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Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)

Q4 2013 Earnings Conference Call

February 10, 2014 10:00 ET

Executives

Lora Pike - Senior Director, Investor Relations

Craig Wheeler - President and Chief Executive Officer

Rick Shea - Chief Financial Officer

Analysts

Ritu Baral - Canaccord

Ronny Gal - Bernstein

Jason Gerberry - Leerink Partners

Sumant Kulkarni - Bank of America/Merrill Lynch

Eric Schmidt - Cowen & Company

Chris Hamilton - R.F. Lafferty

Operator

Good day, ladies and gentlemen and welcome to the Momenta Pharmaceuticals’ Fourth Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Lora Pike, Senior Director, Investor Relations. Please go ahead.

Lora Pike - Senior Director, Investor Relations

Thank you, Amanda and good morning everyone. We thank you for joining us today for Momenta’s conference call to discuss financial results for the fourth quarter and full year of 2013. Today’s call is being webcast and you can view the slides we will be presenting in the investor section of our website at monentapharma.com.

Joining me on the call with prepared remarks are Craig Wheeler, President and Chief Executive Officer and Rick Shea, Chief Financial Officer. Following our remarks, we will open the call to questions.

Before we begin, I’d like to mention that our call today will contain forward-looking statements about management’s future expectations, beliefs, plans and prospects. These forward-looking statements include comments about our enoxaparin sodium injection commercial prospects and revenues , anticipated achievement of development milestones, including milestones and revenue under the Baxter collaboration in 2014, comments regarding future operating expenses, cash burn and total operating expenses for 2014, our generic Copaxone program and a review in patent litigation, timing expectations and our other product research and development plans and expectations, including expectations of timing for clinical data results and our future development decisions, partnering and commercialization potential for our development programs. Such forward-looking statements involve known and unknown risks and uncertainties and other factors referred to in the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2013 filed with the Securities and Exchange Commission under the section Risk Factors as well as other documents that maybe filed by Momenta from time-to-time with the SEC. As a result of such risks, the company’s actual results may differ materially from those we will be discussing. We are providing the information on this conference call as of today’s date and we assume no obligation to update these comments.

With that, I will now turn the call over to Craig.

Craig Wheeler - President and Chief Executive Officer

Thanks, Lora and welcome everyone. Today, I will begin with a high level review of our 2013 financial results. Then I will discuss the growth opportunities in 2014 for each of our key programs. Rick will cover our financial results in more depth in his section.

So first, our financial results, for the full year, we reported a net loss of $108 million. Our operating expenses for 2013 were on target at $145 million. Total revenues of $35 million were slightly below plan driven by lower enoxaparin revenues of $16.7 million. For 2013, Sandoz reported enoxaparin net sales of $213 million, down from $451 million for 2012. The decline in product revenues from enoxaparin sales in 2013 was primarily due to decreased prices and lower market share in response to competitive pressures. For the fourth quarter, Sandoz reported stable market share and we are hopeful that will continue.

The successful execution of our 2013 objectives across our businesses has laid the groundwork for our future growth. We are looking for to an eventful 2014 for the company as we expect programs in each of our three businesses: complex generics, biosimilars and novel drugs to hit meaningful development milestones.

In our complex generics business, we and Sandoz are gearing up for what we are hopeful will be a successful launch this year of M356, our generic version of Copaxone. M356 could be the first generic medicine in the multiple sclerosis market. There is considerable anticipation of this launch in the marketplace as the prices of all MS branded medicines have increased dramatically in the past decade. In particular, Copaxone has had a price increase of over 120% in just the last five years. We are also well aware of the emerging competition in the MS market. The oral medicines led by Biogen’s Tecfidera have made inroads against the established injectable therapies. Also two weeks ago, Teva received approval of its three times weekly dosing formulation of Copaxone.

We believe that M356 could perform well despite this competition. And we have been particularly – we will be particularly helped by the high pricing strategy the brand competitors have pursued in the MS space. As a reminder, the collaboration terms with Sandoz on this product provide Momenta with a 50% share of the contractual profits under all possible competitive scenarios.

On the regulatory front, we continue to actively engage with the FDA with regard to our application status. We continue to plan to be ready for launch at the time of patent expiration. As we have said in past conference calls, although we feel our application is progressing well, we like all generic manufacturers are facing a significantly less transparent regulatory environment with the implementation of PDUFA and the FDA shift to the use of the Complete Response Letter and as their primary means of asking questions to sponsors. That said, we know our application is under active review as a high priority and our ANDA based on a few factors.

First, FDA has communicated it is giving priority to applications including Paragraph IV filers and ANDAs for products where there is not yet generic competition. Our application is in this prioritized group. Second, we know the FDA tracks and is aware of the Orange Book patent expiration dates for these priority applications and the agency is trying to coordinate their view with those dates in mind. And finally, to-date we have not received any questions that we believe would indicate our application is off track. We continue to expect approval under the 505(j) pathway as an interchangeable AB-rated generic Copaxone this year. However, I cannot emphasize enough that the ultimate decision and the specific timing of approval is up to the FDA. We are also aware that Teva continues to file citizens petitions related to Copaxone with two petitions becoming public late in 2013. One was filed in September and one was filed in December 2013. This brings the total to six filed by Teva to-date.

