Ladies and gentlemen, welcome to the Sanofi Q4 and Full Year 2018 Earning 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. The presentation will be followed by a Q&A session.

[Operator Instructions] The conference must not be recorded for publication or broadcast. And 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 fourth quarter and full year results. As usual, you can find 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 contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.

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

With me are Olivier Brandicourt, Chief Executive Officer; and Jean-Baptiste de Chatillon, Executive Vice President and Chief Financial Officer; and John Reed, Executive Vice President, Global R&D. Olivier will discuss key highlights, and after which Jean-Baptiste will review the financials. John will then provide an update on R&D strategy.

We will close with a Q&A session.

Joining us for 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; Bill Sibold, Executive Vice President, Sanofi Genzyme; and Dieter Weinand, Executive Vice President, Primary Care.

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

Thank you, George. Good morning, good afternoon to everyone. Welcome to our fourth quarter and full year earnings conference call. On slide 5, Sanofi's fourth quarter results were in line with our expectations. At constant exchange rate, sales and business EPS grew by 3.9% and 4.7%, respectively.

Sales growth on a constant structure basis was close to 3%, continuing the new growth phase, which began in the third quarter. For the year, we delivered business EPS growth of 5.1% at the top end of our guidance. Slide 6, breaks down our fourth quarter sales performance to show the drivers of our organic growth.

We can see that in the third quarter, the underlying dynamics in our business are more than offsetting the impact of LOEs. On slide 7, you can see the sales picture across our five GBUs. The highlight was again the strong double-digit growth in our Specialty Care business, Sanofi Genzyme.

However, we also benefited from the expected return to growth in our Vaccine business. On slide 8, as in previous quarters, our diversified business structure clearly benefited us as we managed the impact of LOE headwinds in mature markets.

In particular, Emerging Markets continued to be an important driver with sales, up 6% in the quarter led by Specialty Care. On slide 9, we made a strategic decision in 2018 to refocus our GBU structure and this came into effect on January 1st.

This recognizes the growing importance of our market leading Emerging Markets business and especially, China, which is our second largest market after the U.S. It also gives scope for operational benefits from combining our established product and DCV portfolios in mature markets into a new Primary Care GBU.

Looking at our Specialty Care franchise on slide 10, sales grew by 17% at constant structure in the fourth quarter and by 15% for the year. Each of our franchises contributed to growth in the fourth quarter.

Rare Disease reported another strong quarter with sales up 11% led by double-digit performances from our core franchises of Pompe, Gaucher and Fabry. Multiple Sclerosis franchise delivered 13% increase in sales of Aubagio.

Our legacy Oncology franchise was driven by both mature and emerging markets and we look forward to expanding our innovative portfolio in 2018 with the European launch of Libtayo. Our Rare Blood Disorder franchise grew by 6% in the quarter on a pro forma basis and 13% for the year. Despite quarterly slowdown, underlying performance remains solid.

Last but not least, our new Immunology franchise is annualizing at well over €1 billion in sales after less than two years. On slide 11, I want to highlight three important launches in the fourth quarter, which will help to drive our Specialty Care GBU.

First, in October, we launched Dupixent in asthma with a differentiated label among biologic treatments. The initial reception to launch has been excellent with strong prescription trends. We see asthma as a second major opportunity. There are up to 900,000 eligible patients with moderate-to-severe uncontrolled asthma in the U.S.

and around 25% to 30% of patients are dependent on oral corticosteroids. We also expect decisions from the regulators in Europe and Japan on the asthma indication in the first half. The second important launch was our IO drug, Libtayo, for the treatment of advanced cutaneous squamous cell carcinoma.

Based on our strong clinical data, which included a 47% response rate, Libtayo is the only FDA-approved systemic therapy for CSCC to be included in the National Comprehensive Cancer Network guidelines, and we have secured broad access and reimbursement. Launch is going well and we expect the European approval decision in the first half.

Our third key launch was Cablivi. This is the first therapeutic to be approved in Europe for the rare clotting disorder, the acquired TTP. The mortality rate with the current standard-of-care is up to 20%, so Cablivi addresses a significant unmet need. We launched Cablivi in Germany in October and we are now rolling it out across Europe.

We were also delighted to receive the FDA approval yesterday for Cablivi and planned a U.S. launch late in the first quarter. On slide 12, I want to expand a little on our Immunology franchise. Dupixent continues to deliver impressive results. In the fourth quarter, total and new-to-brand prescriptions in the U.S.

grew by 25% and 39% respectively versus the prior quarter. This accelerated uptake was driven by our branded DTC campaign in AD and by the strong reception from allergists and pulmonologists to the asthma launch. When we look to 2019, we are pleased with our U.S. payer coverage.

More than 90% of adult AD lives are covered and around half have single step-edit consistent with the label. In addition, we expect a growing contribution from ex-U.S. sales and by the end of 2018, we had launch Dupixent in 16 ex-U.S. countries including Japan.

Given these drivers, together with the asthma launch and potential regulatory approvals in adolescence AD and nasal polyposis, we remain very confident in the prospects for Dupixent. Touching briefly on Kevzara, our rheumatoid arthritis drug, we continued to make progress in the fourth quarter with sales reaching €31 million.

This year we expect Kevzara to benefit from improved market access as well as rapid growth of the subcu IL6 category and our strong new to brand share. On slide 13, I'm turning now to Vaccines. Here our fourth quarter sales grew by nearly 10%, driven by strong performances from our influenza portfolio and Menactra.

Sales of our flu portfolio grew 17% helped by favorable quarterly phasing versus the prior year and by our differentiated portfolio. Flublok made a strong contribution in the U.S and Vaxigrip QIV performed well in Europe. Menactra sales were up 63% in the quarter due to the timing of CDC buying and strong orders in the Middle East.

Helped by these factors and the recovery of Pentaxim supply in China, Vaccines delivered growth of around 9% in the second half of 2018 at the upper end of the mid to high single-digit range we indicated. Turning to DCV on slide 14, Diabetes sales declined 11% in the quarter consistent with our 2015-2018 guidance.

