Bayer AG (BAYN) agreed to buy Algeta ASA (ALGETA), its partner on the prostate-cancer medicine Xofigo, for about 17.6 billion kroner ($2.9 billion) to gain control of the drug and experimental radiation therapies.
Bayer will begin an offer to buy Algeta shares at 362 kroner each, the Leverkusen, Germany-based company said in a statement today. Algeta said last month it had received a preliminary offer from Bayer for 336 kroner.
Acquiring Oslo-based Algeta means Bayer wouldn’t need to share earnings or pay royalties on Xofigo. That will probably boost margins in Bayer’s drugs unit, even as the deal gives it access to the even newer, targeted-radiation therapies in Algeta’s pipeline, said Odile Rundquist, a Geneva-based analyst for Helvea SA.
“It’s definitely a good deal,” said Rundquist, who has a buy recommendation on Bayer stock. Xofigo’s annual sales could reach 1.1 billion euros ($1.5 billion), she estimated.
Bayer is funding more clinical trials for Xofigo, which was approved in the U.S. in May and in Europe last month. The drug is among new therapies Bayer has tapped as sources of growth as earnings gains slow at its plastics division.
“We are absolutely convinced of the potential of this drug and the underlying technology,” Chief Executive Officer Marijn Dekkers said in the statement.
Bayer rose 1.1 percent to a record 99.40 euros in Frankfurt. Algeta gained 1.4 percent to 358.6 kroner in Oslo. The purchase price is 37 percent above Algeta’s closing level on Nov. 25, the day before the Norwegian company said it was in talks with Bayer.
Algeta’s board recommended the offer unanimously, the company said in a separate statement. The offer is contingent on acceptance by investors holding 90 percent of the shares, the companies said. Owners of 14 percent of the stock, including members of the board, senior executives and the biggest shareholder, HealthCap IV, have agreed to accept the bid, Algeta said.
Beyond Xofigo, the Norwegian biotechnology company is working on a technology called thorium-227, which would make it possible to link an alpha-particle radiation therapy with a monoclonal antibody. The antibody would essentially give the radiation treatment a piggyback ride into the center of a cancer cell, allowing it to attack cancer with fewer side effects.
“This is a brand new class of cancer therapeutic,” Algeta CEO Andrew Martin Kay said in a telephone interview. “This offer by Bayer recognizes the strategic value of Algeta as a whole.”
Bayer’s bid values Algeta at about 31.5 times earnings before interest, tax, depreciation and amortization, according to data compiled by Bloomberg. Purchasers of biotechnology companies paid an average of 24.4 times profit in deals of $100 million or more in the past five years, according to the data.
Goldman Sachs Group Inc. provided financial advice to Algeta, DNB Markets developed a formal statement under Norwegian securities law, which included a fairness opinion, and Centerview Partners released an additional fairness opinion for Algeta. Skadden, Arps, Slate, Meagher & Flom LLP and Wikborg, Rein & Co. are Algeta’s legal advisers.
Deutsche Bank AG and Wiersholm Advokatfirma AS advised Bayer. The German company said it expects to complete the transaction in the first quarter of 2014.
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