Merger and acquisition activity has certainly cooled off in 2016 following what seemed like a precipitous rally in stocks that lasted for a half-decade, but that hasn't stopped Big Pharma and blue-chip biotech companies from shopping around for a good deal. In fact, with biotech valuations taking a big hit during the volatile first quarter, now could be the perfect time for larger, cash-rich drug developers to swoop in and nab an attractive product and/or development pipeline.
One such company that's been attracting a lot of attention is Medivation (MDVN +0.00%). Medivation's key therapy, which is marketed with Astellas Pharma, is Xtandi, a treatment for metastatic castration-resistant prostate cancer. Prostate cancer is the second most commonly diagnosed cancer type, meaning there's a potentially large, and growing, patient pool for Xtandi to treat, which makes the drug quite attractive from a business standpoint.
Even more so, Xtandi's efficacy makes it a leader in this space. It was already doing well in the post-chemotherapy setting going head-to-head with Zytiga, but clinical results in treatment-naive patients yielded phenomenal results. Compared to the placebo, Medivation extended the window before chemotherapy needed to be started by 17 months. It also dramatically reduced disease progression or death during the study to 14% of patients, compared to 40% for the placebo. It's these factors, along with multiple label expansion opportunities within mCRPC, or perhaps even to select subsets of breast cancer, that have led Wall Street to believe Xtandi could hit $5 billion in annual peak sales.
Image source: Astellas Pharma.
Sanofi looks to go shopping
After years of buyout speculation, French pharmaceutical giant Sanofi (SNY 1.50%) made a play for Medivation in late April, bidding $9.3 billion for the company, or $52.50 per share, in cash. This bid, of course, comes as no shock considering Medivation had hired J.P. Morgan Chase in March to handle interest from potential suitors, according to Reuters. Medivation wound up rebuffing Sanofi's bid, calling it "opportunistic" and essentially claiming it undervalued the long-term prospects of Medivation's product portfolio and pipeline.
The solution for Sanofi was to go hostile. Believing it has extended a fair offer to Medivation, Sanofi has put in motion a written consent process that'll allow Medivation's shareholders to vote on whether to oust Medivation's current board and replace them with directors selected by Sanofi, who would presumably look to sell Medivation to the highest bidder. In this vote, a simple majority of 50% would be a victory for Sanofi and its handpicked board members.
If Medivation's shareholders do indeed vote in favor of Sanofi's measure, it would be the fiduciary responsibility of the new board to open its books to Sanofi, as well as shop around for better bids. As Bloomberg has suggested, Sanofi is betting that it's the only serious contender to acquire Medivation. However, if its handpicked board takes over, it'll be required to see if there are more attractive bids out there for the company, per its responsibility to Medivation's shareholders. In reality, there looks to be a veritable laundry list of possible acquirers behind Sanofi.
Interested in Medivation? Take a number!
According to a Bloomberg report, there could be a grand total of seven interested parties in Medivation, including Sanofi. Here's a brief look at the interested parties and why they might be interested in acquiring Medivation.
- Gilead Sciences (GILD 2.74%): Gilead Sciences is generating between $15 billion and $20 billion in free cash flow annually thanks to its hepatitis C and HIV product portfolio, and Wall Street knows it's looking to go shopping. Medivation would be attractive because it would anchor Gilead's relatively nascent oncology pipeline. Although Gilead does have early and mid-stage assets that could be valuable, currently-approved cancer drug Zydelig's sales have generally been an afterthought. Acquiring Medivation would be a quick way for Gilead to get its foot more seriously in the door in oncology.
- Celgene (CELG +0.00%): On the other hand, Celgene is an oncology monster because of its dominance in multiple myeloma via Revlimid and Pomalyst, as well as Abraxane, which treats advanced forms of pancreatic, breast, and lung cancer. Celgene is looking to essentially double its sales and nearly triple its profits by 2020, and a buyout of Medivation could certainly help that cause. My only concern would be that Celgene ponied up $7.2 billion for Receptos last year, and it has more than 30 ongoing collaborations that could pay out billions of dollars in milestones. Could Celgene afford a $10 billion-plus acquisition at the moment?
- AstraZeneca (AZN +0.00%): Among Big Pharma, AstraZeneca has been purportedly weighing a bid for Medivation for some time now. Although the U.K.-based drugmaker is best known for its cardiovascular and diabetes product line, it's trying to make a name for itself in the oncology arena. Recently launched Tagrisso, an oral medication to treat a specific non-small cell lung cancer mutation, should help, but the majority of AstraZeneca's oncology pipeline is mature or in danger of facing generic competition. Adding Xtandi would add genuine growth not seen in AstraZeneca's portfolio for a long time.
- Novartis (NVS 1.48%): Next to Roche, Novartis has established itself as essentially the other major cancer player in the world, primarily due to an asset swap with GlaxoSmithKline last year that saw it acquire GSK's oncology business and small-molecule pipeline. Adding Xtandi would help Novartis cope with generic entrants of Gleevec, which has been a mainstay leukemia treatment for more than a decade. The question to ask here is whether Novartis really needs to add Xtandi considering its recent asset swap with GSK and its deep pipeline of oncology assets.
- Pfizer (PFE 1.60%): Pfizer is pretty much interested in buying everything, if it had the cash flow to do so. OK, so perhaps that's a bit of an exaggeration, but Pfizer's CEO Ian Read hasn't been shy about noting the importance of inorganic growth for Pfizer. Having just announced a $5.2 billion acquisition of Anacor Pharmaceuticals, Pfizer's appetite for another midsized deal may be a bit tempered until later in the year, especially with Ibrance performing so well and its immunotherapy avelumab, which is being developed with Merck KGaA, working its way through the pipeline.
- Amgen (AMGN 0.61%): Lastly, Bloomberg cites potential interest from biotech blue-chip Amgen, which has already launched a half-dozen new drugs since Dec. 2014. Amgen has a growing biosimilar portfolio, and it's anchoring its oncology hopes on expanding Kyprolis' label within multiple myeloma. However, competition with multiple myeloma could entice Amgen to make a run at Medivation if the price is right.
Image source: AstraZeneca.
Which company has the best shot of acquiring Medivation?
With the understanding that this is purely speculative (note the emphasis), if my arm were twisted, and I were to choose one of these aforementioned seven companies as the perfect suitor for Medivation, I'd select AstraZeneca. It's not that the other six drugmakers don't need Medivation's Xtandi so much as AstraZeneca needs an oncology growth injection more than the other six.
With Zoladex, Casodex, Arimidex, and Iressa delivering a year-over-year sales decline in Q1 for AstraZeneca, it needs to be thinking outside of the box. AstraZeneca does have a cancer immunotherapy in the works known as durvalumab that's being tested in a host of solid tumor types and combinations, but betting the farm on durvalumab could be a risky bet, with its current oncology portfolio arguably trailing its peers in terms of growth prospects. Buying Xtandi could nearly double AstraZeneca's oncology sales by the end of the decade and give shareholders a reason to once again be excited about owning AstraZeneca.
