Unusual Cooperation

Novel cancer treatment leads Bayer to US firm

Bayer, Cancer, drug, Loxo
Bayer Healthcare facility in Germany. The company is expanding in the US. Source: Reuters

There have been concerns among shareholders that Bayer may have bit off more than it can chew with a massive bid to acquire seeds giant Monsanto in the United States. On Tuesday, the German pharmaceutical and chemical giant sought to lay those concerns to rest by signing a new collaboration agreement with a US biotech firm.

The deal with Loxo Oncology is to jointly develop and commercialize two breakthrough cancer drugs that help shrink tumors. According to the two firms, Loxo may eventually receive a total of $1.55 billion (€1.3 billion) from Bayer in steps as the drugs are developed and approved by regulatory agencies in the US and overseas.

By reaching the agreement, the Leverkusen, Germany-based Bayer sent a signal to the market that it intends to remain strong in pharmaceuticals despite its pending, $60-billion takeover Monsanto. That deal is being scrutinized by the European Union for possible antitrust questions.

“$1 billion in nearer term payments is substantial”

Eric Schmidt, Pharmaceutical analyst, Cowen & Co.

“This is a strategically very important deal,” said Dieter Weinand, president of Bayer’s pharma division. “This should finally answer the question whether Bayer will ignore pharmaceuticals in light of the Monsanto acquisition.”

Mr. Weinand said the deal represents a milestone in the company’s efforts to strengthen its presence in the market for cancer drugs. “We will continue to drive our internal pipeline while complementing it with acquisitions and strategic alliances.”

Laxo caused excitement in the medical world last year when it reported positive results of initial trials of one of the two drugs, larotrectinib, which inhibits a group of enzymes called tropmyosin receptor kinases (TRK), that are involved in cell communication. These proteins play a role in so-called TRK fusion cancers, which occur when one gene becomes abnormally connected to another unrelated gene. These genetic alterations can lead to breast, colon, pancreatic and skin cancers.

According to the two companies, 75 percent of the 55 patients in the trial responded to the drug, which is considered very high in cancer treatments. The second drug under development, LAXO-195, is a next generation medication for patients that acquire resistance to larotrectinib.

“This was a relatively rare opportunity to find a substance at a relatively advanced stage of development,” Mr. Weinand said. Loxo is applying for approval in the US later this year and the drug is expected to win European approval in 2019. Jacob Van Naarden, chief business officer of Loxo, in a statement called it a “transformational collaboration” that would help the company bring the drug to market.

Bayer and Loxo have agreed a relatively unusual deal in which they will split the proceeds of sales in the US 50-50, with Bayer getting all rights outside the US. In most such deals, US biotechs retain all the rights to the US market, but Bayer used a similar arrangement with a Norwegian company called Algeta to develop its drug for treating prostate cancer, Xofigo.

Bayer is paying Loxo $400 million upfront and another $1.15 billion in potential further payments, depending on Loxo meeting deadlines for regulatory approval and bringing the drugs to market.

Eric Schmidt, a pharmaceuticals analyst for Cowen & Co. in New York, noted that Loxo’s stock dropped sharply on the announcement, in part because of disappointment of shareholders that Loxo was not purchased outright by the German firm.

“In essence, the deal can be seen as one that monetizes a good portion of the TRK-franchise value for upfront cash,” Mr. Schmidt said in a note to investors. “One can debate the value Loxo received for selling partial rights to larotrectinib and LOXO-195, but $1 billion in nearer term payments is substantial.”

Sigfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent and Charles Wallace is an editor for Handelsblatt Global in New York. To contact the authors: s.hofmann@handelsblatt.com and c.wallace@extern.handelsblatt.com

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