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Executives

Beverly Holley - Director, IR

Craig Wheeler - President & CEO

Rick Shea - SVP & CFO

Analysts

Sumant Kulkarni - Bank of America

Duane Nash - Wedbush Securities

Alan Sonnenfeld - Sanford Bernstein

Ritu Baral - Canaccord

Ami Fadia - UBS

Joseph Schwartz - Leerink Swann

Jami Rubin - Goldman Sachs

Imran Babar - Cowen & Co

Momenta Pharmaceuticals Inc. (MNTA) Q4 2011 Earnings Call February 9, 2012 10:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the Momenta Pharmaceuticals fourth quarter and yearend 2011 earnings conference 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 call maybe recorded. I would now like to introduce your host for today's conference, Beverly Holley, Director of Investor Relations. Ma’am, you may begin.

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 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’ll open the call to questions.

Before we begin, I’d like to mention that our call today will contain forward-looking statements about management’s future expectations, beliefs, plans and prospects. These forward-looking statement include comments about our enoxaparin sodium injection commercial prospects and our generic competitors’ prospects for approval and commercialization; our generic Copaxone program, ANDA review and patent litigation expectations; and our other project development plans and expectations, including our future development, partnering and commercialization potential for our development programs.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors referred to on the company’s quarterly report on Form 10-Q for the quarter ended June 30, 2011 filed with the Securities and Exchange Commission under the section risks factors as well as other documents that maybe filed by Momenta from time to time with the Securities and Exchange Commission.

As a result of such risks, the company’s actual results may differ materially from those we will be discussing. We’re providing the information on this conference call as of today’s date and we assume no obligation to update these comments.

With that, I will now turn 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 on the Q4 call. Today I’ll start with an update on enoxaparin which has seen a few changes lately and then I’ll move on to recap 2011 with a focus on our two yearend deals and what they will mean for our company going forward. After that Rick will give an overview of our financials and provide some guidance and then we’ll take the Q&A.

Enoxaparin is now a multi-generic market after at risk launch from Watson and Amphastar following the stay of the preliminary injunction by the appellate court. We were disappointed with the court’s decision, but until a final decision is issued we won’t know for sure the reasons for staying the preliminary injunction. Whether the PI will be reinstated or most importantly how the CAFC ruling might impact the district court’s proceeding.

But I can confirm that Watson and Amphastar have launched and their product is on the market. Competition is a fact of life in the generic business and this is not entirely unexpected. We are very proud of the fact that Momenta Sandoz was the sole provider of generic Lovenox for over 18 months. In their ground-breaking approval of the generic Lovenox ANDA, the FDA established a framework and criteria that we expect will be used to review other complex drugs such as Copaxone and biosimilars. Although the ANDA was filed over two years after our competitors, our advanced analytics and process capabilities provide our application to lead the way for the approval of this first complex generic. We invested heavily in developing the methods to analyze and produce enoxaparin and continue to believe that our IP will protect our proprietary methods for manufacturing this product.

We are aggressively pursuing this patent claims for damages and a permanent injunction in the District Court suit filed by us against Watson and Amphastar. Their launch is at risk, pending the result of that patent litigation and we continue to have confidence in the strength of our case. The trial is currently set for October and preparations are proceeding.

Rick will discuss the enoxaparin economics more fully in his remarks, but I can confirm that we are now in a royalty scenario. As of the recent launch by Watson Amphastar, Sandoz will pay Momenta a royalty on its net sales of enoxaparin.

In each contract year, which begins on July 1, for net sales up to a predesigned sales threshold, the royalty is payable at a 10% rate and for net sales above the sales threshold the royalty rate increases to 12%. It is too early to give you a sense of how competition will evolve with the entry of Watson Amphastar, but we expect to be able to provide more visibility in the next quarter.

I have one other bit of news on enoxaparin. We were pleased that earlier this week, the US District Court in Washington DC ruled that the FDA acted within its authority when approving the Sandoz-Momenta generic Lovenox ANDA. As a reminder, in July of 2010, Sanofi sued the FDA alleging that it exceeded its statutory authority when it approved a generic version of the Sanofi drug Lovenox. This decision reaffirms the FDA’s right to approve ANDAs for complex generic drugs such as enoxaparin and Copaxone based on the totality of the evidence provided to them.

I’ll now provide a recap of Momenta’s major developments in 2011. This was a great year for us with progress across the board. From a product standpoint, generic Lovenox was a stellar performer with over $1 billion in trailing 12 months net sales. This has been one of the most successful generic products ever. So we now face competition. Momenta and Sandoz will continue to be a major provider of generic Lovenox, a product that has brought Momenta over $372 million in revenues since its historic launch in mid-2010 and has provided us with a solid financial foundation for future growth.

The Copaxone ANDA is under active review and we’re doing all we can to support the FDA’s review efforts. We’re pleased with the constructive dialogue we’re having with the FDA and we continue to believe that the ANDA will be approved under the (inaudible) pathway as an interchangeable generic Copaxone.

