2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company’s accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods. The Company’s condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, the Company’s audited consolidated financial statements for the year ended December 31, 2012, which were included in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or SEC, on February 28, 2013. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

The accompanying condensed consolidated financial statements reflect the operations of the Company and the Company’s wholly-owned subsidiary Momenta Pharmaceuticals Securities Corporation. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, and share-based payments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

Net Loss Per Common Share

The Company computes basic net loss per common share by dividing net loss by the weighted average number of common shares outstanding, which includes common stock issued as a result of public offerings, stock option exercises, stock purchased under the Company’s employee stock purchase plan and vesting of shares of restricted common stock. The Company computes diluted net loss income per common share by dividing net loss by the weighted average number of common shares and potential shares from outstanding stock options and unvested restricted stock determined by applying the treasury stock method.

The following table presents anti-dilutive shares for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Weighted-average anti-dilutive shares related to:
Outstanding stock options	5,152	3,877	4,840	3,512
Restricted stock awards	979	1,033	938	983

Since the Company had a net loss for all periods presented, the effect of all potentially dilutive securities is anti-dilutive. Accordingly, basic and diluted net loss per share is the same for the three and six months ended June 30, 2013 and 2012. Anti-dilutive shares comprise the impact of the number of shares that would have been dilutive had the Company had net income plus the number of common stock equivalents that would be anti-dilutive had the Company had net income. Furthermore, performance-based restricted common stock awards which vest based upon U.S. Food and Drug Administration, or FDA, approval for M356 in the United States were excluded from diluted shares outstanding as the vesting condition had not been met as of June 30, 2013.

Fair Value Measurements

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices (adjusted), interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The fair value hierarchy level is determined by the lowest level of significant input. Financial assets measured at fair value on a recurring basis are summarized as follows (in thousands):

Description	Balance as of June 30, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	22,361	$	22,361	$	—	$	—
Marketable securities:
U.S. Government-sponsored enterprise obligations	53,793		—		53,793		—
Corporate debt securities	119,801		—		119,801		—
Commercial paper obligations	66,634		—		66,634		—
Foreign government bonds	33,418		—		33,418		—

Total	$	296,007	$	22,361	$	273,646	$	—

Description	Balance as of December 31, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	47,940	$	47,940	$	—	$	—
Marketable securities:
U.S. Government-sponsored enterprise obligations	51,225		—		51,225		—
Corporate debt securities	158,913		—		158,913		—
Commercial paper obligations	65,138		—		65,138		—
Foreign government bonds	12,337		—		12,337		—

Total	$	335,553	$	47,940	$	287,613	$	—

During the three and six months ended June 30, 2013, there were no transfers between Level 1 and Level 2 financial assets. The Company did not have any non-recurring fair value measurements on any assets or liabilities at June 30, 2013 and December 31, 2012. The carrying amounts reflected in the Company’s condensed consolidated balance sheets for cash, accounts receivable, unbilled revenue, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

Cash, Cash Equivalents and Marketable Securities

The Company invests its cash in bank deposits, money market accounts, corporate debt securities, United States treasury obligations, commercial paper and United States government-sponsored enterprise securities in accordance with its investment policy. The Company has established guidelines relating to diversification and maturities that allow the Company to manage risk.

The Company invests its excess cash balances in short-term and long-term marketable debt securities. The Company classifies its investments in marketable debt securities as available-for-sale based on facts and circumstances present at the time it purchased the securities. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in interest income. To determine whether an other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if it does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. The Company reviewed its investments with unrealized losses and concluded that no other-than-temporary impairment existed at June 30, 2013 as it has the ability and intent to hold these investments to maturity and it is not more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. The Company did not record any impairment charges related to its marketable securities during the three and six months ended June 30, 2013 and 2012. The Company’s marketable securities are classified as cash equivalents if the original maturity, from the date of purchase, is 90 days or less, and as marketable securities if the original maturity, from the date of purchase, is in excess of 90 days. The Company’s cash equivalents are composed of money market funds.

The Company’s financial assets have been initially valued at the transaction price and subsequently valued at the end of each reporting period, typically utilizing third-party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches, and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by its third-party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. The Company did not adjust or override any fair value measurements provided by its pricing services as of June 30, 2013 and December 31, 2012.

