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Edited Transcript of SAN.PA earnings conference call or presentation 24-Apr-20 12:30pm GMT

Q1 2020 Sanofi SA Earnings Call

Paris Cedex 13 May 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Sanofi SA earnings conference call or presentation Friday, April 24, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan Main

Sanofi - EVP of Consumer Healthcare

* David Loew

Sanofi - EVP of Sanofi Pasteur

* Felix Lauscher

Sanofi - Head of IR North America & Asia

* Jean-Baptiste Chasseloup de Chatillon

Sanofi - Executive VP & CFO

* John C. Reed

Sanofi - Executive VP and Global Head of Research & Development

* Paul Hudson

Sanofi - CEO & Director

* William J. Sibold

Sanofi - EVP of Sanofi Genzyme

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Conference Call Participants

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* Florent Cespedes

Societe Generale Cross Asset Research - Senior Equity Analyst

* Geoffrey Craig Porges

SVB Leerink LLC, Research Division - Director of Therapeutics Research & Diversified Biopharma and Senior Research Analyst

* Graham Glyn Charles Parry

BofA Merrill Lynch, Research Division - MD and Head of Healthcare Equity Research

* Jean-Jacques Le Fur

Bryan Garnier & Co Ltd, Research Division - Analyst

* Jo Walton

Crédit Suisse AG, Research Division - MD

* Keyur Parekh

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Laura Sutcliffe

UBS Investment Bank, Research Division - Equity Research Analyst

* Peter Verdult

Citigroup Inc, Research Division - MD

* Richard Vosser

JP Morgan Chase & Co, Research Division - Senior Analyst

* Seamus Christopher Fernandez

Guggenheim Securities, LLC, Research Division - Senior Analyst of Global Pharmaceuticals

* Stephen Michael Scala

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Thibault Boutherin

Morgan Stanley, Research Division - Equity Analyst

* Wimal Kapadia

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Sanofi First Quarter 2020 Earnings Conference Call. I would now like to turn the call over to Felix Lauscher from Sanofi Investor Relations. Please go ahead, sir.

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Felix Lauscher, Sanofi - Head of IR North America & Asia [2]

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Thank you. Good morning, and good afternoon to everyone on the call. Thank you for joining us to review Sanofi's first quarter results. I hope everyone is safe and remaining healthy during these unprecedented times. As usual, you can find the slides to this call on the Investors page of our website at sanofi.com.

Moving to Slide 2. I would like to remind you that information presented in this call contain forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. I refer you to our Form 20-F document on file with the SEC and also our Document d'Enregistrement Universel for a description of these factors.

With that, please advance to Slide 3. Our speakers on the call today are Paul Hudson, Chief Executive Officer; Bill Sibold, Executive Vice President, Specialty Care, Sanofi Genzyme; and Jean-Baptiste de Chatillon, Executive Vice President and Chief Financial Officer. Paul will review the first quarter business performance. Bill will provide an update on DUPIXENT in the quarter. And Jean-Baptiste will then review the financials. After concluding remarks, we will close with a Q&A session, during which we will be joined by the members of the Executive Committee.

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

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Paul Hudson, Sanofi - CEO & Director [3]

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Well, good morning, and good afternoon to everybody. Let's take a moment to look at how we're dealing with COVID-19 as an organization first.

One of the most overused words is unprecedented. And it is certainly overused but these are very complicated times. And I think we are responding incredibly as an organization. I couldn't be more proud actually of the response of each and every one of Sanofi's more than 100,000 employees. Everybody stepped up to the plate. Everybody is putting the patient at the heart of everything we do despite the challenges.

We have, clearly, like most companies, reinvented how we worked during this Q1. And strangely, that's almost perfectly aligned with what we outlined at the Play to Win strategy meeting back in December at Capital Markets Day. We're fully remote but continue to function. We're recruiting patients for studies. We're delivering on our objectives. We've let go of some of the old behaviors, which as a new CEO in a wonderful organization that I've described as a hidden gem, it's been a privilege to see how we've blown away the politics and are just focusing on trying to do our very best across the business and in COVID-19.

As for manufacturing and supply, we've mobilized our unique strengths and kept 100% of our sites operational and leveraged our global sourcing in order to avoid any product shortage. We've had careful and meticulous business continuity planning, which has allowed us to continue with our studies and enabled our field force to be fully digitally engaged with physicians and with health care professionals in general.

In fact, just to add, our own organization has completed over 0.5 million hours of digital training, which has been a good use of their time during this crisis and will stand us in good stead as we modernize the company going forward. We've done this whilst offering our gratitude and our support for the safety and effectiveness of over 20,000 employees, who work every day on our industrial sites across the world. We've added to that a premium to thank them for their work in providing these essential medicines through difficult times.

So COVID-19 has allowed everybody in the organization to focus on the behaviors that are essential for our strategy. And it's clearly not the setting we would like to have chosen to accelerate the culture change in the company. But we must take advantage of that to do the best for those patients who need our medicines now and those that we think will need our medicines in the future.

So what about our fight right now? We take on this responsibility to fight COVID-19 by investigating therapies for patients right now. Now clearly, both KEVZARA and hydroxychloroquine were medicines that weren't specifically intended to fight COVID-19. And whilst they don't form a large part of our future in terms of any benefit from doing this, the critical thing was mobilizing the organization to make sure that if they did have some application that they were -- inventories were built and we were ready to do our part. We will do our best to protect the public in the future with 2 vaccines. I'll come to those in a moment.

But right up front, we're looking for KEVZARA to work in patients hospitalized with severe respiratory complications, and we'll get the data on that imminently. Whilst it's a long shot, it's the very least we can do to try and follow the biology and other experiences across the world from investigators. We're also supporting the WHO with their SOLIDARITY trial in addition to the 2 Sanofi-sponsored trials evaluating the antiviral effect of hydroxychloroquine. And we'll -- we've offered already 100 million doses to around 50 countries, pending demonstrating that we have an effect.

And last week, we announced that we would partner with Luminostics on a home diagnostic for COVID-19. And we hope that could even be available as soon as quarter 4 this year. Why do that? Well, there's a lot of companies and academics working on COVID-19 testing, very few working on at home. We think that the new normal in 2021 will require people to be able to test at the home if they get symptoms, they're unsure or they just want to overcome any type of anxiety. We hope a test that takes somewhere between 5 and 30 minutes will enable that.

So developing 2 complementary vaccine approaches is a huge opportunity for our organization. I want to try and outline where we are and what it could mean for helping the globe get back to a new normal later next year. As early as, I think, it was February '18, we announced a collaboration with BARDA on -- to develop a protein antigen vaccine candidate. And in late March, we added a second program to develop an mRNA vaccine candidate with our collaboration with Translate Bio.

Now there is a lot of activity in the vaccine sector. And I think the WHO last count was 76 active COVID-19 vaccine projects. Let's be really honest, very few of the sponsors of those 76 programs have the expertise or the capacity to produce a vaccine at required scale. Sanofi Pasteur, as one of the world leaders in vaccine, is probably one of the very few companies with significant expertise and scale.

Well, unprecedented challenges also require us to think even bigger. And therefore, we entered into a collaboration with our partner, GSK, an unprecedented alliance of 2 vaccine giants. And it's interesting to partner with what has been on many times a competitor, but we need to do this together. Our protein antigen approach is based on Sanofi's licensed baculovirus expression platform that's the basis for Flublok, so it's proven. In addition to our proven technology and experience, we'll also leverage prior development work on a SARS vaccine that has demonstrated encouraging immunogenicity in animals.

And GSK, for their part, will contribute the approved pandemic AS03 adjuvant, which they will be able to manufacture at a large scale. That in itself is incredibly important. Existing manufacturing capacity in place to date up to 600 million doses and looking to double this, aiming to have over 1 billion doses available by mid-2021. We're planning to initiate clinical studies in Q4 2020 and aiming for approval in mid- to second half of 2021.

Our mRNA vaccine approach provides a second shot on goal based on innovative technology with the potential for accelerated development. Now others have moved into the clinic with mRNA vaccines faster. But even with significant funding from BARDA, it's unclear how soon other mRNA vaccines can be produced at an industrial scale required to protect the public. Our collaboration partner, Translate Bio, has significant investments in mRNA capacity in place today already that can be applied towards the vaccine. And we're scaling up from a current capacity up to 360 million doses by H1 2021. And we target initial clinical studies Q4 '20, aiming for approval in late '21.

