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After spurning multiple public offers to be bought by drug giant Sanofi SA, Medivation's (MDVN) board of directors has agreed to sell to Pfizer, Inc. (PFE -3.07%) for $81.50 per share in cash, or $14 billion.

The purchase price is above the $12.5 billion target I estimated back in early July and above Sanofi's previous bid of $58 per share; however, Medivation's top-selling prostate cancer drug Xtandi and two promising drugs in Medivation's pipeline could still make this deal pay off handsomely for Pfizer.

Capturing a big (and growing) market

Medivation and Astellas (ALPMY 1.54%) have been marketing the prostate cancer drug Xtandi for use in post-chemotherapy prostate cancer patients since 2012, but sales really took off after the FDA approved Xtandi's use in pre-chemotherapy prostate cancer patients in 2014.

Since that approval, Xtandi has become the top-selling prostate cancer drug used in the pre- and the post-chemotherapy setting. Xtandi's global sales could hit $2.8 billion this year, and if that forecast pans out, then Xtandi would be the sixth biggest selling cancer drug on the planet, according to EvaluatePharma.

It doesn't appear that Xtandi's sales growth is about to slow down anytime soon, either. Xtandi sales totaled $595 million in Q2, up 22% from a year ago, and research of Xtandi's use earlier in prostate cancer treatment could continue to fuel future growth.

For example, on Oct. 22 the FDA is expected to decide whether or not to add trial results from studies showing that Xtandi outperforms Casodex, a prostate cancer drug that's often prescribed by urologists. Urologists write nearly half a million Casodex prescriptions every year, so Xtandi wouldn't need to win a tremendous amount of script volume away from Casodex to meaningfully boost its sales next year. Additionally, a non-metastatic castration-resistant prostate cancer trial for Xtandi should wrap up soon, and that could also increase Xtandi's addressable patient population someday.

Medivation is also evaluating Xtandi as a breast cancer therapy. Top-line results from a phase 2 study of estrogen receptor- and progesterone receptor-positive breast cancer patients are expected later this year, and a phase 3 study of Xtandi in diagnostic-positive-triple-negative breast cancer is on deck to begin enrollment in Q4.

Pipeline prospects

Pfizer also gets its hands on two other promising cancer drugs in Medivation's pipeline: talazoparib and pidilizumab.

Talazoparib is a PARP inhibitor that's being studied in germline BRCA breast cancer, prostate cancer, small cell lung cancer, and ovarian cancer. Additional studies in glioblastoma multiforme and non-small cell lung cancer were expected to kick off next year.

Top-line data from a talazoparib germline BRCA-mutated breast cancer study should be reported in the first half of 2017, and if results are good, then Pfizer could get an FDA approval decision in that patient population as early as 2018. 

Pidilizumab is a bit further back in development; however, it's also intriguing. Earlier this year, Medivation reported that pidilizumab showed promise in a phase 1/2 study in children with a rare brain tumor called diffuse intrinsic pontine glioma, or DIPG. Pidilizumab is also being studied for use in diffuse large B-cell lymphoma.

Boosting growth

Although Pfizer is paying a big premium to Medivation's trailing sales to buy the company, Pfizer still expects that the deal will add $0.05 per share to earnings in the first full year after the deal closes. Pfizer also believes that it will add even more to earnings after the first year as Xtandi sales increase, new products advance to market, and costs are cut. 

Since Pfizer is tucking one of the world's best-selling oncology drugs into its cancer drug lineup, it gets two potential future cancer drugs, and the deal is immediately accretive, there's little to dislike about this deal. Pfizer is forecasting sales of between $51 billion and $53 billion and EPS of at least $2.38 this year, up from sales of $48.9 billion and EPS of $2.20 in 2015, and next year should be even better following this deal.