We achieved solid growth outside the U.S., mainly in Emerging Markets but this was more than offset by 26% decline in U.S. sales. In the U.S., Admelog posted strong sales due to access in Managed Medicaid. As we have previously noted, in 2019, we expect a further net pricing decline in our U.S.

glargine business as a result of higher rebates and the increased contribution towards Part D coverage gap. On Zynquista for Type 1 diabetes, we had hoped for a more positive outcome from the AdCom meetings and the split vote, but we will continue to work closely with the FDA throughout its review.

We also expect the European approval decision this first half. Turning to Praluent, we were pleased to maintain good momentum with sales up 51% of the quarter. This was mainly driven by the U.S. where we benefited from our exclusive coverage by Express Scripts. As we have signaled, improved U.S.

access came at the cost of significantly higher rebates and we expect this to impact Praluent sales again in 2019. Turning to CHC on slide 15, sales grew by 1.9% in the fourth quarter and 3% for the full year. Looking at the quarter, our U.S.

business performed well, with sales up 6%, driven by the Digestive category and the Gold Bond skin care franchise. Emerging Markets achieved a 6% increase in sales led by Latin America.

Our European business, however, posted a 4% decline and this reflected comparison with the strong early cough and cold season in the prior year as well as the impact of divestments. Both of these factors are likely to persist in the first quarter of 2019.

Despite the European performance, our broad geographic footprint and leadership position in CHC continues and continues to drive growth ahead of the average of our global peers.

On slide 16, as I touched on earlier, our Emerging Markets business continues to be the core strength for Sanofi, with sales up 6% in the fourth quarter and 7.5% for the year. As we have seen previously, China remains a key driver with growth of 8% in the quarter. And with that, I now hand over to Jean-Baptiste..

Thank you, Olivier, and good morning and good afternoon to everyone. Before discussing the details of the P&L, I would like to highlight that the impact of ForEx on our reported fourth quarter figures was very modest compared with the previous three quarters, mainly due to the strengthening of the U.S. dollar.

Looking forward, based on January 2019 average exchange rates, we expect a positive impact on 2019 business EPS of 1% to 2%. So looking on slide 19 at the fourth quarter P&L, the 4.7% increase in business EPS benefited mainly from the solid top line growth, which Olivier described.

Below the top line, there were two significant counterbalancing factors. In the gross profit line, we reported 110 basis points increase in gross margin, but the absence of last year's Dengvaxia charge accounted for about half of this uplift. This was partly offset by comparison with the extra low tax rate of 18.7% in the fourth quarter of 2017.

So the tax rate in the fourth quarter of 2018 was 20%, which was below the full year rate of 21.6%. On slide 20, we delivered an increase in BOI despite a substantial acceleration in R&D spend.

Our cost discipline is evident in the SG&A line where we kept the increase to around 1% despite the new launches Olivier highlighted and the global rollout cost for Dupixent. On the other hand, R&D expense grew by nearly 14%, as we invested in our late-stage pipeline and as we absorbed the incremental costs of Bioverativ and Ablynx.

You should, however, note that, of course, the growth in R&D is not a run rate that should be extrapolated. So within other operating income, there were various minor charges, which led to the year-over-year change. Taking these factors together, BOI grew by 4.5%.

Looking in detail at our cost line, the gross margin increased by 110 basis points to 68.8%, as I have noted. So for the full year, our gross margin was broadly unchanged at 70.7%. In 2019, we expect our gross margin to be around 70% at constant exchange rate.

This reflects further net pricing declines and increased contribution to the coverage gap in primary care. Turning to OpEx. Combined R&D and SG&A spend grew by 5.4% at CER in the quarter. If we adjust for acquisitions, OpEx would have grown by just 1.7%, with SG&A down 1% and R&D up 6.7% respectively.

This makes clearer the cost discipline we are imposing across the organization. For the year, OpEx grew 4.6% in line with our guidance of 4% to 5%. We now expect to grow OpEx around 1% at CER in 2019 with a similar trend over the next couple of years.

Well this is a major step-up of our cost efficiency initiatives, with only a partial reinvestment in business to deliver a leveraged P&L at business EPS. To continue with Sanofi's progressive dividend policies, the Board has proposed a €0.04 uplift in the annual dividend. If approved, this would mark the 25th consecutive annual increase.

The dividend is clearly an important part of our value proposition to shareholders. On slide 23, we ended the year with net debt of €17.6 billion, largely as a result of our acquisitions earlier in 2018. To help with your modeling, you should not have -- you should note that we do not expect to conduct share repurchases in 2019.

Our priorities this year are investing in the business, paying down debt and our progress in dividend policy. But please, let's be very clear, there is no change to our opportunistic buyback policy looking forward.

On slide 24, Sanofi delivered on each of its financial performance objectives in 2018 including business EPS at the high end of our guidance. On my final slide, we have set our full year guidance for 2019 business EPS to grow between 3% and 5% at CER. This expresses our confidence in the return to growth which began in this 1-2 of 2018.

The impact of ForEx is expected to be around 1% to 2% positive as I mentioned earlier. So when considering the quarterly phasing of your models, there are a number of pushes and pulls which will cause some volatility.

This includes a year-on-year impact of the acquisitions and divestments that took place in 2018 as well as the phasing of our top line growth and OpEx spend. Overall, you should expect business EPS growth to be weighted towards the second half of the year. With that, I would like now to turn the call over to John..

we're continuing the evolution of Sanofi R&D by focusing our investments in Specialty Care while maintaining Vaccines investment; we're accelerating investments across priority projects having freed up resources by discontinuing a number of projects, following a rigorous pipeline review; we're advancing internally developed assets, reducing our reliance on external partners; and we're leveraging our cutting-edge therapeutic platforms and capabilities in digital and data science to improve innovation and efficiency.

Altogether I am confident that executing on this strategy will put Sanofi on track to achieve our long-term goal as an innovation leader delivering first and best-in-class molecules for patients. And with that I'll hand things back over to Olivier..

Thank you. Thank you, John for this broad overview. So, in summary we delivered continued business momentum in the fourth quarter helped by launches. We met all our full year financial objectives for 2018. We took further action during the year to reshape our business and support our growth ambitions.