The trial and the patent litigation with Teva ended in September 2011 and a ruling by the court is pending. The court had no deadline to issue a decision. It could come at any time. As a reminder the litigation with Teva involves seven orange book patents expiring in 2014 and two non-orange book patents, one expiring in 2014 and one in 2015.

Turning to our novel drug discovery program M402, our preclinical oncology candidate made good progress in 2011 and we have plans to initiate clinical studies in 2012. I will now discuss our business development efforts where we were very successful in bringing in two deals that will reshape our business in the years to come. In December 2011, we delivered on our promise to enter into a major follow-on biologics collaboration and find a global agreement with Baxter.

We were looking for a collaborative partner that’s not only complemented Momenta’s scientific and technical capabilities, but shared our goals for approaching the emerging biosimilars market place. Baxter fits that bill on all accounts and we are very excited to move forward in this promising area. The development of a truly interchangeable biologics has been a focus for us for the past several years.

We have long believed that our expertise in high resolution analytics, characterization and product and process development would allow us to become a dominant player in this emerging area. Now that the 351k regulatory pathway for follow-on biologics had been established by the US Congress, we are excited to move forward. We are very pleased with the FDA’s implementation of this pathway. The pathway enables broad technical discussions with the agency through a variety of meetings and it explicitly enables competitors like Momenta to make their scientific case to the agency and get guidance on clinical trial requirements and the path interchangeability before clinical activity starts.

Importantly we avoid the one size first all approach and are letting the science lead their decision making. The agency has stated it will look at the totality of evidence including data from physical, chemical and biological characterization analytics, animal studies and process quality in reviewing an application and that they will exercise discretion to determine the clinical requirements necessary for each application. Given our strong analytic and process expertise we believe this approach by the FDA offers us the potential to obtain a pool of interchangeable biologics with a potential reduction and possible elimination of traditional clinical trial requirement.

And to take on this challenge we've secured a world class collaboration partner Baxter. As I mentioned earlier we chose to seek global partner with manufacturing and commercial capabilities to help us enter this challenging market. Baxter’s global footprint and extensive development, manufacturing and commercial expertise are exactly what we need to succeed involving a leading pharma-biologics business. Momenta and Baxter share a common goal in this collaboration, to create interchangeable biologic product by taking advantage of Momenta’s innovative physical, chemical and biologic characterization capabilities, coupled with a quality by design approach to process development.

In the collaboration Baxter and Momenta will tap into each other’s strength to develop and commercialize up to six follow-on projects. With a $33 million upfront payment, two products selective for development, option fees for selection of additional products and technical milestones available for each product, the deal is structured to ensure that as long as we deliver on the science we will have the resources necessary to move the programs forward. Just as importantly the pathway evolved the way we expected it will. We have the opportunity to co-invest in the four additional programs to move from an already attractive royalty structure to a profit share or even greater long-term return.

As a result of this collaboration we will be expanding our headcount and investing in infrastructure to aggressively capture this exciting market. The FDA implementations of the pathway is just beginning, so it’s a very difficult to predict when our first product will launch. But we were very excited about the potential for growth and thrilled to have Baxter as collaborator to partner.

Our second business development success was a lower profile deal but could be as transformative in the long run. We have talked in the past about our new drug program to develop improved versions of biologics by engineering the SC region of antibody. During the course of this work in 2011, we found variations in sialic acid structures on glycan could significantly change the biologic effect of the antibodies.

This led to discussions with Virdante on the proprietary sialic switch technology. In late 2011, we acquired the sialic switch assets of Virdante Pharmaceuticals Inc, which included intellectual property and cell lines relating to the sialylation of intravenous immunoglobulin or IVIG and other proteins. This technology represents an exciting approach to potentially regulate anti-inflammatory activity of proteins. And it also complements our existing antibody engineering platform.

There are two aspects of this acquisition that I would like to bring your intention too. First, in addition to obtaining the technology, which is the broadly flexible to our research platform, we acquired two program that could potentially advance rapidly to the clinical with the ability to address multibillion dollar markets.

Sialylated IVIG has the potential to significantly enhance the activity of natural IVIG, which today is a supply constraint multibillion dollar market. Notably a second sialylated program acquired from Virdante early in development has similar market potential. While these programs are early, if the theory proves out, that could be a major upside for this company.

Second, I want to highlight for you how we think about our approach to new drug discovery. The work we are doing to develop our generic products gives a deep inside into biology of diseases with high unmet need, particularly inflammation and cancer. Coupled with our skills to modify the structure of biologic molecules and our process development platform, we had broad set of capabilities to identify and advance attractive new drug candidates.

The Virdante Asset acquisition is an example how we can use this platform to identify high potential technologies and programs, acquire them to complement the internal technologies and move programs forward rapidly. We are excited about the synergies between our generic and new drug platforms and look forward to talking more about our new drug platform in the months to come.

In closing, we look forward to an exciting 2012. Enoxaparin and Copaxone legal battles will certainly play out further over the course of the year. Our pipeline will advance with M402 headed into the clinic and the generic Copaxone ANDA advancing at the FDA. The follow on by our largest collaboration was for rapid infrastructure growth as we work to develop up to six products and finally the internal new drug research effort complemented by the Virdante Assets continue to build the foundation for we believe we will be in exciting new drug business.

