What: Shares of Medivation (NASDAQ:MDVN), a biopharmaceutical company focused on developing novel cancer therapies, plunged 14% in December, according to data from S&P Capital IQ, after AbbVie (NYSE:ABBV) forged a multi-year agreement with pharmacy-benefits manager Express Scripts (NASDAQ:ESRX) for recently approved hepatitis C drug Viekira Pak.
So what: Understandably you're probably scratching your head wondering what in the heck an AbbVie approval for hepatitis C has to do with Medivation's and Astellas Pharma's prostate cancer drug Xtandi. This agreement is groundbreaking because Gilead Sciences' (NASDAQ:GILD) Harvoni and Sovaldi were notably pricier than Viekira Pak, and this agreement nets Express Scripts Viekira Pak at a discount, while dropping Harvoni and Sovaldi for most genotype 1 patients. In other words, it was the first high-profile case of a pharmacy benefits manager, or PBM, cutting a high-priced drug out of its approved drug list in favor of a cheaper, but arguably inferior, one.
Still wondering what this has to do with Medivation? You see, Xtandi's clinical data has been impressive thus far, and it doesn't need to be co-administered with corticosteroids like its peer Zytiga from Johnson & Johnson (NYSE:JNJ), potentially making it more convenient. But, here's the catch: For this added convenience Xtandi costs patients and insurers about $1,600 more per month. Is Xtandi really worth this much in premium? There's a chance PBMs may not see it that way and exclude Xtandi in favor of Zytiga because of cost. Thus, the AbbVie deal was a groundbreaker in that it could tip the scales in favor of Zytiga in treating advanced prostate cancer due to its markedly lower monthly price point.
Now what: Medivation's swoon in December essentially comes down to whether or not Wall Street believes a price war is about to be incited among prostate cancer drug developers. To this end, and of course this is just my personal opinion, I don't believe that's going to happen. Cancer is arguably a far tougher disease to get a grip on than hepatitis C, and it's also a much quicker killer in many instances. This means developed cancer drugs are highly specialized and often costly -- it unfortunately just comes with the territory.
It's also hard to argue that Xtandi isn't a major leap forward in patient quality of care. In its PREVAIL study, which looked at Xtandi's use in the pre-chemo setting, treated patients when compared to the placebo group had a 29% reduced risk of death and a significantly reduced risk of radiographic progression or death of 81%. Furthermore, the length of time patients went before beginning chemotherapy was extended by 17.2 months over the control group. This is a drug that works well and is unlikely to be taken off any formulary. With its EPS projected to double between 2014 and 2017, I still believe there could be upside to Medivation's shares.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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