Momenta Pharmaceuticals' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)

Q1 2011 Earnings Call

May 5, 2011 10:00 am ET

Executives

Beverly Holley—Director of Investor Relations

Craig Wheeler—President and Chief Executive Officer

Rick Shea—Chief Financial Officer

Analysts

Duane Nash—Wedbush Securities

Ritu Baral—Connacord Genuity

Joseph Schwartz—Leerink Swann Llc

Brett Holley--Oppenheimer

Eric Schmidt—Cowen and Company

Ahmee Fahdia—UBS

Avik Roy—Monness, Crespi, Hardt

Greg Gilbert—Bank of America/Merril-Lynch

Operator

Good morning and welcome to the Momenta Pharmaceuticals Q1 2011 Earnings Conference call.… (Operator instructions.) I’d now like to turn the call over to your host Ms. Beverly Holley, Director of Investor Relations. Please go ahead.

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 Q1 2011 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 will open for 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 or prospects, company’s revenues, expenses and other results of operation including the quarter ended March 31st, 2011.

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 March 31, 2011 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. Momenta’s providing the information on this call as of this date and assumes no obligations to update the information included in this call or by any forward looking statements whether as a result of new information, future events or otherwise. Our logo, trademarks and services are property of Momenta Pharmaceuticals, all of the trade names, trademarks or service marks are property of their respective owners. With that I will now turn the call over to Craig Wheeler, Moneta’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 the Q1 of 2011 and provide an update on recent corporate developments at Momenta. After that Rick will give an overview of our financials. I’ll start with a brief update on enoxaparin. After nearly ten months of the sole provider of generic Welbenox we and our collaboration partner Sandoz continue to notice strong product revenues. Due to the current status as the sole approved generic we are earning a 45% contractual profit share under our Sandoz collaboration agreement.

For the Q1 of 2011 Sandoz reported that net sales of enoxaparin were $247 million. This translates to Momenta product revenues of $76 million from the sales of generic LOVENOX. We are very pleased with the performance of the product in the market place. Sandoz did note that some of the sales this quarter were due to in-stocking from new acquired customers. Also, we are currently operating near the maximum capacity of our supply chain so to set expectations we have limited opportunity to grow from our current market position in the near future. As we have mentioned in the past, should an additional generic LOVENOX enter the market our economic arrangement would shift to make profit share to a royalty on net sales which would significantly reduce our enoxaparin revenues.

We continue to believe that the FDA’s response to the citizen’s petition on enoxaparin indicated that the agency is setting a high bar for any generic LOVENOX approval. Based on our experience we believe the technical hurdles, scientific challenges and manufacturing quality control requirements will limit the number of companies that eventually receive approval. As you know we’ve also developed a strong set of IT around certain critical methods used to manufacture and ensure equivalence and product quality.

Regarding our case against Teva, filed December 2010, in which we sued Teva for infringement of two Momenta patents. On April 15th we served Teva with claim by claim allegations of infringement and discovery is now underway. The documents containing these specific allegations are confidential at this stage. A markman hearing has been scheduled for December 13, 2011, and a preliminary trial based on this case has been set for February 4, 2013.

We believe, should other generic versions of enoxaparin advance we will also be able to use our IT portfolio to protect our proprietary technology. I’ll now comment on the suit senethevent [ph] has filed against the FDA following approval. In a hearing in August the courts denied senethevent request for a preliminary injunction on the sales of enoxaparin. The parties have now filed and briefed, cross-motions for summary judgments seeking a final ruling on the case. A date has not been set but a hearing could be scheduled at the discretion of the court. We believe that senethevent claims are without merit and continue to believe that the court will ultimately agree.

In summary we are very pleased with the launch and performance of the product to date. We are continuing to generate a significant from our sole approval which is giving us the financial strength to advance our other high priority promotions. I’ll now discuss N356 our generic version of tedescepaza [ph] which we are developing in collaboration with Sandoz. The ANDA is under active review at 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 equivalents between our product and Teva’s can be strongly believed that the application is approvable as a 505j.

Our goal is to provide a fully interchangeable generic version of Copaxone which we believe will be welcomed by the tens of thousands of multiple sclerosis patients currently on Copaxone therapy at an average cost of over $40,000 per year. I’d like to spend a moment on the newer oral MS therapies; gallenia [ph] on sale from nevartis [ph], iginotics [ph] BE12 and temmets [ph] proclinimage [ph]. We’ve been following the progress from the clinic with interest.