I can't stress enough on that point. The debate has been about vaccines. We're confident that we will get there. There hasn't been enough debate about ability to make billions of doses. And for the record, we have 10,000 people producing over 1 billion doses right now of our own vaccine portfolio. This is not easy to do. But we do it to an incredible standard. And I think we're going to play a major part in one of these 2 approaches, if not both, to get us back to the new normal next year.

Let's move to DUPIXENT. I've said it many times, it's an absolute privilege to be involved with this medicine. Even at challenging times, we have seen incredible performance right across the board. In Q1, we're 130% up, EUR 776 million. And that is almost entirely demand-driven. And Bill Sibold will go on later to talk about TRx and NBRx development to give you some confidence in that number. But that number is in great position on a stable business offering, absolutely fantastic benefit to patients. And it's again a real privilege to see it continue to grow.

On a constant exchange rate basis, our sales and business EPS grew by 6.6% and 15.6%, respectively. About half of our first quarter sales and profit growth was driven by COVID impact as patients stocked up on chronic meds and our trusted consumer health plans. We do expect, however, most of that to unwind during quarter 2. Our focus on efficiencies also delivered strongly with OpEx down 2.9% versus Q1 2019. So overall, in terms of the fundamentals to take us to where we need to go on our commitments post Capital Markets Day, we are in good shape.

Our new GBU structure delivered in Q1. We're settling into the new rhythm. Of course, we've done a lot of it remotely and virtually, which again are great learnings for us going forward. Specialty Care performed particularly strongly, led by DUPIXENT. But we also saw good growth across other key franchises. In General Medicine, we saw moderation in sales decline, notably in diabetes. And Vaccines delivered solid growth despite a tough comparator from prior year. We can comment on that later. Consumer health unit saw consumer stocking more than offset the anticipated headwinds.

So let's go a little bit into Specialty Care, up 31% with growth across the franchises. We expect roughly a 3 percentage point contribution from COVID overall. I'll give you some more detail on that now. DUPIXENT again was the star performer, continued to grow well in excess of 100% year-on-year. And as Bill will describe in a second, DUPIXENT growth was almost entirely due to demand and not related to COVID buying.

Maybe a word on SARCLISA. We launched in the U.S. just before the lockdown occurred. Full launch is expected after the crisis. So we're being appropriately conservative with our deployment between now and then. AUBAGIO was disproportionately affected by COVID buying. Specialty pharmacies relaxed restrictions a little and were allowing MS patients to stock up or refill early. We would expect this -- this effect to unwind in quarter 2. Rare Disease tends to see order phasing impacting individual quarters. And this quarter was no exception also with some contribution from COVID buying in Europe.

Maybe now I'll hand to Bill because it's important, I think, to get a deeper understanding of why we're confident in where DUPIXENT is through Q1 and why we're confident in where we go from here. Bill, over to you.

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William J. Sibold, Sanofi - EVP of Sanofi Genzyme [4]

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Great. Thanks, Paul. As you said, DUPIXENT performance was strong in Q1, adding again nearly EUR 100 million in sales versus the prior quarter. And this was despite the impact from copay assistance programs in the U.S. that typically affect Q1 sales each year.

As you can imagine, we have analyzed our EUR 776 million Q1 sales performance very carefully for any COVID-related stocking impact, including longer scripts. And our assessment is that for DUPIXENT, the impact is negligible. So I'm pleased to say that global growth of 130% versus Q1 2019 reflects underlying demand. This strong global demand was seen across all 3 main indications of AD, asthma and nasal polyps. And we're also pleased with our ex U.S. performance now contributing greater than 20% of worldwide DUPIXENT sales.

Obtaining approvals of new indications and widening the addressable age group is implicit in our EUR 10 billion sales goal. And we're pleased to report that all key regulatory milestones are on track. The most near-term milestone is the FDA action date at the end of May for 6- to 11-year-olds with moderate to severe AD. In a moment, I will share the data we recently presented from the supporting study. Looking a little further ahead, we expect the Part A readout from the pivotal Phase III study in eosinophilic esophagitis in the second or third quarter, followed by the pivotal asthma readout in 6- to 11-year-olds in the fourth quarter. And lastly, for our line extensions we discussed last quarter are underway.

Next slide. This slide shows the supporting pediatric data I mentioned on the previous slide, which we believe supports DUPIXENT's best-in-class profile. On April 5, at the Revolutionizing Atopic Dermatitis Virtual Conference, or RAD, we presented data from our pediatric study in the 6- to 11-year-old group. This data further reinforces DUPIXENT's safety profile, which is already established in adults and adolescence. The children studied in the trial had suffered with AD for most of their life with the majority of their body covered by lesions. After 16 weeks, about 3x as many children on DUPIXENT and topical corticosteroids achieved skin clearance and reduction in pruritus or itch compared with topical corticosteroid alone. We believe this data really matters to prescribers, and we look forward to the FDA regulatory decision in this age group with a PDUFA date of May 26.

Next slide, please. I know you all will want to hear about how the COVID crisis is impacting DUPIXENT, and I'll try to address this for you on the next couple slides here. Let me remind you that the type 2 pathway is not involved in viral defense mechanisms and the selective blockade of IL-4 and IL-13, which drive the efficacy and safety profile of DUPIXENT, does not suppress the immune system. Importantly, this is increasingly recognized by HCPs. And recent market research indicates that DUPIXENT's MoA is a preferred systemic option by prescribers in the challenging current environment.

The data shown here supports that HCPs are comfortable not only to maintain but also to initiate patients on DUPIXENT during the COVID crisis. This data refers specifically to AD therapies. When you look more broadly across dermatology, other surveys, such as the Spherix Global Insights Wave 3 dermatology report from April 6, 2020, shows that dermatologists assessed the risk-benefit profile of DUPIXENT favorably when compared to type 1 agents or JAK inhibitors, especially during the COVID crisis. We believe this is due to DUPIXENT's differentiated safety profile.

Next slide. So what does this mean for DUPIXENT in the coming months? This is an unprecedented situation for all of us, so forecasting is challenging. But I'll share our thinking on the dynamics for DUPIXENT in the coming months based on our market research and the data and trends that we've been observing in recent weeks and days. DUPIXENT total prescriptions have been resilient, and there are several factors that give us confidence that this will continue to be the case.

At-home administration and no requirement for lab monitoring are clearly an advantage in the current situation. Around 80% of dermatologists are extremely comfortable continuing patients on DUPIXENT therapy via telemedicine. And we are seeing no change to length of prescriptions. So the TRx dynamics are unchanged and not inflated by patient stocking. Inevitably, COVID-19 has resulted in slower new patient additions in recent weeks. Overall, we see about a 60% reduction for in-person doctor visits. And this is only partly compensated by increased telemedicine.

This is expected to result in a slower rate of new patient starts. Importantly, we are still gaining new patients and NBRxs are currently running at 86% of what they were between February 14 and March 6, reflecting pre-confinement levels. So in other words, NBRxs are down 14% versus pre-confinement levels. Looking forward, we're confident that patient additions will normalize once patients are being seen more regularly by HCPs.

So to conclude, patients are continuing to receive DUPIXENT during this unprecedented times. And as the situation eventually eases, we expect new patients starts to normalize. Paul?

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Paul Hudson, Sanofi - CEO & Director [5]

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Thanks, Bill. Thank you very much. It's incredible. I mean it is a super medicine, of course. But to see NBRx just down, what was it, 14% versus pre-confinement, I think IQWiG just released some data that it was minus 42%, if I remember correctly, on average, across therapeutic areas. So DUPIXENT continues to defy the normal thinking, a testimony to its efficacy and safety profile. So thanks, Bill, for giving us -- for the detail.

Let's move now to General Medicine. The sales decline moderated to below 4%. And I think this speaks to the resilience of our portfolio [instance], of course, chronic therapies globally. I would assume -- we would assume that gen med saw about a 2 percentage point contribution from COVID-related buying many established medicines, so a little bit extra stocking. Diabetes saw a year-on-year decline moderate to 1.2%, the lowest level in more than 3 years. And whilst I accept that there may have been some additional buying, it's great to see that we are starting to see what we've outlined at the end of last year, the beginning of the trough of our business. And we can start to think about bottoming out and coming back.

Established Products showed modest growth outside of China. China, of course, was impacted by the VBP. I'll come to this in a moment. And looking ahead, we expect inventory build to reverse in Q2, as Jean-Baptiste will discuss later. We also made good progress on our Play to Win strategy, streamlining and simplifying our portfolio through divestment of Seprafilm and the restructuring of the PRALUENT agreement, which was executed.

