Replies to post #62254 on Biotech Values

[DewDiligence]

Musings on MNTA’s Valuation

Several posters have assigned probabilities to the four
mutually-exclusive cases described below to arrive at
the fair value figures shown in the following table. The
market caps and share prices corresponding to each
case pertain to the time interval approximately 9-12
months from today (Feb-Apr 2009), by which time
MNTA/Sandoz expects the FDA to have formally
responded to the companies’ ANDA resubmission.
Thus, the four cases below are defined in terms of
the FDA action on the next review cycle.

All posters are welcome to submit their own
probabilities or alternative analyses.

 
           ($57)  ($24)  ($11) ($5.5)  Fair  
          Case-1 Case-2 Case-3 Case-4  Value 
 ThomasS    70%    10%    20%     0%  $44.50 
 zipjet     50%    40%     0%    10%  $38.65 
 Dew        54%    28%    12%     6%  $39.15 
 JR*        20%    40%    25%    15%  $18.10 
 stockdak   20%    70%    10%     0%  $29.30 
 rkrw**     30%    15%    55%     0%  $21.75

*JR assigns prices of $35, $20, $10, $4 to the
four cases in lieu of the prices specified below.

**rkrw assigns prices of $40, $10, $15, $8 to the
four cases in lieu of the prices specified below


Description of the four cases:

The following background assumptions apply: MNTA continues to make steady, but not spectacular, progress on M118 and other non-Lovenox programs; the US passes legislation enabling follow-on biologics during 2008 or 2009; MNTA does not sell shares before the status of the Lovenox ANDA is cemented; Sanofi fails to reinstate its US Lovenox patent; MNTA does not receive a buyout offer.

Case 1: MNTA/Sandoz obtains approval for generic Lovenox and neither Teva nor Amphastar obtain approval, (Sanofi may launch an authorized generic, but it would be the only generic in the market other than the one from MNTA/Sandoz.) Market cap: $2.1B; share price: $57.

Case 2: MNTA/Sandoz obtains approval for generic Lovenox; Teva, Amphastar, or both obtain approval too. Market cap: $900M; share price: $24.

Case 3: The FDA formally responds to the MNTA/Sandoz ANDA resubmission with new questions or requests. Market cap: $400M; share price: $11.

Case 4: FDA rejects MNTA/Sandoz’s Lovenox ANDA with no possibility of a resubmission. Market cap: $200M; share price: $5.50.

[DewDiligence]

MNTA – You’re the only one so far who ascribes a higher valuation to case 3 than to case 2. I understand your logic: case 3 is indeterminate while case 2 arguably justifies downgrading the underlying value of MNTA’s technology.

On the other hand, case 2 allows MNTA to begin to have some money coming in from Lovenox royalties, and this has considerable value in its own right. All told, I think case 2 is better for the share price during the period in question (roughly 9-12 months from now), although one could make a case that case 3 might be better for the share price several years out.