German pharmaceutical company Bayer AG (BAYR.Y 0.14%) may soon have a new prostate cancer therapy called Xofigo in its drug pipeline. The Federal Cartel Office, Germany's antitrust authority, approved Bayer's purchase of the drug's co-creator , Norwegian biotech firm Algeta ASA (NASDAQOTH: ALGZF). Since 2009, Bayer and Algeta have been working together to develop Xofigo .
Algeta's board of directors had already given its blessing to a takeover bid made by the German drugmaker for $2.87 billion. The board urged shareholders to accept Bayer's offer of $59.20 a share, a higher offer than a bid made by the company last month. The offer price is 37% higher than Algeta's share value prior to the Nov. 25 perliminary bid .
Algeta's Chairman Stein Holst Annexstad stated that the offer is in line with the value of the company and provides shareholders with a substantial cash premium. The offer, which represents 14% of Algeta's outstanding shares, will be considered final once 90% of shareholders agree with the buyout .
Drug expected to strengthen Bayer's oncology unit
Xofigo received FDA approval in May 2013; in Europe, it was approved this past November. It's considered one of Bayer's top five new pharmaceutical products. The drug is a form of radiation treatment and an alternative to chemotherapy and meant for use by patients whose prostate cancer has spread to their bones. Bayer considers the drug a blockbuster – sales in the third quarter were $17 million and could reach $7.5 billion annually .
The acquisition of Algeta would boost Bayer's oncology segment, which currently has several cancer therapies that are in their early stages of development. For fiscal 2013's third quarter, the company reported sales of Xofigo of about $16 million . Bayer has high expectations for Xofigo, which is currently awaiting approval for use in earlier-stage cancer patients, and in other areas, like breast cancer.
The current arrangement between Bayer and Algeta involves both companies marketing the drug and splitting its sales 50-50 . Bayer has also shown interest in the development of Algeta's Thorium-227, which has found success as a new-targeted cancer therapy.
Acquisition presents opportunity to expand cancer therapies
By acquiring Algeta and majority control over Xofigo and the biotech's future cancer treatments, Bayer can expand its pipeline of innovative cancer therapies. Roche (RHHBY -1.70%), and its wholly owned subsidiary Genentech, have found considerable success with its extensive line of cancer treatments.
For the first nine months of 2013, Roche reported higher sales of 7% in its pharmaceuticals division, in part due to strong demand for several of Roche's cancer treatments. Sales of Avastin, used to treat ovarian cancer, rose an average of 13% across all markets.
New drugs Perjecta and Kadcyla, which treat breast cancer, were both launched last year. According to Roche's 2013 nine-month report, Perjecta has been well received by oncologists and has sold well in the U.S., Germany, and Switzerland. The drug has become the "new standard of care" for HER2-positive metastatic breast cancer, a more aggressive and fast-growing type of cancer. Kadcyla is the first antibody-drug conjugate approved to treat HER2-positive breast cancer. The drug is a new type of cancer therapy that specifically targets cancer cells and has fewer side effects .
My Foolish conclusion
If 90% of Algeta's shareholders agree to the deal, Bayer's takeover of the company could close by the first quarter of 2014. Bayer's higher offer for the company is no surprise given that Algeta's shares have rise about 100% throughout 2013. The acquisition should help Bayer expand its business and profit from the newer cancer treatments that are hitting the market.