The FDA has not yet responded to the latest petitions. We believe these two like the past four do not provide a strong basis for the FDA to reject the scientifically robust ANDA such as ours. We remain confident in our characterization approach which relies on multiple overlapping measurements of physical, chemicals and sensitive biological methods to establish equilibrium. Consistent with the prior CPs it is our expectation that FDA will reaffirm its authority to determine sameness in approving a generic Copaxone drug. We are excited to work with Sandoz to bring this critical generic market – to market as soon as possible.

In enoxaparin news, we continued to pursue our case against Amphastar. In January, the district court for the District of Massachusetts had issued its final ruling in the summary judgment phase of our case against Amphastar. This judgment, as expected, follows the prior appellate court opinion that the patents were unenforceable under Safe Harbor. Following this ruling, we have filed a notice of appeal to the appellate court with a more complete record and argument. This could put us in a position to overturn what we believe was a flawed opinion that inappropriately broadened the scope of Safe Harbor. We anticipate that the appeal process could take 12 to 18 months.

I will now turn to the biosimilars business. First, I would like to let you all know how pleased we are that Dr. Michael Franken has joined the Momenta team as the President of our biosimilars business. Michael is seasoned executive who held the series of business leadership roles at Genzyme and was most recently Chief Business Officer at Radius Health. I look forward to introducing him to all of you at future investor meetings.

Let me start my review of our biosimilars business with a brief discussion of our global collaboration with Baxter. As you know, in December, following a broad internal portfolio review, Baxter made the decision not to exercise their opt-in rights for M511, the biosimilar for a branded monoclonal antibody for oncology. This decision returns full rights to the program to Momenta. I want to emphasize that our collaboration remained strong, and together with Baxter we are advancing our M923 and M834 programs. Baxter has rights to select three additional programs over the next 12 months. And we are in discussions with them on the best way to advance these remaining options.

Our lead program M923, a biosimilar in the autoimmune inflammatory space is our most advanced biosimilar product. We are working towards progressing that program to the clinic in Europe in the second half of 2014 which would trigger a milestone payment from Baxter and will mark a major accomplishment for our business. I should note that while we expect to continue our productive dialogue with the FDA on M923 through 2014, we do not expect to have firm guidance at the time we entered the clinic on a reduced trial package or the potential for interchangeability. The biosimilars landscape is evolving on a case by case basis. And although we are confident in the sophistication of our approach since this is our first biosimilar data package, we anticipate conducting adding minimum a targeted PK trial while we continue to engage in the dialogue with FDA about our approach. Our second Baxter partnered program, M834, is also indicated for certain autoimmune and inflammatory diseases. We are working towards achievement of a predefined minimum development criteria milestone in the second half of 2014. The aggregate value to Momenta of the potential 2014 contractual milestones for M923 and M834 is 19 million.

Now, that we have full rights to the M511 program we are in the process of developing our plans for advancing it internally. We continue to evaluate programs beyond those that Baxter has rights of first refusal and we have efforts underway to shape that portfolio. With M511 in hand, we must accelerate that planning. There is clearly more upside in the program for Momenta should we succeed in bringing it to market ourselves. However, we are also well aware that it brings additional expenses into our long range plan. We are currently evaluating all aspects of the program, including development and manufacturing strategies and the possibility of partnering the program now or in the future. In the meantime, the program continues to move ahead and we will update you as our plans develop.

Finally, I will turn to our novel drug business. We are excited by the progress we are making with M402. M402 is our low molecular weight heparin compound engineered to optimize heparin’s natural anti-tumor effects while reducing its anticoagulant activity to allow for higher dosing levels. The first indication we are pursuing metastatic pancreatic cancer is supported by non-clinical data that show M402 in combination with gemcitabine prolonged survival and sustainability – and substantially lowered the incidence of metastasis, which suggest that M402 has the potential to complement conventional chemotherapy. In addition, the data show that M402’s mechanism of action by binding to multiple heparin binding factors involved in tumor growth and metastasis creates the potential for M402 to contribute to efficacy in a broad range of cancers. In January, Momenta scientists presented data at the 2014 GI Cancer Summit in San Francisco further elucidating M402’s mechanism of action. These and other non-clinical data can be found under the Publication tab of our website at momentapharma.com.

In the clinic, we are testing M402 in a two part Phase 1/2 proof-of-concept trial in patients with advanced metastatic pancreatic cancer. Part A is an open label multiple ascending dose escalation study of M402 dosed in conjunction with the standard-of-care regimen of Abraxane plus gemcitabine. To-date, we have completed several dose escalation cohorts and based on encouraging signs of tolerability, we are continuing to add cohorts at a higher dose of M402. The progress we have made so far is giving us increasing confidence that we will be able to advance this program to Part B of the study. We expect to complete Part A this year, which will allow us to determine the dose that we will take forward into Part B. It is our hope that we will have this data and time to start Part B by the end of this year. This will be a randomized controlled study investigating the safety and anti-tumor activity of M402 administered in combination with Abraxane and gemcitabine compared with Abraxane and gemcitabine alone in patients with metastatic pancreatic cancer.

