OSLO, Norway—In what could be a bit of a spin on “If you can’t beat ‘em, join ‘em,” it may be that the Bayer Group just did a move that could best be described as “If you don’t wanna pay ‘em, buy ‘em.” Specifically, Bayer put out an offer to acquire one of its oncology partners, Algeta ASA—with whom Bayer is partnered on the oncology drug Xofigo—and the Norwegian company’s board of directors recently announced that the two companies have signed an acquisition agreement, as well as recommended that its shareholders accept the offer.
The deal will be transacted through Aviator Acquisition AS, a wholly owned subsidiary of Bayer Nordic SE, which will launch a voluntary cash offer to acquire the entire issued share capital of Algeta for NKr362 per share in cash. That offer values Algeta at approximately NKr17.6 billion (about $2.9 billion) on a fully diluted basis.
The offer price represents a 37-percent premium to Algeta's closing share price on Nov. 25 and a 48-percent premium to the three-month volume weighted average stock price as of that date, the last trading day prior to the announcement of Bayer's preliminary acquisition proposal.
“The board of directors of Algeta has undertaken a careful review of the terms and conditions of the offer. We believe the offer recognizes the strategic value of Algeta and delivers a considerable cash premium to our shareholders,” said Stein Holst Annexstad, Algeta’s board chairman, in a statement. “Having worked with Bayer since 2009, the board of directors is convinced of Bayer's commitment to establishing Xofigo globally and maximizing its blockbuster potential. We are also pleased that Bayer intends to further invest in the potential of Algeta's Targeted Thorium Conjugate (TTC) research platform.”
In May, the U.S. Food and Drug Administration approved Xofigo (radium Ra 223 dichloride) to treat men with symptomatic late-stage (metastatic) castration-resistant prostate cancer that has spread to bones but not to other organs. Likewise, in November, Bayer received marketing authorization from the European Commission for Xofigo for the treatment of adults with castration-resistant prostate cancer, symptomatic bone metastases and no known visceral metastases. That latter marketing authorization paved the way for commercialization of Xofigo in all 28 countries of the European Union, and in Norway, Iceland and Liechtenstein following national approval.
“Prostate cancer is the commonest cancer in men, and often spreads to the bones,” said Dr. Christopher Parker, principal investigator of the Phase 3 ALSYMPCA trial that resulted in the EU approval and consultant clinical oncologist at the Royal Marsden NHS Foundation Trust, and honorary reader in prostate oncology at the Institute of Cancer Research in London. “Bone metastases lead to pain, fracture and other complications that can significantly impair the patient's health and well-being. Xofigo targets bone metastases, delivering a localized effect to offer patients prolonged survival, making it an exciting advance in the treatment of this cancer.”
With a multibillion-dollar franchise likely on the horizon for a drug that treats one of the most common cancers around, some market-watchers, like Todd Campbell at the Motley Fool, note that partnerships around blockbusters can become pricey, so it’s likely that Bayer found the prospect of $2.4 billion much less onerous than splitting profits down the middle and paying out royalties to Algeta over the long run.
“Bayer estimates that Xofigo and four other emerging drugs in its pipeline could generate as much as $7.5 billion in combined peak annual sales. That has analysts projecting Xofigo sales could reach $940 million by 2018,” Campbell wrote shortly after Bayer announced its desire to acquire Algeta. As for the timing of the deal, he noted that “Bayer would likely hope to wrap up a deal for Algeta sooner rather than later in order to avoid paying out milestones tied to EU approval and profit tied to growing sales in the U.S. Bayer handed over a $64.5 million milestone payment for U.S. approval in May.”
Subsequent to Algeta actually accepting Bayer’s acquisition terms, Stephen D. Simpson at the Motley Fool wrote, “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 percent) of follow-on applications in other metastatic cancer types like breast cancer. These follow-on indications could add another $500 million in potential sales.”
Near the end of November, Zacks Investment Research wrote in an investor note of the Algeta acquisition offer that Bayer had been pretty active on acquisitions and collaborations in 2013, “especially to boost its oncology portfolio,” and went on to say, “We are encouraged by the company’s efforts to boost its oncology portfolio by acquisitions and collaborations. However, companies like Roche have a strong presence in the oncology market at this moment.”
DZ Bank analyst Peter Spengler wrote in a note, “We do not see potential at Algeta justifying such a high takeover price,” though he conceded that forthcoming information after the acquisition might yield “some hidden value.” Other analysts countered that the bid actually seemed low, since large pharmas often pay a 50-percent to 60-percent premium to acquire biotechnology companies.
Prior to Algeta’s acceptance of its German partner’s acquisition offer, Andrew Baum, a pharmaceutical analyst with Citigroup, wrote in a note that “Bayer always seemed to us the natural eventual acquirer for Algeta given its global collaboration,” and also mentioned that “Given the potential levers for upside, we believe there is room for modest nudging up of the take out price.” And, in fact, the final offer did rise from the initial one of NKr336 per share.
Algeta's largest shareholder, HealthCap IV, has pre-accepted the offer for all shares that it owns based on certain terms and conditions. In addition, Bayer has received undertakings from each of the directors and certain senior managers holding shares in Algeta to tender their shares, subject to certain conditions. The total shares subject to these several commitments represented approximately 14 percent of Algeta's issued share capital.
The complete details of the offer, including all terms and conditions, will be included in an offer document expected to be distributed to Algeta shareholders this month, following approval by the Oslo Stock Exchange. The consummation of the offer is subject to satisfaction or waiver of customary conditions, including, without limitation, a minimum acceptance of at least 90 percent or such lower percentage (not being less than 50 percent) of the outstanding Algeta shares as Aviator Acquisition AS determines, regulatory approval by German competition authorities being obtained and no material adverse change having occurred in Algeta. Bayer will finance the transaction with available cash and new debt, and it expects to close the deal during the first quarter of 2014.