` July 14, 2015
`
`
`Healthcare | Biotechnology
`
`Medivation, Inc.
`Looking Into Recent Weakness: Second-Quarter Preview and Breast Cancer
`Prospect; Lowering Price Target to $150 on Adjusting Share Count
`
`Medivation shares have been weak since the American Society of Clinical Oncology
`(ASCO) Annual Meeting (Chicago, May 29-June 2), and we believe it is likely due to
`two reasons: 1) IMS scripts for the second quarter are not strong; and 2)
`disappointment in the Phase II Xtandi data presented at the ASCO Annual Meeting
`
`Based on IMS Health prescription data, we now estimate Medivation’s share of
`Xtandi U.S. net sales in second quarter 2015 at $129.3 million, down from our
`previous estimate of $134.4 million, but still representing a 15% increase over the
`first quarter, in line with consensus of $129.7 million (exhibit 1). We note that
`
`in triple negative breast cancer (TNBC). In this note, we preview second-quarter
`Xtandi sales and discuss the prospect of Xtandi in breast cancer. We also update our
`model mostly on adjusting share counts and, as a result, lower our price target to $150
`from $154.
`Medivation books half of U.S. sales. Our estimate change is based on IMS prescription
`data for the second quarter, assuming an 80% capture rate. Compared with the first
`quarter, total prescription grew by 7%, indicating increasing demand for Xtandi, and a
`price increase was instituted in the quarter as well. We are increasing our non-GAAP
`second quarter EPS to $0.40, from $0.28, despite lower revenue projection due to
`lowering non-GAAP operating expenses falling within guidance. We are lowering our full
`year 2015 Xtandi U.S. revenue estimate to $561.0 million from $578.8 million. We note that
`partner Astellas is scheduled to report earnings on July 31, and Medivation is expected to
`report second-quarter earnings on August 6.
`becoming the biggest drug in urology is unchanged. In exhibit 2, we illustrate U.S.
`sales of Zytiga and Xtandi (exhibit 2a) and their comparative launch profile (exhibit 2b).
`As the second novel hormonal agent to market, Xtandi surpassed Zytiga in the ninth
`quarter from launch, and it is likely that Xtandi sales will also catch up to those of Zytiga
`during second quarter 2015 or in the very near term. Exhibit 3 illustrates the percentage
`of prescriptions written by urologists for both Xtandi and Zytiga in the United States. It
`seems that Zytiga urology scripts have stalled at 10%, whereas Xtandi’s penetration into
`urology is higher at 18% and going strong. Such trends give us confidence that the growth
`of Xtandi will continue, and our peak sales estimate for Xtandi global sales remain at $7.6
`billion. We believe that Xtandi’s ultimate value will be generated by its ability to move
`earlier in the treatment paradigm and penetrate the urology setting, where we believe
`Xtandi will eventually replace Casodex, the most widely prescribed prostate cancer drug
`in the urological setting.
`Medivation, based in San Francisco, is a biopharmaceutical company focused on the commercialization of
`Xtandi for prostate cancer.
`
`Despite lowering our second quarter and full year 2015 estimates, we maintain our
`Xtandi revenue estimates in 2016 and beyond and continue to believe that the
`growth trend of Xtandi in the United States is healthy; our thesis of Xtandi’s
`
`Outperform
`Aggressive Growth
`
`2014A
`
`2015E
`
`2016E
`
` Y. Katherine Xu, Ph.D. +1 212 237 2758
`kxu@williamblair.com
`Joe Aronovsky +1 212 237 2776
`jaronovsky@williamblair.com
`Audrey Le, Ph.D. +1 212 237 2765
`ale@williamblair.com
`Stock Rating:
`Company Profile:
`$150.00
`Price Target:
`MDVN (NASDAQ)
`Symbol:
`Price:
`$108.50 (52-Wk.: $69-$142)
`Market Value (mil.):
`$8,538
`Fiscal Year End:
`December
`Long-Term EPS Growth Rate:
`Dividend/Yield:
`None
`EPS FY
`$3.42
`$2.83
`$3.75
`CY
`$3.75
`$2.83
`Sales (mil.)
