Sunday, November 13, 2011

Stocks DD Opines: Generic Copaxone valuation from MNTA - v1.0

Read, understand and consent to the blog's disclaimer here before proceeding to read the article 

US Sales of Copaxone is currently running at $3 billion /year. With the entry of MNTA's copaxone there could be a pricing impact of 10%
 Assume,  MNTA garners market share of 50% just like they did in Lovenox
= 3 * 90% / 2 = $1.35 billion in Sandoz sales
Assume 0.68 is contractual operating profit - same as Lovenox
= $ 0.92 billion in contractual/partnership profit
= 50% of Contractual profit goes to Momenta = $460 million

After tax (35% rate) Earnings = $300m
with 60m outstanding shares

Assume it takes Mylan another 2 years  to re-adjust their ANDA and get FDA approval(It took Amphastar
1 year 3 months after MNTA's approval and keep in mind Amphastar had filed a good 2+ years before MNTA).

$300m/year for the 1st 2 years or $10 per share.

After Mylan launch say profit reduces by 1/3rd (conservative) due to market share loss and price erosion(Note: TEVA will likely launch AG with entry of 2nd generic). And say 6 years is reasonable period where earnings can sustain before tapering off (oral MS drugs like BG-12,Gilenya, more generic copaxone competition-there are currently only 2 known ANDAs:MNTA & Mylan)

6 * $100m = that's another $600m over next 6 years

Note: Unlike lovenox profit sharing agreement where partnership share changes with entry of new competition, copaxone agreement calls for 50% profit share irrespective of other generic competition.

In the above analysis , I have factored ZERO value for Momenta's patents blocking Mylan. I believe there is a high likelihood that Mylan's copaxone may need to be readjusted to get FDA approval(I see no characterization patents from Mylan or Nacto). I also believe that likelihood of Mylan finding another proxy signature for copaxone is low. Keep in mind if Mylan changes their ANDA and uses MNTA's patented proxy signature for quality control of Copaxone, they will be blocked by MNTA's patents. So IMHO the above is a conservative valuation of generic Copaxone from MNTA.

NPV of generic copaxone using above analysis assuming 10% discount rate 

Discount rate10%

# of Shares60m
earnings copaxone after tax EPS       NPV

Total$16.14 per share

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