And we have further involved our R&D strategy, so that our investment is increasingly focused on Specialty Care and Vaccines. Finally, I like to mention that we will be hosting a Meet Sanofi Management event in Paris in June.

The primary goal, of which is to allow you to spend in-depth time with the management team that is delivering our return to growth. The Investor Relations team will be sending out a save-the-date notice shortly. And with that over to you George to start the Q&A..

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

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question comes from the line of Tim Race with Deutsche Bank. Please go ahead..

Thank you for taking my question. So, two questions. First, just on financials and cost savings. Last year there was an expectation for cost savings kind of built up by investors. In your presentation today JP, you basically -- J-B, sorry, you basically suggested that costs are going to increased by about 1% going forward.

Does that mean we're not going to get any big announcement on cost savings or big plans, or -- and you'll just basically manage your business as you go forward? Or should we expect you to get your feet onto the desk a bit more and actually hear more about cost going forward? And then more of a strategic question.

Many of your peers are essentially bulking up in innovation in the pharma division and at the same time slimming down in terms of their conglomerate structure around the various health care. Sanofi is a company that stands out as still a big health care conglomerate.

What are your thoughts about what other peers are doing and how that would fit with Sanofi going forward? Thank you..

All right.

Jean-Baptiste, do you want to answer the cost savings one?.

Yes, yes. Thank you for helping to clarify this point.

If we are giving the indication of below inflation growth of our OpEx for the next -- for the years to come is effectively because we are not looking at taking a major cost-cutting exercise with full-on investment, but on the contrary we want to keep our net impact, keeping the OpEx below inflation growth, which will help us to deliver some productivity.

Of course, this productivity is not just across-the-board. It is -- in some places, we go deep into cost reduction and you've seen that we have booked some restructuring costs in some regions on countries of the world to make sure that we can go on investing in our priority.

On a -- for instance, the refocus of our R&D portfolio is a good example of it. So, yes, we are going to deliver the productivity over the next years on that trend..

Right. So, I just would add that clearly we do not currently plan to make a dedicated announcement regarding this cost efficiency which was your question. But the purpose of our comments is also to provide on the direction of OpEx. That should you allow you to model the balance between savings and reinvestment.

And I would say that as any good business would do we continue to seek efficiency in the company frankly every day. And that's even strengthened since the arrival of Jean-Baptiste which allows us to give you that direction of 1% or less in 2019 and similarly the direction for the following two years. So, that's first one.

Now, your question on conglomerate, we think we have now the right structure. So, diversification has been reduced. We have a very strong Animal Health business we believe, which has been structure as a GBU delivering results as you have seen for the last two years despite frankly a very significant integration effort and the Consumer Health, yes.

And the other aspect is we think we have a pharma business which is book-handed by Prevention and Vaccine which is also in some respect diversified business and all the way to CHC business which we believe is a good -- and more specifically in Emerging Market it's very complementary to what we are doing in pharma.

So, at this stage, yes, we are committed to the diverse -- it's a reduced diversification we have today at Sanofi. Thank you very much Tim..

Thanks..

Next question please..

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. The first one on Primary Care for Dieter. Dieter you're in charge of the largest division of Sanofi so far thinking double-digit.

So, could you please share with us your strategy here? Is it to protect the topline? Or is it to maximize the profitability of the products, so in other words to milk the portfolio? My second question, a quick one for John, regarding your long-lasting Factor VIII. You said that you should start the Phase 3 this year.

Could you share with us a little bit more about the design, could be possible to see a twice-a-month regimen in the design of the Phase 3 trial or will you stick to the once-a-week? Thank you..

Thank you, Florent. Dieter a very fair question on Primary Care..

So, I think the Primary Care division, there's opportunity to further enhance our support to the Primary Care physicians by leveraging the go-to-market strategy that the established products team has already put in place over the past two years very successfully.

In concrete terms, we see a number of immediate benefits from the renewed focus on Primary Care in the mature markets. We see concretely efficiencies in the commercial infrastructure coming from the learnings that we have from EP experience with the go-to-market model. We see other infrastructure efficiencies that we can take advantage of.

And with a broad portfolio we're able to supply standard-of-care solutions to the primary care physicians for patients particularly afflicted with acquired diseases as well as innovative solutions in areas of continued significant unmet medical need and it allows us to segment the portfolio differentiate it to focus on the growth drivers versus the remaining portfolio.

So, overall, I think it is actually a portfolio with significant opportunity going forward..

All right. And then as you know, we have, in primary care, we still have, Florent, some very important assets, right? So we do have Praluent, which we have absolutely no intention to milk at this point to the point you were making. As you know, we are going to get a new label. We have expanding access into U.S.

Of course, expansion is costing some gross to net. But as you have seen in the last quarter, we were able to increase our performance by 50%. So it's quite significant and we want to continue to do that. While on the Diabetes side, we expect to see an increase in volume from our U.S. Diabetes business in general for the first time since 2015.

And that, we believe, can be driven by Admelog Toujeo and Soliqua based on their favorable coverage on both commercial and Medicare plans. Now, what I'm saying is that at the same time, the growth in volume is not expected to compensate for the decline in net price of some of the assets and more specifically of course Lantus and Toujeo in the U.S.

But -- so I think that probably give you enough points and a clear answer..

Thank you..

So very quickly BIVV001, thanks for your interest. We think it's a very promising molecule. And the pharmacology does allow us to think about developing it in a couple of different ways. It would be premature though for me to disclose the details of the Phase III trial because we need FDA feedback to confirm our approach.

So, I’m afraid, you will have to wait a bit longer for that. But we do have a few options there, whether it's the once-weekly and maintaining a high level, or going to more extended dosing and still hopefully providing enough coverage for patients. So we'll disclose that in due course..

Okay, thank you very much..

Next question, please..

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

Hello. Thank you for taking my questions. And thank you for the color on the OpEx growth and the cost containment.

But I wonder if you can sort of layout over the top of that the outlook on the profitability of the Regeneron collaboration, because, obviously, we still have the other operating income with the profits share booked in that line as we start to think about your business operating margin.

