Concerns that a new rating system could slow growth for Medivation's (NASDAQ:MDVN) prostate cancer drug Xtandi contributed to a 13.5% slip in the share price in June.
A new paradigm?
Xtandi has been a massive success for Medivation and co-developer Astellas.
Following its launch as a post-chemotherapy treatment for metastatic castration-resistant prostate cancer, or mCRPC, in 2012, Xtandi has cut steadily away at the market share of rival Johnson & Johnson's Zytiga, and as a result, annual net sales of Xtandi eclipsed $1 billion for the first time last year.
An FDA approval expanding Xtandi's label to include pre-chemotherapy mCRPC patients last fall has further strengthened Xtandi's position relative to Zytiga. In the first quarter, Xtandi's revenue grew 107% year over year to $357 million, while sales of J&J's Zytiga, which has long dominated the pre-chemotherapy indication, grew just 8.6% to $556 million versus last year.
Xtandi's rapid run-up in sales; however, could hit a speed bump if a new push to use drug ratings gains traction. An increasing need to rein in sky-high cancer treatment costs and shift doctors and patients discussions from the most recently approved therapy to the one with the best value has led the American Society of Clinical Oncology, or ASCO, to release its first-attempt at a ratings system that includes ratings for both Xtandi and Zytiga.
According to ASCOs scale, which ranks a drug's efficacy and safety relative to the control arm used in its clinical trials, Xtandi scores a 32 out of a total possible score of 130 when compared with placebo, while a regimen consisting of Zytiga plus prednisone scores a 42 versus placebo.
According to ASCO, this ratings system is still under development, and as such, it's unclear whether the current scoring methodology will change or not in the future.
It's also uncertain whether doctors will embrace the scale and consider prescribing Zytiga instead of Xtandi. Although Zytiga appears to have an edge in the scoring, ASCO recommends against using scores to evaluate drugs directly against one another; rather, the scores are supposed to be used in comparing to a placebo.
Regardless, the potential for ASCO's ratings to reinvigorate Zytiga at Xtandi's expense shouldn't be ignored, and that means investors will need to keep a close eye on prescription trends and sales over the coming quarters to see whether there appear to be any changes in prescription activity. I'm content to sit on the sidelines and wait to see how this all shakes out, rather than step up and buy Medivation at these lower prices.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Johnson & Johnson. 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.