George Grofik - Sanofi Olivier Brandicourt - Sanofi Peter Guenter - Sanofi Jérôme Contamine - Sanofi Elias E. Zerhouni - Sanofi David P. Meeker - Sanofi Karen Linehan - Sanofi.

Tim M. Race - Deutsche Bank AG (Broker UK) Seamus Fernandez - Leerink Partners LLC Vincent Meunier - Morgan Stanley & Co. International Plc Peter Verdult - Citigroup Global Markets Ltd. Johannah H. Walton - Credit Suisse Securities (Europe) Ltd.

Graham Parry - Bank of America Merrill Lynch Florent Cespedes - Société Générale SA (France) Luisa Hector - Exane BNP Paribas Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC.

Ladies and gentlemen, good afternoon. Welcome to the Sanofi Q3 2016 Results Conference Call and Live Webcast. I am Sarah, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. After the presentation, there will be a Q&A session.

The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. George Grofik, Vice President, Head of Investor Relations at Sanofi. Please go ahead, sir..

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Sanofi's third quarter 2016 results. As usual, you can find the slides of the call on the Investor's page of our website at sanofi.com.

Moving to slide 2, I would like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.

I refer you to our Form 20-F document on file with the SEC and also our document de référence for a description of these risk factors. With that, please advance to slide 3, and let me introduce our speakers on the call today.

With me are Olivier Brandicourt, Chief Executive Officer; Jérôme Contamine, Executive Vice President and Chief Financial Officer; as well as Peter Guenter, Executive Vice President, Diabetes & Cardiovascular.

Also, joining us today for the Q&A session are Olivier Charmeil, Executive Vice President, General Medicines and Emerging Markets; Carsten Hellman, Executive Vice President, Merial; David Loew, Executive Vice President, Sanofi Pasteur; and David Meeker, Executive Vice President, Sanofi Genzyme; and Elias Zerhouni, President, Global R&D.

First, Olivier will discuss the key highlights of the third quarter, then Peter will provide you with a review of the Diabetes & Cardiovascular business unit and more specifically give you an update on the U.S. diabetes payer contracting decision. After that Jérôme will review Sanofi's financial results before we open the call to Q&A.

Before we start, I'd like to remind you of some important accounting items affecting the third quarter. As a result of the announcement of exclusive negotiations with Boehringer Ingelheim on the planned asset swap, certain changes in the way we report and present our results are required.

Under current IFRS accounting standards, we need to report Animal Health separately as a discontinued operation. However, to help you with your year-over-year comparisons, we will use the term "aggregate", which simply means that our Animal Health business is included in our financial result lines as before.

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

All right. Thank you, George. Good morning and good afternoon to everyone, and welcome to our third quarter 2016 earnings conference call. Starting with slide number 5, I'd like to highlight the progress we are making by executing on our 2020 roadmap.

The organization is now focused on our strategic priorities and I'm pleased with results we have achieved in this quarter. Aggregate sales, which include Animal Health, were up 3% in the period and business EPS increased by 12.4% at constant exchange rates.

What is especially pleasing this quarter is the clear evidence of improved operational and financial performance from our streamlined GBU organization. Indeed, based on our updated plans, we now expect to deliver cost saving by 2018 of at least €1.5 billion, which will support our financial performance in the coming years.

Moving to my next point, based on our better than expected performance year-to-date, we are raising our business EPS guidance for 2016. We will provide additional detail on this in a minute.

In addition, as a part of our balanced capital allocation strategy, we are announcing today a €3.5 billion share repurchase program to be completed by the end of 2017, starting now.

This figure includes, in addition to our regular buyback activity, the portion of the net proceeds that we will receive from the BI asset swap that we have said would be used to offset dilution.

You should see this announcement both as a continuation of our opportunistic buyback philosophy and as a strong endorsement of the value we currently see in Sanofi and its diversified businesses. Moving on, I would like to briefly update you on the reshaping of our portfolio.

First, we have made a definitive decision to initiate a carve-out process and divest the generics portfolio in Europe. We will keep you informed as we make progress with these plans. Continuing with CHC, I would like to welcome Alan Main, as the head of the newly created Consumer Healthcare GBU.

Also, we continue to expect the closing of the CHC asset swap with Boehringer Ingelheim around year-end. On our major launches, Toujeo continues to perform well in key markets, achieving global sales of €167 million. The launch of Praluent is also progressing globally with total prescriptions increasing 60% sequentially in the third quarter.

The uptake of Dengvaxia is advancing, supported by seven additional approvals since last quarter, as well as the important recommendation by the WHO. However, the pace of Dengvaxia's uptake remains behind our initial expectations. As for the progress in our pipeline, let me point out a few near-term regulatory events.

First, the Dupixent BLA was recently accepted for priority review by FDA with a regulatory decision in March 2017, and we are looking forward to bringing this life-changing innovation to patients. Second, as you know, the PDUFA action date for sarilumab is October 30.

I should note that manufacturing deficiencies, not specifically related to sarilumab, were cited during a routine FDA inspection of current good manufacturing practice at one of our fill and finish plants where sarilumab syringes are filled. We have worked diligently with the FDA to respond to and address these deficiencies.

At this time, however, it is unclear whether this situation will impact the approval of sarilumab on its PDUFA date. We are still awaiting the agency's decision, and may hear from them as early as today.

On LixiLan, in August, we submitted updated information on the LixiLan pen delivery device to the FDA, resulting in an extension of the PDUFA date to November 2016.

Based on the positive vote from the FDA Advisory Committee in May, and the updated delivery device information, we are preparing for the launch of this innovative combination product for adults living with Type II diabetes in the U.S.

Now on slide 6, looking at our sales and operational performance in more detail, this slide depicts the performance benefits supported by the new simplified GBU structure. As mentioned before, aggregate sales increased 3% to €9.7 billion in the quarter. Currencies had a modest negative impact of €90 million, or roughly 1% of sales.

Business EPS in the quarter increased by 12.4% at constant exchange rates to €1.79. Importantly, for the first nine months, EPS grew 5.8%, resulting in our confidence to deliver better than expected EPS in 2016.

