NEW YORK (AP) -- Shares of Medivation Inc. fell Monday after health care giant Johnson & Johnson agreed to buy Aragon Pharmaceuticals, a company that is developing a prostate cancer drug that could compete with Medivation's Xtandi.
THE SPARK: On Monday, Johnson & Johnson agreed to buy Aragon Pharmaceuticals for at least $650 million in cash and $350 million in potential milestone payments. Aragon's lead drug candidate is a potential treatment of castration-resistant prostate cancer. The drug, called ARN-509, is in mid-stage clinical testing.
THE BIG PICTURE: Medivation's prostate cancer pill Xtandi was approved in the U.S. in August, and sales totaled $75 million in the first quarter. It is approved as a treatment for advanced prostate cancer that has returned or spread in spite of drugs or surgery that limit testosterone.
Canadian regulators approved the drug in June and a European Union panel has recommended the drug be approved.
Johnson & Johnson also makes a prostate cancer pill: Its drug Zytiga was approved in 2011. The company reported $344 million in Zytiga sales in the first quarter, including $161 million in the U.S.
THE ANALYSIS: Citi Investment Research analyst Yaron Werber said the purchase of Aragon "looks ominous" for Medivation, but it's not as bad as it appears because it shows Johnson & Johnson is confident the market for prostate cancer drugs like Xtandi and ARN-509 will keep growing.
Werber said ARN-509 will probably become a competitor to Xtandi, but he thinks ARN-509 and Xtandi will both find niches in the market. The analyst expects Xtandi to have a 40 percent share of that market in the long term.
Weber added that Zytiga is scheduled to lose patent protection in December 2016, although its patent protection could be extended to October 2018.
He rates Medivation shares at "Buy" with a price target of $70.
SHARE ACTION: Shares of Medivation fell $4.73, or 9.3 percent, to $46.17 in afternoon trading. The stock has ranged from $41.89 to $59.24 in 2013.