Momenta Stopped. Again.

Momenta Pharmaceuticals (Nasdaq: MNTA  ) was on a strong comeback after the company received bad news that a second generic version of Sanofi's (NYSE: SNY  ) Lovenox was approved by the Food and Drug Administration. After dipping on the news last month, shares were trading up 13.5% handily beating the Dow Jones (INDEX: ^DJI) over that timeframe.

Despite the eminent threat, investors were giddy about the possibility that Amphastar Pharmaceuticals and Watson Pharmaceuticals' (NYSE: WPI  ) generic version of Lovenox might never see the pharmacists shelves. A judge had issued a temporary restraining order barring them from launching and should rule shortly on a preliminary injunction that might keep it off the shelves until a final ruling about whether their generic version impedes on Momenta's patents.

But yesterday, Momenta gave back all the gains and then some after investors were informed that an authorized generic was launched. Authorized generics don't have to be approved by the FDA since the drug is made by the branded drug company. The company manufactures it like normal and just slaps a different label on it.

The name "authorized generic" comes because name-brand companies would authorize a generic-drug company to sell the drug, using their expertise to get the generic version into the correct sales channels. With pharmaceutical companies now having their own generic divisions -- Sanofi has Winthrop, Pfizer (NYSE: PFE  ) has Greenstone, and Momenta's partner Novartis (NYSE: NVS  ) has Sandoz -- it's often just kept in-house now. No authorization needed.

Sanofi hasn't bothered with launching a generic version until now, presumably because Momenta and Novartis hadn't taken enough of the market to make it worth cutting into its own branded sales; in the second quarter, sales were down 65% year over year in the U.S., but that still left $160 million of high-margin revenue.

Sanofi hasn't released third-quarter results, but Novartis said that sales of the duo's generic fell from the second to the third quarter; there are stocking issues and price changes that could account for the lower number, but it certainly doesn't look like Novartis and Momenta are cutting further into Sanofi's market share.

It seems, then, that the reason for the launch now is that Sanofi thinks there will be further competition taking market share. As I read it, Sanofi's launch is a sign that the company thinks that Amphastar and Watson will be able to launch soon.

If Sanofi's guess is right, that's really bad news for Momenta. The launch of an authorized generic switched its cut of the generic from a partnership to a hybrid royalty/profit sharing arrangement where Momenta gets a royalty up to a certain point and then shares in the profits. If another generic launches, it'll go to a straight royalty, and with three drugs competing, the price will presumably drop further.

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Momenta Pharmaceuticals. Motley Fool newsletter services have recommended buying shares of Momenta Pharmaceuticals, Novartis, and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2011, at 9:50 AM, TMFBreakerForce wrote:

    Hi Brian,

    Thanks for the detailed article. However, this was pretty much expected, right? Even going back as far as MNTA's initial approval. The stock never really skyrocketed as I had hoped. At the end of the day, it would certainly appear as if the street is assigning no value whatsoever to the company's Copaxone generic. Or the rest of the pipeline, and intellectual property at all. If I remember correctly, the terms are quite favorable for MNTA even if a second generic Capoaxone is launched.

    Matt

  • Report this Comment On October 27, 2011, at 10:57 AM, TMFBiologyFool wrote:

    Yes, Matt. There was always a wall of worry that another drug would be launched.

    The other way to look at it is that the rest of the pipeline was valued correctly, but the generic Lovenox was discounted considerably. The P/E was something like 4 or 5 before the 2nd generic was approved if I recall correctly. Investors certainly weren't expecting years of competition-free sales.

  • Report this Comment On October 28, 2011, at 5:59 PM, Momentum21 wrote:

    Not so fast Brian!

    "Momenta Pharmaceuticals Obtains Preliminary Injunction Against Amphastar Pharmaceuticals, Inc., Watson Pharmaceuticals, Inc. and International Medical Systems, Ltd"

    http://ir.momentapharma.com/releasedetail.cfm?ReleaseID=6191...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1577885, ~/Articles/ArticleHandler.aspx, 11/25/2014 11:38:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement