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Why Medivation Shares Retreated

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biopharmaceutical company Medivation (NASDAQ: MDVN  ) sank as much as 11% after rival Johnson & Johnson (NYSE: JNJ  ) announced it was purchasing Aragon Pharmaceuticals to get ahold of its experimental advanced prostate cancer drug, ARN-509.

So what: Johnson & Johnson has agreed to purchase Aragon for $650 million with the potential for up to $350 million in additional milestone payments. ARN-509 is a currently in mid-stage trials and is considered a potential rival to Medivation's metastatic prostate cancer drug, Xtandi. Weighing in on today's actions, Citigroup analyst Yaron Werber noted concerns for Medivation, but also opined that J&J's purchase of ARN-509 is likely an indication that it expects the prostate cancer market to expand with its own FDA-approved prostate cancer drug, Zytiga, also in the same space.

Now what: Personally, I'd call today's move lower a gross overreaction. ARN-509 still has plenty to prove in clinical trials, and it'll be years before it makes it to market. In the meantime, Xtandi was approved in the U.S. three months ahead of its PDUFA date, it received approval in Canada two weeks ago, and it gained a positive view from the European Medicine Agency's panel. There is plenty of room for growth from Xtandi over the coming years, especially with prostate cancer being the most-diagnosed cancer of them all in the U.S. In sum, I wouldn't let J&J's purchase change your investing thesis on the company.

Craving more input? Start by adding Medivation to your free and personalized watchlist so you can keep up on the latest news with the company.

Involved in everything from baby powder to biotech, Johnson & Johnson's critics are convinced that the company is spread way too thin. If you want to know if J&J is nothing but a bloated corporate whale -- or a well-diversified giant that's perfect for your portfolio -- check out The Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now

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