>>1. Robyn Karnauskas (the lead Deutsche Bank analyst assigned to MNTA) says MNTA is worth $18/sh without any contribution from Lovenox while also arguing that the share price will fall to $6 or less if the FDA approves more than one generic Lovenox (which would, of course, provide MNTA some economic value attributable to Lovenox). This is so bizarre that I need to state it again: Karnauskas says MNTA would be worth $18/sh if the Lovenox program did not even exist, but she expects the share price to fall to $6 if the FDA approves multiple generics. A real head-scratcher!<<
That's not the way I read the report. She does assign a $9 NPV to M-118, plus $1 cash, plus (a generous) $2 to pipeline, plus $2 NOL. The NPV of Copaxone is variable - she links it to different scenarios, but overall it is $4. She then subtracts a variable amount between $9 and $14 for the costs of the base business. Thus you are missing the NPV offset for the cost to run the business.
In her "no generics" Scenario 1, she assumes no contribution from Copaxone or M-Enox, and hence a $5 fair value. In the "several generics" scenario she favors, she assigns $9 to M-Enox and $4 to Copaxone, ending up with a $18 fair value.
What I do find weird about her analysis is the way she has linked what happens with M-118 and Copaxone. I grant that if the FDA rejects M-118, then the NPV for Copaxone would also be reduced. But it makes no sense to me to reduce the NPV for Copaxone if there are multiple M-118 generics - no way there will be multiple Copaxone generics.
The other complaint I have about her analysis is I think she overestimates the likelihood of multiple generics. This statement of hers is key:
We believe Xa: IIa activity will likely be the primary analysis required by the FDA to show bioequivalence because so little is known about the other activities of Lovenox. While Sanofi-Aventis argues there are other functional components of Lovenox (many unknown) we believe they do not fall under the FDA’s definition of being proven clinically meaningful. As evidence, these functional components are not outlined in the USP.
(emphasis added)
The issue here is that it is incumbent on a would-be generic to prove that the other components are not clinically meaningful if they cannot completely characterize the compound and show they are the same. Just look at Premarin for a good precedent. If "so little is known about the other activities" of the drug, that, to my mind is a good reason for the FDA to be cautious here.
Except for these two issues (the conflation of the M-118 and Copaxone scenarios and her over-estimate of the likelihood of multiple generics), I think the report is pretty reasonable, with NPV's in the different scenarios not that different from your ranges.
Peter