On the research front, we continue to build on last year’s advancements in understanding the biologic impact of sialylation on IVIG’s activities as well as the behavior of recombinant molecules engineered from the Fc region of IgG. Through our testing in various models in inflammation, we have gained a much deeper understanding of the basic biologic pathways by which these molecules mediate the therapeutic effect. As anticipated, we have made a decision on which program we will seek to advance internally. We are turning our primary research towards developing an engineered Fc region recombinant product candidate. This approach will give us an opportunity to more carefully design a product candidate to target the specific biologic effects we have observed as well as give us the opportunity to take advantages of a recombinantly produced product. Since this is an entirely novel product, the development path towards the clinics will be slightly longer than a modified IVIG program would have been. But we feel the advantages are worth the investment.

We also believe there are real advantages our research efforts can bring to a next generation IVIG program for companies with the IVIG infrastructure and franchise to leverage their technology. Therefore we plan to seek a – to partner the discovery work we have generated for SIVIG with companies already in this field. We will update you on both fronts as our research programs and partnership efforts advanced. One final note, you may have seen we signed an early research agreement with AnaptysBio to support our research programs. This is another example of the collaborations we are pursuing in an effort to expand our novel drug portfolio.

In closing, I want to emphasize the importance of this year to Momenta. We have long had the vision that our technology platform could create value across three businesses. And this is the first year we have significant milestones in all three of these areas for investors to benefit from. M356 approval in complex generics, our first biosimilar M923 to the clinic and our lead novel drug M402 advancing to part B of it’s combination Phase 1, 2 trial. If all goes well this year, we will have significantly advanced the business and demonstrated further evidence of the power of the analytic platform envisioned by our MIT founders. I look forward to updating you as the year progresses.

Thank you. And I will now turn the call over to Rick.

Rick Shea - Chief Financial Officer

Thanks Craig. We reported a net loss for the fourth quarter of $30.1 million, compared to a net loss of $17.7 million for the same quarter last year. The increased loss is primarily due to an increase of $12 million in operating expenses. Revenues for the fourth quarter 2013 were approximately $13 million, level with the 2012 fourth quarter’s revenue and included $5 million enoxaparin product revenues and $8 million of R&D collaborative revenues. Sandoz reported fourth quarter enoxaparin net sales of $51 million, down from $85 million for Q4 last year and slightly down from the $58 million net sales reported for Q3 2013. As Craig stated, we are hopeful that enoxaparin pricing and its market share has stabilized, as we continue to generate meaningful royalties from enoxaparin.

Turning to collaborative revenues, the increased to $8 million reported in the fourth quarter compared with $2 million for Q4 2012 reflects increased reimbursement from Baxter for biosimilar development costs. Our collaborative revenue related to expense reimbursements from Baxter and Sandoz may fluctuate quite a bit from the quarter-to-quarter, depending on our R&D activities. The amortization of the 2006 Sandoz equity premium and the Baxter collaborative upfront payment continues to be consistent with prior quarters.

Fourth quarter 2013 R&D expense including stock-based compensation was $32 million compared with $22 million in the fourth quarter of 2012. The increase was due to increased biosimilars process development, some of which is reimbursable by Baxter and increased research cost. Our G&A expense for the fourth quarter including stock compensation was $11 million, an increase from $9 million in the same quarter last year due to higher personnel and litigation expenses in the second half of 2013.

Turning to our financial guidance for 2014, we expect total operating expenses excluding stock based compensation and net of collaborative revenues will average approximately $30 million to $32 million per quarter in 2014. We are also projecting the 2014 quarterly net cash usage excluding any potential revenues from generic Copaxone will average approximately $30 million with quarterly net cash usage in the second half of 2014 expected to be partly offset by $90 million of milestones projected to be earned under our collaboration with Baxter.

This concludes my financial review. I will turn it over to Craig for final comment.

Craig Wheeler - President and Chief Executive Officer

Well, thanks Rich and I think we will now open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Ritu Baral with Canaccord. Your line is now open. Please check your mute button.

Ritu Baral - Canaccord

Hi, sorry about that. Thanks for taking the question guys. I have got two questions. The first one focuses on the potential launch for 356, can you tell us sort of the approach that Sandoz maybe taking on the commercial front, especially as far as comparative patient support services for a generic Copaxone? From what we understand, it’s pretty important set of services that most MS drug manufacturers offer right now.

Craig Wheeler

Sure, Ritu. Thanks. I can’t comment specifically on the commercial activities of Sandoz as per our contract, but what I will say is that Sandoz is experienced broadly in marketing these specialty products in the generic space with experienced drugs like Omnitrope as well as the broad set of resources they can bring to bear based upon different marketing tactics and strategies that could be used against those. And so I think the way I will answer that is let’s say we have a great deal of confidence in the sophistication of our commercial partner, particularly in the MS space and particularly with these specialty products. And so we feel we will have an adequate commercial representation.

Ritu Baral - Canaccord

And what assumptions are you guys making as far as competition in the generic Copaxone space upon launch?

Craig Wheeler

Well, we are making no specific assumptions. Obviously, we think we have a very good shot at being the only product out there for a while, but we are not banking on that. So, we are actually thinking about how we would need to compete in multiple scenarios, if we were there or if we and Mylan were there. So we are thinking about all those scenarios if we are preparing our launch plans.

Ritu Baral - Canaccord

And then maybe for your biosimilars, so you mentioned that for 923 that you would need to do at minimum a targeted PK study, can you elaborate on what that trial design – what that trial design entails?

