Commentary

Oncology Drugs Motivate Pfizer's $14-Billion Deal For Medivation

Pfizer announced early Monday that it had agreed on a $14-billion deal to acquire San Francisco-based Medivation, a biotech firm specializing in oncology, beating out a handful of rivals who have also expressed interest.

“Medivation makes the world’s best-selling prostate cancer drug, Xtandi,” report Arash Massoudi and David Crow for Financial Times in a story that broke the news of the impending deal while warning that it had not been finalized. “It is also developing an experimental drug called Talazoparib, known as a ‘parp inhibitor,’ which is designed to stop tumor cells from multiplying by damaging their DNA,” they write.

Reuters reported earlier this week that Pfizer, Sanofi, Merck & Co., Celgene and Gilead Sciences were interested in acquiring Medivation. “The strong acquisition interest in the San Francisco-based company illustrates how demand for new cancer treatments, which can possibly add years to patients’ lives, could spell billions of dollars in revenue to the companies that own them,” writes Reuters’ Greg Roumeliotis.

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"Founded in 2004, Medivation became the subject of takeover talk after Sanofi tabled a $9.3 billion offer at the end of April and then began a hostile pursuit of the company, which lasted two months. In July, Medivation rejected an improved offer from Sanofi, worth $58 a share or roughly $10 billion, but agreed to sign confidentiality agreements with the French drugmaker and other interested buyers,” write FT’s Massoudi and Crow. 

“Xtandi, already generates about $2 billion in yearly sales and has the potential to more than double, according to analysts,” reports the Wall Street Journal’s Jonathan D. Rockoff. It “has held its own against a rival prostate-cancer treatment from Johnson & Johnson called Zytiga. Xtandi, which Astellas Pharma also sells [and gets 50% of the profit], could be one of the top-selling cancer drugs by 2020, according to EvaluatePharma. But J&J is developing a new prostate-cancer drug that could pose a threat to Xtandi, according to analysts.”

Pfizer’s planned merger with Ireland's Allergan fell apart in April after the Treasury Dept. announced changes in U.S. tax laws that would have made the inversion deal much less profitable. The deal with Medivation would be Pfizer’s biggest since it bought Hospira for about $17 billion in February 2015, “and the company is a rare prize,” write Bloomberg’s Caroline Chen and Cynthia Koons. “As oncology becomes one of the hottest areas in drug development, large drug and biotechnology firms have found only a few mid-sized targets with revenue-generating, approved treatments.”

“Many factors make acquisitions attractive for traditional big pharmas,” writes Cheryl Swanson for The Motley Fool. “But in recent years, deals have tended to focus on targets that provide a blockbuster drug that can pump up the acquirer's sales. A second major focus has been on companies with a strong pipeline to beef up the acquirer's future prospects. Medivation fits into both categories perfectly.”  

Chen and Koons also point out “Sanofi CEO Olivier Brandicourt may have pushed his case too aggressively. After Sanofi’s initial offer of $52.50 a share was spurned, the Paris-based drugmaker chose to go straight to Medivation investors, seeking their support to oust the board,” they remind us. “Medivation warned of a ‘devil’s bargain’ that would usher in new directors who might settle for a takeover price that wasn’t in shareholders’ interest.”

Sanofi dropped the hostile in July after Medivation agreed to enter into confidentiality agreements.

Medivation co-founder and CEO David T. Hung, who has an A.B. summa cum laude in biology from Harvard College and an M.D. Alpha Omega Alpha from the University of California, San Francisco, School of Medicine “says he decided to found [Medivation] after watching a 28-year-old breast-cancer patient die during his oncology fellowship,” the WSJ’s Rockoff reports.

In a somewhat skeptical take on Hung — singling out his “ability to tout early data and look for an edge wherever he can find it” and “win at all costs mentality” — Endpoints News’ editor John Carroll wrote last month that “the best outcome for Hung here is that somebody pays a record price for his assets. And he’ll say anything to make that happen.”

Whatever was said and presented, it looks like that’s happening. As the FT points out, if the deal goes through, Pfizer would be paying a premium of about one-third to Medivation’s closing share price of $67.16 at the end of last week.

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