Thursday, November 29, 2007

Sanofi Aventis Walks the Talk

Sanofi Aventis had already promised at their September R&D meeting that they wanted to increase the number of biologics in their pipeline, and to be “more proactive” in business development. Today they showed that they meant it, by announcing a wide-ranging fully-human antibody collaboration with Regeneron.

Sanofi will pay Regeneron $85 million up front and up to $475 million in research funding over the next five years ($75 million in the first year and up to $100 million in years 2-5), during which time Regeneron will lead research efforts across a range of antibodies, developed using its VelociSuite of technologies. At IND-stage, Sanofi has the option to co-develop candidates identified within the collaboration, and if it chooses to do so, will take the lead and foot most of the cost.

Indeed, although the press release describes development costs as “shared”, Regeneron will only pay its portion if the candidate is successful. “We’ll fund 100% of Phase I and Phase II,” said Jean-Michel Levy, SVP Business Development, and 100% of the Phase III costs in the first indication. Additional Phase III trials would be 20% funded by Regeneron, and the biotech will “reimburse half of the overall development costs from its share of future profits to the extent that they are sufficient for this purpose,” according to the release.

Will they be? Well, Regeneron will receive 50% of profits in the US, although Sanofi will lead commercialization and consolidate sales. Elsewhere, the smaller party will receive between 35% and 45% of the profit pie, although its co-promote option—still a popular deal feature these days, even though there are signs that might change—is on a worldwide basis. If aggregate sales reach $1 billion, Regeneron will be entitled to up to $250 million in sales milestones (which would help with the development-cost pay-back…)

Big Pharma laying rich stakes in antibodies is hardly a new concept; we’ve tracked the trend extensively, including here. What’s perhaps more surprising is that this is but a licensing deal. Granted, Sanofi has increased its 4% stake in Regeneron to 19%, for $312 million. But a standstill agreement prevents it from increasing its share beyond 30% four years hence.

By that time, it’ll be clearer whether the deal’s as productive as Sanofi needs it to be. The most advanced candidate, targeting the IL-6 receptor, has already begun clinical trials in rheumatoid arthritis and a follow-on antibody to Delta-like ligand-4 (an anti-angiogenic approach) should reach the clinic next year. The deal’s potential output “will reinforce our presence in oncology and internal medicine” (including RA), noted Jean-Claude Muller, SVP, Admin and Resources, “but it’s not limited to these areas. Any target coming out will help our portfolio.”

Indeed, Sanofi’s a bit desperate these days, following the rimonabant (Acomplia) flop and a large patent expiry cliff due at the end of 2012. So why didn’t they just buy Regeneron? Management didn’t answer that question on the call. Perhaps they don’t think exclusive rights to the technology are necessary--Regeneron in February this year licensed its technology, for the first time ever, to AstraZeneca, and shortly after to Astellas. “We don’t expect this deal to have any impact on those arrangements,” Sanofi said.

Besides, Regeneron hasn't got a drug on the market yet. And Sanofi already has a large stake, through a 2003 collaboration, in Regeneron's most advanced program, VEGF Trap (aflibercept), which began Phase III trials in prostate and non-small-cell lung cancer in August.

Sanofi may feel it doesn't need to spend billions of dollars (Regeneron’s market capitalization was about $1.1 billion this morning, although well short of its Spring peak) buying a group that may work better as a standalone. It wouldn't be the first time the Roche/Genentech-style model has been emulated. And anyway, with Sanofi holding a 19%-plus stake, any other predator’s going to struggle.

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