Why Medivation Could Be 'The Next Big Biotech'

Medivation Inc MDVN could become the next big biotech, according to SunTrust Robinson Humphrey which initiated the coverage of the stock with a Buy rating and said it could be valued at $62 (range $51-$71) in M&A.

In a note, analyst Peter Lawson said the company has a $1 billion prostate cancer drug, XTANDI, which is expanding into earlier lines of treatment, and additional settings. The company has a cancer pipeline in two of the hottest areas of oncology: immuno-oncology and genetically defined cancers.

The Buy thesis, which has a $56 price target, is driven by the following catalysts:

• A label amendment of XTANDI (enzalutamide) with head-to-head (H2H) data of XTANDI against Casodex in metastatic castrate resistant pancreatic cancer (mCRPC) expected in the second half of 2016.
• "We expect the label amendment to be approved, to help urologists prescribe XTANDI earlier and potentially for longer regimens — leading to market share gains," Lawson noted.
• Phase 2 top-line data for XTANDI in ER+/PR+ and HER2 normal breast cancer is expected in 2H16 — "we are expecting a PFS of greater than 7 months."
• Phase 3 EMBRACA top-line data for talazoparib in BRCA-mutated breast cancer is expected in 1H17 — "we expect ORR of greater than 50%, and need a PFS of greater than 3.7 months."

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On the M&A front, Lawson noted that over the past three years, nine mid-cap peers have been acquired. But his analysis shows that Medivation is better armed with take-over defenses than the other "large-cap" biotechs and his coverage universe.

"MDVN has a poison pill — expiring in 1/2017, and MDVN scores high on FactSet's "bullet proof rating" — which captures multiple aspects of "anti-takeover" corporate governance policies," the analyst elaborated.

On the financial front, Lawson noted that over the past four years, Medivation has beaten sales estimates 64 percent of the time, and earnings estimates 75 percent of the time.

"We think the stock is hard to ignore — in short, the company punches above its weight," Lawson added.

The analyst said risks include generics for a rival drug that may cause collateral damage, and IP that runs out in 2027 hurts the long-term DCF.

According to TipRanks, Lawson has a success rate of 57 percent, with average return per recommendation at +10.4 percent. He is ranked 350 out of 3,835 analysts.

Shares of Medivation closed Wednesday at $47.09, up 7.22 percent.