Bayer's Challenge in 2014? For Xofigo to Win Share From Johnson & Johnson's Zytiga

Bayer is so confident Xofigo can win prostate-cancer market share from Johnson & Johnson and Medivation this year that it bumped up its original $2.4 billion offer to buy Xofigo's co-developer, Algeta, to $2.9 billion in December.

The closing of that deal nets Bayer full global rights to Xofigo just as sales kick off in the United States and Europe. It's a big and lucrative market, but highly competitive. That means 2014 will be an important year for Bayer in determining whether Xofigo can win business away from Johnson's Zytiga and Medivation's Xtandi, two fast-growing drugs with billion-dollar potential.

A different approach
Bayer hopes Xofigo's more favorable dosing schedule can overcome patient fear over injections and higher prices to win business away from Johnson's oral Zytiga, which is dosed alongside the troublesome steroid prednisone, and Medivation's Xtandi, which isn't dosed with a steroid.

All three drugs effectively improved overall survival versus placebo, but Xofigo may have an advantage given that it's dosed over just six months, rather than the eight months for Zytiga and Xtandi.  

However, Xofigo, which carries a price tag near $70,000 for the full treatment course, is the priciest drug of the three. That may make insurers reluctant to use the drug without fisrt trying Zytiga, which costs roughly $40,000 for a treatment course, or Xtandi, which costs about $56,000. 

Xofigo works differently
Xofigo delivers radium directly to bone tumors in a strategy that reduces damage to surrounding tissue and results in primarily flu-like side effects.

Zytiga targets testosterone production, reducing production from adrenal glands, the testes, and the prostate tumor. The most common side effects patients suffer on Zytiga are flu-like, but additional risks include heartbeat disorders and infection. The dosing alongside prednisone may present additional problems, given that steroids are associated with higher risks of infection.

Xtandi works by preventing testosterone from attaching itself to prostate cancer cells. That effectively starves the tumor. Patients taking Xtandi reported a similar number of side effects as those on Zytiga.

Despite the different approaches, all three drugs successfully extended patient survival during phase 3 trials. Xofigo showed a three-month improvement over placebo. Zytiga and Xtandi showed 3.9- and 4.8-month improvements over placebo, respectively.

A big and growing opportunity
Prostate cancer is the second most widely diagnosed cancer among men, with an estimated 192,000 new cases diagnosed annually in the United States. It's a $12 billion-a-year market expected to grow to $19 billion by 2020.

As a result, Zytiga sales grew more than 75% worldwide to $464 million, as market share in castration-resistant patients climbed to 33% in the third quarter.

However, most of Zytiga's growth occurred overseas. In the U.S., Zytiga sales were roughly $200 million, up just 3%. That suggests that Xtandi, which has only now been launching broadly overseas, may be winning share, given that sales of $109 million were up 32% in the quarter. 

Both Zytiga and Xtandi sales dwarf those of Xofigo, which generated just $17 million in third-quarter sales after winning FDA approval in May.  

But since up to 90% of those with metastatic prostate cancer show signs of having bone metastases, which can significantly affect survival, the market opportunity for Xofigo appears much bigger than its third-quarter sales reflect. 

Fool-worthy final thoughts
Bayer hopes Xofigo doesn't go the way of high-priced injectible Provenge, a drug that hasn't fulfilled its promise for Dendreon , despite being the only immunotherapy targeting prostate cancer on the market. The injectable comes with a steep $93,000 price tag, which has probably contributed to its inability to win significant market share, and Dendreon has since announced dramatic cost-cutting.

Bayer will need to report sizable sales numbers in 2014 to justify that steep buyout price for Algeta. This year will be particularly telling, as Johnson and Johnson is already entrenched overseas and Xtandi is now selling in those markets, too. As Xofigo enters those markets, investors should be able to get insight into which drug is winning by watching sequential growth rates for all three.