Biotech Values

[jbog]

Projecting Lovenox cash flow from the reimbursement liability:

Dew,

When you wrote this post, you based the Cash Flow on the premise that Momenta was 100% responsible for the complete investment that Sandoz had spent on the development of M-Enox which they stated was between $50 and $70 million dollars.

From reading Momenta's recent 10-k (1) and from the 2nd quarter Conference Call transcript (2) I seem to come up with a different answer.

While you used the premise that 50% of Momenta's cash flow over the next two to three quarters would pay back the mean amount of $60 million dollars, I don't think Momenta will owe anything close to that figure.

From the 10-k I read the obligation as: """a portion of the development expenses and certain legal expenses which have exceeded a specified amount will be offset against the profit-sharing amounts,"""" which in reality, gives us no answer.

From the 2nd qtr CC I read the obligation as: """We do have to repay our proportional share development and legal cost incurred during the past six years.""""" which again gives us no answers.

The ONLY factual estimate we can base any info on (in my view) would be Sandoz's sales estimate that is contain in their court briefing : Sandoz is expecting sales in the range of over $40 million in the next six weeks alone,.

When using the Sandoz court briefing estimate (without channel fill), I come up with gross sales for this quarter in the area of $66 million. Using a conservative 30% cog, I end up with total gross profits in the area of $46 million while Momenta share would be somewhere in the $21 million dollar range.

Figuring that Sandoz would hold back 50% of that amount initially that would mean that Momenta would receive somewhere around $10.5 million this quarter. Add to this the $5 mil dollar milestone that is due, Momenta could be cash flow positive, but by a slim margin. Please note, I have not added to this figure the original rollout, because we really have no reliable data on that amount. (likewise, we don't if the plunger problem caused Sandoz to scrap any product.



(1) 10-k Under the terms of the 2003 Sandoz Collaboration, we and Sandoz agreed to exclusively work with each other to develop and commercialize injectable enoxaparin for any and all medical indications within the United States. In addition, we granted Sandoz an exclusive license under our intellectual property rights to develop and commercialize injectable enoxaparin for all medical indications within the United States.
Under this collaboration, Sandoz makes certain payments to us. As mutually agreed, we provide, and Sandoz pays us, for internal expenses incurred in scientific, technical and/or management work. Sandoz is also responsible for funding substantially all of the other ongoing development and commercialization costs and legal expenses incurred with respect to injectable enoxaparin, subject to termination rights upon reaching agreed upon limits. In addition, Sandoz will, in the event there are no third party competitors marketing a Lovenox-Equivalent Product, as defined in the collaboration agreement, provide to us a share of the profits from M-Enoxaparin. This profit share percentage is between 40%–50%. If another interchangeable generic Lovenox is on the market, we are entitled to receive a royalty on net sales by Sandoz. That royalty rate ranges from high single to low double digits. If the only competitor to M-Enoxaparin is an authorized generic, we receive hybrid economics—a royalty up to a specified sales level, then a profit share on net sales above the sales cut-off. In addition, if certain milestones are achieved with respect to injectable enoxaparin under certain circumstances, Sandoz may also make milestone payments to us which would reach $55.0 million if all such milestones are achieved. In all of these scenarios, a portion of the development expenses and certain legal expenses which have exceeded a specified amount will be offset against the profit-sharing amounts, royalties and milestone payments. Sandoz may also offset a portion of any product liability costs and certain other expenses arising from patent litigation against the profit-sharing amounts, royalties and milestone payments.


(2) 2nd Quarter Conference Call Wheeler: Second, I would turn to the economic picture for Momenta. As the first generic launched, we have met the criteria for $5 million milestone payment from Sandoz. We are due to be paid a profit share between 40% and 50% as long as we have sold generic in the market.
We do have to repay our proportional share development and legal cost incurred during the past six years. This is paid through a deduction from the profit share owed to us, capped at a maximum of 50% reduction in profit share for each quarter until the costs are fully paid back.
Although, we cannot disclose an exact number, our analysis shows that assuming sales and demand continue, we expect to pay that all owed development cost within the first three quarters post launch and possibly sooner. It is too soon to predict whether or how long we will continue to hold sole generic position. So it's premature to provide any revenue guidance at this time.