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The Story behind Medivation’s Rising Collaboration Revenue

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Medivation’s non-GAAP revenue

Medivation (MDVN) earned collaboration revenue from Xtandi’s US and non-US sales along with upfront and milestone payments. In the first three months of 2016, the company’s non-GAAP (generally accepted accounting principles) collaboration revenue stood at $182.5 million, a 43% jump from its 1Q15 revenue.

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Collaboration revenue related to Xtandi’s US sales

Astellas (ALPMY) records US net sales for Xtandi whereas Medivation equally shares all pre-tax profits or losses from the drug’s sales in the US under collaboration revenue. In 1Q16, the collaboration revenue from Xtandi’s US net sales remained at $153.8 million, a 37% rise annually.

Collaboration revenue related to Xtandi’s non-US sales

As per the collaboration agreement between Medivation and Astellas, Astellas records all non-US net sales. It’s “responsible for development and commercialization costs of the drug outside of the United States, including the cost of goods sold and the royalty on net sales payable to UCLA. It pays Medivation a tiered royalty ranging from the low teens to the low twenties as a percentage of ex-U.S. net sales of the drug.”

Non-US collaboration revenue from the drug stood at $28.7 million, jumping a whopping 82% from the 1Q15 revenue.

The success or failure of a pipeline would result in share price volatility for the company. To avoid direct risk, investors can access the Biotech ETF (BBH). It invests 5.5% of its total holdings in Medivation. The companies with the heaviest weight in the fund’s portfolio are Gilead Sciences (GILD) and Amgen (AMGN). Gilead and Amgen are 12.2% and 12.0% of BBH’s total portfolio.

In the next part of this series, we’ll discuss Xtandi in more detail.

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