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Medivation Swings to Earnings in Q4

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Medivation Inc. (MDVN) posted a profit in the fourth quarter with earnings coming in at 3 cents per share compared to the year-ago loss of 43 cents per share and the Zacks Consensus Estimate of a loss of 11 cents per share.

Revenues came in at $96.6 million, well above the Zacks Consensus Estimate of $72 million and the year-ago revenues of $37.2 million.

Medivation’s full year loss was 57 cents per share, a penny wider than the year-ago loss and the Zacks Consensus Estimate. Revenues increased 50.2% to $272.9 million, well above the Zacks Consensus Estimate of $247 million.

The Quarter in Detail

Xtandi delivered U.S. net sales of $126.1 million (reported by Astellas (ALPMY)) in the fourth quarter, up 16.2% sequentially. The company estimates that 25% of the sequential increase was driven by a combination of demand and higher inventory levels and another 25% by a price increase taken in September. The remaining 50% was driven by favorable gross to net changes.

Awareness about Xtandi among oncologists and urologists continues to be high. Ex-U.S. net sales were $35.8 million, well above the $13 million reported in the third quarter.

Xtandi is approved for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC) who have previously received docetaxel. Xtandi is currently approved in more than 35 countries.

Medivation's fourth quarter collaboration revenue was $96.6 million consisting of U.S. collaboration revenues of $63.1 million, ex-U.S. collaboration revenues of $4.3 million and up-front and development milestone payments related revenues accounting for the remaining $29.2 million.

Operating expenses increased 38.6% to $88.6 million. Research and development expenses increased 68.6% to $37.1 million. SG&A expenses increased 22.8% to $51.5 million. The higher expenses reflect the company’s investment in the launch of Xtandi, its label expansion efforts and a 44% increase in headcount.

2014 Outlook

Medivation expects U.S. net sales of Xtandi in the range of $500 million - $535 million, up from $392.4 million in 2013. 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.

First quarter net sales are likely to be negatively impacted by about $20 million - $25 million due to the Medicare donut hole, the favorable growth to net changes recorded in the fourth quarter, and inventory destocking.

The company expects to record development milestone payments of about $212 million from Astellas.

Operating expenses (after adjusting cost-sharing payments) are expected in the range of $460 million – $485 million. While SG&A spend is expected to increase about 47% to $253 million - $267 million, R&D spend is expected to increase about 80% to $207 million - $218 million. Expenses will be driven by the potential launch of Xtandi in the U.S. for the pre-chemo indication as well as an increase in head count and ongoing studies.

Medivation is working on expanding Xtandi’s label. In Oct 2013, the company presented top-line data on Xtandi from the PREVAIL study in pre-chemo mCRPC patients. The results were pretty impressive with Xtandi reducing the risk of death by 29% compared to placebo. Moreover, the risk of radiographic progression or death was cut by 81% in the Xtandi arm. A 17-month delay in the time to initiation of chemotherapy was observed in the Xtandi arm. Medivation will be filing for approval in the U.S. and the EU shortly. Medivation currently expects to gain approval for the pre-chemo indication in the third quarter.

Meanwhile, Medivation has commenced 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

Medivation’s fourth quarter results exceeded expectations on all fronts. However, the company’s guidance for Xtandi sales looks soft and could be on the conservative side. 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 #2 (Buy) stock. Some better-positioned stocks in the biotech sector include Biogen Idec (BIIB) and Alkermes plc (ALKS). Both are Zacks Rank #1 (Strong Buy) stocks.
 

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