Goldman mnta

December 20, 2010

INITIATION Momenta Pharmaceuticals (MNTA)

Neutral Equity Research

Initiate Neutral: Awaiting clarity on Lovenox and Copaxone

Investment view

We initiate on MNTA with a Neutral rating and $15 12-month price target.

We see MNTA as a high-quality story and amongst the first to benefit

from the evolving landscape of biosimilars (generic versions of biologic

drugs). The company’s proprietary technology could lead the way for

approval of biosimilars, as it did with generic Lovenox (the closest proxy

for biosimilars, in our view). However, we believe near-term upside is

capped, given the risk that another company could enter the generic

Lovenox market (either an authorized generic or a third-party generic

company), thereby significantly diminishing Momenta’s economics.

Core drivers of growth

A duopoly with Sanofi on the $1.8bn US market of Lovenox. We see

MNTA having a multi-year duopoly with Sanofi. However, if other

competitors enter the market, MNTA’s earnings power would dramatically

decline (from $3 per share to $0.20 per share, in our estimation). While we

see low probability of a competitor approval in the next few years, we see

the overhang only lifting with time, capping upside. High probability of

generic Copaxone approval. MNTA needs to overcome two hurdles: 1)

FDA approval – we are bullish given generic Lovenox approval and 2)

Teva’s Copaxone patents – trial in 2011/12. We expect the market to give

little credit for generic Copaxone until the litigation outcome is known.

Risks to the investment case

Downside: Competitors Teva and Amphastar gain approval of generic

Lovenox. Upside: Competitors’ Lovenox generics are rejected by the FDA.

Valuation

Our $15 12-month price target is derived from our DCF-based valuation.

Industry context

MNTA is a small-cap biotech developing generic biologic drugs.

INVESTMENT LIST MEMBERSHIP

Neutral

Coverage View: Cautious

Sapna Srivastava (212) 357-7528 [email protected] Goldman Sachs & Co.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Hema Srinivasan (212) 902-6761 [email protected] Goldman Sachs & Co.

The Goldman Sachs Group, Inc. Global Investment Research

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Momenta Pharmaceuticals (MNTA)

Americas Healthcare Est. Market Leaders Peer Group Average

Key data Current

Price ($) 15.45

12 month price target ($) 15.00

Market cap ($ mn) 702.8

Dividend yield (%) NM

Net margin (%) 37.7

Debt/total capital (%) 0.0

12/09 12/10E 12/11E 12/12E

Revenue ($ mn) 20.2 105.7 194.2 223.8

EPS ($) (1.33) 0.88 2.47 2.75

P/E (X) NM 17.6 6.3 5.6

EV/EBITDA (X) NM 12.7 3.8 2.2

ROE (%) NM 26.9 45.3 32.8

9/10 12/10E 3/11E 6/11E

EPS ($) 0.75 0.63 0.43 0.64

Price performance chart

10

12

14

16

18

20

22

24

26

28

Dec-09 Mar-10 Jun-10 Oct-10

1,000

1,030

1,060

1,090

1,120

1,150

1,180

1,210

1,240

1,270

Momenta Pharmaceuticals (L) S&P 500 (R)

Share price performance (%) 3 month 6 month 12 monthAbsolute 4.6 3.0 47.6

Rel. to S&P 500 (5.3) (7.6) 30.0

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 12/17/2010 close.

December 20, 2010 Momenta Pharmaceuticals (MNTA)

Momenta Pharmaceuticals: Summary Financials

Analyst Contributors

Sapna Srivastava

[email protected]

Hema Srinivasan

[email protected]

Goldman Sachs Global Investment Research 2

Profit model ($ mn) 12/09 12/10E 12/11E 12/12E Balance sheet ($ mn) 12/09 12/10E 12/11E 12/12E

Total revenue 20.2 105.7 194.2 223.8 Cash & equivalents 21.9 127.2 258.7 409.1

Cost of goods sold -- -- -- -- Accounts receivable 0.0 39.5 48.1 52.9

SG&A (17.4) (20.0) (20.3) (20.5) Inventory 0.0 0.0 0.0 0.0

R&D (56.2) (45.7) (47.6) (49.9) Other current assets 80.2 40.2 43.0 43.9

Other operating profit/(expense) 0.0 0.0 0.0 0.0 Total current assets 102.1 206.9 349.8 506.0

