PART I
Item 1.
BUSINESS
The Company
Momenta is a biotechnology company specializing in the
detailed structural analysis of complex mixture drugs. We apply our
technology to the development of generic versions of complex drug
products as well as to the discovery and development of
novel drugs. Our most advanced product candidate, M-Enoxaparin is designed to
be a technology-enabled generic version of Lovenox
®
(enoxaparin sodium injection), a low molecular
weight heparin, or LMWH, used to prevent and treat deep vein thrombosis, or
DVT, and to support the treatment of acute coronary syndromes, or ACS. Our
second major generic product candidate is M356, a technology-enabled generic
version of Copaxone
®
(glatiramer acetate), a complex drug
consisting of a mixture of polypeptide chains. Copaxone is indicated for the
reduction of the frequency of relapses in patients with Relapse-Remitting
Multiple Sclerosis, or RRMS. Our novel drug candidate,
M118,
is a LMWH currently in Phase I clinical studies that has been engineered to
possess what we believe will be an improved therapeutic profile (compared with
other currently marketed products) to support the treatment of ACS. In our
glycoprotein program, we are working on developing potentially interchangeable
generic and biosimilar versions of major marketed glycoprotein drugs. Within
our discovery program, we are seeking to discover and develop novel
therapeutics by applying our technology to better understand sugars’ functions
in biological processes, with an initial focus in oncology.
We were incorporated in Delaware in May 2001
under the name Mimeon, Inc. In September 2002, we changed our name to
Momenta Pharmaceuticals, Inc. Our principal executive offices are located
at 675 West Kendall Street, Cambridge, Massachusetts 02142, and our
telephone number is (617) 491-9700.
In this Annual Report on Form 10-K, the
terms “Momenta,” “we,” “us” and “our” refer to Momenta Pharmaceuticals, Inc.
and its subsidiaries.
We are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, or the Exchange Act, and,
accordingly, file reports, proxy statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be read and copied at the public reference facilities
maintained by the Securities and Exchange Commission at the Public Reference
Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information
regarding the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains material regarding issuers that file
electronically with the Securities and Exchange Commission.
Our Internet address is www.momentapharma.com. We are
not including the information contained on our web site as a part of, or
incorporating it by reference into, this Annual Report on Form 10-K.
We make available free of charge on our website our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission.
Our logo, trademarks, and
service marks are the property of Momenta. Other trademarks or service marks
appearing in this Annual Report on Form 10-K are the property of
their respective holders.
Our Technology
Our integrated analytical
technology for the study of complex mixtures utilizes three different types of
tools. First, we have accumulated a comprehensive library of enzymes that we
use to break down the
3
components
of a complex mixture into smaller, measurable units. Second, we apply
proprietary improvements to established analytical techniques, such as Matrix
Assisted Laser Desorption Ionization-Mass Spectrometry, or MALDI-MS, nuclear
magnetic resonance, or NMR, and capillary electrophoresis, or CE, among others,
in order to gather and analyze information regarding the components, structure
and arrangement of the chemical building blocks of the complex mixture. Third,
we apply proprietary mathematical methods that integrate the disparate
information obtained from those analytical techniques to arrive at a specific,
numerically-derived solution that describes the complete composition of a
specific complex mixture. It is the combination of these tools that enables us
to arrive at unique solutions for thoroughly characterizing complex sugars and
other complex mixture drugs. In addition to using our technology to
characterize final complex drug products, we further employ our
characterization datasets as in-process controls to guide any manufacturing of
complex drug candidates we pursue.
Product Candidates
M-Enoxaparin
Our most advanced product
candidate, M-Enoxaparin, is designed to be a generic version of Lovenox.
Lovenox is a widely-prescribed LMWH used for the prevention and treatment of
DVT and to support the treatment of ACS. Lovenox is distributed worldwide by
Sanofi-Aventis and is also known outside the United States as Clexane
®
and Klexane
®
. Sanofi-Aventis
reported worldwide sales of Lovenox of approximately $3.2 billion in 2006, with
approximately $2.0 billion coming from the United States market. Analysts
project that Lovenox will remain a leading LMWH product, with estimated annual
sales approaching $3.9 billion in 2009.
Description of Our
Program
Lovenox is a heterogeneous mixture of complex sugar
chains that, in our view, prior to the application of our technology, had not
been adequately analyzed. The length and sequence of the sugar chains varies,
resulting in a diversity of chemical structures in the mixture. The current
description in the package insert
of Lovenox
includes molecular weight distribution and
in
vitro
measurements of Lovenox’s ability to inhibit blood clotting
factors Xa and IIa, or its anti-Xa and anti-IIa activity. While molecular
weight distribution provides a rough measure of the range of chain lengths, it
provides no information about detailed sequences or chemical structures
contained in Lovenox. Similarly, the
in
vitro
measures of anti-Xa and anti-IIa activity describe certain
aspects of anticoagulation but only partly define the biological and clinical
activity of Lovenox. According to Sanofi-Aventis, only 15% to 25% of the chains
in LMWHs contain sequences that bind to the factor that is responsible for
anti-Xa and anti-IIa activity.
FDA regulations and guidelines require that a generic
version of a product that was approved under a New Drug Application, or NDA,
must be pharmaceutically equivalent to the branded drug product upon which the
generic application is based. Generic drugs are considered pharmaceutically
equivalent to their branded counterparts if, among other things, they have the
same active ingredient(s), dosage form, route of administration, identical in
strength or concentration. For a drug to be interchangeable with the branded
product, it must be therapeutically equivalent, which means that it is
pharmaceutically equivalent and bioequivalent, meaning it has the same rate and
extent of absorption as the innovator product. A therapeutically equivalent product is deemed
to have the same clinical effect and safety profile as the innovator product. Our
ability to apply our technology to sequence and analyze complex mixtures has
allowed us to analyze Lovenox and develop a process to make M-Enoxaparin, a
generic version of Lovenox, which we believe will demonstrate same active
ingredients, route of administration, dosage form, and strength, which are
essential to demonstrating the FDA’s requirements for therapeutic equivalence. An
Abbreviated New Drug Application, or ANDA, for M-Enoxaparin was filed with the
FDA in August 2005.
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In 2003, we formed a collaboration, the 2003 Sandoz
Collaboration, with Sandoz N.V. and Sandoz Inc., together referred to as
Sandoz, affiliates of Novartis AG, to exclusively develop, manufacture and
commercialize M-Enoxaparin in the U.S. In July 2006, we entered into a
series of agreements with Novartis AG and Sandoz AG, including a Memorandum of
Understanding, or MOU, with Sandoz AG, collectively referred to as the 2006
Sandoz Collaboration. Under the terms of the MOU, we expanded the geographic
markets covered by our collaboration efforts related to M-Enoxaparin to include
the European Union and further agreed to exclusively collaborate with Sandoz AG
on the development and commercialization of three other biosimilar and complex
generic products.
Sandoz has submitted ANDAs
to the FDA for syringe and vial forms of M-Enoxaparin seeking approval to
market M-Enoxaparin in the United States. The FDA is currently reviewing the
M-Enoxaparin ANDAs, including our manufacturing data and technology and
characterization methodology. In parallel, and in collaboration with Sandoz, we
are focused on activities related to supporting the FDA’s review of the ANDA
and preparing for the commercialization of M-Enoxaparin, if and when approved,
by advancing manufacturing, supply chain, and sales and marketing objectives.
Legal Matters
Currently, Sanofi-Aventis
has two listed patents for Lovenox in the FDA’s listing of approved drug
products, the Orange Book, U.S. Patent No. 5,389,618, or the ‘618 Patent,
and its counter-part, Reissue Patent No. 38,743, or the ‘743 Reissue
Patent. Sanofi-Aventis has brought lawsuits for patent infringement; one
against Amphastar Pharmaceuticals, Inc., or Amphastar, and Teva
Pharmaceuticals USA, Inc., or Teva, and a second, separate patent
infringement lawsuit against Sandoz.
Amphastar/Teva
Patent Infringement Lawsuit
In September 2003, prior to issuance of the ‘743
Reissue Patent, Sanofi-Aventis announced that it had received individual
notices from Amphastar and Teva indicating that each had submitted its own ANDA
with a paragraph IV certification for enoxaparin. Sanofi-Aventis sued Amphastar
and Teva for patent infringement and in response Amphastar and Teva asserted
claims of non-infringement, invalidity and/or unenforceability of the ‘618
Patent, as well as various counterclaims, and sought related declaratory
judgment relief against Sanofi-Aventis. In September 2005, Amphastar and Teva
each subsequently amended their own ANDA to include a second paragraph IV
certification for the ‘743 Reissue Patent.
In June 2005, the
District Court granted summary judgment in the Amphastar/Teva case, finding
that both the ‘618 Patent and the ‘743 Reissue Patent were unenforceable due to
Aventis’ inequitable conduct before the United States Patent and Trademark
Office, or USPTO. In April 2006, the Court of Appeals determined that,
although there were no issues of material fact with respect to the materiality
of certain information withheld from the USPTO, there remained genuine issues of
material fact regarding the intent to deceive the USPTO. Accordingly, the Court
of Appeals reversed the District Court’s ruling and remanded the case to the
District Court for further proceedings consistent with the Court of Appeals’
decision. The District Court held a bench trial in December 2006 focused
only on inequitable conduct and in February 2007 the District Court ruled
in favor of Amphastar and Teva holding both the ‘618 Patent and the ‘743
Reissue Patent unenforceable by virtue of inequitable conduct before the USPTO.
Sanofi-Aventis may appeal this ruling. If Sanofi-Aventis is successful in its
appeal, all other remaining issues regarding invalidity, non-infringement and
unenforceability could be subsequently tried by the District Court, if necessary.
If Sanofi-Aventis is not successful, the ‘618 Patent and the ‘743 Reissue
Patent will continue to be unenforceable.
5
Sandoz Patent
Infringement Lawsuit
Sandoz amended the ANDA for the syringe version of
M-Enoxaparin to include a paragraph IV certification stating that
Sanofi-Aventis’ patents listed in the Orange Book for Lovenox are, among other
things, invalid and unenforceable. In response to Sandoz’ ANDA containing the
paragraph IV certification, Sanofi-Aventis brought a patent infringement suit
against Sandoz in August 2006. In response to Sanofi-Aventis’ lawsuit,
Sandoz asserted, among other things, claims of invalidity and/or
unenforceability of the ‘743 Reissue Patent. At this time, no trial date has
been set for this litigation. Sandoz has moved to dismiss the suit based upon
the District Court decision in the Amphastar/Teva case, and that motion is
pending.
Continuing litigation could delay or prevent the
introduction of M-Enoxaparin. Sanofi-Aventis’ efforts to litigate against
potential generic challengers to protect its intellectual property around
Lovenox may not be limited to potential infringement of the Orange Book patents.
Pharmaceutical companies frequently sue generic challengers over potential
infringement of patents that are not listed in the Orange Book. Presently, we
are not aware of any litigation relating to non-Orange Book patents, but there
can be no assurance that Sanofi-Aventis will not initiate such litigation
against us, Sandoz, Teva, Amphastar, or others in the future.
Neither Teva nor Amphastar
are currently marketing a generic version of enoxaparin in the United States,
nor can they market such product in the United States unless the FDA approves
Amphastar’s or Teva’s respective ANDA filings.
Exclusivity
Under the Hatch-Waxman
Act, the first applicant to submit an ANDA for review by the FDA that includes
a paragraph IV certification may be eligible to receive a 180-day period
of generic market exclusivity. Both Amphastar and Teva submitted ANDAs
containing paragraph IV certifications prior to the ANDA for M-Enoxaparin. However,
there may be uncertainty as to whether only Teva or Amphastar or both of Teva
and Amphastar would have rights to the 180-day exclusivity period. Therefore,
if one or both of their ANDAs are approved by the FDA, one or both of them may
receive market exclusivity for 180 days, which, assuming M-Enoxaparin receives
FDA approval, would potentially delay the commercial launch of M-Enoxaparin. Under
other circumstances, the start of the exclusivity period may be delayed or may
not be triggered and we may be delayed or prevented from commercially launching
our M-Enoxaparin product.
M118
M118 is a novel anticoagulant drug that was rationally
designed with the goal of providing improved clinical anticoagulant properties
when used to support the treatment of patients diagnosed with ACS and stable
angina. We believe that M118 has the potential to provide baseline
anticoagulant therapy for patients with ACS or stable angina who require a
coronary intervention, as well as those ACS patients who are medically managed,
or do not require intervention in order to treat their condition. M118 is
designed to be a reversible and monitorable anticoagulant that can be
administered intravenously or subcutaneously, and has a pharmacokinetic profile
similar to a LMWH. We believe that the properties of M118 have the potential to
provide greater flexibility than other therapies presently used to treat
patients diagnosed with ACS and stable angina.
ACS includes several
diseases ranging from unstable angina, which is characterized by chest pain at
rest, to acute myocardial infarction, or heart attack, which is caused by a
complete blockage of a coronary artery. While some patients are initially
medically managed with anti-clotting agents such as unfractionated heparin, or
UFH, or LMWH, an increasing proportion of ACS patients are proceeding to early
intervention such as angioplasty or coronary artery bypass grafting, or CABG. Both
angioplasty and CABG
6
require
anticoagulant therapy to prevent clot formation during and immediately
following the procedure. UFH is currently the foundation anti-clotting agent
used in both angioplasty and CABG. No LMWHs are currently approved for use in
either angioplasty or CABG. M118 is designed to be a LMWH that could be used in
multiple settings, including initial medical management, angioplasty or CABG.
Description of Our
Program
M118 was designed
utilizing our proprietary analytical methods and technology to identify the
polysaccharide sequences in heparin responsible for specific desired clinical
attributes. Using this information, the design of M118 was tailored to include
specific attributes that address the unmet medical needs of anticoagulation
therapy in ACS, including, among others, reversibility and the ability to be
monitored. The results of our preclinical animal studies suggest potential
benefits of M118 over UFH and other LMWHs, including:
·
Increased efficacy
. In animal studies directly
comparing M118 with UFH and other LMWHs, M118 appeared to more effectively
prevent clotting of injured arteries in a rat and canine thrombosis model. The
results of
i
n
vivo
and
in vitro
experiments suggest that M118 acts at multiple points in the coagulation
cascade by inhibiting both factor Xa and factor IIa and through the release of
tissue factor pathway inhibitor.
·
Reversibility.
Animal study results also suggest that
the anti-clotting effects of M118 are reversible by administering protamine
sulfate, the standard drug used to reverse anticoagulant activity. LMWHs are
not fully reversible with protamine.
·
Ability to monitor.
Due to the presence of certain
saccharide sequences in M118, we believe the anti-clotting activity of M118 can
be monitored by standard, point-of-care laboratory tests that detect the
presence of factor IIa, or thrombin. These assays, which include activated
clotting time, or ACT, are routinely used during interventional procedures. Currently,
LMWHs cannot be monitored efficiently with routine laboratory tests.
In July 2006, we filed our Investigational New
Drug Application, or IND, with the FDA for our M118 intravenous injection
product, and in October 2006 began Phase I clinical trials which are
currently ongoing. We are not currently able to estimate the timing of
commercialization of M118.
Based on preliminary analysis of Phase I data, M118 has demonstrated
anticoagulant activity in a dose-dependent manner that is monitorable with a
rapid point-of-care assay, ACT. We expect to conduct several other Phase I
studies during the first half of 2007 that we expect collectively will
provide us with important information on key attributes of M118, including
aspects of safety, tolerability, the pharmacokinetic and pharmacodynamic
profiles, and reversibility. We expect to commence Phase II clinical trials for
M118 following conclusion of the Phase I studies. We expect the Phase II study
will investigate the use of M118 intravenous injection in conjunction with other
commonly prescribed therapeutics in the management of patients diagnosed with
coronary artery disease and undergoing elective angioplasty to restore
sufficient blood flow to occluded arteries. We expect the Phase II study to
provide important information about the ability to use M118 as a procedural
anticoagulant.
In addition, we expect to
file a second IND for M118 subcutaneous injection in 2007 and, pending
clearance from regulatory agencies, commence a parallel Phase I program
designed to demonstrate the safety and tolerability of M118 when administered
by the subcutaneous method of administration.
M356
We are applying our
technology to the analysis of other complex mixture drug products beyond
heparins. These include synthetic, semi-synthetic and naturally derived
products that are composed of molecules that, due to their diversity, are
difficult to fully characterize. M356 is targeted to be a
7
technology-enabled
generic version of Copaxone (glatiramer acetate), a complex drug consisting of
a mixture of polypeptide chains.
Description of Our
Program
Copaxone is indicated for the reduction of the
frequency of relapses in patients with RRMS. Multiple sclerosis is a chronic
disease of the central nervous system characterized by inflammation and
neurodegeneration. Copaxone and several interferon beta products are among the
leading products marketed for treating multiple sclerosis. In North America,
Copaxone is marketed through Teva Neuroscience LLC, a wholly owned subsidiary
of Teva Pharmaceutical Industries Ltd., and distributed by Sanofi-Aventis. Teva
and Sanofi-Aventis have an additional collaborative arrangement for the
marketing of Copaxone in Europe and other markets, under which Copaxone is
either co-promoted with Teva or is marketed solely by Sanofi-Aventis. Teva
reported worldwide sales of Copaxone of approximately $1.4 billion in 2006,
with approximately $0.9 billion from the U.S. market. Analysts project that
annual worldwide sales of Copaxone will approach $1.9 billion in 2009. Under
our 2006 Sandoz Collaboration, we and Sandoz agreed to jointly develop,
manufacture and commercialize M356.
Copaxone is a complex
product that was approved under the FDA’s NDA regulations. Like Lovenox, there
are significant technical challenges involved in thoroughly characterizing
Copaxone and in manufacturing an equivalent version, given its structure as a
mixture of polypeptide chains of various lengths and sequences. We believe our
technology can be applied to characterize glatiramer acetate and to develop a
generic product that has the same active ingredients as Copaxone.
Legal Matters
Teva has listed six
patents in the Orange Book for Copaxone, all of which expire in May 2014.
Glycoproteins
Many glycoprotein drugs are complex mixture drugs that
have been approved by the FDA under the Biologic License Application, or BLA,
regulatory pathway. The BLA pathway was created to review and approve
applications for biologic drugs that are typically produced from living systems.
BLA-approved complex mixture products include glycoproteins, or protein drugs
containing sugars, such as erythropoietin, blood clotting factors and
interferon beta. Presently, there is no abbreviated regulatory pathway for the
approval of generic or biosimilar versions of BLA-approved products in the United
States, however there are emerging guidelines in the EU. We believe that
scientific progress in the analysis and characterization of complex mixture
drugs is likely to play a significant role in the creation of such a U.S.
regulatory pathway in the future.
The market size of protein-based drugs potentially
vulnerable to generic or biosimilar competition, given projected patent
expirations, is estimated to reach approximately $12 billion by 2010. Most of
these products are glycoprotein drugs, which contain branched sugars that vary
from molecule to molecule. These sugars impart specific biological properties
to the glycoprotein drug and can often comprise a significant portion of the
mass of the molecule. Given the inadequacies of standard technology, many of
these glycoproteins have not been thoroughly characterized.
8
Description of Our
Program
Our glycoprotein program
is focused on extending our technology for the analysis of complex sugars to
glycoproteins. The goal of the program is to facilitate the development of
generic or biosimilar versions of major marketed glycoprotein drugs. In
addition, we believe we can assist pharmaceutical and biotechnology companies
in developing improved and next-generation versions of their branded
glycoprotein products by analyzing and modifying the sugar structures contained
in the products. Under our 2006 Sandoz Collaboration, we are currently applying
our technology to develop two generic or biosimilar proteins in partnership
with Sandoz. We refer to these two glycoprotein product candidates as M178 and
M249.
M-Dalteparin
Description of Our
Program
M-Dalteparin is targeted to be a technology-enabled
generic version of Fragmin
®
, a LMWH product. Fragmin is indicated for the prevention
of DVT and selected indications in ACS. In September 2005, Eisai Inc., a
U.S. pharmaceutical subsidiary of Eisai Co. Ltd., obtained U.S. promotion
rights to Fragmin from Pfizer Inc. Fragmin is marketed by Pfizer in Europe and
by Kissei Pharmaceutical Co., Ltd. in Japan.
Similar to Lovenox, Fragmin has a description in its
package insert consisting of
limited
measures such as molecular weight distribution, anti-Xa activity and anti-IIa
activity. We believe that additional analysis is necessary to demonstrate that
a generic version of Fragmin has the same active ingredients as the branded
drug. Through our technology, we believe we have the ability to analyze Fragmin
and develop a generic product that has the same active ingredients as Fragmin.
The M-Dalteparin program
has been reprioritized in light of other more commercially attractive
opportunities and we continue to assess the potential value of this program.
The total cost of development and commercialization and the timing of bringing
M-Dalteparin to market are subject to uncertainties relating to the market
growth for Fragmin, as well as the development, regulatory and legal approval
processes.
Legal Matters
The Orange Book patent
listed for Fragmin expired in January 2005.
Discovery Program
The development of techniques to sequence DNA and
proteins created the foundation of the biotechnology industry and enabled the
first biotechnology companies to develop breakthrough products. Scientific
studies have demonstrated that sugars, like DNA and proteins, play fundamental
roles in the regulation of biological activity, processes and pathways and,
consequently, in the cause and treatment of many diseases. Malfunctions in
complex sugar production and the resulting abnormalities in sugar structures
have been shown to play fundamental roles in numerous major diseases, such as
cancer, cardiovascular disease, Alzheimer’s disease, inflammatory disease and
viral infection.
Although significant progress has been made in the
analysis of DNA and proteins, widespread analysis and application of complex
sugars to drug development has been inhibited by the structural complexity of
sugars and the lack of well established analytical tools and methods to analyze
them. There are several technical challenges involved in thoroughly
characterizing complex sugars. First, complex sugars are composed of
disaccharide building blocks that are difficult to differentiate due to their
unique chemical properties and subtle structural differences. Second, these
building blocks can link together to form a variety of polysaccharide chains of
various length and sequence and can exist in linear or branched forms. Third,
complex sugars exist as heterogeneous mixtures of many similar, but chemically
distinct,
9
polysaccharide chains. A
comprehensive analysis of complex sugars therefore requires a mathematical
accounting for the inherent variability of the compounds. Finally, unlike DNA
and proteins, complex sugars cannot be isolated and studied in large quantities
for analysis.
Without being able to identify specific chemical
structures contained in complex sugars, it has been difficult to associate how
these chemical structures correlate to specific biological activity in the
human body. As a consequence, to date the development of drugs containing
sugars has been largely through a “trial-and-error” approach. We believe
greater understanding of the composition and functions of complex sugar
structures, as well as their roles in critical biological processes and
pathways, will provide significant commercial opportunities for drug
development.
Our discovery program is
focused on the role that complex sugars play in biological systems, including
regulating the development and progression of disease. Our initial focus is in
the area of cancer, which is a disease characterized by unregulated cell
growth, where we are seeking to discover sugar sequences with anti-cancer
properties for development as therapeutics. Sugars play a part in the
conversion of normal cells into cancerous cells, the regulation of tumor growth
and tumor invasion and metastasis. We also may seek to broaden our focus in
discovery to include other disease areas such as inflammation and infection. We
believe that our technology can provide us with a better understanding of the
role of sugars in disease, enabling us to discover novel sugar therapeutics, as
well as to discover new disease mechanisms that can be targeted with small
molecule drugs. We previously were applying our technology to the pulmonary
delivery of proteins. However, in order to focus our resources on our key
programs, we discontinued our drug delivery program during 2006.
Collaborations and Licenses
Sandoz
2003 Sandoz
Collaboration
Under the terms of the 2003 Sandoz Collaboration, we
and Sandoz agreed to exclusively work with each other to develop and
commercialize injectable enoxaparin for any and all medical indications within the
United States. In addition, we granted Sandoz an exclusive license under our
intellectual property rights to develop and commercialize injectable enoxaparin
for all medical indications within the United States.
Under this collaboration, Sandoz makes certain
payments to us. As mutually agreed, we provide, and Sandoz pays us for,
full-time equivalent scientific, technical and/or management work. Sandoz is
also responsible for funding substantially all of the other ongoing development
and commercialization costs and legal expenses incurred with respect to
injectable enoxaparin, subject to termination rights upon reaching agreed upon
limits. In addition, Sandoz will, in the event there are no third party
competitors marketing a Lovenox-Equivalent Product, as defined in the
agreement, provide to us a share of the profits from M-Enoxaparin.
Alternatively, if there are one or more third party competitors marketing a
Lovenox-Equivalent Product, Sandoz will either pay a royalty to us based on net
sales of M-Enoxaparin or pay a combination of royalty payments and a share of
profits, depending on certain circumstances. In addition, if certain milestones
are achieved with respect to injectable enoxaparin under certain circumstances,
Sandoz may also make milestone payments to us which would reach $55.0 million
if all such milestones are achieved. In all of these scenarios, a portion of
the development expenses and certain legal expenses which have exceeded a
specified amount will be offset against the profit-sharing amounts, the
royalties and the milestone payments. Sandoz may also offset a portion of any
product liability costs and certain other expenses arising from patent
litigation against the profit-sharing amounts, the royalties and the milestone
payments.
10
The collaboration is governed by a joint steering
committee and a joint project team, each consisting of an equal number of
Sandoz and Momenta representatives. Most decisions must be made unanimously,
with Sandoz collectively having one vote and us having one vote. Sandoz has
sole authority to make decisions with respect to any litigation claiming that
the manufacture, use or sale of the injectable enoxaparin product infringes any
patents listed in the Orange Book for Lovenox. In addition, Sandoz has the sole
authority to determine whether or not to launch M-Enoxaparin prior to receipt
of final legal clearance from any such infringement claims, as well as
determine the price at which it will sell M-Enoxaparin. Sandoz filed the
ANDA for M-Enoxaparin in August 2005, which was amended in 2006 to include
a paragraph IV certification.
We and Sandoz will indemnify each other for losses
resulting from the indemnifying party’s misrepresentation or breach of its
obligations under the agreement. We will indemnify Sandoz if we actually
misappropriate the know-how or trade secrets of a third party. Sandoz will
indemnify us and our collaborators involved in the enoxaparin program for any
losses resulting from any litigation by third parties, including
Sanofi-Aventis, claiming that the manufacture, use or sale of injectable
enoxaparin infringes any patents listed in the Orange Book for Lovenox, any
product liability claims with respect to injectable enoxaparin and any other
claims relating to the development and commercialization of injectable
enoxaparin. To the extent that any losses result from a third-party claim for
which we are obligated to indemnify Sandoz, Sandoz will have no obligation to
indemnify us. After the expiration or termination of the agreement, these
indemnification obligations will continue with respect to claims that arise
before or after the termination of the agreement due to activities that
occurred before or during the term of the agreement.
Unless terminated earlier,
the agreement will expire upon the last sale of injectable enoxaparin by or on
behalf of Sandoz in the United States. Either party may terminate the
collaboration relationship for material uncured breaches or certain events of
bankruptcy or insolvency by the other. Sandoz may also terminate the agreement
if the product or the market lacks commercial viability, if new laws or
regulations are passed or court decisions rendered that substantially diminish
our legal avenues for redress, or, in multiple cases, if certain costs exceed
mutually agreed upon limits. If Sandoz terminates the agreement (except due to
our uncured breach) or if we terminate the agreement due to an uncured breach
by Sandoz, we will be granted an exclusive license under certain intellectual property
of Sandoz to develop and commercialize injectable enoxaparin in the United
States and our obligation to indemnify Sandoz will survive with respect to
claims that arise due to our exclusive development or commercialization of
injectable enoxaparin after the term of the agreement. In the event of a
termination by Sandoz due to the incurrence of costs beyond the agreed upon
limits, we must pay certain royalties to Sandoz on our net sales of injectable
enoxaparin. If Sandoz terminates the agreement due to our uncured breach,
Sandoz retains the exclusive right to develop and commercialize injectable
enoxaparin in the United States. Sandoz’ profit sharing, royalty and milestone
payment obligations survive and Sandoz’ obligation to indemnify us will survive
with respect to claims that arise due to Sandoz’ exclusive development or
commercialization of injectable enoxaparin after the term of the agreement. In
addition, if Sandoz terminates the agreement due to our uncured breach, Sandoz
would retain its rights of first negotiation with respect to certain of our
other products and its rights of first refusal outside the United States.
2006 Sandoz
Collaboration
As part of the 2006 Sandoz Collaboration, the Company
entered into a Stock Purchase Agreement and an Investor Rights Agreement with
Novartis Pharma AG, and the MOU with Sandoz AG. Under the terms of the Stock
Purchase Agreement, Novartis Pharma AG purchased 4,708,679 shares of our common
stock representing approximately 13% of our common stock outstanding after the
closing, for $15.93 per share, or an aggregate purchase price of $75.0 million.
The closing of the purchase and sale of the shares of
11
common stock to Novartis
Pharma AG occurred on September 6, 2006. In connection with the closing,
the MOU became effective.
Pursuant to the terms of the Investor Rights
Agreement, we granted to Novartis Pharma AG certain registration rights and
inspection rights, and Novartis Pharma AG agreed to certain standstill
obligations. Specifically, Novartis Pharma AG is entitled to “piggyback” and
demand registration rights under the Securities Act of 1933, as amended, with
respect to the shares of common stock purchased under the Stock Purchase
Agreement.
We also granted Novartis Pharma AG inspection rights
whereby, subject to certain exceptions, Novartis Pharma AG may visit and
inspect our properties and records, discuss our business and financial affairs
with its officers, employees and other agents, and meet, at least twice a year,
with the members of our Board of Directors.
Novartis Pharma AG has agreed, until the earliest of (i) the
termination of the MOU (or, if later entered into, a Collaboration and License
Agreement between the parties), (ii) the Termination Date (as defined in
the Investor Rights Agreement) and (iii) 24 months from September 6,
2006, not to acquire any of our voting securities (other than an acquisition
resulting in Novartis Pharma AG and its affiliates beneficially owning less
than 13.5% of our total outstanding voting securities), make any public
proposal for any merger, other business combination or other extraordinary
transaction involving us, our securities or material assets or seek to control
or influence our management, Board of Directors or policies, in each case
subject to specified exceptions described in the Investor Rights Agreement.
Under the terms of the MOU, we have agreed to
exclusively collaborate with Sandoz AG on the development and commercialization
of four follow-on and complex generic products for sale in specified regions of
the world. Each party has granted the other an exclusive license under its
intellectual property rights to develop and commercialize such products for all
medical indications in the relevant regions. Sandoz AG has final
decision-making authority with respect to certain development, regulatory and
commercial decisions for certain products. Costs will be borne by the parties
in varying proportions, depending on the type of expense and the product. We
are also eligible to receive up to $188 million in milestone payments if all
milestones are achieved for the four product candidates. The parties will share
profits from the sale of such products in varying proportions, depending on the
product. With respect to our M356 product, our profit share is fifty percent. Sandoz
AG will indemnify us for various claims, and a certain portion of such costs
may be offset against certain future payments received by us.
The MOU may be terminated if either party breaches the
MOU or files for bankruptcy. In addition, the following termination rights
apply to some of the products, on a product-by-product basis: (i) if
clinical trials are required, (ii) at Sandoz AG’s convenience within a
certain time period, (iii) if the parties agree, or the relevant
regulatory authority states in writing, that our intellectual property does not
contribute to product approval, or (iv) if Sandoz AG decides to
permanently cease development and commercialization of a product. In addition,
with limited exceptions, Sandoz AG may unilaterally terminate the collaboration
of some of the products, on a product-by-product basis, at any time.
In addition, we and Sandoz AG may negotiate additional
collaboration agreements with respect to other mutually selected products. Sandoz
AG has the right to (i) select a
certain number of these mutually selected products and (ii) negotiate
expanded territories for certain products already part of the collaboration,
for which, if we and Sandoz AG do not execute a definitive agreement within a
specified time frame, we are permitted to enter into a transaction for such
opportunity with a third party, provided that the terms which we give to that
third party can be no less favorable, taken as a whole, than the terms we last
offered to Sandoz AG. If we do not enter into a transaction with a third party
in a specified time frame, then the negotiations between us and Sandoz AG with
respect to such product will start again, with the corresponding rights and
obligations if the parties do not execute a definitive agreement within the specified
time frame.
12
Pursuant to the terms of
the MOU, the parties are negotiating the terms of a definitive Collaboration
and License Agreement. The terms of the MOU will remain in effect until a
definitive Collaboration and License Agreement is executed.
Massachusetts Institute of Technology
In December 2001, we entered into a patent
license agreement with the Massachusetts Institute of Technology, or M.I.T.,
pertaining to the characterization and synthesis of sugars for the purpose of
researching, developing and commercializing products (other than sequencing
machines) and processes under the licensed patents. This agreement was
subsequently amended and restated in early November 2002 and has been
subsequently further amended. We entered into an additional patent license
agreement with M.I.T. in late October 2002, which gave us the right to
develop and commercialize sequencing machines. Subject to typical retained
rights of M.I.T. and the U.S. government, these two agreements grant us various
exclusive and nonexclusive worldwide licenses, with the right to grant
sublicenses, under certain patents and patent applications relating to (i) methods
and technologies for characterizing sugars, (ii) certain heparins,
heparinases and other enzymes and (iii) synthesis methods. In January 2007,
we further amended the agreements to remove a patent right that was potentially
relevant to our former delivery program.
We must meet certain diligence requirements in order
to maintain our licenses under the two agreements. Under the agreements, we
must expend at least $1.0 to $1.2 million per year commencing in 2005 towards
the research, development and commercialization of products and processes
covered by the agreements. In addition, we are obligated to make first
commercial sales and meet certain minimum sales thresholds of products or
processes including, under the amended and restated agreement, a first
commercial sale of a product or process no later than June 2013 and
minimal sales of products thereafter, ranging from $0.5 million to $5.0 million
annually. M.I.T. may convert the exclusive licenses granted to us under the
amended and restated license agreement to non-exclusive licenses, as its sole
remedy, if we fail to meet our diligence obligations. Under the license
agreement covering sequencing machines, M.I.T. has the right to treat a failure
by us to fulfill our diligence obligations as a material breach of the license
agreement.
