Bayer Ups Offer for Algeta to $2.9 Billion

Andrew Klips  |

It’s going to cost an extra half-a-billion dollars, but German drug giant Bayer AG (BAYRY) said Thursday that has reached an agreement to acquire its Norwegian-based partner Algeta for $2.9 billion.  On November 26, Bayer put a preliminary offer on the table of $2.4 billion, but apparently that wasn’t quite enough to win Algeta board approval.  With the sweetened, all-cash proposal, the Algeta board has unanimously approved the offer.  The purchase price represents a 37-percent premium to the closing price of Algeta, which trades on the Oslo Stock Exchange, on November 25, the day before the deal became public knowledge.

Cancer specialist Algeta is headquartered in Oslo and has a U.S. subsidiary (Algeta US LLC) that is based in the heart of biotech central, Cambridge, Massachusetts.

The acquisition will give Bayer complete control of radium-223 dichloride, a prostate cancer drug Bayer and Algeta partnered on to develop in 2009 that is now branded as Xofigo.  The U.S. FDA approved Xofigo in May based on trials showing that patients receiving the therapy lived an average of 14 months compared to 11 months for those receiving a placebo.  The European Medicines Agency followed in November with marketing clearance.  Under their current arrangement, Bayer is doing most of the heavy lifting with development, applications for approval and commercialization while splitting profits from U.S. sales and paying royalties to Algeta for international sales.

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“We are absolutely convinced of the potential of this drug and the underlying technology to provide patients with innovative treatment options," said Bayer CEO Dr. Marijn Dekkers in a statement this morning.

Bayer considers Xofigo, an alpha-particle-emitting radioactive therapeutic agent, to be one of its top five recently launched drugs that it believes can cumulatively rack-up sales in excess of $7.4 billion annually.  The company expects Xofigo alone to have peak sales in excess of  $1.37 billion annually if it can garner approvals for other indications.  Officially, Xofigo is currently approved for the treatment of patients with castration-resistant prostate cancer, symptomatic bone metastases and no known visceral metastatic disease.  During the third quarter, U.S. sales of Xofigo were about $17 million.  A full treatment of Xofigo (6 doses) costs $69,000.

In addition to Xofigo, Bayer intends to further explore Algeta's Thorium platform that has successfully been established as a potential novel form of targeted therapy, according to Stein Holst Annexstad, chairman of Algeta.  The therapy selectively delivers alpha particles to tumors, destroying the cancerous cells while not harming healthy tissue surrounding them.

When the deal was first reported, it drew both criticism and praise from analysts with some saying that the price is too high and others highlighting the growing need for new anticancer therapies and cost-saving synergies.  The move by Bayer gives it control of a unique approach to treat cancer outside of traditional small molecules and immunological pathways that many drug makers are pursuing.  From a broader perspective, the deal is emblematic of a growing trend of big pharma to acquire small biotechs (Algeta only has 180 employees) with promising technologies, rather than starting from scratch by discovering new drugs on their own.  As majors continue to slash R&D resources, look for this trend to continue.

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