Momenta Pharma: Expect Upside Following Game-Changing Upgrade

Morgan Stanley is upgrading Momenta Pharma (NASDAQ:MNTA) to Overweight-V and increasing their target to $22. Firm believes the stars could be finally aligning for the FDA approval of MNTA/NVS’s M-Enox in 2008-09 as the only genericversion of SNY’s Lovenox (blood thinner), potentially leading to:

1) 40-50% share of the $1.5+ billion U.S. Lovenox market,

2) peak potential earnings of $3/sh and

3) a share price of $40+.

The downside risk of a long delay or non-approval is that the stock returns to $6.

Why are they upgrading now? Firm believes that the heparin (a complex sugar) contamination crisis may have given MNTA the unique opportunity to prove to the FDA its proprietary technology for characterizing complex sugars. Last week’s Nature publication shows that MNTA worked with the FDA to identify the heparin contaminant.

They view this work as a game changer, underestimated by the Street. In firm's opinion, the FDA is now more likely to view MNTA’s technology as sufficient to show that M-Enox is the same as Lovenox (also a complex sugar) — a key regulatory hurdle and one they feel competitors Teva and Amphastar cannot achieve.

Notablecalls: This is a game-changing upgrade for this stock. Morgan Stanley has been neg on MNTA for quiet some time (UW rating) and now they are saying the stock could do $35+ under bullish scenario.

I expect to see a 10%-15% upside move in MNTA today.