Medivation (NASDAQ: MDVN) is a biopharmaceutical company whose fundamental value is tied to Xtandi® (enzalutamide), a chemical molecule marketed for the treatment of metastatic castration-resistant prostate cancer (mCRPC). The drug is marketed in partnership with Astellas under a 2009 deal that includes a 50% share of sales in the US, tiered royalties from the low teens to the low twenties in ex-US sales plus milestone payments upon achievement of regulatory and commercial goals. The financial terms of the deal can be found here (link).
The drug has been marketed for the treatment of patients who have previously received the chemotherapeutic drug docetaxel (post-chemo setting), but it recently received FDA clearance for the pre-chemo setting, significantly expanding the commercial opportunity of the drug since the number of eligible patients is higher ̶ 3x approximately ̶ and the duration of treatment doubles therefore doubling potential revenues.
The company is a takeover candidate and most of investors interest is focused on the sales performance of Xtandi® and its impact on the valuation of the company. Since launch in September 2012, drug uptake has dramatically increased, gaining market share to competitor Zytiga of J&J. Medivation turned free cash flow positive in the first quarter of 2014.
I therefore ran a DCF valuation of the company’s shares and arrived at a fair value of $127.66/share or $121/share fully diluted. I took the consensus forecast for mCRPC, which includes pre and post-chemo therapy and didn’t take into account other indications such as triple negative breast cancer ̶ data from a phase 2 trial is expected in December at the San Antonio Breast Cancer Symposium and could represent significant upside.
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All assumptions are shown are taken based on company reports, SEC filings and analysts consensus estimates.
I believe that the takeout value of Medivation will be higher after accounting for savings and efficiencies e.g. reduced operating costs, lower cost of capital, etc.
Disclosure: I’m long MDVN.