Medivation Lags Expectations

Medivation Inc. (MDVN - Analyst Report) has reported a net loss of 42 cents per share in the third quarter of 2009, exceeding the Zacks Consensus Estimate of a net loss of 39 cents. However, net loss declined from the year-ago loss of 68 cents. 

Revenue for the quarter was $16.3 million, consisting of partial recognition of the non-refundable upfront payment of $225 million received from Pfizer (PFE - Analyst Report) in October 2008. The upfront payment is being recognized on a straight-line basis through the first quarter of 2012. Revenues were nil in the year-ago period. 

Operating expenses grew from $20.6 million in the year-ago period to $27.6 million in the quarter. Research and development expenses increased to $21.5 million as a result of greater clinical trials expenses which were partially offset by a cost share reimbursement under the company’s agreement with Pfizer. With Dimebon and MDV3100 moving into advanced stages of clinical development, we expect research and development expenses to increase in 2009 and beyond. 

SG&A expenses increased to $6 million primarily as a result of increased payroll and other miscellaneous expenses. For 2009, the company expects total operating expenses, net of cost-sharing payments from Pfizer and Astellas, in the range of $115 and $120 million, down from the earlier guidance of $117 and $127 million. 

In early November, Medivation entered into a deal with Japanese company, Astellas Pharma, for the development and commercialization of pipeline candidate, MDV3100, for the treatment of prostate cancer. While we were expecting the company to announce a partnership deal for MDV3100, we were pleased with the favorable terms of the deal. 

In addition to receiving an upfront payment of $110 million, Medivation stands to receive up to $335 million on the achievement of development and regulatory milestones, plus an additional $320 million in commercial milestone payments. 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 be responsible for the ex-U.S. development and commercialization of the candidate. 

We view this agreement as a major positive for Medivation. Not only has it brought in cash, Astellas’ strong presence in the urology market should be a major boon once MDV3100 is launched. The Astellas agreement is the second major agreement signed by Medivation in a one-year time span. Last year, Medivation entered into a collaboration agreement with Pfizer for the development and commercialization of Dimebon for the treatment of Alzheimer’s and Huntington’s diseases. 

These deals have significantly boosted the company’s cash position. As of Sep 30, 2009, Medivation had $214.5 million in cash and equivalents, excluding the $110 million upfront payment received by the company in November from Astellas. 

With the MDV3100 deal in place, we expect investor focus to remain on trial results on Dimebon and MDV3100. We currently have a Neutral recommendation on the stock.