China – A Healthcare Market with Sustainable Growth?
Shanghai - March 14, 2012
Hanspeter SpekPresident
Global Operations
22
Forward Looking Statements
This presentation contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are statements that are not historical facts. These statements include projections and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates", "plans" and similar expressions. Although Sanofi's management believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of Sanofi, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include among other things, the uncertainties inherent in research and development, future clinical data and analysis, including post marketing, decisions by regulatory authorities, such as the FDA or the EMA, regarding whether and when to approve any drug, device or biological application that may be filed for any such product candidates as well as their decisions regarding labeling and other matters that could affect the availability or commercial potential of such product candidates, the absence of guarantee that the product candidates if approved will be commercially successful, the future approval and commercial success of therapeutic alternatives, the Group's ability to benefit from external growth opportunities, trends in exchange rates and prevailing interest rates, the impact of cost containment policies and subsequent changes thereto, the average number of shares outstanding as well as those discussed or identified in the public filings with the SEC and the AMF made by Sanofi, including those listed under "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" in Sanofi's annual report on Form 20-F for the year ended December 31, 2011. Other than as required by applicable law, Sanofi does not undertake any obligation to update or revise any forward-looking information or statements.
3
Agenda
Sanofi - Presence in China
Outlook on the HC Market in China
Strategy for Sustainable Growth in China
4
Executing Successful Strategy to Reposition Sanofi
Deliver sustainable growth
and generate improved
shareholder returns
4
Adapt structure for future challenges and opportunities3
Pursue external growth opportunities2
Increase innovation in R&D1
4 Concentrate on Growth Platforms
4
5
Sanofi Grew Sales in 2011 due to Genzyme Acquisition and Growth Platforms
2011
33,389m
2010
32,367m
2009
29,306m
2008
27,568m
Sales in EUR
+5.3% at CER
5(1) In 2008 and 2009, Merial Joint Venture sales were not consolidated by Sanofi(2) In 2010, excluding non-consolidated sales from Merial, Sanofi reported sales of €30,384m
(1) (1) (2)
2009 201120102008
% of Total
42.7% 65.0%
Sales of Growth Platforms(1) & Genzyme in EUR
Sanofi Boosted Sales of its Growth Platforms and Significantly Reduced its Patent Cliff Exposure in 2011
(1) 2010 include sales of Merial. In 2008 and 2009, Merial Joint Venture sales were not consolidated by Sanofi(2) Lovenox® U.S., Plavix® Western EU, Taxotere® Western EU & U.S., Eloxatin® U.S., Ambien CR® U.S., Allegra® U.S., Aprovel® Western EU,
Xyzal® U.S., Xatral® U.S., Nasacort® U.S.; Eloxatin® U.S. market exclusivity expected through August 9, 2012.
20112009 20102008
6
% of Total
27.4% 9.4%
Sales of Key Genericized Products in EUR(2)
21,703m
11,783m
3,152m
7,565m
77
20112008
3,071m
Diabetes Solutions
20112008
6,540m
Emerging Markets(1)
20112008
2,861m
HumanVaccines
20112008
1,203m
Consumer Health Care
20112008
Animal Health(2)
20112008
Innovative Products(3)
1,786m
Growth Platforms Are on Track to Deliver Sustainable Growth Beyond the Patent Cliff
(1) Including EUR347m from Genzyme in 2011(2) Merial Joint Venture sales were not consolidated by Sanofi in 2008(3) Multaq® and Jevtana®
10,133m
4,684m 3,469m
2,666m 2,030m
449m
CAGR +15.7%
CAGR +15.1%
CAGR +6.6%
CAGR +30.4%
CAGR +4.4%
Sales in EUR
8
Greater China: Growing Contributor to Sanofi’s Leadership Position in Emerging Markets
2008
6.540m
8%
2007
6.280m
7% 9% 10%
10.133m
12%
2009 2010
9.075m
7.356m
2011
CAGR13%
Sanofi Sales in Emerging Markets (in EUR)
Greater China(1)
Other Emerging Countries
(1) Greater China: Mainland China, Hong Kong, Taiwan
699m
512m
374m
273m
9
Sanofi achieved Annual Sales in China of ~€1bn in 2011
200920082007 20112010
981m
CAGR38%
Total Sanofi Sales in China(1) (in EUR)
(1) Mainland China
10
Sanofi Is Progressively Developing its Key Growth Platforms in China
12%
4%
Animal Health
Vaccines
12%
Pharmaceuticals
63% CHC9%
Diabetes
Breakdown of Sales in China(1) by Business
Total Sales EUR 981m
10
Vaccines
Pharmaceuticals
72%Diabetes
22%6%
2007 2011
Total Sales EUR 273m
(1) Mainland China
11
Sanofi: Well Established in Greater China with a Fully Integrated Presence
●
Present since 1982
●
11 regional offices with ~7,000 employees in Greater China
●
Of which >4,000 sales force
●
Network of 6 manufacturing sites
●
Newly established CHC platform
●
Vaccines with local production
●
Animal Health with local production
●
Integration of Genzyme
●
Regional R&D platform
Shanghai HQ
Hong Kong
Taipei
Tianjin
Hangzhou
Beijing
Shenyang
Guangzhou
Wuhan
Chengdu
Wulumuqi
Nanjing
Shenzhen
Sanofi’s Presence in China
Regional officesManufacturing site Pharmaceuticals
Greater China offices
Tangshan
Manufacturing site Consumer Healthcare
Manufacturing site Animal Health (Merial)
Manufacturing site Vaccines
Nanchang
Jinan
12
PFIZER
ASTRAZENECA
BAYER
JS. YANGZIJIANG FTY
ROCHE
KE LUN
SHANDONG QILU FTY
JS.L.Y.G. HENGRUI
HLJ. HAERBIN PHARM.
12
2010 December 2011(2)2009
Sanofi Has Grown Faster than its Peers in China and Ranked #2 in December 2011(1)
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
PFIZER
ASTRAZENECA
BAYER
KE LUN
ROCHE
JS. YANGZIJIANG FTY
SHANDONG QILU FTY
JS.L.Y.G. HENGRUI
MSD
PFIZER
ASTRAZENECA
BAYER
JS. YANGZIJIANG FTY
KE LUN
ROCHE
SHANDONG QILU FTY
JS.L.Y.G. HENGRUI
NOVARTIS
(1) Ranked by sales value in LC RMB; IMS consulting group, 2011(2) IMS December 2011
Portfolio to immunize pediatric and adult population in China
A broad offering with a strategic focus on Avian
A leading MNC(2) player in the OTC market through strategic acquisitions & Joint Venture
Addressing disease burden of 90m people with diabetes
13
The #1 brand in the ARB class by volume and value(1)
Branded oncology portfolio covers top cancer types in China
The #1 Pharmaceutical product in China
13
HumanVaccines
Consumer Health Care
Animal Health
A Broad Portfolio of Flagship Brands Across our Growth Platforms that Fits the Local Needs in China
DiabetesSolutions
(1) IMS December 2011; ARB – Angiotensin Receptor Blockers(2) MNC = Multi National Company
14
Agenda
Sanofi - Presence in China
Outlook on the HC Market in China
Strategy for Sustainable Growth in China
15
China: Main Macro Economic Indicators Point Toward Continued and Superior Growth
Population in 2011(1) 1.34bn
Estimated Real GDP Growth 2011-2016(2)
Healthcare Expenditures as % of GDP(3)
Middle-class and Affluent Population in 2015(4)
Estimated Pharma Market Growth 2010-2015(5)
7-8%
4.5-5%
52%
5.7
(1) China 2010 population census(2) IMF World Economic Outlook, September 2011(3) WHO 2011, Global Health Expenditure Database; country data 2009(4) Annual house hold income > US$10,000; BCG and internal analysis(5) IMS consulting China 2015 study (Sept 2011)
>8%
5%
52%
17.3%
16
(1) Health care expenditure reflects the total expenditure on medical and health care services, which includes government expenditure, social expenditure and individual cash expenditure. –
(2) WHO 2011: ‘Total expenditure on health as % of Gross National Product’ (GDP): U.S. = 15.8%; Germany = 10.5%; Brazil = 8.4% (3) Source: China National Bureau of Statistics, Ministry of Finance
The 2009 - 2011 Healthcare Reform Has Led to a Significant Increase in Healthcare Investment
Health Care Expenditure(1, 2, 3)
HC expenditure as % of GDP
Significant Incremental Healthcare Investment(3)
Original plan
866503
320
0
2
4
6
8
10
12
14
162,000
1,500
1,000
500
0 2009
5.1%
2005
4.7%
2001
4.6%
1997
4.1%
RMB bn
850 RMB bn
Updated report 1,134 RMB bn
Investment into county healthcare system, both infrastructure and
insurance
1,720
2009-2011:
8.4%
10.5%
15.8%
5.1%
17
Key Health Care
Reform Activities
(1) NDRL = National Reimbursement Drug List; PRDL = Provincial Reimbursement Drug List
The 2009 - 2011 Healthcare Reform Has Resulted in Opportunities as well as Challenges
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Expansion of basic medical insurance coverage
●
Improving medical infrastructure vs. rural
●
Providing better access to basic healthcare services
●
Price erosion for NRDL/PRDL(1)
listed products
●
Implementation of payment reform by the government
ChallengesOpportunities
1. Urban Basic Medical Insurance ; 2. Urban Citizen Medical System; 3. Rural Citizen Medical SystemNote: 1 US$ = 6.8 RMBSource: MOH; China infobank; Literature research; BCG analysis (2011)
2008 2011 2015E
815m 821m 822m
14 29 49
Covered population
Premium per capita (US$)
2008 2011 2015E
200m 243m 315m
208 282 489
2008 2011 2015E
117m 257m 297m
18 44 79
Total fund size is expected to increase sharply over the next years
US$bn
Government Aims To Broaden and Deepen Public Healthcare Insurance Coverage
18
UBMI(1) UCMS(2) RCMS(3)
2
11
24
12
24
40
4269
154
+77%
+108% +65%
+28%
+124%
+18%
Price Regulation Impact Varies between Product Categories
19
EDL products
Off-patent RDL products (Non-EDL)
Patented products
●
Premium eliminated for MNC drugs
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NEDL likely to be expanded and expected to include ~500 additional drugs and 50-80% price reduction estimated for MNC drugs impacted
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Pending negotiating mechanism may pose pressure on high-price patented products
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Current premium of off-patent originator products (non-EDL) may be reduced over next 2-5 years
MNC(1) drug category Price adjustment
Source: BCG (2011); Internal analysis
(1) MNC = Multi National Company(2) EDL = Essential Drug List; RDL = Reimbursement Drug List
Healthcareinstitution type
MNC drugcategory
City Hospitals
County Hospitals
Community Healthcare Center/Township Health
Center
EDLOff-patentRDL, non-EDL
Patented
Market Segmentation to Address Price Regulation
Current MNC portfolio
Shifting portfolio focus to
innovative drugs
Expanding coverage for
mature products
Monitoring EDL/BHS(2) policy
evolution & implementation
1
2
3
20Source: BCG (2011); Internal analysis
(1) MNC = Multi National Company(2) BHS = Basic Healthcare Station
Population of Middle Class and Affluent Expected to Increase Drastically
1%
<1%
21%
7%
54%
9%
3%
27%
34%
23%
1%
25%
19%
10%
35%
4%
8%
Note: Household annual income of Poor: <$3,000, Aspirant: $3,000 - $5,000, Emerging middle: $5,000 - $10,000, Middle class: $10,000 - $15,000, Lower affluent: $15,000 - $25,000, Upper affluent: >$25,000Source: EIU, BCG analysis (2011)
0.7
1.6
3.7
27.2
78.6
202.6
Number of households (in million)
<1% 4.9
12.2
34.3
136.3
107.2
91.0
32.6
79.8
107.4
152.1
41.5
18.8
Upper affluent Lower affluent Middle class Emerging middle Aspirant Poor
21
2015E20102005Number of households (in million) Number of households (in million)
22(1) IMS consulting, China 2015 study (September 2011)
China to Become a Trillion RMB Pharma Market by 2015
Projected China Market Growth(1)
Growth (%)
600
1,000
200
02015
17.3%
2013
17.7%
2012
17.7%
2011
17.1%
0.0
RMB bn
1,400
400
800
1,200
2014
17.3%
●
Market growth driven by increasing demand in Cities and Counties
●
Market growth also driven by increasing “middle class”
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Impact from healthcare policies to reduce drug prices will continue
●
China is projected to generate 27% of the world’s pharmaceutical market growth over 2011-2015
10.0
20.0
610718
845
991
1,162
China will be the 2nd largest Pharmaceutical market by 2015(1)
23
Agenda
Sanofi - Presence in China
Outlook on the HC Market of China
Strategy for Sustainable Growth in China
China: Major Trends by 2015
Customers
Innovation
Talent and labor force
Local competition
Small group of customers concentrated in developed coastal areas
Most local companies do not prioritize innovation and MNCs are reluctant to localize innovation
Recruitment is easy, wage increase is moderate, and compensated by improved productivity
Larger customer groups, spread across China, with most growth coming from inland areas
Local companies restricted to low-end segment not threatening MNCs' leadership
Local companies and MNCs respectively invest in and localize innovation thanks to a support of "indigenous innovation"
Challenge to recruit and retain talent, acceleration of wage not compensated by productivity improvement
Partly thanks to government policies, local companies become present in mid / premium segment
More generally applicable More industry specific
Sources: Literal research; BCG analysis (2011) 24
2015Before 2010
China: Market Demands A Highly Dynamic Development of Set-Up
Fast responding organization setup
●
Speed and agility to respond to the dynamic China market
Overall Strategy
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Different and new needs of new customers (e.g. mid- market)
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Address new middle class
Product portfolio customization
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Innovative way to approach inland / rural area
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New sales & distribution strategy and structure to reach wide-spread customers
Go-to-marketadvantage development
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Localize R&D activities
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Expansion to inland China to reduce costs of labor, land, and capital
Sustainable stakeholder management
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Public-Private Partnerships
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JV partners
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Talent management
Localization and footprint expansion
Source: BCG analysis (2011)
New and increasing customer segments
25
Requirement for localized innovation
Increasing labor cost
Shortage of talent
Strengthened local competitors
+20%
Explore different portfolio optionsFaster growth of County hospital and
Basic Healthcare Station (BHS) markets due to HC reform
China: Changing Market Structure Opens up Different Options
0
20
40
60
80
CountyHospitals +25%
BHS +24%
2015e
70
35 (50%)
16 (23%)
19 (27%)
2008
City Hospitals +17%
19
11 (60%)
3 (18%)
Bn USD
CAGRCity hospitals
County hospitals
County Healthcare
Center/Township
Healthcare Center
EDLOff-patentRDL, non-EDL
Patented
Lower price to
play in EDL
MNCs leverage
their mature products and
acquire portfolio to broaden
Innovative drugs
Source: BCG analysis (2011); Internal analysis 26
MNC's traditional ‘home market’
4 (22%)
27
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Solid historical presence and fully-integrated structure
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Strong socio-economic drivers underpinning growth
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Well-suited portfolio for China’s medical needs (Rx, CHC, Vaccines, Diabetes, Animal Health, Genzyme)
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Growing position in Diabetes by maximizing the value of the entire portfolio
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Increasing access to new market segments at the county level
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Significant investments in local production facilities serving all Growth Platforms and accelerated investment in R&D
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Industry lead in talent attraction, development and retention
Sanofi Is Poised to Sustain Significant Growth in China