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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(MARK ONE)
 
x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
 
or
 
o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from              to             
 
Commission File Number 000-50797
 
Momenta Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
04-3561634
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
675 West Kendall Street, Cambridge, MA
 
02142
(Address of Principal Executive Offices)
 
(Zip Code)
 
(617) 491-9700
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer  x
 
Accelerated filer  ¨
 
 
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
 
 
 
Emerging growth company  ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
 
As of October 30, 2017 , there were 76,387,066 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
 


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MOMENTA PHARMACEUTICALS, INC.

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of  September 30, 2017 and December 31, 2016
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our logo, trademarks and service marks are the property of Momenta Pharmaceuticals, Inc. Other trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Statements contained in this Quarterly Report on Form 10-Q that are about future events or future results, or are otherwise not statements of historical fact, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on current expectations, estimates, forecasts, projections, intentions, goals, strategies, plans, prospects and the beliefs and assumptions of our management. In some cases, these statements can be identified by words such as “anticipate,” “approach,” “believe,” “build,” “can,” “considering,” “contemplate,” “continue,” “could,” “determine,” “ensure,” “estimate,” “expect,” “goal,” “intend,” “likely,” “may,” “might,” “objective,” “opportunity,” “plan,” “possible,” “potential”, “predict,” “progress,” “pursue,” “seek,” “schedule,” “should,” “strategy,” “target,” “typically,” “will,” “working toward,” “would,” and other similar words or expressions, or the negative of these words or similar words or expressions. These statements include, but are not limited to, statements regarding our expectations regarding the utility of our products and product candidates; development, manufacture and commercialization of our products and product candidates, including the next steps for M834, our biosimilar ORENCIA ® (abatacept) candidate; efforts to seek and manage relationships with collaboration partners, including without limitation for our biosimilar and novel therapeutic programs; the timing of clinical trials and the availability and timing of reporting results; the timing of launch of products and product candidates, including GLATOPA ® (glatiramer acetate injection) 40 mg/mL; market potential and product revenues of our products and product candidates, including GLATOPA and Enoxaparin Sodium Injection; the timing, merits, strategy, impact and outcome of, and decisions regarding, legal and regulatory proceedings; collaboration revenues and research and development revenues; manufacturing, including statements regarding Sandoz' third party fill/finish manufacturer for GLATOPA, Pfizer Inc.; the FDA warning letter received by Sandoz' third party fill/finish manufacturer for GLATOPA, Pfizer Inc.; timing of regulatory filings, reviews and approvals, including the timing of the regulatory review and approval of the GLATOPA 40 mg/mL ANDA; the sufficiency of our current capital resources and projected milestone payments and product revenues for future operations; our future financial position, including but not limited to our future operating losses, our potential future profitability, our future expenses, the composition and mix of our cash, cash equivalents and marketable securities, our future revenues and our future liabilities; our funding transactions and our intended uses of proceeds thereof; product candidate development costs; receipt of contingent milestone payments; accounting policies, estimates and judgments; our estimates regarding the fair value of our investment portfolio; the timing of biosimilar market formation; the market risk of our cash equivalents, marketable securities, and derivative, foreign currency and other financial instruments; rights, obligations, terms, conditions and allocation of responsibilities, costs, and decision making under our collaboration agreements; the regulatory pathway for biosimilars; our strategy, including but not limited to our regulatory strategy, and scientific approach; the importance of key customer distribution arrangements; market potential and acceptance of our products and product candidates; future capital requirements; reliance on our collaboration partners and other third parties, including Sandoz' third party fill/finish manufacturer for GLATOPA, Pfizer Inc.; the competitive landscape, including the effects of Mylan N.V.'s entry into the COPAXONE ® (glatiramer acetate injection) market; changes in, impact of and compliance with laws, rules and regulations; product reimbursement policies and trends; pricing of pharmaceutical products, including our products and product candidates; our stock price; our intellectual property strategy and position; sufficiency of insurance; attracting and retaining qualified personnel; our internal controls and procedures; acquisitions or investments in companies, products and technologies; entering into collaboration and/or license arrangements; marketing plans; financing our planned operating and capital expenditure; the terms and conditions of our facility leases; materials used in our research and development; royalty rates; our collaborators' plans; and vesting of equity awards.
 
Any forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Important factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
    
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.


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Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.    FINANCIAL STATEMENTS

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

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
172,838

 
$
150,738

Marketable securities
245,948

 
202,413

Collaboration receivable
14,333

 
70,242

Restricted cash
2,412

 

Prepaid expenses and other current assets
6,958

 
4,607

Total current assets
442,489

 
428,000

Marketable securities, long-term
4,292

 

Property and equipment, net
29,948

 
20,847

Intangible assets, net
4,324

 
5,189

Other long-term assets
21,489

 
23,701

Total assets
$
502,542

 
$
477,737

 
 
 
 
Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
12,652

 
$
3,632

Accrued expenses
25,152

 
26,866

Collaboration advance, net
13,888

 
32,895

Deferred revenue
54,487

 
7,272

Other current liabilities
80

 
11

Total current liabilities
106,259

 
70,676

Deferred revenue, net of current portion
29,845

 
31,360

Other long-term liabilities
5,924

 
3,793

Total liabilities
142,028

 
105,829

Commitments and contingencies (Note 6)


 


Stockholders’ Equity:
 

 
 

Common stock, $0.0001 par value per share; 100,000 shares authorized, 76,623 shares issued and 76,394 shares outstanding at September 30, 2017 and 71,305 shares issued and 71,076 outstanding at December 31, 2016
8

 
7

Additional paid-in capital
939,586

 
848,304

Accumulated other comprehensive income
47

 
86

Accumulated deficit
(576,013
)
 
(473,375
)
Treasury stock, at cost, 229 shares
(3,114
)
 
(3,114
)
 
 
 
 
Total stockholders’ equity
360,514

 
371,908

 
 
 
 
Total liabilities and stockholders’ equity
$
502,542

 
$
477,737


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

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

 
 

 
 
 
 
Product revenue
$
10,890

 
$
23,339

 
$
53,434

 
$
58,831

Research and development revenue
13,200

 
5,805

 
20,840

 
16,593

Total collaboration revenue
24,090

 
29,144

 
74,274

 
75,424

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Research and development
37,914

 
31,568

 
113,078

 
93,498

General and administrative
20,703

 
15,758

 
66,380

 
46,301

Total operating expenses
58,617

 
47,326

 
179,458

 
139,799

 
 
 
 
 
 
 
 
Operating loss
(34,527
)
 
(18,182
)
 
(105,184
)
 
(64,375
)
 
 
 
 
 
 
 
 
Other income, net
1,339

 
638

 
3,329

 
1,833

 
 
 
 
 
 
 
 
Net loss
$
(33,188
)
 
$
(17,544
)
 
$
(101,855
)
 
$
(62,542
)
 
 
 
 
 
 
 
 
Basic and diluted net loss per share
$
(0.44
)
 
$
(0.26
)
 
$
(1.40
)
 
$
(0.91
)
 
 
 
 
 
 
 
 
Weighted average shares used in computing basic and diluted net loss per share
74,611

 
68,799

 
72,585

 
68,540

 
 
 
 
 
 
 
 
Comprehensive loss:
 

 
 

 
 
 
 
Net loss
$
(33,188
)
 
$
(17,544
)
 
$
(101,855
)
 
$
(62,542
)
Net unrealized holding gains (losses) on available-for-sale marketable securities
52

 
(36
)
 
(39
)
 
246

Comprehensive loss
$
(33,136
)
 
$
(17,580
)
 
$
(101,894
)

$
(62,296
)

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


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

 
 

Net loss
$
(101,855
)
 
$
(62,542
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization of property and equipment
4,719

 
5,726

Share-based compensation expense
16,309

 
14,756

Amortization of premium on investments
248

 
524

Amortization of intangibles
865

 
1,240

Changes in working capital
87,567

 
4,141

 
 
 
 
Net cash provided by (used in) operating activities
7,853

 
(36,155
)
 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Purchases of property and equipment
(11,213
)
 
(4,806
)
Purchases of marketable securities
(366,292
)
 
(264,905
)
Proceeds from maturities of marketable securities
318,178

 
350,531

 
 
 
 
Net cash (used in) provided by investing activities
(59,327
)
 
80,820

 
 
 
 
Cash Flows from Financing Activities:
 

 
 

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

 

Proceeds from issuance of common stock under stock plans
9,484

 
1,218

Repurchase of common stock pursuant to share surrender

 
(1,065
)
 
 
 
 
Net cash provided by financing activities
73,574

 
153

 
 
 
 
Net increase in cash and cash equivalents
22,100

 
44,818

Cash and cash equivalents, beginning of period
150,738

 
61,461

Cash and cash equivalents, end of period
$
172,838

 
$
106,279

 
 
 
 
Non-Cash Investing/Financing Activities:
 
 
 
Purchases of property and equipment included in accounts payable and accrued expenses
$
3,542

 
$
267

Common shares issued to Parivid to settle milestone payment

$

 
$
3,190

Receivable due from stock option exercises
$
617

 
$

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

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MOMENTA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED, CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. The Company

Business Overview

Momenta Pharmaceuticals, Inc., referred to as Momenta or the Company, was incorporated in the state of Delaware in May 2001 and began operations in early 2002. Its facilities are located in Cambridge, Massachusetts. Momenta is a biotechnology company focused on developing generic versions of complex drugs, biosimilars and novel therapeutics for autoimmune diseases. The Company presently derives all of its revenue from its collaborations.

2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
In the opinion of management, the accompanying unaudited, condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial statements for interim periods in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and the accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission, or SEC, on February 24, 2017. The Company's accounting policies are described in the “Notes to Consolidated Financial Statements” in its 2016 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the Company's audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended September 30, 2017 , are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

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

Net Loss Per Common Share
 
Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period, which includes common stock issued and outstanding and excludes unvested shares of restricted stock awards and units. Diluted net loss per common share is calculated by dividing net loss by the weighted average number of common shares and potential shares from outstanding stock options and unvested restricted stock awards and units determined by applying the treasury stock method.
 
The following table presents anti-dilutive shares for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 

7


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Weighted-average anti-dilutive shares related to:
 

 
 

 
 
 
 
Outstanding stock options
3,649

 
6,826

 
4,064

 
6,880

Restricted stock awards
1,474

 
1,500

 
1,519

 
1,052

 
  Fair Value Measurements
 
The tables below present information about the Company’s assets that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

As of September 30, 2017
 
Total
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
Assets:
 
 

 
 

 
 

 
 

Cash equivalents:
 
 

 
 

 
 

 
 

Money market funds
 
$
131,428

 
$
131,428

 
$

 
$

Overnight repurchase agreements
 
29,000

 

 
29,000

 

Marketable securities:
 
 

 
 

 
 

 
 

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

 

 
2,187

 

Corporate debt securities
 
95,780

 

 
95,780

 

Commercial paper obligations
 
102,668

 

 
102,668

 

Asset-backed securities
 
49,605

 

 
49,605

 

 
 
 
 
 
 
 
 
 
Total
 
$
410,668

 
$
131,428

 
$
279,240

 
$

 
As of December 31, 2016
 
Total
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
Assets:
 
 

 
 

 
 

 
 

Cash equivalents:
 
 

 
 

 
 

 
 

Money market funds
 
$
121,510

 
$
121,510

 
$

 
$

  Overnight repurchase agreements

 
24,000

 

 
24,000

 

Marketable securities:
 
 

 
 

 
 

 
 

Corporate debt securities
 
47,906

 

 
47,906

 

Commercial paper obligations
 
84,436

 

 
84,436

 

Asset-backed securities
 
70,071

 

 
70,071

 

 
 
 
 
 
 
 
 
 
Total
 
$
347,923

 
$
121,510

 
$
226,413

 
$

 
There have been no impairments of the Company’s assets measured and carried at fair value during the three and nine months ended September 30, 2017 and 2016 . In addition, there were no changes in valuation techniques or transfers between the fair value measurement levels during the three and nine months ended September 30, 2017 . The fair value of Level 2 instruments classified as marketable securities were determined through third party pricing services.

Cash, Cash Equivalents and Marketable Securities

8


 
The following tables summarize the Company’s cash, cash equivalents and marketable securities as of September 30, 2017 and December 31, 2016 (in thousands):
 
As of September 30, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Cash, money market funds and overnight repurchase agreements
 
$
172,838

 
$

 
$

 
$
172,838

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

 

 
(1
)
 
2,187

Corporate debt securities due in one year or less
 
95,806

 
2

 
(28
)
 
95,780

Commercial paper obligations due in one year or less
 
102,584

 
84

 

 
102,668

Asset-backed securities due in one year or less
 
45,318

 

 
(5
)
 
45,313

Asset-backed securities due in more than one year
 
4,297

 

 
(5
)
 
4,292

 
 
 
 
 
 
 
 
 
Total
 
$
423,031

 
$
86

 
$
(39
)
 
$
423,078

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
172,838

 
$

 
$

 
$
172,838

Marketable securities
 
250,193

 
86

 
(39
)
 
250,240

 
 
 
 
 
 
 
 
 
Total
 
$
423,031

 
$
86

 
$
(39
)
 
$
423,078

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

 
$

 
$

 
$
150,738

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

 

 
(36
)
 
47,906

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

 
135

 

 
84,436

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

 
1

 
(14
)
 
70,071

 
 
 
 
 
 
 
 
 
Total
 
$
353,065

 
$
136

 
$
(50
)
 
$
353,151

 
 
 
 
 
 
 
 
 
Reported as:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
150,738

 
$

 
$

 
$
150,738

Marketable securities
 
202,327

 
136

 
(50
)
 
202,413

 
 
 
 
 
 
 
 
 
Total
 
$
353,065

 
$
136

 
$
(50
)
 
$
353,151


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

On July 1, 2017, the Company adopted Accounting Standards Update, or ASU, No. 2016-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting and applied the new guidance prospectively to any modifications to share-based payment awards. This update provides guidance about which changes to the terms or conditions of

9


a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2016-09 introduces guidance that an entity should account for the effects of a modification unless all the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified and if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This update is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted, applied prospectively to an award modified on or after the adoption date. There were no modifications to the Company's share-based payment awards in the third quarter of 2017.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has subsequently issued several amendments to ASU No. 2014-09 that have the same effective date and transition date of January 1, 2018.

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

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of adopting this new accounting standard on its financial position and results of operations.

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

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

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

3. Restricted Cash  

The Company designated $17.5 million as collateral for a security bond posted in the litigation against Amphastar and International Medical Systems, Ltd., a wholly owned subsidiary of Amphastar Pharmaceuticals, Inc. Additional information regarding the litigation is discussed within Note 6 " Commitments and Contingencies ." The $17.5 million is held in an escrow

10


account by Hanover Insurance. The Company classified this restricted cash as long-term as the timing of a final decision in the Enoxaparin Sodium Injection patent litigation is not known.

The following table summarizes the amounts designated as collateral for letters of credit related to the lease of office and laboratory space in Cambridge, Massachusetts (collateral amounts are presented in thousands).

Property Location
Approximate Square Footage
Lease Expiration Date
Letter of Credit Amount
Balance Sheet Classification
675 West Kendall Street
78,500

4/30/2018
$
2,412

Current Asset
320 Bent Street
105,000

2/28/2027
748

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

6/29/2025
1,101

Non-Current Asset
301 Binney Street, Fourth Floor
53,000

3/31/2028
1,271

Non-Current Asset
  Total
 
 
$
5,532

 

4. Collaboration and License Agreements
 
At September 30, 2017 , the Company had collaboration and license agreements with Sandoz AG (formerly Sandoz N.V. and Biochemie West Indies, N.V.), an affiliate of Novartis Pharma AG, and Sandoz Inc. (formerly Geneva Pharmaceuticals, Inc.), collectively referred to as Sandoz; Sandoz AG; Mylan Ireland Limited, a wholly-owned, indirect subsidiary of Mylan N.V., or Mylan; and CSL Behring Recombinant Facility AG, or CSL, a wholly-owned indirect subsidiary of CSL Limited. M923, the Company's biosimilar HUMIRA ® (adalimumab) candidate, was previously developed in collaboration with Baxalta under the Baxalta Collaboration Agreement, as defined below. The Baxalta Collaboration Agreement was terminated effective December 31, 2016 .

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

The following tables provide amounts by period indicated and by line item included in the Company’s accompanying unaudited, condensed consolidated statements of operations and comprehensive loss attributable to transactions arising from its significant collaborative arrangements and all other arrangements, as defined in the FASB’s Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements.

The amounts in operating expenses generally represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as the majority of such costs are not directly charged to programs. The dollar amounts in the tables below are in thousands.
 

11


 
 
For the Three Months Ended September 30, 2017
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement 
 
CSL License Agreement
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 
 
 
 
 

Product revenue
 
$

 
$
10,890

 
$

 
$

 
$
10,890

Research and development revenue:
 
 

 
 

 
 

 
 
 
 

Milestone
 

 
10,000

 

 

 
10,000

Recognition of upfront payments
 

 

 
1,122

 

 
1,122

Research and development services and external costs
 
60

 
673

 

 
1,345

 
2,078

Total research and development revenue
 
60

 
10,673

 
1,122

 
1,345

 
13,200

Total collaboration revenues
 
$
60

 
$
21,563

 
$
1,122

 
$
1,345

 
$
24,090

Operating expenses:
 
 

 
 

 
 

 
 
 
 

Research and development expense
 
$
21

 
$
422

 
$
14,709

 
$
2,544

 
$
17,696

General and administrative expense
 
3,780

 
119

 
1,004

 
36

 
4,939

   Less: net recoverable amount from collaboration partner
 

 

 
(7,046
)
 
(837
)
 
(7,883
)
Total operating expenses
 
$
3,801

 
$
541

 
$
8,667

 
$
1,743

 
$
14,752



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

 
 

 
 
 
 

 
 

Product revenue
 
$

 
$
23,339

 
$

 
$

 
$
23,339

Research and development revenue:
 
 

 
 

 
 
 
 

 
 

Recognition of upfront payments
 

 

 
1,785

 
2,498

 
4,283

Research and development services and external costs
 
128

 
494

 

 
900

 
1,522

Total research and development revenue
 
128

 
494

 
1,785

 
3,398

 
5,805

Total collaboration revenues
 
$
128

 
$
23,833

 
$
1,785

 
$
3,398

 
$
29,144

Operating expenses:
 
 

 
 

 
 
 
 

 
 

Research and development expense
 
$
1

 
$
349

 
$
16,481

 
$
402

 
$
17,233

General and administrative expense
 
332

 
66

 
1,289

 

 
1,687

   Less: net recoverable amount from collaboration partner
 

 

 
(8,114
)
 

 
(8,114
)
Total operating expenses
 
$
333

 
$
415

 
$
9,656

 
$
402

 
$
10,806




12


 
 
For the Nine Months Ended September 30, 2017
 
 
2003 Sandoz
Collaboration
Agreement
 
2006 Sandoz
Collaboration
Agreement
 
Mylan 
Collaboration
 Agreement 
 
CSL License Agreement
 
Total
Collaborations
Collaboration revenues:
 
 

 
 

 
 
 
 
 
 

Product revenue
 
$

 
$
53,434

 
$

 
$

 
$
53,434

Research and development revenue:
 
 
 
 
 
 
 
 
 
 
Milestone
 

 
10,000

 

 


10,000

Recognition of upfront payments
 

 

 
4,299

 

 
4,299

Research and development services and external costs
 
2,822

 
1,653

 

 
2,066

 
6,541

Total research and development revenue
 
2,822

 
11,653

 
4,299

 
2,066

 
20,840

Total collaboration revenues
 
$
2,822

 
$
65,087

 
$
4,299

 
$
2,066

 
$
74,274

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development expense
 
$
1,958

 
$
1,575

 
$
44,381

 
$
7,115

 
$
55,029

General and administrative expense
 
13,410

 
356

 
2,496

 
98

 
16,360

   Less: net recoverable amount from collaboration partner
 

 

 
(19,982
)
 
(4,333
)
 
(24,315
)
Total operating expenses
 
$
15,368

 
$
1,931

 
$
26,895

 
$
2,880

 
$
47,074



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

 
 

 
 
 
 
 
 

Product revenue
 
$

 
$
58,831

 
$

 
$

 
$
58,831

Research and development revenue:
 
 
 
 
 
 
 
 
 
 
Recognition of upfront payments
 

 

 
4,550

 
7,382

 
11,932

Research and development services and external costs
 
266

 
1,878

 

 
2,517

 
4,661

Total research and development revenue
 
266

 
1,878

 
4,550

 
9,899

 
16,593

Total collaboration revenues
 
$
266

 
$
60,709

 
$
4,550

 
$
9,899

 
$
75,424

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development expense
 
$
1

 
$
1,643

 
$
40,658

 
$
880

 
$
43,182

General and administrative expense
 
1,865

 
341

 
2,416

 
316

 
4,938

   Less: net recoverable amount from collaboration partner
 

 

 
(20,766
)
 

 
(20,766
)
Total operating expenses
 
$
1,866

 
$
1,984

 
$
22,308

 
$
1,196

 
$
27,354


(1) The Baxalta Collaboration Agreement was terminated effective December 31, 2016.

2003 Sandoz Collaboration Agreement
 
In 2003, the Company entered into a collaboration and license agreement, or the 2003 Sandoz Collaboration Agreement, with Sandoz to jointly develop, manufacture and commercialize Enoxaparin Sodium Injection, a generic version of LOVENOX ® (enoxaparin), in the United States. Under the terms of the 2003 Sandoz Collaboration Agreement, the Company and Sandoz agreed to exclusively work with each other to develop and commercialize Enoxaparin Sodium Injection for any and all medical indications within the United States. In addition, the Company granted Sandoz an exclusive license under its intellectual property rights to develop and commercialize injectable enoxaparin for all medical indications within the United States.
 
Sandoz began selling Enoxaparin Sodium Injection in July 2010. In June 2015, the Company and Sandoz amended the 2003 Sandoz Collaboration Agreement, effective April 1, 2015, to provide that Sandoz would pay the Company 50% of

13


contractually defined profits on sales, if any. Due to increased generic competition and resulting decreased market pricing for generic enoxaparin sodium injection products, Sandoz has not recorded any profit on sales of Enoxaparin Sodium Injection since 2015 .

2006 Sandoz Collaboration Agreement
 
In 2006 and 2007, the Company entered into a series of agreements, including a collaboration and license agreement, as amended, or the 2006 Sandoz Collaboration Agreement, with Sandoz AG. Under the 2006 Sandoz Collaboration Agreement, the Company and Sandoz AG agreed to exclusively collaborate on the development and commercialization of GLATOPA 20 mg/mL and 40 mg/mL, collectively GLATOPA, a generic version of COPAXONE, among other products. Costs, including development costs and the costs of clinical studies, will be borne by the parties in varying proportions depending on the type of expense. For GLATOPA, the Company is generally responsible for all of the development costs in the United States. For GLATOPA outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses as well as any external costs incurred in the development of products to the extent development costs are borne by Sandoz. All Commercialization Costs, as that term is defined in the 2006 Sandoz Collaboration Agreement, are borne by Sandoz. With respect to GLATOPA, Sandoz is responsible for funding Legal Expenses, as that term is defined in the 2006 Sandoz Collaboration Agreement, except for FTE costs with respect to certain legal activities for GLATOPA; however 50 % of Legal Expenses, including any patent infringement damages, can be offset against the profit-sharing amounts.

The term of the 2006 Sandoz Collaboration Agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party pursuant to the provisions of the 2006 Sandoz Collaboration Agreement. The 2006 Sandoz Collaboration Agreement may be terminated if either party breaches the 2006 Sandoz Collaboration Agreement or files for bankruptcy. In addition, either the Company or Sandoz may terminate the 2006 Sandoz Collaboration Agreement with respect to GLATOPA 40 mg/mL, if clinical trials are required for regulatory approval of GLATOPA 40 mg/mL. Sandoz AG has agreed to indemnify the Company for various claims, and a certain portion of such costs may be offset against certain future payments received by the Company.
 
Sandoz commenced sales of GLATOPA 20 mg/mL in the United States on June 18, 2015. Under the 2006 Sandoz Collaboration Agreement, the Company earns 50% of contractually defined profits on Sandoz’ worldwide net sales of GLATOPA 20 mg/mL. The Company is entitled to earn 50% of contractually defined profits on Sandoz’ worldwide net sales of GLATOPA 40 mg/mL, if approved and launched. Profits on net sales of GLATOPA are calculated by deducting from net sales the costs of goods sold, an allowance for selling, general and administrative costs, which is a contractual percentage of GLATOPA net sales, and post-launch commercial milestones achieved. On July 1, 2017, the Company earned a $10 million commercial milestone payment in connection with GLATOPA 20 mg/mL's being the sole FDA-approved generic of COPAXONE when earned and achieving a certain level of contractually defined profits in the United States. Sandoz deducted the $10 million commercial milestone from quarterly net profit in the three months ended September 30, 2017 prior to the calculation of the Company's 50% contractual share of profits. Following FDA approval of Mylan N.V.'s generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL, which Mylan N.V. announced in October 2017, the Company is no longer eligible to earn $80 million in future post-launch commercial milestones; however, the Company is still eligible to receive up to $30 million in sales-based milestones for GLATOPA in the United States. None of these payments, once received, is refundable and there are no general rights of return in the arrangement.

The amount of net sales and contractual profit is determined based on amounts provided by Sandoz and involves the use of estimates and judgments, such as product sales allowances and accruals related to prompt payment discounts, chargebacks, governmental and other rebates, distributor, wholesaler and group purchasing organizations fees, product returns, and co-payment assistance costs, which could be adjusted based on actual results in the future. The Company is highly dependent on Sandoz for timely and accurate information regarding any net revenues realized from sales of GLATOPA 20 mg/mL in order to accurately report its results of operations.

On October 4, 2017, the Company and Sandoz entered into a letter agreement, pursuant to which the Company agreed to reduce its 50% share of contractually defined profits on worldwide net sales of GLATOPA by up to approximately $9.8 million , representing 50% of potential GLATOPA 40 mg/mL pre-launch inventory costs. Such reductions would commence the earlier of the quarter GLATOPA 40 mg/mL is launched or the third quarter of 2018 . In the event GLATOPA 40 mg/mL is not launched by the third quarter of 2018 , the letter agreement provides that quarterly profits payable to the Company for GLATOPA 20 mg/mL will not be reduced by more than 20% until the earlier of the quarter GLATOPA 40 mg/mL is launched or the third quarter of 2019 , at which time Sandoz may reduce the Company's quarterly GLATOPA profits by up to 100% until the amount of the Company's share of GLATOPA 40 mg/mL pre-launch inventory costs is met.
 

14


Baxalta Collaboration Agreement  

The Company and Baxter International, Inc., Baxter Healthcare Corporation and Baxter Healthcare SA (or collectively referred to as Baxter) entered into a global collaboration and license agreement, or the Baxter Collaboration Agreement, effective February 2012, to develop and commercialize biosimilars, including M923. In connection with Baxter's internal corporate restructuring in July 2015, Baxter assigned the Baxter Collaboration Agreement to Baxalta U.S. Inc., Baxalta GmbH and Baxalta Incorporated, collectively referred to as Baxalta. Subsequent to the assignment, the Company refers to "Baxter" as "Baxalta" and the "Baxter Collaboration Agreement" as the "Baxalta Collaboration Agreement." On June 3, 2016, Baxalta Incorporated and Shire plc, or Shire, announced the completion of the combination of Baxalta Incorporated and Shire. As a result of the combination, Baxalta Incorporated, of which Baxalta US Inc. and Baxalta GmbH are wholly-owned subsidiaries, is a wholly-owned subsidiary of Shire. On September 27, 2016, Baxalta gave the Company twelve months ’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement. On December 31, 2016 , the Company and Baxalta entered into an asset return and termination agreement, or the Baxalta Termination Agreement, which amended certain termination provisions of the Baxalta Collaboration Agreement and made the termination of that agreement effective as of December 31, 2016 . In January 2017, Baxalta paid the Company a one-time cash payment of $51.2 million representing the costs Baxalta would have incurred in performing the activities it would have performed under Baxalta Collaboration Agreement through the original termination date.

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

Under the terms of the Mylan Collaboration Agreement, Mylan paid the Company a non-refundable upfront payment of $45 million . In addition, the Company and Mylan equally share costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates, with Mylan funding its share of collaboration expenses incurred by the Company, in part, through up to six contingent milestone payments, totaling up to $200 million across the six product candidates, two of which, totaling $60 million , the Company received in 2016 .
 
For each product candidate other than M834, at a specified stage of early development, the Company and Mylan will each decide, based on the product candidate’s development progress and commercial considerations, whether to continue the development, manufacture and commercialization of such product candidate under the collaboration or to terminate the collaboration with respect to such product candidate.
 
Under the Mylan Collaboration Agreement, the Company granted Mylan an exclusive license under the Company’s intellectual property rights to develop, manufacture and commercialize the product candidates for all therapeutic indications, and Mylan granted the Company a co-exclusive license under Mylan’s intellectual property rights for the Company to perform its development and manufacturing activities under the product work plans agreed by the parties, and to perform certain commercialization activities to be agreed by the joint steering committee for such product candidates if the Company exercises its co-commercialization option described below. The Company and Mylan established a joint steering committee consisting of an equal number of members from the Company and Mylan to oversee and manage the development, manufacture and commercialization of product candidates under the collaboration. Unless otherwise determined by the joint steering committee, it is anticipated that, in collaboration with the other party, (a) the Company will be primarily responsible for nonclinical development activities and initial clinical development activities for product candidates; additional (pivotal or Phase 3 equivalent) clinical development activities for M834; and regulatory activities for product candidates in the United States through regulatory approval; and (b) Mylan will be primarily responsible for additional (pivotal or Phase 3 equivalent) clinical development activities for product candidates other than M834; regulatory activities for the product candidates outside the United States; and regulatory activities for products in the United States after regulatory approval, when all marketing authorizations for the products in the United States will be transferred to Mylan. Mylan will commercialize any approved products, with the Company having an option to co-commercialize, in a supporting commercial role, any approved products in the United States. The joint steering committee is responsible for allocating responsibilities for other activities under the collaboration.
 
The term of the collaboration will continue throughout the development and commercialization of the product candidates, on a product-by-product and country-by-country basis, until development and commercialization by or on behalf of the Company and Mylan pursuant to the Mylan Collaboration Agreement has ceased for a continuous period of two years for a

15


given product candidate in a given country, unless earlier terminated by either party pursuant to the terms of the Mylan Collaboration Agreement.
 
