October 15, 2010 / 12:25 PM / 9 years ago

CORRECTED - SCENARIOS-Stroke study data to be watershed for Bayer

(Corrects in fifth and sixth paragraphs to show Pradaxa was recommended for U.S. regulatory approval, not received approval)

By Ludwig Burger and Frank Siebelt

FRANKFURT, Oct 15 (Reuters) - Study results due shortly on its Xarelto anti-blood-clotting drug will determine whether Bayer (BAYGn.DE) gets a crack at a $12 billion plus market and will mark a turning point for its stock price.

The Rocket-AF study will show for the first time whether Xarelto, co-developed with Johnson & Johnson (JNJ.N), can safely reduce the risk of strokes due to a form of irregular heartbeat that is common among the elderly.

Bayer is likely to announce the late-stage trial’s key indicators in the weeks leading up to the American Heart Association conference in Chicago on Nov. 15, where the study will be presented in detail.

Following are possible scenarios:

XARELTO SHOWN TO BE AS EFFECTIVE AS WARFARIN

Probability: likely

Should Xarelto prove to be as effective as warfarin (“non-inferior” in medical parlance), without a higher risk of side effects, the pill could hold its own against rival product Pradaxa, which is likely to be labelled as non-inferior to warfarin.

The Pradaxa pill by unlisted rival Boehringer Ingelheim, was recommended to receive U.S. regulatory clearance last month. [ID:nN2096178]

The side effect Bayer investors are mainly concerned about is bleeding, commonly associated with anti-clotting drugs, and Xarelto needs to be at least on par with warfarin’s risk profile to win over regulators.

J.P. Morgan analysts put the likelihood of this outcome at 55 percent, and its shares could jump to 58 euros, up 5 percent from Thursday’s close.

Bayer has said it is eyeing more than 2 billion euros ($2.8 billion) in annual sales from Xarelto in a market worth an estimated $12-$15 billion in total, a commercial potential only matched by its cancer treatment Nexavar.

XARELTO SHOWN TO WORK BETTER THAN WARFARIN

Probability: possible

If Xarelto is shown to be more effective than warfarin (“superior to”) without a higher risk of bleeding, the pill could get a more favourable label than Boehringer’s Pradaxa.

Boehringer could not convince U.S. regulators to endorse a superiority claim over warfarin, partly because patients knew which drug they were taking in the main Pradaxa study, a practice statisticians frown upon.

With J&J’s financial backing, Bayer used a study setup that kept participants in the dark over which drug they were taking, allowing for clearer results because psychological effects were ruled out.

“We suspect that Xarelto will demonstrate a superior level of efficacy versus warfarin, or at least a strong trend,” Deutsche Bank analysts said.

“If clinical data is positive, prospective upside ranges between 10 (percent) and more than 30 percent, depending on the level of disclosure,” they added.

J.P. Morgan analysts also expect the shares to soar in this event, for which they see a likelihood of just 15 percent.

“Should Xarelto be superior to warfarin on efficacy we believe the stock could trade towards 65 euros (up 17 percent from Thursday’s close), especially if major bleeding is lower.”

XARELTO ASSOCIATED WITH HIGHER RISK OF BLEEDING THAN WARFARIN

Probability: possible

While Xarelto’s efficacy became evident in previous trials, where it was used to prevent thrombosis in patients bed-ridden after surgery, all eyes will be on bleeding risks in the Rocket-AF trial.

With participants in their mid-70s, risks could emerge that did not surface in previous Xarelto studies, in which patients were in their 50s and 60s. This would put market launch in serious doubt.

“A bleeding profile that is substantially worse than warfarin, particularly on major bleeds, could see the stock lose 5 euros of value (9 percent from Thursday’s close),” brokerage J.P. Morgan said.

It assigned a 30 percent probability to this scenario and said the stock could even slide to 48 euros in the longer term (down 14 percent from Thursday).

Deutsche Bank said the short-term slump could be even worse.

“On announcement of headline data, if negative we see immediate risk to the Bayer share in the region of 10-15 percent, although given the current share price, we don’t believe Xarelto is fully valued.” (Editing by Will Waterman) ($1=.7095 Euro)

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