Here's Why Medivation Jumped Higher This Week

The market for prostate cancer treatment has become hyper competitive as drug companies vie for their share of $3 billion in annual sales formerly captured by Sanofi's Taxotere before losing patent protection in 2010.  Two of the most successful treatments launched so far have been Johnson & Johnson's Zytiga and Medivation's Xtandi, which was developed with Japanese drug firm Astellas.

Both have captured significant sales as doctor's shift prescriptions away from Sanofi's Taxotere and other prior-generation therapies.

J&J's Zytiga stands to lose its advantage
The Food and Drug Administration approved Zytiga as a treatment for metastatic castration-resistant prostate cancer, or mCRPC, in April 2011. That approval gave Johnson's Zytiga front runner status as a third-line treatment for patients who had previously started and failed on treatment with generic Taxotere, known as docetaxol.

But Zytiga's real advantage over Xtandi was delivered in December when the FDA approved J&J's drug for use in patients previously untreated by chemotherapy. This elevated the drug to second-line status, which helped drive Zytiga's sales up 70% to $395 million in the second quarter, making it one of the top selling drugs in the United States.

That momentum carried into the third quarter, with Zytiga sales growing more than 75% worldwide to $464 million as market share in castration -resistant patients climbed to 33%.

But, that advantage is in the process of being erased as Medivation awaits FDA approval for the same pre-chemotherapy indication. Medivation's Xtandi, approved by the FDA in August 2012, has been an impressive drug on its own without the pre-chemo nod, capturing 50% of the third-line treatment market for prostate cancer and 20% of the market for second-line treatment.

That translated into sales of $82 million in the second quarter, 95% of which came from the United States, and sales of $157 million in the first half of the year.

However, those sales could move substantially higher following the halt of Medivation's phase 3 pre-chemo trial by independent monitors who determined the efficacy and safety results were too good to deny the drug to the placebo group.

According to reports, Xtandi cut the risk of death by 30%, boosting overall survival to a median 32.4 months versus 30.2 months for those taking the placebo. Importantly, J&J's Zytiga had reduced the risk of death by 21% in earlier studies. Xtandi's median survival advantage may improve further given the majority of patients are still alive.

"To my knowledge, the benefits in overall survival and radiographic progression-free survival reported in today's PREVAIL trial results are unprecedented in this patient population," said Tomasz M. Beer, M.D., F.A.C.P., professor of medicine and deputy director of the Knight Cancer Institute at Oregon Health & Science University, and the co-principal investigator of Medivation's Phase 3 PREVAIL study.

Fool's final take
Medivation and Johnson both have robust sales opportunity that may translate into blockbuster revenue from Xtandi and Zytiga, respectively. But, the two may face new competition from potential challengers including Exelixis' Cometriq and Oncogenex's custirsen. Bristol's Yervoy may also eventually win some of the market, and Sanofi continues to hope its Taxotere successor Jevtana will continue to capture sales.

Regardless, Medivation seems poised to take some of the share that otherwise would have been heading to Johnson and that could mean hundreds of millions in additional annual sales. You'll need to keep watching to see if the FDA follows through on granting Medivation approval for the pre-chemo indication. But, if it does it could transform the company's growth.

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Todd Campbell owns shares of Medivation.  Clients of Todd's institutional research firm, E.B. Capital Markets, LLC, may or may not have positions in the stocks mentioned.  Todd owns Gundalow Advisors, LLC, an advisory serving high net worth clients.  Gundalow's clients do not own shares in the companies mentioned.  The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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