Is Momenta's Stock Plunge Justified?

Momenta Pharmaceuticals (NASDAQ:MNTA) has designed extensive technology to characterize molecules and is using this technology to develop what it calls are technology-enabled generic versions of drugs that have not been fully characterized. The company believes the technology has the potential to determine the precise chemical composition of existing complex drugs, including those structures that have not previously been described.

To date, the inability to analyze the components found in complex drugs has made it difficult to obtain approval of generic versions of such drugs. The most advanced product candidate, M-Enoxaparin is designed to be a technology-enabled generic version of Lovenox, a low molecular weight heparin, used to prevent and treat deep vein thrombosis and treat acute coronary syndrome. Lovenox is distributed worldwide by Sanofi-Aventis (NYSE:SNY) which reported worldwide net sales of Lovenox of approximately $2.7 billion in 2005, with approximately $1.6 billion coming from the United States market.

On Friday February 9, a California court invalidated SNY’s patent on Lovenox, giving generic firms Amphastar Pharmaceuticals and Teva victory in the suit brought against them by SNY, both of whom are seeking FDA permission to sell generic versions of the drug. Shares of MNTA surged in premarket trading on initial news that Sanofi-Aventis had lost the case but later plunged and ended the day down over 20% at $16.10.

Apparently investors believed that the Momenta drug would now have to share marketing rights and in a way the blocking patent helped maintain what was perceived as the better ability of Momenta’s technology to achieve FDA ANDA (abbreviated NDA) approval.

FDA approval is required before a generic equivalent of an existing brand name drug can be marketed. Such approval for products is typically obtained by submitting an ANDA to the FDA and demonstrating therapeutic equivalence. In an ANDA submission, determination of the “sameness” of the active ingredients to those in the reference listed drug is based on the demonstration of the chemical equivalence of the components of the generic version to those of the branded product. There are limited approvals of complex generics and the FDA process is evolving. This fact is a major risk factor in the approval of M-Enoxaparin, the MNTA generic of Lovenox.

However, it is difficult to see why the situation has changed so radically to justify a 20% loss in the MNTA stock price. The other companies involved in this dispute, Sanofi-Aventis and Teva did not experience such radical stock movement, and SNY has a significant interest in seeing continued exclusivity for its product. An analyst assessment is that a loss of market to generic Lovenox could mean a reduction of $6 on the stock price that is 15% of its current price. If one believes that MNTA’s analytical methods are superior to other methods it still has the edge over competitors. In addition, there is the push for cheaper generics and, although biologics, or complex molecules, such as Lovenox are difficult to make and duplicate, there is a strong regulatory need to make generic biologics a reality.

We think that it was the fear of a reduced market for the MNTA generic and the view of some that Sanofi’s Lovenox will prove difficult to replicate and therefore approve by the FDA that caused the drop. This was an overreaction, in our opinion, and the situation is no worse than before the court ruling and if anything slightly improved. We expect the stock price to recapture some of its loss very quickly. It is now a good buying opportunity for the more speculative investor.

MNTA will present at the BIO CEO meeting in NY today at 2PM and will report its financial results for the fourth quarter ended December 31, 2006 before the U.S. financial markets open on Tuesday, February 13, 2007. We expect the company will have to respond to the fall in its price and the court action either at or before these events.

MNTA 1-yr chart

Disclosure: Author has no position in MNTA.

About this article:

Tagged: , , , Biotechnology
Problem with this article? Please tell us. Disagree with this article? .