Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)
Q3 2012 Earnings Conference Call
November 7, 2012 10:00 AM ET
Craig A. Wheeler - President and Chief Executive Officer
Richard P. Shea - Chief Financial Officer
Lora Pike - Senior Director of Investor Relations and Corporate Communications
Ronny Gal - Sanford Bernstein
Ritu Baral – Canaccord
Joseph Schwartz - Leerink Swann
Imran Babar - Cowen & Co
Good day, ladies and gentlemen, and thank you for your patience. You've joined the Momenta Pharmaceuticals Third Quarter 2012 Financial Results 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 be given at that time. (Operator Instruction) As a reminder, this conference may be recorded.
I would now like to turn the call over to your host, the Senior Director of Investor Relations and Corporate Communications, Ms. Lora Pike. Ma'am, you may begin.
Thank you 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 slides 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 review our third quarter results and provide financial guidance.
Before we begin, I'd like to mention that our call today will contain forward looking statements about management's future expectations, beliefs, plans, and prospects. These forward looking statements include comments about our enoxaparin sodium injection commercial prospects and revenues as well as future operating expenses, cash position and total operating expense for 2012. 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 June 30, 2012, which is 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.
Thank you, Lora, and welcome everybody. I know a lot has happened over the past two months. So, in this call I’d like to give you a clear understanding of where things stand at the company. As always, I’ll start with our complex generics business, covering recent events for both enoxaparin and Copaxone program and then I’ll provide highlights on our Follow-on Biologics and new drug programs.
So, starting with enoxaparin, in the third quarter we reported $2.6 million in royalty revenue for enoxaparin based on Sandoz’ reported net sales of $34 million. This is a dramatic decrease from the net sales reported by Sandoz in the first two quarters of this year. Since the lifting of the preliminary injunction in January, it has taken some time for the market to reach equilibrium as the players adapt to a more competitive dynamic.
In the third quarter, three factors contributed to the enoxaparin sales decline. First, our competition moved more aggressively in an attempt to increase their market share. Second, customers have adjusted their ordering pattern to take advantage of the multiple player market and third, Sandoz made significant adjustments to reserve accruals to reflect these more competitive pricing dynamics. We do anticipate that barring any new market entrants or further pricing reduction, our fourth quarter enoxaparin product revenues will recover somewhat since the pricing effect and the inventory adjustments should have worked mostly through the system this past quarter. And Sandoz continues to retain a strong market share. However, we acknowledge this remains a very competitive generic market and the degree to which our royalty revenue recovers depends on if and when pricing and share stabilize in the market place.
I’ll now turn to the enoxaparin litigation with Amphastar and Watson. In August, the Court of Appeals issued a three-judge panel opinion explaining its decision to stay the preliminary injunction that have prevented Amphastar and Watson from launching their generic lovenox.
The appellate court based on what we believe is an improper interpretation of the safe harbor provision traded under the Hatch-Waxman Act ruled that Amphastar’s use of our patented method was protected by the Safe Harbor from patent infringement. As a result, the appellate court remanded the case to the District Court recommending that a summary judgment of non-infringement might be appropriate based on the appellate court ruling, which means that the District Court judge could decide against us without the need for a trial.
The decision by the appellate court dramatically expands the scope of Hatch-Waxman to Safe Harbor Protection to include the use of patented methods for primarily commercial activity. We believe this is contrary to the language and the intent of Hatch-Waxman which was created to enable the pharmaceutical industry to have products ready-to-launch upon the expiration of the relevant patents, but was in no way intended to undermine the patent system which rewards innovation.
We strongly believe that the appellate court opinion is not supported by the statutory text of the Safe Harbor Provision or in the Supreme Court precedents. In September, we filed a petition for an en banc review of the panel opinion by the Full Federal Circuit Court of Appeals requesting clarification of the scope of the Safe Harbor Provision. Given the split decision and the conflict with Federal Circuit precedent we feel there is a strong chance, the court will agree to this review. We expect to hear in the next few weeks or months whether the Court of Appeals will grant our petition request.