The Mylan Collaboration Agreement may be terminated by either party for breach by, or bankruptcy of, the other party; for its convenience; or for certain activities involving competing products or the challenge of certain patents. Other than in the case of a termination for convenience, the terminating party will have the right to continue the development, manufacture and commercialization of the terminated products in the terminated countries. In the case of a termination for convenience, the other party will have the right to continue. If a termination occurs, the licenses granted to the non-continuing party for the applicable product will terminate for the terminated country. Subject to certain terms and conditions, the party that has the right to continue the development or commercialization of a given product candidate may retain royalty-bearing licenses to certain intellectual property rights, and rights to certain data, for the continued development and sale of the applicable product in the country or countries for which termination applies.
 
In accordance with Topic 605, Revenue Recognition, the Company allocated $45 million in total arrangement consideration to seven units of accounting based on the relative selling price method. At the inception of the agreement, the Company delivered development and product licenses for the six collaboration product candidates and commenced revenue recognition for the seven units of accounting. The Company is recording revenue associated with the upfront payment on a straight-line basis over the applicable performance period during which the research and development services are expected to be delivered, which begins upon delivery of the development and product license and ends upon FDA approval of the product. The Company currently estimates that the performance periods for the units of accounting range from five years to eight years . As of September 30, 2017 , $34.3 million was deferred under the Mylan Collaboration Agreement, of which $4.5 million was included in current liabilities and $29.8 million was included in non-current liabilities in the condensed consolidated balance sheet.
 
The collaboration with Mylan is a cost-sharing arrangement pursuant to which reimbursement for Mylan’s 50% share of collaboration expenses is recorded as a reduction to research and development expense and general and administrative expense, depending on the nature of the activities. The collaboration advance at September 30, 2017 represents the unused portion of the $60 million contingent milestone payments received from Mylan in 2016 that will be applied to Mylan's 50% share of certain collaboration expenses under the agreement. The Company is eligible to receive up to $140 million in additional contingent milestone payments from Mylan.

As a result of the cost sharing provisions of the Mylan Collaboration Agreement, during the three months ended September 30, 2017 and September 30, 2016 , the Company's net recovery from Mylan for research and development expenses was $6.6 million and $7.7 million , respectively, and the Company's net recovery from Mylan for general and administrative expenses was $0.5 million and $0.4 million , respectively. During the nine months ended September 30, 2017 and September 30, 2016 , the Company's net recovery from Mylan for research and development expenses was $18.9 million and $19.8 million , respectively, and the Company's net recovery from Mylan for general and administrative expenses was $1.1 million and $1.0 million , respectively.

CSL License and Option Agreement

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

Pursuant to the terms of the CSL License Agreement, CSL paid the Company a non-refundable upfront payment of $50 million . For the development and commercialization of M230, the Company is eligible to receive up to $ 550 million in contingent clinical, regulatory and sales milestone payments, and additional negotiated milestone payments for a named research stage product should that enter development. The Company is also entitled to sales-based royalty payments in percentages ranging from a mid-single digit to low-double digits for M230 and a named research stage product should that enter development and be commercialized, and royalties and development milestone payments to be negotiated for any other products developed under the CSL License Agreement. Sales milestones are based on aggregated sales across M230 and any other products developed under the CSL License Agreement. The Company also has the option to participate in a cost-and-profit sharing arrangement, under which the Company would fund 50% of global research and development costs and 50% of U.S. commercialization costs for all products developed pursuant to the CSL License Agreement, or the Co-Funded Products,

16


in exchange for either a 50% share of U.S. profits, or the 50% Co-funding Option, or 30% share of U.S. profits, determined by the stage of development at which the Company makes such election. On August 28, 2017, the Company exercised its 50% Co-funding Option. As a result, for Co-Funded Products, royalties remain payable for territories outside of the United States, and the milestone payments for which the Company is eligible are reduced from up to $550 million to up to $297.5 million . The Company also has the right to opt-out of such arrangement at its sole discretion, which would result in milestone payments and royalties reverting to their pre-arrangement amounts. The Company also has the option to participate in the promotion of Co-Funded Products in the United States, subject to a co-promotion agreement to be negotiated with CSL.

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

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

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

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

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

As discussed above, on August 28, 2017 the Company exercised its 50% Co-funding Option. Prior to the Company's exercise of its 50% Co-funding Option, the Company was reimbursed for certain costs under the arrangement, and such amounts were recorded as revenue or reductions to research and development expense depending on the nature of the activities. When the Company contracted directly with, managed the work of and was responsible for payments to third-party vendors for services the Company was obligated to provide to CSL, reimbursement of such costs were recorded as revenues on a gross basis. Reimbursable material costs incurred on CSL's behalf were netted against research and development expense. After the Company's exercise of its 50% Co-funding Option, reimbursement by CSL for its share of the development effort is presented as a reduction of operating expenses, which is consistent with the Company’s accounting policy for collaborations under ASC

17


808 Collaborative Arrangements , and reimbursement by the Company for its share of the development effort is recorded as an incremental operating expense. 

5. Share-Based Payments

Equity Award Retirement Policy

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

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

Share-Based Compensation

On January 1, 2017, the Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting and made an entity-wide accounting policy election to account for award forfeitures as they occur. As a result, the Company recorded a cumulative opening adjustment to accumulated deficit and additional paid-in capital of $0.8 million . The amended guidance also eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized in additional paid-in capital. This created approximately $5.3 million of deferred tax assets relating to federal and state net operating losses that are fully offset by a corresponding increase in the valuation allowance. As a result, there was no cumulative effect adjustment to accumulated deficit.
 
The table below presents share-based compensation expense for research and development as well as general and administrative expense, both of which are included in operating expenses, in the three and nine months ended September 30, 2017 and 2016 (in thousands):

 
 
For the Three Months Ended
September 30, 2017
 
For the Three Months Ended
September 30, 2016
 
For the Nine Months Ended
September 30, 2017
 
For the Nine Months Ended
September 30, 2016
Research and development
 
$
1,860

 
$
2,042

 
$
6,083

 
$
6,426

General and administrative
 
3,056

 
2,897

 
10,226

 
8,330

  Total share-based compensation expense
 
$
4,916

 
$
4,939

 
$
16,309

 
$
14,756


The following table summarizes share-based compensation expense by award category recorded in each of the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
 
 
For the Three Months Ended
September 30, 2017
 
For the Three Months Ended
September 30, 2016
 
For the Nine Months Ended
September 30, 2017
 
For the Nine Months Ended
September 30, 2016
Stock options
 
$
2,494

 
$
2,149

 
$
7,819

 
$
7,278

Restricted stock awards and units
 
2,289

 
2,688

 
8,120

 
7,161

Employee stock purchase plan
 
133

 
102

 
370

 
317

  Total share-based compensation expense
 
$
4,916

 
$
4,939

 
$
16,309

 
$
14,756

 

18


During the nine months ended September 30, 2017 , the Company granted 1,456,880 options to its employees and board members. The average grant date fair value of options granted was calculated using the Black-Scholes-Merton option-pricing model and the weighted average assumptions are noted in the table below. The weighted average grant date fair value of option awards granted during the three months ended September 30, 2017 and 2016 was $8.58 per option and $6.77 per option, respectively. The weighted average grant date fair value of option awards granted during the nine months ended September 30, 2017 and 2016 was $9.17 per option and $5.90 per option, respectively.
 
The following tables summarize the weighted average assumptions the Company used in its fair value calculations at the date of grant:
 
 
Weighted Average Assumptions
 
 
Stock Options
 
Employee Stock Purchase Plan
 
 
For the Three Months Ended September 30, 2017
 
For the Three Months Ended September 30, 2016
 
For the Three Months Ended September 30, 2017
 
For the Three Months Ended September 30, 2016
Expected volatility
 
50
%
 
60
%
 
52
%
 
58
%
Expected dividends
 

 

 

 

Expected life (years)
 
6.2

 
6.1

 
0.5

 
0.5

Risk-free interest rate
 
2.0
%
 
1.4
%
 
0.9
%
 
0.4
%

 
 
Weighted Average Assumptions
 
 
Stock Options
 
Employee Stock Purchase Plan
 
 
For the Nine Months Ended September 30, 2017
 
For the Nine Months Ended September 30, 2016
 
For the Nine Months Ended September 30, 2017
 
For the Nine Months Ended September 30, 2016
Expected volatility
 
53
%
 
58
%
 
55
%
 
57
%
Expected dividends
 

 

 

 

Expected life (years)
 
5.8

 
6.1

 
0.5

 
0.5

Risk-free interest rate
 
2.1
%
 
1.5
%
 
0.7
%
 
0.4
%

Since April 2016, the Company awarded 1,761,750 shares of performance-based restricted stock to employees and officers. The vesting of the shares is subject to the Company achieving up to two of three possible performance milestones on or before April 13, 2019. Upon achieving each of the first and second milestones, 25% of the shares will vest on the later of the milestone achievement date and the first anniversary of the grant date, and an additional 25% of the shares will vest on the one year anniversary of such achievement date, subject to a requirement that recipients remain employees through each applicable vesting date. Each quarter, the Company evaluates the probability of achieving the milestones on or before April 13, 2019, and its estimate of the implicit service period over which the fair value of the awards will be recognized and expensed. As a result of discontinuing its necuparanib program in 2016 , the Company determined that only two of the three performance milestones are possible to achieve prior to April 13, 2019. The Company has determined that attainment of the remaining performance conditions is probable and is expensing the fair value of the shares over the implicit service period using the accelerated attribution method. In the three and nine months ended September 30, 2017 , the Company recognized approximately $1.0 million and $4.5 million of stock compensation costs related to these awards, respectively.

In the nine months ended September 30, 2017 , the Company awarded 519,753 shares of time-based restricted stock units to its employees. The time-based restricted stock units vest as to 25% on the one year anniversary of the grant date and as to 6.25% quarterly over three years that follow the grant date. Time-based awards are generally forfeited if the employment relationship terminates with the Company prior to vesting, except as provided in the Retirement Policy.  

6. Commitments and Contingencies
 
Operating Leases

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

Lease Amendment


19


On July 24, 2017, the Company entered into the Fourth Amendment to the Lease, or the Fourth Amendment, with BMR-Rogers Street LLC, or BMR, which amends the Lease between Momenta and BMR, dated as of February 5, 2013, as amended. Pursuant to the Fourth Amendment, the Company will lease approximately 52,252 square feet of office space, or the Fourth Floor Binney Premises, on the fourth floor of 301 Binney Street, Cambridge, Massachusetts, or the Binney Building. The Fourth Amendment also amends certain of the terms and conditions of the Company's existing lease of office and laboratory space located in the basement and first and second floors of 320 Bent Street, Cambridge, Massachusetts, or the Bent Premises.

The term of the lease for the Fourth Floor Binney Premises will commence on or before October 1, 2017, or the Binney Commencement Date, and will end on the date that is 126 months from the Binney Commencement Date, unless earlier terminated or extended in accordance with the terms of the Fourth Amendment. The Company has an option, subject to certain terms and conditions, to extend the term of the lease for the Fourth Floor Binney Premises until June 30, 2035 . BMR has agreed to make available an approximately $5.0 million allowance for certain tenant improvements the Company is planning to make to the Fourth Floor Binney Premises.

The Company is obligated to pay rent for the Fourth Floor Binney Premises beginning six months after the Binney Commencement Date, or the Rent Commencement Date. From the Rent Commencement Date until the first anniversary of the Rent Commencement Date, the Company is obligated to pay a monthly base rent for the Fourth Floor Binney Premises of $0.3 million , or $73.00 per square foot. On each subsequent anniversary of the Rent Commencement Date, the annual base rent will increase by 3% of the then-current annual base rent. The Company is also obligated to pay certain operating expenses and a property management fee beginning on the Rent Commencement Date.

Pursuant to the Fourth Amendment, BMR also agreed to make available an additional $5.2 million allowance for certain tenant improvements the Company is planning to make to the Fourth Floor Binney Premises and the Bent Premises. The base rent for the Bent Premises will be correspondingly increased, effective September 1, 2017, to include the amount of the tenant improvement allowance as amortized over the term of the lease for the Bent Premises. From September 1, 2017 to August 31, 2018, the Company's monthly base rent obligation for the Bent Premises will be $0.7 million , or $77.52 per square foot. Each subsequent September 1 during the term of the lease for the Bent Premises, the Company's annual base rent for the Bent Premises will increase by approximately 2.7% of the then-current annual base rent. Subject to certain terms and conditions, the Company has an option to extend the term of the lease for the Bent Premises until June 30, 2035 .

In addition, under the terms of the Fourth Amendment, the Company has a right of first refusal on additional space on the fourth floor of the Binney Building, and a right of first offer on additional space on the fifth floor of the Binney Building.

The Company records rent expense on a straight-line basis over the term of the lease which includes base rent and the associated impact of free rent periods and rent escalation. The Company capitalizes the cost of normal tenant improvements as leasehold improvements as the costs are incurred.

See Note 14 “ Commitments and Contingencies ” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the Company’s other operating lease agreements.

Total operating lease commitments as of September 30, 2017 are as follows (in thousands):

Operating lease commitments
Total
October 1 to December 31, 2017
$
3,310

2018
19,013

2019
18,848

2020
19,380

2021
19,856

2022 and beyond
102,860

Total future minimum lease payments
$
183,267


Legal Contingencies  

The Company is involved in various litigation matters that arise from time to time in the ordinary course of business. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect the Company, its results of operations, financial condition and cash flows. The

20


Company's general practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when losses are probable and reasonably estimable. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of any accrual on its consolidated balance sheets.

GLATOPA 40 mg/mL-Related Litigation

On September 10, 2014, Teva Pharmaceuticals Industries Ltd. and related entities, or Teva, and Yeda Research and Development Co., Ltd., or Yeda, filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware in response to the filing by Sandoz Inc. of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL. The suit initially alleged infringement related to two Orange Book-listed patents for COPAXONE 40 mg/mL, each expiring in 2030, and sought declaratory and injunctive relief prohibiting the launch of the Company's product until the last to expire of these patents. In April 2015, Teva and Yeda filed an additional suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a third Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in March 2015 and expires in 2030. In May 2015, this suit was consolidated with the initial suit that was filed in September 2014. In November 2015, Teva and Yeda filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a fourth Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in October 2015 and expires in 2030. In December 2015, this suit was also consolidated with the initial suit that was filed in September 2014. Teva and Yeda seek declaratory and injunctive relief prohibiting the launch of GLATOPA 40 mg/mL until the expiration of the patents at issue. On January 30, 2017, the District Court found the four patents to be invalid due to obviousness. In February 2017, Teva and Yeda appealed the District Court's January 30, 2017 decision to the Court of Appeals for the Federal Circuit. Briefing was completed in the third quarter of 2017 , and a decision is pending oral argument.

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

On January 31, 2017, Teva filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of New Jersey alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775, which issued in October 2015 and expires in October 2035. The Company and Sandoz Inc. filed a motion to dismiss and a motion to transfer the suit to the United States District Court for the District of Delaware. On January 31, 2017, Teva voluntarily dismissed the Company from the New Jersey suit for U.S. Patent No. 9,155,775, maintaining the suit against Sandoz Inc. On May 23, 2017, the United States District Court for the District of New Jersey granted the motion to transfer the suit to the United States District Court for the District of Delaware. A claim construction hearing is scheduled for November 2, 2017.

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

Enoxaparin Sodium Injection-related Litigation

On September 21, 2011, the Company and Sandoz Inc. sued Amphastar and Actavis in the United States District Court for the District of Massachusetts for patent infringement. Also in September 2011, the Company filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar and Actavis from selling their Enoxaparin product in the United States. In October 2011, the District Court granted the Company's motion for a preliminary injunction and entered an order enjoining Amphastar and Actavis from advertising, offering for sale or selling their Enoxaparin product in the United States until the conclusion of a trial on the merits and required the Company and Sandoz Inc. to post a security bond of $100 million in connection with the litigation. Amphastar and Actavis appealed the decision to the Court of Appeals for the Federal Circuit, or CAFC, and in January 2012, the CAFC stayed the preliminary injunction. In August 2012, the CAFC vacated the preliminary injunction and remanded the case to the District Court. In September 2012, the Company filed a petition with the CAFC for a rehearing by the full court en banc , which was denied. In February 2013, the Company filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court which was denied in June 2013.

In July 2013, the District Court granted a motion by Amphastar and Actavis for summary judgment. The Company filed a notice of appeal of that decision to the CAFC. In February 2014, Amphastar filed a motion to the CAFC for summary

21


affirmance of the District Court ruling, which the CAFC denied in May 2014. On November 10, 2015, the CAFC affirmed the District Court summary judgment decision with respect to Actavis, reversed the District Court summary judgment decision with respect to Amphastar, and remanded the case against Amphastar to the District Court. On January 11, 2016, Amphastar filed a petition for rehearing by the CAFC, which was denied on February 17, 2016. On May 17, 2016, Amphastar filed a petition for writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied on October 3, 2016. In April 2017, the Company, Sandoz Inc. and Actavis, or the Settling Parties, settled and signed reciprocal releases of all claims, and filed a voluntary stipulation with the District Court, pursuant to which the Settling Parties stipulated and agreed to dismiss with prejudice all claims and counterclaims among the Settling Parties, without fees or costs to any party, and with the Settling Parties waiving any and all right of appeal. The District Court trial was held in July 2017, and the jury verdict found the Company's patent to be infringed, but invalid and unenforceable. The Company and Sandoz Inc. have filed post-trial motions and briefs and are considering all other available legal options to overturn the portions of the verdict finding the Company's patent to be invalid and unenforceable, including a potential appeal to the CAFC. In the event that the Company is not successful in further prosecution or settlement of this action against Amphastar, and Amphastar is able to prove they suffered damages as a result of the preliminary injunction, the Company could be liable for damages for up to $35 million of the security bond. The Company posted $17.5 million as collateral for the security bond and classified the collateral as restricted cash in its consolidated balance sheet. Litigation involves many risks and uncertainties, and there is no assurance that the Company or Sandoz Inc. will prevail in this patent enforcement suit.

On September 17, 2015, Amphastar filed a complaint against the Company and Sandoz Inc. in the United States District Court for the Central District of California. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz Inc. sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal and California anti-trust laws and California unfair business laws. Amphastar is seeking unspecified damages and fees. In December 2015, the Company and Sandoz Inc. filed a motion to dismiss and a motion to transfer the case. In January 2016, the case was transferred to the United States District Court for the District of Massachusetts. In February 2016, Amphastar filed a writ of mandamus with the United States Court of Appeals for the Ninth Circuit requesting that the court reverse and review the District Court's grant of transfer and in May 2016, the writ requested by Amphastar was denied. On July 27, 2016, the Company's and Sandoz Inc.'s motion to dismiss was granted by the District Court, and the case was dismissed. On August 25, 2016, Amphastar filed a notice of appeal from the dismissal with the United States Court of Appeals for the First Circuit. Briefing was completed in December 2016, and oral argument was held on February 9, 2017. On March 6, 2017, the United States Court of Appeals for the First Circuit reversed the District Court’s dismissal and remanded the case to the District Court for further proceedings. On April 6, 2017, the District Court held a scheduling conference to provide dates for the remanded case, and on April 20, 2017, the Company and Sandoz Inc. filed their renewed motion to dismiss. Trial is scheduled for April 2019.

On October 14, 2015, The Hospital Authority of Metropolitan Government of Nashville and Davidson County, Tennessee, d/b/a Nashville General Hospital, or NGH, filed a class action suit against the Company and Sandoz Inc. in the United States District Court for the Middle District of Tennessee on behalf of certain purchasers of LOVENOX or generic Enoxaparin Sodium Injection. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz Inc. sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal anti-trust laws. NGH is seeking injunctive relief, disgorgement of profits and unspecified damages and fees. In December 2015, the Company and Sandoz filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. On March 21, 2017, the United States District Court for the Middle District of Tennessee dismissed NGH’s claim for damages against the Company and Sandoz, but allowed the case to move forward, in part, for NGH’s claims for injunctive and declaratory relief. In the same opinion, the United States District Court for the Middle District of Tennessee denied our motion to transfer. On June 9, 2017, NGH filed a motion to amend its complaint to add a new named plaintiff, the American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan, or DC37. NGH and DC37 seek to assert claims for damages under the laws of more than 30 different states, on behalf of a putative class of indirect purchasers of Lovenox or generic enoxaparin. On June 30, 2017, the Company and Sandoz filed a brief opposing the motion to amend the complaint. The Court has not yet scheduled a hearing on the motion to amend. While the outcome of litigation is inherently uncertain, the Company believes this suit is without merit, and it intends to vigorously defend itself in this litigation.

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q

22

Table of Contents

and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016.
 
This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many important factors, such as those set forth under “Part II., Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements.
 
Overview
 
We are a biotechnology company focused on developing generic versions of complex drugs, biosimilars and novel therapeutics for autoimmune diseases.
 
To date, we have devoted substantially all of our capital resource expenditures to the research and development of our products and product candidates. Although we were profitable in fiscal years 2010 and 2011, since that time we have been incurring operating losses, and we expect to incur annual operating losses over the next several years as we advance our development portfolio. As of September 30, 2017 , we had an accumulated deficit of $576.0 million. We will need to generate significant revenue to return to profitability. We expect that our return to profitability, if at all, will most likely come from the commercialization of the products in our development portfolio.
 
Complex Generics
 
GLATOPA ® (glatiramer acetate injection) 20 mg/mL—Generic Once-daily COPAXONE ® (glatiramer acetate injection) 20 mg/mL

On April 16, 2015, the FDA approved the ANDA for GLATOPA 20 mg/mL, a generic equivalent of once-daily COPAXONE 20 mg/mL. GLATOPA 20 mg/mL was the first "AP" rated, substitutable generic equivalent of once-daily COPAXONE. Sandoz commenced sales of GLATOPA 20 mg/mL on June 18, 2015. Under our collaboration agreement with Sandoz, we earn 50% of contractually defined profits on GLATOPA 20 mg/mL sales. For the three months ended September 30, 2017 , we recorded $10.9 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL. On July 1, 2017, we earned a $10 million commercial milestone payment in connection with GLATOPA 20 mg/mL's being the sole FDA-approved generic of COPAXONE when earned and achieving a certain level of contractually defined profits in the United States.

In October 2017, Mylan N.V. announced the launch of its generic equivalents of once-daily COPAXONE 20 mg/mL and three-times-weekly COPAXONE 40 mg/mL. We expect GLATOPA 20 mg/mL will lose market share to Mylan's generic equivalent of COPAXONE 20 mg/mL and that Sandoz may use one or more contracting strategies to remain competitive, including but not limited to lowering its GLATOPA 20 mg/mL prices or increasing the discounts or rebates it offers for GLATOPA 20 mg/mL, which could further decrease contractual profit share revenue. The market potential of GLATOPA 20 mg/mL is also negatively impacted by the conversion of patients from once-daily 20 mg/mL glatiramer acetate injection to three-times-weekly 40 mg/mL glatiramer acetate injection. Prior to Mylan N.V.'s entry into the COPAXONE market, COPAXONE 40 mg/mL accounted for approximately 81% of the overall U.S. glatiramer acetate injection market (20 mg/mL and 40 mg/mL) based on volume prescribed; however, Mylan N.V.'s launch of its lower cost, generic equivalent of COPAXONE 40 mg/mL may result in additional conversion of patients from once-daily 20 mg/mL glatiramer acetate injection to three-times-weekly 40 mg/mL glatiramer acetate injection.

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

An ANDA seeking approval for GLATOPA 40 mg/mL, a generic equivalent of three-times-weekly COPAXONE 40 mg/mL, was filed by our collaborator, Sandoz, in February 2014 and remains under review by the FDA. Our GLATOPA 40 mg/mL formulation contains the same drug substance as GLATOPA 20 mg/mL, which we believe should help streamline the FDA review of the ANDA. On February 17, 2017, we announced that Sandoz’ third party fill/finish manufacturer for GLATOPA, Pfizer Inc., received an FDA warning letter. Although the FDA warning letter does not restrict the production or shipment of the GLATOPA 20 mg/mL product that is currently marketed by Sandoz in the United States, the FDA is withholding approval of the ANDA for GLATOPA 40 mg/mL until satisfactory resolution of the compliance observations in the FDA's warning letter to Pfizer Inc. We are working with Sandoz to resolve this matter. We believe it continues to be possible for GLATOPA 40 mg/mL to be approved and launched in the United States in late 2017 or early 2018. We expect Mylan N.V.'s launch of its generic equivalent of three-times-weekly COPAXONE 40 mg/mL will limit the market potential of GLATOPA 40 mg/mL, if approved and launched.


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Table of Contents

On January 30, 2017, the District Court for the District of Delaware found invalid four Orange Book-listed patents related to COPAXONE 40 mg/mL that we were alleged to have infringed. Three of these patents had previously been found invalid in August 2016 by the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office, or PTAB, in an Inter Partes Review, or IPR, filed by an unrelated third party. In February 2017, Teva and Yeda appealed the District Court's January 30, 2017 decision to the U.S. Court of Appeals for the Federal Circuit, or the CAFC. This and other legal proceedings related to GLATOPA 40 mg/mL are described under "Part II., Item 1. Legal Proceedings -- GLATOPA 40 mg/mL-Related Proceedings."

Enoxaparin Sodium Injection—Generic LOVENOX ®  

Under our amended collaboration agreement with Sandoz, Sandoz is obligated to pay us 50% of contractually defined profits on sales of Enoxaparin Sodium Injection.

Due to increased generic competition and resulting decreased market pricing for generic enoxaparin sodium injection products, Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the three and nine months ended September 30, 2017, and therefore we recorded no product revenue for Enoxaparin Sodium Injection in the same periods.

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

Biosimilars
 
M923—Biosimilar HUMIRA ® (adalimumab) Candidate

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

We are working toward the first regulatory submission for marketing approval for M923 in the United States in late 2017 . We expect that U.S. market formation for biosimilar versions of HUMIRA will likely be in the 2022-2023 timeframe, subject to market approval, patent considerations and litigation timelines. We believe that, subject to our ability to identify a new collaboration partner, marketing approval, patent considerations and litigation timelines, M923 will be among the first biosimilar versions of HUMIRA to launch at U.S. market formation.

M923 was previously developed in collaboration with Baxalta. In June 2016, Baxalta became a wholly-owned subsidiary of Shire plc. In September 2016, Baxalta gave us twelve months' prior written notice of the exercise of its right to terminate for its convenience our collaboration agreement. On December 31, 2016 , we and Baxalta entered into an asset return and termination agreement, or the Baxalta Termination Agreement, amending certain termination provisions of the Baxalta Collaboration Agreement and making the termination of the Baxalta Collaboration Agreement effective December 31, 2016 . In January 2017, Baxalta paid us a one-time cash payment of $51.2 million , representing the costs Baxalta would have incurred in performing the activities it would have performed under the Baxalta Collaboration Agreement through the original termination effective date.

We continue to identify and evaluate potential collaboration opportunities to further develop and commercialize M923.

M834—Biosimilar ORENCIA ® (abatacept) Candidate

On January 8, 2016, we entered into a collaboration agreement, which became effective on February 9, 2016, with Mylan Ireland Limited, a wholly-owned indirect subsidiary of Mylan N.V., or Mylan, to develop and commercialize M834. We completed a randomized, double-blind, three-arm, parallel group, single-dose Phase 1 clinical trial in normal healthy volunteers to compare the pharmacokinetics, safety and immunogenicity of M834 to U.S.-sourced and EU-sourced ORENCIA. On November 1, 2017, we announced that M834 did not meet its primary pharmacokinetic endpoints in the Phase 1 clinical trial.

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We and Mylan continue to gather and analyze the data from the Phase 1 clinical trial to better understand the results and evaluate the next steps for M834.

ORENCIA's composition of matter patents expire in the United States in 2019 . In December 2016, the PTAB in an IPR we filed upheld the validity of Bristol-Myers Squibb's formulation patent U.S. Patent No. 8,476,239 on ORENCIA. We appealed this decision to the CAFC, and an oral argument is scheduled for December 5, 2017. This proceeding is further discussed below under " Part II., Item 1. Legal Proceedings -- M834-Related Proceedings ."

Other Biosimilar Candidates

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

Novel Therapeutics

We believe our novel programs discussed below could have the potential to produce product candidates capable of treating a large number of immunological disorders driven by antibodies, immune complexes, and Fc receptor biology. Such disorders include rheumatoid arthritis, autoimmune neurologic diseases such as Guillain-Barre syndrome, chronic inflammatory demyelinating neuropathy and myasthenia gravis, autoimmune blood disorders such as immune thrombocytopenic purpura, systemic autoimmune diseases such as dermatomyositis, lupus nephritis, and catastrophic antiphospholipid syndrome, antibody-mediated transplant rejection, and autoimmune blistering diseases, several of which have few treatment options.

M281 - Anti-FcRn Candidate

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

M230 - Selective Immunomodulator of Fc receptors (SIF3) Candidate

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

Pursuant to the License and Option Agreement with CSL, effective February 17, 2017, we granted CSL an exclusive worldwide license to research, develop, manufacture and commercialize M230. On August 28, 2017, we exercised our 50% Co-funding Option, which is discussed further in Note 4 " Collaboration and License Agreements - CSL License and Option Agreement ". CSL has informed us that it plans to advance this candidate with a goal of beginning clinical development in late 2017 , subject to regulatory feedback.

M254 - hsIVIg Candidate

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

Results of Operations
 

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Comparison of Three Months Ended September 30, 2017 and 2016
 
Product Revenue

Product revenue includes our contractually defined profits earned on Sandoz’ sales of GLATOPA 20 mg/mL.

GLATOPA 20 mg/mL—Generic Once-daily COPAXONE 20 mg/mL

Sandoz commenced sales of GLATOPA 20 mg/mL in the United States on June 18, 2015. We earn 50% of contractually defined profits on Sandoz’ sales of GLATOPA 20 mg/mL. For the three months ended September 30, 2017 , we recorded $10.9 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL, reflecting $11.1 million in profit share net of a deduction of $0.2 million for reimbursement to Sandoz of 50% of GLATOPA-related legal expenses incurred by Sandoz. For the three months ended September 30, 2016 , we recorded $23.3 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL. The decrease in product revenues of $12.4 million , or 53% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 was primarily due to the deduction of the $10 million commercial milestone we earned on July 1, 2017 from net profit prior to the calculation of our 50% contractual share of profits, which Sandoz was entitled to offset against future product revenues payable to us under the terms of the 2006 Sandoz Collaboration Agreement; lower net sales as a result of inventory price adjustments due to Mylan N.V.'s entry into the COPAXONE market; higher Medicaid deductions in the third quarter of 2017 ; and reimbursement of legal expenses relating to GLATOPA. At the end of the third quarter of 2017, prior to Mylan N.V.'s entry into the COPAXONE market, we estimate that the number of prescriptions for GLATOPA 20 mg/mL represented approximately 40% of the once-daily 20 mg/mL U.S. glatiramer acetate market.