I look forward to updating you as the year progresses. I will now turn the call over to Rick for a financial update.

Rick Shea

Thanks Craig. Revenue for the fourth quarter totaled $29.5 million and included $26.1 million in Enoxaparin product revenues and $3.3 million in collaborative revenues.

Sandoz reported fourth quarter Enoxaparin net sales of 225 million, which was down from 259 million reported for the third quarter. But that decrease was due to slightly lower market share and lower pricing due to the marketing of an authorized generic during the fourth quarter.

Sanofi Winthrop launched an authorized generic in early October and although they announced on November 30 that they were withdrawing from the market, their entry reduced the Sandoz market share for the quarter and required Sandoz to reduce prices to some customers.

Furthermore, the AG launch triggered a change in the economics of our product revenues from a profit-share to a hybrid, royalty profit share. So the product revenue of 26 million reflects a royalty for most of the quarter and return to a profit share late in the quarter.

With respect to operating expenses, I would like to reconcile my previous operating expenses guidance. I had indicated that in 2011, we were expecting that operating expenses, excluding non-cash stock compensation expense and the royalty payable to MIT, and net of collaborative revenues would run between $15 million and $18 million per quarter.

For the fourth quarter of 2011, operating expenses totaled $31 million. That number includes a non-recurring expense of $4.5 million for the acquisition of the sialic switch assets from Virdante. Excluding that in-process R&D charge of $4.5 million and excluding the MIT royalty, stock compensation and net of collaborative revenues, the balance of operating expenses totaled $19.5 million.

When I provided the operating expense guidance, I was not anticipating the Amphastar Watson litigation expense, which were approximately $1.5 million in Q4 of 2011. So adjusting for that Lovenox litigation expenses the balance of operating expenses was $18 million for the quarter. Research and development expenses for the fourth quarter of 2011 were $21.2 million compared to $15.2 million for the same period last year. Again excluding stock compensation in the Virdante asset purchase our R&D expenses increased 7% over the prior year quarter.

G&A expense for Q4 2011 were $9.7 million compared with $7.8 million for the prior year fourth quarter, again excluding the Enoxaparin related royalty payable to MIT and stock compensation, the increase of $2.1 million was primarily due to the Enoxaparin patent litigation expenses.

We reported a net loss for the fourth quarter of 2011 of $1.3 million or $0.02 per share basic and diluted EPS and reported net income of $180 million or $3.62 per share basic EPS and $3.55 diluted EPS for the year 2011. We expect that net operating loss carry forwards which were in excess to 200 million can be applied to offset our federal and state taxable income for 2011.

We ended the fourth quarter with $366 million of cash and marketable securities including $17.5 million of classified as restricted due to a bond required in the Amphastar Watson patent litigation.

I would like to provide some financial guidance for 2012. First I am not going to provide guidance on the Enoxaparin product revenues for the year, since it is too early to see how the market will develop with the launch of Amphastar and Watson and the potential relaunch of the authorized generic.

For operating expenses, we anticipate the total operating expenses excluding stock compensation and royalties’ payable to MIT and net of collaborative revenues; will increase to approximately $22 million to $28 million per quarter for 2012.

With respect to our cash position, assuming we receive a timely HSR clearance for the Baxter collaborative agreement, we should be collecting the $33 million upfront payment from Baxter in the first quarter, as well as collecting the receivables from Sandoz. So we should end the first quarter with over $400 million of cash, again including the $17.5 million restricted cash relating to the patent litigation bond.

In the subsequent quarters of 2012, we expect to be reporting a net loss and quarterly cash burn, but since the size of the cash burn will be dependent on our Enoxaparin royalty revenue, I am not going to provide further guidance at this time.

This concludes my financial review. I’ll turn it over to Craig for concluding comments.

Craig Wheeler

Thanks so much Rick and I guess we’ll now just open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Sapna Srivastava of Goldman Sachs. Your line is open.

Unidentified Analyst

This is actually [Vince] on behalf of Sapna. Our question is, how should we think about the tax rate going forward and specifically when do you expect to start incurring a tax expense?

Rick Shea

Well, again as long as we are going to be in a royalty for Enoxaparin, I am expecting that at least in second quarter through fourth quarter of 2012 we’ll be in a net loss position. So right now, I am expecting that we will have sufficient tax loss carry forwards coming into 2012 that we will not be in a tax paying situation for 2012. That of course could change depending on market conditions, results of litigation and other factors.

Operator

Thank you. Our next question comes from Sumant Kulkarni of Bank of America. Your line is open.

Sumant Kulkarni - Bank of America

My first is on your spending guidance; we know that it’s going to be $22 million to $28 million in a quarter, but do you have any kind of sense of how we should be modeling the incoming R&D revenues in the 2012 quarters?

Rick Shea

The incoming R&D revenues for 2012 will be just relating to Sandoz collaborations.

Sumant Kulkarni - Bank of America

So where will be $33 million payment from Baxter be showing up; does it flow through the income statement or is it just going to be through cash?