ESO expense -- -- -- -- Net PP&E 11.8 9.3 9.4 9.7

EBITDA (48.9) 44.3 129.1 156.3 Net intangibles 2.8 2.5 2.2 1.9

Depreciation & amortization (4.5) (4.3) (2.8) (3.0) Total investments 0.0 0.0 0.0 0.0

EBIT (53.4) 40.0 126.3 153.3 Other long-term assets 1.8 1.8 1.8 1.8

Net interest income/(expense) 0.3 (0.1) 0.4 0.7 Total assets 118.5 220.4 363.1 519.4

Income/(loss) from associates 0.0 0.0 0.0 0.0

Others (0.1) 0.0 0.0 0.0 Accounts payable 4.2 3.0 5.5 6.3

Pretax profits (53.3) 39.9 126.7 154.0 Short-term debt 0.0 0.0 0.0 0.0

Provision for taxes 0.0 0.0 (2.8) (15.4) Other current liabilities 12.1 11.3 11.3 11.3

Minority interest 0.0 0.0 0.0 0.0 Total current liabilities 16.3 14.3 16.8 17.6

Net income pre-preferred dividends (53.3) 39.9 123.9 138.6 Long-term debt 0.0 0.0 0.0 0.0

Preferred dividends 0.0 0.0 0.0 0.0 Other long-term liabilities 7.9 3.8 1.7 0.1

Net income (pre-exceptionals) (53.3) 39.9 123.9 138.6 Total long-term liabilities 7.9 3.8 1.7 0.1

Post tax exceptionals (10.8) (10.7) (7.9) (8.9) Total liabilities 24.3 18.1 18.5 17.8

Net income (post-exceptionals) (64.0) 29.2 115.9 129.7

Preferred shares 0.0 0.0 0.0 0.0

EPS (basic, pre-except) ($) (1.33) 0.89 2.54 2.83 Total common equity 94.2 202.3 344.6 501.6

EPS (diluted, pre-except) ($) (1.33) 0.88 2.47 2.75 Minority interest 0.0 0.0 0.0 0.0

EPS (basic, post-except) ($) (1.60) 0.65 2.38 2.65

EPS (diluted, post-except) ($) (1.60) 0.64 2.31 2.58 Total liabilities & equity 118.5 220.4 363.1 519.4

Common dividends paid -- -- -- --

DPS ($) 0.00 0.00 0.00 0.00

Dividend payout ratio (%) 0.0 0.0 0.0 0.0 Additional financials 12/09 12/10E 12/11E 12/12E

Net debt/equity (%) (23.3) (62.9) (75.1) (81.6)

Interest cover (X) (93.7) 131.5 829.2 1,006.3

Growth & margins (%) 12/09 12/10E 12/11E 12/12E Inventory days NM NM NM NM

Sales growth 39.0 422.1 83.7 15.2 Receivable days 4.1 68.2 82.3 82.4

EBITDA growth 6.1 190.6 191.2 21.1 BVPS ($) 2.35 4.45 6.86 9.97

EBIT growth 4.8 174.9 215.9 21.4

Net income (pre-except) growth 0.3 174.9 210.6 11.9 ROA (%) (42.5) 23.5 42.5 31.4

EPS growth 10.5 167.2 184.0 11.6 CROCI (%) (60.4) 47.4 123.1 125.5

Gross margin NM NM NM NM

EBITDA margin (241.7) 41.9 66.5 69.9 Dupont ROE (%) (56.6) 19.7 35.9 27.6

EBIT margin (263.8) 37.8 65.0 68.5 Margin (%) (263.0) 37.7 63.8 61.9

Turnover (X) 0.2 0.5 0.5 0.4

Cash flow statement ($ mn) 12/09 12/10E 12/11E 12/12E Leverage (X) 1.3 1.1 1.1 1.0

Net income (53.3) 39.9 123.9 138.6

D&A add-back (incl. ESO) 4.5 4.3 2.8 3.0 Free cash flow per share ($) (1.42) 0.02 2.32 2.70

Minority interest add-back 0.0 0.0 0.0 0.0 Free cash flow yield (%) (13.7) 0.1 15.0 17.5

Net (inc)/dec working capital (6.9) (42.4) (11.0) (6.5)

Other operating cash flow 0.4 1.0 0.3 0.3

Cash flow from operations (55.3) 2.8 116.0 135.4

Capital expenditures (1.7) (1.8) (2.9) (3.4)

