Medivation, Inc. (MDVN-NASDAQ)

Transcription

1 March 19, 2015 Medivation, Inc. (MDVN-NASDAQ) NEUTRAL Current Recommendation Prior Recommendation Outperform Date of Last Change 03/25/2014 Current Price (03/18/15) $ Target Price $ SUMMARY Medivation s fourth quarter results were betterthan-expected with the company beating easily on both the top- and the bottom-line. Xtandi s performance remains strong. The prostate cancer market represents huge commercial potential. With Xtandi gaining approval for the pre-chemo population, increased usage among urologists should drive sales further. We are also positive on the company s efforts to build an immuno-oncology franchise considering it is currently entirely dependent on Xtandi for growth. Moreover, competition in the prostate cancer market is intense. We maintain a Neutral recommendation on Medivation. SUMMARY DATA 52-Week High $ Week Low $55.08 One-Year Return (%) Beta 0.59 Average Daily Volume (sh) 1,038,024 Shares Outstanding (mil) 78 Market Capitalization ($mil) $10,311 Short Interest Ratio (days) 4.35 Institutional Ownership (%) 92 Insider Ownership (%) 5 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 67.7 Earnings Per Share (%) N/A Dividend (%) N/A P/E using TTM EPS 38.7 P/E using 2015 Estimate 42.7 P/E using 2016 Estimate 27.4 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Average Type of Stock Large-Growth Industry Med-Biomed/Gene Zacks Industry Rank * 76 out of 267 ZACKS CONSENSUS ESTIMATES Revenue (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 70 A 60 A 97 A 273 A A 148 A 200 A 275 A 710 A E 165 E 234 E 365 E 908 E ,161 E Note: Quarterly figures may not add to annual numbers due to rounding off. Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.36 A -$0.07 A -$0.18 A $0.03 A -$0.57 A $0.18 A $0.60 A $0.96 A $1.96 A $3.42 A 2015 $0.19 E $0.35 E $0.86 E $1.70 E $3.10 E 2016 $4.83 E Note: Quarterly figures may not add to annual numbers due to rounding off. September 24, 2012: Stock Split 2:1 Projected EPS Growth Rate - Next 5 Years % N/A 2015 Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW San Francisco based Medivation, Inc. is a biopharmaceutical company that focuses on the development of novel small molecule drugs for the treatment of serious diseases for which there are limited treatment options. Medivation currently has one marketed product Xtandi (enzalutamide), which gained FDA approval in late Aug 2012 for the treatment of patients with metastatic castration-resistant prostate cancer (CRPC) who have previously received docetaxel. Xtandi gained approval for use in the prechemo patient population in Sep Xtandi is partnered with Astellas Pharma and gained EU approval in Jun In Dec 2014, Medivation in-licensed exclusive worldwide rights to MDV9300 (pidilizumab) - an immune modulatory, anti-programmed death-1 (PD-1) monoclonal antibody - for all potential indications from CureTech. Medivation is responsible for the development, approval, manufacturing, and commercialization of MDV9300. Apart from oncology, Medivation is focusing its R&D efforts on neurology. Medivation recorded $710.5 million in revenues in 2014, up from $272.9 million in REASONS TO BUY Xtandi A Game Changer: Medivation received a huge boost in late Aug 2012 when the FDA approved Xtandi for the treatment of patients with metastatic castration-resistant prostate cancer who have previously received docetaxel. The approval and launch of Xtandi is a major milestone for the company which had previously faced failure with the development of another key pipeline candidate, dimebon (Alzheimer s disease and Huntington disease). Xtandi is a novel androgen receptor antagonist. The company has consistently presented impressive data on Xtandi. Based on the data that we have seen so far, we believe Xtandi has multi-billion dollar potential. Xtandi, which is already off to a strong start, has the potential to differentiate itself from other prostate cancer treatments. Xtandi enjoys fast track status with the FDA for the post-chemo indication. EU approval was received in Jun 2013 launch in additional countries should drive sales further. Medivation expects U.S. net sales of Xtandi, as reported by Astellas, in the range of $1.05 billion to $1.125 billion. The guidance should be easily achievable with Xtandi being approved for the prechemo population as well, which is a very big market. The PREVAIL data (on the pre-chemo patient population) has the potential to change physician as well as patient expectations for the treatment of prostate cancer. Detailed data was very impressive and should pave the path for Xtandi to take share from existing treatments. The 17-month delay in the time to initiation of chemotherapy should work in Xtandi s favor. Huge Potential in Prostate Cancer Market: According to the American Cancer Society, prostate cancer is the most commonly diagnosed cancer among men in the U.S., other than skin cancer. It is estimated by the American Cancer Society that about 233,000 new cases of prostate cancer were diagnosed in the U.S. in 2014 with 29,000 men dying of prostate cancer. Metastatic hormonesensitive prostate cancer that has not been effectively treated undergoes changes that convert it to the castration-resistant state in a median of months after initiation of hormonal therapy. Metastatic prostate cancer that has become castration-resistant is extremely aggressive. Xtandi binds to the androgen receptor but does so in a manner designed to render it effective in treating cancers that have become refractory. Medivation is currently evaluating Xtandi in several studies. Xtandi met the primary endpoint in a phase II study (TERRAIN), comparing Xtandi to Casodex, in advanced prostate cancer patients who Equity Research Page 2