Rick Shea

We haven’t finalized the revenue accounting yet for the $33 million, so I am expecting that some of it will be recognized immediately, some of that will be deferred. But we haven’t yet worked that out; so the guidance with respect to the $33 million was more on a cash basis. We haven’t yet worked out the book accounting for that upfront payment.

Sumant Kulkarni - Bank of America

And how do you see the collaborations going so far; has anything started on that front or do we have to wait for the HSR to close before you can start; any look on that?

Craig Wheeler

Well, this is Craig, I would say, certainly we’re preparing to start the activities, but you know illegally HSR has clear before we can formally start activities on partnership.

Sumant Kulkarni - Bank of America

And my final question is on the Lovenox, litigation with Amphastar and Watson, what kind of timeframe do you expect ruling by given that the trial is in October?

Craig Wheeler

A ruling by the District Court or the Appellate Court?

Sumant Kulkarni - Bank of America

Both, I’ll take both?

Craig Wheeler

So the Appellate Court the ruling could come at any time. So it could come in anywhere between now and we would expect that will probably come within the next couple of months, but they’re really are under no time pressure because they have already stayed the lower court’s decision. We expect that in the District Court we will proceed to a trial which is scheduled in October and then of course, it depends on the judge and the docket, it could take anywhere; we’ve seen it in six months to a year afterwards. We have seen these rulings sometimes happen quicker. So it’s hard to predict right now.

Operator

Thank you. Our next question comes from Duane Nash of Wedbush Securities. Your line is open.

Duane Nash - Wedbush Securities

My understanding is that the Enoxaparin patents are owned solely by Momenta. So in the event that Amphastar is eventually found to infringe, do you need to share any damages with Sandoz or would you keep it entire to yourself?

Craig Wheeler

So they are our patents, but through the agreement that we have with Sandoz, they are licensed for the partnership, so it would be shared.

Duane Nash - Wedbush Securities

And have you discussed how those would be shared or is that a trade secret?

Craig Wheeler

No, we have not discussed about the sharing of any settlements or litigation.

Duane Nash - Wedbush Securities

And then one last quick one, I realize it’s still very early, but do you have any comments on, any effect on pricing that might have occurred subsequent to Watson’s launch?

Craig Wheeler

You know it’s really too early. They are just starting to come into the market and that’s why didn’t put more in the comments. I would certainly say that we had an idea, but it’s just too early yet.

Operator

Thank you. Our next question comes from Alan Sonnenfeld of Bernstein. Your line is open.

Alan Sonnenfeld - Sanford Bernstein

Just a couple of questions for you; first of all, when the court said a non-final reversal of the [PR] what does that mean?

Craig Wheeler

Well, they just stayed. They just stayed the lower courts actions. So they actually haven’t made any decision at all yet on it. I mean, I think, you know, to interpret it, I mean, if they stay the action, you can anticipate that the likely final decision will be a reversal of lower courts, but you can't know that for sure because they’re now looking at the totality of the evidence. So all they did is stay the lower court’s action at this point.

Alan Sonnenfeld - Sanford Bernstein

And then, is there a reasonable room for Momenta to negotiate with Watson to reach a settlement at this point or is there really nothing to discuss now?

Craig Wheeler

Well, you know, as I said before when people ask questions on settlement, there is always a possibility of settlement. The complexity here is we actually have four parties, not two, to deal with. We have ourselves, we have Sandoz, we have Watson and we have Amphastar. So in any settlement, you have to get in alignment of interest of the parties. So this is a complex line if there were to be any settlement.

Alan Sonnenfeld - Sanford Bernstein

And then just on the biosimilars; do you have any sense of when we could see biosimilar trials on ClinicalTrials.gov?

Craig Wheeler

So, it really is hard to predict, because a lot of what we are trying to do is work through the FDA’s pathway and our products and that’s just being put in place. And as I said in my comments, that the FDA has provided the opportunity for us to be able to exhibit our characterization date, our bio-characterization, our process sciences and take us through that pathway.

So until we get more of a sense of how that pathway will work, how quickly the meetings will be granted, how long it’s going to take between them, the kinds of questions will be asked, it’s really hard to give guidance on that. Obviously, we are trying to take advantage, full advantage of that pathway and that’s a brand new pathway coming into existence.

Operator

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

Ritu Baral - Canaccord

Craig you alluded to this very briefly, but maybe you could give us some more detail. What are the specific or more specific points of read through that we should be looking at or we should be taking away from the Sanofi versus FDA Lovenox ruling and how, as far as how FDA can evaluate a generic Copaxone; are there any sort of new points or new allowances that have been granted to FDA?

Craig Wheeler

Well, I think what is done in my view as re-affirmed but our interpretations of Copaxone has always been and enables the FDA to look at the totality of evidence provided to them and allows them to ask whatever questions they deem necessary around ensuring the products are equivalent and same in terms of purity etcetera.

So they basically, the question was really around immunogenicity and how you would factor that because this thing came through a natural process. I think it reaffirms strongly that the FDA has brought latitude to be able to take no counter factors necessary which we think is tremendous for read through in terms of things like Copaxone as well as follow-on biologics.

