George Grofik - Sanofi Olivier Brandicourt - Sanofi Jérôme Contamine - Sanofi Bill Sibold - Sanofi David Loew - Sanofi Stefan Oelrich - Sanofi John G. Cox - Bioverativ Inc. Alan J. Main - Sanofi John C. Reed - Sanofi.

Tim Race - Deutsche Bank AG (UK) Peter Verdult - Citigroup Global Markets Ltd. Florent Cespedes - Société Générale SA Richard Vosser - JPMorgan Securities Plc Jo Walton - Credit Suisse Securities (Europe) Ltd. Luisa Hector - Exane Ltd. Graham Parry - Bank of America Merrill Lynch Keyur Parekh - Goldman Sachs International Jack Scannell - UBS Ltd..

Ladies and gentlemen, good morning or good afternoon. Welcome to Sanofi Second Quarter 2018 Earnings Results Conference Call and Live Webcast. I am Sherry, 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 is 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 second quarter results. As usual, you can find the slides to this call on the Investors 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; and Jérôme Contamine, Executive Vice President and Chief Financial Officer.

Olivier will discuss key highlights of the quarter while Jérôme will review the financials in detail. We will then follow with the Q&A session.

Joining us for the Q&A will be Olivier Charmeil, Executive Vice President, General Medicines & Emerging Markets; Karen Linehan, Executive Vice President, Legal Affairs & General Counsel; David Loew, Executive Vice President Sanofi Pasteur; Alan Main, Executive Vice President, Consumer Healthcare; Stefan Oelrich, Executive Vice President, Diabetes & Cardiovascular; John Reed, Executive Vice President, Global R&D; and Bill Sibold, Executive Vice President, Sanofi Genzyme.

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

Thank you, George. Good morning, and good afternoon to everyone, and welcome to our second quarter earnings conference call. So moving to slide 5, you can see we delivered stable second quarter results. These were in line with our expectations and allow us to raise the lower end of our full-year guidance.

Our second quarter sales were about €8.2 billion and our business EPS increased by 1.5% at CER to €1.25. On slide 6, you can see the sales picture across our five GBUs. The highlight was continued double-digit growth in our Specialty Care business, Sanofi Genzyme. We were also pleased to show solid growth in CHC.

As expected, sales in our Vaccines business were consistent with our guidance that first half sales would be lower than in the first half 2017. And of course, we continue to see the effect in DCV and GEM of the losses of exclusivity in the U.S. on Lantus and sevelamer. Turning to slide 7, we are now looking at sales by franchise and geography in Q2.

What you see here is a clear benefit of our diversified business structure, which has compensated for the headwinds I just noted. In particular, you will see another solid performance from our market leading Emerging Market business. Here we delivered growth of 5% despite the expected decline in Vaccines.

This solid EM performance was driven by increases of 9% in our Pharmaceutical business and 10% in Consumer Healthcare. Moving to the next slide to our Specialty Care franchise, sales grew by close to 30% in the second quarter boosted by the acquisition of the Rare Blood Disorder franchise.

If we adjust for this, growth would have still have been 14% at constant exchange rate and constant structure, maintaining Sanofi Genzyme double-digit track record. We were particularly pleased in the quarter with the performance of our Immunology franchise, which added close to €200 million in sales, led by Dupixent.

I will say more about this on the next slide, but you will note that we are not far from being able to report quarterly sales annualizing at blockbuster levels for the franchise.

Our new Rare Blood Disorder franchise is already at this level and continues to grow strongly, up 15% in the quarter given the growth of prophylaxis therapy, market share gains and non-U.S. launches. Elsewhere, in Specialty Care, our Rare Disease franchise reported another solid quarter with sales up 6%.

Our Multiple Sclerosis franchise declined slightly as a result of the high base effect for Aubagio in Europe that we flagged last quarter and the continued pressure on Lemtrada. Importantly, Aubagio continued to grow well in the U.S., up 9%, and it remains the fastest growing oral therapy.

On slide 9, I want to say a little bit more about Dupixent and Kevzara. I'm pleased to report that Dupixent sales were strong, reaching €176 million this quarter with trade inventories in middle of the normal range of 3 to 5 weeks. Demand in the U.S. continues to be strong with TRx up 27% sequentially.

We're also starting to see meaningful sales outside the U.S. as we begin our rollout in other countries. And this includes the launch in Japan in the second quarter and phased launches across Europe, which will extend in 2019. Lastly on Dupixent, we remain optimistic that we will be able to launch in asthma in the fourth quarter.

As we have explained, we believe the drug offers a unique profile among biologics in this condition with efficacy on both exacerbations and lung function regardless of eosinophil level. The FDA user fee date for our supplemental BLA is October 20.

If I switch briefly to Kevzara, our immunology asset for RA, sales are beginning to reflect our improved market access and the growing acceptance of the IL6 class as a viable alternative to the dominant TNF-alpha class. For example, the launch of Kevzara has expanded the overall IL6 subcu market and it is now growing more than 30%.

And furthermore, you can see from the graphic here that Kevzara is now capturing more than 40% of new to brand prescription in the IL6 subcu category and nearly 20% of IL6 subcu TRxs. So we are making good progress with the launch of Kevzara.

On slide 10, I want to highlight the progress we made in the quarter in building our new leadership position in Rare Blood Disorders. First and foremost, as expected, we are pleased with the continued double-digit growth of our new hemophilia portfolio and we continue to see opportunities to expand this franchise.

Secondly, we were delighted to receive CHMP recommendation last month for approval of Calblivi, the new brand name for caplacizumab in acquired TTP. This is a rare clotting disorder for which there is currently no approved treatment and we hope to launch this exciting Rare Disease asset in Europe in the coming months and in the U.S. next year.

Third, we are advancing our pipeline of Rare Blood Disorder assets. In our Phase 3 portfolio, we have continued to enroll patients in the registration study for sutimlimab, the former BIVV009, in cold agglutinin disease and fitusiran in hemophilia.

