Momentas' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Momenta Pharmaceuticals Inc. (NASDAQ:MNTA)

Q2 2012 Results Earnings Call

August 2, 2012 10:00 AM ET

Executives

Lora Pike – Senior Director, Investor Relations and Corporate Communication

Craig Wheeler – President and CEO

Rick Shea – Chief Financial Officer

Analysts

Ronny Gal – Bernstein

Sumant Kulkarni – Bank of America

Ritu Baral – Canaccord

Joseph Schwartz – Leerink Swann

Ami Fadia – UBS

Imran Babar – Cowen

Operator

Good day, ladies and gentlemen, and thank you for your patience. You’ve joined the Momenta Pharmaceuticals’ Second Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference maybe recorded.

I would now like to turn the call over to your host, the Senior Director of Investor Relations and Corporate Communication, Ms. Lora Pike. Ma’am, you may begin.

Lora Pike

Thanks, Al, and good morning, everyone. We thank you for joining us today for Momenta’s conference call to discuss financial results for the second quarter of 2012. Today’s call is being webcast and you can view the slide that we will be presenting in the Investor section of our website at momentapharma.com.

Joining me on the call with prepared remarks are Craig Wheeler, President and Chief Executive Officer, who will provide an update on our major program, followed by Rick Shea, Chief Financial Officer, who will provide a brief review of our second quarter results.

Before we begin, I’d like to mention that our call today will contain forward-looking statements about management’s future expectations, beliefs, plans and prospects. These forward-looking statements include comments about our Enoxaparin sodium injection commercial prospects, our generic Copaxone program, ANDA review and patent litigation expectations and our other product development plans and expectations, including expectations of timing for clinical data results and 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 in the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2012, 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 SEC.

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 the call over to Craig.

Craig Wheeler

Thank you, Lora, and welcome, everyone. A lot is happening in Momenta this year and in the second quarter we made exciting progress on a number of fronts, although, we were very disappointed by the court ruling on the Copaxone patent.

In this call, I’ll first discuss the current status and near-term outlook of Enoxaparin and generic Copaxone programs, and then I’ll focus on the growth opportunities of our follow-on biologics and new drug programs.

Turning first to Enoxaparin, in the second quarter we reported $19.4 million in Enoxaparin product revenues, based on Sandoz reported net sales of $156 million. Rick will rung through detail but I want to emphasis that Enoxaparin royalties will continue to be an important source of cash flow for us.

While we have significant upside opportunity, if we are successful in enforcing our Enoxaparin related patents and the litigation against Amphastar/Watson and against Teva. Sandoz is facing increasing competition and pricing pressure, which could impact future Enoxaparin revenues.

In the Enoxaparin litigation on June 26th, the District Court issued a claim construction order also called a Markman decision in the patent infringement cases against Amphastar/Watson and against Teva.

We are very pleased with the decision. A Markman decision is considered a critical event in a patent lawsuit, as it defines the disputed patent claim terms and therefore informs many aspects of the litigation.

In the order, the court adopted the Momenta and Sandoz claim term definitions for a substantial majority of the disputed claim. The District Court trial with Amphastar/Watson was rescheduled from October 2012 to January 7, 2013. The trail with Teva -- in the Teva case is scheduled for February 4, 2013.

Regarding the ruling from the Court of Appeals stayed temporary injunction that have prevented Amphastar/Watson from launching. The CAFC has not yet issued their ruling explaining that decision. So we continue to move forward in the District Court and continue to believe that our Enoxaparin related patents are valid, enforceable and entrenched.

Now turning to M356, our generic version of Copaxone. On June 22nd the District Court rules that Teva’s Copaxone patents are valid and entrenched. We are certainly disappointed by the ruling. However, we view this as round one in the patent litigation since we view the District Court ruling as a first step along the pathway final decision in the Court of Appeals.

We clearly disagree with the District Court and after a thorough view of the decision, we believe that there are substantial ground for appeal. The appeal was filed on July 26th, soon after the District Court’s final judgment, which was issued on July 24th. We can expect the CAFC decision in 12 to 18 months.

