Pfizer agreed to buy Medivation for about $14bn, gaining a blockbuster prostate-cancer treatment and leaving French drug maker Sanofi jilted.
Pfizer will pay $81.50 a share in cash, the companies said in a statement yesterday. Shares of Medivation, which closed at $67.16 on Friday, climbed about 20% to $80.57 in early US trading.
By acquiring Medivation, Pfizer gets Xtandi, a cancer drug that’s already approved for sale in the US and elsewhere, and that analysts project will generate $1.33bn in annual sales by 2020. Pfizer chief executive officer Ian Read said in May that he was more interested in acquiring late-stage assets because the company already had plenty of early-stage drugs in the works.
The deal is a blow to Sanofi’s cancer ambitions. The company has spent five months both courting and pressuring Medivation to reach a takeover agreement. Medivation in recent weeks rejected its offer of $58 a share, plus a contingent value right valued at a maximum of $3 a share.
Pfizer is back to making deals since walking away from a $160bn mega-merger with Allergan in April, after the US Treasury announced rules that would reduce the tax benefits of the transaction.
The New York-based company has been assessing whether or not to split the company in two, to separate the part of the business that is developing new pharmaceuticals from the one collecting cash from older drugs on the market. While Pfizer’s management has said it would make a decision by the end of the year, some analysts are starting to see a division of the business as less likely.
Pfizer has been relying on new branded treatments, including cancer drugs, to boost revenue, as sales of older medicines have slowed. Sales of its breast cancer treatment Ibrance helped beat analysts’ estimates last quarter.
The Medivation deal makes sense for Pfizer’s ambitions in oncology, Bernstein analyst Tim Anderson said in a note to clients.
“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 said.
“Medivation could arguably fit well with a host of different companies looking to gain greater cancer exposure, and Pfizer has been saying how they are open to doing deals of all sizes.”
Pfizer’s shares fell 0.7% to $34.75 before the markets opened.
Medivation, which will be Pfizer’s biggest deal since buying Hospira for about $17bn last year, is a rare prize. 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. Though Xtandi is a blockbuster, Pfizer will split US sales with Tokyo-based Astellas Pharma, which partnered with Medivation on the drug.
Medivation also comes with two experimental products: a drug for breast cancer and another for the blood cancer lymphoma. The breast cancer drug belongs to a class of treatments known as PARP inhibitors, which disrupt cancer cells’ process of DNA repair. The drug, talazoparib, may well be the most potent medicine in the PARP class, according to Katherine Xu, an analyst at William Blair & Co in New York, who estimates annual peak sales may reach $3bn.
The purchase will boost Pfizer’s earnings per share immediately after the closing, adding about 5 cents in the first full year, according to the statement. The drug maker expects to complete the transaction in the third or fourth quarter. It includes a $510mn termination fee for Medivation if it ends the deal and accepts another offer.
By spurning Sanofi’s initial offer, valued at about $9bn, Medivation was able to bring in more potential suitors and drive up the bidding. Gilead Sciences, Celgene Corp and Amgen were among the other drug makers reported to consider the deal. 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 drug maker chose to go straight to Medivation investors, seeking their support to oust the board. 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 hostility in July as Medivation agreed to enter into confidentiality agreements.