Maybe a little more detail on China. Overall, sales declined 14%, impacted by VBP. So let's start with the VBP impact. As we guided you, Plavix and Aprovel family sales declined as a consequence of VBP by 54% and 33% in the quarter at constant exchange rate. The good news, and this is really important, I think, the good news is the volume uplift we predicted is materializing. Plavix and Aprovel shipments were up 69% despite the very tough base in what was a high Q1 in 2019. Encouraging, especially as we look into next year and the price impacts that will wash out.

The COVID impact in China has been mixed. Chronic disease treatments up strongly on longer prescriptions and patient stock build whereas hospital drugs have been a little bit more negatively affected. The non-VBP part of our China business, including vaccines, grew at 15%, which speaks again to the resilience of the current portfolio. The future of our business in China is building a specialty franchise, and it's on track. PRALUENT launched in March, DUPIXENT under review for AD and additional launches planned this year, including Fabrazyme and ALDURAZYME in Rare Disease.

Switching gears to Vaccines, which delivered solid growth despite a tough year-on-year comparison. In Q1, we saw growth of 3.7% against exceptionally strong Q1 last year, where sales were up 20%. And let's not forget, that included a 450 basis point contribution from phasing in Japan. So the 3.7% is just the beginning, and we're excited about the rest of the year for Vaccine. Marginal impact of COVID, almost neutral, to be honest, as uptick in flu demand was offset predictably by a reduction in travel vaccines as restrictions came into effect.

Overall, very pleased with the performance, which puts Vaccines on track to deliver. Pentaxim, up 33% in China as inventory built up ahead of the reopening of point of vaccination centers at the end of February and has seen rapid recovery post lockdown. And in flu, ready for expected higher demand in the second half based on greater public awareness of vaccination benefits. So there is also a little bit, we think, maybe an opportunity as early or accelerating availability in Fluzone High-Dose for the elderly following an expected Q2 approval. We're getting some very positive signals there.

On to consumer health. So sales up 4.2%. And this includes approximately a 6 percentage point contribution from COVID-related pantry loading as customers trust our over-the-counter medicines when dealing with the crisis situation. Now the main benefit from our customer stocking is seen in the cough and cold and pain categories, driven by especially strong demand in Europe. Of course, we don't have the scale of that business in the U.S., so it's European-driven, notably the household name brand, Doliprane in France. Our Q1 performance reflects the anticipated headwinds, including the effect from the Zantac voluntary recall in the fall of last year and the portfolio cleanup. You won't see on the like-for-like the unwind until we get closer to Q3, the Zantac piece.

To provide the promised update on our switch opportunities, we held meetings with the FDA on Cialis and Tamiflu. And whilst we can't divulge the details, of course, these areas remain somewhat competitive, our development plan is on track and there are no changes to the timelines that we've previously communicated. Meanwhile, we continue to transition to a stand-alone business, and we're on track here, too. Remember, going back to Capital Markets Day, we said our real focus for consumer health was to unencumber it, to put the agility back into it and to be accelerating our growth through the remainder of 2020 with the expectation of being close to our on-market growth before the end of the year, if possible.

With that recap, I will hand over to Jean-Baptiste to give the financial update. Jean-Baptiste?

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Jean-Baptiste Chasseloup de Chatillon, Sanofi - Executive VP & CFO [6]

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Thank you. Thank you, Paul. Good morning. Good afternoon to you all. Well, on Slide 22, as Paul said, we delivered 6.6% growth in the first quarter, around half of it being related to the COVID impact with inventory building in channels. If we strip this out, sales growth would have been in line with our expectations, driven mainly by DUPIXENT. We expect incremental COVID impact to reverse mainly in the second quarter.

When we move further down the P&L, we again delivered P&L leverage, helped by the incremental revenue impact and by our efficiency initiatives. As a consequence, BOI grew by around 16% in the quarter, and our BOI margin increased by 220 basis points. Similar to sales, you should consider that broadly half of the increase in BOI margin resulted from the various impacts due to the COVID crisis. Importantly, we delivered on our savings in the quarter as we continue to work towards our target of EUR 2 billion savings by 2022. As a result, our G&A and R&D line reflect efficiencies of 2.1% and 4.3%, respectively, in the quarter.

Among the other lines, I would draw to your addition the operating income and expense and the associates line, both of which increased significantly versus the prior period. OI reflects our accounting for the Regeneron monoclonal antibody alliance. Here, the outflow in the quarter increased to EUR 243 million versus EUR 75 million in Q1 2019 as the collaboration further improved profitability. I'll remind you, the net figure includes 3 components: a share of profit on loss to Regeneron, reimbursement of commercialization expenses incurred by Regeneron and the reimbursement by Regeneron of our development cost. Regarding the associates line, the increase reflects our equity accounting share of Regeneron's profit, including a true-up in Q1 2019 for actual reported results.

Slide 23 takes a closer look at our cost line. Beginning with gross margin, we saw a decline of 80 basis points at constant exchange rates despite productivity gains and the strong growth of Specialty Care. The decline was mainly due to price reduction in China on Plavix and Aprovel as a result of VBP. This impact will continue through 2020. On OpEx, combined SG&A and R&D declined by 2.9%. The reduction in expense was driven by savings from our prioritization and smart spending initiatives. COVID impact was broadly neutral as some expense reduction was balanced by extra costs associated with COVID.

On Slide 24, we delivered a strong increase in free cash flow in the quarter with the help of some phasing benefits but also one-off divestments. In total, free cash flow more than doubled against the same period in 2018. Excluding onetime factors, we continue to make progress against the mid-term drivers of free cash flow we have previously highlighted. That is, we increased sales and margin, we improved our working capital and we prioritized investments. Based on our underlying progress on the change in mindset across the organization, I'm increasingly confident we will meet our target to improve free cash flow by 50% by 2022.

On Slide 25, I want to give you a sense of the likely business dynamics in the second quarter. Company sales are expected to decline at a low single-digit rate versus Q2 2019 as the first quarter impact of COVID reverse. When we look at this at the first -- at the level of our different businesses, where in Pharmaceuticals, we expect to see a reduction of in-channel inventory build. In Vaccines, the recovery in China on global demand for flu vaccine should continue. But we will see a significant adverse impact from reduced travel vaccination and the postponement of pediatric vaccinations and boosters.

In CHC, we accept to see -- we expect to see significant negative impacts from the unwinding of consumer stockpiling and the reduced consumer traffic in pharmacy. We also expect to deliver further OpEx efficiencies in Q2. The net impact, if we take the first and second quarters together, is that we expect our first half performance to be on track to achieve our full year guidance.

On my last slide, I confirm our full year guidance for 2020 business EPS to grow by around 5% at CER. The impact of ForEx is expected to be negative by minus 1% to minus 2% based on April average exchange rate. Finally, I would like to say that we remain confident on delivering the financial targets that we set out at our Capital Market Day.

With that, I will turn the call back to Paul.

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Paul Hudson, Sanofi - CEO & Director [7]

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So thank you, Jean-Baptiste. I think we are ahead in Q1. We do expect some of it to unwind in Q2. We will be on track to deliver our guidance. So I don't want anybody to not fully appreciate that.

So it's in moments like this that we have to stand back and take a look at our entire portfolio and see how we're positioned because this is not clearly a short-term event and it will move through 2021 and we'll play our part there, as you know. So just taking a quick look, I mean, we have a portfolio that's diverse and also resilient with opportunity to deal with this. This isn't just about us keeping moving in challenging times, this is about making sure we have the right balance.

At the same time, like I said earlier, it's not the way I would have liked to have learned it. But it's clear that we have the capabilities, the skills and the people to execute on our strategy. I would also add the speed element, which is we're going to keep after things return to some type of normal, I think will be an advantage because of the -- we have a backbone of entrepreneurial DNA that, I think, is unique and hard to replicate in other places.

DUPIXENT, of course, in specialty, is going to be the pillar, delivering major benefit across a range of inflammatory-mediated diseases, and I think Bill mentioned it, without suppressing the immune system. Whilst that was always the case, it's going to become an increasingly more competitive advantage, given new entrants that can't make that claim. We have also KEVZARA, and we would love to see some benefit. Again, to remind everybody, we've increased the manufacturing so that we're there if the studies read out positively. We haven't built it into our financial modeling, but we certainly would love to play a part in helping patients if we can.