Acquisitions 0.0 0.0 0.0 0.0

Divestitures 0.0 0.0 0.0 0.0

Others (20.6) 38.0 0.0 0.0

Cash flow from investing (22.3) 36.2 (2.9) (3.4)

Dividends paid (common & pref) 0.0 0.0 0.0 0.0

Inc/(dec) in debt 0.0 0.0 0.0 0.0

Other financing cash flows 44.4 66.2 18.4 18.4

Cash flow from financing 44.4 66.2 18.4 18.4

Total cash flow (33.1) 105.2 131.5 150.5

Note: Last actual year may include reported and estimated data.

Source: Company data, Goldman Sachs Research estimates.



Key investment themes

Momenta was founded in 2001 based on technology characterizing complex mixtures

developed at Massachusetts Institute of Technology. This proprietary technology allowed

the company to be amongst the first to benefit from the evolving landscape of biosimilars.

The technology is capable of characterizing complex biologic aspects of certain drugs to

establish “sameness,” a key regulatory hurdle for approval of biosimilar drugs. Novartis’

generic drug unit Sandoz first partnered with Momenta in 2003 and has rights to M-

enoxaparin (generic Lovenox), M356 (generic Copaxone), and several unnamed product

candidates.

We saw the first proof-of-principle for this technology with the approval of

Momenta/Novartis’ generic Lovenox in July 2010. We see Lovenox, a complex mixture

of sugars derived from pig intestines, as a good proxy for the potential approval process

of biosimilar drugs. The key question was how to establish “sameness” for generic

Lovenox, as most current technologies are inadequate due to their inability to thoroughly

characterize sugars. We believe Momenta’s technology was capable of answering this

question and was the key reason why Momenta was the first company to gain approval

for generic Lovenox, even though it filed its ANDA over two years after competitors, Teva

and Amphastar.

The key question for Momenta now is whether other companies can gain approval

of generic Lovenox. The answer will define: (1) what value to ascribe to the generic

Lovenox opportunity, as different outcomes lead to significantly different economics for

Momenta, and (2) what value to assign to Momenta’s proprietary technology, contingent

on whether the tool can confer years of duopoly economics in other key biologic markets

(like Teva’s Copaxone) or could be easily duplicated by other generic companies.

Although we see Momenta’s technology creating a multi-year duopoly with Sanofi

on Lovenox and eventually with Teva on Copaxone, we are Neutral on the stock.

Given that there is no clarity on how the competitive process will evolve, we expect

limited credit from the Street until a substantial amount of time passes without Teva

(considered the most formidable competitor on generic Lovenox) gaining approval on its

application for generic Lovenox. Separately, Momenta sued Teva on 12/2/2010 for

infringing its patents covering innovative methods of producing Lovenox, the outcome of

which could be defining, but is also likely several years away.

Valuation: Though Momenta turned profitable last quarter, there is significant risk that

Teva or another third party could launch a generic version of Lovenox, thereby

diminishing Momenta’s economics from a 45% profit share to a high single digit royalty

on sales, according to the contract with Novartis. In this scenario (assuming market

dynamics are constant), we estimate the ultimate Lovenox earnings power would decline

from $3 per share to $0.20 per share.

In our view, this risk can be reflected in our DCF-based valuation in two ways: (1) by

forecasting a single-generic market for the foreseeable future and applying a large

discount rate (25-30%) to reflect the inherent risk or (2) by forecasting a third-party generic

launch within the next year and applying a 10-15% discount rate. Based on our thesis that

other companies will be unable to gain approvals of generic Lovenox in the near-term (as

they lack Momenta’s proprietary technology), we model a duopoly (single-generic) market

and assign a 30% discount rate to arrive at our $15 12-month, DCF-based price target.

Our 2010-2012E EPS estimates are $0.88, $2.47, and $2.75, with growth driven by

increasing enoxaparin utilization and market share expansion for Momenta’s M-

enoxaparin vs. branded Lovenox.



Lovenox: We see a duopoly but competitive threat limits upside

We believe Momenta/Novartis’s generic Lovenox will be the only generic version

approved for the next several years, potentially capturing up to 55% of the $1.8bn and

growing US market (achievable share is constrained by manufacturing capacity, with

current supply allowing for 35-40% share of the Lovenox market). We see Momenta’s

proprietary technology as unique in its ability to demonstrate that its generic version of

Lovenox is the same as branded Lovenox, a key regulatory hurdle that we do not see

competitors Teva and Amphastar overcoming.

A duopoly (in this case a single-generic market) allows Momenta to achieve $3 per share

in peak earnings power, in our estimate. We believe investors are concerned that

competitors could enter the market shortly (Teva has said by YE2010), which would

almost completely diminish the economics for Momenta (under contract with Novartis).

While we do not see that as a likely scenario, we see no way for this overhang to lift until

substantial time elapses, likely an additional six to twelve months, without competitor

approvals. In the interim, we expect the stock to remain largely range-bound.

Background

Lovenox (enoxaparin) is a low molecular weight heparin that is derived from pig

intestines. It is an anticoagulant used to prevent blood clots in a wide range of patients

(including those on bed rest, those having hip/knee replacements or stomach surgery,

and patients post-angina or heart attack). Lovenox is rare in that it is a biologic drug that,

like the growth hormones, was approved under a new drug application (NDA), as the

biologic licensing application (BLA) regulatory path was not yet formed. Hence, there was

a pathway for generics to apply for approval. A similar path is not yet available for drugs

that are approved on the basis of a BLA.

Since the first ANDA filing for Lovenox in 2003 (and Momenta’s filing in 2005), the

approval process for generic Lovenox has been closely watched as reflective of what the

FDA will do with biosimilars. Approval of generic Lovenox reflected on the key question

for biosimilar drugs: how to establish “sameness” with drugs that themselves are not

fully characterized. It took the FDA seven years to get comfortable with the key issues and

approve the first generic Lovenox, Momenta and Novartis’s M-enoxaparin, in July 2010.

We note that the FDA approved the drug shortly after healthcare reform legislation (in

March 2010) gave the FDA the onus for developing a biosimilar pathway.

Exhibit 1: Timeline of events leading to Momenta’s generic Lovenox approval

Source: Company data, Goldman Sachs Research

2003 2004 2005 2006 2007 2008 2009 2010

March 2003: Teva & Amphastar submit

paragraph IV ANDA filings for enoxaparin

August 2003: Aventis sues Teva and Amphastar for patent infringement

August 2005: Momenta files ANDA for generic Lovenox (later added

paragraph IV certification)

May 2008: Final court verdict invalidates Sanofi's '618

patent on grounds of inequitable conduct

2011

March 2010: Healthcare reform bill passed with biosimilar

provisions included

July 2010: FDA approves

Momenta/Novartis' generic Lovenox

????: FDA resolutionof Teva and Amphastar's application

See Appendix for more on generic drug approval process



We see a multi-year duopoly based on proprietary technology

Duopoly is important, as economics change significantly with more competitors

Under Momenta’s contract with Novartis, there are three competitive scenarios that carry

different economics for Momenta. Continuation of the current market dynamics, in which

MNTA has the only approved generic, holds the best economics for the company (45%

profit share). In the event that Sanofi launches an authorized generic, Momenta would

receive a royalty on sales up to a certain threshold, and a profit share thereafter, according

to the contract. While exact economics have not been disclosed, we estimate Momenta

would receive a 10% royalty up to $1bn in sales and a 30% profit share thereafter. In the

final scenario, if third-parties launch generic versions of Lovenox, Momenta would only

receive a high single-digit royalty on sales (we estimate 8%) of a potentially smaller market,

as generic pricing generally deteriorates with multiple competitors.

Exhibit 2: Our estimate of Momenta’s economics in various competitive scenarios

Source: Company data, Goldman Sachs Research estimates.

We see MNTA’s proprietary technology as the basis of approval

Momenta’s technology, exclusively in-licensed from Massachusetts Institute of

Technology, enables it to sequence complex mixtures. This technology has been shown

to sequence complex sugars (published in leading journals Science and Nature), and we

believe it can be extended to other complex mixtures as well. To our knowledge, no other

technology can so thoroughly characterize sugars, making Momenta unique in its ability

to fully characterize Lovenox (a mixture of polysaccharides, also known as sugar chains)

to demonstrate sameness. We believe that competitors do not have this technology and

will therefore be unable to gain approval for the next several years.

Moreover, Momenta recently sued Teva for infringement of two patents covering the

company’s proprietary methods of producing enoxaparin. If Teva is found to infringe

these patents, we believe it is less likely that Teva will be able to demonstrate the

interchangeability of its generic version with branded Lovenox.

