Sanofi - Q4 2023

Transcript

Operator (participant)

Good morning, good afternoon, and good evening to everyone. Thank you for joining us to review Sanofi's Fourth Quarter and Full Year 2023 Results, followed by a Q&A session. As usual, you can find the slides to this call on the investors page of our website at sanofi.com. Moving to slide 3, 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 d'Enregistrement Universel for a description of these risk factors. With that, please advance to slide 4.

Our speakers on the call today are Paul Hudson, Chief Executive Officer, Houman Ashrafian, Global Head of R&D, Jean-Baptiste Chasseloup de Chatillon, Chief Financial Officer, and the Global Business Unit heads, Brian Foard, Thomas Triomphe, Olivier Charmeil, and Julie Van Ongevalle. For the Q&A, you have two options to participate. Option one, click the Raise Hand icon at the bottom of your screen, or option two, submit your question by clicking the Q&A icon at the bottom of the screen. And with that, I'd like to turn the call over to Paul.

Paul Hudson (CEO)

Well, thank you, Eva, and thanks everyone for joining our call today. Before we discuss the Q4 highlights, I'm going to start by updating you on another announcement we made this morning. François-Xavier Roger will join Sanofi, taking over the role of CFO effective April 1st, 2024. I'm very pleased to welcome him at Sanofi. He's an accomplished and widely recognized finance executive with a proven track record in accelerated value creation. In fact, some of you may have met him already before, either in his role at Nestlé or in the past at Takeda. He'll take over a finance organization that has been significantly modernized under JB's leadership over the past five years. JB has been instrumental for the successful execution of the first chapter of our Play to Win strategy and creating the growth opportunities ahead of us.

With JB at the helm of our finance team, we have consistently delivered healthy top-line growth over the last years, a significant BOI margin improvement, and EUR 2.7 billion of cost efficiencies that were all reinvested behind our growth drivers and pipeline. He also worked closely with Olivier and Julie on the simplification of GenMed and the standalone of our consumer health business, two critical projects that have delivered significant value for the company and shareholders. Many of you may not be aware about JB's long-standing personal commitment to charity work. He's decided to devote the next stage of his career by leading a renowned French-based foundation, and I'm 100% certain of the positive impact JB will continue to have on people's lives. I would like to take the opportunity here to warmly thank him for his dedication and leadership.

He's been a great partner to me, and dare I say it, a friend, and to the rest of the executive committee. Thank you, JB. 2023 marked a pivotal year for Sanofi as we became a development-driven, tech-powered biopharma company. Our core growth drivers in Specialty Care and vaccines continued to deliver. The main driver remains Dupixent, which continued to deliver stellar performance in all approved indications and across geographies. Dupixent added EUR 2.4 billion to the top line, or EUR 2.8 billion at constant exchange rate. 2023 also marks a very successful year for our vaccine business, with the launch of Beyfortus, a real moment for our strategy and execution. In General Medicines, our core assets kept growing. GBU sales were lower overall due to net price erosion, and we continue to actively manage our portfolio and divest non-strategic products.

Moving to Consumer Healthcare, the business delivered more than 6% growth, driven by priority brands and the recently acquired Qunol, which is an excellent strategic fit for our business. As you know, last quarter, we announced our intention to separate our CHC business, following our earlier decision to create a standalone unit to fully unlock its value. This will also allow us to better focus time and resources as a pure-play biopharma company. We're in the process of reviewing potential separation scenarios and still believe that the path most likely to maximize shareholder value would be through a capital markets transaction to create a public-listed company headquartered here in Paris. Subject to market conditions, of course, the separation could be achieved at the earliest Q4 2024.

In a nutshell, the strong performance of Dupixent and our key launches more than offset the anticipated impact of the loss of exclusivity of Aubagio, our last major LOE for the remainder of the decade. Excluding Aubagio, the underlying sales growth of our business was 8.1% in 2023. A fabulous underlying growth trajectory. Moving now to slide seven, which perfectly demonstrates our ability to be laser-focused when it comes to launch excellence as we turn Sanofi into a launch engine. Beyfortus, ALTUVIIIO, and TZIELD generated sales of more than EUR 700 million in 2023, far exceeding our expectations. Beyfortus faced an unprecedented demand, while we've already been able to protect almost two million babies; this first season clearly confirmed the importance of our all-infant protection strategy.

ALTUVIIIO is capturing more than 50% of all switches in the United States hemophilia A market, and TZIELD created great excitement amongst clinicians as the first and only therapy to delay the onset of type 1 diabetes. These three transformational medicines join a growing number of Sanofi's new product launches since 2019. New products generated over EUR 2.2 billion in 2023 across different fast-growing therapeutic areas. These launches will add to our top line next to Dupixent for many years, and again, keeping in mind that we will not face major LOE for the rest of the decade. As you remember from our R&D Day on December 7th, we believe that we have everything it takes to become the leading immunology company.

In addition to the recent pharma launches, we have a record number of medicines in our pipeline with potential blockbuster status, including 3 with the potential for over EUR 5 billion in peak sales. We expect these launches to exceed EUR 10 billion of sales by 2030. At the same time, Dupixent will keep being a once-in-a-career and a life-changing medicine, continuing to deliver a low double-digit sales growth CAGR until 2030. Finally, our growth driver vaccines will continue to power us forward with its leading positions in RSV, flu, pediatric combination vaccines, and other franchises, bringing more than EUR 10 billion in sales by 2030. Moving to slide 9, we're very excited about Dupixent's potential to become the first biologic to treat COPD. With our partner, Regeneron, we're making rapid progress in submitting applications for approval in Europe, the U.S., and also China.

Let's certainly not forget itepekimab, our anti-IL-33 monoclonal antibody, which holds additional potential for COPD. Recent phase II results for this asset were highly encouraging, and the two large phase III trials are now nearing completion of enrollment. Pivotal results are expected in 2025. Together, Dupixent, itepekimab, have the potential to address a large COPD population with a limited overlap. We believe that these two medicines combined could have a peak sales potential of greater than EUR 5 billion in COPD. Let me now share with you some of our key priorities for the year. Number one is to keep being laser-focused on the best-in-class launches. We're working closely with our partner, AstraZeneca, and regulatory authorities to increase the supply of Beyfortus for 2024 and 2025 to meet this tremendous demand.

For ALTUVIIIO, we continue to capture patient share in the U.S. hemophilia A market and drive geographic expansion after a very promising start in Japan. And for TZIELD, we will increase our efforts around the patient screening and enrollment in our support programs, and of course, the launch preparations for Dupixent and COPD are well underway. Number two, we keep moving swiftly on our pipeline priorities. We expect tolebrutinib phase III data for both relapsing, remitting, and secondary progressive MS around mid-year. We will initiate the planned trials for many of our promising immunology, neurology, and vaccine assets. Finally, on cost reallocation, we announced a few months ago a new set of efficiency initiatives across the biopharma business that will free up operational resources to support the accelerated R&D investments and unlock value creation opportunities.

We continue to target savings of up to EUR 2 billion from 2024 to the end of 2025 to fund innovation and growth. To sum it up, 2024 is a year of investment in science to further unlock our pipeline and position us for a strong EPS rebound in 2025. Let me conclude by highlighting some of our commitments to the fight against climate change. We're making clear progress on our trajectory to reach carbon neutrality by 2030, exemplified by our leveraging renewable electricity and expanding our eco car fleets. As a reminder, our ambitions in 2030 and 2045 are vetted by the SBTi, the Science Based Targets initiatives. We attended COP28 in Dubai last December in a push to elevate the need for stronger collaboration across healthcare systems.

We are active contributors to the Sustainable Markets Initiative, and I have the privilege to lead the Patient Care Pathways working group, where we focus our efforts on how to reduce carbon emissions from health systems while improving health outcomes for patients. Well, I now hand it over to Houman, Head of R&D, who will share more insights into our R&D priorities and milestones for this year. Houman?

Houman Ashrafian (EVP and Head of Research and Development)

Thank you, Paul. As we discussed with you in December at our R&D Day, Sanofi delivered an unprecedented cadence of positive news and important data readouts last year across major projects with blockbuster potential. By increasing our investments in R&D, we intend to fully capitalize on the growth opportunities ahead of us by prioritizing pipeline assets with meaningful growth potential and extending the opportunity to successfully launch medicines. This year, we look forward to several important regulatory milestones and readouts from our pipeline. As already mentioned by Paul, we expect regulatory milestones for Dupixent and COPD and pivotal readouts for tolebrutinib and relapsing MS and secondary progressive MS, as well as rilzabrutinib in ITP. For amlitelimab and rilzabrutinib, we're excited to learn the outcome of important phase II results in asthma later this year.

Separately, we're preparing to submit the recent positive phase II results of Sarclisa in first-line transplant-ineligible myeloma patients for FDA approval and expect the pivotal data for subcutaneous administration before year-end, which would bring additional upside for Sanofi in this large market, seeking convenient treatment options. As you will recall from R&D Day, we highlighted our ambition to increase the number of phase III projects by 50% across immunology, neurology, and vaccines over the next 2 years. A significant number of these pivotal trials have already started to dose their first patients, including the first amlitelimab phase III trial in AD, and phase III trials of frexalimab in both relapsing MS and secondary progressive MS. We are progressing well and are evolving at the right pace as we expect to have more than 35 projects in phase III by 2025.

Turning to phase III, we are fortunate to have and initiate a significant number of projects presented at the R&D Day. One example is frexalimab in type 1 diabetes, where we started with a study assessing different doses and routes of administration. We're sticking to our strategy of combining strong, innovative science with opportunities to address patients' major unmet needs. You can also see the proof points of our progress in R&D productivity by our moving our major assets, such as the oral TNFR1 signaling inhibitor and lunsekimig into midstage. They both fit our portfolio by providing promising solutions for multiple indications. We believe the increased R&D investment in pivotal phase III programs and key phase II trials will offer long-term returns for the benefit of patients and shareholders. This is the essence of the Play to Win strategy.

Moving on to slide 16, we've provided a granular and concrete sense of areas that we are changing in Sanofi R&D recent investor event in New York. First, we talked about peak investment. Through dispassionate, data-driven evaluation of our pipeline, we're investing in only our winning late-stage assets to underwrite the long-term growth of Sanofi. Accordingly, we'll drive our late-stage opportunities by launching multiple phase III trials in parallel. We need to increase investment in these long-term opportunities for us to drive real growth and value for our shareholders, and we will do that in a disciplined way. The second theme was that we must earn the right to do that. We're going to deliver portfolio focus across our breadth of platform sites and TAs. We continue to have the right to win in oncology, but in a focused way.

We are uniquely positioned to win in immunology and inflammation. We have deep provenance in immunology, and it's a self-fulfilling prophecy that this leads to developing better immunology drugs, and also doing research in immunology. Finally, pipeline sustainability. Although we've made good progress to improve our R&D productivity with a focus on greater quality, we now have to step it up by leveraging both in-house research and external innovation. Slide 17. As a great example of external innovation, let me take just one minute to talk about our recently announced acquisition of Inhibrx. It fits perfectly with our rare diseases portfolio, overlapping with our immune-mediated respiratory franchise. As underlined at R&D Day, we continue to drive our successful RBD franchise and keep our eyes open for immune-mediated disease in the periphery of what we do.

When it closes, this deal will add INBRX-101 to our portfolio, a recombinant human alpha-1 antitrypsin Fc fusion protein for the treatment of alpha-1 antitrypsin deficiency, an inherited rare disease of the lungs and liver, causing progressive tissue deterioration. The phase I trial showed strong data with a best-in-class profile, thanks to sustaining normal AAT levels and aiming for a better compliance due to a potential monthly dosing regimen. The current standard of care is a plasma-derived AAT, leaving patients without sufficiently effective, well-validated treatment. As across our other rare disease therapies, we're committed to patients with AATD. The next readout is expected in 2025 for a potential launch in 2027, with a potentially rapid approval following FDA's Fast Track designation granted last May.

The blockbuster potential behind this asset is predicated on use by both existing patients and by the anticipated use by increased number of de novo patients that could benefit from the treatment. With great pleasure, I now hand over to the GBU heads to go through the respective business performance. Over to you, Brian.

Brian Foard (EVP and Head of Specialty Care)

Thank you so much, Houman. Now taking a closer look at Specialty Care, where we once again delivered double-digit growth in the quarter, supported by outstanding performance of Dupixent. As Paul mentioned earlier, strong demand for this exceptional medicine across all approved indications and geographies continues to be a core driver of Specialty Care. Our rare disease business was another important contributor in the quarter. Strong growth across Pompe, Gaucher, and Fabry products highlights our unique expertise in identifying patients and our ability to drive demand through new patient approvals. The rollout of NEXVIAZYME as the new standard of care in Pompe and XENPOZYME in ASMD continue to be successful in global markets.