Ritu Baral - Canaccord

The FDA could ask you for clinical safety or immunogenicity information around Copaxone without triggering some sort of pathway change or any sort of response letter even?

Craig Wheeler

So as I understand it, it didn’t comment specifically on clinical request, but what it did talk about is the FDA’s ability to be able to look broadly for understanding sameness of the molecules including sameness that can be evaluated because of things like different ways to measure immunogenicity that might be in the product. So it reaffirms their ability to use the tools necessary. I don't think they have the right to ask you know per se efficacy question, that's not really part of the (j) pathway but they do have the ability to use whatever tools that are necessary to them to answer the questions that need to be asked in the (j) pathway.

Ritu Baral - Canaccord

Got it and looking on to interchangeability of biosimilars as part of your new Baxter deal, what is your feeling as far as characterization technology versus clinical trial data as far as proving interchangeability to FDA as part of biosimilars review. How important are those two data sets for interchangeability and how important are those two for just flat out normal approval?

Craig Wheeler

It’s a good question and it’s one I can only speculate on, but I will give you my impression. I think when you look at characterization data and the level that certainly the tools that we are developing and I am sure others are trying to develop as well are able to provide today, you can get a great, great deal of understanding of these molecules. And our goal is to get a total understanding of characterization of them so that we can actually show that we have specifically everything on the molecules, the same as in the brand.

That data if provided just like it was provided in a drug like enoxaparin and that we are providing Copaxone gives a great deal of confidence that you actually know that these molecules are the same. And it’s not just analytic data. You are also giving remember biologic data, biologic testing data into the agency. So if they may ask for supplemental clinical trials, but it should give them a great deal of confidence that in combined with trials, hopefully reduce trials, but you have no risk of having differences in the products.

If you just have a clinical trial it depends on the size of the clinical trial, the scale, but I think there's going to be questions as the brands themselves have found out with the trials. With a small clinical trial you may not pick up a difference of structure, that small difference is caused by structural differences in the molecule.

So you know my own expectation is that past few substitutability for companies that are not going to try to do the heavy analytic approach, you know try to use the clinical trials is going to be that they are going have to use obviously pretty significant trials and then probably significant in clinical experience beyond that and even that may not strong enough to get to substitutability. So I think the FDA is going to require certainly a very, very strong analytic package to drive to a substitutable decision at the agency like they.

Ritu Baral - Canaccord

Great. And just sort of a quick follow on with your Baxter relationship, they are a major producer of IVIG, is the Virdante technology some thing that the partnership can take advantage of or what does it set you up as a competitor?

Craig Wheeler

Well, I think the future is hard to predict on that one but we are sure that this could be something that is the potential that would be used in the partnership, but we will see.

Ritu Baral - Canaccord

Last question and I’ll hop back in the queue. What sort of headcount and CapEx investment do you expect to be making as part of the biosimilars initiative and partnership that Rick alluded to?

Craig Wheeler

Sure, while we are still working that out, it’s early in the partnership. As we said earlier we don’t have the HSR clearance yet. So we are already adding staff, but I think to get the final numbers and understand exactly what our investments are going, we’re going to have to sit down with our partner and really put plans to get that across the joint programs and so we’ll get more clarity over that over the course of the next three to six months but it really is going to have wait a little while until we actually get to sit down with our partner and really do the mapping out of the programs.

Ritu Baral - Canaccord

Is sort of a CapEx spend on a pilot plan part of at least a possibility?

Craig Wheeler

Yes, it’s certainly potentially part of the expenditures.

Operator

Thank you. Our next question comes from Ami Fadia of UBS. Your line is open.

Ami Fadia - UBS

I had two questions. Firstly on the operating expense guidance, when you say net of collaborative revenues, the US (inaudible) that remains in line with 2011 levels?

Rick Shea

Yeah. As I said the collaborative revenues for 2012 will be relating to our collaborations with Sandoz, Enox and Copaxone. So we don’t see a significant variation in those collaborative revenues, but they can fluctuate from quarter to quarter and sometimes it’s somewhat arbitrary as to what’s going through our P&L that is reimbursable by Sandoz. So I think it’s more straightforward to look at it, net of those collaborative revenues.

Craig Wheeler

And just to add to that, I think in Rick’s numbers that he didn’t say are guidance of the net expenses is going to be a little bit higher than last year and part of the reason behind that is the way the Baxter collaboration works where we have to invest to the technical milestones and so we will be investing in these programs and if we succeed scientifically, we will get milestones that will actually bring cash into the company in the future, that will cover a good portion of those expenses. And so it’s going to be a little bit lumpy because you will see us investing in programs and then down the road later you will see us hitting those milestones and are meant to cover hose costs retrospectively.

Ami Fadia - UBS

So just a follow up to that. In the fourth quarter you recorded about $3.3 million in collaborative revenue, do you expect that and can you remind us what that is and do you really expect that to continue?

Rick Shea

Again, I mean that’s reimbursement of expenses that go through our P&L. It includes both external expenses such as the manufacturing activities as well as the internal FTE cost. And again that represents both our Enox collaboration where we continue to do some background development work as well as some commercial work as well as on Copaxone program.

Ami Fadia - UBS

Got it.

Craig Wheeler

One of the things is I think, for folks who have followed the company through our Enoxaparin development program, those collaborative revenues can change pretty dramatically because the way these contracts work, we control basically external contracts and manufacturing programs until we get to commercial and then Sandoz controls that. So, those flows back and forth and reimbursements can look different at different points in time.

Ami Fadia - UBS

Okay. And just with respect to sort of the flow of the R&D expenditure through the four quarters, do you expect any sort of lumpiness or should we at this point assume that it is generally well spread out across the year?

Rick Shea

Probably we’re going to spread out. I don’t see anything significant enough that I could point out at this time.

Ami Fadia - UBS

Okay. And just on the sort of the progress of the work that’s going in to the collaboration. You guys mentioned that at some point when Baxter decides to opt in to one of these assets, that will trigger a milestone payment. Given where you’re at and given sort of that we are waiting for the FDA to come out with these guidelines, when do you anticipate this to happen and it’s not going to, could that potentially be a 2012 event or is it more like a 2013 event?

Craig Wheeler

Yeah, I wouldn’t anticipate any of those milestones being triggered in 2012. We thought it is possible, but I think the way to think about this collaboration is we have two lead programs where most of our resources are going to be invested and we will be starting those other programs certainly to present to our partner. But our main focus now is to get the two lead programs going as fast as we possibly can and then we will bring those other programs forward, hopefully in a very quick timeframe, but that’s one of our goals.

Ami Fadia - UBS

Got it. And just the one last follow-up from a question on tax that came up earlier. Can you confirm that you will end the year with more than $200 million in NOLs and can you carry it forward for a couple of years as and when and then instead of set off as and when you have profits?

Rick Shea

Yeah we actually entered 2011 with over $200 million in NOLs, actually about $220 million. Our book income for 2011 as you can see is about a $180 million. I think with some book tax differences ball park, again we haven’t done the tax return yet, but the taxable income might be in the range of $190 million. So that would mean we would be carrying in rough numbers about $30 million forward of NOLs into 2012.

Operator

Our next question comes from Joseph Schwartz of Leerink Swann. Your line is open. (Operator Instructions)

Joseph Schwartz - Leerink Swann

I was first going to ask how far are you into the discovery process and your patent infringement case against Watson and Amphastar and when do you expect to have sufficient visibility into whether or how they infringe upon your IP?

Craig Wheeler

Well we obviously are not going to comment on specific visibility into the IP. The Discovery process is ongoing, it’s been ongoing for a while. We obviously are stating that we feel confident about our case but beyond that we are not going to give comments in terms of what we are seeing in Discovery and the strategy there.

Joseph Schwartz - Leerink Swann

Okay, understandable. How jointly will you advance or consider the ROI with and without more expensive clinical trials for the Follow-On Biologics? Who makes the decision about which agency will pursue and how you will develop them when you might benefit more under the latter scenario without extensive clinical trials but obviously you need to consider all angles throughout time?

Craig Wheeler

I think first of all the agents are Baxter’s choice, so they get to opt into the program that they select. So we will obviously jointly evaluate things and certainly move forward if we both think makes sense but they have the final say on the agents.

I think your question as I understand you are asking, is there potentially a conflict of interest in terms of some of the developments that might happen. I actually don't see a conflict of interest. I think if you do the math on these programs where if you look at approval would reduce trials and therefore they reduce timelines if that would entail by getting approval. The value to both of us in the marketplace is much, much higher than any potential differences on interest in a clinical trial cost expenditure kind of model.

So I think our interest in the way we develop this contract are very strongly aligned. Obviously if we are not making progress from reducing clinical trials we will jointly say we are not going to be assured that to get the approximate market value by actually doing the trials and so we will actually execute in that direction.

Joseph Schwartz - Leerink Swann

And then lastly what is the regulatory pathway that you would envision for the Virdante IG product. It doesn't sound like an ANDA is possible since it would be a different molecule with different glycans but would you be doing clinical trials for that or is that maybe 505(b) (2)? What do you think on that?

Craig Wheeler

Yeah, I thought on that is would be a new molecule a new drug application, a BOA application. It’s going to take some time for us to really do the internal pre-clinical work to make a selection on what I see the best clinical path forward for that asset. And obviously its early we still have to do the basic biology experiments to make sure it all works our satisfaction. And so if we get closer will be able to give you a better sense of what the clinical direction path of that molecule might take but its still early days here. So I think we got to back into our homework on that.

Operator

Thank you. Our next question comes from Jami Rubin. Your line is open.

Jami Rubin - Goldman Sachs

Okay, great. Just a question again on to generic Copaxone investors are highly skeptical that the FDA will approved generic Copaxone without our clinical trials and clearly you have a very different opinion on this and I am just wondering how is the market going to get visibility on what the FDA is requiring or what they are not requiring? Do we have to wait until March 2014 when the first path expires to find out if FDA does decide in fact to require clinical trials? So how do you see this playing out and will the guidelines or bi-similar guidelines, which by the FDA which we understand will be issued imminently? Will that provide any visibility at all on the path forward for generic Copaxone? Thanks.

