SANOFI SEPTEMBER 2013 Letter to shareholders N° 34 Dear Shareholders, The pharmaceutical industry is facing a challenging economic environment. The pressure from governments to reduce healthcare costs is growing in mature markets and also in emerging markets, and regulatory authorities are increasingly cautious. In this context, your Company had some difficulties in the second quarter of 2013. Some of them, such as the residual impact of exclusivity losses from last year were planned. Others, such as the problems of our generics business in Brazil or the underperformance of the Animal Health division, were less expected. However, this doesn’t change the fact that your Company has fundamental assets to drive future growth. Sanofi showed strong resilience throughout the patent cliff and was able to overcome part of the patent losses due to the development of its growth platforms. The Company has also demonstrated its strong capacity in integrating new businesses: Genzyme, our rare diseases and multiple sclerosis business performs extremely well. Sanofi is the recognized leader in Emerging Markets, which continue to be one of the best growth opportunities in the industry. Sanofi recently confirmed its strong position in Diabetes with the announcement of promising study results for its investigational new insulin. Thanks to the progress in Research & Development and its integrated business model, your Company continues to strive to meet the challenges. Thank you for your trust and continuing loyalty. Serge Weinberg Chairman of the Board of Directors Dear Shareholders, The second quarter was a difficult quarter. As expected, this was the last quarter with a tough comparison to the prior year due to the residual impact of the patent cliff. In the U.S., we lost the exclusivity of Avapro ® , Plavix ® and Eloxatin ® in March, May and August 2012 respectively. The negative impact on sales from the patent losses was €481m in the second quarter. Exclusivity losses of Avapro ® and Plavix ® affected our business net income by €233m in that quarter. Sales were also affected by a number of other factors. We have seen our Animal Health business underperform, due to increased generic competition for our main product Frontline ® and due to unfavorable weather conditions which affected sales of flea and tick products for companion animals. We also saw an underperformance for the pharmaceuticals business in Japan, where the government decided to further increase generic use. And finally, we had to deal with problems of excessively high generic inventory levels in trade channels in Brazil. However, despite these temporary difficulties, the consistent performance of our growth platforms confirms the value of Sanofi’s integrated business model. Our Diabetes division registered double-digit growth for ten consecutive quarters. Genzyme’s sales were up over 25% and the successful launch of Aubagio ® in the U.S. as well as the recent approval of Aubagio ® and Lemtrada™ in Europe position Genzyme as a major player on the multiple sclerosis market. Many of our Emerging Markets performed well. We have also made great progress in the development of our R&D portfolio. We have also reinforced the Executive Committee and have appointed new heads within the commercial team. Pascale Witz has joined the group to lead the strategic commercial development and our global divisions. Peter Guenter has been promoted from within to lead the Global Commercial Operations. Carsten Hellmann is another new recruit and joins us as the new head of our Animal Health business.We also appointed David Meeker, Chief Executive Officer of Genzyme, to the Executive Committee. This renewed team is committed to returning the company to growth, getting the patent cliff behind us, progressing in R&D and ensuring new innovative products and solutions get to those in need. Thank you for your support, Christopher A. Viehbacher Chief Executive Officer Sanofi - Shareholder Relations 54, rue La Boétie - 75008 Paris - France Toll free number in the U.S.: +1 888 516 3002 - Tel. Europe: +33 800 075 876 E-mail: [email protected] - Website: www.sanofi.com/shareholders
Transcript
SANOFI SEPTEMBER 2013
Letter to shareholders
N° 34
Dear Shareholders,The pharmaceutical industry is facing a challenging economic environment. The pressure from governments to reduce healthcare costs is growing in mature markets and also in emerging markets, and regulatory authorities are increasingly cautious.In this context, your Company had some difficulties in the second quarter of 2013. Some of them, such as the residual impact of exclusivity losses from last year were planned. Others, such as the problems of our generics business in Brazil or the underperformance of the Animal Health division, were less expected.However, this doesn’t change the fact that your Company has fundamental assets to drive future growth. Sanofi showed strong resilience throughout the patent cliff and was able to overcome part of the patent losses due to the development of its growth
platforms. The Company has also demonstrated its strong capacity in integrating new businesses: Genzyme, our rare diseases and multiple sclerosis business performs extremely well. Sanofi is the recognized leader in Emerging Markets, which continue to be one of the best growth opportunities in the industry. Sanofi recently confirmed its strong position in Diabetes with the announcement of promising study results for its investigational new insulin.Thanks to the progress in Research & Development and its integrated business model, your Company continues to strive to meet the challenges.Thank you for your trust and continuing loyalty.
