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Is Momenta's Drubbing Overdone?

Michael Waterhouse

Despite fourth-quarter revenue coming in ahead of our expectations, Momenta's (MNTA) results have become overshadowed by an FDA warning letter issued on a key generic Copaxone 40mg manufacturing facility owned by Pfizer. While the warning will not restrict the production or shipment of the firm’s older generic Copaxone 20mg product (called Glatopa) at the Pfizer-owned facility, the issues raised by the FDA will likely delay approval of the pending 40mg drug application. As a result, management does not believe that the generic 40mg version will be approved in the first quarter of this year. Management was unable to provide much detail around the warning letter but did clarify several points of interest. Specifically, its generic products were not cited in the observed violation, and there were no patient safety concerns raised about the 20mg product. Since Momenta’s generic Copaxone 20mg has remained the only version approved by the FDA, we still expect a near-term approval of the 40mg version, especially since the issues around the FDA warning letter should be resolved fairly quickly. The warning letter does not affect our long-term view at this time, and we do not anticipate significant changes to our fair value estimate despite some potential changes to our model. We're leaving our no-moat rating intact.

Overall results for Momenta's generic Copaxone 20mg product showed some improvement, earning just under $75 million in full-year 2016 revenue compared with $43 million in 2015. Sandoz, the company's contracted manufacturing partner, estimates that Glatopa 20mg now captures roughly 42% of the once-daily 20mg U.S. glatiramer acetate market, up from 30% during 2015. The lack of any other generic approvals on the older Copaxone 20mg version bodes well for Momenta’s prospects once the firm receives the 40mg approval, which remains the much larger opportunity, in our view.

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