In exchange for the licenses granted in the two
agreements, we have paid M.I.T. license issue fees and we pay annual license
and maintenance fees ranging, in the aggregate, from $82,500 to $157,500. We
are also required to pay M.I.T. royalties on certain products and services
covered by the licenses and sold by us or our affiliates or sublicensees, a
percentage of certain other income received by us from corporate partners and
sublicensees, and certain patent prosecution and maintenance costs. The Company
recorded $487,500, $82,500 and $117,500 as expenses related to these agreements
in the years ended December 31, 2006, 2005 and 2004, respectively.
We are obligated to indemnify M.I.T. and related
parties from losses arising from claims relating to the products, processes or
services made, used, sold or performed pursuant to the agreements, unless the
losses result from the indemnified parties’ gross negligence or willful
misconduct.
Each agreement expires upon the expiration or
abandonment of all patents that issue and are licensed to us by M.I.T. under
such agreement. The issued patents include 21 United States patents that expire
between 2012 and 2023, and 39 foreign patents that expire between 2012 and
2013. We expect that additional patents will issue from presently pending
patent applications. Any such patent will have a term of 20 years from the
filing date of the underlying application. M.I.T. may terminate either or both
agreements immediately if we cease to carry on our business, if any nonpayment
by us is not cured within 60 days of written notice or if we commit a material
breach that is not cured within 90 days of written notice. We may terminate
either or both agreements for any reason upon six months notice to M.I.T., and,
13
under one agreement, we
can separately terminate the license under a certain subset of patent rights
upon three months notice.
We have granted Sandoz a sublicense under the amended
and restated license agreement to certain of the patents and patent
applications licensed to us. If M.I.T. converts our exclusive licenses under
this agreement to non-exclusive due to our failure to meet diligence
obligations, or if M.I.T. terminates this agreement, M.I.T. will honor the
exclusive nature of the sublicense we granted to Sandoz under our 2003
Collaboration Agreement so long as Sandoz continues to fulfill its obligations
to us under the collaboration and license agreement we entered into with Sandoz
and, if our agreement with M.I.T. is terminated, Sandoz agrees to assume our
rights and obligations to M.I.T.
The Regents of the
University of California through the Ernest Orlando Lawrence Berkeley National
Laboratory
In November 2002, we entered into an agreement
with The Regents of the University of California through the Ernest Orlando
Lawrence Berkeley National Laboratory, or Lawrence Berkeley National Lab, under
which we exclusively licensed certain patents and patent applications covering
the metabolic synthesis of sugars and glycoconjugates. This agreement was
subsequently amended in 2004 and 2005. Subject to typical retained rights of
Lawrence Berkeley National Lab and the United States government, we were
initially granted an exclusive license, with the right to grant sublicenses,
for the synthesis, production or modification of sugars and glycoconjugates in
or on biological molecules for purposes of researching, developing and
commercializing products, services and processes for all human therapeutic
applications, excluding the sale of research reagents. During 2005, we elected
to retain the license under this broad field. Upon our request, but subject to
statutory restrictions or obligations to research sponsors, Lawrence Berkeley
National Lab must disclose certain information that is necessary or useful for
our use of the licensed patent rights and we have a non-exclusive, royalty-free
right to use such information.
Lawrence Berkeley National Lab has an obligation to
notify us of certain future inventions that are available for licensing by
Lawrence Berkeley National Lab prior to entering into negotiations with others.
However, Lawrence Berkeley National Lab is not required to license those
inventions to us, or even to negotiate with us.
In connection with this agreement, we paid certain
license fees and minimum royalties and recorded $30,000, $130,000 and $10,000
as research and development expense in the years ended December 31, 2006,
2005 and 2004, respectively. License fees include $100,000 expensed and paid to
Lawrence Berkeley National Lab in 2005 for the election to retain the broader
field and $20,000 expensed and paid in 2003. We are also required to pay
Lawrence Berkeley National Lab earned royalties on products, services and
processes covered by the license and sold by us or our affiliates or
sublicensees, a percentage of certain other income received by us from our
sublicensees, and patent prosecution and maintenance costs. To the extent that
earned royalties in any given year do not meet certain threshold amounts, we
are required to make annual minimum royalty payments to Lawrence Berkeley
National Lab, ranging from $30,000 to $60,000, in order to maintain the
license. The research and development expenses include $30,000, $30,000 and
$10,000 in annual minimum royalties that we paid and recorded as expense during
the years ended December 31, 2006, 2005 and 2004, respectively.
In order to maintain our license, we must expend at
least $1.0 million per year commencing with 2005 towards the research,
development and commercialization of products covered by the agreement. If we
fail to do so, Lawrence Berkeley National Lab may renegotiate the milestones,
terminate the agreement or convert the exclusive license to a non-exclusive
license. In order to maintain the broad field, we were required to and did
expend an additional amount during 2005 and 2006 towards the research,
development and commercialization of products and processes covered by the
license.
14
We are obligated to indemnify Lawrence Berkeley
National Lab, the United States government and related parties from claims
arising from our or our sublicensees’ exercise of rights under the agreement,
unless the claims result from the indemnified parties’ gross negligence or
willful misconduct.
The agreement expires upon
the later of the expiration, abandonment or final adjudication of invalidity of
the licensed patents. The licensed patents consist of two United States patents
that expire in 2017 and one United States patent application. Any patent
issuing from such application will have a term of 20 years from the date such
application was filed. Our license to use the know-how acquired from Lawrence
Berkeley National Lab is paid-up and perpetual following the expiration, but
not an earlier termination, of the agreement. Either party may terminate the
agreement for the other’s material breach with a 90 day cure period, although
Lawrence Berkeley National Lab may terminate if we do not cure payment breaches
within 30 days. We may terminate the agreement for any reason upon 180 days
notice. Upon termination of the agreement, we are required to assign each
sublicense to Lawrence Berkeley National Lab and Lawrence Berkeley National Lab
is required to assume it unless the sublicensee is then in breach or the
sublicense conflicts with Lawrence Berkeley National Lab’s obligations to state
or federal governments.
Patents and Proprietary Rights
Our success depends in part on our ability to obtain
and maintain proprietary protection for our technology and product candidates,
to operate without infringing on the proprietary rights of others and to
prevent others from infringing our proprietary rights. Our policy is to seek to
protect our proprietary position by, among other methods, filing United States
and foreign patent applications related to our proprietary technology and
product candidates that are important to the development of our business. We
also rely on trade secrets, know-how, continuing technological innovation and
in-licensing opportunities to develop and maintain our proprietary position.
We license or own a patent portfolio of 41 patent
families, which presently includes 25 United States patents and 60 United
States patent applications as well as foreign counterparts to certain of the
United States patents and patent applications. Our patent portfolio includes
issued or pending claims covering: methods and technologies for characterizing
sugars and other heterogeneous mixtures; the use of certain naturally occurring
heparinases, heparinase variants and other enzymes which specifically recognize
polysaccharides in the characterization of sugars; methods and technologies for
chemical and metabolic synthesis of sugars; the composition of matter of
certain novel LMWHs, including M118, and heparinase variants; methods to
produce and identify sugars associated with glycoproteins; methods to analyze
and monitor glycoprotein profiles for purposes associated with the diagnosis,
staging, prognosis and monitoring of cancer; and methods for the
in vivo
non-invasive delivery of sugars.
A significant portion of our patent portfolio covering
methods and technologies for characterizing sugars consists of patents and
patent applications owned and licensed to us by M.I.T. In addition, a
significant portion of the claims in our patent portfolio covering the
composition of matter of naturally occurring heparinases, heparinase variants
and other enzymes, the use of these heparinases and enzymes in the
characterization of sugars, the methods and technologies for chemical synthesis
of sugars, and the composition of matter of novel low molecular weight heparins
consists of patents and patent applications that are owned and licensed to us
by M.I.T. The portion of our patent portfolio covering methods and technologies
for metabolic synthesis of sugars consist of patents and patent applications
that are owned and licensed to us by Lawrence Berkeley National Lab.
The patent positions of companies like ours are
generally uncertain and involve complex legal and factual questions. Our
ability to maintain and solidify our proprietary position for our technology
will depend on our success in obtaining effective claims and enforcing those
claims once granted. We do not know whether any of our patent applications will
result in the issuance of any patents. Moreover, any
15
issued patent does not
guarantee us the right to practice the patented technology or commercialize the
patented product. Third parties may have blocking patents that could be used to
prevent us from commercializing our patented products and practicing our
patented technology. Our issued patents and those that may be issued in the
future may be challenged, invalidated or circumvented, which could limit our
ability to stop competitors from marketing related products or the length of
the term of patent protection that we may have for our products. In addition,
the rights granted under any issued patents may not provide us with proprietary
protection or competitive advantages against competitors with similar
technology. Furthermore, our competitors may independently develop similar
technologies. For these reasons, we may have competition for our generic,
biosimilar and novel products. Moreover, because of the extensive time required
for development, testing and regulatory review of a potential product, it is
possible that, before any of our novel heparin or other products can be
commercialized, any related patent may expire or remain in force for only a
short period following commercialization, thereby reducing any advantage of the
patent.
We may rely, in some
circumstances, on trade secrets to protect our technology. However, trade
secrets are difficult to protect. We seek to protect our technology and product
candidates, in part, by confidentiality agreements with our employees,
consultants, advisors, contractors and collaborators. These agreements may be
breached and we may not have adequate remedies for any breach. In addition, our
trade secrets may otherwise become known or be independently discovered by
competitors. To the extent that our employees, consultants, advisors,
contractors and collaborators use intellectual property owned by others in
their work for us, disputes may arise as to the rights in related or resulting
know-how and inventions.
Manufacturing
We do not own facilities for manufacturing any
products. Although we intend to rely on contract manufacturers, we have
personnel with experience in manufacturing, as well as process development,
analytical development, quality assurance and quality control. Under both the
2003 Sandoz Collaboration and the 2006 Sandoz Collaboration, Sandoz is
responsible for commercialization of the products covered by those agreements.
We have entered into
various agreements with third party contractors for process development,
analytical services and manufacturing. In each of our agreements with
contractors, we retain ownership of our intellectual property and generally own
and/or are assigned ownership of processes, developments, data, results and
other intellectual property generated during the course of the performance of
each agreement that primarily relate to our products. Where applicable, we are
granted non-exclusive licenses to certain contractor intellectual property for
purposes of exploiting the products that are the subject of the agreement and
in a few instances we grant non-exclusive licenses to the contract
manufacturers for use outside of our product area. The agreements also
typically contain provisions for both parties to terminate for material breach,
bankruptcy and insolvency.
Sales and Marketing
We do not currently have
any sales and marketing capabilities, nor do we currently have any plans to
build a sales and marketing force to support any of our products. In order to commercialize any products that
are not encompassed by the 2003 Sandoz Collaboration or 2006 Sandoz
Collaboration, we must either develop a sales and marketing infrastructure or
collaborate with third parties that have sales and marketing experience, and we
will review these options as our other product candidates move closer to
commercialization.
16
Competition
The development and commercialization of
pharmaceutical products is highly competitive. In the event that we were to
receive approval for, and market and sell M-Enoxaparin, we would face
competition from Sanofi-Aventis, the company currently marketing Lovenox, and
from other firms if they receive marketing approval for generic versions of
Lovenox. Sanofi-Aventis may also choose to market a generic version of Lovenox
itself or through an authorized third-party distributor. While there are no generic
versions of Lovenox approved by the FDA to date, ANDAs have been submitted to
the FDA by Amphastar and Teva, and other ANDAs or other regulatory applications
may have been submitted or will be submitted in the future.
In addition, other anticoagulants used in the
treatment of DVT and ACS will compete with our M-Enoxaparin product,
should it be approved by the FDA. Competitive anticoagulants targeted for DVT
will also compete with our M-Dalteparin product, if we choose to pursue it.
These competitors include GlaxoSmithKline’s factor Xa inhibitor, Arixtra
®, which is approved in multiple DVT
indications and ACS, and other LMWH products. We are also aware of other
anticoagulant drugs in development for the treatment of DVT, including
next-generation LMWHs and several factor Xa inhibitors that are in clinical
trials. These include SR-123781 and idraparinux which are being developed
by Sanofi-Aventis, rivaroxaban which is being developed by Bayer AG, and
dabigatran etexilate which is being developed by Boehringer Ingelheim.
Our M118 product is targeted to support treatment of
patients with ACS. Potential competitors to this product include: the Medicines
Company’s direct thrombin inhibitor, Angiomax
®
, which is approved for use in
angioplasty; GlaxoSmithKline’s Arixtra, which recently received an approvable
letter to treat patients with UA/NSTEMI and STEMI in ACS; and various other
LMWH and unfractionated heparin products.
There are other anticoagulant drugs in development for
ACS, including next-generation LMWHs and several factor Xa inhibitors, which
are in clinical trials. M118 also faces competition from products other than
heparins, such as anti-platelet and direct thrombin inhibitors which may be
used in the treatment of ACS.
In the field of complex mixtures, there are several
competitors seeking to provide additional characterization or create
biosimilar, generic, and/or improved versions of marketed complex products. Neose
Technologies, Inc. and GlycoFi, a wholly-owned subsidiary of Merck &
Co., Inc., possess selected analytical and engineering capabilities for
complex sugars which could be applied to creating biosimilar, generic, or
improved versions of complex protein-based products containing sugars.
Companies such as Barr Pharmaceuticals, Inc., Teva, Sandoz, BioGenerix AG,
Dragon Pharmaceuticals, Inc., Stada Arzneimittel, Cangene Corporation and
GeneMedix Ltd. also have disclosed intentions to develop and commercialize
generic and/or improved versions of marketed protein products in the U.S. or
Europe. Most of these companies have experience with manufacturing complex
protein products or with commercializing generic products. There has been
substantial growth in recent years in the number of generic companies looking
to develop biosimilar or generic versions of protein-based products.
Biotechnology and pharmaceutical companies also continue to invest
significantly in better understanding their own products or creating improved
versions of marketed products.
Similarly, our discovery work in oncology faces substantial
competition from major pharmaceutical and other biotechnology companies that
are actively working on improved and novel therapeutics. Companies competing
most directly with our approach of developing sugar-based therapeutics for
oncology include Progen Industries Limited. Pfizer has also conducted
investigative clinical trials using Fragmin as a therapeutic drug for cancer;
while there are no approved indications, selected trials are ongoing.
17
The field of glycobiology
generally is a growing field with increased competition. However, the
capabilities of the field can generally be segmented into those companies using
sugars as therapeutics, companies focused on engineering or modifying sugars,
including pegylation technologies, and companies focused on analytics. Among
those in analytics, we are not aware of others that have similar capabilities
for detailed chemical characterization of complex sugars. Procognia Limited’s
technology is largely focused on analyzing proteins and their glycosylation. In
addition, many major pharmaceutical and biotechnology companies such as Amgen
and Biogen Idec Inc. have successfully improved products through sugar
modification. Potential competitors with broad glycobiology capabilities
include Neose Technologies, Inc., Keryx Pharmaceuticals and
Pro-Pharmaceuticals, Inc. as well as many private, start-up pharmaceutical
organizations. Many of these companies are focused on providing services to
pharmaceutical companies rather than focused on drug discovery and product
development.
Regulatory and Legal Matters
Government authorities in
the United States, at the federal, state and local level, the European Union,
and other countries extensively regulate, among other things, the research,
development, testing, manufacture, labeling, promotion, advertising,
distribution, marketing and export and import of products such as those we are
developing.
United States Government Regulation
In the United States, the
information that must be submitted to the FDA in order to obtain approval to
market a new drug varies depending on whether the drug is a new product whose
safety and effectiveness has not previously been demonstrated in humans, or a
drug whose active ingredient(s) and certain other properties are the same
as those of a previously approved drug. Drugs follow either the NDA or BLA
routes, and a drug that claims to be the same as an already approved NDA drug
may be able to follow the ANDA route. Drugs approved as BLAs including
glycoproteins, are typically classified as biologics, as they are produced from
living systems.
NDA and BLA Approval Processes
In the United
States, the FDA regulates drugs and biologics under the Federal Food, Drug, and
Cosmetic Act, and, in the case of biologics, also under the Public Health
Service Act, and implementing regulations. The steps required before a drug or
biologic may be marketed in the United States include:
·
completion
of preclinical laboratory tests, animal
studies and formulation studies under the FDA’s current good laboratory
practices;
·
submission
to the FDA of an IND for human clinical testing, which must become effective
before human clinical trials may begin and must include independent
Institutional Review Board, or IRB, approval at each clinical site before the
trial is initiated;
·
performance
of adequate and well-controlled clinical trials to establish the safety and
efficacy of the product for each indication;
·
submission
to the FDA of an NDA or BLA;
·
satisfactory
completion of an FDA Advisory Committee review, if applicable;
·
satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at
which the product is produced to assess compliance with current Good
Manufacturing Practices, or cGMPs, to assure that the facilities, methods and
controls are adequate to preserve the drug’s identity, strength, quality and
purity or to meet standards designed to ensure the biologic’s continued safety,
purity and potency; and
18
·
FDA
review and approval of the NDA or BLA.
Preclinical tests include laboratory evaluations of
product chemistry, toxicity, and formulation, as well as animal studies. An IND
sponsor must submit the results of the preclinical tests, together with
manufacturing information and analytical data, to the FDA as part of the IND.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time, the FDA raises concerns or questions about issues such
as the conduct of the trials as outlined in the IND. In that case, the IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. Submission of an IND may not result in the
FDA allowing clinical trials to commence.
Clinical trials involve the administration of the
investigational product to human subjects or patients in accordance with specific
protocols and under the supervision of qualified investigators. Each clinical trial
protocol must be submitted to the FDA as part of the IND, and an IRB at each
site where the study is conducted must also approve the study. Clinical trials
typically are conducted in three sequential phases, but the phases may overlap
or be combined. Phase I trials usually involve the initial introduction of the
investigational drug into humans to evaluate the product’s safety, dosage
tolerance and pharmacodynamics and, if possible, to gain an early indication of
its effectiveness. Phase II trials usually involve controlled trials in a
limited patient population to evaluate dosage tolerance and appropriate dosage,
identify possible adverse effects and
safety risks and evaluate the preliminary efficacy of the drug for specific
indications. Phase III trials usually further evaluate clinical efficacy and
test further for safety in an expanded patient population. Phase I, Phase II
and Phase III testing may not be completed successfully within any specified
period, if at all. Furthermore, the FDA or we may suspend or terminate clinical
trials at any time on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk.
Assuming successful completion of the required
clinical testing, the results of the preclinical studies and of the clinical
studies, together with other detailed information, including information on the
chemistry, manufacture and control criteria of the product, are submitted to
the FDA in the form of an NDA or BLA requesting approval to market the product
for one or more indications. The FDA reviews an NDA to determine, among other
things, whether a product is safe and effective for its intended use and
whether its manufacturing is cGMP-compliant to assure and preserve the product’s
identity, strength, quality and purity. The FDA reviews a BLA to determine,
among other things, whether the product is safe, pure and potent and the facility
in which it is manufactured, processed, packed or held meets standards designed
to assure the product’s continued safety, purity and potency. The FDA may
refuse to accept and review insufficiently complete applications.
Before approving an NDA or BLA, the FDA will inspect
the facility or the facilities at which the product is manufactured. If the FDA
determines the application, manufacturing process or manufacturing facilities
are not acceptable, it will outline the deficiencies in the submission and often
will request additional testing or information. Notwithstanding the submission
of any requested additional information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval.
The testing and approval process
requires substantial time, effort and financial resources, and each may take
several years to complete. The FDA may not grant approval on a timely basis, or
at all. We may encounter difficulties or unanticipated costs in our efforts to
secure necessary governmental approvals, which could delay or preclude us from
marketing our products. The FDA may limit the indications for use or place
other conditions on any approvals that could restrict the commercial
application of the products. After approval, some types of changes to the
approved product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further FDA review and approval.
19
ANDA Process
FDA approval is required before a generic equivalent
of an existing brand name drug can be marketed. Such approval for products is
typically obtained by submitting an ANDA to the FDA and demonstrating
therapeutic equivalence. However, it is within the FDA’s regulatory discretion
to determine the kind and amount of evidence required to approve a product for
marketing. Although the FDA has accepted ANDAs for generic versions of Lovenox
for review, the FDA could determine that therapeutic equivalence cannot be
shown for M-Enoxaparin and require instead that an NDA be submitted for
approval. An ANDA may be submitted for a drug on the basis that it is the same
as a previously approved branded drug, also known as a listed drug.
Specifically, the generic drug that is the subject of the ANDA must have the
same active ingredient(s), route of administration, dosage form, and strength,
as well as the same labeling, with certain exceptions, and the labeling must
prescribe conditions of use that have been previously approved for the listed
drug. If the generic drug product has a different route of administration,
dosage form, or strength, the FDA must grant a suitability petition approving
the differences(s) from the listed drug before the ANDA may be filed. The
ANDA must also contain data and information demonstrating that the generic drug
is bioequivalent to the listed drug, or if the application is submitted
pursuant to an approved suitability petition, information to show that the
listed drug and the generic drug can be expected to have the same therapeutic
effect as the listed drug when administered to patients for a proposed
condition of use.
Generic drug applications are termed “abbreviated”
because they are not required to duplicate the clinical (human) testing or,
generally, preclinical testing necessary to establish the underlying safety and
effectiveness of the branded product. However, the FDA may refuse to approve an
ANDA if there is insufficient information to show that the active ingredients
are the same and to demonstrate that any impurities or differences in active ingredients
do not affect the safety or efficacy of the generic product. In addition, like
NDAs, an ANDA will not be approved unless the product is manufactured in
cGMP-compliant facilities to assure and preserve the drug’s identity, strength,
quality and purity. As is the case for NDAs and BLAs, the FDA may refuse to
accept and review insufficiently complete ANDAs.
In an ANDA submission, determination of the “sameness”
of the active ingredients to those in the reference listed drug is based on the
demonstration of the chemical equivalence of the components of the generic
version to those of the branded product. While the standard for demonstrating
chemical equivalence is relatively straightforward for small molecule drugs, it
is inherently more difficult to define active ingredients for complex drugs.
Under the NDA pathway, these types of drugs include such products as heparins
and recombinant versions of certain hormones, among others. Due to the limited
number of ANDA submissions for complex generics, the FDA has not reached a
final position for demonstrating chemical equivalence for many of these
products specifically, nor provided broad guidance for achieving “sameness” for
complex drugs in general. In many cases, the criteria the FDA may apply are
still evolving. Additionally, there is currently no abbreviated approval
mechanism for protein-based products, which are generally approved under the
BLA pathway. Although, to our knowledge, the FDA has not provided official
guidance on the legal and scientific aspects of follow-on protein regulation,
bills were introduced in Congress in 2006 and reintroduced in early 2007
intending to seek legislative approval that would provide a pathway for
abbreviated approval of generic or biosimilar versions of BLA products. We
anticipate this issue will be the subject of significant Congressional debate,
as well as lobbying efforts by both generic and branded pharmaceutical
companies.
To demonstrate bioequivalence, ANDAs generally must
also contain
in vivo
bioavailability data for the generic and branded drugs. “Bioavailability”
indicates the rate and extent of absorption and levels of concentration of a
drug product in the bloodstream needed to produce a therapeutic effect. “Bioequivalence”
compares the bioavailability of one drug product with another, and when
established, indicates that the rate of absorption and levels of concentration
of a generic drug in the body are the same as the previously approved branded
drug. The studies required to demonstrate
in
vivo
bioequivalence are
20
generally very small,
quick to complete, and involve relatively few subjects. Under current
regulations, the FDA may waive requirements for
in vivo
bioequivalence data for certain drug products,
including where bioequivalence is self evident such as injectable solutions
which have been shown to contain the same active and inactive ingredients as
the reference listed drug. The FDA, however, does not always waive requirements
for
in vivo
bioequivalence data. For
example, bioequivalence data was required for the M-Enoxaparin ANDA submission.
Generic drug products that are found to be
therapeutically equivalent by the FDA receive an “A” rating in FDA’s Orange
Book, which lists all approved drug products and therapeutic equivalence
evaluations. Products that are therapeutically equivalent can be expected in
the FDA’s judgment to have equivalent clinical effect and no difference in
their potential for adverse effects when used under the conditions of their
labeling. Products with “A” ratings are generally substitutable for the
innovator drug by both in-hospital and retail pharmacies. Many health insurance
plans require automatic substitution for “A” rated generic versions of products
when they are available, although physicians may still prescribe the branded
drug for individual patients.
The timing of final FDA
approval of a generic drug for commercial distribution depends on a variety of
factors, including whether the applicant challenges any listed patents for the
drug and/or its use and whether the manufacturer of the branded product is
entitled to one or more statutory exclusivity periods, during which the FDA is
prohibited from accepting or approving generic product applications. For
example, submission of an ANDA for a drug that was approved under an NDA as a
new chemical entity will be blocked for five years after the pioneer’s
approval, or for four years after approval if the application includes a
paragraph IV certification of non-infringement or invalidity against a patent
applicable to the branded drug. This does not apply to M-Enoxaparin and
M-Dalteparin but may apply to future generic products that we pursue. In
certain circumstances, a regulatory exclusivity period can extend beyond the
life of a patent, and thus block ANDAs from being approved on or after the
patent expiration date. For example, a three-year exclusivity period may be
granted for new uses or versions of previously approved drugs, if approval of
such changes required the sponsor to conduct new clinical studies. In addition,
the FDA may extend the exclusivity of a product by six months past the date of
patent expiry or other regulatory exclusivity if the manufacturer undertakes
studies on the effect of their product in children, a so-called pediatric
extension.
Post-Approval Requirements
After regulatory approval of a product is obtained, we
are required to comply with a number of post-approval requirements. For
example, as a condition of approval of an NDA or BLA, the FDA may require
post-marketing testing and surveillance to monitor the product’s safety or
efficacy. Proposed legislation, if enacted, could expand our post-approval
regulatory obligations, and the cost of complying with such obligations.
In addition, holders of an approved NDA, BLA, or ANDA
are required to report certain adverse reactions and production problems to the
FDA, to provide updated safety and efficacy information and to comply with
requirements concerning advertising and promotional labeling for their
products. Also, quality control and manufacturing procedures must continue to
conform to cGMP after approval. The FDA periodically inspects manufacturing
facilities to assess compliance with cGMP, which imposes certain procedural,
substantive and recordkeeping requirements. Accordingly, manufacturers must
continue to expend time, money and effort in the area of production and quality
control to maintain compliance with cGMP and other aspects of regulatory
compliance. We use, and will continue to use in at least the near term,
third-party manufacturers to produce our products in clinical and commercial
quantities. Future FDA inspections may identify compliance issues at our
facilities or at the facilities of our contract manufacturers that may disrupt
production or distribution or require substantial resources to correct.
21
Discovery of problems with
a product or failure to comply with the applicable United States requirements
at any time during the product development process, approval process or after
approval, may subject an applicant to administrative or judicial sanctions.
These sanctions could include a clinical hold on or termination of studies, the
FDA’s refusal to approve pending applications, license suspension or
revocation, withdrawal of an approval, restriction on marketing, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, fines, civil penalties or criminal
prosecution. Also, new government requirements may be established that could
delay or prevent regulatory approval of our products under development.
Patent Challenge Process Regarding ANDAs
The Hatch-Waxman Act provides incentives for generic
pharmaceutical manufacturers to challenge patents on branded pharmaceutical
products and/or their methods of use, as well as to develop products comprising
non-infringing forms of the patented drugs. The Hatch-Waxman legislation places
significant burdens on the ANDA filer to ensure that such challenges are not
frivolous, but also offers the opportunity for significant financial reward if
the challenge is successful.
If there is a patent listed for the branded drug in
the FDA’s Orange Book at the time of submission of the ANDA or at any time
before the ANDA is approved the generic company’s ANDA must include one of four
types of patent certification with respect to each listed patent. If the
applicant seeks approval to market the generic equivalent prior to the
expiration of a listed patent, the generic company includes a certification
asserting that the patent is invalid, unenforceable and/or not infringed, a
so-called “paragraph IV certification.”
After receiving notice from the FDA that its application is acceptable
for review, or immediately if the ANDA has been amended to include a paragraph
IV certification after the application was submitted to the FDA, the generic
applicant is required to send the patent owner and the holder of the NDA for
the brand-name drug notice explaining why it believes that the listed patents
in question are invalid, unenforceable or not infringed. If the patent holder
commences a patent infringement lawsuit within 45 days of receipt of such
notice, the Hatch-Waxman Act provides for an automatic stay on the FDA’s
ability to grant final approval of the ANDA for the generic product, generally
for a period of 30 months. A 30-month stay may be shortened or lengthened
by the court if the court finds that a party has failed to reasonably cooperate
in expediting the action. Moreover, the court may, before expiration of the
stay, issue a preliminary injunction prohibiting the commercial sale of the
generic drug until the court rules on the issues of validity,
infringement, and enforceability. If the district court finds that the relevant
patent is invalid, unenforceable, or not infringed, such ruling terminates the
30-month stay on the date of the judgment. If the court rules that
the patent is valid, enforceable, and infringed, approval of the ANDA may not
be granted prior to the expiration of the patent. In addition, if the
challenged patent expires during the 30-month period, the FDA may grant
final approval for the generic drug for marketing, if the FDA has determined
that the application meets all technical and regulatory requirements for
approval and there are no other obstacles to approval.
In most cases, patent holders may only obtain one 30
month stay with respect to patents listed in the Orange Book. Specifically, for
ANDAs with paragraph IV certifications to a patent listed for the branded drug
in the Orange Book on or after August 18, 2003, a single 30-month
stay is available for litigation related to that patent only if the patent was
submitted to the FDA before the date that the ANDA (excluding an amendment or
supplement) was submitted. In other words, 30-months stays are not
triggered by later listed patents submitted to the FDA on or after the date the
ANDA application was submitted. Because of this limitation, in most cases ANDAs
will be subject to no more than one 30-month stay.
Under the Hatch-Waxman
Act, the first ANDA applicant to have submitted a substantially complete ANDA
that includes a paragraph IV certification may be eligible to receive a 180-day
period of generic market exclusivity during which the FDA may not approve any
other ANDA for the same drug product.
22
However,
this exclusivity does not prevent the sponsor of the innovator drug from
selling an unbranded “authorized generic” version of its own product during the
180-day exclusivity period. This period of market exclusivity may provide
the patent challenger with the opportunity to earn a return on the risks taken
and its legal and development costs and to build its market share before other
generic competitors can enter the market. Under the Hatch-Waxman law, as
amended by the Medicare Modernization Act of 2003, or MMA, there are a number
of ways an applicant who has filed an ANDA after the date of the MMA may
forfeit its 180-day exclusivity, including if the ANDA is withdrawn or if
the applicant fails to market its product within the specified statutory
timeframe. In addition, For ANDAs filed after the MMA was enacted, it is
possible for more than one ANDA applicant to be eligible for 180-day
exclusivity. This occurs when multiple “first” applicants submit substantially
complete ANDAs with paragraph IV certifications on the same day.
Foreign Regulation
In addition to regulations in the United States, we
will be subject to a variety of foreign regulations governing clinical trials
and commercial sales and distribution of our products when we enter those
markets. Whether or not we obtain FDA approval for a product, we must obtain
approval of a clinical trial application or product by the comparable
regulatory authorities of foreign countries before we can commence clinical
trials or marketing of the product in those countries. The approval process
varies from country to country, and the time may be longer or shorter than that
required for FDA approval. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country
to country.
Under European Union
regulatory systems, we may submit marketing authorizations either under a
centralized or decentralized procedure. The centralized procedure provides for
the grant of a single marketing authorization that is valid for all European
Union member states. The decentralized procedure provides for mutual
recognition of national approval decisions. Under this procedure, the holder of
a national marketing authorization may submit an application to the remaining
member states. Within 90 days of receiving the applications and assessment
report, each member state must decide whether to recognize approval.
Related Matters
From time to time,
legislation is drafted, introduced and passed in Congress that could
significantly change the statutory provisions governing the approval,
manufacturing and marketing of products regulated by the FDA. In addition, FDA
regulations and guidance are often revised or reinterpreted by the agency in
ways that may significantly affect our business and our products. It is
impossible to predict whether legislative changes will be enacted, or FDA
regulations, guidance or interpretations changed, or what the impact of such
changes, if any, may be.
Hazardous Materials
Our research and
development processes involve the controlled use of certain hazardous materials
and chemicals, including radioactive materials and equipment. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous materials and waste products. We do
not expect the cost of complying with these laws and regulations to be
material.
23
Employees
We believe that our
success will depend greatly on our ability to identify, attract and retain
capable employees. As of December 31, 2006, we had 153 employees,
including a total of 40 employees who hold M.D. or Ph.D. degrees. Our employees
are not represented by any collective bargaining unit, and we believe our
relations with our employees are good.
Item 1A.
RISK
FACTORS
Statements
contained or incorporated by reference in this Annual Report on Form 10-K
that are not based on 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 Exchange Act. These forward-looking statements
regarding future events and our future results are based on current
expectations, estimates, forecasts, projections, intentions, goals, strategies,
plans, prospects and the beliefs and assumptions of our management including,
without limitation, our expectations regarding results of operations, general
and administrative expenses, research and development expenses, current and
future development and manufacturing efforts, regulatory filings, clinical
trial results and the sufficiency of our cash for future operations.
Forward-looking statements can be identified by terminology such as
“anticipate,” “believe,” “could,” “could increase the likelihood,” “hope,”
“target,” “project,” “goals,” “potential,” “predict,” “might,” “estimate,”
“expect,” “intend,” “is planned,” “may,” “should,” “will,” “will enable,”
“would be expected,” “look forward,” “may provide,” “would” or similar terms,
variations of such terms or the negative of those terms.
