Algeta aiming for transformation with Bayer deal

Algeta has delivered on its partnering promise with what the company hopes is a “transformational” $800m deal with Bayer for their lead pipeline candidate, Alpharadin, a so-called alpha-pharmaceutical with the potential to treat bone metastases resulting from prostate and other solid tumours.

The Bayer deal has so far certainly been transformational for Algeta’s shares, surging 61% to NKr65 today, a record high since the company went public over two years ago at a price of around NKr43 and a dramatic recovery since touching a low of just NKr6 during last year’s global stock market meltdown. Investors are clearly impressed by Algeta’s choice of partner and size of the deal, which is the industry’s largest in over two years for a phase III oncology product (see table below).

Transformational

Speaking to EP Vantage today, Andrew Kay, chief executive of Algeta, claimed the Bayer deal would transform Algeta from, “an R&D biotech into a specialist oncology pharma company”.

The main basis for this claim appears to be down to the fact Algeta has negotiated a 50% co-promotion and profit share arrangement with Bayer for the all important US market, a best-case deal scenario that Mr Kay had been aiming for (EP Vantage Interview – Algeta targeting deal as phase III trial wins US approval, February 16, 2009).

Having received $61m upfront for signing the deal with Bayer, Algeta could receive a further $740m in developmental and sales milestones. Critically, milestones for the development, manufacturing and first launch of the product amount to a decent $220m, sufficient Mr Kay believes to cover all of Algeta’s costs in meeting their 50% share of the commercialisation costs in the US, without the need for additional finance.

Another crucial aspect of the deal is that Bayer will cover a “substantial majority” of the ongoing clinical development costs for Alpharadin. A placebo-controlled phase III trial was initiated a year ago in Europe, designed to recruit 750 patients with bone metastases from hormone refractory prostate cancer.

With US enrolment in the trial about to commence, Mr Kay expects that Bayer’s greater clinical resources and expertise will ensure that recruitment remains on track to complete in the second half of next year, at which time an independent monitoring committee will assess whether the study should continue or require additional patient recruitment.

Assuming trial indicators are as expected, the study will complete when 490 deaths have been recorded which is estimated to occur during the first half of 2012. Given a positive trial outcome, Alpharadin could therefore become the industry’s first alpha-emitting radiopharmaceutical on the market in 2013.

Partner of choice

Aside from the attractive deal terms, Algeta’s choice of partner in Bayer has also no doubt encouraged investors that Alpharadin will have a decent chance of realising the blockbuster sales potential that the company claims; based on a predicted treatment price of $22,000, Algeta expects the product to generate peak sales of $1.9bn from the US and European markets.

With cancer drug revenues of $1.2bn last year, Bayer is ranked ninth in terms of global oncology sales, according to EvaluatePharma, a position that is expected to be maintained in 2014 although the additional revenues from Alpharadin starting in 2013 could improve their ranking.

Although Bayer’s oncology sales only represented 8% of their total prescription sales of $15bn in 2008, the German group is clearly keen to develop its cancer franchise and build on the largely successful development and commercialisation of Nexavar which is forecast to become a billion dollar product next year.

In addition, Bayer structured a similar US co-promotion deal with Nexavar’s originator, Onyx Pharmaceuticals, allowing Onyx to transform itself from an R&D biotech into a commercial oncology specialist.

Mr Kay is clearly hopeful that Algeta can follow in Onyx’s footsteps and is, “very impressed with Nexavar and the way that Bayer are turning that into a potential blockbuster”.

Impressive deal terms

According to EvaluatePharma there have been 15 licensing deals for oncology products at the phase III stage since January 2007.

In terms of overall value, Algeta’s $800m partnership with Bayer over Alpharadin is the biggest deal in this period, and the $61m upfront fee the second largest behind Bristol Myers-Squibb’s recent deal with Exelixis over XL184.

Selected phase III oncology product deals since January 2007
Current status Product Company Product Source Therapeutic category Deal Date Deal Value ($m) Upfront Fee ($m) US commercial option
Active Alpharadin Bayer Algeta Radiopharmaceuticals  03-Sep-09  800  61  Yes
CDX-110 Pfizer AVANT Immunotherapeutics Immunostimulants  16-Apr-08  440  40  Yes
XL184 Bristol-Myers Squibb Exelixis Other cytostatics  12-Dec-08  345  195  Yes
Urocidin Endo Pharmaceuticals Bioniche Life Sciences Immunostimulants  10-Jul-09  130  20  -
Terminated TroVax Sanofi-Aventis Oxford BioMedica Immunostimulants  28-Mar-07  748  40  -
Asentar (DN-101) Schering-Plough Novacea Hormone therapies  30-May-07  452  60  Yes
GVAX Prostate Takeda Cell Genesys Immunostimulants  31-Mar-08  320  50  -

Source: EvaluatePharma

Having delivered on its partnering and short-term financing promises this year (Algeta releases pressure as it raises $35m, February 18, 2009), Algeta’s shares have staged a decent recovery in recent months.

Although the company intends to bring a couple of its pre-clinical thorium-based candidates to the clinic and could seek a partner to fully maximise this opportunity, the only worry for investors now is how the stock will hold up in the absence of any major catalyst, potentially for three years until the phase III data becomes available.

The next few months could see some investors cashing in on some well earned profits.

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