Form 10-Q MEDIVATION, INC. For: Sep 30

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

COMMISSION FILE NUMBER: 001-32836

 

 

MEDIVATION, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		13-3863260
(State or other jurisdiction of incorporation or organization)		(IRS Employer identification No.)

525 Market Street, 36th floor

San Francisco, California 94105

(Address of principal executive offices) (Zip Code)

(415) 543-3470

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 30, 2015, 163,710,057 shares of the registrant’s Common Stock, $0.01 par value per share, were outstanding.

 

 

 

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PART I — FINANCIAL INFORMATION					3
ITEM 1. FINANCIAL STATEMENTS.					3
		CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited).			3
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited).			4
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited).			5
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited).			6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited).			7
ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.					24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.					37
ITEM 4. CONTROLS AND PROCEDURES.					37
PART II — OTHER INFORMATION					37
ITEM 1. LEGAL PROCEEDINGS.					37
ITEM 1A. RISK FACTORS.					38
ITEM 6. EXHIBITS.					62

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PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

MEDIVATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

		September 30, 2015				December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents		$	488,944			$	502,677
Receivable from collaboration partner			277,612				184,737
Deferred income tax assets			22,353				21,987
Prepaid expenses and other current assets			15,946				12,264
Restricted cash			930				203
Total current assets			805,785				721,868
Property and equipment, net			49,018				41,161
Intangible assets			101,000				101,000
Deferred income tax assets, non-current			35,628				15,176
Restricted cash, net of current			12,206				11,562
Goodwill			10,000				10,000
Other non-current assets			6,957				10,852
Total assets		$	1,020,594			$	911,619
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued expenses and other current liabilities		$	132,258			$	106,128
Borrowings under Revolving Credit Facility			75,000				—
Contingent consideration			10,000				10,000
Deferred revenue			—				2,822
Current portion of build-to-suit lease obligation			235				698
Current portion of Convertible Notes, net of unamortized discount of $— and $1 at September 30, 2015 and December 31, 2014, respectively			—				4
Total current liabilities			217,493				119,652
Convertible Notes, net of unamortized discount of $— and $36,598 at September 30, 2015 and December 31, 2014, respectively			—				222,140
Contingent consideration			102,799				96,000
Build-to-suit lease obligation, excluding current portion			16,905				18,711
Other non-current liabilities			11,729				5,817
Total liabilities			348,926				462,320
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.01 par value per share; 340,000,000 shares authorized; 163,575,512 and 156,234,454 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively			1,636				1,562
Additional paid-in capital			626,340				505,446
Retained earnings (accumulated deficit)			43,692				(57,709	)
Total stockholders’ equity			671,668				449,299
Total liabilities and stockholders’ equity		$	1,020,594			$	911,619

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MEDIVATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Collaboration revenue		$	260,665			$	200,478			$	565,510			$	435,757
Operating expenses:
Research and development expenses			45,871				45,430				137,841				131,693
Selling, general and administrative expenses			75,809				63,165				234,456				165,695
Total operating expenses			121,680				108,595				372,297				297,388
Income from operations			138,985				91,883				193,213				138,369
Other income (expense), net:
Loss on extinguishment of Convertible Notes			(13,216	)			—				(21,087	)			—
Interest expense			(1,078	)			(5,535	)			(11,995	)			(16,101	)
Other, net			159				64				247				(50	)
Total other income (expense), net			(14,135	)			(5,471	)			(32,835	)			(16,151	)
Income before income tax expense			124,850				86,412				160,378				122,218
Income tax expense			(45,340	)			(8,419	)			(58,160	)			(9,971	)
Net income		$	79,510			$	77,993			$	102,218			$	112,247
Basic net income per common share		$	0.49			$	0.51			$	0.64			$	0.73
Diluted net income per common share		$	0.47			$	0.48			$	0.62			$	0.70
Weighted average common shares used in the calculation of basic net income per common share			162,390				154,112				159,198				153,258
Weighted average common shares used in the calculation of diluted net income per common share			168,070				162,446				164,454				161,448

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MEDIVATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Net income		$	79,510			$	77,993			$	102,218			$	112,247
Other comprehensive income:
Change in unrealized gain (loss) on available-for-sale securities			24				—				(10	)			—
Amounts reclassified into earnings related to investments			10				—				10				—
Other comprehensive income, net			34				—				—				—
Comprehensive income		$	79,544			$	77,993			$	102,218			$	112,247

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MEDIVATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

		Nine Months Ended September 30,
		2015				2014
Cash flows from operating activities:
Net income		$	102,218			$	112,247
Adjustments for non-cash operating items:
Excess tax benefits from stock-based compensation			(57,472	)			(362	)
Stock-based compensation			40,842				32,799
Loss on extinguishment of Convertible Notes			21,087				—
Change in deferred income taxes			(9,037	)			—
Amortization of debt discount and debt issuance costs			8,548				11,007
Change in fair value of contingent purchase consideration			6,799				—
Depreciation on property and equipment			4,957				3,603
Amortization of deferred revenue			(2,822	)			(12,698	)
Other non-cash items			36				1,112
Changes in operating assets and liabilities:
Receivable from collaboration partner			(92,875	)			(100,880	)
Prepaid expenses and other current assets			(4,968	)			3,599
Other non-current assets			2,087				(4,289	)
Accounts payable, accrued expenses and other current liabilities			84,591				28,460
Interest payable			51				1,698
Other non-current liabilities			5,917				16
Net cash provided by operating activities			109,959				76,312
Cash flows from investing activities:
Purchases of short-term investments			(90,381	)			—
Sales or maturities of short-term investments			90,224				—
Purchases of property and equipment			(13,638	)			(9,223	)
Change in restricted cash			(1,371	)			(2,073	)
Net cash used in investing activities			(15,166	)			(11,296	)
Cash flows from financing activities:
Principal repayment of Convertible Notes			(258,742	)			(4	)
Cash settlement of Convertible Notes conversion premium			(1,126	)			—
Proceeds from borrowings under Revolving Credit Facility			75,000				—
Excess tax benefits from stock-based compensation			57,472				362
Proceeds from issuance of common stock under equity incentive and stock purchase plans			19,548				26,891
Reduction of build-to-suit lease obligation			(678	)			—
Net cash (used in) provided by financing activities			(108,526	)			27,249
Net (decrease) increase in cash and cash equivalents			(13,733	)			92,265
Cash and cash equivalents at beginning of period			502,677				228,788
Cash and cash equivalents at end of period		$	488,944			$	321,053
Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Reacquisition of Convertible Notes equity component upon conversion		$	324,177				—
Fair value of common stock issued for conversion of Convertible Notes		$	312,990				—
Derecognition of build-to-suit lease asset		$	3,241				—
Derecognition of build-to-suit lease obligation		$	3,176				—
Property and equipment expenditures incurred but not yet paid		$	618			$	355
Interest capitalized during construction period for build-to-suit lease transactions		$	1,541			$	945
Accrued interest payable forfeited upon conversion of Convertible Notes		$	1,686				—
Amounts capitalized under build-to-suit lease transactions		$	283			$	18,085

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MEDIVATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Medivation, Inc. (the “Company” or “Medivation”) is a biopharmaceutical company focused on the development and commercialization of medically innovative therapies to treat serious diseases for which there are limited treatment options. Through the Company’s collaboration with Astellas Pharma, Inc., or Astellas, it has one commercial product, XTANDI^® (enzalutamide) capsules, or XTANDI. XTANDI has received marketing approval in the United States, Europe, and numerous other countries worldwide for the treatment of patients with metastatic castration-resistant prostate cancer, or mCRPC, and in Japan for the treatment of patients with castration-resistant prostate cancer, or CRPC. The Company and Astellas are also conducting investigational studies of enzalutamide in prostate cancer, advanced breast cancer, and hepatocellular carcinoma. Under the Company’s collaboration agreement with Astellas, it shares with Astellas equally all profits (losses) related to U.S. net sales of XTANDI. The Company also receives royalties ranging from the low teens to the low twenties on ex-U.S. XTANDI net sales and certain milestone payments upon the achievement of defined development and sales events.

The Company seeks to become a global fully-integrated biopharmaceutical company through the continued commercialization of XTANDI, the acquisition or in-license and development and commercialization of other product opportunities, and through the advancement of its own proprietary research and development programs. The Company expects that its future growth may come from both internal research efforts and third party business development activities. In the fourth quarter of 2014, the Company licensed exclusive worldwide rights to pidilizumab (which is referred to as MDV9300), an immunomodulatory antibody for all potential indications from CureTech, Ltd., or CureTech. Under the license agreement, the Company is responsible for all development, regulatory, manufacturing, and commercialization activities for MDV9300. The Company currently anticipates that it may initiate a pivotal clinical trial evaluating MDV9300 in Diffuse Large B-Cell Lymphoma in 2015. The Company is also considering evaluating MDV9300 in other indications, including in other hematologic malignancies. In the third quarter of 2015, the Company entered into an asset purchase agreement with BioMarin Pharmaceutical Inc., or BioMarin, to acquire all worldwide rights to talazoparib (which is referred to as MDV3800), an orally available poly-ADP ribose polymerase, or PARP, inhibitor. The acquisition of MDV3800, which is currently in a Phase 3 clinical trial for the treatment of patients with germline BRCA mutated breast cancer, was completed in October 2015, as further discussed in Note 15, “Subsequent Events.” In addition, the Company has various other internal research and discovery efforts focused, among other areas, in oncology and neurology.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of the Company’s financial condition, results of operations and cash flows for the periods presented, have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2014, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, or the Annual Report, filed with the U.S. Securities and Exchange Commission, or SEC, on February 25, 2015. The consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements at that date.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company operates in one business segment.

All tabular disclosures of dollar and share amounts are presented in thousands unless otherwise indicated. All per share amounts are presented at their actual amounts. The number of shares issuable under the Amended and Restated 2004 Equity Incentive Award Plan, or the Medivation Equity Incentive Plan, and the Medivation, Inc. 2013 Employee Stock Purchase Plan, or ESPP, disclosed in Note 11, “Stockholders’ Equity,” are presented at their actual amounts unless otherwise indicated. Amounts presented herein may not calculate or sum precisely due to rounding.

 

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(b) Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires that management make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Although management believes that these estimates are reasonable, actual future results could differ materially from those estimates. In addition, had different estimates and assumptions been used, the unaudited condensed consolidated financial statements could have differed materially from what is presented.

Significant estimates and assumptions used by management principally relate to revenue recognition, including reliance on third party information, estimating the performance periods of the Company’s deliverables under collaboration agreements, and estimating the various deductions from gross sales to calculate net sales of XTANDI. Additionally, significant estimates and assumptions used by management include those related to contingent purchase consideration, intangible assets, goodwill, the Convertible Notes, determining whether the Company is the primary beneficiary of any variable interest entities, leases, taxes, research and development and other accruals, share-based compensation, and the calculation of diluted net income per common share.

(c) Significant Accounting Policies

Reference is made to Note 2, “Summary of Significant Accounting Policies,” included in the notes to the Company’s audited consolidated financial statements included in its Annual Report. As of the date of the filing of this Quarterly Report on Form 10-Q, or Quarterly Report, there were no significant changes to the significant accounting policies described in the Company’s Annual Report, except for the Company’s accounting policy with respect to diluted net income per common share beginning in the second quarter of 2015 as discussed in Note 5, “Net Income per Common Share.”

(d) Capital Structure

On June 15, 2015, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation, as amended, effecting an increase in the total number of authorized shares of capital stock of the Company from 171,000,000 to 341,000,000 and an increase in the total number of authorized shares of common stock of the Company from 170,000,000 to 340,000,000.

During the second quarter of 2015, the Company settled a total of $91.0 million aggregate principal amount of its 2.625% convertible senior notes due April 1, 2017, or the Convertible Notes, through a combination of $92.1 million in cash and 2,099,358 shares of its common stock. On June 19, 2015, the Company issued a notice of redemption to redeem all of its outstanding Convertible Notes on July 24, 2015. Pursuant to this notice of redemption, the Company completed the settlement of $167.8 million aggregate principal amount of the Convertible Notes through a combination of $167.8 million in cash and 3,539,218 shares of its common stock in the third quarter of 2015. Upon settlement, the Convertible Notes were no longer deemed outstanding, interest ceased to accrue thereon, and all rights of the holders of the Convertible Notes ceased to exist.

On September 15, 2015, the Company effected a two-for-one forward stock split of its common stock in the form of a stock dividend. Stockholders of record as of August 13, 2015 received one additional share of the Company’s common stock, par value $0.01, for each share they held as of the record date. The Company issued 81,711,522 shares of its common stock as a result of the stock dividend. The par value of the Company’s common stock remained unchanged at $0.01 per share.

The information of shares of common stock (except par value per share), par, additional paid-in capital, and net income per common share as of September 30, 2015 and for all other comparable periods presented have been retroactively adjusted to reflect the effects of the stock split. The number of shares of the Company’s common stock issuable upon exercise of outstanding stock options and stock appreciation rights, and vesting of other stock-based awards was proportionally increased, and the exercise price per share thereof, as applicable, was proportionately decreased, in accordance with the terms of the Medivation Equity Incentive Plan, as amended, and the ESPP.

(e) New Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that the acquirer recognize adjustments to provisional amounts recognized in a business combination that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and record, in the same period’s financial

 

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statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amended guidance eliminates the requirement to retrospectively account for adjustments made to provisional amounts during the measurement period. The amended guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within that reporting period, and should be applied prospectively to provisional amounts that occur after the effective date. The Company is currently assessing the impact that the amended guidance will have on its consolidated financial statements and related disclosures.

In August 2015, the FASB issued ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements.” The amended guidance, which became effective immediately upon issuance, clarifies that entities are permitted to defer and present such debt issuance costs as an asset to be amortized ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. The adoption of ASU 2015-15 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The ASU requires retrospective adoption and is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact that the amended guidance will have on its consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 820): Amendments to the Consolidation Analysis.” The amended guidance provides a revised consolidation model for all reporting entities to use in evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the evaluation of whether limited partnerships and similar legal entities are voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with voting interest entities through fee arrangements and related party relationships. The amended guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within that reporting period. The Company currently does not expect that the adoption of ASU 2015-02 will have a material impact on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606), a comprehensive new revenue recognition standard that will supersede the existing revenue recognition guidance. The new accounting guidance creates a framework by which an entity will allocate the transaction price to separate performance obligations and recognize revenue when (or as) each performance obligation is satisfied. Under the new standard, entities will be required to use judgment and make estimates, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and determining when an entity satisfies its performance obligations. The standard allows for either “full retrospective” adoption, meaning that the standard is applied to all of the periods presented with a cumulative catch-up as of the earliest period presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements with a cumulative catch-up as of the current period. In August 2015, the effective date of the new revenue standard was delayed by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also agreed to permit early adoption of the standard, but not before the original effective date of December 15, 2016. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

NOTE 3. COLLABORATION AGREEMENT

(a) Collaboration Agreement with Astellas

In October 2009, the Company entered into a collaboration agreement with Astellas, or the Astellas Collaboration Agreement, pursuant to which it is collaborating with Astellas to develop and commercialize XTANDI globally for all indications, dosages, and formulations of enzalutamide. Under the agreement, decision making and economic participation differs between the U.S. market and the ex-U.S. market. In the United States, decisions are generally made by consensus, pre-tax profits and losses are shared equally, and, subject to certain exceptions, development and commercialization costs (including cost of goods sold and the royalty on net sales payable to The Regents of the University of California (“UCLA” or “the Regents”) under the Company’s license agreement with UCLA) are also shared equally. The primary exceptions to equal cost sharing in the U.S. market are that each party is responsible for its own commercial full-time equivalent, or FTE, costs, and that development costs supporting marketing approvals in both the United States and either Europe or Japan are borne one-third by the Company and two-thirds by Astellas. The Company and Astellas are co-promoting XTANDI in the U.S. market, with each company providing half of the sales and medical affairs effort in support of the product. Both the Company and Astellas are entitled to receive a fee for each qualifying detail made by its respective

 

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sales representatives. Outside the United States, decisions are generally made by Astellas and all development and commercialization costs (including cost of goods sold and the royalty on net sales payable to UCLA) are borne by Astellas. Astellas retains all ex-U.S. profits and losses, and pays the Company a tiered royalty ranging from the low teens to the low twenties on the aggregate net sales of XTANDI outside the United States, or ex-U.S. XTANDI net sales. Astellas has sole responsibility for promoting XTANDI outside the United States and for recording all XTANDI net sales both inside and outside the United States. Both the Company and Astellas have agreed not to commercialize certain other products having a similar mechanism of action (as defined by the Astellas Collaboration Agreement) as XTANDI for the treatment of prostate cancer for a specified time period, subject to certain exceptions.

Under the Astellas Collaboration Agreement, Astellas paid the Company a non-refundable, upfront cash payment of $110.0 million in the fourth quarter of 2009. The Company was also eligible to receive up to $335.0 million in development milestone payments and is eligible to receive up to $320.0 million in sales milestone payments. As of September 30, 2015, the Company had earned all of the $335.0 million in development milestone payments and $145.0 million of the sales milestone payments under the Astellas Collaboration Agreement. The Company expects that the remaining $175.0 million sales milestone that the Company may earn in a future period will be recognized as revenue in its entirety in the period in which the underlying milestone event is achieved. The triggering events for the sales milestone payments are as follows:

 

Annual Global Net Sales in a Calendar Year		Milestone Payment(1)
$400 million				(2)
$800 million				(3)
$1.2 billion				(4)
$1.6 billion		$	175 million

 

(1)	Each milestone shall only be paid once during the term of the Astellas Collaboration Agreement.

(2)	This milestone totaling $25.0 million was earned and recognized as collaboration revenue during the fourth quarter of 2013 and payment was received in the first quarter of 2014.

(3)	This milestone totaling $50.0 million was earned and recognized as collaboration revenue during the fourth quarter of 2014 and is included in receivable from collaboration partner on the consolidated balance sheet at December 31, 2014. Payment was received during the first quarter of 2015.

(4)	This milestone totaling $70.0 million was earned and recognized as collaboration revenue during the third quarter of 2015 and is included in receivable from collaboration partner on the condensed consolidated balance sheet at September 30, 2015.

The Company and Astellas are each permitted to terminate the Astellas Collaboration Agreement for an uncured material breach by the other party or for the insolvency of the other party. Astellas has a right to terminate the Astellas Collaboration Agreement unilaterally by advance written notice to the Company. Following any termination of the Astellas Collaboration Agreement in its entirety, all rights to develop and commercialize XTANDI will revert to the Company, and Astellas will grant a license to the Company to enable it to continue such development and commercialization. In addition, except in the case of a termination by Astellas for the Company’s material breach, Astellas will supply XTANDI to the Company during a specified transition period.

Unless terminated earlier by the Company or Astellas pursuant to the terms thereof, the Astellas Collaboration Agreement will remain in effect: (a) in the United States, until such time as Astellas notifies the Company that Astellas has permanently stopped selling products covered by the Astellas Collaboration Agreement in the United States; and (b) in each other country of the world, on a country-by-country basis, until such time as (i) products covered by the Astellas Collaboration Agreement cease to be protected by patents or regulatory exclusivity in such country and (ii) commercial sales of generic equivalent products have commenced in such country.

(b) Collaboration Revenue

Collaboration revenue was as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Collaboration revenue:
Related to U.S. XTANDI net sales		$	156,501			$	90,723			$	417,731			$	224,814
Related to ex-U.S. XTANDI net sales			33,599				15,522				74,957				31,245
Related to upfront and milestone payments			70,565				94,233				72,822				179,698
Total		$	260,665			$	200,478			$	565,510			$	435,757

 

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The Company is required to pay UCLA ten percent of all Sublicensing Income, as defined in its license agreement with UCLA. The Company is currently involved in litigation with UCLA regarding certain terms of the license agreement and other matters, which are discussed in Note 14, “Commitments and Contingencies.”

Collaboration Revenue Related to U.S. XTANDI Net Sales

Under the Astellas Collaboration Agreement, Astellas records all U.S. XTANDI net sales. The Company and Astellas share equally all pre-tax profits and losses from U.S. XTANDI net sales. Subject to certain exceptions, the Company and Astellas also share equally all XTANDI development and commercialization costs attributable to the U.S. market, including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s license agreement with UCLA. The primary exceptions to 50/50 cost sharing are that each party is responsible for its own commercial FTE costs and that development costs supporting marketing approvals in both the United States and either Europe or Japan are borne one-third by the Company and two-thirds by Astellas. The Company recognizes collaboration revenue related to U.S. XTANDI net sales in the period in which such sales occur. Collaboration revenue related to U.S. XTANDI net sales consists of the Company’s share of pre-tax profits and losses from U.S. XTANDI net sales, plus reimbursement of the Company’s share of reimbursable U.S. development and commercialization costs. The Company’s collaboration revenue related to U.S. XTANDI net sales in any given period is equal to 50% of U.S. XTANDI net sales as reported by Astellas for the applicable period.

Collaboration revenue related to U.S. XTANDI net sales was as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
U.S. XTANDI net sales (as reported by Astellas)		$	313,003			$	181,446			$	835,463			$	449,629
Shared U.S. development and commercialization costs			(85,384	)			(69,616	)			(280,644	)			(217,866	)
Pre-tax U.S. profit		$	227,619			$	111,830			$	554,819			$	231,763
Medivation’s share of pre-tax U.S. profit		$	113,809			$	55,915			$	277,409			$	115,881
Reimbursement of Medivation’s share of shared U.S. costs			42,692				34,808				140,322				108,933
Collaboration revenue related to U.S. XTANDI net sales		$	156,501			$	90,723			$	417,731			$	224,814

Collaboration Revenue Related to Ex-U.S. XTANDI Net Sales

Under the Astellas Collaboration Agreement, Astellas records all ex-U.S. XTANDI net sales. Astellas is responsible for all development and commercialization costs for XTANDI outside the United States, including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s license agreement with UCLA, and pays the Company a tiered royalty ranging from the low teens to the low twenties on net ex-U.S. XTANDI net sales. The Company recognizes collaboration revenue related to ex-U.S. XTANDI net sales in the period in which such sales occur. Collaboration revenue related to ex-U.S. XTANDI net sales consists of royalties from Astellas on those sales.

Collaboration Revenue Related to Upfront and Milestone Payments

Collaboration revenue related to upfront and milestone payments from Astellas was as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Sales milestones earned		$	70,000			$	—			$	70,000			$	—
Development milestones earned			—				90,000				—				167,000
Amortization of deferred upfront and development milestones			565				4,233				2,822				12,698
Total		$	70,565			$	94,233			$	72,822			$	179,698

 

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Deferred revenue under the Astellas Collaboration Agreement was $2.8 million at December 31, 2014. There was no deferred revenue under the Astellas Collaboration Agreement at September 30, 2015.

(c) Cost-Sharing Payments

Under the Astellas Collaboration Agreement, the Company and Astellas share certain development and commercialization costs (including cost of goods sold and the royalty on net sales payable to UCLA under the Company’s license agreement with UCLA) in the United States. For the three and nine months ended September 30, 2015, development cost sharing payments from Astellas were $14.6 million and $46.1 million, respectively. For the three and nine months ended September 30, 2014, development cost sharing payments from Astellas were $15.1 million and $48.5 million, respectively. For the three and nine months ended September 30, 2015, commercialization cost-sharing payments to Astellas were $5.2 million and $28.0 million, respectively. For the three and nine months ended September 30, 2014, commercialization cost-sharing payments to Astellas were $7.6 million and $17.8 million, respectively. Development cost sharing payments from Astellas are recorded as reductions in research and development, or R&D, expenses. Commercialization cost sharing payments to Astellas are recorded as increases in selling, general, and administrative, or SG&A, expenses.

NOTE 4. GOODWILL AND INTANGIBLE ASSETS

In the fourth quarter of 2014, the Company entered into a License Agreement with CureTech, pursuant to which it licensed exclusive worldwide rights to CureTech’s late-stage clinical molecule, MDV9300. The Company concluded that the in-license transaction is an acquisition of a business in accordance with FASB Accounting Standards Codification, or ASC, 805-10, “Business Combinations.” The transaction resulted in identifiable intangible assets of $101.0 million consisting entirely of in-process research and development, or IPR&D, and goodwill of $10.0 million. The Company accounts for IPR&D as indefinite-lived intangible assets until regulatory approval or discontinuation at which time the Company evaluates impairment, converts the carrying value into a definite-lived intangible asset and determines the economic life for amortization purposes. The Company assesses the impairment of indefinite-lived intangible assets and goodwill on an annual basis or more frequently whenever events or changes in circumstances may indicate that the carrying value might not be recoverable. There were no changes to the carrying value of goodwill or indefinite-lived intangible assets during the three or nine months ended September 30, 2015.

NOTE 5. NET INCOME PER COMMON SHARE

The computation of basic net income per common share is based on the weighted-average number of common shares outstanding during each period. The computation of diluted net income per common share is based on the weighted-average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, restricted stock units, stock appreciation rights, ESPP shares, warrants, and shares issuable upon conversion of convertible debt.

The Company used the “if-converted” method to compute the dilutive effect of the Convertible Notes for the calculation of diluted net income per common share for the three and nine months ended September 30, 2014. Under the “if-converted” method, interest expense, net of tax, related to the Convertible Notes, is added back to net income, and the Convertible Notes are assumed to have been converted into common shares at the beginning of the period during periods in which there would have been a dilutive effect. For the three and nine months ended September 30, 2014, the impact of the Convertible Notes has been excluded from the calculation of diluted net income per common share because the effect of their inclusion would have been anti-dilutive (approximately 10.2 million contingently issuable shares have been excluded).

During the second quarter of 2015, the Company asserted its intent and ability to settle the outstanding Convertible Notes for a combination of cash and common stock. Under the “cash settlement” method, interest is not added back to the numerator, and only the contingently issuable shares related to the conversion spread are included in the denominator, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company’s common stock during the period exceeds the conversion price. The calculation of diluted net income per common share for the three months ended September 30, 2015 includes the effect of approximately 0.8 million common shares related to the conversion spread of the Convertible Notes prior to settlement.

The computation of diluted net income per common share for the nine months ended September 30, 2015 reflects the application of the “if converted” method for the first quarter of 2015 and the “cash settlement” method for the second and third quarters of 2015 given the demonstrated and asserted redemption for the outstanding debt. For the nine months ended September 30, 2015, the impact of the Convertible Notes has been excluded from the calculation of diluted net income per common share because the effect of their inclusion would have been anti-dilutive (approximately 5.2 million contingently issuable shares have been excluded). The Company completed the settlement of all of its Convertible Notes during the third quarter of 2015 as described in Note 10, “Debt.”

 

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The following table reconciles the numerator and denominator used to calculate diluted net income per common share:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Numerator:
Net income		$	79,510			$	77,993			$	102,218			$	112,247
Denominator:
Weighted-average common shares, basic			162,390				154,112				159,198				153,258
Dilutive effect of common stock equivalents			5,680				8,334				5,256				8,190
Weighted-average common shares, diluted			168,070				162,446				164,454				161,448

NOTE 6. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

Cash and cash equivalents consist of cash on deposit with banks, money market funds, and all highly liquid investments with a remaining maturity of three months or less at the time of purchase.

The Company considers all highly liquid investments with a remaining maturity at the time of purchase of more than three months but no longer than 12 months to be short-term investments. The Company classifies its short-term investments as available-for-sale securities and reports them at fair value with related unrealized gains and losses included as a component of comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in other income (expense), net, on the condensed consolidated statements of operations. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in other income (expense), net.

For the three and nine months ended September 30, 2015, total realized gains and losses on sales of available-for-sale securities were not material. There were no realized gains or losses from sales of available-for-sale securities for the three and nine months ended September 30, 2014.

NOTE 7. BUILD-TO-SUIT LEASE OBLIGATION

In the fourth quarter of 2013, the Company entered into a property lease for approximately 51,632 square feet of space located in San Francisco, California. In the second quarter of 2015, the Company entered into an amended lease agreement to reduce the amount of leased space at this property to approximately 43,625 square feet. The lease agreement expires in August 2024, and the Company has an option to extend the lease term for up to an additional five years.

The Company is deemed, for accounting purposes only, to be the owner of the entire project including the building shell, even though it is not the legal owner. In connection with the Company’s accounting for this transaction, the Company capitalized $14.5 million as a build-to-suit property within property and equipment, net, and recognized a corresponding build-to-suit lease obligation for the same amount. The Company has also recognized, as an additional build-to-suit lease property and obligation, structural tenant improvements totaling $3.9 million for amounts paid by the landlord and $3.0 million for capitalized interest during the construction period through September 30, 2015.

As a result of the amended agreement, the Company surrendered a portion of the property totaling approximately 8,007 square feet to the lessor. The Company has no continuing involvement with the portion of the property surrendered to the lessor. Accordingly, the Company derecognized a portion of the build-to-suit asset totaling $3.2 million and a portion of the build-to-suit lease obligation totaling $3.1 million during the second quarter of 2015 related to the portion of the property that was surrendered to the lessor.

 

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A portion of the monthly lease payment is allocated to land rent and recorded as an operating lease expense and the non-interest portion of the amortized lease payments to the landlord related to the rent of the building is applied to reduce the build-to-suit lease obligation. At September 30, 2015, $0.2 million of the build-to-suit lease obligation representing the expected reduction in the liability over the next twelve months was classified as a current liability and the remaining $16.9 million was classified as a non-current liability on the condensed consolidated balance sheet. Expected reductions (increases) in the build-to-suit lease obligation are as follows:

 

Years Ending December 31,		Build-To-Suit Lease Obligation
Remainder of 2015		$	218
2016			(19	)
2017			47
2018			119
2019			197
2020 and thereafter			16,578
Total		$	17,140

The amounts included in the table above represent the reductions (increases) in the build-to-suit lease obligation included on the Company’s condensed consolidated balance sheet at September 30, 2015 in each of the periods presented. The amount in the terminal period includes the amount to derecognize the build-to-suit lease obligation at the end of the lease term. The expected reductions (increases) in the build-to-suit lease obligation presented in the table above are impacted by the timing of the completion of the construction project. Actual expected lease payments under the build-to-suit lease obligation are included in Note 14, “Commitments and Contingencies.”