Craig Wheeler

Sure, first I actually think that the agency since this is 505 (j) pathway they had hinted that was a 505 (j) application and as I said before is efficacy trials are not the purview or mandate of the opposite generic drugs and there are actively working on this applications. So our view is that unless something tells us otherwise, that we are working directly and very aggressively toward a 505 (j) pathway approval.

I can assure you that if we were having to do significant clinical trials that we would be back out to the market and you will also see that in clinic trials. There will no secret on that if we are actually pushing the clinical trial halfway. But I think the agency is not, trying to keep a secret, at the end they are going to have to do clinical trials. They are obviously reviewing our application, and another applications as well on this program. So, we are hopeful that this pathway can continue just like it did with Enoxaparin and it will ultimately prevail in 505 (j) pathway.

I do not think there is going to be much read through at all from the Follow-On Biologics guidance. In fact I think the guidance is going to be coming out. Follow-On Biologics is not going to be specific to required clinical trials for Follow-On Biologics. It is going to be much more about pathways, how the agency will make decisions, naming conventions etcetera. I do not think you are going to actually see, for these programs, agency is going to require Phase III clinical trial. They exclusively said both in their public comments as well as the way that they created a statute that they will look at individual applications and the data that was provided to them by the applicants to determine what trials are going to be necessary. So, I wouldn’t anticipate you would see guidance, either that is going to be specific to our pushing Biologics to certain clinical trial pathways, nor reading critical Copaxone in the guidance which was coming up from the FDA.

Jami Rubin - Goldman Sachs

So just lastly on Copaxone, what’s the timeline that you are anticipating, setting the patent trial aside? The patents expire in 2014 and 2015 as I understand it. So what would your expectations be in terms of an ANDA approval for Copaxone?

Craig Wheeler

I have avoided and I will continue to avoid giving any guidance on that as we learn through the process of Enoxaparin when you file these complex new signed applications into OGD. They take time to process through the agency and so I don’t want to get caught on where we were in Enoxaparin by signaling we expect approval, now, next year, the year after, etcetera. So, we’re just kind of keep quiet on that and obviously if the application gets derailed, that will be a significant payback for us when we have to come talk to you but right now we’re comfortable with the progress we are making on it, but I am not going to guidance on when.

Operator

Thank you. Our next question comes from Imran Babar. Your line is open.

Imran Babar - Cowen & Co

I have a couple of questions. Actually, a number of my questions already got answered. So will be real quick. One is really a technical question. Could you quantify what your restricted cash flows. Just give us a little query on that. I think I am sorry if I missed that?

Rick Shea

Yeah, in connection with the Amphastar Watson litigation, when the preliminary injunction was imposed, we and Sandoz were required to put up a bond in favor of Amphastar and Watson in the eventuality that we lost the patent case and would have to pay damages to Amphastar Watson. A portion of the bond that we’re responsible for is $17.5 million.

Imran Babar - Cowen & Co

Okay. Great, thanks. And I guess, the next question I had was, just in terms of for Q1, the competition and I am just kind of curious how this will effect the deal terms, in particular for Q1s for example, will be one month of profit share and then couple of months of royalty. I just wondered if you can explain that, given sort of competition arriving in Q1.

Rick Shea

Yeah, that is correct. We will have one month of profit share and two months of royalty.

Operator

Thank you. Our next question comes Sumant Kulkarni of Bank of America. Your line is open.

Sumant Kulkarni - Bank of America

Thanks for the follow up. So just to be clear does your spend guidance include a fully built out spend on the Baxter partnership for 2012 or could it actually be higher?

Rick Shea

This is our best estimate at time for what our expenses are going to be. So it does include our estimate of spending related to the Baxter collaboration.

Craig Wheeler

I just put one more caveat after Rick. We are just at the start of this we are sitting down with our partners as soon HSR clears and we will get a better sense of tightening down that budget as soon as we go through that process.

Sumant Kulkarni - Bank of America

And given that assuming status quo on Lovenox that is like Watson Amphastar launch and we also have the AG back on the back on the market, if that does not change and if you do not get a Copaxone approval, do you expect the company to be loss-making in every foreseeable future quarter or could there be something else that could be offsetting that could lead to a profit in any given quarter?

Rick Shea

Well certainly with the way our expenses are building and it says we are actually in a loss situation until we actually bring up the revenue it going to be as to it, there could be quarters where we see cash coming in through milestone payments, we could get aid as a result of the lawsuit, we could get revenues in from winning the law suit. So those types of things. So there is lots that could happen, that could change the cash position but I think what we are doing is we are planning the company based upon what we have right now and the timelines we see with Copaxone patents in the market place.

Sumant Kulkarni - Bank of America

And this one is a bigger picture question based of that answer. Given that you could be loss making and there are no other potential revenue making opportunity, does that make the company more amenable to more partnerships and what would you say the ripeness of the products in the pipeline that are not related to Baxter are?