As expected, as a result of the District Court ruling on the Copaxone patent, Teva hasn’t granted a permanent injunction. Final approval of any generic Copaxone and is by the FDA is in joint through May 24, 2014. The expiration of the Orange Book patents. Separately, Momenta and Sandoz are in joint for marketing a generic Copaxone through September 1, 2015, the expirations of the one non-Orange Book patent.

A win in the appellate court could avoid these injunctions and we will be working hard to try to make that happen.

Meanwhile the Copaxone ANDA is under active review and continues to advance. Our dialogue with the agency is constructive and we continue to believe that the information provided in ANDA establishes the seamless and that the application will be approved under the 505(j) pathway as an interchangeable generic Copaxone.

While the patent litigation process is ongoing, the FDA is authorized to issue a tentative approval. This would become a final approval on the expiration of the last Orange Book patent or a successful appeal of the patent case.

I’ll now turn to follow-on biologic. The collaboration with Baxter is off to a good start with the considerable amount of constructive interaction between the companies at all levels of the respective organizations. Two biosimilars products that we designate M923 and M834 will license at the beginning of the collaboration.

But the opportunity for Baxter to select an end license up to four additional products. I’m very pleased to announce today that Baxter has selected a third product for the development, which we have designated as M511. The work on this products is underway at Momenta. In Rick’s presentation, he will review in more detail how we earn future options fees and milestone payments under the collaboration.

To date we’ve kept the identity of the products in our biosimilars portfolio confidential for competitive reasons. However, I will confirm today that M923 and M834 are both indicated for people with autoimmune diseases and that the third process in the collaboration M511 is a monoclonal antibody for oncology.

we are existed about the potential of the biosimilars business and we are already working with Baxter evaluating several products for consideration as additional development products under the collaboration.

In parallel, the regulatory environment for biosimilars is becoming clear. The Supreme Court upheld the constitutionality of the Affordable Care Act which allowed the BPCI Act that established the 351(k) biosimilars approval pathway to remain in effect.

In addition, the new biosimilars user fee program was signed into earlier this month. This program is designed to address the resource and strength base in the FDA in reviewing biosimilar applications. To talk at this I’m planning early meetings between applicants and FDA reviewers.

The FDA has issued draft guidances but outline their approach to review of biosimilar applications, if you are listening to our call via webcast you can see on slide 12, which was adapted from a FDA presentation dated April 17, 2012, that applications will be reviewed on a case by case basis enabling to companies to differentiate their applications based on the thoroughness of their characterization and depth of their process knowledge.

Applications that demonstrate the draft is more highly similar with or in distinguishable from branded product could benefit from reduce clinical requirements and could be designated interchangeable.

We believe we are well-positioned by applying our higher resolution characterization and profit knowledge to reduce clinical requirements and to able the approval of an interchangeable biosimilar. As our programs mature and our interactions would be FDA advance, I anticipate that we will be able to give you increasing clarity on our biosimilar pipeline.

To summarize, we firmly believe that the Momenta is well-positioned to exploit the new opportunity because of investments we’re making today.

Now turning to our novel program where we are increasingly busy. At our M402 oncology program, we have initiated dosing of patients in Part A of a two-part Phase 1/2 proof-of-concept study in advanced metastatic pancreatic cancer.

Part A is a open-label multiple ascending dose study. The primary objective of Part A are to evaluate the safety and tolerability event for 402 in combination with gemcitabine, and to establish the dose of M402 to take forward into Part B.

Data from Part A are expected in the first half of 2013 and a successful completion of this Phase, Momenta expect to initiate Part B of the trial, which will be a randomize controlled study, investigating the safety in the antitumor activity of M402.

We are very excited about the opportunity for M402, which we believe will demonstrate our ability to understand the structure and biology of the complex therapeutics and to engineer a drug that can potentially affect multiple targets involved in a broad range of cancers.

Finally, turning Sialylated IVIG research program. Today, IVIG which stands fro intravenous immunoglobulin is a $5 billion to $6 billion market globally. IVIG is approved in roughly seven indications primarily addressing inflammatory, infectious, and immuno deficiency diseases.

Our IVIG program applies our proprietary sialylation technology to modify the SE region of the IGG antibodies in IVIG. Our objective is to further potentiate the antiinflammatory activity of these antibodies and the potentially developed drug with differentiated attributes such as enhanced efficiency and/or a wider therapeutic window that autoimmune and inflammatory diseases. We are advancing toward establishing proof-of-concept in Sialylated IVIG program and look forward to updating you on our progress in this exciting area.