We cannot assure investors that our assumptions and
expectations will prove to have been correct. Important factors could cause our
actual results to differ materially from those indicated or implied by
forward-looking statements. Such factors that could cause or contribute to such
differences include those factors discussed below. We undertake no intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. If any of the following
risks actually occur, our business, financial condition or results of
operations would likely suffer.
Risks Relating to Our Business
We have a limited
operating history and have incurred a cumulative loss since inception. If we do
not generate significant revenues, we will not be profitable.
We have incurred significant losses since our
inception in May 2001. At December 31, 2006, our accumulated deficit
was approximately $125.5 million. We have not generated revenues from the sale
of any products to date. We expect that our annual operating losses will
increase over the next several years as we expand our drug commercialization,
development and discovery efforts. To become profitable, we must successfully
develop, and obtain regulatory approval for, our existing drug candidates, and
effectively manufacture, market and sell any drugs we develop. Accordingly, we
may never generate significant revenues and, even if we do generate significant
revenues, we may never achieve profitability.
To become and remain
profitable, we must succeed in developing and commercializing drugs with
significant market potential. This will require us to be successful in a range
of challenging activities: developing drugs; obtaining regulatory approval for
them; and manufacturing, marketing and selling them. We may never succeed in
these activities and may never generate revenues that are significant or large
enough to achieve profitability. Even if we do achieve profitability, we may
not be able to sustain or increase profitability on a quarterly or annual
basis. Our failure to become and remain profitable would cause the market price
of our common stock to decrease and could impair our ability to raise capital,
expand our business, diversify our product offerings or continue our
operations.
24
If we fail to
obtain approval for and commercialize our most advanced product candidate,
M-Enoxaparin, we may have to curtail our product development programs and our
business would be materially harmed.
We have invested a significant portion of our time,
financial resources and collaboration efforts in the development of our most
advanced product candidate, M-Enoxaparin, a technology-enabled generic version
of Lovenox. Our near-term ability to generate revenues and our future success,
in large part, depends on the development and commercialization of
M-Enoxaparin.
In accordance with our 2003
Sandoz Collaboration, Sandoz submitted an ANDA to the FDA on August 29, 2005
seeking approval to market M-Enoxaparin in the United States. FDA approval of
an ANDA is required before marketing of a generic equivalent of a drug
previously approved under an NDA. If we are unable to satisfactorily
demonstrate therapeutic equivalence, if the FDA disagrees with our
characterization approach or does not agree that M-Enoxaparin is equivalent to
Lovenox, or if we otherwise fail to meet FDA requirements for the ANDA
(including but not limited to manufacturing and bioequivalence requirements) or
obtain FDA approval for, and successfully commercialize, M-Enoxaparin, we may
never realize revenue from this product and we may have to curtail our other
product development programs. As a result, our business would be materially
harmed.
Patent litigation
with Sanofi-Aventis, the innovator of Lovenox, may cause delays and additional
expense in the commercialization of M-Enoxaparin. If we are not successful in
commercializing M-Enoxaparin or are significantly delayed in doing so, our
business would be materially harmed, which could include without limitation the
curtailment of our other development programs.
Companies that produce branded pharmaceutical products
for which there are unexpired patents listed in the FDA’s listing of approved
drug products, the Orange Book, often bring patent infringement litigation
against applicants seeking FDA approval to manufacture and market generic forms
of the branded products before patent expiration. Litigation against Sandoz, us
or others with respect to Lovenox may cause delays and additional expense in
the commercialization of M-Enoxaparin.
Currently, Sanofi-Aventis has two listed patents for
Lovenox in the Orange Book, the ‘618 Patent and the ‘743 Reissue Patent. Sanofi-Aventis
has reported that the claims of the ‘618 Patent are identical or substantially
identical to the corresponding claims of the ‘743 Reissue Patent. According to
Sanofi-Aventis, by operation of law, the ‘618 Patent ceases to exist and has
been replaced by the ‘743 Reissue Patent. According to the Orange Book, the ‘743
Reissue Patent expires February 14, 2012.
Sanofi-Aventis has brought
lawsuits for patent infringement; one against Amphastar and Teva, and a second,
separate patent infringement lawsuit pending against Sandoz.
Amphastar/Teva
Patent Infringement Lawsuit
In September 2003, prior to issuance of the’743
Reissue Patent, Sanofi-Aventis announced that it received individual notices
from Amphastar and Teva indicating that each had submitted with the FDA its own
ANDA with a paragraph IV certification for enoxaparin. Sanofi-Aventis sued
Amphastar and Teva for patent infringement, and in response Amphastar and Teva
asserted claims of non-infringement, invalidity and/or unenforceability of the ‘618
Patent, as well as various counterclaims, and sought related declaratory
judgment relief against Sanofi-Aventis. In September 2005, Amphastar and Teva
each subsequently amended their own ANDA to include a second paragraph IV
certification for the ‘743 Reissue Patent.
On June 16, 2005, the
District Court granted summary judgment in the Amphastar/Teva case, finding
that the ‘743 Reissue Patent was unenforceable due to Aventis’ inequitable
conduct before the United States Patent and Trademark Office, or USPTO. Thereafter,
Sanofi-Aventis appealed the decision to the U.S. Court of Appeals for the
Federal Circuit, or the Court of Appeals. On April 10, 2006, the Court of
25
Appeals
determined that, although there were no issues of material fact with respect to
the materiality of certain information withheld from the USPTO, there remained
genuine issues of material fact regarding the intent to deceive the USPTO. Accordingly,
the Court of Appeals reversed the District Court’s ruling and remanded the case
to the District Court for further proceedings consistent with the Court of
Appeals’ decision. The District Court held a bench trial in December 2006
focused only on inequitable conduct. On February 7, 2007, the District
Court ruled in favor of Amphastar and Teva holding both the ‘618 Patent and the
‘743 Reissue Patent unenforceable by virtue of inequitable conduct before the
USPTO. Sanofi-Aventis may appeal this ruling. If Sanofi-Aventis is successful
in its appeal, all other remaining issues regarding invalidity,
non-infringement and unenforceability could be subsequently tried by the
District Court, if necessary.
Sandoz Patent
Infringement Lawsuit
In August 2005, Sandoz filed an ANDA with the FDA
to obtain approval for the commercial manufacture, use and sale of enoxaparin. In
2006, Sandoz amended its ANDA by filing with the FDA a paragraph IV
certification, stating, among other things, that the ‘618 Patent and ‘743
Reissue Patent are invalid and unenforceable. Sanofi-Aventis brought a patent
infringement suit against Sandoz in August 2006. In response to
Sanofi-Aventis’ lawsuit, Sandoz asserted, among other things, claims of
invalidity and/or unenforceability of the ‘743 Reissue Patent. At this time, no
trial date has been set for this litigation. Sandoz has moved to dismiss the
suit based upon the District Court decision in the Amphastar/Teva case, and
that motion is pending.
Continuing litigation could delay or prevent the
introduction of M-Enoxaparin and Sanofi-Aventis’ efforts to litigate against
potential generic challengers to protect its intellectual property around
Lovenox may not be limited to enforcement of the ‘743 Reissue Patent. Pharmaceutical
companies also frequently sue generic challengers over potential infringement
of patents that are not listed in the Orange Book. Presently, we are not aware
of any litigation relating to non-Orange Book patents, but it is possible that
Sanofi-Aventis will initiate such litigation against us, Sandoz, Teva,
Amphastar, or others in the future. If Sanofi-Aventis were to initiate
litigation relating to a non-Orange Book patents, this litigation could
significantly delay, impair or prevent our ability to commercialize
M-Enoxaparin and our business would be materially harmed.
Under our 2003 Sandoz Collaboration, in most
circumstances, the decision as to when to begin marketing M-Enoxaparin will be
determined jointly by us and Sandoz. Sandoz, however, has sole discretion over
the decision as to when to begin marketing M-Enoxaparin under certain
circumstances. Sandoz could decide to market M-Enoxaparin prior to final
resolution of either the Teva and Amphastar or Sandoz litigation matters, which
could result in significant damages, including possibly treble damages, in the
event Sanofi-Aventis is successful in either patent litigation case. Although
Sandoz has agreed to indemnify us for patent liability damages, Sandoz’s has
the right to offset certain of these liabilities against the profit-sharing
amounts, the royalties and the milestone payments otherwise due to us from the
marketing of M-Enoxaparin.
Litigation involves many
risks and uncertainties, and there is no assurance that Amphastar, Teva, Sandoz
or we will prevail in any lawsuit with Sanofi-Aventis. In addition,
Sanofi-Aventis has significant resources and any litigation with Sanofi-Aventis
could last a number of years, potentially delaying or prohibiting the
commercialization of M-Enoxaparin. If we are not successful in commercializing
M-Enoxaparin or are significantly delayed in doing so, we may have to curtail
our other product development programs and our business would be materially
harmed.
26
If other generic
versions of enoxaparin are approved and successfully commercialized, our
business would suffer.
In March 2003, Amphastar and Teva each submitted
ANDAs for generic versions of Lovenox with the FDA. In addition, other third
parties, including without limitation Sanofi-Aventis, may seek approval to
market generic versions of Lovenox in the United States. If a competitor
obtains FDA approval or obtains licenses from Sanofi-Aventis to market an
authorized generic, the resulting financial returns to us would be materially
adversely affected. Under these circumstances, we may not gain any competitive
advantage and the resulting market price for our M-Enoxaparin product may be
lower, we may be delayed from commercial launch or we may not be able to launch
our product at all. Also, we may never achieve significant market share for
M-Enoxaparin if one or more third parties markets generic versions of Lovenox. Under
the Hatch-Waxman Act, any developer of a generic drug that is first to have its
ANDA accepted for review by the FDA, and whose submission includes a paragraph
IV certification, is eligible to receive a 180-day period of generic
market exclusivity. Sandoz was not the first applicant to file an enoxaparin
ANDA with a paragraph IV certification, so we will be forced to wait until the
expiration of Teva and/or Amphastar’s exclusivity period before the FDA will be
able to finally approve our application. As a result, Teva and/or Amphastar may
have the opportunity to establish long term supply agreements with
institutional customers before we can enter the market, which would hinder our
ability to penetrate the market for generic enoxaparin products.
The 2003 Sandoz
Collaboration contains terms which specify the sharing of commercial returns of
M-Enoxaparin between us and Sandoz. Under circumstances when one or more third
parties successfully commercialize a generic version of Lovenox, significantly
less favorable economic terms would be triggered under our collaboration with
Sandoz. Consequently, if other generic versions of Lovenox are approved and
commercialized, our revenues for M-Enoxaparin would be reduced and, as a
result, our business, including our near-term financial results and our ability
to fund future discovery and development programs, would suffer.
If our other
generic versions of our generic and novel drug products are approved and
successfully commercialized, our business would suffer.
We expect that certain of
our generic product candidates may face intense and increasing competition from
other manufacturers of generic and/or branded products. As patents for branded
products and related exclusivity periods expire, manufacturers of generic
products may receive regulatory approval for generic equivalents and may be
able to achieve significant market penetration. As this happens, or as branded
manufacturers launch authorized generic versions of such products, market
share, revenues and gross profit typically decline, in some cases,
dramatically. If any of our generic product offerings, including M-Enoxaparin,
enter markets with a number of competitors, we may not achieve significant
market share, revenues or gross profit. In addition, as other generic products
are introduced to the markets in which we participate, the market share,
revenues and gross profit of our generic products could decline.
We utilize new
technologies in the development of some of our products that have not been
reviewed or accepted by regulatory authorities.
Some of our products in
current or future development, including M-Enoxaparin and M356, may be based on
new technologies that have not previously been formally reviewed or accepted by
the FDA or other regulatory authorities. It is possible that the FDA’s review
and acceptance of our technologies may take time and resources, require
independent third-party analysis or not be accepted by the FDA and other
regulatory authorities. For some of our products, the regulatory approval path
and requirements may not be clear, which could add significant delay and
expense. Delays or failure to obtain regulatory approval of any of the products
that we develop would adversely affect our business.
27
If we experience
manufacturing difficulties or are unable to obtain sufficient quantities of raw
materials or manufacture sufficient quantities of M-Enoxaparin, our development
and commercialization efforts may be materially harmed.
We have limited personnel
with experience in, and we do not own facilities for, manufacturing any
products. We depend upon third parties to provide raw materials, manufacture
the drug substance, produce the final drug product and provide certain
analytical services with respect to M-Enoxaparin. We or our third party
contractors may have difficulty meeting FDA manufacturing requirements,
including but not limited to, reproducibility, validation and scale-up, and
continued compliance with current good manufacturing practices requirements. In
addition, we or our third party contractors may have difficulty producing
M-Enoxaparin in the quantities necessary to meet anticipated market demand. If
we are unable to satisfy the FDA requirements for approval or to produce
M-Enoxaparin in sufficient quantities to meet the requirements for the launch
of the product or to meet future demand, our revenues and gross margins could
be adversely affected.
We will need to
develop or acquire additional technologies as part of our efforts to analyze
the chemical composition of complex mixtures other than heparins.
To date, our analytical
techniques and methods have been primarily focused on the characterization of
complex mixtures composed of linear sugars, such as those found in the heparin
class of drugs. In order to adequately analyze other complex mixtures, such as
glycoproteins, we will need to develop or acquire new technologies. Our
inability to develop or acquire and apply these new technologies would impair
our ability to assist biotechnology companies in developing improved and
next-generation versions of existing products, and limit our ability to perform
the analysis that we believe may be required to enable biosimilar or equivalent
versions of these biologics. Our inability to develop or acquire additional
technology for the characterization of complex mixtures other than heparins
could reduce the likelihood of our success developing other products.
Competition in the
biotechnology and pharmaceutical industries is intense, and if we are unable to
compete effectively, our financial results will suffer.
The markets in which we intend to compete are
undergoing, and are expected to continue to undergo, rapid and significant
technological change. We expect competition to intensify as technological
advances are made or new biotechnology products are introduced. New
developments by competitors may render our current or future product candidates
and/or technologies non-competitive, obsolete or not economical. Our
competitors’ products may be more efficacious or marketed and sold more
effectively than any of our products.
Many of our
competitors have:
·
significantly
greater financial, technical and human resources than we have at every stage of
the discovery, development, manufacturing and commercialization process;
·
more
extensive experience in commercializing generic drugs, preclinical testing,
conducting clinical trials, obtaining regulatory approvals, challenging patents
and in manufacturing and marketing pharmaceutical products;
·
products
that have been approved or are in late stages of development; and
·
collaborative
arrangements in our target markets with leading companies and research
institutions.
If we successfully
develop and obtain approval for our drug candidates, we will face competition
based on many different factors, including:
·
the
safety and effectiveness of our products;
28
·
the
timing and scope of regulatory approvals for these products;
·
the
availability and cost of manufacturing, marketing and sales capabilities;
·
the
effectiveness of our marketing and sales capabilities;
·
the
price of our products;
·
the
availability and amount of third-party reimbursement for our products; and
·
the
strength of our patent position.
Our competitors may
develop or commercialize products with significant advantages in regard to any
of these factors. Our competitors may therefore be more successful in
commercializing their products than we are, which could adversely affect our
competitive position and business.
If we are unable to
establish and maintain key customer arrangements, sales of our products, and
therefore revenues, would decline.
Generic pharmaceutical
products are sold through various channels, including retail, mail order, and
to hospitals through group purchasing organizations, or GPOs. As enoxaparin is
primarily a hospital-based product, we expect to derive a large percentage of
our future revenue for M-Enoxaparin through contracts with GPOs. Currently, a
relatively small number of GPOs control a substantial portion of generic
pharmaceutical sales to hospital customers. In order to establish and maintain
contracts with these GPOs, we believe that we, in collaboration with Sandoz,
will need to maintain adequate drug supplies, remain price competitive, comply
with FDA regulations and provide high-quality products. The GPOs with whom we
hope to establish contracts may also have relationships with our competitors
and may decide to contract for or otherwise prefer products other than ours,
limiting access of M-Enoxaparin to certain hospital segments. Our sales could also
be negatively affected by any rebates, discounts or fees that are required by
our customers, including the GPOs, wholesalers, distributors, retail chains or
mail order services, to gain and retain market acceptance for our products.
M356 is primarily distributed through retail channels and mail order services.
If we are unable to establish and maintain arrangements with all of these
customers, future sales of our products, including M-Enoxaparin and M356, our
revenues and our profits would suffer.
Even if we receive
approval to market our drug candidates, the market may not be receptive to our
drug candidates upon their commercial introduction, which could prevent us from
being profitable.
Even if our drug candidates are successfully
developed, our success and growth will also depend upon the acceptance of these
drug candidates by physicians and third-party payors. Acceptance of our product
development candidates will be a function of our products being clinically
useful, being cost effective and demonstrating superior therapeutic effect with
an acceptable side effect profile as compared to existing or future treatments.
In addition, even if our products achieve market acceptance, we may not be able
to maintain that market acceptance over time.
Factors that we
believe will materially affect market acceptance of our drug candidates under
development include:
·
the
timing of our receipt of any marketing approvals, the terms of any approval and
the countries in which approvals are obtained;
·
the
safety, efficacy and ease of administration of our products;
·
the
competitive pricing of our products;
·
the
success of our physician education and marketing programs;
29
·
the
sales and marketing efforts of competitors; and
·
the
availability and amount of government and third-party payor reimbursement.
If our
products do not achieve market acceptance, we will not be able to generate
sufficient revenues from product sales to maintain or grow our business.
We will require
substantial additional funds to execute our business plan and, if additional
capital is not available, we may need to limit, scale back or cease our
operations.
As of December 31, 2006, we had cash, cash
equivalents and marketable securities totaling $191.3 million. For the
twelve months ended December 31, 2006, we had a net loss of $51.9 million
and used cash in operating activities of $25.2 million. We will continue to
require substantial funds to conduct research and development, process
development, manufacturing, preclinical testing and clinical trials of our drug
candidates, as well as funds necessary to manufacture and market any products
that are approved for commercial sale. Because successful development of our
drug candidates is uncertain, we are unable to estimate the actual funds we
will require to complete research and development and commercialize our
products under development.
Our future capital
requirements may vary depending on the following:
·
the
timing of FDA approval of the products of our competitors;
·
the
advancement of our generic product candidates and other development programs;
·
the
cost of litigation, including potential patent litigation with Sanofi-Aventis
relating to Lovenox that is not otherwise covered by our collaboration
agreement, or potential patent litigation with others, as well as any damages,
including possibly treble damages, that may be owed to Sanofi-Aventis or others
should we be unsuccessful in such litigation;
·
the
time and costs involved in obtaining regulatory approvals;
·
the
continued progress in our research and development programs, including
completion of our preclinical studies and clinical trials;
·
the
potential acquisition and in-licensing of other technologies, products or
assets; and
·
the
cost of manufacturing, marketing and sales activities, if any.
We may seek additional
funding in the future and intend to do so through collaborative arrangements
and public or private equity and debt financings. Additional funds may not be
available to us on acceptable terms or at all. In addition, the terms of any
financing may adversely affect the holdings or the rights of our stockholders.
If we are unable to obtain funding on a timely basis, we may be required to
significantly curtail one or more of our research or development programs. We
also could be required to seek funds through arrangements with collaborators or
others that may require us to relinquish rights to some of our technologies,
product candidates or products which we would otherwise pursue on our own.
If we are not able
to retain our current senior management team or attract and retain qualified
scientific, technical and business personnel, our business will suffer.
We are dependent on the
members of our senior management team for our business success. Our employment
arrangements with our executive officers are terminable by either party on
short notice or no notice. We do not carry life insurance on the lives of any
of our personnel. The loss of any of our executive officers would result in a
significant loss in the knowledge and experience that we, as an organization,
possess and could cause significant delays, or outright failure, in the
development and approval of our product candidates. In addition, our growth
will require us to hire a significant number of qualified
30
scientific
and administrative personnel. There is intense competition from numerous
pharmaceutical and biotechnology companies, universities, governmental entities
and other research institutions, for human resources, including management, in
the technical fields in which we operate, and we may not be able to attract and
retain qualified personnel necessary for the successful development and
commercialization of our product candidates.
There is a
substantial risk of product liability claims in our business. If our existing
product liability insurance is insufficient, a product liability claim against
us that exceeds the amount of our insurance coverage could adversely affect our
business.
Our business exposes us to
significant potential product liability risks that are inherent in the
development, manufacturing and marketing of human therapeutic products. Product
liability claims could delay or prevent completion of our development programs.
If we succeed in marketing products, such claims could result in a recall of
our products or a change in the indications for which they may be used. While
we currently maintain product liability insurance coverage that we believe is
adequate for our current operations, we cannot be sure that such coverage will
be adequate to cover any incident or all incidents. Furthermore, clinical trial
and product liability insurance is becoming increasingly expensive. As a
result, we may be unable to maintain sufficient insurance at a reasonable cost
to protect us against losses that could have a material adverse effect on our
business. These liabilities could prevent or interfere with our product
development and commercialization efforts.
As we evolve from a
company primarily involved in drug discovery and development into one that is
also involved in the commercialization of drug products, we may have difficulty
managing our growth and expanding our operations successfully.
As we advance our drug
candidates through the development process, we will need to expand our
development, regulatory, manufacturing, sales and marketing capabilities or
contract with other organizations to provide these capabilities for us. As our
operations expand, we expect that we will need to manage additional
relationships with various collaborative partners, suppliers and other organizations.
Our ability to manage our operations and growth requires us to continue to
improve our operational, financial and management controls, reporting systems
and procedures. Such growth could place a strain on our administrative and
operational infrastructure. We may not be able to make improvements to our
management information and control systems in an efficient or timely manner and
may discover deficiencies in existing systems and controls.
We may acquire or
make investments in companies or technologies that could adversely effect our
business and financial results.
We may in the
future acquire or invest in companies, products and technologies. Such
transactions involve a number of risks, including:
·
we
may find that the acquired company or assets do not further our business
strategy, or that we overpaid for the company or assets, or that economic
conditions change, all of which may generate a future impairment charge;
·
difficulty
integrating the operations and personnel of the acquired business, and difficulty
retaining the key personnel of the acquired business;
·
difficulty
incorporating the acquired technologies;
·
difficulties
or failures with the performance of the acquired technologies or drug products;
·
we
may face product liability risks associated with the sale of the acquired
company’s products;
31
·
disruption
or diversion of management’s attention by transition or integration issues and
the complexity of managing diverse locations;
·
difficulty
maintaining uniform standards, internal controls, procedures and policies;
·
the
acquisition may result in litigation from terminated employees or
third-parties; and
·
we
may experience significant problems or liabilities associated with product
quality, technology and legal contingencies.
These factors could have a material adverse effect on
our business, results of operations and financial condition or cash flows,
particularly in the case of a larger acquisition or multiple acquisitions in a
short period of time. From time to time, we may enter into negotiations for
acquisitions that are not ultimately consummated. Such negotiations could
result in significant diversion of management time, as well as out-of-pocket
costs.
The consideration paid in
connection with an acquisition also affects our financial results. If we were
to proceed with one or more significant acquisitions in which the consideration
included cash, we could be required to use a substantial portion of our
available cash to consummate any acquisition. To the extent we issue shares of
stock or other rights to purchase stock, including options or other rights,
existing stockholders may be diluted and earnings per share may decrease. In
addition, acquisitions may result in the incurrence of debt, large one-time
write-offs and restructuring charges. They may also result in goodwill and
other intangible assets that are subject to impairment tests, which could
result in future impairment charges.
Risks Relating to Development and Regulatory Approval
If we are not able
to demonstrate therapeutic equivalence for our generic versions of complex
drugs, including M-Enoxaparin, to the satisfaction of the FDA, we will
not obtain regulatory approval for commercial sale of our generic product
candidates, and our future results of operations will be adversely affected.
Our future results of operations depend, to a
significant degree, on our ability to obtain regulatory approval for and
commercialize generic versions of complex drugs, including M-Enoxaparin. We
will be required to demonstrate to the satisfaction of the FDA, among other
things, that our generic products contain the same active ingredients, are of
the same dosage form, strength and route of administration as the branded
products upon which they are based, and meet compendial or other applicable standards
for strength, quality, purity and identity, including potency. In addition, we
will be required to conduct
in vivo
studies
to demonstrate that our generic versions of complex drugs are bioequivalent,
meaning generally that there are no significant differences between the generic
drug and its branded counterpart with respect to the rate and extent to which
the active ingredients are absorbed and become available at the site of drug
action.
Determination of the same active ingredients for our
generic versions of complex drugs will be based on our demonstration of
chemical equivalence to the respective reference listed drugs. The FDA may not
agree that we have adequately characterized our products or that our products
are equivalent to their respective branded drugs. The FDA may require
confirmatory information including, for example, animal or human testing, to
determine the sameness of active ingredients and that any inactive ingredients
or impurities do not compromise the product’s safety and efficacy. Provision of
sufficient information for approval may prove difficult, time consuming and
expensive. We must also demonstrate the adequacy of our methods, controls and
facilities used in the manufacture of the product, including that they meet
current good manufacturing practices, or cGMP. We cannot predict whether any of
our generic product candidates will meet FDA requirements for approval.
32
In the event that the FDA
modifies its current standards for therapeutic equivalence with respect to
generic versions of Lovenox or other complex drug products, does not establish
standards for interchangeability for generic versions of complex drug products,
or requires us to conduct clinical trials or other lengthy processes, the
commercialization of some of our development candidates could be delayed or
prevented. Delays in any part of the process or our inability to obtain
regulatory approval for our products could adversely affect our operating
results by restricting or significantly delaying our introduction of new
products.
If the FDA is not
able to establish specific guidelines or arrive at a consensus regarding the
scientific analyses required for characterizing biosimilar or generic versions
of complex protein drugs, and if the U.S. Congress does not take action to
create an abbreviated regulatory pathway for protein products, then the
uncertainty about the value of our glycoprotein program will be increased.
The regulatory climate for generic and biosimilar
versions of protein products remains uncertain. Although there has been recent
legislative activity, there is currently no established statutory or regulatory
pathway for approval of biosimilar or generic versions of most protein drugs.
The FDA has approved the majority of protein products under the Public Health
Service Act, or PHSA, through the use of BLAs. Unlike drugs approved through
the submission of NDAs under section 505 of the Federal Food, Drug, and
Cosmetic Act, or the FDCA, there is no provision in the PHSA for an abbreviated
BLA approval pathway, and the FDA has stated it does not believe it has the
authority to rely on prior BLA approvals or on their underlying data to approve
a biosimilar product. Moreover, even for proteins originally approved as NDAs,
there is uncertainty as to what data the FDA may deem is necessary to
demonstrate the sameness required for approval of an ANDA under section 505(j) of
the FDCA. In addition, there has been opposition to the FDA’s use of section
505(b)(2), which allows an applicant to rely on information from published
scientific literature and/or a prior approval of a similar drug, to approve
similar or follow-on versions of protein and other complex drug products
approved under section 505 of the FDCA.
Although the FDA
has previously stated its intention to draft guidance that is broadly
applicable to follow-on protein products, the agency has not issued such
guidance to date and may never do so. Protracted timelines and failure of the
FDA to establish standards for approval of generic or biosimilar protein
products or of the U.S. Congress to enact legislation establishing an
abbreviated pathway for approval for biosimilar or generic products to approved
BLA products could reduce the value of, or render obsolete, our glycoprotein
program.
If our preclinical
studies and clinical trials for our development candidates, including M118, are
not successful, we will not be able to obtain regulatory approval for
commercial sale of our novel or improved drug candidates.
To obtain regulatory approval for the commercial sale
of our novel or improved drug candidates, we are required to demonstrate
through preclinical studies and clinical trials that our drug development
candidates are safe and effective. Preclinical testing and clinical trials of
new development candidates are lengthy and expensive and the historical failure
rate for development candidates is high.
A failure of one or
more of our preclinical studies or clinical trials can occur at any stage of
testing. We may experience numerous unforeseen events during, or as a result
of, preclinical testing and the clinical trial process that could delay or
prevent our ability to receive regulatory approval or commercialize M118 or our
other drug candidates, including:
·
regulators
or institutional review boards may not authorize us to commence a clinical
trial or conduct a clinical trial at a prospective trial site;
·
preclinical
studies or clinical trials may produce negative or inconclusive results, and we
may be required to conduct additional preclinical studies or clinical trials or
we may abandon projects that we expect to be promising;
33
·
enrollment
in our clinical trials may be slower than we anticipate, resulting in
significant delays, and participants may drop out of our clinical trials at a
higher rate than we anticipate;
·
we
might have to suspend or terminate our clinical trials if the participants are
being exposed to unacceptable health risks;
·
regulators
or institutional review boards may require that we hold, suspend or terminate
clinical research for various reasons, including noncompliance with regulatory
requirements;
·
the
cost of our clinical trials may be greater than we anticipate; and
·
the
effects of our drug candidates may not be the desired effects or may include
undesirable side effects or the product candidates may have other unexpected
characteristics.
The results from
preclinical testing of a development candidate may not predict the results that
will be obtained in human clinical trials. If we are required to conduct additional
clinical trials or other testing of M118 or our product candidates beyond those
that we currently contemplate, if we are unable to successfully complete our
clinical trials or other tests, or if the results of these trials are not
positive or are only modestly positive, we may be delayed in obtaining
marketing approval for our drug candidates or we may not be able to obtain
marketing approval at all. Our product development costs will also increase if
we experience delays in testing or approvals. Significant clinical trial delays
could allow our competitors to bring products to market before we do and impair
our ability to commercialize our products or potential products. If any of this
occurs, our business will be materially harmed.
Failure to obtain
regulatory approval in foreign jurisdictions would prevent us from marketing
our products abroad.
We intend in the future to
market our products outside of the United States. In order to market our
products in the European Union and many other foreign jurisdictions, we must
obtain separate regulatory approvals and comply with the numerous and varying
regulatory requirements of each jurisdiction. The approval procedure and
requirements varies among countries, and can require, among other things,
submitting or conducting additional testing in each jurisdiction. The time
required to obtain approval abroad may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include all of the risks
associated with obtaining FDA approval, and we may not obtain foreign
regulatory approvals on a timely basis, if at all. Approval by the FDA does not
ensure approval by regulatory authorities in other countries, and approval by
one foreign regulatory authority does not ensure approval by regulatory
authorities in any other foreign country or by the FDA. We and our
collaborators may not be able to file for regulatory approvals and may not
receive necessary approvals to commercialize our products in any market outside
of the United States. The failure to obtain these approvals could materially
adversely affect our business, financial condition and results of operations.
Even if we obtain
regulatory approvals, our marketed drugs will be subject to ongoing regulatory
review. If we fail to comply with continuing United States and foreign
regulations, we could lose our approvals to market drugs and our business would
be seriously harmed.
Even after approval, any drug
products we develop will be subject to ongoing regulatory review, including the
review of clinical results which are reported after our drug products are made
commercially available. In addition, the manufacturer and manufacturing
facilities we use to produce any of our drug candidates will be subject to
periodic review and inspection by the FDA. We will be required to report any
serious and unexpected adverse experiences and certain quality problems with
our products and make other periodic reports to the FDA. The discovery of any
new or previously unknown problems with the product, manufacturer or facility
may result in restrictions on the drug or manufacturer or facility, including
withdrawal of the drug from the market. Certain changes to an approved product,
including in
34
the way
it is manufactured or promoted, often require prior FDA approval before the
product as modified may be marketed. If we fail to comply with applicable
continuing regulatory requirements, we may be subject to warning letters, civil
penalties, suspension or withdrawal of regulatory approvals, product recalls
and seizures, injunctions, operating restrictions and/or criminal prosecutions
and penalties. In addition, neither we, nor any of our third-party
collaborators, are permitted to employ in any capacity, any individual who has
been debarred under the FDA’s Application Integrity Policy, and if such person
is or has been so employed, the FDA may delay its review and approval of some
or all of our applications, reject certain studies, withdraw approval of our
applications, and take other adverse administrative action against us.
If third-party
payors do not adequately reimburse customers for any of our approved products,
they might not be purchased or used, and our revenues and profits will not
develop or increase.
Our revenues and
profits will depend heavily upon the availability of adequate reimbursement for
the use of our approved product candidates from governmental and other
third-party payors, both in the United States and in foreign markets.
Reimbursement by a third-party payor may depend upon a number of factors,
including the third-party payor’s determination that use of a product is:
·
a
covered benefit under its health plan;
·
safe,
effective and medically necessary;
·
appropriate
for the specific patient;
·
cost-effective;
and
·
neither
experimental nor investigational.
Obtaining reimbursement approval for a product from
each government or other third-party payor is a time-consuming and costly
process that could require us to provide supporting scientific, clinical and
cost-effectiveness data for the use of our products to each payor. We may not
be able to provide data sufficient to gain acceptance with respect to
reimbursement. There is substantial uncertainty whether any particular payor
will reimburse the use of any drug products incorporating new technology. Even
when a payor determines that a product is eligible for reimbursement, the payor
may impose coverage limitations that preclude payment for some uses that are approved
by the FDA or comparable authority. Moreover, eligibility for coverage does not
imply that any product will be reimbursed in all cases or at a rate that allows
us to make a profit or even cover our costs. Interim payments for new products,
if applicable, may also not be sufficient to cover our costs and may not be
made permanent. Reimbursement rates may vary according to the use of the
product and the clinical setting in which it is used, may be based on payments
allowed for lower-cost products that are already reimbursed, may be
incorporated into existing payments for other products or services, and may
reflect budgetary constraints and/or imperfections in Medicare, Medicaid or
other data used to calculate these rates. Net prices for products may be reduced
by mandatory discounts or rebates required by government health care programs
or by any future relaxation of laws that restrict imports of certain medical
products from countries where they may be sold at lower prices than in the
United States.