`710
`879
`993
`FY P/E
`31.7x
`38.3x
`28.9x
`CY P/E
`38.3x
`28.9x
`Shares Outstanding (mil.)
`78
`Float (mil.)
`66
`Average Daily Volume
`1,010,456
`Book Value Per Share (MRQ)
`6.0
`Return on Equity (TTM)
`105.1
`
`Estimates
`
`Valuation
`
`Trading Data (FactSet)
`
`Financial Data (FactSet)
`
`Two-Year Price Performance Chart
`
`$140
`
`$130
`
`$120
`
`$110
`
`$100
`
`$90
`
`$80
`
`$70
`
`$60
`
`$50
`
`Sources: FactSet, William Blair & Company estimates
`
`14
`
`'15
`
`ARGENTUM EX1063
`
`Please consult pages 7-8 of this report for all disclosures. Analyst certification is on page 7.
`William Blair or an affiliate 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 a single factor in making an investment decision.
`
`Page 1
`
`
`
`William Blair & Company, L.L.C.
`
`Exhibit 2
`
`Medivation, Inc.
`
`Xtandi and Zytiga Sales
`
`Zytiga and Xtandi US Sales
`
`Millions
`
`§
`
`a
`
`«usinNN8U‘!
`
`‘U5HU’!C
`
`§
`
`1/!U‘!C
`
`‘8 H:-cu-¢NNNNmmmm
`.-cu-0.-cu-0.-cu_-gq-cu-0.-cu-0.-1
`Nm-:1’:-cum-:1’:-cum-:t
`OOOOOOOOOOO
`
`Zytiga vs. Xtandi Comparative Launches
`§
`
`c
`
`MinNN8U‘!
`
`U}HU'|O
`
`§ V
`
`5U1O
`
`‘U!-
`
`Millions
`
`1
`
`2
`
`3 4 5
`
`6
`
`7
`
`8
`
`9 1011121314151617
`
`Quartets into launch
`
`Sources: Company Reports
`
`5 I Y. Katherinexu, Ph.D. +1 212 237 2758
`
`Page 2
`
`Page 2
`
`
`
`William Blair & Company, L.L.C.
`
`Exhibit 3
`
`Medivation, Inc.
`Urology Prescriptions
`
`20%
`
`18%
`
`16%
`
`14%
`
`12%
`
`1 0%
`
`8%
`
`6%
`
`4%
`
`2%
`
`0%
`09/14/11
`
`Source: MS Health
`
`A Xtandi
`(°/o uro)
`O Zytiga
`(% uro)
`:4 per. Mov. Avg. (Xtandi
`(°/o uro))
`:4 per. Mov. Avg. (Zytiga
`(“lo uro))
`
`04/01/12
`
`10/18/12
`
`00/13
`
`11/22/13
`
`06/10/14
`
`07/15/15
`
`A
`
`A
`
`Exhibit 4
`Medivation, Inc.
`Sum-of-the-Parts Fair Value
`(dollars in thousands)
`
`peak Sales
`
`Stage of
`Development
`
`Estimated
`Launch Date
`
`Probability of
`Commercialization
`
`Percentage of
`Sales to Company
`
`Probability—
`Adjusted NPV
`
`Value
`per Share
`
`Percentage of
`Fair Value
`
`
`
`Xtandi—
`Unfled states
`
`Xtandi—
`European Union
`
`Xtandi—
`Breast Cancer US
`
`Xtandi—
`Breast Cancer EU
`
`Subtotal
`
`Net Cash at Mid-Year 2016
`Net Present Value of additional Gain (Loss)’
`
`September 2012
`
`100%
`
`50:50 profit share
`mm Aflelhs
`
`$8,155,102
`
`Tiered royalties
`(13% - 23%)
`
`$2'88o'465
`
`50:50 profit share
`wih Astellas
`
`$605973
`
`Tiered royalties
`(13% - 23%)
`
`3454552
`
`312,096,091
`
`$718,682
`($130,233)
`
`$7.72
`($1.40)
`
`“’~°“~“°
`
`‘"9-55
`
`srxrcos:carxnryrerxxtsardwiiamBlair&carIp:rry,LLc.esfirrrates
`
`6 I Y. Katherine Xu, Ph.D. +1 212 237 2758
`
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