Although there are still many unknowns we do anticipate these products will affect the sales of Copaxone to some degree in the next few years however we believe that even assuming these other products are successfully approved and launched Copaxone will remain a significant franchise. Analyst projections following the Biogen [ph] data announcement are predicting significant Copaxone sales in the U.S. for the foreseeable future.

We continue to believe this will be a very factory generic market to enter. As a reminder the collaboration terms with Sandoz on this product provide Momenta a 50% share of the contractual profits under all possible competitive scenarios. The Copaxone litigation between Sandoz Momenta and Teva continues to move forward.

Court has set a trial date of September 7, 2011. We do not know if the court will provide further guidance on claim construction based on the markman hearings at the start of the trial. At the present time we’re preparing for trial this fall. We are confident we have a strong position. Momenta has been building a scientific foundation for our fellow onbiologics [ph] business for several years. During that time we have developed argilitic [ph] methods and tools to enable us to thoroughly characterize biologic molecules.

We have extensively researched showso [ph] genetics to better design cell line and select clones that deliver the potential to be interchangeable products and we have correlated these genetic controls with media components and process conditions to provide us with the tools necessary to ensure durability and biologics manufacturing. This work has given us the confidence to advance our (inaudible). Our focus is on the development of interchangeable products that have thoroughly characterized safe and effective. We believe our approach has the potential to increase the probability of success of the program, reduce overall timelines by reducing clinical requirements and create the evidence necessary to gain approval as an interchangeable FOB.

Our innovative approach allows us to create IP on our proprietary process and analytics and offers the potential to protect our interchangeable products from competition. The FDA is working with industry to implement the new FOB pathway. We are active participants in this discussion. Jim Roche, our Chief Medical Officer, testified at the hearing and emphasized the importance of maintaining flexible policies that promote innovation in poli-onbiological [ph] development. FDA scientists have stated that clinical requirements will be influenced by the degree of and sophistication of the analytic and process controls used by the applicants.

The FDA is now engaged in meetings with important trade associations to develop these rules for using the new approval pathway and has recently announced that they will issue some form of guidance on the pathway by the end of this year. We believe the FDA is committed to making the new pathway a success and our investments in innovative FOB development platform will generate scientific data that in the end could make the FOB pathway both practical and attractive.

Our business strategy in this area is to develop a broad portfolio of multiple products and to seek an appropriate collaborative partner that shares our strategic vision. With the success of enoxaparin we have increased the funding for our FOB program and have advanced the development of our FOB pipeline accordingly. We are discussing possible collaborations with prospective partners that will allow us to expand our portfolio further.

We now have the resources to advance our programs through the early stages of development. This should enable us to capture a higher portion of the ultimate value as we enter collaborative partnerships. I want to emphasize that the most important aspect of any collaborative partnership is alignment on strategy. If we achieve this we believe we have the potential to be an industry leading FOB competitor.

In our novel drug program we are continuing to seek a partner for M118. We have recently reinitiated our partnering efforts and have had some positive discussions. If we can successfully partner this program and return it to the clinic it will be a significant upside for our new drug pipeline. M402, our pre-clinic oncology candidate is advancing towards the clinic. We have reached the process of preparing an investigation on new drug application and hope to initiate clinical trial studies later this year.

We are also investing in novel drug research in the programs and hope to generate multiple novel candidates in the coming year. Our research is focused in two areas HSPG’s, our heparin drugs, and novel biologics. Both of these areas leverage the tools and the insights we have created in the development and technology and able generics. These structural insights significantly increase our ability to do detailed structure activity response work and to develop effective drug design manufacturing process for these complex molecules.

In closing, the continued success of generic Lovenox has opened the door for us to invest prudently in areas that we believe could generate significant value for our company. The revenues being generated are pure in the development of our pipeline and helping fund the early stage development. The validation and recognition we’ve received for our scientific innovation has elevated our profile in the pharmaceutical community and may set the stage for a transformative collaboration in prolonged biologics. By any measure we had a great Q1 and look forward to an exceptional year. I’ll now turn the call over to Rick for a financial update.

