Momenta Pharmaceuticals, Inc.
MOMENTA PHARMACEUTICALS INC (Form: 10-Q, Received: 08/04/2017 16:06:03)
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(MARK ONE)
 
x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2017
 
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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer  x
 
Accelerated filer  ¨
 
 
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
 
 
 
Emerging growth company  ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
 
As of July 26, 2017 , there were 76,231,229 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
 


Table of Contents

MOMENTA PHARMACEUTICALS, INC.

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of  June 30, 2017 and December 31, 2016
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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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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,” “considering,” “contemplate,” “continue,” “could,” “determine,” “ensure,” “estimate,” “expect,” “goal,” “guidance,” “intend,” “likely,” “may,” “might,” “objective,” “opportunity,” “plan,” “possible,” “potential”, “predict,” “progress,” “project,” “pursue,” “seek,” “schedule,” “should,” “strategy,” “target,” “typically,” “will,” “working toward,” “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 and novel therapeutic programs; the timing of clinical trials and the availability and timing of reporting results; the timing of launch of products and product candidates, including GLATOPA ® (glatiramer acetate injection) 40 mg/mL; market potential and product revenues of our products and product candidates, including GLATOPA and Enoxaparin Sodium Injection; the timing, merits, strategy, impact and outcome of, and decisions regarding, legal and regulatory proceedings; collaboration revenues and research and development revenues; manufacturing, including statements regarding Sandoz' third party fill/finish manufacturer for GLATOPA, Pfizer Inc.; the FDA warning letter received by Sandoz' third party fill/finish manufacturer for GLATOPA, Pfizer Inc.; timing of regulatory filings, reviews and approvals, including the timing of the regulatory review and approval of the GLATOPA 40 mg/mL ANDA; 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; 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, costs, 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, including Sandoz' third party fill/finish manufacturer for GLATOPA, Pfizer Inc.; the competitive landscape; changes in, impact of and compliance with laws, rules and regulations; product reimbursement policies and trends; pricing of pharmaceutical products, including our products and product candidates; our stock price; our intellectual property strategy and position; sufficiency of insurance; attracting and retaining qualified personnel; our internal controls and procedures; acquisitions or investments in companies, products and technologies; entering into collaboration and/or license arrangements; marketing plans; financing our planned operating and capital expenditure; the terms and conditions of our facility leases; materials used in our research and development; royalty rates; our collaborators' plans; and vesting of equity awards.
 
Any forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Important factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
    
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.


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PART I. FINANCIAL INFORMATION
 
Item 1.    FINANCIAL STATEMENTS

MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
June 30, 2017
 
December 31, 2016
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
110,841

 
$
150,738

Marketable securities
335,704

 
202,413

Collaboration receivable
24,806

 
70,242

Restricted cash
2,412

 

Prepaid expenses and other current assets
7,864

 
4,607

Total current assets
481,627

 
428,000

Marketable securities, long-term
10,279

 

Property and equipment, net
23,905

 
20,847

Restricted cash, long-term
19,349

 
21,761

Intangible assets, net
4,613

 
5,189

Other long-term assets
1,033

 
1,940

 
 
 
 
Total assets
$
540,806

 
$
477,737

 
 
 
 
Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
12,053

 
$
3,632

Accrued expenses
30,924

 
26,866

Collaboration advance
20,359

 
32,895

Deferred revenue
54,694

 
7,272

Other current liabilities
26

 
11

Total current liabilities
118,056

 
70,676

Deferred revenue, net of current portion
30,761

 
31,360

Other long-term liabilities
5,128

 
3,793

Total liabilities
153,945

 
105,829

Commitments and contingencies (Note 8)


 


Stockholders’ Equity:
 

 
 

Common stock, $0.0001 par value per share; 100,000 shares authorized, 76,447 shares issued and 76,218 shares outstanding at June 30, 2017 and 71,305 shares issued and 71,076 outstanding at December 31, 2016
8

 
7

Additional paid-in capital
932,797

 
848,304

Accumulated other comprehensive (loss) income
(5
)
 
86

Accumulated deficit
(542,825
)
 
(473,375
)
Treasury stock, at cost, 229 shares
(3,114
)
 
(3,114
)
 
 
 
 
Total stockholders’ equity
386,861

 
371,908

 
 
 
 
Total liabilities and stockholders’ equity
$
540,806

 
$
477,737


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

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MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Collaboration revenues:
 

 
 

 
 
 
 
Product revenue
$
19,140

 
$
20,692

 
$
42,544

 
$
35,492

Research and development revenue
4,430

 
5,738

 
7,640

 
10,788

Total collaboration revenue
23,570

 
26,430

 
50,184

 
46,280

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Research and development
39,063

 
33,173

 
75,164

 
61,930

General and administrative
22,572

 
14,896

 
45,677

 
30,543

Total operating expenses
61,635

 
48,069

 
120,841

 
92,473

 
 
 
 
 
 
 
 
Operating loss
(38,065
)
 
(21,639
)
 
(70,657
)
 
(46,193
)
 
 
 
 
 
 
 
 
Other income, net
1,157

 
653

 
1,990

 
1,195

 
 
 
 
 
 
 
 
Net loss
$
(36,908
)
 
$
(20,986
)
 
$
(68,667
)
 
$
(44,998
)
 
 
 
 
 
 
 
 
Basic and diluted net loss per share
$
(0.50
)
 
$
(0.31
)
 
$
(0.96
)
 
$
(0.66
)
 
 
 
 
 
 
 
 
Weighted average shares used in computing basic and diluted net loss per share
73,379

 
68,532

 
71,555

 
68,409

 
 
 
 
 
 
 
 
Comprehensive loss:
 

 
 

 
 
 
 
Net loss
$
(36,908
)
 
$
(20,986
)
 
$
(68,667
)
 
$
(44,998
)
Net unrealized holding (losses) gains on available-for-sale marketable securities
(25
)
 
149

 
(91
)
 
282

Comprehensive loss
$
(36,933
)
 
$
(20,837
)
 
$
(68,758
)

$
(44,716
)

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


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MOMENTA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 
Six Months Ended June 30,
 
2017
 
2016
Cash Flows from Operating Activities:
 

 
 

Net loss
$
(68,667
)
 
$
(44,998
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization of property and equipment
3,046

 
3,804

Share-based compensation expense
11,393

 
9,817

Amortization of premium on investments
111

 
429

Amortization of intangibles
576

 
898

Changes in operating assets and liabilities:
 

 
 

Collaboration receivable
45,436

 
(14,677
)
Prepaid expenses and other current assets
(2,220
)
 
(606
)
Other long-term assets
907

 
(688
)
Accounts payable
8,988

 
8,086

Accrued expenses
3,106

 
(8,811
)
Collaboration advance
(12,536
)
 

Deferred revenue
46,823

 
37,350

Other current liabilities
15

 
(338
)
Other long-term liabilities
1,335

 
895

 
 
 
 
Net cash provided by (used in) operating activities
38,313

 
(8,839
)
 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Purchases of property and equipment
(5,719
)
 
(3,704
)
Purchases of marketable securities
(269,392
)
 
(221,982
)
Proceeds from maturities of marketable securities
125,620

 
261,726

 
 
 
 
Net cash (used in) provided by investing activities
(149,491
)
 
36,040

 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Net proceeds from issuance of common stock under ATM facility
64,090

 

Proceeds from issuance of common stock under stock plans
7,191

 
627

Repurchase of common stock pursuant to share surrender

 
(1,065
)
 
 
 
 
Net cash provided by (used in) financing activities
71,281

 
(438
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(39,897
)
 
26,763

Cash and cash equivalents, beginning of period
150,738

 
61,461

Cash and cash equivalents, end of period
$
110,841

 
$
88,224

 
 
 
 
Non-Cash Investing/Financing Activities:
 
 
 
Purchases of property and equipment included in accounts payable and accrued expenses
$
1,320

 
$
505

Common shares issued to Parivid to settle milestone payment

$

 
$
2,868

Receivable due from stock option exercises
$
1,037

 
$

Impact of adopting ASU 2016-09
$
783

 
$

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

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MOMENTA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED, CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. The Company
 
Business  
Momenta Pharmaceuticals, Inc., referred to as Momenta or the Company, was incorporated in the state of Delaware in May 2001 and began operations in early 2002. Its facilities are located in Cambridge, Massachusetts. Momenta is a biotechnology company focused on developing 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, 2016 , 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 24, 2017. 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 subsidiaries, Momenta Pharmaceuticals Securities Corporation and Momenta Ireland Limited. 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 June 30, 2017 , 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; Mylan Ireland Limited, a wholly-owned, indirect subsidiary of Mylan N.V., or Mylan; and CSL Behring Recombinant Facility AG, or CSL, a wholly-owned indirect subsidiary of CSL Limited.
 

