The biotech giant, Pfizer Inc. (PFE – Analyst Report) and Xtandi manufacturer, Medivation, Inc. (MDVN – Analyst Report) entered into a definitive merger agreement under which Pfizer will acquire Medivation for $81.50 per share in cash or a total enterprise value of about $14 billion. Pfizer’s earnings are expected to get a boost immediately following the completion of the deal.
Pfizer outran other potential buyers like Merck (MRK – Analyst Report) , Gilead Sciences (GILD – Analyst Report) , Celgene (CELG – Analyst Report) and Sanofi (SNY – Analyst Report) , who were also in the race to acquire Medivation, according to several reports. The company rejected Sanofi’s deal to acquire the company at $58 a share in the earlier part of this year. The Pfizer- Medivation deal is likely to have a significant impact on price performances of the two biotech companies and eventually on broader markets.
Is Xtandi the Main Motive Behind the Deal?
The biotech giant is speculated to benefit from the deal, especially in its cancer drugs segment, which is already a significant contributor to its business. The strong potential of Medivation’s Xtandi, which is considered one of the leading prostate cancer treating drugs, is likely to boost Pfizer’s business. Xtandi emerged as the biggest player in the novel hormonal therapy (NHT) domain with more than half of the market share in the second quarter (the second time in a row).
Strong growth in Xtandi’s sales played an important role in boosting revenues during the second quarter. While collaboration related net sales of Xtandi in the U.S. surged 11% to $165.1 million for the quarter, Ex-U.S. revenues soared 60% from the year-ago quarter to $41.0 million. It led Medivation’s collaboration revenues to jump 18% year-on-year to $206.2 million. Also, Xtandi is speculated to have the potential to witness strong growth in the near future.
During the second quarter earnings release, David Hung, CEO of Medivation, said: “We anticipate a very exciting second half of 2016 for XTANDI as we prepare commercially for the October 22 PDUFA date for a potential U.S. label amendment to include head-to-head data of enzalutamide versus bicalutamide.”
Will the Deal Boost Pfizer’s Cancer Drug Segment?
The Medivation acquisition, if it goes through, will strengthen Pfizer’s cancer franchise, which currently consists of products like Ibrance, Xarelto and Sutent. Pfizer is also working on strengthening its immune-oncology pipeline and the Medivation acquisition would be a good strategic fit for the company. Pfizer is already benefitting from strong growth in the oncology segment (read: Pfizer in Talks to Buy Allergan: Prescribed ETFs).
During the second quarter, Global Oncology revenues increased 54% to $1.1 billion driven by Xalkori and Ibrance. This was one of the main factors that led the company to post revenues of $13.1 billion in the quarter, increasing 11% from the year-ago period. Separately, pipeline candidate talazoparib, an orally-available PARP inhibitor, represents significant upside potential. PARP inhibitors are currently being considered to be the next major class of therapeutics in oncology (read: Pharma ETFs Soaring on Solid Q2 Earnings).
ETFs in Focus
While the Pfizer-Medivation deal is likely to have notable impact on broader stock markets today, ETFs having significant exposure to Pfizer are also poised to be on investors’ radar in the days ahead. Hence, we have highlighted four ETFs which have Pfizer as one of their major components and are likely to remain in focus in the post-deal period.
This ETF provides exposure to 39 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. Pfizer holds the second position among its holdings with an exposure of 8% in the fund. The product has $642.2 million in AUM and charges 44 bps in fees and expense. Volume is moderate as it exchanges about 34,000 shares a day. The fund has gained 9% over the past three months and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: ETFs to Gain or Lose if Trump Wins Presidential Election).
This is by far the most popular and liquid choice in the healthcare space that follows the Health Care Select Sector Index. The product has an AUM of about $13.2 billion and sees solid volume of around 10 million shares a day. The fund charges 14 bps in fees and expenses from investors. The fund holds 59 stocks. Pfizer occupies the second place in terms of holdings with 7.5% share. The fund has gained 6.7% over the past three months and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 3 Healthcare ETFs to Buy as JNJ Beats Q2 Earnings).
This ETF follows the MSCI USA IMI Health Care Index and holds a large basket of 350 stocks. Pfizer, at the second spot, has an exposure of 6.5% in the fund. The product has managed to accumulate roughly $635 million in its asset base so far and trades in a moderate volume of nearly 112,000 shares per day. It is very cheap with 8 bps in annual fees. The fund has gained 7.2% over the past three months and has a Zacks ETF Rank #2 with a Medium risk outlook.
This ETF provides exposure to 353 stocks by tracking the MSCI US IMI Health Care 25/50 Index. Pfizer holds the second position among its holdings with an exposure of 6.8% in the fund. The product has $5.8 billion in AUM and charges 9 bps in fees and expense. Volume is moderate as it exchanges about 193,000 shares a day. The fund has gained 7.2% over the past three months and has a Zacks ETF Rank #1 with a Medium risk outlook.
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