Medivation: Q1 Results Aided by Lower Operating Expenses

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Includes: MDVN, PFE
by: Zacks Investment Research

By Brian Marckx, CFA

Medivation Inc. (NASDAQ:MDVN) reported first quarter 2009 financial results following the market close on May 11, 2009. Revenue came in at $16.34 million, exactly where we had it modeled. Revenue consisted solely of collaboration revenue from Pfizer Inc. (NYSE:PFE). EPS was ($0.19), significantly ahead of our forecast of ($0.34) due to substantially lower-than-expected operating expenses.

Pfizer makes quarterly true-up payments to Medivation as reimbursement for a significant portion of Dimebon-related development and commercialization expenses. In the first quarter 2009, Pfizer made a $5.8 million true-up payment to MDVN, which is reflected as a reduction in operating expenses -- approximately $5.4 million of the true-up payment hit the R&D expense line-item.

In October 2008, Medivation received $225 million in collaboration revenue from Pfizer, which will be recognized on a straight-line basis through the first quarter of 2012. The company will likely not generate any other revenue or receive any development milestone payments in 2009.

We expect operating expenses to spike to near $120 million in 2009 (from $77 million in 2008) as the company funds larger clinical trials of both Dimebon and MDV3100. We model $65.4 million in collaboration revenue and EPS of ($1.65) in 2009.

An NDA filing for Dimebon for the treatment of Alzheimer's is possible in 2010, depending on the success of the CONNECTION and safety studies. We more conservatively model a Dimebon Alzheimer's filing in 2011, supported from all five of the phase III Alzheimer's studies.

We believe Dimebon could launch with a broad label including for the treatment of mild-through-severe Alzheimer's as a monotherapy as well as a combination therapy. We model a Dimebon launch in 2012 for both the Alzheimer's and Huntington's indications.

We view MDV3100 as more of a wild-card, but with significant upside depending on the outcome of phase III trials. Safety, most notably seizures, are a concern but appear to be possibly dose-related or related to background medication and occurred in patients treated at doses greater than 240mg. The phase III trial will exclusively use the 240mg dose.

We also believe Medivation could be looking to partner MDV3100 in the near-term, potentially before phase III testing begins later this year. A partnership would reduce Medivations' development costs, dilute the risk of failure of MDV3100 and potentially bolster the company's cash position.

With cash-burn rates materially increasing in 2009 and 2010, a partnering deal for MDV3100 would also significantly reduce the need to raise additional capital before Dimebon launches.

We expect the company to remain unprofitable through at least 2010 and currently model EPS of $0.11 in 2011 as development milestones push the company towards positive earnings. We think this grows to $0.32 in 2012 on the heels of the Dimebon launch. EPS upside to our forecast could materialize with an earlier than expected NDA filing for Dimebon and/or a partnering deal for MDV3100.

Medivation shares currently trade at $20.75. We recommend that investors hold at the current price and forecast an EPS loss of $1.65 in 2009. Our price target is $24.