German chemical and pharmaceutical group Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN) has offered to buy Norway’s Algeta for $2.42 billion. The two companies have been partners since 2009 in developing and marketing a prostate cancer treatment named Xofigo. Algeta said in a statement Tuesday that the discussions are still in the early stages, and may or may not result in a transaction.

Bayer AG

Bayer offers to pay 27% premium

Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN) offered to pay 336 kroner or $55.2 per share, valuing the Norwegian company at 14.8 billion kroner or $2.42 billion. The offer price is 27% above Algeta’s Monday closing price of 264.60 kroner. If successful, the acquisition will strengthen Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN)’s pharmaceutical business by giving it full control over Xofigo. Marijn Dekkers, chief executive of the German conglomerate, has been focusing on the company’s drugs business to drive growth.

Xofigo could be a game-changer for Bayer

Xofigo works differently from most other cancer treatments. It’s an injectable radiation treatment. It migrates to the affected parts in the body of prostate cancer patients, and prevents abnormal growth in surrounding tissues. Algeta also has several other treatments in the pipeline, including early-stage cancer treatments using radioactive elements thorium 227 and radium 223. Single dose of Xofigo costs $11,500, and the complete treatment consists of six doses.

Under their partnership, Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN) oversees the development, regulatory approvals and commercialization of the drug. While Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN) and Algeta share equal profits in the U.S. market, the German company pays Algeta royalties for sales in other countries. Xofigo received marketing approval from the European Union earlier this month. The drug generated only $17 million in sales during the third quarter. But analysts polled by Thomson Reuters expect Xofigo sales to rise to $940 million by 2018.

After Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN)’s bid was made public, Algeta shares soared way past the offer price to 349.7 kroner. It indicates that investors expect a rival bid. Algeta CFO Oystein Soug said his company won’t rule out rival bids. Algeta went public with Bayer AG (OTCMKTS:BAYRY) (FRA:BAYN) (ETR:BAYN)’s bid after German media leaked the news overnight.

Pharmaceutical giants have been acquiring smaller companies, especially the ones with cancer therapy, to boost their future income. In August, Amgen, Inc. (NASDAQ:AMGN) purchased Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) for $10.4 billion.