3 have progressed following medical castration with LHRH analog therapy or surgical castration. Another phase II head-to-head study (with Casodex), STRIVE is being conducted mainly in the U.S. in patients with either metastatic or non-metastatic disease results are due shortly. Medivation is also evaluating Xtandi at the earliest stage of prostate cancer, when the disease is initially diagnosed. Medivation is also exploring Xtandi for breast cancer (three phase II studies). Moreover, the company is conducting a phase III trial (PROSPER) in patients with non-metastatic castrationresistant prostate cancer (M0). Medivation is also conducting 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. Another phase III study (EMBARK) is being conducted in patients with high-risk, hormone-sensitive, non-metastatic prostate cancer and a rising PSA level following definitive local therapy with radical prostatectomy and/or radiation therapy. There are currently no specific treatments approved for this patient population. Astellas Collaboration a Positive: We view Medivation s collaborative agreement with Japanese company, Astellas, as favorable. The Xtandi development and commercialization agreement was signed in late Oct We were pleased with the favorable terms of the deal. In addition to receiving an upfront payment of $110 million, Medivation earned $335 million on the achievement of development and regulatory milestones, and could earn another $320 million in commercial milestone payments ($75 million earned up to Dec 31, 2014). Moreover, Medivation is entitled to receive tiered double-digit royalties on ex- U.S. sales. While all U.S. development and commercialization costs and profits will be shared equally, Astellas is responsible for the ex-u.s. development and commercialization of Xtandi. This agreement is a major positive for Medivation. Not only has it brought in cash, Astellas strong presence in the urology market should be a major boon. Working on Building Immuno-Oncology Franchise: In Dec 2014, Medivation in-licensed a late-stage immuno-therapy candidate, MDV9300, from CureTech. Medivation has plans to initiate phase III studies evaluating MDV9300 in one or more hematologic malignancies this year. MDV9300 also has the potential to be studied for other indications as well as in combination with Xtandi for breast and prostate cancer. The in-licensing of MDV9300 is a step towards Medivation s goal of building up an immuno-oncology franchise. We expect the company to pursue additional licensing deals. REASONS TO SELL Thin Pipeline: Besides evaluating Xtandi for additional indications, Medivation has just one more candidate in its pipeline. Xtandi is currently in several studies. Disappointing data from any of these studies would have a negative impact on the shares. Intense Competition in Target Market: While the prostate cancer market provides immense commercial potential, we note that Xtandi faces intense competition. Approved treatments include Sanofi s Jevtana (second-line chemotherapy drug), and Johnson and Johnson s Zytiga. Both are approved in the post-chemotherapy CRPC patient population which was evaluated in Medivation s phase III study (AFFIRM). With Jevtana and Zytiga capturing a significant share of the post-chemo market, Xtandi, being a late entrant, may find it challenging to take away share. Moreover, Zytiga gained FDA approval for the pre-chemo setting, a market being targeted by Medivation. The immuno-oncology market also has many players with several companies entering into deals in this field and working on bringing their candidates to market. Equity Research Page 3

