I admit to being positively surprised by the timing of the deal, but a bit underwhelmed by the terms. However, I wouldn't say that my expectations on the terms were necessarily well calibrated. Makes the mEnox and mCopax terms look pretty good!

CC tomorrow will be interesting. Might have to call in from the ski slopes!

Until we know more about the terms of the deal, i'm not sure that the stock will even trade up tomorrow.

What are the total potential regulatory and commercial royalties?

What are the terms for profit share/development costs?

What are the six products (ok, i doubt we'll hear anything on this at this point)?

What about any other products (other than these six), if any, that MNTA is working on? Might they sign other deals?

I don't like that the first 2 are left out of that PR. Usually doesn't bode well.

The main damage done by Amphastar (from stealing the tech, as has been pointed out) is the launch of the AG, which will cost MNTA $40M/year.



Well it is indefinite, but there undoubtedly will be an end to the exclusivity. This uncertainty is partly what keeps the street from "rewarding" MNTA as much as you would like...."they" have a different view of how long this exclusivity period will be.

I think we've basically seen this is not going to go far north of $20 on mEnox alone. MNTA is an mCopax play for the next 2-3 years.

Yes, but it's >50% higher than the period when it was thought that they lost exclusivity.

So I'd say it's added at least $250M to shareholder value.

Here's a chart of the weekly scripts. The YoY total scripts were up about 3.7% through the end of September (using mEnox approval as a starting point in 2010). In mid October the total dropped below 2010 levels (orange crossing below green). I presume this is due to the AG, which I don't think is captured here. It may also be due to some loading happening in early October where total scripts spiked above 60K in anticipation of Amphastar launch.

It's a bit hard to tell from the chart, but m-enox share of the total is steady at 86.5%, despite the declining total enox scripts.

$0.80/sh pretax is maybe a 20% haircut assuming the AG doesn't otherwise affect the market dynamics. The AG was an unfortuante blow to MNTA.

Overall the move up from the lows reflects the positive developments on the mEnox litigation, but this has mostly run out of steam. Now the market stares into the murky future of FOB and Copaxone to look for catalysts, and neither gives much resolution. Probably hurts the PPS short term, but could make for some nice upside surprises since nobody knows what/when to expect positives from them.

I think it's still settling in from people overreacting to the news the other day that the AG has been 'suspended', specifically I'm not sure people realized that MNTA will not escape from the a hybrid royalty situation that'll cost them $30-$40M per year.

The next significant MNTA upside (IMO) is going to be Copaxone.

re MNTA:

The AG trigger is costing MNTA pre-tax 30-40M per year that gets transferred to Sandoz, even if no AG drug is sold and it doesn't change the market dynamics. I wonder how the court would rule about damages in this case, as MNTA/NVS hasn't brought up at all as far as I can tell the reduced profit share to MNTA in the different scenarios.

It's at least a few $ off the PPS.

If I'm MNTA, I'd have hoped fom something more proportionate to how NVS/MNTA are splitting the profit from mEnox. From that perspective MNTA got the short end of the stick. If you take it from the perspective of who is hurt worse from a generic launch, perhaps it is proportional, since the terms of the deal with NVS are so biased in their favor.



The statement in the SEC filing seems strangely worded to me, such that I'm not sure your interpretation follows from the language.



I wouldn't say that the hybrid period is terminated when they convert to the profit share for the remainder of the launch year. Rather I'd say the hybrid period is terminated when a generic is launched other than the AG and they are in a strict royalty mode. Although I could be wrong as I find their language confusing.

Thanks Rocky. So to be clear, are the AG numbers rolled into in either the mEnox or Lovenox, or are they not in there at all?

I'm not expecting the injunction to be lifted on appeal, as Amphastar didn't mount much of a defense in the first place.

Your better entry point might be when the full impact of the AG on Q4 and future earnings are realized (the hybrid royalty/profit share is now priced in...what isn't is the extent of price/market share erosion).

I was just vaguely listening to the CC, and it seemed that there was some concern during Q&A that the royalty was lumped into the revenue line and wasn't broken out, so it wasn't clear how much it was, leaving additional uncertainty around the provenge numbers. Could have totally missed that though.

