Sanofi hands over R&D site, $310M to Evotec in a cross-cutting alliance

Sanofi ($SNY) has pulled back the curtain on its plans for R&D in the post-Chris Viehbacher future, outlining a deeply intertwined relationship with German outsourcer Evotec designed to help the company cut costs as it shares the risks and rewards of building out its pipeline.

The alliance, which the two companies plan to finalize in the first half of next year, will see Sanofi hand over at least €250 million ($310 million) over 5 years to its new partner, unload an R&D operation it had once hoped to shutter, and forge a wide-ranging pact that will tie its fate to Evotec's on the discovery front.

Under the agreement, Evotec will do the early-stage heavy lifting on a slew of Sanofi's discovery-stage compounds, mostly in oncology, advancing them to preclinical development. At that point, Sanofi will have the option to take over each project or, with Evotec's help, find an outside partner to join the effort. Separately, Sanofi has agreed to bankroll Evotec's "scouting" system, through which it vets scientific endeavors from around Europe with an eye toward licensing.

Evotec, which currently employs about 650 scientists, says it will need some bigger artillery to handle all that work. And thus its new partner has agreed to throw in a state-of-the-art discovery facility, located in Toulouse, France, with more than 200 researchers to boot. The Toulouse outpost has typified Sanofi's struggle with French regulators, as the company has been repeatedly thwarted in its attempts to shut it down and shed its payroll. Now, by placing it in the hands of Evotec, Sanofi believes it has found a win-win solution that will appease labor groups and President François Hollande's administration.

Finally, Sanofi is buying big into Evotec's business, which relies in part on screening its clients' disease targets against a sizable library of chemical compounds. In a move the drugmaker heralds as groundbreaking, Sanofi is handing its own compound library en masse to Evotec, creating a combined pool of roughly 1.7 million potential drugs. The pair plan to make their library available to Evotec's clients and partners, with Sanofi getting an undisclosed cut of any hits that become treatments.

Elias Zerhouni, Sanofi's global R&D chief

Zooming out, the broader goal is to improve Sanofi's developmental efficiency, R&D President Elias Zerhouni said, maximizing the strengths of each company and falling in line with the drugmaker's long and prosperous relationship with the more creative Regeneron ($REGN).

"Open innovation is a key driver of Sanofi's strategy," Zerhouni said in a statement. "We believe Evotec will be an ideal partner, a company that fits our quality expectations and our strategic vision. Our collaboration will secure the future for our employees in Toulouse and importantly accelerate our pipeline productivity."

Evotec splits its business into two halves: EVT Execute, which operates like a CRO, and EVT Innovate, which outlicenses internally developed candidates. The former half largely pays the bills, thanks to risk-sharing deals with the likes of Bayer, Johnson & Johnson ($JNJ) and Roche ($RHHBY), but Evotec has taken strides to build up its internal efforts through acquisitions and licensing agreements. The coming Sanofi deal, by bringing in new pipeline candidates and new capabilities, will benefit all aspects of Evotec's operations, CEO Werner Lanthaler said.

"This collaboration is a major milestone in the drug discovery space and accelerates Evotec's strategy to become the leading drug discovery partner to the pharma and biotech industry as well as academia," Lanthaler said in a statement.

The deal follows similar moves by Biogen Idec ($BIIB) and Merck KGaA, each of which brought in Quintiles ($Q), the world's largest CRO, to take a seat at its R&D decision-making table in a capacity that far outpaces the standard sponsor-contractor relationship. The goal for those companies, as for Sanofi, was to make the costly process of drug development more efficient by splitting the burden with an expert.

- read the announcement (PDF)

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