As for gen meds, we have this broad range of chronic disease treatments and a global portfolio of essential medicines, which will help lift the standard of care in emerging countries and we think will be essential. And Vaccines, what can I say, a world leader with a differentiated flu portfolio, and we're leveraging our know-how and manufacturing capacity. I can't repeat it enough, our ability to manufacture at scale will ultimately be the winning criteria to who can help the most people when we actually come to delivering vaccines.

Consumer, while we supply the medicines needed by patients to cope with the milder symptoms, paracetamol, for example, Doliprane, and as and when this pandemic eventually subsides, we think we have a compelling strategy right across each of our GBUs, which is why we set them up this way. DUPIXENT is really a great example that shows it's critical to understand the driver pathways of disease. And our unique understanding of T2 biology allows a precise intervention, where you do not trade off efficacy and safety.

So I just want to move a little bit to the BTK. We hosted a call yesterday, first time for us to do something on that scale. We put it out there to present some balanced scientific reflection on our Phase II data in MS for the BTK '168, where over 1,000 people connect. It just shows us when we move towards these new tools courageously, we can move incredibly quickly. We also know that we think we have this unique dual mechanism of action, not only just on the periphery but inside the CNS. And I think we went a long way to demonstrating that yesterday.

Of course, we haven't had the Phase III programs. And we'll have somewhere in the region of 4,000 patients involved in those. And that's going to be significant itself. There was an expression used for those that were on the call yesterday that this may end up being best-in-disease, not just best-in-class. And we can see that being a real possibility, after even a short period of time, a 90% reduction in lesions in Phase II.

And if our Phase III data looks good, I think we will be more than competitive for the injectable or infused anti-CD20s. We know almost without exception that when efficacy is as good as, patients will always choose oral. How BTKi '168 potentially impacts underlying mechanism, I've touched on this a little bit. But I think we have a chance to go after being the first real treatment truly effective in progressive forms of the disease and more to follow on that.

So I think perhaps I'll move to just a little bit of pipeline momentum to finish my last slide. There is excellent momentum building in R&D. I can feel it. I put it in the conversations. I can see where we're accelerating. We've touched on it already. But we delivered on our promise with the POC data for the BTK. We have delivered the virtual presentation of our pediatric DUPIXENT data and, of course, the SARCLISA U.S. approval.

And in the upcoming quarter, you can expect multiple approvals across Specialty Care and Vaccines. Look out, in particular, the DUPIXENT in pediatric AD, of course, and the expansion of our differentiated flu portfolio in Europe and the EU approval of SARCLISA. Also expect several important pivotal trial readouts, including the IKEMA study for SARCLISA and the avalglucosidase alfa in Pompe and cemiplimab in basal cell carcinoma.

By way of a final word, I'm looking forward to our R&D Day event on June 23, where the headline should be nice and clear for everybody. We aim to tell you what makes Sanofi R&D unique. It will be a virtual event, of course, because of what we face. But I think, once again, an opportunity to show you some of our bench strength of some of our science to get connected to more people from our R&D because of the virtue of being virtual, and we're already becoming increasingly more proud of what they're working on.

So to close, the message you've heard today is, I think, a clear one. We are absolutely executing on our Play to Win strategy. We're taking a leadership position in managing and combating the COVID pandemic. We are on track to deliver our financial targets for 2020 and beyond.

And with that, Felix, over to you to start the Q&A.

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Felix Lauscher, Sanofi - Head of IR North America & Asia [8]

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Thank you, Paul. We will now open the call to your questions. (Operator Instructions) Thank you. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question from the phone is from the line of Graham Parry from Bank of America.

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Graham Glyn Charles Parry, BofA Merrill Lynch, Research Division - MD and Head of Healthcare Equity Research [2]

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So firstly, on Vaccines, you alluded to the fact that you're preparing flu capacity for a second half increase in demand. Can you help quantify that a little bit? What sort of step-up do you think you've got, what kind of level of capacity expansion can you perhaps engage in for this 2020/'21 season?

And then secondly, on your COVID vaccine, the SARS-1 vaccines that were originally developed that were targeting spike protein did see some in vitro and animal evidence of antibody-induced -- or that vaccine-induced enhancement. And that's obviously a risk which Sanofi is familiar with from the dengue vaccine. So can you just talk us through in those COVID programs what it is you're actually doing to avoid enhancement issues in animal models that you're going to be having to provide to regulators, et cetera?

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Paul Hudson, Sanofi - CEO & Director [3]

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Thank you, Graham. Appreciate it. I'm going to hand it to David. Just maybe on your first question about our capacity to deal with perhaps increase in flu in 2021, I think it's probably easy to say that we're not oversharing because clearly, it's a competitive situation. David may feel comfortable adding a little bit more, but I wouldn't go there.

And then David, if you could reflect a little bit on the SARS learning and what's perhaps about the vaccine-induced enhancement piece.

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David Loew, Sanofi - EVP of Sanofi Pasteur [4]

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Yes. Thanks. Graham, on the flu capacity, so we have ordered more eggs for this season because we anticipated that the market is going to grow. And that's actually turning out to have been a very good decision. So it gives us some leeway even on all egg-based vaccines. And then we have also short term some upside on Flublok. We are limited only by the filling capacity. So this means that we think mid-term, the flu market is actually also going to increase probably substantially because you really want to prevent that people are having flu while you have COVID still circulating, especially in the winter months.

Because once they start to overlap, that becomes very dangerous and it's going to fill up the hospitals. We were kind of escaping the flu season on this COVID now in Europe and in the United States. So we just came out of the flu season. And that's why the health care systems have not noticed it. But for the next winter, that's going to be a significant issue. On your second question on COVID and the SARS vaccine, the ADE effect is an effect that you can see potentially with any vaccine. So I think all the companies will have to watch out for that. And there are, of course, discussions with the regulators ongoing on this one.

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Operator [5]

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The next question from the phone is from the line of Richard Vosser from JPMorgan.

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Richard Vosser, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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Maybe a follow-up question on the vaccine capacity. Just -- I think into the U.S. market, 169 million doses of vaccines are shipped. Do you have any idea how many actually get into patients? CDC seems to think 1/3 of patients are getting vaccinated. So is there a potential uplift from more people actually taking on what is already in the marketplace from you and others?

And second question, just on consumer. And just thinking about continued demand, we see flu season generate boost to consumer businesses during their ability, particularly cough and cold but other things like vitamin. So just your thought in actually -- clearly, there's a bit of a bolus, but could this be a benefit for most of the rest of this year as well?

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Paul Hudson, Sanofi - CEO & Director [7]

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Okay. Richard, thank you so much. David, to you again on the capacity and the doses that perhaps are still in the system and not been used and whether that's still in play?

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David Loew, Sanofi - EVP of Sanofi Pasteur [8]

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Yes. Richard, you have seen that we have doubled the sales in Q1. And that is clearly an effect of people having vaccinated longer and more people, in fact. We have seen that there were more shots in arm in the script data or in the claims data. So we expect, indeed, that this is going to continue for the upcoming flu season. We also see in the summer Southern Hemisphere that we're also seeing an uplift of injection.

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Paul Hudson, Sanofi - CEO & Director [9]

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Alan, beyond pantry loading, do we see any of the momentum continuing?

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Alan Main, Sanofi - EVP of Consumer Healthcare [10]

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So thanks for the question, Richard. At this stage, we are not anticipating to see a significant uplift across the various categories. There may be 1 or 2 very specialist areas, for example, in the vitamin immune space, where you might actually have seen a new habit created during this crisis. But most of the OTC products that have seen pantry loading, as we described it, are treatment products. So of course, if they're not used for treatment during that period, they will stay in the medicine cabinet.

So the current projection is that we will see the uplift kind of ease out over the next quarter or 2 with no significant uplift. Just in terms of the seasonality you talked about, we did see it was a very good cough and cold season in January, February in the U.S. It was not a very good cough and cold season for the manufacturers in Europe. But of course, the mark sales significantly increased as a result of the COVID epidemic.

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Operator [11]

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The next question on the phone is from the line of Verdult, Peter from Citi.

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Peter Verdult, Citigroup Inc, Research Division - MD [12]

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It's Peter Verdult here from Citi. Two questions, please, strategy and DUPIXENT. For Paul, you called out some key internal projects you were focused on earlier this year, benchmarking the most important roles in Sanofi to the industry and defining a go-forward strategy for gene therapy in Rare Diseases, both in terms of the better technology [gaining back] and whether you go organic-inorganic hybrid. Wondering if you would be willing to provide an update here and comment on your -- on the size or ability to pursue BD in the current environment?

