Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(MARK ONE)
 
x         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
 
or
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from              to             
 
Commission File Number 000-50797
 
Momenta Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
04-3561634
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
301 Binney Street, Cambridge, MA
 
02142
(Address of Principal Executive Offices)
 
(Zip Code)
 
(617) 491-9700
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock,
$0.0001 par value per share
MNTA
 The Nasdaq Global Select Market
 
As of April 29, 2019, there were 98,611,523 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
 


Table of Contents

MOMENTA PHARMACEUTICALS, INC.

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our logo, trademarks and service marks are the property of Momenta Pharmaceuticals, Inc. Other trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.


2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Statements contained in this Quarterly Report on Form 10-Q that are about future events or future results, or are otherwise not statements of historical fact, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on current expectations, estimates, forecasts, projections, intentions, goals, strategies, plans, prospects and the beliefs and assumptions of our management. In some cases, these statements can be identified by words such as “anticipate,” “approach,” “believe,” “can,” “contemplate,” “continue,” “could,” “ensure,” “estimate,” “expect,” "goal," “intend,” “likely,” “may,” “might,” “objective,” “opportunity,” “plan,” “potential”, “predict,” “project,” “pursue,” “seek,” “schedule,” “should,” “strategy,” “target,” “typically,” “will,” “would,” and other similar words or expressions, or the negative of these words or similar words or expressions. These statements include, but are not limited to, statements regarding our priorities, goals and strategies, including our change in strategic focus toward the discovery and development of our novel drug candidates for rare immune-mediated diseases, including M281, M254 and M230, and the advancement of our late stage biosimilar candidates, M923 and M710; the use, efficacy, safety, potency, tolerability, dosing, convenience, differentiation and commercial potential of our products and product candidates; the design, timing and goals of clinical trials and the availability, timing and announcement of data and results; estimates of incidence of disease and patient populations; market potential and acceptance of our products and product candidates; the timing of regulatory filings, reviews and approvals; our expectations regarding the development and utility of our products and product candidates; development timelines for our product candidates; development, manufacture and commercialization of our products and product candidates; efforts to seek and manage relationships with collaboration partners, including without limitation for our novel therapeutic and biosimilar programs; the timing of launch of products and product candidates; market share and product revenues of our products and product candidates, including GLATOPA and Enoxaparin Sodium Injection; the timing, merits, strategy, impact and outcome of, and decisions regarding, legal proceedings; timing of biosimilar market formation; collaboration revenues and research and development revenues; the sufficiency of our current capital resources and projected milestone payments and product revenues for future operations; our future financial position, including but not limited to our future operating losses, our potential future profitability; our future expenses, including anticipated restructuring charges; the composition and mix of our cash, cash equivalents and marketable securities; our future revenues and our future liabilities; our funding transactions and our intended uses of proceeds thereof; product candidate development costs; receipt of contingent milestone payments; accounting policies, estimates and judgments; our estimates regarding the fair value of our investment portfolio; the market risk of our cash equivalents, marketable securities and derivative, foreign currency and other financial instruments; rights, obligations, terms, conditions and allocation of responsibilities and decision making under our collaboration agreements; the regulatory pathway for biosimilars; our strategy, including but not limited to our regulatory strategy, and scientific approach; the importance of key customer distribution arrangements; market potential and acceptance of our products and product candidates; future capital requirements; reliance on our collaboration partners and other third parties; the competitive landscape; changes in, impact of and compliance with laws, rules and regulations; product reimbursement policies and trends; pricing of pharmaceutical products, including our products and product candidates; our stock price; our intellectual property strategy and position; sufficiency of insurance; attracting and retaining qualified personnel; our internal controls and procedures; acquisitions or investments in companies, products and technologies; entering into collaboration and/or license arrangements; marketing plans; financing our planned operating and capital expenditure; materials used in our research and development; dilution; royalty rates; and vesting of equity awards.
 
Any forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Important factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
    
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.


3

Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.    FINANCIAL STATEMENTS

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
March 31, 2019
 
December 31, 2018
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
131,228

 
$
248,334

Marketable securities
204,043

 
174,076

Collaboration receivable
2,986

 
11,371

Prepaid expenses and other current assets
7,316

 
6,318

Assets held-for-sale
710

 
1,324

Total current assets
346,283

 
441,423

Marketable securities, long-term
81,182

 
27,001

Property and equipment, net
15,130

 
20,944

Restricted cash, long-term
37,898

 
37,898

Intangible assets, net
2,595

 
2,883

Other long-term assets
75,362

 
1,414

Total assets
$
558,450

 
$
531,563

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
9,319

 
$
9,352

Accrued expenses
10,376

 
14,060

Accrued restructuring
1,556

 
3,235

Collaboration liabilities
2,770

 
4,721

Deferred revenue
3,606

 
3,916

Other current liabilities
23,953

 
16,227

Total current liabilities
51,580

 
51,511

Deferred revenue, net of current portion
743

 
1,774

Other long-term liabilities
83,569

 
17,270

Total liabilities
135,892

 
70,555

Commitments and contingencies (Note 8 and 13)


 


Stockholders’ Equity:
 

 
 

Common stock, $0.0001 par value per share; 200,000 shares authorized, 99,176 shares issued and 98,947 shares outstanding at March 31, 2019 and 100,000 shares authorized, 98,695 shares issued and 98,466 shares outstanding at December 31, 2018
10

 
10

Additional paid-in capital
1,214,076

 
1,208,025

Accumulated other comprehensive income (loss)
255

 
(87
)
Accumulated deficit
(788,669
)
 
(743,826
)
Treasury stock, at cost, 229 shares
(3,114
)
 
(3,114
)
Total stockholders’ equity
422,558

 
461,008

Total liabilities and stockholders’ equity
$
558,450

 
$
531,563

The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

4

Table of Contents

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
March 31,
 
2019
 
2018
Collaboration revenue:
 

 
 

Product revenue
$
2,352

 
$
3,521

Research and development revenue
1,761

 
1,331

Total collaboration revenue
4,113

 
4,852

Operating expenses:
 

 
 

Research and development
27,972

 
33,242

General and administrative
24,206

 
20,612

Restructuring
26

 

Total operating expenses
52,204

 
53,854

Operating loss
(48,091
)
 
(49,002
)
Other income, net
3,248

 
1,371

Net loss
$
(44,843
)
 
$
(47,631
)
 
 
 
 
Basic and diluted net loss per share
$
(0.46
)
 
$
(0.63
)
Weighted average shares used in computing basic and diluted net loss per share
98,195

 
75,454

 
 
 
 
Comprehensive loss:
 

 
 

Net loss
$
(44,843
)
 
$
(47,631
)
Net unrealized holding gain (loss) on available-for-sale marketable securities
342

 
(435
)
Comprehensive loss
$
(44,501
)
 
$
(48,066
)

The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.


5

Table of Contents

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
Cash Flows from Operating Activities:
 

 
 

Net loss
$
(44,843
)
 
$
(47,631
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization of property and equipment
5,859

 
1,786

Share-based compensation expense
3,474

 
4,874

Amortization of premium on investments
(581
)
 
74

Amortization of intangibles
288

 
288

(Gain) loss on disposal of assets
(440
)
 
76

Changes in operating assets and liabilities:
 

 
 

Collaboration receivable
8,385

 
10,295

Prepaid expenses and other current assets
(1,508
)
 
205

Other long-term assets
2,722

 
50

Accounts payable
10

 
(5,635
)
Accrued expenses
(3,962
)
 
(3,746
)
Accrued restructuring
(1,679
)
 

Collaboration liabilities
(1,951
)
 
(1,370
)
Deferred revenue
(1,341
)
 
(748
)
Other liabilities
(2,025
)
 
3,329

Net cash used in operating activities
(37,592
)
 
(38,153
)
 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Purchases of property and equipment
(137
)
 
(3,555
)
Proceeds from disposal of equipment
1,285

 
12

Purchases of marketable securities
(133,915
)
 
(43,434
)
Proceeds from maturities of marketable securities
50,690

 
91,382

Net cash provided by (used in) investing activities
(82,077
)
 
44,405

 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Proceeds from issuance of common stock under stock plans
2,563

 
8,323

Net cash provided by financing activities
2,563

 
8,323

 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
(117,106
)
 
14,575

Cash, cash equivalents and restricted cash, beginning of period
286,232

 
96,683

Cash, cash equivalents and restricted cash, end of period
$
169,126

 
$
111,258

 
 
 
 
Non-Cash Activities:
 
 
 
Purchases of property and equipment included in accounts payable and accrued expenses
$
278

 
$
1,228

Receivable due from stock option exercises
$
14

 
$
643

Impact of adopting ASC 606
$

 
$
5,511

 
The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

6

Table of Contents

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
 
Common Stock
 
 
 
 
 
 
 
Treasury Stock
 
 
 
Shares
 
Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Shares
 
Amount
 
Total Stockholders' Equity
Balances at December 31, 2017
76,584

 
$
8

 
$
939,654

 
$
(140
)
 
$
(562,254
)
 
(229
)
 
$
(3,114
)
 
$
374,154

Impact of adopting ASC 606

 

 

 

 
(5,511
)
 

 

 
(5,511
)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan
691

 

 
8,966

 

 

 

 

 
8,966

Issuance of restricted stock
101

 

 

 

 

 

 

 

Cancellation/forfeiture of restricted stock
(47
)
 

 

 

 

 

 

 

Share-based compensation expense

 

 
4,874

 

 

 

 

 
4,874

Unrealized loss on marketable securities

 

 

 
(435
)
 

 

 

 
(435
)
Net loss

 

 

 

 
(47,631
)
 

 

 
(47,631
)
Balances at March 31, 2018
77,329

 
$
8

 
$
953,494

 
$
(575
)
 
$
(615,396
)
 
(229
)
 
$
(3,114
)
 
$
334,417


 
Common Stock
 
 
 
 
 
 
 
Treasury Stock
 
 
 
Shares
 
Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Shares
 
Amount
 
Total Stockholders' Equity
Balances at December 31, 2018
98,695

 
$
10

 
$
1,208,025

 
$
(87
)
 
$
(743,826
)
 
(229
)
 
$
(3,114
)
 
$
461,008

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan
237

 

 
2,577

 

 

 

 

 
2,577

Issuance of restricted stock
280

 

 

 

 

 

 

 

Cancellation/forfeiture of restricted stock
(36
)
 

 

 

 

 

 

 

Share-based compensation expense

 

 
3,474

 

 

 

 

 
3,474

Unrealized gain on marketable securities

 

 

 
342

 

 

 

 
342

Net loss

 

 

 

 
(44,843
)
 

 

 
(44,843
)
Balances at March 31, 2019
99,176

 
$
10

 
$
1,214,076

 
$
255

 
$
(788,669
)
 
(229
)
 
$
(3,114
)
 
$
422,558

The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

7

Table of Contents

MOMENTA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED, CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Nature of Business and Basis of Presentation
 
Business Overview

Momenta Pharmaceuticals, Inc., referred to as Momenta or the Company, was incorporated in the state of Delaware in May 2001 and began operations in early 2002. Its facilities are located in Cambridge, Massachusetts. Momenta is a biotechnology company focused on developing novel therapeutics for rare immune-mediated diseases and other legacy products, including complex generics and biosimilars. The Company presently derives all of its revenue from its collaborations.

