Momenta Pharmaceuticals, Inc.
MOMENTA PHARMACEUTICALS INC (Form: 10-Q, Received: 11/04/2016 16:01:34)
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 2016
 
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.)
 
675 West Kendall Street, Cambridge, MA
 
02142
(Address of Principal Executive Offices)
 
(Zip Code)
 
(617) 491-9700
(Registrant’s Telephone Number, Including Area Code)
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  x   No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  x
 
Accelerated filer  ¨
 
 
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
 
As of October 31, 2016 , there were 71,021,528 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.


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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,” “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 expectations regarding the development and utility of our products and 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 biosimilar programs; the timing of clinical trials and the availability of results; the timing of launch of products and product candidates; GLATOPA ®  (glatiramer acetate injection) market share, market potential and product revenues; M356 launch timing and market potential; the timing, merits, strategy, impact and outcome of litigation and legal proceedings; collaboration revenues and research and development revenues; manufacturing, including but not limited to our intent to rely on contract manufacturers; regulatory filings, reviews and approvals; 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, 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; Enoxaparin Sodium Injection product revenues and market potential; 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 license arrangements; marketing plans; financing our planned operating and capital expenditure; leasing additional facilities; materials used in our research and development; transfer of regulatory, development, manufacturing and commercialization activities and related records for M923; the assignment of third party agreements relating to M923; the grant of licenses and the payment of a royalty on net sales relating to M923; Baxalta’s continuing to perform development and manufacturing activities for M923; 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.


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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)
 
September 30, 2016
 
December 31, 2015
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
106,279

 
$
61,461

Marketable securities
202,679

 
288,583

Collaboration receivable
45,752

 
21,185

Prepaid expenses and other current assets
4,816

 
3,479

Total current assets
359,526

 
374,708

Property and equipment, net
20,976

 
21,896

Restricted cash
21,761

 
20,660

Intangible assets, net
5,478

 
3,528

Other long-term assets
1,369

 
248

 
 
 
 
Total assets
$
409,110

 
$
421,040

 
 
 
 
Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
9,801

 
$
4,053

Accrued expenses
16,539

 
24,499

Deferred revenue
21,740

 
9,770

Other current liabilities
83

 
460

Total current liabilities
48,163

 
38,782

Deferred revenue, net of current portion
33,310

 
12,213

Other long-term liabilities
1,858

 
69

 
 
 
 
Total liabilities
83,331

 
51,064

Commitments and contingencies (Note 8)


 


Stockholders’ Equity:
 

 
 

Preferred stock, $0.01 par value per share; 5,000 shares authorized, 100 shares of Series A Junior Participating Preferred Stock, $0.01 par value per share designated and no shares issued and outstanding

 

Common stock, $0.0001 par value per share; 100,000 shares authorized, 71,246 shares issued and 71,017 shares outstanding at September 30, 2016 and 69,077 shares issued and 68,958 outstanding at December 31, 2015
7

 
7

Additional paid-in capital
843,549

 
824,385

Accumulated other comprehensive income
250

 
4

Accumulated deficit
(514,914
)
 
(452,372
)
Treasury stock, at cost, 229 shares at September 30, 2016 and 119 shares at December 31, 2015
(3,113
)
 
(2,048
)
 
 
 
 
Total stockholders’ equity
325,779

 
369,976

 
 
 
 
Total liabilities and stockholders’ equity
$
409,110

 
$
421,040

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

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Table of Contents

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Collaboration revenues:
 

 
 

 
 
 
 
Product revenue
$
23,339

 
$
8,666

 
$
58,831

 
$
30,693

Research and development revenue
5,805

 
5,129

 
16,593

 
36,565

Total collaboration revenue
29,144

 
13,795

 
75,424

 
67,258

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Research and development*
31,568

 
31,733

 
93,498

 
88,466

General and administrative*
15,758

 
12,459

 
46,301

 
33,678

Total operating expenses
47,326

 
44,192

 
139,799

 
122,144

 
 
 
 
 
 
 
 
Operating loss
(18,182
)
 
(30,397
)
 
(64,375
)
 
(54,886
)
 
 
 
 
 
 
 
 
Other income
638

 
347

 
1,833

 
737

 
 
 
 
 
 
 
 
Net loss
$
(17,544
)
 
$
(30,050
)
 
$
(62,542
)
 
$
(54,149
)
 
 
 
 
 
 
 
 
Basic and diluted net loss per share
$
(0.26
)
 
$
(0.44
)
 
$
(0.91
)
 
$
(0.88
)
 
 
 
 
 
 
 
 
Weighted average shares used in computing basic and diluted net loss per share
68,799

 
68,004

 
68,540

 
61,442

 
 
 
 
 
 
 
 
Comprehensive loss:
 

 
 

 
 
 
 
Net loss
$
(17,544
)
 
$
(30,050
)
 
$
(62,542
)
 
$
(54,149
)
Net unrealized holding (losses) gains on available-for-sale marketable securities
(36
)
 
(4
)
 
246

 
32

Comprehensive loss
$
(17,580
)
 
$
(30,054
)
 
$
(62,296
)
 
$
(54,117
)

* Non-cash share-based compensation expense included in operating expenses is as follows:
 
Research and development
$
2,042

 
$
2,122

 
$
6,426

 
$
3,031

General and administrative
$
2,897

 
$
2,435

 
$
8,330

 
$
3,756

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


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Table of Contents

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Nine Months Ended September 30,
 
2016
 
2015
Cash Flows from Operating Activities:
 

 
 

Net loss
$
(62,542
)
 
$
(54,149
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization
5,726

 
5,799

Share-based compensation expense
14,756

 
6,787

Amortization of premium on investments
524

 
987

Amortization of intangibles
1,240

 
796

Changes in operating assets and liabilities:
 

 
 

Collaboration receivable
(24,567
)
 
(2,693
)
Prepaid expenses and other current assets
(1,337
)
 
136

Restricted cash
(1,101
)
 
59

Other long-term assets
(1,121
)
 

Accounts payable
5,748

 
(1,714
)
Accrued expenses
(7,960
)
 
3,779

Deferred revenue
33,067

 
(6,572
)
Other current liabilities
(377
)
 
25

Other long-term liabilities
1,789

 
(422
)
 
 
 
 
Net cash used in operating activities
(36,155
)
 
(47,182
)
 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Purchases of property and equipment
(4,806
)
 
(2,747
)
Purchases of marketable securities
(264,905
)
 
(281,500
)
Proceeds from maturities of marketable securities
350,531

 
105,844

 
 
 
 
Net cash provided by (used in) investing activities
80,820

 
(178,403
)
 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Proceeds from public offering of common stock, net of issuance costs

 
148,439

Net proceeds from issuance of common stock under ATM facilities

 
64,503

Proceeds from issuance of common stock under stock plans
1,218

 
23,329

Repurchase of common stock pursuant to share surrender
(1,065
)
 
(2,048
)
 
 
 
 
Net cash provided by financing activities
153

 
234,223

 
 
 
 
Increase in cash and cash equivalents
44,818

 
8,638

Cash and cash equivalents, beginning of period
61,461

 
61,349

Cash and cash equivalents, end of period
$
106,279

 
$
69,987

 
 
 
 
Non-Cash Investing Activity:
 
 
 
Common shares issued to Parivid to settle milestone payment
$
3,190

 
$

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


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Table of Contents

MOMENTA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED, CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. The Company
 
Business
 
Momenta Pharmaceuticals, Inc., or the Company or Momenta, 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 generic versions of complex drugs, biosimilars and novel therapeutics for autoimmune diseases. The Company presently derives all of its revenue from its collaborations.
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation and Principles of Consolidation
 
The Company’s accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods. The Company’s condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, the Company’s audited consolidated financial statements for the year ended December 31, 2015 , which were included in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or SEC, on February 26, 2016. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.
 
The accompanying condensed consolidated financial statements reflect the operations of the Company and the Company’s wholly-owned subsidiary, Momenta Pharmaceuticals Securities Corporation. All significant intercompany accounts and transactions have been eliminated.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that 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 could differ from those estimates.
 
Revenue Recognition
 
The Company recognizes revenue when persuasive evidence of an arrangement exists; services have been performed or products have been delivered; the fee is fixed or determinable; and collection is reasonably assured.
 
The Company has entered into collaboration and license agreements with pharmaceutical companies for the development and commercialization of certain of its product candidates. The Company’s performance obligations under the terms of these agreements may include (i) transfer of intellectual property rights (licenses), (ii) providing research and development services, and (iii) participation on joint steering committees with the collaborators. Non-refundable payments to the Company under these agreements may include up-front license fees, payments for research and development activities, payments based upon the achievement of defined collaboration objectives and profit share or royalties on product sales.
 
At September 30, 2016 , the Company had collaboration and license agreements with Sandoz AG (formerly Sandoz N.V. and Biochemie West Indies, N.V.), an affiliate of Novartis Pharma AG, and Sandoz Inc. (formerly Geneva Pharmaceuticals, Inc.), collectively referred to as Sandoz; Sandoz AG; Baxalta U.S. Inc., Baxalta GmbH and Baxalta Incorporated, collectively referred to as Baxalta; and Mylan Ireland Limited, a wholly-owned, indirect subsidiary of Mylan N.V., or Mylan.
 

7


The Company evaluates multiple element agreements under the Financial Accounting Standards Board’s, or FASB, Accounting Standards Update, or ASU, No. 2009-13, Multiple-Deliverable Revenue Arrangements, or ASU 2009-13. When evaluating multiple element arrangements under ASU 2009-13, the Company identifies the deliverables included within the agreement and determines whether the deliverables under the arrangement represent separate units of accounting. Deliverables under the arrangement are a separate unit of accounting if (i) the delivered item has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered items are considered probable and substantially within the Company’s control. This evaluation requires subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The Company considers whether the collaborator can use the license or other deliverables for their intended purpose without the receipt of the remaining elements, and whether the value of the deliverable is dependent on the undelivered items and whether there are other vendors that can provide the undelivered items.
 
Arrangement consideration generally includes up-front license fees and non-substantive options to purchase additional products or services. The Company determines how to allocate arrangement consideration to identified units of accounting based on the selling price hierarchy provided under the relevant guidance. The Company determines the estimated selling price for deliverables using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE nor TPE is available. Determining the BESP for a deliverable requires significant judgment. The Company uses BESP to estimate the selling price for licenses to the Company’s proprietary technology, since the Company often does not have VSOE or TPE of selling price for these deliverables. In those circumstances where the Company utilizes BESP to determine the estimated selling price of a license to the Company’s proprietary technology, the Company considers entity specific factors, including those factors contemplated in negotiating the agreements as well as the license fees negotiated in similar license arrangements. Management may be required to exercise considerable judgment in estimating the selling prices of identified units of accounting under its agreements. In validating the Company’s BESP, the Company evaluates whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple deliverables.
 
Up-Front License Fees
 
Up-front payments received in connection with licenses of the Company’s technology rights are deferred if facts and circumstances dictate that the license does not have stand-alone value. When management believes the license to its intellectual property does not have stand-alone value from the other deliverables to be provided in the arrangement, it is combined with other deliverables and the revenue of the combined unit of accounting is recorded based on the method appropriate for the last delivered item. The Company recognizes revenue from non-refundable, up-front license fees on a straight-line basis over the contracted or estimated period of performance, which is typically the period over which the research and development services are expected to occur. Accordingly, the Company is required to make estimates regarding the development timelines for product candidates being developed pursuant to any applicable agreement. The determination of the length of the period over which to recognize the revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Quarterly, the Company reassesses its period of substantial involvement over which the Company amortizes its up-front license fees and makes adjustments as appropriate. The Company’s estimates regarding the period of performance under its collaborative research and development and licensing agreements have changed in the past and may change in the future. Any change in the Company’s estimates could result in changes to the Company’s results for the period over which the revenues from an up-front license fee are recognized.
 
Milestones
 
At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive, in accordance with ASU No. 2010-17, Revenue Recognition—Milestone Method. A milestone is defined as an event that can only be achieved based on the Company’s performance, and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones under accounting guidance. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the Company’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone, (b) the consideration relates solely to past performance (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement and (d) the milestone fee is refundable or adjusts based on future performance or non-performance. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in

8


the arrangement in making this assessment. Payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved, assuming all other revenue recognition criteria are met.

Sales-based and commercial milestones are accounted for as royalties and are recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
 
Profit Share and Royalties on Sandoz’ Sales of Enoxaparin Sodium Injection ®  and GLATOPA ®
 
Profit share and royalty revenue is reported as product revenue and is recognized based upon net sales or contractual profit of licensed products in licensed territories in the period the sales occur as provided by the collaboration agreement. The amount of net sales or contractual profit is determined based on amounts provided by the collaborator and involve the use of estimates and judgments, such as product sales allowances and accruals related to prompt payment discounts, chargebacks, governmental and other rebates, distributor, wholesaler and group purchasing organizations fees, product returns, and co-payment assistance costs, which could be adjusted based on actual results in the future. The Company is highly dependent on its collaborators for timely and accurate information regarding any net revenues realized from sales of Enoxaparin Sodium Injection and GLATOPA in order to accurately report its results of operations.
 
Research and Development Revenue under Collaborations with Sandoz and Baxalta
 
Under its collaborations with Sandoz and Baxalta, the Company is reimbursed at a contractual full-time equivalent, or FTE, rate for any FTE employee expenses as well as any external costs incurred for commercial and related activities. The Company recognizes research and development revenue from FTE services and external costs upon completion of the performance requirements (i.e., as the services are performed and the reimbursable costs are incurred). Revenues are recorded on a gross basis as the Company contracts directly with, manages the work of and is responsible for payments to third-party vendors for such commercial and related services.
 
Collaboration Receivable
 
Collaboration receivable represents:
 
Amounts due to the Company for profit share on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA;

Amounts due to the Company for reimbursement of research and development services and external costs under the collaborations with Sandoz and Baxalta; and

The net amount due from Mylan for its 50% share of collaboration expenses under the cost-sharing arrangement.
 
The Company has not recorded any allowance for uncollectible accounts or bad debt write-offs and it monitors its receivables to facilitate timely payment.
 
Deferred Revenue
 
Deferred revenue represents consideration received from collaborators in advance of achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.
 
Net Loss Per Common Share
 
The Company computes basic net loss per common share by dividing net loss by the weighted average number of common shares outstanding, which includes common stock issued and outstanding and excludes unvested shares of restricted common stock. The Company computes diluted net loss per common share by dividing net loss by the weighted average number of common shares and potential shares from outstanding stock options and unvested restricted stock determined by applying the treasury stock method.
 
The following table presents anti-dilutive shares for the three and nine months ended September 30, 2016 and 2015 (in thousands):
 

9


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Weighted-average anti-dilutive shares related to:
 

 
 

 
 
 
 
Outstanding stock options
6,826

 
2,690

 
6,880

 
4,341

Restricted stock awards
1,500

 
457

 
1,052

 
547

 
Since the Company had a net loss for all periods presented, the effect of all potentially dilutive securities is anti-dilutive. Accordingly, basic and diluted net loss per share is the same for the three and nine months ended September 30, 2016 and 2015 . Anti-dilutive shares comprise the impact of the number of shares that would have been dilutive had the Company had net income plus the number of common stock equivalents that would be anti-dilutive had the Company had net income. Furthermore, 1,439,985 performance-based restricted common stock awards that were granted between April and September 30, 2016 had not vested as of September 30, 2016 , and were excluded from diluted shares outstanding as the vesting conditions for the awards, discussed further in Note 6 “ Share-Based Payments - Restricted Stock Awards ,” had not been met as of September 30, 2016 .
 
Fair Value Measurements
 
The tables below present information about the Company’s assets that are regularly measured and carried at fair value as of September 30, 2016 and December 31, 2015 , 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
September 30, 2016
 
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 and overnight repurchase agreements
 
$
103,808

 
$
80,808

 
$
23,000

 
$

Marketable securities:
 
 

 
 

 
 

 
 

Corporate debt securities
 
14,170

 

 
14,170

 

Commercial paper obligations
 
88,010

 

 
88,010

 

Asset-backed securities
 
100,499

 

 
100,499

 

 
 
 
 
 
 
 
 
 
Total
 
$
306,487

 
$
80,808

 
$
225,679

 
$

 
Description
 
Balance as of
December 31, 2015
 
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 and overnight repurchase agreements
 
$
54,077

 
$
30,077

 
$
24,000

 
$

Marketable securities:
 
 

 
 

 
 

 
 

U.S. government-sponsored enterprise securities
 
24,290

 

 
24,290

 

Corporate debt securities
 
73,651

 

 
73,651

 

Commercial paper obligations
 
125,805

 

 
125,805

 

Asset-backed securities
 
64,837

 

 
64,837

 

 
 
 
 
 
 
 
 
 
Total
 
$
342,660

 
$
30,077

 
$
312,583

 
$

 

10


There have been no impairments of the Company’s assets measured and carried at fair value during the three and nine months ended September 30, 2016 and 2015 . In addition, there were no changes in valuation techniques or transfers between the fair value measurement levels during the three and nine months ended September 30, 2016 . 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: Fair Value Measurements ” to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015 . The carrying amounts reflected in the Company’s accompanying condensed consolidated balance sheets for cash, accounts receivable, unbilled receivables, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

Cash, Cash Equivalents and Marketable Securities
 
The Company’s cash equivalents are primarily composed of money market funds carried at fair value, which approximate cost at September 30, 2016 and December 31, 2015 . The Company classifies corporate debt securities, commercial paper, asset-backed securities and U.S. government-sponsored enterprise securities as short-term and long-term marketable securities in its consolidated financial statements. See Note 2 “ Summary of Significant Accounting Policies: Cash, Cash Equivalents and Marketable Securities ” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of the Company’s accounting policies.
 
The following tables summarize the Company’s cash, cash equivalents and marketable securities as of September 30, 2016 and December 31, 2015 (in thousands):
 
As of September 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
106,279

 
$

 
$

 
$
106,279

Corporate debt securities due in one year or less
 
14,172

 
2

 
(4
)
 
14,170

Commercial paper obligations due in one year or less
 
87,773

 
237

 

 
88,010

Asset-backed securities due in one year or less
 
100,484

 
16

 
(1
)
 
100,499

 
 
 
 
 
 
 
 
 
Total
 
$
308,708

 
$
255

 
$
(5
)
 
$
308,958

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
106,279

 
$

 
$

 
$
106,279

Marketable securities
 
202,429

 
255

 
(5
)
 
202,679

 
 
 
 
 
 
 
 
 
Total
 
$
308,708

 
$
255

 
$
(5
)
 
$
308,958

 

11


As of December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
61,461

 
$

 
$

 
$
61,461

U.S. government-sponsored enterprise securities due in one year or less
 
24,285

 
5

 

 
24,290

Corporate debt securities due in one year or less
 
73,735

 
1

 
(84
)
 
73,652

Commercial paper obligations due in one year or less
 
125,693

 
120

 
(8
)
 
125,805

Asset-backed securities due in one year or less
 
64,866

 

 
(30
)
 
64,836

 
 
 
 
 
 
 
 
 
Total
 
$
350,040

 
$
126

 
$
(122
)
 
$
350,044

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
61,461

 
$

 
$

 
$
61,461

Marketable securities
 
288,579

 
126

 
(122
)
 
288,583

 
 
 
 
 
 
 
 
 
Total
 
$
350,040

 
$
126

 
$
(122
)
 
$
350,044


At September 30, 2016 and December 31, 2015 , the Company held 11 and 66 marketable securities, respectively, that were in a continuous unrealized loss position for less than one year. At September 30, 2016 and December 31, 2015 , there were no securities in a continuous unrealized loss position for greater than one year.  The Company believes the unrealized losses were caused by fluctuations in interest rates.
 
The following table summarizes the aggregate fair value of these securities as of September 30, 2016 and December 31, 2015 (in thousands):
 
 
 
As of September 30, 2016
 
As of December 31, 2015
 
 
Aggregate
Fair Value
 
Unrealized
Losses
 
Aggregate
Fair Value
 
Unrealized
Losses
Corporate debt securities due in one year or less
 
$
7,167

 
$
(4
)
 
$
70,657

 
$
(84
)
Commercial paper obligations due in one year or less
 
$

 
$

 
$
33,734

 
$
(8
)
Asset-backed securities due in one year or less
 
$
21,684

 
$
(1
)
 
$
61,337

 
$
(30
)
 
Treasury Stock
 
Treasury stock represents common stock currently owned by the Company as a result of shares withheld from the vesting of performance-based restricted common stock to satisfy minimum tax withholding requirements.
 
Comprehensive Income (Loss)
 
Comprehensive income (loss) is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) includes net (loss) income and the change in accumulated other comprehensive income (loss) for the period. Accumulated other comprehensive income (loss) consists entirely of unrealized gains and losses on available-for-sale marketable securities for all periods presented.
 
New Accounting Pronouncements
 
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue

12


from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes collected from customers. These standards have the same effective date and transition date of January 1, 2018. The Company is currently evaluating the method of adoption and the potential impact that these standards may have on its financial position and results of operations.
 
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The ASU requires all entities to evaluate for the existence of conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the issuance date of its financial statements. The accounting standard is effective for interim and annual periods after December 15, 2016, and will not have a material impact on the consolidated financial statements, but may impact the Company’s footnote disclosures regarding liquidity.
 
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, Balance Sheet Classification of Deferred Taxes (Topic 740). The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The adoption of this standard in the first quarter of 2016 did not have a material impact on the Company’s financial position or results of operations as its net deferred tax assets have been fully offset by a valuation allowance.

 In February 2016, the FASB issued 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 its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of adopting this new accounting standard on its financial position and results of operations.
 
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under the new standard all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. The new standard also provides for companies to make an entity-wide accounting policy election on how to account for award forfeitures. Entities can either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The accounting standard is effective for interim and annual periods after December 15, 2016. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact of adopting this new accounting standard on its financial position and results of operations.