And then much quicker for Bill, correct me I'm wrong, but I think Sanofi's payer split for the U.S. pharma is roughly 40% commercial, 40% Medicare, 20% Medicaid. Just given the importance of DUPIXENT to the Sanofi growth story near term and the risk to the commercial book of business from rising unemployment, could you perhaps just spend a little bit of time talking about the relative exposure for DUPIXENT to commercial and just what you're trying to do over and above what you said in your comments to minimize the disruption to future initiations of therapy?

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Paul Hudson, Sanofi - CEO & Director [13]

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Thanks, Peter. I'll come to Bill in a moment on that. As to the gene therapy question, yes, we said that we would look in those buckets. I'll be frank, my contractual agreement with my previous employer did not allow me to be involved in anything to do with gene therapy until the end of -- at the very end of February, beginning of March. So we've been accelerating that work. Now I can play a more active role. We are starting to get to the decision points on how we want to deploy. I can tell you there's a little bit excitement and enthusiasm. There's also some very good in-house projects that need augmenting and some capabilities that need adding. Our plan is to provide a more detailed look as we get to the half year results. But you'll have to forgive me, I was not allowed really to be involved until just a number of weeks ago.

Bill, over to you for the commercial book of business, which is higher, I think, than people were suggesting certainly. And then -- and what are the implications of unemployment?

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William J. Sibold, Sanofi - EVP of Sanofi Genzyme [14]

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Yes. Peter, thanks for the question. And as Paul said, it is a little higher. So DUPIXENT is really a commercial story for the most part. You're looking at over 70% of it is commercial, so higher than across the rest of the portfolio that we have. And I think not knowing where unemployment is going, obviously, it's up. We see that, that is going to have an impact across the industry. On DUPIXENT, the dynamics that you'll see is a shift in patients perhaps towards Medicaid or health exchange marketplace or any of the uninsured programs. Now we have in place very strong programs that help patients if they are at any risk of missing doses, et cetera. We have strong patient assistance programs, et cetera. So we feel that from a coverage of ensuring, first of all, that patients have access to therapy that we're in good shape.

I think it's, at this point, too early to tell how many patients are going to end up making that shift. And we know it's not a real efficient shift at this point. So if somebody's going from commercial to Medicaid just in general across the industry, because of the unemployment, it's not an instant effect that takes place. So that, we'll have a little bit better view of in time.

The comment I would make just in general is -- about DUPIXENT and weathering the storm, so to speak, is we've seen real resilient TRxs. Hearing from the physicians, they are very comfortable in maintaining and even starting patients on DUPIXENT during this. And I think a lot of that has to do with their broad experience with it today and the strong safety profile. So we think that as far as products go during this COVID crisis, we continue to see the strong interest in DUPIXENT. The numbers are holding up well, which as I've talked about some of the impact on NBRx, but TRx is there. And all the survey work that we're doing are suggesting that physicians are really continuing to turn to this. So maybe I'll leave it at that.

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Operator [15]

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The next question from the phone is from the line of Laura Sutcliffe from UBS.

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Laura Sutcliffe, UBS Investment Bank, Research Division - Equity Research Analyst [16]

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I've got one DUPIXENT and then one on sort of recovery more generally. Firstly, I think you mentioned in your material today that you see strong uptake for DUPIXENT in asthma. So my question is whether you think that's going to be more challenging or less challenging to maintain that momentum than the trajectory you see in atopic dermatitis, given the sort of hopefully unique circumstances that we're in, in 2020. And then secondly, do you expect any geographic differences in the way that any parts of your business might recover later on?

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Paul Hudson, Sanofi - CEO & Director [17]

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Okay. Thank you, Laura. So maybe, Bill, I'll take a stab. I mean my -- and then throw it to you. The DUPIXENT resilience is very specific. It is easy to initiate. And there's a high degree of confidence, not least in pulmonologists. I think the competitive set is a little bit more complicated to get started. So there is a high degree of comfort in initiating with DUPIXENT. I think the additional thing to consider is what is the new norm going to be like? Because most of these offices that planned 2- and 3-year migrations to a blend of telemedicine and face-to-face to maximize capacity, they're rushing to that now. And I wonder whether the new norm for medicines like DUPIXENT and beyond have an opportunity to access a much greater eligible population than they would have done pre because of the leverage of digital tools.

Bill, do you want to make any additional comment or look at any geographical differences?

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William J. Sibold, Sanofi - EVP of Sanofi Genzyme [18]

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No. Look, regarding with asthma, we've seen that there has been more continued patient visits to pulmonologists' office during this time. We think that coming out of this and through this, the profile of DUPIXENT is really what is going to continue to make it a product for physicians to turn to. So the competitive dynamic is still going to be there. DUPIXENT, we think, has the best profile in the space. So I think that it is just going to be kind of business as usual from a competition perspective end. But pulmonology seems to be a little bit further ahead than dermatology in maintaining office visits.

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Paul Hudson, Sanofi - CEO & Director [19]

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As to geography then, just a more wide sort of look, it is really very much dependent on the type of restrictions that are being imposed and then lifted and what time scale. We're seeing China come back and start to come back quite strongly in general. But it's not 100% back. It's continuing to add opportunity every day and open up more places. I don't think we're any different in terms of the scale of that opening up. I don't think we've had any medicine that has disproportionately suffered geographically versus the -- what we expect them to achieve. I am optimistic that when we come back, the new normal will have more opportunity in it for patients, eligible patients, to get access to the right medicine. I think DUPIXENT will sit as the leader in that group.

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Operator [20]

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The next question from the phone is from the line of Florent Cespedes from Societe Generale.

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Florent Cespedes, Societe Generale Cross Asset Research - Senior Equity Analyst [21]

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Florent Cespedes from Societe Generale. Two quick questions. First of all, on your clinical trial program, could you tell us if the trials, which are expected to read out in H2, are still on track? Or if you may experience some delay, notably in your hemophilia portfolio or your cancer portfolio, notably the third?

And my second question, maybe for Jean-Baptiste, just to double check regarding your full year guidance. Do we have to understand, so after the softer Q2 that you have highlighted in your slides, do you anticipate kind of a recovery in Q3 and then kind of back to normal in Q4? Just to double check.

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Paul Hudson, Sanofi - CEO & Director [22]

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Okay. Thank you, Florent. So John Reed, maybe you could give an update on sort of regulatory milestones and whether they have moved or not, and what we're doing to deploy both in the COVID studies and our -- and the ongoing studies?

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John C. Reed, Sanofi - Executive VP and Global Head of Research & Development [23]

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Yes. Thanks, Paul, and thanks, Florent, for the question. Well, I would say this has been certainly a moment of pride for me as the Head of R&D to see how our team has stepped up. Our clinical development team has done a heroic job to both start randomized clinical trials for purpose of exploring drug repurposing opportunities for combating COVID-19 as well as to keep patients on study where our pipeline molecules are concerned.

And just to give some examples. First, I would mention the speed with which the clinical development and ops team have executed on the COVID-19 studies. They've started 3 randomized clinical trials, one for kids, the other 2 for hydroxychloroquine, with record speed from concept to first patient randomized in just 3 weeks.

Then second, with respect to the ongoing pipeline, we've been using a variety of digital tools and adopting new ways of working. And our team have managed to keep more than 90% of patients on study, and they've managed to continue recruiting patients to ongoing studies. The method used to achieve this progress, of course, have included -- they've been a diversity of things, but they've included direct-to-patient shipping of investigational products, organizing in-home infusion of IV drugs to avoid visits to medical centers, using telemedicine for patient assessments, conducting site visits virtually using video conferencing, conducting remote site inspections, using smart glasses and just shifting with agility to clinical sites located in geographies that are less impacted by the pipeline.

I would also say that supplying the trials with investigational product, we've managed to keep our CMC teams working on-site. And thanks to their heroic efforts by the CMC team, no Sanofi studies have suffered any interruption of investigational product supply. Our drug supply chain staff have also worked overtime to package label and successfully ship the products to this study.

So altogether, we're in pretty good shape. There are some studies where the ability to recruit new patients has been slowed. But with few exceptions, we're on track to deliver the programs that we featured in the Capital Market Days (sic) [Capital Markets Day].

Paul, if we have time, I could hit a few of the milestones in the first quarter in terms of the pipeline's progress.