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The Company evaluates its arrangements pursuant to Accounting Standards Codification, or ASC, on Collaborative Arrangements, or ASC 808, and 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 either when the final deliverable is delivered to the customer or on a straight-line basis over the contracted or estimated period of performance if there are multiple deliverables that are satisfied over time. 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

8


the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in 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 on Sandoz’ Sales of Enoxaparin Sodium Injection and GLATOPA ® 20 mg/mL
 
Profit share revenue is reported as product revenue and is recognized based upon 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 and 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 Sandoz 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.

Collaboration Costs and Reimbursements

Under its collaborations, the Company incurs employee expenses as well as external costs for development and commercial activities, presented as operating expenses. Reimbursements of those costs under the Company’s collaboration arrangements may be presented as revenue or a reduction of operating expenses, depending on the nature of responsibilities of each party under the collaboration.

Under the Company’s collaboration with Mylan, because the collaboration arrangement is a cost sharing arrangement with shared responsibilities, reimbursement by Mylan for its share of the development effort is presented as a reduction of operating expense. Similarly, amounts owed to Mylan to reimburse them for the Company’s share of their costs incurred are recorded as an operating expense.

Under the Company’s collaborations with Sandoz, since the Company contracts directly with, manages the work of and is responsible for payments to third-party vendors for services the Company is obligated to provide to Sandoz, the reimbursements for such services are recorded as revenues on a gross basis. Revenues are recognized upon completion of the services.

Under the Company’s collaboration with CSL, since the Company contracts directly with, manages the work of and is responsible for payments to third-party vendors for services the Company is obligated to provide to CSL, the reimbursements for such services are recorded as revenues on a gross basis. Revenues are recognized upon completion of the services performed. Under the arrangement, the Company incurs certain reimbursable materials costs on CSL's behalf, which are netted against research and development expense.  

Collaboration Receivable
 
Collaboration receivable represents:
 
Amounts due to the Company for its contractual profit share on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL;

Amounts due to the Company for reimbursement of research and development services and certain external costs under the collaborations with Sandoz and CSL, and, where applicable, the former collaboration with Baxalta;

Amounts due from Mylan for its 50% share of certain collaboration expenses under the cost-sharing provisions of the Mylan Collaboration Agreement that are not funded through the continuation payments; and

As of December 31, 2016 , the $51.2 million asset return payment due from Baxalta, as discussed in Note 5, " Collaboration and License Agreements. " In January 2017, the Company received the $51.2 million payment from Baxalta.
 

9


The Company has not recorded any allowance for uncollectible accounts or bad debt write-offs and it monitors its receivables to facilitate timely payment.

Collaboration Advance

Collaboration advance represents payments received from Mylan that will be applied to amounts due from Mylan in future periods for the funding of Mylan's 50% share of certain collaboration expenses under the cost-sharing provisions of the Mylan Collaboration Agreement.
 
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.
 
Adoption of ASU No. 2016-09

On January 1, 2017, the Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting and made an entity-wide accounting policy election to account for award forfeitures as they occur. As a result, the Company recorded a cumulative opening adjustment to accumulated deficit and additional paid-in capital of $0.8 million . The amended guidance also eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized in additional paid-in capital. This created approximately $5.3 million of deferred tax assets relating to federal and state net operating losses that are fully offset by a corresponding increase in the valuation allowance. As a result, there was no cumulative effect adjustment to accumulated deficit.

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 stock awards and units. 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 awards and units determined by applying the treasury stock method.
 
The following table presents anti-dilutive shares for the three and six months ended June 30, 2017 and 2016 (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Weighted-average anti-dilutive shares related to:
 

 
 

 
 
 
 
Outstanding stock options
4,784

 
7,156

 
4,273

 
6,908

Restricted stock awards
1,467

 
1,323

 
1,542

 
829

 
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 six months ended June 30, 2017 and 2016 . 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, approximately 1.3 million of performance-based restricted common stock awards that were granted between April 2016 and June 30, 2017 had not vested as of June 30, 2017 , and were excluded from diluted shares outstanding as the vesting conditions for the awards, discussed further in Note 6 “ Share-Based Payments -- Restricted Stock and Restricted Stock Units ,” had not been met as of June 30, 2017 .
 
Fair Value Measurements
 
The tables below present information about the Company’s assets that are regularly measured and carried at fair value as of June 30, 2017 and December 31, 2016 , and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

10


Description
 
Balance as of
June 30, 2017
 
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
 
$
98,090

 
$
69,090

 
$
29,000

 
$

Marketable securities:
 
 

 
 

 
 

 
 

U.S. government-sponsored enterprise securities
 
2,187

 

 
2,187

 

Corporate debt securities
 
135,838

 

 
135,838

 

Commercial paper obligations
 
131,180

 

 
131,180

 

Asset-backed securities
 
76,778

 

 
76,778

 

 
 
 
 
 
 
 
 
 
Total
 
$
444,073

 
$
69,090

 
$
374,983

 
$

 
Description
 
Balance as of
December 31, 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
 
$
145,510

 
$
121,510

 
$
24,000

 
$

Marketable securities:
 
 

 
 

 
 

 
 

Corporate debt securities
 
47,906

 

 
47,906

 

Commercial paper obligations
 
84,436

 

 
84,436

 

Asset-backed securities
 
70,071

 

 
70,071

 

 
 
 
 
 
 
 
 
 
Total
 
$
347,923

 
$
121,510

 
$
226,413

 
$

 
The Company held $29.0 million and $24.0 million in overnight repurchase agreements as of June 30, 2017 and December 31, 2016 , respectively. The instruments are classified as Level 2 due to the collateral including both U.S. government-sponsored enterprise securities and treasury instruments.

There have been no impairments of the Company’s assets measured and carried at fair value during the three and six months ended June 30, 2017 and 2016 . In addition, there were no changes in valuation techniques or transfers between the fair value measurement levels during the three and six months ended June 30, 2017 . 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, 2016 . The carrying amounts reflected in the Company’s consolidated balance sheets for cash, collaboration receivable, 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 composed of money market funds and overnight repurchase agreements. Money market funds are carried at fair value, which approximate cost at June 30, 2017 and December 31, 2016 . Overnight repurchase agreement yields are comparable to money market funds where principal and interest on the instruments is due the next day.

The Company classifies corporate debt securities, commercial paper and asset-backed securities as short-term and long-term marketable securities in its consolidated financial statements. See Note 2 “ Summary of Significant Accounting Policies --

11


Cash, Cash Equivalents and Marketable Securities ” to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the Company’s accounting policies.
 
The following tables summarize the Company’s cash, cash equivalents and marketable securities as of June 30, 2017 and December 31, 2016 (in thousands):
 
As of June 30, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
110,841

 
$

 
$

 
$
110,841

U.S. government-sponsored enterprise securities due in one year or less
 
2,188

 

 
(1
)
 
2,187

Corporate debt securities due in one year or less
 
135,889

 
1

 
(52
)
 
135,838

Commercial paper obligations due in one year or less
 
131,102

 
78

 

 
131,180

Asset-backed securities due in one year or less
 
66,519

 

 
(20
)
 
66,499

Asset-backed securities due in two years or less
 
10,290

 

 
(11
)
 
10,279

 
 
 
 
 
 
 
 
 
Total
 
$
456,829

 
$
79

 
$
(84
)
 
$
456,824

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
110,841

 
$

 
$

 
$
110,841

Marketable securities
 
345,988

 
79

 
(84
)
 
345,983

 
 
 
 
 
 
 
 
 
Total
 
$
456,829

 
$
79

 
$
(84
)
 
$
456,824

 
As of December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
150,738

 
$

 
$

 
$
150,738

Corporate debt securities due in one year or less
 
47,942

 

 
(36
)
 
47,906

Commercial paper obligations due in one year or less
 
84,301

 
135

 

 
84,436

Asset-backed securities due in one year or less
 
70,084

 
1

 
(14
)
 
70,071

 
 
 
 
 
 
 
 
 
Total
 
$
353,065

 
$
136

 
$
(50
)
 
$
353,151

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
150,738

 
$

 
$

 
$
150,738

Marketable securities
 
202,327

 
136

 
(50
)
 
202,413

 
 
 
 
 
 
 
 
 
Total
 
$
353,065

 
$
136

 
$
(50
)
 
$
353,151


At June 30, 2017 and December 31, 2016 , the Company held 59 and 31 marketable securities, respectively, that were in a continuous unrealized loss position for less than one year. As the unrealized losses on these securities were caused by fluctuations in interest rates, the Company concluded that no other-than-temporary impairment exists with respect to these securities. At June 30, 2017 and December 31, 2016 , 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 June 30, 2017 and December 31, 2016 (in thousands):

12


 
 
 
As of June 30, 2017
 
As of December 31, 2016
 
 
Aggregate
Fair Value
 
Unrealized
Losses
 
Aggregate
Fair Value
 
Unrealized
Losses
Corporate debt securities due in one year or less
 
$
123,068

 
$
(52
)
 
$
47,906

 
$
(36
)
Asset-backed securities due in one year or less
 
$
64,998

 
$
(20
)
 
$
60,787

 
$
(14
)
Asset-backed securities due in two years or less
 
$
10,279

 
$
(11
)
 
$

 
$

U.S. Government-sponsored enterprise due in one year or less
 
$
2,187

 
$
(1
)
 
$

 
$

 
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
 
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date.

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. The FASB has subsequently issued the following amendments to ASU 2014-09, which have the same effective date and transition date of January 1, 2018:

In August 2015 the FASB issued ASU No. 2015-14, Revenue 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 collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers.

In December 2016 the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU No. 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.


13


The Company expects to adopt the new standard using the modified retrospective method as permissible under the transitional provisions of Topic 606 for all contracts not yet completed as of the effective date. The modified retrospective method applies the guidance retrospectively only to the most current period presented in the financial statements, recognizing the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings (or deficit) at the date of initial application. The Company continues to progress its analysis of its arrangements with Sandoz, Mylan and CSL under the new accounting standard. As of June 30, 2017, the Company is unable to estimate the expected financial statement impact of applying the new standard to these arrangements. During the second half of 2017, the Company plans to finalize its analysis to determine the impact this standard may have on its results of operations, financial position and disclosures.

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 August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which simplifies certain elements of cash flow classification. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of the ASU will have on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, or ASU 2016-18. The amendments in ASU 2016-18 require an entity to reconcile and explain the period-over-period change in total cash, cash equivalents and restricted cash within its statements of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within, beginning after December 15, 2017. Early adoption is permitted. A reporting entity must apply the amendments in ASU 2016-18 using a full retrospective approach. The Company is currently evaluating the impact the adoption of the ASU will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which amended guidance related to business combinations. The amended guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new accounting guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company early adopted this new guidance as of January 1, 2017 and will apply this new guidance to any future acquisitions.  

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting or ASU 2017-09. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 introduces guidance that an entity should account for the effects of a modification unless all the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified and if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted, applied prospectively to an award modified on or after the adoption date. The Company early adopted this new guidance as of July 1, 2017 and has applied this new guidance prospectively to any modifications to share-based payment awards.

3. Intangible Assets

Intangible assets consist solely of the core developed technology assets acquired from Parivid. See Note 6 “ Intangible Assets ” to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the Parivid agreement.

The intangible assets are being amortized using the straight-line method over the estimated useful life of GLATOPA 20 mg/mL of approximately six years through June 2021. As of June 30, 2017 and December 31, 2016 , intangible assets, net of accumulated amortization, were as follows (in thousands):

14


 
 
 
June 30, 2017
 
December 31, 2016
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
Intangible assets
 
$
13,617

 
$
(9,004
)
 
$
4,613

 
$
13,617

 
$
(8,428
)
 
$
5,189

 
Amortization expense was approximately $0.3 million and $0.6 million for the three months ended June 30, 2017 and 2016 , respectively. Amortization expense was approximately $0.6 million and $0.9 million for the six months ended June 30, 2017 and 2016 , respectively.  
The Company expects to incur amortization expense of approximately $1.2 million per year for the next four years.  
4. Restricted Cash  
The Company designated $17.5 million as collateral for a security bond posted in the litigation against Amphastar and International Medical Systems, Ltd., a wholly owned subsidiary of Amphastar Pharmaceuticals, Inc. Additional information regarding the litigation is discussed within Note 8 " Commitments and Contingencies ." 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 is therefore classified as 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 is therefore classified as non-current in the Company's consolidated balance sheet. The Company will earn interest on the balance.
The Company designated $1.1 million as collateral for a letter of credit related to the lease of office and laboratory space located on the fifth floor of 301 Binney Street in Cambridge, Massachusetts. This balance will remain restricted through June 2025 and is therefore 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 June 30, 2017 , the Company had collaboration and license agreements with Sandoz, Sandoz AG, Mylan and CSL. M923, the Company's biosimilar HUMIRA ® (adalimumab) candidate, was previously developed in collaboration with Baxalta under the Baxalta Collaboration Agreement, as defined below. The Baxalta Collaboration Agreement was terminated effective December 31, 2016 .
 
The Company records product revenue based on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL.
 
Research and development revenue generally consists of amounts earned by the Company under its collaborations for technical development, regulatory and commercial milestones; reimbursement of research and development services and reimbursement of development costs under its collaborative arrangements; and recognition of the arrangement consideration.
 
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 Company is also reimbursed for certain costs under the arrangement with CSL, and such amounts are also recorded as revenue or reductions 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 FASB’s Accounting Standards Codification Topic 808, Collaborative Arrangements.

15



The amounts in operating expenses 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. The dollar amounts in the tables below are in thousands.
 
 
 
For the Three Months Ended June 30, 2017
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement (1)
 
CSL License Agreement (2)
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 
 
 
 
 

Product revenue
 
$

 
$
19,140

 
$

 
$

 
$
19,140

Research and development revenue:
 
 

 
 

 
 

 
 
 
 

Recognition of upfront payments
 

 

 
1,381

 

 
1,381

Research and development services and external costs
 
1,799

 
529

 

 
721

 
3,049

Total research and development revenue
 
1,799

 
529

 
1,381

 
721

 
4,430

Total collaboration revenues
 
$
1,799

 
$
19,669

 
$
1,381

 
$
721

 
$
23,570

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Research and development expense
 
$
411

 
$
888

 
$
17,070

 
$
2,276

 
$
20,645

General and administrative expense
 
5,080

 
213

 
962

 
41

 
6,296

   Less: reimbursable costs
 

 

 
(7,214
)
 
(3,496
)
 
(10,710
)
Total operating expenses
 
$
5,491

 
$
1,101

 
$
10,818

 
$
(1,179
)
 
$
16,231



 
 
For the Three Months Ended June 30, 2016
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement (1)
 
Baxalta
Collaboration
Agreement (3)
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 
 
 

 
 

Product revenue
 
$

 
$
20,692

 
$

 
$

 
$
20,692

Research and development revenue:
 
 

 
 

 
 
 
 

 
 

Recognition of upfront payments
 

 

 
1,843

 
2,442

 
4,285

Research and development services and external costs
 
61

 
739

 

 
653

 
1,453

Total research and development revenue
 
61

 
739

 
1,843

 
3,095

 
5,738

Total collaboration revenues
 
$
61

 
$
21,431

 
$
1,843

 
$
3,095

 
$
26,430

Operating expenses:
 
 

 
 

 
 
 
 

 
 

Research and development expense
 
$

 
$
1,001

 
$
16,816

 
$
164

 
$
17,981

General and administrative expense
 
469

 
180

 
904

 
42

 
1,595

   Less: reimbursable costs

 

 

 
(8,860
)
 

 
(8,860
)
Total operating expenses
 
$
469

 
$
1,181

 
$
8,860

 
$
206

 
$
10,716




16


 
 
For the Six Months Ended June 30, 2017
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement (1)
 
CSL License Agreement (2)
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 
 
 
 
 

Product revenue
 
$

 
$
42,544

 
$

 
$

 
$
42,544

Research and development revenue:
 
 
 
 
 
 
 
 
 
 
Recognition of upfront payments
 

 

 
3,177

 

 
3,177

Research and development services and external costs
 
2,762

 
980

 

 
721

 
4,463

Total research and development revenue
 
2,762

 
980

 
3,177

 
721

 
7,640

Total collaboration revenues
 
$
2,762

 
$
43,524

 
$
3,177

 
$
721

 
$
50,184

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development expense
 
$
1,937

 
$
1,153

 
$
29,672

 
$
4,571

 
$
37,333

General and administrative expense
 
9,630

 
237

 
1,492

 
62

 
11,421

   Less: reimbursable costs
 

 

 
(12,936
)
 
(3,496
)
 
(16,432
)
Total operating expenses
 
$
11,567

 
$
1,390

 
$
18,228

 
$
1,137

 
$
32,322



 
 
For the Six Months Ended June 30, 2016
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement (1)
 
Baxalta
Collaboration
Agreement (3)
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 
 
 
 
 

Product revenue
 
$

 
$
35,492

 
$

 
$

 
$
35,492

Research and development revenue:
 
 
 
 
 