We also presented positive Phase 1 and 2 data on BIVV001, our novel once weekly or longer factor VIII at the World Federation of Hemophilia last month. Finally, we have made further progress in our early stage progress in gene editing for sickle cell disease and beta-thalassemia. On slide 11, I'm turning now to Vaccines.

Here, our second quarter sales were down 15.7%. This was in line with our expectations and reflected the supply constrain for Pentaxim in China that we previously highlighted, together with the high bases for comparison for Menactra in our pediatric franchise.

I would also remind you that the first half of the year is seasonally less important than the second half. Looking ahead, we expect the Vaccines business to recover and grow in the mid-single digit range in the second half.

This should be driven by the pediatric combination franchise which will be helped by the progressive resumption of Pentaxim supply in China, so there will be a larger benefit in Q4. Finally, on Vaccines, we look forward to sharing the Phase 3 data for MenQuad TT in September. MenQuad TT is our fully liquid, next generation follow-on to Menactra.

On slide 12, Praluent sales increased 55% in the quarter to €62 million. Of course, we expect to build over time on the compelling results of the ODYSSEY OUTCOMES study, which we submitted to the FDA and EMA in Q2.

In line with our new commercial policy for Praluent, we are in active discussions with a number of payers to simplify utilization management criteria and improve access for patients in return for greater rebates.

Despite our important formulary win at Express Scripts, as you know, we are not the only ones in this space, so we do not expect to be successful in securing formulary coverage in all plans. Nevertheless, we have been successful in improving UM criteria for around 30% of total commercial lives for the current year.

Moving to our Diabetes franchise, sales declined by 12% in the quarter. This was consistent with our 2015, 2018 guidance. Similar to prior quarters, we achieved good growth in Emerging Markets and stable sales in Europe, but this was more than offset by a 30% decline in U.S. sales due to pricing pressure and the loss of Part D business.

Turning to our CHC business on slide 13, sales grew by 4% in the quarter with all four of our key categories contributing to growth. The main driver was a 10% increase in sales in Emerging Markets, with Latin America especially strong. Europe also performed well, up 7%. By contrast, U.S.

sales declined around 6%, reflecting both the late onset of the allergy season and private label competition for Nasacort. Overall, our broad geographic footprint and leadership position in CHC has enabled us to grow ahead of the average of our global peers based on the latest market research data.

On slide 14, our market leading Emerging Markets business continues to be a core strength for Sanofi, with sales up 5% in the second quarter and 7% for the half year. While we continue to see intra-quarterly volatility in the various regions, we are encouraged by our performance in China in particular which remains a double-digit growth driver.

On slide 15, we have a (13:12) analysis we presented last quarter showing the main headwinds and tailwinds in our business. As you can see over the first half of 2018, we faced a significant drop from the losses of exclusivity on Lantus and sevelamer in the U.S. And even with these headwinds, we managed to hold sales stable.

This was the results of good growth across our global operations and the addition of our Rare Blood Disorder franchise. When we look to the second half of 2018, we expect the LoE headwinds to diminish, especially as the sevelamer generic impact has begun to annualize (13:59).

Furthermore, we expect continued strong momentum in Specialty Care and a return to growth in Vaccines, together with the full consolidation of Rare Blood Disorder sales. Taken together, we remain highly confident we will enter the new growth phase in the second half. We would also expect to grow on a constant structure basis in the second half.

On my final slide, I want to update you on key R&D milestones for the coming year. In terms of regulatory approvals, we await decisions on five important new opportunities, namely cemiplimab in CSCC, sotagliflozin in Type 1 diabetes, Calblivi in acquired TTP and Dupixent in both asthma and adolescent AD.

Finally, we expect to receive the important ODYSSEY OUTCOMES label update for Praluent. We also have a number of pivotal read-outs out due, including MenQuadTT, dupilumab in nasal polyps and isatuximab in multiple myeloma.

And lastly, we expect a number of proof-of-concept readouts, including a couple of oncology assets, so the year ahead will be a very busy one for our R&D organization. It is now my pleasure to hand the call over to Jérôme. As most of you know, Jérôme will be retiring on September 30 after more than nine years of distinguished service at Sanofi.

And this quarter will be the 38th and final quarterly earning call for him, and I would like to take this opportunity to express the gratitude of our employees and stakeholders for his many achievements at Sanofi and also add my personal gratitude to his wisdom and counsel as we have undergone the transformation of the past several years.

We are fortunate that Jérôme will continue to be available over the next couple of months during which he will be helping the transition of our next CFO, Jean-Baptiste, who will join us on September 1. So with that, over to you, Jérôme..

So, thank you, Olivier, and good morning and good afternoon, everyone. I'm moving to slide 18. So before discussing the details of the P&L, as usual, I would like to highlight the impact of forex on our reported second quarter figures. So currency movements reduced reported sales by 5.8% or €508 million.

The impact on business EPS was slightly greater at 8.2% or €0.11 per share. While significant, the impact were lower than Q1 and based on July average exchange rates, we expect the impact in our financials to positively ease over the remainder of 2018. On this basis, we expect the impact on the full year 2018 business EPS to be around minus 6%.

Looking now on slide 19 at the second quarter P&L, the 1.5% growth in our business EPS benefited from a higher gross margin and a reduction in the effective tax rate of 22%, which is in line with expected effective tax rate for the full year. In addition, we reduced the average number of shares outstanding as a result of share buybacks.

On slide 20, our business operating income line reflects the investment we are making to drive a return to growth, plus the impact (17:50) the U.S. I will return in more detail to margin and expense trends in the next slide. As you can see here, that SG&A and R&D continue to grow, support our investments behind new products.

In addition, our OpEx trends were impacted by consolidation of Bioverativ for the full quarter. There is an additional complexity in the numbers I want to highlight which are slightly distorting the reported R&D and other operating income lines. This relates to the accounting treatment for an agreement with a sub-party.

