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 Form 10-Q.
Statements contained or incorporated by reference in this Quarterly Report
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, clinical trial
results 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 Item 1A of Part II "Risk Factors." 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 specializing in the structural characterization,
process engineering and biologic systems analysis of complex molecules such as
polysaccharides, polypeptides, and biologics (including proteins and
antibodies). Our initial technology was built on the ability to characterize
complex polysaccharides. Over the last decade, we have expanded our expertise
into technologies that enable us to develop a diversified product portfolio of
complex generic, follow-on biologic (FOB), and novel drugs. Our business
strategy has been to develop both generic and novel drugs, and we are working
with collaborators to develop and commercialize our complex generics and
follow-on biologics. This strategy was validated by the marketing approval and
commercial launch of enoxaparin sodium injection, a generic version of Lovenox,
in July 2010. Since its launch through June 30, 2012, we have recorded
enoxaparin sodium injection product revenues totaling $398 million, driven
primarily by its initial status as a sole generic. We believe that our
scientific capabilities, engineering approaches, intellectual property and
regulatory strategies, and unique business model position us to develop and
commercialize competitively differentiated products in our target areas of
complex generics, follow-on biologics and novel drugs.
Our Programs
Our complex generic programs target marketed products that were originally
approved by the United States Food and Drug Administration, or FDA, as New Drug
Applications, or NDAs. Therefore, we were able to access the existing generic
regulatory pathway and submit Abbreviated New Drug Applications, or ANDAs, for
these products. Our first commercial product, enoxaparin sodium injection, which
we developed and commercialized in collaboration with Sandoz, an affiliate of
Novartis AG, received FDA marketing approval in July 2010 as a generic version
of Lovenox. Lovenox is a complex mixture of polysaccharide chains derived from
naturally sourced heparin which is used to prevent and treat deep vein
thrombosis, or DVT, and to support the treatment of acute coronary syndromes, or
ACS. The enoxaparin ANDA submitted by our collaborative partner Sandoz was the
first ANDA for a generic Lovenox to be approved by FDA, validating our novel
approaches to the structural characterization, process engineering and biologic
systems analysis of complex molecules such as Lovenox. From July 2010 through
early October 2011, the enoxaparin sodium injection marketed by Sandoz was the
sole generic version of Lovenox, and consequently, under the terms of our
collaborative agreement with Sandoz, we earned a substantial profit share on
Sandoz's net sales of enoxaparin. In developing our enoxaparin product, we filed
for patent protection for certain of our enoxaparin-related technology and we
have sought, and continue to seek, to enforce our issued patents.
Our second complex generic product candidate, M356, is designed to be a generic
version of Copaxone (glatiramer acetate injection), a drug that is indicated
for the reduction of the frequency of relapses in patients with
relapsing-remitting multiple sclerosis, or RRMS. Copaxone consists of a
synthetic mixture of polypeptide chains. With M356, we extended our core
polysaccharide characterization and process engineering capabilities to develop
capabilities for the structural characterization, process engineering and
biologic systems analysis of this complex polypeptide mixture. We are also
collaborating with Sandoz to develop and commercialize M356, and the Sandoz ANDA
for M356 is currently under FDA review. In our development of M356 we filed for
patent protection for certain of our M356-related technology, and if necessary,
we may seek to enforce issued patents relating to our M356 product.
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Our FOB program is targeted toward developing biosimilar versions of marketed
therapeutic proteins, with a goal of obtaining FDA designation as
interchangeable. 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 opens the market for biosimilar and interchangeable versions of
a broad array of biologic therapeutics, including antibodies, cytokines, fusion
proteins, hormones and blood factors. Forecasters predict a rapidly growing
multi-billion dollar global market for these products. Most of these biologic
therapeutics are complex mixtures, and for several years we have been investing
in novel approaches to the structural characterization, process engineering and
analysis of biologic systems. 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
development program. This approach puts a substantial emphasis on structural and
functional characterization data in evaluating biosimilar products for approval.
We believe the framework that the FDA has outlined in the draft guidance
documents aligns with our strategy for FOBs. Our goal is to engineer biologic
therapeutics that will show minimal to no structural or functional differences
from the reference brand product, thereby justifying a more selective and
targeted approach to nonclinical and/or human clinical testing to support
demonstration of biosimilarity and interchangeability.
Our novel therapeutics program leverages the capabilities and expertise built
during the development of our complex generics and FOB programs to address unmet
clinical needs. Our most advanced efforts have been in the area of
polysaccharide mixtures. M402, in clinical development as a potential
anti-cancer agent, is a novel heparan sulfate mimetic that binds to multiple
growth factors, adhesion molecules and chemokines to inhibit tumor angiogenesis,
progression, and metastasis. Our other polysaccharide-based drug candidate,
adomiparin, has been engineered to possess what we believe will be an improved
therapeutic profile compared to other currently marketed anticoagulants to
support the treatment of ACS. We will not move forward with further clinical
trials of adomiparin unless we have a collaborator for that program. In addition
to these two development candidates, we are also seeking to discover and develop
additional novel drugs. Our goal is to leverage the multi-targeting nature of
complex mixture molecules to develop novel therapeutics which could positively
modulate multiple pathways in a disease. We believe that our core technology
platform will enable us to map the critical nodes that regulate complex
diseases. We will then be able to define the optimal therapeutic intervention to
target the appropriate nodes. We have built significant capabilities in
biological characterization and engineering of proteins through our FOB platform
that allow us to create unique and novel formulations of protein and antibody
drug compositions for specific disease indications. To add to these
capabilities, in December 2011, we acquired selected assets of Virdante
Pharmaceuticals, Inc. relating to "sialic switch" technology. Sialic acid is a
type of sugar modification on selected proteins that is understood to regulate
anti-inflammatory and immunomodulatory functions of these proteins. These assets
add to our core ability to modify and engineer protein backbones to precisely
regulate biological networks and develop novel biologic product candidates.