Until we reach resolution in the en banc appeal, the District Court proceedings are currently stayed.
Turning to M356, our generic version of Copaxone, the ANDA is under active FDA review and continues to advance. Although, Teva is actively lobbying the FDI to oppose the ANDA we’re doing everything we can to counter their efforts and we remain confident that the ANDA for M356 will be approved under the 505(j) pathway and an interchangeable generic Copaxone.
On the legal front, in the District Court trial contesting Teva’s Copaxone patents, the court found all the patents to be valid and infringed. In July, soon after the District Court’s judgment, we filed an appeal. Momenta Sandoz and Mylan filed appeal briefs in October. In our view, the District Court committed legal error in many of its conclusions and our appellate brief set out the reasons why we believe such errors led to incorrect decisions on the issues of indefiniteness, enablement and the scope of certain claim terms. We also joined in two additional arguments made by Mylan, a co-defendant.
These briefs are now public on the appellate court’s website and I encourage interested investors to read them. While we believe these arguments are compelling, we cannot predict the outcome of the appeal. A decision on the appeal is expected in the second half of next year.
I’ll now discuss Follow on Biologics. It has been an exciting time for all of us as we work to build out our capabilities to compete in the follow on biologics market. We have increased our company headcount from 190 at the end of 2011 to approximately 245 with most of the increase dedicated to biosimilars. With this level of experienced biologics staff onboard we’re able to take on the full scope of activities under the Baxter agreement.
As we’ve announced, we have three biosimilar products in development under our collaboration with Baxter; M923 and M834 target autoimmune and inflammatory indications. And M511 is monoclonal antibody bronchology indication.
Our strategy is to engineer and develop biologic products that will achieve an FDA designation of interchangeability. Achieving interchangeability requires significantly more in depth analytics, more rigorous process development and more thorough biocharacterization in the product development approaches we believe are being followed by several other biosimilar developers.
Momenta’s approach could likely be more costly and take more time to IND than competing biosimilar strategies. But our belief is that the compelling science behind this effort could persuade the FDA reviewer to reduce the scope of clinical trial requirements relative to a traditional BLA application and achieve interchangeability. Given the FDA’s recent comments we believe the strategy is aligned with their thinking on biosimilars.
The FDAs continued to emphasize the importance of engineering a biosimilar to be as near to the branded biologic as possible. In an article highlighting comments from a recent industry conference Janet Woodcock was quoted as saying that sponsors can limit the required clinical trial programs by developing extensive characterization data early in the development process saying that the amount of clinical evidence needed is related to the amount of residual uncertainty that remains after you’ve done quantitative analytics and functional studies. Furthermore, Cedars' Dr. Kathleen Uhl who echoed Dr. Woodcock’s view on the FDAs approach and was quoted as saying the more expensive the analytic and function of comparative characterization the more likely it is to permit a selective and targeted approach to subsequent non-clinical and clinical studies in order to determine biosimilarity.
It is Momenta’s goal to deliver the extensive analytic and functional comparative characterization that the FDA is seeking. On the competitive front, I want to comment on report that two companies recently announced delays in development of a biosimilar rituximab. Specifically, one company halted its clinical development program citing changing regulatory and competitive landscape or another suspended clinical trials at some of its EU sites. Although little is known about what went into these decisions and we are not going to speculate today. We do know that this is a field that will require a rigorous scientific approach in terms of demonstrating similarity and interchangeability to the brand product. As I just noted the FDA continues to emphasize a science based step wise review process. We continue to participate in active discussions with the agency to help shape the newer abbreviated approval pathway for biosimilar and interchangeable products. This approach should enable us to take full advantage of our advanced characterization technology which is similar to the one the one that Momenta pioneered with our enoxaparin and Copaxone programs. Now, let me give you some specifics on the programs we are developing under the Baxter collaboration.