So just thinking of that collaboration, how are the costs stacking up the launch cost? We had a bit of color from Regeneron yesterday, so I think still very much in that heavy investment phase with the Dupi launch.

So how should think about that collaboration turning profitable in the next couple of years hopefully? And then just a quick one on China. So you did have good growth in 2018 around 12%.

Can you tell us what proportion of sales roughly is Plavix and Avapro, and whether we should expect a bit of a slowdown there since you lost the tender in the 4 plus 7 bidding at the end of last year? Just thinking about that outlook on the EM Plavix. Thank you..

All right. Thank you very much, Luisa. Jean-Baptiste OpEx growth..

Yes. Effectively, I can give you a bit more insight on our operating income and expenses where we record two things. We record the contribution to the commercial costs of Regeneron as a chart. And as long as the partnership is not profitable, we record also the contribution of Regeneron to the losses, which is an income to us.

So, net figures for the full year 2018 of those two items is slightly above €200 million.

Of course, it was increasing because we are still launching a new indications for dupi so selling costs are well are not going down, while we are every month-after-month are getting nearer to the time where we will be positive with the commercial activity of the partnership.

We are looking at something like to be positive in 2020 maybe the end of 2019. But of course, then the contribution to the global losses of Regeneron are dwindling.

So we have this €220 million on the Regeneron impact, which is recorded on the other operating income and expenses, which is offset by some minor divestment in CHC on what we got from Celgene on the drug Geneva data exchange. So that's it for Regeneron..

All right. So Luisa, our best case scenario is for the collaboration to turn profitable in 2020. And we have said that the last quarter and we still see the same thing. Now of course the precise timing depends on the balance between the different variables which are linked to the investment of the collaboration. So that's where we are.

Now China Olivier, you have the numbers around Plavix approval too?.

So Luisa, thank you for your question. As we have just mentioned we had a very good year in 2018. And we continue to be very positive on our growth in China for 2019. In 2019 as you know there are some discussion led by the government.

And the government has significantly opened the door to innovation and significant new products have been registered and the revision of the national reimbursement list. So there will be more pressure in terms of price potential price decrease on the established product portfolio.

This is not new and this is something that we have been living in the last few years. You mentioned Plavix and Aprovel. Now that could be impacted by those price decrease. But two comments. The first one is not going to be the whole Plavix and Aprovel are going to be impacted.

The project that the government is mentioning is only making one-third of the total sales of Plavix and Aprovel. And the second comment is that, we are expecting that in those geographies where we could be potentially impacted the impact is not going to be of course on 100% of those sales.

So basically one-third of the total sales could be totally – could be impacted in the geographies that are going to be impacted by this change. But it's not the all one-third. Now we work together today on the assumption that it's going to be between 25% and 30% of those sales that could be impacted.

The last two elements are the fact that, we are expecting potentially those price decreased not at the beginning of this year, and we think that it will take a little bit of time. So we are working under the assumption that it's going to be more a gradual implementation.

And the second element is that, of course, this will trigger some potential additional volume. And you know that, we have been pretty successful with our strategy in extending towards the county and the community health practice, where we continue to see significant volumes. So, overall, we continue to have positive outlook for China.

I think it's validate also our strategy to accelerate, the registration of new products; and secondly, to continue to invest in – on the products that are not going to be impacted by these new rules that could impact the Plavix and Aprovel..

Very good. Thank you, Olivier. Thank you very much Luisa. Next question please..

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

Thank you, Peter Verdult, Citi. A quick question just on – thanks for the detail on the R&D and the pipeline.

To the extent, you can – could I push you to give us a little bit more of a sense on how the ICARIA data stacks up versus the competition? The current status of your subcutaneous formulation plans? And pardon me – I've forgotten, but could you remind us when we should expect a first glimpse of the solid tumor combo data with PDX? And then secondly, Olivier and Jean-Baptiste apologies, but just to clarify again on the cost base R&D maintained around €6 billion.

You told us on the call to expect OpEx growth of 1% over the next few years.

For the update that you've been saying the market you'll in Q1 is that just going to lay out the steps you would take to restrict OpEx growth to 1%? Or is there still long-term opportunities through the reduction of the ERP systems a reduction of the manufacturing footprint that could still allow you to operate with a lower cost base longer-term without sacrificing R&D investment? Thank you..

Okay. So moving to ICARIA. Of course, we need to preserve right – some aspects of the data, because we don't put out risk this year potential disclosure of the full result.

So with that John, is there anything you can share additionally to what we have said until now in the press release?.

No. I'm afraid. I can't. I think all we could really share at this point is the primary endpoint was met and that the tolerability was quite acceptable. We are going to present the full data at – probably at ASCO is the plan.

And so I'm afraid, you'll have to wait until then so that we don't jeopardize the opportunity to present those data in a major conference. About the route to delivery, I would say first of all with respect to the IB delivery we have now, we do have a shorter infusion time than daratumumab and we also require far less pre-medication with steroids.

But indeed, we are working on other ways of delivering the molecule and hope to expand the opportunities or the options for patients down the road..

All right. Thank you very much..

Sorry to interrupt.

Solid tumor data?.

Yes. Those - there are multiple studies ongoing in different types of solid tumors in combo with either cemiplimab or atezolizumab. And those data are basically going to be trickling in throughout the year. So we're looking for early signals of efficacy.

So we'll -- I think by end of the year, we'll have a good sense of which of these different indications might there be an opportunity to think more broadly about isatuximab and with respect to going after solid tumors and exploiting again that this activity we have against the ectoenzyme activity of CD38 which is thought to be responsible for creating these immunosuppressive metabolites.

And so it could give us a way to impact the tumor microenvironment in a broader way but it'll be throughout the course of this year as the data trickle in..

All right Peter to your second question, I just want to repeat what I said. So we do not currently plan right to make a dedicated announcement regarding cost efficiency.

And again the -- we made those comments in order to give you and others some direction of the OpEx and allow you to model the balance between the savings and the reinvestment over the coming years. Now -- and we cover basically three years.

So Jean-Baptiste do you want to add anything?.

