Pfizer and Medivation ink $14-billion M&A deal

Bidding war begun by Sanofi’s designs to acquire Medivation ends up propelling Pfizer into potential leading position in oncology

Jeffrey Bouley
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NEW YORK & SAN FRANCISCO—As we noted in our article “A medley of M&As,” Sanofi was keen to acquire Medivation, offering $9.3 billion in a proposed deal that Medivation rebuffed soundly, leading Sanofi to go into hostile takeover mode. In the end, what got triggered was a bidding war, with several players known or rumored. In the end, though, it seems Pfizer has won out. The company offered for $81.50 a share in cash for a total enterprise value of approximately $14 billion, and the boards of both Pfizer and Medivation have approved the deal. All that remains now is shareholder and regulatory approvals.
By acquiring California-based Medivation—a biopharmaceutical company focused on developing and commercializing small molecules for oncology—New York-based Pfizer believes it will propel itself into a leading position in oncology by bringing in proven performer Xtandi as well as a couple pipeline products with future promise. Pfizer expects the deal to be immediately accretive to adjusted diluted earnings per share upon closing, approximately 5 cents accretive in the first full year after close and with additional accretion and growth anticipated thereafter. Pfizer does not expect the transaction to impact its current 2016 financial guidance.
“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and CEO of Pfizer. “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.”
As for Medivation’s portfolio, there is Xtandi, an androgen receptor inhibitor that blocks multiple steps in the androgen receptor signaling pathway within the tumor cell. The drug is “the leading novel hormone therapy in the United States today,” Pfizer says, generating approximately $2.2 billion in worldwide net sales over the past four quarters as recorded by Astellas Pharma Inc., with whom Medivation entered an agreement in 2009 to develop Xtandi globally and commercialize jointly in the United States. Since its approval for advanced metastatic prostate cancer by the U.S. Food and Drug Administration in 2012, Xtandi has treated 64,000 men to date in the U.S. alone.
Pfizer notes that Medivation and Astellas have built “a robust development program” for Xtandi that includes two Phase 3 studies in non-metastatic prostate cancer and another Phase 3 study in hormone-sensitive prostate cancer. It is also being further developed in Phase 2 studies for the potential treatment of advanced breast cancer and hepatocellular carcinoma.
“In addition, Medivation has a promising, wholly owned, late-stage oncology pipeline, which includes two development-stage oncology assets, talazoparib and pidilizumab,” according to Pfizer. “Talazoparib, currently in a Phase 3 study for the treatment of BRCA-mutated breast cancer, has the potential to be a highly potent PARP inhibitor and could be efficacious across several additional tumors. Pidilizumab is an immuno-oncology asset being developed for diffuse large B-cell lymphoma and other hematologic malignancies,” which Pfizer notes has the potential to be combined with immuno-oncology therapies in its own portfolio.
“We believe the combination with Pfizer is the right next step in our growth trajectory,” said Dr. David Hung, founder, president and CEO of Medivation. “This compelling transaction will deliver significant and immediate value to our stockholders and provides new opportunities for our employees as part of a larger company. We believe that Pfizer is the ideal partner to extend the reach of our blockbuster Xtandi franchise and take our promising, late-stage assets—talazoparib and pidiluzimab—to their next stages of development so that they can be made available to patients as quickly as possible.”
“The proposed acquisition of Medivation will build upon Pfizer’s success with our Ibrance (palbociclib) launch in HR+/HER2- metastatic breast cancer and with our strong immuno-oncology portfolio, and will transform Pfizer into a leading oncology company,” commented Albert Bourla, group president of Pfizer Innovative Health. “Ibrance and Xtandi are anchor brands in breast and prostate cancer respectively, giving Pfizer leadership in two hormone-driven cancers. Similar to Ibrance in the breast cancer setting, Xtandi is being explored for its potential to move from metastatic prostate cancer to treat earlier stages of non-metastatic prostate cancer.”
Pfizer expects to complete the acquisition in the third or fourth quarter of this year.
Analysts at Leerink Partners noted in a write-up about the proposed deal that Pfizer is emphasizing how the acquisition will accelerate its overall strategy in oncology and drive growth in innovative pharmaceutical efforts, with company management stressing that the majority of the deal’s value is attributed to Xtandi.
As the Leerink analysts wrote, “[Pfizer] noted that it applies a relatively standardized risk-adjusted approach to pipeline products (talazoparib [PARP inhibitor] and pidilizumab [immuno-oncology agent])—implying little if any value for pidilizumab in the transaction, and value capture most likely to be realized by new indications for Xtandi and/or talazoparib over the next few years. In our view, the only near-term potential upside surprise would be a surprise benefit of Xtandi in androgen receptor-positive breast cancer, which looks like a long shot according to our Biotech team. We also believe success in the EMBRACA study of talazoparib in treatment-refractory germline BRCA (gBRCA) breast cancer is essential to validate talazoparib's value proposition and position among other PARP inhibitors in development.”
While Leerink noted that pidilizumab “does not appear to be a major valuation driver” in Pfizer’s assessment, company management did cite promising data in hematological malignancies and diffuse intrinsic pontine glioma, with the analysts writing: “Once thought to be a PD-1 inhibitor, the mechanism of action for pidilizumab is not currently well understood. Despite this, the company plans to explore potential combinations with other immuno-oncology (IO) agents in its portfolio. We remain highly skeptical of this product and its opportunity in IO.”
On the more upbeat side, Zacks Investment Research analysts wrote of the deal: “The Medivation acquisition, if it goes through, will strengthen Pfizer’s cancer franchise, which currently consists of products like Ibrance, Xarelto and Sutent. Pfizer is also working on strengthening its immune-oncology pipeline, and the Medivation acquisition would be a good strategic fit for the company. Pfizer is already benefitting from strong growth in the oncology segment.”
Writing a piece for the Motley Fool website, Brian Feroldi acknowledged, “Paying $14 billion might sound like an extremely high price for Medivation since its portion of the Xtandi profits were less than $1 billion last year, but the price becomes more reasonable when you consider the company's pipeline. Xtandi is in late-stage clinical trials as a treatment for other prostate cancer indications, and it's also being researched as a potential treatment for breast and liver cancer, too.
“Beyond Xtandi, Medivation's pipeline includes two development-stage compounds—talazoparib and pidilizumab—which are in late-stage trials as potential treatments for BRCA-mutated breast cancer and diffuse large B-cell lymphoma, respectively. If these compounds work out, then Medivation's top line would certainly have had a lot more room to run.”

Jeffrey Bouley

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