There have been, and we expect that there will
continue to be, federal and state proposals to constrain expenditures for
medical products and services, which may affect payments for our products. The
Centers for Medicare and Medicaid Services, or CMS, frequently change product
descriptors, coverage policies, product and service codes, payment
methodologies and reimbursement values. Third-party payors often follow
Medicare coverage policy and payment limitations in setting their own
reimbursement rates, and both CMS and other third-party payors may have
sufficient market power to demand significant price reductions. Due in part to
actions by third-party payors, the health care industry is experiencing a trend
toward containing or reducing costs through various means, including lowering
reimbursement rates,
35
limiting therapeutic class
coverage and negotiating reduced payment schedules with service providers for
drug products.
Our inability to promptly
obtain coverage and profitable reimbursement rates from government-funded and
private payors for our products could have a material adverse effect on our
operating results and our overall financial condition.
New federal
legislation will increase the pressure to reduce prices of pharmaceutical
products paid for by Medicare, which could adversely affect our revenues, if
any.
The Medicare Prescription Drug Improvement and
Modernization Act of 2003, or MMA, changed the way Medicare covers and
reimburses for pharmaceutical products. The legislation introduced a new
reimbursement methodology based on average sales prices for drugs that are used
in hospital settings or under the direct supervision of a physician and,
starting in 2006, expanded Medicare coverage for drug purchases by the elderly.
In addition, the MMA requires the creation of formularies for self-administered
drugs, and provides authority for limiting the number of drugs that will be
covered in any therapeutic class and provides for plan sponsors to negotiate
prices with manufacturers and suppliers of covered drugs. As a result of the
MMA and the expansion of federal coverage of drug products, we expect
continuing pressure to contain and reduce costs of pharmaceutical products.
Cost reduction initiatives and other provisions of this legislation could
decrease the coverage and price that we receive for our products and could
materially adversely affect our operating results and overall financial
condition. While the MMA generally applies only to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policy and payment
limitations in setting their own reimbursement policies, and any reduction in
coverage or payment that results from the MMA may result in a similar reduction
in coverage or payments from private payors.
Congress has considered
separate legislation, which if enacted, would permit more widespread
re-importation of drugs from foreign countries into the United States and which
may include re-importation from foreign countries where drugs are frequently
sold at lower prices than in the United States; other proposed legislation
would remove restrictions on CMS’ ability to negotiate discounts directly with
prescription drug manufacturers provided through the Medicare program. Such
legislation, or similar regulatory changes, could decrease the amount of
reimbursement we receive for any approved products which, in turn, could
materially adversely affect our operating results and our overall financial
condition.
If efforts by
manufacturers of branded products to delay or limit the use of generics are
successful, our sales of technology-enabled generic products may suffer.
Many manufacturers
of branded products have increasingly used legislative, regulatory and other
means to delay competition from manufacturers of generic drugs. These efforts
have included:
·
settling
patent lawsuits with generic companies, resulting in such patents remaining an
obstacle for generic approval by others;
·
innovator
companies settling paragraph IV patent litigation with generic companies to
prevent the expiration of the 180-day generic marketing exclusivity
period or to delay the triggering of such exclusivity period;
·
submitting
Citizen Petitions to request the Commissioner of Food and Drugs to take
administrative action with respect to prospective and submitted generic drug
applications;
·
seeking
changes to the United States Pharmacopeia, an industry recognized compilation
of drug standards;
36
·
pursuing
new patents for existing products or processes which may issue before the
expiration of one patent, which could extend patent protection for a number of
years or otherwise delay the launch of generic drugs; and
·
attaching
special patent extension amendments to unrelated federal legislation.
In February 2003, Aventis filed a Citizen
Petition with the FDA requesting that the FDA withhold approval of any ANDA for
a generic version of Lovenox until and unless the FDA determines that the
manufacturing process used by the generic applicant is equivalent to the
process used to make Lovenox, or until the generic applicant demonstrates
through clinical trials that its product is equally safe and effective as
Lovenox, and unless the generic product is shown to contain a specific
molecular structure. Teva, Amphastar, and others have filed comments opposing
the Petition, and Aventis has filed at least three supplements and numerous
reply comments in support of its Petition. The FDA has yet to rule on the
Petition, and if the FDA ultimately grants the Petition, we and Sandoz may be
unable to obtain approval of our ANDA for M-Enoxaparin, which would materially
harm our business.
Further, some manufacturers of branded products have
engaged in state-by-state initiatives to enact legislation that restrict the
substitution of some branded drugs with generic drugs. If these efforts to
delay or block competition are successful, we may be unable to sell our generic
products, which could have a material adverse effect on our sales and
profitability.
Foreign governments
tend to impose strict price controls, which may adversely affect our revenues,
if any.
In some foreign countries,
particularly the countries of the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take considerable time after the
receipt of marketing approval for a product. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that
compares the cost-effectiveness of our product candidate to other available
therapies. If reimbursement of our products is unavailable or limited in scope
or amount, or if pricing is set at unsatisfactory levels, our business could be
adversely affected.
If we do not comply
with laws regulating the protection of the environment and health and human
safety, our business could be adversely affected.
Our research and
development involves, and may in the future involve, the use of hazardous
materials and chemicals and certain radioactive materials and related
equipment. For the years ended December 31, 2006, 2005 and 2004, we spent
approximately $31,000, $19,000, and $25,000, respectively, in order to comply
with environmental and waste disposal regulations. Although we believe that our
safety procedures for handling and disposing of these materials comply with the
standards mandated by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. If an
accident occurs, we could be held liable for resulting damages, which could be
substantial. We are also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory
procedures, exposure to blood-borne pathogens and the handling of biohazardous
materials. Although we maintain workers’ compensation insurance as prescribed
by the Commonwealth of Massachusetts and, for claims not covered by workers’
compensation insurance, employer’s liability insurance, to cover us for costs
and expenses we may incur due to injuries to our employees resulting from the
use of these materials, this insurance may not provide adequate coverage
against potential liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us. Additional
federal, state and local laws and regulations affecting our operations may be
adopted in the future. We may incur substantial costs to comply with, and
substantial fines or penalties if we violate, any of these laws or regulations.
37
Risks Relating to Patents and Licenses
If we are not able
to obtain and enforce patent protection for our discoveries, our ability to
successfully commercialize our product candidates will be harmed and we may not
be able to operate our business profitably.
Our success depends, in part, on our ability to
protect proprietary methods and technologies that we develop under the patent
and other intellectual property laws of the United States and other countries,
so that we can prevent others from using our inventions and proprietary
information. However, we may not hold proprietary rights to some patents
related to our current or future product candidates. Because patent
applications in the United States and many foreign jurisdictions are typically
not published until 18 months after filing, or in some cases not at all,
and because publications of discoveries in scientific literature lag behind
actual discoveries, we cannot be certain that we were the first to make the
inventions claimed in issued patents or pending patent applications, or that we
were the first to file for protection of the inventions set forth in our patent
applications. As a result, we may be required to obtain licenses under
third-party patents to market our proposed products. If licenses are not
available to us on acceptable terms, or at all, we will not be able to market
the affected products.
Our strategy depends on our ability to rapidly
identify and seek patent protection for our discoveries. This process is
expensive and time consuming, and we may not be able to file and prosecute all
necessary or desirable patent applications at a reasonable cost or in a timely
manner. Despite our efforts to protect our proprietary rights, unauthorized
parties may be able to obtain and use information that we regard as
proprietary. The issuance of a patent does not guarantee that it is valid or
enforceable, so even if we obtain patents, they may not be valid or enforceable
against third parties. In addition, the issuance of a patent does not guarantee
that we have the right to practice the patented invention. Third parties may
have blocking patents that could be used to prevent us from marketing our own
patented product and practicing our own patented technology.
Our pending patent applications may not result in
issued patents. The patent position of pharmaceutical or biotechnology
companies, including ours, is generally uncertain and involves complex legal
and factual considerations. The standards which the USPTO and its foreign
counterparts use to grant patents are not always applied predictably or
uniformly and can change. There is also no uniform, worldwide policy regarding
the subject matter and scope of claims granted or allowable in pharmaceutical
or biotechnology patents. The laws of some foreign countries do not protect
proprietary information to the same extent as the laws of the United States,
and many companies have encountered significant problems and costs in
protecting their proprietary information in these foreign countries.
Accordingly, we do not know the degree of future protection for our proprietary
rights or the breadth of claims allowed in any patents issued to us or to
others. The allowance of broader claims may increase the incidence and cost of
patent interference proceedings and/or opposition proceedings, and the risk of
infringement litigation. On the other hand, the allowance of narrower claims
may limit the value of our proprietary rights. Our issued patents may not
contain claims sufficiently broad to protect us against third parties with
similar technologies or products, or provide us with any competitive advantage.
Moreover, once they have issued, our patents and any patent for which we have
licensed or may license rights may be challenged, narrowed, invalidated or
circumvented. If our patents are invalidated or otherwise limited, other
companies will be better able to develop products that compete with ours, which
could adversely affect our competitive business position, business prospects
and financial condition.
We also rely on trade
secrets, know-how and technology, which are not protected by patents, to
maintain our competitive position. If any trade secret, know-how or other
technology not protected by a patent were to be disclosed to or independently
developed by a competitor, our business and financial condition could be
materially adversely affected.
38
Our competitors may
allege that we are infringing their intellectual property, forcing us to expend
substantial resources in resulting litigation, the outcome of which would be uncertain.
Any unfavorable outcome of such litigation could have a material adverse effect
on our business, financial position and results of operations
.
If any party successfully asserts that we are
infringing their intellectual property or that our creation or use of
proprietary technology infringes upon their intellectual property rights, we
might be forced to incur expenses to litigate the claims and pay damages,
potentially including treble damages, if we are found to have willfully
infringed such parties’ patent rights. In addition, if we are unsuccessful in
litigation, or pending the outcome of litigation, a court could issue a
temporary injunction or a permanent injunction preventing us from marketing and
selling the patented drug or other technology for the life of the patent that
we have allegedly or been deemed to have infringed. Litigation concerning
patents, other forms of intellectual property and proprietary technologies is
becoming more widespread and can be protracted and expensive, and can distract
management and other key personnel from performing their duties for us.
Any legal action against
us or our collaborators claiming damages and seeking to enjoin any activities,
including commercial activities relating to the affected products, and processes
could, in addition to subjecting us to potential liability for damages, require
us or our collaborators to obtain a license in order to continue to manufacture
or market the affected products and processes. Any license required under any
patent may not be made available on commercially acceptable terms, if at all.
In addition, some licenses may be non-exclusive, and therefore, our competitors
may have access to the same technology licensed to us. If we fail to obtain a
required license or are unable to design around a patent, we may be unable to
effectively market some of our technology and products, which could limit our
ability to generate revenues or achieve profitability and possibly prevent us
from generating revenue sufficient to sustain our operations.
If we become
involved in patent litigation or other proceedings, we could incur substantial
costs, substantial liability for damages and may be required to stop our
product commercialization efforts.
We may need to resort to
litigation to enforce a patent issued to us or to determine the scope and
validity of third-party patent or other proprietary rights in jurisdictions
where we intend to market our products, including the United States, the
European Union, and many other foreign jurisdictions. Alternatively, we may be
subject to claims of patent infringement in jurisdictions where we intend to
market our products. The cost to us of any litigation or other proceeding
relating to determining the validity of intellectual property rights, even if
resolved in our favor, could be substantial and could divert our management’s
efforts. Some of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they may have
substantially greater resources. Moreover, the failure to obtain a favorable
outcome in any litigation in a jurisdiction where there is a claim of patent
infringement could significantly delay marketing of our products in that
particular jurisdiction. The costs and uncertainties resulting from the
initiation and continuation of any litigation could limit our ability to
continue our operations.
We in-license a
significant portion of our proprietary technologies and if we fail to comply
with our obligations under any of the related agreements, we could lose license
rights that are necessary to develop our product candidates.
We are a party to and rely
on a number of in-license agreements with third parties, such as those with the
Massachusetts Institute of Technology, that give us rights to intellectual
property that is necessary for our business. In addition, we expect to enter
into additional licenses in the future. Our current in-license arrangements
impose various development, royalty and other obligations on us. If we breach
our obligations with regard to our exclusive in-licenses, they could be
converted to non-exclusive licenses or the agreements could be terminated,
which would result in our being unable to develop, manufacture and sell
products that are covered by the licensed technology.
39
Risks Relating to Our Dependence on Third Parties
Our 2003 Sandoz
Collaboration and 2006 Sandoz Collaboration are important to our business. If
Sandoz fails to adequately perform under either collaboration, or we or Sandoz
terminate all or a portion of either collaboration, the development and
commercialization of some of our drug candidates, including injectable
enoxaparin, would be delayed or terminated and our business would be adversely
affected.
Under our 2003 Sandoz
Collaboration, we and Sandoz agree to exclusively work with each other in the
development and commercialization of injectable enoxaparin within the United
States. We also granted to Sandoz the right to negotiate additional rights for
certain products under certain circumstances. Under our 2006 Sandoz
Collaboration, we and Sandoz agree to exclusively work with each other in the
development and commercialization of four follow-on and complex generic
products for sale in specified regions of the world, M356 and the expansion of
M-Enoxaparin activity into the European Union.
2003 Sandoz
Collaboration
Either we or Sandoz may
terminate the 2003 Sandoz Collaboration for material uncured breaches or
certain events of bankruptcy or insolvency by the other party. Sandoz may also
terminate the 2003 Sandoz Collaboration if the injectable enoxaparin product or
the market lacks commercial viability, if new laws or regulations are passed or
court decisions rendered that substantially diminish our legal avenues for
redress, or, in multiple cases, if certain costs exceed mutually agreed upon
limits. If the 2003 Sandoz Collaboration is terminated other than due to our
uncured breach or bankruptcy, we will be granted an exclusive license under
certain intellectual property of Sandoz to develop and commercialize injectable
enoxaparin in the United States. In that event, we would need to expand our
internal capabilities or enter into another collaboration, which could cause
significant delays that could prevent us from completing the development and
commercialization of injectable enoxaparin. If Sandoz terminates the 2003
Sandoz Collaboration due to our uncured breach or bankruptcy, Sandoz would
retain the exclusive right to develop and commercialize injectable enoxaparin
in the United States. In that event, we would no longer have any influence over
the development or commercialization strategy of injectable Enoxaparin in the
United States. In addition, Sandoz would retain its rights of first negotiation
with respect to certain of our other products in certain circumstances and its
rights of first refusal outside of the United States and the European Union.
Accordingly, if Sandoz terminates the 2003 Collaboration, our introduction of M-Enoxaparin
may be significantly delayed, we may decide to discontinue the M-Enoxaparin
project, or our revenues may be reduced, any one of which could have a material
adverse effect on our business.
2006 Sandoz
Collaboration
Either we or Sandoz may
terminate the 2006 Sandoz Collaboration for material uncured breaches or
certain events of bankruptcy or insolvency by the other party. In addition, the
following termination rights apply to some of the products, on a
product-by-product basis: (i) if clinical trials are required, (ii) at
Sandoz’ convenience within a certain time period, (iii) if the parties
agree, or the relevant regulatory authority states in writing, that our
intellectual property does not contribute to product approval, or (iv) if
Sandoz decides to permanently cease development and commercialization of a
product. For some of the products, for any termination of the 2006 Sandoz
Collaboration other than a termination by Sandoz due to our uncured breach or
bankruptcy, or a termination by us alone due to the need for clinical trials,
we will be granted an exclusive license under certain intellectual property of
Sandoz to develop and commercialize the particular product. In that event, we
would need to expand our internal capabilities or enter into another
collaboration, which could cause significant delays that could prevent us from
completing the development and commercialization of such product. For some
products, if Sandoz terminates the 2006 Sandoz Collaboration due to our uncured
breach or bankruptcy, or if there is a termination by us alone due to the need
for clinical trials, Sandoz would retain the exclusive right to develop and
commercialize the applicable product. In that event, we would no longer have
any influence over the development or
40
commercialization
strategy of such product. In addition, for other products, if Sandoz terminates
the 2006 Sandoz Collaboration due to our uncured breach or bankruptcy, Sandoz
retains a right to license certain intellectual property of Momenta without the
obligation to make any additional payments for such licenses. For certain
products, if the 2006 Collaboration is terminated other than due to our uncured
breach or bankruptcy, neither party will have a license to the other party’s
intellectual property. In that event, we would need to expand our internal
capabilities or enter into another collaboration, which could cause significant
delays that could prevent us from completing the development and
commercialization of such product. Accordingly, if the 2006 Sandoz
Collaboration is terminated, our introduction of certain products may be significantly
delayed, or our revenues may be significantly reduced either of which could
have a material adverse effect on our business.
We depend on third parties
for the manufacture of products. If in the future we encounter difficulties in
our supply or manufacturing arrangements, our business may be materially
adversely affected.
We have limited personnel with experience in, and we
do not own facilities for, manufacturing any products. In addition, we do not
have, and do not intend to develop, the ability to manufacture material for our
clinical trials or at commercial scale. To develop our drug candidates, apply
for regulatory approvals and commercialize any products, we or our partners
need to contract for or otherwise arrange for the necessary manufacturing
facilities and capabilities. As a result, we expect generally to rely on
contract manufacturers for regulatory compliance. If our contract manufacturers
were to breach or terminate their manufacturing arrangements with us, the
development or commercialization of the affected products or drug candidates
could be delayed, which could have a material adverse effect on our business.
In addition, any change in our manufacturers could be costly because the
commercial terms of any new arrangement could be less favorable and because the
expenses relating to the transfer of necessary technology and processes could
be significant.
We have relied upon third parties to produce material
for preclinical studies and may continue to do so in the future. Although we believe
that we will not have any material supply issues, we cannot be certain that we
will be able to obtain long-term supply arrangements of those materials on
acceptable terms, if at all. If we are unable to arrange for third-party
manufacturing, or to do so on commercially reasonable terms, we may not be able
to complete development of our products or market them.
In addition, the FDA and
other regulatory authorities require that our products be manufactured
according to cGMP regulations. Any failure by us or our third-party
manufacturers to comply with cGMP, and/or our failure to scale-up our
manufacturing processes could lead to a delay in, or failure to obtain,
regulatory approval. In addition, such failure could be the basis for action by
the FDA to withdraw approvals for drug candidates previously granted to us and
for other regulatory action. To the extent we rely on a third-party
manufacturer, the risk of non-compliance with cGMPs may be greater and the
ability to effect corrective actions for any such noncompliance may be
compromised or delayed.
We may need or
elect to enter into alliances or collaborations with other companies to
supplement and enhance our own capabilities or fund our development efforts. If
we are unsuccessful in forming or maintaining these alliances on favorable
terms, or if any collaborative partner terminates or fails to perform its
obligations, our business could be adversely affected.
Because we have limited or no capabilities for drug
development, manufacturing, sales, marketing and distribution, we may need to
enter into alliances with other companies that can assist with the development
and commercialization of our drug candidates. We may, for example, form
alliances with major pharmaceutical companies to jointly develop specific drug
candidates and to jointly commercialize them if they are approved. In such
alliances, we would expect our pharmaceutical company partners to provide
substantial capabilities in clinical development, manufacturing, regulatory
affairs, sales and marketing. We may not be successful in entering into any
such alliances. Even if we do succeed in securing such alliances,
41
we may not be able to
maintain them if, for example, development or approval of a drug candidate is
delayed or sales of an approved drug are disappointing.
Factors that may
affect the success of our collaborations include the following:
·
disputes
may arise in the future with respect to the ownership of rights to technology
developed with collaborators;
·
our
collaborators may pursue alternative technologies or develop alternative
products, either on their own or in collaboration with others, that may be
competitive with the products on which they are collaborating with us or which
could affect our collaborators’ commitment to our collaborations;
·
our
collaborators may terminate their collaborations with us, which could make it
difficult for us to attract new collaborators or adversely affect how we are
perceived in the business and financial communities;
·
our
collaborators may pursue higher-priority programs or change the focus of their
development programs, which could affect the collaborators’ commitment to us;
and
·
our
collaborators with marketing rights may choose to devote fewer resources to the
marketing of our product candidates, if any are approved for marketing, than to
products from their own development programs.
In addition to relying on a third party for its
capabilities, we may depend on our alliances with other companies to provide
substantial additional funding for development and potential commercialization
of our drug candidates. We may not be able to obtain funding on favorable terms
from these alliances, and if we are not successful in doing so, we may not have
sufficient funds to develop a particular drug candidate internally, or to bring
drug candidates to market. Failure or delays in bringing our drug candidates to
market will reduce their competitiveness and prevent us from generating sales
revenues, which may substantially harm our business.
Furthermore, in an effort to continually update and
enhance our proprietary technology platform we enter into agreements with other
companies to develop, license, acquire and/or collaborate on various
technologies. If we are unable to enter into the desired agreements, if the agreements
do not yield the intended results or if the agreements terminate, we may need
to find alternative approaches to such technology needs.
If any of these occur, the
development and commercialization of one or more drug candidates could be
delayed, curtailed or terminated, any of which may adversely affect our
business.
If we are unable to
establish sales and marketing capabilities or enter into agreements with third
parties to market and sell our product candidates, we may be unable to generate
product revenues.
We do not have a sales
organization and have no experience as a company in the sales, marketing and
distribution of pharmaceutical products. There are risks involved with
establishing our own sales and marketing capabilities, as well as entering into
arrangements with third parties to perform these services. For example,
developing a sales force is expensive and time consuming and could delay any
product launch. In addition, to the extent that we enter into arrangements with
third parties to perform sales, marketing and distribution services, we will
have less control over sales of our products, and our future revenues would
depend heavily on the success of the efforts of these third parties.
42
General Company Related Risks
Our directors,
executive officers and major stockholders have substantial influence or control
over matters submitted to stockholders for approval that could delay or prevent
a change in corporate control.
Our directors,
executive officers and principal stockholders, together with their affiliates
and related persons, beneficially owned, in the aggregate, approximately 41% of
our outstanding common stock as of December 31, 2006. As a result, these
stockholders, if acting together, may have the ability to determine the outcome
of or influence matters submitted to our stockholders for approval, including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets. In addition, these persons, acting
together, may have the ability to control the management and affairs of our
company. Accordingly, this concentration of ownership may harm the market price
of our common stock by:
·
delaying,
deferring or preventing a change in control of our company;
·
entrenching
our management and/or board;
·
impeding
a merger, consolidation, takeover or other business combination involving our
company; or
·
discouraging a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of our company.
Anti-takeover
provisions in our charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult
and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions in our
certificate of incorporation and our by-laws may delay or prevent an
acquisition of us or a change in our management. In addition, these provisions
may frustrate or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for stockholders to replace
members of our board of directors. Because our board of directors is
responsible for appointing the members of our management team, these provisions
could in turn affect any attempt by our stockholders to replace current members
of our management team. These provisions include:
·
a
classified board of directors;
·
a
prohibition on actions by our stockholders by written consent;
·
a
“poison pill” in accordance with the Company’s Shareholders Rights Plan that
would work to dilute the stock ownership of a potential hostile acquirer,
effectively preventing acquisitions that have not been approved by our board of
directors; and
·
limitations
on the removal of directors.
Moreover, because we are
incorporated in Delaware, we are governed by the provisions of Section 203
of the Delaware General Corporation Law, which prohibits a person who owns in
excess of 15% of our outstanding voting stock from merging or combining with us
for a period of three years after the date of the transaction in which the
person acquired in excess of 15% of our outstanding voting stock, unless the
merger or combination is approved in a prescribed manner. Finally, these
provisions establish advance notice requirements for nominations for election
to our board of directors or for proposing matters that can be acted upon at
stockholder meetings. These provisions would apply even if the offer may be
considered beneficial by some stockholders.
43
Our stock price may be volatile, and purchasers of our
common stock could incur substantial losses.
The stock market in
general and the market prices for securities of biotechnology companies in
particular have experienced extreme volatility that often have been unrelated
or disproportionate to the operating performance of these companies. The
trading price of our common stock has been, and is likely to continue to be,
volatile. Our stock price could be subject to wide fluctuations in response to
a variety of factors, including the following:
·
failure
to obtain FDA approval for M-Enoxaparin or other adverse FDA decisions relating
to M-Enoxaparin, including the FDA requiring clinical trials as a condition to
M-Enoxaparin approval;
·
FDA
approval of other ANDAs for generic versions of Lovenox;
·
litigation
involving our company or our general industry or both;
·
a
decision in favor of Sanofi-Aventis in either of the current patent litigation
matters, or a settlement related to either of those cases;
·
results
or delays in our or our competitors’ clinical trials or regulatory filings;
·
failure
to demonstrate therapeutic equivalence with respect to our technology-enabled
generic product candidates and safety and efficacy for our novel development
product candidates;
·
our
ability to manufacture any products to commercial standards;
·
failure
of any of our product candidates, if approved, to achieve commercial success;
·
developments
or disputes concerning our patents or other proprietary rights;
·
changes
in estimates of our financial results or recommendations by securities
analysts;
·
termination
of any of our strategic partnerships;
·
significant
acquisitions, strategic partnerships, joint ventures or capital commitments by
us or our competitors; and
·
investors’
general perception of our company, our products, the economy and general market
conditions.
If any of these factors
causes an adverse effect on our business, results of operations or financial
condition, the price of our common stock could fall and investors may not be
able to sell their common stock at or above their respective purchase prices.
Item 1B.
UNRESOLVED
STAFF COMMENTS
Not applicable.
Item 2.
PROPERTIES
As of
March 1, 2007, pursuant to our sublease agreements, we are leasing a total
of approximately 100,800 square feet of office and laboratory space in two
buildings in Cambridge, Massachusetts:
|
Property
Location
|
|
|
|
Approximate
Square
Footage
|
|
Use
|
|
Lease
Expiration
Date
|
|
675 West Kendall Street
Cambridge, Massachusetts 02142
|
|
78,500
|
|
Laboratory &
Office
|
|
04/30/2011
|
|
300 Third Street,
Cambridge, Massachusetts 02142
|
|
22,300
|
|
Laboratory &
Office
|
|
04/30/2011
|
44
Item 3.
LEGAL
PROCEEDINGS
We are not a party to any
material legal proceedings.
Item
4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5.
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market Information
Prior to June 2004,
there was no established market for our common stock. Since June 22, 2004,
our common stock has been traded on the NASDAQ National and Global Markets
under the symbol “MNTA.” The following table sets forth the high and low last
sale prices of our common stock for the periods indicated, as reported on the
NASDAQ Global Market:
|
Quarter ended
|
|
|
|
High
|
|
Low
|
|
|
March 31, 2005
|
|
$
|
8.73
|
|
$
|
6.55
|
|
|
June 30, 2005
|
|
20.45
|
|
7.60
|
|
|
September 30, 2005
|
|
30.99
|
|
19.20
|
|
|
December 31, 2005
|
|
29.06
|
|
18.33
|
|
|
March 31, 2006
|
|
25.05
|
|
18.78
|
|
|
June 30, 2006
|
|
19.09
|
|
11.76
|
|
|
September 30, 2006
|
|
18.02
|
|
10.76
|
|
|
December 31, 2006
|
|
18.18
|
|
13.05
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders
On March 1, 2007, the
approximate number of holders of record of our common stock was 58 and the
approximate number of beneficial holders of our common stock was 2,245.
Dividends
We have never declared or
paid any cash dividends on our common stock. We anticipate that, in the
foreseeable future, we will continue to retain any earnings for use in the
operation of our business and will not pay any cash dividends.
Equity Compensation Plan Information
Information relating to
compensation plans under which our equity securities are authorized for
issuance is set forth under “Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters” in our definitive proxy
statement for our 2007 Annual Meeting of Stockholders.
Use of Proceeds
On June 25, 2004, we sold 5,350,000 shares,
together with an additional 802,500 shares pursuant to the exercise by the
underwriters of an over-allotment option, of our common stock in connection
with the closing of our initial public offering, or the Offering. The
Registration Statement on Form S-1 (Reg. No. 333-113522)
we filed to register our common stock in the Offering was declared effective by
the Securities and Exchange Commission on June 21, 2004.
45
From June 25, 2004 to December 31, 2006, we
have expended all of the $35.3 million in net proceeds of the Offering. Such
proceeds were primarily expended on: our operating activities, including
research and development expenses; our development programs, including
M-Enoxaparin, M118, M-Dalteparin and M356; our discovery programs,
including pulmonary delivery, oncology and technology development; and other
general corporate purposes. We utilized approximately $34.0 million to fund our
operations, and approximately $1.3 million to make principal payments on our
equipment lease obligations and line of credit.
None of the net proceeds
were directly or indirectly paid to (i) any of our directors, officers or
their associates, (ii) any person(s) owning 10% or more of any class of
our equity securities or (iii) any of our affiliates.
Item 6.
SELECTED
CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth
below with respect to our statement of operations data for the years ended
December 31, 2006, 2005 and 2004 and the balance sheet data as of
December 31, 2006 and 2005 are derived from our audited financial
statements included in this Annual Report on Form 10-K. The
statement of operations data for the years ended December 31, 2003, 2002
and the period from inception through December 31, 2001 and the balance
sheet data as of December 31, 2004, 2003, 2002 and 2001 are derived from
our audited financial statements, which are not included herein. Historical
results are not necessarily indicative of future results. See the notes to the
consolidated financial statements for an explanation of the method used to
determine the number of shares used in computing basic and diluted net loss per
common share. The selected consolidated financial data set forth below should
be read in conjunction with and is qualified in its entirety by our audited
consolidated financial statements and related notes thereto found at “Item 8.
Financial Statements and Supplementary Data” and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”,
which are included elsewhere in this Annual Report on Form 10-K.
46
Momenta Pharmaceuticals, Inc.
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
(May 17,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001)
|
|
|
|
|
Year Ended December 31,
|
|
through
December 31,
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
(In thousands, except per share information)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$
|
15,999
|
|
$
|
13,011
|
|
$
|
7,832
|
|
$
|
1,454
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
46,916
|
|
23,710
|
|
15,722
|
|
5,347
|
|
2,174
|
|
|
206
|
|
|
|
General and administrative
|
|
28,466
|
|
14,059
|
|
6,751
|
|
4,083
|
|
2,712
|
|
|
167
|
|
|
|
Total operating expenses
|
|
75,382
|
|
37,769
|
|
22,473
|
|
9,430
|
|
4,886
|
|
|
373
|
|
|
|
Loss from operations
|
|
(59,383
|
)
|
(24,758
|
)
|
(14,641
|
)
|
(7,976
|
)
|
(4,886
|
)
|
|
(373
|
)
|
|
|
Interest income
|
|
7,974
|
|
3,353
|
|
605
|
|
74
|
|
17
|
|
|
2
|
|
|
|
Interest expense
|
|
(504
|
)
|
(257
|
)
|
(39
|
)
|
(43
|
)
|
—
|
|
|
—
|
|
|
|
Net loss
|
|
(51,913
|
)
|
(21,662
|
)
|
(14,075
)
|
|
(7,945
|
)
|
(4,869
|
)
|
|
(371
|
)
|
|
|
Deemed dividend related to beneficial conversion
feature of Series C redeemable convertible preferred stock
|
|
—
|
|
—
|
|
(20,389
)
|
|
—
|
|
—
|
|
|
—
|
|
|
|
Dividends and accretion to redemption value of
redeemable convertible preferred stock
|
|
—
|
|
—
|
|
(1,852
|
)
|
(1,898
|
)
|
(520
|
)
|
|
(22
|
)
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(51,913
|
)
|
$
|
(21,662
|
)
|
$
|
(36,316
|
)
|
$
|
(9,843
|
)
|
$
|
(5,389
|
)
|
|
$
|
(393
|
)
|
|
|
Basic and diluted net loss per share attributable to
common stockholders
|
|
$
|
(1.62
|
)
|
$
|
(0.79
|
)
|
$
|
(2.56
)
|
|
$
|
(5.02
|
)
|
$
|
(5.70
|
)
|
|
$
|
(6.74
|
)
|
|
|
Shares used in computing basic and diluted net loss
per share attributable to common stockholders
|
|
32,103
|
|
27,283
|
|
14,177
|
|
1,961
|
|
946
|
|
|
58
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
22,351
|
|
|
$
|
25,890
|
|
$
|
11,678
|
|
$
|
4,613
|
|
$
|
1,471
|
|
$
|
181
|
|
|
Marketable securities
|
|
|
168,914
|
|
|
130,364
|
|
41,943
|
|
7,994
|
|
—
|
|
—
|
|
|
Working capital
|
|
|
185,299
|
|
|
155,661
|
|
54,154
|
|
13,044
|
|
633
|
|
(128
|
)
|
|
Total assets
|
|
|
216,385
|
|
|
171,101
|
|
64,330
|
|
16,084
|
|
2,500
|
|
184
|
|
|
Line of credit obligations—net of current portion
|
|
|
738
|
|
|
1,621
|
|
1,105
|
|
372
|
|
—
|
|
—
|
|
|
Capital lease obligations—net of current portion
|
|
|
3,998
|
|
|
1,375
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Lease financing liability—net of current portion
|
|
|
2,321
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Redeemable convertible preferred stock
|
|
|
—
|
|
|
—
|
|
—
|
|
27,225
|
|
6,427
|
|
22
|
|
|
Accumulated deficit
|
|
|
(125,519
|
)
|
|
(73,606
|
)
|
(51,944
|
)
|
(15,628
|
)
|
(5,785
|
)
|
(396
|
)
|
|
Total
stockholders’ equity (deficit)
|
|
|
$
|
182,591
|
|
|
$
|
160,155
|
|
$
|
56,993
|
|
$
|
(13,779
|
)
|
$
|
(4,831
|
)
|
$
|
(148
|
)
|
47
Item 7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s
Discussion and Analysis of Financial Condition and Results of Operations
includes the identification of certain trends and other statements that may
predict or anticipate future business or financial results. There are important
factors that could cause our actual results to differ materially from those
indicated. See “Risk Factors” in Item 1A of this Annual Report on Form 10-K.