There was some surprise that the COG keep rising every quarter...people wanted to know when they'll start gaining some economies of scale, but things seem to be going in the opposite direction.

Wasn't a pretty call from the parts that I heard.

Quite arbitrary, and in my mind the clinical requirements wouldn't be the cause of the delay relative to the non interchangable FoBs. Rather it would be regulatory limbo. In fact I would think the clinical requirements would be less for the interchangable pathway, with a greater emphasis on analytics.

The point is, there's likely to be an uncertain amount of delay, coupled with an untested regulatory pathway based on technology that is at least relatively untested in this arena. IF MNTA doesn't have a partner by mid 2012 and beyond, there are plenty of reasons why this shouldn't be surprising, despite the guidance hoping for a partner this year, with built in acknowledgement that it might slip.

Overall I get jbog's point. Beyond working with the FDA on ANDAs that have been submitted for years, MNTA hasn't noticeably moved anything along.

Count me as actually a little skeptical about the FOB program. At some point in this biotech business, you hear about partnering and programs for long enough without seeing any movement (e.g. FoB, M118) and you start thinking there isn't as much interest as you once thought there was. I know the rejoinder to that is that once FoB guidance is out from the agency that will open the door for partnering, which might be true, but the clock for a partner on this has been ticking for years, and there's been no detectable movement of any kind on either a partner or a program.

I think the agency will come up with a program that will allow for an interchangable FoB, but I'm not sure it will be the quickest/cleanest way to get it done. Given how long the FDA has taken on mCopax and mEnox, it seems like most pharmas are more interested in sticking to the tried and true method of running a trial and submitting the results old school. CW has said they don't expect to be the first generic on the market, just the first interchangable on the market. If it takes you 3 extra years to get there it may not be worth it. You're interchangable, but to only the originator biologic, not to the other 2-4 generics that are actively marketing and taking market share while you're bogged down with analytics. It's technology and regulatory environment that big pharma isn't used to, and i'm not sure who is going to want to put a lot of eggs in this basket, given that CW has stated they are looking for a comprehensive deal rather than just on a drug by drug basis. How well their technology transfers past lovenox is also a complete black box. There are reasons to be skeptical about MNTA and FoB.

I'm expecting mCopax to be the next significant driver of share price after the Enox stuff works itself out. Even if they lose the patent suit to TEVA, the current mEnox situation looks like it will take them through.

First, I don't differentiate yet how MNTA will split royalty with Sandoz. But, based on the strength of the ruling in the preliminary injunction, MNTA has a strong hand here. There's a good possibility that they win the entire case, and amphastar can't sell their product until the patent expires, which is way later in the decade. Or they can possibly retool their process and then go back and get in line at the FDA and wait for another couple of years, if they even can retool.

So at this point (or at least assuming the appeal is denied), IF there is a settlement, it isn't going to look good for amphastar.

Out of my depth as well, but this article seems to be a well written discussion of the subject:

http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=c9459d08-6491-4e06-8ab2-aa12db3045b7

SNIP
...

In 1998, Congress further added section 271(g) to Title 35 of the Patent Act. This subsection creates liability for importing into the United States or selling, offering to sell, or using in the United States, a product "made by" a process covered by a U.S. patent. Under section 271(g), however, a product is not considered to be "made" by a patented process if it is materially changed or becomes a non-essential component of another product. [Rhetorical question: how much can you materially change the product to avoid the patent and still be kosher with the FDA wrt characterizing the product.]In particular, section 271(g) provides:

(g) Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent. In an action for infringement of a process patent, no remedy may be granted for infringement on account of the non-commercial use or retail sale of a product unless there is no adequate remedy under this title for infringement on account of the importation or other use, offer to sell, or sale of that product. A product which is made by a patented process will, for purposes of this title, not be considered to be so made after–

(1) it is materially changed by subsequent processes; or

(2) it becomes a trivial and nonessential component of another product.

Thus, under section 271(g), a party can be liable for infringement for importing into the United States, or selling or using in the United States, a product made by a patented process, regardless of where the process is performed or where the product was ultimately made. Congress added section 271(g) to increase protection of U.S. technology industries, specifically the pharmaceutical and biotechnology industries. See Kastenmier, Report to accompany H.R. 1931 (Apr. 22, 1987). Section 271(g) also sought to conform U.S. patent law to the infringement standards under foreign intellectual-property law. See S. Rep. No. 100-83 (1987).