Serge WeinbergChairman of the Board of Directors
Dear Shareholders,The second quarter was a difficult quarter. As expected, this was the last quarter with a tough comparison to the prior year due to the residual impact of the patent cliff. In the U.S., we lost the exclusivity of Avapro®, Plavix® and Eloxatin® in March, May and August 2012 respectively. The negative impact on sales from the patent losses was €481m in the second quarter. Exclusivity losses of Avapro® and Plavix® affected our business net income by €233m in that quarter.Sales were also affected by a number of other factors. We have seen our Animal Health business underperform, due to increased generic competition for our main product Frontline® and due to unfavorable weather conditions which affected sales of flea and tick products for companion animals. We also saw an underperformance for the pharmaceuticals business in Japan, where the government decided to further increase generic use. And finally, we had to deal with problems of excessively high generic inventory levels in trade channels in Brazil.However, despite these temporary difficulties, the consistent performance of our growth platforms confirms the value of Sanofi’s integrated business model. Our Diabetes division registered double-digit growth for ten consecutive quarters. Genzyme’s sales
were up over 25% and the successful launch of Aubagio® in the U.S. as well as the recent approval of Aubagio® and Lemtrada™ in Europe position Genzyme as a major player on the multiple sclerosis market. Many of our Emerging Markets performed well. We have also made great progress in the development of our R&D portfolio. We have also reinforced the Executive Committee and have appointed new heads within the commercial team. Pascale Witz has joined the group to lead the strategic commercial development and our global divisions. Peter Guenter has been promoted from within to lead the Global Commercial Operations. Carsten Hellmann is another new recruit and joins us as the new head of our Animal Health business.We also appointed David Meeker, Chief Executive Officer of Genzyme, to the Executive Committee. This renewed team is committed to returning the company to growth, getting the patent cliff behind us, progressing in R&D and ensuring new innovative products and solutions get to those in need.Thank you for your support,
Christopher A. Viehbacher Chief Executive Officer
Sanofi - Shareholder Relations 54, rue La Boétie - 75008 Paris - FranceToll free number in the U.S.: +1 888 516 3002 - Tel. Europe: +33 800 075 876E-mail: [email protected] - Website: www.sanofi.com/shareholders
NEWS
GENZYME’S MULTIPLE SCLEROSIS TREATMENTS, AUBAGIO® AND LEMTRADA™, APPROVED IN EUROPEIn September, the European Commission granted marketing authorization for Lemtrada™* for the treatment of adult patients with relapsing remitting multiple sclerosis (RRMS) with active disease. This follows the August 30 approval of Aubagio®, a once-daily, oral therapy indicated for the treatment of adult patients with RRMS. These approvals set the stage for launches throughout the European Union and strongly position Genzyme as a committed partner to the MS community. Multiple sclerosis is estimated to affect more than 2.1 million people globally (National Multiple Sclerosis Society). There are approximately 630,000 people affected by MS in Europe (Multiple Sclerosis Journal).Aubagio® has been approved in other countries, including in the United States. A decision by the U.S. Food and Drug Administration on Lemtrada™ is expected in late 2013. Both drugs are under review by additional regulatory agencies. * Lemtrada™ is developed in collaboration with Bayer HealthCare
NASACORT® AQ RECOMMENDED FOR OVER-THE-COUNTER USE IN THE U.S.