M923, a biosimilar for a branded drug indicated for autoimmune and inflammatory diseases that are most advanced biosimilar products and we are working towards a 2014 IND submission. Upon IND acceptance for M923 we earn both a technical milestone and an IND milestone. For M511, which Baxter recently selected for development, if the product achieved certain minimum development criteria and Baxter formally opts in to license the product, we earn a license payment which we expect in early 2014. For M834, the next payment for this product will be a licensed payment upon achieving minimum development criteria. We also expect to achieve this criteria some time in 2014. With this progress, we could expect to receive a total of up to $26 million in license fees and milestones in 2014.
As we have previously described, under the financial structure of the Baxter collaboration our milestone payments are made in arrears after we achieve technical and regulatory requirements. However, there are also financial provisions in the collaboration that allow us to earn up to $15 million per product, if our clinical requirements can be reduced. So, although we will incur the bulk of the development costs prior to or up to IND submission there are opportunities for option fees and milestone payment that will offset future cash outlays post IND Baxter is responsible for cost development.
I’ll now move to our novel drug programs, in our M421 oncology program we continue to enroll patients in part A of a two part phase I to group of concept studies in advanced metastatic pancreatic cancer. Part A is an open label, multiple ascending dose study. We expect data from part A next year. Our final program to discuss today is our sialylated IVIG program. Today, I'm pleased to report that Momenta has made substantial progress in this program by demonstrating that sialylated Fc-linked glycans of IgG antibodies can enhance anti-inflammatory effects pre-clinical model. Our work is consistent with the findings previously published by Dr. Jeffery Ravetch of the Rockefeller University. This was our first research objective when we acquired these assets from Virdante, a start-up company that originated license to Dr. Ravetch’s technology. Now I want to remind everybody that though these results are very encouraging this is still an early program. The next phase of this program will have two objectives. The first objective is to further investigate the biology of these changes to IVIG to help us select the best indications to take forward into our first clinical program. The second objective is to better define the type of product we will be advancing. As a reminder, there are two ways to apply to a technology to develop a product. First, we did develop a sialylated IVIG product. Alternatively, we could engineer a specifically sialylated recombinant Fc product.
We are conducting research on each approach and we expect we will have more data sometime next year to help guide our development efforts. We are very excited by the scientific advances we already made in understanding sialylation process and related biology. When we acquired the Virdante assets, it was based on the belief that Momenta’s analytic and biology expertise could be deployed to better understand a complex development problem with which others are struggling.
It is our hope that in the future, we will be able to further strengthen our pipeline by similar product acquisitions or from our own basic research efforts. In conclusion, I want to emphasize that our company foundation is solid and we continue to move forward on a broad portfolio of products.
The success of enoxaparin has set the stage for the diversified pipeline we are building and the science keeps advancing. Our management team looks forward to keeping you appraised as our programs mature. Thank you, and I will now turn the call over to Rick.
Thanks Craig. We reported a net loss for the third quarter of $26 million. This compares to a net income of $60 million for the same quarter last year. The year-over-year change is due to substantially reduced enoxaparin product revenue due to the loss of generic enoxaparin exclusivity, resulting in lower net sales of enoxaparin by Sandoz and related changes in the product revenue structure in the straight profit share in last year’s third quarter to royalty in this year’s third quarter as well as to an increase in operating expenses.
Sandoz reported net sales of $34 million for enoxaparin in the third quarter of 2012, a substantial decrease from reported net sales of enoxaparin of $176 million for Q1 2012 and $156 million for Q2 2012. As Craig stated, in the third quarter, enoxaparin market experienced a major dislocation and pricing pressures led Sandoz to make significant adjustments to its reserve accruals.
In the fourth quarter and going forward, provided pricing and market share hold at their present levels, the run rate for Sandoz enoxaparin sales would be higher than the net sales they reported this quarter. However, we cannot be sure that the market has stabilized. Additionally, I want to point out that the reason our enoxaparin product revenue for Q3 is less than 10% of reported Sandoz net sales is due to timing. We recorded revenue in Q2 on some net sales adjustments recorded by Sandoz in the third quarter.
