|Bayer CEO Marijn Dekkers|
When Bayer CEO Marijn Dekkers stepped into the job in 2010, he had a trove of cash, and he promised to spend a big chunk on deals. A $23 billion chunk, in fact. Since then, the German conglomerate hasn't exactly been audacious in the M&A arena. Bayer has snapped up a healthcare company or three, but it's quick to back away if a price gets too rich.
Still, after Bayer put down a 14.8 billion kroner ($2.4 billion) bid for oncology partner Algeta, some analysts immediately predicted an uptick in price. Algeta discovered Xofigo, the recently approved radiotherapy for prostate cancer that has spread to the bone--and Bayer has pegged it as a $1 billion-plus drug. Plus, Algeta is working on more radiation-based cancer technologies, including an armed-antibody approach, and Bayer wants to beef up its offerings in oncology.
"If you believe consensus, they should pay way more," UBS analyst Guillaume van Renterghem told Bloomberg. "They should probably pay $3 billion." Deutsche Bank also figures Bayer will end up boosting its bid.
Algeta may agree. In a statement, the Norwegian company said discussions are at an early stage, and there is "no certainty" that a deal will materialize. "I think this company has great prospects on a standalone basis," CFO Oystein Soug told Reuters. He wouldn't rule out a bidding war, "but of course that is not my call," he said.
Meanwhile, DZ Bank analyst Peter Spengler took the more frugal line. "We do not see the potential in the company justifying such a high takeover price," Spengler told The Wall Street Journal. But he reserved the right to change his mind if more information showed "hidden value" in the company.
Xofigo nabbed FDA approval in May and won European clearance 10 days ago. By the end of the third quarter, Xofigo had brought in €12 million for Bayer, and Dekkers hailed its early contribution the company's top line. Touting the new drug to investors, Bayer said its peak sales would at least hit the blockbuster threshold and perhaps surpass it.
Under its deal with Bayer, Algeta co-promotes Xofigo in the U.S. and gets 50% of the profits in-country; outside the U.S., it's eligible for royalties and milestone payments on Bayer's sales. Bayer is backing additional clinical trials testing Xofigo in combination with Johnson & Johnson's ($JNJ) prostate-cancer pill Zytiga and with various chemo drugs for other cancers.
Meanwhile, Bayer has been racking up new uses for its other cancer drugs. On Friday, the FDA approved the blockbuster kidney cancer therapy Nexavar as a treatment for thyroid cancer, a use Bayer expects to add $200 million to its sales. In February, Bayer's fast-growing colorectal cancer treatment Stivarga nabbed a new indication in a rare gastric cancer, gastrointestinal stromal tumors.
Both of these drugs, however, are part of a partnership with Onyx Pharmaceuticals ($ONXX), which Amgen ($AMGN) snapped up in October. When Amgen first moved in with its Onyx bid, Bayer was seen as a rival buyer. That obviously didn't come to fruition. Algeta is more of a bite-sized deal, and thus would be easier to digest. And it falls within Dekkers' parameters for bolt-on acquisitions--even if the price goes up to $3 billion. Whether Dekkers also believes Bayer has wiggle room on price remains to be seen.
Bayer has wrapped up two deals in the healthcare world this year. In April, it bought a birth-control device company, Conceptus, for $1.1 billion. And in May, it announced plans to build up its consumer healthcare business with Steigerwald Arzneimittelwerk, a maker of herbal medicines sold in pharmacies.
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