Craig Wheeler

Well, I think we’re always open to partnerships in the company and we think that's a great way to build the company, be able to build our internal capabilities in scales and grow the company in the long run. It really depends for us in terms of the nature of the products how far along they are and we obviously want to maximize the value for us.

So for example 402 is to get them to clinical could be a candidate for partnership, but we certainly want to carry it further than it is now, so I wouldn't expect that to happen in the near term, but as we start to get positive results that could be a candidate for partnership.

On follow-on biologics we have only six tied up with Baxter; we are free to do whatever we want beyond that, but it’s going to take us a while to scale and be able to do that much work. So again, probably not immediately, but if that business continues to grow and go well there could be an opportunity for partnerships there and then obviously the platform that we are building internally and the Virdante assets as they move forward.

So I think there is lots of opportunity and lots of willingness to partner, but our view on that is a strategic view. We’re certainly not one a company in the position that would have to do that out of desperation for cash. And so we would try to bring those assets to the point where we really feel we can maximize the value for our shareholders, but certainly at the right time; we’re very open to partnerships.

Sumant Kulkarni - Bank of America

And my last one is a very specific question on Copaxone. In the past, when we have asked tell about whether they have been in settlement discussions, you said no, we haven't done some recently, but if I would propose the same question to you today what would you say?

Craig Wheeler

I would say the same thing I always say, that settlement discussions are always possible. There is multiple parties that have to come to the table and beyond that we don’t comment on any discussions that we might have had.

Operator

(Operator Instructions) Our next question comes from Ritu Baral of Canaccord. Your line is open.

Ritu Baral - Canaccord

My question is focused on M402 and you said that we would have an IND filing in 2012. Can you give us any more specificity about when during the year or what sort of preclinical studies are outstanding and what sort of first phase of development might look like for that drug?

Craig Wheeler

First, I am not going to give more guidance on 402 because we actually have a policy here, when we are at product close we’ll announce when we actually are going into Phase I, so we are not going to give color on that before because all sorts of things can happen in the process. I can’t say that we are optimistic about that program but we’ll give an announcement when we actually put that into the clinic.

In terms of the path of the clinic, I mean it’s going to be I think a typical oncology compound where you would actually see us doing those ranging in the early trials and then picking a path forward and thus we’ve said before this agent is potentially attractive in multiple different to these areas. And so, we’re going to be making the trade-out that all oncology companies make to try to find the trials that we can do most quickly, but also open up the market to us as quickly as possible as well. So we’ll be giving a lot of guidance on that as we get more into the clinic and get the results on that trial, but we don’t want to really talk about it until we actually get to the clinic.

Ritu Baral - Canaccord

And as heparin sort of base compound, what sort of potential directions do you think that they would be optimal to develop it in; the scientific rationale?

Craig Wheeler

I mean, as we said before this compound, this is one of the unique characteristics of heparin is that it hit multiple targets in the progression in cancer. And so you know this agent, as we’ve time before its at least five different targets and so we actually think its pretty, its got a pretty high potential of an anti-cancer agent, anti-metastatic agent broadly and so we are in some sense if it works through the phase, why don’t we have a wealth and riches in terms of the determining which product it goes forward with.

We’ll also be looking very carefully because this is where we believe oncology is going and what would be the agents we use in conjunction with it so that we can actually find very potential applications of combinations to bring it forward. So it’s early; I think we’ll have to look at how dosing plays out; what levels of dosing, frequency of dosing in the early trials and then we can make those decisions more intelligently.

Ritu Baral - Canaccord

My last question, what and this is for Rick, what allowances have you made in the guidance right now for litigation cost going forward and can you remind us of the terms of the litigation fee, responsibilities for Momenta versus Sandoz or even if you have any details of litigation expenses in terms in the Baxter agreement?

Rick Shea

The litigation between us and Sandoz for Copaxone; Copaxone litigation, Sandoz is bearing 100% of the cost, so that litigation in any of the Enox-related litigation, those expenditures are shared. I have included some allowance for those costs in 2012 in my guidance. But again, they can fluctuate significantly from quarter-to-quarter and not always clear on how those expenses are going to play out.

Ritu Baral - Canaccord

And any detail in the Baxter deal at this point?

Rick Shea

Regarding?

Ritu Baral - Canaccord

Litigation expenses.

Rick Shea

While I think it is little early, still early for that right now. So that wouldn’t be in 2012.

Ritu Baral - Canaccord

And just in general as far as the terms of the partnership?

Craig Wheeler

Yeah, we haven’t disclosed that specific portion of the contract. At this point, we will have to clear that, but I think you will get more color certainly as we get closer.

Operator

Thank you. At this time I am not showing any further questions. I would like to turn the call back to Craig Wheeler for any further remarks.

Craig Wheeler

Sure. Thanks, thanks very much. And I would like to thank everybody for joining us for this call. As I said before, we are disappointed with the District Court’s decision, but we still have our product in the marketplace and still have the litigation. So Enoxaparin is not dead and we have lots of other things to look forward in the company. And I look forward to seeing and talking to you all guys as the year progresses. Thanks so much.

Operator

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

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