Turning to slide 7, looking at our sales performance by GBU, Sanofi Genzyme and Vaccines remained the growth drivers, while Diabetes & Cardiovascular and General Medicines and Emerging Markets have improved compared with the second quarter.

Our Specialty Care business was up 16.9% in the quarter, driven by strong performance of the MS and rare disease franchises. Sanofi Pasteur increased sales by 14.4%, supported by strong sales of influenza vaccines in the U.S.

And lastly, I would also like to point out that the Diabetes & Cardiovascular GBU, which does not include positive growth contribution from emerging markets, declined only modestly down 2.5%. Moving to slide 8, we are looking at sales by franchise and geography.

You can see once again the impressive performance of the Specialty Care franchise, which is consistent across all geographies. By region, Sanofi Genzyme and Diabetes & Cardiovascular led the growth in emerging markets, while in developed markets the main drivers were Sanofi Genzyme and Vaccines.

On the downside, Established Products were negatively impacted in developed markets by the loss of exclusivity of Plavix in Japan last year, and by the absence of Auvi-Q sales in the U.S. Additionally, our CHC franchise was impacted by lower sales in Russia in the face of tough economic conditions.

On slide 9, I want to draw your attention on the key positive and negative drivers of our sales performance on a nine months' basis. As you can see, the year-to-date contribution of over €1.1 billion from new launches more than offset lower sales of Lantus.

Together with a roughly €400 million contribution from our existing portfolio, this allowed our sales to grow by 1.2% in the first nine months in spite of additional headwinds from Venezuela and Plavix in Japan.

Now looking on slide 10 at the GBU one by one, our Specialty Care franchise maintained its strong momentum in the third quarter, and has become – and now represents our biggest growth engine. In MS, we continued to gain share, and sales from the franchise are now approaching €2 billion on an annualized basis.

I'm particularly pleased by the performance of Aubagio, with continued strong sales growth of almost 50% to €334 million and the increasing contribution from Lemtrada. Equally impressive is another quarter of double-digit growth in rare diseases exceeding €700 million.

Now looking at Sanofi Genzyme's next growth opportunities, we believe that our achievement in MS, where we had no preexistence presence, are evidence of our ability to build successful Specialty Care franchises. Moving on to the Vaccine GBU on slide 11, sales were up 14.4% in the quarter, driven by early flu vaccines shipments in the U.S.

and the successful execution of our differentiation strategy. While we are ahead of our shipped volume compared to last year, you should not extrapolate this to the fourth quarter, and we are on track to deliver a similar number of doses in 2016 compared to 2015.

As I mentioned earlier, the Dengvaxia launch is progressing with €30 million of sales and multiple new approvals across endemic countries. Third quarter sales mainly reflected the ongoing public immunization programs in the Philippines and in the State of Paraná in Brazil.

Given recent political changes and economic volatility in emerging markets, the number of doses to be shipped in Q4 is expected to be lower. Separately, you may recall our intention to terminate the Sanofi Pasteur MSD joint venture in Europe and we remain on track to conclude this over the coming months.

Slide 12 gives a general performance overview of our Diabetes & Cardiovascular franchise. Globally, diabetes performance declined slightly in the third quarter with strong sales in emerging market and stable European sales offsetting the decline in the U.S.

With that the launch of Toujeo continued to capture share in key markets and sales reached €167 million. This was supported by a consistent performance in the U.S. where Toujeo now represents 6.6% of total basal insulin market share.

In our cardiovascular business, Praluent sales reached €35 million, and Peter will discuss later our latest marketing initiatives. Looking ahead in diabetes, we reaffirm our previous global diabetes franchise guidance for minus 4% to minus 8% compounded annual rate of decline for the period 2015 to 2018.

Of course, I'll remind you that we can be above or below this range in any given year. Our assessment of the guidance is based on the global franchise performance to-date and our current view of the U.S. diabetes pricing environment.

Switching gears to our Consumer Healthcare business on slide 13, while global sales were stable in the quarter, performance was mixed in developed and emerging markets. Adjusting for minor divestment, developed market grew 1.3% impacted by a mild U.S. allergy season.

On the other hand, I'm not satisfied with the sales decline of around 5% in emerging markets, mainly due to the challenging economic environment in Russia. As introduced earlier, Alan Main recently joined Sanofi as the head of the newly created Consumer Healthcare GBU.

In addition to overseeing the integration of the BI business, one of his key objectives will be to return the business to our ambition of sustainable mid-single-digit growth. Turning to slide 14, we now look at the Established Product business. As mentioned, developed market performance was impacted by Plavix in Japan and Auvi-Q.

However, sales in emerging market grew slightly due to the good performance of legacy cardiovascular brands, partly offset by tough comparison in Latin America. As I have noted, we recently completed our review of the EU Generic business, and have made definitive decision to carve-out and divest the portfolio.

Turning to slide 15, you can see this quarter once again that our balanced geographical profile remains one of Sanofi's key strength. In the important emerging markets, we maintain our leadership position with solid growth across most regions, and total sales of more than €2.5 billion in the quarter.

I would like to end my opening remarks by summarizing our upcoming R&D milestones on slide 16. This is an exciting time at Sanofi, with the potential approval of a few key products over the next 12 months, as well as a number of additional regulatory submissions, pivotal readouts and Phase III starts.

The coming months should be additional – we should see additional regulatory approval for Dengvaxia in endemic countries as well as the FDA decision on LixiLan in November, which I referred earlier. The first regulatory decision for Dupixent in atopic dermatitis is expected from FDA in March, 2017.

Further regulatory submissions in the EU and Japan expected before the end of the year. In addition, we are nearing completion of enrollment in the pivotal trial for asthma, our second targeted indication. Finally, I want to highlight that we expect to start eight Phase III studies for six important assets in the next 12 months.

This includes advancing three programs into Phase III before the end of the year as well as starting up to four potential new indications and label expansions for Dupixent in the first half of 2017.

I would like to point out that the FDA recently granted breakthrough designation status for dupilumab in atopic dermatitis for adolescents age 12 to 18 in moderate to severe patients, and age 6 to 11 for severe patients.

With that, I'd like to turn the call to Peter Guenter, our Head of DCV, to provide an update on the formulary status of Lantus and Toujeo in the U.S. in 2017, and on the launch progress on Praluent.