Rick Shea

Thanks, Craig. We certainly did have an outstanding quarter and revenues for the first quarter totaled $78 million and included just under $76 million in profit share revenues from sales of enoxaparin and $2.4 million collaborative revenues. Sandoz reported enoxaparin net sales as $247 million and as the sole generic we continue to earn 45% of the product’s contractual profit. The contractual product profit for the quarter was approximately 68% of net sales, a bit lower than the last quarter’s percentage of net sales of 69% in part due to product mix as we sold more of the lower dosage presentations.

On its earnings call Sandoz indicated that the quarter’s enoxaparin sales were favorably impacted by shipments to the two significant new customers. Sandoz also stated that they were working to maintain the product supply chain capacity of 45-50% of the market. Beyond mentioning the end stocking that occurred in Q1 they did not quantify. Sandoz did not provide any further guidance on future enoxaparin sales.

Turning to our collaborative revenues the quarter over quarter decrease in collaborative revenues was due to lower reimbursable enoxaparin development expenditures since in the Q1 of last year our enox-ANDA was still under FDA review. With respect to operating expenses I previously indicated that for 2011 we expected that operating expenses, excluding non cash stock compensation expenses and net of collaborative revenues would run between $15 and $18 million per quarter. For Q1 2011 total operating expenses excluding stock comp and net of collaborative revenues totaled $17.1 million.

Research and development expenses for the Q1 2011 were $12.9 million compared to $12.3 million for the same period last year and excluding stock compensation a 13% increase in R&D was due primarily to an increase in M356 manufacturing expenses. GNA expenses for Q1 2011 were $8.3 million compared with $7.5 million for the prior year Q1. The increase in GNA was due to the enox related royalty payable to MIT and to increased litigation expenses offset by lower stock compensation expenses. The net income for the Q1 2011 was $57 million or $1.15 per share basic EPS and $1.13 fully diluted.

In Q1 2010 we recorded a net loss of $16.1 million or a loss of $0.37 per share. As of December 31, 2010, the company had available net operating loss carried forward to an excess of $200 million which can be applied to federal and state taxable income. We ended the Q1 with $182 million in cash and marketable securities compared with $153 million at the end of 2010. In addition to receivable at quarter end for our enox profit share payment from Sandoz is approximately $76 million.

We do expect that near term during the period of sold generic enoxaparin we are likely to continue to be profitable and cash positive. This concludes my financial review. I will now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions.)

Our first question comes from Duane Nash at Wedbush Securities. Your line is open.

Duane Nash—Wedbush Securities

Good morning and thanks for taking the questions. Craig, can you comment on the likelihood of a follow on buyout application by Momenta sometime in 2011 or would this be a more distant event?

Craig Wheeler

Hi, Dwayne, thanks for your question. I think it would be beyond 2011 but we’re working very diligently to build a portfolio. Of course we have to limit the investments in that portfolio before the approval of enoxaparin so most of the activities there were in the research setting but we are moving forward quite rapidly and are quite pleased with where we are in the current stage of development.

Duane Nash—Wedbush Securities

For an initial application might we see this by Momenta alone without a partner or is this necessarily a partnered effort?

Craig Wheeler

It’s certainly possible that you could see it by us alone but our goal is to actually bring a partnership in when the timing is right. As we look at partnerships the most important thing for us is to make sure we have a strategically aligned partner. The second thing is we want to make sure we have our pipeline far enough along that we can actually command a significant piece of that ultimate revenue like we have with enox and Copaxone so we’re working on that but it is possible that you could see our first application from us alone.

Duane Nash—Wedbush Securities

Well thanks very much and congratulations on the quarter.

Craig Wheeler

Thanks so much.

Operator

Thank you. Our next question comes from Ritu Baral of Cannacord. Your line is open.

Ritu Baral—Cannacord Genuity

Good morning, thanks guys for taking the question. Now that you guys are sort of running flat out on the manufacture of enox, where are you and Sandoz seeing the sensitivities in that production chain, is it the raw materials source, is there some sensitivity somewhere in the processing that Momenta technology sort of comes in to sort of swoop in and fix. Can you comment on that?

Craig Wheeler

Sure, I can give you just a little comment, we can’t come into detail on the supply chain but the supply chain was basically built and designed to be able to grow up to this point so there are several cinch points in it. It’s really running very effectively right now from the Chinese suppliers to (inaudible) to the ATI to the final drug product. In the end it is running, I would say, in close to a jettison time fashion so you know, when you have a supply chain at capacity you have numerous cinch points that can come and go at different points depending on what product moves through the pipeline but overall we’re pleased with how the supply chain is running but it is running close to design capacity.

