Washington Editor

Regeneron Pharmaceuticals Inc. and Sanofi-Aventis are collaborating to discover, develop and commercialize human therapeutic antibodies in a cash and stock deal potentially worth $1 billion.

Under the terms, Paris-based Sanofi is increasing its ownership of Regeneron from 4 percent to about 19 percent by purchasing 12 million of the Tarrytown, N.Y.-based biotech's newly issued shares at a cost of $26 per share, or $312 million. As part of the research agreement, which involves Regeneron giving the French vaccine and pharmaceutical maker access to its VelociSuite of technologies, Sanofi will make an $85 million up-front payment to Regeneron.

News of the deal sent shares of Regeneron (NASDAQ:REGN) soaring 23.1 percent, or $3.96, Thursday to close at $21.11.

In addition, Sanofi will provide research funding of up to $475 million over the next five years, with a payment of $75 million in the first year and $100 million per year in the following four years, said Regeneron CEO Leonard S. Schleifer.

That funding, he said during a Thursday conference call, is for the preclinical identification and validation of targets using Regeneron's technologies to discover antibodies and to bring them to the investigational new drug application stage.

Sanofi has the option to extend the research agreement for up to an additional three years, the firms said.

Under the deal, Sanofi has the exclusive option to co-develop with Regeneron each drug candidate in the collaboration portfolio. The firms will share the development costs. However, Schleifer said, "recognizing that Sanofi obviously has greater resources," the French firm will be funding drug candidate development costs up front, with Regeneron, "in the spirit of this being an equal partnership," reimbursing half of the development costs from its share of future profits.

The companies will share equally U.S. profits from the collaboration. Outside the U.S., profits will be split on a predetermined sliding scale with Sanofi's share ranging from 65 percent to 55 percent. If aggregate annual sales outside the U.S. exceed $1 billion, Regeneron could bank up to $250 million in milestone payments, Schleifer noted.

For any new product successfully developed as part of the collaboration, Sanofi will take the lead in commercialization activities and will consolidate the sales, while Regeneron will have the right to co-promote any products worldwide.

The first therapeutic agent under the collaboration is an antibody targeting the interleukin-6 receptor, which has started clinical trials in rheumatoid arthritis, Schleifer said. The second product is expected to be an antibody targeting delta-like ligand-4 (Dll4), which is slated to start clinical development in 2008.

The collaboration, Schleifer said, is "squarely in line" with Regeneron's strategy to develop a fully integrated biopharmaceutical enterprise with the capability to discover, develop and commercialize molecules.

"Along the way, we have recognized that we can't do this all ourselves, being a small biopharmaceutical company," he said. So, he added, the firm has formed strategic alliances to allow it to "optimize our capabilities and increase our pipeline."

"Nevertheless, we try to remember that, as working for our shareholders, we want to retain substantial economic interest in our product candidates," he said, calling the Sanofi deal a "fair sharing of that opportunity."

Regeneron's VelociSuite is a group of technologies that allows researchers to identify targets, validate them through mouse genetics, study mice with various genetic mutations and ultimately, discover antibodies in a rapid and efficient way. Included in that suite of technology products, Schleifer said, is the firm's VelocImmune technology, which "is a result of one of the largest genetic engineering projects ever taken."

The VelocImmune approach, he said, is applicable to both highly validated targets and novel targets.

"It's the goal of our collaboration to have a relatively equal and balanced portfolio for both validated as well as novel targets," Schleifer added.

He noted that Regeneron previously has licensed its VelocImmune technology to other firms in what he called "passive" collaborations. However, he said, the Sanofi deal is a "more important and active collaboration that we hope . . . will bring important molecules forward."

"What we are talking about today is a real expansion of our pipeline to not just VelocImmune, but our entire VelociSuite of technologies, and leveraging those technologies with the expertise of our research scientists and Sanofi's research scientists, and our joint development capabilities, our manufacturing capabilities and obviously, leveraging Sanofi's vast experience in the commercialization of important drugs."