Business Overview
We are a biotechnology company specializing in the
detailed structural analysis of complex mixture drugs. We apply our
technology to the development of generic versions of complex drug products as
well as to the discovery and development of novel drugs. Through detailed
analysis of the molecular structure of complex sugars and other complex
mixtures, we believe our proprietary technology enables us to define the
specific sequences contained in complex drugs, including those structures that
had previously not been described due to a lack of available technology. We
apply our technology to the discovery and development of novel drugs through
gaining a deeper understanding of the role of sugars in disease, such as the
roles that complex sugars play in cellular function, disease and drug action
based on our analytical capabilities. With our capabilities, we have developed
a diversified pipeline of complex generic and novel drug candidates, as well as
a novel drug discovery program.
Our business strategy is to apply our technology to
develop generic versions of complex drugs, such as M-Enoxaparin and M356, to
generate product revenue which will contribute to funding our novel drug
discovery and development programs. Over the long term, we expect to generate
additional value by leveraging our understanding of sugars to create novel
therapeutics, which address critical unmet medical needs in a wide range of
disease areas, including oncology, cardiovascular disease, infectious disease,
inflammation and immunology.
Our most advanced product candidate, M-Enoxaparin, is
designed to be a technology-enabled generic version of Lovenox
®
, a widely prescribed low
molecular weight heparin, or LMWH. In 2003, we formed a collaboration, the 2003
Sandoz Collaboration, with Sandoz N.V. and Sandoz Inc., collectively
Sandoz, affiliates of Novartis AG, to jointly develop, manufacture and
commercialize M-Enoxaparin. On August 29, 2005, Sandoz submitted an
Abbreviated New Drug Application, or ANDA, to the FDA for M-Enoxaparin, which
was amended in 2006 to include a paragraph IV certification stating that
Sanofi-Aventis’ patents listed in the FDA’s listing of approved drug products,
the Orange Book, for Lovenox are, among other things, invalid or unenforceable.
In July 2006, we entered into a series of agreements with Novartis AG and
Sandoz AG, including a Memorandum of Understanding, or MOU, with Sandoz AG,
collectively referred to as the 2006 Sandoz Collaboration. Under the terms of
the MOU, we expanded the geographic markets covered by our collaboration
efforts related to M-Enoxaparin to include the European Union and further
agreed to exclusively collaborate with Sandoz AG on the development and
commercialization of three other biosimilar and complex generic products.
Since our inception in May 2001, we have incurred
annual net losses. As of December 31, 2006, we had an accumulated deficit
of $125.5 million. We recognized net losses of $51.9 million, $21.7 million and
$14.1 million for the years ended December 31, 2006, 2005 and 2004,
respectively. We expect to incur substantial and increasing losses for the next
several years as we develop our product candidates, expand our research and
development activities and prepare for the commercial launch of our product
candidates. Additionally, we plan to continue to evaluate possible acquisitions
or licensing of rights to additional technologies, products or assets that fit
within our growth strategy. Accordingly, we will need to generate significant
revenues to achieve and then maintain profitability.
Since our inception, we have had no revenues from
product sales. Our revenues for the years ended December 31, 2006, 2005
and 2004 of $16.0 million, $13.0 million and $7.8 million, respectively, have
been
48
derived from our 2003
Sandoz Collaboration and primarily consist of amounts earned by us for
reimbursement by Sandoz of research and development services and development
costs for M-Enoxaparin. In June 2004,
we completed an initial public offering of our common stock, the net proceeds
of which were $35.3 million after deducting underwriters’ discounts and
expenses. In July 2005, we raised $122.3 million in a follow-on public
offering, net of expenses, from the sale and issuance of 4,827,300 shares of
our common stock. In connection with the 2006 Sandoz Collaboration, the Company
sold 4,708,679 shares of common stock to Novartis Pharma AG for an aggregate
purchase price of $75.0 million. To date, we have devoted substantially all of
our capital resources to the research and development of our product
candidates.
The biotechnology and
pharmaceutical industries in which we compete are undergoing, and are expected
to continue to undergo, rapid and significant technological change. We expect
competition to intensify as technological advances are made or new
biotechnology products are introduced. To become and remain profitable, we must
succeed in rapidly developing and commercializing drugs with significant market
potential. This will require us to be successful in a range of challenging
activities for which we are only in the preliminary stages: developing drugs;
obtaining regulatory approval for them; and manufacturing, marketing and
selling them. We have invested a significant portion of our time, financial resources
and collaboration efforts in the development of our most advanced product
candidate, M-Enoxaparin. Our successful development and commercialization
of M-Enoxaparin, in collaboration with Sandoz, depends on several factors,
including: using our technology to demonstrate successfully to the FDA that
M-Enoxaparin is therapeutically equivalent to Lovenox; meeting any other FDA
requirements for marketing approval; successfully manufacturing
M-Enoxaparin in a consistent, cost-effective and reproducible manner and at a
commercial scale; achieving a favorable outcome in any patent litigation with
Sanofi-Aventis relating to enoxaparin, or a third party achieving a favorable
outcome in the pending patent litigation with Sanofi-Aventis; achieving market
acceptance of M-Enoxaparin in the medical community and with third-party
payors; and FDA approval of other generic versions of Lovenox.
Financial
Operations Overview
Revenue
We have not yet generated
any revenue from product sales and are uncertain whether or not we will
generate any revenue from the sale of products over the next several years. We
have recognized, in the aggregate, $38.3 million of revenue from our inception
through December 31, 2006. This revenue was derived entirely from our 2003
Sandoz Collaboration. We will seek to generate revenue from a combination of
research and development payments, profit sharing payments, milestone payments
and royalties in connection with our 2003 Sandoz Collaboration and 2006 Sandoz
Collaboration and similar future collaborative or strategic relationships. We
expect that any revenue we generate will fluctuate from quarter to quarter as a
result of the timing and amount of research and development and other payments
received under our collaborative or strategic relationships, and the amount and
timing of payments we receive upon the sale of our products, to the extent any
are successfully commercialized.
Research and Development
Research and development expenses consist of costs
incurred in identifying, developing and testing product candidates. These
expenses consist primarily of salaries and related expenses for personnel,
license fees, consulting fees, contract research and manufacturing, and the
costs of laboratory equipment and facilities. We expense research and development
costs as incurred.
The following summarizes
our primary research and development programs:
49
Development Programs
M-Enoxaparin
Our most advanced product candidate, M-Enoxaparin, is
designed to be a generic version of Lovenox. Lovenox is a widely-prescribed
LMWH used for the prevention and treatment of deep vein thrombosis, or DVT, and
to support the treatment of acute coronary syndromes, or ACS. Under our 2003
Sandoz Collaboration, we work with Sandoz exclusively to develop, manufacture
and commercialize M-Enoxaparin in the U.S. and Sandoz is responsible for
funding substantially all of the U.S.-related M-Enoxaparin development,
regulatory, legal and commercialization costs. The total cost of development
and commercialization, and the timing of M-Enoxaparin marketing, are subject to
uncertainties relating to the development, regulatory approval and legal
processes. In accordance with our 2003 Sandoz Collaboration, Sandoz submitted
ANDAs to the FDA for M-Enoxaparin in syringe and vial forms seeking approval to
market M-Enoxaparin in the United States. The syringe ANDA was subsequently
amended in 2006 to include a paragraph IV certification stating that
Sanofi-Aventis’ patents listed in the Orange Book for Lovenox are, among other
things, invalid and unenforceable.
The FDA is currently reviewing the M-Enoxaparin ANDAs,
including our manufacturing data and technology and characterization
methodology. In parallel, and in collaboration with Sandoz, we are focused on
activities related to supporting the FDA’s review of the ANDA and preparing for
the commercialization of M-Enoxaparin, if and when approved, by advancing
manufacturing, supply chain, and sales and marketing objectives.
Our 2006 Sandoz
Collaboration expanded our collaboration efforts related to M-Enoxaparin to
include the European Union. Under the 2006 Sandoz Collaboration, we will share
certain development, regulatory, legal and commercialization costs as well as a
portion of the profits, if any.
M118
M118 is a novel anticoagulant drug that was rationally
designed with the goal of providing improved clinical anticoagulant properties
to support the treatment of patients diagnosed with acute coronary syndromes,
or ACS, and stable angina. We believe that M118 has the potential to provide
baseline anticoagulant therapy to treat patients with ACS or stable angina who
require a coronary intervention, as well as those ACS patients who are
medically managed, or do not require intervention in order to treat their
coronary attack. M118 is designed to be a reversible and monitorable
anticoagulant that can be administered intravenously or subcutaneously, and has
a pharmacokinetic profile similar to a LMWH. We believe that the properties of
M118 have the potential to provide greater flexibility than other therapies presently
used to treat patients diagnosed with ACS and stable angina.
In July 2006, we
filed our Investigational New Drug Application, or IND, with the FDA for our
M118 intravenous injection product, and in October 2006 began Phase I
clinical trials.
M356
M356 is targeted to be a
technology-enabled generic version of Copaxone
®
, a complex drug consisting of a mixture
of polypeptide chains. Copaxone is indicated for reduction of the frequency of
relapses in patients with Relapse-Remitting Multiple Sclerosis. Multiple
sclerosis is a chronic disease of the central nervous system characterized by
inflammation and neurodegeneration. In North America, Copaxone is marketed
through Teva Neuroscience LLC, a wholly owned subsidiary of Teva Pharmaceutical
Industries Ltd., and distributed by Sanofi-Aventis. Teva and Sanofi-Aventis
have an additional collaborative arrangement for the marketing of Copaxone in
Europe and other markets, under which Copaxone is either co-promoted with Teva
or is marketed solely by Sanofi-Aventis. Under our 2006 Sandoz Collaboration,
we and Sandoz jointly develop, manufacture and commercialize M356. We are
responsible for funding
50
substantially
all of the U.S. related M356 development costs, with Sandoz responsible for
regulatory, legal and commercialization costs. Outside of the U.S., we and
Sandoz share equally the development costs, with Sandoz responsible for
commercialization and legal costs.
Glycoproteins
Our glycoprotein program is focused on extending our
technology for the analysis of complex sugars to glycoproteins. The goal of the
program is to facilitate the development of generic or biosimilar versions of
major marketed glycoprotein drugs. In addition, we believe we can assist
pharmaceutical and biotechnology companies in developing improved versions of
their branded glycoprotein products by analyzing and modifying the sugar
structures contained in the products. Many glycoprotein drugs have been
approved by the FDA under the Biological Licensing Application, or BLA,
regulatory pathway. BLA-approved complex mixture products include glycoproteins
such as erythropoietin, blood clotting factors and interferon beta.
These glycoprotein drugs contain branched sugars that
vary from molecule to molecule. These sugars impart specific biological properties
to the glycoprotein drug and can often comprise a significant portion of the
mass of a molecule. However, many of these products have not been thoroughly
characterized due to inadequacies of standard technology.
The goal of our
glycoprotein program is to facilitate the development of generic or biosimilar
versions of major marketed glycoprotein drugs. Under our 2006 Sandoz
Collaboration, we are currently applying our technology to develop two
follow-on proteins in partnership with Sandoz. We refer to these two product
candidates as M178 and M249.
M-Dalteparin
M-Dalteparin is targeted
to be a technology-enabled generic version of Fragmin
®
, a LMWH product. Fragmin is
indicated for the prevention of DVT and selected indications in ACS. In September 2005,
Eisai Inc., a U.S. pharmaceutical subsidiary of Eisai Co. Ltd., obtained U.S.
promotion rights to Fragmin from Pfizer Inc. Fragmin is marketed by Pfizer in
Europe and by Kissei Pharmaceutical Co., Ltd. in Japan. Through our technology,
we believe we have the ability to analyze Fragmin and develop a generic product
has the same active ingredients as Fragmin. The M-Dalteparin program has been
reprioritized in light of other more commercially attractive opportunities.
Discovery Program
We are also applying our analytical capabilities to
drug discovery. Our discovery program is focused on the role that complex
sugars play in biological systems, including regulating the development and
progression of disease. Our initial focus is in the area of cancer, which is a
disease characterized by unregulated cell growth, where we are seeking to
discover sugar sequences with anti-cancer properties for development as
therapeutics. Sugars play a part in the conversion of normal cells into
cancerous cells, the regulation of tumor growth and tumor invasion and
metastasis. We believe that our technology can provide us with a better
understanding of the role of sugars in disease, enabling us to discover novel
sugar therapeutics, as well as to discover new disease mechanisms that can be
targeted with small molecule drugs. We previously were applying our technology
to the pulmonary delivery of proteins. However, in order to focus our resources
on our key programs, we discontinued our drug delivery program during 2006.
General and Administrative
General and administrative
expenses consist primarily of salaries and other related costs for personnel in
executive, finance, legal, accounting, investor relations, business development
and human resource
51
functions.
Other costs include facility and insurance costs not otherwise included in
research and development expenses and professional fees and other expenses for
legal and accounting services.
Results of
Operations
Years Ended December 31, 2006, 2005 and 2004
Revenue
Revenue for 2006 was $16.0 million, compared with
$13.0 million for 2005 and $7.8 million for 2004. The increase of $3.0 million
from 2005 to 2006 and $5.2 million from 2004 to 2005 is entirely attributable
to our 2003 Sandoz Collaboration. These revenues consist of amounts earned by
us for payment by Sandoz of research and development services and reimbursement
of development costs for M-Enoxaparin and amortization of the initial payment
received under our 2003 Sandoz Collaboration. The increase in revenues was the
result of increased reimbursable expenditures associated with preparing for the
potential commercial launch of M-Enoxaparin in the U.S.
We have not recognized any
revenue to date from the 2006 Sandoz Collaboration. We will commence
amortization of the $13.6 million representing the excess of the purchase price
of $15.93 per share of common stock purchased by Novartis Pharma AG over the
closing price of $13.05 per share on July 24, 2006, the last trading day
of our common stock before execution of the 2006 Sandoz Collaboration, as
collaboration revenue when we can reasonably estimate the period of ongoing
involvement or performance obligations under the 2006 Sandoz Collaboration. We
expect to be able make such an estimate when a definitive collaboration and
license agreement is executed with Sandoz AG.
Research and Development
Research and development expense for 2006 was $46.9
million, compared with $23.7 million in 2005 and $15.7 million in 2004. The
increase of $23.2 million from 2005 to 2006 principally resulted from an
increase of $6.0 million in manufacturing and process development costs and
research conducted by third parties, $4.7 million in personnel and related
costs, $3.7 million in stock-based compensation, of which $2.2 million is
related to the adoption of SFAS 123R, $3.4 million in laboratory expenses, $2.6
million in facilities costs, $1.0 million in consultant costs and $0.9 million
in depreciation expense. The increase of $8.0 million from 2004 to 2005
principally resulted from an increase of $2.8 million in personnel and related
costs, $2.1 million in manufacturing and research provided by third parties,
$1.6 million in facilities costs, and $0.8 million in consultant costs and $0.6
million in depreciation expense.
The lengthy process of securing FDA approvals for 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. We expect future
research and development expenses to increase in support of our product
candidates.
52
The
following table summarizes the primary components of our research and
development expenditures for our principal research and development programs
for the years ended December 31, 2006, 2005, and 2004.
|
Research and Development Expense (in thousands)
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
Development
programs
|
|
$
|
36,648
|
|
$
|
16,606
|
|
$
|
12,391
|
|
|
Discovery
programs
|
|
4,920
|
|
3,472
|
|
2,309
|
|
|
Other research
|
|
5,348
|
|
3,632
|
|
1,022
|
|
|
Total research and
development expense
|
|
$
|
46,916
|
|
$
|
23,710
|
|
$
|
15,722
|
|
Our increase in expenditures on development programs
of $20.0 million from 2005 to 2006 was primarily related to preclinical and
toxicology work intended to support the M118 IND filing, commencement of our
Phase I clinical studies for M118, manufacturing and professional fees related
to our M-Enoxaparin program and the expenses of our M356 program. Our increase
in expenditures on development programs of $4.2 million from 2004 to 2005 was
primarily due the increased personnel and manufacturing costs of our
M-Enoxaparin program. The increases in expenditures on our discovery programs
from 2005 to 2006 and from 2004 to 2005 were primarily related to increased
expenditures to support our disease biology and drug delivery programs. We
discontinued our drug delivery program in 2006.
The increases in other
research expense from 2005 to 2006 and from 2004 to 2005 were primarily due to
an increase in headcount and headcount related costs relating to general
technology development and support activities.
General and Administrative
General and administrative expense for the year ended December 31,
2006 was $28.5 million compared to $14.1 million in 2005 and $6.8 million in
2004. General and administrative expense increased by $14.4 million from 2005
to 2006 due primarily to an increase of $5.4 million in stock-based
compensation, of which $3.9 million is related to the adoption of SFAS 123R,
increases of $4.6 million in professional fees and other legal expenses and
$3.8 million in personnel and related costs. General and administrative expense
increased by $7.3 million from 2004 to 2005 due primarily to an increase of
$4.1 million in professional fees, including legal, consulting, accounting
and other professional fees, $2.3 million in personnel and related costs,
$0.7 million in insurance and $0.2 million in office and computer supplies.
We anticipate additional increases in general and
administrative expenses to support our research and development programs. These
increases will likely include the hiring of additional personnel. We intend to
continue to incur increased internal and external legal and business
development costs to support our various product development efforts, which can
vary from period to period.
53
Interest Income
Interest income was $8.0
million, $3.4 million and $0.6 million for the years ended December 31,
2006, 2005 and 2004, respectively. The increase of $4.6 million from 2005 to
2006 was primarily due to higher average investment balances as a result of the
proceeds from the issuance of common stock to Novartis Pharma AG in September 2006
and from our follow-on public offering in July 2005. The increase of
$2.8 million from 2004 to 2005 was primarily due to higher average
investment balances as a result of the proceeds from our follow-on public
offering in July 2005.
Interest Expense
Interest expense was $0.5 million,
$0.3 million and $39,000 for the years ended December 31, 2006, 2005
and 2004, respectively. The increase of $0.2 million from 2005 to 2006 and
$0.2 million from 2004 to 2005 is primarily due to additional amounts
drawn from our equipment line of credit during 2005 and 2006.
Liquidity and
Capital Resources
We have financed our operations since inception primarily
through the sale of equity securities, payments from our 2003 Sandoz
Collaboration, borrowings from our lines of credit, and capital lease
obligations. Since our inception, we have received net proceeds of $45.4
million from the issuance of redeemable convertible preferred stock. In June 2004,
we completed our initial public offering and raised net proceeds of $35.3
million. In July 2005, we completed a follow-on public offering and raised
net proceeds of $122.3 million. In September 2006, we received net
proceeds of $74.9 million from Novartis Pharma AG’s purchase of 4,708,679
shares of our common stock in connection with the 2006 Sandoz Collaboration. As
of December 31, 2006, we have received a cumulative total of $37.7 million
from our 2003 Sandoz Collaboration, $4.0 million from debt financing, $4.9
million from capital lease obligations, $3.2 million from our landlord for
leasehold improvements related to our corporate facility, and additional funds
from interest income.
At December 31, 2006, we had $191.3 million in
cash, cash equivalents and marketable securities. In addition, we also hold
$4.7 million in restricted cash, which serves as collateral for a letter of
credit related to our facility leases. During the years ended December 31,
2006, 2005 and 2004, our operating activities used $25.2 million, $17.0 million
and $12.6 million, respectively. The use of cash was primarily a result of net
losses associated with our research and development activities and
administrative costs.
Net cash used in investing activities was $46.3
million, $93.3 million and $37.2 million for the years ended December 31,
2006, 2005 and 2004, respectively. During 2006, we used $243.2 million of cash
to purchase marketable securities, offset by cash provided of $206.6 million in
maturities of marketable securities. During 2005, we used $151.6 million of
cash to purchase marketable securities, offset by cash provided of $62.0
million in maturities of marketable securities. During 2004, we used $64.9
million of cash to purchase marketable securities, offset by cash provided of
$29.8 million in maturities of marketable securities. During the years ended December 31,
2006, 2005 and 2004, we used $9.8 million, $3.7 million and $2.1 million
respectively, to purchase laboratory equipment and leasehold improvements.
Net cash provided by financing activities for the year
ended December 31, 2006 was $68.0 million. We received net proceeds of
$74.9 million from the sale of 4,708,679 shares of common stock to Novartis
Pharma AG of which $13.6 million is included in deferred revenue in our
consolidated balance sheet as of December 31, 2006. Additionally, we
borrowed $3.7 million on an equipment lease agreement entered into in December 2005,
received $3.2 million in financing from our landlord for leasehold improvements
related to our corporate facility, and received proceeds of $1.3 million from
stock option exercises and purchases of common shares through our Employee
Stock Purchase Plan, offset by principal payments of $1.3 million on our line
of credit and lease agreement obligations and payments of $0.3 million on
financed leasehold improvements. Net cash provided by financing activities for
the year ended December 31, 2005
54
was $124.5 million. We
received proceeds of $122.3 million from our secondary public offering of
common stock in July 2005, $1.6 million from our line of credit
obligation, $1.2 million from our equipment lease agreement entered into in December 2005,
$0.3 million from stock option exercises, purchases of common shares through
our Employee Stock Purchase Plan and a payment related to restricted stock. The
total proceeds of $125.4 million were offset by $0.9 million in principal
payments on our line of credit obligation. Net cash provided by financing
activities for the year ended December 31, 2004 was $56.9 million. We
received net proceeds of $35.3 million from our initial public offering of
common stock in June 2004, net proceeds of $20.4 million from the issuance
of our Series C redeemable convertible preferred stock and $1.4 million in
borrowings from a line of credit with a bank. The total proceeds of $57.1
million were offset by $0.3 million in principal payments on our line of credit
obligation.
The
following table summarizes our contractual obligations and commercial
commitments at December 31, 2006:
|
|
|
Payments
Due by Period
|
|
|
|
|
|
|
|
|
Contractual Obligations (in thousands)
|
|
|
|
Total
|
|
2007
|
|
2008
through
2010
|
|
2011
through
2012
|
|
After
2012
|
|
|
License
maintenance obligations
|
|
$
|
1,095
|
|
$
|
113
|
|
$
|
547
|
|
|
$
|
435
|
|
|
|
*
|
|
|
|
Short and
long-term line of credit obligation
|
|
1,621
|
|
883
|
|
738
|
|
|
—
|
|
|
|
$
|
—
|
|
|
|
Capital lease
obligations
|
|
4,939
|
|
941
|
|
3,998
|
|
|
—
|
|
|
|
—
|
|
|
|
Operating lease
obligations
|
|
19,912
|
|
4,448
|
|
13,921
|
|
|
1,543
|
|
|
|
—
|
|
|
|
Total contractual
obligations
|
|
$
|
27,567
|
|
$
|
6,385
|
|
$
|
19,204
|
|
|
$
|
1,978
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
After
2012, the annual obligations, which extend indefinitely, are
approximately $0.2 million per year.
We anticipate that our
current cash, cash equivalents and short-term investments will be sufficient to
fund our operations through at least 2008. However, our forecast of the period
of time through which our financial resources will be adequate to support our
operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially.
Critical Accounting
Policies and Estimates
Our discussion and analysis of our financial condition
and results of operations are based on our financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. On an on-going basis, we evaluate our estimates
and judgments, including those related to revenue, accrued expenses and certain
equity instruments. Prior to our initial public offering, we also evaluated our
estimates and judgments regarding the fair valuation assigned to our common
stock. We base our estimates on historical experience, known trends and events
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following
critical accounting policies affect our more significant judgments and
estimates used in the preparation of our financial statements.
Revenue
We record revenue on an
accrual basis as it is earned and when amounts are considered collectible.
Revenues received in advance of performance obligations or in cases where we
have a continuing
55
obligation
to perform services are deferred and recognized over the performance period.
Revenues from milestone payments that represent the culmination of a separate
earnings process are recorded when the milestone is achieved. Contract revenues
are recorded as the services are performed. When we are required to defer
revenue, the period over which such revenue should be recognized is subject to
estimates by management and may change over the course of the collaborative
agreement.
Accrued Expenses
As part of the process of
preparing financial statements, we are required to estimate accrued expenses.
This process involves identifying services that have been performed on our
behalf and then estimating the level of service performed and the associated
cost incurred for such service as of each balance sheet date in our financial
statements. Examples of estimated expenses for which we accrue include contract
service fees paid to contract manufacturers in conjunction with the production
of clinical drug supplies and to contract research organizations. In connection
with such service fees, our estimates are most affected by our understanding of
the status and timing of services provided relative to the actual levels of
services incurred by such service providers. The majority of our service
providers invoice us monthly in arrears for services performed. In the event
that we do not identify certain costs, which have begun to be incurred, or we
under- or over-estimate the level of services performed or the costs of such
services, our reported expenses for such period would be too low or too high.
The date on which certain services commence, the level of services performed on
or before a given date and the cost of such services are often determined based
on subjective judgments. We make these judgments based upon the facts and
circumstances known to us in accordance with generally accepted accounting
principles.
Stock-Based Compensation
We adopted Statement of Financial Accounting
Standards, or SFAS, No. 123 (revised 2004), “
Share Based
Payment
,” (SFAS 123R), effective January 1, 2006 under the
modified prospective transition method. SFAS 123R requires the recognition of
the fair value of stock-based compensation expense in our operations, and
accordingly the adoption of SFAS No. 123R fair value method has had and
will continue to have a significant impact on our results of operations,
although it will have no impact on our overall financial position. Option
valuation models require the input of highly subjective assumptions, including
stock price volatility and expected term of an option. Changes in market price
directly affect volatility and could cause future stock-based compensation
expense to vary significantly in future reporting periods. The adoption of
SFAS 123R on January 1, 2006 resulted in the recognition of
stock-based compensation expense of $6.1 million for the year ended
December 31, 2006. At December 31, 2006, the total unrecognized
compensation cost related to non-vested stock options was $14.6 million.
The cost is expected to be recognized over a weighted average period of
2.8 years.
Due to our limited historical share options exercise
data and the characteristics of our share options, we follow the simplified
method of estimating the expected term, as described in the U.S. Securities and Exchange Commission, or SEC, issued Staff
Accounting Bulletin No. 107,
Share-Based
Payments,
or SAB 107. The expected term is derived from the
average midpoint between vesting and the contractual term. Upon adoption of
SFAS 123R, we validated our estimates and assumptions used in the Black-Scholes
model with an independent third party having the relevant expertise in
valuation methodologies. We update these assumptions on a quarterly basis to
reflect recent historical data. Additionally, we are required to estimate
forfeiture rates to estimate the number of shares that will vest in a period to
which the fair value is applied.
Prior to January 1,
2006, we accounted for employee stock options under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
,
or APB 25, and provided pro forma disclosures of net loss attributable and net
loss per share allocable to common stockholders as if we had adopted the fair
value based method of accounting in
56
accordance
with SFAS No. 123,
Accounting for Stock-Based Compensation
,
or SFAS 123, as amended by SFAS No. 148,
Accounting for Stock-Based
Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123,
or SFAS 148.
Recently Issued
Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation
No. 48,
Accounting for Uncertainty in
Income Taxes—An Interpretation of FASB Statement No. 109
, or
FIN 48, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109,
Accounting for
Income Taxes
. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return and provides
guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 will be effective for
fiscal years beginning after December 15, 2006. The Company has not yet
completed its evaluation of the impact of adoption, but does not currently
believe that adoption will have a material impact on its results of operations,
financial position or cash flows.
In September 2006, the SEC issued Staff
Accounting Bulletin No. 108,
Considering
the Effects of Prior Year Misstatements
W
hen Quantifying Misstatements in Current
Year Financial Statements
, or SAB 108. SAB 108 was issued in order
to eliminate the diversity in practice surrounding how public companies
quantify financial statement misstatements. SAB 108 requires that registrants
quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in a misstated amount that, when all
relevant quantitative and qualitative factors are considered, is material. SAB
108 must be implemented by the end of our fiscal year 2007. We do not currently believe that the adoption
of this standard will result in a material effect on our financial position or
results of operations.
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
,
or SFAS 157. SFAS 157 provides a common definition of fair value and
establishes a framework to make measurement of fair value in generally accepted
accounting principles more consistent and comparable. SFAS 157 also requires
expanded disclosures to provide information about the extent to which fair
value is used to measure assets and liabilities, the methods and the
assumptions used to measure fair value, and the effect of fair value measures
on earnings. SFAS 157 will be effective for our 2008 fiscal year, although
early adoption is permitted. We are currently assessing the potential effect of
SFAS 157 on our consolidated financial statements.
Item 7A.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market
risk related to changes in interest rates. Our current investment policy is to
maintain an investment portfolio consisting mainly of U.S. money market and
high-grade corporate securities, directly or through managed funds, with
maturities of twenty-four months or less. Our cash is deposited in and invested
through highly rated financial institutions in North America. Our marketable
securities are subject to interest rate risk and will fall in value if market interest
rates increase. However, due to the conservative nature of our investments and
relatively short effective maturities of debt instruments, interest rate risk
is mitigated. If market interest rates were to increase immediately and
uniformly by 10% from levels at December 31, 2006 or 2005, we estimate
that the fair value of our investment portfolio would decline by an immaterial
amount. We do not own derivative financial instruments in our investment
portfolio. Accordingly, we do not believe that there is any material market
risk exposure with respect to derivative, foreign currency or other financial
instruments that would require disclosure under this item.
57
Item 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Momenta
Pharmaceuticals, Inc.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Momenta
Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance
sheets of Momenta Pharmaceuticals, Inc. as of December 31, 2006 and
2005, and the related consolidated statements of operations, redeemable
convertible preferred stock, stockholders’ equity (deficit) and comprehensive
income (loss) and cash flows for each of the three years in the period ended December 31,
2006. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Momenta Pharmaceuticals, Inc. at December 31, 2006 and
2005, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2006, in
conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2006, the Company adopted Statement of
Accounting Standards No. 123R, “Share-Based Payments” using the modified
prospective transition method.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Momenta
Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 12, 2007 expressed an unqualified opinion
thereon.
|
|
|
/s/ ERNST & YOUNG LLP
|
|
Boston,
Massachusetts
|
|
|
|
March 12,
2007
|
|
|
58
Momenta Pharmaceuticals, Inc.
Consolidated Balance Sheets
|
|
|
December 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
(In thousands,
except per share amounts)
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
22,351
|
|
$
|
25,890
|
|
|
Marketable
securities
|
|
168,914
|
|
130,364
|
|
|
Unbilled
collaboration revenue
|
|
4,727
|
|
4,347
|
|
|
Prepaid expenses
and other current assets
|
|
2,069
|
|
2,799
|
|
|
Total current assets
|
|
198,061
|
|
163,400
|
|
|
Property and
equipment, net of accumulated depreciation
|
|
13,603
|
|
5,917
|
|
|
Restricted cash
|
|
4,685
|
|
1,778
|
|
|
Other assets
|
|
36
|
|
6
|
|
|
Total assets
|
|
$
|
216,385
|
|
$
|
171,101
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,311
|
|
$
|
3,080
|
|
|
Accrued expenses
|
|
5,786
|
|
3,355
|
|
|
Deferred revenue
|
|
123
|
|
147
|
|
|
Line of credit obligations
|
|
883
|
|
845
|
|
|
Capital lease
obligations
|
|
941
|
|
284
|
|
|
Lease financing
liability
|
|
596
|
|
—
|
|
|
Deferred rent
|
|
122
|
|
28
|
|
|
Total current liabilities
|
|
12,762
|
|
7,739
|
|
|
Deferred revenue,
net of current portion
|
|
13,552
|
|
123
|
|
|
Line of credit
obligations, net of current portion
|
|
738
|
|
1,621
|
|
|
Capital lease
obligations, net of current portion
|
|
3,998
|
|
1,375
|
|
|
Lease financing
liability, net of current portion
|
|
2,321
|
|
—
|
|
|
Deferred rent,
net of current portion
|
|
423
|
|
88
|
|
|
Total liabilities
|
|
33,794
|
|
10,946
|
|
|
Commitments and
contingencies (Note 13)
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
Preferred stock,
$0.01 par value; 5,000 shares authorized at December 31, 2006 and 2005,
100 shares of Series A Junior Participating Preferred Stock, $0.01 par
value designated and no shares issued and outstanding
|
|
—
|
|
—
|
|
|
Common stock,
$0.0001 par value; 100,000 shares authorized at December 31, 2006 and
2005, 36,098 and 30,465 shares issued and outstanding at December 31,
2006 and 2005, respectively
|
|
4
|
|
3
|
|
|
Additional
paid-in capital
|
|
308,061
|
|
236,190
|
|
|
Deferred
compensation
|
|
—
|
|
(2,193
|
)
|
|
Accumulated other
comprehensive income (loss)
|
|
45
|
|
(239
|
)
|
|
Accumulated
deficit
|
|
(125,519
|
)
|
(73,606
|
)
|
|
Total stockholders’ equity
|
|
182,591
|
|
160,155
|
|
|
Total liabilities
and stockholders’ equity
|
|
$
|
216,385
|
|
$
|
171,101
|
|
The accompanying notes are an integral part of these consolidated financial statements.
59
Momenta Pharmaceuticals, Inc.
