Rebuffed on its quiet buyout proposal, Sanofi ($SNY) is now going public with its Medivation ($MDVN) courtship. The French drugmaker is offering more than $9 billion in cash for the maker of Xtandi, a blockbuster prostate cancer med, as it aims to build a franchise in oncology.
Thing is, Medivation may already have a higher offer from AstraZeneca, and analysts agree that the $9.3 billion offer is too low. But analysts also agree that there’s room to raise that price and still reap the rewards--immediate and long-term--from a Medivation buy.
Sanofi outlined its $52.50-per-share bid in a Thursday letter, arguing that Medivation’s portfolio--which includes two pipeline candidates--would be a nice fit with Sanofi’s own oncology lineup, not to mention its long-term prospects. Sanofi’s long-standard treatment for prostate cancer, Taxotere (docetaxel), still dominates in castration-resistant disease, and the company sells another prostate cancer chemo med, Jevtana, that competes with Xtandi for some second-line treatment business. Jevtana and Xtandi are already in testing as a combo approach.
More to the point, Medivation would fit with Sanofi’s overall needs: new revenue to backfill the erosion in its diabetes franchise and new drug candidates to keep investors faithful as its top-selling Lantus goes on its inevitable decline. Already under biosimilar assault in Europe, the $7-billion-a-year basal insulin will face off against Eli Lilly ($LLY) and Boehringer Ingelheim’s biosim Basaglar in the U.S. by December.
Xtandi is already a blockbuster in its own right, with $1.9 billion in 2015 sales, but that bounty is shared with marketing partner Astellas. Still, even a shared pie is better than none, particularly with Xtandi’s potential to expand into earlier stages of prostate cancer treatment and even into breast cancer.
Plus, as Bernstein analyst Tim Anderson points out, Medivation has at least one pipeline drug--the PARP inhibitor talazoparib, bought from BioMarin ($BMRN) last year--that could team up with Xtandi in prostate cancer. Johnson & Johnson ($JNJ), which markets Xtandi’s head-to-head rival Zytiga, is studying that pill alongside its own experimental PARP inhibitor as a prostate cancer cocktail.
Anderson figures that a higher bid--$62.50, 20% higher than Wednesday’s closing price--would still deliver an immediate payoff, with a 1.9% boost to 2017 earnings and 5.7% in 2018. And Medivation has its investment bankers on hand to push the offers higher on its behalf.
The question is, how high can it go? Leerink Partners analyst Geoffrey Porges ran the numbers and came up with a likely per-share range of $55 to $70, with the high end based on some optimistic assumptions for Xtandi and talazoparib.
And some companies are better positioned than others to bid up the price, Porges figures. Using some more conservative estimates for Xtandi sales and tazoparib’s prospects, he factored in tax rates and capital costs, and concluded that AstraZeneca ($AZN) and AbbVie ($ABBV) would be in the best shape to win in a bidding contest. Sanofi’s max offer is probably $2 to $3 per share below theirs, Porges says, though other analysts see AstraZeneca as less willing to enter a bidding war.
Several hours after Sanofi went public Medivation released a statement saying that it had indeed received an “unsolicited, non-binding proposal” from Sanofi.
The biotech said: “On April 15, 2016, Medivation's board of directors received a private letter from Sanofi making an indicative, non-binding proposal to acquire the company under the same economic terms, subject to completion of due diligence and other conditions. The company promptly acknowledged receipt of the letter and committed to respond.
“Consistent with its fiduciary duties, the Board, with the assistance of its independent financial and legal advisors, immediately began the process of evaluating this proposal. As today's public disclosure of this proposal does not differ materially from the private correspondence received less than two weeks ago, the board expects to complete its review of the proposal at a scheduled meeting today and will provide an update promptly thereafter.”
The company said that there were “no assurances that a transaction will be reached,” or on what terms. Medivation said its stockholders are advised to take no action at this time. Its shares were up 8.5% at 11am EDT, while Sanofi was down 1.1%.
So who’ll win the prize? We’ll have to wait and see. But Anderson figures that in any case, a deal is now inevitable. “There aren't many quality assets like Medivation in oncology,” Anderson said in a Thursday investor note. “With the deal likely to be accretive in anyone's hands, it is just a matter of price now.”
- see the release from Sanofi