The deal for Asklepios BioPharmaceutical calls for Bayer to pay $2 billion now and as much as a further $2 billion based on success milestones.

Photo: Geert Vanden Wijngaert/Bloomberg News

BERLIN— Bayer AG BAYRY 0.16% said Monday it would pay as much as $4 billion for U.S. biotech firm Asklepios BioPharmaceutical Inc. to strengthen the German company’s drugmaking arm, as Bayer continues to reel from its acquisition of crops giant Monsanto.

The latest deal—for which Bayer will pay $2 billion now and as much as a further $2 billion based on future success milestones—is a bet on cutting-edge gene therapy, in which a functional gene is inserted to counter the effects of a disease caused by a missing or faulty gene.

The German company’s biggest pharmaceutical acquisition since its purchase of domestic rival Schering AG in 2006 is also an attempt to tackle one of a series of challenges that has been plaguing the inventor of aspirin, especially since its 2018 acquisition of U.S.-based Monsanto.

The $63 billion Monsanto deal was meant to give the company another big, fast-growing revenue stream besides pharmaceuticals. Instead, it has saddled Bayer with a protracted legal battle over whether Monsanto’s Roundup weedkillers cause cancer—a dispute that has pummeled Bayer’s share price. Bayer says Roundup is safe.

Then, last month, Bayer shocked investors with a warning that the coronavirus pandemic would hit its agriculture business harder than expected. Bayer has also faced setbacks in settling the Roundup lawsuits for $10.9 billion.

The profit warning cast more doubt on the rationale for the Monsanto deal and its ability to boost Bayer’s profit.

At the same time, Bayer’s drug pipeline has been worrying investors. Two of the company’s bestselling drugs—blood thinner Xarelto and eye treatment Eylea—will start to lose patent protection from around 2024.

Analysts have been concerned that Bayer doesn’t have enough promising new products in its research-and-development pipeline to make up for the expected drop in sales from the blockbusters’ patent losses.

To boost its pipeline, Bayer has been looking for drug-development partnerships or deals to license drugs that are in promising stages of clinical development.

Stefan Oelrich, chief executive of Bayer’s pharmaceutical branch, said the purchase of AskBio was slightly larger than the acquisitions Bayer had been seeking in the pharmaceutical space, but added that he was convinced after the first phone call with the U.S. company’s co-founders that it would be the “perfect fit.”

“What we now have is a comprehensive pipeline,” Mr. Oelrich said in an interview. “I feel like things are really coming together on the pharma side.”

Mr. Oelrich said it was too early to predict how much in sales the AskBio treatments are likely to generate, but added that he expects the deal to help Bayer build a leading position in gene therapy. That treatment area has been gaining momentum after setbacks occurred during the first testing in humans in the 1990s, when several patients died.

Dozens of gene therapies are now undergoing clinical trials and big drug companies have been acquiring gene-therapy firms, betting on the success of those treatments in the future.

AskBio was co-founded by Richard Jude Samulski, who pioneered the use of what are known as adeno-associated viruses as vehicles to replace a defective gene with a healthy gene. Pfizer Inc. PFE 2.00% bought Bamboo Therapeutics Inc. from AskBio in 2016, as Pfizer sought to boost its presence in the treatment of rare diseases.

AskBio currently has therapeutics in early phases of clinical development to treat conditions such as Pompe disease, Parkinson’s disease and congestive heart failure.

Write to Ruth Bender at [email protected]

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This post first appeared on wsj.com

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