The following tables summarize the Company’s cash, cash equivalents and marketable securities at June 30, 2013 and December 31, 2012 (in thousands):

As of June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and money market funds	$	26,514	$	—	$	—		$	26,514
U.S. Government-sponsored enterprise obligations
Due in one year or less	11,002		7		—			11,009
Due in two years or less	42,806		5		(27		)	42,784
Corporate debt securities
Due in one year or less	100,796		6		(47		)	100,755
Due in two years or less	19,070		1		(25		)	19,046
Commercial paper obligations due in one year or less	66,560		74		—			66,634
Foreign government bonds
Due in one year or less	31,788		29		(1		)	31,816
Due in two years or less	1,602		—		—			1,602
Total	$	300,138	$	122	$	(100	)	$	300,160

Reported as:
Cash and cash equivalents	$	26,514	$	—	$	—		$	26,514
Marketable securities	273,624		122		(100		)	273,646

Total	$	300,138	$	122	$	(100	)	$	300,160

As of December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and money market funds	$	52,990	$	—	$	—		$	52,990
U.S. Government-sponsored enterprise obligations
Due in one year or less	6,000		—		—			6,000
Due in two years or less	45,195		30		—			45,225
Corporate debt securities
Due in one year or less	76,500		19		(11		)	76,508
Due in two years or less	82,363		72		(30		)	82,405
Commercial paper obligations due in one year or less	65,104		34		—			65,138
Foreign government bonds
Due in one year or less	7,390		—		(1		)	7,389
Due in two years or less	4,950		—		(2		)	4,948

Total	$	340,492	$	155	$	(44	)	$	340,603

Reported as:
Cash and cash equivalents	$	52,990	$	—	$	—		$	52,990
Marketable securities	287,502		155		(44		)	287,613

Total	$	340,492	$	155	$	(44	)	$	340,603

At June 30, 2013 and December 31, 2012, the Company held 31 and 28 marketable securities, respectively, that were in a continuous unrealized loss position for less than one year. At June 30, 2013 and December 31, 2012, no marketable securities were in a continuous unrealized loss position for greater than one year.

The unrealized losses were caused by fluctuations in interest rates. The following table summarizes the aggregate fair value of these securities at June 30, 2013 and December 31, 2012 (in thousands):

	As of June 30, 2013					As of December 31, 2012
	Aggregate Fair Value		Unrealized Losses			Aggregate Fair Value		Unrealized Losses
U.S. Government-sponsored enterprise obligations	$	21,781	$	(27	)	$	—	$	—
Corporate debt securities	$	80,226	$	(72	)	$	83,529	$	(41	)
Foreign government bonds	$	8,282	$	(1	)	$	8,445	$	(3	)

Income Taxes

The Company generated U.S. taxable income during the years ended December 31, 2011 and 2010, and as a result, utilized $190.9 million and $26.3 million, respectively, of its available federal net operating loss carryforwards to offset this income. At December 31, 2012, the Company had federal and state net operating loss carryforwards of $41.4 million and $34.4 million, respectively, available to reduce future taxable income and which will expire at various dates through 2032. Of this amount, approximately $12.1 million of federal and state net operating loss carryforwards relate to stock option deductions for which the related tax benefit will be recognized in equity when realized. At December 31, 2012, the Company had federal and state research and development and other credit carryforwards of $4.9 million and $4.6 million, respectively, available to reduce future tax liabilities and which will expire at various dates beginning in 2017 through 2032.

As of December 31, 2012 and 2011, the Company had $2.9 million and $2.8 million of gross unrecognized tax benefits, respectively, of which $2.8 million and $2.7 million, respectively, if recognized, would not impact the Company’s effective tax rate as there is a full valuation allowance on these credits.

Comprehensive Loss

Comprehensive loss is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. Comprehensive loss includes net loss and the change in accumulated other comprehensive income (loss) for the period. Accumulated other comprehensive income (loss) consists entirely of unrealized gains and losses on available-for-sale marketable securities for all periods presented. See the unaudited condensed consolidated statements of comprehensive loss for relevant disclosures.

The following tables summarize the changes in accumulated other comprehensive income (loss) during the three and six months ended June 30, 2013 (in thousands):

	Unrealized Gains (Losses) on Securities Available for Sale
Balance as of March 31, 2013	$	46
Other comprehensive income (loss) before reclassifications	(24		)
Amounts reclassified from accumulated other comprehensive income (loss)	—
Net current period other comprehensive income (loss)	(24		)
Balance as of June 30, 2013	$	22

	Unrealized Gains (Losses) on Securities Available for Sale
Balance as of December 31, 2012	$	111
Other comprehensive income (loss) before reclassifications	(86		)
Amounts reclassified from accumulated other comprehensive income (loss)	(3		)
Net current period other comprehensive income (loss)	(89		)
Balance as of June 30, 2013	$	22

The amounts reclassified from accumulated other comprehensive income (loss) represents realized gains on sales of marketable securities and are included in interest income in the consolidated statement of comprehensive loss.