Pfizer to Buy Medivation for $14B, Boost Cancer Franchise (revised)

Putting rumors to rest, Pfizer Inc. PFE and Medivation, Inc. MDVN announced that they have entered into a definitive merger agreement under which Pfizer will acquire Medivation for $81.50 per share in cash or a total enterprise value of about $14 billion.

The acquisition, slated to close in the third or fourth quarter, is expected to be immediately accretive to Pfizer's earnings – earnings is expected to be boosted by about 5 cents in the first full year after close with additional accretion and growth expected thereafter. Pfizer does not expect the deal to affect its guidance for 2016.

Xtandi a Blockbuster

With this acquisition, Pfizer will add Medivation's prostate cancer treatment, Xtandi, to its portfolio. Xtandi generated global sales of about $2.2 billion in the last four quarters, as recorded by Medivation's partner, Astellas Pharma Inc.

Xtandi is currently being evaluated in several studies including a couple of late-stage studies in non-metastatic prostate cancer and another phase III study in hormone-sensitive prostate cancer. It is also in mid-stage development for the treatment of advanced breast cancer and hepatocellular carcinoma.

Moreover, Medivation's pipeline candidate talazoparib, an orally-available PARP inhibitor, represents significant upside potential. PARP inhibitors are currently being considered to be the next major class of therapeutics in oncology. Interest in this area has increased considerably following the announcement of impressive late-stage data on another company's PARP inhibitor, niraparib, in Jun 2016. Top-line results from Medivation's first talazoparib registrational study, EMBRACA, in germline-BRCA mutated breast cancer are expected in the first half of 2017.

According to Medivation, the addressable patient population for talazoparib in the U.S. and Europe is about 760k including 10k for the EMBRACA population, while the addressable market opportunity is more than $30 billion.

Pfizer will also add pidilizumab to its pipeline with this acquisition. Pidilizumab is an immuno-oncology IO asset which is being developed for diffuse large B-cell lymphoma and other hematologic malignancies and which could be combined with IO therapies in Pfizer's portfolio.

Our Take

The Medivation acquisition will strengthen Pfizer's cancer franchise which currently consists of products like Ibrance and Sutent. Pfizer is also working on strengthening its immune-oncology pipeline and the Medivation acquisition will be a good strategic fit for the company.

The acquisition goes to show the increasing interest in cancer which remains the second leading cause of death in the U.S. and a "Top 10" killer worldwide.

We note that Medivation was a part of acquisition talks for quite a while with the company first receiving an offer from French drugmaker Sanofi SNY. Sanofi had initially approached Medivation with an offer of $52.50 in cash which was rejected by the company and came back with a sweetened bid of $58.00 per share in cash plus a Contingent Value Right CVR for talazoparib sales representing a potential payment in 2022 of up to $3.00 per share.

Pfizer's offer price of $81.50 represents a huge premium to Sanofi's last offer.

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Pfizer is a Zacks Rank #3 (Hold) stock. Actelion Ltd. ALIOF is a better-ranked stock in the health care sector with a Zacks Rank #1 (Strong Buy).

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(We are reissuing this article to correct a mistake. The original article, issued on August 22, 2016, should no longer be relied upon.)