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Momenta Pharmaceuticals (NASDAQ:MNTA)
Q2 2018 Earnings Conference Call
Aug. 9, 2018 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome Momenta Pharmaceuticals second-quarter 2018 earnings call. [Operator instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Sarah Carmody, senior director, investor relations and corporate communications. Please go ahead.

Sarah Carmody -- Senior Director, Investor Relations and Corporate Communications

Thank you. Good morning, everyone, and thank you for joining us for Momenta's conference call to discuss results for the second quarter of 2018. Today's call is being webcast, and you can view the slides we will be presenting in the Investors section of our website at momentapharma.com. Joining me on the call with prepared remarks are Craig Wheeler, president and chief executive officer, and Michelle Robertson, vice president, financial planning and analysis.

Following our remarks, we will open the call to questions. Before we begin, I'd like to mention that our call will contain forward-looking statements about the financial outlook, business plans and objectives, and other future events and developments, including statements about the status and timing and/or substance of the outcome of our strategic review; the timing of regulatory filings; regulatory approvals; market formation and launches of our product candidates and products; the market potential and reception of our products and product candidates; potential competition in revenues for our products; legal proceeding timelines and strategic decisions; development of our product candidates, including timing of clinical trials and availability of data; accounting treatment for payments from our collaborators; our goals and strategy; our current and potential future collaborations; and non-GAAP operating expense guidance. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the slide entitled Cautionary Note Regarding Forward-Looking Statements included in the presentation accompanying this call under the heading Risk Factors, in our most recent quarterly report on 10-Q filed with the Securities and Exchange Commission, as well as other documents that we may file from time to time with the SEC.

Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call. On the call, we will also discuss second-quarter 2018 non-GAAP operating expense. Please see the presentation accompanying the call for further information and reconciliation of this measure. With that, I'll turn the call over to Craig.

Craig Wheeler -- President and Chief Executive Officer

Thank you, Sarah.I'll start today's call with an update of the status of the strategic review that we initiated earlier this year. I'll then provide an update on our complex generic products and biosimilar programs and then provide highlights from our novel drug pipeline for autoimmune disease. Following my remarks, our VP of FP&A, Michelle Robertson, will fill in on this call for our CFO, Scott Storer, who is on temporary medical leave. She will discuss our second-quarter financial results.

We'll then open the call for questions. I'll begin with our strategic review. Earlier this year, we announced that we had initiated a strategic review of our business to address the revenue uncertainty related to the late launch of Glatopa 40 milligram and the funding challenges we face in advancing our broad portfolio. The goal of the strategic review is to assess different options that will allow us to reduce costs and focus on the assets in our pipeline with the highest potential, specifically, to redirect spending to our novel drug candidates for autoimmune indications.

We have been actively evaluating a wide range of options, including additional collaborative partnerships; slowing the pace of development of our biosimilar programs, which we've already done; selling one or more of our biosimilar assets, such as M923, our wholly owned biosimilar HUMIRA asset; and implementing additional cost-reduction strategies. It's important to note that the sale of the company has not been a focus of this strategic review, and we are not in discussions for the sale of the company as a whole. In terms of timing, we hope to be able to complete the strategic review and provide an update on this call. However, we are not yet there due to the complexity of the process and the range of potential outcomes.

Please note that we are working diligently to complete the review. We have started the strategic review with a goal of maximizing long-term shareholder value without the need for significant shareholder dilution in the near term. While we believe this goal is within reach, the outcome of the review could alter this goal. We currently anticipate that we will complete our strategic review in the coming weeks, and we do not intend to discuss or disclose further developments during this process until appropriate.

I'll now discuss our complex generics, starting with Glatopa. In the second quarter of 2018, Momenta recorded approximately $12 million in product revenues in Sandoz' sales of our Glatopa products. The U.S. launch of our Glatopa 40-milligram product continues to gain momentum.

