Hailed as the largest outsourcing partnership between a contract research organization (CRO) and a pharmaceutical company, Covance and Sanofi-aventis have signed a 10-year agreement in which the CRO will provide France’s largest pharmaceutical company with a wide range of research and drug development services, and receive between $1.2 billion and $2.2 billion in revenue.

Under the partnership, Covance will also purchase Sanofi’s laboratory sites in Porcheville, France and Alnwick, U.K. for $25 million and agree to maintain employment at those facilities for at least the next five years. Those labs will provide a mix of chemistry, drug metabolism, toxicology and chemistry manufacturing and control (CMC) services. The CMC services are new to Covance, said CEO Joe Herring, and they include drug formulation, pre-clinical and early stage API manufacturing and radio-labeled chemistry capabilities.

“The Sanofi-aventis-Covance deal is the largest and most comprehensive drug development alliance in industry history so far,” Herring said Thursday during a Wall Street conference call.

“We also believe that transformational relationships of this nature are the catalyst for driving R&D outsourcing from today’s 30% level to 50-to-70% in the coming years. These sorts of relationships can lower both time and cost of drug development and enable continued investment and innovation, which is the lifeblood of the pharmaceutical industry.”

For Covance, the Sanofi-aventis deal marks its second major partnership with a large pharmaceutical company. Two years ago it acquired Eli Lilly’s large early drug development campus in Greenfield, Ind., which was operating at half capacity.

That deal, a 10-year, $1.6 billion agreement, called for purchase of the Lilly research facility and clinical testing for the Indianapolis-based pharmaceutical company. The partnership enabled Covance, already a leader in the clinical laboratory business, to enter new preclinical specialty market segments including in vivo pharmacology, non-GLP toxicology and non-clinical imaging, which were not in the company’s portfolio of services.

“There are a lot of similarities between the two,” said Herring, comparing the Eli Lilly and Sanofi-aventis deals, declining to be more specific.

For Sanofi, which is facing the loss of patent protection on five of its eight best-selling drugs by 2012 and a recent drug failure in advanced clinical trials, the Covance deal will help reduce costs and improve profitability. In 2009, Sanofi generated $40.8 billion in sales. Currently it has made a bid to acquire biotech Genzyme for $18.5 billion.

“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 Marc Cluzel, Sanofi’s executive vice president of research and development. This alliance, he added, will help drive “our R&D efficiency.”

Sanofi-aventis CEO Chris Viehbacher also told investment analysts in Paris that the company has “significantly downsized its R&D operations” and that its R&D “is still a work in progress and probably will take a number of years to get it right.”

As for the CRO industry, Herring said it is in a very good position, but can only go so far.

“These are unprecedented times for the pharmaceutical industry, and the CRO industry is not going to save any pharma company,” he said. “But deals like this are certainly part of the solution.”

—Ronald Rosenberg