiza
1 579
Minority interests (29) (86) (142) Income from equity investees, net 20 20 14
Preferred 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

Sanofi R&D Intensity ( % Sales) 16,4% 16,6% 15,2% R&D Intensity ( % Sales) 16,4% 16,4% 15,9%
 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 6 488
Co-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
Selling, general and administrative costs
(5 365)and other
(6 866)operating
(7 178)incomeResearch
(expenses)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 248 190 208
Goodwill amortization (480) (1 021) (650) Operating profit 3 075 2 614 2 106
Operating income 3 670 2 830 3 639 Intangibles – amortization and impairment (129) (129) (68)
Equity in earnings of affiliated companies
(107) 51 85 Financial income/(expense), net 155 85 102
Interest (expense) income – net (151) (309) (704) Income before tax and exceptional items 3 101 2 570 2 140
Miscellaneous non-operating income (501)
and expenses
1 120– net (134) Exceptional items 24 10 281
Income before taxes and minority interests
2 911 3 692 2 886 Income taxes (1 058) (746) (842)
Provision for income taxes (929) (1 430) (1 111) Net income before income from equity2 067 investees,1 goodwill
834 amortization
1 579 a
Minority interests (29) (86) (142) Income from equity investees, net 20 20 14
Preferred 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

R&D Intensity ( % Sales) 16,4% 16,6% 15,2% R&D Intensity ( % Sales) 16,4% 16,4% 15,9%

Aventis
 Sanofi
2001

Net Sales
R&D expenses
R&D intensity
R&D growth
 Sanofi
2001 2002

Net Sales 6448

R&D expenses (1253)
R&D intensity 16%
R&D growth
 Sanofi
2001 2002 2003

Net Sales 6448 7448

R&D expenses (1253) (1378)
R&D intensity 16% 16%
R&D growth 18%
 Sanofi
2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%
R&D growth 18% 8%
 Sanofi
2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%
R&D growth 18% 8%

2001

Aventis
 Sanofi
2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%
R&D growth 18% 8%

Net Sales 22941

R&D expenses (3481)
R&D intensity 15%
R&D growth

2002 2001

Aventis
 Sanofi
2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%
R&D growth 18% 8%

Net Sales 20622 22941

R&D expenses (3420) (3481)
R&D intensity 17% 15%
R&D growth -2%

2003 2002 2001

Aventis
 Sanofi
2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%
R&D growth 18% 8%

Net Sales 17815 20622 22941

R&D expenses (2924) (3420) (3481)
R&D intensity 16% 17% 15%
R&D growth -15% -2%

2004 2003 2002 2001

Aventis
 Sanofi
2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%
R&D growth 18% 8%

Net Sales 17815 20622 22941

R&D expenses (2924) (3420) (3481)
R&D intensity 16% 17% 15%
R&D growth -15% -2%

2004 2003 2002 2001

Aventis
 Sanofi-Aventis
Sanofi-Aventis 2004

Net sales 15 043

Cost of goods sold (3 753)
Gross profit 11 290
Research and development expenses (7 455)
Selling and general expenses (4 500)
Other operating income/(expense), net 360
Operating profit (305)
Amortization and impairment of intangibles (1 563)
Financial income/(expense), net 25
Income 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
(3 064)
amortization and minority interests
Income from equity investees, net (261)
Goodwill amortization (292)
Net income before minority interests (3 617)
Minority interests 7
Net income (3 610)

2004
 Sanofi-Aventis

Net Sales 15043

R&D expenses (7455)
R&D intensity 50%

2004
 2001 2002 2003 2004

Net Sales 6448 7448 8048

R&D expenses (1253) (1378) (1428)
R&D intensity 16% 16% 16%

15043
(7455)
50%
Net Sales 17815 20622 22941
R&D expenses (2924) (3420) (3481)
R&D intensity 16% 17% 15%

2004 2003 2002 2001

Paradox
2003 2004 One Manager Banker

?
(thank you prof. Capkun)
8048
(1428)
16% 15043
(7455)
17815 50%
(2924)
16% 320 pages
 Aventis Sanofi-Aventis

R&D expenses
22941 20622 17815
(3481) (3420) (2924)
15% 17% 16% +
…. 2001 2002 2003 2004
($5046) ($2409)

R&D expenses ($7455)

Net Sales 15043
R&D intensity 50%
 Sanofi-Aventis

2004 2006 2007 2008

Net Sales 15043 28373 28052 27568

R&D expenses (7455) (4430) (4537) (4575)
R&D intensity 50% 16% 16% 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.

?
Pharmacy
Electronics
Software
 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