Ritu Baral—Cannacord Genuity

Are you seeing any sort of lumpiness with raw material supply? Has it essentially been passing your quality controls?

Craig Wheeler

Well, we can’t comment specifically on our raw materials. In raw material, of course, in many supply chains, that’s the place where you would build up inventory so you would have less sensitivity so we’re very cognizant of the need for the supply to be there when we need it to manufacture.

Ritu Baral—Cannacord Genuity

Got it, that’s helpful. And as far as the favalon [ph] biologics program and the communications that you had with the FDA so far, what has been their major points of concern and focus in a development process for a bio similar and which of these points do you think will make this technology be most relevant?

Craig Wheeler

Sure, that’s a good question. I think what I would say is that most of the interactions that we’ve seen since the formal process has been approved that the FDA has been pretty guarded in the comments that they’ve made so they’ve been primarily seeking input through product forms and they’re kind of keeping a powdered eye in putting their position out there. Obviously we’ve had our own discussions on our products and things and so those are confidential and we can’t really talk much about them but the things that they’re wrestling with and the things that have always been in front of us is how you define interchangeability and how do you think about those things like crossover sides and different things that they’ve been talking about for years. I think that’s very much what’s in their radar but I don’t think they’ve been putting many positions out there specifically because I think they’re trying to get input at this stage in the game.

Ritu Baral—Cannacord Genuity

Great, and last question before I hop back into the queue; can you give us an update on where 118 is in partnership discussions or plans for further development?

Craig Wheeler

Sure. So first, in terms of further development we’ve always said that if we’re going to take it into these big phase three trials we’re going to need to partner so we’re still in that mode. We have re-initiated those partner discussions and are actually finding some receptive discussions out there. I think that a couple of things have changed since the first time we were out there. Many of the companies we approached, if you recall what I said, in that first partnering effort were all interested in the science of what we’re doing, were not ready to bring in new products at that point, they were in the middle of mergers or others and I think there’s more openness to bringing products.

I think secondly, as oral agents have entered the market there may be more room to bring in complimentary agents, particularly on a hospital base, injectables that could allow a commercial engine to be able to link that hospital injectable into their oral products. So we’re seeing more interest and acceptance. There also have been some failures in this space which I think leaves open more market potential for the product. So overall we see more positive signals but I think it’s premature to say we definitely have a partnership in the end but we are working hard on it.

Ritu Baral—Cannacord Genuity

Right, thanks Craig, thanks everyone.

Craig Wheeler

Sure, thank you.

Operator

Thank you. Our next question comes from Joseph Schwartz of Leerink. Your line is open.

Joseph Schwartz—Leerink Swann Llc

Thanks. I was wondering how much is the guidance for industry that FDA is working on, I think, expects to have something by the end of the year, how much is that rate limiting for you to announce the next drugs in the favalon biologic area and a partnership there?

Craig Wheeler

I actually think the guidance that the FDA is going to come up with there is going to be pretty general. They obviously have had a lot of queries from companies that are looking to bring programs in. some of these need to be a pathway, some are looking to bring products in from the European products that they’ve already approved. So I think there’s going to be some general steps coming up for review. The FDA said that they’re going to give initial guidance. I don’t have—I’m pleased that they’re going to be putting some information out there but I don’t have high hopes that it’s going to really define the pathway.

I think for us that it’s not really a limiting step. We feel that we have technology that allows us to take advantage of this new pathway and therefore shouldn’t limit our ability to do our programs nor get a partnership. I think it certainly does impact how that review goes once we actually do get those products to the FDA but it’s not rate limiting for us in any way at this point from what we’re hearing from the FDA.

Joseph Schwartz—Leerink Swann Llc

Thanks, and do you always expect to be able to get to market without any clinical data, so to speak, and is there a limit if clinical trials that you can place or you can reference as far as that so we may understand some more about your strategy here? Because it seems like a lot of the drugs which you would be reasonably expected to go after would be some of the more complex ones but then maybe that’s where the FDA might like to see more of a mix of clinical and non-clinical data so how should we think about these things in that context?

