Sanofi
Annual Report 2018

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 Or Or ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report For the transition period from to Commission File Number: 001-31368 Sanofi (Exact name of registrant as specified in its charter) N/A (Translation of registrant’s name into English) France (Jurisdiction of incorporation or organization) 54, Rue La Boétie, 75008 Paris, France (Address of principal executive offices) Karen Linehan, Executive Vice President Legal Affairs and General Counsel 54, Rue La Boétie, 75008 Paris, France. Fax: 011 + 33 1 53 77 43 03. Tel: 011 + 33 1 53 77 40 00 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: American Depositary Shares, each representing one half of one ordinary share, par value €2 per share Ordinary shares, par value €2 per share Contingent Value Rights NASDAQ Global Select Market NASDAQ Global Select Market* NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2018 was: Ordinary shares: 1,245,454,385 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☒ NO ☐. If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. YES ☐ NO ☒. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” or “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐ † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: Emerging growth company ☐ Non-accelerated filer ☐ Accelerated filer ☐ No ☐ No ☐ U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ *Not for trading but only in connection with the registration of American Depositary Shares representing such ordinary shares. Item 18 ☐ No ☒. Presentation of financial and other information The consolidated financial statements contained in this annual report on Form 20-F have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and with IFRS as of December 31, 2018. the European Union, adopted as by Unless the context requires otherwise, the terms “Sanofi,” the “Company,” the “Group,” “we,” “our” or “us” refer to Sanofi and its consolidated subsidiaries. All references herein to “United States” or “US” are to the United States of America, references to “dollars” or “$” are to the currency of the United States, references to “France” are to the Republic of France, and references to “euro” and “€” are to the currency of the European Union member states (including France) participating in the European Monetary Union. Brand names appearing in this annual report are trademarks of Sanofi and/or its affiliates, with the exception of: ◆ trademarks used or that may be or have been used under license by Sanofi and/or its affiliates, such as Actonel®, a trademark of Actavis; Aldurazyme®, a trademark of the Joint Venture Biomarin/Genzyme LLC; Cialis® OTC, a trademark of Eli Lilly; Leukine®, a trademark of Alcafleu; UshStat®, a trademark of Oxford Biomedica; Vaxelis®, a trademark of MCM Vaccine Co (USA) and MCM Vaccine B.V. (Netherlands); and Zaltrap®, a trademark of Regeneron in the United States; ◆ trademarks sold by Sanofi and/or its affiliates to a third party, such as Altace®, a trademark of King Pharmaceuticals in the United States; Hyalgan®, a trademark of Fidia Farmaceutici Insulia®, a trademark of Voluntis; LibertyLink® Rice S.p.A.; 601, LibertyLink® Rice 604 and StarLink®, trademarks of Bayer; and ◆ other third party trademarks such as Aabasaglar®, Basaglar® and Humalog®, trademarks of Eli Lilly; Eylia®, a trademark of Regeneron; GLAAS®, a trademark of Immune Design ; Kyprolis®, a trademark of Onyx Pharmaceuticals Inc.; Revlimid® trademark of Celgene Corporation; Semglee™, a trademark of Mylan Pharmaceuticals Inc.; Velcade®, a trademark of Millenium Pharmaceuticals Inc ; Xyzal® Allergy 24, a trademark of GSK in some countries and UCB Farchim in other countries; and Zantac®, a trademark of Glaxo Group Limited. Not all trademarks related to investigational agents have been authorized as of the date of this annual report by the relevant health authorities; for instance, the Lyxumia® trade name has not been approved by the FDA. Annual Total) basis. The data are mainly from IQVIA local sales audit, supplemented by country-specific sources. Data relating to market shares and ranking information presented herein for our Consumer Healthcare products are based on sales data from Nicholas Hall. Data relating to market shares and ranking information presented herein for our vaccines business are based on internal estimates unless stated otherwise. Product indications described in this annual report are composite summaries of the major indications approved in the product’s principal markets. Not all indications are necessarily available in each of the markets in which the products are approved. The summaries presented herein for the purpose of financial reporting do not substitute for careful consideration of labeling approved in each market. the full Cautionary statement regarding forward-looking statements This Annual Report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. We may also make written or oral forward- looking statements in our periodic reports to the Securities and to Exchange Commission on Form 6-K, shareholders, in our offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Examples of such forward-looking statements include: ◆ projections of operating revenues, net income, business net income, earnings per share, business earnings per share, capital expenditures, cost savings, restructuring costs, positive or negative synergies, dividends, capital structure or other financial items or ratios; in our annual report ◆ statements of our profit forecasts, trends, plans, objectives or trials, including those relating to products, clinical goals, regulatory approvals and competition; and ◆ statements about our future events and economic performance or that of France, the United States or any other countries in which we operate. This information is based on data, assumptions and estimates considered as reasonable by Sanofi as at the date of this annual report and undue reliance should not be placed on such statements. “estimate,” Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “guideline,” “target,” “should” and similar expressions are intended to identify forward- looking statements but are not the exclusive means of identifying such statements. “forecast,” “predict,” “project,” The data relating to market shares and ranking information for pharmaceutical products, in particular as presented in “Item 4. Information on the Company – B. Business Overview – B.6. Markets – B.6.1. Marketing and distribution,” are based mainly on sales data excluding vaccines and in constant euros (unless otherwise indicated) on a September 2018 MAT (Moving involve inherent, Forward-looking statements known and unknown, risks and uncertainties associated with the regulatory, economic, financial and competitive environment, and other factors that could cause future results and objectives to differ materially from those expressed or implied in the forward-looking statements. Risk factors which could affect future results and cause actual results to differ materially from those contained in any forward- looking statements are discussed under “Item 3. Key Information – D. Risk Factors”. Additional risks, not currently known or considered immaterial by the Group, may have the same unfavorable effect and investors may lose all or part of their investment. Forward-looking statements speak only as of the date they are made. Other than required by law, we do not undertake any obligation to update them in light of new information or future developments. Abbreviations Principal abbreviations used in the Annual Report on Form 20-F ADR ADS AFEP AMF American Depositary Receipt American Depositary Share Association française des entreprises privées (French Association of Large Companies) Autorité des marchés financiers (the French market regulator) ANDA Abbreviated New Drug Application BLA BMS CEO CER CGU CHC CHMP CVR ECB EFPIA EMA EU FDA GAVI GBU GCP GDP GLP Biologic License Application Bristol-Myers Squibb Chief Executive Officer Constant exchange rates Cash generating unit Consumer Healthcare Committee for Medicinal Products for Human Use Contingent value right European Central Bank European Federation of Pharmaceutical Industries and Associations European Medicines Agency European Union US Food and Drug Administration Global Alliance for Vaccines and Immunisation Global Business Unit Good clinical practices Good distribution practices Good laboratory practices GLP-1 Glucagon-like peptide-1 GMP Hib HSE IASB ICH Good manufacturing practices Haemophilus influenzae type b Health, Safety and Environment International Accounting Standards Board International Council for Harmonization IFPMA IFRS IPV ISIN International Federation of Pharmaceutical Manufacturers & Associations International Financial Reporting Standards Inactivated polio vaccine International Securities Identification Number J-MHLW Japanese Ministry of Health, Labor and Welfare LSD Lysosomal storage disorder MEDEF Mouvement des entreprises de France (French business confederation) MS Multiple sclerosis NASDAQ National Association of Securities Dealers Automated Quotations NDA NHI NYSE OECD OPV OTC PhRMA PMDA PRV PTE QIV R&D ROA SA SEC SPC TSR New Drug Application National Health Insurance (Japan) New York Stock Exchange Organisation for Economic Co-operation and Development Oral polio vaccine Over the counter Pharmaceutical Research and Manufacturers of America Pharmaceuticals and Medical Devices Agency (Japan) Priority Review Voucher Patent Term Extension Quadrivalent influenza vaccine Research and development Return on assets Société anonyme (French public limited corporation) US Securities and Exchange Commission Supplementary Protection Certificate Total shareholder return UNICEF United Nations Children’s Emergency Fund US WHO United States of America World Health Organization TABLE OF CONTENTS 1 Item 1. Item 2. PART I IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS OFFER STATISTICS AND EXPECTED TIMETABLE Item 3. KEY INFORMATION A. Selected Financial Data B. Capitalization and Indebtedness C. Reasons for Offer and Use of Proceeds D. Risk Factors Item 4. INFORMATION ON THE COMPANY A/ History and Development of the Company B/ Business Overview C/ Organizational Structure D/ Property, Plant and Equipment Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A/ Operating results B. Liquidity and Capital Resources C. Off-Balance Sheet Arrangements / Contractual Obligations and Other Commercial Commitments Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management B. Compensation C. Board Practices D. Employees E. Share Ownership Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders B. Related Party Transactions C. Interests of Experts and Counsel Item 8. FINANCIAL INFORMATION A. Consolidated Financial Statements and Other Financial Information B. Significant Changes Item 9. THE OFFER AND LISTING A. Offer and Listing Details 1 1 1 1 1 3 3 4 20 21 22 70 71 74 74 123 B. Plan of Distribution C. Markets D. Selling Shareholders E. Dilution F. Expenses of the Issue Item 10. ADDITIONAL INFORMATION A. Memorandum and Articles of Association C. Material Contracts D. Exchange Controls E. Taxation F. Dividends and Paying Agents G. Statement by Experts H. Documents on Display I. Subsidiary Information Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 2 PART II 200 200 200 200 200 217 201 213 214 214 218 218 218 218 219 223 229 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 229 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS 128 Item 15. CONTROLS AND PROCEDURES Item 16A. AUDIT COMMITTEE FINANCIAL 130 130 160 180 187 188 192 192 193 193 194 194 198 199 199 EXPERT Item 16B. CODE OF ETHICS Item 16C. PRINCIPAL ACCOUNTANTS’ FEES AND SERVICES Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Item 16G. CORPORATE GOVERNANCE Item 16H. MINE SAFETY DISCLOSURE 3 PART III Item 17. FINANCIAL STATEMENTS Item 18. FINANCIAL STATEMENTS Item 19. EXHIBITS 229 229 230 230 230 230 231 231 231 232 233 233 233 233 [THIS PAGE INTENTIONALLY LEFT BLANK] ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Part I Item 1. Identity of Directors, Senior Management and Advisers N/A Item 2. Offer Statistics and Expected Timetable N/A Item 3. Key Information A. Selected financial data Summary of selected financial data The tables below set forth selected consolidated financial data for Sanofi. These financial data are derived from the Sanofi financial statements. The Sanofi consolidated consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 are included in Item 18 of this annual report. IFRS as issued by The consolidated financial statements of Sanofi for the years ended December 31, 2018, 2017 and 2016 have been prepared in compliance with International Accounting Standards Board (IASB) and with IFRS as adopted by the European Union as of December 31, 2018. The term “IFRS” refers collectively to international accounting and financial reporting standards (IAS and IFRS) and to interpretations of the IFRIC) mandatorily interpretations committees applicable as of December 31, 2018. (SIC and the Sanofi reports its financial results in euros. SANOFI / FORM 20-F 2018 1 ITEM 3. KEY INFORMATION Selected condensed financial information (€ million, except per share data) IFRS Income statement data(b) Net sales(c) Gross profit Operating income Net income excluding the exchanged/ held-for-exchange Animal Health business Net income attributable to equity holders of Sanofi Basic earnings per share (€)(d): Net income excluding the exchanged/ held-for-exchange Animal Health business Net income attributable to equity holders of Sanofi Diluted earnings per share (€)(e): Net income attributable to equity holders of Sanofi IFRS Balance sheet data Goodwill and other intangible assets Total assets Outstanding share capital Equity attributable to equity holders of Sanofi Long term debt Cash dividend paid per share (€)(g) Cash dividend paid per share ($)(g) / (i) As of and for the year ended December 31, 2018 2017(a) 2016(a) 2015 2014 34,463 24,242 4,676 35,072 24,608 5,804 33,809 23,995 6,531 34,060 23,942 5,624 31,380 21,769 6,064 4,423 3,894 4,486 4,512 4,392 4,306 8,416 4,709 4,287 4,390 3.46 3.45 3.00 6.70 3.42 3.66 3.38 3.28 3.25 3.34 3.43 6.64 3.63 3.25 3.30 66,124 111,408 2,491 58,876 22,007 53,344(f) 51,166(f) 51,583(f) 99,813 2,508 58,070 104,679 102,321 2,544 57,552 2,603 58,049 14,326(f) 16,815(f) 13,118(f) 3.07(h) 3.52(h) 3.03 3.63 2.96 3.12 2.93 3.19 53,740 97,392 2,620 56,120 13,276 2.85 3.46 (a) Includes the effects of the first-time application of IFRS 15 on revenue recognition, effective January 1,2018. (b) The results of the Animal Health business, and the gain on the divestment of that business, are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations), see Notes D.2. and D.36. to our consolidated financial statements. (c) Following a change in accounting presentation in 2016, VaxServe sales of non-Sanofi products are included in Other revenues. The presentation of prior period Net sales and Other revenues has been amended accordingly (see note B.13. to our consolidated financial statements). (d) Based on the weighted average number of shares outstanding in each period used to compute basic earnings per share, equal to 1,247.1 million shares in 2018, 1,256.9 million shares in 2017, 1,286.6 million shares in 2016, 1,306.2 million shares in 2015, and 1,315.8 million shares in 2014. (e) Based on the weighted average in each period of the number of shares outstanding plus stock options and restricted shares with a potentially dilutive effect:1,255.2 million shares in 2018, 1,266.8 million shares in 2017, 1,296.0 million shares in 2016, 1,320.7 million shares in 2015, and 1,331.1 million shares in 2014. (f) As reported, excluding the Animal Health business presented in the line items, Assets held for sale or exchange and Liabilities related to assets held for sale or exchange as of December 31, 2015, December 31, 2016 and December 31, 2017. (g) Each American Depositary Share, or ADS, represents one half of one share. (h) Dividends for 2018 will be proposed for approval at the annual general meeting scheduled for April 30, 2019. (i) Based on the relevant year-end exchange rate. 2 SANOFI / FORM 20-F 2018 ITEM 3. KEY INFORMATION Selected exchange rate information The following table sets forth, for the periods and dates indicated, certain information concerning the exchange rates for the euro from 2014 through March 2019 expressed in US dollars per euro. The information concerning the US dollar exchange rate is based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the the exchange rates below solely Federal Reserve Bank of New York (the “Noon Buying Rate”). for your We provide convenience. We do not represent that euros were, could have been, or could be, converted into US dollars at these rates or at any other rate. For information regarding the effect of currency fluctuations on our results of operations, see “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” (U.S. dollar per euro) Period- end Rate Average Rate(a) 2014 2015 2016 2017 2018 Last 6 months 2018 September October November December 2019 January February March(b) 1.21 1.09 1.06 1.20 1.15 1.16 1.13 1.13 1.15 1.15 1.13 1.13 1.32 1.10 1.10 1.14 1.18 1.17 1.15 1.14 1.14 1.14 1.14 1.13 High 1.39 1.20 1.15 1.20 1.25 1.18 1.16 1.15 1.15 1.15 1.15 1.14 Low 1.21 1.05 1.04 1.04 1.13 1.16 1.13 1.13 1.13 1.13 1.13 1.13 (a) The average of the Noon Buying Rates on the last business day of each month during the relevant period for the full year average, and on each business day of the month for the monthly average. The latest available Noon Buying Rate being March 1, 2019, we have used European Central Bank Rates for the period from March 4, 2019 through March 7, 2019. (b) In each case, measured through March 7, 2019. On March 7, 2019 the European Central Bank Rate was 1.13 per euro. B. Capitalization and indebtedness N/A C. Reasons for offer and use of proceeds N/A SANOFI / FORM 20-F 2018 3 ITEM 3. KEY INFORMATION D. Risk factors results to differ materially Important factors that could cause actual financial, business, research or operating from expectations are disclosed in this annual report, including without limitation the following risk factors. Investors should carefully consider all the information set forth in the following risk factors before deciding to invest in any of the Company’s securities. In addition to the risks listed below, we may be subject to other material risks that as of the date of this report are not currently known to us or that we deem immaterial at this time. Risks relating to legal and regulatory matters We rely on our patents and other proprietary rights to provide exclusive rights to market certain of our products, and if such patents and other rights were limited, invalidated or circumvented, our financial results could be materially and adversely affected. Through patent and other proprietary rights such as data exclusivity or supplementary protection certificates in Europe, we hold exclusivity rights for a number of our research-based products. However, the protection that we are able to obtain varies in its duration and scope from product to product and country by country. This protection may not be sufficient to maintain effective product exclusivity because of local differences in the patents, in national laws, applicable legal systems or developments in law or jurisprudence, which may give rise to inconsistent judgments when we assert or defend our patents. Moreover, patent and other proprietary rights do not always provide effective protection for our products. Manufacturers of generic products or biosimilars are increasingly seeking to challenge patent validity or coverage before the patents expire, and manufacturers of biosimilars or interchangeable versions of the products are seeking to have their version of the product approved before the exclusivity period ends. Furthermore, in an infringement suit against a third-party, we may not prevail and the decision rendered may not conclude that our patent or other proprietary rights are valid, enforceable or infringed. Our competitors may also successfully avoid patents, for example through design innovation, and we may not hold sufficient evidence of infringement to bring suit. We are involved in litigation worldwide to enforce certain of our patent rights against generics, proposed generics and biosimilars of our small molecule and biological pharmaceutical products (see “Item 8. Financial Information – A. Consolidated Financial Statements and Other Financial Information – Information on Legal or Arbitration Proceedings” for additional information). Even in cases where we ultimately prevail in an infringement claim, legal remedies available for harm caused to us by infringing products may be inadequate to make us whole. A competitor may launch a generic or a biosimilar product “at risk” before the initiation or completion of the court proceedings, and the court may decline to grant us a preliminary injunction to halt 4 SANOFI / FORM 20-F 2018 further “at risk” sales and order removal of the infringing product from the market. Additionally, while we would be entitled to obtain damages in such a case, the amount that we may ultimately be awarded and able to collect may be insufficient to compensate all harm caused to us. A successful result against a competing product for a given patent or in a specific country is not necessarily predictive of our future success against another competing product or in another country because of local variations in the patents and patent laws. In addition, if we lose patent protection as a result of an adverse court decision or a settlement, we face the risk that government and private third-party payers and purchasers of pharmaceutical products may claim damages alleging they have over-reimbursed or overpaid for a drug. For example, in Australia, our patent on clopidogrel was ultimately held invalid. Following this decision, the Australian Government is seeking damages for its alleged over-reimbursement of clopidogrel drugs due to the preliminary injunction we had secured against the sale of generic clopidogrel during the course of the litigation. In certain cases to terminate or avoid patent litigation, we or our collaborators may be required to obtain licenses from the holders of third-party intellectual property rights that already cover aspects of our existing and to manufacture, use and/or sell them. Any payments under these licenses may reduce our profits from such products and we may not be able to obtain these licenses on favorable terms or at all. future products in order Third parties may also request a preliminary or a permanent injunction in a country from a court of law to prevent us from marketing a product if they consider that we infringe their patent rights in that country. For example, Sanofi is currently party to patent infringement proceedings in several countries initiated against us and Regeneron by Amgen relating to Praluent® in which Amgen has requested injunctive relief (see Note D.22.b) to the consolidated financial statements included at Item 18 of this annual report for more information). If third parties obtain a preliminary or permanent injunction or if we fail to obtain a required license for a country where a valid third-party intellectual property rights as confirmed by a court of law exist, or if we are unable to alter the design of our technology to fall outside the scope of third-party intellectual property rights, we may be unable to market some of our products in certain countries, which may limit our profitability. Also, some countries may consider granting a compulsory license to a third-party to use patents protecting an innovator’s product, which limits the value of the patent protection granted to such products. We have increased the proportion of biological therapeutics in our pipeline relative to traditional small molecule pharmaceutical products. Typically, the development, manufacture, sale and distribution of biological therapeutics is complicated by third-party intellectual property rights (otherwise known as freedom to operate (FTO) the development, manufacture, sale and distribution of small molecule therapeutics, because of the types of patents allowed to a greater extent issues), than for by national patent offices. Further, our ability to successfully challenge third-party patent rights is dependent on the laws of national courts. Certain countries have laws that provide stronger bases for challenging third-party patent rights compared to the laws that are available to challenge patents in other countries. Therefore, we may be able to invalidate a certain third-party patent in one country but not invalidate counterpart patents in other countries. In addition, we expect to face increasing competition from biosimilars in the future. With the accelerated regulatory pathways provided in the US and Europe for biosimilar drug approval, biosimilars can be a threat to the exclusivity of any biological therapeutics we sell or may market in the future and can pose the same issues as the small molecule generic threat described above. Governments may adopt more permissive approval frameworks (for example, shortening the duration of data exclusivity, or narrowing the scope of new products receiving data exclusivity) which could allow competitors to obtain broader marketing approval for biosimilars including as a substitutable product, increasing competition for our products (see also “– Changes in the laws or regulations that apply to us could affect our business, results of operations and financial condition” below). If a biosimilar version of one of our products were to be approved, it could reduce our sales and/or profitability of that product. However, through our presence as a manufacturer of generics and biosimilars, we will also utilize patent challenge strategies against other innovators’ patents similar to those of long- established generic companies, though there is no assurance that these strategies will be successful. If our patents and/or proprietary rights to our products were limited or circumvented, our financial results could be materially and adversely affected. Product business, results of operations and financial condition. liability claims could adversely affect our Product liability is a significant risk for any pharmaceutical company and our product liability exposure could increase given that liability claims relating to our businesses may differ with regard to their nature, scope and level from the types of product liability claims that we have handled in the past. Substantial damages have been awarded and/or settlements agreed – notably in the United States and other common law jurisdictions – against pharmaceutical companies based on claims for injuries allegedly caused by the use of their products. Such claims can also be accompanied by consumer fraud claims by customers or third-party payers seeking reimbursement of the cost of the product. We are currently defending a number of product liability claims (see Note D.22.a) to the consolidated financial statements included at Item 18 of this annual report) and there can be no assurance that the Company will be successful in defending against these claims or will not face additional claims in the future. ITEM 3. KEY INFORMATION Often establishing the full side effect profile of a pharmaceutical drug goes beyond data derived from preapproval clinical studies which may only involve several hundred to several thousand patients. Routine review and analysis of the continually growing body of post-marketing safety surveillance and clinical trials provide additional information – for example, potential evidence of rare, population-specific or long-term adverse reactions or of drug interactions that were not observed in preapproval clinical studies – and may cause product labeling to evolve over time following including restrictions of therapeutic indications, new contraindications, warnings or precautions and occasionally even the suspension or withdrawal of a product marketing authorization. Following any of these events, pharmaceutical companies can face significant product liability claims. regulatory authorities, interactions with Furthermore, we commercialize several devices (some of which use new technologies) which, if they malfunction, could cause unexpected damage and liability claims lead (see “– Breaches of data security, disruptions of information technology systems and cyber threats could result in financial, legal, business or reputational harm”). to product Although we continue to insure a portion of our product liability with third-party carriers, product liability coverage is increasingly difficult and costly to obtain, particularly in the United States. In the future, it is possible that self-insurance may become the sole commercially reasonable means available for managing the product liability financial risk of our pharmaceuticals and vaccines businesses (see “Item 4. Information on the Company – B. Business Overview – B.9. Insurance and Risk Coverage”). In cases where we self-insure, the legal costs that we would bear for handling such claims and potential indemnifications to be paid to claimants could have a negative impact on our financial condition. Due to insurance conditions, even when we have insurance coverage, recoveries from insurers may not be totally successful. Moreover, insolvency of an insurer could affect our ability to recover claims on policies for which we have already paid a premium. Product liability claims, regardless of their merits or the ultimate success of the Company’s defense, are costly, divert management’s attention, may harm our reputation and can impact the demand for our products. Substantial product liability claims could materially adversely affect our business, results of operations and financial condition. Our products and manufacturing facilities are subject to significant government regulations and approvals, which are often costly and could in adverse consequences to our business if we fail to anticipate the regulations, comply with them and/or maintain the required approvals. result Obtaining marketing authorization is a long and highly regulated process requiring us to present extensive documentation and data to the regulatory authorities. Regulatory processes differ SANOFI / FORM 20-F 2018 5 ITEM 3. KEY INFORMATION time of from one jurisdiction and regulatory authority to another. Either at the filing of the application for a marketing the authorization or later during its review, each regulatory authority may impose its own requirements which can evolve over time, including requiring local clinical studies, and it may delay or refuse to grant approval even though a product has already been approved in another country. Health authorities are increasingly focusing on product safety and on the risk/benefit profile of pharmaceutical products. In particular, the FDA and the EMA have increased their requirements, particularly in terms of the volume of data needed to demonstrate a product’s efficacy and safety. Even after regulatory approval, marketed products are subject to continual review, risk evaluations or comparative effectiveness studies including post-marketing studies to which at times we have committed as a condition of approval. In addition, following the implementation of European pharmacovigilance legislation in 2012, the Company and the European Regulatory Agencies PRAC (Pharmacovigilance Risk Assessment Committee)) have reinforced their systematic and intensive safety signal detection systems, which may detect safety issues even with mature products that have been on the market for a considerable time. This system may result in negative risk/benefit assessments and additional market authorization suspensions or withdrawals. All of these requirements have increased the costs associated with maintaining regulatory approvals and achieving reimbursement for our products. Post-regulatory approval reviews and data analyses can lead to the issuance of recommendations by government agencies, healthcare professional and patient or other specialized organizations regarding the use of products; for example, a recommendation to limit the patient population of a drug’s indication, the imposition of marketing restrictions, or the suspension or withdrawal of the product can result in a reduction in sales volume as well as an increased risk of litigation. supervision (under the the of Moreover, to monitor our compliance with applicable regulations, the FDA, the EMA and comparable agencies in other jurisdictions routinely conduct inspections of our facilities and may identify potential deficiencies. We have received notices of deficiencies and FDA Warning Letters in the past following the inspection of some of our facilities and may receive such letters in the future. More generally, if we fail to adequately respond to Regulatory identifying a deficiency during an Inspection observations regulatory inspection, or requirements at all or within the targeted timeline, we could be subject to enforcement, remedial and/or punitive actions by the FDA (such as a Warning Letter), the EMA or other regulatory authorities. to comply with applicable fail In addition, in order to comply with our duty to report adverse events and safety signals to regulatory authorities, we must regularly train our employees and third parties (such as external sales forces and distributor employees) on regulatory matters. If we fail to train these people, or fail to train them appropriately, or they do not comply with contractual requirements, we may be exposed to the risk that safety events are not reported or not reported in a timely manner in breach of our reporting obligations. 6 SANOFI / FORM 20-F 2018 To the extent that new regulations raise the costs of obtaining and maintaining product authorizations, or limit the economic value of a new product to its originator, the growth prospects of our industry and of Sanofi would be diminished. At least 50% of our current development portfolio consists of biological products that may in the future bring new therapeutic responses to current unmet medical needs, but that may also lead to more regulatory and technical constraints. Regulations applicable to biologics are often more complex and extensive regulations applicable to other pharmaceutical products. Biologics are also costly investments from an industrial standpoint as biological products are complex to produce. These constraints and costs could adversely affect our business, results of operations and financial condition. than the Claims and investigations relating to compliance, ethics, competition law, marketing practices, pricing, human rights of workers, data protection and other legal matters could adversely affect our business, results of operations and financial condition. Our industry is heavily regulated. Our business covers an extremely wide range of activities worldwide and involves numerous partners. We are therefore obligated to comply with the laws of all countries in which we operate. However, legal requirements may vary from country to country and new requirements may be imposed on us from time to time. We have adopted a Code of Ethics (the “Code”) that requires employees to comply with applicable laws and regulations, as well as the specific principles and rules of conduct set forth in the Code. We also have policies and procedures designed to help ensure that we, our employees, officers, agents, intermediaries and other third parties comply with applicable laws and regulations (including the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, the OECD Anti-Bribery Convention, the French Anti- Corruption measures law (Sapin II) and the French duty of vigilance law and other anti-bribery laws and regulations). Notwithstanding these efforts, non compliance with laws and regulations may occur and there can be no assurance that we, our officers and/or our directors will not face liability for actions taken with respect to our business. Any failure to comply directly or indirectly (including as a result of a business partner’s breach) with the laws and regulations applicable to us, including new regulations, could result in substantial liabilities for the Company and harm the Company’s reputation. Governments and regulatory authorities around the world have been strengthening implementation and enforcement activities in recent years, including in relation to anti-bribery, anti- corruption, ethical requirements with respect to medical and scientific research, respect of human rights of workers and data protection legislation. With respect to data protection legislation, the General Data Protection Regulation (“GDPR”) has created a range of compliance obligations since it came into force within the European Union in May 2018. Violations of the GDPR carry financial risks due to penalties for data breach or improper processing of personal data (including a possible fine of up to 4% of total worldwide annual turnover for the preceding financial year for the most serious infringements) and may also harm our reputation. Also some uncertainty remains around the legal and regulatory environment for these evolving privacy and data protection laws. Sanofi and certain of its subsidiaries are under investigation or could become the subject of additional investigations or legal proceedings by various government entities and are defending a number of lawsuits relating to pricing and marketing practices (including, for example, “whistleblower” litigation in the United States). We also face litigation and government investigations or audits, including allegations of corruption, claims related to employment matters, patent and intellectual property disputes, consumer law claims and tax audits. See “Item 8. Financial Information – A. Consolidated Financial Statements and Other Financial Information – Information on Legal or Arbitration Proceedings” and Note D.22. to our consolidated financial statements included at Item 18 of this annual report. Responding to such investigations is costly and may divert management’s attention from our business. Unfavorable outcomes in any of these matters, or in similar matters that may arise in the future, could preclude the commercialization of our products, harm our reputation, negatively affect the profitability of existing products and subject us to substantial fines (including treble damages and fines based on our sales), punitive damages, penalties and injunctive or administrative remedies, potentially leading to the imposition of regulatory controls, monitoring or self-reporting additional obligations, or exclusion reimbursement from government programs or markets, all of which could have a material adverse financial effect on our business, results of operations or condition. As such proceedings are unpredictable, we may, after consideration of all relevant factors, decide to enter into settlement agreements to settle certain claims. Such settlements may involve significant monetary payments and/or criminal penalties and may include admissions of wrongdoing. Settlement of healthcare fraud cases in the United States may require companies to enter into a Corporate Integrity Agreement, which is intended to regulate company behavior for a specified period of years. In September 2018, Sanofi has reached a civil settlement with the US Securities and Exchange Commission (SEC) fully resolving the SEC’s investigation into possible violation of the US Foreign Corrupt Practices Act. Sanofi did not admit any wrongdoing in connection with the settlement but agreed to pay $25 million in penalties and also agreed to a two-year period of self-reporting on the effectiveness of its enhanced internal controls. The DOJ has also completed its related investigation and has declined to pursue any action. ITEM 3. KEY INFORMATION Changes in the laws or regulations that apply to us could affect our business, results of operations and financial condition. All aspects of our business, including research and development, manufacturing, marketing, pricing and sales, are subject to extensive legislation and governmental regulation. Changes in applicable laws and the costs of compliance with such laws and regulations could have a material adverse effect on our business. For example, governmental authorities are increasingly looking to facilitate generic and biosimilar competition to existing products through new regulatory proposals intended to achieve, or resulting in, changes to the scope of patent or data exclusivity rights and use of accelerated regulatory pathways for generic and biosimilar drug approvals. Such regulatory proposals could make patent prosecution for new products more difficult and time consuming or could adversely affect the exclusivity period for our products (see “– We rely on our patents and other proprietary rights to provide exclusive rights to market certain of our products, and if such patents and other rights were limited, invalidated or circumvented, our financial results could be materially and adversely affected” above). Regarding the United States market, on December 11, 2018, in line with the Trump Administration’s stated goal of enhancing competition for biologicals, the FDA released final guidance defining biologics, transitioning biological products approved under an NDA to a deemed biologics license application (BLA), and outlining an abbreviated pathway for biosimilar licensure. As part of the publication of the final guidance, the FDA is allowing for ongoing comments from the public, which may result in further changes or revisions to such guidance. The potential impact of ongoing comments that may result in revisions to the final guidance is unknown and may negatively affect our market exclusivity or impact pricing considerations in the future. As discussed below, however, the overall status of the Biologics Price Competition and is uncertain, based on a December 14, 2018 federal court decision which declared the Affordable Care Act (ACA), of which the BPCIA is a part, to be unconstitutional. (see “– The pricing and reimbursement of our products is increasingly affected by decisions of governments and other third parties and cost reduction initiatives” below) Incentives Act (BPCIA) This new competitive environment and the potential regulatory changes and agency guidance may further limit the exclusivity available to innovative products on the market and directly impact pricing, access and reimbursement levels, which may adversely affect our business and future results. See “Item 4. Information on the Company – B. Business Overview – B.6. Markets – B.6.2. Competition” and “– B.6.3. Regulatory framework”. In-Vitro Diagnostics Also, in Europe, the implementation of new regulations on Medical Devices and that will apply respectively in May 2020 and May 2022, may cause delays in approvals (for new drug-device combination products and new drug-device combination products and new medical devices/ IVDs), product discontinuation legacy medical devices & IVDs), and non-compliance risks (regarding post (for some SANOFI / FORM 20-F 2018 7 ITEM 3. KEY INFORMATION marketing safety reporting, Unique Device Identification (UDI), European Databank on Medical Devices (EUDAMED)), due to increased requirements in terms of approval process, post- marketing surveillance, traceability and transparency. In addition to international tax law and regulatory changes such as the OECD Base Erosion and Profit Shifting initiatives and EU directives being implemented (such as EU directive rules against tax avoidance practices or relating to the mandatory automatic exchange of information in relation to reportable cross-border arrangements) changes in tax frameworks, tax reforms and other changes to the way existing tax laws are applied in jurisdictions and major countries where Sanofi and its subsidiaries and affiliates operate could affect our income, our effective tax rate, and consequently our future net income. This particularly applies to French and US tax reforms enacted respectively in December 2018 and December 2017 for which French tax administration and some Internal Revenue Services comments, guidelines and regulations are still expected. Additional tax changes may be enacted in France for instance with respect to the corporate tax rate which could be increased back to 34.4%. These changes taxation of our operations, may cover matters such as intercompany internal restructuring and more generally taxable income, tax rates, indirect taxation, transfer pricing, R&D tax credits, taxation of intellectual property, dividend taxation, controlled companies or a restriction in certain forms of tax relief. Any of these changes could have a material adverse effect on our business and future results. Additionally, due to the complexity of the fiscal environment, the ultimate resolution of any tax matters may result in payments greater or lesser than amounts accrued. transactions, risks regarding information For in environmental rules and regulations, see “– Environmental to compliance with applicable liabilities and costs related regulations may have a significant adverse effect on our results of operations” below. to changes related Risks relating to our business Our research and development efforts may not succeed in adequately renewing our product portfolio. Discovering and developing a new product is a costly, lengthy and uncertain process. To be successful in the highly competitive pharmaceutical industry, we must commit substantial resources each year to research and development in order to develop new products to compensate for decreasing sales of products facing patent expiration and termination of regulatory data exclusivity, introduction of lower-priced generics, increasingly aggressive generic commercialization from new products of competitors that are perceived as being superior or equivalent. We must pursue both early stage research and early and late development stages in order to propose a sustainable and well-balanced portfolio of products. In 2018, we spent €5,894 million on research and development, amounting to 17.1% of our net sales. tactics or competition 8 SANOFI / FORM 20-F 2018 Our industry is driven by the need for constant innovation, but we may spread ourselves across too many areas of inquiry to be successful and may not be able to improve internal research productivity sufficiently to sustain our pipeline. We may also fail to invest in the right technology platforms, therapeutic areas, and product classes, or fail to build a robust pipeline and fulfill unmet medical needs in a timely manner. Also when we perform portfolio review we may miscalculate the probabilities of success the development. Fields of discovery, at each phase of particularly biotechnology, are highly competitive and characterized by significant and rapid technological changes. Numerous companies are working on the same targets and a product considered as promising at the very beginning of its development may become if a competitor addressing the same unmet need reaches the market earlier. less attractive The research and development process can generally take 12 to 15 years from discovery to commercial product launch. This process is conducted in various stages in order to test, along with other features, the efficacy, effectiveness and safety of a product. There can be no assurance that any of these product candidates will be proven safe or effective. See “Item 4. Information on the Company – B. Business Overview – B.5. Global Research & Development”. Accordingly, there is a substantial risk at each stage of development – including clinical studies – that we will not achieve our goals of safety and/or efficacy and that we will have to abandon a product in which we have invested substantial amounts of money and human resources, even in late stage development (Phase III). More and more trials are designed with those clinical endpoints of superiority; endpoints could damage the product’s reputation and our overall program. Decisions concerning the studies to be carried out can have a significant impact on the marketing strategy for a given product. Multiple in-depth studies can demonstrate that a product has additional benefits, facilitating the product’s marketing, but such studies are expensive and time consuming and may delay the product’s submission to health authorities for approval. Our ongoing investments in new product launches and research and in development increased costs without a proportionate increase in revenues, which would negatively affect our operating results and profitability. future products could therefore result to achieve failure for In 2015 we announced that we had up to 18 new medicines and vaccines on track to arrive on the market between 2014-2020, including six key launches. As of the end of 2018, all of those six products have already been approved and launched: Toujeo®, Praluent®, Dengvaxia®, Soliqua® 100/33 / Suliqua®, Kevzara® and Dupixent®. However, there can be no assurance that all of the products approved or launched will achieve commercial success. In addition, following (or in some cases contemporaneously with) review of a product for a marketing authorization, the medical need served by the corresponding the product and reimbursement are evaluated by governmental agencies and/or third-party payers, requiring in some cases additional studies, ITEM 3. KEY INFORMATION including comparative studies, which may effectively delay marketing, change the population which the new product treats, and add to its development costs. and step edits) or otherwise discouraging physicians from prescribing our products (see also “– The concentration of the US market exposes us to greater pricing pressure” below). After marketing approval of our products, other companies or investigators, whether independently or with our authorization, may conduct studies or analysis beyond our control that may ultimately report results negatively affecting our sales either permanently or temporarily, it may take time for us to address these reported findings, leading among other things to a material adverse impact on sales. The pricing and reimbursement of our products is increasingly affected by decisions of governments and other third parties and cost reduction initiatives. The commercial success of our existing products and our product candidates depends in part on their pricing and the conditions under which our products are reimbursed. Our products continue to be subject to increasing price and reimbursement pressure due, inter alia, to: ◆ price controls imposed by governments in many countries; ◆ increased public attention to the price of drugs and particularly price increases, limiting our ability to set the price, or to manage or increase the price of our products based upon their value; ◆ removal of a number of drugs from government reimbursement schemes (for example products determined to be less cost- effective than alternatives); ◆ partial reimbursement of patient populations within a labelled indication; ◆ increased difficulty in obtaining and maintaining satisfactory drug reimbursement rates; ◆ increase in cost containment policies (including budget limitations) related to health expenses; ◆ governmental and private health care provider policies that favor prescription of generic medicines or substitution of branded products with generic medicines; ◆ more demanding evaluation criteria applied by Health Technology Assessment (HTA) agencies when considering whether to cover new drugs at a certain price level; ◆ more governments using international reference pricing to set or manage the price of drugs based on an external benchmark of a product’s price in other countries; ◆ aggressive pricing strategies by some of our competitors; and ◆ entry of new consumer healthcare competitors offering online sales. In addition to the pricing pressures they exert, governmental and private third-party payers and purchasers of pharmaceutical products may reduce volumes of sales by restricting access to formularies formularies), managing exclusive prescribing via various conditions (including prior authorisations (including respect rebates imposed law also role with rebates and In May 2018, the government’s In the United States, the Affordable Care Act (ACA) has increased to price, reimbursement, and coverage levels for healthcare services and fees on products. This pharmaceutical companies. the Trump Administration published its American Patients First proposal, which indicates its plans to investigate the ACA’s impact on private market drug prices and potentially alter the ACA taxes and for Medicaid and Medicaid managed care organizations. On December 14, 2018, a federal judge for the Northern District of Texas, Fort Worth Division, issued a ruling declaring the ACA unconstitutional, which sets the stage for another hearing on the law by the Federal Court of Appeals for the Fifth Circuit and possibly the United States Supreme Court thereafter. Included in the many parts of the ACA that could potentially be affected by the continued litigation is the Biologics Price Competition and Incentives Act. In addition to further judicial review of the ACA, the Trump Administration and other United States federal and state officials are continuing to focus on the cost of health coverage, health care and pharmaceuticals although future policy or the timing of any changes remains unclear, creating significant risks for the sector. At the federal level, legislation like the Bipartisan Budget Act of 2018 amends the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, and also increases in 2019 the percentage by which a drug manufacturer must discount the cost of prescription drugs from 50 percent under current law to 70 percent. Further, from 2017-2018, at least seven states enacted and an additional 22 states proposed legislation which will require price transparency and reporting of certain manufacturer information. This trend is anticipated to continue to 2019, where legislation is expected regarding pricing transparency, marketing, access to drugs and other measures related to pricing. Government price reporting obligations are complex, and we face risks related to the reporting of pricing data that could affect the reimbursement of and discount provided for our products to US government healthcare programs. We also encounter cost containment issues in countries outside the United States. In certain countries, including countries in the European Union, China and Canada, the coverage of prescription drugs, and pricing and levels of reimbursement, are subject to governmental control. For example, in Europe various authorities are developing the use of tenders for expensive products and are considering joint procurement mechanisms to negotiate lower prices. See also below “– Global economic conditions and an unfavorable financial environment could have negative consequences for our business”. In China, the health authorities continue to develop measures around post the loss-of-exclusivity (LOE) brands selection of the generics validated through bioequivalence. The health authorities are testing new procurement systems targeting including SANOFI / FORM 20-F 2018 9 ITEM 3. KEY INFORMATION post LOE brands with generics demonstrating bioequivalence in four municipalities and seven major cities. While we are trying to predict the availability or level of reimbursement and for our product candidates, external events and unexpected decisions can occur that go against our expectations. restrictions related Price negotiations in a country may result in a price that is incompatible with the global price positioning of our products, which may lead us not to launch the product in that country, damaging our image and resulting in a decrease in initially anticipated sales. Finally, our operating results may also be affected by parallel imports, particularly within the European Union, whereby distributors engage in arbitrage based on national price differences to buy products in low cost markets for resale in higher cost markets. The concentration of the US market exposes us to greater pricing pressure. In the United States, price is increasingly important to managed care organizations (MCOs) and pharmacy benefit managers (PBMs), and as the MCOs/PBMs grow in size following market consolidation, pharmaceutical companies have faced increased pressure in discounting and usage negotiations, and competition among pharmaceutical companies their products included in the payers’ formularies is robust. This can lead to price discounts or rebates in connection with the placement of products. to have Exclusion of one of our drugs from a formulary can significantly reduce sales in the MCO/PBM patient population (for instance, effective 2017 Lantus®/Toujeo® were excluded from certain template formularies covering millions of people). Also, some payers in the United States have put in place significant restrictions on the usage of Praluent®, which has resulted in significant out-of-pocket expenditures for patients. As a result in 2018 we reduced the net price of Praluent for US payers that agreed to reduce burdensome access barriers for patients. Due to these pressures on our prices, our revenues and margins are, and could continue to be, negatively affected. We may lose market share to competing therapeutic options, biosimilar or generic products. We are faced with intense competition from generic products, biosimilars and brand-name drugs including from retail chains and distributors. Doctors or patients may choose competitors’ products over ours or alternative therapeutic options such as surgery if they perceive them to be safer, more reliable, more effective, easier to administer or less expensive, which could cause our revenues to decline and adversely affect our results of operations. The success of any product also depends on our ability to meet patient expectations and in certain areas such as diabetes to 10 SANOFI / FORM 20-F 2018 deliver a positive patient experience. We need also to educate to patients when permissible and promote our products healthcare providers by providing them with innovative data about the product and its uses including through the use of digital tools. If these education efforts are not effective, we may not be able to increase the sales of our products or realize the full value of our investment in their development. We may not be able to anticipate precisely the date of market entry of generics or biosimilars or the potential impact on our sales, both of which depend on numerous parameters. The introduction of a generic version of a branded medicine typically results in a significant and rapid reduction in net sales for the branded product because generic manufacturers typically offer their unbranded versions at significantly lower prices, resulting in adverse price and volume effects for our genericized products. For example, although we do not believe it is possible to state with certainty what level of net sales would have been achieved in the absence of generic competition, a comparison of our consolidated net sales for 2018 and 2017 for products affected by generic and biosimilar competition shows a loss of €1,749 million of net sales on a reported basis. However, other parameters may have contributed to the loss of sales, such as a fall in the average price of certain products (e.g. Lantus®). Also mandatory price regulations apply to off-patent products and classes of products, and generics prices are taken into account for international reference pricing and tenders. Substitution is often permitted for generic products that are considered to be interchangeable or clinically identical. Competition, including from non-substitutable biosimilars, would likely result in a decrease in prices, additional rebates, increased promotion efforts and lower margins. in certain countries Approval of a generic or biosimilar that is substitutable for one of our products would increase the risk of accelerated market penetration by that generic or biosimilar to a greater extent than would be the case for a non-substitutable product. These trends are exacerbated by applicable legislation which encourages the use of generic products to reduce spending on prescription drugs in many countries such as the United States, France and Germany. Therefore, the market for our products could also be affected if a competitor’s innovative drug in the same market were to become available as a generic because a certain number of patients can be expected to switch to a lower- cost alternative therapy. We expect this generic competition to continue and to affect more of our products, including those with relatively modest sales. The manufacture of our products is technically complex, and supply interruptions, product recalls or inventory losses caused by unforeseen events may reduce sales, adversely affect our operating results and financial condition, delay the launch of new products and negatively impact our image. Many of our products are manufactured using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints and are heavily ITEM 3. KEY INFORMATION regulated by governmental health authorities around the world. Whether our products and the related raw materials are manufactured at our own dedicated manufacturing facilities or by third parties, we must ensure that all manufacturing processes comply with current Good Manufacturing Practices (cGMP) and other applicable regulations, as well as with our own quality standards. Third parties supply us with a portion of our raw materials, active ingredients and medical devices, which exposes us to the risk of a supply shortage or interruption in the event that these suppliers are unable to manufacture our products in line with quality standards or if they experience financial difficulties. Further, some raw materials essential to the manufacture of our products are not widely available from sources we consider reliable; for example, we have approved only a limited number of suppliers of heparins for use in the manufacture of Lovenox®. Any of these factors could adversely affect our business, operating results or financial condition. See “Item 4. Information on the Company – B. Business Overview – B.8. Production and Raw Materials” these outsourcing arrangements. for a description of Our products are also increasingly reliant on the use of product- specific devices for administration which may result in technical issues. For example, Praluent® is administered with an auto- injector manufactured by a third party. We must also be able to produce sufficient quantities of our products to satisfy demand. We may have difficulties transforming and adapting our existing plants to manufacture new products, including biologics, and scaling up production of they are our products currently under development once approved. We may fail to develop and maintain technology platforms for developing, launching and manufacturing our biological products. We also need to be and remain competitive in the biologic area in terms of manufacturing capabilities. Our biological products, in particular, are subject to the risk of manufacturing stoppages or the risk of loss of inventory because of the difficulties inherent in the processing of biological materials and the potential difficulties in accessing adequate amounts of raw materials meeting required standards. These difficulties may also be encountered during testing, which is a mandatory requirement for the products to be released. For example, in China, we encountered supply constraints of Pentaxim® vaccine in 2018 due to a problem with a supplier of a raw material used in the formulation of Pentaxim® vaccine for China. As a result we had to find an alternative raw material to meet the Chinese requirements. Effective for biological products may also be difficult to obtain in the event of contaminated batches as the cause of the contamination can be difficult to ascertain (for the impact on our financial statements see “– Impairment charges or write-downs in our books and changes in accounting standards could have a significant adverse effect on Sanofi’s results of operations and financial results.” below) insurance coverage Additionally, specific conditions must be respected both by Sanofi and our customers for the storage and distribution of many of our biological products. For example, cold storage is required for certain vaccines, insulin-based products and some hemophilia products. Failure to adhere to these requirements may result in lost product inventory or products becoming out of specification, which in turn may result in efficacy or safety issues for patients. The complexity of these processes, as well as strict internal and health authority standards for the manufacture of our products, subject us to risks because the investigation and remediation of any identified or suspected problems can cause production delays, substantial expense, product recalls or lost sales and inventories, and delay the launch of new products; this could adversely affect our operating results and financial condition, and cause reputational damage and the risk of product liability (see – “Product liability claims could adversely affect our business, results of operations and financial condition” above). When manufacturing disruptions occur, we may not have alternate manufacturing capacity, particularly for certain biologics. In the event of manufacturing disruptions, our ability to use backup facilities or set up new facilities is more limited because biologics are more complex to manufacture and generally require dedicated facilities. Even though we aim to have backup sources of supply whenever possible, including by manufacturing backup supplies of our principal active ingredients at additional facilities when practicable, we cannot be certain they will be sufficient if our principal sources become unavailable. Switching sources and manufacturing requires facilities significant time and prior approval by health authorities. Supply shortages generate even greater negative reactions when they occur with respect to life saving medicines with limited or no viable therapeutic alternatives. Shortages of products can have a negative impact on the confidence of patients, customers and professional healthcare providers and the image of Sanofi and may lead to lower product revenues. Government authorities and regulators in the United States, in the European Union and other agencies worldwide are also considering measures to reduce these risks, such as through Supply Risk Management Plans for some products with high medical need, e.g. the French decree of July 2016 concerning the preparation of shortage management plans (“plans de gestion des pénuries”). It cannot be ruled out that these ongoing initiatives may generate additional costs for Sanofi if they result in a requirement to establish backup supply channels or to increase inventory levels to avoid shortages. to We are sometimes required to use animals to test our products in the development phase and test our vaccines before distributing them. Animal testing activities have been the subject of controversy and adverse publicity. Testing on animals can be vital for the development or commercialization of a product. If applicable regulations were to ban this practice or if, due to pressure from animal welfare groups, we were no longer able to source animals to perform such tests, it would be difficult and in some cases impossible to develop or distribute our products in certain jurisdictions under the applicable marketing authorizations. SANOFI / FORM 20-F 2018 11 ITEM 3. KEY INFORMATION We rely on third parties for the discovery, manufacture and marketing of some of our products. Our industry is both highly collaborative and competitive, whether in the discovery and development of new products, in-licensing, the marketing and distribution of approved products, or manufacturing activities. We expect that we will continue to rely on third parties for key aspects of our business and we need to ensure our attractiveness as a potential partner. We conduct a number of significant research and development programs and market some of our products in collaboration with other biotechnology and pharmaceutical companies. For example, we currently have a global strategic collaboration with Regeneron on monoclonal antibodies. In immuno-oncology, we have a global collaboration for the joint development and commercialization of cemiplimab, a programmed cell death protein 1 (PD-1) inhibitor antibody. We have also an immuno- oncology discovery and development agreement on the development of two clinical-stage bispecific antibody programs targeting respectively (i) BCMA and CD3 and (ii) MUC16 and CD3. (See “Item 4. Information on the Company – B. Business Overview”). In addition we may also rely on partners to design and manufacture medical devices, notably for the administration of our products. As regards products recently launched or under development in our R&D portfolio for which we have an alliance arrangement with a partner, the terms of the alliance agreements may require us to share profits and losses arising from commercialization of such products with our partners. This differs from the treatment of revenue and costs generated by other products for which we have no alliance agreement, and such profit sharing may deliver a lower contribution to our financial results. If disruptions or quality concerns were to arise in the third-party supply of raw materials, active ingredients or medical devices or if our partners were unable to manufacture a product, this could also adversely affect our ability to sell our products in the quantities demanded by the market and could damage our reputation and relationships with our customers. See also “– The manufacture of our products is technically complex, and supply interruptions, product recalls or inventory losses caused by unforeseen events may reduce sales, adversely affect our operating results and financial condition, delay the launch of new products and negatively impact our image” above. When we research and market our products through collaboration agreements, we are also subject to the risk that we may not adequately manage our alliance. For instance, we may not properly manage the decision making process with our partners. Decisions may also be under the control of or subject to the approval of our collaboration partners, who may have views that differ from ours. We are also subject to the risk that our partners may not perform effectively, which could have a detrimental effect when the performance of certain key tasks or functions is the responsibility of our collaboration partners. Failures the development process or differing priorities may adversely affect the activities conducted through the collaboration arrangements. in 12 SANOFI / FORM 20-F 2018 Any conflicts or difficulties that we may have with our partners during the course of these agreements or at the time of their renewal or renegotiation, or any disruption in the relationships with our partners, may affect the development, the launch and/or the marketing of certain of our products or product candidates and may cause a decline in our revenues or otherwise negatively affect our results of operations. A substantial share of the revenue and income of Sanofi continues to depend on the performance of certain flagship products. We generate a substantial share of our revenues from the sale of certain key products (see “Item 5. Operating and Financial Review and Prospects – Results of Operations – Year ended December 31, 2018 compared with year ended December 31, 2017 – Net Sales – Pharmaceuticals segment”). Among our flagship products, Lantus®, Lovenox® and Plavix® already face generic competition on the market. Lantus® is particularly important; it was Sanofi’s leading product with revenues of €3,565 million in 2018, representing 10.3% of Sanofi’s net sales for the year. Aubagio®, following a settlement agreement entered into in 2017, is expected to face generic competition starting from August 2023. The launch of new medicines and vaccines in other therapeutic areas and the performance of our other businesses may not be sufficient to reduce the relative contribution of the products mentioned above to our overall performance. More generally expiration of effective intellectual property protections for our products typically results in the entry of one or more lower-priced generic competitors, often leading to a rapid and severe decline in revenues on those products (for information on the expected impact of biosimilar entry on the market see “– We may lose market share to competing therapeutic options, biosimilar or generic products” above and for information regarding ongoing patent litigation see Note D.22. to the consolidated financial statements included at Item 18 of this annual report). Furthermore, in general, if one or more of our flagship products were to encounter problems such as material product liability litigation, unexpected side effects, recall, regulatory proceedings, publicity affecting doctor or patient confidence, pressure from existing competitive products, exclusion from formularies or changes in labeling, or if a new, more effective treatment were introduced, or if there were a reduction in sales or a decline in sales growth of one or more of our flagship products, the adverse impact on our business, results of operations and financial condition could be significant. Breaches of data security, disruptions of information technology systems and cyber threats could result in financial, legal, business or reputational harm. technology systems, Our business depends heavily on the use of interdependent Internet-based information systems and digital tools. Certain key areas such as research and development, production and sales are to a large extent dependent on our information systems (including cloud-based including ITEM 3. KEY INFORMATION computing) or those of third-party providers (including for the storage and transfer of critical, confidential, sensitive or personal information regarding our patients, clinical trials, vendors, customers, employees, collaborators and others). We and our third-party service providers use secure information technology systems for the protection of data and threat detection. Like many companies, we may experience certain of these events given that the external cyber-attack threat continues to grow and there can be no assurance that our efforts or those of our third- party service providers to implement adequate security and control measures would be sufficient to protect against breakdowns, service disruption, data deterioration or loss in the event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyber-attack, security breach, industrial espionage attacks or insider threat attacks which could result in financial, legal, business or reputational harm. Any such event could negatively impact important processes, such as the conduct of scientific research and clinical trials, the submission of the results of such efforts to health authorities in support of requests for product approvals, the functioning of our manufacturing and supply chain processes, our compliance with legal obligations and other key business activities, including our employees’ ability to communicate with one another and with third parties. (see “– Product liability claims could adversely affect our business, results of operations and financial condition” above) In addition, if we do not allocate and effectively manage the resources necessary to build and maintain our information systems, and require our third-party service providers, suppliers, contract manufacturers, distributors or other third parties to do the same, or if we or they fail to timely identify or appropriately respond to cyberattacks or other incidents, our business could be disrupted, potentially damaging our customers’ health or business and negatively impacting our reputation, business and results of operations. Although we maintain insurance coverage, this insurance may not be sufficiently available in the future to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems. For example, certain types of cyber-attacks could be considered as an Act of War subject to insurance exclusion. Failure of our business continuity planning in the event of a crisis incident may affect our results of operations and our reputation. We may not be adequately prepared and/or able to respond effectively to a crisis incident (for instance in the event of a pandemic, natural disaster, a manufacturing, logistics or information technology systems breakdown, or a cyber-attack). This could result in a delay or interruption of supply, or a threat to our business and assets, as well as to the safety of our employees. If we cannot mitigate the impact of the incident because we cannot react rapidly or because we cannot implement a business continuity plan in line with the magnitude of the incident, we could be prevented from restoring our operations in a timely manner and our operating results may be negatively impacted, as well as our image and reputation. We are subject to the risk of non-payment by our customers.(1) in particular We run the risk of delayed payments or even non-payment by our customers, which consist principally of wholesalers, distributors, pharmacies, hospitals, clinics and government agencies. This risk is accentuated by recent concentrations among distributors, as well as by uncertainties around global credit and economic conditions, in emerging markets. The United States poses particular customer credit risk issues because of the concentrated distribution system: our three main customers represented respectively 9%, 6% and 4% of our consolidated net sales in 2018. We are also exposed to large wholesalers in other markets, particularly in Europe. Although we assigned receivables to factoring companies or banks, an inability of one or more of these wholesalers to honor their debts financial condition to us could adversely affect our (see Note D.34. to our consolidated financial statements included at Item 18 of this annual report). In some countries, some customers are public or subsidized health systems. The economic and credit conditions in these countries may lead to an increase in the average length of time needed to collect on accounts receivable or the ability to collect 100% of receivables outstanding. Because of this context, we may need to reassess the recoverable amount of our debts in these countries during future financial years (see also “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Liquidity.”). Global economic conditions and an unfavorable financial environment could have negative consequences for our business.(2) Over the past several years, growth of the global pharmaceutical market has become increasingly tied to global economic growth. In this context, a substantial and lasting slowdown of the global economy, major national economies or emerging markets could negatively affect growth in the global pharmaceutical market and, as a result, adversely affect our business. Unfavorable economic conditions have reduced the sources of funding for national social security systems, leading to austerity including heightened pressure on drug prices, measures (1) Information in this section is supplementary to Notes B.8.8. (with respect to information required by IFRS 7), D.10 and D.34 to our consolidated financial statements included at Item 18 of this annual report. (2) Information in this section is supplementary to Note B.8.8. to our consolidated financial statements included at Item 18 of this annual report, with respect to information required by IFRS 7. SANOFI / FORM 20-F 2018 13 ITEM 3. KEY INFORMATION increased substitution of generic drugs, and the exclusion of certain products from formularies. Further, our net sales may be negatively impacted by the continuing challenging global economic environment, as high unemployment, increases in cost-sharing, and lack of developed third-party payer systems in certain regions may lead some patients to switch to generic products, delay treatments, skip doses or use other treatments to reduce their costs. In the United States there is a consistent increase in the number of patients the Medicaid program, under which sales of pharmaceuticals are subject to substantial rebates and, in many US states, to formulary restrictions limiting access to brand-name drugs, including ours. Also, employers may seek to transfer a greater portion of healthcare costs to their employees due to rising costs. in Our Consumer Healthcare business could also be adversely impacted by difficult economic conditions that limit the financial resources of our customers. If economic conditions worsen, or in the event of default or failure of major players including wholesalers or public sector buyers financed by insolvent states, the financial situation of the Company, its results of operations and the distribution channels of its products may be adversely affected. See also “We are subject to the risk of non-payment by our customers” above. Economic and financial difficulties may have an adverse impact on third parties who are important to our business, including collaboration partners and suppliers, which could cause such third parties to delay or disrupt performance of their obligations to us and could materially adversely affect our business or results of operations. See “– We rely on third parties for the discovery, manufacture and marketing of some of our products” above. For more information see “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Liquidity.” The impact of “Brexit” could negatively affect our business Following the “Brexit” vote in the UK, the EU decided to move the headquarters of the EU’s health authority, the EMA, from the UK to the Netherlands by March 2019. It is expected that a significant percentage of the current employees of the EMA will decide not to make the move to the Netherlands. This raises the possibility that new drug approvals in the EU could be delayed as a result. We are also addressing the impact of Brexit on our supply chain management and quality oversight between the UK and the EU and our internal Brexit Task Force is developing and deploying appropriate contingency plans aiming at avoiding interruption of supply to patients in the event of a ‘hard Brexit’ – see Item 4. Business Overview – B.6.3.8. Other new legislation proposed or pending implementation – Brexit and “– The globalization of our business exposes us to increased risks in specific areas” below). 14 SANOFI / FORM 20-F 2018 Counterfeit versions of our products harm our business. Counterfeiting activities and the presence of counterfeit products in a number of markets and over the Internet continue to be a challenge for maintaining a safe drug supply. Counterfeit products are frequently unsafe or ineffective, and can be life- threatening. To distributors and users, counterfeit products may be visually indistinguishable from the authentic version. Reports of adverse reactions to counterfeit drugs along with increased levels of counterfeiting could be mistakenly attributed to the authentic product, affect patient confidence in the authentic product, and harm the business of companies such as Sanofi. If one of our products were to be the subject of counterfeits, we could incur substantial reputational and financial harm. See “Item 4. Information on the Company – B. Business Overview – B.6. Markets – B.6.2. Competition.” The expansion of social media platforms and new technologies present risks and challenges for our business and reputation. We increasingly rely on social media, new technologies and digital tools to communicate about our products and diseases or to provide health services. The use of these media requires specific attention, monitoring programs and moderation of comments. For example, patients may use these channels to comment on the effectiveness of a product and to report an alleged adverse event. When such questions arise, the nature of evidence-based health care and restrictions on what pharmaceutical manufacturers may say about their products are not always well suited to rapidly defending Sanofi or the public’s legitimate interests in the face of the political and market pressures generated by social media and rapid news cycles, and this may result in commercial harm, overly restrictive regulatory In addition, actions and erratic share price performance. unauthorized communications, such as press releases or posts on social media, purported to be issued by Sanofi, may contain information that is false or otherwise damaging and could have an adverse impact on our stock price. Negative or inaccurate posts or comments about Sanofi, our business, directors or officers on any social networking website could seriously damage our reputation. In addition, our employees and partners may use social media and mobile technologies inappropriately, which may give rise to liability for Sanofi, or which could lead to breaches of data security, loss of trade secrets or other intellectual property or public disclosure of sensitive information, including information about our employees, clinical trials or customers or other information. Such uses of social media and mobile technologies could have a material adverse effect on our reputation, business, financial condition and results of operations. Impairment charges or write-downs in our books and in accounting standards could have a changes significant adverse effect on Sanofi’s results of operations and financial results. Substantial value is allocated to intangible assets and goodwill resulting from business combinations, as disclosed at Note D.4. to our consolidated financial statements included in this annual report at Item 18, which could be substantially written down in value upon indications of impairment (primarily relating to pharmacovigilance, discontinued research and development projects, patent litigation and the launch of competing products), with adverse effects on our financial condition and the value of our assets. If any of our strategic equity investments decline in value and remain below cost for an extended period, we may be required to write down our investment. We own a significant stake in Regeneron Pharmaceuticals, Inc. (21.7% of its share capital as of December 31, 2018), which is listed on NASDAQ and has been accounted for using the equity method since 2014. Any material deterioration in Regeneron’s share price or financial performance would be an indicator that the value of our investment might have become impaired. This would require us to perform an impairment test, which could have a negative impact on our financial statements. In addition, the inherent variability of biologics manufacturing increases the risk of write-offs of these products. Due to the value of the materials used, the carrying amount of biological products is much higher than that of small-molecule products. The financial environment and the economic difficulties affecting some countries could also negatively affect the value of our assets (see “– Global economic conditions and an unfavorable financial environment could have negative consequences for our business” above and “– Fluctuations in currency exchange rates could adversely affect our results of operations and financial condition” below). revised accounting standards, Any new or rules and interpretations issued by the IASB (International Accounting Standards Board) could also result in changes to the recognition of income and expense that may materially and adversely affect Sanofi’s financial results. Our pension liabilities are affected by factors such as the performance of plan assets, interest rates, actuarial data and experience and changes in laws and regulations. Our future funding obligations for our main defined-benefit pension plans depend on changes in the future performance of assets held in trust for these plans, the interest rates used to determine funding levels (or company liabilities), actuarial data and experience, inflation trends, the level of benefits provided for by the plans, as well as changes in laws and regulations. Adverse changes in those factors could increase our unfunded obligations under such plans, which would require more funds to be contributed and hence negatively affect our cash flow and results (see Note D.19.1. to our consolidated financial statements included at Item 18 of this annual report). ITEM 3. KEY INFORMATION Risks relating to Sanofi’s structure and strategy Our strategic objectives for long-term growth may not be fully realized. In November 2015, we outlined our strategic roadmap for the period 2015-2020. Our strategy rests on four pillars: reshape our portfolio, deliver outstanding launches, sustain innovation in R&D and simplify our organization. We may not be able to fully realize our strategic objectives and, even if we are able to do so, these strategic objectives may not deliver the expected benefits or within the expected timeline. We are looking to reshape our portfolio through acquisitions and divestitures and may not reach this objective if we are unable to identify opportunities, or enter into agreements in a timely manner or on sufficiently attractive terms. In addition, we may fail to (i) adopt the best strategy for our acquisitions / divestitures or (ii) compete successfully intensively competitive, increasingly focused market environment. (see “– We may fail to successfully identify external business opportunities or realize the anticipated benefits investments or divestments” below and “Our research and development efforts may not succeed in adequately renewing our product portfolio” above). We may also not have the necessary flexibility to appropriately reallocate resources toward our priority businesses. from our strategic in an The successful launch of a new pharmaceutical product involves substantial investment in sales and marketing activities. In 2015 we announced that we have up to 18 new medicines and vaccines on track to arrive on the market between 2014-2020 including six key launches. As of the end of 2018, all of those six products have already been approved and launched: Toujeo®, Praluent®, Dengvaxia® and Soliqua® 100/33 / Suliqua®, Kevzara® and Dupixent®. However there can be no assurance that all of these products will achieve commercial success. We may also encounter failures or delays in our launch strategy. For example, Dengvaxia® sales suffer from political changes and economic volatility the recommendation to update the label at the end of 2017 following new clinical studies. In addition, in the Philippines, Sanofi received a legal order revoking the Dengvaxia® License in early 2019. In addition, the implementation of utilization management restrictions by payers in the United States and limited market access in Europe hampered our launch strategy on Praluent®. The launch strategy we develop (in terms of timing, pricing, market access, marketing efforts and dedicated sales forces) may not deliver the benefits that we expect. The competitive environment for a given product may also have changed by the time of the actual launch, modifying our initial expectations. The need to prioritize the allocation of resources may also cause delays in or hamper the launch of some of our products. in Latin America and also from Sustaining innovation in R&D is inherently risky due to the high rate of failure and we may not be able to allocate our resources to obtain optimal results (see also “– Our research and development efforts may not succeed in adequately renewing our product portfolio” above). Our global organization through the implementation from January 2016 of five global business units (GBUs), and their reorganization SANOFI / FORM 20-F 2018 15 ITEM 3. KEY INFORMATION from 2019 to refocus two GBUs (Primary Care and China and Emerging Markets) to meet significant growth objectives, requires substantial attention from our management. There is no guarantee that this organization will enable Sanofi to concentrate its efforts around the businesses most likely to deliver growth, or that these GBUs will grow in line with anticipated growth rates or deliver the expected benefits. Also we need to simplify our organization to gain agility and generate savings. There is no certainty that we will manage to implement these changes within the appropriate time-frames to support our growth strategy. We have also defined a focused, competitive digital strategy (see Item 4. Information on the Company – B. Business Overview – B.1. Strategy). Our seven priority digital initiatives use digital to create value in two ways: (i) helping us run our business better, faster, and cheaper as we use digital across our value chain to increase productivity, and (ii) introducing new business models (in diabetes). Nevertheless we may fail to capture the benefits of digital at an appropriate cost and/or in a timely manner. Competitors, including new entrants such as tech companies, may outpace us in this fast-moving area. Failure to support and grow our marketed products, successfully execute the launches of newly approved products, advance our late-stage pipeline, manage the change of our organization or deliver digital transformation would have an adverse impact on our business, prospects and results of operations. We may fail to successfully identify external business opportunities or realize the anticipated benefits from our strategic investments or divestments. We pursue a strategy of selective acquisitions, in-licensing and collaborations in order to reinforce our pipeline and portfolio. We are also proceeding to selective divestments to focus on key business areas. The implementation of this strategy depends on our ability to identify transaction opportunities, mobilize the appropriate resources and execute these transactions on acceptable financing terms. Moreover, entering into in-licensing or collaboration agreements generally requires the payment of significant “milestones” well before the relevant products reach the market, without any assurance that such investments will ultimately become profitable in the long term (see Note D.21.1. to the consolidated financial statements included at Item 18 of this annual report and also – “We rely on third parties for the discovery, manufacture and marketing of some of our products” above). For newly acquired activities or businesses our growth objectives could be delayed or ultimately not realized, and expected synergies could be adversely impacted if: ◆ we are unable to quickly or efficiently integrate those activities or businesses; ◆ integration takes longer than expected; ◆ key employees leave; or ◆ we have higher than anticipated integration costs. For divestments, the financial benefit could be impacted if we face significant financial claims or price adjustment post closing. In March 2018 and June 2018, we completed the acquisitions of Bioverativ and Ablynx respectively, but the expected benefits of those transactions may never be fully realized or may take longer to realize than expected. We may miscalculate the risks associated with business development transactions at the time they are made or not have the resources or ability to access all the relevant information to evaluate them properly, including with regard to the potential of research and development pipelines, manufacturing issues, compliance issues, or the outcome of ongoing legal and other proceedings. It may also take a considerable amount of time and be difficult to implement a risk analysis and risk mitigation plan after the acquisition of an activity or business is completed due to lack of historical data. As a result, risk management and coverage of such risks, particularly through insurance policies, may prove to be insufficient or ill-adapted. Because of the active competition among pharmaceutical groups for such business development opportunities, there can be no assurance of our success in completing these transactions when such opportunities are identified. The globalization of our business exposes us to increased risks in specific areas. We continue to focus on emerging markets. However, difficulties in operating in emerging markets, a significant decline in the anticipated growth rate in these regions or an unfavorable movement of the exchange rates of these countries’ currencies against the euro could impair our ability to take advantage of these growth opportunities and could affect our business, results of operations or financial condition (see also “– Global economic conditions and an unfavorable financial environment could have negative consequences for our business” above). The expansion of our activities in emerging markets also exposes us to more volatile economic conditions, political instability (including a backlash in certain areas against free trade), competition from multinational or locally based companies that are already well established in these markets, the inability to adequately respond to the unique characteristics of emerging markets (particularly with respect to their underdeveloped judicial systems and regulatory frameworks), difficulties in recruiting qualified personnel or maintaining the necessary internal control systems, potential exchange controls, weaker intellectual property protection, higher crime levels (particularly with respect to counterfeit products (see “– Counterfeit versions of our products harm our business” above)), and compliance issues including corruption and fraud (see “– Claims and investigations law, marketing relating practices, pricing, human rights of workers, data protection and other legal matters could adversely affect our business, results of operations and financial condition” above). to compliance, ethics, competition We may also face compliance and internal control systems issues in mature markets due to increased competition and more complex and stringent regulations. 16 SANOFI / FORM 20-F 2018 In Europe, there is a risk that barriers to free trade and the free movement of people may rise following the United Kingdom’s “Brexit” vote and the rise of nationalist, separatist and populist sentiment in various countries. Also, international conflicts, barriers to free trade and related restrictions could collectively disturb the international flow of goods and increase the costs and difficulties of international transactions. As a global healthcare leader, we are exposed to a number of risks inherent in sectors in which we were previously less active such as consumer healthcare. The business models and trade regarding channels promotional efforts and trade terms for example, are different from those in our traditional pharmaceuticals business. in consumer healthcare, in particular Our success depends in part on our senior management team and other key employees and our ability to attract, integrate and retain key personnel and qualified individuals in the face of intense competition. We depend on the expertise of our senior management team and other key employees. In addition, we rely heavily on recruiting and retaining talented people to help us meet our strategic objectives. We face intense competition for qualified individuals for senior management positions, or in specific geographic regions or in specialized fields such as clinical development, biosciences and devices, or digital and artificial intelligence. In addition, our ability to hire qualified personnel also depends in part on our ability to reward performance, incentivize our employees and to pay competitive compensation. Laws and regulations on executive compensation may restrict our ability to attract, motivate and retain the required level of talented people. The inability to attract, integrate and/or retain highly skilled personnel, in particular those in leadership positions, may weaken our succession plans, may materially adversely affect the implementation of our strategy and our ability to meet our strategic objectives and could ultimately adversely impact our business or results of operations. Environmental risks of our industrial activities Risks from the handling of hazardous materials could adversely affect our results of operations. Manufacturing activities, such as the chemical manufacturing of the active ingredients in our products and the related storage and transportation of raw materials, products and waste, expose us to various risks, including: ◆ fires and/or explosions; ◆ storage tank leaks and ruptures; or ◆ discharges or releases of toxic or pathogen substances. These operating risks can cause personal injury, property damage and environmental contamination, and may result in the shutdown of affected facilities and/or the imposition of civil, administrative, criminal penalties and/or civil damages. ITEM 3. KEY INFORMATION The occurrence of any of these events may significantly reduce the productivity and profitability of a particular manufacturing facility and adversely affect our operating results and reputation. Although we maintain property, business interruption and casualty insurance that we believe is in accordance with customary insurance may not be adequate to fully cover all potential hazards incidental to our business. industry practices, this Environmental liabilities and costs related to compliance with applicable regulations may have a significant adverse effect on our results of operations. The environmental laws of various jurisdictions impose actual and potential obligations on our Company remediate contaminated sites. These obligations may relate to sites: to ◆ that we currently own or operate; ◆ that we formerly owned or operated; or ◆ where waste from our operations was disposed. the need These environmental remediation obligations could significantly reduce our operating results. Sanofi accrues provisions for remediation when our management believes is probable and that it is reasonably possible to estimate the cost. See “Item 4. Information on the Company – B. Business Overview – B.10. Health, Safety and Environment (HSE)” for additional information regarding our environmental policies. In particular, our provisions for these obligations may be insufficient if the assumptions underlying these provisions prove incorrect or if we are held responsible for additional, currently undiscovered contamination. These judgments and estimates may later prove inaccurate, and any shortfalls could have a material adverse effect on our results of operations and financial condition. We are or may become involved in claims, lawsuits and administrative proceedings relating to environmental matters. Some current and former Sanofi subsidiaries have been named as “potentially responsible parties” or the equivalent under the US Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (also known as “Superfund”), and similar statutes in France, Germany, Italy, Brazil and elsewhere. As a matter of statutory or contractual obligation, we and/or our subsidiaries may retain responsibility for environmental liabilities at some of the sites of our predecessor companies, or of subsidiaries that we demerged, divested or may divest. We have disputes outstanding regarding certain sites no longer owned by the Company. An adverse outcome in such disputes might have a significant adverse effect on our operating results. See Note D.22.d) financial to statements included at Item 18 of this annual report and “Item 8. Financial Information – A. Consolidated Financial Statements and Other Financial Information – Information on Legal or Arbitration Proceedings”. the consolidated Environmental regulations are evolving. For example, in Europe, new or evolving regulatory regimes include REACH, CLP/GHS, SEVESO, the the Waste Framework Directive, IPPC/IED, SANOFI / FORM 20-F 2018 17 ITEM 3. KEY INFORMATION Emission Trading Scheme Directive, the Water Framework Directive, the Directive on Taxation of Energy Products and Electricity and several other regulations aimed at preventing global warming. Stricter environmental, safety and health laws and enforcement policies could result in substantial costs and liabilities to our Company and could subject our handling, manufacture, use, reuse or disposal of substances or pollutants, site restoration and compliance to more rigorous scrutiny than is currently the case. Consequently, compliance with these laws could result in significant capital expenditures as well as other costs and liabilities, thereby adversely affecting our business, results of operations or financial condition. For more detailed information on environmental issues, see “Item 4. Information on the Company – B. Business Overview – B.10. Health, Safety and Environment (HSE).” Natural disasters prevalent in certain regions in which we do business could affect our operations. Some of our production sites are located in areas exposed to natural disasters, such as earthquakes, floods and hurricanes. Such disasters could be exacerbated in a context of global warming. In the event of a major disaster we could experience severe destruction or interruption of our operations and production capacity. As a result, our operations and our employees could suffer serious harm which could have a material adverse effect on our business, financial condition and results of operations. Risks related to financial markets(1) Fluctuations in currency exchange rates could adversely affect our results of operations and financial condition. Because we sell our products in numerous countries, our results of operations and financial condition could be adversely affected by fluctuations in currency exchange rates. We are particularly sensitive to movements in exchange rates between the euro and the US dollar, the Japanese yen, the Chinese Yuan and to currencies in emerging markets. In 2018, 33.5% of our net sales were generated in the United States; 22.2% in Emerging Markets other than China (see the definition in “Item 5. Operating and Financial Review and Prospects – A/ Operating results”), including countries that are, or may in future become, subject to exchange controls; 7.1% in China; and 5.0% in Japan. While we incur expenses in those currencies, the impact of currency exchange rates on these expenses does not fully offset the impact of currency exchange rates on our revenues. As a result, currency exchange rate movements can have a considerable impact on our earnings. When deemed appropriate and when technically feasible, we enter into transactions to hedge our exposure foreign exchange risks. These efforts, when undertaken, may fail to offset the effect of adverse currency exchange rate fluctuations on our results of operations or information concerning our financial condition. For more to exchange rate exposure, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” Risks relating to an investment in our shares or ADSs Foreign exchange fluctuations may adversely affect the US dollar value of our ADSs and dividends (if any). Holders of ADSs face exchange rate risk. Our ADSs trade in US dollars and our shares trade in euros. The value of the ADSs and our shares could fluctuate as the exchange rates between these currencies fluctuate. If and when we pay dividends, they would be denominated in euros. Fluctuations in the exchange rate between the euro and the US dollar will affect the US dollar amounts received by owners of ADSs upon conversion by the depositary of cash dividends, if any. Moreover, these fluctuations may affect the US dollar price of the ADSs on the Nasdaq Global Select Market (Nasdaq) whether or not we pay dividends, in addition to any amounts that a holder would receive upon our liquidation or in the event of a sale of assets, merger, tender offer or similar transaction denominated in euros or any foreign currency other than US dollars. Persons holding ADSs rather than shares may have difficulty exercising certain rights as a shareholder. Holders of ADSs may have more difficulty exercising their rights as a shareholder than if they directly held shares. For example, if we issue new shares and existing shareholders have the right to subscribe for a pro rata portion of the new issuance, the depositary is allowed, at its own discretion, to sell this right to subscribe for new shares for the benefit of the ADS holders instead of making that right available to such holders. In that case, ADS holders could be substantially diluted. Holders of ADSs must also instruct the depositary how to vote their shares. Because of the this additional procedural step depositary, the process for exercising voting rights will take longer for holders of ADSs than for holders of shares. ADSs for which the depositary does not receive timely voting instructions will not be voted at any meeting. involving Our largest shareholder owns a significant percentage of the share capital and voting rights of Sanofi. As of December 31, 2018, L’Oréal held approximately 9.48% of our issued share capital, accounting for approximately 16.95% of the voting rights (excluding treasury shares) of Sanofi. See “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders.” Affiliates of L’Oréal currently serve on our Board of Directors. To the extent L’Oréal continues to hold a large percentage of our share capital and voting rights, it will remain in a position to exert greater influence in the appointment of the directors and officers of Sanofi and in other corporate actions that require shareholders’ approval. (1) Information in this section is supplementary to Note B.8.8. to our consolidated financial statements included at Item 18 of this annual report with respect to information required by IFRS 7. 18 SANOFI / FORM 20-F 2018 ITEM 3. KEY INFORMATION Sales of our shares may cause the market price of our shares or ADSs to decline. may be difficult to value the CVRs and accordingly it may be difficult or impossible to resell the CVRs; Sales of large numbers of our shares, or a perception that such sales may occur, could adversely affect the market price for our shares and ADSs. To our knowledge, L’Oréal, our largest shareholder, is not subject to any contractual restrictions on the sale of the shares it holds in our Company. L’Oréal does not consider its stake in our Company as strategic. Risks relating to our Contingent Value Rights (CVRs) In addition to the risks relating to our shares, CVR holders are subject to additional risks. In connection with our acquisition of Genzyme, we issued CVRs under a CVR agreement entered into by and between us and American Stock Transfer & Trust Company, the trustee (see also Note D.18. to the consolidated financial statements included at Item 18 of this annual report). A copy of the form of the CVR agreement is on file with the SEC as Annex B to Amendment No. 2 to the Registration Statement on Form F-4 filed with the Securities and Exchange Commission on March 24, 2011. Pursuant to the CVR agreement, each holder of a CVR is entitled to receive cash payments upon the achievement of certain milestones, the achievement of certain cumulative net sales thresholds by Lemtrada® (alemtuzumab for treatment of multiple sclerosis). See “Item 10. Additional Information – C. Material Contracts – The Contingent Value Rights Agreement.” if any, based on CVR holders are subject to additional risks, including: ◆ the public market for the CVRs may not be active or the CVRs may trade at low volumes, both of which could have an adverse effect on the resale price, if any, of the CVRs; ◆ the market price and trading volume of the CVRs may be volatile; ◆ no payment will be made on the achievement of certain agreed upon milestones. As such, it the CVRs without ◆ if net sales do not exceed the thresholds set forth in the CVR agreement for any reason within the time periods specified therein, no payment will be made under the CVRs and the CVRs will expire without value; ◆ since the US federal income tax treatment of the CVRs is unclear, any part of any CVR payment could be treated as ordinary income and required to be included in income prior to the receipt of the CVR payment; ◆ any payments in respect of the CVRs rank at parity with our other unsecured unsubordinated indebtedness; ◆ we are not prohibited from acquiring the CVRs, whether in open market transactions, private transactions or otherwise and we have already purchased CVRs on several occasions (for more information see “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Liquidity.”); ◆ we may, under certain circumstances, purchase and cancel all outstanding CVRs; and ◆ while we have agreed to use diligent efforts (as defined in the CVR agreement), until the CVR agreement is terminated, to achieve each of the remaining Lemtrada® related CVR milestones set forth in the CVR agreement, we are not required to take all possible actions to achieve these goals. On July 5, 2016 Sanofi disclosed that, based upon actual sales of Lemtrada® in Qualifying Major Markets and in other markets during the respective applicable periods since the Product Launch, Product Sales Milestone #1 has not been met. On February 7, 2018, Sanofi disclosed that, based upon actual sales trends to date, it does not expect that product sales milestones #2, #3 and #4 will be met. Failure to achieve the remaining sales milestones could have an adverse effect on the value of the CVRs (see also Note D.22.c to the consolidated financial statements included at Item 18 of the annual report regarding the ongoing CVR Trustee Claim). SANOFI / FORM 20-F 2018 19 ITEM 4. INFORMATION ON THE COMPANY Item 4. Information on the Company Introduction Sanofi is a leading global healthcare company, focused on patient needs and engaged in the research, development, manufacture and marketing of therapeutic solutions. In the remainder of this section: ◆ A product is its referred to either by international non-proprietary name (INN) or its brand name, which is generally exclusive to the company that markets it. In most cases, the brand names of our products, which may vary from country to country, are protected by specific registrations. In this document, products are identified by their brand names used in France and/or in the US. ◆ For our Pharmaceuticals activity, unless otherwise stated, all market share percentages and rankings are calculated based on consolidated national pharmaceutical sales data, excluding vaccines and in constant euros, on a September 2018 MAT (Moving Annual Total) basis. The data are mainly from IQVIA local sales audit supplemented by various other country- specific sources including Knobloch (Mexico), GERS (France) and HMR (Portugal). ◆ For our Vaccines activity, market share percentages and rankings are based on our own estimates. These estimates have been made from information in the public domain collated from various sources, including statistical data collected by industry associations and information published by our competitors. products sold by each of those franchises are included in our Pharmaceuticals operating segment. We are also active in emerging markets selling products from our three activities; the performance of our Emerging Markets(2) operations is monitored primarily on the basis of net sales. For a presentation of the net sales of our activities for the year ended December 31, 2018, refer to “Item 5 – Results of Operations – Year Ended December 31, 2018 Compared with Year Ended December 31, 2017”. The most important pharmaceutical products marketed by us are described below. ◆ Rare Diseases: a portfolio of enzyme replacement therapies including Cerezyme® for Gaucher disease, Myozyme® and Lumizyme® for Pompe disease, and Fabrazyme® for Fabry disease; Cerdelga®, an oral ceramide analog for Gaucher disease; and Aldurazyme® for mucopolysaccharidosis Type 1 (MPS 1). ◆ Multiple sclerosis: Aubagio®, oral immunomodulator; and Lemtrada®, a monoclonal antibody. Both products were developed to treat patients with relapsing forms of multiple sclerosis. once-daily a receptor alpha, ◆ Immunology: Dupixent®, a monoclonal antibody against the Interleukin-4 for adults with moderate-to-severe atopic dermatitis and (in the US) for moderate-to-severe asthma; and Kevzara®, a monoclonal antibody against the Interleukin-6 receptor, indicated for adults with moderate to severe rheumatoid arthritis. indicated Sanofi has three principal activities: Pharmaceuticals, Consumer Healthcare (CHC), and Vaccines via Sanofi Pasteur. These activities are operating segments within the meaning of the IFRS 8 accounting standard (see Note D.35. to our consolidated financial statements, included at Item 18 of this annual report). ◆ Rare Blood Disorder: Elocate® and Alprolix®, extended half-life clotting-factor therapies for the treatment of adults and children with hemophilia A and B, respectively; and Cablivi®, a bivalent nanobody for the treatment of adults experiencing an episode of acquired thrombotic thrombocytopenic purpura. We invest in the following activities: Rare Diseases, Multiple Sclerosis, Immunology, Rare Blood Disorder, Oncology, Diabetes, Cardiovascular, Established Prescription Products(1), Generics, Consumer Healthcare, and Vaccines. Unlike our Vaccines and Consumer Healthcare activities, which are operating segments within the meaning of IFRS 8, our Rare Diseases, Multiple Sclerosis, Immunology, Rare Blood Disorder, Oncology, Diabetes, Cardiovascular, Established Prescription franchises whose Products and Generics activities are performance is monitored primarily on the basis of net sales; the ◆ Oncology: Libtayo®, a fully human monoclonal antibody targeting the immune checkpoint receptor PD-1 (programmed cell death protein-1), for the treatment of certain patients with metastatic cutaneous squamous cell carcinoma (CSCC) or locally advanced CSCC; Jevtana®, a taxane, indicated for patients with prostate cancer; Taxotere®, a taxane representing a cornerstone therapy for several cancer types; Eloxatin®, a platinum-based agent used as an adjuvant treatment for certain people with stage III colon cancer; Thymoglobulin®, a broad immuno-suppressive and immuno- modulating agent; Mozobil®, a hematopoietic stem cell mobilizer for patients with hematologic malignancies; and (1) Established Prescription Products comprises mature products including Plavix®, Lovenox®, Aprovel®, Renagel® and Renvela®. (2) World excluding the US, Canada, Western & Eastern Europe (apart from Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. 20 SANOFI / FORM 20-F 2018 Zaltrap®, a recombinant fusion protein, indicated for certain patients with metastatic colorectal cancer. ◆ Diabetes: Lantus® (insulin glargine), a long-acting human insulin analog which is the world-leading brand in the insulin market; Toujeo® (insulin glargine 300 U/mL); Amaryl®, an oral once-daily sulfonylurea; Apidra®, a rapid-acting human insulin analog; Insuman®, a range of rapid-acting or intermediate- acting human insulins; Lyxumia®/Adlyxin® (lixisenatide), a once-daily GLP-1 receptor agonist; Soliqua® 100/33 / Suliqua®, a once-daily combination of insulin glargine and lixisenatide; and Admelog® / Insulin lispro Sanofi® (insulin lispro), a rapid- acting insulin. ◆ Cardiovascular diseases: Praluent®, a cholesterol-lowering drug that inhibits PCSK9; and Multaq®, an anti-arrhythmic drug in atrial fibrillation. ◆ Established Prescription Products: Plavix®, an anti-platelet agent indicated for a number of atherothrombotic conditions; Lovenox®, a low molecular weight heparin for the prophylaxis and treatment of venous thromboembolism and of acute coronary syndrome; Aprovel® and CoAprovel®, anti- hypertensives; Renagel® and Renvela®, oral phosphate binders for use in patients undergoing dialysis; Synvisc® and Synvisc-One®, viscosupplements used to reduce pain in patients suffering from osteoarthritis of certain joints; Stilnox®, for the short-term treatment of insomnia; and Allegra®, a long- lasting (12- and 24-hour) non-sedating anti-histamine for the treatment of seasonal allergic fever) and uncomplicated hives. rhinitis (hay ◆ Generics: our pharmaceuticals portfolio also includes a wide range of generics. In September 2018, we completed the divestment of our European generics business Zentiva to Advent International, a US global private equity firm. Our Consumer Healthcare (CHC) activity is focused around four strategic categories: Allergy Cough & Cold, Pain, Digestive and Nutritionals. Our Vaccines activity is operated through Sanofi Pasteur. We sell vaccines in five areas: pediatric vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines, and travel and endemics vaccines. In 2018, we obtained regulatory approval for two new products: Cablivi® in the EU and the US and Libtayo® in the US. We also obtained regulatory approval in the US for Dupixent® in an additional indication: moderate-to-severe asthma in certain patients. ITEM 4. INFORMATION ON THE COMPANY Collaborations are essential to our business and a certain number of our products, whether on the market or under development, are in-licensed products relying on third-party rights or technologies. A/ History and development of the Company The current Sanofi corporation was incorporated under the laws of France in 1994 as a société anonyme, a form of limited liability company, for a term of 99 years. Since May 2011, we have operated under the commercial name “Sanofi” (formerly known as Sanofi-Aventis). Our registered office is located at 54, rue La Boétie, 75008 Paris, France, our main telephone number is +33 1 53 77 40 00 and our website is www.sanofi.com. Our principal US subsidiary’s office located at 55 Corporate Drive, is Bridgewater, NJ 08807; telephone: +1 (908) 981 5000. The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC. Main changes over the last five years At the end of December 2016, Sanofi Pasteur and MSD ended their vaccines joint venture in Europe and integrated their respective European vaccines businesses their own operations. into On January 1, 2017, Sanofi and Boehringer Ingelheim (BI) successfully closed in most markets a transaction to swap Sanofi’s Animal Health business for BI’s CHC business. Inc., a US biopharmaceutical in Waltham, Massachusetts. Bioverativ On March 8, 2018, following a tender offer, we acquired control company of Bioverativ headquartered is engaged in the research, development and commercialization of therapies for people with hemophilia and other rare blood disorders. On June 19, 2018, Sanofi finalized the acquisition of Ablynx, a Belgian biopharmaceutical company engaged in the development of Nanobodies® – which combine the advantages of conventional antibody drugs with some of the features of small-molecule drugs – in various therapeutic areas. On September 30, 2018, we completed the divestment of our European generics business Zentiva to Advent International, a US global private equity firm. SANOFI / FORM 20-F 2018 21 ITEM 4. INFORMATION ON THE COMPANY B/ Business overview B.1. Strategy The market context for Sanofi A number of fundamental trends point to a positive outlook for the pharmaceutical industry. The global population is growing and aging. Unmet medical needs remain high. The industry has increased R&D productivity, and is launching a high number of innovative medicines. Patients around the world, and a rising middle class in emerging markets, are demanding better care, empowered by access to new information. It is a particularly exciting time scientifically and technologically: the promise of genomics is being realized, immuno-oncology is transforming cancer treatments, and big data is generating new insights into disease. Digital technologies are having a transformative effect across sales, R&D and manufacturing, and acting as enablers for new businesses. At the same time, increased geopolitical uncertainties, funding challenges, budget tightening and affordability will continue to put the entire healthcare value chain under significant pressure. Although we believe that pharmaceuticals will remain a fundamentally attractive business within that value chain, the bar for innovation will most likely continue to rise. Payers will continue to put scrutiny on prices and reimbursement, and demand demonstration of real life outcomes. This will be coupled with more innovative pricing and contracting practices; pricing pressure is already increasing in the US and China. There are two other significant trends. Firstly, in the innovation race, good ideas are quickly recognized by competitors who can move fast to implement them. Secondly, biosimilars are now firmly part of the competitive landscape in both the US and Europe. Implementing the strategic roadmap To compete and win in this market, we announced our 2020 strategic roadmap in November 2015. We have made significant progress against each of the four pillars of that strategy: reshape the portfolio, deliver outstanding launches, sustain innovation in R&D, and simplify the organization. Reshape the portfolio To reshape the portfolio, we focused on three targets: sustaining our leadership, building competitive positions, and exploring strategic options. As a result, we have achieved several important milestones: Building a leading Rare Blood Disorder franchise We began the year by creating a new global Rare Blood Disorder franchise, with three strategic deals announced within the space of a month. The first was a reshaping of our alliance with Alnylam, under which we obtained global development and 22 SANOFI / FORM 20-F 2018 for the commercialization rights to fitusiran, an investigational RNAi treatment of in development therapeutic currently hemophilia A and B. The second was the acquisition of Bioverativ, a biotechnology company focused on therapies for hemophilia and other rare blood disorders. Completed in early March 2018 at a price of $11.6 billion, this deal brought us a portfolio of products including the flagship hemophilia treatments Eloctate® and Alprolix®. The third was the acquisition of Ablynx, a company engaged the discovery and development of Nanobodies®. This deal was completed in June 2018 at a price of €3.9 billion; it enhances our portfolio with the addition of Cablivi® (caplacizumab) - the first therapeutic specifically indicated for the treatment of acquired thrombotic thrombocytopenic purpura (aTTP) - which received marketing approval from the European Commission in September 2018 and from the FDA in February 2019. in Rebuilding our competitive position in Oncology We have entered the Immuno-Oncology (IO) market with the US launch of Libtayo® (cemiplimab), the first anti PD-1 agent to be approved for metastatic cutaneous squamous cell carcinoma (CSCC) and certain locally advanced CSCCs. In January 2018, Sanofi and Regeneron announced that the two companies had more than doubled their investment in cemiplimab, to $1.6 billion. This will fund a broad clinical program in a range of cancers including basal cell carcinoma, cervical and non-small cell lung cancer. As regards isatuximab, our fully-owned oncology asset, we see significant potential for the CD38 antibody in multiple myeloma and have several Phase III trials underway that address the entire disease continuum. In February 2019, we announced that the isatuximab Phase III trial in combination with standard of care therapies had met its primary endpoint of prolonging progression free survival relapsed/refractory multiple myeloma. We also believe strongly that isatuximab has potential beyond multiple myeloma. in patients with In January 2019, we announced that we had restructured our IO collaboration with Regeneron. Under the revised agreement, our earlier stage IO efforts with Regeneron will now focus entirely on two bispecific antibodies. This gives us more flexibility to develop our own novel IO programs. Importantly, we will be able to focus on our platform of multi-specific T-cell engagers. This is a key milestone given our significantly enhanced capabilities in multi- specific biologics following the acquisition of Ablynx. Divesting our European Generics business In September, 2018, we completed the divestment of our European generics business Zentiva to Advent International, a US global private equity firm, for €1.9 billion (enterprise value). Bolstering our Consumer Healthcare operations In January 2017, Sanofi and Boehringer (BI) successfully closed a transaction to swap our Animal Health (CHC) business, business for BI’s Consumer Healthcare Ingelheim enhancing our position in four strategic categories: Allergy Cough & Cold, Pain, Digestive and Nutritionals as well as our geographical footprint. Sustaining our leadership in Specialty Care, Vaccines and Emerging Markets In Rare Diseases, we are sustaining our market share leadership in rare genetic diseases through the patient-centered approach unique to Sanofi Genzyme, supported by product differentiation and market access. We continue to grow the market through screening expansion. In Multiple Sclerosis, investing for the future, we have signed a licensing agreement with Principia to develop their experimental oral treatment (Bruton’s tyrosine kinase inhibitor) that shows promise in multiple sclerosis and, potentially, other central nervous system diseases. In Vaccines, the influenza vaccine market is highly competitive and to retain our leadership in this category we have built a differentiated product offering. This includes converting our influenza portfolio from trivalent to quadrivalent and offering age-specific products (such as Fluzone® High-Dose for the over-65s), and the recent US launch of Flublok®, the first recombinant protein-based influenza vaccine. Demand typically exceeds supply, so producing more is a key priority for us. We are investing to secure and expand influenza and pediatric vaccines capacity: in April 2018, we announced an investment of €350 million for the construction of a new state-of-the-art vaccine the Sanofi Pasteur Canadian manufacturing headquarters in Toronto, Ontario. facility at We are the pharmaceutical industry leader in Emerging Markets, and a major multinational player in Brazil, Russia, India, China and Mexico. Out-licensing our infectious disease research and development portfolio We have out-licensed most of our infectious disease research and early-stage development portfolio and transferred our infectious disease research unit to Evotec AG, though we continue to be involved in infectious diseases through our vaccine R&D and global health programs. Deliver outstanding launches Launching our Immunology franchise We have the cornerstones of an important new franchise in immunology through Dupixent® (for atopic dermatitis, asthma) and Kevzara® (for rheumatoid arthritis). Both drugs were developed in collaboration with Regeneron and both were launched in 2017. In 2017 we launched Dupixent®, the first and only biologic medicine for the treatment of adults with moderate-to-severe atopic dermatitis. In October 2018, Dupixent® was approved in ITEM 4. INFORMATION ON THE COMPANY In November 2018, the US as an add-on maintenance therapy in some patients with the FDA moderate-to-severe asthma. accepted for Priority Review a supplemental application in certain adolescent patients with moderate-to-severe atopic dermatitis. Dupilumab is being evaluated in a broad range of clinical development programs for diseases that are driven by Type 2 inflammation. Dupixent® uptake to date is being driven by high patient need, healthcare professional engagement and market access. By the end of 2018, we had launched Dupixent® in the US and 16 other countries, including Japan. Other new launches In diabetes, we continued the global launch and ramp-up of Toujeo® and Soliqua® 100/33/ Suliqua®, a lixisenatide and insulin glargine combination treatment for diabetes. In cardiovascular diseases, we continued the global launch and ramp-up of Praluent® for hypercholesterolemia. The European Medicines Agency’s Committee for Human Use (CHMP) has adopted a positive opinion recommending a new to reduce cardiovascular risk by lowering low-density lipoprotein cholesterol (LDL-C) levels as an adjunct to correction of other risk factors in adults with established atherosclerotic cardiovascular disease. for Medicinal Products for Praluent® indication In December 2018, the European Commission granted marketing authorization for Dengvaxia® for use in European endemic areas in individuals aged 9 to 45 years with a documented prior dengue infection. Sustain innovation in R&D in Our strategy depends on continued innovation in R&D. We continue to strengthen our R&D pipeline, increasing the number the early stage pipeline and of high-quality projects replenishing the late development pipeline as products launch. We have aligned the R&D organization with the new Global Business Unit structure, reorganized research into thematic clusters, continued to build capability in translational science, and recruited important new talent. Sanofi has engaged a strong reshaping of its R&D strategy, strengthening the development of innovative products that promise to substantially elevate the standard of care for patients, and prioritizing the therapeutic areas where the patient need is most urgent and where the scientific and medical landscape is richest with opportunity. This shift in priorities translates into an increase in the proportion of R&D projects representing specialty care compared to primary care, while maintaining a strong commitment to Vaccines. In the long-term the aspiration is that roughly 80% of the Sanofi portfolio will consist of molecules with first-in-class or truly differentiated best-in-class potential, with two thirds of biologics compounds and two thirds of the pipeline directly derived from Sanofi internal research. Implementing rigorous portfolio prioritization processes To prioritize the most promising molecules in the pipeline, we undertook a rigorous portfolio review in 2018. This exercise SANOFI / FORM 20-F 2018 23 ITEM 4. INFORMATION ON THE COMPANY resulted in termination of 13 development stage molecules. In addition, we discontinued 25 research projects. This illustrates Sanofi’s commitment to managing a more focused portfolio to accelerate development of the most promising molecules in the pipeline. Developing Nanobody® platform technology platforms and an in-house small molecules and R&D is leveraging the investments made a few years ago to establish competency in several therapeutic modalities, going conventional monoclonal beyond antibodies, to produce differentiated molecules that tackle targets in novel and innovative ways. Besides the expansions of complex antibodies such as bi or tri specifics and the addition of nanobodies with the integration of the Ablynx platform, Sanofi has made important steps forward in genomic medicines. This includes enhancements to our internal capabilities in gene therapy based on the AAV platform, as well as new collaborations in virus based gene therapy, zinc finger based genome editing and mRNA therapeutics. Simplify the organization We are creating a more agile organization through: integrating global ◆ A new Global Business Unit (GBU) structure, implemented in 2016, franchises and country-level commercial and medical organizations for each of our major businesses (Sanofi Genzyme; Diabetes and Cardiovascular; General Medicines and Emerging Markets; Sanofi Pasteur and Consumer Healthcare) and also saw the creation of Global Functions Information (Finance, Human Resources, Technology and Solutions, etc). ◆ The refocusing of two of our GBUs, changing their organizational structure to provide greater focus on our operations in mature markets and across emerging markets. We have created a new Primary Care GBU, focused exclusively on mature markets, that combines the product portfolios of our previous Diabetes & Cardiovascular GBU and the Established Prescription Products franchise. Alongside this, we have created a second new GBU: China & Emerging Markets. The two new GBUs launched at the start of 2019. ◆ In order to accelerate Sanofi’s transformation, in 2018 we decided to combine all of our efforts into one new department: Business Transformation. This new department has been created to simplify our operating models, bring innovative practices to our organization, and create lasting, positive changes. ◆ Dissolving our vaccines joint venture with MSD: at the end of 2016, Sanofi Pasteur and MSD ended their vaccines joint venture in Europe and integrated their respective European vaccines businesses into their own operations. We have also defined a focused, competitive digital strategy with seven key initiatives to create value in two ways: help us run our 24 SANOFI / FORM 20-F 2018 business better, faster, and cheaper; and pursue new business models. For example, digital technologies offer the promise of speeding up our trials and getting our drugs to market faster; our plants will be connected with data flowing automatically from equipment sensors; and advanced analytics on supply chain data will enable real-time optimization. We are engaging physicians through a variety of channels, building precision marketing capabilities globally in CHC; and pursuing new business models to integrate drugs, devices, data, and service, and bring innovative solutions to people living with diabetes. Finally, digital transformation opens up the potential for Sanofi to become a much more data- driven organization. B.2. Main pharmaceutical products The sections below provide additional information on our main products. Our intellectual property rights over our pharmaceutical products are material to our operations and are described at “B.7. Patents, Intellectual Property and Other Rights” below. As disclosed in “Item 8. Financial Information – A. Consolidated Financial Statements and Other Financial Information – Patents” of this annual report, we are involved in significant litigation concerning the patent protection of a number of these products. For more information on sales performance, see “Item 5. Operating and Financial Review and Prospects – Results of Operations”. a) Rare Diseases Our Rare Diseases business is focused on products for the treatment of rare genetic diseases and other rare chronic debilitating diseases, including lysosomal storage disorders (LSDs), a group of metabolic disorders caused by enzyme deficiencies. Cerezyme® Cerezyme® (imiglucerase, intravenous infusion) is an enzyme replacement therapy used to treat Gaucher disease, an inherited and potentially life-threatening LSD. It is estimated that Gaucher disease occurs in approximately one in 120,000 newborns in the general population and one in 850 in the Ashkenazi Jewish population worldwide, but the incidence and patient severity vary among regions. Cerezyme® has been marketed in the US since 1994, in the EU since 1997, in Japan since 1998 and in China since 2008, and is approved to treat Type 1 Gaucher disease in more than 85 countries. It has also been approved to treat the systemic symptoms of Type 3 Gaucher disease in most non-US markets, including the EU and Japan. Cerdelga® Cerdelga® (eliglustat) is the first and only first-line oral therapy for Gaucher disease Type 1 adult patients. A potent, highly specific ceramide analog inhibitor of GL-1 synthesis with broad tissue distribution, Cerdelga® has demonstrated efficacy the treatment of naive Gaucher disease patients and in patients who in switch from enzyme replacement therapy. Cerdelga® has been approved to treat Type 1 Gaucher disease in the US (2014), and in the EU and Japan (2015). Regulatory submissions are ongoing in other countries. There are ongoing patent infringement proceedings in the US. For further information, see Item 8 – “Information on Legal or Arbitration Proceedings – Cerdelga® Patent Litigation. Myozyme® and Lumizyme® Myozyme® and Lumizyme® (alglucosidase alfa, intravenous infusion) are recombinant forms of the same human enzyme and are enzyme replacement therapies used to treat Infantile- and Late Onset Pompe disease (IOPD and LOPD), an inherited, progressive and often fatal neuromuscular disease. Pompe disease occurs in approximately one in 40,000 newborns worldwide, but incidence and patient severity vary among regions. Myozyme® was first approved in 2006 in the EU and has since been approved the US, alglucosidase alfa has been marketed as Lumizyme® since 2010. than 70 countries. in more In Fabrazyme® infusion) intravenous Fabrazyme® (agalsidase beta, is an enzyme replacement therapy used to treat Fabry disease, an inherited, progressive and potentially life threatening LSD. Fabry disease occurs in approximately one in 35,000 newborns worldwide, but incidence and patient severity vary among regions. Fabrazyme® has been marketed in the EU since 2001 and in the US since 2003, and is approved in more than 70 countries. Aldurazyme® Aldurazyme® (laronidase, intravenous infusion) is the first and only approved treatment for mucopolysaccharidosis type 1 (MPS I). MPS I occurs in approximately one per 100,000 live births worldwide, but incidence and patient severity vary among regions. Aldurazyme® has been marketed in the EU and the US since 2003, and is approved in more than 75 countries. b) Multiple Sclerosis Multiple sclerosis (MS) is an autoimmune disease in which a person’s immune system attacks the central nervous system, damaging myelin, the protective sheath that covers nerve fibers. This causes a break in communication between the brain and the rest of the body, ultimately destroying the nerves themselves, and causing irreversible damage. More than 2.5 million people suffer from MS worldwide. Our MS franchise consists of Aubagio® (teriflunomide), a once- daily, oral immunomodulator, and Lemtrada® (alemtuzumab), a monoclonal antibody. Both products treat patients with relapsing forms of MS. ITEM 4. INFORMATION ON THE COMPANY Aubagio® Aubagio® (teriflunomide), a small molecule immunomodulatory agent with anti-inflammatory properties, is a once-daily oral therapy. Aubagio® is approved in more than 70 countries around the world including the US (since September 2012) for the treatment of patients with relapsing forms of MS, the EU (since August 2013) for the treatment of adult patients with relapsing remitting MS), and China (since July 2018). Ongoing development efforts include the TeriKIDS study to assess the safety and efficacy of research & teriflunomide (see development”) and global post-marketing for pregnancy. “B.5. Global in children registries In 2017, Sanofi reached settlement with all 20 generic Aubagio® ANDA first filers, granting each a royalty-free license to enter the US market on March 12, 2023. Lemtrada® Lemtrada® (alemtuzumab) is a humanized monoclonal antibody targeting the CD52 antigen. Lemtrada® is administered by intravenous infusion as two short courses 12 months apart; for the majority of patients no further treatment is necessary, making Lemtrada® the only disease-modifying therapy (DMT) that can provide long term durable efficacy in the absence of continuous dosing. Lemtrada® is approved in more than 60 countries including the EU (since September 2013) for the treatment of adult patients with relapsing forms of MS with active disease defined by clinical or imaging features, and the US (since November 2014) for the treatment of patients with relapsing forms of MS. Because of its safety profile, the FDA approval limited use of Lemtrada® to patients who have had an inadequate response to two or more drugs indicated for the treatment of MS, and included a black-box warning on potential side effects. In the US, Lemtrada® is only available through a restricted distribution program called the Lemtrada® Risk Evaluation and Mitigation Strategy (REMS) Program. Alemtuzumab is being evaluated in a Phase III study in pediatric patients (see “B.5. Global research & development”). Bayer Healthcare receives contingent payments based on alemtuzumab global sales revenue. For additional information, see Note D.18. to our consolidated financial statements, included at Item 18 of this annual report. c) Immunology Our Immunology franchise consists of Dupixent® (dupilumab) for the treatment of adults with moderate-to-severe atopic dermatitis (AD) and as add-on maintenance therapy for some patients with moderate to severe asthma, and Kevzara® (sarilumab) for the treatment of adult patients with moderately to severely active rheumatoid arthritis (RA). SANOFI / FORM 20-F 2018 25 ITEM 4. INFORMATION ON THE COMPANY Dupixent® Dupixent® (dupilumab), a human monoclonal antibody, binds to the interleukin-4 receptor (IL-4R) and has been shown to specifically inhibit overactive signaling of two key proteins (IL-4 and IL-13), which are believed to be major drivers of the persistent underlying inflammation in atopic dermatitis, and in certain other allergic or atopic diseases or that may underlie moderate-to-severe asthma. Dupixent® comes in a pre-filled syringe and can be self-administered as a subcutaneous injection. inflammatory disease, Moderate-to-severe atopic dermatitis, a form of eczema and a chronic is characterized by rashes sometimes covering much of the body and can include intense, persistent itching and skin dryness, cracking, redness, crusting and oozing. Dupixent® was granted marketing authorization by the FDA in March 2017 for the treatment of adults with moderate-to-severe atopic dermatitis (AD) whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable, and in October 2018 as an add-on maintenance therapy in patients with moderate-to-severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid-dependent asthma. The European Commission approved Dupixent® in September 2017 for use in adults with moderate-to-severe AD who are candidates for systemic therapy, and is reviewing an application for authorization as an add-on maintenance the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion in March 2019. Dupixent® is also approved for use in certain adult patients with moderate-to-severe atopic dermatitis in other countries including Canada and Japan. for moderate-to-severe asthma: therapy Dupixent® is available in 17 countries including the US (since April 2017), several European Union countries (the first launch was in Germany in December 2017) and Japan (since April 2018). Applications for regulatory approval in certain patients with in certain patients with moderate moderate-to-severe asthma are being reviewed in several other countries. In November 2018, the FDA accepted for Priority Review a supplemental application in certain adolescent patients with moderate-to-severe atopic dermatitis. to severe AD and Dupilumab is currently being evaluated in a broad range of clinical development programs for diseases that are driven by Type 2 including pediatric atopic dermatitis, pediatric asthma, nasal polyps and eosinophilic esophagitis. See “– B.5. Global Research & Development”. inflammation, Dupixent® is developed and commercialized in collaboration with Regeneron Pharmaceuticals, Inc. For additional information on the commercialization of this product, see “Item 5. Financial Presentation of Alliances – Alliance Arrangements with Regeneron”. There are ongoing patent infringement proceedings in several countries initiated by Sanofi and Regeneron against Amgen and 26 SANOFI / FORM 20-F 2018 Immunex relating to Dupixent®. See Note D.22.b) to the consolidated financial statements included at Item 18 of this annual report. Kevzara® Kevzara® (sarilumab) is a human monoclonal antibody that binds to the interleukin-6 receptor (IL-6R) and has been shown to inhibit IL-6R mediated signaling. IL-6 is a cytokine in the body that, in excess and over time, can contribute to the inflammation associated with rheumatoid arthritis. Rheumatoid arthritis (RA) is a chronic inflammatory autoimmune disease causing inflammation, pain, and eventually joint damage and disability. for Kevzara® In May 2017, the FDA approved Kevzara® for the treatment of adult patients with moderately to severely active RA who have had an inadequate response or intolerance to one or more disease modifying anti-rheumatic drugs (DMARDs), such as methotrexate. In June 2017, the European Commission granted marketing authorization in combination with methotrexate for the treatment of moderately to severely active RA in adult patients who have responded inadequately to – or who are intolerant to – one or more DMARDs, such as methotrexate. Kevzara® is approved for use in certain adult patients with moderately to severely active RA in other countries including Canada, Russia, Taiwan, Israel, Hong Kong and Argentina. Additionally, Kevzara® is indicated in Japan for patients with inadequate response to conventional treatments irrespective of disease severity. Kevzara® is available in 20 countries, including the US. Sarilumab is being evaluated in children and adolescents with polyarticular-course juvenile idiopathic arthritis (JIA) or with systemic juvenile arthritis, and in adults with giant cell arteritis or with Polymyalgia Rheumatica. See “– B.5. Global Research & Development”. Kevzara® is developed and commercialized in collaboration with Regeneron Pharmaceuticals, Inc. For additional information on the commercialization of this product, see “Item 5. Financial Presentation of Alliances – Alliance Arrangements with Regeneron”. d) Rare Blood Disorder Rare Blood Disorder is a new franchise created in 2018 following the acquisition of Bioverativ. Bioverativ, two marketed products Eloctate® and Alprolix®, is being consolidated in our financial statements with effect from March 8, 2018 (see “– A. History and Development of the Company”). including its Eloctate® Eloctate® (antihemophilic factor (recombinant), Fc fusion protein), is an extended half-life clotting-factor therapy to control and prevent bleeding episodes in adults and children with hemophilia A. In the US, it is indicated for use in adults and children with hemophilia A for on-demand treatment and control of bleeding ITEM 4. INFORMATION ON THE COMPANY episodes, perioperative management of bleeding, and routine prophylaxis to reduce the frequency of bleeding episodes. Cablivi® is marketed in Germany and available in France under a temporary user license (autorisation temporaire d´utilisation). Hemophilia A is a rare, x-linked genetic bleeding disorder characterized by a deficiency of functional coagulation Factor VIII, resulting in a prolonged patient plasma-clotting time. As a consequence, people with hemophilia A bleed for a longer time than normal. Eloctate® the missing temporarily coagulation Factor VIII by intravenous use. replaces We market Eloctate® primarily in the United States (since 2014), Japan, Canada, Australia, Colombia and Taiwan. Eloctate® is developed and commercialized in collaboration with Swedish Orphan Biovitrum AB (publ), whose territories include Europe, Russia, Middle East and some countries in North Africa. Alprolix® Alprolix® (coagulation Factor IX (recombinant), Fc fusion protein) is an extended half-life clotting-factor therapy to control and prevent bleeding episodes in adults and children with hemophilia B. In the US, it is indicated for use in adults and children with hemophilia B for control and prevention of bleeding episodes, perioperative management, and routine prophylaxis to reduce the frequency of bleeding episodes. Hemophilia B is a rare, x-linked genetic bleeding disorder characterized by a deficiency of functional coagulation Factor IX, which leads to a prolonged clotting time similar to hemophilia A. Hemophilia B is a less common type of hemophilia than hemophilia A. Alprolix® temporarily replaces the missing coagulation Factor IX, and is administered by intravenous injection. We market Alprolix® primarily in the United States (since 2014), Japan, Canada, Australia and Colombia. Alprolix® is developed and commercialized in collaboration with Swedish Orphan Biovitrum AB (publ), whose territories include Europe, Russia, Middle East and some countries in North Africa. Cablivi® Cablivi® (caplacizumab) is a bivalent anti-von Willebrand Factor (vWF) Nanobody® for the treatment of adults experiencing an episode of acquired thrombocytopenic purpura (aTTP). Cablivi® is the first therapeutic specifically indicated for the treatment of aTTP. thrombotic is a blood clotting thrombotic autoimmune-based thrombocytopenic purpura life- Acquired threatening, disorder characterized by extensive clot formation in small blood vessels throughout the body, leading to severe thrombocytopenia (very low platelet count), microangiopathic hemolytic anemia (loss of red blood cells through destruction), ischemia (restricted blood supply to parts of the body) and widespread organ damage especially in the brain and heart. Cablivi® has an immediate effect on platelet adhesion and the ensuing formation and accumulation of the micro-clots. Cablivi® was granted marketing authorization by the European Commission in September 2018 and by the FDA in February 2019. Cablivi® was developed by Ablynx, a Sanofi company since mid 2018. See “– A. History and Development of the Company”. e) Oncology Libtayo® Libtayo® (cemiplimab-rwlc), an immune therapy drug, is a fully human monoclonal antibody targeting the immune checkpoint receptor PD-1 (programmed cell death protein-1). This may restore immune function through the activation of cytotoxic T cells, thereby avoiding tumor evasion from host immunity. In September 2018, the FDA approved Libtayo® for the treatment of patients with metastatic cutaneous squamous cell carcinoma (CSCC) or locally advanced CSCC who are not candidates for curative surgery or curative radiation. Libtayo® is the only treatment specifically approved and available for advanced CSCC in the US. CSCC is the second most common form of skin cancer. Libtayo® is under regulatory review by the EMA and a number of other countries. Cemiplimab is being investigated in several clinical development programs. See “– B.5. Global Research & Development”. Libtayo® is developed and commercialized in collaboration with Regeneron Pharmaceuticals, Inc. For additional information on the commercialization of “Item 5. Financial this product, see Presentation of Alliances – Alliance Arrangements with Regeneron”. Jevtana® Jevtana® (cabazitaxel), a chemotherapy drug and cytotoxic agent, is a semi-synthetic second-generation taxane promoting tubulin assembly and stabilizing microtubules; this prevents many cancer cells from dividing, which ultimately results in destroying many such cells. It is approved in combination with prednisone for the treatment of patients with castration resistant metastatic prostate cancer previously treated with a docetaxel-containing treatment regimen. Jevtana® was granted marketing authorization by the FDA in June 2010, by the European Commission in March 2011, and in Japan in July 2014. The product is marketed in over 75 countries. Thymoglobulin® Thymoglobulin® (anti-thymocyte Globulin) is a polyclonal anti- human thymocyte antibody preparation that acts as a broad immunosuppressive and immunomodulating agent. The product’s primary mechanism of action is T-cell depletion, which is complemented by a host of other immunomodulating effects. In the US, Thymoglobulin® is indicated for for the prophylaxis and treatment of acute rejection in patients receiving a kidney transplant. Thymoglobulin® is to be used in conjunction with concomitant immunosuppression. Outside the US, depending on the country, Thymoglobulin® is indicated for the treatment and/or SANOFI / FORM 20-F 2018 27 ITEM 4. INFORMATION ON THE COMPANY rejection transplantation; prevention of acute the immunosuppressive treatment and/or prevention of Graft-versus-Host Disease (GvHD) after allogeneic hematopoietic stem cell transplantation. in aplastic anemia; and in organ therapy Thymoglobulin® is currently marketed in over 65 countries. Taxotere® Taxotere® (docetaxel), a chemotherapy drug and cytotoxic agent, is a semi-synthetic taxane promoting tubulin assembly and stabilizing microtubules. It has been approved for use in 11 indications in five different tumor types (breast, prostate, gastric, lung, and head and neck). Taxotere® is available in more than 90 countries. Generics of docetaxel have been launched globally. Sanofi is involved in Taxotere® product litigation in the US. See Note D.22.a) to our consolidated financial statements, included at Item 18 of this annual report. Eloxatin® Eloxatin® (oxaliplatin), a chemotherapy drug, is a platinum-based cytotoxic agent. In combination with the infusional administration of two other chemotherapy drugs (5-fluorouracil/leucovorin, in the FOLFOX regimen), Eloxatin® is approved by the FDA for adjuvant treatment of people with stage III colon cancer who have had their primary tumors surgically removed. Eloxatin® is in-licensed from Debiopharm and is marketed in more than 70 countries worldwide. Generics of oxaliplatin have been launched globally. Mozobil® indicated Mozobil® (plerixafor injection) is a hematopoietic stem cell mobilizer in combination with granulocyte-colony stimulating factor (G-CSF) to mobilize hematopoietic stem cells to the peripheral blood for collection and subsequent autologous transplantation in patients with non-Hodgkin’s lymphoma (NHL) and multiple myeloma (MM). Mozobil® is marketed in over 50 countries. Zaltrap® Zaltrap® (aflibercept/ziv-aflibercept) is a recombinant fusion protein which acts as a soluble decoy receptor that binds to Vascular Endothelial Growth Factor-A (VEGF-A), Vascular Endothelial Growth Factor-B (VEGF-B) and placental growth factor (PIGF), preventing the bound VEGFs from binding to their native receptors. VEGF-A is one of the mediators contributing to tumor angiogenesis that helps provide the blood flow tumors need to grow. VEGF-B and PlGF may also contribute to tumor angiogenesis. The FDA approved Zaltrap® in combination with FOLFIRI (a chemotherapy regimen made up of 5-fluorouracil/leucovorin/irinotecan), in patients with metastatic colorectal cancer (mCRC) that is resistant to or has progressed in August 2012 for use 28 SANOFI / FORM 20-F 2018 following an oxaliplatin-containing regimen. To avoid confusion with Eylea®, the FDA assigned a new name, ziv-aflibercept, to the active ingredient. The European Commission approved Zaltrap® (aflibercept) in February 2013 to treat mCRC that is resistant to or has progressed after an oxaliplatin-containing regimen. Zaltrap® is now approved in more than 70 countries worldwide. For additional information on the commercialization of Zaltrap®, see “Item 5 – Financial Presentation of Alliances – Alliance Arrangements with Regeneron”. f) Diabetes Lantus® Lantus® (insulin glargine 100 units/mL) is a long-acting analog of human insulin, indicated for the treatment of diabetes mellitus in adults, adolescents and children aged 2 years and above. Approved in the US and in EU in 2000 and in Japan in 2008, Lantus® is available in over 130 countries worldwide. A biosimilar of Lantus® from Eli Lilly and Company (Lilly) was launched in most European markets under the name Abasaglar® in 2015, and as Basaglar® in the US in December 2016. It has also been launched in Japan and in several other countries worldwide. In 2018, the FDA issued a complete response letter to Mylan for its biosimilar insulin glargine, which has been approved in Europe under the trade name of SemgleeTM and is available in several European countries. In 2018, Merck & Co and Samsung Bioepis announced that they had abandoned global plans to commercialize Lusduna®, their biosimilar of Lantus®. There are ongoing patent infringement proceedings in the US against Mylan. See “Item 8. Financial Information – B. Significant changes of this annual report for more information. Toujeo® Toujeo® (insulin glargine 300 units/mL) is a long-acting analog of human insulin, indicated for the treatment of diabetes mellitus in adults. Toujeo® has been granted marketing authorization by the FDA (February 2015); the European Commission (April 2015); and the Ministry of Health, Labor and Welfare (J-MHLW) in Japan, where its approved brand name is Lantus® XR (June 2015). Toujeo® has now been launched in more than 40 countries. Toujeo® is available in Toujeo® SoloSTAR®, a disposable prefilled pen which contains 450 units of insulin glargine and requires one third of the injection volume to deliver the same number of insulin units as Lantus® SoloSTAR®. In the US, since 2018, Toujeo® is also available in a disposable prefilled pen which contains 900 units of insulin glargine. Apidra® Apidra® (insulin glulisine) is a rapid-acting analog of human insulin, indicated for the treatment of diabetes mellitus in adults, for supplementary glycemic control. Apidra® has a more rapid onset and shorter duration of action than fast-acting human insulin and can be used in combination with long-acting insulins such as Toujeo® for supplementary glycemic control at mealtimes. Apidra® can be administered subcutaneously using syringes or specific pens including the Apidra® SoloSTAR® disposable pen. Apidra® is available in over 100 countries worldwide. Adlyxin®/Lyxumia® Adlyxin® or Lyxumia® (lixisenatide) is a once-daily injectable the prandial GLP-1 receptor agonist and is indicated for treatment of adults with type 2 diabetes to achieve glycemic control in combination with oral glucose-lowering medicinal products and/or basal insulin when these, together with diet and exercise, do not provide adequate glycemic control. Lixisenatide was approved in the EU and in Japan in 2013 under the brand name of Lyxumia® and in the US in 2016 under the brand name of Adlyxin® . Lixisenatide is now marketed under the proprietary name Lyxumia® than 40 countries. Lixisenatide was in-licensed from Zealand Pharma A/S. in more Soliqua® 100/33 / Suliqua® Soliqua® 100/33 or Suliqua® fixed-ratio combination of insulin glargine 100 Units/mL, a long-acting analog of human insulin, and lixisenatide, a GLP-1 receptor agonist. is a once-daily The FDA approved Soliqua® 100/33 in November 2016 for the treatment of adults with type 2 diabetes inadequately controlled on basal insulin (less than 60 units daily) or lixisenatide; and in February 2019, for patients uncontrolled on oral antidiabetic medicines. In January 2017, the European Commission granted marketing authorization in Europe for Suliqua® (the product’s brand name in Europe) for use in combination with metformin for the treatment of adults with type 2 diabetes to improve glycemic control when this has not been provided by metformin alone or metformin combined with another oral glucose-lowering medicinal product or with basal insulin. In Europe, Suliqua® is available in two pens providing different dosing options. Suliqua® is approved in more than 30 countries and currently marketed in over 20. Admelog® / Insulin lispro Sanofi® Admelog® or Insulin lispro Sanofi® is a rapid-acting insulin similar to Humalog®, another insulin lispro 100 Units/mL. Admelog® was approved by the FDA in December 2017, and was also granted marketing authorization as a biosimilar (under the proprietary name Insulin lispro Sanofi®) by the European Commission in July 2017. It is used to improve blood sugar control in adults with Type 2 diabetes and adults and children (3 years and older) with Type 1 diabetes. Admelog® comes in both vials and the SoloSTAR® pen, and was launched in the US and several European countries during 2018. ITEM 4. INFORMATION ON THE COMPANY Insuman® Insuman® (human insulin) is a range of insulin solutions and suspensions for injection and is indicated for diabetes patients when treatment with insulin is required. Human insulin is produced by recombinant DNA technology in Escherichia coli strains. Insuman® is supplied in vials, cartridges, and pre-filled disposable pens is comprised of rapid-acting insulin solutions (Insuman® Rapid and Insuman® Infusat) that contain soluble insulin, an intermediate- acting that contains fast-acting and isophane intermediate-acting insulins in various proportions (Insuman® Comb). Insuman® is principally sold in emerging markets. insulin suspension (Insuman® Basal) insulin, and combinations of (SoloSTAR®). The Insuman® range Integrated Care Solutions Sanofi and Verily Life Sciences LLC (formerly Google Life Sciences), an Alphabet company, announced in September 2016 the launch of Onduo, a joint venture created through Sanofi and Verily’s diabetes-focused collaboration. Based in Cambridge, Massachusetts (United States), Onduo is a virtual care program with diabetes tools, coaching and clinical support. In 2018 Onduo started commercial pilots in several states in the US. Sanofi, Sensile Medical and Verily Life Sciences LLC announced in June 2018 a joint development of an “all-in-one” pre-filled insulin patch pump, primarily to serve people living with type 2 diabetes. The alliance leverages Sanofi’s expertise in patient- centered diabetes solutions and insulins, Sensile Medical’s leadership in developing micro-pump technologies for medical use, and Verily’s experience in micro-electronic integration and digital healthcare technology. In France, Sanofi commercializes digital insulin titration solutions (under the names of Diabeo® and Insulia®), developed with Voluntis, a French company. Sanofi’s digital titration solutions, embedded in a blood glucose meter (MyStarDoseCoach®) and a smartphone app (MyDoseCoach®), plus collaborations with Voluntis (including the Insulia® smartphone app), are being used by people with diabetes in ten pilot programs and some active commercial launches around the world. These tools use patients’ daily blood sugar measurements to recommend a dose that is aligned with a blood sugar target agreed with their physician. g) Cardiovascular Diseases Praluent® Praluent® (alirocumab) is a human monoclonal antibody (mAb) for self-administered injection every two weeks that blocks the interaction of proprotein convertase subtilisin/kexin type 9 (PCSK9) with low-density lipoprotein (LDL) receptors, increasing the recycling of LDL receptors and reducing LDL cholesterol levels. SANOFI / FORM 20-F 2018 29 ITEM 4. INFORMATION ON THE COMPANY Praluent® is indicated as an adjunct to diet and maximally tolerated statin therapy in certain adult patients with uncontrolled LDL cholesterol. patients with a history of recent myocardial infarction (MI), recent ischemic stroke or established peripheral arterial disease (PAD)m and for patients with acute coronary syndrome (ACS). Praluent® has been approved in more than 60 countries worldwide, including the US (in 2015), Japan (in 2016), Canada, Switzerland, Mexico and Brazil, as well as the European Union (in 2015). In 2018, the FDA approved a Praluent® label update for some patients currently requiring LDL apheresis therapy. The FDA has also accepted a supplemental Biologics License Application (sBLA) which outlines a proposed update to the Prescribing Information to include the effect of Praluent® in reducing the overall risk of major adverse cardiovascular events with a target action date of April 28, 2019. The sBLA is supported by data from the ODYSSEY OUTCOMES trial that assessed the effect of Praluent® on cardiovascular morbidity and mortality within a post- acute coronary syndrome (ACS) patient population. In early February 2019, the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion for Praluent® recommending a new indication to reduce cardiovascular risk in adults with established atherosclerotic cardiovascular disease. On February 11, 2019, Sanofi and Regeneron announced that Praluent® will be made available at a new reduced US list price beginning in early March 2019. The new lower-priced Praluent® is expected to result in lower patient out-of-pocket costs and represents another step in Sanofi’s efforts to help improve patient affordability and access. Praluent® is developed and commercialized in collaboration with Regeneron Pharmaceuticals, Inc. For additional information on the commercialization of this product, see “Item 5. Financial Presentation of Alliances – Alliance Arrangements with Regeneron”. There are ongoing patent infringement proceedings in several countries initiated against us and Regeneron Pharmaceuticals, Inc. by Amgen relating to Praluent® in which Amgen has requested injunctive reliefs. See Note D.22.b) to the consolidated financial statements included at Item 18 of this annual report. Multaq® Multaq® (dronedarone) is an oral multichannel blocker with anti- arrhythmic properties fibrillation recurrences in certain patients with a history of paroxysmal or persistent atrial fibrillation. Multaq® was approved in the US and in the EU in 2009. Multaq® is available in about 35 countries. for prevention of atrial h) Established Prescription Products Plavix® / Iscover ® Plavix® or Iscover® (clopidogrel bisulfate), a platelet adenosine diphosphate (ADP) receptor antagonist with a rapid onset of action that selectively inhibits platelet aggregation induced by ADP, is indicated for the prevention of atherothrombotic events in 30 SANOFI / FORM 20-F 2018 Plavix® is also indicated in combination with acetylsalicylic acid (ASA) for the prevention of atherothrombotic and thromboembolic events in atrial fibrillation, including stroke. CoPlavix® / DuoPlavin®, a fixed-dose combination of clopidogrel bisulfate and ASA, the prevention of indicated atherothrombotic events in adult patients with acute coronary syndrome who are already taking both clopidogrel and ASA. for is Plavix® or Iscover® are marketed in more than 80 countries. For additional these products, see “Item 5. Financial Presentation of Alliances – Alliance Arrangements with Bristol-Myers Squibb”. the commercialization of information on A number of generics have been launched in Europe, the US, Japan and other markets. Sanofi is involved in Plavix® product litigation in the US. See Note D.22.a) to our consolidated financial statements, included at Item 18 of this annual report. Lovenox® / Clexane® Lovenox® or Clexane® (enoxaparin sodium) is a low molecular weight heparin (LMWH). Its comprehensive clinical dossier has demonstrated a favorable risk-benefit ratio, notably in the prophylaxis and treatment of venous thromboembolism and in the treatment of acute coronary syndrome. Lovenox® or Clexane® is marketed in more than 100 countries. Enoxaparin generics are available in the US, and biosimilar enoxaparin products have gradually become available across various European countries since 2016: Poland, Germany, UK, Italy, Spain, France and Austria. Aprovel® / Avapro® / Karvea® Aprovel® or Avapro ® or Karvea® (irbesartan) is an angiotensin II receptor antagonist. We also market CoAprovel® / Avalide® / Karvezide®, a fixed-dose combination of irbesartan and the diuretic hydrochlorothiazide. Aprovel® is indicated as a first-line treatment for hypertension and for the treatment of nephropathy in hypertensive patients with type 2 diabetes. CoAprovel® is indicated for patients whose blood pressure is not adequately controlled with a monotherapy, but also as initial therapy in patients at high risk or with markedly high baseline blood pressure or who are likely to need multiple drugs to achieve their blood pressure goals. A fixed-dose combination with amlodipine (Aprovasc®) has been launched in several emerging market countries. Aprovel® and CoAprovel® are marketed than 80 countries. For additional information on the commercialization of this product, see “Item 5. Financial Presentation of Alliances – Alliance Arrangements with Bristol-Myers Squibb”. In Japan, the product is licensed to Shionogi Co. Ltd and BMS KK. BMS KK has sublicensed the agreement to Dainippon Pharma Co. Ltd. in more ITEM 4. INFORMATION ON THE COMPANY Synvisc® / Synvisc-One® to 20) and (hylan G-F Synvisc-One® Synvisc® are viscosupplements used treat pain associated with osteoarthritis. Synvisc® is indicated for the treatment of pain associated with osteoarthritis of the knee, hip, ankle, and shoulder joint in countries that have adopted CE marking, and for pain due to knee osteoarthritis in the US. Synvisc-One® is approved for use in patients with osteoarthritis of the knee in the US and countries that require CE marking. Synvisc® and Synvisc-One® are administered directly into the intra- articular space of the joint to temporarily restore synovial fluid. Synvisc® and Synvisc-One® are marketed in over 60 countries. Depakine® Depakine® (sodium valproate) is a broad-spectrum anti-epileptic that has been prescribed for more than 40 years and remains a reference treatment for epilepsy worldwide. Depakine® is also a mood stabilizer, registered in the treatment of manic episodes associated with bipolar disorder3. Depakine® is marketed in over 100 countries. We hold no rights to Depakine® in the US, and sodium valproate generics are available in most markets. Sanofi is involved in product litigation related to Depakine®. See Note D.22.a) to the consolidated financial statements included at Item 18 of this annual report. i) Generics On September 30, 2018, we completed the divestment of our European generics business Zentiva to Advent International, a US global private equity firm. We have retained our presence in Generics in Emerging Markets, especially in Latin America with two top-of-mind brands – Medley (Brazil) and Genfar (Colombia, Peru, Ecuador and Central America) – and also in Russia, South Africa and Turkey. B.3. Consumer healthcare Our CHC sales are supported by a range of products including the following brands: Allergy, Cough & Cold ◆ Allegra® is a range of fexofenadine HCl–based products. Fexofenadine is an anti-histamine for relief from allergy symptoms including sneezing, runny nose, itchy nose or throat, and itchy, watery eyes. Allegra® OTC is sold in more than 80 countries across the world. A number of generics have been launched in Europe, the US and other markets. Renagel® and Renvela® Renagel® (sevelamer hydrochloride) and Renvela® (sevelamer carbonate) are oral phosphate binders used by chronic kidney disease (CKD) patients on dialysis as well as late stage CKD patients in Europe to treat hyperphosphatemia, or elevated phosphorus levels, which is associated with heart and bone disease. Renvela® is a second-generation buffered phosphate binder. Renagel® and Renvela® are marketed in more than 85 countries. In Japan and several Pacific Rim countries, Renagel® is marketed by Chugai Pharmaceutical Co., Ltd and its sublicensee, Kyowa Hakko Kirin Co., Ltd. In the US, several sevelamer carbonate tablets generics and two sevelamer carbonate powder generics have been approved. Sanofi has launched authorized generics of Renvela® in the US market, in both tablet form (October 2017) and powder form (in January 2018). Generics of sevelamer carbonate are currently marketed in various European countries. As of December 31, 2018, there are no generics of sevelamer hydrochloride approved in either Europe or in the US. We anticipate the first approvals of generics of sevelamer hydrochloride in the US in 2019. Allegra® / Telfast® Allegra® or Telfast® (fexofenadine hydrochloride) is a long-lasting (12- and 24-hour) non-sedating anti-histamine for the treatment of seasonal allergic rhinitis (hay fever) and uncomplicated hives. We also market Allegra-D® 12 Hour and Allegra-D® 24 Hour, anti-histamine/decongestant combination products with an extended-release decongestant. This combination is marketed in Japan under the Dellegra® brand name. Allegra® / Telfast® is marketed in approximately 80 countries. Generics of most forms of Allegra® / Telfast® have been approved in most markets. The Allegra® family is also available for over-the-counter (OTC) use. See “B.3. Consumer Healthcare” below. Stilnox® / Ambien® / Myslee® insomnia. Stilnox® Stilnox® (zolpidem tartrate) is indicated for the short-term treatment of in over 100 countries. the brand name is available under Ambien® / Ambien®CR in the US and Myslee® in Japan, where it is co-promoted jointly with Astellas. is marketed It Stilnox® and Ambien CR® are subject to generic competition in most markets, including the US, Europe and Japan. (3) In some countries this indication is branded differently (e.g. Depakote® in France). SANOFI / FORM 20-F 2018 31 ITEM 4. INFORMATION ON THE COMPANY ◆ Mucosolvan® is a cough brand with many different formulations. It contains the mucoactive agent ambroxol; this stimulates synthesis and release of surfactant. It is sold in various countries in Europe and Asia and in Russia. Pain ◆ Doliprane® offers a range of paracetamol/acetaminophen- based products for pain and fever with a wide range of dosage options and pharmaceutical forms, and is sold mainly in France and various African countries. ◆ The Buscopan® range (hyoscine butylbromide) has an antispasmodic action that specifically targets the source of abdominal pain and discomfort. It is sold across the globe. Digestive ◆ Dulcolax® products offer a range of constipation solutions from predictable overnight relief to comfortable natural-feeling relief. The products are sold in over 80 countries. Dulcolax® tablets contain the active ingredient bisacodyl, which works directly on the colon to produce a bowel movement. ◆ Enterogermina® is a probiotic indicated for the maintenance and restoration of intestinal flora in the treatment of acute or chronic intestinal disorders. Enterogermina® is sold primarily in Europe and in Latin America and parts of Asia. ◆ Essentiale® is a natural soybean remedy to improve liver health. It is composed of essential phospholipids extracted from highly purified soya and contains a high percentage of phosphatidylcholine, a major component of the cell membrane. Essentiale® is used in fatty liver disease and is sold mainly in Russia, Eastern Europe, various countries in Southeast Asia, and China. ◆ Zantac® products are for the prevention and relief of heartburn. Zantac® is sold in the US and Canada. Nutritionals ◆ Nutritionals include a range of products to maintain general health, provide immune system support, or supplement vitamin deficiencies. These products help manage energy, stress, sleep and anxiety, and include a number of brands across the globe including Nature’s Own® in Australia to improve and maintain health, Pharmaton® (mainly in Europe and Latin America), and Magne B6® in Europe. Other ◆ Gold Bond® offers a broad range of products including daily body lotions, anti-itch products, moisturizing and soothing lotions, body and foot creams and powders for eczema. Gold Bond® is only sold in the US. 32 SANOFI / FORM 20-F 2018 B.4. Vaccine products Sanofi Pasteur, the Vaccines division of Sanofi, is a world leader in the vaccine industry and a key supplier of life-saving vaccines all over the world and in publicly funded international markets such as UNICEF, the Pan American Health Organization (PAHO) and the Global Alliance for Vaccines and Immunization (GAVI). The Sanofi Pasteur portfolio includes the following vaccines: a) Poliomyelitis, Pertussis and Hib pediatric vaccines Sanofi Pasteur is one of the key players in pediatric vaccines in both developed and emerging markets, with a broad portfolio of standalone and combination vaccines protecting against up to six diseases the diversity of immunization schedules throughout the world, vaccines vary in composition according to regional specificities. injection. Due in a single to Tetraxim®, a pediatric combination vaccine protecting against diphtheria, tetanus, pertussis and poliomyelitis (polio), was first marketed in 1998. To date, the vaccine has been launched in close to 90 countries outside the US. Pentaxim®, a pediatric combination vaccine protecting against diphtheria, tetanus, pertussis, polio and Hemophilus influenzae type b (Hib), was first marketed in 1997. To date, the vaccine has been launched in more than 100 countries outside the US. In most European, Latin American and Middle Eastern markets, Pentaxim® is being gradually replaced by Hexaxim®. Hexaxim® / Hexyon® / Hexacima® is a fully liquid, ready-to-use 6-in-1 (hexavalent) pediatric vaccine that provides protection against diphtheria, tetanus, pertussis, polio, Hib and hepatitis B. In December 2014 the WHO granted prequalification status to Hexaxim® in a one-dose vial presentation. Hexaxim® is the only combination vaccine including acellular pertussis (acP) and inactivated polio vaccines (IPV) currently prequalified by the WHO. Hexaxim® is now available in 100 countries outside the US. Pentacel®, a pediatric combination vaccine protecting against diphtheria, tetanus, pertussis, polio and Hib, was launched in the US in 2008. Shan5® is a 5-in-1 (whole-cell pertussis based) vaccine protecting against five diseases (diphtheria, tetanus, pertussis, polio and hepatitis B). It regained WHO pre-qualification (which provides access to the product in low-income countries) in May 2014, and was launched in the Indian market in the last quarter of 2014. Shan5® has been retained for the GAVI/UNICEF tender for the 2017-2019 period and in Thailand through local tender. Act’Hib® is a standalone vaccine protecting against Hib, and is mainly distributed in the US, Japan and China in conjunction with pertussis combination vaccines that do not contain the Hib valence. Polio vaccines: Sanofi Pasteur is a leading provider of polio vaccines and has been a partner of the Global Polio Eradication Initiative (GPEI) for over 30 years, with more than 13 billion doses of oral polio vaccines (OPV) delivered during that time. Over the 2014-2017 period, Sanofi Pasteur provided 130 million doses of inactivated polio vaccine (IPV) to support the WHO “Polio End Game” strategy for the 73 world poorest countries, representing 80% of the total IPV volumes used in those countries. On October 1, 2018, the ShanIPVTM 5-dose vial received WHO pre-qualification. Vaxelis®: In 2017, Sanofi Pasteur (in partnership with Merck) made its PR5i hexavalent combination vaccine protecting against diphtheria, tetanus, pertussis, polio, Hib and hepatitis B available on the market under the trademark Vaxelis®. This vaccine is approved and distributed in various EU countries and was approved by the FDA in December 2018. Sanofi and Merck are working to maximize production to allow for a sustainable supply to meet anticipated US demand. Commercial supply will not be available in the US prior to 2020. b) Influenza vaccines Sanofi Pasteur is a world leader in the production and marketing of influenza vaccines. Sanofi Pasteur has several distinct vaccines that are sold globally to meet growing demand for influenza vaccines and innovative solutions in the market. Fluzone® Quadrivalent is a quadrivalent inactivated influenza vaccine, produced in the US, containing two type A antigens and two type B antigens in order to provide increased protection against more circulating strains of influenza viruses. Fluzone® Quadrivalent/FluQuadri® is available in 27 countries (including the US) for children aged over six months, adolescents and adults. Fluzone® 0.5ml QIV is the currently-licensed standard dose (15 µg/strain) quadrivalent influenza vaccine for ages 3 years and older. A half dose (0.25mL or 7.5 µg) is licensed for children aged 6-35 months.In January 2019, the FDA has approved the use of the 0.5 mL dose to include children age 6 through 35 months. Fluzone® High-Dose vaccine, launched in the US in 2010, was specifically designed to provide greater protection against influenza in people aged 65 and older. Fluzone® High-Dose is sold in the US, Canada and Australia. Flublok® is a quadrivalent influenza vaccine for adults age 18 and older. It is the only recombinant protein-based influenza vaccine approved by the FDA. Flublok® is currently sold in the US, with global expansion planned over the next several years. Vaxigrip® is licensed in over 150 countries globally for people aged six months and older. It is a trivalent influenza vaccine, containing two antigens against type A influenza viruses and one antigen against type B influenza viruses. Vaxigrip® Tetra is the quadrivalent (QIV) version of Vaxigrip®, including 2 antigens against A strains of influenza viruses and 2 antigens against B strains. Compared to the trivalent influenza vaccine, the addition of a second B strain to the vaccine provides increased protection against more influenza virus circulating formulation, VaxigripTetra®, was strains. This quadrivalent licensed than 40 countries since 2017. in 2016 and has been launched in more ITEM 4. INFORMATION ON THE COMPANY c) Adult booster vaccines Adacel® is the first trivalent adolescent and adult booster offering protection against diphtheria, tetanus and pertussis. It also reduces exposure for infants who are not immunized or only partially immunized. It is available in 40 countries (including the United States, and otherwise mostly in Europe and Latin America). Repevax® / Adacel®-Polio is a combination vaccine that provides protection against diphtheria, tetanus, pertussis and polio. It is currently marketed in 20 countries, with a strong focus on European markets (France, Germany, UK). d) Meningitis vaccines Menactra® is the first quadrivalent conjugate vaccine against meningococcal meningitis (serogroups: A, C, Y, and W-135), one of the deadliest forms of meningitis in the world. Menactra® is indicated for people aged 9 months through 55 years in the US, Canada, several Middle Eastern countries including Saudi Arabia, and numerous other countries in all regions of the world. It is a strong leader in the meningitis quadrivalent market in the US, and is licensed in 70 countries worldwide. More than 100 million doses of Menactra® have been distributed since launch. It is the only fully liquid (no reconstitution needed) meningitis quadrivalent conjugated vaccine available in the market. e) Travel and endemics vaccines Sanofi Pasteur provides a wide range of travel and endemics vaccines including hepatitis A, typhoid, cholera, yellow fever, Japanese encephalitis and dengue, as well as rabies vaccines and immunoglobulins. These products are used in endemic settings in the developing world and are the foundation for important partnerships with governments and organizations such as UNICEF. They are also used by travelers and military personnel in industrialized countries and in endemic areas. Focus on Dengue: Dengvaxia® is licensed in 19 countries. The Philippines FDA revoked the Dengvaxia® license in early 2019 and Sanofi has filed a motion for reconsideration which has been denied. For more information, please see information – Information on legal or arbitration proceedings”. In 2018, the for European Commission granted marketing authorization Dengvaxia® to prevent dengue disease in individuals 9-45 years of age with a documented prior dengue infection who are living in endemic areas, and the FDA granted Dengvaxia® a priority review. “Item 8. Financial In most countries where Dengvaxia® is approved, the indication is for individuals aged 9 years or older living in a dengue- endemic area. Based on new results from a supplemental analysis of the long term clinical data on the vaccine reported in November 2017, Sanofi Pasteur is recommending a label update for Dengvaxia® to target its use at people with prior dengue infection: the review process is ongoing in three countries, is expected to start soon in another country and revised label content has been agreed in all other relevant countries. SANOFI / FORM 20-F 2018 33 ITEM 4. INFORMATION ON THE COMPANY issued a the WHO recommendation The WHO has recognized the public health value of introducing Dengvaxia® in public immunization programs. In September 2018, indicating a preference for a pre-vaccination screening strategy to target those at risk of re-infection for protection, and increase the potential of such programs to reduce the overall burden of dengue and severe dengue. As part of our long-standing commitment to ensure access to vaccination in the global effort to reduce the dengue burden, we are pursuing potential collaborations with experienced dengue test manufacturers in order to develop a new, rapid point-of-care dengue test. The aim of the new test is to broaden access to vaccination for those with prior infection who could benefit from the prevention of secondary infections with dengue, which carry a higher risk of being severe. human diseases, to sustain innovation and to foster scientific excellence without losing sight of the need for operational efficiency. To meet these challenges, Sanofi R&D has evolved towards an integrated organization encompassing a wide range of therapeutic areas aligned with the Global Business Units (GBUs), which are dedicated to supporting our commercial operations and reflect our strengths and expertise as well as the most pressing health issues. For Pharmaceuticals, six therapeutic areas (TAs) have been rolled out: ◆ Diabetes and Cardiovascular ◆ Oncology B.5. GLOBAL RESEARCH & DEVELOPMENT ◆ Immunology & Inflammation In 2018 Sanofi engaged in a strong reshaping of its R&D strategy, strengthening the development of innovative products that promise to substantially elevate the standard of care for patients, and prioritizing the therapeutic areas where the patient need is most urgent and where the scientific and medical landscape is richest with opportunity. small molecules and R&D is leveraging the investments made a few years ago to establish competency in several therapeutic modalities, going beyond conventional monoclonal antibodies, to produce differentiated molecules that tackle targets in novel and innovative ways. Besides the expansions of complex antibodies such as bi or tri specifics and the addition of nanobodies with the integration of the Ablynx platform, Sanofi has made important steps forward in genomic medicines. This includes enhancements to our internal capabilities in gene therapy based on the AAV (adeno-associated vectors) platform, as well as, new collaborations in virus based gene therapy, zinc finger based genome editing and mRNA therapeutics. In development, sustained efforts are being made to accelerate the pace of delivery for patients, adopting a quick win, fast-fail approach that is underpinned by streamlined governance and pushing decision-making downward with strong team empowerment. In the long term the aspiration is that roughly 80% of the Sanofi portfolio will consist of molecules with first-in-class or truly differentiated best-in-class potential, with two thirds of biologics compounds and two thirds of the pipeline directly derived from Sanofi internal research. B.5.1. Pharmaceuticals B.5.1.1. Organization Our Global R&D organization is committed to responding to the real needs of patients by providing them with safe, cost-effective and appropriate therapeutic solutions, improving their access to treatment and delivering better health outcomes. In offering new solutions to patients, it is vital to understand the complexity of ◆ Multiple Sclerosis and Neurology ◆ Rare Blood Disorders ◆ Rare Diseases These TAs drive a portfolio of R&D projects, ensuring a strategically coherent approach and flawless implementation. Each TA has its own experts who are responsible for analyzing medical needs, defining project strategy and development plans, and leading the Global Project Teams. Our R&D Operations department handles all operational activities and delivers effective development integrated, collaborative project teams. Those teams harness high caliber functional expertise and the most appropriate technologies across chemical, biological and pharmaceuticals operations, translational medicine and early development, and clinical sciences. through In Research, a dedicated, integrated platform working across multiple disease areas and methods drives collaboration with internal and external partners translate human biology research and state-of-the art technologies and processes into novel drug targets and world-class safe and effective drugs. to Sanofi’s R&D operations are concentrated in three major hubs: North America, Germany and France. These hubs help build our scientific intelligence network and facilitate connections and in-house scientists, and with knowledge-sharing between external partners and scientific communities, to accelerate our research activities. in order B.5.1.2. Governance Global Project Teams (GPTs) are responsible for developing project strategy and driving the execution of projects through functional sub-teams. GPTs are led by a Global Project Head (GPH) who works in collaboration with a Project Manager (PM), and are built around core functional team members representing each department collaborating in the development project. Various committees assess product and project development across the R&D value chain, carry out in-depth scientific review, make go and no-go decisions and determine portfolio priorities. 