Modern Interpretations of Section 271
Recent decisions by the Federal Circuit have interpreted the scope of acts deemed infringing under section 271. Among other things, these decisions have clarified the reach of section 271 with respect to technologies with cross-border applications. They have also addressed questions of infringement concerning non-traditional "products" and "components," such as information and computer software.


snip

...

Bayer AG v. Housey Pharmaceutical, Inc.
In contrast to the holdings reached in Eolas and AT&T, the Federal Circuit took a more traditional approach when assessing section 271(g) in Bayer AG v. Housey Pharmaceutical, Inc., 340 F.3d 1367, 1368 (Fed. Cir. 2003). In that case, Housey Pharmaceutical, Inc. sued Bayer AG for infringement based on patented screening methods for discovering drugs. Bayer AG, 340 F.3d at 1368-69. Bayer allegedly practiced the screening methods abroad but then imported information gathered from the methods into the United States for drug development. Housey, however, asserted that these acts constituted infringement of the patented-screening methods under section 271(g). Id. at 1369-70.

Strictly reading the statute, the Federal Circuit concluded that section 271(g) addresses only patented manufacturing methods (i.e., methods of actually making or creating a product) and does not encompass methods of gathering information [Could be an interesting point about whether MNTA patents are about gathering information rather than actual manufacture, but it isn't one I'd bet on]. Id. at 1377. The Court noted that this interpretation was consistent with the legislative history of section 271(g), which, according to the Court, indicated that Congress was "concerned solely with physical goods that had undergone manufacture" and "not mere information." Id. at 1373, 1376. Because Bayer's acts of identifying and generating information were not considered steps in the manufacture of a final drug product, the Court held that there was no liability under section 271(g). Id. at 1377. [On the other hand, it would seem clear that the MNTA patents are actual steps in the product manufacture.]

In certain respects, the outcome in Bayer conflicts with that in Eolas and AT&T. In Bayer, the Federal Circuit held that the scope of infringing acts under section 271(g) is limited to tangible or physical products created or made by a manufacturing process. In contrast, the decisions in Eolas and AT&T show a more liberal and, perhaps, modern approach to assessing infringement under section 271. In Eolas and AT&T, the Federal Circuit interpreted section 271(f) as not being limited by a "tangibility" requirement and held that software (whether embodied on a golden master disk or transmitted electronically) could constitute a component of a patent invention. While the types of acts covered by section 271(f) and (g) are different, the application of those sections to "intangible" technology (such as information and software) arguably should be the same. Indeed, in today's global marketplace, information and software are not only viewed as commodities or products, but also are incorporated as key components of computerised systems and processes. Nonetheless, under current Federal Circuit case law, sections 271(f) and (g) are interpreted differently.

...

re:survey

Dew, care to reveal what your own responses were to the survey?

Mine were
Q1: b
Q2: d
Q3: a
Q4: c

I don't think this is true. My understanding from looking into this a while ago is that it doesn't matter where the infringing action takes place. If you import for sale into the US a product whose manufacture would have been in violation of US patent had those actions been taken in the US, the same patent law/protections apply. Otherwise the patent protection is close to pointless.

Are you talking trailing or future P/E? The AG is going to take a bite out of earnings.

As you've pointed out, the rationale for that was never that strong anyway. It would all hang on 886. There's an unpatented way around 466.

But even if removing the overhang means a doubling of the EPS multiple you only break even if the AG chops the EPS in half. This is my concern.

That would be fun to watch.

Although I think it's obvious the AG is a result of aEnox, it might be hard to prove.

I'm a little more muted on this and I expect the street to be also. Yes it gives an independent preliminary read to the FDA IP estate, and gives some confidence the value of MNTA IP with respect to enox. One would think that MNTA would get a higher multiple on the EPS, but I'm not sure it offsets the points below:

The launch of the AG bites, and not a little bit. The new hybrid royalty/profit sharing terms terms are going to cost MNTA between $30-$40M per year. Add the economic damage to the mL franchise from price erosion and reduced market share. These I haven't tried to model yet, but they could be another $0-$100M. That combination would reduce the EPS by 25-50%.

