Sanofi(US:SNY)2024-02-23 16:15PART I Key Information This section outlines Sanofi's key risks, including product liability, regulatory pricing, R&D challenges, and operational and financial market risks Risk Factors Sanofi faces significant risks from product liability, regulatory compliance, market competition, R&D pipeline, and financial market fluctuations - Product liability is a significant risk, with ongoing claims for products such as TAXOTERE, ZANTAC, DEPAKINE, and GOLD BOND. The company acknowledges that defending these claims is costly and may harm its reputation, regardless of the outcome3132 - The company faces increasing pricing and reimbursement pressure globally. In the US, the Inflation Reduction Act (IRA) is expected to negatively impact revenue, with DUPIXENT potentially subject to negotiation not before 2031. In China, national reimbursement drug list (NRDL) negotiations and volume-based procurement (VBP) tenders are intensifying pricing pressure6770 - Sanofi's financial performance is substantially dependent on certain flagship products. DUPIXENT is the largest product, generating 24.9% of net sales in 2023. Several other key products, including LANTUS, LOVENOX, and AUBAGIO, face significant generic competition, which led to a €651 million loss in net sales in 2023 compared to 2022939496 - The company relies on third-party collaborations for key aspects of its business, such as the global strategic collaboration with Regeneron for the development and commercialization of DUPIXENT and KEVZARA9899 - Sanofi is exposed to customer credit risk, particularly in the US where its three main customers represented 11%, 9%, and 7% of consolidated net sales in 2023104 - As part of its strategy, Sanofi plans to separate its Consumer Healthcare (CHC) business, likely via a publicly listed entity in France, with the earliest possible timing in Q4 2024. This is intended to increase focus on innovative medicines and vaccines127164 - The company is exposed to currency exchange rate fluctuations, particularly between the euro and the US dollar, as 43.0% of its 2023 net sales were generated in the United States137 - As of December 31, 2023, L'Oréal is the largest shareholder, holding approximately 9.35% of the share capital and 16.77% of the voting rights141 Information on the Company This section details Sanofi's corporate history, business strategy, product portfolio, R&D pipeline, and operational infrastructure History and Development of the Company Sanofi, a French société anonyme incorporated in 1994, has undergone significant transformation through strategic acquisitions and divestitures - Sanofi actively shaped its portfolio through strategic transactions, acquiring Kymab and Translate Bio in 2021, Amunix in 2022, and Provention Bio and QUNOL in 2023, while spinning off EUROAPI in 2022150151153 Business Overview Sanofi's business is structured into Biopharma and Consumer Healthcare, driven by its 'Play to Win' strategy and planned CHC separation - Sanofi's "Play to Win strategy" is built on four key priorities: focusing on growth (led by DUPIXENT and Vaccines), leading with innovation, accelerating efficiency, and reinventing how the company works159 - The company intends to separate its Consumer Healthcare (CHC) business to create two distinct entities, with the separation potentially occurring as early as Q4 2024 through a capital markets transaction, creating a listed entity in France164286 - DUPIXENT is a key growth driver, approved for multiple indications including atopic dermatitis, asthma, and eosinophilic esophagitis across various age groups in major markets like the US, EU, Japan, and China170 - The R&D pipeline features 12 new molecular entities, including three 'pipeline-in-a-product' assets: amlitelimab, frexalimab, and an oral TNFR1 signaling inhibitor, aimed at addressing unmet needs in immunology and inflammation290295 - Sanofi is the seventh largest pharmaceutical company globally by sales. Its main markets are the United States (ranked 9th with 3.9% market share), Europe (ranked 3rd in Germany, 4th in France), and other countries including China (ranked 9th) and Japan (ranked 16th)358361 - The company faces significant competition from generics and biosimilars, parallel trading (especially in the EU), and illegal falsified drugs362363364 - Sanofi operates 54 industrial production sites across 24 countries, with a general policy of producing key active ingredients and main drug products in-house to reduce dependence on external suppliers440494 - The company has a sustainability strategy, Planet Care, aiming to reduce carbon emissions (scopes 1 & 2) by 55% by 2030 (vs. 2019), achieve carbon neutrality by 2030, and reach net-zero by 2045475476 Organizational Structure Sanofi is a holding company for a consolidated group of nearly 260 companies, organized into Biopharma and Consumer Healthcare, with centralized financing - Sanofi is a holding company for a group of almost 260 companies, with significant subsidiaries including Genzyme Corporation (US), Hoechst GmbH (Germany), and Sanofi Pasteur Inc. (US)480481 - The group is organized around two main activities: Biopharma (comprising General Medicines, Specialty Care, and Vaccines) and Consumer Healthcare483 - The Sanofi parent company centralizes the group's financing, operating a cash pooling arrangement and managing foreign exchange risk for its principal subsidiaries. As of year-end 2023, the parent company held 91% of external financing and 75% of surplus cash485486 Property, Plant and Equipment Sanofi operates a global network of research, production, and logistics facilities, with €10,160 million in property, plant, and equipment and ongoing investments - As of December 31, 2023, the carrying amount of Sanofi's property, plant, and equipment was €10,160 million. The company invested €1,693 million in 2023, primarily to increase capacity and productivity495 - The company operates 54 industrial production sites in 24 countries, categorized into Specialty Care (8 sites), General Medicines (22 sites), Vaccines (10 sites), and CHC (13 sites)494 - Major investments are underway in the Vaccines business to prepare for growth in influenza, Polio/Pertussis/Hib franchises, and the mRNA pipeline, with new facilities being built in France (Neuville-Sur-Saone, Val-de-Reuil), Singapore, Canada, the US, and Mexico502 Operating and Financial Review and Prospects This section analyzes Sanofi's 2023 financial performance, detailing net sales, income, liquidity, and capital resources Operating Results Sanofi's 2023 operating results show €43,070 million net sales (+5.3% CER) driven by DUPIXENT and Vaccines, with net income at €5,400 million Financial Metric | Financial Metric | 2023 | 2022 | Change (Reported) | Change (CER) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | €43,070M | €42,997M | +0.2% | +5.3% | | Net Income | €5,400M | €8,371M | -35.5% | N/A | | Business Net Income | €10,155M | €10,341M | -1.8% | N/A | | Basic EPS | €4.31 | €6.69 | -35.6% | N/A | | Business EPS | €8.11 | €8.26 | -1.8% | N/A | - Key strategic events in 2023 included the acquisition of Provention Bio for TZIELD, a type 1 diabetes therapy, for approximately $2.8 billion, and the acquisition of QUNOL, a health & wellness brand, for $1.4 billion to strengthen the CHC business516521 - Sanofi announced its intention to separate its Consumer Healthcare (CHC) business, with the earliest potential timing in Q4 2024, to increase focus on its Biopharma business525 Product Sales | Product | 2023 Net Sales (€M) | Change at CER | | :--- | :--- | :--- | | DUPIXENT | 10,715 | +34.0% | | AUBAGIO | 955 | -52.6% | | LANTUS | 1,420 | -32.3% | | BEYFORTUS (Launch) | 547 | N/A | - Generic and biosimilar competition resulted in a €651 million loss in net sales in 2023 compared to 2022, primarily affecting LANTUS in the US and Europe, and AUBAGIO in the US532534 - The Biopharma segment's net sales grew 5.1% at CER to €37,890 million, while the Consumer Healthcare segment's sales grew 6.3% at CER to €5,180 million630633 Liquidity and Capital Resources Sanofi maintains a strong liquidity position, primarily funded by operating cash flows, with €7,793 million net debt and €8 billion in undrawn credit facilities Financial Metrics | Metric | Dec 31, 2023 (€M) | Dec 31, 2022 (€M) | | :--- | :--- | :--- | | Net Debt | 7,793 | 6,437 | | Total Equity | 74,353 | 75,152 | | Gearing Ratio | 10.5% | 8.6% | | Cash and Cash Equivalents | 8,710 | 12,736 | Cash Flow Statement | Cash Flow Statement Item (€M) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | 10,258 | 10,526 | | Net cash from investing activities | (6,200) | (2,075) | | Net cash from financing activities | (8,052) | (5,821) | | Free cash flow (non-IFRS) | 8,478 | 8,483 | - The increase in net debt in 2023 was primarily driven by cash outflows for the acquisitions of Provention Bio and QRIB (€3,915 million) and dividend payments (€4,454 million), partially offset by free cash flow generation709 - As of December 31, 2023, Sanofi had €8 billion of undrawn confirmed credit facilities, providing significant financial flexibility720 Directors, Senior Management and Employees This section details Sanofi's governance structure, compensation policies, and employee information, including Board composition and global workforce data Directors and Senior Management Sanofi's governance separates Chairman and CEO roles, with a 16-member Board (79% independent) and a 12-member Executive Committee - Sanofi separates the offices of Chairman (Frédéric Oudéa) and Chief Executive Officer (Paul Hudson), a governance structure the Board believes is appropriate for the company735 - As of December 31, 2023, the Board of Directors has 16 members, with 11 deemed independent (79% of non-employee directors), 43% women (excluding employee representatives), and 50% non-French nationals748749779 - The Executive Committee, led by CEO Paul Hudson, consists of 12 members as of February 22, 2024, with four new members joining in 2023 and early 2024845846 Compensation Sanofi's compensation policy for corporate officers is performance-based, with CEO Paul Hudson's 2023 compensation detailed, and includes a clawback policy - The CEO's compensation is benchmarked against a peer group of 12 global pharmaceutical companies, including AstraZeneca, Pfizer, and Novartis. Paul Hudson's overall compensation is in the low range of the second quartile of this peer group915 Officer Compensation | Officer | 2023 Awarded Compensation (€) | | :--- | :--- | | Paul Hudson (CEO) | 3,792,797 (Fixed + Variable) | | Paul Hudson (CEO) | 6,779,025 (Valuation of Performance Shares) | | Frédéric Oudéa (Chairman) | 528,505 (Pro-rated for service from May 25, 2023) | | Serge Weinberg (Former Chairman) | 324,964 (Pro-rated for service until May 25, 2023) | - For 2023, CEO Paul Hudson's annual variable compensation was set at €2,379,300, representing 169.9% of his fixed compensation, based on the achievement of financial and individual objectives1016 - The CEO's equity-based compensation is entirely in performance shares, with vesting over three years contingent on internal criteria (Business EPS, FCF, R&D pipeline, CSR) and an external criterion (Total Shareholder Return relative to peers)925972 - Sanofi adopted a clawback policy in October 2023, allowing the recovery of erroneously awarded variable compensation from executive officers in case of an accounting restatement959 Board Practices Sanofi's Board practices, governed by French law and AFEP-MEDEF Code, include regular meetings, support from five specialist committees, and annual performance evaluations - The Board of Directors is assisted by five specialist committees: Audit, Appointments, Governance and CSR, Compensation, Strategy, and Scientific1067 - In 2023, the Board of Directors met 11 times, achieving an overall attendance rate of 97%. Key activities included reviewing financial statements, overseeing the 'Play to Win' strategy, approving the proposed separation of the Consumer Healthcare business, and determining executive compensation10611065 - The Board conducts an annual evaluation of its operating procedures and a formal evaluation with an independent consultant at least every three years. It also holds at least two executive sessions annually without the CEO to evaluate performance and discuss succession9921064 Employees As of December 31, 2023, Sanofi employed 86,088 people globally, with the workforce primarily in Europe and Production as the largest function Employees by Region | Region | 2023 Employees | % of Total | | :--- | :--- | :--- | | Europe | 42,115 | 48.9% | | United States | 13,418 | 15.6% | | Rest of the World | 30,555 | 35.5% | | Total | 86,088 | 100.0% | Employees by Function | Function | 2023 Employees | | :--- | :--- | | Sales Force | 16,835 | | Research and Development | 11,660 | | Production | 34,313 | | Marketing and Support Functions | 23,280 | | Total | 86,088 | - As of December 31, 2023, employees held 2.58% of Sanofi's share capital through collective savings schemes or direct ownership1107 Major Shareholders and Related Party Transactions This section details Sanofi's ownership structure, identifying major shareholders like L'Oréal and BlackRock, and explains the double voting rights for registered shares Shareholder Information | Shareholder | % of Share Capital | % of Actual Voting Rights | | :--- | :--- | :--- | | L'Oréal | 9.35% | 16.81% | | BlackRock, Inc. | 6.85% | 6.15% | | Employees | 2.56% | 4.53% | | Public | 79.96% | 72.51% | | Treasury Shares | 1.28% | 0.00% | - Sanofi's Articles of Association grant double voting rights for shares held in registered form for a minimum of two years1131 Financial Information This section covers Sanofi's dividend policy, proposing €3.76 per share for 2023, and details significant legal proceedings and other financial disclosures - A dividend of €3.76 per share for the 2023 fiscal year will be proposed at the annual shareholders' meeting, representing a 46.3% payout of business net income11411142 - Sanofi is involved in numerous legal proceedings, including product liability litigation for TAXOTERE (approx. 6,770 plaintiffs), ZANTAC (approx. 26,984 plaintiffs), and DEPAKINE (multiple civil and criminal cases in France)189018981909 - The company is engaged in patent litigation, including a case with Amgen regarding PRALUENT in Europe and a concluded case with Sandoz over JEVTANA in the US19331934 - In January 2024, Sanofi announced an agreement to acquire Inhibrx, Inc. for approximately $1.7 billion upfront to gain access to INBRX-101, a therapy for Alpha-1 Antitrypsin Deficiency (AATD)1161 Additional Information This section details Sanofi's corporate structure, articles of association, and tax implications for shareholders, including withholding tax and financial transaction tax - Sanofi is a société anonyme, a form of limited liability company organized under the laws of France1169 - Under French law, dividends paid to non-residents are generally subject to withholding tax (12.8% for individuals, 25% for legal persons). Under the US-France tax treaty, this rate can be reduced to 15% for eligible US holders, who can claim a refund for any excess amount withheld12161217 - Purchases of Sanofi securities are subject to a 0.3% French tax on financial transactions (FTFF) as the company's market capitalization exceeds the €1 billion threshold1210 Quantitative and Qualitative Disclosures about Market Risk Sanofi centrally manages market risks, including liquidity, foreign exchange, and interest rate, using derivatives to hedge exposures and maintain financial flexibility - Sanofi centrally manages liquidity, foreign exchange, and interest rate risks, using derivative instruments to hedge exposures. The company's policy prohibits speculative use of derivatives12371238 - The company has significant operating foreign exchange risk, as 43.0% of 2023 net sales were in US dollars. It uses forward currency contracts and swaps to hedge this exposure1244 - To ensure liquidity, Sanofi maintains €8 billion of undrawn general corporate purpose credit facilities and diversifies short-term investments in money-market products. The average maturity of total debt was 4.45 years as of December 31, 2023125612571258 PART II Controls and Procedures This section confirms the effectiveness of Sanofi's disclosure controls and internal control over financial reporting as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report1283 - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 202312781280 - The 2023 acquisition of Qunol was excluded from the scope of management's assessment of internal controls, as it represented less than 1% of total assets and net sales1279 Other Information This section covers Sanofi's governance and compliance, including Audit Committee financial experts, NASDAQ listing differences, and cybersecurity risk management Audit Committee Financial Expert The Board of Directors has determined that all Audit Committee members are independent financial experts under the Sarbanes-Oxley Act - All four members of the Audit Committee have been determined by the Board of Directors to be independent financial experts under the Sarbanes-Oxley Act1285 Purchases of Equity Securities by the Issuer and Affiliated Purchasers In 2023, Sanofi repurchased 6,584,744 ordinary shares under publicly announced plans authorized by shareholder meetings Shares Purchased | Period | Total Shares Purchased | Average Price Paid per Share (€) | | :--- | :--- | :--- | | January 2023 | 4,000,204 | 90.60 | | December 2023 | 2,584,540 | 88.69 | | Total | 6,584,744 | N/A | Corporate Governance As a French company listed on Euronext Paris and NASDAQ, Sanofi follows home country governance practices, differing from certain NASDAQ rules - Sanofi follows its home country (French) corporate governance practices, which differ from certain NASDAQ listing rules for US domestic companies1302 - Key differences from NASDAQ rules include: board committees are advisory only, with final decisions made by the full Board; and shareholder approval for equity issuances is typically granted via a general delegation of authority to the Board rather than on a plan-by-plan basis13061307 Cybersecurity Sanofi implements a comprehensive cybersecurity strategy, overseen by a CISO, focusing on threat prevention, detection, and response - Sanofi has a cybersecurity strategy and processes to manage threats, covering areas such as access control, patch management, network security, secure development, and third-party management1314 - A cybersecurity operation center is in place to detect and respond to threats, and regular incident response simulations are conducted1317 - Governance is led by a Chief Information Security Officer (CISO) who reports to the Chief Digital Officer (an Executive Committee member). The CISO provides regular updates to the group Risk Committee, Audit Committee, and Executive Committee13211322 PART III Financial Statements This section presents Sanofi's complete audited consolidated financial statements for 2023, 2022, and 2021, prepared under IFRS Consolidated Balance Sheet | Consolidated Balance Sheet (€M) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | 126,464 | 126,722 | | Goodwill | 49,404 | 49,892 | | Other intangible assets | 24,319 | 21,640 | | Cash and cash equivalents | 8,710 | 12,736 | | Total Equity and Liabilities | 126,464 | 126,722 | | Total Equity | 74,353 | 75,152 | | Long-term debt | 14,347 | 14,857 | Consolidated Income Statement | Consolidated Income Statement (€M) | 2023 | 2022 | | :--- | :--- | :--- | | Net sales | 43,070 | 42,997 | | Gross profit | 32,208 | 31,694 | | R&D expenses | (6,728) | (6,706) | | Selling and general expenses | (10,692) | (10,492) | | Operating income | 7,875 | 10,656 | | Net income attributable to equity holders | 5,400 | 8,371 | Consolidated Statement of Cash Flows | Consolidated Statement of Cash Flows (€M) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 10,258 | 10,526 | | Net cash used in investing activities | (6,200) | (2,075) | | Net cash used in financing activities | (8,052) | (5,821) | | Net change in cash and cash equivalents | (4,026) | 2,638 |