Looking for a biotech stock with the potential to steal major
market share from
Johnson & Johnson
(JNJ) in a key disease market?
Then it's time to take a look at
(MDVN), a $4 billion biopharmaceutical company based in San
Francisco that is projected to turn profitable next year with a
breakthrough drug treatment for prostate cancer.
The prostate cancer market represents huge commercial potential and
Medivation's drug, Xtandi (enzalutamide), is already off to a
strong start since its approval by the FDA last August. Launches in
Europe and Asia will drive sales further, with projected revenues
of $2 to $4 billion over the next five years.
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 242,000 new cases of prostate cancer were diagnosed in the
U.S. in 2012 with 28,000 men dying from it.
Medivation's business model is to acquire promising technologies in
the late preclinical development phase and develop them quickly and
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
The company has consistently presented impressive data on Xtandi.
Based on clinical results so far, many institutional research
analysts believe Xtandi has blockbuster potential. The drug is
currently in several studies including for the pre-chemo setting
which would be a big opportunity for Medivation.
Key Partner for Global Reach
As with all up-and-coming small and mid-cap biotech companies with
unproven science and little-to-no positive cash flow, a big partner
is often required to sustain years of drug R&D. Medivation's
"big brother" is the Japanese drug-maker Astellas Pharma.
Medivation and Astellas have been targeting patients with
metastatic castration-resistant prostate cancer (CRPC). Metastatic
prostate cancer that has become castration-resistant is extremely
aggressive and this is a key treatment differentiation for Xtandi
vs JNJ's drug Zytiga.
The partners are also studying Xtandi in early stage prostate
cancer patients (pre-chemo), which could represent a very big
market for the candidate. In 2010, the companies initiated a phase
III study (PREVAIL) in chemotherapy-naïve advanced prostate cancer
patients with data read-outs expected in the second half of 2013.
With the aid of Astellas, Xtandi gained EU approval in June 2013.
Medivation recorded $181.7 million in revenues in 2012 under its
collaboration agreements with Astellas and former partner,
(PFE). While the Pfizer upfront payment of $225 million was
recognized through the third quarter of 2012, the $110 million
Astellas payment will be recognized through the first quarter of
As the drug gains new reach, Medivation has a 60-person sales force
in place for promoting Xtandi and Astellas has a 90-person sales
force to promote the product in Europe and Asia.
Positive Data, Enthusiastic Analysts
For one quick snapshot of the efficacy of Xtandi, let me share this
data bite: Xtandi showed a 4.8-month advantage in median overall
survival compared to placebo (18.4 months versus 13.6 months). And
a 37% reduction in risk of death was observed in the Xtandi arm
compared to placebo.
Based on these results, Xtandi enjoys fast track status with the
FDA for the post-chemo indication.
Major institutional research houses covering the biotech industry
have been watching the preliminary data from Medivation and in the
last two months they've been scrambling to upgrade the stock with
expectations of positive data from the PREVAIL study.
The average 12-month price target on the Street is north of $65 if
PREVAIL data is positive, with UBS recently raising eyebrows with
their $74 target.
Running the Gauntlet
As with all young, unprofitable biotech companies, there is extra
volatility and risk as we watch them pass through the FDA gauntlet
of clinical trials.
For me, the key is seeing enough analysts positive on the company
and its chances of success with new R&D because, by myself, I
can't keep up with all the complex science and so I use the
analysts as my researchers.
Many biotech analysts are physicians or clinical researchers
themselves who have gone to work for brokerages. And in cases where
no medical PhDs are on the research staff, they all have a routine
of consulting physician experts who are considered Key Opinion
Leaders (KOLs) in clinical circles and that the FDA may rely on as
I also want to see the analysts raising their estimates as future
profitability becomes visible. Climbing back to being a Zacks #1
Rank (Strong Buy) or #2 Rank (Buy) on a regular basis now -- vs a
Rank #4 (Sell) or #5 (Strong Sell) as it was last fall -- is a nice
turn-around we want to see.
Throw in a positive price trend and institutional accumulation and
I'm all in. In full disclosure, I own MDVN for the Zacks Follow the
Money portfolio and I own September 55 calls for my own portfolio.
Kevin Cook is a Senior Stock Strategist with
ISHARES NDQ BIO (IBB): ETF Research Reports
JOHNSON & JOHNS (JNJ): Free Stock Analysis
MEDIVATION INC (MDVN): Free Stock Analysis
PFIZER INC (PFE): Free Stock Analysis Report
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