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MNTA > SEC Filings for MNTA > Form 10-Q on 4-Aug-2014All Recent SEC Filings

Show all filings for MOMENTA PHARMACEUTICALS INC

Form 10-Q for MOMENTA PHARMACEUTICALS INC


4-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our Management's Discussion and Analysis of Financial Condition and Results of Operations includes the identification of certain trends and other statements that may predict or anticipate future business or financial results. There are important factors that could cause our actual results to differ materially from those indicated. See "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q.

Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not based on historical fact are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, projections, intentions, goals, strategies, plans, prospects and the beliefs and assumptions of our management including, without limitation, our expectations regarding results of operations, general and administrative expenses, research and development expenses, current and future development and manufacturing efforts, regulatory filings, nonclinical and clinical trial results, the outcome of litigation and the sufficiency of our cash for future operations. Forward-looking statements can be identified by terminology such as "anticipate," "believe," "could," "could increase the likelihood," "hope," "target," "project," "goals," "potential," "predict," "might," "estimate," "expect," "intend," "is planned," "may," "should," "will," "will enable," "would be expected," "look forward," "may provide," "would" or similar terms, variations of such terms or the negative of those terms.

We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Such factors that could cause or contribute to such differences include those factors discussed below under "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Business Overview

The Company

We are a biotechnology company operating in three product areas: Complex Generics, Biosimilars and Novel Drugs. Our approach is built around a complex systems analysis platform that we use to obtain a detailed understanding of complex chemical and biologic systems, design product candidates based on this knowledge, analyze sets of biological data to evaluate the biological function of our products, and develop manufacturing processes that enable our products to be reliably produced. Our first commercial product, developed in collaboration with Sandoz, Enoxaparin Sodium Injection, a generic version of Lovenox®, was approved in July of 2010, validating the commercial value of our platform. In the period from commercial launch through September 2011, we capitalized on the advantage of having the only generic version of Lovenox in the marketplace and recognized over $340 million in revenue from this product.

The core objective of our complex systems analysis platform is to resolve the complexity of molecular structures and related biologic systems. For the complex systems we seek to understand, we first map the key measurements needed to provide comprehensive data on the system. We then develop a set of analytic tools and methods that include a combination of standard analytics, modified analytic approaches and custom developed analytics and methods. The modified and custom analytics may be protected by trade secrets or patents. The analytic set we use for a development program is designed to provide comprehensive data on the complex molecular mixture and target biology, including providing multiple related and complementary, or orthogonal, measures of the system. We also may use computer software to mine and synthesize the data to yield insights that advance our development programs across all three product areas. As we expand our infrastructure, intellectual property and knowledge of complex biologies, we accrue advantages as well. For example, the process development and manufacturing expertise developed from our complex generic and biosimilars efforts can be directly used to advance our novel drug candidates. The investments in biocharacterization made for our biosimilars program provide a core of models and biologic data sets that can form the basis of inquiries in our novel drug research. And the analytic tools and methods and biologic models we develop help build a substantial toolset that can be used across our programs.

As of June 30, 2014, we had an accumulated deficit of $324.0 million. To date, we have devoted substantially all of our capital resource expenditures to the research and development of our product candidates. We have been incurring operating losses and we expect to incur annual operating losses over the next several years as we advance our drug development portfolio. We expect that our return to profitability, if at all, will most likely come from the commercialization of the products in our drug development portfolio. Additionally, we plan to continue to evaluate possible acquisitions or licensing of rights to related technologies, products or assets that fit within our growth strategy. Accordingly, we will need to generate significant revenue to return to profitability.


Table of Contents

Our Product Areas

In our Complex Generics product area, we develop generic versions of complex drugs that were originally approved by the United States Food and Drug Administration, or FDA, as New Drug Applications, or NDAs. Therefore, we have been able to access the existing 505(j) generic regulatory pathway and have submitted Abbreviated New Drug Applications, or ANDAs, for these products. Enoxaparin Sodium Injection, our first product to receive FDA marketing approval under an ANDA, is a generic version of Lovenox (enoxaparin sodium injection) and has been developed and commercialized in collaboration with Sandoz Inc. and Sandoz AG, collectively Sandoz, affiliates of Novartis AG. Lovenox is a complex drug consisting of a mixture of polysaccharide chains and is a widely-prescribed low molecular weight heparin, or LMWH, used for the prevention and treatment of deep vein thrombosis, or DVT, and to support the treatment of acute coronary syndromes, or ACS.

Our second complex generic product candidate, M356, is designed to be a generic version of Copaxone® (glatiramer acetate injection), a complex drug consisting of a synthetic mixture of polypeptide chains. Copaxone is indicated for treatment of patients with relapsing-remitting multiple sclerosis, or RRMS, a chronic disease of the central nervous system characterized by inflammation and neurodegeneration. We are also collaborating with Sandoz to develop and commercialize M356, and the Sandoz ANDA for M356 is currently under FDA review.

Most drugs approved as NDAs are simple small molecules that are easy to duplicate. However, products such as Lovenox and Copaxone are complex molecular mixtures that are difficult to analyze and therefore difficult to reproduce as generics. We use our complex systems analysis platform to define the detailed structures present in these complex drugs. Once the precise structures are identified, or characterized, this structural characterization of the brand product is used to guide the development of a precise manufacturing process to produce a generic version. Finally, to demonstrate that the biological function of our generic replicates that of the brand, we utilize our complex systems analysis platform to evaluate and compare multiple orthogonal sets of biologic data from in-vitro, in-vivo and ex-vivo models.

Biosimilars

Our second product area is biosimilars, which is targeted toward developing biosimilar versions of marketed therapeutic proteins, with a goal of obtaining FDA designation as interchangeable. The subset of biosimilars receiving an interchangeability designation are known as interchangeable biologics. In March 2010, an abbreviated regulatory process was codified in Section 351(k) of the Patient Protection and Affordable Care Act of 2010. This new pathway opened the market for biosimilar and interchangeable versions of a broad array of biologic therapeutics, including antibodies, cytokines, fusion proteins, hormones and blood factors. By 2015, sales of biosimilars are expected to reach between $1.9 billion to $2.6 billion. For biosimilars, we apply our complex systems analysis platform in two ways. First, we seek to better understand the complex systems within cells that are involved in the assembly of proteins. This knowledge enables us to select the appropriate cell line and to manipulate the cell's outputs using novel control strategies during the manufacturing with the goal of producing a biologic with structural similarity to the brand. Nevertheless, because of the complexity and variability of biologic manufacturing systems, it is important to evaluate whether any small differences between the biosimilar and the brand would be related to potential clinical differences. To minimize this residual uncertainty, we evaluate orthogonal sets of both structural and biologic data (biocharacterization) from in-vitro, in-vivo and ex-vivo models to compare the function of the brand product and our product. We believe that our complex systems analysis approaches, including these characterization methods, can significantly reduce residual uncertainty and may enable a relative reduction or even elimination of certain clinical trial requirements.

In February 2012, FDA released three documents containing their preliminary guidelines for applications under the Section 351(k) pathway. These guidelines state that FDA will use a step-wise review that considers the totality-of-the-evidence in determining extent of the clinical development program. This approach puts a substantial emphasis on structural and functional characterization data in evaluating biosimilar products for approval. We believe that our strategy for the development of biosimilars aligns well with the framework that the FDA has outlined in the draft guidance documents.

In December 2011, we and Baxter International, Inc., Baxter Healthcare Corporation and Baxter Healthcare SA, collectively, Baxter, entered into a global collaboration and license agreement, or the Baxter Agreement, to develop and commercialize biosimilars. The Baxter Agreement became effective in February 2012. Baxter is an established healthcare company with global product development, manufacturing and commercial capabilities.

Novel Drugs

We believe that applying our complex systems analysis platform to the discovery and development of novel medicines can enhance our probability of success in a number of ways. As with our complex generics and biosimilars, our platform gives us a detailed understanding of the complex structures of our novel product candidates, their associated manufacturing processes and controls, and the targeted biologic systems.

Our most advanced novel candidate, necuparanib (formerly M402), is in a Phase 1/2 clinical study as a potential anti-cancer agent. Necuparanib binds to multiple growth factors, adhesion molecules and chemokines to inhibit tumor angiogenesis, progression, and metastasis. We are also applying our complex systems analysis platform to identify potential improvements we can design into presently marketed complex mixture drugs. By evaluating their interaction with biologic systems, we can obtain an enhanced understanding of their function to identify biological activities we can exploit. This is the approach behind our research efforts to exploit the sialylation of intravenous immunoglobulin, or IVIg, and our program to develop a recombinant Fc version of IVIg.


