George Grofik - Sanofi Olivier Brandicourt - Sanofi Bill Sibold - Sanofi Jérôme Contamine - Sanofi Alan J. Main - Sanofi Elias E. Zerhouni - Sanofi Stefan Oelrich - Sanofi David Loew - Sanofi.

Patrick Chen - Morgan Stanley & Co. International Plc Philippe Lanone - Natixis SA Luisa Hector - Exane Ltd. Seamus Fernandez - Leerink Partners LLC Florent Cespedes - Société Générale SA Graham Parry - Bank of America Merrill Lynch Jo Walton - Credit Suisse Securities (Europe) Ltd.

Richard Vosser - JPMorgan Securities Plc Peter Verdult - Citigroup Global Markets Ltd. Tim Anderson - Sanford C. Bernstein & Co. LLC.

Ladies and gentlemen, good morning or afternoon. Welcome to the Sanofi Q3 2017 Earnings Results Conference Call and Live Webcast. I am Emma the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. After the presentation, you will have the opportunity to ask questions.

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 results. As usual, you can find the slides of this 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 contain 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 today.

With me are Olivier Brandicourt, Chief Executive Officer; Jérôme Contamine, Executive Vice President and Chief Financial Officer; and Bill Sibold, Executive Vice President, Sanofi Genzyme.

Also joining us for the Q&A session are Olivier Charmeil, Executive Vice President, General Medicines and Emerging Markets; Karen Linehan, Executive Vice President, Legal Affairs and General Counsel; David Loew, Executive Vice President, Sanofi Pasteur; and Alan Main, Executive Vice President, Consumer Healthcare; Stefan Oelrich, Executive Vice President, Diabetes & Cardiovascular; and Elias Zerhouni, President, Global R&D.

First, Olivier will discuss the key highlights of the quarter. Then Bill will provide an update on the launch of Dupixent and its development in additional indications. Lastly, Jérôme will review Sanofi's financial results before we open the call to Q&A.

Before we start, I would just like to remind you that as of the start of 2017, Sanofi's financial statements include the impact of the acquisition of the Boehringer Ingelheim Consumer Healthcare business, the divestment of our Animal Health business and the termination of the Sanofi Pasteur European Vaccines JV.

In order to help you compare sales growth rates on a like-for-like basis, we will refer to growth at both constant exchange rates and constant structure. This is denoted in the slides as CER/CS. And with that, I'd like to turn the call over to Olivier..

Thank you, George. Good morning, and good afternoon to everyone, and welcome to our third quarter earnings conference call. On slide 5, you can see that Sanofi delivered steady financial results in the third quarter. On a CER basis, our third quarter sales grew by 4.7% to just over €9 billion, and our business EPS increased by 1.1% to €1.71.

This performance was achieved in spite of significant headwinds in our U.S. Diabetes business and from the arrival of U.S. generic competition to sevelamer. When we look at the results for the nine months, we delivered CER sales growth of 6.2% and business EPS of €4.48, up 2%.

This puts us on track to deliver our full year guidance for broadly stable business EPS. Slide six offers the first nine months of 2017. Changes in structure have had a distorting effect on our sales growth.

So slide 6 shows that if we add back the €1.2 billion of sales that would have been generated if we had owned the BI brands and European vaccines in the first nine months of 2016, then our year-to-date sales growth in CER and at constant structure would have been 1.2%.

In other words, we delivered slight underlying growth despite the accelerated decline in our Diabetes franchise. In the third quarter and on the same basis, our sales would have shown a very slight decline of 0.2% even with the additional impact of U.S. generic competition to sevelamer.

I would also highlight here that over the first nine months, our business operating income grew by 4.1% at CER in constant structure, ahead of 1.2% sales increase, which illustrates the operating leverage we have achieved from our more focused organization. Slide 7, here you can see the sales picture across our five global business units.

In the third quarter, we again delivered strong growth in Sanofi Genzyme and Vaccines, which largely offset the anticipated further decline in our Diabetes & Cardiovascular unit.

The modest sales growth you see in Consumer Healthcare reflected seasonal factors and intensified competition in certain mature markets, and I will comment on this in more detail later. Turning to slide 8, we are now looking at sales by franchise and geography in the third quarter. The overall picture is one of stability.

Of particular note, each of our franchises grew in Emerging Markets, which, once again, contributed strongly to sales in the quarter. You can also see here that the main offsets to our third quarter performance were the pressures on our Diabetes and Established product franchises in developed markets.

Established products were mainly impacted this quarter by the generic competition for sevelamer in the U.S. and Lovenox in the EU, both of which we anticipated and had flagged to you in prior quarters. Turning to our Specialty Care franchise on slide 9, sales grew by 12.5% in the quarter and 13.8% in the first nine months.

The two main drivers were Dupixent, which is off to a strong start in the U.S., with sales of €75 million in the quarter and the continued double-digit growth of our Multiple Sclerosis franchise. On Dupixent, you will hear from Bill Sibold in a few minutes how the U.S.

launch has exceeded our expectations and continues to track strongly across multiple metrics. We also look forward to our first European launch in AD and to the filing of a supplemental BLA in asthma, both before the end of this year. I would also like to highlight the progress being made by Kevzara, our other immunology asset.

We've been clear that it will take time to build sales in the competitive RA market, but we are pleased that Kevzara has already captured a 15% new-to-brand share in the subcutaneous IL-6 category. Moving to Rare Diseases, we saw below trend growth in the quarter of 2.7%.

You should not read too much into this, as sales were impacted both by order timing in Emerging Markets and also by an erosion of minor brands. If we adjust for these factors, the underlying dynamics of our core enzyme replacement therapy franchise remain positive, especially in Fabry and Pompe.

Closing on this slide with our MS franchise, we continued to gain share in an increasingly competitive marketplace, mainly driven by Aubagio. Our overall MS franchise sales grew by 15.7% in the quarter for an annualized run rate of around €2 billion.

Looking at Vaccine on slide 10, we delivered third quarter sales growth of 7.2% at CER and constant structure, in line with our expectations. We continue to see a strong performance from our pediatric combination franchise, mainly comprised of Pentacel and the Axim family.

Here, we posted growth of 21% in the third quarter with a particularly good performance in Emerging Markets, up 36%. As you may recall, some of this growth reflects the return of full supply in China after the market disruption of the prior year. Our U.S.

Flu Vaccine business faced a high base for comparison as we highlighted last quarter, but still achieved growth of 1.8% in a competitive marketplace. In the quarter, we also completed the acquisition of Protein Sciences, and this deal adds the recombinant vaccine, Flublok to our best-in-class U.S.

flu offering, and we expect this to be an important contributor to the growth of this portfolio in the coming years. Before moving on, I'd like to confirm that we continue to drive our European Vaccine business more effectively since the termination of the JV, with growth in the third quarter of 10% at CER and constant structure.

We also strengthened our European portfolio in the quarter with the launch of our quadrivalent vaccine, VaxigripTetra, ahead of the 2017, 2018 flu season. Turning to slide 11. Sales of our Global Diabetes franchise declined 10% in the third quarter, in line with our expectations.

This was primarily driven by a 22% decline in the U.S., which more than offset double-digit growth in Emerging Markets. As a reminder, we said in July that U.S. Diabetes business faces a high base for comparison in the fourth quarter, and this remains the case.

We are though making progress with our two newest products, in particular, Toujeo continues to gain share, especially in Europe and Emerging Markets, and sales grew by 23% in the quarter. Turning to Soliqua, reported sales remain relatively modest, but we are making progress on U.S.

market access with coverage reaching 65% of commercial lives in the quarter. We also received tentative FDA approval in the quarter for our biosimilar lispro called Admelog and are optimistic on a potential approval in the U.S. in the next few months.

Closing here on Praluent, we were of course delighted by the recent appellate court decision to order a new trial and vacate the permanent injunction in our ongoing litigation. This allows us and our partner, Regeneron, to concentrate on building our market position in the U.S.

in the run-up to the critical results from our ODYSSEY OUTCOMES study in first quarter 2018. Turning to slide 12. We promised you a comprehensive update on our U.S. Diabetes contracting for 2018, and I am pleased to report that we have secured coverage of our glargine products on the vast majority of U.S. formularies for the coming year.

Importantly, although some decisions are still pending, each of Lantus and Toujeo has retained around 70% commercial coverage, with around half of lives under preferred stages. In Medicare Part D, our glargine brands have retained a still higher level of coverage at around 80%.

For perspective, in 2017, we expect Medicare to represent around 35% to 40% of our total glargine volume, with commercial generating roughly 25% and the remainder from government channels. As expected, the negotiations with payers were intense, and you should expect average pricing to continue to decline.

Nevertheless, we are pleased overall with the level of access we have retained. Given the increased visibility of our sales performance, we are refining our Global Diabetes sales outlook and we now expect it to decline at an average rate of between 6% and 8% at constant exchange rate over the 2015 to 2018 period.

Turning to slide 13, I mentioned earlier that our Consumer Health business delivered modest growth in the quarter of 1%.

We were pleased with the continued sequential recovery in our CHC business in Emerging Markets where sales grew by 6.7% at CER and constant structure in the quarter, as compared with 4.6% in the second quarter and 1.3% in the first quarter. This improving picture was driven by a return to growth in Russia and a good performance in Brazil.

On the other hand, we continue to be impacted by seasonal factors in Europe, while increased competition from private label and lower sales of Zantac impacted U.S. growth.

When we look at the first nine months of 2017, CHC delivered growth of 2% at CER and constant structure which we think is more representative of the underlying performance of the business.

While this is ahead of many of our multinational peers, we have to concede this is below where we want it to be, with impact from low seasonality and the level of private label competition in certain categories having an effect.

Despite this, we still believe that the long-term fundamentals of the CHC market – they are favorable and that we can steadily develop this business back to mid-single-digit growth rates in the coming two to three years based on our category strength and plans for brand innovation.

I would like to close on this slide by reconfirming that the integration of BI is progressing to plan and we are on track for the delivery of the planned synergies.

Finally, turning to sales by region on slide 14, you can see that our Emerging Markets performance was again a major driver in the quarter, with sales up 7.3% at CER and constant structure and China continues to be the biggest component of this growth with third quarter sales up 20%, while Russia also performed very strongly with sales up 32%.

And with that, I would like now to hand over to Bill..

Thank you, Olivier. It's a pleasure to be here and to have the opportunity to update you on the rollout of Dupixent in atopic dermatitis and its development in asthma. Beginning with the U.S. launch, in dollar terms, sales of Dupixent tripled in the quarter to $88 million from $29 million in the second quarter.

If we look across key launch metrics, the picture remains very encouraging. First, TRxs are trending well ahead of other recent dermatology launches at the same time point post-launch. Second, we talked about a target patient population of 300,000 U.S. adults with moderate to severe atopic dermatitis.

So far, more than 23,000 of these patients have been prescribed Dupixent, which is a substantial increase over the number I provided in July. Third, we talked about targeting 7,000 U.S. physicians, and I'm pleased to say that we have already seen an even higher number of physicians prescribing the drug.

Around 70% of these physicians have prescribed Dupixent more than once, so clearly the message is resonating across the medical community. Fourth, looking at U.S. market access, we have made significant progress over the past quarter.

Around 79% of commercial lives are now covered by health plans that have a published Dupixent policy, and we are seeing very few prescriptions being rejected, with the prior authorization rate currently running at 80% or better. Last, but not least, we are excited to be on the cusp of rolling out Dupixent for AD in Europe.

We received regulatory approval in September and plan to launch in Germany, our first market, by the end of the year. To help you with your modeling assumptions, our latest market research puts the target population of patients in Europe with moderate to severe AD at between 150,000 and 200,000.

Slides 17 and 18 highlight the excellent Phase 3 data we have recently reported on dupilumab in asthma. We are pleased with the top-line results from the pivotal LIBERTY ASTHMA QUEST study.

This is the first time a biologic agent has been shown in a Phase 3 study to improve both exacerbations and lung function in a broad population of patients with uncontrolled persistent asthma enrolled in the study regardless of blood eosinophil levels or any other Type 2 biomarkers at baseline.