NOTE 8. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following:

 

		September 30, 2015				December 31, 2014
Leasehold improvements		$	19,151			$	15,051
Build-to-suit property			18,127				19,544
Computer equipment and software			14,099				9,499
Construction in progress			5,778				1,360
Furniture and fixtures			5,714				4,667
Laboratory equipment			735				735
			63,604				50,856
Less: Accumulated depreciation			(14,586	)			(9,695	)
Total		$	49,018			$	41,161

NOTE 9. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable, accrued expenses and other current liabilities consisted of the following:

 

		September 30, 2015				December 31, 2014
Clinical and preclinical		$	39,120			$	31,069
Payroll and payroll-related			24,372				33,272
Other payable to licensor			21,786				5,000
Royalties payable			19,850				13,582
Accounts payable			12,621				10,492
Accrued professional services and other current liabilities			10,985				8,909
Taxes payable			3,461				2,106
Interest payable			63				1,698
Total		$	132,258			$	106,128

Accounts payable represents short-term liabilities for which the Company has received and processed a vendor invoice prior to the end of the reporting period. Accrued expenses and other current liabilities represent, among other things, compensation and related benefits to employees, royalties due to licensors of technologies, interest payable related to the Company’s Convertible Notes and Revolving Credit Facility, estimated amounts due to third party vendors for services rendered prior to the end of the reporting period, invoices received from third party vendors that have not yet been processed, taxes payable, and other accrued items.

 

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NOTE 10. DEBT

(a) Revolving Credit Facility

On September 4, 2015, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (the “Lenders”) providing for (i) a one-year $75.0 million revolving loan facility (the “Revolving Credit Facility”) and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions (collectively the “Senior Secured Credit Facility”). The Revolving Credit Facility includes a $20.0 million multicurrency sub-facility, a $10.0 million letter of credit sub-facility and a $100,000 swing line loan sub-facility.

Loans under the Revolving Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 1.75% to 2.50% per annum, based upon the secured leverage ratio (as defined in the Credit Agreement), or (b) the prime lending rate, plus an applicable margin ranging from 0.75% to 1.50% per annum, based upon the senior secured net leverage ratio (as defined in the Credit Agreement).

The obligations under the Credit Agreement and any swap obligations and banking services obligations owing to a lender (or an affiliate of a lender) thereunder are and will be guaranteed by the Company and each of the Company’s existing and subsequently acquired or organized direct and indirect domestic subsidiaries (other than certain immaterial domestic subsidiaries), collectively, the Loan Parties. The obligations under the Credit Agreement and any such swap and banking services obligations are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in (i) all tangible and intangible assets of the Loan Parties, except for certain customary excluded assets, and (ii) all of the capital stock owned by the Loan Parties thereunder (limited, in the case of the stock of certain non-U.S. subsidiaries of the Company, to 65% of the capital stock of such subsidiaries).

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. Under the terms of the Credit Agreement, the Company is required to comply with a maximum senior secured net leverage ratio and minimum interest coverage ratio covenants. At September 30, 2015, the Company was in compliance with these covenants.

On September 17, 2015, the Company executed a borrowing of $75.0 million under the Revolving Credit Facility, which was scheduled to mature on March 17, 2016 (6 months). The interest rate for this borrowing was 2.3125% and is applied on an actual 360 day basis.

On October 23, 2015, the Company entered into an amendment and restatement of the Credit Agreement as described in Note 15, “Subsequent Events.”

(b) Convertible Notes Due 2017

On March 19, 2012, the Company issued $258.8 million aggregate principal amount of the Convertible Notes. The Company was required to pay interest semi-annually in arrears on April 1 and October 1 of each year. The Convertible Notes were convertible upon the occurrence of certain conditions into shares of the Company’s common stock.

During the second quarter of 2015, the Company settled a total of $91.0 million aggregate principal amount of the Convertible Notes through a combination of $92.1 million in cash and 2,099,358 shares of its common stock. On June 19, 2015, the Company issued a notice of redemption to redeem on July 24, 2015 all of its outstanding Convertible Notes. Pursuant to this notice of redemption, during the third quarter of 2015, the Company settled a total of $167.8 million aggregate principal amount of the Convertible Notes through a combination of $167.8 million in cash and 3,539,218 shares of its common stock. The Company recorded a non-cash loss on extinguishment of the Convertible Notes of $13.2 million and $21.1 million for the three and nine months ended September 30, 2015, respectively, which is included in other income (expense), net, on the condensed consolidated statements of operations. Forfeited accrued interest payable of $1.4 million and $1.7 million was reclassified to additional paid-in capital during the three and nine months ended September 30, 2015, respectively. Upon settlement, the Convertible Notes were no longer deemed outstanding, interest ceased to accrue thereon, and all rights of the holders of the Convertible Notes ceased to exist.

NOTE 11. STOCKHOLDERS’ EQUITY

(a) Stock Purchase Rights

All shares of the Company’s common stock, if issued prior to the termination by the Company of its rights agreement, dated as of December 4, 2006, include stock purchase rights. The rights are exercisable only if a person or group acquires twenty

 

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percent or more of the Company’s common stock or announces a tender or exchange offer which would result in ownership of twenty percent or more of the Company’s common stock. Following the acquisition of twenty percent or more of the Company’s common stock, the holders of the rights, other than the acquiring person or group, may purchase Medivation common stock at half of its fair market value. In the event of a merger or other acquisition of the Company, the holders of the rights, other than the acquiring person or group, may purchase shares of the acquiring entity at half of their fair market value. The rights were not exercisable at September 30, 2015.

(b) Medivation Equity Incentive Plan

The Medivation Equity Incentive Plan provides for the issuance of options and other stock-based awards, including restricted stock units and stock appreciation rights. The vesting of all outstanding awards under the Medivation Equity Incentive Plan will accelerate, and all such awards will become immediately exercisable, upon a “change of control” of Medivation, as defined in the Medivation Equity Incentive Plan. On June 16, 2015, the Company’s stockholders approved an amendment and restatement of the Medivation Equity Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the Medivation Equity Incentive Plan from 21,150,000 to 23,850,000. As a result of the two-for-one stock split effected through a stock dividend described in Note 2, “Summary of Significant Accounting Policies,” the number of shares of common stock authorized for issuance under the Medivation Equity Incentive Plan was increased to 47,700,000 effective on September 15, 2015. As a result of the stock dividend, the number of shares of the Company’s common stock issuable upon exercise of outstanding stock options and vesting of other stock-based awards was proportionally increased, and the exercise price per share as applicable for options and stock appreciation rights was proportionally decreased, in accordance with the terms of the Medivation Equity Incentive Plan.

As of September 30, 2015, approximately 8.8 million shares were available for issuance under the Medivation Equity Incentive Plan.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2015:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (1)
Outstanding at December 31, 2014			10,135,914			$	16.76
Granted			1,631,634			$	53.86
Exercised			(1,278,016	)		$	11.22
Forfeited/expired			(230,274	)		$	41.34
Outstanding at September 30, 2015			10,259,258			$	22.80				6.24			$	221.5
Vested and exercisable at September 30, 2015			6,893,054			$	13.05				5.02			$	203.1

 

(1)

The aggregate intrinsic value is calculated as the pre-tax difference between the weighted average exercise price of the underlying awards and the closing price per share of $42.50 of the Company’s common stock on September 30, 2015. The calculation excludes any awards with an exercise price higher than the closing price of the Company’s common stock on September 30, 2015. The amounts are presented in millions.

The weighted-average grant-date fair value per share of options granted during the nine months ended September 30, 2015 was $25.60.

Restricted Stock Units

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2015:

 

		Number of Shares				Weighted- Average Grant-Date Fair Value
Unvested at December 31, 2014			967,160			$	38.10
Granted			574,695			$	53.93
Vested			(247,572	)		$	38.04
Forfeited			(98,926	)		$	44.84
Unvested at September 30, 2015			1,195,357			$	45.16

 

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Stock Appreciation Rights

The following table summarizes stock appreciation rights activity for the nine months ended September 30, 2015:

 

		Number of Rights				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (1)
Outstanding at December 31, 2014			1,376,456			$	12.03
Granted			—				—
Exercised			(55,048	)		$	11.60
Forfeited			(17,156	)		$	11.60
Outstanding at September 30, 2015			1,304,252			$	12.05				6.19			$	39.7
Vested and exercisable at September 30, 2015			1,213,404			$	12.05				6.18			$	36.9

 

(1)

The aggregate intrinsic value is calculated as the pre-tax difference between the weighted average exercise price of the underlying awards and the closing price per share of $42.50 of the Company’s common stock on September 30, 2015. The calculation excludes any awards with an exercise price higher than the closing price of the Company’s common stock on September 30, 2015. The amounts are presented in millions.

(c) ESPP

The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions at the lower of 85% of the fair market value of the common stock at the beginning or end of a purchase period. Eligible employee contributions are limited on an annual basis to $25,000 in accordance with Section 423 of the Internal Revenue Code. As a result of the stock dividend described in Note 2, “Summary of Significant Accounting Policies,” the number of shares of common stock authorized for issuance under the ESPP was increased from 3,000,000 shares to 6,000,000 shares effective September 15, 2015. As of September 30, 2015, a total of 312,086 shares have been issued under the ESPP.

(d) Stock-Based Compensation

The Company estimates the fair value of stock options, stock appreciation rights, and ESPP shares using the Black-Scholes valuation model. The Black-Scholes assumptions used to estimate the fair value of stock options granted were as follows:

 

		Three Months Ended September 30,				Nine Months Ended September 30,
		2015		2014		2015		2014
Risk-free interest rate		1.37-1.77%		1.56-1.79%		1.33-1.78%		1.56-1.79%
Estimated term (in years)		5.01-7.17		5.06		4.99-7.17		5.06-5.50
Estimated volatility		57-64%		63%		50-64%		60-64%
Estimated dividend yield		—		—		—		—

The Black-Scholes assumptions used to estimate the fair value of shares issued under the ESPP on the commencement date of the offering period were as follows:

 

		Nine Months Ended September 30,
		2015				2014
Risk-free interest rate			0.12	%			0.06	%
Estimated term (in years)			0.50				0.50
Estimated volatility			37	%			53	%
Estimated dividend yield			—				—

No offering periods commenced during the third quarters of 2014 or 2015.

 

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Stock-based compensation expense was as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Stock-based compensation expense recognized as:
R&D expense		$	5,673			$	4,611			$	17,593			$	13,236
SG&A expense			7,719				7,346				23,249				19,563
Total		$	13,392			$	11,957			$	40,842			$	32,799

Unrecognized stock-based compensation expense was approximately $95.7 million at September 30, 2015 and is expected to be recognized over a weighted-average period of approximately 2.5 years.

NOTE 12. INCOME TAXES

The Company calculates its quarterly income tax provision in accordance with the guidance provided by ASC 740-270, “Interim Income Tax Accounting,” whereby the Company forecasts its estimated annual effective tax rate and then applies that rate to its year-to-date pre-tax book income (loss). Income tax expense for the three and nine months ended September 30, 2015 was $45.3 million and $58.2 million, respectively. A discrete tax benefit of $4.7 million and $7.5 million, respectively, related to the loss on extinguishment of Convertible Notes was included in the provision for income taxes for the three and nine months ended September 30, 2015. The provision for income taxes was higher than the tax computed at the U.S. federal statutory rate due primarily to state income taxes and non-deductible stock-based compensation. Income tax expense for the three and nine months ended September 30, 2014 was $8.4 million and $10.0 million, respectively.

The effective tax rate was 36.3% for both the three and nine months ended September 30, 2015. The effective tax rate was 9.7% and 8.2% for the three and nine months ended September 30, 2014, respectively. The increase in the effective tax rate for the three and nine months ended September 30, 2015 as compared to the prior year periods was due to the release of a portion of the valuation allowance during the fourth quarter of 2014.

For the three and nine months ended September 30, 2015, the Company reduced its current Federal and state taxes payable by $43.9 million and $57.5 million, respectively, related to excess tax benefits from stock-based compensation, increasing additional paid-in capital. In addition, for the three and nine months ended September 30, 2015, the Company recorded a credit to additional paid-in capital of $7.5 million and $11.9 million, respectively, related to certain tax impacts of the extinguishment of Convertible Notes.

The Company records a valuation allowance to reduce deferred tax assets to reflect the net amount that is more likely than not to be realized. Based upon the weight of available evidence at December 31, 2014, the Company determined that it was more likely than not that a portion of its deferred tax assets would be realizable and consequently released the valuation allowance against Federal and certain state net deferred tax assets and recorded a discrete tax benefit of $33.4 million during the fourth quarter of 2014. The decision to reverse a portion of the valuation allowance was made after management considered all available evidence, both positive and negative, including but not limited to the historical operating results, income or loss in recent periods, cumulative income in recent years, forecasted earnings, forecasted future taxable income, and significant risk and uncertainty related to forecasts. The release of the valuation allowance resulted in the recognition of certain deferred net tax assets and a decrease to income tax expense.

The future effective tax rate is subject to volatility and may be materially impacted by various internal and external factors. These factors may include, but are not limited to, the amount of income tax benefits and charges from: interpretations of existing tax laws; changes in tax laws and rates; future levels of research and development expenditures; changes in the mix of earnings in countries with differing statutory tax rates in which the Company may conduct business; changes in the valuation of deferred tax assets and liabilities; state income taxes; the tax impact of stock-based compensation; accounting for uncertain tax positions; closure of statute of limitations or settlement of tax audits; changes in estimates of prior years’ items; tax costs for acquisition-related items; changes in accounting standards; non-deductible officers’ compensation; limitations on the utilization of net operating losses and tax credits due to changes in ownership; and overall levels of income before taxes.

 

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NOTE 13. FAIR VALUE DISCLOSURES

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:

 

						Fair value measurements using:
		Fair Value				Level 1				Level 2				Level 3
September 30, 2015:
Cash equivalents:
Money market funds		$	89,044			$	89,044				—				—
Current liabilities:
Contingent consideration		$	10,000				—				—			$	10,000
Long-term liabilities:
Contingent consideration		$	102,799				—				—			$	102,799
December 31, 2014:
Cash equivalents:
Money market funds		$	189,031			$	189,031				—				—
Current liabilities:
Contingent consideration		$	10,000				—				—			$	10,000
Long-term liabilities:
Contingent consideration		$	96,000				—				—			$	96,000

The Company classifies money market funds, which are based on quoted market prices in active markets with no valuation adjustments, as Level 1 assets within the valuation hierarchy.

The Company estimates the fair values of Level 2 assets by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly, or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar assets, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources, and/or analyzing pricing data in certain instances.

In connection with the CureTech license transaction, the Company recorded contingent consideration liabilities pertaining to amounts potentially payable to CureTech. The fair value of contingent consideration is considered a Level 3 liability and was estimated utilizing a model with key assumptions that included estimated revenues or completion of certain development and sales milestone targets during the earn-out period, volatility, and estimated discount rates corresponding to the periods of expected payments. The estimated fair value of the contingent consideration liability is measured at each reporting date based on significant inputs not observable in the market. The Company assesses these estimates on an ongoing basis as additional data impacting the assumptions is obtained. Changes in the estimated fair value of contingent consideration are reflected as non-cash adjustments to operating expenses in the consolidated statements of operations. During the three months ended September 30, 2015, the Company recorded a non-cash fair value adjustment of $0.2 million and $1.6 million to increase R&D expenses and SG&A expenses, respectively. During the nine months ended September 30, 2015, the Company recorded non-cash fair value adjustments of $1.1 million and $5.7 million to increase R&D expenses and SG&A expenses, respectively.

Contingent consideration may change significantly as development progresses and additional data is obtained that will affect the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. Considerable judgment is required to interpret the market data used to develop the assumptions. The estimates of fair value may not be indicative of amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The $1.8 million and $6.8 million increases in the fair value of the contingent consideration liability during the three and nine months ended September 30, 2015, respectively, are primarily due to the time value of money. The aggregate remaining, undiscounted amount of contingent consideration that the Company could potentially be required to pay to CureTech under the License Agreement is included in the table below:

 

Potential sales milestones		$	245,000
Potential development and regulatory milestones		$	85,000
Potential payment upon completion of Manufacturing Technology Transfer		$	5,000
Potential future tiered royalties on annual worldwide net sales			5% to 11	%

 

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There were no transfers between Level 1 and Level 2 financial instruments during the three and nine months ended September 30, 2015. The following table includes a roll-forward of the fair value of Level 3 financial instruments for the three and nine months ended September 30, 2015:

 

		Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
Contingent Consideration (Current and Long-Term):
Balance at beginning of period		$	111,013			$	106,000
Amounts acquired or issued			—				—
Net change in fair value			1,786				6,799
Settlements			—				—
Transfers in and/or out of Level 3			—				—
Balance at end of period		$	112,799			$	112,799

The following table presents the total balance of the Company’s other financial instruments that are not measured at fair value on a recurring basis:

 

						Fair value measurements using:
		Total Balance				Level 1				Level 2				Level 3
September 30, 2015:
Assets:
Bank deposits (included in “Cash and cash equivalents”)		$	399,900			$	399,900				—				—
Liabilities:
Borrowings under Revolving Credit Facility		$	75,000			$	75,000				—				—
December 31, 2014:
Assets:
Bank deposits (included in “Cash and cash equivalents”)		$	313,646			$	313,646				—				—
Liabilities:
Convertible Notes		$	359,219				—			$	359,219				—

Due to their short-term maturities, the Company believes that the fair value of its bank deposits, receivable from collaboration partner, accounts payable and accrued expenses, short-term borrowings under the Revolving Credit Facility, and other current assets and liabilities approximate their carrying value.

The estimated fair value of the Company’s Convertible Notes, including the equity component, was $496.8 million at December 31, 2014 and was determined using recent trading prices of the Convertible Notes. The fair value of the Convertible Notes included in the table above at December 31, 2014 represents only the liability component of the Convertible Notes, because the equity component is included in stockholders’ equity on the consolidated balance sheet. The Company settled its remaining Convertible Notes in the third quarter of 2015 as discussed further in Note 10, “Debt.”

NOTE 14. COMMITMENTS AND CONTINGENCIES

(a) Lease Obligations

In the first quarter of 2015, the Company entered into the Sixth Amendment to its corporate headquarters lease agreement in San Francisco, California, pursuant to which it leased approximately 16,000 additional square feet of office space. The Company is entitled to approximately $0.3 million of tenant improvement allowances pursuant to the Sixth Amendment. In connection with the execution of the Sixth Amendment, the Company delivered to the lessor a letter of credit collateralized by restricted cash totaling $1.6 million. In total, at September 30, 2015, the Company leased approximately 143,000 square feet of office space pursuant to the lease agreement, as amended, which expires in June 2019. Lease commitments pursuant to the Sixth Amendment are approximately $6.1 million over the lease term.

 

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Future operating lease obligations as of September 30, 2015 are as follows:

 

Years Ending December 31,		Operating Leases
Remainder of 2015		$	2,304
2016			9,345
2017			9,544
2018			9,746
2019			5,065
2020 and thereafter			—
Total minimum lease payments		$	36,004

The Company is considered the “accounting owner” for a build-to-suit property and has recorded a build-to-suit lease obligation on its consolidated balance sheets. Additional information regarding the build-to-suit lease obligation is included in Note 7, “Build-To-Suit Lease Obligation.”

Expected future lease payments under the build-to-suit lease as of September 30, 2015 are as follows:

 

Years Ending December 31,		Expected Cash Payments Under Build- To-Suit Lease Obligation
Remainder of 2015		$	654
2016			2,168
2017			2,233
2018			2,300
2019			2,368
2020 and thereafter			12,028
Total minimum lease payments		$	21,751

(b) License Agreement with UCLA

Under an August 2005 license agreement with UCLA, the Company’s subsidiary Medivation Prostate Therapeutics, Inc., or MPT, holds an exclusive worldwide license under several UCLA patents and patent applications covering XTANDI and related compounds. Under the Astellas Collaboration Agreement, the Company granted Astellas a sublicense under the patent rights licensed to it by UCLA.

The Company is required to pay UCLA (a) an annual maintenance fee, (b) $2.8 million in aggregate milestone payments upon achievement of certain development and regulatory milestone events with respect to XTANDI (all of which has been paid as of September 30, 2015), (c) ten percent of all Sublicensing Income, as defined in the agreement, which the Company earns under the Astellas Collaboration Agreement, and (d) a four percent royalty on global net sales of XTANDI, as defined. Under the terms of the Astellas Collaboration Agreement, the Company shares this royalty obligation equally with Astellas with respect to sales in the United States, and Astellas is responsible for this entire royalty obligation with respect to sales outside of the United States. The Company is currently involved in litigation with UCLA, which is discussed in the section titled “Litigation” below.

UCLA may terminate the agreement if the Company does not meet a general obligation to diligently proceed with the development, manufacturing and sale of licensed products, or if it commits any other uncured material breach of the agreement. The Company may terminate the agreement at any time upon advance written notice to UCLA. If neither party terminates the agreement early, the agreement will continue in force until the expiration of the last-to-expire patent on a country-by-country basis.

(c) Clinical Manufacturing Agreements

Manufacturing Services and Supply Agreements

Contemporaneous with the execution of the License Agreement with CureTech, the Company entered into a Manufacturing Services and Supply Agreement, or MSA, with CureTech pursuant to which CureTech will provide clinical trial supply of MDV9300 over a three year period. In accordance with the terms of the MSA, as amended, the Company paid CureTech upfront and setup fees of $3.0 million during the fourth quarter of 2014 and $0.2 million during the second quarter of 2015. The Company is required to pay CureTech a one-time milestone payment of $5.0 million upon the completion of the Manufacturing Technology Transfer, as defined. In accordance with the terms of the MSA, the Company is also responsible for providing Manufacturing Funding totaling up to $19.3 million for clinical trial materials of MDV9300 over the three-year term of the MSA, of which $6.0 million has

 

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been paid through September 30, 2015. The Manufacturing Funding is contingent upon the successful achievement of the requirements set forth in the Manufacturing Plan, and any such amounts may be reduced or eliminated by the Company under the terms of the MSA.

Development and Manufacturing Services Agreement

During the fourth quarter of 2014, the Company entered into a Development and Manufacturing Services Agreement with a third party clinical manufacturing organization. The term of the agreement is for the longer of (i) a period of five (5) years or (ii) through the completion of the Services, as defined. Under the current statement of work under this agreement, as amended, the Company intends to transfer the current manufacturing process of MDV9300 from CureTech to this third party, further scale up and production of Phase 3 clinical trial material of MDV9300 from this entity’s manufacturing facility. The estimated total consideration payable under the current statement of work, as amended, is approximately $15.2 million, of which approximately $1.0 million has been paid through September 30, 2015.

(d) Litigation

The Company is party to legal proceedings, investigations, and claims in the ordinary course of its business, including the matters described below. The Company records accruals for outstanding legal matters when it believes that it is both probable that a liability has been incurred and the amount of such liability can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in significant legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period in which such determination is made. In addition, in accordance with the relevant authoritative guidance, for matters for which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss; however, if a reasonable estimate cannot be made, the Company will provide disclosure to that effect. Gain contingencies, if any, are recorded as a reduction of expense when they are realized.

In May 2011, the Company filed a lawsuit in San Francisco Superior Court against the Regents of the University of California, and one of its professors, alleging breach of contract and fraud claims, among others. The Company’s allegations in this lawsuit include that it has exclusive commercial rights to an investigational drug originally known as ARN-509, which is currently being developed by Aragon Pharmaceuticals, or Aragon. In August 2013, Johnson & Johnson and Aragon completed a transaction in which Johnson & Johnson acquired all ARN-509 assets owned by Aragon. Since its acquisition by Johnson & Johnson, ARN-509 is now known as JNJ-56021927, or JNJ-927. On February 9, 2012, the Company filed a Second Amended Complaint, adding additional breach of contract claims against the Regents professor and adding as additional defendants a former Regents professor and Aragon. The Company seeks remedies including a declaration that it is the proper licensee of JNJ-927, contractual remedies conferring to it exclusive patent license rights regarding JNJ-927, and other equitable and monetary relief. On August 7, 2012, the Regents filed a cross-complaint against the Company seeking declaratory relief that that the Regents is entitled to ten percent of any sales milestone payments under the Astellas Collaboration Agreement because such milestones constitute Sublicensing Income under the license agreement with the Regents. Under the Astellas Collaboration Agreement, the Company is eligible to receive up to $320.0 million in sales milestone payments. On September 18, 2012, the trial court approved a settlement agreement dismissing the former Regents professor who was added to the case on February 9, 2012. On December 20, 2012, and January 25, 2013, the Court granted summary judgment motions filed by defendants Regents and Aragon, resulting in dismissal of all claims against Regents and Aragon, but denied such motions filed by the remaining Regents professor. On April 15, 2013, the Company filed a Notice of Appeal seeking appeal of the judgment in favor of Aragon, which is now wholly-owned by Johnson & Johnson, and the briefing of that matter has concluded. The bench trial of the Regent’s cross-complaint against the Company was conducted in July 2013, and on January 15, 2014, the Court entered a judgment in the cross-complaint in favor of Regents. As of September 30, 2015, the Company has earned $145.0 million in sales milestones under the Astellas Collaboration Agreement. As a result of this judgment, the Company paid the Regents $7.5 million, representing 10% of the $75.0 million sales milestone amounts earned from Astellas in 2013 and 2014. As a result of this judgment, in the fourth quarter of 2015 the Company paid the Regents $7.0 million, representing 10% of the $70.0 million sales milestone amounts earned from Astellas during the third quarter of 2015. The Company appealed this judgment on February 13, 2014 along with the December 2012 summary judgment order in favor of Regents. The jury trial of the Company’s breach of contract and fraud claims against the remaining Regents professor was conducted in October and November 2013. On November 15, 2013, the jury rendered a verdict in the case, finding in favor of Medivation on one of the breach of contract claims, and in favor of the Regents professor on the fraud claims. On November 22, 2013, the Court entered judgment consistent with the jury’s verdict. The Company’s notice of appeal of the judgment on the fraud claims was filed on February 13, 2014. On October 24, 2014, the court of appeals issued an order consolidating all of these appeals for hearing and consideration purposes. The briefing of all appeals has completed and the parties await the setting of a date for oral argument by the appellate court.

On April 11, 2014, the Regents filed a complaint against the Company in which UCLA alleges that the “Operating Profits” Medivation has received (and will continue to receive) from Astellas, as a result of the Astellas Collaboration Agreement, constitute Sublicensing Income under the license agreement between Medivation and the Regents and that Medivation and MPT have failed to pay the Regents ten percent of such Operating Profits. Although the Regents further alleged that Medivation breached its

 

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fiduciary duties to the Regents, as minority shareholder of MPT, the Regents dismissed this claim without prejudice on July 16, 2014. On March 23, 2015, based upon an application by both the Company and the Regents, the court designated the case complex and assigned a single judge in the complex division of San Francisco Superior Court. The Company denies the Regents’ allegations and intends to vigorously defend the litigation. The Company is currently awaiting a trial date to be set by the Courts. The Company has not recorded an accrual for this matter.

While the Company believes it has meritorious positions with respect to the claims above and intends to advance its positions in these lawsuits vigorously, including on appeal, the process of resolving matters through litigation or other means is inherently uncertain, and it is not possible to predict the ultimate resolution of any such proceeding. The actual costs of defending the Company’s position may be significant, and the Company may not prevail.

NOTE 15. SUBSEQUENT EVENTS

(a) Business Acquisition

On October 6, 2015, the Company completed an acquisition of all rights to talazoparib (which is referred to as MDV3800) from BioMarin Pharmaceutical Inc. (“BioMarin”) pursuant to an Asset Purchase Agreement (the “Agreement”). The acquired MDV3800 assets include all patents, data, know-how, third party agreements, regulatory materials and pre-commercial inventories. The Company also assumed certain costs for ongoing clinical trials of MDV3800, and commitments under certain agreements previously entered into or assumed by BioMarin and assigned to the Company. In connection with the closing of the transaction, the Company paid BioMarin an upfront cash payment of $410.0 million in the fourth quarter of 2015. The Company will pay BioMarin up to an additional $160.0 million upon the achievement of defined regulatory and sales-based milestones, and mid-single digit royalties on net sales of products that contain MDV3800 during the royalty term specified in the Agreement. The parties entered into a Transition Services Agreement at the closing of the transaction to facilitate the transition of the research and development activities relating to MDV3800 from BioMarin to the Company, including responsibility for the ongoing clinical studies.

The Company has concluded that the acquisition of MDV3800 from BioMarin is an acquisition of a business and will account for it in accordance with ASC 805-10, “Business Combinations.” The Company has not yet completed a preliminary allocation of the total consideration to the identifiable net assets. The Company expects to complete a preliminary allocation of the total consideration during the fourth quarter of 2015.

(b) Revolving Credit Facility

On October 23, 2015, the Company entered into an amendment and restatement of its Credit Agreement, dated as of September 4, 2015 (the “Existing Credit Agreement” and as amended and restated, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (the “Lenders”), providing for (i) a five-year $300 million revolving loan facility (the “Revolving Credit Facility”); and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions (collectively, the “Senior Secured Credit Facility”). The Revolving Credit Facility includes a $50 million multicurrency sub-facility, a $20 million letter of credit sub-facility and a $10 million swing line loan sub-facility.

Loans under the Revolving Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 1.75% to 2.50% per annum, based upon the secured leverage ratio (as defined in the Credit Agreement) or (b) the prime lending rate, plus an applicable margin ranging from 0.75% to 1.50% per annum, based upon the senior secured net leverage ratio (as defined in the Credit Agreement).

The obligations under the Credit Agreement and any swap obligations and banking services obligations owing to a lender (or an affiliate of a lender) thereunder are and will be guaranteed by the Company and each of the Company’s existing and subsequently acquired or organized direct and indirect domestic subsidiaries (other than certain immaterial domestic subsidiaries, certain Domestic Foreign Holding Companies, and certain domestic subsidiaries whose equity interests are owned directly or indirectly by certain foreign subsidiaries) (collectively, the “Loan Parties”). The obligations under the Credit Agreement and any such swap and banking services obligations are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in (i) all tangible and intangible assets of the Loan Parties, except for certain customary excluded assets, and (ii) all of the capital stock owned by the Loan Parties thereunder (limited, in the case of the stock of certain non-U.S. subsidiaries of the Company and Domestic Foreign Holding Companies, to 65% of the capital stock of such subsidiaries).

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. Under the terms of the Credit Agreement, the Company is required to comply with a maximum senior secured net leverage ratio and minimum interest coverage ratio covenants.

