Biotech Values

[MTdinanM3]

MNTA - Oppenheimer, Update from Markman Hearing 1/20/10

Update from Markman Hearing; MNTA/Sandoz's Approach Appears Solid

SUMMARY
On 1/20, we attended the Markman hearing for the case of Sandoz/MNTA vs. TEVA regarding generic Copaxone. While we are not patent attorneys, we believe Sandoz/MNTA made a strong case that the Copaxone patents are not specific enough to determine if M-356, or likely other generic Copaxone candidates, would infringe and that, critically, this is a fatal flaw of the patents. While we do not expect additional clarity until the judge's claims construction opinion is issued in 6-8 wks, we believe there is clearly the potential for multiple findings of indefiniteness which will likely strengthen Sandoz's case for invalidation of the patents, longer term. We would add to MNTA positions coming out of the hearing. Increasing PT to $17 (from $15).

KEY POINTS
We believe MNTA/Sandoz presented strong claims that TEVA's patents do not adequately describe Copaxone. On a purely scientific basis, there appear to be important omissions in Teva's issued patents that make producing Copaxone difficult, if not impossible. We believe this is a critical weakness to the patent estate.

TEVA did not have a compelling counter-argument in support of the
definiteness of certain patent claims, in our view. However, legal
proceedings are currently at a relatively early stage. Short of the potential for near-term summary judgments in Sandoz/MNTA's favor, we believe the case will take considerably more time.

The judge appeared receptive to Sandoz/MNTA's argument. The body
language of the judge was difficult to read. However, in our opinion, as the weight of evidence mounted, the judge appeared to be open to Sandoz/MNTA's arguments. Based on the judge's prior history, we expect the Markman order will be issued in 6-8 wks.

We continue to conservatively model a 2014 U.S. launch of M-356. A
positive outcome in this patent litigation could lead to U.S. launch of M-356 as early as 2012. We continue to believe MNTA is undervalued assuming conservative timelines— an accelerated M-356 launch represents considerable upside to our current valuation.

Investment Thesis
We believe an M-enoxaparin regulatory decision is drawing near. We see the most likely scenario as both MNTA/Sandoz and TEVA gain
approval. While this would lead to a royalty to MNTA vs. a profit-split, we believe approval would validate MNTA's technology and the approach of gaining approval of biologics via the 505(j) pathway. We believe this would lead to appreciation, and believe sole approval of M-enoxaparin, which would drive even more substantial upside, is also possible. Additionally, we believe M356's potential is under-recognized at MNTA's current valuation. We believe MNTA is attractive ahead of FDA's M-enoxaparin decision, and based on our expectation for growing clarity on
M356's path forward.

Price Target Calculation
Our new 12- to 18-month price target for Momenta is $17 (prior $15). This is based on our estimated 2014 probability-adjusted EPS of $1.15, discounted over four years at 15% using a 26x multiple. We believe a 15% discount rate accurately reflects the risks associated with smaller biotechnology companies like Momenta and that a 26x multiple reflects the company's significant growth potential. Our model also assumes there will be 56.4 million shares outstanding in 2014.