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One of the biotech laggards of the year, Medivation (NASDAQ:MDVN) saw a very high volume sell-off (down 6.78%, or $47.41/share) on Monday after rival Johnson & Johnson (NYSE:JNJ) announced the acquisition of Aragon Pharmaceuticals. This company was developing a Phase II metastatic castration-resistant prostate cancer (mCRPC) drug that the market considers a threat to Xtandi, Medivation's lone pipeline drug. At the time this was written MDVN seemed poised for a small rebound, although nothing serious materialized in early trading.

Johnson & Johnson's Zytiga, which competes with Xtandi for particular mCRPC subindications, has already posed a major threat to other non-chemo drugs in the space. But Xtandi may be able to steal a significant portion of Zytiga's pre-chemo mCRPC patient population from Zytiga, given positive results for the Phase III PREVAIL study and additional "saturation" into the market. Also threatened is Dendreon's (NASDAQ:DNDN) Provenge therapy, which has seen significant sales declines since the market launch of Xtandi. In the most recent quarterly earnings call, these declines were indeed attributed to both Xtandi and Zytiga.

Although PREVAIL isn't scheduled to be completed until September 2014, the company intends to release an interim analysis of the overall survival (OS) data that has been collected thus far. Wall Street analysts and biopharma investors are generally expecting good results with similar efficacy relative to previous clinical trials, which is why there is a consensus that the $3.6 billion company has limited upside at this point. Conversely, there is the notion that a company with limited upside also has limited downside.

But if Xtandi is poised to compete with Zytiga in pre-chemo mCRPC patients, why is the acquisition of another drug in mid-stage development so threatening? Xtandi (enzalutamide or MDV3100) is a second-generation androgen receptor antagonist (inhibitor). The Phase II drug that was acquired along with Aragon, ARN 509, works through the same mechanism of action and has demonstrated strong efficacy in early pre-chemo treatment. Xtandi, which has also established its utility at this stage of patient care, will then have to compete with Johnson & Johnson-backed ARN 509.

Comparative efficacy data of the two androgen receptor antagonists isn't available, although Medivation investors are worried that an ARN 509 and Zytiga pairing can "cover all the bases" for oncologists treating mCRPC patients (before and after chemo), knocking Xtandi out of that market. Since Medivation's valuation seems heavily dependent on the expansion of Xtandi into the pre-chemo patient population in particular, recent news should put limits on the stock's gains prior to the PREVAIL OS data.

The Takeaway

Medivation, which sells a prostate cancer drug called Xtandi, is attempting to expand the drug's use into use in prostate cancer patients that have not yet received chemotherapy. This translates into more sales and more revenue, and supports MDVN's otherwise excessive valuation.

Johnson & Johnson's acquisition of similar, competing drug ARN 509 in mid-stage clinical development threatens Xtandi's expansion, and hence damaged the valuation of Medivation stock in yesterday's trading. The overhang of ARN 509 may keep MDVN suppressed until the release of OS data from PREVAIL.

Original Post

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Medivation's Xtandi Threatened By Johnson & Johnson's New Acquisition