Craig Wheeler

Well, we haven’t specifically disclosed the trial design, but you have opportunities to actually gather a lot of information in a comparability scenario from early PK trials. And so obviously what we will be seeking to do is actually use an early trial with any of our biologic molecules to generate as much evidence of equivalent behavior as we could with the goal of supplementing all of the preclinical work that we have done physiochemically and biologically to remove residual uncertainty and hopefully we can therefore reduce trials in the long run.

Ritu Baral - Canaccord

Do you anticipate different PK or different PK/PD across different indications with the going assumption being that 923, the reference molecule is approved for multiple indications? Do you think the PK/PD across those multiple indications can be different enough to warrant different sets of PK/PD trials?

Craig Wheeler

I personally believe that a lot of that has to be established pre-clinically. I think you actually have to show without a reasonable – within a reasonable doubt, without a reasonable doubt that you can actually show these molecules behave equivalent in all scenarios. And I think that setting is a much more accurate setting than relatively low-powered PK studies to be able to look at differences across indications. And I think you have already started to see in Europe regulators allow extrapolation across indications, so I do think with the right data packages, you won’t have to have multiple trials and indications on a PK basis.

Ritu Baral - Canaccord

Got it. I will sneak one last question in. Any additional detail on 511 that you can give us about what that compound is about?

Craig Wheeler

Well, right now, as I said in my remarks, we are taking the compound forward while we are actually looking at developing strategy. We had not planned on bringing this molecule forward. So we didn’t have all of our plans in place. And that plans may include options for future partnering etcetera. So we are looking hard at that all the different aspects of taking that program forward, including the things that Baxter was originally responsible for. And once we get more clarity in terms of the details of that, we will come out with more information.

Ritu Baral - Canaccord

Got it. Thanks for taking the question guys.

Craig Wheeler

Certainly.

Operator

And our next question comes from Ronny Gal from Bernstein. Your line is now open.

Ronny Gal - Bernstein

Good morning and thank you for taking my questions. Sorry. I have got three of them. Starting with enox, I ran into Bruce the other day and he mentioned that you have a bit of an interesting tack on the current appeal to the appellate court versus the appeal that occurred on the original decision. Can you just give us a little bit of elaboration of this? How is the fact base different or what are – how do arguments different now that you have a complete fact base versus the fact base before? And so assuming that you are successful – assuming you are successful, what would that mean in business terms?

Craig Wheeler

Great. So, I will try to be as clear as I can without trying the case on the phone here, but the first process was a process where was it wasn’t an appeal of a case. It was an appeal of an injunction. And therefore the record had not been laid at the District Court about why these patents are enforceable all the data about those patents etcetera. It was really only around an injunction, so the reason to have really the opportunity to argue all of the details that we would argue. In this case, since we have now been back down to the District Court, we have laid that record and that record now has the ability to be introduced into the appellate court. And so that’s the difference between the two appeals.

Now, what were the business implications be for us? Well, I think there is two levels. One, we think that this expansion of Safe Harbor is have implications for a broad set of program that are on our own, but in the industry because of the expansion into manufacturing patents post approval. So we think there is an important wrong to be righted here. But secondly, it does give us an opportunity to come back to District Court and actually try our patents on the merit of those patents. Remember that the case has still not happened. So for enoxaparin, if we win here then we have to make the decision to come back to the District Court and actually go through the trial that never happened yet. So there is – it’s a long way off before we would see any potential recovery for enoxaparin, but actually writing the interpretation of Safe Harbor we think is important for us and the industry.

Ronny Gal - Bernstein

Okay. So, I noticed that you have a few couple of patents on your approach to glatiramer acetate. And I was wondering was that of an implication on the validity of those patents, enforceability of those patents, let’s put it that way?

Craig Wheeler

Yes. So I will say every patent stands on its own merits and we are well aware of what the current standards are in the case law at the appellate court with the rulings that have been made. So, we do think that we have enforceable patents on glatiramer.

Ronny Gal - Bernstein

Even with the current statute as said by the decision on enox?

Craig Wheeler

That’s our belief.

Ronny Gal - Bernstein

Okay. Next one is on staying with glatiramer acetate and about the Synthon trial, which was just I guess supposed to wrap up next month. Have you guys thought about the similarity and dissimilarity that you can draw between your compounds and the Sylvan compound and how to the extent you can describe it to us, how you understand the FDA would look at the implication of that data on yours?

Craig Wheeler

Well, so the first as we thought about differences or similarities between our compound and Synthon’s, we don’t have Synthon’s compounds. So it’s very difficult for us to make any comments in terms of how that compound looks versus ours. But it is worth having a broader dialog about what Synthon has and what they are likely to have to deal with in the U.S. So the first case, with the trial that Synthon is doing in Europe is an MRI endpoint trial. The U.S. has never accepted MRI as an efficacy endpoint in any MS trials to-date. So, they have that hurdle to overcome. Secondly, they are trying to show equivalents and as you recall what we said and what FDA has said when you look at, for example, biosimilars, clinical trials are relatively poor at showing equivalents. They are basically used for removing residual uncertainties. And so we anticipate that the FDA would require the physical-chemical characterization, biologic characterization package even if they did bring that clinical trial into the FDA setting.

Ronny Gal - Bernstein

Got you. I am just noticing the Advair guidance asked for PD trial using FEV1 as an endpoint to measure PD, and I was wondering if this is just not an equivalent of a confirmatory PD trial to have an MRI endpoint if not an efficacy endpoint?