No, Peter it's quite clear. We are going to pull all the levers to get really some cost savings in many places so that we can be behind the growth drivers of the company and really now it's about delivering on this productivity quarter-after-quarter..

Thank you..

All right. Thank you, Peter. Next question please..

Next question comes from the line of Graham Parry with Merrill Lynch. Please go ahead..

Thanks for taking my question. So, and firstly on BIVV009 or sutimlimab, just your thoughts on the level of unmet need in cold agglutinin disease versus let's say other hemolytic anemia's like PNH. And therefore what sort of pricing analogs we should think about, should you be able to get to commercialization.

So for example would Soliris be a good analog to be using there? And then secondly on the HHS safe harbor rebate ruling for part D proposal to come in early next year with a possible delay to 2021.

If you could help us to understand the potential impacts on Sanofi's business what your feedback to the administration on that would be? And given that Sanofi has a high gross to net on diabetes and quite a high donor hold discount rate something which has been flagged by HHS as possible benefit for other companies, could Sanofi disproportionately benefit from this move versus other companies in the industry? Thank you..

All right Graham. Thank you very much. We're starting with BIV and sutimlimab..

Sutimlimab BIVV009. Maybe I'll make a comment about the science and then hand it over to Bill to make a comment on the issue around pricing. With respect to a comparison with PNH, the difference there is PNH is not an autoantibody-driven disease.

Instead there the patients developed mutations that prevent their natural system for protecting red blood cells against complement from working. And so we would not be able to apply a sutimlimab for that type of anemia because the mechanism doesn't match the mechanism of the antibody.

Having said that, though as I referenced there are a number of autoantibody-driven diseases beyond hemolytic anemia's that are candidates for this type of therapeutic. And so we do envision several other therapeutics. So I would just say that in terms of finding the right indications for the science behind this complementing the inhibiting antibody.

And then over to you..

Thanks, Graham. This is Bill speaking. So, as John said, look this is a very serious disease. What it's at the moment is suffering from is that it's not a well-known disease and people don't quite understand the severity.

So our efforts have been to -- in addition to conducting the trials and getting those results is to begin to educate the community on exactly what this disease is. Now assuming that the results are favorable in trials and that this is an ultra rare disease. We think there's about 5,000 patients in the U.S. probably about 5,000 patients in the EU.

It would be considered a rare disease. So it's premature to comment on pricing at this point. But clearly with the ultra rare population like that and a high value that we expect to see from the trial, we would expect that it would be priced according to the value..

Thank you very much, Bill. Graham, I won't be able to give you numbers at all yet on the -- to answer your question. But bottom line is we understand of course the anger in the U.S. about rising prescription drug costs for patients and the confusion about why the value created for declining net price has frankly not provided direct relief to patient.

We also know that too often patients are struggling to afford the medicine they need and patient out-of-pocket costs continue to rise.

So it's our belief that the growing rebates and that has to do with the €150 billion in rebates the industry is providing to the sector and consequently the declining net price should have resulted in lower out-of-pocket drug costs for patients.

And unfortunately under the current system, this is generally not the case and the savings are not consistently passed to the patients in the form of lower co-pay or co-pays and co-insurance.

So that's a long introduction to tell you that we believe the proposal which has been released last week by the administration, the aim to eliminate the rebate safe harbor will create certainly short-term uncertainty. We know that the aim is to have it ready for early 2020.

But we also believe that it has the potential to be an important step towards our shared goals of reducing out-of-pocket costs for consumer. So in brief, I think Sanofi and many other company we applaud the administration for taking steps to reform the rebate system to lower patient out-of-pocket costs. I think that's what I would say.

And we need time as a company to understand exactly what is going to be the impact. So Graham thank you. Thank you very much. So, we move into the next question please..

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

Thank you. One financial, one product please. You helped us on the operating expenses and we've also heard a bit about the non-operating -- the Regeneron lines. I wonder if you could help us on the financial line in terms of the net finance charge that we're likely to see this year. In 4Q it was quite light.

And that's presumably the one quarter where all of your expenses for all of your acquisitions are in. If you could also help us on what might be happening on the gross margin side.

And from a product perspective, could somebody tell us a little bit about how you see your early experience with asthma and Dupi? And what share of new patients you're getting relative to the other biologics that are out there Fasenra and Nucala?.

Why don't you start Bill? Do you have a little bit of insights to share on the asthma launch please?.

Yeah certainly. Thanks, Jo, it’s Bill here. So we're really, really pleased with the initial launch curve with asthma. And we're seeing it from a number of perspectives.

So first of all, we are seeing use by physicians both allergists who had familiarity with the product in AD; and really encouraged to see the uptake by pulmonologists including many of who had previously low or no biologics use.

So as we were talking about in asthma the real -- what we see as an opportunity is penetration of biologics is so low into these 900,000 potential patients that there's a real opportunity for biologics expansion.

And we've seen that the profile of Dupixent is really looked at favorably, not only because of the efficacy so a differentiated label but the unique mechanism of action, which also carries over to comorbidities, and finally the convenience of self administration. So early uptake appears to be strong.

The next thing really excited about is the level of market access that we have. So we have 75% of their commercial lives have been established utilization management criteria. And over 90% of these are to label. So it is very rapid and good market access that we're getting, which is a great prognosticator.

And then I would say the final bit is just the stories that we're hearing of how patients who have been suffering with asthma either have been on a biologic -- another biologic or not. And when they started Dupixent, the stories are really compelling that it's making a significant difference to their lives.

So it's very early to report out any specific numbers. But as you can see we've seen growth in all the key metrics. TRx and BRx et cetera. So it's early we'll report more. But off to a great start..

All right. Thank you very much, Bill.

Jean-Baptiste?.

Yes. Effectively you're right. We have a light quarter 2018. Financial expenses were minus €60 million in Q4 2018 versus minus €73 million in the same period of 2017.

In Q4, 2018 net financial expenses included the cost associated with the Bioverativ and Ablynx acquisitions, which was coupled with an increase of €22 million in the market that you're -- of your final full investment.

But the full year financial expenses were minus 221 versus minus 223 in 2017, but still we are pretty optimistic on the financial costs ongoing because we will slightly rebalance our debt between dollars and euro..

