UPDATE 1-Cerep in diabetes licensing deal with Sanofi

* Cerep signs diabetes licensing deal with Sanofi

* Deal triggers undisclosed milestone payment

(Adds detail from statement, background, share prices)

PARIS, Dec 10 (Reuters) - Cerep CERF.PA has signed a licensing agreement with the world's third-largest drugmaker, Sanofi-Aventis SASY.PA, for a jointly discovered diabetes treatment, triggering an undisclosed milestone payment.

The deal relates to the NPY1 receptor antagonist, which is in pre-clinical development for the treatment of type-2 diabetes, the most common type of diabetes that mainly affects obese people, Cerep said in a statement on Wednesday.

Cerep will receive a milestone payment and be reimbursed for certain expenses, it said. Other payments are linked to the development of the drug, including royalties on sales if it reaches market.

No one was immediately available for further comment at Cerep, which helps drugmakers discover and develop drugs with its technology of in-vitro screening.

“No drug with such mechanism of action is commercialised to date,” Cerep Chairman and Chief Executive Thierry Jean said in the statement. “This innovative status is certainly a competitive advantage for our candidate.”

France’s Sanofi needs to find new drugs that can help make up for sales of several of its key drugs lost to generic competition.

The molecules identified through the collaboration that began in 1998 have been patented by Cerep, which transferred the drug candidate to Sanofi in 2006.

Cerep shares rose as much as 8.4 percent in early trade, giving the company a market value of 26 million euros. The stock has lost nearly 50 percent this year.

Sanofi shares were little changed. (Reporting by Caroline Jacobs; Editing by James Regan)