Up 70%! It Was Worth the Wait

It took long enough, but the wait was worth it.

Motley Fool Rule Breakers recommended Momenta Pharmaceuticals (Nasdaq: MNTA  ) to subscribers back in the September 2006 issue. Nearly four years later, the investment paid off with shares up over 70% today thanks to a Food and Drug Administration approval of its generic version of sanofi-aventis' (NYSE: SNY  ) Lovenox.

Normally the approval of a generic drug wouldn't trigger that kind of response, but this is no ordinary generic. Sanofi sold 1.8 billion Euros worth of Lovenox in the U.S. last year, which translates into about $2.3 billion at today's exchange rate.

More importantly, Lovenox is a fairly hard drug to make. That's the reason the FDA took so darn long to approve the drug, but the complexity provides some protection from competition. Both Teva Pharmaceuticals (Nasdaq: TEVA  ) and Amphastar Pharmaceuticals have applications pending with the FDA, but so far, neither has announced an approval.

Novartis (NYSE: NVS  ) , Momenta's commercialization partner, plans to launch the drug soon. You can expect that with no other generic competition, the price will be fairly close to the price of brand-name Lovenox.

How long the competition-free period remains is very important because it'll affect not only the price of the generic drug, but also Momenta's share of the revenue. If Momenta and Novartis' product is the only generic on the market, Momenta gets a profit share of between 40% and 50%. If other competitors make it to market, Momenta only gets a royalty in the high single-digit to low double-digit.

Looking ahead for Momenta, its first FDA approval is an endorsement of the company's technology of characterizing and copying complex molecules. In addition to generic Lovenox and helping the FDA sort out Baxter's (NYSE: BAX  ) heparin contamination issue, the company is working on a generic version of Teva's Copaxone, another highly complex drug.

Hopefully investors won't have to wait nearly as long for Momenta's second approval.

You can read the original recommendation of Momenta and see the analysts' current opinion by grabbing a 30-day trial subscription to the Motley Fool Rule Breakers newsletter. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Novartis is a Motley Fool Global Gains choice. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (12)

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  • Report this Comment On July 25, 2010, at 3:18 PM, chartguy wrote:

    Obviously, Friday was a fantastic day for Momenta, but let's put it in perspective.

    Momenta closed at 15.00 on 9/8/2006 and 21.7 on 7/23/2010, so the gain was 44.7% in just under four years. That works out to almost exactly 10% per year return (compounded).

    To achieve that 10% per year, you had to hold through a very nasty drawdown. The stock was as low as 5.05 between that 15 and 21.7. So, if you could stomach the 66% drawdown, and held for almost four years, you did earn 10% per year on Momenta.

    I'd love to hear from anyone who actually bought in September 2006 and did not sell.

  • Report this Comment On July 30, 2010, at 10:06 PM, TMFBreakerTAllan wrote:

    In contrast, MNTA's return for RB is beating the SP500, which is down 14.96%. And 10% compounded has definitely beaten the market. As for holding for the lows, I think that is the one advantage we retail investor have. Through those four years, the MNTA investment thesis did not change. The time ticked away, but the future looks pretty good for MTNA. An FDA decision on the other Lovenox generic applications will definitely be a catalyst for the stock (either up or down) and the next four years look good for MNTA with another biologic generic to be up for approval in that time, as well as a new drug app.

    I didn't buy MNTA back in 06, but did buy within the last year. The FDA delay in approving generic biologic drugs - this was the first - was not foreseeable for the four year wait. I would think the next generic MTNA has up for approval will not take that long for a decision.

    T. Allan

    RB Home Fool

    Long MNTA (but not since 06)

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