Basis of Presentation
 
In the opinion of management, the accompanying unaudited, condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial statements for interim periods in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and the accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission, or the SEC, on February 22, 2019. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the Company's audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

Consolidation
 
The accompanying unaudited, condensed consolidated financial statements reflect the operations of the Company and the Company’s wholly-owned subsidiaries, Momenta Pharmaceuticals Securities Corporation and Momenta Ireland Limited. Intercompany balances and transactions are eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, and share-based payments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

Summary of Significant Accounting Policies

The Company's significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements its Annual Report on Form 10-K for the year ended December 31, 2018, except as described below.

Leases

The Company determines if an arrangement is or contains a lease at inception. For leases with a term of 12 months or less, the Company does not recognize a right-of-use asset or lease liability. The Company's operating leases are recognized on its consolidated balance sheet as other long-term assets, other current liabilities, and other long-term liabilities. The Company does not have any finance leases.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company uses an estimate of its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

8

Table of Contents

Operating lease right-of-use assets also include the effect of any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. Non-lease components as it pertains to the Company's leased premises generally refer to common area maintenance charges related to the premises.

Newly Adopted Accounting Pronouncements
 
In February 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about their leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, which provides entities with an additional transition method to adopt Topic 842. Under the new transition method, an entity initially applies the new lease requirements at the adoption date, not the earliest period presented, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company elected to apply this transition method at the adoption date of January 1, 2019. The Company also elected to apply the package of practical expedients, under which an entity need not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct costs for any existing leases. The standard had a material impact on the Company's consolidated balance sheet, but did not have an impact on the Company's consolidated statement of operations and comprehensive loss in the period of adoption. The most significant impact was the recognition of right-of-use assets of $76.7 million and lease liabilities of $93.6 million for operating leases on January 1, 2019. Refer to Note 8, "Leases," for additional disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new standard largely aligns the accounting for share-based payment awards issued to employees and nonemployees by expanding the scope of ASC 718 to apply to nonemployee share-based transactions, as long as the transaction is not effectively a form of financing. The new guidance was effective for the Company on January 1, 2019. The adoption of the standard had no material impact on the Company's consolidated financial statements.

Newly Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Requirements for Fair Value Measurement. The new standard added, modified or removed disclosure requirements under Topic 820 for clarity and consistency. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not expect the guidance will have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendment updates the accounting for implementation, setup, and other upfront costs for a customer in a hosting arrangement that is a service contract. The amendment is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendment is permitted, including adoption in any interim period, for all entities. The amendment may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects to adopt this amendment prospectively when effective, and does not expect the amendment will have a material impact on its consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The amendment clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The amendment also adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. Lastly, the amendment requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2019, and inte

9

Table of Contents

rim periods within those fiscal years. The Company is currently evaluating these clarifications in the accounting and presentation for its collaborative arrangements within the scope of Topic 808.

2. Supplemental Cash Flow Statement Information

The following table summarizes the Company’s cash, cash equivalents and restricted cash as of March 31, 2019 and December 31, 2018 (in thousands):

 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
131,228

 
$
248,334

Restricted cash, long-term
37,898

 
37,898

Total
$
169,126

 
$
286,232


3. Fair Value Measurements
 
The tables below present information about the Company’s assets that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):
Description
 
Balance as of
March 31, 2019
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
Assets:
 
 

 
 

 
 

 
 

Cash equivalents:
 
 

 
 

 
 

 
 

Money market funds
 
$
63,157

 
$
63,157

 
$

 
$

Overnight repurchase agreements
 
7,999

 

 
7,999

 

Marketable securities:
 
 

 
 

 
 

 
 

U.S. government-sponsored enterprise securities
 
40,972

 

 
40,972

 

Corporate debt securities
 
135,671

 

 
135,671

 

Certificates of deposit
 
3,061

 

 
3,061

 

Commercial paper obligations
 
77,494

 

 
77,494

 

Asset-backed securities
 
28,027

 

 
28,027

 

Total
 
$
356,381

 
$
63,157

 
$
293,224

 
$

 
Description
 
Balance as of
December 31, 2018
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
Assets:
 
 

 
 

 
 

 
 

Cash equivalents:
 
 

 
 

 
 

 
 

Money market funds
 
$
119,955

 
$
119,955

 
$

 
$

Marketable securities:
 
 

 
 

 
 

 
 

U.S. government-sponsored enterprise securities
 
12,424

 

 
12,424

 

Corporate debt securities
 
129,308

 

 
129,308

 

Certificates of deposit
 
3,003

 

 
3,003

 

Commercial paper obligations
 
30,935

 

 
30,935

 

Asset-backed securities
 
25,407

 

 
25,407

 

Total
 
$
321,032

 
$
119,955

 
$
201,077

 
$

 

10

Table of Contents

Overnight repurchase agreements are classified as Level 2 due to the collateral including both U.S. government-sponsored enterprise securities and treasury instruments.
There have been no impairments of the Company’s assets measured and carried at fair value during the three months ended March 31, 2019 and 2018. In addition, there were no changes in valuation techniques or transfers between the fair value measurement levels during the three months ended March 31, 2019. The fair value of Level 2 instruments classified as marketable securities were determined through third party pricing services. For a description of the Company’s validation procedures related to prices provided by third party pricing services, refer to Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2018. The carrying amounts reflected in the Company’s consolidated balance sheets for cash, collaboration receivable, other current assets, accounts payable, accrued restructuring, and accrued expenses approximate fair value due to their short-term maturities.

4. Cash, Cash Equivalents and Marketable Securities

The Company’s cash equivalents are composed of money market funds and overnight repurchase agreements. Money market funds are carried at fair value, which approximate cost at March 31, 2019 and December 31, 2018. Overnight repurchase agreement yields are comparable to money market funds where principal and interest on the instruments is due the next day.

The Company classifies U.S. government-sponsored enterprise securities, corporate debt securities, certificates of deposit, commercial paper and asset-backed securities as short-term and long-term marketable securities in its consolidated financial statements. See Note 2, “Summary of Significant Accounting Policies,” to the Company's consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of the Company’s accounting policies.
 
The following tables summarize the Company’s cash, cash equivalents and marketable securities as of March 31, 2019 and December 31, 2018 (in thousands):
 
As of March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
131,228

 
$

 
$

 
$
131,228

U.S. government-sponsored enterprise securities due in one year or less
 
35,160

 
31

 
(1
)
 
35,190

U.S. government-sponsored enterprise securities due in more than one year
 
5,768

 
14

 

 
5,782

Corporate debt securities due in one year or less
 
100,570

 
83

 
(21
)
 
100,632

Corporate debt securities due in more than one year
 
34,959

 
82

 
(2
)
 
35,039

Certificates of deposit due in one year or less
 
3,056

 
5

 

 
3,061

Certificates of deposit due in more than one year
 

 

 

 
$

Commercial paper obligations due in one year or less
 
77,467

 
27

 

 
77,494

Asset-backed securities due in one year or less
 

 

 

 

Asset-backed securities due in more than one year
 
27,990

 
39

 
(2
)
 
28,027

Total
 
$
416,198

 
$
281

 
$
(26
)
 
$
416,453

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
131,228

 
$

 
$

 
$
131,228

Marketable securities
 
284,970

 
281

 
(26
)
 
285,225

Total
 
$
416,198

 
$
281

 
$
(26
)
 
$
416,453

 

11

Table of Contents

As of December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
248,334

 
$

 
$

 
$
248,334

U.S. government-sponsored enterprise securities due in one year or less
 
12,428

 

 
(4
)
 
12,424

Corporate debt securities due in one year or less
 
128,107

 
16

 
(110
)
 
128,013

Corporate debt securities due in more than one year
 
1,300

 

 
(5
)
 
1,295

Certificates of deposit due in one year or less
 
2,702

 
1

 

 
2,703

Certificates of deposit due in more than one year
 
300

 

 

 
300

Commercial paper obligations due in one year or less
 
30,911

 
25

 
(1
)
 
30,935

Asset-backed securities due in one year or less
 
25,416

 
2

 
(11
)
 
25,407

Total
 
$
449,498

 
$
44

 
$
(131
)
 
$
449,411

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
248,334

 
$

 
$

 
$
248,334

Marketable securities
 
201,164

 
45

 
(132
)
 
201,077

Total
 
$
449,498

 
$
45

 
$
(132
)
 
$
449,411


5. Restricted Cash

The Company designated $36.1 million as collateral for a letter of credit that is security for a bond posted in the litigation against Amphastar and International Medical Systems, Ltd., a wholly owned subsidiary of Amphastar Pharmaceuticals, Inc. Additional information regarding the litigation is discussed within Note 13, "Commitments and Contingencies" herein. The $36.1 million is held on deposit with a bank. The Company classified this restricted cash as long-term as the timing of a final decision in the Enoxaparin Sodium Injection patent litigation is not known.
The following table summarizes the amounts designated as collateral for letters of credit related to the lease of office and laboratory space in Cambridge, Massachusetts (collateral amounts are presented in thousands):
Property Location
 
Approximate Square Footage
 
Lease Expiration Date
 
Letter of Credit Amount
 
Balance Sheet Classification
320 Bent Street
 
105,000

 
2/28/2027
 
$
748

 
Non-Current Asset
301 Binney Street, Fifth Floor
 
80,000

 
6/29/2025
 
1,101

 
Non-Current Asset
  Total
 
 
 
 
 
$
1,849

 
 

6. Other Assets

As of March 31, 2019 and December 31, 2018, other long-term assets consisted of the following (in thousands):

 
March 31, 2019
 
December 31, 2018
Right-of-use operating lease asset
$
74,759

 
$

Other
603

 
1,414

Total other long-term assets
$
75,362

 
$
1,414





12

Table of Contents


7. Other Liabilities

As of March 31, 2019 and December 31, 2018, other current and long-term liabilities consisted of the following (in thousands):

Other Current Liabilities
 
March 31, 2019
 
December 31, 2018
Contract liability
$
15,000

 
$
15,000

Lease liability
8,812

 

Lease incentive

 
1,052

Deferred rent

 
47

Other
141

 
128

Total other current liabilities
$
23,953

 
$
16,227


Other Long-Term Liabilities
 
March 31, 2019
 
December 31, 2018
Lease liability
$
82,685

 
$

Lease incentive

 
7,877

Deferred rent

 
8,477

Other
884

 
916

Total other long-term liabilities
$
83,569

 
$
17,270



As of March 31, 2019, the Company included $15.0 million in other current liabilities in connection with the renegotiation with Human Genome Sciences, Inc., or GSK, of certain remaining contractual obligations under a manufacturing services agreement.

