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By. M.E. Garza

Momenta Pharmaceuticals (NASDAQ:MNTA) recently announced the issuance of a patent for their Copaxone program. This is a material news item that will play an important part in their legal battle against Teva (NYSE:TEVA). After hours, Momenta announced that it had received notification that the U.S. Patent and Trademark Office issued U.S. Patent No. 7,884,187, entitled "Analysis of Amino Acid Copolymer Compositions." This patent includes claims to methods of preparing glatiramer acetate (Copaxone) drug product. This news has an important effect on valuation for several reasons.

Craig Wheeler, President and CEO of Momenta stressed the importance of these patents for the generic Copaxone program. "This patent is an important addition to the Momenta intellectual property portfolio as it is the first U.S. patent to issue from our expanding portfolio of pending patent applications related to glatiramer acetate, also known as Copaxone. Protecting Momenta's innovative technology as it relates to this complex pharmaceutical product is an important strategic priority in the development of a generic version of Copaxone."

This patent will be pivotal to Momenta's case in their patent litigation with Teva and to protect against generic competitors like Mylan (NASDAQ:MYL). It will certainly give added credibility to Novartis (NYSE:NVS)/MNTA’s argument to the District Court that their generic does not infringe TEVA's Copaxone patents.

Investors should be aware that a District Court ruling on a Markman hearing should be coming soon. This will provide an initial indication on the probable outcome of the Copaxone patent trial.

Momenta seems most likely to win the case due to non-infringement at this point. We continue to expect a favorable opinion in litigation for Momenta based on their unique technology and the weak IP surrounding Copaxone.

Investors should know that the 30-month Hatch-Waxman stay on an FDA decision has expired (began 7/11/08), which means that the FDA can make a final decision on the approval of their ANDA for Copaxone, regardless of the status of the patent litigation.

Momenta has also partnered this program with Novartis' Sandoz unit. They have a similar profit-sharing (50/50) agreement akin to their Lovenox deal. Consider that Copaxone did U.S. sales of $655 million in 4Q 2010, hence favorable news on this front would create a substantial boost in valuation for Momenta.

More recently, we illustrated how undervalued Momenta was after the questionable news out of Teva regarding Lovenox. We are still entirely skeptical of Teva's commitment to this program.

If Teva were close to a near-term approval, you would think they'd update their fiscal guidance. From their 2011 financial outlook today(2/8), their generic Lovenox program doesn't even get a mention.

Those minor deficiencies could easily setback a final decision on this application anywhere from six months to two years. Momenta also recently filed for expedited discovery in their patent suit against Teva over Lovenox after Teva announced the minor deficiency letter. Specifically, Momenta wants to take a look at Teva's ANDA, any related drug master file, communications with the FDA and various manufacturing records. If it's found that TEVA is infringing, the court could place an injunction preventing the import of their product. We believe Momenta has the upper hand here seeing that Teva seems hesitant to show their hand or update their guidance. If Teva were fully confident that their process does not infringe, they would have no problem allowing discovery.

With earnings around the corner, we expect Momenta to post very significant revenue on Thursday. Consider that in only 9 weeks of marketing their generic Lovenox, Momenta pulled in $44 million in revenue during the third quarter of 2010, even after repaying Novartis $35 million in prelaunch costs. Based on the most recent scripts of Lovenox, Momenta's generic currently occupies 55% of scripted Lovenox and 40% of the total US market. Novartis recently reported that sales of Lovenox for 4Q 2010 were $170 million, which could translate into $45-50 million in revenue for Momenta. Some analysts value that their Lovenox program alone is worth $20 per share.

Wedbush analysts estimate Q4 2010 revenues at $64 million.

Some analysts value that their Lovenox program alone is worth $20 per share.

Momenta is currently building a very significant amount of cash, with approximately $57 million from their recent offering on top of roughly $55-60 million. Many also expect some updates on their other development programs, including the M118, M402 and their FoB program, all of which they are seeking partners for.

There is also the potential for a short squeeze seeing that the stock has 9-10 million shares short or 26% of the float.

Expect some significant upwards price action this week. Earnings will be out before the market opens on Thursday. We look forward to following their developments throughout 2011.

Disclosure: Long MNTA

Source: Momenta: Potential for Short Squeeze After Patent Issuance for Generic Copaxone