On October 23, 2015, the Company borrowed $75.0 million under the Revolving Credit Facility, which was used to repay the $75.0 million outstanding at September 30, 2015 under the Existing Credit Agreement.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2014, included in our Annual Report on Form 10-K for the year ended December 31, 2014, or Annual Report. The following discussion and analysis contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend that these forward-looking statements be subject to the safe harbors created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “may,” “could,” “expect,” “believe,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” or similar words, or negatives of such terms or other variations on such terms of comparable terminology. These forward-looking statements include, but are not limited to, statements regarding the commercialization of XTANDI^® (enzalutamide) capsules, or XTANDI, the continuation and success of our collaboration with Astellas Pharma, Inc., or Astellas, the timing, progress and results of our clinical trials, and our future drug development activities, including those with respect to pidilizumab (which is referred to as MDV9300) and talazoparib (which is referred to as MDV3800). The forward-looking statements contained in this Quarterly Report on Form 10-Q, or Quarterly Report, involve a number of risks, uncertainties and assumptions, many of which are outside of our control. Factors that could cause actual results to differ materially from projected results include, but are not limited to, those discussed in “Risk Factors” in Item 1A of Part II below. Readers are expressly advised to review and consider those Risk Factors. Although we believe that the assumptions underlying the forward-looking statements contained in this Quarterly Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that the results anticipated by such statements will occur. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past financial or operating performance is not necessarily indicative of future performance, and you should not use our historical performance to anticipate future results or trends. We disclaim any intention or obligation to update, supplement or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a biopharmaceutical company focused on the development and commercialization of medically innovative therapies to treat serious diseases for which there are limited treatment options. Through our collaboration with Astellas Pharma, Inc., or Astellas, we have one commercial product, XTANDI^® (enzalutamide) capsules, or XTANDI. XTANDI has received marketing approval in the United States, Europe and numerous other countries worldwide for the treatment of patients with metastatic castration-resistant prostate cancer, or mCRPC and in Japan for the treatment of patients with castration-resistant prostate cancer, or CRPC. We and Astellas are also conducting investigational studies of enzalutamide in prostate cancer, advanced breast cancer, and hepatocellular carcinoma. Under our collaboration agreement with Astellas, we share equally with Astellas all profits (losses) related to U.S. net sales of XTANDI. We also receive royalties ranging from the low teens to the low twenties on ex-U.S. XTANDI net sales and certain milestone payments upon the achievement of defined development and sales events.

We seek to become a global fully-integrated biopharmaceutical company through the continued commercialization of XTANDI, the acquisition or in-license and development and commercialization of other product opportunities, and through the advancement of our own proprietary research and development programs. We expect that our future growth may come from both internal research efforts and third party business development activities. In the fourth quarter of 2014, we licensed exclusive worldwide rights to pidilizumab (which is referred to as MDV9300), an immunomodulatory antibody for all potential indications from CureTech, Ltd., or CureTech. Under the license agreement, we are responsible for all development, regulatory, manufacturing, and commercialization activities for MDV9300. We currently anticipate that we may initiate a pivotal clinical trial evaluating MDV9300 in Diffuse Large B-Cell Lymphoma in 2015. We are also considering evaluating MDV9300 in other indications, including in other hematologic malignancies. In the third quarter of 2015, we entered into an asset purchase agreement with BioMarin Pharmaceutical Inc., or BioMarin, to acquire all worldwide rights to talazoparib (which is referred to as MDV3800), an orally available poly-ADP ribose polymerase, or PARP, inhibitor. The acquisition of MDV3800, which is currently in a Phase 3 clinical trial for the treatment of patients with germline BRCA mutated breast cancer, was completed in October 2015, as further discussed in the section entitled, “Corporate Developments.” In addition, we have various other internal research and discovery efforts focused, among other areas, in oncology and neurology.

2015 Clinical and Business Highlights

We and Astellas are continuing our clinical development program for enzalutamide as the foundation of our strategy to identify increasing numbers of patients for whom enzalutamide may deliver a meaningful benefit. We are encouraged by the results thus far, and we believe that they may provide a platform from which we may, in the future, conduct additional studies and seek approval for expanded indications for XTANDI.

 

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•

In July 2015, the U.S. Food and Drug Administration, or FDA, approved a label update for XTANDI based on an updated overall survival analysis of the Phase 3 PREVAIL trial. This analysis was conducted when 784 deaths were observed and found an overall survival benefit with a 23% reduction in risk of death (Hazard ratio 0.77; 95% CI: 0.67, 0.88) and a 4-month improvement in median survival with enzalutamide (35.3 months [95% CI: 32.2, not yet reached]) over placebo (31.3 months [95% CI: 28.8, 34.2]). As of the June 2014 cut-off date with a median follow-up duration of 31 months: 52% of XTANDI-treated and 81% of placebo-treated patients had received subsequent therapies that may prolong overall survival in mCRPC. XTANDI was used as a subsequent therapy in 2% of XTANDI-treated and 29% of placebo-treated patients.

 

•

In September 2015, updated data were presented from a Phase 2 study evaluating the investigational use of enzalutamide as a single agent for the treatment of advanced androgen receptor (AR) positive, triple-negative breast cancer (TNBC) during an oral plenary session at the 2015 European Cancer Congress in Vienna, Austria.

The Phase 2 open label single arm, multicenter trial enrolled 118 women with advanced TNBC. The objective of the study was to evaluate the safety and clinical benefit of enzalutamide, 160 mg/day orally, as single agent therapy for advanced TNBC and to identify an appropriate biomarker to help select those women more likely to respond to therapy. The primary endpoint of the trial was the clinical benefit rate at 16 weeks (CBR16), defined as the proportion of women with a complete response (CR), partial response (PR), or stable disease for at least 16 weeks. Secondary endpoints of the trial included clinical benefit rate at 24 weeks (CBR24), and progression-free survival (PFS), defined as time from the date of first dose of study drug until documented disease progression or death due to any cause, overall survival, and safety.

The primary endpoint analysis was pre-specified to be conducted in the evaluable patient population. The evaluable population consisted of patients who were on study long enough to have at least one follow-up tumor assessment after starting enzalutamide and whose breast cancer had at least 10 percent of the cells from the primary TNBC tumor sample stain positive for the AR by an immunohistochemistry assay (IHC) optimized for breast tissue. The evaluable population contained 75 patients out of the 118 enrolled into the study. This population was pre-specified based on the hypothesis that selected women may be more likely to receive benefit from enzalutamide than those with primary tumors demonstrating less than 10 percent AR staining or those whose disease had progressed so quickly they did not stay on study until the first tumor assessment at week 8. Analyses for clinical benefit and safety were also conducted in the intent-to-treat, or ITT, population consisting of all 118 patients who received at least one dose of study drug and whose primary TNBC tumor sample demonstrated at least some AR staining by IHC. Patients were excluded from enrollment in the study if their primary tumors did not demonstrate any AR staining.

The study met its primary endpoint, achieving a CBR16 of 35% (95% CI: 24, 46), including six CRs or PRs (8%) in the evaluable population based on results as of March 25, 2015. The secondary endpoint of CBR24 was 29% (95% CI: 20, 41), and the median PFS on enzalutamide therapy was 14.7 weeks (95% CI: 8.1, 15.7) in the evaluable population. Using the total ITT population, CBR16 was achieved in 25% (95% CI: 17, 33) including seven CRs or PRs (6%), CBR24 was achieved in 20% (95% CI: 14, 29), and the median PFS was 12.6 weeks (95% CI: 8.1, 19.3).

Nearly half of the enrolled patients (47%) tested positive for a gene expression profile using a novel assay. The novel gene expression profiling assay, along with topline data from this phase 2 study was first presented during an oral abstracts session and a poster session at the 2015 American Society of Clinical Oncology Annual Meeting, or ASCO 2015.

Of these 56 diagnostic positive women with advanced TNBC, 39% achieved CBR16 (95% CI: 27, 53) and 36% achieved CBR24 (95% CI: 24, 49). Of the 62 women who were diagnostic negative for the novel gene expression profile, 11% achieved a CBR16 (95% CI: 5, 21) and 6% achieved CBR24 (95% CI: 2, 16). Median PFS in the diagnostic positive group was 16.1 weeks (95% CI: 13.3, 27.4) compared with 8.1 weeks in the diagnostic negative group (95% CI: 7.4, 12.6). In the subset of diagnostic positive patients treated with enzalutamide as their first- or second-line TNBC therapy, the median PFS was 40.4 weeks (95% CI: 16.1, not yet reached); in the diagnostic negative patients it was 8.9 weeks (95% CI: 7.3, 15.7).

An exploratory analysis of overall survival data collected as of July 1, 2015 demonstrated that enzalutamide-treated TNBC patients whose tumors were diagnostic positive for the novel gene expression profile experienced a 10.5-month longer median survival duration compared to those enzalutamide treated patients whose tumor were diagnostic negative. Median overall survival in the diagnostic positive group treated with enzalutamide was 18.0 months (95% CI: 12.0, 21.3) compared with 7.5 months for the diagnostic negative group treated with enzalutamide (95% CI: 4.8, 11.2).

 

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The most common (reported in ³10% of patients) adverse events reported as related to enzalutamide treatment in the ITT population were fatigue (35%), nausea (26%), decreased appetite (13%), diarrhea (10%), and hot flush (10%).

We are encouraged by our findings thus far from the exploratory analysis of study data conducted to determine overall survival in patients treated with enzalutamide by diagnostic subset.

It is premature to draw conclusions from these data since this trial did not control for factors that may influence outcomes. However, we believe that these exploratory results indicate that a genomic diagnostic test could identify women who might realize a survival benefit from enzalutamide treatment. It is our intention to continue to develop a diagnostic and to test this hypothesis in the clinical setting. Enzalutamide is not currently approved as a treatment for TNBC and the FDA would not consider it to be approvable as a treatment for TNBC on the basis of the exploratory data summarized above. An adequate, well-controlled phase 3 trial demonstrating acceptable safety and efficacy of enzalutamide in women with diagnostic positive TNBC, as well as clinical performance of the companion diagnostic, would be required in order to seek approval for enzalutamide in this indication.

 

•

In June 2015, we and Astellas announced that the first patients have been enrolled in TRUMPET (Treatment Registry for Outcomes in CRPC Patients), a prospective observational patient registry designed to better understand the unique needs and treatment patterns for patients with castration-resistant prostate cancer, or CRPC. The registry will enroll and evaluate 2,000 patients diagnosed with CRPC from urology and oncology sites across the United States. The study will also collect data from primary caregivers of patients, including spouses, family members, and/or friends. TRUMPET will follow patients with CRPC and participating caregivers for up to six years to gather information about the management of the disease, including patterns of care, treatment decisions and settings, and physician referral patterns. The registry will also track information about patient health-related quality of life outcomes, work productivity and treatment satisfaction, as well as caregiver health-related quality of life outcomes associated with managing a patient with CRPC.

 

•

In May 2015, Astellas initiated start up activities for a Phase 2 study evaluating enzalutamide in hepatocellular carcinoma. The trial will assess approximately 140 patients with advanced hepatocellular carcinoma that have failed sorafenib or other anti-vascular endothelial growth factor therapies. The primary endpoint of the trial is overall survival.

 

•

In April 2015, we and Astellas reported top-line results from the Phase 2 STRIVE trial. The trial achieved its primary endpoint demonstrating a statistically significant increase in PFS for patients with non-metastatic or metastatic CRPC for enzalutamide compared with bicalutamide (Hazard Ratio = 0.24; 95% CI: 0.18, 0.32; p < 0.0001). Median PFS was 19.4 months in the enzalutamide group compared with 5.7 months in the bicalutamide group. The median time on treatment in the STRIVE trial was 14.7 months in the enzalutamide group versus 8.4 months in the bicalutamide group. Serious adverse events were reported in 29.4% of enzalutamide-treated patients and 28.3% of bicalutamide-treated patients. Grade 3 or higher cardiac adverse events were reported in 5.1% of enzalutamide-treated patients versus 4.0% of bicalutamide-treated patients. One seizure was reported in the trial in the enzalutamide-treated group and none in the bicalutamide-treated group. We presented additional results from the Phase 2 STRIVE trial at the 2015 American Urology Association Annual Meeting in May 2015.

 

•

In January 2015, we and Astellas reported top-line results from the Phase 2 TERRAIN trial. The trial achieved its primary endpoint demonstrating a statistically significant increase in PFS for patients with metastatic CRPC for enzalutamide compared to bicalutamide (Hazard Ratio = 0.44; 95% CI: 0.34, 0.57; p < 0.0001). Median PFS was 15.7 months in the enzalutamide group compared to 5.8 months in the bicalutamide group. The median time on treatment in the TERRAIN trial was 11.7 months in the enzalutamide group versus 5.8 months in the bicalutamide group. Serious adverse events were reported in 31.1% of enzalutamide-treated patients and 23.3% of bicalutamide-treated patients. Grade 3 or higher cardiac adverse events were reported in 5.5% of enzalutamide-treated patients versus 2.1% of bicalutamide-treated patients. Two seizures were reported in the enzalutamide group and one in the bicalutamide group. In March 2015, we presented additional results from the Phase 2 TERRAIN trial that demonstrated that the median time to PSA progression was 13.6 months longer with enzalutamide (19.4 months) relative to bicalutamide treatment (5.8 months) with an Hazard Ratio of 0.28 (p < 0.0001) and that 82% of enzalutamide treated patients achieved greater than 50% PSA reduction from baseline by week 13 vs. 21% of bicalutamide treated patients.

 

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•

In March 2015, an updated overall survival analysis from the placebo-controlled Phase 3 PREVAIL trial was presented at the 2015 European Association of Urology Congress. The updated overall survival analysis was conducted at 784 deaths and found an overall survival benefit with a 23% reduction in risk of death (Hazard ratio 0.77; 95% CI: 0.67, 0.88; p=0.0002) and a 4-month improvement in median survival with enzalutamide (35.3 months [95% CI: 32.2, not yet reached]) over placebo (31.3 months [95% CI: 28.8, 34.2]). As of the June 2014 cut-off date with a median follow-up duration of 31 months: 52% of enzalutamide patients and 81% of placebo patients received at least one subsequent life-extending prostate cancer therapy. In the PREVAIL trial, 0.1% of chemotherapy-naïve patients treated with enzalutamide and 0.1% of patients treated with placebo experienced a seizure. The most common adverse reactions (³ 10% of patients) reported in the PREVAIL trial that occurred more commonly (³ 2%) over placebo in chemotherapy-naïve patients treated with enzalutamide were asthenic conditions, back pain, constipation, arthralgia, decreased appetite, hot flush, diarrhea, upper respiratory tract infection, hypertension, fall, weight decreased, peripheral edema, dizziness, headache, and dyspnea. Grade 3-4 adverse reactions were reported in 44% of enzalutamide-treated patients and 37% of placebo-treated patients.

 

•

In January 2015, we and Astellas enrolled the first patient in the Phase 3 EMBARK trial. The trial is intended to evaluate the efficacy and safety of enzalutamide alone or in combination with androgen deprivation therapy compared with androgen deprivation therapy alone in approximately 1,860 patients with high-risk, hormone-sensitive, non-metastatic prostate cancer that has biochemically recurred (as reflected in a rising PSA level) following definitive local therapy with radical prostatectomy and/or radiation. The primary endpoint of the trial is metastasis-free survival.

 

•

In March 2015, we and Astellas completed enrollment in a Phase 2 trial evaluating enzalutamide in combination with exemestane in women with advanced breast cancer that is estrogen receptor positive (ER+) or progesterone receptor positive (PgR+) and human epidermal growth factor receptor 2 (HER2) normal. The trial will assess 247 patients in two parallel cohorts. The first cohort enrolled patients who had not previously received hormonal treatment for advanced breast cancer. The second cohort enrolled patients who had previously progressed following one hormonal treatment for advanced disease. The primary endpoint of the trial is PFS in all patients and in the subset of patients whose tumor expresses the androgen receptor.

XTANDI is approved only for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC). There can be no assurance that any of the data outlined above will be replicated, or even if replicated will be sufficient to support approval for an expanded indication for XTANDI. Together with our partner, Astellas, we intend to continue to seek opportunities to demonstrate the potential benefits that enzalutamide may bring to a broader range of patients.

2015 Financial Highlights

 

•

Worldwide net sales of XTANDI, as reported by Astellas, for the three and nine months ended September 30, 2015, were approximately $517.8 million and $1.36 billion, respectively.

 

•

Net sales of XTANDI in the United States for the three months ended September 30, 2015, as reported by Astellas, were $313.0 million, an increase of $131.6 million, or 73%, from the three months ended September 30, 2014. Net sales of XTANDI in the United States for the nine months ended September 30, 2015, as reported by Astellas, were $835.5 million, an increase of $385.8 million, or 86%, from the nine months ended September 30, 2014.

 

•

Net sales of XTANDI outside of the United States for the three months ended September 30, 2015, as reported by Astellas, were approximately $205.0 million, an increase of approximately $85.0 million, or 71%, from the three months ended September 30, 2014. Net sales of XTANDI outside of the United States for the nine months ended September 30, 2015, as reported by Astellas, were approximately $526.0 million, an increase of approximately $271.0 million, or 106%, from the nine months ended September 30, 2014.

 

•

Collaboration revenue for the three months ended September 30, 2015, was $260.7 million, an increase of $60.2 million, or 30%, from the three months ended September 30, 2014. Collaboration revenue for the nine months ended September 30, 2015, was $565.5 million, an increase of $129.8 million, or 30%, from the nine months ended September 30, 2014.

 

•

During the third quarter of 2015, we earned a $70.0 million sales milestone payment upon the achievement of $1.2 billion in worldwide net sales of XTANDI, as reported by Astellas. At September 30, 2015, we remained eligible to earn a $175.0 million sales milestone payment under the Astellas Collaboration Agreement, which we currently expect to earn during the fourth quarter of 2015.

 

•

Total operating expenses for the three months ended September 30, 2015 were $121.7 million, an increase of $13.1 million, or 12%, from the three months ended September 30, 2014. Total operating expenses for the nine months ended September 30, 2015 were $372.3 million, an increase of $74.9 million, or 25%, from the nine months ended

 

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September 30, 2014. Operating expenses included non-cash stock-based compensation expense of $13.4 million and $12.0 million for the three months ended September 30, 2015 and 2014, respectively, and $40.8 million and $32.8 million for the nine months ended September 30, 2015 and 2014, respectively. Operating expenses for the three and nine months ended September 30, 2015 also included non-cash expense of $1.8 million and $6.8 million, respectively, related to a fair value adjustment for contingent purchase consideration.

 

•

Cash and cash equivalents were $488.9 million at September 30, 2015, a decrease of $13.7 million, or 3%, from $502.7 million at December 31, 2014. During the fourth quarter of 2015, we utilized $410.0 million of our cash and cash equivalents to pay an upfront fee to BioMarin under the terms of the asset purchase agreement for MDV3800 as discussed elsewhere in this Quarterly Report.

Changes to Capital Structure

 

•

On June 15, 2015, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, as amended, effecting an increase in the total number of authorized shares of our capital stock from 171,000,000 to 341,000,000 and an increase in the total number of shares of authorized shares of our common stock from 170,000,000 to 340,000,000.

 

•

During the second quarter of 2015, we settled a total of $91.0 million aggregate principal amount of our 2.625% convertible senior notes due April 1, 2017, or the Convertible Notes, through a combination of $92.1 million in cash and 2,099,358 shares of our common stock. On June 19, 2015, we issued a notice of redemption to redeem all of our outstanding Convertible Notes on July 24, 2015. Pursuant to this notice of redemption, during the third quarter of 2015, we settled a total of $167.8 million aggregate principal amount of the Convertible Notes through a combination of $167.8 million in cash and 3,539,218 shares of our common stock. We recorded a non-cash loss on extinguishment of the Convertible Notes of $13.2 million and $21.1 million for the three and nine months ended September 30, 2015, respectively. Upon settlement, the Convertible Notes were no longer deemed outstanding, interest ceased to accrue thereon, and all rights of the holders of the Convertible Notes ceased to exist.

 

•

On September 15, 2015, we effected a two-for-one forward stock split of our common stock in the form of a stock dividend. Stockholders of record as of August 13, 2015 received one additional share of our common stock, par value $0.01, for each share they held as of the record date. We issued 81,711,522 shares of our common stock as a result of the stock dividend. The par value of our common stock remained unchanged at $0.01 per share.

Corporate Developments

 

•

On October 6, 2015, we completed an acquisition of all rights to MDV3800 from BioMarin pursuant to an Asset Purchase Agreement (the “Agreement”). The acquired MDV3800 assets include all patents, data, know-how, third party agreements, regulatory materials and pre-commercial inventories. We also assumed certain costs for ongoing clinical trials of MDV3800, and commitments under certain agreements previously entered into or assumed by BioMarin and assigned to us. In connection with the transaction, we paid BioMarin an upfront cash payment of $410.0 million in the fourth quarter of 2015. We will pay BioMarin up to an additional $160.0 million upon the achievement of defined regulatory and sales-based milestones and mid-single digit royalties on net sales of products that contain MDV3800 during the royalty term specified in the Agreement. The parties entered into a Transition Services Agreement at the closing of the transaction to facilitate the transition of the research and development activities relating to MDV3800 from BioMarin to us, including responsibility for the ongoing clinical studies.

 

•

On September 4, 2015, we entered into a Credit Agreement (“Existing Credit Agreement”) with JPMorgan Chase Bank, N.A., which provided for (i) a one-year $75.0 million revolving loan facility and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions. On September 17, 2015, we executed a borrowing of $75.0 million under this facility. On October 23, 2015, we entered into an amendment and restatement of the Existing Credit Agreement, which provides for (i) a five-year $300.0 million revolving loan facility and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions. On October 23, 2015, we borrowed $75.0 million under the Revolving Credit Facility, which was used to repay the $75.0 million outstanding at September 30, 2015 under the Existing Credit Agreement. Additional information is included in Note 10, “Debt,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

 

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Critical Accounting Policies and the Use of Estimates

The preparation of our consolidated financial statements and related footnotes requires us to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We have discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results could differ materially from these estimates under different assumptions or conditions. A detailed description of our significant accounting policies is included in the footnotes to our audited consolidated financial statements included in our Annual Report.

We have identified our most critical accounting policies and estimates upon which our financial statements depend as those relating to: revenue recognition, reliance on third party information, including estimates of the various deductions from gross sales used to calculate net sales of XTANDI, and the estimated performance periods of our deliverables under collaboration agreements; business combinations, including estimates related to goodwill, intangible assets and contingent consideration; stock-based compensation; research and development expenses and accruals; litigation; Convertible Notes; leases, including build-to-suit lease arrangements; the calculation of diluted net income per common share; and income taxes. As of September 30, 2015, there have been no significant or material changes to our critical accounting policies or estimates from that disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report, except for our accounting policy with respect to diluted net income per common share beginning in the second quarter of 2015 as discussed below.

Net Income per Common Share

We apply the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 260, “Earnings per Share,” when calculating net income per common share. The provisions of ASC No. 260 require that for contracts which provide a company with a choice of settlement methods, the company is to assume that the contract will be settled in shares. That presumption may be overcome if past experience or a stated policy provides for a reasonable basis to believe that it is probable that the contract will be paid partially or wholly in cash.

We used the “if-converted” method to compute the dilutive effect of the Convertible Notes for the three and nine months ended September 30, 2014. Under the “if-converted” method, interest expense, net of tax, related to the Convertible Notes, is added back to net income, and the Convertible Notes are assumed to have been converted into common shares at the beginning of the period during periods in which there would have been a dilutive effect. For the three and nine months ended September 30, 2014, the impact of the Convertible Notes has been excluded from the calculation of diluted net income per common share because the effect of their inclusion would have been anti-dilutive (approximately 10.2 million contingently issuable shares have been excluded).

During the second quarter of 2015, we asserted our intent and ability to settle the outstanding Convertible Notes for a combination of cash and common stock. Under the “cash settlement” method, interest is not added back to the numerator, and only the contingently issuable shares related to the conversion spread are included in the denominator, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of our common stock during the period exceeds the conversion price. The calculation of diluted net income per common share for the three months ended September 30, 2015 includes the effect of approximately 0.8 million common shares related to the conversion spread of the Convertible Notes prior to settlement.

The computation of diluted net income per common share for the nine months ended September 30, 2015 reflects the application of the “if-converted” method for the first quarter of 2015 and the “cash settlement” method for the second and third quarters of 2015 given the demonstrated and asserted redemption for the outstanding debt. For the nine months ended September 30, 2015, the impact of the Convertible Notes has been excluded from the calculation of diluted net income per common share because the effect of their inclusion would have been anti-dilutive (approximately 5.2 million contingently issuable shares have been excluded). We completed the settlement of all of our Convertible Notes during the third quarter of 2015 as described elsewhere in this Quarterly Report.

Additional information regarding net income per common share is included in Note 5, “Net Income per Common Share,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Results of Operations

Collaboration Revenue

We have a collaboration agreement with Astellas pursuant to which we are collaborating with Astellas to develop and commercialize XTANDI globally. The terms of the collaboration agreement are described in Note 3, “Collaboration Agreement,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Collaboration revenue consists of three components: (a) collaboration revenue related to U.S. XTANDI net sales; (b) collaboration revenue related to ex-U.S. XTANDI net sales; and (c) collaboration revenue related to upfront and milestone payments.

 

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Collaboration revenue was as follows (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Collaboration revenue:
Related to U.S. XTANDI net sales		$	156,501			$	90,723			$	417,731			$	224,814
Related to ex-U.S. XTANDI net sales			33,599				15,522				74,957				31,245
Related to upfront and milestone payments			70,565				94,233				72,822				179,698
Total		$	260,665			$	200,478			$	565,510			$	435,757

We are required to pay the Regents of the University of California (“UCLA” or “the Regents”) ten percent of all Sublicensing Income, as defined in our license agreement with UCLA. We are currently involved in litigation with UCLA regarding certain terms of the license agreement and other matters, which are discussed in Part II, Item 1, “Legal Proceedings.”

Collaboration Revenue Related to U.S. XTANDI Net Sales

Collaboration revenue related to U.S. XTANDI net sales was as follows (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
U.S. XTANDI net sales (as reported by Astellas)		$	313,003			$	181,446			$	835,463			$	449,629
Shared U.S. development and commercialization costs			(85,384	)			(69,616	)			(280,644	)			(217,866	)
Pre-tax U.S. profit		$	227,619			$	111,830			$	554,819			$	231,763
Medivation’s share of pre-tax U.S. profit		$	113,809			$	55,915			$	277,409			$	115,881
Reimbursement of Medivation’s share of shared U.S. costs			42,692				34,808				140,322				108,933
Collaboration revenue related to U.S. XTANDI net sales		$	156,501			$	90,723			$	417,731			$	224,814

U.S. net sales of XTANDI (as reported by Astellas) for the three months ended September 30, 2015, were $313.0 million, an increase of $131.6 million, or 73%, compared with net sales for the prior year period. The increase was primarily due to higher sales volumes while approximately 10% of the increase was due to price elements. The price elements include a favorable adjustment of $17.9 million and a favorable adjustment of $8.9 million for the three months ended September 30, 2015 and 2014, respectively, related to changes in prior period estimates of deductions against gross sales.

U.S. net sales of XTANDI (as reported by Astellas) for the nine months ended September 30, 2015, were $835.5 million, an increase of $385.8 million, or 86%, compared with net sales for the prior year period. The increase was primarily due to higher sales volumes, while approximately 11% of the increase was due to price elements. The price elements include a favorable adjustment of approximately $20.0 million and approximately $17.0 million for the nine months ended September 30, 2015 and 2014, respectively, related to changes in prior period estimates of deductions against gross sales.

Collaboration revenue related to U.S. XTANDI net sales for the three months ended September 30, 2015 was $156.5 million, an increase of $65.8 million, or 73%, from $90.7 million for the prior year period. The increase resulted from an increase in our share of pre-tax U.S. profit in the collaboration with Astellas as well as an increase in the reimbursement of our shared U.S. costs.

Collaboration revenue related to U.S. XTANDI net sales for the nine months ended September 30, 2015 was $417.7 million, an increase of $192.9 million, or 86%, from $224.8 million for the prior year period. The increase resulted from an increase in our share of pre-tax U.S. profit in the collaboration with Astellas as well as an increase in the reimbursement of our shared U.S. costs.

Along with other manufacturers of branded pharmaceutical products, we are subject to various provisions of the Patient Protection and Affordable Care Act of 2010, or PPACA, and other healthcare reform legislation. The stated goals of this legislation include reducing the number of uninsured Americans, improving the quality of healthcare delivery and reducing projected U.S. healthcare costs. The largest component of the deductions from gross sales used in deriving net sales of XTANDI in the United States is legally mandated discounts or rebates to Medicare and other government programs such as Medicaid. Although the full impact to us

 

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of all elements of PPACA and other healthcare reform legislation cannot be specifically determined, we estimate that legally mandated discounts or rebates for Medicaid and Medicare Part D programs, including the 23.1% rebate and the “donut hole” provisions, reduced U.S. XTANDI net sales by approximately 0.7% and 2.3% for the three and nine months ended September 30, 2015. These provisions are anticipated to continue to impact U.S. sales of XTANDI to a similar degree in future periods. The financial impact of U.S. healthcare reform legislation to our consolidated financial statements in future periods depends on a number of factors, including the timing of and changes in sales volumes for our products and the number of patients eligible for these government programs. Additional information regarding the impact of the provisions of PPACA and other healthcare reform legislation on us is included in Part II, Item 1A, “Risk Factors.”

Collaboration Revenue Related to Ex-U.S. XTANDI Net Sales

Net sales of XTANDI outside of the United States (as reported by Astellas) were approximately $205.0 million and approximately $120.0 million for the three months ended September 30, 2015 and 2014, respectively. Collaboration revenue attributable to ex-U.S. XTANDI net sales was $33.6 million and $15.5 million for the three months ended September 30, 2015 and 2014, respectively.

Net sales of XTANDI outside of the United States (as reported by Astellas) were approximately $526.0 million and approximately $255.0 million for the nine months ended September 30, 2015 and 2014, respectively. Collaboration revenue attributable to ex-U.S. XTANDI net sales was $75.0 million and $31.2 million for the nine months ended September 30, 2015 and 2014, respectively.

