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Executives

Beverly Holley – Director, IR

Craig Wheeler – President and CEO

Rick Shea – CFO

Analysts

Eric Schmidt – Cowen and Company

Seema [ph] – Goldman Sachs

Duane Nash – Wedbush Securities

Ritu Baral – Canaccord Genuity

Mike Smith- Leerink Swann Llc

Eric [ph] – Oppenheimer

Avik Roy – Monness, Crespi, Hardt

David Maris – Credit Agricole

Doug Adams – Tocqueville Asset Management

Momenta Pharmaceuticals, Inc. (MNTA) Q4 2010 Earnings Call Transcript February 10, 2011 10:00 AM ET

Operator

Good day, ladies and gentlemen and welcome to the Momenta Pharmaceuticals fourth quarter and year-end 2010 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 call is being recorded. I would now like to introduce your host for today’s conference; Beverly Holley, Director of Investor Relation.

Beverly Holley

Thank you and good morning. I want to welcome all of you to Momenta's conference call to discuss financial results for the fourth quarter and full year 2010 and provide a corporate update. With me on the call today with prepared remarks are Craig Wheeler, President and Chief Executive Officer and Rick Shea, Chief Financial Officer.

Following our remarks, we'll open the call to questions. Before we begin, I'd like to mention that our call today will contain forward-looking statements. Various remarks that Momenta Pharmaceuticals may make about management's future expectations, beliefs, intentions, goals, strategies, plans and prospects, the company's revenue, expenses and other results of operations including the quarter and year ended December 31, 2010.

Our enoxaparin sodium injection commercial prospects and our generic competitors prospects for a proof and commercialization, our generic Copaxone development and the review expectation and our other product development plans and expectations including our future development partnering and commercialization potential for our development programs may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by terminology such as anticipate, believe, could, could increase the likelihood, hope, target, project, goals, potential, predict, might, estimate, expect, intend, is planned, may, should, tentative, will, will enable, would be expected, look forward, may provide, would or similar terms, with variations of such terms or the negative of those terms.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors referred to in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2010 filed with the Securities and Exchange Commission under the section Risk Factors as well as other documents that may be filed by Momenta from time to time with the Securities and Exchange Commission.

As a result of such risks, uncertainties and factors, the company's actual results may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements contained herein. We’re providing the information on this call as of this date and assume no obligations to update this information.

And with that, I will now turn this call over to Craig Wheeler, Momenta's President and Chief Executive Officer.

Craig Wheeler

Thank you, Beverly. Good morning, everyone and thank you for joining us. This morning, I will discuss our company's progress in 2010 and provide an update on the recent corporate developments of Momenta. And after that, Rick will give an overview of our financials. By any measure, 2010 was the year of incredible accomplishments for Momenta. I'm very proud of our company for making pharmaceutical development history with the launch of generic Lovenox. That product is doing extremely well since its launch in July of 2010 and is evidenced by strong revenue for both us and our development partners Sandoz. Enoxaparin has now been on the market for nearly 7 months, during that time we estimate that hundreds of thousands of patients who have been treated with generic Lovenox saving the healthcare system hundreds of millions of dollars.

Response to the generic Lovenox from both providers and patients has been very positive and we are extremely pleased with the product's acceptance and market penetration. Due to this current status is a sole approve generic, we continue to earn a 45% contractual profit share under our Sandoz collaboration. And for the fourth quarter of 2010 we are pleased to report $52.4 million in product revenues from the sale of our generic Lovenox. As we have mentioned in the past additional generic Lovenox enter the market; our economic arrangement would shift from a profit share to a royalty on net sales which would significantly reduce our enoxaparin revenue.

I would like to comment on the prospect of future competition on the generic Lovenox market. The FDA's response to the physician’s petition on the enoxaparin; provide strong evidence that the agency is at a high bar for any generic Lovenox approvals. Based on our experience, we believe that technical hurdles signed to the challenges and manufacturing quality control requirements will limit the number of companies that would eventually receive approval. Comments I said we regarding the generic Lovenox and branded Copaxone appear to have caused significant movement in our stock recently.

So I would like to take a few moments to describe our views on some of these comments. On January 25 Teva Pharmaceuticals reported, that they had received a minor deficiency letter relating to ANDA generic Lovenox. They stated that the FDA has completed its review and that the deficiency letter included a short list of questions for Teva. We have not seen Teva’s deficiency letters, so we cannot comment on the likelihood of Teva’s , and it will be approved or what the time line may be for an FDA's action on Teva’s ANDA.

But I would like to point out a few facts, minor decency questions can be significant, by analogy our response to immunogenicity issue, the FDA raised in November 2010 was classified as a minor amendment to the ANDA.

Answering minor deficiency questions, as well as the FDA's review of the response can take several months or longer depending on the nature of the questions asked. In fact, when the FDA issued a minor deficiency letter, they generally stopped the review of the ANDA file until the information requested is submitted.

