Momenta Pharmaceuticals, Inc. (MNTA)

[indigokid]

Amphastar/Watson Litigation - Questions

After reviewing recent Goldman webcast CW basically said the Amphastar litigation is essentially a classic Intellectual Property case so it’s a damages case. Assuming that’s true a couple of questions come to mind. I’m not a lawyer so maybe the experts can chime in as to the reasonableness of the thought process?

1) Did Amphastar infringe? It appears that Amphastar never claimed they didn’t infringe, but is using primarily a “safe harbor” argument. Based on my quick read the safe harbor provision allows the FDA to approve a generic drug that infringes with the intent that a branded drug with a near term expiring patent doesn’t have a generic (which will presumably lower the cost to the public and healthcare system) delayed from the market by FDA approval. It doesn’t appear to be intended to allow anyone to violate patents in order to allow a company to market for profit - it appears limited to a “safe harbor” from infringement during the FDA approval process. Again not a lawyer but my read is Amphastar violated MNTA/Sandoz manufacturing patents and will be liable for damages and the “safe harbor” argument won’t hold up.

2) How much are the damages? From the MNTA 10K in roughly 18 months MNTA received $357 million. In 3Q11 I believe profit share revenue peaked at $75 million for their share of profits from the sale of Enoxaparin by Sandoz – prior to third parties in the market. There were milestone and bonus payments which skewed numbers on a quarter-by-quarter basis, but $75 million per quarter should get us in the ballpark. So $300 million of MNTA damages per year.

Due to Amphastar not producing discovery documents the trial is now delayed until January 2013. The trial will presumably take a year (??) thus two years of accumulated damages or roughly $600 million if it goes the distance.

Given Amphastar/Watson launched “at risk” they are subject to treble damages. So $300 million per year range times 3 = $900 million and $1.8 Billion if taken for the full 2 years. (Each quarter is $75 million in damages and $225 of treble damages.)

3) Amphastar indemnified Watson, but what if Amphastar can’t pay? Amphastar is a private company so it’s difficult to determine if they could pay if ordered. If they don’t pay then Watson would appear to be the “deep pockets” on the liability chain. Possibly a significant error in judgment on Watson’s part deciding to “launch at risk”? Watson has a $9 billion market cap but has less than $200 million in cash. Does MNTA become the biggest shareholder of Watson?

4) Should some value be attributed to MNTA for the possibility of prevailing in this case?

5) Is Watson also doing the math and wondering about their potential liability exposure to Amphastar? Is this a real risk for Watson? Should Watson take some action to mitigate exposure to this rapidly accruing potential liability? Does taking action imply Watson liability?

6) Given the rate of accrual of treble damages it’s surprising that Amphastar is delaying at all – unless they have no intent to pay. Will they disappear with the money and leave Watson holding the bag?