Peter?.

Thank you, Olivier. And good morning, good afternoon to everybody. So, if we look at slide 18 starting with the 2017 U.S. payer decisions in diabetes, you can see here a detailed analysis of the formulary status for our two brands in the glargine franchise, Lantus and Toujeo. Based on confirmed U.S.

payer decisions for 2017, this slide provides a comparison of the coverage situation for next year compared to this year. Actually, there are two key messages here.

Number one, despite the decline in the percentage of covered lives on commercial plans, the overall coverage situation for Lantus and Toujeo will remain favorable with two thirds of commercial lives confirmed to be covered in 2017.

Number two, as you can see from the green bars on the bottom of the slide, preferred formulary status of Lantus and Toujeo under Medicare Part D will remain largely unchanged in 2017 with close to 90% coverage in 2017.

I remind you that the split in terms of volume between our commercial business and Medicare for the glargine franchise is overall roughly one-third each with the balance being in the government channels.

As far as the commercial lives are concerned, coverage decisions from a number of commercial plans are still pending, representing about 15% of commercial lives based on our current account analysis and available third-party data.

These pending decisions are illustrated by the gray segments in the bar charts on the top and mainly represented by custom plans under CVS and other smaller regional plans. We continue to be in active discussions with these insurers, but we are optimistic that many of these plans will ultimately decide to cover Lantus and Toujeo.

Along these lines, we were recently successful in retaining coverage for the large CVS custom clients, Blue Cross Blue Shield's federal employees, which represents roughly 5.4 million lives.

In summary, you can see that the decline in covered lives under commercial plans in 2017 for both brands is mainly due to the previously communicated exclusion decisions by CVS and to a lesser extent United Healthcare.

Their decisions will affect many patients who may have been well controlled on Lantus or Toujeo, and may now need to switch therapies or possibly face much higher out-of-pocket costs.

My final comment on this slide is that we now have considerable clarity about our outlook for 2017, which is important for budgeting at both the GBU and the company level. If we move to the next slide, I would like to update you on the progress we are making with the launch of Praluent.

We remain committed to unlocking the value of this important innovation for patients and physicians. Our persistent efforts to overcome the barriers to access due to payer restrictions and onerous utilization management criteria are showing some initial success with total prescriptions up by 60% in the quarter sequentially.

In our conversations and interactions with healthcare professionals, we introduced several useful educational tools, which enable them to identify appropriate patient profiles and ease the navigation through the payer restriction process.

In Europe, we are also encouraged by the recent introduction of the PCSK9 class in the updated dyslipidemia guidelines of the European Society of Cardiology. Finally, in order to provide further evidence of the clinical benefit of PCSK9 for diabetic patients, we also expect results from the Praluent life cycle management development program in 2017.

And, as you know, the second interim analysis for the ODYSSEY OUTCOMES study is expected to take place this quarter. With that, I would like to turn the call over to Jérôme for financial results..

Thank you, Peter, and good morning, good afternoon, to everyone. And moving to slide 21, as Olivier mentioned already, we are pleased to report a strong third quarter performance with both an increase in sales on operating leverage throughout our P&L leading to double-digit business EPS growth.

Aggregate company sales were up 3% at constant exchange rate in the quarter to almost €9.7 billion. Gross profit was up even more, 4.6% to €6.9 billion affecting cost savings on mix. It is important to note that operating expenses were down 1.1% in the quarter.

While we continue to invest behind our key brands on launches, this was more than offset by lower G&A expenses on the 6.4% reduction in R&D spend. The net effect of increased sales on improved gross margin on tight cost control drove a 12.8% improvement at constant exchange rate in aggregate business operating income to €3.1 billion.

Tax rate was at 24% leading to a business EPS, up 12.4% over the same period last year to €1.79 per share. For the whole 2016, I can confirm that the tax rate will be within the range of 24% to 24.5%, perhaps more toward the high end of the range. I remind you that in the fourth quarter of last year, we had an exceptionally low tax rate of 19.5%.

If we now move to slide 22, we can see more on the improvement in gross margin on the reduction in operating expenses. Regarding the gross margin, after reporting a 30 basis points improvement in Q2, we report today 110 basis point improvements in Q3.

This positive trend reflects a combination of favorable product mix on production yields together with the impact from our cost savings program. On operating expenses, while launch costs drove a 3.3% increase in marketing expenses we also benefited from a 2.4% reduction in G&A expenses, largely due to cost savings initiatives.

R&D spending declined 6.4% in Q3 due to lower spend on Praluent and dupilumab as key programs have completed, as well as cost containment actions. These positive trends allow us to revise our expectations on our cost ratios of full-year 2016.

We now expect our gross margin to be around 70% for the year, up from our previous expectation of above 69% and below 70%. With regards to operating expenses we now expect them to grow in low single-digits instead of mid-single-digits previously.

Turning briefly to slide 23, which tracks the FX impact on our reported financial results, the only comment I would like to make is that the currency effect has begun to ease, but remains a headwind for Sanofi with a roughly 1% negative impact on sales and EPS in the quarter.

I now will turn to slide 24, which shows the development in our net debt, which has decreased by approximately €449 million since end of September (sic) 2015; clearly a stronger decrease during this quarter.

There are several moving parts, but I would like to highlight a strong free cash flow in the first nine months of this year of roughly €4.8 billion. Lastly, before I finish, I wanted to highlight an important change in the presentation of financial data that will take place in the fourth quarter.

As you know, we expect to close the asset swap with Boehringer Ingelheim around year-end. As a consequence, in the fourth quarter of 2016, Sanofi will report the Animal Health results as a separate line of the business net income statement, and the term aggregate will no longer be used for the lines of our business net income statement.

In the coming weeks, we will be sending out financials for the prior few quarters, on a comparable basis to assist in your model. With that, I will turn the call now over to Olivier for his concluding remarks..

Thank you, Jérôme. So to conclude on slide 26, based on our strong third quarter results and the momentum in the business, we are raising our full-year financial guidance. We now expect business EPS to increase 3% to 5% at constant exchange rates, versus our previous guidance of broadly stable.