Furthermore, let us look at Teva’s track record of projecting the ANDA approval. When the Momenta Sandoz ANDA was approved in July 2010, Teva said, that they were about a month behind us to do a one-month lag in the final of their immunogenicity data. Later in 2010, Teva predicted a year-end approval and in early January they indicated a potential month-end approval.

On their earnings call on Tuesday, they indicated they have not yet filed an answer to their deficiency questions and stated that they do not plan on updating the status until the generic Lovenox until they are approved. Again, we will not attempt to predict the FDA’s action, nor can we make any guarantees, but we do believe that the issues Teva has faced could be significant.

I will now comment on the status of the pending enoxaparin lawsuits. First; as the suit said that the event was filed against the FDA following the approval. In a hearing in August, the court denied Sanofi’s request for preliminary injunction on the sale of enoxaparin. The parties have now filed cross motions for summary judgment seeking a final ruling in the case. A date has not been set but a hearing is expected to be scheduled sometime in spring. We believe the Sanofi’s claims are without merit and continue to believe that the court will ultimately agree.

The second lawsuit, power case against Teva filed in December; in which we sued Teva for infringement of two Momenta patents. In order to resolve this case efficiency, efficiently and on an accelerated schedule, we had filed a motion for expedited targeted discovery. Our timetable has been set for the court to rule on this motion but we will continue to vigorously prosecute this case and enforce our patents. So in wrapping up my comments in enoxaparin, we do not anticipate any impairment defend of this commercial efforts from Sanofi’s legal suit with the FDA.

We are very pleased with the launch and performance of the products to date, and we are continuing to generate significant cash flow from our sole approval. I will now discuss M356, our generic version of Teva’s Copaxone which we are developing in collaboration with Sandoz. The ANDA for this product was submitted in December 2007 and accepted for review in July 2008. So the FDA has been reviewing the ANDA for about two and a half years.

Recently the FDA indicated that ANDA reviews are averaging 26 months, so given the complexity of this review, the pace of the review while slower than we would like this consistent with their current timeline. Our ANDA is under after review of the agency and we are doing all we can to ensure it moves as quickly as possible.

We continue to believe that the information provided in our ANDA establishes equivalence between our product and Teva’s , we also strongly believe that the applications approval at a 505j. As a reminder Copaxone is a synthetic poly peptide mixture, so although it is chemically complex, a generic Copaxone will not have to face the sale supply chain issues inherent in our Enoxaparin program.

Teva has recently stated that they believe the FDA will require clinical efficacy studies for approval of the generic Copaxone. They base this assertion en-part on the own setback in seeking FDA approval of an alternative formulation of Copaxone. Again, let me point out a few facts. Teva filed a supplemental NDA request, requesting the approval of a new formulation for Copaxone on the basis of improved safety.

The new formulation reduces the volume and a syringe from 1 mL to 0.5 mL. In December, the FDA should cover a complete response letter on the application filling with a smaller company which study Teva file that now presents sufficient data to support approval of the new application. Further, the agency stated that unless you can write a convincing argument that the new higher concentration, lower volume formulation does not have an impact on efficacy and that it could well control that will be needed to support efficacy and new formulation.

We believe with the FDA – we agree with the FDA's response, formulation reduces the volume in the syringe effectively increases the concentration of the drug which has the potential to alter the clinical profile of the drug. On the other hand, M356 generic Copaxone candidate uses the same formulation as Teva’s marketed product. The safety and efficacy of this formulation has already been established in many clinical studies conducted by Teva. For this reason we believe the FDA’s decision on Teva’s reformulated product has no relevance to our application.

Furthermore acceptance of the filing of the M356 ANDA in July 2008 called a six months of FDA review of eligibility under the 505j pathway. This pathway presumes that the applicant will demonstrate sameness to the branded drug without clinical studies for safety and efficacy. The FDA is continuing the review of M356 as an ANDA and our interactions with the FDA with the past two and a half years, we have not been asked to conduct a clinical study demonstrating safety and efficacy. So, the outcome of our ANDA review cannot be guaranteed.

We do not believe that the FDA will request to require safety and efficacy clinical study. We are confident in the ultimate approval of our ANDA as a fully interchangeable generic version of Copaxone. I want to clarify that the regulatory 30-month deadline for the first of our applicant expired at the end of June 2010, which means we may not get the 180-day exclusivity.

There is an exception to this perpetual which may apply, but we will not know whether the exception applies unless and until the FDA approves the ANDA. I will also note that the legal 30-month stay of approval has expired, which offers Sandoz the opportunity to launch at risk upon FDA approval if the patent case has not been resolved at that time.

Regarding the Copaxone patent litigation between Sandoz Momenta and Teva, the case was consolidated with Mylan’s patent suit last fall. Discovery in the case in complete, and last month the court held a claims construction hearing from Mylan. Mylan argued many of the same points we have raised and our claims construction and we are pleased with the court’s consideration of the argument.

