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Medivation (NASDAQ:MDVN) was once a thriving biotech with some of the most promising treatments for Alzheimer’s, Huntington Disease and Prostate cancer. Reaching an all-time high of $40 per share back in early 2010, the stock had investors on the edge of their seat in anticipation of what could come, but instead fell short as the Horizon (mild-to-modarate) Alzheimer’s trial failed to improve the cognitive abilities in patients, which was the primary goal of the trial.

This development caused shares to immediately plunge to $12, leading many shareholders to exit their positions and move onto other opportunities. Since then, shares have quietly crept up more than 67% as a new ray of hope has emerged for its Alzheimer’s drug. In light of the bad news, University of Southern California Alzheimer’s expert Lon Schneider sees a positive amidst all the uncertainty. According to Robert Langreth of Forbes, “Schneider points out that while Dimebon did nothing to improve the cognitive abilities of Alzheimer’s patients, patients who took the drug did improve slightly over the course of the trial on something called the Neuropsychiatric Inventory. This scale measures behavioral problems seen in patients with psychiatric and neurological disorders, including delusions, hallucinations, agitation and anxiety.”

He goes on to add, “Why does this matter? The current failed trial was in mild-to-moderate Alzheimer’s cases. But Pfizer (NYSE:PFE) and Medivation are conducting two big trials in patients with moderate to severe Alzheimer’s Disease, who may have more severe behavioral problems. One of these trials uses the Neuropsychiatric Inventory as its primary goal, the other has it as a secondary goal. Dr. Schneider points out that the drug Dimebon bears some chemical similarity to various antidepressants and anti-psychotic drugs that improve behavior. It could be that the drug indeed does nothing to help memory at all directly - but does help improve behavior in severely demented patients. If these two trials come out positive on the NPI, then the drug still may have a shot at getting approved.”

The Alzheimer’s drug market was a $4.3 billion industry in 2009, and will increase to more than $13.3 billion in 2019 within the U.S., France, Germany, Italy, Spain, the U.K. and Japan, forecasts advisory firm Decision Resources. Such a large market leaves plenty of opportunity for companies to share revenues, and even the slightest bit of good news could cause Medivation’s currently undervalued market cap at 630M to nearly double.

Pending Clinical Trials

Back in 12/7/10, the company completed enrolment in the Concert study for mild-to-moderate Alzheimer’s disease in combo with Aricept, and top-line results are expected in the first half of 2012. In addition, it is expected to report top-line results for the Horizon (Huntington disease) study, which is partnered with Pfizer, during first half 2011.

Global Hunter Analysts maintained a "Buy" rating on Medivation, and raised the price target from $19 to $24, stating” We are raising our fair value estimate to $24 from $19 as we now attribute some value from the chemo-naïve setting given the positive data so far. We suggest investors Buy MDVN shares ahead of upcoming catalysts including potentially positive Phase III dimebon data in Huntington’s disease in March/H1:11 and interim AFFIRM data likely in Q3. We view the next significant catalyst for the stock as potentially positive top-line Phase III Huntington’s (Horizon) data release in H1:11 and as early as Q1:11. Based on powering of the study alone, we believe the probability of a positive outcome is 60%.” Most of the other analysts are also cautiously optimisitic, with Wedbush providing a $25 target. Most experts expect to see results by April 16th, and if positive catalysts do indeed emerge, the stock should have at least a market cap of $1 billion.

Notes on $24 Price Per Share Valuation

Taking in consideration the analysts’ projections, we made a list of potential catalysts that could lift shares to meet their targets:

  • Estimated orphan selling price of $2-3,000 a month with Medivation’s split being 40%, while Pfizer takes 60%.
  • Pfizer would be obligated to pay some kind of milestone payment to Medivation, most likely in the hundreds of millions.
  • Off label sales could be significant since the only other cognitive impairment drugs is the limited Aricept class.
  • Medivation has been advancing Dimebon analogues and their value would suddenly rise if Dimebon works in Huntington Disease.
  • Alzheimer’s is a very different disease but a successful Huntington Disease trial would increase the odds of success in the Phase III Alzheimer’s trial.
  • Dimebon would be the only drug approved for the Neuropsychiatric Inventory of Huntington Disease, allowing for complete control of the market.
  • Current Medivation price and market cap is based on the strong MDV-3100 (prostate cancer) data and very little to Dimebon. Current cash and equivalents was $207.8M as estimated in 1Q11, thus an additional $400M market cap was added due to the highly positive MDV-3100 phase II results which target a $4.8 billion dollar market.

Expecting Huntington Results Within Two Weeks

The last patient for the P II Huntington Disease trial was enrolled on March 18 of 2008, which was a 90 day trial with 90 patients. Top line results were announced on July 7 2008, thus the last patient was finished with the trial on June 18th. This paved the way for the top line results to be announced to the public only three weeks later. The reason for the rapid results may have been the company using the Huntington Study Group, which most likely expedited the process.

Currently, the P III trial is once again using the Huntington Study Group to help with clinical sites and the recruiting of patients. The company currently has 400 patients in the P III vs. 90 in the P II with 37 sites in the P III vs 16 trial sites in the P II. The last enrollment of the P III occurred at some point in the middle of July of 2010. Furthermore, the P IIII was a 26 week trial with a four week observation period, and by this, if the last patient started in late July, then Medivation should have finished the observational period in late Feb and thus should have passed the three weeks it took to get the P II results. By these assumptions, it would be rational to expect that we get top line sometime over the next two weeks leading up to April 16th.

Medivation’s 100% Stock Gains in April

Perhaps no better indication of a major positive forthcoming development for Medivation is its month of April stock performance over the last 13 years. According to a iBankCoin.com article and research, “Medivation has been up 100% of the time in the month of April, and more impressively, with 13 data points to prove the point. Beyond that, the average return for this stock in the month of April is a whopping 17%.”

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It is no wonder the stock made the list of the top 13 biotech stocks snapped up by insiders, according to Kapitall Investments. Insiders purchased an average of 188,146 shares per year over the last two years.

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One metric market experts often utilize in determining the prospects of a company is the short interest. As we can see from the above image, the amount of current short shares has declined significantly over the last year in anticipation of the company’s rebound as its pipeline advances. With only 28.37M shares float out of the 34.7M outstanding, this stock is well positioned for a move higher should the catalysts be potentially positive.

Disclosure: I am long MDVN.

Source: Uncovering Hidden Opportunity in Medivation's Alzheimer's Drug