German drugmaker Bayer AG on Tuesday entered into a strategic agreement with US-based biotechnology company Genzyme Corp to transfer some of its cancer drug portfolio to the latter in exchange for royalty payments of $650 million depending on sales.

The companies hope to get regulatory approval by the end of the second quarter, 2009.

As per the deal Genzyme would get worldwide license, distribution and development rights for leukemia drugs Campath/Alemtuzumab and Leukine, as well as others. Bayer will also return the worldwide development and distribution rights for its Alemtuzumab, approved in the US as a single agent for the treatment of B-cell chronic lymphocytic leukemia, to Genzyme.

This will allow Bayer focus on its key therapeutic areas and its Nexavar drug line.

The companies will continue their co-development partnership for Alemtuzumab for an indication in multiple sclerosis (MS).

If Alemtuzumab is approved by authorities for the treatment of MS, Bayer has an option to co-promote the product globally, the Leverkusen-based company said.

If that is the case, Bayer will receive royalties of between 20 per cent and 35 per cent of sales to a maximum of $1.25 billion. Bayer may also receive further payments if Genzyme doesn't buy out its milestone obligation of between $625 million and $900 million in 2020, Bayer said.

''This transaction provides clear strategic benefit for Genzyme and Bayer,'' said Arthur J Higgins, chairman of the executive committee of Bayer HealthCare.

''For Bayer, it significantly improves the profitability for two of our key franchises – oncology and MS. If we are successful and Alemtuzumab is approved for use in MS, it will allow us to leverage the experience and established relationships we have in this therapeutic area,'' he added.

"Through the acquisition of these hematologic oncology assets, we enhance our commercial presence in the oncology market with a comprehensive product portfolio," said Mark Enyedy, president of Genzyme Oncology and MS.

''Additionally, this new agreement assures that Bayer and Genzyme are better aligned to maximise the opportunity for Alemtuzumab in both oncology and MS, and frees up resources to accelerate the development of Bayer's exciting oncology pipeline,'' Higgins continued.

The agreement also includes the sale of the new US Leukine manufacturing facility in Seattle, Washington.

Bayer's production sites in Berlin, Germany and Garbagnate, Italy will continue to produce Fludara as a contract manufacturer for Genzyme.

It is estimated that approximately 330 Bayer positions worldwide will be affected by this agreement, of which approximately 250 are in the US and about 20 in Europe.

Global sales of Campath and Fludara for 2008 were about EUR76 million and EUR100 million, respectively. Bayer markets Leukine, a growth factor that helps fight infection and disease by enhancing immune cell function, in the US only with 2008 sales of about EUR46 million.

Genzyme, set up in 1981, is a diversified enterprise with more than 11,000 employees in locations spanning the globe and 2008 revenues of $4.6 billion.

The Bayer Group is a global enterprise with core competencies in the fields of health care, nutrition and high-tech materials. Bayer HealthCare, a subsidiary of Bayer AG, is one of the world's leading, innovative companies in the healthcare and medical products industry and is based in Leverkusen, Germany.

Bayer has generated about EUR220 million ($293.2 million) per year from the three drugs included in the deal, a fraction of its total healthcare revenues of more than EUR15 billion.