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. Sandoz N.V. later
assigned its rights in the 2003 Sandoz Collaboration to Sandoz AG, an affiliate
of Novartis Pharma AG. We refer to Sandoz AG and Sandoz Inc. together as Sandoz.
In 2006 and 2007, we entered into a series of agreements, including a Stock
Purchase Agreement and an Investor Rights Agreement, each with Novartis Pharma
AG, and a collaboration and license agreement, 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 jointly develop, manufacture and
commercialize M356. 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.
Prior to the launch of enoxaparin sodium injection in 2010, the collaboration
revenues derived from our 2003 Sandoz Collaboration and 2006 Sandoz
Collaboration primarily consisted of amounts earned by us for reimbursement by
Sandoz of research and development services and development costs. 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 is one or more third-party competitors which is 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, which meant that Sandoz was obligated to pay us a
royalty on its net sales of enoxaparin sodium injection until the contractual
profits from those net sales in a product year (July 1-June 30) reached a
certain threshold. Upon the achievement of the contractual profit threshold in
December 2011, Sandoz was obligated to pay us a profit share for the remainder
of the product year. In January 2012, following the Court of Appeals for the
Federal Circuit granting a stay of the preliminary injunction previously issued
by the United States District Court, Watson Pharmaceuticals, Inc., or Watson,
and Amphastar launched their third-party competitor enoxaparin product.
Consequently, in each product year, for net sales of enoxaparin up to a
pre-defined sales
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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 in each of the next four years, but the amount of any future
payment due to the annual adjustment is not expected to be material. The second
annual adjustment of $3.9 million was recorded as a reduction in collaboration
product revenue in the three months ended June 30, 2012.
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 up to six FOBs. The Baxter Agreement became effective in
February 2012. Baxter is an established healthcare company with global product
development, manufacturing and commercial capabilities. To accelerate efforts in
the FOB space and address this growing global market, we expect to significantly
increase the headcount and related operating expenses dedicated to our FOB
program in 2012 and 2013. We expect that the increase in operating expenses will
be partially offset in future years by revenues from option fees and milestone
payments under the Baxter Agreement, subject to achievement of technical
criteria.
As of June 30, 2012, we had an accumulated deficit of $118.6 million. To date,
we have devoted substantially all of our capital resource expenditures to the
research and development of our product candidates. In the second half of 2010,
we began to derive revenue from our profit share on the commercial sale of
enoxaparin sodium injection. Due to the launch by Watson and Amphastar of an
enoxaparin sodium injection product in January 2012, our enoxaparin product
revenue has significantly decreased. Depending on the future outcome of
enoxaparin litigation, we may incur annual operating losses over the next
several years as we expand our drug commercialization, development and discovery
efforts. Additionally, we plan to continue to evaluate possible acquisitions or
licensing of rights to additional technologies, products or assets that fit
within our growth strategy. Accordingly, we will need to generate significant
revenue to return to profitability.
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. In the near term, our current and future revenues are
dependent upon the continued sale by Sandoz of enoxaparin sodium injection,
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 be dependent upon the successful pursuit of external
business development opportunities and clinical development, regulatory approval
and launch of new commercial products. 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,
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 Programs-Complex Generic and Follow-On Biologics
Enoxaparin sodium injection-Generic Lovenox
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
and 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 and Watson 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 and the ANDA for the vial form of enoxaparin
sodium injection was approved in December 2011.
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In December 2010, we sued Teva in the United States District Court for the
District of Massachusetts for infringement of two of our patents. The patents
claim methods of producing enoxaparin having specified quality attributes. A
trial date in the case is currently set for February 2013. We will continue to
prosecute this case and enforce our patents.
In September 2011, we and Sandoz sued Amphastar, Watson, and International
Medical Systems, Ltd. (a wholly owned subsidiary of Amphastar) 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, Watson and
International Medical Systems, Ltd. from selling their enoxaparin sodium product
in the United States. In October 2011, the court granted our motion for a
preliminary injunction and entered an order enjoining Amphastar, Watson and
International Medical Systems, Ltd. from advertising, offering for sale or
selling their enoxaparin sodium 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,
Watson and International Medical Systems, Ltd. appealed the decision to the
Court of Appeals for the Federal Circuit, or CAFC, and in January 2012, the
Court of Appeals stayed the preliminary injunction, pending a decision on
appeal. On August 3, 2012, the CAFC issued a written opinion vacating the
preliminary injunction and remanding the case to the District Court. We are
considering our alternatives with respect to future pursuit of the case,
including potentially filing a petition with the CAFC for rehearing en banc. In
June 2012, Amphastar filed a motion to increase the amount of the security bond,
which we and Sandoz have opposed. In addition, while the District Court issued a
ruling in June 2012 construing the meaning of the Company's patent claims
following a claim construction hearing in May 2012 and a trial date has been set
for January 2013, we anticipate that the trial date may be delayed following the
CAFC decision.