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Paul Hudson, Sanofi - CEO & Director [24]

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Yes. I think you know you might -- I think if I remember correctly, the question also include fitusiran component. Maybe you could just mention where we're at on that.

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John C. Reed, Sanofi - Executive VP and Global Head of Research & Development [25]

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Yes. So in hematology, fitusiran, we have 4 ongoing Phase III studies. Two of those are now fully enrolled. The other 2, we're very close to being enrolled. We're down to just a handful of patients. I think it's 2 for one and 8 for the others, something like that. The team have been pushing that forward. With BIVV001, we have -- the study is 85% -- moving into the Phase III is 85% recruited. We have not yet started treating patients with the investigational product. We're extending the run-in period where you establish a baseline annualized bleeding rate before starting the new therapy. Because of the COVID pandemic, we've decided to postpone that by a couple of months. We hope to be dosing patients who have already been randomized and recruited to the study by middle of the year.

And I would also say with, continuing the [theme while] on hematology, Sangamo, our complement pathway in antibody, sutimlimab, the BLA has been submitted for cold agglutinin disease or hemolytic anemia with the FDA. It's also been filed in Japan. And we also have achieved the recruitment -- we fully recruited the follow-on randomized study for that same indication. So overall, in hematology, we're progressing well.

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Paul Hudson, Sanofi - CEO & Director [26]

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Thanks, John. So we're not really expecting to miss any of our pre-stated deadlines. Where and if the situation continues and we slowed down a little, using the new tools, we expect to accelerate and catch up to be on or ahead.

I think John used the word heroic, and it is indeed that. I think between our industrial affairs group and our ongoing clinical development team, it's really quite exceptional.

Jean-Baptiste, I think there was a part of question for you which was around the unwinding in Q2 and trying to describe the 4 quarters. Do you want to make a quick comment?

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Jean-Baptiste Chasseloup de Chatillon, Sanofi - Executive VP & CFO [27]

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Yes. Florent, thank you very much. I think there's 2 aspects. First, that we have an incredible portfolio in Sanofi to navigate this crisis because we see that we have a very good response and the right mix to -- for the situation. The second one is the mindset of efficiency that is now well rooted in Sanofi and the Play to Win plan. That give us flexibility to reinvest, to accelerate growth or to modulate the way we navigate with our OpEx savings. So yes, I don't have an insight more than you what will be the context in H2. But what I'm convinced is that the teams are really in the right mindset to navigate this crisis and meet the expectations we have expressed in our guidance.

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Operator [28]

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The next question is from the line of Steve Scala from Cowen.

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Stephen Michael Scala, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [29]

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I have 2 questions. What specifically is your manufacturing capacity for KEVZARA in units? And how quickly can this be delivered should trials show benefit? So that's the first question.

And second question, Paul, superb marketing is one of your many skills. How do you assess the effectiveness of virtual marketing versus face-to-face marketing? For instance, is virtual marketing only 1/2 as likely to generate a prescription, 3/4 as likely? And how does it differ for a new product versus an existing product?

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Paul Hudson, Sanofi - CEO & Director [30]

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Okay. Thank you. Philippe? Is Philippe connected? I think we have a question around KEVZARA manufacturing. Again, I'm not quite sure how much we share. But if you're on the line, would you like to answer? Okay.

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Felix Lauscher, Sanofi - Head of IR North America & Asia [31]

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So Philippe is not on the line.

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Paul Hudson, Sanofi - CEO & Director [32]

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Okay. I apologize. So we had worked extensively, of course, providing enough treatment for the rheumatoid arthritis population and beyond. And we finished the medicine here in Europe, taking drug substance from the U.S. We stepped up as soon as we knew that this may or may not play a part. So we went -- took all our manufacturing to the maximum. Now this is the biologic, of course. So we would be in the hundreds of thousands of people that could be treated and not in the millions.

But we would be in a good position, I think, for critical patients if that is what indeed the evidence says. We'll have to wait and see what the outcomes are to see whether we have the right efficacy and then look at the type of patient and know what the needs would be, whether we can match the needs.

Your other question, is this the one, Steve, about marketing and digital marketing? There's sort of 2 aspects for it, I guess. The first one is we -- there was always an underappreciation for digital marketing, but it was basically on both sides. Remember, physicians were not always craving it, at least we thought, in that moment, too. And I think we all sort of come around to realize in this new world that the appetite for health care professionals to get information digitally has also increased exponentially.

I think we've always weighted, if that's the right word, the digital contact at a lower impact ratio to the face-to-face. I think we all believe that the ideal is a blended mixture of high touch, what we call high touch and high tech, digital and face-to-face over time, which should allow us, by the way, if these practices stick with us to be more efficient to lower the overall cost to serve a health care professional or to broaden our reach at the same cost. And I think we're optimistic about what that could mean for us delivering on our BOI objective and yet still maintaining a world-class service to those that require it from us.

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Operator [33]

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The next question from the call is from Thibault Boutherin from Morgan Stanley.

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Thibault Boutherin, Morgan Stanley, Research Division - Equity Analyst [34]

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I have a couple. First, on capital allocation and, in particular, in the Consumer Healthcare space. So we are seeing a consolidation in Consumer Healthcare, and we are seeing a streamlining of conglomerates. Would you consider acquisitions in the space, in particular, kind of mid- to large-sized acquisition? Or would you consider that this would be too disruptive in the context where you are carrying out this business and given the need you have to invest in the pharma pipeline?

Second question is on operating costs. There is an assumption that the COVID-19 situation lockdown and travel restrictions will lead to some level of cost savings across organizations. So based on what you are seeing so far, do you expect this cost saving to be material? And are there other areas where costs have had to increase due to the pandemic and that we may be overlooking? And is there any aspect of your productivity initiative that could be accelerated, delayed or eventually canceled because of COVID-19?

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Paul Hudson, Sanofi - CEO & Director [35]

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Okay. I missed the last question, Thibault. Sorry, I couldn't hear the last part of your question.

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Thibault Boutherin, Morgan Stanley, Research Division - Equity Analyst [36]

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Okay. Sorry, the last question was on -- just operating costs and basically the positive impact potential from COVID-19 as you develop down your restrictions on. And are there any potential additional costs because of COVID that we are missing?

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Paul Hudson, Sanofi - CEO & Director [37]

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Okay. All right. Got it. So maybe I'll just give you a short -- sharp answer to the Consumer Health question. You sort of asked it then answered it yourself, I think. We outlined at Capital Markets Day that we wanted to unencumber the business, make it stand-alone, put the agility back into it, let it make its own decisions and to move at a higher speed with an ambition of getting back to and then beyond industry growth rates hopefully by the end of the year.

I think our focus is really on that. And I think that takes enough energy, and we think we have enough in hand to do that and to get to a very good place. Jean-Baptiste, in terms of OpEx opportunities, savings, anything you want to add that you didn't mention earlier?

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Jean-Baptiste Chasseloup de Chatillon, Sanofi - Executive VP & CFO [38]

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Yes. I just can add some color as to what I was saying. We have, of course, some less cost because of traveling or maybe in-country because sales reps are not traveling either. But the bulk of the cost is still there. And by the way, in the first quarter, a lot of our, for instance, plane transportation was already booked without possibility to be canceled.

So -- and it was balanced by extra cost of trials, masks, reimbursements to employees to go to work, help for their children to be looked after. So there were plus and minuses, but it's not really material in the Q1. Looking forward, I think your point is very interesting because I see a lot of opportunities to boost our plan to achieve the EUR 2 billion by 2022, and that's what we are working on.

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Operator [39]

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The next question from the phone is from Geoffrey Porges from SVB Leerink.

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Geoffrey Craig Porges, SVB Leerink LLC, Research Division - Director of Therapeutics Research & Diversified Biopharma and Senior Research Analyst [40]

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A couple. First on DUPIXENT, a very strong quarter, congratulations, but perhaps a few delays in the NBRxs. So could you tell us how you're tracking to your $10 billion target -- EUR 10 billion target, given that trajectory? And then, secondly, on the R&D side, just a couple of logistics questions. Is the IL-33 still ongoing in asthma? Second, have you thought about Cablivi or, for that matter, sutimlimab in -- as a treatment for COVID, given what we're learning about the inflammatory syndrome?