Craig Wheeler

Well, you have to validate the endpoint right. So is that MRI effectively tied to clinical outcomes? In FEV, it’s often tied pretty directly to disease progression. So you’d have to make that leap to be able to think about it same way.

Ronny Gal - Bernstein

Got you. And last, on M402, so my understanding is that the second half of that trial is not conditioned on any results of the first half, just trying to find the dose to go forward with and the second half is essentially in automatic progression, there is not like a checkpoint or you having to make a go, no-go decision that decision has largely taken place. Is that fair?

Craig Wheeler

Well, you should think about like any oncology trial, so there is two things that you look at out of any Phase 1 oncology trial. One is you look at did you achieve a dose where you can actually think you are going to have the effect. And so we are always looking at when we are raising a dose, we are looking at all the markers that might indicate we are having affect and you do that in any oncology trial. And then the second thing you are looking at is making sure you don’t have any toxicities that would preclude the kind of dosing that you might want to do in the Phase 2. So you are looking at both of those things. And the reason I put that statement into my comments on the call was we are now at a dose level where we feel pretty confident that we are half – we are close to seeing all we need to see to be able to take it forward, but it’s never done until it’s done because until all the patients are out you don’t know what you can see.

Ronny Gal - Bernstein

Okay. So basically – this is actually a change in tone, you are telling us that there is enough data there for you to most likely take it forward, fair?

Craig Wheeler

Yes, that’s clear. What we are saying is that we have now escalated to the dose to the point where we are feeling pretty good about the compound, but we are going to continue to escalate it because in any oncology trial what you want is you want to get enough as much drug as can on target.

Ronny Gal - Bernstein

So, how long will the second phase – second half of this trial be, that is if you are – if everything goes right and you are able to kind of like go to the second phase when would you have a Phase 3 ready trial?

Craig Wheeler

So it’s again, this is oncology so it’s hard to predict, right. Because obviously we would – if we had very strong results out of that Part B of the trial you might even be able to bring something directly forward to do a very truncated Phase 3. So our goal would be to get that trial done as quickly as possible. It’s probably I am guessing, I don’t have the numbers in front of me probably 12 months to 18 months kind of trial.

Ronny Gal - Bernstein

Okay.

Craig Wheeler

And then we would have much more information at that point.

Ronny Gal - Bernstein

Okay, thank you very much.

Craig Wheeler

Sure.

Operator

And our next question comes from Jason Gerberry from Leerink Partners. Your line is now open.

Craig Wheeler

Good morning.

Jason Gerberry - Leerink Partners

Hi, good morning. Thanks for taking the question. First question on Capaxone, the Office of Generic Drugs announced a special initiative, which starts in February, wherein they will provide status updates and applicants just curious if you believe your Capaxone filing falls within that initiative. And if for whatever reason the status update were negative, is that something that you guys would need to press release. And then my second question is just with Capaxone 3X weekly launching now, can you just describe for us maybe how you think about that $3.2 billion market maybe what the size of that may be in annualized terms maybe in May when you guys are able to launch?

Craig Wheeler

Sure, so let me take the first one and then I will maybe speculate a bit on the second one, but we don’t have really data on the second one. So the first one, it’s not clear we believe we will be in that – the status updates, but it’s not clear. And whether we got information from the status updates or from questions or comments from the FDA, if they indicated that our application was off track, we would definitely come back and talk to investors about it. If it says things are status quo then you would expect not to hear anything from us. So we are going to continue our bias that we are hopefully to get approval this year, if we see things that will put us off track, we will come back and definitely tell you about them. And hopefully that will give us more clarity and we will see. My confidence in all of this is not high at this point in time in terms of clarity of things from the FDA.

On the three times per week launch, it’s something we expected. So we had always anticipated that this three times a week would be coming into the marketplace. Obviously, we knew there were some weaknesses in the trial, but with the size of the trial we had anticipated and planned for its approval. Teva will obviously do everything that they can to switch as many people as they can as quickly as they can. We will see how quickly they actually can switch this marketplace, because as I said in the call there is a strong anticipation of generic drugs coming into this marketplace and therefore trying to convince payers that they should actually switch over to three times per week and it’s on the payers interest actually to get a lower cost drug may create come resistance for them.

We also believe that when we get into the marketplace with a lower price generic, remember these drugs are $60,000 plus a year per patient that the discounts provided will actually give strong incentive to begin to put step edits and require maybe generic product to be used before, maybe even before some of the orals, but certainly before the three times per week product. So we think there is a lot of opportunity to blunt the impact of that, possibly even reserve under that and they may not get the uptake that they are claiming, but we will have to see how it progresses in the marketplace. Obviously, for us the early we can get in the marketplace, the better we are in this product – in this case.

Jason Gerberry - Leerink Partners

Great. And If I can ask just one follow-up just on R&D, it looks like you guys are operating at around $100 million annualized run rate. As we think about the potential for Baxter to exercise this option on three more biosimilars, is this kind of a good run rate for you guys to be juggling a couple biosimilars, doing the pre-IND work and then should we kind of layer on incremental cost as you advance 402 further in development. Just trying to think about how to think about the R&D spend more longer term? Thanks.

Rick Shea

Jason, yes, I would say for 2014 that’s how you should be thinking about it. As we move beyond 2014, it certainly could have higher R&D based on 402 progressing, but it also depends on how many biosimilars we have in development and where in the development cycle they are. So, but that’s – I think you got it right for 2014.