Turning to our R&D collaborative revenue in the third quarter of 2012, we recognized $2.5 million of collaborative revenue that consisted of $1.2 million expense reimbursement from 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 of 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 rate for the fourth quarter and the amortization of the 2006 Sandoz equity premium as well as the amortization of the Baxter upfront payment will be consistent with prior quarters.
Our third quarter 2012 R&D expense, including stock-based compensation, was $20.2 million compared to $16.3 million in the third quarter of 2011. The increase of $3.9 million was primarily due to increases of $3.0 million in personnel and facilities-related expenses, $0.5 million of laboratory expenses and $0.4 million in M402 clinical development costs.
Our G&A expense for the third quarter, including stock compensation was $11 million compared to $11.5 million in the same quarter last year. Excluding the royalty payable to MIT on enoxaparin product revenues, which decreased by $2.9 million, all other G&A expenses increased by $2.4 million.
The increase was primarily due to an increase of $1.1 million of legal expenses, largely related to an enoxaparin patent litigation, an increase of $0.9 million in personnel and facilities-related expenses, and an increase in stock-based compensation of $0.2 million.
Now, turning to financial guidance. Our guidance for total operating expenses is unchanged. For the fourth quarter of 2012, we expect total operating expenses, excluding stock compensation and net of collaborative revenues, will be between $22 million and $28 million, consistent with the prior three quarters of 2012.
For the third quarter of 2012, operating expenses of $31.2 million, less non-cash stock compensation of $3.5 million, less collaborative expense reimbursement of $1.2 million, totaled $26.5 million.
Looking ahead to 2013, we expect total operating expenses, excluding stock compensation and net of collaborative revenues, will average approximately $30 million per quarter. We ended the third quarter with cash and marketable securities of $362 million, excluding the $17.5 million of cash that is classified as restricted due to the bond setup for the enoxaparin litigation and another $2.5 million of cash that is restricted in connection with facility lease Letter of Credit.
So, cash decrease by $10 million from cash of $372 million at the end of the second quarter. We are projecting that through 2013, our quarterly net cash usage will average approximately $20 million to $24 million, or approximately $90 million for the full-year 2013, although, we could see fluctuations from quarter-to-quarter. That projection assumes enoxaparin revenues will decline gradually from the current run rate.
As Craig discussed, we are not expecting significant milestone payment from the Baxter biosimilars collaboration in 2013, but with more substantial Baxter milestone payments projected for 2014 and 2015, our operating cash usage should be very manageable through our potential launch of generic Copaxone in September 2015.
I will now turn it over to Craig for concluding comments.
Hi, thanks Rick. And I hope that we were able to get parity in our comments here. With all the events that are happening in the company, we will now open the call for questions.
(Operator Instructions) Our first question comes from Ronny Gal from Sanford Bernstein.
Ronny Gal - Sanford Bernstein
I know you kind of alluded to that, but I was wondering if you were willing to state it clearly that that you currently don’t expect to have to raise additional capital until September, assuming a launch of generic Copaxone and (inaudible). And second, (inaudible) you expect to put into IND into 2014 is there a potential for an additional compound to go into the clinic in 2014?
So, thanks Ronny. First, I will say what I said prior times on raising capital is that we can manage our cash to be able to get to that. But I also say, with the caveat that I am never going to say never in terms of cash, you may end up opportunities where Baxter may want to sell programs, may end up in places where we want to exercise our 30% expense, a portion of expenses of Baxter part.
So, we are managing the cash responsibly and we have no current plans, but I never say never on those things.
And I am sorry – the second one was on alternative programs in 2014. It would be IND. We haven’t disclosed specific timelines, we are only disclosing milestones to the next timelines at this point and hopefully we will be able to advance these programs as quickly as possible, but a lot depends, Ronny, on how discussions with the FDA go in terms of the data and expectations that we are trying to deliver to them.
Ronny Gal - Sanford Bernstein
Thank you. Our next question comes from Ritu Baral from Canaccord.
Ritu Baral – Canaccord
Hi guys. Thanks for taking the question. Will there be any additional CapEx through the end of 2013, specifically relating to your mention of facilities for the Baxter collaboration?