8. Leases

The Company's operating leases primarily relate to its two leased premises and are described in the “Notes to Consolidated Financial Statements” in its Annual Report on Form 10-K for the year ended December 31, 2018.

On January 1, 2019, the Company adopted ASU 2016-02, Leases. Refer to Note 1, "Nature of Business and Basis of Presentation" herein for additional disclosures. Lease cost and other information related to the Company's operating leases were as follows:
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
Lease cost (in thousands)
 
 
 
 
 
 
 
$
3,659

Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows (in thousands)
 
 
 
 
 
 
 
$
3,801

Weighted-average remaining lease term (years)
 
 
 
 
 
 
 
7.3

Weighted-average discount rate
 
 
 
 
 
 
 
7.5
%


13

Table of Contents


Future minimum lease payments and lease liabilities as of March 31, 2019 were as follows (in thousands):
 
 
 
 
 
 
 
 
Operating leases
April 1 to December 31, 2019
 
 
 
 
 
 
 
$
11,490

2020
 
 
 
 
 
 
 
15,744

2021
 
 
 
 
 
 
 
16,138

2022
 
 
 
 
 
 
 
16,516

2023
 
 
 
 
 
 
 
16,655

2024 and beyond
 
 
 
 
 
 
 
43,709

Total future minimum lease payments
 
 
 
 
 
 
 
$
120,252

Less: imputed interest
 
 
 
 
 
 
 
(28,755
)
Total lease liability
 
 
 
 
 
 
 
$
91,497

 
 
 
 
 
 
 
 
 
Reported as:
 
 
 
 
 
 
 
 
Other current liabilities
 
 
 
 
 
 
 
$
8,812

Other long-term liabilities
 
 
 
 
 
 
 
82,685

Total lease liabilities
 
 
 
 
 
 
 
$
91,497



9. License Agreements and Collaborative Agreements

Contracts with Customers

2003 Sandoz Agreement

In 2003, the Company entered into a license agreement with Sandoz, or the 2003 Sandoz Agreement, to jointly develop, manufacture and commercialize enoxaparin sodium injection, a generic version of LOVENOX® (enoxaparin), in the United States, the licensed product. The Company and Sandoz agreed to exclusively work with each other to develop and commercialize the enoxaparin sodium injection for any and all medical indications within the United States. In addition, the Company granted Sandoz an exclusive license under its intellectual property rights to develop and commercialize injectable enoxaparin for all medical indications within the United States.

The term of the agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party. Either party may terminate the agreement if the other party breaches the agreement or files for bankruptcy. Additionally, Sandoz may terminate the agreement for commercial viability reasons. Sandoz has agreed to indemnify the Company for various claims, and a certain portion of such costs may be offset against certain future payments received by the Company.

Sandoz began selling Enoxaparin Sodium Injection in July 2010. In June 2015, the Company and Sandoz amended the Agreement to provide that Sandoz would pay the Company 50% of contractually defined profits on sales. Due to increased generic competition and resulting decreased market pricing for the licensed product, Sandoz did not record any profit on sales of the licensed product for the three months ended March 31, 2019 and 2018, and therefore the Company did not record product revenue for the licensed product in those periods. The Company is no longer eligible to receive milestones under the agreement.

The Company concluded that the license agreement is within the scope of Topic 606. As of January 1, 2018, the Company had completed its performance obligations under the contract. The Company continues to be eligible to receive contractual profit share on Sandoz’ sales of the licensed product, which is recorded as product revenue. The Company recognizes revenue for profit share in the period the related sales occur. The Company recognizes research and development revenue related to on-going commercial services under the contract as those services are delivered, as they represent customer options for future services that reflect their standalone selling price. The adoption of Topic 606 had no impact on the accounting for this license agreement.

In July 2018, Sandoz notified its customers and the FDA that it would discontinue supplying the licensed product. The Company expects any future revenues from Sandoz' sales of the licensed product, if any, to be minimal.


14

Table of Contents

2006 Sandoz Agreement

In 2006 and 2007, the Company entered into a series of agreements with Sandoz, or the 2006 Sandoz Agreement, where the Company and Sandoz agreed to exclusively collaborate on the development and commercialization of GLATOPA, a generic version of COPAXONE, among other potential products. Costs, including development costs and the costs of clinical studies, will be borne by the parties in varying proportions depending on the type of expense. For GLATOPA, the Company is generally responsible for all of the development costs in the United States. For GLATOPA outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed for personnel costs and external costs incurred in the development of products to the extent development costs are borne by Sandoz, as described above. All commercialization costs are borne by Sandoz. Sandoz is responsible for funding legal expenses, except for personnel costs with respect to certain legal activities for GLATOPA; however 50% of legal expenses, including any patent infringement damages, can be offset against the profit-sharing amounts. Development costs, commercialization costs and legal costs have defined meanings under the agreement.

The term of the agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party. The agreement may be terminated if either party breaches the agreement or files for bankruptcy, or, on a region-by-region basis, in the event clinical studies are needed in order to obtain marketing approval. Sandoz has agreed to indemnify the Company for various claims, and a certain portion of such costs may be offset against certain future payments received by the Company.

Sandoz commenced sales of GLATOPA 20 mg/mL in the United States in June 2015 and of GLATOPA 40 mg/mL in the United States in February 2018. Under the agreement, the Company earns 50% of contractually defined profits on Sandoz' worldwide net sales of GLATOPA. Profits on net sales of GLATOPA are calculated by deducting from net sales the costs of goods sold and an allowance for selling, general and administrative costs, which is a contractual percentage of GLATOPA net sales, and post-launch commercial milestones achieved.

Following FDA approval of Mylan N.V.'s generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL, which Mylan N.V. announced in October 2017, the Company is no longer eligible to earn $80.0 million in future post-launch commercial milestones payments. The Company is still eligible to receive up to $30.0 million in performance-based milestone payments for GLATOPA in the United States, although the Company believes it is not likely that the performance-based milestones will be achieved. None of these payments, once received, is refundable and there are no general rights of return.

On October 4, 2017, the Company and Sandoz entered into a letter agreement, pursuant to which the Company agreed to reduce its 50% share of contractually defined profits on worldwide net sales of GLATOPA by up to an aggregate of approximately $9.8 million, commencing in the three months ended March 31, 2018, representing 50% of potential GLATOPA 40 mg/mL pre-launch inventory costs. In the three months ended March 31, 2018, the Company's product revenue was reduced by $9.8 million for the Company's 50% share of GLATOPA 40 mg/mL written off by Sandoz.

On March 28, 2019, the Company and Sandoz entered into a settlement agreement with Teva Pharmaceuticals Industries Ltd. and related entities, or Teva, with respect to the suit against the Company in the United States District Court for the District of Delaware alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775, with the Company's portion of the settlement payment offset against the Company's profit sharing interest from Sandoz on sales of GLATOPA. In the three months ended March 31, 2019, the Company's product revenue was reduced by $1.5 million for the Company's 50% share of the settlement payments.

The Company concluded that the license agreement is within the scope of Topic 606. As of January 1, 2018, the Company had completed its performance obligations under the contract. The Company continues to be eligible to receive contractual profit share on Sandoz’ sales of GLATOPA, which is recorded as product revenue. The Company recognizes revenue for profit share in the period the related sales occur. The Company recognizes research and development revenue related to on-going commercial services under the agreement as those services are delivered, as they represent customer options for future services that reflect their standalone selling price. The adoption of Topic 606 had no impact on the accounting for this license agreement.


15

Table of Contents


Collaborative Arrangements

Mylan Collaboration Agreement

The Company and Mylan entered into a collaboration agreement, or the Mylan Collaboration Agreement, effective February 9, 2016, pursuant to which the Company and Mylan agreed to collaborate exclusively, on a worldwide basis, to develop, manufacture and commercialize six of the Company’s biosimilar candidates, including M710.

In November 2018, the Company delivered formal notice of the partial termination of the Mylan Collaboration Agreement with respect to five of the collaboration programs. In January 2019, Mylan and the Company agreed that such partial termination would be effective as of January 31, 2019. As a result, the Company will only continue to advance its late-stage biosimilar candidate M710, its proposed biosimilar to EYLEA under the Mylan Collaboration Agreement.

Under the terms of the Mylan Collaboration Agreement, Mylan paid the Company a non-refundable upfront payment of $45.0 million. In addition, the Company and Mylan equally share costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates. Mylan funded its share of collaboration expenses incurred by the Company, in part, through milestone payments totaling $60.0 million, which the Company received in 2016.

For the Company's remaining product candidate, M710, the Company and Mylan both have the right to terminate the program at each party's convenience. If one party decides not to continue development, manufacture and commercialization of this product candidate under the Mylan Collaboration Agreement, the other party will have the right to continue the development, manufacture and commercialization of such product candidate, and the terminating party will need to continue to fund its share of expenses for a pre-specified period, depending on the stage of the product candidate at the time of termination.

Under the Mylan Collaboration Agreement, the Company granted Mylan an exclusive license under the Company’s intellectual property rights to develop, manufacture and commercialize the product candidates for all therapeutic indications, and Mylan granted the Company a co-exclusive license under Mylan’s intellectual property rights for the Company to perform its development and manufacturing activities under the product work plans agreed by the parties, and to perform certain commercialization activities to be agreed by the joint steering committee for such product candidates if the Company exercises its co-commercialization option described below.

The Company and Mylan established a joint steering committee, or JSC, consisting of an equal number of members from the Company and Mylan to oversee and manage the development, manufacture and commercialization of product candidates under the collaboration. Unless otherwise determined by the JSC, it is anticipated that, in collaboration with the other party, (a) the Company will be primarily responsible for nonclinical development activities and initial clinical development activities for product candidates; and regulatory activities for product candidates in the United States through regulatory approval; and (b) Mylan will be primarily responsible for additional (pivotal or Phase 3 equivalent) clinical development activities for product candidates; regulatory activities for the product candidates outside the United States; and regulatory activities for products in the United States after regulatory approval, when all marketing authorizations for the products in the United States will be transferred to Mylan. Mylan will commercialize any approved products, with the Company having an option to co-commercialize, in a supporting commercial role, any approved products in the United States. The JSC is responsible for allocating responsibilities for other activities under the collaboration.