(1) FDA’s citizen petition response – Momenta’s technology was key to approval

In its response to the Aventis citizen petition (CP) upon approval of M-enoxaparin, the

FDA laid out five criteria used to evaluate active ingredient sameness to enoxaparin: “(1)

the physical and chemical characteristics of enoxaparin, (2) the nature of the source

material and the method used to break up the polysaccharide chains into smaller

fragments, (3) the nature and arrangement of components that constitute enoxaparin, (4)

certain laboratory measurements of anticoagulant activity, and (5) certain aspects of the

drug’s effect in humans.”

We believe Momenta’s proprietary technology was instrumental in helping it address

these criteria. For example, Momenta is able to sequence complex sugars, allowing it to

specifically address criterion (3), which requires a generic Lovenox to demonstrate

“equivalence in disaccharide building blocks, fragment mapping, and sequence of

oligosaccharide species.” The technology Momenta in-licensed from MIT has been shown

as the first to sequence complex sugar chains longer than 10 saccharide units (Lovenox is

a combination of sugars that range between 2 and 32 sugar units), and the FDA response

to the Lovenox CP references the original publications of this technology multiple times.

Competitive scenario Royalty rate Profit share1) MNTA is sole approved generic N/A 45%2) Sanofi launches an authorized generic 10% up to $1bn 30% over $1bn3) Third party generics launch (Teva, Amphastar, Hospira) 8% N/A

See Appendix for more on MNTA’s technology

Citizen petitions (CP) allow citizens to raise issues relating to products that the FDA regulates. The FDA cannot approve a drug without resolving any outstanding CPs blocking approval.



Moreover, Momenta’s ability to identify and link specific sugar structures with their

corresponding biological function (the technology was validated by being used to identify

the key contaminant of source material during the heparin contamination crisis) could

also uniquely addresses the different criteria, an edge which we believe competitors lack.

(2) FDA also relied on Momenta’s technology during the heparin crisis

The FDA used Momenta’s technology in 2007-2008 when the heparin crisis broke out.

Contamination of heparin, the source product for Lovenox, was responsible for 247

deaths. The source material is generally manufactured in China. At that time, there was

significant debate over whether it was contamination of source material or processing in

the US that was responsible for these deaths.

The FDA partially relied on Momenta’s technology to discover the source of

contamination and co-authored a paper with Momenta demonstrating the power of the

company’s assays in detecting the key contaminant causing the severe reactions and

deaths that were observed in late 2007/early 2008. In the publications, Momenta’s

technology was used to demonstrate the mechanism by which the key contaminant

(oversulfated chondroitin sulfate) generated adverse reactions in humans and to elucidate

which assays could be used to test the global supply of heparin.

(3) FDA approved Momenta’s application significantly faster than competitors

Although Teva and Amphastar filed their ANDAs almost two years before Momenta did,

their generic versions have not yet been approved. It has been about 4.5 months since

Momenta’s product was approved. We believe this is a clear reflection of the higher

quality application that Momenta/Novartis had versus competitors.

While Amphastar has been mired in Chinese heparin supplier issues, Teva management

has always said that they believe themselves to be similarly situated to Momenta.

Nevertheless, there was no mention of the status of the Teva or Amphastar ANDAs in the

FDA documents released upon approval of M-enoxaparin in July, 2010. As of its 3Q

conference call, Teva management continued to remain optimistic that they would receive

approval for their generic Lovenox by year-end. Still, we have heard no indication of this

from the FDA. We also note that both Momenta and Teva expected approval for years

before the FDA took any action on either ANDA or Sanofi’s citizen petition.

However, we see limited upside until time removes the competitive overhang

We believe that for Momenta to receive full credit, investors need to be convinced that: (1)

Sanofi will not launch an authorized generic, and (2) competitors Teva and Amphastar will

not receive FDA approval. While Sanofi can launch an authorized generic at anytime, it

may not make sense to do so in the absence of other generic approvals. An authorized

generic is generally priced in line with other generics – at around a 15-20% discount to the

branded drug in the case of Lovenox. Therefore, if Sanofi can retain reasonable market

share of branded Lovenox at the full price, it would not have a strong incentive to launch

an authorized generic and reduce its average price per Lovenox prescription.