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Paul Hudson, Sanofi - CEO & Director [41]

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Okay. Thank you, Geoff. So John will continue on the Cablivi, sutimlimab piece. I'll take a stab at the first part, Bill. The -- we haven't drawn a direct line from Q1 NBRx to EUR 10 billion. I think what we would say is that at EUR 776 million in the 12th quarter from launch, I think anybody would have to accept that this is an outstanding performance. And if we continue to amass, albeit at a slightly lower rate right now, but better than industry and better than almost any other medicine, NBRx, TRx are strong growth. You'll have seen the data already in April that it is also holding up.

So our EUR 10 billion aspiration is built on that, of course, and having a best-in-class profile, safety and efficacy. We're adding the data to that. As you can see in the indications, I think we have something like 89 launches of indications or in countries over the next 12 months. So very confident -- remain very confident in that ambition.

For the IL-33, I think your question is it's in the pipeline update. Of course, we've explored it in a few indications. I think as we sit here, looking at COPD, there are very few biologics or no biologics in COPD. I know the team is taking -- because it's such a heterogenous patient population, is taking a look at some subgroup data to decide when and if we push on because we can add some value. And I think if we can add some clinical value, we will, and that's in the works.

Bill, anything to add to those 2 points?

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William J. Sibold, Sanofi - EVP of Sanofi Genzyme [42]

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No. Regarding the DUPIXENT, absolutely confident in the ambition of this product.

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Paul Hudson, Sanofi - CEO & Director [43]

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Yes. Good. Well, Bill, I mean, made maybe the best statement we've heard the whole call. Thank you for that. Me, too. John, Cablivi, sutimlimab, COVID-19.

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John C. Reed, Sanofi - Executive VP and Global Head of Research & Development [44]

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Yes. Geoff, thanks for the question. The -- I think more and more there's an appreciation that there's a vascular component to the COVID story when at least it comes to patients who are experiencing the more severe forms of the pathology. Whether those agents would be the right solution, however, I think is to debated, at least what little I think the scientific community knows about it. And I've been thinking about the specific mechanisms of Cablivi and sutimlimab, Sangamo. We don't see necessarily a great fit there. So we haven't, just -- we were not planning to conduct repurposing studies at this point. I think maybe a broader question is even for the General Medicines project that we have that are antithrombotics, whether some of those might be considered in the medical management of some of these patients, given the emerging appreciation for the vascular component.

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Operator [45]

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The next question from the phone is from the line of Parekh Keyur (sic) [Keyur Parekh] from Goldman Sachs.

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Keyur Parekh, Goldman Sachs Group Inc., Research Division - Equity Analyst [46]

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Two questions, please. First, I know you guys have spoken to -- you guys have been kind of a bit conservative in talking about the flu capacity for the year. But Paul, if you could give us some magnitude of -- if the demand was there, could you do 50% more doses? Could you double your kind of number of true vaccines you sell during a normal year? Any kind of magnitude could be helpful.

And then secondly, Paul, in your opening remarks, you described the KEVZARA opportunity as a long shot. This is for COVID-19, obviously. Just wondering if that is based on any kind of early data you might have seen? Or was it just being cautious given you haven't done a full kind of Phase I for KEVZARA in this indication?

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Paul Hudson, Sanofi - CEO & Director [47]

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Thank you, Keyur. David, why don't you take another crack at flu capacity for this season?

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David Loew, Sanofi - EVP of Sanofi Pasteur [48]

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Okay. You might have missed it at the beginning, the question of Graham, it goes very much in the same direction. We do not give details on the flu capacity. What we can say is that we do have an upside on egg-based but also, of course, on Flublok. The only limiting factor on Flublok that we have to further scale it up is, short term, the fill and pack capacity. We're working on this. And then midterm, we have, of course, more capacity especially also coming from Flublok. But we are also opening up a new vaccine plant for Fluzone High-Dose next year in the United States. And that factory can produce for the whole world. But we don't give details of it for competitive reasons.

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Paul Hudson, Sanofi - CEO & Director [49]

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As for your second point, in KEVZARA, maybe it's just word choice. I mean I try to say upfront that we are working on vaccines because we think that is very much within our control. Trying medicines that have previously approved for different indications is always going to be a little bit serendipitous. I think you have to accept that. We watch, like everybody else, the emerging publications and the data and the anecdotes and the experiences. And as we already have hydroxychloroquine in the mix, I can tell you that one day we get some encouraging news, and another day we don't.

All I can say is, as a team, we try not to speculate. It's imminent, hopefully really imminent, we'll get some type of readout from our own studies and know better where we stand. I can't tell you how much we'd love to have an effect, right? And -- but I'm just pragmatic. So it's a fingers-crossed situation. And I'm sure it's for all the IL-6 manufacturers to try and work out what we can do.

But no, we are -- we're just waiting for the evidence. And then I've said earlier we'll rise to the challenge on manufacturing of both Plaquenil hydroxychloroquine and KEVZARA and see where we can get to.

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Operator [50]

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The next question is from the line of Jean-Jacques Le Fur from Bryan Garnier.

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Jean-Jacques Le Fur, Bryan Garnier & Co Ltd, Research Division - Analyst [51]

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The first one would be for Jean-Baptiste and regarding OpEx. I remember you, Jean-Baptiste, guiding us in the past for 1% OpEx decrease for this year and next year or 2. In Q1, you realized minus 2.9%, and you alluded to extra savings you may realize in the future. So is this -- are this 3% the new direction we have to take into account on a yearly basis? This is my first question.

And the second question is regarding COVID vaccine capacity. The up to $6 million as you alluded to, is it on top of your global capacity for all your Vaccines business? Or would it be detrimental to some other vaccines? And if it's on top, how do you plan to have this vaccine manufacturing with flu increasing from H2 and probably the year after?

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Paul Hudson, Sanofi - CEO & Director [52]

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Okay. Jean-Jacques, thank you very much. Jean-Baptiste, OpEx management. I think it's worth restating our philosophy on that and also that we take the opportunity where we can to invest in growth opportunities. But the fundamental underlying maturity of cost management is essential to our long-term equity story. So Jean-Baptiste, do you want to comment?

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Jean-Baptiste Chasseloup de Chatillon, Sanofi - Executive VP & CFO [53]

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Yes. Thank you, Jean-Jacques, for this question to clarify completely. Before plateauing, we had a 1% growth, plus 1% growth guidance on average for the years to come, but this has been dropped with our -- since the Capital Market Day. And we just said that we would be delivering on our EUR 2 billion savings by 2022.

So is the 2.9% that you are seeing in Q1 a trend? Not at all. As Paul has just explained, we are very happy to reinvest those savings to accelerate our growth engines behind DUPIXENT and behind vaccines each time we can. So no, it's not a trend. We will be modulating our spend, but we will be delivering on our saving to make sure we can fuel the growth and navigate any up and down of the market.

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Paul Hudson, Sanofi - CEO & Director [54]

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Thank you. David, I'll come to you. Just one observation for me as being a relative newcomer to vaccines. It's interesting how there are a lot of questions around the opportunity cost of manufacturing COVID-19 vaccines versus flu. We don't think that's the case for us. David will give you more detail.

But there are not enough questions about what I said upfront. There are 76 vaccines in development. And there's almost no capacity for those to do anything meaningful at scale, which is why it's so important where we stand in our relationship with GSK, to probably be the only company that can get there significantly.

David, do you want to comment on the opportunity cost on flu? Is it real? Is it not?

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David Loew, Sanofi - EVP of Sanofi Pasteur [55]

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Yes. Thanks, Jean-Jacques, for the question. A very good question. So it's not going to cannibalize our Flublok capacity. Why is that? We have large additional capacity that we can upscale in a very short amount of time. And we're already looking at doing that together with our partners. That's for the recombinant vaccine. So our ambition is to go from the current 100 million to 600 million doses that we have announced based on U.S. territory to go beyond the 1 billion in 12 months, including also the capacity we have with UNIGEN in Japan.

And then on the messenger RNA, in fact, Translate Bio has been working since quite some time on upscaling the production process because their first candidate is on cystic fibrosis, which is inhaled, and you need larger amounts of messenger RNA on the cystic fibrosis candidate. Therefore, for the vaccine candidate, they are already producing at 100-gram batches now. We are moving to 250-gram batches. And it is assumed that towards the end of the year, beginning of the year, we go to kilogram batches. And that would allow us to significantly upscale to hundreds of millions of doses.

So we are confident that we will be able to deliver on large scale. We are, of course, adding filling and packaging capacity as we speak in our internal network but also investigating possibilities with CMOs.