In July, the U.S. Food and Drug Administration’s (FDA) Nonprescription Drugs Advisory Committee (NDAC) recommended approval of Nasacort® AQ Nasal Spray (triamcinolone acetonide) for over-the-counter use in the U.S.If approved by the FDA, Nasacort® AQ would be first-in-
class as an OTC medicine and marketed by Sanofi’s consumer healthcare division, Chattem, Inc. The proposed OTC indication is temporary relief of nasal symptoms of hay fever or other upper respiratory allergies (allergic rhinitis) in adults and children 2 years of age and older.
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CLOSTRIDIUM DIFFICILE VACCINE In August, Sanofi Pasteur, the vaccines division of Sanofi, initiated its Phase III clinical program called Cdiffense to eva luate the sa fe ty, immunogenicity and efficacy of an investigational vaccine for the prevention of primary symptomatic Clostridium difficile infection. Clostridium difficile is emerging as a leading cause of life-threatening, healthcare-associated infections worldwide.
CONSUMER HEALTHCARE
In September, Sanofi US and its consumer healthcare division Chattem, Inc., have announced they re-introduced Rolaids® to stores across the United States. The iconic brand returns in the over-the-counter antacid marketplace and follows Chattem’s acquisition of Rolaids® earlier this year. The millions of people who suffer from frequent heartburn and acid indigestion can once again turn to Rolaids® to help relieve their symptoms.
ANIMAL HEALTH In September, the U.S. FDA approved Merial’s NexGard™ (afoxolaner) for the treatment and prevention of fleas and ticks in dogs. This new oral treatment from Sanofi’s Animal Health Division Merial adds to the company’s strong parasiticide portfolio. NexGard™ Chewables is indicated for the treatment and prevention of flea infestations, and treatment and control of the American Dog tick in adult dogs and puppies. Merial is planning to make NexGard™ available to veterinarians in time for the upcoming flea and tick season.
SHARE PRICE TREND BETWEEN 01/01/2011 AND 09/20/2013
Euronext Paris, compartiment A New York Stock ExchangeMember code: SAN Symbol: SNYISIN code: FR 0000120578 CUSIP number: 80105N105000
CAC 40 rebased on the Sanofi share price - Source: Bloomberg
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FOCUS ON SANOFI’S INVESTIGATIONAL NEW INSULIN U300 AT THE AMERICAN DIABETES ASSOCIATION (ADA) ANNUAL MEETING
DIABETES
The American Diabetes Association 73rd Scientific Sessions took place from June 21 to 25, 2013 in Chicago, U.S., where approximately 13,000 of the world’s top experts came together to discuss the latest innovation and breakthrough research in diabetes care. Sanofi confirmed its ongoing commitment to diabetes care presenting new data sets on Sanofi diabetes drugs, investigational drugs or medical devices, and in particular data on the investigational new insulin U300.
Understanding diabetes Diabetes is one of the most common non-communicable diseases globally and is one of the most challenging health problems of the 21st century. A complex, chronic and evolving condition, diabetes has a major impact on health and life expectancy.
Diabetes is a chronic disease that occurs as type 1 diabetes, which is an autoimmune disease characterized by the lack of insulin (the hormone that regulates blood glucose concentrations) production by the pancreas, and type 2 diabetes, a metabolic disorder in which there are two main biological defects: a deficient production of insulin and reduced ability of the body to respond to the insulin being produced. Type 1 and type 2 diabetes are characterized by an increase in blood glucose concentrations (hyperglycemia). Over time, uncontrolled hyperglycemia leads to macrovascular complications, which affect the large blood vessels and include heart attack, stroke and peripheral vascular disease, as well as microvascular complications, which affect the small blood vessels of the eyes (retinopathy), kidney (nephropathy) and nerves (neuropathy).
The overall aim of diabetes management is treating patients to lower blood glucose levels. Targeting both post-prandial glucose and fasting plasma glucose is key to achieving optimal glycemic control (HbA1C < 7%).
Close to 35 million people worldwide live with type 1 diabetes. The global incidence of type 2 diabetes is growing at an alarming rate, with more than 371 million people* worldwide living with the condition.
*(IDF Diabetes Atlas, 2012)
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diabetes
China, Mary,
diabetes
Mexico, Beatriz, insuline
resistance
A STRONG PRESENCE AT ADA The ADA annual meeting is an important event for the scientific community. Sanofi enhanced its standing as a leader in the field of diabetes care through broad media coverage, networking, advisory boards, expert speaker events and its interactive booth, plus an extensive scientific program.In the context of the publication of the first study results for the investigational new insulin U300, Sanofi Investor Relations organized a conference call for the financial community. The recorded webcast is available on our Website: www.sanofi.com/investors
Pierre Chancel, Senior Vice President, Global Diabetes “The American Diabetes Association annual meeting provides an important opportunity for Sanofi to share significant data with the medical community and to demonstrate our focus on advancing scientific thinking in the field of diabetes treatment. The data being presented further support the company’s leadership in integrated diabetes care and delivering personalized solutions that directly target the needs of people living with this disease.”
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U300 – ENCOURAGING PHASE III RESULTS Investigational new insulin U300 is a new formulation based on the glargine molecule, the biological entity of Lantus®, with its well established efficacy and safety profile. However, new insulin U300 has unique pharmacokinetic and pharmacodynamic profiles with studies demonstrating it has even flatter and more prolonged profiles than Lantus®. New insulin U300 also offers the benefit of a smaller volume of subcutaneous injection compared with Lantus®.
EDITION: a comprehensive Phase III program comparing U300 to Lantus®
At the ADA meeting, Sanofi announced the first Phase III study results for U300, EDITION I. This study, which evaluated the efficacy and safety of U300 in people with type 2 diabetes using basal plus mealtime insulin, showed equivalent blood sugar control with fewer night-time low blood sugar events compared to Lantus® (insulin glargine). U300 was associated with a 21% reduction in nocturnal hypoglycemia.Topline results of a second Phase III study, EDITION II, which evaluated new insulin U300 in a type 2 diabetes population treated with basal insulin plus oral antidiabetic therapy are consistent with EDITION I findings. Additionally, the following Phase III studies from the EDITION program are ongoing: EDITION III in insulin-naïve type 2 diabetes patients, EDITION IV in type 1 diabetes patients, EDITION JP I in Japanese type 1 diabetes patients (basal + bolus insulin) and EDITION JP II in Japanese type 2 diabetes patients (basal insulin + oral therapy). Topline results of EDITION III and IV are expected by the end of this year.
SANOFI DIABETES: A WELL ESTABLISHED GLOBAL PRESENCE
Senegal, Sherif,
diabetes
France, Yael,
diabetes
A patient-centered approachThe call to foresee the needs of people with diabetes and address the worldwide fragmentation of care intensifies every day. Through its global footprint and local presence, Sanofi’s objective is to limit treatment barriers and propose solutions that are affordable for the market, patients and their families – around the world.Sanofi is forming partnerships to offer diagnostics, therapies, services and devices, including blood glucose monitoring systems. Sanofi markets both injectable and oral medications for people with type 1 or type 2 diabetes. Over one hundred countries worldwide have access to Lantus®, the most studied basal insulin with over a decade of an established safety and efficacy profile.
CHARACTERISTICS OF U300
More concentrated formulation Slower insulin glargine release after subcutaneous injection
EDITION I
Equivalent glycemic control Fewer nocturnal hypoglycemic events:
U300
U300Lantus®
Net sales growth versus 2011 is at constant exchange ratesMarket share: Source IMS Health MIDAS 2012 – Copyright 2012 – All rights reserved
(1) Growth in net sales is expressed at constant exchange rates (CER) unless otherwise indicated.
