Biotech Values

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A somewhat oldie, but a goodie -

Generic Lovenox Nod Could Change Game
By PETER BENESH, INVESTOR'S BUSINESS DAILY
Posted 07/30/2010 05:23 PM ET

The Lovenox case is weird. It's created foes out of natural allies and twists of logic. And it sets a possible precedent for the future of biotech competition and cost restraint.

Lovenox, also known by the generic name enoxaparin, is an injected blood thinner made by France-based megapharma Sanofi-Aventis (SNY).

Made from highly processed animal protein, Lovenox is considered by most biopharma observers to be a biologic. The drug is a fast-acting derivative of heparin, a common blood thinner.

It's the first biologic for which the Food and Drug Administration has approved a generic version.

That generic is formulated by Momenta Pharmaceuticals (MNTA) of Cambridge, Mass. But Momenta, which reports second-quarter results today, doesn't make the drug.

The generic Lovenox is made by Switzerland-based Novartis ' (NVS) generic-drug unit, Sandoz. Novartis has announced it's already shipping its generic to the U.S.

Sanofi is spitting bullets over the approval.

Why wouldn't it? Lovenox's U.S. sales contribute about $3 billion, or 7%, of Sanofi's total annual revenue of $43 billion. Globally, Lovenox brings Sanofi about $4.6 billion, or 11% of yearly total revenue.

Sanofi has asked the U.S. District Court for the District of Columbia for a temporary restraining order and a preliminary injunction that would force the FDA to cancel its approval.

Sanofi says the approval was "arbitrary and capricious." A hearing is set for Aug. 17.

How Big A Piece?

If the effect of competition in the conventional pharma field is any indication, a generic version will take shark-size bites out of branded Lovenox sales, says Damien Conover, senior medical stock analyst at rating firm Morningstar.

"In traditional generic-drug launches, prices erode by over 80% in the first year," he said. That may not happen in the case of most biologic generics, or biosimilars, he says.

In essence, you can't just stir chemicals in a vat and produce a reasonable facsimile of a biologic.

Biologics are made from proteins. They're so complicated and expensive to make, there won't be a rush of competitors, Conover says.

Except in the case of generic Lovenox.

That's because two other companies are waiting for FDA approval of their versions of Lovenox.

They too are spitting bullets.

Observers have speculated that the two companies, privately held Amphastar Pharmaceuticals of Rancho Cucamonga, Calif., and Teva Pharmaceutical Industries (TEVA) of Israel, may not get approvals for their versions of Lovenox.

Amphastar was the first to file for FDA approval of its generic Lovenox, back in 2003.

Amphastar contends that the FDA is biased in favor of Momenta because Momenta helped investigate deaths resulting from contaminated Chinese heparin in 2008.

And that brings us to Teva, the world's largest maker of generic conventional drugs, with annual sales of $15 billion. Teva argues that it deserves FDA approval because it has demonstrated that its version of generic Lovenox meets the regulator's standards.

Teva's application has been in front of the FDA for longer than Momenta-Novartis', says Joseph Schwartz, an analyst with Leerink Swann.

Teva's bid, says Schwartz, "should have been approved by now, (and) it is uncertain if Teva's application was actually rejected."

Here's where Teva gets hit with its own boomerang.

Teva wants to prevent generic competition for its only brand-name drug, the biologic Copaxone, for multiple sclerosis.

Follow this logic. On the one hand, Teva wants to make generic Lovenox. On the other hand, it doesn't want anyone else to make generic Copaxone.

"Teva is on both sides of the issue," said Simos Simeonidis, senior biotechnology analyst with Rodman & Renshaw.

And the FDA's approval of generic Lovenox makes an approval of generic Copaxone more likely, says Schwartz' note. The approval of Momenta's generic Lovenox gives its bid to make generic Copaxone an 85% probability of success, he says.

That's how the market saw it.

Since July 23, when the FDA OK'd Momenta's generic Lovenox, Teva's shares have slumped by 13% as the market concluded that, in Teva's case, what goes around comes around.

Teva said second-quarter profit rose 32% in part thanks to global sales of Copaxone, which contributed about 20% of Teva sales.

After the Lovenox approval, Teva sent the FDA a letter asking the agency to require full-scale clinical trials for generic versions of Copaxone. Clinical trials are time consuming and expensive.

That's more than the FDA demanded from Teva, Amphastar or Momenta for generic Lovenox. A statement on Lovenox from Keith Webber, deputy director of the FDA's Office of Pharmaceutical Science, said the agency asked for "among other things, a series of sophisticated analytical tests and a study in healthy volunteers to assure that the drug would be as safe and effective as the brand-name product."

New Star In Biotech

Coming out of this web of intrigue, Momenta has momentum, says Simeonidis. It makes "Momenta one of the highest-quality names in the mid-cap biotech space," he said.

Big generic companies as well as big branded pharmas would be interested in acquiring Momenta for its products, technology and capabilities, Simeonidis says.

That would be cheaper than "having to license it, or replicate it and attempt to build it de novo," he said.

Momenta will be worth far more if it becomes the only company with an approved generic of Lovenox, he says. "If only one generic is approved, that will be huge for Momenta," he said.

However these cases turn out, the FDA's approval of generic Lovenox is a landmark event in biotech, says Mark Monane, a medical doctor and an analyst with Needham & Co.

"The FDA decision may represent an inflection point in the approval of generic versions for drugs once viewed too complex to copy," he wrote in a research note.

It's also an important event in the campaign for pharmaceutical cost containment, Monane says.

A breakthrough decision can make or break a midcap company like Momenta, Conover says, but when you drill down, it's really a battle of giants: Sanofi, Novartis and Teva.

Big pharmas will take a larger role as development of biologics and their generic versions become more complex and expensive, he says.

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