In rare blood disease, we're very pleased with the continued strong uptake at ALTUVIIIO, another exciting launch in Specialty Care, and I'm going to update you a little bit on the insights of the brand's recent performance in just a minute. Now, we believe the continued double-digit growth in Specialty Care is particularly impressive against a backdrop of generic competition for Aubagio, Sanofi's last meaningful LOE for the rest of the decade. Generic versions of Aubagio have now entered all key markets, including Europe, in September. With almost EUR 1 billion in sales in 2023, we continue to navigate the impact of generic erosion into 2024, including a particularly high base comparison for Aubagio in the first quarter. Now, moving to my next slide, Dupixent sales reached almost EUR 3 billion in the fourth quarter alone.

As highlighted on the slide, full-year sales were up 34%, driven by continuous robust growth in both the U.S. and ex-U.S. geographies. Almost 7 years into the initial U.S. launch in atopic dermatitis, we've achieved and maintained leadership positions in NBRXs across all 5 approved indications, and we are confident to deliver around EUR 13 billion in sales in 2024, as previously guided. We remain very excited about the outlook for the brand's outstanding commercial success and expect COPD to become another important growth pillar over time. As Paul discussed earlier, significant regulatory progress has been achieved with COPD across key markets, and we plan for a launch in the U.S. later this year.

Now, as a quick reminder, on the left-hand side of the chart, you will notice similar to what we have seen in previous years, and it is common for specialty biologics. Q1 growth usually reflects the impact of higher seasonal patient co-pay assistance program utilization associated with the annual resetting of insurance deductibles at the beginning of the year. We expect a similar effect to weigh on the reported sales in the first quarter of 2024. Now, turning to my next slide, we saw strong momentum for ALTUVIIIO in the fourth quarter. ALTUVIIIO has become a top choice for switches in the hemophilia A market, now capturing more than 50% of all switches, and this is really driven by the brand's differentiated efficacy profile. Importantly, two of every three switches comes from competitive products, including an estimated 10% from non-factor Hemlibra.

In addition to the gains in the number of US patients, we also saw a geographic expansion with our promising launch in Japan late last year, and launch to date, we have seen a broad uptake in the US, and many HCPs have even stated that their intent is to increase their depth of prescribing, which provides us with another encouraging indicator for the launch progress into 2024. With that, I'll pass over to Thomas.

Thomas Triomphe (EVP of Vaccines)

Thank you, Brian. Growing 21% YoY, our Q4 vaccine sales reached EUR 2 billion.

... driven by the strong uptake of Beyfortus, an impressive launch I will further elaborate on in my next slide. In flu, Sanofi continues to be the market leader, driven by our differentiated product portfolio, which represent the majority of our total flu sales. In line with Q3 earnings call comments, approximately 30% of our H2 to 2023 flu sales were reported in the fourth quarter, generating a 4% sales reduction year-on-year, as we saw lower flu immunization rate this season and an increased level of competition in the U.S. market. Finally, we are very pleased by the Q4 performance of our pediatric franchise, which benefited from a favorable public order patterns in the U.S., despite Vaxelis sales not being recorded in our net sales.

In Q4 2023, Vaxelis has become the U.S. pediatric primary series leader and continues to gain share over the pentavalent vaccines. The next slide is focused on our RSV franchise. Starting with the left, you can see that the launch of Beyfortus in the U.S. set a new record in terms of routine pediatric immunization uptake when compared to similar pediatric vaccines launches, such as rotavirus and pneumococcal conjugate vaccines. With an average adoption rate of 38% in only six months after launch, Beyfortus' performance illustrates the successful implementation of its first broad infant recommendations in the U.S., in France, and in Spain. We are very encouraged by the strong real-world clinical data generated in Spain, and we now look forward to rolling out Beyfortus more broadly in 2024. But beyond the infant segment, the respiratory syncytial virus is also a significant burden for toddlers and older adults.

We are developing vaccines specifically targeting to these two groups, and I'm glad to report that our vaccine candidates are making good progress. For toddlers, our live attenuated intranasal RSV vaccine candidate received EU PRIME designation in December, following a US Fast Track designation in 2020. These designations do recognize the potential of our vaccine candidate to address a significant unmet medical need. As communicated at our Vaccines Day, phase III will start this quarter. For older adults, we initiated last November, the phase I/II clinical trial of our mRNA RSV and hMPV vaccine. As highlighted then, we believe that our combo vaccine has a real potential to be first in class, and that its medical value compared to RSV standalone vaccines will provide a more compelling case to recommending bodies.

The value of this combo is already recognized by the U.S. FDA, which granted it the Fast Track designation in October 2023. If phase I/II results are positive, the phase III trial is planned to start by the end of this year. Overall, I'm thrilled by the phenomenal progress our RSV team has made in the last six months, building foundations for Sanofi to become the leader in the RSV franchise. Let me now hand over the call to Olivier.

Olivier Charmeil (EVP of General Medicines)

Thank you, Thomas. General Medicines sales in the fourth quarter showed a slight decrease of 2.4% to EUR 3 billion. Our core assets grew by 6.3%, driven by Plavix, Toujeo, Rezurock, and Praluent, which was partially offset by lower sales of Mozobil due to generic competition, which started in the US in July 2023. Sales of Rezurock in the US continued to grow strongly, driven by increasing patient numbers as well as improved adherence rates. Toujeo Q4 sales delivered double-digit growth, driven by China. This largely offset lower sales in the US due to a lower average net price. Sales of non-core assets decreased, mainly driven by lower Lantus sales in the US, which continued to be affected by a negative channel mix, as well as lower inventory and trade in anticipation of the 2024 list price decrease.

For the full year 2023, GenMed sales decreased by 7.1% due to the exceptional impact from the US Lantus decline, along with the VBP impact on Lantus sales in China. As mentioned, TZIELD continued its gradual uptake in type I diabetes. In November, we launched a well-received national screening campaign in the US to increase awareness and encourage screening for at-risk individuals. As a result, screening grew 31%, driven by endocrinologists in 2023, and 168 patients were infused by the end of the year. The number of patients infused grew by 25% in Q4 versus Q3, despite the year-end holiday seasons. The full results of the product studies with newly diagnosed, diagnosed stage III type I diabetes patient were shared at the ISPAD Congress, and interaction with FDA and EMA are ongoing. With this, I'm handing over to Julie.

