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Momenta's 10% Tumble in August May Make It a Bargain

By Todd Campbell - Sep 3, 2015 at 8:02AM

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Better than estimated results failed to offset a broader industry sell-off in biotech last month.


What: Despite reporting better-than-expected second-quarter financial results in early August, shares in Momenta Pharmaceuticals (MNTA) tumbled by 10% in August.

So what: Momenta's had plenty of, well, momentum this year, but that didn't translate into share-price gains last month.

Investors looking to lock in profits from an 80% run-up through the first seven months of the year sold their shares after Momenta announced second-quarter revenue of $44.9 million and EPS of negative-$0.04, both of which were nicely higher than industry watchers were anticipating.

The company's outperformance last quarter was driven by the recent FDA approval and commercial launch of the company's Copaxone biosimilar Glatopa, a therapy for treating multiple sclerosis relapses.

Glatopa received FDA approval in April, and despite legal wrangling by Copaxone's manufacturer, Teva Pharmaceuticals, a District Court ruling in June allowed Momenta's partner, Novartis' Sandoz unit, to begin marketing the drug shortly thereafter.

Although Glatopa was available on the market for only a few weeks of the quarter, Momenta reported Glatopa product revenue of $19.2 million in Q2.

Now what: The drop in Momenta's share price may be creating an opportunity for investors interested in gaining exposure to the emerging biosimilars market, especially since Glatopa's solid start could indicate that Glatopa will capture a significant share of Copaxone's multibillion-dollar revenue stream.

Although Teva Pharmaceuticals has successfully shifted nearly two-thirds of its patients from Copaxone to a longer-lasting formulation, there should still be plenty of room for revenue upside at Momenta, given that Copaxone's sales eclipse $4 billion annually.

Additionally, Momenta biosimilars could similarly win away share from other multibillion-dollar biologics in the coming years, including the $12 billion-per-year Humira and the top-selling Orencia and Avastin.

Because analysts think Momenta will deliver $1.03 in EPS next year, up from estimates for EPS of $0.56 just 90 days ago, investors are paying less than 19 times forward earnings to buy shares, and that seems to me like a very reasonable valuation for this company, given its prospects.

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