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Regeneron Pharmaceuticals

A rivalís success and an improving environment for biotech bode well for a struggling firm.

The Case: After a long hiatus, pharmaceutical companies are taking early-stage partnership risks again. But when they do, theyíre hedging their bets by looking at successes elsewhere. This framework helped the chips fall into place for Regeneron, a biopharmaceutical company that recovered from critical condition with the help of a white knight and a successful rival.

Of the basketful of biotechnology partnership deals announced last fall, Regeneron Pharmaceuticalsí half-billion-dollar collaboration with the pharmaceutical company Aventis stands out for one reason: thatís a ton of money for Aventis to spend on a drug in such an early phase of testing.

The deal gives Aventis 50% of the market rights to Regeneronís leading oncology candidate, an angiogenesis inhibitor in Phase I. While most of the money is to be paid when Regeneron meets certain milestones, the initial $125 million outlay is still a significant amount of cash. More striking, Aventis has promised to pay all clinical development costs for multiple disease targets. (Regeneron will reimburse Aventis for some of the investment if the product reaches the market.)

“Aventis is making a significant up-front payment and taking most of the risk,” says James Mullen, CEO of Biogen Idec, a leading company in the sector. “Itís a sign of how hard it is to find good late-stage products that they were willing to pay that amount” for an early-stage drug.

Pressure is rising on pharmaceutical companies to fill their pipelines, since the next several years will see a wave of blockbusters coming off patent. At the same time, biotechnology products have begun to prove themselves in the market. More than half of all drugs before the U.S. Food and Drug Administration in 2003 were biologics. Other alliances announced in September—including Rocheís $150 million deal with Memory Pharmaceuticals and Amgenís $612 million partnership with Biovitrum—signal the swelling attraction of biotech products.

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