34 SANOFI / FORM 20-F 2018 ITEM 4. INFORMATION ON THE COMPANY The Research Working Group (RWG) tracks progress on research programs, and endorses entry into preclinical and the path to the First in Human phase (Phase I). The Benefit-Risk Assessment Committee (BRAC) reviews the preclinical and clinical data before dossier submission. Phase III starts In 2018, the following products moved into Phase III: ◆ fitusiran, indicated for the treatment of: – hemophilia A/B in adults; The Development Working Group (DWG) endorses the path to Proof of Concept (POC), generally before Phase I, and tracks the development of products all along the value chain. This group is also responsible for the portfolio prioritization exercise. ◆ dupilumab (Dupixent®) for the treatment of: – eosinophilic esophagitis; ◆ sarilumab (Kevzara®) for the treatment of: The Integrated Development and Commercialization Council (IDCC) gives prior input to proof of clinical and commercial concept criteria, and endorses go to late development (Phase III start) and go to file. – giant cell arteritis; – polymyalgia rheumatica; ◆ isatuximab: The clinical portfolio is the result of decisions taken by these committees during their reviews, plus compounds entering the portfolio from the discovery phase or from third parties via acquisition, collaboration or alliances. As described at “Item 3. Key Information – D. Risk Factors – Risks Relating to Our Business – research and development efforts may not succeed in adequately renewing the product portfolio and – Risks Relating to the Group Structure and Strategy – We may fail to successfully identify external business opportunities or realize the anticipated benefits from our strategic investments”, our product development efforts are subject to the risks and uncertainties inherent in any new product development program. B.5.1.3. Products For 2018, the main events related to the pharmaceuticals portfolio were: Regulatory Approvals: In 2018, Sanofi obtained regulatory approval for caplacizumab (Cablivi®) in Europe and the US for the treatment of acquired thrombotic thrombocytopenic purpura and cemiplimab (Libtayo®) in the US for the treatment of cutaneous squamous cell carcinoma. Dupilumab (Dupixent®) was also approved in the US for asthma in adults and adolescents (12 to 17 years old), and for atopic dermatitis (adults) in Japan. Regulatory Submissions: ◆ sotaglifozin (Zinquista™) was submitted for type I diabetes in Europe and the US; ◆ cemiplimab (Libtayo®) was submitted for the treatment of cutaneous squamous cell carcinoma in Europe and the US (now approved in the US); ◆ dupilumab (Dupixent®) was submitted in the US for the treatment of chronic rhinosinusitis with nasal polyposis. It was treatment of atopic dermatitis also submitted (adolescents 12 to 17 years old) in Europe and the US; the for – in combination with lenalidomide, bortezomib, and dexamethasone (VRd) for induction treatment in patients with newly diagnosed multiple myeloma who are eligible for transplant; ◆ sotaglifozin (Zinquista™) for the treatment of: – worsening heart failure. Phase II starts In 2018, the following products moved into Phase II: ◆ SAR440340, an anti-IL33 monoclonal antibody for the treatment of : – asthma; – chronic obstructive pulmonary disease (COPD); – atopic dermatitis; ◆ dupilumab (Dupixent®) as an adjunct therapy for: – peanut allergy; – grass allergy; ◆ sarilumab (Kevzara®) for the treatment of: – systemic juvenile idiopathic arthritis (sJiA); ◆ isatuximab, – in combination with cemiplimab treatment of relapsed refractory multiple myeloma (RRMM) and solid tumors; the for – In combination with atezolizumab for the treatment of solid tumors and advanced malignancies. Phase I Starts In 2018, the following products entered Phase I: ◆ SAR441344, an anti-CD40L mAb indicated for the treatment of multiple sclerosis; ◆ Praluent® was submitted in Europe and the US in the reduction of cardiovascular events after acute coronary syndrome. SANOFI / FORM 20-F 2018 35 – BIVV001, an investigational von Willebrand factor (VWF)- independent factor VIII therapy in Phase I for the treatment of hemophilia A; – ST400, a zinc finger nuclease technology in Phase I for the treatment of ß thalassemia; (ZFN) gene editing – BIVV003, a zinc finger nuclease (ZFN) gene editing technology for the treatment of sickle cell disease. ◆ From our collaboration with Regulus: SAR339375, an anti- miR21 RNA in Phase II for the treatment of Alport syndrome. ◆ From our deal with Denali: SAR443060 (DNL747), an RIPK1 inhibitor in Phase I for the treatment of amyotrophic lateral sclerosis and Alzheimer’s disease. ITEM 4. INFORMATION ON THE COMPANY ◆ SAR440234, a T-Cell engaging bispecific (CD3/CD123) antibody for the treatment of acute myeloid leukemia; ◆ SAR442720, an SHP2 inhibitor for the treatment of advanced non-small cell lung cancer; ◆ SAR 441000, a cytokine mRNA for the treatment of melanoma. Entries to the Portfolio In 2018, the following products entered the R&D Portfolio: ◆ From our deal with Bioverativ: – Sutimlimab (BIVV009), an anti-complement C1s mAb in Phase III for the treatment of cold agglutin disease and Phase I for the treatment of idiopathic thrombocytopenic purpura; 36 SANOFI / FORM 20-F 2018 ITEM 4. INFORMATION ON THE COMPANY The clinical portfolio for new products as of March 8, 2019 can be summarized as follows; where several indications are being developed for one product, each indication is regarded as a separate project and specified individually in the table below. For more information on Dupixent®, Kevzara®, Praluent®, Aubagio® , Cerdelga® and Lemtrada®, see also“– Item 4. Information on the Company – B. Business Overview – B.2. Main Pharmaceutical Products”. Phase I Phase II Phase III/registration Diabetes & Cardiovascular Oncology SAR439459 SAR438859 SAR441000 SAR442720 SAR440234 SAR408701 Rare Blood Disorders Immunology & Inflammation BIVV003 (Sickle Cell disease) ST400 (ß thalassemia) sutimlimab (ITP(k)) BIVV001 (Hemophilia A) SAR441344 (Multiple Sclerosis) SAR341402 (T1 & T2 diabetes) sotagliflozin (T1 & T2 diabetes) sotagliflozin (WHF(a) in diabetes) efpeglenatide (T2 diabetes) Praluent® (LDL-C reduction HoFH(b)) Praluent® (LDL-C reduction pediatric) Praluent® (CV events after ACS(c)) isatuximab (3L RRMM(e) – ICARIA) isatuximab (1-3L RRMM(g) – IKEMA) isatuximab (1L NDMM(h) Ti – IMROZ) isatuximab (1L NDMM(h) Te – GMMG) cemiplimab (2L CC(i)) cemiplimab (1L NSCLC(j)) cemiplimab + chemotherapy (1LNSCLC (j)) fitusiran (Hemophilia A&B) sutimlimab BIVV009 (Cold Agglutinin Disease ) Dupixent® (asthma, 6-11 years) Dupixent® (Atopic Dermatitis adolescent & pediatric) dupilumab (EE(n)) dupilumab (Nasal Polyposis) Kevzara® (Giant Cell Arteritis) Kevzara® (Polymyalgia Rheumatica) cemiplimab (BCC(d)) isatuximab+cemiplimab (RRMM(f)) isatuximab+cemiplimab (advanced malignancies)) isatuximab+cemiplimab (lymphoma) isatuximab+atezolizumab (advanced malignancies isatuximab+atezolizumab (solid tumours)) Kevzara® (pcJiA(l)) Kevzara® (sJiA(m)) dupilumab (peanut allergy – Pediatric) dupilumab (grass immunotherapy) SAR440340 (Asthma) SAR440340 (COPD(o)) SAR440340 (Atopic Dermatitis) SAR156597 (Systemic Scleroderma) Multiple Sclerosis Neurology Rare diseases SAR443060 (ALS and AD(p)) SAR442168 (Multiple Sclerosis) venglustat (GPD(q)) SAR422459 (Stargardt) Aubagio® (RMS pediatric.(r)) Lemtrada® (RRMS pediatric.(s)) olipudase alfa (Niemann Pick) venglustat (Gaucher type3) venglustat (Fabry) SAR339375 (Alport syndrome) Avalglocosidase alfa (Pompe) venglustat (ADPKD(t)) Cerdelga® (Gaucher Type I switching from ERT – pediatric) (a) Worsening Heart Failure (b) Homozygous Familial Hypercholesterolemia (c) Acute Coronary Syndrome (d) Basal Cell Carcinoma (e) 3rd Line Relapsing and/or Refractory Multiple Myeloma (f) Relapsing and/or Refractory Multiple Myeloma (g) 1st-3rd Line Relapsing and/or Refractory Multiple Myeloma (h) 1st Line Newly Diagnosed Multiple Myeloma (i) 2nd Line Cervical Cancer (j) 1st Line Non-Small Cell Lung Cancer (k) Idiopathic Thrombocytopenic Purpura (l) Polyarticular Juvenile Idiopathic Arthritis (m) Systemic Juvenile Idiopathic Arthritis SANOFI / FORM 20-F 2018 37 ITEM 4. INFORMATION ON THE COMPANY (n) Eosinophilic Esophagitis (o) Chronic Obstructive Pulmonary Disease (p) Amyotrophic Lateral Sclerosis and Alzheimer’s disease (q) Gaucher related Parkinson’s Disease (r) Relapsing Multiple Sclerosis pediatric (s) Relapsing Remitting Multiple Sclerosis pediatric (t) Autosomal Dominant Polycystic Kidney Disease Phase I studies are the first studies performed in humans, who are mainly healthy volunteers, except for studies in oncology, where Phase I studies are performed in patients. Their main objective is to assess the tolerability, the pharmacokinetic profile (the way the product is distributed and metabolized in the body and the manner by which it is eliminated) and where possible the pharmacodynamic profiles of the new drug (i.e. how the product may react on some receptors). Phase II studies are early controlled studies in a limited number of patients under closely monitored conditions to show efficacy and short-term safety and to determine the dose and regimen for Phase III studies. Phase III studies have the primary objective of demonstrating or confirming the therapeutic benefit and the safety of the new drug in the intended indication and population. They are designed to provide an adequate basis for registration. a) Diabetes & Cardiovascular Diabetes Sotagliflozin (SAR439954), an oral dual inhibitor of SGLT1/2, is in-licensed from Lexicon. Results of the Phase III program in type 1 diabetes were released in 2017. An NDA for sotagliflozin was filed in the US and EU in type 1 diabetes in March 2018. The European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion in March 2019. A large Phase III program including a Cardiovascular Outcome Trial is currently ongoing to investigate the use of sotagliflozin for the treatment of type 2 diabetes. A Phase III study in patients with worsening heart failure was initiated in the second quarter of 2018. from our Efpeglenatide (SAR439977) is a long-acting GLP1 receptor agonist derived license agreement with Hanmi Pharmaceuticals. A Phase III development program in type 2 diabetes is ongoing. A cardiovascular outcome study, AMPLITUDE-O, evaluating efpeglenatide was initiated in the second quarter of 2018. Rapid Acting Insulin (SAR341402) is in Phase III for the treatment of type 1 and type 2 diabetes. Admelog® (a rapid acting insulin – SAR342434) was approved in the US in October 2018. Products removed from the portfolio in 2018 SAR425899, a dual GLP-1/glucagon receptors was terminated in November 2018 Cardiovascular Praluent® (collaboration with Regeneron): The results of the ODYSSEY OUTCOMES study, which showed Praluent® significantly reduced the risk of major adverse cardiovascular events in patients who had suffered a recent acute coronary syndrome, were submitted to the FDA and EMA in the second quarter of 2018. A Praluent® treatment regimen (administration every 4 weeks) was approved in Japan in Nov 2018. A study evaluating Praluent® in children with heterozygous familial hypercholesterolemia (HeFH) was initiated. Products removed from the portfolio in 2018 SAR407899, a novel Rho-kinase inhibitor, was discontinued in Nov 2018 SAR247799, a S1P1 agonist, was discontinued in Nov 2018. Further to the termination in January 2019 of the agreement with MyoKardia to jointly develop small-molecule therapeutics targeting genetic mutations associated with certain heart diseases, the following two projects were removed from the portfolio: ◆ SAR439152 (Mavacamten), a myosin inhibitor; ◆ SAR440181, an allosteric activator of cardiac myosin ATPase . b) Oncology Products in development Isatuximab (SAR650984), in-licensed from ImmunoGen, is a monoclonal antibody which selectively binds to CD38, a cell surface antigen expressed in multiple myeloma cancer cells, and other hematological malignancies. Isatuximab kills tumor cells via multiple biological mechanisms including: ◆ antibody-dependent cellular-mediated cytotoxicity (ADCC); ◆ complement-dependent cytotoxicity (CDC); ◆ antibody-dependent cellular phagocytosis (ADCP); and ◆ direct induction of apoptosis (pro-apoptosis) without cross- linking. Isatuximab also inhibits CD38 ectoenzymatic activity and the expansion of immune-suppressive regulatory T cells and myeloid derived suppressor cells. The program is currently in Phase III clinical development, with multiple studies ongoing in multiple myeloma (MM), including four pivotal Phase III trials. SAR438335, a dual GLP-1/GIP receptor agonists was terminated in November 2018 The Phase III ICARIA-MM trial is a randomized, open label, multicenter study comparing isatuximab in combination with 38 SANOFI / FORM 20-F 2018 pomalidomide and dexamethasone against pomalidomide and dexamethasone in patients with relapsed and refractory multiple myeloma. The Phase III IKEMA trial is a randomized, open label, multicenter study assessing the clinical benefit of isatuximab combined with carfilzomib (Kyprolis®) and dexamethasone versus carfilzomib with dexamethasone in patients with relapsed and/or refractory multiple myeloma previously treated with one to three prior lines. III trial IMROZ The Phase is a randomized, open-label, multicenter study assessing the clinical benefit of isatuximab in combination with lenalidomide (Revlimid®) bortezomib, and lenalidomide and dexamethasone in patients with newly diagnosed multiple myeloma not eligible for transplant. bortezomib dexamethasone (Velcade®), versus The Phase III GMMG HD7 trial is a randomized, open-label, multicenter study assessing the clinical benefit of isatuximab in combination with lenalidomide, bortezomib, and dexamethasone (RVd) for induction and with lenalidomide for maintenance in patients with newly diagnosed multiple myeloma. This study is conducted in collaboration with the German-speaking Myeloma Multicenter Group (GMMG) and was initiated in the last quarter of 2018. I study in combination with cyclophosphamide, A Phase bortezomib and dexamethasone is ongoing in the treatment of adult patients newly diagnosed with multiple myeloma not eligible for transplant. A Phase I/II study in combination with cemiplimab in the treatment of patients suffering from RRMM (relapsing and/or refractory multiple myeloma) was initiated in 2018. In addition, early development studies in solid tumors are ongoing. ◆ A Phase I/II study with isatuximab in combination with cemiplimab in patients with advanced malignancies (prostate and non-small cell lung cancer), ◆ A Phase II study in combination with cemiplimab in the treatment of lymphoma, ◆ A Phase I/II study with isatuximab alone or in combination with atezolizumab in patients with advanced malignancies (hepatocellular carcinoma, squamous cell carcinoma of the head and neck, epithelial ovarian cancer or glioblastoma multiform), ◆ A Phase II study in combination with atezolizumab in the treatment of solid tumors. Libtayo® – cemiplimab (SAR439684), a PD-1 inhibitor derived from our alliance with Regeneron, was approved by the FDA for the treatment of advanced CSCC (Sept 2018) and is anticipated to be approved in EU by the second quarter of 2019. A Phase II program in the treatment of basal cell carcinoma was initiated in July 2017 and is ongoing. ITEM 4. INFORMATION ON THE COMPANY Additional Phase indications: III studies are also running in different ◆ in the first-line treatment of patients with advanced or metastatic non-small cell lung cancer (NSCLC) whose tumors express PD-L1, versus Platinum Based Chemotherapy; and ◆ in the treatment of patients with recurrent or metastatic platinum-refractory cervical cancer. In this study, cemiplimab is assessed versus investigator’s choice chemotherapy. SAR439859 is a potent, orally bioavailable, and selective estrogen receptor (ER) inhibitor that belongs to the SERD class of compounds. SAR439859 antagonizes the binding of estradiol to ER but also promotes the transition of ER to an inactive conformation leads to receptor degradation (98%) at sub-nanomolar concentrations in tumor cells harboring either wild type or mutant ER. The compound is in Phase I in the treatment of metastatic breast cancer, in monotherapy and in combination with palbociclib. that functions SAR439459 is a monoclonal antibody which inhibits the activity of transforming growth factor beta (TGFß). TGFß regulates several biological processes (including wound healing, embryonic development, and malignant transformation) by controlling many key cellular including proliferation, differentiation, survival, migration, and epithelial mesenchyme transition. TGFß is expected to alleviate the suppressive tumor microenvironment and allow checkpoint modulators, such as anti-programmed cell death 1 (PD-1), to better induce immune responses and thus increase the proportion of patients benefitting from anti-PD-1 treatment. The compound is in Phase I in the treatment of advanced solid tumors in monotherapy and in combination with cemiplimab. SAR408701 is an antibody drug conjugate (ADC) that binds to CEACAM-5, a membrane glycoprotein originally identified as a surface marker on adenocarcinomas of the human gastrointestinal tract. A study is ongoing to evaluate the activity of the drug in the treatment of non-small-cell lung cancer, colorectal cancer and gastric cancer. In addition, there is an active Phase I trial in Japan. SAR440234: is a novel bispecific T-cell engager (TCE) that has been engineered incorporating the proprietary Cross-Over-Dual- Variable-Domain (CODV) format, a fully humanized Fc-silenced IgG1 backbone, and variable domains from two antibodies, targeting CD3 (T-cell co-receptor) and CD123, respectively with the goal of developing a therapeutic molecule active against leukemic stem cells and blasts. The First in Human testing of dose-escalation of SAR440234 in patients with acute myeloid leukemia, acute leukemia and myelodysplastic syndrome was initiated in 2018. lymphoid SAR441000: is an immunostimulatory mRNA mixture designed to stimulate both innate and adaptive arms of the immune system to maximize anti-tumor activity. It is developed in collaboration with BioNTech. The set-up phase of the First in Human study in patients with advanced melanoma is ongoing. SANOFI / FORM 20-F 2018 39 ITEM 4. INFORMATION ON THE COMPANY SAR442720 is an inhibitor of SHP2 designed to reduce cell growth signaling that is overactive in patients with non-small cell lung cancer and other types of cancers having specific types of genetic mutations. This compound is developed jointly by Sanofi and Revolution Medicines and the First in Human study in advanced non-small cell lung cancer with mutations (KRAS or in NF1) was initiated in 2018. Products removed from the portfolio in 2018 SAR566658 is an antibody drug conjugate (ADC) loaded with a targeting maytansinoid derivative DM4 (huDS6-SPDB-DM4) CA6. It was discontinued in April 2018. The product was in Phase II in the treatment of triple-negative breast cancer. c) Immunology & Inflammation Main products in Phase III and in the registration phase Dupixent® – dupilumab (SAR231893), an interleukin-4 receptor alpha antagonist, is a human monoclonal antibody of the IgG4 subclass that binds to the IL-4Rα subunit and inhibits IL-4 and IL-13 signaling. Dupilumab is jointly developed with Regeneron in several indications: in March 2017, by the European Commission ◆ atopic dermatitis: the product was approved for adults by the in FDA September 2017, and by the Japanese PMDA in January 2018, and launched under the trade name Dupixent®. A supplemental filing for the adolescent population has been accepted for priority review by the FDA, with a target action date of March 11, 2019. Several Phase III pediatric studies (6 months to 5 years and 6 to 11 years) are currently ongoing; ◆ asthma: the product was approved for adults & adolescents by the FDA in October 2018, and the CHMP adopted a positive in children opinion (6-11 years) is ongoing; in March 2019. A Phase III study ◆ nasal polyposis: positive Phase III results were announced in October 2018; ◆ eosinophilic esophagitis: Phase II/III study started screening in September 2018; ◆ adjunct to immunotherapy: Proof-of-concept studies were initiated in 2018 to evaluate dupilumab as an adjunct to immunotherapy (peanut and grass allergies); ◆ chronic obstructive pulmonary disease: a Phase III study is on track to start early 2019. Kevzara® – sarilumab (SAR153191), a monoclonal antibody against the Interleukin-6 Receptor derived from our alliance with Regeneron, already marketed in the treatment of moderate to severe rheumatoid arthritis. The product is in Phase IIb in pediatric populations for two indications: polyarticular juvenile idiopathic arthritis and systemic juvenile idiopathic arthritis. Two Phase III studies were initiated in 2018 for the treatment of polymyalgia rheumatic and giant cell arteritis. 40 SANOFI / FORM 20-F 2018 Main products in early stage SAR441344, an anti-CD40L mAb, is in Phase I for the treatment of multiple sclerosis. SAR156597 a humanized bi-specific monoclonal antibody targeting the cytokines IL-4 and IL-13, is in Phase IIa for the treatment of diffuse systemic sclerosis. SAR440340, a human anti-IL33 monoclonal antibody derived from our alliance with Regeneron, has completed Phase I. Three Phase II studies started in 2018, in moderate-to-severe asthma, in atopic dermatitis and in chronic obstructive pulmonary disease. Products removed from the portfolio in 2018 SAR439794, a TLR4 agonist, was discontinued in October 2018. GZ389988 (TrKA), a small molecule which inhibits binding of nerve growth factor (NGF), was terminated in November 2018. Ferroquine (OZ439) is a first in class combination for malaria, developed in collaboration with the Medicines for Malaria Venture (MMV). In December 2018, Sanofi and MMV agreed to transfer operational responsibility to MMV such that MMV assumes leadership while Sanofi remains the sponsor of the studies and also retains responsibility for fulfilling drug supply, regulatory and legal obligations. d) Multiple Sclerosis and Neurology SAR442168 (PRN2246), an orally administered Bruton’s tyrosine kinase (BTK) inhibitor which was designed to access the brain and spinal cord by crossing the blood-brain barrier and impact immune cell and brain cell signaling. The Phase I studies were completed in the second half of 2018. The investigational new drug (IND) application was submitted December 2018, and a Phase IIb Proof of Concept/dose-ranging study in relapsing multiple sclerosis patients is planned to be initiated in early 2019. SAR443060 (DNL747) is a best-in-class orally administered receptor-interacting serine/threonine protein kinases (RIPK1) inhibitor. It was designed to be brain penetrant and inhibit two major components of neurodegenerative diseases (inflammation and necroptosis), and is being developed for multiple sclerosis and neurodegenerative diseases. A Phase I study was completed in 2018 and two Phase Ib studies in amyotrophic lateral sclerosis and Alzheimer’s disease were started in late 2018. Venglustat (GZ402671), an orally administered brain penetrant glucosylceramide synthase (GCS) inhibitor, has completed Part 1 (dose escalation phase) of a Phase II study in patients with early- stage Parkinson’s disease carrying a ß-glucocerebrosidase (GBA) gene mutation (GBA-PD) or other prespecified variant. Part 2 (treatment phase) of the study was started in early 2018. The product is also being developed in other rare disease type 3, Fabry disease and indications (Gaucher disease autosomal dominant polycystic kidney disease – see Rare Diseases section). Aubagio® (teriflunomide) is currently marketed for the treatment of relapsing forms of multiple sclerosis and relapsing remitting multiple sclerosis. Teriflunomide is being evaluated in a Phase III study to assess safety and efficacy in pediatric patients with relapsing forms of multiple sclerosis. (alemtuzumab) is currently marketed Lemtrada® the treatment of relapsing forms of multiple sclerosis. Alemtuzumab is being evaluated in a Phase III study to assess safety and efficacy in pediatric patients with the relapsing remitting form of multiple sclerosis. for SAR422459 is a gene therapy product which uses a lentivector gene delivery technology to introduce a functional ABCR gene into photoreceptors recessive Stargardt’s disease. an orphan inherited condition that leads to progressive vision loss from childhood. The product is currently in Phase IIa. in patients with autosomal Products removed from the portfolio in 2018 SAR228810, an anti-protofibrillar Abeta monoclonal antibody, completed a Phase I study in mild cognitive impairment due to Alzheimer’s Disease (AD) and in mild AD. The project has been discontinued. UshStat® (SAR421869), a gene therapy product which uses a lentivector gene delivery technology to introduce a functional MYO7A gene into the photoreceptors and retinal pigment epithelium (RPE) cells in patients with Usher 1B syndrome, an orphan inherited condition that leads to progressive visual field constriction and vision loss from childhood. The product, in Phase I/IIa, will be discontinued contingent upon identification of out-licensing partner. e) Rare Diseases Main products in Phase III and in the registration phase Avalglucosidase alfa (GZ402666 Neo GAA) is a second generation enzyme replacement therapy targeting the treatment of Pompe disease. The Phase III program was launched in November 2016, with the COMET study targeting treatment naïve late onset Pompe disease patients. The Phase IIb/III mini- COMET study started in 2017, targeting treatment experienced infantile onset Pompe disease patients. of the targeting treatment GZ402665 (rhASM) olipudase alfa is an enzyme replacement therapy non-neurological manifestations of acid sphingomyelinase deficiency (ASMD), also known as Niemann-Pick B disease. Both the open label pivotal Phase I/II trial in the pediatric population and the Phase II/III trial in the adult population have successfully completed enrollment for the target number of patients. Data from the pediatric and adult patients will be assessed one year after enrollment to support registration. ITEM 4. INFORMATION ON THE COMPANY Cerdelga® (eliglustat) is already marketed as a first line oral therapy for Gaucher disease Type 1. It is also currently in Phase III for the treatment of Gaucher disease Type I in pediatric patients. Main products in early stage Venglustat (GZ402671 GCS inhibitor) is in development in Fabry disease, Gaucher disease type 3 (GD3) and Autosomal Dominant Polycystic Kidney Disease (ADPKD). The extension study of the Phase II trial for the treatment of Fabry disease to understand the long term effects of venglustat therapy in Fabry patients is completed. A Phase II study in Gaucher disease type 3 (LEAP) is ongoing; the first enrolled patient is about to reach two-year results have shown pharmacokinetic evidence that venglustat crosses the blood– CSF barrier. A Phase III pivotal study (STAGED-PKD) in rapidly progressive Autosomal Dominant Polycystic Kidney Disease (ADPKD) patients was initiated in 2018. treatment and preliminary SAR339375, an anti-miR21 RNA in collaboration with Regulus. It is in Phase II for the treatment of Alport syndrome. is being developed f) Rare Blood Disorders Main products in Phase III and in the registration phase Sutimlimab (formerly BIVV009/TNT009) is a monoclonal antibody targeting C1. It is a product candidate intended to selectively inhibit the classical complement pathway of the immune system. The Phase III program includes two parallel Phase III trials which are evaluating the efficacy and safety of Sutimlimab in adult patients with primary Cold Agglutinin Disease (CAD/CAgD). Sutimlimab was awarded Breakthrough Therapy Designation by the US Food and Drug Administration in 2018. Sutimlimab is also currently enrolling an open-label Phase Ib trial to evaluate the safety and tolerability of multi-dose in adult patients with Idiopathic Thrombocytopenic Purpura (ITP). Fitusiran (SAR439774 ALN-AT3) is a program in collaboration with Alnylam for the development of a siRNA therapeutic agent to treat hemophilia (A and B). It uses a novel approach targeting antithrombin (AT), with AT knockdown leading to increase in thrombin generation. The Phase III program (ATLAS) started in 2018. Main products in early stage is an (rFVIIIFc-VWF-XTEN) investigational von BIVV001 Willebrand factor (VWF)-independent factor VIII therapy for people with hemophilia A designed to potentially extend protection from bleeds with prophylactic dosing of once weekly or longer. Bioverativ recently dosed the last patient in EXTEN-A, a Phase I/IIa study to evaluate the safety and pharmacokinetic (PK) of BIVV001 in both a 25 IU/kg dose and 65 IU/kg dose cohort of subjects aged 18-65 years with severe hemophilia A. A Phase I repeat dose study to inform the selection of the Phase III dose and regimen started in October 2018. SANOFI / FORM 20-F 2018 41 ITEM 4. INFORMATION ON THE COMPANY Sangamo Collaboration (BIVV003, ST-400) Bioverativ and Sangamo Therapeutics are working in collaboration to research, develop and commercialize treatments for sickle cell disease and beta thalassemia, two inherited blood disorders that result from the abnormal structure or underproduction of hemoglobin. The collaboration combines the extensive expertise of Sangamo in developing their genome editing technology with Bioverativ’s deep understanding of hematology. The collaboration is focused on the goal of providing a single, lasting treatment for both sickle cell disease and beta thalassemia. Currently, Bioverativ is responsible for execution of the sickle cell disease Phase I/II program, BIVV003, while Sangamo is responsible for the beta thalassemia Phase I/II program, ST-400. Both programs are entering the recruiting phase of these first-in-human trials. B.5.2. Vaccines The Vaccines R&D portfolio includes 11 vaccines and antibodies currently in advanced development, as shown in the table below. The portfolio is well balanced, with five vaccine products for novel targets and six vaccines which are enhancements of existing vaccine products. In 2018, we obtained regulatory approval in the US for Vaxelis®, a pediatric hexavalent combination vaccine protecting against diphtheria, tetanus, pertussis, polio, Hemophilus influenza b and hepatitis B. In the EU, Vaxigrip Tetra® has been extended to childen aged 6 to 35 months. The Pneumoconjugate vaccine entered our Phase I portfolio in late 2018 and we announced in July 2018 to discontinue clinical development of our experimental tuberculosis vaccine. that we had decided Phase I Phase II Phase III Registration Respiratory Syncytial Virus (RSV) vaccine Prevention of RSV infections in infants aged 4 months and older Human Immunodeficiency Virus (HIV) vaccine(a) Prevention of HIV infections in at-risk adults Fluzone® QIV HD Quadrivalent inactivated influenza vaccine – High dose Herpes Simplex Virus (HSV) vaccine(a) HSV-2 therapeutic vaccine Pneumoconjugate Vaccine (PCV)(a) Prophylactic vaccine against pneumococcal pneumonia SP0232 mAb(a) Passive prevention of respiratory syncytial virus infections for all infants VerorabVax® (VRVg) Purified vero rabies vaccine MenQuadTT (ACYW) Advanced generation meningococcal ACYW conjugate vaccine Pediatric pentavalent vaccine(a) DTP-Polio-Hib(b) Japan SP0173 Tdap(b) booster vaccine US, for persons aged over 64 Shan6 DTP-HepB-Polio-Hib(b) Pediatric hexavalent vaccine (a) Partnered and/or in collaboration: Sanofi may have limited or shared rights to some of these products. (b) D=Diphtheria, T=Tetanus, P=Pertussis, Hib=Hemophilus influenzae b, HepB=Hepatitis B, ap=acellular pertussis. Enhancements of existing vaccines Fluzone® QIV HD is a higher dose quadrivalent influenza vaccine for the elderly (aged 65 years and older), who do not respond as well to standard dose influenza vaccines due to aging of the immune system (immunosenescence). A Phase III study has demonstrated non-inferior immunogenicity and comparable safety to the licensed trivalent Fluzone® High-Dose vaccine, which has shown greater protection versus standard dose. Pediatric pentavalent vaccine for the Japanese market: Sanofi Pasteur, in partnership with Kitasato and Daiichi Sankyo (KDSV), is developing a pediatric pentavalent vaccine (primary series and booster vaccine) for the Japanese market. The vaccine includes diphtheria, tetanus and acellular pertussis (DTaP) from KDSV, and inactivated polio (IPV) and Hib from Sanofi Pasteur. Shan6 is a cost-effective, all-in-one liquid hexavalent combination vaccine being developed for the Indian market and other low and middle income countries (WHO pre-qualification). It comprises a detoxified whole-cell pertussis component as well as diphtheria toxoid, tetanus toxoid, Hemophilus influenza type b PRP-T, inactivated poliovirus types 1, 2, and 3 and hepatitis B virus components. SP0173: The current Adacel® (Tdap booster vaccine containing tetanus toxoid, diphtheria toxoid, and 5-component acellular pertussis) is not indicated in the US for persons aged over 64. This development is specifically designed to bridge this indication gap. MenQuadTT: Sanofi Pasteur’s Men ACYW-TT vaccine candidate is our latest advance in meningococcal quadrivalent conjugate vaccination, designed to help protect an expanded patient group including infants and adolescents through older adults. Phase II and initial Phase III trials have been performed in the US and the EU. Additional Phase III trials are ongoing in the EU, Asia and Latin America. The safety and immunogenicity profiles of the vaccine candidate are encouraging. VerorabVax® (VRVg) is a next-generation purified human rabies vaccine under development, aimed at replacing both of Sanofi Pasteur’s currently commercialized rabies vaccines (Imovax® Rabies and Verorab®). It will be cultured on Vero cells without animal or human material. 42 SANOFI / FORM 20-F 2018 New vaccine targets SP0232 mAb: In March 2017 Sanofi Pasteur announced an agreement with MedImmune/AstraZeneca to develop and commercialize a monoclonal antibody (SP0232, also known as MEDI8897) which has been engineered to have a long half-life, so that only one dose would be needed for the entire RSV season to provide passive immunity and prevent RSV infection in all infants for their first RSV season (and in high-risk infants for their first and second RSV seasons). Positive primary analysis of the Phase IIb trial has demonstrated the safety and efficacy of SP0232. The product received fast-track designation from the FDA in 2015 and is currently under review for EMA PRIME priority medicines designation and for FDA Breakthrough Therapy designation. Respiratory Syncytial Virus (RSV) infant vaccine: Sanofi Pasteur has a Cooperative Research and Development Agreement (CRADA) with the US National Institutes of Health (NIH) to develop a live attenuated RSV vaccine for immunization in infants aged 4 months and older. The lead candidate(s) are currently under Phase I evaluation in healthy infants without previous RSV exposure. Pneumoconjugate Vaccine (PCV): Sanofi Pasteur is developing with SK chemicals (South Korea) a pneumococcal conjugate vaccine with broader coverage. This vaccine entered Phase I in December 2018. Herpes Simplex Virus (HSV) type 2 is a member of the herpes virus family and as such establishes life-long infections – mainly genital herpes – with latent virus established in neural ganglia. Although antivirals currently exist to treat these infections, no vaccine exists. Our vaccine candidate is a live attenuated virus and is being assessed as a therapeutic vaccine to reduce recurrence and transmission. It is currently in Phase I. In 2014, Sanofi Pasteur signed a contract with Immune Design Corp. to ITEM 4. INFORMATION ON THE COMPANY collaborate on the development of this therapeutic herpes simplex virus vaccine candidate by exploring the potential of various combinations of agents. Human Immunodeficiency Virus (HIV): Sanofi Pasteur is working in a “pox-protein public-private partnership” (P5) to document efficacy of a pox-protein based HIV prophylactic vaccine regimen in South Africa. Specifically, following the modest success of RV144 (the first trial to show supporting evidence that a vaccine could lower the risk of HIV acquisition, the P5 partnership adopted a pox-protein based vaccine regimen to potentially provide greater protection. This is currently being tested in a Phase IIb study in South Africa. B.5.3. R&D expenditures for late stage development in to Expenditures on research and development amounted €5,894 million in 2018, comprising €4,572 million in the Pharmaceuticals segment; €143 million the Consumer Healthcare segment; €555 million in the Vaccines segment; and €624 million allocated to “Other”, representing the R&D support function. Research and development expenditures were the equivalent of about 17,1% of net sales in 2018, compared to about 15.6% in 2017 and about 15.3% in 2016. The increase in R&D expenditures as a percentage of sales in 2018 is mainly due late stage to a greater proportion of products being development. It is also due to the integration of Ablynx and Bioverativ in 2018. Preclinical research in the Pharmaceuticals segment amounted to €983 million in 2018, compared to €1,086 million in 2017 and €1,077 million in 2016. Of the remaining €3,589 million relating to clinical development in the Pharmaceuticals segment in 2017 and €3,124 million in 2016), the largest portion was generated by Phase III or post-marketing studies, reflecting the cost of monitoring large scale clinical trials. (€2,969 million in SANOFI / FORM 20-F 2018 43 ITEM 4. INFORMATION ON THE COMPANY Compound Entry into Phase III(a) Compound Patent Term(b) Comments (month/year) August 2017 US N/A EU N/A Japan N/A Phase III program ongoing in type 1 and 2 diabetes. November 2015 2028 2027 2027 NDA filed in Type 1 diabetes. Phase III program ongoing in Type 2 diabetes and in worsening heart failure. December 2017 2028 2028 2028 Phase III program ongoing in Type 2 diabetes. October 2014 2027 2029 SAR341402 insulin aspart sotagliflozin (SAR439954) efpeglenatide (SAR439977) dupilumab Dupixent® (SAR231893) 2029 Dossier approved in atopic dermatitis (AD) in adults, and in asthma for adults and children over 12 years old. Dossier filed in AD in adolescents (12-17 years old). Phase III program ongoing in AD (children: 6 months-11 years old) and in asthma (children: 6–11 years old). Phase III program ongoing in nasal polyposis and eosinophilic esophagitis. Phase II program ongoing in grass immunotherapy and peanut allergy. 2027 Dossier approved in rheumatoid arthritis. Phase III program ongoing in giant cell arteritis and polymyalgia rheumatica. Phase II program ongoing in systemic juvenile idiopathic juvenile arthritis and polyarticular arthritis. sarilumab Kevzara® (SAR153191) August 2011 2028(c) 2027 avalglucosidase alfa (GZ402666) Venglustat (GZ402671) fitusiran (SAR439774) sutimlimab (BIVV009) isatuximab (SAR650984) November 2016 2030 2028 2028 Phase III program ongoing in Pompe disease. February 2019 2032 2032 2032 Phase III study in autosomal dominant polycystic kidney disease (ADPKD) initiated. Phase II program ongoing in Fabry disease, Gaucher disease Type 3 and Gaucher related Parkinson’s disease. March 2018 2033 2033 2033 Phase III program ongoing for the treatment of hemophilia A&B. March 2018 2033 2033 2033 Phase III program ongoing in Cold Agglutinin Disease. December 2016 2028 2027 2027 Phase Ill program ongoing in relapsing refractory multiple myeloma (RRMM) and in newly diagnosed multiple myeloma. Phase II program ongoing in combination with atezolizumab in advanced malignancies and solid tumors and in combination with cemiplimab in RRMM, advanced malignancies and lymphoma. cemiplimab (SAR439684) May 2017 2035 2035 2035 Dossier approved for treatment of advanced the cutaneous squamous cell carcinoma. Phase III program ongoing in 1L non-small cell lung cancer (monotherapy and combination) and 2L cervical cancer. Registration Phase II study ongoing in advanced basal cell carcinoma. (a) First patient included in Phase III in any indication. (b) Subject to any future supplementary protection certificates and patent term extensions. (c) With Patent Term Adjustment. With respect to the compound patent information set out above, investors should bear in mind the following additional factors: ◆ The listed compound patent expiration dates do not reflect possible extensions of up to five years available in the US, the EU, and Japan for pharmaceutical products. See “– B.7. Patents, Intellectual Property and Other Rights – Patent Protection” for a description of supplementary protection certificates and patent term extensions. 44 SANOFI / FORM 20-F 2018 ◆ Depending on the circumstances surrounding any final regulatory approval of the compound, there may be other listed patents or patent applications pending that could have relevance to the product as finally approved; the relevance of any such application would depend upon the claims that ultimately may be granted and the nature of the final regulatory approval of the product. ◆ Regulatory exclusivity tied to the protection of clinical data is complementary to patent protection, and may provide more efficacious or longer lasting marketing exclusivity than a compound’s patent estate. See “– B.7. Patents, Intellectual Property and Other Rights – Regulatory Exclusivity” for additional information. In the United States the data protection generally runs five years from first marketing approval of a new chemical entity, extended to seven years for an orphan drug indication and twelve years from first marketing approval of a biological product. In the EU and Japan the corresponding data protection periods are generally ten years and eight years, respectively. B.6. Markets A breakdown of revenues by business segment and by geographical region for 2018, 2017, and 2016 can be found at Note D.35. to our consolidated financial statements, included at Item 18 of this annual report. The following market shares and ranking information are based on consolidated national pharmaceutical sales data (excluding vaccines), in constant euros, on a September 2018 MAT (Moving Annual Total) basis. The data are mainly from IQVIA local sales audit supplemented by various other country-specific sources including Knobloch (France) and HMR (Mexico), GERS (Portugal). For more information on market shares and rankings see “Presentation of Financial and Other Information” at the beginning of this Annual Report on Form 20-F. B.6.1. Marketing and distribution We have a commercial presence in approximately 100 countries, and our products are available in more than 170 countries. Sanofi is the sixth largest pharmaceutical company globally by sales. Our main markets in terms of net sales are respectively: ◆ Emerging Markets (see definition in “– Information on the leading Company – Introduction” above): Sanofi healthcare company in emerging markets, and the fifth largest pharmaceutical company in China. the is ITEM 4. INFORMATION ON THE COMPANY also sold and distributed through e-commerce, which is a growing trend in consumer behavior. Our vaccines are sold and including physicians, distributed pharmacies, hospitals, private companies and distributors in the private sector, and governmental entities and non-governmental organizations in the public and international donor markets. through multiple channels We use a range of channels from in-person to digital to disseminate information about and promote our products among healthcare professionals, ensuring that the channels not only cover our latest therapeutic advances but also our established prescription products, which satisfy patient needs in some therapy areas. We regularly exhibit at major medical congresses. In some countries, products are also marketed directly to patients by way of television, radio, newspapers and magazines, and digital channels (such as the internet). National education and prevention campaigns can be used to improve patients’ knowledge of their conditions. Our sales representatives, who work closely with healthcare professionals, use their expertise to promote and provide information on our drugs. They represent our values on a day-to-day basis and are required to adhere to a code of ethics and to internal policies in which they receive training. Although we market most of our products through our own sales forces, we have entered into and continue to form partnerships to co-promote/co-market certain products in specific geographical areas. Our major alliances are detailed at “Item 5. Operating and Financial Review and Prospects – Financial Presentation of Alliances.” See also “Item 3. Key Information – D. Risk Factors – We rely on third parties for the discovery, manufacture and marketing of some of our products.” B.6.2. Competition The pharmaceutical industry continues to experience significant changes in its competitive environment. There are pharmaceutical market: four types of competition in the prescription ◆ The US: we rank twelfth with a market share of 3.4%. ◆ Europe: we are the third largest pharmaceutical company in France where our market share is 6.4% and we rank third in Germany with a 4.5% market share. ◆ Other countries: our market share in Japan is 1.7%. A breakdown of our aggregate net sales by geographical region is presented in “Item 5. Operating and Financial Review and Prospects – Results of Operations – Year Ended December 31, 2018 Compared with Year Ended December 31, 2017.” Although specific distribution patterns vary by country, we sell prescription drugs primarily to wholesale drug distributors, independent and chain retail drug outlets, hospitals, clinics, managed-care organizations and government institutions. Rare disease products are also sold directly to physicians. With the exception of Consumer Healthcare products, our drugs are ordinarily dispensed to patients by pharmacies upon presentation of a doctor’s prescription. Our Consumer Healthcare products are ◆ competition between pharmaceutical companies to research and develop new patented products or address unmet medical needs; ◆ competition between different patented pharmaceutical products marketed for the same therapeutic indication; ◆ competition between original and generic products or between original biological products and biosimilars, at the end of regulatory exclusivity or patent protection; and ◆ competition between generic or biosimilar products. We compete with other pharmaceutical companies in all major markets to develop innovative new products. We may develop new technologies and new patented products wholly in-house, but we also enter into collaborative R&D agreements in order to access new technologies. See Note D.21. to our consolidated financial statements, included at Item 18 of this annual report. SANOFI / FORM 20-F 2018 45 ITEM 4. INFORMATION ON THE COMPANY in diabetes; Eli Lilly Our prescription drugs compete in all major markets against patented drugs from major pharmaceutical companies. Our competitors in key businesses include: Novo Nordisk, Boehringer Ingelheim and Merck in diabetes, immunology and oncology; Bristol-Myers Squibb in immunology and oncology; Novartis in diabetes, multiple sclerosis, and oncology; Shire in rare diseases and hemophilia; Pfizer in rare diseases, hemophilia and oncology; Biogen Idec, Teva and Merck Serono in multiple sclerosis; Bayer in multiple sclerosis in multiple sclerosis, hemophilia, and hemophilia; Roche diabetes, immunology in cardiovascular disease and oncology; and Amgen cardiovascular disease. oncology; AstraZeneca and in In our Consumer Healthcare business, key competitors include Johnson & Johnson, Pfizer, GlaxoSmithKline, Bayer and Reckitt Benckiser as well as local players, especially in emerging markets. Our generics business competes with multinational corporations such as Teva, Sandoz (a division of Novartis), Mylan and local players, especially in emerging markets. In our Vaccines business we are one of the top four players, competing primarily with large multinational players including Merck, GlaxoSmithKline, and Pfizer. lose a patent We also face competition from generic drugs that enter the market when our patent protection or regulatory exclusivity expires, or when we lawsuit (see “– B.7. Patents, Intellectual Property and Other Rights” below). Similarly, when a competing patented drug from another pharmaceutical company those generic products can also affect the competitive environment of our own patented product. See “Item 3. Key Information – D. Risk factors – Risks relating to our business”. faces generic competition, infringement Competition from producers of generics has increased sharply in response to healthcare cost containment measures and to the increased number of products for which patents or regulatory exclusivity have expired. Generics manufacturers who have received all necessary regulatory approvals for a product may decide to launch a generic version before the patent expiry date, even in cases where the owner of the original product has already commenced patent infringement litigation against the generics manufacturer. Such launches are said to be “at risk” for the promoter of the generic product because it may be required to pay damages to the owner of the original product in the context of patent launches may also infringement the pharmaceutical significantly company whose product is challenged. litigation; however, such the profitability of impair Drug manufacturers also face competition through parallel trading, also known as reimportation. This takes place when drugs sold abroad under the same brand name as in a domestic market are imported into that domestic market by parallel traders, who may repackage or resize the original product or sell it through alternative channels such as mail order or the internet. 46 SANOFI / FORM 20-F 2018 This situation is of particular relevance to the EU, where such practices have been encouraged by the current regulatory framework. Parallel the price differentials between markets arising from factors including sales costs, market conditions (such as intermediate trading stages), tax rates, or national regulation of prices. take advantage of traders Finally, pharmaceutical companies face illegal competition from falsified drugs. The WHO estimates that falsified products account for 10% of the market worldwide, rising to 30% in some countries. All therapeutic areas are affected, also including in markets where powerful regulatory vaccines. However, controls are in place, falsified drugs are estimated to represent less than 1% of market value. B.6.3. Regulatory framework B.6.3.1. Overview The pharmaceutical and health-related biotechnology sectors are highly regulated. National and supranational health authorities administer a vast array of legal and regulatory requirements that dictate pre-approval testing and quality standards to maximize the safety and efficacy of a new medical product. These authorities also labeling, manufacturing, importation/exportation and marketing, as well as mandatory post-approval include pediatric development. regulate product commitments that may that a license The submission of an application to a regulatory authority does to market will be granted. not guarantee Furthermore, each regulatory authority may impose its own requirements during the course of the product development and application review. It may refuse to grant approval and require additional data before granting approval, even though the same in other countries. product has already been approved Regulatory authorities also have the authority to request product recalls and product withdrawals, and to impose penalties for violations of regulations based on data that are made available to them. Product review and approval can vary from six months or less to several years from the date of application depending upon the country. Factors such as the quality of data, the degree of control exercised by the regulatory authority, the review procedures, the nature of the product and the condition to be treated, play a major role in the length of time a product is under review. The International Council for Harmonization (ICH) continues to implement its reform mandate. The aims are to reinforce the foundations of the ICH; expand harmonization globally beyond the traditional ICH members, i.e. the three founding members (EU, Japan, US) plus Canada and Switzerland as standing members; and facilitate the involvement of additional regulators and industry associations around the world. Since the reform started much progress has been made. There are now 10 regulatory agencies (Brazil, China, Chinese Taipei, Singapore and South Korea in addition to the three ITEM 4. INFORMATION ON THE COMPANY founding members and the two standing members) and 28 ICH organizations (including 13 regulatory authorities from around the world) with observer status. International collaboration between regulatory authorities continues to develop with the implementation of confidentiality arrangements and memoranda of understanding between both ICH and non-ICH regulatory authorities. Examples include work- sharing on Good Manufacturing Practices (GMP) and Good Clinical Practices (GCP) inspections, as well as regular interactions between the US and the EU in the form of “clusters” (pediatrics, oncology, advanced therapy medicinal products, vaccines, pharmacogenomics, orphan drugs, biosimilars, and blood products). In 2017 the United States and the EU completed an exchange of letters to amend the Pharmaceutical Annex to the 1998 US-EU Mutual Recognition Agreement. Under this agreement, US and EU regulators will be able to utilize each other’s good manufacturing practice inspections of pharmaceutical manufacturing facilities. for In addition to the joint efforts listed above, Free Trade Agreements (FTAs) have proven to be one of the best ways to open up foreign markets to exporters and to allow for discussions on harmonization topics for regulatory authorities. Some agreements, such as the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), are international in nature, while others are between specific countries. The requirements of many countries (including Japan and several EU Member States) to negotiate selling prices or reimbursement rates for pharmaceutical products with government regulators significantly extend the time to market entry beyond the initial marketing approval. While marketing authorizations for new pharmaceutical products in the EU have been largely centralized within the European Commission in collaboration with the EMA, pricing and reimbursement remain a matter of national competence. In the EU, there are three main procedures for applying for marketing authorization: innovative products ◆ The centralized procedure is mandatory for drugs derived from biotechnologies; new active substances designed for human use to treat HIV, viral diseases, cancer, neurodegenerative diseases, diabetes and auto-immune diseases; orphan drugs; and for veterinary use. When an application is submitted to the EMA, the scientific evaluation of the application is carried out by the Committee for Medicinal Products for Human Use (CHMP) and a scientific opinion is prepared. This opinion is sent to the European Commission which adopts the final decision and grants an EU marketing authorization. Such a marketing authorization is valid throughout the EU and the drug may be marketed within all EU Member States. ◆ If a company is seeking a national marketing authorization in more than one Member State, two procedures are available to facilitate the granting of harmonized national authorizations across member states: the mutual recognition procedure or the decentralized procedure. Both procedures are based on the recognition by national competent authorities of a first assessment performed by the regulatory authority of one Member State. ◆ National authorizations are still possible, but are only for products intended for commercialization in a single EU Member State or for line extensions to existing national product licenses. In the EU, vaccines are treated as pharmaceutical products, and therefore have to obtain marketing authorization under the same procedures and conditions for registration described above. On April 26, 2018, the European Commission published its Proposal for a Council Recommendation on “strengthened cooperation against vaccine-preventable diseases in Europe” and a Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. The Recommendation was adopted by the EU Council on December 7, 2018. The text sets recommendations for action by national governments and the EU to address major vaccination challenges such as vaccination hesitancy, low vaccine uptake and supply issues. Suggested actions include the setting up of a coalition of healthcare professionals for vaccination, an EU vaccination information portal and an EU vaccination card. The European Trade Association, Vaccines Europe and Sanofi have been working for the past year in support of the adoption of this recommendation as it will be a key lever to increase vaccination coverage rates across Europe. In parallel, the European Parliament adopted the “Resolution on vaccine hesitancy and the drop in vaccination rates in Europe” on April 19, 2018; and the European Joint Action on vaccination, co-funded by launched on the Health Programme, was September 4, 2018. It will address vaccine hesitancy and seek to increase vaccination coverage in the EU. It is coordinated by INSERM (France) and involves 23 countries (including 20 EU countries). It will also work towards strengthening cooperation of national immunization advisory groups (NITAGs) with a view to increasing transparency and trust in the decision-making process regarding the introduction of new vaccines, and on finding options to better anticipate vaccine demand and secure sustainability of vaccine supply across Europe. industry representatives, via Vaccines Europe Vaccines (including Sanofi), are involved in Work Packages in areas where industry can contribute such as Research, Development and supply. The European Commission is reinforcing its support for national vaccination efforts to increase coverage, including through the recent publication of three reports: “State of vaccine confidence in the EU 2018”, “Organisation and delivery of vaccination services in the European Union” and “Vaccination programmes and health systems in the EU”. Generic products are subject to the same marketing authorization procedures. A generic product must contain the same active medicinal substance as a reference product approved in the EU. Generic applications are abridged: generic manufacturers only need to submit quality data and demonstrate that the generic drug is “bioequivalent” to the originator product (i.e. performs in the same manner in the patient’s body), but do not need to submit safety or efficacy data since regulatory authorities can the reference product’s dossier. Generic product refer to SANOFI / FORM 20-F 2018 47 ITEM 4. INFORMATION ON THE COMPANY applications can be filed and approved in the EU only after the originator product’s eight-year data exclusivity period has expired. Further, generic manufacturers can only market their generic products after a 10- or 11-year period has elapsed from the date of approval of the originator product. In the case of orphan drugs, generic product applications may not be filed before the expiry of a 10- or 12-year period from the date of approval of the originator product. Another relevant aspect in the EU regulatory framework is the “sunset clause” under which any marketing authorization ceases to be valid if it is not followed by marketing within three years, or if marketing is interrupted for a period of three consecutive years. In 2018, the EMA recommended 84 medicines for marketing authorization (versus 92 in 2017), including 42 new active substances (versus 35 in 2017). Among the 84 medicines recommended, 21 (25%) had an orphan designation (versus 19 in 2017 and 17 in 2016), providing medicines for patients with rare diseases. Four medicines were evaluated under accelerated assessment in 2018 (versus seven in both 2016 and 2017); this mechanism is reserved for medicines that have the potential to address unmet medical needs. One medicine was recommended for a conditional marketing authorization; this is one of the EMA’s early access routes to patients, and is intended for medicines that address an unmet medical need and that target seriously debilitating, life- threatening or rare diseases, or are intended for use in emergency situations in response to a public health threat. Post-authorization safety monitoring of pharmaceutical products is carefully regulated in Europe. EU pharmaceutical legislation for medicinal products describes the respective obligations of the marketing authorization holder (MAH) and of the regulatory authorities to set up a system for pharmacovigilance in order to collect, collate and evaluate information about suspected adverse reactions. for safety the market reasons. Responsibilities It is possible for the regulatory authorities to withdraw products from for pharmacovigilance rest with the regulatory authorities of all the EU Member States in which the marketing authorizations are held. In accordance with applicable legislation, each EU Member State has a pharmacovigilance system for the collection and evaluation of information relevant to the risk-benefit balance of medicinal products. The regulatory authority regularly monitors the safety profile of the products available in its territory, takes appropriate action where necessary, and monitors the compliance of MAHs with their pharmacovigilance obligations. All relevant information is shared between the regulatory authorities and in their obligations and pharmacovigilance activities responsibilities. to allow all parties the MAH, in order involved fulfill to Pharmacovigilance to strengthen the protection of patient health by promoting prompt and appropriate regulatory action on European medicines. in Europe was amended legislation The measures included the creation of the Pharmacovigilance Risk Assessment Committee (PRAC), a scientific advisory committee at EMA level with a key role in the assessment of all 48 SANOFI / FORM 20-F 2018 aspects of risk management relating to the use of medicinal products for human use approved in the European Economic Area (EEA). The PRAC performs reviews of marketed products (by class or on ad hoc basis) through various procedures. For Sanofi, 209 products underwent PRAC review through signal and referral procedures to December 2018, from July 2012 generating 136 safety labeling variations (24 new variations in 2018) and 7 additional risk minimization measures. In only two cases for Sanofi (Myolastan®, and methadone oral solutions containing povidone) did the review lead to the product being withdrawn from the EU market. the launch, (the system On November 22, 2017, as part of the ongoing implementation of EU legislation, the EMA launched a new and improved version of EudraVigilance for managing and analyzing information on suspected adverse reactions to medicines which have been authorized or are being studied in clinical trials within the EEA), with enhanced functionalities to support the fulfilment of pharmacovigilance obligations. Alongside it became mandatory for national Competent Authorities and MAHs to use simplified electronic reporting to notify EudraVigilance of suspected adverse reactions related to medicines. The EMA and the European Commission transitional arrangements to streamline the monitoring of EudraVigilance by MAHs. A pilot period started on February 22, 2018 in which MAHs of the active substances included in a dedicated list have to monitor them in EudraVigilance and inform EMA and national competent authorities of validated signals with their medicines. The pilot was initially planned for one year but has been extended until further notice. The EMA will finalize a report at the in end of 2019 on EudraVigilance since February 2018. the experience of signal monitoring agreed have The European database of medicinal products aims to deliver structured and quality assured information on medicinal products authorized in the EU that incorporates the terminology adopted in the EU for products, substances, and organizations underpinning pharmacovigilance and regulatory systems. Since January 1, 2015, MAHs have been required to notify the EMA of any new marketing authorizations and any change in the terms of a marketing authorization. Since July 2018, the EMA has made this list publicly available. Public hearings are a new tool allowing the EMA to engage with EU citizens in the supervision of medicines and listen to their views and experiences. Public hearings are expected to give EU citizens a voice in the evaluation of the safety of medicines and empower them to express their views on issues related to the safety of certain medicines and the management of risks. Public hearings were held on valproate and related substances in 2017 (with Sanofi participation), and on quinolone and fluoroquinolone antibiotics in 2018. In the US, applications for approval are submitted for review to the FDA, which has broad regulatory powers over all pharmaceutical and biological products that are intended for sale and marketing in the US. To commercialize a product in the US, a new drug application (NDA) under the Food, Drug and Cosmetic (FD&C) Act, or a Biological License Application (BLA) under the Public Health Service (PHS) Act, must be submitted to the FDA for filing and pre-market review. Specifically, the FDA must decide whether the product is safe and effective for its proposed use; if the benefits of the drug’s use outweigh its risks; whether the drug’s labeling is adequate; and if the manufacturing of the drug and the controls used for maintaining quality are adequate to preserve the drug’s identity, strength, quality and purity. Based upon this review, the FDA can stipulate post- approval commitments and requirements. Approval for a new indication of a previously approved product requires submission of a supplemental NDA (sNDA) for a drug or a supplemental BLA (sBLA) for a biological product. to market a generic drug can file an Sponsors wishing Abbreviated NDA (ANDA) under 505(j) of the FD&C Act. These applications are “abbreviated” because they are generally not required to include data to establish safety and effectiveness, but need only demonstrate that their product is bioequivalent (i.e. performs in humans in the same manner as the originator’s product). Consequently, the length of time and cost required for development of generics can be considerably less than for the innovator’s drug. The ANDA pathway in the US can only be used for generics of drugs approved under the FD&C Act. The FD&C Act provides another abbreviated option for NDA approved products, which is a hybrid between an NDA and ANDA called the 505(b)(2) pathway. This 505(b)(2) pathway enables a sponsor to rely on the FDA’s findings that the reference product is safe and effective, based on the innovator’s preclinical and clinical data. The FDA Center for Drug Evaluation and Research (CDER) approved 59 novel drugs in 2018 (versus 46 in 2017, 22 in 2016, 45 in 2015, 41 in 2014, and 27 in 2013). Designations and pathways to expedite drug development and review include Fast Track (24/59 = 41%), Breakthrough Therapy (14/59 = 24%), Accelerated approval (4/59 = 7%), and Priority Review (43/59 = 73%). Of the 59 novel drugs approved in 2018, 73% were designated in one or more expedited categories. No new vaccines were approved by the FDA in 2018, although three products (Gardasil 9, Afluira, and Fluarix Quadravalent) had their licenses expanded. CDER identified 19 of the 59 novel drugs approved in 2018 as First-in-Class (32%) (as compared to 33% in 2017), one indicator of the innovative nature of a drug. Approximately 58% of the novel drugs approved in 2018 were approved to treat rare or “orphan” diseases that affect 200,000 or fewer Americans. In Japan, the regulatory authorities can require local clinical studies, though they also accept multi-national studies. In some cases, bridging studies have been conducted to verify that foreign clinical data are applicable to Japanese patients and obtain data to determine the appropriateness of the dosages for Japanese patients. The Japanese Ministry of Health, Labor and Welfare (J-MHLW) has introduced a new National Health Insurance (NHI) pricing system. Reductions in NHI prices of new drugs every two years are compensated by a “Premium” for a maximum of 15 years. A “Premium” is granted in exchange for the development of unapproved drugs or off-label indications with ITEM 4. INFORMATION ON THE COMPANY high medical needs. Once an official request for development of an unapproved drug or off-label indication has been made, pharmaceutical companies must file literature-based reports within six months or submit a clinical trial notification for registration within one year after the official development request. For unapproved drugs with high medical needs, clinical trials in Japanese patients are generally required. To promote the development of innovative drugs and bring them into early practical use in Japan ahead of the world, the Sakigake (a Japanese term meaning “forerunner”) review designation program was introduced in April 2015. The Pharmaceuticals and Medical Devices Agency (PMDA) reviews designated products on a priority basis with the aim of reducing their review time from the normal 12 months to six months. Based on the NHI price system, the “Premium” classification is restricted to new products from companies which conduct R&D on “pharmaceuticals truly conducive i.e. (i) pediatric/orphan drugs and (ii) drugs to treat diseases that cannot be adequately controlled with existing drugs. From 2021, all prescription product prices will be reviewed annually instead of once every two years, but price cuts will actually be conducted only for a limited number of products with big gaps between their official reimbursement prices and market prices (e.g. generic drugs and long-listed original products). On the other hand, prices of products that are rapidly adopted after approvals for new indications may from 2017 be reviewed four times a year. improvement of healthcare quality,” the to The PMDA has set a target for 80% (as opposed to the current 50%) of all applications to be reviewed in 12 months for products with standard review status, and in nine months for products with priority review status, by the end of 2018. The PMDA also plans to eliminate the “review lag” between the filing and approval of drugs and medical devices relative to the FDA by the end of 2020. The Pharmaceuticals and Medical Devices Act (PMDA) was implemented on November 25, 2014. There are three major objectives. The first objective is to strengthen safety measures for drugs and medical devices. In particular, MAHs must prepare a package insert based on the latest knowledge and notify the J-MHLW before placing products on the market or when revisions are made. The second objective is to accelerate the development of medical devices. The third-party accreditation system will be expanded to specially controlled generic medical devices (i.e. Class III devices). Consequently, the PMDA can accelerate the review of innovative medical devices. The third objective regenerative medicinal products. is accelerated commercialization of is similar The term “Regenerative Medicinal Products” used in the law includes cellular and tissue-based products and gene therapies. This concept to “Advanced Therapy Medicinal Products” (ATMPs) in the EU. The law allows for conditional regulatory approval based on confirmation of probable efficacy and safety followed up by comprehensive studies to confirm safety and efficacy in a wider population that would then lead to a regular (full) approval. in small-scale clinical trials, SANOFI / FORM 20-F 2018 49 ITEM 4. INFORMATION ON THE COMPANY For new drugs and biosimilar products with approval applications submitted in or after April 2013, Japan has implemented an RMP (Risk Management Plan), similar to the EU Pharmacogivilance system. In 2017, the EMA and the European Commission published an information guide for healthcare professionals to provide them the science and regulation with reference underpinning the use of biosimilar medicines. information on For generic products, the data necessary for filing are similar to EU and US requirements. Companies only need to submit quality data, and data demonstrating bioequivalence to the originator product, unless the drug is administered intravenously. Clinical Trial Data (CTD) submission for generics has been mandatory since March 2017. B.6.3.2. Biosimilars Products can be referred to as “biologics” when they are derived from natural sources, including blood products or products manufactured within living cells (such as antibodies). Most biologics are complex molecules or mixtures of molecules which are difficult to characterize and require physico-chemical- biological testing, and an understanding of and control over the manufacturing process. The concept of “generics” is not scientifically appropriate for biologics due to their high level of complexity. Consequently the concept of “biosimilar” products is more appropriate. A full comparison of the purity, safety and efficacy of the biosimilar product against the reference biological product should be including assessment of physical-chemical- undertaken, biological, non-clinical and clinical similarity. framework the regulatory In the EU, for developing and evaluating biosimilar products has been in place since 2005. The CHMP has issued several product/disease specific guidelines for biosimilar products including guidance on preclinical and clinical development of biosimilars of Low Molecular Weight Heparin (LMWH) and of insulins. Starting in 2011 and continuing through 2018, the CHMP has been engaged in revising most of the existing biosimilar guidelines (general overarching guidelines, quality, and non-clinical and clinical product-specific guidelines). While the CHMP has adopted a balanced approach for all biosimilars, allowing evaluation on a case-by-case basis in accordance with relevant biosimilar guidelines, it has also indicated that in specific circumstances, a confirmatory clinical trial may not be necessary. This applies if similar efficacy and safety can clearly be deduced the similarity of physicochemical characteristics, biological activity/potency, and the pharmacokinetic and/or pharmacodynamic profiles of biosimilar and the reference product. With respect to vaccines, the CHMP currently takes the view that it is at present unlikely that these products can be characterized at the molecular level, and that each vaccine product must be evaluated on a case-by-case basis. from In February 2017, the EMA launched a tailored scientific advice pilot project to support step-by-step development of new biosimilars, based on a review of the quality, analytical and functional data already available. This pilot will encompass six scientific advice requests. The EMA will analyze the outcome after completing the pilot. 50 SANOFI / FORM 20-F 2018 In 2018, the EMA gave positive opinions to 19 biosimilars. In the US, the Patient Protection and Affordable Care Act (Affordable Care Act), signed into law in March 2010, amended the Public Health Service Act to create an abbreviated licensure pathway (351k) for biological products that are demonstrated to be “biosimilar” to or “interchangeable” with an FDA-licensed biological product. In 2018, the FDA finalized the biosimilar guidance Labeling for Biosimilar Products (first issued in draft in 2016), issued the draft guidance Formal Meetings Between the FDA and Sponsors or Applicants of BsUFA Products and withdrew the 2017 draft guidance Statistical Approaches to Evaluate Analytical Similarity. Another draft guidance published in 2017, Considerations in Demonstrating Interchangeability with a Reference Product, still remains in draft. In December 2018, the FDA also finalized the guidance Questions and Answers on Biosimilar Development and the BPCi Act Guidance for Industry and released the draft guidance New and Revised Draft Q&As on Biosimilar Development and the BPCi Act (Revision2). The FDA also published a Biosimilars Action Plan: Balancing Innovation and Competition in July 2018, and held a hearing on the Plan in September. The 11-part Action Plan is intended to spur uptake and acceptance of biosimilars in the marketplace by streamlining regulatory review and attempting to address anticompetitive business practices around biosimilar sales. As of the date of this annual report 17 biosimilar products have been approved by the FDA, seven of which were approved in 2018. To date no biosimilar products have been deemed interchangeable. In Japan, guidelines defining the regulatory approval pathway for in March 2009. These finalized follow-on biologics were guidelines set out the requirements on preclinical, clinical and Chemistry, Manufacturing and Control (CMC) data to be considered for the development of the new application category of biosimilars. Unlike the CHMP guidelines, the main scope of the recombinant proteins and Japanese guidelines polypeptides, but not polysaccharides such as LMWH. includes Many regulatory authorities worldwide have in place, or are in the process of developing, a regulatory framework for biosimilar development and approval. It should be noted that although many emerging markets are basing their regulations and guidance on WHO or EMA documentation, some markets have approved biosimilars under an existing regulatory framework that is not specific to biosimilars. B.6.3.3 Regenerative medicine The US Center for Biologics Evaluation and Research (CBER) released a suite of 6 draft gene therapy guidances in 2018, addressing three general topics (Chemistry Manufacturing and Controls, Long Term Follow-Up After Administration of Human Gene Therapy Products, Testing of Retroviral Vector-Based Human Gene Therapies) and three more disease-specific topics an guidance documents compliment (Human Gene Therapy for Hemophilia, Human Gene Therapy for Rare Diseases, Human Gene Therapy for Retinal Disorders). existing These comprehensive policy framework to address how the agency plans to support and expedite the development of regenerative medicine products, including human cells, tissues, and cellular and tissue-based products (HCT/Ps), which already included guidance on determining whether HCT/Ps are subject to the FDA’s (Regulatory Considerations for Human Cell, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use) and whether an establishment may qualify for an exception from the requirements under Part 1271 of the Code of Federal Regulations (CFR) Title 21 by meeting the exception in 21 CFR 1271.15(b) (Same Surgical Procedure Exception: Questions and Answers Regarding the Scope of the Exception). requirements premarket review The FDA has continued to move forward with the Regenerative Medicine Advanced Therapy (RMAT) designation program, first established in section 3033 of the 21st Century Cures Act. This program aims to facilitate an efficient development program, expedite review of innovative regenerative medicine therapies, and provide more timely access to potentially life-saving products. Products granted the RMAT designation are eligible for increased early interactions with the FDA, including all the benefits available to breakthrough therapies. As of December 28, 2018, the FDA had granted 24 RMAT designations, as compared with 10 in 2017. Two guidances issued in late 2017 related to the RMAT pathway were finalized in February 2019: Expedited programs for Regenerative Medicine Therapies for Serious Conditions and Evaluation of Devices Used with Regenerative Medicine Advanced Therapies. Novel regenerative medicine therapies approved by the CBER in 2017 included the first three gene therapies: Novartis AG’s chimeric antigen receptor T-cell (CAR-T) therapy Kymriah (tisagenlecleucel) followed by Kite Pharma Inc.’s CAR-T therapy Yescarta (axicabtagene ciloleucel), both for oncology indications, and Spark (voretigene neparvovec-rzyl) for inherited vision loss. Therapeutics Luxturna Inc.’s B.6.3.4. Generics In the EU only 11 positive opinions were issued under the centralized procedure for generics in 2017 (versus 20 in 2017 and 16 in 2016). Most of the generics applications for chemical entities use the mutual recognition and decentralized procedures. Pricing systems for generics remain at national level in the EU. In the US, to help the FDA ensure that participants in the US generic drug system comply with US quality standards and to increase the likelihood that American consumers get timely access to low cost, high quality generic drugs, the FDA and the industry have jointly agreed to a comprehensive program (Generic Drug User Fee Amendments) traditional to supplement appropriated focused on safety, access, and transparency. The FDA has made review and approval of generics a priority for the Agency, releasing 23 (mostly product- specific) guidance documents between November 1, 2018 and December 28, 2018, and promising to release an umbrella guidance to help address common challenging regulatory and funding, ITEM 4. INFORMATION ON THE COMPANY scientific issues encountered while developing generic drugs. In the period October 1, 2017 through September 30, 2018 (the FDA’s fiscal year), the FDA planned to review and act on 90% of original ANDA submissions within 10 months from the date of submission. During that period, a record number of 781 ANDAs were approved (as compared to 763 in 2017), 190 received tentative approval (174 in 2017), and 2,648 complete responses were issued (1,603 in 2017). In Japan, the 2018 reforms to the NHI price system included a new special price reduction rule for long-listed drugs. Prices for long-listed drugs (10 years after generic entry) will be gradually brought closer to the generic price (starting at 2.5x generic price 10 years after generic entry). Prices will be reduced based on the generic substitution rate. Reductions are 2.0% if the substitution rate is less than 40%, 1.75% if the rate is 40% or higher but less than 60%, and 1.5% if it is 60% or higher but less than 80%. NHI prices of first generics (previously set at 60%) were set at 50% of the price of the originator product. A 40% rule is applied to oral first generics once more than ten products with the same ingredients have obtained listing. In addition, Sakigake premium of 10% was introduced in April 2016 for Sakigake-designated products, which have new mechanisms of action and obtain approval in Japan ahead of the rest of the world. B.6.3.5. Medical devices In the EU, there is no pre-market authorization by a regulatory authority. Instead there is a Conformity Assessment Procedure (for medium and high risk devices), possibly involving an independent third party “Notified Body” (NB) depending on the classification of the device. Once certified, medical devices have to bear the CE-mark, allowing them to circulate freely in the EU/ EFTA (European Free Trade Association) countries and Turkey. To align legal requirements across the EU Member States and to strengthen the protection of public health, two new Regulations came into force in 2017 replacing older EU Directives. ◆ Regulation (EU) 2017/745 of the European Parliament and of the Council of April 5, 2017 on medical devices came into force on May 26, 2017 with a transition period of three years. ◆ Regulation (EU) 2017/746 of the European Parliament and of the Council of April 5, 2017 on in vitro diagnostic medical devices came into force on May 26, 2017 with a transition period of five years. In the US, the FDA Center for Devices and Radiological Health (CDRH) is responsible for regulating firms that manufacture, repackage, relabel and/or import medical devices sold in the US. The CDRH also regulates radiation-emitting electronic products (medical and non-medical) such as lasers, x-ray systems, ultrasound equipment, microwave ovens and color televisions. Medical devices are classified into Class I, II and III based on their risks and the regulatory controls necessary to provide reasonable assurance of safety and effectiveness. Regulatory control III. The device classification regulation defines the regulatory requirements for a from Class increases to Class I SANOFI / FORM 20-F 2018 51 ITEM 4. INFORMATION ON THE COMPANY general device type. Most Class I devices are exempt from Premarket Notification 510(k); most Class II devices require Premarket Notification 510(k); and most Class III devices require Premarket Approval. Low and moderate risk devices (Classes I and II) can also be classified through the de novo pathway if certain conditions are met. in The basic regulatory requirements that manufacturers of medical devices distributed the US must comply with are: Establishment Registration; Medical Device Listing; Premarket Notification 510(k) (unless exempt) or Premarket Approval; Investigational Device Exemption; Quality System Regulation; Labeling Requirements and Medical Device Reporting. In 2017 the FDA initiated a Software Precertification Program and Pilot. The purpose of the pilot is to test the initial program and model, and for the FDA to learn how companies of varying sizes develop software. As part of the process the FDA hosted a public workshop feedback. The Precertification Program consists of four components: Excellence Appraisal; Review Determination; Streamlined Review; and Real World Performance. in January 2018 to gather B.6.3.6. OTC drugs In the EU, four European centralized prescription to OTC (Rx-to-OTC) switches have occurred since 2009. For nationally authorized products, switches follow national rules for OTC classification. In 2017, a European platform for non-prescription medicines was launched to harmonize non-prescription status and to facilitate the switching environment. In the US, the FDA approved no prescription to OTC switches in 2018 and only one in 2017: Sanofi Consumer Healthcare’s Xyzal® Allergy 24HR (levocetirizine dihydrochloride). In Japan, the J-MHLW drug safety committee set new rules in 2013 on the details of safety evaluations for drugs newly switched from prescription to OTC, following the passage of a bill to revise the Pharmaceutical Affairs Law (PAL). The J-MHLW gives the green light for online sales of such OTC drugs if no safety concerns arise during an three-year safety evaluation period. During this three-year evaluation period, drugs that moved from prescription to OTC are categorized as products that require pharmacist consultations when purchased. Under the new rules, the J-MHLW requires marketing authorization holders to submit interim reports upon completion of their post marketing surveillance (PMS). initial The PMS needs to cover 3,000 patients for oral drugs and 1,000 patients for topical drugs. Based on these interim reports and other reports on adverse events, the J-MHLW performs the first evaluation on whether there are any safety concerns three years after the launch. If no safety concerns are identified during this three-year safety evaluation period, the classification of these Rx-to-OTC switches will be downgraded to Category 1 OTC drugs, i.e. drugs which do not require pharmacist consultation and can be sold online. The J-MHLW performs the second safety evaluation one year after the transfer to Category 1 OTC drugs. If 52 SANOFI / FORM 20-F 2018 no safety concerns are identified, the classification of the Category 1 OTC drugs will be downgraded to Category 2 OTC drugs, i.e. drugs that can be handled by pharmacists but also by registered salespersons. Generic OTC drugs can be filed after completion of the three- year PMS period and will be approved in seven months. The J-MHLW launched a new panel in April 2016 to pick up Rx-to-OTC switch candidates. Under the new scheme, the MHLW accepts requests for Rx-to-OTC switch candidates from various stakeholders such as medical societies, consumers, and pharmaceutical companies, and then these requests are publicly reviewed by the new panel in order to minimize pressures from medical societies. Based on its deliberations, the panel refers shortlisted requests to the Pharmaceutical Affairs and Food Sanitation Council (PAFSC) committee on nonprescription drugs, which effectively makes decisions on marketing approval for OTCs. B.6.3.7. Transparency and public access to documents Transparency regarding regulatory information, clinical trials and associated regulatory decision-making Over the last several years the pharmaceutical industry has been subject to growing pressure for greater transparency about clinical trials (conduct and results). Regulatory authorities are also being pressed for more openness and transparency, for example by making more comprehensive disclosures about the for regulatory decisions on medicinal rationale and basis products, so as to enhance the credibility of the regulatory process. This is a significant driver of the transparency initiatives undertaken in several countries. Pharmaceutical manufacturers have committed to publishing protocols, study information and results of clinical studies conducted with their products in publicly accessible registries. In addition, both impose mandatory disclosure of clinical trials information. ICH and non-ICH countries often From a regulatory perspective, ambitious initiatives have been undertaken by the major regulatory authorities and Sanofi has processes in place to address these initiatives. EU pharmaceutical legislation for medicinal products requires national regulatory authorities and the EMA to actively publish information concerning authorization and supervision of medicinal products. The EMA has introduced a series of initiatives aimed at improving the transparency of its activities, such as improving the format of the European Public Assessment Report and web-published product approvals, withdrawals and rejections. focus on comparative efficacy and effectiveness. EU pharmacovigilance legislation aims at giving greater transparency, especially with regard to communication of safety issues (e.g. public hearings, specific European web portals with information on medicinal products). Finally, patients and consumers are increasingly involved in the work of the EMA’s scientific committees. In addition, increased is an there The EMA has committed to continuously extend its approach to transparency. A key goal in this process is the proactive publication of clinical trial data for medicines once the decision- making process on an application for an EU-wide marketing authorization is complete. In 2014, the EMA adopted Policy 70 for publication of clinical trial reports. The policy came into force on January 1, 2015. It applies to clinical reports contained in any new marketing authorization applications for centralized marketing authorizations; to post- authorization procedures for existing centrally authorized medicinal products; and to article 58 applications (medicines that are intended exclusively for markets outside the EU). For post-authorization procedures for existing centrally authorized medicinal products, the effective date was July 1, 2015 for extension of indication and line extension applications submitted as of that date. The policy is being implemented in two phases: ◆ The first phase came into force on January 1, 2015; it applies solely to the publication of clinical reports, the data from which are accessible on the EMA website. ◆ In the second phase, the EMA will endeavor to find the most appropriate way Individual Patient Data (IPD) available, in compliance with privacy and data protection laws. The EMA will implement this phase at a later stage. to make In 2016, the EMA Policy 70 process was fully transitioned to the business operational teams within Sanofi. As of August 1, 2018 the EMA suspended all new activities related to clinical data publication. This is a result of the implementation of the third phase of the EMA’s business continuity plan ahead of its relocation to the Netherlands in response to Brexit (see – “B.6.3.8. Other new legislation proposed or pending implementation – Brexit” below). The EMA is continuing to publish clinical data submitted on or before July 31, 2018, but no new data packages will be processed until further notice. In the US, the FDA launched a Transparency Initiative in June 2009, with the aim of making the FDA more transparent and open to the American public by providing the public with useful, user-friendly and about decision making. information activities agency The FDA Transparency Initiative has three phases: Phase I – Improving the understanding of the FDA basics (completed, with ongoing updates); Phase II – Improving the FDA’s disclosure of information to the public (ongoing); and Phase III – Improving the FDA’s transparency to regulated industry (ongoing). Proposals to improve transparency and access to information have been released for consultation for both Phase II and Phase III. Some of the less controversial proposals have been implemented; others, such as proactive release of information that the Agency has in its possession, may require revisions to US federal regulations. In September 2016, the US Department of Health and Human Services, National Institute of Health (NIH) published Final ITEM 4. INFORMATION ON THE COMPANY Rule under Section 801 of the Food and Drug Administration Amendments Act of 2007 (FDAAA) on the Dissemination of Clinical Trial Information. The Final Rule requires registration and results submission for applicable clinical trials (ACTs); clarifies and expands registration data elements; expands the scope of results reporting requirements to include trials of unapproved products; clarifies and expands elements of results data; and revises the Quality Control (QC) and posting process. This information is published on a government-run database of clinical trial information (ClinicalTrials.gov) intended to increase the transparency of ongoing clinical trials in humans. In September 2018, the FDA published a draft guidance, Civil Money Penalties the ClinicalTrials.gov Data Bank, delineating Relating consequences the fail requirements on clinical trial registration, results posting, and certification. to comply with for sponsors that to Separately, in January 2018, the FDA launched a new pilot program to evaluate whether disclosing certain information included within clinical study reports (CSRs) of approved drugs is beneficial to the public. CSRs are scientific reports prepared by the sponsor to summarily address a drug’s efficacy and safety, and include information related to the methods and results of clinical trials supporting the drug. Traditionally, this information has only been released following submission of a Freedom of Information Act (FOIA) request. Under the pilot program, the Agency will continue to protect trade secrets and confidential commercial information from disclosure, as required by law. In Japan, the J-MHLW/PMDA actively publishes information concerning approvals of medicinal products (ethical drugs, non-prescription drugs, and quasi-drugs) and medical devices. For ethical drugs discussed at the J-MHLW’s Pharmaceutical Affairs and Food Sanitation Council, redacted clinical trials data modules 1 and 2 (excluding commercially confidential information and personal data) have been made publicly available on the PMDA website. Other transparency initiatives also exist in some other countries. Transparency regarding Health Care Professionals is no harmonized approach regarding there In the EU, transparency (HCPs). For for Health Care Professionals transparency purposes, there is increased external scrutiny of interactions between pharmaceutical companies and HCPs at national level, with legal provisions or healthcare industry voluntary undertakings in some countries (such as the UK, Denmark, France and Portugal). the European Federation of Pharmaceutical In mid-2013, Industries Association (EFPIA) released a Code on Disclosure of Transfers of Value from Pharmaceutical Companies to HCPs and Healthcare Organizations “EFPIA HCP/HCO (HCOs), Disclosure Code”. EFPIA members are required to comply with this Code and transpose it into their national codes. the The Code includes stricter rules on hospitality and gifts, with the requirement for member associations to include a threshold on hospitality and the prohibition of gifts in their national codes. SANOFI / FORM 20-F 2018 53 ITEM 4. INFORMATION ON THE COMPANY In the US, the Physician Payments Sunshine Act, or “Sunshine Act”, was passed as part of the Affordable Care Act. The law is designed to bring transparency to financial relationships between physicians, teaching hospitals, and the pharmaceutical industry. Manufacturers and group purchasing organizations (GPOs) must report certain payments or transfers of value – including payments for research, publication support, travel, honoraria and speaking fees, meals, educational items like textbooks and journal reprints – whether made directly to a physician or teaching hospital or indirectly through a third party. The law also requires manufacturers and GPOs to report physicians or members of their immediate family who have an ownership interest in the company. Reports are made to the Centers for Medicare and Medicaid Services, a government agency. In Japan, the Japan Pharmaceutical Manufacturers Association (JPMA) member companies started releasing information on their funding of healthcare professionals in 2013 and patient groups in 2014 under the trade group’s voluntary guidelines to boost financial transparency guidelines for the relations between companies and medical institutions, its members currently report their payments in five categories: R&D, academic research support, manuscript/writing fees, provision of information, and other expenses. transparency. Under the JPMA’s B.6.3.8. Other new legislation proposed or pending implementation In the US, in August 2017 the Food and Drug Reauthorization Act (FDARA) was signed into law. The law reauthorized user fee collection for the next five years for drugs (PDUFA VI), devices (MDUFA IV), generics (GDUFA II) and biosimilars (BsUFA II) and reflects a move to a more stable funded program. In addition to user fees, FDARA focuses on modifications and improvements of the regulation of drugs, devices and generics. regulatory agencies. These timelines In China, since the initial programmatic regulatory reform initiative started in 2015, most of the country’s regulatory processes have been adapted to bring them into line with other major include establishing (including conditional predictable pathways and approvals); a Marketing Application Holder system (pilot); risk- based inspections; and clinical trial processes (including 60 working days IND approval) that allow companies developing innovative drugs to conduct clinical trials simultaneously with other countries (International Multicenter Clinical Trials). The National Medical Products Administration (NMPA), formerly the China Food and Drug Administration (CFDA), also has plans to establish a system for intellectual property protection. China became an ICH management committee member in June 2018, and this is driving the need for full ICH implementation in China. The Changchun Changsheng vaccine incident in August caused the Chinese government to focus attention on the quality of regulatory the NMPA vaccines and enforcement-related reforms, as well as inviting comments on the draft amendment to the Drug Administration Law (DAL) and a new draft Vaccine Administration Law. Vaccines in China are for registered the relevant provisions in accordance with to pivot forced to 54 SANOFI / FORM 20-F 2018 in Preventive Biological Products the Drug Registration Regulations. The release of vaccines is managed in phase with batch releases by the National Institute; there is a system for compulsory inspection and audit of each batch of products. Any products that fail the test cannot be approved or imported. Under NMPA reforms implemented to encourage approval of innovative from accelerated drugs, registration. imported vaccines also benefited Clinical trial regulation in the EU The Clinical Trial Regulation ((EU) 536/2014) of the European Parliament and of the Council of April 16, 2014 on clinical trials on medicinal products for human use, and repealing Directive 2001/20/EC, was published in the Official Journal of the EU on May 28, 2014. As a result, pharmaceutical companies and academic researchers will be required to post the results of all their European clinical trials in a publicly-accessible database. The legislation streamlines the rules on clinical trials across Europe, facilitating cross-border cooperation to enable larger and more reliable trials, as well as trials of products for rare diseases. It simplifies reporting procedures, and gives the European Commission the authority to perform audits. Once a clinical trial sponsor has submitted an application dossier to a Member State, the Member State will have to respond to it within fixed deadlines. One of the main objectives of the European Commission in introducing the clinical trial regulation was to simplify the clinical trial approval process. The new legislation was drafted in the more stringent form of a regulation rather than as a directive, so as to achieve better harmonization between countries without interfering with Member States’ competencies in terms of ethical issues. The major points are: ◆ The timeline for approving a clinical trial proposal is set at 60 days without questions (and a maximum of 99 with questions and clock stops). In the case of advanced therapy medicinal products, the timeline can be extended by another 50 days, making 110 days in total. ◆ To make both the reference state and the relevant Member States comply with the timelines, the legislation includes the concept of tacit approval. Selection of reference Member State by the sponsor was maintained. ◆ As regards transparency requirements for clinical trial data submitted through a single EU submission portal and stored in a Union-level database, the new clinical trial regulation allows for protection of personal data of patients and commercially confidential information, which is in line with the industry data sharing laid out in Policy 70 (see previous section). Although the Regulation was adopted and entered into force in 2014, the timing of its application depends on confirmation of full functionality of the EU portal and database through an independent audit. The Regulation becomes applicable six months after the European Commission publishes notice of this confirmation. ◆ In October 2018, the EMA Management Board heard that the development of the auditable release of the portal and database is complete. The release is now in an intensive phase of pre-testing before formal user acceptance testing can start in early 2019. ◆ Taking into account the rate of progress with testing and bug fixing, and the EMA’s relocation to Amsterdam, the audit field work will take place once the Agency has settled in Amsterdam, after March 2019. Dependent on successful completion of the audit and review by the Management Board around the end of 2019, the system could be ready to go live later in 2020. Other transparency initiatives also exist in some other countries. Falsified medicines into for human use The EU has reformed the rules for importing active substances for medicinal products the EU (Directive 2011/62/EU). Since January 2013, all imported active substances must have been manufactured in compliance with GMP standards or standards at least equivalent to GMP. The manufacturing standards in the EU for active substances are those specified in Q7 as issued by the International Council for Harmonization (ICH). With effect from July 2, 2013, such compliance must be confirmed in writing by the competent authority of the exporting country, except for countries with waivers. Written confirmation must also confirm the active substance was manufactured is subject to control and enforcement of GMP at least equivalent to that in the EU. the plant where that Several implementing measures for the Falsified Medicines Directive have been adopted. A common EU logo for online pharmacies was adopted in June 2014, giving Member States until July 2015 to prepare for its application. Detailed rules for the safety features appearing on the outer packaging of medicinal products for human use have been adopted, meaning that all prescription drugs or reimbursed drugs commercialized on the European market will have to be serialized by February 2019. Within the scope of this directive, a European system is in place to ensure that the product delivered to the patient is genuine by reading the unique serialized number per medicinal box unit at the point of dispensation (pharmacist or hospital). the USA, the Drug Supply Chain Security Act was In implemented since November 2018 for some prescription products; it will also help guarantee the traceability of drug products and to address falsified medicines. ITEM 4. INFORMATION ON THE COMPANY the EU, In implementation Act in 2015 (Regulation 2015/1866). the European Commission published the It states that the pharmaceutical industry has to implement compliance procedures for non-human biological materials used in the discovery, development, manufacturing and packaging of medicinal products. The Sanofi Nagoya Ready Project was launched in 2015 to ensure compliance with international treaties on the sustainable use of biodiversity. The Nagoya Ready Project Team has ensured that Sanofi is prepared for compliance with the Nagoya Protocol and ready for full implementation. A Nagoya Expert Group reporting to the Bioethics Committee will continue to monitor the international the protocol and provide appropriate support and advice to the relevant Sanofi teams. implementation of In Japan, the government submitted the instrument of ratification on May 22, 2017; it became effective on August 20, 2017. Currently the discussion on “benefit-sharing” of genetic resources is ongoing. NDA electronic clinical trial data submission (eCTD) In the EU, electronic submission for marketing authorization and variation applications has already been in place for many years. To allow secure submission over the Internet for all types of eCTD applications for human medicines, the EMA launched the eSubmission Gateway, which is now mandatory for all eCTD submissions through the centralized procedure, in order to improve efficiency and decrease costs for applicants. As of July 1, 2015, companies are obliged to use electronic application forms provided by the EMA for all centralized marketing authorization applications for human and veterinary medicines. From January 2016, the use of electronic application forms became mandatory for all other EU marketing authorization procedures recognition and decentralized procedures, and national submissions). (i.e. mutual In Japan, electronic submission of CDISC-based clinical data will become mandatory after the transition period that runs from October 2016 to March 2020, allowing the authority to efficiently store and analyze the data to improve its efficacy and safety predictions. Such mandatory electronic submissions are expected to be limited to clinical trial data for new drugs newly filed for regulatory approval. The necessity for electronic submission for Phase I trial data will likely be decided on a case-by-case basis, while pharmaceutical companies will be required to file non-clinical toxicity study data in one of the Standard for the Exchange of Non-clinical Data (SEND) formats in due course. Nagoya Protocol Brexit The Nagoya Protocol came into force in October 2014 and was intended to create greater legal certainty and transparency for both providers and users of genetic resources by: ◆ establishing more predictable conditions for access to genetic resources; and ◆ helping to ensure benefit-sharing when genetic resources leave the contracting party providing the genetic resources. The decision by the UK to withdraw from the EU (Brexit) has triggered a need to adapt regulatory activities in the region. Early in 2017, the EMA established a working group to explore options to redistribute across the remaining network the workload related to human and veterinary medicines and inspections currently managed by the UK. SANOFI / FORM 20-F 2018 55 ITEM 4. INFORMATION ON THE COMPANY The redistribution takes account of the diverse expertise in the network and the workload associated with the regulation of medicines. In April 2018, the remaining Member States (EU27) and the EMA completed the distribution of the UK’s portfolio of over 370 centrally authorized products in preparation for Brexit. The new rapporteurs and co-rapporteurs in the EU27, Iceland and Norway will take full responsibility for these products as of March 30, 2019. To safeguard continuity of operations and secure the timely execution of its core tasks, the EMA has launched a Business Continuity Plan (BCP). The BCP defines priority levels for EMA activities according to their impact on public health and the ability of the EMA to manage its tasks in light of the resources available. The plan entered its third phase on October 1, 2018, with the temporary suspension or reduction of activities; guideline development and revision were scaled back, and non-product- related working parties temporarily put on hold. These changes are currently scheduled to last until June 30, 2019, but will be subject to a review in April 2019 once the EMA has moved to its temporary premises in Amsterdam. Following the 2017 procedure, the EU has published a regulation officially naming Amsterdam as the new seat of the EMA. On November 25, 2018, the EU officially endorsed the terms of the UK’s withdrawal, bringing to an end negotiations which began in March 2017. The EU leaders have approved the final text of the draft EU Withdrawal Agreement. The Withdrawal Agreement includes provisions for a transition, or “implementation”, period lasting until December 31, 2020, during which EU law will continue to apply in the UK. During this time, the UK Medicines and Healthcare Regulatory Authority (MHRA) will continue to operate under the jurisdiction of the EMA. However, the MHRA will no longer be able to participate in EMA activities unless expressly invited to do so. The UK Parliament voted against the Withdrawal Agreement on January 15, 2019 by a large majority. Since then there have been two votes in the UK Parliament on various amendments, and the UK Prime Minister has been tasked to go back to Brussels to ask for change to the Withdrawal agreement. There will be a further vote not later than 27 February 2019, and the UK Parliament will be asked to vote in favour of the Withdrawal deal or on further options. If the agreement is not approved by Parliament then this will be a “no deal” or “hard Brexit” scenario in which EU law will cease to apply in the UK as of 11 pm on March 29, 2019. However much could still happen before this date, including a general election, a second referendum or even rescinding Article 50. Sanofi has set up an internal Brexit Task Force to proactively address issues triggered by Brexit. A Brexit readiness analysis was conducted by a third party. The primary objectives were to of an provide perspective comprehensiveness and rigor of Sanofi’s Brexit planning activities, surface any potential concerns or risks, and suggest targeted mitigation measures where applicable. The stress test concluded that Sanofi is well prepared for Brexit across most external level the on impact categories, with implementation of strategies generally on track. A plan was put into place to address remaining gaps with the goal of achieving full readiness before 29 March 2019. Sanofi has set up contingency plans, such as stockpiling certain medicines or shifting operations from the UK to the EU in the event of a ”hard Brexit”, as there are no guarantees for effective transitional solutions being in place by March 30, 2019 and because the model for the future UK-EU relationship is still unclear. B.6.4. Pricing & Reimbursement Increasingly, efforts to control drug expenditures in most markets in which Sanofi operates result in pricing and market-access controls for pharmaceuticals. The nature and impact of these controls vary from country to country, but some common themes are: reference pricing, systematic price reductions, formularies, volume limitations, patient co-pay requirements, and generic substitution. In addition, governments and third-party payers are increasingly demanding comparative and/or relative effectiveness data and budget impact modelling to support their decision- making process. They are also increasing their use of emerging healthcare technologies such as electronic prescribing and health records to increase oversight on efficacy improve compliance with prescribing and safety and guidelines. As a result, the environment in which pharmaceutical companies must operate in order to make their products available to patients and providers who need them becomes more complex each year. information to While a drive to expand healthcare coverage has become a noticeable feature in many regions, providing opportunities for the industry, it has also put pressure on these new budgets, bringing with it a wave of price and volume control measures. Many countries and regions have increased pressure on pricing through joint procurement and negotiation. National production, whether through a policy of industrialization, technology transfer agreements or preferential conditions for local production, is also a growing issue. Significant trends in the US: Private health insurance is offered widely as part of employee benefit packages, and is the main source of access to subsidized healthcare provision. Some individuals purchase private health plans directly, while publicly-subsidized programs provide cover for retirees, the poor, the disabled, uninsured children, and serving or retired military personnel. Double-coverage can occur. Public health insurances include: ◆ Medicare, which provides health insurance for retirees and for people with permanent disabilities. The basic Medicare scheme (Part A) provides hospital insurance only and the vast majority of retirees purchase additional cover through some or all of three other plans named Part B, Part C and Part D. Part D enables Medicare beneficiaries to obtain outpatient drug subsidies. Almost two-thirds of all Medicare beneficiaries have enrolled in Part D plans. 56 SANOFI / FORM 20-F 2018 ◆ Medicaid, which provides health insurance for low-income families, certain qualified pregnant woman and children, individuals receiving supplemental security income, and other eligible persons determined on a state-by-state basis. Managed Care Organizations (MCOs) combine the functions of health insurance, delivery of care, and administration. MCOs use specific provider networks and specific services and products. types of managed care plans: Health There are Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point of Service (POS) plans. three Pharmacy benefit managers (PBMs) serve as intermediaries between insurance companies, pharmacies and manufacturers to secure lower drug costs for commercial health plans, self-insured employer plans, Medicare Part D plans, and federal and state government employee plans. The US market has seen increased consolidation of key payer organizations. Most notably, the CVS-Aetna and Cigna-ESI mergers point to a strong role for integrated payers and PBMs in terms of product access and affordability. This trend may also impact market pricing for pharmaceuticals going forward. With the largest three PBMs now covering over 75% of the market, consolidation has for commercial plans. Commercial payers continue to employ tools designed to lower plan-level net costs; these include formulary management tools and exclusions, benefit design changes and generic conversions, and the adoption of biosimilars (which are now beginning to transform the US biologics landscape). to significant negotiating power led to cut list prices, The current Administration has increasingly focused on the cost of prescription drugs in order to align policy with the President’s campaign promise to address the disparity between drug prices paid by Americans and the rest of the world (referred to as the “American Patients First” plan). Since the publication of the American Patients First Blueprint in 2018, there has been proposed legislation, rulemaking, and guidance that indicates the Administration’s priorities are increase competition for Medicare part B drugs, and reduce out of pocket costs for patients. These proposals include action like a proposed International Price Index Model to tether domestic prices to the international markets, and suggested reforms to the rebate system to eliminate incentives that lead to higher list prices. These proposals are not settled and there is ongoing uncertainty regarding if, when, and how the costs of federally funded programs would be lowered. Other major changes at the federal level in line with these trends include (i) the early closure of the Medicare Part D “donut hole” gap in coverage, which saw manufacturer’s share of costs increase from 50% to 70%; and (ii) the increasing use of co-pay accumulator adjustment programs. Additionally, these trends are not limited to the federal level as states are also increasingly concerned with prescription drug prices and are continuing to consider legislation that may further impact the regulatory landscape. Through all of to responsible business practices. In February 2019, we updated our public commitment to the pricing principles we first published these changes, we remain committed ITEM 4. INFORMATION ON THE COMPANY in 2017, impacting our practices both in the US and in other markets (for more information, see https://www.sanofi.com/en/ our-responsibility/documents-center/). Significant trends in China: in updates of China has a quarter of the cancer deaths in the world, a diabetes prevalence of 10.9% and ongoing supply problems for basic medicines. Compounded with public pressure over a range of scandals (such as fake vaccines and the quality of generics) and the affordability of oncology products, there has been continuing pressure on the Chinese government to modernize the national pharmaceutical landscape. Several policy reforms over the past few years are finally beginning to have their effect. There is now a considerable acceleration the National Reimbursement Drug List (NRDL) and Essential Drugs List, especially for oncology products. The first major update of the NRDL in February 2017 has been followed by further additions, including 17 oncology products that were added in October 2018. However, there is still no clarity on pricing methods. National negotiations and a recent collective negotiation on 47 oncology products run jointly by 14 provinces show a tendency to push for lower prices to reflect these increased volumes. This is not limited to oncology: following the introduction in 2015 of the Generic Quality Consistency Evaluation, a measure designed to ensure bioequivalency of Chinese generics, it was announced in September 2018 that generics demonstrating bioequivalence would be allowed to participate in a pilot tender involving 4 municipalities and 7 major cities. The tender took place in December 2018, and resulted in significant price decreases. In international price many other pilots, referencing has again played a part. It remains to be seen how the Chinese authorities will technology assessment (HTA) following the creation of a new HTA body, or how their orphan drug policy will lead to real market access. While access to the market is increasingly being facilitated, especially following the waiver for local clinical trial data, it remains to be seen how the cost of this potentially massive increase in volume will be managed. implement health formal and informal Significant trends in other markets: In Canada, the international price benchmarking basket is set to grow, a change which will be accompanied by a string of cost- cutting measures applied according to the cost-effectiveness level of a drug’s indications. In Japan, negotiations are still ongoing for the long-awaited implementation of HTA, which is expected in 2019. Already, 2018 saw a number of new measures implemented: for market cost-containment mechanisms expansion and high sales, new international reference pricing rules, and changes to the price maintenance premium system. In Europe, the UK’s imminent exit from the EU is still uncertain with several possible implications for the pharmaceutical industry. Much remains to be decided on how the two parties, the EC and the UK government, will align and accept the regulations of each other. In the short term, Sanofi has mitigated risk by planning for a no-deal Brexit, stockpiling medicines and vaccines where global supply allows and establishing new supply routes into the SANOFI / FORM 20-F 2018 57 ITEM 4. INFORMATION ON THE COMPANY UK. For the most part, prices of medicines and vaccines to the NHS are fixed in sterling, which gives some risk of sterling-to- euro fluctuations in the event of a no-deal. In the longer term, small increased costs could occur with the application of border checks if customs arrangements have not been resolved at the time of the UK’s exit, and as a result of the UK’s exit from the EMA and subsequent need to file submissions with the UK Medicines and Healthcare Products Regulatory Agency (MHRA). We believe that third-party payers will continue to act to curb the cost of pharmaceutical products. While the impact of those measures cannot be predicted with certainty, we are taking the necessary steps to defend the accessibility and price of our products in order to reflect the value of our innovative product offerings, and we continue to develop and pilot innovative contracting platforms with commercial payers to better align our price and value across multiple therapeutic areas including diabetes, rheumatoid arthritis, multiple sclerosis and asthma. B.7. Patents, intellectual property and other rights B.7.1. Patents Patent protection We own a broad portfolio of patents, patent applications and patent licenses worldwide. These patents are of various types and may cover: ◆ active ingredients; ◆ pharmaceutical formulations; ◆ product manufacturing processes; ◆ intermediate chemical compounds; ◆ therapeutic indications/methods of use; ◆ delivery systems; and ◆ enabling technologies, such as assays. Patent protection for individual products typically extends for 20 years from the patent filing date in countries where we seek patent protection. A substantial part of the 20-year life span of a patent on a new molecule (small molecule or biologic) has generally already passed by the time the related product obtains marketing authorization. As a result, the effective period of patent protection is significantly shorter than 20 years. In some cases, the period of effective protection may be extended by procedures established to compensate regulatory delay in Europe (via Supplementary Protection Certificate or SPC), in the US (via Patent Term Extension or PTE) and in Japan (also via PTE). for an approved product’s active ingredient Additionally, the product may benefit from the protection of patents obtained during development or after the product’s initial marketing authorization. The protection a patent provides to the related product depends upon the type of patent and its scope of coverage, and may also vary from country to country. In Europe for instance, applications for new patents may be submitted to 58 SANOFI / FORM 20-F 2018 the European Patent Office (EPO), an intergovernmental organization which centralizes filing and prosecution. As of December 2017, an EPO patent application may cover the 38 European Patent Convention Member States, including all 28 Member States of the EU. The granted “European Patent” establishes corresponding national patents with uniform patent claims among the Member States. However, some older patents were not approved through this centralized process, resulting in patents having claim terms for the same invention that differ between the countries. Additionally, a number of patents prosecuted through the EPO may pre-date the European Patent Convention accession of some current European Patent Convention Member States, resulting in different treatment in those countries. In 2013, EU legislation was adopted to create a European Unitary Patent and a Unified Patent Court. However, it will only enter into force once the agreement on the Unified Patent Court is ratified by at least 13 Member States including France, Germany, and the United Kingdom. As of the date of this document, 14 countries including France have ratified the agreement, but ratification by the United Kingdom and Germany is still outstanding, and the process is impacted by Brexit. The Unitary Patent will provide unitary protection within the participating states of the EU (when ratified by the Member States with the exception of Croatia, Spain, and Poland, not currently signatories of the agreement). The Unified Patent Court will be a specialized patent court with exclusive jurisdiction for litigation relating to European patents and Unitary Patents. The Court will be composed of a central division (headquartered in Paris) and several local and regional divisions in the contracting Member States to the agreement. The Court of Appeal will be located in Luxembourg. We monitor our competitors and vigorously seek to challenge patent infringements when such infringements would negatively impact our business objectives. See “Item 8 – A. Consolidated Financial Statements and Other Financial Information – Information on Legal or Arbitration Proceedings – Patents” of this annual report. The expiration or loss of a patent covering a new molecule, typically referred to as a compound patent, may result in significant competition from generic products and can result in a dramatic reduction in sales of the original branded product (see “Item 3. Key Information – D. Risk Factors”). In some cases, it is possible to continue to benefit from a commercial advantage through product manufacturing trade secrets or other types of patents, such as patents on processes, intermediates, compound structure, formulations, methods of treatment, indications or delivery systems. Certain categories of products, such as traditional vaccines and insulin, were historically relatively less reliant on patent protection and may in many cases have no patent coverage. It is nowadays increasingly frequent for novel vaccines and insulins also to be patent protected. Finally, patent protection is of comparatively lesser importance to our Consumer Healthcare and generics businesses, which rely principally on trademark protection. Regulatory exclusivity In some markets, including the EU and the US, many of our pharmaceutical products may also benefit from multi-year regulatory exclusivity periods, during which a generic competitor may not rely on our clinical trial and safety data in its drug application. Exclusivity is meant to encourage investment in research and development by providing innovators with exclusive use, for a limited time, of the innovation represented by a newly approved drug product. This exclusivity operates independently of patent protection and may protect the product from generic competition even if there is no patent covering the product. the first marketing authorization of In the US, the FDA will not grant final marketing authorization to a generic competitor for a New Chemical Entity (NCE) until the expiration of the regulatory exclusivity period (five years) that the the commences upon reference product. The FDA will accept filing of an Abbreviated New Drug Application (ANDA) containing a patent challenge one year before the end of this regulatory exclusivity period (see the descriptions of ANDAs in “– Product Overview – Challenges to Patented Products” below). In addition to the regulatory exclusivity granted to NCEs, significant line extensions of existing NCEs may qualify for an additional three years of regulatory exclusivity if certain conditions are met. Also, under certain limited conditions, it is possible to extend unexpired US regulatory and patent-related exclusivities by a pediatric extension. See “– Pediatric Extension”, below. In the US, a different regulatory exclusivity period applies to biological drugs. The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) was enacted on March 23, 2010 as part of the Affordable Care Act. The BPCIA introduced an approval pathway for biosimilar products. A biosimilar product is a biologic product that is highly similar to the reference (or innovator) product, and which has no clinically meaningful differences from the reference product in terms of the safety, purity, and potency of the product. The BPCIA provides that an application for a biosimilar product that relies on a reference product may not be submitted to the FDA until four years after the date on which the reference product was first licensed, and that the FDA may not approve a biosimilar application until 12 years after the date on which the reference product was first licensed. US Federal and state officials, including the current Administration, are continuing to focus on the cost of health coverage and health care although the future policy, including the nature and timing of any changes to the Affordable Care Act, remains unclear. In the EU, regulatory exclusivity is available in two forms: data exclusivity and marketing exclusivity. Generic drug applications will not be accepted for review until eight years after the first marketing authorization (data exclusivity). This eight-year period is followed by a two-year period during which generics cannot be marketed (marketing exclusivity). The marketing exclusivity period can be extended to three years if, during the first eight- year period, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which are deemed to provide a significant clinical benefit over existing therapies. This is known as the “8+2+1” rule. ITEM 4. INFORMATION ON THE COMPANY In Japan, the regulatory exclusivity period varies from four years formulations, for medicinal products with new dosages, or compositions with related prescriptions, to six years for new drugs containing a medicinal composition or requiring a new route of administration; eight years for drugs containing a new chemical entity; and ten years for orphan drugs or new drugs requiring pharmaco-epidemiological study. indications, Emerging markets One of the main limitations on our operations in emerging market countries is the lack of effective intellectual property protection or enforcement for our products. The World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIP) required developing countries to amend their intellectual property laws to provide patent protection for pharmaceutical products since January 1, 2005. However, it also provided a limited number of developing countries with an extended period in which to achieve compliance with TRIP. Additionally, these same countries frequently do not provide non-patent exclusivity for innovative products. While the situation has gradually improved, the lack of protection for intellectual property rights or the lack of robust enforcement of intellectual property rights poses difficulties in certain countries. Additionally, in recent years a number of countries facing health crises have waived or threatened to waive intellectual property protection for specific products, for example through compulsory licensing of generics. See “Item 3. Key Information – D. Risk Factors – Risks Relating to Sanofi’s Structure and Strategy – The globalization of our business exposes us to increased risks in specific areas”. Pediatric extension In the US and the EU, under certain conditions, it is possible to extend a product’s regulatory exclusivity for an additional period of time by providing data on pediatric studies. In the US, the FDA may ask a company for pediatric studies if it has determined that information related to the use of the drugs in the pediatric population may produce health benefits. The FDA has invited us by written request to provide additional pediatric data on several of our main products. Under the Hatch-Waxman Act, timely provision of data meeting the FDA’s requirements (regardless of whether the data supports a pediatric indication) may result in the FDA extending regulatory exclusivity and patent life by six months, to the extent these protections have not already expired (the so-called “pediatric exclusivity”). In Europe, a regulation on pediatric medicines provides for pediatric research obligations with potential associated rewards including extension of patent protection (for patented medicinal products) and six month regulatory exclusivity for pediatric marketing authorization (for off-patent medicinal products). In Japan, there is no pediatric research extension of patent protection (for patented medicinal products). However, regulatory exclusivity may be extended from eight to ten years. SANOFI / FORM 20-F 2018 59 ITEM 4. INFORMATION ON THE COMPANY Orphan drug exclusivity Orphan drug exclusivity may be granted in the US to drugs intended to treat rare diseases or conditions (affecting fewer than 200,000 patients in the US, or in some cases more than 200,000 with no expectation of recovering costs). Obtaining orphan drug exclusivity is a two step process. An applicant must first seek and obtain orphan drug designation from the FDA for its drug for one or more indications. If the FDA approves a drug for the designated indication, the drug will generally receive orphan drug exclusivity for such designated indication. Orphan drug exclusivity runs from the time of approval and bars approval of another application (ANDA, 505(b)(2), New Drug Application (NDA) or Biologic License Application (BLA)) from a different sponsor for the same drug in the same indication for a seven year period. Whether a subsequent application is for the “same” drug depends upon the chemical and clinical characteristics. The FDA may approve applications for the “same” drug for indications not protected by orphan exclusivity. Orphan drug exclusivities also exist in the EU and Japan. Product overview We summarize below the intellectual property coverage (in some cases through licences) in our major markets of the marketed products described above at “– B.2. Main Pharmaceutical Products”. In the discussion of patents below, we focus on active ingredient patents (compound patents) and for NCEs on any later filed patents listed, as applicable, in the FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”) or in their foreign equivalents. For Biologics the Orange Book listing does not apply. These patents or their foreign equivalents tend to be the most relevant in the event of an application by a competitor to produce a generic or a biosimilar version of one of our products (see “– Challenges to Patented Products” below). In some cases, products may also benefit from pending patent applications or from patents not eligible for Orange Book listing (for NCEs) (e.g. patents claiming industrial processes). In each case below, we specify whether the active ingredient is claimed by an unexpired patent. Where patent terms have been extended to compensate for US Patent and Trademark Office (USPTO) delays in patent prosecution (Patent Term Adjustment – PTA) or for other regulatory delays, the extended dates are indicated below. The US patent expirations presented below reflect USPTO dates, and also reflect six month pediatric extensions when applicable. Where patent terms have expired we indicate such information and mention whether generics are on the market. We do not provide later filed patent information relating to formulations already available as an unlicensed generic. References below to patent protection in Europe indicate the existence of relevant patents in most major markets in the EU. Specific situations may vary by country, most notably with respect to older patents and to countries that have only recently joined the EU. We additionally set out any regulatory exclusivity from which these products continue to benefit in the US, EU or Japan. Regulatory exclusivities presented below incorporate any pediatric extensions obtained. While EU regulatory exclusivity is intended to be applied throughout the EU, in some cases Member States have taken positions prejudicial to our exclusivity rights. Aldurazyme® (laronidase) Compound: November 2019 Compound: November 2020 in some EU countries only Compound: November 2020 United States European Union Japan Allegra®/Telfast® (fexofenadine hydrochloride) Later filed patents: ranging through July 2020 with PTA** Later filed patent: November 2020 in some EU countries only Compound: expired Compound: expired Compound: expired Generics on the market Generics on the market Generics on the market Converted to over-the-counter Converted to over-the-counter Converted to over-the counter Alprolix®(eftrenonacog alfa) Compound: March 2028 with PTA** and PTE** Compound: May 2024 (May 2029 with SPC** in most EU countries, if granted) Compound: February 2026 with PTE** Later filed patents: coverage ranging through December 2037 (pending) Later filed patents: coverage ranging through December 2037 (pending) Later filed patents: coverage ranging through December 2037 (pending) Biologics regulatory exclusivity: March 2026 Regulatory exclusivity: May 2026 Regulatory exclusivity: July 2022 Amaryl®/Amarel® (glimepiride) Compound: expired Compound: expired Compound: expired Generics on the market Generics on the market Generics on the market 60 SANOFI / FORM 20-F 2018 ITEM 4. INFORMATION ON THE COMPANY United States European Union Japan Apidra® (insulin glulisine) Compound: expired Later filed patents: ranging through September 2027 Compound: September 2019 with SPC** in most of the EU countries Compound: May 2022 with PTE** Later filed patent: March 2022 Later filed patent: July 2022 Aprovel®/Avapro® (irbesartan) Compound: expired Compound: expired Compound: expired Later filed patent: June 2021 with PTE** Aubagio® (teriflunomide)* Compound: expired Compound: expired Compound: expired Generics on the market Generics on the market Generics on the market Later filed patents: coverage ranging through February 2034 Later filed patent: coverage ranging through September 2030 Later filed patent: coverage ranging through March 2024 Cablivi® (caplacizumabt) Compound: August, 2027 (January 2032 with PTE** if granted) Later filed patents: coverage ranging through June 2035 (pending) Biologics regulatory exclusivity: August 2031 (with PED) Cerdelga® (eliglustat) Compound: 2026 with PTE** Regulatory exclusivity: August 2023 Compound: May 2026 (May 2031 with SPC** if granted) Compound: May 2026 (with PTE** if granted) Later filed patents: coverage ranging through June 2035 Later filed patents: coverage ranging through June 2035 Regulatory exclusivity: August 31, 2030 (with orphan PED) Regulatory exclusivity: to be determined Compound: July 2022 (July 2027 with SPC** if granted) Compound: March 2025 with PTE** Later filed patent: November 2030 (pending) Later filed patent: November 2030 Later filed patent: November 2030 (pending) Regulatory exclusivity: August 2019 Orphan drug exclusivity: August 2021 Orphan drug exclusivity: January 2025 Regulatory exclusivity: March 2023 Cerezyme® (imiglucerase)* Compound: expired Depakine® (sodium valproate) Compound: N/A(1) Compound: N/A Compound: N/A Compound: N/A Compound: N/A Dupixent® (dupilumab)* Later filed patent: Expired Later filed patent: Expired Compound: October 2027 (Mar 2031 with PTE** if granted) Compound: October 2029 (September 2032 with SPC** if granted) Compound: October 2029 (June 2034 with PTE** if granted) Later filed patents: coverage ranging through January 2036 with PTA** Later filed patents: coverage ranging through November 2035 (pending) Later filed patents: coverage ranging through November 2035 (pending) Regulatory exclusivity: March 2029 Regulatory exclusivity: September 2027 Regulatory exclusivity: January 2026 (1) No rights to compounds in the US, EU and Japan. SANOFI / FORM 20-F 2018 61 ITEM 4. INFORMATION ON THE COMPANY United States European Union Japan Eloctate® (efmoroctocog alfa) Compound: June 2028 with PTA** and PTE** Compound: May 2024 (May 2029 with SPC** in most EU countries, if granted) Compound: August 2026 with PTE** Later filed patents: coverage ranging through December 2037 (pending) Later filed patents: coverage ranging through December 2037 (pending) Later filed patents: coverage ranging through December 2037 (pending) Biologics regulatory exclusivity: June 2026 Regulatory exclusivity: November 2025 Regulatory exclusivity: December 2022 Compound: N/A Compound: N/A Compound: N/A Fabrazyme® (agalsidase beta)* Insuman® (human insulin) Compound: N/A Compound: N/A Compound: N/A Later filed patents: expired Later filed patents: expired Later filed patents: expired Jevtana® (cabazitaxel) Compound: September 2021 with PTE** and pediatric exclusivity Later filed patents: expired Compound: expired Compound: March 2021 with PTE** Later filed patents: coverage ranging through April 2031 with pediatric exclusivity Later filed patents: coverage ranging through October 2030 (pending) Later filed patents: coverage ranging through November 2030 with PTE** Kevzara® (sarilumab) Compound: January 2028 with PTA** Regulatory exclusivity: March 2021 Regulatory exclusivity: July 2022 Compound: June 2027 Compound: June 2027 Later filed patents: coverage ranging through March 2037 (pending) Later filed patents: coverage ranging through March 2037 (pending) Later filed patents: coverage ranging through March 2037 (pending) Regulatory exclusivity: May 2029 Regulatory exclusivity: June 2027 Regulatory exclusivity: September 2025 Lantus® (insulin glargine)* Compound: expired Compound: Expired Compound: expired Later filed patents ranging through March 2028 Later filed patent: June 2023 Later filed patent: June 2023 Generics / biosimilars on the market Generics / biosimilars on the market Generics / biosimilars on the market Lemtrada® (alemtuzumab) Compound: expired Compound: expired Compound: expired Lovenox® (enoxaparin sodium)* Lumizyme® / Myozyme® (alglucosidase alpha)* Later filed patent: August 2029 with PTA** Later filed patent: September 2027(1) Later filed patent: September 2027 Compound: N/A Compound: expired Compound: expired Generics / biosimilars on the market Generics / biosimilars on the market Compound: N/A Compound: N/A Compound: N/A Later filed patents: coverage ranging through February 2023 with PTA** Later filed patents: coverage ranging through July 2021 Later filed patents: coverage ranging through July 2021 (1) Patent revoked, appeal pending. 62 SANOFI / FORM 20-F 2018 ITEM 4. INFORMATION ON THE COMPANY United States European Union Japan Lyxumia®/Adlyxin® (lixisenatide) Compound: July 2020 (July 2025 with PTE** if granted) Compound: July 2020 (2025 with SPC** in most EU countries if granted) Compound: July 2024 with PTE** Later filed patents: coverage ranging through August 2032 Later filed patents: November 2030 (pending) Later filed patents: November 2030 Regulatory exclusivity: July 2021 Regulatory exclusivity: February 2023 Regulatory exclusivity: June 2021 Mozobil® (plerixafor) Compound: N/A Compound: N/A Compound: N/A Later filed patents: coverage ranging through July 2023 Later filed patent: July 2022 (2024 with SPC** in some EU countries) Later filed patent: August 2026 with PTE** Orphan drug exclusivity: August 2019 Orphan drug exclusivity: December 2026 Multaq® (dronedarone hydrochloride) Compound: expired Compound: expired Compound: expired Later filed patents: coverage ranging through June 2031 Later filed patent: June 2023 with SPC** Regulatory exclusivity: December 2019 Plavix® (clopidogrel bisulfate)* Compound: expired Compound: expired Compound: expired Generics on the market Generics on the market Generics on the market Praluent® (alirocumab) Compound: December 2029 Later filed patents: coverage ranging through September 2032 (pending) Biologics regulatory exclusivity: July 2027 Compound: December 2029 (September 2030 if SPC** granted) Compound: November 2032 with PTE** Later filed patents: coverage ranging through September 2032 (pending) Later filed patents: coverage ranging through September 2032 Regulatory exclusivity: September 2025 Regulatory exclusivity: July 2024 Renagel® (sevelamer hydrochloride) Renvela® (sevelamer carbonate) Compound: N/A Compound: N/A Compound: N/A Later filed patent: October 2020 Later filed patent: October 2020 Later filed patent: October 2020 Compound: N/A Compound: N/A Compound: N/A Later filed patents: October 2025 (tablet) and December 2030 (sachet) Later filed patent: November 2025 (tablet) and September 2026 (sachet) Later filed patents: November 2025 (tablet) and September 2026 (sachet) Generics on the market Generics on the market Soliqua®100/33 / Suliqua® (lixisenatide + insulin glargine) Compound: July 2020 (July 2025 with PTE** if granted) Later filed patents: coverage ranging through November 2035 Compound: July 2020 (July 2025 with SPC** in most EU countries if granted) Later filed patents: coverage ranging through January 2032 with SPC** Compound: July 2024 with PTE** Later filed patents: coverage ranging through November 2030 Stilnox®/Ambien® (zolpidem tartrate) Regulatory exclusivity: July 2021 Regulatory exclusivity: January 2027 Regulatory exclusivity: to be determined Compound: expired Compound: expired Compound: expired Generics on the market Generics on the market Generics on the market SANOFI / FORM 20-F 2018 63 ITEM 4. INFORMATION ON THE COMPANY United States European Union Japan Synvisc® (Hylan G-F 20) Compound: expired Synvisc-One® (Hylan G-F 20) Compound: expired Compound: N/A Compound: N/A Later filed patent: December 2025 Compound: expired Compound: expired Later filed patent: December 2025 Toujeo® (insulin glargine)* Compound: expired Compound: expired Compound: expired Later filed patents: coverage ranging through May 2031 Later filed patents: coverage ranging through May 2031 (pending) Later filed patents: coverage ranging through July 2033 with PTE** Zaltrap® (aflibercept) Regulatory exclusivity: July 2019 Compound: May 2020 (July 2022 with PTE** if granted) Compound: May 2020 (May 2025 with SPC** in most EU countries, if granted) Compound: May 2020 (May 2025 with PTE** if granted) Later filed patents: coverage ranging through April 2032 (pending) Later filed patents: coverage ranging through April 2032 Later filed patents: coverage ranging through April 2032 Biologics regulatory exclusivity: November 2023 Regulatory exclusivity: February 2023 Regulatory exclusivity: March 2023 * The products shown in bold are the most significant in terms of sales (2% or more of Sanofi’s sales in 2018). ** PTE: Patent Term Extension. – SPC: Supplementary Protection Certificate. – PTA: Patent Term Adjustment. Patents held or licensed by Sanofi do not in all cases provide effective protection against a competitor’s generic version of our products. For example, notwithstanding the presence of unexpired patents, competitors launched generic versions of Allegra® in the US (prior to the product being switched to over-the-counter status) and Plavix® in the EU. We caution the reader that there can be no assurance that we will prevail when we assert a patent in litigation and that there may be instances in which Sanofi determines that it does not have a sufficient basis to assert one or more of the patents mentioned in this report, for example in cases where a competitor proposes a formulation not appearing to fall within the claims of our formulation patent, a salt or crystalline form not claimed by our composition of matter patent, or an indication not covered by our method of use patent. See “Item 3. Key Information – D. Risk Factors – Risks Relating to Legal and Regulatory Matters – We rely on our patents and other proprietary rights to provide exclusive rights to market certain of our products, and if such patents and other rights were limited or circumvented, our financial results could be materially and adversely affected”. As disclosed in Item 8 of this annual report, we are involved in significant litigation concerning the patent protection of a number of our products. Challenges to patented products ◆ Abbreviated New Drug Applications (ANDAs) the US, companies have filed Abbreviated New Drug In Applications (ANDAs), containing challenges to patents related to a number of our products. An ANDA is an application by a drug manufacturer to receive authority to market a generic version of another company’s approved product, by demonstrating that the purportedly generic version has the same properties as the original approved product. ANDAs may not be filed with respect to drugs licensed as a biological. See “– B.6.3. Regulatory Framework – B.6.3.2. Biosimilars” above. An ANDA relies on the safety and other technical data of the original approved product, and does not generally require the generic manufacturer to conduct clinical trials (thus the name “abbreviated” new drug application), presenting a significant benefit in terms of time and cost. As a result of regulatory protection of our safety and other technical data, the ANDA may generally be filed only five years after the initial US original product marketing authorization. See “– Regulatory Exclusivity” above. This period can be reduced to four years if the ANDA includes a challenge to a patent listed in the FDA’s Orange Book. However, in such a case if the patent holder or licensee brings suit in response to the patent challenge within the statutory window, then the FDA is barred from granting final approval to an ANDA during the 30 months following the patent challenge (this bar is referred to in our industry as a “30-month stay”), unless, before the end of the 30 months, a court decision or settlement has determined either that the ANDA does not infringe the listed patent or that the listed patent is invalid and/or unenforceable. FDA approval of an ANDA after this 30-month period does not resolve outstanding patent disputes, but it does remove the regulatory impediments to a product launch by a generic manufacturer willing to take the risk of later being ordered to pay damages to the patent holder. The accelerated ANDA-type procedures are potentially applicable to many, but not all, of the products we manufacture. See “– B.6.3. Regulatory Framework – 6.3.2. Biosimilars” and “– Regulation” above. We seek to defend our patent rights vigorously in these cases. Success or failure in the assertion of a 64 SANOFI / FORM 20-F 2018 in the formulations of given patent against a competing product is not necessarily predictive of the future success or failure in the assertion of the same patent – or a fortiori the corresponding foreign patent – against another competing product due to factors such as possible differences the competing products, intervening developments in law or jurisprudence, local variations in the patents and differences in national patent law and legal systems. See “Item 3. Key Information – D. Risk Factors – Risks Relating to Legal and Regulatory Matters – We rely on our patents and other proprietary rights to provide exclusive rights to market certain of our products, and if such patents and other rights were limited or circumvented, our financial results could be materially and adversely affected”. Section 505(b)(2) New Drug Applications in the US Our products and patents are also subject to challenge by competitors via another abbreviated approval pathway, under section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. This provision expressly permits an applicant to rely, at least in part, on the FDA’s prior findings of safety and effectiveness of a drug that has obtained FDA approval. The FDA may still require applicants to provide additional preclinical or clinical data to ensure the reference drug do not compromise safety and effectiveness. This pathway allows for approval for a wide range of products, especially for those products that represent only a limited change from an existing approved drug. The 505(b)(2) pathway is distinct from the ANDA pathway, which allows for approval of a generic product based on a showing that it is equivalent to a previously approved product. that differences from A 505(b)(2) applicant is required to identify the reference drug on which it relies, as well as to certify to the FDA concerning any patents listed for the referenced product in the Orange Book. Specifically, the applicant must certify in the application that, for each patent that claims the drug or a use of the drug for which the applicant is seeking approval: ◆ there is no patent information listed for the reference drug (paragraph I certification); ◆ the listed patent has expired for the reference drug (paragraph II certification); ◆ the listed patent for the reference drug has not expired, but will expire on a particular date and approval is sought after patent expiration (paragraph III certification); or ◆ the for the listed patent invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the product for which the 505(b)(2) NDA is submitted (paragraph IV certification). reference drug is A paragraph III certification may delay the approval of an application until the expiration of the patent. A paragraph IV certification generally requires notification of the patent owner and the holder of the NDA for the referenced product. If the patent owner or NDA holder brings patent litigation against the applicant within the statutory window, a 30-month stay is entered on the FDA’s ability to grant final approval to the 505(b)(2) applicant ITEM 4. INFORMATION ON THE COMPANY unless, before the end of the stay, a court decision or settlement determines the listed patent is invalid, not enforceable, and/or not infringed. A 505(b)(2) application may also be subject to non-patent exclusivity, and the FDA may be prohibited from giving final approval to a 505(b)(2) application until the expiration of all applicable non-patent exclusivity periods. In the EU, a generic drug manufacturer may only reference the data of the regulatory file for the original approved product after data exclusivity has expired. However, there is no patent listing system in Europe comparable to the Orange Book, which would allow the patent holder to prevent the competent authorities from granting marketing authorization by bringing patent infringement litigation prior to approval. As a result, generic products may be approved for marketing following the expiration of marketing exclusivity without rights. to Nevertheless, in most of these jurisdictions once the competing product is launched, and in some jurisdictions even prior to launch (once launch is imminent), the patent holder may seek an injunction against such marketing if it believes its patents are infringed. See Item 8 of this annual report. the patent holder’s regard B.7.2. Trademarks Our products are sold around the world under trademarks that we consider to be of material importance in the aggregate. Our trademarks help to identify our products and to protect the sustainability of our growth. Trademarks are particularly important to the commercial success of CHC and generics. It is our policy to protect and register our trademarks with a strategy adapted to each product or service depending on the countries where they are commercialized: on a worldwide basis for worldwide products or services, or on a regional or local basis for regional or local products or services. The process and degree of trademark protection vary country by country, as each country applies its own trademark laws and regulations. In most countries, trademark rights may only be obtained through formal trademark application and registration. In some countries, trademark protection can be based primarily on use. Registrations are granted for a fixed term (in most cases ten years) and are renewable indefinitely, except in some countries where maintenance of the trademarks is subject to their effective use. When trademark protection is based on use, it covers the products and services for which the trademark is used. When trademark protection is based on registration, it covers only the products and services designated in the registration certificate. Additionally, in certain cases, we may enter into a coexistence agreement with a third party that owns potentially conflicting rights in order to avoid any risk of confusion and better protect and defend our trademarks. Our trademarks are monitored and defended based on this policy and in order to prevent counterfeit, infringement and/or unfair competition. SANOFI / FORM 20-F 2018 65 ITEM 4. INFORMATION ON THE COMPANY B.8. Production and raw materials We have opted to manufacture the majority of our products in-house. There are three principal stages in our production ingredients, process: the transformation of into drug products or vaccines, and packaging those products. the manufacture of active ingredients those Our general policy is to produce the majority of our active ingredients and principal drug products at our own plants in order to reduce our dependence on external suppliers. We also rely on third parties for the manufacture and supply of certain active ingredients, drug products and medical devices. Active ingredients are manufactured using raw materials sourced from suppliers who have been subject to rigorous selection and approval procedures, in accordance with international standards and our own internal directives. We have outsourced some of our production under supply contracts associated with acquisitions of products or businesses or with plant divestitures, or to establish a local presence to capitalize on growth in emerging markets. Our pharmaceutical subcontractors follow our general quality and logistics policies, as well as meeting other criteria. See ‘‘Item 3. Key Information – D. Risk Factors – Risks Relating to Our Business’’. the start of 2017 we At launched our “Global External Manufacturing” team, to enhance the way we manage relations with our third-party suppliers of finished products. We also obtain active ingredients from third parties under collaboration agreements. This applies in particular to the monoclonal antibodies developed with Regeneron. Our pharmaceutical production sites are divided into three categories: ◆ global sites, which serve all markets: located mainly in Europe, these facilities are dedicated to the manufacture of our active ingredients, injectable products, and a number of our main solid-form products; ◆ regional sites, which serve markets at regional level, in Europe and particularly the BRIC-M countries (Brazil, Russia, India, China and Mexico), giving us a strong industrial presence in emerging markets; and ◆ local sites, which serve their domestic market only. Sanofi Pasteur produces vaccines at sites located in the United States, Canada, France, Mexico, China and India. The pharmaceutical site at Le Trait (France) also contributes to Sanofi Pasteur’s industrial operations by making available its sterile filling facilities. All of our production facilities are good manufacturing practice (GMP) compliant, in line with international regulations. Our principal sites approved by the FDA are: ◆ the Biologics facilities (Allston, Framingham and Northborough), France (Lyon Gerland, Vitry-sur-Seine), Germany (Frankfurt) and Belgium (Geel); the United States in ◆ the Injectables facilities in France (Le Trait), Italy (Anagni), Ireland (Waterford), Germany (Frankfurt) and the United States (Ridgefield); ◆ the Pharmaceuticals facilities in France (Ambarès and Tours) and the United Kingdom (Haverhill); ◆ the Consumer Healthcare facilities in France (Compiègne) and the United States (Chattanooga); and ◆ the Vaccines facilities in France (Marcy l’Étoile and Le Trait, which handle filling and packaging of Fluzone® ID for the US market), the United States (Swiftwater) and Canada (Toronto). Wherever possible, we seek to have multiple plants approved for the production of key active ingredients and our strategic finished products (this is the case with Lovenox®, for example). In May 2010, Genzyme’s Allston facility in the United States entered into a consent decree with the US government following FDA inspections at the facility that resulted in observations and a warning letter raising Current Good Manufacturing Practices (CGMP) deficiencies. The workplan was completed on March 31, 2016. The next step was a third-party certification process. In August 2017, the FDA conducted an inspection of the facility and delivered a favorable received on following which certification was conclusion, October 4, 2017. The Allston facility is required to engage a third-party expert to audit its manufacturing operations for an additional period of at least five years. More details about our manufacturing sites are given below at section ‘‘D. Property, Plant and Equipment’’. B.9. Insurance and risk coverage We are protected by four key insurance programs, relying not only on the traditional corporate insurance and reinsurance market but also on our direct insurance company, Carraig Insurance DAC (Carraig). These four key programs cover Property & Business Interruption, General & Product Liability, Stock and Transit, and Directors & Officers Liability. Carraig participates in our coverage for various lines of insurance including Property & Business Interruption, Stock and Transit, and General & Product Liability. Carraig is run under the supervision of the Irish regulatory authorities, is wholly owned by Sanofi, and has sufficient resources to meet those portions of our risks that it has agreed to cover. It sets premiums for our entities at market rates. Claims are assessed using the traditional models applied by insurance and the company’s reserves are reinsurance companies, and regularly verified and confirmed by independent actuaries. Our Property & Business Interruption program covers all our entities worldwide, wherever it is possible to use a centralized 66 SANOFI / FORM 20-F 2018 program operated by Carraig. Through risk mutualization between our entities, this approach enabling us to set tailored deductibles and covers to match local entities’ needs before market intervention. It also incorporates a prevention program, including a comprehensive site visit schedule covering our production, storage, research and distribution facilities and standardized repair and maintenance procedures across all sites. The Stock and Transit program protects all goods owned by Sanofi while they are in transit nationally or internationally whatever the means of transport, and all our inventories wherever they are located. Sharing risk between our entities through Carraig means that we can set deductibles at appropriate levels, for instance differentiating between goods that require temperature controlled distribution and those that do not. We have developed a prevention program with assistance from this area at our experts, distribution sites. implementing best practices in Our General & Product Liability program was renewed in 2018 for all our subsidiaries worldwide wherever it was possible to do so, despite reluctance in the insurance and reinsurance market to cover product liability risks for large pharmaceutical groups. For several years, insurers have been reducing product liability cover because of the difficulty of transferring risk for some products that have been subject to numerous claims. This applies to a few of our products and has led us to increase, year by year, the extent to which we self-insure. The principal risk exposure for our pharmaceutical products is covered with low deductibles at country level, the greatest level of risk being retained. The level of risk self-insured by Sanofi (including via Carraig) before the market attachment point, enables us to retain control over the management and prevention of risk. Our negotiations with third-party insurers and reinsurers are tailored to our specific risks. In particular, they allow for differential treatment of products in the development phase, for the discrepancies in risk exposure between European countries and the United States, and for specific issues arising in certain jurisdictions such as generics coverage the United States. Coverage is adjusted every year in order to take into account the relative weight of new product liability risks, such as those relating to rare diseases or to healthcare products which do not require marketing approval. in Our cover for risks that are not specific to the pharmaceutical industry (general liability) is designed to address the potential impacts of our operations. For all the insurance programs handled by Carraig, outstanding claims are covered by provisions for the estimated cost of settling all claims incurred but not paid at the balance sheet date, whether reported or not, together with all related claims handling expenses. Where there is sufficient data history from Sanofi or from the market for claims made and settled, management – with assistance from independent actuaries – prepares an actuarial estimate of our exposure to unreported claims for the risks covered. The actuaries perform an actuarial valuation of the ITEM 4. INFORMATION ON THE COMPANY company’s IBNR (Incurred But Not Reported) and ALAE (Allocated Loss Adjustment Expense) liabilities at year end. Two ultimate loss projections (based upon reported losses and paid losses, respectively) are computed each year using various actuarial methods including the Bornhuetter-Ferguson method; those projections form the basis for the provisions set. The Directors & Officers Liability program protects all legal entities under our control, and their directors and officers. Carraig is not involved in this program. We also operate other insurance programs, but these are of much lesser importance than those described above. All our insurance programs are backed by best in class insurers and reinsurers and are designed in such a way that we can integrate most newly acquired businesses without interruption of cover. Our cover has been designed to reflect our risk profile and the capacity available in the insurance market. By centralizing our major programs, we are able to provide world-class protection while reducing costs. B.10. Health, Safety and Environment Our manufacturing and research operations are subject to increasingly stringent health, safety and environmental (HSE) laws and regulations. These laws and regulations are complex and rapidly changing, and Sanofi invests the necessary sums in order to comply with them. This investment, which aims to respect health, safety and the environment, varies from year to year. Applicable environmental laws and regulations may require us to eliminate or reduce the effects of chemical substance discharge at our various sites. The sites in question may belong to Sanofi, and may be currently operational, or may have been owned or operational in the past. In this regard, Sanofi may be held liable for the costs of removal or remediation of hazardous substances on, under or in the sites concerned, or on sites where waste from activities has been stored, without regard to whether the owner or operator knew of or under certain circumstances caused the presence of the contaminants, or at the time site operations occurred the discharge of those substances was authorized. intense agrochemical As is the case for a number of companies in the pharmaceutical, industries, soil and chemical and groundwater contamination has occurred at some of our sites in the past, and may still occur or be discovered at others. In Sanofi’s case, such sites are mainly located in the United States, Germany, France, Hungary, Italy and the United Kingdom. As part of a program of environmental surveys conducted over the last few years, detailed assessments of the risk of soil and groundwater contamination have been carried out at current and former Sanofi sites. In cooperation with national and local authorities, Sanofi regularly assesses the rehabilitation work required and carries out such work when appropriate. Long-term rehabilitation work is in progress or planned in Mount Pleasant, East Palo Alto and Portland in the United States; Barceloneta in SANOFI / FORM 20-F 2018 67 ITEM 4. INFORMATION ON THE COMPANY Puerto Rico; Frankfurt in Germany; Brindisi in Italy; Dagenham in the United Kingdom; Ujpest in Hungary; Beaucaire, Valernes, Limay, Romainville, Neuville and Vitry in France; and on a number of sites divested to third parties and covered by contractual environmental guarantees granted by Sanofi. We may also have potential liability for investigation and cleanup at several other sites. We have established provisions for the sites already identified and to cover contractual guarantees for environmental liabilities for sites that have been divested. In France specifically, we have provided the financial guarantees for environmental protection required under French regulations. Potential environmental contingencies arising from certain business divestitures are described in Note D.22.d to the consolidated In 2018, Sanofi spent €62 million on rehabilitating sites previously contaminated by soil or groundwater pollution. financial statements. Due to changes in environmental regulations governing site remediation, our provisions for remediation obligations may not be adequate due to the multiple factors involved, such as the complexity of operational or previously operational sites, the nature of claims received, the rehabilitation techniques involved, the planned timetable for rehabilitation, and the outcome of discussions with national regulatory authorities or other potentially responsible parties, as in the case of multiparty sites. Given the long industrial history of some of our sites and the legacy obligations arising from the past involvement of Aventis in the chemical and agrochemical industries, it is impossible to quantify the future impact of these laws and regulations with precision. See “Item 3.D. Risk Factors – Environmental Risks of Our Industrial Activities”. We have established, in accordance with our current knowledge and projections, provisions for cases already identified and to cover contractual guarantees for environmental liabilities relating to sites that have been divested. In accordance with Sanofi standards, a comprehensive review is carried out once a year on the legacy of environmental pollution. In light of data collected during this review, we adjusted our provisions to approximately €680 million as of December 31, 2018 versus €685 million as of December 31, 2017. The terms of certain business divestitures, and the environmental obligations and retained environmental liabilities relating thereto are described in Note D.22. to our consolidated financial statements. To our knowledge, Sanofi did not incur any liability in 2018 for non-compliance with current HSE laws and regulations that could be expected to significantly jeopardize its activities, financial situation or operating income. We also believe that we are in substantial compliance with current HSE laws and regulations and that all the environmental permits required to operate our facilities have been obtained. Regular HSE audits are carried out by Sanofi in order to assess compliance with standards (which implies compliance with regulations) and to initiate corrective measures (50 internal audits 68 SANOFI / FORM 20-F 2018 performed by 87 auditors in 2018). Moreover, around 200 specific visits were performed jointly with experts representing our insurers. Sanofi has implemented a worldwide master policy on health, safety and environment to promote the health and well-being of the employees and contractors working on its sites and respect for the environment. We consider this master policy to be an integral part of our commitment to social responsibility. In order to implement this master policy, Sanofi key requirements have been drawn up in the key fields of HSE management, HSE leadership, safety in the workplace, process safety, occupational hygiene, health in the workplace and protection of the environment. Health From the development of compounds to the commercial launch of new drugs, Sanofi research scientists continuously assess the effect of products on human health. This expertise is made available to employees through two committees responsible for chemical and biological risk assessment. Sanofi’s COVALIS Committee is responsible for the hazard determination and classification of all active pharmaceutical ingredients and synthesis intermediates handled at Sanofi facilities. This covers all active ingredients handled in production at company sites or in processes sub-contracted for manufacture. Any important issues involving raw materials or other substances that lack established occupational exposure limits may also be reviewed. The COVALIS Committee determines the occupational exposure limits is responsible for classifying all biological agents according to their degree of pathogenicity, and applies rules for their containment and the preventive measures to be respected throughout Sanofi. See “Item 3. Key Information – D. Risk Factors – Environmental Risks of Our Industrial Activities – Risks from the handling of hazardous materials could adversely affect our results of operations”. required within Sanofi. Our TRIBIO Committee Appropriate occupational hygiene practices and programs are defined and implemented in each site. These practices consist essentially of containment measures for collective and individual protection against exposure in all workplaces where chemical substances or biological agents are handled. All personnel are monitored with an appropriate medical surveillance program, based on the results of professional risk evaluations linked to their duties. In addition, dedicated resources have been created to implement the EU Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals (REACH). To fully comply with the new European Regulation on Classification, Labeling and Packaging of chemicals, Sanofi has registered the relevant hazardous chemical the European Chemicals Agency (ECHA). substances with ITEM 4. INFORMATION ON THE COMPANY Safety Environment Sanofi has rigorous policies to identify and evaluate safety risks and to develop preventive safety measures, and methods for checking their efficacy. Additionally, Sanofi invests in training that is designed to instill in all employees a sense of concern for safety, regardless of their duties. These policies are implemented on a worldwide scale to ensure the safety of all employees and to protect research, development or manufacturing, to evaluation procedures, incorporating the chemical substance and process data communicated by the COVALIS and TRIBIO Committees described above. The preventive measures are designed primarily to reduce the number and seriousness of work accidents and to minimize exposures involving permanent and temporary Sanofi employees as well as our sub-contractors. their health. Each project, whether is subject in The French chemical manufacturing sites in Aramon, Sisteron and Vertolaye, as well as the plants located in the Hoechst Industry Park in Frankfurt, Germany, and the chemical production site in Budapest, Hungary, are listed Seveso III (from the name of the European directive that deals with potentially dangerous sites through a list of activities and substances associated with classification thresholds). In accordance with French law on technological risk prevention, the French sites are also subject to heightened security inspections due to the toxic or flammable materials stored on the sites and used in the operating processes. Risk assessments of processes and installations are drawn up according to standards and internal guidelines incorporating the best state of the art benchmarks for the industry. These assessments are used to fulfill regulatory requirements and are regularly updated. Particular attention is paid to any risk- generating changes such as process or installation changes, as well as changes in production scale and transfers between industrial or research units. to obtain We have specialized process safety-testing laboratories that are fully integrated into our chemical development activities, apply the physico-chemical parameters of methods manufactured chemical substances (intermediate chemical compounds and active ingredients) and apply models to measure the effect of potentially leachable substances in the event of a major accident. for qualifying hazardous reactions are also determined, in order to define scale-up process conditions while from development stage to industrial scale. All these data ensure that our risk assessments are relevant. the parameters laboratories transferring these In the hazard studies carried out and We believe that the safety management systems implemented at each site, the risk management methods implemented, as well as our third-party property insurance policies covering any third-party physical damage, are consistent with legal requirements and the best practices in the industry. We have committed to an ambitious policy aimed at limiting the direct and indirect impacts of our activities on the environment, throughout the life cycle of our products. We have identified five major environmental challenges relating to our businesses: greenhouse gas emissions and climate disruption; water; pharmaceuticals in the environment; waste; and biodiversity. The initiatives already implemented since 2010 are continuing, and we have been keen to give them fresh impetus through the Planet Mobilization program. Reflecting our environment strategy out to 2025, the program sets more ambitious targets for reducing environmental impacts across the entire value chain. Planet Mobilization is a global project that involves all of the Company’s resources in defining objectives and engaging with external partners. Compared with 2015 figures, we are undertaking to halve our carbon emissions by the end of 2025 and reach carbon-neutral status by 2050 on our scope 1 & 2 (industrial, R&D and tertiary sites, including the medical rep fleet). We have also set ourselves the target of achieving sustainable water resource management, especially at sites which are under hydric stress. On this new scope, by the end of 2018, we had reduced CO2 emissions by 9% and water consumption by 14%. Overall waste recycling at sites is already above 72% and is expected to be more than 90% by the end of 2025. The discharge rate had dropped to 8% at the end of 2017 and we have committed to move towards a maximum of 1% by 2025. Biodiversity management at sites is also a priority, with the aim of making all employees aware of this challenge and implementing risk assessment and management plans at priority sites. Finally, we are pursuing the policy we began in 2010 of the environment managing pharmaceutical products throughout their life cycles. At the end of 2018, all priority chemical sites had been evaluated and were shown to present no risk to the environment. The assessment program was extended the pharmaceutical production sites. In 2018, eight sites implemented the program. to other sites, starting with in in industry, and will the pharmaceutical reference guides and methodologies In line with this approach, we have committed to the “Roadmap AMR 2020” initiative, which aims to combat microbial resistance to antibiotics. The initiative brings together thirteen of the major involve players co-producing for sustainable management of antibiotics in the pharmaceutical sector. The initiative includes a specific commitment with respect to antibiotic production sites that are operated by signatories or their suppliers, involving firstly the definition and deployment of a shared framework for managing potential waste, and secondly the establishment of environmental thresholds. (See “Cautionary statement regarding forward-looking statements”). SANOFI / FORM 20-F 2018 69 ITEM 4. INFORMATION ON THE COMPANY C/ Organizational Structure C.1. Significant Subsidiaries subsidiaries as of December 31, 2018. For a fuller list of the principal companies in our consolidated group, see Note F. to our consolidated financial statements, included in this annual report at Item 18. Sanofi is the holding company of a consolidated group consisting of over 300 companies. The table below sets forth our significant Significant subsidiary Aventis Inc. Aventis Pharma SA Genzyme Corporation Hoechst GmbH Sanofi-Aventis Deutschland GmbH Sanofi-Aventis US LLC Sanofi-Aventis Participations SAS Sanofi Pasteur SA Sanofi Pasteur Inc. Sanofi Winthrop Industrie Chattem, Inc. Date of incorporation Country of incorporation Principal activity Financial and voting interest 07/01/1968 09/24/1974 11/21/1991 07/08/1974 06/30/1997 06/28/2000 02/25/2002 02/08/1989 01/18/1977 12/11/1972 11/11/1909 United States Pharmaceuticals France Pharmaceuticals United States Pharmaceuticals Germany Germany Pharmaceuticals Pharmaceuticals United States Pharmaceuticals France France United States France Pharmaceuticals Vaccines Vaccines Pharmaceuticals United States Pharmaceuticals 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Since 2009, we have transformed Sanofi through numerous acquisitions (see “A. History and Development of the Company” above), in particular those of Genzyme in April 2011, Merial in September 2009 and Bioverativ and Ablynx in January 2018. The financial effects of the Genzyme acquisition are presented in Note D.1.3. to our consolidated financial statements for the year ended December 31, 2013, included in our annual report on Form 20-F for that year. The financial effects of the Merial acquisition are presented in Note D.1.3. to our consolidated financial statements for the year ended December 31, 2010, included in our annual report on Form 20-F for that year. At the end of December 2016, Sanofi Pasteur and MSD (known as Merck in the United States and Canada) ended their Sanofi Pasteur MSD joint venture. The financial effects of the resulting divestment/acquisition are presented in Note D.1.2. to our consolidated the year ended December 31, 2016, included in our annual report on Form 20-F for that year. On January 1, 2017, Sanofi and Boehringer Ingelheim (BI) finalized the strategic transaction agreed in June 2016, involving the exchange of Sanofi’s Animal Health business (Merial) for BI’s Consumer Healthcare business. The financial effects of this transaction are presented in Note D.1. to our consolidated the year ended December 31, 2017, included in our annual report on Form 20-F for that year. The financial effects of the Bioverativ and Ablynx acquisitions are presented in Note D.1.1. to our consolidated financial statements, included at Item 18 of this annual report on Form 20 F. financial statements financial statements for for In certain countries, we carry on some of our business operations through joint ventures with local partners. In addition, we have (i) with into worldwide collaboration agreements entered 70 SANOFI / FORM 20-F 2018 Regeneron, relating to Zaltrap®, human therapeutic antibodies such as Praluent® and antibodies in immunology such as Dupixent® and Kevzara®; and (ii) with BMS, relating to Plavix®. For further information, refer to Note C. “Principal Alliances” to our consolidated financial statements. C.2. Internal organization of activities Sanofi and its subsidiaries collectively form a group organized around three activities: Pharmaceuticals, Consumer Healthcare and Vaccines. Within Sanofi, responsibility for research and development (R&D) in their respective fields rests with Sanofi SA and Genzyme Corporation in Pharmaceuticals, and with Sanofi Pasteur and Sanofi Pasteur, Inc. in Vaccines. However, within our integrated R&D organization, strategic priorities are set and R&D efforts coordinated on a worldwide scale. In fulfilling their role in R&D, the aforementioned companies subcontract R&D to those of their subsidiaries that have the necessary resources. They also license patents, manufacturing know-how and trademarks to certain of their French and foreign subsidiaries. Those licensee subsidiaries manufacture, commercialize and distribute the majority of our products, either directly or via local distribution entities. Our industrial property rights, patents and trademarks are mainly held by the following companies: ◆ Pharmaceuticals: Sanofi, Sanofi Mature IP, Sanofi Biotechnology SAS (France), Sanofi-Aventis Deutschland GmbH (Belgium), and Genzyme Corporation and Bioverativ Inc. (US); (Germany), Ablynx ◆ Vaccines: Sanofi Pasteur (France) and Sanofi Pasteur, Inc. (US). For a description of our principal items of property, plant and equipment, see “– D. Property, Plant and Equipment” below. Our property, plant and equipment is held mainly by the following companies: ◆ in France: Sanofi Pasteur SA, Sanofi Chimie, Sanofi Winthrop Industrie, and Sanofi-Aventis Recherche & Développement; ◆ in the United States: Sanofi Pasteur, Inc., Genzyme Corporation, and Genzyme Therapeutics Products LP; ◆ in Canada: Sanofi Pasteur Limited; ◆ in Germany: Sanofi-Aventis Deutschland GmbH; ◆ in Belgium: Genzyme Flanders BVBA Holding Co; and ◆ in Ireland: Genzyme Ireland Limited. C.3. Financing and financial relationships between group companies The Sanofi parent company raises the bulk of the Company’s external financing and uses the funds raised to meet, directly or indirectly, the financing needs of its subsidiaries. The parent company operates a cash pooling arrangement under which any surplus cash held by subsidiaries is managed centrally. There is also a centralized foreign exchange risk management system in place, whereby the parent company contracts hedges to meet the needs of its principal subsidiaries. the Sanofi parent Consequently, at December 31, 2018, company held 96% of our external financing and 81% of our surplus cash. Sanofi European Treasury Center SA (SETC), a 100%-owned Sanofi subsidiary incorporated in 2012 under the laws of Belgium, is dedicated to providing financing and various financial services to our subsidiaries. D/ Property, plant and equipment D.1. Overview Our headquarters are located in Paris, France. See “– D.4 Office Space” below. We operate our business through office premises and research, production and logistics facilities in approximately 100 countries around the world. Our office premises house all of our support functions, plus operational representatives from our subsidiaries and the Company. ITEM 4. INFORMATION ON THE COMPANY A breakdown of our sites by use and by ownership status (owned versus leasehold) is provided below. This breakdown is based on surface area. All surface area figures are unaudited. Breakdown of sites by use Industrial Research Offices Logistics Other Breakdown of sites by ownership status Leasehold Owned 60% 13% 15% 9% 4% 23% 77% We own most of our research & development and production facilities, either freehold or under finance leases with a purchase option exercisable on expiration of the lease. D.2. Description of our sites Sanofi industrial sites As part of the process of transforming Sanofi and creating Global Business Units, we are continuing to adapt the organization of the Industrial Affairs department in support of our new business model. Since June 2013, the Industrial Affairs department has been responsible for all production and quality operations within Sanofi. The department focuses on customer needs and service quality, “Sanofi Manufacturing System” manufacturing practices, the development of a common culture committed the pooling of expertise within technology platforms, particularly in biological, injectable and pharmaceutical products. the sharing of to quality and Since January 2016, the Industrial Affairs department has also been responsible for Sanofi Global HSE and Global Supply Chain. At the end of 2018, we were carrying out industrial production at 75 sites in 33 countries: ◆ 8 sites for our Biologics operations; ◆ 9 sites for our Injectables operations; ◆ 33 sites for our Pharmaceuticals operations; ◆ 14 sites for our Consumer Healthcare operations; ◆ 11 sites for the industrial operations of Sanofi Pasteur in vaccines. SANOFI / FORM 20-F 2018 71 ITEM 4. INFORMATION ON THE COMPANY In 2018, we produced the following quantities: ◆ in Asia, three sites in China (Beijing, Shanghai and Chengdu) ◆ Pharmaceuticals: 4,700 million units, comprising: – units manufactured and packaged: 2,939 million; – units packaged only: 375 million; – bulk products in unit equivalents: 454 million; – outsourced units: 932 million; and and a clinical research unit in Japan. Vaccines research and development sites are: ◆ Swiftwater, Cambridge and Orlando (United States); ◆ Marcy-l’Étoile/Lyon (France); and ◆ Toronto (Canada). ◆ Vaccines: 441 million containers (syringes, vials and lyophilized products) filled, including outsourced production. D.3. Acquisitions, capital expenditures and divestitures We believe that our production facilities are in compliance with all regulatory requirements, are properly maintained and are generally suitable for future needs. Nonetheless, we regularly inspect and evaluate those facilities with regard to environmental, health, safety and security matters, quality compliance and capacity utilization. For more information about our property, plant and equipment, see Note D.3 to our consolidated financial statements, included at Item 18 of this annual report, and section “B.8 Production and Raw Materials” above. Production et matières premières ». Production of biological, chemical and pharmaceutical products, and of vaccines, is the responsibility of our Industrial Affairs department, which is also in charge of most of our logistics facilities (distribution and storage centers). Our principal production sites by volume are: ◆ Frankfurt (Germany), Framingham (United States) and Geel (Belgium) for biologics; ◆ Le Trait (France), Frankfurt (Germany), Csanyikvölgy (Hungary) and Waterford (Ireland) for injectables; ◆ Ambarès (France), Lüleburgaz (Turkey), Campinas (Brazil) and Hangzhou (China) for pharmaceutical products; ◆ Aramon and Sisteron (France), Frankfurt (Germany) and Jurong (Singapore) for active pharmaceutical ingredients; The carrying amount of our property, plant and equipment at December 31, 2018 was €9,651 million. During 2018, we invested €1,459 million (see Note D.3. to our consolidated financial statements, included at Item 18 of this annual report), mainly in increasing capacity and improving productivity at our various production and R&D sites. Our principal acquisitions, capital expenditures and divestitures in 2016, 2017 and 2018 are described in Notes D.1. (“Impact of changes in the scope of consolidation”), D.3. (“Property, plant and equipment”) and D.4. (“Goodwill and other intangible assets”) to our consolidated financial statements, included at Item 18 of this annual report. locations As of December 31, 2018, our firm commitments in respect of future capital expenditures amounted to €535 million. The the Pharmaceuticals principal segment, (Germany), Framingham (United States), Geel (Belgium), Le Trait and Sisteron (France); and for the Vaccines segment, the facilities at Toronto (Canada), Marcy-l’Étoile and Val de Reuil (France). for facilities at Frankfurt involved were: industrial the In the medium term and assuming no changes in the scope of consolidation, we expect to invest on average some €1.7 billion a year in property, plant and equipment. We believe that our own cash resources and the undrawn portion of our existing credit facilities will be sufficient to fund these expenditures. Our principal ongoing investments are described below. ◆ Compiègne and Lisieux (France), Cologne (Germany), Suzano (Brazil) and Ocoyoacac (Mexico) for Consumer Healthcare products; and Biologics ◆ Marcy-l’Étoile and Val-de-Reuil (France), Toronto (Canada) and Swiftwater (United States) for vaccines. Research & Development sites In Pharmaceuticals, research and development activities are conducted at the following sites: ◆ four operational sites in France: Chilly-Mazarin/Longjumeau, Montpellier, Strasbourg and Vitry-sur-Seine/Alfortville; ◆ three sites in the rest of Europe (Germany, Belgium and the Netherlands), the largest of which is in Frankfurt (Germany); ◆ four sites in the United States: Bridgewater, Cambridge, Framingham/Waltham and Great Valley; and In 2014, a dedicated Biologics platform was launched to develop synergies between Pharmaceuticals, Sanofi Pasteur, Sanofi Genzyme and our Biotherapeutics operations. This platform is helping us extend our footprint in biotechnologies by adopting a multi-disciplinary approach and improving capacity utilization. It also enables us to leverage our expertise in the production of biologics, from active ingredient to integrated manufacturing, including both the medicine itself and associated medical devices. Three dedicated biotechnology hubs have been developed: Paris/Lyon (France), Frankfurt (Germany) and Boston (United States). Piloting technology, which relies on cell or microbiological culture or the development of viral vectors, calls for highly specific knowledge and expertise backed by dedicated production platforms to support global product launches. this 72 SANOFI / FORM 20-F 2018 Injectables The Frankfurt facility, our principal site for the manufacture of diabetes treatments, is now equipped with an additional sterile filling unit that uses isolator technology. This new filling unit handles Toujeo® and other diabetes products. Our prefilled syringes network mainly delivers Lovenox®/Clexane® from Le Trait (France) from Csanyikvölgy (Hungary) to non-FDA/EMA regulated markets. to global markets, and Pharmaceuticals The development of our General Medicines & Emerging Markets platform is built on a network of over 30 regional and local industrial sites in 22 countries, supporting growth in those markets. At Sidi Abdellah in Algeria we are starting up a new facility that will become our largest industrial complex in Africa, mainly producing dry and liquid formulations. Our Industrial Affairs Department has an ongoing policy of adapting industrial facilities to market needs. As part of this process, during 2018 we sold various facilities, including those at Holmes Chapel (United Kingdom), Guarenas (Venezuela), as well as those at Prague (Czech Republic) and Bucharest (Romania) as part of the sale of our European Generics business. Consumer Healthcare The pharmaceutical industrial operations of our Consumer Healthcare (CHC) business are spread across a dedicated network. Global markets are supplied from our facilities at Compiègne (France) and Cologne (Germany). We have recently invested heavily in major projects intended to build a specialist CHC industrial network. This has included switching some CHC products from non-CHC facilities to the dedicated CHC network, transferring some liquid and effervescent formulations of CHC products to the Cologne site. Vaccines (Sanofi Pasteur) Sanofi Pasteur’s industrial operations are in a major investment phase, preparing for the upcoming growth of our influenza and Polio/Pertussis/Hib franchises. Major investments were launched during 2018 in France (including construction of a new influenza ITEM 4. INFORMATION ON THE COMPANY vaccine building at Val-de-Reuil), Canada (a new pertussis vaccine building), the US and Mexico. Innovation and culture of industrial excellence In 2018, we highlighted industrial innovation in our various facilities by organizing our tenth annual round of Industrial Trophies, five categories: Patient Needs, Technological Innovation, Operational Performance, Energy & Environment, and Young Industrial Innovation Talent. in leader and a benchmark The ambition of our Industrial Affairs department is to continue to raise quality standards in Sanofi’s production activities, and to remain a world the global pharmaceutical industry. To achieve this goal, all our activities share a common culture of industrial excellence, enshrined in the Sanofi Manufacturing System. This sets out a series of priorities (such as customer service, constant improvement, site network optimization and transverse optimization) that constitute our industrial vision and will be crucial to our mutual success. in Industrial Affairs has its own digital strategy, built on five pillars: Integrated Industrialization, Intelligent Quality, Connected Teams and Operations, Connected Factory, and Real-Time Supply Chain. D.4. Office space As part of the transformation of Sanofi and the implementation of the ONE SANOFI program, we are undertaking major real estate programs with two core objectives: to bring our teams together on single sites in new workspaces that favor agility, cross- fertilization and communication; and to rationalize office space while achieving a responsible environmental footprint. Many such projects were completed in 2018, including the rationalization of sites in the United States (Cambridge and Bridgewater), China (Shanghai and Chengdu), Panama, Kenya, Denmark and the Netherlands. In the case of the Netherlands, this involved a masterplan to bring together teams previously located in Gouda and Naarden on a single site in Amsterdam. This transformation of workspaces to flexible mode has already reached over 16,000 of our people around the globe, and provides strong support for our various operations to attain their objectives. The rollout is due to extend to all regions, with projects including a masterplan for the United Kingdom plus others in Peru, Dubai and China (Beijing). SANOFI / FORM 20-F 2018 73 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Item 5. Operating and Financial Review and Prospects You should read the following discussion in conjunction with our consolidated financial statements and the notes thereto included in this annual report at Item 18. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and with IFRS adopted by the European Union as of December 31, 2018. The following discussion contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See “Cautionary Statement Regarding Forward- Looking Statements” at the beginning of this document. Unless otherwise stated, all financial variations in this item are given on a reported basis. A. Operating results A.1. Significant operating information A.1.1. 2018 overview During 2018, we continued to progress towards our key strategic objectives: reshape the portfolio, deliver outstanding launches, sustain innovation in R&D and simplify the organization. We began the year by creating a new global Rare Blood Disorder franchise, with three strategic deals announced within the space of a month. The acquisition of Bioverativ, a biotechnology company focused on therapies for hemophilia and other rare blood disorders, was completed in early March 2018 at a price of $11.6 billion. This acquisition brought us a portfolio of products that are delivering growth including the flagship hemophilia treatments Eloctate® and Alprolix®. The acquisition of Ablynx, a the discovery and development of company engaged nanobodies, was completed in June 2018 at a price of €3.9 billion, and enhances our portfolio with the addition of Cablivi® (caplacizumab), which received marketing approval from the European Commission in September 2018. Finally, the reshaping of our alliance with Alnylam enabled us to obtain global development and commercialization rights to fitusiran, an investigational RNAi therapeutic currently in development for the treatment of hemophilia A and B. in (Libtayo®) At the start of 2018, Sanofi and Regeneron decided to accelerate their investment in the clinical development of three innovative products: cemiplimab in oncology, dupilumab (Dupixent®) in the treatment of Type 2 allergies, and REGN3500/SAR440340 (an anti-IL33 monoclonal antibody) in atopic dermatitis, asthma and chronic obstructive pulmonary disease. Our Immuno-Oncology Discovery and Development Agreement with Regeneron has also been restructured, giving us greater flexibility to pursue our own early stage immuno-oncology development projects independently while allowing Regeneron to retain all rights to its other discovery and development programs in that field. The renegotiation of that agreement, effective from December 31, 2018, was signed on January 2, 2019. We also continued our efforts research and development alliances during 2018, entering into a collaboration agreement with Denali Therapeutics, Inc. to develop several molecules with a view to the potential treatment of various neuro- degenerative conditions and systemic inflammatory diseases. to secure Our research and development efforts led to a number of products entering Phase III in 2018: fitusiran in the treatment of hemophilia type A and B; Dupixent® in the treatment of eosinophilic esophagitis; Kevzara® in the treatment of giant-cell arteritis and polymyalgia rheumatica; isatuximab in the treatment of recently diagnosed multiple myeloma; sotagliflozin in the treatment of worsening heart failure; and Libtayo® as a first line treatment for patients with advanced or metastatic non small cell lung cancer. A number of product launches took place in 2018 following approvals from regulatory bodies. These included Dupixent®, which was launched as a treatment for adults with moderate-to-severe atopic dermatitis in Japan, and in a new indication in the United States for adults with moderate-to-severe asthma. Cablivi® was launched in Germany in the treatment of acquired thrombotic thrombocytopenic purpura (aTTP). Admelog® was launched in the United States and some European countries as a biosimilar, under the name Insulin lispro Sanofi®. Libtayo® was launched in the United States in the treatment of advanced cutaneous squamous cell carcinoma (CSCC). Also in 2018, we invested €350 million (CAD 500 million) in the construction of a new state-of-the-art vaccine manufacturing facility at the Sanofi Pasteur Canadian headquarters in Toronto (Ontario), to meet the growing demand for vaccines. To streamline and refocus our operations, we completed the sale of our European Generics business to Advent International for €1.9 billion on September 30, 2018. We also sold most of our research and early-stage development infectious disease portfolio, and our infectious disease research unit, to Evotec. Net sales for the year ended December 31, 2018 amounted to €34,463 million, 1.7% lower than in 2017. At constant exchange rates (CER)(1), net sales rose by 2.5%, reflecting the acquisition of Bioverativ’s rare blood disorder products. At constant exchange rates and on a constant structure basis (CER/CS)(1), (1) Non-GAAP financial measure: see definition in “— A.1.6. Presentation of Net Sales” below. 74 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS net sales grew by 0.6%. Lower sales in Diabetes in the United States and for Established Prescription Products in mature markets were offset by the performance of Dupixent® and the Rare Diseases franchise, and more generally by increased sales in Emerging Markets. Net income attributable to equity holders of Sanofi amounted to €4,306 million, 48.8% lower than in 2017, mainly due to the recognition of the gain on the divestment of our Animal Health business in 2017. Earnings per share was 48.5% lower than in 2017, at €3.45. Business net income(1) was €6,819 million, 1.8% less than in 2017, while business earnings per share (business EPS)(1) was 0.9% lower at €5.47. As of December 31, 2018, our net debt(2) had increased to €17,628 million (versus €5,161 million as of December 31, 2017). This was largely due to the impact of acquiring Bioverativ and Ablynx, which was partly offset by the divestment of our European Generics business. At the Annual General Meeting of April 30, 2019, we will ask our shareholders to approve a dividend of €3.07 per share, representing a payout of 56.1% of our business net income. A.1.2. Impacts of competition from generics and biosimilars Some of our flagship products continued to suffer sales erosion in 2018 due to competition from generics and biosimilars. We do not believe it is possible to state with certainty what level of net sales would have been achieved in the absence of generic competition. A comparison of our consolidated net sales for the years ended December 31, 2018 and 2017 (see “– A.2. Results of Operations – Year Ended December 31, 2018 Compared with Year Ended December 31, 2017” below) for products affected by generic and biosimilar competition shows a loss of €1,749 million of net sales on a reported basis. Other parameters may have contributed to the loss of sales, such as a fall in the average price of certain products (e.g. Lantus®). The table below sets forth the impact by product. (€ million) Aprovel® Europe Lantus® Europe Lovenox® Europe Plavix® Europe Renagel® / Renvela® Europe Ambien® United States Lantus® United States Lovenox® United States Renagel® / Renvela® United States Taxotere® United States Allegra® Japan Amaryl® Japan Aprovel® Japan Lantus® Japan Myslee® Japan Plavix® Japan Taxotere® Japan Total 2018 2017(a) Change on a reported basis Change on a reported basis (%) 108 684 870 147 60 45 115 760 951 150 71 55 1,614 2,542 38 253 1 112 18 28 29 76 156 9 4,248 58 645 — 146 27 89 43 95 235 15 5,997 (7) (76) (81) (3) (11) (10) (928) (20) (392) 1 (34) (9) (61) (14) (19) (79) (6) (1,749) -6.1% -10.0% -8.5% -2.0% -15.5% -18.2% -36.5% -34.5% -60.8% — -23.3% -33.3% -68.5% -32.6% -20.0% -33.6% -40.0% -29.2% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements, included at Item 18 of this Annual Report on Form 20-F). (1) Non-GAAP financial measure: see definition in “— A.1.5. Segment Information — 3. Business Net Income” below. (2) Non-GAAP financial measure: see definition in “— B. Liquidity and Capital Resources” below. SANOFI / FORM 20-F 2018 75 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS We expect the erosion caused by generic competition to continue in 2019, with a negative impact on our net income. The products likely to be impacted include those that already faced generic competition in 2018, but whose sales can reasonably be expected to be subject to further sales erosion in 2019: Aprovel®, Lantus®, Lovenox®, Plavix® and Renagel®/Renvela® in Europe; / Renvela® and Ambien®, Lantus®, Lovenox®, Renagel® Taxotere® in the United States; and Allegra®, Amaryl®, Aprovel®, Lantus®, Myslee®, Plavix® and Taxotere® in Japan. In 2018, the aggregate consolidated net sales of those products in countries where generic competition currently exists or is expected in 2019 amounted to €4,248 million; this comprises €1,951 million in the United States (including €1,614 million in net sales of Lantus® and €253 million in net sales of Renagel®/ Renvela®); €1,869 million in Europe; and €428 million in Japan. The negative impact on our 2019 net sales is likely to represent a substantial portion of those sales, but the actual impact will depend on a number of factors such as the prices at which the products are sold and potential litigation outcomes. A.1.3. Purchase accounting effects Our results of operations and financial condition for the years ended December 31, 2018, 2017 and 2016 have been significantly affected by our August 2004 acquisition of Aventis, our April 2011 acquisition of Genzyme, our 2018 acquisition of Bioverativ and certain other transactions. See “– A.1.11. Critical accounting and reporting policies – Business combinations” below for an explanation of the impact of business combinations on our results of operations. intangible assets The Bioverativ business combination has generated significant amortization of intangible assets (€430 million in 2018). The Genzyme business combination has generated significant amortization of in 2018, €857 million in 2017 and €866 million in 2016) and impairment of intangible assets (expenses of €183 million in 2018, expenses of €16 million in 2017 and net reversal of €6 million in 2016). The Aventis business combination has also generated significant amortization expenses (€256 million in 2018, €365 million in 2017, and €482 million in 2016). (€760 million In order to isolate the purchase accounting effects of all acquisitions and certain other items, we use a non-GAAP financial measure that we refer to as “business net income”(1). A.1.4. Sources of revenues and expenses Revenues. Revenue arising from the sale of goods is presented in the income statement within Net sales. Net sales comprise revenue from sales of pharmaceutical products, consumer health care products, active ingredients and vaccines, net of sales returns, of customer incentives and discounts, and of certain sales-based payments paid or payable the healthcare authorities. Returns, discounts, incentives and rebates are to through alliances, and by recognized in the period in which the underlying sales are recognized, as a reduction of sales revenue. See Note B.13.1. to our consolidated financial statements included at Item 18 of this annual report. We sell pharmaceutical products and vaccines directly, licensing arrangements throughout the world. When we sell products directly, we record sales revenues as part of our consolidated net sales. When we sell products through alliances, the revenues reflected in our consolidated financial statements are based on the contractual arrangements governing those alliances. For more information about our alliances, see “– Financial Presentation of Alliances” below. When our products are sold by licensing arrangements, we receive royalty income that we record in Other revenues. The sales of non-Sanofi products of our US based entity VaxServe are also presented in Other revenues; see Note B.13.2. to the consolidated financial statements included at Item 18 of this annual report. relating Cost of Sales. Our cost of sales consists primarily of the cost of purchasing raw materials and active ingredients, labor and other to our manufacturing activities, packaging costs materials, payments made under licensing agreements and distribution costs. We have license agreements under which we manufacture, sell and distribute products that are patented by other companies and license agreements under which other companies distribute products that we have patented. When we pay royalties, we record them in Cost of sales. Operating Income. Our operating income reflects our revenues, our cost of sales and the remainder of our operating expenses, the most significant of which are research and development expenses and selling and general expenses. For our operating segments, we also measure our results of operations through an indicator referred to as “Business Operating Income,” which we describe below under “– A.1.5. Segment Information –2/Business Operating Income of Segments.” A.1.5. Segment information 1/ Operating segments is In accordance with IFRS 8 (Operating Segments), the segment information reported by Sanofi is prepared on the basis of internal management data provided to the Chief Executive Officer, who the chief operating decision maker. The performance of those segments is monitored individually using internal reports and common indicators. The operating segment disclosures required under IFRS 8 are provided in Notes B.26. and D.35 (“Segment Information”) to our consolidated financial statements, included at Item 18 of this annual report. Sanofi has Consumer Healthcare and Vaccines. three operating segments: Pharmaceuticals, The Pharmaceuticals segment comprises the commercial operations of the following global franchises: Specialty Care (Rare Diseases, Multiple Sclerosis, Oncology, Immunology and Rare Blood Disorder), Diabetes & Cardiovascular, Established (1) Non-GAAP financial measure: see definition under “A.1.5. Segment information – 3/ Business Net Income” below. 76 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Prescription Products and Generics, together with research, to our development and production activities dedicated Pharmaceuticals segment. This segment also includes associates whose activities are related to pharmaceuticals, in particular our share of Regeneron. for all The Consumer Healthcare segment comprises, the commercial operations for our geographical territories, research, Consumer Healthcare products, together with development and production activities dedicated those to products. The Vaccines segment comprises, for all geographical territories (including from January 1, 2017 certain territories previously included in the Sanofi Pasteur MSD joint venture) the commercial operations of Sanofi Pasteur, research, development and production activities dedicated to vaccines. together with Inter-segment transactions are not material. The costs of our global functions (Medical Affairs, External Affairs, Finance, Human Resources, Legal Affairs, Information Solutions & Technologies, Sanofi Business Services, etc.) are managed centrally at group-wide level. The costs of those functions are presented within the “Other” category. That category also includes other reconciling items such as retained commitments in respect of divested activities. 2/ Business operating income We report segment results on the basis of “business operating income”. This indicator is used internally by Sanofi’s chief operating decision maker to measure the performance of each operating segment and to allocate resources. For a definition of “business operating income”, and a reconciliation between that indicator and Income before tax and investments accounted for using the equity method, refer to Note D.35. to our consolidated financial statements. 3/ Business net income We believe that understanding of our operational performance by our management and our investors is enhanced by reporting financial measure “business net represents business operating financial less net expenses and the relevant income tax effects. income”. This non-GAAP income, Business net income for 2018 was €6,819 million, 1.8% lower than in 2017 (€6,943 million). Business net income was unchanged year-on-year as a percentage of net sales, at 19.8%. We also report “business earnings per share” (business EPS), a non-GAAP financial measure which we define as business net income divided by the weighted average number of shares outstanding. Business EPS was €5.47 for 2018, 0.9% lower than the 2017 figure of €5.52, based on an average number of shares outstanding of 1,247.1 million for 2018 and 1,256.9 million for 2017. Our business net income for 2016 was €7,308 million, including €476 million of business net income from Animal Health. Business EPS for 2016 was €5.68, based on an average number of shares outstanding of 1,286.6 million. The table below reconciles our business operating income to our business net income: (€ million) Business operating income Financial income and expenses Income tax expense Business net income excluding Animal Health Animal Health business net income Business net income December 31, 2018 December 31, 2017(a) December 31, 2016(a) 8,884 (271) (1,794) 6,819 — 6,819 9,323 (273) (2,107) 6,943 — 6,943 9,284 (399)(b) (2,053) 6,832 476 7,308 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). (b) This amount does not include the €457 million impairment loss charged against our equity investment in Alnylam. We define business net income as Net income attributable to equity holders of Sanofi determined under IFRS, excluding the following items: ◆ other impacts associated with acquisitions (including impacts of acquisitions on investments accounted for using the equity method); ◆ amortization and impairment losses charged against intangible assets (other than software and other rights of an industrial or operational nature); ◆ fair value remeasurements of contingent consideration relating to business combinations or divestments; ◆ restructuring costs and similar items(1); ◆ other gains and losses (including gains and losses on major disposals of non-current assets(2)); ◆ other costs and provisions related to litigation(2); (1) Presented in the line item Restructuring costs and similar items in the consolidated income statement. (2) Presented in the line item Other gains and losses, and litigation in the consolidated income statement. SANOFI / FORM 20-F 2018 77 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS ◆ the tax effects of the items listed above; ◆ the effects of major tax disputes; ◆ the 3% tax levied on the distribution of dividends to equity holders of Sanofi, up to and including 2017; ◆ the direct and indirect effects of the US tax reform in 2017 and the adjustments to our estimates of those effects, recognized in 2018, and the consequences of the French Constitutional Council ruling of October 6, 2017 on the additional 3% tax levied on dividends paid out in cash; ◆ those Animal Health items that are not included in business net income(1); and ◆ the portion attributable to non-controlling interests of the items listed above. The table below reconciles our business net income to Net income attributable to equity holders of Sanofi: (€ million) Net income attributable to equity holders of Sanofi Amortization of intangible assets(b) Impairment of intangible assets Fair value remeasurement of contingent consideration Expenses arising from the impact of acquisitions on inventories Other expenses related to business combinations Restructuring costs and similar items Impairment loss charged against equity investment in Alnylam Other gains and losses, and litigation(c) Tax effects of the items listed above: amortization and impairment of intangible assets fair value remeasurement of contingent consideration expenses arising from the impact of acquisitions on inventories other expenses related to business combinations restructuring costs and similar items other tax effects Other tax items(d) Share of items listed above attributable to non-controlling interests Investments accounted for using the equity method: restructuring costs and expenses arising from the impact of acquisitions Items relating to the Animal Health business(e) Other Sanofi Pasteur MSD items(f) Business net income Average number of shares outstanding (million) Basic earnings per share (in euros) Reconciling items per share (in euros) Business earnings per share (in euros) 2018 4,306 2,170 718 (117) 114 28 1,480 — (502) (1,125) (692) 38 (27) (6) (435) (3) (188) (2) (76) 13 — 6,819 1,247.1 3.45 2.02 5.47 2017(a) 8,416 1,866 293 159 166 — 731 — 215 (1,126) (719) 4 (52) — (134) (225) 741 (4) 129 (4,643) — 6,943 1,256.9 6.70 (1.18) 5.52 2016(a) 4,709 1,692 192 135 — — 879 457 (211) (841) (694) (24) — — (95) (28) 113 (22) (9) 162 52 7,308 1,286.6 3.66 2.02 5.68 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). (b) Includes amortization expense generated by the remeasurement of intangible assets in connection with business combinations: €1,957 million in 2018, €1,726 million in 2017, and €1,550 million in 2016. (c) For 2018, this line consists mainly of the gain on the divestment of our European Generics business, net of separation costs and before any tax effects. For 2017, it mainly comprises a provision for a vendor’s liability guarantee on a past divestment; and for 2016, the gain on the divestment of Sanofi’s interest in the Sanofi Pasteur MSD joint venture, before any tax effects. (d) For 2018, this line comprises adjustments to our preliminary analysis of the direct and indirect impacts of US tax reform. For 2017, it comprises the estimated initial impact of US tax reform (-€1,193 million) and of the 3% tax levied on dividends in France (€451 million). (e) For 2017, this line comprises the gain on the divestment of our Animal Health business. For 2016, it comprises (i) the impact of the discontinuation of depreciation and impairment of property, plant & equipment with effect from the start date of application of IFRS 5 included in business net income; (ii) the impact of the amortization and impairment of intangible assets until the start date of IFRS 5 application; (iii) costs directly incurred as a result of the divestment; and (iv) tax effects of those items. (f) For 2016, this line comprises the elimination of our share of the business net income of Sanofi Pasteur MSD from the date when Sanofi and Merck announced their intention to end their joint venture. (1) Comprises (i) impact of the discontinuation of depreciation and impairment of property, plant & equipment with effect from the start date of application of IFRS 5 (Discontinued and Held-for-Sale Operations), included in business net income; (ii) impact of the amortization and impairment of intangible assets until the start date of IFRS 5 application; (iii) costs directly incurred as a result of the divestment; and (iv) tax effects of those items. 78 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The most significant reconciling items between our business net income and Net income attributable to equity holders of Sanofi relate to (i) the purchase accounting effects of our acquisitions and business combinations, particularly the amortization and impairment of intangible assets (other than software and other rights of an industrial or operational nature) and (ii)) the impacts of events regarded as non-recurring, where the amounts involved are particularly significant. We believe that excluding those non-cash or non-recurring charges enhances an investor’s economic performance, because we do not consider that the excluded the combined entity’s ongoing operating charges performance. Rather, we believe that each of the excluded charges the businesses concerned. understanding the decision to acquire underlying reflects reflect our of The principal purchase accounting effects of acquisitions and business combinations on net income are: ◆ amortization and net impairment losses charged against intangible assets (other than software and other rights of an taxes and industrial or operational nature), net of non-controlling interests; and ◆ the incremental cost of sales incurred on the workdown of acquired inventories remeasured at fair value, net of taxes. We believe (subject to the limitations described below) that disclosing our business net income enhances the comparability of our operating performance, for the following reasons: impairment of ◆ the elimination of charges related to the purchase accounting effects of our acquisitions and business combinations (particularly amortization and finite-lived intangible assets, other than software and other rights of an industrial or operational nature) enhances the comparability of our ongoing operating performance relative to our peers in the pharmaceutical industry that carry those intangible assets (principally patents and trademarks) at low book values either because in-house research and development that has already been expensed in prior periods or because they were acquired through business combinations that were accounted for as poolings-of-interest; the result of they are ◆ the elimination of selected items – such as the incremental cost of sales arising from the workdown of acquired inventories remeasured at fair value in business combinations, major gains and losses on disposals, and costs and provisions associated with major litigation and any other major non-recurring items – improves comparability from one period to the next; and ◆ the elimination of restructuring costs and similar items enhances comparability because those costs are incurred in connection with reorganization and transformation processes intended to optimize our operations. We remind investors, however, that business net income should not be considered in isolation from, or as a substitute for, Net income attributable to equity holders of Sanofi reported in accordance with IFRS. In addition, we strongly encourage investors and potential investors not to rely on any single financial statements, to review our financial measure but including the notes thereto, carefully and in their entirety. We compensate for the material limitations described above by using business net income only to supplement our IFRS financial reporting and by ensuring that our disclosures provide sufficient information for a full understanding of all adjustments included in business net income. Because our business net income is not a standardized measure, it may not be directly comparable with the non-GAAP financial measures of other companies using the same or a similar non-GAAP financial measure. A.1.6. Presentation of net sales In the discussion below, we present our consolidated net sales for 2018, 2017, and 2016. We analyze our net sales among various categories, including by business, product and geographical region. In addition to reported net sales, we analyze non-GAAP financial measures designed to isolate the impact on our net sales of currency exchange rates and changes in the structure of our group. When we refer to changes in our net sales at constant exchange rates (CER), that means that we have excluded the effect of exchange rates by recalculating net sales for the relevant period using the exchange rates that were used for the previous period. When we refer to changes in our net sales on a constant structure basis, that means that we eliminate the effect of changes in structure by restating the net sales for the previous period as follows: ◆ by including sales generated by entities or product rights acquired in the current period for a portion of the previous period equal to the portion of the current period during which we owned them, based on sales information we receive from the party from whom we make the acquisition; ◆ similarly, by excluding sales for a portion of the previous period when we have sold an entity or rights to a product in the current period; and ◆ for a change in consolidation method, by recalculating the previous period on the basis of the method used for the current period. In section A.2. below, comparatives for 2017 have been restated in accordance with the new standard on revenue recognition, IFRS 15, which became applicable on January 1, 2018. The impact of these restatements is described in detail in Note A.2.1.1. to the consolidated financial statements. We believe that the impact of the application of IFRS 15 on net sales for the year ended December 31, 2016 is not material (€12 million). Given the significant resources required to restate such information by business, segment and geographical region, we concluded that it would be unduly burdensome to restate such amounts. Therefore, we have chosen to present our SANOFI / FORM 20-F 2018 79 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS detailed analysis of net sales for 2016 and comparable information for 2017 before the impact of IFRS 15 as set forth in section A.3.1.1. A.1.7. Financial presentation of alliances We have entered into a number of alliances for the development, co-promotion and/or co-marketing of our products. We believe that a presentation of our two principal alliances is useful to an understanding of our financial statements. in The financial impact of the alliances on our income statement is “– Results of Operations – Year Ended described December 31, 2018 Compared with Year Ended December 31, 2017” and “– Year Ended December 31, 2017 Compared with Year Ended December 31, 2016”, in particular in “– Net Sales”, “– Other Revenues”, “– Share of Profit/Loss from Investments Accounted for using the Equity Method” and “– Net Income Attributable to Non-Controlling Interests”. 1/ Alliance arrangements with Regeneron Pharmaceuticals Inc. (Regeneron) Collaboration agreement on the discovery, development and commercialization of human therapeutic antibodies In November 2007, Sanofi and Regeneron signed new agreements (amended in November 2009) for the discovery, development and commercialization of fully human therapeutic antibodies. Under the 2009 amended agreements Sanofi committed to funding the discovery and pre-clinical development of therapeutic antibodies by a maximum of $160 million per year through 2017, with an option to develop and commercialize antibodies discovered by Regeneron pursuant to the collaboration. Sanofi decided not to extend the discovery agreement, which expired on December 31, 2017. fully human Following the signature in July 2015 of the immuno-oncology collaboration agreements described below, $75 million of the discovery and pre-clinical development funding was reallocated to the new agreements (spread over three years). for If an option is exercised under the 2009 amended agreements, the antibody with Regeneron and Sanofi co-develops is responsible funding. Sanofi and Regeneron share co-promotion rights and profits on sales of the co-developed antibodies. On receipt of the first positive Phase III trial results for any such antibody, the subsequent Phase III costs for that antibody are split 80% Sanofi, 20% Regeneron. Amounts received those arrangements are recognized by Sanofi as a reduction in the line item “Research and development expenses”. Once a product begins to be commercialized, and provided that the share of quarterly results under the agreement represents a profit, Sanofi is entitled to an additional portion of Regeneron’s profit-share (capped at 10% of Regeneron’s share of quarterly profits) until Regeneron has paid 50% of the cumulative development costs incurred by the parties in the collaboration. from Regeneron under As of December 31, 2018 the cumulative development costs incurred by the two parties were €6.0 billion (comprising 80 SANOFI / FORM 20-F 2018 III trial results, Sanofi and Regeneron share €3.2 billion funded 100% by Sanofi, and €2.8 billion funded 80% by Sanofi and 20% by Regeneron, amounts translated into euros at the closing US dollar exchange rate). On the earlier of (i) 24 months before the scheduled launch date or (ii) the first positive Phase the commercial expenses of the antibodies co-developed under the license agreement. Sanofi recognizes all the sales of those antibodies. Profits and losses arising from commercial operations in the United States are split 50/50. Outside the United States, Sanofi is entitled to between 55% and 65% of profits depending on sales of the antibodies, and bears 55% of any losses. The share of profits and losses attributable to Regeneron under the agreement is recognized within the line items Other operating income or Other operating expenses, which are components of operating income. In addition, Regeneron is entitled to receive payments of up to $250 million contingent on the attainment of specified levels of sales outside the United States. Praluent®, Dupixent®, Kevzara® and REGN3500 (SAR440340) continue to be developed, and commercialized as applicable, with Regeneron under the Antibody License and Collaboration Agreement the discovery agreement. the expiry of following (LCA) In January 2018, Sanofi and Regeneron signed a set of amendments including an amendment to the collaboration agreement on the development and commercialization of human therapeutic antibodies that allowed for the funding of additional programs on Dupixent® and REGN3500 (SAR440340) which will focus on extending the current range of indications, finding new improving co-morbidity between multiple indications, and pathologies. Immuno-Oncology (IO) Discovery and Development Agreement and IO License and Collaboration Agreement (IO LCA) On July 1, 2015, Sanofi and Regeneron entered into a new global collaboration to discover, develop and commercialize new antibody cancer treatments in the emerging field of immuno- oncology. As part of the agreements, Sanofi made an upfront payment of $640 million to Regeneron. The two companies also agreed to reallocate $75 million (spread over three years) to immuno-oncology antibody research and development from Sanofi’s $160 million annual contribution to their existing antibody discovery collaboration. the the terms of Under IO Discovery and Development Agreement, the two companies agreed to invest approximately $1 billion from discovery through proof of concept (POC) development (usually a Phase IIa study) of monotherapy and novel combinations of immuno-oncology antibody candidates to be funded 25% by Regeneron ($250 million) and 75% by Sanofi ($750 million). Beyond the committed funding, additional funding will be allocated as programs enter post-POC development under the IO LCA. Upon establishment of POC, Sanofi can exercise its opt-in rights to further development and commercialization under the IO LCA for candidates derived from the IO discovery program. Once ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Sanofi has exercised its opt-in rights for a candidate, future development of that candidate will be conducted under the IO LCA either by Sanofi or Regeneron. the the terms of Under IO Discovery and Development Agreement, Sanofi is entitled to an additional share of profits of up to 50% of the clinical development costs initially funded by Sanofi. That additional profit-share is capped at 10% of the share of Regeneron’s quarterly profits arising under the IO LCA. their global The Amended and restated Immuno-oncology Discovery and Development Agreement (“Amended IO Discovery Agreement”), effective from December 31, 2018, was signed on January 2, this amendment, Sanofi and Regeneron 2019. Through restructured Immuno-oncology Discovery and Development Agreement, effective December 31, 2018. The 2015 agreement was due to end in mid-2020, and the revision provides for ongoing collaborative development of two clinical- stage bispecific antibody programs respectively (i) BCMA and CD3 and (ii) MUC16 and CD3. This gives Sanofi increased flexibility to advance its early-stage immuno-oncology pipeline independently, while Regeneron retains all rights to its other immuno-oncology discovery and development programs. targeting Under the terms of the Amended IO Discovery Agreement Sanofi paid Regeneron $462 million representing the balance of payments due under the original Immuno-oncology Agreement, which covers the Sanofi share of (i) the immuno-oncology discovery program costs for the last quarter of 2018 and up to $120 million in development costs for the two selected clinical- stage bispecific antibodies, plus (ii) the termination fee for the other programs under the original immuno-oncology agreement. Sanofi secured the right to opt-in to the BCMAxCD3 and MUC16xCD3 bispecific programs when proof of concept is achieved or when the allocated funding is expended. Post opt-in of the BCMAxCD3 bispecific, Sanofi will lead development and commercialization. Post opt-in of the MUC16xCD3 bispecific, Regeneron will lead development, and also lead commercialization in the United States. Sanofi will lead commercialization outside the United States. The companies’ ongoing collaboration for the development and commercialization of Libtayo® (cemiplimab) is unaffected by the Amended IO Discovery Agreement. As of December 31, 2018, the additional share of profits corresponding to 50% of the clinical to development costs €53 million. This additional profit-share is capped at 10% of the share of Regeneron’s quarterly profits arising under the IO LCA. funded by Sanofi amounts initially Under the 2015 IO LCA, the two companies have agreed to jointly develop a programmed cell death protein 1 (PD-1) inhibitor antibody (REGN2810) and committed to provide additional funding of no more than $650 million on a 50/50 basis ($325 million per company) for the development of REGN2810, a PD-1 inhibitor antibody. While they share profits on a 50/50 basis, Sanofi will make a one-time milestone payment of $375 million to Regeneron in the event that sales of a PD-1 product and any other collaboration antibody sold for use in combination with a PD-1 product were to exceed, in the aggregate, $2 billion in any consecutive 12-month period. In January 2018, Sanofi and Regeneron announced a set of amendments including an amendment to their IO LCA on the development of cemiplimab (REGN 2810) in the field of immuno- oncology, pursuant to which the $650 million development to budget $1.64 billion through 2022, funded equally by the two companies (i.e. from $325 million to $820 million for each partner). inhibitor antibody was the PD-1 increased for On September 21, 2018, the US Food and Drug Administration (FDA) approved Libtayo® (cemiplimab) for the treatment of patients with metastatic cutaneous squamous cell carcinoma (CSCC) or locally advanced CSCC who are not candidates for curative surgery or curative radiation. Libtayo® is a fully-human monoclonal antibody targeting the immune checkpoint receptor PD-1 (programmed cell death protein-1) and is the first and only treatment specifically approved and available for advanced CSCC in the U.S. A regulatory application for Libtayo® has also been submitted in the EU. An ongoing joint clinical program is investigating Libtayo® in multiple other cancers, and includes potentially pivotal trials in lung, cervical and skin cancers. The safety and efficacy of Libtayo® have not been fully evaluated by any regulatory authority for indications beyond advanced CSCC. Investor agreement In January 2014, Sanofi and Regeneron amended the investor agreement that has existed between the two companies since 2007 (the “Amended Investor Agreement”). Under the terms of the amendment, Sanofi accepted various restrictions. Sanofi is bound by certain “standstill” provisions, which contractually prohibit Sanofi from seeking to directly or indirectly exert control of Regeneron or acquiring more than 30% of Regeneron’s capital stock (consisting of the outstanding shares of common stock and the shares of Class A stock). This prohibition will remain in place until the earlier of (i) the later of the fifth anniversaries of the expiration or earlier termination of the Zaltrap® collaboration agreement with Regeneron (related to the development and commercialization of Zaltrap®) or the collaboration agreement with Regeneron on monoclonal antibodies (see “Collaboration agreement on the discovery, development and commercialization of human therapeutics antibodies” above), each as amended and (ii) other specified events. Sanofi has also agreed to vote as recommended by Regeneron’s Board of Directors, except that it may elect to vote proportionally with the votes cast by all of Regeneron’s other shareholders with respect to certain change-of-control transactions, and to vote in its sole discretion with respect to liquidation or dissolution, stock issuances equal to or exceeding 20% of the outstanding shares or voting rights of Regeneron’s Class A Stock and Common Stock (taken together), and new equity compensation plans or amendments if not materially consistent with Regeneron’s historical equity compensation practices. SANOFI / FORM 20-F 2018 81 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS As soon as it had passed the threshold of 20% ownership of the capital stock, Sanofi exercised its right under the Amended Investor Agreement to designate an independent director, who was appointed to the Board of Directors of Regeneron. The interest held by Sanofi in Regeneron has been consolidated by the equity method since April 2014. termination date and (b) the highest percentage ownership of Regeneron outstanding shares of Class A Stock and Common Stock (taken together) Sanofi attains following such termination date. As of December 31, 2018 Sanofi has sold 226,153 shares of Regeneron Stock to Regeneron pursuant to the 2018 Letter Agreement. On the conditions set out in the Amended Investor Agreement entered into in January 2014, Sanofi’s right to designate a Regeneron board member was contingent on Sanofi maintaining its percentage share of Regeneron’s outstanding capital stock (measured on a quarterly basis) at a level no lower than the highest percentage level previously achieved, with the maximum requirement capped at 25%. In addition, Sanofi’s interest in Regeneron was subject to a lock-up clause. Those limitations have been amended by the letter agreement of January 2018 (see below). In November 2015, the Independent Designee (as defined in the Amended Investor Agreement) designated by Sanofi as an independent director resigned from the Regeneron Board of Directors. At Sanofi’s request, pursuant to the Amended Investor Agreement, Regeneron appointed N. Anthony “Tony” Coles, M.D. to its Board of Directors in January 2017 as a successor Sanofi designee. The Amended Investor Agreement also gives Sanofi the right to receive certain reasonable information as may be agreed upon by the parties and which will facilitate Sanofi’s ability to account for its investment in Regeneron using the equity method of accounting under IFRS. to (i) their collaboration agreement on In January 2018, Sanofi and Regeneron announced a set of the amendments development and commercialization of human therapeutic antibodies; (ii) to their IO License and Collaboration Agreement on the development of cemiplimab (REGN 2810) in the field of immuno-oncology; and (iii) a limited waiver and amendment of the Amended Investor Agreement pursuant to a letter agreement (the “2018 Letter Agreement”). Pursuant to the 2018 Letter Agreement, Regeneron has agreed to grant a limited waiver of the lock-up clause” and the obligation to maintain the “Highest Percentage Threshold” in the Amended and Restated Investor Agreement between the companies, so that Sanofi may elect to sell a small percentage of the Regeneron common stock it owns to fund a portion of the cemiplimab and dupilumab development expansion. This waiver will allow Sanofi to sell up to an aggregate of 1.4 million shares of Regeneron common stock to Regeneron in private transactions through the end of 2020. If Regeneron decides not to purchase the shares, Sanofi will be allowed to sell those shares on the open market, subject to certain volume and timing limitations. Upon expiration of the limited waiver under the 2018 Letter Agreement, the Amended Investor Agreement will be amended to define “Highest Percentage Threshold” as the lower of (i) 25% of Regeneron outstanding shares of Class A Stock and Common Stock (taken together) and (ii) the higher of (a) Sanofi’s percentage ownership of Class A Stock and Common Stock (taken together) on such 82 SANOFI / FORM 20-F 2018 2/ Alliance arrangements with Bristol-Myers Squibb (BMS) Two of Sanofi’s leading products were jointly developed with BMS: the anti-hypertensive agent irbesartan (Aprovel®/Avapro®/ Karvea®) and the anti-atherothrombosis treatment clopidogrel bisulfate (Plavix®/Iscover®). On September 27, 2012, Sanofi and BMS signed an agreement relating to their alliance following the loss of exclusivity of Plavix® and Avapro®/Avalide® in many major markets. Under the terms of this agreement, effective January 1, 2013, BMS returned to Sanofi its rights to Plavix® and Avapro®/ Avalide® in all markets worldwide with the exception of Plavix® in the United States and Puerto Rico, giving Sanofi sole control and freedom to operate commercially in respect of those products. In exchange, BMS received royalty payments on Sanofi’s sales of branded and unbranded Plavix® and Avapro®/Avalide® worldwide (except for Plavix® in the United States and Puerto Rico) until 2018, and also received a payment of $200 million from Sanofi in December 2018, part of which the non-controlling interests (see Note D.18. to our consolidated financial statements). Rights to Plavix® in the United States and Puerto Rico remain unchanged and continue to be governed by the terms of the original agreement until December 2019. for buying out is In all of the territories managed by Sanofi (including the United States and Puerto Rico for Avapro®/Avalide®) as defined in the new agreement, Sanofi recognizes in its consolidated financial statements the revenue and expenses generated by its own operations. The share of profits reverting to BMS subsidiaries is presented within Net income attributable to non-controlling interests in the income statement. In the territory managed by BMS (United States and Puerto Rico for Plavix®), Sanofi recognizes its share of profits and losses within the line item Share of profit/(loss) from investments accounted for using the equity method. A.1.8. Impact of Exchange Rates We report our consolidated financial statements in euros. Because we earn a significant portion of our revenues in countries where the euro is not the local currency, our results of operations can be significantly affected by exchange rate movements between the euro and other currencies, primarily the US dollar and, to a lesser extent, the Japanese yen, and currencies in emerging countries. We experience these effects even though certain of these countries do not account for a large portion of our net sales. In 2018, we earned 33.5% of our net sales in the United States. An increase in the value of the US dollar against the euro has a positive impact on both our ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS revenues and our operating income. A decrease in the value of the US dollar against the euro has a negative impact on our revenues, which is not offset by an equal reduction in our costs and therefore negatively affects our operating income. A variation in the value of the US dollar has a particularly significant impact on our operating income, which is higher in the United States than elsewhere, and on the contribution to net income of our collaborations with Regeneron and BMS in the United States (see “– A.1.7. Financial Presentation of Alliances” above). For a description of arrangements entered into to manage operating foreign exchange risks as well as our hedging policy, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”, and “Item 3. Key Information – D. Risk Factors – Risks Related to Financial Markets – Fluctuations in currency exchange rates could adversely affect our results of operations and financial condition”. A.1.9. Divestments On September 30, 2018, Sanofi finalized the divestment of Zentiva, its European Generics business, generating a pre-tax gain of €510 million euros in 2018. On January 1, 2017, Sanofi and Boehringer Ingelheim (BI) finalized the strategic transaction agreed in June 2016, involving the exchange of our Animal Health business (Merial) for BI’s Consumer Healthcare business. After final enterprise value adjustments, two businesses effectively transferred during 2017 were determined to be €10,557 million for Sanofi’s Animal Health business and €6,239 million for BI’s Consumer Healthcare business. The divestment of the Animal Health business generated an after-tax gain of €4,643 million in 2017. the exchange values of the At the end of December 2016, Sanofi Pasteur and MSD ended their European joint venture Sanofi Pasteur MSD (SPMSD). This transaction involved the divestment of Sanofi’s share in the joint venture and the acquisition of the vaccines portfolio that reverts to Sanofi. The consideration for the transfer was (i) a fixed sum of €127 million received on January 4, 2017 and (ii) contingent consideration based on a percentage of MSD sales during the 2017-2024 period of specified products previously distributed by SPMSD, and receivable in annual installments over the same period. As of December 31, 2016, the fair value of the contingent consideration was measured at €458 million and recognized in the “available-for-sale financial assets” category. For further details about the divestments mentioned above, see Note D.1. and D.2. to our consolidated financial statements included at Item 18 of this annual report. A.1.10. Acquisitions Sanofi acquired Bioverativ Inc. (“Bioverativ”) on March 8, 2018 for $11.6 billion (€9.4 billion). The provisional purchase price allocation resulted in the recognition of goodwill amounting to €2,676 million. The contributions from Bioverativ to net sales and business operating income of the Pharmaceuticals segment in 2018 amount to €892 million and €389 million, respectively. Over the same period, Bioverativ made a negative contribution of €325 million to net profit, including expenses charged during the period relating to the fair value remeasurement of assets recognized at the acquisition date. During the year ended December 31, 2018, Bioverativ generated net sales of €1,068 million. The net cash outflow on this acquisition amounted to €8,932 million, and is recorded within Acquisitions of consolidated undertakings and investments accounted for using the equity method in the consolidated statements of cash flows. Sanofi acquired Ablynx on May 14, 2018 for €3,897 million. The provisional purchase price allocation resulted in the recognition of goodwill amounting to €1,372 million. The impacts of this acquisition on Sanofi’s business operating income and consolidated net income for the year ended December 31, 2018 are not material. The net cash outflow on this acquisition amounted to €3,639 million, and is recorded within Acquisitions of consolidated undertakings and investments accounted for using the equity method in the consolidated statements of cash flows. In 2018, Sanofi sold shares in the biopharmaceutical company Regeneron with a carrying amount of €24 million. Sanofi had acquired shares in Regeneron in 2017 (at a cost of €184 million) and in 2016 (at a cost of €115 million in 2016). Our investment in Regeneron had a carrying amount of €3,055 million as of December 31, 2018, compared with €2,496 million as of December 31, 2017 and €2,550 million as of December 31, 2016 (see Note D.1. to our consolidated financial statements). This represents an equity interest of 21.7% as of December 31, 2018, compared with 22.2% as of December 31, 2017 and 22.1% as of December 31, 2016. Ingelheim In 2017, as part of the strategic transaction between Sanofi and (BI), we acquired BI’s Consumer Boehringer Healthcare business. The goodwill arising on that acquisition represents (i) the capacity to draw on a specialized structure to refresh the existing product portfolio; (ii) the competencies of the staff transferred to Sanofi; (iii) the benefits derived from the creation of new growth platforms; and (iv) the expected future synergies and other benefits from combining the CHC operations of BI and Sanofi. The tax-deductible portion of goodwill amounted to €1,876 million out of total goodwill of €2,222 million. This business generated sales of €1,407 million in the year ended December 31, 2017. On August 25, 2017, Sanofi acquired 100% of Protein Sciences, a biotechnology company headquartered in Meriden, Connecticut (United States). The principal product of Protein Sciences is Flublok®, the only recombinant protein-based influenza vaccine approved by the FDA in the United States. The acquisition price included two contingent purchase consideration elements of €42 million each. The impacts of this acquisition on Sanofi’s business operating income and consolidated net income for the year ended December 31, 2017 were not material. In 2016, as part of the dissolution of the Sanofi Pasteur MSD joint venture, we acquired the vaccines portfolio that reverts to us. The SANOFI / FORM 20-F 2018 83 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS purchase price essentially comprised (i) a fixed sum of €154 million paid on January 4, 2017 and (ii) contingent consideration of €354 million based on a percentage of future sales made by Sanofi Pasteur during the 2017-2024 period of specified former SPMSD products, to be paid in installments over that period. For further information about the acquisitions mentioned above, see Notes D.1. and D.2. to our consolidated financial statements included at Item 18 of this annual report. A.1.11. Critical accounting and reporting policies Our consolidated financial statements are affected by the accounting and reporting policies that we use. Certain of our accounting and reporting policies are critical to an understanding of our results of operations and financial condition, and in some cases the application of these critical policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our consolidated financial statements. The accounting and reporting policies that we have identified as fundamental to a full understanding of our results of operations and financial condition are the following: 1/ Revenue recognition Our policies with respect to revenue recognition are discussed in Note B.13. to our consolidated financial statements included at Item 18 of this annual report. Revenue arising from the sale of goods is presented in the income statement within Net sales. Net sales comprise revenue from sales of pharmaceutical products, consumer healthcare products, active ingredients and vaccines, net of sales returns, of customer incentives and discounts, and of certain sales-based payments paid or payable to the healthcare authorities. In accordance with IFRS 15 (Revenue from Contracts with Customers), such revenue is recognized when Sanofi transfers control over the product to the customer. Control refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from the is products. For recognized when in accordance with the delivery and acceptance terms agreed with the customer. the vast majority of contracts, revenue transferred, is physically the product For contracts entered into by Sanofi Pasteur, transfer of control is usually determined by reference terms of release (immediate or deferred) and acceptance of batches of vaccine. the to As regards contracts with distributors, Sanofi does not recognize revenue when the product is physically transferred to the distributor in case of products sold on consignment, or if the distributor acts as an agent. is recognized when control is transferred to the end customer and the distributor’s commission is presented within the line item Selling and general expenses in the income statement. In such cases, revenue products are sold at a discount. Rebates are granted to healthcare authorities, and under contractual arrangements with certain customers. Some wholesalers are entitled to chargeback incentives based on the selling price to the end customer, under specific contractual arrangements. Cash discounts may also be granted for prompt payment. The discounts, incentives and rebates described above are estimated on the basis of specific contractual arrangements with our customers or of specific terms of the relevant regulations and/or agreements applicable for transactions with healthcare authorities, and of assumptions about the attainment of sales targets. We also estimate the amount of sales returns, on the basis of contractual sales terms and reliable historical data. Discounts, incentives, rebates and sales returns are recognized in the period in which the underlying sales are recognized within Net Sales, as a reduction of gross sales. For additional details regarding the financial impact of discounts, incentives, rebates and sales returns, see Note D.23. to our consolidated financial statements included at Item 18 of this annual report. Revenues from non-Sanofi products, mainly comprising royalty income from license arrangements and sales of non-Sanofi products by our US-based entity VaxServe, are presented within Other revenues. 2/ Business combinations in Note B.3. As discussed “Business combinations and transactions with non-controlling interests” to our consolidated financial statements included at Item 18 of this annual report, business combinations are accounted for by the acquisition method. The acquiree’s identifiable assets and liabilities that satisfy the recognition criteria of IFRS 3 (Business Combinations) are measured initially at their fair values as at the acquisition date, except for (i) non-current assets classified as held for sale, which are measured at fair value less costs to sell and (ii) assets and liabilities that fall within the scope of IAS 12 (Income Taxes) and IAS 19 (Employee Benefits). Business combinations completed on or after January 1, 2010 are accounted for in accordance with the revised IFRS 3 and the revised IAS 27, (Consolidated and Individual Financial Statements), now superseded by IFRS 10 (Consolidated Financial Statements). In particular, contingent consideration payable to former owners agreed in a business combination, e.g. in the form of payments upon the achievement of certain R&D milestones, is recognized as a liability at fair value as of the acquisition date irrespective of the probability of payment. If the contingent consideration was originally recognized as a liability, subsequent adjustments to the liability are recognized in profit or loss (see Note D.18. “Liabilities related to business combinations and non-controlling interests” to our consolidated financial statements included at Item 18 of this annual report). 3/ Goodwill impairment and intangible assets We offer various types of price reductions on our products. In particular, products sold in the United States are covered by various programs (such as Medicare and Medicaid) under which As discussed in Note B.6. “Impairment of property, plant and equipment, intangible assets, and investments accounted for using the equity method” and in Note D.5. “Impairment of 84 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS intangible assets and property, plant and equipment” to our consolidated financial statements included at Item 18 of this annual report, we test our intangible assets for impairment periodically or when there is any internal or external indication of impairment. We test for impairment on the basis of the same objective criteria that were used for the initial valuation. Our initial valuation and ongoing tests are based on the relationship of the value of our projected future cash flows associated with the asset to either the purchase price of the asset (for its initial valuation) or the carrying amount of the asset (for ongoing tests). The determination of the underlying assumptions relating to the recoverability of intangible assets is subjective and requires the exercise of considerable judgment. Key assumptions relating to goodwill impairment and intangible assets are the perpetual growth rate and the post-tax discount rate. Any changes in key assumptions could result in an impairment charge. A sensitivity analysis to the key assumptions is disclosed in Note D.5. “Impairment of intangible assets and property, plant and equipment” to our consolidated financial statements included at Item 18 of this annual report. 4/ Contingent consideration receivable As described in Note B.8.1 and D.7.2 to our consolidated financial statements included at Item 18 of this annual report, contingent consideration receivable such as earn-outs on disposals, for example in the form of a percentage of future sales of the acquirer, are recognized as an asset at fair value as of the date of divestment. Subsequent remeasurements of the fair value of the asset are recognized in profit or loss. 5/ Pensions and post-retirement benefits As described in Note B.23. “Employee benefit obligations” to our consolidated financial statements included at Item 18 of this annual report, we recognize our pension and retirement benefit commitments as liabilities on the basis of an actuarial estimate of the rights vested in employees and retirees at the end of the reporting period, net of the fair value of plan assets held to meet these obligations. We prepare this estimate at least on an annual basis taking into account financial assumptions (such as discount rates) and demographic assumptions (such as life expectancy, retirement age, employee turnover, and the rate of salary increases). We recognize all actuarial gains and losses (including the impact of a change in discount rate) immediately through equity. A sensitivity analysis to the discount rate is set forth in Note D.19.1. “Provisions for pensions and other benefits” to our consolidated financial statements included at Item 18 of this annual report. Depending on the key assumptions used, the pension and post- retirement benefit expense could vary within a range of outcomes and have a material effect on reported earnings. A sensitivity analysis to these key assumptions is set forth in Note D.19.1. “Provisions for pensions and other benefits” to our consolidated financial statements included at Item 18 of this annual report. 6/ Deferred taxes As discussed in Note B.22. “Income tax expense” to our consolidated financial statements included at Item 18 of this annual report, we recognize deferred income taxes on tax loss carry-forwards and on temporary differences between the tax base and carrying amount of assets and liabilities. We calculate our deferred tax assets and liabilities using enacted tax rates applicable for the years during which we estimate that the temporary differences are expected to reverse. We do not recognize deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. The recognition of deferred tax assets is determined on the basis of profit forecasts for each tax group, and of the tax consequences of the strategic opportunities available to Sanofi. 7/ Provisions for risks Sanofi and its subsidiaries and affiliates may be involved in litigation, arbitration or other legal proceedings. These proceedings typically are related to product liability claims, intellectual property rights, compliance and trade practices, commercial claims, employment and wrongful discharge claims, tax assessment claims, waste disposal and pollution claims, and claims under warranties or indemnification arrangements relating to business divestitures. As discussed in Note B.12. “Provisions for risks” at Item 18 of this annual report, we record a provision where we have a present obligation, whether legal or constructive, as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the outflow of resources. For additional details regarding the financial impact of provisions for risks see Notes D.19.3. “Other provisions” and D.22. “Legal and Arbitral Proceedings” to our consolidated financial statements included at Item 18 of this annual report. 8/ Provisions for restructuring costs for restructuring costs include early retirement Provisions benefits, compensation for early termination of contracts, and rationalization costs relating to restructured sites. Refer to Note D.19.2 to our consolidated financial statements included in Item 18 of this annual report. Provisions are estimated on the basis of events and circumstances related to present obligations at the end of the reporting period and of past experience, and to the best of management’s knowledge at the date of preparation of the financial statements. The assessment of provisions can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Given the inherent uncertainties related to these estimates and assumptions, the actual outflows resulting from the realization of those risks could differ from our estimates. SANOFI / FORM 20-F 2018 85 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.2. Results of operations – year ended December 31, 2018 compared with year ended December 31, 2017 Consolidated income statements The consolidated income statements for the years ended December 31, 2018 and December 31, 2017 are presented below, with information for the year ended December 31, 2017 restated in accordance with the new standard on revenue recognition, IFRS 15, which became applicable on January 1, 2018. The impacts of these restatements are described in detail in Note A.2.1.1. to our consolidated financial statements. (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income Other operating expenses Amortization of intangible assets Impairment of intangible assets Fair value remeasurement of contingent consideration Restructuring costs and similar items Other gains and losses, and litigation Operating income Financial expenses Financial income Income before tax and investments accounted for using the equity method Income tax expense Share of profit/(loss) from investments accounted for using the equity method Net income excluding the exchanged/held- for-exchange Animal Health business Net income/(loss) of the exchanged/held-for-exchange Animal Health business(b) Net income Net income attributable to non-controlling interests Net income attributable to equity holders of Sanofi Average number of shares outstanding (million) Average number of shares after dilution (million) ◆ Basic earnings per share (in euros) ◆ Basic earnings per share (in euros) excluding the exchanged/ held-for-exchange Animal Health business ◆ Diluted earnings per share (in euros) ◆ Diluted earnings per share (in euros) excluding the exchanged/ held-for-exchange Animal Health business 2018 34,463 1,214 (11,435) 24,242 (5,894) (9,859) 484 (548) (2,170) (718) 117 (1,480) 502 4,676 (435) 164 4,405 (481) 499 as % of net sales 100.0% 2017(a) 35,072 3.5% 1,149 (33.2%) (11,613) 70.3% 24,608 (17.1%) (5,472) (28.6%) (10,072) as % of net sales 100.0% 3.3% (33.1%) 70.2% (15.6%) (28.7%) 237 (233) (1,866) (293) (159) (731) (215) 5,804 (420) 147 13.6% 16.5% 12.8% 5,531 15.8% (1,722) 85 4,423 12.8% 3,894 11.1% 24.3% 24.0% (13) 4,410 104 4,306 1,247.1 1,255.2 3.45 3.46 3.43 3.44 12.8% 12.5% 4,643 8,537 121 8,416 1,256.9 1,266.8 6.70 3.00 6.64 2.98 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). (b) For 2017, the gain on the divestment of the Animal Health business is presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); see Note D.36 to our consolidated financial statements. 86 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.2.1. Net Sales in this section has been restated Information regarding net sales for the year ended December 31, 2017 as presented in accordance with the new standard on revenue recognition, IFRS 15, which became applicable on January 1, 2018. The impacts of these restatements are described in detail in Note A.2.1.1. to our consolidated financial statements. to €34,463 million, 1.7% Consolidated net sales for the year ended December 31, 2018 amounted in 2017. Exchange rate fluctuations had a negative effect of 4.2 percentage points overall, due mainly to unfavorable trends in the exchange rate for the euro against the US dollar, Argentinean peso, Brazilian real and Turkish lira. The unfavorable impact of lower than the Argentinean peso was €196 million, including the effects of applying hyperinflation accounting from July 1, 2018 onwards (see Note A.4. to our consolidated financial statements) and the effects of devaluation on our Argentinean subsidiaries relative to 2017. At constant exchange rates (CER), net sales rose by 2.5%, reflecting the acquisition of Bioverativ’s rare blood disorder products. At constant exchange rates and on a constant structure basis (CER/CS), net sales grew by 0.6%. Lower sales in Diabetes in the United States and for Established Prescription Products in mature markets were offset by the performance of Dupixent® and the Rare Diseases franchise, and more generally by increased sales in Emerging Markets. Reconciliation of net sales to net sales at constant exchange rates and on a constant structure basis (€ million) Net sales Effect of exchange rates Net sales at constant exchange rates Impact of changes in structure (Bioverativ and Zentiva) 2018 2017(a) Change 34,463 35,072 -1.7% 1,492 35,955 35,072 +2.5% 664 Net sales at constant exchange rates and on a constant structure basis 35,955 35,736 +0.6% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). When we refer to changes in our net sales at constant exchange rates (CER), that means that we have excluded the effect of exchange rates by recalculating net sales for the relevant period using the exchange rates that were used for the previous period. When we refer to changes in our net sales on a constant structure (CS) basis, that means that we eliminate the effect of changes in structure by restating the net sales for the previous period as follows: ◆ by including sales generated by entities or product rights acquired in the current period for a portion of the previous period equal to the portion of the current period during which we owned them, based on sales information we receive from the party from whom we make the acquisition; ◆ similarly, by excluding sales for a portion of the previous period when we have sold an entity or rights to a product in the current period; and ◆ for a change in consolidation method, by recalculating the previous period on the basis of the method used for the current period. To facilitate analysis and comparisons with prior periods, some figures are given at constant exchange rates and on a constant structure basis (CER/CS). Analysis of impact on net sales of changes in structure (€ million) Net sales of Bioverativ(a) Net sales of Zentiva (European Generics business)(b) Total impact on net sales of changes in structure 2017 828 (164) 664 (a) Net sales of Bioverativ products (consolidated from March 8, 2018) for the period from March 9, 2017 through December 31, 2017. (b) Net sales of Zentiva (European Generics business), divested on September 30, 2018, for the period from October 1, 2017 through December 31, 2017. SANOFI / FORM 20-F 2018 87 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 1/ Net Sales by Operating Segment Our net sales comprise the net sales generated by our Pharmaceuticals, Consumer Healthcare and Vaccines segments. (€ million) Pharmaceuticals Consumer Healthcare Vaccines Net sales 2018 2017(a) Change 24,685 25,173 -1.9% 4,660 5,118 4,798 5,101 -2.9% +0.3% 34,463 35,072 -1.7% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). 2/ Net Sales by Global Business Unit (GBU) The table below presents net sales for our Global Business Units (GBUs). Note that Emerging Markets sales of Diabetes & Cardiovascular and Specialty Care products are included in the General Medicines & Emerging Markets GBU. (€ million) Sanofi Genzyme (Specialty Care) GBU(b)(c) Diabetes & Cardiovascular GBU(b) General Medicines & Emerging Markets GBU(d)(e) Total Pharmaceuticals Consumer Healthcare GBU Sanofi Pasteur (Vaccines) GBU Total net sales 2018 7,226 4,511 12,948 24,685 4,660 5,118 2017(a) 5,674 5,399 14,100 25,173 4,798 5,101 34,463 35,072 Change on a reported basis Change at constant exchange rates +27.4% -16.4% -8.2% -1.9% -2.9% +0.3% -1.7% +30.8% -13.8% -2.8% +2.4% +3.0% +2.4% +2.5% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). (b) Does not include Emerging Markets net sales. (c) Rare Diseases, Multiple Sclerosis, Oncology and Immunology, and Rare Blood Disorder. (d) Includes net sales in Emerging Markets of Specialty Care and Diabetes & Cardiovascular products. (e) Emerging Markets: World excluding United States, Canada, Europe (apart from Eurasia: Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. New GBUs We have announced our intention to adjust the structure of two of our GBUs with effect from January 1, 2019, so as to refocus our operations in mature and emerging markets. This involves creating a new Primary Care GBU that combines the product portfolio of the former Diabetes & Cardiovascular GBU with the Established Products portfolio previously contained in the former General Medicines & Emerging Markets GBU. The new Primary Care GBU will focus exclusively on mature markets. We have also created a second GBU: China and Emerging Markets. This new GBU will focus on the specific characteristics and growth potential of emerging markets and especially China, which is our second-largest market after the United States. To give investors a better understanding of the presentation of our net sales from 2019 onwards, the table below provides a breakdown of our 2018 net sales based on this new structure: (€ million) Sanofi Genzyme (Specialty Care) GBU Primary Care GBU China & Emerging Markets GBU Total Pharmaceuticals Consumer Healthcare GBU Sanofi Pasteur (Vaccines) GBU Total net sales 88 SANOFI / FORM 20-F 2018 2018 7,226 10,406 7,053 24,685 4,660 5,118 34,463 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 3/ Net sales by franchise The table below sets forth our 2018 and 2017 net sales by franchise in order to facilitate direct comparisons with our peers. For a detailed reconciliation of net sales by franchise and net sales by GBU for our Pharmaceuticals segment, refer to the table in section 4 below, entitled “2018 Pharmaceuticals net sales by geographical region”. (€ million) Rare Diseases Multiple Sclerosis Oncology Immunology Rare Blood Disorder Total Specialty Care of which Developed Markets (Sanofi Genzyme GBU) of which Emerging Markets(b)(c) Diabetes Cardiovascular Total Diabetes & Cardiovascular of which Developed Markets (Diabetes & Cardiovascular GBU) of which Emerging Markets(b)(c) Established Prescription Products(b) Generics(b) Total Pharmaceuticals Consumer Healthcare (Consumer Healthcare GBU) Vaccines (Sanofi Pasteur GBU) Total net sales Change on a reported basis +2.4% +0.4% -1.5% Change at constant exchange rates +8.3% +4.4% +2.1% +278.7% +287.0% — +23.8% +27.4% +3.9% -14.5% +19.8% -11.9% -16.4% +4.2% -9.9% -15.8% -1.9% -2.9% +0.3% -1.7% — +29.0% +30.8% +18.7% -10.4% +23.5% -7.9% -13.8% +13.1% -6.1% -9.8% +2.4% +3.0% +2.4% +2.5% 2017(a) 2,890 2,041 1,517 230 — 6,678 5,674 1,004 6,398 510 6,908 5,399 1,509 9,818 1,769 25,173 4,798 5,101 35,072 2018 2,958 2,049 1,494 871 897 8,269 7,226 1,043 5,472 611 6,083 4,511 1,572 8,843 1,490 24,685 4,660 5,118 34,463 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). (b) These lines are aggregated to form the net sales of the General Medicines and Emerging Markets GBU. (c) Emerging Markets: World excluding United States, Canada, Europe (apart from Eurasia: Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. 4/ Net Sales – Pharmaceuticals Segment In 2018, net sales for the Pharmaceuticals segment were €24,685 million, down 1.9% on a reported basis but up 2.4% at constant exchange rates (CER). At constant exchange rates and on a constant structure basis, net sales of the Pharmaceuticals segment were virtually unchanged, down just 0.2% in 2018 versus 2017. The year-on-year decline of €488 million on a reported basis reflects (i) an unfavorable effect of €1,104 million from exchange rates; (ii) the positive net effect of €664 million from the acquisition of Bioverativ products and the divestment of the European Generics business; and (iii) the following effects at constant exchange rates: ◆ positive performances from the Immunology franchise (up €660 million), the Rare Diseases franchise (up €239 million), the Cardiovascular franchise (up €120 million), the Multiple Sclerosis franchise (up €90 million), the Rare Blood Disorder franchise on a constant structure basis (up €89 million), and the Oncology franchise (up €32 million); and ◆ offset by lower net sales for the Diabetes franchise (down €666 million), the Established Prescription Products franchise (down €603 million), and the Generics franchise on a constant structure basis (down €9 million). Comments on the performances of our major Pharmaceuticals segment products are provided below. SANOFI / FORM 20-F 2018 89 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Pharmaceuticals segment net sales, 2018 and 2017 (€ million) Cerezyme® Cerdelga® Indication Gaucher disease Gaucher disease Myozyme® / Lumizyme® Pompe disease Fabrazyme® Aldurazyme® Other Total Rare Diseases Aubagio® Lemtrada® Total Multiple Sclerosis Jevtana® Thymoglobulin® Eloxatin® Taxotere® Mozobil® Other Total Oncology Eloctate® Alprolix® Cablivi® Total Rare Blood Disorder Dupixent® Kevzara® Total Immunology Total Specialty Care Lantus® Toujeo® Apidra® Amaryl® Fabry disease Mucopolysaccharidosis Multiple Sclerosis Multiple Sclerosis Prostate cancer Organ rejection Colorectal cancer Breast, lung, prostate, stomach, and head & neck cancers Hematological malignancies Hemophilia A Hemophilia B Acquired thrombotic thrombocytopenic purpura (aTTP) Atopic dermatitis and asthma Rheumatoid arthritis Diabetes Diabetes Diabetes Diabetes Admelog®/Insulin lispro Sanofi® Diabetes Soliqua®/ Suliqua® Other Total Diabetes Multaq® Praluent® Diabetes Diabetes Atrial fibrillation Hypercholesterolemia Total Cardiovascular Total Diabetes & Cardiovascular 90 SANOFI / FORM 20-F 2018 2018 2017(a) Change on a reported basis Change at constant exchange rates 711 159 840 755 206 287 2,958 1,647 402 2,049 422 297 182 166 171 256 731 126 789 722 208 314 2,890 1,567 -2.7% +26.2% +6.5% +4.6% -1.0% -8.6% +2.4% +5.1% 474 -15.2% 2,041 386 290 179 173 163 326 +0.4% +9.3% +2.4% +1.7% -4.0% +4.9% -21.5% 1,494 1,517 -1.5% 608 285 4 897 788 83 871 8,269 3,565 840 357 335 93 73 209 5,472 350 261 611 — — — — 219 11 230 6,678 4,625 816 377 336 1 26 217 339 171 510 — — — — +259.8% +654.5% +278.7% +23.8% -22.9% +2.9% -5.3% -0.3% — -3.7% +3.2% +52.6% +19.8% -11.9% 6,083 6,908 +6.4% +31.0% +10.8% +9.8% +6.7% -5.4% +8.3% +9.3% -11.6% +4.4% +13.0% +7.2% +5.0% -0.6% +8.6% -18.7% +2.1% — — — — +268.0% +663.6% +287.0% +29.0% -19.0% +7.2% +0.3% +4.8% — -0.9% -10.4% +7.1% +56.1% +23.5% -7.9% +180.8% +188.5% 6,398 -14.5% ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS (€ million) Lovenox® Plavix® Aprovel® / Avapro® Depakine® Indication Thrombosis Atherothrombosis Hypertension Epilepsy Renagel® / Renvela® Hyperphosphatemia Synvisc® / Synvisc-One® Arthritis Stilnox® / Ambien® / Myslee® Sleep disorders Hypertension Allergic rhinitis, urticaria Tritace® Allegra® Other Total Established Prescription Products Generics Total Pharmaceuticals 2018 1,465 1,440 652 452 411 313 231 221 124 2017(a) 1,574 1,470 690 447 801 387 259 240 158 3,534 3,792 8,843 1,490 9,818 1,769 24,685 25,173 Change on a reported basis Change at constant exchange rates -6.9% -2.0% -5.5% +1.1% -48.7% -19.1% -10.8% -7.9% -21.5% -6.8% -9.9% -15.8% -1.9% -3.0% +1.2% -1.7% +4.7% -46.7% -15.0% -6.9% -3.8% -17.7% -2.5% -6.1% -9.8% +2.4% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). Rare Diseases franchise Net sales for the Rare Diseases franchise amounted to €2,958 million in 2018, up 2.4% on a reported basis and 8.3% at constant exchange rates (CER). Growth is being driven by medicines indicated for the treatment of Gaucher disease, Pompe disease and Fabry disease, especially in Emerging Markets(1). In the United States and Europe(2), net sales for the franchise rose year-on-year by 5.8% CER (to € 1,072 million) and 5.3% CER (to €1,008 million), respectively. Sales in Emerging Markets were up 21.5% CER at €542 million. Net sales of Myozyme® / Lumizyme® in Pompe disease rose by 10.8% CER to €840 million, driven by sales growth in the United States (+13.0% CER at €284 million) and in Emerging Markets (+22.4% CER at €124 million). Sales also grew in Europe (+6.5% CER at €374 million) and in the Rest of the World region(3) (+3.4% CER at €58 million). This growth reflects the rising number of patients diagnosed with, and treated for, Pompe disease. for the Gaucher disease franchise In 2018, net sales (Cerezyme® and Cerdelga®) reached €870 million, up 10.0% CER, on strong sales of Cerezyme® in Emerging Markets (+24.3% CER at €230 million) and growth for Cerdelga® in Europe (+96.2% CER at €51 million). During 2018, Cerezyme® posted net sales of €711 million (+6.4% CER), while net sales of Cerdelga® reached €159 million (+31.0% CER). Fabrazyme® recorded net sales growth of 9.8% CER to €755 million. Sales are advancing in all regions due to the rising number of patients diagnosed with, and treated for, Fabry disease. Growth was particularly strong in Emerging Markets (+25.6% CER at €82 million) and the United States (+8.1% CER at €383 million). Multiple Sclerosis franchise The Multiple Sclerosis franchise generated 2018 net sales of €2,049 million, up 0.4% on a reported basis and up 4.4% CER. Strong growth in sales of Aubagio® offset lower sales of Lemtrada® in mature markets. Aubagio® generated net sales of €1,647 million (+9.3% CER), driven mainly by (+11.4% CER at the United States €1,157 million), but also by growth in Emerging Markets (+59.5% CER at €48 million). Net sales of Lemtrada® in 2018 were €402 million, down 11.6% CER on lower sales in the United States (-19.1% CER at €189 million), Europe (-3.4% CER at €167 million) and the Rest of the World region (-33.3% CER at €19 million), mainly due to increased competition. Oncology franchise for in 2018 franchise the Oncology Net sales totaled €1,494 million, down 1.5% on a reported basis but up 2.1% CER. We divested Leukine® on January 31, 2018, as part of our portfolio refocusing strategy. Excluding Leukine®, Oncology franchise net sales were up 6.3% CER in 2018, reflecting good performances by Jevtana® the United States and Thymoglobulin® in China. in (1) World excluding United States, Canada, Europe (other than Eurasia: Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. (2) Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (3) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. SANOFI / FORM 20-F 2018 91 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Jevtana® reported 2018 net sales of €422 million, up 13.0% CER, mainly on sales growth in the United States (+17.6% CER at €179 million), though sales were also stronger in Europe (+7.4% CER at €158 million) and Japan (+19.6% CER at €54 million). Net sales of Thymoglobulin® advanced by 7.2% CER to €297 million, largely on a good performance in Emerging Markets (+22.7% CER at €75 million), especially China (+33.% CER at €39 million). Eloxatin® experienced similar trends, with net sales up 5.0% CER at €182 million, generated mainly in Emerging Markets (+6.8% CER at €150 million), particularly China (+17.5% CER at €118 million). In September 2018, Libtayo® (cemiplimab, developed in collaboration with Regeneron) was approved in the United States for patients with metastatic cutaneous squamous cell carcinoma (CSCC) or locally advanced CSCC who are not candidates for curative surgery or curative radiation. Libtayo® is the only treatment for advanced CSCC to have been approved by the FDA. Sales of this product in the United States are consolidated by Regeneron under the terms of our alliance with Regeneron; see Note C.1, “Alliance Arrangements with Regeneron Pharmaceuticals, Inc.” to our consolidated financial statements. serious or rare condition for which there is no appropriate treatment available in the market. In those two countries, the product generated net sales of €4 million. Immunology franchise in in April 2017 the United States Dupixent® (developed in collaboration with Regeneron) was launched for moderate-to-severe atopic dermatitis in adults, and in Germany in December 2017. Further launches followed in 2018 in many European countries, Emerging Markets countries, and Japan. Net sales of Dupixent® reached €788 million in 2018, of which €660 million was generated in the United States, where sales were 213.9% higher CER than in 2017. In October 2018, Dupixent® was approved for in moderate-to-severe asthma in adults. the United States Kevzara® (developed in collaboration with Regeneron) was launched as a rheumatoid arthritis treatment in the United States in June 2017; in Germany, the United Kingdom and the Netherlands in the second half of 2017; and in Japan and many European Union countries in 2018. Net sales of Kevzara® in 2018 amounted to €83 million, of which €64 million was generated in the United States. Rare Blood Disorder franchise Diabetes franchise Our Rare Blood Disorder franchise was created in 2018 following two acquisitions. The first was the acquisition of Bioverativ, which added two products to our portfolio: the flagship hemophilia treatments Eloctate® and Alprolix®. This was followed by the acquisition of Ablynx, enhancing our portfolio with the addition of Cablivi® (caplacizumab), which received marketing approval from the European Commission in September 2018 in the treatment of acquired thrombotic thrombocytopenic purpura (aTTP). Net sales for the Rare Blood Disorder franchise have been consolidated by Sanofi since March 9, 2018, and in the period from that date to December 31, 2018 amounted to €897 million, including €175 million of non-US sales (mainly in Japan). At constant exchange rates and on a constant structure basis, the sales of the franchise grew by 10.7%. Consolidated sales of Eloctate®, indicated in the treatment of hemophilia A, reached €608 million. At constant exchange rates and on a constant structure basis, that represents growth of 12.5%. This was mainly a result of sales growth in the United States, Japan and Australia, more than offsetting lower sales in Canada due to a failed tender bid. Consolidated sales of the hemophilia B treatment Alprolix® reached €285 million. At constant exchange rates and on a constant structure basis, that represents growth of 5.8%. Cablivi® was launched in Germany, its first-ever market, in the last quarter of 2018. The product is also on sale in France under a temporary license for use issued by the healthcare authorities. A temporary license for use allows specialty pharmaceutical products to be used in exceptional circumstances without marketing approval, and may be issued for a product that treats a 92 SANOFI / FORM 20-F 2018 Net sales for the Diabetes franchise totaled €5,472 million in 2018, down 14.5% on a reported basis and 10.4% at constant exchange rates. This reflects a decline in sales for the franchise in the United States (-26.9% CER at €2,185 million), especially of insulin glargines (Lantus® and Toujeo®) as a result of changes to Medicare Part D welfare program cover and the ongoing decline in average net prices for insulin glargines in the United States. Elsewhere in the world, net sales for the Diabetes franchise (+12.7% CER at €1,554 million) and fell slightly in Europe (-0.9% CER at €1,272 million) and in the Rest of the World region (-0.8% CER at €461 million), where good performances from Toujeo® nearly offset lower sales of Lantus®. in Emerging Markets rose Over 2018, net sales of our insulin glargines (Lantus® and Toujeo®) were down 19.0% on a reported basis and 15.1% CER at €4,405 million. Net sales of Lantus® in 2018 were down 19.0% CER at €3,565 million. In the United States, sales were down 33.3% CER at €1,614 million, for the reasons explained above. Net sales in Europe decreased by 9.7% CER to €684 million, due largely to the launch of a biosimilar of Lantus® and the switching of patients to Toujeo®. In Emerging Markets, sales of Lantus® advanced by 5.3% CER to commercialize its insulin glargine in the United States and the filing by Merck of motions to dismiss the insulin glargine pen and vial pending legal actions, on October 26, 2018 Sanofi and Merck filed joint requests with the District Courts for the districts of Delaware and New Jersey to discontinue the pending litigation. The courts in October 2018 (Delaware) and accepted to €977 million. Following Merck’s decision not those requests ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS November 2018 (New Jersey), and the cases are now closed (for further information, refer to “– Item 8.A. – Consolidated Financial Statements and Other Financial Information – Information on Legal or Arbitration Proceedings”). In 2018, Toujeo® posted net sales of €840 million, up 7.2% CER, driven by strong performances in Europe (+34.6% at €290 million) and Emerging Markets (+83.5% at €130 million). However sales fell in the United States (-20.7% CER at €344 million), mainly as a result of a decrease in the average net selling price. We expect a further decline in net selling prices for our insulin glargines in 2019, as we offer further rebates in the United States in order to maintain broad coverage by commercial insurers and Medicare. From 2015 to 2018 net sales for the Diabetes franchise have decreased at an annualized average rate of 7.4% CER, in line with our previously-announced guidance of a 6%-8% annualized average decrease over that period. Net sales of Apidra® were stable year-on-year in 2018 at €357 million (+0.3% CER). Lower sales in the United States (-23.5% CER at €74 million) were compensated for by sales growth in Emerging Markets (+26.5% CER at €109 million). Amaryl® posted net sales growth of 4.8% CER to €335 million in 2018. Higher sales in Emerging Markets (+9.4% CER at €288 million) offset a decrease in the Rest of the World region (-16.7% CER at €28 million) and Europe (-19.0% CER at €17 million). Admelog® (injectable insulin lispro 100 units/ml, in vials or the pre-filled SoloStar® pen) was launched in 2018 in the United States, and also as a biosimilar in some European countries under the name Insulin lispro Sanofi®. The product generated net sales of €93 million in 2018, including €86 million in the United States as a result of its being accepted onto the Managed Medicaid program. Soliqua® 100/33 and Suliqua® (insulin glargine 100 units/ml and lixisenatide 33 mcg/ml injectable) were launched (respectively) in the United States in January 2017, and in various European and Emerging Markets countries during the rest of 2017. The product generated net sales of €73 million, including €62 million in the United States. Cardiovascular franchise Net sales of Praluent® (developed in collaboration with Regeneron) increased by 56.1% CER to €261 million in 2018, including €154 million in the United States (+37.1% CER) and €86 million in Europe (+87.0% CER). During 2018, Sanofi and Regeneron negotiated with US payers the reimbursement criteria in order to improve patient access to the product, in exchange for a significant price reduction. to streamline Net sales of Multaq® in 2018 were €350 million, up 7.1% CER on 2017. Sales were generated primarily in the United States (net sales of €296 million, +8.0% CER) and in Europe (€43 million, +2.4% CER). Established Prescription Products Net sales of Established Prescription Products in 2018 amounted to €8,843 million, down 9.9% on a reported basis and 6.1% CER. Stronger sales in Emerging Markets (+6.6% CER at €3,753 million) failed to offset lower net sales in mature markets (-14.1% CER at €5,090 million). In the United States for example, the franchise saw net sales fall by 38.2% CER to €751 million, mainly due to generic competition for Renvela®/ Renagel® (sevelamer). In the Rest of the World region, net sales were down 16.9% CER at €1,009 million, largely as a result of competition from generics of Plavix® and Aprovel® in Japan. In Europe, the franchise posted net sales of €3,330 million, down 4.4% CER, impacted by generic competition for Lovenox®. Net sales of Lovenox® totaled €1,465 million, down 3.0% CER; this reflects tougher competition in Europe (-8.3% CER at €870 million) with the arrival of biosimilars in various countries including Germany, France, the United Kingdom. The impact of generic competition is also being felt in the United States, where the product saw net sales decrease by 29.3% CER to €38 million. A strong performance in Emerging Markets (+11.4% CER at €476 million) failed to fully offset the decline in mature markets. Italy, Poland and Plavix® posted 2018 net sales of €1,440 million (+1.2% CER). This reflects a solid performance in Emerging Markets (+8.8% at €1,075 million), especially in China (+10.6% CER at €817 million), more than offsetting the effect of lower sales in the Rest of the World region (-23.5% at €218 million), especially in Japan (-31.5% CER at €156 million) due to competition from generics. Sales of Plavix® in the United States and Puerto Rico are handled by BMS under the terms of the Sanofi-BMS alliance; see Note C.2. (“Alliance Arrangements with Bristol-Myers Squibb (BMS)”) to our consolidated financial statements. /Avapro® amounted In 2018, net sales of Aprovel® to €652 million, down 1.7% CER, reflecting competition from generics in Japan (-66.3% CER at €28 million) and Europe (-6.1% CER at €108 million). The effect was partly offset by stronger sales in Emerging Markets (+12.7% CER at €465 million), especially China (+15.5% CER at €297 million). Net sales of Renvela®/Renagel® in 2018 were €411 million, down 46.7% CER, mainly due to competition from generics in the United States (-59.1% CER at €253 million). Generics Net sales of Generics were €1,490 million, down 15.8% on a reported basis and 9.8% CER. The main reason for the decrease was the sale of our European Generics business (Zentiva) to Advent International on September 30, 2018. This divestment was in line with our strategy of streamlining and refocusing our operations. At constant exchange rates and on a constant structure basis, Generics net sales were relatively stable, falling by just 0.6%. Higher sales in Emerging Markets (+3.0% CER at €685 million) and the Rest of the World region (+9.1% CER at €113 million), especially in Japan, failed to fully offset lower sales in Europe (-15.3% CER at €124 million) and the United States (-3.2% at constant exchange rates and on a constant structure basis at €568 million). SANOFI / FORM 20-F 2018 93 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 2018 Pharmaceuticals net sales by geographical region Total Rare Diseases 2,416 1,008 +5.3% 1,072 +5.8% 336 (€ million) Cerezyme® Cerdelga® Myozyme® /Lumizyme® Fabrazyme® Aldurazyme® Other 481 156 716 673 144 246 Aubagio® Lemtrada® Total Multiple Sclerosis Jevtana® Thymoglobulin® Eloxatin® Taxotere® Mozobil® Other 1,599 375 1,974 399 222 32 32 161 229 Total Oncology 1,075 606 285 4 895 783 83 866 Eloctate® Alprolix® Cablivi® Total Rare Blood Disorder Dupixent® Kevzara® Total Immunology Sanofi Genzyme (Specialty Care) Lantus® Toujeo® Apidra® Amaryl® Admelog®/Insulin lispro Sanofi® Soliqua®/Suliqua® Total GBU Europe(a) Change at CER United States Change at CER Rest of the World(b) Change at CER Emerging Markets(c) Change at CER Total Franchise Change at CER 270 -3.6% 174 +2.8% 37 -9.3% 230 +24.3% 711 +6.4% 51 +96.2% 98 +7.4% 7 +100.0% 3 +300.0% 159 +31.0% 374 175 76 62 +6.5% 284 +13.0% 58 +7.4% 383 +8.1% 115 +1.3% 0.0% 44 89 +9.5% -16.8% 24 95 385 167 552 158 37 2 3 47 104 351 — — 4 4 -0.3% 1,157 +11.4% -3.4% 189 -19.1% -1.2% 1,346 +5.8% +7.4% 179 +17.6% -5.1% 162 +4.9% -50.0% — -100.0% +0.0% +9.1% +2.9% 1 96 85 — +5.2% -47.4% +4.1% 523 -6.8% — — 500 222 — — — — — 57 19 76 62 23 30 28 18 40 201 106 63 — — 722 — 169 +3.4% +8.0% +4.0% 0.0% +3.6% +0.0% 124 +22.4% 840 +10.8% 82 +25.6% 62 +12.1% 41 +4.4% 755 206 287 +9.8% +6.7% -5.4% 542 +21.5% 2,958 +8.3% 48 +59.5% 1,647 +9.3% -33.3% 27 +33.3% 402 -11.6% -11.2% +20.8% +0.0% +7.1% -17.6% +21.4% +41.4% 75 +49.2% 2,049 +4.4% 23 +0.0% 422 +13.0% 75 +22.7% 150 134 +6.8% +2.9% 10 +22.2% 27 +20.8% 297 182 166 171 256 +7.2% +5.0% -0.6% +8.6% -18.7% +12.2% 419 +8.8% 1,494 +2.1% — — — — 2 — — 2 5 — 5 — — — — — — — 608 285 4 897 — — — — 788 +268.0% 83 +663.6% 871 +287.0% 75 +3,650.0% 660 +213.9% 48 +4,700.0% 14 +1,300.0% 64 +550.0% 5 — 89 +2,866.7% 724 +228.8% 53 +5,200.0% 7,226 2,004 +7.9% 4,387 +42.3% 2,588 710 248 47 93 70 684 290 136 17 -9.7% 1,614 -33.3% +34.6% 344 -20.7% +0.0% 74 -23.5% -19.0% 2 +0.0% 7 +600.0% 86 — 5 — 62 +142.3% 835 290 76 38 28 0 3 +40.9% 1,043 +18.7% 8,269 +29.0% -3.8% 977 +5.3% 3,565 -19. 0% +18.5% 130 +83.5% -2.4% 109 +26.5% 840 357 +7. 2% +0. 3% -16.7% 288 +9.4% 335 +4. 8% — — 0 3 — — 93 — 73 +188. 5% Other 162 133 -12.5% 3 +200% 26 -3.6% 47 +44.4% 209 -0. 9% Total Diabetes 3,918 1,272 -0.9% 2,185 -26.9% 461 -0.8% 1,554 +12.7% 5,472 -10. 4% Multaq® Praluent® Total Cardiovascular Diabetes & Cardiovascular 343 250 593 43 86 +2.4% 296 +8.0% 4 +0.0% 7 +0.0% 350 +7. 1% +87.0% 154 +37.1% 10 +120.0% 11 +175.0% 261 +56. 1% 129 +46.6% 450 +16.4% 14 +66.7% 18 +63.6% 611 +23. 5% 4,511 1,401 +2.2% 2,635 -22.0% 475 +0.4% 1,572 +13.1% 6,083 -7.9% 94 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Total GBU Europe(a) Change at CER United States Change at CER Rest of the World(b) Change at CER Emerging Markets(c) Change at CER Total Franchise Change at CER -8.3% 38 -29.3% 81 -6.6% 476 +11.4% 1,465 -3.0% -2.0% 0 -100.0% 218 -23.5% 1,075 +8.8% 1,440 +1.2% 1,465 1,440 652 452 411 313 231 221 124 870 147 108 163 60 25 39 142 -6.1% 10 +0.0% -1.2% 0 — -15.5% 253 -59.1% -16.7% 217 -22.3% -2.5% 45 -14.5% -5.9% 8 -11.1% 0 0 — — -45.5% 465 +12.7% 275 +9.0% 652 452 -1.7% +4.7% 67 +42.0% 411 -46.7% 58 +23.5% 313 -15.0% 61 +13.8% 74 +0.0% 231 221 -6.9% -3.8% 0 — 124 -17.7% 69 14 31 13 86 5 116 376 -6.7% -8.6% +0.0% -16.0% +0.0% -18.1% (€ million) Lovenox® Plavix® Aprovel®/Avapro® Depakine® Renagel®/Renvela® Synvisc®/Synvisc-One® Stilnox®/Ambien®/ Myslee® Tritace® Allegra® Other Total Established Prescription Products 3,534 1,768 -2.0% 188 -6.3% -7.1% 1,202 -1.1% 3,534 -2.5% 8,843 3,330 -4.4% 751 -38.2% 1,009 -16.9% 3,753 +6.6% 8,843 -6.1% Generics 1,490 568 -24.4% 124 -15.3% 113 +9.1% 685 +3.0% 1,490 -9.8% Total Emerging Markets – Specialty Care Total Emerging Markets – Diabetes & Cardiovascular General Medicines & Emerging Markets Total Pharmaceuticals 1,043 — — — — — — 1,043 +18.7% — — 1,572 — — — — — — 1,572 +13.1% 12,948 3,898 -7.9% 875 -35.8% 1,122 -14.8% 7,053 +9.3% — — — — 24,685 7,303 -2.1% 7,897 +0.9% 2,432 +1.9% 7,053 +9.3% 24,685 +2.4% (a) Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (b) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. (c) World excluding United States, Canada, Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. SANOFI / FORM 20-F 2018 95 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 5/ Net sales – Consumer Healthcare Segment Net sales of Consumer Healthcare products for 2018 were €4,660 million, down 2.9% on a reported basis but up 3.0% at constant exchange rates, driven by Emerging Markets (+8.9% CER at €1,588 million) – especially Latin America – and by the Pain (+6.7% CER at €1,254 million) and Digestive (+8.7% CER at €986 million) categories. Sales of Consumer Health products were stable in Europe at €1,403 million, but decreased slightly in the United States (-1.1% CER at €1,066 million). (€ million) Allegra® Mucosolvan® Other 2018 2017(a) 396 110 618 422 112 671 Allergy, Cough & Cold 1,124 1,205 Doliprane® Buscopan® Other Pain Dulcolax® Enterogermina® Essentiale® Zantac® Other Digestive Pharmaton® Other Nutritionals Gold Bond® Other 333 194 727 1,254 216 183 177 127 283 986 90 585 675 211 410 323 194 744 1,261 210 168 172 117 287 954 99 586 685 201 492 Other products Total Consumer Healthcare 621 4,660 693 4,798 Change on a reported basis Change at constant exchange rates -6.2% -1.8% -7.9% -6.7% +3.1% +0.0% -2.3% -0.6% +2.9% +8.9% +2.9% +8.5% -1.4% +3.4% -9.1% -0.2% -1.5% +5.0% -16.7% -10.4% -2.9% +1.2% +1.8% -4.0% -1.7% +4.0% +16.0% +5.4% +6.7% +7.1% +16.1% +8.7% +13.7% +3.5% +8.7% -1.0% +5.6% +4.7% +9.5% -11.2% -5.2% +3.0% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). In Emerging Markets, Consumer Healthcare net sales reached €1,588 million, up 8.9% CER, boosted by Pain (+14.0% CER at €449 million) and Digestive (+14.4% CER at €423 million), especially in Brazil. In Europe, Consumer Healthcare net sales remained stable in 2018 at €1,403 million. Sales growth in the Pain (+1.8% CER at €521 million) and Digestive (+2.6% CER at €314 million) categories offset a decrease in sales for Allergy, Cough & Cold (-0.9% CER at €347 million, reflecting a strong comparative base in 2017) and Other Products (-19.7% CER at €96 million, linked to the June 2018 sale of a portfolio of 12 brands to Cooper-Vemedia, the European subsidiary of Charterhouse Capital Partners. Sales of Consumer Healthcare products in the United States totaled €1,066 million in 2018, down slightly (-1.1% CER) on 2017. The main category affected was Allergy, Cough & Cold (-12.3% CER at €303 million), reflecting inventory build-ups ahead of the Xyzal® launch during 2017 and competition from retailer own brands, especially in anti-allergy nasal sprays. In the Rest of the World region, Consumer Healthcare net sales reached €603 million in 2018, up 2.1% CER, driven largely by Japan (+4.7% CER at €302 million). 96 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 2018 Consumer Healthcare net sales by geographical region Total Europe(a) Change at CER United States Change at CER +50.0% 207 -5.2% 396 110 618 Rest of the World(b) Change at CER Emerging Markets(c) Change at CER 44 3 88 — — +4.4% 128 50 161 339 +8.5% +5.8% +6.0% +6.9% 303 -12.3% 135 +2.9% (€ million) Allegra® Mucosolvan® Other Allergy, Cough & Cold 1,124 Doliprane® Buscopan® Other Pain Dulcolax® Enterogermina® Essentiale® Zantac® Other Digestive Pharmaton® Other Nutritionals Gold Bond® Other Other products 333 194 727 1,254 216 183 177 127 283 986 90 585 675 211 410 621 17 57 273 347 281 161 521 99 67 36 — 112 314 19 106 125 — 96 96 79 +5.3% -1.7% -2.9% -0.9% +1.4% +0.6% +1.8% +6.5% +4.7% +5.9% — 96 — -24.6% — — 165 165 62 — — — — +3.6% +3.6% +6.6% — — — 113 +13.3% -2.6% +2.6% — +7.1% +5.9% — -19.7% -19.7% 20 -9.1% 195 +8.5% — 37 37 207 159 366 — -5.0% -5.0% +9.1% -2.9% +3.5% — 10 109 119 19 (1) — 14 22 54 1 255 256 — 52 +19.6% -23.1% +6.7% +3.4% -4.8% — — 105 +28.6% 292 +8.3% 449 +14.0% 36 +17.1% 117 +23.1% 141 +9.4% +16.7% — — — 129 +12.0% +1.8% 423 +14.4% — +5.9% +5.9% 4 +33.3% 35 39 -26.7% -22.9% 70 187 257 — 120 120 -1.3% +6.7% +4.4% — -9.2% -9.2% Total Consumer Healthcare 4,660 1,403 -0.2% 1,066 -1.1% 603 +2.1% 1,588 +8.9% (a) Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (b) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. (c) World excluding United States, Canada, Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. 6/ Net sales – Vaccines segment The Vaccines segment posted 2018 net sales of €5,118 million, up 0.3% on a reported basis and 2.4% CER, driven by influenza vaccines in mature markets. US vaccine sales advanced by 1.1% CER to €2,577 million, with higher influenza vaccine sales more than offsetting lower sales for other vaccine categories. Sales growth was robust in the Rest of the World region and Europe, at 16.0% CER (to €728 million) and 9.5% CER (to €342 million), respectively. However, net sales fell by 2.3% in Emerging Markets to €1,471 million, mainly due to weaker influenza vaccines sales. SANOFI / FORM 20-F 2018 97 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Vaccines net sales – 2018 and 2017 (€ million) 2018 2017(a) Polio/Pertussis/Hib Vaccines (including Pentacel®, Pentaxim®, Imovax® and Hexaxim®) Influenza Vaccines (including Vaxigrip®, Fluzone® and Flublok®) Meningitis/Pneumonia Vaccines (including Menactra®) Travel and Other Endemics Vaccines Adult Booster Vaccines (including Adacel®) Other vaccines Total Vaccines 1,749 1,708 609 488 470 94 1,827 1,589 623 493 474 95 5,118 5,101 Change on a reported basis Change at constant exchange rates -4.3% +7.5% -2.2% -1.0% -0.8% -1.1% +0.3% -0.7% +7.2% +0.6% +1.8% +1.3% +3.2% +2.4% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). Net sales of Polio/Pertussis/Hib vaccines were €1,749 million in 2018, down 0.7% CER. In Emerging Markets, sales for the franchise remained stable at €900 million. Lower net sales linked to supply constraints on Pentaxim® in China during the first half were offset by ongoing expansion of pediatric combination vaccines in other emerging markets countries. Net sales of Polio/ Pertussis/Hib vaccines decreased in the United States (-4.8% CER at €397 million), reflecting fluctuations in inventory levels at our principal customers. In Europe, net sales fell slightly (-1.0% CER at €296 million) due to the arrival of a new competitor in the pediatric combination vaccines market. Net sales of Influenza vaccines rose by 7.2% CER to €1,708 million. This performance was driven by stronger sales in the United States (+7.5% CER at €1,233 million), boosted by a successful launch for Flublok®. Influenza vaccine sales also rose sharply in Europe (+57.5% CER at €177 million), largely on the 2018 Vaccines net sales by geographical region successful launch of Vaxigrip® QIV. These performances more than offset lower sales for the franchise in Emerging Markets (-22.9% CER at €217 million, due to the loss of a public tender in Latin America. Net sales of Meningitis/Pneumonia vaccines were stable at €609 million. Menactra® reported net sales of €608 million (+4.5% CER), of which €466 million was generated in the United States. Travel and Other Endemics vaccines posted a 1.8% CER rise in net sales to €488 million in 2018, driven by increased demand for yellow fever and hepatitis A vaccines. Net sales of Adult Booster vaccines reached €470 million in 2018 (+1.3% CER), driven by growth in Europe (+9.2% CER at €129 million) as limitations on supplies of Repevax® ended in the first half of 2018. (€ million) Polio/Pertussis/Hib Vaccines (including Pentacel®, Pentaxim®, Imovax® and Hexaxim®) Influenza Vaccines (including Vaxigrip®, Fluzone® and Flublok®) Meningitis/Pneumonia Vaccines (including Menactra®) Travel and Other Endemics Vaccines Adult Booster Vaccines (including Adacel®) Other vaccines Total Vaccines Total Europe(a) Change at CER United States Change at CER Rest of the World(b) Change at CER Emerging Markets(c) Change at CER 1,749 296 -1.0% 397 -4.8% 156 +5.9% 900 +0.3% 1,708 177 +57.5% 1,233 +7.5% 81 +62.7% 217 -22.9% 609 488 470 94 0 -100.0% 466 -1.6% 16 -50.0% 127 +29.1% 117 +31.1% 134 -10.3% 56 +7.4% 181 -3.6% 129 +9.2% 9 +14.3% 273 74 -4.1% 0.0% 26 0.0% 7 +33.3% 42 +18.9% 4 -25% 5,118 728 +16.0% 2,577 +1.1% 342 +9.5% 1,471 -2.3% (a) Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (b) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. (c) World excluding United States, Canada, Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. 98 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 7/ Net sales by geographical region The table below sets forth our net sales for 2018 and 2017 by geographical region: (€ million) United States Emerging Markets(b) of which Asia (including South Asia(c)) of which Latin America of which Africa and Middle East of which Eurasia(d) Europe(e) Rest of the World(f) of which Japan of which South Korea Total net sales 2018 11,540 10,112 3,962 2,612 2,232 1,152 9,434 3,377 1,710 432 2017(a) 11,855 10,275 3,755 2,837 2,311 1,251 9,525 3,417 1,803 426 34,463 35,072 Change on a reported Change at constant basis exchange rates -2.7% -1.6% +5.5% -7.9% -3.4% -7.9% -1.0% -1.2% -5.2% +1.4% -1.7% +0.7% +7.5% +9.3% +8.1% +1.1% +10.1% -0.6% +2.7% -2.0% +3.3% +2.5% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). (b) World excluding United States, Canada, Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. (c) India, Bangladesh and Sri Lanka. (d) Russia, Ukraine, Georgia, Belarus, Armenia and Turkey. (e) Europe excluding Eurasia. (f) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. Net sales in the United States were €11,540 million in 2018, down 2.7% on a reported basis but up 0.7% at constant from Dupixent® and exchange rates. Good performances Aubagio® and the first-time consolidation of sales of Eloctate® and Alprolix® offset lower sales for the Diabetes franchise (-26.9% CER at €2,185 million) and Renvela®/Renagel® (-59.1% CER at €253 million). Net sales in Emerging Markets reached €10,112 million, down 1.6% on a reported basis but up 7.5% CER. All Pharmaceuticals segment franchises saw net sales growth in Emerging Markets, as did Consumer Healthcare; the only exception was vaccines, with net sales down 2.3% CER at €1,471 million. The biggest contributors to growth in Emerging Markets were Established Prescription Products (+6.6% CER at €3,753 million), Diabetes (+12.7% CER at €1,554 million) and Consumer Healthcare (+8.9% CER at €1,588 million). In Asia, net sales rose by 9.3% CER to €3,962 million on a solid performance in China (+12.7% CER at €2,464 million), despite local supply constraints on Pentaxim® in the first half. In Latin America, net sales reached €2,612 million, up 8.1% CER, fueled by Brazil (+7.0% CER at €1,023 million). The best performers in this zone were Consumer Healthcare (+15.4% CER at €641 million) and Rare Diseases (+32.8% CER at €231 million). In Africa and the Middle East, net sales were up 1.1% CER at €2,232 million, boosted by the Diabetes franchise (+10.3% CER at €426 million) and Consumer Healthcare (+7.1% CER at €274 million), which offset lower Vaccines sales. In Eurasia, net sales were 10.1% higher CER at €1,152 million, reflecting strong sales growth in Turkey (+17.6% CER at €426 million) and Russia (+4.6% CER at €605 million). from Dupixent® and Praluent® offset In Europe, net sales remained stable in 2018 at €9,434 million. Robust performances by Vaccines (+16.0% CER at €728 million) and lower sales of Established Prescription Products (-4.4% CER at €3,330 million), and of Generics the divestment of Zentiva on September 30, 2018. At constant exchange rates and on a constant structure basis, sales in Europe rose by 1.1%. following In the Rest of the World region, net sales advanced by 2.7% CER to €3,377 million. Net sales in Japan totaled €1,710 million, down 2.0% CER. Good performances from Dupixent® and the first-time consolidation of sales of Eloctate® and Alprolix® failed to fully offset a sharp decline in net sales of Established (-16.9% CER at €1,009 million), Prescription Products attributable in part to generic competition for Plavix® and Aprovel®. A.2.2. Other income statement items Comparable information for the year ended December 31, 2017 has been restated in accordance with the new standard on revenue recognition, IFRS 15, which became applicable on January 1, 2018. The impact of these restatements is described in detail in Note A.2.1.1. to our consolidated financial statements, and affects not only Net sales but also some of the line items discussed below. 1/ Other revenues Other revenues increased by 5.7% to €1,214 million in 2018 (versus €1,149 million in 2017). This line item mainly comprises SANOFI / FORM 20-F 2018 99 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS VaxServe sales of non-Sanofi products (€959 million, versus €859 million in 2017, recorded within the Vaccines segment), and revenues associated with the distribution of Eloctate® and Alprolix® (primarily in Europe) under our agreements with Swedish Orphan Biovitrum AB. 2/ Gross profit Gross profit for 2018 amounted to €24,242 million, versus €24,608 million in 2017, a decrease of 1.5%. As a percentage of net sales, that represents an improvement on 2017 (70.3% of net sales, versus 70.2% in 2017). The year-on-year change includes the impacts of the remeasurement of inventories acquired in the transaction with Boehringer Ingelheim (€166 million in 2017) and the acquisition of Bioverativ (€114 million in 2018). For the Pharmaceuticals segment, gross margin was 0.6 of a percentage point lower at 73.7%. Good performances from the Immunology, Rare Diseases and Multiple Sclerosis franchises, plus the inclusion of Bioverativ products in the consolidation, failed to offset lower average net prices for insulin glargines in the United States, competition from generics of Renagel®/ Renvela®, and unfavorable foreign exchange effects. Gross margin for the Consumer Healthcare segment rose by 0.6 of a percentage point in 2018 to 67.0%, thanks largely to a good performance in Emerging Markets and a favorable product mix in Europe. Gross margin for the Vaccines segment rose by one percentage point to 63.0%, reflecting a reduction in the value of Dengvaxia® inventories in 2017 following the product label update announced at the end of that year. 3/ Research and development expenses Research and development (R&D) expenses amounted to €5,894 million in 2018 (versus €5,472 million in 2017) and represented 17.1% of net sales (versus 15.6% in 2017). Overall, R&D expenses increased by 7.7%, mainly due to the acquisitions of Bioverativ and Ablynx and to spending on immuno-oncology and diabetes programs in the Pharmaceuticals segment. 4/ Selling and general expenses Selling and general expenses were €9,859 million in 2018 (28.6% of net sales), compared with €10,072 million in 2017 (28.7% of net sales); this represented a year-on-year decrease of 2.1%, attributable mainly to the effect of exchange rates. At constant exchange rates, selling and general expenses increased year-on-year, reflecting the first-time consolidation of Bioverativ and Ablynx and investments in immunology, partly offset by lower spending on Diabetes in the United States, within the Pharmaceuticals segment. For the Consumer Healthcare segment, selling and general expenses were 1.4 percentage points lower at 32.9% of net sales, versus 34.3% in 2017. This was mainly due to synergies realized following the integration of Boehringer Ingelheim’s Consumer Healthcare business, as well as the reduction in 100 SANOFI / FORM 20-F 2018 marketing expenses linked to the launch of Xyzal® in the US in March 2017. 5/ Other operating income and expenses Other operating income amounted to €484 million in 2018 (versus €237 million in 2017), and other operating expenses to €548 million (versus €233 million in 2017). Overall, this represented a net expense of €64 million in 2018, compared with net income of €4 million in 2017. (€ million) Other operating income 2018 484 2017 Change 237 +247 -315 Other operating expenses (548) (233) Other operating income/ (expenses), net (64) 4 -68 The net negative movement of €68 million is largely due to (i) an increase in the net expense relating to our pharmaceutical alliance partners (€243 million in 2018, versus €29 million in 2017), the main factor being an increase in the share of profits reverting to Regeneron under our collaboration agreement (see Note C.1. to our consolidated financial statements) due primarily to higher sales of Dupixent®; and (ii) costs relating to our acquisitions of Bioverativ and Ablynx (€56 million). Other factors include (i) an increase in operating foreign exchange losses to €91 million in 2018 from €80 million in 2017 (presented in “Other” for segment reporting purposes) and (ii) the recognition of €122 million in provisions, mainly to cover litigation and environmental risks. Those effects were partly offset by (i) gains on disposals, which amounted to €326 million in 2018 (versus €90 million in 2017), mainly on the sale of some mature products in Latin America and some Consumer Healthcare products in Europe (reported in the results of the Consumer Healthcare segment) and (ii) a gain of €112 million related to a data transfer agreement. 6/ Amortization of intangible assets Amortization charged against intangible assets amounted to €2,170 million in 2018, compared with €1,866 million in 2017. This €304 million rise was due to an increase in amortization expense generated by the intangible assets recognized in connection with the acquisition of Bioverativ (€430 million), partly offset by in amortization expense on assets recognized on the acquisitions of Aventis (€256 million in 2018, versus €365 million in 2017) and Genzyme (€760 million in 2018, versus €857 million in 2017) as some products reached the end of their life cycles. reductions 7/ Impairment of intangible assets This line item showed net impairment losses of €718 million in 2018, versus €293 million in 2017. In 2018, it included impairment losses of (i) €183 million, taken against rights to Lemtrada® and (ii) €454 million, taken against assets associated ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS from to certain projects arising with internal or collaborative development projects (including €92 million relating to the agreement with MyoKardia, and €129 million relating the acquisition of Ablynx. In 2017, this line item included (i) a €190 million impairment loss taken against intangible assets associated with the dengue vaccine; (ii) a €54 million impairment loss relating to Clostridium difficile vaccine development projects following our decision to discontinue the related programs; and (iii) impairment losses of €23 million taken against rights relating to a number of marketed products in the Pharmaceuticals segment. 8/ Fair value remeasurement of contingent consideration Fair value remeasurements of contingent consideration relating to acquisitions (in accordance with IFRS 3) represented a net gain of €117 million in 2018, versus a net expense of €159 million in 2017. the revised The net gain in 2018 corresponds mainly to a remeasurement of contingent consideration payable to Bayer as a result of an acquisition made by Genzyme prior to the latter’s acquisition by Sanofi (gain of €109 million in 2018, versus a gain of €28 million in 2017; see Note D.18. to our consolidated financial statements). 9/ Restructuring costs and similar items in particular on Restructuring costs and similar items amounted to a charge of €1,480 million in 2018, compared with a charge of €731 million in 2017. In 2018, restructuring costs include (i) termination benefit payments of €517 million in 2018, including provisions associated with the headcount adjustments in Europe announced in December 2018; (ii) a provision of €283 million booked as of December 31, 2018 for penalties arising from the restructuring of the immuno-oncology discovery and development agreement with Regeneron, and the collaboration on research programs included in the initial July 2015 agreement (see Note C.1) which gives Sanofi the option of pursuing immuno-oncology development projects independently; (iii) losses on property, plant and equipment due to site closures or divestments under transformation or reorganization programs (€162 million); and (iv) the costs of transferring the infectious diseases early stage R&D pipeline and research unit. Those transfer costs amounted to €252 million and primarily consist of payments to Evotec over a five-year period, including an upfront payment of €60 million on finalization of the agreement in early July 2018. termination of its own 10/ Other gains and losses, and litigation Other gains and losses, and litigation showed a gain of €502 million in 2018, compared with a loss of €215 million in 2017. In 2018, this line item consisted of the pre-tax gain arising on the divestment of our European Generics business (completed September 30, 2018), net of separation costs. 11/ Operating income was attributable mainly in R&D expenses, amortization of intangible assets, impairment losses against intangible assets, and restructuring costs and similar items. increases to 12/ Financial income and expenses Net financial expenses were €271 million in 2018, €2 million lower than the 2017 figure of €273 million. The cost of our net debt (see the definition in “B. Liquidity and Capital Resources” below) increased to €273 million, versus €237 million in 2017. Other factors underlying the year-on-year change in net financial expenses were: ◆ a lower level of gains on disposals of non-current financial assets (€63 million, versus €96 million in 2017); ◆ fair value remeasurements of certain financial assets taken through profit or loss in accordance with IFRS 9 which became applicable on January 1, 2018 (+ €7 million in 2018); and ◆ a reduction in the net interest cost on pension plans (€75 million, versus €92 million in 2017). 13/ Income before tax and investments accounted for using the equity method Income before tax and investments accounted for using the equity method for 2018 was €4,405 million, compared with €5,531 million for 2017, a decrease of 20.4%. 14/ Income tax expense Income tax expense represented €481 million in 2018, versus €1,722 million in 2017, giving an effective tax rate based on consolidated net income of 10.9% in 2018, compared with 31.1% in 2017. The decrease in the effective tax rate can be attributed to the reduced US Federal income tax rate and a favorable impact from revised estimates in 2018 of the direct and indirect impacts of the US tax reform (the Tax Cuts and Jobs Act of 2017). In 2017, there was a significant adverse impact of €1,193 million as a result of the deemed repatriation cost that was attributable the accumulated earnings of non-US operations. The effects of the US tax reform were based on a preliminary analysis of the Tax Cuts and Jobs Act of 2017. As more detailed information has become available adjustments have been made accordingly to reflect the progress of our analysis. to Changes in the level of income tax expense are also significantly impacted by the tax effects of the amortization and impairment of intangible assets (€692 million in 2018, versus €719 million in 2017) and of restructuring costs (€435 million in 2018, versus €134 million in 2017). Operating income totaled €4,676 million for 2018, compared with €5,804 million for 2017. The year-on-year decrease of 19.4% The effective tax rate on our business net income(1) is a non-GAAP financial measure. It is calculated on the basis of (1) Non-GAAP financial measure: see definition under “– A.1.5. Segment information – 3. Business Net Income” above. SANOFI / FORM 20-F 2018 101 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS business operating income, minus net financial expenses and before (i) the share of profit/loss from investments accounted for using the equity method and (ii) net income attributable to non-controlling interests. We believe the presentation of this measure, used by our management, is also useful for investors as it provides a means to analyze the effective tax cost of our current business activities. It should not be seen as a substitute for the effective tax rate based on consolidated net income. When calculated on business net income, our effective tax rate was 21.6% in 2018, compared with 23.5% in 2017. The main impacts on this tax rate are the geographical mix of the profits of Sanofi entities, reflecting the reduced US Federal income tax rate and the tax effects of the elimination of intragroup margin on inventory. The table below reconciles our effective tax rate based on consolidated net income to our effective tax rate based on business net income: (as a percentage) Effective tax rate based on consolidated net income Tax effects: Amortization and impairment of intangible assets Restructuring costs and similar items Other tax effects(a) Effective tax rate based on business net income 2018 10.9 1.3 3.4 6.0 21.6 2017 31.1 3.2 (0.2) (10.6) 23.5 (a) This line includes the direct and indirect effects of the US tax reform (positive impact of €188 million in 2018 versus a negative impact of €1,193 million in 2017). In 2017 this line also includes the consequences of the French Constitutional Council ruling of October 6, 2017 with respect to the additional 3% levy on dividends paid out in cash (positive impact of €451 million). 15/ Share of profit/(loss) from investments accounted for using the equity method Investments accounted for using the equity method contributed net income of €499 million in 2018, compared with €85 million in 2017. This line item mainly comprises our share of profits from Regeneron (€484 million in 2018, versus €82 million in 2017); the increase was attributable mainly to a rise in Regeneron’s profits after adjustment to align on our accounting policies. 16/ Net income excluding the exchanged/held-for-exchange animal health business Net income excluding the exchanged/held-for-exchange Animal Health business amounted to €4,423 million in 2018, versus €3,894 million in 2017. 17/ Net income/(loss) of the exchanged/held-for-exchange animal health business In accordance with IFRS 5, the line item Net income/(loss) of the exchanged/held-for-exchange Animal Health business includes, in 2017, the net after-tax gain of €4,643 million on the sale of that business to Boehringer Ingelheim. For 2018, this line item shows an expense of €13 million, associated with the contingent consideration paid to Boehringer Ingelheim. 18/ Net income Net income amounted to €4,410 million in 2018, compared with €8,537 million in 2017. 102 SANOFI / FORM 20-F 2018 19/ Net income attributable to non-controlling interests to non-controlling income attributable Net interests was €104 million in 2018, versus €121 million in 2017. This line item mainly comprises the share of pre-tax profits paid to BMS from territories managed by Sanofi (€83 million, versus €84 million in 2017); to competition from generics of clopidogrel (the active ingredient of Plavix®) and of irbesartan (the active ingredient of Aprovel®) in Europe. the year-on-year decrease was directly related 20/ Net income attributable to equity holders of Sanofi Net income attributable to equity holders of Sanofi amounted to €4,306 million in 2018, compared with €8,416 million in 2017. Basic earnings per share for 2018 was €3.45, 48.5% lower than the 2017 figure of €6.70 (which included the net gain on the sale of the Animal Health business), based on an average number of shares outstanding of 1,247.1 million in 2018 and 1,256.9 million in 2017. Diluted earnings per share for 2018 was €3.43, 48.3% lower than the 2017 figure of €6.64, based on an average number of shares after dilution of 1,255.2 million in 2018 and 1,266.8 million in 2017. A.2.3. Segment results Our business operating income, as defined in Note D.35 (“Segment information”) to our consolidated financial statements, in 2018, compared with amounted €9,323 million in 2017, a decrease of 4.7%. That represents 25.8% of net sales, compared with 26.6% in 2017. to €8,884 million ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS As indicated in Notes B.26. and D.35. (“Segment information”) to our consolidated financial statements, Sanofi has three operating segments: Pharmaceuticals, Consumer Healthcare and Vaccines. The comparable information for the year ended December 31, 2017 presented below reflects the impact of IFRS 15, the new standard on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). The table below sets forth our business net income for the years ended December 31, 2018 and 2017: (€ million) Pharmaceuticals Consumer Healthcare Vaccines Other Business operating income December 31, 2018 December 31, 2017(a) 8,488 1,536 1,954 (3,094) 8,884 9,125 1,498 1,774 (3,074) 9,323 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). The table below sets forth our segment results for the year ended December 31, 2018: (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests December 31, 2018 Consumer Pharmaceuticals Healthcare Vaccines Other 24,685 4,660 5,118 — 962 — — (1,539) (2,854) (190) (11,321) (555) (710) (624) (5,894) (2,156) (9,831) (4) (124) (64) (143) (1,534) 101 1 (10) (3) — — — Business operating income 8,488 1,536 1,954 (3,094) The table below sets forth our segment results for the year ended December 31, 2017: (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income December 31, 2017(a) Consumer Pharmaceuticals Healthcare Vaccines Other 25,173 4,798 5,101 — 862 — — — — (1,612) (2,798) (271) (11,447) (736) (5,472) (2,050) (10,072) (17) 4 (123) (1,645) 94 1 (15) (557) (728) (107) 1 — 1,498 1,774 (3,074) 252 (6,738) (4,572) (5,431) (37) 425 (96) 287 (6,766) (4,056) (5,649) 34 212 (110) 9,125 Change -7.0% +2.5% +10.1% +0.7% -4.7% Total Sanofi 34,463 1,214 423 (106) 8,884 Total Sanofi 35,072 1,149 214 (125) 9,323 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). SANOFI / FORM 20-F 2018 103 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Business operating income: Pharmaceuticals segment (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests December 31, 2018 as % of net sales December 31, 2017(a) as % of net sales Change 24,685 100.0% 25,173 100.0% -1.9% 252 1.0% 287 1.1% -12.2% (6,738) (27.3)% (6,766) (26.9)% 73.7% (18.5)% (22.0)% 18,199 (4,572) (5,431) (37) 425 (96) 18,694 (4,056) (5,649) 34 212 (110) 9,125 74.3% -0.4% -2.6% (16.1)% +12.7% (22.4)% -3.9% 36.2% -7.0% Business operating income 8,488 34.4% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). Business operating income: Consumer Healthcare segment (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests December 31, 2018 as % of net sales December 31, 2017(a) as % of net sales Change 4,660 100% 4,798 100.0% -2.9% — -4.5% -2.0% — — — — (1,539) (33.0)% (1,612) (33.6)% 3,121 (143) 67.0% (3.1)% 3,186 (123) 66.4% (2.6)% +16.3% (1,534) (32.9)% (1,645) (34.3)% -6.7% 101 1 (10) 94 1 (15) Business operating income 1,536 33.0% 1,498 31.2% +2.5% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). Business operating income: Vaccines segment (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests December 31, 2018 as % of net sales December 31, 2017(a) as % of net sales Change 5,118 962 100% 18.8% 5,101 100.0% +0.3% 862 16.9% +11.6% (2,854) (55.8)% (2,798) (54.9)% 63.0% (10.8)% (13.9)% 3,226 (555) (710) (4) (3) — 62.0% (10.9)% (14.3)% 3,165 (557) (728) (107) 1 — +2.0% +1.9% -0.4% -2.5% Business operating income 1,954 38.2% 1,774 34.8% +10.1% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). 104 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.3. Results of operations – year ended December 31, 2017 compared with year ended December 31, 2016 The consolidated income statements for the years ended December 31, 2017 and December 31, 2016 are presented below: The figures below have been restated in accordance with the new standard on revenue recognition, IFRS 15, which became applicable on January 1, 2018. The impacts of those restatements are described in detail in Note A.2.1.1. to the consolidated financial statements. (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income Other operating expenses Amortization of intangible assets Impairment of intangible assets Fair value remeasurement of contingent consideration Restructuring costs and similar items Other gains and losses, and litigation Operating income Financial expenses Financial income Income before tax and investments accounted for using the equity method Income tax expense Share of profit/(loss) from investments accounted for using the equity method Net income excluding the exchanged/held-for-exchange Animal Health business Net income/(loss) of the exchanged/held-for-exchange Animal Health business(b) Net income Net income attributable to non-controlling interests Net income attributable to equity holders of Sanofi Average number of shares outstanding (million) Average number of shares outstanding after dilution (million) ◆ Basic earnings per share (in euros) ◆ Basic earnings per share excluding the exchanged/held-for-exchange Animal Health business (in euros) ◆ Diluted earnings per share (in euros) ◆ Diluted earnings per share excluding the exchanged/held-for-exchange Animal Health business (in euros) 2017(a) 35,072 1,149 as % of net sales 100.0% 3.3% 2016(a) 33,809 as % of net sales 100.0% 887 2.6% (11,613) (33.1%) (10,701) (31.7%) 24,608 70.2% 23 995 71.0% (5,472) (15.6%) (5,172) (15.3%) (10,072) (28.7%) (9,478) (28.0%) 237 (233) (1,866) (293) (159) (731) (215) 5,804 (420) 147 5,531 (1,722) 85 355 (482) (1,692) (192) (135) (879) 211 6,531 (924) 68 16.5% 19.3% 15.8% 5,675 16.8% (1,325) 136 3,894 11.1% 4,486 13.3% 4,643 8,537 121 8,416 1,256.9 1,266.8 6.70 3.00 6.64 2.98 24.3% 314 4,800 91 14.2% 24.0% 4,709 13.9% 1,286.6 1,296.0 3.66 3.42 3.63 3.39 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see note A.2.1.1. to our consolidated financial statements). (b) The results of the Animal Health business (in 2016), and the gain on the divestment of that business (in 2017), are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); see Notes D.2. and D.36 to the consolidated financial statements). SANOFI / FORM 20-F 2018 105 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.3.1. Net sales After the application of IFRS 15, net sales for the year ended December 31, 2017 were €35,072 million, 3.7% higher than in 2016. Exchange rate fluctuations had a negative effect of two percentage points overall, mainly as a result of unfavorable trends in the euro against the US dollar, the Egyptian pound, the Turkish lira, the Japanese yen and the Chinese yuan renminbi. At constant exchange rates (CER), net sales were up 5.7%, reflecting the acquisition of BI’s Consumer Healthcare business and the first-time consolidation of Sanofi’s European vaccines business. At constant exchange rates and on a constant structure basis (CER/CS), net sales rose by 0.5%. The following table sets forth a reconciliation of our reported net sales for the years ended December 31, 2017 and December 31, 2016 to our net sales at constant exchange rates and on a constant structure basis: (€ million) Net sales Effect of exchange rates Net sales at constant exchange rates Impact of changes in structure 2017 35,072 670 35,742 Net sales at constant exchange rates and on a constant structure basis 35,742 2016 33 809 33 809 1,741 35,550 Change +3.7% +5.7% +0.5% Net sales effect of first-time consolidation of the European vaccines activity (SPMSD transaction)(a) When we refer to changes in our net sales at constant exchange rates (CER), that means that we have excluded the effect of exchange rates by recalculating net sales for the relevant period using the exchange rates that were used for the previous period. When we refer to changes in our net sales on a constant structure basis (CS), that means that we eliminate the effect of changes in structure by restating the net sales for the previous period as follows: ◆ by including sales generated by entities or product rights acquired in the current period for a portion of the previous period equal to the portion of the current period during which Analysis of impact on net sales of changes in structure (€ million) BI Consumer Healthcare net sales(a) Total impact of BI and SPMSD Other Total impact on net sales of changes in structure (a) Based on an unaudited sales estimate. A.3.1.1. Net sales before the impact of IFRS 15 We believe that the impact of the application of IFRS 15 on net sales for the year ended December 31, 2016 is not material (€12 million). Given the significant resources required to restate such information by business, segment and geographical region, we concluded that it would be unduly burdensome to restate such amounts. Therefore, we have chosen to present our detailed analysis of net sales for 2017 and comparable information for 2016 before the impact of IFRS 15 as set forth below. These effects for the years ended December 31, 2017 and 2016 are presented in our consolidated financial statements (Note “A.2.1.1. Impacts of the first-time application of IFRS 15” to our consolidated financial statements). Details of our 2017 net sales as restated for IFRS 15 are presented in the previous 106 SANOFI / FORM 20-F 2018 we owned them, based on sales information we receive from the party from whom we make the acquisition; ◆ similarly, by excluding sales for a portion of the previous period when we have sold an entity or rights to a product in the current period; and ◆ for a change in consolidation method, by recalculating the previous period on the basis of the method used for the current period. To facilitate analysis and comparisons with prior periods, some figures are given at constant exchange rates and on a constant structure basis (CER/CS). 