 
3. Intangible Assets

In April 2007, the Company entered into an asset purchase agreement with Parivid, LLC, or Parivid, a provider of data integration and analysis services, and S. Raguram, the principal owner of Parivid. Pursuant to the asset purchase agreement, the Company acquired certain of the assets and assumed certain of the liabilities of Parivid related to the acquired assets in exchange for $2.5 million in cash paid at closing and certain contingent milestone payments in a combination of cash and/or stock in the manner and on the terms and conditions set forth in the asset purchase agreement if certain milestones were achieved within fifteen years of the date of the asset purchase agreement. The asset purchase agreement was amended in August 2009 and in July 2011. Between 2009 and 2011, the Company made cash payments to Parivid of $7.3 million and issued 91,576 shares of its common stock valued at $10.92 per share to Parivid in satisfaction of certain Enoxaparin Sodium Injection-related milestones under the amended asset purchase agreement. As of June 18, 2016, the one-year anniversary of the commercial launch of GLATOPA, GLATOPA remained the sole generic COPAXONE 20 mg/mL product on the U.S. market, triggering the final milestone payment under the amended asset purchase agreement. In connection with the final milestone, in June 2016, the Company recorded an intangible asset and a non-current liability of $2.9 million . On August 10, 2016, the Company issued 265,605 shares of its common stock to Parivid to satisfy the GLATOPA-related milestone. The Company

13


recorded $3.2 million as an intangible asset based on the number of shares issued and the closing price of the Company’s common stock on the date the shares were issued to Parivid.

Intangible assets consist solely of the core developed technology assets acquired from Parivid. The intangible assets are being amortized using the straight-line method over the estimated useful life of GLATOPA of approximately six years through June 2021. As of September 30, 2016 and December 31, 2015 , intangible assets, net of accumulated amortization, were as follows (in thousands):
 
 
 
September 30, 2016
 
December 31, 2015
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
Total intangible assets for core and developed technology and non-compete agreement
 
$
13,617

 
$
(8,139
)
 
$
5,478

 
$
10,427

 
$
(6,899
)
 
$
3,528

 
The weighted-average amortization period for the Company’s intangible assets is six years . Amortization expense was approximately $0.3 million for each of the three months ended September 30, 2016 and 2015 . Amortization expense was approximately $1.2 million and $0.8 million for the nine months ended September 30, 2016 and 2015 , respectively.
 
The Company expects to incur amortization expense of approximately $1.2 million per year for each of the next four years and approximately $0.9 million in the fifth year.
 
4. Restricted Cash
 
The Company designated $17.5 million as collateral for a security bond posted in the litigation against Amphastar, International Medical Systems, Ltd., a wholly owned subsidiary of Amphastar Pharmaceuticals, Inc. and Actavis, Inc. (formerly Watson Pharmaceuticals, Inc.), or Actavis, as discussed within Note 8, “ Commitments and Contingencies ”. Amphastar, International Medical Systems, Ltd. and Amphastar Pharmaceuticals, Inc. are collectively referred to as Amphastar. The $17.5 million is held in an escrow account by Hanover Insurance. 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 Company designated $2.4 million as collateral for a letter of credit related to the lease of office and laboratory space located at 675 West Kendall Street in Cambridge, Massachusetts. This balance will remain restricted through April 2018 and therefore is classified as non-current in the Company’s consolidated balance sheet. The Company will earn interest on the balance.

The Company designated $0.7 million as collateral for a letter of credit related to the lease of office and laboratory space located at 320 Bent Street in Cambridge, Massachusetts. This balance will remain restricted through February 2027 and during any lease term extensions and therefore is classified as non-current in the Company’s consolidated balance sheet. The Company will earn interest on the balance.

Simultaneous with the execution of the lease of office and laboratory space located at 301 Binney Street in Cambridge, Massachusetts in September 2016, the Company is obligated to deliver to the lessor a security deposit in the form of an irrevocable standby letter of credit in the amount of approximately two months of the monthly base rent, or $1.1 million . Although the letter of credit was issued in October 2016, the Company considers this amount restricted as of September 30, 2016. This balance will remain restricted through June 2025 and during any lease term extensions and therefore is classified as non-current in the Company’s consolidated balance sheet. The Company will earn interest on the balance.

 
5. Collaboration and License Agreements
 
At September 30, 2016 , the Company had collaboration and license agreements with Sandoz, Sandoz AG, Baxalta and Mylan.
 
The Company records product revenue based on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA.
 

14


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 with Sandoz and Baxalta; and recognition of the arrangement consideration under the collaborations with Baxalta and Mylan.
 
The collaboration with Mylan is a cost-sharing arrangement pursuant to which reimbursement for Mylan’s 50% share of collaboration expenses is recorded as a reduction to research and development expense and general and administrative expense depending on the nature of the activities.
 
The following tables provide amounts by period indicated and by line item included in the Company’s accompanying condensed consolidated statements of operations and comprehensive loss attributable to transactions arising from its significant collaborative arrangements and all other arrangements, as defined in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 808, Collaborative Arrangements . The dollar amounts in the tables below are in thousands.
 
 
 
For the Three Months Ended September 30, 2016
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Baxalta
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement (1)
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 

 
 

 
 

Product revenue
 
$

 
$
23,339

 
$

 
$

 
$
23,339

Research and development revenue:
 
 

 
 

 
 

 
 

 
 

Recognition of upfront payments and license payments
 

 

 
2,498

 
1,785

 
4,283

Research and development services and external costs
 
128

 
494

 
900

 

 
1,522

Total research and development revenue
 
$
128

 
$
494

 
$
3,398

 
$
1,785

 
$
5,805

Total collaboration revenues
 
$
128

 
$
23,833

 
$
3,398

 
$
1,785

 
$
29,144

Operating expenses:
 
 

 
 

 
 

 
 

 
 

Research and development expense(2)(3)
 
$
1

 
$
349

 
$
402

 
$
8,809

 
$
9,561

General and administrative expense(2)(3)
 
$
332

 
$
66

 
$

 
$
847

 
$
1,245

Total operating expenses
 
$
333

 
$
415

 
$
402

 
$
9,656

 
$
10,806

 
 
For the Three Months Ended September 30, 2015
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Baxalta
Collaboration
Agreement
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 

 
 

Product revenue
 
$

 
$
8,666

 
$

 
$
8,666

Research and development revenue:
 
 

 
 

 
 

 
 

Milestone payments
 

 

 

 

Recognition of upfront payments and license payments
 

 

 
2,442

 
2,442

Research and development services and external costs
 
69

 
742

 
1,876

 
2,687

Total research and development revenue
 
$
69

 
$
742

 
$
4,318

 
$
5,129

Total collaboration revenues
 
$
69

 
$
9,408

 
$
4,318

 
$
13,795

Operating expenses:
 
 

 
 

 
 

 
 

Research and development expense(2)
 
$

 
$
274

 
$
251

 
$
525

General and administrative expense(2)
 
$
104

 
$
38

 
$
166

 
$
308

Total operating expenses
 
$
104

 
$
312

 
$
417

 
$
833

 
(1)
The Mylan Collaboration Agreement, as defined below, became effective on February 9, 2016.
 

15


(2)
The amounts generally represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as the majority of such costs are not directly charged to programs.
 
(3)
As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, the Company offset approximately $7.7 million against research and development costs and $0.4 million against general and administrative costs during the three months ended September 30, 2016 .

 
 
For the Nine Months Ended September 30, 2016
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Baxalta
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement (1)
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 

 
 

 
 

Product revenue
 
$

 
$
58,831

 
$

 
$

 
$
58,831

Research and development revenue:
 
 

 
 

 
 

 
 

 
 

Recognition of upfront payments and license payments
 

 

 
7,382

 
4,550

 
11,932

Research and development services and external costs
 
266

 
1,878

 
2,517

 

 
4,661

Total research and development revenue
 
$
266

 
$
1,878

 
$
9,899

 
$
4,550

 
$
16,593

Total collaboration revenues
 
$
266

 
$
60,709

 
$
9,899

 
$
4,550

 
$
75,424

Operating expenses:
 
 

 
 

 
 

 
 

 
 

Research and development expense(2)(3)
 
$
1

 
$
1,643

 
$
880

 
$
20,897

 
$
23,421

General and administrative expense(2)(3)
 
$
1,865

 
$
341

 
$
316

 
$
1,411

 
$
3,933

Total operating expenses
 
$
1,866

 
$
1,984

 
$
1,196

 
$
22,308

 
$
27,354

 
 
For the Nine Months Ended September 30, 2015
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Baxalta
Collaboration
Agreement
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 

 
 

Product revenue
 
$
2,843

 
$
27,850

 
$

 
$
30,693

Research and development revenue:
 
 

 
 

 
 

 
 

Milestone payments
 

 
20,000

 

 
20,000

Recognition of upfront payments and license payments
 

 

 
6,572

 
6,572

Research and development services and external costs
 
450

 
2,220

 
7,323

 
9,993

Total research and development revenue
 
$
450

 
$
22,220

 
$
13,895

 
$
36,565

Total collaboration revenues
 
$
3,293

 
$
50,070

 
$
13,895

 
$
67,258

Operating expenses:
 
 

 
 

 
 

 
 

Research and development expense(2)
 
$
208

 
$
703

 
$
1,376

 
$
2,287

General and administrative expense(2)
 
$
326

 
$
149

 
$
798

 
$
1,273

Total operating expenses
 
$
534

 
$
852

 
$
2,174

 
$
3,560


 
(1)
The Mylan Collaboration Agreement, as defined below, became effective on February 9, 2016.
 
(2)
The amounts generally represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as the majority of such costs are not directly charged to programs.
 

16


(3)
As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, the Company offset approximately $19.8 million against research and development costs and $1.0 million against general and administrative costs during the nine months ended September 30, 2016 .

2003 Sandoz Collaboration Agreement
 
In 2003, the Company entered into a collaboration and license agreement, or the 2003 Sandoz Collaboration Agreement, with Sandoz to jointly develop, manufacture and commercialize Enoxaparin Sodium Injection, a generic version of LOVENOX®, in the United States. Under the terms of the 2003 Sandoz Collaboration Agreement, the Company and Sandoz agreed to exclusively work with each other to develop and commercialize 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.
 
Sandoz began selling Enoxaparin Sodium Injection in July 2010. For the three months ended March 2015, the Company received a 10% royalty on net sales. In June 2015, the Company and Sandoz amended the 2003 Sandoz Collaboration Agreement, effective April 1, 2015, to provide that Sandoz would pay the Company 50% of contractually-defined profits on sales. For the nine months ended September 30, 2015 , the Company earned $2.8 million in product revenue consisting of $0.1 million in profits from Sandoz' sales of Enoxaparin in the second quarter of 2015, net of a claw-back adjustment of $0.1 million , and $2.7 million in royalties from Sandoz' sales of Enoxparin in the first quarter of 2015. Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three months ended September 30, 2016 , three months ended September 30, 2015 or the nine months ended September 30, 2016 , and therefore the Company did not record product revenue for Enoxaparin Sodium Injection in those periods.
 
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. The Company’s contractual share of such development and legal expenses is subject to an annual claw-back adjustment at the end of each of the first five product years, with the product year beginning on July 1 and ending on June 30. The annual adjustment can only reduce the Company’s profits, royalties and milestones by up to 50% in a given calendar quarter and any excess amount due will be carried forward into future quarters and reduce any profits in those future periods until it is paid in full. Annual adjustments, including amounts carried forward into future periods, are recorded as a reduction in product revenue.

2006 Sandoz Collaboration Agreement
 
In 2006 and 2007, the Company entered into a series of agreements, including a collaboration and license agreement, as amended, or the 2006 Sandoz Collaboration Agreement, with Sandoz AG; and a stock purchase agreement and an investor rights agreement, with Novartis Pharma AG. Under the 2006 Sandoz Collaboration Agreement, the Company and Sandoz AG agreed to exclusively collaborate on the development and commercialization of GLATOPA and M356, among other 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 and M356, the Company is generally responsible for all of the development costs in the United States. For GLATOPA and M356 outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses as well as any external costs incurred in the development of products to the extent development costs are born by Sandoz. All commercialization costs are borne by Sandoz.
 
Sandoz commenced sales of GLATOPA in the United States on June 18, 2015. Under the 2006 Sandoz Collaboration Agreement, the Company earns 50% of contractually-defined profits on Sandoz’ worldwide net sales of GLATOPA. The Company is entitled to earn 50% of contractually-defined profits on Sandoz’ worldwide net sales of M356, if M356 is commercialized. Profits on net sales of GLATOPA and M356 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 net sales. Sandoz is responsible for funding all of the legal expenses incurred under the 2006 Sandoz Collaboration Agreement; however, a portion of certain legal expenses, including any patent infringement damages, can be offset against the profit-sharing amounts in proportion to the Company’s 50% profit sharing interest.
 
For the three months ended September 30, 2016 , the Company recorded $23.3 million in product revenues from Sandoz’ sales of GLATOPA. For the nine months ended September 30, 2016 , the Company recorded $58.8 million in product revenues from Sandoz’ sales of GLATOPA. The Company is eligible to receive in the aggregate up to $120 million in additional milestone payments upon the achievement of certain commercial and sales-based milestones for GLATOPA and M356 in the United States. None of these payments, once received, is refundable and there are no general rights of return in the

17


arrangement. Sandoz AG 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.
 
The term of the 2006 Sandoz Collaboration Agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party pursuant to the provisions of the 2006 Sandoz Collaboration Agreement. The 2006 Sandoz Collaboration Agreement may be terminated if either party breaches the 2006 Sandoz Collaboration Agreement or files for bankruptcy. In addition, either the Company or Sandoz AG may terminate the 2006 Sandoz Collaboration Agreement with respect to M356, if clinical trials are required for regulatory approval of M356.
 
Baxalta Collaboration Agreement
 
The Company and Baxter International Inc., Baxter Healthcare Corporation and Baxter Healthcare SA, collectively referred to as Baxter, entered into a global collaboration and license agreement effective February 2012, or the Baxter Collaboration Agreement, to develop and commercialize biosimilars, including M923. In connection with Baxter’s internal corporate restructuring in July 2015, Baxter assigned all of its rights and obligations under the Baxter Collaboration Agreement to Baxalta. In light of the assignment, all references to Baxter and the Baxter Collaboration Agreement have been replaced with references to Baxalta and the Baxalta Collaboration Agreement, respectively. On June 3, 2016, Baxalta Incorporated and Shire plc, or Shire, announced the completion of the combination of Baxalta Incorporated and Shire. As a result of the combination, Baxalta Incorporated is a wholly-owned subsidiary of Shire. On September 27, 2016, Baxalta gave the Company twelve months’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement.
 
Under the Baxalta Collaboration Agreement, the Company and Baxalta agreed to collaborate, on a world-wide basis, on the development and commercialization of M923, the Company’s biosimilar HUMIRA® (adalimumab) candidate, and M834, the Company’s biosimilar ORENCIA® (abatacept) candidate, and Baxalta had the right to select four additional reference products to target for biosimilar development under the collaboration. In July 2012, Baxalta selected an additional product: M511, the Company’s biosimilar AVASTIN® (bevacizumab) candidate. In December 2013, Baxalta terminated its option to license M511 under the Baxalta Collaboration Agreement following an internal portfolio review. In February 2015, Baxalta’s right to select additional programs expired without being exercised. Also in February 2015, Baxalta terminated in part the Baxalta Collaboration Agreement as it relates specifically to M834 and all worldwide development and commercialization rights for M834 reverted to the Company.
 
Under the Baxalta Collaboration Agreement, each party granted the other an exclusive license under its intellectual property rights to develop and commercialize M923 for all therapeutic indications. The Company agreed to provide development and related services on a commercially reasonable basis through the filing of an Investigational New Drug application, or IND, or equivalent application in the European Union for M923. Development and related services include high-resolution analytics, characterization, and product and process development. Baxalta is responsible for clinical development, manufacturing and commercialization activities and will exclusively distribute and market M923. The Company has the right to participate in a joint steering committee, consisting of an equal number of members from the Company and Baxalta, to oversee and manage the development and commercialization of M923 under the collaboration. Costs, including development costs, payments to third parties for intellectual property licenses, and expenses for legal proceedings, including the patent exchange process pursuant to the Biologics Price Competition and Innovation Act of 2009, will be borne by the parties in varying proportions, depending on the type of expense and the stage of development. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses and external development costs for reimbursable activities related to M923.

Under the terms of the Baxalta Collaboration Agreement, the Company received an initial cash payment of $33 million , a $7 million license payment for achieving pre-defined “minimum development criteria” for M834, and $12 million in technical and development milestone payments in connection with the UK Medicines and Healthcare Products Regulatory Agency’s acceptance of Baxalta’s clinical trial application to initiate a pharmacokinetic clinical trial for M923.

Under the terms of the Baxalta Collaboration Agreement, the effective date of the termination is twelve months following the date Baxalta gave the termination notice, as more particularly set forth in the Baxalta Collaboration Agreement, or the Effective Date. As of the Effective Date, (i) Baxalta is obligated to transfer to the Company all ongoing regulatory, development, manufacturing and commercialization activities and related records for M923 and, at the Company’s request, assign to the Company any third party agreements reasonably necessary for and primarily related to the development, manufacture, and commercialization of M923 to the extent permitted by the agreements' terms, (ii) the licenses granted pursuant to the Baxalta Collaboration Agreement by the Company to Baxalta under the Company’s intellectual property rights relating to M923 will terminate, the licenses granted pursuant to the Baxalta Collaboration Agreement by Baxalta to the

18


Company under Baxalta’s intellectual property rights relating to M923 will survive, and Baxalta is obligated to grant to the Company additional licenses under Baxalta’s intellectual property rights relating to M923 existing as of the Effective Date, and (iii) the Company is obligated to pay to Baxalta a royalty of 5% of net sales, as such term is defined in the Baxalta Collaboration Agreement, until Baxalta’s development expenses and commercialization costs, as such terms are defined in the Baxalta Collaboration Agreement, occurring through the Effective Date are reimbursed. Following receipt of the termination notice, the Company is no longer eligible to receive any regulatory milestone payments under the Baxalta Collaboration Agreement. Prior to the Effective Date, Baxalta is obligated to continue to perform development and manufacturing activities for M923, which is currently in a pivotal clinical trial from which data is expected to be reported in 2016.
 
In accordance with FASB’s ASU No. 2009-13: Multiple-Deliverable Revenue Arrangements (Topic 615), the Company identified the deliverables at the inception of the Baxalta Collaboration Agreement. The deliverables were determined to include (i) six development and product licenses, for each of M923, M834 and the four additional collaboration products, (ii) research and development services related to each of M923, M834 and the four additional collaboration products and (iii) the Company’s participation in a joint steering committee. The Company determined that each of the license deliverables does not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Baxalta does not have the contractual right to resell the license, and (3) Baxalta is unable to use the license for its intended purpose without the Company’s performance of research and development services. As such, the Company determined that with respect to this arrangement separate units of accounting exist for each of the six licenses together with the related research and development services, as well as the one unit of accounting for the joint steering committee. The estimated selling price for these units of accounting was determined based on similar license arrangements and the nature of the research and development services to be performed for Baxalta and market rates for similar services. At the inception of the Baxalta Collaboration Agreement, arrangement consideration of $61 million , which included the $33 million upfront payment and aggregate option payments for the four additional collaboration products of $28.0 million , was allocated to the units of accounting based on the relative selling price method. Of the $61 million , $10.3 million was allocated to the M923 product license together with the related research and development services, $10.3 million to each of the four additional collaboration product licenses with the related research and development services, $9.4 million was allocated to the M834 product license together with the related research and development services due to that product’s stage of development at the time the license was delivered, and $114,000 was allocated to the joint steering committee unit of accounting.
 
At the inception of the Baxalta Collaboration Agreement, the Company delivered development and product licenses for M923 and M834 and commenced revenue recognition of the arrangement consideration allocated to those products. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. Baxalta’s termination of its option to license M511 in December 2013 as well as its termination of M834 and the lapsing of its right to select additional products in February 2015 reduced the number of deliverables from seven to two and decreased the total consideration from $61 million to $40 million . The Company determined that the change in total consideration received and total deliverables under the arrangement represented a change in estimate and, as a result, the Company reallocated the revised total consideration of $40 million to the remaining deliverables under the agreement using the original best estimate of selling price. The remaining deliverables are the combined unit of account for the M923 license and the related research and development services and the Company’s participation on the joint steering committee. Of the $40 million , $39.6 million was allocated to the M923 product license together with the related research and development services and $0.4 million was allocated to the joint steering committee unit of accounting. The Company recognized the resulting change in revenue as a result of the decrease in deliverables and expected consideration on a prospective basis. The Company recorded this revenue on a straight-line basis over the applicable performance period, which began with delivery of the development and product license and ends upon FDA approval of the product.

As a result of Baxalta's termination notice, the Company's performance period for M923 and the joint steering committee will end on the Effective Date, as defined above; therefore, the Company will recognize the remaining deferred revenue balance as of September 30, 2016 of $ 14.6 million ratably as revenue over the remaining performance period of twelve months, with quarterly amortization of $ 3.7 million for the next three quarters and $3.5 million in the third quarter of 2017. The impact of this change in estimate on the Company's net loss and net loss per share was immaterial for the three and nine months ended September 30, 2016. 

Mylan Collaboration Agreement
 
On January 8, 2016, the Company and Mylan entered into a collaboration agreement, or the Mylan Collaboration Agreement, which became effective on February 9, 2016, pursuant to which the Company and Mylan agreed to collaborate exclusively, on a world-wide basis, to develop, manufacture and commercialize six of the Company’s biosimilar candidates, including M834.

19


 
Under the terms of the Mylan Collaboration Agreement, Mylan agreed to pay the Company a non-refundable upfront payment of $45 million . In addition, the Company and Mylan share equally costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates, with Mylan funding its share of collaboration expenses incurred by the Company, in part, through up to six contingent milestone payments, totaling up to $200 million across the six product candidates.
 
For each product candidate other than M834, at a specified stage of early development, the Company and Mylan will each decide, based on the product candidate’s development progress and commercial considerations, whether to continue the development, manufacture and commercialization of such product candidate under the collaboration or to terminate the collaboration with respect to such product candidate.
 
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 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 joint steering committee, 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; additional (pivotal or Phase 3 equivalent) clinical development activities for M834; 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 other than M834; 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 joint steering committee is responsible for allocating responsibilities for other activities under the collaboration.
 
The term of the collaboration will continue throughout the development and commercialization of the product candidates, on a product-by-product and 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 for a given product candidate 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 products in the terminated countries. In the case of a termination for convenience, the other party will have the right to continue. If a termination occurs, the licenses granted to the non-continuing party for the applicable product will terminate for the terminated country. Subject to certain terms and conditions, the party that has the right to continue the development or commercialization of a given product candidate may retain royalty-bearing licenses to certain intellectual property rights, and rights to certain data, for the continued development and sale of the applicable product in the country or countries for which termination applies.
 