Julie Ongevalle (EVP of Consumer Healthcare)

Thank you, Olivier. Firstly, I'd like to start with an update on the separation of the CHC business, which as you as previously announced, could happen in Q4 this year at the earliest. We're making solid progress on our journey to full business autonomy, and continue to enhance our own internal talent pool with selective hires in key areas. The service agreements are being put in place, and we are establishing our digital infrastructure so that we can hit the ground running on day one. Regarding performance, Q4 marks our eleventh consecutive quarter of growth, with sales up 8.5%, driven primarily by price. Excluding divestment and acquisitions, Q4 growth was around 5%. The Qunol acquisition, closed at the end of September, drove growth over 50% in our physical and mental wellness category.

As you may recall, Qunol products focus on healthy aging in the US. I'm very glad that the Qunol is now part of our CHC business, giving us a fast-growing platform with which to compete in the important US VMS market. Last quarter, I introduced you to the 15 priority brands, which represent over 60% of our total net sales and over 85% of our growth in the past three years. In Q4 and in full year 2023, these brands were once again our major growth drivers, which resulted in a 6.3% growth for the full year, with good growth across all categories. Our largest category, Digestive Wellness, continues to perform strongly with double-digit growth and market share gains. I would like to give you some more background on one of these brands in this category, Dulcolax.

Dulcolax is the world's number one non-prescription laxative. Important to note is that one-third of the world's population suffer from constipation, yet nearly half still don't seek treatment with laxatives. This makes an attractive and substantial market opportunity. Dulcolax has been growing faster than the market for the past 3 years, executing on its repeatable model of growth, of which 3 main drivers are: 1, the change in the focus of marketing to consumers, moving from our positioning from purely medical and functional solution to a more emotional communication, breaking down the taboo of constipation, while educating on how Dulcolax works naturally with your body. Second, launching innovative, more consumer-friendly and gentle formats, such as chewables, that have driven category penetration. Last but not least, working with healthcare professionals, resulting in strong endorsements.

With its simple, repeatable model of growth, I'm confident Dulcolax will continue to help consumers and gain market share. With this, I'm handing it over to Jean-Baptiste, our CFO.

Jean-Baptiste de Chatillon (EVP and CFO)

Thank you. Thank you, Julie. As you just heard, sales were up 9.3% in the quarter, driven by double-digit growth in Specialty Care and Vaccines. Dupixent and rare diseases were key drivers in the Specialty Care, while vaccine sales grew more than 20%. General Medicines sales decline decelerated, and CHC reported another quarter of growth up 8.5%. Looking at the Q4 P&L on slide 31, gross margin expansion was driven by our improved product mix and the strong contribution from COVID-19 vaccines revenues in the last quarter. R&D expenses grew 6.6% at CER, mainly reflecting the continued progress of our Vaccines pipeline, mainly driven by the mRNA development programs. This quarter, we also start recording a share of the phase III development costs related to the recently announced collaboration with J&J on our potential first-in-class ExPEC vaccine.

The BI margin decreased 1.7 percentage point to 23.7%, mainly due to a decrease in capital gains related to product disposals when compared to the same quarter last year. EPS was up 8.2% in Q4. Turning now to the full-year group P&L on slide 32, we recorded an improvement in gross margin, of which almost one percentage point was due to COVID-19 vaccine-related sales and revenues. The product mix also contributed to gross margin expansion, partially offset by lower Aubagio sales due to generic competition and lower net prices of Lantus in the U.S. Operating expenses grew roughly in line with sales, and our business operating margin remained stable at constant exchange rate. EPS for the year grew 5.4% in line with our full-year 2023 guidance.

On slide 33, our board is proposing an annual dividend of EUR 3.76, which represents a 5.6% increase over last year. Our progressive dividend policy remains an important part of our capital allocation policy. We have launched the different efficiency initiatives presented in Q3, with the objective to reallocate up to EUR 2 billion savings. We will focus on the programs with first or best-in-class potential, reallocating resources on growth drivers on strategic therapeutic areas. We will also leverage procurement to generate additional savings. Lastly, we will modernize the commercial delivery by optimizing our country setup, expanding the hub strategy to increase centralization, while refocusing R&D on most critical sites on technology platform. On slide 36, we are providing an outlook for both the full year 2024 and the Q1 2020...

Full year 2024 sales, we expect Dupixent to reach EUR 13 billion on the vaccines franchise to grow mid-single-digit, driven by the ongoing launch of Beyfortus. The Aubagio LOE will continue to impact, mainly in H1. The planned GenMed divestments will lower the top line by around EUR 300 million. On full year 2024 P&L, we expect the gross margin to decrease slightly due to the absence of COVID-19 sales and revenues. OpEx is expected to grow due to roughly EUR 700 million step-up in R&D, while SG&A expenses are expected to remain stable. Finally, as announced in Q3, the ETR will increase to 21% due to the implementation of Pillar Two.

The dynamics in Q1 will differ from the overall year, mainly due to high base effects in vaccines on GenMed, Aubagio, on top of the Dupixent sales annual step-up in US co-pay, as already mentioned by Brian. Similarly, on the PNL side, I remind you of a high level of capital gains generated in Q1 2023. So advancing to my final slide, slide 37, we expect full year 2024 business EPS to decline in the low single digits at CER, excluding the impact of the tax rate change. So full year 2024 business EPS would be roughly stable. On foreign exchange, we see a negative currency impact of -3.5 to -4.5, based on January 2024 average exchange rates.

2024 is a year where we are resetting the company for long-term value creation, and we expect a strong EPS rebound in 2025. Let's open the call now for Q&A.

Operator (participant)

We will now open the call to your questions. As I can see many raised hands, please limit your questions to two each. When you will be notified that you are called, please make sure that your line is open and your microphone is unmuted. Can we have the first question, please?

Yes, the first question comes from Luisa Hector, Berenberg. Luisa?

Luisa Hector (Head of Global Pharmaceutical Equity Research)

Hi, can you hear me?

Operator (participant)

Luisa, can you hear us?

Luisa Hector (Head of Global Pharmaceutical Equity Research)

Yes. Can you hear me?