Craig Wheeler

Sure, that’s a good question. I think we—what we’ve always said is we believe in the favalon biologics pathway the trials will be required, at least at first. We ultimately, as people get more comfortable and as the technology advances, that we may get to much more like a 505j type of pathway here but certainly at first there’s going to be some sensitivity towards what clinical data is provided. We’re expecting to do trials. Our view on that is that the types of trials and the amount of trials, the size of the trials, will be limited if you actually provide the right data, the right characterization data, file characterizations, analytic characterizations to show that you actually have an equivalent product. Our strategy is to—just like we’ve done with enox and with Copaxone to show that we have equivalent product—and then the clinical trial data should become more confirmatory type data as opposed to the primary data that’s driving approval as an equivalent.

We think that the technology that we have should reduce those clinical trials. We think it should therefore enable faster approvals. We think also it should—if we have the kind of success that we think we can create here—enable us to get to substitutable biologics much more quickly. So that’s really our strategy.

Joseph Schwartz—Leerink Swann Llc

Thank you.

Craig Wheeler

Sure.

Operator

Thank you. Our next question comes from Brett Holley of Oppenheimer. Your line is open.

Brett Holley—Oppenheimer

Hi, thanks for taking the question. I’m wondering how you’re currently thinking about essentially growing in an end supplying capacity. You’re at 45-50% of the market now and obviously there are several different variables that can play into your decision to grow that capacity and I’m wondering how we should think about that kind of (inaudible)?

Craig Wheeler

Hey, Brett, thanks for the question. I think for the time being you should assume that we are really at the maximum of our capacity. I think the supply chain that we have, it’s not a matter of buying more heparin to be able to expand it, it really is thinking about steel and tanks and those type of things to be able to expand capacity. I think our process activity development that you will see coming out may have the ability to tweak yields around the edges as we actually get more experience with the processes and the plants but I do not expect to see larger capacities coming offmine force [ph] in the foreseeable future.

Brett Holley—Oppenheimer

Obviously the key variable was before approval of Teva, I mean if there were some kind of flimsy delay in their approval would that prompt you to be a little bit more aggressive on the capacity side?

Craig Wheeler

Well, it could, remember we’re looking at what the competitive environment is incentives in that market as well so we’re making decisions based on how we can maximize the opportunity for the product but it’s hard to say we would get definitive data that says we would have time to put steel in the ground and develop a plant. It’s—if Teva would give us that clarity I would appreciate it and then we could (inaudible).

Brett Holley—Oppenheimer

Fair enough. Thanks for the answers.

Craig Wheeler

Absolutely.

Operator

Thank you. Our next question comes from Eric Schmidt of Cowen and Company. Your line is open.

Eric Schmidt—Cowen and Company

Thank you. Speaking of Teva there’s been much speculation in the marketplace as you know, Craig, about a potential IT settlement there. I don’t expect you to really comment on any negotiations that might be ongoing but I was hoping—I know you’re a business person—I was hoping maybe you could discuss the taper characteristics of the deal with T1, any IP settlement that might make sense to shareholders?

Craig Wheeler

Well, I think you just heard that in the right places. You know that we can’t discuss that specifically. They have a brand; we have a generic so obviously there’s the potential there. I will just say a couple things on the environment out there. Any deal that gets done in this environment has got to be clearly pro-competitive and pro-consumer. The FDC has made very clear statements in terms of what’s out there and they’re trying to get the entire settlement process banned so if there is a lobbyist (inaudible) but you would have to start with the math, anything that would be pro-competitive to consumers.

Eric Schmidt—Cowen and Company

Okay, second question is just on the biologic collaboration. If I’m reading your comments over the last couple of weeks correctly it sounds like you’re more optimistic for the deal here than you’ve been in some time. Just wondering if that’s truly the case. We’ve been talking about a potential partnership here for a while and if so, what might be the hole in that optimism?

Craig Wheeler

Well I guess I would say that kind of goes both ways on comments. There’s clearly shades of nuance I was trying to project there but one is, I think, the success we have had with enoxaparin and the availability to patent it certainly has created a lot of interest in terms of the tools and technology that we have to be able to develop biologics. So we’re quite excited and we’ve got some really great discussions out there. The other side of that is we’re in a different place, certainly, than before enoxaparin approval and that we have the ability to actually bring those programs forward a bit further on our own to perhaps be able to command more of the types of deal that you see with enoxaparin. We have a real significant piece of those products and that requires moving those products forward so we’re kind of time constraining the interest in it with where we are in the kind of deal we can command. We have a little bit of a luxury in being able to do that. The most important thing though, for us, and I can’t emphasize this strongly enough, is strategic alignment.