Net sales of XTANDI outside of the United States (as reported by Astellas) in the third quarter of 2015 increased approximately 9% compared to second quarter 2015 net sales of approximately $188.0 million. U.S. dollar equivalent net sales of XTANDI outside of the United States (as reported by Astellas) were relatively unaffected by changes in exchange rates as a strengthening euro was offset by slight weakness in the yen as compared to the second quarter of 2015.

Collaboration Revenue Related to Upfront and Milestone Payments

Collaboration revenue related to upfront and milestone payments was as follows (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Sales milestones earned		$	70,000			$	—			$	70,000			$	—
Development milestones earned			—				90,000				—				167,000
Amortization of deferred upfront and development milestones			565				4,233				2,822				12,698
Total		$	70,565			$	94,233			$	72,822			$	179,698

Collaboration revenue related to upfront and milestone payments from Astellas was $70.6 million for three months ended September 30, 2015, a decrease of $23.6 million, or 25%, from $94.2 million for the prior year period. Collaboration revenue related to upfront and milestone payments from Astellas was $72.8 million for nine months ended September 30, 2015, a decrease of $106.9 million, or 59%, from $179.7 million for the prior year period. During the three and nine months ended September 30, 2015, we earned a $70.0 million sales milestone payment triggered by the achievement of $1.2 billion in worldwide XTANDI net sales, as reported by Astellas. During the three and nine months ended September 30, 2014, we earned $90.0 million and $167.0 million, respectively, of development milestone payments from Astellas upon the achievement of certain defined events. We have earned all development milestone payments that were eligible to be earned under the Astellas Collaboration Agreement. As of September 30, 2015, we remained eligible to earn a $175.0 million sales milestone payment under the Astellas Collaboration Agreement, which we currently expect to earn in the fourth quarter of 2015.

 

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Research and Development Expenses

Research and development, or R&D, expenses were as follows (dollars in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Research and development expenses		$	45,871			$	45,430			$	137,841			$	131,693
Percentage change			1	%							5	%

R&D expenses increased by $0.5 million, or 1%, to $45.9 million for the three months ended September 30, 2015 from $45.4 million for the prior year period. The increase was primarily due to a $3.7 million increase in third party clinical and preclinical development costs as a result of increased activities, a $3.8 million increase in personnel costs resulting from higher staffing levels and a $2.0 million increase in facilities and information technology costs, partially offset by $9.0 million of payments to UCLA related to the development milestone payments we earned from Astellas during the three months ended September 30, 2014, which were not repeated in the three months ended September 30, 2015. R&D expenses for the three months ended September 30, 2015 include non-cash stock-based compensation expense of $5.7 million.

R&D expenses increased by $6.1 million, or 5%, to $137.8 million for the nine months ended September 30, 2015 from $131.7 million for the prior year period. The increase was primarily due to a $12.1 million increase in third party clinical and preclinical development costs as a result of increased activities, a $14.8 million increase in personnel costs resulting from higher staffing levels and a $7.9 million increase in facilities and information technology costs. These amounts were partially offset by $16.7 million of payments to UCLA related to the development milestone payments we earned from Astellas during the nine months ended September 30, 2014 and a $12.0 million upfront license and research agreement fee to a third party, both of which were not repeated in the nine months ended September 30, 2015. R&D expenses for the nine months ended September 30, 2015 include non-cash stock-based compensation expense of $17.6 million.

With the acquisition of MDV3800 from BioMarin that was completed on October 6, 2015, we are responsible for ongoing clinical trial costs for the compound from that date forward as well as the costs of any new trials we might elect to initiate in the future. Accordingly, we generally anticipate a higher level of R&D spending in the fourth quarter of 2015 and during 2016, as compared with the $45.9 million of R&D expense incurred in the quarter ended September 30, 2015.

Under the Astellas Collaboration Agreement, we and Astellas share certain development costs in the United States. Development cost-sharing payments from Astellas were $14.6 million and $15.1 million for the three months ended September 30, 2015 and 2014, respectively, and were $46.1 million and $48.5 million for the nine months ended September 30, 2015 and 2014, respectively. Development cost sharing payments from Astellas are recorded as reductions in R&D expenses.

We were engaged in three R&D programs during the periods presented: (1) the development of enzalutamide for the treatment of prostate cancer, advanced breast cancer, and hepatocellular carcinoma; (2) the development of MDV9300; and (3) multiple proprietary research and drug discovery projects. R&D costs are identified as either directly allocable to one of our R&D programs or indirect costs, with only direct costs being tracked by specific program. Direct costs consist primarily of clinical, preclinical, and drug discovery costs, cost of supplying drug substance and drug product for use in clinical and preclinical studies, including clinical manufacturing costs, upfront and development milestone payments under license agreements, non-cash fair value adjustments related to contingent purchase consideration, personnel costs, contract research organization fees, and other contracted services pertaining to specific clinical and preclinical studies. Indirect costs consist of corporate overhead costs and other administrative and support costs. The following table summarizes the direct costs attributable to each program and total indirect costs (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Direct costs:
XTANDI (enzalutamide) program(1)		$	19,450			$	27,120			$	56,711			$	72,243
MDV9300 program			7,311				—				19,851				—
Early-stage programs			12,534				13,705				40,793				46,880
Total direct costs			39,295				40,825				117,355				119,123
Indirect costs			6,576				4,605				20,486				12,570
Total		$	45,871			$	45,430			$	137,841			$	131,693

 

(1)	Direct costs for the XTANDI (enzalutamide) program include $9.0 million and $16.7 million for the three and nine months ended September 30, 2014, respectively, of payments to UCLA related to the development milestones we earned from Astellas during these periods.

 

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Our R&D programs may be subject to change from time to time as we evaluate our priorities and available resources.

For a detailed discussion of the risks and uncertainties associated with the timing and cost of completing a product development plan, see Part II Item 1A, “Risk Factors—Risks Related to Our Future Product Development Candidates” of this Quarterly Report.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses were as follows (dollars in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Selling, general and administrative expenses		$	75,809			$	63,165			$	234,456			$	165,695
Percentage change			20	%							41	%

SG&A expenses increased by $12.6 million, or 20%, to $75.8 million for the three months ended September 30, 2015 from $63.2 million for the prior year period. The increase was primarily due to accrued payments of $7.7 million to UCLA associated with sales milestone payments that we earned from Astellas during the third quarter of 2015 and currently expect to earn during the fourth quarter of 2015, as well as higher administrative and personnel-related costs, partially offset by lower sales and marketing costs. SG&A expense for the three months ended September 30, 2015 includes $7.7 million of non-cash stock-based compensation expense and a $1.6 million non-cash fair value charge for contingent purchase consideration related to our License Agreement with CureTech.

SG&A expenses increased by $68.8 million, or 41%, to $234.5 million for the nine months ended September 30, 2015 from $165.7 million for the prior year period. The increase was primarily due to higher sales, marketing and medical affairs costs, as well as higher administrative and personnel-related costs. In addition, we accrued payments of $21.8 million to UCLA associated with sales milestone payments that we earned from Astellas during the nine months ended September 30, 2015 and currently expect to earn during the fourth quarter of 2015, and higher royalty expenses as a result of an increase in net sales of XTANDI. SG&A expense for the nine months ended September 30, 2015 includes $23.2 million of non-cash stock-based compensation expense and a $5.7 million non-cash fair value charge for contingent purchase consideration related to our License Agreement with CureTech.

Under our collaboration with Astellas, we are responsible for fifty percent of the cost of goods sold and the royalty payable to UCLA on U.S. net sales of XTANDI. Our share of these items is included in SG&A expenses in our consolidated statements of operations. As such, those components of our reported SG&A expenses will fluctuate in correlation with net sales of XTANDI in the United States.

Under the Astellas Collaboration Agreement, we and Astellas share certain commercialization costs in the United States. Commercialization cost-sharing payments to Astellas were $5.2 million and $7.6 million for the three months ended September 30, 2015 and 2014, respectively, and were $28.0 million and $17.8 million for the nine months ended September 30, 2015 and 2014, respectively. Commercialization cost sharing payments to Astellas are recorded as increases in SG&A expenses.

Other Income (Expense), Net

The components of other income (expense), net were as follows (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Other income (expense), net:
Non-cash loss on extinguishment of Convertible Notes		$	(13,216	)		$	—			$	(21,087	)		$	—
Coupon interest expense			(357	)			(1,698	)			(3,447	)			(5,094	)
Non-cash amortization of debt discount and issuance costs			(721	)			(3,837	)			(8,548	)			(11,007	)
Other, net			159				64				247				(50	)
Total		$	(14,135	)		$	(5,471	)		$	(32,835	)		$	(16,151	)

 

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Other income (expense), net consists of coupon interest expense and non-cash interest expense, interest income earned and net gains (losses) on sales of our short-term investments, and the impact of changes in foreign exchange rates on our foreign currency-denominated payables, which were not significant.

Other income (expense), net for the three and nine months ended September 30, 2015 also includes non-cash losses on extinguishment of Convertible Notes of $13.2 million and $21.1 million, respectively. Additional information regarding the extinguishment of Convertible Notes is included in Note 10, “Debt,” in the accompanying notes to our unaudited condensed consolidated financial statements.

Income Tax Expense

Income tax expense and the effective income tax rate were as follows (dollars in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Income tax expense		$	45,340			$	8,419			$	58,160			$	9,971
Effective income tax rate			36.3	%			9.7	%			36.3	%			8.2	%

Income tax expense for the three and nine months ended September 30, 2015 was $45.3 million and $58.2 million, respectively. The effective income tax rate for both the three and nine months ended September 30, 2015 was 36.3%. The provision for income taxes in both 2015 periods was higher than the tax computed at the U.S. federal statutory rate due primarily to state income taxes and non-deductible, stock-based compensation. The increase in the effective tax rate for both 2015 periods as compared to the prior year periods was due to the release of a portion of the valuation allowance during the fourth quarter of 2014. Income tax expense for the three and nine months ended September 30, 2014 was $8.4 million and $10.0 million, respectively. Our provision for income taxes was lower than the tax computed at the U.S. statutory rate in both 2014 periods due primarily to utilization of net operating loss and tax credit carryforwards.

The future effective tax rate is subject to volatility and may be materially impacted by various internal and external factors. These factors may include, but are not limited to, the amount of income tax benefits and charges from: interpretations of existing tax laws; changes in tax laws and rates; future levels of research and development expenditures; changes in the mix of earnings in countries with differing statutory tax rates in which we may conduct business; changes in the valuation of deferred tax assets and liabilities; state income taxes; the tax impact of stock-based compensation; accounting for uncertain tax positions; closure of statute of limitations or settlement of tax audits; changes in estimates of prior years’ items; tax costs for acquisition-related items; changes in accounting standards; non-deductible officers’ compensation; limitations on the utilization of net operating losses and tax credits due to changes in ownership; and overall levels of income before taxes.

Due to the availability of Federal gross net operating losses and Federal tax credit carryforwards for tax return purposes, which totaled $15.3 million and $35.3 million, respectively, at September 30, 2015, we expect our Federal cash income tax payments to be substantially lower than our statutory rate for the year ending December 31, 2015.

Liquidity and Capital Resources

Our principal source of liquidity is cash generated from our collaboration agreement with Astellas, which is described elsewhere in this Quarterly Report.

At September 30, 2015, we had cash and cash equivalents of $488.9 million, compared to $502.7 million at December 31, 2014. At September 30, 2015, our collaboration receivable from Astellas was $277.6 million, compared to $184.7 million at December 31, 2014. In the fourth quarter of 2015, we utilized $410.0 million of our cash balances to pay an upfront fee to BioMarin for the acquisition of MDV3800 as described elsewhere in this Quarterly Report. Based on our current expectations, we believe our current capital resources, amounts available to us under our Revolving Credit Facility, and projected cash flows will be sufficient to fund our currently planned operations for at least the next twelve months. This estimate is based on a number of assumptions that may prove to be wrong. In addition, we may choose to raise additional funds in the form of equity, debt, or otherwise due to market conditions or strategic considerations even if we believe we have sufficient funds for our current and future operating plans. For example, we may choose to raise additional capital to fund business development activities, and for other general corporate purposes. For a detailed discussion of the risks and uncertainties associated with our sources of liquidity and access to capital, see Part II, Item 1A, “Risk Factors—Risks Related to the Operation of Our Business.”

On October 23, 2015, we entered into an amendment and restatement of our Credit Agreement, dated as of September 4, 2015 (the “Existing Credit Agreement” and as amended and restated, the “Credit Agreement”) as described in the section below titled, “Commitments and Contingencies.” The Credit Agreement provides for (i) a five-year $300.0 million revolving loan

 

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facility (the “Revolving Credit Facility”); and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions (collectively, the “Senior Secured Credit Facility”). The Revolving Credit Facility includes a $50.0 million multicurrency sub-facility, a $20.0 million letter of credit sub-facility, and a $10.0 million swing line loan sub-facility. On October 23, 2015, we borrowed $75.0 million under the Revolving Credit Facility, which was used to repay the $75.0 million outstanding at September 30, 2015 under the Existing Credit Agreement.

Cash Flow Analysis

The following table summarizes our cash flows (in thousands):

 

		Nine Months Ended September 30,
		2015				2014
Net cash provided by (used in):
Operating activities		$	109,959			$	76,312
Investing activities			(15,166	)			(11,296	)
Financing activities			(108,526	)			27,249
Net change in cash and cash equivalents		$	(13,733	)		$	92,265

Net cash provided by operating activities totaled $110.0 million for the nine months ended September 30, 2015, which consisted of our net income of $102.2 million and non-cash items of $12.9 million, partially offset by negative changes in our operating assets and liabilities of $5.2 million, which arose in the ordinary course of business.

Net cash provided by operating activities totaled $76.3 million for the nine months ended September 30, 2014, which consisted of our net income of $112.2 million and non-cash items of $35.5 million, partially offset by negative changes in our operating assets and liabilities of $71.4 million, which arose in the ordinary course of business.

Net cash used in investing activities totaled $15.2 million for nine months ended September 30, 2015, and consisted of purchases of short-term investments of $93.1 million, capital expenditures of $13.6 million, and an increase in letters of credit collateralized by restricted cash to secure various leases of $1.4 million, partially offset by sales and maturities of short-term investments of $92.9 million. Net cash used in investing activities totaled $11.3 million for the nine months ended September 30, 2014 and consisted of capital expenditures of $9.2 million and an increase in letters of credit collateralized by restricted cash to secure various leases of $2.1 million.

Net cash used in financing activities totaled $108.5 million for the nine months ended September 30, 2015 and consisted primarily of repayment of Convertible Notes principal and conversion premium of $259.9 million, partially offset by proceeds from our Revolving Credit Facility of $75.0 million, proceeds from the issuance of common stock under equity incentive and stock purchase plans of $19.5 million and excess tax benefits from stock-based compensation of $57.5 million. Net cash provided by financing activities totaled $27.2 million for the nine months ended September 30, 2014 and consisted primarily of proceeds from the issuance of common stock under equity incentive and stock purchase plans.

Commitments and Contingencies

There have been no significant changes in our contractual cash obligations, commercial commitments and contingencies since December 31, 2014 except for the items disclosed below.

Lease Obligations

In the first quarter of 2015, we entered into the Sixth Amendment to our corporate headquarters lease agreement in San Francisco, California, pursuant to which we leased approximately 16,000 additional square feet of office space. In total, at September 30, 2015, we leased approximately 143,000 square feet of office space pursuant to the lease agreement, as amended, which expires in June 2019. Lease commitments pursuant to the Sixth Amendment are approximately $6.1 million over the lease term.

In the second quarter of 2015, we entered into an amended lease agreement to reduce the amount of leased space at a property located in San Francisco, California from approximately 52,000 square feet to approximately 43,625 square feet. As a result of the amendment, lease commitments related to this property were reduced by approximately $3.9 million over the lease term. The lease agreement expires in August 2024, and we have the option to extend the lease term up to an additional five years.

There were no other changes to our lease obligations from that disclosed in our Annual Report other than a reduction of 2015 lease obligations due to the payment of current year lease payments.

 

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Convertible Senior Notes Due 2017

We settled our remaining Convertible Notes in the third quarter of 2015 as discussed further in Note 10, “Debt,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Upon settlement, the Convertible Notes were no longer deemed outstanding, interest ceased to accrue thereon, and all rights of the holders of the Convertible Notes ceased to exist.

Revolving Credit Facility

On September 4, 2015, we entered into a credit agreement, as discussed further in Note 10, “Debt,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. At September 30, 2015, $75.0 million was outstanding under the Credit Agreement.

On October 23, 2015, we entered into an amendment and restatement of our Credit Agreement, dated as of September 4, 2015 (the “Existing Credit Agreement” and as amended and restated, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (the “Lenders”), providing for (i) a five-year $300 million revolving loan facility (the “Revolving Credit Facility”); and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions (collectively, the “Senior Secured Credit Facility”). The Revolving Credit Facility includes a $50 million multicurrency sub-facility, a $20 million letter of credit sub-facility and a $10 million swing line loan sub-facility.

Loans under the Revolving Credit Facility bear interest, at our option, at a rate equal to either (a) the LIBOR rate, plus an applicable margin ranging from 1.75% to 2.50% per annum, based upon the secured leverage ratio (as defined in the Credit Agreement) or (b) the prime lending rate, plus an applicable margin ranging from 0.75% to 1.50% per annum, based upon the senior secured net leverage ratio (as defined in the Credit Agreement).

The obligations under the Credit Agreement and any swap obligations and banking services obligations owing to a lender (or an affiliate of a lender) thereunder are and will be guaranteed by us and each of our existing and subsequently acquired or organized direct and indirect domestic subsidiaries (other than certain immaterial domestic subsidiaries, certain Domestic Foreign Holding Companies, and certain domestic subsidiaries whose equity interests are owned directly or indirectly by certain foreign subsidiaries) (collectively, the “Loan Parties”). The obligations under the Credit Agreement and any such swap and banking services obligations are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in (i) all tangible and intangible assets of the Loan Parties, except for certain customary excluded assets, and (ii) all of the capital stock owned by the Loan Parties thereunder (limited, in the case of the stock of certain of our non-U.S. subsidiaries and Domestic Foreign Holding Companies, to 65% of the capital stock of such subsidiaries).

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. Under the terms of the Credit Agreement, we are required to comply with a maximum senior secured net leverage ratio and minimum interest coverage ratio covenants.

On October 23, 2015, we borrowed $75.0 million under the Revolving Credit Facility, which was used to repay the $75.0 million outstanding at September 30, 2015 under the Existing Credit Agreement.

Contingent Consideration Liability

In connection with the CureTech License Agreement, we recorded contingent consideration pertaining to amounts potentially payable to CureTech by us. In accordance with accounting for business combinations guidance, these contingent cash payments are recorded as contingent consideration liabilities on our consolidated balance sheets at fair value. The aggregate remaining, undiscounted amount of contingent consideration that we could be required to pay to CureTech under the License Agreement is included in the table below (dollars in thousands):

 

Potential sales milestones		$	245,000
Potential development and regulatory milestones		$	85,000
Potential payment upon completion of Manufacturing Technology Transfer		$	5,000
Potential future tiered royalties on annual worldwide net sales			5% to 11	%

 

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As of September 30, 2015, the contingent consideration liabilities that we could be required to pay to CureTech are our only financial liabilities measured and recorded using Level 3 inputs in accordance with accounting guidance for fair value measurements, and represent approximately 32% of our total liabilities. See Note 13, “Fair Value Disclosures,” in the accompanying notes to our unaudited condensed consolidated financial statements for additional information.

Off-Balance Sheet Arrangements

We are involved with a variable interest entity, or VIE, that performs contract research for us. We have not consolidated this entity because we do not have the power to direct the activities that most significantly impact the VIE’s economic performance and, thus, we are not considered the primary beneficiary of the VIE.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices.

Our investment policy emphasizes the safety and preservation of principal while maximizing the income we receive from our investments without assuming significant risk of loss. Specifically, our investment objectives in order of priority are (1) the safety and preservation of principal by investing in high quality, low risk diversified portfolios, (2) maintain liquidity sufficient to meet the requirements of our operations and strategic initiatives, and (3) deliver competitive after-tax returns relative to stated objectives and market conditions. Some of the investible securities permitted under our investment policy may be subject to market risk related to changes in interest rates. We manage our sensitivity to these risks by maintaining investment grade marketable securities. We currently do not use derivative financial instruments to hedge our market risk exposures.

There were no material changes to our market risk exposures related to foreign currency exchange rates, commodity prices, and equity prices from those disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report.

 

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet the reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As required by Rule 13a-15(b) or Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015. Based on the foregoing, our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that our disclosure controls and procedures were effective as of September 30, 2015 at the reasonable assurance level.

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

We are involved in legal proceedings, investigations, and claims in the ordinary course of our business, including the matters described below.

 

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In May 2011, we filed a lawsuit in San Francisco Superior Court against the Regents of the University of California, and one of its professors, alleging breach of contract and fraud claims, among others. Our allegations in this lawsuit include that we have exclusive commercial rights to an investigational drug originally known as ARN-509, which is currently being developed by Aragon Pharmaceuticals, or Aragon. In August 2013, Johnson & Johnson and Aragon completed a transaction in which Johnson & Johnson acquired all ARN-509 assets owned by Aragon. Since its acquisition by Johnson & Johnson, ARN-509 is now known as JNJ-56021927, or JNJ-927. On February 9, 2012, we filed a Second Amended Complaint, adding additional breach of contract claims against the Regents professor and adding as additional defendants a former Regents professor and Aragon. We seek remedies including a declaration that we are the proper licensee of JNJ-927, contractual remedies conferring to us exclusive patent license rights regarding JNJ-927, and other equitable and monetary relief. On August 7, 2012, the Regents filed a cross-complaint against us seeking declaratory relief that the Regents are entitled to ten percent of any sales milestone payments under the Astellas Collaboration Agreement because such milestones constitute Sublicensing Income under the license agreement with the Regents. Under the Astellas Collaboration Agreement, we are eligible to receive up to $320.0 million in sales milestone payments. On September 18, 2012, the trial court approved a settlement agreement dismissing the former Regents professor who was added to the case on February 9, 2012. On December 20, 2012, and January 25, 2013, the Court granted summary judgment motions filed by defendants Regents and Aragon, resulting in dismissal of all claims against Regents and Aragon, but denied such motions filed by the remaining Regents professor. On April 15, 2013, we filed a Notice of Appeal seeking appeal of the judgment in favor of Aragon, which is now wholly-owned by Johnson & Johnson, and the briefing of that matter has concluded. The bench trial of the Regent’s cross-complaint against us was conducted in July 2013, and on January 15, 2014, the Court entered a judgment in the cross-complaint in favor of Regents. As of September 30, 2015, we have earned $145.0 million in sales milestones under the Astellas Collaboration Agreement. As a result of this judgment, we paid the Regents $7.5 million, representing 10% of the sales milestone amounts earned from Astellas in 2013 and 2014. As a result of this judgment, in the fourth quarter of 2015, we paid the Regents $7.0 million, representing 10% of the $70.0 million sales milestone amounts earned from Astellas during the third quarter of 2015. We appealed this judgment on February 13, 2014 along with the December 2012 summary judgment order in favor of Regents. The jury trial of our breach of contract and fraud claims against the remaining Regents professor was conducted in October and November 2013. On November 15, 2013, the jury rendered a verdict in the case, finding in our favor on one of the breach of contract claims, and in favor of the Regents professor on the fraud claims. On November 22, 2013, the Court entered judgment consistent with the jury’s verdict. Our notice of appeal of the judgment on the fraud claims was filed on February 13, 2014. On October 24, 2014, the court of appeals issued an order consolidating all of these appeals for hearing and consideration purposes. The briefing of all appeals has completed and the parties await the setting of a date for oral argument by the appellate court.

On April 11, 2014, the Regents filed a complaint against us in which UCLA alleges that the “Operating Profits” we have received (and will continue to receive) from Astellas, as a result of the Astellas Collaboration Agreement, constitute Sublicensing Income under the license agreement between us and the Regents and that we and our subsidiary, MPT, have failed to pay the Regents ten percent of such Operating Profits. Although the Regents further alleged that we breached our fiduciary duties to the Regents, as minority shareholder of MPT, it dismissed this claim without prejudice on July 16, 2014. On March 23, 2015, based upon an application by both us and the Regents, the court designated the case complex and assigned a single judge in the complex division of San Francisco Superior Court. We deny the Regents’ allegations and intend to vigorously defend the litigation. We are currently awaiting a trial date to be set by the Courts. We have not recorded an accrual for this legal matter.

While we believe we have meritorious positions with respect to the claims above and intend to advance our positions in these lawsuits vigorously, including on appeal, the process of resolving matters through litigation or other means is inherently uncertain, and it is not possible to predict the ultimate resolution of any such proceeding. The actual costs of defending our position may be significant, and we may not prevail.

 

ITEM 1A.

RISK FACTORS

Risks facing our business have not changed substantively from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2014, except for those risk factors below designated by an asterisk (*) and the removal of risk factors related to our 2.625% convertible senior notes due April 1, 2017, or the Convertible Notes, as a result of the settlement of all remaining outstanding Convertible Notes in July 2015. As a result of the settlement of the Convertible Notes during the third quarter of 2015, we have removed reference to the previously outstanding Convertible Notes in the risk factors included below. We have also removed the following risk factors in their entirety:

 

•

Provisions in the indenture for the Convertible Notes may deter or prevent a business combination.

 

•

Any adverse rating of the Convertible Notes may negatively impact the price of our common stock.

 

•

The conditional conversion feature of the Convertible Notes may adversely affect our financial condition and operating results.

 

•

The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, could have a material effect on our reported financial results.

 

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•

The repurchase rights and events of default features of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

Our business faces significant risks, some of which are set forth below to enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to the forward-looking statements made in this Quarterly Report. You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results, cash flows and financial condition. If any of the events or circumstances described in the following risk factors actually occurs, our business may suffer and the trading price of our common stock could decline and our financial condition or results of operations could be harmed. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. These risks should be read in conjunction with the other information set forth in this Quarterly Report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us, or that we currently believe to be immaterial, may also adversely affect our business.

Risks Related to XTANDI^® (enzalutamide) capsules

We and Astellas may not be able to further commercialize XTANDI in the United States, and may fail to continue to generate significant revenue from the sale of XTANDI in the United States. XTANDI may fail to obtain regulatory approval and reimbursement, to be successfully commercialized and to generate significant revenue outside the United States.

We only have one commercial product, XTANDI^® (enzalutamide) capsules, or XTANDI, which is approved in the United States to treat men with metastatic castration-resistant prostate cancer, or mCRPC. However, the further commercialization of XTANDI in the United States for the treatment of mCRPC and any other patient populations for which XTANDI is being developed and may subsequently be approved, may not be successful for a number of reasons, including:

 

•

we and our collaboration partner, Astellas Pharma, Inc., or Astellas, may not be able to establish or demonstrate in the medical community the safety and efficacy of XTANDI and its potential advantages over, and side effects compared to, competing therapeutics and products currently in clinical development for each applicable patient population;

 

•

our limited experience in marketing XTANDI to urologists;

 

•

reimbursement and coverage policies of government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators;

 

•

the price of XTANDI as compared to alternative treatment options;

 

•

changes or increases in regulatory restrictions;

 

•

changes to the label for XTANDI that further restrict how we and Astellas market XTANDI, including as a result of routine pharmacovigilance activities and/or data collected from the safety study in patients with known risk factor(s) for seizure that the FDA required us to undertake as a post-marketing requirement or from any other ongoing or future studies;

 

•

we and Astellas may not have adequate financial or other resources to successfully commercialize XTANDI; and

 

•

we and Astellas may not be able to obtain adequate commercial supplies of XTANDI to meet demand or at an acceptable cost.

If the further commercialization of XTANDI in the United States is unsuccessful, our ability to generate revenue from product sales and achieve or maintain profitability would be adversely affected and our business could be severely negatively impacted.

XTANDI has received marketing approval in the European Union (or Europe, or EU) for the treatment of patients with mCRPC and in Japan for the treatment of patients with castration-resistant prostate cancer, and numerous other countries worldwide for the treatment of patients with mCRPC. Additional marketing applications for the mCRPC indication are under review in numerous other countries. Unless we and Astellas can obtain additional regulatory approval and reimbursement of XTANDI outside the United States, Japan and the EU, Astellas’ ability to successfully commercialize XTANDI further and our ability to generate additional revenue from XTANDI worldwide, could be significantly limited.

XTANDI may fail to effectively compete commercially with other approved products and other products in development.

There are a number of currently marketed therapies for advanced prostate cancer that compete directly with XTANDI. In addition, several companies are currently developing products or are expected to be marketing products in the near future that compete or may compete directly with XTANDI in its currently approved indication for mCRPC and any other indication for which enzalutamide may be subsequently approved. Our current and future competitors are generally large pharmaceutical companies with considerably greater financial resources, human resources, and development and commercialization resources and experiences than

 

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ours, including Johnson & Johnson, Sanofi, and Bayer Pharma AG. Some competitive drugs already have acquired substantial shares in these markets or are generic which may make it more difficult for us to compete successfully in these markets notwithstanding any positive results that we may generate from our current or potential future clinical trials for enzalutamide. Also, intense competition from products and compounds in development could impact our ability to successfully conduct upstream clinical trials, as trials may become more difficult to enroll, or complete successfully, as patients may have more treatment options with demonstrated efficacy and safety. Factors upon which XTANDI would have to compete successfully include efficacy, safety, price and cost effectiveness. We cannot guarantee that we and Astellas will be able to compete successfully in the context of any of these factors.

Pricing pressure from third party payors and price competition could substantially impact Astellas’ or our ability to generate revenue from XTANDI and, therefore, negatively impact our business.

The realized price of XTANDI could be subject to pricing pressure from aggressive competitive pricing activity and managed care organizations and institutional purchasers, who use cost considerations to restrict the sale of preferred drugs that their physicians may prescribe. To the extent that payors believe similar lower-priced, branded or generic competitor products may be suitable alternatives for patients, we and our partner Astellas may consider reducing the price of XTANDI or be subject to formulary restrictions, which could result in a loss of sales revenue and/or market share. Additionally, XTANDI currently competes against products and could compete in the future with products marketed by some of the world’s largest and most experienced pharmaceutical companies, such as Johnson & Johnson, who have more resources and greater flexibility to engage in aggressive price competition in order to gain revenues and market share. It is uncertain whether we and Astellas could successfully compete with such competition and our failure to compete or a decision to reduce the price of XTANDI in order to compete could severely impact our business.

