By Patrick Crutcher
With most smallcap biotech companies, investors don't have high expectations for significant revenue from pipeline assets. However, Momenta Pharmaceuticals (NASDAQ: MNTA) bucks that trend entirely. Considering the size of Momenta's revenue stream, we're frankly amazed that they are valued around $750 million. In our opinion, the market seems to have missed some updates over at Momenta that investors should be aware of, since one of these alters a perceived overhang. We've been following Momenta for a while now and still believe Momenta offers significant upside, especially in light of the issues below.
In terms of valuation and financial strength, you'd be extremely hard pressed to find a comparable biotech. On top of that, they have an unparalleled technology platform that should continue to roll out valuable assets. Their generic Lovenox program has been incredibly successful since receiving FDA approval back in July 2010. In just two quarters, Momenta and partner Sandoz of Novartis (NYSE: NVS) have sold close to $462 million-worth of generic Lovenox in 2010. With that said, investors should know that Novartis will be presenting first quarter 2011 results on April 19th. We are expecting a nice uptick in sales of generic Lovenox, currently estimating sales in the range of $200-225 million. Momenta has 45/55 profit-share with Novartis. Sales of generic Lovenox will continue to add significant cash to Momenta's war-chest, which was $150 million at the end of 2010.
The market hasn't fully digested some news related to how secure this revenue stream might be. As we know, Momenta filed suit against TEVA over patent infringement with regard to Momenta’s patents covering methods for processing and analyzing enoxaparin sodium to assure the quality. We aren't going to get into the technical details, since the case hasn't even begun yet, but we learned something interesting from court filings last week.
On Thursday last week, documents filed with the US District Court by TEVA and NVS/MNTA have a provisional schedule for the case. A trial date has been tentatively set for February 4, 2013. Keep in mind, that this timeline was agreed upon by both parties, NVS/MNTA and TEVA. In our view, TEVA’s acceptance of this timeline, where a trial won't start until 2013, suggests that they don't expect to obtain FDA approval within the next two years. In the (very) unlikely event that TEVA gets FDA approval for generic Lovenox before this case has been completed, we assume that NVS/MNTA would ask the Court for a preliminary injunction. (This is a very unlikely scenario given the recent deficiency letter from the FDA to TEVA over their Lovenox program. This could easily delay a final decision for another 1-2 years even.) We'll know more about the case on April 15th, when Momenta makes their assertions on supposed infringement and on June 15th, when TEVA makes their case for non-infringement. A Markman hearing is scheduled for December 13, 2011.
In other news, Peptimmune's Citizen Petition on generic Copaxone was denied by the FDA. Peptimmune had also been working on their own multiple sclerosis drug, PI-2301, which never really went anywhere after Novartis bought an option for it; they just recently filed for bankruptcy. They had a clear interest in preventing Momenta or Mylan (NASDAQ:MYL) from getting approval, but their petition was merely grandstanding as the FDA countered all of their arguments. Note that the FDA has still left open the possibility for approving an ANDA for Copaxone; they are still deciding what evidence will be sufficient for a generic approval. The FDA was careful not to give an indication of when or if it had already made a decision on Momenta's application. MNTA CEO Craig Wheeler has kept expectations for an approval of their Copaxone application this year relatively low; we'd rather have that than promises of an approval that never comes.
More funny than surprising, there was some pro-TEVA spin from RBC Capital on this. In her note, Shibani Malhotra, an analyst at RBC Capital, goes onto say,"we believe it is likely that clinical studies will be required for generic approval." Unfortunately for her, this statement is somewhat contradictory. They seem to have forgotten that the FDA can't require efficacy studies (which she seems to imply) for generic approval via the ANDA pathway. This is the same analyst who was corrected many times over by Momenta CFO Rick Shea at the RBC Capital Q&A. Note, she has a "Buy" rating on TEVA.
All in all, we think Momenta is set up for a good 2011. Lovenox profits should continue to bolster the share price while we wait for more on Copaxone and their other assets. In particular, we are keen to hear more this year about their plans for M118 and the Follow-on-Biologics program, both of which they are seeking partners for. As usual, we will continue to keep an eye out for any developments.
Disclosure: Long MNTA