We have a pretty unique strategy that we’re pursuing in favalon biologics and it’s not consistent with everybody’s strategy out there. We’re looking for substitutable biogenerics, if you will; we’re not looking for accepting significant differences or minor differences and going for a non-substitutable product. We may end substitutable or non-substitutable depending on how the FDA evolves but that strategy requires a line all the way across the whole value chain and that’s really what we’re looking for in a partner.

Eric Schmidt—Cowen and Company

Got it, thanks.

Craig Wheeler

Sure.

Operator

Thank you. Our next question comes from Ahmee Fahdia of UBS. Your line is open.

Ahmee Fahdia—UBS

Hi, I had two quick questions. Firstly, just as a follow-up to your comments regarding the biologics collaboration, could you give us more color around why is it that gaining such suitability is an issue for some of the other potential partners you may be speaking with because I would think that that would be an attractive proposition; if you could sort of characterize what type of companies have been interested and what challenges you’ve faced in your discussions that would help and then I have a second question.

Craig Wheeler

Sure, so I hope I didn’t imply—I didn’t mean to imply that people aren’t interested in getting substitutable biologics. I think because we’re taking, we’re going for, I guess I would say using our scientific advantages to try to create both a better data setting analytically and bio characterization as well as create IP around it to try to drive through the substitutable pathway initially is our strategy. Many companies are seeking substitutability, in fact some are pursuing a strategy where they’re trying to get their products approved through a DLA pathway and ultimately use clinical experience to try to gain a substitutable decision so there are different strategies to get there but I think everybody would like to see a market here where they would get substitutability and therefore gain the advantage of that brand.

Ahmee Fahdia—UBS

Okay. The second question was—and I’m not sure if you covered this earlier—regarding the impact of BE12 on Copaxone. Do you believe that that will hurt Copaxone in sales? If you believe it won’t, why?

Craig Wheeler

As I said in my prepared comments, we do believe that BE12 and potentially some of the other orals will begin to make end roads on the injectables, including Copaxone. It’s good data out there and I would think that that will benefit MS patients in the long run. We also believe and are carefully watching—Teva would also agree with this as well—is that they will continue to be in a position for Copaxone that will be a substantialization. We’re expecting that this compound, because it’s been so well accepted and actually had such benefit for MS patients, is going to be slow to erode, particularly for ongoing patients. We’ve been looking at potential combination therapies that arise, so we think that this therapist’s franchise, though it certainly will feel some pressure from orals, is going to be significant and will be a very nice way to have a technology enabled generic competition in there. We’re actually looking forward to entering that market but no doubt it’s good news for MS patients that these oral agents are coming along.

Ahmee Fahdia—UBS

You mean that the well established position in the market will weigh much more than the fact that there will be an oral or an alternative in the market?

Craig Wheeler

I think it’s going to come down to specifically what the data on each of them are and the experience that the clinicians have prescribing it. Copaxone has the advantage of having relatively few side effects compared to, for example, the interferons which are out there. I think it’s a pretty clean agent and it works well for many, many MS patients. The orals that they’ve developed will be better understood as they get into larger and larger patient populations and ultimately it remains to be seen how those therapies evolve. In the MS marketplace, typically, the competition is on the end of new patients versus old patients. Patients that are doing well in therapies are pretty hesitant to switch the therapies in the position as well that the disease will stop progressing so it’s an evolving marketplace. It’s not something that switches dramatically as soon as a new product launches into it.

Ahmee Fahdia—UBS

Thank you.

Craig Wheeler

Sure.

Operator

Thank you. Our next question comes from Avik Roy of Monness, Crespi, Hardt. Your line is open.

Avik Roy—Monness, Crespi, Hardt

Hi, guys. I actually had a financials question for you. So on the Q4 conference call for Nevar [ph] they mentioned that we should expect that the long term run rate for eminox [ph] parent sales would be—would track the Q4 numbers and yet the Q1 numbers actually make more sense from an equilibrium standpoint from the market share with sanafee [ph]. Is it more that there was de-stocking, I don’t know that—obviously you have to analyze this in a different way—but is it your sense that it was de-stocking in the Q4 or was there new stocking in the Q1 or how should we think about the difference between this sequentially?