Competition from other approved products, including those that mechanistically operate similarly to XTANDI, could negatively impact the expected use or duration of therapy of XTANDI, and impact our ability to generate revenue.

We are competing and will continue to compete against drugs that operate similarly to XTANDI. If XTANDI is unable to successfully compete for a position in the prostate cancer treatment paradigm ahead of drugs like Zytiga and/or potentially JNJ-56021927 (JNJ-927, formerly ARN-509), which are now being investigated in Phase 3 clinical studies in earlier stage prostate cancer, sales of XTANDI may be negatively impacted. In addition, the availability of multiple other approved agents to treat the same patients being treated with XTANDI could cause the treating physicians to switch patients off of XTANDI and onto competing therapies more quickly than would otherwise be the case, which could also negatively impact XTANDI net sales.

 

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*Competition from generic products could potentially harm our business and result in a decrease in our revenue.

Like other branded pharmaceutical companies, we face competition from generic products that could potentially harm our business and result in a decrease in our revenue. Such competition may arise from the loss or expiration of intellectual property rights on enzalutamide or a competitor product, or the approval by the FDA of a generic of our product or a competitor product, such as Zytiga, any of which could adversely affect our business by putting downward pressure on the price and market share of XTANDI. Generic products for the treatment of prostate cancer that have already been approved by the FDA, e.g., Casodex, are generally sold at a lower price than branded drugs. Furthermore, Abbreviated New Drug Applications (ANDAs) requesting approval for generic versions of Zytiga were submitted to the FDA on April 28, 2015. See the risk factor below entitled, “Risks Related to the Pharmaceutical Industry, Including the Activities of Medivation, Inc.— If the FDA or other applicable regulatory authorities approve generic products that compete with any of our products or product candidates, the sales of our products or product candidates may be adversely affected,” for additional information regarding general risks related to generic and biosimilar competition in our industry.

We have recently more significantly focused our marketing efforts in the United States to include urologists. If we are not successful in marketing XTANDI to urologists, the commercial potential of XTANDI may not be realized.

We have recently more significantly focused our sales and marketing efforts in the United States to include urologists as a result of the expanded label of XTANDI in the United States to treat mCRPC patients who have not received chemotherapy that we and Astellas announced on September 10, 2014. Failure to successfully commercialize XTANDI to urologists would have a negative impact on our business and future prospects.

We are dependent upon our collaborative relationship with Astellas to further develop, fund, manufacture and commercialize XTANDI, and if such relationship is unsuccessful, or if Astellas terminates our collaboration agreement with them, it could negatively impact our ability to conduct our business and generate revenue from XTANDI.

Under our collaboration agreement with Astellas, Astellas is responsible for developing, seeking regulatory approval for, and commercializing XTANDI outside the United States and is responsible globally for all manufacture of product for both clinical and commercial purposes. We and Astellas are jointly responsible for commercializing XTANDI in the United States. We and Astellas share equally the costs (subject to certain exceptions), profits and losses arising from development and commercialization of XTANDI in the United States. For clinical trials useful both in the United States and in Europe or Japan, we are responsible for one-third of the total costs and Astellas is responsible for the remaining two-thirds. We are subject to a number of risks associated with our dependence on our collaborative relationship with Astellas, including:

 

•

Astellas’ right to terminate the collaboration agreement with us on limited notice for convenience (subject to certain limitations), or for other reasons specified in the collaboration agreement;

 

•

the need for us to identify and secure on commercially reasonable terms the services of third parties to perform key activities currently performed by Astellas in the event that Astellas were to terminate its collaboration with us, including development and commercialization activities outside of the United States and manufacturing activities globally;

 

•

adverse decisions by Astellas regarding the amount and timing of resource expenditures for the commercialization of XTANDI;

 

•

failure by Astellas to negotiate favorable coverage determinations and adequate reimbursement rates with third party payors;

 

•

decisions by Astellas to prioritize other of its present or future products more highly than XTANDI for either development and/or commercial purposes;

 

•

possible disagreements with Astellas as to the timing, nature and extent of our development plans, including clinical trials or regulatory approval strategy, which if we disagree could significantly delay or halt development of XTANDI; and

 

•

the financial returns to us, if any, under our collaboration agreement with Astellas, depend in large part on the achievement of sales milestone payments and the generation of product sales, and if Astellas fails to perform or satisfy its obligations to us, the development or commercialization of XTANDI would be delayed or may not occur and our business and prospects could be materially and adversely affected.

Due to these factors and other possible disagreements with Astellas, we may be delayed or prevented from further developing, manufacturing or commercializing XTANDI or we may become involved in litigation or arbitration, which would be time consuming and expensive.

If Astellas were to terminate our collaborative relationship unilaterally, we would need to undertake development and commercialization activities for XTANDI solely at our own expense and/or seek one or more other partners for some or all of these activities, worldwide. If we pursued these activities on our own, it would significantly increase our capital and infrastructure requirements, might limit the indications we are able to pursue for XTANDI, and could prevent us from effectively commercializing XTANDI. If we sought to find one or more other pharmaceutical company partners for some or all of these activities, we may not be successful in such efforts, or they may result in collaborations that have us expending greater funds and efforts than our current relationship with Astellas.

 

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We are dependent on third party manufacturers for commercial supply of XTANDI and for clinical trial materials and if we fail to receive such adequate supplies, global sales of XTANDI could be limited and clinical trials could be delayed.

We require adequate supplies of enzalutamide for commercial supply of XTANDI, and for use in clinical trials. Under our collaboration agreement, Astellas has the responsibility to manufacture commercial supplies of XTANDI for all markets and provide material for clinical studies. Astellas fulfills its manufacturing and supply obligations largely through third-party contract manufacturers. Consequently, we are, and expect to remain, dependent on Astellas and its contract manufacturers for commercial and clinical trial materials. If Astellas cannot provide the materials on a timely basis due to, for example, raw materials availability, quality issues or failure of the contracting facilities to perform, it could result in decreased sales or put at risk on-going clinical studies. If Astellas or its contract manufacturers do not perform, we may be forced to incur additional expenses, delays, or both, to arrange or take responsibility for contract manufacturers to manufacture or package XTANDI or enzalutamide on our behalf, as we do not have any internal manufacturing or packaging capabilities.

We also rely on our own third-party vendors for clinical supplies. If clinical supplies cannot be provided on a timely basis it could put at risk our sponsored clinical studies with XTANDI or enzalutamide.

In some instances, we and Astellas are dependent on third party suppliers of raw materials, intermediates or finished goods of commercial supplies of XTANDI and clinical trial materials. If any of these suppliers or subcontractors fails to meet our or Astellas’ needs, we may not have readily available alternatives. If we or Astellas experience a material supplier or subcontractor inability to supply, our ability to satisfactorily and timely complete our clinical trial or delivery obligations could be negatively impacted which could result in reduced sales, termination of contracts and damages to our relationships with clinical trial sites and the medical community. We could also incur additional costs to address and resolve such an issue. Any of these events could have a negative impact on our results of operations and financial condition.

We are dependent on Astellas to distribute and sell XTANDI, and if Astellas fails to adequately perform these activities, our business would be negatively impacted.

Under our collaboration agreement with Astellas, we and Astellas have the right to jointly promote XTANDI to customers in the United States. However, Astellas has the sole right to distribute and sell XTANDI to customers in the United States and the sole right to promote, distribute and sell XTANDI to customers outside the United States. We are thus partially dependent on Astellas to successfully promote XTANDI in the United States, and solely dependent on Astellas to successfully distribute and sell XTANDI in the United States and to promote, distribute and sell XTANDI outside of the United States. In the United States, we depend on customer support from specialty pharmaceutical distributors and wholesalers in Astellas’ network. Astellas has contracted with a limited number of specialty pharmaceutical distributors and wholesalers to deliver XTANDI to end users. The use of specialty pharmacies and wholesalers requires significant coordination with Astellas’ sales and marketing, medical affairs, regulatory affairs, legal and finance organizations and involves risks, including but not limited to risks that these specialty pharmacies and wholesalers will:

 

•

not provide Astellas accurate or timely information regarding their inventories, patient- or account-level data or safety complaints regarding XTANDI;

 

•

not effectively sell or support XTANDI;

 

•

not devote the resources necessary to sell XTANDI in the volumes and within the timeframes that we expect; or

 

•

cease operations.

We generally do not have control over the resource or degree of effort that any of the specialty pharmacies and distributors may devote to XTANDI, and if their performance is substandard, this will adversely affect sales of XTANDI. If Astellas’ network of specialty pharmacies and distributors fails to adequately perform, it could negatively impact sales of XTANDI, which would negatively impact our business, results of our operations, cash flows and liquidity.

XTANDI may not be commercially successful if not widely-covered and appropriately reimbursed by third-party payors, and we are dependent upon Astellas for the execution of third-party payor access and reimbursement strategies for XTANDI.

Our ability to successfully commercialize XTANDI for its approved indications depends, in part, on the extent to which coverage and adequate reimbursement for XTANDI is available from government and health administration authorities, private health insurers, managed care programs and other third-party payors, both in the United States and globally.

 

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In addition, even if third-party payors ultimately elect to cover and reimburse XTANDI, most payors will not reimburse 100% of the cost, but rather require patients to pay a portion of the cost through a co-payment. Thus, even if reimbursement is available, the percentage of drug cost required to be borne by the patients may make use of XTANDI financially difficult or impossible for certain patients, which would have a negative impact on sales of XTANDI. For example, in the United States there exists a coverage gap, or “donut hole”, in the Medicare Part D coverage for prescription medications for participants, which renews annually each January 1st. While in the donut hole, Medicare Part D participants, including many patients in XTANDI’s approved indication, may have to pay out of pocket a substantial portion of their prescription drug costs, which may discourage physicians from prescribing or patients from accessing XTANDI. It is increasingly difficult to obtain coverage and adequate reimbursement levels from third-party payors, and we may be unable to achieve these objectives. Moreover, our commercial prospects would be further weakened if payors approve coverage for XTANDI only as second- or later-line treatments, or if they place XTANDI in tiers requiring unacceptably high patient co-payments. Since launch, several third-party payors and at least one government payor have approved coverage for XTANDI only after patient treatment on Zytiga plus prednisone. These coverage situations may persist even with expanded indications for XTANDI. Because XTANDI works via a similar molecular signaling pathway as Zytiga does, patients who have already failed treatment with Zytiga may not have as strong a response on XTANDI as would patients who are Zytiga-naïve. Failure to overturn coverage decisions or stop additional coverage decisions could materially harm our (or our partner’s) ability to successfully market XTANDI in the United States. Achieving coverage and acceptable reimbursement levels typically involves negotiating with individual payors and is a time-consuming and costly process. Therefore, obtaining acceptable coverage and reimbursement from one payor does not guarantee similar acceptable coverage or reimbursement from another payor. Additionally, even if favorable coverage and adequate reimbursement levels are achieved, the payor may change its decision in the future. We are dependent upon Astellas globally for the achievement of such coverage and acceptable reimbursement, and for negotiation with individual payors.

We and Astellas are required to undertake certain studies to comply with post-marketing requirements or commitments in the EU and the United States, which could result in adverse modifications to XTANDI’s existing labeling, and risk XTANDI’s ability to obtain additional regulatory approvals for additional patient populations.

In the EU, we and Astellas are required to collect efficacy data on mCRPC patients previously treated with Zytiga to determine XTANDI’s efficacy response in such patients, which we do not expect to be as good as in patients naïve to Zytiga. In the United States, we and Astellas are required to conduct an open-label safety study of XTANDI in patients with known risk factor(s) for seizure and to report the results of that study to the FDA in 2019. If the results of this study reveal unacceptable safety risks, this could result in decreased commercial utilization of XTANDI for mCRPC patients in the United States and in the EU, failure to obtain approval in other indications (including breast cancer), and modifications to the existing label for XTANDI, including potentially a boxed warning, or additional clinical testing. Any one or more of these outcomes would seriously harm our business. Additionally, we could receive additional post-marketing requirements as we seek approval of XTANDI in additional patient populations. Failure to conduct the post-marketing requirements or commitments in a timely manner may result in withdrawal of approval for XTANDI and substantial civil and/or criminal penalties.

*If significant patient safety issues arise for XTANDI or our product candidates, our future sales may be reduced, which would adversely affect our results of operations.

The data supporting the marketing approvals for our products and forming the basis for the safety warnings in our product labels were obtained in controlled clinical trials of limited duration and, in some cases, from post-approval use. As our products are used over longer periods of time by many patients with underlying health problems, taking numerous other medicines, we expect to continue to find new issues such as safety, resistance or drug interactions of XTANDI or in other products, which may require us to provide additional warnings or contraindications on our labels or narrow our approved indications, each of which could reduce the market acceptance of these products. For example, on February 5, 2015, based upon routine pharmacovigilance review and signal detection, we and Astellas submitted a proposed label change to the FDA after identifying two post-marketing reports of posterior reversible encephalopathy syndrome (PRES) in patients receiving XTANDI. PRES is a neurological disorder which can present with rapidly evolving symptoms including seizure, headache, lethargy, confusion, blindness, and other visual and neurological disturbances, with or without associated hypertension. A diagnosis of PRES requires confirmation by brain imaging, preferably magnetic resonance imaging (MRI). Because PRES was reported voluntarily from a post-marketing population of uncertain size, it is not possible to reliably estimate the frequency or establish a causal relationship to XTANDI. Our proposed label change was approved by the FDA in August 2015. Discontinue XTANDI in patients who develop PRES.

Regulatory authorities have been moving towards more active and transparent pharmacovigilance and are making greater amounts of stand-alone safety information directly available to the public through websites and other means, e.g., periodic safety update report summaries, risk management plan summaries and various adverse event data. Safety information, without the appropriate context and expertise, may be misinterpreted and lead to misperception or legal action which may potentially cause our product sales or stock price to decline.

Further, if serious safety, resistance or drug interaction issues arise with XTANDI, product sales could be limited or halted by us or by regulatory authorities and our results of operations would be adversely affected.

 

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XTANDI and any other product candidates that may receive regulatory approval in the future will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense as well as significant penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products and product candidates.

We are required to monitor the safety and efficacy of XTANDI and any other products candidates that are approved by the FDA. In addition, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for any approved products, such as XTANDI, will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration and listing, as well as continued compliance with current good clinical practices, or cGCP, for any clinical trials that we conduct post-approval. We and our contract manufacturers will be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with current good manufacturing practices, or cGMP. We must also comply with requirements concerning advertising and promotion for XTANDI and any other product candidates for which we obtain marketing approval in the future. Promotional communications with respect to prescription drugs, including biologics, are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we will not be able to promote XTANDI or any other products candidates for which we might obtain approval in the future for indications or uses for which they are not approved. Later discovery of previously unknown problems with XTANDI or any other product candidate for which we might obtain approval in the future, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

•

restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;

 

•

restrictions on such products’ manufacturing processes;

 

•

restrictions on the marketing of a product;

 

•

restrictions on product distribution;

 

•

requirements to conduct post-marketing clinical trials;

 

•

untitled or warning letters;

 

•

withdrawal of the products from the market;

 

•

refusal to approve pending applications or supplements to approved applications that we submit;

 

•

recall of products;

 

•

fines, restitution or disgorgement of profits or revenue;

 

•

suspension or withdrawal of regulatory approvals;

 

•

refusal to permit the import or export of our products;

 

•

product seizure;

 

•

injunctions;

 

•

imposition of civil penalties; or

 

•

criminal prosecution.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could affect the marketing of XTANDI or prevent, limit or delay regulatory approval of our other product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

* If we are unable to successfully develop enzalutamide for breast cancer with a suitable diagnostic, we may not be able to obtain regulatory approval for enzalutamide for breast cancer or realize the full potential for enzalutamide.

We may initiate a Phase 3 clinical trial evaluating enzalutamide in triple negative breast cancer (“TNBC”). A key element of our strategy to develop enzalutamide in TNBC is the use of a companion diagnostic to screen for patients who are likely to have androgen-driven TNBC. This strategy, if successful, will enable us to identify patients more likely to benefit from treatment with enzalutamide. Patients who are diagnostic-negative are not likely to benefit from enzalutamide. Both regulatory approval and, if approval is obtained, successful commercialization of enzalutamide in androgen-driven TNBC will, therefore, likely depend on our successful development of such a companion diagnostic.

 

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We expect that we may enter into strategic alliances with a third party to develop the companion diagnostic. However, we may be unable to negotiate terms satisfactory to us or may not be able to conclude any strategic alliance in a timely manner, either of which may adversely impact our ability to develop and/or successfully commercialize enzalutamide in TNBC. Furthermore, we and any such strategic partners may encounter difficulties in developing enzalutamide for TNBC and/or developing the companion diagnostic for clinical, regulatory and/or commercial reasons including issues related to analytical validation, reproducibility or clinical validation.

Companion diagnostics are subject to regulation by the FDA as a medical device and require separate regulatory clearance prior to commercialization. Companion diagnostics are also subject to regulation by foreign regulatory authorities and such regulations may change or new regulations may be enacted during our development of the companion diagnostic. We may be unable to alter our development program in time to comply with the revised or new regulations, or we may only be able to do so by expending greater funds and efforts, and any delay or failure to obtain regulatory approval could delay or prevent the approval of enzalutamide for TNBC.

Risks Related to our License and Manufacturing and Supply Agreement with CureTech, Ltd.

*The clinical molecule MDV9300 we licensed from CureTech is a biologic molecule, and we do not have long-standing experience or expertise in the development, manufacture, or commercialization of biologic molecules.

Under the license agreement, we are responsible for all development, manufacturing, and commercialization activities for MDV9300 for all indications, including in oncology. We have limited history, experience, or expertise in the development, manufacturing and commercialization, including regulatory interactions, commercial manufacturing, and distribution of biologic molecules, like MDV9300.

The successful development, testing, manufacturing and commercialization of biologics involves a long, expensive, and uncertain process. There are unique risks and uncertainties with biologics, including:

 

•

The development, manufacturing and marketing of biologics are subject to regulation by the FDA, the EMA, and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products;

 

•

Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living cells. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. For MDV9300, we plan to implement changes in manufacturing site and to improve the manufacturing process as well as the critical analytical assays. Comparability data will be required to support these changes; and

 

•

The use of biologically derived ingredients can lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination. Any of these events could result in substantial costs.

We are currently dependent on CureTech to produce clinical supply of MDV9300 that meets global regulatory standards and CureTech is dependent on its suppliers for sufficient quantities of raw materials, starting materials, and supplies. If CureTech fails to manufacture clinical supply of MDV9300 in sufficient quantities or fails to source raw or starting materials or supplies in sufficient quantities, our ability to conduct clinical trials could be delayed or otherwise negatively impacted.

Our failure to successfully develop, manufacture, or commercialize MDV9300 could significantly impact our ability to generate value from the License Agreement with CureTech.

The development and commercialization of MDV9300 may face strong competition from other immunomodulatory antibodies as well as other immuno-oncology agents, which have already received marketing approval and are being developed for additional indications, as well as by larger companies with substantial resources and relatively more experience developing, manufacturing, and commercializing biologic molecules.

The immuno-oncology field is competitively crowded with biologics molecules and other agents, including immunomodulatory antibodies as well as other immuno-oncology agents, like MDV9300, currently approved and on the market or in development for various tumor types and patient populations by larger more experienced companies than ours, such as Bristol Myers Squibb, Roche, AstraZeneca plc, Pfizer and Merck, Inc. This competitive environment could compromise our ability to develop MDV9300 by limiting the availability of clinical trial investigators, sites, and/or appropriate clinical patients, which could slow, delay or limit the progress of MDV9300’s development. In addition, if we are able to successfully develop MDV9300 and obtain regulatory

 

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approval for it in an oncology indication, it will likely face competition from already approved immunomodulatory molecules and other agents in the same or similar oncology indications. This could significantly limit our ability to generate revenue from MDV9300. While we have some experience developing and in certain aspects of the commercialization of small molecule products, we may be required to hire additional qualified employees with experience in the development, manufacturing, and commercialization, including regulatory interactions, commercial manufacturing, and distributing biological molecules, like MDV9300. Many of our competitors are large, multinational pharmaceutical and biotechnology companies with considerably more resources and experience with biological molecules than us.

Risks Related to Our Future Product Development Candidates

Our business strategy depends on our ability to identify and acquire additional product candidates which we may never acquire or identify for reasons that may not be in our control, or are otherwise unforeseen or unforeseeable to us.

A key component of our business strategy is to diversify our product development risk by identifying and acquiring new product opportunities for development. However, we may not be able to identify promising new technologies. In addition, the competition to acquire promising biomedical technologies is fierce, and many of our competitors are large, multinational pharmaceutical, biotechnology and medical device companies with considerably more financial, development and commercialization resources and experience than we have. Thus, even if we succeed in identifying promising technologies, we may not be able to compete against our larger competitors with considerably more financial resources or we may not be able to acquire rights to them on acceptable terms or at all. If we are unable to identify and acquire new technologies, we will be unable to diversify our product risk. We believe that any such failure would have a significant negative impact on our prospects.

Pharmaceutical and biological product candidates require extensive, time-consuming and expensive preclinical and clinical testing to establish safety and efficacy, and to obtain regulatory approval. If we are unable to successfully develop and test our product candidates, we will not be successful.

The research and development of pharmaceuticals and biological products is an extremely risky industry. Only a small percentage of product candidates that enter the development process ever receive regulatory approval. The process of conducting the preclinical and clinical testing required to establish safety and efficacy and obtain regulatory approval is expensive and uncertain and takes many years. If we are unable to complete preclinical or clinical trials of current or future product candidates, due to safety concerns with a product candidate, or if the results of these trials are not satisfactory to convince regulatory authorities of their safety or efficacy, we will not be able to obtain regulatory approval for commercialization. We cannot be certain if any of our product candidates will be approved by regulatory authorities. Furthermore, even if we are able to obtain regulatory approvals for any of our product candidates, those approvals may be for indications that are not as broad as desired or may contain other limitations that would adversely affect our ability to generate revenue from sales of those products. If this occurs, our business would be materially harmed and our ability to generate revenue would be severely impaired.

Enrollment and retention of patients in clinical trials of enzalutamide and other product candidates are expensive and time-consuming processes, could be made more difficult or rendered impossible by competing treatments or clinical trials of competing drugs in the same or other indications, and could result in significant delays, cost overruns, or both, in our product development activities, or in the failure of such activities.

We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the study. Furthermore, any negative results we may report in clinical trials of enzalutamide or any potential future product candidates may make it difficult or impossible to recruit and retain patients in other clinical studies of that same product candidate. Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop enzalutamide or any product candidates, or could render further development impossible.

Our reliance on third parties for the operation of our business may result in material delays, cost overruns and/or quality deficiencies in our development programs.

We currently rely on third party vendors to perform key product development tasks, such as conducting preclinical and clinical studies and manufacturing our product candidates at appropriate scale for preclinical and clinical trials. In addition, we currently rely on Astellas and its third party vendors to supply commercial quantities of XTANDI. To manage our business successfully, we will need to identify, engage and properly manage qualified third party vendors that will perform these development and manufacturing

 

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activities. For example, we need to monitor the activities of our vendors closely to ensure that they are performing their tasks correctly, on time, on budget and in compliance with strictly enforced regulatory standards. Our ability to identify and retain key vendors with the requisite knowledge is critical to our business and the failure to do so could negatively impact our business. Because all of our key vendors perform services for other clients in addition to us, we also need to ensure that they are appropriately prioritizing our projects. If we fail to manage our key vendors well, we could incur material delays, cost overruns or quality deficiencies in our development and commercialization programs, as well as other material disruptions to our business.

Risks Related to the Operation of our Business

We may incur substantial costs in the foreseeable future as we continue our development and commercialization activities and may never achieve, maintain, or increase profitability to the degree contemplated on a quarterly or annual basis.

We have incurred significant costs principally from funding our research and development activities, from general and administrative expenses and from our XTANDI commercialization activities. We may incur substantial costs in the foreseeable future as we continue to finance the commercialization of XTANDI in the U.S. market, clinical and preclinical studies of enzalutamide, MDV9300, MDV3800, and early stage programs, potential business development activities, and our corporate overhead costs, which could impact our ability to achieve, maintain, or increase profitability on a quarterly or annual basis. Our ability to generate revenue sufficient to offset these costs in order to achieve, maintain, or increase profitability on a quarterly or annual basis is dependent on our ability, alone or with collaboration partners, to successfully commercialize products for which we receive marketing approval.

*Our operating results are unpredictable and may fluctuate. If our operating results are below the expectations of securities analysts or investors, the market value of our common stock could decline.

Our operating results are difficult to predict and will likely fluctuate from quarter to quarter and year to year. Due to the competitive market for mCRPC therapies, XTANDI net sales will be difficult to predict from period to period. As a result, you should not rely on XTANDI net sales results in any period as being indicative of future performance and sales of XTANDI may be below the expectation of securities analysts or investors in the future. Additionally, you should not place undue reliance on the forward-looking statements about expectations for future XTANDI net sales from our partner Astellas, as we may not agree with such statements, or from us, as XTANDI net sales results are difficult to predict. We believe that our quarterly and annual results of operations may be affected by a variety of factors, including:

 

•

the level of demand for XTANDI;

 

•

the extent to which coverage and reimbursement for XTANDI is available from government and health administration authorities, private health insurers, managed care programs and other third-party payors;

 

•

the timing, cost and level of investment in our and Astellas’ sales and marketing efforts to support XTANDI sales;

 

•

the timing, cost and level of investment in our research and development activities involving XTANDI and our product candidates;

 

•

the cost of manufacturing XTANDI, and the amount of legally mandated discounts to government entities, other discounts and rebates, product returns and other gross-to-net deductions;

 

•

the risk/benefit profile, cost and reimbursement of existing and potential future branded and generic drugs which compete with XTANDI;

 

•

the timeliness and accuracy of financial information we receive from Astellas regarding XTANDI net sales globally, and shared U.S. development and commercialization costs for XTANDI incurred by Astellas, including the accuracy of the estimates Astellas uses in calculating any such financial information including for gross to net revenue adjustments;

 

•

inventory levels at pharmaceutical wholesalers and distributors;

 

•

expenditures that we will or may incur to acquire or develop additional technologies, product candidates and products; and

 

•

the impact of fluctuations in foreign currency exchange rates.

In addition, our collaboration revenue will also depend on the achievement of sales milestones that trigger milestone payments under our existing collaboration with Astellas, as well as any upfront and milestone payments under potential future collaboration and license agreements. These upfront and milestone payments may vary significantly from quarter to quarter and any such variance could cause a significant fluctuation in our operating results from one quarter to the next. We measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as a non-cash operating expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the non-cash expense that we must recognize may vary significantly. Each reporting period, we revalue contingent consideration obligations associated with

 

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business acquisitions to their fair value and record increases in fair value as non-cash contingent consideration expense and decreases in fair value as non-cash contingent consideration income. Changes in contingent consideration result from changes in assumptions regarding the probability of successful achievement of related milestones, the estimated timing in which the milestones may be achieved and the discount rates used to estimate the fair value of the liability. Contingent consideration may change significantly as our development programs progress, revenue estimates evolve and additional data is obtained, impacting our estimates.

For these and other reasons, it is difficult for us to accurately forecast future profits or losses. As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors.

Sales fluctuations of XTANDI as a result of inventory levels at pharmaceutical wholesalers and distributors may cause our revenue to fluctuate, which could adversely affect our financial results and the market value of our common stock.

The pharmaceutical wholesalers and distributors with whom Astellas has entered into inventory management agreements make estimates to determine end user demand and may not be completely effective in matching their inventory levels to actual end user demand. As a result, changes in inventory levels held by those wholesalers and distributors can cause our operating results to fluctuate unexpectedly if sales of XTANDI to these wholesalers do not match end user demand. Adverse changes in economic conditions or other factors may cause wholesalers and distributors to reduce their inventories of XTANDI. As inventory of XTANDI in the distribution channel fluctuates from quarter to quarter, we may see fluctuations in collaboration revenue from XTANDI net sales.

A significant and growing amount of the collaboration revenue we generate is in currency other than U.S. dollars, which exposes us to foreign exchange risk.

A significant and growing amount of our collaboration revenue is generated from royalties on ex-U.S. net sales of XTANDI. The royalties we receive from Astellas on net sales of XTANDI outside of the United States are calculated by converting the respective countries’ XTANDI net sales in local currency to U.S. dollars. The royalties are paid to us in U.S. dollars on a quarterly basis. A strengthening of the U.S. dollar compared to current exchange rates, would likely result in lower collaboration revenue related to ex-U.S. XTANDI net sales than otherwise would have been reported as a result of such unfavorable exchange rate movements.

We currently do not actively hedge our exposures to fluctuations in foreign currency. Depending on the size of the exposures and the relative movements of exchange rates, if we choose not to hedge or fail to hedge effectively our exposure, we could experience adverse effects on our financial statements and financial condition.

*If we fail to attract and keep senior management personnel, we may be unable to successfully develop our product candidates, identify and acquire promising new technologies, conduct our clinical trials, and commercialize our products, and our business could be harmed.

Our future success depends upon the continued services of our executive officers and our ability to attract, retain, and motivate highly qualified management to oversee our business. None of our executive officers is bound by an employment agreement for any specific term, and they may terminate their employment at any time. We are particularly dependent on the continued services of David Hung, M.D., our president and chief executive officer and a member of our board of directors. Dr. Hung identified enzalutamide for acquisition and has primary responsibility for identifying and evaluating other potential product candidates. We believe that Dr. Hung’s services in this capacity would be difficult to replace.

Dr. Lynn Seely, our former chief medical officer, retired from her position effective October 15, 2015. Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceutical fields is intense, especially in the San Francisco Bay Area. The loss of any of our executive officers or a significant turnover in our senior management could impair the successful commercialization of XTANDI, delay or prevent continued development activities for enzalutamide, MDV9300, MDV3800 and other product candidates, delay or prevent the transfer and integration of MDV3800 into our business and adversely affect or preclude the identification and acquisition of new product candidates, any of which events could harm our business.

In addition, we will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms.

We may encounter difficulties in managing our growth and expanding our operations successfully.

Our business has experienced significant growth, which we expect will continue as we expand our commercialization efforts for XTANDI, seek to advance our product candidates through clinical trials, and integrate the acquisition of MDV3800 and other potential business development activities. We expect that we will need to expand our development, regulatory, manufacturing,

 

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and commercial capabilities in concert with contracting with third parties to provide certain of these activities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth may impose significant added responsibilities on members of management. Our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our commercialization and development activities and clinical trials effectively and hire, train and integrate additional personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

*Our significant level of debt and lease obligations could adversely affect our financial condition. In addition, we may not have sufficient funds to service our debt and lease obligations when payments are due.

