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Higher Loss at Medivation

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Medivation Inc. reported a loss of 31 cents per share in the fourth quarter of 2011, wider than the Zacks Consensus loss Estimate of 29 cents and the year-ago loss of 11 cents.

2011 loss came in at $1.11 per share, a penny wider than the Zacks Consensus loss Estimate of $1.10 per share and well above the year ago loss of 99 cents. Higher expenses led to the higher loss. Full year revenues came in at $60.4 million, missing the Zacks Consensus Estimate of $63 million.

The Year in Detail

Revenues consisted of partial recognition of the non-refundable upfront payment of $225 million received from Pfizer (PFE - Free Report) in October 2008 and $110 million received from Astellas in late 2009. The upfront payments are being recognized on a straight-line basis.

With Pfizer exercising its right to terminate its collaboration agreement in Jan 2012, the remaining deferred revenue balance under the Pfizer collaboration will be recognized through the first half of 2012. Meanwhile, the Astellas payment will be recognized through the fourth quarter of 2014.

Operating expenses increased 8.5% to $103.3 million. Research and development expenses increased 1.7% to $73.4 million primarily due to higher headcount and bonus expense, consulting and professional service expenses associated with increased workload on the AFFIRM and PREVAIL trials, and preclinical expenses associated with new programs. This was partially offset by lower clinical expenses due to reduced dimebon development activities.

SG&A expenses increased 29.9% to $29.9 million primarily due to higher payroll-related expenses, bonus expense and legal and other expenses. SG&A spend will continue increasing as the company is working on building out its corporate infrastructure in anticipation of the potential launch of MDV3100.

2012 Outlook

Medivation expects operating expenses (after adjusting cost-sharing payments from Astellas) in the range of $155 - $170 million. The company could receive milestone payments of about $45 million related to the regulatory filing ($10 million and $5 million on the acceptance of the US and EU filings, respectively) and potential US approval ($30 million) of MDV3100.

Pipeline Update

Medivation along with its partner Astellas Pharma intends to file for US and EU approval for their prostate cancer candidate, MDV3100, in 2012. The company plans to conduct a pre-NDA (New Drug Application) meeting with the US Food and Drug Administration (FDA) in early 2012. We expect to gain more visibility on the regulatory path for the candidate on the conclusion of this meeting.

Medivation said that it has decided to exercise its co-promotion option for MDV3100 in the US. Once MDV3100 is approved, Medivation will provide 50% of the US sales and medical affairs field forces for the product.

Meanwhile, the company continues to enroll patients for the phase III PREVAIL study which is being conducted in chemotherapy naïve prostate cancer patients. MDV3100 is also in a phase II study (TERRAIN), which will compare MDV3100 with bicalutamide, in advanced prostate cancer patients who have progressed following medical castration with LHRH analog therapy or surgical castration. Another open-label phase II study is being conducted to evaluate the effect of MDV3100 in advanced prostate cancer patients who have not had any previous hormonal therapies.

Neutral on Medivation

We currently have a Neutral recommendation on Medivation, which carries a Zacks #3 Rank (short-term “Hold” rating). Medivation shares received a major boost in early November with the company and its partner, Astellas, reporting impressive data on MDV3100. 2012 will be a catalyst-filled year for Medivation with the company planning to file for regulatory approval of MDV3100. Based on the data that we have seen so far, we believe MDV3100 has blockbuster potential and will be a game-changer for Medivation. We expect investor focus to remain on the regulatory status of MDV3100.

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