As multiple suitors line up to acquire Medivation Inc MDVN, BMO Capital said a winning bid will require an acceptable value for Talazoparib, likely a premium over the $410 million upfront payment to BioMarin Pharmaceutical Inc. BMRN.
The Talazoparib Issue
Last year, Medivation bought the PARP inhibitor Talazoparib from BioMarin for $410 million, with additional milestone and royalty payments of up to $160 million. Talazoparib is in clinical trials for various types of cancers.
The latest bid from Sanofi SA (ADR) SNY includes Contingent Value Right (CVR) for Talazoparib sales representing a potential payment in 2022 of a maximum of $3.00 per share.
"We believe Sanofi's latest offer of $58 per share and $3 CVR brought MDVN to the negotiating table, but expect a takeout price to be in the range of $68–$76, based on a 4.5x–5.0x our peak revenue estimate of $2.6 billion," analyst Do Kim wrote in a note.
Kim estimates Talazoparib worldwide peak sales of $850 million in BRCA mutated breast cancer, with risk adjusted at 30 percent. On the other hand, Medivation's $30 billion Talazoparib valuation assumes clinical oncology indications over the next seven years.
The analyst expects the EMBRACA Phase III data (expected in the first half of 2017) could validate Talazoparib not only in breast cancer but in additional tumor types.
Other Possible Parties
Medivation agreed to enter into confidentiality agreements with multiple parties, with only Sanofi being disclosed. The analyst believes other contenders could be previously-mentioned Celgene Corporation CELG, Pfizer Inc. PFE and AstraZeneca plc (ADR) AZN.
"While the $58+$3 offer is in line with the historical sales multiple of 3.5x, we believe a competitive process will command a premium multiple, reflective of ABBV's 7x peak sales bid for PCYC," Kim noted.
Meanwhile, Kim cut EPS estimates to reflect management comments, by shifting Xtandi sales to second half of 2016 from second quarter, as revenues will be more back-half heavy. As a result, Kim trimmed second quarter EPS estimate to $0.25 from $0.30 and full-year 2016 EPS estimate to $1.30 from $1.31.
The analyst maintains Market Perform rating and $50 price target on Medivation.
At time of writing, shares of Medivation were up 0.50 percent at $62.64.
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