Jean-Baptiste de Chatillon (EVP and CFO)

Yes.

Operator (participant)

Yes.

Luisa Hector (Head of Global Pharmaceutical Equity Research)

Great, thank you. So maybe my question would be on Beyfortus, just to get a bit more color on where you are with manufacturing and the ability to meet demand this year, and whether you would anticipate perhaps some demand for second season vaccination. And are you able to now show, given your sort of high vaccination rates in some countries, can you show that the emergency room, you know, entry for, for RSV has gone down? Like, do you have that sort of data support the use of, of the vaccine? And so that would be the first question. And then obviously, I would like to extend thanks from everyone to JB, for all the conversations over the years. Thank you, JB.

Congratulations on the move, and I guess a question for you would be: What words of advice you would pass on to your successor?

Paul Hudson (CEO)

Well, thank you, Luisa. I think it's very gracious of you to say that, to JB. We'll give him a moment or two to think about words of advice. Before that, Thomas, we'll come to you on Beyfortus, and perhaps if you're open, you could share some of the, data from Galicia as a guide to what it might look like. I know they've been publishing some of that, but, and the supply for Beyfortus 2024 onwards.

Thomas Triomphe (EVP of Vaccines)

Great points indeed. So as you've seen from the Q4 results, we are very happy with the strong Beyfortus launch in Q3 and Q4, with more than EUR 400 million sales in Q4. I start by that because I think that's showing that the implementation of all infant protection programs is highly feasible and goes very well with the record uptake in six months. Now, back to your question, first on the supply elements. As we discussed previously, clearly, Sanofi and AstraZeneca are working very hard to extend the manufacturing work network, packaging sites, filling sites. And as always, and that's why we are not going to be very precise today, as always, first you need to qualify the lines and then make them registered by the different regulatory authorities.

That's the work that is ongoing right now in order to be able to completely, I would say, debottleneck the supply and, and have a full supply for the season 2025. For the season 2024, we'll see an increase in supply, and I think we can share here together that our expectations is to reach blockbuster status for Beyfortus in 2024. To be more precise, it's a bit early. Again, as we ramp up the supply progress and as we get further with regulatory authorities, we'll come back to you.

Your second point is extremely important, Luisa, and I really thank you for asking that, because at the end of the day, the reason why we are in this industry is to really make sure that we have an impact in terms of clinical efficacy, that actually babies don't go to hospitalization or don't go to ER. I really ask everyone, if you guys have a moment, to look at the Galicia data, which is referenced on our slides there. Have a look there. I know very well that it's not the end of the season, but the Spain data is very important because unlike the U.S. or France, which have a partial vaccination coverage rate this year, the actual Spain data is in a country where there is about 90% coverage rate.

You will see that they show extremely impressive data, where they see that—where you can see that the hospitalization rate this year in babies less than eight months of age, i.e., eligible to Beyfortus, the hospitalization rate is extremely low. While for babies that are above one year of age, i.e., susceptible to normal RSV infection because they were not protected, actually, it's a high RSV season for them. RSV disease is there. When you receive Beyfortus, it's not there, you don't go to hospitalization. We'll provide you more data at the end of the season, obviously.

Paul Hudson (CEO)

Second season?

Thomas Triomphe (EVP of Vaccines)

Second season, so the product is indicated for your first RSV season, except for a very small population of infants that are either specific heart conditions or specific lung conditions. It's usually depending on the population, about 1% of the newborn population, but for which Beyfortus is indicated for the second season. So it's really targeting for the first season. But interestingly, as you have seen, we have an RSV toddler intranasal vaccine that we are targeting to bring just after Beyfortus for kids for the second and third seasons to be available and protected.

Paul Hudson (CEO)

... Thank you, Thomas, and congrats again on an amazing launch. JB, you've had some time to reflect on what advice you would give. You've certainly given me plenty of advice while we've been together, so I'm sure you're not short of something.

Jean-Baptiste de Chatillon (EVP and CFO)

No, I'm not short, but first, thank you very much, Luisa. I'm a bit... You know, it's a lot of emotion for me today. And of course, so the financials of the company are better, but what counts is that the pipeline and the science and innovation we have now in our hands, where if I had the arrogance to offer an advice, it would be really to make the most of it. Really make the most of it, and bring them to fruition, develop them all in. So that's what we have decided, that's what we should do. And of course, Paul, G&A, as you know, has to be kept under-

Paul Hudson (CEO)

No. All right, all right. Enough. So, you know, I touched on it in the opening comments, but I think we've all worked well as a management team, but JB and I particularly well, and we pushed each other pretty hard, to be honest, over the time. And it's been necessary to try and have as much discipline as possible while making sure we take advantage of opportunities. I think your comment about pipeline, it's extraordinarily well made. We've made sacrifices to be in a position where we have it. Don't squander it, I think is what you're saying, and you're right. I think for those that should be interested, of course, we'd announced a cost-saving program, and I think you need to know that, you know, aligned with JB's wishes and comments, we go full ahead for the reallocation of that. That doesn't blink.

One of the reasons why, you know, I'm excited to work with François-Xavier is because he picks up this well-run machine, but with the same intensity, and I think that's very important for people to understand. We won't squander it, JB. Okay, next question.

Operator (participant)

The next question is from Jo Walton, UBS. Jo? Jo, can you hear us?

UBS team?

Okay, let's move on, and we'll come back to Jo.

Jo Walton (Pharma Analyst)

Can you hear me?

Operator (participant)

Yes.

Jo Walton (Pharma Analyst)

Ah, I'm sorry. I have a question on the consumer side, please. Just looking at any progress on the Rx to OTC switch trials that you're doing for Tamiflu and Cialis, just thinking as to whether they will, you know, how visible they will be at the point of separation going forwards. And secondly, just on the timing of your COPD launch, I know that you've filed and you don't yet know the timeframe of that review. Do you have a priority review voucher? Could we assume that you would use that for such an important launch? Many thanks.

Paul Hudson (CEO)

Okay, thanks, Jo. Great to have you connected. Julie, updates on the switches?

Julie Ongevalle (EVP of Consumer Healthcare)

Sure. So, as you know, we have already launched Cialis together in the UK, and since our last call, we have now also received approval for Norway and Ireland. For the US, we have been conducting certain studies to support our strategy to lift the clinical hold. Those studies are now complete, and we're looking forward to discussing the results with the FDA over the coming quarter, and hope to gain alignment with them on the next steps. And on Tamiflu, there is no update at this time.