Craig Wheeler

Yes. Just a little more color, we have kind of sized our engine, if you will, to be able to bring in a new program every six months. And then as programs roll forward into Baxter’s responsibility, we will be able to roll back resources on newer programs. The other thing that kind of messes our planning up a little bit in terms of really understanding of being able to give you a clear answer is that 511 now it doesn’t have that opportunity to roll forward at that present and so we are bearing all of the cost of debt at this point and so we have to figure that piece out for you.

Jason Gerberry - Leerink Partners

Got it. And then maybe one last one, just on 923, as you think about starting the European Phase 1, are you thinking that product will be on schedule to launch in Europe without any blocking exclusivities as you think about sort of the longer term development pathway and timing to market there?

Craig Wheeler

Yes. So we are looking at the exclusivities and patent situations in all the markets that we are exploring. Our desire to start in Europe we can do that as more quickly and so we can get the trials up and running and it can actually allow us to generate data that may help us reduce trials with the FDA. And so we are looking at this whole program on a global basis as is Baxter and that our partnership really is designed to take these programs forward globally. And so, it’s really where we are starting this program. You can expect the program ultimately would expand to global trials.

Jason Gerberry - Leerink Partners

Great. Thanks guys.

Craig Wheeler

Sure. Thank you.

Operator

The next question comes from Sumant Kulkarni from Bank of America/Merrill Lynch. Your line is now open.

Sumant Kulkarni - Bank of America/Merrill Lynch

Good morning. Thanks for taking my questions. The first one is on generic Copaxone leaving aside commercial and payer considerations for financial modeling purposes, what kind of switch state is the company assuming to the three times a week formulation?

Craig Wheeler

Well, similar to the question I just answered, we can’t answer that definitively for you. Teva is putting up pretty aggressive forecasts in terms of their anticipated ability to switch. We think there is likely to be some resistance to that switch, particularly from payers, which may slow that. So I would for purposes of our view, you should take what their forecasts are, back off a bit from what their forecasts are. And then we also think that we will be able to slow any switching or potentially switch back with step edits that might come in place with lower-priced generic in the market. So it’s a dynamic situation. So it’s very hard for me to give you direct numbers, but that’s at least how we are thinking about it. It’s not as aggressive as Teva is.

Sumant Kulkarni - Bank of America/Merrill Lynch

And could you characterize some of like how the interactions are between the agency and the company on the pending ANDA, is anything formula or is it totally informal and just wait and watch?

Craig Wheeler

Well, the interactions are like all companies in the generic world now scripted by complete response letters. And so we have periodic opportunities to engage with them, but we really don’t get the kind of information informally that we got on enoxaparin, which is why it makes it harder for me to give you any specifics in terms of when the FDA might act. Our hope is that they would act within the context of when the patents expire, but it’s really much less transparent to us now than it was with enoxaparin application.

Sumant Kulkarni - Bank of America/Merrill Lynch

Is there anything between now and with the patent expiry that could trigger a complete response letter or would that be a random process based on the FDA’s decision making?

Craig Wheeler

So, if the FDA – basically any questions that they are going to ask you now come back in complete response letters. So there are certainly things that could come back in complete response letters. In fact, any questions you get now come in complete response letters. So we would anticipate if there is anymore questions, but the challenge here is since they don’t closeout pieces of the application like they used to say labeling is done or micro is done or CMC is done etcetera. You don’t know anything is done and so you don’t know if you are going to get another letter of questions or if you are going to get an approval in the next step and that’s where the ambiguity come from.

Sumant Kulkarni - Bank of America/Merrill Lynch

Okay. And in the back half of the year, is there anything more than the $19 million in milestones that the company could realize?

Craig Wheeler

No, those are the milestones that would come from the Baxter collaboration this year. So, that’s all we have available to us this year.

Sumant Kulkarni - Bank of America/Merrill Lynch

Okay. And bigger picture one, my last question is I know that you are still in the state of flux with M511 on decision-making, but is there any thought that the company to become more of a forward integrator type in terms of manufacturing or other kinds of things?

Craig Wheeler

Well, we have always thought about it. As I said in the text that we have always looked beyond the Baxter partnership, we look at Baxter partnership as a chance to see how the market evolves. But we are building an engine here that has the ability to actually go significantly beyond the six programs and our five programs that we had in the Baxter partnership. And so we have always thought about our own portfolio either through other partners or directly taking it forward. To us it depends upon how the market evolves. If it really is more contracting game or we can reduce trials and we can actually achieve market penetrations through contracting and formulary plays then it’s a much easier market for us to approach on our own. If it requires heavy marketing forces we need a partner like Baxter in place and so it’s kind of an option that we are playing, but we have always looked at it to an eye towards this market could evolve to a place where we could really take advantage of larger opportunities ourselves.

Sumant Kulkarni – Bank of America/Merrill Lynch

Thanks.

Craig Wheeler

Sure.

Operator

Our next question comes from Eric Schmidt from Cowen & Company. Your line is now open.

Eric Schmidt - Cowen & Company

Thanks for taking my question. On the potential launch for generic Capaxone it looks like for reasons we already discussed on this call the MS market is quite different from the market that you introduced enoxaparin into. Can you talk about why do you think those differences might result in your needing to offer a generic at a higher or lower discount relative to the brand?