Consolidated Statements of Operations
|
|
|
Year Ended December 31,
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
(In thousands,
except per share amounts)
|
|
|
Collaboration
revenue
|
|
$
|
15,999
|
|
$
|
13,011
|
|
$
|
7,832
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development*
|
|
46,916
|
|
23,710
|
|
15,722
|
|
|
General and administrative*
|
|
28,466
|
|
14,059
|
|
6,751
|
|
|
Total operating expenses
|
|
75,382
|
|
37,769
|
|
22,473
|
|
|
Loss from
operations
|
|
(59,383
|
)
|
(24,758
|
)
|
(14,641
|
)
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
7,974
|
|
3,353
|
|
605
|
|
|
Interest expense
|
|
(504
|
)
|
(257
|
)
|
(39
|
)
|
|
Net loss
|
|
$
|
(51,913
|
)
|
$
|
(21,662
|
)
|
$
|
(14,075
|
)
|
|
Deemed dividend
related to beneficial conversion feature of Series C redeemable
convertible preferred stock
|
|
—
|
|
—
|
|
(20,389
|
)
|
|
Dividends and
accretion to redemption value of redeemable convertible preferred stock
|
|
—
|
|
—
|
|
(1,852
|
)
|
|
Net loss
attributable to common stockholders
|
|
$
|
(51,913
|
)
|
$
|
(21,662
|
)
|
$
|
(36,316
|
)
|
|
Basic and diluted
net loss per share attributable to common stockholders
|
|
$
|
(1.62
|
)
|
$
|
(0.79
|
)
|
$
|
(2.56
|
)
|
|
Shares used in
computing basic and diluted net loss per share attributable to common
stockholders
|
|
32,103
|
|
27,283
|
|
14,177
|
|
|
* Includes
stock-based compensation as follows:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
4,367
|
|
$
|
634
|
|
$
|
875
|
|
|
General and administrative
|
|
7,035
|
|
1,659
|
|
1,145
|
|
|
Total stock-based
compensation
|
|
$
|
11,402
|
|
$
|
2,293
|
|
$
|
2,020
|
|
The accompanying notes are an integral part of these consolidated financial statements.
60
Momenta
Pharmaceuticals, Inc.
CONSOLIDATED
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS’
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
In
thousands
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
Additional
|
|
Comprehensive
|
|
Due
|
|
Deferred
|
|
|
|
Stockholders’
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
Paid-In
|
|
Income
|
|
from
|
|
Stock
|
|
Accumulated
|
|
Equity
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Value
|
|
Capital
|
|
(Loss)
|
|
Officer
|
|
Compensation
|
|
Deficit
|
|
(Deficit)
|
|
|
Balances at December 31, 2003
|
|
9,117
|
|
$ 27,225
|
|
|
|
4,163
|
|
|
$ —
|
|
|
|
$ 4,960
|
|
|
|
$ (6
|
)
|
|
|
$ (71
|
)
|
|
|
$ (3,034
|
)
|
|
|
$ (15,628
|
)
|
|
|
$ (13,779
|
)
|
|
|
Sale of
Series C Redeemable Convertible Preferred Stock, net of offering costs
of $110
|
|
2,613
|
|
20,390
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Accretion of
Preferred Stock to redemption value
|
|
—
|
|
37
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
Preferred Stock
dividends
|
|
—
|
|
1,815
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,815
|
)
|
|
|
(1,815
|
)
|
|
|
Proceeds from
redeemable preferred stock allocated to beneficial conversion feature
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
20,389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,389
|
|
|
|
Dividend on
redeemable preferred stock attributable to beneficial conversion feature
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,389
|
)
|
|
|
(20,389
|
)
|
|
|
Conversion of
redeemable convertible preferred stock to common stock
|
|
(11,730
|
)
|
(49,467
|
)
|
|
|
15,014
|
|
|
2
|
|
|
|
49,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,467
|
|
|
|
Issuance of common
stock in Initial Public Offering
|
|
—
|
|
—
|
|
|
|
6,153
|
|
|
1
|
|
|
|
35,296
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,297
|
|
|
|
Issuance of common
stock pursuant to the exercise of stock options
|
|
—
|
|
—
|
|
|
|
67
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
|
|
Payment of officer
obligation
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
Deferred stock
compensation expense associated with stock options
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
1,714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,714
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
Amortization of
deferred stock compensation
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,367
|
|
|
|
—
|
|
|
|
1,367
|
|
|
|
Compensation
expense associated with options issued to nonemployees
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
221
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
221
|
|
|
|
Compensation
expense associated with accelerated vesting of employee options
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
432
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
432
|
|
|
|
Vesting of
restricted stock
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
Cashless exercise
of warrant
|
|
—
|
|
—
|
|
|
|
12
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Unrealized loss on
marketable securities
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(153
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(153
|
)
|
|
|
Net loss
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,075
|
)
|
|
|
(14,075
|
)
|
|
|
Comprehensive loss
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,228
|
)
|
|
|
Balances at
December 31, 2004
|
|
—
|
|
$ —
|
|
|
|
25,409
|
|
|
$ 3
|
|
|
|
$ 112,510
|
|
|
|
$ (159
|
)
|
|
|
$ (36
|
)
|
|
|
$ (3,381
|
)
|
|
|
$ (51,944
|
)
|
|
|
$ 56,993
|
|
|
|
Issuance of common
stock in follow-on public offering
|
|
—
|
|
—
|
|
|
|
4,827
|
|
|
—
|
|
|
|
122,327
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
122,327
|
|
|
|
Issuance of common
stock pursuant to the exercise of stock options and employee stock purchase
plan
|
|
—
|
|
—
|
|
|
|
229
|
|
|
—
|
|
|
|
248
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
248
|
|
|
|
Payment of officer
obligation
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
|
Deferred stock
compensation expense associated with stock options
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
213
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(213
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
Amortization of
deferred stock compensation
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,401
|
|
|
|
—
|
|
|
|
1,401
|
|
|
|
Compensation
expense associated with options issued to nonemployees
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
783
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
783
|
|
|
|
Compensation
expense associated with the modification of stock options
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109
|
|
|
|
Unrealized loss on
marketable securities
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
Net loss
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,662
|
)
|
|
|
(21,662
|
)
|
|
61
Momenta Pharmaceuticals, Inc.
CONSOLIDATED
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS’
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS) (Continued)
In
thousands
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
Additional
|
|
Comprehensive
|
|
Due
|
|
Deferred
|
|
|
|
Stockholders’
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
Paid-In
|
|
Income
|
|
from
|
|
Stock
|
|
Accumulated
|
|
Equity
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Value
|
|
Capital
|
|
(Loss)
|
|
Officer
|
|
Compensation
|
|
Deficit
|
|
(Deficit)
|
|
|
Comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,742
|
)
|
|
|
Balances at
December 31, 2005
|
|
|
—
|
|
|
|
$ —
|
|
|
|
|
30,465
|
|
|
$ 3
|
|
|
|
$ 236,190
|
|
|
|
$ (239
|
)
|
|
|
$ —
|
|
|
|
$ (2,193
|
)
|
|
|
$ (73,606
|
)
|
|
|
$ 160,155
|
|
|
|
Issuance of common
stock to Sandoz
|
|
|
—
|
|
|
|
—
|
|
|
|
|
4,709
|
|
|
1
|
|
|
|
61,383
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,384
|
|
|
|
Issuance of common
stock pursuant to the exercise of stock options and employee stock purchase
plan
|
|
|
—
|
|
|
|
—
|
|
|
|
|
379
|
|
|
—
|
|
|
|
1,279
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,279
|
|
|
|
Issuance of
restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
|
745
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancellation of
restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(200
|
)
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Reclassification
of unearned compensation on non-vested share awards upon adoption of SFAS
123R
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
(2,193
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Stock-based
compensation expense for employees
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
11,130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,130
|
|
|
|
Stock-based
compensation expense for non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
272
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
272
|
|
|
|
Unrealized gain on
marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
284
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
284
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(51,913
|
)
|
|
|
(51,913
|
)
|
|
|
Comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(51,629
|
)
|
|
|
Balances at
December 31, 2006
|
|
|
—
|
|
|
|
$ —
|
|
|
|
|
36,098
|
|
|
$ 4
|
|
|
|
$ 308,061
|
|
|
|
$ 45
|
|
|
|
$ —
|
|
|
|
$ —
|
|
|
|
$ (125,519
|
)
|
|
|
$ 182,591
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements
62
Momenta Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
|
|
|
Year Ended December 31,
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
(In Thousands)
|
|
|
Cash Flows from Operating
activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(51,913
|
)
|
$
|
(21,662
|
)
|
$
|
(14,075
|
)
|
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
1,947
|
|
967
|
|
526
|
|
|
Stock-based compensation expense
|
|
11,402
|
|
2,293
|
|
2,020
|
|
|
Noncash interest expense
|
|
—
|
|
10
|
|
11
|
|
|
Loss on disposal of assets
|
|
147
|
|
62
|
|
—
|
|
|
(Accretion of discount)/amortization of premium on
investments
|
|
(1,702
|
)
|
1,050
|
|
1,015
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
—
|
|
2,238
|
|
(2,238
|
)
|
|
Unbilled collaboration revenue
|
|
(380
|
)
|
(1,546
|
)
|
(783
|
)
|
|
Prepaid expenses and other current assets
|
|
730
|
|
(1,442
|
)
|
(1,194
|
)
|
|
Restricted cash
|
|
(2,907
|
)
|
(293
|
)
|
(1,485
|
)
|
|
Other assets
|
|
(30
|
)
|
—
|
|
74
|
|
|
Accounts payable
|
|
1,231
|
|
(409
|
)
|
2,685
|
|
|
Accrued expenses
|
|
2,431
|
|
1,744
|
|
1,040
|
|
|
Deferred rent
|
|
429
|
|
116
|
|
—
|
|
|
Deferred revenue
|
|
13,405
|
|
(147
|
)
|
(147
|
)
|
|
Net cash used in operating activities
|
|
(25,210
|
)
|
(17,019
|
)
|
(12,551
|
)
|
|
Cash
Flows from Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
(243,176
|
)
|
(151,554
|
)
|
(64,921
|
)
|
|
Proceeds from maturities of marketable securities
|
|
206,612
|
|
62,003
|
|
29,804
|
|
|
Purchase of property and equipment
|
|
(9,780
|
)
|
(3,726
|
)
|
(2,132
|
)
|
|
Net cash used in investing activities
|
|
(46,344
|
)
|
(93,277
|
)
|
(37,249
|
)
|
|
Cash
Flows from Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from public offering of common stock, net of
issuance costs
|
|
—
|
|
122,327
|
|
35,297
|
|
|
Proceeds from issuance of redeemable convertible
preferred stock, net of issuance costs
|
|
—
|
|
—
|
|
20,389
|
|
|
Proceeds from issuance of common stock to Sandoz, net
of issuance costs
|
|
61,384
|
|
—
|
|
—
|
|
|
Proceeds from issuance of common stock under stock
plans
|
|
1,279
|
|
248
|
|
27
|
|
|
Proceeds from financing of leasehold improvements
|
|
3,199
|
|
—
|
|
—
|
|
|
Payments on financed leasehold improvements
|
|
(282
|
)
|
—
|
|
—
|
|
|
Proceeds from line of credit
|
|
—
|
|
1,551
|
|
1,448
|
|
|
Principal payments on line of credit
|
|
(845
|
)
|
(896
|
)
|
(331
|
)
|
|
Proceeds from capital lease obligations
|
|
3,735
|
|
1,242
|
|
—
|
|
|
Principal payments on capital lease obligations
|
|
(455
|
)
|
—
|
|
—
|
|
|
Payment of officer obligation
|
|
—
|
|
36
|
|
35
|
|
|
Net cash provided by financing activities
|
|
68,015
|
|
124,508
|
|
56,865
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
(3,539
|
)
|
14,212
|
|
7,065
|
|
|
Cash and cash equivalents, beginning of period
|
|
25,890
|
|
11,678
|
|
4,613
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
22,351
|
|
$
|
25,890
|
|
$
|
11,678
|
|
|
Supplemental Cash Flow
Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
504
|
|
$
|
163
|
|
$
|
28
|
|
|
Non Cash Transactions:
|
|
|
|
|
|
|
|
|
Acquisition of
assets under capital lease
|
|
$
|
—
|
|
$
|
398
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
63
Momenta Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements December 31, 2006
1.
The
Company
Business
Momenta Pharmaceuticals, Inc.
(the “Company”) was incorporated in the state of Delaware on May 17, 2001.
Its facilities are located in Cambridge, Massachusetts. Momenta is a
biotechnology company specializing in the detailed structural analysis of
complex mixture drugs, applying its technology to the development of
generic or biosimilar versions of complex drug products as well as to the
discovery and development of novel drugs.
2.
Summary
of Significant Accounting Policies
Principles of Consolidation
The Company’s consolidated
financial statements include the Company’s accounts and the accounts of the
Company’s wholly-owned subsidiary, Momenta Pharmaceuticals Securities
Corporation. All intercompany transactions have been eliminated.
Reclassifications
Certain prior year amounts in collaboration revenue
and research and development expenses of the consolidated statements of
operations have been reclassified to conform to the current year presentation.
This reclassification was determined not to be material to the Company’s
consolidated financial statements and has no impact on previously reported net
loss attributable to common stockholders or accumulated deficit.
Certain prior year amounts
in the reconciliation of federal statutory income tax provision to the
Company’s actual provision have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ materially from those estimates.
Cash, Cash Equivalents, and Marketable Securities
The Company invests its
excess cash in bank deposits, money market accounts, corporate debt securities
and U.S. government obligations. The Company considers all highly liquid
investments purchased with maturities of three months or less from the date of
purchase to be cash equivalents. Cash equivalents are carried at fair value,
which approximates cost, and primarily consist of money market funds maintained
at major U.S. financial institutions. All marketable securities, which
primarily represent marketable debt securities, have been classified as “available-for-sale.”
Purchased premiums or discounts on debt securities are amortized to interest
income through the stated maturities of the debt securities. Management
determines the appropriate classification of its investments in debt securities
at the time of purchase and evaluates such designation as of each balance sheet
date. Unrealized gains and losses are included in accumulated other
comprehensive income (loss) and reported as a separate component of
stockholders’ equity. Realized gains and losses and declines in value judged to
be other-than-temporary, if
64
any, on
available-for-sale securities are included in interest income. The cost of
securities sold is based on the specific identification method. Interest earned
on marketable securities is included in interest income.
Credit Risks and Concentrations
Financial instruments that
potentially subject the Company to a concentration of credit risk consist of
cash and cash equivalents and marketable securities. The Company has
established guidelines relating to diversification and maturities that allow
the Company to manage risk.
Fair Value of Financial Instruments
The carrying amounts of
the Company’s financial instruments, which include cash equivalents and other
accrued expenses, approximate their fair values due to their short maturities.
The carrying amount of the Company’s line of credit and capital lease
obligations approximate their fair values due to their variable interest rates.
Unbilled Collaboration Revenue
Unbilled collaboration
revenue represents amounts owed from one collaborative partner at December 31,
2006 and December 31, 2005. The Company has not recorded any allowance for
uncollectible accounts or bad debt write-offs and it monitors its receivables
to facilitate timely payment.
Property and Equipment
Property and equipment are
stated at cost. Costs of major additions and betterments are capitalized; maintenance
and repairs, which do not improve or extend the life of the respective assets
are charged to expense. Upon disposal, the related cost and accumulated
depreciation or amortization is removed from the accounts and any resulting
gain or loss is included in the results of operations. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Leased assets meeting certain capital
lease criteria are capitalized and the present value of the related lease
payments is recorded as a liability. Assets under capital lease arrangements
are depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized over the estimated useful lives of
the assets or related lease terms, whichever is shorter.
Long-Lived Assets
The Company evaluates the
recoverability of its property and equipment when circumstances indicate that
an event of impairment may have occurred in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets
, or SFAS 144. SFAS 144 further refines the
requirements of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of
, such that companies (1) recognize an impairment
loss only if the carrying amount of a long-lived asset is not recoverable based
on its undiscounted future cash flows and (2) measure an impairment loss
as the difference between the carrying amount and fair value of the asset.
Impairment is measured based on the difference between the carrying value of
the related assets or businesses and the undiscounted future cash flows of such
assets or businesses. In addition, SFAS 144 provides guidance on
accounting and disclosure issues surrounding long-lived assets to be disposed
of by sale. No impairment charges have been required to be recognized through December 31,
2006.
Revenue Recognition
The Company uses revenue
recognition criteria outlined in Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition
, and Emerging Issues
Task Force (“EITF”) Issue 00-21,
Revenue
65
Arrangements with Multiple Deliverables
,
or EITF 00-21. Accordingly, revenues from licensing agreements with
multiple deliverables are divided into separate units of accounting based upon
the criteria of EITF 00-21 and are recognized based on the performance
requirements of the agreement. Non-refundable, up-front fees where the Company
has an ongoing involvement or performance obligation are recorded as deferred
revenue in the consolidated balance sheet and amortized into collaboration
revenue in the consolidated statement of operations over the term of the
performance obligation if it can be determined. Revenues from research and
development services and expenses with stand alone value are recognized in the
period the services are performed and the reimbursable costs are incurred, net
of any amounts due to the collaborative partner for costs incurred during the
period for shared development costs.
Research and Development
Research and development
costs are expensed as incurred. Research and development costs include wages,
benefits, facility and other research-related overhead expenses, as well as
license fees and contracted research and development activities.
Stock-Based Compensation
The Company’s 2002 Stock Incentive Plan, as amended,
provides for the granting of stock options to purchase the Company’s common
stock and awards of restricted stock to employees, officers, directors,
consultants and advisors. Options granted under the 2002 Stock Incentive Plan
may be incentive stock options or nonstatutory stock options under the
applicable provisions of the Internal Revenue Code. Since the effective date of
the 2004 Stock Incentive Plan, as amended (described below), the Company no
longer grants options under the 2002 Stock Incentive Plan. Any authorized and
ungranted shares and unvested shares granted under the 2002 Stock Incentive
Plan that are returned to the Company as a result of terminations will
subsequently lapse.
Pursuant to the terms of the Company’s 2004 Stock
Incentive Plan, as amended, (the “Incentive Plan”), at December 31, 2006
the Company was authorized to issue up to 3,948,785 shares of common stock with
annual increases (to be added on the first day of the Company’s fiscal years
during the period beginning in fiscal year 2005 and ending on the second day of
fiscal year 2013) equal to the lowest of (i) 1,974,393 shares, (ii) 5%
of the then outstanding number of common shares or (iii) such other amount
as the Board of Directors may authorize. The Company’s Board of Directors
elected not to increase the number of authorized shares related to the
Incentive Plan for 2005 and 2006. The Company’s Board of Directors increased
the number of authorized shares by 1,802,053 effective January 1, 2007.
Incentive stock options are granted only to employees
of the Company. Incentive stock options granted to employees who own more than
10% of the total combined voting power of all classes of stock will be granted
at no less than 110% of the fair market value of the Company’s common stock on
the date of grant. Non-statutory stock options may be granted to employees,
officers, directors, consultants and advisors. Incentive stock options
generally vest ratably over four years. Non-statutory stock options granted
have varying vesting schedules. The options generally expire ten years after
the date of grant.
The unvested shares held by consultants have been and
will be revalued using the Company’s estimate of fair value at each balance
sheet date pursuant to EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.
The charge to operations is recorded in accordance with
FASB Interpretation No. 28, “
Accounting for Stock
Appreciation Rights and Other
Variable Stock Option or
Award Plans
.”
Effective January 1, 2006, the Company adopted
the fair value recognition provisions of SFAS No. 123R,
Share-Based Payment
(“SFAS 123R”) using
the modified prospective method. Under that method, stock-based compensation
expense recognized during the year ended December 31, 2006 includes: (a) compensation
cost for all share-based payments granted prior to, but not yet vested as of
66
January 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123,
Accounting for
Stock-Based Compensation
(“SFAS No. 123”) and (b) compensation
cost for all share-based payments granted subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions
of SFAS 123R. In accordance with SFAS 123R, the estimated grant date fair
value of each stock-based award is recognized as expense on a ratable basis
over the requisite service period (generally the vesting period). Results for
prior periods have not been restated.
Prior to January 1, 2006, the Company accounted
for stock based compensation plans under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
,
or APB 25, and related interpretations, as permitted by SFAS 123. In accordance
with APB 25, cost for stock-based compensation was recognized as expense
based on the excess, if any, of the quoted market price of the stock at the
grant date of the award or other measurement date over the amount an employee
must pay to acquire the stock. In prior years, certain grants of stock options
and stock awards were made at exercise prices deemed to be less than the fair
value of the Company’s common stock and, as a result, the Company recorded
stock-based compensation expense. Non-vested share awards were recorded as
compensation cost over the requisite service periods based on the market value
on the date of grant.
The
following table illustrates the effect on fiscal year 2005 and 2004 net loss
attributable to common stockholders and net loss per share allocable to common
stockholders if the Company had applied the fair value recognition provisions
of SFAS 123 to options granted under the Company’s stock option plans.
|
|
|
2005
|
|
2004
|
|
|
|
|
(in thousands, except per share data)
|
|
|
Net loss
attributable to common stockholders as reported
|
|
$ (21,662
|
)
|
$ (36,316
|
)
|
|
Add: Stock-based
employee compensation expense included in reported net loss attributable to
common stockholders
|
|
1,510
|
|
1,799
|
|
|
Deduct: Total
stock-based employee compensation expense determined under fair value method
for all awards
|
|
(3,119
|
)
|
(1,148
|
)
|
|
Pro forma net
loss
|
|
$ (23,271
|
)
|
$ (35,665
|
)
|
|
Basic and diluted net
loss per share allocable to common stockholders:
|
|
|
|
|
|
|
As reported
|
|
$ (0.79
|
)
|
$ (2.56
|
)
|
|
Pro forma net loss
|
|
$ (0.85
|
)
|
$ (2.52
|
)
|
For
purposes of this pro forma disclosure, the value of the options is estimated
using the Black-Scholes-Merton option-pricing formula and amortized to expense
on a straight-lined basis over the options’ vesting periods using the following
assumptions:
|
|
|
2005
|
|
2004
|
|
|
Expected
volatility
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
Expected term (in
years)
|
|
|
6
|
|
|
|
7
|
|
|
|
Risk-free interest rate
|
|
|
4.0
|
%
|
|
|
3.7
|
%
|
|
Income Taxes
The Company accounts for
income taxes under SFAS No. 109,
Accounting for Income Taxes
. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates that will be in effect when the differences are expected to
reverse. A valuation allowance is recorded when it is more likely than not that
the deferred tax asset will not be recovered.
67
Comprehensive Income (Loss)
The Company reports
comprehensive income (loss) in accordance with SFAS No. 130,
Reporting Comprehensive Income
, or
SFAS 130. SFAS 130 establishes rules for the reporting and
display of comprehensive income (loss) and its components. Accumulated other
comprehensive income (loss) as of December 31, 2006 and December 31,
2005 consists entirely of unrealized gains and losses on available-for-sale
securities. Comprehensive loss for the years ended December 31, 2006, 2005
and 2004 was $51.6 million, $21.7 million and $14.2 million, respectively.
Net Loss Per Share
The Company computes net
loss per share in accordance with SFAS No. 128,
Earnings per Share,
or SFAS 128. Under the provisions
of SFAS 128, basic net loss per common share is computed by dividing net
loss available to common stockholders by the weighted-average number of common
shares outstanding during the reporting period. Diluted net loss per common
share is computed by dividing net loss available to common stockholders by the
weighted-average number of common shares and dilutive common share equivalents
then outstanding. Potential common stock equivalent shares consist of the
incremental common shares issuable upon the conversion of preferred stock,
shares issuable upon the exercise of stock options and upon the exercise of
warrants. Since the Company has a net loss for all periods presented, the
effect of all potentially dilutive securities is antidilutive. Accordingly,
basic and diluted net loss per share is the same. The total number of shares
excluded from the calculations of historical diluted net loss per share, due to
their antidilutive effect, was 3,273,386, 1,783,611 and 1,334,575 for the years
ended December 31, 2006, 2005 and 2004, respectively.
Segment Reporting
The Company has adopted
SFAS No. 131,
Disclosure About Segments
of an Enterprise and Related Information
, which requires companies
to report selected information about operating segments, as well as
enterprise-wide disclosures about products, services, geographical areas, and
major customers. Operating segments are determined based on the way management
organizes its business for making operating decisions and assessing performance.
The Company has only one operating segment, the discovery, development and
commercialization of drug products. All of the Company’s revenues through December 31,
2006 have come from one collaborative partner.
Redeemable Convertible Preferred Stock
In connection with the
closing of the Company’s initial public offering in the second quarter of 2004,
all shares of redeemable convertible preferred stock were converted to common
stock. Prior to the Company’s initial public offering, the carrying value of
redeemable convertible preferred stock was increased by periodic accretions so
that the carrying amount would equal the redemption value at the redemption
date. These accretions were effected through charges against accumulated
deficit. The holders of redeemable convertible preferred stock were entitled to
dividends at 10% per annum through their redemption date, payable only upon
redemption.
Recently Issued Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation
No. 48,
Accounting for Uncertainty in
Income Taxes—An Interpretation of FASB Statement No. 109
, or
FIN 48, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109,
Accounting for
Income Taxes
. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return and provides
guidance on derecognition, classification, interest and
68
penalties, accounting in
interim periods, disclosure and transition. FIN 48 will be effective for fiscal
years beginning after December 15, 2006. The Company has not yet completed
its evaluation of the impact of adoption, but does not currently believe that
adoption will have a material impact on its results of operations, financial
position or cash flows.
In September 2006, the U.S. Securities and
Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements
When Quantifying Misstatements in Current
Year Financial Statements
, or SAB 108. SAB 108 was issued in order
to eliminate the diversity in practice surrounding how public companies
quantify financial statement misstatements. SAB 108 requires that registrants
quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in a misstated amount that, when all
relevant quantitative and qualitative factors are considered, is material. SAB
108 must be implemented by the end of the Company’s fiscal year 2007. The
Company does not currently believe that the adoption of this standard will
result in a material effect on its financial position or results of operations.
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
,
or SFAS 157. SFAS 157 provides a common definition of fair value and
establishes a framework to make measurement of fair value in generally accepted
accounting principles more consistent and comparable. SFAS 157 also requires
expanded disclosures to provide information about the extent to which fair
value is used to measure assets and liabilities, the methods and the
assumptions used to measure fair value, and the effect of fair value measures on
earnings. SFAS 157 is effective for the Company’s 2008 fiscal year, although
early adoption is permitted. The Company is currently assessing the potential
effect of SFAS 157 on its financial statements.
3.
Stock-Based
Compensation
Total stock-based compensation for all share-based
payment arrangements for the years ended December 31, 2006, 2005 and 2004
was $11.4 million, $2.3 million and $2.0 million, respectively. The
increase in 2006 is primarily attributable to the adoption of SFAS 123R in
the first quarter of 2006 using the modified prospective transition method. The
adoption of SFAS 123R on January 1, 2006 resulted in the recognition of
stock-based compensation expense of $6.1 million for the year ended December 31,
2006, an increase in net loss attributable to common stockholders of $6.1
million and an increase in basic and diluted net loss per share allocable to
common stockholders of $0.19 per share. The Company additionally reclassified
its unearned compensation on non-vested share awards of $2.2 million at January 1,
2006 to additional paid-in capital.
In accordance with SFAS 123R, the fair value of each
option award was estimated on the date of grant using the Black-Scholes-Merton
option-pricing model that uses the assumptions noted in the table below.
Because of the Company’s limited history as a publicly-traded company, to
estimate expected volatility the Company used a 50/50 blend of its own historic
and implied volatility and an average of historic and implied volatilities of
similar entities. For purposes of identifying similar entities, the Company
considered characteristics such as industry, stage of life cycle and financial
leverage. The expected term of options granted is derived from the average
midpoint between vesting and the contractual term, as described in SAB No. 107,
Share-Based Payment
. In the future, as
information regarding post-vesting termination becomes more accessible, the
Company will change its method of deriving the expected term. This change could
impact the Company’s fair value of options granted in the future. The Company
expects to refine its method of deriving expected term no later than January 1,
2008. The risk-free interest rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant.
In addition, the Company applies an expected
forfeiture rate when amortizing stock-based compensation expense. The Company’s
estimate of the forfeiture rate is based primarily upon annualized pre-vest
termination rates. Pre-vest termination rates are calculated monthly by
dividing the total number of options that were both unvested at the beginning
of the month and that were cancelled by the total
69
number of options that
were unvested at the beginning of the month. These monthly rates are averaged
and then annualized.
The
Company estimated fair values using the following weighted average assumptions
during fiscal 2006:
|
|
|
2006
|
|
|
Expected
volatility
|
|
|
72
|
%
|
|
|
Expected
dividends
|
|
|
—
|
|
|
|
Expected term (in
years)
|
|
|
6
|
|
|
|
Risk-free interest rate
|
|
|
4.8
|
%
|
|
The
following table summarizes all stock option plan activity for the year ended December 31,
2006:
|
|
|
Number of
|
|
Weighted
|
|
Weighted
|
|
Aggregate
|
|
|
|
|
Stock
|
|
average
|
|
average
|
|
Intrinsic
|
|
|
|
|
Options
|
|
exercise
|
|
remaining
|
|
Value
|
|
|
|
|
(in thousands)
|
|
price
|
|
life in years
|
|
(in thousands)
|
|
|
Outstanding at
January 1, 2006
|
|
|
1,969
|
|
|
|
$ 7.63
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,252
|
|
|
|
17.16
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(345
|
)
|
|
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(146
|
)
|
|
|
11.91
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2006
|
|
|
2,730
|
|
|
|
12.38
|
|
|
|
8.24
|
|
|
|
$ 13,426
|
|
|
|
Exercisable at
December 31, 2006
|
|
|
1,126
|
|
|
|
$ 8.45
|
|
|
|
7.47
|
|
|
|
$ 9,332
|
|
|
|
Vested or expected to
vest at December 31, 2006
|
|
|
2,518
|
|
|
|
$ 12.06
|
|
|
|
8.18
|
|
|
|
$ 13,069
|
|
|
The weighted average grant date fair value of options
granted during the years ended December 31, 2006, 2005 and 2004 was
$11.50, $10.54 and $4.35 per option, respectively. The total intrinsic value of
options exercised during the years ended December 31, 2006, 2005 and 2004
was $4.9 million $3.5 million and $0.8 million, respectively. At December 31,
2006, the total unrecognized compensation cost related to non-vested stock
options was $14.6 million. The cost is expected to be recognized over a
weighted average period of 2.8 years. The fair value of shares vested during
the years ended December 31, 2006, 2005 and 2004 was $7.0 million, $1.5
million and $0.1 million, respectively.
70
Cash received from option
exercises for the years ended December 31, 2006, 2005 and 2004 was $1.0 million,
$0.2 million and $27,000, respectively. Due to the Company’s net loss position,
the tax benefit related to the tax deductions from option exercises was not
realized in any of the periods presented.
Restricted Stock Grants
During 2002, the Company entered into Restricted Stock
Purchase Agreements with two officers and a non-employee to purchase an
aggregate of 1,101,870 shares of common stock. Pursuant to one of the
Restricted Stock Purchase Agreements, 980,859 shares of common stock were sold
to an officer for $106,662. The purchase price was payable ratably over
approximately three years with the final payment made during the first quarter
of 2005. Each Restricted Stock Purchase Agreement provided for the repurchase
of the common stock by the Company at a price equal to the original price paid,
adjustable for certain dilutive events, until the shares vested. The repurchase
provisions generally lapsed over a three to four year period provided that each
recipient subject to such agreements continued service with the Company. At December 31,
2006 and 2005, there were no shares and 64,967 shares, respectively, of
unvested restricted common stock outstanding under these agreements.
On March 7, 2006, the Company entered into
Restricted Stock Purchase Agreements with certain executive officers and an
employee to purchase an aggregate of 630,000 shares of common stock. Each of
these restricted stock grants was made under the Incentive Plan, with the
following vesting provisions: (i) one half of the shares of common stock
vest and become free from forfeiture provisions and transfer restrictions on
the fourth anniversary of the grant date (i.e., March 7, 2010) and (ii) one
half of the shares of common stock vest and become free from forfeiture
provisions and transfer restrictions upon the commercial launch of M-Enoxaparin
in the United States by the Company (or any of the Company’s partners or
collaborators), provided that such commercial launch occurs on or before March 7,
2011. In each case, the shares of common stock issued pursuant to each
restricted stock agreement described above will only vest if the recipient is
an employee of the Company as of the applicable vesting date. The fair value of
the restricted stock for the agreements entered into during 2006 is the market
price of common stock at the date of grant, which is amortized to compensation
expense ratably over the explicit and implicit service periods. Concurrent with
the resignation of an executive officer in September 2006, 200,000 of the
630,000 shares of common stock described above were forfeited and $1.0 million
of stock-based compensation expense previously recorded on the forfeited shares
was reversed.
On August 22, 2006, the Company entered into a
Restricted Stock Purchase Agreement with an executive officer to purchase
100,000 shares of common stock. This restricted stock grant was made under the
Incentive Plan and will vest and become free from forfeiture on the fourth
anniversary of the grant date, subject to acceleration if the executive officer’s
employment with the Company terminates under certain circumstances, provided
that the recipient is an employee of the Company as of the vesting date. The
fair value of the restricted common stock for this agreement is the market
price of common stock at the date of grant, which is amortized to compensation
expense ratably over the explicit service period. Under the terms of the
Employment Agreement dated August 22, 2006 executed with this executive
officer, the Company agreed to issue 175,000 shares of restricted common stock
on or about January 1, 2007. On January 17, 2007 this award was
granted under the Incentive Plan and will vest and become free from forfeiture
upon fulfillment of certain performance conditions. The fair value of the
restricted common stock for this agreement is the market price of the common
stock at the date of the employment agreement, which is amortized to
compensation expense ratably over the performance period.
On December 15, 2006, the Company entered into a
Restricted Stock Purchase Agreement with an officer to purchase 15,000 shares
of common stock. This restricted stock grant was made under the Incentive Plan,
with the following vesting provisions: (i) 25% of the shares of common
stock vest and become free from forfeiture provisions and transfer restrictions
on December 15, 2007 and (ii) an additional 6.25% of the shares of
common stock vest and become free from forfeiture provisions and
71
transfer restrictions at
the end of each three-month period from December 15, 2007 through December 15,
2010. The fair value of the restricted common stock for this agreement is the
market price of the common stock at the date of grant, which is amortized to
compensation expense ratably over the explicit service period.