Presently, pretrial motions are being scheduled. We are ready for and seeking a trial in the second half of this year, but this will depend on the court’s schedule.

We expect Teva will do all they can to delay this trial, which we will vigorously oppose. On February 8, we announced the issuance of a Momenta patent relating to glatiramer acetate. The patent claims methods of preparing glatiramer acetate drug product having a certain required quality attribute, at even correct amount of pyroglutamate structures. We have several other glatiramer acetate related patent applications pending.

These patent rights are part of our strategy to invest in the development of Novel methods and processes that make it possible to assure the quality of complex products and as with the enoxaparin patent; we intend to enforce those rights.

Let me now turn to follow-on biologics which continues to receive a great deal of industry and media attention. It is not surprising given the estimates for (inaudible) market run as high as $20 billion by 2020. Now it seems as though everyone in the pharma industry is trying to get a foothold in this space and from our view with very little differentiation in their approaches. We believe Momenta’s innovative science and our technical and regulatory experience with enoxaparin offers us a significant advantage over the approach as being taken by other players in this arena.

We have been working on follow-on biologics now for several years and have developed Novel analytic methods and tools that give us the potential to improve the quality of the biologics we work on, whether they are generic or branded products. And I can say with confidence that we have made significance progress on both the characterization and the process development of biologic products.

This year the FDA gets to work on defining how they will implement the new regularity pathway. We have been active in FDA’s public participation process and except to continue to share our views. We believe the FDA’s approach will allow us to get differentiate our products and processes from competition. With the agency of demonstrated with the enoxaparin approval, they are willing to embrace innovative analytic methods and we believe that they will similarly embrace advanced biologic product and process control technologies.

The new pathway offers Momenta the potential to gain approval of our follow-on products as well as inter-changeable designations for our follow-on. Our business strategy for follow-on biologics platform is to secure a broad partnership, since the platform can be applied across many products. With the cost of developing a follow-on product expected to reach triple digit million works on a broad portfolio will require a capable partner.

We have had such of these discussions with many of the most significant companies to declare their intent to pursue follow-on biologics and those discussions have been very encouraging; however, it is critical for us to identify the right collaborative partner.

One who not only brings the resources and capabilities to the partnership, but is also completely aligned with us on our FOB strategy. This type of alliance takes time to put together, so we are not guiding on the timing of any potential deal. With the success of enoxaparin; we can continue to advance our internal portfolio and take the time to find the right deal, but we’re working hard to advance our FOB strategy this year.

We are also advancing on Novel drug discovery and development. The work we have done to develop our unique technology and complex generics and follow-on biologics has opened up a broad opportunity for novel products. Our platform to develop new drugs based on linear glycosaminoglycan such as heparin sulfate has generated our two lead drugs Novel program.

M118 our Novel anticoagulation had showed excellent results in a Phase II a PCI trial; although, we have yet find an appropriate collaborative partner for M118, we do remain invested in its continued development. M402 is a multi-targeted oncology product candidate. We are targeting an IND submission for mid-year and plan to initiate clinical trials soon after.

Our research effort in the heparin sulfate area is directed towards expanding the biologic areas, which these types of drugs can be effectively employed and we hope to be able to generate multiple novel devolvement candidates in this innovative area of research in the coming years. Our second area of discovery research addresses Novel biologics.

Our ability to control the cell-based manufacturing processes required for biologics opens up the opportunity to various specifically designed attributes of biologic molecules. Though this research is still early stage, we believe, they could yield some very promising scientific breakthroughs in the month ahead, stay tuned.

I would like to give you an update on some of the non-product related news from the quarter. In January, we announced two new appointments. We elected Tom Koestler PhD to our board of directors and hired Young Kwon PhD as our new Vice President of Business Development. Tom is the former president of Schering-Plough Research Institute and is currently serving as executive and resident at Vatera Holdings LLC. Young joins us from Biogen Idec, where he was a senior business director of business development. Both Tom and Young are valuable additions for the team, and we are very pleased to have them on board.

In November, we announced the scientific journal Nature Biotechnology has published a correspondence entitled Chinese hamster ovary cells can produce Galactose-alpha-1,3-Galactose antigens on proteins. The studies led by scientists of Momenta demonstrate that Chinese Hamster Ovary or CHO cells; contain the active biosynthetic machinery to produce alpha gal antigens and that a therapeutic protein manufacturing cell contains alpha gal.

Prior to these findings, it was believed that CHO cells lacked the biosynthetic machinery necessary to synthesize glycoproteins with these carbohydrate antigens. This finding is important because the alpha-gal antigen can and in fact has been the root cause of unwanted immunogenic responses from marketed biologics.

We believe that using tools developed at Momenta and described in this publication, it is now possible to monitor and control over the presence of alpha gal antigens during protein therapeutics development. These studies demonstrate the potential of applying our advanced product and process understandings to improving the engineering of both biosimilar and Novel products.