Research and Development Revenue
 
Research and development revenue generally consists of amounts earned by us under our collaborations for technical development, regulatory and commercial milestones; reimbursement of research and development services and reimbursement of development costs under our collaborative arrangements; and recognition of the arrangement consideration.
 
Research and development revenue was $13.2 million and $5.8 million for the three months ended September 30, 2017 and 2016 , respectively. The increase in research and development revenue of $7.4 million , or 128% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 was primarily due to a $10 million commercial milestone payment we earned on July 1, 2017 in connection with GLATOPA 20 mg/mL's being the sole FDA-approved generic of COPAXONE when earned and achieving a certain level of contractually defined profits in the United States, partially offset by less revenue due to the termination of the Baxalta Collaboration Agreement, effective December 31, 2016 , under which we were previously reimbursed for M923 FTE and external costs and for which we recognized a portion of Baxalta's initial upfront payment in the three months ended September 30, 2016 , which were non-recurring in the same period in 2017 .
 
We expect to continue to recognize revenue from Mylan's $45 million upfront payment on a quarterly basis. Finally, we expect to recognize the $50 million upfront payment from CSL as revenue in the fourth quarter of 2017 .
 
Research and Development Expense
 
Research and development expenses consist of costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred. We track the external research and development costs incurred for each of our product candidates. Our external research and development expenses consist primarily of:
 
expenses incurred under agreements with consultants, third-party contract research organizations, or CROs, and investigative sites where all of our nonclinical studies and clinical trials are conducted;

costs of acquiring reference comparator materials and manufacturing nonclinical study and clinical trial supplies and other materials from contract manufacturing organizations, or CMOs, and related costs associated with release and stability testing; and

costs associated with process development activities.
 
Internal research and development costs are associated with activities performed by our research and development organization and are not tracked on a project-by-project basis. Internal costs consist primarily of:


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personnel-related expenses, which include salaries, benefits and share-based compensation; and

facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization of leasehold improvements and equipment and laboratory and other supplies.

For our collaboration arrangements in which the parties share in collaboration expenses for products under the arrangement (cost sharing arrangements), we concluded that when there is a period during the collaboration arrangement during which we are owed payment from the collaborator, we record the reimbursement by the collaborator for its share of the development effort as a reduction of research and development expense. Amounts owed to the collaborator are recorded as incremental research and development expense.

Research and development expense for the three months ended September 30, 2017 was $37.9 million , compared with $31.6 million for the three months ended September 30, 2016 . The increase of $6.3 million , or 20% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 was primarily due to $12.4 million in increased spending on M923, as the program was transitioned back to us effective December 31, 2016 in connection with the termination of the Baxalta Collaboration Agreement, partially offset by a $3.4 million reduction in spend on our necuparanib program, which we discontinued in August 2016, and a $2.6 million reduction in spend on M230 as those costs are now shared with CSL.
 
The lengthy process of securing FDA approval for generics, biosimilars and new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate when, if ever, our product candidates will generate revenues and cash flows.
 
The following table sets forth, in thousands, the primary components of our research and development external expenditures, including the amortization of our intangible asset, for each of our principal development programs by product area for the three months ended September 30, 2017 and 2016 , and from project inception to September 30, 2017 . The figures in the table include project expenditures incurred by us and reimbursed by our collaborators, but exclude project expenditures incurred by our collaborators. Although we track and accumulate personnel effort by percentage of time spent on our programs, a significant portion of our internal research and development costs, including salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies are not directly charged to programs. Therefore, our methods for accounting for internal research and development costs preclude us from reporting these costs on a project-by-project basis.
 
 
Phase of Development as of
 
Three Months Ended September 30,
 
Project 
Inception to 
 
September 30, 2017
 
2017
 
2016
 
September 30, 2017
External Costs Incurred by Product Area:
 
 
 

 
 

 
 

Complex Generics(1)
ANDAs filed(2)
 
$
443

 
$
349

 
$
107,987

Biosimilars
Various(3)
 
14,581

 
2,413

 
154,811

Novel Therapeutics
Various(4)
 
2,995

 
9,663

 
102,371

Internal Costs
 
 
19,895

 
19,143

 
 

Total Research and Development Expenses
 
 
$
37,914

 
$
31,568

 
 
 
(1)
Includes external costs for GLATOPA and Enoxaparin Sodium Injection.

(2)
In July 2010, the first ANDA for Enoxaparin Sodium Injection was approved by the FDA, and Sandoz launched the product. In April 2015, the FDA approved the ANDA for once-daily GLATOPA 20 mg/mL. Sandoz launched GLATOPA 20 mg/mL in June 2015. The ANDA for GLATOPA 40 mg/mL is under FDA review. For more information on GLATOPA 40 mg/mL, see " —Overview—Complex Generics—GLATOPA ® 40 mg/mL—Generic Three-times-weekly COPAXONE ® (glatiramer acetate injection) 40 mg/mL. "
 
(3)
Biosimilars include M923, a biosimilar candidate of HUMIRA ® (adalimumab), M834, a biosimilar candidate of ORENCIA ® (abatacept), as well as five other biosimilar candidates, including our undisclosed biosimilar candidate, M710. In April 2016, enrollment in the pivotal clinical trial for M923 was completed and in November 2016, following an interim analysis, we announced top-line Phase III results including that M923 met its primary endpoint in

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the study. We completed a Phase 1 clinical trial of M834. Our other biosimilar candidates are in the discovery and process development phase. As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, we offset approximately $6.6 million and $7.7 million against research and development costs during the three months ended September 30, 2017 and 2016 , respectively.

(4)
Our novel therapeutic programs include M281, for which the multiple ascending dose portion of a Phase 1 study was initiated in January 2017; M230, which our licensee, CSL, has informed us that it plans to advance with a goal of beginning clinical development in late 2017 , subject to regulatory feedback; M254, which is currently in preclinical development and for which we are planning to initiate an IND-enabling toxicology study in 2017 ; costs related to our necuparanib program, which was discontinued in August 2016; as well as other discovery and nonclinical stage programs.

External expenditures for complex generics increased by $0.1 million , or 27% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 as we continue to support our complex generics. External expenditures for our biosimilars programs increased by $12.2 million , or 504%, from the three months ended September 30, 2016 to the three months ended September 30, 2017 driven primarily by our assuming responsibility for development and commercialization of M923 effective December 31, 2016 . External costs of our novel therapeutic programs decreased by $6.7 million , or 69% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 , driven primarily by a $3.4 million reduction in spend on our necuparanib program, which we discontinued in August 2016, and a $2.6 million reduction in spend on M230 as those costs are now shared with CSL. Finally, internal costs were consistent period over period.
 
Due to the variability in the length of time necessary to develop a product candidate, the uncertainties related to the estimated cost of the projects and ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate cost to bring our product candidates to market are not available.
 
General and Administrative Expense
 
General and administrative expenses consist primarily of salaries and other related costs for personnel in general and administrative functions, professional fees for legal and accounting services, royalty and license fees, insurance costs, and rent, facility and lab supplies, and depreciation expense.
 
For our collaboration arrangements in which the parties share in collaboration expenses for products under the arrangement (cost sharing arrangements), we concluded that when there is a period during the collaboration arrangement during which we are owed payment from the collaborator, we record the reimbursement by the collaborator for its share of the development effort as a reduction of general and administrative expense. Amounts owed to the collaborator are recorded as incremental general and administrative expense.
 
General and administrative expense for the three months ended September 30, 2017 was $20.7 million , compared with $15.8 million for the three months ended September 30, 2016 . The increase of $4.9 million , or 31% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 was primarily driven by approximately $3.3 million in legal fees relating to our ongoing litigation and $0.8 million in personnel-related expenses driven by increased headcount and higher share-based compensation expense.
 
We expect our general and administrative expenses, including internal and external legal and business development costs that support our various product development efforts, to vary from period to period in relation to our commercial and development activities.
 
Other Income, Net
 
Other income, net, primarily includes interest income. Interest income was $1.3 million and $0.6 million for the three months ended September 30, 2017 and 2016 , respectively. The increase of $0.7 million , or 117% , from the three months ended September 30, 2016 to the three months ended September 30, 2017 was caused by higher average investment balances due to funds raised under the 2015 ATM Agreement in 2017 .

Comparison of Nine Months Ended September 30, 2017 and 2016
 
Product Revenue

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GLATOPA 20 mg/mL—Generic Once-daily COPAXONE 20 mg/mL

For the nine months ended September 30, 2017 , we recorded $53.4 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL, reflecting $54.5 million in profit share net of a deduction of $1.1 million for reimbursement to Sandoz of 50% of GLATOPA-related legal expenses incurred by Sandoz. For the nine months ended September 30, 2016 , we recorded $58.8 million in product revenues from Sandoz’ sales of GLATOPA 20 mg/mL. The decrease in product revenues of $5.4 million , or 9% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 was primarily due to the deduction of the $10 million commercial milestone we earned on July 1, 2017 from net profit prior to calculating our 50% contractual share of profits, which Sandoz was entitled to offset against future product revenues payable to us under the terms of the 2006 Sandoz Collaboration Agreement; lower net sales from inventory price adjustments relating to Mylan N.V.'s entry into the COPAXONE market; higher Medicaid deductions in the third quarter of 2017 ; and reimbursement of legal expenses relating to GLATOPA.
 
Research and Development Revenue
 
Research and development revenue was $20.8 million and $16.6 million for the nine months ended September 30, 2017 and 2016 , respectively. The increase in research and development revenue of $4.2 million , or 25% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 was primarily due to a $10 million commercial milestone payment we earned on July 1, 2017 in connection with GLATOPA 20 mg/mL's being the sole FDA-approved generic of COPAXONE when earned and achieving a certain level of contractually defined profits in the United States as of June 30, 2017, which was partially offset by a decrease in revenue due to the termination of the Baxalta Collaboration Agreement, effective December 31, 2016 , under which we were previously reimbursed for M923 FTE and external costs and for which we recognized a portion of Baxalta's initial upfront payment in the nine months ended September 30, 2016 , which were non-recurring in the same period in 2017 .
 
Research and Development Expense
 
Research and development expense for the nine months ended September 30, 2017 was $113.1 million , compared with $93.5 million for the nine months ended September 30, 2016 . The increase of $19.6 million , or 21% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 was primarily due to $32.8 million in increased spending on M923, as the program was transitioned back to us effective December 31, 2016 in connection with the termination of the Baxalta Collaboration Agreement, partially offset by a $8.7 million reduction in spend on our necuparanib program, which we discontinued in August 2016, and a $4.5 million reduction in spend on M230 as those costs are now shared with CSL.

The following table sets forth, in thousands, the primary components of our research and development external expenditures, including the amortization of our intangible asset, for each of our principal development programs by product area for the nine months ended September 30, 2017 and 2016 , and from project inception to September 30, 2017 . The figures in the table include project expenditures incurred by us and reimbursed by our collaborators, but exclude project expenditures incurred by our collaborators. Although we track and accumulate personnel effort by percentage of time spent on our programs, a significant portion of our internal research and development costs, including salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies are not directly charged to programs. Therefore, our methods for accounting for internal research and development costs preclude us from reporting these costs on a project-by-project basis.
 
 
Phase of Development as of
 
Nine Months Ended September 30,
 
Project 
Inception to 
 
September 30, 2017
 
2017
 
2016
 
September 30, 2017
External Costs Incurred by Product Area:
 
 
 

 
 

 
 

Complex Generics(1)
ANDAs filed(2)
 
$
3,533

 
$
1,643

 
$
107,987

Biosimilars
Various(3)
 
41,091

 
8,625

 
154,811

Novel Therapeutics
Various(4)
 
9,106

 
24,816

 
102,371

Internal Costs
 
 
59,348

 
58,414

 
 

Total Research and Development Expenses
 
 
$
113,078

 
$
93,498

 
 
 
(1)
Includes external costs for GLATOPA and Enoxaparin Sodium Injection.


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(2)
In July 2010, the first ANDA for Enoxaparin Sodium Injection was approved by the FDA, and Sandoz launched the product. In April 2015, the FDA approved the ANDA for once-daily GLATOPA 20 mg/mL. Sandoz launched GLATOPA 20 mg/mL in June 2015. The ANDA for GLATOPA 40 mg/mL is under FDA review. For more information on GLATOPA 40 mg/mL, see " —Overview—Complex Generics—GLATOPA ® 40 mg/mL—Generic Three-times-weekly COPAXONE ® (glatiramer acetate injection) 40 mg/mL. "
 
(3)
Biosimilars include M923, a biosimilar candidate of HUMIRA ® (adalimumab), M834, a biosimilar candidate of ORENCIA ® (abatacept), as well as five other biosimilar candidates, including our undisclosed biosimilar candidate, M710. In April 2016, enrollment in the pivotal clinical trial for M923 was completed and in November 2016, following an interim analysis, we announced top-line Phase III results including that M923 met its primary endpoint in the study. We completed a Phase 1 clinical trial of M834. Our other biosimilar candidates are in the discovery and process development phase. As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, we offset approximately $18.9 million and $19.8 million against research and development costs during the nine months ended September 30, 2017 and 2016 , respectively.

(4)
Our novel therapeutic programs include M281, for which the multiple ascending dose portion of a Phase 1 study was initiated in January 2017; M230, which our licensee, CSL, has informed us that it plans to advance with a goal of beginning clinical development in 2017 , subject to regulatory feedback; M254, which is currently in preclinical development and for which we are planning to initiate an IND-enabling toxicology study in 2017 ; costs related to our necuparanib program, which was discontinued in August 2016; as well as other discovery and nonclinical stage programs.

External expenditures for complex generics increased by $1.9 million , or 115% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 as we continue to support our complex generics. External expenditures for our biosimilars programs increased by $32.5 million , or 376% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 driven by our assuming responsibility for development and commercialization of M923 effective December 31, 2016 . External costs of our novel therapeutic programs decreased by $15.7 million , or 63% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 , primarily driven by a $8.7 million reduction in spend on our necuparanib program, which we discontinued in August 2016, and a $4.5 million reduction in spend on M230 as those costs are now shared with CSL. Finally, internal costs were consistent period over period.
  
General and Administrative Expense
 
General and administrative expense for the nine months ended September 30, 2017 was $66.4 million , compared with $46.3 million for the nine months ended September 30, 2016 . The increase of $20.1 million , or 43% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 was driven by approximately $14.9 million of legal costs primarily relating to our ongoing litigation and $4.0 million in personnel-related expenses driven by increased headcount and higher share-based compensation expense.
 
Other Income, Net
 
Other income, net, primarily includes interest income. Interest income was $3.2 million and $1.6 million for the nine months ended September 30, 2017 and 2016 , respectively. The increase of $1.6 million , or 100% , from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 was caused by higher average investment balances due to funds raised under the 2015 ATM Agreement in 2017 .

Liquidity and Capital Resources
 
At September 30, 2017 , we had $423.1 million in cash, cash equivalents and marketable securities and $14.3 million in collaboration receivables, which includes $10.9 million in profit share from Sandoz' sales of GLATOPA 20 mg/mL. In addition, we also held $23.0 million in restricted cash, of which $17.5 million serves as collateral for a $35 million security bond posted in the litigation against Amphastar.

We have funded our operations to date primarily through the sale of equity securities and payments received under our collaboration and license agreements, including contractual profits from Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL, upfront and milestone payments, and reimbursement of research and development services and reimbursement of development costs. We expect to fund our planned operating and expenditure requirements through a combination of current cash, cash equivalents and marketable securities; equity financings; and milestone payments and

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contractual profits under existing collaboration agreements. We may also seek funding from new collaborations and strategic alliances, debt financings and other financial arrangements. Future funding transactions may or may not be similar to our prior funding transactions. There can be no assurance that future funding transactions will be available on favorable terms, or at all. We currently believe that our current capital resources, projected milestone payments and contractual profits will be sufficient to meet our operating requirements through at least the end of 2018 .

Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate precisely our future operating and expenditure requirements. For information regarding certain important factors that could impact our financial position or future results of operations, please see “ Part II., Item IA. Risk Factors of this Quarterly Report on Form 10-Q.

Cash, Cash Equivalents and Marketable Securities

Our funds at September 30, 2017 were primarily invested in commercial paper, overnight repurchase agreements, asset-backed securities, corporate debt securities and United States money market funds, directly or through managed funds, with remaining maturities of 12 months or less. Our cash is deposited in and invested through highly rated financial institutions in North America. The composition and mix of cash, cash equivalents and marketable securities may change frequently as a result of our evaluation of conditions in the financial markets, the maturity of specific investments, and our near term liquidity needs. We do not believe that our cash equivalents and marketable securities were subject to significant market risk at September 30, 2017 .

Cash Flows  
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
(in thousands)
Net cash provided by (used in) operating activities
 
$
7,853

 
$
(36,155
)
Net cash (used in) provided by investing activities
 
$
(59,327
)
 
$
80,820

Net cash provided by financing activities
 
$
73,574

 
$
153

Net increase in cash and cash equivalents
 
$
22,100

 
$
44,818

 
Cash provided by (used in) operating activities
 
The cash provided by or used in operating activities generally approximates our net loss adjusted for non-cash items and changes in operating assets and liabilities.
 
Cash provided by operating activities was $7.9 million for the nine months ended September 30, 2017 reflecting a net loss of $101.9 million , which was partially offset by non-cash charges of $5.6 million for depreciation and amortization of property, equipment and intangible assets and $16.3 million in shared-based compensation.  The net change in our operating assets and liabilities provided cash of $87.6 million and primarily resulted from: the receipt of $50 million from CSL under the CSL License Agreement, which is included in deferred revenue at September 30, 2017 ; a one-time cash payment of $51.2 million in connection with the termination of the Baxalta Collaboration Agreement, which was included in collaboration receivable at December 31, 2016 ; and an increase in accounts payable of $8.1 million due to timing of vendor payments, partially offset by the change in collaboration advance of $19.0 million, the majority of which represents Mylan's 50% share of certain collaboration expenses under the cost-sharing provisions of the Mylan Collaboration Agreement.

Cash used in operating activities was $36.2 million for the nine months ended September 30, 2016 reflecting a net loss of $62.5 million , which was partially offset by non-cash charges of $7.0 million for depreciation and amortization of property, equipment and intangible assets, $14.8 million in shared-based compensation and $0.5 million for amortization of purchased premiums on our marketable securities. The net change in our operating assets and liabilities provided cash of $4.1 million and primarily resulted from the receipt of $45 million from Mylan under the Mylan Collaboration Agreement, partially offset by amortization of collaboration upfront payments and an increase in collaboration receivable of $24.6 million, the majority of which represents Mylan's 50% share of collaboration expenses under the cost-sharing arrangement.  

Cash (used in) provided by investing activities
 

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Cash used in investing activities of $59.3 million for the nine months ended September 30, 2017 includes cash outflows of $366.3 million for purchases of marketable securities and $11.2 million for capital equipment and leasehold improvements, partially offset by cash inflows of $318.2 million from maturities of marketable securities.

Cash provided by investing activities of $80.8 million for the nine months ended September 30, 2016 includes cash inflows of $350.5 million from maturities of marketable securities, partially offset by cash outflows of $264.9 million for purchases of marketable securities and $4.8 million for capital equipment and leasehold improvements.
 
Cash provided by financing activities
 
Cash provided by financing activities of $73.6 million for the nine months ended September 30, 2017 includes $64.1 million of net proceeds from shares sold under the 2015 ATM Agreement and $9.5 million in proceeds from stock option exercises and purchases of shares of our common stock through our employee stock purchase plan.

Cash provided by financing activities of $0.2 million for the nine months ended September 30, 2016 consists of $1.2 million in proceeds from stock option exercises and purchases of shares of our common stock through our employee stock purchase plan partially offset by $1.0 million of cash paid to tax authorities in connection with the vesting of employee performance-based restricted stock.
 
Contractual Obligations
 
Our major outstanding contractual obligations primarily relate operating lease obligations and purchase obligations. As discussed in Note 6 " Commitments and Contingencies ", in July 2017, we amended our lease agreement with BMR-Rogers Street LLC, and a result, rental payments for the Bent Premises will increase by $7.4 million over the remaining term of the lease, and rental payments for the Fourth Floor Binney Premises will be $43.7 million over the term of the lease. All other disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2016 , filed with the Securities and Exchange Commission on February 24, 2017, have not materially changed since we filed that report.
 
Critical Accounting Policies and Estimates
 
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value 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 that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
 
Please refer to the significant accounting policies described in " Part II., Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations " of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 24, 2017.
 
Please refer to Revenue Recognition within Note 2 “ Summary of Significant Accounting Policies ” in Part II., Item 8. of our Annual Report on Form 10-K for the year ended December 31, 2016 for our discussion of our revenue recognition policy for our multiple element arrangements.
 
New Accounting Standards
 
Please refer to Note 2 “ Summary of Significant Accounting Policies ” to the accompanying unaudited condensed consolidated financial statements for a discussion of new accounting standards.
 
Item 3.    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 United States money market, government-secured, and high-grade corporate

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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, low prevailing market rates 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 September 30, 2017 , 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.

Item 4.    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 defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of September 30, 2017 . Our 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 September 30, 2017 , our disclosure controls and procedures were effective at the reasonable assurance level.
 
There was no change in our internal control over financial reporting during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
Item 1.    LEGAL PROCEEDINGS
 
GLATOPA 40 mg/mL-Related Proceedings
 
On September 10, 2014, Teva and Yeda filed a suit against us and Sandoz Inc. in the United States District Court for the District of Delaware in response to the filing by Sandoz Inc. of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL. The suit initially alleged infringement related to two Orange Book-listed patents for COPAXONE 40 mg/mL, each expiring in 2030, and sought declaratory and injunctive relief prohibiting the launch of our product until the last to expire of these patents. In April 2015, Teva and Yeda filed an additional suit against us and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a third Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in March 2015 and expires in 2030. In May 2015, this suit was consolidated with the initial suit that was filed in September 2014. In November 2015, Teva and Yeda filed a suit against us and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a fourth Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in October 2015 and expires in 2030. In December 2015, this suit was also consolidated with the initial suit that was filed in September 2014. Teva and Yeda seek declaratory and injunctive relief prohibiting the launch of GLATOPA 40 mg/mL until the expiration of the patents at issue. On January 30, 2017, the District Court found the four patents to be invalid due to obviousness. In February 2017, Teva and Yeda appealed the District Court's January 30, 2017 decision to the U.S. Court of Appeals for the Federal Circuit. Briefing was completed in the third quarter of 2017, and a decision is pending oral argument.

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

On January 31, 2017, Teva filed a suit against us and Sandoz Inc. in the United States District Court for the District of New Jersey alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775, which issued in October 2015 and expires in October 2035. We and Sandoz Inc. filed a motion to dismiss and a motion to transfer the suit to the United States District Court for the District of Delaware. On January 31, 2017, Teva voluntarily dismissed us from the New Jersey suit for U.S. Patent No. 9,155,775, maintaining the suit against Sandoz Inc. On May 23, 2017, the United States District Court for the District of New Jersey granted the motion to transfer the suit to the United States District Court for the District of Delaware. A claim construction hearing is scheduled for November 2, 2017.

On February 2, 2017, we filed a complaint in the United States District Court for the District of Delaware seeking a declaration that U.S. Patent No. 9,155,775 is invalid, not infringed or not enforceable against us. In March 2017, Teva filed a motion, which is currently pending, to stay further proceedings in the Delaware action.
 
M834-Related Proceedings
 
On July 2, 2015, we filed a petition for Inter Partes Review, or IPR, with the PTAB to challenge the validity of U.S. Patent No. 8,476,239, a patent for ORENCIA owned by Bristol-Myers Squibb, or BMS. The PTAB issued a decision instituting the IPR proceedings in January 2016, and BMS filed for a rehearing by the full PTAB. Oral arguments took place in September 2016. On December 22, 2016, the PTAB issued a decision upholding the validity of the patent. We filed a notice of appeal in the U.S. Court of Appeals for the Federal Circuit, or the CAFC, on February 22, 2017. BMS filed a motion to dismiss our appeal in the Federal Circuit on March 29, 2017, which the Federal Circuit denied on June 19, 2017, stating that the standing issue raised in BMS's motion to dismiss should be addressed in the parties' appeal briefs. On June 29, 2017, the Federal Circuit ordered an expedited briefing schedule proposed by us, noting that oral argument will be scheduled once briefing is complete. The oral argument before the Federal Circuit is scheduled for December 5, 2017.
 
Enoxaparin Sodium Injection-Related Proceedings
 
On September 21, 2011, we and Sandoz Inc. sued Amphastar and Actavis in the United States District Court for the District of Massachusetts for patent infringement. Also in September 2011, we filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar and Actavis from selling their Enoxaparin product in the United States. In October 2011, the District Court granted our motion for a preliminary injunction and entered an order enjoining Amphastar and Actavis from advertising, offering for sale or selling their Enoxaparin product in the United States until the conclusion of a trial on the merits and required us and Sandoz Inc. to post a security bond of $100 million in connection with the litigation. Amphastar and Actavis appealed the decision to the CAFC and in January 2012, the CAFC stayed the preliminary injunction.

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In August 2012, the CAFC vacated the preliminary injunction and remanded the case to the District Court. In September 2012, we filed a petition with the CAFC for rehearing by the full court en banc , which was denied. In February 2013, we filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied in June 2013.
 
In July 2013, the District Court granted a motion by Amphastar and Actavis for summary judgment. We filed a notice of appeal of that decision to the CAFC. In February 2014, Amphastar filed a motion to the CAFC for summary affirmance of the District Court ruling, which the CAFC denied in May 2014. On November 10, 2015, the CAFC affirmed the District Court summary judgment decision with respect to Actavis, reversed the District Court summary judgment decision with respect to Amphastar, and remanded the case against Amphastar to the District Court. On January 11, 2016, Amphastar filed a petition for rehearing by the CAFC, which was denied on February 17, 2016. On May 17, 2016, Amphastar filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied on October 3, 2016. In April 2017, we, Sandoz Inc. and Actavis, or the Settling Parties, settled and signed reciprocal releases of all claims, and filed a voluntary stipulation with the District Court, pursuant to which the Settling Parties stipulated and agreed to dismiss with prejudice all claims and counterclaims among the Settling Parties, without fees or costs to any party, and with the Settling Parties waiving any and all right of appeal. The District Court trial was held in July 2017, and the jury verdict found our patent to be infringed, but invalid and unenforceable. We and Sandoz Inc. have filed post-trial motions and briefs and are considering all other available legal options to overturn the portions of the verdict finding our patent to be invalid and unenforceable, including a potential appeal to the CAFC. In the event that we are not successful in further prosecution or settlement of this action against Amphastar, and Amphastar is able to prove it suffered damages as a result of the preliminary injunction, we could be liable for damages for up to $35 million of the security bond. We posted $17.5 million as collateral for the security bond and classified the collateral as restricted cash in our consolidated balance sheet. Litigation involves many risks and uncertainties, and there is no assurance that we or Sandoz Inc. will prevail in this patent enforcement suit.
 
On September 17, 2015, Amphastar filed a complaint against us and Sandoz Inc. in the United States District Court for the Central District of California. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, we and Sandoz Inc. sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal and California anti-trust laws and California unfair business laws. Amphastar is seeking unspecified damages and fees. In December 2015, we and Sandoz Inc. filed a motion to dismiss and a motion to transfer the case. In January 2016, the case was transferred to the United States District Court for the District of Massachusetts. In February 2016, Amphastar filed a writ of mandamus with the United States Court of Appeals for the Ninth Circuit requesting that the court reverse and review the District Court’s grant of transfer, and in May 2016, the writ requested by Amphastar was denied. On July 27, 2016, our and Sandoz Inc.’s motion to dismiss was granted by the District Court, and the case was dismissed. On August 25, 2016, Amphastar filed a notice of appeal from the dismissal with the United States Court of Appeals for the First Circuit. Briefing was completed in December 2016, and oral argument was held on February 9, 2017. On March 6, 2017, the United States Court of Appeals for the First Circuit reversed the District Court’s dismissal and remanded the case to the District Court for further proceedings. On April 6, 2017, the District Court held a scheduling conference to provide dates for the remanded case, and on April 20, 2017, we and Sandoz Inc. filed our renewed motion to dismiss. Trial is scheduled for April 2019.
 
On October 14, 2015, The Hospital Authority of Metropolitan Government of Nashville and Davidson County, Tennessee, d/b/a Nashville General Hospital, or NGH, filed a class action suit against us and Sandoz Inc. in the United States District Court for the Middle District of Tennessee on behalf of certain purchasers of LOVENOX or generic Enoxaparin Sodium Injection. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, we and Sandoz Inc. sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal anti-trust laws. NGH is seeking injunctive relief, disgorgement of profits and unspecified damages and fees. In December 2015, we and Sandoz Inc. filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. On March 21, 2017, the United States District Court for the Middle District of Tennessee dismissed NGH’s claim for damages against us and Sandoz, but allowed the case to move forward, in part, for NGH’s claims for injunctive and declaratory relief. In the same opinion, the United States District Court for the Middle District of Tennessee denied our motion to transfer. On June 9, 2017, NGH filed a motion to amend its complaint to add a new named plaintiff, the American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan, or DC37. NGH and DC37 seek to assert claims for damages under the laws of more than 30 different states, on behalf of a putative class of indirect purchasers of Lovenox or generic enoxaparin. On June 30, 2017, we and Sandoz filed a brief opposing the motion to amend the complaint. The Court has not yet scheduled a hearing on the motion to amend. While the outcome of litigation is inherently uncertain, we believe this suit is without merit, and we intend to vigorously defend ourselves in this litigation.



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Item 1A.    RISK FACTORS
 
Investing in our securities involves a high degree of risk. You should carefully consider the risks, uncertainties and other important factors described below in addition to other information included or incorporated by reference in this Quarterly Report on Form 10-Q before purchasing our securities. The risks, uncertainties and other important factors described below are not the only ones we face. Additional risks, uncertainties and other important factors of which we are unaware, or that we currently believe are not material, may also affect us. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer.
 
