Momenta Pharmaceuticals' Management Presents at Lazard Capital Markets 9th Annual Healthcare Conference (Transcript)

Momenta Pharmaceuticals Inc. (NASDAQ:MNTA)

Lazard Capital Markets 9th Annual Healthcare Conference Call

November 14, 2012 2:30 pm ET

Executives

Richard Shea –Senior Vice President and Chief Financial Officer

Analysts

James Cole – Lazard Capital Markets

James Cole

Good afternoon. I am James Cole with the Biotech team here at Lazard. Up next we have Momenta Pharmaceuticals who is a leader in the analysis characterization and design of complex pharmaceutical products. We are fortunate today to have Rich Shea, CFO and Senior VP of Momenta with us here today to provide an overview of the company. With that, I’ll turn the floor over to Rick.

Richard Shea

Thank you very much. Before I commence my presentation, I’d like to draw your attention to our Safe Harbor statement and the risk factors included in our SEC filings. Momenta Pharmaceuticals was founded on the principles of applying sophisticated analytical capabilities to understanding the physiochemical structure of complex mixture products.

And early in the history of the company we decided as a business model to initially apply that technology to developing generic versions of complex mixture products like Lovenox, like Copaxone and since that time, we moved towards biologics working with Janet Woodcock in the biosimilar field, but it always has been the long term vision of the company to also apply these capabilities to discovering and developing novel therapeutics.

So we have a pipeline that includes complex mixture drugs, generic versions of Lovenox and Copaxone. We are working on six biosimilar products in a collaboration with Baxter and we have two novel drug programs, M402 a novel oncology agent and we are working on a sialylated IVIG program.

So just to quickly cover our Q3 highlights, we have a market edge generic Lovenox and this Enoxaparin sodium product. We tried to implement an IP strategy whereby we could develop IP around our manufacturing methods with respect to these complex generics.

So, the sub-position of the company with respect to complex generics was one that we could use the analytics to develop and exact copy of the branded product and get that product approved with our clinical studies. The second proposition was that we could get approved before anybody else that essentially set the standard for what would constitute approvability for these types of products.

The third proposition was that we could protect the methods that we used to develop and manufacture these products with IP and enforce that IP. So, in the case of enforcing the IP around Enoxaparin, we sued competitors Amphastar, Watson as well as Teva and obtained an injunction that kept Amphastar and Watson after market for several months. When that temporary injunction was appealed by Amphastar and Watson, the injunction was lifted by the Appeals Court, it was lifted by the Appeals Court on the basis that these patents were not enforceable because they sell under the Hatch-Waxman Safe Harbor provision.

Now we strongly disagreed with this opinion and in fact in another case Classen versus Biogen, the appeals court found the exact opposite to be there ruling that in fact Hatch-Waxman doesn’t cover a commercial product. So this is something that it has to be worked out at the Appeals Court level.

And so we’ve filed for what’s called an unbank hearing which is a hearing of all of the nine Appeals Court judges. And we filed that in September, we believe that over the next several weeks or next couple of months, we will hear whether the Appeals Court is going to take that on as an hearing and we expect that sometime mid-year they will have the hearing and we’ll hear the results of that hearing shortly thereafter. So sometime in 2013, this would resolve itself and the importance of this is two-fold.

One is, if we can enforce these patents, we can go back and reinforce that these patents are valid and enforceable. We can potentially collect damages against Amphastar and Watson for their entry into the market. But equally importantly, we can illustrate the concept that this type of approach could also hold true for our other products in development like Copaxone, like biosimilar, we are actively accumulating IP relating to manufacturing methods for Copaxone and for biosimilar. So, this is something that’s important strategy for us. So this will be an important area for investors who watch during the year if this breaks in our favor, I think it will be very important for the company.

Follow-on biologics program, just briefly we have three products in development and we are working to get the lead product targeted towards an IND filing in 2014. On the novel drug program M402, we are enrolling patients in a Phase 1 dose escalation trial and we hope to complete that trial in 2013, move into the second phase of that Phase 1/2 study.

And with respect to some Sialylation technology, we are applying to IVIG. We did announced this quarter that we had successfully replicated the academic work that proves the concept that Sialylation of IVIG does in fact increase the potency, increases the immune response of that drug and so that’s an important proof-of-concept, In that program we are moving forward on that, I’ll talk a little bit more about it.

So, Q3 was not a good quarter for Enoxaparin sales. So Enoxaparin sales by Sandoz our partner where $176 million in the first quarter, $156 million in the second quarter, dropped to $34 million in the third quarter and part of that was, that there was intense pricing pressure from our competitors in the third quarter caused Sandoz to have to react with lower prices, that lower prices ripples through stock that’s at distributed and wholesalers and so you kind of get a double hit during the quarter.

So we are expecting that Q4 sales will bounce back up to more of a run rate level, but at the newer price points. So sales are not going to get anywhere close to where they were in the second quarter, but we think that they will be reasonably above the third quarter levels as we go into the fourth quarter and again, we are in a royalty situation here, where we are earning a 10% to 12% royalty.

I spoke about the litigation update. So, again, very important to see how this develops hearing on the patent litigation there. With respect to generic Copaxone, we are also involved in litigation against the Copaxone patents. There were nine patents protecting Copaxone, eight of them expire in June 2014, one goes to September 2015. This summer, we did have a District Court case go against us. It supported the validity and enforceability of those patents. We disagreed with that ruling. We are appealing. We think that there are many grounds for appeal of these patents.

Frankly we think that – the District Court judge got it wrong and we hope that the Appeals Court judges will recognize that. But again, this would be patent litigation that would allow us to potentially launch earlier than September 2015 or June 2014 if we get approved. So, what’s going on with the FDA, we filed an ANDA for this product in December of 2007. So, we are coming up on a five year review process with the FDA.

During the early years I would say of this ANDA being on file, there wasn’t a lot going on at the FDA. I don’t know whether they had an eye on what was going on in the courts or whether the Office of Generic Drugs just have the significant backlog, but now that review is in full swing and we have said this for a while now for the past year-and-a-half or so. And we’ve said consistently that our dialogue with the FDA is very constructive.

We are encouraged by that. We continue to believe that this ANDA will be approved without doing clinical studies to safety and efficacy. We believe that this ANDA demonstrates sameness of our products to the Copaxone product. So, we continue to push forward on this front and certainly pushing very strongly to get a tentative approval until the court situation would clear itself.

So this product has also partnered with Sandoz division of Novartis and upon commercialization we’ll get a 50:50 profit split on this product. So on follow-on biologics, we signed a significant collaboration with Baxter and the basis of that was our approach to biosimilar field and we are basically taking the same experience that we had with Enoxaparin and with Copaxone and we are applying that to biologics.

So the idea is to do a significant lead work in physiochemical characterization as well as bio-characterization in order to fully and thoroughly characterize the branded product at a much higher degree of resolution than we believe is being done by our competitors and then, to engineer a product that is equivalent or is close to equivalent as we can make a product like this.

And of course for years and years, the biologics manufacturers have been saying it’s impossible to make an equivalent biologic, you can’t do it. Every cell line is different; the process parameters are too varied. We do think so, we think that it’s extremely challenging. It’s extremely difficult. It’s a very high technical challenge, but we don’t believe in impossible and Momenta and that’s what our approach is in follow-on biologics.

So obviously this is a big market and we think we can be competitive and we are going to be competitive by being different and how we are being different is that we put significantly more resources upfront in as I said physiochemical characterization of the branded product when comparing our product. But we are also doing a lot of bio-characterization. We are going to do more work pre-IND. So it’s going to take us longer, it’s going to cost us more to get to an IND. But, that’s going to pay-off two-fold.

The first area that will pay-off is that we believe that more front-end work will give us a possibility of a significantly smaller clinical program required by the FDA. And the FDA’s own commentary on this supports this. They basically say that there is a direct relationship between the amount of characterization that’s done.

The degree to which product is equivalent to the brand and they talk about the clinical work as being work that you do to address what they call residual differences, the differences and structural characterization. If we can minimize or eliminate those differences, we believe that will have a direct impact on reducing the clinical work and in the Baxter collaboration, we get a share in the cost savings of having to reduce the clinical program from a full Phase 1, 2, 3 type of a clinical program.

So in addition, then once the product is approved, we believe that our products will have a much higher chance of being designated that’s interchangeable, because we think the real advantage in this market is to turn it into essentially a generic market just like the NDA, ANDA market of AB rated or that’s something equivalent when AB rated interchangeable. And that’s what we are going for and again, the way that we are going to do that is by a greater degree of analytics, bio-characterization, the work that we do before the IND. We are not going to try to get that by doing more clinical work, if anything we are going to be trying to do less clinical work. The way the Baxter collaboration works is that we paid for these products’ development up through IND. So we bear that risk, but we get milestones, technical and regulatory milestones from Baxter that ill offset those development costs. Beginning at IND forward Baxter pays the cost of the development. So it’s in their interest to have us minimize that clinical program and as I said, we share in those cost savings. Baxter will be commercializing the products for us.

So as I said, the FDA, I mean everything that’s coming out of the FDA, whether it’s Janet Woodcock other folks within the biologics efforts. Everything they say indicates that there is going to be a relationship between understanding the product, characterizing the product, comparing your product to the branded product within the past quarter or so, we’ve had a couple of Rituxan programs pooled.

Now we don’t know exactly why they are pooled but somehow those programs are getting some indication that these weren’t the right program. We don’t know whether it’s the complexity of the product, whether they were showing characterization differences, whether they were seeing signals in the clinical trials, but again this is very challenging stuff. And so it’s not trivial.

I think most people feel that the process to-date has gone slower than what people might have expected having worked with the FDA on generic Lovenox and now having worked with them on generic Copaxone just doesn’t surprise us. FDA is being very cautious, very careful; safety is going to be important. But we believe that we are in the sweet spot as far as what the FDA is looking for in this program. So on the novel drug area; we have two programs, M402, a novel oncology candidate. It’s a heparin-based product and we are testing it in pancreatic cancer in combination with Gemcitabine.

On the biobetter front, we in-licensed some technology which is sialylated IVIG program. And as I said, we did announce this quarter that we have replicated the academic work supporting the proof-of-concept to this program.

So little bit more on the M402 study. It’s a dose escalation phase. So we enrolled cohorts once we successfully enrolled a cohort, we run it out for months if everything is fine and we increase the dose to the next cohorts. We are in that process, obviously when you are in a dose escalation phase, it’s difficult to tell exactly how long it takes, because, if the product is not toxic, you will go to higher doses and this phase of the study will take more.

But, we believe that sometime in 2013, we should be completing this phase of the study and move into the Part-B phase of the study which would be a more like a Phase 2 study for M402. So that’s an exciting product. I think in some way if it could change the paradigm for oncology treatment because heparin is just by their nature are multi-factorial and they regulate pathways not in an digital, a kind of a on, off, turn on a target, turn off the target, but more of an analog up regulate, down regulate across several pathways.

So that’s an exciting product for us. The Sialylation technology is also pretty interesting because, IVIG is one of those products that’s not really well understood. It’s used in a multiplicity of indications. It’s derived from plasma that makes it difficult to source; it has to be administered intravenously over a very long period of time to many of the patients.

So if you can come over with the product that is more potent, you can use less from plasma to get the same amount of drug product and in addition the patients potentially could be dosing over a shorter period, which would be a great benefit to the patients.

In addition, now, we’ve talked about moving forward with two potential programs here. One could be to take IVIG into the Sialylation and that would be the commercial product. So you have to source IVIG that would go through your cost of sales.

Now the alternative that we are going to look into is just taking the FC region the ITG antibody and Sialylating that FC portion and that would give you a recombinant version of the product. So obviously the advantage is they would be significant but technically, that you’d have to work through some more complicated issues the biology likely would be more different than working with the plasma derived product.

But, two really exciting programs there. So we certainly ended Q3 of this year in a strong cash position. We have over $360 million of unrestricted cash. And we’ve given guidance through 2013; got operating expenses are going to be roughly in the $30 million per quarter range. So, given that our Enoxaparin revenues or LPEs over that period of time.

As we get into 2014, 2015, the milestones that we would be earning under the Baxter collaboration, we certainly have a very comfortable cash runway even if we have to delay the generic Copaxone launch to September 2015. So we certainly have sufficient cash there to run the business. So, I think we have a strong program across generic drugs, biosimilars and now novel drugs and so a lot of opportunities there for upside certainly from the present stock level. So it could be a great entry point for any of you who are interested so. At this point, I will have few minutes to take some questions if you have some.

Question-and-Answer Session

Richard Shea

Yes.

Unidentified Analyst

Rick, can you speak about the launch price pressure that rose in the second quarter to the third.

Richard Shea

We are not at liberty to give exact pricing information. I don’t know how much you can get from IMS. But I would say just, kind of across the board within the generics industry, my understanding is, if somebody is making a run at your customers and trying to rest them away, you are probably seeing price decreases in the 20% or 30% range from where the prices were and the prices already were probably 20% to 30% down from the original branded price when we came into the market. So overall, I think the Enox market before our approval was in the $2.5 billion range. I am guessing that right now, it’s probably in the $1 billion to $1.2 billion, $1.3 billion, it should probably a little bit less than half of where it was.

Unidentified Analyst

The additional 50% drop.

Richard Shea

No.

Unidentified Analyst

(Inaudible)

Richard Shea ,

No, no.

Unidentified Analyst

Can you just help as far as what exactly is your royalty structure with Lovenox?

Richard Shea

It’s a 10% to 12% royalty. So it’s 10% up to a sales cut-off and then 12% above that and that runs on a product year, July 1 to June 30.

Unidentified Analyst

Okay, I think you report 2.6 this quarter?

Richard Shea

Yes, we did and they reported $34 million in sales. So we should have been $3.4 million at 10%, but there was an adjustment that they recorded to the second quarter a net sales. But they recorded it after they closed their books. But we pulled that into Q2, because it related to sales that they made in Q2. That flipped around in Q3. That’s why we were under the 10% of the net sales. But going forward, for Q4, our royalty should be at 10% of Sandoz net sales.

Unidentified Analyst

For Lovenox and Copaxone, you worked with Sandoz. So I would assume they would be a natural partner for the biosimilars, yet they are going ahead with their own biosimilar program, can we infer from that that they don’t feel the need to characterize it to the end degree as you do?

Richard Shea

I don’t want to speak for Sandoz or Novartis, but when we signed a Copaxone collaboration with Sandoz in July of 2006, we’ve made an attempt to fold in working on biosimilars with them. And we worked with them on a couple of the products that they were working on for the European markets and I think based on that work, probably to a certain extent based on where we were at the time, which was this very early in applying our technologies to biologics. They decided that a strategy of essentially starting in Europe and then going to the US would be preferable for them. So they just decided to go that way.

James Cole – Lazard Capital Markets

Maybe I could slip a question in here. It appears that the M923 program achieved proof-of-concept relatively quickly with the M511 and the M834 expected to hit this milestone in 2014. I guess the question is, the length of time to achieve the proof-of-concept for those two programs speak to the level of complexity for those two programs?

Richard Shea

Yes and no. So I’d say for one of them yes, and another one, it just has to do with when we started the program. And in the case of 923, I mean, that was really our prototype. And so, 923 was the product that we were developing our tools and methods around and so that’s why at the time we signed the collaboration with Baxter in December of last year, we had already established the proof-of-concept for that product. I mean, that’s essentially what we sold in the collaboration and what’s having achieved the proof-of-concept for 923.

James Cole – Lazard Capital Markets

If there are no other questions from the floor, that’s just all the time we have. Thank you very much.

Richard Shea

Thank you.

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