In this agreement, we purchase clinical material for comparator studies that we're going to use over the coming three years, which was recorded as an expense in R&D in this quarter. As part of this agreement, we will record income from providing clinical study data in a previously divested product candidate.

This is impacting positively other income line for basically the same amount. The impact is to add roughly 4.5% to R&D expense growth at constant exchange rate on the credit, as I said, in other operating income. This is one-time in nature, it is purely an accounting entry with no cash exchange and the impact on BOI is broadly neutral.

I move now to slide 21. Looking in more detail at our cost lines, the gross margin increased by 50 basis points to 71.3%. This is actually a good performance which resulted from improved product mix and productivity improvements, which more than offset the headwinds from exclusivity losses.

For the full year, we maintain our guidance of February that the gross margin ratio should be between 70% and 71% at constant exchange rate as compared to [Technical Difficulty] (19:57).

Mute your phones..

There is a lot of noise going on here. Thank you..

So guidance for the year on gross margin is between 70% and 71% at constant exchange rate as compared to 70.6% in 2017. Looking next, I am still on slide 21, at OpEx, our R&D and SG&A spend grew by 13.1% and 7%, respectively – somebody should be put on mute, please – as we invested in new launches on priority R&D programs.

As I mentioned, growth was impacted by consolidation of Bioverativ for the accounting treatment of the agreement I previously alluded to. Excluding these impacts, R&D would have grown by approximately 4%, while SG&A by 0.7%, reflecting continued discipline in our expense management.

For the full year, we continue to expect operating expenses to grow around 3% to 4% at constant exchange rate and existing permit. On slide 22, I am providing an update on our financial position. At the end of June, net debt stood at €21.3 billion.

This, of course, reflected completion of both Bioverativ and Ablynx acquisitions and payment of our annual dividend. We also repurchased €711 million of share, net of issuance, in the first half. During the quarter, we raised an additional $2 billion from bond issues and credit ratings were both reaffirmed.

We expect by year-end, our net debt to slightly decrease and to have a net debt to EBITDA ratio, which will be less than 2 at the end of the year. On my final slide, we have raised, as Olivier has mentioned already, the low end of our full-year guidance and now expect business EPS to grow between 3% and 5% at constant exchange rates.

I have already noted the impact of foreign exchange on reported business EPS is projected to be around minus 6% assuming exchange rates for the month of July. We expect business EPS growth to be strongest in Q4 due to the mix of headwinds and tailwinds, including the low base of comparison in Vaccines and the growth of our Specialty Care businesses.

However, at the top line, should note that the expected divestment of our EU European Generics business will have an adverse impact of roughly €200 million on Q4 revenues. Of course, we are going to book the capital gain on this disposal, at the same time, this will not impact our business EPS.

This will be taken as a one-off event below the business EPS. So with that, I would like to turn the call back to Olivier for more detail..

All right. Thank you very much, Jérôme. So to summarize, we delivered a stable second quarter performance in line with our expectations. The headwinds from Lantus and sevelamer LOEs have now peaked. Dupixent is growing strongly after the distortion of Q1.

Meanwhile, we made excellent progress in building a leadership position in rare blood disorders, both commercially and in our pipeline. And finally, we've moved up the lower end of our full-year guidance based on our confidence in a return to growth in the second half. So with that, over to you, George..

Thank you, Olivier. I will now open up the call to your questions. And as a reminder, we would like to ask you to limit your questions to two each.

Operator? Hello?.

Yes. Our first question is from Tim Race with Deutsche Bank. Please proceed with your question..

Thank you, and hello, gentlemen. So my question first of all on Dupixent, if you could just confirm that there's no stocking effects in Q2's sales figure, because obviously you're rebounding from a stocking effect in 1Q? So just make sure that that's true underlying demand.

And also on Dupixent, you've got the upcoming asthma indication, and you suggested that you're very confident that you'll get an indication regardless of eosinophil count.

Can you just help us understand what in your FDA discussions so far gives you that confidence of an indication regardless of eosinophil count, given the way that data study IL-5 seems to not work very well at low eosinophils? And then, maybe a second question just for Jérôme, and thank you, Jérôme, for your time over the years, just on costs.

So you've got a new CFO coming in from an industry, which is obviously outside pharmaceuticals and very cost constrained.

Jérôme, do you feel that you've done all you can in terms of cost reductions and cost modification within Sanofi? Or where would you point to the new CFO as areas of focus going forward and where he may be able to get further savings? Thank you..

All right. So I can answer the first one. And I can reassure you that in term of inventory for Dupixent, we are just in the middle, as I said, of the range of three to five weeks. You remember last quarter we indicated that we were at the low end.

We are now slightly higher, despite the fact that at the time, we did say that our expectation was to stay at three weeks. But we moved to four weeks, and that's probably adding €10 million or €12 million to our sales. But that's basically it. So not a big inventory movement here.

Asthma indication, Bill, do you want to answer that question?.

Yeah, Tim, so this is Bill. So that's where we studied the patients in a broad group of patients without specification for eosinophils. So that's the way that we've filed the file to the agencies, and it's a matter of review. We'll wait and see what that dialog looks like..

So that's what we aim to achieve. That's basically what you're saying with the agency. And we think we have the data to achieve that, but you're never entirely sure until the end of that discussion. Okay.

And where do we have potential saving opportunities, Jérôme, for your successor?.

So thank you. Maybe I will not share all the details of my conversation with my successor which actually has not yet taken place, but will take place before I leave for sure. And he will have the eye of a low margin industry and what we are doing. I think that – I mean there are a few ways I can just highlight to you a few points.

So first of all, I think that under the leadership of Olivier and the results of the simplification, which is ongoing, we have saved €1.5 billion by the end of 2017, ahead of plan, as you remember.