Paul Hudson (CEO)

Yeah, I think,

Julie Ongevalle (EVP of Consumer Healthcare)

Progressing. Keep progressing.

Paul Hudson (CEO)

Yeah, no, thanks, Julie. I mean, you know, it is very much a conversation with the FDA, but I think it's fair to say what was expected of us to be done, we've done. So now we find out whether it will be enough, and that's, you know, we've gone further than others, but we'll find out. So certainly progress on Cialis. I don't know whether we want to go to Brian then next on COPD. There was a question about the voucher and assumptions around launch.

Brian Foard (EVP and Head of Specialty Care)

Well, first and foremost, thank you so much for the question. We're really, really excited about this next potential opportunity. As you may recall, back in August, the FDA, when in quite a unique move, granted us breakthrough designation at that time, and that was off of the first trial. Since then, as you know, we read out the second trial. Both trials positive in exacerbations. We filed, we announced that we filed as of December the 27th, and so we are awaiting regulatory feedback or feedback from the agency as we speak. We are anticipating, as we said earlier in the prep setup that we did, that we will be launching in 2024. Still to be determined whether or not it will be a priority review or not, but we will see.

Paul Hudson (CEO)

Okay, thank you. Anything else to add? Nope.

Brian Foard (EVP and Head of Specialty Care)

Yeah.

Paul Hudson (CEO)

Okay, good. Thanks, Jo. Next question.

Operator (participant)

The next question is from Tim Anderson, Wolfe.

Tim Anderson (Managing Director and Senior Equity Research Analyst of Pharmaceuticals & Biotechnology)

Thank you. Yep, a couple questions on Beyfortus, if I could. Can you describe the longer term opportunity and how it parses out by geography, meaning US versus ex-US? Is this one of those products where it will be most likely, you know, most sales coming from the US, as it often is with different products? And then the second question is your views of potential competition from Merck. They have this product, clesrovimab, in phase III data in the back part of the year, implies a launch in 2025, also a monoclonal. Any first impressions of that product based on what you know today?

Paul Hudson (CEO)

All right, Thomas, breadth of launch, and some thoughts on that.

Thomas Triomphe (EVP of Vaccines)

Yeah. To the risk of disappointing you, Tim, I might not give you a spreadsheet with a detailed forecast by geography over the coming years. But of course, we are very encouraged by the Q4 launch of this year. I said before, we are doing everything and we're confident supply will not be an issue, and we're looking broadly in terms of geography. You have noticed that we just got the registration before this in China.

... and we expect to have the registration of Beyfortus in Japan in the coming few months. And we will progressively start launch in China and in Japan, at the end of 2024. So but we're really going, as per-- as we named it, for an all-infant protection, it will be a progressive rollout. Geographies such as China, as you've seen it with multiple vaccines, do take time, so it will be a progressive slow burn. But the opportunity, if I look at the mid to long term, could be significant. This year, in 2023, the sales are about two-thirds US, 1/3, EU, and that might be the fair representation, for the, for the short term. But again, RSV is everywhere, and we want to go for all geography, progressively, one step at a time.

For the competition aspect, there are two players, as you know very well. One, which is already licensed. This is about maternal immunization, but I think it's very clear. The fundamental difference between Beyfortus and maternal vaccines is that Beyfortus is designed to protect all infants, the maternal vaccines cannot by design. And, back to the previous question from Luisa, please have a look at the Galicia results. When there is more than 90% coverage rate in all infants, the impact against hospitalization is impressive from year 1. And for the other products, you know, the Merck product is in phase III. We cannot comment on it. We don't have data about the phase III. The only thing I can say is that I do believe that the bar has been set in term of some standard of care.

If you look at the profile of Beyfortus, not only in the efficacy, which is impressive, as per the Galicia data, but also in terms of safety. We're talking here about the most fragile part of our population here, with the newborns. The safety profile of nirsevimab is just pristine. So I think that's a high bar. Now let's look at the phase III results from the Merck product.

Paul Hudson (CEO)

Okay, thank you. Thanks, Thomas. Thanks, Tim. Next question.

Operator (participant)

The next question is from Peter Welford, from Jefferies.

Peter Welford (Senior Equity Analyst of European Pharmaceuticals)

Hi, thanks for taking my question. I'm gonna stick—first of all, just Beyfortus again, if I can. Just wonder if you could comment at all about the phasing. You made a comment the first quarter, you don't have supply, but I think at the same time, you are delivering some doses still to the U.S., if I'm not wrong, that, that was sort of carry over. But should we then anticipate, Beyfortus sales to dip and then rise again before, before the winter season? Or I guess, do you have any plans at all for the southern hemisphere, that also we should be considering during the—during those middle two quarters? And just curiously, the statistic near 2 million that was given, was that the U.S. alone, or is that, across all the regions so far where Beyfortus has been launched?

And then the second question, just one for JB, just on the P&L. The increase in other operating income during the quarter, you referenced in the release something to do with litigation-related payments. Wonder how much of that is to do with it, or could you just quantify a bit what it was that led to the significant increase in the OOI in the quarter, perhaps relative to expectations? Thank you.

Paul Hudson (CEO)

Thomas, so maybe some thoughts on Q1, what you can share on phasing and the distribution of the almost 2 million doses that we've put out there already, and then JB.

Thomas Triomphe (EVP of Vaccines)

So first on the first question, the RSV disease is, of course, a very seasonal disease, and therefore, you will see that it will be a cadence, if you wish, and each countries will have their sales in Q3, Q4. South Hemisphere countries will have their sales in Q1, Q2. Due to the supply limitation and the fact that we are in the process of ramping up supply, I would expect in 2024, but Q3 and Q4 are the key quarters for Beyfortus. There you will see, as it was communicated by the White House, some small sales with the delivery of products in January. And we are looking for a couple of countries, maybe for South Hemisphere entries.

But again, from a significant sales perspective, it's really about Q4 and Q3 and Q4 for 2024. And back to the point you mentioned, to be very precise, on the approximately 2 million doses of 2023-2024, so it includes the season, so i.e., it includes January, February. It's really total, i.e., U.S. plus Europe.

Paul Hudson (CEO)

Okay, J.B., the other income?

