By Jake King
A California Superior Court judge has ruled against Medivation, Inc. (MDVN) in the case of Medivation, Inc. vs The Regents of The University of California (Case Number: CGC-11-510715). While the ruling occurred last Thursday, the news was just confirmed last night, and it is curious that Medivation has yet to comment on this important decision (see here). Medivation was suing UCLA (and Aragon Pharmaceuticals) because it believed it had rights to Aragon's ARN-509 candidate, which is being developed for prostate cancer and is based on similar technology to Medivation's Xtandi product. Like Medivation, Aragon has rights to certain chemical structures under their agreement with UCLA, and because Xtandi and ARN-509 are chemical analogs and were invented in the same laboratory, Medivation believed it had rights to ARN-509 under its intellectual property license with the university.
The judge ruled in favor of UCLA and Aragon, therefore, those parties retain rights to ARN-509. As a result, Medivation will face a competitor in a few years that is at least as good as Xtandi and could have competitive advantages such as higher potency and fewer seizure-related side effects. Two key reasons why shares of MDVN may take a big hit today are: 1) Analysts and investors were quite confident that Medivation would win this litigation, hence competition from ARN-509 will now have to be factored into expectations, and 2) It is widely thought that MDVN will ultimately be acquired by its partner, Astellas Pharma, however news that ARN-509 may represent future competition reduces the long-term Xtandi opportunity and could be an impediment to an acquisition.
Why is Medivation so quiet on this? While ARN-509 is still undergoing Phase II development, we note that Xtandi was able to reach the market about three years after Phase I/II results were released. While ARN-509 will not impact Xtandi's initial launch and first couple of years on the market, the next-generation drug certainly may impact long term sales of Xtandi. Medivation had indicated to analysts and investors that it was highly confident it had ownership of ARN-509 and therefore, the compound was not a threat. According to the Court documents, the research agreement with Medivation began on November 1, 2005 and UCLA offered evidence proving that ARN-509 was synthesized before the Medivation agreement began. Medivation was also suing because UCLA shared information with Memorial Sloan Kettering Cancer center during the testing of ARN-509, however, under the license agreement, this type of information sharing was permitted for educational research and clinical purposes with non-profit institutions.
We would expect Medivation to appeal the decision; however, no announcement or statement by the company leaves investors wondering what to think. Medivation's Xtandi is an important advancement for prostate cancer patients, and is likely to become a blockbuster drug as many expect and the stock price indicates. However, ARN-509's potential competitive advantages represent a major threat to this franchise in the long run, and we believe that Medivation should at least make its investors aware of this important legal outcome. Expect MDVN shares to react negatively to the news, especially with the company avoiding or delaying its comments on the outcome.
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