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Times Changing at Medivation

A selloff in the stock strongly suggests investors are going to demand perfect execution.

Medivation (MDV) has seen its shares drop for consecutive days in the wake of what at first glance appears to be an innocuous piece of news on its clinical timeline.

On Wednesday, the company issued a press release outlining the steps it will take as it tries to bring Dimebon, an experimental treatment for Alzheimer's disease, to market. The company anticipates conducting a global phase III trial -- the last stage of studies before U.S. regulatory approval is sought -- in 2008.

During a conference call following the announcement, Medivation's management declined to answer when pressed whether that target meant early or late 2008. The company plans a phase I study and a phase II dose-finding clinical trial, both in the U.S., and hopes to apply for marketing approval of Dimebon in 2010.

After the announcements, Medivation fell 8% in the prior session and was down another 3.3%, at $13.30, on Thursday.

Investors seem to be disappointed with the speed at which the phase III trials will begin, as that was really the only news that was actually new.

Earlier this month, I expressed concern that while the data from a Russian trial of Dimebon was impressive, there was still a lot of risk in the stock. The action of the last two days may be a good barometer of how investors will react to anything other than perfect execution.

On the conference call, Medivation executives continually emphasized the strength of the Russian data. So perhaps the fact that the company will run two U.S. trials is making some investors question the company's claims. Calls to Medivation Chief Executive David Hung were not returned.

One of the U.S. trials, a phase II study, will be geared toward finding the proper dosing. Dimebon was previously given three times daily during tests. Current drugs such as


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Joy Mashaal, of investment firm Senvest International, believes, "investors were hoping for a phase III in Alzheimer's to start in 2007 instead of 2008 and a quicker path to market than was outlined. I think their development program as outlined

Wednesday sounds reasonable and a U.S. phase I and a dose-finding phase II seem like the right things to do at this point."

Senvest owned nearly 300,000 shares of Medivation as of June 30.

Along with the clinical news, Medivation is also changing its business plan. In response to a question, Hung agreed with a comment that the company's previous plan had been to find a partner or sell the business after it took a product through phase II in order to reap a quicker payback. Perhaps the phone hasn't been ringing or management truly does feel that the "results of the phase II significantly lowers the risk of subsequent trials," according to Hung.

Either way, some investors may have been looking to get rewarded sooner rather than later. While a successful drug brought to market should be more lucrative than any deal struck during phase II, some shareholders who had to change their time frame may have taken their profits and gone home.

When Rodman & Renshaw analyst Elemer Piros initiated coverage on Medivation last month with an outperform rating, he called the company "the ultimate in lean and mean." He liked the fact that Medivation "has explicitly stated that it generally will not engage in either discovery research or phase III clinical trials or commercialization."

Piros had estimated phase III studies will begin in late 2007, with no expectation of additional phase I and II trials for Dimebon in Alzheimer's. Rodman and Renshaw doesn't have an investment banking relationship with Medivation, and the analyst doesn't own the stock.

Upcoming studies will likely eat up all of the $20 million in cash and short-term investments on the company's books. The previous phase II trial in Russia was conducted with 183 patients. Chief Medical Officer Lynn Seely acknowledged on the conference call that in order to build a suitable safety database for the Food and Drug Administration, 1,500 patients will need to be enrolled and using the drug.

If the additional trials confirm Dimebon's safety and efficacy, that should only help in the approval process. However, investors need to be aware that the business model and cost structure have changed dramatically over the past few days.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Medivation to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

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