Momenta Pharma: On a Roll in 2011

Momenta Pharmaceuticals (NASDAQ:MNTA), a biotech company that specializes in the characterization and process engineering of complex molecules, has gathered quite a bit of upward momentum this year as evidenced by the 47% run its been on since its Jan 31st close of $12.79.

As of Tuesday's close at $18.81, shares of Momenta were trading roughly 27% below the one year consensus analyst price target of $24.00 and 39% below its 52 week high of $26.20.

MNTA YTD Daily Chart
MNTA YTD Daily Chart
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The reason for the rise: Anticipated-turned-realized sales figures.

The company recently recorded blowout Q1 2011 earnings, beating both the top and bottom line consensus estimates. It reported $78.9M in revenue and net income of $57M or $1.13 per diluted share. Research and development costs were up slightly, but that was to be expected as the company continues to develop its impressive pipeline.

Momenta was able to grow its cash and cash equivalents by 19.11% from $152.8M to $182M, quarter over quarter, largely due to profit sharing revenues received from the sales of M-Enoxaparin.

CEO Craig Wheeler from the recent earnings call:

For the Q1 of 2011 Sandoz reported that net sales of enoxaparin were $247 million. This translates to Momenta product revenues of $76 million from the sales of generic LOVENOX.

The company's CEO went on to caution investors that there may not be much room for market share growth and that any new market competition would dramatically affect the current dynamics of its profit sharing agreement with Sandoz, which is the generics arm of Novartis (NYSE:NVS).

Sandoz did note that some of the sales this quarter were due to in-stocking from new acquired customers. Also, we are currently operating near the maximum capacity of our supply chain so to set expectations we have limited opportunity to grow from our current market position in the near future. As we have mentioned in the past, should an additional generic LOVENOX enter the market our economic arrangement would shift to make profit share to a royalty on net sales which would significantly reduce our enoxaparin revenues.

The company also provided an update on its pending litigation with Teva Pharmaceuticals (NYSE:TEVA) concerning enoxaparin.

Regarding our case against Teva, filed December 2010, in which we sued Teva for infringement of two Momenta patents. On April 15th we served Teva with claim by claim allegations of infringement and discovery is now underway. The documents containing these specific allegations are confidential at this stage. A markman hearing has been scheduled for December 13, 2011, and a preliminary trial based on this case has been set for February 4, 2013.

More litigation with Teva.

Momenta is also working in collaboration with Sandoz to develop generic Copaxone and is currently involved in litigation with Teva concerning this product, as well. A trial date has been set for September 7, 2011. Teva has recently stated that it has little concern about generic copaxone entering the market anytime soon. On a potentially related note, 1000 September $15 puts were purchased on 05/10/11, possibly as a hedge against a long position.

Given the uncertainties surrounding the company's complex and ongoing litigation efforts, I will continue to monitor my current position closely and only plan to add shares in the event of unjustifiably oversold conditions.

Disclosure: I am long MNTA, TEVA.