UPDATED: Struggling Sanofi paying $1.8B to partner with Regeneron on immuno-oncology

Regeneron CEO Leonard Schleifer

A few months after conceding that its own in-house attempt to develop new cancer drugs had flopped, French pharma giant Sanofi ($SNY) will now let its close development partner Regeneron ($REGN) lead the way on a blockbuster collaboration on immuno-oncology--which includes an early-stage checkpoint inhibitor.

Sanofi is committed to pay at least $1.8 billion in the rich deal, including a $640 million upfront, $750 million of the first $1 billion in costs to reach proof-of-concept data, half of the $650 million tab for developing the PD-1 drug REGN2810, with another $75 million being reallocated to this deal from another pact.

The partnership also includes a special $325 million bonus milestone if they hit a high sales target.

The deal covers both monoclonal antibodies as well as bispecifics. Regeneron is taking the initial lead on research, giving Sanofi opt-in rights, then they will alternate development and commercialization responsibilities. Whoever takes the research lead will have the lead role on commercialization in the U.S.

"Beyond PD-1, other targets in preclinical development include antibodies to lymphocyte-activation gene 3 (LAG3) and glucocorticoid-induced tumor-necrosis-factor-receptor-related protein (GITR) and a programmed death-ligand 1 (PD-L1) inhibitor," Regeneron notes in a statement. "Finally, the collaboration is advancing bi-specific antibodies that target hematologic and solid cancers, either as mono therapies or in combination regimens with other immune modulating treatments." The pact does not cover chimeric antigen receptors, or CARs.

Regeneron shares surged 2.4% in early trading today, with Sanofi's stock up a notch as well.

Sanofi and Regeneron just made biotech history with a pioneering U.S. approval for a new PCSK9 cholesterol drug. But they're playing catch-up in immuno-oncology. Sanofi's cancer research chief departed with about 100 cancer drug staffers earlier in the year after the pharma giant acknowledged its inability to generate much traction in oncology R&D, another sign of a floundering R&D effort.

While Sanofi fumbled on its own, Bristol-Myers Squibb ($BMY) and Merck ($MRK) surged to the front of the field, nabbing the first round of approvals for checkpoint inhibitors Opdivo and Keytruda. Immuno-oncology in general, which includes a range of efforts aimed at spurring T cells generated by the immune system to attack cancer cells, has inspired a series of landmark deals, including Celgene's ($CELG) recent $1 billion buy-in at Juno Therapeutics (CAR-T and TCRs) and a host of collaborations. The Sanofi/Regeneron team will also be trailing a group of major league rivals that includes Roche, AstraZeneca and Novartis.

Regeneron CEO Leonard Schleifer, though, believes it's still early enough in the game for Regeneron and Sanofi to make a splash.

"For sure, combinations are going to rule the day technologically," Schleifer told The New York Times' Andrew Pollack. "There's plenty to be done in this field. There are lots of scientific breakthroughs to be made."

Geoff Meacham at Barclays says that Regeneron gets a lot in this partnership, with little to distinguish the PD-1 program from rivals. But it's also giving up a lot as well.

"Given the competitive intensity in the PD-1 space and the associated cost and complexity of development, we see the deal as beneficial related to REGN2810 – particularly given the paucity of tangible differentiation to date versus competing PD-1/PD-L1 agents; importantly, the deal also still allows Regeneron to book any US sales," Meacham notes. "However, the broader deal terms (stepped up R&D contributions on Regeneron's side relative to the prior mAb agreement) and inclusion of Regeneron's bi-specifics, appear to be giving up a lot given the promise REGN shareholders attach to the productivity and potential derived from the company's platform." 

Sanofi has been through turbulent times, but this new pact underscores its ongoing commitment to paying big sums in order to obtain the kind of innovation it needs to compete in the pharma world. This new pact, though, will test Regeneron's ability to vault ahead against a group of major league competitors who got started in this field years ago.

- here's the release from Regeneron

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