By contrast, competitor agents have only shown a benefit in patients with high eosinophil counts. We look forward to progressing rapidly towards the supplemental BLA filing in uncontrolled persistent asthma this quarter.

On slide 18, we also have exciting top-line results from VENTURE, the first study with a biologic to show benefit in a severe steroid-dependent asthma population that enrolled patients regardless of blood eosinophil levels or any other Type 2 biomarkers at baseline.

Here, we were able to demonstrate that dupilumab reduced maintenance use of oral corticosteroids by 70% on average, while half of patients were able to completely stop using corticosteroids.

Furthermore, even with these reductions in corticosteroid use, dupilumab cut asthma attacks by close to 60% in the overall population as compared with placebo and increased FEV1 significantly by 15% or 220 mL. The VENTURE study adds to the strong body of clinical evidence for dupilumab in more severe asthma.

With that, I would like to hand the call over to Jérôme..

Thank you, Bill, and good morning, good afternoon to everyone. So I'm now on slide 20 and before discussing the details of the P&L, I would like to highlight the significant impact of forex on our reported third quarter figures, which reflects mainly the marked appreciation of the euro since July.

In total, currency movements reduced reported sales by 4.4% or €403 million and reported business EPS by 5.6% or €0.10 per share. This major negative impact more than offsets the forex benefit that we saw in the first half of 2017.

For the full year, we now estimate the impact on business EPS to be between minus 1% and 2% based on September 2017 average rates. For more details, please refer, as usual, to our appendixes. I'm moving now to slide 21. Looking at the P&L, on a reported basis, sales were just over €9 billion, representing 4.7% CER growth.

You can see on this slide that as in the first half, we faced a headwind from the divestment of Animal Health, which contributed €96 million in net income in Q3 last year as well as from the slightly higher tax rate. Our tax rate in Q3 was 24.5%, in line with the first half.

Looking to the full year, we continue to expect the tax rate to be in the 24% to 25% range. These impacts contributed to our business net income showing a slight CER decline to €2.1 billion. Against this, we offset the Animal Health headwind by share repurchases and so our business EPS grew by 1.1% to €1.71 per share.

Of course, in reported terms, we showed a decline in business EPS, as I said already, reflecting the forex impact as just explained. Slide 22 gives a clearer picture of the ongoing business as we provide our P&L at CER and constant structure.

In this quarter, we managed to hold gross profit stable as the benefit of efficiency savings in our (22:54) organization and Specialty Care growth offset the impacts of the decline in U.S. Diabetes on sevelamer generics.

An important message, however, is that we again delivered operating leverage with our BOI, business operating income, up 1.7% on sales that declined slightly by 0.2%.

This underlying increase in BOI margin was achieved in spite of a double digit increase in R&D spend and reflect a combination of carefully controlled expenses and simplification savings. Slide 23 examines our cost ratios in more detail. Our gross margin increased by 10 basis points on a constant structure basis and increased fractionally at CER.

For the full year, we expect the gross margin to be between 70% and 71% at CER. This mainly reflects the balance of increasing diabetes pricing pressure in the U.S., largely offset by mix and productivity benefits. Turning to global OpEx. At constant exchange rate and constant structure, expenses in the third quarter were up 2.2%.

Indeed, R&D expenses were up 10.7%, reflecting investment in our innovative late-stage pipeline. It should be noted that this growth is off a particular low base in the year-ago quarter and, in fact, the spend in the third quarter was similar to the second quarter of this year.

SG&A expenses were down 2.1%, as savings more than offset launch costs in Immunology. Overall, we maintain our expectation that OpEx in 2017 will grow at constant exchange rate at a similar rate as last year off a constant structure base of approximately €15.4 billion in 2016.

On slide 24, I'd like to highlight a few elements in our cash flow and net debt evolution. We ended September with a net debt of around €7 billion as compared with €8.2 billion at the end of 2016.

The main drivers of this evolution, we have a €5.7 billion of combined outflows rated to our annual dividend payment on share repurchases, and partly offsetting this, the €4.1 billion of net cash flow received from the Boehringer Ingelheim asset swap. Importantly, our free cash flow remained strong at €4.2 billion in the first nine months.

We achieved our €3.5 billion share buyback target in August. And in total, we bought 5.6 million shares during the third quarter. As we have previously indicated, the €3.5 billion target was a minimum, and we continue to have the flexibility to repurchase shares opportunistically.

To close, on slide 25, we delivered a steady performance in the quarter, which was in line with our expectations. Looking ahead to the full year, I'll remind you that we face a high base effect in U.S. Diabetes in the fourth quarter as well as the full impact of generic competition through sevelamer.

Despite this, we confirm our full year guidance for business EPS to be broadly stable at constant exchange rate. As I mentioned earlier, the impact of FX on business EPS is expected to be between minus 1% and minus 2%. With that, I would like to turn the call back to Olivier for closing remarks..

All right. Thank you, Jérôme. To summarize, against a challenging backdrop, we continue to execute on our 2020 strategic roadmap. Our focused organization is helping to drive expense discipline and cost savings underpinning our financial performance. The U.S.

launch of Dupixent is performing ahead of our expectations and we are excited about the prospects for the European rollout. We have reported best-in-class Phase 3 data for dupilumab in severe asthma, which we will file shortly with the FDA. We have secured overall favorable U.S. payer coverage for our U.S.

Diabetes franchise in 2018, which gives us greater business certainty for the year ahead. And last, but not least, we continue to make good progress with our pipeline and in advancing our research capabilities.

My final point on slide 28 leads me to invite you all warmly to our Sustaining Innovation events that we will be hosting in Paris on December 13 as well as Boston on the 15.

This will be educational events which will allow you to meet the management in our R&D organization and to get a deeper dive into our innovation approach and selected pipeline assets. And we hope you can join us. With that, I would like to hand over to George to start the Q&A..

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

We will now begin the Q&A session. First question comes from the line of Patrick Chen of Morgan Stanley. Please go ahead..

Hi. Thanks for taking my questions. I have two if possible. First, on Multiple Sclerosis, we saw both Aubagio and Lemtrada take a meaningful step down in growth this quarter.