All right, thank you very much Jean-Baptiste.

Next question please?.

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

Hi, thanks for taking my question. Just following up on Jerry's question on the gross margin, clearly you’ve highlighted that the 2019 gross margin would be impacted by a doughnut hole.

But thinking about other elements going forward beyond 2019, we might think that the diabetes sales and the primary care sales which are very profitable might go down and Regeneron products go up nicely.

So is there a mix pressure on the gross margin going forward beyond that base of 70%? And are there further manufacturing network savings that you can do to try and offset this or improve the margin back up to the 70% to 71% range? And then second question, just on the R&D.

Obviously with a refocusing of R&D, we've seen discontinuation of a couple of diabetes programs the GLP and the glucagon GLP as well. But could you maybe talk about your thoughts in terms of developments there? Are there any future developments beyond efpeglenatide and sotagliflozin? Thanks very much..

Thank you, Richard. I think frankly you provided the answer to your first question yourself. I think you're right on. It is exactly is the mix you described. It is €240 million. We have talked about now for a certain period of the impact of the party payment from 50% to 70% and doughnut hole. So that's very clearly there.

It is what we described earlier about the diabetes business. We are still in 2019 able to sustain our volume. But clearly there is an impact on price which is putting pressure. And it is our sales are replaced by the mAb sales which have not exactly the same gross margin structures and the one having less and less impact.

So that is basically the answer. So we have proven and I don't know if you remember, but the first program of €1.5 billion, we have highlighted between 15, 16 and 17 which in a sense we delivered earlier. There were €500 million improvements related to the network and the plant network. So some of what you have described was definitely there.

The only thing and the reason why we may not be able to give you a straight answer here is because plant network regarding related to biologics, we still need to invest the first savings of €500 million were mainly due to improving our network on small molecules. So it's a balance. But we are going to be very, very focused.

You have to believe me on that very specific aspect of our P&L. But for now what we're saying is 70% or close to 70% is the number. And we don't see us in 2019 getting to closer to the 71% or the 70.7% which we had in 2018. So that's the answer. R&D.

So you have very good questions regarding the Diabetes dual agonist and John is going to give you the answer..

Yes, let me start. I don't know if Dieter may want to supplement. But I guess I would say first is that, we remain interested in this area of next generation in creatinine as a solution for obesity, in particular along with glycemic control. The first couple of molecules will be put into the clinic.

We learned the hard way, basically, they didn't have quite the right ratio of the agonistic principles we were trying to develop. We have other molecules coming. Another one will be in the clinic this year. That's a triagonist and for which we are hopeful that we have the ratios dialed in more appropriately for this type of an indication.

So it remains very much and in scope and the next molecule is on deck shortly. We'll, in parallel, this year be testing a delivery technology for peptide drugs like this that could allow for long pharmacology and a convenient dosing schedule.

And so, we'll be getting answers on that as the year unfolds as well and the hope would then be able to bring these together into a single product that has the convenience of infrequent dosing, together with the weight loss benefits of a molecule that hits not one, not two, but three of these in creatinine family receptors..

All right. Thank you very much..

Thank you very much Richard.

Next question, please?.

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

Hello. Thanks for the question. So just a couple of questions on Dupixent. Can you guys, maybe first, just describe when you anticipate Dupixent is going to have a meaningful impact on the P&L? Should we be thinking about that as kind of -- or perhaps a 2021 timeline. You guys are still doing quite a bit of R&D behind the program.

And then on the R&D side and then commercially as well, if Bill and John could comment on this. The pediatric opportunity is coming up. We'll have filings in the back half of the year in atopic dermatitis.

Can you talk a little bit about the pediatric asthma opportunity, together with atopic dermatitis and the commercial impact that that could have in 2020 and 2021? Thanks so much..

All right. Thank you, Seamus.

So Dupixent P&L, Bill, can you answer the question?.

Dupixent P&L, Jean-Baptiste?.

Yes. The Dupixent P&L, as we said, the commercial partnership will become profitable by 2020. And we'll then grow pretty quickly on pretty high figures, because the potential of the molecule is high and the ramp-up of the commercial task will be then flattening.

So we are very optimistic to see from 2020 onward a very strong positive impact on our P&L as a particular picture..

Okay. The only thing is, we don't extract Dupixent specifically from what we are saying overall for the three mAbs Seamus. But roughly, that's the answer. It's very much driven by Dupixent as you know anyway. Okay. On R&D and commercial.

So Bill, you want to start on pediatrics and the asthma and atopic dermatitis?.

Yes. So actually, let me start with adolescents, since that's the next indication that we're expecting in AD. We're expecting that the first half of this year. And the way to think about AD and the population, we think it's about roughly half of the adult population in atopic dermatitis. And those are the patients that are in most need.

And we know that it's very serious with these kids and that it has not only an impact on kids, but the family as a whole due to the nature of the scratching and lack of sleep et cetera. So we're optimistic about that being the next indication that comes into the U.S. and would expect to see continued growth there.

Now pediatrics it's still actually -- as we size of the market and the opportunity, we believe that certainly with young kids there is a high prevalence of atopic dermatitis. The question remaining is looking at the severity and who is going to start a biologic in that space.

And so as we get a little bit closer to filing and launch, we'll comment more on that. And it's a similar story with the pediatric asthma. Again, the results that we're seeing are strong with the adolescents as well today in the asthma indication. We would expect in the pediatrics as well to see similar results.

So we think there's certainly an opportunity there..

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

Next question from the line of Tim Anderson with Wolfe Research. Please go ahead..

Thank you. A couple of questions. On Dupixent and atopic derm, there's oral JAK competition coming and a couple of trials recently reported out top line positively. I'm guessing you may have a view from your own competitive intelligence and work in this area on what compounds like that might show.

So I'm wondering, if you can give us an idea how you expect these oral competitors to play out especially among derms, where the value of an oral medicine matters. And then I want to go back to a question I've asked a few times in the past on insulins.

And you had made a comment a couple of times that you thought that Lantus biosimilars could be deemed as substitutable in 2020. And I'm wondering, if that is still your current view or if that has shifted at all? Thank you..

