Sanofi-Aventis Inks 10-Year R&D Services Deal with Covance

French pharmaceutical company Sanofi-Aventis (SNY), which has been unsuccessful in its recent courtship of U.S. biotech giant Genzyme (GENZ), announced Thursday it signed a 10-year agreement with Covance (CVD) under which the Princeton, N.J.-based contract research firm will provide it with drug development services. Sanofi-Aventis will pay Covance between $1.2 billion to $2.2 billion.

In an attempt to improve productivity and lower research costs, Sanofi will utilize Covance's global R&D portfolio of services in discovery support, toxicology, chemistry, clinical trials, central laboratory and market access. It's annual commitments for these services are expected to increase over the decade.

As part of the deal, Covance will acquire Sanofi's Porcheville, France, and Alnwick, U.K., facilities for approximately $25 million, and will maintain employment at the sites for at least the next five years. That transaction is expected to be completed before the end of the year.

"A key strategy for Sanofi-Aventis is to transform its R&D model and discover new medicines through the use of novel technologies and innovative partnerships," said Sanofi's R&D boss, Dr. Marc Cluzel. "This alliance with Covance will help us preserve hundreds of valuable jobs in Porcheville and Alnwick, while driving our R&D efficiency for the benefit of the patients."

Still Unable to Bring Genzyme to the Table

Ever since CEO Chris Viehbacher took over Sanofi some two years ago, the Paris-based company has been on a quest to focus on key products, reduce costs and improve profitability. But that won't be enough: Sanofi will also need help in replacing soon-to-be-lost revenues and bolstering its drug pipeline. Five of its eight best-selling drugs will lose patent protection by 2012, exposing them to generic competition. Further, the company just suffered a pipeline setback when another promising drug failed to deliver in clinical trials.

Unable to improve its drug lineup internally, Sanofi has been seeking to boost it by acquiring rare-disease drugmaker Genzyme. But that plan has hit a few snags, the primary one being the large gap in price between what Genzyme thinks it's worth and what Sanofi is willing to pay. Sanofi recently offered $69 a share, a bid that that was immediately rejected, with Genzyme CEO Henry Termeer calling it "opportunistic." Genzyme's stockholders may be seeking $80 a share or more, although analysts have suggested a compromise of around $75 a share could be reached.

Meanwhile, Bloomberg reported Wednesday that despite previously saying it wouldn't bid higher than $70 a share, Sanofi is weighing the idea of sweetening its takeover offer by $1 or $2 more in order to at least lure Genzyme to the negotiating table.

Sanofi and Genzyme shares were flat in premarket trading, while Covance's shares jumped about 9%.