Also, in December, we announced that all four of our applications for the qualifying therapeutic discovery project credit were approved allowing us to claim a credit of four projects for a total of almost $1 million in cash and credits received. To summarize, the approval of the enoxaparin is a technical, regulatory, and industry milestone. To be awarded the first every ANDA approval for a generic low molecular weight heparin represents a true accomplishment for the Momenta and Sandoz teams we are very pleased.

But, this is just the beginning, our strategy is to use our science to create competitive advantages in generic follow-on biologics and Novel drug businesses. This approval confirms that we have the scientific and technical expertise to realize the potential and we have intended to move forward with the development of our pipelines building on the success to date. I will now turn the call over to Rick for a financial update.

Rick Shea

Thanks Craig. Revenue for the fourth quarter totaled $58 million and included $52 million dollars in profit share revenues from sales of enoxaparin and $6 million in collaborative revenues from reimbursement of R&D expenditures. Let me walk you through the calculation of the profit share. Sandoz reported net sales of $170 million. To calculate our profit share first, the actual cost of goods sold is deducted, and then the Sandoz SG&A allowance is deducted to arrive at the contractual product profit.

As long as we're the sole generic, our percentage share of that product profit is 45%. So if you take our $52 million profit and divide by 0.45 you can calculate that the product contractual profit was approximately $117 million or 69% of net sales.

In Q3 2010, the total contractual profit as a percentage of net sales was 60% due to some prelaunch inventory adjustments. On the Novartis earnings call; Sandoz indicated that assuming of sole generic status for enoxaparin, future quarterly net sales would be approximately equal to the net sales we quoted in Q4 2010. Although Sandoz did note there was a continued sole generic. The net sales could be somewhat higher.

Research and development expense for the fourth quarter 2010 were $15.2 million compared to the $14.2 million for the same period last year. The 7% increase in R&D is due primarily to an increase in reimbursable M356 expenditures. Since the M356 manufacturing expenses can fluctuate from quarter-to-quarter.

G&A expenses for Q4 2010 were $7.8 million compared with $7.3 million for the third quarter of 2010. And an increase from $6.1 million in the prior year fourth-quarter due to enoxaparin elated royalty and license fees payable to MIT and personnel related expenses.

The net income for the fourth quarter 2010 was $36.3 million or $0.79 per share basic EPS and $0.77 per share fully diluted. Q4 2009, we recorded a net loss of $14.7 million or a loss of $0.34 per share. For the full year 2010 we recorded net income of $37.3 million on total revenues of $117 million. The company has available net operating loss carry forwards in excess of $200 million which can be applied to taxable income.

We’re updating our section 382 analysis to determine any potential limitations of the use of these carry forwards. But tentatively, we believe that the use of our analog carry forwards will not be limited in offsetting 2010 taxable income.

We ended the year 2010 with $152.8 million in cash and marketable securities compared with $65.7 million at the end of Q3 2010 and $95.7 million at the beginning of the year. Please note that at the end of the year we had $11 million in marketable securities classified as long-term since the duration of those securities at year-end was greater than 12 months.

The receivable at quarter-end for our enoxaparin profit share payment from Sandoz is $52.4 million. Our financing in December provided $57 million in net proceeds so excluding our profit share payment and the financing; our operating cash burn was approximately $15 million for the fourth quarter.

For 2011; we expected operating expenses net of collaborative revenues will range from $15 million to $18 million on a quarterly basis. In 2011, we have planned to increase our headcount from 170 to approximately 195 about a 15% increase, targeted towards our follow-on biologics and Novel drug discovery programs.

The other driver of an increase in R&D in 2011 will be moving M402 into the clinic. We do expect that near-term during the period of sole generic enoxaparin for likely to continue to be cash positive. This concludes my financial review. We will now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And our first question comes from Eric Schmidt with Cowen And Company.

Eric Schmidt – Cowen and Company

Good morning, thanks for taking my question. Craig could you talk a little bit more about enoxaparin in the quarter in terms of market share, any pricing dynamics?

Craig Wheeler

Yes, I can’t talk specifically of pricing dynamics of Sandoz as I talked about whether pricing shown in the marketplace for that I can say that we continue to be very pleased with our market share continues to be where we have talked about before in that 35% to 45% range and that it looks like we will continue to be able to sell the product as – as openly as we can supply it. So looks like positive for us. We haven’t seen any – I would say radical pricing changes from our competition which means we still have the headwind to be able to maintain the pricing that we established.

Eric Schmidt – Cowen and Company

And I heard what Rick said about Novartis's comments on their call with regards to future sales trends, could you – talk about the profitability of the enterprise and whether the operating margin for the JV that we saw in Q4 is sustainable or still has room for improvement or any directionality there?

Craig Wheeler

Eric I would say that, what you saw in Q4 is probably approximately what you all see going forward. Yes there can be fluctuations from quarter-to-quarter in terms of profit margins in other words the contractual product profit as a percentage of net sales.