Can you give us some color on the competitive dynamic you're seeing in the space currently, and more big picture, what expectations are for the MS franchise going forward? And second, on Consumer Health, we've generally seen a slowdown across the space most surprisingly for many in the U.S.

While you pointed towards some division-specific headwinds, could you speak to what you see as any structural headwinds in the U.S.? And what your growth drivers are to return to mid-single digit growth in two, three years? Thanks..

All right. Thank you very much, Patrick. So, Bill will start with MS and then Alan with CHC..

Yes. So thank you, Patrick. This is Bill. Yes, I mean, the MS category continues to be competitive. It's been competitive since we entered the market five years ago and we're now five years post-launch, and we continue to see very strong growth for both Aubagio and the franchise overall despite these new entrants.

Our MS franchise is the fastest-growing and the MS market has grown by about 3.7% compared to September 2016, and we have grown patients by over 30% in that same period. Aubagio is the fastest growing oral therapy globally and in the U.S.

with year-over-year global patient growth greater than 25% and we really see prescriber confidence growing in Aubagio still. Lemtrada momentum still continues to build. We've had 62% year-over-year patient growth and 11.2% dose patient growth versus Q3 2016. So I think overall as you look at our franchise, yes, it's getting competitive.

The two areas that are growing in MS at the moment, you have the high efficacy segment, which we've talked about, which has experienced some positive growth off late.

In fact, we see that we're seeing up to a 30% growth in the high efficacy segment, and we also see that with orals, orals are growing, and I just remind you that still approximately 50% of patients in the world are on injectable therapies.

So looking ahead, having a differentiated high efficacy product and a strong, fast-growing oral product, we remain confident about the future..

Do you want to say a word, Bill? Do you want to say a word on Ocrevus and what we're seeing the impact on our franchise, if any, and where switches are coming from?.

Yes, that's right. Thanks, Olivier. So with Ocrevus, it's been off to a strong start. We are not being disproportionately affected by Ocrevus. By that, I mean we have about 10% market share between Lemtrada and Aubagio, and that's about the share that we see of Ocrevus coming from our portfolio.

Overall, it appears to be disproportionately affecting Tysabri and Taxotere. But, yes, it's off to a strong start in the MS category..

All right.

Alan?.

Yes. Thanks, Olivier. Hi, Patrick. Yes, in terms of the overall dynamics in the Consumer Healthcare space, we're still seeing the total global market growing at around 4%, but as you might have seen, the top 10 global players are growing at around 2% according to the latest Nicholas Hall data.

And our growth is probably at the top end of these global competitors, but below our expectations, as Olivier mentioned. This is partly driven by seasonality factors which I've highlighted in previous calls, namely a very poor cough and cold season in Europe this year and a late and relatively poor allergy season in the U.S.

But we've also seen some significant increase in competition in some key markets, in particular, as you mentioned, the U.S. and our allergy category was impacted by the introduction of private label brands this year.

Now, overall, in the health and beauty sector, including Consumer Health, the private label brands have actually plateaued over the last couple of years. But within some specific segments, we are seeing some impacts.

As I mentioned, the allergy category this year was impacted by the launch of intranasal steroid competitors against our Nasacort product, which had some impact. I think one of the other rationales given recently for a slowdown in the U.S. is the growth of the e-commerce channels.

And while we are starting to see some growth from those channels, it's of a relatively small base. Having said that, we are aware of the impact that this will have on the trading environment, particularly in the U.S., and we've built that into our strategic planning..

Thank you, Alan.

Next question, please?.

Next question comes from the line of Philippe Lanone with Natixis. Please go ahead, sir..

Good afternoon. I just wanted to have some more color if possible on Kevzara launch. You mentioned that it would take time to build market share.

What are the main issues, or what kind of timeframe are we looking at? And on Rare Disease, could you be more specific on the one-offs that might have been taking place in Q3? And should we look at Q4 for the quarter, where we have some more normal growth? Or will it wait until 2018?.

All right. Thank you, Philippe. Two good questions, and I'm afraid, Bill, it's you again. Kevzara and Rare Diseases..

Okay. So first of all, with Kevzara, our performance has been positive, I would say, in a very competitive category, and we've accomplished current results really in the midst of a medical exception access only. The Kevzara story is strong. Our three Phase 3 studies with consistent efficacy in three different populations has been very well received.

Looking ahead, I think there's some positive signs as well. The IL-6 subcu class is growing at 18% year-over-year in TRx growth. And if you look specifically at MDRx (35:47) share of subcutaneous IL-6, Kevzara has 15% of that. So, again, it's performing well, and I think this is a good indicator for the future.

As we also look ahead towards 2018, we expect to have improved access with 25% of our contracted lives with preferred status and 25% preferred after one biologic. So I think the reception has been positive and we'd see some of the trends looking good towards the future..

Okay.

Do you want to continue with Rare Diseases and the 2.7% but what's behind it?.

Yes. Glad to. So full year to-date, our growth has been 5.3%, just to provide some context.

And it's our other Rare Disease products, mostly the endocrinology brands, which continue to slow down, and that's driven by a change in medical practice guidelines for Thyrogen and an increasing competitive environment in medullary thyroid cancer for Caprelsa, which has led to somewhat of a deep prioritization of these products.

Overall, we did see some weaker performance for Rare in Emerging Markets in Q3. And beyond the usual quarterly fluctuations due to tenders in Emerging Markets, we observed an increase in time to treat in LatAm due to economic constraints in Brazil and Argentina.

So if we adjust for Emerging Markets phasing and smaller brands deprioritization I mentioned, the underlying dynamics for our core enzyme replacement therapy franchise remain positive, especially with Fabry and Pompe. And our brands for genetic diseases or the lysosomal storage diseases grew at 4.2% in Q3 2017 and 6.4% year-to-date.

And looking specifically at the enzyme replacement therapies, Myozyme sales were up 9.6% year-to-date and Fabrazyme sales were up over 10% at 10.4% year-to-date. So we continue to lead our global Fabry market with Fabrazyme, and I think that gives you a little bit more of a flavor of where Rare is.

We certainly remain optimistic about the prospects of the franchise..

Thank you very much, Bill. Thank you, Philippe.

Next question, please?.

