Momenta Pharma: A Pure Play on Bio-Generics (MNTA, rated BUY)
Momenta Pharma (MNTA) represents a pure play investment for the future of bio-generics, with two ANDAs filed at the FDA in partnership with the Sandoz division of Novartis (NVS) for multi-billion dollar biological agents Lovenox ($3.8B in sales for 2007) (blood thinner) – Sanofi-Aventis (SNY) and Copaxone ($1.7B in sales for 2007) (multiple sclerosis) – Teva Pharma (TEVA). However, it is important to note that the ANDAs for Lovenox and Copaxone can be approved through existing pathways at the FDA and do not require the passage of legislation to make it on the market. Including an estimated cash burn of $14M for 4Q08 + $95M cash reported at end 3Q08 + net proceeds of about $24M from mid-December sale of 2.8M shares of common stock at 9 bucks; MNTA enters 2009 with $105M in cash, about 9M in debt, and a market cap of about $400M. The cash on hand would cover the current burn rate for about two years, although it could be used for acquisitions as suggested in the news release in mid-December at the time of the stock sale. While MNTA + NVS were not the first to file for a generic version of Lovenox, the 180-day exclusivity period awarded to the first-to-file company is set to expire on 4/1/09 for Amphastar + partner Watson Pharma (WPI). The other company with a pending ANDA for Lovenox is TEVA, which is also involved in litigation with Sandoz over the Copaxone ANDA. In late 2007, all three applicants with ANDAs for Lovenox received a request for more information from the FDA on the immunogenicity of their products. Sandoz responded in full to the agency in late September 2008 and no further clinical trials were required by the FDA on the issue. Another major advantage for MNTA is their work with the FDA in conjunction with other experts from MIT on the tainted heparin which was produced in China for Baxter (BAX). MNTA worked with the agency to identify the contaminants and link their biological effects to the adverse events observed in patients who received the tainted heparin, which affected hundreds of patients and resulted in at least 81 deaths in the U.S. alone. Since MNTA was working directly with the FDA, the agency has insight into the Company's technology and scientific expertise which bodes well for the pending ANDA for M-Enoxaparin. MNTA also has a proprietary anti-coagulant (M-118) in their pipeline, which represents the next-generation version of low molecular weight heparin (LMWH) blood thinners such as Lovenox. M-118 is currently being evaluated in Phase 2a EMINENCE trial versus unfractionated heparin with topline results expected in 2Q09, which should also lead to a licensing deal if the results are positive. M-118 offers the following advantages compared to existing agents such as LMWHs, unfractionated heparin, and The Medicine Company's (MDCO) thrombin inhibitor, Angiomax: - can be given subcutaneously via syringe - the blood thinning effect can be reversed and monitored - increased flexibility of use (e.g. prior to surgery) - the potential for fewer bleeding complications - significant anti-Xa + anti-IIa activity = broader clinical utility The final opportunity for MNTA lies in follow-on biologics (FOBs) with several key elements to the strategy, including: global scale with partners such as Sandoz, high quality + low cost manufacturing partners, ability to differentiate FOB products from competitors, and achieving bio-equivalent products rather than bio-similar products. MNTA plans to apply their technology platform to characterize highly complex biological agents and reverse engineer the production process to generate equivalent, complex bio-generic products rather than products which are merely similar. MNTA's pipeline includes a partnership with Sandoz for M-178, which is a FOB for an undisclosed, marketed protein-based drug. In late December, MNTA and Sandoz agreed to terminate the development of another FOB, M-249, due to a high number of competing products anticipated at the time of expected commercialization. M-249 was likely a FOB for Amgen's anemia drug Aranesp since Merck (MRK) recently announced its BioVentures division for bio-generics with MK-2578 designed to compete with Aranesp by 2012. M-249 was not a major part (representing only $10M) of the 2006 agreement with Sandoz under which MNTA could receive a total of $188M in milestone payments for a total of four product candidates (with three still active: M-Enoxaparin, M-356, and M-178). The opportunities for generic versions of Lovenox (M-Enoxaparin) and Copaxone (M-356) do not require new legislation, which is expected sometime this year to create a pathway for approvals of FOBs. These two ANDAs for multi-billion dollar products can be approved under existing pathways at the FDA, making them directly interchangeable generic equivalents upon approval. Since the FDA's Generic Drug Division does not issue decision dates, there is no way of knowing when a decision for the M-Enoxaparin ANDA will be issued by the agency. However, with less than three months remaining until the generic exclusivity period expires on 4/1/09; it appears highly likely that Sandoz will be able to launch their product upon approval or shortly thereafter. MNTA will also receive much higher royalties (e.g. 40%-50%) if M-Enoxaparin is the only generic form of Lovenox which is approved, as opposed to much lower royalties (e.g. 10%-15%) if competing ANDAs by Amphastar/Watson and TEVA are approved. Also, Sanofi may choose to launch an authorized generic of Lovenox if one or more of the ANDAs are approved. However, I own shares of MNTA and it is one of my nine stock picks for 2009 with an inside track on its ANDA for Lovenox after working closely with the FDA on the tainted heparin crisis and their proprietary drug candidate M-118 will have Phase 2a results and a possible partnership by mid-2009. Legislation for FOBs is not required for the two ANDAs or the proprietary blood thinner M-118, but would serve as an added bonus for MNTA and increase the value of their technology platform and ability to create equivalent versions of highly complex biological agents.