In accordance with FASB’s ASU No. 2009-13: Multiple-Deliverable Revenue Arrangements (Topic 615), the Company identified the deliverables at the inception of the Mylan Collaboration Agreement. The deliverables were determined to include (i)  six development and product licenses, for each of M834 and the five additional collaboration products, (ii) research and development services related to each of M834 and the five additional collaboration products and (iii) the Company’s participation in the joint steering committee. The Company has determined that each of the license deliverables does not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Mylan does not have the contractual right to resell the license, and (3) Mylan is unable to use the license for its intended purpose without the Company’s performance of research and development services. As such, the Company determined that with respect to this arrangement separate units of accounting exist for each of the six licenses together with the related research and development services, or the combined units of accounting, as well as a separate unit of accounting for participation in the joint steering committee. VSOE and TPE were not available for the combined units of accounting. As such, the Company determined BESP for the combined units of accounting

20


based on an analysis of its existing license arrangements and other available data and the nature and extent of the research and development services to be performed. BESP for the joint steering committee unit of accounting was based on market rates for similar services. At the inception of the Mylan Collaboration Agreement, total arrangement consideration of $45 million was allocated to each of the units of accounting based on the relative selling price method. Of the $45 million , $8.2 million was allocated to the M834 combined unit of accounting, between $5.7 million and $9.0 million to the five additional combined units of accounting, considering the products’ stage of development at the time the licenses were delivered, and $51,000 was allocated to the joint steering committee unit of accounting. Changes in the key assumptions used to determine BESP for the units of accounting would not have a significant effect on the allocation of arrangement consideration.
 
At the inception of the Mylan Collaboration Agreement, the Company delivered development and product licenses for all six collaboration products and commenced revenue recognition of the arrangement consideration allocated the respective units of accounting. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. The Company is recording revenue on a straight-line basis over the applicable performance period during which the research and development services are expected to be delivered, which begins upon delivery of the development and product license and ends upon FDA approval of the product. The Company currently estimates that the performance period for the M834 unit of accounting is approximately four years , an average of approximately seven years for the additional five combined units of accounting and approximately eight years for the joint steering committee unit of accounting. As of September 30, 2016 , $40.4 million was deferred under this agreement, of which $7.1 million was included in current liabilities and $33.3 million was included in non-current liabilities in the consolidated balance sheet.
 
As discussed above, the Mylan Collaboration Agreement became effective on February 9, 2016. Beginning on February 9, 2016, the Company shares collaboration expenses with Mylan and, as such, the net amount due from Mylan for its 50% share of collaboration expenses is recorded as a collaboration receivable in the consolidated balance sheet and a reduction in research and development and/or general and administrative expenses in the consolidated statement of operations and comprehensive loss, in accordance with the Company’s policy, which is consistent with the nature of the cost reimbursement. Collaboration costs incurred by the Company are recorded as research and development expense and/or general and administrative expense, depending on the nature of the activities, as incurred.
 
As discussed above, Mylan will fund a portion of its 50% share of collaboration expenses, in part, through up to $200 million in contingent milestone payments across the six product candidates. The contingent payments will reduce the collaboration receivable balance and any unused portion of the contingent payment will be available to offset Mylan’s 50% share of collaboration costs in future periods. If in a given year a contingent payment is not expected to be made by Mylan and there is no balance available from a prior contingent payment balance as of the beginning of the collaboration year, the parties will reconcile total collaboration expenses on a semi-annual basis and Mylan will make a payment to the Company. For the nine months ended September 30, 2016 , the Company reduced research and development expenses by $19.8 million and general and administrative expenses by $1.0 million , representing Mylan’s 50% share of collaboration expenses.
 
6. Share-Based Payments
 
Share-Based Compensation
 
The following table summarizes share-based compensation expense (income) recorded in each of the three and nine months ended September 30, 2016 and 2015 (in thousands):
 
Share-based compensation expense (income)
 
For the Three Months Ended
September 30, 2016
 
For the Three Months Ended
September 30, 2015
 
For the Nine Months Ended
September 30, 2016
 
For the Nine Months Ended
September 30, 2015
Outstanding employee and non-employee stock option grants
 
$
2,149

 
$
2,769

 
$
7,278

 
$
7,785

Outstanding restricted stock awards
 
2,688

 
1,691

 
7,161

 
(1,282
)
Employee stock purchase plan
 
102

 
97

 
317

 
284

Total compensation expense
 
$
4,939

 
$
4,557

 
$
14,756

 
$
6,787

 
During the nine months ended September 30, 2016 , the Company granted 1,351,852 stock options, of which 812,302 were granted in connection with annual merit awards, 358,550 were granted to new hires and 181,000 were granted to members of our board of directors. 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 September 30, 2016 and 2015 was $6.77 per option and $11.14

21


per option, respectively. The weighted average grant date fair value of option awards granted during the nine months ended September 30, 2016 and 2015 was $5.90 per option and $8.00 per option, respectively.
 
The following tables summarize 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
 
 
For the Three Months Ended September 30, 2016
 
For the Three Months Ended September 30, 2015
 
For the Three Months Ended September 30, 2016
 
For the Three Months Ended September 30, 2015
Expected volatility
 
60
%
 
53
%
 
58
%
 
58
%
Expected dividends
 

 

 

 

Expected life (years)
 
6.1

 
6.2

 
0.5

 
0.5

Risk-free interest rate
 
1.4
%
 
1.9
%
 
0.4
%
 
0.1
%

 
 
Weighted Average Assumptions
 
 
Stock Options
 
Employee Stock Purchase Plan
 
 
For the Nine Months Ended September 30, 2016
 
For the Nine Months Ended September 30, 2015
 
For the Nine Months Ended September 30, 2016
 
For the Nine Months Ended September 30, 2015
Expected volatility
 
58
%
 
60
%
 
57
%
 
59
%
Expected dividends
 

 

 

 

Expected life (years)
 
6.1

 
6.1

 
0.5

 
0.5

Risk-free interest rate
 
1.5
%
 
1.8
%
 
0.4
%
 
0.1
%
 
At September 30, 2016 , the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to $14.8 million , net of estimated forfeitures, which will be recognized over the weighted average remaining requisite service period of 2.6 years .
 
During the nine months ended September 30, 2016 , the Company issued 104,892 shares of common stock to employees under the employee stock purchase plan, or ESPP, resulting in proceeds of approximately $1.1 million .
 
Restricted Stock Awards
 
The Company has also made awards of time-based and performance-based restricted common stock to its employees and officers. In the nine months ended September 30, 2016 , the Company awarded 434,821 shares of time-based restricted common stock to its employees and officers. The time-based restricted common stock vest as to 25% on the one year anniversary of the grant date and as to 6.25% quarterly over three years that follow the grant date. The time-based awards are generally forfeited if the employment relationship terminates with the Company prior to vesting.

Between April 13, 2016 and September 30, 2016 , the Company awarded 1,576,860 shares of performance-based restricted common stock to employees and officers. The vesting of the shares is subject to achieving up to two of three possible company-wide milestones on or before April 13, 2019; however, the Company determined that, as a result of discontinuing the necuparanib program, only two of the three company-wide milestones are possible to achieve during the vesting period. Upon achieving each of the first and second milestones, 25% of the shares will vest on the milestone achievement date, and an additional 25% of the shares will vest on the one year anniversary of such achievement date, subject to a minimum one year vesting period from the date of grant and a requirement that recipients are employees on any applicable vesting date. Each quarter, the Company evaluates the probability of achieving the milestones on or before April 13, 2019, and its estimate of the implicit service period over which the fair value of the awards will be recognized and expensed. The Company has determined that attainment of the performance conditions is probable and is expensing the fair value of the shares over the implicit service period using the accelerated attribution method. In the third quarter of 2016, the Company changed its estimate of the implicit service period, and the fair value of the shares is being recognized over the revised implicit service period. The impact of this change in estimate on the Company's net loss and net loss per share was immaterial. In the three months ended September 30, 2016 , the Company recognized approximately $1.9 million of stock compensation costs related to the awards. In the nine

22


months ended September 30, 2016 , the Company recognized approximately $ 3.6 million of stock compensation costs related to the awards.
 
Between 2011 and early 2013, the Company awarded 949,620 shares of performance-based restricted common stock to its employees and officers. The performance-based restricted common stock was scheduled to vest upon FDA approval of the GLATOPA Abbreviated New Drug Application, or ANDA, on or before the performance deadline date of March 28, 2015 according to the following schedule: 50% of the shares vest upon FDA approval and 50% vest upon the one year anniversary of FDA approval. The Company had historically determined that the performance condition was probable of being achieved by March 28, 2015 and, as a result, had recognized approximately $10.5 million of stock compensation costs related to the awards. On March 11, 2015, the Board of Directors approved an amendment to the awards that extended the performance deadline date to September 1, 2015 and provided for the forfeiture of 15% of the number of shares originally subject to each award on the 29th of each month, beginning March 29, 2015 until the shares vested or were forfeited in full. On March 29, 2015, 117,898 shares of performance-based restricted common stock were forfeited pursuant to the modified awards. The Company evaluated the modification and determined it was a Type III modification or “Improbable to Probable” pursuant to ASC 718 as the awards, on the date of modification, were no longer deemed to be probable of being earned by March 28, 2015. As a result, the Company reversed the cumulative compensation cost related to the original awards of $10.5 million in the first quarter of 2015. Also, in accordance with ASC 718, the Company re-measured the modified awards with a measurement date of March 11, 2015, and determined the aggregate compensation was $9.8 million . The FDA approved GLATOPA on April 16, 2015. The Company recognized the compensation cost attributed to the modified awards as follows: the first 50% of the awards were expensed over the period beginning on March 11, 2015 and ending on April 16, 2015, the date of FDA approval, and the remaining 50% of the awards were expensed over the period beginning on March 11, 2015 and ending on April 16, 2016, the one year anniversary of FDA approval. Accordingly, approximately $9.4 million of stock compensation cost for awards that were earned and vested was recognized in the period between March 11, 2015 and April 18, 2016.
 
As of September 30, 2016 , the total remaining unrecognized compensation cost related to all nonvested time-based and performance-based restricted stock awards amounted to $15.3 million , which is expected to be recognized over the weighted average remaining requisite service period of 2.9 years.
 
A summary of the status of nonvested shares of restricted stock as of September 30, 2016 and the changes during the nine months ended September 30, 2016 are presented below (in thousands, except fair values):
 
 
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
Nonvested at January 1, 2016
 
761

 
$
14.61

Granted
 
2,012

 
10.05

Vested
 
(485
)
 
14.53

Forfeited
 
(228
)
 
10.99

Nonvested at September 30, 2016
 
2,060

 
$
10.57


Nonvested shares of restricted stock that have time-based or both performance-based and time-based vesting conditions as of September 30, 2016 are summarized below (in thousands):
 
Vesting Schedule
 
Nonvested
Shares
Time-based
 
620

Performance-based and time-based
 
1,440

Nonvested at September 30, 2016
 
2,060

 
7. Equity Financings
 
In May 2015, the Company sold an aggregate of 8,337,500 shares of its common stock through an underwritten public offering at a price to the public of $19.00 per share. As a result of the offering, which included the full exercise of the underwriters’ option to purchase additional shares, the Company received aggregate net proceeds of approximately $148.4 million , after deducting underwriting discounts and commissions and other offering expenses.


