Medivation Q1 Loss Wider Than Expected

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Medivation Inc. (MDVN) posted a loss of 18 cents per share in the first quarter of 2014, well below the year-ago loss of 36 cents per share but wider than the Zacks Consensus Estimate of a loss of 3 cents per share.

Revenues came in at $87.2 million, missing the Zacks Consensus Estimate of $112 million but up 88.9% from the year-ago period.

The Quarter in Detail

Xtandi delivered U.S. net sales of $124.5 million (reported by Astellas (ALPMY)) in the first quarter, down 1% sequentially. The sequential decline was expected due to channel inventory destocking and other factors. However, Medivation reported stronger-than-expected demand in the post-chemotherapy segment during the quarter. The company also recorded a $9 million favorable gross-to-net adjustment as reported by Astellas in the first quarter.

Awareness about Xtandi among oncologists and urologists continues to be high. Ex-U.S. net sales were $47.8 million, well above $35.8 million in the fourth 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 first quarter collaboration revenue was $87.2 million consisting of U.S. collaboration revenues of $62.2 million, ex-U.S. collaboration revenues of $5.7 million and up-front and development milestone payments related revenues accounting for the remaining $19.2 million.

Operating expenses increased 39.7% to $95.7 million. Research and development expenses increased 84.4% to $45.9 million. SG&A expenses increased 14.2% to $49.7 million. The higher expenses reflect the company’s investment in the launch of Xtandi, its label expansion efforts and a higher headcount.

2014 Xtandi Outlook Up

Medivation expects U.S. net sales of Xtandi in the range of $540 million - $575 million, up from the earlier guidance of $500 million - $535 million. Xtandi sales are expected to grow in the mid-single digits sequentially during 2014 until it gains approval for the pre-chemo indication following which the growth rate should go up to double digits. Guidance was raised to reflect stronger-than-expected sales demand in the first part of 2014 as well as the favorable gross to net adjustment in the first quarter.

The company expects to record development milestone payments of about $229 million from Astellas.

Operating expenses (after adjusting cost-sharing payments) are expected in the range of $400 million – $430 million, down from the previous guidance of $460 million – $485 million. While SG&A spend will account for more than 50% of total operating expenses, the balance will be spent on R&D.

Expenses will be driven by the potential launch of Xtandi in the U.S. for the pre-chemo indication as well as ongoing studies.

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 a breast cancer study.

Our Take

Although Medivation missed expectations on the top as well as bottom line, Xtandi’s performance was strong and helped the company cut loss by half compared to the year-ago period. Moreover, the increased Xtandi guidance is encouraging – the company’s initial guidance provided on the fourth quarter call had been disappointing.

Xtandi could very well be a game-changer for Medivation. The prostate cancer market represents huge commercial potential. Medivation has consistently presented impressive data on Xtandi. Expansion into the pre-chemo setting would be a major positive for Medivation. We are also encouraged by the company’s intention to in-license candidates which will help reduce its dependence on a single product – Xtandi.

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

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