So, in summary, we continue to execute both on our short-term and long-term operational strategies of our business. The trends in our business are positive with signs of progress on many fronts. We believe the deep technical capabilities we have build create broad opportunities for Momenta in a variety of disease areas and markets. And offer the potential to create significant value for the company and our shareholders.

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

Rick Shea

Thanks, Craig. We reported a net loss for the second quarter of $10 million. This compares to a net income of $64 million for the same quarter last year.

The year-over-year change is due to the substantially reduced enoxaparin product revenue, due to the loss of generic enoxaparin exclusivity, resulting in lower net sales of Lovenox by Sandoz and related changes in the product revenue structure from a straight profit share on a last year’s second quarter to a royalty in this year’s second quarter, as well as to an increase in operating expenses.

Last week, Sandoz reported enoxaparin net sales of $156 million in the second quarter of 2012 due to lower unit sales and reduced pricing, resulting from the launch of generic enoxaparin by Amphastar, Watson in late January, following the stay of the preliminary injunction.

The $176 million of net sales translated to $19.4 million in enoxaparin product revenue for Momenta for the second quarter of 2012. That compared with the $84 million product revenue that we earned under the profit share structure for the second quarter of last year.

In the second quarter of 2012, we also recognized $2.5 million of collaborative revenue that consisted of $1.1 million expense reimbursement from the Sandoz under our enoxaparin and generic Copaxone collaborations, $0.5 million amortization of the equity premium we received from our 2006, Sandoz collaboration and $0.8 million amortization of the $33 million upfront payment from Baxter.

We expect that the expense reimbursement from Sandoz will continue at the $1 million to $2 million level per quarter for the balance of the year and the amortization of the 2006 Sandoz’s equity premium will continue at approximately $0.4 million per quarter.

The $33 million upfront payment from Baxter will be spread over the development period of all six biosimilar products, so the amortization will extent for several years. We estimate that the amortization for the rest of 2012 will continue at $0.8 million per quarter.

Our second quarter 2012 R&D expense including stock-based compensation was $20.0 million compared to $14.2 million in Q2, 2011. Approximately, $4.0 million of the $5.8 million increase reflects the build out of our biologics capabilities including increased R&D headcount and related laboratory equipment and facility costs. Approximately, $1 million of the increase was due to the clinical and pre-clinical class of the M402 program.

Our G&A expense for the second quarter including stock compensation was $12.4 million compared to $9.2 million, an increase of $3.2 million. Legal expenses increased by $2.9 million due to the enoxaparin litigation.

Personnel and facility related expenses increased by approximately $1.4 million due to increased headcount and stock based compensation increased by $0.3 million. The increases were offset by a $1.4 million decrease in the enoxaparin royalty payable to MIT, due to the lower enoxaparin revenues.

Previously, I’ve give guidance that total operating expenses excluding stock compensation and net of collaborative revenues would be between $22 million and $28 million per quarter.

For the second quarter of 2012, operating expenses totaled $32.4 million. That amount less stock-based compensation of $3.5 million and collaborative reimbursement revenue of $1.1 million equaled $27.8 million. This net operating expense number is at the high-end of my projected range, primarily due to the higher enoxaparin litigation expenses.

We ended the second quarter with cash and marketable securities of $372 million excluding the $17.5 million of cash that’s classified as restricted due to the bond set up for the enoxaparin litigation. And another $2.5 million of cash was restricted in connection with the facility lease letter of credit. So cash including restricted amounts totaled $392 million at quarter end, a decrease of $7 million from total cash of $399 million at the end of the first quarter.

Before I close, I’d like to review the potential milestones and option fees relating to our agreement with Baxter. Under the collaboration, Baxter has the right to select up to four additional products within approximately three years from the effective date of the collaboration which occurred in February, 2012.

Following the recent selection of M511, that’s the third product, Baxter can select three more additional products. Momenta does not receive millstones related to the selection of additional products.

We earned an auction fee when Baxter exercises its exclusive license option for each additional product. Please see slide 24 of our webcast presentation for an outline of the process for achieving option fees and milestones.

First, Baxter selects an additional product and we initiate development. Once we achieve predefined minimum development criteria, Baxter is given an option to exercise exclusive license rights.

If Baxter exercises the option, it pays an option fee. If Baxter exercises its exclusive options to license all four additional products, we will receive a total of $28 million in option fees. Then, a following further product development, we achieve certain products specific technical development criteria, another milestone came in as a result.

Finally, when an IMD to the product is accepted by the FDA, another milestone payment of (inaudible). So this technical and development milestones are valued at up to a total of $87 million for all six products.

Following R&D acceptance, Baxter assumes responsibility for development with products and we have the potential to receive up to $300 million in regulatory milestones for the six products.

These milestones are designed to reward momentum for reducing the scope of the clinical activities required for each product by providing substantial characterization and analytics to the FDA. It’s important to note that in the Baxter collaboration, license fees and milestones are earned in arrears, for our development expenses incurred prior to R&D.

We are taking a disciplined approach to support the necessary development investments to advance our biosimilars program. With the cash flows, we continued to earn from enoxaparin. We expect to maintain a strong cash position even as we increased the resources targeted to the biosimilars and novel drugs program.

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

Craig Wheeler

Thanks, Rick. And that concludes our comments and we’ll open the line now for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from Ronny Gal of Bernstein. Your question, please?

Ronny Gal – Bernstein

Hi. Good morning, and thank you for taking my question. Just a quick question. Regarding the Baxter collaboration, in addition to the milestone payments, are they also reimbursing you for the cost of development and to the extent that they do, roughly, what percentage of the operating costs does that represent? And I have follow-on.

Craig Wheeler

Sure, Ronny. Thanks. No, they are not reimbursing as for the cost of development. They seek a milestone base reimbursement, so the milestones that we get paid which are in arrears of the work, are basically design to compensate for a portion of the development piece that we spent. So that’s how we developed that, but they are not paying upfront. They did give us an upfront payment of $33 million, when we actually signed the deal which allows us to actually get paid.

Ronny Gal – Bernstein

Thank you. And second, if you kind dig around [PACER], there is still some discussion around some comments, about discussions that you have with your counter party on the enox trial. But I’m not sure if those are still going or not. I’m in still discussion about settlement, is still going on or is that pretty much or we pretty much want to court debt stand of it.

Craig Wheeler

Yeah. We haven’t commented on any settlement discussions that have been going on. I mean obviously, I think what you are referring to back as there was a code expectation – conversations happened, that’s a standard court procedure. So we have not commented on any specific discussions that we’ve been having.

Ronny Gal – Bernstein

Great. And the last point around that – I don’t know if you can comment on that. But you still – one of the arguments that they are manufacturing the product to U.S. and all the Momenta, manufacturing from Watson is still in the United States.

Craig Wheeler

Likewise – first, I can’t comment about it. But I think you are getting the – are you talking about Lovenox.

Ronny Gal – Bernstein

Lovenox.

Craig Wheeler

Lovenox. Yeah. Yeah, Amphastar. We can’t comment on Teva’s specific strategies, but we are confident that based upon the laws in the U.S. that if you can’t circum patents by manufacturing offshore.

Ronny Gal – Bernstein

Great. Thank you very much.

Craig Wheeler

And, Ronny, one more comment on that. I was corrected here that after I&D, when the Baxters in their phase are paying for then our resources would be reimburse for supporting their activities. But all of the activities ongoing now are not reimbursable.

Ronny Gal – Bernstein

Okay. Thank you.

Craig Wheeler

Sure.

Operator

Our next question is from Sumant Kulkarni of Bank of America. Your question, please?

Sumant Kulkarni – Bank of America

Good morning. Thanks for taking my questions. Firstly, what is the company’s assumption on the potential for the injection on enoxaparin being reinstated?

Craig Wheeler

We actually haven’t had any assumption on that because we haven’t seen why we – it was overturn in the first place. And so we’re just proceeding with the District Court case and we’ll see what happens when we actually see that final appeal court decision.

Sumant Kulkarni – Bank of America

And in terms of the expenses on the enox litigation, should we expect this somewhat higher level to continue for the rest of the year?

Craig Wheeler

Yeah. You should expect and what’s happening in this case is that it’s a relatively short timeline of a case for a patent case, which we’re actually very pleased about. But therefore, all of your patented work prepare for trial, all of the work on discovery and preparation expenses all get pushed into a very short periods, that’s happening now.