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In May 2014, the Company entered into an At-the-Market Equity Offering Sales Agreement, or the 2014 ATM Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, under which the Company was authorized to issue and sell shares of its common stock having aggregate sales proceeds of up to $75 million from time to time through Stifel, acting as sales agent and/or principal. The Company paid Stifel a commission of 2.0% of the gross proceeds from the sale of shares of its common stock under this facility. The offering was conducted by the Company pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC (Reg. No. 333-188227) and a related prospectus supplement. The Company intends to use the net proceeds from this facility to advance its development pipeline and for general corporate purposes, including working capital. Between October 2014 and April 2015, the Company sold approximately 5.4 million shares of common stock under the 2014 ATM Agreement, raising aggregate net proceeds of approximately $73.5 million . The Company concluded sales under the 2014 ATM Agreement in April 2015.
 
In April 2015, the Company entered into a new ATM Agreement, or the 2015 ATM Agreement, with Stifel, under which the Company is authorized to issue and sell shares of its common stock having aggregate sales proceeds of up to $75 million from time to time through Stifel, acting as sales agent and/or principal. The Company is required to pay Stifel a commission of 2.0% of the gross proceeds from the sale of shares of its common stock under the 2015 ATM Agreement. From April 2015 through December 2015, the Company sold approximately 0.5 million shares of common stock under the 2015 ATM Agreement pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC (Reg. No. 333-188227) and a related prospectus supplement, and raised aggregate net proceeds of approximately $9.3 million . The shelf registration statement on Form S-3 (Reg No. 333-188227) expired in April 2016. In February 2016, the Company filed a shelf registration statement on Form S-3 (Reg No. 333-209813) with the SEC registering the offer, sale and issuance, from time to time, of common stock, preferred stock, debt securities and warrants. No shares were sold under the 2015 ATM Agreement in the nine months ended September 30, 2016 .
 
8. Commitments and Contingencies
 
Operating Leases

The Company leases office space and equipment under various operating lease agreements.

In September 2004, the Company entered into an agreement with Vertex Pharmaceuticals, or Vertex, to lease 53,323 square feet of office and laboratory space located on the fourth and fifth floors at 675 West Kendall Street, Cambridge, Massachusetts, for an initial term of 80 months, or the West Kendall Sublease. In November 2005, the Company amended the West Kendall Sublease to lease an additional 25,131 square feet through April 2011. In April 2010, the Company exercised its right to extend the West Kendall Sublease for one additional term of 48 months. During the extension term, which commenced on May 1, 2011, annual rental payments increased by approximately $1.2 million over the previous annual rental rate. In July 2014, the Company and Vertex entered into an agreement to extend the term of the West Kendall Sublease from May 1, 2015 through April 30, 2018, or such other earlier date as provided in accordance with the West Kendall Sublease. During the extension term, annual rental payments are approximately $4.8 million .

On February 5, 2013, the Company and BMR-Rogers Street LLC, or BMR, entered into a lease agreement, or the Second Bent Street Lease, to lease 104,678 square feet of office and laboratory space located in the basement and first and second floors at 320 Bent Street, Cambridge, Massachusetts, beginning on September 1, 2013 and ending on August 31, 2016. Annual rental payments due under the Second Bent Street Lease were approximately $6.1 million during the first lease year, $6.2 million during the second lease year, and $6.3 million during the third lease year. On December 30, 2015, the Company and BMR entered into an amendment, or the Amendment, to Second Bent Street Lease agreement. The Amendment extends the expiration date of the lease term from August 31, 2016 to February 28, 2027. Under the Amendment, the Company is not required to pay BMR any base rent from September 1, 2016 through February 28, 2017; however the Company is required to pay BMR certain operating expenses. Beginning on March 1, 2017 and ending on August 31, 2017, the Company is obligated to pay BMR an initial monthly base rent of approximately $0.6 million , or $68.00 per square foot. The Company's monthly base rent will increase by three percent of the then-current base rent on September 1 of each year during the extended term of the Lease, beginning on September 1, 2017. During the period from September 1, 2016 through June 30, 2018, BMR has agreed to pay the Company a tenant improvement allowance not to exceed $4.7 million for reimbursement of certain laboratory and office improvements.

On September 14, 2016, the Company entered into a Sublease, or the Sublease, with Biogen MA Inc., or Biogen, pursuant to which the Company will sublease approximately 79,683 square feet of office and laboratory space on the fifth floor of 301 Binney Street, Cambridge, Massachusetts, or the Premises. Biogen leases the Premises from BMR pursuant to a Lease, dated as of March 31, 2015, as amended, or the Prime Lease. The term of the Sublease will commence on January 1, 2018, and will expire on June 29, 2025, unless terminated earlier in accordance with the terms of the Sublease, or the Term. From January

24


1, 2018, through December 31, 2018, the Company is obligated to pay a monthly base rent of $504,659 , or $76 per square foot. The Company’s monthly base rent will increase by approximately 3% of the then-current monthly base rent on each of January 1, 2019, and January 1, 2020. Thereafter, the Company’s monthly base rent will increase by approximately 1.85% of the then-current monthly base rent on January 1 of each of the remaining years of the Term. In addition, the Company is obligated to pay certain costs and expenses payable by Biogen under the Prime Lease. Simultaneous with the execution of the Sublease, the Company is obligated to deliver to Biogen a security deposit in the form of an irrevocable standby letter of credit in the amount of approximately two months of the monthly base rent at the average rate per square foot over the Term.

Total operating lease commitments as of September 30, 2016 are as follows (in thousands):
 
 
October 1 to December 31, 2016
$
1,267

2017
11,023

2018
15,249

2019
14,044

2020
14,460

2021
14,815

2022 and beyond
69,894

Total future minimum lease payments
$
140,752


 
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.
 
M356-Related Litigation
 
On September 10, 2014, Teva Pharmaceuticals Industries Ltd. and related entities, or Teva, and Yeda Research and Development Co., Ltd., or Yeda, filed suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware in response to the filing by Sandoz Inc. of the ANDA with a Paragraph IV certification for M356. The suit initially alleged infringement related to two Orange Book-listed patents for COPAXONE 40 mg/mL, each expiring in 2030, and seeks declaratory and injunctive relief prohibiting the launch of the Company’s product until the last to expire of these patents. In April 2015, Teva and Yeda filed an additional suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a third Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in March 2015 and expires in 2030. In May 2015, this suit was consolidated with the initial suit filed in September 2014. In November 2015, Teva and Yeda filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a fourth Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in October 2015 and expires in 2030. Teva and Yeda seek declaratory and injunctive relief prohibiting the launch of M356 until the expiration of this patent. In December 2015, this suit was consolidated with the initial suit filed in September 2014. The Company and Sandoz Inc. have asserted various defenses and filed counterclaims for declaratory judgments of non-infringement, invalidity and unenforceability of the COPAXONE 40 mg/mL patents. The trial concluded in October 2016, and the Company expects the District Court to issue a decision in the first quarter of 2017.

Enoxaparin Sodium Injection-related Litigation
 
On September 21, 2011, the Company and Sandoz Inc. sued Amphastar and Actavis, in the United States District Court for the District of Massachusetts for infringement of two of the Company’s patents. 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 Inc. to post a

25


security bond of $100 million in connection with the litigation. Amphastar and Actavis appealed the decision to the Court of Appeals for the Federal Circuit, or 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 September 2012, the Company filed a petition with the CAFC for a rehearing by the full court en banc , which was denied. In February 2013, the Company filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied in June 2013.
 
In July 2013, the District Court granted a motion by Amphastar and Actavis for summary judgment. The Company filed a notice of appeal of that decision to the CAFC. In February 2014, Amphastar filed a motion to the CAFC for summary affirmance of the District Court ruling, which the CAFC denied in May 2014. On November 10, 2015, the CAFC affirmed the District Court summary judgment decision with respect to Actavis, reversed the District Court summary judgment decision with respect to Amphastar, and remanded the case against Amphastar to the District Court. On January 11, 2016, Amphastar filed a petition for rehearing by the CAFC, which was denied on February 17, 2016. On May 17, 2016, Amphastar filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied on October 3, 2016. The District Court trial is scheduled to begin on July 10, 2017. The collateral for the security bond posted in the litigation remains outstanding. In the event that the Company is not successful in further 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. Amphastar has filed motions to increase the amount of the security bond, which the Company and Sandoz Inc. have opposed.
 
On September 17, 2015, Amphastar filed a complaint against the Company and Sandoz Inc. 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 Inc. 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 Inc. 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 Inc.’s 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, and the Court issued a briefing schedule that concludes by the end of 2016.
 
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 Inc. 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 Inc. 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 Inc. filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. Hearings on the motions were held before a U.S. magistrate in April 2016 and February 2016, respectively. On September 29, 2016, the magistrate judge filed a Report and Recommendation to the District Court to deny the motions to dismiss and to transfer. These motions are subject to briefing and review by the District Court. While the outcome of litigation is inherently uncertain, the Company believes this suit is without merit, and it intends to vigorously defend itself in this litigation.

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, 2015.
 
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

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We are a biotechnology company focused on developing generic versions of complex drugs, biosimilars and novel therapeutics for autoimmune diseases.
 
To date, we have devoted substantially all of our capital resource expenditures to the research and development of our products and 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 September 30, 2016 , we had an accumulated deficit of approximately $514.9 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 ® —Generic Once-daily COPAXONE ® (glatiramer acetate injection) 20 mg/mL
 
On April 16, 2015, the FDA approved the ANDA for once-daily GLATOPA (glatiramer acetate injection) 20 mg/mL, a generic equivalent of once-daily COPAXONE ® 20 mg/mL. GLATOPA is the first “AP” rated, substitutable generic equivalent of once-daily COPAXONE. Sandoz commenced sales of GLATOPA on June 18, 2015. Under our collaboration agreement with Sandoz AG, we earn 50% of contractually-defined profits on GLATOPA sales. For the three months ended September 30, 2016 , we recorded $23.3 million in product revenues from Sandoz’ sales of GLATOPA.
 
GLATOPA was formerly referred to as M356. M356 now refers to our generic product candidate for three-times-weekly COPAXONE 40 mg/mL.
 
M356—Generic Three-times-weekly COPAXONE ® (glatiramer acetate injection) 40 mg/mL
 
An ANDA with a Paragraph IV certification for our generic version of three-times-weekly COPAXONE 40 mg/mL, which was filed in February 2014, remains under review by the FDA. Our M356 formulation contains the same drug substance as GLATOPA, which we believe should help streamline the FDA review of the ANDA. To date, we are the only ANDA applicant for the three-times-weekly COPAXONE 40 mg/mL with an FDA-approved active pharmaceutical ingredient. If we are successful in our challenge of the patents related to COPAXONE 40 mg/mL, the trial for which concluded in October 2016, and assuming customary patent litigation timelines, we believe M356 could be approved, following expiration of regulatory exclusivity and of any 30-month stay, if applicable, and be on the market as early as the first quarter of 2017. In August 2015, the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office, or PTAB, instituted an Inter Partes Review, or IPR, filed by a third party challenging the validity of several of the same patents relating to COPAXONE 40 mg/mL that are the subject of our patent litigation.  In August 2016, the PTAB issued opinions invalidating the COPAXONE 40 mg/mL patents that were the subject of the IPR.
 
