By Balazs Koranyi and Ben Hirschler

OSLO/LONDON (Reuters) - Bayer (BAYN.DE) has offered to pay $2.4 billion for Norway's Algeta (ALGETA.OL), its partner for a new prostrate cancer treatment, at a 27 percent premium to the stock's last close, Algeta said on Tuesday.

The deal would boost Bayer's drugs division by giving it outright control over Xofigo, a drug the two have developed jointly since 2009 and started selling in the United States this year.

Investors, however, bet that the German drugs and chemicals group has a fight on its hands and Algeta's Chief Financial Officer said that rival bids could not be ruled out.

Algeta shares jumped by a third in early trade to a record 349.7 Norwegian crowns, well above Bayer's bid of 336 crowns.

The Norwegian company said it was in early discussions that might or might not lead to a transaction. A Bayer spokesman confirmed it had made an offer but said it did not want to provide details at this point.

The decision to go public with the preliminary offer followed a leak in the German media overnight.

Algeta CFO Oystein Soug declined to comment on the level of the bid but told Reuters that his company is under no pressure to do a deal. "I think this company has great prospects on a standalone basis," he said in a telephone interview.

Asked if another company might be in a position to counter Bayer's offer, he said: "I would not exclude that opportunity, but of course that is not my call."

For Bayer, Algeta fits with Chief Executive Marijn Dekkers' strategy of driving growth by building up the pharmaceuticals division, which now overshadows chemicals in importance.

CANCER FOCUS

The push by large pharmaceuticals companies to acquire smaller biotech businesses to gain new drugs that could bolster income is focusing increasingly on cancer therapy.

Amgen (AMGN) struck the fifth-largest biotechnology deal in history in August by agreeing to buy Onyx Pharmaceuticals for $10.4 billion, while the Japan's Otsuka agreed in September to buy Astex Pharmaceuticals for $886 million.

Other recent cancer deals have included AstraZeneca (AZN.L) buying privately-owned firms Amplimmune and Spirogen for up to $940 million.

While much of the work in modern cancer medicine is concentrated on the genetic basis of the disease and the role of the immune system in controlling tumor growth, Xofigo is a different type of radiation treatment.

It is a radioactive agent that migrates to parts of the body of prostate cancer patients with abnormal bone growth, thereby minimizing damage to surrounding tissue.

Algeta is also researching other drugs, including an innovative radioactive treatment delivered directly to tumors.

GROWING SALES

Although Xofigo sales reached only $17 million in the third quarter, it received marketing authorization in the European Union this month and analysts expect sales to take off over the next several years.

Annual worldwide sales are expected to reach $940 million by 2018, according to consensus forecasts compiled by Thomson Reuters Pharma, while Algeta says its own round-up of analyst forecasts puts sales well above $1 billion by that time.

Despite the promise of Xofigo, analysts following Bayer said the German group appeared to be offering a high price.

"We do not see potential at Algeta justifying such a high takeover price," DZ Bank analyst Peter Spengler said, adding that further information might yield "some hidden value".

Analysts following Algeta, however, said the bid looked on the low side, given that large drugmakers have often paid a 50-60 percent premium to acquire biotech companies.

Under the current deal between the companies, Bayer is responsible for developing the drug, applying for health authority approvals and commercializing. Bayer and Algeta share profits equally in the United States and Bayer pays royalties to Algeta on sales elsewhere.

Algeta shares have soared this year on the early success of the drug and the offer price is 125 percent above the stock's level 12 months ago.

One dose of Xofigo, used for castration-resistant prostate cancer, costs $11,500 dollars. Full treatment requires six doses.

Before the bid, Algeta was trading at close to 20 times its expected 2015 earnings. ($1 = 6.1345 Norwegian krones)

(Additional reporting by Frank Siebelt in Frankfurt; Editing by Mark Potter and David Goodman)