Ritu, our CapEx for 2012 is going to be in the ballpark of about $14 million, and we are projecting about the same for 2013. So, both 2012 and 2013 CapEx do reflect some investments in biologics capability that we needed to put in place for the Baxter collaboration. Beyond that, we don’t see anything that would take us outside of that range.
Ritu Baral – Canaccord
Got it. And as far as R&D for Momenta spend on these pre-IND programs, as these three sort of selected candidates move through, are these programs that you guys – that you feel will be parallel process in R&D, so that we should see R&D costs sort of consistently rise over the next couple of years, or will you sort of stagger them such that R&D remains relatively flat, just sort of on a directional basis, not anything specific obviously?
Well, as we parallel process these programs, and particularly as they begin to overlap, we probably will see an increase in gross R&D expenses, but of course, as we mentioned, as we go into 2014, that increase could be at least partly offset, if not substantially offset by earning milestones under the Baxter collaboration. So, as we get into, say the second half of 2013, we will have a better idea of how that interplay will occur and we will be able to give better guidance, but that’s what we are anticipating.
Ritu Baral – Canaccord
Got it. And could you walk us through, last question and I will hop in the queue, can you walk us through the timeline of what we could expect if the en banc petition request is granted, what would the next steps be in, what is the timing? Would the panel have already gone through the documents at the point of granting the requests or should we expect like a discovery and review period after the request is granted?
Yes, so this is an en banc review of a prior decision, and so, there is not a discovery period in a case like this. There may be a comment or requests, but there is no discovery period here. And it could be amicus briefs that are filed as well. So, they will grant it, there will be a period in the [middle year] [ph] based upon the court schedule. We would anticipate that that would happen certainly within the course of the year. They tend to grant these things pretty quickly.
And then, once that happens, the event happens subsequently, depends on the decision of that (inaudible) and those things can range from, go against this, we could - have to make a decision on Supreme Court, it could go for us where it could just completely overturn the lower court and we could be free and clear of the patents, it could go for us, but it would have to go back down to the district court for retrying.
So, there is a lot of options that could happen out of an en banc and we just don’t know yet.
Ritu Baral – Canaccord
Great. Thanks for taking the questions, guys.
(Operator Instructions) Our next question comes from Joseph Schwartz from Leerink Swann.
Joseph Schwartz - Leerink Swann
I was wondering if I could delve into the Follow-on Biologics programs and the collaboration with Baxter there, and I ask you to talk a little bit more about your activities there and what sort of internal decision points you are implying and what should we think about timing of more concrete updates?
I will give you a bit, but I can’t give you too much because we are similar to where we are with Sandoz. We are under confidentiality agreement with our partners in terms of talking about too much here. But what I am trying to do and the comments that I gave you is to give you timings in terms of the next milestone. As you recall there is – we have two products that were in the original collaboration and those milestone are basically set per the original agreement for us to reach certain points of technical development. And that all future programs have similar milestones, but they have first a licensing opt in. So, for example, M511 which we announced, which has been chosen as the next product that we are working on, there have been no payments associated with that yet. The first one will be after we get to a kind of a technical proof-of-concept where they will review it and then have an opportunity to opt in, that’s the first payment. Once that opt in happens and there are two other payments that are associated with each of those and typically come right around IND time, which is the IND and the technical scale-up. So, think of it as there is a proof of concept, there is a technical scale-up milestone, there is an IND milestone, I guess is the best way to think to about it for the programs.
Joseph Schwartz - Leerink Swann
Helpful, thanks. And then on the sialylated IVIG product program, you alluded to some intriguing effects on inflammatory biomarkers, I was wondering if you could put that into context relative to drugs that are currently used and what is your overall strategy, is it to avoid the toxicity with the greater therapeutic index as it should go up in dose and get a bigger effect on those biomarkers? How are you thinking about how that might translate into clinical effect settings?
