Analyst Conference Summary

Biotechnology

conference date: August 9, 2016 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2016 (Q2, second quarter 2016)

Forward-looking statements

Overview: Another strong quarter of sales, but R&D expense for talazoparib holds down EPS. Note the big difference between GAAP and non-GAAP results.

Basic data (GAAP):

Revenue was $206.2 million, up 13% sequentially from $182.5 million, and up 17% from $175.7 million in the year-earlier period.

Net income was negative $403.9 million, down sequentially from $4.8 million, and down from $25.8 million year-earlier.

Diluted EPS was negative $2.45, down sequentially from $0.03, and down from $0.15 year-earlier.

Guidance:

reaffirmed prior guidance

Conference Highlights:

Worldwide Xtandi sales were $595 million, up 22% y/y.

Xtandi (enzalutamide) for castration-resistant prostate cancer had U.S. sales by Medivation collaborator Astellas of $330.3 million, up 11% y/y. Reflects an 18% increase in demand offset by higher discounting.

Astellas non-U.S. sales of Xtandi were $265 million, up 41% y/y.

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.

Retrospective duration for Xtandi has reached 9 months; it was about 5 months in q2 2015. To a large extent whichever therapy (rival is Zytiga/abiraterone) is used first gets longer duration. Believes many cancers believed to be M0 are actually M1, which would increase use. Also with less prostate cancer screening, the first diagnosis is more likely to be metastatic. Also Zytiga's label now includes warnings about liver toxicity. 25% of Xtandi patients have been on therapy for 13.7 months or more. Other competitive advantages were discussed at length.

Non-GAAP numbers: net income $50.0 million, up 163% sequentially from $19 million, and up 3% from $48.7 million year earlier. EPS $0.29, up sequentially from $0.11 (adjusted for the split), and flat from $0.29 year-earlier. The main difference between GAAP and non-GAAP was a $675.3 million contingent consideration charge "related to the change in fair value of the liability for contingent consideration related to the acquisition of worldwide rights to talazoparib from BioMarin Pharmaceutical Inc., and Medivation's license agreement with CureTech, Inc. for pidilizumab" and non-cash income tax adjustments.

All revenue in the quarter was collaboration revenue.

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 for the ER/PR positive breast cancer study.

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.

"We have made important strides in advancing the development of talazoparib, having completed successful meetings with the FDA to align on clinical development plans in several indications. We anticipate initiating multiple, including some potentially registrational, studies for talazoparib in non-gBRCA breast cancer, prostate cancer, small cell lung cancer and ovarian cancer in 2016 and glioblastoma multiforme, non-small cell lung cancer and potentially other indications in 2017. We also expect to read out top-line results from our first talazoparib registrational study, EMBRACA, in germline-BRCA mutated breast cancer in the first half of 2017."

Medivation recently reported positive overall survival results with pidilizumab in a rare childhood brain tumor called diffuse intrinsic pontine glioma, or DIPG. Plans to meet with the FDA to discuss potential approval pathways for this wholly owned, late-stage asset.

Cash balance ended at $348.7 million, up sequentially from $317.4 million. Collaboration receivables were $227.3 million. No debt. Contingent consideration liability $952 million.

GAAP operating expenses were $831.8 million, consisting of $73.4 million for research and development and $758.4 million for selling, general and administrative expenses. Leaving income from operations of negative $625.6 million. Interest and other expense was $0.5 million. Income tax benefit $222.2 million.

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

Believes milestones are coming up that will likely cause the share price to increase (if the results are positive).

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). Plans a number of Phase 2 trials to potentially start in 2016. The current Phase 3 Breast Cancer trial could produce results in 2017.

Q&A:

Price increase at end of June? No effect on Q2, but we will benefit going forward.

Tokai trial failure? We did not think they had a clinically validated target. We think Xtandi has set a very high barrier to other entries.

If you don't have a prostate your PSA should be zero. If you have a PSA score and no prostate, there are prostate cells somewhere in your body. When you really look for metastatic disease in a patient with rising PSA, you are going to find it. Over time the vast majority of patients thought to M0 will prove to be M1.

SG&A we should see a jump in Q3 and then flattening in Q4.

We are seeing an increase in availability of PET scanners to check for malignant prostate cancer. Early detection and treatment is proving beneficial to patients.

There is evidence that Xtandi increases Thymus gland functioning, and increases immune cell counts, which helps with cancer and could make patients more sensitive to PDL1 and PD1 modulators.

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