Enoxaparin Sodium Injection—Generic LOVENOX ®  
 
In June 2015, we and Sandoz amended our collaboration agreement relating to Enoxaparin Sodium Injection, replacing Sandoz’ obligation to pay us a royalty on net sales with an obligation to pay us 50% of contractually-defined profits on sales. The amendment, which was effective April 1, 2015, better aligned our interests in an evolving market that has seen continued pricing pressure.
 
Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three months ended September 30, 2016 , and therefore we recorded no product revenue for Enoxaparin Sodium Injection in the period.

Biosimilars
 
M923—Biosimilar HUMIRA ® (adalimumab) Candidate
 
In connection with Baxter’s internal corporate restructuring in July 2015, Baxter assigned all of its rights and obligations under the Baxter Collaboration Agreement to Baxalta. In light of the assignment, all references to Baxter and the Baxter Collaboration Agreement have been replaced with references to Baxalta and the Baxalta Collaboration Agreement, respectively. On June 3, 2016, Baxalta Incorporated and Shire announced the completion of the combination of Baxalta Incorporated and Shire. As a result of the combination, Baxalta Incorporated is a wholly owned subsidiary of Shire. On September 27, 2016, Baxalta gave us twelve months’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement.

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Under the terms of the Baxalta Collaboration Agreement, the effective date of the termination is twelve months following the date Baxalta gave the termination notice, as more particularly set forth in the Baxalta Collaboration Agreement, or the Effective Date. As of the Effective Date, (i) Baxalta is obligated to transfer to us all ongoing regulatory, development, manufacturing and commercialization activities and related records for M923 and, at our request, assign to us any third party agreements reasonably necessary for and primarily related to the development, manufacture, and commercialization of M923 to the extent permitted by the agreements' terms, (ii) the licenses granted pursuant to the Baxalta Collaboration Agreement by us to Baxalta under our intellectual property rights relating to M923 will terminate, the licenses granted pursuant to the Baxalta Collaboration Agreement by Baxalta to us under Baxalta’s intellectual property rights relating to M923 will survive, and Baxalta is obligated to grant to us additional licenses under Baxalta’s intellectual property rights relating to M923 existing as of the Effective Date, and (iii) we are obligated to pay to Baxalta a royalty of 5% of net sales, as such term is defined in the Baxalta Collaboration Agreement, until Baxalta’s development expenses and commercialization costs, as such terms are defined in the Baxalta Collaboration Agreement, occurring through the Effective Date are reimbursed.
 
In February 2015, Baxalta commenced a randomized, double-blind, single-dose study in healthy volunteers to compare the pharmacokinetics, safety, tolerability and immunogenicity of M923 versus EU-sourced and US-sourced HUMIRA. A total of 324 healthy volunteers were enrolled in the study. The volunteers were randomized 1:1:1 to receive a single 40 mg injection of M923, US-sourced HUMIRA, or EU-sourced HUMIRA. The volunteers were followed for 71  days. In December 2015, we announced that M923 met its primary endpoint in the study as the data demonstrated pharmacokinetic bioequivalence to the reference products. In October 2015, Baxalta initiated a pivotal clinical trial of M923 in patients with chronic plaque psoriasis. The trial is a randomized, double-blind, active control, multi-center, global study in patients with chronic plaque psoriasis to compare the safety, efficacy and immunogenicity of M923 with HUMIRA. In April 2016, we and Baxalta completed enrollment in the pivotal clinical trial for M923, and we expect to report data from this trial in late 2016. The first regulatory submission for marketing approval for M923 is planned in 2017 and, subject to marketing approval and patent considerations, we are planning for the first commercial launch to be as early as 2018.
 
M834—Biosimilar ORENCIA ® (abatacept) Candidate
 
On January 8, 2016, we and Mylan entered into the Mylan Collaboration Agreement, which became effective on February 9, 2016, pursuant to which we and Mylan agreed to collaborate exclusively, on a world-wide basis, to develop, manufacture and commercialize six of our biosimilar candidates, including M834. Under the terms of the Mylan Collaboration Agreement, Mylan paid us a non-refundable upfront payment of $45 million in March 2016. In addition, we and Mylan will share equally costs, including development, manufacturing, commercialization and certain legal expenses, and profits (losses) across the six product candidates. In November 2016, we initiated a randomized, double-blind, three-arm, parallel group, single-dose Phase 1 clinical trial in normal healthy volunteers to compare the pharmacokinetics, safety and immunogenicity of M834 to US-sourced and EU-sourced ORENCIA. We plan to report top-line data from the trial by the end of 2017. Subject to development, marketing approval and patent considerations, we expect to be able to launch M834 in the 2020 timeframe to be able to be among the first biosimilars of ORENCIA on the market.
 
Other Biosimilar Candidates
 
Under our Mylan collaboration, we and Mylan are also developing five other biosimilar candidates from our portfolio, in addition to M834. We and Mylan will share equally costs and profits (losses) related to these earlier stage product candidates. We and Mylan will share development responsibilities across product candidates, and Mylan will lead commercialization of the products.
 
As of September 30, 2016 , we had approximately 100 employees working on our biosimilars programs. We maintain a state-of-the-art development facility for bioprocess manufacturing development and scale-up.
 
Novel Therapeutics
 
Necuparanib

On August 3, 2016, we discontinued further accrual of our Part B, or Phase 2, portion of our Phase 1/2 clinical trial evaluating necuparanib in combination with nab-paclitaxel (ABRAXANE ® ) and gemcitabine in patients with advanced metastatic pancreatic cancer. The decision to discontinue enrollment was based on the recommendation of the independent Data Safety Monitoring Board for the trial following the outcome of a planned interim futility analysis. On August 22, 2016, after confirming the results of the futility analysis and reviewing the unblinded safety and efficacy data and the results of various sensitivity and subgroup analyses, we decided to discontinue the necuparanib program.

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M281

We are continuing to advance M281, our Anti-FcRn program. We initiated a Phase 1 dosing study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of M281 in healthy volunteers in June 2016, and we expect to report data from this trial in the second half of 2017.
 
Other Novel Therapeutic Programs
 
We expect to initiate a clinical trial for M230, our selective immunomodulator of Fc receptors, or SIF3, program, in 2017. We are also advancing M254, our hsIVIg program, which is currently in pre-clinical development.
 
We believe M281, M230, and M254 could have potential as products capable of treating a large number of immunological disorders driven by antibodies, immune complexes, and Fc receptor biology. Such disorders include rheumatoid arthritis, autoimmune neurologic diseases such as Guillain-Barre syndrome, chronic inflammatory demyelinating neuropathy and myasthenia gravis, autoimmune blood disorders such as immune thrombocytopenic purpura, systemic autoimmune diseases such as dermatomyositis, lupus nephritis, and catastrophic antiphospholipid syndrome, antibody-mediated transplant rejection, and autoimmune blistering diseases, several of which have few treatment options. We continue efforts to identify and explore possible collaboration opportunities to advance these programs.
 
Equity Financings
 
In May 2015, we sold an aggregate of 8,337,500 shares of our common stock through an underwritten public offering at a price to the public of $19.00 per share. As a result of the offering, which included the full exercise of the underwriters’ option to purchase additional shares, we received aggregate net proceeds of approximately $148.4 million , after deducting underwriting discounts and commissions and other offering expenses.

In May 2014, we entered into an At-the-Market Equity Offering Sales Agreement, or the 2014 ATM Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, under which we were authorized to issue and sell shares of our common stock having aggregate sales proceeds of up to $75 million from time to time through Stifel, acting as sales agent and/or principal. We paid Stifel a commission of 2.0% of the gross proceeds from the sale of shares of our common stock under this facility. The offering was conducted by us pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC (Reg. No. 333-188227) and a related prospectus supplement. We intend to use the net proceeds from this facility to advance our development pipeline and for general corporate purposes, including working capital. Between October 2014 and April 2015, we sold approximately 5.4 million shares of common stock under the 2014 ATM Agreement, raising aggregate net proceeds of approximately $73.5 million . We concluded sales under the 2014 ATM Agreement in April 2015.
 
In April 2015, we entered into a new ATM Agreement, or the 2015 ATM Agreement, with Stifel, under which we are authorized to issue and sell shares of our common stock having aggregate sales proceeds of up to $75 million from time to time through Stifel, acting as sales agent and/or principal. We are required to pay Stifel a commission of 2.0% of the gross proceeds from the sale of shares of our common stock under the 2015 ATM Agreement. From April 2015 through December 2015, we sold approximately 0.5 million shares of common stock under the 2015 ATM Agreement pursuant to an effective shelf registration statement previously filed with the SEC (Reg. No. 333-188227) and a related prospectus supplement, raising aggregate net proceeds of approximately $9.3 million . We did not sell any shares of common stock under the 2015 ATM Agreement in the nine months ended September 30, 2016 .
 
Results of Operations
 
Comparison of Three Months Ended September 30, 2016 and 2015
 
Collaboration Revenue
 
Collaboration revenue includes both product revenue and research and development revenue earned under our collaborative arrangements. Product revenue includes our contractually-defined profits and/or royalties earned on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA.
 
GLATOPA ® —Generic Once-daily COPAXONE® (glatiramer acetate injection) 20 mg/mL
 

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Sandoz commenced sales of GLATOPA in the United States on June 18, 2015. We earn 50% of contractually-defined profits on Sandoz’ sales of GLATOPA. A portion of certain GLATOPA legal expenses, including any patent infringement damages, is deducted from our profits in proportion to our 50% profit sharing interest.
 
For the three months ended September 30, 2016 , we recorded $23.3 million in product revenues from Sandoz’ sales of GLATOPA. For the three months ended September 30, 2015 , we recorded $8.7 million in product revenues from Sandoz’ sales of GLATOPA. The increase in product revenues of $ 14.6 million , or 168% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 was primarily due to a higher number of GLATOPA units sold. We estimate that the number of prescriptions for GLATOPA represents nearly 40% of the once-daily 20 mg/mL U.S. glatiramer acetate market.

We believe there is a meaningful market opportunity for GLATOPA. The price for COPAXONE 20 mg/mL has increased over 189% since 2009, and there is no other generic for relapsing forms of multiple sclerosis currently available in the United States. However, Teva received marketing approval of its three-times-weekly COPAXONE 40 mg/mL in January 2014. Teva’s three-times-weekly COPAXONE 40 mg/mL accounts for approximately 78% of the overall U.S. glatiramer acetate market (20 mg/mL and 40 mg/mL) based on total prescriptions. Because GLATOPA is a substitutable generic version of the once-daily 20 mg/mL formulation of COPAXONE and not the three-times-weekly COPAXONE, the market potential of GLATOPA is negatively impacted by the conversion of patients from once-daily COPAXONE to three-times-weekly COPAXONE. Teva reported $4.0 billion in worldwide sales of COPAXONE (20 mg/mL and 40 mg/mL) in 2015 , $3.2 billion of which was from the United States.
 
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.

Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three months ended September 30, 2016 or the three months ended September 30, 2015 , and therefore we recorded no product revenue for Enoxaparin Sodium Injection in those periods.
 
Due to increased generic competition and resulting decreased market pricing for generic enoxaparin sodium injection products, we do not anticipate significant Enoxaparin Sodium Injection product revenue in the near future.
 
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 under the Sandoz and Baxalta collaborations;
 
Reimbursement of research and development services and reimbursement of development costs under our Sandoz and Baxalta collaborations; and
 
Recognition of upfront arrangement consideration under our Baxalta and Mylan collaborations.
 