4 RECENT NEWS Medivation Beats on Fourth Quarter Earnings & Revenues; Xtandi Soars Feb 25 Medivation Inc. (MDVN) reported fourth quarter 2014 earnings of $1.96 per share, well above the Zacks Consensus Estimate of $1.21 per share and the year-ago earnings of $0.03 per share. Higher revenues boosted results. Revenues for the reported quarter increased 184.4% year over year to $274.7 million, well above the Zacks Consensus Estimate of $228 million. The Quarter in Detail Xtandi delivered U.S. net sales of $230.2 million, as reported by Astellas, in the fourth quarter, up 27% sequentially. The company attributed about four-fifth of the sequential improvement to underlying demand growth thanks to Xtandi s label expansion into the lucrative chemo-naïve population. Ex-U.S. net sales were approximately $126 million, up 5% sequentially. Currency movement negatively impacted ex-u.s. net sales by about 7% compared to the third quarter. Medivation is evaluating Xtandi for additional indications in the prostate cancer setting as well as for breast cancer. Medivation's collaboration revenues in the fourth quarter were $274.7 million consisting of U.S. collaboration revenues of $115.1 million (up 82% from the year-ago period), ex-u.s. collaboration revenues of $18.2 million (compared to $4.3 million in the year-ago period) and upfront and development milestone payments accounting for the remaining $141.4 million. This included a $90 million development milestone payment and a sales milestone of $50 million on the achievement of annual worldwide Xtandi net sales of $800 million during the year. Operating expenses increased 48.2% to $131.3 million. Research and development expenses increased 56% to $57.9 million. SG&A expenses increased 42.5% to $73.4 million. The higher expenses were due to higher collaboration-related expenses from Astellas, costs associated with the company s newlylicensed pidilizumab program and higher personnel-related costs Outlook Medivation expects U.S. net sales of Xtandi, as reported by Astellas, in the range of $1.050 billion to $1.125 billion with first quarter sales expected to be at or below $230 million. Total collaboration revenues are expected in the range of $600-$650 million. This includes Medivation's 50% share of collaboration revenue related to U.S. net sales of Xtandi and collaboration revenue related to ex-u.s. net sales of Xtandi, in the form of a royalty payment from Astellas. However, it excludes collaboration revenue of $2.8 million related to the amortization of upfront payments that the company expects to recognize in 2015 and up to $245 million of remaining milestone related payments that Medivation may earn from Astellas this year. Operating expenses are expected in the range of $410-$450 million. This excludes non-cash expenses, stock-based compensation expense and milestone-related payments to a third party. Equity Research Page 4

5 Medivation and Astellas Report TERRAIN Data on Xtandi Jan 22 Medivation and partner Astellas reported top-line results from a phase II study (TERRAIN), comparing Xtandi) to AstraZeneca s Casodex (bicalutamide) in metastatic prostate cancer patients whose disease has progressed following treatment with a luteinizing hormone-releasing hormone analogue therapy or after surgical castration. The phase II study was conducted to evaluate Xtandi 160 mg once daily against Casodex 50 mg once daily. Results revealed a statistically significant increase in progression-free survival (PFS) in the Xtandi group compared to patients in the Casodex arm (15.7 months versus 5.8 months), thereby successfully meeting the primary endpoint of the study. Median time on treatment was longer for Xtandi (11.7 months) compared to Casodex (5.8 months). However, patients reported more serious adverse events in the Xtandi arm (31.1%) as compared to patients in the Casodex arm (23.3%). The company intends to present additional data from the study at an upcoming medical conference. VALUATION Medivation posted earnings of $1.96 per share, well above the Zacks Consensus Estimate of $1.21 per share and the year-ago earnings of $0.03 per share. Higher revenues boosted results. Revenues for the reported quarter increased 184.4% year over year to $274.7 million, well above the Zacks Consensus Estimate of $228 million. Xtandi s performance remains strong. With Xtandi gaining approval for the pre-chemo population, increased usage among urologists should drive sales further. The prostate cancer market represents huge commercial potential. While optimistic about Xtandi, the company s thin pipeline is a matter of concern. We remain Neutral on the stock. Based on sales estimates for 2015, Medivation is trading at 11.4x compared to the peer group average of 5.9. Our price target of $139 is based on 11.9x our 2015 sales estimate. Equity Research Page 5

6 Key Indicators P/S F1 P/S F2 Est. 5-Yr EPS Gr% P/CF P/S P/E 5-Yr High P/E 5-Yr Low Medivation, Inc. (MDVN) Peer Group Average The Medicines Company (MDCO) Myriad Genetics Inc. (MYGN) Alkermes plc (ALKS) PDL BioPharma, Inc. (PDLI) TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Medivation, Inc. (MDVN) Industry Average S&P Equity Research Page 6

7 Earnings Surprise and Estimate Revision History Equity Research Page 7

8 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of MDVN. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1130 companies covered: Outperform %, Neutral %, Underperform 8.9%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst QCA & Lead Analyst Reason for Update Arpita Dutt Arpita Dutt 4Q14 Equity Research Page 8