We continue to anticipate that FX will impact business EPS by around minus 4% on a full-year basis. Also, I know that you are all very interested in our outlook for 2017. We are only part way through the budgeting process for the year ahead, and we will, as usual, provide formal guidance with our full-year results on the 8th of February.

However, I'll remind you that in November last year, we indicated that we do not expect meaningful bottom line growth in 2016 and 2017. In other words, we anticipated broadly flat EPS over the entirety of the two years period compared with the 2015 base at constant currency.

While we cannot specifically comment on next year's earnings, I can say a couple of things here. First, we have not changed this guidance. Second, based on what we have achieved so far this year, I'm very confident in our ability to deliver on the financial objectives we outlined a year ago.

This should provide you with some level of comfort prior to the guidance we will issue next year. And now, we will be very happy to answer the question you may have.

George?.

We will now open up the call to your questions. As a reminder, we'd like to ask you to limit your questions to two each..

The first question is from Tim Race, Deutsche Bank. Please go ahead..

Hi, it's Tim. Thank you for taking my question. So, first of all, just talk about the diabetes business, when you look at the commercial channels, you basically have shown a sort of 31% reduction in the coverage for Lantus in terms of the volume side.

Could you just talk about what we should be expecting in terms of price change? Because, obviously, there's moving parts here, and you've given up some contracts which I assume are lower-priced contracts and not one more (28:02).

So could you just help us understand and put the puzzle together in terms of what the price element of that is? That would be very helpful. Then a small question, if I can, on dupilumab.

Talking about the fill-finish facility for sarilumab, is there any – is this dupilumab going to be made through the same facility and will this potentially hold up (28:24) dupilumab as well? Any comments on that would be very helpful.

And then, finally, if I may, just about capital allocation, you now formally announced buyback with the cash from Boehringer. In recent times, it's felt like you've been very much pressured by your board to do acquisitions. Does this mean acquisitions are off the table now or what is your view on acquisitions (28:47) there? Thank you..

All right. So, Peter, you take diabetes. I'll take dupilumab. Jérôme, you take share buyback. All right.

So, Peter?.

Yeah, Tim. Thanks for your question. Obviously, I cannot go in too many details here because of competitive reasons. I hope you will understand that I cannot disclose any details on that.

However, I think it's important to remind us that within the mix between additional discounts, number of lives that are covered, channel mix which is also an important point that you probably will remember of net pricing, that the important thing is I think that we remain in the guidance that we have previously disclosed.

The only thing I could add as color there is just a remark on the third quarter, where you see the U.S. let's say glargine business decreasing by 5%. Actually, this is the sum of a roughly 5% uplift in volume, and by default you can calculate that there is a 10% price effect in Q3 and actually this price effect is pure channel mix.

So this is really the increase of the Medicaid channel. But you will understand that I cannot disclose moving forward what are the detailed elements of this element. Thank you..

All right. Thank you, Peter. On sarilumab, let me talk, step back and talk a little bit about the situation here. So, we're mentioning manufacturing deficiencies, well that was observed in our fill and finish facility, that is, in Le Trait in France during a routine CGMP inspection.

And those deficiency may potentially impact the approval of sarilumab, which again as I mentioned has an action date of October 30, which is Sunday. And we are making this disclosure since the timing of our third quarter today is approximately at the same time as the expected PDUFA date for sarilumab.

So, we are working together with Regeneron and very closely with the FDA to remediate and resolve those issue as quickly as possible. And we have already submitted very comprehensive responses to the FDA. And we are working to resolve this issue very expeditiously.

So, we do not expect these observations to impact supply, either of currently marketed products or other products that are under regulatory review. And dupilumab is one of them. We do not expect this to impact dupilumab. We expect this matter to be resolved before the expected March 29's PDUFA date.

And in addition, we have redundant capabilities if necessary. So that's what I would say regarding dupilumab.

And then, Jérôme, the third question?.

Yes, Olivier. And, Tim, thank you for the question. So, as you know we are historically been used to conduct opportunistic share buyback in the range of €1.5 billion to €1.8 billion per year.

We felt that looking at where the share price rose, but also taking into account that the achievement or the closing of the swap with Boehringer we would need to give more clarity to you guys and to the Street, and clearly state that we are going to buy €3.5 billion as we announced today, over the period starting as from now, or I'd say tomorrow, and the end of 2017.

So I think, first and foremost, it was really to give clarity. And you could say that roughly two-third of this share buyback is related to the anti-dilution requirement in connection with the BI transaction as the rest is more – should be more regarded as a regular opportunistic repurchase activity.

Clearly, this would not preclude us from continuing opportunistic purchases once we have reached this figure, as we go along the road.

When it comes to acquisition, and maybe Olivier would like to comment more; but A, what I'd like to say that while this is not really limiting our financial flexibility, you've seen that we can raise financing and loans at low rates.

Now our M&A strategy remains to be very disciplined and to focus on both the strategy and the value creation to shareholders. So this will be a criteria we are going to continue to use. So I think that's what I wanted to say, but Olivier....

Just let me, I mean, frankly, nothing has changed in our approach and we will continue to apply exactly the same strategic and value creation criteria to any business development transactions that we consider. And, again, we have a strong balance sheet with lower net debt.

We have strong free cash flow generation so – and our cost of borrowing, as you have seen very recently, has been very low. So all of that allow us to act swiftly, if needed. And if attractive opportunities arise at valuations that allow us, again, like Jérôme was saying, to create long-term shareholder value.

So that is, I think, the answer to your question, Tim. Thank you very much..

Great. Thank you..

The next question is from Seamus Fernandez from Leerink. Please go ahead..

Oh, thanks for the question. So just a couple here. Can you just update us on really what's – obviously, you feel confident that you'll be able to get the transaction done by the end of this year with Boehringer Ingelheim, but just remind us a little bit of what the issues have been.

It looks like it's primarily overlap with Merial and now that appears to be resolved largely, sorry, there's a little bit of feedback – that appears to be largely resolved with the sale of the vaccines portion of that business to Lilly.

Just wanted to confirm that that's the case and there are no material changes in the expectations for revenue or any divestitures in the CHC portion of the business that you would get from Boehringer Ingelheim.

Separate question on the M&A strategy, Olivier, could you comment a little bit more on your thoughts around M&A in oncology versus other areas of focus? Where would you really feel that Sanofi is best leveraged to focus their M&A efforts on a go-forward basis? And then the final question, just in terms of the overall diabetes strategy, obviously it looks like you guys feel confident that a launch of LixiLan is coming up.

But in terms of some of the other deals that you did last year for the longer acting agents with Hanmi as well as the SGLT1-2 product, can you just update us on your thoughts and views on the appeal of continuing to put forward significant effort R&D effort in the diabetes space, given the rapidly changing environment? Thanks..

All right. So three questions. I'll take the M&A. Jérôme, you take BI. Peter, you take diabetes questions. All right.

So on the oncology, after mitigation we have, however, confident that we can rebuild a meaningful position, or as marked position in oncology, and that would be based mainly on our internal pipeline and the relatively large number of external collaboration not only with Regeneron, but also with BioNTech with Innate Pharma and so forth.

So, however, we have to acknowledge that we take time, but the market opportunity in oncology in the future is, as we know, very substantial. And we consider that we have some high potential assets like isatuximab. So again, we were disappointed not to acquire Medivation, but it's not the end of our presence in oncology.

When it comes to what is going to be our interest in the future, oncology is still part of it, if we are finding potential targets which make sense strategically and economically.

But we are opening our M&A strategy to what we said last year, which is a segment where we consider that we have established, already, some good presence, but we need to strengthen that presence by inorganic growth. And so, we mentioned several things last year. We mentioned immunology, we mentioned MS.

Even in the first market, if you think about it, we are in genetic rare diseases, so rare disease can be also an area. We have done what we think was possible last year through both business development in diabetes. So that's where we're going to be very, very consistent with what we told you last year.

That's, in fact, is my message here, because it makes sense strategically. All right, so that's mine. BI, do you want to....

Yeah, maybe I can, quickly, yeah, I mean as you remember and as you understood I mean, the regulatory conditions for the closing were, of course, high on the agenda. I think BI has progressed very well on their side. As far as we're concerned when it comes to CHC, basically what we have agreed to divest is absolutely minimal. It's ongoing.

It's a few limited products with a value or sale within the range of €10 million or €15 million, so very limited. So, we really feel that while it's a very complex transaction we are really getting close to – clearly being able to close, as we said, around year-end..

All right. Thank you very much, Jérôme. Before I hand over to Peter, just allow me, you may have seen the press release and we have the same indication on one of our slide. Our Phase III starts has been delayed from this quarter to 2017 for the long-acting GLP-1, and that is due to a manufacturing issue.

Now I'd like also – you asked a question I think on sota.

And maybe Elias, do you want to give an update of where we stand with...?.

Sure. I can. I mean sota clearly is a product of the SGLT2 class, but it's different in the sense that it has an SGLT1 effect and this is what our interest in it was. And the second interest is obviously the potential impact of outcomes on the class. And so, we're very interested in pursuing sota.

We've had the type 1 diabetes results that Lexicon now published, which are in my view very encouraging, so we're going full blast ahead in terms of starting Phase IIIs right now, looking at the best way to design the OUTCOME studies to really differentiate this SGLT1, SGLT2 mix product, which could have quite an advantage in patients with renal insufficiency – degrees of renal insufficiencies.

And could also be of help in patients with type 1 diabetes, as you know. So we're continuing with all speed, the development of sota, because we do believe that it will be an important part of the portfolio of therapies in diabetes for long-term..

All right. Thank you very much, Elias.

LixiLan, Peter?.

The other question was on LixiLan. Obviously, yes, we are very excited on LixiLan. PDUFA date is in November, so we are preparing for the launch. As you know, what makes this product particular for us is that it goes extremely well together with Lantus, of course. You know the FPG effect of Lantus, the PPG effect of the lixisenatide.

You also know that we have a possibility to price the products I would say in a pragmatic way, given let's say the price levels where the individual components are. So yes, we continue to believe that the LixiLan, or SOLIQUA as it will be called in the U.S., is going to be a very good addendum to our portfolio.

The last point I would add on your question on what all this pricing environment in the U.S.

means for the strategy, I think you got some good answers from Elias on the differentiation potential of sota; but on top I would like to also mention to you that of course the more we build our portfolio in a broader way, the more we will be also capable vis-à-vis payers to try to broaden the discussions into portfolio discussions.

So that is also an important element, which you have to take into account, pursuing the development of those new compounds..

Thank you, Peter. Thank you, Seamus..

Operator, next question, please?.

The next question is from Vincent Meunier from Morgan Stanley. Please go ahead..

Good afternoon. Thank you taking my question.

So, the first one is on the guidance, just to have clarification please, should we see 2017 versus 2015 only or 2017 versus 2016? Because if 2016 is now slightly up, it means that there is a possibility for 2017 to be at the level of 2016 or at the level of 2015 and I think that clarification will be very, very helpful. Thank you in advance.

Second question is on the profitability of Lantus.

Can you please tell us what is the profitability in Medicare versus the profitability in commercial preferred? And also, how do you think you can retain the patients in the commercial non-preferred, do you think that it implies a big rebate discount?.

All right. Thank you very much, Vincent. So, for the guidance of 2017 is exactly what I said in my remarks, and I hope they were clear. So, since we were expecting 2016 and 2017 without any meaningful growth, we said that would be versus a base which would be EPS 2015.

And when I'm telling you that the guidance has not changed, it is positioning 2017 versus 2015, and not versus 2016. Now that 2016 has clearly changed and is beyond what we initially thought it would be, which is broadly stable, since we are changing our guidance to therefore 2016 to 3% to 5%. So that's what we meant.

And again, we will give you the more final and more granular guidance on February the 8, when we will have a chance to go through our budget reviews, which frankly we are starting now. We're going to be very busy in the next 45 days, and we're just initiating that process. So for now that's what we can tell you. All right.

So, the next question has to do with diabetes..

It's Peter. Hello, Vincent. So, your question is on profitability of Lantus in commercial versus Part D.