Sandoz has ramped up the supply of Glatopa 40 milligram and expects continued adoption as the year progresses. As anticipated, competition in this market has been fierce due to growing pricing pressure from Mylan and Teva. The glatiramer acetate market is responding to competition as expected, with increased pricing pressure from customers. We expect that as contract come up for bid, market share will continue to grow, and we believe that Sandoz understands the market and how to operate successfully in this environment.

Given these market dynamics, we believe that profit share revenue from our Glatopa products will be somewhat unpredictable and has the potential to vary from quarter to quarter. Our internal revenue estimates for Glatopa remain conservative. However, we believe this revenue stream will continue to provide important nondilutive financing for our company into the foreseeable future. Before I move on to our broader portfolio, I wanted to provide a brief update on Enoxaparin.

In June, Sandoz alerted the FDA and its customers that it will be discontinuing the supply of the Enoxaparin injection product. As a reminder, we have recorded minimal to no revenues for Enoxaparin over the past few years and no longer consider Enoxaparin's results as material for the company. Turning now to the patent litigation against Amphastar following the U.S. District Court of Massachusetts' final judgment finding that our U.S.

patent 866 was infringed by Amphastar, but invalid for lack of written description and enablement. Amphastar moved to seek damages under the bond posted in connection with the preliminary injunction granted in 2010. On July 16, 2018, the U.S. District Court of Massachusetts denied Amphastar's motion and allowed our motion to defer consideration until the exhaustion of all appeals.

We have appealed the case to the court of appeals for the federal circuit and opening briefs have been submitted. I'll now turn to our biosimilar programs, and I'll start with M923, our wholly owned biosimilar Humira candidate. The BLA submission is prepared for regulatory filing, but we are holding off on filing pending the conclusion of our strategic review. We'll provide a further update on M923 when we announce the completion of the review.

Now to M710, our proposed biosimilar to Eylea, being developed in collaboration with Mylan, the company has earned the process of initiating the pivotal clinical trial in patients, and the trial is progressing according to plan. Finally, M834, our biosimilar Orencia candidate, also in collaboration with Mylan. Our investigation into what caused the failure to achieve the primary endpoint in the M834 PK trial remains ongoing. We are investigating every potential reason for the PK results, which could be anything from assay variations to [Audio Gap] differences in our molecule in order to determine the next steps for this program, and we have made progress in our investigation, and I will update you when we have an answer.

Now to our novel drug pipeline. I'll begin with our lead novel drug candidate, M281, a recombinant anti-FcRn program designed to be a novel, best-in-class monoclonal antibody for the treatment of patients with immune-mediated diseases. We are working diligently to finalize our clinical development plans for M281 and remain on track to initiate two proof-of-concept studies in the fourth quarter of 2018. This will be an indication in a disease where our competitors have conducted trials, such as myasthenia gravis, ITP, or pemphigus.

Our goal is to demonstrate the potential of our molecule in an area where the target has been validated and, hopefully, demonstrate that our higher potency and strong safety profile translates into best-in-class efficacy. The second indication is targeted to be a disease where there is no currently approved treatment and where we believe we have the potential to differentiate from our competitors and possibly gain accelerated approval. In addition, we are working on a potential subcu version of the product for introduction into future trials. Turning to M254, our hyper-sialylated IVIg program, designed as a potentially high potency version of IVIg.

We have completed the IND-enabling toxicology study, and I am pleased to report that there were no findings that would prevent us from moving this candidate into the clinic. We're targeting the initiation of a Phase 1/2 proof-of-concept clinical trial in late 2018 or early 2019. Our plan is to enter a single trial with a dose ranging in normal volunteers and then progress directly into patients with idiopathic thrombocytopenic purpura, or ITP. ITP is a disease where IVIg is already approved as a treatment.

Therefore, we believe this trial could be completed quickly and that M254 has the potential to be our first novel autoimmune program to reach proof-of-concept. Our main goal in the initial trial is to demonstrate potentially up to 10 times enhanced potency of M254 versus IVIg in humans. If we can show a potency and efficacy advantage, M254 could be a game changer for the IVIg marketplace, which today is a global supply constrained market with over $4 billion in sales in autoimmune indications. We're excited about the potential for M254 and look forward to providing more information as we progress.

