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
`
`
`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
`
`Equity Research
` July 14, 2015
`
`
`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.
`
`Outperform
`Aggressive Growth
`
` 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:
` Symbol:
`MDVN (NASDAQ)
`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
`
`
`2014A
`
`2015E
`
`2016E
`
`
`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
`
`
`
`
`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.
`
`WCK1073
`Page 1
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`

`
`William Blair & Company, L.L.C.
`
`Exhibit 2
`Medivation, Inc.
`Xtandi and Zytiga Sales
`
`Zytiga and Xtandi US Sales
`
`Xtandi
`Zytiga
`
`Xtandi
`Zytiga
`
`$300
`
`$250
`
`$200
`
`$150
`
`$100
`
`$50
`
`$0
`
`Millions
`
`US Sales
`
`Q2:15
`Q1:15
`Q4:14
`Q3:14
`Q2:14
`Q1:14
`Q4:13
`Q3:13
`Q2:13
`Q1:13
`Q4:12
`Q3:12
`Q2:12
`Q1:12
`Q4:11
`Q3:11
`Q2:11
`
`Zytiga vs. Xtandi Comparative Launches
`$300
`
`$250
`
`$200
`
`$150
`
`$100
`
`$50
`
`$
`
`Millions
`
`US Sales
`
`a)
`
`b)
`
`1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
`Quarters into Launch
`
`Sources: Company Reports
`
`
`
`
`
`
`
`
`
`5 | Y. Katherine Xu, Ph.D. +1 212 237 2758
`
`WCK1073
`Page 2
`
`

`
`William Blair & Company, L.L.C.
`
`
`
`Exhibit 3
`Medivation, Inc.
`Urology Prescriptions
`
`20%
`
`18%
`
`16%
`
`14%
`
`12%
`
`10%
`
`8%
`
`6%
`
`4%
`
`2%
`
`0%
`09/14/11
`
`Source: IMS Health
`
`Xtandi
`(% uro)
`Zytiga
`(% uro)
`4 per. Mov. Avg. (Xtandi
`(% uro))
`4 per. Mov. Avg. (Zytiga
`(% uro))
`
`04/01/12
`
`10/18/12
`
`05/06/13
`
`11/22/13
`
`06/10/14
`
`12/27/14
`
`07/15/15
`
`Exhibit 4
`Medivation, Inc.
`Sum-of-the-Parts Fair Value
`(dollars in thousands)
`
`
`
`Drug
`
`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—
`United States
`
`Xtandi—
`European Union
`
`Xtandi--
`Breast Cancer US
`
`Xtandi--
`Breast Cancer EU
`
`Subtotal
`
`$4,520,173
`
`Marketed
`
`September 2012
`
`100%
`
`$3,071,990
`
`Marketed
`
`June 2013
`
`100%
`
`$932,084
`
`Phase II
`
`2Q:18
`
`$831,788
`
`Phase II
`
`1Q:19
`
`50%
`
`50%
`
`50:50 profit share
`with Astellas
`
`Tiered royalties
`(13% - 23%)
`
`50:50 profit share
`with Astellas
`
`Tiered royalties
`(13% - 23%)
`
`$8,155,102
`
`$96.15
`
`64.3%
`
`$2,880,465
`
`$33.96
`
`22.7%
`
`$605,973
`
`$7.14
`
`$454,552
`
`$5.36
`
`$12,096,091
`
`$142.61
`
`$718,682
`($130,233)
`
`$7.72
`($1.40)
`
`$12,684,540
`
`$149.55
`
`4.8%
`
`3.6%
`
`95.4%
`
`5.7%
`(1.0%)
`
`100.0%
`
`
`
`Net Cash at Mid-Year 2016
`Net Present Value of additional Gain (Loss)*
`
`Sum-of-Parts Fair Value
`
`
`6 | Y. Katherine Xu, Ph.D. +1 212 237 2758
`
`Sources: Company reports and William Blair & Company, L.L.C. estimates
`
`WCK1073
`Page 3