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Bayer’s (BAYRY - Analyst Report) HealthCare segment recently entered into an oncology collaboration and licence agreement with Compugen Ltd. (CGEN) for an upfront payment of $10 million.

The collaboration agreement is for the research, development, and commercialization of antibody-based therapeutics for cancer immunotherapy against two novel immune checkpoint regulators discovered by Compugen.

Per the terms of the agreement, Bayer will gain full development and worldwide commercialization rights to the potential cancer therapeutics, after jointly conducting a preclinical research program with Compugen.

Meanwhile, Bayer will pay $500 million as milestone payments for both the programs, apart from the upfront payment. In addition to that Compugen will be receiving $30 million related to preclinical activities. Moreover, Bayer will be paying mid-to-high, single-digit royalties on worldwide net sales of the resulting products from the collaboration.

We remind investors that Bayer has been pretty active on the acquisition and collaboration front this year. In Jun 2013, the company inked a collaboration agreement with Seattle Genetics Inc. (SGEN - Snapshot Report) that allowed the former to gain worldwide rights to Seattle Genetics’ auristatin-based antibody-drug conjugate (ADC) technology along with antibodies to several oncology targets.

As per the terms of deal, Bayer will be responsible for the development, manufacturing and commercialization of all products under the agreement.

Bayer’s collaborations with Compugen and Seattle Genetics are encouraging. The collaborations are expected to strengthen Bayer’s oncology portfolio. However, the oncology market is currently crowded with big companies.

Bayer presently carries a Zacks Rank #3 (Hold). Meanwhile, stocks such as Biogen Idec Inc. (BIIB - Analyst Report) look more attractive with a Zacks Rank #1 (Strong Buy).

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