Jean-Baptiste de Chatillon (EVP and CFO)

Yeah. Yeah, thank you, Will. You realize that, so products is very readable on the impact on our P&L, but effectively, more specifically, we had a few, here and there, tens of millions EUR of provisions that we had, we had to pass, in Q4. Scattered topics, nothing in particular.

Paul Hudson (CEO)

Okay, good. Thank you. Next question.

Operator (participant)

The next question is from Richard Vosser, JPMorgan.

Richard Vosser (Richard Vosser)

Hi, thanks for taking my question. Question on INBRX-101 or the Inhibrx product. I think Inhibrx was highlighting the first readout at the end of 2024. So could you talk through the difference in timing with your second half 2025 timing, and whether we will still see some initial data ahead of maybe the final data on the 2025? And then a question on flu, please. Obviously, flu vaccine hesitancy, and we've been hearing about increased competition. I think you've referenced it, too. So you know, are we back to a situation of sort of overcapacity for the, for the flu market outside of high dose and outside of very old adults? So should we expect price pressure going forward? How should we think of the flu seasons going forward? Thanks very much.

Paul Hudson (CEO)

Okay, good. Maybe Houman, do you wanna comment?

Houman Ashrafian (EVP and Head of Research and Development)

Yeah. So, Richard, thank you for the question. The short answer is, in terms of operational outcome, we expect the results in 2025. I don't have any further comment on that, and we look forward to seeing those results. There are other elements to this as we bring the molecule in once the deal closed.

Paul Hudson (CEO)

Okay, good. Thomas getting plenty of air time today. Flu, maybe comments on high dose and the differentiation piece, and the thoughts on what it could mean for pricing in standard dose?

Thomas Triomphe (EVP of Vaccines)

No, it's, it's an important question, Richard. And I would say it's the continuation of what we have observed over the past two years. The situation in the flu market overall is that there is definitely ample supply versus the demand, and that's that's been accelerated by the decrease in flu VCR over the past couple of years, especially in North America, for various reasons. I think one point to to have in mind, though, is that it's very linked to the fact that there has been very moderate flu seasons in terms of disease. And as you know very well, VCR gets softer after three or four seasons that are lower, and suddenly VCR comes back after the first big hit.

I'm saying that because right now we're in Western Europe with an increase of flu disease, and the US will not be immune to that. But so that's for the overall situation. Of course, we had anticipated that. That's why we came earlier with differentiated flu vaccines. We have the two differentiated flu vaccines in our portfolio that have significant data, significant data that are showing impact in terms of improved protection versus infection compared to standard dose, which none of the competitors have. That's what we call protection beyond flu. And that has brought the success of these differentiated flu vaccines, but represent still in H2-2023, more than 60% of our flu sales. So to summarize, I would say overall for standard dose, price pressure is my expectation. You're correct.

But we are seeing still ample room for trajectory of differentiated flu, flu vaccines such as FluLaval, Influvac or Flublok.

Paul Hudson (CEO)

Okay. Thank you. The next question, please.

Operator (participant)

The next question is from Graham Parry, Bank of America.

Graham Parry (Senior European Pharmaceuticals and Healthcare Equity Analyst)

Great. Thanks for taking my questions. So first question is just on ALTUVIIIO. I think you had quite a lot of patients on free drug in second and third quarter. Just if you could give us an update on how many patients are actually on free drug or bridging programs in Q4, and then how you'd expect that to progress into 2024. And then separately on the, excuse me, on the Inhibrx asset. I recall Inhibrx had indicated that the FDA wanted some data linking functional AAT levels going to normal levels with some sort of clinical outcome, as a sort of precursor to filing on the basis of functional AAT level for accelerated review. And then they still had to agree a clinical endpoint for the confirmatory trial.

So if you'd just give us an update on where you think that process is. Is that data generated, and what do you think the clinical endpoint that will be needed for approval will be? Thank you.

Paul Hudson (CEO)

Thank you, Graham. Brian, ALTUVIIIO?

Brian Foard (EVP and Head of Specialty Care)

Yep. So first and foremost, as you all know, we have this 30-day program, which has been quite helpful for us. We've seen that about 90% of the patients that go into that program get converted to commercial, which is really fantastic. And as you have said, it is going to go down. It was at 20% previously, of the patients that have gone through the program. It's at 14 now. We anticipate it to go down to between 8% and 5%, and probably it'll stabilise somewhere around the 5% range in the coming years.

Paul Hudson (CEO)

Thank you, Brian. Houman?

Houman Ashrafian (EVP and Head of Research and Development)

Thank you for the question. Excellent question. Just to call out, we don't own the asset yet, so, we're beginning to dig into that question. As you will fully appreciate, there are ongoing discussions with the FDA, both in terms of, as you say, bioavailability and bioequivalence with native alpha-1 antitrypsin and the right endpoint. But we're deep in those discussions, and in fact, even last week, we were in conversations with, with the Alpha-1 Foundation patient group to consider exactly how we move this forward. So thank you for the question, and watch this space.

Paul Hudson (CEO)

Thank you.

Operator (participant)

So the next question is from Simon Baker, from Redburn. Simon? Okay, so maybe I move to the next question from-

Simon Baker (Partner and Head of Global Biopharma Research)

Hi, can you, can you hear me? Sorry.

Operator (participant)

Yes, we're good.

Simon Baker (Partner and Head of Global Biopharma Research)

Yeah. Hi, thank you. Sorry. Can you please provide more color on your view of the potential of CEACAM5 as a target given the recent tusamitamab ravtansine failure? And second one, again on Beyfortus. We've seen this strong uptake in U.S., but is there any group or payer channels or regions more strongly represented than others that you see? Thank you.

Paul Hudson (CEO)

Okay, thank you. CEACAM5, given the tusamitamab data, maybe some thoughts on the different payload and, is it still a valid target?

Houman Ashrafian (EVP and Head of Research and Development)

Thank you for the question. Excellent question. We continue to believe, based on both our precision medicine computational biology approach and classical immune chemistry, that CEACAM5 is a highly specific and highly expressed target. Its density profile is well-suited to an ADC approach. As you call out correctly, the previous molecule with a DM4 payload, sadly did not provide the high efficacy bar that we'd put in order to serve patient value. We believe, for a number of basic biological reasons, that the topo I payload on the current molecule, both at preclinical level, but also now in clinic, shows significant promise. The short answer is we remain optimistic about CEACAM5 ADCs.