(2) Business net income is a key non-GAAP indicator and is defined as net income attributable to equity holders of Sanofi excluding: amortization of intangible assets, impairment of intangible assets, fair value remeasurement of contingent consideration liabilities related to business combinations, other impacts associated with acquisitions (including impacts of acquisitions on associates), restructuring costs*, other gains and losses (including gains and losses on disposals of non-current assets*), costs or provisions associated with litigation*, tax effects related to the items listed above as well as effects of major tax disputes. (*reported in the line items Restructuring costs and Gains and losses on disposals, and litigation, of our consolidated financial statements).
Business EPS: Business earnings per share are defined as business net income divided by the weighted average number of shares outstanding.
(3) Excluding Brazil generics. When including Brazil generics, Emerging Markets sales were down -2.3%.
(4) World less the U.S. and Canada, Western Europe, Japan, Australia and New Zealand.
(5) Genzyme consists of rare diseases and multiple sclerosis products.(6) Includes recent product launches which do not belong to the other growth
platforms: Multaq®, Jevtana®, Zaltrap®, Auvi-Q™ and Mozobil®
(7) See forward-looking statements on page 6.(8) 2012 business EPS with the retroactive application of IAS19R was €6.14.
Q2 2013 Change Change H1 2013 Change Change on a reported basis at CER on a reported basis at CER
Total Q2 2013 sales were €8,003m, down 6.3%(1) notably impacted by sales lost due to generic competition (€481m).
Sales of growth platforms increased by 2.5%(1) (+6.2% excluding Brazil generics) reaching €5,718m, and accounted for 71.4% of total sales.
Q2 2013 business EPS(2) was €1.11, down 18.5% impacted in particular by the Plavix® and Avapro® losses of exclusivity in the U.S. (€0.18) and Brazil generics (€0.17).
DYNAMIC SECOND QUARTER GROWTH FOR GENZYME(5) Sales of Genzyme reached €525m, an increase of 25.6%, driven by growth of Cerezyme® (Gaucher disease) and Fabrazyme® (Fabry d isease) and the launch o f Aubagio® in multiple sclerosis in the U.S. Genzyme recorded strong performance in the U.S. and Emerging Markets growing 38.5% and 40.2%, respectively.
2013 Adjusted Guidance(7)
Given the impact of Brazil (see below) and the year-to-date performance, 2013 business EPS(2) is expected to be 7% to 10% lower than 2012 at CER(8), barring major unforeseen adverse events.
Brazil Generics
During the second quarter, Sanofi determined that generic inventory levels in trade channels in Brazil were significantly and inappropriately in excess of volumes needed to satisfy sell out demand. Accordingly, an adjustment has been recorded in the current quarter to reflect product returns, customer discounts and rebates. The net effect of this adjustment was to lower net sales by €122m. An additional provision of €79m has also been recorded for the write-off of inventory and other related costs.
LAST QUARTER WITH SIGNIFICANT NEGATIVE IMPACT FROM THE PATENT CLIFF In the second quarter of 2013, Sanofi sales were €8,003m, a decrease of 9.8% on a reported basis. Exchange rate movements had a negative effect of 3.5 percentage points. The decrease also reflects generic competition, EU austerity measures and an adjustment of €122m related to Brazil. Sales lost due to generic competition on main legacy products in the U.S. and EU were €481m.
PERFORMANCE OF GROWTH PLATFORMS Q2 2013 sales(1)
Emerging Markets(4) €2,669m +5.3%(3)
Diabetes Solutions €1,621m +16.2%
Vaccines €760m +0.4%
Consumer Healthcare €729m +1.8%
Animal Health €529m -5.7%
Genzyme(5) €525m +25.6%
Other Innovative Products(6) €171m +14.5%
Forward-looking statementThis letter contains projections and other forward-looking statements that are not historical facts. Although the management of Sanofi believes that these projections and forward-looking statements, and their underlying assumptions, are reasonable as of the date of this letter, investors are cautioned that such projections, assumptions, intentions and forward-looking statements are subject to various risks and uncertainties (many of which are difficult to predict and generally beyond the control of Sanofi) that could cause actual results and developments to differ materially from those expressed or implied. These risks and uncertainties include those discussed elsewhere in this letter, as well as in the filings of Sanofi with the U.S. Securities and Exchange Commission (SEC) and the French Autorité des marchés financiers (AMF), notably under the caption “Risk Factors” in the company’s annual report on Form 20-F. Other than as required by applicable law, Sanofi does not undertake any obligation to update any statement that is not a historical fact.