M230, our novel program in collaboration with CSL, is a recombinant Fc Multimer that works by antagonizing the activating Fc gamma receptor system and blocking immune complex-mediated tissue damage. We believe that M230 has the potential to be a first-in-class recombinant Fc Multimer, providing an improved treatment option to patients with autoimmune diseases. The Phase 1 study designed to evaluate the safety and tolerability of M230 in healthy volunteers is ongoing, and CSL anticipates that the study will be completed in 2019. I look forward to keeping you updated as we move forward on this program as well.

In closing, we are working diligently to complete our strategic review, and we'll provide an update when appropriate. I'd also like to announce that we plan to hold an Investor and Analyst R&D Day in New York City on October 11, 2018, to provide a deeper dive into our novel drug pipeline and our research and discovery technology platform. With that, I'll turn the call over to Michelle to review our second-quarter financial results.

Michelle Robertson -- Vice President, Financial Planning and Analysis

Thanks, Craig. Good morning, everyone. We reported a net loss for the second quarter of $70 million, compared to a net loss of $37 million for the same quarter last year. The increase was primarily due to an amendment signed in June to our agreement with GSK, a supplier of product for M923, for which Momenta will pay GSK $30 million as part of the company's contractual commitment for the purchase of product batches for M923 through 2022.

Per the M923 agreement, Momenta will pay GSK $15 million by August 15, 2018, and $15 million by July 1, 2019, and these payments are recorded on our statement of operations as other operating expense line items. We have also clarified certain long-term purchase commitment obligations. Revenues for the second quarter totaled $13 million, compared with $24 million for the same period in 2017. Second-quarter 2018 revenue included $12 million in product revenue, which was profit share earned from Sandoz' sales of our Glatopa product.

In Q2 2017, we reported product revenue of $19 million in Sandoz' sales of Glatopa 20 mg, net of a deduction of $0.6 million for reimbursement to Sandoz of the company's share of Glatopa-related legal expenses. The year-over-year decrease in product revenues in the second quarter was primarily due to lower net sales driven by market decline and Mylan's entry into the Copaxone market. Please note that Momenta will not break out the profit share earned from Glatopa 20 mg and Glatopa 40 mg separately and will continue to report the combined profit share from both products as one Mylan. Research and development revenues decreased to $1 million from $4 million in the second quarter of 2018.

The decrease was primarily due to lower reimbursable expenses for our complex generic programs with Sandoz. Second-quarter R&D expense decreased to $31 million when compared to $39 million in the same period in 2017. The decrease was primarily due to reduced external R&D expenses for M923, offset by increases in spending for M281 and M230. Second-quarter G&A expense remained flat at $23 million compared to the same period in 2017.

The company previously gave operating guidance that expected non-GAAP operating expenses for the second quarter of 2018 to be approximately $45 million to $55 million. Our non-GAAP operating expense is defined as total operating expenses less stock-based compensation and less collaborative reimbursement revenue. For the second quarter of 2018, our non-GAAP operating expenses were $78 million, which was above our guidance range. This increase was due to the payment of $30 million to GSK pursuant to the M923 agreement as discussed previously.

Excluding the $30 million expense for the M923 agreement, second-quarter non-GAAP operating expense was $48 million, within the range of previously provided guidance for the second quarter of 2018. Finally, we ended the second quarter with $320 million in cash, cash-equivalents, and marketable securities, compared to $346 million at the start of the quarter. Turning now to guidance. Our previously issued full-year 2018 non-GAAP operating expense guidance of approximately $180 million to $220 million is no longer accurate and subject to continued changes based on the outcome of the strategic review of [indiscernible].

We expect to be able to provide updated 2018 operating guidance for the year when we report third-quarter 2018 financial results. We'll now open the call to questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Brandon Folkes from Cantor Fitzgerald. Your line is now open.

