Small-cap biotechnology firm Medivation (MDVN) saw shares plummet almost 14.5 percent on Feb 28 after a Q4 2013 earnings report featured softer guidance for sales of its lead therapy, Xtandi, than expected.
Profits Don’t Impress
Swinging into the black clearly wasn’t enough to impress Wall Street, despite the fact that company has not turned a profit in over five years. The company reported a profit of $2.8 million, or $0.03 a share, in Q4 after collaboration revenue soared to $96.6 million from $37.2 million. This was well ahead of estimates from a FactSheet survey for a loss of $0.07 a share on $73.6 million in revenue, and way ahead of Q4 2012’s loss of $0.43 a share.
However, the profits ultimately didn’t matter as projections for 2014 revenue from Xtandi, a pill for treating prostate cancer in patients who haven’t responded to chemotherapy in the form of docetaxel. The company projected net sales of between $500 million and $535 million, well below the $866 million projected by Jefferies analyst Biren Amin.
The low guidance prompted Amin to downgrade the stock from “buy” to “hold” and reducing his price target from $89 to $80.
CEO David T. Hung, though, tried to spin the issue Xtandi sales into a positive.
"While we've had to date an excellent launch of XTANDI based only on a post-chemo label, we believe that the upstream prostate cancer market, which is mostly managed by urologists, is largely untapped, given that the only drugs widely prescribed in those upstream indications are Lupron and Casodex," he said in the earnings call.
Stock Falls Through Support
Medivation’s bad day may have been made worse after it fell through technical barriers that may have previously offered some reassurance to some investors. The stock chart had developed a rising support line in mid to late October that had increased largely along with the 20-day SMA. However, that level had reached about $79 a share by Friday, a level Medivation crashed through as it plummeted as low as $71 a share. The company also crossed over its 50-day SMA.
This also comes soon after the company hit a double top on Feb. 24 after hitting a 52-week high and closing at just under $87 a share. The company had previously tested the $87 level on Jan. 29 before retreating sharply.
While the earnings report is clearly the inciting incident, the feeling that the company appeared unable to go higher than $87 a share, and that it apparently could fall lower than $79 a share, could have contributed to the size of the sell-off as this technical data seemed to show a lack of upside for the stock in the near-term and a larger downside than previously apparent.
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