On is mainly from the drug called Ibrance and

On August 22, 2016, Pfizer announced that it bought Medivation, a company focusing on developing medicines for cancer and serious diseases with few treatment options, in a deal valued at about $14 billion. Pfizer paid $81.50 per Medivation share, which is a 21 percent premium to its market value of $67.17 per share before the deal was announced (Jr., 2016; Ramsey, 2016). It is interesting to know why Pfizer was willing to pay the premium price to acquire Medivation. Therefore, the aim of this report is to understand motivations and reasons behind the deal and to assess anticipated outcomes, which we will analyse both in term of financial and other aspects, including Medivation’s blockbuster drug and its pipeline, and R capabilities in later paragraphs.One of the most obvious motivations of this deal was Xtandi which is, according to S Capital IQ & McGraw-Hill Financial (2010), a blockbuster drug for the treatment of post-chemotherapy metastatic castration-resistant prostate cancer patients. Xtandi has been on the market since 2012 through a collaboration with Astellas (Syed, 2016). At the moment, Pfizer and Astellas share equally in the revenue in the U.S. and Pfizer also receives tiered royalty as a percentage of international net sales (Pfizer, 2017).  According to the press release by Pfizer (2016), Xtandi generated approximately $2.2 billion in worldwide net sales during June 2015 to June 2016.Figure 1 shows the past trends of revenue of Xtandi from its release in 2012. From this the figure 1, we found that the revenue of Xtandi had been rapidly increasing from only less than $100 million in each quarter in 2012 to approximately almost $600 million in the first quarter of 2016.Figure 1: Medivation’s Xtandi drug (Crow, 2016)From the quarterly reports of Pfizer during the past three quarters of 2017, sales on a segment of Innovative Health which Xtandi is part of rose 11% compared to the same period in 2016 (Pfizer, 2017). However, on the oncology portfolio alone, the sales increased 42%, which is mainly from the drug called Ibrance and partly from Xtandi (Pfizer, 2017). In the first quarter of 2017, Xtandi recorded alliance revenues of $131 and for the third quarter of 2017, the drug recorded $150 million compared with $141 million in the second quarter, totaling of $422 million for the nine months period from January to September 2017 (Pfizer, 2017). Therefore, if the trend is going as it has been during past three quarters, Pfizer could expect about $560 million in revenue for 2017. From a financial aspect of this deal, we can see that this immediately increased revenue for Pfizer. Moreover, Xtandi will also have a potential to increase sales growth if it gains FDA approval for treating other stages of prostate cancer and other types of cancer (Seeking Alpha, 2016; S&P Capital IQ & McGraw-Hill Financial, 2010).  According to S&P Capital IQ and McGraw-Hill Financial (2010), “Enzalutamide, sold under the brand name Xtandi, is also in phase III clinical trials for the treatment of non-metastatic CRPC, and metastatic and non-metastatic hormone sensitive prostate cancer.” Moreover, the drug is also in phase II clinical trials for  treating breast cancer (Capital IQ & McGraw-Hill Financial, 2010).  Therefore, there is a considerable potential for sales to further increase and according to Gilbert and Fraser (2017), Pfizer will be expected for revenues of about $1.05 billion for Xtandi in 2021.  Eventually, the drug has been forecasted to be one of the top selling cancer drugs by 2021 (Benson, 2016). Furthermore, its patent protection of Xtandi will last until 2027, meaning that Pfizer will be able to make profit for another 10 years from now on (Drugs.com, 2017; Seeking Alpha, 2016).The second reason of the acquisition would be cancer drugs in Medivation’s pipeline, which are Talazoparib and Pidilizumab. Talazoparib was, at the time of the acquisition, in a Phase 3 studies for treating BRCA-mutated breast cancer (Pfizer, 2017). “The drug has the potential to be a highly potent PARP inhibitor that could be effective for treating several other types of tumors as well” (Syed, 2016). Another drug is Pidilizumab which is in a late-stage trial and is being developed to treat blood cancers (Ramsey, 2016).Lastly, the addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its way to be a leadership position in oncology, which is one of the key focus areas of Pfizer (Pfizer, 2016). Also, at the moment, Pfizer has marketed its one of the successful drugs, which is Ibrance, a drug that treats breast cancer (Pfizer, 2017). So, the combined research and resources of Medivation and Pfizer will also strengthen and improve R&D capabilities in oncology. Therefore, this acquisition will drive greater growth and scale over the long-term. In the past few years, according to Gautam and Pan (2016), the big pharma companies have been facing some difficulties due to declining of R&D productivity. Figure 2 illustrates the productivity of the pharmaceutical industry. From the figure 2, it shows that although R&D cost have been increasing every year, the number of new drugs launched to the market has been fluctuating. The decline in R&D productivity has threatened to the big pharma companies’ sustainability. Therefore, Pfizer needs to adjust its strategy and act fast to mitigate the threat as they started more focusing on Mergers and Acquisitions so that they can have new drugs and capabilities of developing new drugs through its acquiree.Figure 2: Productivity of the pharmaceutical industry (Rathi, 2014)In conclusion, we can see that the acquisition of Medivation would benefit Pfizer in many ways. Immediately after the acquisition, Pfizer could enjoy profit from Xtandi and its patent protection that will last until 2027. Moreover, as Medivation is a specialty drug maker, focused on developing medicines for cancer, it is a great strategic fit for Pfizer to reinforce its focus area in oncology for its both R capabilities and portfolio, which will definitely be beneficial to Pfizer in the long-term. Furthermore, if Xtandi gets FDA approval for treating other forms of cancer, it will be able to expand more targeted patients in the oncology market. This will mean a lot for Pfizer and it could result in the company becoming one of the leaders in oncology. Moreover, the drugs pipeline both Talazoparib and Pidilizumab are still in process of research and development. Therefore, we think that this deal is worth it for Pfizer in the long-term although it is hard to tell for the short-term as the deal just happened in 2016.