So clearly, I think we have started to work on where else we can continue to make some savings, and this is not only my successor, but with the new Head of Business Transformation, I think we have embarked into a significant effort to rethink the way we work and how we can generate savings.

The second point I would like to highlight is clearly, there is still room to improve on the COGS side. I mean, we have shown now discipline over the last the last two years. We have reduced the number of sites and things that we handle. Some have been just transferred; some have been closed down.

I mean, the outcome of that is, is gross margin that we have posted above 70% quarter after quarter when we are facing the headwind of the Lantus exclusivity expiring, so – and that's a good achievement. I think there is still a way to go, and we have some plans around that which, of course, will be shared by – with my successor.

On the OpEx side, I think that again, I mean, we have shown discipline. We are working on various ways to leverage management, digital management, digital marketing, as well as improving also the efficacy of our clinical trial organization and our clinical studies operation organization.

So these are areas which – where you have continuous improvement ongoing. So I presume that we'll give you more detail when he has taken over and have – share that with the rest of the Executive Committee. So I think that may be the way I would say how we can continue to drive savings..

And, again, Dominique Carouge at the ExComm level is our Head of Business Transformation, and his mandate is to look at further streamlining initiatives that we hope we'll be able to talk about more in details by the end of the year. So thank you very much, Tim..

Operator?.

Thank you..

Our next question is from Mr. Peter Verdult with Citi. Please proceed with your question..

Thank you. It's Pete Verdult here from Citi. For Jérôme, just on the Regeneron antibody collaboration as it relates to Kevzara, Praluent, Dupixent.

Is 2020 still the most likely timeline regarding getting to profitability? I realize revenue performance will be a key determinant, but was hoping today you could provide us some idea as to the shape of that collaboration, cost base in 2018 and maybe in 2019 versus what was reported in 2017.

For Olivier, apologies for putting you on the spot, but following the publication of the HHS Blueprint on drug pricing, we're seeing pharma PBMs, payers and pharmacies all point their finger at each other. It feels this time industry not being unlikely to preserve the status quo.

So I'm interested to get your perspective on changes you expect to play out either in Part D rebating, Part B reform, or 340B hospitals. And then, lastly, if you let me squeeze in a third one, just for Bill.

Dupixent in asthma, I mean, you've got a very competitive biologics landscape and everyone talks about there being 2 million severe asthmatics in the U.S. But anything you can help us with in terms of framing your commercial expectations for Dupixent in this indication would be pretty helpful. Thank you..

All right. Peter. Thanks. So let's start with Regeneron and mAbs and....

So as you know, Peter, and thank you for the question. And this is a rather complex alliance as long as we share the profit with Regeneron or the loss with Regeneron, the basis of the overall alliance on what we call the mAbs is a combination of Dupixent, Kevzara and Praluent. So it's a combined P&L. And this is how we share it.

The question is how we commercial P&L – when is commercial P&L going to become positive or profitable while why we clearly have ongoing other part of the alliances which are related to immuno-oncology.

So on your question then, well, it somewhat depends on the timing of our launches and how much we want to invest to support both Dupixent asthma, extension rollout of Dupixent in the U.S., but also ex-U.S. and also to a certain extent, I mean, the investments beyond both Kevzara and Praluent. So it's a bit difficult to be too precise.

But I think your point that 2020 will be a midpoint, could it be a bit earlier than 2020, I mean, remains to be seen, but that's a reasonable assumption for this part of the alliance..

All right. Thank you, Jérôme.

Bill?.

Yeah. So, Peter, thanks for the question. I think that if you look at the asthma market, there still remains a significant unmet need in uncontrolled persistent asthma, and we really expect that the novel biologics are going to drive this growth. And just giving a sense of the scale, you had referred to about 2 million patients.

We think of it as about 900,000 to 1 million U.S. patients that are treated for uncontrolled moderate to severe asthma. And currently, about 100,000 of those patients are treated with a biologic at the end of 2017.

So clearly, not such high penetration in a very serious disease, and that's where we expect that there will be continued expansion of biologic use in that severe population. Now specifically as it relates to Dupixent, we believe that we're differentiated from an efficacy perspective.

We believe that not only with exacerbations, but with lung function that we have a significant effect that differentiates versus the competition.

We also – one of the things we often talk about with Dupixent is that it's really a pipeline and a product, and as a result, there's multiple indications that we're looking at, and many of these asthma patients have comorbidities as well. So we differentiate on that basis as well.

And the final piece of differentiation is we are expecting at-home administration. The other biologics are administered in the office, and clearly, from a patient perspective, the flexibility to administer at home we see as a benefit as well. So we're really excited about the opportunity.

We have, as you know, our PDUFA date coming up in October, and we are in full build mode for our field capabilities and capabilities in asthma, overall attracting a really strong team that we expect will be very competitive in the marketplace. So overall, we're excited and believe that we can differentiate..

Thank you, Bill. So, Peter, on the broader question on what's going on with the blueprint in the U.S., so we've been at Sanofi as engaged as many other large company with a range of – large range of stakeholders from across the healthcare system, member of Congress, state legislator, patient advocacy organization and of course, the administration.

And we answered the RFI which was quite substantial as you probably know. Our answers were all about trying to incentivize or recommend to put policies in place that could improve access and affordability for patients.

So basically for the long term, I think we are advocating a Sanofi system where a large part of the $150 billion this industry is giving through rebates between the rock and the net prices – large part of that going to the patient at the end. And the question is how, and I think the administration is certainly willing to consider some of that.

The question is how do you get there taking into account the multiple stakeholders you have between us and the patients. So that's what I would say.

We are very much for creating incentive which wouldn't be as fervorous incentive as we have in the system today, but incentive for going towards lower list price and reduce patient out-of-pocket costs, and potentially companies like ours – because I don't know if you know the Sanofi policy, which is probably unique – a company like ours putting policies with limiting price increases to have some type of ultimately a benefit and being favor with some of what, again, we are giving going to the patient at the end of the chain.