Sumant Kulkarni – Bank of America

And on generic Copaxone regardless of what’s happening at the court level, how would you characterize your latest discussions with the FDA?

Craig Wheeler

The FDA we continue to have positive discussions, we’re feeling our application is moving forward well. So we feel we are on track for -- approval.

Sumant Kulkarni – Bank of America

And my final question is little bit of a bigger picture one on biosimilars, given that the pathway is still in its infancy. How would you see the discussions with the FDA are taking place, so what exactly is the procedure to file a biosimilar application and at what point should we assume that an IMD could go in from Momenta?

Craig Wheeler

So I can answer first two for you. I can’t give you too much color on the third one. I think that the agency is evolving they’re actually getting their staff onboard. The really good news is now we have the user fees in place. Because they had no real ability to hire staff, they had to reallocate staff until they get the user fees and that just happened. So they’re staffing up.

They are open for business, they are scheduling meeting with companies. And so we’re pleased to see all of that operationally happening. The procedure will be pretty much as outlined in the guidelines is that you have optional sets of meetings with upfront, with the type 3 meeting being the pivotal meeting that gives you guidance in terms of trials and the potential for substitutability. But based on those meetings where do you make sure to have or not you can file on IMD.

Our strategy is to use this pathway to try to gain advantages in reducing trails and try to gain substitutability potential. So I’m wondering, I will say as we are intending to utilize these meetings to actually discuss our packages with the FDA. And so, it’s hard to predict that process right now because it’s a brand new process. But we are taking advantage of that pathway. We don’t attempts to use our strategy to demonstrate same as reduce clinical trials and (inaudible) substitutability.

Sumant Kulkarni – Bank of America

And are you aware of any type 3 meetings have been taken place or has the company been in any type 3 meeting so far?

Craig Wheeler

I can’t comment on it specifically. And the FDA has commented that they have had quite a number of meetings. But they have not classified the type meetings. So, I do know that they have quite a few meetings. But I don’t know, if they put any specific on type 3 meetings yet.

Sumant Kulkarni – Bank of America

Thanks.

Craig Wheeler

Sure.

Operator

Our next question is from Ritu Baral of Canaccord. Your question, please.

Ritu Baral – Canaccord

Hi, guys. Thanks for taking the question. As far as the enox trial goes, how should we all be thinking about potential damages coming out of the far end, if it goes in your favor? What sort of factors are you guys considering as you put your request for damages together, and are there any proxies that we should be looking at to sort of see how that might -- how you guys might think of that?

Craig Wheeler

So, Ritu obviously, the damages in this case are very high. And so, our view on the damages and we can’t give you any specific numbers that aligning for is that where we started off and you guys were really not very well, what our revenue line numbers were and how much money we are making on those product. And is where we are now as slowly as a result that people launching against our pattern.

So basically, you can go back and get estimate of it, but it’s a large number that we are actually going to be going after there, because we have been as you well aware the investors very materially harmed by listing these patterns and launching these products.

Ritu Baral – Canaccord

So the biggest factor would be former revenues that you guys booked before (inaudible)?

Craig Wheeler

Well, certainly that’s the way to calculate, the easier thing to calculate. I think to say we will be going after total damages for the company.

Ritu Baral – Canaccord

Got it. And can you review what you guys see is a key winds in our commitment, ruling and how it support some of your main arguments?

Craig Wheeler

I unfortunately can’t we have a strong quality of not commenting on active litigation so.

Ritu Baral – Canaccord

Got it. Last question before I held back in the queue. The three products that Baxter has selected 93,834 and 511, given the fuzziness of the idea of the biosimilars pathway on multiple indication approvals for antibodies that may address multiple conditions, can you tell us if these are three sort of distinct products with different reference, just a reference drugs or could there’ll be some sort of (inaudible) overlap between this three?

Craig Wheeler

These are three distinct products with three distinct reference products.

Ritu Baral – Canaccord

Great. Thanks for taking my questions.

Craig Wheeler

Certainly.

Operator

Our next question is from Joseph Schwartz of Leerink Swann. Your question, please.

