(MDVN) Medivation Misses by a Wide Margin

Medivation Inc. (MDVN) reported second quarter loss of 15 cents per share, wider than the Zacks Consensus Estimate of a profit of 23 cents per share. Second quarter 2012 loss, however, was well below the year-ago loss of 27 cents.

Revenues came in at $42.9 million, missing the Zacks Consensus Estimate of $47 million. Revenues, however, increased 171.6% from the year-ago quarter.

The Quarter in Detail

Revenues consisted of partial recognition of the non-refundable upfront payment of $225 million received from its former partner Pfizer (PFE) 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 in 2012. While Medivation recognized $35.6 million of deferred revenue under the Pfizer collaboration in the second quarter of 2012, $5.5 million will be recognized in the third quarter of 2012.

As far as revenue under the Astellas collaboration is concerned, about $58.0 million deferred revenue remains from this collaboration. Medivation intends to recognize the same at the rate of $7.3 million per quarter.

Operating expenses increased 67.6% to $43.9 million. Research and development expenses increased 12.6% to $21.6 million.

SG&A expenses increased 217.5% to $22.3 million. The increase in SG&A spend was expected as the company is working on building out its corporate infrastructure in anticipation of the potential launch of enzalutamide in the US in 2012. Medivation said that it has finished recruiting its sales and medical affairs field forces.

Once enzalutamide is approved, Medivation will provide 50% of the US sales and medical affairs field forces for the product.

2012 Outlook

Medivation now expects operating expenses (after adjusting cost-sharing payments from Astellas) in the range of $183 – $198 million, up from the previous guidance of $155 – $170 million. Higher launch-related costs and non-cash stock-based compensation costs led to the upward revision in operating expense guidance.

Medivation, which became eligible to receive a $10 million milestone payment from Astellas related to the acceptance of the enzalutamide NDA, could receive additional milestone payments of about $35 million related to the regulatory filing ($5 million on the acceptance of the EU filing) and potential US approval ($30 million) of enzalutamide.

The company expects capex of about $15 million, especially connected with its new headquarters.

Pipeline Update

Medivation along with its partner Astellas Pharma filed for US approval of their prostate cancer candidate, enzalutamide, in the second quarter of 2012. The FDA granted priority review which means a response should be out by November 22, 2012. The EU filing has also been submitted.

Meanwhile, Medivation continues to evaluate enzalutamide in the pre-chemo setting which represents huge commercial opportunity. Besides conducting the phase III PREVAIL study (chemotherapy-naïve advanced prostate cancer patients), enzalutamide is in a phase II study (TERRAIN), which will compare enzalutamide with bicalutamide, in advanced prostate cancer patients who have progressed following medical castration with LHRH analog therapy or surgical castration.

Another study (STRIVE) commenced recently – this study is being conducted mainly in the US in patients with either metastatic or non-metastatic disease. A third study (ASPIRE) is being conducted in chemo-naïve patients. Medivation is also evaluating enzalutamide at the earliest stage of prostate cancer, when the disease is initially diagnosed. The company is enrolling patients in an open-label clinical trial which will study enzalutamide as a new adjuvant therapy prior to prostatectomy. Medivation is also exploring enzalutamide for breast cancer (phase I).

We expect investor focus to remain on the regulatory status of enzalutamide.
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