The Medivation hunt is over. Pfizer has struck a deal to buy the California-based biotech for a whopping $14 billion. The next question is this: Will the buy deliver much payoff for the drug giant?
On the face of it, yes. Pfizer's score wraps up a months-long buyout race that pulled in much of Big Pharma and Big Biotech along the way. With its blockbuster oncology med Xtandi ready to add to a buyer's sales, plus a much-anticipated late-stage cancer candidate and a pipeline of other prospects, Medivation has been a sought-after prize in an otherwise slow summer for biopharma M&A.
But at $14 billion, Pfizer is paying a huge premium. At $81.50 per share, the price beats analyst estimates of a "best-case" deal for Medivation. It's a 30% premium to Friday's closing price--and a stunning 180% more than Medivation's stock price when the deal talk first emerged, as Bernstein analyst Tim Anderson pointed out in a Monday investor note. "This is a hefty bid," Anderson said.
Sanofi, which had mounted a hostile approach, entered the fray this spring with a $52.50-per-share bid, valuing Medivation at about $9.4 billion. The French drugmaker’s most recent offer stood at $58 per share plus a potential follow-up payoff of $3 per share.
But could Medivation be worth the cost to Pfizer? Xtandi, now approved for prostate cancer, will immediately beef up the company's oncology franchise, which has been going strong thanks to its fast-launching breast cancer med Ibrance. Xtandi is also under study in breast cancer, and Medivation's pipeline candidate talazoparib has breast cancer data due later this year. Its other candidate, pidilizumab, is an immuno-oncology therapy, if not a true PD-1 med as previously thought.
"There aren't many oncology assets in the 'bolt-on' size range, and while Ibrance is doing great, Pfizer could benefit from more critical mass in oncology," Anderson noted. But he also pointed out that, "[f]or a company of Pfizer's size, a Medivation deal is barely a needle-mover."
Xtandi may be a major blockbuster in the making, but it is shared with Astellas, and Medivation's take from the med is currently estimated to be $1.8 billion by 2021, Anderson notes. Other analysts point out that the med's growth has slowed in recent quarters.
Anderson sees Medivation adding 2% to Pfizer's earnings, on average, over the next 5 years. Pfizer says the deal will boost 2017 earnings by about $0.05.
In kicking back against Sanofi’s far lower offers, Medivation CEO David Hung argued repeatedly that the company's shares were trading far too low early in the year because of overall weakness in biotech--and that his company was worth far more. The fast-moving Xtandi, which is expected to bring in $1.52 billion in sales for Medivation this year, has a “massive” market opportunity in its current prostate cancer indication, Hung told investors on the company’s Q1 earnings call, and it’s under study for other cancers, too, including breast cancer.
Hung has also argued that talazoparib and pidilizumab are “enormous opportunities,” with billions in potential sales in their own right. Plus, talazoparib could theoretically be used alongside Xtandi in a cancer-fighting cocktail, helping to boost Xtandi’s sales as well. Hung gained backup for his talazoparib case in July, thanks to impressive data on a potential rival to the PARP inhibitor med, Tesaro’s niraparib.
Pharma analysts had figured that buyers would have plenty of room to top Sanofi’s Medivation offers, given Xtandi’s sales and the company’s pipeline prospects. But even their rosiest projections fell far short of Pfizer's bid. After the Tesaro data appeared, Leerink Partners analyst Geoffrey Porges estimated a price in the mid-$60s at the least, and in the mid-$70s in a best-case scenario. RBC Capital Markets analyst Simos Simeonedis also saw Medivation yielding a per-share price of $65 to $75, a recent investor report noted.
Leerink's Seamus Fernandez says only time will tell whether Pfizer paid too much, not enough, or just the right amount. "Critical to ultimate value creation in this transaction is a return to growth in Xtandi and ultimately the success of talazoparib," Fernandez said in a Monday note. "We believe the combination of Xtandi + talazoparib has the potential to be a uniquely value-added combination in the treatment of prostate cancer and should be closely watched."
- see the Pfizer announcement
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