No Generic Zytiga Benefits Medivation
Big news for prostate cancer companies.
It's hard to believe how crowded the prostate cancer marketplace has become. In 2004, Taxotere (docetaxel, now generic) was the first new drug to be approved for the disease in decades. Between 2010 and today, there were five new treatments approved – all of them battling in the metastatic, castrate-resistant prostate cancer (mCRPC) marketplace.
The two biggest sellers in the mCRPC marketplace are Medivation's (NASDAQ:MDVN) Xtandi and Johnson & Johnson's (NYSE:JNJ) Zytiga. Both are oral pills. Both are approved for use after chemotherapy, but of these two, only Zytiga is approved in the coveted pre-chemotherapy segment. In the post-chemo segment, data suggest Xtandi is the better drug. Xtandi also does not need to be dosed with steroids like Zytiga, which will be a significant advantage.
The business of treating prostate cancer is highly segregated. Urologists control patients up until the patients have symptomatic disease, at which time the urologist will hand off to the oncologist for treatment with chemo. Urologists and oncologists have surprisingly different outlooks on cancer treatment. They also have completely different ways they earn their money – urologists earn the majority of their money being surgeons. Oncologists earn their money by capturing a percentage of the non-oral drugs they prescribe. This background is critical to understanding which drugs succeed in the pre-chemo space.
Dendreon's (NASDAQ:DNDN) Provenge has run into business practice and patient acceptance problems in urology clinics (around 50% of patients offered Provenge decline it). While it is currently the best-performing drug (in terms of overall survival hazard ratio), and is typically cheaper out of pocket for patients than Zytiga or Xtandi, it has been unable to gain sales traction.
Xtandi is, in my opinion, the best of all the mCRPC drugs – counting both approved drugs and those currently in clinical trials. It has a strong survival benefit, PSA reductions, objective tumor shrinkage, and a benign side effect profile demonstrating fewer serious adverse events (Grade 3-4) than placebo. Xtandi's problem is it's not yet approved in the pre-chemo space. Investors anxiously await the PREVAIL pivotal trial in pre-chemo patients, with Wall Street broadly assuming the trial will be positive. (I agree, and believe the PREVAIL data will also show Xtandi is the clearly superior to Zytiga in pre-chemo patients.)
Johnson & Johnson acquired Zytiga by acquiring Cougar Biotech. It was a great purchase but for one tiny detail: Zytiga had no patent life with protection only until June 2016. This isn't just an issue for JNJ – it's a big deal for all players in the pre-chemo space as it means everyone would be faced with generic competition in 2016.
Generic Zytiga would be even more serious by what's an unusual exception in the treatment of cancer. You see, cancer is different than cell phones. If Apple (NASDAQ:AAPL) gains market share with its iPhone, someone else loses share in a 1:1 proportion. Not so in cancer. New cancer drugs simply displace older drugs to later lines. There is some drop-off (something I called "the Leaky Bucket" when I was writing for Biotech Stock Research), but the older drugs still get used.
Doctors have learned, however, that Zytiga and Xtandi don't particularly sequence well. Patients who fail Xtandi don't typically respond to Zytiga. Patients who fail Zytiga don't typically respond to Xtandi. This means whichever of these two drugs is used first will have an outsized revenue advantage over the other.
Both Zytiga and Xtandi are expensive, around $5,500 and $7,500 per month respectively. Insurers and patients paying 20%+ copays on these oral drugs would be very motivated to use a cheaper generic.
While most sell side analysts haven't worked generic Zytiga's impact into their financial models for Medivation, all of them have worked it into their expectations for the Xtandi PREVAIL data. Buy siders and sell siders are very focused on Xtandi being meaningfully better in PREVAIL in order to offset the generic risk of Zytiga.
But hold on a second…
In a slice of news that isn't well known, even by companies inside the mCRPC space, Zytiga won't be going generic in 2016. On July 30, 2013, JNJ secured a new patent for the combination use of Zytiga and prednisone in the treatment of prostate cancer. This extends Zytiga's patent life well into the late 2020s and pretty much erases the threat of generic Zytiga in 2016.
This is big. Even in the unlikely event Xtandi's PREVAIL data are merely equal to the existing Zytiga data in the pre-chemo space, the two drugs will compete on their merits without concerns about Zytiga going generic. Which one will win in the pre-chemo space? This requires a close look at the gatekeepers for these pre-chemo patients – urologists.
Urologists are primarily surgeons. What do surgeons learn their first day in surgeon school? Don't operate on patients taking steroids. They bleed out. Surgeons, therefore, have a visceral dislike of steroids. Zytiga is required to be dosed with steroids to avoid significant cardiac issues. This may seem a small thing, but in my view, this gives Xtandi a clear leg up.
I'm aware there are some surveys out there showing Zytiga with a mindshare lead among urologists, but this doesn't bother me. Xtandi isn't (yet) approved for patients typically treated by urologists and Zytiga is. It's unsurprising surveys would show some favor for Zytiga at this stage in the game because that's all the average urologist knows.
Here's the thing, though… Every – not most, but every – urologist key opinion leader I've spoken with over the last two years has said they'd always prescribe Xtandi first to avoid dosing steroids – even if the Zytiga and Xtandi had the same efficacy profiles.
As Medivation closes in on revealing PREVAIL data before the end of 2013, understanding how urologists look at the drug is important. The fact JNJ just won a key patent extension into the late 2020s for Zytiga means price won't get in the way of urologists picking their favorite between these two oral drugs. I'm fairly certain that choice will be Xtandi – which bodes well not only for near-term revenues for Medivation but also the company's effort to move Xtandi into even earlier stages of prostate cancer.
Author David Miller is the portfolio manager at Alpine BioVentures.
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