 
 
 
 
 
Recognition of upfront payments
 

 

 
2,765

 
4,884

 
7,649

Research and development services and external costs
 
138

 
1,384

 

 
1,617

 
3,139

Total research and development revenue
 
138

 
1,384

 
2,765

 
6,501

 
10,788

Total collaboration revenues
 
$
138

 
$
36,876

 
$
2,765

 
$
6,501

 
$
46,280

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development expense
 
$

 
$
1,294

 
$
24,176

 
$
478

 
$
25,948

General and administrative expense
 
1,533

 
275

 
1,128

 
324

 
3,260

   Less: reimbursable costs

 

 

 
(12,652
)
 

 
(12,652
)
Total operating expenses
 
$
1,533

 
$
1,569

 
$
12,652

 
$
802

 
$
16,556


 
(1)
The Mylan Collaboration Agreement, as defined below, became effective on February 9, 2016. As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, the Company offset approximately $6.8 million and $8.4 million , respectively, against research and development costs and $0.5 million and $0.5 million , respectively, against general and administrative expenses during the three months ended June 30, 2017 and June 30, 2016 . During the six months ended June 30, 2017 and June 30, 2016 , the Company offset approximately $12.3 million and $12.1 million , respectively, against research and development costs and $0.6 million and $0.6 million , respectively, against general and administrative expenses.
(2)
The CSL License Agreement, as defined below, became effective on February 17, 2017. Research and development expenses were reduced by $3.5 million of reimbursable M230 material costs incurred since February 17, 2017.
(3)
The Baxalta Collaboration Agreement was terminated effective December 31, 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

17


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. 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. Due to increased generic competition and resulting decreased market pricing for generic enoxaparin sodium injection products, Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three and six months ended June 30, 2017 and 2016 , and therefore the Company recorded no product revenue for Enoxaparin Sodium Injection in those periods. The Company recognized research and development revenue from full-time equivalent, or FTE, services and external costs of $1.8 million and $0.1 million in the three months ended June 30, 2017 and 2016 , respectively. The Company recognized research and development revenue from FTE services and external costs of $2.8 million and $0.1 million in the six months ended June 30, 2017 and 2016 , respectively.

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. Under the 2006 Sandoz Collaboration Agreement, the Company and Sandoz AG agreed to exclusively collaborate on the development and commercialization of GLATOPA, 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, the Company is generally responsible for all of the development costs in the United States. For GLATOPA outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed 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 borne by Sandoz. All commercialization costs are borne by Sandoz.

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 may terminate the 2006 Sandoz Collaboration Agreement with respect to GLATOPA 40 mg/mL, if clinical trials are required for regulatory approval of GLATOPA 40 mg/mL.
 
Sandoz commenced sales of GLATOPA 20 mg/mL 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 20 mg/mL. The Company is entitled to earn 50% of contractually defined profits on Sandoz’ worldwide net sales of GLATOPA 40 mg/mL, if and when GLATOPA 40 mg/mL is commercialized. Profits on net sales of GLATOPA are calculated by deducting from net sales the costs of goods sold and an allowance for selling, general and administrative costs, which is a contractual percentage of net sales. With respect to GLATOPA, Sandoz is responsible for funding all of the legal expenses incurred under the 2006 Sandoz Collaboration Agreement, except for FTE costs with respect to certain legal activities for GLATOPA; 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 June 30, 2017 , the Company recorded $19.1 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL. For the six months ended June 30, 2017 , the Company recorded $42.5 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL. The Company recognized research and development revenue from FTE services and external costs of $0.5 million and $0.7 million in the three months ended June 30, 2017 and 2016 , respectively. The Company recognized research and development revenue from FTE services and external costs of $1.0 million and $1.4 million in the six months ended June 30, 2017 and 2016 , respectively. On July 1, 2017, the Company earned a $10 million milestone payment in connection with GLATOPA 20 mg/mL's continuing to be the sole FDA-approved generic of COPAXONE ® (glatiramer acetate injection) and achieving a certain level of contractually defined profits in the United States The Company is eligible to receive in the aggregate up to $110 million in additional milestone payments upon the achievement of certain commercial and sales-based milestones for GLATOPA in the United States. None of these payments, once received, is refundable and there are no general rights of return in the 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.
 
Baxalta Collaboration Agreement  


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The Company and Baxter International, Inc., Baxter Healthcare Corporation and Baxter Healthcare SA (or collectively referred to as Baxter) entered into a global collaboration and license agreement, or the Baxter Collaboration Agreement, effective February 2012, to develop and commercialize biosimilars, including M923. In connection with Baxter's internal corporate restructuring in July 2015, Baxter assigned the Baxter Collaboration Agreement to Baxalta U.S. Inc., Baxalta GmbH and Baxalta Incorporated, collectively referred to as Baxalta. Subsequent to the assignment, the Company refers to "Baxter" as "Baxalta" and the "Baxter Collaboration Agreement" as the "Baxalta Collaboration Agreement." 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, of which Baxalta US Inc. and Baxalta GmbH are wholly-owned subsidiaries, 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. On December 31, 2016 , the Company and Baxalta entered into an asset return and termination agreement, or the Baxalta Termination Agreement, which amended certain termination provisions of the Baxalta Collaboration Agreement and made the termination of that agreement effective as of December 31, 2016 . Baxalta was relieved of its obligations to continue to perform activities for M923 after December 31, 2016 , except for certain on-going clinical and regulatory activities, the majority of which have been completed, and in January 2017, Baxalta paid the Company a one-time cash payment of $51.2 million representing the costs Baxalta would have incurred in performing the activities it would have performed under Baxalta Collaboration Agreement through the original termination date.

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 worldwide basis, to develop, manufacture and commercialize six of the Company’s biosimilar candidates, including M834.

Under the terms of the Mylan Collaboration Agreement, Mylan paid the Company a non-refundable upfront payment of $45 million . In addition, the Company and Mylan equally share costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates, 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, two of which, totaling $60 million , the Company received in the year ended December 31, 2016 .
 
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

19


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 Topic 605, 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 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 associated with the upfront payment 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 five 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 June 30, 2017 , $35.5 million was deferred under this agreement, of which $4.7 million was included in current liabilities and $30.8 million was included in non-current liabilities in the consolidated balance sheet.
 
The Company and Mylan share collaboration expenses under the Mylan Collaboration Agreement. 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. Mylan's share of collaboration expenses is recorded as a collaboration receivable or collaboration advance in the consolidated balance sheet and a reduction in research and development and/or general and administrative expenses in the consolidated statements of operations and comprehensive loss, in accordance with the Company’s policy, which is consistent with the nature of the cost reimbursement.
 
Mylan will initially fund a portion of its 50% share of collaboration expenses through contingent milestone payments of up to $200 million across the six product candidates and any unused portion of the contingent payment(s) will be available to offset Mylan’s 50% share of future collaboration costs. 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. During the year ended December 31, 2016 , the Company received two milestone payments totaling $60 million , of which

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$20.4 million will be applied toward the funding of Mylan's 50% share of certain collaboration expenses to be incurred in 2017 and is included in collaboration advance in the Company's consolidated balance sheet. The Company is eligible to receive up to $140 million in additional contingent milestone payments from Mylan, of which the Company expects to receive $35 million in the next 12 months.

CSL License and Option Agreement

On January 5, 2017, the Company and CSL Behring Recombinant Facility AG, or CSL, a wholly-owned indirect subsidiary of CSL Limited, entered into a License and Option Agreement, or the CSL License Agreement, which became effective on February 17, 2017, pursuant to which the Company granted CSL an exclusive worldwide license to research, develop, and commercialize the Company’s M230 pre-clinical product candidate, an Fc multimer protein that is a selective immunomodulator of the Fc receptor. The CSL License Agreement also provides, on an exclusive basis, for the Company and CSL to conduct research on other Fc multimer proteins, and provides CSL the right to develop and commercialize these additional research products globally.

Pursuant to the terms of the CSL License Agreement, CSL paid the Company a non-refundable upfront payment of $50 million . For the development and commercialization of M230, the Company is eligible to receive up to $ 550 million in contingent clinical, regulatory and sales milestone payments, and additional negotiated milestone payments for a named research stage product should that enter development. The Company is also entitled to sales-based royalty payments in percentages ranging from a mid-single digit to low-double digits for M230 and a named research stage product should that enter development and be commercialized, and royalties and development milestone payments to be negotiated for any other products developed under the CSL License Agreement. Sales milestones are based on aggregated sales across M230 and any other products developed under the CSL License Agreement. The Company also has the option to participate in a cost-and-profit sharing arrangement, under which the Company would fund 50% of global research and development costs and 50% of U.S. commercialization costs for all products developed pursuant to the CSL License Agreement, or the Co-Funded Products, in exchange for either a 50% share of U.S. profits or 30% share of U.S. profits, determined by the stage of development at which the Company makes such election. For Co-Funded Products, royalties remain payable for territories outside of the United States and milestone payments are reduced. The Company also has the right to opt-out of such arrangement at its sole discretion, which would result in milestone payments and royalties reverting to their pre-arrangement amounts. The Company also has the option to participate in the promotion of Co-Funded Products in the United States, subject to a co-promotion agreement to be negotiated with CSL.

