Medivation Jumps on Q2 Earnings Beat, Outlook Encourages

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Medivation Inc. (MDVN) was up 7.52% after the company posted earnings of 60 cents per share in the second quarter of 2014, turning around the year-ago loss of 7 cents per share and easily beating the Zacks Consensus Estimate of earnings of 28 cents per share.
 

Revenues came in at $148.1 million, up 111.1% from the year-ago period, beating the Zacks Consensus Estimate of $129 million.

The Quarter in Detail

Xtandi delivered U.S. net sales of $143.7 million, as reported by Astellas (ALPMY), in the second quarter, up 15.4% sequentially. The upside was driven by strong demand in the post-chemotherapy segment during the quarter.

Awareness about Xtandi among oncologists and urologists continues to be high. Ex-U.S. net sales were $83.3 million, well above $47.8 million in the first quarter.

Xtandi is approved for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC) who have previously received docetaxel. It is currently approved in more than 40 countries.

Medivation's collaboration revenues in the second quarter were $148.1 million consisting of U.S. collaboration revenues of $71.9 million, ex-U.S. collaboration revenues of $10 million and upfront and development milestone payments accounting for the remaining $66.2 million.

Operating expenses increased 32.9% to $93.1 million. Research and development expenses increased 43% to $40.3 million. SG&A expenses increased 26% to $52.8 million. The higher expenses reflect the company’s investment in the launch of Xtandi, its label expansion efforts and a further expansion of the U.S. field sales force.

2014 Outlook Up

Medivation expects U.S. net sales of Xtandi in the range of $600 million to $640 million, up from the earlier guidance of $540 million to $575 million. Guidance was raised to reflect stronger-than-expected sales in the second quarter and robust demand expected in the latter half of the year.

The company expects to record development milestone payments of about $279 million from Astellas, up $50 million from the prior guidance of $229 million. The updated guidance includes $50 million of sales milestone payments related to Xtandi reaching worldwide net sales of $800 million in 2014.

Total collaboration revenues are expected to in the range of $615–$640 million.

Operating expenses (after adjusting cost-sharing payments) are still expected in the range of $400 million to $430 million. While SG&A spend will account for slightly more than 50% of total operating expenses, the balance will be spent on R&D.

Medivation is working on expanding Xtandi’s label. Medivation and Astellas are currently seeking FDA approval for Xtandi in the lucrative pre-chemo population. A response from the agency should be out by Sep 18.

Meanwhile, Medivation is enrolling patients in a phase IV study (:PLATO) on Xtandi which will compare Xtandi plus Zytiga and prednisone to Zytiga and prednisone in chemo-naïve metastatic prostate cancer patients whose disease has progressed following treatment with Xtandi. Xtandi is being evaluated in other studies as well, including breast cancer studies.

In Apr 2014, Medivation entered into a research and license agreement with OncoFusion Therapeutics, Inc. for certain compounds targeting bromodomain and extra-terminal proteins for potential use in cancer and other disease areas.

Our Take

We are pleased with Medivation beating expectations on the top as well as the bottom line. Xtandi’s performance was strong and helped the company’s revenues. Moreover, the increased Xtandi guidance is encouraging.

Xtandi could very well be a game-changer for Medivation. The prostate cancer market holds a huge commercial potential. Medivation has consistently presented impressive data on Xtandi. Expansion into the pre-chemo setting would be a major positive for Medivation.

Medivation is currently a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the biotech sector include Cytokinetics, Incorporated (CYTK) and Gilead Sciences Inc. (GILD). Both are Zacks Rank #1 (Strong Buy) stocks.

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