What's going on?

Pfizer, the pharmaceuticals giant, has agreed to acquire Medivation, a smaller rival that sells a leading cancer drug, for $14 billion� in cash!

What does this mean?

Last year, Pfizer�s massive deal to acquire UK-listed Allergan fell apart after the imposition of new US tax rules. Following the collapse of that deal, Pfizer said that it wanted to grow the �innovative� side of its business, which refers primarily to drugs that remain under patent protection (and, therefore, tend to command high prices). Medivation fits snugly into that category: its prostate-cancer drug is already generating $2 billion per year in sales (a number that is expected to grow).

Why should I care?

For the stock: This is the end of a �bidding war� for Medivation – and its shareholders are walking away with a bunch of cash.
Sanofi, a European pharma giant, was the first to indicate interest in buying Medivation (back in March). At the time, Medivation�s stock price was around $40. It rejected Sanofi�s bid, but that reportedly kicked off a bidding war between various big pharma companies for Medivation. Pfizer emerged triumphant with its $82.50 per share bid – all of which will be paid to Medivation shareholders in cash.


The bigger picture: Smaller pharma companies have had a rough 12 months – and that�s created opportunities.
Smaller pharma companies that develop new drugs are often called �biotech firms.� Historically, they have focused on developing a small number of drugs and, if successful, they are often bought by a larger pharmaceutical firm. Over the past year or so, stock prices of biotech firms in general have struggled (there were a variety of reasons, including some new legal risks as well the simple fact that biotech stocks had performed extremely well in previous years, and so experienced a natural pullback). The fall in stock prices has led to a resurgence of interest in some biotech firms from major players such as Pfizer.