At September 30, 2015, we had $75.0 million outstanding under our Existing Revolving Credit Facility and approximately $57.8 million of minimum lease commitments. On October 23, 2015, we entered into an amendment and restatement of our Existing Credit Agreement, which provides for (i) a five-year $300.0 million Revolving Credit Facility; and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions. On October 23, 2015, we borrowed $75.0 million under the Revolving Credit Facility, which was used to repay the $75.0 million outstanding at September 30, 2015. We may incur additional indebtedness to meet future financing needs, including for example in connection with business development activities and for other general corporate purposes. Substantial indebtedness could have significant effects on our business, results of operations and financial condition. For example, it could:

 

•

make it more difficult for us to satisfy our financial obligations, including with respect to our debt and lease obligations;

 

•

increase our vulnerability to general adverse economic, industry and competitive conditions;

 

•

reduce the availability of our cash resources to fund our operations because we will be required to dedicate a substantial portion of our cash resources to the payment of principal and interest on our indebtedness and lease payments;

 

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

•

place us at a competitive disadvantage compared to our competitors that are less highly leveraged and that, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploring; and

 

•

limit our ability to obtain financing.

Each of these factors may have a material and adverse effect on our financial condition and viability.

*We may need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, scale back or eliminate some or all of our development programs and other operations, restructure or refinance our indebtedness, or any combination of the foregoing. Raising additional capital may subject us to unfavorable terms, cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates and technologies.

We require significant capital to fund our operations. We have historically funded our operations primarily through public offerings of our common stock, the issuance of the Convertible Notes, and from the upfront, milestone, and cost-sharing payments under agreements with our current and former collaboration partners, from collaboration revenue related to XTANDI net sales and, subsequent to September 17, 2015, from short-term borrowings under a Revolving Credit Facility. At September 30, 2015, we had cash and cash equivalents totaling $488.9 million available to fund our operations. In October 2015, we utilized $410.0 million of our cash balances to pay an upfront fee to BioMarin under the terms of the Asset Purchase Agreement for MDV3800. We expect to spend substantial amounts of capital for our operations in the future. Based on our current expectations, we believe our current capital resources, amounts available to us under our Revolving Credit Facility, and projected cash flows will be sufficient to fund our currently planned operations for at least the next twelve months. This estimate is based on a number of assumptions that may prove to be wrong, including assumptions regarding the amount and timing of net sales of XTANDI, potential XTANDI approvals in new markets and for other indications, and potential receipt of profit sharing, royalty, and milestone payments under our Astellas Collaboration Agreement, and we could exhaust our available cash, cash equivalents, and short-term investments. For example, we may be required or choose to seek additional capital to fund the costs of commercialization of XTANDI in the United States, to expand our preclinical and clinical development activities for enzalutamide, MDV9300, MDV3800 and other existing or potential future product candidates, to fund business acquisitions, investments or to in-license technologies, if we face challenges or delays in connection with our clinical trials, and to maintain minimum cash balances that we deem reasonable and prudent. Our ability to raise additional funds on acceptable terms will be dependent on the climate of worldwide capital markets, which could be challenging.

 

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*We may be constrained by our obligations under the Credit Agreement to operate our business to its full potential.

The terms of our Credit Agreement contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. Furthermore, under the terms of the Credit Agreement, we are required to comply with a maximum senior secured net leverage ratio and minimum interest coverage ratio covenants. These terms may restrict our ability to operate our business in the manner we deem most effective or desirable, and may restrict our ability to fund our operations through new public offerings of our common stock or strengthen our candidate development pipeline through acquisitions or in-licenses which cause us to exceed our maximum senior secured net leverage ratio.

Failure to comply with the representations and warranties or affirmative and negative covenants could constitute an event of default which, if continued beyond the cure period, would allow the Administrative Agent (as defined in the Credit Agreement), at the request of or with the consent of the Lenders holding a majority of the loans and commitments under the facility, to terminate the commitments of the Lenders to make further loans and declare all the obligations of the Loan Parties under the Credit Agreement to be immediately due and payable, either of which would harm our business.

We may have additional tax liabilities.

We are subject to income taxes in various jurisdictions. Significant judgment is required in determining our provision for income taxes and other tax liabilities. Our effective income tax rate in the future is subject to volatility and could be adversely affected by a number of factors, including: interpretations of existing tax laws; changes in tax laws and rates; future levels of research and development expenditures; changes in the mix of earnings in countries with differing statutory tax rates in which we may conduct business; changes in the valuation of deferred tax assets and liabilities; state income taxes; the tax impact of stock-based compensation; changes in estimates of prior years’ items; tax costs for acquisition-related items; changes in accounting standards; non-deductible officers’ compensation; limitations on the utilization of net operating losses and tax credits due to changes in ownership; and overall levels of income before taxes. The impact of our income tax provision resulting from these items may be significant and could have a negative impact on our net income.

We are also subject to non-income based taxes, such as payroll, sales, use, net worth, property, and goods and services taxes in the United States. We may have additional exposure to non-income based tax liabilities.

We are regularly subject to audits by tax authorities in the jurisdictions in which we conduct business. Although we believe our tax positions are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our historical income tax provisions and accruals, and we could be subject to assessments of additional taxes and/or substantial fines or penalties. The resolution of any audits or litigation could have an adverse effect on our financial position and results of operations.

We and our subsidiaries are engaged in a number of intercompany transactions. Although we believe that these transactions reflect arm’s length terms and that proper transfer pricing documentation is in place, which should be respected for tax purposes, the transfer prices and terms and conditions of such transactions may be scrutinized by tax authorities, which could result in additional tax and/or penalties becoming due.

Intellectual property protection for our product candidates is crucial to our business, and is subject to a significant degree of legal risk, particularly in the life sciences industry.

The success of our business will depend in part on our ability to maintain and obtain intellectual property protection, primarily patent protection for the XTANDI product and any potential future product candidates, as well as successfully asserting and defending these patents against third-party challenges. We and our collaborators will only be able to protect the XTANDI product and our potential future product candidates from unauthorized commercialization by third parties to the extent that valid and enforceable patents or trade secrets cover them. Furthermore, future protection of our proprietary rights is uncertain because legal means may afford only limited protection and may not adequately protect our rights or permit us or our potential future collaborators to gain or keep our competitive advantage.

The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Further, changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property rights. Accordingly, we cannot predict the breadth of claims that may be granted or enforced for our patents or for third-party patents that we have licensed. For example:

 

•

we or our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

 

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•

we or our licensors might not have been the first to file patent applications for these inventions;

 

•

others may independently develop similar or alternative technologies or duplicate any of our technologies;

 

•

it is possible that none of our pending patent applications or the pending patent applications of our licensors will result in issued patents;

 

•

our issued patents and future issued patents, or those of our licensors, may not provide a basis for protecting commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties and invalidated or rendered unenforceable; and

 

•

we may not develop additional proprietary technologies or product candidates that are patentable.

Further, even if we can obtain protection for and defend the intellectual property position of the XTANDI product or any potential future product candidates, we or any of our potential future collaborators still may not be able to exclude competitors from developing or marketing competing drugs. Should this occur, we and our potential future collaborators may not generate any revenues or profits from the XTANDI product or any potential future product candidates or our revenue or profits would be significantly decreased.

*We could become subject to litigation or other challenges regarding intellectual property rights, which could divert management attention, cause us to incur significant costs, prevent us from selling or using the challenged technology and/or subject us to competition by lower priced generic products.

Generic and other pharmaceutical manufacturers are and have been very aggressive in challenging the validity of patents held by proprietary pharmaceutical companies, especially if these patents are commercially significant. Pursuant to the provisions of the Hatch-Waxman Act, the XTANDI patents listed in the FDA “Orange Book” could be challenged by generic manufacturers as early as four years from the initial approval of the XTANDI product in the United States. Outside the United States, we currently are facing three pre-grant patent oppositions in India, and we may face additional challenges to our existing or future patents covering the XTANDI product or any potential future product candidates. If a generic pharmaceutical company or other third party were able to successfully invalidate any of our present or future patents, the XTANDI product and any potential future product candidates that may ultimately receive marketing approval could face additional competition from lower-priced generic products that would result in significant price and revenue erosion and have a significantly negative impact on the commercial viability of the affected product candidate(s).

In the future, we may be a party to litigation to protect our intellectual property or to defend our activities in response to alleged infringement of a third party’s intellectual property. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation, or a narrowing of the scope, of our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to litigate and resolve and would divert management time and attention. Any potential intellectual property litigation also could force us or our licensees to do one or more of the following:

 

•

discontinue our products that use or are covered by the challenged intellectual property; or

 

•

obtain from the owner of the allegedly infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all.

If we or our licensees are forced to take any of these actions, our business may be seriously harmed. Although we carry general liability insurance, our insurance does not cover potential claims of this type.

In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings, inter parties review, post-grant review, derivation proceedings and pre-grant submissions. Any such challenge, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to the challenge. Any such challenges, regardless of their success, would likely be time-consuming and expensive to defend and resolve and would divert our management’s time and attention.

We may in the future initiate claims or litigation against third parties for infringement to protect our proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and the diversion of our technical and management personnel and we may not prevail in making these claims.

 

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We rely on license agreements for certain aspects of our product candidates and our technology, and failure to meet our obligations under those agreements could severely negatively impact our business, and ability to generate revenue.

We have entered into agreements with third-party commercial and academic institutions to license intellectual property rights and technology. For example, we have a license agreement with UCLA pursuant to which we were granted exclusive worldwide rights to certain UCLA patents related to XTANDI and a family of related compounds. Some of these license agreements, including our license agreement with UCLA, contain diligence and milestone-based termination provisions, in which case our failure to meet any agreed upon diligence requirements or milestones may allow the licensor to terminate the agreement. If our licensors terminate our license agreements or if we are unable to maintain the exclusivity of our exclusive license agreements, we may be unable to continue to develop and commercialize XTANDI or any potential future product candidates based on licensed intellectual property rights and technology.

In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

From time to time we may be required to license technology from additional third parties to further develop XTANDI and any future product candidates. Should we be required to obtain licenses to any third-party technology, including any such patents based on biological activities or required to manufacture our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop any of our product candidates could cause us to abandon any related development efforts, which could seriously harm our business and operations.

We may become involved in disputes with Astellas or any potential future collaborators over intellectual property ownership, and publications by our research collaborators and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in either case, could have a significant impact on our business.

Inventions discovered under research, material transfer or other such collaboration agreements, including the Astellas Collaboration Agreement, may become jointly owned by us and the other party to such agreements in some cases and the exclusive property of either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not able to protect or license rights to these inventions. In addition, our research collaborators and scientific advisors generally have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our research collaborators and scientific advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information, which could significantly harm our business.

Trade secrets may not provide adequate protection for our business and technology.

We also rely on trade secrets to protect our technology, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, our or any potential collaborators’ employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our information to competitors. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, our enforcement efforts would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, if our competitors independently develop equivalent knowledge, methods or know-how, it will be more difficult or impossible for us to enforce our rights and our business could be harmed.

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex and interdependent information technology systems to support business processes as well as internal and external communications. The size and complexity of our computerized information systems make them vulnerable to breakdown, malicious intrusion, catastrophic events, computer viruses, and human error. We have experienced at least one successful intrusion into our computer systems, and although it did not have a material adverse effect on our operations, there can be no assurance of a similar result in the future. We have developed systems and processes that are designed to protect our information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach; however, such measures cannot provide absolute security, and we have taken and are continually taking additional security measures to protect against any future intrusion, including employee training. We may also face risks associated with significant disruptions of information technology systems or breaches of data security that could occur at third parties with whom we have relationships such as third party clinical research organizations, third party clinical manufacturing organization, clinical trial sites, current and potential future collaboration partners, and administrators of our corporate employee benefit plans. Any failure to protect against breakdowns, malicious intrusions and computer viruses may result in the impairment of production and key business processes. In addition, our systems are potentially vulnerable to data security breaches, whether by employees or others, which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information of our employees, clinical trial patients, customers, and others. Such disruptions and breaches of security could expose us to liability and have a material adverse effect on the operating results and financial condition of our business.

 

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Risks generally associated with a company-wide implementation of an enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.

We commenced implementation of a company-wide ERP system to upgrade certain existing business, operational, and financial processes. ERP implementations are complex and time-consuming projects that may require a year or more to complete. Our results of operations could be adversely affected if we experience time delays or cost overruns during the ERP implementation process, or if the ERP system or associated process changes do not give rise to the benefits that we expect.

Risks Related to the Pharmaceutical Industry, Including the Activities of Medivation, Inc.

Our industry is highly regulated by the FDA and comparable foreign regulatory agencies. We must comply with extensive, strictly enforced regulatory requirements to develop, obtain, and maintain marketing approval for any of our product candidates.

Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information for each therapeutic indication to establish the product candidate’s safety and efficacy for its intended use. It takes years to complete the testing of a new drug, biologic or medical device and development delays and/or failure can occur at any stage of testing. Any of our present and future clinical trials may be delayed, halted or approval of any of our products may be delayed or may not be obtained due to any of the following:

 

•

any preclinical test or clinical trial may fail to produce safety and efficacy results satisfactory to the FDA or foreign regulatory authorities;

 

•

preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval;

 

•

negative or inconclusive results from a preclinical test or clinical trial or adverse medical events during a clinical trial could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are ongoing or have been completed and were successful;

 

•

the FDA or foreign regulatory authorities can place a clinical hold on a trial if, among other reasons, it finds that patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury;

 

•

the facilities that we utilize, or the processes or facilities of third party vendors, including without limitation the contract manufacturers who will be manufacturing drug substance and drug product for us or any potential collaborators, may not complete successful inspections by the FDA or foreign regulatory authorities; and

 

•

we may encounter delays or rejections based on changes in FDA policies or the policies of foreign regulatory authorities during the period in which we develop a product candidate or the period required for review of any final regulatory approval before we are able to market any product candidate.

In addition, information generated during the clinical trial process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at any stage of the approval process. Moreover, early positive preclinical or clinical trial results may not be replicated in later clinical trials. Failure to demonstrate adequately the quality, safety and efficacy of any of our product candidates would delay or prevent regulatory approval of the applicable product candidate. There can be no assurance that if clinical trials are completed, either we or our collaborative partners will submit applications for required authorizations to manufacture or market potential products or that any such application will be reviewed and approved by appropriate regulatory authorities in a timely manner, if at all.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and false claims laws and regulations. Prosecutions under such laws have increased in recent years and we may become subject to such litigation. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Commercialization of drugs and biologics that receive FDA approval are subject directly or indirectly, to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and federal False Claims Act and the state law equivalents of such laws. These laws may impact, among other things, our sales, marketing, and education programs.

The federal Anti-Kickback Statute prohibits persons and entities from knowingly and willingly soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The Anti-Kickback Statute is broad, and despite a series of narrow regulatory safe harbors and statutory exceptions, prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Penalties for violations of the federal Anti-Kickback Statute include, among other things, criminal and administrative penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, including private insurance programs.

 

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The federal False Claims Act prohibits persons and entities from knowingly filing, or causing to be filed, a false claim, or the knowing use of false statements, to obtain payment from the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government, and such individuals, commonly known as “whistleblowers,” may share in a proportion of any amounts paid by the entity to the government in fines or settlement. The frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of biotechnology and pharmaceutical companies to have to defend False Claims Act actions. When it is determined that an entity has violated the False Claims Act, the entity may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal False Claims Act. Although we have developed, implemented, and continue to improve a program for compliance with all federal and state laws, we cannot guarantee that our compliance program will be sufficient or effective, that our employees will comply with our policies and that our employees will notify us of any violation of our policies, that we will have the ability to take appropriate and timely corrective action in response to any such violation, or that we will make decisions and take actions that will necessarily limit or avoid liability for whistleblower claims that individuals, such as employees or former employees, may bring against us or that governmental authorities may prosecute against us based on information provided by individuals. If one or more individuals bring a whistleblower claim against us or if a governmental authority prosecutes a claim against us on the basis of information provided by one or more individuals, and if we are found liable and a fine and/or an injunction is imposed on us or we agree to pay a fine and/or accept an injunction in settlement of the claim, the payment of the fine and/or the curtailment of our activities consequent to the injunction could have a material adverse effect on our financial condition and impair or prevent us from conducting our business. In addition, the costs and fees associated with defending a whistleblower claim would be significant.

We may also be subject to federal criminal healthcare fraud statutes that were created by the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. The HIPAA health care fraud statute prohibits, among other things, knowingly and willfully executing, or attempting to execute a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment, and/or exclusion from government sponsored programs. The HIPAA false statements statute prohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines and/or imprisonment.

We, and our business activities, are also subject to the federal Physician Payments Sunshine Act, which is within PPACA. The federal Physician Payments Sunshine Act, and its implementing regulations, require certain manufacturers of drugs, devices, biological, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report annually information related to certain payments or other transfers of value provided to physicians and teaching hospitals and other healthcare providers. The final rule which required data collection on all payments and transfer of value took effect on August 1, 2013. The first reports were due in 2014, and the information was made publicly available on a searchable website. In addition, there has been a recent trend of increased federal and state regulation on payments made to physicians. Certain states mandate implementation of commercial compliance programs, impose restrictions on drug manufacturer marketing practices, and/or the tracking and reporting of gifts, compensation and remuneration to physicians.

We are unable to predict whether we could be subject to actions under any of these or other fraud and abuse laws, or the impact of such actions. If we are found to be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government healthcare reimbursement programs and the curtailment or restructuring of our operations, any of which could have a material adverse effect on our business and results of operations.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and other worldwide anti-bribery laws.

We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits companies and their intermediaries from making payments to non-U.S. government officials for purpose of obtaining or retaining business or securing any other improper advantage. We are also subject to similar anti-bribery laws in the jurisdictions in which we operate. Failure to comply with the FCPA or related laws governing the conduct of business with foreign government entities could disrupt our business and lead to severe criminal and civil penalties, including criminal and civil fines, denial of government reimbursement for our products and exclusion from participation in government healthcare programs. Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, any of which could have a material adverse impact on our business, financial condition, results of operations and liquidity. We could also be affected by any allegation that we, or any third party vendors that we rely on to perform key product development tasks, violated such laws.

 

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If the FDA or other applicable regulatory authorities approve generic products that compete with any of our products or product candidates, the sales of our products or product candidates may be adversely affected.

Once an NDA is approved, the product covered thereby becomes a “listed drug” which, in turn can be relied upon by potential competitors in support of an approval of an ANDA or 505(b)(2) application. U.S. laws and other applicable policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for a generic substitute. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or labeling, as our product or product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product or product candidate. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of sales of any branded product is typically lost to the generic product. Accordingly, competition from generic equivalents to our products or product candidates would materially adversely impact our revenues, profitability and cash flows and substantially limit our ability to obtain a return on the investments that we have made in our product candidates.

To the extent that we receive regulatory approval to market biological products in the future, we will face competition from biosimilar products. A growing number of companies have announced their intention to develop biosimilar products, some of which could potentially compete with our product candidates. Because of the abbreviated pathway for approval of biosimilars in the United State and abroad, we may in the future face greater competition from biosimilar products. This additional competition could have a material adverse effect on our business and results of operations.

Healthcare reform initiatives and other third-party cost-containment pressures could cause us to sell our products at lower prices, resulting in decreased revenues.

The United States and some foreign jurisdictions have enacted or are considering enacting a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to profitably sell XTANDI and other product candidates should they receive marketing approval. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively PPACA, became law in the United States. PPACA substantially changed and will continue to change the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. The provisions of PPACA most relevant to the pharmaceutical industry include:

 

•

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain governmental health care programs, not including orphan drug sales;

 

•

an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;

 

•

Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D;

 

•

extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

•

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing manufacturers’ Medicaid rebate liability;

 

•

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

•

a new requirement to report certain financial arrangements with physicians and teaching hospitals, as defined in PPACA and its implementing regulations, including reporting any payment or “transfers of value” made or distributed to physicians and teaching hospitals, and reporting any ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations;

 

•

expansion of health care fraud and abuse laws, including the federal False Claims Act and Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

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•

a licensure framework for follow-on biologic products; and

 

•

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria or maximum monthly out-of-pocket costs for patients, either of which could put additional downward pressure on the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. If we fail to successfully secure and maintain adequate coverage and reimbursement of our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and expected revenue and profitability which would have a material adverse effect on our business, results of operations and financial condition. In addition, we will face competition from other approved drugs against which we compete, and the marketers of such other drugs are likely to be significantly larger than us and therefore enjoy significantly more negotiating leverage with respect to the individual payors than we may have.

We may be subject to product liability or other litigation, which could harm our ability to efficiently and effectively conduct our business, and, if successful, could materially and adversely harm our business and financial condition as a result of the costs of liabilities that may be imposed thereby.

Our business exposes us to the risk of product liability claims that is inherent in the development, manufacturing, distribution and sale of pharmaceutical products. If XTANDI, MDV3800 which is currently in three ongoing clinical studies, MDV9300 or any other potential future product candidate harms people, or is alleged to be harmful, we may be subject to costly and damaging product liability claims brought against us by clinical trial participants, consumers, health care providers, corporate partners or others. We have product liability insurance covering commercial sales of XTANDI and our ongoing clinical trials. However, the amount of insurance we maintain may not be adequate to cover all liabilities that we may incur. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we may be exposed to significant litigation costs and liabilities, which may materially and adversely affect our business and financial position. If we are sued for injuries allegedly caused by XTANDI, MDV3800, MDV9300 or any other of our current or future product candidates, our litigation costs and liability could exceed our total assets and our ability to pay. Regardless of merit or eventual outcome, liability claims may result in:

 

•

decreased demand for XTANDI and any potential future product candidate that we may develop;

 

•

injury to our reputation;

 

•

withdrawal of clinical trial participants;

 

•

significant costs to defend the related litigation;

 

•

substantial monetary awards to trial participants or patients;

 

•

loss of revenue; and

 

•

the inability to commercialize any other products that we may develop.

 

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In addition, we may from time to time become involved in various lawsuits and legal proceedings which arise in the ordinary course of our business, such as our litigation with the Regents of the University of California. On April 11, 2014, The Regents of the University of California, or UCLA, filed a complaint against us and one of our subsidiaries in the Superior Court of the State of California, County of San Francisco. The complaint arises from the parties’ 2005 Exclusive License Agreement, or ELA, which grants our subsidiary rights in certain UCLA patents, including the UCLA patents covering XTANDI. The complaint centers on two allegations. The first allegation is that we and our subsidiary have failed to pay UCLA ten percent of “Operating Profits” we received (and will continue to receive) from Astellas Pharma, Inc. as a result of the 2009 Collaboration Agreement between us and Astellas. UCLA alleges that such Operating Profits are “Sublicensing Income” under the ELA and that UCLA is entitled to ten percent of such payments. The second allegation is that we breached our fiduciary duties to UCLA, as a minority shareholder of our subsidiary. UCLA owns a fraction of one percent of the outstanding shares of our subsidiary. The complaint seeks a declaration and judgment for breach of contract related to the allegation that “Operating Profits” payments received from Astellas are “Sublicensing Income” under the ELA, a judgment that we have breached our fiduciary duties and an injunction requiring us to comply with our fiduciary duties. At the time of this filing, UCLA’s second allegation that we breached our fiduciary duties to UCLA, as a minority shareholder of MPT, had been dismissed without prejudice. Although the UCLA complaint does not seek termination of the ELA, if we are not successful in this litigation we may be required to pay UCLA ten percent of the “Operating Profits” and be subject to other liabilities, any of which could have a material adverse effect on our financial condition and results of operations. See Part II, Item 1, “Legal Proceedings” for additional information on this litigation. Any litigation to which we are subject could require significant involvement of our senior management and may divert management’s attention from our business and operations. Litigation costs or an adverse result in any litigation that may arise from time to time may adversely impact our operating results or financial condition.

Risks Related to Business Acquisitions, Licenses, Investments and Strategic Alliances

*We may not be able to successfully integrate MDV3800 or we may otherwise fail to realize the full potential of our acquisition of MDV3800.

A key component of our business strategy is to diversify our product development risk by identifying and acquiring new product opportunities for development such as our recent acquisition of MDV3800 from BioMarin. However, we cannot ensure that we will be able to manage the risks associated with the transfer of development, regulatory and manufacturing activities for the ongoing clinical trials from BioMarin to us or manage the risks associated with integrating MDV3800 into our existing business and infrastructure. We may encounter unexpected difficulties during the transfer, integration or further development of MDV3800, any of which may cause us to expend greater funds and efforts or may slow, delay or limit the progress of MDV3800’s development. Unexpected difficulties may further be disruptive to our ongoing development efforts for enzalutamide and MDV9300, put a strain on our existing personnel, infrastructure and business and divert management’s time and attention.

Other companies, such as AstraZeneca, Clovis Oncology, AbbVie, Inc., and Tesaro, Inc. are developing PARP inhibitors for various oncology indications, some of which have already been approved and on the market and others which are farther along in development than MDV3800, both of which could limit our development opportunities for MDV3800. The competitive environment could further compromise our ability to successfully enroll the ongoing clinical trials by limiting the availability of clinical trial investigators, sites and/or patients which could slow, delay or limit the progress of MDV3800’s development.

As a result of these or other problems and risks, we may never receive regulatory approval for MDV3800, we may not realize the full potential of our acquisition or we may never generate significant revenues from this acquisition.

Business acquisitions, licenses, investments and strategic alliances could disrupt our operations and may expose us to increased costs and unexpected liabilities.

We may acquire or make investments in other companies, enter into other strategic relationships, or in-license technologies, such as our acquisition of MDV3800. To do so, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. These transactions involve numerous risks, including but not limited to:

 

•

difficulty integrating acquired technologies, products, operations, and personnel with our existing business;

 

•

diversion of management’s attention in connection with both negotiating the acquisition and integrating the business;

 

•

strain on managerial and operational resources;

 

•

difficulty implementing and maintaining effective internal control over financial reporting at businesses that we acquire, particularly if they are not located near our existing operations;

 

•

exposure to unforeseen liabilities of acquired companies or companies in which we invest;

 

•

potential costly and time-consuming litigation, including stockholder lawsuits;

 

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•

potential issuance of securities to equity holders of the company being acquired which may have a dilutive effect on our stockholders;

 

•

the need to incur additional debt or use our existing cash balances; and

 

•

the requirement to record potentially significant additional future non-cash operating costs for the amortization of intangible assets and potential future impairment or write-down of intangible assets and/or goodwill as well as potentially significant non-cash adjustments to contingent consideration liabilities which would be recorded within operating expenses.

As a result of these or other problems and risks, businesses we acquire or invest in may not produce the revenues, earnings or business synergies that we anticipated, acquired or licensed technologies may not result in regulatory approvals, and acquired or licensed commercial products may not perform as expected. As a result, we may incur higher costs and realize lower revenues than we had anticipated. We cannot assure you that any acquisitions or investments we have made or may make in the future will be successfully identified and completed or that, if completed, the acquired business, licenses, investments, products, or technologies will generate sufficient revenue to offset the negative costs or other negative effects on our business. Failure to manage effectively our growth through acquisition or in-licensing transactions could adversely affect our growth prospects, business, results of operations, financial condition, and cash flow.

 

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Funding may not be available for us to make acquisitions, investments, strategic alliances or in-license technologies in order to grow our business.

We have made and anticipate that we may continue to engage in strategic transactions to grow our business through acquisitions, investments, strategic alliances or in-licensing of technologies. Our growth plans rely, in part, on the successful identification and completion of these strategic transactions. At any particular time, we may need to raise substantial additional capital or issue additional equity to finance such transactions. There is no assurance that we will be able to secure additional funding on acceptable terms, or at all, or obtain stockholder approvals necessary to issue additional equity to finance such transactions. If we are unsuccessful in obtaining financing, our business would be adversely affected.

Our consolidated financial statements may be impacted in future periods based on the accuracy of our valuations of our acquired businesses and other agreements.

Accounting for business combinations and other agreements, e.g., in-license transaction, may involve complex and subjective valuations of the assets and liabilities recorded as a result of the business combination or other agreement, and in some instances contingent consideration, which is recorded in our consolidated financial statements pursuant to the standards applicable for business combinations in accordance with accounting principles generally accepted in the United States. Differences between the inputs and assumptions used in the valuations and actual results could have a material effect on our consolidated financial statements in future periods.

We have substantial intangible assets and goodwill as a result of the license of MDV9300 from CureTech and anticipate that we will record additional intangible assets and goodwill in the fourth quarter of 2015 as a result of the acquisition of MDV3800 from BioMarin. A significant impairment or write-down of intangible assets and/or goodwill would have a material adverse effect on our consolidated financial statements.

Regarding intangible assets and goodwill, we are required to perform an annual, or in certain situations a more frequent, assessment for possible impairment for accounting purposes. During the fourth quarter of 2014, we recorded significant intangible assets and goodwill as a result of the CureTech transaction. At September 30, 2015, we had intangible assets and goodwill of approximately $111.0 million, or approximately 11% of our total assets. We anticipate that we will record additional intangible assets and goodwill in the fourth quarter of 2015 as a result of the acquisition of MDV3800 from BioMarin. If our development activities with respect to in-process research and development are not successful, we may be required to incur a non-cash impairment charge, adversely affecting our consolidated results of operations.

Risks Related to Ownership of Our Common Stock

*Our stock price has been and may continue to be volatile and our stockholders’ investment in our common stock could decline in value.

The market prices for our securities and those of other life sciences companies have been highly volatile and often unrelated or disproportionate to the operating performance of those companies, and may continue to be highly volatile in the future. There has been particular volatility in the market prices of securities of life sciences companies because of problems or successes in a given market segment or because investor interest has shifted to other segments. These broad market and industry factors may cause the market price of our common stock to decline, regardless of our operating performance. We have no control over this volatility and can only focus our efforts on our own operations, and even these may be affected due to the state of the capital markets.

