
`
`
`
`Global Research
`
`3 February 2014
`
`Medivation
`A Look at the Growth and Share in Prostate Cancer
`
`Both Zytiga and Xtandi 4Q sales are out. What do they imply?
`Medivation's partner Astellas announced Xtandi US sales of $126m (consensus: $121m,
`UBS: $124m) and OUS sales of $38m (consensus: $20m, UBS: $28m), both coming in
`above expectations. Here we look at what the entire class (Xtandi + Zytiga) is doing in
`actual reported sales, the growth of the segment, and the relative dollar market share
`trends. The sales data suggest that [1] the market for androgen receptor (AR)
`antagonists is robust and growing nicely, contrary to the bear case on AR market size;
`[2] Xtandi continues to rapidly gain market share despite operating with a limited label
`compared to Zytiga, and [3] estimates should continue to rise over time.
`
`Analysis #1: AR market annualizing to $2.6bn, but still early in the game
`Separately, JNJ reported upside Zytiga 4Q US sales of $211m, and WW sales of $495m
`(Street $453m). Taken together, the no-longer nascent US market is now $338m
`(annualizes to $1.35bn), and is growing 98% y/y and 8% q/q. The OUS market is
`$322m (+115% y/y, +18% q/q), and WW AR sales are now $660m (annualizes to
`$2.64bn), growing at 106% y/y and 13% q/q. The US growth reflects only minority
`penetration into the larger pre-chemo CRPC segment (where Zytiga alone is FDA-
`approved). Doc feedback suggests that barriers to pre-chemo utilization will erode with
`time (and Xtandi availability). OUS, the AR market is pulling even with the US mainly
`on the smaller post-chemo market (Zytiga pre-chemo approval in 2013). Hence, we see
`significant growth still to come with utilization in pre-chemo likely higher than post-
`chemo, longer durations of therapy, and ultimately, utilization further upstream.
`
`Analysis #2: Xtandi market share gains, despite post-chemo label
`In terms of market share, Xtandi gained another 300bp of US market share this quarter
`(now at 38%), and globally has gained 440bp share to 25%. We model Xtandi taking
`majority share in pre-chemo patients treated in 2016, but based on the well-received
`PREVAIL data at ASCO-GU, we see upside to share and sales estimates 2014-15.
`
`Valuation: Buy, $93 PT by DCF
`Our model excludes hormone-naïve prostate, breast cancer, and acquisition premium.
`
`Equities
`
`Americas
`Biotechnology
`
`12-month rating
`
`Buy
`
`12m price target
`
`US$93.00
`
`Price
`
`US$74.91
`
`RIC: MDVN.O BBG: MDVN US
`
`Trading data and key metrics
`52-wk range
`US$84.29-42.63
`Market cap.
`US$5.61bn
`Shares o/s
`74.8m (COM)
`Free float
`90%
`Avg. daily volume ('000)
`1,186
`Avg. daily value (m)
`US$82.3
`Common s/h equity (12/13E)
`US$0.24bn
`P/BV (12/13E)
`23.4x
`Net debt / EBITDA (12/13E)
`11.6x
`
`EPS (UBS, diluted) (US$)
`12/13E
`UBS
`(0.36)
`(0.06)
`(0.18)
`(0.19)
`(0.80)
`0.72
`4.69
`
`Q1
`Q2
`Q3
`Q4E
`12/13E
`12/14E
`12/15E
`
`
`
`Cons.