Of course, again, for competitive reasons I cannot give you the full details, but directionally I can tell you, of course, that the commercial segment is more profitable than the Part D segment for the simple reason that the contribution that you have to face at pharmaceutical company in the coverage gaps in the Part D segment is, of course, hampering them at the relative profitability of the Part D vis-à-vis commercial, but I can tell you that Part D remains an interesting and profitable segment.

Your second question was about with pension tactics in the non-preferred, so covered but non-preferred in commercial. So there yes, we feel confident that we can pull through those non-preferred segments. We have done that in the past quite successfully and we are confident that we will do that again in the future.

So that is what I can answer to your question. Thank you..

All right. Thank you very much, Peter. Thank you, Vincent..

Thank you..

Our next question is from Peter Verdult from Citi. Please go ahead..

Thank you. It's Peter Verdult here from Citi. Two questions for Peter and if you will allow one quick one for Elias. Just on Praluent, access restrictions have clearly frustrated both you and your competitor and there's the potential for outcomes data from both companies coming out in the next few months.

So, I just wanted to get a sense, will it make a difference in your view to next year's contract negotiations with payers? Or do you still expect payers to resist until if we assume it is positive that data is on the label? Secondly on diabetes, your competitor earlier believes that the pricing downdraft in basal insulin will be most harshly felt in 2017 rather than being a recurring phenomenon of the same magnitude.

Just wanted to know whether you share that view? And if I could just push you on sota, late to the market, no CV outcomes data at time of launch, just wanted to follow up on Seamus' question about how that gets positioned? And then lastly, for Elias on isatuximab, can you just remind us why you're so excited by the asset given the significantly tie-in that DARZALEX has plus the fact that they'll probably be launching a subcutaneous formulation around the same time you launch? Thanks very much..

All right. Thank you, Peter.

Elias, can we start with you, with the last question?.

Yes, sure. So number one, I think the data that we have on isatuximab is quite interesting in the sense that when you look carefully at differentiations we do see the possibilities, both in myeloma and one other liquid tumor. So that's one. The second is, we have a good sense of the combinations that would work to truly achieve superior results.

I want to disclose those right now. So, we do believe that we can carve out a significant position with our CD38 based on what we know of, both combinations and some insights we have into the characteristics of the market.

So, that's why we believe if we can put that in place, achieve some results that I think would give us the significant play not just in myeloma but in other conditions..

Thank you, Elias.

Peter, I think you have three questions, right?.

Yeah. So, Peter, on Praluent access restrictions and your question whether we would have to have CVOT in the label or not before getting to productive talks with payers on relaxing some of those utilization management criteria.

Well, first of all, I would like to tell you that even before the CVOT studies, we are making some successes at least in Part D, and I'm hopeful also in the coming weeks in commercial of some utilization management criteria.

I mentioned to you last quarter that we had two big Medicare Part D plans, which actually took out the step ahead with ezetimibe. So it's not only the CVOT results that allow us to do so. Obviously, the CVOT studies will be a very important, I would say, catalyzer of trying to relax those U.N. criteria.

Now to really give a clear answer to your questions whether we will have to wait until this is in our label or whether we can engage in those discussions in certain negotiation cycles already before, I think that it's a very hard to predict question.

I would imagine that if the body of evidence, by the way, we have the ODYSSEY ESCAPE study published, we will have the CVOT study. Of course, our competitor will add to the scientific body of the class, so I think it will be increasingly the mounting evidence will make it probably moving in a certain direction. Your last question on, sorry, Praluent.

So with basal insulin pricing 2017 versus 2018, again, very hard to predict. I would though say that 2017 or the 2017 negotiations were, of course, done in the context of the LOE of Lantus, let's be clear. So, whether you will see exactly the same, less or more pressure in 2018 is difficult to predict.

Again, in our minus 4% to minus 8% CAGR, we have taken I think what we think is a very reasonable assumption and I would probably keep it there. Last question on sota, and being on time or later with the CVOT at time of launch, two elements of response to that.

Number one is the type 1 results that Elias has already commented, which already differentiate the product per se in type 1. And then the type 2 study is, of course, we are going to start it very soon.

And we take it as a strategic objective for this product to make sure that we come with the CVOT results as soon as possible after we launch the product. So, we will take into account with our design of the study that we tried to get those CVOT results as soon as possible after the launch of the product..

Thank you..

Thank you, Peter.

Operator?.

The next question is from Jo Walton from Credit Suisse. Please go ahead..

Thank you. I've got two questions please. Firstly, thinking of new products and formulary access, I wonder if you could tell us how you think LixiLan might develop next year, because you haven't had an approval in the timeframe that you would normally be using for your 2017 negotiations.

So should we realistically assume that this is going to be pushed out and won't be considered by many of the plans at least until 2018? And on the same vein, I wonder if you could also talk a little bit about the early access and the uptake on dupilumab and how we should be looking at that as a starter? I assume that you'll have quite significant launch costs here and you are, of course, developing a brand-new category, albeit with doctors who have been using biologics.

My second question is one on cost savings, and I wonder if Jérôme could tell us a little bit more about why he is now confident the gross margin can be over 70%, whereas earlier this year it was going to be 69% to 70%? So what has changed there and is that something that will keep going forwards? I wonder if you could also perhaps illustrate for us some of the concrete things that you're doing in the way of cost savings.

It's always an axiom of life that French companies try cost savings and never really get very far. You seem to be able to be very confident that you can deliver it, so I wonder if you could just give us some concrete examples that we can point to so that we can be sure that they will come through..

All right. Thank you, Jo. LixiLan for Peter. Early access work on dupilumab and shaping that piece for David Meeker.

And Jérôme on the cost aspect, okay? Do you want to start?.

Yes. Sure. Hello, Jo. So on LixiLan, so if you take into account a launch early next year, it means that we will be able, of course, to have commercial access. We have done that, again, in the past. And for new products you can have, I would call it, upfront discussions with commercial plans to progressively build up your access.

Of course, you know that we can also tactically, I would say, mitigate let's say the early launch phase where probably the degree of access will be relatively thin, at least in the commercial segment with couponing.

So, we feel confident that we will progressively build up that access in the course of 2017 already, and we will not have to wait for 2018 for LixiLan. In Part D, the situation is probably a little bit different, but we will focus first on the commercial piece..

All right. Thank you.

David, do you want to cover dupi?.

Yes. So dupilumab is, we all know it's a new world. So clearly in terms of how payers are reacting to new products, we have to be a bit careful in terms of what we project.

But this is a new product in a truly unmet need area, so there aren't existing products that would be corollaries or parallels to this that are already fixed in place that would need to be computed against in a contracting standpoint. So, we expect we will get good access from the time of launch with a PDUFA date set for March 29 as you know.

We are investing behind the product, of course. This is a very significant opportunity for Sanofi and Regeneron, and so we will put the resources behind that.

I think what you should all realize and understand is that although it's a new area, the level of awareness around this drug – we were just recently at the European Academy of Dermatology and that's a broad dermatology meeting, but the prominence of dupilumab and the excitement around this product coming into that disease area, atopic dermatitis where the unmet need is so great, was quite profound.

And the other piece I'll leave with it closing, is that, there's about – although it's a new area and we do have to build it, there's about 200,000 patients to 300,000 patients today in the U.S. who have atopic dermatitis who are being treated with immunosuppressants. So that means that they're on drugs that aren't approved for that indication.

They're drugs with significant toxicities, and it means the patients are in the system. They're being seen by physicians who have an aggressive mindset, if you will, or a willingness to use those kind of drugs, and the patients have demonstrated an ability to advocate for themselves to get the drugs. So, there's a strong base here from which we start.

And I'll close..

Thank you very much, David.

Jérôme?.

Yeah, Jo, we are still, I would not say early, but after nine months after we announce our cost saving plan for the years 2016 to 2018, and what make us comfortable to confirm that we are going to generate at least €1.5 billion is clearly what we have achieved so far, but also the actions that we have implemented at the various part of the organization, whether you are in the industrial part, or in the general function, global function part, or in the business unit.

I think we'll be in the position to give maybe more clarity after one year. Again, I'll refer to what Olivier said before, that we are just going through the budget process, this is where you can really identify in detail the savings.

So when we can at year-end and when we release our full-year results, we'll be in a position to be maybe more precise on your question of what could be our expectations. Now when it comes to gross margins, I think the figures speak for themselves. I mean, if I look at the performance so far, we are ahead of our budget. We are ahead of what we expected.

And the reasons are a combination of adequate portfolio, which by the way includes good management of sales and actions to really focus on the products which are generating the highest profitability in each and every country or part of the organization. The second is around yield and productivity in general.

So not just saving costs but also how you get to better yield. I think you can see that whether you are in a vaccine or in a biological activity or more generally in our pharm activity. On the third, clearly is about cost cutting or cost management, and here maybe just to completely answer.

I think that's under the leadership of Olivier, I mean we mentioned last year that we were heading to a new organization around a more focused organization of our business unit on one hand, and global function on the other arm. And you cannot imagine how much it's overhauling of the company. It's a huge, huge effort we are doing.

And you see the results, because we get not only to a better cost cutting, but also with the cost management of what we're doing in each and every part of the organization. And more than anything else, I mean, to what's making us comfortable that we are going to sustain this level of savings and hopefully get more. So, again, that's very long answer.

I think this is probably what I would say so far. I mean, a lot is derived from these three organizations that we have been put in place around global business units, which are very focused, and global functions, which are streamlined over time..

Okay. Thank you, Jérôme. Thank you, Jo.

Next question, please?.

The next question is from Graham Parry from Merrill Lynch. Please go ahead..

Okay. Thanks for taking my questions. So thank you for the contract positioning data on slide 18. I think overall it looks to imply about a 20% lost coverage by volume into 2017. Is there any reason, therefore, we shouldn't expect U.S. Lantus volumes to decline by an equivalent amount? If you could talk to any of the factors there.

And then secondly, I'm just trying to square the circle on why Novo is changing guidance into 2017 and beyond and Sanofi isn't.

So having lost the CVS and United contracts, did that change your behavior for Part D and remaining commercial contracts, have you been a lot more aggressive in using price to pursue some of the other contracts so you are winning on volumes perhaps and they are losing out there to a certain extent? And then thirdly, if you could give us a feel for what percentage coverage of Praluent is now prior authorization and requiring both two statins and a Zetia or Vytorin failure and how that has changed since the beginning of the year? Thank you..

Sure. I think Peter it's still you for the two questions here..

Yeah, Graham. So on the percentage decline, so again taking into account that we basically retain our full coverage for Medicare Part D, and that in commercial you still have the 15% bucket where decisions are pending, but again where we feel relatively confident.

So if you would then take, if you would single out, if you will, the CVS commercial non-custom plans and then the United Healthcare, I can give you an indication in terms of volume that represents something, well let's say a high single-digits, nothing more, nothing less. So that gives you an indication of what could be the impact on our volume.

Of course, if you would assume that indeed, 100% of those non-covered lives would indeed be leaving Lantus either Toujeo. Your second question is on the, why don't we change our guidance and Novo did. Well, I think I'm not going to comment on the Novo piece of that.

But I think it's fair to assume that when we issued our guidance two years ago, the famous minus 4% to minus 8%, that we have taken into account a certain number of things that we felt were coming, and that it's probably a tribute to I would say reasonable and cautious planning when we give our guidances.

Now on your third question, not sure I have all the details here, but I would say that last quarter I told you that there were two plans actually that we removed the step edit of Zetia Part D. One of those, and I have some interesting data here to share was OptumRx.

And we see indeed that since that step edit was actually taken off, we see a very nice update of the Medicare Part D business in OptumRx, where the volumes have been more than twice the commercial volume since taking a day off Zetia's step edit. That's basically what I can say..

And the last piece of the percentage coverage of Praluent....

Well, overall, Praluent – I mean, the coverage is not really the issue, right? We have a very, very large coverage, whether it's in commercial or Part D. As you know, the issue is really the utilization management criteria and that is really what we're working hard pre-CVOT and post-CVOT..

If I can just follow-up actually on (63:55), the coverage question is on the percentage of plans with step edits include Vytorin.

And the Novo question was really a post-CVS, did you change your contacting behavior? So did that surprise you a little bit? Did it make you rethink your strategy in any way?.

