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 Medivation shares jumped nearly 20 percent to close at $80.42, just
shy of the offer price of $81.50 per share. Shares of Pfizer, the
largest U.S. drugmaker, were down 0.4 percent at $34.84.
The offer is a 55-percent premium to Sanofi SA's initial bid to buy
Medivation for $52.50 per share in April, which pushed the San
Francisco-based company to put itself up for sale. It represents a
118-percent increase since Reuters reported on March 30 that
Medivation had hired JP Morgan to handle interest from companies in
a potential acquisition.
The planned purchase of Medivation, with its $2.2 billion-a-year
Xtandi, is the latest in a number of deals by large drugmakers
willing to pay top dollar for cancer drugs that are more effective
than standard, older treatments. Perhaps the most notable example is
AbbVie Inc's <ABBV.N> $21 billion purchase last year of
Pharmacyclics. The deal gave AbbVie shared ownership with Johnson &
Johnson <JNJ.N> in the blockbuster leukemia drug Imbruvica.
Analysts predicted the deal would not raise antitrust concerns
because Pfizer does not currently sell a prostate cancer drug aside
from generics.
Pfizer said its earnings would increase immediately after buying
Medivation. The deal comes four months after Pfizer and
Ireland-based Allergan Plc <AGN.N> scrapped their $160 billion
merger. Pfizer has since bought Anacor Pharmaceuticals Inc in a $5.2
billion deal to add an eczema gel to its portfolio.
The Medivation deal illustrates a shift in Pfizer's M&A strategy
from lowering taxes - the rationale behind the failed Allergan tax
inversion deal - to strengthening its lineup of branded drugs,
especially lucrative cancer treatments.
Pfizer, in a conference call with analysts, said it still plans to
decide by year-end whether to split into separate companies selling
either low-growth generics or patent-protected brand medicines.
"The Medivation deal increases the likelihood of a split," said
SunTrust Robinson Humphrey analyst John Boris. But, he said, Pfizer
would likely first try to buy other drugmakers or their best assets
in order to further strengthen its branded-drug portfolio.
A year ago, Pfizer paid $15 billion for Hospira, which sells generic
hospital products and is developing biosimilars meant to compete
with big-selling injectable biotech drugs. That deal was seen by
Wall Street as a way of bolstering its generic drugs ahead of
potentially divesting the business.
Pfizer's biggest growth driver is a new breast cancer drug called
Ibrance. The company is also trying to catch up with Merck & Co <MRK.N>
and Bristol-Myers Squibb Co <BMY.N> in developing immuno-oncology
drugs that work by taking the brakes off the immune system to fight
cancers.
Pfizer Chief Executive Ian Read told analysts the Medivation deal
was mainly driven by the desire to obtain Xtandi, although he
expressed high hopes for talazoparib and pidilizumab, experimental
Medivation drugs for breast cancer and lymphoma, respectively.
Xtandi generated U.S. net sales of $330.3 million in the second
quarter. Japanese drugmaker Astellas Pharma Inc <4503.T> owns the
rights to sell Xtandi outside the United States, where it generated
sales of $240 million in the period.
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Read said Xtandi, which was approved four years ago to treat men who
had failed to benefit from prostate cancer treatments, could capture
far greater sales if it is eventually approved for earlier use and
is prescribed by urologists.
"The product is just at the beginning of its growth cycle," Read
predicted.
Some analysts, including BMO's Alex Arfaei, said Pfizer appeared to
be overpaying for Medivation. But Piper Jaffray analyst Richard
Purkiss said the price is not excessive given Xtandi's potential for
earlier treatment in coming years.
Reuters had reported that Pfizer, Merck, Celgene Corp <CELG.O> and
Gilead Sciences Inc <GILD.O> had submitted expressions of interest
to buy Medivation.
"Given the already very high price being discussed, the difficult
public relationship between Medivation and Sanofi ... we see a
higher bid as very unlikely, but not impossible," RBC Capital
Partners wrote in a client note ahead of the announcement.
Sanofi said while it recognized the potential strategic benefits of
a combination with Medivation, it was a "disciplined acquirer and
remained committed to acting in the best interests of Sanofi
shareholders."
Pfizer said the deal was approved by boards of both companies and
should be completed in the third or fourth quarter.
Shares of other cancer drug companies, including Incyte Corp <INCY.O>
and Seattle Genetics <SGEN.O>, also rose on Monday, as investors
speculated about more dealmaking in the sector.
Pfizer's financial advisers were Guggenheim Securities and
Centerview Partners, with Ropes & Gray LLP providing legal counsel.
J.P. Morgan Securities and Evercore were Medivation's financial
advisers, while Cooley LLP and Wachtell, Lipton, Rosen & Katz served
as its legal advisers.
(Reporting by Ransdell Pierson in New York and Ankur Banerjee in
Bengaluru; Editing by Nick Zieminski and Dan Grebler)
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