Sanofi-Aventis (SNY) continues to work on expanding its oncology portfolio with the company recently entering into an agreement to acquire TargaGen Inc. TargaGen, a privately-held US biopharmaceutical company, is focused on the development of candidates for the treatment of certain types of leukemia, lymphoma and other hematological malignancies and blood disorders.

Deal Could be Worth $560M

Per the terms of the agreement, TargaGen will receive $75 million once the transaction closes. Sanofi will make additional payments on the achievement of development milestones. Including the $75 million upfront payment, Sanofi could end up paying up to $560 million. The deal is scheduled to close in the third quarter of 2010.

Deal to Expand Oncology Pipeline

TargaGen’s lead pipeline candidate, TG101348, is an oral agent that is being developed for the treatment of patients with myeloproliferative diseases including myelofibrosis (MF).

TG101348 has completed a phase I/II study for the myelofibrosis indication and is scheduled to move into additional studies in the second half of 2010. In addition to the myelofibrosis indication, the oncology candidate has the potential to be studied for other hematological malignancies as well including polycythemia vera (PV).

Besides TG101348, TargaGen’s pipeline consists of other tyrosine kinases which are in pre-clinical development.

This is the second oncology deal to be signed by Sanofi in the last few weeks. Earlier in June, Sanofi entered into an agreement with privately-held biopharma company, Ascenta Therapeutics under which it gained access to several early-stage oncology agents.

Sanofi already has a wide range of novel agents in its oncology pipeline including BSI-201, alvocidib, and aflibercept among others. While some of these oncology candidates are being developed by Sanofi itself, others are being developed in collaboration with companies like BiPar Sciences, Regeneron Pharmaceuticals (REGN), Exelixis (EXEL), Micromet (MITI) and Merrimack among others.

Neutral on Sanofi

Our biggest concern for the stock is the high exposure to generic risk on many of its leading franchises, especially Lovenox. This concern is reflected in the Zacks Rank #4 (“Sell”) which indicates the near-term pressure on the stock.

However, on the long-term, we are Neutral on Sanofi. While new product launches should make significant revenue contributions in the early part of the decade, we expect the company to continue look to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products. This should help keep earnings at positive, albeit modest, growth over the next few years. We also expect the company to grow revenue through additional partnering deals and acquisitions.

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