Risks Relating to Our Business

If we or our collaborators encounter difficulties in our supply or manufacturing arrangements, including an inability by third party manufacturers to satisfy FDA quality standards and related regulatory requirements, 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 our collaborators and other third parties, including sole source suppliers, to provide raw materials meeting FDA quality standards and related regulatory requirements, manufacture the drug substance, produce the final drug product and provide certain analytical services with respect to our products and product candidates. The FDA and other regulatory authorities require that our products be manufactured according to current good manufacturing practices, or cGMP, regulations and that proper procedures are implemented to assure the quality of our sourcing of raw materials and the manufacture of our products. Any failure by us, our collaborators or our third-party manufacturers to comply with cGMP and/or scale-up 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 products previously granted to us and for other regulatory action, including product recall or seizure, fines, imposition of operating restrictions, total or partial suspension of production or injunctions. 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. For example, on February 17, 2017, we announced that Sandoz’ third party fill/finish manufacturer for GLATOPA, Pfizer Inc., received an FDA warning letter. The FDA warning letter does not restrict the production or shipment of the GLATOPA 20 mg/mL product that is currently marketed by Sandoz in the United States; however, the FDA may withhold approval of pending drug applications listing the Pfizer Inc. facility, including the ANDA for GLATOPA 40 mg/mL, until satisfactory resolution of the compliance observations in the FDA warning letter. If the FDA delays an approval of the GLATOPA 40 mg/mL until satisfactory resolution of the compliance observations in the FDA warning letter, the greater the risk to us and Sandoz of prior or contemporaneous competition from other generic versions of COPAXONE 40 mg/mL. In October 2017, Mylan N.V. announced the launch of its generic equivalent of COPAXONE 40 mg/mL. As a result, we anticipate that any revenue and profits from GLATOPA 40 mg/mL, if approved and launched, will be reduced, perhaps significantly, which could have a material adverse impact on our business, financial position and results of operations and could cause the market value of our common stock to decline. Any additional prior or contemporaneous competition from other generic versions of COPAXONE 40 mg/mL could have a further material adverse impact on our business, financial position and results of operations and could cause the market value of our common stock to decline.

In addition, any change in manufacturers, including for GLATOPA, could be costly because the commercial terms of any new arrangement could be less favorable, and the expenses and development and commercial delays relating to the transfer of necessary technology and processes could be significant. For GLATOPA 40 mg/mL, the longer the period of time that it would take for Sandoz to transfer the necessary technology and processes to a new fill/finish manufacturer, the greater the risk to us and Sandoz of prior or contemporaneous competition from other generic versions of COPAXONE 40 mg/mL, in addition to Mylan N.V.'s generic equivalent of COPAXONE 40 mg/mL.

Moreover, in order to generate revenue from the sales of Enoxaparin Sodium Injection, GLATOPA 20 mg/mL, and if approved, GLATOPA 40 mg/mL, sufficient quantities of such product must also be produced in order to satisfy demand. If these contract manufacturers and suppliers, which include sole source suppliers, are unable to manufacture sufficient quantities of product or breach or terminate their manufacturing arrangements with us or Sandoz, as applicable, the development and commercialization of the affected products or product candidates could be delayed, which could have a material adverse effect on our business.

We have relied upon third parties, including sole source suppliers, to produce material for nonclinical and clinical studies and may continue to do so in the future. We cannot be certain that we will be able to obtain and/or maintain long-term supply and supply arrangements of those materials on acceptable terms, if at all. If we are unable to arrange for third-party

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manufacturing, or to do so on commercially reasonable terms, we may not be able to complete development of our product candidates or market them.

If GLATOPA 40 mg/mL is launched following any FDA approval and prior to final resolution of product-related patent infringement litigation in our favor, we may incur significant damages.

Sandoz has the sole right to decide the timing and scope of the launch of GLATOPA 40 mg/mL following FDA approval. If Sandoz markets and sells GLATOPA 40 mg/mL following any FDA approval and prior to a final judicial resolution of product-related patent infringement litigation in our and Sandoz’ favor, we and Sandoz may be subject to claims for patent infringement damages. Damages for infringement may in some instances exceed the amount of revenue earned by the infringing product. If Sandoz launches GLATOPA 40 mg/mL prior to final resolution of any product-related patent infringement litigation and Teva subsequently succeeds in any such litigation, we and Sandoz may be liable for significant damages. Our collaboration with Sandoz provides that our fifty (50) percent share of such damages would be payable from any contractual profits due to us from sales of GLATOPA. Our payment of such damages could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

Sandoz may delay or reduce the scope of a GLATOPA 40 mg/mL launch following any FDA approval until we and Sandoz prevail in product-related patent infringement litigation or until the relevant patents expire.

Since the damages associated with a GLATOPA 40 mg/mL launch prior to final resolution of any product-related patent infringement litigation in our and Sandoz’ favor can be substantial, Sandoz may delay or reduce the scope of a GLATOPA 40 mg/mL launch following any FDA approval. A delayed launch could occur as late as final resolution of all GLATOPA 40 mg/mL-related patent infringement litigation in our and Sandoz’ favor or, if we and Sandoz are unsuccessful in such litigation, the expiration of the GLATOPA 40 mg/mL-related patents. A launch that is delayed or reduced in scope could delay or reduce any future contractual profits due to us from sales of GLATOPA 40 mg/mL, which could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

Sandoz may be prevented from marketing and selling GLATOPA 40 mg/mL following any FDA approval if Teva is successful in obtaining injunctive relief.

A court may issue a temporary or permanent injunction pending the outcome of any GLATOPA 40 mg/mL-related patent infringement litigation or as a remedy if Teva prevails in any GLATOPA 40 mg/mL-related patent infringement litigation. An injunction would prevent us and Sandoz from manufacturing and selling GLATOPA 40 mg/mL and/or prohibit the use of previously manufactured GLATOPA 40 mg/mL for commercial sale until we and Sandoz prevail in litigation or the relevant patents expire. If Teva is successful in obtaining injunctive relief for any GLATOPA 40 mg/mL-related patents, Sandoz’ ability to successfully commercialize GLATOPA 40 mg/mL would be significantly impaired, which could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

We may incur significant expenses and damages in the future in connection with allegations by Teva that we and Sandoz are infringing COPAXONE-related patents other than those at issue in the current GLATOPA 40 mg/mL-related patent infringement suits.

We and Sandoz are currently parties in patent infringement litigation in respect of all Orange Book-listed patents for COPAXONE 40 mg/mL as well as an additional COPAXONE 40 mg/mL-related patent. Teva may allege in the future that our and Sandoz’ manufacturing and sale of GLATOPA infringes COPAXONE-related patents other than those at issue in the currently pending litigation, including patents that may issue in the future. We would incur significant expenses under the terms of our collaboration with Sandoz to respond to and litigate any such claims, the outcomes of which would be uncertain. Furthermore, we may be liable for significant damages from the contractual profits of GLATOPA 20 mg/mL and, if approved and launched, GLATOPA 40 mg/mL if we and Sandoz are found to have infringed any such patents, which could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline. Moreover, litigation concerning intellectual property and proprietary technologies can be protracted and expensive and can distract management and personnel from running our business.
 
If other generic versions of the brand name drugs, or other biosimilars of the reference products, for which we have products or product candidates, including GLATOPA 20 mg/mL, GLATOPA 40 mg/mL, M923 and M834, are approved and successfully commercialized, our business would suffer.


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Pricing and market share of generic and biosimilar products may decline, often dramatically, as other generics or biosimilars of the same brand name drug or reference product, respectively, enter the market. Competing generics include brand name manufacturers’ “authorized generics” of their own brand name products. Generally, earlier-to-market generics and biosimilars are better able to gain significantly greater market share than later-to-market competing generics and biosimilars, respectively. Accordingly, revenue and profits from our generic products and, if approved, our generic and biosimilar product candidates, may be significantly reduced based on the timing and number of competing generics and biosimilars, respectively. We expect our generic products and, if approved, certain of our generic and biosimilar product candidates may face intense and increasing competition from other generics and biosimilars. For example, in October 2017, Mylan N.V. announced the launch of its generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL. We expect GLATOPA 20 mg/mL will lose market share to Mylan's generic equivalent of COPAXONE 20 mg/mL and that Sandoz may use one or more contracting strategies to remain competitive, including but not limited to lowering its GLATOPA 20 mg/mL prices or increasing the discounts or rebates it offers for GLATOPA 20 mg/mL, which could further decrease contractual profit share revenue. As a result, revenue and profits from GLATOPA 20 mg/mL and anticipated revenue and profits from GLATOPA 40 mg/mL, if approved and launched, will be significantly reduced. In addition, several other companies have submitted ANDAs to the FDA for generic versions of COPAXONE. A launch of one or more additional generic versions of COPAXONE could further reduce anticipated revenue from GLATOPA 20 mg/mL and, if approved and launched, GLATOPA 40 mg/mL. The longer the period of time that it takes us and Sandoz to receive approval of the GLATOPA 40 mg/mL ANDA, the greater the risk of additional competition from other generic versions of COPAXONE. On February 17, 2017, we announced that Sandoz’ third party fill/finish manufacturer for GLATOPA, Pfizer Inc., received an FDA warning letter. The FDA may withhold approval of pending drug applications listing the Pfizer Inc. facility, including the ANDA for GLATOPA 40 mg/mL, until satisfactory resolution of the compliance observations in the FDA warning letter.

In addition, the first biosimilar determined to be interchangeable with a particular reference product for any condition of use is eligible for a period of market exclusivity that delays an FDA determination that a second or subsequent biosimilar product is interchangeable with that reference product for any condition of use until the earlier of: (1) one year after the first commercial marketing of the first interchangeable product; (2) 18 months after resolution of a patent infringement suit instituted under 42 U.S.C. § 262(l)(6) against the applicant that submitted the application for the first interchangeable product, based on a final court decision regarding all of the patents in the litigation or dismissal of the litigation with or without prejudice; (3) 42 months after approval of the first interchangeable product, if a patent infringement suit instituted under 42 U.S.C. § 262(l)(6) against the applicant that submitted the application for the first interchangeable product is still ongoing; or (4) 18 months after approval of the first interchangeable product if the applicant that submitted the application for the first interchangeable product has not been sued under 42 U.S.C. § 262(l)(6). A determination that another company’s product is interchangeable with HUMIRA, ORENCIA or another of the reference products for which we have a biosimilar product candidate prior to approval of M923, M834 or our other applicable biosimilar product candidates may therefore delay any determination that our product is interchangeable with the reference product, which may materially adversely affect our results of operations and delay, prevent or limit our ability to generate revenue.
 
If an alternative version of a reference product, such as COPAXONE, HUMIRA or ORENCIA, is developed that has a new product profile and labeling, the alternative version of the product could significantly reduce the market share of the original reference product, and may cause a significant decline in sales or potential sales of our corresponding generic or biosimilar product.
 
Brand companies may develop alternative versions of a reference product as part of a life cycle extension strategy, and may obtain approval of the alternative version under a supplemental new drug application, for a drug, or biologics license application, for a biologic. The alternative version may offer patients added benefits such as a more convenient form of administration or dosing regimen. Should the brand company succeed in obtaining an approval of an alternative product, it may capture a significant share of the collective reference product market and significantly reduce the market for the original reference product and thereby the potential size of the market for our generic or biosimilar products. For example, prior to Mylan N.V.'s entry into the COPAXONE market, Teva’s three-times-weekly COPAXONE 40 mg/mL, which launched in early 2014, accounted for approximately 81% of the overall U.S. glatiramer acetate market (20 mg/mL and 40 mg/mL) based on volume prescribed. As a result, the market potential for GLATOPA 20 mg/mL has decreased, and may decrease further as additional patients are converted from once-daily COPAXONE 20 mg/mL or any generic equivalents to three-times-weekly COPAXONE 40 mg/mL or any generic equivalents. In addition, the alternative product may be protected by additional patent rights as well as have the benefit, in the case of drugs, of an additional three years of FDA marketing approval exclusivity, which would prohibit a generic version of the alternative product for some period of time. As a result, our business, including our financial results and our ability to fund future discovery and development programs, would suffer.
 

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If the market for a reference product, such as COPAXONE, HUMIRA or ORENCIA, significantly declines, sales or potential sales of our corresponding generic and biosimilars product and product candidates may suffer and our business would be materially impacted.

Competition in the biotechnology industry is intense. Reference products face competition on numerous fronts as technological advances are made or new products are introduced that may offer patients a more convenient form of administration, increased efficacy or improved safety profile. As new products are approved that compete with the reference product to our generic products and product candidates and our biosimilar product candidates, respectively, sales of reference products and biosimilar and generics may be significantly and adversely impacted and may render the reference products obsolete.
 
Current injectable treatments commonly used to treat multiple sclerosis, including COPAXONE, are competing with novel therapeutic products, including oral therapies. These oral therapies may offer patients a more convenient form of administration than COPAXONE and may provide increased efficacy.
 
If the market for the reference product is impacted, we in turn may lose significant market share or market potential for our generic or biosimilar products and product candidates, and the value for our generic or biosimilar pipeline could be negatively impacted. As a result, our business, including our financial results and our ability to fund future discovery and development programs, would suffer.
 
Our current and near term product revenue is dependent on the continued successful commercialization of GLATOPA 20 mg/mL and successful commercialization of GLATOPA 40 mg/mL, if approved.
 
Our near-term ability to generate GLATOPA product revenue depends, in large part, on Sandoz’ ability to continue to successfully manufacture and profitably commercialize GLATOPA 20 mg/mL, and successfully manufacture and profitably commercialize GLATOPA 40 mg/mL, if approved. On February 17, 2017, we announced that Sandoz’ third party fill/finish manufacturer for GLATOPA, Pfizer Inc., received an FDA warning letter. The FDA warning letter does not restrict the production or shipment of the GLATOPA 20 mg/mL product that is currently marketed by Sandoz in the United States; however, the FDA may withhold approval of pending drug applications listing the Pfizer Inc. facility, including the ANDA for GLATOPA 40 mg/mL, until satisfactory resolution of the compliance observations in the FDA warning letter.

Our near-term ability to generate GLATOPA product revenue also depends in large part on Sandoz' ability to maintain market share and favorable pricing levels for GLATOPA 20 mg/mL and, if approved, GLATOPA 40 mg/mL. In October 2017, Mylan N.V. announced the launch of its generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL. We expect GLATOPA 20 mg/mL will lose market share to Mylan's generic equivalent of COPAXONE 20 mg/mL and that Sandoz may use one or more contracting strategies to remain competitive, including but not limited to lowering its GLATOPA 20 mg/mL prices or increasing the discounts or rebates it offers for GLATOPA 20 mg/mL, which could further decrease contractual profit share revenue. As a result, revenue and profits from GLATOPA 20 mg/mL and anticipated revenue and profits from GLATOPA 40 mg/mL, if approved and launched, will be reduced, perhaps significantly. If other competitors receive approval to market generic versions of the 20 mg/mL or 40 mg/mL formulations of COPAXONE, our product revenue and profits would be further impacted, and as a result, our business, including our near-term financial results and our ability to utilize GLATOPA revenue to fund future discovery and development programs, may suffer. Furthermore, the market potential of GLATOPA 20 mg/mL is negatively impacted by the conversion of patients from once-daily 20 mg/mL glatiramer acetate to three-times-weekly 40 mg/mL glatiramer acetate. Prior to Mylan N.V.'s entry into the COPAXONE market, COPAXONE 40 mg/mL accounted for approximately 81% of the overall U.S. glatiramer acetate market (20 mg/mL and 40 mg/mL) based on volume prescribed; however, Mylan N.V.'s October 2017 launch of its lower cost, generic equivalent of COPAXONE 40 mg/mL may result in additional conversion of patients from 20 mg/mL glatiramer acetate to 40 mg/mL glatiramer acetate. Following any approval and launch of the GLATOPA 40 mg/mL product, our near-term ability to generate GLATOPA product revenue will depend on Sandoz' ability to compete with Teva's three-times-weekly COPAXONE 40 mg/mL product and any generic equivalents.
 
Any future Enoxaparin Sodium Injection product revenue is dependent on the successful manufacture and commercialization of Enoxaparin Sodium Injection .
 
Our near-term ability to generate Enoxaparin Sodium Injection product revenue depends, in large part, on Sandoz’ ability to manufacture and commercialize Enoxaparin Sodium Injection and compete with LOVENOX brand competition as well as authorized and other generic competition. Sandoz is facing increasing competition and pricing pressure from brand, authorized generic and other currently-approved generic competitors, which has and will continue to impact Sandoz’ net sales and profits from Enoxaparin Sodium Injection, and therefore our product revenue. Furthermore, other competitors may in the future receive approval to market generic Enoxaparin products which would further impact our product revenue, which is based on a

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fifty-percent contractual profit share. Due to these circumstances, the resulting market price for our Enoxaparin Sodium Injection product has substantially decreased and may decrease further. Sandoz did not record any profit on sales of Enoxaparin Sodium Injection in the nine months ended September 30, 2017 , and therefore we recorded no product revenue for Enoxaparin Sodium Injection in the same period. Accordingly, we do not anticipate significant Enoxaparin Sodium Injection revenue in the near term.
 
If our patent litigation against Amphastar related to Enoxaparin Sodium Injection is not successful or third parties are successful in antitrust litigation against us relating to Enoxaparin Sodium Injection, we may be liable for damages and our business may be materially harmed.
 
The District Court trial in our patent litigation against Amphastar related to Enoxaparin Sodium Injection was held in July 2017, and the jury verdict found our patent to be infringed by Amphastar, but invalid and unenforceable. We and Sandoz Inc. have filed post-trial motions and briefs and are considering all other available legal options to overturn the portions of the verdict that found our patent to be invalid and unenforceable, including a potential appeal to the CAFC. In the event that we are not successful in our continued prosecution of our suit against Amphastar, and Amphastar is able to prove it suffered damages as a result of the preliminary injunction preventing it from selling its Enoxaparin product in the United States, we could be liable for up to $35 million of the security bond for such damages. Moreover, if third parties are successful in antitrust litigation against us for asserting our Enoxaparin patent rights, they may be able to recover damages incurred as a result of enforcement of our patent rights, thereby negatively affecting our financial condition and results of operations.

If efforts by manufacturers of reference products to delay or limit the use of generics or biosimilars are successful, our sales of generic and biosimilar products may suffer.
 
Many manufacturers of branded products have increasingly used legislative, regulatory and other means to delay regulatory approval and to seek to restrict competition from manufacturers of generic drugs and biosimilars. These efforts have included:
 
settling patent lawsuits with generic or biosimilar companies, resulting in such patents remaining an obstacle for generic or biosimilar approval by others;
 
seeking to restrict biosimilar commercialization options by restricting access by biosimilar and generic applicants by litigation or legislative action to the use of inter partes patent review proceedings at the U.S. Patent Office to challenge invalid biologic patent rights;

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 FDA Commissioner to take administrative action with respect to prospective and submitted generic drug or biosimilar applications or to influence the adoption of policy with regard to the submission of biosimilar applications;

appealing denials of Citizen Petitions in United States federal district courts and seeking injunctive relief to reverse approval of generic drug or biosimilar applications;

restricting access to reference products for equivalence and biosimilarity testing that interfere with timely generic and biosimilar development plans, respectively;

conducting medical education with physicians, payers and regulators that claim that generic or biosimilar products are too complex for generic or biosimilar approval and influence potential market share;

seeking state law restrictions on the substitution of generic and biosimilar products at the pharmacy without the intervention of a physician or through other restrictive means such as excessive recordkeeping requirements or patient and physician notification;

seeking federal or state regulatory restrictions on the use of the same non-proprietary name as the reference brand product for a biosimilar or interchangeable biologic;

seeking federal reimbursement policies that do not promote adoption of biosimilars and interchangeable biologics;


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seeking changes to the United States Pharmacopeia, an industry recognized compilation of drug and biologic standards;

pursuing new patents for existing products or processes which could extend patent protection for a number of years or otherwise delay the launch of generic drugs or biosimilars; and

influencing legislatures so that they attach special regulatory exclusivity or patent extension amendments to unrelated federal legislation.
 
The FDA’s practice is to rule within 150 days on Citizen Petitions that seek to prevent approval of an ANDA if the petition was filed after the Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA. If, at the end of the 150-day period, the ANDA is not ready for approval or rejection, then the FDA has typically denied and dismissed the petition without acting on the petition. For example, Teva Neuroscience, Inc. filed eight Citizen Petitions regarding GLATOPA 20 mg/mL, all of which have been denied, dismissed or withdrawn. Teva also sought reversal of the denial of a Citizen Petition in federal court. Other third parties may also file Citizen Petitions requesting that the FDA adopt specific approval standards for generic or biosimilar products. Teva may seek to file additional Citizen Petitions pertaining to the GLATOPA 40 mg/mL ANDA or file other forms of comments to the FDA, and seek to delay or prevent the FDA approval of the GLATOPA 40 mg/mL ANDA, which could materially harm our business.
 
If these efforts to delay or block competition are successful, we may be unable to sell our generic and biosimilar products, if approved, which could have a material adverse effect on our sales and profitability.

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, biosimilars and novel therapeutics, conducting nonclinical studies, conducting clinical trials, obtaining regulatory approvals, challenging patents and 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/or research institutions.
 
We face, and will continue to face, competition with regard to our products and, if approved, our product candidates, based on many different factors, including:
 
the safety and effectiveness of our products;

with regard to our generic products and our generic and biosimilar product candidates, the differential availability of clinical data and experience and willingness of physicians, payers and formularies to rely on biosimilarity data;

the timing and scope of regulatory approvals for these products and regulatory opposition to any product approvals;

the availability and cost of manufacturing, marketing, distribution and sales capabilities;

the effectiveness of our marketing, distribution and sales capabilities;

the price of our products;

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the availability and amount of discounts, rebates and third-party reimbursement for our products; and

the strength of our patent positions.
 
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 or our collaborators are unable to establish and maintain key customer distribution arrangements, sales of our products, and therefore revenue, would be adversely impacted.
 
Drug products and biologics are sold through various channels, including retail, mail order, and to hospitals through group purchasing organizations, or GPOs. The distribution of such products is also managed by pharmacy benefit management firms, or PBMs, such as Express Scripts or CVS. These GPOs and PBMs rely on competitive bidding, discounts and rebates across their purchasing arrangements. We believe that we, in collaboration with commercial collaboration partners, will need to maintain adequate drug supplies, remain price competitive, comply with FDA regulations and provide high-quality products to establish and maintain relationships with GPOs and PBMs. The GPOs, PBMs and other customers with whom we or our collaborators have established contracts may also have relationships with our competitors and may decide to contract for or otherwise prefer products other than ours, limiting access of products to certain market segments. Our sales could also be negatively affected by any rebates, discounts or fees that are required by, or offered to, GPOs, PBMs, and customers, including wholesalers, distributors, retail chains or mail order services, to gain and retain market acceptance for our or our competitors’ products. For example, if PBMs, distributors and other customers contract with Teva for net price discounts or rebates on COPAXONE 20 mg/mL and 40 mg/mL, or with Mylan N.V. for net price discounts or rebates on its generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL, in exchange for exclusivity or preferred status for their products prior to approval and launch of GLATOPA 40 mg/mL, our opportunity to capture market share would be significantly restricted for the term of these contracts even after a launch of GLATOPA 40 mg/mL. If we or our collaborators are unable to establish and maintain competitive distribution arrangements with all of these customers, sales of our products, our revenue and our profits would suffer.
 
Even if we receive approval to market our product candidates, the market may not be receptive to our product candidates upon their commercial introduction, which could adversely affect our ability to generate sufficient revenue from product sales to maintain or grow our business.
 
Even if our product candidates are successfully developed and approved for marketing, our success and growth will also depend upon the acceptance of our products by patients, physicians and third-party payers. Acceptance of our products will be a function of our products being clinically useful, being cost effective and demonstrating sameness, in the case of our generic product candidate, and biosimilarity or interchangeability, in the case of our biosimilar product candidates, 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 product 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 landscape for our products, including but not limited to competitive pricing of our products;

physician confidence in the safety and efficacy of complex generic products or biosimilars;

the absence of, or limited clinical data available from, sameness testing of our complex generic products and biosimilarity or interchangeability testing of our biosimilar products;

the success and extent of our physician education and marketing programs;

the clinical, medical affairs, sales, distribution and marketing efforts of competitors; and


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the availability and amount of government and third-party payer reimbursement.
 
If our products do not achieve market acceptance, we will not be able to generate sufficient revenue from product sales to maintain or grow our business.
 
If we are not able to retain our current management team or attract and retain qualified scientific, technical and business personnel, our business will suffer.
 
We are dependent on the members of our 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 key person 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, 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. Another component of retention is the intrinsic value of equity awards, including stock options. Stock options granted to our executives and employees may be under pressure given the volatility of our stock performance and at such times may not always provide a retentive effect. If we lose key members of our management team, or are unable to attract and retain qualified personnel, our business could be negatively affected.

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 approved indications for which they may be used. We cannot be sure that the product liability insurance coverage we maintain 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.
 
Our business and operations would suffer in the event of system failures or security breaches.
 
Our operations rely on the secure processing, storage and transmission of confidential and other information in our and our third party contractors' computer systems and networks. Our internal computer systems are vulnerable to breakdown or breach, including as a result of computer viruses, security breaches by individuals with authorized access, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. The increased use of mobile and cloud technologies can heighten these and other operational risks. Moreover, systems breaches are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. Any breakdown or breach by employees or others may pose a risk that sensitive data, including clinical trial data, intellectual property, trade secrets or personal information belonging to us, our patients or our collaborators may be exposed to unauthorized persons or to the public. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture and commercialize our products and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, the further development and commercialization of our products and product candidates could be delayed, we could suffer reputational harm, we could be subject to regulatory action, and the trading price of our common stock could be adversely affected. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to breakdown or breach of our computer systems and other related breaches.
 
As we continue to evolve from a company primarily involved in discovery and development of pharmaceutical products into one that is also involved in the development and commercialization of multiple pharmaceutical products, we may have difficulty managing our growth and expanding our operations successfully.
 

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As we advance an increasing number of product candidates through the development process, we will need to expand our development, regulatory, manufacturing, quality, distribution, 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 collaborators, suppliers and other organizations.
 
In addition, our ability to manage our operations and growth requires us to continue to improve our operational, financial and management controls, reporting systems and procedures. For example, some jurisdictions, such as the District of Columbia, have imposed licensing requirements for sales representatives. In addition, the District of Columbia and the Commonwealth of Massachusetts, as well as the federal government, by way of the Sunshine Act provisions of the Patient Protection and Affordable Care Act of 2010, have established reporting requirements that would require public reporting of consulting and research fees to health care professionals. Because the reporting requirements vary in each jurisdiction, compliance can be complex and expensive and may create barriers to entering the commercialization phase. The need to build new systems as part of our 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. Such requirements may also impact our opportunities to collaborate with physicians at academic research centers as new restrictions on academic-industry relationships are put in place. In the past, collaborations between academia and industry have led to important new innovations, but the new laws may have an effect on these activities. While we cannot predict whether any legislative or regulatory changes will have negative or positive effects, they could have a material adverse effect on our business, financial condition and potential profitability.
 
We may incur costs and allocate resources to identify and develop additional product candidates or acquire or make investments in companies or technologies without realizing any benefit, which could have an adverse effect on our business, results of operations and financial condition or cash flows.
 
Along with continuing to progress our current product candidates, the long-term success of our business also depends on our ability to successfully identify, develop and commercialize additional product candidates. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs and product candidates that ultimately prove to be unsuccessful.
 
In addition, we may 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 does 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 products;

we may face product liability risks associated with the sale of the acquired company’s products;

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.
 

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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.
 
If we fail to maintain appropriate internal controls in the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business.
 
Our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors’ audit of that assessment requires the commitment of significant financial and managerial resources.
 
Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002, as amended. This could result in a restatement of our financial statements, the imposition of sanctions, including the inability of registered broker dealers to make a market in our stock, or investigation by regulatory authorities. Any such action or other negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory requirements or by disclosure of an accounting, reporting or control issue could adversely affect the trading price of our stock and our business.

Risks Relating to Our Financial Position and Need for Additional Capital

We have incurred a cumulative loss since inception. If we do not generate significant revenue, we may not return to profitability.
 
We have incurred significant losses since our inception in May 2001. At September 30, 2017 , our accumulated deficit was $576 million . We may incur annual operating losses over the next several years as we expand our product development, commercialization and discovery efforts. In addition, we must successfully develop and obtain regulatory approval for our product candidates, and effectively manufacture, market and sell any products we successfully develop. Accordingly, we may not generate significant revenue in the longer term and, even if we do generate significant revenue, we may never achieve long-term profitability.
 
To be profitable, we and our collaborators must succeed in developing and commercializing products with significant market potential. This will require us and our collaborators to be successful in a range of challenging activities: developing product candidates; obtaining regulatory approval for product candidates through either existing or new regulatory approval pathways; clearing allegedly infringing patent rights; enforcing our patent rights; and manufacturing, distributing, marketing and selling products. Our potential profitability will also be adversely impacted by the entry of competitive products and, if so, the degree of the impact could be affected by whether the entry is before or after the launch of our products. We may never succeed in these activities and may never generate revenues that are significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, discover or develop other therapeutic candidates or continue our operations. A decline in the value of our company could cause our shareholders to lose all or part of their investment.

We will require substantial funds and may require additional capital to execute our business plan and, if additional capital is not available, we may need to delay, limit or cease our product development efforts or other operations. If we are unable to fund our obligations under our collaboration and license agreements, we may breach those agreements and our collaboration partners could terminate those agreements.
 
As of September 30, 2017 , we had cash, cash equivalents and marketable securities totaling approximately $423.1 million . For the quarter ended September 30, 2017 , we had a net loss of $33.2 million and our operations provided cash of $7.9 million . We will continue to require substantial funds to conduct research and development, process development, manufacturing, nonclinical testing and clinical trials of our product candidates, as well as funds necessary to manufacture and market products that are approved for commercial sale. Because successful development and commercialization of our product

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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 will depend on many factors, including but not limited to:
 
the level of sales of GLATOPA 20 mg/mL;

the successful commercialization of GLATOPA 40 mg/mL and our other product candidates;
 
the impact of prior or contemporaneous competition on our products and product candidates, such as Mylan N.V.'s generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL on GLATOPA 20 mg/mL and, if approved and launched, GLATOPA 40 mg/mL;

the cost of advancing our product candidates and funding our development programs, including the costs of nonclinical and clinical studies, obtaining reference product for nonclinical and clinical studies, manufacturing nonclinical and clinical supply material, and obtaining regulatory approvals;

the receipt of contingent milestone payments under our Mylan Collaboration Agreement;

the receipt of milestone payments under our CSL License Agreement;

the continuation without disruption of development and manufacturing activities of M923 following Baxalta’s termination of the Baxalta Collaboration Agreement, which was effective on December 31, 2016;

the timing of FDA approval of the products of our competitors;

the cost of litigation, including with Amphastar relating to Enoxaparin Sodium Injection, that is not otherwise covered by our collaboration agreements, or potential patent litigation with others, as well as any damages, including possibly treble damages, that may be owed to third parties should we be unsuccessful in such litigation;

the ability to enter into additional strategic alliances for our non-partnered programs, such as M923, as well as the terms and timing of any milestone, royalty or profit share payments thereunder;

whether we opt out of the cost-and-profit sharing arrangement under the CSL License Agreement;

the continued progress in our research and development programs, including completion of our nonclinical studies and clinical trials;

the cost of acquiring and/or in-licensing other technologies, products or assets; and

the cost of manufacturing, marketing and sales activities, if any.
 