M356-Generic Copaxone (glatiramer acetate)
In North America, Copaxone is marketed by Teva Neuroscience, Inc., which is a
subsidiary of Teva. In Europe, Copaxone is marketed by Teva and
Sanofi-Aventis. Under the 2006 Sandoz Collaboration, we and Sandoz AG agreed to
exclusively collaborate on the development and commercialization of M356 and two
other follow-on products for sale in specified regions of the world.
Under the 2006 Sandoz Collaboration, 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 and costs will be borne by
Sandoz AG worldwide as they are incurred for all products. 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 2006 Collaboration; however a portion of certain
legal expenses will be offset against the profit-sharing amounts in proportion
to our profit sharing interest.
In December 2007, Sandoz submitted to the FDA an ANDA in its name seeking
approval to market 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 or
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. In addition,
the FDA's published database indicates that the first substantially complete
ANDA submitted for glatiramer acetate injection containing a Paragraph IV
certification was filed on December 27, 2007, making Sandoz's ANDA eligible for
the grant of a 180-day generic exclusivity period upon approval. Under
applicable laws, there are a number of ways an ANDA applicant may forfeit its
180-day exclusivity, including if the applicant fails to achieve at least
tentative approval within 30 months after the date on which the ANDA is filed.
Because tentative approval for the M356 ANDA was not received in the specified
30 months, the 180-day exclusivity period will be forfeited unless the exception
to the forfeiture rule applies. We will not know whether the exception applies
unless and until the FDA approves the ANDA. The review of Sandoz's ANDA is
ongoing. We and Sandoz are in regular communication with the FDA to address any
additional questions or requests that it may have as it continues the review of
Sandoz's application.
Subsequent to FDA's acceptance of the ANDA for review, in August 2008, Teva and
related entities and Yeda Research and Development Co., Ltd., filed suit against
us and Sandoz in the United States Federal District Court in the Southern
District of New York. The suit alleges infringement related to four of the seven
Orange Book patents listed for Copaxone. We and Sandoz asserted defenses of
non-infringement, invalidity and unenforceability and filed counterclaims for
declaratory judgments to have all seven of the Orange Book patents as well as
two additional patents in the same patent family adjudicated in the present
lawsuit. Another company, Mylan Inc., or Mylan, also has an ANDA for generic
Copaxone under FDA review. In October 2009, Teva sued Mylan for patent
infringement related to the Orange Book patents listed for Copaxone, and in
October 2010, the court consolidated the Mylan case with the case against us and
Sandoz. A trial on the issue of inequitable conduct occurred in July 2011 and
the trial on the remaining issues occurred in September 2011 in the consolidated
case. In June 2012, the Court issued its opinion and found all of the claims in
the patents to be valid, enforceable and infringed. In July 2012, the Court
issued a final order and permanent injunction prohibiting Sandoz and Mylan from
infringing all of the patents in the suit. The Orange Book patents and one
non-Orange book patent expire in May 2014 and one non-Orange Book patent expires
in September 2015. In addition, the permanent injunction further restricts the
FDA, pursuant to 35 U.S.C. section 271(e)(4)(A), from making the effective date
of any final approval of the Sandoz or Mylan ANDA prior to the expiration of the
Orange Book patents. In July 2012 we filed a notice of appeal of the decision to
the Court of Appeals for the Federal Circuit.
In December 2009, in a separate action in the same court, Teva sued Sandoz,
Novartis AG and us for patent infringement related to certain other non-Orange
Book patents after Teva's motion to add those patents to the ongoing
Paragraph IV litigation was denied. In January 2010, we and Sandoz filed a
motion to dismiss this second suit on several grounds, including the failure of
Teva to state an actionable legal claim and lack of subject matter jurisdiction.
The motion is pending. We intend to defend this suit.
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If the decision in the first suit is not reversed on appeal, or we are not
successful in the second suit, the final approval and launch of M356 could be
significantly delayed until expiration of the relevant patent rights which could
impair its ability to commercialize M356 and our business could be materially
harmed. Litigation involves many risks and uncertainties, and there is no
assurance that Novartis AG, Sandoz or we will prevail in either lawsuit.
Follow-On Biologics (FOBs)
We are also applying our technology platform to the development of biosimilar
versions of marketed therapeutic proteins, with a goal of obtaining FDA
designation as interchangeable. Therapeutic proteins represent a sizable segment
of the United States drug industry, with sales expected to be approximately
$60 billion in 2012. Given the inadequacies of standard technology, many of
these therapeutic proteins have not been thoroughly characterized. Most of these
products are complex glycoprotein mixtures, consisting of proteins that contain
branched sugars that vary from molecule to molecule. These sugars can impart
specific biological properties to the therapeutic protein and can often comprise
a significant portion of the mass of the molecule. In addition to the structural
characterization of several marketed therapeutic proteins, we are also advancing
our structure-process capabilities as we further define the relationship between
aspects of the manufacturing process and the structural composition of the final
protein product. We believe that our investment in our analytics and
characterization technology coupled with our investment in the science of better
understanding the relationship of the biologic manufacturing process to
structural composition provides us with the opportunity develop a competitive
advantage for our future FOB product candidates.
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 up to six FOB products. The Baxter Agreement became
effective in February 2012.
Most protein drugs have been approved by the FDA under the Biologics License
Application, or BLA, regulatory pathway. The BLA pathway was created to review
and approve applications for biologics that are typically produced from living
systems. Until 2010, there was no abbreviated regulatory pathway for the
approval of generic or biosimilar versions of BLA-approved products in the
United States; however, there have been guidelines for biosimilar products in
the European Union for several years.
In March 2010, with the enactment of the Biologics Price Competition and
Innovation Act of 2009, or BPCI, an abbreviated pathway for the approval of FOBs
was created. The new abbreviated regulatory pathway establishes legal authority
for the FDA to review and approve biosimilar biologics, including the possible
designation of a biosimilar as "interchangeable," based on its similarity to an
existing brand product.
Under the BPCI, an application for a biosimilar product cannot be approved by
the FDA until 12 years after the original brand product was approved under a
BLA. There are many biologics at this time for which this 12-year period has
expired or is nearing expiration. We believe that scientific progress in the
analysis and characterization of complex mixture drugs is likely to play a
significant role in FDA's approval of biosimilar (including interchangeable)
biologics in the years to come.
In December 2011, the FDA released its proposed biosimilar user fee program
which includes a fee-based meeting process for consultation between applicants
and the division of FDA responsible for reviewing biosimilar and interchangeable
biologics applications under the new approval pathway. It contemplates
well-defined meetings where the applicant can propose and submit analytic,
physicochemical and biologic characterization data along with a proposed
development plan. The proposed development plan may have a reduced scope of
clinical development based on the nature and extent of the characterization
data. There are defined time periods for meetings and written advice. In
February 2012, the FDA published draft guidance documents for the development
and registration of biosimilars and interchangeable biologics. The draft
guidance documents indicate that the FDA will consider the totality of the
evidence developed by an applicant in determining the nature and extent of the
nonclinical and clinical requirements for a biosimilar or interchangeable
biologic product.
The new law is complex and is only beginning to be interpreted and implemented
by the FDA. As a result, its ultimate impact, implementation and meaning will be
subject to uncertainty for years to come.
Product Candidates-Novel Drugs
M402
M402 is a novel heparan sulfate mimetic that binds to multiple growth factors,
adhesion molecules, and chemokines to inhibit tumor angiogenesis, progression,
and metastasis. The use of heparins to treat venous thrombosis in cancer
patients has generated numerous reports of antitumor activity; however, the dose
of these products has been limited by their anticoagulant activity. M402, which
is derived from unfractionated heparin, has been engineered to have
significantly reduced anticoagulant activity while preserving the relevant
antitumor properties of heparin.
Researchers have conducted a series of preclinical experiments using different
pancreatic cancer models to test the hypothesis that M402 can modulate tumor
progression and metastasis and enhance the efficacy of gemcitabine, a first-line
standard of care chemotherapy treatment for pancreatic cancer. The preclinical
results showed that M402 in combination with gemcitabine prolonged survival and
substantially lowered the incidence of metastasis. M402 has the potential to
complement conventional chemotherapy. Additionally, as M402 binds to multiple
heparin binding factors involved in tumor growth and metastasis, it can play a
role in a broad range of cancers.
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In April 2012, we initiated a Phase 1/2 proof-of-concept clinical study in
patients with advanced metastatic pancreatic cancer. The Phase 1/2 trial
consists of two parts and will evaluate the safety, efficacy, pharmacokinetics
and pharmacodynamics of M402 in combination with gemcitabine. Part A of the
study is an open-label, multiple ascending dose. Data from Part A are expected
in the first half of 2013. Pending successful completion of this phase, we
expect to initiate Part B of the trial, which will be a randomized, controlled
study investigating the safety and antitumor activity of M402 administered in
combination with gemcitabine compared with gemcitabine alone.
Adomiparin
Our other novel drug candidate, adomiparin, has been engineered to possess what
we believe will be an improved therapeutic profile compared with other currently
marketed anticoagulants to support the treatment of ACS. We will not move
forward with further clinical trials of adomiparin unless we have a collaborator
for the program.
Discovery Program
We believe our core analytical tools enable new insights into exploring the
biology of many diseases, which will lead to an enhanced understanding of the
relative role of different biological targets and related cell-to-cell signaling
pathways. Many complex diseases are a result of multiple biological activities.
Our goal is to leverage the multi-targeting nature of complex mixture molecules
to develop novel therapeutics which could positively modulate multiple pathways
in a disease. We believe that our core technology platform will enable us to map
the critical nodes that regulate complex diseases and then use the appropriate
collection of "drugs"-whether polysaccharides, proteins, peptides or monoclonal
antibodies-to target the appropriate nodes simultaneously. This unique approach,
while early, opens up the range of diseases that can be targeted.
General and Administrative
General and administrative expenses consist primarily of salaries and other
related costs for personnel in executive, finance, legal, accounting, investor
relations, information technology, business development and human resource
functions. Other costs include facility and insurance costs not otherwise
included in research and development expenses and professional fees for legal
and accounting services and other general expenses.
Results of Operations
Three Months Ended June 30, 2012 and 2011
Collaboration Revenue
Collaboration revenue includes product revenue and research and development
revenue earned under our collaborative arrangements. Product revenue consists of
profit share/royalties earned from Sandoz on sales of enoxaparin sodium
injection following its commercial launch in July 2010. For the three months
ended June 30, 2011, we earned a profit share of $83.8 million on Sandoz's
reported net sales of enoxaparin of $284.1 million. For the three months ended
June 30, 2012, we earned a royalty of $19.4 million on Sandoz's reported net
sales of enoxaparin of $156.0 million. The decrease in product revenue of $64.4
million, or 77%, from the 2011 period to the 2012 period is primarily due to a
change in the contractual basis of our earned product revenues from profit share
to royalty-based following the launch of an authorized generic in October 2011
and the January 2012 launch of a third-party competitor's generic Lovenox.
Sandoz's reported net sales of enoxaparin decreased by 45% from the 2011 period
to the 2012 period as increased competition led to decreases in unit sales and
pricing. In the three months ended June 30, 2012 and 2011, we recorded a
reduction in product revenue of $3.9 million and $3.7 million, respectively, for
an annual adjustment to our contractual share of certain development and legal
expenses. In addition, in the three months ended June 30, 2012, we recorded $2.3
million of product revenue related to the three month period ended March 31,
2012 that had not previously been reported to us by Sandoz.
Research and development revenue for the periods shown consists of amounts
earned by us under the 2003 Sandoz Collaboration for reimbursement of research
and development services and reimbursement of development costs, amounts earned
by us under the 2006 Sandoz Collaboration for amortization of the equity premium
and reimbursement of research and development services and reimbursement of
development costs, and revenue earned by us under the Baxter Agreement for
amortization of an upfront payment. The decrease in research and development
revenue of $1.1 million, or 31%, from the 2011 period to the 2012 period is
primarily due to a decrease in reimbursable manufacturing expenses associated
with our M356 program offset by amortization of the upfront payment from Baxter
and M356 shared development costs.
We expect research and development revenue earned by us under the 2003 and 2006
Sandoz Collaborations will be between $1.0 million and $2.0 million per quarter
and amortization of the equity premium will be approximately $0.4 million per
quarter for the second half of 2012. We will continue to amortize the $33.0
million upfront payment from Baxter over the development period of up to six
FOBs with quarterly amortization totaling approximately $0.8 million for the
remainder of 2012.
There are a number of factors that make it difficult for us to predict the
magnitude of future enoxaparin sodium injection product revenue, including the
impact of generic competition on the Sandoz market share; the pricing of
products that compete with enoxaparin sodium injection
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and other actions taken by our competitors; the inventory levels of enoxaparin
sodium injection maintained by wholesalers, distributors and other customers;
the frequency of re-orders by existing customers; and the change in estimates
for product reserves. Accordingly, our enoxaparin sodium injection product
revenue in previous quarters will not be indicative of future enoxaparin sodium
injection product revenue. The change in Sandoz contractual payment obligations,
along with additional generic competition, has caused and will continue to cause
our revenue from enoxaparin sodium injection to be significantly reduced
compared to 2011.
Research and Development Expense
Research and development expense for the three months ended June 30, 2012 was
$20.0 million, compared with $14.2 million for the three months ended June 30,
2011. The increase of $5.8 million, or 41%, from the 2011 period to the 2012
period resulted from increases of: $1.6 million in personnel and related costs
associated with our headcount growth to support our programs; $1.1 million in
facility-related expenses, principally due to increased rent and operating costs
for our headquarters and the commencement in the first quarter of 2012 of a
short-term sublease for expansion space; $1.0 million in depreciation and
amortization expense primarily due to the amortization of a 2011 milestone
payment in connection with a 2007 asset purchase and increased capital
expenditures to support our programs; $0.7 million in laboratory expenses in
support of our programs; $0.7 million in clinical trial costs for our M402 Phase
1/2 proof-of-concept clinical study; $0.6 million in consulting fees and
third-party research costs related to our FOB and novel drug programs; and $0.1
million in amortization of performance-based restricted stock grants. We expect
future research and development expenses to increase in support of our
development efforts for our product candidates.
The following table summarizes the primary components of our research and
development expenditures for our principal commercial and development programs
for the three months ended June 30, 2012 and 2011 and the total external costs
(including amortization) incurred by us for each of our major commercial and
development projects (amounts in thousands). Certain prior period amounts have
been reclassified to conform to the current period presentation. The table
excludes costs incurred by our collaborative partner on such major commercial
and development projects. We do not maintain or evaluate, and therefore do not
allocate, internal research and development costs on a project-by-project basis.
Consequently, we do not analyze internal research and development costs by
project in managing our research and development activities.
Research and Development Expense
Three Months Three Months
Ended
Ended Project Inception to
Commercial and Development Programs (Status) June 30, 2012 June 30, 2011 June 30, 2012
Enoxaparin sodium injection (ANDA approved
July 2010) $ 312 $ 280 $ 50,740
M356 (ANDA Filed) 768 1,861 43,057
Adomiparin (Phase 2a) 27 47 35,863
M402 (Phase 1/2) 1,392 644 11,336
FOBs (Development) 1,851 139 6,450
Discovery programs 299 437
Research and development internal costs 15,362
10,760
Total research and development expense $ 20,011 $ 14,168
Enoxaparin sodium injection external expenditures remained consistent from the
2011 period to the 2012 period due to commercial activity being contracted
directly with Sandoz. The decrease of $1.1 million in M356 external expenditures
from the 2011 period to the 2012 period was primarily due to the timing of
process development activities, manufacturing and third-party research costs.
Adomiparin external expenditures remained insignificant from the 2011 period to
the 2012 period reflecting our decision to not move forward with further
clinical trials unless we have a collaborative partner for this program. The
increase of $0.7 million in M402 external expenditures from the 2011 period to
the 2012 period was principally due to costs incurred in connection with the
initiation of a Phase 1/2 proof-of-concept clinical study. The increase of $1.7
million in FOB external expenditures from the 2011 period to the 2012 period was
due to the timing of process development and third-party research costs to fund
the build-out of our biologics infrastructure to support our Baxter Agreement.
Discovery program external expenditures decreased by $0.1 million from the 2011
period to the 2012 period due to the timing of our research collaborations
associated with these programs.
Research and development internal costs consist of compensation and other
expense for research and development personnel, supplies and materials, facility
costs and depreciation. The increase of $4.6 million from the 2011 period to the
2012 period was due to additional research and development headcount and related
costs in support of our development programs.
The lengthy process of securing FDA approval for new drugs requires the
expenditure of substantial resources. Any failure by us to obtain, or any delay
in obtaining, regulatory approvals would materially adversely affect our product
development efforts and our business overall. Accordingly, we cannot currently
estimate with any degree of certainty the amount of time or money that we will
be required to expend in the future on our product candidates prior to their
regulatory approval, if such approval is ever granted. As a result of these
uncertainties surrounding the timing and outcome of any approvals, we are
currently unable to estimate when, if ever, our product candidates will generate
revenues and cash flows.
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General and Administrative
General and administrative expense for the three months ended June 30, 2012 was
$12.4 million, compared to $9.2 million for the three months ended June 30,
2011. General and administrative expense increased by $3.2 million, or 35%, from
the 2011 period to the 2012 period due to increases of: $2.9 million in
professional fees principally due to increased legal fees relating to enoxaparin
litigation; $1.1 million in personnel and related costs associated with our
headcount growth; $0.3 million in share-based compensation expense due primarily
to increased headcount; and $0.3 million in facility-related expenses
principally due to increased rent and operating costs for our headquarters and
the commencement in the first quarter of 2012 of a short-term sublease for
expansion space. These increases were offset by a decrease of $1.4 million in
royalty and license fees payable primarily to Massachusetts Institute of
Technology due to a change in the basis of our earned enoxaparin sodium
injection product revenues from profit share to royalty-based.
We expect our general and administrative expenses, including internal and
external legal and business development costs that support our various product
development efforts, to vary from period to period in relation to our commercial
and development activities.
Interest Income and Expense
Interest income was $0.3 million and $0.2 million for the three months ended
June 30, 2012 and 2011, respectively. The increase of $0.1 million from the 2011
period to the 2012 period was primarily due to higher average investment
balances.
Interest expense was zero and $34,000 for the three months ended June 30, 2012
and 2011, respectively, because we repaid all borrowings on our equipment line
of credit during 2011.
Six Months Ended June 30, 2012 and 2011
Collaboration Revenue
For the six months ended June 30, 2011, we earned a profit share of $159.6
million on Sandoz's reported net sales of enoxaparin of $531.0 million. For the
six months ended June 30, 2012, we earned $41.4 million in part on a profit
share and in part on a royalty of Sandoz's reported net sales of enoxaparin of
$332.0 million. The decrease in revenue of $118.2 million, or 74%, from the 2011
period to the 2012 period is primarily due to a change in the basis of our
earned product revenues from profit share to royalty-based following the launch
of an authorized generic in October 2011 and the launch of a third-party
competitor enoxaparin in January 2012. Sandoz's reported net sales of enoxaparin
decreased by 37% as increased competition led to decreases in unit sales and
pricing. In the six months ended June 30, 2012 and 2011, we recorded a reduction
in product revenue of $3.9 million and $3.7 million, respectively, for an annual
adjustment to our contractual share of certain development and legal expenses.
In addition, in the three months ended June 30, 2012, we recorded $2.3 million
of product revenue related to the three month period ended March 31, 2012 that
had not previously been reported to us by Sandoz.
Research and development revenue for the periods shown consists of amounts
earned by us under the 2003 Sandoz Collaboration for reimbursement of research
and development services and reimbursement of development costs, amounts earned
by us under the 2006 Sandoz Collaboration for amortization of the equity premium
and reimbursement of research and development services and reimbursement of
development costs, and revenue earned by us under the Baxter Agreement for
amortization of an upfront payment. The decrease in research and development
revenue of $1.4 million, or 22%, from the 2011 period to the 2012 period is
primarily due to a decrease in reimbursable manufacturing expenses associated
with our M356 program offset by amortization of the upfront payment from Baxter
and M356 shared development costs.
Research and Development Expense
Research and development expense for the six months ended June 30, 2012 was
$38.6 million, compared with $27.1 million for the six months ended June 30,
2011. The increase of $11.5 million, or 42%, from the 2011 period to the 2012
period resulted from increases of: $2.8 million in facility-related expenses,
principally due to increased rent and operating costs for our headquarters and
the commencement in the first quarter of 2012 of a short-term sublease for
expansion space; $2.8 million in personnel and related costs associated with our
headcount growth to support our programs; $1.8 million in laboratory expenses in
support of our programs; $1.6 million in depreciation and amortization expense
primarily due to the amortization of a 2011 milestone payment in connection with
a 2007 asset purchase and increased capital expenditures to support our
programs; $1.0 million in clinical trial expenses associated with our M402 Phase
1/2 clinical study; $0.9 million in consulting fees and third-party research
costs related to our FOB and novel drug programs; and $0.6 million in
amortization of performance-based restricted stock grants. We expect future
research and development expenses to increase in support of our product
candidates.
The following table summarizes the primary components of our research and
development expenditures for our principal commercial and development programs
for the six months ended June 30, 2012 and 2011 and the total external costs
(including amortization) incurred by us for each of our major commercial and
development projects (amounts in thousands). Certain prior period amounts have
been reclassified to conform to the current period presentation. The table
excludes costs incurred by our collaborative partner on such major commercial
and development projects. We do not maintain or evaluate, and therefore do not
allocate, internal research and development costs on a
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project-by-project basis. Consequently, we do not analyze internal research and
development costs by project in managing our research and development
activities.
Research and Development Expense
Six Months Six Months
Ended
Ended Project Inception to
Commercial and Development Programs (Status) June 30, 2012 June 30, 2011 June 30, 2012
Enoxaparin sodium injection (ANDA approved
July 2010) $ 780 $ 997 $ 50,740
M356 (ANDA Filed) 2,375 3,048 43,057
Adomiparin (Phase 2a) 38 85 35,863
M402 (Phase 1/2) 1,985 1,252 11,336
FOBs (Development) 2,452 374 6,450
Discovery programs 555 726
Research and development internal costs 30,387
20,629
Total research and development expense $ 38,572 $ 27,111
The decrease of $0.2 million in external expenditures for enoxaparin sodium
injection from the 2011 period to the 2012 period was primarily due to a shift
to commercial activity being contracted directly with Sandoz. The decrease of
$0.7 million in M356 external expenditures from the 2011 period to the 2012
period was primarily due to timing of process development activities,
manufacturing and third-party research costs. Adomiparin external expenditures
remained insignificant from the 2011 period to the 2012 period reflecting our
decision to not move forward with further clinical trials unless we have a
collaborative partner for this program. The increase of $0.7 million in M402
external expenditures from the 2011 period to the 2012 period was principally
due to costs incurred in connection with the initiation of a Phase 1/2
proof-of-concept clinical study. The increase of $2.1 million in FOB external
expenditures from the 2011 period to the 2012 period was due to the timing of
process development and third-party research costs to fund the build-out of our
biologics infrastructure to support our Baxter Agreement. Discovery program
external expenditures decreased by $0.2 million from the 2011 period to the 2012
period due to the timing of our research collaborations associated with these
programs.
Research and development internal costs consist of compensation and other
expense for research and development personnel, supplies and materials, facility
costs and depreciation. The increase of $9.8 million from the 2011 period to the
2012 period was due to additional research and development headcount and related
costs in support of our development programs.
General and Administrative
General and administrative expense for the six months ended June 30, 2012 was
$23.3 million, compared to $17.5 million for the six months ended June 30, 2011.
General and administrative expense increased by $5.8 million, or 33%, from the
2011 period to the 2012 period due to increases of: $4.5 million in professional
fees principally due to increased legal fees relating to enoxaparin litigation;
$1.5 million in personnel and related costs associated with our headcount
growth; $1.2 million in share-based compensation expense principally associated
with increased headcount and the amortization of performance-based restricted
stock; and $0.7 million in facility-related expenses principally due to
increased rent and operating costs for our headquarters and the commencement in
the first quarter of 2012 of a short-term sublease for expansion space. These
increases were offset by a decrease of $2.2 million in royalty and license fees
payable primarily to Massachusetts Institute of Technology due to a change in
the basis of our earned enoxaparin sodium injection product revenues from profit
share to royalty-based.
Interest Income and Expense
Interest income was $0.6 million and $0.3 million for the six months ended
June 30, 2012 and 2011, respectively. The increase of $0.3 million from the 2011
period to the 2012 period was primarily due to higher average investment
balances.