Eric Schmidt – Cowen and Company

Okay. And then if we look back at your own ANDA review process for enoxaparin, Craig you just remind me if subsequent to the 2007 FDA response on immunogenicity, you guys have ever received any kind of deficiency letters?

Craig Wheeler

Well so, deficiency letters are part of the game in the generic drug world, and so you get some our base facilities you get telephone amendments or deficiency questions, the reimmunogenicity was brought up at the time and was we will talk about that some much of those completely outside of the standard approval requirements for the application, reimmunogenicity with process from the biologics division and was in part of the approval criteria originally for the applications.

It was something that was asked for added in and I think that little bit surprise to us. And so I would say it is fair to characterize that we had got questions at differ from points along the way in the application but I don’t think we talked any more specifically about that.

Eric Schmidt – Cowen and Company

Did you ever get a minor deficiency letter or any other deficiency letter subsequent to the 2007 response?

Craig Wheeler

Yes I don’t want to be disclosing. Yes I can’t talk about that.

Eric Schmidt – Cowen and Company

Okay. And the last question, again for maybe Rick on that, it’s for $1 million and other income, what’s that?

Rick Shea

It’s the tax credit.

Eric Schmidt – Cowen and Company

Tax credit okay, yes thanks a lot.

Rick Shea

Sure.

Operator

Our next question comes from Sapna Srivastava with Goldman Sachs.

Seema

Hi guys this is Seema calling you on behalf of Sapna. I just had a couple of questions on your IP strategy. So first can you help us understand how the re-exam patent issue (inaudible) and kind of fits into legal and regulatory strategy and the M356 and then – can this patent actually block Mylan from manufacturing or getting approval of the generic Copaxone.

Craig Wheeler

Well I can comment – I can really have if I can’t predict what the court would say in terms of how we treated [ph] versus Mylan, but these are patents that we are putting in place to protect our IP and then IP is really about making, how we go about characterizing and making this products and so any company that was looking to make a product that violated these patent that was covered obviously would be violated our patents we see to enforce them in full extent and that would be to anything that can include potential injunction up to damages that could be charactered by court. So we intend to fully pursue defending our patents but it is really not up to me to predict exactly how that would be effective against – against Mylan.

Seema

Okay and should we expect you guys to file kind of a series of patents, on the molecule or on the manufacturing of molecule going forward?

Craig Wheeler

Yes as I said in my comments that this is the first series of patents that we have actually done and just like if we not (inaudible) some of the patents for doing the same thing on different other products we developed.

Seema

Okay and just one last question, I was just wondering are there any other molecules or follow-on biologics included in your contract with Sandoz that you couldn’t necessarily partner with another company.

Craig Wheeler

So – we – you should think about it, we’re basically free to operate, it worked, it were an early generic – our partnership that worked a couple of products that we did work on with them. But you know we are pretty much wide open beyond those products.

Seema

Okay thanks so much.

Craig Wheeler

Yes.

Operator

Our next question comes from Duane Nash with Wedbush Securities.

Duane Nash – Wedbush Securities

Good morning and thanks for taking the questions. Craig during the claim construction hearing for Copaxone, I believe your attorneys commented that your version of Copaxone mainly to be reformulated. Is that correct, if so could you clarify how long that may take?

Craig Wheeler

So first, I will assure you that our partner [ph] is not mean to be reformulated so and as of our attorney said that then I would want to what they were talking about but there were series of patents that have asserted here that we have – have to defend in the court but we have no reformulation required at all.

Rick Shea

Duane, let me just add, the Teva has a patents called a Gad patents where – which are used, it’s nothing is used to measure molecule weight. And so what was indicated in the course was that we needed or that we intended to use a different method for measuring molecule a weight, and so that would simply, had nothing to do with change in formulation.

Duane Nash – Wedbush Securities

And, using a different method, would there be any FDA implications where you have to modify the filing in any way or -

Craig Wheeler

All of our methods have to be into our application.

Duane Nash – Wedbush Securities

So, changing this method would it incur any significant delay.

Craig Wheeler

We don't believe so.

Duane Nash – Wedbush Securities

Okay and then one last question are there any trends you can disclose as to which types of clients buy the generic enoxaparin as – or and which types of clients tend to stay with the innovative drug

Craig Wheeler

No, we actually don't see any specific trends. There is a variety of different segments out here; we are seeing very good activity in all of those.

Rick Shea

Yes, you may have noticed Duane, that Novartis announced or somebody announced that there was a GPO recently signed by Sandoz, so initially Sandoz had primarily gone after the retail and wholesale market and then the hospitals and GPO’s were staying, with Sanofi but one significant GPO recently signed with Sandoz.

Duane Nash – Wedbush Securities

Great, well congratulations on the quarter and thanks again for the questions.

Craig Wheeler

Thank you.

Operator

Our next question comes from Ritu Baral with Canaccord Genuity.

