Big pharma merger today and no it does not involve Valeant – those days are over – at least for now. Medivation Inc (NASDAQ: MDVN) is soaring around 20 percent as Pfizer Inc. (NYSE:PFE) has bid $14 billion for the company. The merger widely speculated over the weekend was announced this morning. So just how much synergies are we talking about? Here is what the sell side is saying.
Medivation Inc (NASDAQ: MDVN) – Analysts React
The FT reported that PFE is close to finalizing a $14bn deal to acquire MDVN. While we take no view on the likelihood of such a deal materializing, we note this move would be consistent with PFE’s stated interest in pursuing bolt-ons. The reported $14bn transaction value implies 2017 EV/S of ~11.9x on published GS estimates, which compares to the 11x/16x median/mean for SMID biotech deals for 2017 (excluding Synageva and Idenix, which had no revenues)
We believe PFE should be able to drive further growth for MDVN’s flagship product Xtandi given its presence in the genitourinary space and PFE’s broader commercial footprint. We also expect PFE to work to find effective roles for Xtandi as well MDVN’s PARP inhibitor talazoparib in combination with PFE’s emerging blockbuster Ibrance as well as other products in PFE’s emerging immuno-oncology (I-O) pipeline.
While PFE is described as having “beaten” out other companies in this competitive bid, is this something to be proud of? At first pass, paying $80+/share for a stock that was trading in the $30’s just a few months ago feels pricey.
Acquired at 4.1x peak sales. The $14bn price tag for MDVN is approximately 5.3x our peak sales multiple of $2.66bn, which reflects Medivation’s portion of our peak WW Xtandi estimate of $6.9bn and peak WW Talazoparib estimate of $240mn ($850mn risk adjusted by 30%). We believe the multiple is within that of historical biotech acquisitions, which have ranged from 1x-10x peak sales estimates. We expect the transaction to be approved given support by both management teams and boards of directors.
First blush looks to add decent EPS accretion: Pfizer management has guided that Medivation should add c$0.05 (c2%) to EPS in the first full year after closing with additional accretion and growth anticipated thereafter. Based on assuming peak sales for Xtandi of $2.7bn as well as $1.5bn for talazoparib (launch est. 2018) and $1bn for pidilizumab (launch est. 2020) we estimate that the transaction could add up to c7% accretion to EPS in the mid term, though we have not formally changed our estimates at this time.
Evercore is acting as a financial advisor to Medivation with respect to its acquisition by Pfizer. Our rating, price target and estimates for PFE are temporarily suspended due to Evercore’s role in this transaction
More from the press release below
Pfizer Inc. (NYSE:PFE) and Medivation, Inc. (NASDAQ:MDVN) today announced that they have entered into a definitive merger agreement under which Pfizer will acquire Medivation, a biopharmaceutical company focused on developing and commercializing small molecules for oncology, for $81.50 a share in cash for a total enterprise value of approximately $14 billion. The Boards of Directors of both companies have unanimously 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 2016 financial guidance.
“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and chief executive officer, Pfizer. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.”
Medivation’s portfolio includes XTANDI® (enzalutamide), an androgen receptor inhibitor that blocks multiple steps in the androgen receptor signaling pathway within the tumor cell. XTANDI is the leading novel hormone therapy in the United States today and generated approximately $2.2 billion in worldwide net sales over the past four quarters, as recorded by Astellas Pharma Inc., with whom Medivation entered an agreement in 2009 to develop XTANDI globally and commercialize jointly in the U.S. Since its approval for advanced metastatic prostate cancer by the U.S. Food and Drug Administration in 2012, XTANDI has treated 64,000 men to date in the U.S. alone. Medivation and Astellas have built a robust development program for XTANDI, including two Phase 3 studies in non-metastatic prostate cancer and another Phase 3 study in hormone-sensitive prostate cancer. It is also being further developed in Phase 2 studies for the potential treatment of advanced breast cancer and hepatocellular carcinoma.
In addition, Medivation has a promising, wholly-owned, late-stage oncology pipeline, which includes two development-stage oncology assets, talazoparib and pidilizumab. Talazoparib, currently in a Phase 3 study for the treatment of BRCA-mutated breast cancer, has the potential to be a highly potent PARP inhibitor and could be efficacious across several additional tumors. Pidilizumab is an immuno-oncology (IO) asset being developed for diffuse large B-cell lymphoma and other hematologic malignancies and has the potential to be combined with IO therapies in Pfizer’s portfolio.
“We believe the combination with Pfizer is the right next step in our growth trajectory and is a testament to the passion and dedication by which the Medivation team has delivered on our mission to profoundly transform patients’ lives through medically innovative therapies,” said David Hung, M.D., founder, president and CEO of Medivation. “This compelling transaction will deliver significant and immediate value to our stockholders and provides new opportunities for our employees as part of a larger company. 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 pidiluzimab – to their next stages of development so that they can be made available to patients as quickly as possible.”
“The proposed acquisition of Medivation will build upon Pfizer’s success with our IBRANCE® (palbociclib) launch in HR+/HER2- metastatic breast cancer and with our strong immuno-oncology portfolio, and will transform Pfizer into a leading oncology company,” said Albert Bourla, group president, Pfizer Innovative Health. “IBRANCE and XTANDI are anchor brands in breast and prostate cancer respectively, giving Pfizer leadership in two hormone-driven cancers. Similar to IBRANCE in the breast cancer setting, XTANDI is being explored for its potential to move from metastatic prostate cancer to treat earlier stages of non-metastatic prostate cancer. In addition, Medivation’s portfolio within prostate cancer and across diverse tumors will complement Pfizer’s broad IO portfolio. Finally, Medivation adds commercial scale to better compete with other top tier oncology companies in advance of the potential emergence of Pfizer’s IO pipeline expected in the next few years. Together, we believe Pfizer and Medivation can bring the full force of our combined research and resources to combat two of the most common cancers, as well as speed cures and make accessible breakthrough medicines to patients, redefining