Pfizer and Medivation agree $14bn merger

October 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Global pharmaceutical powerhouse Pfizer Inc has, until fairly recently, neglected to enter the oncology market in a notable way. Indeed the company lagged behind many of its competitors in the field of cancer related drugs.

Of late, Pfizer has begun to play catch up and now has a number of cancer related treatments in development. The oncology focused space is one of the pharmaceutical industry’s biggest markets, with worldwide sales amounting to roughly $80bn a year. The industry has been growing at more than 10 percent annually in recent years, according to EvaluatePharma.

Though Pfizer has begun to pay considerable attention to developing a strong pipeline of treatments, in late August the company firmly established itself as a major force in the oncology field with the announcement that it had agreed to acquire US cancer drug company Medivation Inc, a move which will see Pfizer add Medivation’s blockbuster prostate cancer drug Xtandi to its burgeoning oncology portfolio.

Under the terms of the deal, Pfizer has agreed to pay Medivation’s shareholders $81.50 per Medivation share held in cash, for a total enterprise value of approximately $14bn. The deal represents a 21 percent premium over Medivation’s closing stock price on Friday 19 August, the last trading day before the deal was announced. The companies expect the deal to close in the third or fourth quarters of 2016, provided the transaction meets the customary closing conditions. The deal is not expected to fall foul of antitrust regulations, given Pfizer’s relative inactivity in the cancer treatment space to date.

The amalgamation of Medivation (and Xtandi) into Pfizer is a notable addition, given that Xtandi generated net sales of $330.3m in the US in the second quarter of 2016. Equally, Japanese drug maker Astellas Pharma Inc, which owns the right to sell Xtandi outside the US, recorded sales of $240m during the same period. Typically the drug generates about $2bn in yearly sales and there are hopes that Xtandi could double its sales moving forward. Pfizer said the deal would add five cents to earnings in the first full year after closing and the addition of the company is not expected to affect Pfizer’s 2016 financial guidance.

The company, in a statement announcing the acquisition, said it plans to finance the transaction with its cash holdings.

“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 chief executive 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.”

Pfizer’s interest in Medivation comes as the company looks to rethink its wider corporate strategy, following the collapse of the firm’s $160bn tax inversion deal for Ireland based Allergan Plc. Rather than pursue tax savings, Pfizer has begun to strengthen its revenue generation by improving its line up of branded drugs through M&A. The Medivation deal was sandwiched between the $5.2bn acquisition of Anacor Pharmaceuticals Inc – the producer of a leading eczema gel – and the $1.1bn deal for an antibiotics division of AstraZeneca, which was announced on 24 August.

For Medivation’s shareholders, the deal is the final act at the end of a tumultuous eight months. In February, the company’s share price had plummeted to $26.41 in the wake of a notable sell off in the biotech space. Furthermore, in April French drug manufacturer Sanofi SA made an unsolicited proposal of $52.50 a share for the firm for an enterprise value of $9bn, however that offer was rejected by Medivation which characterised the offer as substantially undervaluing the company’s value. Medivation’s rejection of Sanofi’s advances drew the attention of Merck & Co, AstraZeneca, Celgene, and Gilead Sciences, as well as Pfizer.

“We believe the combination with Pfizer is the right next step in our growth trajectory and is a testament to the passion and dedication by which the Medivation team has delivered on our mission to profoundly transform patients’ lives through medically innovative therapies,” said David Hung, M.D., 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.”

Richard Summerfield