Ignore Copaxone: Momenta Pharmaceuticals Still a Buy

To say that Momenta Pharmaceuticals (NASDAQ: MNTA  ) has been beaten down by Mr. Market in 2014 would be an understatement. The developmental-stage biotech has lost a lot of value since the beginning of the year (although some recent good news on Teva has led to some increase).

MNTA Year to Date Price Returns Chart

MNTA Year to Date Price Returns data by YCharts

Most of the decline stems from the roller-coaster ride surrounding Momenta's ability to launch a generic version of the multiple sclerosis drug Copaxone from Teva Pharmaceuticals (NYSE: TEVA  ) . The back-and-forth court battle has taken investors through highs (the Court of Appeals ruling that Momenta would be able to launch its generic version in the first half of 2014) and lows (appeals by Teva to block a generic launch) in the past 12 months. However, I think the haircut given to shares has been a bit overdone, especially when considering the long-term opportunities brewing in the company's biosimilar pipeline with Baxter International (NYSE: BAX  ) . I believe Momenta is worth a solid look with or without the launch of a Copaxone generic later this year. Here's why.

What Mr. Market is overlooking
It's no secret that Wall Street squanders long-term opportunities when short-term pain or uncertainty arises -- and that's exactly what I think is happening here. The Copaxone generic, named M356, is just one of more than seven pipeline products under development. That list includes up to five biosimilars under development in collaboration with Baxter for autoimmune diseases, one biosimilar under development at Momenta (after being dropped by Baxter), one novel oncology drug candidate being evaluated as a combinational therapy in advanced metastatic pancreatic cancer, and a novel sialylation platform for intravenous immunoglobulin, or IVIG, products.

By all accounts, the future looks bright. And it's not just the fact that Momenta is pursuing multiple biosimilar products that should get investors excited. The company seeks to develop biosimilar products that are superior to anything else on the market and potentially interchangeable to innovator biologics. How?

Unlike small molecule generics, which are simpler to manufacture and almost always exact copies of the innovator drug, biologic drugs are substantially more complex. That means it's extremely difficult, if not impossible, to produce exact copies of a biologic drug without the same exact host organism (with today's technology, anyway). That's also why biosimilars are required to go through clinical trials while generic small molecules are not. Momenta wants to recreate the known structure of innovator biologics while only changing the unknown structure to manufacture potentially interchangeable biosimilars.

Source: Momenta Pharmaceuticals.

Removing the uncertainty from producing biosimilars would boast significant advantages for Momenta and Baxter. It would increase the probability of regulatory approval, reduce the need for clinical data at the various "checkpoint" meetings with regulatory bodies, and provide a highly effective, yet cheaper, product for patients and doctors. The innovative platform developed by Momenta to characterize complex biological structures and marry it to the manufacturing process is at the heart of all products being commercialized and sold by the company.

In addition to that significant competitive advantage, Momenta exited the first quarter of 2014 with $224 million in cash. That's enough to last roughly two years at the current cash burn rate -- and it fails to account for major milestone payments from collaborative partners. For instance, two biosimilar programs are expected to trigger a $19 million payment from Baxter in the second half of the year. That will only partially offset cash burn, but it's meaningful nonetheless.

Foolish bottom line
I believe Mr. Market's focus on short-term uncertainty has created a solid opportunity for long-term investors. Momenta has a long way to go before realizing the full potential of its innovative platform, but it continues to make progress each quarter. Launching its version of Teva's Copaxone would certainly help -- and it may be able to do so in the second half of the year, particularly given that Teva just lost another court battle to delay the drug. Regardless, the potential delay to one potential market opportunity should not punish the multiple opportunities under development. I think investors should give Momenta a hard look at its current market cap hovering below $600 million.

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