Next question comes from the line of Luisa Hector of Exane. Please go ahead..

Hello. Thank you for taking my questions. First one, a little bit looking at the 2018 picture. Now that you have the visibility on the U.S. Diabetes contracts and you were able to reinforce your guidance there, I wonder if you can just talk about the positives and negatives that you see in 2018.

Things like currency, maybe the Renagel generics, how the Dupixent launch ramp could progress. Some of those aspects. And then the second question on Dupixent.

So you said I think 79% of commercial lives covered, but it sounds like that's probably still Tier 3 or more restricted use, so how do you see that evolving? And did you see a particular seasonal slowdown over the summer? Why is that? And any color on the patient experience? Do you have enough data now time-wise to say patients are coming back for more therapy? I think initial prescriptions were around three months, so maybe too early, but anything on the color of the patients that have used the drug so far? Are they particularly severe patients? Was there a kind of bolus of patients waiting to use who were very severe and we now await the slightly more moderate patients perhaps? Thank you..

All right. Thank you, Luisa. Bill, Dupixent coverage, policies versus contract I think in the U.S., and patient reaction and behaviors..

Okay. So, thanks for the question. In this category, we don't need to contract for coverage. This really recognizes the innovative nature of Dupixent and the really high unmet need in atopic dermatitis.

So as I reported a little earlier, 79% of commercial lives are covered by health plans that currently have a published Dupixent policy, with almost half of those lives having PA criteria to label, and we will continue to work with payers in the restrictive category to improve these coverage policies.

And first of all, we'll work with them to explain the clinical aspects and benefits and then explore potential contracting to allow access. And just to be clear, despite these more restrictive criteria in some of these plans, we've been successful in helping patients gain access through the medical appeal process.

And our year-to-date PA approval rate, as I mentioned, is over 80% as of the middle of October. So we'll continue to work on it. We believe that there is generally broad access for patients in the U.S., and it will continue to – as we get further throughout the year and into next year, we'll be in, I think, an even better place.

Regarding the types of patients, we are tending to see still initially a little bit more of a severe patient, and I think that is due to a couple of reasons. First is that those are the patients that are in the greatest need of the product, so they and the physicians have prioritized to treat them.

And also as physicians get more experience with the product, they will begin to use the product in other patients, the more moderate to severe patients..

All right. Thank you, Bill. Luisa, then on your first questions which has to do a little bit with guidance for 2018. As you know, we will provide formal guidance for 2018 in February. We are still going through the budgeting process for 2018, so it would be premature to be too precise on our overall expectation for this time period.

But, as you are aware, for 2018 there are many moving points here, and they are relative to our expectations in early 2015. Some parts of the business have performed ahead of targets while some have been below, and I'm referring to our roadmap 2020 back in 2015.

So I would say on the plus side, we have delivered cost saving and efficiencies through our focused organization, and we did that more quickly than we originally envisioned. In addition, some key franchises, and it's through this quarter also, such as Vaccines and MS have performed very strongly and ahead of our expectation for several quarters now.

And of course, as you're hearing from us, we are very pleased with the take-off of our new product Dupixent, which is clearly having a strong start. On the downside, we've been very open that the trajectory of certain new launches have been below our expectations and notably Dengvaxia and Praluent.

And of course for Praluent, and I know it was a point of discussion during the last quarter or two, we are waiting the readout of ODYSSEY as I said, which for us will be very important for understanding Praluent's sales trajectory in the coming years. So that's basically what I would say.

We are looking and digging into those different pieces, and we'll be ready to give you a guidance in February. Thank you very much, Luisa.

Next question, please?.

Next question comes from the line of Seamus Fernandez with Leerink. Please go ahead..

Great. Thanks very much. So maybe just to follow up on the 2018 view to some degree. Just wanted to get a sense of where you think – what are the pushes and pulls in terms of the evolution of the cost structure and spends. And then my second question, Olivier, is really, there are some assets in CHC that we now know are up for bid and up for sale.

Can you just give us a sense of how you think the business would most benefit strategically as we think about M&A? Thanks so much..

All right. Thank you very much, Seamus.

Jérôme, do you want to give a little bit of perception of where we stand with our cost savings programs?.

Yes. So thank you for the couple of question, and good morning. So as you saw, first of all, we clearly have again posted cost savings in our results in the third quarter, and I would say that's now in the few quarters in a row.

You see that on the gross margin which is again more than offsetting the impact of declining prices on Diabetes as well as competition on sevelamer – of generic competition of sevelamer.

You've seen that also on our SG&A, which has been going down in absolute terms by 2% this quarter even if we have increased our investment behind both Kevzara and Dupixent. So that tells you that we continue to be very vigilant and continue to implement our cost savings program.

You'll remember that we said that €1.5 billion should be saved of the period 2015 to 2018. I think we are clearly on track. We aim to save up to €1.3 billion minimum, I would say, today for 2017, and this should continue to impact 2018 onwards.

We are also, as we said, working on some further efficiency measures to continue to generate some further cost savings, which definitely will help our P&L and which will allow to save more while we may be not in the position to invest everything so that if we also held the ratios going forward.

So that's a bit what I would say at this stage on cost savings. So really continuing to do well, and generating a rate of plan in 2017 and getting into 2018, this should also allow to save more. Now, it's clear also that we are investing in R&D and you noticed that. I mean, we follow-up on Dupixent various indications.

We have also as you saw on PD-1, which we have together with Regeneron which is going ahead and we should carry on which we are going to invest more. So it's also clear that the €6 billion that we gave as a guidance for R&D back in 2015 will be reached. Will it be in 2018, in – exactly when, it remains to be seen.

But we continue to think that we are investing in R&D. So hopefully it will help you..

All right. Thank you very much, Jérôme. Seamus, coming to your M&A question, I'm afraid I'm going to sound like a broken record because I am going to tell you exactly what I said also during Q2. And first, starting with, again, the criteria we are using, we want each time to create value for shareholders, of course.

And our disciplined approach, which I think we have been able to demonstrate in the past towards M&A considers systematically the following. First of all, the strategic fit, as you know, and we have put that in two different categories, right. The first one is sustaining leadership and here we're putting DCV, of course, Rare Diseases, Vaccine and CHC.