So just to remind you what we have put forward as company policy. We've been the first company to tie the price increase of our medicine to what we consider to be a meaningful external benchmark, which is a National Health Expenditure, and that is calculated by the HHS.

And as a result, we had no increase in 2017 on 56 products of our 85 prescription medicines. And, overall, we had a price increase of less than 2% for a net price decrease of around 8%.

So just to put forward that one, which, I think, is significantly different from what we have seen from our competitors in the recent announcement which have committed to eventually not to increase prices for the rest of 2018. So with that, Peter, I mean, we can talk about that for a very long time. So, I think it's better move to the next question.

Thank you very much..

Next question, please..

Our next question is from Florent Cespedes with Société Générale. Please proceed..

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

Can you give us more color on how do you see the division in H2 and beyond and why it should not grow above 5% for the rest of the year as you should have some tailwinds in H2? So, in other words, if you could help us to navigate on a pretty volatile division. That's my first question.

And the second one on Praluent for Stefan, could you please give us more color on your discussions with the payers and doctors in Europe and in U.S., if possible? And when do you believe that we should see an inflection point in the prescriptions and sales and if it's fair to assume that it should be after the label update with the sales call? Thank you..

All right.

David, can you take the vaccine question, please?.

Yeah, thanks. So, the reason why we think it's going to be mid-single digit is that in flu for Q3, that the H3N2 strain is a more difficult one to produce. So Q3 is not going to benefit that much. It's more going to be more Q4. And then the (41:22) situation in China is going to gradually normalize.

So, we're not going to get the full benefit of this, but we are confident that we can achieve the mid-single high – mid-to-high-single digits growth rate in the second half. So we're coming back to a normal business again..

Okay. Thank you, David.

Stefan?.

Yeah, so thanks for the question. So, so far, as you know, we are still waiting for the label update, of course. We've submitted for approval the OUTCOMES data from ODYSSEY. We should, depending on whether we get Priority Review or not, have it either towards the end of the year or on the first quarter of next year.

In terms of our commercial strategy, despite not having the update yet, we're making good progress in talking to payers and also to providers not only about the benefits of our medicine, but also of relieving utilization management criteria with payers, especially in the United States. So, we've done some good progress here on UM criteria.

We're approximately at this point 30% of total U.S. commercial lives for the current year, which should translate into approximately at this point 45% of what we would have as commercial sales in the U.S. We're still ongoing in our negotiations with payers, so we'll give you an update – a more complete update on that in the third quarter.

And as it comes to an inflection point in our sales, of course, this will have some level of impact, but be reminded that the utilization management relief also comes with some potential price concessions. So, we will see an inflection most likely on the volumes. This may not be followed as quickly on the value side..

Thank you very much..

All right. Thank you, Florent..

Our next question is from Richard Vosser with JPMorgan. Please proceed..

Hi. Thanks for taking my questions. Just looking at the performance of Eloctate, it seems to be a little bit slower growth than we had been seeing with the product previously, I think maybe around 20% in the U.S. compared to 30% before.

So just, could you give us some idea whether there's been any disruption taking over the product or any market-related specific things that are going on within the Factor VIII market there? And then second question, please, just on the consumer business, the emerging market growth has been very, very strong, particularly in pain and the digestive segment.

So could you talk about the sustainability of that growth as you see going forward? And then, the difficulties in terms of the U.S. from – pressure from private label and flu and the allergy season obviously weak. Just when do you think the difficulties from – in the U.S. will ease there? Thanks very much..

Thank you, Richard. So let's go to Eloctate. I ask John Cox from Bioverativ operation to be on the call. So he's on the phone, and he will take your question on Eloctate U.S. performance. I mean 20%, Richard, is still pretty good in my view. But I understand – I understand, still, I understand your question.

So, John, do you want to give some details there?.

Yeah, sure. Thank you, Olivier. And it's – it was great to see slide 10 and the entire hematology franchise that you're building. The growth with Eloctate is very good and is exactly what we'd expected.

We were – when we spoke at JPMorgan just before the acquisition, we predicted we'd be growing 19% to 20%, maybe 19% to 21% top line, and we're tracking to do that. Q1 tends to be a lower quarter. This is a seasonal – tends to have some seasonality in this business. It doesn't tend to; it does. And Q4 tends to be far and away the strongest.

So when we look at how we're forecasting and performing in the United States and globally, this product is the premier product in the hema space. So we're really pleased with how it's doing..

Okay. Thank you, John.

Alan, CHC, emerging market and the U.S., when do you see eventually a return to more stable numbers there?.

Yes. Hi, Richard. It's Alan here. As you highlighted, the allergy season in the U.S. has been – it was actually late starting this year and it's been relatively weak, similar to the patterns that we saw last year, in fact. So, significant impact on all of the allergy brands.

We've also seen this year an increase specifically in the intranasal steroids sector of the allergy category of private label. They had an increased share. As you know, overall, in the consumer healthcare market, we see private label penetration plateauing after a certain period.

But we are seeing significantly higher rates within the INS category, and that's impacted our Nasacort business. Again, it's difficult, but with a seasonal business like this, we do expect the rest of the year to be relatively stable. We get a second peak in the U.S., as you know, in September and not as high as the hay fever allergy season.

But we won't really know until the season for 2019 how the rest of the allergy season will go. At this point, we're seeing strong growth in some of our other categories. As you know, skin care in particular in the U.S. is strong. We don't have a cough and cold business, which did also have a good this year.

But overall, allergy we think will settle back into regular patterns in 2019. Moving to the emerging markets, which I think was your first question around the sustainability of growth, as you know, we have a very strong position, particularly in pain and digestive. And we see those strong positions continuing.

We saw very strong growth in Brazil in particular, where we have the number one position in the pain market.

Again, we see that strong end market performance continuing and we have strong growth programs in place across all emerging markets, including a continued push to drive our businesses in Russia, which, as you know, historically had some pricing challenges. We're now seeing very strong volume growth returning.