Craig Wheeler

So if the market is different and we do anticipate that you will see not quite as rapid uptake as you saw with enoxaparin because it’s a chronic use drug, it’s not an acute drug. And therefore you have to get through especially pharmacies and all those types of things, and this is a more complex distribution network and system. In terms of discounts, I think the discounts are really not going to be that materially different to what you would see in a single generic report, if we are the only one we are not doing in a double generic if you see us in Mylan from a typically generic marketplace. It really depends now in terms of how Teva behaves on their pricing. I mean they are going to – they are probably using their single once a day as competitor directly with the generics and trying to push their three times per week. And so it really depends, if it’s a well-organized generic market I don’t see any reasons this market would have different levels of discounts than you would see in a first launch in traditional generic market.

Eric Schmidt - Cowen & Company

Okay, thanks. And Craig, on the biosimilar side with 923, I think last conference call you indicated you are going to file a U.S. IND in 2014 and now it looks like you are only going after kind of EU only approach to the first Phase 1. And I am not sure I followed some of the language you gave in your preamble about discussions with the FDA on that program and why you have no longer like to go with the U.S. IND initially?

Craig Wheeler

So we will go with the U.S. IND, but really the timing on the ability to start trials because of the way the European Union works, we can actually start those trials earlier than with the U.S. FDA, particularly in case where we are trying to use those type three meetings to convince the FDA that we can actually skip later trials and get a reduced trial package. So you shouldn’t think of this as an EU only program, this is a – we are starting a trial in the EU, expect to expand it to a global trial including the U.S. but it allows us to get going earlier and it gives us the opportunity potentially bringing some early clinical data in discussions around skipping later trials with the FDA. So we are continuing to work towards a global package and the U.S. features very prominently in those decisions.

Eric Schmidt - Cowen & Company

I am just wondering also if you have any thoughts on Coherus is a private company, which I guess is also a partner with Baxter, they have disclosed that they are working on an anti-inflammatory molecule as well they have named it Enbrel. And they seem to be – to be honest moving faster than you all at Momenta given the pace at which that partnership is progressing. I am just kind of wondering whether you are doing something fundamentally different from them, it’s requiring more time or would you have any thoughts on their approach?

Craig Wheeler

Well, so I think I can give you two observations. I don’t know the company personally, I know who they are obviously and they also have a partnership with Baxter. So they have been working for sometime on molecules and primarily bringing them to the EU, so they have been taking advantage of the same thing that I am talking about with our lead program. And they are working on a set of molecules, which I think they view as the opportunity to bring them to the U.S. ultimately, but are primarily working in EU first. Are we doing something different from them? I think we probably are. Again, we are working and we said before our preclinical work takes longer and is more involved because we are trying to actually start with that ones very close to the innovator and do all of the iterations necessary to dial in the attributes to be on target without the attributes in the integrated molecules. We are working hard to use those early meetings to try to reduce trials. We are not using strategy that says we are going to drive trials quickly and therefore use those trials on a global basis try to get into the marketplace. We believe the reduction in trials as well as the opportunity to try to get to interchangeability is a valuable proposition. So that is I guess the best answer I can give you not knowing anymore details about their strategy.

Eric Schmidt - Cowen & Company

Okay, that’s fair. When do you think investors would first get an indication that your strategy is paying off in terms of either interchangeability, which I guess would wait until approval, but maybe before approval some sign that greater upfront characterization is helping the Momenta cause?

Craig Wheeler

It’s a really good question. And my belief in that after seeing how the regulatory pathways are evolving and working is that we probably won’t know until the end of the Phase 1 trials if we are able to skip those later trials, because I would expect as I said in my comments that the U.S. is going to require in any event a PK trial and if they are going to require that, I would expect to going to want to see the results of that trial in conjunction with the physical chemical and biologic characterization to be able to give us clarity that we can give you confidence where we will skip those later trials to get towards interchangeability. So I have tried to kind of caution that for a while, because I think the nature of the packages that we are providing to the FDA are every bit as complex as the enox or Copaxone packages. And so I have never anticipated that the 120-day review period to a Type 3 meeting is going to be sufficient for the FDA to get fully comfortable with all the data that we are providing them. And so I think it will take some time on its first product. The real advantage that we have in working with antibodies however is that unlike enox and Copaxone, where the packages were completely different every time we went into the FDA, there are large amount of similarities between antibodies and particularly on the process and manufacturing characterization etcetera that we will be able to provide familiar types of packages to the FDA on subsequent programs, which hopefully will allow us to get decisions much more quickly.

Eric Schmidt - Cowen & Company

Okay, thank you.

Craig Wheeler

Sure, certainly. Thanks.

Operator

And our next question comes from Chris Hamilton from R.F. Lafferty. Your line is now open.

Chris Hamilton - R.F. Lafferty

Hello, thanks for taking my questions. Just one question, recently, we have heard discussions regarding biosimilar implementations at the FDA and in particular relating to interchangeability. Based on your experience, can you comment on how long these types of discussions generally last before a decision is made and how that decision process typically works?