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Paul Hudson, Sanofi - CEO & Director [56]

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Thank you, David. Appreciate it. Okay, maybe the last couple of questions?

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Operator [57]

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The next question from the phone is from the line of Seamus Fernandez from Guggenheim Securities.

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Seamus Christopher Fernandez, Guggenheim Securities, LLC, Research Division - Senior Analyst of Global Pharmaceuticals [58]

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So just hoping that, on the vaccine side, you could help us understand a little bit of what the science is suggesting in terms of the durability of immunity. And then just in terms of the efficacy dynamics, whether we should be thinking more that the traditional vaccine versus the MR approach is likely to be meaningfully different?

And then the second is really on the BTK. One is a housekeeping question. If possible, could you share the lesion count data, which I think was a secondary endpoint? I'm not sure if that was shared. And then, Paul, just finally, if you could just update us on your business development priorities in terms of the size of transaction that you see and just how you are thinking about the current environment? Is it more or less challenging or about the same?

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Paul Hudson, Sanofi - CEO & Director [59]

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Okay. Thank you. Well, finishing strongly there, Seamus, with a number of questions. So David, maybe you can do the first 2. John, feel free to add if you'd like to, but aspects on durability of immunity and then likely winner between traditional approach and mRNA.

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David Loew, Sanofi - EVP of Sanofi Pasteur [60]

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So thanks for the question. It's really a very complex question to answer right now because we are just at the beginning of it. Having said that, I think what we can say is on the recombinant platform, the baculovirus platform, what we do know is on Flublok, of course, which is a registered vaccine based on this platform, we have seen very good durability. So we hope, obviously, that this is going to be the case also for the COVID candidate.

On messenger RNA, there are first candidates that have been developed by Moderna on CMV. The durability also looks good. But of course, we have to be careful on messenger RNA. There is no commercialized vaccine, so far, based on the platform. The platform is clearly very promising, there is no doubt. We have also, as I announced before, the collaboration with Translate Bio. But we just need to be -- stay humble and we need to see Phase III data. And the same applies to the efficacy, so it's too early to tell.

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Paul Hudson, Sanofi - CEO & Director [61]

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Thanks, David. As for your second part of your question, the BTKi lesion counts, haven't shared that data yet. We will do in the future. There'll be quite a lot of news flow as we go through the next congress, et cetera, whatever form they're in on that. What I can say, however, is I like the enthusiasm of the question. We talked about it a little bit yesterday and a little bit in the opening today, but we really do think we're going to have best in disease. And all of those things, including lesion count, will become important. 4,000 patients in Phase III studies. I think you get to see how seriously we intend to go after this.

As with BD priorities, we are, as you would imagine, active in many fronts. Whilst it is challenging times from a pandemic, it doesn't change our strategic interest in a number of opportunities. We'd like to think of adding some cool science to augment or amplify existing pipeline assets on this call, as recently as yesterday, about this. So we'll continue to try and make progress and deliver that.

You asked me sort of my own level of prioritization, it is more focused on adding to the science and earlier in discovery and development than later. I think we have enough to navigate the next few years and to manage our commitments through 2025 and then some. So really building out the pipeline earlier is going to be an area of priority. It's not a surprise, but it's just the truth of it.

Maybe last question, Felix, if you feel we have time. If not, feel free to stop me there.

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Felix Lauscher, Sanofi - Head of IR North America & Asia [62]

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Yes. Yes. Unfortunately, we are approaching the full hour. We know we have a lot of questions still on the line. But operator, last question, please.

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Operator [63]

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The last question from the phone is from the line of Wimal Kapadia from Bernstein.

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Wimal Kapadia, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [64]

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So Wimal Kapadia from Bernstein. So just a couple for David, please? So just on the COVID-19 vaccines, I just wanted to get your thoughts on which approach do you think would actually deliver more durable antibody response, either recombinant or mRNA? And then tied to this, speaking with experts, it seems like optimizing mRNA vaccines is a bit of a trial and error. So how are Sanofi and Translate actually approaching this optimization? And are you taking a little bit more time than some of your peers for a reason?

And then my second question is just on the travel vaccines. So down 20% in 1Q. So just wondering when did you actually start to see the main impact from COVID-19? Just want to get a sense of decline you could expect in 2Q and beyond. So any color you could provide there. And what's incorporated into your guidance for travel? And then just -- and similarly for adult boosters, the same type of commentary will be great.

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Paul Hudson, Sanofi - CEO & Director [65]

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So David, it looks like we're going to be asking you to bring us home on these questions. First of all, on durability, again, if you have the -- if you want to recap that. But the mRNA optimizing is an interesting one, particularly when you look with the experience in the companies that have it and what the opportunity could be for us as a standout even if later.

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David Loew, Sanofi - EVP of Sanofi Pasteur [66]

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Yes. Thanks, Wimal. On the optimizing being a trial and error, of course, as I said before, messenger RNA is still a young technology in vaccines. So I think there is, like in all research, a little bit of a trial and error in there. Messenger RNA itself is not the whole recipe, you also need the lipid nanoparticles. That's something that we're trying to optimize as we speak. So yes, we're taking a little bit of time to do that.

Regarding the travel vaccines, clearly, the Q1 -- the impact was relatively soft. Because you remember that, really, travel restrictions started to hit, I would say, kind of second week of March. So clearly, Q2 is going to be lower than Q3. Now we all don't have a crystal ball when travel is going to start picking up again, so that's a bit hard to say. But our assumption is that the upside we see on flu is probably going to compensate for the downside that we have on travel and potentially on boosters because people see their doctors less.

If the consignment measures are being kind of lower than people can come back and go and see their doctors again, then travel and boosters are going to start normalize very quickly. And there might, for boosters, certainly, be a catch-up opportunity as well, like we see already for pediatrics, where there's a lot of catch-up ongoing already in China after they're opening up again.

So that's where we are. So we still stick to our guidance of mid- to high single-digit growth.

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Paul Hudson, Sanofi - CEO & Director [67]

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Okay. Thank you. Thank you. If we have a last question, if it's a yes or no answer, we're happy to take it, if it's a short one. Felix?

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Operator [68]

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Yes. The next question is from Dominic Lam from Crédit Suisse.

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Jo Walton, Crédit Suisse AG, Research Division - MD [69]

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It's actually Jo Walton. And it's a broader question, which you might like to finish with.

I'm just thinking of the legacy of this coronavirus. Do you think -- and given the fact that you've got an unusual geographic mix, you've got much more exposure to emerging markets and rest of world than some of the other companies. Do you think, as we exit -- as we go through next year, we're going to see -- we should be thinking of governments with less money having to be more restrictive and more price pressures rather like we had after the financial crisis in post 2008, 2009? Or do we think of health care as the new military spending and everybody actually wanting to spend more on health care and you benefiting?

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Paul Hudson, Sanofi - CEO & Director [70]

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Well, thanks, Jo. What a great question to finish on in comparison to military spending. I can only give you a view at this point. Clearly, none of us have a crystal ball on that. What I can tell you is that sentiment towards the company, at least, and perhaps even the industry has changed a little in terms of people coming to us, relying on us quite heavily in terms of trying to find solutions to repurpose medicines, to accelerate vaccines. So I think -- and I think how we've responded has been a good moment to show that we are trying to do the right thing.

We are purpose-driven, and we do want to collaborate. So I think some good will come out of that. How that sustains us, given what for many countries will be some of the most difficult economic circumstances they've ever faced, we will see. I think we stand up for by the value we deliver of our medicines. And I think I tried to touch on it earlier, but our portfolio is a good mix of resiliency and innovation, which we think is going to play a disproportionately positive role in returning life to normal. We think that we'll still be rewarded, so we're confident in our longer-term guidance.

With that, thank you to everybody. We confirm we're on track for 2020. We've been as transparent as we can be about the upsides we've had from COVID-19. Our underlying cost management and our delivery of both vaccines and indeed of DUPIXENT continues to impress. I think our mix is right. And our people are showing themselves in a way that I've never had to actually see before in terms of commitment, energy, entrepreneurship and tenacity. And we're going to make sure that we keep a lot of that to keep moving and doing good things for patients and for those that invest in us.

So thanks to all the team, and thanks to everybody that dialed in. And with that, Felix, we'll bring it to a conclusion.

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Felix Lauscher, Sanofi - Head of IR North America & Asia [71]

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Thank you very much, everyone. Please don't hesitate to contact the IR team for further questions. Thank you. Operator, that concludes the call.

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Operator [72]

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