Under the CSL License Agreement, the Company granted CSL an exclusive license under the Company’s intellectual property to research, develop, manufacture and commercialize product candidates for all therapeutic indications. CSL has granted the Company a non-exclusive, royalty-free license under CSL’s intellectual property for the Company’s research and development activities pursuant to the CSL License Agreement and its commercialization activities under any co-promotion agreement with CSL.

The Company and CSL formed a joint steering committee consisting of an equal number of members from the Company and CSL, to facilitate the research, development, and commercialization of product candidates.

Unless earlier terminated, the term of the CSL License Agreement commences on the Effective Date and continues until the later of (i) the expiration of all payment obligations with respect to products under the CSL License Agreement, (ii) the Company is no longer co-funding development or commercialization of any products and (iii) the Company and CSL are not otherwise collaborating on the development and commercialization of products or product candidates. CSL may terminate the CSL License Agreement on a product-by-product basis subject to notice periods and certain circumstances related to clinical development. The Company may terminate the CSL License Agreement under certain circumstances related to the development of M230 and if no activities are being conducted under the CSL License Agreement. Either party may terminate the CSL License Agreement (i) on a product-by-product basis if certain patent challenges are made, (ii) on a product-by-product basis for material breaches, or (iii) due to the other party’s bankruptcy. Upon termination of the CSL License Agreement, subject to certain exceptions, the licenses granted under the CSL License Agreement terminate. In addition, dependent upon the circumstances under which the CSL License Agreement is terminated, the Company or CSL has the right to continue the research, development, and commercialization of terminated products, including rights to certain data, for the continued development and sale of terminated products and, subject to certain limitations, obligations to make sales-based royalty payments to the other party.

CSL's obligations under the CSL License Agreement are guaranteed by its parent company, CSL Limited.


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The Company identified the deliverables at the inception of the CSL License Agreement. The deliverables were determined to include (i) the M230 research, development, manufacturing and commercialization license, (ii) the research license for other Fc multimer proteins and (iii) the Company's responsibility to transfer the technology package relating to M230 to CSL. The best estimate of the selling price associated with the Company's participation on the joint steering committee was deemed to be de minimis, and therefore was not evaluated further. The Company determined that the M230 research, development, manufacturing and commercialization license does not have stand-alone value separate and apart from the Company's responsibility to transfer the M230 technology package to CSL because (1) there are no other vendors selling similar licenses on a stand-alone basis, (2) CSL does not have the contractual right to resell the license or the transferred technology, and (3) CSL is unable to use the license for its intended purpose without the technology transfer. In addition, the Company determined that the research license does not have stand-alone value. As such, the Company determined that there is one unit of accounting. The total arrangement consideration of $50 million was allocated to the single unit of accounting and will be recognized as revenue once the technology transfer is completed, which is the final item to be delivered in the unit of accounting. The technology transfer is expected to be completed by the end of 2017 . As of June 30, 2017 , $50 million was included in deferred revenue under the CSL License Agreement and was classified as a current liability in the consolidated balance sheet. The Company recognized research and development revenue from full-time equivalent, or FTE, services and external costs of $0.7 million in the three and six months ended June 30, 2017 .
 
6. Share-Based Payments

Equity Award Plans

On March 14, 2017, the Company's Board of Directors approved the amendment and restatement of the Company’s 2013 Incentive Award Plan, or the Amended and Restated 2013 Plan, subject to and effective upon stockholder approval. At the Company’s 2017 Annual Meeting of Stockholders, held on June 20, 2017, stockholders approved the Amended and Restated 2013 Plan. The Amended and Restated 2013 Plan, among other things, increases the number of shares of common stock available for issuance under the plan by 4,300,000 shares.

On March 14, 2017, the Company's Board of Directors approved the amendment and restatement of the Company’s 2004 Employee Stock Purchase Plan, or the Amended and Restated ESPP, subject to and effective upon stockholder approval. Stockholders approved the Amended and Restated ESPP at the 2017 Annual Meeting. The Amended and Restated ESPP increases the number of shares of common stock available for issuance under the ESPP by 1,400,000 shares.

Equity Award Retirement Policy

In December 2016 , the Company's board of directors adopted the Momenta Pharmaceuticals, Inc. Equity Award Retirement Policy, or the Retirement Policy, to provide for the treatment of time-based options and restricted stock units upon a participant’s qualifying retirement from the Company, allowing employees until January 11, 2017 to opt-out of a modification to certain of their outstanding grants of incentive stock options. Under the Retirement Policy, following the qualifying retirement of any employee of the Company or non-employee member of the board of directors, the participant’s then-outstanding time-based options and restricted stock units will continue to vest during the one year period following the retirement date. In addition, the participant will have until the first anniversary of the retirement date (or 90 days following the date an option becomes first exercisable if such date is within the 90 days preceding the first anniversary of the retirement date) to exercise any vested options, except that no option may be exercised following the date upon which it would have expired under the applicable option award agreement if the participant had remained in service with the Company.

For those employees who did not opt out, the Retirement Policy amended the terms of existing grants of time-based options effective January 11, 2017; therefore, in the consolidated statement of operations for the six months ended June 30, 2017 , the Company recorded incremental compensation expense of $0.4 million related to the modification of those options, of which $0.3 million was included in the general administrative expense and $0.1 million was included in research and development expense.

Share-Based Compensation
 
The table below presents share-based compensation expense for research and development as well as general and administrative expense, both of which are included in operating expenses, in the three and six months ended June 30, 2017 and 2016 (in thousands):


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For the Three Months Ended
June 30, 2017
 
For the Three Months Ended
June 30, 2016
 
For the Six Months Ended
June 30, 2017
 
For the Six Months Ended
June 30, 2016
Research and development
 
$
1,760

 
$
2,319

 
$
4,223

 
$
4,384

General and administrative
 
2,830

 
2,670

 
7,170

 
5,433

  Total share-based compensation expense
 
$
4,590

 
$
4,989

 
$
11,393

 
$
9,817


The following table summarizes share-based compensation expense by award category recorded in each of the three and six months ended June 30, 2017 and 2016 (in thousands):
 
 
 
For the Three Months Ended
June 30, 2017
 
For the Three Months Ended
June 30, 2016
 
For the Six Months Ended
June 30, 2017
 
For the Six Months Ended
June 30, 2016
Stock options
 
$
2,719

 
$
2,372

 
$
5,325

 
$
5,130

Restricted stock awards and units
 
1,754

 
2,514

 
5,831

 
4,472

Employee stock purchase plan
 
117

 
103

 
237

 
215

  Total share-based compensation expense
 
$
4,590

 
$
4,989

 
$
11,393

 
$
9,817

 
During the six months ended June 30, 2017 , the Company granted 1,321,630 options to its employees and board members. The average grant date fair value of options granted was calculated using the Black-Scholes-Merton option-pricing model and the weighted average assumptions are noted in the table below. The weighted average grant date fair value of option awards granted during the three months ended June 30, 2017 and 2016 was $8.39 per option and $5.85 per option, respectively. The weighted average grant date fair value of option awards granted during the six months ended June 30, 2017 and 2016 was $9.23 per option and $5.82 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 June 30, 2017
 
For the Three Months Ended June 30, 2016
 
For the Three Months Ended June 30, 2017
 
For the Three Months Ended June 30, 2016
Expected volatility
 
50
%
 
62
%
 
54
%
 
57
%
Expected dividends
 

 

 

 

Expected life (years)
 
6.1

 
5.8

 
0.5

 
0.5

Risk-free interest rate
 
2.0
%
 
1.5
%
 
0.7
%
 
0.5
%

 
 
Weighted Average Assumptions
 
 
Stock Options
 
Employee Stock Purchase Plan
 
 
For the Six Months Ended June 30, 2017
 
For the Six Months Ended June 30, 2016
 
For the Six Months Ended June 30, 2017
 
For the Six Months Ended June 30, 2016
Expected volatility
 
53
%
 
58
%
 
57
%
 
56
%
Expected dividends
 

 

 

 

Expected life (years)
 
5.8

 
6.1

 
0.5

 
0.5

Risk-free interest rate
 
2.1
%
 
1.5
%
 
0.5
%
 
0.4
%

At June 30, 2017 , the total remaining unrecognized compensation cost related to nonvested option awards amounted to $21.6 million , which will be recognized over the weighted average remaining requisite service period of 2.7 years .
 