Rick Shea

I think you’re right. There was both de-stocking in the Q4 because there was a significant in-stocking left to the year in the Q3. We did have a bit of in-stocking in the Q1 of 2011 so I think I committed on our earnings call following the last comment that I thought their objection was a little on the conservative side but as to being cautionary in Q1 numbers and looking forward. I would say there was a bit of in-stocking because of the new customers. I would also caution that we’re as Craig said, bumping up against the limits of our supply capacity so any bumps in the road in our supply chain, it’s immediately translated into the marketplace in the number of units we can ship. As far as our own profit I do want to mention that we spoke previously of an annual adjustment that we make in the development costs that we repaid to Sandoz if we launch development costs. There is an annual adjustment to those costs and I believe I said following the launch of the product that we expected that adjustment to be in the $3-$4 million range and I will mention that Q2 quarter profit will be net of that adjustment; so just to be aware of that.

Avik Roy—Monness, Crespi, Hardt

Okay, that’s awesome. Thanks, guys.

Operator

Thank you. Our next question comes from Greg Gilbert of Bank of America/Merril-Lynch. Your line is open.

Greg Gilbert—Bank of America/Merril-Lynch

Thank you. Hey, Craig, have a philosophical question for you about hypothetical settlement since you touched on it earlier. My question is how to you balance creating certainty per shareholder versus the importance of validating that your technology can lead to a final FDA approval of a complicated product, putting FTC aside.

Craig Wheeler

It’s a good question and I’ll try to be philosophical and theoretical in the answer to that. Most pro-competitive settlements that have happened generally have the company that has the application continue with the application so I think we definitely could achieve both but sure, that’s about as philosophical and theoretical as I can get.

Greg Gilbert—Bank of America/Merril-Lynch

And then just technically speaking on legal matters, how much, say, does Momenta have versus partner in potential settlement discussions for any product?

Craig Wheeler

So we work together collaboratively on all of these discussions with our partner Sandoz so we are joined at the hip, if you will, in many of these discussions.

Greg Gilbert—Bank of America/Merril-Lynch

Thanks a lot.

Operator

Our next question comes from David Risinger of Morgan-Stanley. Your line is open.

David Risinger—Morgan-Stanley

Thanks very much. I had three questions on generic Copaxone, Craig. The first is have you formally updated your ANDA to state that you will not be using Teva’s 2020 marker patent in the commercialization of your generic Copaxone and has the FDA okayed that. That’s my first question; second, when do you think your application will be ripe for approval, and third, what is your level of conviction that FDA will approve your generic Copaxone in 2011? Thank you.

Craig Wheeler

Sure. So I can tell you that we are confident that we are not going to be in violation of those patents. By policy we don’t talk about specific regulatory filings but you can take from our confidence that we’re not going to have to worry about those patents. In terms of how our thinking about this application and the progress with the application, we’re not giving any specific guidance on this year, next year, how we’re thinking about it. we are, I would say, pleased with how our application is proceeding but the things that we’re dealing with are the things that everybody else in the generic industry is dealing with in that the FDA has a significant backlog that they’re dealing with and therefore the turnaround, because of the backlog that they have in their review process, is slow. They have not received the appropriations to be able to increase their staff commiserate with the applications. Let’s use as an example, rough numbers, but when we filed enoxaparin the backlog was roughly 15 months with a target of 9-12 months. When we filed Copaxone application the backlog was 22 months. Now I believe it’s running around 26 months. It’s a slow process for any application in the agency. We have a more complex than most application, Copaxone application, just like that enox was.

David Risinger—Morgan-Stanley

Just to follow up, isn’t your application at the front of the line because the FDA has prioritized applications for generics for which there are no currently available generics on the market?

Craig Wheeler

Well it’s certainly under active review so it’s not sitting on the shelf somewhere so that is correct. We are certainly under active review.

David Risinger—Morgan-Stanley

And how many months has it been under active review?

Craig Wheeler

Well we were accepted in July 2008 as an application.

David Risinger—Morgan-Stanley

Okay, thank you.

Craig Wheeler

Sure.

Operator

I’m showing no additional questions at this time.

Craig Wheeler

Alright, well if there’s no additional questions, thank you very much for joining us on the call. We look forward to updating you again in the Q2. Thanks.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!