A less important point is that it's also true that amphastar got FDA approval without violating the 466 patent, so that removes one potential barrier for future competitors. CW has said he expects people to eventually find a way around the IP estate given the size of the prize on the other side. This leaves just the 886 hurdle. I don't have the expertise to judge how high the 886 hurdle is for future entrants, or for amphastar to design around.

Before Amphastar's FDA approval MNTA was trading at 17.75. I'll be surprised if it gets back there by EOY, and that's ignoring the fact that the market is up 20% since that fateful day.

I hope I'm wrong, but I think this Amphastar cheat is going to stay a costly one to MNTA shareholders due to the EPS blow.

re:PPHM

Here's the thing. Either bavi works well enough to be clinically useful or it doesn't.

If bavi actually works as well as they say for as many things as they say, then management has done a staggeringly poor job of developing the asset (and running a business) over the last decade.

If it doesn't work, they're going bk.

At this point, they've yet to report data from a randomized trial that would be the first real step to knowing whether it works or not. This after years and years of single arm trials in various indications compared to historical controls. At some point you have to ask yourself why it took so long to get to randomized trials and why no partner after all this time?

How do you parse the below statement from Amphastar with the above assertion?

It doesn't matter where the infringement takes place. If act is an infringement of US patents and and the resulting product is imported into the US for sale it is as if the infringement happened in the US.

Amph's arguments would seem to be one or more of:

1) we aren't using the patents in the manufacturing process;
2) the patents are invalid
3) we're covered under hatch-waxman.

Likely they'll argue all three. There may be more lines of argument that they'll take.

Sure, but if there is blatant infringement, I'm not sure I can see MNTA settling, especially if they have a TRO. I really have not idea on that though, just a WAG.

Is that really the worst case scenario? What about a permanent restraining order blocking sale in the US? That would be a bad outcome for them. I concede if they believed they had no other chance for approval, infringing and taking the chance in court might make some sense, depending on how much money they had to put into the process.

My two points would be: Amphastar knows that if they got approved they'd be sued by MNTA. It makes no sense for them to infringe the patents. There may be shades of grey here, where they made some very minor tweak or they believe the patents to be unenforceable.

Second, as Clark points out above, my understanding (although this is far from my expertise) is that infringement happens when the patented process is used to manufacture product that is for sale in the US. If the IP is used for R&D, it is not a violation of US patent law. MNTA used the IP to develop the process to produce mEnox and get it approved by showing sameness, and continues to use it in the manufacture of commercial product as QC.

I can accept that Amphastar would not have received approval without the benefit of MNTA IP. Whether they use that IP in the commercial manufacture of aEnox in a way that infringes MNTA's patents is another matter, of which I'm skeptical given they knew they'd be sued over it.

Use it for R&D just like MNTA did. Unlike MNTA, don't use it for commercial manufacture. Could be wrong, but that's the way i understand the process patent law.

MNTA sued TEVA a long time ago based on the expectation of approval. Amphastar had to know they were going to be sued on approval. They can't be so stupid, with Watson in tow, to blatantly cheat and suffer the embarrassment?

I don't see this going in MNTA's favor in any meaningful way. As others have noted, process patents are hard to defend.

It might be that they used MNTA's patents to engineer the process to develop the drug and show it's the same, but don't need the IP to manufacture commercial product for sale (QC the way MNTA uses their patents in production). That would be the FDA letting them off the hook and screwing MNTA.

Why not?

It's not like it's a secret that the stakes to Momenta are high. If they infringe on Momenta's patents and thereby cause harm, why wouldn't they be liable for the clearly foreseeable consequences of their actions?

Makes one wonder if MNTA/Sandoz actually envisioned this possibility when the original deal was signed. If the court rules a patent was infringed, MNTA should be made whole by the judgement, and Sandoz is better off than if a revert clause was put in place. If a patent wasn't infringed, the high stakes might actually delay a second generic launch, and Sandoz and MNTA are both better off.

