Acquiring Medivation: Separating The Contenders From The Pretenders

| About: Medivation, Inc. (MDVN)

Summary

Medivation rejected another bid from Sanofi.

Pfizer and Amgen are also rumored to be interested.

Sanofi is an attractive acquisition target for many firms. We separate the contenders from the pretenders.

Medivation (NASDAQ:MDVN) just rejected the latest takeover bid from Sanofi (NYSE:SNY) at a price that valued the cancer drug maker at $58/share. This is not the first time SNY has been spurned: a few months ago MDVN rejected SNY's $9.3B offer. Sanofi is so far the only firm to submit a public bid for Medivation, but a number of firms have expressed interest. MDVN's combination of in-market drugs and strong pipeline in the lucrative oncology market has made it a popular target, particularly amidst widespread patent losses that have left many biopharma companies desperate for new sources of growth. Xtandi, a blockbuster prostate cancer drug, and two late stage drugs talazoparib and pidilizumab, are the most prized assets. We provide a breakdown of the firms we think are in the running to acquire Medivation.

The Contenders:

Sanofi is the obvious choice as the firm is the only company to submit a formal bid. SNY has made it a strategic priority to expand into oncology, and management believes it can capture meaningful cost synergies by integrating Xtandi with its in-market prostate cancer drug Jevtana.

Pfizer (NYSE:PFE) has been looking to acquire assets for a while as the firm recently lost patent protection in a number of key drugs. After the Allergan (NYSE:AGN) deal fell through, PFE has upped its search for assets that have achieved commercialization, or are close to it. With PFE looking to grow its oncology pipeline, MDVN is a logical choice. PFE could create meaningful synergies by integrating MDVN's portfolio with its breast cancer drug, Ibrace, and pipeline of immuno-oncology assets. Pfizer's size makes it an attractive suitor for MDVN, as the company can leverage its massive distribution network to achieve greater levels of commercialization than what MDVN can accomplish by itself. With $19.4 billion in cash, PFE could easily pull it off.

Like Pfizer, Amgen (NASDAQ:AMGN) is going through some major patent cliff headwinds. Amgen was the number-two player in oncology in 2013, but has fallen off a few spots. Oncology remains a key area of focus however, and MDVN's portfolio would complement Amgen's set of in-market assets: Vectibix, Kyprolis, Blincyto, Imlygic, Neulasta and Xgeva. AMGN has almost $35 billion in cash on the balance sheet, and only $2.2 billion in short-term debt.

Possibilities:

AstraZeneca (NYSE:AZN) already has an in-market prostate cancer drug, Zoladex, and recently gained approval for oncology drugs Tagrisso and Lynparza. Oncology will continue to be a key area of focus and Xtandi would overlap nicely with the existing portfolio. In 2014 AstraZeneca was the #8 player in oncology space. While AZN is past the worst part of its patent cliff, competition from generics remains a big issue, and the firm has been looking to ease pressures by acquiring in-market assets. However, with only $4 billion in cash and over $16 billion in debt, Medivation might not be affordable.

Novartis (NYSE:NVS) is a possible candidate as a result of its sizeable oncology business and vast financial resources. Novartis was the number-two and number-three oncology player in 2014 and 2013 respectively. And, while it has the means to pull off the deal, it doesn't necessarily have the motivation to. NVS is past the worst part of its patent cliff, and the lack of a prostate cancer drug in the portfolio means the firm has less to gain by integrating Xtandi.

Pretenders:

Eli Lilly (NYSE:LLY) is another leading oncology drug maker (#6 in 2014), with established assets such as Erbitux and Cyramza. LLY has suffered from patent losses recently, but thanks to its strong pipeline of later stage oncology assets, the firm is less desperate than some of the other contenders. In addition, management has made it a priority to drive growth through innovation rather than M&A, and the firm seems more concerned with boosting productivity and improving asset utilization than growing the enterprise. LLY has only $3 billion in cash, and the company usually doesn't spend much on acquisitions.

We have to include Roche (OTCQX:RHHBY) by virtue of it being the largest oncology company. However we don't think it has enough of an incentive to go through with a deal. The company's patent cliff issues are largely in the rear view, and, due to the size of Roche's oncology portfolio, the marginal contribution from MDVN's assets is less than it would be at some of the other firms. Roche has $9 billion in cash and only one-quarter of its debt due within the next twelve months, but the firm is unlikely to splurge on MDVN.

Conclusion:

Medivation is an attractive target for many biopharma companies looking to expand in the hard-to-treat (and lucrative) oncology segment. The contender rankings are based on a combination of product overlap, balance sheet strength, and recent patent expirations. The methodology isn't perfect, but we think it captures the probability that a given firm will go through with a deal. Ultimately we think it will come down to Sanofi, Pfizer, and Amgen, as these companies have the most to gain and the resources necessary to make it happen.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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