We expect to finance and manage our planned operating and capital expenditure requirements principally through our current cash, cash equivalents and marketable securities, capital raised through our collaboration and license agreements and equity financings, contingent milestone payments, and milestone payments and product revenues under existing collaboration and license agreements. We believe that these funds will be sufficient to meet our operating requirements through at least the end of 2018. We may seek additional funding in the future through third-party collaborations and licensing arrangements, public or private debt financings or from other sources. Additional funds may not be available to us on acceptable terms or at all. 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 may not be able to fund our obligations under one or more of our collaboration and license agreements, which could enable one or more of our collaborators to terminate their agreements with us, and therefore harm our business, financial condition and results of operations.

Raising additional capital by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights.

We may seek to raise the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and collaboration and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of such securities may

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include liquidation or other preferences that adversely affect our stockholders’ rights or, in the case of debt securities, require us to pay interest that would reduce our cash flows from operations or comply with certain covenants that could restrict our operations. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

Risks Relating to Development and Regulatory Approval
 
The future success of our business is significantly dependent on the success of our GLATOPA 40 mg/mL product candidate. If we are not able to obtain regulatory approval for the commercial sale of our GLATOPA 40 mg/mL product candidate, 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 GLATOPA 40 mg/mL. Our application for GLATOPA 40 mg/mL has been under review with the FDA since February 2014. To receive approval, we will be required to demonstrate to the satisfaction of the FDA, among other things, that GLATOPA 40 mg/mL:

contains the same active ingredients as COPAXONE 40 mg/mL;

is of the same dosage form, strength and route of administration as COPAXONE 40 mg/mL, and has the same labeling as the approved labeling for COPAXONE 40 mg/mL, with certain exceptions; and

meets compendia or other applicable standards for strength, quality, purity and identity, including potency.
 
In addition, approval of a generic product generally requires demonstrating that the generic drug is bioequivalent to the reference listed drug upon which it is based, meaning that there are no significant differences with respect to the rate and extent to which the active ingredients are absorbed and become available at the site of drug action. However, the FDA may or may not waive the requirements for certain bioequivalence data (including clinical data) for certain drug products, including injectable solutions that have been shown to contain the same active and inactive ingredients in the same concentration as the reference listed drug.
 
Determination of therapeutic equivalence of GLATOPA 40 mg/mL to COPAXONE 40 mg/mL will be based, in part, on our demonstration of the chemical equivalence of our version to its respective reference listed drugs. The FDA may not agree that we have adequately characterized GLATOPA 40 mg/mL or that GLATOPA 40 mg/mL and COPAXONE 40 mg/mL are chemical equivalents. In that case, the FDA may require additional information, including nonclinical or clinical trial results, to determine therapeutic equivalence or to confirm that any inactive ingredients or impurities do not compromise the product’s safety and efficacy. Provision of sufficient information for approval may be difficult, expensive and lengthy. We cannot predict whether GLATOPA 40 mg/mL will receive FDA approval as therapeutically equivalent to COPAXONE 40 mg/mL.
 
In the event that the FDA modifies its current standards for therapeutic equivalence with respect to generic versions of COPAXONE 40 mg/mL, or requires us to conduct clinical trials or complete other lengthy procedures, the commercialization of GLATOPA 40 mg/mL could be delayed or prevented or become more expensive. Regulatory approval of this or any other product may also be significantly delayed where manufacturing inspections are pending or have unresolved pending compliance issues. Delays in any part of the process or our inability to obtain regulatory approval for GLATOPA 40 mg/mL could adversely affect our operating results by restricting or significantly delaying our introduction of GLATOPA 40 mg/mL.

Moreover, on February 17, 2017, we announced that Sandoz’ third party fill/finish manufacturer for GLATOPA, Pfizer Inc., received an FDA warning letter. The FDA is withholding approval of the ANDA for GLATOPA 40 mg/mL, until satisfactory resolution of the compliance observations in the FDA's warning letter to Pfizer Inc.
 
Although the BPCI Act establishes a regulatory pathway for the approval by the FDA of biosimilars, the standards for determining biosimilarity and interchangeability for biosimilars are only just being implemented by the FDA under recently developed and developing guidance. Therefore, substantial uncertainty remains about the potential value of our scientific approach and regulatory strategy for biosimilar development.
 
The regulatory climate in the United States for biosimilar versions of biologic and complex protein products remains uncertain, even following the enactment of legislation establishing a regulatory pathway for the approval of biosimilars under the Biologics Price Competition and Innovation Act, or BPCI Act. For example, the FDA only recently issued a series of draft and final guidance documents on certain matters concerning approval of biosimilars, interchangeable biologics, non-proprietary naming and labeling, as well as quality and scientific considerations. Experience will develop as the number of products and

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applications increase. The pathway contemplates approval of two categories of follow-on biologic products: (1) biosimilar products, which are highly similar to the existing reference product, notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences from the reference product and (2) interchangeable biologic products, which in addition to being biosimilar can be expected to produce the same clinical result in any given patient without an increase in risk due to switching from the reference product. Only interchangeable biosimilar products would be considered substitutable at the retail pharmacy level without the intervention of a physician. The legislation authorizes but does not require the FDA to establish standards or criteria for determining biosimilarity and interchangeability, and also authorizes the FDA to use its discretion to determine the nature and extent of product characterization, nonclinical testing and clinical testing on a product-by-product basis.
 
Our competitive advantage in this area will depend on our success in demonstrating to the FDA that our analytics, biocharacterization and protein engineering platform technology provides a level of scientific assurance that facilitates determinations of biosimilarity and/or interchangeability, reduces the need for large scale clinical trials or other testing, and raises the scientific quality requirements for our competitors to demonstrate that their products are highly similar to a reference product. Our ability to succeed will depend in part on our ability to invest in new programs and develop data in a timeframe that enables the FDA to consider our approach within the context of the biosimilar meeting and application review process. In addition, the FDA will likely require significant new resources and expertise to review biosimilar applications, and the timeliness of the review and approval of our future applications could be adversely affected if there were a decline or even limited growth in FDA funding. Our strategy to reduce and target clinical requirements by relying on analytical and functional nonclinical data may not be successful or may take longer than strategies that rely more heavily on clinical trial data.
 
The regulatory pathway also creates a number of additional obstacles to the approval and launch of biosimilar and interchangeable products, including:
 
a requirement for the applicant, as a condition to using the pre-approval patent exchange and clearance process, to share, in confidence, the information in its abbreviated pathway application with the reference product company’s and patent owner’s counsel;

the inclusion of multiple potential patent rights in the patent clearance process; and

a grant to each reference product company of 12 years of marketing exclusivity following the reference product approval.
 
Furthermore, the regulatory pathway creates the risk that the reference product company, during its 12-year marketing exclusivity period, will develop and replace its product with a non-substitutable or modified product that may also qualify for an additional 12-year marketing exclusivity period, reducing the opportunity for substitution at the retail pharmacy level for interchangeable biosimilars. Finally, the legislation also creates the risk that, as reference product and biosimilar companies gain experience with the regulatory pathway, subsequent FDA determinations or court rulings could create additional areas for potential disputes and resulting delays in biosimilars approval.
 
In addition, there is reconsideration and legislative debate that could lead to the repeal or amendment of the healthcare legislation. If the legislation is significantly amended or is repealed with respect to the biosimilar approval pathway, our opportunity to develop biosimilars (including interchangeable biologics) could be materially impaired and our business could be materially and adversely affected. Similarly, the legislative debate at the federal level regarding the federal government budget in 2013 restricted federal agency funding for the biosimilar pathway, including biosimilar user fee funding for fiscal year 2014, and has resulted in delays in hiring and in the conduct of meetings with biosimilar applicants and the review of biosimilar meeting and application information. The scheduling and conduct of biosimilar meeting and applications review was also suspended during the U.S. Government shutdown in October 2013, and could be subject to future suspensions as a result of future deadlocks in passage of federal appropriations bills in 2017 or future years. In addition, from time to time, the federal government implements hiring and regulatory freezes, such as the hiring and regulatory freezes implemented in early 2017, and other regulatory reform initiatives that have the potential to impact the future implementation of the biosimilar regulatory pathway. While proposals to repeal the Affordable Care Act do not appear to include proposals to repeal the BPCI Act, there is still some uncertainty about that possibility. Depending on the timing and the extent of these funding, meeting and review disruptions, our development of biosimilar products could be delayed.
 
Our opportunity to realize value from the potential of the biosimilars market is difficult and challenging due to the significant scientific and development expertise required to develop and consistently manufacture complex protein biologics.
 

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The market potential of biosimilars may be difficult to realize, in large part due to the challenges of successfully developing and manufacturing biosimilars. Biologics are therapeutic proteins and are much more complex and much more difficult to characterize and replicate than small-molecule, chemically synthesized drugs. Proteins tend to be 100 to 1000 times larger than conventional drugs, and are more susceptible to physical factors such as light, heat and agitation. They also have greater structural complexity. Protein molecules differ from one another primarily in their sequence of amino acids, which results in folding of the protein into a specific three-dimensional structure that determines its activity. Although the sequence of amino acids in a protein is consistently replicated, there are a number of changes that can occur following synthesis that create inherent variability. Chief among these is the glycosylation, or the attachment of sugars at certain amino acids. Glycosylation is critical to protein structure and function, and thoroughly characterizing and matching the glycosylation profile of a targeted biologic is essential and poses significant scientific and technical challenges. Furthermore, it is often challenging to consistently manufacture proteins with complex glycosylation profiles, especially on a commercial scale. Protein-based therapeutics are inherently heterogeneous and their structure is highly dependent on the production process and conditions. Products from one production facility can differ within an acceptable range from those produced in another facility. Similarly, physicochemical differences can also exist among different lots of the same product produced at the same facility. The physicochemical complexity and size of biologics creates significant technical and scientific challenges in their replication as biosimilar products. Accordingly, the technical complexity involved and expertise and technical skill required to successfully develop and manufacture biosimilars poses significant barriers to entry. Any difficulties encountered in developing and producing, or any inability to develop and produce, biosimilars could adversely affect our business, financial condition and results of operations.
 
Even if we are able to obtain regulatory approval for our generic and biosimilar product candidates as therapeutically equivalent or interchangeable, state pharmacy boards or agencies may conclude that our products are not substitutable at the pharmacy level for the corresponding reference product. If our generic or biosimilar products are not substitutable at the pharmacy level for the corresponding reference product, this could materially reduce sales of our products and our business would suffer.
 
Although the FDA may determine that a generic product is therapeutically equivalent to a reference product and provide it with an “A” rating in the FDA’s Orange Book, this designation is not binding on state pharmacy boards or agencies for generic drugs. As a result, in states that do not deem our generic drugs and product candidates therapeutically equivalent, physicians will be required to specifically prescribe a generic product alternative rather than have a routine substitution at the pharmacy level for the prescribed reference product. Should this occur with respect to one of our generic drugs or product candidates, it could materially reduce sales in those states which would substantially harm our business.
 
While a designation of interchangeability is a finding by the FDA that a biosimilar can be substituted at the pharmacy without physician intervention or prescription, reference product pharmaceutical companies are lobbying state legislatures and the FDA to enact physician prescription requirements, or in the absence of a prescription, physician and patient notification requirements, special labeling requirements and unique naming requirements for biosimilars which if enacted could create barriers to substitution and adoption rates of interchangeable biologics as well as non-interchangeable biosimilars. Should this occur with respect to one of our biosimilars or interchangeable biologic product candidates in a discriminatory manner, it could materially reduce sales in those states which would substantially harm our business. To date, the FDA has adopted, but not implemented, a non-discriminatory policy that would apply the same non-proprietary naming requirements to reference products.

If nonclinical studies and clinical trials are required for regulatory approval of our product candidates and are delayed or are not successful, we may incur additional costs, experience delays in obtaining, or ultimately be unable to obtain regulatory approval for commercial sale of those product candidates.
 
To obtain regulatory approval for the commercial sale of our novel product candidates, we are required to demonstrate through nonclinical studies and clinical trials that our product candidates are safe and effective. Nonclinical studies and clinical trials of novel product candidates are lengthy and expensive and there is a high probability of significant delays to or failure of novel product candidates during nonclinical studies or clinical trials.

To obtain regulatory approval for the commercial sale of our biosimilar product candidates, the BPCI Act requires nonclinical studies and clinical trials to demonstrate biosimilarity, unless the FDA in its discretion determines such studies and trials are not necessary.
 
A delay or failure of one of our product candidates during nonclinical studies or clinical trials, if required, can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, nonclinical studies and clinical trials, if required, that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

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regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;

our nonclinical studies or clinical trials may produce negative or inconclusive results, and we may be required to conduct additional nonclinical studies or clinical trials or we may abandon projects that we previously expected to be promising;

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 or if, in their opinion, participants are being exposed to unacceptable health risks;

the cost of our clinical trials may be greater than we anticipate;

the effects of our product candidates may not be the desired effects or may include undesirable side effects or our product candidates may have other unexpected characteristics; and

we may decide to modify or expand the clinical trials we are undertaking if new agents are introduced that influence current standard of care and medical practice, warranting a revision to our clinical development plan.
 
The results from nonclinical studies of a product candidate and in initial human clinical studies of a product candidate may not predict the results that will be obtained in subsequent human clinical trials, if required. If we are required by regulatory authorities to conduct additional clinical trials or other testing of our product candidates that we did not anticipate, 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 product 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 product candidates. If any of these events occur, 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, if approved, outside of the United States, either directly or through collaborators. 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 vary among countries, and can require, among other things, 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 products 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 products and our business would be seriously harmed.
 
Even after approval, any pharmaceutical products we develop will be subject to ongoing regulatory review, including the review of clinical results that are reported after our products are made commercially available. Any regulatory approvals that we obtain for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, the

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manufacturer and manufacturing facilities we use to produce any of our product candidates will be subject to periodic review and inspection by the FDA, or foreign equivalent, and other regulatory agencies. 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 product or manufacturer or facility, including withdrawal of the product from the market. Certain changes to an approved product, including in 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 FDA regulatory requirements, we may be subject to fines, warning letters, civil penalties, refusal by the FDA to approve pending applications or supplements, suspension or withdrawal of regulatory approvals, product recalls and seizures, injunctions, operating restrictions, refusal to permit the import or export of products, and/or criminal prosecutions and penalties.
 
Similarly, our commercial activities will be subject to comprehensive compliance obligations under state and federal reimbursement, Sunshine Act, anti-kickback and government pricing regulations. If we make false price reports, fail to implement adequate compliance controls or our employees violate the laws and regulations governing relationships with health care providers, we could also be subject to substantial fines and penalties, criminal prosecution and debarment from participation in the Medicare, Medicaid, or other government reimbursement programs.
 
In addition, the FDA’s policies may change and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs, and to spur innovation, but its ultimate implementation remains unclear. We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.

If third-party payers do not adequately reimburse customers for any of our approved products, they might not be purchased or used, and our revenue and profits will not develop or increase.

Our revenue 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 payers, both in the United States and in foreign markets. Reimbursement by a third-party payer may depend upon a number of factors, including the third-party payer’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 coverage and reimbursement approval for a product from each government or other third-party payer 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 payer. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. There is substantial uncertainty whether any particular payer will reimburse the use of any product incorporating new technology. Even when a payer determines that a product is eligible for reimbursement, the payer 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.


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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 payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both CMS and other third-party payers may have sufficient market power to demand significant price reductions. Due in part to actions by third-party payers, the health care industry is experiencing a trend toward containing or reducing costs through various means, including lowering reimbursement rates, limiting therapeutic class coverage and negotiating reduced payment schedules with service providers for drug products.

We also anticipate that application of the existing and evolving reimbursement regimes to biosimilar products will be somewhat uncertain. In the 2016 Physician Fee Schedule Final Rule, CMS made it clear that the payment amount for a biosimilar is based on the average sales price of all products included within the same billing and payment code. In general, this means that CMS will group biosimilar products that rely on a common reference product’s biologics license application into the same payment calculation, and these products will share a common payment limit and billing code. Separate codes could reduce or significantly impair the value of interchangeability of the biosimilar. However, it is unclear what effect this will have on private payers. Reimbursement uncertainty could adversely impact market acceptance of biosimilar products.

Our inability to promptly obtain coverage and profitable reimbursement rates from government-funded and private payers for our products could have a material adverse effect on our operating results and our overall financial condition.

Federal legislation will increase the pressure to reduce prices of pharmaceutical products paid for by Medicare or may otherwise seek to limit healthcare costs, either of which could adversely affect our revenue, if any.

The MMA changed the way Medicare covers and reimburses for pharmaceutical products. The legislation introduced a new reimbursement methodology based on average sales prices for pharmaceutical products that are used in hospital settings or under the direct supervision of a physician and, starting in 2006, expanded Medicare coverage for pharmaceutical product purchases by the elderly. In addition, the MMA requires the creation of formularies for self-administered pharmaceutical products, and provides authority for limiting the number of pharmaceutical products that will be covered in any therapeutic class and provides for plan sponsors to negotiate prices with manufacturers and suppliers of covered pharmaceutical products. As a result of the MMA and the expansion of federal coverage of pharmaceutical 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 pharmaceutical product benefits for Medicare beneficiaries, private payers 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 payers.

Furthermore, healthcare reform legislation known as the Affordable Care Act that was enacted in 2010 significantly changed the United States health care system and the reimbursement of products. A primary goal of the law is to reduce or limit the growth of health care costs, which could change the market for pharmaceuticals and biological products. The law contains provisions that will affect companies in the pharmaceutical industry and other healthcare-related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include an increase to the mandatory rebates for pharmaceutical products sold into the Medicaid program, an extension of the rebate requirement to pharmaceutical products used in risk-based Medicaid managed care plans, an extension of mandatory discounts for pharmaceutical products sold to certain critical access hospitals, cancer hospitals and other covered entities, and discounts and fees applicable to brand-name pharmaceutical products. Although many of these provisions may not apply directly to us, they may change business practices in our industry and, assuming our products are approved for commercial sale, such changes could adversely impact our profitability.

Moreover, increasing efforts by governmental and third-party payers, in the United States and abroad, to cap or reduce healthcare costs or introduce price controls or price negotiation may cause the government or other organizations to limit both coverage and level of reimbursement for approved products and, as a result, they may not cover or provide adequate payment for our products and product candidates. We expect to experience pricing pressures in connection with the sale of any of our products and product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs, surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.


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Additionally, the BPCI Act establishes an abbreviated regulatory pathway for the approval of biosimilars and provides that reference products may receive 12 years of market exclusivity, with a possible six-month extension for pediatric products. By creating a new approval pathway for biosimilars and adjusting reimbursement for biosimilars, the new law could promote the development and commercialization of biosimilars. However, given the uncertainty of how the law will be interpreted and implemented, the impact of the law on our strategy for biosimilars as well as novel biologics remains uncertain. Other provisions in the law, such as the comparative effectiveness provisions, may ultimately impact positively or negatively both brand and biosimilars products alike depending on an applicant’s clinical data, effectiveness and cost profile. If a reference product cannot be shown to provide a benefit over other therapies, then it might receive reduced coverage and reimbursement. While this might increase market share for biosimilars based on cost savings, it could also have the effect of reducing biosimilars’ market share.

In 2017, members of Congress and the President have sought to repeal and replace the Affordable Care Act. It is uncertain whether such repeal and replace legislation will be enacted into law, and if enacted, what the impact might be on our business. It is also uncertain whether regulatory changes to the implementation of the Affordable Care Act will restrict patient access to affordable insurance and impact their access to novel, biosimilar and complex generic products. The full effects of any repeal and replacement of the Affordable Care Act, or regulatory changes to its implementation, cannot be known until a new law is enacted or existing law is implemented through regulations or guidance issued by the CMS and other federal and state health care agencies. Any legislative or regulatory changes could have a material adverse effect on our business, financial condition and potential profitability. In addition, litigation may prevent some or all of the legislation from taking effect. In 2017 and beyond, we may face additional uncertainties as a result of likely federal and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the Affordable Care Act. There is no assurance that the Affordable Care Act, as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

Foreign governments tend to impose strict price or reimbursement controls, which may adversely affect our revenue, if any.

In some foreign countries, particularly the countries of the European Union, the pricing and/or reimbursement of prescription pharmaceuticals are 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. 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. Insurance may not provide adequate coverage against potential liabilities, and 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.
 
The FDA has reported that it has a substantial backlog of ANDA filings that have resulted in significant delays in review and approval of applications. As a result, the review and potential approval of our application for GLATOPA 40 mg/mL may be significantly delayed.
 
The FDA has reported that it has a substantial backlog of ANDA filings that have resulted in significant delays in the review and approval of ANDAs and amendments or supplements due to insufficient staffing and resources. Resource constraints have also resulted in significant delays in conducting ANDA-related pre-approval inspections. Until the backlog of ANDA filings is reduced, our application for GLATOPA 40 mg/mL and any supplements may be subject to significant delays during their review cycles, which may adversely affect our business and financial condition. In addition, from time to time the federal government implements hiring freezes, such as the one implemented in early 2017, which could also impact the review and potential approval of our application for GLATOPA 40 mg/mL and, as a result, may adversely affect our business and financial condition.
 
Risks Relating to Intellectual Property

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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. 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.
 
Assuming the other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or U.S. PTO, or become involved in opposition, derivation, reexamination, IPR, or interference proceedings challenging our patent rights or the patent rights of others. For example, several of our European patents are being challenged in opposition proceedings before the European Patent Office. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
 
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.

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 U.S. PTO 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.
 
The breadth of patent claims allowed in any patents issued to us or to others may be unclear. 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.
 
Third parties may allege that we are infringing their intellectual property rights, 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.
 
The issuance of our own patents does not guarantee that we have the right to practice the patented inventions. 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.
 

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If any party asserts that we are infringing its intellectual property rights or that our creation or use of proprietary technology infringes upon its intellectual property rights, we might be forced to incur expenses to respond to and litigate the claims. Furthermore, we may be ordered to pay damages, potentially including treble damages, if we are found to have willfully infringed a party’s 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 been alleged or deemed to have infringed. Litigation concerning intellectual property and proprietary technologies is 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 revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations.
 
If we remain involved in patent litigation or other proceedings to determine or enforce our intellectual property rights, we could incur substantial costs or experience delays that could have a material adverse effect on our business.
 
We may need to continue to resort to litigation to enforce a patent issued to us or to determine the scope and validity of a third-party patent or other proprietary rights such as trade secrets in jurisdictions where we intend to market our products, including the United States, the European Union, and many other foreign jurisdictions. The cost to us of any litigation or other proceeding relating to determining the validity of intellectual property rights, or any delays to the development of our product candidates resulting from such litigation or other proceeding, even if the litigation or proceeding is 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 and resulting development delays 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 the marketing of our products in that particular jurisdiction and could ultimately lead to a decision to discontinue a program. Counterclaims for damages and other relief may be triggered by such enforcement actions. The costs, uncertainties and counterclaims resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.
 
We in-license a 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 and Rockefeller University, which give us rights to intellectual property that may be necessary for certain parts of our business. In addition, we expect to enter into additional licenses in the future. Our current in-license arrangements impose various diligence, 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.
 
Risks Relating to Our Dependence on Third Parties
 
The 2006 Sandoz Collaboration Agreement is important to our business. If Sandoz AG fails to adequately perform under this collaboration, or if we or Sandoz AG terminate all or a portion of this collaboration, the development and commercialization of some of our products and product candidates, including GLATOPA 20 mg/mL and GLATOPA 40 mg/mL, would be impacted, delayed or terminated and our business would be adversely affected.
 
Either we or Sandoz AG may terminate the 2006 Sandoz Collaboration Agreement for material uncured breaches or certain events of bankruptcy or insolvency by the other party. For some of the products, for any termination of the 2006 Sandoz Collaboration Agreement other than a termination by Sandoz AG 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 AG 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

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and commercialization of such product. For some products, if Sandoz AG terminates the 2006 Sandoz Collaboration Agreement due to our uncured breach or bankruptcy, or if there is a termination by us alone due to the need for clinical trials, Sandoz AG 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 commercialization strategy of such product. In addition, for other products, if Sandoz AG terminates due to our uncured breach or bankruptcy, Sandoz AG retains a right to license certain of our intellectual property without the obligation to make any additional payments for such licenses. For certain products, if the 2006 Sandoz Collaboration Agreement 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, if we were able to do so, could cause significant delays that could prevent us from completing the development and commercialization of such product. Any alternative collaboration could also be on less favorable terms to us. Accordingly, if the 2006 Sandoz Collaboration Agreement is terminated, our introduction of certain products may be significantly delayed, or our revenue may be significantly reduced, either of which could have a material adverse effect on our business.
 
Under our collaboration agreement, we are dependent upon Sandoz AG to continue to successfully commercialize GLATOPA 20 mg/mL and are significantly dependent on Sandoz AG to successfully commercialize GLATOPA 40 mg/mL. We do not fully control Sandoz AG’s commercialization activities or the resources it allocates to our products. While the 2006 Sandoz Collaboration Agreement contemplates joint decision making and alignment, our interests and Sandoz AG’s interests may differ or conflict from time-to-time or we may disagree with Sandoz AG’s level of effort or resource allocation. Sandoz AG may internally prioritize our products and product candidates differently than we do or it may fail to allocate sufficient resources to effectively or optimally commercialize our products and alignment may only be achieved through dispute resolution. In the future, we and Sandoz may compete on other products outside of our collaboration, which could negatively impact our ability to work effectively with one another. If these events were to occur, our business would be adversely affected.
 
The development and commercialization of our lead biosimilar product candidate, M923, could be delayed or terminated as a result of the termination of the Baxalta Collaboration Agreement, and our business may be adversely affected.
 
On September 27, 2016, Baxalta gave us twelve months’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement, or the Baxalta Termination. On December 31, 2016, we and Baxalta entered into an Asset Return and Termination Agreement pursuant to which the effective date of the Baxalta Termination was December 31, 2016. There could be changes or delays in the timing of the M923 program in connection with the return of the M923 program to us.

In addition, following the effective date of the Baxalta Termination, we have the right to research, develop, manufacture and commercialize M923 or license a third party to do so. In the event we elect to research, develop, manufacture and commercialize M923 by ourselves, we would need to expand our internal capabilities, in connection with which there could be significant delays in the M923 program. In the event we elect to license M923 to a third party, the terms of such a license and collaboration could be less favorable than those under the Baxalta Collaboration Agreement, and finding and negotiating a new collaboration could cause significant delays in the M923 program. Any of the delays described above could prevent us from commercializing M923. In addition, we may need to seek additional financing to support the research, development and commercialization of M923, or alternatively we may decide to discontinue M923, which could have a material adverse effect on our business.
 
The Mylan Collaboration Agreement is important to our business. If we or Mylan fail to adequately perform under the Agreement, or if we or Mylan terminate the Mylan Collaboration Agreement, the development and commercialization of one or more of our biosimilar candidates, including M834, could be delayed or terminated and our business would be adversely affected.
 
The Mylan Collaboration Agreement may be terminated by either party for breach by, or bankruptcy of, the other party; for its convenience; or for certain activities involving competing products or the challenge of certain patents. Other than in the case of a termination for convenience, the terminating party shall have the right to continue the development, manufacture and commercialization of the terminated products in the terminated countries. In the case of a termination for convenience, the other party shall have the right to continue. If a termination occurs, the licenses granted to the non-continuing party for the applicable product will terminate for the terminated country. Subject to certain terms and conditions, the party that has the right to continue the development or commercialization of a given product candidate may retain royalty-bearing licenses to certain intellectual property rights, and rights to certain data, for the continued development and sale of the applicable product in the country or countries for which termination applies.
 

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If the Mylan Collaboration Agreement were terminated and we had the right to continue the development and commercialization of one or more terminated products, to fully exercise that right, we would need to expand our internal capabilities or enter into another collaboration, which, if we were able to do so, could cause significant delays that could prevent us from commercializing those products. Any alternative collaboration could be on less favorable terms to us. In addition, we may need to seek additional financing to support the development and commercialization of any terminated products, or alternatively we may decide to discontinue one or more terminated products, which could have a material adverse effect on our business. If the Mylan Collaboration Agreement were terminated and Mylan had the right to continue the development and commercialization of one or more terminated products, we would have no influence or input into those activities.
 
Under the Mylan Collaboration Agreement, we are dependent upon Mylan to successfully perform its responsibilities and activities, including conducting clinical trials for certain products and leading the commercialization of products. We do not control Mylan’s execution of its responsibilities, including commercialization activities, or the resources it allocates to our products. Our interests and Mylan’s interests may differ or conflict from time to time, or we may disagree with Mylan’s level of effort or resource allocation. Mylan may internally prioritize our products and product candidates differently than we do or it may not allocate sufficient resources to effectively or optimally execute its responsibilities or activities. Competition between us and Mylan on other products outside of our collaboration, such as our respective generic equivalents of COPAXONE, could negatively impact our ability to work effectively with one another. If these events were to occur, our business would be adversely affected.

The CSL License Agreement is important to our business. If we or CSL fail to adequately perform under the Agreement, or if we or CSL terminate the Agreement, the development and commercialization of our novel therapeutic, M230, could be delayed or terminated and our business would be adversely affected.
 
CSL may terminate the CSL License Agreement on a product-by-product basis subject to notice periods and certain circumstances related to clinical development. We may terminate the CSL License Agreement under certain circumstances related to the development of M230 and if no activities are being conducted under the CSL License Agreement. Either party may terminate the Agreement on a product-by-product basis if certain patent challenges are made, on a product-by-product for material breaches, or due to the other party’s bankruptcy. Upon termination of the CSL License Agreement, subject to certain exceptions, the licenses granted under the CSL License Agreement terminate. In addition, dependent upon the circumstances under which the CSL License Agreement is terminated, we or CSL have the right to continue the research, development, and commercialization of terminated products, including rights to certain data, for the continued development and sale of terminated products and, subject to certain limitations, obligations to make sales-based royalty payments to the other party.
 