I don't think they are spending much money on M118, nor do they plan to, so I dismiss that.

re: M402. The FOB stuff, especially substitutable, is a long way off. Like 5-7 years. If Copaxone fails, they won't have anything to talk about while the FOB fuse burns. They need to keep 402 alive and moving.

If copaxone fails then they can buy their stock back even cheaper. If it get's approved, they'll have a nice cash flow again and can start buying shares back. No point in wasting your cash buying shares with an uncertain revenue stream. They might end up selling those shares back to the market at a big loss.

If they had the full mEnox revenue stream you can make your argument. Not now. And it turns out that even then it was wrong. Why buy for 17 what you could by a week later for 11?

What if copaxone never gets approved and they've blown their cash buying back shares and stalling the rest of the pipeline, which means laying off the people working on it? It's so so foolish.

Biotech companies sell hope. The pipeline is the hope. MNTA's problem isn't too many shares, it's poor resolution on the pipeline. Stalling out the pipeline is crazy.

They aren't moving M118 forward themselves anyway. And it's M402, not M302.

MNTA of course has process patents. The way I understand it, Watson/TEVA etc can use the patented IP in the R&D phase, i.e. getting to an approvable product. What they aren't allowed to do is use the IP in the manufacturing process that generates material for sale. MNTA built their IP into their own manufacturing process. But I"m not sure how you can know whether Watson uses the IP in the manufacturing process by analyzing the end product. It would take discovery to do so.

Could Amphistar have used the IP to come up with a process that reliably replicated enox, then backed it out and said the process is stable and they don't need the IP anymore for manufacturing? Seems like it, but i'm way out of my depth here.

I have no way of handicapping this, but I take careful note to what some of the attorneys on the board have said, that's it is much harder to defend process patents than COM patents.

Unfortunately I got to the call a bit late and was multitasking while listening and I haven't had a chance to relisten, so somebody else will have to chime in here. But he did say while I was listening they would be in a cash burn situation and wouldn't be reducing spend. My sense was that it was cash burn just based on current levels of spending without ramping anything up. As I type I think I remember him suggesting that they have the cash for many quarters, and even many years of operations.

Others could add more.

1. RS said in the cc yesterday they'll be in a cash burn situation, so the overall conclusion of a positive EPS is wrong.

2. TEVA hasn't been approved, it's Watson/Amphastar.

3. Likely SNY will launch generic, further splitting the market from what you suggest. How it splits out I have no idea.

4. Currently MTNA takes most of the retail market with the generic (85%), and SNY takes the in-patient market, resulting in around a 50-50 market split. Will be interesting to see which segment Watson goes after.

5. You seem a little low on the expense side ($23M might be closer), and RS said they won't be reducing spending as a result of this.

If so, it may help explain why NVS has declined to partner with MNTA on FOB, if in fact they think it has value. Why drive the buyout price up?

Ran this past a path friend, here was his comment fwiw:

From my quick look, I think they are going to have to do a lot better than this to have something that is of any use. Most dermpaths think by morphology alone they only need help with a very small percentage of cases. It looks like these FISH probes pick up aneuploidy in a way that corresponds with morphologic atypia, and is positive in benign nevi with atypia to the tune of 10% if memory serves. This is just telling the pathologist what they already know, that the lesion is atypical. If I have a difficult case and you tell me the test misses ~20% of easily diagnosed malignancies (how does it do with tough ones? they threw those out), I have little faith in a negative result. Not that helpful.

I fully agree, and it seems fairly obvious to a duopoly situation. It is strange to me therefore that they get asked so many questions about this from analysts, esp at the most recent MS conference. People just wouldn't leave it alone.

RS said on one of the last two calls that there was plenty of source heparin matierial available to them to produce Tenox. So he didn't seem to indicate there would be any supply issues.



I'm sure they can ramp up production to stay at the 45-50% range if demand for lovenox increases. What they are really doing is producing all they can without taking too much market share and triggering a price war and/or SNY to launch a branded generic. They just can't say it.

So all told my guess is the shortage in heparin is probably neutral or perhaps slightly positive for MNTA.

I had to remind myself when that was, so here's a link to save anybody else the time looking for it (although it didn't take long with the RMF!)

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=60518523