Enters into a definitive merger agreement with Medivation for about $14 billion
Drug behemoth Pfizer Inc. (NYSE: PFE) is on a growth kick after a slew of acquisitions over the last few months. The Company’s latest merger agreement brings to focus its growth plans for its Innovative Health business, which reported 9% in Q2 FY16, due to strong momentum from breast cancer treatment, Ibrance.
Pfizer announced on August 22nd, 2016, that it has entered into a definitive merger agreement with Medivation Inc. (NASDAQ: MDVN), a biopharmaceutical company that develops and commercializes small molecules for oncology, for $81.50 a share in cash for about $14 billion. Pfizer has emerged the winning bidder after many other drug majors, including French drugmaker Sanofi SA (NYSE: SNY) offered about $9.3 billion for Medivation in April 2016, which the latter turned down.
The Boards of Directors of both companies have approved the merger, which is expected to be immediately accretive to Pfizer’s adjusted diluted EPS upon closing, approximately $0.05 accretive in the first full year after close with additional accretion and growth anticipated thereafter. Pfizer does not expect the transaction to impact its current FY16 guidance. The drugmaker expects to complete the acquisition in Q3 FY16 or Q4 FY16. If the acquisition is not completed, Medivation would have to pay Pfizer a $510 million termination fee.
Medivation to complement Pfizer’s IO portfolio
Pfizer’s drugs portfolio includes the breast cancer treatment Ibrance and several other promising immune-oncology (IO) products. Medivation, founded in 2004, has in its portfolio prostate cancer drug Xtandi, a leading novel hormone therapy already approved for sale in the U.S., and which generated about $2.2 billion in worldwide net sales over the past four quarters. Moreover, Xtandi is also being further developed in Phase 2 studies for the treatment of advanced breast cancer and hepatocellular carcinoma. Xtandi is forecasted to generate $5.7 billion in sales by 2020.
In addition, Medivation has a promising, late-stage oncology pipeline, which includes two development-stage oncology assets, talazoparib and pidilizumab, which has the potential to be clubbed with IO therapies in Pfizer’s portfolio.
For Medivation, Pfizer is the ideal partner to extend the reach of its blockbuster Xtandi franchise and take its late-stage assets to their next stages of development and commercialization, giving Pfizer leadership in two hormone-driven cancers.
Pfizer expects to finance the transaction with existing cash. Pfizer’s financial advisors for the transaction were Guggenheim Securities and Centerview Partners, with Ropes & Gray LLP acting as its legal advisor. J.P. Morgan Securities and Evercore served as Medivation’s financial advisors, while Cooley LLP and Wachtell, Lipton, Rosen & Katz served as its legal advisors.
Focus on cancer treatments
Cancer is one of the pharmaceutical industry’s biggest markets, with worldwide sales amounting to roughly $80 billion a year and growing more than 10% annually, according to EvaluatePharma and as reported by The Wall Street Journal on August 22nd, 2016. Xtandi competes with Johnson & Johnson’s (NYSE: JNJ) prostate-cancer treatment Zytiga. Xtandi would also face potential competition in the future from Johnson & Johnson’s new prostate-cancer drug, which is still in its development phase.
In recent years, IO has become one of the most promising and fastest growing areas of cancer research and drug development. Cancers grow and spread because tumor cells evade being targeted by the immune system. One of the most recent discoveries in cancer therapy has been to identify ways to enable the immune system to target and destroy tumor cells through a process called immune checkpoint inhibition. These therapies not only have the potential to reduce tumor growth like traditional therapies, but also potentially eliminate the cancer entirely.
Pfizer’s stock ended the day at $34.82, slipping 0.77%, at the close on Wednesday, August 24th, 2016, having vacillated between an intraday high of $35.38 and a low of $34.76 during the session. The stock’s trading volume was at 22,528,649 for the day. The Company’s market cap was at $212.47 billion as of Wednesday’s close.
Consolidation has long been the name of the game in the pharmaceutical industry, especially for large companies like Pfizer, which see acquisitions as a means to spend less on R&D. It remains to be seen if Pfizer reaps the benefits of the acquisition in its balance sheets in the coming months.