(BN) Prostate Cancer Treatment Seen Drawing Medivation Bids: Real M&A

Medivation Inc. (MDVN), which has already quadrupled in a year, is still tempting acquirers with a prostate cancer treatment that's poised to make it one of the world's fastest-growing drug developers.

Shares of the San Francisco-based biotechnology firm surged 309 percent in the past 12 months for the biggest gain in the Russell 1000 Index (RIY) as investors bet its cancer drug, enzalutamide, will be approved by the U.S. Food and Drug Administration this year. Analysts project the treatment, once on sale, will spur an almost sixfold increase in revenue for Medivation by the end of 2014, outpacing 97 percent of similar- sized biotechnology and pharmaceutical companies worldwide, according to data compiled by Bloomberg.

Astellas Pharma Inc. (4503), Medivation's partner on the drug, may want to buy out the $3.3 billion company to avoid splitting the profit, ThinkEquity LLC said. AbbVie, the pharmaceutical unit being spun off from Abbott Laboratories (ABT), and AstraZeneca Plc (AZN) may also bid for Medivation to restock drug pipelines, according to Wedbush Inc. A suitor could offer at least $140 a share, Aegis Capital Corp. said, or 53 percent more than last week's close, and still pay a smaller premium than the average among biotechnology deals in the last year, the data show.

"It's going to be probably the biggest prostate cancer drug ever," David Nierengarten, a San Francisco-based analyst at Wedbush, said in a telephone interview. "That's something that's worth quite a bit. They're almost approved, so Medivation is certainly a candidate for an acquisition. You're talking about a lot of potential revenue here."

Awaiting Approval

"It's our objective to maximize value for our stockholders and we believe the best way to do that is by leveraging our assets" and remaining a standalone company, Anne Bowdidge, a spokeswoman for Medivation, said in an e-mailed statement in response to being asked whether the company has been approached by acquirers or is open to selling. "That said, it's also our obligation to remain open to all available options."

Medivation and Astellas, Japan's second-largest drugmaker by market capitalization, are awaiting a decision from the FDA on whether they can start selling enzalutamide to prostate cancer patients who have grown sicker even after chemotherapy. The medicine could win approval as early as September, according to Kimberly Lee, a San Francisco-based analyst for ThinkEquity.

The treatment, which works to blunt the effects of male hormones that spur tumor growth, proved so effective that the companies halted a clinical trial last year and gave the drug to all of the participants. Men with prostate cancer that was spreading even after chemotherapy lived 4.8 months longer if they were given enzalutamide rather than a placebo, and experienced few serious side effects.

'Best Drug'

If approved, the medicine would compete with Johnson & Johnson (JNJ)'s Zytiga, which was cleared by U.S. regulators in 2011. One difference between the drugs is that enzalutamide doesn't have to be used in combination with the steroid prednisone.

Medivation's "cancer drug to me looks to be the best drug so far for prostate cancer, which is a big category, a big market," Howard Liang, a Boston-based analyst for Leerink Swann LLC, said in a phone interview. "It's not common for a mid-cap company to be associated with a product that's best in class for a big category."

The company's size and potential sales may make it attractive to larger drugmakers, Liang said. He estimates the drug will achieve $4 billion in annual sales by 2025.

Broader Uses

Analysts expect the medicine to be so successful that Medivation's revenue will climb to $357 million in 2014 from $60 million last year, according to data and estimates compiled by Bloomberg. That's almost five times the average pace among pharmaceutical and biotechnology companies worldwide with at least $1 billion in market value, the data show.

Medivation is aiming to eventually have the drug approved for treatment in earlier stages of the disease and for breast cancer, which would lead to even higher sales, said Raghuram Selvaraju, an analyst for Aegis Capital in New York.

Enzalutamide blocks testosterone from binding to its receptor in tumor cells, and because the male hormone has been implicated in breast cancer, the drug may be effective in those patients as well, he said.

"That's why potential acquirers should be interested and that's why Medivation management's phones should be ringing off the hook," Selvaraju said in a phone interview.

Stock Surge

The company's stock has already quadrupled in the last 12 months amid investor optimism over enzalutamide, making it the top performer in the Russell 1000 over that span. Even after the gain, the company is attractive, according to ThinkEquity's Lee.

"Medivation definitely looks cheap," given the growth potential for enzalutamide beyond late-stage prostate cancer, Lee said in a phone interview. "The market opportunity could potentially be very large."

Astellas may want to buy out Medivation to keep all of the drug's earnings for itself, she said.

The companies have agreed to split the development and marketing costs as well as profits earned in the U.S. They also have a standstill agreement whereby Astellas can't make a hostile bid for Medivation, which Lee said wouldn't prevent them from negotiating a friendly transaction.

Jenny Kite, a spokeswoman for Astellas, declined to comment on whether the company is interested in acquiring Medivation.

AbbVie, the name of Abbott's pharmaceutical business after the company splits in two this year, may also be interested in Medivation, according to Wedbush's Nierengarten.

'Hungry Pharma'

The company already sells Lupron, an injection that's used to treat symptoms associated with prostate cancer, as well as rheumatoid-arthritis treatment Humira, which Aegis Capital's Selvaraju said is facing stiffer competition.

AstraZeneca, the U.K.'s second-biggest drugmaker, may also want to pursue a takeover of Medivation as it tries to replenish its pipeline, Selvaraju and Nierengarten said. The London-based maker of Seroquel and Nexium is set to lose patent protection by 2014 on drugs representing more than 40 percent of last year's sales, data compiled by Bloomberg show.

"You could see AstraZeneca," Nierengarten said. "You could see the pharmaceutical spinout of Abbott because they still sell Lupron. There are plenty of hungry pharma companies out there that I'm sure would be interested."

Scott Stoffel, a spokesman for Abbott Park, Illinois-based Abbott, and Tom Hushen, a spokesman for AstraZeneca, declined to comment on speculation when asked whether the companies have considered a takeover of Medivation.

Poison Pill

A drawback to acquiring Medivation is the obligation to share enzalutamide profits with Astellas, said Biren Amin, a New York-based analyst for Jefferies Group Inc. Medivation also has a so-called poison pill designed to thwart hostile takeovers.

Even so, the revenue potential from the drug may still be enough to entice buyers, he said.

"Larger cap pharma companies are looking for attractive growth opportunities and attractive assets that potentially drive growth," Amin said in a phone interview. A buyer "could consider enzalutamide as fitting that type of a profile."

Medivation may command at least $140 a share in a takeover, Selvaraju said, or 53 percent more than last week's close of $91.21. That's still lower than the average 65 percent premium buyers agreed to pay in biotech deals globally worth more than $500 million in the last 12 months, the data show.

Wedbush's Nierengarten said a takeover offer would have to exceed his $100 share-price estimate, while ThinkEquity's Lee estimated a bid would be higher than her $110 target.

Medivation Management

Medivation's managers have a history of building up and selling businesses, so they would probably welcome a deal at the right price, Aegis Capital's Selvaraju said.

Chief Executive Officer David Hung and Patrick Machado, the chief financial officer, ran ProDuct Health Inc. until they sold the medical device maker to Cytyc Corp. in 2001.

"The company's management team is heavily focused on creating value for shareholders," Selvaraju said. "It's not like they're not experienced at doing M&A stuff. They've demonstrated the willingness to sell out and get out of there before."