From what we understand, it is rare for the FDA to give a non-approvable letter to generic

applications, making time the only way to gauge the approvability of Teva’s and

Amphastar’s applications. We believe a lack of competitor approvals in the next 6-12

months is necessary for the Street to gain confidence that Momenta’s generic Lovenox

could have a duopoly for the foreseeable future. Until then, we see the overhang as

limiting upside.



Copaxone: Positive on FDA approval, but could be a while away

We believe the probability is high that Momenta (again partnered with Novartis) receive

FDA approval of M356, its generic version of Teva’s Copaxone. The key reasons for our

positive outlook are: (1) the FDA’s rejection of Teva’s citizen petition (CP), which sought to

prevent any approvals of generic Copaxone (received 180 days after filing versus 7 years

in the case of the Lovenox CP), (2) Momenta’s proprietary complex mixture sequencing

technology, which we see as the basis for approval of generic Lovenox, and (3) the FDA’s

increasing willingness to approve interchangeable versions of complex biologics; generic

Lovenox can be see as the first. However, the ongoing litigation of Teva’s 2014 patents is

a key gating factor. The trial is expected to start in 2011-2012.

Background

Momenta is seeking FDA approval for a generic equivalent of Teva’s branded multiple

sclerosis (MS) drug Copaxone ($2.2 bn in estimated 2010 US sales). Momenta filed its

Copaxone ANDA with a paragraph IV certification on July 11, 2008 and notified Teva in a

letter received on July 14, 2008, dating the 30-month stay expiration (the earliest possible

approval date) December 13, 2010. Teva filed suit against Sandoz and Momenta on

August 28, 2008.

In order to launch, Momenta and Sandoz must receive FDA approval for M356 (the

generic version of Copaxone) and must not infringe any Orange Book-listed patents,

which extend to 2014. Momenta has to show that either the patents are not infringed or

are unenforceable due to inequitable conduct. The trial is expected to begin in the 2011-

2012 timeframe. We believe a tentative FDA approval is very unlikely before the litigation

outcome is known, as the agency has little incentive to act on applications that are not

actionable.

Exhibit 3: Timeline of key events related to generic Copaxone

Source: Company data, FDA’s Orange Book, Goldman Sachs Research

We see FDA approval as likely, given Lovenox precedent

(1) FDA rejected Teva’s citizen petition on Copaxone

The FDA took 7 years to render a final decision on the Aventis’ Lovenox CP (releasing its

decision concurrent with final approval of M-enoxaparin). In contrast, the FDA resolved

Teva’s CP within 180 days of filing. We believe that this shows the FDA may now have

more clarity on what it takes to approve complex mixture drugs like Lovenox and

Copaxone. We highlight the noteworthy points from the FDA’s response that we see as

positive for Momenta, which are very similar to the points the FDA made in its rationale

for the approval of generic Lovenox.

2008 2009 2010 2011 2012 2013

July 2008: Momenta and Sandoz submit paragraph IV ANDA filing for Copaxone

August 2008: Teva files patent infringement suit against Sandoz/MNTA

September 2009: Mylan submits

paragraph IV ANDA filing for Copaxone

December 2010: MNTA's 30-month stay on

approval expires (at-risk launches possible)

October 2010: MNTA and Mylan cases are

consolidated

2014 2015

January 2011: MYL claims construction

hearing; Teva's low-dose Copaxone PDUFA

2011/12?: MNTA/MYL case

potentially proceeds to trial

May 2014: Copaxone Orange Book patents

expire

November 2014: Copaxone patent expiration if PED

exclusivity is granted



The FDA rejected the idea that the absence of pharmacodynamic markers (PD markers,

measures of what a drug does in the body) for Copaxone precludes establishing

“sameness.” Moreover, the FDA specifically notes, “given the complexity of Copaxone,

we may require that any ANDA sponsor demonstrate active ingredient sameness through

a multi-criteria test or series of tests, each criterion of which captures different aspects of

the active ingredient’s ‘sameness’.” The FDA specifically asserts that sameness does not

necessitate a finding of “complete chemical identity.”