Paul Hudson (CEO)

... Thank you. And Beyfortus, in particular, the-

Thomas Triomphe (EVP of Vaccines)

Great.

Paul Hudson (CEO)

Yeah.

Thomas Triomphe (EVP of Vaccines)

So I assume, Simon, you're talking about the payer coverage in the U.S. First of all, a significant part of newborns coverage is through the VFC program. So for the public part, it's fully covered, as you know very well. And for the private medical side of things, I didn't check very recently, but a few weeks ago, we were already way more and way above 90% payer coverage in the U.S., just a few months after the launch. So I don't see any problem at all in terms of payer coverage. It doesn't prevent that there might be a few practitioners or a few HCPs that, of course, want to go slowly because we want to make sure that they will be reimbursed and properly covered.

But with what we've seen in the U.S. over the past few weeks, I think it's now something from the past, and I'm very confident for 2024 in the U.S.

Paul Hudson (CEO)

Yeah, just to build on Simon's question, of course, you've referenced the U.S., but maybe to share some of the enthusiasm we're seeing from different countries in Europe.

Thomas Triomphe (EVP of Vaccines)

Well, definitely, I think that, you know that it's well known that in Europe, if you look plenty of previous historical benchmarks, vaccines entries in Europe normally takes a few years in terms of progress, because there is recommending body, there is a reimbursement decision, and it's usually staged. We are seeing a lot of European countries that are trying to accelerate that process in order to make sure that Beyfortus goes earlier for protection.

Paul Hudson (CEO)

Thank you, Thomas. Next question.

Operator (participant)

The next question comes from David Risinger from Leerink.

David Risinger (Senior Managing Director and Senior Research Analyst of Diversified Biopharmaceuticals)

Yes, thank you very much. I wanted to say thank you and best of luck to you, JB. I have two questions for Paul and you, please. First, can you provide color on the outlook for spending growth in 2025, and also discuss the potential for operating leverage beyond 2025? Thanks very much.

Paul Hudson (CEO)

Thank you, David. Okay, JB?

Jean-Baptiste de Chatillon (EVP and CFO)

Yeah. Thank you very much. Yes, I can try to do that because the question is pretty simple, and I can lay it out for you. We enjoy a steady growth, and this is with us for many years ahead now, with the new LOEs in front of us. You heard Paul mentioning this underlying growth that we are enjoying when you neutralize the impact of Aubagio. So it's pretty easy to see that we are going to enjoy this growth. We said that we would increase in 2024, and that's why there is a bit of a crunch in 2024 because we increased EUR 700 million R&D.

While other programs are still running, like tolebrutinib, COPD, large phase III, multiple phase III programs, those programs will end in 2025, and the oncology to I&I reallocation, plus our efforts in terms of the cost reallocation, will fully kick in in 2025. So flat OpEx 2025 versus 2024, with a clear top line growth, this will trigger leverage. Now, looking beyond this, beyond 2025, if we've taken this decision of going all in in developing our pipeline, it's ready to break the ceiling of growth rate and profitability that Sanofi has experimented in past years. So we will see where it goes.

But, as I said, we are going to enjoy a long run of growth and a clear opportunity to create value and go through the LOE of Dupixent with those 3-5, 2-5, or 3-5 asset with $2-5 billion peak sales potential. And you've seen in the R&D days that we have more than what it takes already. And you've seen also that we're relentless in adding to our portfolio inorganically, as we've just did with Inhibrx.

Paul Hudson (CEO)

Thank you, JB. Next question, please.

Operator (participant)

The next question is from Gary Steventon from BNP Exane. Gary? Gary, can you hear us?

Paul Hudson (CEO)

Maybe we move to the next one.

Operator (participant)

Okay, so we'll come back to Gary. So let's move to Rajesh Kumar from HSBC. Rajesh? Okay, it seems like... So do we have Gary online? No, so I think I have also a question written in the, in the box, so I'm going to read it out. It's from Florent Cespedes from Société Générale. So the question is for CHC. So there is one question: Could you elaborate on the dynamic in Europe, the decline in Q4 and US? What is the organic growth, and is it still possible to raise price in the US? And then there is another question on 2025: What are the drivers and challenges for 2025? How confident are you with the consensus EPS growth in 2025?

Paul Hudson (CEO)

Okay, good. All right. Well, then, Julie, Europe dynamics, US, and price flexibility, and then JB will come back to the EPS rebound in 2025. Yeah.

Julie Ongevalle (EVP of Consumer Healthcare)

Okay. So on Q4. So I think maybe on Q4, I think there's three factors that are important to notice that have impacted our growth versus the consensus is, first, some further divestments of our non-core brands as part of our plan to simplify our portfolio, and we're coming to the end of that program. We'll still have some impact in 2024. As for the performance in the US, it's explained first by a softer market dynamic, but also some underperformance of our brands, and actions to improve performance on these brands is happening as we speak, especially in the allergy and pain categories. Whilst the addition, obviously, of Qunol is strengthening our position to deliver future growth in the US. Europe, we have strong positions.

I think our strength overall is that we have more than 60% of our business that is driven by leadership brands that have leadership positions in their respective markets, with all still a lot of potential to grow, thanks to mainly penetration as well as innovation.

Paul Hudson (CEO)

That helps.

Julie Ongevalle (EVP of Consumer Healthcare)

Price, so room for pricing. Room for pricing, obviously, there's less room for pricing than in the past, but there's still... We see that our category overall is a little bit more resilient, especially the OTC category is more resilient than many other consumer categories.

Paul Hudson (CEO)

Thank you, Julie. JB, maybe your last comment on your last,

Julie Ongevalle (EVP of Consumer Healthcare)

Uh.

Paul Hudson (CEO)

Uh, call.

Jean-Baptiste de Chatillon (EVP and CFO)

Well, it will be, it will be, clear cut. With 25, the strong rebound is coming pretty naturally on pretty mechanically.

Paul Hudson (CEO)

Yes.

Jean-Baptiste de Chatillon (EVP and CFO)

Confidence is high.

Paul Hudson (CEO)

Thank you, JB. Wise words. Thank you to everybody. Thanks to those that connected today and for everybody that played a part. We've positioned ourselves well with the blockbusters that we have ahead of us, with our launch performance. We have to keep delivering the now and wait for our readouts and celebrate our successes from launches. So thank you very much!

Operator (participant)

Thank you. You may now disconnect.