The Q2 number is impacted a little bit by the discontinuation of the Bristol-Myers Squibb distribution agreement last year which is now sunsetting at the end of quarter two..

All right. Thank you very much, Alan..

Thank you, Richard.

Next question, please?.

Our next question is from Jo Walton with Credit Suisse. Please proceed with your question..

Thank you. Two questions, please.

I wonder if John Reed could tell us what he has found and give us his initial impressions of both the full list of the late-stage pipeline, but also access to all the technologies that he thinks are crucial in both attracting talent to a business and developing new drugs? And secondly, if I could just look at 2019, by the end of 2018, we'll still have a U.S.

diabetes franchise of more than $2 billion. It will have been declining at 30-odd percent.

I wonder if you could take a look at next year and whether you believe that that same magnitude of headwind, albeit from a slightly lower base, will still be an issue, because I think that there may well be some more generic competition coming in impacting Lantus and potentially impacting Toujeo as well? Many thanks..

All right. Jo, so as you know, John has been on board since July 1. Granted, he had a couple of months of a very nice position with Elias, but before he says anything, I just want to insist that it's very, very initial impressions, as you said. So, John, to you..

Well, thank you for the question. It's great to be on board here with the Sanofi team, and I tell you, as a physician scientist, I have the opportunity to impact global health at the kind of scale that Sanofi is capable of operating at is just an honor and a privilege. I'm enjoying getting acquainted with the pipeline.

We have got 86 projects underway in the clinic, 40 NMEs. So there's a lot of richness to the pipeline. As you already heard, we're expecting five readouts this year that – we're expecting already five additional drug approvals this year, you heard about those from Olivier and another four readouts that could be registration enabling.

So the pipeline is really progressing nicely. I noted that, for example, we now have twice as many Phase 3 trials ongoing currently in 2018 as the company had in 2015 three years ago. 24 Phase 3 studies underway, so it's quite robust and exciting to be a part of it.

In terms of your question around technology and attracting talent, indeed we certainly do excel in that here at Sanofi.

I was really struck by the breadth of therapeutic modalities that the company is currently supporting, altogether, 10 different therapeutic modalities, small molecules, large molecules, antibodies, antibody-drug conjugates, nanobodies now with the Ablynx acquisition, siRNAs, mRNA therapeutics, gene therapy, vaccines.

It's really quite exciting, and it makes it exciting for our scientists. So I'm confident with that kind of toolbox with which the scientists can tackle drug targets that this will be one of the attractors for attracting talent..

All right. Thank you very much, John. Your question, Jo, on Diabetes, clearly, we can't give you too much details. And we're not going to guide you on Diabetes anymore because our three years guidance will be over by the end of 2018. But you have to consider different factors, right.

So clearly the sales declined in the quarter by 12%, and again, that is actually very consistent with what we told you in our 2015, 2018 guidance.

Now Diabetes becomes very different from what it was in the sense that the dynamics of that franchise now differ very much by region, and you have emerging countries starting to play a very significant role. So we do have achieved double-digit growth in Emerging Markets and more specifically, as you know, in China.

We have stabilized our business in Europe, but of course this is still not sufficient to offset the 30% decline in the U.S. sales, which have been a continuation of what we have said during the first quarter, which is due to a combination of pricing pressure and the loss of the 5 million lives in the Part D business. However, the non-U.S.

sales were up altogether by 6% and they are now representing 62% of that franchise. So, I think that's an important number to keep in mind. On the other side of that equation, if you compare with the same quarter two years ago, our U.S. sales of Lantus have more than half now, and they're representing about 30% of our global Diabetes franchise.

If you compare that number to the 50%, it represented about, at the same quarter two years ago in 2016, of a franchise in the U.S., which, by definition, was much larger. So, you can see why we expect these headwinds to frankly diminish quite significantly in the coming quarters.

And, over time, the balance between these factors should result in a reduction of the rate of decline. Now, I can't tell you exactly what's happening next year. You mentioned the further biosimilar competition, which is one dimension. But we also have on the positive trend Toujeo is doing very well in Europe and doing well in Emerging Markets.

And we see an upswing with Soliqua and we still need to get the full benefit of Admelog. So, you do have a lot of moving pieces in that franchise, but we remain optimistic that the U.S. decline will definitely become a much lesser factor..

Thank you..

Thank you, Jo.

Can we have the next question, please?.

The next question is from Luisa Hector with Exane. Please proceed with your question..

Oh, hello. Thanks for taking my questions. So, going back to Dupixent, I wondered if you could give us a bit more color around the U.S. market share.

And now that you've had around a year on market, is there anything more you can say on the treatment persistency? Do you see patients sticking with drugs? Should we expect any treatment holidays? And as you start to rollout in ex-U.S., I realize it's still early days, but you talked about Japan.

How is the pricing and reimbursement looking ex-U.S.? And then on Aubagio, please. I mean, I know you've highlighted some of the pressures in Europe, but we still see the slowdown on the U.S. side. So just wondering if you can comment some more on that and maybe talk a little bit about the future.

Are we looking now at a single-digit-growth product in the next year or so? Thank you..

All right. Thanks, Luisa. Two questions for you, Bill..

Yeah, so, first of all, let's just start with looking a year back. So, it has been – we're really happy with the launch of Lemtrada in the U.S. And if you look at the metrics that we're seeing, they continue to move....

Lemtrada?.

I'm sorry. With, yes, Dupixent, I apologize. With Dupixent, we're really happy with the trend that we're seeing in Dupixent. If you just give some perspective for the year, we're launching in more than 20 markets in 2018 and we'll have a additional 16 countries anticipated to launch in the second half of this year.

The U.S., as I said, we're one year in and TRxs grew by 27% quarter-over-quarter. We continue to grow patient initiations on a weekly averages of greater than 800 patients for – we've crossed a significant milestone now of 50,000 patients launched to-date.

