Was Medivation's Quarter a Disaster?

Medivation (MDVN) shares sank more than 10% on news of slowing sales growth for its prostate cancer drug Xtandi; however, an FDA decision and potential milestones may support the company into year end.

Mar 3, 2014 at 6:30PM

Medivation's (NASDAQ:MDVN) sell-off last week reflects investor disappointment in guidance for sales of Xtandi, a prostate cancer drug prescribed to patients who fail to respond to chemotherapy.

Sales of Xtandi jumped double digit percentages quarter-after-quarter in 2013, but the company expects that winning streak will end as sequential growth in the U.S. slips to mid single digits this year. Decelerating growth suggests Xtandi is saturating the post-chemotherapy market, but investors should know that Medivation (NASDAQ:MDVN) is modeling for Xtandi growth to reaccelerate later this year following an FDA approval for use in pre-chemotherapy patients.

That suggests looking beyond the first two quarters to the third quarter, when the FDA's decision is expected, and the fourth quarter, when post-approval sales would begin. 

MDVN Chart

MDVN data by YCharts

Pre-chemo is a potential game-changer
Questions surrounding slowing U.S. sales growth are due to the company's guidance for Xtandi sales totaling between $500 to $535 million this year. While that forecast is up from sales of $446 million in 2013, it's roughly in line with the annualized sales run rate of $126 million during the fourth quarter.

As a result, investors are right to wonder if the company's guidance is due to slowing demand, or a desire to under-promise and over-deliver. During the company's fourth quarter earnings conference call, analysts asked whether Medivation (NASDAQ:MDVN) is sand-bagging results for the year, or being conservative.

"The way that I would characterize it is -- it is a number that is based on data that we have sufficient confidence in, that we're willing to put it out and put our reputations on the line," was the response from Interim Chief Financial Officer C. Patrick MacHado.

That reply may suggest guidance is indeed on the conservative side. If so, a pre-chemotherapy approval, pre-launch inventory building, and a fourth quarter launch could significantly boost revenue into year end.

After all, once Johnson & Johnson (NYSE:JNJ) won the pre-chemotherapy indication for its prostate cancer drug Zytiga, sales of the drug surged 77% to $1.7 billion in 2013. Medivation (NASDAQ:MDVN) plans to file for Xtandi's pre-chemotherapy approval early this year, which means an FDA decision will hopefully come in the third or fourth quarter.

I believe that odds favor Xtandi getting the green-light from regulators thanks to a strong showing by Xtandi in its Phase 3 Prevail trial. Independent regulators halted that trial early so that those on placebo could switch over to Xtandi -- a ringing endorsement for Xtandi's efficacy. Xtandi patients not only saw a significant improvement in progression free survival, but nearly 80% them saw their PSA drop by more than 50%, versus just 4% for placebo.

If the FDA finds those results compelling enough for approval, Medivation (NASDAQ:MDVN) believes sequential growth will rebound into year end. "And following the receipt of the Prevail label, we would expect quarter-on-quarter demand growth to revert back to double-digit levels that we've seen historically," added MacHado in the conference call.

Ramping sales overseas
Medivation (NASDAQ:MDVN) splits Xtandi's commercialization efforts with its partner Astellas (NASDAQOTH:ALPMY) in the U.S., but Astellas (NASDAQOTH:ALPMY) is fully responsible overseas. That means rather than splitting profit with Astellas (NASDAQOTH:ALPMY) on overseas sales, like it does in the U.S., Medivation (NASDAQ:MDVN) collects a royalty on non-U.S. sales instead. However, that doesn't mean Xtandi's opportunity in key markets like Europe won't be profit friendly.

In its first full year of approval in key overseas markets, international sales of Johnson's (NYSE:JNJ) Zytiga grew nearly 90% in the fourth quarter to $284 million.

Since Xtandi is doing well in the U.S., it seems likely Xtandi's overseas sales will grow significantly this year as launches gain momentum. Fourth quarter sales, for example, accounted for $35.8 million of Xtandi's $52.8 million in international sales last year.

A steady stream of milestones
In addition to payments from royalty rates ranging in the teens to mid twenties, depending on global sales levels, Medivation (NASDAQ:MDVN) is set to collect some handsome milestones from Astellas (NASDAQOTH:ALPMY) too. Medivation (NASDAQ:MDVN) believes it will collect $212 million in development milestones this year.

If the filings and approvals behind those milestone payments go as hoped, Medivation could start receiving sales based milestones in 2015. If global Xtandi yearly sales reach $800 million, Astellas will pay Medivation $50 million.  If they reach $1.2 billion, Astellas will hand over another $70 million. And, if they climb above $1.6 billion -- the level Johnson's Zytiga has already achieved -- Astellas will pay the company $175 million.

Fool-worthy final thoughts
Xtandi sales jumped 120% year-over-year in the fourth quarter, bringing full year sales to $445 million, up from $71 million in 2012. That performance translated into Medivation's revenue of $273 million in 2013, up from $182 million a year ago.

While the U.S. sales growth rate will slow in the first half of the year, Fools may want to focus more on the second half of the year given the potential for a pre-chemotherapy approval and associated milestone payments. That said, Xtandi is Medivation's only approved therapy, which means its shares are likely to remain volatile in 2014.

Additional growth opportunities
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Todd Campbell is long Medivation. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisor's, LLC. Gundalow's clients do not have positions in the companies mentioned.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers