Healthcare Business

How Much Medivation Can Really Fetch in a Buyout

Medivation Inc. (NASDAQ: MDVN) has been among the top future biotech mergers for quite some time. The problem is that we still have no idea which company will buy Medivation, nor do we know what price. 24/7 Wall St. has decided to try to see what might be a fair acquisition price if Medivation is truly acquired.

Reports have circulated from many angles, but August is the expected month when final bids are to be submitted. In May Medivation rejected a Sanofi buyout offer of $52.50, and we tracked analyst changes at that point.

With a buyout already having been rejected and with bids or indications of interest being due, all this magnifies a PDUFA expected date in October. The biotech and pharmaceutical companies are interested, rather than private equity, in the case of Medivation. If Medivation’s drugs live up to expectations, the company could ultimately generate billions of dollars by helping cancer patients potentially live years longer.

As far as what will be the driver here, we probably need to look beyond the mere consensus analyst price target. Thomson Reuters now has a consensus target of $70.00 for Medivation, but this was $67.00 a month ago and $66.00 three months ago.

What matters here is that Medivation has been growing revenues and is expected to keep doing so. Revenues were $943 million in 2015, $710 million in 2014 and $273 million in 2013. Thomson Reuters has its consensus estimates at $907 million in 2016 and $1.175 billion in 2017. For 2018 and 2019, those estimates are $1.39 billion and $1.64 billion, respectively.

The earnings scenario is more difficult because Medivation has such a high price-to-earnings (P/E) ratio. Adjusted earnings per share (EPS) was $1.01 in 2015 and is expected to be $1.28 in 2016. Those EPS forecasts are as follows: $2.18 in 2017, $2.84 in 2018 and $3.40 in 2019.

Given that current $67 share price, that puts Medivation’s valuation at 52 times current year earnings and 30 times expected 2017 earnings. Now what has to be considered is that the market cap is $11.1 billion. That is a market cap that would make for an impressive buyout, but it easily could be absorbed by larger players.

Merck & Co Inc. (NYSE: MRK) was recently shown to have indicated an interest in buying Medivation. Pfizer Inc. (NYSE: PFE) was also among Big Pharma companies interested, as was Sanofi (NYSE: SNY). Biotech giants Celgene Corporation (NASDAQ: CELG) and Gilead Sciences Inc. (NASDAQ: GILD) also have been rumored and reported to be among the interested buyers as well.

Merck has a $175 billion market cap. At $63.40, its share price has done well due to a Bristol-Myers Squibb drug failure. Merck shares have a 52-week trading range of $45.69 to $64.00.

Pfizer shares were last trading at $35.07, with a consensus price target of $39.35 and a 52-week range of $28.25 to $37.39. This pharma giant has a total market cap of roughly $213 billion.

Sanofi has made many acquisitions in the past, and its American depositary shares (ADSs) recently were trading at $39.74. The stock has a total market cap of $102 billion. Shares trade within their 52-week range of $37.41 to $51.88, with a consensus price target of $51.33.