Ritu Baral – Canaccord Genuity

Thanks for taking the question going back to the Gad Patent for a second, can you clarify if the buying markers in the- are the markers in the Gad patents are used in the Copaxone production process now and in your ANDA, I would assume that you would use these markers to sort of bridge the characterization with M356, would you still be infringing on the patents if you were to use it simply for initial characterization development versus actual Manufacturing process.

Craig Wheeler

Well, we still cannot comment on the specifics of patents, as it is subject to litigation right now but I think you should think about it in terms of like anything which use in resources Safe Harbor, and if it is used in commercial then there's patents but we cannot really comment on the specific patents.

Ritu Baral – Canaccord Genuity

Okay and the next step in the overall Copaxone suit obviously it is going slower than we had initially expected now that the Mylan suit and the Sandoz suit are consolidated or pre-trial activities and requirements going on in parallel are they have to be sort of sequential.

Craig Wheeler

Yes, no or perception right now and we are working very closely with the Mylan team as well in the courts is that the – their product as of their claim construction hearings and so now we're in the same place and now the court can go back to the pace that we were originally hoping we would see.

Ritu Baral – Canaccord Genuity

So, you are expecting, I guess hearings to start in the second half.

Craig Wheeler

We’re actually expecting, we are hopeful we can actually see the court kick-start in the second half, yes.

Ritu Baral – Canaccord Genuity

Okay and then moving back to the Teva complete response letter on the low-volume Copaxone, SNDA. I would imagine, that it would have some impact on your M356 ANDA will it at least raises the bar for equivalence or your manufacturing process even if it does move it over to (inaudible).

Craig Wheeler

We actually don't think it would have any impact, we think the bar is already quite high in terms of being able to make good product and characters of product to manufacture the process so remember, this had absolutely nothing to do with the active ingredients, it had nothing to do with the composition, the active ingredients, this was all around changing the formulation and that is really why ANDA statues written at they are, but you have to be able to demonstrate that you have the same product and same formulation which is what we have been doing since we have started this product.

So they were working on changing the formulation of a product and because of the nature of this product, that change in formulation has the potential to change the near clinical profile of the product whereas we have exactly the same formulation. I do think the FDA is going to require a very high bar that the characterization in process that is what we expect and that is why we chose this product to work on so I don't – I really don’t expect that that is going to affect the process now that it is already higher that it is already had on Copaxone.

Ritu Baral – Canaccord Genuity

Okay, and last question and I will hop back into the queue. Some months ago, another company had filed a Citizen's Petition on a – another copolymer product and argued that the mechanism for Copaxone was more I guess central and plasma derived versus peripheral exposure. Do you think that that in any way affects the M356 ANDA or how FDA looks at the drug?

Craig Wheeler

So, remember that our statements all along have been in that you can actually look at the generic dynamics of those drug in various different ways, what we look at it what they'll put in is actually confirming that that's true they actually put many examples of the ways you can measure it. Our goal here is not to establish mechanisms but could really demonstrate equivalent to the brand product and so when we look at that, I think our view of it is and we were not quite sure what that strategy was in filling that, but we actually looked at as validating what we have been trained by some time is that it actually is possible to understand the mechanist to comparisons between these relations.

Ritu Baral – Canaccord Genuity

Great, thanks for taking the questions.

Craig Wheeler

Thank you.

Operator

Our next question comes from the line of Joseph Schwartz with Leerink Swann.

Mike Smith

Good morning it’s Mike Smith for Joe Schwartz. Could you comment a little bit of an inventory dynamics regarding the enoxaparin launch, I guess we have seen a significant draw down of build up inventory in the fourth quarter, what proportion of the fourth quarter sales were actual end-user demand? What proportion was drawn from inventory and then how do you see inventory going forward in 2011 in the light of a potential second generic, with that inventory behavior change.

Rick Shea

Well, Mike we don't comment specifically on inventory, inventory levels shell-through, any of that, we will really leave that to Sandoz to have that discussion so I think fairly, simply if you just look at the sales in the first six months and certainly that you are correct, that you can tell from the lower sales from the fourth quarter that there was a significant in stocking in the third quarter but beyond that we cannot really say anything.

Craig Wheeler

Yes, I think it is fair to say that in general in the generics world, you would see, on the initial launch of stocking and then when people get used to the flows of inventory get adjusted towards the normal course of business towards different players in the chain, but beyond that we cannot comment.

Mike Smith- Leerink Swann Llc

Okay, And then I guess beyond your spend in the fourth quarter went up slightly and I know you have spent some on the new pipeline candidates and M402 was mentioned, can you comment on, can you comment a little bit more on M402. You said you have been in preparing plan on filing an IND this year, what sort of – what is the product and how, what kind of a timeline beyond the IND can we find the product.

