Analyst Conference Summary

Biotechnology

conference date: May 5, 2016 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2016 (Q1, first quarter 2016)

Forward-looking statements

Overview: Good quarter, but looks bad compared to Q4 2015 because of the $175 million milestone payment received in that quarter and included in GAAP earnings.

This was an unually long (almost 2 hours) conference, but I've tried to keep my notes to the usual length. So they are even more compressed as usual. You might want to check the audio file or read a full transcript if what you find in these notes interests you. -- WPM

Basic data (GAAP):

Revenue was $182.5 million, down 51% sequentially from $377.7 million, and up 41% from $129.2 million in the year-earlier period.

Net income was $4.8 million, down 97% sequentially from $142.5 million, but up from negative $3.1 million year-earlier.

Diluted EPS was $0.03, down 97% sequentially from $0.85, but up from negative $0.02 year-earlier.

Guidance:

"We expect a significant increase in non-GAAP EPS in coming quarters and are reaffirming 2016 full year non-GAAP EPS guidance of $1.30 to $1.40

Conference Highlights:

Recapped that Medivation rejected the $52.50 per share Sanofi offer and believes the company is much more valuable.

Xtandi (enzalutamide) for castration-resistant prostate cancer had U.S. sales by Medivation collaborator Astellas of $308 million, up 37% y/y. Unit demand grew 33% y/y. Sales were sequentially down mainly due to the Medicare "donut hole" and inventory stocking in q4.

Astellas non-U.S. sales of Xtandi were $240 million, up 80% y/y. $28.7 millon million of Medivation revenue came from this.

It was also a strong start to 2016 because Xtandi exceeded 50% market share for novel hormonal prostate cancer therapy (NHT) in the U.S. for the first time.

"Xtandi is increasingly used as first-line therapy in metastatic castration resistant prostate cancer." So "we expect the duration of therapy to continue to increase."

The data from the TERRAIN trial (showing Xtandi's superiority to bicalutamide) has been recommended in Europe for extension to the label, and in the U.S. the FDA will decide on that issue by October 22, 2016. This would particularly help penetrating the urology market.

Non-GAAP numbers: net income $19 million, down 62% sequentially from $49.5 million, and up 46% from $13 million year earlier. EPS $0.11, down 62% sequentially from $0.29 (adjusted for the split), and up 35% from $0.08 year-earlier. Collaboration revenue, which excludes upfront and milestone payments, was $182 million, down 10% sequentially from $203 million, but up 41% from $129 million year-earlier.

Xtandi (enzalutamide) pipeline developments:

A Supplemental New Drug Application for Xtandi in metastatic castration-resistant prostate cancer was accepted for review by the FDA. An improved label could be available for Xtandi in late 2016 based on new trial data. October 22, 2016 decision date. Three Phase 3 trials in earlier stage prostate cancer are enrolling. Also following patients in Phase 4 Plato trial, with top line date due this year.

For Enzalutamide in triple-negative, androgen-receptor positive, breast cancer, Medivation is in discussions about the design for a pivotal Phase 3 study to start in the second half of 2016. Two other Phase 2 trials are underway for different patient types, with enrollment complete in one, and data due in the second half of 2016.

Hepatocellular carcinoma Phase 2 trial of enzalutamide continued enrolling patients..

MDV9300 (pidilizumab) is still being considered as an immuno-oncology agent. A B-cell lymphoma study should start this year. It is also in a Phase 2 DLBCL trial, but on an FDA hold.

SREVP pathway small molecule Phase 1 trial of healthy volunteers is underway. MDV4463.

Talazoparib, or MDV3800, will be tested in Phase 3 trials for all cancers where the DNA replication is or can be compromised. Trials in non-BRCA, non BSA breast cancer; prostate; lung; and ovarian cancers may start in 2016. It is currently in a Phase 3 study, EMBRACA, for a women with breast cancer with deleterious germline BRCA1 and BRCA2 mutations. Primary endpoint is PFS. Should complete enrollment in Q4 2016 with top line results in 2017.

Cash balance ended at $317.4 million, up sequentially from $225.9 million, mainly due to the $175 milestone payment less paying off $75 million of debt. Collaboration receivables were $187 million. No debt. Contingent consideration liability $268 million.

GAAP operating expenses were $174.4 million, consisting of $77.6 million for research and development and $96.8 million for selling, general and administrative expenses. Leaving income from operations of $8.1 million. Interest and other expense was $0.9 million. Income tax expense $2.3 million.

Each year Q1 has higher operating expenses because of Astellas-related charges.

Xtandi is now the 8th largest oncology product by global revenue. EvaluatePharma has estimated it will be the 4th largest oncology product by 2021. In Europe it is predicted to be the largest oncology product in 2022.

Medivation expanded its sales force by 40 in Q1, but the results will not begin to be seen until Q2.

Estimates 2020 non-GAAP Medivation revenue of $2.5 billion from current assets.

Went in detail over the value of Medivation over the Astellas offer. Believes milestones are coming up that will likely cause the share price to increase (if the results are positive). Believes the duration of Xtandi therapy will improve significantly (see slide 31). Believes will also be approved eventually for triple-negative breast cancer and other solid cancers.

Believes talazoparib has even greater potential than Xtandi. Discussed successes and failures of other PARP inhibitors. There was a very competitive bidding process for it. Explained its superiority to other PARP inhibitors, mainly from locking to single strand DNA breaks so the cannot be repaired (and the cancer cell dies).

Q&A:

M0 label revenue? We won't break out the potential revenue in that way. You can look at the potential dates for approval to get an idea of benefits from label expansions and data-driven doctor decisions. The M1 population should have a much longer duration of therapy than the current time.

We believe that including superiority to bicalutamide would greatly increase our sales in urology since the drug is currently very widely used.

PD1 and PDL1 combinations with talazoparib? Immunotherapy with Xtandi is an intersting idea. Prostate cancers don't usually express much PDL1, but they do after being treated with Xtandi. Xtandi also increases Thymus size and activity.

Speculation about other companies wanting to acquire Medivation? Can't comment. We are here to run our business and create as much value as we can for shareholders.

Price increases for Xtandi this year? Astellas controls pricing. We are committed to the guidance we gave today. It is based on duration and volume trends we expect.

A lot of triple negative cancers are driven by androgen receptors. Cancer has to be driven by something. Estrogen and testosterone are chemically similar. So there might be cross talk. Some preclinical data shows breast cancer fueled by estrogen has its growth stopped by Xtandi. We do not fully understand the details yet. There are currently no androgen receptor breast cancer therapies in development.

Zytega going generic, risk from? The earliest would be 2018. If we have an expanded label we would have a big differentiator.

PDUFA date, are you assuming M0 is included? We are anticipating M1 being within the new label. If we got M0 it would be icing.

Was STRIVE data also considered by the CHMP? Astellas has commercial responsibility in Europe. The European update could go into effect immediately with the decision.

Is there not a price at which you would sell the company? We are all about value. We think $52.50 is completely a lowball proposal, not the basis for even holding a discussion. We can't speculate on a price above that, but we are working for our shareholders. Our large shareholders have been very supportive.

16% gross to net for Q1. It is typically highest in Q1s, then goes down a couple of percent the rest of the year.

What is the street missing in its projections? How well we will to with Xtandi in urology, and how much better are PARP inhibitor is going to be than rivals. The talazoparib mechanism of action is on DNA, so it can address more cancers even than Xtandi. We believe it can be best in class.

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