Joseph Schwartz – Leerink Swann

Thank you. Just to continue on the follow-on biologics or biosimilars theme. How do the three agents that you developing what Baxter look like on that patent side of things or they relatively early in their life, do you expect to have litigation as part of your strategy your development strategy there?

Craig Wheeler

So, what I will say is that these are patents way we planned our strategy is to be able to actual launch this in the competitive way. So we intend to try to be one of the first in the market for these products. I would say the patent landscape is relatively under fine at point, we’re looking very carefully our products and we have our strategy mapped out, but this whole disclosure processes and put in this pathway is relatively untested at this time.

At our view that’s an optional process and that we could actually choose how we want to do that and so we planning our strategy appropriately. But it’s really early days to be predictive in terms other patent claims, is going to work here.

Joseph Schwartz – Leerink Swann

Great. Okay. And then at what point in the development process with Baxter, you decide whether you want to obtain for more investment in order to participate more in the upside. How you are thinking about the ROI, are you present in FDA meetings that Baxter has, so you have enough information to base that decision?

Craig Wheeler

Yeah. For the bunch of things in there, so the first is let me just make sure I explained how this process works. We’re working very closely in connection with Baxter through the course of all other development these programs. But in the phase, we were doing investment we basically control the development of the program and transfer then after IMD. So we are most recently very actively involved and present anything was happening here.

In terms of investment on ROI we will be additional investment option we have, actually happens when the third product and that is now 511 actually is at IMD going to the clinic. And so at that point in time, considering that our third program, we will have a pretty good view of how the pathway is evolving, and we will be able to make pretty accurate determination that about what the looking in terms of the strategy, the successful clinical trials is being reduced. And therefore, get a good idea if it makes sense to co-invest or not.

So, how the first two programs we do not have option to co-investments for the base deal is all we can get on the first two programs. And if third we say that one time option by the way, we get to choose at one and once we choose it that’s for all the additional products.

Joseph Schwartz – Leerink Swann

Okay. That’s very helpful. And kind lastly just one last question. If I could, how we will be able to tell or if you will be able participate more or less in the upside of these program with Baxter. Did your ability to reduce the amount of clinical work required for approval, is there a single threshold per program on the amount of clinical work. And then you either have to do it or you don’t. What they have to do it, they don’t and therefore you get paid or is there a sliding scale, how should we think about that?

Craig Wheeler

Okay. There is a sliding scale. So there an assumption of base level of clinical work it’s necessary for anything. And then there is a sliding scale beyond that base level up to full one base three and we will get paid based on that sliding scale for each program.

Joseph Schwartz – Leerink Swann

And might not be totally clear based on the information that we are able to see on clinical trials like or whatever, so will you tell us whether you believe that you are likely to missing that upside, and what is -- what to the economics look like relative to the turfs that you had so far with Sandoz for example for M-Enox and M356?

Craig Wheeler

Sure. So there is a number of questions you just asked, the first is if the payments for clinical trails. And so, we won’t really know until we get to the on those payments are made FDA approval of the product. So, again there are kind of retrospective payments so that we can both, we and Baxter come at back of the clinical expenditures, and understand what actually happened.

And so we will have some kind of idea in terms of what clinical program has been expected. But as you go through the clinical programs, there maybe more questions from the agency. And so it’s really, we get paid at launch of the product as opposed to before that. So it’s kind of a look back.

So we’ll try to figure out that as a regard. So in terms of how this looks vis-à-vis enoxaparin or the deal with Sandoz, like the Sandoz deal once we get to the market, there are tiers in this and so for a successful and being a full product out there. We would get paid that higher tier until competition came in and that would tier down.

And so, as we’ve said, the royalty rates are base high single-digits and they can be up to slightly more than double of the base rate. And if we hit our upsides and these are royalties I remember these are profit shares like AR in a Sandoz relationship, which was 45% profit share. So here with the relatively high cost of goods and a 20 say -- 20% kind of maximum out there. You are actually beginning to think about a real, pretty substantial portion of the profits.

In addition to that, if we co-invest, we can co-invest up to 30%, that would be a profit share. And so in the scenario where we’ll invest that maximum of that 30% say for those products, we would get a 30% profit share plus roughly 50% of the original royalty payment we would have gotten.

