Biotech Values

[DewDiligence]

Re: NPV of MNTA’s Lovenox royalty stream (revised)

The past four quarters of Lovenox sales reported by NVS were $47M (1Q13), $85M (4Q12), $34M (3Q12), and $156M (2Q12). If we throw out the high-outlier 2Q12 number and use the most recent three quarters, the average quarterly sales have been $55.3M.

On MNTA’s 1Q13 CC today, CFO Rick Shea said there was inventory destocking as well as price erosion during 1Q13, with each contributing about half of the decline in sales from 4Q12 to 1Q13. Now that Amphastar and Actavis have been in the Lovenox market for more than year, further severe price erosion would seem to be unlikely, although there could still be a slight downtrend in pricing.

Based on all of the above, $50M of Lovenox sales per quarter ($200M per year) seems to be a reasonable estimate of the future run rate. Applying MNTA’s 10% lower-tier royalty rate to the $200M sales figure and then applying a multiple of 8x on MNTA’s annual collection gives a pre-tax NPV of $160M. (MNTA’s royalty payable to MIT has been described by Rick Shea as de minimis.)

On a fully-taxed basis (which reflects what MNTA’s royalty stream would be worth to a profitable US-based company), the $160M pre-tax NPV is worth about $100M, or about $2/share.

Note: The above calculation does not include any provision for possible damages that MNTA might collect from Amphastar/Actavis in the event the US Supreme Court reverses the CAFC’s ruling on the unenforceability of MNTA’s Lovenox-manufacturing patent.