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By Patrick Crutcher

Currently, Momenta Pharmaceuticals (NASDAQ:MNTA) represents an undervalued opportunity with high reward potential and some downside risk. We like the potential going forward in 2011 with updates on their pipeline and Copaxone litigation. Recently, the stock dropped following news from Teva (NYSE:TEVA), that it had received a “minor deficiency” letter from the FDA regarding questions about TEVA’s ANDA application to sell their generic version of Lovenox. (Recall, MNTA received approval for their generic back in July 2010.) Unfortunately, the media is underestimating how substantive these issues are for TEVA and their general lack of credibility.

To begin, let’s think about how "minor" these issues really are for Teva. As Wedbush analysts sees it,

“For instance, MNTA itself received a “minor deficiency letter” with respect to its immunogenicity data, an issue which eventually took MNTA a full 18 months to resolve to the FDA’s satisfaction. Indeed, for truly simple issues, the FDA has created a telephone amendment pathway through which these issues can be resolved. The FDA’s decision to not employ this telephone amendment path suggests that substantive issues do remain for TEVA.”

So we suspect that TEVA has more serious issues to deal with than they are leading investors to believe. Additionally, it’s very unclear if TEVA’s product can ever satisfy the FDA requirements for sameness and whether they can fully characterize the structure. But to be honest, we aren't sure TEVA will ever be able to obtain approval.

TEVA’s track record with respect to generic Lovenox development has been questionable from the get-go, especially when you consider their generic isn't being developed in-house and it’s application was originally submitted in 2003. In July 2010, after Momenta received approval for their generic, TEVA immediately came forth saying it’s application was close. It’s been 6 months and all they have now is more issues with the FDA.

Additionally, Momenta is suing TEVA in court for patent infringement in relationship to patents around the characterization of enoxaparin sodium. The longer Momenta can delay TEVA, the better. Keep in that MNTA only gets a 10% royalty(rather than 50/50 profit share), if a second generic Lovenox approval comes, so it’s crucial they maintain their status as the sole generic.

Investors here should also consider that their earnings this next quarter will be very significant. Momenta and partner Sandoz, of Novartis (NYSE:NVS), were well on their way to registering more than $1 billion dollars in annual sales of generic Lovenox. Analysts expect MNTA to take home roughly $60-70 million a quarter in Lovenox revenue until a second generic comes to the market. They have a lot of cash on hand and will continue to build their balance sheet with Lovenox revenues. Additionally, analysts believe that Momenta will find partners for some of their other assets, like M118, sometime this year. Momenta also plans to further progress on its Follow-on-Biologics programs. This area is particularly interesting as biologic drugs had total sales of $100 billion, however, a sizable portion of this market will be off-patent in the coming years and it opens up a very big opportunity for company with the right technology like Momenta.

Lastly, we want to mention that Momenta could hear news about their generic Copaxone application at anytime. The Hatch-Waxman 30-month stay on an FDA decision is now over meaning the FDA can make a ruling regardless of the patent suit. Currently, Teva is in patent litigation against MNTA/NVS and Mylan over Copaxone. News is expected on this front sometime in the middle of 2011. Analysts think Momenta could get a favorable decision in these proceedings. If Momenta wins in court and obtains FDA approval, that would be monumental for their prospects.

Disclosure: No position.