Interest expense was zero and $0.1 million for the six months ended June 30,
2012 and 2011, respectively, because we repaid all borrowings on our equipment
line of credit during 2011.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the sale of
equity securities, payments from our 2003 Sandoz Collaboration and 2006 Sandoz
Collaboration, including profit share/royalty payments related to sales of
enoxaparin sodium injection, and borrowings from our lines of credit and capital
lease obligations. Since our inception, we have received $405.9 million through
private and public issuance of equity securities, including the issuance of
shares to Novartis Pharma AG in connection with our 2006 Sandoz Collaboration.
As of June 30, 2012, we have received a cumulative total of $525.8 million from
our 2003 Sandoz Collaboration and 2006 Sandoz Collaboration, a
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$33.0 million upfront payment under the Baxter Agreement, $4.0 million from debt
financing, $9.2 million from capital lease obligations and $3.2 million from our
landlord for leasehold improvements related to our corporate facility and
additional funds from interest income. The January 2012 launch of a third-party
competitor's enoxaparin sodium injection triggered a change in the basis of our
product revenue from profit share to a royalty based on net sales of enoxaparin
sodium injection. This competition and the resulting contractual change has had
and will have a negative impact on our near term cash generation trend. Our
return to profitability, if at all, will most likely come from the
commercialization of our generic Copaxone product, which is subject to FDA
approval and litigation that could delay FDA approval. We expect to finance our
current and planned operating requirements principally through our current cash,
cash equivalents and marketable securities. We believe that these funds will be
sufficient to meet our operating requirements through at least 2014. However,
our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary materially. We may, from
time to time, seek additional funding through a combination of new collaborative
agreements, strategic alliances and additional equity and debt financings or
from other sources.
At June 30, 2012, we had $372.3 million in cash, cash equivalents and marketable
securities and $19.4 million in accounts receivable. In addition, we also held
approximately $20.0 million in restricted cash, of which $17.5 million serves as
collateral for a security bond posted in the litigation against Watson,
Amphastar and International Medical Systems, Ltd.. Our funds at June 30, 2012
were primarily invested in senior debt of government-sponsored enterprises,
commercial paper, corporate debt securities and United States money market
funds, directly or through managed funds, with remaining maturities of 24 months
or less. Our cash is deposited in and invested through highly rated financial
institutions in North America. The composition and mix of cash, cash equivalents
and marketable securities may change frequently as a result of our evaluation of
conditions in the financial markets, the maturity of specific investments, and
our near term liquidity needs. We do not believe that our cash equivalents and
marketable securities were subject to significant risk at June 30, 2012.
During the six months ended June 30, 2012 and 2011, our operating activities
provided cash of $35.3 million and $96.2 million, respectively. The cash
provided by operating activities generally approximates our net (loss) income
adjusted for non-cash items and changes in operating assets and liabilities.
For the six months ended June 30, 2012, our net loss adjusted for non-cash items
was $3.9 million. For the six months ended June 30, 2012, non-cash items include
share-based compensation of $6.7 million, depreciation and amortization of our
property, equipment and intangible assets of $3.4 million and amortization of
purchased premiums on our marketable securities of $1.2 million. In addition,
the net change in our operating assets and liabilities provided cash of
$39.1 million and resulted from: a decrease in accounts receivable of $8.8
million, due to a decrease in product revenues from the net sales of enoxaparin
by Sandoz, due primarily to lower pricing, and by a contractual change in the
basis of calculating our enoxaparin product revenue, both related to the launch
of a competitor's generic Lovenox in January 2012; a decrease in unbilled
revenue of $1.7 million, resulting from lower first-quarter reimbursable
manufacturing activities for our M356 program including amounts due Sandoz for
shared development costs; an increase in prepaid expenses and other current
assets of $0.3 million, primarily due to advance payments made for renewals of
vendor maintenance agreements and advance payments to clinical research
organizations for our M402 Phase 1/2 proof-of-concept clinical study; an
increase in restricted cash of $2.5 million due to the designation of this cash
as collateral for a letter of credit related to the lease of office and
laboratory space at its headquarters located at 675 West Kendall Street; a
decrease in accounts payable of $0.9 million, primarily due to the timing of
payments to vendors for M356 manufacturing activities; an increase in accrued
expenses of $1.6 million resulting from the timing of enoxaparin litigation
expenses and process development activities for our FOB programs; and an
increase in deferred revenue of $30.5 million, primarily due to the $33.0
million upfront payment under the Baxter Agreement.
For the six months ended June 30, 2011, our net income adjusted for non-cash
items was $129.2 million. For the six months ended June 30, 2011, non-cash items
include share-based compensation of $4.9 million, depreciation and amortization
of our property, equipment and intangible assets of $2.3 million and
amortization of purchased premiums on our marketable securities of $0.7 million.
In addition, the net change in our operating assets and liabilities used cash of
$33.0 million and resulted from: an increase in accounts receivable of $30.3
million, due to an increase in our quarterly profit-share for sales of
enoxaparin sodium injection; a decrease in unbilled revenue of $2.5 million,
resulting from decreased reimbursable manufacturin
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