* Royalties, shared profit to come on top of milestone pay
* Algeta sees peak annual sales of $1.3-1.9 billion for drug
* Alpharadin drug designed to combat bone metastases
* Algeta shares up 60 percent, Bayer up 1.1 percent
(Adds background, shares)
By Ludwig Burger
FRANKFURT, Sept 3 (Reuters) - Norwegian biotech company Algeta ALGETA.OL clinched an $800 million licensing deal for its main experimental drug with German drugmaker Bayer BAYG.DE, sending its shares soaring on Thursday.
Algeta expects peak annual global sales of $1.3-$1.9 billion for the cancer drug, dubbed Alpharadin, which clings to cancerous bone cells because it has some properties of calcium and destroys them via alpha rays.
The deal is potentially worth 560 million euros ($800 million) to Algeta, including an upfront payment of 42.5 million from Bayer and payments depending on development and commercial milestones, the two companies said.
Algeta, founded in 1997 by two Norwegian radiochemistry researchers, will also get double-digit royalties on future sales. It also has an option in the U.S. market, by far the largest for Alpharadin, to switch from royalties to sharing profit equally with Bayer.
The move by Bayer is part of its bid to expand its range of oncology drugs, dominated by potential blockbuster Nexavar, which generated 462 million euros in sales last year.
“This agreement enables us to transform from a biotech company into a specialist oncology pharma company,” Algeta chief executive Andrew Kay told Reuters.
Algeta’s shares were up 60 percent at 64.75 Norwegian crowns at 1155 GMT. Bayer was up 1.1 percent, while the European DJ STOXX Health Care Index .SXDP was down 0.6 percent.
“This is an extremely positive deal, the size is significant and far larger than what we had expected,” DnB NOR Markets analyst Espen Joergensen said.
The idea of steering radioactive molecules straight to tumour sites as opposed to the shotgun approach of radiotherapy, is not new to Bayer. Its Zevalin drug pairs antibodies with radioactive molecules, with the antibodies acting as a homing device to guide the destructive radioactive substance to cancerous blood cells.
Development of Alpharadin, administered via injection, is most advanced in targeting bone metastases from prostate cancer that cannot be treated by standard hormone therapy.
For this use, the drug is currently being explored in a Phase III clinical trial called ALSYMPCA. A Bayer spokeswoman said first results of this study were expected in late 2011.
Future indications could be to combat bone metastases resulting from lung, breast and kidney cancer, Kay said. (Additional reporting by Ole Petter Skonnord in Oslo; Editing by Jon Loades-Carter and Dan Lalor) ($1 = 0.7000 euro)