Changes
in the Company’s restricted stock for the year ended December 31, 2006
were as follows:
|
|
|
Restricted
Shares
|
|
Weighted-average
grant date
fair value
|
|
|
|
|
(in thousands)
|
|
|
|
|
Non-vested
restricted stock at January 1, 2006
|
|
|
65
|
|
|
|
$
|
1.87
|
|
|
|
Granted
|
|
|
745
|
|
|
|
22.49
|
|
|
|
Forfeited
|
|
|
(200
|
)
|
|
|
23.62
|
|
|
|
Vested
|
|
|
(65
|
)
|
|
|
1.87
|
|
|
|
Non-vested restricted
stock at December 31, 2006
|
|
|
545
|
|
|
|
$
|
22.07
|
|
|
The Company recorded
stock-based compensation expense of $5.0 million, $0.4 million and $0.4 million
related to outstanding restricted stock grants during the years ended December 31,
2006, 2005 and 2004, respectively. As of December 31, 2006, there was $8.1
million of unrecognized compensation cost related to non-vested restricted
stock arrangements. The cost is expected to be recognized over a weighted
average period of 2.3 years. The total fair value of shares that vested during
the years ended December 31, 2006, 2005 and 2004 was zero, $0.4 million
and $0.4 million, respectively.
Common Stock Options Issued to Consultants
As of December 31,
2006, the Company had granted options to purchase 154,162 shares of common
stock to consultants, 48,800 of which the Company granted to two individuals
who are members of the Board of Directors, and an option to purchase 4,562
shares of common stock to a member of the Board of Directors who previously
provided consulting services to the Company. Of the total options granted,
25,598 were exercised and not subject to repurchase and 22,868 were unvested.
These options were granted in exchange for consulting services to be rendered
and vest over periods of up to four years. The Company recorded a charge to
operations for stock options granted to consultants, using the graded-vesting
method, of $0.3 million, $0.8 million and $0.2 million during the years ended December 31,
2006, 2005 and 2004, respectively. The fair value of the options is estimated
on the date of grant and subsequently revalued at each reporting period using
the Black-Scholes Merton option pricing model and assumptions including an
expected life ranging from three to ten years, volatility of approximately 68%
to 75% and risk free interest rates ranging from 3.5 to 5.1%.
Employee Stock Purchase Plan
The Company’s 2004 Employee Stock Purchase Plan (the “Purchase
Plan”) became effective on June 25, 2004, the closing date of the Company’s
initial public offering. Under the Purchase Plan, participating employees
purchase common stock through payroll deductions. An employee may withdraw from
an offering before the purchase date and obtain a refund of the amounts
withheld through payroll deductions. The purchase price is equal to 85% of the
lower of the closing price of the Company’s common stock on the first business
day and the last business day of the relevant plan period. The first plan
period began on June 25, 2004 and ended on January 31, 2005. The
second plan period began on February 1, 2005 and ended on January 31,
2006 (the “2005 Offering”). In February 2006, the Purchase Plan was
amended to provide for two 6-month plan periods, the first plan period
from February 1, 2006 through July 31, 2006 (the “First
2006 Offering”) and the second from August 1, 2006 through January 31,
2007 (“the Second 2006 Offering”).
72
The purchase price for the 2005 Offering was $5.85 and
23,057 shares of common stock were issued in January 2006 under the
Purchase Plan. The purchase price for the First 2006 Offering was $14.73 and
11,770 shares of common stock were issued in July 2006 under the Purchase
Plan. The purchase price for the Second 2006 Offering was $14.20 and 15,001
shares of common stock were issued in January 2007 under the Purchase
Plan. During the year ended December 31, 2006, the Company recorded
stock-based compensation expense of approximately $0.2 million related to the
2005 Offering and the First and Second 2006 Offerings.
The
fair value of the offerings was estimated on the date of grant using the
Black-Scholes-Merton option-pricing model that uses the assumptions noted in
the following table. The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
|
|
Second
2006
|
|
First
2006
|
|
2005
|
|
|
|
|
Offering
|
|
Offering
|
|
Offering
|
|
|
Risk-free
interest rate
|
|
5.2
|
%
|
4.6
|
%
|
|
2.9
|
%
|
|
|
Expected
volatility
|
|
68
|
%
|
73
|
%
|
|
80
|
%
|
|
|
Expected life
|
|
6 months
|
|
6 months
|
|
|
1 year
|
|
|
|
Expected dividend
|
|
—
|
|
—
|
|
|
—
|
|
|
The weighted average grant
date fair value of the offerings during 2006, 2005 and 2004 was $6.27, $14.95
and $2.85, respectively.
4. Collaborations
and License Agreements
Sandoz
In November 2003, the Company entered into a
collaboration and license agreement (the “2003 Sandoz Collaboration”) with
Sandoz N.V. and Sandoz Inc. (“Sandoz”) to jointly develop and commercialize
M-Enoxaparin, a generic version of Lovenox, a low molecular weight heparin.
Under the terms of this agreement, the Company and Sandoz agreed to exclusively
work with each other to develop and commercialize M-Enoxaparin for medical
indications within the United States.
Under this collaboration, Sandoz makes certain
payments to the Company. As mutually agreed, the Company provides, and Sandoz
pays the Company, for full-time equivalent scientific, technical and/or
management work. Sandoz is also responsible for funding substantially all of
the other ongoing development and commercialization costs and legal expenses
incurred with respect to injectable enoxaparin, subject to termination rights
upon reaching agreed upon limits. In addition, Sandoz will, in the event there
are no third party competitors marketing a Lovenox-Equivalent Product (as
defined in the agreement) share profits with the Company. Alternatively, in
certain circumstances, if there are third party competitors marketing a
Lovenox-Equivalent Product, Sandoz will pay royalties to the Company on net
sales of injectable enoxaparin. If certain milestones are achieved with respect
to injectable enoxaparin under certain circumstances, Sandoz will make certain
milestone payments to the Company, which would reach $55.0 million if all such
milestones are achieved. A portion of the development expenses and certain
legal expenses, which in the aggregate have exceeded a specified amount will be
offset against the profit-sharing amounts, the royalties and the milestone
payments. Sandoz may also offset a portion of any product liability costs and
certain other expenses arising from patent litigation against any
profit-sharing amounts, royalties and milestone payments.
Revenues associated with the Company’s 2003 Sandoz
Collaboration include an initial payment, reimbursement of development services
and expenses, and potential future milestones, profit share payments and
royalties. The initial payment represented reimbursement of specific
development costs incurred prior to the date of the collaboration and is being
recognized over the period of the Company’s
73
substantial involvement.
Amounts earned under the collaboration agreement are not refundable if the
research or development is unsuccessful. To date, the Company has not earned
any milestones or royalties under the 2003 Sandoz Collaboration.
In July 2006, the Company entered into a series
of agreements, including a Stock Purchase Agreement and an Investor Rights
Agreement (each with Novartis Pharma AG), and a Memorandum of Understanding (“MOU”)
with Sandoz AG (an affiliate of Novartis Pharma AG) (collectively referred to
as the “2006 Sandoz Collaboration”). In connection with the 2006 Sandoz
Collaboration, the Company sold 4,708,679 shares of common stock (the “Shares”)
to Novartis Pharma AG for an aggregate purchase price of $75.0 million.
Pursuant to the terms of the Investor Rights
Agreement, Novartis Pharma AG is entitled to “piggyback” and demand registration
rights with respect to the Shares, and has agreed until the earliest of (i) the
termination of the MOU (or, if later entered into, a collaboration and license
agreement between the parties), (ii) the Termination Date (as defined in
the Investor Rights Agreement) and (iii) 24 months from the date of the
closing of the purchase of the Shares, not to acquire any additional voting
securities of the Company (other than an acquisition resulting in Novartis
Pharma AG and its affiliates beneficially owning no greater than 13% of the
Company’s total outstanding voting securities) nor make any public proposal for
any merger, business combination or other extraordinary transaction or seek to
control or influence the Company’s management, Board or policies.
Under the terms of the MOU, the Company will
exclusively collaborate with Sandoz AG on the development and commercialization
of four follow-on and complex generic products for sale in specified regions of
the world. Each party has granted the other an exclusive license under its
intellectual property rights to develop and commercialize such products for all
medical indications in the relevant regions. Costs will be borne by the
parties in varying proportions, depending on the type of expense and the product.
The Company is also eligible to receive up to $188 million in milestone
payments if all milestones are achieved for the four product candidates. The
parties will share profits from the sale of such products in varying
proportions, depending on the product, with the Company receiving fifty percent
of the profits with respect to its M356 product, a technology-enabled generic
version of Copaxone®, which is a complex mixture drug indicated for reduction
of the frequency of relapses in patients with Relapse-Remitting Multiple
Sclerosis. Sandoz AG will indemnify the Company for various claims, and a
certain portion of such indemnification costs may be offset against certain
future payments received by the Company. In addition, the Company and Sandoz AG
may negotiate additional collaboration agreements with respect to other
mutually selected products and the Company has granted Sandoz AG the right to
negotiate expanded territories for certain products already part of the
collaboration.
Among other termination rights, the following
termination rights apply to some of the products, on a product-by-product
basis: (i) if clinical trials are required, (ii) at Sandoz AG’s
convenience within a certain time period or (iii) if Sandoz AG decides to
permanently cease development and commercialization of a product. The parties are negotiating the terms of a
definitive collaboration and license agreement. The terms of the MOU will
remain in effect until such an agreement is executed; however, the MOU is
binding in the absence of such agreement.
At December 31, 2006,
the Company has recorded deferred revenue of $13.6 million representing the
excess of the purchase price of $15.93 per Share purchased by Novartis Pharma
AG over the closing price of $13.05 per common share (the “Premium”) on July 24,
2006, the last trading day of the Company’s common stock before execution
of the 2006 Sandoz Collaboration. The Company will commence amortization
of the Premium as collaboration revenue when it can reasonably estimate the
period of ongoing involvement or performance obligations under the 2006 Sandoz
Collaboration. The Company expects to be able make such an estimate when a
definitive collaboration and license agreement is executed with Sandoz AG.
74
Massachusetts Institute of Technology
The Company has two patent license agreements with the
Massachusetts Institute of Technology (“M.I.T.”) that grant the Company various
exclusive and nonexclusive worldwide licenses, with the right to grant
sublicenses, under certain patents and patent applications relating to methods
and technologies for analyzing and characterizing sugars and certain heparins,
heparinases and other enzymes and synthesis methods. Subject to typical
retained rights of M.I.T. and the United States government, the Company was
granted exclusive rights under certain of these patents and applications in
certain fields.
In exchange for these rights, the Company paid M.I.T.
a license issue fee, and pays annual license maintenance fees. The Company,
upon commercialization, is also required to pay M.I.T. royalties on products
and services covered by the licenses and sold by the Company or its affiliates
or sublicensees, a percentage of certain other income received by the Company
from corporate partners and sublicensees, and certain patent prosecution and
maintenance costs. M.I.T. and certain contributing individuals were also issued
shares of the Company’s common stock. The Company recorded $487,500, $82,500
and $117,500 related to these agreements in the years ended December 31,
2006, 2005 and 2004, respectively.
The Company must meet certain diligence requirements
in order to maintain its licenses under the two agreements. Under the
agreements, the Company must expend at least $1.0 to $1.2 million per year
commencing in 2005 towards the research, development and commercialization of
products and processes covered by the agreements. In addition, the Company is
obligated to make first commercial sales and meet certain minimum sales
thresholds of products or processes including, under the amended and restated
agreement, a first commercial sale of a product or process no later than June 2013
and minimal sales of products thereafter, ranging from $0.5 million to $5.0
million annually. If the Company fails to meet its diligence obligations,
M.I.T. may, as its sole remedy, convert the exclusive licenses granted to the
Company under the amended and restated license agreement to non-exclusive
licenses. Under the license agreement covering sequencing machines, M.I.T. has
the right to treat the Company’s failure to fulfill its diligence obligations
as a material breach of the license agreement.
If, due to the Company’s
failure to meet diligence obligations, M.I.T. converts certain of the Company’s
exclusive licenses to non-exclusive, or if M.I.T. terminates one of the
agreements, M.I.T. will honor the exclusive nature of the sublicense the
Company granted to Sandoz so long as Sandoz both continues to fulfill its
obligations to the Company under the 2003 Sandoz Collaboration and license
agreement and agrees to assume the Company’s rights and obligations to M.I.T.
The Regents of the University of California through
the Ernest Orlando Lawrence Berkeley National Laboratory
In November 2002, the Company entered into an
agreement with The Regents of the University of California through the Ernest
Orlando Lawrence Berkeley National Laboratory (“Lawrence Berkeley National Lab”)
under which the Company licensed certain patents and applications covering the
metabolic synthesis of sugars and glycoconjugates and were granted an exclusive
license, with the right to grant sublicenses, for the synthesis, production or
modification of sugars and glycoconjugates in or on biological molecules for
purposes of researching, developing and commercializing products, services and
processes for all human therapeutic applications, excluding the sale of
research reagents. This agreement was subsequently amended as the Company
elected to retain the license under the broad field.
In connection with this agreement, the Company paid
certain license fees and minimum royalties and recorded $30,000, $130,000 and
$10,000 as research and development expense in the years ended December 31,
2006, 2005 and 2004, respectively. License fees include $100,000 expensed and
paid to Lawrence Berkeley National Lab in 2005 for the election to retain the
broader field. The Company is also required to pay Lawrence Berkeley National
Lab earned royalties on products, services and processes covered by the license
and sold by it or its affiliates or sublicensees, a percentage of certain other
income received by the Company from its sublicensees, and patent prosecution
and maintenance costs. To the
75
extent that earned
royalties in any given year do not meet certain threshold amounts, the Company
is required to make annual minimum royalty payments to Lawrence Berkeley
National Lab, ranging from $30,000 to $60,000, in order to maintain the
license. The research and development expenses include $30,000, $30,000 and
$10,000 in annual minimum royalties that the Company paid and recorded as
expense during the years ended December 31, 2006, 2005 and 2004,
respectively.
In order for the Company
to retain its license, the Company must expend at least $1.0 million per year
towards the research, development and commercialization of products covered by
the agreement. If the Company fails to do so, Lawrence Berkeley National Lab
may renegotiate the milestones, terminate the agreement or convert the
exclusive license to a non-exclusive license. In order to maintain the broad
field, the Company is required to and did expend an additional amount during
2005 and 2006 towards the research, development and commercialization of
products and processes covered by the license.
5. Cash, Cash
Equivalents, and Marketable Securities
The
following is a summary of cash, cash equivalents, and marketable securities as
of December 31, 2006 and 2005 (in thousands):
|
December 31, 2006
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
Cash and money
market funds
|
|
$
|
19,444
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
19,444
|
|
|
Corporate debt
securities due in one year or less
|
|
171,776
|
|
|
58
|
|
|
|
(13
|
)
|
|
171,821
|
|
|
Total
|
|
$
|
191,220
|
|
|
$
|
58
|
|
|
|
$
|
(13
|
)
|
|
$
|
191,265
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,351
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
22,351
|
|
|
Marketable securities
|
|
168,869
|
|
|
58
|
|
|
|
(13
|
)
|
|
168,914
|
|
|
Total
|
|
$
|
191,220
|
|
|
$
|
58
|
|
|
|
$
|
(13
|
)
|
|
$
|
191,265
|
|
|
December 31, 2005
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
Cash and money
market funds
|
|
$
|
14,412
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
14,412
|
|
|
Corporate debt securities
due in one year or less
|
|
142,081
|
|
|
5
|
|
|
|
(244
|
)
|
|
141,842
|
|
|
Total
|
|
$
|
156,493
|
|
|
$
|
5
|
|
|
|
$
|
(244
|
)
|
|
$
|
156,254
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,891
|
|
|
$
|
—
|
|
|
|
$
|
(1
|
)
|
|
$
|
25,890
|
|
|
Marketable securities
|
|
130,602
|
|
|
5
|
|
|
|
(243
|
)
|
|
130,364
|
|
|
Total
|
|
$
|
156,493
|
|
|
$
|
5
|
|
|
|
$
|
(244
|
)
|
|
$
|
156,254
|
|
76
The
following table summarizes the aggregate fair value of corporate debt
securities in an unrealized loss position for less than and greater than one
year at December 31, 2006 and 2005. The Company reviews its investments
for other than temporary impairment whenever the fair value of an investment is
less than the amortized cost and evidence indicates that an investment’s
carrying value is not recoverable within a reasonable period of time. At December 31,
2006 and 2005, there were four and 59 marketable securities in an unrealized
loss position, respectively. Investments in an unrealized loss position at December 31,
2006 and 2005 were caused by fluctuations in interest rates. The Company
reviewed its investments with unrealized losses and has concluded that no
other-than-temporary impairment existed at December 31, 2006 and 2005 as
the Company has the ability and intent to hold these investments to maturity.
The Company had no realized gains or losses during the years ended December 31,
2006, 2005 or 2004.
|
(in thousands)
|
|
2006
|
|
2005
|
|
|
|
|
Aggregate
Fair Value
|
|
Unrealized
Losses
|
|
Aggregate
Fair Value
|
|
Unrealized
Losses
|
|
|
Corporate debt
securities due in one year or less
|
|
|
$
|
18,676
|
|
|
|
$
|
(13
|
)
|
|
$
|
118,658
|
|
|
$
|
(222
|
)
|
|
|
Corporate debt
securities due greater than one year
|
|
|
—
|
|
|
|
—
|
|
|
7,753
|
|
|
(22
|
)
|
|
|
Total
|
|
|
$
|
18,676
|
|
|
|
$
|
(13
|
)
|
|
$
|
126,411
|
|
|
$
|
(244
|
)
|
|
6. Property and
Equipment
At December 31,
2006 and 2005, property and equipment, net consists of the following (in
thousands):
|
|
|
2006
|
|
2005
|
|
Depreciable
Lives
|
|
|
Computer
equipment
|
|
$
|
171
|
|
$
|
498
|
|
3
years
|
|
|
Software
|
|
935
|
|
270
|
|
3
years
|
|
|
Office furniture
and equipment
|
|
920
|
|
496
|
|
5 to
6 years
|
|
|
Laboratory
equipment
|
|
4,991
|
|
3,915
|
|
7
years
|
|
|
Leasehold improvements
|
|
4,022
|
|
401
|
|
Shorter
of asset life or lease term
|
|
|
Equipment
purchased under capital lease obligations
|
|
5,570
|
|
1,656
|
|
3 to
7 years
|
|
|
Less: accumulated
depreciation
|
|
(3,006
|
)
|
(1,319
|
)
|
|
|
|
|
|
$
|
13,603
|
|
$
|
5,917
|
|
|
|
Depreciation and
amortization expense, including amortization of assets recorded under capital
leases, amounted to $1.9 million, $1.0 million, and $0.5 million for the years
ended December 31, 2006, 2005 and 2004, respectively.
7. Restricted Cash
In September 2004, $1.5 million of the Company’s
cash was designated as collateral for a letter of credit related to the lease
of office and laboratory space. This balance will remain restricted during the
80-month lease term and the Company will continue to earn interest on the
balance. In December 2005, this balance was increased to $1.8 million due
to an increase in leased space.
In October 2006, an additional $2.9 million of
the Company’s cash was designated as collateral for a letter of credit related
to the lease of office and laboratory space. This balance will remain
restricted during the 55-month lease term and the Company will continue
to earn interest on the balance.
77
8. Accrued Expenses
At December 31,
2006 and 2005, accrued expenses consisted of the following (in thousands):
|
|
|
2006
|
|
2005
|
|
|
Accrued
compensation
|
|
$
|
2,661
|
|
$
|
1,552
|
|
|
Accrued
contracted research costs
|
|
2,152
|
|
911
|
|
|
Accrued
professional fees
|
|
680
|
|
629
|
|
|
Other
|
|
293
|
|
263
|
|
|
|
|
$
|
5,786
|
|
$
|
3,355
|
|
9. Preferred Stock
Series C Redeemable Convertible Preferred Stock
In February 2004, the Company sold 2,612,696
shares of Series C redeemable convertible preferred stock for net proceeds
of $20.4 million. These shares contained a beneficial conversion feature based
on the fair value of the Company’s common stock at the date of such sale
compared to the Series C redeemable convertible preferred stock share
price. For financial accounting purposes, the total value of the beneficial
conversion feature of approximately $20.4 million was recognized as a dividend
in the first quarter of 2004.
On June 25, 2004, the
Company completed an initial public offering of its common stock. In connection
with the closing of its initial public offering, each share of the Company’s
redeemable convertible preferred stock was converted into that number of shares
of common stock that resulted from dividing $1.00, $1.7067, $2.87, $2.95 and
$7.8463 for the Series A Preferred, the Series A Prime Preferred, the
Series A Double Prime Preferred, the Series B Preferred and the Series C
Preferred, respectively, by the then-applicable conversion price for each
series of preferred stock in effect at the time of conversion which was $0.78,
$1.33, $2.24, $2.31 and $6.13 for the Series A Preferred, the Series A
Prime Preferred, the Series A Double Prime, the Series B Preferred
and the Series C Preferred, respectively. In the aggregate, 15,014,415
shares of common stock were issued in connection with such conversion.
Shareholders’ Rights Agreement
Effective November 7,
2005, the Board of Directors of the Company declared a dividend of one right
(collectively, the “Rights”) to buy one one-thousandth of a share of newly
designated Series A Junior Participating Preferred Stock (“Series A
Junior Preferred Stock”) for each outstanding share of the Company’s common
stock to stockholders of record at the close of business on November 18,
2005. Initially, the Rights are not exercisable and will be attached to all certificates
representing outstanding shares of common stock, and no separate Rights
Certificates will be distributed. The Rights will expire at the close of
business on November 6, 2008 unless earlier redeemed or exchanged. Until a
right is exercised, the holder thereof, as such, will have no rights as a
stockholder of the Company, including the right to vote or to receive
dividends. The rights are not immediately exercisable. Subject to the terms and
conditions of the Rights Agreement entered into by the Company with American
Stock Transfer & Trust Company, as Rights Agent (the “Rights Agreement”),
the Rights will become exercisable upon the earlier of (1) 10 business
days following the later of (a) the first date of a public announcement
that a person or group (an “Acquiring Person”) acquires, or obtained the right
to acquire, beneficial ownership of 20 percent or more of the outstanding
shares of common stock of the Company or (b) the first date on which an
executive officer of the Company has actual knowledge that an Acquiring Person
has become such or (2) 10 business days following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning more than 20 percent of the outstanding shares of common
stock of the Company. Each right entitles the holder to purchase one
one-thousandth of a share of Series A Junior
78
Preferred
Stock at an initial purchase price of $125.00 in cash, subject to adjustment.
In the event that any person or group becomes an Acquiring Person, unless the
event causing the 20% threshold to be crossed is an offer permitted pursuant to
the Rights Agreement, each Right not owned by the Acquiring Person will entitle
its holder to receive, upon exercise, that number of shares of common stock of the
Company (or in certain circumstances, cash, property or other securities of the
Company), which equals the exercise price of the Right divided by 50% of the
current market price (as defined in the Rights Agreement) per share of such
common stock at the date of the occurrence of the event. In the event that, at
any time after any person or group becomes an Acquiring Person, (i) the
Company is consolidated with, or merged with and into, another entity and the
Company is not the surviving entity of such consolidation or merger (other than
a consolidation or merger which follows a Permitted Offer) or if the Company is
the surviving entity, but shares of its outstanding Common Stock are changed or
exchanged for stock or securities (of any other person) or cash or any other
property, or (ii) more than 50% of the Company’s assets or earning power
is sold or transferred, each holder of a Right (except Rights which previously
have been voided as set forth in the Rights Agreement) shall thereafter have
the right to receive, upon exercise, that number of shares of common stock of
the acquiring company which equals the exercise price of the Right divided by
50% of the current market price of such common stock at the date of the
occurrence of the event.
10. Common Stock
Holders of common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders of the Company.
Shares
of common stock reserved for future issuance at December 31, 2006 are as
follows (in thousands):
|
Shares available
for grant under stock option plans
|
|
1,097
|
|
|
Shares available
for exercise of stock options
|
|
2,730
|
|
|
Shares available
for grant under employee stock purchase plan
|
|
478
|
|
|
Total
|
|
4,305
|
|
In July 2005, the Company raised $122.3 million
in a follow-on public offering, net of expenses, from the sale and issuance of
4,827,300 shares of common stock. The price to the public was $27.02 per share.
In connection with the
2006 Sandoz Collaboration, the Company sold 4,708,679 shares of common stock to
Novartis Pharma AG for an aggregate purchase price of $75.0 million.
11. Income Taxes
A
reconciliation of federal statutory income tax provision to the Company’s
actual provision for the years ended December 31, 2006, 2005 and 2004 is
as follows:
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
Benefit at
federal statutory tax rate
|
|
$
|
(17,651
|
)
|
$
|
(7,365
|
)
|
$
|
(4,785
|
)
|
|
Unbenefited
operating losses
|
|
15,318
|
|
7,597
|
|
4,493
|
|
|
Stock-based
compensation
|
|
3,669
|
|
470
|
|
687
|
|
|
Tax credits
|
|
(1,354
|
)
|
(713
|
)
|
(433
|
)
|
|
Other
|
|
18
|
|
11
|
|
38
|
|
|
Income tax provision
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
79
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the Company’s
deferred tax assets are as follows (in thousands):
|
|
|
December 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Federal and state
net operating losses
|
|
$
|
29,277
|
|
$
|
17,608
|
|
|
Research credits
|
|
4,040
|
|
1,937
|
|
|
Deferred
compensation
|
|
480
|
|
27
|
|
|
Deferred revenue
|
|
5,507
|
|
109
|
|
|
Accrued expenses
|
|
116
|
|
77
|
|
|
Capital leases
|
|
3,164
|
|
—
|
|
|
Total deferred
tax assets
|
|
42,584
|
|
19,758
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
Depreciation
|
|
(3,702
|
)
|
(196
|
)
|
|
Unrealized gain
on marketable securities
|
|
(16
|
)
|
—
|
|
|
Total deferred
tax liabilities
|
|
(3,718
|
)
|
(196
|
)
|
|
Valuation
allowance
|
|
(38,866
|
)
|
(19,562
|
)
|
|
Net deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
Realization of deferred tax assets is dependent upon
future earnings, if any, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully offset by a valuation
allowance. The valuation allowance increased by $19.3 million and $9.2 million
for the years ended December 31, 2006 and 2005, respectively, as a result
of the reserve for the tax benefit on the current period loss.
As of December 31, 2006, the Company had federal
and state net operating loss carryforwards of approximately $75.8 million and
$81.1 million, respectively, to offset future federal and state taxable income.
Of this amount, approximately $4.0 million of federal and state net operating
loss carryforwards relate to stock option deductions and the related tax
benefit will be recognized in equity when realized. The Company also has
federal and state research and development tax credit carryforwards of
approximately $2.7 million and $2.0 million, respectively, as of December 31,
2006. The net operating loss carryforwards and federal research credits expire
at various times through 2026.
Utilization of the Company’s
net operating loss may be subject to substantial annual limitation due to the
ownership change limitations provided by Internal Revenue Code (IRC) Sections
382 and 383 and similar state provisions. Such an annual limitation could
result in the expiration of net operating losses and/or tax credits before
utilization.
12. Line of Credit
In December 2002, the Company entered into an
equipment line of credit with Silicon Valley Bank (the “Bank”), which provided
for the Company to draw up to $1.2 million through March 31, 2003.
Borrowings under the line bear interest at a rate between 5.0% and prime plus
0.25% and are payable over a 36-month period from the cash drawn date.
The line of credit includes a provision that any material adverse change in the
Company or its business, as solely determined by the bank, may be considered an
event of default. There have been no events of default under this line of
credit. In December 2004, the Company entered into a Loan Modification
Agreement (the “Loan Modification Agreement”) with the Bank to amend selected
terms and conditions of the Security Agreement of December 2002 by and
between the Company and the Bank (the “Original Credit Facility”). Under the
Loan Modification Agreement, the Company and the Bank agreed to amend the
Original Credit Facility to, among other
80
things, conform certain
provisions of the Original Credit Facility to the Loan Agreement (see below),
including the grant of security interest. The Company’s ability to draw down
any amounts under the Original Credit Facility expired on May 30, 2003,
which term was not extended under the Loan Modification Agreement. As of December 31,
2006, the Company had no borrowings outstanding under the Original Credit
Facility, as amended by the Loan Modification Agreement.
In December 2004, the
Company entered into a Loan and Security Agreement (the “Loan Agreement”) with
the Bank. Under the terms of the Loan Agreement, the Company was eligible to
borrow up to an aggregate of $3.0 million through September 30, 2005
solely for reimbursement of purchases of Eligible Equipment, as defined under
the Loan Agreement. As of December 31, 2005, the Company had drawn $3.0
million against the Loan Agreement. The Company was not obligated to draw down
any amounts under the Loan Agreement and any borrowings bear interest at the
per annum rate of the U.S. Treasury note yield to maturity for a term equal to
forty-two months plus 5%, which rate was fixed on the funding date for each
advance under the Loan Agreement. Advances under the Loan Agreement are to be
repaid over a forty-two month period commencing on the applicable funding date.
To secure the payment and performance in full of the Company’s obligations
under the Loan Agreement, the Company granted to the Bank a continuing security
interest in the Collateral, as such term is defined under the Loan Agreement
and which essentially includes all Eligible Equipment and records relating
thereto. As of December 31, 2006, the Company had approximately $1.6
million in borrowings outstanding under the Loan Agreement subject to interest
rates ranging from 8.46% to 9.18%
.
13. Commitments and
Contingencies
Capital and Operating Leases
In December 2005, the Company entered into a
Master Lease Agreement (the “Agreement”) with General Electric Capital
Corporation (“GECC”). Under the Agreement, the Company may lease office,
laboratory, computer and other equipment from GECC by executing specified
equipment schedules with GECC. Each equipment schedule will specify the lease
term with respect to the underlying leased equipment. As of December 31,
2006, the Company had drawn $5.4 million against the Agreement. Borrowings
under the agreement are payable over a 54-month period at effective
annual interest rates of 7.51% to 9.39%. In accordance with the Agreement,
should the effective corporate income tax rate for calendar-year taxpayers
increase above 35%, GECC will have the right to increase rent payments by
requiring payment of a single additional sum, calculated in accordance with the
Agreement. The Agreement also provides the Company an early purchase option
after 48 months at a predetermined fair market value, which the Company intends
to exercise. As a result, the Agreement is considered a capital lease for accounting
purposes and the equipment is included in property and equipment. Under the
Agreement, if any material adverse change in the Company or its business
occurs, as solely determined by GECC, the total unpaid principal would become
immediately due and payable. There have been no events of default under this
agreement. As of December 31, 2006, the Company had approximately $4.9
million in outstanding borrowings under the agreement.
The Company leases office space and equipment under
various operating lease agreements. Rent expense for office space under
operating leases amounted to $5,435,000, $2,664,000 and $869,000 for the years
ended December 31, 2006, 2005 and 2004, respectively.
In September 2004, the Company entered into an
agreement to lease 53,323 square feet of office and laboratory space located at
675 West Kendall Street, Cambridge, Massachusetts, for a term of 80 months
(the “West Kendall Sublease”). The Company has an option to extend the West
Kendall Sublease for one additional term of 48 months, ending April 2015,
or on such other earlier date as provided in accordance with the West Kendall
Sublease. In November 2005, the Company amended the West Kendall Sublease
to lease an additional 25,131 square feet in its current premises through April 2011.
Under the lease
81
amendment, the landlord
agreed to finance the leasehold improvements. In accordance with Financial
Accounting Standards Board (“FASB”) Staff Position (FSP) 13-1,
Accounting for Rental Costs Incurred during a
Construction Period
, the Company commenced expensing the applicable
rent on a straight line basis beginning with the commencement of the
construction period. The construction period was completed in June 2006. In
accordance with EITF 97-10,
The Effect
of Lessee Involvement in Asset Construction
, the Company was the
owner of the leasehold assets during the construction period, and as of December 31,
2006, the Company has recorded $3.2 million in leasehold improvements offset by
$2.9 million as a related lease financing liability.
In October 2006, the Company entered into an
agreement to lease approximately 22,300 square feet of office and research
space located in Cambridge, Massachusetts (the “Third Street Sublease”). The
initial term of the Third Street Sublease expires on April 30, 2011 and
may be extended for an additional 48 month period, subject to certain
termination rights granted to the Company and the landlord. Commencing on the
earlier of March 10, 2007 or the Company’s beneficial use of the leased
premises, and through the term of the Third Street Sublease, the Company will
pay annual fixed rent of $1.1 million in monthly installments plus operating
expenses. The company expenses rent under this lease on a straight-line basis
in accordance with (FSP) 13-1. Additionally, the Company has designated
$2.9 million as collateral for a letter of credit in connection with the
execution of the lease.
Future
minimum capital and total operating lease commitments as of December 31,
2006 are as follows (in thousands):
|
|
|
Operating Lease
|
|
Capital Lease
|
|
|
2007
|
|
|
$
|
4,448
|
|
|
|
$
|
1,294
|
|
|
|
2008
|
|
|
4,652
|
|
|
|
1,305
|
|
|
|
2009
|
|
|
4,640
|
|
|
|
1,658
|
|
|
|
2010
|
|
|
4,629
|
|
|
|
1,613
|
|
|
|
2011
|
|
|
1,543
|
|
|
|
—
|
|
|
|
Total future
minimum lease payments
|
|
|
$
|
19,912
|
|
|
|
5,870
|
|
|
|
Less—Amounts
representing interest
|
|
|
|
|
|
|
(931
|
)
|
|
|
Capital lease
obligation at December 31, 2006
|
|
|
|
|
|
|
4,939
|
|
|
|
Less—Current
maturities
|
|
|
|
|
|
|
(941
|
)
|
|
|
Capital lease
obligation, net of current maturities
|
|
|
|
|
|
|
$
|
3,998
|
|
|
License Agreements
In connection with license
arrangements with the research universities discussed in Note 4, the Company
has certain annual fixed obligations to pay these institutions fees for the
technology licensed. At December 31, 2006, financial obligations under
these agreements for each year in the next five years range from $0.1 million
to $0.2 million. After 2010, the annual obligations, which extend indefinitely,
are approximately $0.2 million per year. The Company may terminate the
agreements at any time without further annual obligations. Annual payments may
be applied towards royalties payable to the licensors for that year for product
sales, sublicensing of the patent rights or joint development revenue.
