Medivation, Not Dendreon, Likely Prostate Cancer Takeout Target, Analyst Says

SAN FRANCISCO (TheStreet) --The takeout speculation that has ignited a small recovery rally in Dendreon (DNDN) is empty talk; instead investors interested in the lucrative prostate cancer drug market should look to Medivation (MDVN) as a more attractive acquisition target, says a Jefferies analyst in a research note Tuesday.

Medivation could be acquired for $134 per share, or a 55% premium over the stock's current price of $86 per share on a breakeven basis, says Jefferies' Biren Amin, who based his M&A valuation on Medivation's half-ownership in the prostate cancer drug MDV3100 plus the typical cost synergies involved in an all-cash buyout.

Astellas owns the other half of MDV3100 marketing rights under an existing partnership with Medivation, making the Japanese drug maker an obvious potential acquirer. Astellas may be restricted from buying Medivation in the near term, however, due to a standstill agreement with an undisclosed expiration date.

Other potential acquirers of Medivation could be Sanofi (SNY), Johnson & Johnson (JNJ) or Amgen (AMGN), Amin predicts.

An acquisition of Dendreon makes much less economic sense given the lackluster prospects for its prostate cancer immunotherapy Provenge. At Dendreon's current stock price of $7.52 per share and assuming a typical takeout premium, any potential acquirer would likely lose money on a deal, says Amin.

"Given their respective current valuation and outlook in the prostate cancer space, Medivation represents a meaningfully more compelling acquisition target (versus Dendreon) on return-on-investment (ROI) for any potential acquirer (our analysis uses Amgen) planning to acquire a prostate cancer target company.

"Our ROI analysis show a breakeven valuation for Medivation at $134/share, representing a 55% premium to its current valuation of $86/share (translating to a total diluted equity value of $3 billion which includes the impact of stock options and existing convertible debt) based on an incremental enterprise value of $5 billion (post-operational synergy) over the acquirer/Amgen as a stand-alone company.

"In contrast, Dendreon’s current valuation of $7.52/share (total diluted equity value of $1.2 billion) represents the breakeven point for potential acquirers (on an incremental enterprise value of $1.2 billion), implying a likely negative ROI for a potential acquirer given the premium over current valuation typically expected in a takeout offer."

Dendreon shares are down about 50% off their 2012 highs reached in February due to disappointing Provenge sales, the emergence of competition from Medivation's MDV3100 and J&J's Zytiga and concerns that the company may never reach meaningful profitability. But Dendreon shares have bounced almost 30% off its recent low reached earlier this month during the American Society of Clinical Oncology (ASCO) annual meeting.

Meantime, Medivation shares have almost doubled this year to all-time highs based on the bright prospects for MDV3100 as a new treatment for both post-chemo and pre-chemo prostate cancer patients. Medivation filed MDV3100 for U.S. approval on May 21, which could see the drug approved and on the market before the end of the year.

Not all analysts are bearish on Dendreon. SummerStreet Research Partners, in a recent initiation note with an $18 price target, called the company a "turnaround story in the making" and believes concerns about Provenge's demise are overdone.

--Written by Adam Feuerstein in Boston.



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