Research and development revenue was $5.8 million and $5.1 million for the three months ended September 30, 2016 and 2015 , respectively. The increase in research and development revenue of $0.7 million , or 14% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 was primarily due to $1.8 million of revenue recognized in the third quarter of 2016 from the amortization of the $45 million non-refundable, up-front payment under the Mylan Collaboration Agreement offset, by lower reimbursable FTE and external expenses for M923.
 
We expect collaborative research and development revenue earned by us related to FTE and external expense reimbursement from Baxalta and Sandoz will fluctuate from quarter to quarter in 2016 depending on our research and development activities. We expect to recognize the arrangement consideration under our collaboration with Mylan ratably as revenue over our performance period with a quarterly revenue amount of approximately $1.8 million. We expect to recognize the remaining balance of deferred revenue under our collaboration with Baxalta ratably as revenue over our remaining performance period with a quarterly revenue amount of approximately $3.7 million for the next three quarters and approximately $3.5 million in the third quarter of 2017.
 
Research and Development Expense
 

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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 acquiring reference comparator materials and manufacturing nonclinical study and clinical trial 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.
 
Beginning on February 9, 2016, under the Mylan Collaboration Agreement, we share collaboration expenses with Mylan. A portion of the net amount due from Mylan for its 50% share of collaboration expenses is recorded as a reduction in research and development expenses based on the nature of the cost reimbursement. Collaboration costs for development of the six biosimilar candidates under the collaboration incurred by us are recorded as research and development expense as incurred.

Research and development expense for the three months ended September 30, 2016 was $31.6 million , compared with $31.7 million for the three months ended September 30, 2015 . The decrease of $0.1 million , or 1% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 was due to a decrease of $7.7 million representing Mylan’s 50% share of biosimilar program collaboration costs, offset primarily by increases of: $3.2 million in third-party process development costs for our biosimilar programs under our collaboration with Mylan; $1.9 million in nonclinical study costs to advance our novel autoimmune programs; $1.8 million in necuparanib Phase 2 clinical trial costs due in part to the termination of the development program; $0.3 million in personnel-related expenses; $0.2 million in laboratory expenses; and $0.1 million in expenses for rent and maintenance of facilities.
 
The lengthy process of securing FDA approval for generics, biosimilars and new drugs 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, in thousands, the primary components of our research and development external expenditures, including the amortization of our intangible asset, for each of our principal development programs for the three months ended September 30, 2016 and 2015 . 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.
 

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Phase of Development as of
 
Three Months Ended September 30,
 
Project 
Inception to 
 
September 30, 2016
 
2016
 
2015
 
September 30, 2016
External Costs Incurred by Product Candidate:
 
 
 

 
 

 
 

GLATOPA and M356—Generic COPAXONE ®  (20 mg/mL and 40 mg/mL)
ANDAs filed(1)
 
$
349

 
$
274

 
$
50,506

Necuparanib
(2)
 
3,474

 
3,901

 
45,640

Biosimilars
Various(3)
 
10,085

 
4,277

 
101,888

Other novel therapeutic programs
Various(4)
 
6,189

 
4,742

 
 

Internal Costs
 
 
19,143

 
18,539

 
 

Subtotal
 
 
$
39,240

 
$
31,733

 
 
Less: Reimbursable from Mylan(5)
 
 
(7,672
)
 

 
 
Total Research and Development Expenses(5)
 
 
$
31,568

 
$
31,733

 
 

 
(1)
On April 16, 2015, the FDA approved the ANDA for once-daily GLATOPA. Sandoz launched GLATOPA on June 18, 2015. The ANDA for M356 is under FDA review.
 
(2)
On August 3, 2016, we discontinued further accrual of our Part B, or Phase 2, portion of our Phase 1/2 clinical trial evaluating necuparanib in combination with nab-paclitaxel (ABRAXANE ® ) and gemcitabine in patients with advanced metastatic pancreatic cancer. The decision to discontinue enrollment was based on the recommendation of the independent Data Safety Monitoring Board for the trial following the outcome of a planned interim futility analysis. On August 22, 2016, after confirming the results of the futility analysis and reviewing the unblinded safety and efficacy data and the results of various sensitivity and subgroup analyses, we decided to discontinue the necuparanib program.

(3)
Biosimilars include M923, a biosimilar candidate of HUMIRA ® (adalimumab), M834, a biosimilar candidate of ORENCIA ® (abatacept), as well as five other biosimilar candidates. Enrollment in a Baxalta-initiated pivotal clinical trial of M923 in patients with chronic plaque psoriasis was completed in April 2016. We initiated a Phase 1 clinical trial of M834 in November 2016. Our other biosimilar candidates are in discovery and process development.
 
(4)
Other novel therapeutic programs include M281, for which a Phase 1 dosing study was initiated in 2016; M230, for which we expect to initiate a clinical trial in 2017; hsIVIg; as well as other discovery and nonclinical stage programs.

(5)
As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, we offset approximately $7.7 million against research and development costs during the three months ended September 30, 2016 .

GLATOPA and M356 external expenditures increased by $0.1 million , or 27% from the three months ended September 30, 2015 to the three months ended September 30, 2016 as we continued to support our M356 ANDA filing. The decrease in our necuparanib external expenditures of $0.4 million , or 11% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 was due to winding down the Phase 2 clinical trial. External expenditures for our biosimilars programs increased by $5.8 million , or 136% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 due to an increase in development costs as we advance our biosimilars programs, including M834, under our collaboration with Mylan. The increase of $1.4 million , or 31% , in other novel therapeutic program external expenditures from the three months ended September 30, 2015 to the three months ended September 30, 2016 was due to Phase 1 clinical trial costs for M281 and nonclinical and process development costs to advance M230 towards the clinic. Finally, internal costs increased by $0.6 million , or 3% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 primarily due to headcount-related costs.
 
Due to the variability in the length of time necessary to develop a product, the uncertainties related to the estimated cost of the projects and ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate cost to bring our product candidates to market are not available.
 
General and Administrative Expense
 
General and administrative expenses consist primarily of salaries 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.
 

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Beginning on February 9, 2016, under our collaboration agreement with Mylan we share collaboration expenses. A portion of the net amount due from Mylan for its 50% share of collaboration expenses under the cost-sharing arrangement is recorded as a reduction in general and administrative expenses based on the nature of the cost reimbursement. Collaboration costs for certain legal expenses for the six biosimilar candidates under the collaboration incurred by us are recorded as general and administrative expense as incurred.
 
General and administrative expense for the three months ended September 30, 2016 was $15.8 million , compared with $12.5 million for the three months ended September 30, 2015 . The increase of $3.3 million , or 26% , from the three months ended September 30, 2015 to the three months ended September 30, 2016 was due to increases of $1.4 million in personnel-related expenses due to growth in our headcount; $1.5 million in professional fees including legal expenses, consulting fees and recruiting expenses; $0.4 million in stock-based compensation expense primarily due to performance-based restricted stock awards granted in 2016; and $0.4 million in expenses for rent and maintenance of facilities. These increases were offset by a decrease of $0.4 million representing Mylan’s 50% share of collaboration costs under the cost-sharing provisions of the Mylan Collaboration Agreement.
 
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 and development activities.
 
Other Income
 
Other income includes interest income, income related to a job creation tax award and other items of income. Interest income was $0.6 million and $0.3 million for the three months ended September 30, 2016 and 2015 , respectively. The increase of $0.3 million , or 100%, from the three months ended September 30, 2015 to the three months ended September 30, 2016 was caused by higher average investment balances due to 2015 fundraising activities.
 
Comparison of Nine Months Ended September 30, 2016 and 2015
 
Collaboration Revenue
 
GLATOPA ® —Generic COPAXONE ® (glatiramer acetate injection) 20 mg/mL
 
For the nine months ended September 30, 2016 , we recorded $58.8 million  in product revenues from Sandoz’ sales of GLATOPA. For the nine months ended September 30, 2015 , we recorded $27.9 million in product revenues from Sandoz’ sales of GLATOPA, reflecting $36.9 million in profits net of a deduction of $9.0 million for reimbursement to Sandoz of 50% of pre-launch GLATOPA-related legal expenses incurred by Sandoz since 2008. The increase in product revenues of $30.9 million , or 111% , from the nine months ended September 30, 2015 to the nine months ended September 30, 2016 was due primarily to higher GLATOPA units sold in the 2016 period.
 
Enoxaparin Sodium Injection—Generic LOVENOX ®  
 
Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the nine months ended September 30, 2016 , and therefore we recorded no product revenue for Enoxaparin Sodium Injection in the period. For the nine months ended September 30, 2015 , we earned $2.8 million in product revenue consisting of $2.7 million in royalties earned in the first quarter of 2015 on Sandoz’ reported net sales of Enoxaparin Sodium Injection of $25.9 million and $0.1 million in second quarter 2015 profits, net of a claw-back adjustment of $0.1 million. The decrease in our product revenue was $2.8 million , or 100% , from the nine months ended September 30, 2015 to the nine months ended September 30, 2016 and was attributed to the change in our collaboration economics and lower unit sales driven by lower market share and lower prices in response to competitor pricing reductions on enoxaparin.
 
Research and Development Revenue
  
Research and development revenue was $16.6 million and $36.6 million for the nine months ended September 30, 2016 and 2015 , respectively. The decrease in research and development revenue of $20.0 million , or 55% , from the nine months ended September 30, 2015 to the nine months ended September 30, 2016 was primarily due to $20.0 million in milestone payments we earned in the second quarter of 2015 upon GLATOPA being the sole generic of COPAXONE 20 mg/mL to receive FDA approval in April 2015 and upon first commercial sale of GLATOPA in June 2015.
 
Research and Development Expense

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Beginning on February 9, 2016, under the Mylan Collaboration Agreement, we share collaboration expenses with Mylan. A portion of the net amount due from Mylan for its 50% share of collaboration expenses is recorded as a reduction in research and development expenses based on the nature of the cost reimbursement. Collaboration costs for development of the six biosimilar candidates under the collaboration incurred by us are recorded as research and development expense as incurred.

Research and development expense for the nine months ended September 30, 2016 was $93.5 million , compared with $88.5 million for the nine months ended September 30, 2015 . The increase of $5.0 million , or 6% , from the nine months ended September 30, 2015 to the nine months ended September 30, 2016 primarily resulted from increases of: $12.1 million in third-party research and process development costs primarily attributable to advance our biosimilar and novel autoimmune programs; $5.5 million in personnel-related expenses, of which $1.8 million is due to increased headcount and $3.4 million is primarily attributed to share-based compensation expense associated with performance-based restricted stock awards granted in 2016 that increased the amount of research and development expenses we recorded; $3.1 million in nonclinical study costs for M281 and M834; $2.9 million in costs for the Phase 1 clinical study for M281, the Phase 2 clinical trial for necuparanib and start-up costs for the Phase 1 clinical study of M834; $0.8 million in expenses for rent and maintenance of facilities, depreciation and amortization of leasehold improvements and equipment; and $0.4 million in intangible amortization. These increases were partially offset by a decrease of $19.8 million for Mylan’s 50% share of collaboration costs under the cost-sharing provisions of the Mylan Collaboration Agreement.
  
The following table sets forth, in thousands, the primary components of our research and development external expenditures, including the amortization of our intangible asset, for each of our principal development programs for the nine months ended September 30, 2016 and 2015 . 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. </