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Cancer patients have seen a wide range of new therapies hit the market in the last few years. From Seattle Genetics antibody drug conjugate approach to immunotherapies from Bristol-Myers, to advanced hormone therapies from Johnson & Johnson (NYSE: JNJ ) and Medivation (NASDAQ: MDVN ) . Overall, investors, companies, and patients have seen some major advances in the oncology space. Now Bayer (NASDAQOTH: BAYRY ) is stepping up to take full control over a potential new blockbuster in prostate cancer, and a new way of attacking cancer altogether.
Bayer and Norwegian biotech Algeta announced on Thursday morning that the two companies agreed to a proposal whereby Bayer will acquire the company for NOK 362 per share, or about $2.9 billion in cash. That's a meaningful upgrade to Bayer's November offer of NOK 336, not to mention a 37% premium to where Algeta traded the day before that preliminary offer was made.
These two companies are hardly strangers. A little more than four years ago, they partnered to market the drug now known as Xofigo, a radium-223 agent that fights prostate cancer that has metastasized into the bones. Even then, it was clear that both companies thought highly of the drug, as Algeta secured 50% co-promotion rights in the U.S. and 20% royalties for ex-U.S. sales.
What Bayer is getting
The centerpiece to the deal is Xofigo, a new and differentiated prostate cancer drug that is actually a radiopharmaceutical (radium-223). Radium is chemically similar to calcium and is readily taken up bone cells, particularly osteoblastic bone metastases (basically bone tumors). Radium is also an alpha emitter, and alpha radiation is extremely damaging to cells, but very localized in effect (only about two to 10 cells in distance). This basically means that Xofigo can deliver power radiation therapy right to the cancer, with minimal damage to surrounding tissue (radium-223 not taken up by the bones, flushes out of the body very quickly).
Clinical studies of Xofigo have shown a survival benefit of between three and four months, making it not quite as effective as the advanced hormone therapies Zytiga (Johnson & Johnson) and Xtandi (Medivation), but more effective than Sanofi's Taxotere or Jevtana. Better still, the toxicity and side effect profile is appealing; there are definitely side effects to Xofigo, but they compare well to Zytiga, Xtandi, and Jevtana.
Just as important, Xofigo can be used in the 50% or so of patients who are ineligible for chemotherapy. Bayer and Algeta have already positioned Xofigo as a front-line therapy for patients ineligible for chemo, but the company is pursuing a combination study with Zytiga and I see no reason to believe that combo therapy or staged therapy (Xofigo after Zytiga/Xtandi) won't be a valid approach, although pricing Xofigo (around $69,000) could be a limiting factor.
I believe Xofigo could become a $2 billion drug in prostate cancer, and I also believe that there is a credible chance (at least 40%) of follow-on applications in other metastatic cancer types like breast cancer. These follow-on indications could add another $500 million in potential sales.
Harnessing the power of Thor(ium)
I expect that Xofigo will stand next to Xtandi and Zytiga as a significant treatment option for prostate cancer, but Xofigo may end up only being a part of the value Bayer gets. Algeta has an early stage pipeline that I believe is very exciting, as it is a collection of antibodies conjugated to thorium-227. Thorium is another alpha-emitter and by attaching it to an antibody, the resulting "armed antibody" could offer an even more potent cancer-killing approach, with a good safety profile.
This all has yet to be proven, of course. It's also worth mentioning that radiopharmaceuticals aren't exactly a new approach (though the antibody conjugate approach is new); Covidien, Bayer, and GlaxoSmithKline have all brought radiopharmaceuticals to market, but they haven't made much of a revenue contribution.
The bottom line
If things go well with Xofigo and Algeta's pipeline, the ultimate value from this deal to Bayer could be as much as 50% greater than the price Bayer is paying today. The word "could" is dangerous, of course, and Xofigo may well not catch on and/or the pipeline may fail to develop. It looks like a worthwhile gamble, though, and Bayer may have just added some exciting weapons to its oncology arsenal.
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