The following factors, in addition to other risk factors described herein, may have a significant impact on the market price of our common stock:

 

•

comments made by securities analysts, including changes in their recommendations;

 

•

selling by existing stockholders and short-sellers;

 

•

sales of our common stock by our directors, officers or significant stockholders, including sales effected pursuant to predetermined trading plans adopted under the safe-harbor afforded by Rule 10b5-1;

 

•

negative opinions that are misleading and/or inaccurate regarding our business, management or future prospects published by certain market participants intent on putting downward pressure on the price of our common stock;

 

•

lack of volume of stock trading leading to low liquidity;

 

•

announcements by us of financing transactions and/or future sales of equity or debt securities;

 

•

the recruitment or departure of key management personnel;

 

•

our ability to meet the expectations of investors and securities analysts related to collaboration revenue generated from net sales of XTANDI, including the timing and amount thereof, and other financial metrics;

 

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•

changes in our financial guidance or financial estimates by any securities analysts who might cover our company, or our failure to meet our financial guidance or estimates made by securities analysts;

 

•

variations in our quarterly financial results or those of companies that are perceived to be similar to us;

 

•

new products, product candidates or uses for existing products or technologies introduced or announced by our competitors and the timing of these introductions and announcements;

 

•

the progress and results of preclinical studies and clinical trials of our product candidates conducted by us, Astellas or any future collaborative partners or licensees, if any, and any delays in enrolling a sufficient number of patients to complete clinical trials of our product candidates;

 

•

developments concerning our collaboration with Astellas or any future collaborations;

 

•

our dependence on third parties, including Astellas, clinical manufacturing organizations and clinical research organizations, clinical trial sponsors and clinical investigators;

 

•

legislation or regulatory developments in the United States or other countries affecting XTANDI or product candidates, including those of our competitors, including the passage of laws, rules or regulations relating to healthcare and reimbursement or the public announcement of inquiries relating to these subjects;

 

•

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

•

the receipt or failure to receive funding necessary to conduct our business;

 

•

changes in the market valuations of other companies in our industry;

 

•

litigation; and

 

•

general economic, industry and market conditions and other factors that may be unrelated to our operating performance, including market conditions in the pharmaceutical and biotechnology sectors.

These factors and fluctuations, as well as political and other market conditions, may adversely affect the market price of our common stock. Securities-related class action litigation is often brought against a company following periods of volatility in the market price of its securities. Securities-related litigation, whether with or without merit, could result in substantial costs and divert management’s attention and financial resources, which could harm our business and financial condition, as well as the market price of our common stock. Additionally, volatility or lack of positive performance in our stock price may adversely affect our ability to retain or recruit key employees, all of whom have been or will be granted equity awards as a part of their compensation.

If our operating results are below the expectations of securities analysts, the market price of our common stock could decline.

Various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our operating results are below the expectations of securities analysts, the market value of our common stock could decline, perhaps substantially.

*We do not intend to pay cash dividends on our common stock for the foreseeable future.

We do not expect for the foreseeable future to pay cash dividends on our common stock. Any future determination to pay cash dividends on or repurchase shares of our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our success in completing sales or partnerships of our programs, our results of operations, financial condition, capital requirements, contractual restrictions (such as our Credit Agreement) and applicable law.

Provisions of our corporate charter documents, our stockholder rights plan and Delaware law could make it more difficult for a third party to acquire us, even if the offer may be considered beneficial by our stockholders.

Provisions of the Delaware General Corporation Law could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of the Delaware General Corporation Law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Specifically, Section 203 of the Delaware General Corporation Law, unless its application has been waived, provides certain default anti-takeover protections in connection with transactions between us and an “interested stockholder.” Generally, Section 203 prohibits stockholders who, alone or together with their affiliates and associates, own more than 15% of the subject company from engaging in certain business combinations for a period of three years following the date that the stockholder became an interested stockholder of such subject company without approval of the board or the vote of two-thirds of the shares held by the independent stockholders. Our board of directors has also adopted a stockholder rights plan, or “poison pill,” which would significantly dilute the ownership of a hostile acquirer. Additionally, provisions of our amended and restated certificate of incorporation and bylaws could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders, including without limitation, the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine.

 

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We may issue additional shares of our common stock or instruments convertible into shares of our common stock, which could cause our stock price to fall and cause dilution to existing stockholders. In addition, a sale of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop significantly.

We may from time to time issue additional shares of common stock or other instruments convertible into, or exchangeable or exercisable for, shares of our common stock, including in connection with potential in-licensing and acquisition transactions. The issuance of additional shares of our common stock would dilute the ownership interests of existing holders of our common stock.

The issuance of a substantial number of shares of our common stock, the sale of a substantial number of shares of our common stock that were previously restricted from sale in the public market, or the perception that these issuances or sales might occur, could depress the market price of our common stock. As a result, investors may not be able to sell their shares of our securities at a price equal to or above the price they paid to acquire them.

Furthermore, the issuance of additional shares of our common stock, or the perception that such issuances might occur, could impair our ability to raise capital through the sale of additional equity securities.

We rely on Astellas to timely deliver important financial information relating to net sales of XTANDI. In the event that this information is inaccurate, incomplete, or not timely, we will not be able to meet our financial reporting obligations as required by the SEC.

Under the Astellas Collaboration Agreement, Astellas has exclusive control over the flow of information relating to net sales of XTANDI that we are dependent upon to meet our SEC reporting obligations. Astellas is required under the Astellas Collaboration Agreement to provide us with timely and accurate financial data related to net sales of XTANDI so that we may meet our reporting obligations under federal securities laws. In the event that Astellas fails to provide us with timely and accurate information, we may incur significant liability with respect to federal securities laws, our internal controls and procedures under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, may be inadequate, and we could be required to record adjustments in future periods, any of which could adversely affect the market price of our common stock and subject us to securities litigation.

To the extent that we create any joint ventures or have any variable interest entities for which we are required to consolidate, we would need to rely on those entities to timely deliver important financial information to us. In the event that the financial information is inaccurate, incomplete, or not timely, we would not be able to meet our financial reporting obligations as required by the SEC.

To the extent we create joint ventures or have any variable interest entities that we are required to consolidate and the financial statements of such entities are not prepared by us, we will not have direct control over their financial statement preparation. As a result, we will, for our financial reporting, depend on what these entities report to us, which could result in us adding monitoring and audit processes, which could increase the difficulty of implementing and maintaining adequate controls over our financial processes and reporting in the future. This may be particularly true when such entities do not have sophisticated financial accounting processes in place, or where we are entering into new relationships at a rapid pace, straining our integration capacity. Additionally, if we do not receive the information from the joint venture or variable interest entity on a timely basis, this could cause delays in our external reporting obligations as required by the SEC.

Changes in, or interpretations of, accounting principles could have a significant impact on our financial position and results of operations.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. These principles are subject to interpretation by the SEC and various other bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

For example, the FASB is currently working together with the International Accounting Standards Board (IASB) on several projects to further align accounting principles and facilitate more comparable financial reporting between companies who are required to follow U.S. GAAP under SEC regulations and those who are required to follow International Financial Reporting Standards outside of the United States. These efforts by the FASB and the IASB may result in different accounting principles under U.S. GAAP that may result in materially different financial results for us in areas including, but not limited to, principles for recognizing revenue and lease accounting.

 

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Failure to maintain effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act could have a material adverse effect on our stock price.

Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting at the end of the fiscal year. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective control over financial reporting in accordance with the Sarbanes-Oxley Act and the related rules and regulations of the SEC. If we cannot in the future favorably assess, or our independent registered public accounting firm is unable to provide an unqualified attestation report on, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

 

ITEM 6.

EXHIBITS.

See the Exhibit List which follows the signature page of this Quarterly Report on Form 10Q, which is incorporated by reference here.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 6, 2015				MEDIVATION, INC.
				By:		/s/    Richard A. Bierly
				Name:		Richard A. Bierly
				Title:		Chief Financial Officer
						(Duly Authorized and Principal Financial Officer)

 

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Incorporated By Reference

Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

2.1

Asset Purchase Agreement, dated August 21, 2015, by and between Medivation, Inc. and BioMarin Pharmaceutical, Inc.

8-K

001-32836

2.1

10/07/2015

3.1

Restated Certificate of Incorporation.

8-K

001-32836

3.4

10/17/2013

3.2

Certificate of Amendment to Amended and Restated Certificate of Designation of Series C Junior Participating Preferred Stock of Medivation, Inc.

8-K

001-32836

3.1

2/13/2015

3.3

Certificate of Amendment of Restated Certificate of Incorporation

8-K

001-32836

3.1

6/19/2015

3.4

Amended and Restated Bylaws of Medivation, Inc.

8-K

001-32836

3.2

2/13/2015

4.1

Common Stock Certificate.

10-Q

001-32836

4.1

5/9/2012

4.2

Rights Agreement, dated as of December 4, 2006, between Medivation, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes the form of Certificate of Designations of the Series C Junior Participating Preferred Stock of Medivation, Inc. as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C.

8-K

001-32836

4.1

12/4/2006

10.1

Credit Agreement, dated as of September 4, 2015, among Medivation, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent

8-K

001-32836

10.1

9/9/2015

10.2

Separation Agreement between Medivation, Inc. and Jennifer J. Rhodes, dated August 3, 2015

X

10.3

Offer Letter between Medivation, Inc. and Thomas Templeman, Ph.D. dated July 1, 2015

X

10.4

Offer Letter between Medivation, Inc. and Mohammad Hirmand, MD dated September 30, 2015

X

10.5

Separation Agreement between Medivation, Inc. and Lynn Seely, MD dated September 23, 2015

X

10.6

Amended and Restated Credit Agreement, dated as of October 23, 2015, by and among Medivation, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.

8-K

001-32836

10.1

10/26/2015

31.1

Certification pursuant to Rule 13a-14(a)/15d-14(a).

X

31.2

Certification pursuant to Rule 13a-14(a)/15d-14(a).

X

32.1†

Certifications of Chief Executive Officer and Chief Financial Officer.

X

101.INS

XBRL Instance Document.

X

101.SCH

XBRL Taxonomy Extension Schema Document.

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

X

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document.

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

X

 

†

The certifications attached as Exhibit 32.1 accompanying this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Medivation, Inc., under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

 

64

Exhibit 10.2

 

                      Driven by science. Focused on life.

August 3, 2015

DELIVERED VIA EMAIL

Jennifer J. Rhodes

c/o Medivation, Inc.

525 Market Street, 3600

San Francisco, California 94105

 

Re:	Separation Agreement

Dear Jennifer:

This letter sets forth the terms of the separation agreement (the “Agreement”) between you and Medivation, Inc. (the “Company”) regarding your employment transition.

1. Separation Date; Final Pay. As discussed, your last day of employment and your employment termination date will be August 31, 2015 (the “Separation Date”). On the Separation Date or within the timing required by law, the Company shall pay you all accrued salary earned by you through the Separation Date, less standard payroll deductions and withholdings. You are entitled to this payment by law and will receive it regardless of whether or not you sign this Agreement. As you know, due to your level in the Company, you did not accrue vacation or other Paid Time Off (“PTO”) and instead were permitted to take time off, with pay, within your discretion; thus, no payment for accrued or unused vacation or PTO is owed or will be provided.

2. Severance Benefits. If: (i) you sign, date and return this Agreement to the Company, and you do not subsequently revoke it; (ii) you comply with all of your obligations to the Company as set forth herein; and (iii) on or within 21 days after the Separation Date, you sign, return, and do not revoke the Separation Date Release set forth as Exhibit A hereto (the “Separation Date Release”); then the Company will provide you with the following severance benefits (the “Severance Benefits”):

(a) Severance Payment. Subject to standard payroll deductions and withholdings, the Company will pay you a single lump sum severance amount equal to the sum of: (i) twelve (12) months of your Base Salary; and (ii) $150,750.00 (which is equal to a pro-rata share of your 2015 target bonus), (collectively, the “Severance Amount”). Such lump sum payment shall be made in the first payroll cycle following the Effective Date of the Separation Date Release (as set forth therein).

(b) Health Insurance. To the extent provided by the federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits after the Separation Date. Later, you may be able to convert to an individual policy

525 Market Street, 36th Floor San Francisco, CA 94105 (415) 543-3470 Fax (415) 543-3411 www.medivation.com

 

1

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through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice describing your rights and obligations under COBRA laws on or after the Separation Date. As an additional Severance Benefit, if you timely elect continued group health insurance coverage under COBRA, the Company will reimburse your COBRA premium payments sufficient to continue your group coverage at its current level including costs of dependent coverage, if applicable, through the earlier of either of the following provided that you remain eligible for COBRA coverage (such applicable time period, the “COBRA Payment Period”): (i) August 31, 2016; or (ii) the date that you become eligible for group health insurance coverage through a new employer. You must promptly notify Maya Thaw in writing if you become eligible for group health insurance coverage through a new employer prior to August 31, 2016. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA payments without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide you with taxable monthly payments in an amount equal to the premium amount for the first month of your COBRA coverage, and such monthly installments shall be made through the remainder of the COBRA Payment Period.

(c) Career Outplacement Assistance: The Company shall provide you outplacement assistance benefits, as determined to be available by the Company. You may begin utilizing such benefits upon execution of this Agreement.

(d) Earlier Termination of Severance Benefits. As a condition of your receipt of the Severance Benefits, you must continue to comply with your continuing obligations to the Company, including but not limited to your full continued compliance with this Agreement. For example, in the event of any material breach of this Agreement, the Company’s obligation to provide the Severance Benefits immediately shall terminate and you will receive no further Severance Benefits.

(e) Section 409A Compliance. It is intended that the Severance Payments be exempt from Section 409A of the Internal Revenue Code under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1 (b)(9)(iii) and will be implemented and construed in accordance therewith to the greatest extent permitted under applicable law.

3. Consulting Period. You and the Company have agreed that the Company will retain you as a consultant under the terms specified below. The consulting relationship commences on the Separation Date and continues through December 31, 2015 (the “Consulting Period”). Your agreement to provide consulting services is in consideration of the benefits to be provided to you under this Agreement. There is no separate compensation specifically attributable to your consulting services.

(a) Consulting Services. During the Consulting Period, you will use your best efforts to provide consulting services, as may be requested by the Company, in the areas of your experience and expertise, including but not limited to your expertise in legal and compliance matters (the “Consulting Services”). You will report to the Company’s General Counsel. You agree to exercise the highest degree of professionalism and utilize your expertise and creative talents in performing these services. You have agreed to make yourself available to provide the Consulting Services for up to 40, 30, 20 and 10 hours, respectively, during the months of September, October, November and December. During the Consulting Period, you shall abide by the Company’s applicable policies and procedures.

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(b) Equity Awards. Since your service as an employee and a consultant will be continuous, your termination of employment will not constitute a termination of service for purposes of the Company’s Amended and Restated 2004 Equity Incentive Award Plan (the “Plan”). Thus, vesting of your outstanding stock options and other equity awards (including but not limited to Restricted Stock Unit awards) (the “Equity Awards”) will not cease as of the Separation Date and will continue for the duration of the Consulting Period. Your Equity Awards shall continue to be governed by the Plan and all applicable grant notices and agreements.

(c) Independent Contractor Relationship. During the Consulting Period, your relationship with the Company will be that of an independent contractor, and nothing in this Agreement is intended to, or should be construed to, create a partnership, agency, joint venture or employment relationship after the Separation Date. Except as expressly provided in this Agreement, you will not be entitled to, and will not receive, any benefits which the Company may make available to its employees, including but not limited to, group health or life insurance, profit-sharing or retirement benefits.

(d) Limitations on Authority. During the Consulting Period, you will have no responsibilities or authority as a consultant to the Company other than as provided above. You will have no authority to bind the Company to any contractual obligations, whether written, oral or implied, except with the prior written authorization of an officer of the Company. You agree not to represent or purport to represent the Company in any manner whatsoever to any third party unless authorized in advance by the Company, in writing, to do so.

(e) Proprietary Information and Inventions. You agree that, during the Consulting Period and thereafter, you will not use or disclose, in any manner that is not authorized by the Company or essential to your performance of specifically requested Consulting Services, any confidential or proprietary information or materials of the Company that you obtain or develop in the course of performing the Consulting Services. Any and all work product you create in the course of performing the Consulting Services will be the sole and exclusive property of the Company. As set forth in your Proprietary Information and Inventions Agreement with the Company, and subject to the limitations set forth herein, you hereby assign to the Company all right, title, and interest in all inventions, techniques, processes, materials, and other intellectual property developed in the course of performing the Consulting Services. You further acknowledge and reaffirm your continuing obligations, both during the Consulting Period and thereafter (as applicable), under the Proprietary Information and Inventions Agreement entered into between you and the Company, a copy of which is attached hereto as Exhibit A and incorporated herein by reference.

(f) Other Work Activities. Throughout the Consulting Period, you shall have the right to engage in employment, consulting, or other work relationships in addition to your work for the Company. The Company will make arrangements to enable you to perform your work for the Company at such times and in such a manner so that it will not unreasonably interfere with other activities in which you may engage. In order to protect the trade secrets and

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confidential and proprietary information of the Company, you agree that, during the Consulting Period, you will notify the Company, in writing, before you obtain employment with, or perform competitive work for, any business entity that is competitive with the Company, or engage in any other work activity, or preparation for work activity, competitive with the Company.

(g) Termination of Consulting Period. Without waiving any other rights or remedies, the Company may immediately terminate the Consulting Period at any time, for any reason, upon written notice to you. In the event the Consulting Period terminates prior to December 31, 2015 for any reason, then the vesting of your Equity Awards shall be determined as if you continued to provide Consulting Services through December 31, 2015.

4. No Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you have not earned and will not receive from the Company any additional compensation, severance, or benefits on or after the Separation Date, with the exception of any vested benefits you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account). By way of example, you acknowledge that except as provided herein, you have not earned and are not owed any bonus or incentive compensation for 2015 (or any other time period), sales commissions or equity. You acknowledge and agree that this is an individual agreement with the Company for Severance Benefits and therefore you shall not receive any benefits pursuant to Section 5 of the Medivation, Inc. 2015 Employee Severance Plan.

5. Expense Reimbursement. You agree that, within thirty (30) days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for such expenses pursuant to its regular business practice and policies.

6. Return of Company Property. You agree to return to the Company, within five (5) business days after the Separation Date, all Company documents (and all copies thereof) and other property of the Company in your possession or control, including, but not limited to, Company files, notes, correspondence, memoranda, notebooks, drawings, records, reports, lists, compilations of data, proposals, agreements, drafts, minutes, studies, plans, forecasts, purchase orders, financial and operational information, product and training information, research and development information, clinical trial information, sales and marketing information, personnel and compensation information, vendor information, promotional literature and instructions, product specifications and manufacturing information, computer-recorded information, electronic information (including e-mail and correspondence), other tangible property and equipment (including, but not limited to, computer equipment, PDAs, facsimile machines, and cellular telephones), credit cards, entry cards, identification badges and keys; and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree that you will make a diligent search to locate any such documents, property and information within this timing. In addition, if you have used any personally owned computer, server, e-mail system, mobile phone, or portable electronic device (e.g., BlackBerry), (collectively, “Personal Systems”) to receive, store, prepare or transmit any Company confidential or proprietary data, materials or information, then

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within five (5) business days after the Separation Date, you will provide the Company with a computer-useable copy of all such information and then permanently delete and expunge all such Company confidential or proprietary information from such Personal Systems without retaining any copy or reproduction in any form. You agree to provide the Company access to your Personal Systems, as requested, for the purpose of verifying that the required copying and/or deletion is completed. Your timely compliance with the provisions of this Section 6 is a condition of your receipt of the Severance Benefits hereunder.

7. Proprietary Information Obligations. You hereby acknowledge your continuing obligations with respect to protection of the Company’s confidential and proprietary information pursuant to your confidentiality agreement with the Company.

8. Nondisparagement. You agree not to disparage or subvert, verbally or in writing, the Company, its collaboration partners, and its and their current and former officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputations or personal reputations, and the Company agrees to direct its officers and directors not to disparage you in any manner likely to be harmful to your business, business reputation or personal reputation; provided, however, that both you and the Company must respond accurately and truthfully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation.

9. No Voluntary Adverse Action; and Cooperation. You agree that you will not voluntarily provide assistance, information or advice, directly or indirectly (including through agents or attorneys), to any person or entity in connection with any proposed or pending litigation, arbitration, administrative claim, cause of action, or other formal proceeding of any kind brought against the Company, its parent or subsidiary entities, affiliates, officers, directors, employees or agents, nor shall you induce or encourage any person or entity to bring any such claims; provided, however, that you must respond accurately and truthfully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation. In addition, you agree to cooperate fully with the Company in connection with its actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters arising from events, acts, or failures to act that occurred during the period of your employment by the Company. Such cooperation includes, without limitation, making yourself available to the Company upon reasonable notice, without subpoena, to provide complete, truthful and accurate information in witness interviews, depositions, and trial testimony. Subject to the terms of the indemnity agreement between you and the Company, the Company generally will reimburse you for reasonable out-of-pocket expenses you incur in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate your scheduling needs. In addition, you agree to execute all documents (if any) necessary to carry out the terms of this Agreement.

10. Nonsolicitation of Employees, Contractors or Consultants. You agree, for one (1) year after the Separation Date, not to solicit, induce, or attempt to solicit or induce, any employees, independent contractors or consultants of the Company to reduce or terminate his, her or its employment or other relationship with the Company.

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11. No Admissions. Nothing contained in this Agreement shall be construed as an admission by you or the Company of any liability, obligation, wrongdoing or violation of law.

12. Release of Claims.

(a) General Release. In exchange for the Severance Benefits under this Agreement, and except as otherwise set forth in this Agreement, you hereby generally and completely release the Company, its parent and subsidiary entities, and its and their current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”) of and from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date you sign this Agreement (collectively, the “Released Claims”).

(b) Scope of Release. The Released Claims include, but are not limited to: (i) all claims arising out of or in any way related to your employment with the Company, or the termination of that employment; (ii) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), the federal Family and Medical Leave Act (as amended) (“FMLA”), the California Family Rights Act (as amended), the California Labor Code (as amended), and the California Fair Employment and Housing Act (as amended).

(c) Excluded Claims. Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i)) any rights or claims for indemnification you may have pursuant your indemnification agreement with the Company; the charter, bylaws, or operating agreements of the Company; or under applicable law; (ii) any rights or claims which are not waivable as a matter of law; and (iii) any claims for breach of this Agreement. In addition, nothing in this Agreement prevents you from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that you acknowledge and agree that you are hereby waiving your right to any monetary benefits in connection with any such claim, charge or proceeding. You hereby represent and warrant that, other than the Excluded Claims, you are not aware of any claims you have or might have against any of the Released Parties that are not included in the Released Claims.

(d) ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you have under the ADEA, and that the consideration given for the waiver and release you have given in this Agreement is in addition to anything of value to which you were already entitled. You further acknowledge that you have

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been advised, as required by the ADEA, that: (i) your waiver and release does not apply to any rights or claims that arise after the date you sign this Agreement; (ii) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (iii) you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to sign it sooner); (iv) you have seven (7) days following the date you sign this Agreement to revoke this Agreement (in a written revocation delivered to me); and (v) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement provided that you do not revoke it (the “Effective Date”).

(e) Section 1542 Waiver. In giving the releases set forth in this Agreement, which include claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement.

13. Job Reference Inquiries. The Company agrees to respond to job reference inquiries consistent with its standard practice by providing your job title, dates of employment, and salary amount (if you authorize disclosure of your salary amount in advance). You agree to direct prospective employers to the Company’s Human Resources department for such references.

14. Representations. You hereby represent and warrant that (a) you have been paid all compensation owed and for all time worked, (b) you have received all the leave and leave benefits and protections for which you are eligible pursuant to FMLA, any applicable law or Company policy, and (c) you have not suffered any on-the-job injury or illness for which you have not already filed a workers’ compensation claim.

15. Arbitration.

(a) Agreement to Arbitrate. To ensure the rapid and economical resolution of disputes that may arise under this Agreement, you and the Company both agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, your employment with the Company, or the termination of your employment from the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Francisco, California by JAMS, Inc. (“JAMS”) or its successors. Both you and the Company acknowledge that by agreeing to this arbitration procedure, you each waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.

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(b) Governing Rules.

(i) Any such arbitration proceeding will be governed by JAMS’ then applicable rules and procedures for employment disputes, which can be found at www.jamsadr.com/rules-employment-arbitration/, and which will be provided to you upon request.

(ii) In any such proceeding, the Arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.

(iii) You and the Company each shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law; provided, however, that in no event shall the Arbitrator be empowered to hear or determine any class or collective claim of any type. This paragraph shall not apply to an action or claim brought pursuant to the California Private Attorneys General Act of 2004.

(iv) Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration pursuant to applicable law.

(c) Arbitration Fees. The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fees and any other fees or costs unique to arbitration.

16. Miscellaneous. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a written agreement signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, and their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question shall be deemed modified so as to be rendered enforceable in a manner consistent with the intent of the parties, insofar as possible under applicable law. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement shall be deemed to have been entered into, and shall be construed and enforced, in accordance with the laws of the State of California without regard to conflicts of law principles. This Agreement may be executed in counterparts, each of which shall be deemed to be part of one original, and facsimile signatures shall be equivalent to original signatures.

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If this Agreement is acceptable to you, please sign below on the Separation Date, and return it to me. If you do not sign and return it to the Company within the aforementioned timeframe, the Company’s offer to enter into this Agreement and provide the Severance Benefits will expire.

We wish you the best in your future endeavors.

Sincerely,

MEDIVATION, INC.

 

By:		/s/ Sandy Cooper
		Sandy Cooper Senior Vice President, Human Resources

UNDERSTOOD AND AGREED:

 

/s/ Jennifer J. Rhodes				8.3.15
Jennifer J. Rhodes				Date

Exhibit 10.3

 

                      Driven by science. Focused on life.

July 1, 2015

Mr. Thomas Templeman

[address]

Dear Tom:

It is my great pleasure to offer you the position of Sr. Vice President, Pharmaceutical Operations, reporting to me. We are very excited about the possibility of you joining our team, and we look forward to the prospect of working with you in our innovative company!

As an employee of Medivation Services, Inc., (the Company) you will be eligible to participate in our benefits and compensation programs. Medivation Services, Inc. is a subsidiary of Medivation, Inc. The following outlines the terms of our offer:

Your annualized base salary will be $400,000, payable on the 15^th and last day of each month.

We will also pay you a signing bonus of $50,000 within thirty days of your employment start date, provided that you begin employment with Medivation on or before our mutually determined start date. If you voluntarily terminate your employment with us before the first anniversary of your employment start date, you agree to repay this signing bonus to Medivation on or before your termination date.

Employees who join the Company between January 1 and September 30^th will be eligible for a prorated bonus for their first year of employment. Bonuses are generally paid in the first quarter, following year that the bonus was earned. As such, you will be eligible for the 2015 corporate bonus paid out in the first quarter of 2016.

The target bonus opportunity for your position is 40% of your base salary. The actual payout can range from 0% to 200% of this target, based on individual and company performance. The Board of Directors makes an assessment of company achievement against goals for purposes of annual bonus payouts annually, generally in the first quarter of the following year.

We will recommend to Medivation’s Board of Directors or their designee that you be granted an option to purchase 22,720 shares of Medivation common stock and 11,360 restricted stock units (RSU’s). Upon vesting, each RSU will entitle you to receive one share of Medivation common stock.

Your options will have an exercise price equal to the fair market value of the shares, on the date the option is granted (as determined in accordance with Medivation’s Stock Option Grant Date Policy). The terms of your options will be governed in all respects by the terms of our 2004 Equity Incentive Award Plan and the stock option agreements. Your options will vest over a four-year period – 25% at the end of the first year, then 1/48^th monthly thereafter over the ensuing three years. Your RSUs will vest over a three year period – one third on each of approximately the first, second and third anniversaries of the grant date. In the event there is a change of control of Medivation, your options would fully vest and become exercisable, and your RSUs would fully vest, automatically upon the occurrence of that event.

525 Market Street, 36th Floor San Francisco, CA 94105 (415) 543-3470 Fax (415) 543-3411 www.medivation.com

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The Board of Directors or their designee generally considers and approves new hire grants according to Medivation, Inc. policy. Your options and RSUs will be submitted for Board approval following your date of employment. A stock option agreement will be provided to you, after the Board of Directors has approved your grant. In addition, you may be eligible for future annual equity grants under the Plan based on the level of your position and your performance. Annual grants are typically made in the first quarter, of the year following a performance evaluation. Employees must be on board by September 30^th, in order to be eligible for an annual grant.

Upon your decision to relocate to the San Francisco Bay Area, you will be eligible for the Medivation Relocation Program. Relocation benefits under this Plan are tailored to meet the needs of the relocating employee, within the guidelines of our Policy. The attached document outlines the benefits that will be provided to you. All payments are grossed up for state and Federal taxes. If you voluntarily terminate your employment with us before the second anniversary of your employment start date, you agree to repay the relocation costs to Medivation on or before your termination date. You are required to use the relocation package, within one year of your start date.

In addition, to assist you in your relocation to the Bay Area, the company will provide you with a relocation allowance of $15,000, net; meaning this amount will be grossed up for State and Federal taxes.

As an employee of the Company you will be eligible to enroll in our comprehensive benefits program that includes health, dental, vision, basic life and basic personal accident insurance. Details will be provided during the new hire orientation.

Subject to timely completion of your job responsibilities, Paid Time Off (“PTO”) may be utilized at your discretion, with supervisory approval.

The Company offers a 401(k) plan with an employer match that provides you with the opportunity for pre- or post-tax, long-term savings. You may contribute up to the federal maximum, which is currently $18,000.

In addition, the Company offers an Employee Stock Purchase Plan (ESPP) – ESPP is a voluntary benefit that allows eligible employees to purchase shares of Medivation common stock at a discount through after tax payroll deductions. Eligible employees must enroll during the designated enrollment period. Additional information including a Prospectus and online enrollment instructions will be provided after your date of employment.

More detailed information regarding the Company’s benefits will be provided to you upon commencement of your employment. All Medivation Services, Inc., benefits are re-evaluated on an annual basis and are subject to change.

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As a result of the 1986 Immigration Reform and Control Act, we are required to verify the identity and work authorization of all new employees. You will therefore be required to sign the Employment Eligibility Verification (Form 1-9). We will need to examine original documents that satisfy these verification requirements, within 24 hours of your employment start date. This offer of employment is contingent upon your providing the necessary documentation within that period.