And so you can begin for those numbers together and see a 30% profit share plus a royalty stream on top of that, those become a pretty substantial share of profit. So we can actually go pretty high in this relationship. But is tiers similar to how the enoxaparin was tiered and that has more competition coming down on the royalties that we would get tiered down.

On the profit share, there is no tiering. Once we elect 30%, we get 30% and so would be the tiering of the royalty stream above that would happen.

Joseph Schwartz – Leerink Swann

Very helpful. Thank you. I look forward to modeling it some day.

Craig Wheeler

Sure, thanks.

Operator

Our next question is from Ami Fadia of UBS. Your question, please.

Ami Fadia – UBS

Hi, good morning. Once you clarify something about the process with respect to backs to selecting specific candidate, does that mean that you already had at least one meeting with the FDA and (inaudible) would that mean that you had a type3 meeting before Baxter decides to add a selective product or to exercise an option, if you could clarify if there is something within your contract listed in your agreement with Baxter that specifies the requirement? Thanks

Craig Wheeler

Yeah. Thanks for the question. The payments that we would get in terms of milestones obtained are not dependent on FDA meetings. There are basically technical criteria that we have to achieve in the development and scale of the program.

So when we first choose programs together and we obviously are involved in the selection of those programs, it really is around looking at the market opportunity, the patent situation -- the competitive situation, the client situation. So we look at those and make choices.

So you shouldn’t assume we’ve done through type3 meetings before their selecting. That’s really a process.

And it could be on anything that we’ve been working on. So it could be earlier or later but it tend to be early programs. And its really driven by the overall business situation whether it’s using them. If you think about this, they can choose based upon their business reasons what programs they really want us to work and then we will work on them.

And then we would meet those technical milestones early often based upon technical criteria that we will meet. So this is not depended on the FDA.

The FDA meeting is actually more guided towards our ability to reduce clinical trials. And so that -- we might get compensated for success by (inaudible) trials and then get the payment for the reduction trials.

Ami Fadia – UBS

But working, one assume that either Baxter or even yourselves would prefer to go after a program where (inaudible) require relatively less clinical work and looking backs to want to have visibility in (inaudible) option on a product.

Craig Wheeler

No I think Baxter is -- view on this is that there in this with us to try to gain the advantages of reduced clinical trials and try to gain the advantages of substitutability but Baxter’s intention is to compete in this market place. They have the commercial infrastructure, the contracting infrastructure, manufacturing infrastructure.

So they are in this business where there were biosimilars or biogenerics and so it is our common goal to try to gain -- advance through the strategy but it is their business goals is to say we’re going to assume that -- we’re going to assume that we are going to competing unless through this products based upon the opportunity there. And then use the momentum, the development capability and technology try to end Baxter advanced through it substitutability and reduce clinical trials.

Ami Fadia – UBS

Okay. Thank you. And just one other question on M402, could you remind us how big the part two of the randomized clinical study is going to be and I assume, you’re going to finance it yourself.

Craig Wheeler

Yeah. So this phase I, II study, we said it’s total roughly around 150 patients. We can’t give you specific patients for sure because we’re currently in ascending dose escalation trial where we understand what that final dose is. And so we have to go through cohorts and understand the dose before we can going forward.

And yes we will finance that ourselves. Our intent is to make sure that we take therapeutic concept because we think particularly in the market where we have part time these days, trying to get our cafe partner before prefer concept is not maximizing the opportunity or the asset for the company. So we intend to take that self funded through that proof-of-concept.

Ami Fadia – UBS

And then we’ll see where we are as a company and consider part time?

Craig Wheeler

Thank you.

Ami Fadia – UBS

Sure. Thank you.

Operator

Our next question is from Imran Babar of Cowen your question please.

Imran Babar – Cowen

Thanks for taking my question. So I’m just curious, if you can speak a little bit more on Copaxone and you mentioned constructive dialogue. And I’m just curious, if you get a little bit more of a well constructive mean. So what are your reason for optimism?

And also, there is any updates on timelines. So any future meetings to FDA on it, just a little bit more color would be really helpful.

Craig Wheeler

Sure. I mean, I’ll give you what I can. I apologize in advance but I can’t give you much because I am not going to give you detail on specific discussion that we’ve had with the FDA. But I think it’s probably about six to nine months ago now that we basically change our postulates they were in active discussion and dialogue with the agency.

And we did that because we at that point in time were feeling that they were working for, reviewing and we were working in a very cooperative way to trying to get this product approved, that continues. We still feel good about the fact we updated, actually actively reviewing this application.

But I am very hesitant to give any prediction on timelines based upon very difficult prospect of actually predicting how long thing will take the FDA. So we will have to wait and see on it but we feel positive about it and that we are track for Jay.

Imran Babar – Cowen

Okay. Thanks. And I was wondering if you talk a little bit also about enoxaparin and so just dynamics on going forward, with respect to market share loss and price erosion. If you just give, maybe (inaudible) going forward with it.

Craig Wheeler

It’s little hard to predict though as I said when we started entering this competitive period. There were multiple people coming into the market place and their supply chains were building in. So we really have to see how it evolves.

Sandoz obviously is one of the better players. And that’s just why we are partnering with them. They know how to play this game. But we are seeing aggressive competition on some fronts. I would expect that we are still going to continue to be a major player in this market place. It’s certainly Sandoz intent and hopefully, we can continue to retain reasonable pricing in the segment of the market place.

It really depends upon the action of our competition. And so we will have to see how that plays out.

Imran Babar – Cowen

Thanks so much.

Craig Wheeler

Sure.

Operator

(Operator Instructions) Our next question is a follow-up from Ritu Baral of Canaccord. Your question please.

Ritu Baral – Canaccord

Thanks for taking the follow-up guys. What I asked about Sialylated IVIG and you mentioned that IVIG itself has been approved for a number of indications. Do you see -- do you still see this program going through sort of BLA pass. Is there a potential for biosimilars approval and right now sort of how you are looking at any potential clinical development for IVIG given all the indications you maybe able to choose from. I can imagine that the economics of those markets must contribute to your go, no go decision later this year?

Craig Wheeler

Yeah. They do but I think -- first let me clarify that IVIG for -- IVIG program isn’t a noble drug. So it require for clinical trials. Now, the nature of those trials and how we will go, it’s because of the broad different things that IVIG are approved for, could take a number of different path, different numbers of patients, different timelines to figure out, if it works or not and potential different accelerative approval pathways.

And so we’ll have to figure that out. Our proof of concept is really focused around specifically understanding if the sialylation technology that we have in-house can actually significantly enhance the activity of IVIG. So that’s -- it’s a low burn effort with a big payout because if we understand it can in a market that’s supply constrained and that opens up a whole number of potential clinical opportunities for us.

So when we talk proof of concept, it is proving that we can actually do what we think we’re hearing with sialylation. And one fact on them, we’re going to targeted towards really. So I think indications and we would take it forward.

So it’s kind of a two step process on our investment horizon. One is prove that this does what it does biologically and what we believe it does biologically. In other words, confirm and on a more industrial setting what was really demonstrated in the labs at Rockefeller University by [Jeff Roberts]. And then once we know that, it put a more aggressive investment around it to really define which indications and how quickly it will take us forward.

Ritu Baral – Canaccord

And if you do see the boosted activity, are there particular indications that would make the most sense indications where sort of the activity of IVIG is fairly optimal, let’s put it that way?

Craig Wheeler

Well, the way to think about IVIG is there is two sides to the IVIG world, one is immune replacement therapy for AIDS patients and the like. And that market we don’t believe that’s the part of the market we will be going after because in that place, you don’t want to enhance the anti-inflammatory properties you’re trying to boosting in system.

So its really the other half and it seems more than the $3 billion market in itself which is really the place we are going after inflammatory activities, infectious activities and that’s a pretty broad swap of diseases. And now for lot of that is actually use of label, there is no approval on it.

So we would actually choose where we think there is the best chance of the rapid approval and a reasonable revenue market and then probably grow out from there. But it would be in that side of the IVIG market place not in the immune replacement therapy.

Ritu Baral – Canaccord

Great. That’s very helpful.

Craig Wheeler

Sure.

Operator

Ladies and gentlemen, that concludes our question-and-answer session and today’s Momenta Pharmaceuticals second quarter 2012 earnings call. Thank you for your participation and have a wonderful day. You may now disconnect your lines.

Craig Wheeler

Thanks guys.

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!