Arthur He -- Cantor Fitzgerald -- Analyst

Hey, good morning, guys. This is Arthur for Brandon. We're just wondering, given the recent price action announced by Mylan on the Copaxone generic, would you guys consider a strategic option for monetizing your Glatopa asset to fund the rest of your pipeline?

Craig Wheeler -- President and Chief Executive Officer

Well, I think the part of the challenge with trying to monetize the generic is the uncertainty of future revenues. So it's not like a novel drug where you have long-term forecast that can actually be monetized with the royalty pharma. So our current view is that it's better off for us in terms of maximizing the value to stay in the partnership that we have with Sandoz and to continue to improve those revenues as they occur.

Arthur He -- Cantor Fitzgerald -- Analyst

I see. Thanks for the update. And if I may, could you give us any insight into the size and timeline in the Phase 2 trial for the M281 beginning 4Q '18? Or under which two indication you would go first?

Craig Wheeler -- President and Chief Executive Officer

Yes, sure. I really can't give you much details until we actually announce the indications because we really want to give investors a full picture of the whole program when we announce it. But you can anticipate that we will be announcing and starting trials before the end of this year in two indications, and you'll probably hear because the trial will be approved before we actually start enrolling patients. But first of those will be in an indication out of the list of myasthenia gravis, pemphigus or ITP, because that's what proof-of-concept that's already been shown by others, and we want to be able to demonstrate that our potency and efficacy as the potential to show enhanced efficacy.

And then we're actually looking at a more rare and untested application as well. But we will, for sure, by the time we get to our R&D Day, give you a full detail about our plans for that program, including the indications and clinical trial designs. And so our R&D Day on October 11 you should look as a backup for finding out the indications and that's when we will give you all the details on design of programs.

Arthur He -- Cantor Fitzgerald -- Analyst

OK. Sounds good. Thanks.

Operator

Thank you. [Operator instructions] Our next question comes from Bill Maughan with Cowen and Company.

Bill Maughan -- Cowen & Company -- Analyst

Hey, good morning. So on 281, without asking what that novel indication will be, is that second indication known internally at this point? Or are we still narrowing that down? And then Mylan's 40 mg Copaxone market share has been relatively modest at this point and seems to maybe have plateaued. Would you expect Sandoz to outperform Mylan? Or is the modest share of a generic Copaxone just a feature of the market at this point? Thank you.

Craig Wheeler -- President and Chief Executive Officer

Sure. So first on the second indication, I would say, yes, we pretty much know what that second indication is. We're working through the final designs of the program with regulators. So we're not going to announce until we're absolutely sure that regulators are on board with the design, but we pretty much know where we're going at this point.

On the Mylan's share, I think it's a feature of the market. The thing about this marketplace is that Teva has played very aggressively as essentially another generic player. And so -- and you also have a specialty product, which is actually controlled by a very few purchasers. So purchasers that are out there control large shares.

As a result, you've seen extensive discounting and share moving in big chunks or not moving in big chunks. And I think that's kind of a feature of the marketplace. So I think in the future -- in future quarters, as contracts come up for bid, I'm not sure exactly what is going to follow up, but you will continue to see share shift as it does in a traditional generic marketplace. But I think what you're seeing with Mylan is as a result of the aggressive competition and the nature of the buying community and this product.

Bill Maughan -- Cowen & Company -- Analyst

OK. Thank you.

Craig Wheeler -- President and Chief Executive Officer

Sure. Thank you.

Operator

And I show no further questions in queue, so I'd like to turn it back over to Mr. Wheeler for closing remarks.

Craig Wheeler -- President and Chief Executive Officer

Thank you very much, folks, and I hope everybody has a good rest of the summer, and we look forward to talking with you soon to be able to talk about the outcome of our strategic review. Thank you.

Operator

[Operator signoff]

Duration: 22 minutes

Call Participants:

Sarah Carmody -- Senior Director, Investor Relations and Corporate Communications

Craig Wheeler -- President and Chief Executive Officer

Michelle Robertson -- Vice President, Financial Planning and Analysis

Arthur He -- Cantor Fitzgerald -- Analyst

Bill Maughan -- Cowen & Company -- Analyst

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