Sanofi SA (NASDAQ:SNY) and Teva Pharmaceutical Industries Ltd (NYSE:TEVA) have collaborated to co-develop and co-commercialize asset TEV ‘574.

TEV ‘574 is currently in Phase 2b clinical trials for ulcerative colitis and Crohn's disease, two types of inflammatory bowel disease.

Under the terms of the new collaboration agreement, Teva will receive an upfront payment of €469 million ($500 million) and up to €940 million ($1 billion) in development and launch milestones. 

Each company will equally share the development costs globally and net profits and losses in major markets, with other markets subject to a royalty arrangement.

Sanofi will lead the development of the Phase 3 program and commercialization in North America, Japan, other parts of Asia, and the rest of the world. 

Teva will lead product commercialization in Europe, Israel, and specified other countries.

Initial program results are expected to be available in 2024.

Prolonged inflammation results in damage to the GI tract. The common symptoms for both conditions are persistent diarrhea, rectal bleeding, abdominal pain, fatigue, and weight loss. An estimated ~10 million people worldwide live with inflammatory bowel disease.

Phase 3 trials are not expected to begin until 2025, and Teva CEO Richard Francis said the best-case scenario for the drug's commercial launch would be around 2028.

"The fact that they've done their due diligence on our anti-TL1A asset ... and to put up $1.5 billion, as well as allow Teva to retain 50% of the worldwide economics once it's launched, I think shows that they believe in the asset," Francis told Reuters.

Francis estimated the IBD market at nearly $30 billion and said many patients do not respond to current treatments. As such, "we believe it will be a multi-billion-dollar asset. We will know that better as we get closer to market. Right now, we believe it is the best TL1A in development," he said. 

Price Action: TEVA shares are up 1.46% at $9.74 during the premarket session on the last check Wednesday, and SNY shares are up 0.80% at $54.01.