`(0.36)
`(0.07)
`(0.18)
`(0.09)
`(0.69)
`1.29
`3.87
`
`Matthew Roden, PhD
`Analyst
`matthew.roden@ubs.com
`+1-212-713 2491
`Andrew Peters
`Associate Analyst
`andrew.peters@ubs.com
`+1-212-713 3241
`Jeffrey Hung
`Associate Analyst
`jeffrey.hung@ubs.com
`+1-212-713 3982
`
`Highlights (US$m)
`Revenues
`EBIT (UBS)
`Net earnings (UBS)
`EPS (UBS, diluted) (US$)
`DPS (US$)
`Net (debt) / cash
`
`
`
`12/10
`63
`(33)
`(34)
`(0.50)
`0.00
`208
`
`12/11
`60
`(43)
`(39)
`(0.56)
`0.00
`145
`
`12/12
`182
`(26)
`(41)
`(0.52)
`0.00
`296
`
`12/13E
`246
`(40)
`(60)
`(0.80)
`0.00
`461
`
`12/14E
`417
`77
`59
`0.72
`0.00
`591
`
`12/15E
`832
`428
`396
`4.69
`0.00
`1,002
`
`12/16E
`1,248
`793
`512
`5 93
`0.00
`1,549
`
`12/17E
`1,571
`1,077
`697
`7.88
`0.00
`2,285
`
`12/17E
`12/16E
`12/15E
`12/14E
`12/13E
`12/12
`12/11
`12/10
`Profitability/valuation
`EBIT margin %
`68.6
`63.6
`51.4
`18.5
`-16.1
`-14.4
`-71.1
`-52.4
`ROIC (EBIT) %
`(477.5)
`(335.2)
`(169.7)
`(32.0)
`17 9
`14.3
`25.0
`18.1
`EV/EBITDA (core) x
`3.1
`5.1
`10.8
`64 9
`<-100
`<-100
`-15.2
`-9.5
`P/E (UBS, diluted) x
`9.5
`12.6
`16.0
`NM
`(93.7)
`(84.1)
`(20.7)
`(15.4)
`Equity FCF (UBS) yield %
`12.0
`8.8
`6.4
`1.6
`(1.2)
`(1.7)
`(11.0)
`1.5
`Net dividend yield %
`0.0
`0.0
`0.0
`0.0
`0.0
`0.0
`0.0
`0.0
`Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a
`share price of US$74.91 on 03 Feb 2014 11:13 EST
`
`www.ubs.com/investmentresearch
`
`ARGENTUM EX1059
`
`This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON
`PAGE 7. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
`that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as
`only a single factor in making their investment decision.
`
`Page 1
`
`

`
`Investment Thesis
`Medivation
`Investment case
`Our Buy rating on MDVN is two-fold: [1] positive data from the
`phase-3 PREVAIL study has removed a major risk of the stock [2]
`once data are available the stock becomes more broadly
`ownable, as the binary risk to the stock will have been
`eliminated. We see upside risk to Xtandi consensus peak sales,
`although we believe the rate of Xtandi growth will be debated.
`Big picture, we believe Xtandi is poised to become part of the
`standard of care in metastatic prostate cancer, and a positive trial
`will expand the opportunity beyond the post-chemotherapy
`setting where it is already approved. We think potential litigation
`risks and pre-chemo launch concerns will be overshadowed if
`data are sufficiently positive, and believe shares will move higher
`on the data.
`
`Upside scenario
`Our upside scenario of $140 is driven by use in non-metastatic
`patients based on positive results from STRIVE and compendia
`trials. It also includes: [1] longer treatment duration for Xtandi,
`with patients in the pre-chemo setting receiving as many as 18
`cycles of treatment on average. [2] Higher adoption assuming a
`strong survival advantage in PREVAIL.
`
`Downside scenario
`Our downside scenario of $65 reflects limited adoption in the
`pre-chemo setting vs. the lower-priced Zytiga.
`
`Upcoming catalysts
`1) Data from the phase-1/2 breast cancer study. The company
`has started dosing patients in the second part of the study,
`making the first data (mostly safety) likely available this year
`(potentially ESMO). 2) Clarity on additional label expansion
`opportunities such as the M0 and hormone naïve trial design and
`timing.
`
`12-month rating
`
`12m price target
`
`Buy
`
`US$93.00
`
`Business description
`Medivation is a commercial-stage biotech company that
`developed and markets Xtandi
`(enzalutamide)
`for
`the
`treatment of metastatic castration resistant prostate cancer.
`The company is partnered with Astellas for Xtandi with
`significant milestones and tiered double-digit royalties for ROW
`sales. The key value driver, Xtandi, is a second-generation anti-
`androgen drug currently approved for the treatment of
`prostate cancer patients after progression on chemotherapy.
`The phase 3 PREVAIL study evaluating Xtandi in chemotherapy-
`naïve patients would allow label expansion to a bigger
`population.
`
`Industry outlook
`While we expect large cap biotech to continue positive
`momentum on strong earnings growth, the smid cap universe
`will continue to be very data-driven, and to be tightly
`correlated to market risk appetite. Many mid-cap names have
`gotten credit for pipeline optionality during the recent biotech
`rally, although we note the laser-like strategic focus by
`management on PREVAIL has left the MDVN pipeline highly
`levered to Xtandi success. Following PREVAIL we expect
`management to disclose earlier pipeline programs, which in our
`view should we well-received and more closely align MDVN
`with the group.
`
`Major Product Revenues by region (%) (2015)
`
`Revenues by segment
`Segment Revenues ($m)
`Oncology
`Total
`
`2011
`60
`60
`
`2012
`182
`182
`
`2013E 2014E 2015E
`248
`417
`761
`248
`417
`761
`
`Source: Company data, UBS estimates
`
`Matthew Roden, PhD, Analyst, matthew.roden@ubs.com, +1-212-713 2491
`
` Medivation 3 February 2014
`
` 2
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