Rick Shea - Chief Financial Officer
Mike Faerm - Credit Suisse
Momenta Pharmaceuticals Inc. (MNTA) Credit Suisse 2012 Healthcare Conference Transcript November 15, 2012 ET
Mike Faerm - Credit Suisse
Good morning. I’m Mike Faerm with Credit Suisse. And we are very pleased to have with us Momenta Pharmaceuticals, presenting for the company will be Rick Shea, the Chief Financial Officer. Rick?
Thank you very much, Michael. I’d like to startup by drawing your attention to our Safe Harbor statement and the risk factors included in our SEC filings.
The Momenta Pharmaceuticals was founded based on analytical technologies developed at MIT. Company was founded in 2002, went public in 2004 and we’re using sophisticated analytical technologies to develop a portfolio of generic complex mixture drug, follow-on biologic and novel drug.
So when the company was founded, it was primarily founded based on novel drug technology, specifically around heparin. So we had a novel drug that was an anticoagulant M118, we had an idea for novel oncology drug, which became M402.
But in order to change the business model, in order to accelerate potential commercialization at an earlier stage, the company exploit going after a generic version of Lovenox with the expertise that the company had in analytic and in heparin. And so that was the business strategy is to use development of complex generic drug in order to provide funding for our novel drug discovery and development.
So there were three things that we had to prove in order to demonstrate the validity of that business model. And the first was, could we get a complex mixture product like Lovenox, approved in the generic form without clinical study and there were lot of skeptics out there that thought that clinical studies would be required for generic Lovenox and in July 2010, our generic Lovenox was approved and so we proved that point.
Second point was, could we be the first to be approved, would we be the standard setters, would we be the company with ANDA was used by the FDA to develop a standard of what an approvable equivalent version of generic Lovenox would look like.
And we proved as well. We were the only ANDA approved for period of 15 months following our approval. So during that time we earned a significant amount of profit share from our collaboration with the standard division of Novartis. We pulled in over $400 million in profit share revenue during that time.
Not the third proposition is still in the work and that is that could we create IP around a generic product for manufacturing method and could we enforce that IP against our potential competitors. And we thought to do that, when Amphastar was approved we successfully obtained a preliminary injunction keeping Amphastar and Watson off the market.
However, that preliminary injunction was overturned on appeal and it was overturned on the basis of a view that the Safe Harbor provision protects Hatch-Waxman apply to post commercial activity in a situation like this.
Now we believe and a lot of court observers believe that this is an outlier or this is a view that isn’t necessarily widely held, and so we’ll discuss a little bit the steps that we’re taking on that front. But certainly that’s going to be an important point for us to prove as we go forward.
So just a quick overview on third quarter results, the Enoxaparin market has been transformed by Amphastar and Watson coming on the market, and let me just recap the way that market develop.
Before we got approved, Lovenox sales were about $2.5 billion in United States, a few months after our approval, based on the price reduction of our product, the Sandoz product, the total market was something around $2 billion and we were sharing it roughly 50-50.
Now when Amphastar approve -- was approved that triggered a launch of an authorized generic and at that time the pricing in the market further eroded such that the market was roughly about $1.5 billion at that time.
Now since the preliminary injunction has been lifted and Amphastar and Watson have come on the market and have been aggressively trying to win customers that market has been further impacted by price reductions and I would estimate now that the market is roughly in the $1 billion year range.
So still a substantial market and the Sandoz unit market share according to recent IMS data is somewhere in the 30s in terms of percentage market share. So that’s kind of labeled in as far as where we are right now.
Now, what happened in the third quarter is that Sandoz net sales reported $34 million were hit kind of on two fronts for us that they had to reduce their prices on products that were sold during the quarter. They also had to reduce the price of what was in their customers’ in-stock inventory. And so that was kind of a double hit that affected their reported sales for the third quarter.
But we do expect that their sales, Sandoz sales for the fourth quarter will bounce back to the underlying run rate. And so we are hoping for that.
Now, right now, the economics for the deal mean that we’re in a straight royalty here. So the royalty is 10% to 12%. It resets every July 1. So at this point, I would be looking to earn 10% of Sandoz net sales for the fourth quarter.
So I have mentioned that we did have the temporary -- the preliminary injunction lifted that allowed Amphastar and Watson back in the market. And we are appealing that decision by filing for what’s called an en banc review, which is where you have all of the active judges on the appellate court, all way in on this particular case.
And this is situation where there have been two cases now very recently, addressing this safe harbor issue. Our case is well, something called Classen versus Biogen, which was decided the other way i.e. that the safe harbor provisions do not apply to commercial activities.
We have a disagreement here among the justices on the appeals court. So we think that it’s likely that will get on en banc appeal but at the same time, the instances that happening are relatively rare. But again we think the importance of this case rises to that level. So that’s what we are looking for.
If we get an en banc review, we expect that that hearing will take place some time in first half to mid-year for 2013 to some time, mid-year to third quarter of 2013. We’ll get results on that en banc hearing.
So with respect to generic Copaxone, we’re just moving forward with ANDA review on FDA. Again we continue to believe that this will be approved under the ANDA pathway. And our follow-on biologics program, we’re moving forward with three products and I’ll talk a little bit more about that on a novel drug front.
We’re moving forward with the Phase 1/2 study of M402 on oncology candidate. And we were pleased to announce in the third quarter that in our sialylated IVIG program that we completed some work that effectively reproduced the work done from Rockefeller University that indicated that sialylating IVIG does boost its potency and its immune response. And so I’ll talk a little bit more about that program.
We did end the third quarter with a little over $360 million in unrestricted cash. So just get into the programs, we talked about enoxaparin, the product revenues, the market and the litigation update. So again we’re looking to hear in 2013 regarding this en banc review and the results of that.
Now, that’s going to be very important for us, not only because that could lead to us being able to enforce those patents and potentially obtaining significant damages from Amphastar and Watson for their launch of the product. But in addition to that, it proves the concept and we’re doing the same thing.
We’re using the same IP strategy for Copaxone and we have several patents that are issued and pending that also address a manufacturing method for generic Copaxone. So this is something that we could use, once we get Copaxone approved and launched. We’re doing the same on the biosimilar front. So this is critical for us and I think it’s a key point of shareholder value, if we can again demonstrate the effects of patents are enforceable.
As I said with the generic Copaxone on ANDA, we’re moving forward with the FDA. We continue to characterize those interactions with the FDA is very positive and favorable. The review is moving forward, we continue to believe that this ANDA will be approved without the need for human clinical studies for safety and efficacy. And again the Copaxone patents are preventing us from launching, even if we get tentative approval.
Right now, through September 2015, our patent case against the Copaxone patents went against the District Court level but we are appealing and that appeal will be heard in 2013. So again some news that we could potentially get there regarding the Copaxone patents. So again, that represents a solid opportunity for us and again even if we have to wait until September 2015, we believe it’s a substantial opportunity.
Follow-on biologics, we signed a collaboration with Baxter in December of 2011. And the basis for the collaboration was demonstrating to them at our approach to making biosimilars that are equivalent that I mean our goal in making biosimilars is not to just have a similar product and then prove that it’s safe by doing clinical studies.
I mean, our goal using our technologies is really to achieve the same standard that you would achieve for an ANDA, the same sameness standard of equivalence to the brand and that is the objective in the programs that we have. Now, branded companies will say often possible, yeah, you are not using the same sale line, you are not using the same process conditions, you can possibly have an equivalent product.
So, what we’ve done is we applied our analytical technology both on physiochemical analytics, which is what you’re more familiar with, but also on bio-characterization side and what we do is establish multiple points of equivalence and an equivalence window based on the normal batch-to-batch variability in the branded product and we engineer our product to consistently fall within those equivalence windows.
So, that we can demonstrate to the FDA both the physiochemical side as well as on the biological side that our product is going to be same as the branded product. Now certainly, we believe that we will have to supplement that work with some clinical work, but this is exactly the approach that the FDA has outlined.
So, clearly this is a big market. Our approach, we believe, gives us an edge, gives us a differentiation. And how do we get benefit from that differentiation, while it is two ways we can do that.
One way is by reducing the amount of clinical work we have to do relative to our competitors and that would not only save time and we will save Baxter money, but that savings is going to be shared with us. The way the collaboration was laid out is that we share in -- if we save on Phase 3 clinical studies are able to significantly reduce those clinical studies we share in the savings up to $50 million -- $50 million per product, so substantial opportunity for that type of milestone for us.
Once we get the product approved in the market, we believe we will have an edge in obtaining a designation of interchangeability. Again, what we are trying to do here is we’re trying to create products that is just like ANDA products, AB rated interchangeable with the brand that’s what we are going for.
So, again lot of skepticism out there about whether we can pull it off, but we continue to believe that some respects, we’re probably only company that has this objective. And it is really putting a substantial amount of resources in this direction. So, the way the Baxter collaboration works is that we fund the product up through the IND filing.
We do get milestone from Baxter. So for every product that we initiate when we receive -- when we attain a certain technical criteria, certain early technical criteria, we get one initial milestone and then upon the IND filing and acceptance we earn two additional milestones, one for achieving the technical criteria that allowed us to file the IND and second for the IND itself.
