By Carl O'Donnell and Ransdell Pierson

Aug 22 (Reuters) - Medivation's $14 billion sale to U.S. drug giant Pfizer Inc for a hefty premium, the largest U.S. biotechnology acquisition so far this year, had investors on Monday speculating about more dealmaking in the sector.

Shares of Incyte Corp and Seattle Genetics , rose as much as 11 percent and 4 percent, respectively. Incyte and Seattle Genetics, which have respective market capitalizations of $15.4 billion and $6.7 billion, focus on innovative cancer treatments and, like Medivation, are already producing revenue.

For the other companies that also bid for Medivation, including Sanofi SA, Merck & Co Inc, Celgene Corp and Gilead Sciences Inc, such targets could serve as coveted consolation prizes.

Major drug makers are vying for a foothold in oncology because the sector promises to be among the single biggest contributors to sales growth over the next five years, according to data from consultancy Ernst and Young.

Large pharmaceutical companies have been itching to make big deals all year. The most deal-hungry are wrestling with generic competition, or are rushing to gain a leadership position in a burgeoning therapeutic area, such as cancer or rare diseases.

This acquisition drive could spell deals even for other promising biotechnology companies outside the oncology sector. Shares of BioMarin Pharmaceutical Inc for example, a $16.7 billion market capitalization company that focuses on rare diseases, rose as much as 7 percent on takeover speculation.

Pfizer's acquisition of Medivation for $81.50 per share in cash, represents a close to 120-percent premium to Medivation's stock price before Reuters reported on March 30 that the company was working with JPMorgan Chase & Co to field takeover approaches.

It is a rich valuation by most metrics. The deal values Medivation at 17.9 times its revenue, versus a 12.8 times average for deals in the sector in the last eight years, according to a research note by BMO Capital Markets.

The deal could be a much needed shot in the arm for dealmaking in the biotech sector, which has been tepid ever since the Nasdaq Biotech Index plunged more than 30 percent late last year, largely due to heightened political pressure on drug prices.

So far this year, dealmaking activity in life sciences is down 64 percent from this time last year, according to data from Thomson Reuters.

But that could change as the corporate boards of mid-sized biotech companies, which have been hesitant to seriously consider a sale in a down market, are tempted by the prospect of juicy premiums, investors, analysts and investment bankers said.

"Given the scarcity of mid-cap biotech, we believe the remaining companies could see increasing interest, as large pharma continues to look towards biotech as a source of growth," Do Kim, an analyst for BMO Capital Markets, wrote in his note.

Other companies to watch for as possible acquisition targets include Vertex Pharmaceuticals Inc, Alexion Pharmaceuticals Inc, Neurocrine Biosciences Inc and Intercept Pharmaceuticals Inc, Kim noted.

(Reporting by Carl O'Donnell and Ransdell Pierson in New York; Editing by Greg Roumeliotis and Nick Zieminski)