The term of the collaboration will continue throughout the development and commercialization of M710 on a country-by-country basis until development and commercialization by or on behalf of the Company and Mylan pursuant to the Mylan Collaboration Agreement has ceased for a continuous period of two years in a given country, unless earlier terminated by either party pursuant to the terms of the Mylan Collaboration Agreement.

The Mylan Collaboration Agreement may be terminated by either party for breach by, or bankruptcy of, the other party; for its convenience; or for certain activities involving competing products or the challenge of certain patents. Other than in the case of a termination for convenience, the terminating party will have the right to continue the development, manufacture and commercialization of the terminated product candidates in the terminated countries.

The Mylan Collaboration Agreement is accounted for as a collaboration arrangement pursuant to Topic 808. The Company’s accounting policy for collaborations analogizes to Topic 606, primarily in determining the appropriate recognition for the upfront license fee and other consideration.


16

Table of Contents

Upfront Payments for License of Intellectual Property

The Company identified the following material promises under the contract: (i) licenses to develop, manufacture and commercialize the named product candidates (six product candidates in total) and (ii) research and development services through FDA approval for each of the six product candidates. The Company’s participation in the joint steering committee was assessed as immaterial in the context of the contract. As the licenses for each of the products and the related research and development services for each of the product candidates are not capable of being distinct and are not distinct within the context of the contract, the Company concluded that each of the six bundles of a product license and the related research and development services through FDA approval should be combined as performance obligations. The Company next assessed whether each of the six bundles of a particular product license and the related research and development services is distinct from each other. The Company concluded that each of the six license and research and development services bundles is capable of being distinct, as Mylan can obtain benefit from each separately, and each is distinct within the context of the contract. Therefore, each of the six license and service bundles individually represent distinct performance obligations.

The Company determined that the upfront payment constituted the entirety of the consideration to be included in the transaction price to be allocated to the performance obligations at contract inception based on the stand-alone selling prices for each of the six license and service performance obligations. For the licenses, the relative stand-alone selling prices were based on an analysis of its existing license arrangements and other available data, with consideration given to the products’ stage of development at the time the licenses were delivered. The stand-alone selling prices of the research and development services were based on the nature and extent of the research and development services to be performed. Changes in the key assumptions used to determine the relative stand-alone selling prices would not have a significant effect on the allocation of the transaction price to the performance obligations. Of the $45.0 million upfront payment, $8.2 million was allocated to M834, $7.1 million was allocated to M710, and between $5.7 million and $9.0 million was allocated to the four additional performance obligations.

The Company considered both input and output methods to determine a method that depicts its performance in transferring control of the goods and services promised. The Company concluded that costs incurred to date, as a proportion of the total estimated costs to bring each product candidate through FDA approval, depict the performance of the research and development services.

As a result of providing a notice of partial termination of the Mylan Collaboration Agreement in November 2018, specifically with respect to the five biosimilar programs other than M710, the Company concluded that it had changed the enforceable rights and obligations under the agreement, and therefore had modified the Mylan Collaboration Agreement. Because the remaining services to be performed prior to the effective date of termination for the five biosimilar programs are not distinct, the Company concluded that each represented a performance obligation that is partially satisfied as of the date the Company provided the notice of partial termination.

As of March 31, 2019, $4.3 million of the transaction price remains allocated to unsatisfied performance obligations and is included in deferred revenue in the condensed consolidated balance sheet. The license and related research and development services performance obligations are expected to be delivered over a period through estimated FDA approval for M710 and through the termination date of the remaining product candidates.

Development milestones, sales-based milestones, and profit share related to the license of intellectual property will be recognized by analogy to the Company’s revenue accounting policies.

Collaboration Costs and Reimbursements

Collaboration costs incurred by the parties are subject to quarterly reconciliation such that the final amount of expense included in the Company's statement of operations is equal to its 50% share of the total collaboration costs. The Company classifies the payments received or made under the cost sharing provisions of the arrangement as a component of research and development or general and administrative expense accordingly to reflect the joint risk sharing nature of the arrangement. Mylan funds its 50% share of development-related collaboration costs through contingent milestone payments, while other shared collaboration costs are reconciled by the parties with the owing party reimbursing the other party by making quarterly payments. The Company records a contract asset to reflect a receivable due from Mylan for Mylan’s 50% share of other shared collaboration costs and a contract liability to reflect the balance of any advance payment from Mylan to be applied towards Mylan’s 50% share of future development-related collaboration costs.


17

Table of Contents

CSL License and Option Agreement

The Company and CSL, a wholly owned indirect subsidiary of CSL Limited, entered into a License and Option Agreement, or the CSL License Agreement, effective February 17, 2017, pursuant to which the Company granted CSL an exclusive worldwide license to research, develop, manufacture and commercialize the M230 pre-clinical product candidate, an Fc multimer protein that is a selective immunomodulator of the Fc receptor. The agreement also provides, on an exclusive basis, for the Company and CSL to conduct research on other Fc multimer proteins, and provides CSL the right to develop, manufacture and commercialize these additional research products globally. CSL's obligations under the agreement are guaranteed by its parent company, CSL Limited.

Pursuant to the CSL License Agreement, CSL paid the Company a non-refundable upfront payment of $50.0 million. On August 28, 2017, the Company exercised a 50% co-funding option. This exercise allows the Company to participate in a cost-and-profit sharing arrangement, under which the Company funds 50% of global research and development costs and 50% of U.S. commercialization costs for all products developed, in exchange for a 50% share of U.S. profits. Under this option, sales-based royalty payments in percentages ranging from a mid-single digit to low-double digits are payable for territories outside of the United States. The Company is also entitled to up to $297.5 million in contingent clinical, regulatory and sales milestone payments, and additional negotiated milestone payments for a named research stage product should that enter development. The contract allows the Company to opt-out of the program in the future at the Company's discretion. If the Company were to do so, the Company's U.S. profit share would be reduced to sales-based royalties ranging from mid-single to low double digits and the milestone payments for which the Company is eligible would be increased by up to $252.5 million, depending on the timing of the opt-out decision.

Under the agreement, the Company granted CSL an exclusive license under its intellectual property to research, develop, manufacture and commercialize product candidates for all therapeutic indications. CSL granted the Company a non-exclusive, royalty-free license under CSL’s intellectual property for the Company's research and development activities pursuant to the agreement and the Company's commercialization activities under any co-promotion agreement with CSL. The Company and CSL formed a joint steering committee consisting of an equal number of members from the Company and CSL, to facilitate the research, development, and commercialization of product candidates.

The term of the agreement commenced on February 17, 2017 and, unless earlier terminated, continues until the later of (i) the expiration of all payment obligations with respect to products under the agreement, (ii) the Company is no longer co-funding development or commercialization of any products and (iii) the Company and CSL are not otherwise collaborating on the development and commercialization of products or product candidates. CSL may terminate the agreement on a product-by-product basis subject to notice periods and certain circumstances related to clinical development. The Company may terminate the agreement under certain circumstances related to the development of M230 and if no activities are being conducted under the agreement. Either party may terminate the agreement (i) on a product-by-product basis if certain patent challenges are made, (ii) on a product-by-product basis for material breaches, or (iii) due to the other party’s bankruptcy.

Upon termination of the agreement, subject to certain exceptions, the licenses granted under the agreement terminate. In addition, dependent upon the circumstances under which the agreement is terminated, the Company or CSL has the right to continue the research, development, and commercialization of terminated products, including rights to certain data, for the continued development and sale of terminated products and, subject to certain limitations, obligations to make sales-based royalty payments to the other party.

After the Company exercised its co-funding option for a 50% share of U.S. profits, the Company has accounted for the CSL agreement as a collaboration arrangement pursuant to Topic 808. The Company’s accounting policy for collaborations analogizes to Topic 606, primarily in determining the appropriate recognition for the upfront license fee and other consideration.

Upfront Payments for License of Intellectual Property

The Company identified the following material promises under the contract: (i) license to research, develop, manufacture and commercialize M230 and (ii) to perform a technology transfer to CSL. The Company’s participation in the joint steering committee and other promises were assessed as immaterial in the context of the contract. As the licenses and technology transfer are not capable of being distinct and are not distinct within the context of the contract, the Company concluded that the bundle of the licenses and technology transfer should be combined as one performance obligation. The combined performance obligation was delivered in 2017. As the $50.0 million upfront payment reflected the transaction price at contract inception, all revenue related to the single performance obligation was recognized in prior periods. Development milestones, sales-based

18

Table of Contents

milestones, and profit share related to the license of intellectual property will be recognized by analogy to the Company’s revenue accounting policies.

Co-funding Costs and Reimbursements

The co-funding arrangement with CSL is a cost-sharing arrangement. Reimbursement by CSL for its share of the development effort is presented as a reduction of operating expenses, and reimbursement by the Company for its share of the development effort is recorded as an incremental operating expense, consistent with the Company’s accounting policy for collaboration arrangements. Such amounts are settled quarterly amongst the parties.

License Agreement Summary

The following tables provide amounts by year indicated and by line item included in the Company's accompanying consolidated financial statements attributable to transactions arising from its license arrangements. The dollar amounts in the tables below are in thousands.
 