Table of Contents

Our Collaborations

In 2003, we entered into a collaboration and license agreement, or the 2003 Sandoz Collaboration, with Sandoz N.V. and Sandoz Inc. to jointly develop, manufacture and commercialize Enoxaparin Sodium Injection in the United States. Sandoz N.V. later assigned its rights in the 2003 Sandoz Collaboration to Sandoz AG, an affiliate of Novartis Pharma AG.

In 2006 and 2007, we entered into a series of agreements, including a Stock Purchase Agreement and an Investor Rights Agreement, with Novartis Pharma AG, and a collaboration and license agreement, as amended, or the Second Sandoz Collaboration Agreement, with Sandoz AG. Together, this series of agreements is referred to as the 2006 Sandoz Collaboration. Under the Second Sandoz Collaboration Agreement, we and Sandoz AG expanded the geographic markets for Enoxaparin Sodium Injection covered by the 2003 Sandoz Collaboration to include the European Union. Further, under the Second Sandoz Collaboration Agreement, we and Sandoz AG agreed to exclusively collaborate on the development and commercialization of M356, among other products. In connection with the 2006 Sandoz Collaboration, we sold 4,708,679 shares of common stock to Novartis Pharma AG at a per share price of $15.93 (the closing price of our common stock on the NASDAQ Global Market was $13.05 on the date of purchase) for an aggregate purchase price of $75.0 million, resulting in an equity premium of $13.6 million. As of June 30, 2014, Novartis AG owns approximately 9% of our outstanding common stock.

In July 2010, Sandoz began the commercial sale of Enoxaparin Sodium Injection. The profit-share or royalties Sandoz is obligated to pay us under the 2003 Sandoz Collaboration differ depending on whether (i) there are no third-party competitors marketing an interchangeable generic version of Lovenox, or Lovenox-Equivalent Product (as defined in the 2003 Sandoz Collaboration), (ii) a Lovenox-Equivalent Product is being marketed by Sanofi-Aventis, which distributes the brand name Lovenox, or licensed by Sanofi-Aventis to another company to be sold as a generic drug, both known as authorized generics, or
(iii) there are one or more third-party competitors which are not Sanofi-Aventis marketing a Lovenox-Equivalent Product. From July 2010 through September 2011, no third-party competitor was marketing a Lovenox-Equivalent Product; therefore, during that period, Sandoz paid us 45% of the contractual profits from the sale of Enoxaparin Sodium Injection. In September 2011, FDA approved the ANDA for the enoxaparin product of Amphastar Pharmaceuticals, Inc. or Amphastar. In October 2011, Sandoz confirmed that an authorized generic Lovenox-Equivalent Product was being marketed by Sanofi-Aventis. In January 2012, following the Court of Appeals for the Federal Circuit granting a stay of the preliminary injunction previously issued against them by the United States District Court, Watson Pharmaceuticals, Inc. (now Actavis, Inc., or Actavis) and Amphastar launched their third-party competitor enoxaparin product. Consequently, in each product year, for net sales of Enoxaparin Sodium Injection up to a pre-defined sales threshold, Sandoz is obligated to pay us a royalty on net sales payable at a 10% rate, and for net sales above the sales threshold, payable at a 12% rate.

Certain development and legal expenses may reduce the amount of profit-share, royalty and milestone payments paid to us by Sandoz. Any product liability costs and certain other expenses arising from patent litigation may also reduce the amount of profit-share, royalty and milestone payments paid to us by Sandoz, but only up to 50% of these amounts due to us from Sandoz each quarter. Our contractual share of these development and legal expenses is subject to an annual adjustment at the end of each product year, and ends with the product year ending June 2015. The annual adjustment of $2.2 million for the product year ending June 30, 2014 was decreased by $2.1 million to reflect an adjustment to royalties earned in the product year ended June 30, 2012. The annual adjustment was $3.8 million for the product year ended June 30, 2013. Annual adjustments are recorded as a reduction in product revenue.

In December 2011, we and Baxter entered into the Baxter Agreement under which we agreed to collaborate, on a world-wide basis, on the development and commercialization of biosimilars. The Baxter Agreement became effective in February 2012. To accelerate efforts in the biosimilars space and address this growing global market, we significantly increased the headcount and related operating expenses dedicated to our biosimilars program in 2012 and 2013. We expect that any increase in operating expenses in future years will be partially offset in those years by revenues from option fees and milestone payments under the Baxter Agreement, subject to achievement of technical and regulatory criteria.

