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Medivation (NASDAQ:MDVN) does not have an incentive to sell if suitors do not take into account upside in its oncology pipeline and its marketed prostate cancer drug Xtandi (enzalutamide), a source familiar with the matter and industry bankers said.
On 28 April, France’s Sanofi (EPA:SAN) launched an unsolicited takeover proposal to acquire San Francisco-based Medivation for USD 52.50 per share in cash. The pharma company on Friday rejected the offer, which it said “substantially undervalues” the company.
A industry investor agreed the offer is low. He pointed to Abbvie’s (NYSE:ABBV) acquisition of Pharmacyclics, which was a competitive auction, as a comparable transaction, although he agreed that valuations in the pharma sector have come down over the past few months. In that deal, Abbvie paid USD 21bn to acquire Pharmacyclics, which had a partnership in place with Johnson & Johnson (NYSE:JNJ) on lead cancer drug Imbruvica (ibrutinib).
Medivation has Phase III assets that could get approved in a number of late-stage cancer indications. Furthermore, Xtandi, which is being marketed for metastatic castration-resistant prostate cancer (CRPC), is being submitted for approval in earlier-stage prostate cancer indications, which would increase sales of the drug, one of the bankers said.
Medivation is a scarce asset, the investor said, with the other product being J&J’s Zytiga (abiraterone acetate). A fair valuation for Medivation should be in the low to mid-USD 60s against the current USD 52.50 offer from Sanofi, the investor claimed.
Aside from Medivation there are few companies that could compete in prostate cancer, among these being Celgene (NASDAQ:CELG) and Incyte (NASDAQ:INCY), the source familiar said.
Sanofi’s approach, however, bodes well for Medivation, as the French suitor does not have a history of doing completely hostile bids, one of the bankers and the investor pointed out. It made unfriendly approaches to Genzyme and Aventis and both of those turned into friendly acquisitions, the investor added. Furthermore, Sanofi has a history with oncology drugs marketing Taxotere (docetaxel) for breast cancer and Jevtana (cabazitaxel) for prostate cancer, a second banker said.
Sanofi appears to be acting opportunistically during a temporary low in biotech valuations, the source familiar and one of the bankers said. The question is whether Sanofi’s approach will kick off a competitive auction process before a standstill agreement that Medivation has in place with Japan’s Astellas (TYO:4503) on Xtandi terminates in September 2016, they added.
Under the terms of the standstill agreement, Astellas cannot acquire more than a 5% stake in Medivation before the expiry date.
Any Medivation bidder would therefore be marketing Xtandi alongside Astellas, the bankers said.
One of the bankers questioned why an auction process has not already kicked off given that Medivation has been reportedly on the block for some time, and interested bidders for its oncology pipeline would have approached the company during this time. It hired former Citigroup investment banker Jennifer Jarrett to serve as CFO at the end of March, this banker said.
Astellas does not have to acquire Medivation, two of the bankers said, given that the Japanese pharma company gets the benefits of the partnership irrespective of any M&A. If anything, having a bigger partner is better for Astellas, the investor noted.
AstraZeneca (NYSE:AZN) and Pfizer (NYSE:PFE) have also been reported as possible buyers for Medivation.
A fourth banker said it was his understanding that Medivation believed it gave too much away or it did not get paid adequately in the Xtandi deal it struck with Astellas. This is the right time to sell, the same banker said, and a time to figure out who will pay the most.
Medivation and Sanofi declined to comment.
Evercore and JPMorgan are advising Medivation along with Cooley.