2016 1,484 261 1,745 (4) 1,741 section (“A.2.”) in order to facilitate comparisons with our 2018 net sales for the year ended December 31, 2018. Before the impact of IFRS 15, net sales for the year ended December 31, 2017 were €35,055 million, 3.6% higher than in 2016. Exchange rate fluctuations had a negative effect of two percentage points overall, mainly as a result of unfavorable trends in the euro against the US dollar, the Egyptian pound, the Turkish lira, the Japanese yen and the Chinese yuan renminbi. At constant exchange rates (CER), net sales were up 5.6%, reflecting the acquisition of BI’s Consumer Healthcare business and the first-time consolidation of Sanofi’s European vaccines business. At constant exchange rates and on a constant structure basis (CER/CS), net sales rose by 0.5%. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following table sets forth a reconciliation of our reported net sales for the years ended December 31, 2017 and December 31, 2016 to our net sales at constant exchange rates and on a constant structure basis: (€ million) Net sales Effect of exchange rates Net sales at constant exchange rates Impact of changes in structure 2017 35,055 672 35,727 Net sales at constant exchange rates and on a constant structure basis 35,727 2016 33,821 33,821 1,741 35,562 Change +3.6% +5.6% +0.5% 1/ Net sales by operating segment Our net sales comprise the net sales generated by our Pharmaceuticals, Consumer Healthcare and Vaccines segments. (€ million) Pharmaceuticals Consumer Healthcare Vaccines Net sales 2017 25,122 4,832 5,101 35,055 2016 25,914 3,330 4,577 33,821 Change -3.1% +45.1% +11.4% +3.6% 2/ Net sales by Global Business Unit (GBU) The table below presents net sales for our Global Business Units (GBUs), reflecting our internal organizational structure that aims to streamline our organization, sharpen our focus and concentrate our efforts on growth drivers. Note that Emerging Markets sales of Diabetes & Cardiovascular and Specialty Care products are included in the General Medicines & Emerging Markets GBU. (€ million) Sanofi Genzyme GBU(a) (Specialty Care)(b) Diabetes & Cardiovascular GBU(a) General Medicines & Emerging Markets GBU(c)(d) Total Pharmaceuticals(e) Consumer Healthcare GBU(e) Sanofi Pasteur (Vaccines) GBU Total Change on a reported basis Change at constant exchange rates +13.1% -15.6% -3.1% -3.1% +45.1% +11.4% +3.6% +15.1% -14.3% -1.0% -1.2% +46.3% +14.5% +5.6% 2016 5,019 6,397 14,498 25,914 3,330 4,577 33,821 2017 5,674 5,400 14,048 25,122 4,832 5,101 35,055 (a) Does not include Emerging Markets net sales. (b) Rare Diseases, Multiple Sclerosis, Oncology and Immunology. (c) Includes net sales in Emerging Markets of Specialty Care and Diabetes & Cardiovascular products. (d) Emerging Markets: World excluding United States, Canada, Western and Eastern Europe (apart from Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. (e) Following the integration of BI’s Consumer Healthcare business, acquired on January 1, 2017, our Consumer Healthcare business represents a separate operating segment of Sanofi in accordance with IFRS 8. Consequently, we present our Consumer Healthcare net sales separately for the year ended December 31, 2017. Comparatives for the year ended December 31, 2016 have been restated accordingly (Consumer Healthcare was previously included within the Pharmaceuticals segment). SANOFI / FORM 20-F 2018 107 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 3/ Net sales by franchise The table below sets forth our 2017 net sales by franchise in order to facilitate comparisons with our peers. For a detailed reconciliation of net sales by franchise and net sales by GBU for our Pharmaceuticals segment, refer to the table later in this section showing Pharmaceuticals segment net sales by geographical region. (€ million) Rare Diseases Multiple sclerosis Oncology Immunology Total Specialty Care of which Developed Markets (Sanofi Genzyme GBU) of which Emerging Markets(a)(b) Diabetes Cardiovascular Total Diabetes & Cardiovascular of which Developed Markets (Diabetes & Cardiovascular GBU) of which Emerging Markets(a)(b) Established Prescription Products(a) Generics(a) Total Pharmaceuticals Consumer Healthcare (Consumer Healthcare GBU) Vaccines (Sanofi Pasteur GBU) Total Change on a reported basis Change at constant exchange rates +4.0% +18.7% +4.5% +12.2% +13.1% +7.8% -12.9% +11.4% -11.5% -15.6% +7.3% -5.3% -4.1% -3.1% +45.1% +11.4% +3.6% +6.0% +20.8% +6.4% +14.5% +15.1% +11.3% -11.1% +13.3% -9.6% -14.3% +11.6% -3.4% -3.3% -1.2% +46.3% +14.5% +5.6% 2016 2,777 1,720 1,453 5,950 5,019 931 7,341 458 7,799 6,397 1,402 10,311 1,854 25,914 3,330 4,577 33,821 2017 2,888 2,041 1,519 230 6,678 5,674 1,004 6,395 510 6,905 5,400 1,505 9,761 1,778 25,122 4,832 5,101 35,055 (a) These lines are aggregated to form the net sales of the General Medicines and Emerging Markets GBU. (b) Emerging Markets: World excluding United States, Canada, Western and Eastern Europe (apart from Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. 4/ Net sales – Pharmaceuticals segment In 2017, net sales for the Pharmaceuticals segment were €25,122 million, down 3.1% on a reported basis and 1.2% at constant exchange rates (CER). The year-on-year decrease of €792 million includes a reduction of €492 million due to unfavorable exchange rate effects, and the following impacts at constant exchange rates: effect of €246 million), and positive performances for the Rare Diseases franchise (up €167 million), the Oncology franchise (up €93 million and franchise (up €61 million); the Cardiovascular ◆ offset by lower net sales for the Diabetes franchise (down (down €813 million), Established Prescription Products €351 million), and Generics (down €61 million). ◆ growth in net sales for the Multiple Sclerosis franchise (up €358 million), the launch of the Immunology franchise (positive Comments on the performances of major Pharmaceuticals segment products are provided below. 108 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Pharmaceuticals segment net sales, 2017 and 2016 (€ million) Indication 2017 2016 Cerezyme® Cerdelga® Myozyme®/Lumizyme® Fabrazyme® Aldurazyme® Other Total Rare Diseases Aubagio® Lemtrada® Total Multiple Sclerosis Jevtana® Thymoglobulin® Taxotere® Eloxatin® Mozobil® Zaltrap® Other Total Oncology Dupixent® Kevzara® Total Immunology Total Specialty Care Lantus® Toujeo® Apidra® Amaryl® Insuman® Lyxumia® Soliqua® Other Total Diabetes Multaq® Praluent® Gaucher disease Gaucher disease Pompe disease Fabry disease Mucopolysaccharidosis Multiple sclerosis Multiple sclerosis Prostate cancer Organ rejection Breast, lung, prostate, stomach, and head & neck cancers Colorectal cancer Hematologic malignancies Colorectal cancer Atopic dermatitis Rheumatoid arthritis Diabetes Diabetes Diabetes Diabetes Diabetes Diabetes Diabetes Diabetes Atrial fibrillation Hypercholesterolemia Total Cardiovascular Total Diabetes & Cardiovascular Lovenox® Plavix® Renagel®/Renvela® Aprovel®/Avapro® Depakine® Synvisc®/Synvisc-One® Allegra® Thrombosis Atherothrombosis Hyperphosphatemia Hypertension Epilepsy Arthritis Allergic rhinitis, urticaria 730 126 789 722 207 314 2,888 1,567 474 2,041 386 291 173 179 163 75 252 748 106 725 674 201 323 2,777 1,295 425 1,720 358 281 179 170 152 65 248 1,519 1,453 219 11 230 6,678 4,622 816 377 337 107 26 26 84 — — — 5,950 5,714 649 367 362 129 33 — 87 6,395 7,341 339 171 510 6,905 1,575 1,471 802 691 443 387 158 353 105 458 7,799 1,636 1,544 922 681 416 408 186 Change on a reported basis Change at constant exchange rates -2.4% +18.9% +8.8% +7.1% +3.0% -2.8% +4.0% +21.0% +11.5% +18.7% +7.8% +3.6% -3.4% +5.3% +7.2% +15.4% +1.6% +4.5% — — — +0.4% +20.8% +10.1% +9.2% +5.5% -1.2% +6.0% +23.2% +13.6% +20.8% +9.8% +5.3% -0.6% +8.2% +9.2% +16.9% +2.0% +6.4% — — — +12.2% +14.5% -19.1% +25.7% +2.7% -6.9% -17.1% -21.2% — -3.4% -12.9% -4.0% +62.9% +11.4% -11.5% -3.7% -4.7% -13.0% +1.5% +6.5% -5.1% -15.1% -17.5% +27.0% +4.9% -1.4% -15.5% -18.2% — -2.3% -11.1% -2.5% +66.7% +13.3% -9.6% -2.1% -1.2% -12.3% +3.7% +9.6% -3.9% -12.9% SANOFI / FORM 20-F 2018 109 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS (€ million) Indication 2017 2016 Change on a reported basis Change at constant exchange rates Stilnox®/Ambien®/ Myslee® Tritace® Targocid® Lasix® Other Sleep disorders Hypertension Bacterial infections Edema, hypertension Total Established Prescription Products Generics Total Pharmaceuticals Rare diseases franchise for the Rare Diseases Net sales reached €2,888 million in 2017, up 4.0% on a reported basis and 6.0% at constant exchange rates (CER). Sales growth was recorded across all geographies: 8.5% CER in Emerging Markets(1), 6.4% CER in the United States, 5.0% CER in Europe(2) and 3.9% CER in the Rest of the World region(3). franchise In Gaucher disease, net sales of Cerezyme® were stable year-on-year at €730 million. Sales growth in Emerging Markets (+2.1% CER at €229 million) offset a decrease in the Rest of the World region (-8.3% CER at €43 million). Cerdelga® reported net sales of €126 million (+20.8% CER), of which €95 million were generated in the United States (+14.1% CER). In Europe, net sales of Cerdelga® rose by 52.9% CER to €26 million. Net sales of Myozyme® / Lumizyme® in Pompe disease rose by 10.1% CER to €789 million, driven by sales in the United States (+11.3% CER, at €262 million) and Europe (+8.6% CER, at €352 million). Net sales also rose in Emerging Markets (+12.7% CER, at €116 million) and in the Rest of the World region (+8.9% CER, at €59 million). This sales growth was fueled by increased diagnosis and treatment of Pompe disease. Fabrazyme® achieved net sales growth of 9.2% CER, to €722 million. Sales are advancing in many countries due to growth in the number of patients diagnosed with, and treated for, Fabry disease. Net sales of the product were up 9.3% CER in the United States (at €369 million); 5.8% CER in Europe (at €163 million) despite the launch of new rival products; 9.5% CER in the Rest of the World region (at €112 million); and 16.2% CER in Emerging Markets (at €78 million). Multiple sclerosis franchise for the Multiple Sclerosis Net sales franchise reached €2,041 million in 2017, up 18.7% on a reported basis and 20.8% CER, on strong performances by Aubagio® and Lemtrada® in the United States and Europe. 259 241 130 137 3,467 9,761 1,778 25,122 304 245 149 148 3,672 10,311 1,854 25,914 -14.8% -1.6% -12.8% -7.4% -5.6% -5.3% -4.1% -3.1% -13.5% +1.2% -10.1% -4.7% -4.1% -3.4% -3.3% -1.2% Aubagio® posted net sales of €1,567 million (+23.2% CER), driven by the United States (+22.0% CER, at €1,084 million) and Europe (+26.0% CER, at €387 million). Net sales of Lemtrada® amounted to €474 million (+13.6% CER), including €246 million in the United States (+7.3% CER) and €174 million in Europe (+18.5% CER). Oncology franchise The Oncology franchise generated net sales of €1,519 million, up 4.5% on a reported basis and 6.4% CER, due largely to public-sector orders for Leukine® in the United States, a good performance for the franchise in Emerging Markets, and overall growth in sales of Jevtana® and Thymoglobulin®. Net sales of Jevtana® totaled €386 million in 2017 (+9.8% CER), driven by growth the United States (+6.6% CER, at €159 million), Europe (+7.2% CER, at €148 million) and Japan (+17.1% CER, at €46 million). in Thymoglobulin® net sales rose by 5.3% CER to €291 million, largely on a good performance in Emerging Markets (+13.6% CER, at €66 million). Net sales of Taxotere® were stable year-on-year at €173 million. This reflects stronger sales in Emerging Markets (+7.7% CER, at €136 million), especially in China (+13.6% CER, at €65 million), which more than offset the effect of competition from generics, especially in Japan (-38.5% CER, at €15 million). Net sales of Eloxatin® rose by 8.2% CER to €179 million. This reflects stronger sales in Emerging Markets (+13.4% CER, at €147 million), especially in China (+15.2% CER, at €103 million), which more than offset a fall in Canadian sales due to competition from generics. (1) World excluding United States, Canada, Western and Eastern Europe (apart from Russia, Ukraine, Georgia, Belarus, Armenia and Turkey), Japan, South Korea, Australia, New Zealand and Puerto Rico. (2) Western Europe and Eastern Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (3) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. 110 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Immunology franchise in (dupilumab, developed Dupixent® collaboration with Regeneron), for adults with moderate to severe atopic dermatitis, was approved by the FDA in March 2017 and made available in the US market. Since then, the product has generated US net sales of €216 million, reflecting substantial unmet medical needs and rapid access to the market. In Europe, Dupixent® was approved at the end of September 2017 for the treatment of adults with moderate to severe atopic dermatitis requiring systemic treatment; the product was made available at the end of the year in Germany, where it generated net sales of €2 million. in (sarilumab, developed Kevzara® collaboration with Regeneron), a treatment for rheumatoid arthritis, was approved by the FDA on May 22, 2017 and made available in June 2017 in the US market, where it achieved net sales of €10 million. The product has also been approved in Europe, and has been launched in a number of countries (Germany, the Netherlands and the United Kingdom). Diabetes franchise Net sales for the Diabetes franchise amounted to €6,395 million in 2017, down 12.9% on a reported basis and 11.1% CER. The main factor was a fall in sales of Lantus® in the United States, where Diabetes franchise net sales were down 22.8% CER at €3,128 million. As previously indicated, the decline in US net sales for the Diabetes franchise accelerated during 2017, following the consecutive exclusion of a number of diabetes treatments from the reimbursement lists of two of the country’s leading healthcare insurance providers: UnitedHealth (from April 1, 2017) and CVS. Outside the United States, Diabetes franchise net in Emerging Markets (+11.4% CER, at €1,494 million) but fell in Europe (-2.0% CER, at €1,287 million), where a good performance from Toujeo® partially compensated for weaker sales of Lantus®. sales advanced In 2017, net sales of insulin glargines (Lantus® and Toujeo®) were down 13.0% CER at €5,438 million. Net sales of Lantus® were down 17.5% CER in 2017, at €4,622 million. In the United States, sales were down 26.6% CER at €2,542 million, due mainly to a lower average net price, the switching of patients to Toujeo®, and the effect of the product’s exclusion from reimbursement lists as described above. Net sales in Europe fell by 12.8% CER to €760 million, due largely to the launch of a biosimilar of Lantus® and the switching of patients to Toujeo®. Over the same period, sales of Lantus® in Emerging Markets reached €1,005 million, up 9.2% CER, driven largely by Africa and Middle East (+18.8% CER, at €288 million) and Asia (+10.6% CER, at €424 million), especially China (+15.8% CER, at €319 million). During 2017, Sanofi filed two patent infringement suits relating to Lantus® in the United States District Court for the District of New Jersey (United States): one against Merck (in August) and the other against Mylan (in October). For further information, refer to “Item 8 – Information on Legal or Arbitration Proceedings”. The new-generation basal insulin Toujeo® posted net sales growth of 27.0% CER in 2017, to €816 million. Net sales in the to €455 million United States decreased by 2.1% CER essentially as the result of a decrease in the average net price of the product during the fourth quarter of 2017. However, this was more than offset by sales growth in Europe (+80.8% CER, at €217 million), Emerging Markets (+300.0% CER, at €79 million) and the Rest of the World region (+88.6% CER, at €65 million). Net sales of Amaryl® fell by 1.4% CER in 2017, to €337 million. Sales growth in Emerging Markets (+2.1% CER, at €278 million) did not fully compensate for lower net sales in the Rest of the World region (-10.0% CER, at €36 million) and in Europe (-22.2% CER, at €21 million). Net sales of Apidra® rose by 4.9% CER in 2017, to €377 million. Lower sales in the United States (-10.4% CER, at €102 million) were offset by sales growth in Emerging Markets (+25.9% CER, at €97 million) and in Europe (+7.1% CER, at €136 million). Soliqua® 100/33 / Suliqua® (injectable insulin glargine 100 Units/ mL and lixisenatide 33 mcg/mL) were launched at the start of 2017 in the United States, and at the end of 2017 in the Netherlands. Soliqua® 100/33 has generated €26 million of net sales in the United States since launch. Cardiovascular franchise In 2017, net sales of Praluent® (alirocumab, developed in collaboration with Regeneron) reached €171 million, of which €116 million was generated in the United States and €46 million in Europe. The relatively limited rise in sales during the period reflects significant restrictions by US payers and limited access to the European market. In October 2017, the US Court of Appeals for the Federal Circuit ordered a new trial and vacated the permanent injunction in the dispute concerning Amgen’s asserted patent claims for antibodies targeting PCSK9. This ruling means that Sanofi and Regeneron will continue marketing, selling and manufacturing Praluent® in the US. For further information on litigation relating to Praluent®, refer to Note D.22. to our consolidated financial statements (included as Item 18 of this Annual Report on Form 20-F) and “– Item 8 – Information on Legal or Arbitration Proceedings”. Net sales of Multaq® amounted to €339 million in 2017, down 2.5% CER year-on-year. The bulk of the sales were generated in the United States (-2.7% CER, at €286 million) and Europe (-2.3% CER, at €42 million). Established prescription products Net sales of Established Prescription Products in 2017 were €9,761 million, down 5.3% on a reported basis and 3.4% CER. Growth in Emerging Markets net sales (+4.8% CER, at €3,800 million) failed to offset lower net sales in Europe (-4.4% CER, at €3,473 million), the start of generic competition for Renvela®/Renagel® in the United States, and the impact of SANOFI / FORM 20-F 2018 111 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS competition from generics of Plavix® in Japan. In the United States and the Rest of the World region, net sales of Established Prescription Products fell by 13.8% CER (to €1,269 million) and 11.7% CER (to €1,219 million), respectively. Net sales of Lovenox® were €1,575 million, down 2.1% CER, due largely to increased competition in Europe (-7.1% CER, at €951 million) with the arrival of biosimilars in the United Kingdom and Germany. This decline canceled out a good performance in Emerging Markets (+7.8% CER, at €475 million). Net sales of Plavix® in 2017 were €1,471 million (-1.2% CER), in Japan (-30.7% CER, at reflecting generic competition €235 million) and Europe (-7.4% CER, at €150 million). The effect was partly offset by growth in sales of Plavix® in Emerging Markets (+10.4% CER, at €1,026 million), especially in China where the product posted net sales of €758 million (+12.1% CER). Sales of Plavix® in the United States and Puerto Rico are handled by BMS under the terms of the Sanofi-BMS alliance (see Note C.2., “Alliance Arrangements with Bristol-Myers Squibb (BMS)”, to our consolidated financial statements, included at Item 18 of this Annual Report on Form 20-F). Renvela®/Renagel® posted net sales of €802 million in 2017, down 12.3% CER, mainly on generic competition the United States (-14.8% CER, at €645 million) where the first generic versions in powder and pill form were approved in June and July 2017, respectively. In October 2017, Sanofi launched an approved generic version of Renvela®/Renagel® the United States. In Europe, sales of Renvela®/Renagel® fell by 13.4% CER to €71 million, also due to competition from generics. in in Net sales of Aprovel®/Avapro® for 2017 were €691 million (+3.7% CER), largely on sales growth in Emerging Markets (+8.7% CER, at €433 million), especially China (+14.2% CER, at €264 million), and in the Rest of the World region (+3.1% CER, at €132 million). In Europe, net sales of Aprovel®/Avapro® were down 9.4% CER at €115 million, due to competition from generics. We have no comments on sales of our other Established Prescription Products. Generics Generics net sales for 2017 were €1,778 million, down 4.1% on a reported basis and 3.3% CER. Emerging Markets generated net sales of €758 million, down 2.9% CER, due mainly to lower sales in Asia (-68.5% CER, at €22 million) following the divestment of a distribution business in China. The decrease in net sales in Asia more than offset increased Generics sales in Latin America (+1.7% CER, at €428 million), Africa and Middle East (+1.6% CER, at €117 million) and Eurasia (+9.3% CER, at €190 million). Generics sales were also lower in Europe (-4.9% CER, at €760 million) and (-12.0% CER, at the United States €150 million), but increased in the Rest of the World region (+23.9% CER, at €110 million). We have confirmed our commitment to our Generics business in other parts of the world, and will focus more on Emerging Markets in order to develop the business in those countries. The following table breaks down 2017 net sales of our Pharmaceuticals segment products by geographical region: Rest (€ million) Cerezyme® Cerdelga® Myozyme®/Lumizyme® Fabrazyme® Aldurazyme® Other Total Rare Diseases Aubagio® Lemtrada® Total Change Total GBU Europe(a) at CER States at CER world(b) at CER Markets(c) at CER Franchise at CER of the Change Emerging Change Change United Change 501 125 673 644 142 269 2,354 1,530 450 281 +0.7% 177 0.0% 43 -8.3% 229 +2.1% 730 +0.4% 26 +52.9% 95 +14.1% 4 0.0% 1 — 126 +20.8% 352 +8.6% 262 +11.3% 59 +8.9% 116 +12.7% 789 +10.1% 163 +5.8% 369 +9.3% 112 +9.5% 78 +16.2% 722 +9.2% 75 +1.3% 42 +2.4% 25 +8.3% 65 +11.7% 207 +5.5% 64 -4.5% 113 -5.8% 92 0.0% 45 +15.8% 314 -1.2% 961 +5.0% 1,058 +6.4% 335 +3.9% 534 +8.5% 2,888 +6.0% 387 +26.0% 1,084 +22.0% 59 +31.1% 37 +17.6% 1,567 +23.2% 174 +18.5% 246 +7.3% 30 +26.1% 24 +38.9% 474 +13.6% Total Multiple Sclerosis 1,980 561 +23.5% 1,330 +19.0% 89 +29.4% 61 +25.0% 2,041 +20.8% Jevtana® Thymoglobulin® Taxotere® Eloxatin® Mozobil® Zaltrap® Other 359 225 37 32 154 67 236 148 +7.2% 159 +6.6% 52 +25.0% 27 +17.4% 386 +9.8% 39 +2.6% 162 +3.8% 24 0.0% 66 +13.6% 3 4 -25.0% — -100.0% 34 -14.6% 136 +7.7% 0.0% 1 — 27 -15.6% 147 +13.4% 44 +4.8% 96 +3.2% 14 +87.5% 51 +8.5% 9 -35.7% 7 — 9 +28.6% 8 +125.0% 291 173 179 163 +5.3% -0.6% +8.2% +9.2% 75 +16.9% 51 +1.9% 162 +3.8% 23 -16.7% 16 +13.3% 252 +2.0% 112 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS (€ million) Total GBU Europe(a) Change at CER United States Change at CER Rest of the world(b) Change at CER Emerging Markets(c) Change at CER Total Franchise Change at CER Total Oncology 1,110 340 +5.2% 589 +2.9% 181 +5.8% 409 +13.2% 1,519 +6.4% Dupixent® Kevzara® Total Immunology Sanofi Genzyme (Specialty Care) Lantus® Toujeo® Apidra® Amaryl® Insuman® Lyxumia® Soliqua® Other Total Diabetes Multaq® Praluent® Total Cardiovascular Total Diabetes & Cardiovascular Lovenox® Plavix® Renagel®/Renvela® Aprovel®/CoAprovel® Depakine® Synvisc® / Synvisc-One® Allegra® Stilnox®/Ambien®/ Myslee® Tritace® Targocid® Lasix® Other Total Established Prescription Products Generics Total Emerging Markets – Specialty Care Total Emerging Markets – Diabetes & Cardiovascular General Medicines & Emerging Markets 737 280 59 78 24 26 80 802 691 443 387 158 259 241 130 137 219 11 230 2 1 3 — — — 216 10 226 — — — 1 — 1 — — — — — — — — — 219 11 230 — — — 5,674 1,865 +10.2% 3,203 +19.8% 606 +7.7% 1,004 +11.3% 6,678 +14.5% 3,617 760 -12.8% 2,542 -26.6% 315 -10.7% 1,005 +9.2% 4,622 -17.5% 217 +80.8% 455 -2.1% 65 +88.6% 79 +300.0% 816 +27.0% 136 +7.1% 102 -10.4% -22.2% -7.3% -23.8% — 2 2 -33.3% -33.3% — 26 — — 21 76 16 — 61 42 36 — 8 — 0.0% -10.0% — 0.0% — -4.7% -1 -133.3% 20 +23.5% 97 +25.9% 278 +2.1% 377 337 +4.9% -1.4% 29 -29.5% 107 -15.5% 2 -33.3% — — 4 +33.3% 26 -18.2% 26 84 — -2.3% 4,901 1,287 -2.0% 3,128 -22.8% 486 -1.4% 1,494 +11.4% 6,395 -11.1% 332 167 499 42 -2.3% 286 -2.7% 46 +155.6% 116 +40.0% 88 +43.5% 402 +6.8% 4 -25.0% 5 +500.0% 9 +80.0% 7 +16.7% 4 +300.0% 339 -2.5% 171 +66.7% 11 +57.1% 510 +13.3% 5,400 1,375 +0.1% 3,530 -20.2% 495 -0.6% 1,505 +11.6% 6,905 -9.6% 1,575 1,471 951 150 -7.1% -7.4% 58 +9.3% 91 -2.2% 475 +7.8% 1 0.0% 294 -26.0% 1,026 +10.4% 1,575 1,471 -2.1% -1.2% 71 -13.4% 645 -14.8% 36 +6.1% 50 +20.9% 802 -12.3% 11 -20.0% 132 +3.1% 433 +8.7% 691 +3.7% -9.4% +1.2% 115 161 30 9 — — -9.1% 292 -5.1% 15 14 0.0% 0.0% 0.0% — — 149 -13.6% 40 -9.1% 55 -33.3% 106 -8.3% 152 -1.3% 59 72 -18.9% -4.0% — — — — — — 5 +25.0% 6 -14.3% 11 -36.8% 267 +15.8% 443 +9.6% 51 — 58 84 65 54 +6.3% 387 -3.9% — 158 -12.9% +1.8% +4.6% 0.0% +5.6% 259 -13.5% 241 +1.2% 130 -10.1% 137 -4.7% 3,467 1,663 -1.7% 207 -19.7% 360 -5.5% 1,237 -3.8% 3,467 -4.1% 9,761 1,778 3,473 -4.4% 1,269 -13.8% 1,219 -11.7% 3,800 +4.8% 9,761 -3.4% 760 -4.9% 150 -12.0% 110 +23.9% 758 -2.9% 1,778 -3.3% 1,004 — — — — — — 1,004 +11.3% — — 1,505 — — — — — — 1,505 +11.6% — — 14,048 4,233 -4.5% 1,419 -13.6% 1,329 -9.5% 7,067 +6.2% Total Pharmaceuticals 25,122 7,473 -0.3% 8,152 -6.7% 2,430 -4.0% 7,067 +6.2% 25,122 -1.2% (a) Western Europe and Eastern Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (b) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. (c) World excluding United States, Canada, Western and Eastern Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. SANOFI / FORM 20-F 2018 113 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 5/ Net sales – Consumer Healthcare segment During 2017, we gradually integrated the Consumer Healthcare operations of BI into our Consumer Healthcare GBU. Following completion of the integration process and with effect from December 31, 2017, we identified our Consumer Healthcare business as an operating segment. Consequently, the net sales of our Consumer Healthcare business are presented separately below, for 2017 and comparative periods. Net sales of Consumer Healthcare products reached €4,832 million in 2017, up 45.1% on a reported basis and 46.3% at constant exchange rates, reflecting the acquisition of BI’s Consumer Healthcare business. On a constant structure basis and at constant exchange rates, Consumer Healthcare net sales rose by 2.1%, driven by growth in Emerging Markets and Europe. (€ million) Allegra® Mucosolvan® Other Allergy, Cough and Cold Doliprane® Buscopan® Other Pain Dulcolax® Enterogermina® Essentiale® Zantac® Other Digestive Pharmaton® Other Nutritionals Gold Bond® Other 2017 423 125 678 1,226 323 191 744 1,258 211 168 150 117 284 930 100 552 652 201 565 2016 417 — 374 791 309 — 563 872 — 159 145 — 217 521 — 450 450 195 501 Other products Total Consumer Healthcare 766 4,832 696 3,330 Change on a reported basis Change at constant exchange rates +1.4% — +81.3% +55.0% +4.5% — +32.1% +44.3% — +5.7% +3.4% — +30.9% +78.5% — +22.7% +44.9% +3.1% +12.8% +10.1% +45.1% +2.4% — +84.0% +56.6% +5.5% — +32.5% +45.9% — +6.9% +0.7% — +31.8% +79.5% — +22.2% +44.9% +5.6% +13.4% +11.2% +46.3% In Emerging Markets, Consumer Healthcare net sales rose by 31.3% CER in 2017 to €1,616 million. On a constant structure basis and at constant exchange rates (CER/CS), net sales rose by 3.0%, driven by growth for Pain Relief (+43.9% CER and +5.5% CER/CS, at €454 million), Allergy, Cough and Cold (+33.1 CER and +5.0% CER/CS, at €349 million) and Digestive Health (+22.1% CER and +3.3% CER/CS, at €377 million), though the effect was mitigated by lower sales in Food Supplements (+36.5% CER but -3.6% CER/CS, at €273 million). In Europe, net sales rose by 62.0% CER to €1,422 million. On a constant structure basis and at constant exchange rates, net sales were up 2.0%, propelled by growth in Pain Relief (+34.8% CER and +4.3% CER/CS, at €515 million) and in particular higher sales of Doliprane® in France. In the United States, net sales advanced by 22.5% CER to €1,133 million. On a constant structure basis and at constant exchange rates, net sales rose by 1.3%, driven by strong growth in Allergy, Cough and Cold (+10.8% CER and CER/CS, at €367 million), largely as a result of the launch of Xyzal® Allergy 24HR (net sales €65 million) which was authorized for OTC sale in February 2017. However the effect was offset by lower net sales in Digestive Health (-13.1% CER/CS, at €188 million), especially sales of Zantac®. In the Rest of the World region, Consumer Healthcare net sales for 2017 reached €661 million, up 145.1% CER. On a constant structure basis and at constant exchange rates, net sales rose by 1.5%, driven by Pain Relief (+9.4% CER/CS, at €122 million) and Digestive Health (+13.5% CER/CS, at €58 million). The effect was partly offset by lower sales in Allergy, Cough and Cold (-12.5% CER/CS, at €158 million). 114 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following table breaks down 2017 net sales of our Consumer Healthcare segment by geographical region: Total Europe(a) United States Change at CER Change at CER +33.3% — 12 58 282 +145.2% 423 125 678 Rest of the world(b) 47 15 Change at CER Emerging Markets(c) Change at CER +17.5% 131 +6.4% — 52 — 96 +284.6% 166 +20.1% 158 +143.9% 349 +33.1% Allergy, Cough and Cold 1,226 352 +183.9% 233 — 134 367 — — 167 167 61 — — -3.3% — +49.4% +10.8% — — +8.3% +8.3% — — — — — 2 2 198 211 409 — -50.0% -50.0% +5.8% -6.1% -0.7% 323 191 744 1,258 211 168 150 117 284 930 100 552 652 201 565 766 277 76 162 515 93 64 34 — 116 307 20 102 122 — 126 126 +6.5% — +32.0% +34.8% — -3.0% +17.2% +34.9% +70.2% — +7.4% +28.7% — +30.6% +30.6% — 17 — — 105 +692.9% 122 +814.3% 22 — 1 12 — — — — — +67.7% +67.7% — 255 255 3 46 98 310 454 — — +12.6% +43.9% 35 — 104 +14.0% 115 — 123 377 80 193 -3.4% — +23.2% +22.1% — -5.1% 273 +36.5% — — — 65 +113.8% 163 +12.4% 68 +100.0% 163 +12.4% — 105 22 -12.0% 23 +271.4% 188 +668.0% 58 +742.9% (€ million) Allegra® Mucosolvan® Other Doliprane® Buscopan® Other Pain Dulcolax® Enterogermina® Essentiale® Zantac® Other Digestive Pharmaton® Other Nutritionals Gold Bond® Other Other products Total Consumer Healthcare 4,832 1,422 +62.0% 1,133 +22.5% 661 +145.1% 1,616 +31.3% (a) Western Europe and Eastern Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (b) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. (c) World excluding United States, Canada, Western and Eastern Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. 6/ Net Sales – Vaccines segment In 2017, net sales for our Vaccines segment were €5,101 million, up 11.4% on a reported basis and 14.5% CER, as a result of the dissolution of the SPMSD joint venture in Europe. On a constant structure basis and at constant exchange rates, Vaccines net sales rose by 8.3%, driven mainly by the performance of the Polio/Pertussis/Hib franchise across all geographies. In the United States, Vaccines net sales increased by 5.6% CER to €2,570 million. Net sales for the Vaccines segment in Emerging Markets were up 7.8% CER at €1,575 million. In Europe, Vaccines net sales reached €630 million (+137.3% CER and +20.7% CER/CS). SANOFI / FORM 20-F 2018 115 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The table below sets forth 2017 and 2016 net sales for our Vaccines segment by product range: (€ million) Polio/Pertussis/Hib Vaccines (including Hexaxim®/Hexyon®, Pentacel®, Pentaxim® and Imovax®) Influenza vaccines (including Vaxigrip®, Fluzone HD® and Fluzone®) Meningitis/Pneumonia Vaccines (including Menactra®) Travel and Other Endemics Vaccines Adult Booster Vaccines (including Adacel®) Dengvaxia® Other Vaccines Total Vaccines Change on a reported basis Change at constant exchange rates 2017 2016 1,827 1,589 623 493 474 3 92 1,495 1,521 633 368 417 55 88 +22.2% +24.3% +4.5% -1.6% +9.5% +0.2% +34.0% +35.9% +13.7% +16.5% -94.5% +4.5% -98.2% +9.1% 5,101 4,577 +11.4% +14.5% In 2017, Polio/Pertussis/Hib vaccines posted net sales of €1,827 million (+24.3% CER). On a constant structure basis and at constant exchange rates, net sales for the franchise rose by 15.3%. In Emerging Markets, sales for this franchise reached €940 million (+14.5% CER), driven by strong growth in Asia (+44.1% CER, at €360 million) on higher sales of Pentaxim® in China, although we expect more limited shipments there in the first half of 2018. Net sales of Polio/Pertussis/Hib vaccines also advanced in the United States (+10.1% CER, at €435 million) and in Europe (+37.3% CER/CS, at €300 million), reflecting good performances by Pentacel® and Hexaxim®, respectively. Net sales of Influenza vaccines rose by 9.5% CER, to €1,589 million. This performance reflected higher sales for the franchise in the United States (+7.3% CER, at €1,128 million), largely as a result of sales to the Biomedical Advanced Research and Development Authority (BARDA) of the US Department of Health and Human Services. Sales of influenza vaccines also rose in Emerging Markets (+7.4% CER, at €297 million) largely on sales growth in Brazil, and in Europe (+12.9% CER/CS, at €113 million) due in particular to the success of VaxigripTetra®. Net sales of Meningitis/Pneumonia vaccines were stable year-on-year at €623 million. Menactra® posted net sales of €600 million (+4.6% CER), of which €484 million was generated in the United States. Net sales of Travel and Other endemics vaccines increased by 35.9% CER in 2017, to €493 million. On a constant structure basis and at constant exchange rates, net sales rose by 19.0%, reflecting increased supply of rabies and hepatitis A vaccines. Net sales of Adult Booster vaccines in 2017 were €474 million, up 16.5% CER. On a constant structure basis and at constant exchange rates, net sales were virtually unchanged year-on-year (-0.2%). in Europe (+6.2% CER/CS, at €119 million) and the Rest of the World region (+12.5% CER, at €26 million) offset lower sales in Emerging Markets (-22.9% CER, at €37 million). Increased sales Dengvaxia® posted net sales of €3 million in 2017, reflecting repurchases of inventory following discontinuation of the public vaccination program initiated in the Philippines in early 2016. On November 29, 2017 Sanofi announced results of a new analysis of long-term Dengvaxia® data which found differences in vaccine performance depending on whether or not the vaccinated individual had previously been infected with the dengue virus. 116 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following table presents the 2017 net sales of our Vaccines segment by geographical region: (€ million) Polio/Pertussis/Hib Vaccines (including Hexaxim®/Hexyon®, Pentacel®, Pentaxim® and Imovax®) Influenza Vaccines (including Vaxigrip®, Fluzone HD® and Fluzone®) Meningitis/Pneumonia Vaccines (including Menactra®) Travel and Other Endemics Vaccines Adult Booster Vaccines (including Adacel®) Dengvaxia® Other Vaccines Total Vaccines Total Europe(a) Change at CER United States Change at CER Rest of the world(b) Change at CER Emerging Markets(c) Change at CER 1,827 300 +187.6% 435 +10.1% 152 +2.6% 940 +14.5% 1,589 113 +37.3% 1,128 +7.3% 51 +28.2% 297 +7.4% 623 493 474 3 92 1 -80.0% 485 -4.1% 34 +106.3% 103 +9.6% 90 +253.8% 155 +26.2% 54 +6.0% 194 +18.1% 119 +172.7% — 7 — +40.0% 292 — 75 — — +8.3% 26 — 9 +17.4% 37 -22.9% — — 3 1 -98.2% — 5,101 630 +137.3% 2,570 +5.6% 326 +13.4% 1,575 +7.8% (a) Western Europe and Eastern Europe excluding Eurasia (Russia, Ukraine, Georgia, Belarus, Armenia and Turkey). (b) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. (c) World excluding United States, Canada, Western and Eastern Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. 7/ Net sales by geographical region The following table presents our net sales by geographical region for the years ended December 31, 2017 and 2016: (€ million) United States Emerging Markets(a) of which Asia (including South Asia(b)) of which Latin America of which Africa and Middle East of which Eurasia(c) Europe(d) Rest of the world(e) of which Japan of which South Korea Total net sales Change on a reported basis Change at constant exchange rates -4.3% +6.9% +7.6% +13.3% -3.3% +13.9% +9.7% +8.2% +6.8% +18.3% +3.6% -2.0% +9.7% +10.3% +12.8% +2.5% +18.3% +10.2% +10.6% +11.6% +17.8% +5.6% 2016 12,391 9,593 3,468 2,503 2,405 1,090 8,679 3,158 1,688 360 33,821 2017 11,855 10,258 3,732 2,837 2,326 1,242 9,525 3,417 1,803 426 35,055 (a) World excluding United States, Canada, Western and Eastern Europe (apart from Eurasia), Japan, South Korea, Australia, New Zealand and Puerto Rico. (b) India, Bangladesh and Sri Lanka. In 2016, South Asia was included in the Africa, Middle East and South Asia region. The presentation of 2016 net sales has been amended accordingly in the interests of comparability. (c) Russia, Ukraine, Georgia, Belarus, Armenia and Turkey. (d) Western Europe and Eastern Europe (excluding Eurasia). (e) Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico. SANOFI / FORM 20-F 2018 117 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Sales in the United States totaled €11,855 million in 2017, down 4.3% on a reported basis and 3.5% on a constant structure basis and at constant exchange rates. The main factor was lower sales for two franchises: Diabetes (-22.8% CER at €3,128 million), and Established Prescription Products at €1,269 million) due to competition from generics of Renvela®/ Renagel®. The impact was partly offset by the performance of the Multiple Sclerosis franchise (+19.0% CER, at €1,330 million), the launch of Dupixent®, and growth in Vaccines sales (+5.6% CER at €2,570 million). (-13.8% CER, In Emerging Markets, net sales reached €10,258 million, up 6.9% on a reported basis and up 9.7% CER. On a constant structure basis and at constant exchange rates net sales rose by 6.0%, driven by sales growth for Established Prescription Products (+4.8% CER, at €3,800 million) and the Diabetes franchise (+11.4% CER, at €1,494 million), and a good performance from Vaccines (+7.8% CER, at €1,575 million). In Asia, net sales were €3,732 million, up 10.3% CER (+8.7% CER/CS), reflecting a solid performance in China (+15.1% CER/ CS, at €2,218 million) on a recovery in Vaccines sales and growth for Established Prescription Products and the Diabetes franchise. In Latin America, net sales advanced by 12.8% CER to €2,837 million, boosted by good (+5.9% CER/CS) performances in Brazil (+5.7% CER/CS) and Argentina (+21.0% CER/CS, at €311 million). Net sales in Brazil reached €1,133 million, driven by Established Prescription Products and Consumer Healthcare. In the Africa and Middle East region, net sales totaled €2,326 million, up 2.5% CER but down 0.5% on a constant structure basis and at constant exchange rates. Solid performances in Egypt (+28.3% CER/CS) and Algeria (+6.8% CER/CS) were offset by lower sales in Morocco (-27.0% CER/ CS) following the divestment of the Maphar site, in Saudi Arabia (-7.5% CER/CS), and in South Africa (-7.1% CER/CS). In the Eurasia region net sales reached €1,242 million, up 18.3% CER (+12.6% CER/CS) reflecting strong sales growth in Turkey (+18.1% CER/CS) and in Russia (+8.2% CER/CS). Net sales in Russia were €642 million, driven by Consumer Healthcare and by the Diabetes and Rare Diseases franchises. In Europe, net sales were €9,525 million, up 10.2% CER and stable on a constant structure basis and at constant exchange rates. Lower sales of Established Prescription Products (-5.6% CER/CS, at €3,473 million) were offset by growth in sales of Vaccines (+20.7% CER/CS, at €630 million) and the Multiple Sclerosis franchise (+23.5% CER/CS, at €561 million). Net sales in France amounted to €2,330 million, down 2.3% CER/CS, as lower sales of Established Prescription Products and Generics were only partially offset by sales growth for Vaccines, Consumer Healthcare and the Multiple Sclerosis franchise. This reflects a drop in sales for Established Prescription Products (-11.8% CER/CS, at €1,219 million) and the Diabetes franchise (-1.4% CER/CS, at €486 million), partly offset by stronger sales for Vaccines, franchise, Generics and Consumer Healthcare. In Japan, net sales were up 11.6% CER at €1,803 million. On a constant structure basis, Japanese net sales fell by 7.3% due to the impact of generic competition for Plavix® and lower sales of Lantus®. the Specialty Care A.3.2. Other income statement items The figures below have been restated in accordance with the new standard on revenue recognition, IFRS 15, which became applicable on January 1, 2018. The those restatements are described in detail in Note A.2.1.1. to the consolidated financial statements. impacts of 1/ Other revenues Other revenues mainly comprise royalties under licensing agreements, and VaxServe sales of non-Sanofi products. Other revenues rose by 29.5% to €1,149 million in 2017, compared with €887 million in 2016. This was mainly due to higher sales at VaxServe (€859 million, versus €581 million in 2016). 2/ Gross profit reached €24,608 million Gross profit in 2017, versus €23,995 million in 2016, a rise of 2.5%. The gross margin ratio (gross profit as a percentage of net sales) was 70.2% in 2017 compared with 71.0% in 2016. The decrease includes the impact of the fair value remeasurement of inventories acquired in the exchange transaction with BI (€166 million in 2017). The gross margin ratio for the Pharmaceuticals segment(1) decreased by 0.2 of a percentage point to 72.2%, mainly reflecting the negative effect of lower US sales for the Diabetes franchise, though the effect was partly offset by Emerging Markets (especially China), and the Multiple Sclerosis and Immunology franchises. The gross margin ratio for the Vaccines segment(2) was 0.2 of a percentage point lower at 61.7%. 3/ Research and development expenses Research and development (R&D) expenses amounted to €5,472 million in 2017 (versus €5,172 million in 2016) and represented 15.6% of net sales (versus 15.3% in 2016). The overall year-on-year increase of €300 million (+5.8%) included €217 million for the Pharmaceuticals segment(1) (+4.7%) and €83 million for the Vaccines segment(2) (+15.0%). In the Rest of the World region, net sales rose by 10.6% CER to €3,417 million. However, on a constant structure basis and at constant exchange rates net sales for the region fell by 1.5%. The year-on-year increase in R&D expenses was due partly to the integration of BI Consumer Healthcare products and of Sanofi products that were previously in the SPMSD portfolio, and partly (1) Includes the Consumer Healthcare business and an allocation of global support function costs. For more information see “– A.3.3. – Segment Results” below. (2) Includes an allocation of global support function costs. For more information see “– A.3.3. – Segment Results” below. 118 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS to progress on development projects (isatixumab, PD-1) and for sotagliflozin. in immuno-oncology (€365 million in 2017, versus €482 million in 2016) as some products reached the end of their life cycles. 4/ Selling and general expenses 7/ Impairment of intangible assets Selling and general expenses totaled €10,072 million (28.7% of net sales), compared with €9,478 million in 2016 (28.0% of net sales). This represents a year-on-year rise of €594 million (+6.3%). Selling and general expenses for the Pharmaceuticals(1) and Vaccines(2) segments rose by €455 million (+5.2%) and €138 million (+18.6%), respectively. This increase mainly reflected the launch costs of Dupixent®, Kevzara® and Xyzal®, plus investment in marketing and sales efforts in key emerging markets and in the European vaccines business. 5/ Other operating income and expenses Overall, this represented net income of €4 million in 2017, compared with a net expense of €127 million in 2016. In 2017, this line item showed impairment losses of €293 million against intangible assets, compared with €192 million in 2016. In 2017, this line item included (i) a €190 million impairment loss taken against intangible assets associated with the dengue vaccine; (ii) a €54 million impairment loss relating to Clostridium difficile vaccine development projects following our decision to discontinue the related programs; and (iii) impairment losses of €23 million taken against rights relating to a number of marketed products in the Pharmaceuticals segment. In 2016, this line item included (i) a net impairment loss of €58 million on various R&D projects in the Pharmaceuticals and Vaccines segments; and (ii) impairment losses of €134 million taken against rights relating to a number of marketed products in the Pharmaceuticals segment. (€ million) Other operating income 2017 237 2016 355 Other operating expenses (233) (482) Change 2017/2016 -118 +249 Other operating income/ (expenses), net 4 (127) +131 from our pharmaceutical alliance partners The overall year-on-year positive change of €131 million reflected (i) a reduction in operating foreign exchange losses from €146 million (including €102 million on our Venezuelan operations) in 2016 to €80 million in 2017; and (ii) a decrease in income from €191 million in 2016 to €7 million in 2017, mainly relating to Regeneron following the launch of Dupixent® and Kevzara®. This was partly offset by (i) gains on disposals relating to ongoing operations (€90 million in 2017, compared with €40 million in 2016) and (ii) impairment losses of €87 million taken against property, plant and equipment associated with the dengue vaccine (see Notes D.25. and D.26. to our consolidated financial statements). 6/ Amortization of intangible assets Amortization charged against intangible assets amounted to €1,866 million in 2017, versus €1,692 million in 2016. rise in amortization expense The €174 million year-on-year increase was mainly due to a €245 million the recognition of intangible assets in connection with the exchange transaction with BI finalized on January 1, 2017. The effect was partly offset by a reduction in amortization charged against intangible assets recognized on the acquisition of Aventis following 8/ Fair value remeasurement of contingent consideration Fair value remeasurements of contingent consideration liabilities recognized on acquisitions in accordance with the revised IFRS 3 represented a net expense of €159 million in 2017, versus a net expense of €135 million in 2016. The 2017 remeasurements relate to contingent consideration arising from the dissolution of the SPMSD joint venture (expense of €187 million), and to contingent consideration payable to Bayer as a result of an acquisition made by Genzyme prior to the latter’s acquisition by Sanofi (gain of €28 million in 2017, versus expense of €78 million in 2016). See Note D.18. to our consolidated financial statements. 9/ Restructuring costs and similar items Restructuring costs and similar items amounted to €731 million in 2017, compared with €879 million in 2016. In 2017, restructuring costs mainly comprised employee-related expenses arising from headcount adjustment plans in the United States and Europe, and write-downs of industrial assets in France and the United States. 10/ Other gains and losses, and litigation In 2017, the line item Other gains and losses, and litigation shows an expense of €215 million, including a provision for a vendor’s liability guarantee relating to a past divestment. At the end of December 2016, Sanofi Pasteur and MSD ended their SPMSD joint venture. The derecognition of Sanofi’s investment in SPMSD generated a pre-tax gain on disposal of €211 million in 2016. (1) Includes the Consumer Healthcare business and an allocation of global support function costs. For more information see “– A.3.3. – Segment Results” below. (2) Includes an allocation of global support function costs. For more information see “– A.3.3. – Segment Results” below. SANOFI / FORM 20-F 2018 119 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 11/ Operating income Operating income totaled €5,804 million for 2017, compared with €6,531 million for 2016. The year-on-year decrease of 11.1% was attributable mainly to increases in cost of sales, R&D expenses, selling and general expenses, and amortization and impairment of intangible assets. 12/ Financial income and expenses Net financial expenses for 2017 were €273 million, compared with €856 million for 2016, a decrease of €583 million. This decrease mainly reflected the impairment loss of €457 million taken against our equity investment in Alnylam in 2016, in line with a decline in its market value of as of the reporting date relative to historical cost. Most of that decline occurred when Alnylam decided to discontinue the revusiran development program on October 5, 2016. Net financial expenses directly related to our net debt (see the definition in section “B.2. Consolidated balance sheet and debt” below) amounted to €221 million in 2017, compared with €218 million in 2016, reflecting an increase in the cost of debt. The net interest cost relating to employee benefits amounted to €92 million in 2017, compared with €114 million in 2016. 13/ Income before tax and investments accounted for using the equity method Income before tax and investments accounted for using the equity method totaled €5,531 million in 2017, compared with €5,675 million in 2016, a fall of 2.5%. 14/ Income tax expense Income tax expense represented €1,722 million in 2017, versus €1,325 million in 2016, giving an effective tax rate (based on consolidated net income) of 31.1% in 2017, compared with 23.4% in 2016. The increase in the effective tax rate was mainly due to the direct and indirect effects of the US tax reform (the Tax Cuts and Jobs Act of 2017, which came into force on January 1, 2018). The effect was partially offset by the consequences of the French Constitutional Council ruling of October 6, 2017 with respect to the additional 3% levy on dividends paid out in cash. The net effect of those two items was to increase the effective tax rate by 8% (see Note D.30. to our consolidated financial statements). The effects of the US tax reform were based on a preliminary analysis of the Tax Cuts and Jobs Act of 2017. Changes in the level of income tax expense are also significantly impacted by the tax effects of the amortization and impairment of intangible assets (€719 million in 2017, versus €694 million in 2016) and of restructuring costs (€134 million in 2017, versus €95 million in 2016). 120 SANOFI / FORM 20-F 2018 The effective tax rate on our business net income1 is a non-GAAP financial measure. It is calculated on the basis of business operating income, minus net financial expenses and before (i) the share of profit/loss from investments accounted for using the equity method and (ii) net income attributable to non-controlling interests. We believe the presentation of this measure, used by our management, is also useful for investors as it provides a means to analyze the effective tax cost of our current business activities. It should not be seen as a substitute for the effective tax rate based on consolidated net income. When calculated on business net income1, our effective tax rate was 23.5% in 2017, compared with 23.3% in 2016. The main impacts on this tax rate are the geographical mix of the profits of Sanofi entities; the tax effects of the elimination of intragroup margin on inventory; favorable settlements of recent proceedings involving the tax authorities in various countries; and changes in tax rates, particularly in France, the Netherlands and Belgium. The table below reconciles our effective tax rate based on consolidated net income to our effective tax rate based on business net income: (as a percentage) 2017 2016(a) Effective tax rate based on consolidated net income Tax effects: Amortization and impairment of intangible assets Restructuring costs and similar items Impairment loss charged against the investment in Alnylam 31.1 23.4 3.2 (0.2) 3.7 (1.3) (1.5) (1.0) Other tax effects(b) (10.6) Effective tax rate based on business net income 23.5 23.3 (a) The results of the Animal Health business are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); see Notes D.1. and D.36. to our consolidated financial statements. (b) For 2017, this line comprises (i) the direct and indirect effects of the US tax reform (negative impact of €1,193 million) and (ii) the consequences of the French Constitutional Council ruling of October 6, 2017 with respect to the additional 3% levy on dividends paid out in cash (positive impact of €451 million). 15/ Share of profit/(loss) from investments accounted for using the equity method Investments accounted for using the equity method contributed net income of €85 million in 2017, compared with €136 million in 2016. This line item mainly comprises our share of the profits and losses of Regeneron, which income of €82 million in 2017 and €128 million in 2016. represented net ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 16/ Net income excluding the exchanged/held-for-exchange Animal Health business Net income excluding the held-for-exchange Animal Health to €3,894 million business amounted in 2017, versus €4,486 million in 2016. 17/ Net income/(loss) of the exchanged/held-for-exchange Animal Health business In accordance with IFRS 5, the net income or loss of the Animal Health business is presented in a separate line item, Net the held-for-exchange Animal Health income/(loss) of business (see Notes D.2. and D.36. to our consolidated financial statements). At the start of January 2017, Sanofi and BI confirmed that they had finalized the strategic transaction agreed in June 2016, involving the exchange of Sanofi’s Animal Health business (Merial) for BI’s Consumer Healthcare business. Consequently, for 2017 this line item shows the net after-tax gain of €4,643 million on the divestment of the Animal Health business. 18/ Net income Net income amounted to €8,537 million in 2017, compared with €4,800 million in 2016. 19/ Net income attributable to non-controlling interests to non-controlling income attributable Net interests was €121 million in 2017, versus €91 million in 2016. This line item mainly comprises the share of pre-tax profits paid to BMS from territories managed by Sanofi (€84 million, versus €86 million in 2016). The year-on-year decrease was directly related to competition from generics of clopidogrel (active ingredient of Plavix®) and irbesartan (active ingredient of Aprovel®) in Europe. 20/ Net income attributable to equity holders of Sanofi Net income attributable to equity holders of Sanofi amounted to €8,416 million, versus €4,709 million in 2016. Basic earnings per share for 2017 was €6.70 (including the net gain on the divestment of the Animal Health business), 83.1% higher than the 2016 figure of €3.66, based on an average number of shares outstanding of 1,256.9 million in 2017 (1,286.6 million in 2016). Diluted earnings per share for 2017 was €6.64, 82.9% higher than the 2016 figure of €3.63, based on an average number of shares outstanding after dilution of 1,266.8 million in 2017 and 1,296.0 million in 2016. A.3.3. Segment results Business operating income (defined in Note D.35. to our consolidated financial statements) amounted to €9,323 million in 2017 (26.6% of net sales), lower than the 2016 figure of €9,284 million (27.5% of net sales). Sanofi acquired the Consumer Healthcare operations of BI on January 1, 2017, and during 2017 we gradually integrated those operations into our Consumer Healthcare Global Business Unit (GBU). Following completion of the integration process and with effect from December 31, 2017, we identified our Consumer Healthcare business as an operating segment, the financial information for which is reported separately to, and reviewed separately by, our Chief Executive Officer. Up to December 31, 2017, the results of the Consumer Healthcare business were included in the Pharmaceuticals segment. Consequently, as of December 31, 2017 Sanofi has three operating segments: Pharmaceuticals, Consumer Healthcare and Vaccines. However, due to lack of available data and the unduly complex and significant adjustments that would be required (in particular to our reporting tools), the 2016 comparative information has not been restated to reflect the changes arising from our new segment reporting model. Consequently, we present segment information for 2017 and comparative periods using our previous segment reporting model in the table below: (€ million) Pharmaceuticals(b) Vaccines(c) Other Business operating income December 31, 2017(a) December 31, 2016(a) 7,871 1,521 (69) 9,323 7,823 1,573 (112) 9,284 Change +0.6% -3.3% -38.4% +0.4% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see note A.2.1.1. to our consolidated financial statements). (b) Includes Consumer Healthcare and an allocation of global support function costs. (c) Includes an allocation of global support function costs. SANOFI / FORM 20-F 2018 121 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The table below sets forth our segment results for the year ended December 31, 2017, based on our previous segment reporting model: (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income December 31, 2017(a) Pharma- ceuticals(b) Vaccines(c) Other Total Sanofi 29,971 287 (8,630) (4,835) (9,190) 180 213 (125) 7,871 5,101 862 (2,817) (637) (881) (108) 1 — 1,521 — — — — (1) (68) — — (69) 35,072 1,149 (11,447) (5,472) (10,072) 4 214 (125) 9,323 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see note A.2.1.1. to our consolidated financial statements). (b) Includes Consumer Healthcare and an allocation of global support function costs. (c) Includes an allocation of global support function costs. The table below sets forth our segment results for the year ended December 31, 2016, based on our previous segment reporting model: (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income December 31, 2016(a) Pharma- ceuticals(b) Vaccines(c) Other Total Sanofi 29,232 274 (8,348) (4,618) (8,735) (1) 131 (112) 7,823 4,577 613 (2,353) (554) (743) (14) 48 (1) — — — — — (112) — — 1,573 (112) 33,809 887 (10,701) (5,172) (9,478) (127) 179 (113) 9,284 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see note A.2.1.1. to our consolidated financial statements). (b) Includes Consumer Healthcare and an allocation of global support function costs. (c) Includes an allocation of global support function costs. 122 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The tables below provide an analysis of business operating income for the Pharmaceuticals and Vaccines segments, based on our previous segment reporting model: Business operating income: Pharmaceuticals segment(a) (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income December 31, 2017(b) as % of net sales December 31, 2016(b) as % of net sales Change 2017/2016 29,971 100.0% 29,232 100.0% 287 (8,630) 21,628 (4,835) (9,190) 180 213 (125) 7,871 1,0% (28.8)% 72.2% (16.1)% (30.7)% 26.3% 274 (8,348) 21,158 (4,618) (8,735) (1) 131 (112) 7,823 0.9% (28.6)% 72.4% (15.8)% (29.9)% +2.5% +4.7% +3.4% +2.2% +4.7% +5.2% 26.8% +0.6% (a) Includes Consumer Healthcare and an allocation of global support function costs. (b) Includes the effects of first-time application of IFRS 15 on revenue recognition (see note A.2.1.1. to our consolidated financial statements). Business operating income: Vaccines segment(a) (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests December 31, 2017(b) as % of net sales December 31, 2016(b) as % of net sales Change 2017/2016 5,101 862 100% 16.9% 4,577 100.0% +11.4% 613 13.4% +40.6% (2,817) (55.2)% (2,353) (51.4)% +19.7% 62.0% +10.9% (12.1)% +15.0% (16.2)% +18.6% 61.7% (12.5)% (17.3)% 3,146 (637) (881) (108) 1 — 2,837 (554) (743) (14) 48 (1) Business operating income 1,521 29.8% 1,573 34.4% -3.3% (a) Includes an allocation of global support function costs. (b) Includes the effects of first-time application of IFRS 15 on revenue recognition (see note A.2.1.1. to our consolidated financial statements). B. Liquidity and capital resources Our operations generate significant positive cash flows. We fund our day-to-day investments (with the exception of significant acquisitions) primarily with operating cash flow, and pay regular dividends on our shares. “Net debt” is a non-GAAP financial indicator which is reviewed by our management, and which we believe provides useful information to measure our overall liquidity and capital resources. We define “net debt” as (i) the sum total of short term debt, long term debt, and interest rate derivatives and currency derivatives used to manage debt, minus (ii) the sum total of cash and cash equivalents and interest rate derivatives and currency derivatives used to manage cash and cash equivalents. As of December 31, 2018 our net debt had increased to €17,628 million, due mainly to the acquisitions of Bioverativ and Ablynx. As of December 31, 2017, our net debt stood at €5,161 million, due largely to the receipt of a balancing cash payment as part of the transaction with Boehringer Ingelheim. As of December 31, 2016, our net debt was €8,234 million, mainly due to share repurchases made at the end of 2016, carried out in anticipation of the receipt of net proceeds from the transaction SANOFI / FORM 20-F 2018 123 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS with BI finalized in most markets in early 2017. See Note D.17. to our consolidated financial statements. In order to assess our financing risk, we also use the “gearing ratio”, a non-GAAP financial measure (see table in section “B.2. Consolidated Balance Sheet and Debt” below). We define the gearing ratio is defined as the ratio of net debt to total equity. As of December 31, 2018, our gearing ratio was 29.9%, compared with 8.9% as of December 31, 2017 and 14.3% as of December 31, 2016. Summarized consolidated statements of cash flows (€ million) Net cash provided by/(used in) operating activities Net cash provided by/(used in) investing activities Net cash inflow from the exchange of the Animal Health business for BI’s Consumer Healthcare business Net cash provided by/(used in) financing activities Impact of exchange rates on cash and cash equivalents Net change in cash and cash equivalents B.1. Consolidated statement of cash flows Generally, factors that affect our earnings – for example, pricing, volume, costs and exchange rates – flow through to cash from operations. The most significant source of cash from operations is sales of our branded pharmaceutical products and vaccines. Receipts of royalty payments also contribute to cash from operations. 2018 5,547 (12,866) (6) 3,934 1 (3,390) 2017(a) 2016(a) 7,379 (2,896) 3,535 (7,902) (74) 42 7,838 (2,511) — (4,101) (101) 1,125 (a) Includes the effects of first-time application of IFRS 15 (see Note A.2.1.1. to our consolidated financial statements). B.1.1. Year ended December 31, 2018 compared with year ended December 31, 2017 Net cash used in investing activities totaled €12,866 million in 2018, compared with €2,896 million in 2017. Net cash provided by operating activities amounted to €5,547 million in 2018, against €7,379 million in 2017. Operating cash flow before changes in working capital for 2018 was €6,827 million, compared with €7,232 million in 2017. Working capital requirements increased by €1,280 million in 2018, compared with a reduction of €147 million in 2017. The main factors in 2018 were (i) an increase of €701 million in inventories, associated with new products (especially Dupixent®) and (ii) the net change in other current assets and liabilities (negative change of €814 million in 2018, versus positive change of €243 million in 2017), due mainly to a decrease in provisions for discounts, rebates and sales returns (especially in the United States), and to differences between the date of recognition of income taxes and the timing of tax payments during the year. We run the risk of delayed payments or even non-payment by our customers, who consist principally of wholesalers, distributors, pharmacies, hospitals, clinics and government agencies (see “Item 3.D – Risk Factors – 2. Risks Relating to Our Business – We are subject to the risk of non payment by our customers”). Over our business as a whole, the amount of trade receivables overdue by more than 12 months – which primarily consists of amounts due from public sector bodies – decreased from €93 million as of December 31, 2017 to €61 million as of December 31, 2018 (see Note D.10. to our consolidated financial statements). Acquisitions of property, plant and equipment and intangible assets amounted to €1,977 million, versus €1,956 million in 2017. There were €1,415 million of acquisitions of property, plant and equipment (versus €1,388 million in 2017), most of which (€1,046 million) were in the Pharmaceuticals segment, primarily in industrial facilities. The Vaccines segment accounted for €364 million of acquisitions of property, plant and equipment during 2018. Acquisitions of intangible assets (€562 million, versus €568 million in 2017) mainly comprised contractual payments for intangible rights under license and collaboration agreements. Acquisitions of investments during 2018 totaled €12,994 million, net of the cash of acquired entities and after including assumed liabilities and commitments; this compares with €1,212 million in 2017. The main acquisitions in 2018 were Bioverativ (€8,932 million) and Ablynx (€3,639 million). (€1,598 million), After-tax proceeds from disposals amounted to €2,163 million in 2018, and arose mainly from the sale of the European Generics the sale of some Consumer business Healthcare products to Cooper-Vemedia (€158 million), and the divestment of equity interests in Impact Therapeutics (€99 million). In 2017, after-tax proceeds from disposals amounted to €535 million, and arose mainly from the sale of mutual fund investments previously held to meet commitments under post- employment plans; divestments of Consumer Healthcare brands in the United States; and the divestment of Consumer Healthcare products to Ipsen (for €83 million). 124 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Net cash inflow from the exchange of the Animal Health business for BI’s Consumer Healthcare business comprised the following items in 2017: (i) the receipt by Sanofi of a balancing cash payment of €4,207 million; (ii) reimbursements of intragroup accounts with Merial entities totaling €967 million; (iii) the €1,784 million payment of the tax due on the gain arising on the divestment; and (iv) the cash held by the BI subsidiaries acquired by Sanofi. After taking account of final enterprise value adjustments, the total consideration for the businesses effectively transferred in 2017 was €10,557 million for the sale of the Animal Health business to BI, and €6,239 million for the acquisition of BI’s Consumer Healthcare business (see Note D.1. to our consolidated financial statements for the year ended December 31, 2017). Net cash provided by/used in financing activities represented a net cash inflow of €3,934 million in 2018, compared with a net outflow of €7,902 million in 2017. The 2018 figure includes net external debt finance obtained of €8,722 million (compared with a net repayment of €2,297 million of debt in 2017), including a debt issue of €8 billion under the Euro Medium Term Note program in March 2018 and a further $2 billion bond issue in June 2018. Other cash outflows in 2018 included the dividend to our shareholders of €3,773 million payout (versus €3,710 million in 2017), and the effect of changes in our share capital (repurchases of our own shares, net of capital increases) amounting to €924 million (€1,843 million in 2017). The net change in cash and cash equivalents during 2018 was a decrease of €3,390 million, compared with an increase of €42 million in 2017. B.1.2. Year ended December 31, 2017 compared with year ended December 31, 2016 Net cash provided by operating activities amounted to €7,379 million in 2017, versus €7,838 million in 2016. Operating cash flow before changes in working capital for 2017 was €7,232 million, versus €7,008 million in 2016. Working capital requirements fell by €147 million in 2017, compared with a reduction of €830 million in 2016; the main factors in 2017 were an increase in accounts receivable of €529 million and an increase in accounts payable of €577 million. Over our business as a whole, the amount of trade receivables overdue by more than 12 months – which primarily consists of amounts due from public sector bodies – decrease to €93 million as of December 31, 2017 from €198 million as of December 31, 2016 (see Note D.10. to our consolidated financial statements). investing activities amounted Net cash used €2,896 million in 2017, compared with €2,511 million in 2016. in to Acquisitions of property, plant and equipment and intangible assets totaled €1,956 million, versus €2,083 million in 2016. There were €1,388 million of acquisitions of property, plant and equipment (versus €1,219 million in 2016), most of which were in the Pharmaceuticals segment, primarily in industrial facilities. The Vaccines segment invested €346 million in property, plant and equipment in 2017 (versus €315 million in 2016). Acquisitions of intangible assets (€568 million, versus €864 million in 2016) mainly comprised contractual payments for intangible rights under license and collaboration agreements. investments during 2017 amounted Acquisitions of to €1,212 million, net of cash acquired and after including assumed liabilities and commitments, compared with €534 million in 2016. In 2017, these included the acquisition of Protein Sciences (€594 million), our contribution to the Onduo joint venture (€50 million), and purchases of additional shares in Regeneron (€184 million). After-tax proceeds from disposals (€535 million) arose mainly from the sale of mutual fund investments previously held to meet commitments under post-employment plans; divestments of Consumer Healthcare brands in the United States; and the divestment of Consumer Healthcare products to Ipsen (for €83 million). After-tax proceeds from disposals in 2016 amounted to €209 million and arose mainly from the divestment of the equity interest in Nichi-Iko Pharmaceutical Co., Inc. and the divestment of product rights relating to Oenobiol®. Net cash inflow from the exchange of the Animal Health business for BI’s Consumer Healthcare business comprised the following items for 2017: (i) the receipt by Sanofi of a balancing cash payment of €4,207 million; (ii) reimbursements of intragroup accounts with Merial entities totaling €967 million; (iii) a tax payment of €1,784 million on the gain arising on the divestment; and (iv) the cash held by the BI subsidiaries acquired by Sanofi. After final enterprise value adjustments, the exchange values of the two businesses effectively transferred during 2017 were determined to be €10,557 million for Sanofi’s Animal Health business and €6,239 million for BI’s Consumer Healthcare business (see Note D.2. to the consolidated financial statements for the year ended December 31, 2018). in financing activities amounted to Net cash used €7,902 million in 2017, compared with €4,101 million in 2016. The 2017 figure includes net external debt finance repaid (i.e., net change in short-term and long-term debt) of €2,297 million; financing raised of this compares with net external debt €2,293 million in 2016. It also includes the effect of changes in share capital (repurchases of own shares, net of capital increases), amounting to €1,843 million (versus €2,603 million in 2016), and to our shareholders of €3,710 million (versus €3,759 million in 2016). the dividend payout The net change in cash and cash equivalents during 2017 was an increase of €42 million compared with an increase of €1,125 million in 2016. B.2. Consolidated balance sheet and debt Total assets were €111,408 million as of December 31, 2018, compared with €99,813 million as of December 31, 2017, an increase of €11,595 million. Net debt was €17,628 million as of December 31, 2018, compared with €5,161 million as of December 31, 2017, due largely to the acquisitions of Bioverativ and Ablynx. “Net debt” is SANOFI / FORM 20-F 2018 125 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS a non-GAAP financial indicator which is reviewed by our management, and which we believe provides useful information to measure our overall liquidity and capital resources. We define “net debt” as (i) the sum total of short term debt, long term debt, and interest rate derivatives and currency derivatives used to manage debt, minus (ii) the sum total of cash and cash equivalents and interest rate derivatives and currency derivatives used to manage cash and cash equivalents. (€ million) Long-term debt Short-term debt and current portion of long-term debt Interest rate and currency derivatives used to manage debt Total debt Cash and cash equivalents Interest rate and currency derivatives used to manage cash and cash equivalents Net debt Total equity Gearing ratio 2018 22,007 2,633 (54) 24,586 (6,925) (33) 17,628 59,035 29.9% 2017(a) 14,326 1,275 (133) 15,468 (10,315) 8 5,161 58,239 8.9% 2016(a) 16,815 1,764 (70) 18,509 (10,273) (2) 8,234 57,722 14.3% (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1. to our consolidated financial statements). To assess our financing risk, we use the “gearing ratio”, another non-GAAP financial measure. This ratio (which we define as the ratio of net debt to total equity) increased from 8.9% as of December 31, 2017 to 29.9% as of December 31, 2018. Analyses of debt as of December 31, 2018 and December 31, 2017, by type, maturity, interest rate and currency, are provided in Note D.17. to our consolidated financial statements. We expect that the future cash flows generated by our operating activities will be sufficient to repay our debt. The financing arrangements in place as of December 31, 2018 at the Sanofi parent company level are not subject to covenants regarding financial ratios and do not contain any clauses linking credit spreads or fees to Sanofi’s credit rating. Other key movements in the balance sheet are described below. Total equity was €59,035 million as of December 31, 2018, versus €58,239 million as of December 31, 2017. The year-on-year change reflects the following principal factors: ◆ increases: our net income for 2018 (€4,410 million) and movements in currency translation differences (€1,194 million, mainly on the US dollar); and ◆ decreases: the dividend payout to our shareholders in respect of the 2017 financial year (€3,773 million), and repurchases of our own shares (€1,100 million). As of December 31, 2018 we held 1.9 million of our own shares, recorded as a deduction from equity and representing 0.15% of our share capital. Goodwill and Other intangible assets (€66,124 million in total) rose by €12,780 million year-on-year, the main factors being: ◆ increases: movements related to the acquisitions of Bioverativ (€2,676 million of goodwill and €8,113 million of other intangible assets) and Ablynx (€1,372 million of goodwill and €2,409 million of other intangible assets); and 126 SANOFI / FORM 20-F 2018 ◆ decreases: amortization and impairment charged during the period (€3,033 million), and the effects of the divestment of our European Generics business (€988 million). Investments accounted for using the equity method (€3,402 million) increased by €555 million, mainly due to the recognition of our share of the profits of Regeneron. Other non-current assets were €393 million lower at €2,971 million. The main movement during the year was a decrease in the market value of our equity investment in Alnylam (€447 million, including the effect of exchange rates). tax assets were €1,199 million as of Net deferred December 31, 2018, versus €2,686 million as of December 31, 2017, a decrease of €1,487 million. This was largely due to deferred taxes arising on the remeasurement of other intangible assets primarily business €1,906 million relating to Bioverativ as of December 31, 2018. combinations, acquired in Non-current provisions and other non-current liabilities (€8,613 million) decreased by €541 million, mainly due to a reduction in provisions for pensions and other post-employment benefits. related interests to business combinations and to Liabilities (€1,304 million) decreased by non-controlling €65 million. The main movements in this line item are (i) the effects of buying out non-controlling interests from BMS and fair value remeasurements of contingent consideration (ii) payable to Bayer as a result of an acquisition made by Genzyme prior to the latter’s acquisition by Sanofi; those movements were partly offset by the effect of the acquisition of Bioverativ (see Note D.18. to our consolidated financial statements). B.3. Liquidity We expect that our existing cash resources and cash from operations will be sufficient to finance our foreseeable working ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS capital requirements. At year-end 2018, we held cash and cash equivalents amounting to €6,925 million, substantially all of which were held in euros (see Note D.13. to our consolidated financial statements included at Item 18 of this annual report). As at December 31, 2018, €505 million of our cash and cash equivalents were held by our captive insurance and reinsurance companies in accordance with insurance regulations. We run the risk of delayed payments or even non-payment by our customers, who consist principally of wholesalers, distributors, pharmacies, hospitals, clinics and government agencies (see “Item 3.D. Risk Factors – 2. Risks Relating to Our Business – We are subject to the risk of non-payment by our customers”). Deteriorating credit and economic conditions and other factors in some countries have resulted in, and may continue to result in an increase in the average length of time taken to collect our accounts receivable in these countries. Should these factors continue, it may require us to re-evaluate the collectability of these receivables in future periods. We carefully monitor sovereign debt issues and economic conditions and evaluate accounts receivable in these countries for potential collection risks. We have been conducting an active recovery policy, adapted intense to each country and communication with customers, negotiations of payment plans, charging of interest for late payments, and legal action. Over our business as a whole, the amount of trade receivables overdue by more than 12 months (which primarily consists of amounts due including from public sector bodies) decreased from €93 million as of December 31, 2017 to €61 million as of December 31, 2018 (see Note D.10. to our consolidated financial statements). to purchase any or all of In November 2011, Sanofi obtained the necessary corporate authorizations the outstanding Contingent Value Rights (“CVRs”) and subsequently purchased CVRs in 2011. In 2012 following a tender offer initiated in September 2012 on the same corporate the basis of authorization, Sanofi purchased an additional 40,025,805 CVRs (for a total consideration of approximately $70 million), followed by a further 10,928,075 CVRs (for approximately $9 million) in 2013, 1,879,774 CVRs (for approximately $1 million) in 2014, and none in 2015, 2016, 2017 and 2018. As of December 31, 2018, a total of 236,457,284 CVRs were outstanding out of the 291,313,510 issued at the time of the Genzyme acquisition. At year-end 2018, we had no commitments for capital expenditures that we consider to be material to our consolidated financial position. Undrawn confirmed credit facilities amounted to a total of €8 billion at December 31, 2018. For a discussion of our treasury policies, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” We expect that cash from our operations will be sufficient to repay our debt. For a discussion of our liquidity risks, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” SANOFI / FORM 20-F 2018 127 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS C. Off-balance sheet arrangements / contractual obligations and other commercial commitments We have various contractual obligations and other commercial commitments arising from our operations. Our contractual obligations and our other commercial commitments as of December 31, 2018 are shown in Notes D.3., D.17., D.18., D.21. and D.36. to our consolidated financial statements included at Item 18 of this annual report. Note D.21. to our consolidated financial statements discloses details of commitments under our principal research and development collaboration agreements. For a description of the principal contingencies arising from certain business divestitures, refer to Note D.22.d) to our 2018 consolidated financial statements. Sanofi’s contractual obligations and other commercial commitments are set forth in the table below: December 31, 2018 (€ million) Future contractual cash flows relating to debt and debt hedging instruments(a) Operating lease obligations Finance lease obligations(b) Irrevocable purchase commitments(c) ◆ given ◆ received Research & development license agreements ◆ Commitments related to R&D and other commitments ◆ Potential milestone payments(d) ◆ Obligations related to R&D license agreements reflected in the balance sheet Obligations relating to business combinations(e) Firm commitment related to the BMS agreement(f) Estimated benefit payments on unfunded pensions and post employment benefits(g) Total contractual obligations and other commitments Undrawn general-purpose credit facilities Payments due by period Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years 26,831 2,427 25 6,549 (175) 954 3,241 249 3,638 — 1,060 44,799 8,000 2,810 6,810 5,948 289 5 3,654 (120) 675 249 79 313 — 457 7 1,247 (21) 257 728 34 2,840 — 378 8 489 (12) 14 947 21 331 — 11,263 1,303 5 1,159 (22) 8 1,317 115 154 — 62 115 8,016 12,474 118 8,242 765 16,067 8,000 (a) See Note D.17. to our consolidated financial statements included at Item 18 of this annual report. (b) See Note D.3. to our consolidated financial statements included at Item 18 of this annual report. (c) These comprise irrevocable commitments to suppliers of (i) property, plant and equipment, net of down payments (see Note D.3. to our consolidated financial statements included at Item 18 of this annual report) and (ii) goods and services. (d) This line includes all potential milestone payments on projects regarded as reasonably possible, i.e., on projects in the development phase. (e) See Note D.18. to our consolidated financial statements included at Item 18 of this annual report. (f) See Note C.2. to our consolidated financial statements included at Item 18 of this annual report. (g) See Note D.19.1. to our consolidated financial statements included at Item 18 of this annual report. The table above does not include the ongoing annual employer’s contributions to plan assets, estimated at €136 million in 2018. We may have payments due to our current or former research and development partners under collaborative agreements. These agreements typically cover multiple products, and give us the option to participate in development on a product-by-product basis. When we exercise our option with respect to a product, we pay our collaboration partner a fee and receive intellectual property rights to the product in exchange. We are also generally required to fund some or all of the development costs for the products that we select, and to make payments to our partners when those products reach development milestones. We have entered into collaboration agreements under which we have rights to acquire products or technology from third parties through the acquisition of shares, loans, license agreements, joint development, contractual arrangements. In addition to upfront payments on signature of the agreement, our contracts frequently require us to make payments contingent upon the completion of development milestones by our alliance partner or upon the granting of approvals or licenses. co-marketing and other 128 SANOFI / FORM 20-F 2018 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Because of the uncertain nature of development work, it is impossible to predict (i) whether Sanofi will exercise further options for products, or (ii) whether the expected milestones will be achieved, or (iii) the number of compounds that will reach the relevant milestones. It is therefore impossible to estimate the maximum aggregate amount that Sanofi will actually pay in the future under existing collaboration agreements. Given the nature of its business, it is highly unlikely that Sanofi will exercise all options for all products or that all milestones will be achieved. The main collaboration agreements relating to development projects are described in Note D.21.1. to our consolidated financial statements included at Item 18 of this annual report. Milestone payments relating to development projects under these agreements included in the table above exclude projects still in the research phase (€6.8 billion in 2018, €7.2 billion in 2017 and €6.2 billion in 2016) and payments contingent upon the attainment of sales targets once a product is on the market (€9.9 billion in 2018, €10.1 billion in 2017, €8.2 billion in 2016). SANOFI / FORM 20-F 2018 129 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Item 6. Directors, Senior Management and Employees A. Directors and senior management Since January 1, 2007, Sanofi has separated the offices of Chairman and Chief Executive Officer. Annual evaluations conducted since that date have indicated that this governance structure is appropriate to Sanofi’s current configuration. This arrangement was maintained with the appointment of Serge Weinberg to the office of Chairman firstly on May 17, 2010, then on May 6, 2011 and again on May 4, 2015. The Board of Directors regards this governance structure as appropriate to the current context in which Sanofi operates and its share ownership structure, and as protecting the rights of all of its stakeholders. The Chairman organizes and directs the work of the Board, and is responsible for ensuring the proper functioning of the corporate decision-making bodies in compliance with good governance principles. The Chairman coordinates the work of the Board of Directors with that of its Committees. He ensures that the Company’s management bodies in particular that the directors are able to fulfil their duties. The Chairman is accountable to the Shareholders’ General Meeting, which he chairs. function properly, and In addition to these roles conferred by law, the Chairman: ◆ in coordination with liaises between the Board of Directors and the shareholders of the Company; the Chief Executive Officer, ◆ is kept regularly informed by the Chief Executive Officer of significant events and situations affecting the affairs of the Company, and may request from the Chief Executive Officer any information useful to the Board of Directors; ◆ may, in close collaboration with the Chief Executive Officer, represent in high-level dealings with governmental bodies and with key partners of the Company and/or of its subsidiaries, both nationally and internationally; the Company ◆ seeks to prevent any conflict of interest and manages any situation that might give rise to a conflict of interest. He also gives rulings, in the name of the Board, on requests to take up external directorships of which he may become aware or that may be submitted to him or her by a director; ◆ may interview the statutory auditors in preparation for the work of the Board of Directors and the Audit Committee; and ◆ strives to promote in all circumstances the values and image of the Company. The Chairman is also required to develop and maintain a proper relationship of trust between the Board and the Chief Executive 130 SANOFI / FORM 20-F 2018 to ensure latter consistently and that Officer, so as continuously implements the orientations determined by the Board. the In fulfilling his remit, the Chairman may meet with any individual, including senior executives of the Company, while avoiding any involvement its operations, which are exclusively the responsibility of the Chief Executive Officer. the Company or managing in directing Finally, the Chairman reports to the Board on the fulfilment of his remit. The Chairman carries out his duties during the entire period of his term of office, subject to the caveat that a director who is a natural person may not be appointed or reappointed once he or she has reached the age of 70. The Chief Executive Officer manages the Company, and represents it in dealings with third parties within the limit of the corporate purpose. The Chief Executive Officer has the broadest powers to act in all circumstances in the name of the Company, subject to the powers that are attributed by law to the Board of Directors and to the Shareholders’ General Meeting and within the limits set by the Board of Directors. The Chief Executive Officer must be less than 65 years old. Limitations on the powers of the Chief Executive Officer set by the Board With effect from March 6, 2018, the limitations on the powers of the Chief Executive Officer are specified in the Board Charter. Without prejudice to legal provisions regarding authorizations that must be granted by (regulated agreements, the Board guarantees, divestments of equity holdings or real estate, etc.), prior approval from the Board of Directors is required for transactions or decisions investment or divestment, or an expenditure or guarantee commitment, made by the Company and its subsidiaries, in excess of: resulting in an ◆ a cap of €500 million (per transaction) for transactions, decisions or commitments pertaining to a previously approved strategy; and ◆ a cap of €150 million (per transaction) for transactions, decisions or commitments not pertaining to a previously approved strategy. When such transactions, decisions or commitments give rise to installment payments to the contracting third party (or parties) that are contingent upon future results or objectives, such as the registration of one or more products, attainment of the caps is calculated by aggregating the various payments due from signature of the contract until (and including) filing of the first application for marketing authorization in the United States or in Europe. Attainment of the above caps is also assessed after taking into account all commitments to make payments on exercise of a firm or conditional option with immediate or deferred effect, and all guarantees or collateral to be provided to third parties over the duration of such commitments. The prior approval procedure does not apply to transactions and decisions that result in the signature of agreements that solely involve subsidiaries and the Company itself. Board of Directors Each year, the Board of Directors conducts a review to ensure that there is an appropriate balance in its composition and in the composition of its Committees. In particular, the Board seeks to ensure gender balance and a broad diversity of competencies, experience, nationalities and ages, reflecting our status as a diversified global business. The Board investigates and evaluates not only potential candidates, but also whether existing directors should seek reappointment. Above all, the Board seeks directors who show independence of mind and are competent, dedicated complementary and personalities. committed, with compatible and As of December 31, 2018 the Board of Directors had 16 members, including two directors representing employees. 43% of the directors were women and 38% were non-French nationals. The Board works with the Compensation Committee and the Appointments and Governance Committee the Appointments, Governance and CSR Committee effective March 8, 2019), to ensure that the Executive Committee operates an inclusion (non-discrimination) and diversity policy, especially as regards gender balance. As of December 31, 2018, 20% of the 15 Executive Committee members were women, and 67% were non-French nationals. (renamed The Board of Directors is also kept informed, in particular on the occasion of its annual discussion on professional and pay equality policy, on how the inclusion and diversity policy is cascaded down to “Senior Leaders” (the positions in the Company with the highest level of responsibility). In 2018, there were 2,044 “Senior Leaders” within Sanofi, including Executive Committee members and other executives; of that total, 35.4% were women. Subject to the powers expressly attributed to the Shareholders’ General Meeting and within the scope of the Company’s corporate purpose, the Board of Directors’ remit covers all issues relating to the proper management of the Company, and through its decisions the Board determines matters falling within its authority. The rules and operating procedures of our Board of Directors are defined by law, by our Articles of Association, and by our Board ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES charter (an English language version of which is reproduced in full as Exhibit 1.2 to this Annual Report on Form 20-F). Term of office The term of office of directors is four years. Directors are required to seek reappointment by rotation, such that members of the Board are required to seek reappointment on a regular basis in the most equal proportions possible. Exceptionally, the Shareholders’ Ordinary General Meeting may appoint a director to serve for a term of one, two or three years, in order to ensure adequate rotation of Board members. Each director standing down for reappointment. Should one or more directorships fall vacant as a result of death or resignation, the Board of Directors may make provisional appointments in the period between in accordance with applicable laws. two Shareholders’ General Meetings, is eligible Directors may be removed from office at any time by a Shareholders’ General Meeting. Independence of Board members Under the terms of the AFEP-MEDEF corporate governance code (the AFEP-MEDEF Code), a director is independent when he or she has no relationship of any kind whatsoever with the Company, its group or its senior management that may color his or her judgment. More specifically, a director can only be regarded as independent if he or she: ◆ is not (and has not been during the past five years): – an employee or executive officer of the Company; – an employee, executive officer or director of an entity consolidated by the Company; or – an employee, executive officer or director of the Company’s that parent parent, or of an entity consolidated by (criterion 1); ◆ is not an executive officer of an entity in which (i) the Company directly or indirectly holds a directorship or (ii) an employee of the Company is designated as a director or (iii) an executive officer of the Company (currently, or who has held office within the past five years) holds a directorship (criterion 2); ◆ is not a customer, supplier, investment banker or corporate banker that is material to the Company or its group, or for whom the Company or its group represents a significant proportion of its business (criterion 3); ◆ has no close family ties with a corporate officer of the Company (criterion 4); ◆ has not acted as auditor for the Company over the course of the past five years (criterion 5); ◆ has not been a director of the Company for more than twelve years (criterion 6); ◆ does not receive variable compensation in cash or in the form of shares or any compensation linked to the performance of the Company or its group (criterion 7); or SANOFI / FORM 20-F 2018 131 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ◆ does not represent a shareholder that has a significant or controlling interest in the Company (criterion 8). The influence of other factors such as the ability to understand challenges and risks, and the courage to express ideas and form a judgment, is also evaluated before it is decided whether a director can be regarded as independent. In compliance with our Board Charter and pursuant to the AFEP- MEDEF Code, the Board of Directors’ meeting of March 8, 2019 discussed the independence of the current directors. Of the sixteen directors, eleven were deemed to be independent directors by reference to the independence criteria used by the Board of Directors pursuant to the AFEP-MEDEF Code: Serge Weinberg, Emmanuel Babeau, Bernard Charlès, Claudie Haigneré, Patrick Kron, Fabienne Lecorvaisier, Melanie Lee, Suet-Fern Lee, Carole Piwnica, Diane Souza and Thomas C. Südhof. Consequently, the proportion of independent directors is 79%. This compares with the AFEP-MEDEF recommendation of 50% in companies with dispersed ownership and no controlling shareholder (which is the case for Sanofi). In accordance with the recommendations of the AFEP-MEDEF Code, directors representing employees are excluded when calculating the proportion of independent directors. Criterion 1: not an employee/executive officer in past 5 years Criterion 2: No cross- directorships Criterion 3: no significant business relationship(2) Criterion 4: no close family ties Criterion 5: not an auditor Criterion 6: not held office for >12 years Criterion 7: no variable or performance-linked compensation Criterion 8: not a significant shareholder Serge Weinberg Emmanuel Babeau Bernard Charlès Claudie Haigneré Patrick Kron Fabienne Lecorvaisier Melanie Lee Suet-Fern Lee Carole Piwnica Diane Souza Thomas C. Südhof No(1) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Deemed independent Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Failure to fulfil one of the criteria does not automatically disqualify a director from being independent. The Board’s conclusions on the situation of Serge Weinberg and on the business relationships review are set out below. report on corporate governance, executive compensation, internal control and risk management. Serge Weinberg complies with this criterion, in that he receives fixed compensation only, with no entitlement to variable compensation in either cash or shares. (1) Serge Weinberg (2) Business Relationships Review When the offices of Chairman of the Board and Chief Executive Officer were temporarily combined on October 29, 2014, the Board of Directors determined that Serge Weinberg – given his role as Chief Executive Officer – could no longer be regarded as independent. When the two offices were separated again in April 2015, the Board of Directors determined that Serge Weinberg could be regarded as independent and could therefore resume the chairmanship of the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019). Under Article 8.6 of the AFEP-MEDEF Code, a non-executive officer cannot be regarded as independent if he or she receives variable compensation in cash or shares or any compensation linked to the performance of the Company or group. This is consistent with recommendations made by the AMF in its 2017 132 SANOFI / FORM 20-F 2018 In its examination of the independence of each director, the Board of Directors took into account the various relationships between directors and Sanofi and concluded that no relationships were of a kind that might undermine their independence. The Board of Directors noted that the Company and its subsidiaries had, in the normal course of business, over the past three years, sold products and provided services to, and/or purchased products and received services from, companies in which certain of the Company’s directors who are classified as independent (or their close family members) were senior executives or employees during 2018. In each case, the amounts paid to or received from such companies over the past three years were determined on an arm’s length basis and did not represent amounts that the Board regarded as undermining the directors in question. independence of the ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Board evaluation Under the terms of the Board Charter, a discussion of the Board’s operating procedures must be included on the agenda of one Board meeting every year. The Charter also requires a formal evaluation to be performed at least every three years under the direction of the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019), with assistance from an independent consultant if deemed necessary. In 2017, the evaluation was conducted on the basis of a questionnaire. Each director was allowed a few weeks to the (renamed complete the questionnaire using a secure digital platform. The responses were then analyzed by the Secretary to the Board, and supplemented by one-on-one interviews. The results were then presented to, and discussed by, the Appointments and Governance Committee Appointments, Governance and CSR Committee effective March 8, 2019). A detailed report prepared at that meeting was presented at the Board meeting of March 6, 2018. The directors welcomed the progress made in the operation of the Board and its Committees since the previous evaluation. The issues most frequently raised in the evaluation were the diversity and complementarity of the Board following the appointment of the new directors, the role of the Committees, executive sessions, an update on the implementation of the Company’s digital strategy, and implementation of the external growth strategy. The table below shows the areas for progress and vigilance identified in the evaluation, and action taken in response by the Board in 2018: Areas for progress and vigilance identified Actions taken by the Board Continuing to work on succession planning for the Chief Executive Officer, the Chairman, and key executive posts Closer monitoring of the principal risks facing Sanofi Work continued on succession planning for the Chief Executive Officer and key executive posts, with both the Board and the Appointments and Governance Committee reaffirming this as a priority for the years ahead; ◆ An update on succession planning is now included in the agenda for each meeting of the Appointments, Governance and CSR Committee. ◆ The Committee has retained an external consultant to monitor and implement the succession plan. See also the section on “Succession Planning” below. The principal risks facing Sanofi were discussed at the Board meeting of February 6, 2018 and the Audit Committee meeting of July 26, 2018. ◆ The presentation made to the Board used detailed risk mapping risks, mitigation strategies, and emerging risks. The following issues were addressed during the presentation: to explain governance issues, active – key achievements in 2017; – Risk Committee composition and practices; – segmentation and seriousness of risks assessed in 2017; – risk identification and assessment; – Sanofi’s risk profile, with a list of major risks and mitigation plans; – allocation of roles between the Executive Committee and the Risk Committee; and – a presentation of imaginable scenarios and their potential consequences. Subsequent to that meeting, an update on risk management is now proposed systematically at each Board meeting. SANOFI / FORM 20-F 2018 133 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Areas for progress and vigilance identified Actions taken by the Board Deeper understanding of changes in the industry environment (markets and competition), and the potential implications for Sanofi Deeper strategic thinking ◆ The issues on the agenda for the July 2018 Audit Committee meeting were: – changes in risk management policy during 2018 (in particular the new methodology for quantifying financial impacts); – review of priority risks; – analysis of new risks added to the risk mapping; – adjustments to the list of operational and financial matters to be reviewed by the Audit Committee; and – the two-year plan. A detailed report on this meeting was presented to the Board by the Chairman of the Audit Committee. A three-day “Innovation Tour” strategy seminar took place in Boston in March 2018, giving directors an opportunity to address various issues including: ◆ the life sciences ecosystem in the state of Massachusetts; ◆ biotechnology innovations, and transformative innovations in healthcare generally; ◆ oncology; ◆ challenges and future prospects for the US healthcare sector; ◆ new ways of delivering therapeutic solutions to patients; ◆ the Sanofi-Alnylam alliance; ◆ drug pricing; ◆ the Sanofi-Regeneron alliance; and ◆ the history and specialties of Bioverativ. A second strategy seminar was held in Paris in October 2018. The following issues were discussed over two days, in the presence of all Sanofi directors and representatives of the Company: ◆ developments in strategy; ◆ R&D; ◆ growth accelerators; ◆ digital trends; ◆ business transformation; and ◆ financial outlook. In addition, the strategic plan and proposals for investments, divestments and alliances are reviewed at meetings of the Strategy Committee. The chairman of the Committee systematically presents a detailed report on the work of the Committee to the Board (after validation by the Committee members), so that the Board is fully informed whenever it takes a decision. Ex post assessment of the impact of strategic decisions, especially acquisitions An assessment of recent strategic decisions and acquisitions will be conducted during 2019. Preparation of more detailed reports by the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019); Increase in the number of executive sessions Reports of Committee meetings are now more detailed and issued more quickly. The chairman of the Committee systematically presents those reports to the Board (after validation by the Committee members), so that the Board is fully informed whenever it takes a decision. The Board Charter was amended on March 6, 2018 to require the Board to hold at least two executive sessions a year. 134 SANOFI / FORM 20-F 2018 In 2018, a formal evaluation of the Board was conducted under the direction of the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019), with assistance from the same specialist consultancy firm retained for the previous formal evaluation. The evaluation took place over several weeks: ◆ Appointments and Governance Committee meeting of October 30, 2018: review of the process and methodology, and appointment of consultancy firm (after a tendering process). ◆ Board meeting of October 30, 2018: launch of the evaluation, acting on a proposal from the Appointments and Governance Committee. ◆ November 2018 through January 2019: the evaluation was conducted using the process described below: – Distribution of a questionnaire to all directors, the main issues addressed by the questionnaire being: whether the composition of the Board is in line with Sanofi’s needs; quality of background material and presentations; working practices; relevance of the resources made available to the Board and its Committees; compliance of Sanofi’s corporate governance with best practice; quality and candor of discussions; composition and remit of the Committees; relations between the Board and the Executive Committee, shareholders and stakeholders; directors’ expectations; and personal contributions in terms of skill set and effective participation in discussions. – Review of directors’ responses to the questionnaire. – Appointments and Governance Committee meeting of December 18, 2018: progress report on the evaluation. – Individual interviews conducted by a consultant. ◆ Appointments and Governance Committee meeting of February 26, 2019: presentation of results, and preparation of an executive summary including areas for progress and vigilance identified. ◆ Board meeting of March 8, 2019: review of executive summary, and decisions on actions to be taken. The results of the 2018 evaluation showed a positive assessment of the way in which the Board and its Committees operate. The directors observed that there had been constant progress since the previous evaluation conducted using a similar process, in 2015. The main issues on which the directors expressed satisfaction were: ◆ the diversity and complementarity of the Board, with a balance of skills that generates productive and lively debate; ◆ the well-prepared and informative off-site strategy seminar, which helped members to gain a better understanding of Sanofi’s markets and challenges, and get to know the management team; ◆ the Board’s ability to challenge management on strategy; ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ◆ the contribution of the Scientific Committee to the work of the Board; ◆ the good interaction between the Board and the Committees, and the quality of the Committee’s reports; ◆ the Board’s ability to prepare succession issues; ◆ the dynamic between Directors, enabling the Board to operate effectively as a team. The Board also welcomed the way in which the composition of the Board had evolved to adapt to changes in the Company’s strategy and environment. Finally, the directors judged the current governance structure (separation of the office of Chairman of the Board from that of Chief Executive Officer) to be appropriate to the Company’s needs and to be working effectively. The areas for progress and vigilance identified in the latest evaluation and formally noted by the Board were: ◆ deeper long-term strategic thinking in the work of the Board and the Committees; ◆ better follow-up on the implementation of strategic decisions through the use of a dashboard; ◆ more interaction with the management team, especially with Executive Committee members; ◆ regular scheduling of executive sessions, and preparation of more detailed reports on such sessions; ◆ improved presentations, especially through more concise and for debate and to allow more time relevant materials, discussions during meetings; ◆ better prioritization of items on the agenda for Board meetings; ◆ continuing to diversify the Board without increasing its size; and ◆ further strengthening the links between Directors, and helping new Board members to integrate by allocating them a mentor. The evaluation also included a review of each director’s contribution to the work of the Board and its Committees, which in each case was judged to have met the Company’s needs and to have been in line with its expectations. More generally, the Board found that directors had once again demonstrated strong commitment and were working well together. The diversity of their competencies, expertise and profiles contributed significantly to the quality of the work done by the Board and its Committees. Succession planning The remit of the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019) includes preparing for the future of the Company’s executive bodies, the establishment of a succession plan for executive officers. The Committee has a retained a specialist consultancy firm to evaluate and implement the plan. in particular through The plan, which is systematically reviewed at meetings of the the Appointments and Governance Committee (renamed SANOFI / FORM 20-F 2018 135 ◆ works closely with the Chief Executive Officer to (i) ensure the plan is consistent with the Company’s own practices and market practices, (ii) ensure high-potential internal prospects receive appropriate support and training, and (iii) check there is adequate monitoring of key posts likely to fall vacant; ◆ meets with key executives as needed; and ◆ involves the Chief Executive Officer insofar as he has a key role in planning for his own successor, though without him directing the process. In fulfilling their remit, Committee members are acutely conscious of confidentiality issues. three times The succession plan was reviewed in 2018 (February 26, October 29 and December 18). Alongside the implementation of the succession plan, the situation of the Chairman was examined in detail in light of the expiration of Serge Weinberg’s term of office (the renewal of which the shareholders will be asked to approve at the Annual General Meeting of April 30, 2019). As with the Chief Executive Officer, the Chairman has a key role in planning for his own successor, though without him directing the process. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Appointments, Governance and CSR Committee effective March 8, 2019), addresses various scenarios: ◆ unplanned vacancy due to prohibition, resignation or death; ◆ forced vacancy due to poor performance, mismanagement or misconduct; and ◆ planned vacancy due to retirement or expiration of term of office. Through its work and discussions, the Committee seeks to devise a succession plan that is adaptable to situations arising in the short, medium or long term, but which also builds in diversity – in all its facets – as a key factor. Although aware that separating the offices of Chairman and Chief Executive Officer provides continuity of power, the Committee nonetheless assesses the situation of the Chairman as well as that of the executive team. To fulfill its remit, the Appointments, Governance and CSR Committee: ◆ provides the Board with progress reports, in particular at executive sessions; ◆ co-ordinates with the Compensation Committee. In that regard, having directors that sit on both Committees is a great advantage; 136 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Composition of the Board of Directors as of December 31, 2018 As of December 31, 2018, our Board of Directors comprised: Director Age Gender Number of Number directorships First in listed Nationality shares companies(a) Independent appointed of Term Years of Board expires service AC AGC CC SC SciC Serge Weinberg, 67 Chairman of the Board Olivier Brandicourt, Chief Executive Officer 62 Laurent Attal Emmanuel Babeau Bernard Charlès Claudie Haigneré Patrick Kron Fabienne Lecorvaisier Melanie Lee Suet-Fern Lee Christian Mulliez Marion Palme(b) Carole Piwnica Christian Senectaire(b) Diane Souza Thomas C. Südhof 60 51 61 61 65 56 60 60 58 36 60 54 66 63 M M M M M F M F F French 1,636 French 1,000 French 1,000 French 500 French 1,000 French 1,000 French 1,000 French 1,000 British 1,000 F Singaporean 1,000 M F F M F M French 1,590 German 109 Belgian 1,000 French 251 American 1,066 American/ German 512 1 1 1 3 2 1 4 2 1 2 2 1 4 1 1 1 Yes 2009 2019 AGM No 2015 2022 AGM 9 3 C C √ √ No Yes 2012 2020 AGM 2018 2022 AGM 6 1 √ √ √ Yes 2017 2021 AGM 2 Yes 2008 2020 AGM 10 √ √ Yes Yes Yes Yes No 2014 2022 AGM 4 √ C √ 2013 2021 AGM 5 C 2017 2021 AGM 2 √ 2011 2019 AGM 2004 2022 AGM 7 14 √ √ No 2017 2021 AGM 2010 2020 AGM 2017 2021 AGM 2 8 2 Yes No Yes Yes 2016 2020 AGM 2016 2020 AGM 3 √ 3 √ C Independent directors Female directors Non-French directors 79% 43% 38% AC: Audit Committee AGC: Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019) CC: Compensation Committee SC: Strategy Committee SciC: Scientific Committee C: Chairman/Chairwoman (a) Includes all non-executive and executive directorships held in listed companies. (b) Director representing employees. SANOFI / FORM 20-F 2018 137 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Competencies of Board members The Board of Directors, in liaison with the Appointments and Governance Committee Appointments, Governance and CSR Committee effective March 8, 2019), must ensure that the composition of the Board is balanced, diverse and fit for purpose. (renamed the In assessing its composition, the Board takes account of the corporate strategy and of the new challenges facing the Company, and determines whether the qualities of serving directors are sufficient for the Board to deliver on its remit. Over the past several years, the Board has adapted its composition in line with its roadmap by: ◆ bringing additional scientific expertise onto the Board; ◆ further raising the proportion of non-French directors; ◆ increasing the proportion of women on the Board; ◆ developing its competencies in digital; and ◆ maintaining the level of core competencies, especially in accounting and finance. The Board has completed an overview of the competencies currently represented. The matrix below shows a comprehensive, balanced spread of the types of competencies required, both in general terms and by reference to our strategic ambitions (the matrix shows the number of directors possessing each of those competencies)(1): Scientific training Healthcare/pharmaceutical industry experience CEO role in international group Board membership in international group International experience Mergers & acquisitions Finance/Accounting Regulatory Digital 5 5 5 7 8 7 5 5 1 (1) The information shown excludes directors representing employees. The Annual General Meeting of April 30, 2019 will be asked to renew the terms of office of Serge Weinberg and Suet-Fern Lee as directors. The Annual General Meeting will also be asked to ratify the Board’s decision of February 6, 2019 to co-opt Christophe Babule as a director following the resignation of Christian Mulliez as a director on the same date. The following pages provide key information about each director individually: ◆ directorships and appointments held during 2018 (directorships in listed companies are indicated by an asterisk, and each director’s principal position is indicated in bold); ◆ other directorships held during the last five years; and ◆ education and professional experience. 138 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Serge Weinberg Date of birth: Nationality: First elected: Last reappointment: Term expires: Business address: February 10, 1951 (aged 67) French December 2009 May 2015 2019 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Serge Weinberg Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments In French companies ◆ Independent director and Chairman of the Board of Directors of Sanofi*, – Chairman of the Strategy Committee of Sanofi – Chairman of the Appointments and Governance Committee of Sanofi (renamed the Appointments, Governance and CSR Committee effective March 8, 2019) – Member of the Scientific Committee of Sanofi ◆ Chairman of Weinberg Capital Partners – Chairman of Maremma – Manager of Alret – Weinberg Capital Partners’ permanent representative on the Board of ADIT ◆ Director of Madrigall Past directorships expiring within the last five years None None In foreign companies None In French companies ◆ Director of Alliance Automotive Participations SAS and Schneider Electric* ◆ Member of the Supervisory Boards of Financière BFSA and Schneider Electric* ◆ Weinberg Capital Partners’ permanent representative on the Board of Sasa Industrie ◆ Vice Chairman and Director of Financière Sasa ◆ Chairman of the Supervisory Boards of Financière Climater SAS and Financière Tess SAS ◆ Chairman of Financière Piasa and Piasa Holding None ◆ Chairman of Corum (Switzerland) In foreign companies Education and professional experience ◆ Graduate in law, degree from the Institut d’Etudes Politiques ◆ Graduate of ENA (Ecole Nationale d’Administration) Since 2005 1976-1982 1982-1987 Chairman of Weinberg Capital Partners Sous-préfet and then Chief of Staff of the French Budget Minister (1981) Deputy General Manager of FR3 (French television channel) and then Chief Executive Officer of Havas Tourisme Chief Executive Officer of Pallas Finance Various positions at PPR* group including Chairman of the Management Board for 10 years Chairman of the Board of Accor* Vice Chairman of the Supervisory Board of Schneider Electric* 1987-1990 1990-2005 2006-2009 2005-2010 Number of shares held 1,636 shares SANOFI / FORM 20-F 2018 139 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Olivier Brandicourt Date of birth: Nationality: First elected: Last reappointment: Term expires: Business address: February 13, 1956 (aged 62) French April 2015 May 2018 2022 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Olivier Brandicourt Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments In French companies ◆ Chief Executive Officer of Sanofi* None – Chairman of the Executive Committee of Sanofi – Director of Sanofi – Member of the Strategy Committee of Sanofi ◆ Chairman of Sanofi Biotechnology SAS In foreign companies None Past directorships expiring within the last five years None None ◆ Member of the Board of Management of the Pharmaceutical Research and Manufacturers of America (PhRMA, United States) ◆ Member of the Council of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA, Switzerland) ◆ Member and Vice-President of the European Federation of Pharmaceutical Industries and Associations (EFPIA, Brussels) ◆ Member of the National Committee on US-China Relations (United States) ◆ Honorary Member of the Royal College of Physicians (United Kingdom) In French companies None In foreign companies ◆ Bayer Group (Germany): – Chief Executive Officer and Chairman of the Executive Committee of Bayer HealthCare AG – Member of the Executive Council of Bayer AG* ◆ Member and Vice-Chair of the Board of Trustees of the Children’s Aid Society of New York (United States) Education and professional experience ◆ Degree in Medical Mycology, Pasteur Institute, France ◆ Masters in Human Biology, Paris XII University, France ◆ Medical Degree with subspecialty in Infectious Diseases and Tropical Medicine, Paris V University, France Since 2015 1979-1981 Chief Executive Officer of Sanofi* National Service with the Office de la recherche scientifique et technique outre-mer (ORSTOM) (Republic of Congo) Research Fellow and Hospital & University Assistant in the Department of Parasitology, Tropical Medicine and Public Health at the Pitié-Salpêtrière Hospital (France) Various operational and commercial positions at Warner-Lambert/Parke-Davis, including Vice-President and General Manager (1998-2000) Various operational and managerial positions at Pfizer Inc.*, including member of the Executive Leadership Team (2010-2013) and President & General Manager Emerging Markets & Established Business Unit (2012- 2013) Chief Executive Officer and Chairman of the Executive Committee of Bayer HealthCare AG and Member of the Executive Council of Bayer AG* 1981-1987 1987-2000 2000-2013 2013-2015 Number of shares held 1,000 shares 140 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Laurent Attal Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: February 11, 1958 (aged 60) French May 2012 May 2016 2020 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Laurent Attal Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Director of Sanofi* ◆ Director of Fondation d’Entreprise L’Oréal In French companies – Member of the Strategy Committee of Sanofi – Member of the Scientific Committee of Sanofi Past directorships expiring within the last five years None None None In foreign companies None In French companies None In foreign companies None Education and professional experience ◆ Doctor of medicine, dermatologist ◆ MBA from INSEAD (Institut Européen d’Administration des Affaires) Since 2010 Since 1986 Vice-President General Manager Research and Innovation at L’Oréal* Various positions within the L’Oréal* Group, including posts within the active cosmetics division and as President and Chief Executive Officer of L’Oréal USA (United States) Member of the Executive Committee of L’Oréal* Since 2002 Number of shares held 1,000 shares SANOFI / FORM 20-F 2018 141 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Emmanuel Babeau Date of birth: Nationality: First elected: Term expires: Business address: February 13, 1967 (aged 51) French May 2018 2022 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Emmanuel Babeau Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* ◆ Schneider Electric Group (of which Schneider Electric SE* is In French companies – Member of the Audit Committee of Sanofi the parent company) – Director of Schneider Electric Industries SAS – Member of the Supervisory Boards of Aster Capital Partners SAS and Schneider Electric Energy Access (representing Schneider Electric Industries SAS) ◆ Director of Sodexo* – Chairman of the Audit Committee of Sodexo ◆ Managing Partner of SCI GETIJ None Past directorships expiring within the last five years None None In foreign companies ◆ Schneider Electric Group (of which Schneider Electric SE* is the parent company) – Vice Chairman and non-executive director of Aveva Group Plc.* – Director of AO Schneider Electric, Schneider Electric (China) Co. Ltd., Samos Acquisition Company Ltd., Schneider Electric USA Inc., Schneider Electric Holdings Inc., Carros Sensors Topco Ltd. (formerly InnoVista Sensors Topco Ltd.) In French companies ◆ Schneider Electric Group (of which Schneider Electric SE* is the parent company) – Member of the Management Board of Schneider Electric SA* – Director of Telvent GIT SA – Member of the Strategy Committee of Aster Capital Partners – Member of the Supervisory Board of Innovista Sensors SAS In foreign companies ◆ Schneider Electric Group (of which Schneider Electric SE* is the parent company) – Director of Invensys Ltd. – Chairman and member of the Management Board of Schneider Electric Services International Sprl. Education and professional experience ◆ Graduate of ESCP (École Supérieure de Commerce de Paris, 1989) ◆ Post-graduate diploma in accounting and finance Since 2013 1990-1993 1996-2009 2009-2013 Deputy Chief Executive Officer in charge of Finance and Legal Affairs of Schneider Electric SE* Arthur Andersen Various functions within the Pernod Ricard* Group, including Chief Development Officer and Chief Financial Officer Various functions within Schneider Electric SE*, including Deputy Chief Executive Officer in charge of Finance and Legal Affairs Number of shares held 500 shares(1) (1) Under the Board Charter, each director must be a shareholder in a personal capacity and hold at least 1,000 Sanofi shares in their own name. However, directors are allowed a period of two years in which to acquire these shares. 142 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Bernard Charlès Date of birth: Nationality: First elected: Term expires: March 30, 1957 (aged 61) French May 2017 2021 Business address: Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Bernard Charlès Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* ◆ Vice-Chairman of the Board of Directors and Chief Executive Officer of Dassault Systèmes* In French companies None None None Past directorships expiring within the last five years In foreign companies ◆ Dassault Systèmes Group: – Chairman of the Board of Directors of Dassault Systemes Corp., Dassault Systemes SolidWorks Corp., Dassault Systemes Simulia Corp., and Centric Software Inc. (United States) – Chairman of the Advisory Board of Dassault Systemes 3DExcite GmbH (Germany) In French companies None In foreign companies ◆ Dassault Systèmes Group: – Chairman of the Board of Directors of Dassault Systemes Biovia Corp. and Dassault Systemes Enovia Corp. (United States), and of Dassault Systemes Canada Software Inc. (Canada) – Chairman of the Supervisory Board of RealTime Technology AG (Germany) Education and professional experience ◆ Graduate of École Normale Supérieure engineering school, Cachan (France) ◆ Agrégé and Ph.D. in mechanical engineering, majoring in automation engineering and information science Since 2016 1983-1984 1986-1988 1988-1994 Since 1995 2005 2009 2012 2017 Vice-Chairman of the Board of Directors and Chief Executive Officer of Dassault Systèmes* (France) National Service as Scientific Advisor in the ministry of Defense (France) Founder of the New Technology, Research and Strategy division at Dassault Systèmes* (France) Head of Strategy, Research and Development at Dassault Systèmes* (France) Chief Executive Officer of Dassault Systèmes* (France) Knight of the Légion d’honneur (France) Member of the Académie des Technologies (France) Officer of the Légion d’honneur (France) Member of the National Academy of Engineering (United States) Number of shares held 1,000 shares SANOFI / FORM 20-F 2018 143 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Claudie Haigneré Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: May 13, 1957 (aged 61) French May 2008 May 2016 2020 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Claudie Haigneré Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments In French companies ◆ Independent director of Sanofi* ◆ Director of Fondation de l’Université de Lyon, Fondation – Member of the Appointments and Governance Committee of Sanofi (renamed the Appointments, Governance and CSR Committee effective March 8, 2019) C-Génial, Fondation d’Entreprise L’Oréal and Fondation Airbus ◆ Member of Académie des Technologies, Académie des Sports, Académie Nationale de l’Air et de l’Espace and Académie des Sciences de l’Outre-Mer ◆ Director of IRIS (French Institute for International and Strategic – Member of the Compensation Affairs) Committee of Sanofi Past directorships expiring within the last five years None None In foreign companies None In French companies ◆ Director and member of the Innovation and Technology Committee of Orange* ◆ Chairwoman of Universcience (Cité des Sciences et de l’Industrie et Palais de la Découverte) ◆ Director of Fondation de France, École Normale Supérieure, Campus Condorcet, Pôle de Recherche et d’Enseignement Supérieur Hautes-Études-Sorbonne-Arts-et-Métiers and Fondation Lacoste ◆ Chairwoman of the Board of Directors of La Géode None In foreign companies None Education and professional experience ◆ Rheumatologist, doctorate in sciences majoring in neurosciences ◆ Selected in 1985 by the CNES (French National Space Center) as an astronaut candidate 1984-1992 1996 2001 2002-2004 2004-2005 2005-2009 2007-2011 2010-2011 2010-2015 2015 Rheumatologist, Cochin Hospital (Paris) Scientific space mission to the MIR space station (Cassiopée, Franco-Russian mission) Scientific and technical space mission to the International Space Station (Andromède mission) Deputy Minister for Research and New Technologies in the French government Deputy Minister for European Affairs in the French government Adviser to the Director General of the European Space Agency Vice-Chairwoman (Finance) of the IAA (International Academy of Astronautics) Director of Aéro Club de France Chairwoman of Universcience (French public-sector body) Special Adviser to the Director General of the European Space Agency Number of shares held 1,000 shares 144 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Patrick Kron Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: September 26, 1953 (aged 65) French May 2014 May 2018 2022 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Patrick Kron Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* ◆ Chairman of Truffle Capital SAS In French companies – Chairman of the Compensation Committee of Sanofi – Member of the Appointments and Governance Committee of Sanofi (renamed the Appointments, Governance and CSR Committee effective March 8, 2019) ◆ Director of Lafarge-Holcim* ◆ Director of Halcor Metal Works* ◆ Director of Bouygues* ◆ Chairman of PKC&I SAS – Permanent representative of PKC&I on the Supervisory Board of Segula Technologies – Member of the Strategy Committee ◆ Vice-President of the Les Arts Florissants choral group of Sanofi association Past directorships expiring within the last five years None None None In foreign companies None In French companies ◆ Alstom*: – Chairman and Chief Executive Officer – Chairman of Alstom Resources Management ◆ Director of Association Française des Entreprises Privées (AFEP) In foreign companies ◆ Alstom*: – Director and Managing Director of Alstom Asia Pte. Ltd (Singapore) Education and professional experience ◆ Degree from École Polytechnique and École Nationale Supérieure des Mines de Paris Since 2016 1979-1984 Chairman of Truffle Capital CAS Various positions at the French Ministry of Industry, including as project officer at the Direction régionale de l’Industrie, de la Recherche et de l’Environnement (DRIRE) and in the Ministry’s general directorate Operational responsibilities in one of the Pechiney Group’s biggest factories in Greece, then manager of the Greek subsidiary Various senior operational and financial positions within the Pechiney Group Member of the Executive Committee of the Pechiney Group Chairman and Chief Executive Officer of Carbone Lorraine Manager of the Food and Health Care Packaging Sector at Pechiney, and Chief Operating Officer of American National Can Company in Chicago (United States) Chief Executive Officer of Imerys Chief Executive Officer, then Chairman and Chief Executive Officer, of Alstom* Chairman of PKC&I SAS 1984-1988 1988-1993 1993 1993-1997 1995-1997 1998-2002 2003-2016 Since 2016 Number of shares held 1,000 shares SANOFI / FORM 20-F 2018 145 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Fabienne Lecorvaisier Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: August 27, 1962 (aged 56) French May 2013 2017 2021 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Fabienne Lecorvaisier Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* – Chairwoman of the Audit Committee of Sanofi In French companies ◆ Air Liquide Group*: – Director of Air Liquide International – Chairwoman and Chief Executive Officer of Air Liquide Finance – Director of Air Liquide Eastern Europe – Director of The Hydrogen Company None In foreign companies ◆ Air Liquide Group*: Past directorships expiring within the last five years None None – Executive Vice President of Air Liquide International Corporation – Director of American Air Liquide Holdings, Inc. – Chairwoman of Air Liquide US LLC In French companies ◆ Air Liquide Group*: – Director of Air Liquide France Industries, Aqualung International, Air Liquide Welding SA and SOAEO In foreign companies ◆ Air Liquide Group*: – Director of Air Liquide Japon (Japan) Education and professional experience ◆ Civil engineer, graduate of Ecole Nationale des Ponts et Chaussées Since July 2017 1985-1989 Executive Vice President, Chief Financial Officer and Executive Committee member of Air Liquide* Member of the Corporate Finance Department, then Mergers and Acquisitions Department of Société Générale* Senior Banking Executive in charge of the LBO Department (Paris)/Corporate Finance Department (Paris and London) at Barclays Assistant General Manager of Banque du Louvre, Taittinger Group Various positions within Essilor* including Group Chief Financial Officer (2001-2007) and Chief Strategy and Acquisitions Officer (2007-2008) Chief Financial Officer and Executive Committee member of Air Liquide* 1989-1990 1990-1993 1993-2007 Since 2008 Number of shares held 1,000 shares 146 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Melanie Lee Date of birth: Nationality: First elected: Term expires: July 29, 1958 (aged 60) British May 2017 2021 Business address: Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Melanie Lee Within the Sanofi Group Current directorships and appointments Outside the Sanofi Group In French companies ◆ Independent director of Sanofi* None – Member of the Scientific Committee of Sanofi Past directorships expiring within the last five years None None None In foreign companies ◆ Director of Think10 (United Kingdom) In French companies None In foreign companies ◆ Director of Syntaxin Ltd* (United Kingdom) ◆ Director of BTG plc* (United Kingdom) ◆ Non-executive director of Lundbeck A/S (Denmark) ◆ Director of NightstaRx Ltd. (United Kingdom) Education and professional experience ◆ Degree in Biology, University of York ◆ Ph.D. from the National Institute for Medical Research, London Since 2018 1988-1998 Chief Executive Officer of LifeArc (United Kingdom) Senior Biologist and subsequently Research Unit Head, Receptor Systems at Glaxo/GlaxoWellcome (United Kingdom) Chairwoman of the Board of Directors of Cancer Research Technology Ltd. United Kingdom Executive Director of Research at Celltech plc., and subsequently Executive Vice President, Research and President New Medicines at UCB Celltech (United Kingdom) Deputy Chairwoman of Cancer Research U.K. United Kingdom Chief Executive Officer and Director of Syntaxin Ltd.* (United Kingdom) Founder of NightstaRx Ltd. (United Kingdom) Non-executive director of Lundbeck A/S (Denmark) Chief Scientific Officer of BTG plc* (United Kingdom) Director and Consultant, Think10 (United Kingdom) 2004-2007 1998-2009 2003-2011 2009-2013 2014 2011-2015 2014-2018 Since 2013 Number of shares held 1,000 shares SANOFI / FORM 20-F 2018 147 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Suet-Fern Lee Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: May 16, 1958 (aged 60) Singaporean May 2011 May 2015 2019 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Suet-Fern Lee Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* ◆ Rothschild & Co*: In French companies None Past directorships expiring within the last five years None None – Independent member of the Supervisory Board – Member of the Audit Committee In foreign companies ◆ Director of Stamford Corporate Services Pte Ltd (Singapore) and the World Justice Project (United States), Caldecott Inc. (Cayman Islands) and Morgan Lewis & Bockius LLP (United States) In French companies ◆ Axa*: – Independent director – Member of the Finance Committee In foreign companies ◆ Director of Macquarie International Infrastructure Fund Ltd* (Bermuda) and of the National Heritage Board (Singapore) ◆ Chairwoman of the Board of Directors of the Asian Civilisations Museum (Singapore) ◆ Director of Rickmers Trust Management Pte Ltd* (Singapore) Education and professional experience ◆ Law degree from Cambridge University (1980) ◆ Admitted to the Bar in London (1981) and Singapore (1982) ◆ Director of Morgan Lewis Stamford LLC ◆ Partner of Morgan Lewis & Bockius (United States) ◆ Chairwoman of the International Leadership Team, Morgan Lewis & Bockius Since 2006 Since 2007 Since 2014 2010-2011 Member of the Board of Trustees of Nanyang Technological University (Singapore) Member of the Accounting Advisory Board of National University of Singapore Business School (Singapore) Member of the Advisory Committee of Singapore Management University School of Law (Singapore) Member of the Senate and the Executive Committee of the Singapore Academy of Law where she also chairs the Committee on Legal Education and Studies (Singapore) Chairwoman of the Expert Panel of the Centre of Cross-Border Commercial Law in Asia of the Singapore Management University School of Law (Singapore) President of the Inter-Pacific Bar Association Number of shares held 1,000 shares 148 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Christian Mulliez Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: November 10, 1960 (aged 58) French June 2004 May 2018 2022 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Christian Mulliez Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Director of Sanofi* In French companies ◆ L’Oréal Group*: – Member of the Audit Committee of – Chairman of the Board of Directors of Regefi Sanofi – Member of the Compensation Committee of Sanofi ◆ Director of GG 17 Invest Past directorships expiring within the last five years None None None In foreign companies ◆ L’Oréal Group*: – Director of L’Oréal USA Inc. (United States) In French companies None In foreign companies ◆ L’Oréal Group*: – Director of The Body Shop International (United Kingdom) and Galderma Pharma (Switzerland) Education and professional experience ◆ Degree from ESSEC (École Supérieure des Sciences Économiques et Commerciales) Executive Vice President, Chief Financial Officer of L’Oréal* Since 2003 Various positions at Synthélabo and then Sanofi-Synthélabo, including Vice President Finance 1984-2002 Number of shares held 1,590 shares SANOFI / FORM 20-F 2018 149 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Carole Piwnica Date of birth: Nationality: First appointed: Last reappointment: Term expires: Business address: February 12, 1958 (aged 60) Belgian December 2010 May 2016 2020 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Carole Piwnica Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* – Member of the Audit Committee of Sanofi (until April 2018) ◆ Eutelsat Communications*: – Independent director – Chairwoman of the Nomination and Governance Committee In French companies None Past directorships expiring within the last five years None ◆ Rothschild & Co*: – Independent member of the Supervisory Board In foreign companies ◆ Director of Naxos UK Ltd (United Kingdom) – Director of Elevance (United States) and i2O (United Kingdom) ◆ Director of Amyris Inc* (United States) In French companies ◆ Rothschild & Co*: – Member of the Audit Committee and the Strategy Committee In foreign companies None ◆ Director of Louis Delhaize* (Belgium), RecyCoal Ltd. (United Kingdom) and Big Red (United States) Education and professional experience ◆ Degree in law, Université Libre de Bruxelles ◆ Master of Laws, New York University ◆ Admitted to the Bar in Paris and New York Since 2006 1985-1991 1991-1994 1994-2000 1998-2004 1996-2006 1996-2006 2000-2006 2000-2006 2006-2009 1996-2010 2007-2010 2003-2011 Founder Director of Naxos UK Ltd (United Kingdom) Attorney at Proskauer, Rose (New York) and Shearman & Sterling (Paris) with practice in mergers and acquisitions General Counsel of Gardini & Associés Chief Executive Officer of Amylum France, then Chairwoman of Amylum Group Director of Spadel (Belgium) Director of Tate & Lyle Plc (United Kingdom) Chairwoman of the Liaison Committee and director of the Confédération Européenne des Industries Agro- Alimentaires (CIAA) Director and Vice-Chairwoman of Tate & Lyle Plc for Governmental Affairs (United Kingdom) Chairwoman of the Export Commission and director of the Association Nationale des Industries Alimentaires (ANIA) Member of the Ethical Committee of Monsanto* (United States) Director of Toepfer GmbH (Germany) Director of Dairy Crest Plc* (United Kingdom) Director, Chairwoman of the Corporate Responsibility Committee and member of the Compensation Committee of Aviva Plc* (United Kingdom) Number of shares held 1,000 shares 150 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Diane Souza Date of birth: Nationality: First elected: Term expires: July 3, 1952 (aged 66) American May 2016 2020 Business address: Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Diane Souza Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* – Member of the Compensation Committee of Sanofi In French companies None – Member of the Audit Committee of Sanofi (since May 2018) Past directorships expiring within the last five years None None None In foreign companies ◆ Member of the Board of Directors of Farm Credit East (United States) In French companies None In foreign companies ◆ UnitedHealth Group: – Member of the Board of Directors of Unimerica Insurance Company, Unimerica Life Insurance Company of New York, National Pacific Dental, Inc., Nevada Pacific Dental, DBP Services of New York, IPA, Dental Benefits Providers of California, Inc., Dental Benefit Providers of Illinois, Inc., Dental Benefit Providers, Inc., Spectera, Inc. and Spectera of New York, IPA, Inc. United States Education and professional experience ◆ Degree in Accounting from University of Massachusetts ◆ Honorary doctorate in Business Administration from University of Massachusetts Dartmouth ◆ Certified Public Accountant ◆ Diploma in Dental Hygiene from Northeastern University, Forsyth School for Dental Hygienists 1979 1980-1988 1988-1994 1994-2006 2007-2008 2008-2014 Audit Staff Accountant at Price Waterhouse (United States) Various positions at Deloitte Haskins & Sells, from Audit Staff Accountant to Senior Tax Manager-in-Charge (United States) Various positions at Price Waterhouse from Audit Staff Accountant to Head of the Northeast Insurance Tax Region (United States) Various positions at Aetna Inc. including Deputy Vice President Federal and State Taxes; Vice President and Chief Financial Officer, Large Case Pensions; Vice President and Head of Global Internal Audit Services; Vice President, National Customer Operations; and finally Vice President, Strategic Systems & Processes (United States) Principal consultant at Strategic Business Solutions, LLC (United States) Chief Operating Officer of OptumHealth Specialty Benefits (2008), then Chief Executive Officer of UnitedHealthcare Specialty Benefits (United States) Number of shares held 2,132 American Depository Receipts, equivalent to 1,066 shares SANOFI / FORM 20-F 2018 151 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Thomas C. Südhof Date of birth: Nationality: First elected: Term expires: Business address: December 22, 1955 (aged 63) German and American May 2016 2020 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Thomas C. Südhof Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Independent director of Sanofi* – Chairman of the Scientific Committee of Sanofi In French companies None In foreign companies Past directorships expiring within the last five years None None None ◆ Independent director of Abide Therapeutics (United States) In French companies None In foreign companies None Education and professional experience ◆ Degree in medicine from the Faculty of Medicine of the University of Göttingen (Germany) ◆ Bernard Katz Prize of the Biophysical Society, jointly with Reinhard Jahn (2008) ◆ Nobel Prize for Physiology or Medicine, jointly with James Rothman and Randy Shekman (2013) ◆ Albert Lasker Prize for Basic Medical Research, jointly with Richard Sheller (2013) Since 2008 1978-1981 1979 1981-1982 1983-1986 1986-2008 2014-2017 2014-2018 2014-2018 2014-2018 2017-2018 Since 1986 Since 2002 Since 2011 Since 2013 Since 2013 Since 2014 Since 2016 Since 2017 Since 2017 Since 2017 Since 2017 Since 2018 Since 2018 Avram Goldstein Professor of Molecular & Cellular Physiology, Neurosurgery, Psychiatry, and Neurology in the School of Medicine at Stanford University (United States) Research assistant at the Max Planck Institute for Biophysical Chemistry (Germany) Student on exchange clerkship program at Harvard Medical School (United States) Intern at the University Hospital of Göttingen (Germany) Postdoctoral Fellow, Dept. of Molecular Genetics, UT Southwestern Medical School (USA) Professor and subsequently Chair of the Neuroscience Department at the University of Texas Southwestern Medical School (United States) Co-founder and member of the Scientific Advisory Board of Bluenobel, Inc. (China) Member of the Scientific Advisory Board of the Singapore National Research Foundation (Singapore) Member of the Scientific Advisory Board of the Chinese Academy Institute of Biophysics (China) Member of the Scientific Advisory Committee of the Institute of Cellular and Molecular Biology of A*Star (China) Member of the Scientific Advisory Board of Abide (USA) Investigator at the Howard Hughes Medical Institute (United States) Co-founder and member of the Scientific Advisory Board of REATA Pharmaceuticals (United States) Co-founder and member of the Scientific Advisory Board of Circuit Therapeutics, Inc. (United States) Member of the Review Board of Genentech Neuroscience (United States) Member of the Scientific Advisory Board of the Shemyakin-Ovchinnikov Institute of Bio-Organic Chemistry (Russia) Member of the Scientific Advisory Board of Elysium, Inc. (United States) Member of the Scientific Advisory Board of Simcere, Inc. China Member of the Scientific Advisory Board of the Chinese Academy of Sciences Institute of Guangzhou (China) Member of the Scientific Advisory Board of C-Bridge (China) Member of the Scientific Advisory Board of Cytodel, Inc. (United States) Co-founder and member of the Scientific Advisory Board of Neucyte, Inc. (United States) Member of the Scientific Advisory Board of Alector, Inc. (United States) Chairman of the Scientific Advisory Board of Capital Medical University, Beijing (China) Number of shares held 1,024 American Depositary Receipts, equivalent to 512 shares 152 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Marion Palme Date of birth: Nationality: First elected: Term expires: December 22, 1982 (aged 36) German May 2017 2021 Business address: Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Marion Palme Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Director representing employees of None In French companies Sanofi* None In foreign companies ◆ Member of the German Industrial Union Mining, Chemistry, Energy (IG BCE) (Germany) Past directorships expiring within the last five years ◆ Member of the European Works None In French companies Council None In foreign companies None Education and professional experience ◆ Bachelor of Science in Chemical Engineering from Provadis School of International Management and Technology (2011) Since 2005 2002-2005 Laboratory Technician at the Frankfurt site (Germany) Apprenticeship as a laboratory technician at the Frankfurt site (Germany) Number of shares held 109(1) (1) In accordance with Article L.225-25 of the French Commercial Code, directors representing employees are exempt from the obligation to hold shares. SANOFI / FORM 20-F 2018 153 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Christian Senectaire Date of birth: Nationality: First elected: Term expires: Business address: October 9, 1964 (aged 54) French May 2017 2021 Sanofi – 54, rue La Boétie – 75008 Paris – France Directorships and appointments of Christian Senectaire Within the Sanofi Group Outside the Sanofi Group Current directorships and appointments ◆ Director representing employees of None In French companies Sanofi* ◆ Member of the Supervisory Board of the Sanofi Group Savings Scheme (PEG) ◆ Member of the Supervisory Board of the Sanofi Group Collective Retirement Savings Plan (PERCO) None In foreign companies None In French companies ◆ SAS Laboratoires Pichot: Member of the Compensation and Disclosure Committee ◆ Alternate member of the Works Council at the Vertolaye site and of the Sanofi Chimie Works Council ◆ Titular member and Secretary of the Sanofi Group Works Council ◆ Central Delegate for the CFDT union, Sanofi Chimie ◆ Deputy Group Delegate for the CFDT union, Sanofi France Past directorships expiring within the last five years None In foreign companies None Education and professional experience Since 1987 Since 2009 1985-2009 Staff representative on the CFDT ticket (France) Senior production technician at the Vertolaye site (France) Chemical industry machine operator at the Neuville site and then the Vertolaye site (France) Number of shares held 251(1) 154 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Changes in the composition of the Board of Directors The only change in the composition of the Board of Directors during 2018 was the appointment of Emmanuel Babeau as a new independent director. On February 6, 2019, the Board duly noted the resignation of Christian Mulliez and decided, after consulting the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019), to co-opt Christophe Babule as new director. The table below shows changes in the composition of the Board of Directors during 2017 and 2018, and the changes that will be submitted for approval at the Annual General Meeting of April 30, 2019: Annual General Meeting of May 10, 2017 Annual General Meeting of May 2, 2018 Annual General Meeting of April 30, 2019 Expiry of term of office None Renewal of term of office Fabienne Lecorvaisier (independent director) Proposed new appointments Co-opted Other Bernard Charlès (independent director) Melanie Lee (independent director) None Christian Senectaire (director representing employees)(b) Marion Palme (director representing employees)(c) Robert Castaigne (independent director) Olivier Brandicourt Christian Mulliez Patrick Kron (independent director) None Serge Weinberg (independent director and Chairman of the Board of Directors) Suet-Fern Lee (independent director) Emmanuel Babeau (independent director) None None None Christophe Babule(a) None (a) Director co-opted by the Board of Directors on February 6, 2019 following the resignation of Christian Mulliez as a director on the same day. (b) Director representing employees, designated by the trade union body which is the most representative, within the meaning of applicable legislation, in the Company and those of its direct or indirect subsidiaries that have their registered office in French territory. (c) Director representing employees, designated by the European Works Council. If the terms of office of Serge Weinberg and Suet-Fern Lee are renewed and the co-opting of Christophe Babule is ratified, there would be no change in the number of Board members (16). The proportion of independent directors (79%) and female directors (43%), calculated using currently applicable rules, would not change either. As of December 31, 2018, the members of our Board of Directors collectively held (directly, or via the employee share ownership fund associated with the Group savings scheme) 14,664 of our shares, representing 0.0012% of our share capital. As of December 31, 2018, no corporate officer has been the subject of any conviction or court order, or been associated with any bankruptcy or winding-up order. As of this day, there is no potential conflict of interest between any corporate officer and Sanofi. Under current French legislation, and given that employees own less than 3% of our share capital, the Board does not include a director representing employee shareholders. SANOFI / FORM 20-F 2018 155 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Executive Committee The Executive Committee is chaired by the Chief Executive Officer. The Committee meets at least twice a month. The composition of the Executive Committee changed in 2018, with the appointment of five new members. Outgoing members Incoming members Dominique Carouge – Executive Vice President, Business Transformation (February 15, 2018) Elias Zerhouni – President, Global Research and Development (June 30, 2018) John Reed – Executive Vice President, Global Head of Research & Development (July 1, 2018) Jérôme Contamine – Executive Vice President, Chief Financial Officer (September 30, 2018) Jean-Baptiste Chasseloup de Chatillon – Executive Vice President, Chief Financial Officer (October 1, 2018) Roberto Pucci – Executive Vice President, Human Resources (September 30, 2018) Caroline Luscombe – Executive Vice President, Human Resources (October 1, 2018) Stefan Oelrich – Executive Vice President, Diabetes & Cardiovascular (September 30, 2018) Dieter Weinand – Executive Vice President, Primary Care (November 1, 2018) (a) On September 13, 2018, we announced the creation of a new Primary Care Global Business Unit (GBU), combining the product portfolio of the former Diabetes & Cardiovascular GBU with the Established Products portfolio previously contained in the former General Medicines & Emerging Markets GBU. The new GBU, headed up by Dieter Weinand, will focus exclusively on mature markets. We have also created a second new GBU, China and Emerging Markets, headed up by Olivier Charmeil. These new GBUs were launched at the beginning of 2019. Sanofi’s other GBUs – Sanofi Genzyme, Sanofi Pasteur and Consumer Healthcare – remain unchanged. As of December 31, 2018, the Executive Committee had 15 members. In accordance with the Board Charter, the Board of Directors – in liaison with the Compensation Committee and the Appointments and Governance Committee the Appointments, Governance and CSR Committee effective March 8, 2019) implements a the Chief Executive Officer ensures non-discrimination and diversity policy, especially as regards gender balance on the Executive Committee. (renamed that The list below shows all 15 permanent members of our Executive Committee as of the date of publication of this Annual Report on Form 20-F. Olivier Brandicourt Chief Executive Officer Date of birth: February 13, 1956 Olivier Brandicourt was appointed Chief Executive Officer on April 2, 2015, and is also a member of our Strategy Committee. information For additional professional experience see members” above. regarding his education and “– Competencies of Board Dominique Carouge Dominique Carouge started his career in 1985 as an external auditor at Ernst & Young (EY) both in France (Paris) and in the US (Philadelphia). He joined Sanofi in 1991. Since then and for the past 28 years, he has held various finance positions of increasing responsibility and leadership across Australia, New Zealand, Germany and France. In 1991, he joined Roussel Uclaf where he held a positions of increasing seniority in finance. In 1996, he was appointed Chief Financial Officer for Hoechst Marion Roussel in Australia. From 1999 to 2002, he was in charge of Business Planning and Reporting at Aventis Pharma in Frankfurt, Germany. In 2003, he was appointed Operations Controller for the Aventis Group. In 2005, Dominique Carouge became Chief Financial Officer for the Vaccines division. From 2009 to 2011, he held the role of Vice President, Chief Strategy and Finance Officer for Sanofi Pasteur, and then Vice President, Administration & Management for Global R&D from 2011 to 2015. On January 1, 2016, he was appointed Deputy CFO and Head of Finance Operations and Group Controlling. He was appointed to his current position in January 2018, and took up his new role on February 15, 2018. Dominique Carouge is a citizen of France. Executive Vice President, Business Transformation Olivier Charmeil Date of birth: March 17, 1961 Executive Vice President, China and Emerging Markets Dominique Carouge is a graduate of Ecole Supérieure de Commerce de Reims. He also holds an expertise comptable (CPA) qualification in France, as well as a Corporate Governance and Board management certificate from Sciences Po (Certificat d’Administrateur de Sociétés). Date of birth: February 19, 1963 Olivier Charmeil is a graduate of HEC (Ecole des Hautes Etudes Commerciales) and of the Institut d’Etudes Politiques in Paris. From 1989 to 1994, he worked in the Mergers & Acquisitions 156 SANOFI / FORM 20-F 2018 department of Banque de l’Union Européenne. He joined Sanofi in 1994 as head of Business Development. Pharma Subsequently, he held various positions within Sanofi, including Chief Financial Officer (Asia) of Sanofi-Synthélabo in 1999 and Attaché to the Chairman, Jean-François Dehecq, in 2000, before being appointed as Vice President, Development within the Sanofi-Synthélabo International Operations Directorate, where he was responsible for China and support functions. In 2003, Olivier Charmeil was appointed Chairman and Chief Executive Officer of Sanofi-Synthélabo France, before taking the position of Senior Vice President, Business Management and Support within the Pharmaceutical Operations Directorate. In this role, he piloted the operational integration of Sanofi-Synthélabo and Aventis. He was appointed Senior Vice President Asia/Pacific, Pharmaceutical Operations in February 2006; Operations Japan reported to him from January 1, 2008, as did Asia/Pacific and Japan Vaccines from February 2009. On January 1, 2011, Olivier Charmeil was appointed Executive Vice President Vaccines, and joined our Executive Committee. the Future”, an In May 2015, Olivier Charmeil and André Syrota were appointed as Co-Leaders of “Medicine of initiative developed by the French Minister for Economy, Industry and Digital Affairs, the French Minister for Social Affairs, Health and Women’s Rights and the French Minister for National and Higher tasked with Education and Research. They have been assembling a group of industrialists and academics, with the objective of imagining how French industry can accelerate the launch and export of innovative industrial products, with an emphasis on new biotechnologies. From June 2016 to December 2018, Olivier Charmeil served as Executive Vice President of our General Medicines and Emerging Markets Global Business Unit. He took up his current position of Executive Vice President, China and Emerging Markets in January 2019. Olivier Charmeil is a citizen of France. Jean-Baptiste Chasseloup de Chatillon Executive Vice President, Chief Financial Officer Date of birth: March 19, 1965 Jean-Baptiste Chasseloup de Chatillon holds a Masters from Paris Dauphine University and studied Finance in the United Kingdom at Lancaster University. Until recently, he served as Chief Financial Officer and Executive Vice President of the PSA Group. In that capacity, he was also a member of the Managing Board and Executive Committee. He held various management positions within the PSA Group in finance (Treasurer in Spain, Chief Financial Officer in the United Kingdom) and in sales and marketing (Citroen Belgium Managing Director). He was also Chairman of the Board of Banque PSA Finance (BPF) from 2012 to June 2016. He joined the Peugeot S.A. Managing Board in 2012. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES He was appointed to his current post on October 1, 2018. Jean-Baptiste Chasseloup de Chatillon is a citizen of France. Karen Linehan Executive Vice President, Legal Affairs and General Counsel Date of birth: January 21, 1959 the US House of Representatives Karen Linehan graduated from Georgetown University with Bachelor of Arts and Juris Doctorate degrees. Prior to practicing law, Ms. Linehan served on the congressional staff of the from Speaker of September 1977 to August 1986. Until December 1990, she was an Associate In January 1991, she joined Sanofi as Assistant General Counsel of its US subsidiary. In July 1996, Ms. Linehan moved to Paris to work on international legal matters within Sanofi and she has held a number of positions within the Legal Department, most recently as Vice President – Deputy Head of Legal Operations. in New York. in a mid-size firm law She was appointed to her current position in March 2007. Karen Linehan is a citizen of the United States of America and Ireland. David Loew Executive Vice President, Sanofi Pasteur Date of birth: March 20, 1967 David Loew has a degree in Finance and Marketing and an MBA from the University of St. Gallen in Switzerland. He started his career in the United States at Coopers & Lybrand and Hewlett Packard in 1990, before joining Roche in 1992. Over the next 21 years, David held a variety of positions with Roche including Global Oncology Head, General Manager Switzerland, Global Chief Marketing Officer & Head of Global Product Strategy, and Region Head Eastern Europe, Middle East and Africa for the Pharma Division of Roche. the International David joined Sanofi in July 2013 as Senior Vice President Commercial Operations Europe and became Head of Global Commercial Operations at Sanofi Pasteur in January 2016. He was of Pharmaceutical Manufacturers & Associations (IFPMA) representative on the Board of the Global Alliance for Vaccines and Immunization (GAVI). He also chaired the Steering Committee of IFPMA, comprising the CEOs of the member companies (GSK, Merck, Johnson & Johnson, Pfizer, Takeda, Novartis and Daiichi Sankyo), until July 2017. Federation He was appointed to his current position on June 1, 2016. David Loew is a citizen of Switzerland. SANOFI / FORM 20-F 2018 157 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Philippe Luscan Executive Vice President, Global Industrial Affairs Date of birth: April 3, 1962 Philippe Luscan is a graduate of the École Polytechnique (X) and in the École Nationale Supérieure des Mines de Paris Biotechnology. He began his career in 1987 as a Production Manager at Danone. In 1990, he joined Sanofi as Director of the Sanofi Chimie plant at Sisteron, France, and subsequently served as Industrial Director of Sanofi in the United States, as Vice President Supply Chain and as Vice President Chemistry from September 2006. He was appointed to his current position in September 2008. From January 2015 to September 2017, he was also Chairman of Sanofi in France. Philippe Luscan is a citizen of France. then moved to Merrell Dow (Sanofi) and the London Rubber Company. In 1992, he joined Roche Consumer Health where he took on positions of increasing responsibility in the United Kingdom, South Africa and the Asia-Pacific region. Following the acquisition of Roche Consumer Health by Bayer in 2004, Alan continued to occupy key management roles, including Region Head for Asia Pacific and Europe. In 2010 Alan transferred to the medical device business of Bayer as Global President for Bayer Medical Care. He was appointed to his current position in October 2016. Alan Main is a citizen of the United Kingdom. Muzammil Mansuri Executive Vice President, Strategy and Business Development Caroline Luscombe Date of birth: January 20, 1954 Executive Vice President, Human Resources Date of birth: February 28, 1960 Caroline Luscombe holds a bachelor’s degree in German from University College, London. She started her career in finance at Arthur Young McClelland Moore, and was also UK controller and Compensation and Benefits manager for the strategy consultants Bain & Company. Until recently, she was Head of Organization and Human Resources and a member of the Executive Committee at LafargeHolcim, based in Zurich (Switzerland). Before joining LafargeHolcim, she spent six years as Global Head of Human Resources and a member of the Executive Committee at Syngenta. She previously held a number of senior HR positions at General Electric (GE), including head of HR at GE Capital Global Banking, GE Money and GE Healthcare Bio-Sciences. Ms Luscombe was also Executive Vice President HR for the Medical Diagnostics Division of Amersham plc, before that company was acquired by GE. She was appointed to her current position on October 1, 2018. Caroline Luscombe is a citizen of the United Kingdom. Alan Main Executive Vice President, Consumer Healthcare Date of birth: July 3, 1963 Alan Main has a BA (Hons) in International Marketing from Thames Polytechnic in London, and has completed various executive and leadership development programs at London, Harvard and Columbia Business Schools, as well as INSEAD (Asia). Alan has more than 30 years of marketing and general management experience in the Consumer Health and Medical Device fields, initially with Stafford Miller/Block Drug (GSK). He 158 SANOFI / FORM 20-F 2018 Muzammil Mansuri holds a Bachelor of Science degree in Chemistry and a Ph.D. in Organic Chemistry from University College London. He held post-doctoral positions at the University of California, Los Angeles (UCLA) and Columbia University. He started his career in 1981 with Shell Research Limited where he began as a research scientist. After Shell, he spent several years with Bristol-Myers Company in various R&D roles with increasing responsibility. From 2007 to 2010, he was Chairman and CEO at CGI Pharmaceuticals. Before joining Sanofi, Muzammil’s most recent position was Senior Vice President, Research & Development Strategy and Corporate Development at Gilead Sciences. He was appointed to his current position in February 2016. Muzammil Mansuri is a citizen of the United States of America and the United Kingdom. Ameet Nathwani Chief Digital Officer, Chief Medical Officer and Executive Vice President Medical Function Date of birth: October 5, 1963 Ameet Nathwani was born in Uganda and studied in the United Kingdom. He qualified in medicine in 1987 in London, and acquired his specialization in Cardiology at a number of University Hospitals in London. He also has a diploma in Pharmaceutical Medicine and an executive Masters in Business Administration. Ameet Nathwani has more than twenty years’ experience in the pharmaceutical industry, beginning in 1994 when he joined Glaxo Group Research. Between 1994 and 2004 he held increasingly senior functional and franchise leadership roles in research and development and GlaxoSmithKline, in Europe and the US. He joined Novartis in 2004 as Senior Vice President and Global Development Head of the Cardiovascular and Metabolic Franchise, and over an 11-year period held a number of senior development and in Glaxo, SmithKline Beecham commercial positions including Global Head of the Critical Care Franchise. In June 2014 Ameet Nathwani was appointed Global Head of Medical Affairs at Novartis Pharma AG and became a member of the Pharma Executive Committee, where he led the establishment of a Real World Evidence Center of Excellence and piloted the Digital Medicine strategy. He was appointed as Chief Medical Officer and Executive Vice President Medical Function in May 2016. In addition to this role, he was appointed Chief Digital Officer on February 12, 2019. Ameet Nathwani is a citizen of the United Kingdom. John Reed Executive Vice President, Global Head of Research and Development Date of birth: October 11, 1958 John Reed holds a B.A. in chemistry from the University of Virginia, Charlottesville and an M.D. and Ph.D. (Immunology) from the University of Pennsylvania School of Medicine. He began his academic career as a member of the faculty at the University of Pennsylvania in 1988, following a post-doctoral fellowship in Molecular Biology at the Wistar Institute and a residency in Pathology & Laboratory Medicine at the Hospital of the University of Pennsylvania. John Reed subsequently held faculty appointments at several universities the University of California, the University of Florida and ETH-Zurich. including In 1992, he joined the Sanford-Burnham Medical Research Institute in La Jolla, California, one of the largest independent non-profit biomedical research institutes in the United States. From 2002 to 2013, he served as CEO of the Institute. During his tenure, John Reed ran a highly productive laboratory that generated more than 900 research publications and over 130 patents, was awarded more than 100 research grants, and trained over 100 post-doctoral fellows. He is a Fellow of the American Association for the Advancement of Science (AAAS) and the recipient of numerous honors and awards for his accomplishments in biomedical research. John Reed has served on multiple editorial boards of research journals, and was scientific founder or co-founder of four biotechnology companies. He has served on the Board of traded biopharmaceutical and Directors biotechnology companies and on the governing boards for various non-profit biomedical research organizations. five publicly for From 2013 to 2018, John Reed was Global Head of Roche Pharmaceutical Research & Early Development, based at company headquarters in Basel, Switzerland. He was responsible for research through Phase IIb development for all therapeutic areas, overseeing R&D activities across 7 global sites. He assumed his current position as Executive Vice President, Global Head of Research & Development for Sanofi in July 2018. John Reed is a citizen of the United States of America. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Bill Sibold Executive Vice President, Sanofi Genzyme Date of birth: October 29, 1966 Bill Sibold holds an MBA from Harvard Business School and a B.A. in Molecular Biophysics and Biochemistry from Yale University. He has more than twenty-five years of experience in the biopharmaceutical industry. Bill Sibold began his career with Eli Lilly and then held a number of leadership positions within Biogen, including driving their US commercial operations in neurology, oncology and rheumatology. He also worked for Biogen in Australia and the Asia-Pacific region, and served as Chief Commercial Officer at Avanir Pharmaceuticals. Bill Sibold joined Sanofi in late 2011 as head of the MS franchise where he oversaw the successful launches of Aubagio® and Lemtrada®. From January 2016 to June 2017 he served as head of Sanofi Genzyme’s Global Multiple Sclerosis, Oncology and Immunology organization, where he led preparation for the global launches of dupilumab and sarilumab. Bill Sibold has headed up Sanofi Genzyme, our specialty care global business unit, since July 1, 2017. Bill Sibold is a citizen of Canada and of the United States of America. Kathleen Tregoning Executive Vice President, External Affairs Date of birth: January 20, 1971 received her Bachelor’s degree Kathleen Tregoning in International Relations from Stanford University and her master’s degree in Public Policy from the Kennedy School of Government at Harvard University. She has more than 20 years of professional experience in policy, advocacy, stakeholder outreach and external engagement. She began her career in 1993 with Andersen Consulting in San Francisco and later served as a Policy Advisor and then Assistant Deputy Mayor in the Office of the Mayor for the City of Los Angeles. In 2001, Kathleen moved to Washington DC where she served as a professional staff member in the US Congress, working for the chairmen of the House of Representatives Ways & Means Committee, the House Energy & Commerce Committee, and the Senate Budget Committee. In these positions she was a key resource for members of Congress on a wide range of health care issues including Medicare, Medicaid, prescription drugs, disease management, health care information technology, and post-acute care. Kathleen joined Biogen in 2006 as Vice President, Public Policy & Government Affairs. Over the next nine years, she built the company’s first global government affairs team to advance policies that enable the delivery of innovative biopharmaceutical SANOFI / FORM 20-F 2018 159 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES products to patients. In 2015, Kathleen was appointed Senior Vice President, Corporate Affairs at Biogen, overseeing the company’s policy and advocacy engagement, corporate and employee product communications and philanthropy/community outreach on a global basis. communications, media relations, She was appointed to her current position in February 2017. Kathleen Tregoning is a citizen of the United States of America. Dieter Weinand Executive Vice President, Primary Care Date of birth: August 16, 1960 Dieter Weinand holds an M.Sc. in Pharmacology and Toxicology from Long Island University, New York and a B.A. in Biology from Concordia College in Bronkville, New York. He has 30 years’ experience in the biopharmaceutical industry, holding various responsibilities in commercial, operational and strategic roles at a number of pharmaceutical companies including Warner Lambert, Pfizer and Bristol-Myers Squibb. Before moving to Bayer, he was President, Global Commercialization & Portfolio Management at Otsuka in Pharmaceutical Development & Commercialization Princeton, New Jersey (United States). Dieter Weinand joined Bayer in 2014 as head of the Pharmaceuticals Division and was a member of the Bayer HealthCare Executive Committee. In 2016, he was appointed to the Board of Management of Bayer AG. Inc. He was appointed to his current position as Executive Vice President, Primary Care at Sanofi in November 2018. Dieter Weinand is a citizen of the United States of America. B. Compensation Compensation and arrangements for corporate officers Compensation policy for executive and non-executive officers This section describes the compensation policy for executive and non-executive officers as established pursuant to Article L. 225-37-2 of the French Commercial Code. It sets forth the principles and criteria used in determining, allocating and awarding the fixed, variable and exceptional components that collectively comprise the total compensation and benefits of whatever kind awarded to our executive and non-executive officers in respect of the office they hold. The payment and award in a given year of any variable or exceptional components of compensation as described below that may arise in respect of the previous year are contingent on approval by the shareholders in an Ordinary General Meeting of the 160 SANOFI / FORM 20-F 2018 compensation package of the executive or non-executive officer in question, on the terms stipulated in Article L. 225-100 of the French Commercial Code. That condition – which affects the Chief Executive Officer only, given that the compensation of the Chairman of the Board of Directors (when the two offices are separated) consists solely of fixed compensation and benefits in kind – applies in this case to the following components of compensation: ◆ annual variable compensation (established on the basis partly of quantitative criteria, and partly of qualitative criteria); ◆ equity-based compensation (subject to fulfillment of performance conditions). the Board of Directors, acting on The compensation policy for executive and non-executive officers the is established by recommendation of the Compensation Committee. The members of that Committee, the majority of whom are independent directors, were chosen for their technical competencies and their good understanding of current standards, emerging trends and Sanofi’s practices. To fulfill their remit, the Committee regularly invites the Executive Vice President – Human Resources and the Head of Compensation and Employee Benefits to attend their meetings, the Committee although deliberates. Committee members also work with the Chairman and the Secretary to the Board, who have contacts with our principal shareholders ahead of the Annual General Meeting. themselves when they absent In addition, the Chairman of the Committee: ◆ discusses the financial, accounting and tax impacts of the proposed compensation policy with the Chairman of the Audit Committee; ◆ plays an active role at meetings of the Appointments and Governance Committee the Appointments, Governance and CSR Committee effective March 8, 2019) and the Strategy Committee, to both of which he belongs, thereby gaining assurance that the proposed criteria are consistent and appropriate in light of Sanofi’s strategic ambitions. (renamed The Committee obtains assurance at the start of each year as to the level of attainment of the performance criteria for the past financial year. The Board of Directors applies the AFEP-MEDEF Code when determining the compensation and benefits awarded to our executive and non-executive officers. Compensation policy for the Chairman of the Board of Directors The compensation policy for the Chairman of the Board of Directors is identical to that approved by the Annual General Meeting of Sanofi shareholders on May 2, 2018. The compensation of the Chairman of the Board of Directors (where the office of Chairman is separate from that of Chief ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Executive Officer, as is currently the case) consists solely of fixed compensation and benefits in kind and excludes any variable or exceptional compensation, any awards of stock options or performance shares, and any directors’ attendance fees. Where the office of Chairman is separate from that of Chief Executive Officer, as is currently the case, the Chairman of the Board is not entitled to the Sanofi top-up defined-benefit pension plan. Nor is he entitled to a termination benefit or a non-compete indemnity. Neither the Chairman of the Board nor the Chief Executive Officer receives attendance fees in their capacity as directors. Consequently, the Chairman of the Board does not receive attendance fees in his capacity as Chairman of the Board, Chairman of the Appointments, Governance and CSR Committee or Chairman of the Strategy Committee. Shareholder votes on the compensation policy of the Chairman of the Board and on changes to that policy The table below summarizes shareholder votes on the compensation policy of the Chairman of the Board of Directors since that policy was introduced, and changes made to the policy: Result of shareholder vote on compensation policy for the Chairman of the Board of Directors Changes to the compensation policy for the Chairman of the Board of Directors 2018 AGM 2017 AGM 98.83% in favor 98.19% in favor None, policy unchanged None, policy unchanged Compensation policy for the Chief Executive Officer The structure of the compensation policy for the Chief Executive Officer is identical to that approved by the Annual General Meeting of Sanofi shareholders on May 2, 2018. However, the following changes have been made in the implementation of the policy: ◆ introduction of a separate individual CSR performance criterion into annual variable compensation to reflect the Board’s longstanding commitment to take account of the social and environmental impact of Sanofi’s operations while promoting long-term value creation. feedback gathered by the Chairman of the Board in meetings with our principal shareholders and stakeholders; and It also responds to ◆ replacement of the performance criterion based on Return On Assets (ROA) with a criterion based on free cash flow (FCF) for future equity-based compensation plans (i.e. those awarded in or after 2019). This change has been introduced for the following reasons: is a more clearly understandable performance criterion both within and outside Sanofi; it is easier to cascade down to lower grades; and it is a better fit with our current strategic objectives. it The compensation policy of the Chief Executive Officer is based on the same principles as the general Sanofi compensation policy. General principles The Sanofi compensation policy seeks to be consistent with market and industry practice in order to provide competitive levels of compensation, create a strong link between company and individual performance, and maintain a balance between short-term performance and medium-/long-term performance. The compensation of the Chief Executive Officer is set by the Board of Directors acting on the recommendation of the Compensation Committee, with reference to compensation paid to the chief executive officers of the following ten leading global pharmaceutical companies: AstraZeneca plc, Bayer AG, Bristol- Myers-Squibb Inc., Eli Lilly and Company Inc., Johnson & Johnson Inc., GlaxoSmithKline plc, Merck Inc., Novartis AG, Pfizer Inc., and Roche Holding Ltd. This panel comprises companies that are comparable to Sanofi. Consistency with market practice is fundamental in order to attract and retain the talents necessary to our success. We also review the practices of the principal CAC 40 companies in order to reach a fair balance and to take into account our corporate the Chief interest, market practices, Executive Officer, and our other stakeholders. the performance of Equity-based compensation is a critical tool for our worldwide attractiveness as an employer, and aims to align employee and shareholder interests and reinforce employees’ ties to Sanofi. Acting on the recommendation of the Compensation Committee, the Board of Directors determines the performance conditions attached to equity-based compensation for all beneficiaries at Sanofi and its subsidiaries worldwide, favoring the attainment of the Company’s objectives. Our equity-based compensation plan rules are made available to our shareholders on the governance page of our website (www.sanofi.com) in the same form as that distributed to our employees. Our equity-based compensation policy, which was extensively revised by the Board of Directors in 2011, can generally be characterized by reduced dilution; diversified, multi-year performance conditions; increased transparency; and specific additional requirements for the Chief Executive Officer. As a result of positive and encouraging shareholder and proxy advisor feedback collected through corporate governance roadshows and the results of votes at recent Annual General Meetings, the Board decided to maintain this policy. SANOFI / FORM 20-F 2018 161 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Since 2018, awards to senior executives have consisted solely of performance shares; only the Chief Executive Officer continues to be awarded stock options as well. Awarding performance shares makes it possible to maintain a comparable level of employee incentivization while reducing the dilutive effect of equity-based compensation plans for existing shareholders. However, the Board of Directors continues to believe that due to their ratchet effect, options remain an appropriate component of the Chief Executive Officer. the compensation of The Board of Directors makes any grant of performance shares or stock options contingent on several distinct performance criteria in order to ensure that our equity-based compensation plans incentivize overall performance and do not encourage excessive risk taking. Failure to achieve those criteria over the entire performance measurement period results in a reduction or loss of the initial grant. Grants are also contingent on the beneficiary’s continued employment in the Sanofi group during the lock-up period (3 years for performance shares, 4 years for options, followed by further stringent lock-up obligations in the case of the Chief Executive Officer). The exercise price of stock options is set by the Board, never incorporates a discount, and must be at least equal to the average of the quoted market prices on the 20 trading sessions preceding the date of grant by the Board. The Board is not allowed to reset the terms of prior grants, for lower instance with easier performance conditions or a exercise price. On taking up office When the Chief Executive Officer is an outside appointment, the Board of Directors may decide, acting on a recommendation from the Compensation Committee, to compensate the appointee for some or all of the benefits he may have forfeited on leaving his previous employer. In such a case, the terms on which the Chief Executive Officer is hired aim to replicate the diversity of what was forfeited, with a comparable level of risk (variable portion, medium-term equity-based or cash compensation). During the term of office Compensation structure Our policy aims at achieving a balance in the compensation structure between fixed compensation, benefits in kind, short- term variable cash compensation, and medium-term variable equity-based compensation. The proportions of annual fixed and variable compensation are not subject to annual review. Compensation adjustments based on performance and market equity-based primarily practice compensation, which is medium-term and aims at aligning the interests of the Chief Executive Officer with those of our shareholders and stakeholders. effected through are 162 SANOFI / FORM 20-F 2018 Our overall compensation policy is designed to motivate and reward performance by ensuring that a significant portion of compensation is contingent on the attainment of financial, operational and extra-financial criteria aligned with the corporate interest and with the creation of shareholder value. Variable cash compensation and equity-based compensation are the two principal levers for action. Annual variable compensation Annual variable compensation is in a range between 0% and 250% of fixed compensation, with a target of 150%. It is determined by reference to quantitative and qualitative criteria. The percentage of variable compensation the attainment of quantitative criteria may be scaled down regardless of actual performance, in order to give greater weight to the attainment of qualitative criteria. This flexibility can only operate to reduce the amount of variable compensation, and cannot compensate for underperformance on quantitative criteria. linked to In accordance with Article L. 225-100 of the French Commercial Code, payment of annual variable compensation in a given year in respect of the previous year is contingent on a favorable shareholder vote at the Annual General Meeting. Equity-based compensation The Chief Executive Officer’s equity-based compensation may not exceed 250% of his target short-term compensation (fixed plus variable). The valuation of stock options is calculated at the date of grant using the Black & Scholes method. The valuation of performance shares is also calculated at the date of grant, and represents the difference between the quoted market price of the share on the date of grant and the aggregate present value of the dividends to be received over the next three years. The parameters used the valuations are market parameters available in the financial press. The Chief Executive Officer’s equity-based compensation is contingent upon attainment of the performance conditions. to calculate In 2018, on the basis of the information published as of the date of this annual report on Form 20-F, the median fixed compensation of the chief executive officers of the aforementioned ten leading global pharmaceutical companies was region of €1,435,000, the median of the annual variable compensation was in the region of €2,210,000 and the median of the long-term compensation granted (whether in shares or in cash) represented around 710% of the fixed compensation. the in Each grant to our Chief Executive Officer takes into account previous grants and his overall compensation. In any event, the maximum number of exercisable options or shares to be delivered may not be more than the number of options initially granted or performance shares initially awarded. Any award of equity-based compensation in a given year is contingent on a favorable shareholder vote at the Annual General Meeting. Attendance fees Executive and non-executive officers do not receive attendance fees in their capacity as directors. Consequently, the Chief Executive Officer does not receive attendance fees in his capacity as a director or as a member of the Strategy Committee. Exceptional compensation No exceptional compensation can be awarded to the Chief Executive Officer. On leaving office The Chief Executive Officer is entitled to a top-up defined-benefit pension plan, a termination benefit, and a non-compete indemnity. Each of those benefits is taken into account by the Board of Directors when fixing the overall compensation of the Chief Executive Officer. Pension arrangements The Chief Executive Officer is covered by a top-up defined- benefit pension plan falling within the scope of Article L. 137-11 of the French Social Security Code. The plan is offered to all employees of Sanofi and its French subsidiaries who meet the eligibility criteria specified in the plan rules. The plan, which remains open, was set up on October 1, 2008 as the final stage in the process of harmonizing the status of personnel across the French subsidiaries. This top-up defined-benefit pension plan is offered to executives (as defined by AGIRC, a confederation of executive pension funds) of Sanofi and its French subsidiaries who meet the eligibility criteria specified in the plan rules; the benefit is contingent upon the plan member ending his or her career within the Sanofi group. The plan is reserved for executives with at least ten years of service whose annual base compensation has for ten calendar years (not necessarily consecutive) exceeded four times the French social security ceiling, and is wholly funded by the Company and outsourced to an insurance company. The top-up pension, which may not exceed 37.50% (1.5% per year of service, capped at 25 years) of the reference compensation, is in the form of a life annuity, and is transferable as a survivor’s pension. The annuity is based on the arithmetical average of the three highest years’ average annual gross compensation paid during any three of the five years (not necessarily of employment. This reference compensation is capped at 60 times the French social security ceiling applicable in the year in which the pension is taken. In addition, vesting of new rights for the Chief Executive Officer has been subject to a performance condition since January 1, 2017. The performance condition is applied on the following basis: consecutive) preceding cessation final ◆ if the level of attainment for variable compensation is equal to or greater than the target (i.e. 150% of fixed compensation), 100% of the contingent top-up pension rights will vest, corresponding to ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES an uplift of 1.5% in the annual reference compensation used to calculate the annuity payable under the plan; ◆ if the level of attainment for variable compensation is less than 100% of fixed compensation, no top-up pension rights will vest for the year in question; and ◆ between those two limits, vested rights are calculated on a prorata basis. Consequently, the annual uplift in contingent rights is capped at 1.5% of the annual reference compensation used to calculate the annuity payable under the plan, which is below the upper limit of 3% of annual reference compensation stipulated in Article L. 225-42-1 of the French Commercial Code. The annuity supplements any other schemes for which the plan member may be eligible in France or abroad, subject to a cap on the total pension from all sources set at 52% of the reference compensation. If the total amount of the annuities paid under all such schemes were to exceed the 52% cap, the amount of the Sanofi top-up defined-benefit pension annuity would be reduced accordingly in order to respect that cap. is subject This retirement plan to various charges and contributions within France: CSG, CRDS, CSAM, CASA, contributions of 7% and 14% on the annuity, and of 24% on the external funding. The pension entitlement is not cumulative with (i) any termination benefit paid in the event of forced departure or (ii) any non-compete indemnity. Termination arrangements The termination benefit only becomes payable if the departure of the Chief Executive Officer is forced, i.e. in the event of removal from office or resignation linked to a change in strategy or control of the Company. Compensation for non-renewal of the term of office is irrelevant in the case of the Chief Executive Officer, because this office is held for an indefinite term. In addition, no termination benefit is payable in the following circumstances: ◆ in the event of removal from office for gross or serious misconduct (faute grave ou lourde); ◆ if the Chief Executive Officer elects to leave the Company to take up another position; ◆ if the Chief Executive Officer is assigned to another position within Sanofi; ◆ if the Chief Executive Officer takes his pension. The amount of the termination benefit is capped at 24 months of the Chief Executive Officer’s most recent total compensation on the basis of (i) the fixed compensation effective on the date of leaving office and (ii) the last variable compensation received prior to that date, subject to fulfilment of the performance criteria for the three financial years preceding the date of leaving office. SANOFI / FORM 20-F 2018 163 Consequences of the Chief Executive Officer’s departure for equity-based compensation If the Chief Executive Officer leaves the Company for reasons other than resignation or removal from office for gross or serious misconduct (in which case any award of equity-based compensation is forfeited), the overall allocation percentage will be prorated to reflect the amount of time the Chief Executive Officer remained with Sanofi during the vesting period. If at any time prior to the expiration of (i) the period of validity of the options or (ii) the vesting period of the performance shares the Chief Executive Officer joins a competitor of Sanofi as an employee or executive/non-executive officer, or provides services to or cooperates with such a competitor, he irrevocably loses those options and performance shares regardless of any full or partial waiver by the Board of Directors of the non-compete undertaking relating to his office as Chief Executive Officer. If the Chief Executive Officer retires at statutory retirement age prior to the expiration of (i) the period of validity of the options or (ii) the vesting period of the performance shares, he will retain entitlement to the options and performance shares initially awarded but will continue to be bound by the other terms of the plan, including performance conditions. There is no acceleration clause in the event of a change of control. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The amount of the termination benefit is reduced by any amount received as consideration for the non-compete undertaking, such that the aggregate amount of those two benefits may never exceed two years of total fixed and variable compensation. Non-compete undertaking In the event of his departure from the Company, the Chief Executive Officer undertakes, during the 12-month period following his departure, not to join a competitor of the Company as an employee or executive/non-executive officer, or to provide services to or cooperate with such a competitor. for this undertaking, he receives an In return indemnity corresponding to one year’s total compensation effective on the day he ceases to hold office and the last individual variable compensation received prior to that date. This indemnity is payable in 12 monthly installments. However, the Board of Directors reserves the right to release the Chief Executive Officer from the undertaking for some or all of that 12-month period. In such cases, the non-compete indemnity would not be due for the period of time waived by the Company. 164 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Summary of benefits awarded to the Chief Executive Officer on leaving office The table below presents a summary of the benefits (as described above) that could be claimed by the Chief Executive Officer on leaving office depending on the terms of his departure. The information provided in this summary is without prejudice to any decisions that may be made by the Board of Directors. Voluntary departure / Removal from office for gross or serious misconduct Forced departure Retirement Termination benefit(a) / 24 months of fixed compensation as of the date of leaving office + 24 months of most recent individual variable compensation received(d) – Amounts received as non-compete indemnity Non-compete indemnity(b) 12 months of fixed compensation as of the date of leaving office + 12 months of most recent individual variable compensation received prior to leaving office 12 months of fixed compensation as of the date of leaving office + 12 months of most recent individual variable compensation received prior to leaving office(e) Top-up pension(c) / / / / (Years of service x 1.5%(f)) X 60 x the French social security ceiling effective as of the retirement date Stock option and performance shares not yet vested Forfeited in full Rights retained in prorata to period of employment within Sanofi(g) Rights retained(g) (a) The amount of the termination benefit is reduced by any indemnity received as consideration for the non-compete undertaking, such that the aggregate amount of those two benefits may never exceed two years of total fixed and variable compensation. (b) The Board of Directors may decide to release the Chief Executive Officer from the non-compete undertaking for some or all of the 12-month period. In that case, the non-compete indemnity would not be due, or would be scaled down proportionately. (c) In accordance with the Sanofi top-up defined-benefit pension plan rules dated October 1, 2008, amended on January 1, 2012, the top-up pension cannot exceed 37.50% (1.5% per year of service, capped at 25 years) of the reference compensation and supplements any other pension schemes for which the Chief Executive Officer may be eligible, subject to a cap on the total pension from all sources set at 52% of the reference compensation. (d) Subject to fulfillment of the performance conditions, assessed over the three financial years preceding the departure from office as described in “ – Item 6 – Arrangements for corporate officers – 2. Termination benefit in event of forced departure”. (e) Subject to the Board of Directors enforcing the non-compete undertaking, the amount of the termination benefit is reduced by any indemnity received as consideration for the non-compete undertaking, such that the aggregate amount of those two benefits may never exceed two years of total fixed and variable compensation. (f) Subject to fulfillment of the performance condition, assessed for each year. (g) In this case, the Chief Executive Officer remains subject to the terms of the plans, including the performance conditions. SANOFI / FORM 20-F 2018 165 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Shareholder votes on the compensation policy of the Chief Executive Officer and on changes to that policy The table below summarizes shareholder votes on the compensation policy of the Chief Executive Officer since that policy was introduced, and changes made to the policy. Result of shareholder vote on compensation policy for the Chief Executive Officer Changes made to the compensation policy for the Chief Executive Officer 2018 AGM 89.52% in favor 2017 AGM 93.55% in favor of policy Structure unchanged, but adjustments made in its implementation to: compensation ◆ annual variable compensation, with the introduction of a separate CSR-based individual performance criterion(a); and ◆ equity-based compensation, with the ROA-based criterion replaced with one based on FCF(a) in future performance share plans (i.e. those awarded in or after 2019). performance Structure unchanged, but clarification provided on: compensation of policy ◆ the composition of the benchmark panel used as a basis of comparison for the compensation of the Chief Executive Officer, which was aligned on that used for equity-based compensation plans; and TSR our in ◆ the performance conditions applicable to the pension entitlement of the Chief Executive Officer. (a) Subject to approval by the Annual General Meeting of Sanofi shareholders, this change will be applied as part of the compensation policy for the Chief Executive Officer from 2019 onwards. Compensation of the Chairman of the Board, Serge Weinberg Serge Weinberg has held the office of Chairman of the Board of Directors since May 17, 2010. He has never had, and does not currently have, a contract of employment with Sanofi. The Chairman of the Board also chairs the Appointments and Governance Committee Appointments, Governance and CSR Committee effective March 8, 2019) and the Strategy Committee. He is also a member of the Scientific Committee. (renamed the The remit of the Chairman of the Board is specified in the Board Charter, which is reproduced in its entirety in Exhibit 1.2. to this Annual Report on Form 20F. During the course of 2018, the Chairman’s activities included: ◆ chairing all the meetings of the Board of Directors (11 in 2018) and of the Committees of which he is a member (three meetings of the Appointments and Governance Committee, six meetings of the Strategy Committee and one meeting of the Scientific Committee), and participating in Committee meetings to which he was invited (Audit Committee and Compensation Committee); ◆ close monitoring of the proper implementation of the decisions taken by the Board; ◆ meetings with directors, including (i) on the appointment of Emmanuel Babeau, to explain to him how the Board operates and answer his questions, (ii) in connection with the evaluation of the Board’s operating procedures and (iii) on matters relating to the projects presented to the Board; 166 SANOFI / FORM 20-F 2018 ◆ regular meetings with members of the senior management team; ◆ on-site visits to Sanofi locations in France and abroad, and meeting the employees; ◆ meetings with biotechs and medtechs in France and abroad; ◆ organizing a three-day strategy seminar in Boston (United States); and ◆ representing Sanofi at events or official meetings with representatives of the public authorities and other stakeholders, in line with his remit as defined by the Board Charter. The Chairman also has a role in explaining positions taken by the Board within its sphere of competence, especially in terms of strategy, governance and executive In furtherance of this role, Serge Weinberg drew on his experience of corporate communication in: compensation. ◆ answering letters from investors and shareholders; ◆ holding meetings with certain shareholders and proxy advisors; and ◆ attending a meeting of the Individual Shareholders Committee at Sanofi headquarters in March 2018, discussing what Sanofi had achieved in 2017 and answering questions about the Company’s latest news, future prospects and dividend policy. Those tasks were carried out after coordination with the Chief Executive Officer, and in close collaboration with our Investor Relations department. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES performance shares. Nor did he receive any attendance fees in his capacity as a Director. The amount reported for benefits in kind relates mainly to a company car with a chauffeur. Serge Weinberg is not covered by the Sanofi top-up defined- benefit pension plan. Compensation in respect of 2019 fixed compensation On March 8, 2019, acting on a recommendation from the Compensation Committee, the Board of Directors set the terms of Serge Weinberg’s compensation. For the 2019 financial year, his is maintained at €700,000. annual Consequently, Serge Weinberg’s compensation has remained unchanged since his arrival line with AMF recommendations, he will not receive any variable compensation, stock options or performance shares. Nor will he receive any attendance fees. in 2010. In As part of the formal evaluation of the Board and its Committees, the directors once again expressed their appreciation of the Chairman’s strong commitment in fulfilling his remit, and referred to the close attention he pays to the quality and frankness of Board discussions and his efforts to achieve consensus among Board members. Compensation in respect of 2018 On March 6, 2018, acting on a recommendation from the Compensation Committee, the Board of Directors set the terms of Serge Weinberg’s compensation for the 2018 financial year. For the 2018 financial year, his annual fixed compensation was maintained at €700,000. In line with our compensation policy for the Chairman of the Board, as approved by our shareholders at the Annual General Meeting of May 2, 2018, he did not receive any variable compensation and was not awarded any stock options or Compensation, options and shares awarded to Serge Weinberg (table no.1 of the AFEP-MEDEF Code) (€) Compensation due for the year (details provided in the table below) Valuation of stock options awarded during the year Valuation of performance shares awarded during the year Valuation of other long-term compensation plans Total 2018 708,362 N/A N/A N/A 2017 708,353 N/A N/A N/A 708,362 708,353 Compensation awarded to Serge Weinberg (table no. 2 of the AFEP-MEDEF Code) (€) Fixed compensation(a) Annual variable compensation Exceptional compensation Attendance fees Benefits in kind Total 2018 2017 Amounts due Amounts paid Amounts due Amounts paid 700,000 700,000 700,000 700,000 N/A N/A N/A 8,362 708,362 N/A N/A N/A 8,362 708,362 N/A N/A N/A 8,353 708,353 N/A N/A N/A 8,353 708,353 The amounts reported are gross amounts before taxes. (a) Fixed compensation due in respect of a given year is paid during that year. Shareholder votes on the components of Serge Weinberg’s compensation Result of the votes 2018 AGM(a) 2017 AGM(b) 2016 AGM(b) 2015 AGM(b) 2014 AGM(b) 98.81% 98.29% 98.51% 97.86% 98.13% (a) Binding vote. (b) Consultative vote. SANOFI / FORM 20-F 2018 167 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Compensation of the Chief Executive Officer, Olivier Brandicourt Olivier Brandicourt has served as Chief Executive Officer since April 2, 2015. He has never had, and does not currently have, a contract of employment with Sanofi. Compensation, options and shares awarded to Olivier Brandicourt (table no.1 of the AFEP-MEDEF Code) (€) Compensation due for the year (details provided in the table below) Valuation of stock options awarded during the year(a) Valuation of performance shares awarded during the year(b) Valuation of other long-term compensation plans Total 2018 3,056,122 1,390,400 2,829,500 N/A 2017 2,993,118 2,686,200 4,075,000 N/A 7,276,022 9,754,318 (a) Valuation at the date of grant using the Black & Scholes method, subject to fulfillment of the performance conditions. (b) Valuation at the date of grant, subject to fulfillment of the performance conditions. This represents the difference between the quoted market price of the share on the date of grant and the present value of the dividends to be received over the next three years. The parameters used to calculate the valuations are market parameters available in the financial press. Fixed and variable compensation awarded to Olivier Brandicourt (table no. 2 of the AFEP-MEDEF Code) (€) Fixed compensation(a) Annual variable compensation(b) Exceptional compensation Attendance fees Benefits in kind Total 2018 2017 Amounts due Amounts paid Amounts due Amounts paid 1,200,000 1,855,800 1,200,000 1,792,800 1,200,000 1,792,800 1,200,000 1,954,800 N/A N/A 322 N/A N/A 322 N/A N/A 318 N/A N/A 318 3,056,122 2,993,122 2,993,118 3,155,118 The amounts reported are gross amounts before taxes. (a) Fixed compensation due in respect of a given year is paid during that year. (b) Variable compensation in respect of a given year is determined at the start of the following year and paid after the Annual General Meeting in that year, subject to shareholder approval. Compensation in respect of 2018 On March 6, 2018, acting on a recommendation from the Compensation Committee, the Board of Directors set the terms of Olivier Brandicourt’s compensation for the 2018 financial year. In line with our compensation policy for the Chief Executive Officer, as approved by our shareholders at the Annual General Meeting of May 2, 2018, his annual compensation for 2018 comprised (i) fixed annual gross compensation of €1,200,000 (unchanged since he took office) and (ii) variable annual compensation in a range from 0% to 250% of his fixed annual compensation, with a target of 150%, and subject to both quantitative and qualitative criteria. Those objectives were 40% based on financial indicators (sales growth one-third, business net income(1) two-thirds), and 60% based on specific individual objectives. (1) For a definition, see “– Item 5 – Operating and Financial Review and Prospects – Business Net Income”. 168 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The Board of Directors, acting on recommendations from the Compensation Committee, adjusts the individual performance criteria annually, while always seeking to maintain continuity and consistency from one year to the next. Individual objectives for 2017 ◆ excellence of product launches (10%); ◆ external growth (14%); ◆ operational transformation (12%); ◆ organization and staff relations (12%); and ◆ pipeline of new products (12%). Individual objectives for 2018 ◆ operational transformation (20%); ◆ pipeline of products (12%); ◆ organization and staff relations (12%); ◆ new products (10%); and ◆ external growth (6%). Qualitative criteria account for 32% of the overall variable compensation objectives for 2018 (versus 24% for 2017). In addition, acting on the recommendation of the Compensation Committee and in light of experience, the Board of Directors decided that the percentage of variable compensation linked to the attainment of quantitative criteria could be scaled down regardless of actual performance, in order to give greater weight to the attainment of qualitative criteria. This flexibility can only operate to reduce the amount of variable compensation, and cannot compensate for underperformance on quantitative criteria. the performance criteria applied to variable In general, compensation and the vesting of stock options and performance shares are exacting, and consistent with our corporate objectives. to For confidentiality reasons, neither the level of attainment required (target) for the quantitative criteria nor the details of the qualitative criteria can be disclosed; however, they were pre-determined on a precise basis. In evaluating those criteria, the performance of major global pharmaceutical companies is always taken into account. Acting on a recommendation from the Compensation Committee, the Board of Directors meeting of March 8, 2019 reviewed the attainment of each criterion and sub-criterion. The Board’s conclusions are summarized in the table below. Criterion Type Weight compensation) Assessment Comments Target/ Maximum (as percentage of fixed Financial objectives (40%) Sales Quantitative 13.3% Business net income(a) Operational transformation Quantitative 26.7% Qualitative 20% 19.95% / 33.25% 40.05% / 66.75% 30% / 50% Below target Above target On target Pipeline of products Quantitative 12% 18% / 30% Above target Individual objectives (60%) Organization and staff relations Qualitative 12% 18% / 30% On target New products Quantitative 10% External growth Quantitative 6% 15% / 25% On target 9% / 15% Above target Confidential target Updating of strategy Ongoing simplification efforts Ongoing digital transformation External evaluation of CSR programs 13 filings and 9 approvals 15 Phase III starts Ongoing enhancement of upstream pipeline Renewing the Executive Committee Development of key competencies Implementation of action plan following employee survey Sales of new products and preparation of launches in line with target Acquisitions of Bioverativ and Ablynx Divestment of European generics business Weighting (as percentage of fixed compensation) 118.8 163.8 158.55 Total 100% 150% / 250% 154.65(b) (a) For a definition, see “– Item 5 – Operating and Financial Review and Prospects – Business Net Income”. (b) Calculated by applying the weighting between financial objectives (40%) and individual objectives (60%). SANOFI / FORM 20-F 2018 169 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Acting on a recommendation from the Compensation Committee, the Board of Directors meeting of March 8, 2019 set Olivier Brandicourt’s variable compensation for 2018 at €1,855,800, equivalent to 154.65% of his fixed compensation. Payment of his variable compensation in respect of the 2018 financial year is contingent on approval of his compensation package by the shareholders in an Ordinary General Meeting, on the terms stipulated in Article L. 225-100 of the French Commercial Code. Olivier Brandicourt is subject to, benefits from and contributes to the same health cover, and death and disability plans as are applicable to other employees of Sanofi based in France. He received a benefit in kind in 2018 representing social contribution payments of €322 made by Sanofi on his behalf. In line with our compensation policy for the Chief Executive Officer as approved by our shareholders at the Annual General Meeting of May 2, 2018, and acting on the recommendations of the Compensation Committee, the Board of Directors meeting of May 2, 2018 decided to award Olivier Brandicourt 220,000 stock subscription options and 50,000 performance shares in respect of the 2018 financial year. Using the Black & Scholes model, the valuation of those awards as of May 2, 2018 was equivalent to 3.5 times his fixed compensation. In compliance with the AFEP-MEDEF Code, the entire amount of these awards is contingent upon both internal criteria based upon business net income(1) and return on assets (ROA), and an external criterion based on total shareholder return (TSR) relative to a benchmark panel of ten of the leading global pharmaceutical companies. The panel is the same as that used to determine the overall compensation of the Chief Executive Officer: AstraZeneca plc, Bayer AG, Bristol-Myers-Squibb Inc., Eli Lilly and Company Inc., Johnson & Johnson Inc., GlaxoSmithKline plc, Merck Inc., Novartis AG, Pfizer Inc. and Roche Holding Ltd. These criteria were selected because they align medium-term equity-based compensation with the strategy adopted by Sanofi. The arrangements relating to these awards are as follows: ◆ The performance criterion based on business net income accounts for 50% of the award. This criterion corresponds to the ratio, at constant exchange rates, of actual business net income to budgeted business net income. It represents the average actual-to-budget ratio attained over the entire period. Budgeted business net income is derived from the budget as approved by the Board of Directors at the beginning of each financial year. The business net income objective may not be lower than the bottom end of the full-year guidance range publicly announced by Sanofi at the beginning of each year. If the ratio is less than 95%, the corresponding options or performance shares are forfeited. Actual-to-budget attainment ratio (“R”) If R is less than 95% If R is 95% If R is > 95% but < 98% If R is ≥ 98% but ≤ 105% If R is > 105% but < 110% If R is ≥ 110% Business net income allocation 0% 50% (50 + [(R –95) x 16])% R% (105 + [(R –105) x 3])% 120% ◆ The ROA criterion accounts for 30% of the award. The award is based on a target ROA, below which some or all of the options or performance shares are forfeited. Average ROA (“P”) If P is ≤ the minimum target (M) If P is between the minimum (M) and intermediate (I) performance If P is equal to the intermediate performance (I) If P is between the intermediate performance (I) and the target ROA (T) If P is ≥ the target ROA ◆ The TSR criterion accounts for 20% of the award. Total shareholder return (TSR) reflects both the appreciation in the value of our shares (the increase in the share price) and the value distributed to our shareholders (dividends), i.e. the two sources of return on investment in Sanofi shares. Our TSR is compared with the benchmark panel of ten companies listed above. The number of options exercisable and performance shares vesting depends upon our position relative to the TSR ROA allocation 0% [30 x (P-M)/(I-M)]% 30% [70 x (P-T)/(T-I) + 100]% 100% for the other companies in the panel. Below the median, the corresponding options or performance shares are forfeited. The median is the performance of the company ranked sixth. The upper bound the performances of the panel companies ranked first and second. The intermediate level is equal to: median + [(upper bound – median)÷2]. the arithmetical average of is (1) For a definition, see “- Item 5 – Operating and Financial Review and Prospects – Business Net Income”. 170 SANOFI / FORM 20-F 2018 – if Sanofi’s TSR is below the median, the TSR allocation will be 0%; – if Sanofi’s TSR is equal to the median, the TSR allocation will be 50%; – if Sanofi’s TSR is equal to the intermediate level, the TSR allocation will be 100%; – if Sanofi’s TSR is ≥ the upper bound, the TSR allocation will be 150%; and – if Sanofi’s TSR is above the median but below the upper bound, the TSR allocation will be calculated using linear interpolation. ◆ In addition to the three criteria described above, in the case of stock options there is an implicit condition in the form of the exercise price, and a condition of continuing employment within Sanofi. ◆ In order to align equity-based compensation with medium-term performance, performance is measured over three financial years. ◆ Vesting is subject to a non-compete clause. ◆ In the event that Olivier Brandicourt leaves the Company for reasons other than resignation or removal from office for gross or serious misconduct, the overall allocation percentage will be prorated to reflect the amount of time he remained with Sanofi during the vesting period. ◆ Until he ceases to hold office, the Chief Executive Officer is required to retain a quantity of Sanofi shares equivalent to (i) 50% of any gain (net of taxes and social contributions) arising on the exercise of stock options and (ii) 50% of any gain (net of taxes and social contributions) arising on the vesting of performance shares, calculated as of the date on which those shares vest. Those shares must be retained in registered form until he ceases to hold office. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ◆ In compliance with the AFEP-MEDEF Code, the Chief Executive Officer is bound by insider trading rules (contained in the Board Charter) which stipulate (i) periods during which he must refrain from trading in Sanofi shares and (ii) the requirements relating to disclosure of his transactions to the AMF and the Company. ◆ In compliance with the AFEP-MEDEF Code and our Board Charter, Olivier Brandicourt has undertaken to refrain from entering into speculative or hedging transactions, and so far as the Company is aware no such instruments have been contracted. The Board regards these performance conditions as good indicators of the development of shareholder value in terms of: the quality of investment decisions in a period where external the growth was a determining commitment to delivering challenging bottom-line results in a tough business environment (business net income condition); and matching or bettering our peer group in terms of shareholder returns (TSR condition). (ROA condition); factor For confidentiality reasons, the amount of the quantitative measures for the internal criteria cannot be disclosed. However, they were determined on a precise basis, and the level of attainment for the internal criteria will be disclosed at the end of the performance measurement period. In line with our commitment to transparency, we publish in our annual report the attainment level determined by the Board of Directors for performance conditions (and the corresponding allocation rate) applicable to equity-based compensation plans awarded to the Chief Executive Officer and other members of the Executive Committee. The Board believes that disclosing the level of attainment allows our shareholders to better understand the demanding nature of the performance conditions. SANOFI / FORM 20-F 2018 171 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The attainment levels and allocation rates for equity-based compensation plans that have expired since 2011 are as follows: March 9, 2011 plan (stock options only)(a) Attainment level Business net income ROA ◆ 2011-2012: 106% ◆ 2011-2012: 1.7 TSR ◆ 2011-2012: 100% Allocation rate ◆ 2011-2012: > 100% ◆ 2013-2014: 97.7% percentage points above target ◆ 2013-2014: 0.2 of a percentage point above target (5th of 12) ◆ 2013-2014: 78.6% (8th of 11) ◆ 2013-2014: 94.8% i.e. 97.4% for 2011- 2014 March 5, 2012 plans (stock options only)(a) 2012-2014: 84.4% 2012-2014: 0.5 of a percentage point above target 2012-2014: 57.6% (9th of 11) March 5, 2013 plans (stock options only)(a) 2013-2015: 83.2% March 5, 2014 plans(a) 2014-2016: 101.5% June 24, 2015 plans 2015-2017: 102.2% May 4, 2016 plans 2016-2018: 102.5% 2013-2015: 0.2 of a percentage point above target 2013-2015: 0% (9th of 11) 2014-2016: 0.7 of a percentage point above target 2014-2016: 0% (11th of 11) 2015-2017: 2.1 percentage points above target 2015-2017: 0% (8th of 11) 2016-2018: 1.2 percentage points above target 2016-2018: 0% (10th of 11) i.e. 292,200 stock options 2012-2014: 85.3% i.e. 204,720 stock options 2013-2015: 73.3% i.e. 175,920 stock options 2014-2016: 80.6% i.e. 193,440 stock options and 36,270 performance shares 2015-2017: 81.12% i.e. 178,464 stock options and 36,504 performance shares 2016-2018: 81.25% i.e. 178,750 stock options and 40,625 performance shares June 24, 2015 plan(b) Ratio of business net income to net sales Business net income Net sales ◆ 2015: €7,371m ◆ 2016: €7,308m ◆ 2017: €6,964m ◆ 2015: €37,057m(c) ◆ 2016: €36,529m(c)(d) ◆ 2017: €35,055m(d) Ratio (target: ≥ 18 %) Allocation rate ◆ 2015: 19.9% ◆ 2016: 20% ◆ 2017: 19.9% 2015-2017: 100% i.e. 66,000 performance shares (a) The attainment levels and allocation rates shown relate to the equity-based compensation plans awarded to the predecessor of the current Chief Executive Officer. (b) This plan relates to the award by the Board of Directors, acting on a recommendation from the Compensation Committee, of 66,000 performance shares to Olivier Brandicourt on his taking up office, as partial consideration for benefits forfeited on leaving his previous employer. (c) Net sales including the Animal Health business in 2015 and 2016, as well as VaxServe in 2015. Reported net sales for 2015 and 2016 respectively amount to €34,542 million and €33,821 million, excluding the Animal Health business in line with IFRS 5. On the latter basis, the ratio of business net income to net sales is 21.3% in 2015 and 21.6% in 2016. (d) Excludes the effects of first time application of IFRS 15 on revenue recognition. Stock options awarded to Olivier Brandicourt in 2018 (table no. 4 of the AFEP-MEDEF Code) Date of plan Type of option Number of options granted during the period Exercise price (€) Valuation of options (€) Exercise period 05/03/2022 05/02/2018 Subscription options 1,390,400 220,000 65.84 05/02/2028 Source Sanofi 172 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Using the Black & Scholes model, each option awarded on May 2, 2018 was valued at €6.32, valuing the total benefit at €1,390,400. The Board of Directors had previously decided to limit the number of options that could be awarded to corporate officers to 15% of the total limit approved by the Shareholders’ Annual General Meeting of May 4, 2016 (0.5% of the share capital). The number of options awarded to the Chief Executive Officer in 2018 represents 3.52% of the total limit approved by that Meeting and 100% of the total amount awarded to all beneficiaries on May 2, 2018. Prior to 2015, all recipients of equity-based compensation could be awarded stock options. From 2015 to 2018, that possibility was restricted to members of the Executive Committee outside France, and to recipients in countries where awards of performance shares are not possible. Since 2018, stock options can only be awarded to the Chief Executive Officer. Stock options exercised by Olivier Brandicourt in 2018 (table no. 5 of the AFEP-MEDEF Code) No stock options are currently exercisable. Summary of stock options held by Olivier Brandicourt Source Date of plan Type of option Valuation of options (€) Number of options initially granted Options grantable Exercise price (€) Sanofi Sanofi Sanofi Sanofi 06/24/2015 Subscription options 3,546,400 220,000 178,464(a) 89.38 05/04/2016 Subscription options 1,452,000 220,000 178,750(b) 75.90 05/10/2017 Subscription options 2,686,200 220,000 05/02/2018 Subscription options 1,390,400 220,000 N/A (not yet vested) N/A (not yet vested) 88.97 65.84 Exercise period 06/25/2019 06/24/2025 05/05/2020 05/04/2026 05/11/2021 05/10/2027 05/03/2022 05/02/2028 (a) As of the date of publication of this Annual Report on Form 20-F, only 178,464 of the 220,000 options initially granted could be exercised by the Chief Executive Officer, the performance conditions of the June 24, 2015 plan having been only partially fulfilled. (b) As of the date of publication of this Annual Report on Form 20-F, only 178,750 of the 220,000 options initially granted could be exercised by the Chief Executive Officer, the performance conditions of the May 4, 2016 plan having been only partially fulfilled. As of the date of publication of this Annual Report on Form 20-F, the total number of unexercised options held by Olivier Brandicourt represented 0.06% of the share capital as at December 31, 2018. Performance shares awarded to Olivier Brandicourt in 2018 (table no. 6 of the AFEP-MEDEF Code) Source Sanofi Valuation of performance shares (€) Number of performance shares awarded during the period Date of plan Vesting date Availability date 05/02/2018 2,829,500 50,000 05/02/2021 05/03/2021 Each performance share awarded on May 2, 2018, was valued at €56.59, valuing the total benefit at €2,829,500. The Board of Directors had previously decided to limit the number of performance shares that could be awarded to corporate officers to 5% of the total limit approved by the Shareholders’ Annual General Meeting of May 4, 2016 (1.5% of the share capital). The number of shares awarded to Olivier Brandicourt in 2018 represents 0.27% of the total limit approved by to all beneficiaries on May 2, 2018. that Meeting and 1.14% of total awarded the SANOFI / FORM 20-F 2018 173 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Performance shares awarded to Olivier Brandicourt which became available in 2018 (table no. 7 of the AFEP-MEDEF Code) No performance shares became available. Summary of performance shares awarded to Olivier Brandicourt Source Sanofi Sanofi Sanofi Sanofi Sanofi Valuation of performance shares (€) Number of performance shares initially awarded Performance shares awardable Vesting date Availability date Date of plan 06/24/2015 06/24/2015 05/04/2016 5,248,320 3,578,400 3,053,000 05/10/2017 4,075,000 05/02/2018 2,829,500 66,000 45,000 50,000 50,000 50,000 06/24/2019 66,000 36,504(a) 06/24/2019 40,625(b) 05/04/2019 06/25/2019 06/25/2019 05/05/2019 N/A (not yet vested) N/A (not yet vested) 05/10/2020 05/11/2020 05/02/2021 05/03/2021 (a) As of the date of publication of this Annual Report on Form 20-F, only 36,504 of the 50,000 performance shares initially awarded to the Chief Executive Officer would vest, the performance conditions of the June 24, 2015 plan having been only partially fulfilled. (b) As of the date of publication of this Annual Report on Form 20-F, only 40,625 of the 50,000 performance shares initially awarded to the Chief Executive Officer would vest, the performance conditions of the May 4, 2016 plan having been only partially fulfilled. As of the date of publication of this Annual Report on Form 20-F, the total number of performance shares awarded to Olivier Brandicourt represented 0.02% of the share capital as of December 31, 2018. Compensation in respect of 2019 Acting on a recommendation from the Compensation Committee, the Board of Directors meeting of March 8, 2019 decided to maintain Olivier Brandicourt’s fixed annual compensation for 2019 at the same level (€1,200,000), and also to retain the same variable annual compensation structure whereby 40% is based on financial indicators (sales growth one-third, business net income two-thirds) and 60% on specific individual objectives. Also acting on a recommendation from the Compensation Committee, the Board of Directors decided to introduce a separate CSR criterion. That decision reflects the Board’s long- standing commitment the social and environmental impact of Sanofi’s operations while promoting long-term value creation. It also responds to feedback gathered by the Chairman of the Board in meetings with our principal shareholders and stakeholders. take account of to The Chief Executive Officer’s individual objectives are as follows: ◆ Business transformation (15%) ◆ Pipeline (12.5%) ◆ New products launches (10%) ◆ Organisation & People (10%) ◆ Business development – External growth (7.5%) ◆ CSR (5%) For 2019, the variable compensation of Olivier Brandicourt will in a range between 0% and 250% of his fixed remain compensation, with a target of 150%. Acting on a recommendation from the Compensation Committee, the Board of Directors meeting of March 8, 2019 proposed to award Olivier Brandicourt 220,000 stock subscription options and 50,000 performance shares in respect of the 2019 financial year. To ensure that the Chief Executive Officer’s compensation remains aligned with our performance and our evolving strategy, the Board of Directors (acting on a recommendation from the the Compensation Committee) has decided performance criterion based on Return On Assets (ROA) with a criterion based on free cash flow (FCF). The other performance conditions (business net income and TSR) are unchanged. replace to The award of those stock options and performance shares to Olivier Brandicourt in respect of the 2019 financial year is contingent on approval of his compensation package by the shareholders at the Ordinary General Meeting, on the terms stipulated in Article L. 225-100 of the French Commercial Code. Shareholder votes on the components of Olivier Brandicourt’s compensation Result of the votes (a) Binding vote. (b) Consultative vote. 174 SANOFI / FORM 20-F 2018 2018 AGM(a) 2017 AGM(b) 2016 AGM(b) 88.75% 87.69% 63.26% ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Arrangements for executive officers 1. Pension arrangements Olivier Brandicourt is covered by the Sanofi top-up defined- benefit pension plan, which the scope of Article L. 137-11 of the French Social Security Code. For a fuller description of the plan, refer to “– Compensation policy for corporate officers” above. falls within Based on the assumptions used in the actuarial valuation of the plan, 527 executives were eligible for this plan (71 retirees, 90 early retirees and 366 active employees) as of December 31, 2018. Because Olivier Brandicourt has pursued his career in different countries and in different groups, he has not continuously paid into the French compulsory industry schemes. Consequently, he was awarded a deemed ten years of service on taking up office at Sanofi. The Shareholders’ Annual General Meeting of May 4, 2015 approved the section on the pension benefit contained in the auditors’ special report on related-party agreements. The Board of Directors, acting on a recommendation from the Compensation Committee, decided at its meeting of February 7, 2017 to apply a performance condition to the vesting of new contingent rights arising under Olivier Brandicourt’s top-up pension plan with effect from January 1, 2017. The terms of that performance condition are described in “– Compensation policy for corporate officers” above. The alteration in pension arrangements was approved by Sanofi shareholders at the Annual General Meeting of May 10, 2017. At a meeting on March 8, 2019, our Board of Directors ascertained whether the performance condition had been met, noting that the level of attainment for the Chief Executive Officer’s variable compensation for the 2018 financial year was 103.1%, i.e. 154.65% of his fixed compensation. Consequently, 103.1% of his contingent top-up pension rights vest, corresponding to an uplift of 1.55%in the annual reference compensation used to calculate the annuity payable under the plan. Taking into account the award of a deemed ten years of service, he has therefore accumulated 13.75 years of service as of December 31, 2018. His reference compensation being limited to 60 times the French social security ceiling (i.e. €2,383,920 in 2018, based on a ceiling of €39,732), the theoretical maximum of his top-up pension is currently 20.6655% of that amount, i.e. €492,649. On leaving Sanofi, Olivier Brandicourt may not benefit from our top-up pension plan unless he is entitled to benefit fully from compulsory industry schemes; this requires him to have reached statutory retirement age (which he did in February 2018) and to have accumulated the required number of three-month periods of qualifying employment. We do not have sufficient information to determine whether retirement in 2019 is a realistic scenario in terms of his period of qualifying employment, since most of his career has been spent outside France. If Olivier Brandicourt were to retire in 2019, he would as mentioned above have accumulated 13.75 years of service, entitling him to an annuity equal to 20.625% of his reference compensation. That annuity would supplement any other schemes for which he may be eligible in France or abroad, subject to a cap on the total pension from all sources set at 52% of the reference compensation. If the total amount of the annuities paid under all such schemes were to exceed the 52% cap, the amount of the Sanofi top-up defined-benefit pension annuity would be reduced accordingly in order to respect this cap. 2. Termination arrangements The termination benefit only becomes payable if the departure of the Chief Executive Officer is forced, i.e. in the event of removal from office linked to a change in strategy or control of the Company; for a fuller description of the benefit, refer to “– Compensation policy for corporate officers” above. In accordance with article L. 225-42-1 of the French Commercial Code and with the AFEP-MEDEF Code, payment of the termination benefit two is contingent upon performance criteria, assessed over the three financial years preceding his ceasing to hold office. The two criteria are as follows: fulfillment of ◆ the average of the ratios of business net income1 to net sales for each financial year must be at least 15%; ◆ the average of the ratios of operating cash flow before changes in working capital to net sales for each financial year must be at least 18%. The Shareholders’ Annual General Meeting of May 4, 2015 approved the section on the termination benefit contained in the auditors’ special report on related-party agreements. 3. Non-compete undertaking This undertaking stipulates that in the event of his departure from the Company, Olivier Brandicourt will not join a competitor of the Company as an employee or corporate officer, or provide services to or cooperate with such a competitor, during the 12-month period following his departure; for a fuller description of this undertaking, refer to “– Compensation policy for corporate officers” above. to one year’s In return for this undertaking, he may receive an indemnity corresponding total compensation (fixed + variable), payable in 12 monthly installments; however the Board of Directors reserves that undertaking for some or all of the period covered by the undertaking. In that case, the non-compete indemnity would not be due for the period of time waived by the Company. to release him the right from The Shareholders’ General Meeting of May 4, 2015 approved the section on the non-compete undertaking contained in the auditors’ special report on related party agreements. (1) For a definition, see “– Item 5 – Operating and Financial Review and Prospects – Business Net Income”. SANOFI / FORM 20-F 2018 175 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Arrangements in favor of executive and non-executive officers in office as of December 31, 2018 (table no. 11 of the AFEP-MEDEF Code) Corporate officer Serge Weinberg Olivier Brandicourt Contract of employment Top-up pension plan Compensation or benefits payable or potentially payable on cessation of office Indemnity payable under non- compete clause No No No Yes No Yes No Yes Share ownership and lock-up obligation of the Chief Executive Officer for shares obtained on exercise of stock options or performance shares entering into speculative or hedging transactions, and so far as the Company instruments have been contracted. is aware no such The Chief Executive Officer is bound by the same obligations regarding share ownership specified in our Articles of Association and Board Charter as the other executive officers. In addition, until he ceases to hold office the Chief Executive Officer is required to retain a quantity of Sanofi shares equivalent to: ◆ 50% of any gain (net of taxes and social contributions) arising on the exercise of stock options; ◆ 50% of any gain (net of taxes and social contributions) arising on the vesting of performance shares, calculated as of the date on which those shares vest. Those shares must be retained in registered form until he ceases to hold office. In compliance with the AFEP-MEDEF Code and our Board Charter, Olivier Brandicourt has undertaken to refrain from Compensation and pension payments for Directors other than the Chief Executive Officer and the Chairman of the Board of Directors Attendance fees (table no. 3 of the AFEP-MEDEF Code) Attendance fees in respect of 2017, the amount of which was validated at the Board meeting of March 6, 2018, were partially paid in July 2017. The balance was paid in 2018. Attendance fees in respect of 2018, the amount of which was validated at the Board meeting of March 8, 2019, were partially paid in July 2018. The balance will be paid in 2019. For 2018 and 2019, the basic annual attendance fee was maintained at €30,000, apportioned on a time basis for directors who assumed or left office during the year. The variable portion was determined on the basis of actual attendance by directors at meetings in accordance with the principles specified in our Board Charter, and in the proportions described below: Board of Directors Audit Committee Compensation Committee Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019) Strategy Committee Scientific Committee Amount of attendance fee per meeting Directors resident in France €5,000 €7,500 €5,000 Directors resident outside France but within Europe €7,000 €7,500 €7,500 Directors resident outside Europe €10,000 € 7,500 €10,000 €5,000 €7,500 € 7,500 Chairman/ Chairwoman N/A €10,000 Determined by reference to the place of residence Determined by reference to the place of residence €5,000 €5,000 €7,500 €7,500 €10,000 €10,000 Determined by reference to the place of residence Determined by reference to the place of residence 176 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Hence, as required by the AFEP-MEDEF Code, attendance fees are allocated predominantly on a variable basis. Appointments, Governance and CSR Committee, only the higher of the two fees is paid to cover both meetings. The attendance fee payable to a director who participates by conference call or by video-conference is equivalent to half of the attendance fee received by a director resident in France who attends in person. The introduction of a separate attendance fee scale depending on whether or not the director is a European resident is intended to take into account the significantly longer travel time required to attend meetings in person. As an exception, in certain cases two meetings held on the same day give entitlement to a single attendance fee: ◆ if on the day of a Shareholders’ General Meeting, the Board of Directors meets both before and after the Meeting, only one attendance fee is paid for the two Board meetings; ◆ if on the same day a director participates in one meeting of the the Compensation Committee and one meeting of The last increase in the maximum overall amount of attendance fees (from €1,500,000 to €1,750,000) was approved by Sanofi shareholders at the Annual General Meeting of May 10, 2017; the main reason for the increase was to take account of the increase in the size of the Board. That was the first change since the Annual General Meeting of May 6, 2011. Neither the Chairman nor the Chief Executive Officer receives attendance fees. The table below shows amounts paid in respect of 2018 and 2017 to each member of the Sanofi Board of Directors, including those whose term of office ended during those years. (€) Name Laurent Attal Emmanuel Babeau(a) Robert Castaigne(b) Bernard Charlès(c) Claudie Haigneré Patrick Kron Fabienne Lecorvaisier Melanie Lee(d)(e) Suet-Fern Lee(f) Christian Mulliez Marion Palme(d)(g) Carole Piwnica(h) Christian Senectaire(g)(i) Diane Souza(f) Thomas Südhof(f) Attendance fees for 2018 Attendance fees for 2017 Fixed portion Variable portion Pensions paid in 2018 Total gross compensation Fixed portion Variable portion Pensions paid in 2017 Total gross compensation 30,000 20,000 10,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 77,500 48,500 70,000 45,000 77,500 102,500 97,500 76,500 87,500 87,500 64,500 70,000 60,000 152,500 90,000 107,500 70,500 80,000 75,000 107,500 132,500 127,500 106,500 117,500 117,500 94,500 100,000 90,000 182,500 120,000 30,000 82,500 30,000 20,000 30,000 30,000 30,000 20,000 30,000 30,000 15,000 30,000 15,000 30,000 30,000 117,500 27,500 57,500 105,000 75,000 38,000 90,000 115,000 28,500 88,750 22,500 115,000 82,500 112,500 147,500 47,500 87,500 135,000 105,000 58,000 120,000 145,000 43,500 118,750 37,500 145,000 112,500 Total 420,000 1,207,000 1,629,000 370,000 1,147,750 1,415,250 Total attendance fees 1,629,000 1,415,250 The amounts reported are gross amounts before taxes. (a) Assumed office May 2, 2018. (b) Left office May 2, 2018. (c) Assumed office May 10, 2017. (d) Resident outside France but within Europe. (e) Assumed office May 10, 2017. (f) Resident outside Europe. (g) Director representing employees; assumed office in June 2017. (h) Foreign director resident in France for tax purposes. (i) Attendance fees due to Christian Senectaire are paid directly to Fédération Chimie Energie CFDT. The two directors representing employees both have a contract of employment with a Sanofi subsidiary, under which they receive compensation unrelated to their office as director. Consequently, that remuneration is not disclosed. Pensions The amount recognized in the 2018 consolidated income statement in respect of corporate pension plans for corporate officers with current or past executive responsibilities at Sanofi (or companies whose obligations have been assumed by Sanofi) was €1.3 million. SANOFI / FORM 20-F 2018 177 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Compensation of Senior Management The compensation of Executive Committee members other than the Chief Executive Officer is subject to a review by the Compensation Committee, taking into consideration the practices of the leading global pharmaceutical companies. to fixed compensation, they receive variable In addition compensation. Their target variable compensation depends on their position, and can represent up to 100% of their fixed compensation. The individual variable target amount of compensation is determined in line with market practice. It rewards the individual contribution of each Executive Committee member both to Sanofi’s performance and to the performance of the operations or functions for which he or she has responsibility. For 2018, the variable component consisted of two elements: ◆ attainment of quantitative objectives (accounting for 50%) which are measured (i) at consolidated level (sales growth 30%, business net income 50%, research and development outcomes 20%, plus an upward/downward adjustment mechanism of up to 5% linked to cash flow optimization and an upward/downward adjustment mechanism of up to 5% linked to net sales of key products and new product launches) and (ii) at the level of the operations or functions for which the Executive Committee member has responsibility; and ◆ attainment of quantitative and qualitative objectives both individually (30%) and collectively (20%) within the Executive Committee (together accounting for 50%). The indicators used are intended to measure growth (in terms of net sales, business net income, research and development outcomes, growth in sales of key products and new products, and cash flow optimization); talent and critical skills management (including hirings in critical areas for the Group); talent retention; increase in the proportion of women in senior management Actual-to-budget attainment ratio (“R”) If R is less than 95% If R is 95% If R is > 95% but < 98% If R is ≥98% but ≤ 105% If R is > 105% but < 110% If R is ≥ 110% positions; and promotion of high potential individuals; and more generally, the commitment of all our employees. In addition to this cash compensation, Executive Committee members may be awarded performance shares (see “– E. Share Ownership below” for details of the related plans). For 2018, the total gross compensation paid and accrued in respect of members of the Executive Committee (excluding Olivier Brandicourt) amounted including €9.2 million in fixed compensation. to €26 million, On May 2, 2018, 371,098 performance shares, (excluding those awarded to Olivier Brandicourt) were awarded to members of the Executive Committee. No stock options were awarded in 2018 to members of than Olivier the Executive Committee other Brandicourt. In compliance with the AFEP-MEDEF Code, these entire awards are contingent upon two internal criteria, based on business net income(1) and return on assets (ROA). These criteria were selected because they align medium-term equity-based compensation with the strategy adopted by Sanofi. The arrangements relating to these awards are as follows: ◆ The performance criterion based on business net income accounts for 60% of the award. This criterion corresponds to the ratio, at constant exchange rates, of actual business net income to budgeted business net income. It represents the average actual-to-budget ratio attained over the entire period. Budgeted business net income is derived from the budget as approved by the Board of Directors at the beginning of each financial year. The business net income objective may not be lower than the bottom end of the full-year guidance range publicly announced by Sanofi at the beginning of each year. If the ratio is less than 95%, the corresponding options or performance shares are forfeited. 0% 50% (50 + [(R –95) x 16])% R% (105 + [(R –105) x 3])% 120% ◆ The ROA criterion accounts for 40% of the award. The award is based on a target ROA, below which some or all of the options or performance shares are forfeited. Average ROA (“P”) If P is ≤ the minimum target (M) If P is between the minimum (M) and intermediate (I) performance If P is equal to the intermediate performance (I) If P is between the intermediate performance (I) and the target ROA (T) If P is ≥ the target ROA ROA allocation 0% [30 x (P-M)/(I-M)]% 30% [70 x (P-T)/(T-I) + 100]% 100% (1) For a definition, see “– Item 5 – Operating and Financial Review and Prospects – Business Net Income”. 178 SANOFI / FORM 20-F 2018 ◆ In addition to the two criteria described above, in the case of stock options there is an implicit condition in the form of the exercise price, and a condition of continuing employment within Sanofi. ◆ In order to align equity-based compensation with medium-term performance, performance is measured over three financial years. ◆ Vesting is subject to a non-compete clause. ◆ The entire award is forfeited in the event of resignation, or dismissal for gross or serious misconduct. ◆ In the event of individual dismissal other than for gross or serious misconduct or retirement before the age of 60, or if the beneficiary’s employer ceases to be part of the Sanofi group, the overall allocation percentage is prorated to reflect the amount of time the person remained with the Sanofi group during the vesting period. ◆ If any of the following events occur, full rights to the award are retained: (i) dismissal as part of a collective redundancy plan, or of an equivalent plan negotiated and approved by the Chief Executive Officer; (ii) retirement on or after reaching the statutory retirement age, or early retirement under a statutory or contractual early retirement plan implemented by the relevant Sanofi entity and duly approved by the Chief Executive Officer of Sanofi; (iii) disability classified in the second or third categories stipulated in Article L. 314-4 of the French Social Security Code; and (iv) death of the beneficiary. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The Board regards these performance conditions as good indicators of the development of shareholder value in terms of: the quality of investment decisions in a period where external growth was a determining factor (ROA condition); and a commitment to delivering challenging bottom-line results in a tough business environment (business net income condition). from the Board of Directors Nevertheless, in line with what has been decided for the Chief Executive Officer, (acting on a recommendation the Compensation Committee) has decided to replace the performance criterion based on Return On Assets (ROA) with a criterion based on free cash flow (FCF). This will apply to future performance share plans (i.e. those awarded in and after 2019). The aim is to ensure that the compensation awarded to beneficiaries remains aligned with our performance and our evolving strategy. For confidentiality reasons, the amount of the quantitative measures for the internal criteria cannot be disclosed. However, they were determined on a precise basis, and the level of attainment for the internal criteria will be disclosed at the end of the performance measurement period. In line with our commitment to transparency, we publish in our Annual Report the level of attainment determined by the Board of Directors for performance conditions applicable to equity-based compensation plans awarded to the Chief Executive Officer and other members of the Executive Committee. The Board believes that disclosing the level of attainment allows our shareholders to better understand the demanding nature of the performance conditions. The attainment levels for equity-based compensation plans that have expired since 2011 are as follows: March 9, 2011 plan (stock options only) March 5, 2012 plans (stock options only) March 5, 2013 plans (stock options only) Attainment level Allocation rate Business net income ROA ◆ 2011-2012: 106% ◆ 2011-2012: 1.7 percentage ◆ 2011-2012:> 100% ◆ 2013-2014: 97.7% points above target 2012-2014: 84.4% 2013-2015: 83.2% ◆ 2013-2014: 0.2 of a percentage point above target 2012-2014: 0.5 of a percentage point above target 2013-2015: 0.2 of a percentage point above target ◆ 2013-2014: 98.9% ◆ i.e. 99.5% for 2011-2014 2012-2014: 92.2% 2013-2015: 91.6% March 5, 2014 plans 2014-2016: 101.5% 2014-2016: 0.7 of a 2014-2016: 100.75%(a) June 24, 2015 plans percentage point above target 2015-2017: 102.2% 2015-2017: 2.1 percentage points above target 2015-2017: 100.3%(a) May 4, 2016 plans 2016-2018: 102.5% 2016-2018: 1.2 percentage 2016-2018: 101.5%(a) points above target (a) Effectively 100%: the maximum number of exercisable options or shares to be delivered cannot be more than the number of options initially granted or performance shares initially awarded. SANOFI / FORM 20-F 2018 179 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES During 2018, 70,951 stock options were exercised by individuals who were Executive Committee members at the time of exercise. All of the plans involved post-dated the creation of the Executive Committee: Sanofi-Aventis plan of March 3, 2009, exercise price €45.09; Sanofi-Aventis plan of March 9, 2011, exercise price €50.48; Sanofi plan of March 5, 2012, exercise price €56.44; and Sanofi plan of March 5, 2014, exercise price €73.48. Under French law, Directors may not receive options or performance shares solely as compensation for service on our Board, and consequently our Company may grant options only to those Directors who are also our executive officers. Because some of our non-executive Directors were formerly senior executives or executive officers of our Company or its predecessor companies, some of our non-executive Directors hold Sanofi stock options. We do not have separate profit-sharing plans for key executives. As employees, they are able to participate in our voluntary and Application of the AFEP-MEDEF Code statutory profit-sharing schemes on the same terms as our other employees. These plans are described below under “ – Employees – Profit-sharing schemes.” The total amount accrued as of December 31, 2018 in respect of corporate pension plans for corporate officers with current or past executive responsibilities at Sanofi (or at companies whose obligations have been assumed by Sanofi) and for members of the Sanofi Executive Committee was €59 million, of which €7 million was recognized in the income statement for the year then ended. C. Board Practices Neither we nor our subsidiaries have entered into service contracts with members of our Board of Directors or corporate officers providing for benefits upon termination of employment. With respect to Olivier Brandicourt see also “–B. Compensation – Compensation and arrangements for corporate officers” above. The AFEP-MEDEF Code requires us to report specifically on the application of its recommendations and if any of them have not been applied, explain why. Currently our departures from this Code are as follows: Paragraph of the AFEP-MEDEF Code Recommendation of the AFEP-MEDEF code Application by Sanofi 9.2 Evaluation of the Board of Directors The evaluation has three objectives: – […] ; – measure the actual contribution of each director to the Board’s work. The evaluation of the Board conducted at the end of 2018 included an assessment of the actual contribution of each director to the Board’s work. More generally, the issue of competence and individual contribution to the work of the Board and its Committees is addressed on a continuous basis, with a specific review when a director is up for reappointment as a Board or Committee member. Annual evaluations are conducted using a detailed questionnaire. The questionnaire deals specifically with the operating procedures of the Board and gives directors an opportunity to express freely their assessment of the individual contributions of other directors. These evaluations may be followed by individual meetings with the Secretary to the Board, at which the responses to the questionnaire are analyzed and discussed. The Board intends to appoint a director representing employees to the Compensation Committee after an induction period that will give that director time to adapt to how the Company operates, understand its specific characteristics, familiarize himself or herself with the challenges and broad outlines of the Board’s remit, and undertake any necessary training. 17.1. Membership of the Compensation Committee It is recommended that one of its members be an employee director. 180 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Paragraph of the AFEP-MEDEF Code Recommendation of the AFEP-MEDEF code Application by Sanofi 23.2 Non-competition agreement In any event, no benefit can be paid over the age of 65. Under the compensation policy for our Chief Executive Officer, he undertakes in the event he leaves the Company not to join a competitor of the Company as an employee or corporate officer, or to provide services to or cooperate with such a competitor. In return for this undertaking, he receives an indemnity corresponding to one year’s total compensation based on his fixed compensation effective on the day he ceases to hold office and the last individual variable compensation received prior to that date. The indemnity is payable in 12 monthly installments. The Board of Directors, acting on a recommendation of the Compensation Committee, decided not to alter the compensation policy and non-compete undertaking of the Chief Executive Officer such that his indemnity would not be payable after he reaches the age of 65. Apart from the fact that the AFEP-MEDEF recommendation is contrary to the principle of the strict enforceability of legally constituted contractual arrangements, it is also out of line with the actual situation. In practice, many executive officers continue to work after they leave office, often in a consultancy role. Consequently, implementing the AFEP-MEDEF recommendation would put Sanofi at risk of having no legal protection if the Chief Executive Officer were to take up an activity in competition with the Company immediately after leaving office. However, the Board of Directors may decide at the time the Chief Executive Officer leaves office (regardless of his age) to release him from the non-compete undertaking for some or all of the 12-month period. In such a case, the non-compete indemnity would not be due for the period of time waived by the Company. Activities of the Board of Directors in 2018 During 2018, the Board of Directors met 11 times, with an overall attendance rate among Board members of over 95%. This attendance rate includes participation by conference call, though only a small number of Directors participated in this way. Individual attendance rates varied between 82% and 100%. The following persons attended meetings of the Board of Directors: ◆ the directors; ◆ the Secretary to the Board; ◆ frequently: members of the Executive Committee; and ◆ occasionally: the statutory auditors, managers of our global support functions, and other company employees. The agenda for each meeting of the Board is prepared by the Secretary after consultation with the Chairman, taking account of the agendas for the meetings of the specialist Committees and the suggestions of the directors. Approximately one week prior to each meeting of the Board of Directors, the directors each receive a file containing the agenda, the minutes of the previous meeting, and documentation relating to the agenda. The minutes of each meeting are expressly approved at the next meeting of the Board of Directors. In compliance with our Board Charter, certain issues are examined in advance by the various Committees according to to make a their areas of competence recommendation; those issues are then submitted for a decision by the Board of Directors. to enable them SANOFI / FORM 20-F 2018 181 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES (renamed Since 2016, acting on a recommendation from the Appointments the Appointments, and Governance Committee Governance and CSR Committee effective March 8, 2019), the Board has held at least two executive sessions (i.e. meetings held without the Chief Executive Officer present) per year. If the Chairman of the Board so decides, such sessions may also be held without the directors representing employees (or any other Sanofi employee) being present. The primary purpose of such sessions is to evaluate the way the Board and its Committees operate, to discuss the performance of the Chief Executive Officer, and to debate succession planning. Two executive sessions took place in 2018, ahead of the Board meetings held on March 6 and December 18. In 2018, the main activities of the Board of Directors related to the following issues: ◆ financial statements and financial matters: – review of the individual company and consolidated financial statements for the 2017 financial year and for the first half of 2018, review of the consolidated financial statements for the first three quarters of 2017, review of the draft press releases and presentations to analysts with respect to the publication of such financial statements, examination of documents relating to management forecasts; – delegation of authority to the Chief Executive Officer to issue bonds and guarantees, and renewal of the share repurchase program; – recording the amount of share capital, reducing the share treasury shares, and capital amending the Articles of Association accordingly; and through cancellation of – presentation of the revised 2018 budget (following the acquisitions of Ablynx and Bioverativ), the 2019 budget, and 2019-2020 financial forecasts. plans in respect of 2018, and determination of the fulfillment of performance conditions of previous equity-based compensation plans; and – adjustment to the performance criteria for the stock option plans and performance share plans of May 4, 2016 and May 10, 2017 to reflect the impact of the acquisitions of Ablynx and Bioverativ. ◆ appointments and governance matters: – composition of the Board and its Committees, proposed reappointment of directors and appointment of a new director at the 2018 Annual General Meeting, and director independence; – creation of a Scientific Committee; – review of succession planning; – reviews of the Board of Directors’ Management Report, the report on corporate governance, and the reports of the statutory auditors; – the notice of meeting for the Annual General Meeting of Shareholders and of Holders of Participating Shares (Series issued in 1983, 1984 and 1987), adoption of (i) the draft resolutions (ii) the report of the Board of Directors on the resolutions and (iii) the special reports on the awards of stock subscription options and performance shares, and examination of questions submitted in writing; – evaluation of the work of the Board and its Committees; – presentation of a detailed report on the governance roadshows arranged for the main investors in Sanofi; – revisions to the Board Charter; and – review of previously-approved related party agreements. ◆ scrutiny of, and updates on, the Ablynx and Bioverativ ◆ compensation matters: acquisitions; – determination of the 2017 variable compensation of the Chief Executive Officer, the 2018 fixed and variable compensation of the Chief Executive Officer and the 2018 fixed compensation of the Chairman of the Board, plus an update on fixed and variable compensation of members of the Executive Committee for 2017 and 2018. During the presentation of the report of the Compensation Committee on the compensation of corporate officers, the Board of Directors deliberates in executive session in their absence: the Board of Directors first discusses the compensation of the Chairman of the Board in his absence, and then the compensation of the Chief Executive Officer with the Chairman present but the Chief Executive Officer still absent; – allocation of Directors’ attendance fees for 2017, principles of allocation for 2018 and allocation of attendance fees for the first half of 2018; – adoption of equity-based compensation plans, consisting of stock subscription option plans and performance share ◆ divestment of our European Generics business (Zentiva) to Advent International; ◆ presentation on Sanofi’s CSR policies and initiatives; ◆ update on the risks facing Sanofi; ◆ update on the Diabetes and Cardiovascular business; ◆ the transfer of our non-vaccine infectious diseases R&D platform to Evotec; ◆ update on Dengvaxia®; ◆ update on Praluent®; ◆ update on Depakine®; ◆ update on chemical industrial facilities in France; ◆ update on the strategy for China and emerging markets; ◆ scrutiny of significant proposed alliances and acquisitions, and strategic opportunities; ◆ update on the industrial transformation of Sanofi; 182 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ◆ company policy on equal pay and opportunities; – R&D; ◆ cancellation of the 1989 series of participating shares; and – growth accelerators; ◆ approval in principle of a share issue reserved for employees. – digital trends; In addition, two strategy seminars were held during 2018. The first (the “Innovation Tour”) took place in Boston in March 2018, giving directors an opportunity issues including: to address various – the life sciences ecosystem in the state of Massachusetts; – biotechnology innovations, and transformative innovations in healthcare generally; – oncology; – challenges and future prospects for the US healthcare sector; – new ways of delivering therapeutic solutions to patients; – the Sanofi-Alnylam alliance; – drug pricing; – the Sanofi-Regeneron alliance; and – the history and specialties of Bioverativ. The second strategy seminar was held in Paris in October 2018. The following issues were discussed over two days, in the presence of all Sanofi directors and representatives of the Company: – developments in strategy; During 2018: – business transformation; and – financial outlook. Activities of the Board Committees in 2018 Since 1999, our Board of Directors has been assisted in its deliberations and decisions by specialist Committees (see our Board Charter, provided as Exhibit 1.2 to this Annual Report on Form 20-F). Chairmen and members of these Committees are chosen by the Board from among its members, based on their experience. The Committees are responsible for the preparation of certain items on the agenda of the Board of Directors. Decisions of the Committees are adopted by a simple majority with the chairman of the Committee having a casting vote. Minutes are drafted, and approved by the Committee members. The chairman of each Committee reports to the Board on the work of that Committee, so that the Board is fully informed whenever it takes a decision. ◆ the Board of Directors decided to set up a fifth specialist Committee, the Scientific Committee: Scientific Committee Chairman Thomas Südhof (independent director) Members Laurent Attal Melanie Lee (independent director) Serge Weinberg (independent director) Proportion of independent directors: 75% (3/4) ◆ there were the following changes to the composition of the Audit Committee: Audit Committee Composition as of January 1, 2018 Composition as of December 31, 2018 Chairman Robert Castaigne (independent director) Fabienne Lecorvaisier (independent director) Members Fabienne Lecorvaisier (independent director) Christian Mulliez Carole Piwnica (independent director) Emmanuel Babeau (independent director) Christian Mulliez Diane Souza (independent director) Proportion of independent directors: 75% (3/4) Proportion of independent directors: 75% (3/4) SANOFI / FORM 20-F 2018 183 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ◆ there were no changes in the composition of the other Committees, but there have been changes to the remit of the Appointments and Governance Committee (renamed the Appointments, Governance and CSR Committee effective March 8, 2019): Compensation Committee Appointments, Governance and CSR Committee Chairman Patrick Kron (independent director) Serge Weinberg (independent director) Members Claudie Haigneré (independent director) Christian Mulliez Diane Souza (independent director) Claudie Haigneré (independent director) Patrick Kron (independent director) Proportion of independent directors: 75% (3/4) Proportion of independent directors: 100% (3/3) Strategy Committee Chairman Serge Weinberg (independent director) Members Olivier Brandicourt Laurent Attal Patrick Kron (independent director) Proportion of independent directors: 50% (2/4) Audit Committee Three members of the Audit Committee qualify as independent pursuant to the criteria adopted by the Board of Directors: Fabienne Lecorvaisier, Emmanuel Babeau and Diane Souza. All four members of the Committee have financial or accounting expertise as a consequence of their education and professional experience as reflected in their biographies. Furthermore, they are deemed to be financial experts as defined by the Sarbanes- Oxley Act and by Article L. 823-19 of the French Commercial Code. See “Item 16A. Audit Committee Financial Expert”. The Audit Committee met six times in 2018, including prior to the meetings of the Board of Directors during which the financial statements were approved. In addition to the statutory auditors, the principal financial officers, the Senior Vice President Group Internal Audit and other members of the senior management team attended meetings of the Audit Committee, in particular when risk exposure and off-balance-sheet commitments were discussed. The Committee members had a very good attendance record, with an overall attendance rate of 92%. Individual attendance rates varied between 67% and 100%. The statutory auditors attend all meetings of the Audit Committee; they presented their opinions on the annual and half- the Committee meetings of year February 2 and July 26, 2018, respectively. financial statements at ◆ review of the work of the Internal Control function and evaluation of that work for 2017 as certified by the statutory auditors pursuant to Section 404 of the Sarbanes-Oxley Act, and examination of the 2017 Annual Report on Form 20-F; ◆ reporting on guarantees; ◆ the principal risks (risk management and risk profiles) facing Sanofi including a report of the Risk Committee, impairment testing of goodwill, a review of whistleblowing and material compliance investigations, a review of tax risks and deferred tax assets and changes in tax legislation, a review of material litigation, and an update on pension funds and actuarial assumptions; ◆ conclusions of Sanofi senior management on internal control procedures, the Board of Directors’ Management Report, and the description of risk factors contained in the French-language Document de Référence and the Annual Report on form 20-F for 2017; ◆ assessment of fulfilment of the performance conditions of the 2015 equity-based compensation plans; ◆ update on cyber-security; ◆ coordination of work between internal audit and internal control; ◆ progress report on the ERP Global Shift project; In 2018, the main activities of the Audit Committee related to: ◆ report on internal audit; ◆ preliminary review of the individual company and consolidated financial statements for the 2018 financial year, review of the individual company and consolidated financial statements for the first half of 2018, review of the consolidated financial statements for the first three quarters of 2018, review of the draft press releases and analyst presentations relating to the publication of such financial statements; ◆ review of the draft financial resolutions for the May 2, 2018 Shareholders’ Annual General Meeting; ◆ presentation of the plan to bring Sanofi into line with the European General Data Protection Regulation; ◆ update on the anti-corruption measures in the French “Sapin II” law; ◆ Sanofi’s financial position, indebtedness and liquidity; ◆ presentation of the 2019 budget; and 184 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ◆ the audit program, allocation of work and fees between the statutory auditors, and the budget for services other than statutory audit (audit-related services, tax, and other services). Appointments and Governance Committee (Renamed Appointments, Governance and CSR Committee effective March 8, 2019) The Committee did not use external consultants in 2018. Compensation Committee Of the four members of the Compensation Committee, three are deemed to be independent: Patrick Kron, Claudie Haigneré and Diane Souza. The Compensation Committee met four times in 2018. The Committee members have an exemplary attendance record, with all members having an attendance rate of 100%. three members of All be independent. the Committee are deemed to The Committee met three times in 2018. The Committee members have an exemplary attendance record, with all members having an attendance rate of 100%. In 2018, the main activities of the Appointments and Governance Committee related to: ◆ succession planning; When the Committee discusses the compensation policy for members of senior management who are not corporate officers, i.e. the members of the Executive Committee, the Committee invites the Chief Executive Officer to attend. ◆ summary of the 2017 Board evaluation, and implementation of the 2018 evaluation of the work of the Board and its Committees (conducted with assistance from an external consultant, under the direction of the Committee); In 2018, the main activities of the Compensation Committee related to: ◆ fixed and variable compensation of executive officers (Chief Executive Officer and Chairman of the Board); ◆ the 2017 and 2018 fixed and variable compensation of the members of the Executive Committee; ◆ setting the amount of directors’ attendance fees for 2017, reviewing the expenses of corporate officers for 2017, and principles for allocating directors’ attendance fees for 2018; ◆ review of the disclosures about compensation contained in the corporate governance section of the 2017 French-language Document de Référence and the Annual Report on form 20-F; ◆ implementation of the equity-based compensation policy, including both stock options and performance shares, which was discussed at more than one meeting; ◆ review of draft resolutions on compensation to be submitted to the shareholders in 2018; ◆ launch of an employee share ownership plan in June 2018, follow-up report on implementation of the 2017 plan, and consideration of the next plan; ◆ analysis of the the Ablynx and Bioverativ acquisitions on the performance criteria of existing equity- based compensation plans; impact of ◆ review of the Board of Directors Management Report, and the governance section of the 2017 French-language Document de Référence and Annual Report on Form 20-F; ◆ changes in the composition of the Board and its Committees, director independence, proposed reappointments of directors, and recruitment of a new director; ◆ revisions to the AFEP-MEDEF Code; ◆ the creation of the Scientific Committee; ◆ revisions to the Board Charter; and ◆ the governance roadshow campaign targeted at the main investors in Sanofi, and an analysis of the policies adopted by proxy advisors. The Committee used external consultants in 2018, for the evaluation of the Board and its Committees and for succession planning. At its meeting of March 8, 2019, the Board of Directors decided to rename this committee the Governance and CSR Committee, and to add the following roles to the Committee’s remit: ◆ review and monitor the Company’s corporate social responsibility (CSR) commitments and orientations, assess the extent to which they meet stakeholder expectations, and more generally ensure that CSR issues are taken into account when developing and implementing corporate strategy; ◆ the governance roadshow campaign targeted at the main investors in Sanofi, and an analysis of the policies adopted by proxy advisors; ◆ review drafts of the Company’s governance and CSR reports, and more generally ensure that all related disclosures required by applicable legislation have been made; ◆ monitoring of developments related to compensation (say on pay, executive pay ratio, performance indicators); and ◆ the top-up defined-benefit pension plan of the Chief Executive Officer; and ◆ the expenses of corporate officers. The Committee did not use external consultants in 2018. ◆ ensure that regular communication is established with shareholders on corporate governance issues and determine how this is done, without undermining the principle of equality of treatment between shareholders or the collegiate nature of the Board; and ◆ identify and discuss emerging trends in governance and CSR, and ensure that the Company is preparing as well as possible for the challenges specific to its operations and objectives. SANOFI / FORM 20-F 2018 185 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Strategy Committee The main roles of this Committee are: Two of the four members of the Strategy Committee are deemed to be independent: Serge Weinberg and Patrick Kron. The Strategy Committee met four times in 2018. Committee members had a very good attendance record, with all of them attending all meetings. The main activities of the Strategy Committee related to: ◆ review of and updates on the Ablynx and Bioverativ acquisitions, and acquisition opportunities more generally; ◆ partnership opportunities; and ◆ strategy review. The Committee did not use external consultants in 2018. Scientific Committee In line with Sanofi’s strategic roadmap, the Board decided on March 6, 2018 to set up a fifth permanent Committee, to address scientific and R&D issues. Attendance rate of Board members ◆ to assist the Board in scrutinizing the strategic orientation and investments proposed by the Chief Executive Officer in those areas; ◆ to identify and discuss emerging trends and new challenges in science and technology, and ensure that Sanofi is preparing for them effectively; and ◆ to obtain assurance that processes are in place to enable optimal decision-making on investments in R&D, consistent with the strategy determined by the Board; and ◆ to review and evaluate the quality of Sanofi’s scientific expertise, and advise the Board accordingly. The Committee met once in 2018; all of its members were in attendance, along with the Chief Executive Officer and global support function managers and other Sanofi employees, to review our Vaccines business (pipeline, markets, competitive landscape, innovation, collaborations and partnerships). Director Serge Weinberg, Chairman of the Board Olivier Brandicourt, Chief Executive Officer Laurent Attal Emmanuel Babeau Bernard Charlès Claudie Haigneré Patrick Kron Fabienne Lecorvaisier Melanie Lee Suet-Fern Lee Christian Mulliez Marion Palme Carole Piwnica Christian Senectaire Diane Souza Thomas Südhof Attendance rate at Board meetings Attendance rate at Committee meetings Overall attendance rate 100% 100% 100% 100% 91% 100% 100% 100% 91% 91% 82% 91% 91% 100% 100% 91% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 92% 100% 100% 100% 93% 92% 78% 92% 94% 100% 100% 93% Average attendance rate at Board and Committee meetings Average attendance rate at Board meetings Average attendance rate at Committee meetings 96% 95% 97% 186 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES D. Employees Number of Employees In 2018, Sanofi employed 104,226 people worldwide, 2,340 less than in 2017. The tables below give a breakdown of employees the years ended by geographic area and December 31, 2018, 2017 and 2016. function for Directors who were absent from some meetings provided clear and substantiated explanations for their absence, which related mainly to personal matters or to unscheduled meetings called at short notice (especially where sudden developments on an ongoing project necessitated a Board meeting). The Board pays particular attention to the availability of directors, and makes sure that their other professional commitments do not prevent them from fully discharging their remit with respect to the Company. Employees by Geographic Area Europe Emerging Markets United States Rest of the World Total Employees by Function Sales Force Research and Development Production Marketing and Support Functions 2018 46,256 38,672 13,434 5,864 % 44.4% 37.1% 12.9% 5.6% As of December 31, 2017 48,358 38,401 13,810 5,997 % 45.4% 36.0% 13.0% 5.6% 2016 46,924 39,308 15,181 5,446 % 43.9% 36.8% 14.2% 5.1% 104,226 100.0% 106,566 100.0% 106,859 100.0% 2018 28,914 15,140 38,790 21,382 % 27.8% 14.5% 37.2% 20.5% As of December 31, 2017 30,284 14,764 40,417 21,101 % 28.4% 13.9% 37.9% 19.8% 2016 30,815 15,148 41,867 19,029 % 28.8% 14.2% 39.2% 17.8% Total 104,226 100.0% 106,566 100.0% 106,859 100.0% Industrial Relations In all countries where we operate, we seek to strike a balance between our economic interests and those of our employees, which we regard as inseparable. Our responsibility towards our employees is based on the basic principles of our Social Charter, which outlines the rights and duties of all Sanofi employees. The Social Charter addresses our key commitments towards our workforce: equal opportunity for all people without discrimination, the right to health and safety, respect for privacy, the right to information and professional training, social protection for employees and their families, freedom of association and the right to collective bargaining, and respect for the principles contained in the Global Compact on labor relations and ILO treaties governing the physical and emotional well-being and safety of children. Our labor relations are based on respect and dialogue. In this spirit, management and employee representatives meet regularly to exchange views, negotiate, sign agreements and ensure that agreements are being implemented. national, regional or company level. It may be organized on an interprofessional or sectorial basis, or both. Employee dialogue may be informal or implemented through a specific formal body, or a combination of both methods. Whatever the situation, Sanofi encourages employees to voice their opinions, help create a stimulating work environment and take part in decisions aiming to improve the way we work. These efforts reflect one of the principles of the Social Charter, whereby improving working conditions and to our business the necessary adaptation environment go hand-in-hand. Profit-sharing Schemes, Employee Savings Schemes and Employee Share Ownership Profit-sharing Schemes All employees of our French companies belong to voluntary and statutory profit-sharing schemes. Voluntary Scheme (Interessement des salaries) Employee dialogue takes place in different ways from country to country, as dictated by specific local circumstances. Depending on the circumstances, employee dialogue relating to information, consultation and negotiation processes may take place at These are collective schemes that are optional for the employer and contingent upon performance. The aim is to give employees an interest in the growth of the business and improvements in its performance. SANOFI / FORM 20-F 2018 187 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The amount distributed by our French companies during 2018 in the year ended respect of voluntary profit-sharing December 31, 2017 represented 2.1% of total payroll. for In June 2017, we entered into a new fixed-term statutory profit- sharing agreement for the 2017, 2018 and 2019 financial years. That agreement applies to all employees of our French companies. Under the agreement, Sanofi pays collective variable compensation determined on the basis of the more favorable of (i) growth in consolidated net sales (at constant exchange rates and on a constant structure basis) or (ii) the level of business net income. For each of those criteria, a matrix determines what percentage of total payroll is to be allocated to the scheme. This overall allocation is then reduced by the amount required by law to be transferred to a special profit-sharing reserve. The balance is then distributed between the employees unless the transfer to the reserve exceeds the maximum amount determined under the specified criteria, in which case no profit share is paid to the employees. In 2018, €121.3 million and €58.5 million were invested in the collective savings scheme and the collective retirement savings scheme the voluntary and statutory schemes for 2017, and through top-up contributions. respectively through In December 2017, we entered into a new agreement for an indefinite period, setting out revised terms for the top-up contribution to the collective savings scheme and covering all the employees of our French companies. Employee Share Ownership As of December 31, 2018, shares held under the collective savings scheme by employees of Sanofi, employees of related companies and former employees amounted to 1.70% of our share capital. For more information about our most recent employee share ownership plan, refer to “Item 10. Additional Information – Changes in Share Capital – Increases in Share Capital”. Statutory Scheme (Participation des salaries aux résultats de l’entreprise) E. Share Ownership This scheme is a French legal obligation for companies with more than 50 employees that made a profit in the previous financial year. The amount distributed by our French companies during 2018 in respect of the statutory scheme for the year ended December 31, 2017 represented 6.98% of total payroll. Distribution Formula In order to favor lower-paid employees, the voluntary and statutory profit-sharing agreements entered into since 2005 split the benefit between those entitled as follows: ◆ 60% prorated on the basis of time spent in the Company’s employment in the year; and ◆ 40% prorated on the basis of gross annual salary during the year, subject to a lower limit equal to the social security ceiling and an upper limit of three times the social security ceiling. Employee Savings Schemes and Collective Retirement Savings Plan The employee savings arrangements operated by Sanofi are based on a collective savings scheme (Plan d’Epargne Groupe) and a collective retirement savings scheme (Plan d’Epargne pour la Retraite Collectif). Those schemes reinvest the sums derived from the statutory and voluntary profit-sharing schemes, plus voluntary contributions from employees. In June 2018, more than 91% of the employees who benefited from the profit-sharing schemes opted to invest in the collective savings scheme, and nearly 80% opted to invest in the collective retirement savings scheme. Sanofi supplements the amount invested by employees in these schemes by making a top-up contribution. Senior Management Members of the Executive Committee hold shares of our Company amounting in the aggregate to less than 1% of our share capital. During 2018, 70,951 stock options were exercised by individuals the Executive Committee when who were members of they exercised. All the plans post-dated the creation of the Executive Committee (sanofi-aventis plan of March 3, 2009, exercise price €45.09; sanofi-aventis plan of March 9, 2011, exercise price €50.48; sanofi-aventis plan of March 5, 2012, exercise price €56.44; and sanofi-aventis plan of March 5, 2014, exercise price €73.48). Existing Option Plans as of December 31, 2018 As of December 31, 2018, a total of 6,849,573 options were outstanding: 80,671 stock purchase options and 6,768,902 stock subscription options. As of that same date, 5,468,214 options were immediately exercisable: 80,671 stock purchase options and 5,387,543 stock subscription options. Equity-based compensation, consisting of share subscription option plans and performance share plans, aims to align our employees’ objectives with those of our shareholders and to reinforce the link between our employees and Sanofi. Under French law, awarding such plans falls within the powers of the Board of Directors. Stock options are awarded to employees and executive officers by our Board of Directors on the basis of recommendations from the Compensation Committee. Granting options the grantee’s performance and contribution to the development of Sanofi, and also of securing his or her future commitment. is a way of recognizing 188 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES For each plan, the Compensation Committee and the Board of Directors assess whether it should take the form of options to subscribe for shares or options to purchase shares, based on criteria that are primarily financial. level executives who may continue to receive options. Under this policy, regardless of the identity of the grantee, any award of options or performance shares was fully contingent upon performance targets being achieved over three financial years. A list of grantees is proposed by the Chief Executive Officer to the Compensation Committee, which reviews the list and then submits it to the Board of Directors, which takes the decision to grant the options. The Board of Directors also sets the terms for the exercise of the options (including the exercise price) and the lock-up period. The exercise price never incorporates a discount, and is at least equal to the average of the quoted market prices on the 20 trading days preceding the date of grant. Stock option plans invariably specify a lock-up period of four years and a total duration of ten years. In 2011, the Board of Directors made substantial changes to our equity-based compensation policy. To limit the dilutive effect on our shareholders, the Board of Directors decided to primarily award performance shares, except for a limited number of high- Share Purchase Option Plans Since 2018, only the Chief Executive Officer continues to be granted stock options. Consequently, apart from the 220,000 options awarded to Olivier Brandicourt, the Board did not award any stock options at its meeting of May 2, 2018. The number of options awarded to the Chief Executive Officer in 2018 represents 3.52% of the total limit approved by the Shareholders’ Annual General Meeting of May 4, 2016 (0.5% of our share capital) and 100% of the total award to all beneficiaries made on May 2, 2018. A new voluntary profit-sharing agreement was signed in June 2017 which gives all of our employees an interest in Sanofi’s performance (for more details refer to “– Profit-Sharing Schemes, Employee Savings Schemes and Employee Share Ownership”, above). Source Date of shareholder authorization Date of grant Number of options initially granted - to corporate officers(a) - to the 10 employees awarded the most options(b) Start date of exercise period Expiry date Exercise price (€) Number of shares subscribed as of 12/31/2018 Number of options canceled as of 12/31/2018(c) Number of options outstanding Synthélabo 06/23/98 03/30/99 716,040 0 176,800 03/31/04 03/30/19 38.08 629,649 5,720 80,671 (a) Comprises the Chairman & Chief Executive Officer, the Chief Executive Officer, and any Deputy Chief Executive Officers in office at the date of grant. (b) In post at the date of grant. Share Subscription Option Plans Date of shareholder authorization Date of grant Number of options initially granted - to corporate officers(a) - to the 10 employees awarded the most options(b) Start date of exercise period Expiry date Exercise price (€) Number of shares subscribed as of 12/31/2018 Number of options canceled as of 12/31/2018(c) Number of options outstanding 05/31/07 03/02/09 7,736,480 04/17/09 03/01/10 7,316,355 805,000 04/17/09 03/01/10 574,500 04/17/09 03/09/11 300,000 04/17/09 03/09/11 574,050 05/06/11 03/05/12 240,000 05/06/11 03/05/12 548,725 05/06/11 03/05/13 240,000 05/06/11 03/05/13 769,250 05/03/13 03/05/14 240,000 05/03/13 03/05/14 12,500 05/03/13 06/24/15 202,500 05/03/13 06/24/15 220,000 05/03/13 06/24/15 05/04/16 05/04/16 17,750 165,000 05/04/16 05/04/16 220,000 05/04/16 05/04/16 158,040 05/10/17 05/10/17 220,000 05/10/17 05/10/17 220,000 05/02/18 05/02/18 250,000 0 275,000 0 300,000 0 240,000 0 240,000 0 240,000 0 0 220,000 0 0 220,000 0 220,000 220,000 655,000 665,000 805,000 395,000 0 274,500 0 261,000 0 364,500 0 12,500 202,500 0 17,750 165,000 0 157,140 0 0 03/04/13 03/01/19 03/03/14 02/28/20 03/03/14 02/28/20 03/10/15 03/09/21 03/10/15 03/09/21 03/06/16 03/05/22 03/06/16 03/05/22 03/06/17 03/05/23 03/06/17 03/05/23 03/06/18 03/05/24 03/06/18 03/05/24 06/25/19 06/24/25 06/25/19 06/24/25 06/25/19 06/24/25 05/05/20 05/04/26 05/05/20 05/04/26 05/05/20 05/04/26 05/11/21 05/10/27 05/11/21 05/10/27 05/03/22 05/03/28 45.09 54.12 54.12 50.48 50.48 56.44 56.44 72.19 72.19 73.48 73.48 89.38 89.38 89.38 75.90 75.90 75.90 88.97 88.97 65.84 6,078,643 4,353,570 625,000 383,529 292,200 187,539 0 110,839 0 63,500 0 0 0 0 0 0 0 0 0 0 639,870 685,695 50,000 35,454 7,800 95,021 35,280 108,607 64,080 101,875 46,560 5,000 0 41,536 4,750 0 0 3,145 0 0 1,021,002 2,282,300 130,000 155,517 0 291,490 204,720 329,279 175,920 603,875 193,440 7,500 202,500 178,464 13,000 165,000 220,000 154,895 220,000 220,000 Source Sanofi-aventis Sanofi-aventis Sanofi-aventis Sanofi-aventis Sanofi-aventis Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi (a) Comprises the Chairman & Chief Executive Officer, the Chief Executive Officer, and any Deputy Chief Executive Officers in office at the date of grant. (b) In post at the date of grant. (c) Includes 255,176 options canceled due to partial non-fulfilment of performance conditions. SANOFI / FORM 20-F 2018 189 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The main characteristics of our stock options are also described in Note D.15.8. to our consolidated financial statements, included in Item 18 of this annual report. Existing Restricted Share Plans as of December 31, 2018 Since 2009, the Board of Directors has awarded shares to certain employees in order to give them a direct stake in our future and performances via trends in the share price, as a partial substitute for the granting of stock options. Shares are awarded to employees on the basis of a list submitted to the Compensation Committee. This Committee then submits the list to the Board of Directors, which decides whether to award the shares. The Board of Directors sets the continuing employment conditions to which vesting is subject, and any lock-up conditions for the shares. ◆ an “International” plan, under which 4,903 beneficiaries were awarded a total of 2,827,142 shares. The entire award is contingent upon the same criteria, based on business net income(1) and return on assets (ROA), as the award made to members of the Executive Committee. The attainment levels are also the same as for the awards made to members of the Executive Committee. Vesting is subject to a non-compete clause. The number of performance shares awarded to the Chief Executive Officer in 2018 represents 0.27% of the total limit approved by the Shareholders’ Annual General Meeting of May 4, 2016 (1.5% of the share capital) and 1.14% of the total amount awarded to all beneficiaries on May 2, 2018. In addition, at its meeting of July 30, 2018, the Board of Directors awarded a plan dedicated to Ablynx employees under which 152 beneficiaries were awarded a total of 141,669 shares. In 2011, the Board of Directors made substantial changes to our equity-based compensation policy. To limit the dilutive effect on our shareholders, the Board of Directors decided to primarily award performance shares, except for a limited number of high- level executives who could continue to receive options. The entire award is contingent upon a performance target of return on assets (ROA), calculated over a three-year period comprising the 2018, 2019 and 2020 financial years. The attainment level is the same as for the awards decided on May 2, 2018. Vesting is subject to a non-compete clause Since 2018, awards to senior executives have consisted solely of performance shares; only the Chief Executive Officer continues to be awarded stock options as well. Under this policy, any award of performance shares is fully contingent upon performance targets being achieved over three financial years, regardless of the identity of the grantee. Our share plans have a three-year vesting period, with no lock-up period. At its meeting of May 2, 2018, the Board of Directors awarded two plans, in addition to the plan awarded to the Chief Executive Officer: ◆ a “France” plan, under which 2,329 beneficiaries were awarded a total of 1,513,074 shares; and The 2018 awards represent a dilution of approximately 0.35% of our undiluted share capital as of December 31, 2018. Not all of our employees were awarded performance shares, but a new voluntary profit-sharing agreement was signed in June 2017 which gives all of our employees an interest in Sanofi’s performance (for more details refer to “– Profit-Sharing Schemes, Employee Savings Schemes and Employee Share Ownership”, above). (1) For a definition, see “– Item 5 – Operating and Financial Review and Prospects – Business Net Income”. 190 SANOFI / FORM 20-F 2018 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Restricted Share Plans Date of shareholder Source authorization Date of grant Number of shares To initially corporate awarded officers(a) employees Start date of To the 10 awarded the most shares(b) vesting Vesting End of lock- vested as of period(c) up period date shares canceled as Number of of shares not 12/31/2018 12/31/2018(d) yet vested Number of Number of rights Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi 05/04/12 05/04/12 05/04/12 05/04/12 05/04/15 05/04/15 05/04/15 05/04/15 05/04/15 05/04/15 05/04/15 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 05/04/16 03/05/14 1,236,720 03/05/14 2,605,515 20,900 03/05/14 03/05/14 45,000 06/24/15 1,121,070 129,000 06/24/15 06/24/15 36,350 06/24/15 2,307,120 124,500 06/24/15 66,000 06/24/15 06/24/15 45,000 05/04/16 1,289,825 05/04/16 2,533,100 132,000 05/04/16 93,000 05/04/16 05/04/16 50,000 05/10/17 1,174,270 05/10/17 2,363,195 05/10/17 50,000 05/02/18 1,513,074 05/02/18 2,827,142 50,000 05/02/18 141,669 07/30/18 0 0 0 45,000 0 0 0 0 0 66,000 45,000 0 0 0 0 50,000 0 0 50,000 0 0 50,000 0 28,060 03/05/14 03/06/17 35,400 03/05/14 03/06/18 11,300 03/05/14 03/06/18 0 03/05/14 03/06/17 63,000 06/24/15 06/25/18 129,000 06/24/15 06/25/18 14,950 06/24/15 06/25/19 84,500 06/24/15 06/25/19 124,500 06/24/15 06/25/19 0 06/24/15 06/25/19 0 06/24/15 06/25/19 74,400 05/04/16 05/05/19 113,750 05/04/16 05/05/19 132,000 05/04/16 05/05/19 93,000 05/04/16 05/05/19 0 05/04/16 05/05/19 150,363 05/10/17 05/11/20 155,203 05/10/17 05/11/20 0 05/10/17 05/11/20 144,372 05/02/18 05/03/21 272,447 05/02/18 05/03/21 0 05/02/18 05/03/21 39,874 07/30/18 07/31/21 03/06/19 03/06/18 03/06/18 03/06/19 06/25/20 06/25/20 06/25/19 06/25/19 06/25/19 06/25/19 06/25/19 05/05/19 05/05/19 05/05/19 05/05/19 05/05/19 05/11/20 05/11/20 05/11/20 05/03/21 05/03/21 05/03/21 07/31/21 1,200,470 2,136,600 16,900 36,270 1,082,870 104,000 0 7,950 0 0 0 600 4,900 0 0 0 539 2,648 0 0 1,519 0 0 0 0 8,496 36,250 476,215 5,500 8,730 39,050 25,000 7,650 0 0 0 0 0 0 30,900 396,970 1,907,350 124,500 66,000 36,504 51,950 1,244,275 340,155 2,195,951 107,000 93,000 50,000 64,706 1,113,150 219,499 2,151,241 50,000 17,661 1,496,021 105,620 2,720,981 50,000 139,591 25,000 0 0 0 2,078 0 (a) Comprises the Chairman & Chief Executive Officer, the Chief Executive Officer, and any Deputy Chief Executive Officers in office at the date of grant. (b) In post at the date of grant. (c) Subject to the conditions set. (d) Includes 693,168 rights canceled due to partial non-fulfilment of performance conditions. As of December 31, 2018, 13,576,464 shares had not yet vested pending fulfilment of performance conditions. During the year ended December 31, 2018, the ten employees (other than corporate officers) awarded the most shares were collectively awarded a total of 271,118 shares. Shares Owned by Members of the Board of Directors As of December 31, 2018, members of our Board of Directors held in the aggregate 14,664 shares, or under 1% of the share capital and of the beneficial the voting rights, excluding ownership of 118,227,307 shares held by L’Oréal as of such date which may be attributed to Laurent Attal or Christian Mulliez (who disclaim beneficial ownership of such shares). Transactions in Shares by Members of the Board of Directors and equivalent persons in 2018 As far as Sanofi is aware, transactions in our securities by (i) Board members, (ii) executives with the power to make management decisions affecting our future development and corporate strategy(1) and (iii) persons with close personal ties to such individuals (as per Article L. 621-18-2 of the French Monetary and Financial Code) during the year ended December 31, 2018 were as follows: ◆ on March 6, 2018, Bernard Charlès, director, purchased 500 shares at a price of €64.58 per share and 500 shares at a price of €64.50 per share; ◆ on April 6, 2018 and September 5, 2018, Melanie Lee, director, respectively bought 500 shares at a price of €65.90 per share and 500 shares at a price of €73.08 per share; and ◆ on September 19, 2018, Emmanuel Babeau, director, purchased 500 shares at a price of €75.22 per share. (1) The list of these persons is regularly updated. SANOFI / FORM 20-F 2018 191 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders The table below shows the ownership of our shares as of January 31, 2019, indicating the beneficial owners of our shares. To the best of our knowledge and on the basis of the notifications received as disclosed below, except for L’Oréal and BlackRock, Inc., no other shareholder currently holds more than 5% of our share capital or voting rights. Total number of issued shares Number of actual voting rights (excluding treasury shares)(d) Theoretical number of voting rights (including treasury shares)(e) Number % Number % Number % 118,227,307 74,208,924 21,148,442 9.48 5.95 1.70 236,454,614 16.95 236,454,614 16.92 74,208,924 36,515,842 5.32 2.62 74,208,924 36,515,842 5.31 2.61 1,031,968,047 82.71 1,047,989,783 75.12 1,047,989,783 75.01 1,934,847 1,247,487,567 0.16 100 — — 1,934,847 1,395,169,163 100 1,397,104,010 0.14 100 L’Oréal BlackRock(a) Employees(b) Public Treasury shares(c) Total (a) Based on BlackRock’s declaration as of July 12, 2018. (b) Shares held via the Sanofi Group Employee Savings Plan. (c) Includes net position of share repurchases under the Group’s liquidity contract, which amounted to zero shares as of January 31, 2019. Amounts held under this contract vary over time. (d) Based on the total number of voting rights as of January 31, 2019. (e) Based on the total number of voting rights as of January 31, 2019 as published in accordance with article 223-11 and seq. of the General Regulations of the Autorité des marchés financiers (i.e. including treasury shares, the voting rights of which are suspended). Our Articles of Association provide for double voting rights for shares held in registered form for at least two years. All of our shareholders may benefit from double voting rights if these conditions are met, and no shareholder benefits from specific voting rights. For more information relating to our shares, see “Item 10. Additional Information – B. Memorandum and Articles of Association.” Neither L’Oréal nor BlackRock holds different voting rights from those of our other shareholders. To the best of our knowledge, no other shareholder currently holds, directly or indirectly and acting alone or in concert, more than 5% of our share capital or voting rights. Furthermore, we believe that we are not directly or indirectly owned or controlled by another corporation or government, or by any other natural or legal persons. To our knowledge, there are no arrangements that may result in a change of control. During the year ended December 31, 2018 we did not receive any share ownership declarations informing us that a legal threshold had been passed, as required under Article L. 233-7 of the French Commercial Code. In addition to the statutory requirement to inform the Company and the Autorité des marchés financiers (AMF, the French financial markets regulator) that they hold a number of shares (or of securities equivalent to shares or of voting rights pursuant to Article L. 233-9 of the French Commercial Code) representing more than one twentieth (5%), one tenth (10%), three twentieths (15%), one fifth (20%), one quarter (25%), three tenths (30%), one third (1/3), one half (50%), two thirds (2/3), nine tenths (90%) or nineteen twentieths (95%) of the share capital or theoretical voting rights within four trading days after crossing any such ownership threshold (Article L. 233-7 of the French Commercial Code), any natural or legal person who directly or indirectly comes to hold a percentage of the share capital, voting rights or securities giving future access to the Company’s capital that is equal to or greater than 1% or any multiple of that percentage, is obliged to inform the Company thereof by registered mail, return receipt requested, indicating the number of securities held, within the five trading days following the date on which each of the thresholds was crossed. If such declaration is not made, the shares in excess of the fraction that should have been declared will be stripped of voting rights at shareholders’ meetings if on the occasion of such meeting the failure to declare has been formally noted and one or more shareholders collectively holding at least 5% of the Company’s share capital or voting rights so request at that meeting. Any natural or legal person is also required to inform the Company, in the forms and within the time limits stipulated above for passing above a threshold, if their direct or indirect holding passes below any of the aforementioned thresholds. 192 SANOFI / FORM 20-F 2018 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Since January 1, 2019 we have not received any share ownership declaration. (Source: a survey conducted by Euroclear France as of December 31, 2018, and internal information). As of December 31, 2018, individual shareholders (including employees of Sanofi and its subsidiaries, as well as retired employees holding shares via the Sanofi Group Employee Savings Plan) held approximately 7.00% of our share capital. Institutional shareholders (excluding L’Oréal) held approximately 76.64% of our share capital. Such shareholders are primarily American (26.65%), French (15.11%) and British (15.22%). German institutions held 4.01% of our share capital, Swiss from other European institutions held 2.16%, countries held 7.09% and Canadian institutions held 1.84% of our share capital. Other international institutional investors (excluding those from Europe and North America) held approximately 4.56% of our share capital. In France, our home country, we have the 178 United States, our host country, we have 601 identified institutional shareholders of record and 506 identified ADS holders of record. institutional shareholders of record. institutions identified In Shareholders’ Agreement We are unaware of any shareholders’ agreement currently in force. B. Related Party Transactions See Note D.33. to our consolidated financial statements included at Item 18 of this annual report. C. Interests of Experts and Counsel N/A SANOFI / FORM 20-F 2018 193 ITEM 8. FINANCIAL INFORMATION Item 8. Financial Information A. Consolidated Financial Statements and Other Financial Information Our consolidated financial statements as of and for the years ended December 31, 2018, 2017 and 2016 are included in this annual report at “Item 18. Financial Statements.” Dividends on Ordinary Shares We paid annual dividends for the years ended December 31, 2014, 2015, 2016 and 2017 and our shareholders will be asked to approve the payment of an annual dividend of €3.07 per share for the 2018 fiscal year at our next annual shareholders’ meeting. If approved, this dividend will be paid on May 13, 2019. We expect that we will continue to pay regular dividends based on our financial condition and results of operations. The proposed 2018 dividend equates to a distribution of 56.1% of our business net income. For information on the non-GAAP financial measure “business earnings per share” see “Item 5. Operating and Financial Review and Prospects – Business Net Income.” The following table sets forth information with respect to the dividends paid by our Company in respect of the 2014, 2015, 2016 and 2017 fiscal years and the dividend that will be proposed for approval by our shareholders in respect of the 2018 fiscal year at our May 13, 2019 shareholders’ meeting. Dividend per Share (in €) Dividend per Share (in $)(b) (a) Proposal, subject to shareholder approval. (b) Based on the relevant year-end exchange rate. financial condition, cash The declaration, amount and payment of any future dividends will be determined by majority vote of the holders of our shares at an ordinary general meeting, following the recommendation of our Board of Directors. Any declaration will depend on our results of future operations, prospects and other relevant by our shareholders. Accordingly, we cannot assure you that we will pay dividends in the future on a continuous and regular basis. Under French law, we are required to pay dividends approved by an ordinary general meeting of shareholders within nine months following the meeting at which they are approved. factors deemed requirements, Disclosure pursuant to Section 13(r) of the United States Exchange Act of 1934 Sanofi conducts limited business relating to human health products with Iran, which contributed well under 1% of Sanofi’s consolidated net sales in 2018. These activities, which are not financially material to Sanofi, are being disclosed pursuant to Section 13(r) of the United States Exchange Act of 1934, as amended. Sales consisted of bulk and branded pharmaceuticals, and vaccines. US affiliates of Sanofi, or foreign affiliates controlled by US affiliates of Sanofi, are either not involved in these activities or operate under humanitarian licenses issued by the US Treasury Department’s Office of Foreign Assets Control. Limited business amounting to approximately €6.64 million in gross revenues has been conducted by non-US subsidiaries of 194 SANOFI / FORM 20-F 2018 2018(a) 2017 2016 2015 2014 3.07 3.52 3.03 3.63 2.96 3.12 2.93 3.19 2.85 3.46 Sanofi not requiring an OFAC license with entities such as public hospitals or distributors tied to the Ministry of Health. It is estimated that this activity contributed no more than €3.8 million to net profits. A representative office in Tehran incurs incidental expenses from state-owned utilities. the In January 2016, Sanofi and Iran Food and Drug Administration, affiliated with the Ministry of Health and Medical Education of the Islamic Republic of Iran, signed a Memorandum of Cooperation (MoC) regarding (i) potential future projects to Iranian partnerships with reinforce manufacturers industrial quality standards), (ii) collaborating with the Ministry of Health on programs for the prevention and control of certain chronic and (in particular diabetes) and non-communicable diseases (iii) potential future collaboration on epidemiological studies. (in particular to enhance reputable current Following the MOC, Sanofi and the Iranian company Barkat Pharmed Co. entered into a non-binding letter of intent on June 16, 2017 to evaluate the possibility of a transaction involving the creation of a joint venture, or other possible forms of transaction, the business purpose of which would be the manufacturing and distribution of pharmaceutical products in Iran. The MoC and the letter of intent did not generate any revenue or net profit in 2018. Sanofi has determined that its activities are compliant with applicable law. In light of the nature of the activities concerned, Sanofi and its affiliates intend to continue their activities in Iran. Information on Legal or Arbitration Proceedings This Item 8 incorporates by reference the disclosures found in Note D.22. to the consolidated financial statements at Item 18 of this annual report; material updates thereto as of the date of this annual report are found below under the heading “– B. Significant Changes – Updates to Note D.22”. Sanofi and its subsidiaries are involved in litigation, arbitration and other legal proceedings. These proceedings typically are related to product liability claims, intellectual property rights (particularly claims against generic companies seeking to limit the patent protection of Sanofi products), competition law and trade practices, commercial claims, employment and wrongful discharge claims, tax assessment claims, waste disposal and pollution claims, and claims under warranties or indemnification arrangements relating to business divestitures. As a result, we may become subject to substantial liabilities that may not be covered by insurance and could affect our business and reputation. While we do not currently believe that any of these legal proceedings will have a material adverse effect on our financial position, litigation is inherently unpredictable. As a consequence, we may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on results of operations, cash flows and/or our reputation. Patents Co-Aprovel® Patent Infringement Actions (Europe) Following a Court of Justice of the European Union (CJEU) decision of December 12, 2013 that declared the Co-Aprovel® Supplemental Protection Certificate invalid, generic companies (whose products were withdrawn from the market due to national preliminary injunctions or cross-undertakings) filed damages claims against Sanofi in several countries. In 2018, all pending damages claims in Europe were settled. Lantus® Merck Patent Litigation (United States) In September 2016, several Sanofi entities filed a patent infringement suit against Merck Sharp & Dohme Corp. (“Merck”) in the United States District Court for the District of Delaware. In its suit, Sanofi alleged infringement of several patents. The suit was triggered by a notification received from Merck in early August 2016, in which Merck stated that it had filed an NDA (505(b)(2) New Drug Application) with FDA for an insulin glargine drug pen product. Merck also stated that its NDA included a paragraph IV certification challenging all of the Sanofi patents then listed in the FDA Orange Book for Sanofi’s Lantus® and Lantus® SoloStar® products. In August 2017, several Sanofi entities filed a patent infringement suit against Merck in the United States District Court for the District of New Jersey. In its suit, Sanofi alleged infringement of two patents. The suit was triggered by a notification received from Merck in late June 2017, in which Merck stated that it had filed an ITEM 8. FINANCIAL INFORMATION NDA with the FDA for an insulin glargine drug vial product. Merck also stated that its NDA included a paragraph IV certification challenging all of the Sanofi patents then listed in the FDA Orange Book for Sanofi’s Lantus® and Lantus® SoloStar® products. Sanofi and Merck jointly filed stipulations asking the New Jersey and Delaware District Courts to dismiss the New Jersey and Delaware patent cases concerning Merck’s proposed insulin glargine pen and vial products. In October and November 2018, the Delaware and New Jersey District Courts ordered the dismissals and thus the Delaware pen patent case and the New Jersey vial patent case are now closed. These dismissals are in response to Merck’s public announcement that it will not commercialize insulin glargine products in the US. Lantus® Mylan Patent Litigation (United States) In June 2017, Mylan Pharmaceuticals, Inc. filed petitions for Inter Partes Review (IPR) for US Patent 7,476,652 and 7,713,930 regarding Lantus® with the United States Patent Office Patent Trial and Appeal Board (PTAB). In these petitions, Mylan attacks the validity of all claims of these patents. On December 13, 2017, the PTAB decided to move forward with Mylan’s IPRs for these two patents. In December 2018, the PTAB issued a decision invalidating the claims of the two formulation patents. Sanofi has appealed the adverse PTAB administrative decisions to the Federal Circuit. No schedule has yet been set for the appeals. On October 24 and 26, 2017, several Sanofi entities filed a patent infringement suit against Mylan N.V., Mylan GmbH, Mylan Inc., and Mylan Pharmaceuticals Inc. (collectively, “Mylan”) in the United States District Courts for the District of New Jersey and Northern District of West Virginia. In its suits, Sanofi alleges infringement of several patents. The suits were triggered by a notification received from Mylan in mid-September 2017, in which Mylan stated that it had filed an NDA with the FDA for an insulin glargine drug pen and vial products. Mylan also stated that its NDA included a paragraph IV certification challenging all of the Sanofi patents then listed in the FDA Orange Book for Sanofi’s Lantus® and Lantus® SoloStar® products. These suits resulted in a stay during which the FDA cannot approve Mylan’s NDA. The 30 month stay is expected to expire on the earlier of (i) March 18, 2020 or (ii) a court decision in favor of Mylan. On February 21, 2018, the West Virginia case was dismissed and the parties are now proceeding only with the New Jersey lawsuit. The parties are currently proceeding with discovery and claim construction. There will be summary judgment briefing beginning around the second quarter of 2019. On September 10, 2018, Mylan filed 10 petitions asking the U.S. Patent Office Patent Trial and Appeal Board (PTAB) to commence Inter Partes Review (IPR) proceedings of U.S. Patent Nos. 8,603,044, 8,679,069, 8,992,486, 9,526,844, and 9,604,008, challenging the validity of certain claims of these Sanofi patents. Sanofi’s Patent Owner Preliminary Responses are due to be filed on various dates starting in January 2019. The PTAB will determine whether IPR proceedings starting by various dates in April 2019. forward with to move SANOFI / FORM 20-F 2018 195 ITEM 8. FINANCIAL INFORMATION Cerdelga® Patent Litigation (United States) Cerdelga® is covered by four Orange Book listed patents US 6,916,802, US 7,196,205, US 7,253,185, and US 7,615,573. In the fourth quarter of 2018, six different generic manufacturers each separately notified Sanofi-Genzyme that they had filed ANDA applications IV certifications challenging ‘573 patents. ‘205, Sanofi-Genzyme filed suit against each ANDA filer within 45 days of receipt of each notification in the US District Court for the District of Delaware. The associated 30-month stay of FDA approval on each ANDA is expected to expire on the earlier of (i) February 19, 2022 or (ii) a court decision in favor of the generic manufacturer(s). for Cerdelga® with Paragraph the US ‘185 and ‘802, Government Investigations and Related Litigation From time to time, subsidiaries of Sanofi are subject to governmental from regulatory authorities inquiring as to the practices of Sanofi with respect to the sales, marketing, and promotion of its products. information requests investigations and into a settlement In December 2013, Genzyme entered agreement to resolve civil claims arising out of the investigation into promotional practices of Seprafilm® and paid in that respect approximately $23 million. As part of this settlement, and as part of the settlement entered into by Sanofi US in December 2012 relating to civil claims arising out of an investigation into sampling of its former product Hyalgan® for which Sanofi US paid $109 million, the companies entered into a Corporate Integrity Agreement (“CIA”) with the Office of the Inspector General of the United States Department of Health and Human Services in September 2015. Also in September 2015, Genzyme entered into a Deferred Prosecution Agreement (“DPA”) with the US Department of Justice and paid in that respect approximately $33 million to resolve the Seprafilm® matter completely. The DPA expired in September 2017 and the CIA is currently in effect. In February 2016, Sanofi US received a civil investigative demand from the US Attorney’s Office for the Northern District of Texas requesting documents and information relating to contracts with specialty pharmacies concerning the renal products Renvela® and Renagel® from January 1, 2006 through February 2, 2016. Sanofi US is cooperating with this investigation. In March 2016, Sanofi US received a civil investigative demand from the US Attorney’s Office for the Southern District of New York requesting documents and information relating to contracts with, services performed by and payments to pharmacy benefit managers from January 1, 2006 forward. regarding Lantus® and Apidra® (PBMs) In April 2018, a lawsuit was unsealed in the US District Court for the Southern District of New York, alleging violations of the False Claims Act and 29 state-law analogs by Sanofi US and other manufacturer and PBM defendants. The complaint had first been filed on October 6, 2015. It was unsealed after the federal and state governments declined to intervene. In October 2018, the defendants (including Sanofi) moved to dismiss the complaint. In 196 SANOFI / FORM 20-F 2018 December 2018, the United States separately moved to dismiss the complaint, over the relator’s objections. In June 2016, the United States declined to intervene in a False Claims Act action filed in Federal Court in New Jersey regarding the sale and marketing of and variability of response to Plavix®. Sanofi US is defending this action as well as two State Attorney General actions (Hawaii and New Mexico) concerning the sale and marketing of Plavix®. In December 2016 and January 2017, two putative class actions were filed against Sanofi US and Sanofi GmbH in Federal Court in Massachusetts on behalf of direct-purchasers of Lantus® alleging certain antitrust violations. On January 10, 2018, the District Court of Massachusetts dismissed Plaintiffs’ complaint against Sanofi. The dismissal of Plaintiffs’ entire case was without prejudice. Plaintiffs have appealed. In January 2017, the Minnesota State Attorney General’s office issued a civil investigative demand calling for the production of documents and information relating to pricing and trade practices for Lantus® and Toujeo®, from January 1, 2008 through present. In October 2018, the State of Minnesota, through its Attorney General, filed a complaint in the District of New Jersey against Sanofi US, Novo Nordisk, and Eli Lilly & Co. The complaint, which was filed as a companion case to existing private litigation captioned “In re Insulin Pricing Litigation”, alleges that the insulin manufacturers paid pharmacy benefit managers increase sales. Sanofi US intends to move to dismiss the complaint. in order rebates to In March 2017, the Washington State Attorney General’s office issued a civil investigative demand calling for the production of documents and information relating to pricing and trade practices for Sanofi’s injectable insulin products, from January 1, 2005 through present. Sanofi US is cooperating with this investigation. In April 2018, Sanofi US received a set of interrogatories from the California State Attorney General’s office regarding the 2014- 2015 litigations and settlement between Sanofi and Eli Lilly related to Lantus® patents and the launch of Basaglar®. Sanofi US is responding to these interrogatories. In August 2017, Sanofi US received a civil investigative demand from the US Attorney’s Office for the Southern District of New York requesting documents and information relating to Sanofi US’s certified diabetes educator program during the period from 2007 to the present. In September 2018, the US Attorney’s Office elected to decline intervention in the underlying False Claims Act suit and in February 2019, the Court dismissed the suit without prejudice. In January 2018, Sanofi US received a subpoena from the US Attorney’s Office for the District of Massachusetts requesting documents and information relating to Sanofi US’s relationship with non-profit organizations that provide assistance to patients taking Sanofi drugs and Sanofi US’s patient assistance programs as well as documents and information relating to the sale and marketing of Aubagio® and Lemtrada®. Sanofi US is cooperating with this investigation. In early 2017, four actions were filed against Sanofi US in Federal Court in New Jersey on behalf of a putative class of diabetes patients alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO Act”) and various state unfair/deceptive trade practices statutes in connection with the pricing of Lantus®, Apidra®, and Toujeo®. On December 26, filed a consolidated amended complaint, 2017, Plaintiffs consolidating these four separate actions. In March 2018, Sanofi filed a motion to dismiss plaintiffs’ second amended complaint in the putative class actions filed against Sanofi US and Sanofi GmbH in Federal Court in Massachusetts on behalf of direct-purchasers of Lantus® alleging certain antitrust violations. In May 2018, Sanofi US filed a joint motion to dismiss the consolidated amended complaint filed on behalf of a putative class of diabetes patients alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO Act”) and various state unfair/deceptive in connection with the pricing of Lantus®. In February 2019, the Court dismissed the RICO counts, but allowed many of the state law claims to proceed. trade practices statutes Separately, a case (MSP Recovery Claims, Series LLC) was filed in February 2018 in the New Jersey Federal Court against Sanofi, Novo Nordisk, and Eli Lilly. The plaintiffs are Medicare Secondary Payers (“MSPs”) that say they have been assigned the rights of 75 Medicare Advantage Organizations whose members include diabetes patients. Like the plaintiffs in the New Jersey actions, the MSPs assert RICO claims and state consumer-protection claims (as well as claims for fraud and unjust enrichment) premised on the pricing of the manufacturers’ insulin drugs. The MSPs name Sanofi, Novo Nordisk, and Eli Lilly as defendants. Defendants’ motion to dismiss is fully briefed and awaiting a ruling from the court. In October 2018, Minnesota filed a complaint in Federal Court in New Jersey that is very similar to the class action pending there. The complaint includes RICO claims against each of the same three claims under Minnesota manufacturers, as well as consumer protection statutes and a claim for unjust enrichment. In France, in the claim concerning allegations that Sanofi’s communication and promotional practices inhibited the entry on the market of generics of clopidogrel (the active ingredient of Plavix®), the French Antitrust Authority issued its decision on May 14, 2013, imposing on Sanofi a fine of €40.6 million. In December 2014, the Paris Court of Appeals rejected Sanofi’s ITEM 8. FINANCIAL INFORMATION image and reputation). appeal and confirmed in totality the decision. Sanofi filed a “pourvoi” with the French Supreme Court (Cour de cassation) in January 2015. As a consequence of the May 2013 ruling, claims were the filed by Sandoz and by Teva in 2014 before Commercial Court of Paris for compensation of their alleged damages: loss of margin and other ancillary damages (legal fees In June and to external counsel, November 2016 respectively, settlement agreements were entered they subsequently withdrew their civil claims, jointly and severally. On October 18, 2016, the Supreme Court confirmed the Court of Appeals’ decision. Therefore, the Court of Appeals’ decision became definitive. In September 2017, Sanofi and Sanofi-Aventis France received a summons before the Paris Commercial Court from the French Caisse Nationale d’Assurance Maladie (French Social Security) claiming €115.8 million their alleged damages. into with Sandoz and Teva. Consequently, for that (“SEC”) regarding allegations Sanofi has been engaged in discussions with the US Department the US Securities and Exchange of Justice (“DOJ”) and certain Commission subsidiaries outside the United States made improper payments in connection with the sale of pharmaceutical products and whether those payments, if made, fall within the US Foreign Corrupt Practices Act (“FCPA”). Sanofi has voluntarily provided information to the DOJ and the SEC and proactively cooperated in both agencies’ review of the allegations. In February 2018, the DOJ notified Sanofi that it had decided to close its inquiry into the allegations. In September 2018, Sanofi reached a civil settlement with the US SEC fully resolving the SEC’s investigation into possible violation of the US FCPA. Sanofi did not admit any wrongdoing in connection with the settlement but agreed to pay $25 million in penalties and also agreed to a two-year period of self-reporting on the effectiveness of its enhanced internal controls. Products Dengvaxia® (Philippines) In early 2018, several claims were filed in the Philippines by parents of deceased children whose deaths were allegedly due to vaccination with Dengvaxia®. Early March 2019, the Philippine Department of Justice announced it had found probable cause to indict six Sanofi employees / former employees and Government officials for “reckless imprudence” resulting in homicides. Details of charges are not yet known. SANOFI / FORM 20-F 2018 197 ITEM 8. FINANCIAL INFORMATION B. Significant Changes Updates to Note D.22 Praluent® (alirocumab)-related Amgen Patent Litigation in the US On February 25, 2019, a jury from the US District Court for the District of Delaware upheld the validity of three of the five asserted claims of two Amgen US patents covering antibodies targeting PCSK9. The jury agreed with Sanofi and Regeneron for two of the five asserted claims, finding they were invalid based on lack of written description. Sanofi and Regeneron will file post-trial motions with the District Court over the next few months, seeking to overturn part of the jury verdict and also requesting a new trial. In addition, if necessary, the companies plan to appeal to the Court of Appeals for the Federal Circuit. On February 8, 2019, the District Court dismissed Amgen’s claim for willful infringement. Briefing over the next few months will also involve Amgen’s request for a permanent injunction. The Court has indicated that it may hold a public hearing on Amgen’s request for a permanent injunction in June 2019. A damages trial may be deferred until after any appeal is resolved by the US Court of Appeals for the Federal Circuit. Dupixent® (dupilumab)-related Amgen Patent Opposition and Revocation in Europe On February 15, 2019, at oral proceedings, the European Patent Office (EPO) revoked the patent EP2990420 in its entirety, finding the claims invalid for lack of sufficiency. Immunex can appeal the decision within two months of the date of the written decision revoking the patent. Dupixent® (dupilumab)-related Amgen Inter Partes Reviews and Patent Litigation in the US On February 14, 2019, the United States Patent and Trademark Office (USPTO) issued final written decisions on the petitions and declined to hold the challenged claims of the US patent No. 8,679,487 invalid for anticipation, but found all claims on the ‘487 patent invalid for obviousness. With respect to the Immunex complaint, on February 28, 2019, the US District Court granted parties’ joint stipulation seeking to stay (put on-hold) the district court litigation. Accordingly, the litigation is stayed pending final resolution of any rehearings or appeals of the related IPR proceedings. Other Changes On February 12, 2019, Sanofi announced the appointment of Ameet Nathwani, M.D. as Chief Digital Officer in addition to his role of Executive Vice President, Chief Medical Officer. As Chief Digital Officer, Dr. Nathwani will be responsible for enhancing Sanofi’s strategy of integrating digital technologies and medical science to ultimately improve patient outcomes. His mandate will include scaling up Sanofi’s ongoing portfolio of digital initiatives by developing broad external partnerships, building out internal infrastructures, and exploring new business opportunities for Sanofi in the digital space. 198 SANOFI / FORM 20-F 2018 ITEM 9. THE OFFER AND LISTING Item 9. The Offer and Listing A. Offer and Listing Details We have one class of shares. Each American Depositary Share, or ADS, represents one-half of one share. The ADSs are evidenced by American Depositary Receipts, or ADRs, which are issued by JPMorgan Chase Bank, N.A. Our shares trade on Compartment A of the regulated market of Euronext Paris, and our ADSs trade on the Nasdaq Global Select Market, or Nasdaq. Trading History In 2011, in connection with our acquisition of Genzyme, we issued contingent value rights (“CVRs”) under a CVR agreement entered into by and between us and the American Stock Transfer & Trust Company, LLC trustee (see Item 10.C. Material Contracts – The Contingent Value Rights Agreement). Our CVRs the NASDAQ Global Market. (“AST”), as trade on As of June 30, 2016, UMB Bank, National Association replaced AST and is the successor trustee under the CVR agreement. The table below sets forth, for the periods indicated, the reported high and low market prices of our shares on Euronext Paris and our ADSs on the NYSE or Nasdaq (source: Bloomberg). Calendar period Monthly February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 2018 Full Year Fourth quarter Third quarter Second quarter First quarter 2017 Full Year Fourth quarter Third quarter Second quarter First quarter 2016 Full Year 2015 Full Year 2014 Full Year Shares, as traded on Euronext Paris ADSs, as traded on the NYSE and NASDAQ High Low High Low (price per share in €) (price per ADS in $) 75.82 80.17 80.44 80.06 77.32 76.17 80.44 80.44 77.32 69.99 75.23 92.97 86.39 86.47 92.97 84.93 72.59 73.97 77.44 73.64 72.23 71.32 62.88 72.92 68.05 63.25 62.88 71.85 71.85 79.20 82.06 73.39 43.55 45.56 45.62 45.23 45.12 44.36 45.62 45.62 45.12 41.50 45.86 50.65 50.64 50.65 50.24 45.95 41.09 41.01 43.86 41.92 41.96 40.26 37.43 41.01 39.71 37.43 38.14 39.42 42.80 46.79 43.97 39.42 79.13 62.50 44.50 36.81 101.10 72.94 54.98 41.13 89.95 68.29 57.42 44.24 SANOFI / FORM 20-F 2018 199 ITEM 9. THE OFFER AND LISTING Fluctuations in the exchange rate between the euro and the U.S. dollar will affect any comparisons of euro share prices and U.S. ADS prices. B. Plan of Distribution CVRs N/A C. Markets Shares and ADSs Our shares are listed on Euronext Paris under the symbol “SAN” and our ADSs are listed on the Nasdaq under the symbol “SNY”. As of the date of this annual report, our shares are included in a large number of indices, including the “CAC 40 Index”, the principal French index published by Euronext Paris. This index contains 40 stocks selected among the top 100 companies based on free-float capitalization and the most active stocks listed on the Euronext Paris market. The CAC 40 Index indicates trends in the French stock market as a whole and is one of the most widely followed stock price indices in France. Our shares are also included in the S&P Global 100 Index, the Dow Jones Euro STOXX 50, the Dow Jones STOXX 50, the FTS Eurofirst 100, the FTS Eurofirst 80 and the MSCI Pan-Euro Index, among other indices. Our CVRs trade on the NASDAQ Global Market under the symbol “GCVRZ”. Trading by Sanofi in our own Shares Under French law, a company may not issue shares to itself, but it may purchase its own shares in the limited cases described at “Item 10. Additional Information – B. Memorandum and Articles of Association – Trading in Our Own Shares.” D. Selling Shareholders N/A E. Dilution N/A F. Expenses of the Issue N/A 200 SANOFI / FORM 20-F 2018 ITEM 10. ADDITIONAL INFORMATION Item 10. Additional Information Share Capital N/A ◆ operating directly or indirectly, purchasing, and transferring – for free or for consideration – pledging or securing all intellectual property rights, particularly all patents, trademarks and models, processes or inventions; A.Memorandum and Articles of Association ◆ obtaining, operating, holding and granting all licenses; General Our Company is a société anonyme, a form of limited liability company, organized under the laws of France. The LEI number of the Company is 549300E9PC51EN656011. In this section, we summarize material information concerning our share capital, together with material provisions of applicable French law and our Articles of Association (statuts), an English translation of which has been filed as an exhibit to this annual report. For a description of certain provisions of our Articles of Association relating to our Board of Directors and statutory auditors, see “Item 6. Directors, Senior Management and Employees.” You may obtain copies of our Articles of Association in French from the greffe (Clerk) of the Registre du Commerce et des Sociétés de Paris (Registry of Commerce and Companies of Paris, France, registration number: 395 030 844). Please refer to that full document for additional details. Our Articles of Association specify that our corporate affairs are governed by: ◆ applicable laws and regulations (in particular, Title II of the French Commercial Code); and ◆ the Articles of Association themselves. Article 3 of our Articles of Association specifies that the Company’s corporate purpose, in France and abroad, is: ◆ acquiring interests and holdings, in any form whatsoever, in any company or enterprise, in existence or to be created, connected directly or indirectly with the health and fine chemistry sectors, human and animal therapeutics, nutrition and bio-industry; in the following areas: ◆ purchase and sale of all raw materials and products necessary for these activities; ◆ research, study and development of new products, techniques and processes; ◆ manufacture and sale of all chemical, biological, dietary and hygienic products; ◆ obtaining or acquiring all intellectual property rights related to results obtained and, in particular, filing all patents, trademarks and models, processes or inventions; the relevant ◆ within the framework of a group-wide policy and subject to compliance with in treasury management transactions, whether as lead company form of centralized currency risk or otherwise, in management or form permitted under the relevant laws and regulations; the intra-group netting, or any other legislation, participating and, more generally: ◆ all commercial, industrial, real or personal property, financial or other transactions, connected directly or indirectly, totally or partially, with the activities described above and with all similar or related activities and even with any other purposes likely to encourage or develop the Company’s activities. Directors Transactions in which directors are materially interested Under French law, any agreement entered into (directly or through an intermediary) between our Company and any one of the members of the Board of Directors that is not entered into (i) in the ordinary course of our business and (ii) under normal conditions is subject to the prior authorization of the disinterested members of the Board of Directors. The same provision applies to agreements between our Company and another company if one of the members of the Board of Directors is the owner, general partner, manager, director, general manager or member of the executive or supervisory board of the other company, as well as to agreements in which one of the members of the Board of Directors has an indirect interest. The Board of Directors must also authorize any undertaking taken by our Company for the benefit of our Chairman, Chief Executive Officer (directeur général) or his delegates (directeurs généraux délégués) pursuant to which such persons will or may be granted compensation, benefits or any other advantages as a result of the termination of or a change in their offices or following such termination or change. In addition, except with respect to any non-compete indemnity or certain pension benefits, any such termination package: (i) must be authorized by our shareholders through the adoption of a separate general shareholders meeting resolution for each such beneficiary, which authorization must be renewed at each renewal of such beneficiary’s mandate, and (ii) cannot be paid to such beneficiary unless (a) the Board of Directors decides that SANOFI / FORM 20-F 2018 201 ITEM 10. ADDITIONAL INFORMATION such beneficiary has satisfied certain conditions, linked to such beneficiary’s performance measured by our Company’s performance, that must have been defined by the Board of Directors when granting such package, and (b) such decision is publicly disclosed. The maximum total number of authorized but unissued shares as of December 31, 2018 was 140 million, reflecting the unused part of the May 4, 2016 and May 10, 2017 shareholder authorizations to issue shares without preemptive rights, outstanding options to subscribe for shares, and awards of shares. Directors’ compensation The aggregate amount of attendance fees (jetons de présence) of the Board of Directors is determined at the Shareholders’ Ordinary General Meeting. The Board of Directors then divides this aggregate amount among its members by a simple majority vote. In addition, the Board of Directors may grant exceptional compensation individual (rémunérations exceptionnelles) directors on a case-by-case basis for special assignments following the procedures described above at “– Transactions in Interested.” The Board of Which Directors Are Materially Directors may also authorize the reimbursement of travel and accommodation expenses, as well as other expenses incurred by Directors in the corporate interest. See also “Item 6. Directors, Senior Management and Employees.” to Board of Directors’ borrowing powers All loans or borrowings on behalf of the Company may be decided by the Board of Directors within the limits, if any, imposed by the Shareholders’ General Meeting. There are currently no loans or borrowings that the Board of Directors may approve. imposed on the amounts of limits Directors’ age limits For a description of the provisions of our Articles of Association relating to age limits applicable to our Directors, see “Item 6. Directors, Senior Management and Employees.” Directors’ Share Ownership requirements Pursuant to the Board Charter, our Directors are required to hold at least 1,000 shares during the term of their appointment. Share Capital As of December 31, 2018, our share capital amounted to €2,494,790,944, divided into 1,247,395,472 outstanding shares with a par value of €2 per share. All of our outstanding shares are of the same class and are fully paid. Of these shares, we or entities controlled by us held 1,941,087 shares (or 0.16% of our outstanding share capital), as treasury shares as of such date. As of December 31, 2018, the carrying amount of such shares was €145 million. At an extraordinary general meeting held on May 10, 2017, our shareholders authorized our Board of Directors to increase our share capital, through the issuance of shares or other securities giving access to the share capital with or without preemptive rights, by an aggregate maximum nominal amount of €1.289 billion. See “– Changes in Share Capital – Increases in Share Capital,” below. 