A Big Catalyst for Pfizer Stock?
Pfizer Inc. (NYSE:PFE), the pharmaceutical giant behind such elevated brands as “Viagra,” has made a successful bid for Medivation Inc (NASDAQ:MDVN) with an offer of $14.0 billion. This is a large sum, but the acquisition of the biotech firm will add one of the top prostate cancer drugs in the market to its lineup. Nobody was surprised as Medivation stock surged, gaining 20% on August 22. Meanwhile, Pfizer stock took a minor hit in early trading, eventually stabilizing at just under $35.00 per share, meaning no change from Friday’s close.
Yet Pfizer stock stands to gain, especially from Medivation’s cancer-fighting drugs. Indeed, Pfizer was just one of the bidders. Over the course of 2016, Medivation has been the object of many major pharma sector suitors’ desires. Roche Holding Ltd. (VTX:ROG), Sanofi SA (EPA:SAN) and AstraZeneca plc. (LON:AZN) made offers for Medivation, only to be rejected. Thus, Pfizer knew it had to go big. Moreover, Pfizer’s main growth engine these days is a new treatment against breast cancer called “Ibrance.”
Pfizer Needs to Catch Up
The Pfizer group has been trying to catch up to Merck & Co., Inc. (NYSE:MRK) and Bristol-Myers Squibb Co (NYSE:BMY) in the oncology field, and Medivation presented an ideal opportunity. In April, Sanofi offered almost $10.0 billion for Medivation, whose board rejected the offer. So, Pfizer decided to offer some 20% over last Friday’s close. (Source: “Medivation shares leap on Pfizer’s $14 billion offer,” CNBC, August 22, 2016.)
The point is that Pfizer, and just about everyone else in the pharma and biotech sectors, wanted to get their hands on Medivation’s prostate cancer drug “Xtandi,” which the biotech firm said has treated 64,000 men to date in the United States alone, adding some $2.2 billion to its coffers over the last four quarters and generating about $2.2 billion in worldwide net sales over the past four quarters. (Source: Ibid.)
But that’s just one of the blockbusters that Pfizer is getting. This is because Medivation also brings two development-stage drugs, one for breast cancer, known as “Talazoparib” and another for lymphoma, called “Pidilizumab.” These products may sound like the names of jinn from the story One Thousand and One Nights, but they are among the most advanced drugs, targeting what the Centers for Disease Control and Prevention (CDC) says is the second-deadliest illness in the U.S. (Source: Ibid.)
Indeed, Pfizer said that Medivation would add some $0.05 per share to earnings in the first 12 months after the deal closes. (Source: “Medivation’s stock soars after Pfizer buyout deal,” MarketWatch, August 22, 2016.) Moreover, Pfizer had to acquire or invest in new businesses because many of its current drugs’ patents are reaching their expiration marks, leaving Pfizer stock too vulnerable to generic competition.
It’s All About Xtandi
Pfizer will monetize Medivation when it starts to offer such products as Xtandi through its distribution network. Pfizer stock could certainly hit $40.00 over the next few months. Pfizer beat expectations in the second quarter, reported at the beginning of August, thanks to strong sales of its drugs that allowed the company to counter the negative effects of currency differential—a fancy way of saying that the high U.S. dollar has forced earnings down.
Revenue was especially bullish, gaining almost 11% to $13.15 billion, which was even higher than the expected $13.01 billion. (Source: “Buy Pfizer’s Stock for Healthy Long-Term Gains,” TheStreet, August 2, 2016.) Currency effects have stripped earnings out of $302 million, as Pfizer converted revenues generated outside the U.S. into dollars.
Some Pfizer investors might be concerned about the price that Pfizer—and Pfizer stock—will have to absorb. Indeed, $14.0 billion is a galactic sum. But, Pfizer has been on the hunt for a major acquisition for at least a year. Last year, Pfizer almost bought Allergan plc. (NYSE:AGN), a major global producer of cosmetic Botox, among other things. This would have created a pharma colossus with a $300.0 billion market capitalization, rivaling the likes of Amazon.com, Inc. (NASDAQ:AMZN) or Facebook Inc (NASDAQ:FB), which is rather unheard outside of the tech sector these days.
The Bottom Line on Pfizer Stock
The Medivation acquisition will add some of the world’s anti-cancer brands to Pfizer’s portfolio. It may have cost $14.0 billion but, frankly, Pfizer had to go for it to prevent many of its rivals from gaining this potential. Indeed, $14.0 billion is a bargain, considering that Pfizer paid $17.0 billion for Hospira, Inc. (NYSE:HSP) in 2015. Hospira makes injectable drugs and drug delivery systems as well as clinical software.
Medivation was worth it for the Xtandi brand alone. Pfizer has been moving aggressively in the oncology sector over the past few years to catch up to competitors. Thanks to Medivation, it will have acquired the revenue generators to compete and possibly dominate this crucial field of medical science. Pfizer stock will start reflecting this market strength as it starts to add revenue by the next or the following quarter.