Pfizer beats out Sanofi to take Medivation for $14 billion

(Bloomberg) — Pfizer claimed the pharmaceutical industry’s latest big prize Monday, beating out a group of rivals after months of jockeying to buy Medivation and its blockbuster cancer drug for $14 billion.

Left behind was French drugmaker Sanofi, whose aggressive and at one point hostile pursuit of Medivation helped open up the process to Pfizer, Gilead Sciences and others that were said to be involved. Pfizer will pay $81.50 a share in cash, the companies said in a statement on Monday, well above Sanofi’s initial $52.50 a share offer.

By acquiring Medivation, Pfizer gets Xtandi, a cancer drug that’s already approved for sale in the United States and elsewhere, and that analysts project will generate $1.33 billion in annual sales by 2020. Pfizer Chief Executive Officer Ian Read said in May that he was more interested in acquiring late-stage assets because the company already had plenty of early-stage drugs in the works.

Shares of Medivation, which closed at $67.16 on Friday, climbed 20 percent to $80.50 at 10:28 a.m. Pfizer gained 0.8 percent to $35.26, while Sanofi was up 0.4 percent to 69.98 euros in Paris.

Sanofi’s ambitions blocked

The deal is a blow to Sanofi’s ambition of expanding into oncology, one of the hottest areas in the pharmaceutical industry. The company spent five months courting and pressuring Medivation to reach a takeover agreement, and at one point attempted to replace Medivation’s board and force a deal. Medivation, which repeatedly rejected Sanofi’s bids, later opened up the sales process, inviting in other drugmakers for a look, including Gilead, Celgene Corp., Merck & Co. and Pfizer, according to people familiar with the process.

“We appreciate the opportunity to have engaged constructively with Medivation,” Sanofi said in a statement Monday. “While we recognized the potential strategic benefits of a combination with Medivation, we are first and foremost a disciplined acquirer and remain committed to acting in the best interests of Sanofi shareholders.”

The deal with Pfizer contains a “no shop” provision, under which Medivation would pay Pfizer a $510 million termination fee for Medivation if it ends the deal and accepted another offer. Pfizer said the transaction should close by the end of the year, and will boost Pfizer’s earnings by 5 cents a share in the first full year.

Rich premium

The $81.50 a share price represents an about 118 percent premium compared to Medivation’s price on March 30, the day before Medivation was said to have hired advisers to defend against a takeover. In April, it was said to have rejected Sanofi’s initial approach.

Jefferies analyst Jeffrey Holford said that while the price may be seen as expensive, the deal is a logical fit for Pfizer.

“We never try to be too quick to judge these situations given there could still be substantial growth from Xtandi as well as from pipeline assets,” he said. He called a counter-bid unlikely.

Along with the cancer drug, Xtandi, Medivation comes with two experimental products: a drug for breast cancer and another for the blood cancer lymphoma. The breast cancer drug belongs to a class of treatments known as PARP inhibitors, which disrupt cancer cells’ process of DNA repair. The drug, talazoparib, may well be the most potent medicine in the PARP class, according to Katherine Xu, an analyst at William Blair & Co. in New York, who estimates annual peak sales may reach $3 billion.

Active dealmaker

Pfizer has been one of the drug industry’s most active dealmakers. In April, it walked away from an about $160 billion merger with Allergan PLC after the U.S. Treasury announced rules that would have reduced the tax benefits of the transaction. And last year it paid $17 billion to buy Hospira, a maker of injectible drugs used in hospitals.

Pfizer has also talked of breaking into two separate companies, one focused on developing new pharmaceuticals and the other on older drugs already on the market. While Pfizer’s management has said it would make a decision by the end of the year, some analysts are starting to see a division of the business as less likely.

Bernstein analyst Tim Anderson said in a note Monday that the Medivation deal didn’t change his view that Pfizer was not likely to split, though the purchase wouldn’t affect the timing of such a move if Pfizer goes ahead.

Oncology growth

The Medivation deal makes sense for Pfizer’s ambitions in oncology, where it recently introduced the breast cancer drug Ibrance, and to help offset slowing sales of older products, Anderson said.

“There aren’t many oncology assets in the ‘bolt-on’ size range, and while Ibrance is doing great, Pfizer could benefit from more critical mass in oncology,” Anderson said. “Medivation could arguably fit well with a host of different companies looking to gain greater cancer exposure, and Pfizer has been saying how they are open to doing deals of all sizes.”

Pfizer will split U.S. sales of Xtandi with Tokyo-based Astellas Pharma, which partnered with Medivation on the drug.