Under the Baxter Agreement, we and Baxter agreed to collaborate, on a world-wide basis, on the development and commercialization of two biosimilars, M923 and M834, which are:

† M923, a biosimilar for a branded biologic indicated for certain autoimmune and inflammatory diseases, is our most advanced biosimilar. We are working towards progressing this program through submission of a clinical trial application in the second half of 2014 to support the initiation of a Phase 1 clinical trial in the European Union.

† M834, a biosimilar also indicated for certain autoimmune and inflammatory diseases. We are working toward achievement of a pre-defined "minimum development criteria" license payment in 2014.

In July 2012, Baxter selected a third product for inclusion in the collaboration, a monoclonal antibody for oncology designated as M511. In December 2013, Baxter terminated its option to license M511 under the Baxter Agreement following an internal portfolio review. Baxter has the right, until February 2015, to select up to three additional biosimilars to be included in the collaboration. We may also consent, at our option, to allow Baxter to name a replacement product for M511, if Baxter requests such replacement.


Table of Contents

Financial Operations Overview

Revenue

Our revenue has been primarily derived from our 2003 Sandoz Collaboration and 2006 Sandoz Collaboration. In 2012, we began recognizing revenue under the Baxter Agreement as we deliver product licenses and research and development services under that collaboration. In the near term, our current and future revenues are dependent upon the continued successful commercialization of Enoxaparin Sodium Injection, license fees and milestone payments earned under the Baxter Agreement and potential profit share payments and milestones from our 2006 Sandoz Collaboration. In the longer term, our revenue growth will depend upon the successful clinical development, regulatory approval and launch of new commercial products and the pursuit of external business development opportunities. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the amount and timing of revenue we earn under our collaborative or strategic relationships.

Research and Development

Research and development expenses consist of costs incurred in identifying, developing and testing product candidates. These expenses consist primarily of salaries and related expenses for personnel, license fees, consulting fees, nonclinical and clinical trial costs, contract research and manufacturing costs, and the costs of laboratory equipment and facilities. We expense research and development costs as incurred. Due to the variability in the length of time necessary to develop a product, the uncertainties related to the estimated cost of the projects and ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate cost to bring our product candidates to market are not available.

Product Areas

Complex Generics

Enoxaparin Sodium Injection-Generic Lovenox®

Enoxaparin Sodium Injection, our first product to receive marketing approval under an ANDA, is a generic version of Lovenox. Lovenox is a complex drug consisting of a mixture of polysaccharide chains and is a widely-prescribed low molecular weight heparin, or LMWH, used for the prevention and treatment of deep vein thrombosis, or DVT, and to support the treatment of acute coronary syndromes, or ACS. Lovenox is distributed worldwide by Sanofi-Aventis U.S. LLC, or Sanofi-Aventis, and is also known outside the United States as Clexane® and Klexane®. Under our 2003 Sandoz Collaboration, we work with Sandoz exclusively to develop, manufacture and commercialize Enoxaparin Sodium Injection in the United States. Sandoz is responsible for funding substantially all of the United States-related Enoxaparin Sodium Injection development, regulatory, legal and commercialization costs, other than legal expenses incurred by each party in connection with the patent suits filed against Teva Pharmaceutical Industries Ltd., or Teva, in December 2010 and Amphastar Pharmaceuticals, Inc., or Amphastar, Actavis, Inc., or Actavis, and International Medical Systems, Ltd. (a wholly owned subsidiary of Amphastar) in September 2011. In these cases, Momenta and Sandoz each bear their own legal expenses.

Sandoz submitted ANDAs in its name to the FDA for Enoxaparin Sodium Injection in syringe and vial forms, seeking approval to market Enoxaparin Sodium Injection in the United States. The ANDA for the syringe form of Enoxaparin Sodium Injection was approved in July 2010, making it the first ANDA for a generic Lovenox to be approved by FDA. The ANDA for the vial form of Enoxaparin Sodium Injection was approved in December 2011.

In September 2011, we and Sandoz sued Amphastar, Actavis and International Medical Systems, Ltd. in the United States District Court for the District of Massachusetts for infringement of two of our patents. Also in September 2011, we filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar, Actavis and International Medical Systems, Ltd. from selling their enoxaparin sodium product in the United States. In October 2011, the District Court granted our motion for a preliminary injunction and entered an order enjoining Amphastar, Actavis and International Medical Systems, Ltd. from advertising, offering for sale or selling their enoxaparin product in the United States until the conclusion of a trial on the merits and requiring us and Sandoz to post a security bond of $100 million in connection with the litigation. Amphastar, Actavis and International Medical Systems, Ltd. appealed the decision to the Court of Appeals for the Federal Circuit, or CAFC, and in January 2012, the CAFC stayed the preliminary injunction. Amphastar has filed motions to increase the amount of the security bond, which we and Sandoz have opposed. In August 2012, the CAFC issued a written opinion vacating the preliminary injunction and remanding the case to the District Court, holding that Amphastar's use of our patented method for processing Enoxaparin Sodium Injection was protected by the "safe harbor" from patent infringement under federal patent law, 35 U.S.C. Section 271(e)(1).

In January 2013, Amphastar and Actavis filed a motion for summary judgment in the District Court following the decision from the CAFC and in July 2013, the District Court granted the motion for summary judgment. We have filed a notice of appeal of that decision to the CAFC. In February 2014, Amphastar filed a motion to the CAFC for summary affirmance of the District Court ruling. We opposed this motion and the Court denied the motion in May 2014. The CAFC has set a briefing schedule for the parties. A hearing could be expected in late 2014 or early 2015, and a decision could be expected in the first half of 2015.

In December 2010, we sued Teva in the United States District Court for the District of Massachusetts for infringement of two of our patents related to Enoxaparin Sodium Injection. In January 2013, Teva filed a motion for summary judgment in the District Court following the decision from the CAFC in the aforementioned case and in July 2013, the District Court granted the motion for summary judgment. We have filed a notice of appeal of the decision to the CAFC, and in June 2014 filed our opening brief. We anticipate that this case will be heard in parallel with the suit against Amphastar and Actavis.


Table of Contents

M356-Generic Copaxone® (glatiramer acetate injection)

Our second complex generic product candidate, M356, is designed to be a generic version of Copaxone (glatiramer acetate injection), a complex drug consisting of a synthetic mixture of polypeptide chains. Copaxone is indicated for treatment of patients with relapsing-remitting multiple sclerosis, or RRMS, a chronic disease of the central nervous system characterized by inflammation and neurodegeneration. In North America, Copaxone is marketed by Teva Neuroscience, Inc., which is a subsidiary of Teva. Under the Second Sandoz Collaboration Agreement, we and Sandoz AG agreed to exclusively collaborate on the development and commercialization of M356, among other products. Given its structure as a complex mixture of polypeptide chains of various lengths and sequences, there are significant technical challenges involved in thoroughly characterizing Copaxone and in manufacturing an equivalent version. We believe our technology can be applied to characterize glatiramer acetate and to develop a generic product that has the same active ingredient as Copaxone. We are continuing to expand our portfolio of pending patent applications related to glatiramer acetate injection.

Under the Second Sandoz Collaboration Agreement, costs, including development costs and the costs of clinical studies, will be borne by the parties in varying proportions depending on the type of expense and the related product. For M356, we are generally responsible for all of the development costs in the United States. For M356 outside of the United States and for Enoxaparin Sodium Injection in the European Union, we share development costs in proportion to our profit sharing interest. All commercialization responsibilities will be borne by Sandoz AG worldwide as they are incurred for all products. Upon commercialization, we will earn a 50% contractual profit share on worldwide net sales of M356. Profits on net sales of M356 will be calculated by deducting from net sales the costs of goods sold and an allowance for selling, general and administrative costs, which is a contractual percentage of net sales. We are reimbursed at cost for any full-time equivalent employee expenses as well as any external costs incurred in the development of products to the extent development costs are born by Sandoz AG. Sandoz AG is responsible for funding all of the legal expenses incurred under the Second Sandoz Collaboration Agreement; however a portion of certain legal expenses, including any patent infringement damages, will be offset against the profit-sharing amounts in proportion to our profit sharing interest. The parties will share profits in varying proportions, depending on the product.

In December 2007, Sandoz submitted to the FDA an ANDA seeking approval to market our joint product M356 in the United States containing a Paragraph IV certification. This is a certification by the ANDA applicant that the patent relating to the drug product that is the subject of the ANDA is invalid, unenforceable or will not be infringed. In July 2008, the FDA notified Sandoz that it had accepted the ANDA for review as of December 27, 2007. The Sandoz . . .

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