Craig Wheeler

Sure, so in the timeline obviously is depending which clinical trials we ultimately decide to do but the product is up from based anti cancer agent, we have designed it to actually to get multiple targets so that should actually have multiple effects on a single cancer as well as the usable cost for cancer it has shown in animal model, but it has both anti-tumor and anti-metastatic affects and so we are actually hopeful that we are actually seeing some pretty good signals when we actually put in into the clinic.

We expect to get in this year and to the classic early oncology trials of multiple – in multiple dosing, and then based up on that, we will determine what the ultimate development path of that is. To determine what – and then it really is up to the path of development candidates oncology, if we really strong results, you could get the earlier approval that you see wherever it focused on that could require to under multiple indications for us to eliminate a lot more after we get through these early trial but it is quite promising and labs but we will see more over the next year to 18 months.

Mike Smith- Leerink Swann

Okay, great thank you.

Craig Wheeler

Sure.

Operator

Our next question comes from Bret Holley with Oppenheimer.

Eric – Oppenheimer

Hi this is Eric in for Bret, I just had one quick question for the glatiramer acetate patent you guys were awarded a couple of days ago, could that be used to provide validation that you don't infringe upon Teva’s patents?

Craig Wheeler

I am thinking, I don't really think it is designed to do that, it is really designed to actually control the manufacturing process so we can actually duplicate what Teva’s made, so that is really the intents of the patents. So I think – there might be some read-through on that but I don’t think that there are lot of read-through in that direction.

Eric

Okay, great thank you.

Operator

Our next question comes from Avik Roy of Monness, Crespi, Hardt.

Avik Roy – Monness, Crespi, Hardt

Could you review for us your game plan should Teva be able to launch the Loven [ph] or some other formulation Copaxone before you are able to get on the market and assuming you are able to switch everyone, how easy is it for you to amend your filing or modify your strategy to accommodate that.

Craig Wheeler

So, I can give you a specific strategy, I can tell you that we have thought very deeply about it both with the original product that we would be able to get approved and launch in any event as well as how we will respond to 0.5 and so we have thought about it quite carefully, we do think that there are multiple opportunities to create value even in a scenario where we are able to switch the entire market which we think is going to be unlikely at this point. But I think we are quite prepared when it comes to our strategy probably we will think about it.

Avik Roy – Monness, Crespi, Hardt

Would it require a completely new file or would you be able to modify your existing file to accomplish your (inaudible)

Craig Wheeler

That is not something I would like to telegraph.

Avik Roy – Monness, Crespi, Hardt

Fair enough thanks guys.

Craig Wheeler

Yes, absolutely thanks.

Operator

Our next question comes from David Maris with Credit Agricole.

David Maris – Credit Agricole

Hi, good morning a few questions, first you said all but a few of the players interested in the biosimilar market seem to be taking an undifferentiated approach. So I am interested in who are the few that you think are taking a differentiated approach and how are they differentiated.

Craig Wheeler

I think it is actually, it is very hard to be specific here because we don't, what we do know is because of confidential discussions we cannot reveal others confidentiality but there is generally two categories of players out there. There are people who are – are trying to go through the new route, and there are kind of figure out that halfway and say we are going to go with it but there are others that have a different strategy of getting things approved first in Europe and then bringing those European studies here.

And most of those players were so far, we have seen actually going through all trying to use the Noble BLA pathway, so we think we do see differentiations there, what we have not seen from anybody is people who are trying to do in the biologics from the kind of work that we have done with the enoxaparin Copaxone which requires you to really start way back at saline [ph] engineering in form [ph] of selection to be able to execute the kind of things that we have done here.

So that is why when I say that our conversation has been very interesting, people are quite intrigued about what we're doing here, quite intrigued about what we are going to do and try to figure out how that actually fits with the strategy that they are pursuing or developing and that is one of the things I was alluding to and I want to make sure that we find partners that our strategically aligned with what we're trying to do here because we think really it is an integrated approach from analytics and process all the way through clinical and regulatory and IP to be able to create the value in either enoxaparin or Copaxone as well as in form of biologics and that is what we're trying to do there.

David Maris – Credit Agricole

Okay, just a couple of follow-ups, in your discussion of alliances, it sounds like you are really in the sink of ironing out the best broad deal, have any of the discussions contemplate the sale of the company and why is that not a viable outcome or what is your goals of a deal and then lastly, you have mentioned through original Sandoz program included collaboration on a few products but now you are free to operate openly on those other products, did something happen in those products or why did they not opt into the other products.

Craig Wheeler

So that was a lot of questions some of which I am not going to – but obviously I cannot comment on any discussions on M&A but our goal in a partnership is really; we have tried to find a broad partnership that has been interest and other types of deals out there particularly product deals for the programs that we're working on, our primary goal is to get a broad partnership and so that is the nature of those discussions.

Your other question was in terms of freedom to operate and to characterize the programs that we worked on with Sandoz. So in our 2006 agreement, there were two biologics included in that agreement, one of those biologics was eliminated from the portfolio based upon the market opportunity, nothing to do with the technology but on the Novartis's other side, the other one, we had a piece of work they were asking us to do, we completed that work and for that work we still retain a piece of, that the program should it go forward and the kind of Novartis's organization.

