Pfizer spent $14 billion on a company with just one approved drug - here's why that's a game-changer

REUTERS/Lucas Jackson

Workers raise a U.S. flag outside the Pfizer building in New York September 4, 2013.

Pfizer just outbid a number of competitors for Medivation, a cancer drugmaker with just one approved drug.

The $14 billion deal, at $81.50 per share, is a notable premium to the $9.3 billion offer the pharma giant Sanofi had made earlier this year. Medivation had rejected that approach.

The high price may come as a surprise, considering Medivation was trading at $67.16 on Friday. But there are a few key drugs that Medivation and Pfizer both touted as the reason for the deal.

"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," Jefferies analyst Dr. Brian Abrahams said in a note Monday.

Pfizer already has a few cancer drugs on the market, including Ibrance, which is used to treat people with certain types of breast cancer.

Medivation's one drug on market already is called Xtandi, or enzalutamide, which the company developed with Japan's Astellas. It's an oral drug that used to treat is used to treat late-stage prostate cancer. It was originally approved by the FDA in 2012. It does cost a list price of $129,000 in the US, which has gotten it in some hot water with Congress.

But Medivation's big appeal comes also comes from two experimental drugs that the San Francisco-based biotech has in later-stage development.

Here's what's in Medivation's pipeline that makes it worth $14 billion to Pfizer:

• The most notable is an experimental breast-cancer treatment called talazoparib, which Medivation acquired last August. The drug is also being developed as a potential as a treatment of cervical, lung, and ovarian cancers.
• In a July conference call, Medivation talked up the value of talazoparib, saying that it has the potential to be "best-in-class" among so-called PARP inhibitors - a new type of medicine that blocks a particular enzyme that's used by our cells to repair DNA so that tumors can't survive. In 2011, Pfizer sold off the rights to a PARP inhibitor drug to Clovis Oncology. The field is competitive: In June, biopharmaceutical company Tesaro's stock doubled after a successful late-stage trial for its PARP inhibitor.
• The other drug that's got Pfizer and Medivation excited is called pidilizumab, which is being developed to treat blood cancers. It's also in a late-stage trial, and it's part of a promising new class of cancer treatments called immunotherapies.
• Medivation is also researching how Xtandi - currently approved for late-stage prostate cancer - works in people with other types of prostate, breast and liver cancers.