And the second bucket has to do with trying to build a competitive position on top of what we are trying to do organically, and that's Immunology, Oncology and MS. So all targets we are looking at have to make strategic sense. The number two has to do with value creation.

And again, to remain financially disciplined, what we want to do is to achieve a return on invested capital which would exceed a WAC within three or five years. Then, as number three, we put EPS accretion, right, but it's only secondary to value creation. And fourth is pipeline.

I do believe, like many others, that we have at Sanofi significantly strengthened over the last few years our pipeline. But, of course, that can be further enhanced and that's certainly one of the criteria.

So when you are taking all of that and you get into your CHC question for what is happening now in the market, CHC very logically is one of those core businesses at Sanofi now and one in which we will invest to sustain a leadership position over the years.

Therefore, we will assess opportunity going through those set of criteria which I just highlighted. But again, I want to make absolutely sure that you know we will remain very, very disciplined. And finally as a matter of policy, as you know, we do not make any comment on specific targets. So that's what I would....

Thank you..

Thank you, Seamus.

Next question, please?.

Your next question comes from the line of Florent Cespedes with Société Générale. Please go ahead..

Good afternoon, gentlemen. Thank you very much for taking my questions. Two quick ones. First one for Alan on Consumer.

Could you share with us what you intend to do to reenergize the division or which are the growth drivers which makes you confident that you will be back to mid-single-digit growth in the coming years? My second question is for Elias and is related to the R&D data which is now planned for mid-December.

Could you share with us which are the most exciting assets that will be presented during this event? That would be great. Thank you..

Okay. Thank you very much, Florent. We don't want to tell you everything, of course, too much in advance and ahead of the meeting.

So, while Elias is thinking about your question, Alan, why don't you give the answer on future of CHC?.

Yes. Thank you very much. Yes. As I said, I think the long-term prospects of bringing this business back into more of a single-digit growth trajectory over the next two or three years is based on our assessment of where we think there are some key growth opportunities in different categories.

Now obviously, with the benefit of having the BI integration now more or less complete and we have 95% of the BI business now in-house – as you know, this was an asset deal which was a little complex and it took us a while to get all of the business internalized – but as the 1st of October, we have 95%.

And we've taken the opportunity over the last nine months to do a real deep dive analysis of all of our categories.

Now, again, I'm not going to go into all of the specifics, because, of course, they are competitively sensitive, but we believe that we've identified a number of key growth markets, both geographically, but also from a category point of view. Clearly, we believe the growth will come predominantly from activities in the Emerging Markets.

But we also think there are some untapped opportunities, which we want to address from an innovation point of view. And as a result, we will be slightly increasing our spend on innovation over the next two years, which will result in significant new product development in a number of our core categories.

As I say, I won't go into the detail of each specific category, because that would give some competitively-sensitive information, but generally we feel confident that we can see that return over the next two to three years to a mid-single-digit growth rate..

Thank you very much, Alan.

Elias?.

Thank you, Olivier. Thank you, Florent, for the question. So without telling you exactly what we're going to cover, I can tell you the framework that we are preparing. Number one, we want to give you an in-depth review of our strategy in R&D, but also review each therapeutic area.

So, for example, in Oncology, we'll show you what our strategy has given us so far, and I am really encouraged by the progress of our CD38, for example, not just in myeloma, but also in combinations with PD-1s and why we believe that CD38 is a major pathway player in immuno-oncology.

We'll give you the progress on PD-1 on our TGF-beta, which is our own asset that we intend to combine with the PD-1 that we partner with Regeneron. We'll tell you about our antibody drug conjugates and our emerging small molecule portfolio, which is also exciting. In Immunology, we'll give you a complete landscape analysis from late-stage Dupi.

Dupi, why we believe it is the best in class? Why we believe that the IL-4/IL-13 pathway is at the top of the pathway as we see now from other results from IL-13 only molecules to IL-5 and the response in pulmonary function and T-slip (55:50) and why it doesn't really react in AD.

So we'll give you both a scientific and a direct description of why we believe Dupi is really a pipeline and a drug, IL-6, IL-33 and our whole strategy in Immunology. We'll do the same for Rare Disease.

We'll do the same for Diabetes and the same for Specialty Cardiovascular, but we'll also talk to you about our MS follow-on projects, and as well as emerging new projects, both in MS and Parkinson's disease.

So a comprehensive overview, an overview that is not just data and lists of news flow, but the reasons why we're in it, how it's progressing, where is it today, where is it tomorrow in the short-term and long-term..

Thank you very much..

All right. Thank you very much, Elias. So, Florent, I expect that you will attend based on the program then..

Sure..

All right. Okay. Thank you very much.

Next question, please?.

Your next question comes from the line of Graham Parry with Bank of America Merrill Lynch. Please go ahead..

Great. Thanks for taking my questions. So first is on the Diabetes guidance. So if we assume a 2%-FX headwind applied to the CAGR of 6% to 8%, that would imply around €5.5 billion to €5.9 billion in sales next year, which is about a range between a 9% and 15% decline. So two things on this.

One is that is below consensus currently, so it's not in your intent to flag that.

And, secondly, what are the variables that would play into such a wide range given that you largely know your coverage for next year now? Secondly, do you expect a greater share loss in Diabetes in 2018 and 2017, given that your lost coverage in 2018 is Part D and you can't use Co-Pay Assistance to retain patients there? And are you expecting to continue to fund your Co-Pay Assistance programs in commercial in 2018? And then, thirdly, on Dupixent, the beat versus consensus there implies that the sales are now running ahead of prescription growth.

Could you clarify if there's any stocking in that number or should we see this revenue rate per prescription being reflective of underlying demand now? Thanks..

Thank you, Graham.

Do you want to start with the Dupixent question on inventory, Bill?.

Yes. Actually, thank you, Graham, for the question. We see that there is a modest inventory, nothing unexpected, and that the sales figures that you see are a true representation of the underlying demand..

All right. Thank you, Bill. So on your question on our guidance and the guidance we issued today, the departure point is 2015, right, with the 2015 exchange rates. That's what we are using into that guidance. So in 2016, using the 2015 exchange rate at CER – because it is at CER, you remember, we had a minus 1.8% decline.

