Sanofi Hikes Regeneron Stake

A drug-development deal could be worth $475 million over the next five years.
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Updated from 8:30 a.m. EST

Regeneron Pharmaceuticals

(REGN) - Get Report

shares climbed Thursday after French drugmaker

Sanofi-Aventis

(SNY) - Get Report

expanded a drug development partnership and tacked on another 15% ownership stake in the biotech firm.

Shares of Regeneron rose $4.30, or 25%, to $21.45 in recent trading.

Sanofi-Aventis is deepening its relationship with Regeneron at a time when large pharmaceutical firms are seeking to boost their investment in biotech firms as a way to offset the loss of key drugs to generic competition.

Sanofi-Aventis has been mentioned as a potential bidder for

Biogen Idec

(BIIB) - Get Report

, although the firm's CEO was quoted this week as saying that the cost of such a deal might be too high.

Under terms of today's deal, Sanofi will increase its stake in Regeneron to 19% from roughly 4%. Sanofi is purchasing 12 million shares of newly issued Regeneron stock at $26 each, a 52% premium to Wednesday's closing price.

On a conference call Thursday, Regeneron executives said Sanofi could increase its ownership stake to a maximum of 30% beginning four years after the stock purchase, according to terms of the new agreement.

For its new investment, Sanofi gains non-exclusive access to Regeneron technology that discovers and develops fully humanized antibody drugs. Regeneron has previously licensed this technology to

AstraZeneca

(AZN) - Get Report

.

The first drug from this collaboration, targeting IL-6 as a treatment for rheumatoid arthritis, has already begun human clinical trials, the companies said. A second drug will begin clinical development in 2008.

Sanofi will pay an $85 million upfront payment to Regeneron and up to $475 million in future research funding over the next five years.

If drugs from the collaboration are approved and launched commercially, the companies will share profits in the U.S. equally and split profits outside the U.S. Regeneron is also eligible for up to $250 million in milestone payments tied to non-U.S. sales.

Regeneron and Sanofi have an existing partnership to develop the cancer drug aflibercept, with trials under way in prostate and non-small cell lung cancer. Aflibercept is designed to work by cutting off the blood supply to tumors, similar to

Genentech's

(DNA)

cancer drug Avastin.

Regeneron said it expects to have about $650 million in cash after deal, and projects a burn rate of $50 million to $100 million a year -- potentially sustaining the company six to 12 years.

Sanofi shares were down 32 cents, or 0.7%, at $46.55 in recent trading.