Despite the eminent threat, investors were giddy about the possibility that Amphastar Pharmaceuticals and Watson Pharmaceuticals'
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
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.
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