Pfizer Inc said it would buy U.S. cancer drug company Medivation Inc for $14 billion in cash, adding its blockbuster prostate cancer drug Xtandi to the company’s growing oncology roster.
This move has struck out numerous other bidders.
Medivation shares were up 20 percent at $80.43 in midday trading, just shy of the offer price of $81.50 per share. Shares of Pfizer, the largest U.S. drugmaker, were little changed.
The offer is at a substantial premium to Sanofi SA’s initial offer to buy Medivation for $52.50 in April that pushed the San Francisco-based company to put itself up for sale.
The deal, which Pfizer said would immediately boost its earnings, comes four months after it and Ireland-based Allergan Plc scrapped their $160 billion merger. Pfizer has since bought Anacor Pharmaceuticals Inc in a $5.2 billion deal to add an eczema gel to its portfolio.
The Medivation deal illustrates a shift in Pfizer’s M&A strategy from lowering taxes – the rationale behind the failed Allergan tax inversion deal – to strengthening its lineup of branded drugs, especially lucrative cancer treatments.
Pfizer, in a conference call with analysts, said it still plans to decide by year-end whether to split into separate companies selling either low-growth generics or patent-protected brand medicines.
“The Medivation deal increases the likelihood of a split,” said SunTrust Robinson Humphrey analyst John Boris. But, he said, Pfizer would likely first try to buy other drugmakers or their best assets in order to further strengthen its branded-drug portfolio.
Last year, Pfizer paid $15 billion for Hospira, which sells generic hospital products and is developing biosimilars meant to compete with big-selling injectable biotech drugs. That deal was seen by Wall Street as a way of bolstering its generic drugs ahead of potentially divesting the business.
Pfizer’s biggest growth driver is a new breast cancer drug called Ibrance, but the company is also trying to catch up with Merck & Co and Bristol-Myers Squibb Co in developing immuno-oncology drugs that work by taking the brake off the immune system.
Pfizer Chief Executive Ian Read told analysts the Medivation deal was mainly driven by the desire to obtain Xtandi, although he expressed high hopes for talazoparib and pidilizumab, experimental Medivation drugs for breast cancer and lymphoma, respectively.
Xtandi generated U.S. net sales of $330.3 million in the second quarter.
Japanese drugmaker Astellas Pharma Inc owns the rights to sell Xtandi outside the United States, where it generated sales of $240 million in the period.
Read said Xtandi, which was approved four years ago to treat men who had failed to benefit from prostate cancer treatments, could capture far greater sales if it is eventually approved for earlier use and becomes prescribed by urologists.
“The product is just at the beginning of its growth cycle,” he predicted.
Pfizer, Merck, Celgene Corp and Gilead Sciences Inc had submitted expressions of interest to buy Medivation.
“Given the already very high price being discussed, the difficult public relationship between Medivation and Sanofi, we see a higher bid as very unlikely, but not impossible,” RBC Capital Partners wrote in a client note ahead of the announcement.
Sanofi said while it recognized the potential strategic benefits of a combination with Medivation, it was a “disciplined acquirer and remained committed to acting in the best interests of Sanofi shareholders.”
Pfizer said the deal was approved by boards of both companies and should be completed in the third or fourth quarter.
Pfizer’s financial advisers were Guggenheim Securities and Centerview Partners, with Ropes & Gray LLP providing legal counsel.
J.P. Morgan Securities and Evercore were Medivation’s financial advisers, while Cooley LLP and Wachtell, Lipton, Rosen & Katz served as its legal advisers.
Medivation shares had risen about 58 percent since Sanofi’s first offer.