Sure. Well, let me first clarify. This was actually an animal model that we were looking at, that was looking to actually reproduce results that have been demonstrated in the Rockefeller laboratories of Jeff Ravetch. It was a place where the predecessor company that had the technology had problems in terms of reproducing the results, and so therefore they couldn’t take the program forward. So, the first thing we did is we set ourselves a goal of going back and looking at the full development efforts that have happened, understanding with our characterization technology and our biology to be able to say can we reliably reproduce what was happening in academia, and that’s what we were able to say as we were able to reproduce the results that was previously published.
Knowing that then it allows us to begin to develop the strategy going forward. The intent originally was you have a very large market with IVIG that is in essence supply constraint, because it’s a very difficult and very high dose market and it’s a difficult supply chain because of the plasma that’s required to actually generate it. So, at the first level, being able to use significantly less reduces cost of goods, reduces the amount it has to be infused in patients and gives you an opportunity to actually have a more effective product. Secondly, we are looking at the opportunity to possibly enhance it in certain areas by being able to potentially dose higher or other things and we just don’t know and that’s what I commented on my results in terms of looking at the biology.
The third is, to really get out of the supply chain entirely and look at actually taking some of these indications with a recombinant product, if we can actually demonstrate that we can achieve the same kind of benefit through a recombinant Fc product. So, there is three kind of directions in the whole of concept of licensing thing was if we can do this we are going into a place where there is already a proof of concept, there is already approved indications and things, so it should be a pretty direct pass should we be able to develop the products forward. So, our activities over the next year are either refining which product and which indication and doing more in the biology to be able to give us a better read and where we should target to go after. The likely indications would be current indications at IVIG is approved in, but we will make that decision finally once we get the work done over the next year.
Joseph Schwartz - Leerink Swann
Very interesting. Thanks for the color.
Sure, thank you.
Thank you. Our next question comes from Imran Babar from Cowen.
Imran Babar - Cowen & Co.
Imran Babar - Cowen & Co.
Hi. My first question is, give kind of an abstract for ASH, the compared branded and opponent to your generic version? If there was a wider variation in anticoagulant response to the generic, particular that branded had a more potent anticoagulant effect, particular in thrombin generation of fibokinetic acids. Just kind of curious what are your initial thoughts are on this study and if you are aware whether Sanofi is going to shut or run with this? How does this impact other generics and the requirements for characterization studies going forward?
Well, I am aware of the article and I really can’t comment on the quality of the science in that article at this point in time. But as you pointed out, and I will point out to you that that author of that article is funded by Sanofi-Aventis and there are still people that are trying to take runs at the product. So, we are aware of it and we really are not commenting specifically on the quality but understand that that is a Sanofi event is funded, activity has been ongoing for a long time at this point. I do not think it’s going to change things in the marketplace at all.
Imran Babar - Cowen & Co.
Okay. My second question is on M42, once you get through the proof of concept, if you have any more developed thoughts on whether you are going to partner it, any sort of ongoing discussions and just where that’s at?
Sure. After proof of concept a lot is going to depend on where we are as a company. We want to make sure that we can do everything we can to develop these products in the right way and if we have the revenues and growing company and 356 is approved this one situation if not, it’s a place where we are going to look for a partner earlier. But I think certainly our intent is to bring this product forward to a proof of concept because we feel there is a strong value increase once you got the proof of concept in cancer. And so, that’s a little way to off for us because we are still in the dose escalation part of the program. Once we get through that then we will move into the phase I, II part of actually doing some of the early efficacy works. But that’s how we are thinking about it. It really depends upon what it takes to enter proof of concept and then what is looking like after that at least be aware where we are in terms of cash flow and revenue in the company.
Imran Babar - Cowen & Co.
Okay. Thanks a lot.
Thank you. I would now like to turn the conference back over to Mr. Craig Wheeler for closing remarks.
Certainly, thank you very much. I very much appreciate everybody on the call today listening, we hope that we can come back and give you more updates on our programs in the next quarter. So, we look forward to keeping you appraised. Thank you.
Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program for today; you may all disconnect and have a wonderful day.
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