Bayer bags Algeta's cancer drug portfolio for $2.9B

Bayer CEO Marijn Dekkers

It took a half-billion-dollar sweetener, but Bayer has closed the deal to buy its cancer drug partner Algeta for $2.9 billion in cash. The buyout leaves Bayer with full control of the prostate cancer drug Xofigo along with a pipeline that includes a potential next-gen successor to the targeted radioactive therapy.

Norway's Algeta ended up negotiating a sales price that was 37% over the share price it had rung up just ahead of the bid--in line with the premiums that have been charged for biotech assets over the course of the year.

Sales of Xofigo are just getting started in the U.S. and Europe, but Bayer has confidently maintained that it can push the annual haul on this drug to more than $1 billion a year. Now, it may need to break the $2 billion mark to make this deal pay off. The radiation drug is designed to assist patients whose cancer has spread to the bone with a therapy that has fewer side effects than current standards of care.

Once word of Bayer's initial $2.4 billion offer became public weeks ago, analysts expected that Bayer would have to up its offer to the $3 billion zone if it expected to complete the acquisition. But a few have fretted that the company is paying a bit too much in the deal. Algeta had retained co-promotion rights for the drug in the U.S. and had been due royalties on sales in Europe.

"The takeover price ... appears to be a bit stiff," DZ Bank analyst Peter Spengler said in a note, according to Reuters.

Of course, premiums have been the norm in 2013, as biotech assets swelled in value. Bayer had to watch as Amgen ($AMGN) bought out its partner Onyx ($ONXX) for $10.4 billion, snagging rights on Nexavar and Stivarga. But this deal falls just inside Bayer CEO Marijn Dekkers' $3 billion limit on bolt-ons while keeping his promise to investors to beef up the drug business.

Xofigo (originally dubbed radium-223) relies on the pinpoint delivery of alpha radiation to combat cancer. In a late-stage study with 922 patients--which was ended early after the monitoring committee determined the drug had achieved the primary endpoint--the treatment extended overall survival by 44%, with patients living a median average of 14 months compared to 11.2 months in the placebo arm. The treatment also delayed painful bone metastases, reducing bone pain and offering a better safety profile, with a median 64% delay in the first "skeletal event" for patients. The improved safety data reflected what researchers had also seen in Phase II.

The buzz over Bayer's final price revolved entirely around Xofigo, which is to be expected. But biotech insiders are likely to speculate that Bayer also sees value in the work its collaborator was doing on new therapies. Algeta was zeroing in on combining thorium-227 with cancer-targeting antibodies for a next-gen pipeline. And Algeta's board clearly expected a premium for the experimental work as well as Xofigo.

"Having worked with Bayer since 2009, the Board of Directors is convinced of Bayer's commitment to establishing Xofigo (radium Ra 223 dichloride) globally, and maximizing its blockbuster potential," noted Algeta chairman Stein Holst Annexstad. "We are also pleased that Bayer intends to further invest in the potential of Algeta's Targeted Thorium Conjugate research platform."

Just don't expect much chatter about the pipeline as the analysts run the numbers today.

- here's the release

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