 
 
 
 
 
 
 
 
 
 
 
 
2003 Sandoz
Agreement
 
2006 Sandoz
Agreement
 
Mylan 
Collaboration
 Agreement 
 
CSL Collaboration Agreement
 
Total
Contract assets
 
 
 
 
 
 
 
 
 
 
Collaboration receivables:
 
 
 
 
 
 
 
 
 
 
Opening balance - January 1, 2019
 
$

 
$
11,281

 
$
90

 
$

 
$
11,371

Revenue / cost recovery
 

 
2,772

 
214

 

 
2,986

Cash receipts
 

 
(11,281
)
 
(90
)
 

 
(11,371
)
Ending balance - March 31, 2019
 
$

 
$
2,772

 
$
214

 
$

 
$
2,986

 
 
 
 
 
 
 
 
 
 
 
Contract liabilities
 
 
 
 
 
 
 
 
 
 
Deferred revenue:
 
 
 
 
 
 
 
 
 
 
Opening balance - January 1, 2019
 
$

 
$

 
$
5,690

 
$

 
$
5,690

Revenue recognition
 

 

 
(1,341
)
 

 
(1,341
)
Ending balance - March 31, 2019
 

 

 
4,349

 

 
4,349

Less: current portion
 

 

 
(3,606
)
 

 
(3,606
)
Deferred revenue, net of current portion - March 31, 2019
 
$

 
$

 
$
743

 
$

 
$
743

 
 
 
 
 
 
 
 
 
 
 
Collaboration liabilities:
 
 
 
 
 
 
 
 
 
 
Opening balance - January 1, 2019
 
$

 
$

 
$
1,412

 
$
3,309

 
$
4,721

Payments
 

 

 

 
(3,308
)
 
(3,308
)
Net collaboration costs incurred in the period
 

 

 
75

 
1,282

 
1,357

Ending balance - March 31, 2019
 
$

 
$

 
$
1,487

 
$
1,283

 
$
2,770


19

Table of Contents

 
 
For the Three Months Ended March 31, 2019
 
 
2003 Sandoz
Agreement
 
2006 Sandoz
Agreement
 
Mylan 
Collaboration
 Agreement 
 
CSL Collaboration Agreement
 
Total
Product revenue
 
$

 
$
2,352

 
$

 
$

 
$
2,352

Research and development revenue
 

 
420

 
1,341

 

 
1,761

Total collaboration revenue
 
$

 
$
2,772

 
$
1,341

 
$

 
$
4,113

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Research and development expense
 

 
54

 
2,778

 
58

 
2,890

General and administrative expense
 
4,300

 
25

 
268

 
9

 
4,602

Net amount (recovered from) / payable to collaborators
 

 

 
(139
)
 
1,282

 
1,143

Total operating expenses
 
$
4,300

 
$
79

 
$
2,907

 
$
1,349

 
$
8,635

 
 
For the Three Months Ended March 31, 2018
 
 
2003 Sandoz
Agreement
 
2006 Sandoz
Agreement
 
Mylan 
Collaboration
 Agreement 
 
CSL Collaboration Agreement
 
Total
Product revenue
 
$

 
$
3,521

 
$

 
$

 
$
3,521

Research and development revenue
 
4

 
579

 
748

 

 
1,331

Total collaboration revenue
 
$
4

 
$
4,100

 
$
748

 
$

 
$
4,852

Operating expenses:
 
 

 
 

 
 
 
 
 
 

Research and development expense
 
$

 
$
117

 
$
9,372

 
$
303

 
$
9,792

General and administrative expense
 
2,479

 
16

 
586

 
11

 
3,092

Net amount (recovered from) / payable to collaborators
 

 

 
(2,382
)
 
1,865

 
(517
)
Total operating expenses
 
$
2,479

 
$
133

 
$
7,576

 
$
2,179

 
$
12,367



10. Share-Based Payments

The table below presents share-based compensation expense for research and development, general and administrative , and restructuring expense, all of which are included in operating expenses, in the three months ended March 31, 2019 and 2018 (in thousands):
 
 
Three Months Ended March 31, 2019
 
Three Months Ended
March 31, 2018
 
Research and development
 
$
1,087

 
$
1,925

 
General and administrative
 
2,387

 
2,949

 
  Total share-based compensation expense
 
$
3,474

 
$
4,874

 

The following table summarizes share-based compensation expense recorded in each of the three months ended March 31, 2019 and 2018 (in thousands): 
 
 
Three Months Ended March 31, 2019
 
Three Months Ended
March 31, 2018
 
Stock options
 
$
1,381

 
$
2,076

 
Restricted stock awards and restricted stock units
 
2,014

 
2,700

 
Employee stock purchase plan
 
79

 
98

 
  Total share-based compensation expense
 
$
3,474

 
$
4,874

 
 

20

Table of Contents

During the three months ended March 31, 2019, the Company granted 1,569,567 options to its employees and board members. The average grant date fair value of options granted was calculated using the Black-Scholes-Merton option-pricing model and the weighted average assumptions are noted in the table below. The weighted average grant date fair value of option awards granted during the three months ended March 31, 2019 and 2018 was $6.47 and $8.05, respectively.
 
The following table summarizes the weighted average assumptions the Company used in its fair value calculations at the date of grant:
 
 
Weighted Average Assumptions
 
 
Stock Options
 
Employee Stock Purchase Plan
 
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
Expected volatility
 
51
%
 
48
%
 
49
%
 
49
%
Expected dividends
 

 

 

 

Expected life (years)
 
5.9

 
6.1

 
0.5

 
0.5

Risk-free interest rate
 
2.5
%
 
2.7
%
 
2.3
%
 
1.4
%
 
Since April 13, 2016, the Company has awarded 1,785,600 shares of performance-based restricted stock to its employees. The vesting of the shares was subject to the Company achieving up to two of three possible performance milestones on or before April 13, 2019, subject to a requirement that recipients remain employees through each applicable vesting date. Upon achieving each of the first and second milestones, 25% of the shares would vest on the later of the milestone achievement date and the first anniversary of the grant date, and an additional 25% of the shares would vest on the one year anniversary of such achievement date. During the three months ended March 31, 2018, one of the performance milestones was met. As a result, approximately 25% of the awards vested in the first quarter of each of 2018 and 2019. The remaining performance milestones were not achieved. For the three months ended March 31, 2019, the Company recognized an immaterial amount of stock-based compensation costs related to these awards. The performance period ended April 13, 2019 and no additional stock-based compensation costs will be recognized.

Since October 2018, the Company has awarded 1,873,283 performance-based restricted stock units, or PSUs, to its employees. The vesting of these PSUs is subject to the Company achieving up to three possible performance milestones related to the Company's active novel programs. One sixth of the units will vest upon the achievement of each milestone and one sixth shall vest on the one-year anniversary of that date, with the first possible vesting date on October 17, 2019 and subject to acceleration upon certain events. At March 31, 2019, the Company concluded that it was not probable that any of the performance milestones would be achieved. For the three months ended March 31, 2019, the Company recognized no stock compensation costs related to these awards.

11. Net Loss Per Common Share
 
Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period, which includes common stock issued and outstanding and excludes unvested shares of restricted stock awards and units. Diluted net loss per common share is calculated by dividing net loss by the weighted average number of common shares and potential shares from outstanding stock options and unvested restricted stock awards and restricted stock units determined by applying the treasury stock method.
 
The following table presents anti-dilutive shares for the three months ended March 31, 2019 and 2018 (in thousands):
 
Three Months Ended
March 31,
 
2019
 
2018
Outstanding stock options
4,683

 
3,635

Restricted stock awards and units
696

 
701



21

Table of Contents

12. Restructuring

On September 26, 2018, following the completion of a strategic review of its business, the Company's Board of Directors approved a plan, or the Workforce Reduction, to reduce its workforce headcount by approximately 50%. The Company evaluated the related employee severance and other benefits to employees in connection with the Workforce Reduction to determine whether the benefits were within the scope ASC 712, Compensation - Non-retirement Post-employment Benefits, or within the scope of ASC 420, Exit or Disposal Cost Obligations, depending on the nature of the benefit and whether it is part of an on-going benefit arrangement under ASC 712 or a one-time termination benefit unique to the Workforce Reduction. The Company does not expect to record significant restructuring charges associated with the Workforce Reduction in future periods.

The following table outlines the components of the restructuring charges during the three months ended March 31, 2019 included in the condensed consolidated statement of operations and comprehensive loss, and ending liability recorded in the condensed balance sheet as at March 31, 2019 (in thousands):
 
 
Remaining liability at December 31, 2018
 
Adjustments during the period ended March 31, 2019
 
Amount paid during the period ended March 31, 2019
 
Remaining liability at March 31, 2019
Employee severance, bonus and other
 
$
3,235

 
$
26

 
$
(1,705
)
 
$
1,556

Total restructuring charges
 
$
3,235

 
$
26

 
$
(1,705
)
 
$
1,556


13. Commitments and Contingencies

Purchase Obligations

In June 2018, the Company amended a supply manufacturing agreement with GSK to provide for minimum purchase obligations of approximately $22.5 million during calendar years 2019 and 2020 and $28.3 million during calendar years 2021 and 2022.

 Legal Contingencies 

The Company is involved in various litigation matters that arise from time to time in the ordinary course of business. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect the Company, its results of operations, financial condition and cash flows. The Company's general practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when losses are probable and reasonably estimable. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of any accrual on its consolidated balance sheets.

GLATOPA 40 mg/mL-Related Litigation

On September 10, 2014, Teva and Yeda Research and Development Co., Ltd., or Yeda, filed a suit against us and Sandoz in the United States District Court for the District of Delaware in response to the filing by Sandoz of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL. The suit initially alleged infringement related to two Orange Book-listed patents for COPAXONE 40 mg/mL, and sought declaratory and injunctive relief prohibiting the launch of the Company's product until the last to expire of these patents. In April 2015 and November 2015, Teva and Yeda filed additional suits against us and Sandoz in the United States District Court for the District of Delaware alleging infringement related to additional Orange Book-listed patents for COPAXONE 40 mg/mL, which were consolidated with the initial suit. Teva and Yeda sought declaratory and injunctive relief prohibiting the launch of GLATOPA 40 mg/mL until the expiration of the patents at issue. On January 30, 2017, the District Court found the four patents to be invalid due to obviousness. In February 2017, Teva and Yeda appealed the District Court's January 30, 2017 decision to the U.S. Court of Appeals for the Federal Circuit, or CAFC. On October 12, 2018, the CAFC affirmed the District Court's decision that the four patents were invalid. The time period for appeal by Teva and Yeda has expired so the CAFC decision is binding.
On January 31, 2017, Teva filed a suit against the Company and Sandoz in the United States District Court for the District of New Jersey alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775. The Company and Sandoz filed a motion to dismiss and a motion to transfer the suit to the United States District Court for the District of Delaware. On January 31, 2017, Teva voluntarily dismissed the Company from the New Jersey suit for U.S. Patent No. 9,155,775, maintaining the suit against Sandoz. On May 23, 2017, the United States District Court for the District of New Jersey granted the Company's and Sandoz's motion to transfer the suit to the United States District Court for the