If the CSL License Agreement were terminated and we had the right to continue the research, development, and commercialization of one or more terminated products, to fully exercise that right, we would need to expand our internal capabilities or enter into another collaboration, which, if we were able to do so, could cause significant delays that could prevent us from commercializing those products. Any alternative collaboration could be on less favorable terms to us. In addition, we may need to seek additional financing to support the research, development and commercialization of any terminated products, or alternatively we may decide to discontinue one or more terminated products, which could have a material adverse effect on our business. If the CSL License Agreement were terminated and CSL had the right to continue the development and commercialization of one or more terminated products, we would have no influence or input into those activities.
 
Under the CSL License Agreement, we are dependent upon CSL to successfully perform its responsibilities and activities, including the research, development and commercialization of M230 and research on other Fc multimer proteins. We do not control CSL’s execution of its responsibilities or the resources it allocates to our products and product candidates. Our interests and CSL’s interests may differ or conflict from time to time, or we may disagree with CSL’s level of effort or resource allocation. CSL may internally prioritize our products and product candidates differently than we do or it may not allocate sufficient resources to effectively or optimally execute its responsibilities or activities. If these events were to occur, our business would be adversely affected.
 
We may need to enter into additional strategic alliances with other companies that can provide capabilities and funds for the development and commercialization of our product candidates. If we are unsuccessful in forming or maintaining these arrangements on favorable terms, we may have to alter our development and commercialization plans, and our business could be adversely affected.
 
Because we have limited internal capabilities for late-stage product development, manufacturing, sales, marketing and distribution, we may need to enter into strategic alliances with other companies in addition to our current alliances with Sandoz,

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Mylan and CSL. In such alliances, we would expect our collaboration 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 as a result of many factors including the following:

competition in seeking appropriate collaborators;
restrictions on future strategic alliances in existing strategic alliance agreements;
a reduced number of potential collaborators due to recent business combinations of large pharmaceutical companies;
inability to negotiate strategic alliances on a timely basis; and
inability to negotiate strategic alliances on acceptable terms.

Even if we do succeed in securing such alliances, we may not be able to maintain them or they may be unsuccessful. We may be unable to maintain a strategic alliance if the development or approval of a product candidate that is the subject of the alliance is delayed or sales of an approved product that is the subject of the alliance are disappointing. The success of our collaboration agreements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Any such alliance would entail numerous operational and financial risks, including significant integration and implementation challenges that could disrupt our business and divert our management's time and attention. If we are unable to secure or maintain such alliances or if such alliances are unsuccessful, we may not have the capabilities necessary to continue or complete development of our product candidates and bring them to market, which may have an adverse effect on our business.
 
In addition to product development and commercialization capabilities, we may depend on our alliances with other companies to provide substantial additional funding for development and potential commercialization of our product candidates. These arrangements may require us to relinquish rights to some of our technologies, product candidates or products which we would otherwise pursue on our own. These alliances may also involve the other company purchasing a significant number of shares of our common stock. Future alliances may involve similar or greater sales of equity, debt financing or other funding arrangements. 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 product candidate internally or to bring product candidates to market. Failure to bring our product candidates to market will prevent us from generating sales revenue, and this may substantially harm our business. Furthermore, any delay in entering into these alliances could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. As a result, our business and operating results may be adversely affected.
 
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 revenue.
 
We do not have a sales organization and have no experience as a company in the sale, marketing or 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 or distribution services, we will have less control over sales of our products and our future revenue would depend heavily on the success of the efforts of these third parties.
 
A significant change in the business operations of, a change in the financial condition of, a change in senior executive management within, or a change in control of our third-party collaborators, or any future collaboration partners or third party manufacturers could have a negative impact on our business operations.
 
Since many of our product candidates are developed under collaborations or licenses with third parties, we do not have sole decision making authority with respect to commercialization or development of those product candidates. We have built relationships and work collaboratively with our third-party collaborators and manufacturers to ensure the success of our development and commercialization efforts. A significant change in the senior management team, a change in the financial condition or a change in the business operations, including a change in control or internal corporate restructuring, of any of our collaboration partners or third-party manufacturers, could result in delayed timelines on our products. In addition, we may have to re-establish working relationships and familiarize new counterparts with our products and business. Any such change may result in the collaboration partner or third party manufacturer internally re-prioritizing our programs or decreasing resources or funding allocated to support our programs. For example, in June 2016, Baxalta Incorporated and Shire announced the

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completion of a combination of Baxalta Incorporated and Shire, as a result of which Baxalta Incorporated became a wholly-owned subsidiary of Shire. On September 27, 2016, Baxalta gave us twelve months’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement, and on December 31, 2016, we and Baxalta entered into an Asset Return and Termination Agreement pursuant to which the effective date of the Baxalta Termination was December 31, 2016. As a result, there could be changes or delays in the timing of the M923 program in connection with the return of the M923 program to us. Similar changes with respect to any of our other collaborators may negatively impact our business operations.
 
General Company Related Risks
 
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; 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 prohibit 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.
 
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 has 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. Furthermore, our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
 
delays in achievement of, or failure to achieve, program milestones that are associated with the valuation of our company or significant milestone revenue;

failure of GLATOPA 20 mg/mL to sustain profitable sales or market share that meet expectations of securities analysts;

adverse FDA decisions relating to our GLATOPA programs, including any FDA decision to delay approval of the GLATOPA 40 mg/mL ANDA until satisfactory resolution of the compliance observations in the FDA's February 2017 warning letter to Pfizer, Sandoz’ third party fill/finish manufacturer for GLATOPA, and an FDA decision to require additional data, including requiring clinical trials, as a condition to the GLATOPA 40 mg/mL ANDA approval;

litigation involving our company or our general industry or both, including litigation pertaining to the launch of our collaborators’ or our competitors’ products, including without limitation, a decision in the GLATOPA 40 mg/mL patent litigation or a competitors’ related patent litigation that prevents the launch or delays the launch of our GLATOPA 40 mg/mL product;

a decision in favor of, or against, Amphastar in our patent litigation suits, a settlement related to any case, or a decision in favor of third parties in antitrust litigation filed against us;


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announcements by other companies regarding the status of their ANDAs for generic versions of COPAXONE;

FDA approval of other companies’ ANDAs for generic versions of COPAXONE;

marketing and/or launch of other companies’ generic versions of COPAXONE, such as Mylan N.V.'s October 2017 launch of its generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL;

adverse FDA decisions regarding the development requirements for one of our biosimilar product candidates or failure of our other product applications to meet the requirements for regulatory review and/or approval;

results or delays in our or our competitors’ clinical trials or regulatory filings;

enactment of legislation that repeals the law enacting the biosimilar regulatory approval pathway or amends the law in a manner that is adverse to our biosimilar development strategy;

failure to demonstrate therapeutic equivalence with respect to our technology-enabled generic product candidate, GLATOPA 40 mg/mL, or biosimilarity or interchangeability with respect to our biosimilar product candidates such as M923 or M834;

demonstration of or failure to demonstrate the safety and efficacy for our novel product candidates;

our inability to manufacture any products in conformance with cGMP or in sufficient quantities to meet the requirements for the commercial sale of the product or to meet market demand;

failure of any of our product candidates, if approved, to achieve commercial success;

the discovery of unexpected or increased incidence in patients’ adverse reactions to the use of our products or product candidates or indications of other safety concerns;

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 product development and commercialization collaborations;

significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

investors’ general perception of our company, our products, the economy and general market conditions;

rapid or disorderly sales of stock by holders of significant amounts of our stock; or

significant fluctuations in the price of securities generally or biotechnology company securities specifically.
 
If any of these factors cause 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.
 
We could be subject to class action litigation due to stock price volatility, which, if it occurs, will distract our management and could result in substantial costs or large judgments against us.
 
The stock market in general has recently experienced significant price and volume fluctuations. In addition, the market prices of securities of companies in the biotechnology industry have been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to the operating performance of or other events at these companies. These fluctuations could adversely affect the market price of our common stock. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities. We may be the target of similar litigation in the future. For example, we are aware that several law firms have announced investigations of potential claims against the Company concerning possible violations of federal securities laws in connection with our February 17, 2017, announcement of the FDA warning letter to Sandoz’ third party fill/finish manufacturer for GLATOPA. Securities litigation

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could result in substantial costs and divert our management’s attention and resources, which could cause serious harm to our business, operating results and financial condition.


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Item 6.      EXHIBITS
 
 
 
 
Incorporated by Reference to
Exhibit
Number
 
Description
 
Form or
Schedule
 
Exhibit
No.
 
Filing
Date
with SEC
 
SEC File
Number
3.1
 
 
S-3
 
3.1
 
04/30/2013
 
333-188227
3.2
 
 
8-K
 
3.1
 
03/17/2017
 
000-50797
*10.1
 
 
 
 
 
 
 
 
 
*+10.2
 
 
 
 
 
 
 
 
 
*31.1
 
 
 
 
 
 
 
 
 
*31.2
 
 
 
 
 
 
 
 
 
**32.1
 
 
 
 
 
 
 
 
 
*101.INS
 
XBRL Instance Document.
 
 
 
 
 
 
 
 
*101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
 
 
 
*101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
 
 
 
 
*101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
 
 
 
*101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
 
 
 
 
 
*101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
 
 
 
 
 
*
Filed herewith.
 
**
Furnished herewith.

+
Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.

 
 
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2017 , formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016 , (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016 , (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 , and (iv) Notes to Unaudited, Condensed Consolidated Financial Statements.

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SIGNATURES
 
Pursuant to the requirements 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.
 
 
Momenta Pharmaceuticals, Inc.
 
 
 
Date: November 1, 2017
By:
/s/ Craig A. Wheeler
 
 
Craig A. Wheeler, President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
 
Date: November 1, 2017
By:
/s/ Scott M. Storer
 
 
Scott M. Storer, Senior Vice President and Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)

63
Exhibit 10.1

FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 24th day of July , 2017 (the “ Amendment Execution Date ”), by and between BMR-ROGERS STREET LLC, a Delaware limited liability company (“ Landlord ”), and MOMENTA PHARMACEUTICALS, INC., a Delaware corporation (“ Tenant ”).
RECITALS
A.    WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of February 5, 2013 (the “ Original Lease ”), as amended by that certain First Amendment to Lease dated as of March 21, 2013, as further amended by that certain Second Amendment to Lease dated as of May 24, 2013, as further amended by that certain Third Amendment to Lease dated as of December 30, 2015 (the “ Third Amendment ”) (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “ Existing Lease ”), whereby Tenant leases certain premises (the “ Bent Premises ”) from Landlord in the building at 320 Bent Street, Cambridge, Massachusetts (the “ Bent Building ”);
B.    WHEREAS, Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord, additional premises comprising approximately 52,252 square feet of Rentable Area (the “ Binney Premises ”) on the fourth (4th) floor of the building at 301 Binney Street in Cambridge, Massachusetts (the “ Binney Building ”), as depicted on Exhibit A-1 attached hereto;
C.    WHEREAS, Landlord has agreed to provide an additional tenant improvement allowance with respect to the Bent Premises, and the Base Rent for the Bent Premises shall be adjusted accordingly;
D.    WHEREAS, Landlord and Tenant desire to update the Bent Premises plans attached to the Existing Lease; and
E.    WHEREAS, Landlord and Tenant desire to modify and amend the Existing Lease only in the respects and on the conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:
1.     Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Existing Lease unless otherwise defined herein. The Existing Lease, as amended by this Amendment, is referred to collectively herein as the “Lease.” From and after the date hereof, the term “ Lease ,” as used in the Existing Lease, shall mean the Existing Lease, as amended by this Amendment.
2.     Lease of Binney Premises . Effective on the Binney Term Commencement Date (as hereinafter defined), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Binney Premises, including exclusive shafts, cable runs, mechanical spaces and rooftop areas, for use by Tenant for office use, in conformity with all Applicable Laws (the “ Binney Permitted Use ”). From and after the Binney Term Commencement Date, (a) the term “ Premises ,” as used in the Lease, shall mean, individually and collectively, as the context dictates, the Bent Premises and/or the Binney Premises, (b) Exhibit B to the Existing Lease shall be supplemented by Exhibit A to this Amendment, (c) the term “ Binney Building Common Area ” shall mean all portions of the Binney Building that are for the non-exclusive use of the tenants of the Binney Project generally, including driveways, sidewalks, parking areas, landscaped areas, service corridors, loading docks, utility closets, chases, stairways, elevators, restrooms and lobbies, (d) the term “ Common Area ” shall include the Binney Building Common Area, and (e) the term “ Permitted Use ” shall include the Binney Permitted Use. All provisions of the Lease applicable to the “Premises” shall be applicable to both the Bent Premises and the Binney Premises, except to the extent specifically set forth herein.

APPROVED
BIOMED REALTY LEGAL
/s/EKU


3.     Binney Premises Rentable Area and Pro Rata Share . The chart in Section 2.2 of the Existing Lease is hereby supplemented with the following:
Definition or Provision
Means the Following (As of the Binney Term Commencement Date)
Approximate Rentable Area of Binney Premises
52,252 square feet
Approximate Rentable Area of Binney Building
417,290 square feet
Tenant’s Pro Rata Share of Binney Building
12.52%

3.1.    Section 6.3 of the Original Lease is hereby deleted in its entirety and replaced with the following:
“6.3    The term “ Rentable Area ” when applied to the Premises, is that area equal to the usable area of the Premises, plus an equitable allocation of Rentable Area within the Bent Building or Binney Building, as applicable, that is not then utilized or expected to be utilized as usable area, including that portion of the Bent Building or Binney Building, as applicable, devoted to corridors, equipment rooms, restrooms, elevator lobby, atrium, mailroom, and other spaces not reasonably categorized as useable.”
4.     Binney Premises Term . The Term of the Lease for the Binney Premises (the “ Binney Premises Term ”) shall commence on the Binney Term Commencement Date (hereinafter defined) and end on the date that is one hundred twenty (120) months from the Binney Rent Commencement Date (hereinafter defined), subject to extension pursuant to this Lease. The Binney Premises Term, together with the Extension Term for the Bent Premises, shall be referred to collectively as the “ Term .”
5.     Binney Tenant Improvements .
5.1.    The provisions of Section 4 and Exhibit B of the Original Lease and Section 5 and Exhibit A of the Third Amendment shall apply solely to the Bent Premises. The provisions of this Section 5 and the work letter attached hereto as Exhibit B (the “ Binney Work Letter ”) shall apply solely to the Binney Premises. Neither this Section 5 nor the Binney Work Letter shall apply to improvements performed in any additional premises added to the Premises, other than the Binney Tenant Improvements in the Binney Premises, at any time or from time to time after the Amendment Execution Date, whether by any options under the Lease or otherwise; or to any portion of the Premises or any additions to the Premises in the event of a renewal or extension of the Term, whether by any options under the Lease or otherwise.
5.2.    With respect to the Binney Premises, the “ Binney Term Commencement Date ” shall be the date that Landlord delivers to Tenant vacant possession of the Binney Premises. Tenant shall execute and deliver to Landlord written acknowledgement of the Binney Term Commencement Date within ten (10) days after the occurrence of the Binney Term Commencement Date in the form attached hereto as Exhibit C . Failure to execute and deliver such acknowledgement, however, shall not affect the Binney Term Commencement Date or Landlord’s or Tenant’s liability under the Lease. Landlord agrees to use commercially reasonable efforts to cause the Binney Term Commencement Date to occur on or before October 1, 2017.
5.3.    Tenant shall, at its sole cost and expense cause the work described in the Binney Approved Plans (as defined in the Binney Work Letter) (the “ Binney Tenant Improvements ”) to be constructed in the Binney Premises, provided that Landlord shall provide to Tenant: (i) a demising allowance equal to Two Hundred Sixty One Thousand Two Hundred Sixty and 00/100 Dollars ($261,260.00) (based upon Five and No/100 Dollars ($5.00) per square foot of Rentable Area of the Binney Premises) (the “ Binney Demising Allowance ”), and (ii) a tenant improvement allowance equal to Four Million Seven Hundred Two Thousand Six Hundred Eighty and No/100 Dollars ($4,702,680.00) (based upon Ninety and 00/100 Dollars ($90.00) per square foot of Rentable Area of the

2



Binney Premises (collectively with the Binney Demising Allowance, the “ Binney TI Allowance ”). The Binney TI Allowance may be applied to the costs of (a) construction, (b) project review by Landlord (which fee shall be the actual costs incurred by Landlord in its review not to exceed one percent (1%) of the Binney TI Allowance), (c) commissioning of mechanical, electrical and plumbing systems by a licensed, qualified commissioning agent hired by Tenant, and review of such party’s commissioning report by a licensed, qualified commissioning agent hired by Landlord, (d) space planning, architect, engineering and other related professional or consulting services performed by third parties hired by, but unaffiliated with, Tenant, (e) building permits and other taxes, fees, charges and levies by Governmental Authorities for permits, approvals or for inspections of the Binney Tenant Improvements, (f) costs and expenses for labor, material, equipment and fixtures, including but not limited to wiring, information technology and telecommunications systems, and (g) cubicles and workstations in an amount not to exceed Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00) (collectively, the “ Workstations ”). Notwithstanding the foregoing, no more than ten percent (10%) of the Binney TI Allowance may be used for soft costs related to the Binney Tenant Improvements. In no event shall the Binney TI Allowance be used for (v) the cost of work that is not authorized by the Binney Approved Plans or otherwise approved in writing by Landlord, (w) payments to Tenant or any affiliates of Tenant, (x) the purchase of any furniture (other than the Workstations), personal property or other non-building system equipment, (y) costs resulting from any default by Tenant of its obligations under the Lease or (z) costs that are recoverable by Tenant from a third party (e.g., insurers, warrantors, or tortfeasors).
5.4.    Tenant shall have until the date that is fifteen (15) months after the Binney Term Commencement Date (the “ Binney TI Deadline ”), to submit Fund Requests (as defined in the Binney Work Letter) to Landlord for disbursement of the unused portion of the Binney TI Allowance, after which date Landlord’s obligation to fund any such costs for which Tenant has not submitted a Fund Request to Landlord shall expire. In no event shall any unused Binney TI Allowance entitle Tenant to a credit against Rent payable under the Lease. Tenant shall deliver to Landlord (a) a certificate of occupancy for the Binney Premises suitable for the Binney Permitted Use, if applicable, or final sign-off by the Inspectional Services Department with respect to the Binney Tenant Improvements, and (b) a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the project architect and the general contractor.
5.5.    Prior to entering upon the Binney Premises, Tenant shall furnish to Landlord evidence satisfactory to Landlord that insurance coverages required of Tenant under the provisions of Article 23 of the Existing Lease are in effect with respect to the Binney Premises.
5.6.    Promptly after the Binney Term Commencement Date, Tenant shall install temporary meters for all water, gas, heat, light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Binney Premises for use during Tenant's construction of the Binney Tenant Improvements and until the Binney Rent Commencement Date, and Tenant shall pay all such utility charges, together with any fees, surcharges and taxes thereon.
5.7.    Notwithstanding anything to the contrary set forth herein or in the Existing Lease, upon Tenant’s surrender of the Binney Premises at the expiration or earlier termination of this Lease, Landlord shall have the right to elect, in its sole discretion, (a) that Tenant shall remove the Workstations at Tenant’s sole cost, or (b) that the Workstations shall remain a part of the Premises upon such surrender. If Landlord fails to make such election by written notice to Tenant on or before the date that is sixty (60) days before the expiration of this Lease, or, if this Lease is earlier terminated, on or before the date that is thirty (30) days after the date of such termination, Landlord shall be deemed to have elected option (b) above.
6.     Condition of Binney Premises . The provisions of Section 5 of the Existing Lease shall apply solely to the Bent Premises. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Binney Premises, the Buildings or the Project, or with respect to the suitability of the Binney Premises, the Buildings or the Project for the conduct of Tenant’s business. Tenant acknowledges that (a) it is fully familiar with the condition of the Binney Premises and agrees to take the same in its condition “as is” as of the Binney Term Commencement Date, and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Binney Premises for Tenant’s occupancy or to pay for or construct any improvements to the Binney Premises, except with respect to the Binney TI Allowance pursuant to the terms of this Amendment.

3



Tenant’s taking of possession of the Binney Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Binney Premises, the Buildings and the Project were at such time in good, sanitary and satisfactory condition and repair. Nothing contained in this Section 6 shall affect Landlord’s maintenance and repair obligations under the Lease.
7.     Binney Premises Base Rent .
7.1.    The provisions of Sections 2.3 and 7.1 of the Existing Lease shall apply solely to the Bent Premises. With respect to the Binney Premises, Tenant shall pay to Landlord as Base Rent for the Binney Premises, commencing on the date that is six (6) months after the Binney Term Commencement Date (the “ Binney Rent Commencement Date ”), the sums set forth in Section 7.2 of this Amendment with respect to the Binney Premises. During the Binney Premises Term, Base Rent shall be subject to an annual upward adjustment of three percent (3%) of the then-current Base Rent for the Binney Premises. The first such annual upward adjustment shall become effective commencing on the first (1 st ) annual anniversary of the Binney Rent Commencement Date (subject to the following sentence), and subsequent adjustments shall become effective on every successive annual anniversary (or adjusted date pursuant to the following sentence) for so long as the Lease continues in effect. Notwithstanding the foregoing, if the first (1 st ) annual anniversary of the Binney Rent Commencement Date falls on a date other than the first (1 st ) day of the month, then the first such annual upward adjustment shall become effective commencing on the first (1 st ) day of the anniversary month if the anniversary date falls between the second (2 nd ) day and the fifteenth (15 th ) day of the month, or the first (1 st ) day of the subsequent month if the anniversary date falls between the sixteenth (16 th ) day and the last day of the month.
7.2.    Initial monthly and annual installments of Base Rent for the Binney Premises shall be as follows, subject to adjustment pursuant to Section 7.1 hereof:
Dates
Square Feet of Rentable Area
Base Rent per Square Foot of Rentable Area
Monthly Base Rent*
Annual Base Rent*
Binney Rent Commencement Date – Month 12 after Binney Rent Commencement Date
52,252
$73.00
$317,866.33
$3,814,396

8.     Binney Additional Rent . In addition to Base Rent for the Binney Premises, Tenant shall pay all Additional Rent for the Binney Premises in accordance with the provisions of the Lease, including without limitation, those set forth in Sections 7.2 , 7.3 , 9 and 10 . From and after the Binney Term Commencement Date, (a) the term “ Tenant’s Pro Rata Share ” shall mean, individually and collectively, as the context dictates, Tenant’s Pro Rata Share of Bent Building and Tenant’s Pro Rata Share of Binney Building; (b) the phrase “and/or Binney Building, as applicable” shall be inserted after each reference to “Bent Building” in Sections 9 and 10 of the Original Lease; (c) the phrase “and/or Binney Project, as applicable” shall be inserted after each reference to “Bent Project” in Sections 9 and 10 of the Original Lease; and (d) any references to “Execution Date” in Sections 9 and 10 of the Original Lease shall mean the Binney Term Commencement Date as it relates to the Binney Premises. For the avoidance of doubt, Tenant shall not be obligated to pay Tenant’s Pro Rata Share of Operating Expenses or the Property Management Fee, each with respect to the Binney Premises, until the Binney Rent Commencement Date. Additional Rent for the calendar year in which the Binney Rent Commencement Date occurs shall be equitably prorated to reflect the change in Tenant’s Pro Rata Share.
9.     Binney Premises Security Deposit .

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9.1.    The provisions of Section 2.4 of the Original Lease shall apply solely to the Bent Premises (the “ Bent Security Deposit ”). With respect to the Binney Premises, Tenant shall deposit with Landlord on or before the Amendment Execution Date an amount equal to One Million Two Hundred Seventy One Thousand Four Hundred Sixty Five and 33/100 Dollars ($1,271,465.33) (the “ Binney Security Deposit ”), which sum shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of the Lease to be kept and performed by Tenant with respect to the Binney Premises during the period commencing on the Binney Term Commencement Date and ending upon the expiration or termination of Tenant’s obligations under this Lease. The term “ Security Deposit ” shall mean, individually and collectively, as the context dictates, the Bent Security Deposit and the Binney Security Deposit, and the provisions of Section 11 of the Original Lease shall apply to the Binney Security Deposit.
10.     Binney Parking . Parking for the Binney Premises shall be as set forth in Section 13.3 of the Existing Lease, except that notwithstanding any provision of Section 13.3 of the Existing Lease to the contrary, as of the Binney Term Commencement Date, Tenant shall have, with respect to the Binney Premises (i.e., in addition to the number of spaces originally allowed under said Section 13.3 ), a non-exclusive, irrevocable license to use up to fifty-two (52) spaces (instead of Tenant’s Pro Rata Share of the parking facilities with respect to the Binney Premises) upon the terms and conditions set forth in the Existing Lease.
11.     Utilities and Services . The provisions of Sections 16.4 , 16.5 , 16.8 , and 16.10 , and the last sentence of Section 16.1 of the Existing Lease shall apply solely to the Bent Premises. With respect to the Binney Premises, Landlord shall (a) maintain and operate the HVAC supply air systems (except for the distribution system servicing the Premises, which Tenant shall operate and maintain at its sole cost and expense) used for the Permitted Use only and (b) subject to Subsection 11.1 below, furnish HVAC as reasonably required (except as this Lease otherwise provides) for reasonably comfortable occupancy of the Premises twenty-four (24) hours a day, every day during the Term, subject to casualty, eminent domain or as otherwise specified in this Article. Notwithstanding anything to the contrary in this Section, but subject to the provisions of Section 14.4 of the Existing Lease, Landlord shall have no liability, and Tenant shall have no right or remedy, on account of any interruption or impairment in HVAC services; provided that Landlord diligently endeavors to cure any such interruption or impairment. Tenant shall ensure that its building management system is integrated into Landlord’s base building management system to enable connectivity of utility metering for remote data and information access. In addition, the chilled and heated water utilized for the HVAC system serving the Binney Premises shall be separately submetered, and Tenant shall pay for the usage shown thereon at Landlord's standard rates in effect from time to time, with such amounts due and payable within thirty (30) days after demand therefor. Landlord shall monitor the usage of such utilities by Tenant through the use of one or more submeters or check meters, and Tenant shall pay the cost of purchasing, installing and monitoring any related metering equipment, as necessary, to which costs the Demising Allowance may be applied.
11.1.    Tenant shall not, without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, use any device in the Binney Premises (including data processing machines) that will in any way increase the amount of ventilation, air exchange, gas, steam, electricity or water beyond the existing capacity in use, as designed and constructed, at the Binney Premises as of the Amendment Execution Date.
11.2.    If Tenant shall require utilities or services in excess of the existing capacity in use, as designed and constructed, at the Binney Premises as of the Amendment Execution Date by reason of Tenant’s equipment, then Tenant shall first procure Landlord’s consent for the use thereof, which consent Landlord may condition upon the availability of such excess utilities or services but which shall not otherwise be unreasonably withheld, conditioned or delayed, and Tenant shall pay as Additional Rent an amount equal to the actual cost of providing such excess utilities and services.
12.     Repairs and Maintenance . The provisions of Sections 18.1 and 18.2 of the Existing Lease shall apply solely to the Bent Premises. With respect to the Binney Premises, Landlord’s and Tenant’s repair obligations shall be as follows:

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12.1.    Landlord shall repair and maintain the structural and exterior portions of the Binney Building, including roofing and covering materials; foundations (excluding any architectural slabs, but including any structural slabs); exterior walls; all common areas; plumbing; fire sprinkler systems (if any); base Building HVAC systems up to the first damper or isolation valve that serves the Premises and extends into the Premises (for purposes of clarity, the portion of the HVAC system that includes such first damper or isolation valve and extends into and through the Premises, and any supplemental HVAC serving the Premises shall not be part of the base Building HVAC and shall be Tenant’s obligation to maintain and repair pursuant to Section 12.2 below); elevators; and base Building electrical systems installed or furnished by Landlord.
12.2.    Except for services of Landlord, if any, required by Section 12.1 hereof, Tenant shall at Tenant’s sole cost and expense (a) be responsible for access (but this reference shall not make Tenant responsible for the Common Areas) and security to the Binney Premises utilizing a card system compatible with the base building system at the Binney Building, and (b) maintain and keep the Binney Premises (including but not limited to the portion of the HVAC system that includes the first damper or isolation valve and extends into and through the Binney Premises, any supplemental HVAC serving the Binney Premises, and any other systems or equipment exclusively serving the Binney Premises) and every part thereof in good condition and repair, damage thereto from ordinary wear and tear excepted, and shall, within ten (10) days after receipt of written notice from Landlord, provide to Landlord any maintenance records that Landlord reasonably requests. Tenant shall, upon the expiration or sooner termination of the Term, surrender the Premises to Landlord in as good a condition as when received, ordinary wear and tear, damage resulting from casualty or eminent domain, and damage resulting from the negligence or willful misconduct of Landlord, its agents, contractors, or employees or from the failure of Landlord to perform its obligations under the Lease in each case excepted; and shall, at Landlord’s request and Tenant’s sole cost and expense, remove all telephone and data systems, wiring and equipment from the Binney Premises, and repair any damage to the Premises caused thereby. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof.
13.     Option to Extend Binney Premises Term . The provisions of Section 41 of the Existing Lease, as amended by Section 7 of the Third Amendment, shall apply solely to the Bent Premises. This Section 13 shall apply solely to the Binney Premises. Provided Tenant has not assigned this Lease or subleased more than twenty-five percent (25%) of the Premises (other than and assignment or sublease pursuant to an Exempt Transfer), Tenant shall have one (1) option (“ Binney Option ”) to extend the Term beyond the expiration of the Binney Premises Term until June 30, 2035 (and no date earlier or later) as to the entire Binney Premises (and no less than the entire Binney Premises) upon the following terms and conditions. Any extension of the Binney Premises Term pursuant to the Binney Option shall be on all the same terms and conditions as this Lease, except as follows:
13.1.    Base Rent at the commencement of the Binney Option term shall equal the then-current fair market value for comparable space in the East Cambridge submarket of comparable age, quality, level of finish and proximity to amenities and public transit (“ Binney FMV ”), and may be further increased on each annual anniversary of the Binney Option term commencement date to the extent increases are in accordance with Binney FMV as determined hereunder. Tenant may, no more than fifteen (15) months prior to the date the Binney Premises Term is then scheduled to expire, request Landlord’s estimate of the FMV for the Binney Option term. Landlord shall, within fifteen (15) days after receipt of such request, give Tenant a written proposal of such FMV (which shall include annual rent escalations). If Tenant gives written notice to exercise the Binney Option, such notice shall specify whether Tenant accepts Landlord’s proposed estimate of the Binney FMV. If Tenant does not accept the Binney FMV, then the parties shall endeavor to agree upon the Binney FMV, taking into account all relevant factors, including (a) the size of the Binney Premises, (b) the length of the Binney Option term, (c) rent in comparable buildings in the relevant submarket, including concessions offered to new tenants, such as free rent, tenant improvement allowances and moving allowances, (d) Tenant’s creditworthiness and (e) the quality and location of the Binney Building and the Project. In the event that the parties are unable to agree upon the Binney FMV within thirty (30) days after Tenant notifies Landlord that Tenant is exercising the Binney Option, then either party may request that the same be determined as follows: a senior officer of a nationally recognized leasing brokerage firm with local knowledge of the East Cambridge laboratory/research and development leasing submarket (the “ Baseball Arbitrator ”) shall be selected and paid for jointly by Landlord and Tenant. If Landlord and Tenant are unable to agree upon the Baseball Arbitrator, then the same shall be designated by the local chapter of the Judicial Arbitration