Craig Wheeler

Well, it’s hard to say, because non of these decisions have been made in interchangeability yet, but the FDA has stated in their guidance that they put out, I think last week that they intend to issue interchangeability guidance this year. However, when is the question, because they have not put one yet out for comment? The other guidelines that they will be issuing were put out as drafts for comment a year ago. And so they will be issuing those this year as well. But this one hasn’t come out for comment yet, so it’s very difficult to say exactly when. Knowing the debate there has been around this in Congress when the laws were set up, I would anticipate spirited debate in terms of whatever the FDA puts out on their interchangeability guidelines. And so it’s I think risky to make a prediction when exactly it would be in place.

Chris Hamilton - R.F. Lafferty

Okay, thanks.

Craig Wheeler

Sure, thanks.

Operator

And our next question comes from Ronny Gal from Bernstein. Your line is now open.

Ronny Gal - Bernstein

Thanks. Couple of quick follow ups. First, on three times a week Copaxone, I can’t find it in the orange book, but I am not sure there are additional patents associated with this product. And it’s obviously there is a little bit of a race to the goalpost in terms of being able to challenge that product. Can you just give us a little bit of a heads up? Are there more patents associated with this subject to a Paragraph IV challenge at this point, etcetera?

Craig Wheeler

Well, we know and expect that Teva would be trying to file anything they can around this whether those patterns are legitimate patents and enforceable is a big question, but like anybody trying to do a market switch, I am sure that there will be legal issues to deal with on patents with this program. So I think that’s a wait and see, but I am sure knowing Teva that there will be battles to fight there.

Ronny Gal - Bernstein

Chiming a little bit different which is you’ve got – you are competing with the Mylan, which is kind of like a very well-educated generic company on being trying to be the first to file on that molecule. And my question to you is can you guys actually have the tools to be able to drive your PK study quickly and in order to be first to file in that molecule?

Craig Wheeler

So, I guess if I should just say we have known this this project coming for a while, we are not going to disclose any regulatory strategies that we need we are in thinking about the product, but we are – and we are working very closely with Sandoz on all aspects of this product.

Ronny Gal – Bernstein

So, you (indiscernible) Sandoz cover the three times per week essentially should we assume the same economics, is there room to negotiate different economics, how does it work?

Craig Wheeler

Yes, it would. It would be very similar to what we have now.

Ronny Gal – Bernstein

Okay. So, there is – it’s a same agreement, okay. And second around the step edits on Capaxone. Have you guys looked around and see how many organizations are likely to put step edits on Capaxone. I have done a few phone calls and it seems that most of theirs are or just the large ones are not thinking about putting step edit at on the branded Capaxone once the generic comes in?

Craig Wheeler

Well, so I guess suffice it to say that there is no ability to actually market yet with this product and get out there and actually work with the contracts. And so it’s a story that’s yet to be told. We certainly have a strong understanding that across – unanimously across the pair base there was a strong interest in getting this generic heavily used because of the price saving – cost savings that they will have in their plan.

Ronny Gal – Bernstein

Great. But at this point you have not gone through the stage of estimating the share of the market which will not have access to the three times per week?

Craig Wheeler

No, we have not. We have not that we will disclosed, we clearly thought about it.

Ronny Gal – Bernstein

Okay. And last but not least TNF, the anti TNF that you got coming into the clinic this year. Could you give us an idea if it’s early or when should we roughly see it in plain trials, one? And two, what I am hearing you’re telling me just to make sure because it was a bit unclear is that you go and you are doing what you think is a global registration program, but you’re doing it after getting clear guidance from EMEA, while you are guidance some FDA might not have been as clear as you would like it to be?

Craig Wheeler

Well, we didn’t talk at all about the guidance we’ve gotten from either organization, but to be able to go into the clinic we actually have to have clarity in approval, but in Europe you just have to get clarity to go into the clinic. You don’t have to have a full read on program and that’s one of the advantages of Europe. So, I did not comment on what we agreed either in the EU or the U.S. in the discussions, but we are intended to enter the clinic through that route.

Ronny Gal – Bernstein

Okay. And they are roughly timing during the year, should we see like a next couple of weeks or second half?

Craig Wheeler

Yes, second half.

Ronny Gal – Bernstein

Alright. Thank you very much.

Craig Wheeler

Yes, thanks.

Operator

And our next question comes from Sumant Kulkarni from Bank of America Merrill Lynch. Your line is open.

Sumant Kulkarni - Bank of America/Merrill Lynch

Thanks for this quick follow-up. We know that there is a lot of uncertainty now on the regulatory aspect of the biosimilar pathway, but could you update us on any initiative that the company or the industry organization is taking on instituting the equivalent of an orange book so you could at least lock down the legal uncertainty part?

Craig Wheeler

Well, so the law does not put in place an orange book, that has to be created by statute, but the FDA is looking at they’ve got – I think they called it a purple book or something in their comments, trying to create something which actually begins to create some catalog of what might be there, but it would not function as an orange book does, which has a – orange book has a specific regulatory meaning under Hatch Waxman and that was not anticipated or created in the 351-K pathway.

Sumant Kulkarni - Bank of America/Merrill Lynch

Thanks.

Operator

I am not showing any further questions. I would like to turn the call back to Mr. Craig Wheeler for any further remarks.

Craig Wheeler - President and Chief Executive Officer

Okay, everyone, I just ant to thank everybody for all the good questions. It’s obviously a very busy and exciting year for us. And we look forward to some exciting quarters ahead. So, thanks very much and stay tuned. We will see you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.

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