Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Climbing the "Wall of Worry"

By Brian Orelli, PhD - Updated Apr 6, 2017 at 11:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Momenta's investors get a boost up.

Rule Breakers analyst Karl Thiel told subscribers recently that he thought Momenta Pharmaceuticals (Nasdaq: MNTA) was likely undervalued, but that the company wouldn't reach full value until investors get over their "wall of worry."

After handing down a ruling yesterday that Momenta's generic version of sanofi-aventis' (NYSE: SNY) Lovenox could stay on the market, it seems that a judge pulled out a ladder and helped boost investors closer to the top of that wall. Sanofi had filed a lawsuit claiming that the Food and Drug Administration shouldn't have approved the generic version of the complex molecule.

It was a long shot by Sanofi, but the loss of generic Lovenox would have been a huge deal for Momenta, since that's its only product. Shares are up 4% today.

The wall of worry hasn't crumbled completely, though. Momenta's deal with marketing partner Novartis (NYSE: NVS) calls for Momenta to get 40% to 50% profit share if there is only one generic on the market. If the FDA approves another one, Momenta would take a triple hit: The market share for generic Lovenox would go down, the price would fall because of competition, and Momenta would only get a royalty in the high-single to low-double digit range. Investors will likely remain worried until the FDA makes a decision about a pending application from Teva Pharmaceuticals (Nasdaq: TEVA), and another from Amphastar Pharmaceuticals, which is partnered with Watson Pharmaceuticals (NYSE: WPI).

Trying to figure out what the FDA will do in this situation is nearly impossible. The agency took nearly five years to approve Momenta's drug, because the company had to convince the FDA that it could fully characterize the complex molecule that makes up Lovenox's active ingredient. Without a lot of inside knowledge, it's impossible to know whether Teva or Amphastar have the same capability to satisfy the FDA.

A quick rejection that sends potential competitors back to the drawing board would be the best thing for Momenta's stock. But at this point, time is working in favor of the company as well. The longer Momenta goes without additional generics being approved, the more money the company makes, and the more likely investors are to scale that wall of worry on their own.

To see the analysts' current thinking on Momenta, which was recommended back in 2006, grab a 30-day trial subscription to the Motley Fool's Rule Breakers newsletter. You'll get access to all our back issues and the most recent picks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sanofi Stock Quote
$47.56 (1.04%) $0.49
Novartis AG Stock Quote
Novartis AG
$80.53 (0.66%) $0.53
Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
$8.24 (2.36%) $0.19
Allergan plc Stock Quote
Allergan plc
Momenta Pharmaceuticals, Inc. Stock Quote
Momenta Pharmaceuticals, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.