EUR 4351.14 For Business Accounts Only

Downgrade to Hold

We upgraded Sanofi to a tactical Buy as we envisaged
the lower US tax rate to offer material EPS upside.
However, in 2018, multiple Pharma headwinds, an H1
Vaccines decline and higher costs have resulted in
material downside to our forecasts. We also harbour
ongoing concerns about poor governance following
another Vaccines supply issue. Therefore, we cut
Sanofi to Hold and reduce our price target to €70.

Multiple Revenue Headwinds Resulting in Tough 2018 –
Toujeo estimates look optimistic as growth slows, the MS
franchise is slowing down with the Lemtrada miss not
explained well, CHC EM sales are weak and Vaccines issues
will lead to a decline in Vaccines sales in H118. These factors
will make 2018 and beyond tougher than expected.

Potential Poor Governance = Hidden Risk – The Pentaxim
“testing issue” in China will lead to the entire Vaccines
franchise declining in H118. Add to this the Pentacel outage
in 2016 and the EM sales overstatement a few years ago and
we believe there is hidden risk in owning Sanofi.

Costs Going Up, Making 2019 Tough – The announcement
that €1bn extra will be spent on R&D behind IO and more
money will be spent on Dupixent trials, makes growth in 2019
difficult based on our numbers. However, synergies and EPS
accretion from Bioverativ should help offset much of the
downward pressure.

Tax Benefit Impact Offset by Operational Issues – The
impact of US tax reforms will add around 3% to EPS this year.
Sanofi expect the tax rate to fall from 23.5% in 2017 to
around 22% this year. We believe there is some potential for
that tax rate to fall further as Sanofi may be able to shift
more profits into the US.