All right. Thank you very much, Tim.

So, Bill, do you want to start Dupixent versus JAK?.

Yes. So thanks for the question. So as far as the results, you know as much as we do with what's been released into the press. Now I think the question gets to as well what's the value of an oral in the dermatology space.

And I think the way to think about this is first of all kind of the profile of the products, the experience that there is and ultimately just the dynamics of the market at the moment.

And looking at the profile, we believe that we have the best product profile from both an efficacy and a safety perspective with any of the products that we've seen any information on in the pipeline. Now I will remind you that, as you mentioned dermatologists maybe looking for an oral.

It's our experience that dermatologists are also very safety conscious. And they're going to take a look to see just how do the JAKs ultimately pan out in atopic dermatitis, but also in the other indications – pardon me, the other indications that they are currently indicated in. The next step is about experience.

And we now have tens of thousands of patients globally that are on Dupixent for atopic dermatitis. And the reports that we get from the patient community and the physician and health care professional community is that it can be transformative for patients.

So I think that those years of experience that we're going to have over thousands and thousands of patients is helpful.

The final piece to keep in mind, we're at the beginning of atopic dermatitis and having advanced therapies for atopic dermatitis and any time – and we believe with new entrants coming in that that can actually help to drive the growth of the overall market and accelerate the overall market.

And again, we believe that the best profile is going to win in that market and we think we have the best profile. So there will be a lot of competitors we think in the future since this is turning out to be such an attractive space.

But we think from a profile perspective and from the years of evidence that we're going to have when – by the time they arrive that we're very well positioned for continued growth..

All right. Thank you very much, Bill. On – a question Tim has asked and he said it regularly and I think our answer will probably be also very similar and consistent with what we said in the past.

So, do you want to provide the answer Dieter please?.

Yes. So as you know in March 2020 certain biologics will be which are currently regulated as drugs including the long acting insulins will be regulated biologics and would therefore be subject to the existing biosimilars pathway. Registration also permits an abbreviated licensure pathway for biological products.

Conceptually, the process is similar to generic drugs and the FDA has now released final guidance for transition of products like insulins last December. So interchangeability is actually an additional standard beyond the requirement for biosimilarity.

Therefore, interchangeability based on the current draft guidance can only be granted to a biosimilar product and thus would not be granted until after the transition of insulin products to be regulated as biologics in 2020. In addition, the regulatory guidance associated with the interchangeability currently includes the need for switching studies.

And importantly, please keep in mind that in that – by 2020 Lantus in the U.S. will be considerably smaller in proportion of the total Sanofi Diabetes business and Sanofi business in part, due to the growth we expect from our other franchises. And as you know, currently this is already down to 28% of the share for Diabetes business..

All right. Thank you, Dieter. Thank you, Tim. Next question, please..

The next question comes from the line of Jack Scannell with UBS. Please go ahead..

Hi. Thanks very much. I was intrigued by an answer you gave earlier around the asthma uptake Dupixent and also formula coverage. And it's clear that there are number of crowded therapy areas drugs for the clinically good have still struggled with payers. We've seen that with the PCSK9s we've seen that with the IL-17s.

Is your good access in asthma driven by discounting? Or is there something about asthma that makes the payers relatively benign? Thank you very much..

So, thanks. It's Bill, again. So I think what it is the quality of the product. And it's already shown with payers the demonstrated value in atopic dermatitis, which they got used to and they've been very compelled by the data that we're seeing in asthma as well and the label that we have.

So I think it's more of a reflection of innovation still being rewarded. And if you have a product that can show a differentiated profile then it becomes easier to secure reimbursement. It certainly hasn't been from a discounting perspective that we gained that access. I think it's the overall value of the assets..

So thank you very much. That's very clear. Thank you, Jack..

Thank you..

Next question, please..

Next question comes from the line of Thibault Boutherin with Morgan Stanley. Please go ahead..

Thank you for taking my questions. My first question is on M&A and business development. I think last year you mentioned you had a €20 billion envelope for M&A and you used €13 million from Bioverativ, Ablynx and in the meantime you generated some cash as well.

So it has been a year since the Bioverativ and Ablynx acquisitions would you consider the integration of these companies is no longer on the stake here do more deals? And if it's the case, can you comment on your appetite to do this? And what are your priorities? That's my first question. And second question would be on hemophilia.

I think in your press release you commented on trends competitive trends in hemophilia. And so can you just give us some color on the EBITDA market and if you see any pressure already from the launch of [indiscernible] from Roche? Thank you..

All right. Thank you very much, Thibault. So the answer on M&A is going to be very similar to what you heard. No change frankly existing in strategy. Again, it's exactly what you said and what we have communicated in the past. So, both of the acquisition last year of €13 billion. That has been significant for us still being below the €20 billion.

So we have a little bit of space there. We spent -- to the point you are making, we spent the last quarter mainly to finalize the integration of those two operations.

As you remember, we communicated that we would only start changing reporting lines and eventually regrouping some of the divisions with some of ours and more specifically in fact in R&D to only in starting in October. So that has worked very well I would say so we're very pleased with the results.

And hopefully that will continue and they are now fully integrated into the larger Sanofi. It's not a very clear reason to start doing additional M&A. But as we said, we would stay opportunistic if there was any players strategic opportunities. We define the different areas we would be interested. They have not changed.

It's still rare disease, eventually CHC, Vaccine, Emerging Market. Those are areas where we think we have already -- we are very competitive and we have a lot of strength there. But also -- and you've heard some of what some of our strengthening in other areas and more specifically on the R&D side, when it comes to oncology immunology.

And we're still very much looking for replacing Aubagio over the next few years in Multiple Sclerosis. So those are three areas, where we may not be in the top three companies, but we're very much interested in, again, strengthening those bases. So that's where we are. And we will continue to be -- to look at potential bolt-on opportunities.

But, for now, we want to make sure that we are making the two acquisitions really working well and producing, so that's the question on M&A.

And hemophilia, Bill, do you want to answer the questions there?.

