How This Biotech Stock Hopes to Become More Than a One Trick Pony

Source: Medivation headquarters via Google Maps.

Medivation hit a homerun when it developed Xtandi, a therapy that has become widely used in second- and third-line prostate cancer treatment, but the company has a problem on its hands: Xtandi is its only money-maker.

Xtandi accounts for all of Medivation's revenue and late-stage studies evaluating its use in other cancer indications means that the company's success -- or failure -- is going to be dictated in large part by Xtandi for years to come. However, the company recently took a step in the right direction toward diversification when it acquired a cancer drug for its pipeline from BioMarin . Because this acquisition could reshape Medivation's future, let's learn more about it.

Source: Medivation.

First, a bit of backgroundXtandi is currently approved for use in postchemotherapy and prechemotherapy prostate cancer patients and that means that it competes head to head against Johnson & Johnson's Zytiga.

Overall, Zytiga's $2 billion in annual sales is a bit higher than Xtandi's, but Xtandi is catching up quickly.

Since winning approval in 2012, Xtandi has displaced Zytiga to become the most widely used third-line therapy in prostate cancer patients, and following the FDA's decision last year to expand Xtandi's label to include prechemotherapy patients, Xtandi appears to be dethroning Zytiga in that patient population, too.

In the second quarter, Zytiga revenue totaled $546 million, but Zytiga's ex-currency revenue growth was just 8.6%. For comparison, Xtandi's global sales came in at $486.4 million in Q2, but its U.S. sales surged 108% higher and its overseas sales jumped by 121% year over year.

Taking the next stepClearly, Medivation and co-developer Astellashave a fast-growing blockbuster on their hands, but the lifespan of any drug is limited by competitive threats and patents that expire; as a result, investors must be as concerned about a company's future plans as they are about its current successes.

In this regard, Medivation's relatively thin R&D pipeline means that it still has some work to do if it hopes to sidestep risks to Xtandi. Fortunately, Medivation has plenty of options, including growth via acquisitions like the deal it struck with BioMarin.

In that deal, Medivation forked over $410 million up front to get its hands on BMN-673, or talazoparib, a PARP inhibitor being developed as a breast cancer treatment for patients with BRCA mutations.

The acquisition nets Medivation a drug that posted solid efficacy and safety results in early stage trials and that already has phase 3 trials well under way. In small phase 1/2 studies, 72% of talazoparib patients responded to or had stable disease at 24 weeks.

In addition to solid early-stage results, Medivation may also have bought global rights to talazoparib because of the FDA's approval in February of a competing BRCA targeting PARP inhibitor:AstraZeneca's Lynparza. The agency's approval of Lynparza for use in ovarian cancer patients validates talazoparib's PARP approach and Lynparza's $10,000 per month estimated price tag suggests that if approved, talazoparib could be a commercial success.

Looking forwardPARP inhibitors, which limit the ability of cancer cells to repair DNA damaged by anti-cancer agents, have been shown to be particularly robust in patients with a BRCA mutation, but investors should remember that up to 40% of phase 3 drug trials fail and there's no guarantee that Medivation's talazoparib will ever reach pharmacy shelves.

Although the risk of failure is real, investors shouldn't have to wait too long to find out whether or not talazoparib is a pharmaceutical stud or a dud. The phase 3 study started by BioMarin in 2013 is scheduled to wrap up in the middle of 2016 and if talazoparib extends progression-free survival -- the primary endpoint for this study -- then an application for approval could be filed shortly thereafter.

Given that up to 10% of all breast cancer cases are diagnosed in patients with BRCA mutations and about 12% of all women will develop breast cancer, talazoparib could begin generating meaningful revenue for Medivation as early as 2017, and for that reason, investors should keep a close eye on talazoparib's results when they're announced next year.

The article How This Biotech Stock Hopes to Become More Than a One Trick Pony originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends BioMarin Pharmaceutical and 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.