The way I characterize those in the past is those deals were deals that we were using to actually get our toe in the water on biologics so they were not designed to and I would not expect them to be significant revenue contribution that would be extreme on the launch but not significant revenue contributions to us in the future. So, beyond those two program we are wide-open, we have no commitments, no lock-ups anywhere in the entire form of biologics field.

David Maris – Credit Agricole

Thank you

Craig Wheeler

Sure.

Operator

(Operator instructions) Our next question is a follow-up from Ritu Baral with Canaccord. Ritu your line is open.

Ritu Baral – Canaccord

Sorry about that, thanks for taking the follow-up, going back to the biosimilar’s partnership and opportunity for a second, so given the complexity of the biosimilar’s act and how it may not even be very feasible for development to; given the Rio Parkway for some of these drugs, did you see an opportunity for partnership along 505/D2 lines should companies sort of want to develop sort of follow-on biologics with shorter but not biosimilar opportunities.

Craig Wheeler

Well said, the B2 pathway wouldn’t be available to biologics so it would have to be a BLA pathway as an alternative pathway, it is certainly a viable opportunity for us because it is a viable pathway but we actually believe that the pathway is ultimately going to be workable. We think many of the things that was built into this pathway were what we have been talking but in seeking in terms of FDA's ability to look at new technology, FDA's ability to designate substitute ability etc.

I do agree with you, that the patent clearance process is complex here and so you are going to have to be pretty savvy in terms of how you think about that patent clearance process. But we do think that ultimately that, that will be a very viable pathway, there may be some tweaks to it as it gets implemented but we think primarily that ultimately that pathway that will be used.

Ritu Baral – Canaccord

Got it, and I don't think we have mentioned 118 [ph] today, has your sort of viewpoint or strategy on that compound changed in any way especially given the recent excitement about (inaudible) and the anti-coagulants needed to manage those procedures at different cardio meetings.

Craig Wheeler

Yes, as I said in my comments, actually what I do perceive as the licensing environment for cardiovascular agents has actually looking better, it does not mean we are predicting success for our team partnering but we have initiated a new round of partnering for that agent. The first time we went out it was a really pretty dark day to try and partner those programs, many companies were, heading there on portfolios.

I think with some of the new findings and anti-coagulants, I think with some of the failures of programs out there, I think that people are beginning to see realm and I think with the orals coming out people are also beginning to see the nice portfolio fit of an injectable agent and set at the hospital agent that could match [ph] really work well with switching over to the oral agents, I think there is multiple opportunities out there, so we are in the process of really restarting those perceptions that we had in the past with interest but not really a budget or ability to actually move forward.

And so I would say we are optimistic, but I don't want to be predictive here, it is a big expensive program and the pharmaceutical market is a lot tougher so we're hopefully going to get how we believe in the drug but more to come on that one.

Ritu Baral – Canaccord

Great, thanks guys.

Craig Wheeler

Sure.

Operator

Our next question comes from Doug Adams with Tocqueville Asset Management.

Doug Adams – Tocqueville Asset Management

Good morning, in terms of your guidance about adding to your employee number for R&D, does that enforce something either in terms of your confidence about doing a broad platform biologics partnership since you are adding people to work on it before-hand or does it imply as to your confidence about Teva’s difficulty in getting their generic approved.

Craig Wheeler

And so, let me answer that question in two ways. Talk about how we are thinking about running the business and then talk about what we are doing in terms of expanding headcount, first we are operating conservatively, we are obviously, you can see, we're generating a fair amount of cash right now and we are confident about where we are………….some of what I did in the, in my prepared comments in talking about the difficulty of getting enoxaparin approved and where Teva is.

We're actually, we don't want to end up, if something does happen there have a big cliff where we have a – we are being very didactical about how we increase over expenses. What we are doing is we are beginning to build out a research effort that we have been not able to fund for the last four years, because of the delay we saw in the enoxaparin approval. And we're doing it carefully but there is a lot of backlog where we have very promising things that we would like to move forward in both the biologics area and in the (inaudible) area, but we just haven't had the resources to do it. So we are making some very strategic hires on some very specific assumptions to marry with the work that we have already done and hopefully we are able to bring candidates, very quickly and that is where those headcounts are going.

Doug Adams – Tocqueville Asset Management

Okay.

Craig Wheeler

Sure

Operator

I'm showing no further comments; I would turn it over to our speakers for any closing remarks.

Craig Wheeler

Okay, well I just want to thank everybody for all the good questions and your attention. We are thrilled with where we are with the company and we're going to continue to show what this technology can do over the cause of the next couple of years. So thanks very much for your attention, we look forward to talking to you in the future.

Operator

Ladies and gentlemen thank you for your participation in today's conference, this concludes the program; you may all disconnect and have a great day.

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