Legal Contingencies
Companies that seek to market a generic version of a
branded product can be sued for infringing patents that purportedly cover the
branded product and/or methods of using the product if the proposed marketing
is to occur before the branded product’s patents expire. The Company is not
currently engaged in any actual or threatened material litigation; however, in August 2006,
Sanofi-Aventis brought a patent infringement suit against Sandoz in connection
with regulatory filings seeking approval to market M-Enoxaparin in the U.S. Sandoz
has moved to dismiss the suit based upon a February 2007 District Court
82
decision, which found
Sanofi-Aventis’ patents to be unenforceable. The Company believes that its
product development plans will likely cause patent infringement litigation in
the future. The accompanying consolidated financial statements do not include
any provision for such potential litigation.
In December 2006, the
Company entered into a settlement agreement with a third party for $1.8 million.
This payment was recorded as a component of general and administrative expense
as of December 31, 2006 within the Company’s consolidated statement of
operations.
14. 401(k) Plan
The Company has a defined
contribution 401(k) plan available to eligible employees. Employee
contributions are voluntary and are determined on an individual basis, limited
by the maximum amounts allowable under federal tax regulations. The Company has
discretion to make contributions to the plan. In March 2005, the Company’s
Board of Directors approved a match of 50% of the first 6% contributed by
employees, effective for the 2004 plan year, and thereafter. The Company
recorded $0.2 million and $0.2 million of such match expense in the year
ended December 31, 2006 and 2005, respectively. The amount contributed in
2004 by the Company was immaterial.
15. Related Party
Transactions
The Company purchased $3.3 million, $1.5 million and
$0.4 million of heparin in 2006, 2005 and 2004, respectively, from Sandoz GmbH,
which in turn was reimbursed under the Company’s collaboration agreement with
Sandoz N.V. and Sandoz, Inc. The Company did not have any outstanding
payables to Sandoz at December 31, 2006 and 2005.
Parivid, LLC, a company
that provides data integration and analysis services to the Company, is
considered to be a related party as a co-founder and member of the Company’s
Board of Directors is the brother of the chief technology officer of Parivid.
The Company recorded $1.0 million, $0.7 million and $1.0 million as research
and development expense related to work performed by Parivid in the years ended
December 31, 2006, 2005 and 2004, respectively. At December 31, 2006,
the Company had outstanding payables totaling $0.1 million with Parivid. The
Company had no outstanding payables with Parivid at December 31, 2005.
16. Selected Quarterly Financial Data (Unaudited) (in
thousands, except per share data)
|
|
|
Quarter Ended
|
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration
revenues
|
|
$
|
2,506
|
|
$
|
5,397
|
|
|
$
|
4,058
|
|
|
|
$
|
4,038
|
|
|
|
Net loss
|
|
(11,331
|
)
|
(12,584
|
)
|
|
(12,015
|
)
|
|
|
(15,983
|
)
|
|
|
Basic and diluted
net loss per common share attributable to common stockholders
|
|
$
|
(0.37
|
)
|
$
|
(0.41
|
)
|
|
$
|
(0.37
|
)
|
|
|
$
|
(0.45
|
)
|
|
|
Shares used in
computing basic and diluted net loss per share attributable to common
stockholders
|
|
30,444
|
|
30,532
|
|
|
32,334
|
|
|
|
35,518
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborative
revenues
|
|
$
|
3,415
|
|
$
|
3,364
|
|
|
$
|
2,957
|
|
|
|
$
|
3,275
|
|
|
|
Net loss
|
|
(3,770
|
)
|
(4,580
|
)
|
|
(6,001
|
)
|
|
|
(7,311
|
)
|
|
|
Basic and diluted
net loss per common share attributable to common stockholders
|
|
$
|
(0.15
|
)
|
$
|
(0.18
|
)
|
|
$
|
(0.21
|
)
|
|
|
$
|
(0.24
|
)
|
|
|
Shares used in computing
basic and diluted net loss per share attributable to common stockholders
|
|
24,866
|
|
25,116
|
|
|
28,736
|
|
|
|
30,341
|
|
|
83
Certain prior year amounts in collaboration revenue
and research and development expenses in the consolidated statements of
operations have been reclassified to conform to the current year presentation.
This reclassification has no impact on previously reported net loss
attributable to common stockholders or accumulated deficit.
Per common share amounts for the quarters and full
years have been calculated separately. Accordingly, quarterly amounts may not
add to the annual amount because of differences in the weighted average common
shares outstanding during each period principally due to the effect of the
Company’s issuing shares of its common stock during the year.
Diluted and basic net loss
per common share is identical since common equivalent shares are excluded from
the calculation, as their effect is anti-dilutive.
Item 9.
CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Item 9A.
CONTROLS AND
PROCEDURES
1. Disclosure
Controls and Procedures
Our management, with the
participation of our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures as of December 31,
2006. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, means controls
and other procedures of a company that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the Securities Exchange
Act of 1934 is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our
chief executive officer and chief financial officer concluded that, as of December 31,
2006, our disclosure controls and procedures were effective at the reasonable
assurance level.
2. Internal
Controls Over Financial Reporting
(a) Management’s
Annual Report on Internal Control Over Financial Reporting
The management of
Momenta is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated
under the Securities Exchange Act of 1934 as a process designed by, or under
the supervision of, the company’s principal executive and principal financial
officers and effected by the company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
·
Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company;
84
·
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and
·
Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Momenta’s management,
including the supervision and participation of Chief Executive Officer and
Chief Financial Officer, assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2006. In making this
assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal
Control-Integrated Framework.”
Based on our assessment,
management has concluded that, as of December 31, 2006, the Company’s
internal control over financial reporting is effective based on those criteria.
The
Company’s independent registered public accounting firm has issued its report
on our assessment and effectiveness of the Company’s internal control over
financial reporting. This report appears below.
(b)
Report
of the Independent Registered Public Accounting Firm
Report
of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders of Momenta Pharmaceuticals, Inc.
We have audited management’s
assessment, included in the accompanying Management’s Annual Report on Internal
Control Over Financial Reporting, that Momenta Pharmaceuticals, Inc.
maintained effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Momenta Pharmaceuticals, Inc.’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to
85
permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management’s
assessment that Momenta Pharmaceuticals, Inc. maintained effective
internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the COSO criteria. Also, in our
opinion, Momenta Pharmaceuticals, Inc. maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2006, based on
the COSO criteria
.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Momenta Pharmaceuticals, Inc. as of December 31, 2006 and 2005, and
the related consolidated statements of operations, redeemable convertible
preferred stock, stockholders’ equity (deficit) and comprehensive income (loss)
and cash flows
for each of the
three years in the period ended December 31, 2006 of Momenta
Pharmaceuticals, Inc. and our report dated March 12, 2007 expressed
an unqualified opinion thereon.
|
|
|
/s/ Ernst & Young LLP
|
|
Boston,
Massachusetts
|
|
|
|
March 12,
2007
|
|
|
(c) Changes
in Internal Control Over Financial Reporting
No change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter
ended as of December 31, 2006 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item
9B.
OTHER
INFORMATION
Recent Events
On March 14, 2007, we
entered into Executive Retention Agreements with the following executive
officers: John F. Bishop, Steven B. Brugger, Richard P. Shea and Ganesh
Venkataraman; as well as three other Vice Presidents of the Company. Pursuant
to the Executive Retention Agreements, in the event an executive’s employment is
terminated without cause (as defined in the Executive Retention Agreement) or
he or she terminates employment with good reason (as defined in the Executive
Retention Agreement) within one year following a change in control of the
Company (as defined in the Executive Retention Agreement), the executive shall
be entitled to (i) accrued obligations as of the date of such termination,
consisting of accrued and unpaid salary, the value of accrued vacation days and
the amount of unreimbursed and incurred expenses, (ii) acceleration of
each outstanding award then held by the executive under the Company’s
outstanding equity incentive
plans, (iii) the sum of (A) the amount equal to the executive’s
annual base salary during the one year period prior to the date of termination
and (B) the greater of (x) the target bonus for the executive for the
fiscal year in which the termination occurs and (y) the annual bonus paid
to the executive for the most recently completed fiscal year, and (iv) insurance,
medical, dental, health and accident and disability benefits as in effect
immediately prior to the termination date for a period of 12 months. The
Executive Retention Agreements have a term that expires on December 31,
2007, but automatically renew for successive one year terms.
86
PART III
Item 10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information relating to our directors, nominees
for election as directors and executive officers under the headings “Election
of Directors”, “Corporate Governance—Our Executive Officers”, “Corporate
Governance—Section 16(a) Beneficial Ownership Reporting Compliance” and
“Corporate Governance—Board Committees” in our definitive proxy statement for
the 2007 Annual Meeting of Stockholders is incorporated herein by reference to
such proxy statement.
We have adopted a written
code of business conduct and ethics that applies to our directors, officers and
employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. We make available our code of business conduct and ethics
free of charge through our website which is located at www.momentapharma.com.
We intend to disclose any amendments to, or waivers from, our code of business
conduct and ethics that are required to be publicly disclosed pursuant to rules of
the Securities and Exchange Commission and the NASDAQ National Market by filing
such amendment or waiver with the Securities and Exchange Commission and by posting
it on our website.
Item 11.
EXECUTIVE
COMPENSATION
The discussion under the headings
“Executive Compensation”, “Compensation of Directors”, “Compensation Committee
Report” and “Compensation Committee Interlocks and Insider Participation” in
our definitive proxy statement for the 2007 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement. The information
specified in Item 407(e)(5) of Regulation S-K and set forth in our
definitive proxy statement for the 2007 Annual Meeting of Stockholders is not
incorporated by reference.
Item 12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The discussion under the
heading “Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters” in our definitive proxy statement for the 2007
Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.
Item 13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The discussion under the
headings “Certain Relationships and Related Transactions” and “Corporate
Governance—Board Determination of Independence” in our definitive proxy
statement for the 2007 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.
Item 14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The discussion under the
heading “Ratification of Selection of Independent Registered Public Accounting
Firm” in our definitive proxy statement for the 2007 Annual Meeting of
Stockholders is incorporated herein by reference to such proxy statement.
87
PART IV
Item 15.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are included as part
of this Annual Report on Form 10-K.
1. Financial Statements:
|
|
|
Page number
in this report
|
|
|
Report of Independent Registered Public Accounting
Firm
|
|
|
58
|
|
|
|
Consolidated Balance Sheets at December 31, 2006
and 2005
|
|
|
59
|
|
|
|
Consolidated Statements of Operations for the years
ended December 31, 2006, 2005, and 2004
|
|
|
60
|
|
|
|
Consolidated
Statements of Redeemable Convertible Preferred Stock, Stockholders’ Equity
(Deficit) and Comprehensive Income (Loss) for the years ended
December 31, 2006, 2005 and 2004
|
|
|
61
|
|
|
|
Consolidated Statements of Cash Flows for the years
ended December 31, 2006, 2005, and 2004
|
|
|
63
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
64
|
|
|
2.
All schedules are omitted as the information required is
either inapplicable or is presented in the financial statements and/or the
related notes.
3. The
Exhibits listed in the Exhibit Index immediately preceding the Exhibits
are filed as a part of this Annual Report on Form 10-K.
88
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 15th day of March,
2007.
|
|
|
MOMENTA PHARMACEUTICALS, INC.
|
|
|
|
By:
|
|
/s/ CRAIG A. WHEELER
|
|
|
|
|
|
Craig A. Wheeler
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
|
|
Signature
|
|
|
|
Title
|
|
|
|
Date
|
|
|
/s/ CRAIG A. WHEELER
|
|
President and
Chief Executive Officer;
|
|
March 15,
2007
|
|
Craig A. Wheeler
|
|
Director (Principal
Executive Officer)
|
|
|
|
/s/ RICHARD P. SHEA
|
|
Vice President
and Chief Financial Officer
|
|
March 15,
2007
|
|
Richard P. Shea
|
|
(Principal Financial and
Accounting Officer)
|
|
|
|
/s/ PETER BARRETT
|
|
Chairman of the
Board and Director
|
|
March 15,
2007
|
|
Peter Barrett
|
|
|
|
|
|
/s/ JOHN K. CLARKE
|
|
Director
|
|
March 15,
2007
|
|
John K. Clarke
|
|
|
|
|
|
/s/ ALAN L. CRANE
|
|
Director
|
|
March 15,
2007
|
|
Alan L. Crane
|
|
|
|
|
|
/s/ MARSHA H. FANUCCI
|
|
Director
|
|
March 15,
2007
|
|
Marsha H. Fanucci
|
|
|
|
|
|
/s/ PAUL D. GOLDENHEIM
|
|
Director
|
|
March 15,
2007
|
|
Paul D. Goldenhiem
|
|
|
|
|
|
/s/ PETER BARTON HUTT
|
|
Director
|
|
March 15,
2007
|
|
Peter Barton Hutt
|
|
|
|
|
|
/s/ ROBERT S.
LANGER, Jr.
|
|
Director
|
|
March 15,
2007
|
|
Robert S. Langer, Jr.
|
|
|
|
|
|
/s/ STEPHEN T. REEDERS
|
|
Director
|
|
March 15,
2007
|
|
Stephen T. Reeders
|
|
|
|
|
|
/s/ RAM SASISEKHARAN
|
|
Director
|
|
March 15,
2007
|
|
Ram Sasisekharan
|
|
|
|
|
|
/s/ BENNETT M. SHAPIRO
|
|
Director
|
|
March 15,
2007
|
|
Bennett M. Shapiro
|
|
|
|
|
89
EXHIBIT
INDEX
|
|
|
|
|
|
|
Incorporated by Reference to
|
|
Exhibit
Number
|
|
Description
|
|
Form or
Schedule
|
|
Exhibit
No.
|
|
Filing
Date
with SEC
|
|
SEC File
Number
|
|
|
|
Articles
of Incorporation and By-Laws
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Third Amended and Restated Certificate of
Incorporation
|
|
S-1
|
|
3.3
|
|
3/11/2004
|
|
333-113522
|
|
3.2
|
|
Certificate of Designations of Series A Junior
Participating Preferred Stock of the Registrant
|
|
8-K
|
|
3.1
|
|
11/8/2005
|
|
000-50797
|
|
3.3
|
|
Amended and Restated By-Laws
|
|
S-1
|
|
3.2
|
|
3/11/2004
|
|
333-113522
|
|
|
|
Instruments
Defining the Rights of Security Holders
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Specimen Certificate evidencing shares of common
stock
|
|
S-1/A
|
|
4.1
|
|
6/15/2004
|
|
333-113522
|
|
4.2
|
|
Second Amended and Restated Investors’ Rights
Agreement, dated as of February 27, 2004, by and among the Purchasers
listed therein, the Founders listed therein and the Registrant; Amendment
No. 1 to Second Amended and Restated Investors’ Rights Agreement dated
June 10, 2004, by and among the Registrant and the Investors set forth
therein
|
|
S-1/A
|
|
4.3
|
|
6/15/2004
|
|
333-113522
|
|
4.3
|
|
Rights Agreement, dated as of November 7, 2005,
between American Stock Transfer & Trust Company, as Rights Agent,
and the Registrant
|
|
8-K
|
|
4.1
|
|
11/8/2005
|
|
000-50797
|
|
4.4
|
|
Investor Rights Agreement, dated as of July 25,
2006, by and between Novartis Pharma AG and the Registrant
|
|
10-Q
|
|
10.2
|
|
11/8/2006
|
|
000-50797
|
|
|
|
Material
Contracts—License Agreements
|
|
|
|
|
|
|
|
|
|
10.1†
|
|
Collaboration and License Agreement, dated
November 1, 2003, by and among Biochemie West Indies, N.V., Geneva
Pharmaceuticals, Inc. and the Registrant
|
|
S-1/A
|
|
10.4
|
|
5/11/2004
|
|
333-113522
|
|
10.2†
|
|
Amended and Restated Exclusive Patent License
Agreement, dated November 1, 2002, by and between the Massachusetts
Institute of Technology and the Registrant (the “November 1, 2002 M.I.T.
License”); First Amendment to the November 1, 2002 M.I.T. License, dated
November 15, 2002, by and between the Massachusetts Institute of
Technology and the Registrant; Letter Agreement, dated September 12,
2003, between the Massachusetts Institute of Technology and the Registrant;
Letter Agreement, dated October 22, 2003, between the Massachusetts
Institute of Technology and the Registrant; Second Amendment to the
November 1, 2002 M.I.T. License, dated November 19, 2003, by and
between the Massachusetts Institute of Technology and the Registrant; Third
Amendment to the November 1, 2002 M.I.T. License, dated April 2,
2004, by and between the Massachusetts Institute of Technology and the
Registrant
|
|
8-K
|
|
10.1
|
|
8/15/2006
|
|
000-50797
|
90
|
10.3†
|
|
Letter Agreement Regarding November 1, 2002
M.I.T. License, dated August 4, 2006, between the Massachusetts
Institute of Technology and the Registrant
|
|
8-K
|
|
10.1
|
|
8/15/2006
|
|
000-50797
|
|
10.4†
|
|
Letter Agreement Regarding November 1, 2002
M.I.T. License, dated October 18, 2006, between the Massachusetts
Institute of Technology and the Registrant
|
|
10-Q
|
|
10.6
|
|
11/8/2006
|
|
000-50797
|
|
10.5†
|
|
Exclusive Patent License Agreement, dated
October 31, 2002, by and between the Massachusetts Institute of
Technology and the Registrant (the “October 31, 2002 M.I.T. License”);
First Amendment to the October 31, 2002 M.I.T. License, dated
November 15, 2002, by and between the Massachusetts Institute of
Technology and the Registrant
|
|
S-1/A
|
|
10.6
|
|
5/11/2004
|
|
333-113522
|
|
10.6†
|
|
Fourth Amendment to the Amended and Restated
Exclusive Patent License Agreement, dated November 1, 2002, by and
between the Massachusetts Institute of Technology and the Registrant
|
|
10-Q
|
|
10.3
|
|
8/16/2004
|
|
000-50797
|
|
10.7†
|
|
Fifth Amendment to the Amended and Restated Exclusive
Patent License Agreement, dated November 1, 2002, by and between the
Massachusetts Institute of Technology and the Registrant
|
|
10-Q
|
|
10.5
|
|
11/8/2006
|
|
000-50797
|
|
*10.8
|
|
Sixth Amendment to the Amended and Restated Exclusive
Patent License Agreement, dated November 1, 2002, by and between the
Massachusetts Institute of Technology and the Registrant
|
|
|
|
|
|
|
|
|
|
10.9†
|
|
Second Amendment to the Exclusive Patent License
Agreement, dated October 31, 2002, by and between the Massachusetts
Institute of Technology and the Registrant
|
|
10-Q
|
|
10.4
|
|
8/16/2004
|
|
000-50797
|
|
10.10†
|
|
Third Amendment to the Exclusive Patent License
Agreement, dated October 31, 2002, by and between the Massachusetts
Institute of Technology and the Registrant
|
|
10-Q
|
|
10.4
|
|
11/8/2006
|
|
000-50797
|
|
*10.11
|
|
Fourth Amendment to the Exclusive Patent License
Agreement, dated October 31, 2002, by and between the Massachusetts
Institute of Technology and the Registrant
|
|
|
|
|
|
|
|
|
|
10.12†
|
|
License Agreement for Installing Novel Functional
Groups for Therapeutics, dated November 20 2002, by and between the
Regents of the University of California through the Ernest Orlando Lawrence
Berkeley National Laboratory and the Registrant
|
|
S-1/A
|
|
10.7
|
|
5/11/2004
|
|
333-113522
|
|
10.13†
|
|
Letter Agreement, dated November 16, 2004,
between the Regents of the University of California through the Ernest
Orlando Lawrence Berkley National Laboratory and the Registrant.
|
|
10-K
|
|
10.12
|
|
3/31/2005
|
|
000-50797
|
|
10.14†
|
|
Letter Agreement, dated February 8, 2005,
between the Regents of the University of California through the Ernest
Orlando Lawrence Berkley National Laboratory and the Registrant
|
|
10-K/A
|
|
10.13
|
|
7/14/2005
|
|
000-50797
|
91
|
10.15†
|
|
Memorandum of Understanding, dated July 25,
2006, between Sandoz AG and the Registrant
|
|
10-Q
|
|
10.2
|
|
11/8/2006
|
|
000-50797
|
|
*10.16
|
|
Letter Agreement dated January 29, 2007 between
Sandoz AG and the Registrant
|
|
|
|
|
|
|
|
|
|
|
|
Material
Contracts—Management Contracts and Compensation Plans
|
|
|
|
|
|
|
|
|
|
*10.17#
|
|
Amended and Restated 2002 Stock Incentive Plan
|
|
|
|
|
|
|
|
|
|
*10.18#
|
|
2004 Stock Incentive Plan, as amended
|
|
|
|
|
|
|
|
|
|
10.19#
|
|
Form of Incentive Stock Option Agreement Granted
Under 2004 Stock Incentive Plan
|
|
10-Q
|
|
10.1
|
|
8/16/2004
|
|
000-50797
|
|
10.20#
|
|
Form of Nonstatutory Stock Option Agreement
Granted Under 2004 Stock Incentive Plan
|
|
10-Q
|
|
10.2
|
|
8/16/2004
|
|
000-50797
|
|
10.21#
|
|
2004 Employee Stock Purchase Plan
|
|
S-1/A
|
|
10.3
|
|
4/16/2004
|
|
333-113522
|
|
*10.22#
|
|
Executive Officer Compensation Summary
|
|
|
|
|
|
|
|
|
|
*10.23#
|
|
Non-Employee Director Compensation Summary
|
|
|
|
|
|
|
|
|
|
10.24#
|
|
Severance Agreement, dated October 13, 2006,
between Alan L. Crane and the Registrant
|
|
10-Q
|
|
10.12
|
|
11/8/2006
|
|
000-50797
|
|
10.25#
|
|
First Amended and Restated Employment Agreement,
dated April 10, 2002, by and between Ganesh Venkataraman and the
Registrant
|
|
S-1
|
|
10.12
|
|
3/11/2004
|
|
333-113522
|
|
10.26#
|
|
Restricted Stock Purchase Agreement, dated
June 13, 2001, by and between Ganesh Venkataraman and the Registrant
|
|
S-1
|
|
10.13
|
|
3/11/2004
|
|
333-113522
|
|
10.27#
|
|
Reallocation of Founder Shares Agreement, dated
April 10, 2002, by and among Ganesh Venkataraman, Ram Sasisekharan,
Robert S. Langer, Jr., Polaris Venture Partners III, L.P. and the
Registrant
|
|
S-1
|
|
10.14
|
|
3/11/2004
|
|
333-113522
|
|
10.28#
|
|
Restricted Stock Agreement, dated March 7, 2006,
between Ganesh Venkataraman and the Registrant
|
|
10-Q
|
|
10.14
|
|
11/8/2006
|
|
000-50797
|
|
10.29#
|
|
Employment Agreement, dated April 10, 2002, by
and between Susan Whoriskey and the Registrant
|
|
S-1
|
|
10.15
|
|
3/11/2004
|
|
333-113522
|
|
10.30#
|
|
Restricted Stock Purchase Agreement, dated
April 10, 2002, by and between Susan Whoriskey and the Registrant
|
|
S-1
|
|
10.16
|
|
3/11/2004
|
|
333-113522
|
|
10.31#
|
|
Consulting Agreement, dated July 23, 2001, by
and between Robert S. Langer, Jr. and the Registrant; Letter of
Extension dated June 23, 2003
|
|
S-1
|
|
10.17
|
|
3/11/2004
|
|
333-113522
|
|
10.32#
|
|
Letter of Extension to Consulting Agreement, dated
July 2, 2004, by and between Robert S. Langer, Jr. and the
Registrant
|
|
10-Q
|
|
10.2
|
|
11/12/2004
|
|
000-50797
|
|
10.33#
|
|
Letter of Extension to Consulting Agreement, dated
August 8, 2005, between Robert S. Langer, Jr. and the Registrant
|
|
8-K
|
|
10.1
|
|
8/10/2005
|
|
000-50797
|
|
10.34#
|
|
Letter Regarding Amendment and Renewal of Consulting
Agreement, dated July 23, 2001, dated July 19, 2006, between Robert
S. Langer, Jr. and the Registrant
|
|
8-K
|
|
10.1
|
|
7/25/2006
|
|
000-50797
|
|
10.35#
|
|
Restricted Stock Purchase Agreement, dated
June 13, 2001, by and between Robert S. Langer, Jr. and the
Registrant
|
|
S-1
|
|
10.18
|
|
3/11/2004
|
|
333-113522
|
92
|
10.36#
|
|
Consulting Agreement, dated August 16, 2001, by
and between Ram Sasisekharan and the Registrant; Letter of Extension dated
August 1, 2003
|
|
S-1
|
|
10.19
|
|
3/11/2004
|
|
333-113522
|
|
10.37#
|
|
Letter of Extension to Consulting Agreement, dated
July 12, 2004, by and between Ram Sasisekharan and the Registrant
|
|
10-Q
|
|
10.1
|
|
11/12/2004
|
|
000-50797
|
|
10.38#
|
|
Letter of Extension to Consulting Agreement,
effective as of November 8, 2005, between Ram Sasisekharan and the
Registrant
|
|
8-K
|
|
10.1
|
|
11/10/2005
|
|
000-50797
|
|
10.39#
|
|
Restricted Stock Purchase Agreement, dated
June 13, 2001, by and between Ram Sasisekharan and the Registrant
|
|
S-1
|
|
10.20
|
|
3/11/2004
|
|
333-113522
|
|
10.40#
|
|
Letter of Extension to Consulting Agreement, dated
March 15, 2005, by and between Ram Sasisekharan and the Registrant
|
|
10-Q
|
|
10.1
|
|
5/13/2005
|
|
000-50797
|
|
10.41#
|
|
Letter of Extension and Amendment to Consulting
Agreement, dated September 7, 2006, by and between Ram Sasisekharan and
the Registrant
|
|
8-K
|
|
10.1
|
|
9/11/2006
|
|
000-50797
|
|
10.42#
|
|
Consulting Agreement, dated September 18, 2002,
by and between Peter Barton Hutt and the Registrant; Letter of Extension
dated September 29, 2003
|
|
S-1
|
|
10.21
|
|
3/11/2004
|
|
333-113522
|
|
10.43#
|
|
Amendment to Letter of Extension, dated
October 4, 2004, between Peter Barton Hutt and the Registrant
|
|
10-Q
|
|
10.3
|
|
11/12/2004
|
|
000-50797
|
|
10.44#
|
|
Letter of Extension to Consulting Agreement, dated
September 18, 2002, dated September 22, 2005, between Peter Barton
Hutt and the Registrant
|
|
10-Q
|
|
10.2
|
|
11/14/2005
|
|
000-50797
|
|
10.45#
|
|
Amendment to Consulting Agreement, dated
September 18, 2002, dated September 18, 2006, between Peter Barton
Hutt and the Registrant
|
|
8-K
|
|
10.1
|
|
9/20/2006
|
|
000-50797
|
|
10.46#
|
|
Restricted Stock Purchase Agreement, dated
June 13, 2001, by and between Peter Barton Hutt and the Registrant
|
|
S-1
|
|
10.22
|
|
3/11/2004
|
|
333-113522
|
|
10.47#
|
|
Industry Consulting Agreement, effective as of
October 4, 2004, between Bennett M. Shapiro and the Registrant
|
|
10-Q
|
|
10.4
|
|
11/12/2004
|
|
000-50797
|
|
10.48#
|
|
Amendment (regarding Consulting Agreement, dated
October 4, 2004), dated September 20, 2005, between Bennett M.
Shapiro and the Registrant
|
|
10-Q
|
|
10.1
|
|
11/14/2005
|
|
000-50797
|
|
10.49#
|
|
Amendment (regarding Consulting Agreement, dated
October 4, 2004), dated September 25, 2006, between Bennett M.
Shapiro and the Registrant
|
|
8-K
|
|
10.1
|
|
9/28/2006
|
|
000-50797
|
|
10.50#
|
|
Letter Agreement, dated November 15, 2004,
between Joseph E. Tyler and the Registrant
|
|
10-K
|
|
10.47
|
|
3/31/2005
|
|
000-50797
|
|
10.51#
|
|
Employment Agreement, dated August 22, 2006,
between Craig Wheeler and the Registrant
|
|
10-Q
|
|
10.7
|
|
11/8/2006
|
|
000-50797
|
|
10.52#
|
|
Restricted Stock Agreement, dated August 22,
2006, between Craig Wheeler and the Registrant
|
|
10-Q
|
|
10.8
|
|
11/8/2006
|
|
000-50797
|
|
10.53#
|
|
Nonstatutory Stock Option Agreement, dated
August 22, 2006, between Craig Wheeler and the Registrant
|
|
10-Q
|
|
10.9
|
|
11/8/2006
|
|
000-50797
|
|
10.54#
|
|
Incentive Stock Option Agreement, dated
August 22, 2006, between Craig Wheeler and the Registrant
|
|
10-Q
|
|
10.10
|
|
11/8/2006
|
|
000-50797
|
93
|
10.55#
|
|
Restricted Stock Agreement, dated March 7, 2006,
between Steven B. Brugger and the Registrant
|
|
10-Q
|
|
10.13
|
|
11/8/2006
|
|
000-50797
|
|
*10.56#
|
|
Restricted Stock Agreement, dated December 15,
2006, between John E. Bishop and the Registrant
|
|
|
|
|
|
|
|
|
|
*10.57
|
|
Form of Executive Retention Agreement between
the Registrant and each of John E. Bishop, Steven B. Brugger, Ian Fier,
Barbara Rosengren, Richard P. Shea, Ganesh Venkataraman and Susan Whoriskey
|
|
.
|
|
|
|
|
|
|
|
|
|
Material
Contracts—Credit Agreements
|
|
|
|
|
|
|
|
|
|
10.58
|
|
Loan and Security Agreement, dated December 27,
2002, by and between Silicon Valley Bank and the Registrant
|
|
S-1
|
|
10.23
|
|
3/11/2004
|
|
333-113522
|
|
10.59
|
|
First Loan Modification Agreement, dated
December 28, 2004, between Silicon Valley Bank and the Registrant
|
|
10-K
|
|
10.37
|
|
3/31/2005
|
|
000-50797
|
|
10.60
|
|
Loan and Security Agreement, dated December 28,
2004, between Silicon Valley Bank and the Registrant
|
|
10-K
|
|
10.38
|
|
3/31/2005
|
|
000-50797
|
|
10.61
|
|
Master Lease Agreement, dated December 30, 2005,
between General Electric Capital Corporation and the Registrant
|
|
10-K
|
|
10.44
|
|
3/16/2006
|
|
000-50797
|
|
|
|
Material
Contracts—Leases
|
|
|
|
|
|
|
|
|
|
10.62†
|
|
Sublease Agreement, dated September 14, 2004, by
and between Vertex Pharmaceuticals Incorporated and the Registrant
|
|
10-Q
|
|
10.9
|
|
11/12/2004
|
|
000-50797
|
|
10.63
|
|
First Amendment to Sublease (regarding Sublease
Agreement, dated September 14, 2004), dated September 7, 2005,
between Vertex Pharmaceuticals Incorporated and the Registrant
|
|
10.Q
|
|
10.3
|
|
11/14/2005
|
|
000-50797
|
|
10.64
|
|
Second Amendment to Sublease (regarding Sublease
Agreement, dated September 14, 2004, as amended), effective as of
November 21, 2005, between Vertex Pharmaceuticals Incorporated and the
Registrant
|
|
10-K
|
|
10.47
|
|
3/16/2006
|
|
000-50797
|
|
10.65
|
|
Third Amendment to Sublease (regarding Sublease
Agreement, dated September 14, 2004, as amended), effective as of
January 27, 2006, between Vertex Pharmaceuticals Incorporated and the
Registrant
|
|
10-K
|
|
10.48
|
|
3/16/2006
|
|
000-50797
|
|
10.66
|
|
Letter Agreement (regarding Sublease Agreement, dated
September 14, 2004, as amended), dated June 29, 2006, between
Vertex Pharmaceuticals Incorporated and the Registrant
|
|
10-Q
|
|
10.01
|
|
8/9/2006
|
|
000-50797
|
|
10.67
|
|
Sublease, dated September 8, 2006, by and
between Archemix Corp and the Registrant
|
|
10-Q
|
|
10.11
|
|
11/8/2006
|
|
000-50797
|
|
|
|
Material
Contracts—Stock Purchase Agreement
|
|
|
|
|
|
|
|
|
|
10.68
|
|
Stock Purchase Agreement, dated July 25, 2006,
by and between Novartis Pharma AG and the Registrant
|
|
10-Q
|
|
10.1
|
|
11/8/2006
|
|
000-50797
|
|
|
|
Additional
Exhibits
|
|
|
|
|
|
|
|
|
|
*21
|
|
List of Subsidiaries
|
|
|
|
|
|
|
|
|
|
*23.1
|
|
Consent of Ernst & Young LLP
|
|
|
|
|
|
|
|
|
|
*31.1
|
|
Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14 or 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
94
|
*31.2
|
|
Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14 or 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
*32.1
|
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Exchange Act Rules 13a-14(b) or
15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
* Filed
herewith.
†
Confidential
treatment requested as to certain portions, which portions are omitted and
filed separately with the Securities and Exchange Commission.
#
Management
contract or compensatory plan or arrangement filed as an Exhibit to this
report pursuant to 15(a) and 15(c) of Form 10-K.
95