So, we’ve indicated that we’re not providing guidance that we will achieve any milestones in 2013, but we indicated that is about $26 million of potential milestone that we could achieve in 2014. So, as we look ahead to the cash flow relating to investing in these fixed products in this collaboration beginning in 2014, our spending through IND, we’re expecting to be offset by these milestones.
So, the FDA everything its coming out of the FDA continues to support this approach. You are going to look at chemical structure of the product. They’re going to look at differences to the brand. If there is residual differences that have to be addressed with the clinical work, so if you can minimize or eliminate the residual differences, it would directly relate to the clinical program if the FDA will require.
So, that again is what we are working on. FDA has been pretty clear in this. We think their approach is going to be on a product-by-product basis that they are going to work their way through this, the same way they did for enox, the same they doing right now for Copaxone. So, this is going to take some time to play out. Its not going to be kind of revelation from ANHI from the FDA of exactly what the standards are going to be, what the guidance is going to be. It’s going evolve as they see what the applicants are doing.
So, again we think that’s a terrific large opportunity for us and we look forward to making progress and informing you about that. And the novel drug front, we have two programs.
We have M402. It’s a heparin-based novel oncology product. We’re taking advantage of the biological activity of heparin. heparins have been known to have anti-proliferative and anti-metastatic properties. The problem in the past with using heparins in cancer is the anti-coagulation. If you increase the dose, you increase the risk of bleeding.
We’ve substantially down regulated the anti-coagulation in heparin in M402, which allows us to increase the dose substantial and take advantage of those properties. This is a very interesting and exciting product. We are testing it first in pancreatic cancer in combination with gemcitabine.
Our second novel product, as I said is this sialylated IVIG. It’s a platform that we licensed in from the start-up company, technology originally obtained from Rockefeller University.
So, I just want to mention the study that we are doing with M402 is a Phase 1/2 study. It’s got Part A, Part B. We are in the Part A phase, which is the dose escalation phase. It’s always difficult to predict what the duration of that phase of the trial would be, because it depends on how many cohorts we enroll, before we get any toxicity that would cause us to stop and accept the dose at that level.
But we are moving forward with that program and we expect it sometime during 2013, we will be moving into the Part B of that trial, which is more like a Phase 2 portion of that trial. So, again, very exciting for us product, very novel mechanism of action, multi-factorial as opposed to single target.
The sialylated IVG program, very interesting product here. It is a complex mixture of lgG antibodies and it’s got a broad usage and a number of indications, over $2 billion product. And what the technology is showing is that sialylation is increasing the anti-inflammatory properties. So the benefit of this, if we can increase the potency of this product it’s two fold. One is similar amount of plasmid and plasmid derived product.
We can get more products out of a similar number of plasmas, so that would help across the sales. It would help open up the market because there is a limited availability of plasma.
Second benefit is the patients that are dosing those IV, some of them for a very long period of time. And if you could significantly reduce the time period for that infusion, you will have a significant patient benefit there. So that’s the attractiveness of this product.
During 2013, we will be working on this sialylated IVIG approach. We will also be looking at the possibility of creating a competent product by sialylated the Fc portion of lgG antibody. And if we are successful in this, I mean this could have applicability with variety of antibodies.
So, again, this is a product opportunity, but it’s also a platform opportunity. So interesting program for us here.
So, I’ll just wrap up saying – as I said we ended Q3 in a very strong cash position. We have guidance on our earnings call that through 2013, operating expenses would be running in order of magnitude of about $30 million per quarter and our cash burn would be averaging around $20 million to $24 million per quarter on average.
So with our unrestricted cash of about $360 million at the end of Q3, if you roll that forward, we are tracking approximately $250 million in cash at the end of 2013. So we have ample cash run rate of funds -- programs that we have in house.
We have the cash and we are very comfortable with this cash level. So, we are certainly going into 2013, very confident that there is a number of catalysts for the stock during 2013. There could be some very interesting things happening at Momenta. So, keep an eye on us.
We hope to surprise you all. So thanks very much. I have a couple of minutes to take questions if anyone likes to ask here.
Mike Faerm - Credit Suisse
Anyone who has a question, please raise your hand. We have a microphone in the audience.
Does your lgG program have kind of initial target for the multiple applications of IVIG or is it just to generally enhance IVIG effectiveness?
Yeah. I think one thing we will be doing in 2013 is trying to develop a clinical approach, a clinical regulatory approach, because as I said there is multiple indications that IVIG is used on. So, we want to take an indication or indications that would give us the most direct, most reliable pathway to get the drug approved and commercialized. So that is something we haven’t worked out yet, but we will certainly let you know when we have that plan established.
Mike Faerm - Credit Suisse
Great. I think we’ll wrap up there. We will be moving to the grand room for the breakout. Thanks everyone for coming.
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