22

Table of Contents

District of Delaware. Pursuant to the Court's amended schedule a trial was scheduled to commence before the United States District Court for the District of Delaware on May 6, 2019. On March 28, 2019, the Company and Sandoz entered into a settlement agreement with Teva dismissing the suit and a stipulation of dismissal was filed with and entered by the Court the following day. Under the terms of the settlement agreement, the Company and Sandoz will provide certain payments to Teva, with the Company's portion of such payment being an offset to its profit share interest from Sandoz on sales of GLATOPA.
M834-Related Proceedings
On July 2, 2015, the Company filed a petition for Inter Partes Review, or IPR, with the Patent Trial and Appeal Board, or PTAB, to challenge the validity of U.S. Patent No. 8,476,239, a patent for ORENCIA owned by Bristol-Myers Squibb, or BMS. The PTAB issued a decision instituting the IPR proceedings in January 2016, and BMS filed for a rehearing by the full PTAB. Oral arguments took place in September 2016. On December 22, 2016, the PTAB issued a decision upholding the validity of the patent. The Company filed a notice of appeal in the CAFC, on February 22, 2017. The parties have each briefed the CAFC on the question of whether a non-patent owner challenging a patented claim in IPR has constitutional standing to appeal by the PTAB that the challenged patented claim is valid. Oral argument before the Federal Circuit was held on December 5, 2017. On February 7, 2019 the CAFC dismissed the appeal of the IPR for lack of standing.
Enoxaparin Sodium Injection-related Litigation
On September 21, 2011, the Company and Sandoz sued Amphastar and Actavis in the United States District Court for the District of Massachusetts for patent infringement. Also in September 2011, the Company filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar and Actavis from selling their Enoxaparin product in the United States. In October 2011, the District Court granted the Company's motion for a preliminary injunction and entered an order enjoining Amphastar and Actavis from advertising, offering for sale or selling their Enoxaparin product in the United States until the conclusion of a trial on the merits and required the Company and Sandoz to post a security bond of $100 million in connection with the litigation. Amphastar and Actavis appealed the decision to the CAFC, and in January 2012, the CAFC stayed the preliminary injunction. In August 2012, the CAFC vacated the preliminary injunction and remanded the case to the District Court.
In April 2017, the Company, Sandoz and Actavis, or the Settling Parties, settled and signed reciprocal releases of all claims, and filed a voluntary stipulation with the District Court, pursuant to which the Settling Parties stipulated and agreed to dismiss with prejudice all claims and counterclaims among the Settling Parties, without fees or costs to any party, and with the Settling Parties waiving any and all right of appeal. The District Court trial was held in July 2017, and the jury verdict found the Company's patent to be infringed, but invalid and unenforceable. In February 2018, the District Court confirmed the jury’s opinion that the patent was infringed but invalid, and narrowed the jury’s recommendation on unenforceability by finding the patent to be unenforceable against only one of the two infringing methods used by Amphastar. On March 20, 2018, the District Court entered its final judgment affirming its February 2018 rulings. On March 27, 2018, the Company and Sandoz filed a notice of appeal of the final judgment with the CAFC. The appeal has been docketed and briefing was completed on November 19, 2018. On February 20, 2019, the Company and Sandoz filed with the District Court a motion for relief from judgment with respect to its final judgment.In the event that the Company is not successful in further appeal or prosecution or settlement of this action against Amphastar, and Amphastar is able to prove they suffered damages as a result of the preliminary injunction, the Company could be liable for damages for up to $35 million of the security bond. The Company posted $36.1 million as collateral for the security bond and classified the collateral as restricted cash in its consolidated balance sheet. On March 23, 2018, Amphastar filed a motion to enforce liability on the security bond with the District Court. On April 3, 2018, the Company and Sandoz filed an emergency motion to defer consideration of Amphastar's motion to enforce liability on the security bond pending exhaustion of appeals. On July 16, 2018, the District Court denied Amphastar's motion to enforce liability on the security bond and allowed the Company's and Sandoz' motion to defer consideration. Litigation involves many risks and uncertainties, and there is no assurance that the Company or Sandoz will prevail in this patent enforcement suit.
On September 17, 2015, Amphastar filed a complaint against the Company and Sandoz in the United States District Court for the Central District of California. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal and California anti-trust laws and California unfair business laws. Amphastar is seeking unspecified damages and fees. In December 2015, the Company and Sandoz filed a motion to dismiss and a motion to transfer the case. In January 2016, the case was transferred to the United States District Court for the District of Massachusetts. In February 2016, Amphastar filed a writ of mandamus with the United States Court of Appeals for the Ninth Circuit requesting that the court reverse and review the District Court's grant of transfer and in May 2016, the writ requested by Amphastar was denied. On July 27, 2016, the Company's and Sandoz' motion to dismiss was granted by the District Court, and the case was dismissed. On August 25, 2016, Amphastar filed a notice of appeal from the dismissal with the United States Court of Appeals for the First Circuit. Briefing was

23

Table of Contents

completed in December 2016, and oral argument was held on February 9, 2017. On March 6, 2017, the United States Court of Appeals for the First Circuit reversed the District Court’s dismissal and remanded the case to the District Court for further proceedings. On April 6, 2017, the District Court held a scheduling conference to provide dates for the remanded case, and on April 20, 2017, the Company and Sandoz filed a renewed motion to dismiss which was denied by the District Court on March 20, 2018. A trial is scheduled for September 2019. On February 19, 2019, Amphastar filed with the District Court a motion for partial summary judgment on issues previously litigated in the patent action.
On October 14, 2015, The Hospital Authority of Metropolitan Government of Nashville and Davidson County, Tennessee, d/b/a Nashville General Hospital, or NGH, filed a class action suit against the Company and Sandoz in the United States District Court for the Middle District of Tennessee on behalf of certain purchasers of LOVENOX or generic Enoxaparin Sodium Injection. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal anti-trust laws. NGH is seeking injunctive relief, disgorgement of profits and unspecified damages and fees. In December 2015, the Company and Sandoz filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. On March 21, 2017, the United States District Court for the Middle District of Tennessee dismissed NGH’s claim for damages against the Company and Sandoz, but allowed the case to move forward, in part, for NGH’s claims for injunctive and declaratory relief. In the same opinion, the United States District Court for the Middle District of Tennessee denied the Company's motion to transfer. On June 9, 2017, NGH filed a motion to amend its complaint to add a new named plaintiff, the American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan, or DC37. NGH and DC37 seek to assert claims for damages under the laws of more than 30 different states, on behalf of a putative class of indirect purchasers of LOVENOX or generic Enoxaparin. On June 30, 2017, the Company and Sandoz filed a brief opposing the motion to amend the complaint. On December 14, 2017, the District Court granted NGH's motion to amend. In January 2018, the Company and Sandoz filed three motions to dismiss the amended complaint. On December 6, 2018 the District Court granted one of the motions, granted one in part and denied one. As a result the suit will continue pursuant to the surviving portions of the amended complaint. While the outcome of litigation is inherently uncertain, the Company believes this suit is without merit, and intends to vigorously defend itself in this litigation.
M923-Related Proceedings
On March 19, 2019, UFCW Local 1500 Welfare Fund, or UFCW, filed a class action suit against AbbVie Inc., AbbVie Biotechnology Ltd., Amgen Inc., Samsung Bioepsis Co., Ltd., Mylan, Inc., Mylan Pharmaceuticals, Inc., Sandoz, Fresenius Kabi USA, LLC, Pfizer Pharmaceuticals, Inc. and the Company, in the United States District Court for the Northern District of Illinois on behalf of itself and all others similarly situated for alleged violations of state and federal antitrust and consumer protection laws. According to the complaint, UFCW is seeking injunctive and other equitable relief and damages. A second complaint mirroring that filed by UFCW, was filed on April 19, 2019 in United States District Court for the Northern District of Illinois by the Sheet Metal Workers’ location Union No. 28 Welfare Fund on behalf of itself and all others similarly situated also names AbbVie Inc., AbbVie Biotechnology Ltd., Amgen Inc., Samsung Bioepsis Co., Ltd., Mylan, Inc., Mylan Pharmaceuticals, Inc., Sandoz, Fresenius Kabi USA, LLC, Pfizer Pharmaceuticals, Inc. and the Company as defendants. While the outcome of litigation is inherently uncertain, the Company believes both of these suits are without merit, and it intends to vigorously defend itself in these litigations.


24

Table of Contents

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many important factors, such as those set forth under “Risk Factors” in Part II., Item 1A. of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements.
 


Overview

We are a biotechnology company focused primarily on discovering and developing novel drug candidates for rare immune-mediated diseases and developing two of our late stage biosimilar candidates.
Prior to 2018, Momenta had the dual focus of developing novel drug candidates and nurturing a portfolio of biosimilar and complex generic products and product candidates. In the beginning of 2018, we engaged in a strategic review of our business and made the decision that shareholder value could be enhanced by shifting our future investments to fully support our promising novel drug portfolio. Following this strategic review, we made the decision in September of 2018 to restructure the company.
We have terminated all future development of any new or early stage biosimilar and complex generic products. We retained our commercial partnership with Sandoz AG, or Sandoz, for our generic versions of COPAXONE and LOVENOX, which are approved products. We believe that Sandoz' sales of GLATOPA, our generic version of COPAXONE, can generate cash flow to help fund our novel pipeline. We have also retained our wholly owned HUMIRA biosimilar, which is fully developed and for which we are ready to submit an application for approval, subject to finalization of our commercialization strategy. In addition, we are developing our EYLEA biosimilar, in collaboration with Mylan Ireland Limited, or Mylan, a wholly-owned indirect subsidiary of Mylan N.V., which is currently in a pivotal clinical trial in patients. We believe both of these programs have the potential to generate revenue in the 2023 time frame to help fund our novel portfolio. Pursuant to our collaboration agreement with Mylan, we have delivered formal notice of our termination of participation in all other biosimilar programs, which became effective as of January 31, 2019. As a result of this restructuring, we announced in October 2018 that we would reduce our workforce by approximately 50%, which reduction was substantially completed as of the end of 2018.
To date, we have devoted substantially all of our capital resource expenditures to the research and development of our product candidates. Although we were profitable in fiscal years 2010 and 2011, since that time we have been incurring operating losses and we expect to incur annual operating losses over the next several years as we advance our drug development portfolio. As of March 31, 2019, we had an accumulated deficit of approximately $788.7 million. We will need to generate significant revenue to return to profitability. We expect that our return to profitability, if at all, will most likely come from the commercialization of the products in our drug development portfolio.
Complex Generics
GLATOPA® (glatiramer acetate injection) 20 mg/mL—Generic Once-daily COPAXONE® (glatiramer acetate injection) 20 mg/mL
In April 2015, the FDA approved the ANDA for GLATOPA 20 mg/mL, a generic equivalent of once-daily COPAXONE 20 mg/mL. GLATOPA 20 mg/mL was the first "AP" rated, substitutable generic equivalent of once-daily COPAXONE. Sandoz commenced sales of GLATOPA 20 mg/mL in June 2015. Under our collaboration agreement with Sandoz, we earn 50% of contractually defined profits on GLATOPA 20 mg/mL sales.
In October 2017, Mylan N.V. announced the launch of its generic equivalents of once-daily COPAXONE 20 mg/mL and three-times-weekly COPAXONE 40 mg/mL. Following Mylan N.V.’s entry into the market, Sandoz has defended GLATOPA’s share of the 20 mg/mL glatiramer acetate injection market by using one or more contracting strategies, including but not limited to, lowering its GLATOPA 20 mg/mL price or increasing the discounts or rebates it offers for GLATOPA 20 mg/mL, which has decreased contractual profit share revenue. We estimate that the number of prescriptions for GLATOPA 20 mg/mL currently represents approximately 40% of the once-daily 20 mg/mL U.S. glatiramer acetate market.