(2) Generic Lovenox approval gives us confidence in Momenta’s technology

Generic drug approvals are driven by establishing “sameness” of active ingredients and

bioequivalence. We note that using these criteria, Momenta was much better positioned

for approval of generic Lovenox than it is for Copaxone. The publications on Momenta’s

technology focus on characterizing sugars, and Lovenox is a sugar while Copaxone is a

polypeptide (though most peptide characterization work was done after the company was

founded and began actively protecting its trade secrets). Lovenox also has a clear PD

marker to establish bioequivalence. Copaxone is a synthetic polypeptide with no PD

markers.

However, the generic Lovenox approval elucidated the process that the FDA defined to

establish “sameness” of active ingredients. It was a five-step process, which heavily

relied on technology, placing limited weight on PD markers. Our analysis shows that

Momenta’s technology can be extended to sequence complex mixtures like Copaxone,

and the FDA’s response to Teva’s CP shows that the absence of a PD marker is not an

insurmountable hurdle.

(3) Generic Lovenox decision shows that the FDA is willing to be bold

In our view, the approval of generic Lovenox signaled that the FDA may be willing to

move forward with biosimilars more aggressively than previously thought. The FDA

approved generic Lovenox without clinical trials, knowing that it would be fully

substitutable with branded Lovenox in complex and even life-threatening indications.

Combined with the rejection of Teva’s CP on Copaxone within 180 days, we believe this

indicates the FDA’s willingness to move forward with biosimilars, and generic Copaxone

is the next application in line.

We also note that the recent passage of biosimilar provisions within broader healthcare

reform gives the FDA the onus for developing biogeneric pathways. We note that the FDA

approved generic Lovenox shortly following passage of health reform legislation. In our

view, a decision of this magnitude likely had the backing of multiple authorities,

particularly as the contamination of heparin (the source product for Lovenox) was

responsible for 247 deaths in 2007/08, placing generic Lovenox in the center of a high-

profile safety issue for the agency. We believe this demonstrates that regulatory

authorities are willing to take an aggressive stance on follow-on biologics, which we view

as a negative for branded Copaxone.

Trial outcome is tough to gauge – many risks to success remain

(1) Trial timelines are extended – Decision could come as late as 2012

Momenta’s patent litigation case on Copaxone has been consolidated with Mylan’s. While

Momenta’s case has gone through several required steps including claims construction

and summary judgment (September 2010), Mylan has yet to complete the process. Its

summary judgment hearing is scheduled for January 2011. As a result, the trial that was

originally expected to start in January 2011 will be delayed. Momenta management

believes that the trial could start as early as 1Q2011 and finish by 3Q2011, with a final

District Court judgment within 4 months (around YE2011 or 1Q2012). Teva management

indicated on its 3Q earnings call that consolidation with Mylan could push the start of the

trial to 2012.



Depending on the duration of the trial and the time Judge Jones requires to render a

decision, this could push an outcome out to 2012 or 2013. In the interim, we see little

room for Momenta to receive credit for the generic Copaxone opportunity. However, we

note that if Momenta’s projections are correct, a District Court judgment could come by

2012, followed by the appeals case. We note that if Momenta/Sandoz were successful in

the District Court case, they could decide to launch at-risk (contingent on FDA approval of

M356), as the 30-month stay expired in December 2010.

(2) Hard to assess the strength of the Momenta/Mylan case

In the summary judgment, the District Court denied Momenta’s motion that the Copaxone

patents are invalid for indefiniteness (a patent claim must be definite to be valid, i.e., a

person of ordinary skill in the art must be able to determine whether a specific device or

method is covered by the claim or not). This was largely expected, as summary

judgments are most often rendered in clear-cut cases and not in such complex cases. We

expect Momenta to continue to make its case on invalidity on the basis of indefiniteness.

However, we are unable to gain further clarity on the strength of Momenta’s case.

We note that there is a clear risk that the Momenta/Mylan defense could now rely more

heavily on inequitable conduct. This will pose a high hurdle for generics, as it requires

proving that Teva (1) failed to disclose material information and (2) intended to deceive

the USPTO. However, we also note that the Lovenox patent trial was won on inequitable

conduct, so a victory for the generic companies would not be unprecedented.

Teva’s life cycle management strategy could be successful

We believe this risk is worth highlighting, as Teva is working on several extensions of its

Copaxone franchise, including several new formulations and devices. The most advanced

program is the new 20mg/0.5mL low-volume injection (the marketed product has a

concentration of 20mg/1mL), with a PDUFA date of 1/1/2011. If Teva gains approval for

this product and FDA determines it is not therapeutically equivalent to the existing

product, the FDA can grant Teva 3-year data exclusivity.

