Inking the deal makes Covance Sanofi’s research and development partner. Covance has also acquired Sanofi sites in Porcheville, France and Alnwick, UK for $25m and will maintain employment at these facilities for at least the next five years.
Covance will provide Sanofi with discovery support, toxicology, chemistry, Phase I to IV, central lab and market access services. The deal includes a 10-year sole-source relationship for central lab services. Covance currently performs less than 50 per cent of Sanofi’s central lab work.
An initial $1.2bn will be added to Covance’s backlog in the third quarter. The remaining revenues are accounted for by central lab work and other long-term commitments. Of the service proportion of the deal, 75 per cent of revenue is for late stage work such as central lab and Phase III.
Outsourcing at Sanofi
In a call with investors Herring said Sanofi was a relatively small client, generating revenues of $35m in 2009, most of which was for central lab work. Herring said revenues from Sanofi will ramp up in the next few years but no clients will contribute more than 10 per cent of total sales.
Sanofi has traditionally outsourced relatively little, said Herring, but this has changed as Chris Viehbacher, CEO at the big pharma, has sought to restructure research and development operations.
Part of this effort is shifting away from using a large number of CROs. Herring said biopharm is discovering savings made negotiating outsourcing deals individually are negated by the overheads and complexity created by managing relationships with many different CROs.
In a conference call with investors Herring said both sites have been well maintained and require little investment, other than $12-15m to implement Covance’s IT system. Maintenance costs are the only other expected infrastructure outlay.
Covance believes the acquired assets can be commercialised and will begin defining its strategy once it has dealt with administrative tasks at each site. Herring said “to some degree there is pent up demand” for the chemistry, manufacturing and control (CMC) capacity the sites give Covance.
Birth of the deal
A small team of senior Sanofi executives visited Covance in February to open a dialogue. In the autumn of 2009 the sites in Porcheville and Alnwick were discussed as Covance and Sanofi sought to establish how they could help each other.
The structure of the deal was created over a few months and a memorandum of understanding signed in spring 2010. More than 100 Covance employees have been working on the transaction.