During the six months ended June 30, 2017 , the Company issued 57,007 shares of common stock to employees under the employee stock purchase plan, or ESPP, resulting in proceeds of approximately $0.5 million .
 
Restricted Stock and Restricted Stock Units

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The Company has granted time-based restricted stock and restricted stock units to its employees, officers and board members and performance-based restricted stock to its employees and officers.

Since April 2016, the Company awarded 1,728,495 shares of performance-based restricted stock to employees and officers. The vesting of the shares is subject to the Company achieving up to two of three possible performance milestones on or before April 13, 2019. Upon achieving each of the first and second milestones, 25% of the shares will vest on the later of the milestone achievement date and the first anniversary of the grant date, and an additional 25% of the shares will vest on the one year anniversary of such achievement date, subject to a requirement that recipients remain employees through each 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. As a result of discontinuing its necuparanib program in the third quarter of 2016 , the Company determined that only two of the three performance milestones are possible to achieve prior to April 13, 2019. The Company has determined that attainment of the remaining 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 three and six months ended June 30, 2017 , the Company recognized approximately $0.5 million and $3.5 million of stock compensation costs related to these awards, respectively.

In the six months ended June 30, 2017 , the Company awarded 519,753 shares of time-based restricted stock units to its employees. The time-based restricted stock units 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. Time-based awards are generally forfeited if the employment relationship terminates with the Company prior to vesting, except as provided in the Retirement Policy.

As of June 30, 2017 , the total remaining unrecognized compensation cost related to all nonvested time-based restricted stock and restricted stock units and performance-based restricted stock awards amounted to $18.4 million , which is expected to be recognized over the weighted average remaining requisite service period of approximately 2.5 years.
 
The following table summarizes restricted stock and restricted stock unit activity as of June 30, 2017 and the changes during the six months ended June 30, 2017 under the Company’s 2013 Incentive Award Plan, as amended and restated (in thousands, except per share amounts):
 
 
Number of
Shares or Units
 
Weighted
Average
Grant Date
Fair Value
Nonvested at January 1, 2017
 
1,992

 
$
10.64

Granted
 
602

 
18.37

Vested
 
(196
)
 
12.34

Forfeited
 
(237
)
 
11.82

Nonvested at June 30, 2017
 
2,161

 
$
12.51


Nonvested restricted stock awards and restricted stock units have vesting conditions as summarized below (in thousands):
 
Vesting Condition
 
Nonvested
Shares or Units
Time-based
 
829

Performance-based and time-based
 
1,332

Nonvested at June 30, 2017
 
2,161

 
7. Equity Financings
 
In April 2015, the Company entered into an At-the-Market Equity Offering Sales Agreement, or the 2015 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 was 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 (Reg. No. 333-188227) previously filed with the SEC and a related prospectus supplement, and raised

24


net proceeds of approximately $9.3 million . In the six months ended June 30, 2017 , the Company sold approximately 4.5 million shares of common stock pursuant to an effective shelf registration statement (Reg. No. 333-209813) and a related prospectus supplement, raising net proceeds of $64.1 million , and concluded sales under the 2015 ATM Agreement. 

8. Commitments and Contingencies
 
Operating Leases
The Company leases office space and equipment under various operating lease agreements. See Note 14 “ Commitments and Contingencies ” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the Company’s operating lease agreements.
Total operating lease commitments as of June 30, 2017 are as follows (in thousands):
Operating lease commitments
Total
July 1 to December 31, 2017
$
6,193

2018
15,369

2019
14,165

2020
14,581

2021
14,935

2022 and beyond
70,004

Total future minimum lease payments
$
135,247


  Legal Contingencies  

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

GLATOPA 40 mg/mL-Related Litigation

On September 10, 2014, Teva Pharmaceuticals Industries Ltd. and related entities, or Teva, and Yeda Research and Development Co., Ltd., or Yeda, filed a 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 GLATOPA 40 mg/mL. The suit initially alleged infringement related to two Orange Book-listed patents for COPAXONE 40 mg/mL, each expiring in 2030, and sought declaratory and injunctive relief prohibiting the launch of the Company's product until the last to expire of these patents. In April 2015, 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 that was 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. In December 2015, this suit was also consolidated with the initial suit that was filed in September 2014. Teva and Yeda seek declaratory and injunctive relief prohibiting the launch of GLATOPA 40 mg/mL until the expiration of the patents at issue. On January 30, 2017, the District Court found the four patents to be invalid due to obviousness. On February 2, 2017, Teva and Yeda filed a notice of appeal of the District Court's January 30, 2017 decision to the Court of Appeals for the Federal Circuit.

On December 19, 2016, Teva and Yeda filed suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware again in response to the filing by Sandoz Inc. of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL, for alleged infringement of an Orange Book-listed patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,402,874. On May 1, 2017, the District Court entered the joint stipulation filed by the parties, dismissing the case pertaining to U.S. Patent No. 9,402,874.


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On January 31, 2017, Teva filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of New Jersey alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775, which issued in October 2015 and expires in October 2035. The Company and Sandoz Inc. filed a motion to dismiss and a motion to transfer the suit to the United States District Court for the District of Delaware. On January 31, 2017, Teva voluntarily dismissed the Company from the New Jersey suit for U.S. Patent No. 9,155,775, maintaining the suit against Sandoz Inc. On May 23, 2017, the United States District Court for the District of New Jersey granted the motion to transfer the suit to the United States District Court for the District of Delaware.

On February 2, 2017, the Company filed a complaint in the United States District Court for the District of Delaware seeking a declaration that U.S. Patent No. 9,155,775 is invalid, not infringed or not enforceable against the Company. In March 2017, Teva filed a motion, which is currently pending, to stay further proceedings in the Delaware action.

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 patent infringement. Also in September 2011, the Company filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar and Actavis from selling their Enoxaparin product in the United States. In October 2011, the District Court granted the Company's motion for a preliminary injunction and entered an order enjoining Amphastar and Actavis from advertising, offering for sale or selling their Enoxaparin product in the United States until the conclusion of a trial on the merits and required the Company and Sandoz Inc. to post a 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 writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied on October 3, 2016. In April 2017, the Company, Sandoz Inc. and Actavis, or the Settling Parties, settled and signed reciprocal releases of all claims, and filed a voluntary stipulation with the District Court, pursuant to which the Settling Parties stipulated and agreed to dismiss with prejudice all claims and counterclaims among the Settling Parties, without fees or costs to any party, and with the Settling Parties waiving any and all right of appeal. The District Court trial was held in July 2017, and the jury verdict found the Company's patent to be infringed, but invalid and unenforceable. The Company and Sandoz Inc. are considering all available legal options to overturn the portions of the verdict finding the Company's patent to be invalid and unenforceable, including post-trial motions and appeals. 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. The Company posted $17.5 million as collateral for the security bond and classified the collateral as restricted cash in its consolidated balance sheet. Litigation involves many risks and uncertainties, and there is no assurance that the Company or Sandoz Inc. will prevail in this patent enforcement suit.

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. Briefing was completed in December 2016, and oral argument was held on February 9, 2017. On March 6, 2017, the United States Court of Appeals for the First Circuit reversed the District Court’s dismissal and remanded the case to the District Court

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for further proceedings. On April 6, 2017, the District Court held a scheduling conference to provide dates for the remanded case, and on April 20, 2017, the Company and Sandoz Inc. filed their renewed motion to dismiss. Trial is scheduled for April 2019.

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 filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. On March 21, 2017, the United States District Court for the Middle District of Tennessee dismissed NGH’s claim for damages against the Company and Sandoz, but allowed the case to move forward, in part, for NGH’s claims for injunctive and declaratory relief. In the same opinion, the United States District Court for the Middle District of Tennessee denied our motion to transfer. On June 9, 2017, NGH filed a motion to amend its complaint to add a new named plaintiff, the American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan (“DC37”). NGH and DC 37 seek to assert claims for damages under the laws of more than 30 different states, on behalf of a putative class of indirect purchasers of Lovenox or generic enoxaparin. On June 30, 2017 , the Company and Sandoz filed a brief opposing the motion to amend the complaint. The Court has not yet scheduled a hearing on the motion to amend. 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.

