Biotech Values

[DewDiligence]

Projecting MNTA’s net profits:

Since MNTA gave investors an implicit cash-flow projection on the 2Q10 CC (#msg-53185820), we might as well use this information rather than trying to derive MNTA’s cash flow from guesses regarding in-market sales of Lovenox and NVS/MNTA’s market share. Because the $160M number derived in #msg-53185820 is a rock-bottom figure, I’m comfortable multiplying it by 1.5 to arrive at a $240M annualized run rate for MNTA’s cash flow from Lovenox on a pro forma basis (i.e. excluding the deductions NVS will make to recoup its development expenses).

Until NVS has recouped its Lovenox development costs (which will take 2-3 quarters), the amount MNTA will report on the top line of its income statement will be half the above amount, which comes to $30M per quarter. This ought to easily outweigh the $13M per quarter that MNTA has been burning in recent quarters (#msg-52864485) and yield a quarterly profit in the $15-20M range during the first 2-3 quarters.

From a valuation standpoint, I think investors will look ahead and will make two adjustments to the net-profit numbers MNTA reports during the first 2-3 quarters by:

1. Doubling the reported Lovenox cash flow (because this is what happens once NVS has recouped its development costs); and

2. Applying the statutory tax rate to MNTA’s net income (because the NOL’s will eventually run out).