Medivation, which makes the big-selling drug Xtandi to treat prostate cancer, has finally found its buyer in a fellow American drug maker, Pfizer.
Pharmaceutical companies from all over the world placed bids for Medivation in an auction after it rebuffed an offer by the French drug maker Sanofi. On Monday, Pfizer said that it had prevailed, with a $14 billion agreement to acquire Medivation, representing $81.50 a share in cash.
The frenzy over Medivation shows what pharmaceutical companies are willing to pay for oncology deals. At one point in February, Medivation stock was selling for less than $30 a share.
When Medivation agreed in July to speak with several interested parties, the company’s chairman, Kim Blickenstaff, said it had “significant scarcity value as one of the only profitable, commercial-stage oncology companies.”
Pfizer, like virtually all pharmaceutical companies, is making a big push into oncology. One reason is that discoveries in genetics and immunology are allowing for the development of new types of cancer drugs.
But another big reason is that cancer drugs can sell for well over $100,000 a year and so far have been more resistant to cost-cutting efforts by insurers than drugs for some other diseases.
Pfizer, which began its cancer effort several years ago, has not been wildly successful. But it now has a hit with Ibrance, a blockbuster drug for breast cancer. The acquisition of Medivation will give it another one in Xtandi.
The prostate cancer drug is Medivation’s only marketed product. The pill has been used to treat 64,000 men in the United States alone, and it generated $2.2 billion in global sales in the last four quarters. Analysts see sales eventually reaching $4 billion or more annually.
Shares of other companies that are developing cancer drugs, like Incyte, Clovis and Tesaro, rose on Monday on hopes they might also attract suitors.
Other eye-popping deals for cancer drugs lately include AbbVie’s acquisitions of Pharmacyclics for $21 billion last year and of Stemcentrx for $5.8 billion earlier this year.
Some analysts suggested Pfizer paid too much, particularly since it will split profits from Xtandi with Japan-based Astellas Pharma, which helps market the drug. Pfizer defended the deal, saying it would add 5 cents to its earnings per share in the first full year.
“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” Ian Read, chairman and chief executive of Pfizer, said in the statement on Monday.
The deal is Pfizer’s largest since its $152 billion merger with Allergan was terminated in April. That transaction had been structured as a so-called inversion, which meant that Pfizer would move its headquarters abroad to lower its tax bill. The United States Treasury issued new rules that caused the two companies to end their combination. Previously, Pfizer had unsuccessfully tried to take over AstraZeneca, a British pharmaceutical giant.
Unlike those two big aborted deals, the takeover of Medivation is a small transaction that will not involve the disruption that could occur trying to meld two companies of similar size.
Medivation also has two late-stage oncology assets, talazoparib, which is aimed at treating breast cancer, and pidilizumab for blood cancer.
Talazoparib is a type of drug called a PARP inhibitor, which interferes with the repair of defective DNA. These drugs are expected to be especially effective for breast cancer patients who have mutations in genes called BRCA1 or BRCA2.
One such drug, AstraZeneca’s Lynparza, is already on the market and several more are in development. Tesaro recently announced positive data in ovarian cancer for its PARP inhibitor, raising the perceived value of other drugs of its type. Medivation and Pfizer say theirs could be the most potent and might be used in combination with Pfizer’s Ibrance, but that remains to be seen.
If Pfizer is interested in the PARP inhibitor now, it was not so much a few years ago. In 2011, it divested its own PARP inhibitor to Clovis Oncology for a convertible promissory note worth a mere $7 million. Pfizer will also be eligible for payments of up to $259 million and a midteen percentage royalty if the Clovis drug, called rucaparib, reaches the market.
The other Medivation drug in development, pidilizumab, could help the body’s immune system fight cancer, though its mechanism of action is not known. This approach, called immunotherapy, is the hottest area in oncology, or perhaps all of medicine, and Pfizer is trying to catch up to leaders like Bristol-Myers Squibb and Merck.
Still, Mr. Read said in a conference call with analysts on Monday that Pfizer’s valuation of Medivation was based largely on the prospects for Xtandi, which it hopes can be used earlier in the course of prostate cancer than it is now.
“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 pidilizumab — to their next stages of development so that they can be made available to patients as quickly as possible,” David Hung, founder and chief executive of Medivation, which is based in San Francisco, said in the news release.
Xtandi competes mainly with Johnson & Johnson’s Zytiga. There is some prospect that there could be generic versions of Zytiga coming in the next few years, which could affect sales of Xtandi, though Pfizer executives said in a conference call to discuss the deal that they think Xtandi will be able to compete even with Zytiga generics.
Johnson & Johnson is also developing another prostate cancer drug, apalutamide, invented by the same researchers at the University of California, Los Angeles, who invented Xtandi. Medivation had sued, saying it had the right to that drug as well, but it lost.
Xtandi has also courted criticism from activists who complain that Americans pay $129,000 a year for the drug, two to four times the price paid in other developed countries. Senator Bernie Sanders tweeted the same complaint on Monday.
The activists asked the National Institutes of Health to essentially pre-empt the patents on Xtandi, since the early research was done with federal money. But the agency declined to do so.
Sanofi went public in April with its original Medivation offer of $52.50 a share. Medivation quickly rejected the bid, calling it “opportunistically timed.” Sanofi threatened an action to replace Medivation’s board.
It later came back with a higher offer of $58 a share plus $3 a share if talazoparib proved to work. Medivation agreed to open a bidding process and Sanofi dropped its effort to replace the board.
This is not the first time Pfizer and Medivation have done business — and the previous occasion did not end well for Pfizer.
Pfizer’s deal is subject to regulatory clearance and the tender of a majority of Medivation’s shares. Pfizer expects to close the deal in the third or fourth quarter.
Evercore and JPMorgan provided financial advice to Medivation, while Guggenheim Securities and Centerview Partners worked with Pfizer. Cooley and Wachtell, Lipton, Rosen & Katz served as Medivation’s legal adviser, and Ropes & Gray counseled Pfizer.
By ANDREW POLLACK and LESLIE PICKER
AUG. 22, 2016