In 2017 what you have is basically year-to-date, but year-to-date at CER using 2016, so that's the difference. And it's 9.5%, so there is potentially an exchange rate on FX impact. But when we are saying minus 6% to minus 8%, that's what you have to consider or to know, and understand, we are using FX from the 2015 timeframe.

Do you want to add anything, Jérôme?.

I think Olivier is right, and of course the only thing that is very hard to know is what is the underlying effects of currency level that the consensus has taken in this Diabetes sales forecast for 2018. And honestly, depending upon, if I take the FX in 2015, for instance, the U.S. dollar versus the euro in 2015 was 1.11.

So just take 1.11 and I'm not so sure we should be that far from the consensus today. Now, what the underlying effects exchange rates would have been taken for any each and every currency in their consensus today, it's very hard to know. So I think that that's what I would say on the FX element to just complete what Olivier said..

All right. Thank you, Jérôme. Now Stefan, on the second question from Graham, market share in 2018 versus 2017 and the loss potentially created by the covered lives we have lost. And maybe you should go through that actually also and explain what we've lost in Medicare and without the tool of potentially couponing in the Medicare sphere..

Sure, Olivier, and hi, Graham. Thank you for the question. So first about variability and the forecast for next year, let me just say that we still have out of our formulary negotiations for next year still pending about 7% of our overall access in the U.S. So that adds some variability to our forecast.

And also I'm happy to provide some precision around the Part D piece. So on Part D, we have some wins and some losses for 2018. So, yes. We've lost certain plans on CVS and retained some others within CVS, but we've also gained compared to last year Aetna on Medicare Part D.

So if we net this all out, we come out on Medicare Part D about a loss of a total of 5 million lives across those two plans, which still gives us very favorable overall access in Medicare Part D..

Okay. All right. Thank you, Stefan. Thank you, Graham.

Next question, please?.

Next question comes from the line of Jo Walton with Credit Suisse. Please go ahead..

Thank you. I have two questions. Firstly, remaining on Diabetes, the one product that you haven't told us much about the access for next year and where consensus numbers still seem to be around $500 million by 2020 is Soliqua.

I wonder if you could talk a little bit about that and your visibility and expectations now it's been in the market for a little while. And on the same theme, you have a biosimilar, Humalog, which you're almost about to get to the market.

Presumably it's too late for contracting for this season, or can you with the biosimilar effectively come into a contract some way through the year because you are offering a cheap product. And my second question would be on Dupixent in Europe.

You have, in order to help us through our modeling, give us some idea of the patient numbers that you could address in Europe.

At that relatively focused patient number, could you give us some idea of what sort of price point we should be thinking of?.

All right. Jo, very good. So, why don't we start with Dupixent, Bill? Dupixent Europe, number of patients, but I think you mentioned the AD number, which is 150,000 to 200,000 and maybe give a little bit of color about this target population, and maybe the average price in Europe..

So the target population, it's about 150,000 to 200,000, we believe. And in Europe, we expect that these are going to be patients that have – are a little bit more severe that they will have been either exposed to, or would be candidates for something like cyclosporine, which is, indicated in Europe.

But we expect that there is a pretty, there's a very large addressable population here..

Okay. Thank you, Bill.

Soliqua and Admelog, Stefan?.

So, first, on the Soliqua situation, our access in the U.S., we are now covering for next year 65% of commercial lives and about 25% of Medicare lives. And in terms of the uptake, so we are seeing some steady growth on TRxs in Soliqua even though trending somewhat below expectations.

And that is linked to some inertia and some change in medical practice that we are seeing in this category. For that matter, we've really sharpened our approach here by a clear target patient that is more matching those that healthcare professionals see for patients with uncontrolled basal insulin for at least 12 months where A1C is going up.

So it's really about changing practice here. So that's why we've targeted some new peer-to-peer and medical education programs to fully educate our physician base on the benefits of the product. And here, clearly focused on these promotional topics. And on Admelog, so as Olivier had stated, we're looking forward to final approval in the coming months.

Now 2018 is going to be a challenge, as you said, because most of the contracts have been done at this stage. So we are currently exploring our options, but this is going to be a greater opportunity certainly for 2019 than for 2018..

All right. Thank you, Stefan. Thank you, Jo.

Next question, please?.

The next question comes from the line of Richard Vosser with JPMorgan. Please go ahead..

Hi. Thanks for taking my questions. Just a couple of vaccine related questions. Firstly on the flu vaccine, you mentioned in the release that the penetration of the high doses is now very high.

So could you talk about whether you think the repricing opportunity here with that high doses now is now largely done for the flu vaccine and whether – you mentioned the increasing competition. Are we starting to see price pressure creep back into the flu market in the U.S. and Europe now? And then second question on the pediatric vaccine space.

Could you give us some help in terms of the relative share penetration, if you like, of the hexavalent vaccine versus Pentacel and also an idea of how long we might see a repricing opportunity through the pediatric vaccine franchise? How long is left for that? Thanks very much..

Thank you, Richard. So I think both questions are for you, David..

Yes. Hi, Richard. On the flu high dose, we are indeed already on a very high level of penetration. We have 60% of the elderly above 65 being vaccinated with Fluzone high dose. As you know, Seqirus with FLUAD is trying to get into that space.

We feel we have much stronger clinical documentation of the drug with several trials showing not just an immunological effect, but also morbidity and mortality, which has been recently documented in several publications. So we are not thinking that we are completely done on repricing.

We think there is still some repricing that we can do based on these recent new trials which have been published. In terms of pricing pressure, it's clear that on the retailers there is a bit of pricing pressure ongoing. So far we think we can hold up pretty well to that in the U.S.

Outside of the U.S., in Europe, as you know, Mylan is getting into that space. And on the older form of the TIV vaccines, they have been pretty aggressive on pricing. Now, the good news is that some markets have realized that in fact it's not all in the price of a vaccine. So, for example, Germany got rid of tenders.

They just decided that in May in the parliament, as having tendering in flu vaccine has led in the recent years actually to a decrease in vaccination rates. So there is some good news on that. Also with the launch of the QIV vaccine, so the four-in-one, there is of course a repricing opportunity.