202 SANOFI / FORM 20-F 2018 Stock Options Types of Stock Options We have two types of stock options outstanding: options to subscribe for shares (options de souscription d’actions) and options to purchase shares (options d’achat d’actions). Upon exercise of an option to subscribe for shares, we issue new shares, whereas upon exercise of an option to purchase shares, the option holder receives existing shares. We purchase our shares on the market prior to the vesting of the options to purchase in order to provide the option holder with shares upon exercise. Because the exercise of options to purchase shares will be satisfied with existing shares repurchased on the market or held in treasury, the exercise of options to purchase shares has no impact on the amount of our share capital. Stock Option Plans Our combined general meeting held on May 4, 2016 authorized our Board of Directors for a period of 38 months to grant, on one or more occasions, options to subscribe for shares and options to purchase shares in favor of persons to be chosen by the Board of Directors from among the salaried employees and corporate officers of our Company or of companies or groupings of economic interest of the Group in accordance with Article L. 225-180 of the French Commercial Code. The aggregate number of options to subscribe for shares and options to purchase shares that may be granted under this authorization may not give entitlement to a total number of shares exceeding 0.5% of the share capital as of the date of the decision by the Board of Directors to grant such options. The Board of Directors sets the exercise price of options to subscribe for shares and options to purchase shares. However, the exercise price never incorporates a discount and must be at least equal to the average of the quoted market prices on the 20 trading sessions preceding the date of grant by the Board of Directors. Stock option plans generally provide for a lock-up period of four years and have a duration of ten years. Under such authorization the shareholders expressly waive, in favor of the grantees of options to subscribe for shares, their preemptive rights in respect of shares that are to be issued as and when options are exercised. The Board of Directors is granted full power to implement this authorization and to set the terms and conditions on which options are granted and the arrangements with respect to the dividend entitlement of the shares. ITEM 10. ADDITIONAL INFORMATION See “Item 6. Directors, Senior Management and Employees – E. Share Ownership” for a description of our option plans currently in force. Under the French Commercial Code, treasury shares or shares held by entities controlled by that company are not entitled to voting rights and do not count for quorum purposes. Awards of Shares Our combined general meeting held on May 4, 2016 authorized our Board of Directors for a period of 38 months to allot, on one or more occasions, existing or new restricted shares in favor of persons to be chosen by the Board of Directors from among the salaried employees and corporate officers of our Company or of companies or economic interest groupings of the Group in accordance with Articles L. 225-197-1 et seq. of the French Commercial Code. The existing or new shares allotted under this authorization may not represent more than 1.5% of our share capital as of the date of the decision by the Board of Directors to allot such shares. The authorization provides that allotment of shares to the allottees will become irrevocable at the end of a minimum vesting period of three years. In the case of newly issued shares, the authorization entails the express waiver by the shareholders, in favor of the allottees of restricted shares, of their preemptive rights in respect of shares that are to be issued as and when restricted shares vest. The Board of Directors sets the terms on which restricted shares are granted and the arrangements with respect to the dividend entitlement of the shares. See “Item 6. Directors, Senior Management and Employees – E. Share Ownership” for a description of our restricted shares plans currently in force. Changes in Share Capital in 2017 See Note D.15.1. to our consolidated financial statements included at Item 18 of this annual report. Our Articles of Association allow us to obtain from Euroclear France the name, nationality, address and number of shares held by holders of our securities that have, or may in the future have, voting rights. If we have reason to believe that a person on any list provided by Euroclear France holds securities on behalf of another person, our Articles of Association allow us to request information regarding beneficial ownership directly from such person. See “– B. Memorandum and Articles of Association – Form, Holding and Transfer of Shares,” below. Our Articles of Association provide that Board members are elected on a rolling basis for a maximum tenure of four years. Shareholders’ Agreement We are not aware of any shareholder’s agreement currently in force concerning our shares. Shareholders’ Meetings General In accordance with the provisions of the French Commercial Code, there are three types of shareholders’ meetings: ordinary, extraordinary and special. Ordinary general meetings of shareholders are required for matters such as: ◆ electing, replacing and removing Directors; ◆ appointing independent auditors; ◆ approving the annual financial statements; ◆ declaring dividends or authorizing dividends to be paid in shares, provided the Articles of Association contain a provision to that effect; and Voting Rights ◆ approving share repurchase programs. In general, each shareholder is entitled to one vote per share at any shareholders’ general meeting. Our Articles of Association do not provide for cumulative voting rights. However, our Articles of Association provide that any fully paid-up shares that have been held in registered form under the name of the same shareholder for at least two years acquire double voting rights. The double voting rights cease automatically for any share converted into bearer form or transferred from one owner to another, subject to certain exceptions permitted by law. As of December 31, 2018, there were 149,643,921 shares that were entitled to double voting rights, representing 12% of our total share capital, and approximately 21.45% of the voting rights which can be cast at our shareholders’ general meeting as of that date. Extraordinary general meetings of shareholders are required for approval of matters such as amendments to our Articles of Association, including any amendment required in connection with extraordinary corporate actions. Extraordinary corporate actions include: ◆ changing our Company’s name or corporate purpose; ◆ increasing or decreasing our share capital; ◆ creating a new class of equity securities; ◆ authorizing the issuance of: – shares giving access to our share capital or giving the right to receive debt instruments, or Double voting rights are not taken into account in determining whether a quorum exists. – other securities giving access to our share capital; ◆ establishing any other rights to equity securities; SANOFI / FORM 20-F 2018 203 ITEM 10. ADDITIONAL INFORMATION ◆ selling or transferring substantially all of our assets; and ◆ the voluntary liquidation of our Company. Special meetings of shareholders of a certain category of shares or shares with certain specific rights (such as shares with double voting rights) are required for any modification of the rights derived from that category of shares. The resolutions of the shareholders’ general meeting affecting these rights are effective only after approval by the relevant special meeting. Annual Ordinary Meetings The French Commercial Code requires the Board of Directors to convene an annual ordinary general shareholders’ meeting to approve the annual financial statements. This meeting must be held within six months of the end of each fiscal year. This period may be extended by an order of the President of the Commercial Court. The Board of Directors may also convene an ordinary or extraordinary general shareholders’ meeting upon proper notice at any time during the year. If the Board of Directors fails to convene a shareholders’ meeting, our independent auditors may call the meeting. In case of bankruptcy, the liquidator or court- appointed agent may also call a shareholders’ meeting in some instances. In addition, any of the following may request the court to appoint an agent for the purpose of calling a shareholders’ meeting: ◆ one or several shareholders holding at least 5% of our share capital; ◆ duly qualified associations of shareholders who have held their shares in registered form for at least two years and who together hold at least 1% of our voting rights; ◆ the works council in cases of urgency; or ◆ any interested party in cases of urgency. Notice of Shareholders’ Meetings All prior notice periods provided for below are minimum periods required by French law and cannot be shortened, except in case of a public tender offer for our shares. We must announce general meetings at least thirty-five days in advance by means of a preliminary notice (avis de réunion), which is published in the Bulletin des Annonces Légales Obligatoires, or BALO. The preliminary notice must first be sent to the French Financial markets authority (Autorité des marchés financiers, the “AMF”), with an indication of the date on which it will be published in the BALO. It must be published on our website at least twenty-one days prior to the general meeting. The preliminary notice must contain, among other things, the agenda, a draft of the resolutions to be submitted to the shareholders for consideration at the general meeting and a detailed description of the voting procedures (proxy voting, electronic voting or voting by mail), the procedures permitting shareholders to submit additional resolutions or items to the agenda and to ask written questions to the Board of Directors. 204 SANOFI / FORM 20-F 2018 The AMF also recommends that, prior to or simultaneously with the publication of the preliminary notice, we publish a summary of the notice indicating the date, time and place of the meeting in a newspaper of national circulation in France and on our website. At least fifteen days prior to the date set for a first convening, and at least ten days prior to any second convening, we must send a final notice (avis de convocation) containing the final agenda, the date, time and place of the meeting and other information related to the meeting. Such final notice must be sent by mail to all registered shareholders who have held shares in registered form for more than one month prior to the date of the final notice and by registered mail, if shareholders have asked for it and paid the corresponding charges. The final notice must also be published in a newspaper authorized to publish legal announcements in the local administrative department (département) in which our Company is registered as well as in the BALO, with prior notice having been given to the AMF for informational purposes. Even if there are no proposals for new resolutions or items to be submitted to the shareholders at the meeting, we must publish a legal final notice announcements local administrative department (départment) in which our Company is registered as well as in the BALO. in a newspaper authorized to publish the in Other issues In general, shareholders can only take action at shareholders’ meetings on matters listed on the agenda. As an exception to this rule, shareholders may the appointment and dismissal of directors even if this action has not been included on the agenda. take action with respect to Additional resolutions to be submitted for approval by the shareholders at the shareholders’ meeting may be proposed to the Board of Directors, for recommendation to the shareholders at any time from the publication of the preliminary notice in the BALO until twenty-five days prior to the general meeting and in any case no later than twenty days following the publication of the preliminary notice in the BALO by: ◆ one or several shareholders together holding a specified percentage of shares; ◆ a duly qualified association of shareholders who have held their shares in registered form for at least two years and who together hold at least 1% of our voting rights; or ◆ the works council. Within the same period, the shareholders may also propose additional items (points) to be submitted and discussed during the shareholders’ meeting, without a shareholders’ vote. The shareholders must substantiate the reasons for their proposals of additional items. The resolutions and the list of items added to the agenda of the shareholders’ meeting must be promptly published on our website. ITEM 10. ADDITIONAL INFORMATION The Board of Directors must submit the resolutions to a vote of the shareholders after having made a recommendation thereon. The Board of Directors may also comment on the items that are submitted to the shareholders’ meeting. before 3 p.m. Paris time, on the day prior to the general meeting). A shareholder may grant proxies to any natural person or legal entity. The agent may be required to disclose certain information to the shareholder or to the public. Following the date on which documents must be made available to the shareholders (including documents to be submitted to the shareholders’ meeting and resolutions proposed by the Board of Directors, which must be published on our website at least twenty-one days prior to the general meeting), shareholders may submit written questions to the Board of Directors relating to the agenda for the meeting until the fourth business day prior to the general meeting. The Board of Directors must respond to these questions during the meeting or may refer to a Q&A section located on our website in which the question submitted by a shareholder has already been answered. Alternatively, the shareholder may send us a blank proxy without nominating any representative. In this case, the chairman of the meeting will vote the blank proxies in favor of all resolutions proposed or approved by the Board of Directors and against all others. With respect to votes by mail, we must send shareholders a voting form upon request or must make available a voting form on our website at least twenty-one days before the general meeting. The completed form must be returned to us at least three days prior to the date of the shareholders’ meeting. For holders of registered shares, in addition to traditional voting by mail, instructions may also be given via the internet. Attendance at Shareholders’ Meetings; Proxies and votes by mail Quorum In general, all shareholders may participate in general meetings either in person or by proxy. Shareholders may vote in person, by proxy or by mail. The right of shareholders to participate in general meetings is subject to the recording (inscription en compte) of their shares on the second business day, zero hour (Paris time), preceding the general meeting: ◆ for holders of registered shares: in the registered shareholder account held by the Company or on its behalf by an agent appointed by it; and ◆ for holders of bearer shares: in the bearer shareholder account held by the accredited financial intermediary with whom such holders have deposited financial intermediaries shall deliver to holders of bearer shares a shareholding certificate (attestation de participation) enabling them to participate in the general meeting. their shares; such Attendance in person The French Commercial Code requires that shareholders holding in the aggregate at least 20% of the shares entitled to vote must be present in person, or vote by mail or by proxy, in order to fulfill the quorum requirement for: ◆ an ordinary general meeting; and ◆ an extraordinary general meeting where the only resolutions pertain to either (a) a proposed increase in our share capital through incorporation of reserves, profits or share premium, or (b) the potential issuance of free share warrants in the event of a public tender offer for our shares (article L. 233-32 of the French Commercial Code). For any other extraordinary general meeting the quorum requirement is at least 25% of the shares entitled to vote, held by shareholders present in person, voting by mail or by proxy. For a special meeting of holders of a certain category of shares, the quorum requirement is one third of the shares entitled to vote in that category, held by shareholders present in person, voting by mail or by proxy. Any shareholder may attend ordinary general meetings and extraordinary general meetings and exercise its voting rights subject to the conditions specified in the French Commercial Code and our Articles of Association. If a quorum is not present at a meeting, the meeting is adjourned. However, only questions that were on the agenda of the adjourned meeting may be discussed and voted upon once the meeting resumes. Proxies and votes by mail Proxies are sent to any shareholder upon a request received between the publication of the final notice of meeting and six days before the general meeting and must be made available on our website at least twenty-one days before the general meeting. In order to be counted, such proxies must be received at our registered office, or at any other address indicated on the notice of the meeting or by any electronic mail indicated on the notice of the meeting, prior to the date of the meeting (in practice, we request that shareholders return proxies at least three business days prior to the meeting; electronic proxies must be returned In When an adjourned meeting is resumed, there is no quorum requirement for meetings cited in the first paragraph of this “Quorum” section. the case of any other reconvened extraordinary general meeting or special meeting, the quorum requirement is 20% of the shares entitled to vote (or voting shares belonging to the relevant category for special meetings of holders of shares of such specific category), held by shareholders present in person or voting by mail or by proxy. If a quorum is not met, the reconvened meeting may be adjourned for a maximum of the same quorum two months with requirement. No deliberation or action by the shareholders may take place without a quorum. SANOFI / FORM 20-F 2018 205 ITEM 10. ADDITIONAL INFORMATION Votes required for shareholder action Dividends The affirmative vote of a simple majority of the votes cast may pass a resolution at either an ordinary general meeting or an extraordinary general meeting where the only resolution(s) pertain to either (a) a proposed increase in our share capital through incorporation of reserves, profits or share premium, or (b) the potential issuance of free share warrants in the event of a public tender offer for our shares (article L. 233-32 of the French Commercial Code). At any other extraordinary general shareholders’ meeting and at any special meeting of holders of a specific category of shares, the affirmative vote of two-thirds of the votes cast is required. Abstention from voting by those present or those represented by proxy or voting by mail is counted as a vote against the resolution submitted to a shareholder vote. Changes to shareholders’ rights Under French law, the affirmative vote of two-thirds of the votes cast at an extraordinary shareholders’ meeting is required to change our Articles of Association, which set out the rights attached to our shares, except for capital increases through incorporation of reserves, profits or share premium, or through the issuance of free share warrants in the event of a public tender offer for our shares (article L. 233-32 of the French Commercial Code). The rights of a class of shareholders can be amended only after a special meeting of the class of shareholders affected has taken place. The voting requirements applicable to this type of special meeting are the same as those applicable to an extraordinary general shareholders’ meeting. The quorum requirements for a special meeting are one-third of the voting shares, or 20% upon resumption of an adjourned meeting. A unanimous shareholders’ vote is required to increase the liabilities of shareholders. Financial Statements and other communications with shareholders We may only distribute dividends out of our “distributable profits,” plus any amounts held in our reserves that the shareholders decide to make available for distribution, other than those reserves that are specifically required by law or our Articles of Association. “Distributable profits” consist of our unconsolidated net profit in each fiscal year, as increased or reduced by any profit or less any contributions to the reserve accounts pursuant to law or our Articles of Association. from prior years, loss carried forward Legal reserve The French Commercial Code requires us to allocate 5% of our unconsolidated net profit for each year to our legal reserve fund before dividends may be paid with respect to that year. Funds must be allocated until the amount in the legal reserve is equal to 10% of the aggregate par value of the issued and outstanding share capital. This restriction on the payment of dividends also applies to each of our French subsidiaries on an unconsolidated basis. At December 31, 2018, our legal reserve amounted to €282,280,863.40, representing 11.31% of the aggregate par value of our issued and outstanding share capital as of that date. The legal reserve of any company subject to this requirement may serve to allocate losses that may not be allocated to other reserves, or may be distributed to shareholders upon liquidation of the company. Approval of dividends According to the French Commercial Code, our Board of Directors may propose a dividend for approval by shareholders at the annual general shareholders’ meeting. If we have earned distributable profits since the end of the preceding fiscal year, as in an interim income statement certified by our reflected independent auditors, our Board of Directors may distribute interim dividends to the extent of the distributable profits for the period covered by the interim income statement. Our Board of Directors exercises this authority subject to French law and regulations and may do so without obtaining shareholder approval. In connection with any shareholders’ meeting, we must provide a set of documents which includes our annual report. Distribution of dividends We must also provide on our website at least twenty-one days before a shareholders’ meeting certain information and a set of documents that includes the preliminary notice, the proxies and voting forms, the resolutions proposed by the Board of Directors, and the documents to be submitted to the shareholders’ meeting pursuant to articles L. 225-115 and R. 225-83 of the French Commercial Code, etc. The resolutions and the list of items added to the agenda of the shareholders’ meeting must be promptly published on our website. Dividends are distributed to shareholders pro rata according to their respective holdings of shares. In the case of interim dividends, distributions are made to shareholders on the date set by our Board of Directors during the meeting in which the distribution of interim dividends is approved. The actual dividend payment date is decided by the shareholders at an ordinary general shareholders’ meeting or by our Board of Directors in the absence of such a decision by the shareholders. Shareholders that own shares on the actual payment date are entitled to the dividend. 206 SANOFI / FORM 20-F 2018 ITEM 10. ADDITIONAL INFORMATION Dividends may be paid in cash or, if the shareholders’ meeting so decides, in kind, provided that all shareholders receive a whole number of assets of the same nature paid in lieu of cash. Our Articles of Association provide that, subject to a decision of the shareholders’ meeting taken by ordinary resolution, each shareholder may be given the choice to receive his dividend in cash or in shares. Timing of payment According to the French Commercial Code, we must pay any existing dividends within nine months of the end of our fiscal year, unless otherwise authorized by court order. Dividends on shares that are not claimed within five years of the date of declared payment revert to the French State. Changes in share capital Increases in Share Capital As provided for by the French Commercial Code, our share capital may be increased only with shareholders’ approval at an extraordinary general shareholders’ meeting the recommendation of our Board of Directors. The shareholders may delegate to our Board of Directors either the authority (délégation de compétence) or the power (délégation de pouvoir) to carry out any increase in share capital. Our Board of Directors may further delegate this power to our Chief Executive Officer or, subject to our Chief Executive Officer’s approval, to his delegates (directeurs généraux délégués). following Increases in our share capital may be effected by: ◆ issuing additional shares; ◆ increasing the par value of existing shares; ◆ creating a new class of equity securities; or ◆ exercising the rights attached to securities giving access to the share capital. Increases in share capital by issuing additional securities may be effected through one or a combination of the following: ◆ in consideration for cash; ◆ in consideration for assets contributed in kind; ◆ through an exchange offer; ◆ by conversion of previously issued debt instruments; ◆ by capitalization of profits, reserves or share premium; or ◆ subject to various conditions, in satisfaction of debt incurred by our Company. Decisions to increase the share capital through the capitalization of reserves, profits and/or share premium or through the issuance of free share warrants in the event of a public tender offer for our shares (article L. 233-32 of the French Commercial Code) require shareholders’ approval at an extraordinary general shareholders’ meeting, acting under the quorum and majority requirements applicable to ordinary shareholders’ meetings. Increases effected by an increase in the par value of shares require unanimous approval of the shareholders, unless effected by capitalization of reserves, profits or share premium. All other capital require shareholders’ approval at an extraordinary general shareholders’ meeting acting under the regular quorum and majority requirements for such meetings. See “– Quorum” and “– Votes Required for Shareholder Action” above. increases On May 10, 2017, our shareholders approved various resolutions delegating to the Board of Directors the authority to increase our share capital through the issuance of shares or securities giving access to the share capital, subject to an overall cap set at €1.289 billion. This cap applies to all the resolutions whereby the extraordinary shareholders’ meeting delegated to the Board of Directors the authority to increase the share capital, it being also specified that: ◆ the maximum aggregate par value of capital increases that may be carried out with preemptive rights maintained was set at €1.289 billion; ◆ the maximum aggregate par value of capital increases that may be carried out by public offering without preemptive rights was set at €240 million; ◆ the maximum aggregate par value of capital increases that may be carried out by private placement without preemptive rights was set at €240 million; ◆ capital increases resulting in the issuance of securities to members of employee savings plans are limited to 1% of the share capital as computed on the date of the Board of Directors’ decision issue such securities, and such issuances may be made at a discount of 20% (or 30%) if certain French law restrictions on resales were to apply, i.e. a lock up period of five years (or 10 years). to At its meeting of March 6, 2018, our Board of Directors decided to delegate to the Chief Executive Officer the powers necessary to carry out a capital increase reserved for members of the Group savings program. Every employee subscribing for at least five shares received one additional new share as an employer’s top-up contribution. Beyond the first twenty shares there was no entitlement to any further shares by way of employer’s top-up contribution (every employee subscribing for twenty shares received top-up four additional shares as an employer’s contribution). The subscription period was open during June 2018. 27,680 employees from nearly 80 countries subscribed for a total of 2,298,783 shares. Of these, 1,120,411 shares were subscribed via FCPE Actions Sanofi, the dedicated employee share ownership fund for employees of our French subsidiaries; the dedicated 488,528 shares via FCPE Sanofi Shares, employee share ownership fund for employees of our foreign subsidiaries; and 689,844 shares directly by employees who were eligible for the employee share ownership plan but were in SANOFI / FORM 20-F 2018 207 ITEM 10. ADDITIONAL INFORMATION countries where local regulations did not allow the use of a dedicated employee share ownership fund. A total of 102,401 shares were issued by way of employer’s top-up contribution. Of these, 43,140 were issued to FCPE Actions Sanofi; 28,454 to FCPE Sanofi Shares; and 30,807 directly to employees who were eligible for the employee share ownership plan but were in countries where local regulations did not allow the use of a dedicated employee share ownership fund. Voting rights attached to shares held by FCPE Actions Sanofi are exercised individually by the employees who hold units in the fund; fractional rights are exercised by the fund’s supervisory board. Voting rights attached to shares held by FCPE Sanofi Shares are also exercised individually by the employees who hold units in the fund; any rights not exercised by them are exercised by the fund’s supervisory board. In each case, the supervisory board includes an equal number of representatives of employees and of Sanofi management. On May 4, 2016, our shareholders approved resolutions delegating to the Board of Directors the authority to increase the share capital by granting options to our employees and/or corporate officers, subject to the overall cap mentioned above and under the following terms and conditions: ◆ the authorization is valid for a period of 38 months, and any options granted may not give entitlement to a total number of shares exceeding 0.5% of the share capital as computed on the date of the decision of the Board of Directors to grant such options; see “– Stock Options” above; On May 4, 2016, our shareholders also approved resolutions delegating to the Board of Directors the authority to increase the share capital by granting existing or new restricted shares to our employees and/or corporate officers, subject to the overall cap mentioned above and under the following terms and conditions: ◆ the authorization is valid for a period of 38 months, and is subject to a limit of 1.5% of the share capital as computed on the date of the decision of the Board of Directors to allot such shares; see “– Awards of Shares” above. See also “Item 6. Directors, Senior Management and Employees – E. Share Ownership”. Decreases in share capital In accordance with the provisions of the French Commercial Code, any decrease in our share capital requires approval by the shareholders entitled to vote at an extraordinary general meeting. The share capital may be reduced either by decreasing the par value of the outstanding shares or by reducing the number of outstanding shares. The number of outstanding shares may be reduced either by an exchange of shares or by the repurchase and cancellation of shares. Holders of each class of shares must be treated equally unless each affected shareholder agrees otherwise. In addition, specific rules exist to permit the cancellation of treasury shares, by which the shareholders’ meeting may authorize the cancellation of up to a maximum of 10% of a company’s share capital within any 24-month period. On May 10, 2017, our shareholders delegated to our Board of Directors for 26 months the right to reduce our share capital by canceling our own shares. Preemptive rights According to the French Commercial Code, if we issue additional securities to be paid in cash, current shareholders will have preemptive rights to these securities on a pro rata basis. These preemptive rights require us to give priority treatment to current shareholders. The rights entitle the individual or entity that holds them to subscribe to the issuance of any securities that may increase the share capital of our Company by means of a cash payment or a set-off of cash debts. Preemptive rights are transferable during the subscription period relating to a particular offering. These rights may also be listed on Euronext Paris Stock Exchange. Preemptive rights with respect to any particular offering may be waived by the affirmative vote of shareholders holding two-thirds of the shares entitled to vote at an extraordinary general meeting. Our Board of Directors and our independent auditors are required by French law to present reports that specifically address any proposal to waive preemptive rights. In the event of a waiver, the issuance of securities must be completed within the period prescribed by law. Shareholders may also notify us that they wish to waive their own preemptive rights with respect to any particular offering if they so choose. The shareholders may decide at extraordinary general meetings to give the existing shareholders a non-transferable priority right to subscribe to the new securities, for a limited period of time. In the event of a capital increase without preemptive rights to existing shareholders, French law requires that the capital increase be made at a price equal to or exceeding the weighted average market prices of the shares for the last three trading days on Euronext Paris Stock Exchange prior the determination of the subscription price of the capital increase less 5%. to Form, holding and transfer of shares Form of shares Our Articles of Association provide that the shares may be held in either bearer form or registered form at the option of the holder. Holding of shares In accordance with French law relating to the dematerialization of securities, shareholders’ ownership rights are represented by book entries instead of share certificates. We maintain a share account with Euroclear France (a French clearing system, which holds securities for its participants) for all shares in registered 208 SANOFI / FORM 20-F 2018 form, which is administered by BNP Paribas Securities Services. In addition, we maintain separate accounts in the name of each shareholder either directly or, at a shareholder’s request, through the shareholder’s accredited intermediary. Each shareholder account shows the name of the holder and the number of shares held. BNP Paribas Securities Services issues confirmations registered (attestations d’inscription en compte) shareholder as to shares registered in the shareholder’s account, but these confirmations are not documents of title. to each Shares of a listed company may also be issued in bearer form. Shares held in bearer form are held and registered on the shareholder’s behalf in an account maintained by an accredited financial intermediary and are credited to an account at Euroclear France maintained by such intermediary. Each accredited financial intermediary maintains a record of shares held through it and provides the account holder with a securities account statement. Transfers of shares held in bearer form may only be made through accredited financial intermediaries and Euroclear France. Shares held by persons who are not domiciled in France may be registered in the name of intermediaries who act on behalf of one or more investors. When shares are so held, we are entitled to request from such intermediaries the names of the investors. Also, we may request any legal entity (personne morale) which holds more than 2.5% of our shares or voting rights to disclose the name of any person who owns, directly or indirectly, more than one-third of its share capital or of its voting rights. A person not providing the complete requested information in time, or who provides incomplete or false information, will be deprived of its voting rights at shareholders’ meetings and will have its payment of dividends withheld until it has provided the requested information in strict compliance with French law. If such person acted willfully, the person may be deprived by a French court of either its voting rights or its dividends or both for a period of up to five years. Transfer of shares Our Articles of Association do not contain any restrictions relating to the transfer of shares. Registered shares must be converted into bearer form before being transferred on the Euronext Paris Stock Exchange on the shareholders’ behalf and, accordingly, must be registered in an account maintained by an accredited financial intermediary on the shareholders’ behalf. A shareholder may initiate a transfer by giving financial intermediary. relevant accredited instructions the to A fee or commission is payable to the broker involved in the transaction, regardless of whether the transaction occurs within or outside France. Registration duty is currently payable in France if a written deed of sale and purchase (acte) is executed in France or outside France with respect to the shares of the Company. ITEM 10. ADDITIONAL INFORMATION Redemption of shares Under French law, our Board of Directors is entitled to redeem a set number of shares as authorized by the extraordinary shareholders’ meeting. In the case of such an authorization, the shares redeemed must be cancelled within one month after the end of the offer to purchase such shares from shareholders. However, shares redeemed on the open market do not need to be cancelled if the company redeeming the shares grants options on or awards those shares to its employees within one year following the acquisition. See also “– Trading in Our Own Shares” below. Sinking fund provisions Our Articles of Association do not provide for any sinking fund provisions. Liability to further capital calls Shareholders are liable for corporate liabilities only up to the par value of the shares they hold; they are not liable to further capital calls. Liquidation rights If we are liquidated, any assets remaining after payment of our debts, liquidation expenses and all of our remaining obligations will first be distributed to repay in full the par value of our shares. Any surplus will be distributed pro rata among shareholders in proportion to the par value of their shareholdings. Requirements for holdings exceeding certain percentages The French Commercial Code provides that any individual or entity, acting alone or in concert with others, that becomes the owner, directly or indirectly, of more than 5%, 10%, 15%, 20%, 25%, 30%, 331/3%, 50%, 662/3%, 90% or 95% of the outstanding shares or voting rights of a listed company in France, such as our Company, or that increases or decreases its shareholding or voting rights above or below any of those percentages, must notify the company, before the end of the fourth trading day following the date it crosses the threshold, of the number of shares it holds and their voting rights. The individual or entity must also notify the AMF before the end of the fourth trading day following the date it crosses any such threshold. The AMF makes the notice public. Pursuant to the French Commercial Code and the AMF General Regulation, the participation thresholds shall be calculated on the basis of the shares and voting rights owned, and shall take into account the shares and voting rights which are deemed to be shares and voting rights owned, even if the individual or entity does not itself hold shares or voting rights. In accordance with this deemed ownership principle, the individual or entity must take into account specific situations where shares and voting SANOFI / FORM 20-F 2018 209 ITEM 10. ADDITIONAL INFORMATION rights are deemed to be shares and voting rights owned when calculating the number of shares owned to be disclosed in the notifications to the Company and to the AMF. It includes among others situations where an individual or entity is entitled to acquire issued shares at its own initiative, immediately or at the end of a maturity period, under an agreement or a financial instrument, without set-off against the number of shares that this individual or entity is entitled to sell under another agreement or financial instrument. The individual or entity required to make such notification shall also take into account issued shares covered by an agreement or cash-settled financial instrument and having an economic effect for said individual or entity that is equivalent to owning such shares. In the cases of deemed ownership described above, the notification shall mention the type of deemed ownership and include a description of the main characteristics of the financial instrument or agreement with specific details required by the AMF General Regulation. The AMF General Regulation provides that shares and voting rights subject to multiple cases of deemed ownership shall only be counted once. When an individual or entity modifies the allocation between the shares it owns and its financial instruments or agreements deemed to be owned shares, it must disclose that change in a new notification. However, the change must only be disclosed if the acquisition of owned shares due to the settlement of the financial instruments or agreements causes the investor to cross a threshold. Subject to certain limited exceptions, French law and AMF regulations impose additional reporting requirements on persons who acquire more than 10%, 15%, 20%, or 25% of the outstanding shares or voting rights of a company listed in France. These persons must file a report with the company and the AMF before the end of the fifth trading day following the date they cross any such threshold. In the report, the acquirer will have to specify its intentions for the following six months including: ◆ whether it acts alone or in concert with others; ◆ the means of financing of the acquisition (the notifier shall indicate in particular whether the acquisition is being financed with equity or debt, the main features of that debt, and, where applicable, the main guarantees given or received by the notifier. The notifier shall also indicate what portion of its holding, if any, it obtained through securities loans); ◆ whether or not it intends to continue its purchases; ◆ whether or not it intends to acquire control of the company in question; ◆ the strategy it contemplates vis-à-vis the issuer; ◆ the way it intends to implement its strategy, including: (i) any plans for a merger, reorganization, liquidation, or partial transfer of a substantial part of the assets of the issuer or of any other entity it controls within the meaning of article L. 233-3 of the French Commercial Code, (ii) any plans to modify the business of the issuer, (iii) any plans to modify articles of association of the issuer, (iv) any plans to delist a category of the issuer’s financial instruments, and (v) any plans to issue the issuer’s financial instruments; ◆ any agreement for the temporary transfer of shares or voting rights of the issuer; ◆ the way it intends to settle its agreements or instruments on the shares or voting rights of the issuer mentioned in Article L. 233- 9,4° and 4° bis of the French Commercial Code; and ◆ whether it seeks representation on the Board of Directors. The AMF makes the report public. Upon any change of intention within the six-month period following the filing of the report, it will have to file a new report for the following six-month period. In order to enable shareholders to give the required notice, we must each month publish on our website and send the AMF a written notice setting forth the total number of our shares and voting rights (including treasury shares) whenever they vary from the figures previously published. If any shareholder fails to comply with an applicable legal notification requirement, the shares in excess of the relevant threshold will be deprived of voting rights for all shareholders’ meetings until the end of a two-year period following the date on which the owner complies with the notification requirements. In addition, any shareholder who fails to comply with these requirements may have all or part of its voting rights suspended for up to five years by the Commercial Court at the request of our Chairman, any shareholder or the AMF, and may be subject to criminal fines. Under AMF regulations, and subject to limited exemptions granted by the AMF, any person or entity, acting alone or in concert, that crosses the threshold of 30% of the share capital or voting rights of a French listed company must initiate a public tender offer for the balance of the shares and securities giving access to the share capital or voting rights of such company. Cash-settled derivative instruments or agreements mentioned in Article L. 233-9, 4° bis of the French Commercial Code are not included in the calculation of the number of shares related to the mandatory public tender offer. In addition, our Articles of Association provide that any person or entity, acting alone or in concert with others, who becomes the owner of 1%, or any multiple of 1% of our share capital or our voting rights, even beyond the minimum declaration limits permitted by the legal and regulatory provisions, must notify us by certified mail, return receipt requested, within five trading days, of the total number of shares and securities giving access to our share capital and voting rights that such person then owns. The same provisions of our Articles of Association apply whenever such owner increases or decreases its ownership of our share capital or our voting rights to such extent that it goes above or below one of the thresholds described in the preceding sentence. Any person or entity that fails to comply with such notification requirement will, upon the request of one or more shareholders holding at least 5% of our share capital or of our 210 SANOFI / FORM 20-F 2018 voting rights made at the general shareholders’ meeting, be deprived of voting rights with respect to the shares in excess of the relevant threshold for all shareholders’ meetings until the end of a two-year period following the date on which such person or entity complies with the notification requirements. Change in control/anti-takeover There are no provisions in our Articles of Association that would have the effect of delaying, deferring or preventing a change in control of our Company or that would operate only with respect to a merger, acquisition or corporate restructuring involving our Company or any of our subsidiaries. Further, there are no provisions in our Articles of Association that allow the issuance of preferred stock upon the occurrence of a takeover attempt or the “anti-takeover” measures without a addition of other shareholder vote. Our Articles of Association do not include any provisions discriminating against any existing or prospective holder of our securities as a result of such shareholder owning a substantial number of shares. Trading in our own shares through a Under French law, Sanofi may not issue shares to itself. However, we may, either directly or financial intermediary acting on our behalf, acquire up to 10% of our issued share capital within a maximum period of 18 months, provided our shares are listed on a regulated market. Prior to acquiring our shares, we must publish a description of the share repurchase program rachat d’actions). (descriptif du programme de We may not cancel more than 10% of our issued share capital over any 24-month period. Our repurchase of shares must not result in our Company holding, directly or through a person acting on our behalf, more than 10% of our issued share capital. We must hold any shares that we repurchase in registered form. These shares must be fully paid up. Shares repurchased by us continue to be deemed “issued” under French law but are not entitled to dividends or voting rights so long as we hold them directly or indirectly, and we may not exercise the preemptive rights attached to them. The shareholders, at an extraordinary general shareholders meeting, may decide not to take these shares into account in determining the preemptive rights attached to the other shares. However, if the shareholders decide to take them into account, we must either sell the rights attached to the shares we hold on the market before the end of the subscription period or distribute them to the other shareholders on a pro rata basis. On May 2, 2018, our shareholders approved a resolution authorizing us to repurchase up to 10% of our shares over an 18-month period. Under this authorization, the purchase price for ITEM 10. ADDITIONAL INFORMATION each Sanofi ordinary share may not be greater than €120.00 and the maximum amount that Sanofi may pay for the repurchases is €15,048,238,800. This authorization was granted for a period of 18 months from May 2, 2018 and cancelled and replaced the authorization granted to the Board of Directors by the combined general meeting held on May 10, 2017. A description of this share repurchase program as adopted by the combined general meeting held on May 2, 2018 (descriptif du programme de rachat d’actions) was published on March 8, 2018. Purposes of share repurchase programs Under the European regulation 596/2014, dated April 16, 2014 on market abuse and its delegated regulation 2016/1052 on repurchase programs and stabilization measures, dated March 8, 2016 (which we refer to in this section as the “Regulation”), an issuer will benefit from a safe harbor for share transactions that comply with certain conditions relating in particular to the pricing, volume and timing of transactions (see below) and that are made in connection with a share repurchase program the purpose of which is: ◆ to reduce the share capital through the cancellation of treasury shares; ◆ to meet obligations arising from debt financial instruments that are exchangeable into equity instruments; and/or ◆ to meet obligations arising from share option programs or other allocations of shares to employees or to members of the administrative, management or supervisory bodies of the issuer or of an associate company. Safe harbor transactions will by definition not be considered market abuses under the Regulation. Transactions that are carried out for other purposes than those mentioned above do not qualify for the safe harbor. However, as permitted by the Regulation, which provides for a presumption of legitimacy for existing market practices that do not constitute market manipulation and that conform with certain criteria, the AMF has established as a French accepted market practice, which from a presumption of legitimacy, the use of liquidity agreements for share purchases that are entered into with a financial services intermediary and that comply with the criteria set out by the AMF. therefore benefits The AMF confirmed that all transactions directed at maintaining the liquidity of an issuer’s shares must be conducted pursuant to a liquidity agreement with a financial services intermediary acting independently. As of July 3, 2016, the purchase of shares that are subsequently used as acquisition currency in a business combination transaction, which the AMF previously permitted as an accepted market practice, is no longer considered as such, although such practice, while not benefiting from the presumption of legitimacy, is not prohibited under the Regulation. SANOFI / FORM 20-F 2018 211 ITEM 10. ADDITIONAL INFORMATION Pricing, volume and other restrictions In order to qualify for the safe harbor described above, the issuer must generally comply with the following pricing and volume restrictions: ◆ a share purchase must not be made at a price higher than the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out; and ◆ subject to certain exceptions for illiquid securities, the issuer must not purchase on any trading day more than 25% of the average daily volume of the shares on the regulated market on which the purchase is carried out. The average daily volume figure must be based on the average daily volume traded in the month preceding the month of public disclosure of the share repurchase program and fixed on that basis for the authorized period of that program. If the program does not make reference to this volume, the average daily volume figure must be based on the average daily volume traded in the 20 trading days preceding the date of purchase. In addition, unless the issuer has in place a time-scheduled repurchase program or the repurchase program is lead-managed by an investment firm or a credit institution which makes its trading decisions concerning the timing of the purchase of the issuer’s shares independently of the issuer, the issuer must not, for the duration of the repurchase program, engage in the following activities: ◆ selling its own shares; law of the Member State ◆ effecting any transaction during a closed period imposed by the applicable the transaction occurs (i.e. under French law, during the period between the date on which the company has knowledge of insider information and the date on which such information is made public and during the 30 calendar day period before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public); or in which ◆ effecting any transaction in securities with respect to which the issuer has decided to delay the public disclosure of inside information, in accordance with applicable rules. also be re-allocated to one of the purposes contemplated by the Regulation or sold in compliance with AMF requirements. Shares repurchased with a view to their cancellation must be cancelled within 24 months following their acquisition. During the year ended December 31, 2018, we used the authority delegated by our shareholders to repurchase our shares on the stock market. Pursuant to our share repurchase programs authorized by our shareholders on May 10, 2017 and on May 2, 2018, we repurchased 15,374,665 of our shares for a weighted average price of €71.55, i.e. a total cost of €1,100 million. Brokerage fees and financial transaction taxes (net of income taxes) amounted to €3.3 million. Our Company did not resort to derivatives to repurchase our own shares. On April 26, 2018, the Board of Directors cancelled 7,239,803 treasury shares repurchased between October 2017 and the end of March 2018 pursuant to the share repurchase program of the Company. On December 18, 2018, the Board of Directors cancelled 5,106,804 treasury shares repurchased between April and November 2018 pursuant to the share repurchase program of the Company. During 2018, pursuant to the liquidity contract, Rothschild & Cie: ◆ purchased 601,296 of our shares at an average weighted price of €74.58 for a total amount of €44,842,701; and ◆ sold 651,046 of our shares at an average weighted price of €74.43 for a total amount of €48,723,473. In 2018, of the 104,701 shares allocated to stock purchase option plans outstanding at December 31, 2017, 24,030 shares were transferred to grantees of options. In 2018, in addition to the 19,275 shares allocated to restricted share plans outstanding at December 31, 2017, Sanofi: ◆ purchased 3,028,058 of its shares at an average weighted price of €72.88 for a total amount of €220,690,339; and ◆ transferred 1,186,917 of to beneficiaries of performance shares at an average weighted price of €67.19 for a total amount of €78,865,214. its shares Use of share repurchase programs Pursuant to the AMF rules, issuers must immediately allocate the repurchased shares to one of the purposes provided for in the Regulation and must not subsequently use the shares for a different purpose. As an exception to the foregoing, shares repurchased with a view to covering stock option plans may, if no longer needed for this purpose, be re-allocated for cancellation or sold in compliance with AMF requirements relating in particular to blackout periods. Shares repurchased in connection with one of the market practices authorized by the AMF (see above) may result, as of December 31, 2018, all of our As a 1,941,087 treasury shares, representing 0.16% of our share capital, were allocated to outstanding stock purchase option plans and restricted share plans. At the same date, none of the shares was allocated to the liquidity account or for the purpose of cancellation. As of December 31, 2018, we directly owned 1,941,087 Sanofi shares with a par value of €2 representing around 0.16% of our share capital and with an estimated value of €145 million, based on the share price at the time of purchase. 212 SANOFI / FORM 20-F 2018 ITEM 10. ADDITIONAL INFORMATION Reporting obligations Pursuant to the Regulation, the AMF Regulation and the French Commercial Code, issuers trading in their own shares are subject to the following reporting obligations: ◆ issuers must report all transactions in their own shares to the competent authority of each trading venue on which the shares are admitted to trading or are traded within seven trading days of transaction in a prescribed format, unless such transactions are carried out pursuant to a liquidity agreement that complies with the ethical code approved by the AMF; the ◆ issuers must declare to the AMF on a monthly basis all transactions completed under the share repurchase program unless they provide the same information on a weekly basis; and ◆ post on its website the transactions disclosed and keep that information available to the public for at least a 5-year period from the date of public disclosure. Ownership of shares by non-French persons The French Commercial Code and our Articles of Association currently do not limit the right of non-residents of France or non-French persons to own or, where applicable, to vote our securities. However, non-residents of France must file an administrative notice with the French authorities in connection with certain direct and indirect investments in us, including the acquisition of a controlling interest in our Company. Under existing administrative rulings, ownership of 331/3% or more of our share capital or voting rights is regarded as a controlling interest, but a lower percentage might be held to be a controlling interest factors in certain circumstances depending upon such as: ◆ the acquiring party’s intentions; ◆ the acquiring party’s ability to elect directors; or ◆ financial reliance by the company on the acquiring party. Moreover, certain foreign investments in companies incorporated under French laws are subject to prior authorization from the French Minister of the Economy, where all or part of the target’s business and activity relate to a strategic sector, such as energy, transportation, public health, telecommunications, etc. Enforceability of civil liabilities We are a limited liability company (société anonyme) organized under the laws of France, and most of our officers and directors reside outside the United States. In addition, a substantial portion of our assets is located in France. As a result, investors may find it difficult or be unable to effect service of process within the United States upon or obtain jurisdiction over our Company or our officers and directors in US courts in actions predicated on the civil liability provisions of US securities law. It may also be difficult to enforce against them, either inside or outside the United States, judgments obtained against them in US courts, or to enforce in US courts, judgments obtained against them in courts in jurisdictions outside the United States, in any action based on civil liabilities under US federal securities laws. There is doubt as to the enforceability against such persons in France, whether in original actions or in actions to enforce judgments of US courts, of liabilities based solely on US federal securities laws. In addition, actions in the United States under US federal securities laws could be affected under certain circumstances by French law No. 68-678 of July 26, 1968 as amended by French Law No. 80-538 of July 16, 1980, which may preclude or restrict the obtaining of evidence in France or from French persons in connection with those actions. Additionally, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. C. Material Contracts The Contingent Value Rights Agreement In connection with its acquisition of Genzyme Corporation, now a wholly-owned subsidiary of Sanofi, Sanofi issued one CVR per Genzyme share. On March 30, 2011, Sanofi and American Stock Transfer & Trust Company, LLC (“AST”), as trustee, entered into a Contingent Value Rights Agreement (the “CVR Agreement”) governing the terms of the CVRs. On May 13, 2016, AST tendered its resignation as trustee under the CVR Agreement to Sanofi. As of June 30, 2016, UMB Bank, National Association replaced AST and is the successor trustee under the CVR Agreement. to cash payments upon Pursuant to the terms of the CVR Agreement, a holder of a CVR is entitled the achievement of contractually defined milestones. The first three milestones (related, respectively, to (i) manufacturing of Cerezyme® and Fabrazyme® (ii) US regulatory approval on or before March 31, 2014 of Lemtrada® for the treatment of MS (the “Approval Milestone”) and (iii) Product Sales Milestone #1, pursuant to which a holder of a CVR would have been entitled to receive $2 per CVR if Lemtrada® sales (as defined in the CVR Agreement) post launch equaled or exceeded a total of $400 million within certain specified periods and territories) were not met. The remaining milestone payments under the CVR Agreement are summarized below: Product Sales Milestone #2 Payment. $3 per CVR upon the first instance in which Lemtrada® sales (as defined in the CVR Agreement) for a four calendar quarter period are equal to or in excess of $1.8 billion. Given that the Approval Milestone was not achieved, an additional $1 per CVR will be paid should Product Sales Milestone #2 be achieved, totaling $4 per CVR. Product Sales Milestone #3 Payment. $4 per CVR upon the first instance in which Lemtrada® sales (as defined in the CVR Agreement) for a four calendar quarter period are equal to or in excess of $2.3 billion (however, no quarter in which Lemtrada® sales (as defined in the CVR Agreement) were used to determine the achievement of Product Sales Milestone #1 or #2 shall be included in the calculation of sales for determining whether Product Sales Milestone #3 has been achieved). SANOFI / FORM 20-F 2018 213 ITEM 10. ADDITIONAL INFORMATION Product Sales Milestone #4 Payment. $3 per CVR upon the first instance in which Lemtrada® sales (as defined in the CVR Agreement) for a four calendar quarter period are equal to or in excess of $2.8 billion (however, no quarter in which Lemtrada® sales (as defined in the CVR Agreement) were used to determine the achievement of Product Sales Milestone #1, #2 or #3 shall be included in the calculation of sales for determining whether Product Sales Milestone #4 has been achieved). On February 7, 2018, Sanofi disclosed that, based upon actual sales trends to date, it does not expect that product sales milestones #2 to #4 will be met. terminate on The CVR Agreement will the earlier of (a) December 31, 2020 and (b) the date that Product Sales Milestone #4 is paid (the “Termination Date”), provided that if any milestone has been achieved prior to the Termination Date, but the associated CVR payment has not been paid on or prior to the Termination Date, the CVR Agreement shall not terminate until such payment has been paid in full in accordance with the terms of the CVR Agreement. Sanofi has agreed to use diligent efforts (as defined in the CVR Agreement), until the CVR Agreement is terminated, to achieve each of the remaining milestones. However, we are not required to take all possible actions to achieve these goals. Sanofi has also agreed to use its commercially reasonable efforts to maintain a listing for trading of the CVRs on the NASDAQ market. For more information on Lemtrada® see “Item 4.B Business Overview – Pharmaceutical Products – Multiple Sclerosis”. The CVR Agreement does not prohibit Sanofi or any of its subsidiaries or affiliates (as defined in the CVR Agreement) from acquiring the CVRs, whether in open market transactions, private transactions or otherwise. Sanofi has certain disclosure obligations in connection with such acquisitions under the CVR Agreement. Sanofi may also, subject to certain terms and conditions as set forth in the CVR Agreement, optionally purchase and cancel all (but not less than all) of the outstanding CVRs at a cash price as set forth in the CVR Agreement if (i) the volume-weighted average price paid per CVR for all CVRs traded over the forty-five trading days prior to such date is less than fifty cents and (ii) Lemtrada® sales (as defined the CVR Agreement) in the four calendar quarters ended immediately prior to such date are less than $1 billion in the aggregate. in A copy of the form of CVR Agreement is on file with the SEC as Annex B to Amendment No. 2 to the Registration Statement on Form F-4 filed with the Securities and Exchange Commission on March 24, 2011. Reference is made to such exhibit for a more complete description of the terms and conditions of the CVR Agreement, and the foregoing summary of such terms and conditions is qualified in its entirety by such exhibit. D. Exchange Controls French exchange control regulations currently do not limit the amount of payments that we may remit to non-residents of France. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a non-resident be handled by an accredited intermediary. E. Taxation General The following generally summarizes the material French and US federal income tax consequences to US holders (as defined below) of purchasing, owning and disposing of our ADSs and ordinary shares (collectively the “Securities”). This discussion is intended only as a descriptive summary and does not purport to be a complete analysis or listing of all potential tax effects of the purchase, ownership or disposition of our Securities. All of the following is subject to change. Such changes could apply retroactively and could affect the consequences described below. This summary does not constitute a legal opinion or tax advice. Holders are urged to consult their own tax advisers regarding the tax consequences of the purchase, ownership and disposition of Securities in light of their particular circumstances, including the effect of any US federal, state, local or other national tax laws. A set of tax rules is applicable to French assets that are held by or in foreign trusts. These rules provide inter alia for the inclusion of trust assets in the settlor’s net assets for purpose of applying the French real estate wealth tax, for the application of French gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of foreign trusts not already subject to the French real estate wealth tax and for a number of French tax reporting and disclosure obligations. The following discussion does not address the French tax consequences applicable to Securities held in trusts. If Securities are held in trust, the grantor, trustee and beneficiary are urged to consult their own tax adviser regarding the specific tax consequences of acquiring, owning and disposing of Securities. The description of the French and US federal income tax consequences set forth below is based on the laws (including, for US federal income tax purposes, the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed thereunder and US Treasury Regulations promulgated administrative and judicial interpretations thereof) in force as of the date of this annual report, the Convention Between the Government of the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of August 31, 1994 (the “Treaty”), which entered into force on December 30, 1995 (as amended by any subsequent protocols, including the protocol of January 13, the United States of America and 214 SANOFI / FORM 20-F 2018 the Bulletin Officiel 2009), and the tax regulations issued by the French tax des Finances authorities within Publiques-Impôts (the “Regulations”) in force as of the date of this report. US holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits, especially with regard to the “Limitations on Benefits” provision, in light of their own particular circumstances. For the purposes of this discussion, a US holder is a beneficial owner of Securities that is (i) an individual who is a US citizen or resident for US federal income tax purposes, (ii) a US domestic corporation or certain other entities created or organized in or under the laws of the United States or any state thereof, including the District of Columbia, or (iii) otherwise subject to US federal income taxation on a net income basis in respect of Securities. A non-US holder is a person other than a US holder. If a partnership holds Securities, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If a US holder is a partner in a partnership that holds Securities, the holder is urged to consult its own tax adviser regarding the specific tax consequences of acquiring, owning and disposing of Securities. is not effectively connected This discussion is intended only as a general summary and does not purport to be a complete analysis or listing of all potential tax effects of the acquisition, ownership or disposition of the Securities to any particular investor, and does not discuss tax considerations that arise from rules of general application or that are generally assumed to be known by investors. The discussion applies only to investors that hold our Securities as capital assets that have the US dollar as their functional currency, that are entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty, and whose ownership of the Securities to a permanent establishment or a fixed base in France. Certain holders (including, but not limited to, US expatriates, partnerships or other entities classified as partnerships for US federal income tax purposes, banks, insurance companies, regulated investment companies, institutions, persons subject to the alternative minimum tax, persons who acquired the Securities pursuant to the exercise of employee stock options or otherwise as compensation, persons that own (directly, indirectly or by attribution) 5% or more of our voting stock or 5% or more of our outstanding share capital, dealers in securities or currencies, persons that elect to mark their securities to market for US federal income tax purposes, persons that acquire ADSs in “pre-release” transactions (i.e. prior to deposit of the relevant ordinary shares) and persons holding Securities as a position in a synthetic security, straddle or conversion transaction) may be subject to special rules not discussed below. Holders of Securities are advised to consult their own tax advisers with regard to the application of French tax law and US federal income tax law to their particular situations, as well as any tax consequences arising under the laws of any state, local or other foreign jurisdiction. tax-exempt organizations, financial ITEM 10. ADDITIONAL INFORMATION French taxes Estate and gift taxes and transfer taxes In general, a transfer of Securities by gift or by reason of death of a US holder that would otherwise be subject to French gift or inheritance tax, respectively, will not be subject to such French tax by reason of the Convention between the Government of the United States of America and the Government of the French Republic the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritances and Gifts, dated November 24, 1978, unless the donor or the transferor is domiciled in France at the time of making the gift or at the time of his or her death, or the Securities were used in, or held for use in, the conduct of a business through a permanent establishment or a fixed base in France. the Avoidance of Double Taxation and for Pursuant to Article 235 ter ZD of the French General Tax Code, purchases of Securities are subject to a 0.3% French tax on financial transactions (the “FTFF”) provided that Sanofi’s market capitalization exceeds 1 billion euros as of December 1 of the year preceding the taxation year. A list of companies whose market capitalization exceeds 1 billion euros as of December 1 of the year preceding the taxation year used to be published annually by the French Ministry of Economy. It is now published by the French tax authorities, and could be amended at any time. Pursuant to Regulations BOI-ANNX-000467-20181217 issued on December 17, 2018, purchases of Sanofi’s Securities in 2019 should be subject to the FTFF as the market capitalization of Sanofi exceeded 1 billion euros as of December 1, 2018. In accordance with Article 726-II-d of the French General Tax Code, purchases which are subject to the FTFF should however not be subject to transfer taxes (droits d’enregistrement) in France. Wealth tax The French wealth tax (impôt de solidarité sur la fortune) has been replaced with a French real estate wealth tax (impôt sur la fortune immobilière) with effect from January 1, 2018. French real estate wealth tax applies only to individuals and does not generally apply to the Securities if the holder is a US resident, as defined pursuant to the provisions of the Treaty, provided that the individual does not own directly or indirectly a shareholding exceeding 10% of the financial rights and voting rights. US taxes Ownership of the securities Deposits and withdrawals by a US holder of ordinary shares in exchange for ADSs, will not be taxable events for US federal income tax purposes. For US tax purposes, holders of ADSs will be treated as owners of the ordinary shares represented by such ADSs. Accordingly, the discussion that follows regarding the US federal income tax consequences of acquiring, owning and disposing of ordinary shares is equally applicable to ADSs. SANOFI / FORM 20-F 2018 215 ITEM 10. ADDITIONAL INFORMATION Information reporting and backup withholding tax Distributions made to holders and proceeds paid from the sale, exchange, redemption or disposal of Securities may be subject to information reporting to the Internal Revenue Service. Such payments may be subject to backup withholding taxes unless the is a corporation or other exempt recipient or holder (i) (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not US persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-US status in connection with payments received within the United States or through a US-related financial intermediary to establish that it is an exempt recipient. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s US federal income tax liability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information. Foreign asset reporting In addition, a US holder that is an individual (and, to the extent provided in future regulations, an entity), may be subject to recently-enacted reporting obligations with respect to ordinary shares and ADSs if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the US Internal Revenue Service. Significant penalties can apply if holders are required to make this disclosure and fail to do so. In addition, a US holder should consider the possible obligation to file online a FinCEN Form 114 – Foreign Bank and Financial Accounts Report as a result of holding ordinary shares or ADSs. Holders are encouraged to consult their US tax advisors with respect to these and other reporting requirements that may apply to their acquisition of ordinary shares and ADSs. State and local taxes In addition to US federal income tax, US holders of Securities may be subject to US state and local taxes with respect to such Securities. Holders of Securities are advised to consult their own tax advisers with regard to the application of US state and local income tax law to their particular situation. ADSs-Ordinary Shares French taxes Taxation of dividends Under French law, dividends paid by a French corporation, such as Sanofi, to non-residents of France are generally subject to French withholding tax at a rate of 30% (12.8% for distributions made to not-for-profit organizations with a head office in a Member State for distributions made individuals, and 15% to 216 SANOFI / FORM 20-F 2018 in forth corporation, the criteria set such as Sanofi, of the European Economic Area which would be subject to the tax regime set forth under article 206 paragraph 2 of the French General Tax Code if its head office were located in France and which meet the Regulations BOI-RPPM-RCM-30-30-10-70-20171004, no 130). Dividends paid by a French towards non-cooperative States or territories, as defined in Article 238-0 A of the French General Tax Code, will generally be subject to French withholding tax at a rate of 75%, irrespective of the tax residence of the beneficiary of the dividends if the dividends are received territories; however, eligible US holders entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty who are US residents, as defined pursuant to the provisions of the Treaty and who receive dividends in non-cooperative States or territories, will not be subject to this 75% withholding tax rate. in such States or Under the Treaty, the rate of French withholding tax on dividends paid to an eligible US holder who is a US resident as defined pursuant to the provisions of the Treaty and whose ownership of the ordinary shares or ADSs is not effectively connected with a permanent establishment or fixed base that such US holder has in France, is reduced to 15%, or to 5% if such US holder is a corporation and owns directly or indirectly at least 10% of the share capital of the issuing company; such US holder may claim a refund from the French tax authorities of the amount withheld in excess of the Treaty rates of 15% or 5%, if any. For US holders that are not individuals but are US residents, as defined pursuant to the provisions of the Treaty, the requirements for eligibility for Treaty benefits, including the reduced 5% or 15% withholding tax rates contained in the “Limitation on Benefits” provision of the Treaty, are complicated, and certain technical changes were made to these requirements by the protocol of January 13, 2009. US holders are advised to consult their own tax advisers regarding their eligibility for Treaty benefits in light of their own particular circumstances. Dividends paid to an eligible US holder may immediately be subject to the reduced rates of 5% or 15% provided that such holder establishes before the date of payment that it is a US resident under the Treaty by completing and providing the depositary with a treaty form (Form 5000). Dividends paid to a US holder that has not filed the Form 5000 before the dividend payment date will be subject to French withholding tax at the rate of 30% and then reduced at a later date to 5% or 15%, provided that such holder duly completes and provides the French tax authorities with the treaty forms Form 5000 and Form 5001 before December 31 of the second calendar year following the year during which the dividend is paid. Pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other US holders except that they may have to supply additional documentation evidencing their entitlement to these benefits. The depositary agrees to use reasonable efforts to follow the procedures established, or that may be established, by the French tax authorities (i) to enable eligible US holders to qualify for the reduced withholding tax rate provided by the Treaty, if available at the time the dividends are paid, or (ii) to recover any excess French withholding taxes initially withheld or deducted with respect to dividends and other distributions to which such US holders may be eligible from the French tax authorities and (iii) to recover any other available tax credits. In particular, associated forms (including Form 5000 and Form 5001, together with their instructions), will be made available by the depositary to all US holders registered with the depositary, and are also generally available from the US Internal Revenue Service. The withholding tax refund, if any, ordinarily is paid within 12 months of filing the applicable French Treasury Form, but not before January 15 of the year following the calendar year in which the related dividend is paid. Tax on sale or other disposition In general, under the Treaty, a US holder who is a US resident for purposes of the Treaty will not be subject to French tax on any capital gain from the redemption (other than redemption proceeds characterized as dividends under French domestic law), sale or exchange of ordinary shares or ADSs unless the ordinary shares or the ADSs form part of the business property of a permanent establishment or fixed base that the US holder has in France. Special rules apply to holders who are residents of more than one country. US taxes Taxation of dividends For US federal income tax purposes, the gross amount of any distribution paid to US holders (that is, the net distribution received plus any tax withheld therefrom) will be treated as ordinary dividend income to the extent paid or deemed paid out of the current or accumulated earnings and profits of Sanofi (as determined under US tax principles). Dividends paid by Sanofi will not be eligible for the dividends- received deduction generally allowed to corporate US holders. income federal to certain exceptions Subject for short-term and hedged positions, the US dollar amount of dividends received by an individual US holder with respect to the ADSs or our ordinary shares is currently subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends”. Dividends paid on the ordinary shares or ADSs will be treated as qualified dividends if (i) the issuer is eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) the issuer was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The Treaty has been approved for the purposes of the financial qualified dividend statements and relevant market and shareholder data, we believe Sanofi was not a PFIC for US federal income tax purposes with respect to its 2018 taxable year. In addition, based rules. Based on our audited ITEM 10. ADDITIONAL INFORMATION on its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, we do not anticipate that Sanofi will become a PFIC for its 2019 taxable year. Holders of ordinary shares and ADSs should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances. respect to specific classes of If you are a US holder, dividend income received by you with respect to ADSs or ordinary shares generally will be treated as foreign source income for foreign tax credit purposes. The limitation on foreign taxes eligible for credit is calculated separately with income. Distributions out of earnings and profits with respect to the ADSs or ordinary shares generally will be treated as “passive category” income (or, in the case of certain US holders, “general category” income). Subject to certain limitations, French income tax withheld in connection with any distribution with respect to the ADSs or ordinary shares may be claimed as a credit against the US federal income tax liability of a US holder if such US holder taxes. to credit all elects Alternatively, such French withholding tax may be taken as a deduction against taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short- term or hedged positions in Securities and may not be allowed in respect of certain arrangements in which a US holder’s expected economic profit is insubstantial. The US federal income tax rules governing the availability and computation of foreign tax credits are complex. US holders should consult their own tax advisers concerning the implications of these rules in light of their particular circumstances. that year income foreign for To the extent that an amount received by a US holder exceeds the allocable share of our current and accumulated earnings and profits, such excess will be applied first to reduce such US holder’s tax basis in its ordinary shares or ADSs and then, to the extent it exceeds the US holder’s tax basis, it will constitute capital gain from a deemed sale or exchange of such ordinary shares or ADSs (see “– Tax on Sale or Other Disposition”, below). The amount of any distribution paid in euros will be equal to the US dollar value of the euro amount distributed, calculated by reference to the exchange rate in effect on the date the dividend is received by a US holder of ordinary shares (or by the depositary, in the case of ADSs) regardless of whether the payment is in fact converted into US dollars on such date. US holders should consult their own tax advisers regarding the treatment of foreign currency gain or loss, if any, on any euros received by a US holder that are converted into US dollars on a date subsequent to receipt. Distributions to holders of additional ordinary shares (or ADSs) with respect to their ordinary shares (or ADSs) that are made as part of a pro rata distribution to all ordinary shareholders generally will not be subject to US federal income tax. However, if a US holder has the option to receive a distribution in shares (or ADSs) or to receive cash in lieu of such shares (or ADSs), the SANOFI / FORM 20-F 2018 217 G. Statement by experts N/A H. Documents on display to the information requirements of We are subject the US Securities Exchange Act of 1934, as amended, or Exchange Act, and, in accordance therewith, we are required to file reports, including this annual report on Form 20-F, and other information with the US Securities and Exchange Commission, or Commission, by electronic means. You may review a copy of our filings with the Commission, as well as other information furnished to the Commission, including exhibits and schedules filed with it, at the Commission’s public room at 100 F Street, N.E., Room 1580, reference the SEC at Washington, D.C. 20549. Please 1-800-SEC-0330 the for Commission maintains an Internet site at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the Commission (these documents are not incorporated by reference in this annual report). In addition, information. further call I. Subsidiary information N/A ITEM 10. ADDITIONAL INFORMATION distribution of shares (or ADSs) will be taxable as if the holder had received an amount equal to the fair market value of the distributed shares (or ADSs), and such holder’s tax basis in the distributed shares (or ADSs) will be equal to such amount. Tax on sale or other disposition In general, for US federal income tax purposes, a US holder that sells, exchanges or otherwise disposes of its ordinary shares or ADSs will recognize capital gain or loss in an amount equal to the US dollar value of the difference between the amount realized for the ordinary shares or ADSs and the US holder’s adjusted tax basis (determined in US dollars and under US federal income tax rules) in the ordinary shares or ADSs. Such gain or loss generally will be US-source gain or loss, and will be treated as long-term capital gain or loss if the US holder’s holding period in the ordinary shares or ADSs exceeds one year at the time of disposition. If the US holder is an individual, any capital gain generally will be subject to US federal income tax at preferential rates (currently a maximum of 20%) if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations. Medicare tax Certain US holders who are individuals, estates or trusts are required to pay a Medicare tax of 3.8% (in addition to taxes they would otherwise be subject to) on their “net investment income” which would include, among other things, dividends and capital gains from the ordinary shares and ADSs. F. Dividends and paying agents N/A 218 SANOFI / FORM 20-F 2018 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Item 11. Quantitative and Qualitative Disclosures about Market Risk(1) General policy Liquidity risk, foreign exchange risk and interest rate risk, as well as related counterparty risks, are managed centrally by our dedicated treasury team within the Group Finance Department. Where it is not possible to manage those risks centrally – in particular due foreign exchange controls) or local tax restrictions – credit facilities and/ or currency lines, guaranteed whenever necessary by the parent company, are contracted by our subsidiaries locally with banks, under the supervision of the central treasury team. to regulatory restrictions (such as Our financing and investment strategies, and our interest rate and currency hedging strategies, are reviewed monthly by the Group Finance Department. Our policy prohibits the use of derivatives for speculative purposes. Liquidity risk We operate a centralized treasury platform whereby all surplus cash and financing needs of our subsidiaries are invested with or funded by the parent company (where permitted by local legislation). The central treasury department manages our current and projected financing, and ensures that Sanofi is able to meet its financial commitments by maintaining sufficient cash and confirmed credit facilities for the size of our operations and the maturity of our debt (see Notes D.17.c and D.17.g to the consolidated financial statements). leading We diversify our short-term counterparties using money-market products with instant access or with a maturity of less than three months. As of December 31, 2018, cash and cash equivalents amounted to € 6 925 million, and our short-term investments predominantly comprised: investments with ◆ collective investments in euro and US dollar denominated money-market mutual funds. All such funds can be traded on a daily basis and the amount invested in each fund may not exceed 10% of the aggregate amount invested in such funds; ◆ amounts invested directly with banks and non-financial institutions in the form of instant access deposits, term deposits, and Negotiable European Commercial Paper with a maturity of no more than three months. As of December 31, 2018, the Group also had €8 billion of undrawn general corporate purpose confirmed credit facilities, half expiring December 2020 and half December 2021. Those credit facilities are not subject to financial covenant ratios. Our policy is to diversify our sources of funding through public or private issuances of debt securities, in the United States (shelf registration statement) and Europe (Euro Medium Term Note program). In addition, our A-1+/P-1 short-term rating gives us access to commercial paper programs in the United States and in France. The average maturity of our total debt was 5.8 years as of December 31, 2018, compared with 4.9 years as of December 31, 2017. During 2018, we did not draw down on our French commercial paper program. Average drawdowns under the US commercial paper program during 2018 were €4.2 billion (maximum €7.7 billion); those drawdowns was three months. As of December 31, 2018, neither of those programs was being utilized. the average maturity of In the event of a liquidity crisis, we could be exposed to difficulties in calling up our available cash, a scarcity of sources of funding including the above-mentioned programs, and/or a deterioration in their terms. This situation could damage our capacity to refinance our debt or to issue new debt on reasonable terms. Interest rate risk Sanofi issues debt in two currencies, the euro and the US dollar, and also invests its cash and cash equivalents in those currencies (see Note D.17). The floating-rate portion of this net debt exposes Sanofi to rises in interest rates, primarily in the Eonia and Euribor benchmark rates (for the euro) and in the US Libor and Federal Fund Effective rates (for the US dollar). To optimize the cost of debt or reduce the volatility of debt, Sanofi uses derivative instruments (interest rate swaps, cross currency swaps) that alter the fixed/floating rate split of its net debt. SANOFI / FORM 20-F 2018 219 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The projected full-year sensitivity to interest rate fluctuations of our debt, net of cash and cash equivalents for 2019 is as follows: Change in EUR and USD short-term interest rates +100 bp +25 bp -25 bp -100 bp Foreign exchange risk A. Operating foreign exchange risk A substantial portion of our net sales is generated in countries where the euro, which is our reporting currency, is not the functional currency. In 2018, for example, 33.5% of our net sales were generated in the United States, 22.2% in Emerging Markets other than China (including countries that are, or may in future become, subject to exchange controls), 7.1% in China and 5.0% in Japan. Although we also incur expenses in those countries, the impact of those expenses is not enough wholly to offset the impact of exchange rates on our net sales. Consequently, our affected operating materially income may be Impact on pre-tax net income (€ million) Impact on pre-tax income/(expense) recognized directly in equity (€ million) 11 3 (3) (11) — — — — by fluctuations in exchange rates between the euro and other currencies. currency exposure, based on We operate a foreign exchange risk hedging policy to reduce the exposure of our operating income to exchange rate movements. This policy involves regular assessments of our worldwide foreign-currency foreign transactions carried out by its subsidiaries. Those transactions mainly comprise sales, purchases, research costs, co-marketing and co-promotion expenses, and royalties. To reduce the exposure of those transactions to exchange rate movements, we contract hedges using liquid derivative instruments, mainly forward currency purchases and sales, and also currency swaps. the parent company and The table below shows operating currency hedging instruments in place as of December 31, 2018, with the notional amount translated into euros at the relevant closing exchange rate (see Note D.20. to the consolidated financial statements for the accounting classification of those instruments as of December 31, 2018). Operating foreign exchange derivatives as of December 31, 2018: (€ million) Forward currency sales of which US dollar of which Singapore dollar of which Chinese yuan renminbi of which Saudi Arabian Riyal of which Russian ruble Forward currency purchases of which US dollar of which Singapore dollar of which Japanese yen of which Chinese yuan renminbi of which Canadian dollar Total 220 SANOFI / FORM 20-F 2018 Notional amount Fair value 4,002 1,723 652 451 100 88 2,036 514 500 197 163 106 6,038 — (7) 1 (1) 1 5 7 8 1 3 (1) (2) 7 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The above positions mainly hedge future material foreign-currency cash flows arising after the end of the reporting period in relation to transactions carried out during the year ended December 31, 2018 and recognized in the balance sheet at that date. Gains and losses on hedging instruments (forward contracts) have been and will continue to be calculated and recognized in parallel with the recognition of gains and losses on the hedged items. Due to this hedging relationship, the commercial foreign exchange gain or loss on instruments and hedged transactions) will be immaterial in 2019. (hedging these items B. Financial foreign exchange risk The cash pooling arrangements for our foreign subsidiaries outside the euro zone, and some of our financing activities, expose certain of our entities to financial foreign exchange risk (i.e. the risk of changes in the value of borrowings and loans denominated in a currency other than the functional currency of the borrower or lender). That foreign exchange exposure is hedged by the parent company using derivative instruments (currency swaps and forward contracts) that alter the currency split of Sanofi’s net debt once these instruments are taken into account. The table below shows financial currency hedging instruments in place as of December 31, 2018, with the notional amounts translated into euros at the relevant closing exchange rate (see also Note D.20 to the consolidated financial statements for the accounting classification of these instruments as of December 31, 2018). Financial foreign exchange derivatives as of December 31, 2018: (€ million) Forward currency sales of which US dollar of which Japanese yen of which Australian dollar Forward currency purchases of which US dollar of which Singapore dollar of which Chinese yuan renminbi Total Notional amount 7,762 5,500(1) 973 196 7,291 4,165 2,022 427 15,053 Fair value Expiry 17 38 (24) 5 20 (17) 33 — 37 2019 2019 2019 2019 2019 2019 (1) Includes forward currency sales for a nominal amount of $3,615 million maturing in 2019, designated as a hedge of our net investment in Bioverativ. As of 31 December 2018, the fair value of these contracts represents an asset of €24 million booked in Other comprehensive income; the impact on financial income/expense is immaterial. These forward currency contracts generate a net financial foreign exchange gain or loss arising from the interest rate differential between the hedged currency and the euro, given that the foreign exchange gain or loss on the foreign-currency borrowing and loans is offset by the change in the intrinsic value of the hedging instruments. The interest rate differential is recognized within cost of net debt (see note D.29. to our consolidated financial statements). In addition, we use the euro as our reporting currency. Consequently, if one or more European Union Member States were to abandon the euro as a currency, the resulting economic upheavals – in particular, fluctuations in exchange rates – could have a significant impact on the terms under which we can obtain financing and on our the extent and financial consequences of which are not currently foreseeable. results, We may also hedge some future foreign-currency investment or divestment cash flows. Counterparty risk C. Other foreign exchange risks A significant proportion of our net assets is denominated in US dollars (see Note D.35. the consolidated financial statements). As a result, any fluctuation in the exchange rate of the US dollar against the euro automatically impacts the amount of our equity as expressed in euros. to Our financing and investing transactions, and our currency and interest rate hedges, are contracted with leading counterparties. We set limits for investment and derivative transactions with individual financial institutions, depending on the rating of each institution. Compliance with these limits, which are based on notional amounts weighted by the residual maturity and the nature of the commitment, is monitored on a daily basis. SANOFI / FORM 20-F 2018 221 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The table below shows our total exposure as of December 31, 2018 by rating and in terms of our percentage exposure to the dominant counterparty. (€ million) AA AA- A+ A A- BBB+ BBB Unallocated Total Cash and cash equivalents (excluding mutual funds)(a) Notional amounts of currency hedges(b) Notional amounts of interest rate hedges(b) General corporate purpose credit facilities — 992 1,622 508 245 145 52 177 — 5,851 9,876 3,891 1,050 420 — 2 — 1,136 2,267(c) 918 200 — — — — 1,500 3,500 2,000 500 500 — — 3,741 21,090 4,521 8,000 % / rating of dominant counterparty 21% /AA- 18% /AA- 19% /A+ 6% /BBB+ (a) Cash equivalents include mutual fund investments of €3,189 million. (b) The notional amounts are translated into euros at the relevant closing exchange rate as of December 31, 2018. (c) Includes interest rate swaps hedging fixed-rate bonds of €99 million held in a Professional Specialized Investment Fund dedicated to Sanofi, recognized in Long-term loans, advances and other non-current receivables (see note D.7. to our consolidated financial statements). As of December 31, 2018, we held investments in euro and US funds. Those dollar denominated money-market mutual instruments have low volatility, low sensitivity to interest rate risk, and a very low probability of loss of principal. The depositary banks of the mutual funds, and of Sanofi itself, have a long-term rating of at least A. Realization of counterparty risk could impact our liquidity in certain circumstances. Stock market risk It is our policy not to trade on the stock market for speculative purposes. 222 SANOFI / FORM 20-F 2018 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Item 12. Description of Securities other than Equity Securities 12.A Debt securities Not applicable. 12.B Warrants and rights Not applicable. 12.C Other securities Not applicable. 12.D American depositary shares General JPMorgan Chase Bank, N.A. (“JPMorgan”), as depositary, issues Sanofi ADSs in certificated form (evidenced by an ADR) or book- entry form. Each ADR is a certificate evidencing a specific number of Sanofi ADSs. Each Sanofi ADS represents one-half of one Sanofi ordinary share (or the right to receive one-half of one Sanofi ordinary share) deposited with the Paris, France office of BNP Paribas, as custodian. Each Sanofi ADS also represents an interest in any other securities, cash or other property that may be held by the depositary under the deposit agreement. The depositary’s office is located at 4 New York Plaza, 12th Floor, New York, New York 10004. A holder may hold Sanofi ADSs either directly or indirectly through his or her broker or other financial institution. The following description assumes holders hold their Sanofi ADSs directly, in certificated form evidenced by ADRs. Holders who hold the Sanofi ADSs indirectly must rely on the procedures of their broker or other financial institution to assert the rights of ADR holders described in this section. Holders should consult with their broker or financial institution to find out what those procedures are. Holders of Sanofi ADSs do not have the same rights as holders of Sanofi shares. French law governs shareholder rights. The rights of holders of Sanofi ADSs are set forth in the deposit agreement between Sanofi and JPMorgan and in the ADR. New York law governs the deposit agreement and the ADRs. The following is a summary of certain terms of the deposit agreement, as amended. Our form of second amended and restated deposit agreement was filed as an exhibit to our Post- Effective Amendment No. 1 to Form F-6 filed on February 13, 2015. To the extent any portion of the amendment and restatement would prejudice any substantial existing right of holders of ADSs under the first amended and restated deposit agreement, such portion shall not become effective as to such holders until 30 days after holders have received notice thereof. For more complete information, holders should read the entire second amended and restated deposit agreement and the ADR itself. Holders may also inspect a copy of the current deposit agreement at the depositary’s office. Share dividends and other distributions Receipt of dividends and other distributions The depositary has agreed to pay to holders of Sanofi ADSs the cash dividends or other distributions that it or the custodian receives on the deposited Sanofi ordinary shares and other deposited securities after deducting its fees and expenses. Holders of Sanofi ADSs will receive these distributions in proportion to the number of Sanofi ADSs that they hold. Cash. The depositary will convert any cash dividend or other cash distribution paid on the shares into U.S. dollars if, in its judgment, it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If the depositary determines that such a conversion and transfer is not possible, or if any approval from the French government is needed and cannot be obtained within a reasonable period, then the depositary may (1) distribute the foreign currency received by it to the holders of Sanofi ADSs or (2) hold the foreign currency distribution (uninvested and without liability for any interest) for the account of holders of Sanofi ADSs. In addition, if any conversion of foreign currency, in whole or in part, cannot be effected to some holders of Sanofi ADSs, the deposit agreement allows the dividends only to those ADR holders to whom it is possible to do so. It will hold the foreign currency it cannot convert into U.S. dollars for the account of the ADR holders who have not been paid. It will not invest the funds it holds and it will not be liable for any interest. the depositary to distribute Before making a distribution, any withholding taxes that must be paid under French law will be deducted. The depositary will distribute only whole U.S. dollars and cents and will round fractional cents down to the nearest whole cent. Exchange rate fluctuations during a period when the depositary cannot convert euros into U.S. dollars may result in holders losing some or all of the value of a distribution. SANOFI / FORM 20-F 2018 223 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Shares. The depositary may, and at our request will, distribute new ADRs representing any shares we distribute as a dividend or free distribution, if we furnish it promptly with satisfactory evidence that it is legal to do so. At its option, the depositary may distribute fractional Sanofi ADSs. If the depositary does not distribute additional Sanofi ADSs, the outstanding ADRs will also represent the new shares. The depositary may withhold any tax or other governmental charges, or require the payment of any required fees and expenses, prior to making any distribution of additional Sanofi ADSs. Rights to Receive Additional Shares. If we offer holders of Sanofi ordinary shares any rights to subscribe for additional shares or any other rights, the depositary, after consultation with us, will, in its discretion, either (1) make these rights available to holders or (2) dispose of such rights on behalf of holders and make the net proceeds available to holders. The depositary may make rights available to certain holders but not others if it determines it is lawful and feasible to do so. However, if, under the terms of the offering or for any other reason, the depositary may not make such rights available or dispose of such rights and make the net proceeds available, it will allow the rights to lapse. In that case, holders of Sanofi ADSs will receive no value for them. In circumstances where rights would not otherwise be distributed by the depositary to holders of Sanofi ADSs, a holder of Sanofi ADSs may nonetheless request, and will receive from the depositary, any instruments or other documents necessary to exercise the rights allocable to that holder if the depositary first receives written notice from Sanofi that (1) Sanofi has elected, in its sole discretion, to permit the rights to be exercised and (2) such holder has executed the documents Sanofi has determined, in its sole discretion, are reasonably required under applicable law. If the depositary makes rights available to holders of Sanofi ADSs, upon instruction from such holders, it will exercise the rights and purchase the shares on such holder’s behalf. The depositary will then deposit the shares and deliver ADRs to such holders. It will only exercise rights if holders of Sanofi ADSs pay it the exercise price and any other charges the rights require such holders to pay. U.S. securities laws may restrict the sale, deposit, cancellation or transfer of ADRs issued upon exercise of rights. For example, holders of Sanofi ADSs may not be able to trade Sanofi ADSs freely in the United States. In this case, the depositary may deliver Sanofi ADSs under a separate restricted deposit agreement that will contain the same provisions as the deposit implement the agreement, except required restrictions. for changes needed to Other Distributions. The depositary will distribute to holders of Sanofi ADSs anything else we may distribute on deposited fees and securities (after deduction or upon payment of expenses or any taxes or other governmental charges) by any means it thinks is legal, equitable and practical. If, for any reason, it cannot make the distribution in that way, the depositary may sell what we distributed and distribute the net proceeds of the sale in the same way it distributes cash dividends, or it may choose any other method to distribute the property it deems equitable and practicable. The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of Sanofi ADSs. We have no obligation to register Sanofi ADSs, shares, rights or other securities under the U.S. Securities Act of 1933, as amended. We also have no obligation to take any other action to permit the distribution of ADRs, shares, rights or anything else to holders of Sanofi ADSs. This means that holders may not receive the distribution we make on our shares or any value for them if it is illegal or impractical for the depositary to make them available to such holders. Elective Distributions. Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary and will indicate whether we wish the elective distribution to be made available to holders of Sanofi ADSs. In that case, we will assist the depositary in determining whether that distribution is lawful and reasonably practicable. The depositary will make the election available to holders of Sanofi ADSs only if it is reasonably practicable and if we have provided all the documentation contemplated in the deposit agreement. In that case, the depositary will establish procedures to enable holders of Sanofi ADSs to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement. If the election is not made available to holders of Sanofi ADSs, such holders will receive either cash or additional Sanofi ADSs, depending on what a shareholder in France would receive for failing to make an election, as more fully described in the deposit agreement. Deposit, withdrawal and cancellation Delivery of ADRs The depositary will deliver ADRs if the holder or his or her broker deposit shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of Sanofi ADSs in the names the holder requests and will deliver the ADRs to the persons the holder requests at its office. Obtaining Sanofi ordinary shares A holder may turn in his or her ADRs at the depositary’s office. Upon payment of its fees and expenses and any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver (1) the underlying shares to an account designated by the holder and (2) any other deposited securities underlying the ADR at the office of a custodian or, at the holder’s request, risk and expense, the depositary will deliver the deposited securities at its office. 224 SANOFI / FORM 20-F 2018 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Voting rights A holder may instruct the depositary to vote the Sanofi ordinary shares underlying his or her Sanofi ADSs at any meeting of Sanofi shareholders, but only if we request that the depositary ask for holder instructions. Otherwise, holders will not be able to exercise their right to vote unless they withdraw the underlying ordinary shares from the ADR program and vote as an ordinary shareholder. However, holders may not know about the meeting sufficiently in advance to timely withdraw the underlying ordinary shares. If we ask for holder instructions in connection with a meeting of Sanofi shareholders, the depositary will provide materials to holders of Sanofi ADSs in the manner described under the heading “Notices and Reports; Rights of Holders to Inspect Books” below. For any instructions to be valid, the depositary must receive them on or before the date specified in the materials distributed by the depositary. The depositary will endeavor, in so far as practical, subject to French law and the provisions of our statuts, to vote or to have its agents vote the shares or other deposited securities as holders may validly instruct. The depositary will only vote or attempt to vote shares as holders validly instruct. We cannot guarantee holders that they will receive the voting materials with sufficient time to enable them to return any voting instructions to the depositary in a timely manner to vote their shares. As long as they act in good faith, neither the depositary nor its agents will be responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that holders may not be able to exercise their right to vote and there may be nothing holders can do if their shares are not voted as they requested. Similar to our shares, Sanofi ADSs evidenced by ADRs that are registered in the name of the same owner for at least two (2) years are eligible for double voting rights so long as certain procedures are followed, as set out in the deposit agreement. For additional information regarding double voting rights, see “Item 10. Additional Information – B. Memorandum and Articles of Association – Voting Rights”. The deposit agreement allows the depositary and Sanofi to change the voting procedures or require additional voting procedures in addition to the ones described above if necessary or appropriate. For example, holders might be required to arrange to have their Sanofi ADSs deposited in a blocked to a account shareholders’ meeting in order to be allowed to give voting instructions. for a specified period of time prior Notices and reports; rights of holders to inspect books On or before the first date on which we give notice, by publication or otherwise, of any meeting of holders of shares or other deposited securities, or of any adjourned meeting of such holders, or of the taking of any action in respect of any cash or other distributions or the offering of any rights, we will transmit to the depositary a copy of the notice. in English of Upon notice of any meeting of holders of shares or other deposited securities, if requested in writing by Sanofi, the depositary will, as soon as practicable, mail to the holders of Sanofi ADSs a notice, the form of which is in the discretion of the depositary, containing (1) a summary the information contained in the notice of meeting provided by Sanofi to the depositary, (2) a statement that the holders as of the close of business on a specified record date will be entitled, subject to any applicable provision of French law and of our statuts, to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the amount of shares or other deposited securities represented by their respective ADSs and (3) a statement as to the manner in which such instructions may be given. Notwithstanding the above, the depositary may, to the extent not prohibited by the requirements of the NYSE, in lieu of distribution of the materials provided to the depositary as described above, distribute to the holders a notice that provides holders with, or otherwise publicizes to holders, instructions on how to retrieve such materials or receive such materials upon request (i.e. by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials). regulations, or by law or The depositary will make available for inspection by ADS holders at the depositary’s office any reports and communications, including any proxy soliciting material, received from us that are both (1) received by the depositary as the holder of the deposited securities and (2) made generally available to the holders of such deposited securities by us. The depositary will also, upon written request, send to ADS holders copies of such reports when furnished by us pursuant to the deposit agreement. Any such reports and communications, including any such proxy soliciting material, furnished to the depositary by us will be furnished in English to the extent such materials are required to be translated into English pursuant to any regulations of the SEC. The depositary will keep books for the registration of ADRs and transfers of ADRs that at all reasonable times will be open for inspection by the holders provided that such inspection is not for the purpose of communicating with holders in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs. SANOFI / FORM 20-F 2018 225 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Fees and expenses Fees payable by ADS holders Pursuant to the deposit agreement, holders of our ADSs may have to pay to JPMorgan, either directly or indirectly, fees or charges up to the amounts set forth in the table below. Associated Fee Depositary Action $5.00 or less per 100 ADSs (or portion thereof) $0.05 or less per ADS (or portion thereof) Registration fees in effect for the registration of transfers of shares generally on the share register of the company or foreign registrar and applicable to transfers of shares to or from the name of JPMorgan or its nominee to the custodian or its nominee on the making of deposits and withdrawals A fee equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities A fee for the reimbursement of such fees, charges and expenses as are incurred by JPMorgan, its agents (and their agents), including BNP Paribas, as custodian (by deductions from cash dividends or other cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them) Execution and delivery of ADRs for distributions and dividends in shares and rights to subscribe for additional shares or rights of any other nature and surrender of ADRs for the purposes of withdrawal, including the termination of the deposit agreement. Any cash distribution made pursuant to the deposit agreement, including, among other things: ◆ cash distributions or dividends, ◆ distributions other than cash, shares or rights, ◆ distributions in shares, and ◆ rights of any other nature, including rights to subscribe for additional shares. As applicable Distributions of securities other than cash, shares or rights Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment, servicing of shares or other deposited securities, sale of securities, delivery of deposited securities or otherwise Expenses incurred by JPMorgan ◆ Cable, telex and facsimile transmission (where expressly In addition to the fees outlined above, each holder will be responsible for any taxes or other governmental charges payable on his or her Sanofi ADSs or on the deposited securities underlying his or her Sanofi ADSs. The depositary may refuse to transfer a holder’s Sanofi ADSs or allow a holder to withdraw the deposited securities underlying his or her Sanofi ADSs until such taxes or other charges are paid. It may apply payments owed to a holder or sell deposited securities underlying a holder’s Sanofi ADSs to pay any taxes owed, and the holder will remain liable for any deficiency. if appropriate, reduce the number of Sanofi ADSs to reflect the sale and pay to the holder any proceeds, or send to the holder any property, remaining after it has paid the taxes. For additional information “Item 10. Additional taxation, see Information – E. Taxation”. it sells deposited securities, regarding it will, If provided for in the deposit agreement) ◆ Foreign currency conversion into U.S. dollars Fees paid to Sanofi by the depositary fees, investor relations servicing, JPMorgan, as depositary, has agreed to reimburse Sanofi for certain expenses (subject to certain limits) Sanofi incurs relating to legal investor-related presentations, ADR-related advertising and public relations in those jurisdictions in which the ADRs may be listed or otherwise quoted, investor relations channel, perception studies, accountants’ fees in relation to our annual report on Form 20-F or any other expenses directly or indirectly relating to managing the program or servicing the ADR holders. The depositary has also agreed to provide additional amounts to us based on certain performance indicators relating to the ADR facility and fees collected by it. From January 1, 2018 to December 31, 2018, we received a total amount of $11,929,239 from JPMorgan. In addition to these payments, 226 SANOFI / FORM 20-F 2018 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES JPMorgan has agreed to waive servicing fees we may incur in connection with routine corporate actions such as annual general meetings and dividend distributions, as well as for other assistance JPMorgan may provide to us, such as preparation of tax and regulatory compliance documents for holders and investor relations advisory services. Changes affecting deposited securities If we: ◆ change the nominal or par value of our Sanofi ordinary shares; ◆ recapitalize, reorganize, merge or consolidate, liquidate, sell assets, or take any similar action; ◆ reclassify, split up or consolidate any of the deposited securities; or ◆ distribute securities on the deposited securities that are not distributed to holders; then either: ◆ the cash, shares or other securities received by the depositary will become deposited securities and each Sanofi ADS will automatically represent its equal share of the new deposited securities; or ◆ the depositary may, and will if we ask it to, distribute some or all of the cash, shares or other securities it receives. It may also deliver new ADRs or ask holders to surrender their outstanding ADRs in exchange for new ADRs identifying the new deposited securities. Disclosure of interests The obligation of a holder or other person with an interest in our shares to disclose information under French law and under our statuts also applies to holders and any other persons, other than the depositary, who have an interest in the Sanofi ADSs. The consequences for failing to comply with these provisions are the same for holders and any other persons with an interest as a information holder of our ordinary shares. For additional “Item 10. Additional these obligations, see regarding Information – B. Memorandum and Articles of Association – Requirements for Holdings Exceeding Certain Percentages”. Amendment and termination We may agree with the depositary to amend the deposit agreement and the ADRs without the consent of the ADS holders for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses, or prejudices a substantial right of holders of Sanofi ADSs, it will only become effective 30 days after the depositary notifies such holders of the amendment. However, we may not be able to provide holders of Sanofi ADSs with prior notice of the effectiveness of any modifications or supplements that are required to accommodate compliance with applicable provisions of law, whether or not those modifications or supplements could be considered to be materially prejudicial to the substantial rights of holders of Sanofi ADSs. At the time an amendment becomes effective, such holders will be considered, by continuing to hold their ADR, to have agreed to the amendment and to be bound by the ADR and the deposit agreement as amended. The depositary will terminate the agreement if we ask it to do so. the The depositary may also terminate depositary has told us that it would like to resign and we have not appointed a new depositary bank within 90 days. In both cases, the depositary must notify holders of Sanofi ADSs at least 30 days before termination. the agreement if After termination, the depositary and its agents will be required to do only the following under the deposit agreement: (1) collect distributions on the deposited securities, (2) sell rights and other property as provided in the deposit agreement and (3) deliver shares and other deposited securities upon cancellation of ADRs. Six months or more after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it receives on the sale, as well as any other cash it is holding under the deposit agreement, for the pro rata benefit of the holders of Sanofi ADSs that have not surrendered their Sanofi ADSs. It will have no liability for interest. Upon the depositary’s only obligations will be to account for the proceeds of the sale and other cash and with respect to indemnification. After termination, our only obligation will be with respect to indemnification and to pay certain amounts to the depositary. the deposit agreement, termination of Limitations on obligations and liability to holders of Sanofi ADSs The deposit agreement expressly limits our obligations and the obligations of the depositary, and it limits our liability and the liability of the depositary. In particular, please note the following: ◆ we and the depositary are obligated only to take the actions specifically set forth in the deposit agreement without gross negligence or bad faith; ◆ we and the depositary are not liable if either is prevented or delayed by law or circumstances beyond its control from performing its obligations under the deposit agreement; ◆ we and the depositary are not liable if either exercises, or fails to exercise, any discretion permitted under the deposit agreement; ◆ we and the depositary have no obligation to become involved in a lawsuit or other proceeding related to the Sanofi ADSs or the deposit agreement on holders’ behalf or on behalf of any other party, unless indemnity satisfactory to it against all expense and liability is furnished as often as may be required; ◆ we and the depositary are not liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system or the custodian, subject to certain exceptions and to the extent the custodian is not a branch or affiliate of JPMorgan; SANOFI / FORM 20-F 2018 227 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ◆ when the holder or other holders of Sanofi ADSs seeking to withdraw shares owe money to pay fees, taxes and similar charges; or ◆ when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to Sanofi ADSs or to the withdrawal of shares or other deposited securities. This right of withdrawal may not be limited by any other provision of the deposit agreement. Pre-release of Sanofi ADSs in writing, Unless we instruct the depositary not to, the deposit agreement permits the depositary to deliver Sanofi ADSs before deposit of the underlying shares. This is called a pre-release of the Sanofi ADSs. The depositary may also deliver shares upon cancellation of pre-released Sanofi ADSs (even if the Sanofi ADSs are cancelled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive Sanofi ADSs instead of shares to close out a pre-release. Unless otherwise agreed the depositary may pre-release Sanofi ADSs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the depositary in writing that it or its customer (i) owns the shares or Sanofi ADSs to be deposited, (ii) assigns all beneficial rights, title and interest in such shares or ADRs to the depositary in its capacity as depositary and (iii) will not take any action with respect to such shares or ADRs that is inconsistent with the transfer of beneficial ownership, other than in satisfaction of such pre-release; (2) the pre-release must cash, U.S. government securities or other collateral that the depositary considers appropriate; (3) the depositary must be able to close out the pre-release on not more than five business days’ notice; and (4) the depositary may require such further indemnities and credit regulations as it deems appropriate. In addition, the depositary will limit the number of Sanofi ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so. The depositary may retain for its own account any compensation received by it in connection with the foregoing. Any holder of pre-release ADRs should consult its tax and other advisors about the implications of pre-release for its particular situation collateralized with fully be ◆ the depositary is not liable for the price received in connection with any sale of securities, the timing thereof or any delays, acts, omissions to act, errors, defaults or negligence on the part of the party so retained in connection with any such sale or proposed sale; ◆ we and the depositary may rely without any liability upon any written notice, request, direction, instruction or other document believed by either of us to be genuine and to have been signed or presented by the proper parties; and ◆ we and the depositary are not liable for any action or nonaction taken in reliance upon the advice of or information from legal counsel, accountants, any person presenting ordinary shares for deposit, any ADS holder, or any other person believed in good faith to be competent to give such advice or information. In addition, the depositary will not be liable for any acts or omissions made by a successor depositary. Moreover, neither we nor the depositary nor any of our respective agents will be liable to any holder of Sanofi ADSs for any indirect, special, punitive or consequential damages. Pursuant to the terms of the deposit agreement, we and the depositary have agreed to indemnify each other under certain circumstances. Requirements for depositary actions Before the depositary will deliver or register the transfer of Sanofi ADSs, make a distribution on Sanofi ADSs or process a withdrawal of shares, the depositary may require: ◆ payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities; ◆ production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and ◆ compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents. The depositary may refuse to deliver Sanofi ADSs, register transfers of Sanofi ADSs or permit withdrawals of shares when the transfer books of the depositary or our transfer books are closed, or at any time if the depositary or we think it advisable to do so. Right to receive the shares underlying the Sanofi ADSs Holders have the right to cancel their Sanofi ADSs and withdraw the underlying Sanofi ordinary shares at any time except: ◆ when temporary delays arise when we or the depositary have closed our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends; 228 SANOFI / FORM 20-F 2018 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Part II Item 13. Defaults, Dividend Arrearages and Delinquencies N/A Item 14. Material Modifications to the Rights of Security Holders N/A Item 15. Controls and Procedures (a) Our Chief Executive Officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that material information relating to Sanofi was timely made known to them by others within Sanofi. (b) Report of Management on Internal Control Over Financial Reporting. term is defined Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as in Exchange Act Rule 13a-15(f). such Management assessed the effectiveness of internal control over financial reporting as of December 31, 2018 based on the framework in “Internal Control – Integrated Framework” (2013 the Committee of Sponsoring framework) Organizations of the Treadway Commission (COSO). issued by Based on that assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2018 to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of for external purposes, in accordance with generally accepted accounting principles. financial statements its Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, and can only provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. has reporting The effectiveness of the Company’s internal control over financial by PricewaterhouseCoopers Audit and Ernst & Young et Autres, independent registered public accounting firms, as stated in their report on the Company’s internal control over financial reporting as of December 31, 2018, which is included herein. See paragraph (c) of the present Item 15, below. audited been (c) See report of PricewaterhouseCoopers Audit and Ernst & Young et Autres, independent registered public accounting firms, included under “Item 18. Financial Statements” on page F-3. (d) There were no changes to our internal control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. SANOFI / FORM 20-F 2018 229 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Item 16A. Audit Committee Financial Expert Our Board of Directors has determined that Fabienne Lecorvaisier, Emmanuel Babeau, Christian Mulliez and Diane Souza, the four directors serving on the Audit Committee, are independent the meaning of paragraph 407 of the Sarbanes-Oxley Act of 2002. financial experts within The Board of Directors deemed Christian Mulliez to be a financial expert taking into account his experience as Executive Vice President, Chief Financial Officer of L’Oréal. Mr. Mulliez is a graduate of the Ecole Supérieure des Sciences Economiques et Commerciales (ESSEC). The Board of Directors deemed Fabienne Lecorvaisier to be a financial expert based on her education and her experience in corporate finance in various international banks and as Chief Financial Officer of Essilor and Air Liquide. She is now Executive Vice President, in charge of Finance, Operations Control and General Secretariat of Air Liquide Group. The Board of Directors deemed Diane Souza to be a financial expert based on her education (she is a certified public accountant) and her experience in audit and tax in major international corporations, as Chief Financial Officer of Aetna’s Guaranteed Products business, and as Chief Executive Officer of the UnitedHealthcare Specialty Benefits. The Board of Directors deemed Emmanuel Babeau to be a financial expert based on his education and his experience in audit and in corporate finance in major corporations, as Chief Financial Officer of Pernod Ricard and Schneider Electric SE, and as chairman of the audit committee of Sodexo. He is now Deputy Chief Executive Officer in charge of Finance and Legal Affairs of Schneider Electric SE. The Board of Directors has determined that all four directors meet the independence criteria of US Securities and Exchange Commission Rule 10A-3, although only Fabienne Lecorvaisier, Emmanuel Babeau and Diane Souza meet the French AFEP- MEDEF Code criteria of independence applied by the Board of Directors corporate governance purposes (see Item 16G, below). for general Item 16B. Code of Ethics We have adopted a financial code of ethics, as defined in Item 16B. of Form 20-F under the Exchange Act. Our financial code of ethics applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and other officers performing similar functions, as designated from time to time. Our financial code of ethics is available on our website at www.sanofi.com (information on our website is not incorporated by reference in this annual report). A copy of our financial code of ethics may also be obtained free of charge by addressing a written request Individual Shareholder Relations at our headquarters in Paris. We will disclose any amendment to the provisions of such financial code of ethics on our website. the attention of to Item 16C. Principal Accountants’ Fees and Services See Note E. to our consolidated financial statements included at Item 18 of this annual report. Item 16D. Exemptions from the Listing Standards for Audit Committees N/A 230 SANOFI / FORM 20-F 2018 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In 2018, Sanofi made the following purchases of its ordinary shares. Period January 2018 February 2018 June 2018 July 2018 August 2018 September 2018 October 2018 November 2018 (C) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(a) (D) Approximate Value of Shares that May Yet Be Purchased Under the Plans or Programs (b) (B) Average Price Paid per Share 72.78 66.81 67.72 71.94 73.71 73.81 75.40 78.97 5,495,622 2,994,251 1,879,789 1,165,782 1,126,817 848,877 1,185,348 678,179 14,394 14,194 14,921 14,837 14,754 14,691 14,602 14,548 (A) Total Number of Shares Purchased 5,495,622 2,994,251 1,879,789 1,165,782 1,126,817 848,877 1,185,348 678,179 (a) The Company was authorized to repurchase up to €15,048,238,800 of shares for a period of eighteen months (i.e., through November 2, 2019) by the Annual Shareholders’ Meeting held on May 2, 2018. (b) Millions of euros. This schedule does not include purchases and sales conducted by Rothschild & Cie Banque under a liquidity contract that is still in effect. For more information see Item 10.B Memorandum and Articles of Association – Use of Share Repurchase Programs. Item 16F. Change in Registrant’s Certifying Accountant N/A Item 16G. Corporate Governance Sanofi is incorporated under the laws of France, with securities listed on regulated public markets in the United States (NASDAQ Global Select Market) and France (Euronext Paris). Consequently, as described further in our annual report, our corporate governance framework reflects the mandatory provisions of French corporate law, the securities laws and regulations of France and the United States and the rules of the aforementioned public markets. As a “foreign private issuer,” as defined in rules promulgated under the U.S. Securities Exchange Act of 1934, as amended, (the “Exchange Act”), Sanofi is permitted, pursuant to NASDAQ Stock Market Rule 5615(a)(3), to follow its home country practice in lieu of certain NASDAQ corporate governance requirements applicable to U.S. corporations listed on the NASDAQ Stock Market. Sanofi has informed NASDAQ that it intends to follow corporate governance standards under French law to the extent permitted by the NASDAQ Stock Market rules and U.S. securities laws, as further discussed below. We generally follow the “AFEP-MEDEF” corporate governance recommendations for French listed issuers (hereafter referred to as the “AFEP-MEDEF Code”). As a result, our corporate governance framework is similar in many respects to, and provides investor protections that are comparable to – or in some cases, more stringent than – the corresponding rules of the there are NASDAQ Global Select Market. Nevertheless, important differences to keep in mind. SANOFI / FORM 20-F 2018 231 ITEM 16G. CORPORATE GOVERNANCE In line with NASDAQ Stock Market rules applicable to domestic issuers, a majority of Sanofi’s Board of Directors is comprised of independent directors. Sanofi evaluates the independence of members of our Board of Directors using the standards of the French AFEP-MEDEF Code as the principal reference. We believe that AFEP-MEDEF’s overarching criteria for independence – no relationship of any kind whatsoever with the Company, its group or the management of either that is such as to color a Board member’s judgment – are on the whole consistent with the goals of the NASDAQ Global Select Market’s rules although the specific tests proposed under the two standards may vary on some points. We have complied with the Audit Committee independence and other requirements of the Rule 10A-3 under the Exchange Act, adopted pursuant to the Sarbanes-Oxley Act of 2002. Based on the independence standards of the AFEP- MEDEF Code, our Audit Committee and Compensation Committee include one non-independent member, Christian Mulliez, as is permitted under the AFEP-MEDEF Code. However, each member of these two Committees meets the independence requirements of NASDAQ’s listing rules and Rule 10A-3 promulgated under the Sarbanes-Oxley Act of 2002, as amended. Sanofi follows the recommendation of the AFEP-MEDEF Code that at least one meeting not attended by the company’s executive officers be organized each year. Accordingly, Sanofi’s Board Charter provides that the Board of Directors shall organize at least two meetings a year without its executive officers, thereby providing the Chairman with the option to include or not non-independent directors and directors representing employees, as the case may require, depending on the agenda of the from meeting. Sanofi’s practice respect departs in NASDAQ’s Listing Rule 5605(b)(2), which provides that independent directors must have regularly scheduled meetings at which only independent directors are present. that the only competent body Under French law, the committees of our Board of Directors are advisory only, and where the NASDAQ Listing Rule 5600 Series would vest certain decision-making powers with specific committees by delegation (e.g. the appointment of Sanofi’s auditors by the Audit Committee), under French law, our Board of Directors remains take such decisions, albeit taking into account the recommendation of the relevant committees. Additionally, under French corporate law, it is the Shareholders of Sanofi voting at the Shareholders’ General Meeting that have the authority to appoint our auditors upon consideration of the proposal of our Board of Directors, although our Board Charter provides that the Board of Directors will make its proposal on the basis of the recommendation of our Audit Committee. We believe that this requirement of French law, together with the additional legal requirement that two sets of to statutory auditors be appointed, share the NASDAQ Global Select Market’s underlying goal of ensuring that the audit of our accounts be conducted by auditors from company management. independent In addition to the oversight role of our Compensation Committee for questions of management compensation including by way of equity, under French law any option or restricted share plans or other share capital increases, whether for the benefit of senior management or employees, may only be adopted by the Board of Directors pursuant to and within the limits of a shareholder resolution approving the related capital increase and delegating to the Board the authority to implement such operations. As described above, a number of issues, which could be resolved directly by a board or the the additional protection of direct United States, require shareholder consultation in France. its committees in Because we are a ‘foreign private issuer’ as described above, our Chief Executive Officer and our Chief Financial Officer issue the certifications required by §302 and §906 of the Sarbanes Oxley Act of 2002 on an annual basis (with the filing of our annual report on Form 20-F) rather than on a quarterly basis as would be the case of a U.S. corporation filing quarterly reports on Form 10-Q. French corporate law provides that the Board of Directors must vote to approve a broadly defined range of transactions that could potentially create conflicts of interest between Sanofi on the one hand and its Directors and Chief Executive Officer on the other hand, which are then presented to shareholders for approval at the next annual meeting. This legal safeguard provides shareholders with an opportunity to approve significant aspects of the Chief Executive Officer’s compensation package, and it operates in place of certain provisions of the NASDAQ Stock Market Listing Rules. it is reconvened, no quorum Sanofi is governed by the French Commercial Code, which provides that an ordinary general meeting of the shareholders may validly deliberate when first convened if the shareholders present or represented hold at least one fifth of the voting shares. If is required. The French Commercial Code further provides that the shareholders at an extraordinary general meeting may validly deliberate when first convened only if the shareholders present or represented hold at least one quarter of the voting shares and, if reconvened, one fifth of the voting shares. Therefore, Sanofi will not follow NASDAQ’s Rule 5620(c), which provides that the minimum quorum requirement for a meeting of shareholders is 33 1⁄ 3% of the outstanding common voting shares of the company. Item 16H. Mine Safety Disclosure N/A 232 SANOFI / FORM 20-F 2018 ITEM 17. FINANCIAL STATEMENTS Part III Item 17. Financial Statements See Item 18. Item 18. Financial Statements See pages F-1 through F-110 incorporated herein by reference. Item 19. Exhibits 1.1 Articles of association (statuts) of Sanofi (English translation). 1.2 Board Charter (Règlement Intérieur) of Sanofi (English translation). 2. The total amount of long-term debt securities authorized under any instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. We hereby agree to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of long-term debt of the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 4.1 Form of Contingent Value Rights Agreement by and among Sanofi and Trustee (on file with the SEC as Annex B to Amendment No.2 to the Registration Statement on Form F-4 filed on March 24, 2011). 8.1 List of significant subsidiaries, see “Item 4. Information on the Company – C. Organizational Structure” of this 20-F. 12.1 Certification by Olivier Brandicourt, Chief Executive Officer, required by Section 302 of the Sarbanes-Oxley Act of 2002. 12.2 Certification by Jean-Baptiste Chasseloup de Chatillon, Principal Financial Officer, required by Section 302 of the Sarbanes-Oxley Act of 2002. 13.1 Certification by Olivier Brandicourt, Chief Executive Officer, required by Section 906 of the Sarbanes-Oxley Act of 2002. 13.2 Certification by Jean-Baptiste Chasseloup de Chatillon, Principal Financial Officer, required by Section 906 of the Sarbanes-Oxley Act of 2002. 23.1 Consent of Ernst & Young et Autres dated March 8, 2019. 23.2 Consent of PricewaterhouseCoopers Audit dated March 8, 2019. SANOFI / FORM 20-F 2018 233 Signatures The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. Sanofi /s/ OLIVIER BRANDICOURT By: Name: Olivier Brandicourt Title: Chief Executive Officer Date: March 8, 2019 234 SANOFI / FORM 20-F 2018 Report of Independent Registered Public Accounting Firms To the Board of Directors and Shareholders of Sanofi, Opinion on the consolidated financial statements the We have audited the accompanying consolidated balance sheets of Sanofi and its subsidiaries (together the “Company”) as of December 31, 2018, 2017, and 2016, and related consolidated income statements and consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the Company as of December 31, 2018, 2017, and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as endorsed by the European Union. financial position of the the Company’s We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) financial (“PCAOB”), reporting as of December 31, 2018, based on criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 8, 2019 expressed an unqualified opinion thereon. internal control over Basis for opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are public accounting firms registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. financial included financial statements are We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit the to obtain reasonable assurance about whether consolidated free of material misstatement, whether due to error or fraud. Our audits of the consolidated performing statements procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers Audit Ernst & Young et Autres /s/ Philippe Vogt /s/ Stéphane Basset Ernst & Young et Autres and PricewaterhouseCoopers Audit have respectively served as the Company’s auditors since 1986 and 1999. Neuilly-sur-Seine and Paris-La Défense, France March 8, 2019 SANOFI / FORM 20-F 2018 235 Report of Independent Registered Public Accounting Firms To the Board of Directors and Shareholders of Sanofi, Opinion on internal control over financial reporting internal control over We have audited Sanofi and its subsidiaries’ (together “the Company”) financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018, 2017 and 2016, and related consolidated income statements and consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”), and our report dated March 8, 2019 expressed an unqualified opinion thereon. the Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are public accounting firms registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting fairly to provide reasonable assurance regarding A company’s internal control over financial reporting is a process designed the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable transactions and detail, accurately and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally receipts and accepted accounting principles, and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. reflect that the Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers Audit Ernst & Young et Autres /s/ Philippe Vogt /s/ Stéphane Basset Ernst & Young et Autres and PricewaterhouseCoopers Audit have respectively served as the Company’s auditors since 1986 and 1999. Neuilly-sur-Seine and Paris-La Défense, France March 8, 2019 236 SANOFI / FORM 20-F 2018 2018 Consolidated financial statements The financial statements are presented in accordance with International Financial Reporting Standards (IFRS). CONSOLIDATED BALANCE SHEETS – ASSETS CONSOLIDATED BALANCE SHEETS – EQUITY AND LIABILITIES CONSOLIDATED INCOME STATEMENTS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INTRODUCTION A/ Basis of preparation B/ Summary of significant accounting policies C/ Principal alliances D/ Presentation of the financial statements E/ Principal accountants’ fees and services F/ List of principal companies included in the consolidation during 2018 G/ Events subsequent to December 31, 2018 F-2 F-3 F-4 F-5 F-6 F-9 F-11 F-11 F-11 F-17 F-34 F-36 F-114 F-115 F-118 SANOFI / FORM 20-F 2018 F-1 CONSOLIDATED BALANCE SHEETS – ASSETS Consolidated balance sheets – assets (€ million) Property, plant and equipment Goodwill Other intangible assets Investments accounted for using the equity method Other non-current assets Deferred tax assets Non-current assets Inventories Accounts receivable Other current assets Cash and cash equivalents Current assets Assets held for sale or exchange Total assets Note D.3. D.4. D.4. D.6. D.7. D.14. D.9. D.10. D.11. D.13. - D.17. D.8. - D.36. December 31, 2018 December 31, 2017(a) December 31, 2016(a) 9,651 44,235 21,889 3,402 2,971 4,613 86,761 7,477 7,260 2,917 6,925 24,579 68 111,408 9,579 40,264 13,080 2,847 3,364 4,291 73,425 6,818 7,216 2,005 10,315 26,354 34 99,813 10,019 40,287 10,879 2,892 2,820 4,670 71,567 6,896 7,311 2,211 10,273 26,691 6,421 104,679 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). F-2 SANOFI / FORM 20-F 2018 CONSOLIDATED BALANCE SHEETS – EQUITY AND LIABILITIES Consolidated balance sheets – equity and liabilities (€ million) Equity attributable to equity holders of Sanofi Equity attributable to non-controlling interests Total equity Long-term debt Non-current liabilities related to business combinations and to non-controlling interests Non-current provisions and other non-current liabilities Deferred tax liabilities Non-current liabilities Accounts payable Current liabilities related to business combinations and to non-controlling interests Current provisions and other current liabilities Short-term debt and current portion of long-term debt Current liabilities Note D.15. D.16. D.17. D.18. D.19. D.14. D.18. D.19.5. D.17. Liabilities related to assets held for sale or exchange D.8. - D.36. Total equity and liabilities (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). December 31, 2018 December 31, 2017(a) December 31, 2016(a) 58,876 159 59,035 22,007 963 8,613 3,414 34,997 5,041 341 9,361 2,633 17,376 — 111,408 58,070 169 58,239 14,326 1,026 9,154 1,605 26,111 4,633 343 9,212 1,275 15,463 — 99,813 57,552 170 57,722 16,815 1,378 8,834 2,292 29,319 4,297 198 10,184 1,764 16,443 1,195 104,679 SANOFI / FORM 20-F 2018 F-3 CONSOLIDATED INCOME STATEMENTS Consolidated income statements (€ million) Net sales Other revenues Cost of sales Gross profit Research and development expenses Selling and general expenses Other operating income Other operating expenses Amortization of intangible assets Impairment of intangible assets Fair value remeasurement of contingent consideration Restructuring costs and similar items Other gains and losses, and litigation Operating income Financial expenses Financial income Income before tax and investments accounted for using the equity method Income tax expense Share of profit/(loss) from investments accounted for using the equity method Net income excluding the exchanged/held-for-exchange Animal Health business Net income/(loss) of the exchanged/held-for-exchange Animal Health business(b) Net income Net income attributable to non-controlling interests Net income attributable to equity holders of Sanofi Average number of shares outstanding (million) Average number of shares after dilution (million) ◆ ◆ ◆ ◆ Basic earnings per share (in euros) Basic earnings per share excluding the exchanged/ held-for-exchange Animal Health business (in euros) Diluted earnings per share (in euros) Diluted earnings per share excluding the exchanged/ held-for-exchange Animal Health business (in euros) Note D.35.1. D.25. D.26. D.5. D.18. D.27. D.28. D.29. D.29. D.35.1. D.30. D.31. D.36. D.32. D.15.9. D.15.9. 2018 34,463 1,214 2017(a) 35,072 1,149 2016(a) 33,809 887 (11,435) (11,613) (10,701) 24,242 (5,894) (9,859) 484 (548) 24,608 (5,472) (10,072) 237 (233) 23,995 (5,172) (9,478) 355 (482) (2,170) (1,866) (1,692) (718) 117 (1,480) 502 4,676 (435) 164 4,405 (481) 499 (293) (159) (731) (215) 5,804 (420) 147 5,531 (1,722) 85 4,423 3,894 (13) 4,410 104 4,306 1,247.1 1,255.2 3.45 3.46 3.43 3.44 4,643 8,537 121 8,416 1,256.9 1,266.8 6.70 3.00 6.64 2.98 (192) (135) (879) 211 6,531 (924) 68 5,675 (1,325) 136 4,486 314 4,800 91 4,709 1,286.6 1,296.0 3.66 3.42 3.63 3.39 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (b) The results of the Animal Health business, and the gain on the divestment of that business, are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); (see Notes D.2. and D.36.). F-4 SANOFI / FORM 20-F 2018 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Consolidated statements of comprehensive income (€ million) Net income Attributable to equity holders of Sanofi Attributable to non-controlling interests Other comprehensive income: Note 2018 4,410 4,306 104 Actuarial gains/(losses) D.15.7. 201 ◆ ◆ Change in fair value of equity instruments included in financial assets(b) ◆ Tax effects Sub-total: items not subsequently reclassifiable to profit or loss (A) ◆ ◆ ◆ ◆ ◆ Change in fair value of available-for-sale financial assets(b) Change in fair value of debt instruments included in financial assets(b) Change in fair value of cash flow hedges Change in currency translation differences Tax effects Sub-total: items subsequently reclassifiable to profit or loss (B) Other comprehensive income for the period, net of taxes (A+B) Comprehensive income Attributable to equity holders of Sanofi Attributable to non-controlling interests D.15.7. D.15.7. D.15.7. D.15.7. D.15.7. D.15.7. D.15.7. (537) 31 (305) — (4) 3 1,194 71 1,264 959 5,369 5,269 100 2017(a) 2016(a) 8,537 8,416 121 (28) — (90) (118) 838 — (24) (3,239) (137) (2,562) (2,680) 5,857 5,751 106 4,800 4,709 91 (106) — (22) (128) (105) — 31 1,090 40 1,056 928 5,728 5,634 94 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (b) Following the first-time application of IFRS 9, the effects of changes in fair value of financial instruments that for 2017 are presented in the single line item Change in fair value of available-for-sale financial assets and for 2018 presented in two separate line items: Change in fair value of equity instruments included in financial assets and Change in fair value of debt instruments included in financial assets. SANOFI / FORM 20-F 2018 F-5 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Consolidated statements of changes in equity Additional paid-in capital and retained earnings Share capital Treasury shares Stock options and other share- based payments Other comprehensive income Attributable to equity holders of Sanofi Attributable to non- controlling interests Total equity 2,611 52,010 (298) 2,814 912 58,049 161 58,210 — (2) — — — (2) — (2) 2,611 52,008 (298) 2,814 912 58,047 161 58,208 — — — — — — (127) 4,709 4,582 (3,759) — — — — — — — (2,905) (45) (1,655) 1,700 7 7 4 — — — — 212 (7) 96 — — (2) — — — — — — — — — — — — — — — — — — 227 (9) — — 1,052 925 — 4,709 1,052 5,634 (3,759) 3 91 94 — 928 4,800 5,728 (3,759) — — — — — — — — — — — — (110) (110) (2,905) — 219 — 100 227 (9) (2) — — — — — — — — 27 (2) (2,905) — 219 — 100 227 (9) 25 (2) 2,584 51,475 (1,503) 3,032 1,964 57,552 170 57,722 (€ million) Balance at January 1, 2016 per the published financial statements First-time application of IFRS 15(a) Balance at January 1, 2016 – including the effects of IFRS 15 Other comprehensive income for the period Net income for the period(a) Comprehensive income for the period(a) Dividend paid out of 2015 earnings (€2.93 per share) Payment of dividends to non-controlling interests Share repurchase program(b) Reduction in share capital(b) Share-based payment plans: ◆ Exercise of stock options(b) ◆ ◆ ◆ ◆ Issuance of restricted shares(b) Employee share ownership plan(b) Value of services obtained from employees Tax effects of the exercise of stock options Change in non-controlling interests without loss of control Change in non-controlling interests arising from divestment Balance at December 31, 2016(a) F-6 SANOFI / FORM 20-F 2018 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – (Continued) Additional paid-in capital and retained earnings Share capital Treasury shares Stock options and other share- based payments Other comprehensive income Attributable to equity holders of Sanofi Attributable to non- controlling interests Total equity 2,584 51,475 (1,503) 3,032 1,964 57,552 170 57,722 — — — — — — (117) 8,416 8,299 (3,710) — — — — — — — (2,159) (94) (3,554) 3,648 8 7 3 — — — — — 215 (7) 103 — — 16 25 — — — — — — — — — — — — — — — — — — — 263 3 — — — (2,548) (2,665) (15) (2,680) — 8,416 121 8,537 (2,548) 5,751 106 5,857 — — — — — — — — — — — — (3,710) — (3,710) — (99) (99) (2,159) — 223 — 106 263 3 16 25 — — — — — — — — — (1) (7) (2,159) — 223 — 106 263 3 16 24 (7) 2,508 52,862 (14) 3,298 (584) 58,070 169 58,239 (€ million) Balance at January 1, 2017(a) Other comprehensive income for the period Net income for the period(a) Comprehensive income for the period(a) Dividend paid out of 2016 earnings (€2.96 per share) Payment of dividends to non-controlling interests Share repurchase program(b) Reduction in share capital(b) Share-based payment plans: ◆ ◆ ◆ ◆ ◆ Exercise of stock options(b) Issuance of restricted shares(b) Employee share ownership plan(b) Value of services obtained from employees Tax effects of the exercise of stock options Other changes arising from issuance of restricted shares(c) Change in non-controlling interests without loss of control Change in non-controlling interests arising from divestment Balance at December 31, 2017(a) SANOFI / FORM 20-F 2018 F-7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – (Continued) Additional paid-in capital and retained earnings Share capital Treasury shares Stock options and other share- based payments (€ million) Balance at January 1, 2018(a) 2,508 52,862 (14) 3,298 First-time application of IFRS 9(d) Other comprehensive income for the period Net income for the period Comprehensive income for the period Dividend paid out of 2017 earnings (€3.03 per share) Payment of dividends to non-controlling interests Share repurchase program(b) — — — — — — — 839 (305) 4,306 4,001 (3,773) — — — — — — — — (1,100) Reduction in share capital(b) (24) (856) 880 Share-based payment plans: ◆ ◆ ◆ ◆ ◆ ◆ Exercise of stock options(b) Issuance of restricted shares and vesting of existing restricted shares(b)/(e) Employee share ownership plan(b) Proceeds from sale of treasury shares on exercise of stock options Value of services obtained from employees Tax effects of the exercise of stock options Other changes arising from issuance of restricted shares(c) Change in non-controlling interests without loss of control Change in non-controlling interests arising from divestment 2 4 5 — — — — — — 57 — (84) 115 — — — 13 (68) — 80 — 1 — — — — — — — — — — — — — — — — — 284 14 — — — Other comprehensive income(a) Attributable to equity holders of Sanofi Attributable to non- controlling interests (584) (852) 1,268 — 58,070 (13) 963 4,306 169 — (4) 104 Total equity 58,239 (13) 959 4,410 1,268 5,269 100 5,369 (3,773) — (3,773) — (97) (97) (1,100) — (1,100) — — — — — — — — — — — — — — 59 — 120 1 284 14 13 (68) — — — — — — — — — 3 (16) 159 — 59 — 120 1 284 14 13 (65) (16) 59,035 Balance at December 31, 2018 2,495 53,106 (153) 3,596 (168) 58,876 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.) (b) See Notes D.15.1. , D.15.3. , D.15.4. and D.15.5. (c) Issuance of restricted shares to former employees of the Animal Health business subsequent to the date of divestment. (d) See Note A.2.1.2. (e) This line includes the use of existing shares to fulfill vested rights under restricted share plans. F-8 SANOFI / FORM 20-F 2018 CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated statements of cash flows (€ million) Net income attributable to equity holders of Sanofi Net (income)/loss of the exchanged/held-for-exchange Animal Health business Non-controlling interests, excluding BMS(c) Share of undistributed earnings from investments accounted for using the equity method Depreciation, amortization and impairment of property, plant and equipment and intangible assets Gains and losses on disposals of non-current assets, net of tax(d) Net change in deferred taxes Net change in non-current provisions and other non-current liabilities(e) Cost of employee benefits (stock options and other share-based payments) Impact of the workdown of acquired inventories remeasured at fair value Other profit or loss items with no cash effect Operating cash flow before changes in working capital and excluding the exchanged/ held-for-exchange Animal Health business (Increase)/decrease in inventories (Increase)/decrease in accounts receivable Increase/(decrease) in accounts payable Net change in other current assets and other current liabilities Net cash provided by/(used in) operating activities excluding the exchanged/ held-for-exchange Animal Health business(f) Net cash provided by/(used in) operating activities of the exchanged/held-for-exchange Animal Health business Acquisitions of property, plant and equipment and intangible assets Acquisitions of consolidated undertakings and investments accounted for using the equity method(g)/(i) Acquisitions of other equity investments Proceeds from disposals of property, plant and equipment, intangible assets and other non-current assets, net of tax(h) Net change in other non-current assets Net cash provided by/(used in) investing activities excluding the exchanged/ held-for-exchange Animal Health business Net cash provided by/(used in) investing activities of the exchanged/held-for-exchange Animal Health business Net cash inflow from the exchange of the Animal Health business for BI’s Consumer Healthcare business(j) to shareholders of Sanofi to non-controlling interests, excluding BMS(c) Issuance of Sanofi shares Dividends paid: ◆ ◆ Payments received/(made) on changes of ownership interest in a subsidiary without loss of control Additional long-term debt contracted Repayments of long-term debt Net change in short-term debt Acquisitions of treasury shares Net cash provided by/(used in) financing activities excluding the exchanged/held-for-exchange Animal Health business Net cash provided by/(used in) financing activities of the exchanged/ held-for-exchange Animal Health business Impact of exchange rates on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Note D.32. D.15.2. - D.15.3. - D.15.8. D.35.1. 2018 4,306 13 22 (471) 4,279 (797) (727) (265) 284 114 69 6,827 (701) (35) 270 (814) 2017(a/b) 8,416 (4,643) 38 (47) 3,686 (97) (909) 321 263 166 38 7,232 (144) (529) 577 243 2016(a/b) 4,709 (314) 5 (85) 3,301 (244) (542) 20 241 — (83) 7,008 (326) 168 447 541 5,547 7,379 7,838 — — 346 D.3. - D.4. (1,977) (1,956) (2,083) D.1. - D.18. D.7. (12,857) (137) 2,163 (58) (1,151) (61) 535 (263) (426) (108) 209 (103) (12,866) (2,896) (2,511) D.36. D.36. D.15.1. D.17. D.17. D.15.4. — (6) 177 (3,773) (14) (77) 9,677 (787) (168) (1,101) — (126) 3,535 319 (3,710) (15) (37) 41 (2,368) 30 (2,162) — 305 (3,759) (21) (11) 4,773 (2,576) 96 (2,908) 3,934 (7,902) (4,101) — 1 (3,390) 10,315 D.13. 6,925 — (74) 42 10,273 10,315 111 (101) 1,125 9,148 10,273 (a) For 2016, the cash flows of the Animal Health business are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations). For 2017, all of the cash flows generated by the exchange of the Animal Health business for the Consumer Healthcare business of Boehringer Ingelheim (BI) are described in note (i) below. SANOFI / FORM 20-F 2018 F-9 CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued) (b) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (c) See Note C.2. to the financial statements for the year ended December 31, 2017. (d) Includes non-current financial assets. (e) This line item includes contributions paid to pension funds (see Note D.19.1.). (f) Including: ◆ ◆ ◆ ◆ Income tax paid Interest paid Interest received Dividends received from non-consolidated entities 2018 2017 2016 (2,058) (1,734) (2,096) (412) (347) (401) 72 1 56 89 56 (g) This line item includes payments made in respect of contingent consideration identified and recognized as a liability in business combinations. (h) This line item includes proceeds from disposals of investments in consolidated entities and of other non-current financial assets, including (for 2018) an amount of €1,598 million (net of transaction costs) for the divestment of the European Generics business (see Note D.1.1). (i) The main cash effect of the exchange of the Animal Health business for BI’s Consumer Healthcare business was the receipt by Sanofi of a balancing cash payment of €4,207 million. Consequently, all of the cash flows arising from this exchange transaction during 2017 are presented in a separate line item, Net cash inflow from the exchange of the Animal Health business for BI’s Consumer Healthcare business (see Note D.2.). (j) For the year ended December 31, 2017, this line item comprises (i) the receipt by Sanofi of a balancing cash payment of €4,207 million; (ii) reimbursements of intragroup accounts with Merial entities totaling €967 million; (iii) the €1,784 million payment of the tax due on the gain arising on the divestment; and (iv) the cash held by the BI subsidiaries acquired by Sanofi. The total consideration for the sale of the Animal Health business to BI was €10,557 million, and the consideration for the acquisition of BI’s Consumer Healthcare business was €6,239 million (see Note D.36.). F-10 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements Introduction Sanofi, together with its subsidiaries (collectively “Sanofi” or “the is a global healthcare leader engaged in the Company”), research, development and marketing of therapeutic solutions focused on patient needs. Sanofi is listed in Paris (Euronext: SAN) and New York (Nasdaq: SNY). The consolidated financial statements for the year ended December 31, 2018, and the notes thereto, were signed off by the Sanofi Board of Directors on February 6, 2019. A/ Basis of preparation A.1. International financial reporting standards (IFRS) The consolidated financial statements cover the twelve-month periods ended December 31, 2018, 2017 and 2016. In accordance with Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002 on the application of international accounting standards, Sanofi has presented its consolidated financial statements in accordance with IFRS since January 1, 2005. The term “IFRS” refers collectively to international accounting and financial reporting standards (IASs and IFRSs) and to interpretations of the interpretations committees (SIC and IFRIC) with mandatory application as of December 31, 2018. However, those updates do not materially affect the way in which Sanofi accounts for net sales or financial instruments. for any change in accounting for As regards net sales, the concept of “transfer of control”, which is used primarily to determine the date of revenue recognition, does not call the majority of transactions with Sanofi’s customers. The concept of “variable consideration” does not materially alter the principles and methods used to measure net sales, which continue to be recognized net of customer incentives and discounts, and of certain sales-based payments paid or payable to the healthcare authorities. As regards financial instruments, IFRS 9 changes the terminology used to classify some sub-categories of non-derivative financial assets without affecting the measurement principles applied to those assets, which continue to be measured at either fair value or amortized cost. The valuation models used by Sanofi are unchanged. Finally, changes to the principles used in determining impairment of financial assets measured at amortized cost mean that an expected loss approach is now applied to such assets. In practice, this has an immaterial effect on the amount of impairment, and mainly affects accounts receivable. The impacts of the first-time application of IFRS 15 are described in detail in Note A.2.1.1. The accounting policies applicable to the recognition of net sales and other revenues are described in Note B.13. The disclosures required by IFRS 15 regarding net sales are presented in Note D.35.1., “Segment results”. statements of Sanofi as of The consolidated financial December 31, 2018 have been prepared in compliance with IFRS as issued by the International Accounting Standards Board (IASB) and with IFRS as endorsed by the European Union as of December 31, 2018. The impacts of the first-time application of IFRS 9 are described in Note A.2.1.2. The accounting policies applied to in detail non-derivative financial assets, hedging, liabilities and other non-derivative financial liabilities effective January 1, 2018 are described in Note B.8. IFRS as endorsed by the European Union as of December 31, 2018 are available under the heading “IFRS Financial Statements” via the following web link: https://www.efrag.org/Endorsement. The consolidated financial statements have been prepared in accordance with the IFRS general principles of fair presentation, going concern, accrual basis of accounting, consistency of presentation, materiality, and aggregation. A.2. New standards, amendments and interpretations A.2.1. New standards applicable from January 1, 2018 IFRS 15 and IFRS 9 became applicable on January 1, 2018, requiring Sanofi to update its accounting policies on revenue and financial instruments. A.2.1.1 Impacts of the first-time application of IFRS 15 Sanofi applied IFRS 15 retrospectively (in accordance with IAS 8) effective January 1, 2018, without applying any of the practical expedients permitted under IFRS 15. The impacts of the first-time IFRS 15 on the consolidated balance sheet application of effective January 1, 2016 are presented below. The main impacts relate to: ◆ Contracts with distributors: The concept of “transfer of control” as introduced by IFRS 15 has changed the date on which Sanofi recognizes net sales for a limited number of contracts with distributors. Some distributors that were previously treated as customers are now treated as agents: – sales that were previously recognized when the risks and rewards of ownership were transferred to the distributor are now recognized when control is transferred to the end customer; SANOFI / FORM 20-F 2018 F-11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) – the distributor’s commission, previously included within Net sales as a reduction of gross sales, is now recognized within the line item Selling and general expenses in the income statement. specific date, are now recognized in revenue on a percentage of completion basis. This adjustment is reflected in the carrying amount of investments accounted for using the equity method as of the transition date. ◆ Investments accounted for using the equity method: Sanofi accounts for its investment in Regeneron using the equity method. The changes introduced by IFRS 15 alter the date on which Regeneron recognizes the revenue from milestone payments under certain collaboration agreements. Such payments, which were previously recognized in revenue on a Because those impacts do not represent cash inflows or outflows, cash generated by or used in operating activities for the comparative periods presented in the statements of cash flows Intermediate line items within the have not been amended. statements of cash flows have been adjusted accordingly. The impacts on the consolidated balance sheet as of January 1, 2016 are set forth below: (€ million) Investments accounted for using the equity method Deferred tax assets Non-current assets Inventories Current assets Total assets Equity attributable to equity holders of Sanofi Total equity Other current liabilities Current liabilities Total equity and liabilities January 1, 2016 Published Impact of IFRS 15 2,676 4,714 71,641 6,516 24,928 102,321 58,049 58,210 9,442 16,825 102,321 — 1 1 1 1 2 (2) (2) 4 4 2 The impacts on the consolidated balance sheet as of December 31, 2016 are set forth below: December 31, 2016 Published Impact of IFRS 15 2,890 4,669 71,564 6,892 26,687 104,672 57,554 57,724 10,175 16,434 104,672 2 1 3 4 4 7 (2) (2) 9 9 7 (€ million) Investments accounted for using the equity method Deferred tax assets Non-current assets Inventories Current assets Total assets Equity attributable to equity holders of Sanofi Total equity Other current liabilities Current liabilities Total equity and liabilities F-12 SANOFI / FORM 20-F 2018 Including impact of IFRS 15 2,676 4,715 71,642 6,517 24,929 102,323 58,047 58,208 9,446 16,829 102,323 Including impact of IFRS 15 2,892 4,670 71,567 6,896 26,691 104,679 57,552 57,722 10,184 16,443 104,679 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The impacts on the consolidated balance sheet as of December 31, 2017 are set forth below: (€ million) Investments accounted for using the equity method Deferred tax assets Non-current assets Inventories Current assets Total assets Equity attributable to equity holders of Sanofi Total equity Other current liabilities Current liabilities Total equity and liabilities December 31, 2017 Published Impact of IFRS 15 2,863 4,290 73,440 6,816 26,352 99,826 58,089 58,258 9,206 15,457 99,826 (16) 1 (15) 2 2 (13) (19) (19) 6 6 (13) The impacts on the consolidated income statement for the year ended December 31, 2016 are set forth below: (€ million) Net sales Cost of sales Gross profit Selling and general expenses Operating income Income before tax and investments accounted for using the equity method Income tax expense Share of profit/(loss) from investments accounted for using the equity method Net income excluding the exchanged/held-for-exchange Animal Health business Net income Net income attributable to equity holders of Sanofi Basic earnings per share (in euros) December 31, 2016 Published Impact of IFRS 15 33,821 (10,702) 24,006 (9,486) 6,534 5,678 (1,326) 134 4,486 4,800 4,709 3.66 (12) 1 (11) 8 (3) (3) 1 2 — — — Including impact of IFRS 15 2,847 4,291 73,425 6,818 26,354 99,813 58,070 58,239 9,212 15,463 99,813 Including impact of IFRS 15 33,809 (10,701) 23,995 (9,478) 6,531 5,675 (1,325) 136 4,486 4,800 4,709 3.66 SANOFI / FORM 20-F 2018 F-13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The impacts on the consolidated income statement for the year ended December 31, 2017 are set forth below: (€ million) Net sales Cost of sales Gross profit Selling and general expenses Operating income Income before tax and investments accounted for using the equity method Income tax expense Share of profit/(loss) from investments accounted for using the equity method Net income excluding the exchanged/held-for-exchange Animal Health business Net income Net income attributable to equity holders of Sanofi Basic earnings per share (in euros) December 31, 2017 Published Impact of IFRS 15 35,055 (11,611) 24,593 (10,058) 5,803 5,530 (1,722) 104 3,912 8,555 8,434 6.71 17 (2) 15 (14) 1 1 — (19) (18) (18) (18) Including impact of IFRS 15 35,072 (11,613) 24,608 (10,072) 5,804 5,531 (1,722) 85 3,894 8,537 8,416 6.70 A.2.1.2. Impacts of the first-time application of IFRS 9 Sanofi applied IFRS 9 effective January 1, 2018. IFRS 9 changes the terminology used to classify some sub-categories of non-derivative financial assets without affecting the measurement principles applied to those assets, which continue to be measured at either fair value or amortized cost. In The valuation models used by Sanofi are unchanged. those accordance with the transition provisions of reclassifications are made prospectively, and consequently do not require any restatement of published information for prior periods. IFRS 9, IFRS 9 does not alter the accounting treatment of liabilities or derivative instruments. financial F-14 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below sets forth reclassifications of non-current financial assets and of assets recognized through other comprehensive income: IAS 39 Categories (December 31, 2017) Available-for-sale financial assets Financial assets recognized under the fair value option Other comprehensive income Quoted equity investments Unquoted equity investments Contingent consideration receivable Assets held to meet obligations under post-employment benefit plans Assets held to meet obligations under deferred compensation plans Total 1,560 123 292 2,182 207 350 350 852 852 62 62 10 51 292 1,327 1,327 62 1,389 199 1,327 199 199 34 199 44 51 292 198 359 944 34 61 292 198 9 207 350 350 852 852 (€ million) ) 8 1 0 2 , 1 y r a u n a J ( s e i r o g e t a c 9 S R F I Quoted equity investments Unquoted equity investments Total – Equity instruments at fair value through OCI – non-reclassifiable Debt instruments Total – Debt instruments at fair value through OCI – reclassifiable Equity instruments Debt instruments Contingent consideration receivable(a) Assets held to meet obligations under post- employment benefit plans Assets held to meet obligations under deferred compensation plans Total – Other financial assets at fair value through profit or loss Additional paid-in capital and retained earnings (a) Non-current portion only. Most of Sanofi’s equity investments have been classified as financial assets at fair value through other comprehensive income. IFRS 9 also changes the way in which impairment losses are estimated; this mainly affects accounts receivable. Effective January 1, 2018, impairment allowances cover expected losses, rather than (as previously) incurred losses. The impact of this new impairment methodology as of January 1, 2018 is to increase the total impairment allowance by €17 million (before tax effects), and to reduce retained earnings by a net amount of €13 million. A.2.1.3. Impact of early adoption of IFRIC 23 IFRIC 23 (Uncertainty over Income Tax Treatments), issued in is mandatorily applicable from January 1, 2019. June 2017, this interpretation effective Sanofi has elected to early adopt January 1, 2018. IFRIC 23 has no effect on the methods currently used by Sanofi to measure tax uncertainties. However, tax exposures relating to corporate income taxes, which were previously classified within Provisions, are now presented (see separately Note D.19.4.). within Other non-current liabilities SANOFI / FORM 20-F 2018 F-15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) A.2.2. New pronouncements issued by the IASB and applicable from 2019 or later This note describes standards, amendments and interpretations issued by the IASB that will have mandatory application in 2019 or subsequent years, and Sanofi’s position regarding future application. Sanofi has not early adopted any of those standards, amendments or interpretations in its 2018 consolidated financial statements. A.2.2.1 IFRS 16 (Leases) In January 2016 the IASB issued IFRS 16 (Leases), which aligns the balance sheet accounting treatment of operating leases on that of finance leases (recognition of a liability for future lease payments, and of an asset for the associated rights of use). The first-time application of IFRS 16 will also lead to a change in presentation: ◆ in the income statement: the lease expense currently recognized as a component of Operating income will, under IFRS 16, be recognized partly as depreciation expense within Operating income, and partly within Financial expenses; ◆ in the statement of cash flows: the lease payments currently presented within Net cash provided by/(used in) operating activities will, under IFRS 16, be presented within Net cash provided by/(used in) financing activities to the extent that those payments are allocated to repayment of the lease liability. IFRS 16 is applicable to annual reporting periods beginning on or after January 1, 2019. Most of the leases contracted by Sanofi are operating leases (as defined by IAS 17) in which Sanofi is the lessee. Those leases, except for short-term leases and leases of low-value assets, will be recognized in the balance sheet as (i) a right-of-use asset and (ii) a liability for future lease payments. The main assets leased by Sanofi are buildings, cars, and computer equipment. Sanofi has reviewed its main service and supply contracts to identify potential embedded leases. The embedded leases impact on the identified in that review will not have a material consolidated financial statements. Sanofi has elected to adopt the following methods for the first- time application of IFRS 16: ◆ IFRS 16 will be applied as of January 1, 2019 with no restatement of prior periods, using the modified retrospective approach; ◆ where a service contract contains a lease, Sanofi will recognize the lease component as a stand-alone lease separately from the non-lease components; ◆ lease liabilities will be discounted using the incremental borrowing rate at the transition date, taking account of the residual lease term and the risk associated with the specific economic environment of the leased asset. F-16 SANOFI / FORM 20-F 2018 At this stage, Sanofi estimates that the liability for future lease payments determined in accordance with IFRS 16 would lie between €1.2 billion and €1.6 billion as of January 1, 2019. The amount of the right-of-use asset will equal the amount of that liability, plus advance payments made and minus accrued expenses. A reconciliation between the lease liability determined under IAS 17 for IFRS 16 and the obligation determined under operating leases (as disclosed in Note D.21. to the consolidated financial statements) will be presented in the opening balance sheet of the 2019 financial year and disclosed during the annual period in IFRS 16 becomes applicable. Sanofi expects the main differences will arise from: ◆ leases that were committed at the end of 2018 but had not yet commenced; ◆ extension or termination options, which are incorporated into the lease term under the new lease term definition; ◆ short-term leases and low-value assets, which are included in operating lease commitments under IAS 17 but will not be recognized in the balance sheet under IFRS 16; ◆ the effect of discounting the lease liability. A.2.2.2. Amendments, annual improvements and interpretations During 2018, the IASB published a number of amendments which Sanofi does not expect to have a material effect, including: ◆ “Plan Amendment, Curtailment or Settlement” (amendment to IAS 19), issued on February 7, 2018, will be applicable prospectively to plan amendments from January 1, 2019 onwards subject to endorsement by the European Union. ◆ “Definition of a Business” (amendment to IFRS 3), issued on October 22, 2018, will apply prospectively to business combinations from January 1, 2020 onwards subject to endorsement by the European Union. Sanofi will not early adopt those amendments. A.3. Use of estimates and judgments The preparation of financial statements requires management to make reasonable estimates and assumptions based on information available at the date of the finalization of the financial statements. Those estimates and assumptions may affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements, and disclosures of contingent assets and contingent the financial statements. Examples of estimates and assumptions include: liabilities as of the review of the date of ◆ amounts deducted from sales for projected sales returns, rebates and price reductions (see chargeback incentives, Notes B.13.1. and D.23.); NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) ◆ impairment of property, plant and equipment, intangible assets, and investments accounted for using the equity method (see Notes B.6. and D.5.); used to translate its Venezuelan operations and adopted the “DICOM” rate. This change led to the recognition of a foreign exchange loss of €102 million in 2016. ◆ the valuation of goodwill and the valuation and useful life of acquired intangible assets (see Notes B.3.2. , B.4.3. , D.4. and D.5.); ◆ the measurement of equity investments in unquoted entities (see Notes B.8.5. and D12.); ◆ the measurement of contingent consideration receivable in connection with asset divestments (see Notes B.8.5. and D.12.); ◆ the measurement of financial assets at amortized cost (see Note B.8.5.); ◆ the amount of post-employment benefit obligations (see Notes B.23. and D.19.1.); ◆ the amount of provisions for restructuring, litigation, tax risks and environmental risks, other than those related to income taxes (see Notes B.12., B.19., B.20., D.19. and D.22.); ◆ the amount of deferred tax assets resulting from tax losses temporary carry-forward deductible available differences (see Notes B.22. and D.14.); and for ◆ the direct and indirect impacts recorded in 2017 of the US tax including the reform (Tax Cuts and Jobs Act of 2017), estimated tax charge on deemed repatriation that is attributable to the accumulated earnings of non-US operations (see Note D.19.4.); ◆ the measurement of contingent consideration (see Notes B.3. and D.18.); In 2018, the Venezuelan government made further changes to the foreign exchange system. At the end of August the “DICOM” rate, which had been the compulsory rate since the end of January 2018, was abolished and replaced by the “PETRO” rate with a floating US dollar/bolivar parity. At the same time, the strong bolivar (“VEF”) was also replaced by a new currency known a 1-for-100,000 devaluation. Consequently, the contribution of the Venezuelan subsidiaries to the consolidated financial statements is immaterial. sovereign reflecting (“VES”), bolivar the as In Argentina, the cumulative rate of inflation over the last three years is in excess of 100%, based on a combination of indices used to measure inflation in that country. Consequently, Sanofi has treated Argentina as a hyperinflationary economy from July 1, 2018 onwards, and applies IAS 29. Consequently, a monetary foreign exchange loss of €9 million was recognized in the Sanofi financial statements as of December 31, 2018 in respect of the impact of hyperinflation in Argentina. A.5. Withdrawal of the United Kingdom from the European Union The announced withdrawal of the United Kingdom from the European Union does not pose any major issues for Sanofi, and the Group does not expect a material impact on the consolidated financial statements. ◆ which exchange rate to use at the end of the reporting period for the translation of accounts denominated in foreign currencies, and of financial statements of foreign subsidiaries, in cases where more than one exchange rate exists for a given currency (see Note A.4.). B/ Summary of significant accounting policies B.1. Basis of consolidation Actual results could differ from these estimates. A.4. Hyperinflation IAS 29, Under (Financial Reporting in Hyperinflationary Economies), non-monetary balance sheet items must be restated using a general price index; monetary items are not restated. in the income statement and the statement of Items comprehensive income must be restated by applying the change in the general price index from the dates when the income and expense items were initially recorded in the financial statements. In 2018, Sanofi continued to account for subsidiaries based in Venezuela using the full consolidation method, on the basis that the criteria for control as specified in IFRS 10 (Consolidated Financial Statements) are still met. In 2016, in light of changes to the foreign exchange system, economic and political developments and the scarcity of US dollar cash in Venezuela, Sanofi changed the exchange rate In accordance with IFRS 10 (Consolidated Financial Statements), the consolidated financial statements of Sanofi include the financial statements of entities that Sanofi controls directly or indirectly, regardless of the level of the equity interest in those entities. An entity is controlled when Sanofi has power over the entity, exposure or rights to variable returns from its involvement with the entity, and the ability to affect those returns through its power over the entity. In determining whether control exists, potential voting rights must be taken into account if those rights are substantive, in other words they can be exercised on a timely basis when decisions about the relevant activities of the entity are to be taken. Entities consolidated by Sanofi are referred to as “subsidiaries”. Entities that Sanofi controls by means other than voting rights are referred to as “consolidated structured entities”. In accordance with IFRS 11 (Joint Arrangements), Sanofi classifies its joint arrangements (i.e. arrangements in which SANOFI / FORM 20-F 2018 F-17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Sanofi exercises joint control with one or more other parties) either as a joint operation or a joint venture. In the case of a joint operation, Sanofi recognizes the assets and liabilities of the operation in proportion to its rights and obligations relating to those assets and liabilities. Joint ventures are accounted for using the equity method. currency translation are recorded in the income statement. However, foreign exchange gains and losses arising from the translation of advances between consolidated subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future are recognized in equity, in the line item Change in currency translation differences. Sanofi exercises joint control over a joint arrangement when decisions relating to the relevant activities of the arrangement require the unanimous consent of Sanofi and the other parties with whom control is shared. Sanofi exercises significant influence over an entity when it has the power to participate in the financial and operating policy decisions of that entity, but does not have the power to exercise control or joint control over those policies. In accordance with IAS 28 (Investments in Associates and Joint Ventures), the equity method is used to account for joint ventures (i.e. entities over which Sanofi exercises joint control) and for associates (i.e. entities over which Sanofi exercises significant influence). Under the equity method, the investment is initially recognized at cost, and subsequently adjusted to reflect changes in the net assets of the associate or joint venture. IAS 28 does not specify the treatment to be adopted on first-time application of the equity method to an investee following a step acquisition. Consequently, by reference to paragraph 10 of IAS 28, Sanofi has opted to apply the cost method, whereby the carrying amount of the investment represents the sum of the historical cost amounts for each step in the acquisition. As of the date on which the equity method is first applied, goodwill (which is included in the carrying the investment) is determined for each acquisition amount of step. The same applies to subsequent increases in the percentage interest in the equity-accounted investment. When the criteria of IFRS 5 are met, Sanofi recognizes the equity interest within the balance sheet line item Assets held for sale or exchange. The equity method is not applied to equity interests that are classified as held-for-sale assets. Transactions between consolidated companies are eliminated, as are intragroup profits. A list of the principal companies included in the consolidation in 2018 is presented in Note F. B.2. Foreign currency translation B.2.1. Accounting for foreign currency transactions in the financial statements of consolidated entities than receivables) and inventories Non-current assets (other acquired in foreign currencies are translated into the functional currency using the exchange rate prevailing at the acquisition date. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the end of the reporting period. The gains and losses resulting from foreign F-18 SANOFI / FORM 20-F 2018 B.2.2. Foreign currency translation of the financial statements of foreign entities Sanofi presents its consolidated financial statements in euros (€). In accordance with IAS 21 (The Effects of Changes in Foreign Exchange Rates), each subsidiary accounts for its transactions in the currency that its economic environment (the functional currency). representative of is most All assets and liabilities are translated into euros using the exchange rate of the subsidiary’s functional currency prevailing at the end of the reporting period. Income statements are translated using a weighted average exchange rate for the period, except in the case of foreign subsidiaries in a hyperinflationary economy. The resulting currency translation difference is recognized as a separate component of equity in the consolidated statement of comprehensive income, and is recognized in the income statement only when the subsidiary is sold or is wholly or partially liquidated. B.3. Business combinations and transactions with non-controlling interests B.3.1. Accounting for business combinations, transactions with non-controlling interests and loss of control Business combinations are accounted for in accordance with IFRS 3 (Business Combinations) and IFRS 10 (Consolidated Financial Statements). Business combinations are accounted for using the acquisition method. Under this method, the acquiree’s identifiable assets and liabilities that satisfy the recognition criteria of IFRS 3 (Business Combinations) are measured initially at their fair values as at the date of acquisition, except for (i) non-current assets classified as held for sale (which are measured at fair value less costs to sell) and (ii) assets and liabilities that fall within the scope of IAS 12 (Income Taxes) and IAS 19 (Employee Benefits). Restructuring liabilities are recognized as a liability of the acquiree only if the acquiree has an obligation as of the acquisition date to carry out the restructuring. principal accounting business The combinations and transactions with non-controlling interests include: applicable rules to ◆ Acquisition-related costs are recognized as an expense on the acquisition date, as a component of Operating income. ◆ Contingent consideration is recognized in equity if the contingent payment is settled by delivery of a fixed number of NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) If the probability of payment. the acquirer’s equity instruments; otherwise, it is recognized in Liabilities related to business combinations. Contingent consideration is recognized at fair value at the acquisition date the contingent irrespective of consideration was originally recognized as a financial liability, subsequent adjustments to the liability are recognized in profit loss in the line item Fair value remeasurement of or is made contingent consideration, unless the adjustment within the twelve months following the acquisition date and relates to facts and circumstances existing as of that date. Subsequent contingent consideration adjustments in respect of business combinations completed before January 1, 2010 in accordance with the continue to be accounted for pre-revision IFRS 3 (i.e. through goodwill). ◆ In the case of a step acquisition, the previously-held equity interest is remeasured at its acquisition-date fair value. The difference between this fair value and the carrying amount is recorded in profit or loss, along with any gains or losses relating to the previously-held interest that were recognized in other comprehensive income and are reclassifiable to profit or loss. ◆ Goodwill may be calculated on the basis of either (i) the entire fair value of the acquiree, or (ii) a share of the fair value of the acquiree proportionate to the interest acquired. This option may be elected for each acquisition individually. ◆ The effects of (i) a buyout of non-controlling interests in a subsidiary already controlled by Sanofi, and (ii) a disposal of a percentage interest without loss of control, are recognized in equity. ◆ In a partial disposal resulting in loss of control, the retained equity interest is remeasured at fair value at the date of loss of control. The gain or loss recognized on the disposal includes the effect of that remeasurement, and items initially recognized in equity that must be reclassified to profit or loss. ◆ Adjustments to the values of assets and liabilities initially determined provisionally (pending the results of independent further analysis) are recognized as a valuations or if they are made within retrospective adjustment to goodwill twelve months of the acquisition date. Once this twelve-month period has elapsed, the effects of any adjustments are recognized directly in profit or loss, unless they qualify as an error correction. Purchase price allocations are performed under the responsibility of management, with assistance from an independent valuer in the case of major acquisitions. The revised IFRS 3 does not specify an accounting treatment for contingent consideration arising from a business combination made by an entity prior to the acquisition of control in that entity and carried as a liability in the acquired entity’s balance sheet. The accounting treatment applied by Sanofi to such a liability is to measure it at fair value in the line item as of related to business combinations and to Liabilities remeasurements non-controlling interests, with subsequent the acquisition date and to report it recognized in profit or loss. This treatment is consistent with the accounting applied to contingent consideration in the books of the acquirer. B.3.2. Goodwill The excess of the cost of an acquisition over Sanofi’s interest in the fair value of the acquiree is recognized as goodwill at the date of the business combination. the identifiable assets and liabilities of Goodwill arising on the acquisition of subsidiaries is shown in a separate balance sheet line item, whereas goodwill arising on the acquisition of investments accounted for using the equity method is recorded in Investments accounted for using the equity method. Goodwill arising on foreign operations is expressed in the functional currency of the country concerned and translated into euros using the exchange rate prevailing at the reporting period. the end of In accordance with IAS 36 (Impairment of Assets), goodwill carried at cost less accumulated impairment (see Note B.6.). is Goodwill is tested for impairment annually and whenever events or circumstances indicate that impairment might exist. Such events or circumstances include significant changes more likely to have an other-than-temporary impact on the than not substance of the original investment. B.4. Other intangible assets Other intangible assets are initially measured at acquisition cost or production cost, including any directly attributable costs of preparing the asset for its intended use, or (in the case of assets acquired in a business combination) at fair value as of the date of the business combination. Intangible assets are amortized on a straight line basis over their useful lives. The useful lives of other intangible assets are reviewed at the end of each reporting period. The effect of any adjustment to useful lives is recognized prospectively as a change in accounting estimate. Amortization of other intangible assets is recognized in the income statement within Amortization of intangible assets except for amortization charged against (i) acquired or internally- rights of an industrial or developed software and (ii) other operational nature, which is recognized in the relevant classification of expense by function. Sanofi does not own any intangible assets with an indefinite useful life, other than goodwill. Intangible assets (other than goodwill) are carried at cost less accumulated amortization and accumulated impairment, if any, in accordance with IAS 36 (see Note B.6.). SANOFI / FORM 20-F 2018 F-19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) B.4.1. Research and development not acquired in a business combination Internally generated research and development Under IAS 38, research expenses are recognized in profit or loss when incurred. (a) the technical Internally generated development expenses are recognized as an intangible asset if, and only if, all the following six criteria can be demonstrated: feasibility of completing the development project; (b) Sanofi’s intention to complete the project; (c) Sanofi’s ability to use the project; (d) the probability that the project will generate future economic benefits; (e) the availability of adequate technical, financial and other resources to complete the project; and (f) the ability to measure the development expenditure reliably. Due to the risks and uncertainties relating to regulatory approval and to the research and development process, the six criteria for capitalization are usually considered not to have been met until the product has obtained marketing approval from the regulatory authorities. Consequently, internally generated development expenses arising before marketing approval has been obtained, mainly the cost of clinical trials, are generally expensed as incurred within Research and development expenses. Some industrial development expenses (such as those incurred in developing a second-generation synthesis process) are incurred after marketing approval has been obtained, in order to improve the industrial process for an active ingredient. To the extent that the six IAS 38 criteria are considered as having been met, such expenses are recognized as an asset in the balance sheet within Other intangible assets as incurred. Similarly, some clinical trials, for example those undertaken to obtain a geographical extension for a molecule that has already obtained marketing approval in a major market, may in certain circumstances meet the six capitalization criteria under IAS 38, in which case the related expenses are recognized as an asset in the balance sheet within Other intangible assets. Separately acquired research and development the definition of an intangible asset: a resource that Payments for separately acquired research and development are capitalized within Other intangible assets provided that they meet is (i) controlled by Sanofi, (ii) expected to provide future economic benefits for Sanofi, and (iii) identifiable (i.e. it is either separable or arises from contractual or legal rights). Under paragraph 25 of IAS 38, the first condition for capitalization (the probability that the expected future economic benefits from the asset will flow to the entity) is considered to be satisfied for separately acquired research and development. Consequently, upfront and milestone payments to third parties related to pharmaceutical products for which marketing approval has not yet been obtained are recognized as intangible assets, and amortized on a straight line basis over their useful lives beginning when marketing approval is obtained. F-20 SANOFI / FORM 20-F 2018 Payments under research and development arrangements relating to access to technology or to databases and payments made to purchase generics dossiers are also capitalized, and amortized over the useful life of the intangible asset. Subcontracting arrangements, payments research and development services, and continuous payments under research and development collaborations which are unrelated to the outcome of that collaboration, are expensed over the service term. for B.4.2. Other intangible assets not acquired in a business combination Licenses other than those related to pharmaceutical products and research projects, in particular software licenses, are capitalized at acquisition cost, including any directly attributable cost of preparing the software for its intended use. Software licenses are amortized on a straight line basis over their useful lives for Sanofi (three to five years). Internally generated costs incurred to develop or upgrade software are capitalized if the IAS 38 recognition criteria are satisfied, and amortized on a straight the life of software from the date on which the software is ready for use. line basis over the useful B.4.3. Other intangible assets acquired in a business combination Other intangible assets acquired in a business combination which relate to in-process research and development and currently marketed products and are reliably measurable are identified separately from goodwill, measured at fair value and capitalized within Other intangible assets in accordance with IFRS 3 (Business Combinations) and IAS 38 (Intangible Assets). The related deferred tax liability is also recognized if a deductible or taxable temporary difference exists. In-process research and development acquired in a business combination is amortized on a straight line basis over its useful life from the date of receipt of marketing approval. Rights to products currently marketed by Sanofi are amortized on lives, determined on the a straight line basis over their useful basis of cash flow forecasts which take into account the patent protection period of the marketed product. B.5. Property, plant and equipment Property, plant and equipment is initially measured and recognized at acquisition cost, including any directly attributable cost of preparing the asset for its intended use, or (in the case of assets acquired in a business combination) at fair value as of the the business combination. The component-based date of approach to accounting for property, plant and equipment is applied. Under this approach, each component of an item of property, plant and equipment with a cost which is significant in relation to the total cost of the item and which has a different useful life from the other components must be depreciated separately. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) initial measurement, property, plant and equipment After is carried at cost less accumulated depreciation and impairment, except for land which is carried at cost less impairment. Subsequent costs are not recognized as assets unless (i) it is probable that future economic benefits associated with those costs will flow to Sanofi and (ii) the costs can be measured reliably. Borrowing costs attributable to the financing of items of property, plant and equipment, and incurred during the construction period, are capitalized as part of the acquisition cost of the item. Government grants relating to property, plant and equipment are to which deducted from the acquisition cost of they relate. the asset In accordance with IAS 17 (Leases), items of property, plant and equipment leased by Sanofi as lessee under finance leases are recognized as an asset in the balance sheet, with the related lease obligation recognized as a liability. A lease qualifies as a finance lease if the risks and rewards of ownership of the asset to Sanofi. Assets held under finance leases are carried at the lower of the fair value of the the minimum lease leased asset or payments, and are depreciated over the shorter of the useful life of the asset or the term of the lease. transfers substantially all of the present value of it The depreciable amount of items of property, plant and equipment, net of any residual value, is depreciated on a straight line basis over the useful life of the asset. The useful life of an asset is usually equivalent to its economic life. The customary useful lives of property, plant and equipment are as follows: Buildings Fixtures Machinery and equipment Other 15 to 40 years 10 to 20 years 5 to 15 years 3 to 15 years Useful lives and residual values of property, plant and equipment are reviewed annually. The effect of any adjustment to useful lives or residual values is recognized prospectively as a change in accounting estimate. Depreciation of property, plant and equipment is recognized as an expense in the income statement, in the relevant classification of expense by function. B.6. Impairment of property, plant and equipment, intangible assets, and investments accounted for using the equity method B.6.1. Impairment of property, plant and equipment and intangible assets In accordance with IAS 36 (Impairment of Assets), assets that generate separate cash flows and assets included in cash- generating units (CGUs) are assessed for impairment when events or changes in circumstances indicate that the asset or CGU may be impaired. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. the lowest is allocated must Under IAS 36, each CGU to which goodwill level within the entity at which the (i) represent is monitored for internal management purposes, and goodwill (ii) not be larger than an operating segment determined in accordance with IFRS 8 (Operating Segments), before application of the IFRS 8 aggregation criteria (see Note B.26.). Quantitative and qualitative indications of impairment (primarily relating to the status of the research and development portfolio, pharmacovigilance, patent litigation, and the launch of competing products) are reviewed at the end of each reporting period. If there is any internal or external indication of impairment, Sanofi estimates the recoverable amount of the asset or CGU. Other intangible assets not yet available for use (such as capitalized in-process research and development), and CGUs that include goodwill, are tested for impairment annually whether or not there is any indication of impairment, and more frequently if any event or circumstance indicates that they might be impaired. Such assets are not amortized. indication of impairment, When there is an internal or external the asset and Sanofi estimates the recoverable amount of recognizes an impairment loss if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of the asset is the higher of its fair value less costs to sell or its value in use. To determine value in use, Sanofi uses estimates of future cash flows generated by the asset or CGU, prepared using the same methods as those used in the initial measurement of the asset or CGU on the basis of medium-term strategic plans. In the case of goodwill, estimates of future cash flows are based on a medium-term strategic plan, an extrapolation of the cash flows beyond that plan, and a terminal value. In the case of other intangible assets, the period used is based on the economic life of the asset. Estimated cash flows are discounted at long-term market interest rates that reflect the best estimate by Sanofi of the time value of money, the risks specific to the asset or CGU, and economic conditions in the geographical regions in which the business activity associated with the asset or CGU is located. Certain assets and liabilities that are not directly attributable to a specific CGU are allocated between CGUs on a basis that is reasonable, the corresponding goodwill. consistent with allocation and the of Impairment losses arising on property, plant and equipment, on software and on certain rights are recognized in the relevant classification of expense by function. losses arising on Other Impairment recognized within Impairment of Income statement. intangible assets are intangible assets in the SANOFI / FORM 20-F 2018 F-21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) B.6.2. Impairment of investments accounted for using the equity method In accordance with IAS 28 (Investments in Associates and Joint Ventures), Sanofi determines whether investments accounted for using the equity method may be impaired based on indicators such as default financial difficulties, probability of bankruptcy, or a prolonged or significant decline in quoted market price. If an investment is impaired, the amount of the impairment loss is determined by applying IAS 36 (see Note B.6.1.) and recognized in Share of profit/(loss) from investments accounted for using the equity method. in contractual payments, significant B.6.3. Reversals of impairment losses charged against property, plant and equipment, intangible assets, and investments accounted for using the equity method At the end of each reporting period, Sanofi assesses whether events or changes in circumstances indicate that an impairment loss recognized in a prior period in respect of an asset (other than goodwill) or an investment accounted for using the equity method can be reversed. If this is the case, and the recoverable amount as determined based on the revised estimates exceeds the carrying amount of the asset, Sanofi reverses the impairment loss only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset. impairment losses in respect of other intangible Reversals of assets are recognized within the income statement line item Impairment of intangible assets, while reversals of impairment losses in respect of investments accounted for using the equity method are recognized within the income statement line item Share of profit/(loss) from investments accounted for using the equity method. Impairment losses taken against goodwill is part of the carrying are never reversed, unless the goodwill amount of an investment accounted for using the equity method. B.7. Assets held for sale or exchange and liabilities related to assets held for sale or exchange In accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations), non-current assets and groups of assets are classified as held for sale in the balance sheet if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Within the meaning of IFRS 5, the term “sale” also includes exchanges for other assets. Non-current assets or asset groups held for sale must be available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of such assets, and a sale must be highly probable. Criteria used to determine whether a sale is highly probable include: ◆ the appropriate level of management must be committed to a plan to sell; F-22 SANOFI / FORM 20-F 2018 ◆ an active program to locate a buyer and complete the plan must have been initiated; ◆ the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value; ◆ completion of the sale should be foreseeable within the twelve months following the date of reclassification to Assets held for sale or exchange; ◆ actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Before initial reclassification of the non-current asset (or asset group) to Assets held for sale or exchange, the carrying amounts of the asset (or of all the assets and liabilities in the asset group) must be measured in accordance with the applicable standards. Subsequent to reclassification to Assets held for sale or exchange, the non-current asset (or asset group) is measured at the lower of carrying amount or fair value less costs to sell, with any write-down recognized by means of an impairment loss. Once a non-current asset has been reclassified as held for sale or exchange, it is no longer depreciated or amortized. In a disposal of an equity interest leading to loss of control, all the the entity involved are classified as assets and liabilities of line held-for-sale assets or liabilities within the balance sheet items Assets held for sale or exchange or Liabilities related to assets held for sale or exchange, provided that the disposal satisfies the IFRS 5 classification criteria. The profit or loss generated by a held-for-sale asset group is reported in a separate line item in the income statement for the current period and for the comparative periods presented, provided that the asset group: ◆ represents a separate major line of business or geographical area of operations; or, ◆ is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or, ◆ is a subsidiary acquired exclusively with a view to resale. In accordance with IFRS 10, transactions between companies that are held for sale or treated as discontinued operations and other consolidated companies are eliminated. Events or circumstances beyond Sanofi’s control may extend the period to complete the sale or exchange beyond one year without in precluding classification of Assets held for sale or exchange provided that there is sufficient evidence that Sanofi remains committed to the planned sale or exchange. Finally, in the event of changes to a plan of sale that require an asset no longer to be classified as held for sale, IFRS 5 specifies the following treatment: (or disposal group) the asset ◆ The assets and liabilities previously classified as held for sale are reclassified to the appropriate balance sheet line items, with no restatement of comparative periods; NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) ◆ Each asset is measured at the lower of (a) its carrying amount before the asset was reclassified as held for sale, adjusted for any depreciation, amortization or revaluation that would have been recognized if the asset had not been reclassified as held for sale, or the date of reclassification; its recoverable amount at (b) ◆ The backlog of depreciation, amortization and impairment not recognized while non-current assets were classified as held for sale must be reported in the same income statement line item that was used to report impairment losses arising on initial reclassification of assets as held for sale and gains or losses arising on the sale of such assets. In the consolidated income statement, those impacts are reported within the line item Other gains and losses, and litigation; ◆ The net income of a business previously classified as discontinued or as held for sale or exchange and reported on a separate line in the income statement must be reclassified and included in net for all periods presented; income from continuing operations, ◆ In addition, segment information relating to the income statement and the statement of cash flows (acquisitions of non-current assets) must be disclosed in the notes to the financial statements in accordance with IFRS 8 (Operating Segments), and must also be restated for all prior periods presented. B.8. Financial instruments B.8.1. Non-derivative financial assets In accordance with IFRS 9 (Financial Instruments) and IAS 32 (Financial Instruments: Presentation), Sanofi has adopted the classification of non-derivative financial assets described below. The classification used depends on (i) the characteristics of the contractual cash flows (i.e. whether they represent interest or principal) and (ii) the business model for managing the asset applied at the time of initial recognition. Financial assets at fair value through other comprehensive income These mainly comprise: ◆ quoted and unquoted equity investments that Sanofi does not trading purposes and that management has hold for designated at “fair value through other comprehensive income” on initial recognition. Gains and losses arising from changes in fair value are recognized in equity within the statement of comprehensive income in the period in which they occur. When such instruments are derecognized, the previously-recognized changes in fair value remain within Other comprehensive income, as does the gain or loss on divestment. Dividends received are recognized in profit or loss for the period, within the line item Financial income; ◆ debt instruments whose contractual cash flows represent payments of interest or repayments of principal, and which are managed with a view to collecting cash flows and selling the asset. Gains and losses arising from changes in fair value are recognized in equity within the statement of comprehensive income in the period in which they occur. When such assets are derecognized, the cumulative gains and losses previously recognized in equity are reclassified to profit or loss for the period within the line items Financial income or Financial expenses. Financial assets at fair value through profit or loss These mainly comprise: ◆ contingent consideration already carried in the books of an acquired entity or granted in connection with a business combination; ◆ instruments whose contractual cash flows represent payments of interest and repayments of principal, which are managed with a view to selling the asset; ◆ instruments that management has designated as ‘fair value through profit or loss” on initial recognition; ◆ quoted and unquoted equity investments: equity instruments that are not held for trading and which management did not designate at “fair value through other comprehensive income” on initial recognition, and instruments that do not meet the IFRS definition of “equity instruments”; Gains and losses arising from changes in fair value are recognized in profit or loss within the line items Financial income or Financial expenses. Dividends received are recognized in profit or loss for the period, within the line item Financial income. Fair value of equity investments in unquoted entities On initial recognition of an equity investment in an entity not quoted in an active market, the fair value of the investment is the acquisition cost. Cost ceases to be a representative measure of the fair value of an unquoted equity investment when Sanofi identifies significant changes in the investee, or in the environment in which it operates. In such cases, an internal valuation is carried out, based mainly on peer comparisons. Financial assets measured at amortized cost Financial assets at amortized cost comprise instruments whose contractual cash flows represent payments of interest and repayments of principal and which are managed with a view to collecting cash flows. The main assets in this category are loans and receivables. They are presented within the line items Other assets, Accounts non-current receivable and Cash and cash equivalents. Loans with a maturity of more than 12 months are presented in “Long-term loans and advances” within Other non-current assets. These financial assets are measured at amortized cost using the effective interest method. assets, Other current SANOFI / FORM 20-F 2018 F-23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Impairment of financial assets measured at amortized cost The main assets involved are accounts receivable. the amount Accounts receivable are initially recognized at invoiced to the customer. Impairment losses on trade accounts receivable are estimated using the expected loss method, in order to take account of the risk of payment default throughout the lifetime of the receivables. The expected credit loss is estimated collectively for all accounts receivable at each reporting date using an average expected loss rate, determined primarily on the basis of historical credit loss rates. However, that average expected loss rate may be adjusted if there are indications of a likely significant increase in credit risk. If a receivable is subject to a known credit risk, a specific impairment loss is recognized for that receivable. The amount of expected losses is recognized in the balance sheet as a reduction in the gross amount of accounts receivable. Impairment losses on accounts receivable are recognized within Selling and general expenses in the income statement. B.8.2. Derivative instruments Derivative instruments that do not qualify for hedge accounting fair value, with are initially and subsequently measured at changes in fair value recognized in the income statement in Other operating income or in Financial income or Financial expenses, depending on the nature of the underlying economic item which is hedged. Derivative instruments that qualify for hedge accounting are measured using the policies described in Note B.8.3. below. IFRS 13 (Fair Value Measurement) requires counterparty credit risk to be taken into account when measuring the fair value of financial instruments. That risk is estimated on the basis of observable, publicly-available statistical data. Policy on offsetting for a financial asset and a financial In order liability to be presented as a net amount in the balance sheet under IAS 32, there must be: (a) a legally enforceable right to offset; and (b) the intention either to settle on a net basis, or to realize the asset and settle the liability simultaneously. In addition, IFRS 7 (Financial Instruments: Disclosures) requires the notes to the financial statements to include a schedule showing a list of any offsets recognized under IAS 32 and of transactions for which only criterion (a) is met, i.e. potential offsets such as those specified in close out netting agreements (positions offset only in the event of default, as specified in the International Swaps (ISDA) standard). and Derivatives Association B.8.3. Hedging As part of its overall market risk management policy, Sanofi enters into various hedging transactions involving derivative or F-24 SANOFI / FORM 20-F 2018 non-derivative instruments; these may include forward contracts, currency swaps or options, interest rate swaps or options, cross- currency swaps, and debt placings or issues. as are financial designated instruments Such hedging instruments and recognized using the hedge accounting principles of IFRS 9 when (a) there is formal designation and documentation of the hedging relationship, of how the effectiveness of the hedging relationship will be assessed, and of the underlying market risk management objective and strategy; (b) the hedged item and the hedging instrument are eligible for hedge accounting; and (c) there is an economic relationship between the hedged item and the hedging instrument, defined on the basis of a hedge ratio that is consistent with the underlying market risk management strategy, and the residual credit risk does not dominate the value changes that from that economic relationship. result Fair value hedge A fair value hedge is a hedge of the exposure to changes in fair value of an asset, liability or firm commitment that is attributable to one or more risk components and could affect profit or loss. Changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk components are generally recognized in the income statement, within Other operating income for hedges related to operating activities, or within Financial income or Financial expenses for hedges related to investing or financing activities. Cash flow hedge A cash flow hedge is a hedge of the exposure to variability in cash flows from an asset, liability or highly probable forecast transaction that is attributable to one or more risk components and could affect profit or loss. Changes in fair value of the hedging instrument attributable to the effective portion of the hedge are recognized directly in equity in the consolidated statement of comprehensive income. Changes in fair value attributable to the ineffective portion of the hedge are recognized in the income statement within Other operating income for hedges of operating activities, and within Financial income or Financial expenses for hedges of investing or financing activities. the hedging instrument Cumulative changes in fair value of previously recognized in equity are reclassified to the income statement when the hedged transaction affects profit or loss. Those reclassified gains and losses are recognized within Other operating income for hedges related to operating activities, and income or Financial expenses for hedges within Financial related to investing or financing activities. When a forecast transaction results in the recognition of a non-financial asset or liability, cumulative changes in the fair value of the hedging instrument previously recognized in equity are incorporated in the initial carrying amount of that asset or liability. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) When the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss previously recognized in equity remains separately recognized in equity and is not recognized as an reclassified to the income statement adjustment to the initial cost of the related non-financial asset or liability) until the forecast transaction occurs. However, if Sanofi no longer expects the forecast the loss previously recognized in equity is cumulative gain or recognized immediately in profit or loss. transaction to occur, (or Hedge of a net investment in a foreign operation In a hedge of a net investment in a foreign operation, changes in the fair value of the hedging instrument attributable to the effective portion of the hedge are recognized directly in equity in the consolidated statement of comprehensive income. Changes in fair value attributable to the ineffective portion of the hedge are recognized in the income statement within Financial income or Financial expenses. When the investment in the foreign operation is sold, the changes in the fair value of the hedging instrument previously recognized in equity are reclassified to the income statement within Financial income or Financial expenses. Cost of hedging its market As part of risk management policy, Sanofi may designate currency options or interest rate options as hedging instruments, the effectiveness of which is measured on the basis of changes in intrinsic value. In such cases, the time value of the option is treated as a hedging cost and accounted for as follows: ◆ If the option includes a component that is not aligned on the critical features of the hedged item, the corresponding change in the time value is taken to profit or loss. ◆ Otherwise, the change in the time value is taken to equity within the statement of comprehensive income, and then: – If the hedged item is linked to a transaction that results in the recognition of a financial asset or liability, the change in the time value is reclassified to profit or loss symmetrically with the hedged item; – If the hedged item is linked to a transaction that results in the recognition of a non-financial asset or the change in the time value is incorporated in the initial carrying amount of that asset or liability; liability, – if the hedged item is linked to a period of time, the change in time value is reclassified to profit or loss on a straight line basis over the life of the hedging relationship. In the case of forward contracts and currency swaps, and of cross-currency swaps that qualify for hedge accounting on the basis of changes in spot for each transaction to use the option whereby the premium/discount or foreign currency basis spread are treated in the same way as the time value of an option. rates, Sanofi may elect Discontinuation of hedge accounting Hedge accounting is discontinued when the eligibility criteria are no longer met (in particular, when the hedging instrument expires or is sold, terminated or exercised), or if there is a change in the market risk management objective of the hedging relationship. B.8.4. Non-derivative financial liabilities Borrowings and debt Bank borrowings and debt instruments are initially measured at fair value of the consideration received, net of directly attributable transaction costs. Subsequently, they are measured at amortized cost using the effective interest method. All costs related to the issuance of borrowings or debt instruments, and all differences between the issue proceeds net of transaction costs and the value on redemption, are recognized within Financial expenses in the income statement over the term of the debt using the effective interest method. Liabilities related to business combinations and to non-controlling interests These line items record the fair value of (i) contingent consideration payable in connection with business combinations and (ii) commitments to buy out equity holders of subsidiaries, including put options granted to non-controlling interests. Adjustments to the fair value of commitments to buy out equity including put options granted to holders of subsidiaries, non-controlling interests, are recognized in equity. Other non-derivative financial liabilities liabilities include trade accounts Other non-derivative financial payable, which are measured at fair value (which in most cases equates to face value) on initial recognition, and subsequently at amortized cost. B.8.5. Fair value of financial instruments Under IFRS 13 (Fair Value Measurement) and IFRS 7 (Financial Instruments: Disclosures), fair value measurements must be classified using a hierarchy based on the inputs used to measure the fair value of the instrument. This hierarchy has three levels: (a) level 1: quoted prices in active markets for identical assets or liabilities (without modification or repackaging); (b) level 2: quoted prices in active markets for similar assets and liabilities, or valuation techniques in which all important inputs are derived from observable market data; (c) level 3: valuation techniques in which not all important inputs are derived from observable market data. SANOFI / FORM 20-F 2018 F-25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows the disclosures required under IFRS 7 relating to the measurement principles applied to financial instruments. Note Type of financial instrument B.6. B.6. B.6. Financial assets measured at fair value (quoted equity instruments) Financial assets measured at fair value (quoted debt instruments) Financial assets measured at fair value (unquoted equity instruments) B.6. Financial assets measured at fair value (contingent consideration receivable) B.6. B.6. Financial assets measured at fair value held to meet obligations under post-employment benefit plans Financial assets designated at fair value held to meet obligations under deferred compensation plans Method used to determine fair value Market data Measurement principle Level in fair value hierarchy Valuation technique Valuation model Exchange rate Interest rate Fair value Fair value Fair value Fair value Fair value Fair value 1 1 3 3 1 1 Market value Market value Amortized cost/ Peer comparison (primarily) Revenue- based approach Quoted market price Quoted market price N/A N/A If cost ceases to be a representative measure of fair value, an internal valuation based primarily on peer comparison is used. The fair value of contingent consideration receivable is determined by adjusting the contingent consideration at the end of the reporting period using the method described in Note D.7.3. Market value Quoted market price Market value Quoted market price N/A N/A B.6. Long-term loans and advances and other non-current receivables Amortized cost N/A N/A B.9. Investments in mutual funds Fair value 1 Market value B.9. Negotiable debt instruments, commercial paper, instant access deposits and term deposits Amortized cost N/A N/A The amortized cost of long-term loans and advances and other non-current receivables at the end of the reporting period is not materially different from their fair value. Net asset value N/A Because these instruments have a maturity of less than 3 months, amortized cost is regarded as an acceptable approximation of fair value as disclosed in the notes to the consolidated financial statements. F-26 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Note Type of financial instrument Measurement principle Level in fair value hierarchy Valuation technique Valuation model Exchange rate Interest rate Method used to determine fair value Market data B.9. Debt Amortized cost(a) N/A N/A In the case of debt with a maturity of less than 3 months, amortized cost is regarded as an acceptable approximation of fair value as reported in the notes to the consolidated financial statements. For debt with a maturity of more than 3 months, fair value as reported in the notes to the consolidated financial statements is determined either by reference to quoted market prices at the end of the reporting period (quoted instruments) or by discounting the future cash flows based on observable market data at the end of the reporting period (unquoted instruments). B.10. Forward currency contracts Fair value B.10. Interest rate swaps Fair value B.10. Cross-currency swaps Fair value B.11. Liabilities related to business combinations and to non-controlling interests (CVRs) Fair value B.11. Liabilities related to business combinations and to non-controlling interests (other than CVRs) Fair value(b) 2 2 2 1 3 Present value of future cash flows Mid Market Spot Revenue- based approach Present value of future cash flows Mid Market Spot Present value of future cash flows Mid Market Spot < 1 year: Mid Money Market > 1 year: Mid Zero Coupon < 1 year: Mid Money Market and LIFFE interest rate futures > 1 year: Mid Zero Coupon < 1 year: Mid Money Market and LIFFE interest rate futures > 1 year: Mid Zero Coupon Market value Quoted market price Revenue- based approach Under IAS 32, contingent consideration payable in a business combination is a financial liability. The fair value of such liabilities is determined by adjusting the contingent consideration at the end of the reporting period using the method described in Note B.11. (a) In the case of debt designated as a hedged item in a fair value hedging relationship, the carrying amount in the consolidated balance sheet includes changes in fair value attributable to the hedged risk(s). (b) For business combinations completed prior to application of the revised IFRS 3, contingent consideration is recognized when payment becomes probable. See Note B.3.1. B.8.6. Derecognition of financial instruments Financial assets are derecognized when the contractual rights to cash flows from the asset have ended or have been transferred and when Sanofi has transferred substantially all the risks and rewards of ownership of If Sanofi has neither transferred nor retained substantially all the risks and rewards of the asset. ownership of a financial asset, it is derecognized if Sanofi does not retain control of the asset. A financial liability is derecognized when Sanofi’s contractual obligations in respect of the liability are discharged, cancelled or extinguished. SANOFI / FORM 20-F 2018 F-27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) B.8.7. Risks Relating to financial instruments Market risks in respect of non-current financial assets, cash equivalents, derivative instruments and debt are described in the discussions of risk factors presented in Item 3.D. and Item 11 of Sanofi’s Annual Report on Form 20-F for 2018. Credit risk is the risk that customers may fail to pay their debts. B.9. Inventories Inventories are measured at the lower of cost or net realizable value. Cost is calculated using the weighted average cost method or the first-in, first-out method, depending on the nature of the inventory. exposure estimates calculated by management, with assistance from independent actuaries, using IBNR (Incurred But Not Reported) techniques. Those techniques use past claims experience, within Sanofi and in the market, to estimate future trends in the cost of claims. Contingent liabilities are not recognized, but are disclosed in the notes to the financial statements unless the possibility of an outflow of economic resources is remote. Sanofi estimates provisions on the basis of events and circumstances related to present obligations at the end of the reporting period and of past experience, and to the best of the management’s knowledge at financial statements. the date of preparation of The cost of finished goods inventories includes costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Reimbursements offsetting the probable outflow of resources are recognized as assets only if it is virtually certain that they will be received. Contingent assets are not recognized. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. During the launch phase of a new product, any inventories of that product are written down to zero pending regulatory approval. The write-down is reversed once it becomes highly probable that marketing approval will be obtained. B.10. Cash and cash equivalents Cash and cash equivalents as shown in the consolidated balance sheet and statement of cash flows comprise cash, plus liquid short-term investments that are readily convertible into cash and are subject to an insignificant risk of changes in value in the event of movements in interest rates. B.11. Treasury shares Restructuring provisions are recognized if Sanofi has a detailed, formal restructuring plan at the end of the reporting period and has announced its intention to implement this plan to those affected by it. No provisions are recorded for future operating losses. Sanofi records non-current provisions for certain obligations, such as legal or constructive environmental obligations and litigation, where an outflow of resources is probable and the amount of the outflow can be reliably estimated. Where the effect of those provisions are measured at the present value of the expenditures expected to be required to settle the obligation, calculated using a discount rate that reflects an estimate of the time value of money and the risks specific to the obligation. the time value of money is material, Increases in provisions to reflect the effects of the passage of time are recognized within Financial expenses. In accordance with IAS 32, Sanofi treasury shares are deducted from equity, irrespective of the purpose for which they are held. No gain or loss is recognized in the income statement on the purchase, sale, impairment or cancellation of treasury shares. B.13. Revenue recognition B.13.1. Net sales B.12. Provisions for risks In accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), Sanofi records a provision when it has a present obligation, whether legal or constructive, as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the outflow of resources. If the obligation is expected to be settled more than twelve months after the end of the reporting period, or has no definite settlement date, the provision is recorded within Non-current provisions and other non-current liabilities. Provisions relating to the insurance programs in which Sanofi’s captive insurance company participates are based on risk Revenue arising from the sale of goods is presented in the income statement within Net sales. Net sales comprise revenue from sales of pharmaceutical products, consumer healthcare products, active ingredients and vaccines, net of sales returns, of customer incentives and discounts, and of certain sales-based payments paid or payable to the healthcare authorities. Analyses of net sales are provided in Note D.35.1., “Segment Information”. In accordance with IFRS 15 (Revenue from Contracts with Customers), such revenue is recognized when Sanofi transfers control over the product to the customer; control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, that asset. For the vast majority of contracts, revenue is recognized when the product is physically in accordance with the delivery and acceptance transferred, terms agreed with the customer. F-28 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) For contracts entered into by Sanofi Pasteur, transfer of control is usually determined by reference to the terms of release (immediate or deferred) and acceptance of batches of vaccine. and are destroyed. Sanofi does not recognize a right of return asset in the balance sheet for contracts that allow for the return of time-expired products, since those products have no value. In the case of contracts with distributors, Sanofi does not recognize revenue when the product is physically transferred to the distributor if the products are sold on consignment, or if the distributor acts as agent. In such cases, revenue is recognized is transferred to the end customer, and the when control distributor’s commission is presented within the line item Selling and general expenses in the income statement. The amount of revenue recognized reflects the various types of to its price reductions or rights of customers on certain products. Such price reductions and rights of return qualify as variable consideration under IFRS 15. return offered by Sanofi In particular, products sold in the United States are covered by (such as Medicare and various governmental programs Medicaid) under which products are sold at a discount. Rebates are granted to healthcare authorities, and under contractual arrangements with certain customers. Some wholesalers are entitled to chargeback incentives based on the selling price to the end customer, under specific contractual arrangements. Cash discounts may also be granted for prompt payment. Returns, discounts, incentives and rebates, as described above, are recognized in the period in which the underlying sales are recognized as a reduction of gross sales. These amounts are calculated as follows: ◆ The amount of chargeback incentives is estimated on the basis of the relevant subsidiary’s standard sales terms and conditions, and in certain cases on the basis of specific contractual arrangements with the customer; ◆ The amount of rebates based on attainment of sales targets is the underlying sales estimated and accrued as each of transactions is recognized; ◆ The amount of price reductions under Government and State programs, largely in the United States, is estimated on the the relevant regulations or basis of the underlying sales agreements, and accrued as each of transactions is recognized; the specific terms of ◆ The amount of sales returns is calculated on the basis of management’s best estimate of the amount of product that will In countries where ultimately be returned by customers. product returns are possible, Sanofi operates a returns policy that allows the customer to return products within a certain period either side of the expiry date (usually 12 months after the expiry date). The amount returns is estimated on the basis of past experience of sales returns. Sanofi also takes into account factors such as levels of inventory in its various distribution channels, product expiry dates, information about potential discontinuation of products, the entry of competing generics into the market, and the launch of over-the-counter medicines. Most product return clauses relate solely to date-expired products, which cannot be resold recognized for The estimated amounts described above are recognized in the income statement within Net sales as a reduction of gross sales, and within Other current liabilities in the balance sheet. They are subject to regular review and adjustment as appropriate based on the most recent data available to management. Sanofi believes that it has the ability to measure each of the above amounts reliably, using the following factors in developing its estimates: ◆ the nature and patient profile of the underlying product; ◆ the applicable regulations or the specific terms and conditions of contracts with governmental authorities, wholesalers and other customers; ◆ historical data relating to similar contracts, in the case of qualitative and quantitative rebates and chargeback incentives; ◆ past experience and sales growth trends for the same or similar products; ◆ actual inventory levels in distribution channels, monitored by Sanofi using internal sales data and externally provided data; ◆ the shelf life of Sanofi products; ◆ market trends including competition, pricing and demand. An analysis of provisions for discounts, rebates and sales returns is provided in Note D.23. B.13.2. Other revenues revenues mainly comprise royalties received from Other licensing intellectual property rights to third parties, and VaxServe sales of products sourced from third-party manufacturers. Royalties received under licensing arrangements are recognized over the period during which the underlying sales are recognized. VaxServe is a Vaccines segment entity whose operations include the distribution within the United States of vaccines and other products manufactured by third parties. VaxServe sales of products sourced from third-party manufacturers are presented within Other revenues. B.14. Cost of sales Cost of sales consists primarily of the industrial cost of goods sold, payments made under licensing agreements, and distribution costs. The industrial cost of goods sold includes the cost of materials, depreciation of property, plant and equipment, amortization of software, personnel costs, and other expenses attributable to production. B.15. Research and development Note B.4.1. “Research and development not acquired in a business combination” and Note B.4.3. “Other intangible assets SANOFI / FORM 20-F 2018 F-29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) acquired in a business combination” describe the principles applied to the recognition of research and development costs. B.18. Fair value remeasurement of contingent Consideration Contributions or reimbursements received from alliance partners are recorded as a reduction of Research and development expenses. B.16. Other operating income and expenses B.16.1. Other Operating Income Other operating income includes the share of profits that Sanofi is entitled to receive from alliance partners in respect of product It also includes revenues generated marketing agreements. under include partnership and co-promotion arrangements. certain complex agreements, which may Upfront payments received are deferred until the service obligation is met. Milestone payments are assessed on a case by case basis, and recognized in the income statement on delivery of the products and/or upon the service obligation being met. Revenue generated in connection with these services is recognized on the basis of delivery of the goods or provision of the services to the other contracting party. This line item also includes realized and unrealized foreign exchange gains and losses on operating activities (see Note B.8.3.), and operating gains on disposals not regarded as major disposals (see Note B.20.). B.16.2. Other operating expenses Other operating expenses mainly comprise the share of profits that alliance partners are entitled to receive from Sanofi under product marketing agreements. B.17. Amortization and impairment of intangible assets Changes in the fair value of contingent consideration that was (i) already carried in the books of an acquired entity, or (ii) granted in connection with a business combination and initially recognized as a liability in accordance with the revised IFRS 3, are reported in profit or loss. Such adjustments are reported separately in the income statement, in the line item Fair value remeasurement of contingent consideration. This line item also includes changes in the fair value of contingent consideration receivable in connection with a fair value divestment and classified as a financial asset at through profit or loss. Finally, it includes the effect of the unwinding of discount, and of exchange rate movements where the asset or liability is expressed in a currency other than the functional currency of the reporting entity. B.19. Restructuring costs and similar items Restructuring costs are expenses incurred in connection with the transformation or reorganization of Sanofi’s operations or support functions. Such costs include collective redundancy plans, compensation to third parties for early termination of contracts, and commitments made in connection with transformation or reorganization accelerated depreciation charges arising from site closures and losses on asset disposals resulting from such decisions. decisions. They include also In addition, this line item includes expenses incurred in the connection with programs transformation strategy announced in November 2015 intended to deliver a global information systems solution, to standardize and consolidate processes, and to transition towards a worldwide services platform. implemented as part of B.17.1. Amortization of intangible assets B.20. Other gains and losses, and litigation The expenses recorded in this line item comprise amortization of product rights and other intangible assets (see Note D.4.), given that the benefit of those rights to Sanofi’s commercial, industrial and development functions cannot be separately identified. Amortization of software, and of other rights of an industrial or operational nature, is recognized as an expense in the income statement, in the relevant line items of expense by function. B.17.2. Impairment of intangible assets than those This line item records impairment associated with restructuring) intangible assets (including goodwill, but excluding software and other rights of an industrial or operational nature), and any reversals of such impairment losses. recognized against losses (other F-30 SANOFI / FORM 20-F 2018 The line item Other gains and losses, and litigation includes transactions of an unusual nature or the impact of material amount which Sanofi believes it necessary to report separately in the income statement in order to improve the relevance of the financial statements, such as: ◆ gains and losses on major disposals of property, plant and equipment, of intangible assets, of assets (or groups of assets and liabilities) held for sale, or of a business within the meaning of the revised IFRS 3, other than those considered to be restructuring costs; ◆ impairment losses and reversals of losses on assets (or groups of assets and liabilities) held for sale, other than those considered to be restructuring costs; impairment ◆ gains on bargain purchases; ◆ costs and provisions relating to major litigation; and NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) ◆ pre-tax separation costs associated with the process of disinvesting from operations in the event of a major divestment. B.21. Financial expenses and income B.21.1. Financial expenses Financial expenses mainly comprise interest charges on debt financial financing; negative changes in the fair value of instruments (where changes in fair value are recognized in profit or loss); realized and unrealized foreign exchange losses on financing and investing activities; impairment losses on financial instruments; and any reversals of impairment losses on financial instruments. Financial expenses also include expenses arising from the unwinding of discount on long-term provisions, and the net interest cost related to employee benefits. This line item does not include commercial cash discounts, which are deducted from net sales. B.21.2. Financial income Financial income includes interest and dividend income; positive changes in the fair value of financial instruments (where changes in fair value are recognized in profit or realized and unrealized foreign exchange gains on financing and investing activities; and gains on disposals of financial assets at fair value through profit or loss. loss); B.22. Income tax expense Income tax expense includes all current and deferred taxes of consolidated companies. Sanofi accounts for deferred taxes in accordance with IAS 12 (Income Taxes), using the methods described below: ◆ Deferred tax assets and liabilities are recognized on taxable and deductible temporary differences, and on tax loss carry- forwards. Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. ◆ French business taxes include a value added based component: “CVAE” (Cotisation sur la Valeur Ajoutée des Entreprises). Given that CVAE is (i) calculated as the amount by which certain revenues exceed certain expenses and (ii) borne primarily by companies that own intellectual property rights on income derived from those rights (royalties, and margin on sales to third parties and to Sanofi entities), it is regarded as meeting the definition of income taxes specified in IAS 12, paragraph 2 (“taxes which are based on taxable profits”). ◆ Deferred tax assets and liabilities are calculated using the tax rate expected to apply in the period when the corresponding temporary differences are expected to reverse, based on tax rates enacted or substantively enacted at the reporting period. the end of ◆ Deferred tax assets are recognized in respect of deductible temporary differences, tax losses available for carry-forward and unused tax credits to the extent that future recovery is regarded as probable. The recoverability of deferred tax assets is assessed on a case-by-case basis, taking into account the profit forecasts contained in Sanofi’s medium-term business plan. ◆ A deferred tax liability is recognized for temporary differences relating to interests in subsidiaries, associates and joint ventures, except in cases where Sanofi is able to control the timing of the reversal of the temporary differences. This applies in particular when Sanofi is able to control dividend policy and it is probable that the temporary differences will not reverse in the foreseeable future. ◆ No deferred tax is recognized on eliminations of intragroup joint interests in subsidiaries, associates or transfers of ventures. ◆ Each tax entity calculates its own net deferred tax position. All net deferred tax asset and liability positions are then aggregated and shown in separate line items on the relevant side of the consolidated balance sheet. Deferred tax assets and liabilities are offset only if (i) Sanofi has a legally enforceable right to offset current tax assets and current tax liabilities, and (ii) the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority. ◆ Deferred taxes are not discounted, except implicitly in the case of deferred taxes on assets and liabilities which are already impacted by discounting. ◆ Withholding taxes on intragroup royalties and dividends, and on royalties and dividends collected from third parties, are accounted for as current income taxes. In accounting for business combinations, Sanofi complies with the revised IFRS 3 as regards the recognition of deferred tax assets after the initial accounting period. Consequently, any deferred tax assets recognized by the acquiree after the end of this period in respect of temporary differences or tax loss carry- forwards existing at the acquisition date are recognized in profit or loss. the tax liability on the basis of tax laws and regulations. Some of The positions adopted by Sanofi in tax matters are based on its interpretation of those positions may be subject to uncertainty. In such cases, Sanofi assesses the amount of the following assumptions: that its position will be examined by one or more tax authorities on the basis of all relevant information; is carried out with reference to that a technical assessment legislation, case law, regulations, and established practice; and that each position is assessed individually (or collectively where appropriate), with no offset or aggregation between positions. Those assumptions are assessed on the basis of facts and circumstances existing at the end of the reporting period. When an uncertain tax liability is regarded as probable, it is measured on the basis of Sanofi’s best estimate and recognized as a SANOFI / FORM 20-F 2018 F-31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) liability; uncertain tax assets are not recognized. The amount of the liability includes any penalties and late payment interest. The line item Income tax expense includes the effects of tax reassessments and tax disputes, and any penalties and late payment interest arising from such disputes that have the characteristics of income taxes within the meaning of paragraph 2 of IAS 12 (“taxes which are based on taxable profits”). No deferred taxation is recognized on temporary differences that are liable to be subject to US global intangible low taxed income (GILTI) provisions. The related tax expense is recognized in the year in which it is declared in the tax return to the extent that it arises from the existence of non-US profits that exceed the theoretical return on investment specified in the GILTI provisions and are taxed at a rate lower than the applicable US tax rate. B.23. Employee benefit obligations Sanofi offers retirement benefits to employees and retirees. Such benefits are accounted for in accordance with IAS 19 (Employee Benefits). Benefits are provided in the form of either defined contribution plans or defined benefit plans. In the case of defined contribution plans, the cost is recognized immediately in the period in which it is incurred, and equates to the amount of the contributions paid by Sanofi. For defined benefit plans, Sanofi generally recognizes its obligations to pay pensions and similar benefits to employees as a liability, based on an actuarial estimate of the rights vested or currently vesting in employees and retirees, using the projected unit credit method. Estimates are performed at least once a year, and rely on financial assumptions (such as discount rates) and demographic assumptions (such as life expectancy, retirement age, employee turnover, and the rate of salary increases). to relating Obligations benefits other (healthcare and life insurance) offered by Sanofi companies to employees are also recognized as a liability based on an actuarial estimate of the rights vested or currently vesting in employees and retirees at the end of the reporting period. post-employment Such liabilities are recognized net of the fair value of plan assets. In the case of multi-employer defined benefit plans where plan assets cannot be allocated to each participating employer with sufficient the plan is accounted for as a defined contribution plan, in accordance with paragraph 34 of IAS 19. reliability, The benefit cost for the period consists primarily of current service cost, past service cost, net interest cost, gains or losses arising from plan settlements not specified in the terms of the plan, and actuarial gains or losses arising from plan curtailments. Net interest cost for the period is determined by applying the discount rate specified in IAS 19 to the net the amount of the obligation, net of plan assets) recognized in respect of defined benefit plans. Past service cost is recognized immediately in profit or loss in the period in which it is incurred, regardless of whether or not the rights have vested at the time of liability (i.e. F-32 SANOFI / FORM 20-F 2018 adoption (in the case of a new plan) or of amendment (in the case of an existing plan). Actuarial gains and losses on defined benefit plans (pensions and other post-employment benefits), also referred to as Remeasurements of the net defined benefit liability (asset), arise as a result of changes in financial and demographic assumptions, experience adjustments, and the difference between the actual return and interest cost on plan assets. The those remeasurements are recognized in Other impacts of comprehensive income, net of deferred taxes; they are not subsequently reclassifiable to profit or loss. B.24. Share-based payment Share-based payment expense is recognized as a component of operating income, in the relevant classification of expense by function. In measuring the expense, the level of attainment of any performance conditions is taken into account. B.24.1. Stock option plans Sanofi has granted a number of equity-settled share-based payment plans (stock option plans) to some of its employees. The terms of those plans may make the award contingent on the attainment of performance criteria for some of the grantees. In accordance with IFRS 2 (Share-Based Payment), services received from employees as consideration for stock options are recognized as an expense in the income statement, with the opposite entry recognized in equity. The expense corresponds to the fair value of the stock option plans, and is charged to income on a straight-line basis over the four-year vesting period of the plan. The fair value of stock option plans is measured at the date of grant using the Black-Scholes valuation model, taking into account the expected life of the options. The resulting expense also takes into account the options. The expense is adjusted over the vesting period to reflect actual cancellation rates resulting from option-holders ceasing to be employed by Sanofi. the expected cancellation rate of B.24.2. Employee share ownership plans Sanofi may offer its employees the opportunity to subscribe to reserved share issues at a discount to the reference market price. Shares awarded to employees under such plans fall within the scope of IFRS 2. Consequently, an expense is recognized at the subscription date, based on the value of the discount offered to employees. B.24.3. Restricted share plans its Sanofi may award restricted share plans to certain of employees. The terms of those plans may make the award contingent on the attainment of performance criteria for some of the grantees. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In accordance with IFRS 2, an expense equivalent to the fair value of such plans is recognized on a straight line basis over the vesting period of the plan, with the opposite entry recognized in equity. Depending on the country, the vesting period of such plans is either three or four years. Plans with a two-year or three- year vesting period are subject to a two-year lock-up period. The fair value of stock option plans is based on the fair value of the equity instruments granted, representing the fair value of the services received during the vesting period. The fair value of an equity instrument granted under a plan is the market price of the share at the grant date, adjusted for expected dividends during the vesting period. B.25. Earnings per share Basic earnings per share is calculated using the weighted average number of shares outstanding during the reporting period, adjusted on a time-weighted basis from the acquisition date to reflect the number of own shares held by Sanofi. Diluted earnings per share is calculated on the basis of the weighted average number of ordinary shares, computed using the treasury stock method. This method assumes that (i) all outstanding dilutive options and warrants are exercised, and (ii) Sanofi acquires its own shares at the quoted market price for an amount equivalent to the cash the options or received as consideration for the exercise of warrants, plus the expense arising on unamortized stock options. B.26. Segment information In accordance with IFRS 8 (Operating Segments), the segment information reported by Sanofi is prepared on the basis of internal management data provided to the Chief Executive Officer, who is the chief operating decision maker. The performance of those segments is monitored individually using internal reports and common indicators. Disclosures about operating segments required under IFRS 8 are presented in Note D.35. (“Segment information”) to the consolidated financial statements. Since December 31, 2017 Sanofi has had three operating segments: Pharmaceuticals, Consumer Healthcare and Human Vaccines (Vaccines). comprises The Pharmaceuticals segment the commercial operations of the following global franchises: Specialty Care Immunology), (Rare Diseases, Multiple Sclerosis, Oncology, Diabetes & Cardiovascular, Established Prescription Products and Generics, together with research, development and production activities dedicated to the Pharmaceuticals segment. This segment also includes associates whose activities are related to pharmaceuticals, in Regeneron. the investment in particular The Consumer Healthcare segment comprises, for all geographical territories, the commercial operations for our Consumer Healthcare products, together with research, development and production activities dedicated to those products. The Vaccines segment comprises, for all geographical territories (including certain European territories previously included in the Sanofi Pasteur MSD joint venture), the commercial operations of together with research, development and Sanofi Pasteur, production activities dedicated to vaccines. Inter-segment transactions are not material. The costs of Sanofi’s global functions (Medical Affairs, External Affairs, Finance, Human Resources, Legal Affairs, Information Solutions & Technologies, Sanofi Business Services, etc.) are managed centrally at group-wide level, and are presented within the “Other” category. That category also includes other reconciling items such as retained commitments in respect of divested activities. Information about operating segments for the years ended December 31, 2018, 2017 and 2016 is presented in Note D.35., “Segment information”. B.27. Management of capital In order to maintain or adjust the capital structure, Sanofi can adjust the amount of dividends paid to shareholders, repurchase its own shares, issue new shares, or issue securities giving access to its capital. The following objectives are defined under the terms of Sanofi’s share repurchase programs: ◆ the implementation of any stock option plan giving entitlement to purchase shares in the Sanofi parent company; ◆ the allotment or sale of shares to employees under statutory profit sharing schemes and employee savings plans; ◆ the consideration-free allotment of shares (i.e. restricted share plans); ◆ the cancellation of some or all of the repurchased shares; ◆ market-making in the secondary market by an investment services provider under a liquidity contract in compliance with the ethical code recognized by the Autorité des marchés financiers (AMF); ◆ the delivery of shares on the exercise of rights attached to securities giving access to the capital by redemption, conversion, exchange, presentation of a warrant or any other means; ◆ the delivery of shares (in exchange, as payment, or otherwise) in connection with mergers and acquisitions; ◆ the execution by an investment services provider of purchases, sales or transfers by any means, in particular via off-market trading; or ◆ any other purpose that is or may in the future be authorized under the applicable laws and regulations. Sanofi is not subject to any constraints on equity capital imposed by third parties. SANOFI / FORM 20-F 2018 F-33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Total equity includes Equity attributable to equity holders of Sanofi and Equity attributable to non-controlling interests, as shown in the consolidated balance sheet. Sanofi defines “Net debt” as (i) the sum of short-term debt, long- term debt and interest rate derivatives and currency derivatives used to hedge debt, minus (ii) the sum of cash and cash equivalents and interest rate derivatives and currency derivatives used to hedge cash and cash equivalents. C/ Principal alliances C.1. Alliance arrangements with regeneron pharmaceuticals, Inc. (Regeneron) Collaboration agreement on the discovery, development and commercialization of Human Therapeutic Antibodies In November 2007, Sanofi and Regeneron signed agreements (amended in November 2009) for the discovery, development and commercialization of fully human therapeutic antibodies. Under the 2009 amended agreements Sanofi committed to funding the discovery and pre-clinical development of fully human therapeutic antibodies by a maximum of $160 million per year through 2017, with an option to develop and commercialize antibodies the discovered to extend the discovery collaboration. Sanofi decided not agreement, which expired on December 31, 2017. by Regeneron pursuant to the immuno-oncology Following the signature in July 2015 of collaboration agreements described below, $75 million of the discovery and pre-clinical development funding was reallocated to the new agreements (spread over three years). for funding. Sanofi and Regeneron If an option is exercised under the 2009 amended agreements, Sanofi co-develops the antibody with Regeneron and is share responsible co-promotion rights and profits on sales of the co-developed antibodies. On receipt of the first positive Phase III trial results for any such antibody, the subsequent Phase III costs for that antibody are split 80% Sanofi, 20% Regeneron. Amounts those arrangements are received from Regeneron under recognized by Sanofi as a reduction in the line item “Research and development expenses”. Once a product begins to be commercialized, and provided that the share of quarterly results under the agreement represents a profit, Sanofi is entitled to an additional portion of Regeneron’s profit-share (capped at 10% of Regeneron’s share of quarterly profits) until Regeneron has paid 50% of the cumulative development costs incurred by the parties in the collaboration. As of December 31, 2018 the cumulative development costs incurred by the two parties were €6.1 billion (comprising €3.3 billion funded 100% by Sanofi, and €2.8 billion funded 80% by Sanofi and 20% by Regeneron, amounts translated into euros at the closing US dollar exchange rate). On the earlier of (i) 24 months before the scheduled launch date or (ii) the first positive results, Sanofi and Regeneron share the Phase III trial F-34 SANOFI / FORM 20-F 2018 the sales of commercial expenses of the antibodies co-developed under the license agreement. Sanofi recognizes all those antibodies. Profits and losses arising from commercial operations in the United States are split 50/50. Outside the United States, Sanofi is entitled to between 55% and 65% of profits depending on sales of the antibodies, and bears 55% of any losses. The share of profits and losses attributable to Regeneron under the agreement is recognized within the line items Other operating income or Other operating expenses, which are components of operating income. In addition, Regeneron is entitled to receive payments of up to $250 million contingent on the attainment of specified levels of sales outside the United States. Praluent®, Dupixent®, Kevzara® and REGN3500 (SAR440340) continue to be developed, and commercialized as applicable, with Regeneron under the Antibody License and Collaboration Agreement the discovery agreement. following the expiry of (LCA) In January 2018, Sanofi and Regeneron signed a set of amendments including an amendment to the collaboration agreement on the development and commercialization of human therapeutic antibodies that allowed for the funding of additional programs on Dupixent® and REGN3500 (SAR440340) which will focus on extending the current range of indications, finding new indications, and improving co-morbidity between multiple pathologies. Immuno-Oncology (IO) Discovery and Development Agreement and IO License and Collaboration Agreement (IO LCA) On July 1, 2015, Sanofi and Regeneron entered into a new global collaboration to discover, develop and commercialize new antibody cancer treatments in the emerging field of immuno- oncology. As part of the agreements, Sanofi made an upfront payment of $640 million to Regeneron. The two companies also agreed to reallocate $75 million (spread over three years) to immuno-oncology antibody research and development from Sanofi’s $160 million annual contribution to their existing antibody discovery collaboration. the terms of the IO Discovery and Development Under Agreement, the two companies agreed to invest approximately $1 billion from discovery through proof of concept (POC) development (usually a Phase IIa study) of monotherapy and novel combinations of immuno-oncology antibody candidates to be funded 25% by Regeneron ($250 million) and 75% by Sanofi ($750 million). Beyond the committed funding, additional funding will be allocated as programs enter post-POC development under the IO LCA. Upon establishment of POC, Sanofi can exercise its opt-in rights to further development and commercialization under the IO LCA for candidates derived from the IO discovery program. Once Sanofi has exercised its opt-in rights for a candidate, future development of that candidate will be conducted under the IO LCA either by Sanofi or Regeneron. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) the terms of Under the IO Discovery and Development Agreement, Sanofi is entitled to an additional share of profits of up to 50% of the clinical development costs initially funded by Sanofi. That additional profit-share is capped at 10% of the share of Regeneron’s quarterly profits arising under the IO LCA. The Amended and Restated Immuno-oncology Discovery and Development Agreement (“Amended IO Discovery Agreement”), effective from December 31, 2018, was signed on January 2, 2019. Through this amendment, Sanofi and Regeneron restructured their global Immuno-oncology Discovery and Development Agreement, effective December 31, 2018. The 2015 agreement was due to end in mid-2020, and the revision provides for ongoing collaborative development of two clinical- stage bispecific antibody programs targeting respectively (i) BCMA and CD3 and (ii) MUC16 and CD3. This gives Sanofi increased flexibility to advance its early-stage immuno-oncology pipeline independently, while Regeneron retains all rights to its other immuno-oncology discovery and development programs. Under the terms of the Amended IO Discovery Agreement Sanofi paid Regeneron $462 million representing the balance of payments due under the original Immuno-oncology Agreement, which covers the Sanofi share of the immuno-oncology discovery program costs for the last quarter of 2018 and up to $120 million in development costs for the two selected clinical- stage bispecific antibodies, plus (ii) the termination fee for the other programs under the original immuno-oncology agreement. to opt-in to the BCMAxCD3 and Sanofi secured the right MUC16xCD3 bispecific programs when proof of concept is achieved or when the allocated funding is expended. (i) lead the BCMAxCD3 bispecific, Sanofi will Post opt-in of the development and commercialization. Post opt-in of MUC16xCD3 bispecific, Regeneron will lead development, and also lead commercialization in the United States. Sanofi will lead commercialization outside the United States. The companies’ ongoing collaboration for the development and commercialization of Libtayo® (cemiplimab) is unaffected by the Amended IO Discovery Agreement. As of December 31, 2018, the additional share of profits corresponding to 50% of the clinical development costs initially funded by Sanofi amounts to €53 million (amount translated into euros at the closing US dollar exchange rate). This additional profit-share is capped at 10% of the share of Regeneron’s quarterly profits arising under the IO LCA. Under the 2015 IO LCA, the two companies have agreed to jointly develop a programmed cell death protein 1 (PD-1) inhibitor antibody (REGN2810) and have committed to provide additional funding of no more than $650 million on a 50/50 basis ($325 million per company) for the development of REGN2810, a PD-1 inhibitor antibody. While they share profits on a 50/50 basis, Sanofi will make a one-time milestone payment of $375 million to Regeneron in the event that sales of a PD-1 product and any other collaboration antibody sold for use in combination with a PD-1 product were to exceed, in the aggregate, $2 billion in any consecutive 12-month period. In January 2018, Sanofi and Regeneron announced a set of amendments including an amendment to their IO LCA on the development of cemiplimab (REGN2810) in the field of immuno- oncology, pursuant to which the $650 million development budget for the PD-1 inhibitor antibody was increased to $1.64 billion through 2022, funded equally by the two companies (i.e. from $325 million to $820 million for each partner). for On September 21, 2018, the US Food and Drug Administration (FDA) approved Libtayo® (cemiplimab) the treatment of patients with metastatic cutaneous squamous cell carcinoma (CSCC) or locally advanced CSCC who are not candidates for curative surgery or curative radiation. Libtayo® is a fully-human monoclonal antibody targeting the immune checkpoint receptor PD-1 (programmed cell death protein-1) and is the first and only treatment specifically approved and available for advanced CSCC in the U.S. A regulatory application for Libtayo® has also been submitted in the EU. An ongoing joint clinical program is investigating Libtayo® in multiple other cancers, and includes potentially pivotal trials in lung, cervical and skin cancers. The safety and efficacy of Libtayo® have not been fully evaluated by any regulatory authority for indications beyond advanced CSCC. Investor agreement In January 2014, Sanofi and Regeneron amended the investor agreement that has existed between the two companies since 2007 (the “Amended Investor Agreement”). Under the terms of the amendment, Sanofi accepted various restrictions. Sanofi is bound by certain “standstill” provisions, which contractually prohibit Sanofi from seeking to directly or indirectly exert control of Regeneron or acquiring more than 30% of Regeneron’s capital stock (consisting of the outstanding shares of common stock and the shares of Class A stock). This prohibition will remain in place until the earlier of (i) the later of the fifth anniversaries of the the Zaltrap® collaboration expiration or earlier termination of agreement with Regeneron (related to the development and commercialization of Zaltrap®) or the collaboration agreement with Regeneron on monoclonal antibodies (see “Collaboration agreement on the discovery, development and commercialization of human therapeutics antibodies” above), each as amended and (ii) other specified events. Sanofi has also agreed to vote as recommended by Regeneron’s Board of Directors, except that it may elect to vote proportionally with the votes cast by all of Regeneron’s other shareholders with respect to certain change-of-control transactions, and to vote in its sole discretion with respect to liquidation or dissolution, stock issuances equal to or exceeding 20% of the outstanding shares or voting rights of Regeneron’s Class A Stock and Common Stock (taken together), and new equity compensation plans or amendments if not materially consistent with Regeneron’s historical equity compensation practices. As soon as it had passed the threshold of 20% ownership of the capital stock, Sanofi exercised its right under the Amended Investor Agreement to designate an independent director, who SANOFI / FORM 20-F 2018 F-35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) was appointed to the Board of Directors of Regeneron. The interest held by Sanofi in Regeneron has been consolidated by the equity method since April 2014. date. As of December 31, 2018 Sanofi has sold 226,153 shares of Regeneron stock to Regeneron pursuant to the 2018 Letter Agreement. On the conditions set out in the Amended Investor Agreement entered into in January 2014, Sanofi’s right to designate a Regeneron board member was contingent on Sanofi maintaining its percentage share of Regeneron’s outstanding capital stock (measured on a quarterly basis) at a level no lower than the highest percentage level previously achieved, with the maximum requirement capped at 25%. in Regeneron was subject to a lock-up clause. Those limitations have been amended by the letter agreement of January 2018 (see below). In addition, Sanofi’s interest In November 2015, the Independent Designee (as defined in the Amended Investor Agreement) designated by Sanofi as an independent director resigned from the Regeneron Board of Directors. At Sanofi’s request, pursuant to the Amended Investor Agreement, Regeneron appointed N. Anthony “Tony” Coles, M.D. to its Board of Directors in January 2017 as a successor Sanofi designee. The Amended Investor Agreement also gives Sanofi the right to receive certain reasonable information as may be agreed upon by the parties and which will facilitate Sanofi’s ability to account for its investment in Regeneron using the equity method of accounting under IFRS. In January 2018, Sanofi and Regeneron announced a set of amendments (i) to their collaboration agreement on the development and commercialization of human therapeutic antibodies; (ii) to their IO License and Collaboration Agreement on the development of cemiplimab (REGN2810) in the field of immuno-oncology; and (iii) a limited waiver and amendment of the Amended Investor Agreement pursuant to a letter agreement (the “2018 Letter Agreement”). Pursuant to the 2018 Letter Agreement, Regeneron has agreed to grant a limited waiver of the lock-up clause” and the obligation to maintain the “Highest Percentage Threshold” in the Amended and Restated Investor Agreement between the companies, so that Sanofi may elect to sell a small percentage of the Regeneron common stock it owns to fund a portion of the cemiplimab and dupilumab development expansion. This waiver will allow Sanofi to sell up to an aggregate of 1.4 million shares of Regeneron common stock to Regeneron in private transactions through the end of 2020. If Regeneron decides not to purchase the shares, Sanofi will be allowed to sell those shares on the open market, subject to certain volume and timing limitations. Upon expiration of the the limited waiver under the 2018 Letter Agreement, Amended Investor Agreement will be amended to define “Highest Percentage Threshold” as the lower of (i) 25% of Regeneron outstanding shares of Class A Stock and Common Stock (taken together) and (ii) the higher of (a) Sanofi’s percentage ownership of Class A Stock and Common Stock (taken together) on such termination date and (b) the highest percentage ownership of Regeneron outstanding shares of Class A Stock and Common Stock (taken together) Sanofi attains following such termination C.2. Alliance arrangements with Bristol-Myers Squibb (BMS) Two of Sanofi’s leading products were jointly developed with BMS: the anti-hypertensive agent irbesartan (Aprovel®/Avapro®/ Karvea®) and the anti-atherothrombosis treatment clopidogrel bisulfate (Plavix®/Iscover®). On September 27, 2012, Sanofi and BMS signed an agreement relating to their alliance following the loss of exclusivity of Plavix® and Avapro®/Avalide® in many major markets. Under the terms of this agreement, effective January 1, 2013, its rights to Plavix® and Avapro®/ BMS returned to Sanofi Avalide® in all markets worldwide with the exception of Plavix® in the United States and Puerto Rico, giving Sanofi sole control and freedom to operate commercially in respect of those products. In exchange, BMS received royalty payments on Sanofi’s sales of branded and unbranded Plavix® and Avapro®/Avalide® worldwide (except for Plavix® in the United States and Puerto Rico) until 2018, and also received a payment of $200 million from Sanofi in December 2018, part of which is the non-controlling interests (see Note D.18.). Rights to Plavix® in the United States and Puerto Rico remain unchanged and continue to be governed by the terms of the original agreement until December 2019. for buying out In all of the territories managed by Sanofi (including the United States and Puerto Rico for Avapro®/Avalide®) as defined in the new agreement, Sanofi recognizes in its consolidated financial statements the revenue and expenses generated by its own operations. The share of profits reverting to BMS subsidiaries is presented within Net income attributable to non-controlling interests in the income statement. In the territory managed by BMS (United States and Puerto Rico for Plavix®), Sanofi recognizes its share of profits and losses within the line item Share of profit/(loss) from investments accounted for using the equity method. D/ Presentation of the financial statements D.1. Changes in the scope of consolidation due to acquisitions and divestments D.1.1. Principal changes in the scope of consolidation in 2018 Acquisition of Bioverativ Following a public tender offer, on March 8, 2018 Sanofi acquired the entire share capital of Bioverativ, a biotechnology company specializing in the development of treatments for hemophilia and F-36 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) rare blood disorders, other $11.6 billion (€9.4 billion). for a total consideration of undertakings and investments accounted for using the equity method in the consolidated statement of cash flows. The provisional purchase price allocation resulted in the recognition of goodwill amounting to €2,676 million, as indicated below: Acquisition of Ablynx (€ million) Other intangible assets Inventories Cash and cash equivalents Other current and non-current assets and liabilities True North Therapeutics contingent consideration liability Net deferred tax position Net assets of Bioverativ Goodwill Purchase price Fair value at acquisition date 8,113 145 422 16 (226) (1,792) 6,678 2,676 9,354 IgG1, The other intangible assets recognized mainly comprise the marketed hemophilia products Eloctate® (a recombinant fusion protein consisting of human coagulation VIII factor bound to the Fc fragment of for the treatment of hemophilia A) and Alprolix® (a recombinant fusion protein consisting of coagulation IX factor bound to the Fc fragment of IgG1, for the treatment of hemophilia B), plus development projects relating to treatments for rare hematological disorders (in particular, a Phase III research program in cold agglutinin disease). Goodwill represents (i) the pipeline of future products in early- stage research and development not identified individually at the acquisition date; (ii) the capacity to draw on a specialized structure to refresh the existing product portfolio; (iii) the competencies of Bioverativ staff; (iv) the benefits derived from the creation of new growth platforms; and (v) the expected future synergies and other benefits from the combination of Bioverativ and Sanofi. The goodwill arising on this acquisition is not tax deductible. the Pharmaceuticals segment The contributions from Bioverativ to net sales and business operating income of (for a definition refer to Note D.35., “Segment Information”) since the to €892 million and €389 million, acquisition date amount respectively. Over the same period, Bioverativ made a negative contribution of €325 million to consolidated net income, including expenses charged during the period relating to the fair value remeasurement of assets recognized at the acquisition date. During the year ended December 31, 2018, Bioverativ generated net sales of €1,068 million. Acquisition-related costs recognized in profit or loss for the period amounted to €26 million, and were recorded primarily within Other operating expenses. The net cash outflow on this acquisition amounted to €8,932 million, and consolidated recorded within Acquisitions of is On May 14, 2018, following a public tender offer, Sanofi acquired 95.60% of the share capital of Ablynx, a biopharmaceutical company specializing in the discovery and development of Nanobodies®. On June 19, 2018, following the expiration of the squeeze-out procedure, Sanofi announced that it held the entire share capital of Ablynx, investment of €3,897 million. representing a total The provisional purchase price allocation resulted in the recognition of goodwill amounting to €1,372 million, as indicated below: (€ million) Other intangible assets Cash and cash equivalents Other current and non-current assets and liabilities Net deferred tax position Net assets of Ablynx Goodwill Purchase price Fair value at acquisition date 2,409 258 130 (272) 2,525 1,372 3,897 The other intangible assets acquired mainly comprise: ◆ the rights to Cablivi®, a medicine for the treatment of a life- threatening form of thrombotic micro-angiopathy that obtained European marketing approval in September 2018 and is eligible for FDA priority review, and the rights to develop a treatment for respiratory syncytial virus in very young and very old patients at high risk of complications; ◆ the rights to exploit technology developed by Ablynx that uses camelid antibody fragments (“Nanobodies®”) to research and identify multi-specific molecules targeting multiple diseases in various therapeutic fields; and ◆ future payments receivable under research and development collaboration agreements contracted by Ablynx for candidates in various therapeutic fields. Goodwill represents (i) the pipeline of future products in early- stage research and development not identified individually at the acquisition date; (ii) the capacity to draw on a technological platform and specialized structure to refresh the existing product portfolio; (iii) the competencies of Ablynx staff; (iv) the benefits derived from the creation of new growth platforms; and (v) the expected future synergies and other benefits from the combination of Ablynx and Sanofi. The goodwill arising on this acquisition is not tax deductible. The impacts of this acquisition on Sanofi’s business operating income and consolidated net the year ended December 31, 2018 are not material. income for SANOFI / FORM 20-F 2018 F-37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Acquisition-related costs recognized in profit or loss during the period were €30 million, and are mainly included within the line item Other operating expenses. cash outflow on this acquisition amounted to The net €3,639 million, and is recorded within Acquisitions of consolidated undertakings and investments accounted for using the equity method in the consolidated statement of cash flows. Divestment of the European Generics business On September 30, 2018, Sanofi finalized the divestment of its European Generics business. Sanofi recognized a gain of €510 million before taxes. An analysis of the assets and liabilities divested is set forth below: (€ million) Assets Property, plant and equipment Goodwill Other intangible assets Other non-current assets Deferred tax assets Inventories Accounts receivable Other current assets Cash and cash equivalents Total assets of the divested European Generics business Liabilities Non-current provisions and other non-current liabilities Deferred tax liabilities Accounts payable Other current liabilities Short-term debt and current portion of long-term debt Total liabilities of the divested European Generics business The cash inflow on this divestment amounted to €1,598 million, and is recorded within Proceeds from disposals of property, other plant equipment, intangible assets and and September 30, 2018 120 913 75 1 83 129 107 40 122 1,590 27 14 91 216 46 394 non-current assets, net of tax in the consolidated statement of cash flows. Regeneron Pharmaceuticals, Inc. (Regeneron) Changes in the equity interest held by Sanofi in the biopharmaceuticals company Regeneron during the reporting periods presented are set forth below: (€ million) Carrying amount(b) Equity interest Acquisitions of shares Disposals of shares(c) 2018 3,055 21.7% — 24 2017(a) 2,496 22.2% 184 —— 2016(a) 2,550 22.1% 115 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (b) See Note D.6. (c) Disposals of shares in connection with the funding of R&D activities relating to Libtayo®, Dupixent® and REGN3500 (SAR440340) (see Note C.1.). F-38 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.1.2. Principal changes in the scope of consolidation in 2017 Acquisition of the European Vaccines business previously included in the SPMSD joint venture Acquisition of Protein Sciences On August 25, 2017, Sanofi acquired 100% of Protein Sciences, a biotechnology company headquartered in Meriden, Connecticut (United States). The principal product of Protein Sciences is Flublok®, the only recombinant protein-based influenza vaccine approved by the FDA in the United States. The purchase price allocation resulted in the recognition of goodwill amounting to €117 million, as indicated below: (€ million) Other intangible assets Inventories Other assets and liabilities Net deferred tax position Net assets of Protein Sciences Goodwill Purchase price Fair value at acquisition date 776 4 (7) (259) 514 117 631 intangible assets acquired mainly comprise the The other marketed vaccine Flublok®, valued at €767 million. The purchase price included two contingent consideration milestones of €42 million each. The impacts of this acquisition on Sanofi’s business operating income and consolidated net the year ended December 31, 2017 were not material. income for D.1.3. Principal changes in the scope of consolidation in 2016 In December 2016, Sanofi finalized the dissolution of the Sanofi Pasteur MSD (SPMSD) joint venture. The transaction was completed in two stages on December 30 and December 31, 2016. Divestment by Sanofi of its interest in SPMSD On December 30, 2016, Sanofi transferred its interest in SPMSD to MSD. The consideration for the transfer was (i) a fixed sum of €127 million received on January 4, 2017 and (ii) contingent consideration measured at €458 million as of December 31, 2016 and recognized in the available-for-sale financial assets category (see Note D.7.). The pre-tax gain on the divestment, amounting to €211 million, is presented within the line item Other gains and losses, and litigation (see Note D.28) for the year ended December 31, 2016. A negative price adjustment of €31 million was recognized within the same line item in 2017. This transaction was finalized on December 31, 2016. The final purchase price allocation resulted in the recognition of goodwill amounting to €21 million, as presented in the table below: (€ million) Other intangible assets Inventories Other current assets Other non-current liabilities Net deferred tax position Net assets of the European Vaccines business Goodwill Purchase price Fair value at acquisition date 465 17 2 (5) (10) 469 21 490 The purchase price essentially comprised (i) a fixed sum of €154 million paid on January 4, 2017 and (ii) contingent consideration of €354 million. In accordance with IFRS 3 (Business Combinations), that contingent consideration was recognized in Liabilities related to business combinations and to non-controlling interests as of December 31, 2016 (see Note D.18.). A negative price adjustment of €16 million was recognized in the year ended December 31, 2017. D.1.4. Other acquisitions and divestments The impacts of the other acquisitions made during 2018, 2017 and 2016 are not material for Sanofi. D.2. Exchange of the Animal Health Business On January 1, 2017, Sanofi finalized the exchange of its Animal Health Ingelheim’s Consumer business Healthcare (CHC) business. for Boehringer Consequently, and as required by IFRS 5 (see Note B.7.), all the the Animal Health business were assets and liabilities of classified in the line items Assets held for sale or exchange and Liabilities related to assets held for sale or exchange, respectively, of December 31, 2016. The net income/loss from that business was also presented separately in the consolidated income statement within the line item Net the exchanged/ income/(loss) of held-for-exchange Animal Health business. consolidated balance sheet the as in For detailed information about the Animal Health business to the consolidated financial statements refer to Note D.36., “Exchanged/Held-for-Exchange Animal Health business”. the contribution of After final enterprise value adjustments, the exchange values of the two businesses transferred in 2017 were determined at €10,557 million for Sanofi’s Animal Health business and €6,239 million for Boehringer Ingelheim’s CHC business. SANOFI / FORM 20-F 2018 F-39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) creation of new growth platforms; and (iv) the expected future synergies and other benefits from combining the CHC operations of Boehringer Ingelheim and Sanofi. tax-deductible The €1,876 million. portion of goodwill amounted to Acquisition-related costs amounted to €10 million. from January 1, 2017, this With effect portfolio (which generated sales of €1,407 million in 2017) are reflected in the consolidated net sales of the Consumer Healthcare segment. the performances of Divestment of the Animal Health Business In 2017, Sanofi recognized a pre-tax gain of €6,343 million within the line item Net income of the exchanged/held-for-exchange Animal Health business, and an after-tax gain of €4,643 million. Acquisition of Boehringer Ingelheim’s CHC Business Goodwill on the acquisition amounted to €2,222 million, and represents (i) the capacity to draw on a specialized structure to refresh the existing product portfolio; (ii) the competencies of the transferred to Sanofi; (iii) the benefits derived from the staff F-40 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.3. Property, plant and equipment Property, plant and equipment (including assets held under finance leases) comprise: (€ million) Gross value at January 1, 2016 Acquisitions and other increases Disposals and other decreases Currency translation differences Transfers(a) Gross value at December 31, 2016 Changes in scope of consolidation Acquisitions and other increases Disposals and other decreases Currency translation differences Transfers(a) Gross value at December 31, 2017 Changes in scope of consolidation Acquisitions and other increases Disposals and other decreases Currency translation differences Transfers(a) Gross value at December 31, 2018 Accumulated depreciation & impairment at January 1, 2016 Depreciation expense Impairment losses, net of reversals Disposals and other decreases Currency translation differences Transfers(a) Accumulated depreciation & impairment at December 31, 2016 Depreciation expense Impairment losses, net of reversals Disposals and other decreases Currency translation differences Transfers(a) Land Buildings Machinery and equipment Fixtures, fittings and other Property, plant and equipment in process 336 — (10) 1 — 327 22 — (10) (21) — 318 — — (23) — (12) 283 6,732 9 (111) 81 247 6,958 23 10 (124) (326) 227 6,768 6 22 (227) 57 257 6,883 9,742 48 (350) 36 558 10,034 11 63 (261) (278) 576 10,145 11 48 (272) 26 510 10,468 2,347 51 (104) (1) 128 2,421 6 54 (125) (75) 169 2,450 4 71 (127) 17 164 2,579 1,952 1,232 (37) 15 (1,025) Total 21,109 1,340 (612) 132 (92) 2,137 21,877 7 1,267 (111) (84) (919) 2,297 1 1,318 (20) 11 (1,123) 69 1,394 (631) (784) 53 21,978 22 1,459 (669) 111 (204) 2,484 22,697 — (3) 3 — 4 (7) — (11) — 1 (3) (11) (3,132) (6,216) (1,641) (166) (11,166) (356) (31) 107 (37) 22 (595) (17) 348 (16) 16 (190) (30) 100 (2) 6 — (1,141) (159) 591 (57) (78) 33 (2) 26 74 (3,427) (6,480) (1,757) (187) (11,858) (329) (45) 94 140 (45) (595) (177) 239 147 (19) (197) (6) 117 53 (14) (351) (24) 170 (29) 50 (6,885) (595) (1,804) (191) (40) 235 (15) 70 (11) 110 (14) (4) — (1,121) (254) 557 343 (15) 107 2 15 (66) (78) (12,399) — (1,137) (12) 3 — — (95) 526 (58) 117 (3,796) (7,230) (1,914) (87) (13,046) 3,531 3,156 3,087 3,554 3,260 3,238 664 646 665 1,950 2,219 2,397 10,019 9,579 9,651 Accumulated depreciation & impairment at December 31, 2017 (20) (3,612) Depreciation expense Impairment losses, net of reversals Disposals and other decreases Currency translation differences Transfers(a) Accumulated depreciation & impairment at December 31, 2018 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 Carrying amount at December 31, 2018 — (8) 8 — 1 (19) 320 298 264 (a) This line also includes the effect of the reclassification of assets to Assets held for sale or exchange. SANOFI / FORM 20-F 2018 F-41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below sets forth acquisitions and capitalized interest by operating segment for the years ended December 31, 2018, 2017 and 2016: (€ million) Acquisitions Pharmaceuticals Industrial facilities Research sites Other Vaccines Consumer Healthcare(a) Capitalized interest 2018 1,459 1,014 769 14 231 440 5 21 2017 1,394 1,005 741 138 126 379 10 20 2016 1,340 1,069 769 164 136 271 — 17 (a) Consumer Healthcare was not identified as an operating segment in 2016, and acquisitions for CHC during that year are included within the Pharmaceuticals segment (See Note D.35.). Off balance sheet commitments relating to property, plant and equipment as of December 31, 2018, 2017 and 2016 are set forth below: (€ million) Firm orders of property, plant and equipment Property, plant and equipment pledged as security for liabilities 2018 535 123 2017 508 128 2016 545 241 Impairment tests of property, plant and equipment conducted using the method described in Note B.6. resulted in the recognition of the following impairment losses in each of the last three financial periods: (€ million) Net impairment losses of which tangible assets related to Dengue vaccine The table below shows amounts for items of property, plant and equipment held under finance leases: (€ million) Land Buildings Other property, plant and equipment Total gross value Accumulated depreciation and impairment Carrying amount Future minimum lease payments due under finance leases are shown in the table below: (€ million) Future minimum lease payments due under finance leases of which interest As of December 31, 2018, the payment schedule is as follows: 2018 94 — 2017 254 87 2016 159 — 2018 2017 2016 — 73 14 87 (64) 23 2018 25 3 43 102 98 115 (87) 28 2017 39 713 102 113 (79) 34 2016 66 (€ million) Finance lease obligations ◆ ◆ principal interest Total F-42 SANOFI / FORM 20-F 2018 Payments due by period Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years 22 3 25 467 111 578 5 — 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.4. Goodwill and other intangible assets Movements in goodwill comprise: (€ million) Balance at January 1, 2016 Acquisitions during the period Currency translation differences Balance at December 31, 2016 Acquisitions during the period Other movements during the period Currency translation differences Balance at December 31, 2017 Acquisitions during the period Other movements during the period(a) Currency translation differences Balance at December 31, 2018 Goodwill 39,557 5 725 40,287 2,347 12 (2,382) 40,264 4,039 (1,006) 938 44,235 totaling €8,113 million as of the acquisition date (March 8, 2018), and of goodwill provisionally measured at €2,676 million as of the acquisition date (see Note D.1.1.). Acquisition of Ablynx (2018) The provisional purchase price allocation for Ablynx resulted in the recognition of intangible assets (other than goodwill) totaling €2,409 million as of the acquisition date (May 14, 2018), and of goodwill provisionally measured at €1,372 million as of the acquisition date (see Note D.1.1.). Acquisition of Boehringer Ingelheim’s Consumer Healthcare business (2017) The final purchase price allocation for Boehringer Ingelheim’s Consumer Healthcare business resulted in the recognition of intangible assets (other than goodwill) totaling €3,771 million at the acquisition date (January 1, 2017), and goodwill of €2,222 million (see Note D.2.). (a) Relates mainly to the divestment of the European Generics business. Acquisition of Protein Sciences (2017) Acquisition of Bioverativ (2018) The provisional purchase price allocation for Bioverativ resulted than goodwill) in the recognition of intangible assets (other The final purchase price allocation for Protein Sciences resulted in the recognition of than goodwill) totaling €776 million, and goodwill of €117 million (see Note D.1.2.). intangible assets (other SANOFI / FORM 20-F 2018 F-43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Movements in other intangible assets comprise: (€ million) Gross value at January 1, 2016 Changes in scope of consolidation Acquisitions and other increases Disposals and other decreases Currency translation differences Transfers(a) Gross value at December 31, 2016 Changes in scope of consolidation Acquisitions and other increases Disposals and other decreases Currency translation differences Transfers(a) Gross value at December 31, 2017 Changes in scope of consolidation Acquisitions and other increases Disposals and other decreases Currency translation differences Transfers(a) Gross value at December 31, 2018 Accumulated amortization & impairment at January 1, 2016 Amortization expense Impairment losses, net of reversals(b) Disposals and other decreases Currency translation differences Transfers(a) Accumulated amortization & impairment at December 31, 2016 Amortization expense Impairment losses, net of reversals(b) Disposals and other decreases Currency translation differences Transfers(a) Accumulated amortization & impairment at December 31, 2017 Amortization expense Impairment losses, net of reversals(b) Disposals and other decreases Currency translation differences Transfers(a) Accumulated amortization & impairment at December 31, 2018 Carrying amount at December 31, 2016 Carrying amount at December 31, 2017 Carrying amount at December 31, 2018 Acquired R&D 3,854 — 142 (305)(c) 55 (97) 3,649 — 317 (39) (200) (48) 3,679 3,632 Products, trademarks and other rights 52,002 465 127 (687) 1,124 76 53,107 4,546 212 (450) (3,814) 37 53,638 6,889 Software 1,231 — 148 (73) 17 3 1,326 1 170 (62) (51) (16) 1,368 2 Total other intangible assets 57,087 465 417 (1,065) 1,196 (18) 58,082 4,547 699 (551) (4,065) (27) 58,685 10,523 367 (44) 218 (430) 7,422 (2,301) — (60) 108 (41) 4 (2,290) — (95) 39 142 —4 (2,204) — (456) 36 (54) —628 (2,678) 1,359 1,475 4,744 16 (920) 1,757 420 61,800 (41,888) (1,712) (137) 673 (931) (2) (43,997) (1,886) (215) 443 3,138 1 (42,476) (2,188) (264) 840 (1,146) (45,228) 9,110 11,162 16,572 251 (75) 10 3 1,559 (872) (104) — 73 (12) (1) (916) (112) (3) 64 35 7 (925) (115) (10) 68 (6) (986) 410 443 573 634 (1,039) 1,985 (7) 70,781 (45,061) (1,816) (197) 854 (984) 1 (47,203) (1,998) (313) 546 3,315 48 (45,605) (2,303) (730) 944 (1,206) (48,892) 10,879 13,080 21,889 (a) The “Transfers” line mainly relates to acquired R&D that came into commercial use during the period and is being amortized from the date of marketing approval. (b) See Note D.5. (c) Includes the return of product rights to Hanmi Pharmaceutical Co. Ltd in 2016 (see Note D.21.1). F-44 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) “Products, trademarks and other rights” (excluding items relating to the Animal Health business, reported within the line item Assets held for sale or exchange as of January 1, 2016 and December 31, 2016; see Note D.36.), mainly comprise: ◆ “marketed products”, with a carrying amount of €15.5 billion as €10.6 billion as of of December 31, 2018 (versus December 31, 2017 and €8.4 billion as of December 31, 2016) and a weighted average amortization period of approximately 10 years; ◆ “trademarks”, with a carrying amount of €0.1 billion as of December 31, 2018 (versus €0.2 billion as of December 31, 2017 and December 31, 2016) and a weighted average amortization period of approximately 12 years. The table below provides information about the principal “marketed products”, which were recognized in connection with business combinations and represented 93% of the carrying amount of that item as of December 31, 2018: (€ million) Genzyme Boehringer Ingelheim Consumer Healthcare Aventis Chattem Protein Sciences Bioverativ Total: principal marketed products Accumulated amortization & impairment Carrying amount at December 31, 2018 Amortization period (years)(a) Residual amortization period (years)(b) Carrying amount at December 31, 2017 Carrying amount at December 31, 2016 (7,578) 2,988 (488) (33,162) (525) (85) (439) 3,237 409 748 715 6,385 10 16 9 23 13 13 5 15 4 15 12 12 3,834 5,009 3,442 584 766 744 — — 1,095 930 — — Gross value 10,566 3,725 33,571 1,273 800 6,824 56,759 (42,277) 14,482 9,370 7,034 (a) Weighted averages. The amortization periods for these products vary between 1 and 25 years. (b) Weighted averages. Acquisitions of other intangible assets (excluding software) during 2018 amounted to €383 million. During 2018, some of the acquired research and development came into commercial use, and started being amortized from the date of marketing approval. The main item involved was the immuno-oncology product Libtayo® (€348 million). During 2017, €9 million of acquired research and development came into commercial use, and started being amortized from the date of marketing approval. During 2016, some of the acquired research and development came into commercial use, and started being amortized from the date of marketing approval. The main such items were the diabetes treatments Lyxumia® and Soliqua® 100/33 (€52 million). Amortization of other intangible assets is recognized in the income statement within the line item Amortization of intangible assets, except for amortization of software and other rights of an industrial or operational nature which is recognized in the relevant classification of expense by function. An analysis of amortization of software is shown in the table below: (€ million) Cost of sales Research and development expenses Selling and general expenses Other operating expenses Total 2018 2017 2016 21 4 87 395 28 22 53 28 16 56 115 112 105 SANOFI / FORM 20-F 2018 F-45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.5. Impairment of intangible assets and property, plant and equipment Goodwill The recoverable amount of cash generating units (CGUs) is determined by reference to the value in use of each CGU, based on discounted estimates of the future cash flows from the CGU, in accordance with the policies described in Note B.6.1. Goodwill is monitored internally at the level of each of the three current CGUs (Pharmaceuticals, Consumer Healthcare and Vaccines). Each of those CGUs reflects on a global scale all the key organizational components involved in commercial, R&D and industrial decision-making for that CGU. Sanofi believes those decisions have a significant influence on the generation of cash flows for each CGU. The goodwill arising on the acquisitions of Bioverativ and Ablynx (see Note D.1.1.) was allocated in full to the Pharmaceuticals CGU. The allocation of goodwill as of December 31, 2018 is shown below: (€ million) Goodwill Pharmaceuticals Consumer Healthcare Vaccines Total 36,352 6,545 1,338 44,235 The value in use of each CGU was determined by applying an after-tax discount rate to estimated future after-tax cash flows. A value in use calculation for each of the CGUs would not result in an impairment loss using: A separate discount rate is used for each CGU to reflect the specific economic conditions of the CGU. The rates used for impairment testing in 2018 were 7.75% for the Pharmaceuticals CGU, 7.00% for the Consumer Healthcare CGU, and 7.25% for the Vaccines CGU; an identical value in use for Sanofi as a whole would be obtained by applying a uniform 7.5% rate to all three CGUs. The pre-tax discount rates applied to estimated pre-tax cash flows are calculated by iteration from the previously-determined value in use. Those pre-tax discount rates were 10.4% for the Pharmaceuticals CGU, 8.8% for the Consumer Healthcare CGU and 9.6% for the Vaccines CGU, and equate to a uniform rate of 10.0% for Sanofi as a whole. The assumptions used in testing goodwill for impairment are reviewed annually. Apart from the discount rate, the principal assumptions used in 2018 were as follows: ◆ The perpetual growth rates applied to future cash flows were zero for the Pharmaceuticals CGU, 2% for the Consumer Healthcare CGU, and 0.5% for the Vaccines CGU. ◆ Sanofi also applies assumptions on the probability of success of current research and development projects, and more generally on its ability to renew the product portfolio in the longer term. Value in use (determined as described above) is compared with the carrying amount, and this comparison is then subjected to sensitivity analyses by reference to the principal parameters, including: ◆ changes in the discount rate; ◆ changes in the perpetual growth rate; ◆ fluctuations in operating margin. No impairment of goodwill would need to be recognized in the event of a reasonably possible change in the assumptions used in 2018. ◆ a discount rate up to 3.1 percentage points above the rates actually used; or ◆ a perpetual growth rate up to 7.7 percentage points below the rates actually used; or ◆ an operating margin up to 8.6 percentage points below the rates actually used. No impairment losses were recognized against goodwill years ended December 31, 2018, 2017 or 2016. in the Other intangible assets When there is evidence that an asset may have become impaired, the asset’s value in use is calculated by applying an after-tax discount rate to the estimated future after-tax cash flows from that asset. For the purposes of impairment testing, the tax cash flows relating to the asset are determined using a notional tax rate incorporating the notional tax benefit that would result from amortizing the asset if its value in use were regarded as its depreciable amount for tax purposes. Applying after-tax discount rates to after-tax cash flows gives the same values in use as would be obtained by applying pre-tax discount rates to pre-tax cash flows. The after-tax discount rates used in 2018 for impairment testing of other intangible assets in the Pharmaceuticals, Consumer Healthcare and Vaccines CGUs were obtained by adjusting Sanofi’s weighted average cost of capital to reflect specific country and business risks, giving after-tax discount rates in a range from 7.25% to 8.25%. In most instances, there are no market data that would enable fair value less costs to sell to be determined other than by means of a similar estimate based on future cash flows. Consequently, recoverable amount is in substance equal to value in use. F-46 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In 2018, 2017 and 2016, impairment testing of other intangible assets (excluding software) resulted in the recognition of net impairment losses as shown below: (€ million) Impairment of other intangible assets (excluding software) Marketed products Pharmaceuticals(a) Vaccines(b) Research and development projects(c) Other(d) 2018 720 264 258 6 454 21 2017 2016 310 213 23 190 80 7 192 134 134 — 58 — (a) Impairment tests conducted on other intangible assets as of December 31, 2018 led to the recognition of an impairment loss of €183 million on the marketed product Lemtrada® in the United States. (b) The impairment loss recognized for the Vaccines segment in 2017 relates to intangible assets associated with the Dengue vaccine and arises from revisions to sales forecasts following results of long-term clinical trials and the resulting requirement to update the product label. (c) The impairment losses recognized in 2018 relate mainly to intangible assets of Ablynx and to other R&D intellectual property assets, including the MyoKardia programs. (d) Not included within the line item Impairment of intangible assets of the consolidated income statement (see Note B.4.) The carrying amount of the intangible asset relating to Lantus® was zero as of December 31, 2018. Impairment testing of the goodwill allocated to the Pharmaceuticals CGU takes account of trends in sales of Lantus® and associated risk scenarios. No impairment is required to be taken against that goodwill, based that on sensitivity analyses performed by Sanofi include reasonably possible assumptions about trends in operating margin. In addition, the carrying amount of the items of property, plant and equipment dedicated to Lantus® is not material at Sanofi group level. No asset write-downs or contract termination penalties have been allowed for at this stage. Property, plant and equipment Impairment losses taken against property, plant and equipment are disclosed in Note D.3. D.6. Investments accounted for using the equity method Investments accounted for using the equity method comprise associates and joint ventures (see Note B.1.). Investments accounted for using the equity method comprise: (€ million) Regeneron Pharmaceuticals, Inc.(b) Onduo LLC Infraserv GmbH & Co. Höchst KG(c) Entities and companies managed by Bristol-Myers Squibb(d) Other investments Total % interest 21.7 50.0 31.2 49.9 — 2018 3,055 108 73 40 126 3,402 2017(a) 2,496 141 73 38 99 2016(a) 2,550 181 79 44 38 2,847 2,892 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1). (b) See Note D.1.1. (c) Joint venture. (d) Under the terms of the agreements with BMS (see Note C.2.), Sanofi’s share of the net assets of entities majority-owned by BMS is recorded in Investments accounted for using the equity method. SANOFI / FORM 20-F 2018 F-47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows Sanofi’s overall share of (i) profit or loss and (ii) other comprehensive income from investments accounted for using the equity method, showing the split between associates and joint ventures in accordance with IFRS 12 (the amounts for each individual associate or joint venture are not material): (€ million) Joint ventures Associates Joint ventures Associates Joint ventures Associates 2018 2017(a) 2016(a) Share of profit/(loss) from investments accounted for using the equity method(b) Share of other comprehensive income from investments accounted for using the equity method Total 17 (7) 10 482 105 587 20 22 42 65 (303) (238) 20 (3) 17 116 58 174 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1). (b) The Sanofi Pasteur MSD joint venture ceased to be accounted for by the equity method on March 8, 2016, the date on which it was announced that the joint venture was to be dissolved (see Notes B.1. and D.1.3.). The financial statements include arm’s length commercial transactions between Sanofi and some equity-accounted investments that are classified as related parties. The principal transactions and balances with related parties are summarized below: (€ million) Sales Royalties and other income(a) Accounts receivable and other receivables(a) Purchases and other expenses (including research expenses)(a) Accounts payable and other payables(a) (a) These amounts mainly comprise transactions with Regeneron. Funding commitments to associates and joint ventures amounted to €102 million as of December 31, 2018 and €135 million as of December 31, 2017. Regeneron 2018 35 116 89 1,143 544 2017 33 100 85 777 217 2016 39 156 101 708 226 For off balance sheet commitments of an operational nature involving joint ventures, (see Note D.21.1.). Key items from the consolidated financial statements of Regeneron, after adjustments to comply with IFRS (including those required to align on elective accounting treatments adopted by Sanofi) but before fair value remeasurements, are set forth below: (€ million) Net sales and other revenues Net income Other comprehensive income for the period, net of taxes Comprehensive income 2018 5,680 2,476 (33) 2,443 2017(a) 5,079 702 12 714 2016(a) 4,389 714 (19) 695 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1). F-48 SANOFI / FORM 20-F 2018 (€ million) Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) December 31, 2018 December 31, 2017(a) December 31, 2016(a) 5,621 4,731 10,352 1,258 772 2,030 8,322 3,615 3,966 7,581 983 1,340 2,323 5,258 3,001 4,316 7,317 1,178 1,245 2,423 4,894 Consolidated shareholders’ equity of Regeneron (a) Includes the effect of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1). The table below shows a reconciliation to the carrying amount of the investment: (€ million) % interest Share of equity attributable to Sanofi Goodwill Fair value remeasurements of assets and liabilities at the acquisition date Other items(b) Carrying amount of the investment in Regeneron December 31, 2018 December 31, 2017(a) December 31, 2016(a) 22% 1,806 858 873 (482) 3,055 22% 1,167 810 938 (419) 2,496 22% 1,081 835 1,065 (431) 2,550 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1). (b) Mainly comprised of the difference arising from Sanofi’s share of the accumulated profits and losses and other changes in the net assets of Regeneron for the periods prior to first-time application of the equity method, and thereafter (i) Sanofi’s share of the stock option expense recognized against equity in the books of Regeneron, and of the deferred taxes recognized against equity in respect of that expense in accordance with IAS 12 paragraph 68.C. and (ii) the effects of the elimination of internal profits between Sanofi and Regeneron. The market value of Sanofi’s investment in Regeneron as of December 31, 2018, 2017 and 2016, based on the quoted stock market price per share in US dollars, is shown below: 2018 373.50 8,835 7,702 2017 375.96 8,978 7,487 2016 367.09 8,597 8,159 Quoted stock market price per share ($) Market value of investment in Regeneron ($ million) Market value of investment in Regeneron (€ million) D.7. Other non-current assets Other non-current assets comprise: (€ million) Available-for-sale financial assets Financial assets recognized under the fair value option Equity instruments at fair value through other comprehensive income 1,037 1,389 Debt instruments at fair value through other comprehensive income Other financial assets at fair value through profit or loss Pre-funded pension obligations (Note D.19.1.) Long-term prepaid expenses Long-term loans and advances and other non-current receivables (b) Derivative financial instruments (Note D.20.) 359 733 77 126 620 19 199 944 53 17 699 63 2018 2017(a) — — — — 2017 2,182 336 — — — 53 17 713 63 2016 1,583 329 — — — 30 26 780 102 Total 2,971 3,364 3,364 2,820 (a) Balances as of December 31, 2017 have been reclassified to the new financial asset categories required under IFRS 9, applicable with effect from January 1, 2018 (see Note A.2.1.2.). (b) Includes long-term loans and advances, and long-term tax receivables. SANOFI / FORM 20-F 2018 F-49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.7.1 Equity instruments at fair value through other comprehensive income Quoted equity investments The line item “Equity instruments at comprehensive income” quoted equity investments: includes in particular fair value through other the following ◆ An equity interest in Alnylam Pharmaceuticals, Inc. (Alnylam), acquired at the start of 2014. Based on quoted market prices, the carrying amount of the equity interest was €671 million as of December 31, 2018, versus €1,118 million as of December 31, 2017 and €364 million as of December 31, 2016. On October 5, 2016, Alnylam announced that it was terminating its revusiran development program, as a result of which its share price fell by 48% on October 6, 2016. Consequently, Sanofi recognized as of December 31, 2016 an reflecting the difference impairment between the historical acquisition cost of its shares in Alnylam and the market value of those shares at that date. loss of €457 million, Inc., ◆ An equity injection into MyoKardia, initiated under a in collaboration agreement company September 2014, valued at €178 million as of December 31, 2018 and representing an equity interest of approximately 9% as of that date (versus €141 million as of December 31, 2017 and €45 million as of December 31, 2016). signed with that A 10% decline in stock prices of the quoted equity investments included within “Equity instruments at fair value through other comprehensive income” would have had a negative pre-tax impact of €86 million on Other comprehensive income. Unquoted equity investments The line item “Equity instruments at fair value through other comprehensive income” also includes equity investments not quoted in an active market. The carrying amount of those investments was €178 million as of December 31, 2018 and €62 million as of December 31, 2017. D.7.2 Debt instruments at fair value through other comprehensive income instruments at fair value through other The line item “Debt comprehensive income” includes quoted euro-denominated senior bonds amounting to €359 million as of December 31, 2018, including €136 million of securities obtained in exchange for financial assets held to meet obligations to employees under post-employment benefit plans. Sanofi held €199 million of December 31, 2017 and €112 million as of December 31, 2016. listed senior bonds as of As regards debt instruments held to meet obligations to employees under post-employment benefit plans, a reduction of 10 basis points in market interest rates as of December 31, 2018 would have had a negative pre-tax impact of €3 million on Other comprehensive income. F-50 SANOFI / FORM 20-F 2018 As regards other quoted debt instruments, a reduction of 10 basis points in market interest rates as of December 31, 2018 would have had a negative pre-tax impact of €1 million on Other comprehensive income. Other comprehensive income recognized in respect of “Equity instruments at fair value through other comprehensive income” and “Debt instruments at fair value through other comprehensive income” represented unrealized after-tax losses of €106 million as of December 31, 2018 and unrealized after-tax gains of €335 million as of December 31, 2017. An analysis of the change in gains and losses recognized in Other comprehensive income, and of items reclassified to profit or loss, is presented in Note D.15.7. D.7.3. Other financial assets at fair value through profit or loss The line item “Other financial assets at fair value through profit or loss” includes: ◆ Contingent consideration receivable by Sanofi following the dissolution of the Sanofi Pasteur MSD joint venture, based on a percentage of MSD’s future sales during the 2017-2024 period of specified products previously distributed by SPMSD (see Notes B.1., D.1.3. and D.12.). the MSD contingent consideration was The fair value of determined by applying the royalty percentage stipulated in the contract to discounted sales projections. A reduction of one percentage point in the discount rate would increase the fair by value approximately 3%. the MSD contingent consideration of Changes in the fair value of this contingent consideration are recognized in the income statement within the line item Fair value remeasurement of contingent consideration (see Note B.18.). As of December 31, 2018, the contingent consideration asset amounted to €373 million (including a non-current portion of €309 million), versus €342 million (non-current portion: €292 million) as of December 31, 2017 and €458 million as of December 31, 2016. The movement during 2018 was due primarily to an adjustment of €72 million to the fair value of the asset to reflect revisions of sales forecasts. ◆ Financial assets held to meet obligations to employees under post-employment benefit plans, amounting to €198 million as of December 31, 2017 (versus €360 million as of December 31, 2016). Those obligations, and the financial assets held to meet them, were partially outsourced during 2017. They were exchanged for debt instruments during 2018 (see Note D.7.1.). ◆ A portfolio of financial investments (amounting to €363 million) held to fund a deferred compensation plan provided to certain employees (versus €359 million as of December 31, 2017 and €353 million as of December 31, 2016). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Inc. The equity investments in Voyager Therapeutics, Inc. and Impact Therapeutics, that were recognized as available-for-sale financial assets as of December 31, 2016 and December 31, 2017 were reclassified in accordance with IFRS 9 as other loss as of financial assets at fair value through profit or January 1, 2018. Those investments were divested in the first half of 2018 for an amount of €34 million, and derecognized. A financial gain of €6 million was recognized (see Note D.29, “Financial expenses and income”). D.8. Assets held for sale or exchange and liabilities related to assets held for sale or exchange Assets held for sale or exchange, and liabilities related to assets held for sale or exchange, comprise: (€ million) Animal Health business Other Assets held for sale or exchange Animal Health business Other Liabilities related to assets held for sale or exchange D.9. Inventories Inventories comprise the following: December 31, 2018 December 31, 2017 December 31, 2016 D.36. D.36. — 68 68 — — — — 34 34 — — — 6,376 45 6,421 1,165 30 1,195 (€ million) Raw materials Work in process Finished goods Total 2018 2017(a) 2016(a) Gross value Allowances Carrying amount Gross value Allowances Carrying amount Gross value Allowances Carrying amount 1,099 4,637 2,533 8,269 (83) (549) (160) (792) 1,016 1,041 4,088 4,348 2,373 2,342 7,477 7,731 (79) (656) (178) (913) 962 1,053 3,692 4,512 2,164 2,345 (104) (710) (200) 6,818 7,910 (1,014) 949 3,802 2,145 6,896 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). Allowances include write-downs of products on hand pending marketing approval. Inventories pledged as security for liabilities amounted to €18 million as of December 31, 2018 (compared with €18 million as of December 31, 2017 and €24 million as of December 31, 2016). D.10. Accounts receivable Accounts receivable break down as follows: (€ million) Gross value Allowances Carrying amount December 31, 2018 December 31, 2017 December 31, 2016 7,430 (170)(a) 7,260 7,405 (189) 7,216 7,506 (195) 7,311 (a) With effect from January 1, 2018, impairment allowances cover expected losses as required by IFRS 9, rather than (as previously) incurred losses. The impact of this new impairment methodology as of January 1, 2018 is to increase the total impairment allowance by €17 million. The impact of allowances against accounts receivable in 2018 was a net expense of €15 million (versus €27 million in 2017 and €32 million in 2016). The gross value of overdue receivables was €547 million as of December 31, 2018, versus €644 million as of December 31, 2017 and €597 million as of December 31, 2016. SANOFI / FORM 20-F 2018 F-51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (€ million) December 31, 2018 December 31, 2017 December 31, 2016 Overdue accounts Overdue by Overdue by Overdue by Overdue by Overdue by gross value <1 month 1 to 3 months 3 to 6 months 6 to 12 months > 12 months 547 644 597 257 247 133 172 143 103 36 113 121 21 48 42 61 93 198 Amounts overdue by more than one month relate mainly to public-sector customers. Some Sanofi subsidiaries have assigned receivables to factoring companies or banks without recourse. The amount of receivables derecognized was €385 million as of December 31, 2018 (€437 million as of December 31, 2017 and €428 million as of D.11. Other current assets An analysis of Other current assets is set forth below: (€ million) Taxes payable Other receivables(a) Prepaid expenses Interest rate derivatives measured at fair value (see Note D.20.) Currency derivatives measured at fair value (see Note D.20.) Other current financial assets Total December 31, 2016). The amounts derecognized in 2018 related mainly to the United States (€198 million), Japan (€96 million) and Europe (€92 million). The residual guarantees relating to such transfers were immaterial as of December 31, 2018. 2018 1,458 627 469 30 134 199 2017 832 627 336 —3 133 77 2016 1,034 705 333 105 31 2,917 2,005 2,211 (a) This line mainly comprises advance payments to suppliers. The 2016 figure also includes the impact of corporate transactions finalized in 2016 for which payments were received in January 2017. D.12. Financial assets and liabilities measured at fair value fair value Under IFRS 7 (Financial measurements must be classified using a fair value hierarchy with the following levels: Instruments: Disclosures), ◆ level 2: quoted prices in active markets for similar assets and liabilities, or valuation techniques in which all important inputs are derived from observable market data; ◆ level 3: valuation techniques in which not all important inputs are derived from observable market data. ◆ level 1: quoted prices in active markets for identical assets or The valuation techniques used are described in Note B.8.6. liabilities (without modification or repackaging); F-52 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows the balance sheet amounts of assets and liabilities measured at fair value. (€ million) Note Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 2018 2017 2016 Level in the fair value hierarchy Level in the fair value hierarchy Level in the fair value hierarchy Financial assets measured at fair value Quoted equity investments D.7. 859 Unquoted equity investments Quoted debt securities Unquoted debt securities Contingent consideration relating to divestments Financial assets held to meet obligations under post- employment benefit plans Financial assets held to meet obligations under deferred compensation plans Non-current derivatives Current derivatives Mutual fund investments Total financial assets measured at fair value Financial liabilities measured at fair value CVRs issued in connection with the acquisition of Genzyme Bayer contingent purchase consideration arising from the acquisition of Genzyme MSD contingent consideration (European vaccines business) Other contingent consideration arising from business combinations Liabilities related to non-controlling interests Non-current derivatives D.7. D.7. D.7. D.7. D.7. — 359 — — — D.7. D.7. D.11. D.13. 364 — — 3,189 D.18. 99 D.18. D.18. D.18. D.18. — — — — — — 99 Current derivatives D.19.5. Total financial liabilities measured at fair value — — — — — — — 19 164 — — 1,361 197 — 61 373 — 199 — — — 198 — — — — 359 — — 7,207 — — — — — — — 63 133 — — 72 — 51 528 — 113 — 342 — — 360 — — — — 353 — — 6,210 — — — — — — — 102 108 — — 53 — 59 458 — — — — — 4,771 183 631 9,324 196 465 7,564 210 570 — — — — — 7 90 97 — 75 472 410 301 22 — — 1,205 — — — — — — 75 — — — — — 16 58 74 — 85 — — 701 420 81 92 ———— — 1,294 — — — — — 85 — 1,013 — — — 354 1 123 132 — 132 1,491 SANOFI / FORM 20-F 2018 F-53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) No transfers between the different levels of the fair value hierarchy occurred during 2018. sales during the 2017-2024 period of specified products previously distributed by SPMSD amounted to €373 million. In connection with the dissolution of the Sanofi Pasteur MSD (SPMSD) joint venture, which was finalized on December 31, 2016, Sanofi recognized contingent consideration receivable as a financial asset at fair value through profit or loss (see Notes D.1.3. and D.7.), and contingent consideration payable in and Liabilities non-controlling interests (see Notes D.1.3. and D.18.). As of December 31, 2018: combinations business related to ◆ The financial liability relating to contingent consideration payable to MSD based on a percentage of future sales made by Sanofi Pasteur during the 2017-2024 period of specified products previously distributed by SPMSD amounted to €410 million. ◆ The financial asset relating to contingent consideration receivable by Sanofi based on a percentage of MSD’s future D.13. Cash and cash equivalents (€ million) Cash Cash equivalents(a) Cash and cash equivalents 2018 661 6,264 6,925 2017 472 9,843 2016 1,077 9,196 10,315 10,273 (a) As of December 31, 2018, cash equivalents mainly comprised the following, all of which were held by Sanofi S.A., the parent company of the Sanofi group: (i) €3,189 million invested in euro and US dollar denominated money-market mutual funds (December 31, 2017: €7,207 million; December 31, 2016: €6,210 million); (ii) €2,014 million of term deposits (December 31, 2017: €1,346 million; December 31, 2016: €1,469 million) and (iii) €357 million in commercial paper (December 31, 2017: €505 million; December 31, 2016: €617 million). The line item comprised also €505 million held by captive insurance and reinsurance companies in accordance with insurance regulations (December 31, 2017: €556 million; December 31, 2016: €553 million). D.14. Net deferred tax position An analysis of the net deferred tax position is set-forth below: (€ million) Deferred taxes on: Consolidation adjustments (intragroup margin in inventory) Provision for pensions and other employee benefits Remeasurement of other acquired intangible assets(a) Recognition of acquired property, plant and equipment at fair value Equity interests in subsidiaries and investments in other entities(b) Tax losses available for carry-forward Stock options and other share-based payments Accrued expenses and provisions deductible at the time of payment(c) Other Net deferred tax asset/(liability) 2018 2017 2016 1,195 1,166 969 1,263 1,095 1,538 (3,740) (1,713) (2,797) (31) (437) 1,341 110 1,394 201 1,199 (36) (592) 1,059 88 1,342 306 2,686 (44) (818) 1,070 126 2,202 6 2,378 (a) Includes the following deferred tax liabilities as of December 31, 2018: €109 million relating to the remeasurement of the other intangible assets of Aventis, €742 million relating to Genzyme, and €1,906 million relating to Bioverativ. (b) In some countries, Sanofi is liable for withholding taxes and other tax charges when dividends are distributed. Consequently, Sanofi recognizes a deferred tax liability on the reserves of French and foreign subsidiaries (approximately €53.3 billion) which it regards as likely to be distributed in the foreseeable future. In determining the amount of the deferred tax liability as of December 31, 2018, Sanofi took into account changes in the ownership structure of certain subsidiaries, and the effects of changes in the taxation of dividends in France following the ruling of the Court of Justice of the European Union in the Steria case and the resulting amendments to the 2015 Finance Act. (c) Includes deferred tax assets related to restructuring provisions, amounting to €218 million as of December 31, 2018, €212 million as of December 31, 2017, and €334 million as of December 31, 2016. F-54 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The reserves of Sanofi subsidiaries that would be taxable if distributed but for which no distribution is planned, and for which no deferred tax liability has therefore been recognized, totaled €10.2 billion as of December 31, 2018, compared with €16.8 billion as of December 31, 2017 and €25.2 billion as of December 31, 2016. the tax consequences of Most of Sanofi’s tax loss carry-forwards are available indefinitely. For a description of policies on the recognition of deferred tax assets, refer to Note B.22. The recognition of deferred tax assets forecasts for each tax is determined on the basis of profit consolidation, and of the strategic opportunities available to Sanofi. Those forecasts are consistent with Sanofi’s medium-term strategic plan, and are based on time horizons that take account of the period of availability of tax loss carry-forwards and the specific circumstances of each tax group. Deferred tax assets relating to tax loss carry-forwards as of December 31, 2018 amounted to €1,651 million, of which €310 million were not compares with €1,346 million as of December 31, 2017 (of which €287 million were not recognized) and €1,502 million as of December 31, 2016 (of which €431 million were not recognized). recognized. This The table below shows when tax losses available for carry- forward are due to expire: (€ million) 2019 2020 2021 2022 2023 2024 and later Total as of December 31, 2018 Total as of December 31, 2017 Total as of December 31, 2016 Tax losses available for carry-forward(a) 7 6 75 64 37 5,911 6,100 5,164 5,176 (a) Excluding tax loss carry-forwards on asset disposals. Such carry- forwards amounted to €1 million as of December 31, 2018, €7 million as of December 31, 2017 and €13 million as of December 31, 2016. Use of tax loss carry-forwards is limited to the entity in which they arose. In jurisdictions where tax consolidations are in place, tax losses can be netted against taxable income generated by entities in the same tax consolidation. Deferred tax assets not recognized because their future recovery was not regarded as probable given the expected results of the entities in question amounted to €298 million in 2018, €302 million in 2017 and €561 million in 2016. D.15. Consolidated shareholders’ equity D.15.1. Share capital As of December 31, 2018, the share capital was €2,494,790,944, consisting of 1,247,395,472 shares with a par value of €2. Treasury shares held by Sanofi are as follows: December 31, 2018 December 31, 2017 December 31, 2016 January 1, 2016 Number of shares (million) % of share capital for the period 1.9 0.2 20.0 4.0 0.15% 0.01% 1.55% 0.30% Treasury shares are deducted from shareholders’ equity. Gains and losses on disposals of treasury shares are recorded directly in equity and are not recognized in net income for the period. SANOFI / FORM 20-F 2018 F-55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Movements in the share capital of the Sanofi parent company over the last three years are set forth below: Number of shares Share capital(a) Additional paid-in capital(a) Reserves(a) Treasury shares(a) — — — — — — — — — — — — — 80 — — — 80 Date December 31, 2015 During 2016 During 2016 Board meeting of April 28, 2016 Board meeting of July 22, 2016 December 31, 2016 During 2017 During 2017 Board meeting of April 27, 2017 Board meeting of July 28, 2017 Transaction Capital increase by exercise of stock subscription options(b) Capital increase by issuance of restricted shares(c) Reduction in share capital by cancellation of treasury shares Capital increase reserved for employees Capital increase by exercise of stock subscription options(b) Capital increase by issuance of restricted shares(c) Reduction in share capital by cancellation of treasury shares Capital increase reserved for employees 1,305,696,759 2,611 4,039 3,418,421 3,664,248 7 7 212 (7) (22,561,090) (45) (1,655) 1,803,986 4 96 1,292,022,324 2,584 2,685 3,764,646 3,394,574 8 7 215 (7) (36,380,198) (73) (2,709) 1,621,098 3 103 — — — — — — — — — — Board meeting of December 14, 2017 Reduction in share capital by cancellation of treasury shares (10,402,540) (21) (229) December 31, 2017 During 2018 During 2018 Board meeting of April 26, 2018 Board meeting of July 27, 2018 Capital increase by exercise of stock subscription options(b) Capital increase by issuance of restricted shares(c) Reduction in share capital by cancellation of treasury shares Capital increase reserved for employees 1,254,019,904 2,508 1,168,808 2,152,183 2 4 (7,239,803) (14) 2,401,184 5 58 57 (84) (55) 115 Board meeting of December 18, 2018 Reduction in share capital by cancellation of treasury shares December 31, 2018 (5,106,804) (10) 1,247,395,472 2,495 (358) (267) (616) (616) — — (443) — — (1,059) (a) Amounts expressed in millions of euros. (b) Shares issued on exercise of Sanofi stock subscription options. (c) Shares vesting under restricted share plans and issued in the period. For the disclosures about the management of capital required under IFRS 7, refer to Note B.27. F-56 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.15.2. Restricted share plans Restricted share plans are accounted for in accordance with the policies described in Note B.24.3. The principal characteristics of those plans are as follows: Type of plan 2018 2017 2016 Performance share plan Performance share plan Performance share plan Performance share plan Date of Board meeting approving the plan July 30, 2018 May 2, 2018 May 10, 2017 May 4, 2016 Service period Total number of shares awarded Fair value per share awarded (€)(a) Fair value of plan at the date of grant (€ million) 3 years 3 years 3 years 3 years 141,669 4,390,216 3,587,465 4,097,925 64.35 9 56.59 248 81.50 292 61.06 250 (a) Quoted market price per share at the date of grant, adjusted for dividends expected during the vesting period. The total expense recognized for all restricted share plans, and the number of restricted shares not yet fully vested, are shown in the table below: Total expense for restricted share plans (€ million)(a) 2018 248 2017 238 2016 219 Number of shares not yet fully vested 13,576,464 12,867,519 13,543,254 Under 2018 plans Under 2017 plans Under 2016 plans Under 2015 plans Under 2014 plans Under 2013 plans 4,406,593 3,314,391 3,690,226 2,165,254 — — — 3,468,576 3,798,073 3,438,420 2,162,450 — — — 4,051,325 3,667,620 3,595,420 2,228,889 (a) The 2016 figure excludes the Animal Health business. On March 5, 2014, the Board of Directors approved a performance share unit (PSU) plan, vesting at the end of a three- year service period and subject to performance conditions. That plan expired on March 5, 2017, resulting in a cash payment of €27 million based on attainment of the performance criteria. The corresponding expense was recognized on a straight line basis over the vesting period, in accordance with the policies described in Note B.24.3. D.15.3. Capital increases The characteristics of the employee share ownership plans awarded in the form of a capital increase reserved for employees in 2018, 2017 and 2016 are summarized in the table below: Date of Board meeting approving the plan Subscription price (€)(a) Subscription period Number of shares subscribed Number of shares issued immediately as employer’s contribution 2018 2017 2016 March 6, 2018 March 2, 2017 March 3, 2016 52.66 70.01 57.25 June 11-29, 2018 June 19-30, 2017 June 13-24, 2016 2,298,783 102,401 1,528,982 1,756,972 92,116 47,014 (a) Subscription price representing 80% of the average of the opening quoted market prices of Sanofi shares during the 20 trading days preceding June 9, 2018, June 14, 2017 and June 8, 2016, respectively. SANOFI / FORM 20-F 2018 F-57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below sets forth the expense recognized for each plan: (€ million) Expense recognized of which employer’s contribution (a) Excludes the Animal Health business. D.15.4. Repurchase of Sanofi shares 2018 32 7 2017 21 8 2016(a) 16 3 The Annual General Meetings of Sanofi shareholders held on May 2, 2018, May 10, 2017, May 4, 2016 and May 4, 2015 each authorized a share repurchase program for a period of 18 months. The following repurchases have been made under those programs: (in number of shares and € million) 2018 program 2017 program 2016 program 2015 program Transactions carried out under the liquidity contract in 2018 had an impact of €3 million on shareholders’ equity. D.15.6. Currency translation differences Currency translation differences comprise the following: (€ million) Attributable to equity holders of Sanofi Attributable to non-controlling interests Total The balance as of December 31, 2018 includes an after-tax amount of €(145) million relating to hedges of net investments in foreign operations (refer to Note B.8.4. for a description of the relevant accounting policy), compared with €(32) million as of December 31, 2017 and December 31, 2016. 2018 2017 2016 Number Number of Number of of shares Value shares Value shares Value 6,884,792 8,489,873 501 602 8,428,935 702 18,426,601 1,453 19,947,202 1,503 18,764,233 1,402 D.15.5. Reductions in share capital Reductions in share capital for the accounting periods presented are described in the table included at Note D.15.1. above. Those reductions have no impact on shareholders’ equity. 2018 (167) (36) (203) 2017 (1,439) (32) (1,471) 2016 1,787 (18) 1,769 The movement in Currency translation differences is mainly attributable to the US dollar. F-58 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.15.7. Other comprehensive income Movements within other comprehensive income are shown below: (€ million) Actuarial gains/(losses): ◆ ◆ Actuarial gains/(losses) excluding investments accounted for using the equity method (see Note D.19.1.) Actuarial gains/(losses) of investments accounted for using the equity method, net of taxes ◆ Tax effects Equity instruments included in financial assets(b): ◆ ◆ ◆ Change in fair value (excluding investments accounted for using the equity method) Change in fair value (investments accounted for using the equity method, net of taxes) Tax effects Items not subsequently reclassifiable to profit or loss Available-for-sale financial assets(c) ◆ ◆ ◆ Change in fair value (excluding investments accounted for using the equity method) Change in fair value (investments accounted for using the equity method, net of taxes) Tax effects Debt instruments included in financial assets(b): Change in fair value (excluding investments accounted for using the equity method)(d) Change in fair value (investments accounted for using the equity method, net of taxes) ◆ ◆ ◆ Tax effects ——— Cash flow hedges: ◆ ◆ ◆ Change in fair value (excluding investments accounted for using the equity method)(e) Change in fair value (investments accounted for using the equity method, net of taxes) Tax effects Change in currency translation differences: ◆ ◆ ◆ ◆ Currency translation differences on foreign subsidiaries (excluding investments accounted for using the equity method)(e)/(f) Currency translation differences (investments accounted for using the equity method) Hedges of net investments in foreign operations Tax effects 3 — (1) 1,273 106 (185) 72 2018 2017(a) 2016(a) 201 — (69) (529) (8) 100 (305) — — — (4) — (30) (104) 2 (90) — — — (2) (22) — — — (118) (128) 837 1 (145) — — (24) — 8 (2,956) (283) — — (104) (1) 50 — — 30 1 (10) 1,033 57 — — Items subsequently reclassifiable to profit or loss 1,264 (2,562) 1,056 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (b) The “Equity instruments included in financial assets” and “Debt instruments included in financial assets” categories are used effective January 1, 2018 in application of IFRS 9 (see Note A.2.1.2.) (c) Includes reclassifications to profit or loss: €(89) million in 2017 and €447 million in 2016. With effect from January 1, 2018, the financial asset category Available-for-sale financial assets is no longer applicable, in accordance with IFRS 9 (see Note A.2.1.2.). (d) Immaterial amounts reclassified to profit or loss in 2018. (e) Includes reclassifications to profit or loss: €(7) million in 2018, €(23) million in 2017 and €2 million in 2016. (f) Items subsequently reclassifiable to profit or loss and attributable to the Animal Health business divested on January 1, 2017: €(170) million in 2017 on divestment (comprising €(147) million of currency translation differences and €(23) million of cash flow hedges); €(51) million in 2016. SANOFI / FORM 20-F 2018 F-59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.15.8. Stock options Stock option plans awarded and measurement of stock option plans Stock options granted by the Board of Directors in 2018, 2017 and 2016 are summarized below, with the assumptions used to determine their fair value: Date of Board meeting approving the plan Total number of options granted Exercise price (€) Vesting period Plan expiry date Fair value of the plan (€ million) Fair value per option granted (€) Assumptions used to determine fair value Dividend yield Volatility of Sanofi shares, computed on a historical basis Risk-free interest rate Plan maturity 2018 2017 2016 May 2, 2018 May 10, 2017 May 4, 2016 220,000 65.84 4 years 378,040 88.97 4 years 402,750 75.90 4 years May 2, 2028 May 10, 2027 May 4, 2026 1 6.32 4.87% 23.10% 0.36% 7 years 53 12.21 3.56% 23.74% 0.27% 7 years 6.60 4.51% 24.54% 0.06% 7 years The table below shows, for each of the periods reported, the expense recognized through equity for stock option plans; the unrecognized future expense, and the weighted average period over which it will be recognized; and the current income tax gain relating to stock options. Expense recognized through equity (€ million) of which expense for the current-year plan Unrecognized cost of unvested options (€ million) 2018 2017 2016 4 0.2 4 46 0.7 89 0.4 Weighted average period of unrecognized cost Current income tax gain relating to exercise of stock options (€ million) 2.3 years 2.5 years 2 years 1 62 Stock purchase option plans The table shows the only Sanofi stock purchase option plan still outstanding as of December 31, 2018. Source Synthélabo Total Date of grant Number of options granted Start date of exercise period Expiry date Exercise price (€) Number of options outstanding as of 12/31/2018 03/30/1999 716,040 03/31/2004 03/30/2019 38.08 80,671 80,671 Sanofi shares acquired to cover stock purchase option plans are deducted from shareholders’ equity. The exercise of all outstanding stock purchase options would increase shareholders’ equity by €3 million. Stock subscription option plans Details of the terms of exercise of stock subscription options granted under the various plans are presented below in Sanofi share equivalents. These plans were awarded to certain corporate officers and employees of Sanofi companies. F-60 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table shows all Sanofi stock subscription option plans still outstanding or under which options were exercised in the year ended December 31, 2018. Source Sanofi-aventis Sanofi-aventis Sanofi-aventis Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Total Date of grant Number of options granted Start date of exercise period Expiry date Exercise price (€) Number of options outstanding as of 12/31/2018 03/02/2009 7,736,480 03/04/2013 03/01/2019 03/01/2010 8,121,355 03/03/2014 02/28/2020 03/09/2011 03/05/2012 03/05/2013 874,500 814,050 788,725 03/10/2015 03/09/2021 03/06/2016 03/05/2022 03/06/2017 03/05/2023 03/05/2014 1,009,250 03/06/2018 03/05/2024 06/24/2015 05/04/2016 05/10/2017 05/02/2018 435,000 402,750 378,040 220,000 06/25/2019 06/24/2025 05/05/2020 05/04/2026 05/11/2021 05/10/2027 05/02/2022 05/02/2028 45.09 54.12 50.48 56.44 72.19 73.48 89.38 75.90 88.97 65.84 1,021,002 2,412,300 155,517 496,210 505,199 797,315 388,464 398,000 374,895 220,000 6,768,902 The exercise of all outstanding stock subscription options would increase shareholders’ equity by approximately €420 million. The exercise of each option results in the issuance of one share. Summary of stock option plans A summary of stock options outstanding at each balance sheet date, and of movements during the relevant periods, is presented below: Options outstanding at January 1, 2016 Options exercisable Options granted Options exercised Options cancelled(a) Options forfeited Options outstanding at December 31, 2016 Options exercisable Options granted Options exercised Options cancelled(a) Options forfeited Options outstanding at December 31, 2017 Options exercisable Options granted Options exercised Options cancelled(a) Options outstanding at December 31, 2018 Options exercisable (a) Mainly due to the grantees leaving Sanofi. Number of options 15,867,615 13,028,045 402,750 (3,441,429) (161,863) (601,271) 12,065,802 9,646,903 378,040 (3,796,788) (130,312) (627,722) 7,889,020 5,812,165 220,000 (1,192,838) (66,609) 6,849,573 5,468,214 Average exercise price per share (€) Total (€ million) 60.03 57.56 75.90 63.83 68.09 67.00 59.03 54.67 88.97 58.92 69.06 62.33 60.08 52.93 65.84 50.02 82.03 61.81 56.80 953 750 31 (220) (11) (40) 713 527 33 (224) (9) (39) 474 308 14 (60) (5) 423 311 SANOFI / FORM 20-F 2018 F-61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below provides summary information about options outstanding and exercisable as of December 31, 2018: Range of exercise prices per share From €30.00 to €40.00 per share From €40.00 to €50.00 per share From €50.00 to €60.00 per share From €60.00 to €70.00 per share From €70.00 to €80.00 per share From €80.00 to €90.00 per share Total Outstanding Exercisable Weighted average residual life (years) Weighted average exercise price per share (€) 0.24 0.16 1.54 9.35 5.39 7.41 38.08 45.09 54.31 65.84 73.66 89.18 Weighted average exercise price per share (€) 38.08 45.09 54.31 — 72.98 — Number of options 80,671 1,021,002 3,064,027 — 1,302,514 — 5,468,214 Number of options 80,671 1,021,002 3,064,027 220,000 1,700,514 763,359 6,849,573 D.15.9. Number of shares used to compute diluted earnings per share Diluted earnings per share is computed using the number of shares outstanding plus stock options with dilutive effect and restricted shares. (million) Average number of shares outstanding Adjustment for stock options with dilutive effect Adjustment for restricted shares 2018 2017 2016 1,247.1 1,256.9 1,286.6 1.3 6.8 2.7 7.2 2.6 6.8 Average number of shares used to compute diluted earnings per share 1,255.2 1,266.8 1,296.0 In 2018, 2.5 million stock options were not taken into account in computing diluted earnings per share because they had no dilutive effect, compared with 0.8 million in 2017 and 2.4 million in 2016. D.16. Attributable to non-controlling interests Non-controlling interests did not represent a material component of Sanofi’s consolidated financial statements in the years ended December 31, 2018, 2017 and 2016. D.17. Debt, cash and cash equivalents Changes in financial position during the period were as follows: (€ million) Long-term debt Short-term debt and current portion of long-term debt Interest rate and currency derivatives used to manage debt Total debt Cash and cash equivalents Interest rate and currency derivatives used to manage cash and cash equivalents Net debt 2018 22,007 2,633 (54) 24,586 (6,925) (33) 17,628 2017 14,326 1,275 (133) 2016 16,815 1,764 (70) 15,468 18,509 (10,315) (10,273) 8 5,161 (2) 8,234 “Net debt” is a financial indicator used by management and investors to measure Sanofi’s overall net indebtedness. F-62 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Reconciliation of carrying amount to value on redemption (€ million) Long-term debt Short-term debt and current portion of long-term debt Interest rate and currency derivatives used to manage debt Total debt Cash and cash equivalents Interest rate and currency derivatives used to manage cash and cash equivalents Net debt Carrying amount at December 31, 2018 Amortized cost Adjustment to debt measured at fair value 22,007 2,633 (54) 24,586 (6,925) (33) 17,628 108 — — 108 — —— 108 (44) (20) 42 (22) — (22) Value on redemption December 31, 2018 December 31, 2017 December 31, 2016 22,071 14,309 16,765 2,613 1,275 1,764 (12) 24,672 (6,925) (33) 17,714 (83) 15,501 (10,315) 20 18,549 (10,273) 8 5,194 (2) 8,274 a) Principal financing transactions during the year The table below shows the movement in total debt during the period: Cash flows from financing activities Non-cash items December 31, 2017 Repayments New borrowings Other cash flows Currency translation differences Reclassification from non-current to current Other items(a) December 31, 2018 14,326 (16) 9,677 109 (2,119) 30 22,007 1,275 (771) — (168) 140 2,119 38 2,633 (133) 15,468 — (787) — — 9,677 (168) 28 277 51 119 — (54) 24,586 (€ million) Long-term debt Short-term debt and current portion of long- term debt Interest rate and currency derivatives used to manage debt Total debt (a) Includes fair value remeasurements. In March 2018, an €8 billion bond issue was carried out under the Sanofi Euro Medium Term Notes (EMTN) program, in six tranches: ◆ €1.5 billion of fixed-rate bonds maturing March 2026, with annual coupons and bearing interest at an annual rate of 1.000%; ◆ €1 billion of floating-rate bonds maturing March 2020, with quarterly coupons and bearing interest at an annual rate of 3-month Euribor plus 15 basis points; ◆ €500 million of fixed-rate bonds maturing March 2020, with annual coupons and bearing interest at an annual rate of 0.000%; ◆ €1.75 billion of fixed-rate bonds maturing March 2023, with annual coupons and bearing interest at an annual rate of 0.500%; ◆ €2 billion of fixed-rate bonds maturing March 2030, with annual coupons and bearing interest at an annual rate of 1.375%; ◆ €1.25 billion of fixed-rate bonds maturing March 2038, with annual coupons and bearing interest at an annual rate of 1.875%. SANOFI / FORM 20-F 2018 F-63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In June 2018, Sanofi carried out a $2 billion bond issue under its shelf registration statement program, in two tranches: A €750 million bond issue carried out in September 2014 was redeemed on maturity on September 10, 2018. ◆ $1 billion of fixed-rate bonds maturing June 2023, with half- yearly coupons and bearing interest at an annual rate of 3.375%; ◆ $1 billion of fixed-rate bonds maturing June 2028, with half- yearly coupons and bearing interest at an annual rate of 3.625%. b) Net debt by type, at value on redemption Sanofi also had two syndicated credit facilities of €4 billion each in place as of December 31, 2018 in order to manage its liquidity in connection with current operations. Sanofi has no further extension options for those credit facilities. 2018 2017 2016 Non- (€ million) Bond issues Other bank borrowings Finance lease obligations Other borrowings Bank credit balances Interest rate and currency derivatives used to manage debt Non- current Current Total Non- current 21,983 2,181 24,164 14,195 57 18 13 — — 176 4 3 249 233 22 16 249 (12) (12) 81 20 13 — (3) Current Total current Current Total 15,015 16,657 820 203 11 4 237 284 31 17 237 (80) (83) 823 715 19 4 203 29 17,480 776 53 17 203 20 61 34 13 — (9) Total debt 22,071 2,601 24,672 14,306 1,195 15,501 16,756 1,793 18,549 Cash and cash equivalents — (6,925) (6,925) — (10,315) (10,315) — (10,273) (10,273) Interest rate and currency derivatives used to manage cash and cash equivalents — (33) (33) — 8 8 — (2) (2) Net debt 22,071 (4,357) 17,714 14,306 (9,112) 5,194 16,756 (8,482) 8,274 F-64 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Bond issues carried out by Sanofi under the Euro Medium Term Note (EMTN) program are as follows: Issuer Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi Sanofi ISIN code Issue date Maturity Annual interest rate Amount (€ million) XS0456451771 October 2009 October 2019 FR0011560333 September 2013 September 2020 FR0011625433 November 2013 November 2023 FR0012146777 September 2014 March 2022 FR0012146801 September 2014 September 2026 4.125% 1.875% 2.50% 1.125% 1.75% FR0012969012 September 2015 March 2019 E3M + 0.30% FR0012969020 September 2015 September 2021 FR0012969038 September 2015 September 2025 FR0013143989 FR0013143997 FR0013144003 April 2016 April 2016 April 2016 April 2019 April 2024 April 2028 FR0013201613 September 2016 January 2020 FR0013201621 September 2016 September 2022 FR0013201639 September 2016 January 2027 0.875% 1.50% 0% 0.625% 1.125% 0% 0% 0.5% FR0013324316 March 2018 March 2020 E3M + 0.15% FR0013324324 March 2018 March 2020 FR0013324332 March 2018 March 2023 FR0013324340 March 2018 March 2026 FR0013324357 March 2018 March 2030 FR0013324373 March 2018 March 2038 0% 0.5% 1% 1.375% 1.875% 800 1,000 1,000 1,000 1,510 750 500 750 500 600 700 1,000 850 1,150 1,000 500 1,750 1,500 2,000 1,250 Bond issues carried out by Sanofi under the public bond issue program (shelf registration statement) registered with the US Securities and Exchange Commission (SEC) comprise: Issuer Sanofi Genzyme Corp.(a) Sanofi Sanofi ISIN code Issue date Maturity US80105NAG07 March 2011 March 2021 US372917AS37 June 2010 June 2020 US801060AC87 June 2018 June 2023 US801060AD60 June 2018 June 2028 Annual interest rate Amount ($ million) 4% 5% 3.375% 3.625% 2,000 500 1,000 1,000 (a) Bonds issued by Genzyme Corp. prior to its acquisition by Sanofi in 2011. The line “Other borrowings” mainly comprises: ◆ participating shares issued between 1983 and 1987, of which 82,698 remain outstanding, with a nominal amount of €13 million. The Series A participating shares issued in 1989 were repurchased in 2018 for €1.3 million and then cancelled by the Board of Directors. In order to manage its liquidity needs for current operations, Sanofi has: ◆ a syndicated credit facility of €4 billion, drawable in euros and in US dollars, due to expire on December 17, 2020 following the exercise of a second extension option in November 2015; ◆ a syndicated credit facility of €4 billion, drawable in euros and in US dollars, due to expire on December 3, 2021 following the exercise of a second extension option in November 2016. Sanofi also has a €6 billion Negotiable European Commercial Paper program in France and a $10 billion Commercial Paper program in the United States. During 2018 only the US program was used, with an average drawdown of $5.0 billion and a maximum drawdown of $9.5 billion. As of December 31, 2018, neither of those programs was being utilized. The financing in place as of December 31, 2018 at the level of the holding company (which manages most of Sanofi’s financing needs centrally) is not subject to any financial covenants, and contains no clauses linking credit spreads or fees to the credit rating. SANOFI / FORM 20-F 2018 F-65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) c) Debt by maturity, at value on redemption December 31, 2018 (€ million) Bond issues Other bank borrowings Finance lease obligations Other borrowings Bank credit balances Interest rate and currency derivatives used to manage debt Total debt Cash and cash equivalents Interest rate and currency derivatives used to manage cash and cash equivalents Net debt December 31, 2017 (€ million) Bond issues Other bank borrowings Finance lease obligations Other borrowings Bank credit balances Interest rate and currency derivatives used to manage debt Total debt Cash and cash equivalents Current Non-current Total 2019 2020 2021 2022 2023 2024 and later 24,164 2,181 3,936 2,243 1,850 3,622 10,332 233 22 16 249 (12) 176 4 3 249 (12) 15 3 — — — 3 3 — — — 3 3 — — — 28 4 — — — 8 5 13 — — 24,672 2,601 3,954 2,249 1,856 3,654 10,358 (6,925) (6,925) (33) (33) — — — — — — — — — — 17,714 (4,357) 3,954 2,249 1,856 3,654 10,358 Current Non-current Total 2018 2019 2020 2021 2022 2023 and later 15,015 284 31 17 237 (83) 820 203 11 4 237 (80) 2,050 2,417 2,168 1,850 5,710 8 3 — — (2) 25 2 — — (1) 4 3 — — — 4 3 — — — 40 9 13 — — 15,501 1,195 2,059 2,443 2,175 1,857 5,772 Interest rate and currency derivatives used to manage cash and cash equivalents 8 8 (10,315) (10,315) — — — — — — — — — — Net debt 5,194 (9,112) 2,059 2,443 2,175 1,857 5,772 December 31, 2016 (€ million) Bond issues Other bank borrowings Finance lease obligations Other borrowings Bank credit balances Interest rate and currency derivatives used to manage debt Total debt Cash and cash equivalents Current Non-current Total 2017 2018 2019 2020 2021 2022 and later 17,480 776 53 17 203 20 823 715 19 4 203 29 2,174 2,050 2,475 2,398 7,560 16 13 — — (6) 8 2 — — (3) 14 2 — — — — 3 — — — 23 14 13 — — 18,549 1,793 2,197 2,057 2,491 2,401 7,610 Interest rate and currency derivatives used to manage cash and cash equivalents (2) (2) (10,273) (10,273) — — — — — — — — — — Net debt 8,274 (8,482) 2,197 2,057 2,491 2,401 7,610 F-66 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) As of December 31, 2018, the main undrawn confirmed general- purpose credit facilities at holding company level amounted to €8 billion, of which half expires in 2020 and half in 2021. As of December 31, 2018, no single counterparty represented more than 7% of Sanofi’s undrawn confirmed credit facilities. d) Debt by interest rate, at value on redemption The table below splits net debt between fixed and floating rate, and by maturity or contractual repricing date, as of December 31, 2018. The figures shown are values on redemption, before the effects of derivative instruments: (€ million) Fixed-rate debt of which euro of which US dollar % fixed-rate Floating-rate debt (maturity based on contractual repricing date) of which euro of which US dollar % floating-rate Debt Total 2019 2020 2021 2022 2023 2024 and later 1,431 2,936 2,243 1,850 3,622 10,332 1,182 1,018 6 6 32 26 22,414 18,471 3,943 91% 2,270 1,800 27 9% 24,684 2,613 3,954 2,249 1,856 3,654 10,358 Cash and cash equivalents (6,925) (6,925) of which euro of which US dollar % floating-rate Net debt (3,244) (3,109) 100% 17,759 (4,312) 3,954 2,249 1,856 3,654 10,358 Sanofi issues debt in two currencies, the euro and the US dollar, and also invests its cash and cash equivalents in those currencies. Sanofi also operates cash pooling arrangements to manage the surplus cash and short-term liquidity needs of foreign subsidiaries located outside the euro zone. SANOFI / FORM 20-F 2018 F-67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) To optimize the cost of debt or reduce the volatility of debt and manage its exposure to financial foreign exchange risk, Sanofi uses derivative instruments (interest rate swaps, cross currency swaps, currency swaps and forward contracts) that alter the fixed/floating rate split and the currency split of its net debt: (€ million) Fixed-rate debt of which euro of which US dollar % fixed-rate Floating-rate debt (maturity based on contractual repricing date) of which euro of which US dollar of which Japanese yen % floating-rate Debt 2019 (119) 2020 2021 2,936 2,243 2022 (150) 2023 3,622 2024 and later 10,332 2,720 1,018 6 2,006 32 26 Total 18,864 14,921 3,943 76% 5,808 2,527 1,362 761 24% 24,672 2,601 3,954 2,249 1,856 3,654 10,358 Cash and cash equivalents (6,958) (6,958) of which euro of which US dollar of which Singapore dollar of which Chinese yuan renminbi % floating-rate Net debt (936) (3,109) (1,833) (416) 100% 17,714 (4,357) 3,954 2,249 1,856 3,654 10,358 The table below shows the fixed/floating rate split of net debt at value on redemption after taking account of derivative instruments as of December 31, 2017 and 2016: (€ million) Fixed-rate debt Floating-rate debt Debt Cash and cash equivalents Net debt 2017 9,746 5,755 % 2016 % 63% 37% 13,651 4,898 74% 26% 15,501 100% 18,549 100% (10,307) 5,194 (10,275) 8,274 The weighted average interest rate on debt as of December 31, 2018 was 1.6% before derivative instruments and 1.8% after derivative instruments. Cash and cash equivalents were invested as of December 31, 2018 at an average rate of 1.5% before derivative instruments and 2.4% after derivative instruments. F-68 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The projected full-year sensitivity of net debt to interest rate fluctuations for 2019 is as follows: Change in short-term interest rates +100 bp +25 bp -25 bp -100 bp e) Debt by currency, at value on redemption Impact on pre-tax net income (€ million) Impact on pre-tax income/(expense) recognized directly in equity (€ million) 11 3— (3) (11) — — — The table below shows net debt by currency at December 31, 2018, before and after derivative instruments contracted to convert the foreign-currency net debt of exposed entities into their functional currency: (€ million) Euro US dollar Singapore dollar Japanese yen Chinese yuan renminbi Other currencies Net debt Before derivative instruments After derivative instruments 17,028 861 (2) (1) (17) (110) 17,759 16,511 2,197 (1,833) 761 (416) 494 17,714 The table below shows net debt by currency at December 31, 2017 and 2016, after derivative instruments contracted to convert the foreign currency net debt of exposed entities into their functional currency: (€ million) Euro US dollar Other currencies Net debt f) Market value of net debt 2017 3,410 4,683 (2,899) 5,194 2016 4,556 4,907 (1,189) 8,274 The market value of Sanofi’s debt, net of cash and cash equivalents and derivatives and excluding accrued interest, is as follows: (€ million) Market value Value on redemption 2018 18,003 17,714 2017 5,650 5,194 2016 8,690 8,274 The fair value of debt is determined by reference to quoted market prices at the balance sheet date in the case of quoted instruments (level 1 in the IFRS 7 hierarchy, see Note D.12.), and by reference to the fair value of interest rate and currency derivatives used to manage net debt (level 2 in the IFRS 7 hierarchy, see Note D.12.). SANOFI / FORM 20-F 2018 F-69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) g) Future contractual cash flows relating to debt and related derivatives The table below shows the amount of future undiscounted contractual cash flows (principal and interest) relating to debt and to derivative instruments designated as hedges of debt: December 31, 2018 Payments due by period (€ million) Debt Principal Interest(a) Net cash flows related to derivative instruments Total 26,881 2019 2,855 2020 4,300 2021 2,519 2022 2,088 2024 and later 11,263 2023 3,856 24,550 2,477 3,955 2,250 1,858 3,653 10,357 2,331 (50) 378 (45) 345 (8) 269 (1) 230 4 203 — 906 — Total 26,831 2,810 4,292 2,518 2,092 3,856 11,263 (a) Interest flows are estimated on the basis of forward interest rates applicable as of December 31, 2018. Future contractual cash flows are shown on the basis of the carrying amount in the balance sheet at the reporting date, without reference to any subsequent management decision that might materially alter the structure of Sanofi’s debt or its hedging policy. The tables below show the amount of future undiscounted contractual cash flows (principal and interest) relating to debt and to derivative instruments designated as hedges of debt as of December 31, 2017 and 2016: December 31, 2017 (€ million) Debt Principal Interest(a) Net cash flows related to derivative instruments Total Total 16,682 15,509 1,173 (127) 16,555 2018 1,441 1,201 240 (118) 1,323 Payments due by period 2019 2,301 2020 2,650 2021 2,307 2023 and later 6,033 2022 1,950 2,062 2,444 2,175 1,857 5,770 239 (28) 206 1 132 8 93 10 263 — 2,273 2,651 2,315 1,960 6,033 (a) Interest flows are estimated on the basis of forward interest rates applicable as of December 31, 2017. December 31, 2016 Payments due by period (€ million) Debt Principal Interest(a) Net cash flows related to derivative instruments Total 19,937 2017 1,951 2018 2,477 2019 2,304 2020 2,708 2022 and later 7,960 2021 2,537 18,451 1,678 2,217 2,054 2,491 2,401 7,610 1,486 (75) 273 (13) 260 (33) 250 (29) 217 (2) 136 1 350 1 Total 19,862 1,938 2,444 2,275 2,706 2,538 7,961 (a) Interest flows are estimated on the basis of forward interest rates applicable as of December 31, 2016. related to business The liabilities combinations and to non-controlling interests shown in the table below are level 3 instruments under the IFRS 7 fair value hierarchy (see Note D.12.) except the CVRs issued in connection with the acquisition of Genzyme, which are level 1 instruments. for D.18. Liabilities related to business combinations and to non-controlling interests For a description of the nature of the liabilities reported in the line item Liabilities related to business combinations and to non-controlling interests, refer to Note B.8.5. The principal acquisitions are described in Notes D.1. and D.2. F-70 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Movements in liabilities related to business combinations and to non-controlling interests are shown below: Liabilities related to non-controlling interests(a) CVRs issued in connection with the acquisition of Genzyme(b) Bayer contingent consideration arising from the acquisition of Genzyme MSD contingent consideration (European Vaccines business) (€ million) Balance at January 1, 2016 New transactions Payments made Fair value remeasurements through profit or loss: (gain)/loss (including unwinding of discount)(d) Other movements Currency translation differences Balance at December 31, 2016 New transactions(e) Payments made Fair value remeasurements through profit or loss: (gain)/loss (including unwinding of discount)(d) Other movements Currency translation differences Balance at December 31, 2017 New transactions(f) Payments made Fair value remeasurements through profit or loss: (gain)/loss (including unwinding of discount)(d) Other movements Currency translation differences Balance at December 31, 2018 181 — — — (58) — 123 — — — (28) (3) 92 — (70) — — — 22 24 — — 58 — 3 85 — — 1 — (11) 75 — — 19 — 5 99 1,040 — (137) 78 — 32 1,013 — (165) (28) — (119) 701 — (147) (109) — 27 472 Other Total(c) 6 — (3) (1) — (1) 1 85 1,251 354 (140) 135 (58) 34 1,576 85 (61) (226) (1) 57 — 81 228 (55) 3 24 20 43 29 (138) 1,369 228 (329) (37) 24 49 — 354 — — — — 354 — — 71 — (5) 420 — (57) 50 — (3) 410 301 1,304 (a) Includes put options granted to non-controlling interests as of December 31, 2016 and 2017, and commitment to future buyout of non-controlling interests held by BMS. The payment relating to that buyout had been made as of December 31, 2018 (see Note C.2.). (b) Based on the quoted market price per CVR of $0.48 as of December 31, 2018, and $0.38 as of December 31, 2017 and 2016. (c) Portion due after more than one year: €963 million as of December 31, 2018 (€1,026 million as of December 31, 2017 and €1,378 million as of December 31, 2016); portion due within less than one year: €341 million as of December 31, 2018 (€343 million as of December 31, 2017 and €198 million as of December 31, 2016). (d) Amounts reported within the income statement line item Fair value remeasurement of contingent consideration, and mainly comprising unrealized gains and losses. (e) Includes two potential payments of €42 million each relating to the acquisition of Protein Sciences, contingent on the attainment of specified performance criteria subsequent to the acquisition date. (f) Includes €226 million for contingent consideration liabilities in favor of True North Therapeutics and €2 million of liabilities owed to Bioverativ employees at the acquisition date. SANOFI / FORM 20-F 2018 F-71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) As of December 31, 2018, Liabilities related to business combinations and to non-controlling interests mainly comprised: ◆ Liability arising from the acquisition of True North Therapeutics by Bioverativ. The former shareholders of True North Therapeutics are entitled to milestone payments contingent on the attainment of development, registration and sales objectives; the fair value of the resulting liability was measured at $192 million as of December 31, 2018. That fair value is determined based on the contractual terms and on development and sales projections which have been weighted the probability of success, and discounted. If the to reflect discount rate were to fall by one percentage point, the fair value of the contingent consideration would increase by approximately 1%. ◆ The Bayer contingent consideration liability arising from the acquisition of Genzyme in 2011. As of December 31, 2018, Bayer was still entitled to receive the following potential payments: – a percentage of sales of alemtuzumab up to a maximum of ten years, $1,250 million or over a maximum period of whichever is achieved first; – milestone payments based on specified levels of worldwide sales of alemtuzumab beginning in 2021, unless Genzyme exercises its right to buy out those milestone payments by making a one-time payment not exceeding $900 million. The fair value of this liability was measured at €472 million as of December 31, 2018, compared with €701 million as of December 31, 2017. The fair value of the Bayer liability is determined by applying the above contractual terms to sales projections which have been weighted to reflect the probability of success, and discounted. If the discount rate were to fall by one percentage point, the fair value of the Bayer liability would increase by approximately 3%. ◆ The MSD contingent consideration liability arising from the the Sanofi Pasteur activities carried on 2016 acquisition of within the former Sanofi Pasteur MSD joint venture, which amounted to €410 million as of December 31, 2018 and €420 million as of December 31, 2017 (see Notes D.1.3. and D.12.). The fair value of this contingent consideration is determined by applying the royalty percentage stipulated in the contract to discounted sales projections. The table below sets forth the maximum amount of contingent consideration payable and firm commitments to buy out non-controlling interests: December 31, 2018 (€ million) Payments due by period Less than 1 year From 1 to 3 years From 3 to 5 years More than 5 years Total Commitments relating to contingent consideration in connection with business combinations (a) 3,638 313 2,840 331 154 (a) Includes €0.4 billion for the Bayer contingent consideration and €2.3 billion for the CVRs issued in connection with the acquisition of Genzyme. The nominal amount of contingent consideration was €4,223 million as of December 31, 2017 and €4,762 million as of December 31, 2016. The increase in commitments in 2018 was mainly attributable to the assumption by Sanofi, on acquiring Bioverativ in March 2018, of commitments arising from Bioverativ’s acquisition of True North Therapeutics. The nominal amount of commitments relating to buyouts of non-controlling interests was €70 million as of December 31, 2017 and December 31, 2016; that amount, which related to the buyout of non-controlling interests from BMS, had been paid as of December 31, 2018 (see Note C.2.). D.19. Provisions and other liabilities The line item Non current provisions and other non-current liabilities comprises the following: (€ million) Provisions Other non-current liabilities Total Other current liabilities are described in Note D.19.5. 2018 6,883 1,730 8,613 2017 7,198 1,956 9,154 2016 7,694 1,140 8,834 F-72 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below sets forth movements in non-current provisions for the reporting periods presented: (€ million) Balance at January 1, 2016 Increases in provisions Provisions utilized Reversals of unutilized provisions Transfers Net interest related to employee benefits, and unwinding of discount Currency translation differences Actuarial gains and losses on defined-benefit plans(c) Balance at December 31, 2016 Changes in scope of consolidation Increases in provisions Provisions utilized Reversals of unutilized provisions Transfers Net interest related to employee benefits, and unwinding of discount Unrealized gains and losses Currency translation differences Actuarial gains and losses on defined-benefit plans(c) Balance at December 31, 2017 Changes in scope of consolidation Increases in provisions Provisions utilized Reversals of unutilized provisions Transfers Net interest related to employee benefits, and unwinding of discount Currency translation differences Actuarial gains and losses on defined-benefit plans(c) Balance at December 31, 2018 Provisions for pensions and other employee benefits (D.19.1.) Provisions for other long-term benefits Restructuring provisions (D.19.2.) Other provisions (D.19.3.) Total 4,308 220(a) (294)(a) 1(a) (85) 108 10 109 4,377 86 269(a) (732)(a) (18)(a) 16 87 — (156) 30 3,959 (6) 251(a) (529)(a) (36)(a) (22) 70 36 (201) 3,522 678 130 (86) (11) (6) 6 9 — 720 3 163 (97) (5) 1 4 — (39) — 750 (2) 93 (101) (5) 10 4 12 — 761 762 475 (7) (39) (450) 4 (1) — 744 — 105 (7) (42) (282) 3 — (7) — 514 — 387 (3) (15) (251) — — — 632 1,766 7,514 276(b) 1,101 (124) (58) (54) 29 18 — (511) (107) (595) 147 36 109 1,853 7,694 13 428(b) (123) (106) (75) 27 1 102 965 (959) (171) (340) 121 1 (43) (245) — 30 1,975 7,198 37 29 306(b) 1,037 (160) (190) (26) 24 2 (793) (246) (289) 98 50 — (201) 1,968 6,883 (a) In the case of “Provisions for pensions and other post-employment benefits”, the “Increases in provisions” line corresponds to rights vesting in employees during the period, and past service cost; the “Provisions utilized” line corresponds to contributions paid into pension funds, and plan settlements; and the “Reversals of unutilized provisions” line corresponds to plan curtailments. (b) Amounts charged during the period mainly comprise changes to estimates of future expenditures on environmental risks. (c) Amounts recognized in Other comprehensive income (see Note D.15.7). SANOFI / FORM 20-F 2018 F-73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.19.1. Provisions for pensions and other post- employment benefits Sanofi offers its employees pension plans and other post- employment benefit plans. The specific features of the plans (benefit formulas, fund investment policy and fund assets held) vary depending on the applicable laws and regulations in each country where the employees work. These employee benefits are in accordance with the revised IAS 19 (see accounted for Note B.23.). Sanofi’s pension obligations in four major countries represented nearly 90% of the total value of the defined-benefit obligation and nearly 89% of the total value of plan assets as of December 31, 2018. The features of the principal defined-benefit plans in each of those four countries are described below. France Lump-sum retirement benefit plans All employees working for Sanofi in France are entitled on retirement to a lump-sum payment, the amount of which depends both on their length of service and on the rights guaranteed by collective and internal agreements. The employee’s final salary is these lump-sum retirement used in calculating the amount of benefits. These plans represent approximately 34% of the Group’s total obligation in France. Defined-benefit pension plans These plans provide benefits from the date of retirement. Employees must fulfil a number of criteria to be eligible for these benefits. All but one of the plans are closed to new entrants. These plans represent approximately 66% of the Group’s total obligation in France. Germany Top-up defined-benefit pension plan The benefits offered under this pension plan are wholly funded by (there are no employee contributions) via a the employer Contractual Trust Agreement (CTA), under which benefits are estimated on the basis of a career average salary. Employees are entitled to receive an annuity under this plan if their salary exceeds the social security ceiling. The amount of the pension is calculated by reference to a range of vesting rates corresponding to salary bands. The plan also includes disability and death benefits. This plan represents approximately 67% of Sanofi’s total obligation in Germany. Sanofi-Aventis plus (SAV plus) A new top-up pension plan (SAV plus) has replaced the previous top-up defined-benefit plan. New entrants joining the plan after is April 1, 2015 contribute to a defined-contribution plan that partially funded via the company’s CTA. All employees whose salary exceeds the social security ceiling are automatically the plan. The employer’s contribution is 15% of the amount by which the employee’s salary exceeds the social security ceiling. covered by Multi-employer plan (Pensionskasse) is treated as a defined- This is a defined-benefit plan that in accordance with the accounting policies contribution plan, described in Note B.23. Currently, contributions cover the level of annuities. Only the portion relating to the future revaluation of the annuities is included in the defined-benefit pension obligation. revaluation amounted to The obligation relating to this €673 million as of December 31, 2018, versus €699 million as of December 31, 2017 and €663 million as of December 31, 2016. This plan represents approximately 21% of Sanofi’s total defined- benefit obligation in Germany. United States Defined-benefit pension plans In the United States, there are two types of defined-benefit plan: ◆ “Qualified” plans within the meaning of the Employee Retirement Income Security Act of 1974 (ERISA), which provide guaranteed benefits to eligible employees during retirement, and in the event of death or disability. Employees can elect to receive a reduced annuity, in exchange for an annuity to be paid in the event of their death to a person designated by them. An annuity is also granted under the plan if the employee dies before retirement age. Eligible employees do not pay any contributions. These plans are closed to new entrants, and the vesting of rights for future service periods is partially frozen. These plans represent approximately 64% of Sanofi’s total obligation in the United States. ◆ “Non-qualified” plans within the meaning of ERISA provide top-up retirement benefits to some eligible employees depending on the employee’s level of responsibility and subject to a salary cap. These plans represent approximately 9% of Sanofi’s total obligation in the United States. Healthcare cover and life insurance Sanofi companies provide some eligible employees with healthcare cover and life insurance during the retirement period (the company’s contributions are capped at a specified level). These plans represent approximately 27% (or €714 million) of Sanofi’s total obligation and 3% (or €44 million) of total plan assets in the United States. United Kingdom Defined-benefit pension plans Sanofi operates a number of pension plans in the United reflect past acquisitions. The most significant Kingdom that F-74 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) arrangements are defined-benefit plans that have been closed since October 1, 2015. With effect from that date, employees can no longer pay into these plans. Under these defined-benefit plans, an annuity is paid from the retirement date. This annuity is calculated on the basis of the employee’s length of service as of September 30, 2015, and of the employee’s final salary (or salary on the date he or she leaves Sanofi). The rates used for the vesting of rights vary from member to member. For most members, rights vest at the rate of 1.25% or 1.50% of final salary for each qualifying year of service giving entitlement. The notional retirement age varies according to the category to which the member belongs, but in most cases retirement is at age 65. Members may choose to retire before or after the notional retirement age (60 years), in which case the the length of amount of the annual pension is adjusted to reflect the revised estimate of the retirement phase. Pensions are usually indexed to the Retail Price Index (RPI). Members paid a fixed-percentage contribution into their pension plan (the percentage varied according to the employee category), and the employer topped up the contribution to the required amount. These plans represent approximately 100% of Sanofi’s total obligation in the United Kingdom. For service periods subsequent to October 1, 2015, employees belong to a new defined-contribution plan. Actuarial assumptions used to measure Sanofi’s obligations Actuarial valuations of Sanofi’s benefit obligations were computed by management with assistance from external actuaries as of December 31, 2018, 2017 and 2016. Those calculations were based on the following financial and demographic assumptions: 2018 2017 2016 France Germany USA UK France Germany USA UK France Germany USA UK Discount rate(a)/(b) 1.25% or 1.75% 1.25% or 1.75% 4.00% 3.00% 0.75% or 1.25% 0.75% or 1.25% 3.50% 2.50% 1.00% or 1.50% 1.00% or 1.50% 4.00% 2.75% General inflation rate(c) 1.50% 1.50% 2.00% 3.10% 1.50% 1.50% 2.00% 3.10% 1.50% 1.50% 2.00% 3.15% Pension benefit indexation Healthcare cost inflation rate Retirement age Mortality table 1.25% to 2.25% 1.50% — 3.00% 1.25% to 2.25% 1.50% — 3.10% 1.25% to 2.25% 1.75% — 3.15% 2.00% —(d) 5.66% 1.50% 2.00% —(d) 5.81% 1.50% 2.00% —(d) 5.96% 1.50% 62 to 67 TGH/ TGF 05 55 to 70 60 to 65 62 Heubeck RT 2018 G RP2014 G. Scale MP2018 SAPS S2 62 to 67 TGH/ TGF 05 55 to 70 62 60 Heubeck RT 2005 G RP2014 G. Scale MP2017 SAPS S2 62 to 67 TGH/ TGF 05 55 to 70 62 60 Heubeck RT 2005 G RP2014 G. Scale MP2016 SAPS S2 (a) The discount rates used were based on market rates for high quality corporate bonds with a duration close to that of the expected benefit payments under the plans. The benchmarks used to determine discount rates were the same in 2018, 2017 and 2016. (b) The rate depends on the duration of the plan (7 to 10 years and more than 10 years, respectively). (c) Inflation for the euro zone is determined using the average break-even inflation rate of French and German government bonds, by reference to the duration of the principal plans. (d) No post-employment healthcare benefits are provided in Germany. Weighted average duration of obligation for pensions and other long-term benefits in principal countries The table below shows the duration of Sanofi’s obligations in the principal countries: (years) France Germany USA UK France Germany USA UK France Germany USA UK Weighted average duration 13 15 13 17 13 15 14 17 13 14 13 17 2018 2017 2016 SANOFI / FORM 20-F 2018 F-75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Sensitivity analysis The table below shows the sensitivity of Sanofi’s obligations for pensions and other post-employment benefits to changes in key actuarial assumptions: (€ million) Pensions and other post-employment benefits, by principal country Measurement of defined-benefit obligation Change in assumption France Germany Discount rate General inflation rate Pension benefit indexation Healthcare cost inflation rate Mortality table -0.50% +0.50% +0.50% +0.50% +1 year +137 +71 +84 — +58 +223 +315 +306 — +82 USA +167 +1 — +32 +65 UK +244 +128 +134 — +103 The table below reconciles the net obligation in respect of Sanofi’s pension and other post-employment benefit plans with the amounts recognized in the consolidated financial statements: (€ million) Measurement of the obligation: Beginning of period Current service cost Interest cost Actuarial losses/(gains) due to changes in demographic assumptions Actuarial losses/(gains) due to changes in financial assumptions Actuarial losses/(gains) due to experience adjustments Plan amendments Plan curtailments Plan settlements specified in the terms of the plan Plan settlements not specified in the terms of the plan Benefits paid Changes in scope of consolidation and transfers Currency translation differences Obligation at end of period Fair value of plan assets: Beginning of period Interest income on plan assets Difference between actual return and interest income on plan assets Administration costs Plan settlements specified in the terms of the plan Plan settlements not specified in the terms of the plan Contributions from plan members Employer’s contributions Benefits paid Changes in scope of consolidation and transfers Currency translation differences Fair value of plan assets at end of period Pensions and other post-employment benefits 2018 2017 2016 13,012 13,088 12,825 231 260 204 (841) (14) 18 (7) (83) (107) (647) (46) 75 233 293 (74) 543 61 33 2 (108) (90) (574) 145 (540) 12,055 13,012 9,106 190 (450) (8) (83) (78) 6 392 (510) 6 39 8,610 8,741 206 501 (9) (109) (70) 6 582 (424) 66 (384) 9,106 216 359 (71) 928 (18) (2) (52) (49) (254) (531) 71 (334) 13,088 8,566 251 730 (9) (49) (256) 3 168 (405) 86 (344) 8,741 F-76 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (€ million) Net amount shown in the balance sheet: Net obligation Effect of asset ceiling Net amount shown in the balance sheet at end of period Amounts recognized in the balance sheet: Pre-funded obligations (see Note D.7.) Obligations provided for Net amount recognized at end of period Benefit cost for the period: Current service cost Past service cost Net interest (income)/cost (Gains)/losses on plan settlements not specified in the terms of the plan Actuarial (gains)/losses on plan curtailments Contributions from plan members Administration costs and taxes paid during the period Expense recognized directly in profit or loss Remeasurement of net defined-benefit (asset)/liability (actuarial gains and losses) Expense/(gain) for the period Pensions and other post-employment benefits 2018 3,445 — 3,445 (77) 3,522 3,445 231 18 70 (29) (7) (6) 8 285 (201) 84 2017 3,906 — 3,906 (53) 3,959 3,906 233 33 87 (20) 2 (6) 9 338 30 368 2016 4,347 — 4,347 (30) 4,377 4,347 216 (2) 108 2 (52) (3) 9 278 109 387 The tables below show Sanofi’s net liability in respect of pension plans and other post-employment benefits by geographical region: (€ million) December 31, 2018 Measurement of obligation Fair value of plan assets Pensions and other post-employment benefits by geographical region France Germany 2,091 931 3,262 2,217 USA 2,597 1,622 UK 2,858 2,862 Other 1,247 978 Total 12,055 8,610 Net amount shown in the balance sheet at end of period 1,160 1,045 975 (4) 269 3,445 (€ million) December 31, 2017 Measurement of obligation Fair value of plan assets Pensions and other post-employment benefits by geographical region France Germany 2,363 991 3,611 2,390 USA 2,699 1,775 UK 3,032 2,926 Other 1,307 1,024 Total 13,012 9,106 Net amount shown in the balance sheet at end of period 1,372 1,221 924 106 283 3,906 (€ million) December 31, 2016 Measurement of obligation Fair value of plan assets Pensions and other post-employment benefits by geographical region France Germany 2,361 857 3,535 2,304 USA 2,874 1,760 UK 3,065 2,866 Other 1,253 954 Total 13,088 8,741 Net amount shown in the balance sheet at end of period 1,504 1,231 1,114 199 299 4,347 SANOFI / FORM 20-F 2018 F-77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows the fair value of plan assets relating to Sanofi’s pension and other post-employment plans, split by asset category: Securities quoted in an active market Cash and cash equivalents Equity instruments Bonds and similar instruments Real estate Derivatives Commodities Other Other securities Hedge funds Insurance policies Total 2018 2017 2016 99.2% 98.0% 98.2% 1.4% 22.3% 66.5% 4.2% — 0.7% 4.1% 0.8% — 0.8% 2.2% 25.2% 64.1% 3.3% 0.1% 0.8% 2.3% 2.0% 0.1% 1.9% 2.4% 35.2% 54.3% 3.8% (0.1)% 1.3% 1.3% 1.8% — 1.8% 100.0% 100.0% 100.0% Sanofi has a long-term objective of maintaining or increasing the extent to which its pension obligations are covered by assets. To this end, Sanofi uses an asset-liability management strategy, matching plan assets to its pension obligations. This policy aims to ensure the best fit between the assets held on the one hand, and the associated liabilities and expected future payments to plan members on the other. To meet this aim, Sanofi operates a risk monitoring and management strategy (mainly focused on interest rate risk and inflation risk), while investing a growing proportion of assets in high-quality bonds with comparable maturities to those of the underlying obligations. The tables below show the service cost for Sanofi’s pension and other post-employment benefit plans, by geographical region: (€ million) Pensions and other post-employment benefits by geographical region Service cost for 2018 France Germany USA Current service cost Past service cost Net interest cost/(income) including administration costs and taxes paid during the period (Gains)/losses on plan settlements not specified in the terms of the plan Actuarial (gains)/losses on plan curtailments Contributions from plan members Expense recognized directly in profit or loss Remeasurement of net defined-benefit (asset)/ liability (actuarial gains and losses) Expense/(gain) for the period 78 — 17 (4) (1) — 90 (155) (65) 51 — 12 (26) 6 — 43 (13) 30 46 — 35 3 — — 84 (38) 46 UK — 17 4 — (12) — 9 7 16 Other Total 56 1 10 (2) — (6) 59 (2) 57 231 18 78 (29) (7) (6) 285 (201) 84 F-78 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (€ million) Pensions and other post-employment benefits by geographical region Service cost for 2017 France Germany USA Current service cost Past service cost Net interest cost/(income) including administration costs and taxes paid during the period (Gains)/losses on plan settlements not specified in the terms of the plan Actuarial (gains)/losses on plan curtailments Contributions from plan members Expense recognized directly in profit or loss Remeasurement of net defined-benefit (asset)/ liability (actuarial gains and losses) Expense/(gain) for the period 74 — 22 (17) (6) — 73 35 108 50 — 16 — 7 — 73 (33) 40 53 36 40 — 8 — 137 77 214 UK — — 8 — — — 8 (48) (40) Other Total 56 (3) 10 (3) (7) (6) 47 (1) 46 233 33 96 (20) 2 (6) 338 30 368 (€ million) Pensions and other post-employment benefits by geographical region Service cost for 2016 France Germany Current service cost Past service cost Net interest cost/(income) including administration costs and taxes paid during the period (Gains)/losses on plan settlements not specified in the terms of the plan Actuarial (gains)/losses on plan curtailments Contributions from plan members Expense recognized directly in profit or loss Remeasurement of net defined-benefit (asset)/liability (actuarial gains and losses) Expense/(gain) for the period 70 — 30 — (51) — 49 70 119 42 — 23 — 2 — 67 1 68 USA 62 — 48 (2) — — 108 (161) (53) UK — — 6 — — — 6 165 171 Other Total 42 (2) 10 4 (3) (3) 48 34 82 216 (2) 117 2 (52) (3) 278 109 387 There were no significant events affecting Sanofi’s pension and other post-employment benefit plans during 2018. SANOFI / FORM 20-F 2018 F-79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) An analysis of the “Remeasurement of net defined-benefit (asset)/liability (actuarial gains and losses)” line in the preceding tables is set forth below: (€ million) Actuarial gains/(losses) arising during the period(a) Comprising: Gains/(losses) on experience adjustments(b) Gains/(losses) on demographic assumptions Gains/(losses) on financial assumptions 2018 2017 2016 France Germany USA UK France Germany USA UK France Germany USA UK 155 13 38 (7) (35) 33 (77) 48 (70) (1) 161 (165) 21 (7) (154) (131) (118) (67) 7 (144) 35 — 159 76 114 — 20 53 58 (6) 149 77 442 — 79 — 141 234 162 255 (70) (126) (173) (119) (122) (150) 5 (607) (a) Gains and losses arising from changes in assumptions are due primarily to changes in the discount rate. (b) Experience adjustments are mainly due to the effect of trends in the financial markets on plan assets. The net pre-tax actuarial loss (excluding investments accounted for using the equity method) recognized directly in equity is presented below: (€ million) Net pre-tax actuarial loss 2018 2017 2016 2,834 (3,035) (3,006) The present value of Sanofi’s obligations in respect of pension and other post-employment benefit plans at the end of each reporting period is shown below: (€ million) Present value of wholly or partially funded obligations in respect of pension and other post- employment benefit plans Present value of unfunded obligations Total 2018 2017 2016 10,995 11,915 11,713 1,060 1,097 1,375 12,055 13,012 13,088 The total expense for pensions and other post-employment benefits (€285 million in 2018) is allocated between income statement line items as follows: (€ million) Cost of sales Research and development expenses Selling and general expenses Other operating (income)/expenses, net Restructuring costs Financial expenses Total 2018 2017 2016 67 77 84 (21) 8 70 285 63 48 95 — 45 87 338 60 48 113 — (51) 108 278 The estimated amounts of employer’s contributions to plan assets in 2019 are as follows: (€ million) France Germany USA UK Other Total Employer’s contributions in 2019 (estimate): 2019 — — — 3 37 40 F-80 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows the expected timing of benefit payments under pension and other post-employment benefit plans for the next ten years: (€ million) France Germany USA UK Other Total Estimated future benefit payments: 2019 2020 2021 2022 2023 2024 to 2028 92 95 116 66 84 550 189 195 200 205 210 1,063 149 145 148 149 144 732 117 120 124 128 132 726 57 55 56 59 65 604 610 644 607 635 363 3,434 The table below shows estimates as of December 31, 2018 for the timing of future payments in respect of unfunded pension and other post-employment benefit plans: (€ million) Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Estimated payments 1,060 62 115 118 765 Payments due by period D.19.2. Restructuring provisions The table below shows movements in restructuring provisions classified in non-current and current liabilities: (€ million) Balance, beginning of period Of which: ◆ ◆ Classified in non-current liabilities Classified in current liabilities Change in provisions recognized in profit or loss for the period Provisions utilized Transfers Unwinding of discount Currency translation differences Balance, end of period Of which: ◆ ◆ Classified in non-current liabilities Classified in current liabilities 2018 2017 2016 1,086 1,420 1,343 744 676 297 762 581 667 (616) (641) 7 38 514 572 1,035 (605) 54 —34 2 (25) 9 1,572 1,086 1,420 632 940 514 572 744 676 Provisions for employee termination benefits as of December 31, 2018 amounted to €895 million (versus €862 million as of December 31, 2017 and €1,159 million as of December 31, 2016). The provisions apply mainly to France, and relate to various early retirement plans: ◆ plans with termination of employment contracts such as cessation of employment plans and end-of-career transition plans; ◆ plans without termination of employment contracts, such as the “Forward” end-of-career paid leave plan implemented in 2016 and a proposed new plan announced in December 2018 (an extension of the “Forward” plan), which are wholly voluntary and include an end-of-career paid leave component. The provision includes the present values of: ◆ gross annuities for self-funded plans; SANOFI / FORM 20-F 2018 F-81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) ◆ employer’s social security charges on early retirement annuities for all plans (outsourced and self-funded); ◆ the levy charged on those annuities under the “Fillon” law (only for plans with termination of employment contracts). The timing of future termination benefit payments is as follows: The average residual holding periods under these plans were 2.03 years, 2.12 years and 2.51 years as of December 31, 2018, 2017 and 2016, respectively. December 31, 2018 (€ million) Employee termination benefits ◆ ◆ France Other countries Total December 31, 2017 (€ million) Employee termination benefits ◆ ◆ France Other countries Total December 31, 2016 (€ million) Employee termination benefits ◆ ◆ France Other countries Total Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Benefit payments by period 623 272 895 302 187 489 242 62 304 71 6 77 8 17 25 Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Benefit payments by period 588 274 862 257 197 454 281 70 351 49 5 54 1 2 3 Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Benefit payments by period 933 226 1,159 374 182 556 413 35 448 142 4 146 4 5 9 Restructuring provisions as of December 31, 2018 include (i) €68 million (versus €104 million as of December 31, 2017 and €163 million as of December 31, 2016) relating to a five-year commitment to Evotec regarding the Toulouse R&D site in (ii) €283 million allocated to contract penalties on France; termination of the initial Immuno-Oncology research agreement, paid to Regeneron in January 2019 (see Notes C.1. and D.27.); and (iii) €182 million relating to the transfer to Evotec of the infectious diseases early-stage R&D portfolio and research unit. D.19.3. Other provisions Other provisions include provisions for risks and litigation relating to environmental, commercial and product liability matters. (€ million) Environmental risks and remediation Product liability risks, litigation and other Total 2018 2017 2016 680 1,288 1,968 686 1,289 1,975 732 1,121 1,853 Provisions for environmental risks and remediation mainly relate to contingencies arising from business divestitures. risks are covered by provisions Identified environmental estimated on the basis of the costs Sanofi believes it will be obliged to meet over a period not exceeding (other than in exceptional cases) 30 years. Sanofi expects that €150 million of those provisions will be utilized in 2019, and €328 million over the period from 2020 through 2023. “Product litigation and other” mainly comprises provisions for risks relating to product liability (including IBNR liability risks, F-82 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) provisions as described in Note B.12.), government investigations, regulatory or antitrust law claims, or contingencies arising from business divestitures (other than environmental risks). The main pending legal and arbitral proceedings and government investigations are described in Note D.22. A full risk and litigation assessment is performed with the assistance of Sanofi’s legal advisers, and provisions are recorded as required by circumstances in accordance with the principles described in Note B.12. D.19.4. Other non-current liabilities “Other non-current liabilities” amounted to €1,730 million as of December 31, 2018 (versus €1,956 million as of December 31, 2017 and €1,140 million as of December 31, 2016). The estimated tax charge on deemed repatriation attributable to the accumulated earnings of non-US operations and payable over 8 years was recognized as a liability in 2017 at an amount of €1,069 million; that amount was revised to €952 million in 2018. This tax generated a non-current liability of €635 million as of December 31, 2018 (€708 million as of December 31, 2017) falls due after more than one year and is presented within “Other non-current In accordance with Sanofi accounting policies, those amounts fall due after more than one year have not been discounted. liabilities”. (€ million) Non-current liabilities related to income taxes(a) Other non-current liabilities Total 2018 1,407 323 1,730 2017 1,614 342 1,956 2016 924 216 1,140 (a) Non-current liabilities related to income taxes include uncertainties over income tax treatments amounting to €772 million as of December 31, 2018, versus €906 million as of December 31, 2017. D.19.5. Current provisions and other current liabilities Current provisions and other current liabilities comprise the following: (€ million) Taxes payable Employee-related liabilities Restructuring provisions (see Note D.19.2.) Interest rate derivatives (see Note D.20.) Currency derivatives (see Note D.20.) Amounts payable for acquisitions of non-current assets Other current liabilities Total 2018 2017(a) 2016(a) 733 1,989 940 — 90 497 5,112 9,361 1,180 1,922 572 — 58 387 5,093 9,212 1,134 1,967 676 2 130 451 5,824 10,184 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (See Note A.2.1.1.). “Other current liabilities” includes in particular the current portion of provisions for litigation, sales returns and other risks; amounts due to investments accounted for using the equity method (see Note D.6.); and amounts due to governmental agencies and healthcare authorities (see Note D.23.). SANOFI / FORM 20-F 2018 F-83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.20. Derivative financial instruments and market risks The table below shows the fair value of derivative instruments as of December 31, 2018, 2017 and 2016: Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Market value at December 31, 2018 (net) Market value at December 31, 2017 (net) Market value at December 31, 2016 (net) — — — 19 19 134 134 42 92 30 164 42 92 49 183 — — — (7) (7) (90) (35) (55) — (90) (90) (35) (55) (7) (97) 44 7 37 42 86 71 3 68 51 122 (22) (25) 3 100 78 (€ million) Currency derivatives operating financial Interest rate derivatives Total accounted for more than 18% of the notional amount of Sanofi’s overall currency and interest rate positions. a) Currency derivatives used to manage operating risk exposures based currency exposure, Sanofi operates a foreign exchange risk hedging policy to reduce the exposure of operating income to exchange rate movements. This policy involves regular assessments of Sanofi’s worldwide foreign currency transactions carried out by the parent company and its subsidiaries. Those sales, research costs, co-marketing and co-promotion purchases, expenses, and royalties. To reduce the exposure of those transactions to exchange rate movements, Sanofi contracts hedges using liquid derivative instruments, mainly forward currency purchases and sales, and also currency swaps. transactions mainly comprise foreign on Objectives of the use of derivative financial instruments Sanofi uses derivative instruments to manage operating exposure to movements in exchange rates, and financial exposure to movements in interest rates and exchange rates (where the debt or receivable is not contracted in the functional currency of the borrower or lender entity). On occasion, Sanofi uses equity derivatives in connection with the management of its portfolio of equity investments. its transactions and Sanofi performs periodic reviews of contractual agreements in order to identify any embedded derivatives, which are accounted for separately from the host contract in accordance with IFRS 9. Sanofi had no material embedded derivatives as of December 31, 2018, 2017 or 2016. Counterparty risk As of December 31, 2018, all currency and interest rate hedges were contracted with leading banks, and no single counterparty F-84 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows operating currency hedging instruments in place as of December 31, 2018, with the notional amount translated into euros at the relevant closing exchange rate: December 31, 2018 (€ million) Forward currency sales of which US dollar of which Singapore dollar of which Chinese yuan renminbi of which Saudi riyal of which Russian rouble 4,002 1,723 652 451 100 88 Forward currency purchases 2,036 of which US dollar of which Singapore dollar of which Japanese yen of which Chinese yuan renminbi of which Canadian dollar Total 514 500 197 163 106 6,038 Of which derivatives designated as cash flow hedges Of which derivatives not eligible for hedge accounting Notional amount Fair value Notional amount Fair value Of which recognized in equity Notional amount Fair value — (7) 1 (1) 1 5 7 8 1 3 (1) (2) 7 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 4,002 1,723 652 451 100 88 2,036 514 500 197 163 106 6,038 — (7) 1 (1) 1 5 7 8 1 3 (1) (2) 7 foreign- The above positions mainly hedge future material currency cash flows arising after the end of the reporting period in relation to transactions carried out during the year ended December 31, 2018 and recognized in the balance sheet at that date. Gains and losses on hedging instruments (forward contracts) are calculated and recognized in parallel with the recognition of gains and losses on the hedged items. Due to this hedging relationship, the commercial foreign exchange profit or loss on these items (hedging instruments and hedged transactions) will be immaterial in 2019. The table below shows operating currency hedging instruments in place as of December 31, 2017, with the notional amount translated into euros at the relevant closing exchange rate: Of which derivatives designated as cash flow hedges Of which derivatives not eligible for hedge accounting Notional amount Fair value Notional amount Fair value Of which recognized in equity Notional amount Fair value December 31, 2017 (€ million) Forward currency sales of which US dollar of which Singapore dollar of which Chinese yuan renminbi of which Japanese yen of which Saudi riyal 3,592 1,043 870 327 248 144 Forward currency purchases 1,649 of which Japanese yen of which Singapore dollar of which US dollar of which Chinese yuan renminbi of which Hungarian forint Total 373 360 205 196 81 5,241 11 15 1 (1) 1 2 (8) (3) (4) (2) — 1 3 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 3,592 1,043 870 327 248 144 1,649 373 360 205 196 81 5,241 11 15 1 (1) 1 2 (8) (3) (4) (2) — 1 3 SANOFI / FORM 20-F 2018 F-85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows operating currency hedging instruments in place as of December 31, 2016, with the notional amount translated into euros at the relevant closing exchange rate: December 31, 2016 (€ million) Forward currency sales of which US dollar of which Chinese yuan renminbi of which Swiss franc of which Japanese yen of which Singapore dollar Forward currency purchases of which US dollar of which Japanese yen of which Singapore dollar of which Swiss franc of which Hungarian forint Total Of which derivatives designated as cash flow hedges Of which derivatives not eligible for hedge accounting Notional amount Fair value Notional amount Fair value Of which recognized in equity Notional amount Fair value 3,963 1,850 453 253 206 156 1,517 400 283 233 84 82 (25) (17) (2) (1) 5 1 — 1 (2) 1 — — 5,480 (25) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 3,963 1,850 453 253 206 156 1,517 400 283 233 84 82 (25) (17) (2) (1) 5 1 — 1 (2) 1 — — 5,480 (25) b) Currency and interest rate derivatives used to manage financial exposure The cash pooling arrangements for foreign subsidiaries outside the euro zone, and some of Sanofi’s financing activities, expose certain Sanofi entities to financial foreign exchange risk (i.e. the risk of changes in the value of borrowings and loans denominated in a currency other than the functional currency of the borrower or lender). That foreign exchange exposure is hedged using derivative instruments (currency swaps or forward contracts) that alter the currency split of Sanofi’s net debt once those instruments are taken into account. The table below shows financial currency hedging instruments in place, with the notional amount translated into euros at the relevant closing exchange rate: (€ million) Forward currency sales of which US dollar of which Japanese yen of which Australian dollar Forward currency purchases of which US dollar of which Singapore dollar of which Chinese yuan renminbi Total 2018 2017 2016 Notional amount Fair value Expiry Notional amount Fair value Expiry Notional amount Fair value Expiry 7,762 5,500(a) 973 196 7,291 4,165 2,022 427 15,053 17 38 (24) 5 20 (17) 33 — 37 2019 2019 2019 2019 2019 2019 5,074 3,542 867 281 86 50 34 1 4,657 (18) 242 2,281 158 9,731 (10) (23) 3 68 2018 2018 2018 2018 2018 2018 5,298 (28) 3,356 1,036 254 5,980 3,967 878 168 11,278 (37) — 5 31 30 5 — 3 2017 2017 2017 2017 2017 2017 (a) Includes forward sales with a notional amount of $3,615 million expiring in 2019, designated as a hedge of Sanofi’s net investment in Bioverativ. As of December 31, 2018, the fair value of these forward contracts represented an asset of €24 million; the opposite entry was recognized in Other comprehensive income, with the impact on financial income and expense being immaterial. F-86 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) These forward currency contracts generate a net financial foreign exchange gain or loss arising from the interest rate differential between the hedged currency and the euro, given that the foreign exchange gain or loss on the foreign-currency borrowings and loans is offset by the change in the intrinsic value of the hedging instruments. The interest rate differential is recognized within Cost of net debt (see Note D.29.). Sanofi may also hedge some future foreign-currency investment or divestment cash flows. Sanofi issues debt in two currencies, the euro and the US dollar, and also invests its cash and cash equivalents in those currencies (see Note D.17.). The floating-rate portion of this net debt exposes Sanofi to rises in interest rates, primarily in the Eonia and Euribor benchmark rates (for the euro) and in US Libor and Federal Fund Effective (for the US dollar). To optimize the cost of debt or reduce the volatility of debt, Sanofi uses derivative instruments (interest rate swaps, cross currency swaps) that alter the fixed/floating rate split of its net debt. The table below shows instruments of this type in place as of December 31, 2018: Notional amounts by expiry date as of December 31, 2018 (€ million) 2019 2020 2021 2022 2023 2024 Total Of which designated as fair value hedges Of which designated as cash flow hedges Fair value Notional amount Fair value Notional amount Fair value Of which recognized in equity Interest rate swaps pay capitalized Eonia / receive 1.58% pay capitalized Eonia / receive 0.06% pay 1.81% / receive 3-month US dollar Libor pay 3-month US dollar Libor / receive 2.22% receive capitalized Eonia / pay 1.48%(a) Total — 1,550 — — — — — 1,550 30 1,550 30 — — — 2,000 — — 2,000 15 2,000 15 — — — 436 — — — — 436 5 — — 436 — 436 — — — — 436 (1) 436 (1) — — — 42 57 — 99 1,550 872 — 2,042 57 — 4,521 (6) 42 99 4,085 (6) 38 — — 436 — — 5 — — 5 — — — — — — (a) These interest rate swaps hedge fixed-rate bonds with a nominal of €99 million held in a Professional Specialized Investment Fund dedicated to Sanofi and recognized within “Loans, advances and other long-term receivables” (see Note D.7.). The table below shows instruments of this type in place as of December 31, 2017: Notional amounts by expiry date as of December 31, 2017 (€ million) 2018 2019 2020 2021 2022 2023 Total Of which designated as fair value hedges Of which designated as cash flow hedges Fair value Notional amount Fair value Notional amount Fair value Of which recognized in equity Interest rate swaps pay capitalized Eonia / receive 1.58% pay capitalized Eonia / receive 0.06% pay 1.81% / receive 3-month US dollar Libor pay 3-month US dollar Libor / receive 2.22% receive capitalized Eonia / pay 1.48% Total — 1,550 — — — — 1,550 58 1,550 58 — — — — 1,800 — 1,800 (6) 1,800 (6) — — — — 417 — — — 417 — — 417 — — — 417 — — — — 42 57 99 — 1,550 834 — 1,842 57 4,283 2 3 (6) 51 — — 417 417 3 — 3,767 — 55 — — 417 — — 2 — — 2 — — — — — — SANOFI / FORM 20-F 2018 F-87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below shows instruments of this type in place as of December 31, 2016: Notional amounts by expiry date as of December 31, 2016 Of which designated as fair value hedges Of which designated as cash flow hedges (€ million) 2017 2018 2019 2020 2021 2022 Total Fair value Notional amount Fair value Notional amount Fair value Of which recognized in equity Interest rate swaps pay capitalized Eonia / receive 1.58% pay 3-month Euribor / receive 1.15% pay 3-month US dollar Libor / receive 2.22% pay 1.22% / receive 3-month & 6-month US dollar Libor pay capitalized Eonia / receive -0.01% — — 1,550 — — — 1,550 88 1,550 88 428 — ———— 428 3 428 3 — — — 475 — — 475 10 475 10 — — — — — — 475 — ———— 475 (2) — — 475 (2) — — — — — — — — — — — 300 300 1 300 1 Total 903 — 1,550 475 — 300 3,228 100 2,753 102 c) Actual or potential effects of netting arrangements The table below is prepared in accordance with the accounting policies described in Note B.8.3.: — 475 — (2) (€ million) 2018 2017 2016 Derivative financial assets Derivative financial liabilities Derivative financial assets Derivative financial liabilities Derivative financial assets Derivative financial liabilities Gross carrying amounts before offset (a) 183 (97) 196 (74) 210 (132) Gross amounts offset (in accordance with IAS 32) (b) Net amounts as reported in the balance sheet (a) – (b) = (c) Effects of other netting arrangements (not fulfilling the IAS 32 criteria for offsetting) (d) Financial instruments Fair value of financial collateral Net exposure (c) + (d) —————— 183 — (81) N/A 102 (97) — 81 N/A (16) 196 (74) 210 (132) (67) N/A 129 67 N/A (7) (97) N/A 113 97 N/A (35) F-88 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.21. Off balance sheet commitments The off balance sheet commitments presented below are shown at their nominal value. D.21.1. Off balance sheet commitments relating to operating activities Off balance sheet commitments relating to Sanofi’s operating activities comprise the following: December 31, 2018 (€ million) Operating leases(a) Irrevocable purchase commitments(b) ◆ ◆ given(c) received Research and development license agreements ◆ ◆ commitments related to R&D and other commitments(d) potential milestone payments(e) Total Payments due by period Less than 1 year 1 to 3 years 3 to 5 years More than 5 years 289 457 378 1,303 3,654 1,247 (120) (21) 675 249 257 728 489 (12) 14 947 4,747 2,668 1,816 1,159 (22) 7 1,317 3,764 Total 2,427 6,549 (175) 954 3,241 12,996 (a) Operating leases as of December 31, 2018 include €95 million of commitments given to joint ventures. (b) These comprise irrevocable commitments to suppliers of (i) property, plant and equipment, net of down-payments (see Note D.3.) and (ii) goods and services. As of December 31, 2017, irrevocable commitments amounted to €5,500 million given and €(181) million received. (c) Irrevocable purchase commitments given as of December 31, 2018 include €1,194 million of commitments to joint ventures. (d) Commitments related to R&D, and other commitments, amounted to €951 million as of December 31, 2017. (e) This line includes only potential milestone payments on projects regarded as reasonably possible, i.e. on projects in the development phase. Potential milestone payments as of December 31, 2017 amounted to €1,907 million. Operating leases Sanofi leases some of the property and equipment used in the ordinary course of business under operating leases. The majority of future operating lease rental commitments relate to real estate assets; the remainder relate to vehicles and other leased assets. The table below shows future minimum lease payments due under non-cancelable leases and rental expense recognized by Sanofi in each of the three periods presented: (€ million) Commitments under operating leases(a) Rental expense 2018 2017 2016 2,427 1,452 1,507 345 291 309 (a) The increase in 2018 mainly reflects a commitment relating to a new lease contracted in the United States. SANOFI / FORM 20-F 2018 F-89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Research and development license agreements loans, shares, forms: acquisitions of In pursuance of its strategy, Sanofi may acquire technologies and rights to products. Such acquisitions may be made in various contractual license agreements, joint development, and co-marketing. These arrangements generally involve upfront payments on signature of the agreement, development milestone payments, and royalties. Some of these complex agreements include undertakings to fund research programs in future years and payments contingent upon achieving specified development milestones, the granting of approvals or licenses, or the attainment of sales targets once a product is commercialized. license agreements” The “Research and development line comprises future service commitments to fund research and development or technology, and potential milestone payments regarded as reasonably possible (i.e. all potential milestone for payments relating to projects in the development phase, which the future financial consequences are known or probable and for which there is a sufficiently reliable estimate). It excludes commitments relating to projects in the research phase (€6.8 billion in 2018, €7.2 billion in 2017, €6.2 billion in 2016), and payments contingent upon the attainment of sales targets once a product is commercialized (€9.9 billion in 2018, €10.1 billion in 2017, €8.2 billion in 2016). Major agreements entered into during 2018 were as follows: On January 7, 2018, Sanofi and Alnylam Pharmaceuticals, Inc. (“Alnylam”) announced a strategic restructuring of their alliance to therapeutics for the treatment of rare genetic develop RNAi the new agreement, Sanofi assumes full diseases. Under the responsibility and fitusiran, while Alnylam assumes such commercialization of responsibility for patisiran and ALN-TTRsc02. Mutual royalty payments will be made on worldwide sales of ALN-TTRsc02 and fitusiran, and on sales of patisiran outside of the United States, Canada and Western Europe. development worldwide for (REGN2810); and (iii) agreed a limited waiver and amendment of the Amended and Restated Investor Agreement pursuant to a letter agreement (the “2018 Letter Agreement”); (see Note C.1.). On February 8, 2018, Sanofi signed a partnership agreement with AnaBios Corporation to develop and commercialize new treatments for irregular heartbeat, primarily atrial fibrillation. On February 12, 2018, Sanofi Pasteur signed a partnership agreement with SK Chemicals under which Sanofi acquired exclusive development and commercialization rights in the United States and Europe for vaccines derived from the cell-based technology developed by SK Chemicals. On June 8, 2018, Sanofi signed a strategic partnership agreement in oncology with Revolution Medicines, an innovative biotech company that develops targeted-action small molecules. Under the agreement, the two companies will jointly develop the principal candidate derived from Revolution Medicines biological research: RMC 4630, an inhibitor of SHP2 (PTPN11), a cellular enzyme in the protein tyrosine phosphatase family that plays an important role in multiple forms of cancer; the first clinical trials in humans are expected this year. On June 11, 2018, Sanofi Pasteur entered into a partnership agreement with Translate Bio to develop messenger RNA (mRNA) vaccines derived from Translate Bio technology for five infectious disease pathogens, with an option to extend to additional pathogens. If that option is exercised, the total value of the transaction would rise to $805 million. In addition, by acquiring all of the outstanding shares of Bioverativ on March 8, 2018 (see Note D.1.), Sanofi assumed the commitments made by that company to various partners under collaboration agreements, in particular: ◆ with Sangamo Therapeutics, Inc. to research, develop, and commercialize in particular beta thalassemia and sickle cell disease, based on Sangamo’s gene therapy platform; and hemoglobinopathies, therapeutics for On January 7, 2018, Celgene announced the acquisition of Impact Biomedicines for $7 billion, comprising an upfront payment of $1.1 billion and variable consideration contingent on future performances totaling $5.9 billion. In 2016, Sanofi sold all its rights to fedratinib (which it held following the 2010 acquisition of TargeGen Inc., an unquoted biotech company specializing in the treatment of blood disorders), and in exchange received a 10% equity interest in Impact Biomedicines. Under the terms of the offer, Sanofi received a payment of $118 million and is entitled to receive future variable payments not exceeding $776 million in aggregate, along with royalties on marketed products derived from Impact Biomedicines development programs. On January 8, 2018, Sanofi and Regeneron announced that they had (i) amended their collaboration agreement on the development and commercialization of human therapeutic antibodies; (ii) amended their Immuno-Oncology License and Collaboration Agreement on the development of cemiplimab ◆ with Bicycle Therapeutics Ltd. to discover, develop and commercialize innovative therapies for hemophilia and sickle cell disease. Sanofi also assumed the commitments regarding contingent consideration entered into by Bioverativ when the latter acquired True North Therapeutics (see Note D.18.). Finally, by acquiring all of the outstanding shares of Ablynx on June 19, 2018 (see Note D.1.), Sanofi obtained various commitments in favor of that company, mainly in respect of milestone payments relating to development projects and royalties under collaboration agreements between Ablynx and various partners, in particular: ◆ with Boehringer Ingelheim in September 2007; ◆ with Merck KGaa in September 2008; ◆ with Merck & Co, Inc. in October 2012 and January 2014. F-90 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) On November 1, 2018, Sanofi signed a collaboration agreement with Denali Therapeutics Inc. on the development of multiple molecules with the potential to treat a range of neurological and systemic inflammatory diseases. The two lead molecules are DNL747 in multiple sclerosis and amyotrophic lateral sclerosis, and DNL758 in systemic inflammatory diseases such as rheumatoid arthritis and psoriasis. Other major agreements entered into by Sanofi in prior years are described below: ◆ Immunext (2017): agreement to develop a novel antibody to treat auto-immune diseases such as multiple sclerosis and lupus. Under the agreement, Sanofi acquired an exclusive worldwide license to INX-021, a monoclonal CD40L antibody currently in preclinical development. A second parallel agreement was signed to support clinical trials. ◆ MedImmune (a division of AstraZeneca) (2017): agreement to develop antibody (MEDI8897) for the prevention of Respiratory Syncytial Virus (RSV) associated illness in newborns and infants. a monoclonal commercialize and ◆ DiCE Molecules (2016): five-year global collaboration to discover potential new therapeutics for up to 12 targets that encompass all disease areas of strategic interest to Sanofi. ◆ Innate Pharma (2016): collaboration and licensing agreement to apply Innate Pharma’s new proprietary technology to the development formats engaging natural killer (NK) cells to kill tumor cells through the activating receptor NKp46. innovative bispecific antibody of ◆ Lexicon Pharmaceuticals, Inc. (2015): collaboration and license agreement to develop and commercialize sotagliflozin, an investigational dual inhibitor of sodium-glucose cotransporters 1 and 2 (SGLT-1 and SGLT-2). ◆ BioNTech A.G. (2015): exclusive collaboration and license to discover and develop up to five cancer agreement immunotherapies. ◆ Evotec AG and Apeiron Biologics AG (2015): collaboration and license agreement to discover and develop first-in-class small molecule-based immuno-oncology therapies to treat solid and hematological cancers. ◆ ImmunoGen (2017): and amendment collaboration agreement signed in 2003. ImmunoGen granted Sanofi a fully paid and exclusive license to develop, manufacture and commercialize the full series of compounds developed by Sanofi using ImmunoGen technology. license the to ◆ Thermalin, Inc. (2017): worldwide collaboration to discover and develop novel engineered insulin analogues. The collaboration builds on Thermalin’s pioneering science, which alters the insulin molecule to achieve greater therapeutic performance. ◆ Principia Biopharma, Inc. (2017): license agreement to develop Principia’s Bruton’s tyrosine kinase (BTK) inhibitor (PRN2246), in the treatment of multiple sclerosis and, potentially, other central nervous system diseases. ◆ Hanmi Pharmaceutical Co., Ltd. (2016): amendment to the license agreement originally signed on November 5, 2015. Under the terms of the amendment, Sanofi returned to Hanmi the rights for a weekly-administered insulin, and Hanmi re-assumed at its own expense responsibility for developing the weekly-administered efpeglenatide/insulin combination for a specified period of time, with other contractual terms relating to the combination remaining unchanged. The financial terms of the efpeglenatide collaboration as regards development and to registration milestone payments, Hanmi’s entitlement royalties and Hanmi’s contribution to the development costs of efpeglenatide were also amended. In return, Hanmi committed to pay €196 million to Sanofi, of which €98 million was paid in 2018 and €98 million in 2017. ◆ JHL Biotech, Inc. (2016): collaboration to develop and commercialize biological therapeutic treatments in China, with the potential JHL retains responsibility for development, registration and production, while Sanofi is responsible for commercialization. international expansion. for ◆ Evotec International GmbH (2015): research collaboration to develop beta cell-modulating diabetes treatments, which may reduce or eliminate the need for insulin injections. strategic ◆ Regeneron Pharmaceuticals, Inc. (2015): collaboration agreement on the discovery, development and commercialization of antibodies in the field of immuno-oncology; amendments to that agreement were signed (see Note C.1.). ◆ Regeneron Pharmaceuticals, Inc. (2015): amendment to the September 2003 collaboration agreement on the development and commercialization of Zaltrap® (aflibercept) (see Note C.1.). ◆ Lead Pharma (2015): the research collaboration and license and agreement commercialization of small-molecule therapies directed against “ROR gamma t” nuclear hormone receptors to treat auto- immune diseases. development discovery, for ◆ Voyager Therapeutics (2015): collaboration agreement for the discovery, development and commercialization of new gene therapies to treat serious disorders of the central nervous system. ◆ Immune Design (2014): license agreement for the use of Immune Design’s GLAAS® research platform to develop therapeutic agents capable of treating an identified food allergy. ◆ Eli Lilly and Company (2014): agreement to pursue regulatory approval for non-prescription Cialis® (tadalafil). ◆ Alnylam Pharmaceuticals Inc. (2014): extension of the strategic agreement to develop and commercialize treatments for rare genetic diseases. An amendment to that agreement was signed on January 7, 2018. SANOFI / FORM 20-F 2018 F-91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) ◆ UCB (2014): scientific and strategic collaboration for the discovery and development of innovative anti-inflammatory small molecules, which have the potential to treat a wide range as diseases immune-mediated of gastroenterology and arthritis. areas such in ◆ Ascendis (2010): licensing and patent transfer agreement on technology. The Transcon Linker and Hydrogel Carrier to develop, manufacture and agreement enables Sanofi commercialize products combining this technology with active molecules for the treatment of diabetes and related disorders. ◆ Regulus Therapeutics Inc. (2010): discovery, development and commercialization of novel micro-RNA therapeutics in fibrosis. ◆ Exelixis, Inc. (2009): global license agreement for XL765. Sanofi and its alliance partners have decided to terminate the following agreements (the related commitments are no longer included in Sanofi’s off balance sheet disclosures as of December 31, 2018): ◆ Sanofi and Avila Therapeutics Inc. (acquired by Celgene Corporation in 2012) have decided to end their license and collaboration agreement on research into targeted covalent drugs for the treatment of cancers. The related commitments are no longer included in Sanofi’s off balance sheet disclosures as of December 31, 2018. Other agreements Sanofi has entered into two agreements, with Royalty Pharma (December 2014) and NovaQuest (December 2015), which have similar characteristics in that the partners jointly bear a portion of the remaining development costs of the project on a quarterly basis in return for royalties on future sales. These transactions are co-investments, whereby the partner acquires an interest in the jointly-developed product by providing funding towards the development program. Consequently, the amounts received by Sanofi will be recorded as a reduction in development costs, to the extent that the development costs incurred by Sanofi are recognized in profit or loss in accordance with the policies described in Note B.4.1. The commitments under these two agreements were altered by the following events that occurred in 2017: ◆ The products being developed under the December 2014 agreement with Royalty Pharma were launched in the United States and Europe, marking the end of the joint development programs. ◆ Sanofi announced the discontinuation of development on the Clostridium Difficile program on December 1, 2017, thereby cancelling any future commitments under the December 2015 joint development agreement with NovaQuest. On February 27, 2017, Sanofi and Lonza announced a strategic partnership in the form of a joint venture to build and operate a large-scale mammalian cell culture facility for monoclonal antibody production in Visp, Switzerland. An initial investment of approximately €0.3 billion to finance construction of the facility will be made 50/50 by the two partners. In addition, Sanofi could pay Lonza in the region of €0.8 billion over the next fifteen years partly as its share of operating expenses and the cost of producing future batches, and partly to reserve capacity in the new facility. In February 2014, pursuant to the “Pandemic Influenza Preparedness Framework for the sharing of influenza viruses and (still effective as of access to vaccines and other benefits” December 31, 2018), Sanofi Pasteur and the World Health Organization (WHO) signed a bilateral “Standard Material Transfer Agreement” (SMTA 2). This agreement stipulates that Sanofi Pasteur will, during declared pandemic periods, (i) donate 7.5% of its real-time production of pandemic vaccines against any strain with potential to cause a pandemic, and (ii) reserve a further 7.5% of such production on affordable terms. The agreement cancels and replaces all preceding commitments to donate pandemic vaccines to the WHO. No other agreement or amendment falling within this category was entered into during the year ended December 31, 2018. D.21.2. Off balance sheet commitments relating to financing activities Credit facilities Undrawn credit facilities are as follows: December 31, 2018 (€ million) Total Less than 1 year 1 to 3 years 3 to 5 yearsMore than 5 years Expiry General-purpose credit facilities 8,000 — 8,000 — As of December 31, 2018, total credit facilities amounted to €8,000 million (versus €8,010 million as of December 31, 2017 and €8,000 million as of December 31, 2016, excluding the Animal Health business). F-92 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Guarantees The table below shows the amount of guarantees given and received: (€ million) Guarantees given: ◆ ◆ Guarantees provided to banks in connection with credit facilities Other guarantees given Guarantees received 2018 2017 2016 3,010 2,986 3,946 1,307 1,318 2,189 1,703 1,668 1,757 (190) (181) (211) D.21.3. Off balance sheet commitments relating to Sanofi entities and business combinations Funding commitments to associates and joint ventures are disclosed in Note D.6. The maximum amount of contingent consideration relating to business combinations is disclosed in Note D.18. D.22. Legal and arbitral proceedings Sanofi and its affiliates are involved in litigation, arbitration and other legal proceedings. These proceedings typically are related to product liability claims, intellectual property rights (particularly the patent claims against generic companies seeking to limit protection of Sanofi products), competition law and trade practices, and wrongful discharge claims, tax assessment claims, waste disposal and pollution claims, and claims under warranties or indemnification arrangements relating to business divestitures. Provisions related to legal and arbitral proceedings are recorded in accordance with the principles described in Note B.12. employment commercial claims, Most of the issues raised by these claims are highly complex and subject to substantial uncertainties; therefore, the probability of loss and an estimation of damages are difficult to ascertain. Contingent liabilities are cases for which either we are unable to make a reasonable estimate of the expected financial effect that will result from ultimate resolution of the proceeding, or a cash outflow is not probable. In either case, a brief description of the nature of liability is disclosed and, where practicable, an estimate of its financial effect, an indication of the uncertainties relating to the amount and timing of any outflow, and the possibility of any reimbursement are provided in application of paragraph 86 of IAS 37. the contingent In the cases that have been settled or adjudicated, or where quantifiable fines and penalties have been assessed, we have indicated our losses or the amount of provision accrued that is the estimate of the probable loss. the expected loss or range of In a limited number of ongoing cases, while we are able to make a reasonable estimate of the possible loss and have accrued a provision for such loss, we believe that publication of this information on a case-by-case basis or by class would seriously prejudice the Company’s position in the ongoing legal proceedings or in any related in those cases, we have settlement discussions. Accordingly, disclosed information with respect the contingency but have not disclosed our estimate of the range of potential loss, in accordance with paragraph 92 of IAS 37. to the nature of that have These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Our assessments are based on estimates and assumptions by been management. We believe that the aggregate provisions recorded for the above matters are adequate based upon currently available information. However, given the inherent uncertainties related to these cases and involved in estimating contingent liabilities, we could in the future incur judgments that could have a material adverse effect on our net income in any particular period. reasonable deemed Long term provisions are disclosed in Note D.19. They include: ◆ Provisions for product liability risks, litigation and other amount to €1,288 million in 2018. These provisions are mainly related to product investigations, competition law, regulatory claims, warranties in connection with certain contingent liabilities arising from business divestitures other than environmental matters and other claims. liabilities, government ◆ Provisions for environmental risks and remediation amount to the majority of which are related to €680 million in 2018, contingencies that have arisen from business divestitures. a) Products Sanofi Pasteur Hepatitis B Vaccine Product Litigation Since 1996, more than 180 lawsuits have been filed in various French civil courts against Sanofi Pasteur and/or Sanofi Pasteur MSD S.N.C., the former French subsidiary of Sanofi, and the latter a joint venture company with Merck & Co., Inc. now terminated, for which past ongoing litigation is now managed by the originating party. In such lawsuits, the plaintiffs allege that they suffer from a variety of neurological disorders and autoimmune diseases, including multiple sclerosis and Guillain- Barré syndrome as a result of receiving the hepatitis B vaccine. In January 2008, both the legal entity Sanofi Pasteur MSD S.N.C., and a corporate officer of this company, as well as a former corporate officer of Sanofi Pasteur, were placed under investigation in an ongoing criminal inquiry in France relating to SANOFI / FORM 20-F 2018 F-93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) alleged side effects caused by the hepatitis B vaccine. In March 2012, Sanofi Pasteur and its former pharmacist in charge (i.e. the deputy Chief Executive Officer) were placed under an “advised witness” status. In March 2016, the investigating judges decided to dismiss the proceedings. Several civil parties appealed against the Prosecutor General this decision. On June 4, 2018, requested confirmation of the dismissal. The case has been adjourned for deliberation on June 14, 2019. In October 2017, the French Supreme Court (Cour de cassation) dismissed two appeals filed by the plaintiffs against two decisions of the Appeal Court of Paris (Cour d’appel). In January 2018, the Appeal Court of Bordeaux found a causal link between hepatitis B vaccine and multiple sclerosis. Sanofi Pasteur Europe appealed this decision before the French Supreme Court (Cour de cassation). Plavix® Product Litigation in the US As of December 31, 2018, 20 Plavix® product liability actions involving 91 total plaintiffs (67 of whom are ingesting plaintiffs) were currently pending, all venued in the Plavix® Multidistrict Litigation (“MDL”) in the U.S. District Court for the District of New Jersey. The Plavix® product litigation has predominantly concluded favorably for the Company. Taxotere® Product Litigation in the US As of December 31, 2018, there were approximately 11,000 plaintiffs in courts across the country, with approximately 1,000 of those plaintiffs being spouses who have filed loss of consortium claims. Suits have been filed against affiliates of Sanofi under US state law for personal injuries allegedly sustained in connection with the use of Taxotere®. The actions are held in several jurisdictions, including the federal and/or state courts of Louisiana, New Jersey, California, Delaware and Illinois. The Eastern District of Louisiana Federal Court in New Orleans has entered a scheduling order setting the first bellwether trial for May 13, 2019. It is not possible, at this stage, to assess reliably the outcome of these lawsuits or the potential financial impact on the Company. Taxotere® – Mississippi Attorney General Litigation in the US In October 2018, the Attorney General for the State of Mississippi filed a civil action in Hinds County, Mississippi, Chancery Court against various Sanofi Defendants related to Taxotere®. The State asserts one cause of action based on the Mississippi Consumer Protection Act (“MCPA”) and seeks a permanent injunction prohibiting Defendants’ conduct and civil penalties of up to $10,000 for each violation. In December 2018, Sanofi removed the matter to the U.S. District Court for the Southern District of Mississippi. It is not possible, at this stage, to assess reliably the outcome of financial impact on the Company. this lawsuit or the potential Depakine® Product Litigation in France As of December 31, 2018, 66 individual claims, involving approximately 113 claimants, and a class action based on 14 claims have been filed against a French affiliate of Sanofi seeking indemnification under French law for personal injuries allegedly sustained by children in connection with the use of sodium valproate by their mothers during pregnancy to treat their epilepsy (Depakine®) or bipolar disorder condition (Depakote®). These actions are held in several jurisdictions in France. Five lawsuits are being ruled on the merits. In May 2018, the French affiliate filed a motion to the French Supreme Court to reverse the decision rendered by the Court of Appeal of Orléans (France) against Sanofi in November 2017 ordering payment of approximately €2 million to the plaintiff and €1 million to the CPAM (Caisse Primaire d’Assurance Maladie). In July 2018, the French affiliate of Sanofi filed an action with the administrative tribunal seeking compensation from the French Ministry of Health for those damages paid under the above mentioned decision. In another civil action before the Paris Civil Court brought against Sanofi, ONIAM (Office National d’Indemnisation des Accidents Médicaux) and the healthcare professionals, in October 2018, the Court of Appeal of Paris confirmed the dismissal of claimant’s motion on interim measures. First procedural hearings on the merits on the other three lawsuits have been scheduled for March 2019. In the class action lawsuit filed by the APESAC (Association des Parents d’Enfants souffrant du Syndrome de l’Anti-Convulsivant) before the Paris Court, the judge denied claimant’s motion on interim measures in November 2017. APESAC lodged an appeal which was rejected by the Court of Appeal of Paris in October 2018. The French government has, through the 2017 Finance law adopted on December 29, 2016, set up a public fund which is meant to compensate loss or injury actually suffered in relation to the prescription of sodium valproate and its derivatives. The fund entered into force on June 1, 2017. The French affiliate has raised issue of conflict of interest of certain appointed experts, which led to those experts being either removed or replaced as per administrative decision. The indemnification committee of the public fund has started to issue final opinions addressed to the French affiliate as being held liable for the damages either in full or in part along with the French State. The French affiliate rejected the committee’s opinions and has accordingly not offered indemnification to the claimants who will receive compensation from the public fund as provided by the regulation governing it. An investigation is ongoing in relation to a criminal complaint against person unknown filed in May 2015. It is not possible, at this stage, to assess reliably the outcome of these cases or the potential financial impact on the Company. F-94 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) b) Patents Praluent® (alirocumab)-related Amgen Patent Litigation in the US Ramipril Canada Patent Litigation Sanofi has been involved in a number of legal proceedings involving companies which market generic Altace® (ramipril) in Canada. In 2004, Sanofi unsuccessfully brought Notice of Compliance proceedings (NOC proceedings) at the end of which eight manufacturers obtained marketing authorizations from the Canadian Minister of Health for generic versions of ramipril in Canada. Following the marketing of these products, Sanofi filed patent infringement actions against all those companies and on June 29, 2009, the Federal Court of Canada ruled that the patent the asserted by Sanofi was invalid. Sanofi’s leave to appeal invalidity judgment was denied in 2012. Each of Teva, Apotex and Riva initiated Section 8 damages claims against Sanofi in the Federal Court of Canada, seeking compensation for their inability to market a generic ramipril during the pendency of the NOC proceedings. Based on the ruling and guidelines issued from the Court, Sanofi and Teva reached an agreement to satisfy in June 2012 on a confidential amount the Court awarded Apotex Teva’s claim. CAD221 million. In November 2012, In March 2014, Sanofi appealed both Section 8 rulings. the Federal Court of Appeal dismissed Sanofi’s appeal with respect to to Teva and issued a decision in the appeal with respect Apotex increasing Apotex’s Section 8 award by an additional CAD23 million. On April 20, 2015, the Supreme Court of Canada dismissed Sanofi’s appeal, thereby affirming the decision of the Court of Appeal with respect to Apotex. The Riva Section 8 case, which had been stayed pending resolution of the Supreme Court Appeal, was settled following court-sponsored mediation in September 2015. In June 2011, while the Section 8 damages action was proceeding in Federal Court, Apotex commenced an action in the Ontario Superior Court of Justice asserting damages under the Ontario Statute of Monopolies, the UK Statute of Monopolies, and the Trade-marks Act (the “Ontario Action”). The Ontario Action was stayed pending exhaustion of appeals in the Section 8 damages action and, despite having received full compensation in the Section 8 action, was reinitiated by Apotex after the conclusion of the appeals. In June 2017, the Canadian Supreme Court determined that the invalidity decision were legal principles applied in the ramipril to amend its unsound and in the fall of 2018 Sanofi sought statement of defense in the Ontario action to reflect this development. On November 8, 2018, the pleadings amendment was allowed on appeal, after initially being denied by the motions judge. On January 11, 2019, the motions judge denied Sanofi’s motion to seek summary judgment on the issue of applicability of the the allowed pleadings Statute of Monopolies in view of amendment. The trial for this matter, originally expected for fall 2019, will now likely be delayed significantly. Amgen filed four separate complaints against Sanofi and Regeneron in the United States District Court for the District of Delaware (“District Court”) asserting patent infringement on October 17, October 28, November 11, and November 18, 2014 relating to Sanofi and Regeneron’s Praluent® product. Together these complaints allege that Praluent® infringes seven patents for antibodies targeting PCSK9 and seek injunctive relief and unspecified damages. These cases were consolidated into one case in December 2014. Sanofi and Regeneron initially asserted, among other defenses, invalidity and non-infringement defenses. In January 2016, Sanofi and Regeneron informed the District Court that they stipulated to infringement. In March 2016, the District Court granted Judgment as a Matter of Law (JMOL) of obviousness in favor of Amgen and JMOL on an aspect of willful infringement in favor of Sanofi and Regeneron. In addition, in March 2016, a jury verdict upheld the validity of Amgen’s asserted claims of two patents. Further, in March 2016, Sanofi, Regeneron and Amgen resolved part of the proceedings related to certain past damages that is contingent on the outcome of our appeal. In January 2017, the District Court denied Sanofi’s and Regeneron’s motion for a new trial and their motion for JMOL of lack of written description and enablement and granted an injunction preventing the marketing, selling or manufacturing of Praluent® in the US during the term of the two Amgen patents starting from February 21, 2017. In early February 2017, the US Court of Appeals for the Federal Circuit (“Federal Circuit”) stayed (suspended) the permanent injunction for Praluent® during Sanofi’s and Regeneron’s appeal the validity judgment and injunction ruling in the Federal of Circuit. In October 2017, the Federal Circuit granted a new trial on certain validity issues (lack of written description and enablement), vacated (lifted) the District Court’s judgment and found that improperly granted a permanent injunction. Amgen filed a petition for rehearing by the full Federal Circuit in December 2017 which was denied. the District Court The District Court has set a jury trial on invalidity to begin in February 2019, with a jury trial on damages and possibly willful infringement immediately to follow, should Sanofi and Regeneron lose on validity. The District Court requested post-trial briefs on the permanent injunction issue should Sanofi and Regeneron lose on validity, and may also request a permanent injunction hearing in such a circumstance. The District Court also allowed each side to file one summary judgment motion, both of which were denied in January 2019. In July 2018, Amgen filed a petition for certiorari with the US Supreme Court asking the Supreme Court to review and overturn the October 5, 2017 Federal Circuit decision, in particular the validity issues. The petition was denied in January 2019. Praluent® (alirocumab)-related Amgen Patent Litigation in Europe lawsuits Amgen has filed three separate patent against Sanofi and Regeneron in Europe based on Amgen’s infringement SANOFI / FORM 20-F 2018 F-95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) European patent EP2215124. On July 25, 2016, Amgen filed a lawsuit in the UK High Court of Justice, Chancery Division Patents Court against five Sanofi entities and Regeneron alleging that alirocumab infringes its ‘124 (UK) patent, seeking injunctive relief and unspecified damages; Sanofi has counterclaimed invalidity. the UK action was stayed In February 2017, (suspended) on terms agreed by the parties. Also on July 25, 2016, Amgen filed a lawsuit in Germany in the Regional Court, Düsseldorf against three Sanofi entities and Regeneron alleging that alirocumab infringes its ‘124 (DE) patent, seeking injunctive relief and unspecified damages. New oral proceedings are scheduled for April 2019. On September 26, 2016, Amgen filed a lawsuit in France in the Tribunal de Grande Instance of Paris against two Sanofi entities and Regeneron alleging that alirocumab infringes its ‘124 (FR) patent, seeking injunctive relief, €10 million in provisional damages and unspecified damages. Sanofi has counterclaimed invalidity. The next procedural hearing is scheduled for July 2019. Praluent® (alirocumab)-related EPO Patent Oppositions The European Patent Office (EPO) granted Amgen’s European Patent EP2215124 on February 24, 2016. Also on February 24, 2016, Sanofi filed an opposition with the EPO requesting the revocation of Amgen’s ’124 patent in its entirety for all contracting states on the grounds that the subject-matter of the opposed patent is not patentable. On November 24, 2016, Sanofi filed a second opposition (in the name of three Sanofi affiliates named as defendants in the German infringement action – see above), and Regeneron filed a separate opposition, requesting revocation of Amgen’s ’124 patent. In November 2018, the EPO Opposition Division maintained Amgen’s patent claims in amended form. Subsequently, Sanofi and Regeneron each filed a notice of appeal. Praluent® (alirocumab)-related Amgen Opposition and Patent Litigation in Japan In May 2017, Amgen filed a lawsuit in the Tokyo District Court (TDC), against Sanofi K.K. for patent infringement of two of its Japanese Patents, JP5705288 and JP5906333. Amgen sought injunctive relief to prevent the infringing manufacture, use and sale of alirocumab, as well as destruction of Praluent® and alirocumab, and the cost of litigation. Sanofi had counterclaimed invalidity and non-infringement. these two Japanese patents was separately The validity of in the Japanese Patent Office (JPO) by challenged by Sanofi filing invalidation actions in 2016. the JPO upheld the patents’ claims in amended form. In December 2017, Sanofi filed an appeal to the Intellectual Property High Court (IPHC) demanding revocation of the JPO decision. In December 2018, the IPHC rendered its decision that Amgen’s patents are valid, upholding the JPO’s earlier decision. In August 2017, Dupixent® (dupilumab)-related Amgen Patent Opposition and Revocation in Europe relate to, among other is the registered Immunex Corporation, an Amgen affiliate, proprietor of European Patent EP2292665. The claims of this patent things, human monoclonal antibodies that are capable of inhibiting IL-4 induced biological activity and which compete with one of four reference antibodies for binding to a cell that expresses human IL-4R. In April 2016, Sanofi and Regeneron each filed an opposition in the European Patent Office (EPO) against EP2292665, seeking its revocation on the basis that, inter alia, the claims are invalid for prohibited “added matter”, lack of novelty, lack of inventive step and lack of sufficient disclosure. In September 2016, Sanofi also filed a civil action in the UK High Court (Chancery Division/Patents Court) seeking revocation of the UK designation of EP2292665 on similar grounds. In January 2017, at the joint request of Sanofi and Immunex, the UK High Court ordered that the revocation action be stayed pending the final determination of the pending EPO opposition proceedings. The EPO rendered its decision in November 2017 and revoked the patent in its entirety. The decision revoking the patent was issued in January 2018. In early 2018, Immunex appealed the decision of the EPO. A hearing date for the appeal has not been scheduled yet. In September 2017, Sanofi and Regeneron filed oppositions in the EPO against Amgen’s European Patent EP2990420, which is a divisional of the EP2292665 Patent discussed above. The issues in this opposition were similar to those made in the oppositions against EP2292665. Dupixent® (dupilumab)-related Amgen Inter Partes Reviews and Patent Litigation in the US In March and July 2017, Sanofi and Regeneron filed collectively three petitions for Inter Partes Review (IPR) for US Patent No. 8,679,487 with the United States Patent and Trademark Office (USPTO). In these petitions, Sanofi and Regeneron collectively attack the validity of all the claims of this patent. The USPTO declined to institute an IPR on the first petition but granted Sanofi and Regeneron’s second and third petitions and instituted Inter Partes Reviews of all challenged claims in the ‘487 Patent. The USPTO held oral arguments for the two IPRs in November 2018. In April 2017, Immunex filed a complaint in the U.S. District Court the Central District of California against Sanofi and for Regeneron asserting that the commercialization of Dupixent infringes U.S. Patent No. 8,679,487. In response, among other things, Sanofi and Regeneron asserted affirmative defenses of non-infringement, invalidity, and unenforceability. Plavix® Litigation (Commonwealth) in Australia In January 2019, the TDC ruled in Amgen’s favor, finding its patents valid and infringed. The TDC did not order provisional enforcement of an injunction. In August 2007, GenRX (a subsidiary of Apotex) obtained registration of a generic clopidogrel bisulfate product on the the same time, Australian Register of Therapeutic Goods. At F-96 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) GenRX filed a patent invalidation action with the Federal Court of Australia, seeking revocation of Sanofi’s Australian enantiomer patent claiming clopidogrel salts (a “nullity action”). In September 2007, Sanofi obtained a preliminary injunction from the Federal Court preventing commercial launch of this generic clopidogrel judgment on the substantive issues of bisulfate product until patent validity and infringement. In February 2008, Spirit Pharmaceuticals Pty. Ltd. also filed a nullity action against Sanofi’s Australian enantiomer patent. The Spirit proceeding was consolidated with the Apotex proceeding. In August 2008, the Australian Federal Court confirmed that the claim in Sanofi’s Australian enantiomer patent directed to clopidogrel bisulfate (the salt form in Plavix®) was valid and the patent infringed. On appeal, the Full Federal Court of Australia held in September 2009 that all claims in the patent are invalid. Sanofi’s appeal to the Australia High Court was denied in March 2010. The security bond posted by Sanofi in connection with the preliminary injunction obtained in 2007 was subsequently increased from AUD40 million to AUD204 million (€25 million to €125 million as of December 31, 2018). Apotex sought damages in the range of AUD20 million to AUD236 million (€12 million to €145 million as of December 31, 2018), plus interest for having been subject to an injunction. On April 8, 2013, the Australian Department of Health and Ageing filed an application before the Federal Court of Australia seeking related to the Apotex payment of damages from Sanofi preliminary injunction of up to AUD449 million (€276 million as of December 31, 2018), plus interest. In light of the Apotex settlement, Sanofi and BMS settled the patent litigation with Apotex in the November 2014. Commonwealth has requested that the Court consider a set of legal issues separate from trial that could simplify the trial. In December 2015, the Court held that the relevant statute does not preclude the Commonwealth from seeking damages in cases such as this. Sanofi and BMS have applied for special leave to appeal against this decision. Sanofi’s special appeal to the High Court on the issue of the invalidity of the patent was denied in November 2015. In May 2016, Sanofi’s and BMS’s application for special leave to appeal to the High Court of Australia was denied. Consequently, the substantive claim on damages sought by the Commonwealth has continued to trial. A decision is expected during the first half of 2019. c) Other litigation and arbitration CVR Trustee Claim In November 2015, American Stock Transfer & Trust Company LLC (“AST”), the Trustee of the CVR Agreement between AST and Sanofi-Aventis, dated March 30, 2011, filed a complaint against Sanofi in the US District Court for the Southern District of New York, alleging that Sanofi breached the CVR Agreement and the implied covenant of good faith and fair dealing, including by allegedly failing to use “Diligent Efforts,” as defined in the CVR Agreement, with respect to the regulatory approval and sale of Lemtrada®. for legal for the investigation and prosecution of On January 29, 2016, Sanofi moved to dismiss Counts II (breach of contract relating to the Product Sales Milestones) and III (breach of the implied covenant of good faith and fair dealing) of the complaint. In May 2016, AST submitted a notice of resignation as Trustee. Before the resignation became effective, AST filed a Supplemental Complaint seeking the entry of a declaratory judgment that it is entitled to, among other things, fees and expenses incurred by its reimbursement outside counsel the claims in the case under the CVR Agreement. In June 2016, a new Trustee, UMB Bank, N.A. (“UMB”) was appointed. In July 2016, UMB moved for partial summary judgment on its declaratory judgment claim seeking, among other things, the reimbursement of legal fees and expenses incurred by its outside counsel for the investigation and prosecution of the claims in the case. In September 2016, the Court issued an order denying (in part) Sanofi’s motion to dismiss Count the complaint, granting Sanofi’s motion to dismiss Count III of the complaint in its entirety, and denying UMB’s motion for partial summary judgment relating to its request for the payment of the fees and expenses incurred by its outside counsel. In October 2016, UMB appealed the portion of the order denying its motion for partial summary judgment to the US Court of Appeals for the Second the US Court of Appeals for the Circuit. Second Circuit granted Sanofi’s motion to dismiss the appeal for lack of appellate jurisdiction. In December 2016, II of In February 2017, the Trustee amended the complaint to assert breach of contract claims with respect to its requests for books and records, as well as its request for an audit. On March 24, 2017, the Trustee sought leave to amend its complaint for a second time to assert a breach of contract claim with respect to the Production Milestone, which request was granted on August 23, 2017. Discovery is ongoing with respect to the claims relating to the FDA approval milestone, Product Sales Milestone #1 and the Production Milestone. On October 6, 2017, the Trustee filed a motion for summary judgment with respect to its the CVR request Agreement, such motion was ultimately denied. Expert discovery is expected to end in July 2019. for an audit pursuant to Section 7.6(a) of d) Contingencies arising from certain Business Divestitures Sanofi and its subsidiaries, Hoechst and Aventis Agriculture, divested a variety of mostly chemical, including agro-chemical, businesses as well as certain health product businesses. As a result of these divestitures, the Company is subject to a number of ongoing contractual and legal obligations regarding the state of the sold businesses, their assets, and their liabilities. Aventis Behring Retained Liabilities The divestment of Aventis Behring and related protein therapies assets became effective on March 31, 2004. The purchase SANOFI / FORM 20-F 2018 F-97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) remain in effect. For example, agreement contained customary representations and warranties running from Sanofi as seller to CSL Limited as purchaser. Sanofi has indemnification obligations that generally expired on March 31, 2006 (the second anniversary of the closing date). However, some indemnification obligations, having a longer duration, indemnification obligations relating to the due organization, capital stock and ownership of Aventis Behring Companies ran through March 31, 2014, and product liability indemnification runs through March 31, 2019, subject to an extension for claims related to certain types of product for tax-related issues, the indemnification obligation of Sanofi covers all taxable periods that end on or before the closing date and expires thirty days after the expiration of the applicable statute of limitations. In addition, the indemnification obligations relating to certain specified liabilities, including HIV liability, survive indefinitely. liability notified before such date. Furthermore, the indemnification agreement, Sanofi the indemnification due by Sanofi equals 90% of Under is generally obligated to indemnify CSL Limited, only to the extent indemnifiable, losses exceeding $10 million and up to a maximum aggregate amount of $300 million. For environmental claims, the indemnifiable losses. Product liability claims are generally treated separately, and the aggregate indemnification is capped at $500 million. Certain indemnification obligations, including those related to HIV liability, as well as tax claims, are not capped in amount. indemnification claims, including certain environmental and product liabilities claims. A number of other outstanding claims remain unresolved. LLRICE601 and LLRICE604 – Arbitration On December 19, 2014, BCS initiated a claim for arbitration against Aventis Agriculture S.A. and Hoechst GmbH seeking the SPA, with a indemnification under various provisions of demand for €787.5 million. Bayer is seeking indemnification for damages allegedly suffered in several hundred individual complaints and lawsuits by rice growers, millers and distributors arising in US state and federal courts against a number of CropScience companies, formerly part of ACS before its divestiture, following the detection in 2006 of trace amounts of genetically-modified rice (the Liberty Link® Rice 601 and 604) in samples of commercial long grain rice. Bayer alleges that it has incurred losses in excess of $1.2 billion in judgments, settlements and litigation costs. The final claimed amount of €693 million plus interest corresponds to the residual portion of the indemnification available under the SPA. that consider these claims constitute Sanofi does not indemnifiable losses under the SPA and has opposed Bayer’s request for indemnification in an arbitration proceeding before DIS (German Arbitral Tribunal). The evidentiary hearing took place in May 2018 and the award is expected to be rendered no sooner than June 2019. Aventis CropScience Retained Liabilities Aventis Animal Nutrition Retained Liabilities The sale by Aventis Agriculture S.A. and Hoechst GmbH (both legacy companies of Sanofi) of their aggregate 76% participation in Aventis CropScience Holding (ACS) to Bayer and Bayer CropScience AG (BCS), the wholly owned subsidiary of Bayer which holds the ACS shares, was effective on June 3, 2002. The (SPA) dated October 2, 2001, Stock Purchase Agreement contained customary representations and warranties with respect to the sold business, as well as a number of indemnifications, in particular with (the representations and warranties and the indemnification are subject for certain legal representations and warranties and specific environmental liabilities); taxes; certain legal proceedings; claims related to StarLink® corn; and certain pre-closing liabilities, in particular, product liability cases (which are subject to a cap of €418 million within the above global cap of €836 million). There are various periods of limitation depending upon the nature or subject of the indemnification claim. Further, Bayer and BCS are subject to a number of obligations regarding mitigation and cooperation. to a cap of €836 million, except environmental liabilities respect to: Since December 2005, Aventis Agriculture and Hoechst GmbH have concluded several settlement agreements to resolve a substantial number of disputes with Bayer and BCS, including the termination of arbitration proceedings initiated in August 2003 for an alleged breach of a financial statement-related representation contained in the SPA, and numerous other warranty and F-98 SANOFI / FORM 20-F 2018 for Sanofi’s and warranties. Aventis Animal Nutrition S.A. and Aventis (both legacy the sale to companies of Sanofi) signed an agreement Drakkar Holdings S.A. of the Aventis Animal Nutrition business effective in April 2002. The sale agreement contained customary indemnification representations for environmental obligations ran through April 2004, except indemnification obligations (which ran through April 2012), tax indemnification obligations (which run through the expiration of the antitrust indemnification obligations (which extend indefinitely). The to an overall cap of indemnification undertakings are subject €223 million, with a lower cap for certain environmental claims. Indemnification obligations for antitrust and tax claims are not capped. applicable limitation statutory period), and Celanese AG Retained Liabilities The demerger of the specialty chemicals business from Hoechst to Celanese AG (now trading as “Celanese GmbH”) became effective on October 22, 1999. Under the demerger agreement between Hoechst and Celanese, Hoechst expressly excluded any representations and warranties regarding the shares and assets subsequently contributed rights and obligations relating to environmental liabilities resulting from the demerger agreement to a subsidiary CCC Environmental Management and Solutions GmbH & Co. KG (“CCC”). The following obligations of Hoechst are ongoing: to Celanese. Celanese demerged NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) to current or future environmental ◆ While all obligations of Hoechst (i) resulting from public law or laws or (ii) pursuant (iii) vis-à-vis third parties pursuant to private or public law related to contamination (as defined) were transferred to Celanese under the demerger agreement in full, after the subsequent contribution CCC can request indemnification from Hoechst for two thirds of any such cost incurred under these obligations. ◆ To the extent Hoechst is liable to purchasers of certain of its divested businesses (as listed in the demerger agreement), CCC is liable to indemnify Hoechst, as far as environmental for aggregate liabilities up to damages are concerned, €250 million, liabilities exceeding such amount will be borne by Hoechst alone up to €750 million, and amounts exceeding €750 million will be borne 2/3 by Hoechst and 1/3 by CCC without any further caps. Subsequent to the contribution of liabilities by rights and obligations relating to environmental Celanese, Celanese was jointly liable with CCC until November 2016. Thereafter, Celanese remains known environmental claims specified in 2013. liable for Rhodia Shareholder Litigation In January 2004, two minority shareholders of Rhodia and their respective investment vehicles filed two claims before the Commercial Court of Paris (Tribunal de Commerce de Paris) against Aventis, to which Sanofi is successor in interest, together with other defendants including former directors and statutory auditors of Rhodia from the time of the alleged events. The claimants seek a judgment holding the defendants collectively liable for alleged management errors and for alleged publication of misstatements between 1999 and 2002, and inter alia regarding Rhodia’s acquisition of the companies Albright & Wilson and ChiRex. These shareholders seek a finding of joint and several liability for damages to be awarded to Rhodia in an amount of €925 million for alleged harm to it (a derivative action), as well as personal claims of €4.3 million and €125.4 million for their own alleged individual losses. Sanofi contests both the substance and the admissibility of these claims. Sanofi is also aware of three criminal complaints filed in France by the same plaintiffs and of a criminal investigation order issued by the Paris public prosecutor following the submission of the report financial the Commercial Court of Paris communications. accepted Sanofi’s and the other defendants’ motion to stay the civil litigation pending the conclusion of the criminal proceedings. the AMF regarding Rhodia’s issued by In 2006, In December 2016, the Court of Appeals of Paris dismissed the lodged by the same plaintiffs against the order of the appeal investigating judge dated October 2015, dismissing all criminal charges in this case. The plaintiffs appealed the December 2016 decision before the French Supreme Court (Cour de cassation). the plaintiffs may also petition the Following this decision, Commercial Court of Paris and seek the reopening of the commercial cases mentioned above on the basis that the criminal proceedings have now concluded. Clariant Retained Liabilities – Specialty Chemicals Business Hoechst conveyed its specialty chemicals business to Clariant to a 1997 agreement. Clariant has AG (Clariant) pursuant for all costs incurred for undertaken to indemnify Hoechst environmental matters relating to purchased sites. However, certain indemnification obligations of Hoechst for environmental matters in favor of Clariant remain with Hoechst. Hoechst must indemnify Clariant indefinitely (i) with respect to sites taken over by Clariant, for costs which relate to environmental pollutions attributable to certain activities of Hoechst or of third parties, (ii) for costs attributable to four defined waste deposit sites in Germany which are located outside the sites taken over by Clariant (to the extent exceeding an indexed amount of approximately €20.5 million), (iii) for costs from certain locally concentrated pollutions in the sites taken over by Clariant but not caused by specialty chemicals activities in the past, and (iv) for 75% of the costs relating to a specific waste deposit site in Frankfurt, Germany. Infraserv Höchst Retained Liabilities By the Asset Contribution Agreement dated December 19/20, 1996, as amended in 1997, Hoechst contributed all lands, buildings, and related assets of the Hoechst site at Frankfurt Höchst to Infraserv GmbH & Co. Höchst KG. Infraserv Höchst undertook to indemnify Hoechst against environmental liabilities at the Höchst site and with respect to certain landfills. As consideration for the indemnification undertaking, Hoechst transferred to Infraserv Höchst approximately €57 million to fund reserves. In 1997, Hoechst also agreed it would reimburse current and future Infraserv Höchst environmental expenses up to €143 million. As a former operator of the land and as a former user of the landfills, Hoechst may ultimately be liable for costs of remedial action in excess of this amount. Boehringer Ingelheim (BI) Retained Liabilities Following the closing in January 2017 of the swap of Sanofi’s Animal Health business for BI’s Consumer Healthcare (CHC) business, both parties have issued claims against one another for breaches of representations, payments for certain studies, withdrawal of products from particular markets, and claims related to liabilities arising before Closing. The asset swap deal was structured such that the Consumer Health sale and purchase agreement and the Animal Health sale and purchase agreement are nearly identical and have mirroring indemnification provisions. Accordingly, both agreements contain escalation procedures to be followed to resolve claims amicably in advance of formal dispute resolution. Sanofi is working to investigate the validity of BI’s claims related to Animal Health and to pursue its claims pertaining to Consumer Health. SANOFI / FORM 20-F 2018 F-99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.23. Provisions for discounts, rebates and sales returns Adjustments between gross sales and net sales, as described in Note B.14., are recognized either as provisions or as reductions in accounts receivable, depending on their nature. The table below shows movements in these items: (€ million) Government and State programs(a) Managed care and GPO programs(b) Chargeback incentives Rebates and discounts Sales returns Other deductions Balance at January 1, 2016 2,173 672 349 944 480 5 Total 4,623 Provision related to current period sales Net change in provision related to prior period sales Payments made Currency translation differences Balance at December 31, 2016(c) Provision related to current period sales Net change in provision related to prior period sales Payments made Currency translation differences Balance at December 31, 2017(c) Changes in scope of consolidation Provision related to current period sales Net change in provision related to prior period sales Payments made Currency translation differences Balance at December 31, 2018(c) 5,240 1,869 4,132 5,394 547 14 17,196 (6) (5,078) 69 2,398 — (8) (20) (1,796) (4,204) (5,230) 26 771 11 280 23 1,111 18 (509) 14 550 (1) (17) (15) (16,832) — 3 143 5,113 5,131 2,027 4,069 5,897 537 29 17,690 (46) (5,129) (268) 2,086 37 (11) (2,031) (93) 663 2 (8) 30 (3,925) (5,897) (39) 377 — (74) 1,067 (123) 4,624 2,038 3,620 5,942 (2) (4,673) 76 2,148 (4) (2,055) 30 674 (1) (11) (3,714) (5,732) 12 294 (3) 1,140 (11) (466) (63) 547 — 465 (35) (448) 17 546 — (46) (26) (17,474) — 6 2 (537) 4,746 (82) 56 16,745 3 (50) (54) (16,676) — 13 132 4,815 (a) Primarily the US government’s Medicare and Medicaid programs. (b) Mainly rebates and other price reductions granted to healthcare authorities in the United States. (c) Provisions related to US net sales amounted to €3,509 million as of December 31, 2018, €3,487 million as of December 31, 2017 and €3,818 million as of December 31, 2016. D.24. Personnel costs Total personnel costs include the following items: (€ million) Salaries Social security charges (including defined-contribution pension plans) Stock options and other share-based payment expense Defined-benefit pension plans Other employee benefits Total 2018 2017(a) 2016(a) 6,547 1,954 282 261 225 6,592 1,977 258 275 219 6,424 1,948 250 273 224 9,269 9,321 9,119 (a) Excluding personnel costs for the Animal Health business: immaterial in 2017 and €0.6 billion in 2016. The total number of registered employees (excluding those of the Animal Health business) was 104,226 as of December 31, 2018, compared with 106,566 as of December 31, 2017 and 106,859 as of December 31, 2016. F-100 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Employee numbers by function as of December 31 are shown below: Production Research and development Sales force Marketing and support functions Total (a) Excluding employees of the Animal Health business: 4 employees in 2017 and 6,957 in 2016. 2018 2017(a) 2016(a) 38,790 15,140 28,914 21,382 40,417 14,764 30,284 21,101 41,867 15,148 30,815 19,029 104,226 106,566 106,859 D.25. Other operating income Other operating income totaled €484 million in 2018, versus €237 million in 2017 and €355 million in 2016. Income from Sanofi’s pharmaceutical partners amounted to €32 million in 2018, €7 million in 2017, and €191 million in 2016 (of which €141 million related to Regeneron). Other operating income also includes (i) net operating foreign (see Note B.16.1.), which exchange gains and losses represented net losses of €91 million in 2018, €80 million in 2017 and €146 million in 2016; (ii) gains from disposals relating to ongoing operations, which in 2018 reflect the divestment of some mature products in Latin America and some Consumer Healthcare products in Europe (€326 million in 2018, €90 million in 2017 and €40 million in 2016); plus a gain of €112 million related to a data transfer agreement in 2018 (payments received on an out-of-court settlement of litigation in 2017). D.26. Other operating expenses Other operating expenses totaled €548 million in 2018, compared with €233 million in 2017 and €482 million in 2016. D.27. Restructuring costs and similar items In 2018, this line item includes €225 million of expenses relating to the agreement with Regeneron, versus €11 million in 2017 and €10 million in 2016. This reflects Regeneron’s share of profits/ losses from the commercialization of monoclonal antibodies (€177 million in 2018) net of commercialization-related expenses incurred by Regeneron €388 million in 2018, along with Regeneron’s €14 million share of profits/losses generated by the commercialization of Zaltrap® (€11 million in 2017, €10 million in 2016). In 2018, Sanofi recognized provisions of €122 million, mainly to cover litigation and environmental risks, plus acquisition-related costs of €56 million. In 2017, Sanofi recognized an impairment loss of €87 million against property, plant and equipment associated with the dengue vaccine project. This line item also includes shares of profits due to alliance partners (other than BMS and the alliance partner under the Actonel® agreement) under product marketing agreements (€50 million in 2018, versus €25 million in 2017 and €86 million in 2016). Restructuring costs and similar items amounted to €1,480 million in 2018, €731 million in 2017 and €879 million in 2016, and comprise the following items: (€ million) Employee-related expenses Expenses related to property, plant and equipment and to inventories Compensation for early termination of contracts (other than contracts of employment) Decontamination costs Other restructuring costs Total 2018 2017 2016 517 162 352 5 444 1,480 336 221 61 (4) 117 731 650 139 31 3 56 879 Restructuring costs recognized in 2018 included: (a) termination benefit payments of €517 million in 2018, including provisions associated with the headcount adjustments in Europe announced in December 2018. (b) a provision of €283 million booked as of December 31, 2018 for penalties arising from the restructuring of the immuno-oncology research and development agreement with Regeneron, and in particular on termination of the collaboration on research programs included in the initial SANOFI / FORM 20-F 2018 F-101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) July 2015 agreement (see Note C.1) which gives Sanofi the option of pursuing its own immuno-oncology development projects independently; (c) losses on property, plant and equipment due to site or transformation divestments closures reorganization programs (€162 million); under or (d) the costs of transferring the infectious diseases early stage R&D pipeline and research unit. Those transfer costs amounted to €252 million and primarily consist of payments to Evotec over a five-year period, including an upfront payment of €60 million on finalization of the agreement in early July 2018. In 2017, restructuring costs mainly comprised employee-related expenses arising from headcount adjustment plans in the United States and Europe, and asset write-downs. Costs relating to Sanofi transformation programs included within the “Other restructuring costs” line, as defined in Note B.19., amounted to €145 million in 2018 compared with €110 million in 2017 and €45 million in 2016. The restructuring costs recognized in 2016 related mainly to the implementation of an organizational transformation program in France and the rest of the world as part of the 2020 strategic roadmap. D.28. Other gains and losses, and litigation In 2018, the line item Other gains and losses, and litigation the pre-tax gain of €502 million arising on the consists of divestment of the European Generics business (completed September 30, 2018), net of separation costs (see Note D.1.1.). In 2017, this line item showed a net expense of €215 million, including an additional charge to provisions for vendor’s liability guarantees on past divestments and a negative price adjustment of €31 million on the 2016 divestment of Sanofi’s interest in the SPMSD joint venture. On December 30, 2016 Sanofi divested its interest in the SPMSD joint venture to MSD, generating a pre-tax gain of €211 million (see Note D.1.3.). D.29. Financial expenses and income An analysis of Financial expenses and Financial income is set forth below: (€ million) Cost of debt(b) Interest income(c) Cost of net debt Non-operating foreign exchange gains/(losses) Unwinding of discounting of provisions(d) Net interest cost related to employee benefits Gains/(losses) on disposals of financial assets Impairment losses on financial assets, net of reversals Other Net financial income/(expenses) comprising: Financial expenses Financial income 2018 2017(a) 2016(a) (396) 123 (273) 6 (24) (75) 63 — 32 (271) (435) 164 (326) (310) 89 73 (237) (237) (5) (33) (92) 96 (7) 5 (273) (420) 147 (2) (33) (114) 36 (487)(e) (19) (856) (924) 68 (a) The results of the Animal Health business are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); (see Notes D.2. and D.36.). (b) Includes net gains on interest rate and currency derivatives used to manage debt: €75 million in 2018, €20 million in 2017 and €50 million in 2016. (c) Includes net gains on interest rate and currency derivatives used to manage cash and cash equivalents: €51 million in 2018, €33 million in 2017 and €17 million in 2016. (d) Primarily on provisions for environmental risks, restructuring provisions, and provisions for product-related risks (see Note D.19.). (e) On October 5, 2016, Alnylam Pharmaceuticals, Inc. announced that it was terminating its revusiran development program, as a result of which its share price fell by 48% on October 6, 2016. Consequently, Sanofi recognized an impairment loss reflecting the difference between the historical acquisition cost of its shares in Alnylam and their market value. That impairment loss amounted to €457 million as of December 31, 2016. In 2018, 2017 and 2016, the impact of the ineffective portion of hedging relationships was not material. F-102 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.30. Income tax expense Sanofi has elected for tax consolidations in a number of countries, principally France, Germany, the United Kingdom and the United States. The table below shows the allocation of income tax expense between current and deferred taxes: (€ million) Current taxes Deferred taxes Total Income before tax and investments accounted for using the equity method 2018 2017(a) 2016(a) (1,212) (2,631) (1,869) 731 909 544 (481) (1,722) (1,325) 4,405 5,531 5,675 (a) The results of the Animal Health business are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); (see Notes D.2. and D.36.). The difference between the effective tax rate and the standard corporate income tax rate applicable in France is explained as follows: (as a percentage) Standard tax rate applicable in France Difference between the standard French tax rate and the rates applicable to Sanofi(b) Contribution on distributed income (3%) and associated changes(c) Revisions to tax exposures and settlements of tax disputes Impact of US tax reform(d) Other items(e) Effective tax rate 2018 2017 2016(a) 34.4 34.4 (16.4) (13.8) — (1.4) (4.3) (1.4) 10.9 (8.2) 1.9 21.6 (4.8) 31.1 34.4 (7.5) 2.0 (5.0) — (0.5) 23.4 (a) The results of the Animal Health business are presented separately in accordance with IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations); (see Notes D.2. and D.36.). (b) The difference between the French tax rate and tax rates applicable to foreign subsidiaries reflects the fact that Sanofi has operations in many countries, most of which have lower tax rates than France. (c) In 2017, this line includes the consequences of the French Constitutional Council ruling of October 6, 2017 on the additional 3% contribution on dividends paid out in cash. In 2016, entities subject to corporate income tax in France were liable to pay an additional tax contribution in respect of amounts distributed by the entity. (d) For 2018, this line comprises an adjustment of €188 million to the estimated tax charge on deemed repatriation attributable to the accumulated earnings of non-US operations. For 2017, this line includes an expense of €1,193 million for the consequences of US tax reform, comprising the estimated tax charge on deemed repatriation attributable to the accumulated earnings of non-US operations payable over 8 years (€1,084 million) and a further expense of €109 million representing (i) the remeasurement of deferred taxes following the reduction in the corporate income tax rate and (ii) an adjustment to deferred taxes on the fair value of the reserves of Sanofi subsidiaries. (e) For 2018, “Other items” includes the net tax effect of taxable temporary differences associated with holdings in Sanofi subsidiaries. In determining the amount of the deferred tax liability for 2018, 2017 and 2016, Sanofi took into account changes in the ownership structure of certain subsidiaries. For 2017, the “Other items” line includes the impact of changes to tax rates in France, Belgium and the Netherlands. For 2016, it includes the effects of changes in tax rates in various countries, particularly in France, Hungary, Italy, Japan and the United States. For the periods presented, the amount of deferred tax assets recognized in profit or loss that were initially subject to impairment losses on a business combination is immaterial. D.31. Share of profit/loss from investments accounted for using the equity method The line item Share of profit/(loss) from investments accounted for using the equity method comprises: (€ million) Regeneron(a) BMS co-promotion entities(b) Other investments accounted for using the equity method Total 2018 2017 2016 484 12 3 499 82 13 (10) 85 128 16 (8) 136 (a) Includes the impact of amortization charged on the fair value remeasurement of Sanofi’s share of the acquired intangible assets and inventories of Regeneron. (b) Share of co-promotion profits attributable to Sanofi for territories covered by entities majority owned by BMS (see Note C.2.). SANOFI / FORM 20-F 2018 F-103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The share of profits from Regeneron amounted to €484 million in 2018 compared with €82 million in 2017, with the increase attributable mainly to the increase in Regeneron’s profits after adjustment to align on Sanofi’s accounting policies. The SPMSD joint venture ceased to be accounted for by the equity method on March 8, 2016, the date on which it was announced that the joint venture was to be dissolved (see Note D.1.3.). D.32. Net income attributable to non-controlling interests The table below shows trends in Net income attributable to non-controlling interests: (€ million) Share of co-promotion profits attributable to BMS(a) Share of net income attributable to other non-controlling interests Total 2018 2017 2016 83 21 84 37 104 121 86 5 91 (a) Share of co-promotion profits attributable to BMS for territories covered by entities majority owned by Sanofi (see Note C.2.); there is no tax effect on these amounts because BMS receives its share before tax. D.33. Related party transactions The principal related parties are companies over which Sanofi has key management personnel; and principal shareholders. control or significant influence; ventures; joint Sanofi has not entered into any material transactions with any key management personnel. Financial relations with Sanofi’s principal shareholders fall within the ordinary course of business in the years ended December 31, 2018, and were immaterial 2017 and 2016. A list of the principal companies controlled by Sanofi is presented in Note F.1. Those companies are fully consolidated as described in Note B.1. Transactions between those companies, and between the parent company and its subsidiaries, are eliminated when preparing the consolidated financial statements. Transactions with companies over which Sanofi has significant influence, and with joint ventures, are presented in Note D.6. Key management personnel include corporate officers (including one director holding office for four months in 2016 who was covered by a top-up pension plan: see “Item 6.B. – Compensation”) and the members of the Executive Committee (an average of 15 members in 2018, and 13 members in 2017 and 2016). The table below shows, by type, the compensation paid to key management personnel: (€ million) Short-term benefits(a) Post-employment benefits Share-based payment Total recognized in profit or loss 2018 2017 2016 38 989 33 80 31 15 54 32 22 63 (a) Compensation, employer’s social security contributions, directors’ attendance fees, and any termination benefits (net of reversals of termination benefit obligations). The table below shows the aggregate top-up pension obligation in favor of certain corporate officers and Executive Committee members, and the aggregate amount of termination benefits and (€ million) Aggregate top-up pension obligation Aggregate termination benefits and lump-sum retirement benefits lump-sum retirement benefits payable to key management personnel: 2018 2017 2016 59 10 68 9 72 8 D.34. Disclosures about major customers and credit risk Credit risk is the risk that customers (wholesalers, distributors, pharmacies, hospitals, clinics or government agencies) may fail risk by vetting to pay their debts. Sanofi manages credit customers in order to set credit limits and risk levels and asking for guarantees or insurance where necessary, performing controls, and monitoring qualitative and quantitative indicators of accounts receivable balances such as the period of credit taken and overdue payments. F-104 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Customer credit risk also arises as a result of the concentration of Sanofi’s sales with its largest customers, in particular certain wholesalers in the United States. Sanofi’s three largest customers respectively accounted for approximately 9%, 6% and 4% of consolidated revenues in 2018 (9%, 5% and 4% in 2017; 12%, 7% and 6% in 2016). D.35. Segment information With effect from December 31, 2017 Sanofi has three operating segments: Pharmaceuticals, Consumer Healthcare and Human Vaccines (Vaccines). comprises the commercial The Pharmaceuticals segment franchises: Specialty Care operations of the following global (Rare Diseases, Multiple Sclerosis, Oncology, Immunology), Diabetes & Cardiovascular, Established Prescription Products together with research, development and and Generics, production activities dedicated to our Pharmaceuticals segment. This segment also includes associates whose activities are related to pharmaceuticals, in particular our share of Regeneron. segment all The Consumer Healthcare the commercial operations for our geographical territories, Consumer Healthcare research, together with products, development and production activities dedicated to those products. comprises, for The Vaccines segment comprises, for all geographical territories (including certain territories previously included in the Sanofi Pasteur MSD joint venture), the commercial operations of Sanofi Pasteur, together with research, development and production activities dedicated to vaccines. Inter-segment transactions are not material. The costs of Sanofi’s global functions (Medical Affairs, External Affairs, Finance, Human Resources, Legal Affairs, Information Solutions & Technologies, Sanofi Business Services, etc.) are managed centrally at group-wide level. The costs of those functions are presented within the “Other” category, which also includes other reconciling items such as retained commitments in respect of divested activities. SANOFI / FORM 20-F 2018 F-105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.35.1. Segment results The table below sets forth Sanofi’s net sales for the years ended December 31, 2018 and 2017: (€ million) Pharmaceuticals Europe United States Other Countries 2018 Europe United States Other Countries 2017(a) 7,303 7,897 9,485 24,685 7,485 8,152 9,536 25,173 Diabetes & Cardiovascular 1,401 2,635 2,047 6,083 1,375 3,530 2,003 6,908 of which Established Prescription Products of which Lantus® Toujeo® Lovenox® Plavix® Specialty Care of which Aubagio® Cerezyme® Myozyme®/Lumizyme® Jevtana® Dupixent® Allegra® Doliprane® Dulcolax® Pharmaton® Gold Bond® Generics Consumer Healthcare of which Vaccines of which 684 290 1,614 344 1,267 3,565 206 840 760 217 2,542 455 1,323 4,625 144 816 3,330 751 4,762 8,843 3,494 1,269 5,055 9,818 870 147 38 — 557 1,465 1,293 1,440 951 150 58 1 565 1,574 1,319 1,470 2,004 4,387 1,878 8,269 1,865 3,203 1,610 6,678 385 270 374 158 75 568 1,157 174 284 179 660 124 105 267 182 85 53 1,647 711 840 422 788 798 1,490 387 281 352 148 2 751 1,084 96 1,567 177 262 159 216 150 273 175 79 1 731 789 386 219 868 1,769 1,403 1,066 2,191 4,660 1,410 1,133 2,255 4,798 17 281 99 19 — 207 — 62 — 207 172 52 55 71 4 396 333 216 90 211 12 277 93 20 — 233 — 61 — 198 177 46 56 79 3 422 323 210 99 201 728 2,577 1,813 5,118 630 2,570 1,901 5,101 Polio/Pertussis/Hib Vaccines Influenza Vaccines 296 177 397 1,233 1,056 1,749 298 1,708 300 113 435 1,128 1,092 1,827 348 1,589 Total net sales 9,434 11,540 13,489 34,463 9,525 11,855 13,692 35,072 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). F-106 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below sets forth Sanofi’s net sales for the years ended December 31, 2017 and 2016: Europe United States Other Countries 2017 Europe United States Other Countries 2016 7,473 8,152 9,497 25,122 7,532 8,913 9,469 25,914 1,375 3,530 2,000 6,905 1,381 4,511 1,907 7,799 Lantus® Toujeo® 760 217 2,542 455 1,320 4,622 144 816 878 120 3,528 475 1,308 5,714 54 649 (€ million) Pharmaceuticals Diabetes & Cardiovascular of which Established Prescription Products of which Specialty Care of which Generics Consumer Healthcare of which Vaccines Lovenox® Plavix® Aubagio® Cerezyme® Myozyme®/ Lumizyme® Jevtana® Dupixent® Allegra® Doliprane® of which Polio/Pertussis/Hib Vaccines Influenza Vaccines Total published net sales Impact of IFRS 15 Total net sales (including impact of IFRS 15) reports segment Sanofi “Business operating income”. This indicator is used internally by Sanofi’s chief operating decision maker to measure the performance of each operating segment and to allocate resources. results on the basis of Business operating income is derived from Operating income, adjusted as follows: ◆ the amounts reported in the line items Restructuring costs and similar items, Fair value remeasurement of contingent 3,473 1,269 5,019 9,761 3,642 1,490 5,179 10,311 951 150 58 1 566 1,575 1,027 1,320 1,471 162 54 1 555 1,636 1,381 1,544 1,865 3,203 1,610 6,678 1,707 2,737 1,506 5,950 387 281 352 148 2 760 1,084 177 262 159 216 150 96 1,567 272 730 175 79 1 789 386 219 868 1,778 1,422 1,133 2,277 4,832 12 277 630 300 113 233 — 2,570 435 1,128 178 46 423 323 1,901 5,101 1,092 1,827 348 1,589 308 280 327 139 — 802 879 9 260 268 105 83 908 181 240 152 — 175 938 243 — 2,540 405 1,117 79 1,295 287 748 158 67 — 725 358 — 877 1,854 1,513 3,330 165 49 417 309 1,769 4,577 985 321 1,495 1,521 9,525 11,855 13,675 35,055 8,679 12,391 12,751 33,821 17 35,072 (12) 33,809 consideration and Other gains and losses, and litigation are eliminated; ◆ amortization and impairment losses charged against intangible assets (other than software and other rights of an industrial or operational nature) are eliminated; ◆ the share of profits/losses from investments accounted for using the equity method is added; ◆ net income attributable to non-controlling interests is deducted; SANOFI / FORM 20-F 2018 F-107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) ◆ other acquisition-related effects (primarily the workdown of acquired inventories remeasured at fair value at the acquisition date, and the impact of acquisitions on investments accounted for using the equity method) are eliminated; ◆ restructuring costs relating to investments accounted for using the equity method are eliminated. The table below sets forth Sanofi’s segment results for the years ended December 31, 2018 and December 31, 2017, based on the new segment reporting model: (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests December 31, 2018 Pharmaceuticals Consumer Healthcare Vaccines Other 24,685 252 (6,738) (4,572) (5,431) (37) 425 (96) 4,660 5,118 — 962 (1,539) (2,854) (143) (1,534) 101 1 (10) (555) (710) (4) (3) — — — (190) (624) (2,156) (124) — — Business operating income 8,488 1,536 1,954 (3,094) (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income December 31, 2017(a) Pharmaceuticals Consumer Healthcare Vaccines Other 25,173 287 (6,766) (4,056) (5,649) 34 212 (110) 9,125 4,798 5,101 — 862 (1,612) (2,798) (123) (1,645) 94 1 (15) (557) (728) (107) 1 — — — (271) (736) (2,050) (10,072) (17) 4 — — 214 (125) 9,323 1,498 1,774 (3,074) (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.), and of the presentation of segment data using Sanofi’s new segment reporting model. F-108 SANOFI / FORM 20-F 2018 Total Sanofi 34,463 1,214 (11,321) (5,894) (9,831) (64) 423 (106) 8,884 Total Sanofi 35,072 1,149 (11,447) (5,472) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Due to lack of available data and the over-complex and significant adjustments that would be required (in particular to our reporting tools), not all comparative information has been restated to reflect the changes arising from the new segment reporting model of 2017. Segment results for 2017 and 2016 are therefore also presented using the previous segment reporting model in the tables below: (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (b) Includes Consumer Healthcare and an allocation of global support function costs. Consumer Healthcare net sales were €4,798 million in 2017. (c) Includes an allocation of global support function costs. (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income (€ million) Net sales Other revenues Cost of sales Research and development expenses Selling and general expenses Other operating income and expenses Share of profit/(loss) from investments accounted for using the equity method Net income attributable to non-controlling interests Business operating income December 31, 2017(a) Pharmaceuticals(b) Vaccines(c) Other Total Sanofi 35,072 1,149 5,101 862 — — (2,817) — (11,447) (637) (881) (108) 1 — — (1) (68) — — 1,521 (69) (5,472) (10,072) 4 214 (125) 9,323 Total Sanofi 33,809 887 4,577 613 — — (2,353) — (10,701) (554) (743) — — (14) (112) 48 (1) — — 1,573 (112) (5,172) (9,478) (127) 179 (113) 9,284 29,971 287 (8,630) (4,835) (9,190) 180 213 (125) 7,871 29,232 274 (8,348) (4,618) (8,735) (1) 131 (112) 7,823 December 31, 2016(a) Pharmaceuticals(b) Vaccines(c) Other (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.). (b) Includes Consumer Healthcare and an allocation of global support function costs. Consumer Healthcare net sales were €3,330 million in 2016. (c) Includes an allocation of global support function costs. SANOFI / FORM 20-F 2018 F-109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The table below, presented in compliance with IFRS 8, shows a reconciliation between aggregated “Business operating income” for the segments and Income before tax and investments accounted for using the equity method: (€ million) Business operating income Share of profit/(loss) from investments accounted for using the equity method(b) Net income attributable to non-controlling interests(c) Amortization and impairment of intangible assets Fair value remeasurement of contingent consideration Expenses arising from the impact of acquisitions on inventories(d) Restructuring costs and similar items Other expenses related to business combinations Other gains and losses, and litigation(e) Operating income Financial expenses(f) Financial income Income before tax and investments accounted for using the equity method 2018 2017(a) 2016(a) 8,884 9,323 9,284 (423) 106 (214) 125 (179) 113 (2,888) (2,159) (1,884) 117 (114) (1,480) (28) 502 4,676 (435) 164 4,405 (159) (166) (731) — (215) 5,804 (420) 147 5,531 (135) — (879) — 211 6,531 (924) 68 5,675 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.), and of the presentation of segment data using Sanofi’s new segment reporting model. (b) Excluding restructuring costs relating to investments accounted for using the equity method and expenses arising from the impact of acquisitions on investments accounted for using the equity method, and after elimination of Sanofi’s share of the business net income of Sanofi Pasteur MSD from the date when Sanofi and Merck announced their intention to end their joint venture (€52 million in 2016). (c) Excludes (i) restructuring costs and (ii) other adjustments attributable to non-controlling interests. (d) This line records the impact of the workdown of acquired inventories remeasured at fair value at the acquisition date. (e) For 2018, the gain resulting from the European Generics business divestiture amounting to €510 million. For 2017, this line includes an adjustment to provisions for vendor’s liability guarantees relating to past divestments. For 2016, it includes the pre-tax gain on divestment of Sanofi’s interest in the Sanofi Pasteur MSD joint venture. (f) For 2016, this line includes an impairment loss of €457 million taken against Sanofi’s equity investment in Alnylam Pharmaceuticals, Inc. (see Note D.29.). D.35.2. Other segment information The tables below show the split by operating segment of (i) the carrying amount of investments accounted for using the equity method, (ii) acquisitions of property, plant and equipment, and (iii) acquisitions of intangible assets. for the Pharmaceuticals The principal investments accounted for using the equity method are: Regeneron Pharmaceuticals, Inc., the entities majority owned by BMS (see Note C.2.), and Infraserv GmbH & Co. Höchst KG; and for the Vaccines segment, Sanofi Pasteur MSD (until March 8, 2016; see Notes B.1. and D.1.3.). segment, Acquisitions of intangible assets and property, plant and equipment correspond to acquisitions paid for during the period. (€ million) Investments accounted for using the equity method Acquisitions of property, plant and equipment Acquisitions of other intangible assets (€ million) Investments accounted for using the equity method(a) Acquisitions of property, plant and equipment Acquisitions of other intangible assets Pharmaceuticals 2018 Consumer Healthcare Vaccines Total 3,352 1,046 434 20 5 7 30 364 121 3,402 1,415 562 Pharmaceuticals 2017 Consumer Healthcare Vaccines Total 2,815 1,033 367 19 9 9 13 346 192 2,847 1,388 568 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.), and of the presentation of segment data using Sanofi’s new segment reporting model. F-110 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (€ million) Investments accounted for using the equity method(a) Acquisitions of property, plant and equipment Acquisitions of other intangible assets 2016 Pharmaceuticals Vaccines Total 2,888 904 807 4 315 57 2,892 1,219 864 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.), and of the presentation of segment data using Sanofi’s new segment reporting model. D.35.3. Information by geographical region information on net sales provided below is The geographical based on the geographical In accordance with IFRS 8, the non-current assets reported below the customer. location of exclude financial pre-funded pension obligations. instruments, deferred tax assets, and (€ million) Net sales Non-current assets: 2018 Total Europe of which France North America of which United States Other countries 34,463 9,434 2,319 12,193 11,540 12,836 ◆ ◆ ◆ property, plant and equipment 9,651 5,871 3,163 2,719 2,238 goodwill other intangible assets 44,235 21,889 — 8,058 — — — 11,190 — — 1,061 — 2,641 (€ million) Net sales(a) Non-current assets: 2017 Total Europe of which France North America of which United States Other countries 35,072 9,525 2,330 12,460 11,855 13,087 ◆ ◆ ◆ property, plant and equipment 9,579 5,969 3,180 2,560 2,142 goodwill other intangible assets 40,264 13,080 — 6,171 — — — 5,210 — — 1,050 — 1,699 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.), and of the presentation of segment data using Sanofi’s new segment reporting model. (€ million) Net sales(a)/(b) Non-current assets: 2016 Total Europe of which France North America of which United States Other countries 33,809 8,679 2,206 12,963 12,391 12,167 ◆ ◆ ◆ property, plant and equipment 10,019 6,068 3,413 2,850 2,447 goodwill other intangible assets 40,287 10,879 — 3,612 — — — 5,430 — — 1,101 — 1,837 (a) Includes the effects of first-time application of IFRS 15 on revenue recognition (see Note A.2.1.1.), and of the presentation of segment data using Sanofi’s new segment reporting model. (b) Due to a change in accounting presentation, VaxServe sales of non-Sanofi products are included in Other revenues from 2016 onwards (see Note B.13.2.). As stated in Note D.5., goodwill is not allocated by geographical region. SANOFI / FORM 20-F 2018 F-111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) D.36. Exchanged/held-for-exchange Animal Health business In accordance with IFRS 5 (see Note B.7.), all assets of the Animal Health business and all liabilities directly related to those assets were classified as of December 31, 2016 in the line items Assets held for sale or exchange and Liabilities related to assets held for sale or exchange, in the consolidated balance sheet (see Note D.8.). An analysis of those line items is set forth below: respectively, Assets Property, plant and equipment Goodwill Other intangible assets Investments accounted for using the equity method Other non-current assets Deferred tax assets Inventories Accounts receivable Other current assets Cash and cash equivalents Total assets held for sale or exchange Liabilities Long-term debt Non-current provisions Deferred tax liabilities Current debt Accounts payable Other current liabilities Total liabilities related to assets held for sale or exchange 2016 811 1,560 2,227 12 41 180 629 471 83 362 6,376 6 134 198 148 241 438 1,165 As of December 31, 2016, short-term debt owed by Animal Health entities to other consolidated entities amounted to €954 million; the amount of accounts receivable and accounts In accordance with the accounting payable was immaterial. policies described in Note B.7., intercompany asset and liability accounts between Animal Health entities and other consolidated entities were eliminated. As a consequence the balances related to these assets and liabilities are not included in the table above. In accordance with IFRS 5, the net income/loss of the Animal Health business is presented in a separate line item for 2017 and comparative periods (see Notes B.7. and D.2.). The table below provides an analysis of the main items included in the line item Net the exchanged/held-for-exchange income/(loss) of Animal Health business: (€ million) Net sales Gross profit Operating income 2018 2017 2016 — — — — 2,708 — 1,850 — 678 672 Income before tax and investments accounted for using the equity method(a) (16) 6,343 Income tax expense(b) Net income/(loss) of the exchanged/held-for-exchange Animal Health business 3 (1,700) (359) (13) 4,643 314 (a) In 2017, this line shows the gain arising on the divestment of the Animal Health business in exchange for Boehringer Ingelheim’s Consumer Healthcare business, based on a total consideration of €10,557 million. (b) Income tax expense on the gain on divestment of the Animal Health business. F-112 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In accordance with the policies described in Note B.7., transactions between companies belonging to the Animal Health business and other consolidated companies are eliminated. The transactions eliminated from the income statement amount of was immaterial for the periods presented. The table below presents basic and diluted earnings per share for the exchanged/held-for-exchange Animal Health business, in accordance with IAS 33 (Earnings Per Share): (€ million) Net income/(loss) of the exchanged/held-for-exchange Animal Health business Average number of shares outstanding (million) Average number of shares after dilution (million) – Basic earnings per share (in euros) – Diluted earnings per share (in euros) 2018 (13) 2017 4,643 2016 314 1,247.1 1,256.9 1,286.6 1,255.2 1,266.8 1,296.0 (0.01) (0.01) 3.69 3.67 0.24 0.24 SANOFI / FORM 20-F 2018 F-113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) E/ Principal accountants’ fees and services PricewaterhouseCoopers Audit and Ernst & Young et Autres served as independent auditors of Sanofi for the year ended December 31, 2018 and for all other reporting periods presented. The table below shows fees charged by those firms and member firms of their networks to Sanofi and consolidated subsidiaries in the years ended December 31, 2018 and 2017. (€ million) Audit: Statutory audit of separate and consolidated financial statements(a) Services other than statutory audit(b) Audit-related services(c) Tax Other Total Ernst & Young PricewaterhouseCoopers 2018 2017 2018 2017 Amount % Amount % Amount % Amount % 73% 27% 77% 23% 16.6 5.0 4.0 — 1.0 16.4 6.0 4.9 — 1.1 16.8 1.0 0.7 — 0.3 94% 6% 98% 2% 16.8 0.4 0.4 — — 21.6 100% 22.4 100% 17.8 100% 17.2 100% (a) Includes services provided by the independent auditors of the parent company and French subsidiaries: Ernst & Young: €8.1 million in 2018 and €7.6 million in 2017; PricewaterhouseCoopers €7.7 million in 2018 and €7.8 million in 2017. (b) Services other than statutory audit provided by Ernst & Young et Autres during 2018 comprised: – work on share capital transactions and securities issues submitted to the Annual General Meeting (in extraordinary business) for approval; – additional procedures to enable reports previously signed by the firm to be incorporated by reference; – agreed-upon and audit procedures in connection with a divestment; – issuance of the report of the independent third party on social, environmental information. Services other than statutory audit provided by PricewaterhouseCoopers Audit during 2018 comprised: – work on share capital transactions and securities issues submitted to the Annual General Meeting (in extraordinary business) for approval; – additional procedures to enable reports previously signed by the firm to be incorporated by reference; – assurance engagements, agreed-upon procedures, technical consultancy and work relating to Sanofi’s new information systems. (c) Includes services provided by the independent auditors of the parent company and French subsidiaries: Ernst & Young: €3.9 million in 2018 and €4.8 million in 2017; PricewaterhouseCoopers €0.7 million in 2018 and €0.3 million in 2017. Audit Committee pre-approval and procedures The Audit Committee of Sanofi has adopted a policy and established certain procedures for the approval of audit services and for the pre-approval of other services to be provided by the independent auditors. In 2018, the Audit Committee established a limit for permitted audit-related and other services (i.e. services that can be provided by the other independent auditors, and the related fees. than statutory audit) F-114 SANOFI / FORM 20-F 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) F/ List of principal companies included in the consolidation scope during 2018 F.1. Principal fully consolidated companies The table below shows the principal companies and their country of incorporation: Europe Hoechst GmbH Sanofi-Aventis Deutschland GmbH Aventis Beteiligungsverwaltung GmbH Sanofi-Aventis GmbH Sanofi Belgium Sanofi European Treasury Center Ablynx N.V. Genzyme Flanders BVBA Sanofi-Aventis Denmark A/S Sanofi-Aventis SA Sanofi Oy Sanofi Sanofi-Aventis France Sanofi Winthrop Industries Sanofi-Aventis Recherche et Développement Sanofi-Aventis Groupe Sanofi CLIR Sanofi Chimie Francopia Sanofi-Aventis Participations SAS Genzyme Polyclonals SAS Sanofi Pasteur (France) SA Aventis Pharma SA (France) Aventis Agriculture Biopark By Sanofi Chattem Greece S.A. Sanofi-Aventis A.E.B.E. Sanofi-Aventis Private Co, Ltd Chinoin Private Co. Ltd Carraig Insurance DAC Sanofi-Aventis Ireland Ltd Genzyme Ireland Limited Sanofi Spa Genzyme Global Sarl Sanofi-Aventis Norge AS Sanofi-Aventis Netherlands B.V. Financial interest (%) as of December 31, 2018 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.6 99.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Germany Germany Germany Austria Belgium Belgium Belgium Belgium Denmark Spain Finland France France France France France France France France France France France France France France Greece Greece Hungary Hungary Ireland Ireland Ireland Italy Luxembourg Norway Netherlands SANOFI / FORM 20-F 2018 F-115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Europe Genzyme Europe BV Sanofi-Aventis Sp. z.o.o. Sanofi Produtos Farmaceuticos Lda Sanofi-Aventis, s.r.o. Sanofi-Aventis Romania SRL Sanofi-Synthelabo Ltd Sanofi Pasteur Holding Limited Chattem Limited (UK) Sanofi-Aventis UK Holdings Limited Genzyme Limited May and Baker Limited Aventis Pharma Limited Fisons Limited Limited Liability Zentiva Pharma Sanofi-Aventis Vostok AO Sanofi Russia Sanofi-Aventis Pharma Slovakia s.r.o. Sanofi AB Sanofi SA (Sanofi AG) Sanofi-Aventis (Suisse) SA Pharmaton Sanofi Ilac Sanayi ve Ticaret A.S. Sanofi Pasteur Asi Ticaret A.S Sanofi-Aventis Ukraine United States Sanofi US Services Inc Sanofi-Aventis US LLC Sanofi Pasteur Biologics, LLC Chattem, Inc. Sanofi Pasteur VaxDesign Corporation Carderm Capital L.P. Aventisub LLC Genzyme Corporation Armour Pharmaceutical Company Sanofi Pasteur Inc. Protein Sciences Corporation Aventis Inc. VaxServe, Inc. Sanofi Aventis N A Holding Bioverativ Inc. Bioverativ USA Inc. Bioverativ Therapeutics Inc. F-116 SANOFI / FORM 20-F 2018 Netherlands Poland Portugal Czech Republic Romania United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Russia Russia Russia Slovakia Sweden Switzerland Switzerland Switzerland Turkey Turkey Ukraine United States United States United States United States United States United States United States United States United States United States United States United States United States United States United States United States United States Financial interest (%) as of December 31, 2018 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Financial interest (%) as of December 31, 2018 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 United States Bioverativ Securities Corporation Bioverativ US LLC Bioverativ Pacific LLC Other Countries Sanofi industries South Africa (Pty) Ltd Zentiva South Africa (Pty) Ltd Sanofi-Aventis Algérie Winthrop Pharma Saidal SPA Sanofi-Aventis Argentina S.A. Genzyme de Argentina SA Sanofi-Aventis Healthcare Pty Ltd Sanofi-Aventis Australia Pty Ltd Bioverativ Australia Pty Ltd Medley Farmaceutica Ltda Sanofi-Aventis Farmaceutica Ltda Sanofi-Aventis Canada Inc. Sanofi Consumer Health Inc Sanofi Pasteur Limited (Canada) Bioverativ Canada Inc. Sanofi-Aventis de Chile SA Sanofi (Hangzhou) Pharmaceuticals Co., Ltd Sanofi (China) Investment Co., Ltd Sanofi Beijing Pharmaceuticals Co.Ltd Shenzhen Sanofi pasteur Biological Products Co, Ltd Winthrop Pharmaceuticals de Colombia SA Genfar S.A. Sanofi-Aventis de Colombia S.A Sanofi-Aventis Korea Co. Ltd Genzyme Korea Co Ltd Sanofi-Aventis Gulf FZE Sanofi-Aventis del Ecuador S.A Sanofi Egypt S.A.E Sanofi-Aventis de Guatemala S.A. Sunstone China limited Sanofi-Aventis Hong-Kong Limited Sanofi-Synthelabo (India) Private Ltd Sanofi India Limited Shantha Biotechnics Private Ltd PT Aventis Pharma Sanofi-Aventis Israel Ltd Sanofi K.K. SSP Co., Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Financial interest (%) as of December 31, 2018 United States United States United States 100.0 100.0 100.0 Financial interest (%) as of December 31, 2018 South Africa South Africa Algeria Algeria Argentina Argentina Australia Australia Australia Brazil Brazil Canada Canada Canada Canada Chile China China China China Colombia Colombia Colombia South Korea South Korea United Arab Emirates Ecuador Egypt Guatemala Hong Kong Hong Kong India India India Indonesia Israel Japan Japan 100.0 100.0 100.0 70.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.8 100.0 100.0 100.0 100.0 60.4 99.5 80.0 100.0 100.0 100.0 SANOFI / FORM 20-F 2018 F-117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Other Countries Bioverativ Japan Ltd Winthrop Pharmaceuticals (Malaysia) SDN. BHD. Sanofi-Aventis (Malaysia) SDN. BHD. Sanofi-Aventis Maroc Sanofi-Aventis de Mexico S.A de CV Sanofi-Aventis Winthrop SA de CV Sanofi Pasteur SA de CV Sanofi-Aventis Pakistan Ltd Sanofi-Aventis de Panama S.A. Sanofi-Aventis Latin America SA Sanofi-Aventis del Peru SA Sanofi-Aventis Philippines Inc Sanofi-Aventis de la Republica Dominicana S.A. Sanofi-Aventis Singapore Pte Ltd Aventis Pharma (Manufacturing) PTE LTD Sanofi Taiwan Co Ltd Sanofi Winthrop (Thailand) Ltd Sanofi-Aventis Thailand Ltd Sanofi-Aventis Pharma Tunisie Winthrop Pharma Tunisie Sanofi-Aventis de Venezuela SA Sanofi-Synthelabo Vietnam Sanofi Vietnam Shareholding Company Japan Malaysia Malaysia Morocco Mexico Mexico Mexico Pakistan Panama Panama Peru Philippines Dominican Republic Singapore Singapore Taiwan Thailand Thailand Tunisia Tunisia Venezuela Vietnam Vietnam Financial interest (%) as of December 31, 2018 100.0 100.0 100.0 100.0 100.0 100.0 100.0 52.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 70.0 85.0 F.2. Principal investments accounted for using the equity method Financial interest (%) as of December 31, 2018 Infraserv GmbH & Co. Höchst KG Bristol-Myers Squibb / Sanofi Canada Partnership China Resources Sanjiu Sanofi Consumer Healthcare Ltd Bristol-Myers Squibb / Sanofi Pharmaceuticals Holding Partnership Bristol-Myers Squibb / Sanofi Pharmaceuticals Partnership Bristol-Myers Squibb / Sanofi Pharmaceuticals Partnership Puerto Rico Bristol-Myers Squibb / Sanofi-Synthélabo Partnership Bristol-Myers Squibb / Sanofi-Synthélabo Puerto Rico Partnership Regeneron Pharmaceuticals, Inc. Onduo LLC GlaxoSmithKline Consumer Healthcare, L.P. MCM Vaccine Co. MCM Vaccine BV Maphar Germany Canada China United States United States United States United States United States United States United States United States United States Netherlands Morocco 31.2 49.9 30.0 49.9 49.9 49.9 49.9 49.9 21.7 50.0 11.7 50.0 50.0 48.3 G/ Events subsequent to December 31, 2018 An amended global Immuno-Oncology Discovery and Development Agreement with Regeneron, effective from December 31, 2018, was signed on January 2, 2019 (see Note C.1.). F-118 SANOFI / FORM 20-F 2018 Design and production: English translation and language consultancy: Stephen Reynolds & Jane Lambert. Photo credits: Front cover: ©Tang Ming Tung/GettyImages – p .139 : ©Marthe Lemelle – p. 140 : ©Denis Fe´ lix – p. 141 to 154 : ©Frank Parisot. 54, rue La Boétie 75008 Paris – France – Tel.: +33 (0)1 53 77 40 00 – www.sanofi.com 

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