You will abide by the Company’s strict policy that prohibits any new employee from using or bringing with him/her all prior employers’ proprietary information, trade secrets, proprietary materials, and/or processes. Upon starting employment with Medivation Services, Inc., you will be required to sign an Employee Confidentiality and Invention Assignment Agreement indicating, among other things, your agreement with this policy.

Employees are expected to devote all professional work time to the Company. If you would like to request an exception for special circumstances, you will need to obtain written permission from your manager.

By signing below you are indicating your understanding that should you accept a position at Medivation Services, Inc., the employment relationship is based on the mutual consent of the employee and the Company. Accordingly, either you or the Company can terminate the employment relationship at will, at any time, with or without cause or advance notice.

This offer of employment is effective for 3 business days from the date of this letter and is contingent upon satisfactory completion of a background check. If all of the foregoing is satisfactory, please sign, date, and return the letter, within 3 business days. Please label the envelope attention Human Resources and mail it to Medivation, 525 Market Street 36^th Floor, San Francisco, CA 94105. If you prefer, you may scan and email your signed offer letter to your recruiter, [email protected].

Tom, we are all enthusiastic about welcoming you to the Company and look forward to you joining our team.

Sincerely,

 

/s/ David Hung

David Hung

President and Chief Executive Officer

I accept employment with the Company on the foregoing terms.

 

/s/ Thomas Templeman                                        

Thomas Templeman

 

July 3, 2015		September 29, 2015
Date Signed		Anticipated Start Date

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		Relocation Benefits Package
		Employee name: Tom Templeman [phone number]

Upon acceptance of our employment offer, we will contact our relocation provider, The Move Management Center (MMC), to initiate your personal relocation benefit package to assist you with your move from Cary, NC to the San Francisco Bay Area. Your MMC relocation counselor will be your central point of contact coordinating services available to you, throughout the relocation process.

Your MMC counselor will work with professional service providers to coordinate each aspect of your move. Your MMC counselor will follow up with you to initiate your relocation and review the program after your acceptance of the Employment Offer.

The following is a summary of your relocation benefits:

 

Benefit		Provision
Home Search Assistance & House Hunting Trip		Employee counseling; area information; area home finding tours in San Francisco Bay Area. Coach airfare, lodging (not to exceed $400 per day), and meals (dinner up to $75 daily; breakfast/lunch up to $35 daily) for employee + partner for 1 trip, for a maximum of 5 days.
Interim Housing		Up to 5 months, not to exceed $7500, per month. MMC is available to assist with securing interim housing.
Shipment of Household Goods		Move Survey conducted to determine shipping needs. Household goods moving cost paid by Medivation.
Storage of Household Goods		Destination storage for up to 5 months.
Auto Transport		Shipment of up 2 cars, included for moves over 500 miles, via professional car carrier or with household goods shipment.
Relocation Miscellaneous Expense Allowance		$15,000 to be grossed-up and used at employee’s discretion for move-related costs i.e., additional temp. housing, security deposit, and/or utilities.
Final Move Expenses		One way travel for employee + partner/family to San Francisco, including meals and lodging (per guideline above).
Lease Break Penalty		Medivation will reimburse up to 1 month of rent, if you incur a lease break penalty.
Tax Information Gross-up Methodology		Taxable relocation expenses are grossed up.
Time Frame		Relocation must be completed, with-in 1 year of hire date.

 

		Hiring manager/HR approval

Exhibit 10.4

 

            Driven by science. Focused on life.

September 30, 2015

HAND DELIVERY

Dear Mohammad,

I am pleased to offer you the role as Interim Chief Medical Officer. Your role and duties will commence on Thursday October 1, 2015 and extend through March 31, 2016. During this period you will report to me. You and I will meet regularly to discuss and plan your priorities and goals during this period.

To recognize and compensate you for assuming these additional responsibilities, Medivation will provide you with the following compensation for the duration of the interim role period:

***In addition to your regular base pay you will receive an additional $4,400 per month ($2,200 per pay period) in cash compensation. This is a total of an additional $26,400 for the six month period.

***You will also be eligible to receive, at my discretion if goals are met, an additional $26,000 in the form of a lump sum payment. This payment will be made, if earned, at the conclusion of the interim role period. This payment is in additional to your Discretionary Target Bonus that is normally paid, if earned on March 15, 2016.

In further recognition of your contributions and leadership during this period the Board of Directors has approved that on September 30 you will be granted an option to purchase 2380 shares of Medivation common stock and 1190 (RSUs) restricted stock units. The stock options will be granted with an exercise price equal to the fair market value of Medivation’s common stock on the date the option is granted (as determined in accordance with Medivation’s Stock Option and RSU Grant Date and Vesting Policy).

The stock options and restricted stock units will vest on a four and three year schedule respectively (as determined in accordance with Medivation’s Stock Option and RSU Grant Date and Vesting Policy) and will be subject to accelerated vesting upon a change of control of Medivation, as provided in the 2004 Equity Incentive Award Plan (the “Plan”). Except as set forth in this letter, the terms of your stock options and restricted stock units are governed in all other respects by the terms of the Plan, stock option agreement and restricted stock unit agreement.

Mohammad, I am enthusiastic about the opportunity to work with you more closely in this interim role.

Sincerely,

 

/s/ David T. Hung

David T. Hung MD

President and Chief Executive Officer

Exhibit 10.5

September 23, 2015

VIA HAND DELIVERY

Lynn Seely, M.D.

[address]

Re: Separation Agreement

Dear Lynn:

This letter sets forth the terms of the separation agreement (the “Agreement”) between you and Medivation, Inc. (the “Company”) regarding your employment transition.

1. Separation Date; Final Pay. As we have agreed, your last day of employment and your employment termination date will be October 15, 2015 (the “Separation Date”). On the Separation Date, the Company shall pay you all accrued salary earned by you through the Separation Date, less standard payroll deductions and withholdings. You are entitled to this payment by law and will receive it regardless of whether or not you sign this Agreement. As you know, due to your level in the Company, you did not accrue vacation or other Paid Time Off (“PTO”) and instead were permitted to take time off, with pay, within your discretion; thus, no payment for accrued or unused vacation or PTO is owed or will be provided.

2. Severance Benefits. You and the Company understand that your termination of employment qualifies as a “separation from service” for purposes of Treasury Regulation Section 1.409A-1(h). Accordingly, if you timely return this fully signed and dated Agreement to the Company, and you do not subsequently revoke it, the Company will provide you the severance benefits (the “Severance Benefits”) set forth below:

(a) Cash Severance Benefits. The Company will pay you a severance amount equal to six (6) months of your base salary in effect as of the Separation Date, subject to standard payroll deductions and withholdings (the “Severance Amount”). The Severance Amount will be paid to you in the form of salary continuation over the six (6) month period following the Separation Date; provided, however, that no payments will be made prior to the 60^th day following your Separation Date. On that 60^th day, the Company will pay you in a lump sum the salary continuation payments that you would have received on or prior to such date if payment of the Severance Amount had commenced immediately following your Separation Date, with the balance of the Severance Amount being paid as originally scheduled.

(b) 2015 Target Bonus. As an additional Severance Benefit, the Company will pay you your annual target bonus for 2015 (which is equal to $315,000), subject to standard payroll deductions and withholdings (the “Bonus Amount”). The Bonus Amount will be paid to you on that certain date in February 2016 when the Company pays its annual 2015 performance bonuses to eligible employees.

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(c) Health Insurance. To the extent provided by the federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits after the Separation Date. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice describing your rights and obligations under COBRA laws on or after the Separation Date. As an additional Severance Benefit, if you timely elect continued group health insurance coverage under COBRA, the Company will reimburse your COBRA premium payments sufficient to continue your group coverage at its current level including costs of dependent coverage, if applicable, through the earlier of either of the following provided that you remain eligible for COBRA coverage (such applicable time period, the “COBRA Payment Period”): (A) April 15, 2016; (B) your death; or (C) the date that you become eligible for group health insurance coverage through a new employer. You must promptly notify Maya Thaw in writing if you become eligible for group health insurance coverage through a new employer prior to April 15, 2016. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA premium reimbursement payment without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall provide you with a taxable monthly payment equal to the monthly COBRA premium amount for the remaining duration of the COBRA Payment Period.

(d) Earlier Termination of Severance Benefits. As a condition of your receipt of the Severance Benefits, you must continue to comply with your continuing obligations to the Company, including but not limited to your full continued compliance with this Agreement; provided, however, that you will be entitled to such Severance Benefits unless you breach such obligations and cause material damage to the Company, the Company provides specific written notice to you of such breach and you fail to cure such breach within thirty (30) days of such notice. For example, in the event of any material breach of this Agreement that is not cured within thirty (30) days after written notice, the Company’s obligation to provide the Severance Benefits immediately shall terminate and you will receive no further Severance Benefits.

(e) Section 409A Compliance. Notwithstanding anything to the contrary herein, the following provisions apply to the extent any benefits (“Benefits”) provided herein are subject to Section 409A of the Internal Revenue Code of 1986, as amended, or any comparable state or local tax law (collectively, “Section 409A”): (A) the Benefits are intended to qualify for an exemption from application of Section 409A or comply with the requirements of Section 409A to the extent necessary to avoid adverse personal tax consequences to you under Section 409A, and any ambiguities herein shall be interpreted accordingly; (B) Benefits contingent on a termination of employment shall not commence until you have had a “separation from service” within the meaning of Section 409A (a “Separation from Service”); (C) each installment of a Benefit is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i); and (D) each Benefit is intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9) to the maximum extent available. However, if such

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Lynn Seely, M.D.

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exemptions are not available and you are, upon your Separation from Service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences to you under Section 409A, the timing of the Benefit payments otherwise payable pursuant to this Agreement prior to the earlier of (x) six (6) months and one day after your Separation from Service, or (y) your death (the “Specified Employee Deferral Date”) shall be delayed until the Specified Employee Deferral Date, and any payments otherwise scheduled to be made after the Specified Employee Deferral Date shall be paid as originally scheduled.

(f) Treatment of Parachute Payments. You and the Company agree that Section 9 of the Change of Control Severance Benefits Agreement dated as of February 2, 2009 between you and the Company (the “Severance Benefits Agreement”) will apply to the Severance Benefits.

3. Consulting Period. You and the Company have agreed that the Company will retain you as a consultant under the terms specified below. The consulting relationship commences on the Separation Date and continues through April 15, 2016 (the “Consulting Period”). Your agreement to provide consulting services is in consideration of the benefits to be provided to you under this Agreement. There is no separate compensation specifically attributable to your consulting services.

(a) Consulting Services. During the Consulting Period, you will use your best efforts, as may be requested by the Company, to provide assistance with the transition of your responsibilities to one or more other employees of the Company (the “Consulting Services”). You will report to the Company’s Chief Executive Officer. You agree to exercise the highest degree of professionalism and utilize your expertise and creative talents in performing these services. You have agreed to make yourself available to provide the Consulting Services for up to 10 hours per month during the Consulting Period. During the Consulting Period, you shall abide by the Company’s applicable policies and procedures. The Company will not knowingly provide you any material non-public information about the Company without your consent in the course of your consulting activities hereunder.

(b) Equity Awards. Since your service as an employee and a consultant will be continuous, your termination of employment will not constitute a termination of service for purposes of the Company’s Amended and Restated 2004 Equity Incentive Award Plan (the “Plan”). Thus, vesting of your outstanding stock options and other equity awards (including but not limited to Restricted Stock Unit awards) (the “Equity Awards”) will not cease as of the Separation Date and will continue for the duration of the Consulting Period. Your Equity Awards shall continue to be governed by the Plan (including, without limitation, Section 11.2 thereof) and all applicable grant notices and agreements. Notwithstanding the foregoing, pursuant to this Agreement, the time within which you may exercise the vested portion of any outstanding stock options shall be extended such that it terminates on April 15, 2017 (but not later than the expiration of the 10-year term of any such option).

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(c) Independent Contractor Relationship. During the Consulting Period, your relationship with the Company will be that of an independent contractor, and nothing in this Agreement is intended to, or should be construed to, create a partnership, agency, joint venture or employment relationship after the Separation Date. Except as expressly provided in this Agreement, you will not be entitled to, and will not receive, any benefits which the Company may make available to its employees, including but not limited to, group health or life insurance, profit-sharing or retirement benefits.

(d) Limitations on Authority. During the Consulting Period, you will have no responsibilities or authority as a consultant to the Company other than as provided above. You will have no authority to bind the Company to any contractual obligations, whether written, oral or implied, except with the prior written authorization of an officer of the Company. You agree not to represent or purport to represent the Company in any manner whatsoever to any third party unless authorized in advance by the Company, in writing, to do so.

(e) Proprietary Information and Inventions. You agree that, during the Consulting Period and thereafter, you will not use or disclose, in any manner that is not authorized by the Company or essential to your performance of specifically requested Consulting Services, any confidential or proprietary information or materials of the Company that you obtain or develop in the course of performing the Consulting Services. Any and all work product you create in the course of performing the Consulting Services will be the sole and exclusive property of the Company. As set forth in your Proprietary Information and Inventions Agreement with the Company, and subject to the limitations set forth herein, you hereby assign to the Company all right, title, and interest in all inventions, techniques, processes, materials, and other intellectual property developed in the course of performing the Consulting Services. You further acknowledge and reaffirm your continuing obligations, both during the Consulting Period and thereafter (as applicable), under the Proprietary Information and Inventions Agreement entered into between you and the Company, a copy of which is attached hereto as Exhibit A and incorporated herein by reference.

(f) Other Work Activities. Throughout the Consulting Period, you shall have the right to engage in employment, consulting, or other work relationships in addition to your work for the Company. The Company will make arrangements to enable you to perform your work for the Company at such times and in such a manner so that it will not unreasonably interfere with other activities in which you may engage. In order to protect the trade secrets and confidential and proprietary information of the Company, you agree that, during the Consulting Period, you will notify the Company, in writing, before you obtain employment with, or perform competitive work for, any business entity that is competitive with the Company, or engage in any other work activity, or preparation for work activity, competitive with the Company.

(g) Termination of Consulting Period. Without waiving any other rights or remedies, the Company may immediately terminate the Consulting Period at any time, for any reason, upon written notice to you. In the event the Consulting Period terminates prior to April 15, 2016 for any reason (including your death or disability), then (i) your right to receive the Severance Benefits as provided in Section 2 shall not be affected by such termination and (ii)

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the vesting of your Equity Awards shall be accelerated to the date of termination of the Consulting Period, with the amount of vesting being determined as if you had continued to provide Consulting Services through April 15, 2016 (with the understanding that, irrespective of an earlier termination of the Consulting Period, to the maximum extent permitted by the Plan and applicable law, your Equity Awards will be deemed outstanding through April 15, 2017 for purposes of the Plan except to the extent they are fully exercised or settled).

4. No Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you have not earned, will not earn by the Separation Date and will not receive from the Company any additional compensation, severance or benefits on or after the Separation Date, with the exception of any vested benefits you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account). By way of example, you acknowledge that you have not earned and are not owed any sales commissions or equity, will not earn any bonus or other compensation for 2016 and will not be entitled to any Severance Benefits or other compensation under the Severance Benefits Agreement.

5. Expense Reimbursement. You agree that, within thirty (30) days after the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for such expenses pursuant to its regular business practice and policies.

6. Return of Company Property. By no later than thirty (30) days after the close of business on the Separation Date, you shall return to the Company all non-public Company documents (and all copies thereof) and other property of the Company in your possession or control, including but not limited to Company files, notes, correspondence, memoranda, notebooks, drawings, records, reports, lists, compilations of data, proposals, agreements, drafts, minutes, studies, plans, forecasts, purchase orders, financial and operational information, product and training information, research and development information, clinical trial information, sales and marketing information, personnel and compensation information, vendor information, promotional literature and instructions, product specifications and manufacturing information, computer-recorded information, electronic information (including e-mail and correspondence), other tangible property and equipment (including, but not limited to, computer equipment, PDAs, facsimile machines, and cellular telephones), credit cards, entry cards, identification badges, keys and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree that you will make a diligent search to locate any such documents, property and information within the timeframe referenced above. In addition, if you have used any personally-owned computer, server, e-mail system, mobile phone, or portable electronic device (e.g., BlackBerry), (collectively, “Personal Systems”) to receive, store, prepare or transmit any Company confidential or proprietary data, materials or information, then by no later than thirty (30) days after the close of business on the Separation Date, you will make reasonable efforts to permanently delete and expunge all such Company confidential or proprietary information from such Personal Systems without retaining any copy or reproduction in any form and, if the Company requests, will provide a written certification to that effect. Your timely compliance with the provisions of this Section 6 is a precondition to your receipt of the Severance Benefits provided hereunder.

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7. Proprietary Information Obligations. You agree to fully comply with all of your continuing obligations under your Confidential Information and Invention Assignment Agreement (“Confidentiality Agreement’), a copy of which is attached hereto as Exhibit A and incorporated herein by reference.

8. Confidentiality. The provisions of this Agreement will be held in strictest confidence by you and the Company and it will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement in confidence to your immediate family; (b) you may disclose this Agreement in confidence to your attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as required by corporate disclosure requirements; and (d) you and the Company may disclose this Agreement pursuant to a government investigation, if necessary to enforce its terms, or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former employee, consultant or independent contractor of the Company.

9. Nondisparagement. You agree not to disparage or subvert, verbally or in writing, the Company, its collaboration partners, and its and their current and former officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputations or personal reputations; provided, however, that you must respond accurately and truthfully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation. The Company agrees that it and its executive officers will not disparage or subvert you, verbally or in writing, in any manner likely to be harmful to you or your business reputation or personal reputation; provided, however, that the Company and its executive officers must respond accurately and truthfully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation.

10. No Voluntary Adverse Action; and Cooperation. You agree that you will not voluntarily provide assistance, information or advice, directly or indirectly (including through agents or attorneys), to any person or entity in connection with any proposed or pending litigation, arbitration, administrative claim, cause of action, or other formal proceeding of any kind brought against the Company, its parent or subsidiary entities, affiliates, officers, directors, employees or agents, nor shall you induce or encourage any person or entity to bring any such claims; provided, however, that you must respond accurately and truthfully to any question, inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar compulsion of law) or as part of a government investigation. In addition, you agree to cooperate fully with the Company in connection with its actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters arising from events, acts, or failures to act that occurred during the period of your employment by the Company. Such cooperation includes, without limitation, making yourself available to the Company upon reasonable notice, without subpoena, to provide complete,

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truthful and accurate information in witness interviews, depositions, and trial testimony. The Company will reimburse you for reasonable out-of-pocket expenses you incur in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate your scheduling needs. If your compliance with the Company’s requests for assistance pursuant to this Section 10 (excluding time spent to comply with any subpoena or testifying on the Company’s behalf), together with time you spend providing Consulting Services, exceed (on a cumulative basis) ten (10) hours per month, the Company will compensate you for such excess time at the rate of $500 per hour. In addition, you agree to execute all documents (if any) necessary to carry out the terms of this Agreement.

11. Nonsolicitation of Employees, Contractors or Consultants. You agree, for six (6) months after the Separation Date, not to solicit, induce, or attempt to solicit or induce, any employees, independent contractors or consultants of the Company to reduce or terminate his, her or its employment or other relationship with the Company.

12. No Admissions. Nothing contained in this Agreement shall be construed as an admission by you or the Company of any liability, obligation, wrongdoing or violation of law.

13. Release of Claims.

(a) General Release. In exchange for the Severance Benefits provided to you under this Agreement to which you would not otherwise be entitled, and except as otherwise set forth in this Agreement, you hereby generally and completely release the Company, its parent and subsidiary entities, and its and their current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”) of and from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date you sign this Agreement (collectively, the “Released Claims”).

(b) Scope of Release. The Released Claims include, but are not limited to: (i) all claims arising out of or in any way related to your employment with the Company, or the decision to terminate that employment; (ii) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964, the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (“ADEA”), the federal Family and Medical Leave Act (“FMLA”), the California Family Rights Act (“CFRA”), the California Labor Code (including without limitation claims under the Labor Code Private Attorneys General Act, California Labor Code Section 2699 et seq.) as an individual and as a representative in class, collective, or otherwise group action, and the California Fair Employment and Housing Act.

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(c) ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you have under the ADEA, and that the consideration given for the waiver and release you have given in this Agreement is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised, as required by the ADEA, that: (i) your waiver and release does not apply to any rights or claims that arise after the date you sign this Agreement; (ii) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (iii) you have twenty-one (21) days to consider this Agreement; (iv) you have seven (7) days following the date you sign this Agreement to revoke this Agreement (in a written revocation sent to me); and (v) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement provided that you do not revoke it.

(d) Section 1542 Waiver. In giving the releases set forth in this Agreement, which include claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement.

(e) Excluded Claims. Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification you may have under the Indemnification Agreement dated as of October 11, 2006 between you and the Company, the Company’s charter or bylaws or applicable law; (ii) any rights or claims which are not waivable as a matter of law; and (iii) any claims for breach of this Agreement. In addition, nothing in this Agreement prevents you from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that you acknowledge and agree that you are hereby waiving your right to any monetary benefits in connection with any such claim, charge or proceeding. You hereby represent and warrant that, other than the Excluded Claims, you are not aware of any claims you have or might have against any of the Released Parties that are not included in the Released Claims.

14. Messaging. You and the Company agree that you will mutually agree upon a statement setting forth the reasons for your departure from the Company and that such statement will be the only statement used by the Company and/or any of its officers, directors, employees, affiliates and any other related parties for any internal or external announcement or communication (including any applicable press release that the Company may wish to issue or statement to be included in the Company’s 8-K filings) regarding your departure from the Company and in response to any inquiries about you from prospective employers or other similar inquiries. It is understood that you will also send a mutually agreed-upon email to Company employees with respect to your departure.

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15. Representations. You hereby represent and warrant that (a) except as expressly provided in this Agreement, you have been paid all compensation owed and for all time worked, (b) you have received all the leave and leave benefits and protections for which you are eligible pursuant to FMLA, CFRA, any applicable law or Company policy, and (c) you have not suffered any on-the-job injury or illness for which you have not already filed a workers’ compensation claim.

16. Arbitration.

(a) Agreement to Arbitrate. To ensure the rapid and economical resolution of disputes that may arise under this Agreement, you and the Company both agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, your employment with the Company, or the termination of your employment from the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Francisco, California by JAMS, Inc. (“JAMS”) or its successors. Both you and the Company acknowledge that by agreeing to this arbitration procedure, you each waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.

(b) Governing Rules.

(i) Any such arbitration proceeding will be governed by JAMS’ then applicable rules and procedures for employment disputes, which can be found at www.jamsadr.com/rules-employment-arbitration/, and which will be provided to you upon request.

(ii) In any such proceeding, the Arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.

(iii) You and the Company each shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law; provided, however, that in no event shall the Arbitrator be empowered to hear or determine any class or collective claim of any type. This paragraph shall not apply to an action or claim brought pursuant to the California Private Attorneys General Act of 2004.

(iv) Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration pursuant to applicable law.

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(c) Arbitration Fees. The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fees and any other fees or costs unique to arbitration.

17. Miscellaneous. This Agreement, including Exhibit A, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a written agreement signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, and their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question shall be deemed modified so as to be rendered enforceable in a manner consistent with the intent of the parties, insofar as possible under applicable law. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement shall be deemed to have been entered into, and shall be construed and enforced, in accordance with the laws of the State of California without regard to conflicts of law principles. This Agreement may be executed in counterparts, each of which shall be deemed to be part of one original, and facsimile signatures shall be equivalent to original signatures.

If this Agreement is acceptable to you, please sign and date below within twenty-one (21) days, and return it to me. If you do not sign and return it to the Company within the aforementioned timeframe, the Company’s offer to enter into this Agreement and provide the Severance Benefits will expire.

We wish you the best in your future endeavors.

Sincerely,

MEDIVATION, INC.

 

By:		/s/ Sandy Cooper
		Sandy Cooper
		Vice President, Human Resources

Exhibit A - Confidentiality Agreement

UNDERSTOOD AND AGREED:

 

/s/ Lynn Seely				Sept 23, 2015
Lynn Seely, M.D.				Date

 

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EXHIBIT A

CONFIDENTIALITY AGREEMENT

 

A-1

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MEDIVATION, INC.

CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT

As an employee of Medivation, Inc., any of its subsidiaries, affiliates, successors or assigns (collectively, the “Company”), and in consideration of the compensation now and hereafter paid to me, I hereby agree as follows:

1. Maintaining Confidential Information

a. Company Information. I agree at all times during the term of my employment and thereafter to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Company, any trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs (including source code and object code), data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its clients, customers, consultants or licensees.

b. Third Party Information. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree during the term of my employment and thereafter, to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation (except as necessary in carrying out my work for the Company consistent with the Company’s agreement with such third party) or to use it for the benefit of anyone other than for the Company or such third party (consistent with the Company’s agreement with such third party) without the express prior written authorization of the Company.

2. Retaining and Assigning Inventions and Original Works.

a. Inventions and Original Works Retained by Me. I have attached hereto, as Exhibit A, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to my employment with the Company (collectively, the “Prior Inventions”), which belong to me, which relate to the Company’s proposed or current business, products or research and development, and which are not assigned to the Company; or, if no such list is attached, I represent that there are no such inventions. If in the course of my employment with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have an non-exclusive, royalty free, irrevocable, perpetual, or world-wide license to make, have made, sublicense, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine.

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b. Inventions and Original Works Assigned to the Company.

(i) I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will transfer, convey, release and assign to the Company all my right, title, and interest, if any, in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company.

(ii) If I have been employed by the Company for any period of time prior to the execution of this Agreement, by execution of this Agreement I hereby transfer, convey, release and assign to the Company all my right, title and interest, if any, in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets which I have solely or jointly conceived or developed or reduced to practice, or caused to be conceived or developed or reduced to practice, during the period of time that I have been employed with the Company. The inventions, original works of authorship, developments, concepts, improvements or trade secrets referred to in Subsections (i) and (ii) above are collectively referred to as the “Inventions”.

(iii) I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.

c. Maintenance of Records. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.

d. Inventions Assigned to the United States. I agree to assign to the United States government all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

e. Patent and Copyright Registrations. I agree to assist the Company, or its designee, at the Company’s expense, in every proper way to secure and enforce the Company’s rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be

 

2.

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executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.

f. Exception to Assignments. I understand that the provisions of this Agreement requiring assignment to the Company do not apply to any Invention which qualifies fully under the provisions of Section 2870 of the California Labor Code, a copy of which is attached hereto as Exhibit B. I will advise the Company promptly in writing of any Inventions that I believe meet the criteria of California Labor Code Section 2870 and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief.

3. Conflicting Employment. I agree that, during the term of my employment with the Company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to the Company.

4. Returning Company Documents. I agree that, at the time of leaving the employ of the Company, I will deliver to the Company (and will not keep in my possession or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to the Company, its successors or assigns. In the event of the termination of my employment, I agree to sign and deliver the “Termination Certification” attached hereto as Exhibit C.

5. Representations. I agree to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. I represent that my performance of all the terms of this Agreement will not breach any agreement (i) to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company or (ii) to assign Inventions to any former employer or any other third party. I will not disclose to the Company or use on its behalf any confidential information belonging to others. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict herewith.

6. Employee Solicitation. I agree that for a period of six (6) months from the date of termination of my employment with the Company that I will not, directly or indirectly, solicit or cause to be solicited for any person or entity other than the Company (i) any of the existing customers of the Company or (ii) any of the existing employees of the Company for purposes of obtaining their employment services; provided that clause (ii) above will not restrict me from soliciting customers of the Company in a line of business that is not substantially similar to the existing or future business of the Company.

 

3.

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7. Equitable Relief. I agree that it would be impossible or inadequate to measure and calculate the Company’s damages from any breach of the covenants set forth in Sections 1, 2, 4 and 6 herein. Accordingly, I agree that if I breach any of such Sections, the Company will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement. I further agree that no bond or other security shall be required in obtaining such equitable relief and I hereby consent to the issuance of such injunction and to the ordering of specific performance.

8. General Provisions.

a. Employment at Will. This Agreement is not an employment agreement. I understand that the Company may terminate my employment with it at any time, with or without cause, subject to the terms of any separate written agreement duly executed by both parties.

b. Acknowledgment. I acknowledge that I have had the opportunity to consult legal counsel in regard to this Agreement, that I have read and understood this Agreement, that I am fully aware of its legal effect, and that I have entered into it freely and voluntarily and based on my own judgment and not on any representations, understandings, or promises other than those contained in this Agreement.

c. Governing Law. This Agreement will be governed by the laws of the State of California without giving effect to the conflicts of law principles thereof.

d. Entire Agreement. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

e. Severability. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

 

4.

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f. Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

Date:

 

						/s/ Lynn Seely, M.D.
						(Employee’s Signature)
						Lynn Seely
						(Name of Employee (typed or printed))
Witness

 

5.

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EXHIBIT A

LIST OF PRIOR INVENTIONS

AND ORIGINAL WORKS OF AUTHORSHIP

 

Title		Date		Identifying Number or Brief Description

Name of Employee:

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EXHIBIT B

CALIFORNIA LABOR CODE SECTION 2870

EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS

“(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer.

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.”

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EXHIBIT C

TERMINATION CERTIFICATION

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to Medivation, Inc., its subsidiaries, affiliates, successors or assigns (together, the “Company”).

I further certify that I have complied with all the terms of the Company’s Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its clients, customers, consultants or licensees.

 

Date:
						(Employee’s Signature)
						(Type/Print Employee’s Name)

Exhibit 31.1

CERTIFICATIONS

I, David T. Hung, M.D., certify that:

1. I have reviewed this Form 10-Q of Medivation, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2015

 

/s/ David T. Hung, M.D.
Name:		David T. Hung, M.D.
Title:		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Richard A. Bierly, certify that:

1. I have reviewed this Form 10-Q of Medivation, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2015

 

/s/ Richard A. Bierly
Name:		Richard A. Bierly
Title:		Chief Financial Officer

Exhibit 32.1

CERTIFICATION

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), David T. Hung, M.D., President and Chief Executive Officer of Medivation, Inc. (the “Company”), and Richard A. Bierly, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

(1) The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

(2) The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, each of the undersigned has set his hand hereto as of the 6th day of November, 2015.

 

/s/ David T. Hung, M.D.						/s/ Richard A. Bierly
Name:		David T. Hung, M.D.				Name:		Richard A. Bierly
Title:		President and Chief Executive Officer				Title:		Chief Financial Officer

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Medivation, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.