If Teva acquires this exclusivity AND is successful in converting the MS market to this

new formulation, then even if Momenta gains approval of its generic Copaxone, it may

not be commercially meaningful. In this scenario, Momenta may need to file a separate

ANDA on the new formulation and wait out the 3-year exclusivity before potentially

launching a generic version of the new formulation.

Other key risks: (1) Momenta is unable to find a reliable biomarker for

pharmacodynamics, the complexity of which is addressed in Teva’s Copaxone CP; (2)

Momenta is unsuccessful in trial, likely postponing any FDA decision until at least 2014;

(3) Other generic competitors can enter the Copaxone market (Mylan has already filed its

ANDA, and other companies like Hospira could do the same); (4) Copaxone market share

(and sales potential) could erode over time due to the advent of oral therapies like Gilenya

in the multiple sclerosis market.

Appendix

Generic drug approval process

ANDA filing: The approval process requires that a generic company file an abbreviated

new drug application (ANDA) demonstrating the generic product’s substitutability with

the reference (or branded) product.

Paragraph IV certification: Concurrent with the ANDA filing, the generic company must

certify against the patents listed in the Orange Book. A Paragraph III certification seeks



FDA approval of the generic version after the last patent expires, while a Paragraph IV

certification states that the generic version does not infringe on the patents or that the

patents are unenforceable.

Notification of ANDA filing: After filing an ANDA, the generic company must notify the

branded manufacturer within 20 days. Upon receipt of the letter, two events are triggered:

(1) the branded company has 45 days to initiate a patent infringement suit against the

generic company, and (2) the FDA cannot approve the ANDA for 30 months unless the

generic company wins the suit. The first generic company to file an ANDA also receives

180 days of marketing exclusivity upon approval (with a few exceptions).

Patent infringement suit: The patent infringement suit starts in the District Court. If the

District Court ruling is positive, generic companies will sometimes request that the FDA

grant them final approval of their drug to launch “at-risk.” This term reflects the fact that

if the generic company loses on appeal, it will likely have to pull its drug from the market

and pay the branded company significant damages.

Appeals Court decision: After the District Court ruling, the case will proceed to the

Appellate Court, which renders a final decision on the case. At this time, if the ruling is in

favor of the generic company, it is free to launch (as long as it is first to file or the first

filer’s exclusivity has expired). If the ruling is in favor of the branded company, the

generic company will have to wait until all patents expire to launch its version of the drug.

Exhibit 4: Generic drug approval process flowchart

Source: Company data, FDA.gov, Goldman Sachs Research

Key features of Momenta’s technology

(1) Fast and accurate sequencing – Momenta’s technology enables rapid sequencing of

complex sugars with 6 to 8 sugar units and can sequence sugar chains longer than 10

saccharide units, which had never been done before. The technology also allows for

sequencing of linear and branched sugars that had previously never been characterized.

(2) Sensitive analytical techniques – Momenta has developed techniques to analyze

small quantities of biological samples to identify and link sugar structures with

corresponding biological functions.

(3) Comprehensive analysis of molecules – Momenta’s technology can identify detailed

sequences and complete chemical structures of complex sugars, not just the underlying

backbone of the sugar chain.

Many components of this technology are protected by Momenta’s intellectual property

estate. In particular, Momenta has numerous patents covering its chain mapping

technology as well as identity patents on enoxaparin and other compounds. While these

Generic company files ANDA with the

FDA

Paragraph III certification

Paragraph IV certification

Generic company waits until all Orange Book listed patents

expire

FDA makes final approval decision upon patent expiry

Generic companynotifies branded co. within 20 days of

filing

Branded company has 45 days to file a patent infringment suit against generic

Triggers 30‐month stay on ANDA approval

District court makes decision on patentinfringement case

Appeals court makes final decision on

patent infringement case

Generic company can request FDA approval to launch at‐risk

Generic company can launch upon FDA approval

Generic company can launch only after patents

expire

Triggers 180‐day exclusivity for

first filer

In favor of generic co.

In favor of branded co.



patents likely pertain mostly to the sequencing of complex sugars (particularly Lovenox),

Momenta likely also has patents on its polypeptide sequencing technology (applicable to

Copaxone), but there is very little information in the public realm, as these discoveries

occurred after Momenta was founded and began actively protecting its trade secrets.



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