9. Subsequent Events
Milestone Payment
On July 1, 2017, the Company earned a $10 million milestone payment in connection with GLATOPA 20 mg/mL's continuing to be the sole FDA-approved generic of COPAXONE and achieving a certain level of contractually defined profits in the United States.
Lease Amendment
On July 24, 2017, the Company entered into the Fourth Amendment to the Lease, or the Fourth Amendment, with BMR-Rogers Street LLC, or BMR, which amends the Lease between Momenta and BMR, dated as of February 5, 2013, as amended. Pursuant to the Fourth Amendment, the Company will lease approximately 52,252 square feet of office space, or the Fourth Floor Binney Premises, on the fourth floor of 301 Binney Street, Cambridge, Massachusetts, or the Binney Building. The Fourth Amendment also amends certain of the terms and conditions of the Company's existing lease of office and laboratory space located in the basement and first and second floors of 320 Bent Street, Cambridge, Massachusetts, or the Bent Premises.
The term of the lease for the Fourth Floor Binney Premises will commence on or before October 1, 2017, or the Binney Commencement Date, and will end on the date that is 126 months from the Binney Commencement Date, unless earlier terminated or extended in accordance with the terms of the Fourth Amendment. The Company has an option, subject to certain terms and conditions, to extend the term of the lease for the Fourth Floor Binney Premises until June 30, 2035 . BMR has agreed to make available an approximately $5.0 million allowance for certain tenant improvements the Company is planning to make to the Fourth Floor Binney Premises.
The Company is obligated to pay rent for the Fourth Floor Binney Premises beginning six months after the Binney Commencement Date, or the Rent Commencement Date. From the Rent Commencement Date until the first anniversary of the Rent Commencement Date, the Company is obligated to pay a monthly base rent for the Fourth Floor Binney Premises of $0.3 million , or $73.00 per square foot. On each subsequent anniversary of the Rent Commencement Date, the annual base rent will increase by 3% of the then-current annual base rent. The Company is also obligated to pay certain operating expenses and a property management fee beginning on the Rent Commencement Date. Simultaneous with the execution of the Fourth Amendment, in July 2017, the Company delivered to BMR a security deposit in the form of a letter of credit in the amount of $1.3 million . This balance will remain restricted through September 2028. The Company will earn interest on the balance.
Pursuant to the Fourth Amendment, BMR also agreed to make available an additional $5.2 million allowance for certain tenant improvements the Company is planning to make to the Fourth Floor Binney Premises and the Bent Premises. The base rent for the Bent Premises will be correspondingly increased, effective September 1, 2017, to include the amount of the tenant improvement allowance as amortized over the term of the lease for the Bent Premises. From September 1, 2017 to August 31, 2018, the Company's monthly base rent obligation for the Bent Premises will be $0.7 million , or $77.52 per square foot. Each

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subsequent September 1 during the term of the lease for the Bent Premises, the Company's annual base rent for the Bent Premises will increase by approximately 2.7% of the then-current annual base rent. Subject to certain terms and conditions, the Company has an option to extend the term of the lease for the Bent Premises until June 30, 2035 .
In addition, under the terms of the Fourth Amendment, the Company has a right of first refusal on additional space on the fourth floor of the Binney Building, and a right of first offer on additional space on the fifth floor of the Binney Building.

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, 2016.
 
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 “Part II., Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements.
 
Overview
 
We are a biotechnology company focused 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 development portfolio. As of June 30, 2017 , we had an accumulated deficit of approximately $542.8 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 development portfolio.
 
Complex Generics
 
GLATOPA ® 20 mg/mL—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 20 mg/mL is the first "AP" rated, substitutable generic equivalent of once-daily COPAXONE. Sandoz commenced sales of GLATOPA 20 mg/mL on June 18, 2015. Under our collaboration agreement with Sandoz, we earn 50% of contractually defined profits on GLATOPA 20 mg/mL sales. For the three months ended June 30, 2017 , we recorded $19.1 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL, reflecting $19.7 million in profit share net of a deduction of $0.6 million for reimbursement to Sandoz of 50% of GLATOPA-related legal expenses incurred by Sandoz. On July 1, 2017, we earned a $10 million milestone payment in connection with GLATOPA 20 mg/mL's continuing to be the sole FDA-approved generic of COPAXONE and achieving a certain level of contractually defined profits in the United States.

GLATOPA ® 40 mg/mL—Generic Three-times-weekly COPAXONE ® (glatiramer acetate injection) 40 mg/mL

An ANDA seeking approval for GLATOPA 40 mg/mL, our generic version of three-times-weekly COPAXONE 40 mg/mL, was filed by our partner, Sandoz, in February 2014 and remains under review by the FDA. Our GLATOPA 40 mg/mL formulation contains the same drug substance as GLATOPA 20 mg/mL, which we believe should help streamline the FDA review of the ANDA. To date, Sandoz is the only ANDA applicant for the three-times-weekly COPAXONE 40 mg/mL with an FDA-approved active pharmaceutical ingredient. On February 17, 2017, we announced that Sandoz’ third party fill/finish manufacturing partner for GLATOPA, Pfizer Inc., received an FDA warning letter. Although the FDA warning letter does not restrict the production or shipment of the GLATOPA 20 mg/mL product that is currently marketed by Sandoz in the United States, the FDA may withhold approval of pending drug applications listing the Pfizer Inc. facility, including the ANDA for GLATOPA 40 mg/mL, until satisfactory resolution of the compliance observations in the FDA warning letter. We are working with Sandoz to resolve this matter. We believe it continues to be possible for the GLATOPA 40 mg/mL ANDA to be approved in 2017 .

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On January 30, 2017, the District Court for the District of Delaware found invalid four Orange Book-listed patents related to COPAXONE 40 mg/mL that we were alleged to have infringed. Three of these patents had previously been found invalid in August 2016 by the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office, or PTAB, in an Inter Partes Review, or IPR, filed by an unrelated third party. On February 2, 2017, Teva and Yeda filed a notice of appeal of the District Court's January 30, 2017 decision to the Court of Appeals for the Federal Circuit. This and other legal proceedings related to GLATOPA 40 mg/mL are described under "Part II., Item 1. Legal Proceedings -- GLATOPA 40 mg/mL-Related Proceedings."
Enoxaparin Sodium Injection—Generic LOVENOX ®  
Under our amended collaboration agreement with Sandoz, Sandoz is obligated to pay us 50% of contractually defined profits on sales of Enoxaparin Sodium Injection.
Due to increased generic competition and resulting decreased market pricing for generic enoxaparin sodium injection products, Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three months ended June 30, 2017 , and therefore we recorded no product revenue for Enoxaparin Sodium Injection in the same period.

Legal proceedings related to Enoxaparin Sodium Injection are described under "Part II., Item 1. Legal Proceedings -- Enoxaparin Sodium Injection-Related Proceedings."

Biosimilars
 
M923—Biosimilar HUMIRA ® (adalimumab) Candidate

In November 2016, following an interim analysis, we announced that the confirmatory, randomized, double-blind, multi-center, global study evaluating the efficacy, safety and immunogenicity of M923 in adult patients with moderate-to-severe chronic plaque psoriasis met its primary endpoint. Patients received up to 48 weeks treatment with M923, HUMIRA, or HUMIRA alternating with M923. The proportion of subjects who achieved the primary endpoint, at least 75% reduction in the Psoriasis Area and Severity Index, or PASI-75, following 16 weeks of treatment, was equivalent between M923 and HUMIRA. The estimated difference in responders was well within the pre-specified confidence interval, confirming equivalence. Equivalence was also achieved for all secondary efficacy endpoints, including the achievement of PASI-50, PASI-90, proportion achieving clear or near-clear skin, and change from baseline in absolute PASI score. Adverse events were comparable in terms of type, frequency, and severity, and were consistent with the published safety data for HUMIRA. Due to unexpectedly high enrollment rates, additional patients to those included in the interim analysis were enrolled in the study. These patients will be included in the regulatory submission.

We are working toward the first regulatory submission for marketing approval for M923 in the fourth quarter of 2017 and, subject to marketing approval and patent considerations, we believe the first commercial launch could be as early as the 2020 timeframe.
M923 was previously developed in collaboration with Baxalta. In June 2016, Baxalta became a wholly-owned subsidiary of Shire plc. In September 2016, Baxalta gave us twelve months' prior written notice of the exercise of its right to terminate for its convenience our collaboration agreement. On December 31, 2016 , we and Baxalta entered into an asset return and termination agreement, or the Baxalta Termination Agreement, amending certain termination provisions of the Baxalta Collaboration Agreement and making the termination of the Baxalta Collaboration Agreement effective December 31, 2016 . Baxalta was relieved of its obligations to continue to perform activities for M923 after December 31, 2016 , except for certain clinical and regulatory activities, the majority of which have been completed. In January 2017, Baxalta paid us a one-time cash payment of $51.2 million , representing the costs Baxalta would have incurred in performing the activities it would have performed under the Baxalta Collaboration Agreement through the original termination effective date.
We continue to identify and evaluate potential collaboration opportunities to further develop and commercialize M923.
M834—Biosimilar ORENCIA ® (abatacept) Candidate
On January 8, 2016, we entered into a collaboration agreement, which became effective on February 9, 2016, with Mylan Ireland Limited, a wholly-owned indirect subsidiary of Mylan N.V., or Mylan, to develop and commercialize M834. 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 U.S.-sourced and EU-sourced ORENCIA. We plan to report top-line data from the trial in the second half of 2017 .

