Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The great biotech buyout lottery machine is spinning again. This week's ping pong ball? Medivation.

The San Francisco-based drugmaker's share price has been in the dumps lately, along with the rest of biotech. The company got added salt in its wounds this week as Bernie Sanders joined a push for the U.S. government to use a never-before-invoked power to strip Medivation's patent protection on prostate cancer drug Xtandi in order to lower the price. Big pharma's M&A vultures are reportedly circling.

Sanofi is on the hunt for acquisitions and has been mentioned as a possible Medivation suitor. Other rumored potential buyers include Roche and AstraZeneca. Medivation would seem to be a bargain; its shares are down 31 percent from highs last spring, even after a 23 percent merger-speculation bump on Thursday.

But Medivation doesn't seem interested in selling. The government almost certainly won't exercise its "march-in rights" on Xtandi, the company's only marketed drug. Medivation seems to be bullish on its pipeline of drug candidates in development. And the company may not stay a bargain for long. Drawn-out merger fights can have a way of boosting premiums, and the biotech market's doldrums might not last forever.

Roller Coaster
Medivation has managed to irk a presidential candidate and attract potential buyers at the same time, sending shares up, down, then up again.
Source: Bloomberg

One key question is Medivation's longer-term potential. Xtandi, which the company sells in partnership with Japanese pharmaceutical firm Astellas, is clearly valuable. Medivation got nearly $1 billion from sales of the drug and related milestone payments from Astellas last year, and sales are expected to rise substantially in future years. If Xtandi gets approved for earlier stages of prostate cancer or breast cancer, then sales could increase further.

The pipeline's value is less certain. Medivation has two major drug candidates in the works. The first is talazoparib, a breast cancer drug in late-stage trials. Analysts expect its sales to pass $200 million, but not until 2022. The second is blood cancer drug pidilizumab, which is in a Phase 2 trial. Work on the drug was partially suspended by the FDA when Medivation discovered it may not work as originally expected. Regardless, it's a potentially late entrant in an increasingly crowded field.

Pipeline Problems?
Analysts have fairly low sales expectations for Medivation's pipeline prospects after Xtandi.
Source: Bloomberg

If the company shared analysts' pessimism about its pipeline drugs, then it might favor making a deal now. But if it is optimistic about one or both of these drugs, Xtandi's prospects, and/or the broader environment for biotech, then it may as well stand pat. 

Jefferies analyst Biren Amin crunched some numbers for potential buyers. He suggested a fair value for acquirers, given his base case for Medivation, would be in the range of $51 to $54 a share, depending on the buyer -- a substantial, but not gangbusting, premium to Medivation's pre-merger-speculation price of $37. 

In a more-bullish scenario -- where all three drugs meet or beat expectations -- valuation could be $71 to $75 a share, again depending on the buyer, Amin estimated. Credit Suisse analyst Kennen MacKay, too, sees a possible valuation as high as $75 a share. 

Tellingly, the company has reportedly enlisted JPMorgan's buyout defense services. That suggests it has high hopes. Biotech bargain hunters may need to look elsewhere.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net