Reminder: Pharmboy is available to chat with Members, comments are found below each post.
February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation with TEVA on several fronts.
Mid-last year, MNTA had a generic version of the blood thinner Lovenox which is manufactured and sold by Sandoz (the generic subsidiary of Novartis) approved by the FDA. Currently, it is the only generic version on the market and Momenta earns 45% of the operating profit (~$300 million/year of the $1.1 billion/year sales). If a second Lovenox hits the market, MNTA's royalties drop to 10%. Well, a few weeks ago, TEVA received a 'deficiency letter' from the FDA but the market took this as a positive, and has hit the stock hard. Unfortunately, the contents of the letter are unknown, and thus it is hard to gauge how long – if ever – TEVA might take to redress the problems. This should provide some room for MNTA to continue its higher payout for Lovenox.
MNTA / Sandoz also have a pending ANDA (Abbreviated New Drug Application) for a generic version (M356) of Teva's multiple sclerosis drug Copaxone (glatiramer acetate injection; ~$3B in sales for 2010), which was accepted for review by the FDA on 7/11/08. The Generic Drug Division of the FDA does not issue decision date deadlines on ANDAs, and in addition, Sandoz is currently involved in litigation with TEVA over M356 as a generic equivalent. To MNTA/NVS's delight, the U.S. Patent and Trademark Office issued U.S. Patent No. 7,884,187 entitled "Analysis of Amino Acid Copolymer Compositions" by MNTA, and this patent includes claims to methods of preparing glatiramer acetate (Copaxone) drug product. This news has an important effect on valuation for several reasons as "This patent is an important addition to the Momenta intellectual property virtual portfolio as it is the first U.S. patent to issue from our expanding virtual portfolio of pending patent applications related to glatiramer acetate, also known as Copaxone. Protecting Momenta's innovative technology as it relates to this complex pharmaceutical product is an important strategic priority in the development of a generic version of Copaxone" (MNTA's CEO Wheeler). Second, this patent will be pivotal to Momenta's case in their patent litigation with Teva and to protect against generic competitors. It will certainly give added credibility to Novartis (NVS)/MNTA’s argument to the District Court that their generic does not infringe TEVA's Copaxone patents.
MNTA is developing adomiparin (M-118), the lead from a series of engineered low molecular weight anticoagulant heparins (LMWHs) that bind to anti-thrombin III and thrombin, and inhibit Factor Xa (FXa), for the potential iv and subcutaneous treatment of cardiovascular disorders, including acute coronary syndrome (ACS). M-118 appears especially promising for periprocedural anti-coagulation for patients undergoing cardiovascular interventions, where patients are currently treated with UFH or bivalirudin (synthetic peptide thrombin inhibitor). What makes M-118 attractive is the ability to reverse anti-coagulation combined with a rapid onset of action and predictable dose response in patients undergoing procedures on the left-sided cardiac chambers and non-cardiac peripheral interventions where a fine balance between thrombosis and bleeding must be maintained. Conversely, several novel drugs are emerging, such as prasugrel and ticagrelor. Prasugrel and ticagrelor are both P2Y12 inhibitors of ADP-induced platelet aggregation; prasugrel was launched in April 2009 for the reduction of thrombotic events in ACS managed by PCI and an NDA for ACS was submitted for ticagrelor in November 2009. M-118 should be evaluated on a background of emerging drugs to establish the safety and efficacy of this drug in patients undergoing PCI.
Lastly, from their pipeline is M-402, where in April 2010, preclinical data were presented at the 101st AACR meeting in Washington DC. M-402 inhibited tumor colonization of B16F10 murine melanoma cells to the lung in a syngeneic experimental metastasis model. Following chronic administration of M-402 alone or in combination with cisplatin or docetaxel in a murine mammary carcinoma model, metastatis was inhibited and survival rate was prolonged. This drug is WAY too early in development for even writing about.
Figure 1. Pipeline
One other note on MNTA's technology is that the company could develop generics to biologic drugs (e.g., Enbrel, Avastin) approved under the biological license application (BLA) process of the FDA. Lovenox and Copaxone are biological drugs, but unfortunately they were approved under the traditional new drug application (NDA) system of the FDA (the one used for small molecule drugs). Until recently, biologic drugs approved under the BLA process had no pathway for approval of generics. The 2010 health care reform legislation granted the FDA the authority to develop a pathway for approval of BLA generics and this could be a boon for the company going forward.
On the financial front, in December 2010, Momenta sold shares of its common stock in a registered underwritten public offering to raise $57.4 million from the offering of 4 million shares priced at $14.35 per share. Later that month, the company reported it had raised $57.2 million in total from that offering. With MNTA stock below $14, MNTA is a good buy for patient, longer-term oriented investors. Both Rodman & Renshaw and Wedbush Securities has an Outperform rating and a price target of $22 or $27 a share respectively. FWIW – Both firms plans to seek revenue from investment banking services for Momenta!
Option prices are wide, so patience is need to enter the positions. The Jan12 $10/15 bull call spread is ~$2.40 and 100% ITM, and selling the $12.5 Ps for $2.10 or better puts the total at $0.30 for the $5 spread. Worst case is owning MNTA for $12.80, and that is ~15% off their previous stock offering.