Regarding now also our recent acquisition, Protein Sciences, that's an important addition to our portfolio because it is a differentiated vaccine, as is Fluzone high dose, and we have shown with Fluzone high dose how we were able to change the market dynamics towards people getting more differentiated flu vaccines.

And we believe that Flublok is such a vaccine as it has demonstrated in about 50 years a true differentiation towards standard QIV vaccine. Coming to your second question on Pediatric, we don't believe that there is that much pricing upside.

Obviously, if a six-in-one is being launched in the United States and, as you know, we are having a joint venture with MSD on Vaxelis and we are looking at the launch also in the U.S., then there is a repricing opportunity, but that's going to be for a bit later.

On Pentacel, we don't think that there is that much repricing opportunity, and it was more a supply situation where we, as you remember, came back into normal supply again last December, which led to a very strong quarter four last year.

So in terms of the U.S., I don't think, besides launching a new vaccine, that there is that much repricing opportunity. Outside of the U.S., there is, as you know. with Hexaxim, we are launching that in many markets around the world. And obviously there is a repricing opportunity when you launch a six-in-one vaccine..

Thank you very much, David. Thank you very much, Richard.

Next question, please?.

The next question comes from the line of Peter Verdult of Citi. Please go ahead..

Thank you. Pete Verdult, Citi. Just two questions if we can return to the topic of Admelog and Consumer. And then I've just got two questions that require one-line answers, just product questions.

So, Olivier, just on Admelog, could you just talk about your expectations in the U.S., how you're going to deal with the fact that you also (01:12:25) market Apidra on the incumbent's claim that net prices are already rock bottom and they use exclusivity to lock out most of the volumes? Just interested in your perspective there as to what biosimilar might do and would it be as disruptive as we saw in basal? And then just on Consumer.

You've touched on the issues facing the industry and the need to drive innovation. We now see two companies putting their assets up for sale.

I'm just interested in your perspective as to whether these companies are exiting because they see the writing on the wall given the ROI outlook for the industry or whether you still think the outlook is as attractive as maybe a few years ago? And then the two very quick questions.

I don't think Jo's question on European price point for Dupixent was answered. Apologies if I missed that. And then there's patisiran, good data. You've got ex-U.S., ex-European rights. Could you just frame the commercial potential you see in the markets where you operate? Thank you..

All right. Thank you, Peter.

So we'll start with Consumer, Alan?.

Yes. I mean, thanks, Peter, for the question. I think I'm not sure that the reason that these assets are coming up for sale now are really to do with the long-term prospects of the CHC market. If you look at the broad demographic pressures and what could potentially drive growth in the CHC market, they all still are quite positive.

If you look at the various forecasters, Nicholas Hall, IMS, they're all still looking at a 4% to 5% growth in the next 10 years, with some ups and downs of course because of seasonality and challenges in terms of changing market models. But generally, the prospects are positive.

I think what we're seeing now is really for these companies and of course, you'd have to ask them, but really a desire to focus on their prescription business. I think that was openly stated by Merck when they announced the sale of their business. And we know that Pfizer has historically focused very much on their pharma business.

I've been in the industry for a while and I was part of due diligence team looking at the last Pfizer consumer health business that was up for sale. So, I think this is really much more about focusing rather than about the long-term prospects of the CHC sector..

All right. Thank you very much, Alan. Your question on Admelog and the payer discussions there, very quickly. Yes, I think you capture it right.

So it's accurate that the rapid acting insulin market is mainly divided between Novo and Lilly and that payer contracts are largely exclusive because products are seen as relatively interchangeable by the payer.

However, we believe we can make a compelling offer to provide choice right with Admelog in this market and we are, frankly, assessing, as we speak various option for doing so. And you heard already Stefan, but giving the timing of the payer contracting cycle, we do not expect to have significant coverage in 2018.

And we expect more progress in that area in 2019. Okay. Bill, European pricing depiction..

Yes. We'll be announcing the price as we launch..

All right. So it's a little too early, then, Peter. So thank you very much. And we are going, I think, to the last question..

Last question comes from the line of Tim Anderson with Bernstein. Please go ahead..

Thank you. A couple of questions on Diabetes. Are you seeing any sort of pricing stability as you move out of 2017 into 2018? Some companies – I think maybe you guys as well – have talked about there being some moderation in price declines going forward.

But even looking past 2018, is that realistic? Are we going to continue to see your business kind of come in at the lower end of expectations or whatever guidance you may provide? Second question is the possibility that we one day get a substitutable generic influence in the U.S. There are one or more companies that are pursuing this.

It is a fairly easy peptide to manufacture. And it seems like if FDA were going to go down the path of allowing substitutability, this would be the low-hanging fruit.

So what do you expect may occur on that front over the next few years?.

Yes. So price stability, of course, we would love to see that happening. It's very difficult to tell you whether or not pressure is lower beyond 2018. At this point, I think we can, frankly, speculate. If you ask me or ask us the question today, we would probably see that we could see pricing pressure continuing over the timeframe.

Stefan, when it comes to the second questions and our assumption in terms of substitution in the U.S.

with biosimilars?.

So, we currently assume that there will be interchangeability of biosimilar insulins happening as of 2020 onwards. That's at least our assumption..

Is that a new position for you? Or is that something that you've maintained all along? And how is that not a problem? You've got €5 billion today worth of insulin sales.

I know that's going to decline, but does that suggest a remarkably higher level of pressure from 2020 beyond?.

I think we had put that in our long term. We never gave any guidance or strategic objective beyond 2020, but it's definitely something we have considered going beyond 2020 as a potential outlook of the basal insulin situation, yes.

But again, beyond 2020 based on all the assumption we had with the three biosimilars, which you are fully aware of, and with the entry of the third one in our long, long term plans, we have put that as certainly a risk. That's what you're hearing from us. Thank you very much, Tim. And with that, I am giving you back the mic..

Great. Thank you, Olivier, and thank you all for listening to the call today. The IR team will be around to answer any additional questions you may have, and we look forward to seeing you at the Innovation Day in mid-December. Thank you..

Thank you, everyone..

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye..