Pfizer $PFE has struck a deal to buy Medivation $MDVN at a price CEO David Hung has been looking for. The two companies announced Monday morning that the pharma giant will pay $81.50 a share — about $14 billion — for Medivation, all of it in cold, hard cash. That’s far more than the $9.3 billion offer Sanofi used to get the auction started.
Medivation closed Friday with a market cap of $11.1 billion, giving the company a big premium to boast about to shareholders. Sanofi $SNY last bid $58 a share in cash and an extra $3 CVR for Medivation, which has consistently rejected the pharma company’s offers as grossly inadequate. A swirl of rumors has also put Merck $MRK, Celgene $CELG, Gilead $GILD and others at the bargaining table as well.
Pfizer will now beef up its oncology portfolio with Medivation’s share of Xtandi, partnered with Astellas. Analysts have projected that the blockbuster sales performance of Xtandi—which goes head-to-head against Zytiga—will shoot up to close to $5 billion by 2020.
The buyout also adds an experimental late-stage PARP inhibitor called talazoparib to Pfizer’s pipeline. Taking a fragment of data, Hung recently claimed that talazoparib was clearly the best of all the contenders in the pipeline, far surpassing Tesaro’s niraparib, Clovis’s rucaparib, AstraZeneca’s Lynparza (olaparib) and AbbVie’s veliparib. Tesaro, though, has fielded strong results from its study, helping beef up peak sales projections for the class.
Medivation bought their drug last year from BioMarin for $410 million cash, adding $160 million on the back end of the deal. And it’s proven to be the wild card in this high-stakes game of biotech M&A.
Pfizer’s premium surprised some battle hardened veterans on Wall Street.
“We have a very difficult time getting to the ~$80/share price that Pfizer (PFE Not Covered) is reported to be paying based on reasonable modeling assumptions for the company,” noted RBC’s Simos Simeonidis just ahead of the official confirmation. “We remind investors that Xtandi is shared with Astellas. Also, media reports point to an all-cash transaction, which is both surprising, given the risk involved in second asset talazoparib and a credit to MDVN’s management, which may manage to sell this asset, without any or much of a CVR (if that indeed ends up being the case), with talazoparib Phase III data around the corner.”
“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Pfizer CEO Ian Read. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.”
The biggest success Pfizer had experienced recently has been the accelerated approval for Ibrance (palbociclib), a pioneering CDK 4/6 drug that now faces several late-stage rivals. Pfizer paid Merck KGaA $850 million to partner on their PD-L1 checkpoint drug, and this new deal clearly underscores its central focus on the cancer arena.
Pfizer has plenty of cash available for the buyout. It made unsuccessful megabids for AstraZeneca and Allergan. And Pfizer CEO Ian Read has clearly been willing to dig deep to build the company through acquisitions.
Ironically, Pfizer outlicensed its PARP, PF-01367338, now known as rucaparib, to Clovis back in 2011, when it was restructuring its pipeline and slashing its R&D budget. Now it finds itself buying a rival for a blockbuster sum. Pfizer gained an equity stake in Clovis along with $255 million in milestones in the deal, an amount that is likely far exceeded by what it’s willing to pay Medivation stockholders for talazoparib. In addition, Pfizer indirectly helped fund Xtandi’s development, paying $225 million to Medivation to partner on dimebon, which flopped for Alzheimer’s.
The Pfizer deal marks an embarrassing denouement for new Sanofi CEO Olivier Brandicourt, who had sought to make his mark on the company with a bargain deal. Sanofi, and others in the hunt, will now have to turn their attention to other targets of opportunity. And they aren’t likely to start on the low end.
A deal like this could signal a willingness by Big Pharma to pay top dollar for marketed and late-stage products with real potential. Overall, M&A has been dragging this year in biopharma. A few more acquisitions like this would bring the numbers up considerably. Biogen, Gilead and others have indicated a willingness to snap up new deals to beef up their pipelines as analysts clamor for more projects to get excited about.
— Brad Loncar (@bradloncar) August 22, 2016
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