THE INDIVIDUAL SHAREHOLDERS COMMITTEE VISITS LE TRAIT PRODUCTION SITE
Every year, the Individual Shareholders Committee has the opportunity to visit one of Sanofi’s production or research facilities to learn more about the different businesses. On June 13, 2013, the committee members gathered with the Investor Relations team at the Le Trait production site in Normandy.Created in 1969, the production site is dedicated to the delivery of pre-filled syringes, eye drops and nasal sprays, supplying more than 57 countries, including the United States and Japan. It is one of our flagship sites for the anti-thrombotic Clexane®/Lovenox®. It supplies more than 50% of the worldwide production of Lovenox®. Le Trait also produces anti-allergic products such as the eye drops and nasal spray Opticron®/Intal®.Since 2004, the Le Trait plant has been handling the filling and packaging operations for the production of seasonal influenza vaccines for the Northern hemisphere and an infant meningitis vaccine for the Japanese market, in collaboration with Sanofi Pasteur.Le Trait is the “Technology Lead Site/Launch Plant” for pre-filled syringe technology products, notably for the monoclonal antibodies under development: alirocumab (anti-PCSK9) and sarilumab (anti IL-6R).Le Trait also houses an Industrial Development and Innovation Center.After a meeting with the Investor Relations team, the Committee followed a presentation on the history and activities of Le Trait by site head Pierre-Jean Tissier, and visited the filling, inspection and packaging lines of Lovenox® syringes.
PARTIAL REAPPOINTMENT OF THE INDIVIDUAL SHAREHOLDERS COMMITTEE
The Individual Shareholders Committee was originally set up in January 2005 and partially re-elected in 2008 and 2011. Some of the existing members are due to stand down at the start of 2014, so candidates are required to fill the vacancies. Anyone who wishes to put themselves forward should send a letter with an accompanying CV by mail to:Sanofi – Investor Relations – 54 Rue La Boétie - 75008 Paris - Franceor by e-mail to: [email protected] indicate the reasons why you are putting yourself forward, the number of Sanofi shares you hold, and any other shareholder committees and/or investment clubs to which you belong.
Composition of the Individual Shareholders Committee
8 to 12 members appointed on the basis of their representativeness of our individual shareholder base, their geographical and socio-professional background, their age, their interest in the healthcare sector and/or the stock market, and their membership of shareholder associations. No member may belong to more than 3 committees at any time. No current employee of Sanofi may be a member. Members serve for a term of 3 years, renewable at the discretion of Sanofi. The Committee is partially reappointed every 3 years.
Organization and roles
The Committee meets 3 or 4 times a year. It is chaired by our Chief Financial Officer Jérôme Contamine, and organized by the Investor Relations Department. The Committee has two roles: to provide Sanofi with feedback about individual shareholders’ concerns; to make suggestions on how we can improve relations with our shareholders, and work with us in developing communication projects.
For more information, go to www.sanofi.com/ShareholderCommittee, or call +33 800 075 876.
ZOOM
CALL FOR CANDIDATES
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CALENDAR
October 30, 2013Third quarter 2013 results
November 18, 2013Shareholder meeting in Lille, France
November 22-23, 2013Actionaria shareholder exhibitionPalais des Congrès2, place de la Porte Maillot 75017 Paris - FranceSanofi will welcome you at Espace « Grandes Caps »level 2, booth # F16from 9:30 am to 7:00 pm CETPlease ask for a free invitation by calling:+33 800 075 876or sending an e-mail to: [email protected]
December 9, 2013Shareholder meeting in Nantes, France
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