25

Table of Contents

GLATOPA® (glatiramer acetate injection) 40 mg/mL—Generic Three-times-weekly COPAXONE® (glatiramer acetate injection) 40 mg/mL
On February 13, 2018, we announced that GLATOPA 40 mg/mL, a generic version of three-times-weekly COPAXONE 40 mg/mL, was approved by the FDA and launched by our collaborator, Sandoz.
Since Sandoz' launch of GLATOPA 40mg/mL in February 2018, Sandoz has encountered aggressive pricing and contracting tactics from competitors, which has limited uptake of the product and, as a result, we expect modest revenues for the product in the future. As of March 31, 2019, 40 mg/mL glatiramer acetate injection accounted for approximately 84% of the overall U.S. glatiramer acetate injection market (20 mg/mL and 40 mg/mL) based on volume prescribed.
Legal proceedings related to GLATOPA 40 mg/mL are described under "Part II. Item 1. Legal Proceedings - GLATOPA 40 mg/mL-Related Proceedings."
GLATOPA refers to GLATOPA 20 mg/mL and GLATOPA 40 mg/mL, collectively.
Enoxaparin Sodium Injection—Generic LOVENOX®
Under our amended collaboration agreement with Sandoz, Sandoz is obligated to pay us 50% of contractually defined profits on sales of Enoxaparin Sodium Injection. In July 2018, Sandoz notified its customers and the FDA that it will discontinue supplying Enoxaparin Sodium Injection. Sandoz continues to evaluate alternate acceptable contract manufacturers at a price point that will allow for profitable and competitive sales and may decide to relaunch Enoxaparin Sodium Injection at a later date following regulatory approval. We expect any future revenues from Sandoz' sales of Enoxaparin Sodium Injection, if any, to be minimal.
Legal proceedings related to Enoxaparin Sodium Injection are described under "Part II. Item 1. Legal Proceedings - Enoxaparin Sodium Injection-Related Proceedings."
Biosimilars
M923—Biosimilar HUMIRA® (adalimumab) Candidate
In November 2016, following an interim analysis, we announced that the confirmatory, randomized, double-blind, multi-center, global study evaluating the efficacy, safety and immunogenicity of M923 in adult patients with moderate-to-severe chronic plaque psoriasis met its primary endpoint. Patients received up to 48 weeks treatment with M923, HUMIRA, or HUMIRA alternating with M923. The proportion of subjects who achieved the primary endpoint, at least 75% reduction in the Psoriasis Area and Severity Index, or PASI-75, following 16 weeks of treatment, was equivalent between M923 and HUMIRA.
On November 6, 2018, we executed global licensing agreements with AbbVie Inc, or AbbVie, with respect to M923, pursuant to which, subject to approval by health regulatory authorities, we may launch M923 in the United States as early as November 20, 2023 and in Europe upon approval by the European Medicines Agency. We are working on our commercialization strategy, including identifying a commercialization partner for this product candidate. We plan to submit a BLA for M923 with the FDA and a MAA in the European Union, subject to finalization of our commercialization strategy. Based on the settlement agreements entered into by AbbVie with respect to biosimilar candidates, we expect that U.S. market formation for biosimilar versions of HUMIRA will likely be in the 2023 time frame, subject to marketing approval, patent considerations and litigation timelines.
Legal proceedings related to M923 are described under "Part II. Item 1. Legal Proceedings - M923-Related Proceedings."
M710—Biosimilar EYLEA® (aflibercept) Candidate
M710 is being developed in collaboration with Mylan. In August 2018, Mylan initiated dosing of patients in the United States in our pivotal clinical trial. This trial is randomized, double-blind, active-control, multi-center study in patients with diabetic macular edema to compare the safety, efficacy and immunogenicity of M710 with EYLEA. Mylan has also received regulatory approval to dose patients in the European Union. Subject to development, marketing approval and patent considerations, we expect U.S. market formation for biosimilar versions of EYLEA will likely be in the 2023 time frame.
Novel Therapeutics
We believe our novel product candidates could be capable of treating a large number of immune-mediated disorders driven by autoantibodies, immune complexes, and Fc receptor biology.

26

Table of Contents

M281 - Anti-FcRn Candidate
M281 is a fully-human anti-neonatal Fc receptor (FcRn), aglycosylated immunoglobulin G, or IgG1, monoclonal antibody, engineered to reduce circulating IgG antibodies, by completely blocking endogenous IgG recycling via FcRn.
A Phase 1 randomized, double-blind, placebo-controlled study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of M281 in normal healthy volunteers was initiated in June 2016. The full data from our Phase 1 study was published on November 7, 2018. A total of 50 patients were enrolled in both the single ascending dose, or SAD, and multiple ascending dose, or MAD portions of the study, both of which showed predictable pharmacokinetics, and commensurate, controllable and reproducible reductions in circulating IgG. The data showed greater than 80% reduction in circulating IgG antibodies with a mean reduction of 84%. M281 was well tolerated at all dose levels and no serious adverse events or unexpected safety findings were observed in either portion of the study.
During the three months ended December 31, 2018, we commenced a Phase 2 proof-of-concept clinical trial for M281 in generalized myasthenia gravis, or gMG, and in hemolytic disease of the fetus and newborn, or HDFN.
M230 (CSL730) - Recombinant Fc Multimer Candidate
M230 is a novel recombinant trivalent human IgG1 Fc multimer containing three IgG Fc regions joined to maximize activity. Nonclinical data have shown that M230 enhances the molecules' avidity and affinity for the Fc receptors matching the potency and efficacy of IVIg at significantly lower doses.
Pursuant to the License and Option Agreement with CSL Behring Recombinant Facility AG (CSL), or the CSL License Agreement, effective February 17, 2017, we granted CSL an exclusive worldwide license to research, develop, manufacture and commercialize M230. On August 28, 2017, we exercised our 50% co-funding option, which is discussed further in Note 9 "License Agreements and Collaboration Agreements" to our consolidated financial statements. CSL's Phase I study in healthy volunteers to evaluate safety and tolerability of M230 is ongoing and is targeted for completion in 2019.
M254 - hsIVIg Candidate
M254 is a hypersialylated immunoglobulin designed as a high potency alternative to IVIg, a therapeutic drug product that contains pooled, human immunoglobulin G, or IgG, antibodies purified from blood plasma. IVIg is used to treat several inflammatory diseases, including immune thrombocytopenic purpura (ITP) and chronic inflammatory demyelinating polyneuropathy (CIDP). In nonclinical studies, M254 has been shown to have up to ten times more enhanced anti-inflammatory activity than IVIg in a variety of animal models of autoimmune disease.
We have completed our IND-enabling toxicology study and initiated a Phase 1/2 proof of concept clinical study in healthy volunteers and patients with ITP in early 2019.


Results of Operations
 
Comparison of Three Months Ended March 31, 2019 and 2018

Product revenue includes our contractually defined profits earned on Sandoz’ sales of GLATOPA and Enoxaparin Sodium Injection.

The following data summarizes our collaboration revenues for the periods indicated.
 
Three Months Ended March 31,
 
Change period over period
 
2019
 
% of Total Collaboration Revenue
 
2018
 
% of Total Collaboration Revenue
 
2019 compared to 2018
Collaboration revenue:
(in thousands)
 
 
 
(in thousands)
 
 
 
(in thousands)
%
Product revenue
$
2,352

 
57
%
 
$
3,521

 
73
%
 
$
(1,169
)
(33.2
)%
Research and development revenue
1,761

 
43
%
 
1,331

 
27
%
 
430

32.3
 %
Total collaboration revenue
$
4,113

 
100
%
 
$
4,852

 
100
%
 
$
(739
)
(15.2
)%

27

Table of Contents


Product Revenue

GLATOPA
Sandoz commenced sales of GLATOPA 20 mg/mL in the United States in June 2015 and GLATOPA 40 mg/mL in February 2018. We earn 50% of contractually defined profits on Sandoz’ sales of GLATOPA. Pursuant to the letter agreement dated October 4, 2017 between Sandoz and us, we agreed to reduce our 50% contractual profit share commencing in the three months ended March 31, 2018 by up to an aggregate of approximately $9.8 million, representing 50% of potential GLATOPA 40 mg/mL pre-launch inventory costs.
We estimate that the number of prescriptions for GLATOPA 20 mg/mL represented approximately 40% of the once-daily 20 mg/mL U.S. glatiramer acetate market.
Since Sandoz' launch of Glatopa 40mg/mL in February 2018, Sandoz has encountered aggressive pricing and contracting tactics from competitors, which has limited uptake of the product, and, as a result, we expect modest sales for the product in the future. As of March 31, 2019, 40 mg/mL glatiramer acetate injection accounted for approximately 84% of the overall U.S. glatiramer acetate injection market (20 mg/mL and 40 mg/mL) based on volume prescribed.
Q1 2019 vs Q1 2018
The decrease in product revenue of $1.2 million, or 33.2%, from the three months ended March 31, 2018 to the three months ended March 31, 2019 was primarily due to lower net sales of GLATOPA driven by competition and a $1.5 million legal settlement payment to Teva, representing our 50% share. For the three months ended March 31, 2018, product revenue decreased $9.8 million, reflecting our 50% share of GLATOPA 40 mg/mL inventory written off by Sandoz.
Enoxaparin Sodium Injection—Generic LOVENOX®
Effective April 1, 2015, we began to earn 50% of contractually defined profits on Sandoz' sales of Enoxaparin Sodium Injection. A portion of Enoxaparin Sodium Injection development expenses and certain legal expenses, which in the aggregate have exceeded a specified amount, are offset against profit-sharing amounts, royalties and milestone payments.
Due to increased generic competition and resulting decreased market pricing for generic enoxaparin sodium injection products, profit on sales of Enoxaparin Sodium Injection in the periods presented were immaterial. In July 2018, Sandoz notified its customers and the FDA that it would discontinue production of Enoxaparin Sodium Injection. Sandoz continues to evaluate alternate acceptable contract manufacturers at a price point that will allow for profitable and competitive sales and may decide to relaunch Enoxaparin Sodium Injection at a later date following regulatory approval. We expect any future revenues from Sandoz' sales of Enoxaparin Sodium Injection, if any, to be minimal.
Research and Development Revenue
Research and development revenue generally consists of amounts earned by us under our collaborations for technical development, regulatory and commercial milestones, reimbursement of research and development services and reimbursement of development costs under our collaborative arrangements, and recognition of upfront arrangement consideration.
We expect to recognize revenue from the remaining balance of $4.3 million from Mylan's $45.0 million upfront payment on a quarterly basis in an amount commensurate with our progress towards meeting performance obligations with respect to M710 under the Mylan Collaboration Arrangement.
Q1 2019 vs Q1 2018
The increase in research and development revenue of $0.4 million, or 32.3%, from the three months ended March 31, 2018 to the three months ended March 31, 2019 was due to higher revenue recognized on the collaborative upfront payment from Mylan of $0.6 million, offset in part by a $0.2 million decrease in reimbursement revenue for Glatopa expenses.
Operating Expenses
The following table summarizes our operating expenses for the periods indicated, in thousands and as a percentage of total operating expenses, together with the changes, in thousands:

28

Table of Contents

 
Three Months Ended March 31,
 
Change period over period
 
2019
 
% of Total Operating Expenses
 
2018
 
% of Total Operating Expenses
 
2019 compared to 2018
 
(in thousands)
 
(%)
 
(in thousands)
 
(%)
 
(in thousands)
(%)
Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
$
27,972

 
54
%
 
$
33,242

 
62
%
 
$
(5,270
)
(16
)%
General and administrative
24,206

 
46
%
 
20,612

 
38
%
 
3,594

17
 %
Restructuring
26

 
%
 

 
%
 
26

100
 %
Total operating expenses
$
52,204

 
100
%
 
$
53,854

 
100
%
 
$
(1,650
)
(3
)%
Research and Development Expense
Research and development expenses consist of costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred. We track the external research and development costs incurred for each of our product candidates. Our external research and development expenses consist primarily of:
expenses incurred under agreements with consultants, third-party contract research organizations, or CROs, and investigative sites where all of our nonclinical studies and clinical trials are conducted;
costs of manufacturing clinical trial material, acquiring reference comparator materials and manufacturing nonclinical study supplies and other materials from contract manufacturing organizations, or CMOs, and related costs associated with release and stability testing; and
costs associated with process development activities.
Internal research and development costs are associated with activities performed by our research and development organization and consist primarily of:
personnel-related expenses, which include salaries, benefits and share-based compensation; and
facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization of leasehold improvements and equipment and laboratory and other supplies.
For our collaboration arrangements in which the parties share in collaboration expenses for products under the arrangement (cost sharing arrangements), we record the reimbursement by the collaborator for its share of the development effort as a reduction of research and development expense. Our share of costs incurred by collaborators are recorded as research and development expense.
The lengthy process of securing FDA approval for new drugs, generics and biosimilars requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate when, if ever, our product candidates will generate revenues and cash flows.
The following table sets forth the primary components of our research and development external expenditures, including the amortization of our intangible assets, for each of our principal development programs for the three months ended March 31, 2019 and 2018. The figures in the table include project expenditures incurred by us and reimbursed by our collaborators, but exclude project expenditures incurred by our collaborators. Although we track and accumulate personnel effort by percentage of time spent on our programs, a significant portion of our internal research and development costs, including salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies are not directly charged to programs. Therefore, our methods for accounting for internal research and development costs preclude us from reporting these costs on a project-by-project basis.

29

Table of Contents

 
Phase of Development as of March 31, 2019
 
Three Months Ended March 31,
 
 
2019
 
2018
External Costs Incurred by Product Area:
 
 
 
 
 
Novel Therapeutics
Various (1)
 
$
12,762

 
$
6,493

Biosimilars
Various (2)
 
2,879

 
3,919

Complex Generics
(3)
 
54

 
117

Internal Costs
 
 
12,277

 
22,713

Total Research and Development Expenses
 
 
$
27,972

 
$
33,242

_______________________________________
(1)
Our novel therapeutic programs include M281, for which we commenced two Phase 2 clinical trials during the three months ended December 31, 2018; M230, for which our licensee's, CSL's, Phase I study in healthy volunteers to evaluate safety and tolerability of M230 is ongoing and is targeted for completion in 2019; M254, for which we have completed our IND-enabling toxicology study and have initiated a Phase 1/2 clinical study in early 2019; as well as other discovery and nonclinical stage programs.
(2)
Biosimilars are M923, a biosimilar candidate of HUMIRA® (adalimumab), and M710, a biosimilar candidate of EYLEA® (aflibercept). We intend to submit a biologics license application for M923 with the FDA, subject to finalization of our regulatory and commercialization strategy. For M710, Mylan initiated a pivotal clinical trial in patients in the United States in August 2018. In November 2018, we provided notice to Mylan terminating our participation in the development of our biosimilar programs other than M710.
(3)
Includes external costs for GLATOPA and Enoxaparin Sodium Injection. In July 2010, the first ANDA for Enoxaparin Sodium Injection was approved by the FDA, and Sandoz launched the product. In April 2015, the FDA approved the ANDA for once-daily GLATOPA 20 mg/mL. Sandoz launched GLATOPA 20 mg/mL in June 2015. In February 2018, the FDA approved the ANDA for three-times-weekly GLATOPA 40 mg/mL, and Sandoz launched the product. For more information on GLATOPA (glatiramer acetate injection) 40 mg/mL, see "-Overview-Complex Generics-GLATOPA® 40 mg/mL-Generic Three-times-weekly COPAXONE® (glatiramer acetate injection) 40 mg/mL."
Q1 2019 vs Q1 2018
External costs of our novel therapeutic programs increased by $6.3 million, or 96.6%, from the three months ended March 31, 2018 to the three months ended March 31, 2019, and were primarily driven by clinical trial activity for M281 as described in Note 1 in the above table. External expenditures for our biosimilars programs decreased by $1.0 million, or 26.5%, from the three months ended March 31, 2018 to the three months ended March 31, 2019, primarily due to decreased spending on M740 as we provided notice in November 2018 to terminate this program, among other biosimilar programs, under our Mylan collaboration, effective January 2019. Internal costs decreased by $10.4 million, or 45.9% from the three months ended March 31, 2018 to the three months ended March 31, 2019 primarily due to decreased personnel costs, due in part to the workforce reduction announced in October 2018 and reductions in lease costs.
General and Administrative
General and administrative expenses consist primarily of salaries, share-based compensation and other related costs for personnel in general and administrative functions, professional fees for legal and accounting services, royalty and license fees, insurance costs, and allocated rent, facility and lab supplies, and depreciation expense.
For our collaboration arrangements in which the parties share in collaboration expenses for products under the arrangement (cost sharing arrangements), we record the reimbursement by the collaborator for its share of the development effort as a reduction of general and administrative expense. Our share of costs incurred by collaborators are recorded as general and administrative expense.
We expect our general and administrative expenses, including internal and external legal and business development costs that support our various product development efforts, to vary from period to period in relation to our commercial, litigation and development activities.
Q1 2019 vs Q1 2018
The increase of $3.6 million, or 17.4%, from the three months ended March 31, 2018 to the three months ended March 31, 2019 was driven by the increased depreciation of $4.8 million as we evaluate estimates of the useful lives of depreciable

30

Table of Contents

assets, primarily the shortening of the useful lives of our leasehold improvements, and legal costs of $1.1 million relating to our ongoing litigation. These were partially offset by decreased personnel salaries and stock based compensation of $2.1 million due in part to the workforce reduction announced in October 2018.
Restructuring
Restructuring charges consist of severance, bonus, share-based compensation, and impairment of equipment associated with our workforce reduction. See Note 12 "Restructuring" to our condensed consolidated financial statements contained in Part I, Item I of this Quarterly Report on Form 10-Q for further discussion.
Other Income, Net
Other income, net includes other items of non-operating income and expense. Other income, net was $3.2 million and $1.4 million for the three months ended March 31, 2019 and 2018, respectively. The increase of $1.8 million, or 15.0%, from the three months ended March 31, 2018 to the three months ended March 31, 2019 was the result of higher interest income due to higher invested balances arising from recent financing activities and the benefit of higher market yields on our investments.
Equity Financings
In December 2018, we sold an aggregate of 20.0 million shares of common stock through an underwritten public offering at a price to the public of $11.50 per share. As a result of the offering, which includes the exercise in full of the underwriter’s option to purchase additional shares of common stock, we received aggregate net proceeds of approximately $217.8 million, after deducting underwriting discounts and commissions and other offering expenses.
Liquidity and Capital Resources

At March 31, 2019, we had $416.5 million in cash, cash equivalents and marketable securities. In addition, we also held $37.9 million in restricted cash, of which $36.1 million serves as collateral for a security bond posted in the litigation against Amphastar.
We have funded our operations primarily through the sale of equity securities and payments received under our collaboration and license agreements, including our share of profits from Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA. We expect to fund our planned operating and expenditure requirements through a combination of current cash, cash equivalents and marketable securities; equity financings; and milestone payments and product revenues under existing collaboration agreements. We may also seek funding from new collaborations and strategic alliances, debt financings and other financial arrangements. Future funding transactions may or may not be similar to our prior funding transactions. There can be no assurance that future funding transactions will be available on favorable terms, or at all. We currently believe that our current capital resources and projected milestone payments and product revenues will be sufficient to meet our operating requirements through at least the end of 2020.
Cash, Cash Equivalents and Marketable Securities
Our funds at March 31, 2019 were primarily invested in commercial paper, overnight repurchase agreements, asset-backed securities, U.S. government-sponsored enterprise securities, corporate debt securities and United States money market funds, directly or through managed funds, with remaining maturities of 12 months or less. Our cash is deposited in and invested through highly rated financial institutions in North America. The composition and mix of cash, cash equivalents and marketable securities may change frequently as a result of our evaluation of conditions in the financial markets, the maturity of specific investments, and our near term liquidity needs.
We do not believe that our cash equivalents and marketable securities were subject to significant market risk at March 31, 2019.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands)
Net cash used in operating activities
 
$
(37,592
)
 
$
(38,153
)
Net cash provided by (used in) investing activities
 
$
(82,077
)