Bayer said on Friday it exercised a right to gain exclusive licensing rights for the global development and commercialization of Vitrakvi, also known as larotrectinib, under a clause in the initial collaboration deal with Loxo Oncology that provided for Loxo becoming a takeover target.
Eli Lilly agreed to buy Loxo for $8 billion (£6.3 billion) in January and the deal was wrapped up on Friday.
Bayer has been called on by analysts and investors to strengthen its drug development pipeline as its pharmaceuticals division faces falling sales from 2024 amid looming competition for its two bestselling drugs.
Bayer clinched the initial Vitrakvi deal in November 2017, about a year before the drug eventually won U.S. regulatory approval, marking a bright spot in Bayer's development pipeline which has suffered a number of setbacks.
Shares in the German company, which also owns seed maker Monsanto, jumped on Friday and were up 4.4 percent at 68.44 euros at 1543 GMT. The stock has been dragged lower by litigation risks as thousands of U.S. plaintiffs claim its Roundup weed-killer played a role in their cancer.
Financial terms such as the initially agreed upfront payments to Loxo as well as milestone payments for development achievements remain unaffected, said a Bayer spokeswoman.
Vitrakvi, which is set to compete with Roche's entrectinib, has been shown to shrink tumours in 81 percent of cases across 24 tumour types in different parts of the body, all driven by a rare gene anomaly known as NTRK fusion.
Commercial success will depend on the fast uptake of comprehensive gene-sequencing tools for tissue samples at cancer units to help identify the cases that benefit from Vitrakvi.
Bayer has put the drug's annual peak sales potential at more than 750 million euros ($844 million).
The change-of-control option exercised by Bayer also covers the experimental compound LOXO-195, also known as BAY 2731954, which is designed to treat patients whose cancers are returning after an initial Vitrakvi treatment.
Rather than co-promote with Loxo in the U.S., as initially agreed, Bayer will commercialize the drug there exclusively.
The sharing of U.S. commercial costs and profits in equal parts will be replaced by royalties to be paid by Bayer, the company said, without specifying financial terms.
The German drugmaker will continue to pay royalties on future net sales outside the U.S.
(Reporting by Ludwig Burger; Editing by Tassilo Hummel and Elaine Hardcastle)
By Ludwig Burger