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We believe there is currently limited biosimilar competition for M834. Subject to development, marketing approval and patent considerations, we plan to be able to launch M834 in the 2020 timeframe to be able to be among the first biosimilars of ORENCIA on the market in the United States.
ORENCIA's composition of matter patents expire in the United States in 2019 . In December 2016, the PTAB in an IPR we filed upheld the validity of Bristol-Myers Squibb's formulation patent U.S. Patent No. 8,476,239 on ORENCIA. This proceeding is further discussed below under " Part II., Item 1. Legal Proceedings -- M834-Related Proceedings ."

Other Biosimilar Candidates

Our Mylan collaboration includes the development of five other biosimilar candidates from our portfolio in addition to M834, including our undisclosed biosimilar candidate, M710. We and Mylan are targeting the first regulatory submission for M710 clinical development in late 2017 or early 2018. We and Mylan will share equally costs and profits (losses) related to these earlier stage product candidates. We and Mylan will share development and manufacturing responsibilities across product candidates, and Mylan will lead commercialization of the products.

Novel Therapeutics

We believe our novel programs discussed below could have the potential to produce product candidates 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.

M281 - Anti-FcRn Candidate

M281 is a fully-human monoclonal antibody that blocks the neonatal Fc receptor, or FcRn. A Phase 1 study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of M281 was initiated in June 2016. In January 2017, we announced that we had successfully completed the single ascending dose, or SAD, portion of the Phase 1 study in healthy volunteers. In the SAD portion of the study, M281 was well-tolerated with no serious adverse events observed. The multiple ascending dose, or MAD, portion of the Phase 1 study was initiated in January 2017. We plan to report the data from both the SAD and MAD portions of the Phase 1 study in the second half of 2017 .

M230 - Selective Immunomodulator of Fc receptors (SIF3) Candidate

M230, a selective immunomodulator of Fc receptors, or SIF3, is a novel homogenous recombinant Fc multimer containing three IgG Fc regions joined carefully to maximize activity. Nonclinical data have shown that M230 enhances the molecules' avidity and affinity for the Fc receptors matching the potency and efficacy of IVIg at significantly lower doses.

Pursuant to the License and Option Agreement with CSL, effective February 17, 2017, we have granted CSL an exclusive worldwide license to research, develop, manufacture and commercialize M230. CSL plans to advance this candidate with a goal of beginning clinical development in 2017 .

M254 - hsIVIg Candidate

M254 is a hyper-sialylated version of IVIg, a therapeutic drug product that contains pooled, human immunoglobulin G, or IgG, antibodies purified from blood plasma. IVIg is used to treat several inflammatory diseases, including idiopathic thrombocytopenic purpura, Kawasaki disease, and chronic inflammatory demyelinating polyneuropathy. Our hsIVIg product is currently in nonclinical development and has the potential to be developed as a high-potency alternative to IVIg. We plan to initiate an investigational new drug application-enabling, or IND-enabling, toxicology study in 2017 and are targeting initiating a clinical trial in 2018 . We continue to identify and explore potential collaboration opportunities to further develop and commercialize this product candidate.

Results of Operations
 
Comparison of Three Months Ended June 30, 2017 and 2016
 

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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 earned on Sandoz’ sales of GLATOPA 20 mg/mL.

GLATOPA ® 20 mg/mL—Generic Once-daily COPAXONE ® (glatiramer acetate injection) 20 mg/mL
Sandoz commenced sales of GLATOPA 20 mg/mL in the United States on June 18, 2015. We earn 50% of contractually defined profits on Sandoz’ sales of GLATOPA 20 mg/mL. A portion of certain legal expenses for GLATOPA, including any patent infringement damages, is deducted from our profits in proportion to our 50% profit sharing interest.  
For the three months ended June 30, 2017 , we recorded $19.1 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL, reflecting $19.7 million in profit share net of a deduction of $0.6 million for reimbursement to Sandoz of 50% of GLATOPA-related legal expenses incurred by Sandoz. For the three months ended June 30, 2016 , we recorded $20.7 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL. The decrease in product revenues of $ 1.6 million , or 8% , from the three months ended June 30, 2016 to the three months ended June 30, 2017 was primarily due to lower sales deductions in the second quarter of 2016 as well as reimbursement of legal expenses relating to GLATOPA in the second quarter of 2017. We estimate that the number of prescriptions for GLATOPA 20 mg/mL represents approximately 40% of the once-daily 20 mg/mL U.S. glatiramer acetate market.

Although the market potential of GLATOPA 20 mg/mL is negatively impacted by the conversion of patients from once-daily COPAXONE to three-times-weekly COPAXONE, which accounts for approximately 81% of the overall U.S. glatiramer acetate market (20 mg/mL and 40 mg/mL) based on volume prescribed, we believe there remains a meaningful market opportunity for GLATOPA 20 mg/mL. The price for once-daily COPAXONE 20 mg/mL has increased over 190% since 2009, and there is no other generic for relapsing forms of multiple sclerosis currently available in the United States.
 
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 collaboration and, where applicable, our former collaboration with Baxalta;
 
Reimbursement of research and development services and reimbursement of development costs under our Sandoz and CSL collaborations and, where applicable, our former collaboration with Baxalta; and
 
Recognition of upfront arrangement consideration under our Mylan and CSL collaborations and, where applicable, our former collaboration with Baxalta.
 
Research and development revenue was $4.4 million and $5.7 million for the three months ended June 30, 2017 and 2016 , respectively. The decrease in research and development revenue of $1.3 million , or 23% , from the three months ended June 30, 2016 to the three months ended June 30, 2017 was primarily due to the termination of the Baxalta Collaboration Agreement, effective December 31, 2016 , under which we were previously reimbursed for M923 FTE and external costs and for which we recognized a portion of Baxalta's initial upfront payment in the three months ended June 30, 2016 , which were non-recurring in the same period in 2017 .
 
We expect to continue to recognize revenue from Mylan's $45 million upfront payment on a quarterly basis. Finally, we expect to recognize the $10 million GLATOPA 20 mg/mL milestone payment as revenue in the third quarter of 2017 and the $50 million upfront payment from CSL as revenue in the fourth quarter of 2017 .
 
Research and Development Expense
 
Research and development expenses consist of costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred. We track the external research and development costs incurred for each of our product candidates. Our external research and development expenses consist primarily of:
 

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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 are not tracked on a project-by-project basis. Internal costs 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.

We have a collaboration agreement with Mylan pursuant to which we share research and development expenses related to the biosimilar candidates under the collaboration. We record expenses incurred under this collaboration arrangement for such work as research and development expense, based on the nature of the cost reimbursement. Because the collaboration arrangement is a cost sharing arrangement, we concluded that when there is a period during the collaboration arrangement during which we are owed payment from Mylan, we record the reimbursement by Mylan for its share of the development effort as a reduction of research and development expense. Amounts owed to Mylan are recorded as incremental research and development expense.

Research and development expense for the three months ended June 30, 2017 was $39.1 million , compared with $33.2 million for the three months ended June 30, 2016 . The increase of $5.9 million , or 18% , from the three months ended June 30, 2016 to the three months ended June 30, 2017 was primarily due to $13.0 million in increased spending on M923, as the program was transitioned back to us effective December 31, 2016 in connection with the termination of the Baxalta Collaboration Agreement, partially offset by a $2.2 million reduction in spend on our necuparanib program, which we discontinued in August 2016, and a $3.5 million reduction in research and development expenses for reimbursable M230 materials costs incurred under the CSL License Agreement.
 
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 by product area for the three months ended June 30, 2017 and 2016 , and from project inception to June 30, 2017 . 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 June 30,
 
Project 
Inception to 
 
June 30, 2017
 
2017
 
2016
 
June 30, 2017
External Costs Incurred by Product Area:
 
 
 

 
 

 
 

Complex Generics(1)
ANDAs filed(2)
 
$
1,299

 
$
1,001

 
$
107,544

Biosimilars
Various(3)
 
17,717

 
1,762

 
140,230

Novel Therapeutics
Various(4)
 
666

 
9,498

 
99,376

Internal Costs
 
 
19,381

 
20,912