J&J's Q1 Results Suggest More Upside for Medivation, Inc.


Johnson & Johnson has reported its first-quarter financials, and the report shows that market share for its top selling prostate cancer drug Zytiga slipped slightly in the quarter. The loss of market share in this high-profile market suggests that Medivation and Astellas Pharma's Xtandi continues to gain ground, and that could mean that Medivation is worth more than it was three months ago.

Digging into the detailsZytiga won approval for use alongside the steroid prednisone in post-chemotherapy prostate cancer patients in 2011 and in 2012, the FDA also approved its use in the pre-chemotherapy patient setting.

The approval for use in both pre- and post-chemotherapy patients led to Zytiga's becoming a $2 billion-per-year drug; however, Zytiga's dominance in those indications has been eroded by Xtandi, a competing therapy cooked up in UCLA's research labs in the early 2000's and later licensed to Medivation.

Medivation got the FDA go-ahead to begin marketing Xtandi to post-chemotherapy patients in 2012, and it got the OK for use in pre-chemotherapy patients in late 2014. Since then, Xtandi's revenue has grown considerably while Zytiga's revenue growth has slowed to a crawl.

Last year, Zytiga revenue grew 9.5% on an ex-currency basis to $2.2 billion, while Xtandi's U.S. revenue grew 69% to $1.15 billion and its ex-U.S. sales nearly doubled to $757 million. In 2014, Zytiga's revenue grew 33.1% after adjusting for the impact of currency exchange, while Xtandi's U.S. sales climbed 73% to $679.8 million and its ex-U.S. sales rose 622% to $381 million.

Undeniably, Xtandi's success has come directly at the expense of Zytiga, a trend that apparently continued in the first quarter. In J&J's earnings release last week, it reported that Zytiga revenue inched up by only 3.4% year over year to $558 million, ex-currency.

Shifting tidesAssuming that Xtandi's first-quarter sales growth outpaced Zytiga's once again, it appears that Xtandi's total sales have a good shot at eclipsing Zytiga's this year.

Of course, for that to happen, pushback from politicians on Xtandi's price will have to fall flat. Last month, federal lawmakers led by presidential hopeful Bernie Sanders lobbied the National Institutes of Health to use march-in rights to invalidate Medivation's patent exclusivity on Xtandi.

Those march-in rights allow the NIH to remove exclusivity to a drug that has been developed using its funding if the licensing company fails to meet certain specific criteria,including a failure to make use of the patent or a failure to satisfy the health and safety needs of consumers.

Sanders and others argue that Xtandi's $129,000 price tag fails the test of satisfying the health and safety of consumers because its high cost could create hurdles that limit patient access to it. Astellas and Medivation offer patient access programs designed to help low- and moderate-income Americans afford Xtandi, and the NIH has never invoked its march-in rights in the past, so it doesn't appear very likely that the NIH will act against these companies.

Looking aheadGiven the NIH isn't likely to challenge Medivation's patent, the biggest threat to Xtandi's runaway sales growth may be another drug that's being developed by Johnson & Johnson.

In 2013, J&J spent $1 billion to acquire the rights to ARN-509, a promising drug that was developed by the same people at UCLA who created Xtandi. After acquiring it, J&J moved ARN-509 quickly into phase 3 trials. The estimated primary completion date for the final collection of data in that trial is slated for December, and the study completion date is in 2019. That trial is evaluating ARN-509s in non-metastatic patients who are at a high risk for disease progression, and since both Zytiga and Xtandi are used in patients with the metastatic form of the disease, ARN-509 could be positioned for use earlier on in prostate cancer's progression. A similar phase 3 study in this patient population is under way for Xtandi, with an estimated primary completion date that's also in 2019.

In the meantime, it appears that Xtandi is becoming the go-to therapy out of these two drugs, and because J&J still does $2 billion in Zytiga sales, there's still room for future growth. If so, then Medivation's shares may not fully reflect Xtandi's potential peak revenue. That could mean that this stock is undervalued.

The article J&J's Q1 Results Suggest More Upside for Medivation, Inc. originally appeared on Fool.com.

Todd Campbell is long Medivation. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends 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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