Well on the Novo for, let's say, the pricing question. Of course, as we mentioned, we are disappointed with some of those decisions. And it's true that also some of our competitors apparently have discounted very, very aggressively. But, again, we anticipated this to some extent and therefore we are today in a position to confirm that guidance..

Okay..

All right..

The next question is from Florent Cespedes from Société Générale. Please go ahead..

Good afternoon, gentlemen. Thank you very much for taking my questions.

A quick one, first on the diabetes in the U.S., could you share with us why you were able to protect part of the access in Medicare channels versus the commercial and how confident are you to retain such a position in the coming years? And second question on the M&A opportunities, could you consider some acquisitions outside the prescriptions such as the consumer and what kind of assets could you looking for, a local brand, global brand, and if a big asset may be for sale would you consider to buy it knowing that you have to work on the integration of Boehringer Ingelheim? Thank you..

Okay. Thank you, Florent.

Diabetes Medicare?.

Yeah. So, Florent, for Medicare Part D, it's true that so we kept nearly everything in 2017. I cannot judge about the strategy and the rebating strategy of our competitors. The only thing I can tell you is that we were able with discount levels that we had deemed appropriate to keep those positions.

I think probably it is a little bit driven by my early remarks that the Part D segment is a little bit less profitable than the commercial segment, because of the coverage gap contribution. So this might be an indication why some of our competitors might have been more aggressive in the commercial channel than in the Part D channel..

Okay. And so on the M&A for CHC, we consider that we've done a pretty good first step here to strengthen the Sanofi side of it with the BI swap.

Now having said that, it doesn't mean that we would not be opportunistic, right, if opportunity arrives either through BD&L local or maybe more global brands or eventually beyond that, if the opportunity presents itself. So again, the answer is not no.

However, we still need to first absorb this large acquisition for this segment, stay opportunistic and eventually consider other non-CHC and pharmaceutical opportunities. So it's part of the equation, yes. Thank you, Florent..

The next question is from Luisa Hector, Exane. Please go ahead..

Oh, hello. Thank you for taking my questions.

So just looking at the upgrade of guidance to 2016, could you comment on the key issues driving that whether what has gone better versus your original expectation of broadly stable whether it's diabetes, perhaps cost savings or some of the buyback that you can achieve this year? And then secondly, would you be able to give us some color on how the net price of Lantus compares to the net price of Toujeo in the U.S.

please? Thank you..

Thank you, Luisa.

Do you want to start, Peter, with net price?.

Yeah, I can take that question. So, thank you, Luisa. So, of course, you know that the channel mix between Toujeo and Lantus is very different, and that impacts of course the overall I would call it net blended price. And therefore, the net blended price of Toujeo is superior to the net blended price of Lantus.

This being said, if you would compare the net price of Toujeo and Lantus in the same channel, prices are very similar. There is a very, very small premium of Toujeo if you would take that comparison..

All right. And on the guidance, so you've seen that we are year-to-date, all right, at 4.8%. And I think we're getting to a 3% to 5% at CER, because it reflects the solid progress we've made both in term of execution and in achieving and you heard that from Jérôme earlier on saving and efficiencies under our simplified GBU structure.

So, 3% to 5% because at the same time, there is good momentum going on, but there are also operational uncertainties at the same time during Q4. It's always a question mark around some of the rebates, and the back bills from Medicaid. As you may remember, we also have uncertainty around timing of shipments, mainly in the vaccine area.

And we had last year an amount of efficiency that we may not be able to achieve this year, and especially around the tax rate, which is always a very complex matter. In addition, last year, we had negative and positive, which were kind of offsetting each other.

And in addition to the very low tax rate at 19.5% we had, we also had some capital gains around €18 million plus before tax resulting from the sales of several small products. So overall, we're very comfortable that the range we have provided takes full account of those different elements. All right.

I think it's time for the last question, operator?.

The last question is from Tim Anderson from Bernstein. Please go ahead..

Thank you. Couple of questions.

On Praluent litigation, if you were to be blocked, what's the backup plan? What would happen differently at the company? Are you so confident that you don't even need to have a backup plan in place? And then second question is again going back to M&A, over time it seems like Sanofi is a fairly valuation discipline which, of course, is a good thing.

But when you're looking for targets in the biopharma space, it's tough for me to see how you can ever really find value, given the very competitive bidding process.

And that makes me wonder if you might consider doing a larger deal bigger than what you've articulated in the past because when you get into the big cap names you can make much more of a value case?.

All right, Tim. Let me ask our General Counsel to give you first the latest stages of the litigation with Amgen on this. So, Karen, to you..

Thank you. As you know, since May, we'd been waiting for the court, the judge to rule on our post-trial motion. She has not done so. And we saw some speculation in the press last week where they said this judge typically does not reverse on appeal. And while we need to clarify that.

In fact, you have to look at her rulings not as one, but several issues, and each issue is looked at individually. And in fact, she's been overturned on appeal in almost 50% of her cases. So that's the first point.

In terms of how we feel, we feel the law and the facts are on our side, and if there were an injunction ruling, we would immediately do an emergency appeal. And we feel that at the next level we would be successful in having the injunction lifted pending the CAFC doing a ruling.

And again, we're looking at what has been done in the lower courts because again, we believe the law is actually on our side as there were some critical rulings that the judge made that should be overturned..

Okay. Thank you very much, Karen. Tim, I would prefer not to get in the backup plan for many different reasons at this stage. It may just not be entirely appropriate from a competitive point of view. So moving to your next question on M&A. I understand and I hear what you're saying, which has been definitely true for what we have tried on Medivation.

Does that mean it would be the same with dramatically in the different GA's we have mentioned earlier? Maybe not. What we have to consider is that, generally speaking to your point, it's going to be competitive, or very competitive.

But we answer your question by saying nothing really has changed versus what we have said all along for the last 12 months or so. So, we're going for targets which are considered to be bolt-on or up to mid-size acquisitions in the range of €20 billion. So I think that is remaining exactly the same..

Okay. So with that, thank you very much, everyone, for attending and asking questions. We wish you a good rest of the day. Thank you very much, everyone..

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