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Why no other drug maker was able to close the Medivation deal

It turns out hostile deals don’t work.

The reason? There is no shortage of other potential buyers with tons of cash who are interested in owning a name with a potential blockbuster drug. Some are are even desperate to do so. The latest potential treasure: prostate-cancer drug Xtandi.

On Monday, Medivation (MDVN), which owns Xtandi, confirmed it was being acquired by Pfizer (PFE) for $14 billion.

This comes just months after Sanofi (SNY) approached Medivation in a hostile deal, going public with its offer and beginning a process to replace the company’s board.

Sanofi lost out on its bid to Pfizer, which was willing to pay up and fold Medivation into its oncology franchise.

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Sanofi’s failed hostile bid follows Valeant’s (VRX) inability to secure Allergan (AGN), when it notoriously threatened to cut research and development spending. The company instead went to Actavis, which was able to offer more and also remained committed to investing in and building out the company’s pipeline, including new therapeutic indications for Botox.

Maturing pharmas need growth

Pfizer, whose proposed $160 billion deal for Allergan (AGN) was scrapped in April after the Obama administration took a hard stance on so-called “tax inversion” deals, was the most eager (or desperate!) bidder, and was ultimately victorious.

After all, following its failed Allergan bid, many analysts grew skeptical about the growth potential at the company. Leerink’s Seamus Fernandez wrote at the time that Pfizer’s organic growth outlook would fall well below forecasts in 2020 “without significant pipeline upside surprises.”

But other names thirsty for growth—including AstraZeneca (AZN), Celgene (CELG), Merck (MRK), Amgen (AMGN), and Gilead (GILD)—were also rumored to be in the mix of bidders, eager to potentially capitalize on the potential of Medivation’s drugs in development.

After all, when it comes to biotech, it’s all about pipeline potential.

Gilead’s $11 billion purchase of Pharmasset in 2011—considered a hefty sum at the time—caused it to become a leader in Hepatitis C. Pharmasset’s Hep C franchise (including drug Sovaldi) clocked in over $19 billion in sales just last year for the company, which has been an even bigger growth area than Gilead’s original focus of HIV treatments.

Bristol-Myers (BMY) may be the pharma company that has become the most specialty-focused, resembling in many ways a biotech firm, according to analysts. In particular, the company has focused on cancer immunotherapies, Yervoy and Opdivo, which could exceed $23 billion in sales by 2020.

Medivation currently markets Xtandi for advanced metastatic prostate cancer and is developing it for earlier stages of prostate cancer, along with breast cancer.

“The product is just at the beginning of its growth cycle,” Read said on the conference call.

More deals ahead

The deal appetite remains strong, according to analysts. On Monday, Biomarin (BMRN), Vertex (VRTX), Incyte (INCY) and Alder Bio (ALDR) surged higher as investors eagerly look to see what company could be gobbled up next.

On the deal conference call Monday, Pfizer CEO Ian Reed stressed that the acquisition will accelerate his company’s overall strategy in oncology and drive growth in innovative pharma.

“This acquisition represents a rare opportunity to augment our business with a highly successful marketed product as well as an attractive pipeline,” he said.

And the premium that Pfizer was willing to pay for Medivation may continue, according to Jefferies’ Brian Abrahams.

The all-cash transaction of $81.50 per share represents a 21% premium to the company’s closing price on Friday.

“Though we believe M&A deals in biopharma tend to be independent of one another… we believe the additional premium of 21% over the current Medivation stock price—which was already trading at the Sanofi takeout bid premium—does clearly highlight the willingness of companies to pay substantial prices given unmet need for de-risked commercial and promising pipeline assets,” he wrote.

This could just be the beginning of deal-making season, he added.

“Historically, M&A activity tends to ramp up toward the end of the summer… Our expectation in January of this year was that in [the second half of 2016], as volatility in the space likely waned, M&A would re-accelerate and catalyze the sector, given the strong strategic incentive for large-cap biotech and pharma companies to bring in additional assets through acquisitions, and we believe we could start to see this theme begin to play out.”