Sanofi snubbed by Medivation, but the hunt goes on

Sanofi CEO Brandicourt

Sanofi ($SNY) remains undeterred from its hunt for Medivation ($MDVN) after the Californian biotech roundly rejected its $9.3 billion offer--as a protracted takeover battle filled with hostility and white knights beckons. 

The saga, which began on Thursday after Sanofi made its corporate love letter to Medivation public (and the biotech delayed in getting back to the French drugmaker), stepped up a gear just a day later when, predictably, Medivation rejected outright its low ball offer.

The snub (posted on Medivation's website) in fact came during Sanofi’s Q1 results call, where the senior management told journalists they would not be commenting on the prospective deal. David Hung, founder and CEO of Medivation, did not mince his words. “Sanofi's opportunistically-timed proposal, which comes during a period of significant market dislocation, and prior to several important near-term events for the company, is designed to seize for Sanofi value that rightly belongs to our stockholders.

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“We believe the continued successful execution of our well-defined strategic plan will deliver greater value to Medivation's stockholders than Sanofi's substantially inadequate proposal."

In a classic piece of corporate defense, Hung also listed his company’s pipeline and the strength of Xtandi's $1.9 billion sales, saying Sanofi had undervalued it.

The Paris-based drugmaker, which has a record of hostile takeovers in the biotech sector (see its long battle to win Genzyme in a $20 billion deal in 2011), said it was a “disciplined acquirer and has a strong acquisition track-record. While to date Medivation has chosen not to enter into discussions regarding this value-creating transaction, Sanofi remains committed to the combination and looks forward to engaging directly with Medivation shareholders with regard to our proposal.”

Sanofi had originally looked to buy Medivation back in March, making a nonbinding proposal to acquire it for $52.50 per share in an all-cash transaction--which would be worth around $9.3 billion.

Sanofi’s offer represents a premium of more than 50% of Medivation’s two-month volume weighted average price (VWAP) prior to there being takeover rumors. But this may still be too low.

People “familiar with the matter” recently told Reuters that AstraZeneca ($AZN) has already stepped in to offer nearly $10 billion as Medivation’s white knight. Sources speaking to Bloomberg have said that Medivation will now not accept anything below $65 a share. 

Back in March when rumors first began to circulate, Jefferies analyst Biren Amin said that a fair value for acquirers would be in the range of $51 to $54 a share. This would represent a fairly substantial premium to Medivation's pre-merger-speculation price of $37 and comes as the company has a current market capitalization of $6.1 billion.

But in a more bullish scenario, for example, where its pipeline drugs meet or beat expectations, Amin estimated that valuation could be $71 to $75 a share, although this would all depend on the buyer.

Sanofi itself is going through a second evolution of its pipeline as, after trimming its oncology research last year and outsourcing more of its R&D, the French pharma and its biotech arm Genzyme have signed a string of deals in the last few months, signaling an about-face in the oncology area. 

Sanofi currently has a small group of cancer drugs on the market but is far behind its Big Pharma rivals in the latest classes of oncology R&D. In its Q1 results, its 6 marketed cancer drugs collectively made just $407 million, with none being market-leading. It has been looking to rectify this in recent months, however, with a $1.8 billion cancer deal with Regeneron ($REGN) signed last summer and a host of deals with several oncology-focused biotechs also being penned at the start of the year. 

Medivation has an attractive blockbuster in its prostate cancer drug Xtandi (that it co-markets with Astellas), which would give any purchaser an immediate return, and a pipeline that could yield longer term prospects.

This consists of the late-stage breast cancer drug talazoparib, which is projected to make $200 million in peak sales, and the blood cancer drug pidilizumab, which is in a Phase II trial. A candidate for bladder cancer and a multiple myeloma therapy are also in its early-stage pipeline.

But it does come with its problems--most immediate of which is the ongoing pricing debate in the U.S., which has seen Medivation come under the spotlight for its $129,000 price tag for Xtandi. Presidential hopeful Bernie Sanders wants to nullify the drug’s patent in order to allow cheaper generics to flood the market.

This is unlikely to happen, but the political pressure has seen Medivation’s shares drop consistently over the past year, leaving it open to a potential acquisition. 

There have also been some hiccoughs in the biotech’s pipeline, with a midstage trial for pidilizumab being partially suspended by the FDA when Medivation discovered it may not work as originally expected.

Other Big Pharma names said to be interested include Pfizer ($PFE) Roche ($RHHBY), Amgen ($AMGN) and Gilead ($GILD).

Sanofi was down by more than 4% on the news on Friday, while Medivation was up by 2.9%. 

- check out Sanofi's release

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