6



and Mediation Services or any successor organization thereto (the “ JAMS ”). The Baseball Arbitrator selected by the parties or designated by JAMS shall (y) have at least ten (10) years’ experience in the leasing of laboratory/research and development space in the East Cambridge submarket and (z) not have been employed or retained by either Landlord or Tenant or any affiliate of either for a period of at least ten (10) years prior to appointment pursuant hereto. Each of Landlord and Tenant shall submit to the Baseball Arbitrator and to the other party its determination of the Binney FMV. The Baseball Arbitrator shall grant to Landlord and Tenant a hearing and the right to submit evidence. The Baseball Arbitrator shall determine which of the two (2) FMV determinations more closely represents the actual Binney FMV. The arbitrator may not select any other FMV for the Premises other than one submitted by Landlord or Tenant. The Binney FMV selected by the Baseball Arbitrator shall be binding upon Landlord and Tenant and shall serve as the basis for determination of Base Rent payable for the Binney Option term. If, as of the commencement date of the Binney Option term, the amount of Base Rent payable during the Binney Option term shall not have been determined, then, pending such determination, Tenant shall pay Base Rent equal to the Base Rent payable with respect to the last year of the then-current Binney Premises Term. After the final determination of Base Rent payable for the Binney Option term, the parties shall promptly execute a written amendment to this Lease specifying the amount of Base Rent to be paid during the Binney Option term. Any failure of the parties to execute such amendment shall not affect the validity of the Binney FMV determined pursuant to this Section.
13.2.    The Binney Option is not assignable separate and apart from this Lease.
13.3.    The Binney Option is conditional upon Tenant giving Landlord written notice of its election to exercise the Binney Option at least twelve (12) months prior to the end of the expiration of the Binney Premises Term. Time shall be of the essence as to Tenant’s exercise of the Binney Option. Tenant assumes full responsibility for maintaining a record of the deadlines to exercise the Binney Option. Tenant acknowledges that it would be inequitable to require Landlord to accept any exercise of the Binney Option after the date provided for in this Section.
13.4.    Notwithstanding anything contained in this Section 13 to the contrary, Tenant shall not have the right to exercise the Binney Option during the time commencing from the date Landlord delivers to Tenant a written notice that Tenant is in default under any provisions of this Lease and continuing until Tenant has cured the specified default.
13.5.    All of Tenant’s rights under the provisions of the Binney Option shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Binney Option if, after such exercise, but prior to the commencement date of the new term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of twenty (20) days after written notice from Landlord to Tenant, (b) Tenant fails to commence to cure a default (other than a monetary default) within thirty (30) days after the date Landlord gives notice to Tenant of such default or (c) Tenant has defaulted under this Lease four (4) or more times and a service or late charge under Section 31.1 of the Existing Lease has become payable for any such default, whether or not Tenant has cured such defaults.
13.6.    The period of time within which Tenant may exercise the Binney Option shall not be extended or enlarged by reason of Tenant’s inability to exercise such Binney Option because of the provisions of Sections 13.4 and 13.5 .
14.     Right of First Refusal – Binney Building Fourth (4 th ) Floor . Subject to any other parties’ rights existing as of the Amendment Execution Date with respect to Available ROFR Premises (as defined below), Tenant shall have a continuing right of first refusal (“ ROFR ”) as to the remaining rentable premises on the fourth (4 th ) floor (or any portion thereof) of the Binney Building that become available after the initial lease executed before or after the Amendment Execution Date (“ Available ROFR Premises ”). To the extent that Landlord renews or extends a then-existing lease with any then-existing tenant or subtenant of any space, or enters into a new lease with such then-existing tenant or subtenant for the same premises, the affected space shall not be deemed to be Available ROFR Premises. In the event Landlord receives from a third party a bona fide offer to lease the Available ROFR Premises that Landlord is prepared to accept or Landlord makes an offer to a third party that such third party is prepared to accept, then, before entering into any lease or lease amendment pursuant to such offer Landlord shall provide written

7



notice thereof to Tenant (the “ Binney 4 th Floor Notice of Offer ”), specifying the terms and conditions of a proposed lease to Tenant of the Available ROFR Premises which notice shall constitute an offer to lease such space to Tenant upon such terms.
14.1.    Within ten (10) days following its receipt of a Binney 4 th Floor Notice of Offer, Tenant shall advise Landlord in writing whether Tenant elects to lease all (not just a portion) of the Available ROFR Premises on the terms and conditions set forth in the Binney 4 th Floor Notice of Offer. If Tenant fails to notify Landlord of Tenant’s election within such ten (10) day period, then Tenant shall be deemed to have elected not to lease the Available ROFR Premises.
14.2.    If Tenant timely notifies Landlord that Tenant elects to lease the Available ROFR Premises on the terms and conditions set forth in the Binney 4 th Floor Notice of Offer, then Landlord shall lease the Available ROFR Premises to Tenant upon the terms and conditions set forth in the Binney 4 th Floor Notice of Offer.
14.3.    If Tenant notifies Landlord that Tenant elects not to lease the Available ROFR Premises on the terms and conditions set forth in the Binney 4 th Floor Notice of Offer, or if Tenant fails to notify Landlord of Tenant’s election within the ten (10)-day period described above, then Landlord shall have the right to consummate the lease of the Available ROFR Premises on the same terms as set forth in the Binney 4 th Floor Notice of Offer following Tenant’s election (or deemed election) not to lease the Available ROFR Premises. Notwithstanding the foregoing, in the event Tenant elects not to lease the Available ROFR Premises or fails to notify Landlord of Tenant’s election in accordance with the terms hereof, and the terms and conditions set forth in the original Binney 4 th Floor Notice of Offer are materially changed (i.e., base rent is changed by more than five percent (5%)), then Landlord shall provide Tenant with an updated Binney 4 th Floor Notice of Offer and the provisions of this Section 14 shall once again apply.
14.4.    Notwithstanding anything in this Article to the contrary, Tenant shall not exercise the ROFR during such period of time that Tenant is in default under any provision of this Lease. Any attempted exercise of the ROFR during a period of time in which Tenant is so in default shall be void and of no effect. In addition, Tenant shall not be entitled to exercise the ROFR if Landlord has given Tenant two (2) or more notices of default under this Lease, whether or not the defaults are cured, during the twelve (12) month period prior to the date on which Tenant seeks to exercise the ROFR.
14.5.    Notwithstanding anything in this Lease to the contrary, Tenant shall not assign or transfer the ROFR, either separately or in conjunction with an assignment or transfer of Tenant’s interest in the Lease (other than pursuant to an Exempt Transfer), without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
14.6.    If Tenant exercises the ROFR, Landlord does not guarantee that the Available ROFR Premises will be available on the anticipated commencement date for the Lease as to such Premises due to a holdover by the then-existing occupants of the Available ROFR Premises or for any other reason beyond Landlord’s reasonable control.
15.     Right of First Offer – Binney Building Fifth (5 th ) Floor . Subject to: (a) the existing tenant not renewing its lease of the Available Binney 5 th Floor ROFO Premises, and (b) any other parties’ rights existing as of the Amendment Execution Date with respect to Available Binney 5 th Floor ROFO Premises (as defined below), Tenant shall have a continuing right of first offer (“ Binney 5 th Floor ROFO ”) as to the rentable premises on the fifth (5 th ) floor of the Binney Building that become available (“ Available Binney 5 th Floor ROFO Premises ”); provided , however, that in no event shall Landlord be required to lease any Available Binney 5 th Floor ROFO Premises to Tenant for any period past the date on which the Binney Premises Term expires or the Lease is terminated pursuant to its terms. To the extent that Landlord renews or extends a then-existing lease with any then-existing tenant or subtenant of any space, or enters into a new lease with such then-existing tenant or subtenant for the same premises, the affected space shall not be deemed to be Available Binney 5 th Floor ROFO Premises until the new lease with such then-existing tenant expires, at which point such space shall be subject to the Binney 5 th Floor ROFO. In the event Landlord intends to market the Available Binney 5 th Floor ROFO Premises, Landlord shall provide written notice to Tenant setting forth the Available Binney 5 th Floor ROFO Premises, the base rent (which shall equal the

8



greater of the then-current Base Rent rate per square foot for the Binney Premises under this Lease and Landlord’s proposed estimate of the Binney FMV for the Available Binney 5 th Floor ROFO Floor Premises), the term shall be coterminous with the Binney Premises Term (as it may be extended pursuant to this Amendment), and any other material terms as determined by Landlord (the “ Binney 5 th Floor Notice of Marketing ”).
15.1.    Within ten (10) business days following its receipt of a Binney 5th Floor Notice of Marketing, Tenant shall advise Landlord in writing whether Tenant elects to lease all (not just a portion) of the Available Binney 5 th Floor ROFO Premises on the terms and conditions set forth in the Binney 5 th Floor Notice of Offer and whether Tenant accepts Landlord’s proposed estimate of the Binney FMV. If Tenant fails to notify Landlord of Tenant’s election within such ten (10) business day period, then Tenant shall be deemed to have elected not to lease the Available Binney 5 th Floor ROFO Premises.
15.2.    If Tenant timely notifies Landlord that Tenant elects to lease all of the Available Binney 5 th Floor ROFO Premises on the terms and conditions set forth in the Binney 5th Floor Notice of Marketing, then Landlord shall lease the Available Binney 5 th Floor ROFO Premises to Tenant upon the terms and conditions set forth in the Binney 5 th Floor Notice of Marketing. If Tenant elects to lease all of the Available Binney 5 th Floor ROFO Premises on all of the terms and conditions set forth in the Binney 5th Floor Notice of Marketing except Landlord’s proposed estimate of the Binney FMV, then the parties shall determine the Binney FMV in accordance with Section 13.1 hereof, as applied to the Available Binney 5 th Floor ROFO Premises and the Binney Building. Failure of Tenant to expressly accept Landlord’s proposed estimate of FMV in Tenant’s election notice shall be deemed Tenant’s rejection of Landlord’s estimate of FMV.
15.3.    If Tenant notifies Landlord that Tenant elects not to lease the Available 5 th Floor Binney ROFO Premises, then Landlord shall have the right to consummate a lease of all or any portion of the Available Binney 5 th Floor ROFO Premises with another party or parties.
15.4.    Notwithstanding anything in this Section 14 to the contrary, Tenant shall not exercise the Binney 5 th Floor ROFO during such period of time that Tenant is in default under any provision of this Lease. Any attempted exercise of the Binney 5 th Floor ROFO during a period of time in which Tenant is so in default shall be void and of no effect. In addition, Tenant shall not be entitled to exercise the Binney 5 th Floor ROFO if Landlord has given Tenant two (2) or more notices of an actual monetary default or an actual material non-monetary default under this Lease, whether or not the defaults are cured, during the twelve (12) month period prior to the date on which Tenant seeks to exercise the Binney 5 th Floor ROFO.
15.5.    Notwithstanding anything in this Lease to the contrary, Tenant shall not assign or transfer the Binney 5 th Floor ROFO, either separately or in conjunction with an assignment or transfer of Tenant’s interest in the Lease (other than to a Tenant Affiliate in conjunction with an assignment or transfer of Tenant’s entire interest in the Lease to such Tenant Affiliate), without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.
15.6.    If Tenant exercises the Binney 5 th Floor ROFO, Landlord does not guarantee that the Available Binney 5 th Floor ROFO Premises will be available on the anticipated commencement date for the lease as to such premises due to a holdover by the then-existing occupants of the Available Binney 5 th Floor ROFO Premises or for any other reason beyond Landlord’s reasonable control.
16.     UPS System . Landlord and Tenant acknowledge that there is an uninterruptible power supply unit and associated HVAC unit and equipment (collectively, the “ UPS System ”) located in a mechanical room within the Binney Premises. From and after the Binney Term Commencement Date, Tenant shall have the exclusive right to use the UPS System throughout the Lease Term. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the UPS System, or with respect to the suitability of the UPS System for the conduct of Tenant’s business under the Lease. Tenant acknowledges that it is fully familiar with the condition of the UPS System and agrees to take the same in its condition “as is” as of the Binney Term Commencement Date, and that Landlord shall have no obligation to repair, maintain or monitor the UPS System during the Binney Term, and that Landlord shall have no liability for any failure of the UPS System (or

9



any utility or service serving the UPS) during the Term. Landlord and Tenant agree that that the UPS System is affixed to the Binney Premises, and that Landlord will own the UPS System upon the expiration of the Binney Term.
17.     Binney Surrender . At least ten (10) days prior to Tenant’s surrender of possession of any part of the Binney Premises, Tenant shall conduct a site inspection with Landlord.
18.     Rooftop Installation Area . With respect to the Binney Premises, Tenant may use the portion of the Binney Building that is cross-hatched on Exhibit N-1 attached hereto (the “ Binney Rooftop Installation Area ”), in accordance with the terms and provisions of Section 40 of the Existing Lease. All references in the Lease to “Rooftop Installation Area” shall mean, individually and collectively, as the context dictates, the Rooftop Installation Area in the Bent Building and the Binney Rooftop Installation Area.
19.     Additional References . From and after the Binney Term Commencement Date, (a) the phrase “and/or Binney Building, as applicable” shall be inserted after each reference to “Bent Building” in Sections 12.2 , 12.8 , 14 , 16.2 , 16.4 , 16.5 , 17 , 22.2 , 22.4(a) , 23 , 24 , 25 , 35.1 , and 40.4 of the Existing Lease; and (b) the phrase “and/or Binney Project, as applicable” shall be inserted after each reference to “Bent Project” in Sections 6.1 , 14 , 16.2 , 16.4 , 16.5 , 17 , 23 , 24 , 25 , 35.1 , and 40.4 of the Existing Lease. Sections 12.12 , 21.9 , 26.1 and 46 of the Existing Lease shall apply solely to the Bent Premises. Any reference to a vivarium in the Existing Lease shall apply solely to the Bent Premises.
20.     Bent Premises Additional TI Allowance .
20.1.    Tenant has requested and Landlord has agreed to make available an additional Five Million Two Hundred Thousand and 00/100 Dollars ($5,200,000) (based upon Fifty and 00/100 Dollars ($50.00) per square foot of Rentable Area at the Bent Premises) (the “ Bent Premises Additional TI Allowance ”) to fund the Extension Term Tenant Improvements and the Binney Tenant Improvements (as defined in the Third Amendment). From and after the Amendment Execution Date, the term “ Extension Term TI Allowance ” shall be deemed to include the Bent Premises Additional TI Allowance, and the provisions of the Third Amendment (including the Work Letter attached thereto (the “ Bent Work Letter ”)) shall govern the Bent Premises Additional TI Allowance (including without limitation, the use and disbursement thereof), except to the extent specifically set forth herein.
20.2.    Tenant shall have until the date that is fifteen (15) months after the Amendment Execution Date (the “ Bent Premises Additional TI Deadline ”), to submit Fund Requests (as defined in the Bent Work Letter) to Landlord for disbursement of the unused portion of the Bent Premises Additional TI Allowance, after which date Landlord’s obligation to fund any such costs for which Tenant has not submitted a Fund Request to Landlord shall expire. Notwithstanding anything to the contrary set forth in this Lease, Tenant may apply any portion of the Bent Premises Additional TI Allowance to the Binney Tenant Improvements, in which event such portion of the Bent Premises Additional TI Allowance shall be governed by Section 5 of this Amendment and the Binney Work Letter. In no event shall any unused Bent Premises Additional TI Allowance entitle Tenant to a credit against Rent payable under the Lease.
21.     Bent Premises Base Rent .
21.1.    Base Rent for the Bent Premises shall be increased to include the amount of the Bent Premises Additional TI Allowance (regardless of whether such amounts are used to fund the Extension Term Tenant Improvements or the Binney Tenant Improvements) amortized over the remainder of the current Term at a rate of eight percent (8%) annually. Base Rent shall be increased as of September 1, 2017.
21.2.    The last paragraph of Section 3 of the Third Amendment is hereby deleted in its entirety. Commencing on September 1, 2017, Base Rent shall be as follows:

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Dates
Square Feet of Rentable Area
Base Rent per Square Foot of Rentable Area
Monthly Base Rent
Annual Base Rent
9/1/2017 – 8/31/2018
104,678
$77.52 annually
$676,219.88
$8,114,638.56
9/1/2018 - 8/31/2019
104,678
$79.62 annually
$694,538.53
$8,334,462.36
9/1/2019 - 8/31/2020
104,678
$81.78 annually
$713,380.57
$8,560,566.84
9/1/2020 - 8/31/2021
104,678
$84.01 annually
$732,833.23
$8,793,998.78
9/1/2021 - 8/31/2022
104,678
$86.31 annually
$752,896.52
$9,034,758.18
9/1/2022 - 8/31/2023
104,678
$88.67 annually
$773,483.19
$9,281,798.26
9/1/2023 - 8/31/2024
104,678
$91.11 annually
$794,767.72
$9,537,212.58
9/1/2024 - 8/31/2025
104,678
$93.62 annually
$816,662.86
$9,799,954.36
9/1/2025 - 8/31/2026
104,678
$96.20 annually
$839,168.63
$10,070,023.60
9/1/2026 - 2/28/2027
104,678
$98.86 annually
$862,372.26
$10,348,467.08*
* Pro-rated for partial year
22.     Bent Premises Property Management Fee . Commencing on September 1, 2017, the Property Management Fee payable for the Bent Premises shall be calculated based upon the Base Rent exclusive of the amortized cost of the Bent Premises Additional TI Allowance, as shown on the following table:
Dates
Square Feet of Rentable Area
Base Rent per Square Foot of Rentable Area
Monthly Base Rent
Annual Base Rent
9/1/2017 - 8/31/2018
104,678
$70.04 annually
$610,970.59
$7,331,647.12
9/1/2018 - 8/31/2019
104,678
$72.14 annually
$629,289.24
$7,551,470.92
9/1/2019 - 8/31/2020
104,678
$74.30 annually
$648,131.28
$7,777,575.40
9/1/2020 - 8/31/2021
104,678
$76.53 annually
$667,583.95
$8,011,007.34
9/1/2021 - 8/31/2022
104,678
$78.83 annually
$687,647.23
$8,251,766.74
9/1/2022 - 8/31/2023
104,678
$81.19 annually
$708,233.90
$8,498,806.82
9/1/2023 - 8/31/2024
104,678
$83.63 annually
$729,518.43
$8,754,221.14
9/1/2024 - 8/31/2025
104,678
$86.14 annually
$751,413.58
$9,016,962.92
9/1/2025 - 8/31/2026
104,678
$88.72 annually
$773,919.35
$9,287,032.16
9/1/2026 - 2/28/2027
104,678
$91.38 annually
$797,122.97
$9,565,475.64*
* Pro-rated for partial year
23.     Option to Extend Bent Premises Term . The first sentence of Section 41 of the Lease (as amended by Section 7 of the Third Amendment) is hereby deleted in its entirety and replaced with the following:
41. Option to Extend Term . Provided Tenant has not assigned this Lease or subleased more than forty-five percent (45%) of the Bent Premises other than pursuant to an Exempt Transfer, Tenant shall have one (1) option (“ Option ”) to extend the Term beyond the expiration of the Extension Term until June 30, 2035 (and no earlier or later) as to the entire Bent Premises (and no less than the entire Bent Premises) upon the following terms and conditions.”
24.     Change in Location of Bent Premises; License .
24.1.    Effective as of the substantial completion of the Extension Term Tenant Improvements, the Bent Premises are hereby modified as follows: (a) Tenant shall release and exclude from the Bent Premises

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approximately eighty-three (83) square feet on the first (1st) floor of the Bent Building (the “ Surrendered Space ”) and Landlord shall accept the return of the Surrendered Premises and (b) Landlord shall lease to Tenant and Tenant shall accept and include as part of the Bent Premises approximately eighty-three (83) square feet on the first (1st) floor of the Bent Building (the “ Additional Space ”). The simultaneous occurrence of (a) and (b) shall be referred to herein as the “ Bent Premises Swap ”. From and after the Substantial Completion of the Extension Term Tenant Improvements, (A) the “Bent Premises” shall mean the Bent Premises originally identified on Exhibit B to the Original Lease, (i) less the Surrendered Space plus (ii) the Additional Space, and (B) the Premises Plan for the First Floor of the Bent Building on Page 2 of Exhibit B attached to the Original Lease shall be deleted in its entirety and replaced by Exhibit A-2 attached hereto and incorporated herein. Tenant shall provide Landlord with written notice upon the substantial completion of the Extension Term Tenant Improvements. For the avoidance of doubt, the overall rentable square footage and Tenant’s Pro Rata Share for the Bent Premises shall remain unchanged by the Bent Premises Swap.
24.2.    Commencing on the Amendment Execution Date and ending on the date the Extension Term Tenant Improvements are substantially complete (the “ License Term ”), Tenant shall have a license to use the Additional Space for the purpose of demising the area to be included in the Bent Premises. The terms of Tenant’s use of the Additional Space shall be on the same terms and conditions as Tenant’s use of the Bent Premises under the Lease, including without limitation, those related to Alterations, insurance and the Work Letter for the Extension Term Tenant Improvements. Notwithstanding the foregoing or any other provision of the Lease to the contrary, Tenant shall not be obligated to pay any Base Rent, Operating Expenses, or Property Management Fees with respect to the Additional Space during the License Term. Tenant shall, however, pay for any electricity or other utilities used in connection with the Extension Term Tenant Improvements related to demising the Additional Space.
24.3.    Tenant acknowledges and agrees that (a) Tenant is fully familiar with the condition of the Additional Space and, notwithstanding anything contained in the Lease to the contrary, agrees to occupy the same in its “as is” condition as of the Amendment Execution Date, subject to the Extension Term Tenant Improvements, (b) Landlord has not made and does not hereby make any representation or warranty of any kind, express or implied, with respect to the Additional Space, including but not limited to any representation or warranty that the Additional Space is suitable for the Permitted Use, and (c) Landlord shall have no obligation to alter, repair or otherwise prepare the Additional Space for Tenant’s continued occupancy or to pay for any improvements to the Additional Space, except for the Extension Term TI Allowance as set forth in the Third Amendment. Nothing contained in this Section 22.3 shall affect Landlord’s maintenance and repair obligations under the Lease.
25.     Insurance . The first sentence of Section 23.4 of the Original Lease is hereby deleted in its entirety and replaced with the following:
“23.4    The insurance required to be purchased and maintained by Tenant pursuant to this Lease shall name Landlord, BioMed Realty, L.P., BRE Edison Parent L.P., and MBA-Rogers Street, LLC and their respective officers, directors, employees, agents, general partners, members, subsidiaries, affiliates and Lenders (“ Landlord Parties ”) as additional insureds.”
26.     Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than CB Richard Ellis-N.E. Partners (“ Broker ”), and agrees to reimburse, indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord, at Tenant’s sole cost and expense) and hold harmless the Landlord Indemnitees for, from and against any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it. Broker is entitled to a leasing commission in connection with the making of this Amendment, and Landlord shall pay such commission to Broker pursuant to a separate agreement between Landlord and Broker.
27.     No Default . Each of Landlord and Tenant represent, warrant and covenant to the other that, to the best of its knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Existing Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

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28.     Notice and Payment Addresses . Sections 2.6 , 2.7 , 2.8 , and 2.9 of the Original Lease are hereby deleted in their entirety and replaced with the following:
“2.6    Address for Rent Payment:    BMR-Rogers Street LLC
Attention Entity 635
P.O. Box 511415
Los Angeles, CA 90051-7970

2.7    Address for Notices to Landlord:    BMR-Rogers Street LLC
17190 Bernardo Center Drive
San Diego, CA 92128
Attn: Legal Department

2.8    Address for Notices to Tenant:    Momenta Pharmaceuticals, Inc.
675 West Kendall Street
Cambridge, Massachusetts 02142
Attn: Christopher Kiefer, Esq.

2.9    Address for Invoices to Tenant:    Momenta Pharmaceuticals, Inc.
675 West Kendall Street
Cambridge, Massachusetts 02142
Attn: Scott Storer

29.     Effect of Amendment . Except as modified by this Amendment, the Existing Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this Amendment and the Existing Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.
30.     Successors and Assigns . Each of the covenants, conditions and agreements contained in this Amendment shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns and sublessees. Nothing in this section shall in any way alter the provisions of the Lease restricting assignment or subletting.
31.     Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.
32.     Authority . Tenant guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed. Landlord guarantees, warrants and represents that the individual or individuals signing this Amendment have the power, authority and legal capacity to sign this Amendment on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf such individual or individuals have signed.
33.     Counterparts; Facsimile and PDF Signatures . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A facsimile or portable document format (PDF) signature on this Amendment shall be equivalent to, and have the same force and effect as, an original signature.
[Signature page follows]

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as a sealed Massachusetts instrument as of the date and year first above written.
LANDLORD :

BMR-ROGERS STREET LLC,
a Delaware limited liability company


By: /s/ William Kane
Name: William Kane
Title: Senior Vice President East Coast Leasing

TENANT :

MOMENTA PHARMACEUTICALS, INC.,
a Delaware corporation


By: /s/ Scott Storer
Name: Scott Storer
Title: CFO


 


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EXHIBIT A-1
BINNEY PREMISES
[See attached]


















































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EXHIBIT A-2
PLAN OF BENT PREMISES (FIRST FLOOR)
[See attached]
 

























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EXHIBIT B-2
BINNEY WORK LETTER
This Binney Work Letter (this “ Binney Work Letter ”) is made and entered into as of the 24th day of July , 2017, by and between BMR-ROGERS STREET LLC, a Delaware limited liability company (“ Landlord ), and MOMENTA PHARMACEUTICALS, INC., a Delaware corporation (“ Tenant ”), and is attached to and made a part of that certain Fourth Amendment to Lease dated as of July 24 , 2017 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the “ Amendment ”), by and between Landlord and Tenant for the Premises located on the fourth (4th) floor of the building at 301 Binney Street in Cambridge, Massachusetts. All capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease.
1.     General Requirements .
1.1.     Authorized Representatives .
(a)    Landlord designates, as Landlord’s authorized representative (“ Landlord’s Authorized Representative ”), (a) Salvatore Zinno as the person authorized to initial plans, drawings, approvals and to sign change orders pursuant to this Binney Work Letter, and (b) an officer of Landlord as the person authorized to sign any amendments to this Binney Work Letter, the Amendment or the Lease. Tenant shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by the appropriate Landlord’s Authorized Representative. Landlord may change either Landlord’s Authorized Representative upon one (1) business day’s prior written notice to Tenant.
(b)    Tenant designates Robert Vasallo (“ Tenant’s Authorized Representative ”) as the person authorized to initial and sign all plans, drawings, change orders and approvals pursuant to this Binney Work Letter. Landlord shall not be obligated to respond to or act upon any such item until such item has been initialed or signed (as applicable) by Tenant’s Authorized Representative. Tenant may change Tenant’s Authorized Representative upon one (1) business day’s prior written notice to Landlord.
1.2     Schedule . The schedule for design and development of the Binney Tenant Improvements, including the time periods for preparation and review of construction documents, approvals and performance, shall be in accordance with a schedule to be prepared by Tenant (the “ Binney Schedule ”), which Binney Schedule shall be an estimate of such time periods and shall be extended as reasonably necessary as provided herein (provided, however, that in no event shall any such extension of time periods in the Binney Schedule change the Binney Term Commencement Date, the Binney Premises Term, or the Binney Rent Commencement Date unless mutually agreed upon in writing by the parties or pursuant to a provision of this Binney Work Letter. Tenant shall prepare the Binney Schedule so that it is a reasonable schedule for the completion of the Binney Tenant Improvements. The Binney Schedule shall clearly identify all activities requiring Landlord participation, including specific dates and time periods when Tenant’s contractor will require access to areas of the Project outside of the Binney Premises. As soon as the Binney Schedule is completed, Tenant shall deliver the same to Landlord for Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Such Schedule shall be approved or disapproved by Landlord within ten (10) business days after delivery to Landlord. Landlord’s failure to respond within such ten (10) business day period shall be deemed approval by Landlord. If Landlord disapproves the Schedule, then Landlord shall notify Tenant in writing of its objections to such Schedule, and the parties shall confer and negotiate in good faith to reach agreement on the Schedule. The Schedule shall be subject to adjustment as mutually and reasonably agreed upon in writing by the parties or as expressly provided in this Binney Work Letter.
1.3     Tenant’s Architects, Contractors and Consultants . The architect, engineering consultants, design team, general contractor and subcontractors responsible for the construction of the Binney Tenant Improvements shall be selected by Tenant, which selection shall be provided to Landlord and approved by Landlord, which approval Landlord shall not unreasonably withhold, condition or delay. Landlord hereby approves each of the following: Perkins +Will, Inc. (architect), Cardinal Construction Company, Inc. (contractor), AHA Consulting

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Engineers, Inc., WSP/Parsons Brinkerhoff, and R.G. Vanderweil (engineering), Robert W. Sullivan, Inc. (engineering) and McNamara – Salvia (structural engineering). Landlord may refuse to use any architects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony or may not have sufficient experience, in Landlord’s reasonable opinion, to perform work in an occupied Class “A” laboratory research building. All Tenant contracts related to the Binney Tenant Improvements shall provide that Tenant may assign such contracts and any warranties with respect to the Binney Tenant Improvements to Landlord.
2.     Binney Tenant Improvements . All Binney Tenant Improvements shall be performed by Tenant’s contractor, at Tenant’s sole cost and expense (subject to Landlord’s obligations with respect to any portion of the Binney TI Allowance) and in accordance with the Approved Plans (as defined below), the Lease and this Work Letter. To the extent that the total projected cost of the Binney Tenant Improvements (as projected by Landlord) exceeds the Binney TI Allowance (such excess, the “ Excess TI Costs ”), Tenant shall pay the costs of the Binney Tenant Improvements on a pari passu basis with Landlord as such costs become due, in the proportion of Excess TI Costs payable by Tenant to the Binney TI Allowance payable by Landlord. If the cost of the Binney Tenant Improvements (as projected by Landlord) increases over Landlord’s initial projection, then Landlord may notify Tenant and Tenant shall pay any additional Excess TI Costs in the same way that Tenant pays the initial Excess TI Costs. If Tenant fails to pay, or is late in paying, any sum due to Landlord under this Work Letter, then Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including the right to interest and the right to assess a late charge), and for purposes of any litigation instituted with regard to such amounts the same shall be considered Rent. All material and equipment furnished by Tenant or its contractors as the Binney Tenant Improvements shall be new or “like new;” the Binney Tenant Improvements shall be performed in a first-class, workmanlike manner; and the quality of the Binney Tenant Improvements shall be of a nature and character not less than the Building Standard. Tenant shall take, and shall require its contractors to take, commercially reasonable steps to protect the Premises during the performance of any Binney Tenant Improvements, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage. All Binney Tenant Improvements shall be performed in accordance with Section 17 of the Lease; provided that, notwithstanding anything in the Lease or this Work Letter to the contrary, in the event of a conflict between this Work Letter and Section 17 of the Lease, the terms of this Work Letter shall govern.
2.1.     Binney Work Plans . Tenant shall prepare and submit to Landlord for approval schematics covering the Binney Tenant Improvements prepared in conformity with the applicable provisions of this Work Letter (the “ Draft Binney Schematic P lans”). Landlord agrees that, at the election of Tenant, the Binney Tenant Improvements shall include, inter alia , the installation of an internal staircase between the fourth (4 th ) and fifth (5 th ) floors of the Binney Building, which shall be subject to Landlord’s review and approval in accordance with this Work Letter; provided , however, that Tenant shall remove such internal staircase and restore the Premises and the fifth (5 th ) floor to substantially the same condition as existed prior to the installation thereof at Tenant’s sole cost and expense upon the expiration of this Lease or the earlier termination thereof, unless (i) Tenant requests in writing Landlord’s consent to leave the internal staircase not later than nine (9) months before the expiration of the term of this Lease, and (ii) Landlord consents to such request, in its sole discretion, within sixty (60) days after receipt thereof. The Draft Binney Schematic Plans shall contain sufficient information and detail to accurately describe the proposed design to Landlord and such other information as Landlord may reasonably request. Landlord shall notify Tenant in writing within ten (10) business days after receipt of the Draft Binney Schematic Plans whether Landlord approves or objects to the Draft Binney Schematic Plans and of the manner, if any, in which the Draft Binney Schematic Plans are unacceptable. Landlord’s failure to respond within such ten (10) business day period shall be deemed approval by Landlord. If Landlord reasonably objects to the Draft Binney Schematic Plans, then Tenant shall revise the Draft Binney Schematic Plans and cause Landlord’s objections to be remedied in the revised Draft Binney Schematic Plans. Tenant shall then resubmit the revised Draft Binney Schematic Plans to Landlord for approval, such approval not to be unreasonably withheld, conditioned or delayed. Landlord’s approval of or objection to revised Draft Binney Schematic Plans and Tenant’s correction of the same shall be in accordance with this Section until Landlord has approved the Draft Binney Schematic Plans in writing or been deemed to have approved them. The iteration of the Draft Binney Schematic Plans that is approved or deemed approved by Landlord without objection shall be referred to herein as the “ Approved Binney Schematic Plans .”