And looking at new to brand, we continue to grow those and steadily adding around 550 new patients per week and we're at over 31,000 launch to-date. The breadth of prescribers has continued to grow.

There's over 11,000 healthcare professionals now that have prescribed through Q2, and about 66% of those have written at least two prescriptions for Dupixent. So, overall, very, very strong.

Now you'd asked a question about compliance and any attrition, and the compliance rate is at about 78% versus around 83%, which we had reported in Q1 and most brands a year out are in that 60% to 70% rate. So we think Dupixent compliance is doing extremely well.

It's still very early and I would say the community is still learning how to best use Dupixent, but we see people continuing patients on therapy. Probably the most important figure that we have or the facts that we have are feedback from the community and from patients about how this has really dramatically transformed lives.

So it is everything that we thought it would be and more from the clinical trials. Regarding the rest of the launches that are going on globally, we continue to see similar trends as we saw in the U.S. where there's clearly a significant unmet need.

Patients are getting on product quickly, and we're seeing the same types of results that we had seen in the U.S. So overall, consistency across the world and a lot more launches to come that will continue to drive our growth for us throughout this year and into the future.

Specifically, as it relates to Aubagio, so Aubagio was at €404 million, so that was up 1.2%. And U.S. sales were up 9.1% to €287 million. The EU sales at €89 million were down 21%, and as Olivier mentioned, this was the result of an almost €30 million clinical supply effect in Q2 2017 that we pointed out last quarter.

And if you adjusted for this, Aubagio grew at about 4.6% in the EU and 9% overall for the quarter. Now Aubagio is the fastest growing oral MS therapy in the U.S. and globally. And overall market share is at over 10% and that's up from Q2 2017.

In the U.S., which is a key driver for Aubagio, it's the only MS brand other than OCREVUS that experienced prescription growth in 2018. So it is still among the most switched-to brands in the market. And the U.S. Aubagio patient share in the oral segment is growing as well from 23.7% to about 25.8%. Now some of the trends we've seen in the U.S.

is that the oral market has been flat to declining a little bit year-over-year where it has historically grown. So we have fewer available new oral patients and a larger base of continuing patients, which has somewhat moderated the growth that we are seeing.

However, we anticipate good growth for Aubagio for the full year of 2018, which I remind people is the sixth year on the market in 2018. So we remain optimistic about the growth of Aubagio..

All right. Thank you very much, Bill. Thank you, Luisa. Next question, please..

Our next question is from Graham Parry with Bank of America Merrill Lynch. Please proceed..

Hi. Thanks for taking my question.

So firstly on Dupixent, can you help us understand the extent to which you think that pediatric indication next year could drive incremental growth? And how large do you see this indication as being relative to the adult indication? And are there any warehouse patients where we might see a bump once it's actually approved potentially early next year? And then secondly on Vaccines, could you just perhaps run through your confidence in the return to growth in second half? What actually gives you the confidence that the Pentaxim supply issue in China can be resolved? My understanding of it is that it was a specification issue that had changed your working to try and meet a new specification, but what makes you sure that specification won't change again at some point?.

Yeah, so thank you very much, Graham.

Dupixent, since you were on Dupixent, Bill?.

Yeah, sure..

Do we have some pediatric patients waiting in line?.

Well, thanks for the question, first of all. Just to remind you of the plan for the various age populations with Dupixent. So we have the sBLA planned in Q3 2018 for adolescents 12 to under 18. For children 6 to 12, submission expected in the second half of 2019.

And then looking way ahead six months to less than six years old, we would expect to be in the second half of 2022. There is a lot of interest that we're seeing in the community for patients. There's a tremendous unmet need.

While the number of patients in the pediatric group is a little bit smaller, overall, the severity of the atopic dermatitis appears to be much more so than with adults, because not only is it hard on the kids, but it's hard on the family around them. As far as actual warehousing, we don't see warehousing at the moment.

We're still far enough away that I think that all the physicians are anticipating Dupixent and its availability. And we expect, just like with the adults, that physicians will be identifying those patients as we're approaching approval and trying to get the most severe patients on therapy as quickly as they can.

So, we're really optimistic about the potential that this grows and offers us for the continued growth of Dupixent overall..

Thank you, Bill.

David, Pentaxim in China, why are we confident we could progressively get back to normal supply during the second half there, please?.

Thank you. Let me start with the second question that's basically that specification will not change. In fact, it was not a specification problem. You will remember that we communicated that we had to change the gel that we used for formulation, and that test is still positive in our mice and then in Europe but not in China.

Now we have changed that gel, and that it's a higher tetanus potency, so that should resolve the problems. And we have already had the first lots approved and tested positive in China, we are waiting for the second lots now. So, we are reasonably confident that this is going to fix the problem..

All right Graham, I think that answer your specific questions there and thank you very much..

Thank you..

Next question, please..

Our next question is from with Keyur Parekh with Goldman Sachs. Please proceed with your question..

Good afternoon. Two questions, please. One for John and one for Olivier.

John, thank you for telling us about all the great capabilities that Sanofi has from an R&D technological perspective, but it would also be great to hear your thoughts on what you think you need to change, perhaps fine tune, to get productivity at Sanofi R&D higher over the next few years.

And then secondly, Olivier, obviously, you've kind of done a fair bit of M&A this year, but just remind us again where your appetite lies for incremental M&A, what your capital allocations priorities are over the next couple of years, not just over the next 12 months or so? Thank you..

Thank you very much. So, John, what do you want to change? It may be too early but....

Yeah.

As was commented before, I've only been in the role for a month, so working on looking at the R&D setup as well as the allocation of resources, I think the only thing I can forecast at this point is a deep commitment to evolving the portfolio more and more in the direction of first-in-class and truly differentiated best-in-class medicines that address the most urgent unmet needs.

With respect to R&D productivity, I'm delighted with the momentum that was achieved under Elias Zerhouni's leadership. A lot of hard work done in improving the R&D setup, establishing new platforms including antibodies, and now with the acquisitions of Bioverativ and Ablynx, we have additional powerful platforms to help improve R&D productivity.

Today, about half of the molecules coming in early development are emerging from internal research, which is clearly a step in the right direction. We want to further improve on that. And I think with the progress that's been made as a foundation and the momentum to build on that will continue to improve in that direction..

All right. Thank you, John.

And you can add that you think Ablynx or you thought already before joining us that Ablynx had a terrific technology platform, isn't it?.

Absolutely. I was very much delighted when I heard that Sanofi was acquiring that. That was prior to me joining the company, but had already made the – was exploring the opportunity, and in private conservations where Olivier and Elias had said that if I do join Sanofi, I'd like to buy some antibody companies to further build out the platform.

So when Ablynx was acquired, I was very happy guy..

All right. Keyur, and on M&A, we're not deviating with what we've said during the previous quarter. Remember, we have closed the Ablynx this quarter, and we're very, very focused in integrating and understanding Ablynx and continuing to integrate Bioverativ or plan for that.

So we want to be sure that we have very successful integration for both acquisitions. That's our first priority. Nothing has changed the €20 billion envelope we mentioned we had in mind initially, it's still there. So we highlighted that.

We also highlighted that if there were any bolt-on acquisitions which were providing assets which would fit very much strategically with what we want to do, we would certainly consider them. We do have some headrooms because we – those two deals have cost us about €13 billion as you know. So bolt-on acquisition remains possible in the next two years.

It's definitely not a short-term priority. And of course, again, those acquisitions we said would have to go through the filter of what we call our financial discipline criteria and really deliver value to shareholder. Now your question relating to capital allocation is an important one.

And our priorities include, as you know, our commitment to progressive dividend policy, pretty strong balance sheet and credit rating with a major agency. So that's what I would say to your second question. So thank you very much. I think we're going to the last question, please.

Hello?.

Our last question is from Jack Scannell with UBS. Please proceed..

Thank you very much for taking my questions. I have two. The first one is around changes to Sanofi's drug pricing strategy, whether this is cause, i.e., driven internally or simply an effect of the external market.

Just to give a couple historic examples, I think right up until maybe 2016, Sanofi was regarded as a company that was pretty aggressive on price and shareholders liked it. If I think about Zaltrap, that's the only cancer drug I could ever remember that had its price cut in the U.S. market because it was launched to a higher price.

If I think about Lemtrada, that's a drug that was withdrawn from the market, reintroduced for multiple sclerosis with a 1000% price increase. If I think about Lantus, again you had many years of net price inflation. And again, that's what people like me on the call would have liked you to do. Now you're making a virtual price restraint.

But again, isn't this simply, it's like the environment has changed and the drug industry has less pricing power? And now you have less pricing power; you have to make a virtue of a different pricing policy? I just want – I'd be interested to hear your view on that.

And the second question maybe for Jérôme, I still talk to Anglo-Saxons who have a prejudice that Sanofi is not as efficiently run as it would be if, for example, it was in an English-speaking country with Anglo-Saxons in charge. Now, I don't share that view, but I still talk to investors who have that view.

What would you say to them to bust of that myth? Those are my two questions. Thank you very much..

Okay. Do you want to – all right, I answer the first one on drug pricing. It's probably the easiest. So, yeah, but the past is not the reflect of the future.

And what it tells you is that a company like ours has seen frankly the light coming, maybe a little sooner than the others, despite the fact that I understand price increases were satisfying shareholders in the past.

With the very increasing gross to net, right, tendency in the last years, the benefit you were getting from those price increases as a company on your net price has diminished tremendously, and payers had put restriction on some of those in their contract on those price increases.

So I think the environment and the power shifting to payers in the U.S. marketplace needed a transformation and a change in policy at the company level, and it's exactly what we did ahead of everybody else.

And it remained a very I think good policy in a sense that we said we wanted to justify our prices at launch, and there is so much scrutiny now on the prices even at launch. Even before talking about price increases, we said we would work as much as we can in the U.S.

with HTA and the one who are emerging, hence what we did with ICER when it comes to Praluent, when it comes to Dupixent, and I think that has been well received by payers and patients. And so overall, I think that was a good move.

It doesn't mean that our prices are going to be set by ICER each time we are launching a product, but I thought it was an important move. So that's number one. We don't want to be ashamed of our prices at launch anywhere in the world. That's very important to us.

And second of all, we said taking into account what was happening in terms of gross to net payer, we felt that price increases needed to be at the level maximum of the medical inflation, which has been determined in 2017 at 5.8% or 6%, this year it's 5.8%, and we've been very careful not automatically going up to the 5.8%.

We have been very, very careful in increasing only a very small fraction of our products in the last two years.

And again, what I was trying to say during the first question, I think it was Tim asking the question, what are we advocating? We are advocating that companies trying to limit their price increases on the WACC listing price should in a way or other get either the company itself and the patient should get the benefit of that good policy and behavior, and that has not dramatically been the case in the past.

But I think it's changing very quickly as we speak. As you have seen, the administration now is very serious with the blueprint to try to find a different system in the U.S. So that's what I would say.

Now on the Anglo-Saxons bias, Jérôme?.

Oh it is the – I didn't catch very well your question. So my understanding is that, I mean, if you were true, I would imagine that England would have won the (01:16:53) a bit of patience, I see more and more English people, even English natives or Anglo-Saxons natives, around the ExComm table. So I think that's the only thing I would say..

Yeah, the CFO function has not been Anglicized recently, so you have been here for nine years, and your successor is also French. But beyond that, we have many, many ExComm members among the 15 of us who are definitely English speakers and very often born in the U.S. and England..

So with that, thank you very much, everyone, and I think we are concluding this call. Thanks a lot. Thank you..

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