Yes, sure. So thanks for the question. So start off by saying that, we remain really excited about the hemophilia category overall and I'll come back to that in a moment, but perhaps first just a comment on the quarter.

And the slowdown in the quarterly growth can really be largely explained by dynamics in Canada and the U.S and I'll tackle each one of those separately.

And if you recall on the Q3 earnings call, we talked about a tender loss in Canada for both Eloctate and Alprolix and that lowered sales beginning in Q2 2018, and really, therefore, creating a headwind until Q2 2019. If you exclude Canada, combined Eloctate and Alprolix sales growth, would have improved to 8% this quarter. The U.S.

Eloctate patients grew from Q4 2017 to Q4 2018. However, we saw a average utilization per patient was lower in 2018 than 2017, which impacted volume growth.

And after experiencing some spike in average per patient utilization in Q2 through Q4 2017 following our retrospective ITI chart review release at the ISTH meeting in July of 2017, we returned to a more standard use per patient in 2018. And so we believe that our ITI is currently a very small percentage of our business.

Now in addition and this gets to your question as well, there was a slowdown in patient adds from Q3 to Q4 2018. And this is following the launch of emicizumab in the non-inhibitor market in October. And this is some early adopters that are trying the new therapy.

And we see that the switching dynamics, that's a pretty dynamic market at the moment, where there are more hemophilia patients that are switching therapies. And with the availability of emicizumab, they've been getting their share of patients.

And just to reconfirm, we have not been losing patients that are above what our current market share is, so we're not disproportionally cannibalized. So still a dynamic market and we will see in the coming months and quarters how the profile of emicizumab ultimately unfolds.

As we think about hemophilia, in general, though, the market dynamics are actually still very favorable. When you think of it 70% of moderate to severe hemophilia A patients in the U.S. are on a short acting factor and about 59% of patients are on prophylactic treatment.

So, those -- there's plenty of room to grow in both of those areas which are good prognosticators. And also as you think just about our hemophilia efforts, it extends beyond Eloctate and Alprolix. We think those are currently the two leading factors.

We have for hemophilia A the next generation factor in BIVV001 as John went through; we have the next generation mechanism of action with fitusiran which covers hem A/B inhibitors and non-inhibitors; and then we have the gene therapy approach with San Rafael.

So, overall, we have what we think is a complete portfolio that sets us up for the future in hemophilia. And while there's been and will be new entrants, we believe in the long run that we have the portfolio that can keep us as leaders there..

All right. Thank you. Thank you very much Bill..

Thank you very much..

Thanks. We're going to take a couple of final questions please. So, next one..

Next question comes from the line of Peter Welford with Jefferies..

Hi, thanks for taking the questions. Two quick ones. Firstly, just on R&D, you mentioned that would remain around €6 billion through 2021 and yet you've also highlighted the number of Phase 3 programs is up over 50% and the pipeline's growing considerably.

Should we read this as you are finding lower costs methods of running clinical trials? Or should we anticipate more pipeline optimization rigorous reviews happening over the coming quarters as you continue to prune the pipeline going forward? And then secondly just on hemophilia still with fitusiran, I noticed it's not in your pipeline catalyst of events for 2019, it still shows a potential 2020 filing.

When you should we anticipate the first potential results do you think for fitusiran? And is there any sort of cause for delay at all there in the ATLAS trial? Thank you..

All right. Peter we're going to start with the R&D. I just want to make a brief comment. We think the R&D it's a very large envelope as you know. And you have the budget which John is in charge in terms of research and development for pharma.

But it's bigger than that because as you know we have also our medical spending there with our lifecycle plan and Phase 4.

And if there is one area at which we are really looking at very seriously with our Chief Medical Officer, it is the medical budget where a lot of what you were eventually suggesting is happening a better way for conducting studies and using more and more real-world evidence studies.

We have one of the best real-world evidence platform frankly in the industry which we are exploring I think very efficiently including recently using some of those results for Diabetes and Toujeo.

So, I just wanted to highlight that we are definitely looking at synergies and cost savings on some aspect of that €6 billion which allow us to do more Phase 3 studies.

Do you want to add anything?.

No. I'll just say that indeed I think prioritization is going to be important going forward as it always is for any pharma company. And so we'll be looking rigorously every year at the portfolio and doing a ranking of the opportunities that we have in the portfolio and deciding what the best investments would be with the resources we have..

All right. Thank you very much John.

Do you want to answer Bill on fitusiran?.

Yes. So, we're still expecting results of ATLAS in 2020 and a submission in 2020..

Okay perfect. That's clear. All right. Thank you very much Peter.

Last question please?.

Last question comes from the line on of Jean-Jacques Le Fur with Bryan Garnier. Please go ahead..

Thank you for taking my question. On Eloctate after this weak Q4 expected with clear explanation given by Bill. But looking at the consensus for this year it's close to €800 million.

Don't you think it's a little bit high especially having in mind we'll have the new inhibitor on this label this year? And the second question is, could you share with us the first day of Cablivi in Germany as it is probably a very interesting product? So just to understand how is the product is received and perceived by the patients and doctors? Thank you..

All right. Thank you Jean-Jacques, let's start with Cablivi maybe, early days in Germany..

It's very very early days as you know. Yes so early days in Germany and there's also been some early access programs that have been running in some other countries.

And the feedback has been, as I would say as expected based on the compelling results that we saw in clinical trials and we've heard great satisfaction from physicians and from patients alike.

So I think that what we saw in the clinical trial is about decreasing the number of days in ICU number of days in hospital and having overall better outcomes is representative of what we're seeing in the marketplace. Obviously the next big launch and with the good news yesterday of the U.S.

FDA approval, we're anticipating that have our teams ready built and excited about the prospects to be able to report out on that in future calls..

Okay. Thank you very much Bill. It's difficult to answer Jean-Jacques specifically your question on consensus right on our hemophilia franchise. However, we are expecting to grow. So we are staying quite optimistic. We think we have a very strong franchise. And you heard about our optimism on BIVV001. So I'll stay there.

But we really think that we're going to stay very competitive and grow that business..

So with that, thank you Jean-Jacques. Thank you everyone. And talk to you soon. Bye-bye now..

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