Medivation's Attitude Warrants a Pullback

Medivation (MDVN) stock spiked last week due to a deal with Pfizer (PFE) for Alzheimer's and Huntington's disease treatment Dimebon, currently in late-stage trials that are due to be completed in 2010.

At one time I had recommended MDVN in my service, so I am quite familiar with the company and its products. I closed the position based on some nasty management obfuscation (at best) about trial results.

Right after I recommended the stock, the lead investigator for the company pulled back on some of the claims for its Alzheimer's drug in trial -- claims I had heard in investor conferences.

Specifically the company failed to deliver on the publication of Phase II trial data it had promised investors. This principal investigator in its trials (an independent physician) gave its Alzheimer's drug, Dimebon, a lukewarm endorsement in the British medical journal, Lancet, when everyone was expecting a lot more.

Obviously Pfizer saw something different. But it also saw something in torcetrapib, the next generation of Lipitor it bought for billions of dollars, and that failed in trial. PFE is, or should be, near desperate to boost its paltry pipeline as the Lipitor patent expiration approaches in 2010, and the actual financial commitment to MDVN and support of the trials is chump change for cash-rich PFE -- $225 million up front and shared development expenses.

Many analysts are down on Dimebon because the mechanism of action is unclear and it was born as an antihistamine used primarily in Russia. Phase II results seemed strong but that was true for other Alzheimer's drugs that recently failed in late-stage trials. More importantly, it provides mild symptomatic relief and does not seem to attack the disease itself. This is not a problem for the FDA, given the paucity of Alzheimer's treatments on the market, but it is another turn off for many analysts.

In addition to my biotech service I write a shorting service -- puts only -- and after the spike in the MDVN stock price last week I recommended buying MDVN puts for technical and fundamental reasons.

I can't get past how management misled the public and how slick the CEO is in presentations -- and this may have had some impact on PFE. Companies do make mistakes. Even if this proves out for PFE and MDVN, the stock is overbought and should pull back. And if there are any problems with the trial it will be worth a heck of a lot less than it is now.

Comments

[you don't say:]

Lets get this straight: you published a bullish comment on the stock in a public forum. The stock went up. You then give your paying clients a "sell" recommendation, followed days later by negative comments here in a public forum.

2008 Sep 08 12:51 PM

[barkingdog:]

the co is such an obvious "fraud" -- a 25-year old russian antihistamine drug for AD? The data is way too good to believe; anyone can obtain phony positive results over there. the stock with a tiny float is rigged -- buyer beware

2008 Sep 08 01:46 PM

[raytayzmd:]

I agree with "barking dog"...the company has "scam" written all over it...even in Russia, where it's over-the-counter, dimebon is not considered a worthwhile therapy for Alzheimer's...currentl... the biotech sector is rife with fraud...I can pick a company at random and practically guarantee to find some aspect of its products, pipeline, or marketing fraudulent...it's as bad as the mortgage industry.

2008 Sep 09 09:37 AM

[hoopdreamer...:]

The data was published, In the Lancet no less, so I'm not sure what you're talking about:

biz.yahoo.com/prnews/0...

<<<Specifical... the company failed to deliver on the publication of Phase II trial data it had promised investors.>>>

All that matters is hitting their primary endpoint. That its not disease modifying or reversing is completely irrelevant.

2008 Sep 09 10:12 AM

[xeomer:]

Since barkingdog and raytayzmd have obviously shorted the stock, they'd better hope it's a fraud. MD's are notoriously bad investors, though and I wouldn't take their word for it. Whether it pans out or not, I don't think "fraud" is what is going on here. Not only that, but if it works even people without Alzheimers are going to be taking it. Welcome to the 'steroids' of the next decade. I suspect it will sell well, very well. Speculation? Well that's what this whole thing is all about.

Furthermore, since when is a CEO supposed to deliver stupid presentations to be believable? ("I can't get past how management misled the public and how slick the CEO is in presentations") Sounds like you've been listening to a little too much George Bush.

2008 Sep 10 05:02 AM

[knowledgeis...:]

1) The mechanism of action IS known. It prevents dysfunction of the mitochondria, which the CEO has detailed in presentations and is available all over the web.
2) It is not available over the counter in Russia, nor is it made anywhere in the world.
3) The FDA has accepted the Phase II as a pivotal trial for approval, and will only require one (rather than two trials) for approval. That is rare, and signifies the Russian Phase II it has passed FDA scrutiny.
4) Financial committment is chump change? You mention the $225 signing fee, but conveniently left out the $500 in milestones and 40% profit split.
3) Failed to deliver on the publication? The Lancet is one of the most prestigous medical publications in the world, with a very rigourous peer review process.
4) If you think the stock is due to consolidate, that is one thing. But iof you know the facts, the fundamentals are better than ever.
5) You clearly don't know this company very well.

2008 Sep 10 12:19 PM

[Joe Lawyer:]

Russia? Before MDVN even existed, the CEO pointed out that there were a half dozen countries whose trials were not only recognized by the US FDA but where their use could speed up the approval process. He said it was simple chauvinism that precluded their being utilized.

2008 Sep 10 06:26 PM

[Canuck Inve...:]

I've read the Lancet article and I can't see how you can conclude it was only a lukewarm endorsement: "The results...were highly statistically significant at 6 months.... Improvements were seen across all domains...."

2008 Sep 12 12:30 PM

[raytayzmd:]

...oops!...I made a mistake when I said that dimebon was over-the-counter in Russia...they actually stopped making the drug 10-15 years ago since apparently it wasn't even useful as an ordinary antihistamine...presum... Russian M.D.'s are reasonably intelligent and concerned with Alzheimer's care, the fact that none of them -- excluding the guys planning to get rich trying to sell it to us -- apparently were excited enough to promote its use as an Alzheimer's therapy...the Lancet study was done in Russia by Russians and has as much merit as any other study manged by parties intent on getting rich off of the results...trust me, dimebon is useless for anything other than separating naieve investors from their money.

2008 Oct 01 08:01 PM

[Wolfgirl:]

raytaymd, You correct that Dimebon is no longer used in Russia, but not because there was anything inherently wrong with the drug, but because other drugs were later developed that worked better. It is simply medicinal evolution. There are several drugs that were used years ago that served their purpose at the time, but have since been replaced by more effective drugs.

Many drugs are either recycled when they fail tests for their intended use or are later found to be helpful for conditions that they were not originally intended. Viagra was a failed heart medication that was found to help male impotence. Evista was a failed contraceptive. It was recycled to treat osteoporosis and later it was found to help prevent breast cancer in high risk women.

Of course the biotech sector is interested in profit. What company is not? Because your user name states “MD”, I am assuming you are a doctor. As much as your goal is to help your patients, you do it for profit. It is how you make a living and provide for yourself. With the biotech firms, they only make a profit if their drug works. They have a strong incentive to choose drugs that will be successful. Faking results is not profitable. Eventually the truth comes out and the company ends up losing money.

Medivation has been around for awhile and I have a hard time thinking that the company is a “fraud”. Every new drug is a risk, but I’m willing to take a chance on Dimebon. Over 4 million people in the United States alone have Alzheimer’s disease. If this drug is successful, Medivation stock will skyrocket and 4 million people will have the chance to live a higher quality of life.

Apr 15 04:01 PM