Biotech Values

[DewDiligence]

MNTA’s ‘hybrid economics’ when there’s an authorized generic:

Do you think the royalty rate is the same [in the case with an authorized generic] as that of when there are multiple generics?

The hybrid formula, which applies when the only generic Lovenox other than the one from NVS/MNTA is Sanofi’s own authorized generic, is at any given time either in royalty mode or in profit-share mode as explained below. When the hybrid formula is in royalty mode, it uses the same schedule of royalty rates as the multiple-generic formula. When the hybrid formula is in profit-share mode, it uses the same profit share as the single-generic formula.

Thus, the key determinant of MNTA’s draw under the hybrid formula is the extent to which the hybrid formula is in royalty mode vs profit-share mode during a given year. Based on the partially redacted SEC filing that includes the terms of the NVS-MNTA Lovenox partnership, I have inferred that:

• The royalty mode applies to NVS’ sales of generic Lovenox during a given year that are less than or equal to Sanofi’s sales of its authorized generic during that year.

• The profit-share mode applies to NVS’ sales of generic Lovenox during a given year that are greater than Sanofi’s sales of its authorized generic during that year.

Note that the word year in the above bullets means a launch year rather than a calendar year. The first launch year begins on the date of the initial launch of NVS’ generic Lovenox and subsequent launch years begin on the anniversaries of that date.

In other words, the case with an authorized generic from Sanofi and no other generic competition to NVS’ generic Lovenox gives MNTA the favorable profit split to the degree that NVS’ generic outsells Sanofi’s authorized generic, and Sanofi’s sales of branded Lovenox do not figure into the calculation. I consider this a favorable economic formula for MNTA insofar as I expect NVS’ Sandoz unit, which runs one of the largest generic-drug operations in the US, to outperform Sanofi or its licensee in the blocking and tackling required to win the accounts of wholesale buyers of generic Lovenox. Wholesale buyers of generic drugs generally prefer to deal with as few suppliers as possible, and hence they like companies who have a broad product portfolio. Sandoz’s US operation has this in spades.

Note that Sanofi’s army of Lovenox sales reps is extraneous in this dogfight because these reps will be promoting branded Lovenox, not Sanofi’s authorized generic. Thus, if NVS’ generic and Sanofi’s authorized generic are close in price, I would expect NVS to garner a clear advantage in market share, allowing the hybrid formula described above to be operating in its favorable profit-share mode a large proportion of the time.