October 18, 2013

Seamus Fernandez

MARKET PERFORM
from OUTPERFORM

(617) 918-4011
Seamus.Fernandez@Leerink.com

Ario Arabi

(617) 918-4568
ario.arabi@leerink.com

Reason for report:

RATING CHANGE

SANOFI
Lowering Rating to MP from OP on Muted Visibility for Broader
Recovery
Bottom Line: We are downgrading SNY from Outperform to Market
Perform and lowering our DCF-based price target to 80 from 83
primarily on continued low visibility around the pace of recovery in the
company's base business, and we do not expect the upcoming 3Q results
(10/30) to improve this. For value investors, our forecasts don't include
SNY's 3B ownership interest in REGN (OP) or the prospects for an
accretive repurchase of L'Oreal's 9% stake in SNY. And although we
continue to like the long-term opportunity for products such as alirocumab
(PCSK9; LDL-lowering) and dupilumab (anti-IL-4 alpha; asthma & atopic
dermatitis), we are skeptical that visibility on the base business, which
includes substantial generic and tail product exposure, will improve
materially during the next 12 months. This makes it increasingly difficult
for us to recommend putting new money to work in SNY until consensus
estimates better reflect this risk or substantial new pipeline opportunities
emerge. Our new 3Q:13 through 2020 EPS estimates now reflect current
foreign exchange headwinds.
Cutting our sales and EPS forecasts to better reflect business
& Fx headwinds. We are reducing our sales and EPS forecasts by
up to 2.1B and up to 0.48, respectively, reflecting the risk that the
base business (primarily other pharmaceutical/tail products, Plavix, and
emerging markets) remains under pressure for the next 12 to 18 months.
Fx headwinds further exacerbate the impact on sales and EPS, although
these headwinds should diminish substantially in 2H:14. Approximately
half of our cuts came from Fx and half from lower growth forecasts.

Key Stats:

(PSE:SAN FP)

S&P 500 Health Care Index:

Price(NYSE):
Price(PSE):
Price Target:
Methodology:

611.07
$50.13
72.70
80.00 from 83.00
DCF out to 2020E

52 Week High:
52 Week Low:
Shares Outstanding (mil):
Market Capitalization (mil):
Book Value/Share:
Cash Per Share:
Net Debt to Total Capital:
Dividend (ann):
Dividend Yield:
Est LT EPS Growth:
P/E to LT EPS Growth (FY14):
Est LT EPS Growth: CAGR '13E-19E.

87.03
65.89
1,323.2
96,199.8
31.36
4.82
28%
2.77
3.8%
6%
2.16

Pipeline is improving but an investment in SNY today is really

focused on the Lantus franchise. While we believe alirocumab &
dupilumab have blockbuster potential, we are skeptical that today's payor
environment will allow for faster-than-expected product launches. We
believe that the PCSK9 market will look a lot more like the GLP-1 market
in size and utilization rather than statins or basal insulin. Similarly, we are
bullish on prospects for dupilumab, but we believe the greenfield oppt'y
in atopic dermatitis will take time to develop and potential competition
from respiratory biologics (anti-IL-13, anti-IL-5) may make for a crowded
market. Therefore, as we see it, today's investment in SNY is more
focused on the Lantus franchise's post-2016 growth, which given likely
competition from biosimilars and NVO's Tresiba OUS, increases SNY's
reliance on the U.S. market where more competition is likely to erode
Lantus share & increase managed care discounting as additional basal
insulins from LLY (OP, 2015/16) and NVO (2016/17) will likely enter the
market.
Dec Yr
2012A
2013E - New
2013E - Old
2014E - New
2014E - Old

1Q
8.9
8.2A
8.2A
---

2Q
9.1
8.1A
8.1A
---

3Q
9.2
8.4
8.8
---

4Q
8.7
8.3
8.6
---

FY Rev
36.0
32.9
33.7
33.6
35.4

1Q
1.89
1.22A
1.22A
---

2Q
1.48
1.11A
1.11A
---

3Q
1.68
1.43
1.61
---

4Q
1.19
1.27
1.38
---

FY EPS
6.20
5.04
5.32
5.62
6.10

Source: Company Information and Leerink Swann LLC Research

Revenues in billions; total revenues.
Business EPS: incl. options expense.

Please refer to pages 8 - 12 for Important Disclosures, Price Charts and Analyst Certification.
A description of the benchmarks is available by contacting the Leerink Swann Publishing Department.

P/E
11.7x
14.4x
NM
12.9x
NM

SANOFI

October 18, 2013

INVESTMENT THESIS
We are downgrading SNY from Outperform to Market Perform on continued low visibility
around the pace of recovery in the company's base business. For value investors, our valuation
does not include SNY's 3B ownership interest in REGN or prospects for an accretive repurchase
of L'Oreal's 9% stake in SNY. Although we continue to like the long-term opportunity for products
such as alirocumab (PCSK9; LDL-lowering) and dupilumab (anti-IL-4 alpha; asthma & atopic
dermatitis), we are skeptical that visibility on the base business, which includes substantial generic
and tail product exposure will improve materially during the next 12 months. This makes it
increasingly difficult for us to recommend putting new money to work in SNY until consensus
estimates better reflect this risk or substantial new pipeline opportunities emerge. Our DCF
analysis which forecasts sales and profits out to 2020 now results in a price target of 80 versus
83 previously.

CHANGES TO OUR MODEL

EPS & Total Sales Forecasts (2012-20E) (MM, except per share data)
New
Old
Difference
*Rounding

New
Old
Difference

2012
6.14
6.14
-

Total Pro Forma EPS Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
5.04
5.62
6.23
6.58
6.80
5.32
6.10
6.63
6.97
7.19
(0.28)
(0.48)
(0.40)
(0.39)
(0.39)

Total Pro Forma

2012
2013E
34,947
32,586
34,947
33,345
(759)

Sales (ex
2014E
33,238
35,080
(1,842)

2018E
7.08
7.48
(0.40)

other revenue) Forecasts 2012-2020E

2015E
2016E
2017E
2018E
34,700
35,614
36,519 37,621
36,635
37,682
38,585 39,706
(1,934)
(2,068)
(2,066)
(2,085)

2019E
7.35
7.74
(0.38)

2020E
7.70
8.07
(0.37)

2019E
38,826
40,828
(2,002)

2020E
40,229
42,132
(1,903)

Source: Company information, Leerink Swann Research estimates

SANOFI

October 18, 2013

P&L Forecasts (2012-20E) (MM)

New
Old
Difference

2012
11,075
11,075
-

2013E
10,535
10,681
(145)

Cost of Sales Forecasts 2012-2020E

2014E
2015E
2016E
2017E
10,459
10,488
10,579
10,847
10,756
10,986
11,195
11,463
(298)
(499)
(616)
(616)

2018E
11,171
11,793
(622)

2019E
11,522
12,122
(599)

2020E
11,927
12,498
(571)

New
Old
Difference

2012
71.2%
71.2%
0.0%

Gross Profit Margin Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
68.8%
69.5%
70.7%
71.2%
71.2%
69.0%
70.3%
70.9%
71.2%
71.1%
-0.3%
-0.8%
-0.2%
0.1%
0.1%

2018E
71.2%
71.1%
0.1%

2019E
71.2%
71.1%
0.1%

2020E
71.2%
71.1%
0.1%

New
Old
Difference

2012
8,929
8,929
-

2013E
8,550
8,739
(189)

SG&A Forecasts 2012-2020E

2014E
2015E
2016E
2017E
8,328
8,443
8,659
8,822
8,780
8,904
9,153
9,312
(452)
(461)
(494)
(490)

2018E
9,093
9,588
(495)

2019E
9,432
9,906
(474)

2020E
9,766
10,212
(447)

New
Old
Difference

2012
4,905
4,905
-

R&D Forecasts Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
4,640
4,522
4,717
4,836
4,965
4,665
4,771
4,979
5,116
5,245
(25)
(249)
(262)
(280)
(280)

2018E
5,114
5,396
(282)

2019E
5,279
5,548
(270)

2020E
5,476
5,731
(255)

New
Old
Difference

2012
10,538
10,538
-

Pretax Income Forecasts Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
2018E
8,961
9,945
11,057
11,571
11,945 12,333
9,381
10,787
11,770
12,248
12,625 13,019
(420)
(843)
(713)
(677)
(680)
(686)

2019E
12,713
13,372
(659)

2020E
13,210
13,840
(630)

New
Old
Difference

2012
25.5%
25.5%
0.0%

2013E
24.5%
24.0%
0.5%

2018E
27.5%
27.5%
0.0%

2019E
27.5%
27.5%
0.0%

2020E
27.5%
27.5%
0.0%

New
Old
Difference

2012
8,101
8,101
-

2013E
6,670
7,035
(364)

2018E
9,011
9,508
(497)

2019E
9,287
9,765
(478)

2020E
9,647
10,104
(457)

Tax Rate Forecasts 2012-2020E

2014E
2015E
2016E
2017E
26.0%
27.0%
27.0%
27.5%
26.0%
27.0%
27.0%
27.5%
0.0%
0.0%
0.0%
0.0%
Net Income
2014E
7,374
7,998
(623)

Forecasts 2012-2020E
2015E
2016E
2017E
8,117
8,507
8,730
8,637
9,001
9,223
(521)
(494)
(493)

Source: Company information, Leerink Swann Research estimates

SANOFI

October 18, 2013

Sales & Key Product Forecasts (2012-20E) (MM)

New
Old
Difference

Total U.S Pharma Sales Forecasts (including GENZ) 2012-2020E

2012
2013E
2014E
2015E
2016E
2017E
2018E
7,057
6,732
7,251
7,899
8,021
8,231
8,544
7,057
6,780
7,531
8,150
8,314
8,522
8,852
(48)
(280)
(251)
(293)
(292)
(308)

2019E
8,943
9,179
(236)

2020E
9,450
9,593
(143)

New
Old
Difference

Total
2012
6,410
6,410
-

Western Europe Pharma Sales Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
2018E
5,837
5,697
5,631
5,648
5,695
5,809
5,853
5,705
5,639
5,659
5,695
5,803
(17)
(8)
(7)
(10)
0
6

2019E
5,851
5,819
31

2020E
5,937
5,910
27

New
Old
Difference

2012
6,795
6,795
-

Total EGM Pharma

2013E
2014E
6,624
6,607
6,941
7,366
(317)
(759)

Sales Forecasts 2012-2020E

2015E
2016E
2017E
2018E
6,940
7,270
7,532
7,789
7,752
8,128
8,415
8,689
(812)
(858)
(883)
(901)

2019E
8,080
9,003
(924)

2020E
8,401
9,333
(932)

New
Old
Difference

2012
3,757
3,757
-

Total ROW Pharma

2013E
2014E
3,092
3,074
3,164
3,237
(73)
(163)

Sales Forecasts 2012-2020E

2015E
2016E
2017E
2018E
3,061
3,046
3,122
3,211
3,259
3,258
3,299
3,362
(198)
(212)
(177)
(152)

2019E
3,371
3,499
(129)

2020E
3,534
3,626
(92)

New
Old
Difference

2012
2,066
2,066
-

2013E
1,865
1,926
(61)

Forecasts 2012-2020E
2015E
2016E
2017E
1,694
1,525
1,424
1,942
1,803
1,685
(247)
(278)
(261)

2018E
1,350
1,594
(244)

2019E
1,309
1,545
(235)

2020E
1,278
1,506
(228)

New
Old
Difference

2012
7,173
7,173
-

Total Other Pharma Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
6,375
6,023
5,868
5,756
5,656
6,543
6,396
6,267
6,193
6,104
(168)
(373)
(398)
(437)
(448)

2018E
5,562
6,022
(460)

2019E
5,472
5,944
(472)

2020E
5,388
5,872
(484)

New
Old
Difference

2012
4,960
4,960
-

Total Lantus (U100 + U300) Forecasts 2012-2020E

2013E
2014E
2015E
2016E
2017E
2018E
5,591
6,195
6,829
6,814
6,820
6,771
5,669
6,435
7,013
7,008
7,021
6,977
(78)
(240)
(184)
(194)
(201)
(207)

2019E
6,754
6,967
(213)

2020E
6,794
7,013
(219)

Total Plavix
2014E
1,819
2,011
(192)

Source: Company information, Leerink Swann Research estimates

Note: Our models present all figures in MMs, except per share.

SANOFI

October 18, 2013

Sanofi 2013 Guidance Progression

Key Line Items
Sales

February 2013

May 2013

July 2013

Residual impact from the loss of Plavix

and Avapro exclusivity in the US is
anticipated to impact business net
income in 1H13 by 800M Euros at CER

Residual impact from the loss of Plavix

and Avapro exclusivity in the US is
anticipated to impact business net
income in 1H13 by 800M Euros at CER

No update

Similar to 2012 as % of total product

sales

Similar to 2012 as % of total product

sales

Similar to 2012 as % of total product

sales excluding 130 bp impact of
Brazilian generics

26-27%

26-27%

24%

Gross margin

Tax rate

Business EPS

Flat to ~5% from 2012 at CER (6.20)

which suggests 5.75

Dividend Payout Ratio

Flat to ~5% from 2012 at CER (6.20)

which suggests 5.75

Given the impact of Brazil and the yearto-date performance, 2013 business
EPS is expected to be 7% to 10% lower
than 2012 at CER, barring major
unforeseen adverse events.

Targeted 50% payout ratio view to be a

floor

Source: Company information, Leerink Swann LLC estimates.

VALUATION
SAN.FP trades at ~14.5x our trough 13 EPS forecast of 5.04 and ~13x our 14 EPS of 5.62.
This represents a discount to the S&P 500 and is in line with Leerink Swann's large-cap
pharmaceutical coverage universe on 2014E EPS excluding BMY. SAN.FP's relative P/E discount
to the S&P 500 and comparable P/E within Leerink Swann's pharmaceutical coverage universe
excluding BMY on 2013 EPS largely reflects near-term generic risks and impact on cash flow, in
our view. Our updated DCF analysis, which forecasts sales and free cash flow through 2020 and
applies a 0% terminal growth rate at a WACC of 8.25%, results in a price target for SAN.FP
shares of 80/share in 12 months.

RISKS TO VALUATION
Risks to SNY include possible near-term risk to 2012-15 sales growth estimates that would result
from incremental GENZ manufacturing disruptions, pipeline approval delays, or a global recession
further impacting emerging market growth.

SANOFI

October 18, 2013

SNY Annual Product Summary

(figures in m, except per share data)
2012
Actonel (risedronate; osteoporosis)
Allegra (fexofenadine; allergic rhinitis)
Amaryl (glimepiride; sulfonylurea - diabetes)
Apidra (fast insulin analog; diabetes)
Aprovel/Avapro (irbesartan; AII-hypertension)
Copaxone (glatiamer acetate; multiple sclerosis)
Depakine (valproate; epilepsy)
Eloxatin (oxaliplatin; colorectal cancer)
Insuman (human insulin; diabetes)
Lantus (insulin glargine; diabetes)
Lovenox (enoxaparin; LMWH - thrombosis)
Multaq (dronederone; Anti-Arrhythmics; AF)
Nasacort (triamcinolone; allergies)
Plavix (clopidogrel; atherothrombosis)
Ambien/Stillnox/Myslee (zolpidem; insomnia)
Taxotere (docetaxel; breast, NSCLC, prost. cancer)
Tritace/Delix (ramipril; hypertension)
Xatral/Uroxatral (alfuzosin; prostatic hyperplasia)
GENZ
Consumer Health Care
Generics
Other Pharma
Total In-Line Portfolio

Total Animal Health Sales

Total Global Sales
% Growth
Other Revenues
Total Revenue
% Growth

2Q13

3Q13E

4Q13E

2013E

2014E

2015E

2016E

2017E

2018E

2019E

2020E

CAGR
13E-17E

CAGR
13E-19E

134
553
421
230
1,151
24
410
956
135
4,960
1,893
255
71
2,066
497
563
345
130
1,785
3,008
1,844
7,173
28,604

28
169
94
66
241
106
59
33
1,338
428
62
12
450
101
108
78
26
473
811
423
1,612
6,718

24
79
99
68
238
103
60
32
1,409
436
69
493
92
114
80
25
492
729
300
1,658
6,600

24
73
91
68
207
103
48
33
1,388
391
61
451
90
85
76
22
512
701
337
1,520
6,280

22
88
89
74
174
101
45
35
1,456
396
59
471
85
90
76
20
526
705
317
1,584
6,414

97
409
373
276
859
413
211
133
5,591
1,651
251
12
1,865
368
397
310
93
2,003
2,946
1,377
6,375
26,012

88
371
362
318
754
421
169
134
6,195
1,542
242
1,819
310
313
297
84
2,207
3,074
1,394
6,023
26,118

27
364
368
362
700
441
160
140
6,714
1,506
238
1,694
283
270
293
81
2,421
3,257
1,473
5,868
26,662

27
361
379
396
655
455
157
147
6,524
1,440
237
1,525
263
247
290
79
2,582
3,395
1,546
5,756
26,462

27
356
387
425
606
450
155
151
6,370
1,395
77
1,424
254
232
286
77
2,706
3,466
1,617
5,656
26,118

27
351
395
450
562
445
152
155
6,096
1,350
44
1,350
248
223
283
76
2,809
3,562
1,675
5,562
25,815

27
346
400
477
522
441
150
157
5,854
1,311
36
1,309
237
216
280
74
2,899
3,661
1,738
5,472
25,609

27
341
405
500
492
436
147
160
5,644
1,272
34
1,278
215
209
277
73
2,983
3,763
1,807
5,388
25,452

-27%
-3%
1%
11%
-8%
nm
2%
-8%
3%
3%
-4%
-26%
-100%
-7%
-9%
-13%
-2%
-5%
8%
4%
4%
-3%
0%

-19%
-3%
1%
10%
-8%
na
1%
-6%
3%
1%
-4%
-28%
-100%
-6%
-7%
-10%
-2%
-4%
6%
4%
4%
-3%
0%

25
235
7
267

11
52
20
6
1
90

1
14
54
33
9
3
114

5
30
65
44
35
5
184

9
55
79
48
5
5
6
207

15
110
250
145
5
55
15
595

45
205
280
225
25
125
20
40
15
980

100
300
300
320
80
200
50
115
60
75
1,600

160
400
310
415
185
250
90
290
80
125
110
50
2,465

225
490
330
510
290
300
155
450
105
180
230
125
50
105
3,545

280
550
340
605
375
325
240
675
130
215
435
250
115
240
4,775

350
520
360
700
450
340
310
900
155
230
680
420
265
355
6,035

405
550
370
775
500
350
380
1,150
160
240
1,000
575
500
485
7,440

na
45%
na
7%
na
37%
na
na
na
na
na
na
na
na

69%
30%
na
6%
na
na
112%
35%
na
na
48%
na
na
na

na
56%

na
47%

6,714
-11%
293
124
53
98
123
69
760

6,464
-8%
290
134
567
77
232
118
1,417

6,621
-5%
347
118
178
99
219
143
1,104

28,262
4%
1,284
472
978
368
694
80
554
4,429

28,927
2%
1,306
481
995
386
709
115
607
4,599

29,663
3%
1,325
488
1,008
396
708
135
642
4,703

30,590
3%
1,332
495
1,021
406
706
150
679
4,789

31,644
3%
1,338
502
1,034
417
690
150
719
4,850

32,892
4%
1,344
509
1,047
428
676
150
761
4,915

3%

3%

3%
1%
2%
3%
2%
na
13%
4%

2%
1%
2%
3%
1%
na
10%
3%

Lixisenatide (AVE0010, GLP-1 agonist; diabetes)

Zaltrap (aflibercept; VEGF-trap; cancer)
BSI-201 (PARP inhibitor; lung cancer)
Jevtana (cabazitaxel; Prostate cancer)
otamixaban (XRP0673; ACS)
Aubagio (HMR 1726; multiple sclerosis)
Lemtrada (alemtuzumab, multiple sclerosis)
Auvi-Q (epinephrine device; allergies)
eliglustat (oral Gaucher treatment)
U300 glargine (new Lantus formulation, diabetes)
Kynamro (apoB antisense, HoFH)
SAR302503 (JAK2 inhibitor, MF)
SAR236553 (Anti-PCSK-9 mAb, LDL)
sarilumab (Anti-IL-6R mAb, RA)
Dupilumab (Anti-IL-4 mAb, respiratory/skin)
Other pipeline (PD2034, PI3K inhib, MM-121)
Pipeline Subtotal
Total Global Pharma Sales
% Growth
Polio / Pertussis / Hib Vaccines
Adult Booster Vaccines
Influenza Vaccines
Travel and Other Endemics Vaccines
Meningitis / Pneumonia Vaccines
Shantha
Other Vaccines
Total Vaccines

1Q13

28,871
4%
1,184
496
884
364
650
319
3,897

6,808
-7%
270
85
119
74
80
69
697

26,607
-8%
1,200
461
916
348
654
399
3,979

27,098
2%
1,240
461
943
351
676
50
484
4,204

2,179

554

529

449

468

2,000

1,936

2,009

2,088

2,153

2,243

2,332

2,422

2%

3%

34,947
5%
1,010

8,059
-5%
98

8,003
-10%
83

8,331
-8%
83

8,192
-4%
91

32,586
-7%
355

33,238
2%
330

34,700
4%
330

35,614
3%
330

36,519
3%
330

37,621
3%
330

38,826
3%
330

40,229
4%
330

3%

3%

-2%

-1%

35,957
3%

8,157
-9%

8,086
-11%

8,414
-9%

8,283
-4%

32,941
-8%

33,568
2%

35,030
4%

35,944
3%

36,849
3%

37,951
3%

39,156
3%

40,559
4%

3%

3%

Source: Company information, Leerink Swann Research estimates.

SANOFI

October 18, 2013

SNY Annual P&L Summary (Adj. Basis)

(figures in m, except per share data)
2012
Total Global Sales
% Growth
Other Revenues

1Q13

2Q13

3Q13E

4Q13E

2013E

2014E

2015E

2016E

2017E

2018E

2019E

2020E

CAGR
13E-17E

CAGR
13E-19E

3%

3%

34,947
5%
1,010

8,059
-5%
98

8,003
-10%
83

8,331
-8%
83

8,192
-4%
91

32,586
-7%
355

33,238
2%
330

34,700
4%
330

35,614
3%
330

36,519
3%
330

37,621
3%
330

38,826
3%
330

40,229
4%
330

-2%

-1%

35,957
3%

8,157
-9%

8,086
-11%

8,414
-9%

8,283
-4%

32,941
-8%

33,568
2%

35,030
4%

35,944
3%

36,849
3%

37,951
3%

39,156
3%

40,559
4%

3%

3%

COGS
% of net sales (ex. Other revenue)

11,075
31.7%

2,536
31.5%

2,672
33.4%

2,712
32.6%

2,615
31.9%

10,535
32.3%

10,459
31.5%

10,488
30.2%

10,579
29.7%

10,847
29.7%

11,171
29.7%

11,522
29.7%

11,927
29.6%

1%

2%

Gross Margin - Total Group

% of net sales (GM/Total Global Sales; as reported)
% of total sales (GM/Total Revenue)
R&D
% of net sales (ex. Other revenue)

24,882
71.2%
69.2%
4,905
14.0%

5,621
69.7%
68.9%
1,155
14.3%

5,414
67.6%
67.0%
1,186
14.8%

5,702
68.4%
67.8%
1,040
12.5%

5,668
69.2%
68.4%
1,259
15.4%

22,405
68.8%
68.0%
4,640
14.2%

23,110
69.5%
68.8%
4,522
13.6%

24,543
70.7%
70.1%
4,717
13.6%

25,366
71.2%
70.6%
4,836
13.6%

26,002
71.2%
70.6%
4,965
13.6%

26,780
71.2%
70.6%
5,114
13.6%

27,634
71.2%
70.6%
5,279
13.6%

28,632
71.2%
70.6%
5,476
13.6%

4%

4%

2%

2%

8,929
25.6%
134
3
11
148

2,129
26.4%
(30)
(30)

2,309
28.9%
(100)
(5)
1
(36)
(140)

2,034
24.4%
(60)
(5)
(65)

2,078
25.4%
(60)
(11)
(71)

8,550
26.2%
(250)
(5)
(15)
(36)
(306)

8,328
25.1%
(190)
(15)
(205)

8,443
24.3%
(140)
(15)
(155)

8,659
24.3%
(140)
(15)
(155)

8,822
24.2%
(140)
(15)
(155)

9,093
24.2%
(140)
(15)
(155)

9,432
24.3%
(140)
(15)
(155)

9,766
24.3%
(140)
(15)
(155)

1%

2%

na
-13%
na
0%
na
-16%

na
-9%
-100%
0%
-100%
-11%

424
(172)
11,448
32.8%

18
(41)
2,344
29.1%

3
(45)
2,017
25.2%

4
(20)
2,677
32.1%

4
(19)
2,387
29.1%

30
(125)
9,426
28.9%

45
(30)
10,480
31.5%

75
(30)
11,582
33.4%

90
(30)
12,086
33.9%

100
(30)
12,440
34.1%

100
(30)
12,798
34.0%

100
(30)
13,148
33.9%

100
(30)
13,615
33.8%

35%
na
-30%
7%

22%
na
-21%
6%

751
(93)
658
-

175
(35)
140

154
(17)
137

160
(20)
140

161
(18)
143

650
(90)
560
-

650
(130)
520
-

650
(170)
480
-

650
(195)
455
-

650
(225)
425
-

650
(255)
395
-

650
(285)
365
-

650
(315)
335
-

na
0%
26%
-7%

na
0%
21%
-7%

(424)
172
10,538
30.2%

(18)
41
2,227
27.6%

(3)
45
1,922
24.0%

(4)
20
2,553
30.6%

(4)
19
2,259
27.6%

(30)
125
8,961
27.5%

(45)
30
9,945
29.9%

(75)
30
11,057
31.9%

(90)
30
11,571
32.5%

(100)
30
11,945
32.7%

(100)
30
12,333
32.8%

(100)
30
12,713
32.7%

(100)
30
13,210
32.8%

35%

22%

-30%
7%

-21%
6%

Tax (Benefit)/Expense
% tax rate

2,689
25.5%

591
26.5%

405
21.1%

638
25.0%

561
24.8%

2,195
24.5%

2,586
26.0%

2,985
27.0%

3,124
27.0%

3,285
27.5%

3,392
27.5%

3,496
27.5%

3,633
27.5%

11%

8%

Business Net Income

% of net sales (ex. Other revenue)

8,101
23.2%

1,613
20.0%

1,475
18.4%

1,899
22.8%

1,683
20.5%

6,670
20.5%

7,374
22.2%

8,117
23.4%

8,507
23.9%

8,730
23.9%

9,011
24.0%

9,287
23.9%

9,647
24.0%

7%

6%

Business EPS
% growth

6.14
-7%

1.22
-34%

1.11
-24%

1.43
-14%

1.27
9%

5.04
-18%

5.62
11%

6.23
11%

6.58
6%

6.80
3%

7.08
4%

7.35
4%

7.70
5%

8%

6%

-1%

-1%

Total Revenue
% Growth

SG&A
% of net sales (ex. Other revenue)
Other current operating (income)/expense
Other current operating expense
Net animal health (income)/expense
Other
Other operating (income)/expense, net
Share of profit/loss of associates (BMY, SPMSD)
Share of profit/loss Merial
Minority interest
Business Operating Income - Current
% of net sales (ex. Other revenue)
Financial expenses
Financial (income)
Total Net Financial (Income)/Expense
Exceptional items
Share of profit/loss of associates
Share of profit/loss Merial
Minority interest
Pretax Income
% of net sales (ex. Other revenue)

Avg. Exch Rate (/US$)

Shares Outstanding (in MMs)
% growth

1.29

1.32

1.32

1.37

1.37

1.34

1.37

1.37

1.37

1.37

1.37

1.37

1.37

1,320

1,322

1,326

1,324

1,321

1,323

1,313

1,303

1,293

1,283

1,273

1,263

1,253

Source: Company information, Leerink Swann Research estimates.

Note: Each SNY ADR represents one-half of one share.

SANOFI

October 18, 2013

Disclosures Appendix
Analyst Certification

I, Seamus Fernandez, certify that the views expressed in this report accurately reflect my views and that no part of my
compensation was, is, or will be directly related to the specific recommendation or views contained in this report.

Valuation
SAN.FP trades at ~14.5x our trough 13 EPS forecast of 5.04 and ~13x our 14 EPS of 5.62. This represents a
discount to the S&P 500 and is in line with Leerink Swann's large-cap pharmaceutical coverage universe on 2014E
EPS excluding BMY. SAN.FP's relative P/E discount to the S&P 500 and comparable P/E within Leerink Swann's
pharmaceutical coverage universe excluding BMY on 2013 EPS largely reflects near-term generic risks and impact on
cash flow, in our view. Our updated DCF analysis, which forecasts sales and free cash flow through 2020 and applies
a 0% terminal growth rate at a WACC of 8.25%, results in a price target for SAN.FP shares of 80/share in 12 months.

Risks to Valuation
Risks to SNY include possible near-term risk to 2012-15 sales growth estimates that would result from incremental
GENZ manufacturing disruptions, pipeline approval delays, or a global recession further impacting emerging market
growth.

SANOFI

October 18, 2013

SANOFI

October 18, 2013

10

SANOFI

October 18, 2013

Distribution of Ratings/Investment Banking Services (IB) as of 09/30/13

IB Serv./Past 12
Mos.
Rating
BUY [OP]
HOLD [MP]
SELL [UP]

Count

Percent

Count

Percent

111
60
0

64.90
35.10
0.00

27
0
0

24.00
0.00
0.00

Explanation of Ratings
Outperform (Buy): We expect this stock to outperform its benchmark over the next 12 months.
Market Perform (Hold/Neutral): We expect this stock to perform in line with its benchmark over the next 12
months.
Underperform (Sell): We expect this stock to underperform its benchmark over the next 12 months.The degree
of outperformance or underperformance required to warrant an Outperform or an Underperform rating should
be commensurate with the risk profile of the company.
For the purposes of these definitions the relevant benchmark will be the S&P 600 Health Care Index for
issuers with a market capitalization of less than $2 billion and the S&P 500 Health Care Index for issuers with
a market capitalization over $2 billion.

Important Disclosures
This information (including, but not limited to, prices, quotes and statistics) has been obtained from sources
that we believe reliable, but we do not represent that it is accurate or complete and it should not be relied upon
as such. All information is subject to change without notice. This is provided for information purposes only
and should not be regarded as an offer to sell or as a solicitation of an offer to buy any product to which this
information relates. The Firm, its officers, directors, employees, proprietary accounts and affiliates may have a
position, long or short, in the securities referred to in this report, and/or other related securities, and from time
to time may increase or decrease the position or express a view that is contrary to that contained in this report.
The Firm's salespeople, traders and other professionals may provide oral or written market commentary or
trading strategies that are contrary to opinions expressed in this report. The Firm's asset management group
and proprietary accounts may make investment decisions that are inconsistent with the opinions expressed in
this report. The past performance of securities does not guarantee or predict future performance. Transaction
strategies described herein may not be suitable for all investors. Additional information is available upon
request by contacting the Publishing Department at One Federal Street, 37th Floor, Boston, MA 02110.
Like all Firm employees, analysts receive compensation that is impacted by, among other factors, overall
firm profitability, which includes revenues from, among other business units, the Private Client Division,
Institutional Equities, and Investment Banking. Analysts, however, are not compensated for a specific
investment banking services transaction.
Leerink Swann Consulting LLC, an affiliate of Leerink Swann LLC, is a provider of evidence-based strategy
and consulting to the healthcare industry.
Leerink Swann LLC makes a market in Regeneron Pharmaceuticals, Inc.

11

SANOFI

October 18, 2013

Leerink Swann LLC is willing to sell to, or buy from, clients the common stock of Sanofi, Bristol-Myers Squibb
and Eli Lilly & Company on a principal basis.
In the past 12 months, an affiliate of the Firm, Leerink Swann Consulting LLC, has received compensation for
providing non-securities services to: Bristol-Myers Squibb.
2013 Leerink Swann LLC. All rights reserved. This document may not be reproduced or circulated without
our written authority.

12

Leerink Swann LLC Equity Research

Director of Equity Research

John L. Sullivan, CFA

(617) 918-4875

john.sullivan@leerink.com

Associate Director of Research Alice C. Avanian, CFA

(617) 918-4544

alice.avanian@leerink.com

Healthcare Strategy

John L. Sullivan, CFA

(617) 918-4875

john.sullivan@leerink.com

Alice C. Avanian, CFA

(617) 918-4544

alice.avanian@leerink.com

Howard Liang, Ph.D.

(617) 918-4857

howard.liang@leerink.com

Joseph P. Schwartz

(617) 918-4575

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Marko Kozul, M.D.

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Michael Schmidt, Ph.D.

(617) 918-4588

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Irene Lau

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Gena Wang, Ph.D., CFA

Paul Matteis

(212) 277-6073
(617) 918-4585

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Dan Leonard

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Justin Bowers, CFA

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Seamus Fernandez

(617) 918-4011

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Ario Arabi

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ario.arabi@leerink.com

Specialty Pharmaceuticals,
Generics

Jason M. Gerberry, JD
Christopher W. Kuehnle, JD

(617) 918-4549
(617) 918-4851

jason.gerberry@leerink.com
chris.kuehnle@leerink.com

Medical Devices, Cardiology &

Orthopedics

Danielle Antalffy
Richard Newitter

(212) 277-6044
(212) 277-6088

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Robert Marcus, CFA

(212) 277-6084

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Ravi Misra

(212) 277-6049

ravi.misra@leerink.com

Healthcare Technology
& Distribution

David Larsen, CFA

Christopher Abbott

(617) 918-4502
(617) 918-4010

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chris.abbott@leerink.com

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