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2.2.     Binney Construction Plans . Tenant shall prepare final plans and specifications for the Binney Tenant Improvements based upon the Approved Binney Schematic Plans. As soon as such final plans and specifications (“ Binney Construction Plans ”) are completed, Tenant shall deliver the same to Landlord for Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. All such Binney Construction Plans shall be submitted by Tenant to Landlord in electronic .pdf, CADD and full-size hard copy formats, and shall be approved or disapproved by Landlord within ten (10) business days after delivery to Landlord. Landlord’s failure to respond within such ten (10) business day period shall be deemed approval by Landlord. If the Binney Construction Plans are disapproved by Landlord, then Landlord shall notify Tenant in writing of its objections to such Binney Construction Plans, and the parties shall confer and negotiate in good faith to reach agreement on the Binney Construction Plans. Promptly after the Binney Construction Plans are approved by Landlord and Tenant, two (2) copies of such Binney Construction Plans shall be initialed and dated by Landlord and Tenant, and forthwith thereafter Tenant shall submit such Binney Construction Plans to all appropriate Governmental Authorities for approval. The Binney Construction Plans so approved, and all change orders specifically permitted by this Binney Work Letter, are referred to herein as the “Approved Binney Plans.”
2.3.     Changes to the Binney Tenant Improvements . Any changes to the Binney Approved Plans (each, a “ Change ”) shall be requested and instituted in accordance with the provisions of this Section 2.3 and shall be subject to the written approval of the non-requesting party in accordance with this Binney Work Letter.
(a)     Change Request . Either Landlord or Tenant may request Changes after Landlord approves the Approved Plans by notifying the other party thereof in writing in substantially the same form as the AIA standard change order form (a “ Change Request ”), which Change Request shall detail the nature and extent of any requested Changes, including (a) the Change, (b) the party required to perform the Change and (c) any modification of the Approved Plans and the Schedule, as applicable, necessitated by the Change. If the nature of a Change requires revisions to the Approved Plans, then the requesting party shall be solely responsible for the cost and expense of such revisions and any increases in the cost of the Binney Tenant Improvements as a result of such Change. Change Requests shall be signed by the requesting party’s Authorized Representative.
(b)     Approval of Changes . All Change Requests shall be subject to the other party’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed. Landlord shall have a commercially reasonable basis for requesting a Change, including, without limitation, to facilitate coordination with the base Building. The non-requesting party shall have five (5) business days after receipt of a Change Request to notify the requesting party in writing of the non-requesting party’s decision either to approve or object to the Change Request. The non-requesting party’s failure to respond within such five (5) business day period shall be deemed approval by the non-requesting party.
2.4.     Preparation of Estimates . Tenant shall, before proceeding with any Change, using its best efforts, prepare as soon as is reasonably practicable (but in no event more than five (5) business days after delivering a Change Request to Landlord or receipt of a Change Request) an estimate of the increased costs or savings that would result from such Change, as well as an estimate of such Change’s effects on the Schedule. Landlord shall have five (5) business days after receipt of such information from Tenant to (a) in the case of a Tenant-initiated Change Request, approve or reject such Change Request in writing, or (b) in the case of a Landlord-initiated Change Request, notify Tenant in writing of Landlord’s decision either to proceed with or abandon the Landlord-initiated Change Request.
2.5.     Quality Control Program; Coordination . Tenant shall provide Landlord with information regarding the following (together, the “ QCP ”): (a) Tenant’s general contractor’s quality control program and (b) evidence of subsequent monitoring and action plans. The QCP shall be subject to Landlord’s reasonable review and approval and shall specifically address the Binney Tenant Improvements. Tenant shall ensure that the QCP is regularly implemented on a scheduled basis and shall provide Landlord with reasonable prior notice and access to attend all inspections and meetings between Tenant and its general contractor. At the conclusion of the Binney Tenant Improvements, Tenant shall deliver the quality control log to Landlord, which shall include all records of quality control meetings and testing and of inspections held in the field, including inspections relating to concrete, steel roofing, piping pressure testing and system commissioning.

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3.     Completion of Binney Tenant Improvements . Tenant, at its sole cost and expense (except for the Binney TI Allowance), shall perform and complete the Binney Tenant Improvements in all respects (a) in substantial conformance with the Approved Binney Plans, (b) otherwise in compliance with provisions of the Lease and this Work Letter and (c) in accordance with Applicable Laws, the requirements of Tenant’s insurance carriers, the requirements of Landlord’s insurance carriers (to the extent Landlord provides its insurance carriers’ requirements to Tenant) and the board of fire underwriters having jurisdiction over the Premises. The Binney Tenant Improvements shall be deemed completed at such time as Tenant shall furnish to Landlord (t) evidence satisfactory to Landlord that (i) all Binney Tenant Improvements have been completed and paid for in full (which shall be evidenced by the architect’s certificate of completion and the general contractor’s and each subcontractor’s and material supplier’s final unconditional waivers and releases of liens, each in a form acceptable to Landlord and complying with Applicable Laws, and a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the project architect and the general contractor, together with a statutory notice of substantial completion from the general contractor), (ii) any and all liens related to the Binney Tenant Improvements have either been discharged of record (by payment, bond, order of a court of competent jurisdiction or otherwise) or waived by the party filing such lien and (iii) no security interests relating to the Binney Tenant Improvements are outstanding, (u) all certifications and approvals with respect to the Binney Tenant Improvements that may be required from any Governmental Authority and any board of fire underwriters or similar body for the use and occupancy of the Binney Premises (including a certificate of occupancy for the Binney Premises for the Permitted Use), (v) certificates of insurance required by the Lease to be purchased and maintained by Tenant, (w) an affidavit from Tenant’s architect certifying that all work performed in, on or about the Binney Premises is in all material respects in accordance with the Approved Binney Plans as affected by approved Changes, (x) complete “as built” drawing print sets, project specifications and shop drawings and electronic CADD files on disc (showing the Binney Tenant Improvements as an overlay on the Binney Building “as built” plans (provided that Landlord provides the Binney Building “as-built” plans to Tenant) of all contract documents for work performed by their architect and engineers in relation to the Binney Tenant Improvements, (y) a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and approved by Landlord for all new or affected mechanical, electrical and plumbing systems (which report Landlord may hire a licensed, qualified commissioning agent to peer review, and whose reasonable recommendations Tenant’s commissioning agent shall perform and incorporate into a revised report) and (z) such other “close out” materials as Landlord reasonably requests consistent with Landlord’s own requirements for its contractors, such as copies of manufacturers’ warranties, operation and maintenance manuals and the like.
4.     Insurance .
4.1.     Property Insurance . At all times during the period beginning with commencement of construction of the Binney Tenant Improvements and ending with final completion of the Binney Tenant Improvements, Tenant shall maintain, or cause to be maintained (in addition to the insurance required of Tenant pursuant to the Lease), property insurance insuring Landlord and the Landlord Parties, as their interests may appear. Such policy shall, on a completed values basis for the full insurable value at all times, insure against loss or damage by fire, vandalism and malicious mischief and other such risks as are customarily covered by the so-called “broad form extended coverage endorsement” upon all Binney Tenant Improvements and the general contractor’s and any subcontractors’ machinery, tools and equipment, all while each forms a part of, or is contained in, the Binney Tenant Improvements or any temporary structures on the Binney Premises, or is adjacent thereto; provided that, for the avoidance of doubt, insurance coverage with respect to the general contractor’s and any subcontractors’ machinery, tools and equipment shall be carried on a primary basis by such general contractor or the applicable subcontractor(s). Tenant agrees to pay any deductible, and Landlord is not responsible for any deductible, for a claim under such insurance. Such property insurance shall contain an express waiver of any right of subrogation by the insurer against Landlord and the Landlord Parties, and shall name Landlord and its affiliates as loss payees as their interests may appear.
4.2.     Other Insurance . At all times during the period of construction of the Binney Tenant Improvements, Tenant shall, or shall cause its contractors or subcontractors to, maintain statutory workers’ compensation insurance as required by Applicable Laws and the other insurance set forth on Exhibit A-1 attached hereto.

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5.     Liability . As between Landlord and Tenant, Tenant assumes sole responsibility and liability for any and all injuries or the death of any persons, including Tenant’s contractors and subcontractors and their respective employees, agents and invitees, and for any and all damages to property caused by, resulting from or arising out of any act or omission on the part of Tenant, Tenant’s contractors or subcontractors, or their respective employees, agents and invitees in the prosecution of the Binney Tenant Improvements. Tenant agrees to indemnify, save, defend (at Landlord’s option and with counsel reasonably acceptable to Landlord) and hold the Landlord Indemnitees harmless from and against all Claims due to, because of or arising out of any and all such injuries, death or damage, whether real or alleged, and Tenant and Tenant’s contractors and subcontractors shall assume and defend at their sole cost and expense all such Claims; provided , however , that nothing contained in this Work Letter shall be deemed to indemnify or otherwise hold Landlord harmless from or against liability caused by the negligence or willful misconduct of Landlord, its agents, contractors or employees. Any deficiency in design or construction of the Binney Tenant Improvements shall be solely the responsibility of Tenant, notwithstanding the fact that Landlord may have approved of the same in writing.
6.     Binney TI Allowance .
6.1.     Application of Binney TI Allowance . Landlord shall contribute the Binney TI Allowance toward the costs and expenses incurred in connection with the performance of the Binney Tenant Improvements, in accordance with Section 5 of the Third Amendment of the Lease. If the entire Binney TI Allowance is not applied toward or reserved for the costs of the Binney Tenant Improvements, then Tenant shall not be entitled to a credit of such unused portion of the TI Allowance. If the entire Excess TI Costs advanced by Tenant to Landlord are not applied toward the costs of the Binney Tenant Improvements, then Landlord shall promptly return such excess to Tenant following completion of the Binney Tenant Improvements. Tenant may apply the Binney TI Allowance for the payment of construction and other costs in accordance with the terms and provisions of the Lease.
6.2.     Approval of Budget for the Binney Tenant Improvements . Notwithstanding anything to the contrary set forth elsewhere in this Binney Work Letter or the Amendment, Landlord shall not have any obligation to expend any portion of the Binney TI Allowance until Landlord and Tenant shall have approved in writing the budget for the Binney Tenant Improvements (the “ Binney Approved Budget ”). Prior to Landlord’s approval of the Binney Approved Budget, Tenant shall pay all of the costs and expenses incurred in connection with the Binney Tenant Improvements as they become due. Landlord shall not be obligated to reimburse Tenant for costs or expenses relating to the Binney Tenant Improvements that exceed the amount of the Binney TI Allowance. Landlord shall not unreasonably withhold, condition or delay its approval of any budget for Binney Tenant Improvements that is proposed by Tenant.
6.3.     Fund Requests . Upon submission by Tenant to Landlord of (a) a statement (a “ Fund Request ”) setting forth the total amount of the Binney TI Allowance requested, (b) a summary of the Binney Tenant Improvements performed using AIA standard form Application for Payment (G 702) executed by the general contractor and by the architect, (c) invoices from the general contractor, the architect, and any subcontractors, material suppliers and other parties requesting payment with respect to the amount of the Binney TI Allowance then being requested, and (d) except with respect to the final Fund Request, conditional lien releases from the general contractor and each subcontractor and material supplier with respect to the Binney Tenant Improvements performed that correspond to the Fund Request each in a form reasonably acceptable to Landlord and complying with Applicable Laws, then Landlord shall, within thirty (30) days following receipt by Landlord of a Fund Request and the accompanying materials required by this Section, pay to Tenant (for reimbursement for payments made by Tenant to such contractors, subcontractors or material suppliers), the amount of Tenant Improvement costs set forth in such Fund Request or Landlord’s pari passu share thereof if Excess TI Costs exist based on the Approved Budget; provided , however , that Landlord shall not be obligated to make any payments under this Section until the budget for the Binney Tenant Improvements is approved in accordance with Section 6.2 , the schedule is approved in accordance with Section 1.2 , the applicable architect, engineering consultants, design team, general contractor and subcontractors for which payment is sought have been approved in accordance with Section 1.3 , and the Draft Schematic Plans or Construction Plans, as applicable, have been approved in accordance with Section 2.1 or Section 2.2 , as applicable. Further, any Fund Request under this Section shall be subject to the payment limits set forth in Section 6.2 above and Section 5 of the Third Amendment. Notwithstanding anything in this Section to the contrary,

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Tenant shall not submit a Fund Request more often than every thirty (30) days. Any additional Fund Requests submitted by Tenant shall be void and of no force or effect.
6.4.     Accrual Information . In addition to the other requirements of this Article 6 , Tenant shall, no later than the second (2nd) business day of each month until the Binney Tenant Improvements are complete, provide Landlord with an estimate of (a) the percentage of design and other soft cost work that has been completed, (b) design and other soft costs spent through the end of the previous month, both from commencement of the Binney Tenant Improvements and solely for the previous month, (c) the percentage of construction and other hard cost work that has been completed, (d) construction and other hard costs spent through the end of the previous month, both from commencement of the Binney Tenant Improvements and solely for the previous month, and € the date of Substantial Completion of the Binney Tenant Improvements.
7.     Miscellaneous .
7.1.     Incorporation of Lease Provisions . Sections 45.3 , 45.4 , 45.6 , 45.7 , 45.8 , 45.10-45.18 of the Lease are incorporated into this Work Letter by reference, and shall apply to this Work Letter in the same way that they apply to the Lease.
7.2.     General . Except as otherwise set forth in the Lease or this Work Letter, this Work Letter shall not apply to improvements performed in any additional premises added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise; or to any portion of the Premises or any additions to the Premises in the event of a renewal or extension of the Term, whether by any options under the Lease or otherwise, unless the Lease or any amendment or supplement to the Lease expressly provides that such additional premises are to be delivered to Tenant in the same condition as the Premises.

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B-2-6




IN WITNESS WHEREOF, Landlord and Tenant have executed this Binney Work Letter as of the date and year first above written.
LANDLORD :

BMR-ROGERS STREET LLC,
a Delaware limited liability company


By: /s/ William Kane
Name: William Kane
Title: Senior Vice President East Coast Leasing

TENANT :

MOMENTA PHARMACEUTICALS, INC.,
a Delaware corporation


By: /s/ Scott Storer
Name: Scott Storer
Title: CFO


 

B-2-7




EXHIBIT A-1
TENANT WORK INSURANCE SCHEDULE
Tenant shall be responsible for requiring all of Tenant contractors doing construction or renovation work to purchase and maintain such insurance as shall protect it from the claims set forth below which may arise out of or result from any Tenant Work whether such Tenant Work is completed by Tenant or by any Tenant contractors or by any person directly or indirectly employed by Tenant or any Tenant contractors, or by any person for whose acts Tenant or any Tenant contractors may be liable:
1.    Claims under workers’ compensation, disability benefit and other similar employee benefit acts which are applicable to the Tenant Work to be performed.
2.    Claims for damages because of bodily injury, occupational sickness or disease, or death of employees under any applicable employer’s liability law.
3.    Claims for damages because of bodily injury, or death of any person other than Tenant’s or any Tenant contractors’ employees.
4.    Claims for damages insured by usual personal injury liability coverage which are sustained (a) by any person as a result of an offense directly or indirectly related to the employment of such person by Tenant or any Tenant contractors or (b) by any other person.
5.    Claims for damages, other than to the Tenant Work itself, because of injury to or destruction of tangible property, including loss of use therefrom.
6.    Claims for damages because of bodily injury or death of any person or property damage arising out of the ownership, maintenance or use of any motor vehicle.
Tenant contractors’ Commercial General Liability Insurance shall include premises/operations (including explosion, collapse and underground coverage if such Tenant Work involves any underground work), elevators, independent contractors, products and completed operations, and blanket contractual liability on all written contracts, all including broad form property damage coverage.
Tenant contractors’ Commercial General, Automobile, Employers and Umbrella Liability Insurance shall be written for not less than limits of liability as follows:
d.    Commercial General Liability:
Bodily Injury and Property Damage
Commercially reasonable amounts, but in any event no less than $1,000,000 per occurrence and $2,000,000 general aggregate, with $2,000,000 products and completed operations aggregate.

B-2-8



d.    Commercial General Liability:
Bodily Injury and Property Damage

Commercially reasonable amounts, but in any event no less than $1,000,000 per occurrence and $2,000,000 general aggregate, with $2,000,000 products and completed operations aggregate.

b. Commercial Automobile Liability:
Bodily Injury and Property Damage
$1,000,000 per accident

c. Employer’s Liability:
Each Accident
Disease – Policy Limit
Disease – Each Employee

$500,000
$500,000
$500,000

d. Umbrella Liability:
Bodily Injury and Property Damage

Commercially reasonable amounts (excess of coverages a, b and c above), but in any event no less than $5,000,000 per occurrence / aggregate.

All subcontractors for Tenant contractors shall carry the same coverages and limits as specified above, unless different limits are reasonably approved by Landlord. The foregoing policies shall contain a provision that coverages afforded under the policies shall not be canceled or not renewed until at least thirty (30) days’ prior written notice has been given to the Landlord. Certificates of insurance including required endorsements showing such coverages to be in force shall be filed with Landlord prior to the commencement of any Tenant Work and prior to each renewal. Coverage for completed operations must be maintained for the lesser of ten (10) years and the applicable statue of repose following completion of the Tenant Work, and certificates evidencing this coverage must be provided to Landlord. The minimum A.M. Best’s rating of each insurer shall be A- VII. Landlord and its mortgagees shall be named as an additional insureds under Tenant contractors’ Commercial General Liability, Commercial Automobile Liability and Umbrella Liability Insurance policies as respects liability arising from work or operations performed, or ownership, maintenance or use of autos, by or on behalf of such contractors. Each contractor and its insurers shall provide waivers of subrogation with respect to any claims covered or that should have been covered by valid and collectible insurance, including any deductibles or self-insurance maintained thereunder.

If any contractor’s work involves the handling or removal of asbestos (as determined by Landlord in its sole and absolute discretion), such contractor shall also carry Pollution Legal Liability insurance. Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person; property damage, including physical injury to or destruction of tangible property (including the resulting loss of use thereof), clean-up costs and the loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation, adjustment or defense of claims for such damages. Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water. Claims-made coverage is permitted, provided the policy retroactive date is continuously maintained prior to the Binney Term Commencement Date, and coverage is continuously maintained during all periods in which Tenant occupies the Premises. Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate.


B-2-9



EXHIBIT C
ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE
AND TERM EXPIRATION DATE
( BINNEY PREMISES )

THIS ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE AND TERM EXPIRATION DATE is entered into as of [_______], 20[__], with reference to that certain Lease dated as of February 5, 2013, as amended by that certain First Amendment to Lease dated as of March 21, 2013, as further amended by that certain Second Amendment to Lease dated as of May 24, 2013, as further amended by that certain Third Amendment to Lease dated as of December 30, 2015, as further amended by that certain Fourth Amendment to Lease dated as of ___________________, 2017 (the “Fourth Amendment”) (as amended, the “Lease”), by MOMENTA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), in favor of BMR-ROGERS STREET LLC, a Delaware limited liability company (“Landlord”). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.
Tenant hereby confirms the following:
1.    Tenant accepted possession of the Binney Premises for use in accordance with the Binney Permitted Use on [_______], 20[__]. Tenant first occupied the Premises for the Permitted Use on [_______], 20[__].
2.    The Premises are in good order, condition and repair.
3.    All conditions of the Lease to be performed by Landlord as a condition to the full effectiveness of the Lease have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Premises.
4.    In accordance with the provisions of Section 4 of the Fourth Amendment, the Binney Term Commencement Date is [_______], 20[__], and, unless the Lease is terminated prior to the Binney Term Expiration Date pursuant to its terms, the Binney Term Expiration Date shall be [_______], 20[__].
5.    The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises.
6.    Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.
7.    The obligation to pay Rent is presently in effect and all Rent obligations on the part of Tenant under the Lease commenced to accrue on [_______], 20[__], with Base Rent payable on the dates and amounts set forth in the chart below:
Dates
Approximate Square Feet of Rentable Area
Base Rent per Square Foot of Rentable Area
Monthly Base Rent
Annual Base Rent
[__]/[__]/[__]-[__]/[__]/[__]
[ ]
$[_______]
[ ]
[ ]
8.    The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.
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C-1





IN WITNESS WHEREOF, Tenant has executed this Acknowledgment of Term Commencement Date and Term Expiration Date as of the date first written above.

TENANT:

MOMENTA PHARMACEUTICALS, INC.,
a Delaware corporation

By:                         
Name:                         
Title:                         
 

C-2




EXHIBIT N-1
BINNEY ROOFTOP INSTALLATION AREA
[See attached]

























C-3



A1STN1EXHIBITIMAGEA02.JPG

Confidential Treatment Requested by Momenta Pharmaceuticals, Inc.

Exhibit 10.2
Execution Version

September 28, 2017

Momenta Pharmaceuticals, Inc.
675 West Kendall Street
Cambridge, MA 02142
USA
Attn: Chief Executive Officer
                    
Re:
Collaboration and License Agreement dated June 13, 2007, as amended/Write-Off Amount
Dear Mr. Wheeler:

Reference is hereby made to the Collaboration and License Agreement entered into as of June 13, 2007, as amended and supplemented (the “ Agreement ”) by and between Sandoz AG (“ Sandoz ”) and Momenta Pharmaceuticals, Inc. (“ Momenta ”).
This letter agreement (this “ September 2017 Letter Agreement ”) has been prepared to confirm our recent discussions and reflect mutually agreed upon terms in accordance with the provisions set forth below. Capitalized terms used herein that are not otherwise defined in this September 2017 Letter Agreement shall have the meanings ascribed to them in the Agreement.

As of the date of this September 2017 Letter Agreement, Sandoz has incurred approximately $19,600,000 in connection with the buildup of commercial inventory of the 40mg strength of the Copaxone-Referenced Product (the “
Write-off Amount ”). The current estimate of the Write-off Amount is set forth in Exhibit A attached hereto. The JSC shall discuss any material changes of the Write-off Amount.

Launch of the 40mg strength of the Copaxone-Referenced Product on or before July 1, 2018

Notwithstanding any term or provision in the Agreement, the Parties hereby agree to delay including the Write-off Amount as a deduction in the Profit calculation for the Copaxone-Referenced Product until the Quarter in which the 40mg strength of the Copaxone-Referenced Product is Launched in the U.S. Territory. In the event the total Profit for such Quarter is zero as a result of including the Write-off Amount in the Profit calculation, the Parties agree that Momenta shall not be owed any Profit Interest for such Quarter. Furthermore, if the total Profit for such Quarter is negative as a result of including the Write-off Amount in the Profit calculation, then Momenta shall not be owed any Profit Interest for such Quarter, and Sandoz shall be permitted to carry-forward any remaining portion of the Write-off Amount to be included in the Profit calculation for the following Quarter, or any Quarter thereafter, until one hundred percent (100%) of the Write-off Amount has been accounted for in the Profit calculation(s).

Launch of 40mg strength of the Copaxone-Reference Product after July 1, 2018

Notwithstanding the foregoing and subject to the last sentence of this paragraph, if the 40mg strength of the Copaxone-Referenced Product does not Launch on or before July 1, 2018, then: (i) for each of the Quarters commencing on July 1, 2018, October 1, 2018, January 1, 2019 and April 1, 2019, Sandoz shall retain twenty percent (20%) of the Profit Interest for the Copaxone-Referenced Product otherwise owed to Momenta for each such Quarter and offset such amount against the portion of the Write-off Amount for which Momenta is responsible until Sandoz has recovered one hundred percent (100%) of the Write-off Amount for which Momenta is responsible; and (ii) for each Quarter commencing on or after July 1, 2019, Sandoz shall retain one hundred percent (100%) of the Profit Interest for the Copaxone-Referenced Product otherwise owed to Momenta for each such Quarter and offset such amount against the portion of the Write-off Amount for which Momenta is responsible until Sandoz has recovered one hundred percent (100%) of the Write-off Amount for which Momenta is responsible. In the event the 40mg strength of the Copaxone-Referenced Product Launches on a date after July 1, 2018, the payment mechanism set forth above in the paragraph “
Launch of the 40mg strength of the Copaxone-Referenced Product on or before July 1, 2018 ” shall govern the treatment of the Write-off Amount, and the payment mechanism set forth in (i) and (ii) in this Paragraph shall not be applicable.

1
Confidential Portions of this Exhibit marked as [***] have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

Confidential Treatment Requested by Momenta Pharmaceuticals, Inc.

September 28, 2017        
Page 2 of 4
 


If the foregoing is consistent with your understanding, then kindly sign below and return it to my attention. This September 2017 Letter Agreement may be executed in counterparts and by facsimile or electronically by PDF, each of which shall be an original, but all of which together shall constitute one instrument.

Sincerely,

SANDOZ AG

By:     /s/ Georg Rieder                     

Name:     Georg Rieder                         

Title:     Chief Financial Officer, Sandoz AG                 

Date:     Oct. 4, 2017                     


By:     /s/ Claudio Zamuner                     

Name:     Claudio Zamuner                     

Title:     Head Funds Flow Operations & IT, Sandoz AG             

Date:     Oct. 4, 2017                         



2

Confidential Portions of this Exhibit marked as [***] have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

Confidential Treatment Requested by Momenta Pharmaceuticals, Inc.

September 28, 2017        
Page 3 of 4
 

Accepted and Agreed:

MOMENTA PHARMACEUTICALS, INC.    

By:     /s/ Craig A. Wheeler                         

Name:    Craig A. Wheeler    

Title:    President and Chief Executive Officer    





3

Confidential Portions of this Exhibit marked as [***] have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

Confidential Treatment Requested by Momenta Pharmaceuticals, Inc.

September 28, 2017        
Page 4 of 4

 

Exhibit A

Estimated Write-Off Amount


[***]

4
Confidential Portions of this Exhibit marked as [***] have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.


Exhibit 31.1
 
CERTIFICATION
 
I, Craig A. Wheeler, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Momenta Pharmaceuticals, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c)        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Dated: November 1, 2017
/s/ Craig A. Wheeler
 
Craig A. Wheeler
 
President and Chief Executive Officer





Exhibit 31.2
 
CERTIFICATION
 
I, Scott M. Storer, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Momenta Pharmaceuticals, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)        Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c)        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Dated: November 1, 2017
/s/ Scott M. Storer
 
Scott M. Storer
 
Senior Vice President and Chief Financial Officer





Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
 
AS ADOPTED PURSUANT TO
 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report on Form 10-Q of Momenta Pharmaceuticals, Inc. (the “Company”) for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Craig A. Wheeler, President and Chief Executive Officer of the Company, and Scott M. Storer, Senior Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
 
(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated: November 1, 2017
/s/ Craig A. Wheeler
 
Craig A. Wheeler
 
President and Chief Executive Officer
 
 
Dated: November 1, 2017
/s/ Scott M. Storer
 
Scott M. Storer
 
Senior Vice President and Chief Financial Officer