MediGene goes through the Pfizer target rumour mill

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What do MediGene, NicOx, Shire, King Pharmaceuticals and Biogen Idec all have in common in recent months? The answer is they have all been the subject of Pfizer takeover rumours, which have helped to provide a brief uplift to share prices, although no offers for these companies have yet materialised from the US pharma giant.

The latest company to go through the Pfizer target rumour mill is German biotech MediGene, with Reuters quoting two industry sources as saying talks between the two groups have been held, driving MediGene’s shares up 13% to €6.30 today, a 12-month high. The question for MediGene investors is what makes this rumour different from previous whispers, and will it result in a formal offer from Pfizer.

Not a big surprise

In some respects it was only a matter of time before these two companies were being mentioned in the same breath. MediGene’s chief executive Peter Heinrich has previously said it is seeking partners for potential cancer blockbuster EndoTAG-1, whilst Pfizer’s chief executive Jeff Kindler has already laid out its acquisition strategy of focusing on multiple smaller deals, versus a megamerger. (see EP Vantage article: Small could be beautiful for Pfizer, March 6)

“This rumour is not surprising as Pfizer is looking at everything,” says Vontobel analyst, Andrew Weiss. “The problem for Pfizer is that its track record for turning these smaller deals into something much bigger is poor. It’s almost as if Pfizer has put aside a $2bn portfolio to make a number of smaller acquisitions, in the hope that one of them will come off."

In the last six months Pfizer has acquired Coley Pharmaceutical for $164m, Encysive Pharmaceuticals for $195m, CovX and Serenex, the latter two for undisclosed amounts.

MediGene’s value

Including today’s share price rise, the biotech has a market capitalisation of €214m ($332m), which includes €37.6m ($58m) in cash as of March 31. This currently compares favourably with the company’s NPV of $337m, according to EvaluatePharma.

However, this NPV does not yet include analysts' consensus forecasts for potentially its biggest product, EndoTAG-1, which recently reported encouraging interim phase II data in pancreatic cancer. (see EP Vantage article: MediGene rises on pancreatic cancer promise, April 7)

Andrew Weiss, who has a hold rating on the stock and a price target of €6.20, believes that, “whilst the interim data was impressive, we reserve judgement until the final results are published in the fourth quarter. Our main concern is that there is still a significant amount of patient data, in terms of six and 12-month follow-ups, which could yet have a substantial impact on the final outcome, potentially reversing the positive survival trend seen so far”.

Given these concerns, and the fact this is still only phase II data, Pfizer and other potential suitors may prefer to wait in the wings.

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